Interstate Power Co. Rate CaseMEMORANDUM
May 17, 2002
TO:
FROM:
SUBJECT:
The Honorable Mayor and City Council Members
Michael C. Van Milligen, City Manager
Iowa Utilities Board
I have additional information for Agenda Item #5 under Action Items related to the
Interstate Power and Light Company Rate Case.
Mr. Ivan Weber of the Ahlers Law Firm in Des Moines can represent the City. This is
the same firm the City uses for bond counsel and for environmental matters.
Mr. Weber recommended the City hire agood economist to perform an analysis of the
information generated by Alliant, and the economist prepare testimony related to the
rate study or equalization study. He recommended we contact Michael Sheehan, an
activist economist who has a Ph.D. and specializes in utility work.
MCVM/jh
CC:
Michael C. Van Milligen
Barry Lindahl, Corporation Counsel
Cindy Steinhauser, Assistant City Manager
Jeanne Schneider, City Clerk
MEMORANDUM
May 15, 2002
TO:
FROM:
SUBJECT:
The Honorable Mayor and City Council Members
Michael C. Van Milligen, City Manager
Interstate Power and Light Company Rate Case
On March 29, 2002, Interstate Power and Light Company, a wholly owned subsidiary of
Alliant Energy Company, filed with the Iowa Utilities Board (the Board) a request to
increase its Iowa electric rates and charges by an average of approximately 9.6%. This
would increase annual company revenues by an estimated $82,088,000.
On Apd118, 2002, the Community Coalition for Rate Fairness filed an objection
requesting that the Board reject Interstate Power's application for an increase in
temporary and permanent electric rates. The Community Coalition contends that
Interstate Power's filing for an electric rate increase does not comply with Board rules
because there is no class cost-of-service study to support Interstate Power's rate design
proposal, which is to apply a uniform percentage increase across all geographic rate
zones.
Interstate Power filed an answer to the Community Coalition objection with the Board on
April 25, 2002 arguing that the Iowa Code does not require a class cost-of-service study
in the initial rate case filing if no changes to rate design are proposed.
The Board has ordered Interstate Power to file a class cost-of-service rate design and
rate consolidation case by no later than July 31, 2002.
The Iowa components of Interstate Power and Light Company are currently divided into
three zones: Alliant Energy--IPC, Alliant Energy lES--South and Alliant Energy lES--
North. The City of Dubuque falls in the IPC zone, and the residential rate is 8:2¢.
Cedar Rapids is in the lES--North zone, and its residential rate is 10.6¢. Burlington,
Ottumwa and Newton fall in the lES--South zone, and their residential rate is 6.7¢. As
you can see, strict equalization of rates, with the intent of significantly increasing
revenues, could raise the Dubuque residential electrical rate from 8.2¢ to 10.6¢, a
29.3% increase.
The existence of these three separate zones is the result of mergers over the years.
Any move by the Iowa Utility Board to equalize rates does not recognize the fact that
these other companies had lower rates prior to the mergers, and therefore also made
less investment in their systems. Even with the three merged companies, that
imbalance in investments continues to exist. For instance, Alliant Energy has released
information that it invested $1.9 billion in Iowa since 1998. It further has released
information that its investment in Dubuque has been only $37,290,000 since 1998 (less
than 2% of their total investment), and its planned investments in Dubuque over the
next five years are only $6.1 million. Equalizing rates to cause a huge increase for
Dubuque residents would have those Dubuque residents paying for past investments in
other areas by the companies before they merged, and over $1.5 billion in investments
in areas other than Dubuque since 1998.
Utility rate cases are a very specialized area of the law. I respectfully recommend that
the Mayor and City Council authorize me to retain legal counsel who specializes in rate
case or Iowa Utility Board work to represent the City of Dubuque in this rate case to
ensure that our community's interests are represented as this process moves forward.
Michael C. Van Milligen
MCVM/jh
Attachment
cc: Barry Lindahl, Corporation Counsel
Cindy Steinhauser, Assistant City Manager
Three rate zones
22
Iowa residential price comparison
25
10
9
8
7
6
5
4
3
2
1
0
Cedar Rapids
Marshalltown
Keokuk
Ft. Madison
Spirit Lake
Daven port
iowa City
Bettendorf
Fort Dodge
Coralville
i
6.7¢ -
Des Moines
Council Bluffs
Oskaloosa
MidAm
Sioux City
Waterloo
Carroll
Storm Lake
LeMars
Charles City
MidAm
Dubuque
Clinton
Mason City
Clear Lake
Decomh
O¢lw¢in
nergy-IPC
Burlington
Ottumwa
Newton
Grinnell
Creston
Centerville
Chariton
Washington
Columbus Junction
Alliflnt Energy's omm~tment to
Dubuque
Since 1998, we've
ered to bring...
*$9.9 million in electric system
investments
· $5.8 million in tax revenue
· $17.5 million in economic
development partnerships
· $3.5 million in the historic
redevelopment of Cornerstone Apt.
· $590,000 in charitable donations
$1.9 billion in Iowa investments
Since 1998, Alliant Energy has partnered with
its Iowa communities to bring:
· $825 million in electric system investments
· $466 million in economic development partnerships
· $193 million in tax revenue
· $20 million in affordable housing projects
· $2 million in charitable donations
~~:~ ~;~;~ ~ ~glliant par of new Y~Slink'~
~ ~Transmlssion Company LLC
STATE OF IOWA
DEPARTMENT OF COMMERCE
UTILITIES BOARD
IN RE:
INTERSTATE POWER AND LIGHT
COMPANY
DOCKET NO. RPU-02-3
ORDER GRANTING APPLICATION, DENYING OBJECTION, IN PART,
REQUIRING ADDITIONAL INFORMATION, AND
SCHEDULING CONSUMER COMMENT HEARINGS
(Issued May 3, 2002)
On April 15, 2002, Interstate Power and Light Company (Interstate Power)
filed with the Utilities Board (Board) an "Application for Authority Pursuant to Section
476.6(10)." Interstate Power asks that the Board authorize the filing of a class cost-
of-service study, rate design plan, and rate rebalancing proposal in a separate
proceeding. Currently, Interstate Power has on file a pending electric rate case,
identified as Docket No. RPU-02-3, that applies a uniform percentage across-the-
board approach to allocate the proposed revenue increase. However, Interstate
Power recognizes in its filing that its current rates reflect a disparity in prices for
customers in different geographic zones. These different rates are in place due to
various mergers that have occurred.
