The cost of things: Why energy bills in Iowa keep growing

Electricity bills bolster infrastructure, wind development

July 14, 2019 | 10:22 pm
A bank of smart meters, one for each unit, is installed at Monroe Place in Cedar Rapids on Wednesday, Dec. 12, 2018. (Liz Martin/The Gazette)
Chapter 1:

It’s safe to say few consumers enjoy seeing their energy rates go up.

But when Alliant Energy officials in February announced plans for electric and natural gas rate increases that would add $20 per month to the average residential bill, more than a few customers were concerned.

Alliant — which delivers power to close to a half-million electric customers and another 225,000 natural gas customers — just one year earlier got approval for a nearly 8 percent increase in electric rates.

About this series

With the most recent rate increase by Alliant Energy for Iowa customers, The Gazette decided to take a look at the cost of energy in Iowa — namely with the state’s two investor-owned energy providers.

This report kicks off a three-part series on the cost of services in Iowa.

• Part 1: Energy

• Part 2: Water

• Part 3: Internet services

While Alliant officials say the new increase — which would be applied to the base rate portion of a customer’s bill — is necessary for infrastructure upgrades and the cost of bolstering the utility’s stock of wind turbines, some customers just see dollar signs.

“Energy costs are really a major drain on Iowa communities and customers ... as rates go up, that drain gets bigger,” said Andy Johnson, co-founder and executive director of Winneshiek Energy District in Decorah. “Rate increases are a really big hit to local economics and pocketbooks and balance sheets. It matters, it matters a whole heck of a lot.”

Terry Kouba, senior vice president of Alliant Energy, said the recent rate increase is aimed at covering the utility’s investment in wind energy.

While that translates to an increase in base rates now, Kouba said customers should witness lower energy costs as those wind turbines continue to come online.

“If we would not have invested in 1,000 megawatts of wind, our projections would be that customer costs would have increased even faster over time,” he said. “We’ve done a nice job being very competitive with our rates.”

 

The price of power

Annual reports filed with the Iowa Utilities Board detail how much an Alliant customer pays for a kilowatt-hour of energy compared to MidAmerican Energy, a subsidiary of Berkshire Hathaway Energy and the state’s other major investor-owned energy provider.

Alliant’s roughly 15.3 cents per kWh in 2017 for a residential customer was about 45 percent more than the approximately 10.5 cents per kWh charged by MidAmerican that year, according to filings.

In addition to the state’s two investor-owned providers, Iowa also is home to more than 130 municipal utilities and 45 rural electric cooperatives.

The 2017 cost per kilowatt-hour for municipal utilities, for example, ranged from about 7 cents per kilowatt-hour in Greene County’s Paton to more than 16 cents per kilowatt-hour in Coggon, according to state filings.

Costs on the rise

Family-budget costs rose 41 percent in six years

From electricity to water to broadband internet, the cost of services often are on the rise.

But while the price of services, housing and health care see almost annual increases, those expenses often outpace Iowans' income.

United Way's 2018 Asset-Limited, Income-Constrained, Employed — ALICE — report, found the statewide cost of a family budget increased by 41 percent from 2010 to 2016, to more than $56,000 for a family of four.

That's more than four times as much as the national rate of inflation, which was about 9 percent, over that time period.

In the same span, the Iowa Data Center reports that the median household income increased about 17 percent, from about $48,000 to $56,300.

A 2018 Iowa Policy Project Cost of Living in Iowa report found that nearly 100,000 Iowa working households — about 227,000 people in total — do not earn enough to meet “a basic-needs, no-frills, self-sufficiency budget.”

While the Iowa Policy Project report focuses on working households, the ALICE report took a look at all Iowa households.

The ALICE report found that 457,044 Iowa households, or 37 percent of the state's total, were unable to meet basic needs. That marked a considerable increase from 31 percent of households in 2016.

The report found that about 12 percent of Iowa's households live below the Federal Poverty Level and an additional 25 percent — while considered above the poverty threshold — are unable to cover basic expenses such as housing, food, transportation and health and child care.

According to energy marketplace organization ElectricChoice — which serves customers in deregulated markets but collects data on energy costs in all states — the average electricity rate for residential customers in Iowa was 13.81 cents per kWh last June.

That’s more than the average rate for nearby states such as Illinois (12.56 cents) and South Dakota (12.39 cents). Other states, including Wisconsin (14.28 cents) and Minnesota (14.09 cents), saw a higher average cost of energy.

In Iowa, Alliant and MidAmerican energy rates are regulated by the Iowa Utilities Board — a three-member board appointed by the governor.

The Iowa Utilities Board makes the final decision on any rate request. The board is scheduled to meet on Oct. 7-9 to discuss Alliant’s electric rate increase and again on Nov. 4-5 for the utility’s natural gas rate increase.

As a regulated state, utilities are granted jurisdictions to operate their business, while the board is tasked with ensuring that utilities are reasonably price, reliable, safe and environmentally responsible.

According to Iowa Code, the board must determine that the request is “reasonable and just.”

This has caused frustrations for some customers facing a rate increase, however, as there is no choice when it comes to their energy provider.

“There is no competitor for Alliant Energy, therefore these choices are forced upon us, we really don’t have a say,” Cedar Rapids resident Shawn Fintel said during a May public meeting in Cedar Rapids on the utility’s proposed rate increase.

