by Paul DeatonIf the pursuit of energy independence in Iowa devolves into an us versus them showdown between the electrical utilities on one side and concerned citizens on the other, our hope for achieving this goal may be diminished. Each side has an interest in Iowa becoming energy independent. What remains most challenging is finding the common ground where we can meet and progress towards an energy policy that would be better for Iowa. It is challenging to see the middle ground.
We should not expect the power companies to initiate any reconciliation. For them, it is about earnings. Ryan Steensland, spokesperson for Iowa Power and Light was quoted by the Minneapolis-Saint Paul Star Tribune regarding the cancellation of the Sutherland 4 power plant in Marshalltown. "At the end of the day it's economic condition, uncertainly regarding future regulatory and legislative treatment of environmental issues, meaning greenhouses gases." Steensland continued, "It [the Iowa Utilities Board's rate making decision] would have made it very challenging to attract the capital necessary to build these types of investments. The cost and the return laid out by the board just did not whet the appetite of the investment community to move forward with this project."
Twelve days after announcing cancellation of plans for the Marshalltown power plant, Alliant Energy asked the Iowa Utilities Board for an 18 percent rate increase. According to the Cedar Rapids Gazette, "The company's Interstate Power & Light utility says much of the amount is needed to cover costs of restoring its power operations from the record floods of June 2008, and from the ice storms of 2007. It also wants to recover funds invested in improving the reliability of its power system, and pass on higher transmission costs."
There is also the purported $50 million Iowa Power and Light wants to recover for the development costs of the withdrawn Sutherland 4 power plant. In the end, utility customers will pay for that as well.
A rate increase of this amount is regressive, because it affects the lowest economic group in society. At the same time, the average $175 per year increase in utility rates would be a bargain for middle class families if the problems of the energy companies related to diversification of electricity sourcing and creating a "smart" electrical grid were being resolved permanently. However, based upon Iowa Power and Light's public statement, this is not the case.
When Iowa Power and Light talks about passing along higher transmission costs it is a Trojan horse for consumers. In 2007, when Alliant Energy sold its transmission system to ITC Holdings Corp, it did so as part of the deregulation of electric utilities and to focus on its core competencies. What is less well known is that the electricity the transmission system delivers at its "nodes" on the grid will become the basis for a new form of financial investment instrument to be traded on a commodities exchange called the "Nodal Exchange."
There is nothing sinister about commodities exchanges of themselves, as they represent a method for electric utilities to manage basis and credit risk in purchasing electricity from the grid. What is troublesome for consumers is that commodities markets have led to higher prices when there has been excessive speculation in the derivatives of the indexes produced on such exchanges. The "higher transmission costs" referred to by Iowa Power and Light could be exacerbated if these new commodities and derivatives markets are not adequately regulated.
It is feasible that there could be speculation in the electricity transmission markets similar to what happened in crude oil markets last year when oil prices increased dramatically because of the speculation of a number of large financial institutions. If that happens again, electricity prices to Alliant could be higher than the 18% increase currently being sought.
**ACTION ALERT - MAKE A PUBLIC COMMENT**
These issues are complicated to understand or write about in a short blog post and we must rely on the Iowa Utilities Board to represent our interests. I encourage you to make a public comment to the Iowa Utilities Board on Docket Number RPU-2009-0002. Ask them to consider the potential risk of higher prices to consumers based on the sale of Alliant's transmission grid to ITC Holdings and the emerging financial market as represented by the Nodal Exchange. Their charge should be to ensure that Alliant Energy is not merely adding rates to support a problem they helped create through the divestment of their transmission lines.
~Paul Deaton is a native Iowan living in rural Johnson County. E-mail Paul Deaton
