Opposition to Reynolds’ energy bill is growing

As the Legislature focuses on budget negotiations, the Governor’s omnibus energy bill ( House File 834, Senate File 585 ) appears to be trouble. That is a very good thing for ratepayers.

A rapidly growing collection of voices and organizations are coming out against the bill, including a group of former Utilities Commission members; a broad swath of business groups; the AARP; and even communities that could see franchise fee revenue cut.

While the transmission right of first refusal (or ROFR) portion of the bill has received the most attention, it is increasingly clear that nearly every portion of the energy bill would favor Alliant and MidAmerican shareholders over Iowa households, businesses, farms, and towns.

Former Utility Commission members call for halt

A group of five former Iowa Utilities Board/Commission members have signed a letter expressing opposition to the bill.

The letter focuses on an element of ratemaking called “Return on Equity.” ROE is essentially the level of profit that regulators grant to Alliant and MidAmerican on major generation and grid projects. The higher the ROE, the higher the returns to shareholders, and the higher the rates for electric customers.

The former regulators say that nationwide, investor-owned utility ROE levels have been rising relative to market returns and other indexes in recent decades. Higher ROEs unfairly benefit shareholders over ratepayers, especially given the fact that the investor-owned utilities are state sanctioned monopolies not subject to competitive market forces.

Iowa ROEs, the regulators explain, have been even higher thanks to unique rules that have allowed “premium” returns as high as 11-12%. The current bill, say the regulators, perpetuates and even expands the types of projects eligible for these “premium” ROEs, when what consumers really need for rate relief is for ROEs to come down.

The regulators state“ We commend legislators for taking ratemaking reform seriously. To address the ROE issue (and its intersection with Integrated Resource Planning processes and ARP dockets) in a manner that protects ratepayers, pausing the current legislation in favor of further analysis may be the better part of wisdom.”

Business groups and AARP join in opposition

The impacts of high ROE and rising rates will impact Iowa businesses as well as households.

According to Bob Rafferty of Iowa Business for Clean Energy, “this is the first year that a wide group of business advocates have united in opposition to energy legislation.” In addition to IBCE, those groups include the Iowa Business Energy Coalition, the National Federation of Independent Business, the Iowa Economic Alliance, and the Iowa Retail Federation, among others.

Importantly, the American Association of Retired Persons (AARP Iowa) has also registered opposition to the energy bill, as have a number of faith groups such as the Episcopal Diocese of Iowa and the Iowa Conference of the United Methodist Church.

These groups understand and oppose the expansion of high ROEs and rising rates baked into the energy bill. They also oppose a section of the bill covering “integrated resource planning,” or IRP, that will similarly advantage shareholders over ratepayers.

IRP should be a robust process where consumers and regulators are able to ensure that utilities are pursing the most cost-effective projects that meet the needs of ratepayers and Iowa’s grid. This strong oversight is important, because high ROEs incentivize utilities to invest in costly and potentially unnecessary projects. The more the monopoly utility spends, the more they earn for shareholders (which, of course, all comes directly from ratepayer pockets).

Instead, the energy bill fails to provide meaningful oversight of utility resource planning, and “the utility has carte blanche to insert any investment it wants into the final IRP,” says Rafferty.

It is increasingly clear to the business community that the combination of unreasonably high ROEs and a weak IRP process could result in deca­­­des of electric rates rising much faster than inflation. In fact, analysis by Rafferty’s group shows that ratepayers could lose well over $200 million per year with the Governor’s bill, versus a bill with stronger IRP and ROE provisions.

Communities opposed to franchise fee cuts

Iowa cities are also increasingly worried about the energy bill.

Iowa allows cities served by investor-owned utilities to impose franchise fees up to 5%. The revenue generated is used for management of city rights of way used by the utilities, and related authorized purposes. An amendment being discussed among legislators and lobbyists could cap the franchise fee at 3%.

“The potential capping of franchise fees is a cynical proposal,” states Jim Martin-Schramm, Policy Analyst for the Clean Energy Districts of Iowa. “While franchise fees appear on bills, they are not part of utility rates. They’re simply a mechanism some communities use to cover utility and infrastructure related costs.”

“Of course lowering franchise fees would lower bills a bit, but it’s a dishonest smoke screen,” says Martin-Schramm. “It’s a cover for utilities to continue raising rates to profit utility shareholders, at the expense of small-town budgets.”

It is increasingly clear to everyone from Iowa’s former regulators, to the business community, to Iowa’s seniors and cities that pretty much everything in the governor’s energy bill will favor monopoly utility shareholders and hurt Iowa consumers and communities.

The bill can’t be fixed. It is time for legislators to walk away, and to work seriously with all these stakeholders on bill that truly serves Iowa ratepayers and communities next session.

Andrew Johnson is executive director of the Clean Energy Districts of Iowa, and farms grass-fed livestock and Christmas trees with his family in Winneshiek County.