Tim Whipple, general counsel with the Iowa Association of Municipal Utilities, said increased rates isn’t always a bad thing and often reflects upgrades to infrastructure to meet safety and reliability needs.

“Since what you’re doing is setting your rate to the level to recover your costs, if your costs are not going up, it may be because you’re not making the kinds of investments in your system that you need to make and it may be degrading,” Whipple said.

Not including rate increases made earlier this year, Alliant has filed five rate cases — three for electric and two for natural gas — over the past decade, according to information provided by the Iowa Utilities Board.

MidAmerican has filed two electric cases in the span, including one that was phased in over three years.

 

So why different costs?

A standard electricity bill includes several items, including a base service charge for the actual meter and administrative and service costs. An energy charge covers a customer’s actual energy usage and costs associated with distribution and the power grid.

Additional charges on a bill can pertain to other factors such as energy efficiencies, transmission costs or taxes.

Items like transmission costs are determined annually, while the cost of fuel is adjusted every month.

“It’s the cost of doing business, that’s what it’s all about,” said Kathryn Kunert, vice president of economic connections and integration with MidAmerican Energy. “There’s a lot of things that go into it, but I would say we just make sure we manage our business and make sure that the dollar we’re spending today brings the value tomorrow.”

But why are the rates so different between the state’s two investor-owned utilities?

Ultimately, both companies operate on their own business models, said Don Tormey, Iowa Utilities Board spokesman.

“There are many factors that go into setting rates based on the evidence provided in each case, and no two utilities will have the same rate structure or rate design,” Tormey said in an email.

Officials with MidAmerican and Alliant said they generally don’t comment on competitors or their rates.

“Our job is to make sure we’re going to have as competitive rates we possibly can and that’s what we’re working on every day,” Kouba said.

Rate increases over past decade

• 2009: Alliant requested a $146 million annual increase for electric services. The state approved about $84 million, or 57 percent of the request.

• 2010: Alliant sought a $149.9 million annual increase for electric services. The state approved about $115 million, or 77 percent of the request.

• 2012: MidAmerican asked for a $76 million annual increase for electric services. The state approved 100 percent of the request.

• 2012: Alliant requested about $14.8 million annual increase for natural gas services. The state approved $10.5 million, or 71 percent of the request.

• 2013: MidAmerican asked for a $135.5 million increase — phased in over three years — for electric services. The state approved 100 percent of the request.

• 2017: Alliant sought a $168 million annual increase for electric services. The state gave the nod for $130 million, or 77 percent of the request.

• 2018: Alliant requested about $19.8 million annual increase for natural gas services. The state approved about $14 million, or 70 percent of the request.

One notable difference between the two is in transmission expenses — or the cost of distribution such as power lines.

MidAmerican, which operates its own transmission services, spent about $71 million on transmission expenses in 2017. Alliant Energy, which contracts with ITC Midwest for transmission services, spent more than $313 million that year.

Also in 2017, transmission expenses accounted for about 1.8 cents per kWh for Alliant customers — yet only .2 cents per kWh for MidAmerican customers, according to data filed with the Iowa Utilities Board.

All told, Iowa Utilities Board data for 2017 show both companies had a comparable net operating income in 2017, with MidAmerican at about 2 cents per kilowatt-hour that year, compared to a little less than 1.7 cents per kilowatt-hour for Alliant.

Whipple, with the Iowa Association of Municipal Utilities, said the cost of power can often be attributed to the structure of that provider, such as the number of customers and miles of service lines.

“You’ve got to be collecting revenue sufficient to provide all the power that your customers demand and meet all of your contractual obligations for maintaining the system,” he said. “You’re going to design your rates in order to fairly recover those costs.”

A large-scale provider, for example, benefits from having big energy users, such as data centers, to collect major revenue on a single meter, whereas a rural provider might be running miles of transmission line to reach a single residential customer, Whipple noted.

“If you can serve a huge load at one site and one meter, it’s a lot different from trying to build out lines and meters to 200 farmers,” he said.

 

Across Iowa, Illinois and South Dakota, MidAmerican operates more than 29,000 miles of power lines to serve 783,000 customers — making for about 27 customers per mile of power line.

Between Wisconsin and Iowa, Alliant serves about 965,000 customers with 42,600 miles of electric lines, amounting to about 23 customers per mile of power line.

In addition, neither utility has shied away from their status as investor-owned companies and commitment to shareholders.

“It’s no secret, it’s public information,” Alliant’s Kouba said during the May public hearing. “That’s very common, very much in line with utilities.”

Financial statements show Alliant’s shareholder equity — or net value — grew from about $4.23 billion in March 2018 to $4.68 billion in March of this year — about 10 percent.

MidAmerican financial statements show the company’s shareholder equity grew from $5.87 billion in March 2018 to about $6.64 billion in March of this year, a roughly 13 percent increase.

Officials with both providers said they don’t have any additional rate increases planned for the near future.

But while investments in renewables — MidAmerican also has leaned heavily into wind-turbine development — are expected to bring a customer’s energy fuel costs down, chances are slim that savings will ever outweigh other costs to the point that a customer’s bill decreases.

“I don’t see that happening,” MidAmerican’s Kunert said. “What it helps do is offset other costs that could potentially be going up.”

• Comments: (319) 398-8309; mitchell.schmidt@thegazette.com

Read Part 2 of our series on the rising cost of water rates