Energy Independence in Iowa Redux
by Paul Deaton
If 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,
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, “
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development costs of the withdrawn Sutherland 4 power plant.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.
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.
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
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