Written by Andrew Johnson, Executive Director, and James Martin-Schramm, Policy Analyst at Clean Energy Districts of Iowa
View the original article at cleanenergydistricts.org
“Know when to walk away … Know when to run.”
Kenny Rogers (and songwriter Don Schlitz) had it right – “every hand’s a winner, and every hand’s a loser.” The “secret to surviving” is knowing what to throw, what to keep, and most importantly, when to walk away.
Legislators beware: sixty plus years of nuclear ratepayer robbery (among other forms) is coming to an Iowa community near you, if you don’t re-write or walk away from the Governor’s omnibus energy bill.
The Governor says that her energy bill (HF 834 and SF 585) is a “forward-focused, all-of-the-above energy strategy” for Iowa.
The bill is an all-of-the-above strategy for sure: it is a suite of practices that all will lead to rising rates for Iowa households, businesses, farms, and communities, and empower rising profits for Alliant and MidAmerican monopolist executives and shareholders.
Legislators who choose to represent Iowa ratepayers and communities need to rewrite the bill, or walk away from it now.
Three major changes to the bill would help protect ratepayers from rent-seeking monopolists locking in a generation of rates rising faster than inflation.
- Ensure ironclad transparency and participation rights by making Integrated Resource Planning (IRP) a contested docket.
- Clearly disallow Advanced Cost Recovery (also termed Construction Work In Progress, or CWIP) for ALL monopoly utility investments.
- Remove premium rates of return from Advanced Ratemaking Principle dockets, and ensure that the Rate of Return equals the Cost of Capital for ALL utility investments.
We use the cautionary tale of nuclear to illustrate these points, but they apply to all utility capital investments. They are the bare minimum required to rebalance the risk/benefit equation between Iowa ratepayers and monopoly utility executives and shareholders.
Nuclear Ratepayer Robbery Coming To Iowa?
The energy bill specifically encourages utilities to propose and regulators to approve new nuclear power generation plants in Iowa – even if the power is for export to other states, and paid for by Iowa ratepayers.
Nuclear may well play an increasingly important role in the clean energy future. But everyone in the industry knows that every new nuclear plant is going to be exorbitantly expensive for at least a decade, even before the massive cost overruns that have plagued recent projects.
This is attractive to the captains of Alliant and MidAmerican, because the more they spend, the more they make for their shareholders. Both companies are already drooling over the possibility of state-guaranteed, near-predatory rates of returns over 60-80 years on tens of billions in nuclear plant investments.
It is possible to go down a nuclear path with strong ratepayer protections, but this bill is not that path. In fact, we’ve been here before. In 2012, HF 561 would have encouraged nuclear in Iowa, awarded Advanced Cost Recovery, gutted regulator oversight in planning, and transferred almost all risk from utility investors to ratepayers. Thank goodness consumer protection groups like AARP kept that door closed.
What happened to Georgia ratepayers should give pause to legislators trying to open it again. The only new nuclear plant to be built this century is the Vogtle Plant, which shows us what nuclear ratepayer robbery looks like:
- Approved by regulators in 2009, the two Vogtle nuclear reactors were scheduled to be operational by 2017, at a nearly unimaginable cost of $14 billion.
- After endless cost overruns, construction failures, and contractor bankruptcies, the first reactor powered up in 2023 and the second in 2024, at a combined cost of at least $35 billion.
- Georgia Power ratepayers have been paying for the plant on their bills since 2011, and in fact most had paid over $1,000 to the utility before ever receiving a single kilowatt hour of electricity.
- Ratepayers shouldered most of the risk of massive cost overruns, and are now forced to buy some of the most expensive electricity in the country for the next 60-80 years.
The current energy bill could well bring this story to Iowa.
Thou Shalt Protect Ratepayers
Many say the monopoly investor-owned utilities are already too big to regulate. Their armies of financial and legal experts out-resource the regulators, and their lobbying money captures the political process (as in, the bill we’re talking about).
If Iowa legislators want to protect ratepayers rather than facilitate shareholder entitlement, they would do well to remember that God didn’t tell Moses, “Please be nice and don’t take each other’s things.” No, he (or she) laid down the law, and said, “Thou Shalt Not Steal.”
