Iowa’s large energy users want electricity choice. Here’s how that works in four other states

A coalition of Iowa’s large energy users wants the option of buying electricity on the open market rather than from MidAmerican Energy and Alliant Energy.

A spokesman for the coalition — its members want to be anonymous — said allowing large energy users, such as tech companies, manufacturers and agricultural processors, to shop around for electricity generation will help Iowa retain these firms and recruit new ones.

“We believe it will spur competition and improve decision making and therefore improve energy costs for everyone,” said R.G. Schwarm, executive director of the Iowa Economic Alliance and a lobbyist with BrownWinick Law in Des Moines, in an interview.

The alliance has been talking with Iowa lawmakers and staff at the Iowa Economic Development Authority and hopes legislation in the upcoming session will touch on electricity choice for large energy users, Schwarm said.

Twenty states, including Iowa, require customers to buy their electricity and natural gas from utilities set for their geographic region. The other states allow some energy choice, either for electricity, natural gas or both, according to the American Coalition of Competitive Energy Suppliers.

Four states — California, Georgia, Oregon and Virginia — have hybrid systems in which large companies, but not other customers, may buy energy generation on the open market. That’s the system the Iowa Economic Alliance wants.

The Gazette talked with people in each state to see how it works there.

California

California started allowing all customers to buy electricity from alternative providers in 1996. Frank Lindh, retired general counsel for the California Public Utilities Commission and an energy lawyer for more than 30 years, remembers going to farmers markets in 1999 or 2000 and seeing small power companies trying to woo California homeowners.

“You could sign up with the individual seller or stay with your utility,” he said.

But in 2000 and 2001, Enron and other large energy suppliers created an artificial shortage of energy, which caused traders to sell power at prices that sometimes reached more than 20 times their normal value.

Skyrocketing prices and multiple large-scale blackouts caused California to return to a regulated market for all electricity consumers except large energy users. California now has a Direct Access Program, but only a limited number of commercial customers are allowed to enroll each year.

“It was like we did a big experiment, but we didn’t experiment with a pilot project,” Lindh said.

Georgia

Georgia has been allowing new businesses with consistent demand of 900 kilowatts or greater to select their electricity supplier since 1973.

“When a large energy user either is coming to Georgia for the first time, they have an option to engage a lot of different energy providers. They get to make a choice,” said Dan Matisoff, an associate professor in the School of Public Policy at the Georgia Institute of Technology.

While 900 kilowatts might have been a large energy user in the 1970s, now it’s more like a mid-sized business, such as a grocery store, he said.

When Facebook decided to build a data center in Georgia in 2018, the company chose Walton Electric Membership Corporation, a consumer-owned utility, rather than Georgia Power, the larger investor-owned utility in the area, Matisoff said. The decision was made in part because of Walton’s commitment to solar energy, the Walton reported.

When Georgia Trend interviewed investor-owned utilities and smaller coops in 2015 about giving large energy users electricity choice, the groups said they thought it was an important tool for economic development.

Oregon

Through Oregon’s Direct Access, started in 2002, commercial and industrial customers that used more than 30 kilowatts of electricity per month in the previous year may buy electricity on the wholesale market. While the new service provider handles generation and transmission, the local utility continues to distribute the power.

Oregon has a cap for Direct Access participation within the two large investor-owned utilities, which limits participation.

Bob Jenks, executive director of the Oregon Citizens Utility Board, said there have been ongoing issues deciding which grid expenses large energy users must continue to pay.

“The regulators have to come in and all of those costs get disputed about whether they are stranded or not stranded, pass-through or not pass through,” Jenks said in December. “We passed our law in 1999 and it’s 2022 and we’re still having fights over those issues.”

Virginia

Virginia allows industrial or commercial customers whose energy demand exceeded 5 megawatts in the most recent year to buy electricity from any licensed supplier.

Any customer — including homeowners — may buy electricity from a company other their geographically-assigned utility when the competitor is selling 100 percent renewable energy and the incumbent isn’t, a spokesman from the State Corporation Commission for the Commonwealth of Virginia said in an email.

In this situation the commission must approve a petition from the customer and find that the switch is in the public interest and won’t harm other retail customers.

If Virginia companies want to return to their incumbent utility, they have to give notice five years in advance to provide the incumbent time to plan for adding a large energy user back to the grid.

What Iowa’s large energy users want

Iowa’s large energy users want to shop around for electricity generation, which means instead of buying power from Alliant or MidAmerican they could choose a provider in another part of the state or the Midwest. The incumbent utilities still would provide transmission and distribution.

One big question is how smaller customers — like households — would fare if large energy users left the investor-owned utilities. Schwarm said the proposal, first outlined in September, calls for the companies to pay for costs associated with their leaving.

“We think it’s very important other customers, whether residential or small commercial, not be impacted by this legislation. We would have the mechanism where those costs would be contested case proceedings before the Iowa Utilities Board.”

The Iowa Utility Association, which represents Alliant, MidAmerican, Black Hills Energy, ITC Midwest and NextEra Energy Resources, said the alliance proposal would leave smaller customers to shoulder the ongoing cost of generation.

“Their proposal dismantles the current system to benefit a select few customers while shifting costs and risks to others,” Utility Association Executive Director Chaz Allen said.

Allen said he’s not aware of any Iowa legislative proposals yet that would provide electricity choice for large energy users. A working group convened by the Iowa Economic Development Authority did talk about “innovative rates that could be offered to certain customers to meet specific goals that would not adversely impact other customers,” he said.

Schwarm said alliance members don’t want to be named publicly because of fear of retribution from investor-owned utilities. But the group likely includes tech companies with data centers in Iowa, large retailers, manufacturing companies and agricultural processors.

Advice from other states

Energy experts in other states offered advice to Iowa or any state considering allowing energy choice for the first time.

“If I were creating a program today, I’d definitely have full consumer choice,” said Georgia’s Matisoff.

Along with allowing all electricity customers to shop around, Iowa lawmakers and regulators should require utilities to invest more in the grid so there’s less of a chance of a breakdown like Texas had during an ice storm in February 2021, he said.

Jenks, from Oregon, thinks utilities should be focused on reducing greenhouse gas emissions rather than competing for the business of large energy users.

“My general belief is trying to change the structure of your energy utilities right now is a distraction,” he said. “The real challenge our energy system has right now is dealing with climate change.”

Lindh, from California, says any state considering allowing energy choice for large customers should first do a pilot project with just a few companies. Regulators also should make sure there are enough unrelated wholesale electricity providers to ensure real competition.

“If somebody wants to sell that program in Iowa, look what happened in California,” he said. “Experience is a great teacher.”

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