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Iowa utility’s rate hike would fall hardest on smallest users, critics say


closeup of a utility bill


PHOTO BY Brendan Wood / Flickr / Creative Commons

Environmental groups say Interstate Power & Light’s proposed rate increase would punish solar and efficiency.

Iowa environmental groups are accusing a utility of designing its latest rate hike to discourage customers from conserving or generating their own power.

Interstate Power & Light is seeking a rate increase and restructuring to cover the cost of recent and upcoming investments in wind farms, nuclear power, smart meters, coal plant pollution controls, and grid upgrades. The utility serves about 490,000 customers in a territory covering about two-thirds of Iowa.

“This rate review seeks to recover the costs of projects we’ve made and are planning to make to add clean energy and to strengthen the energy grid in Iowa,” Interstate spokesperson Justin Foss said.

The company says it’s invested about $2 billion since the end of 2017 to advance clean energy and upgrade its power grid, including 1,000 megawatts of new wind resources expected to come online in 2020. It’s asking the Iowa Utilities Board to approve $204 million in additional annual revenue.

The criticism by environmental groups has focused on the structure of the rate increases, which they say will land hardest on customers who use the least amount of power from the utility. 

“It seems really clear to us that these rate changes are just designed to undercut the economics of distributed generation for customers,” said Kerri Johannsen, energy program director for the Iowa Environmental Council.

Interstate wants to increase fixed monthly fees from $11.50 to $13 for residential customers and from $19 to $20 for business customers. It also wants to expand the use of declining block rates, in which customers pay less per kilowatt-hour as consumption increases. 

The declining block rate structure is currently used in winter months only. Interstate says expanding them to summer as well would reduce “billing differentials between the summer and winter season.” The utility proposes charging about 13.5 cents per kWh for each of the first 500 kWh, approximately 11.5 cents for each of the next 700 kWh, and 9.4 cents for any kWh beyond 1200.

Karl Rábago, an energy consultant and former Texas utility commissioner, estimates that an Interstate customer using 756 kWh per month would pay $11.39 more per month for electricity, with $10.92 of that attributable to the increased cost of the first 500 kWh.

“It’s like an additional fixed customer charge,” he wrote in testimony filed on behalf of environmental groups. “Low users of energy bear the brunt of costs assigned to the residential class and high users receive discounted rates and an incentive to use even more. … The rates proposed by the company significantly diminish the benefits that customers can realize through efficient use of energy.”

The utility also wants to offer customers another option that it says would provide customers with “additional certainty regarding their monthly bill.” It’s a static monthly charge that would be calculated based on the previous year’s consumption. At the end of 12 months, the utility would recalculate the monthly fee to reflect an increase or decrease from the previous year.

Like several other proposed rate changes, Johannsen said, it “would have a negative impact on energy efficiency and undermine the economic price signals that would lead customers to want to save energy.”

Clean energy advocates are even more concerned about changes Interstate wants to make in how it calculates what customers pay toward transmission and energy efficiency services. Interstate proposes to apply the fees to both any energy the customer buys off the grid as well as any energy the customer generates and sends to the grid. The fees would not apply to power that a customer simultaneously generated and consumed.

“They are choosing to do this netting on an hourly basis for generating customers so they can reduce the value of their generation,” Rabago said. “It’s an attack on self-generation.”

The utility estimates that the changes it wants to make in calculating the energy-efficiency and transmission riders will, on average, add $11.81 to the monthly bill of a residential customer with solar panels, and between $62 and $82 monthly for larger business and institutional customers with solar arrays.

Josh Mandelbaum, an attorney with the Environmental Law & Policy Center who has scrutinized the rate case, predicts that the higher fees “would have a really negative impact on solar customers.”

In her testimony, Johannsen wrote that the fee changes “are significant and permanent changes to [Interstate Power & Light’s] net metering policy that would significantly reduce the value of net metered energy.”

She also noted that state regulators a couple years ago stated that they wanted the state’s utilities to adopt policies that would lead to increased distributed generation and net metering, and that changes in policies likely to impact net metering should not be made until some net metering pilot projects are completed, about a year from now.

The changes Interstate wishes to make “will have the opposite effect and will discourage [distributed generation] adoption by increasing the payback period for solar installations,” she wrote in testimony.

State regulators will conduct a hearing on the case in early October, and make a ruling after they’ve reviewed all testimony, exhibits and closing briefs.

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ENN Contributor's picture

Thank ENN for the Post!

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Matt Chester's picture
Matt Chester on Sep 17, 2019 12:56 pm GMT

A good example of how any type of rate cases must be analyzed and vetted fully for equitability & potential unintended consequences

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