Tweaking the current bill is like a mosquito bite on Goliath. Legislators need to lay down a law that tells regulators, “Thou Shalt Protect Ratepayers,” and give them tools to do so.
Integrated Resource Planning (IRP) can be a meaningful process that helps create a strong electric grid while keeping rates down by ensuring ratepayers only pay for what they really need. Or, it can be an inside job of rigging the system to guarantee high profits to company shareholders, at the expense of ratepayers, as happened in Georgia.
The Governor’s bill gives away the farm. It allows the monopoly utilities to develop IRPs based on “management judgement,” and requires only a “good faith effort” to consider input from ratepayers, stakeholders, the Consumer Advocate, and the Utilities Commission.
To avoid opening the door to endless ratepayer taxation without representation, legislators need to establish the IRP process as a contested docket, and to provide additional ratepayer rights and protections.
Advanced Cost Recovery, also known as Construction Work in Progress, or CWIP, allowed Georgia Power to force ratepayers to pay for the nuclear boondoggle for over a decade before they saw any benefit. CWIP directly contradicts the long-standing best practice in ratemaking that utility assets must be “used and useful” before costs are included in rates.
CWIP isn’t only a concern for nuclear investments. MidAmerican Energy has just submitted an Advanced Ratemaking Principles docket application for 800 MW of solar, which includes a requested 11.25% return on equity for the project as a whole, and what looks very much like a 10% effective return on equity during CWIP.
In analyzing HF 561 in 2011, Iowa Utilities Board staff warned that the bill “would shift nearly all of the construction, licensing, and permitting risk associated with one or more nuclear plants from the company to its customers”, and “could create incentives for the company to engage in behavior that could be contrary to the public interest in certain situations.”
Whether solar or nuclear or other investments are a good deal for ratepayers should be decided in a robust IRP process, and shareholders must shoulder risks together with ratepayers. Regardless of the investment, ratepayers should not be funding shareholder returns prior to receiving the benefits of utility investments, and legislators should enshrine this principle in the current energy bill.
Finally, serious legislators should also address the biggest elephant in the room when it comes to 50 years of increasing monopoly utility profiteering on the backs of ratepayers: highway robbery levels of Return on Equity (ROE).
Warren Buffet is indeed a genius … to a large degree because he is a monopolist. His MidAmerican Energy and counterpart Alliant Energy have been feeding from the trough of regulator-approved ROE levels with no connection to risk level or rate fairness for decades.
The regulatory compact inherent in the state granting monopoly service territories and captive customers to private companies is built on a fundamental principle: that the Rate of Return (ROR) on utility investments should equal the Cost of Capital (COC) invested by shareholders.
Unreasonably high ROEs are draining tens of millions of dollars per year from Iowa ratepayers and communities. Legislators should enshrine the principle that utility Rate of Return = Cost of Capital, and clearly direct regulators to implement the principle in all ratemaking rules and dockets.
These ratemaking reforms are all important, because rate regulation is a bit like whack-a-mole: if the regulatory framework is weak and incomplete, the utilities will find the loopholes and continue to enrich shareholders at the expense of ratepayers and communities, because that is their job.
Ensure Ratepayers Are Winners, Or Walk Away
Well over a million Iowa ratepayers are captive customers of the state’s two monopoly investor-owned electric utilities, Alliant and MidAmerican.
The state creates tremendous moral hazard in granting those exclusive monopolies, which are not subject to competitive market forces.
In exchange, the state owes ratepayers and non-utility stakeholders ironclad protections against rent-seeking behavior, and a powerful seat at the table of rate regulation.
Despite the best intentions of well-informed legislators, the current energy bill fails on both counts. Legislators are gambling with the future of Iowa ratepayers and communities.
It’s a tall order, but the legislators hold the cards to dramatically improve the bill. Barring that, they should walk away sooner rather than later.
–
Andrew Johnson is Executive Director of the Clean Energy Districts of Iowa, and a family farmer in Winneshiek County.
James Martin-Schramm is Senior Policy Analyst for the Clean Energy Districts of Iowa and led the “CEDI Coalition” that included 50 Alliant-served communities in the recent Alliant rate increase docket, RPU-2023-0002.