In its application, Interstate Power states it will file its class cost-of-service
study, rate design, and rebalancing application no later than July 31, 2002. Board
approval for such a filing, however, is necessary because Iowa Code § 476.10
DOCKET NO. RPU-02-3
PAGE 2
restricts Interstate Power from filing a new electric rate case within 12 months from
the date of filing Docket No. RPU-02-3, or until a final order is issued in that docket.
whichever is earlier, without Board approval. Interstate Power states that the
Consumer Advocate Division of the Department of Justice (Consumer Advocate) has
no objection to granting the requested relief.
On April 18, 2002, the Community Coalition for Rate Fairness (Community
Coalition) filed an objection requesting that the Board reject Interstate Power's
application for an increase in temporary and permanent electric rates. The
Community Coalition contends that Interstate Power's filing for an electric rate
increase does not comply with Board rules, because there is no class cost-of-service
study to support Interstate Power's rate design proposal, which is to apply a uniform
percentage increase across all geographic rate zones.
While the Community Coalition concurs with Interstate Power's proposal to file
a class cost-of-service study and rate rebalancing proposal, it objects to this being
addressed in a docket separate from Docket No. RPU-02-3. The Community
Coalition believes that revenue requirement, class cost-of-service, and rate design
issues must be addressed in one proceeding. Under Interstate Power's approach,
customers' rates would change at the conclusion of Docket No. RPU-02-3 and
change again approximately four months later when the separate rate design and
rate rebalancing proceeding is concluded.
In the event Interstate Power's filing in Docket No. RPU-02-3 is not rejected,
the Community Coalition asks for alternative relief. The Community Coalition's first
DOCKET NO. RPU-02-3
PAGE 3
request for alternative relief asks that the ten-month deadline for a rate decision
contained in Iowa Code § 476.10 be extended to accommodate Interstate Power's
class cost-of-service study and rate rebalancing proposal. The second request for
alternative relief asks that the Board order Interstate Power to file a separate class
cost-of-service study and rate rebalancing proposal. When that proposal is filed, it
would be consolidated with pending Docket No. RPU-02-3. and the ten-month
deadline extended by the amount of time that elapses between March 29, 2002, and
the date the class cost-of-service study and rate design proposal is docketed.
Interstate Power filed an answer to the Community Coalition on April 25,
2002. Interstate Power argues that 199 lAC 7.4(6)"e"(9) does not require a class
cost-of-service study in the initial rate case filing if no changes to rate design are
proposed. Interstate Power said its filing contained the required narrative explaining
the departure from cost-based rates. Because there is no Board requirement that a
class cost-of-service study be filed, Interstate Power said there is no basis for
granting the alternative relief requested by the Community Coalition, which involves
extending the statutory ten-month deadline.
The Community Coalition filed a reply on May 1, 2002. The Community
Coalition cites 199 lAC 20.10(2), which provides, in part, that "[r]ates charged by an
electric utility for providing electric service to each class of electric consumers shall
be designed, to the maximum extent practicable, to reasonably reflect the costs of
providing electric service to the class." The Community Coalition claims there is no
DOCKET NO. RPU-02-3
PAGE 4
justification for the departure from cost-based rates and that Interstate Power has
provided none in its filing.
Rate disparities that exist between geographic rate zones not for cost reasons
but because of previous mergers or acquisitions present difficult questions.
Interstate Power's service territory in Iowa consists of service territory that formerly
was served by four different utilities: lES Utilities Inc., Interstate Power Company,
Iowa Southern Utilities Company, and Union Electric Company. Each of those
utilities had different costs and rate structures and each rate structure was
essentially "grandfathered" following the mergers. A rate freeze that was part of the
merger of Interstate Power Company, lES Utilities Inc., and Wisconsin Power and
Light took effect in 1998 and expired this year, continuing the disparate rates and
rate structure to the present. While rates and rate structure have remained different,
the costs associated with providing service are no longer differentiated based on the
geographic areas of the former utilities. For exam pie, electricity produced by the
Duane Arnold Energy Center now is used to serve all Interstate Power customers,
although the non-energy costs associated with the plant are charged only to former
lES Utilities Inc. customers.
The ultimate goal is for all similarly-situated customers of Interstate Power to
pay the same rate for the same service, with any differentiations based on such
things as customer class, not geography. While rate equalization between the zones
is the ultimate goal, issues such as rate shock must also be considered when
consolidating zonal rates. This is particularly true where, as here, some of the
DOCKET NO. RPU-02-3
PAGE 5
disparities are significant. Depending on the size of the zonal disparity, the Board
has the discretion to phase in rate consolidation rather than to immediately equalize
rates in the various pricing zones. The interests of those customers subject to rate
shock, however, will have to be balanced with the interests of customers located in
the zones that have higher than systemwide average rates.
Average per kilowatt hour rate differences between zones could be
considered without a class cost-of-service study. This type of revenue equalization is
largely a mathematical exercise that could be used to produce more uniform
standard average rates across the various geographic zones. A class cost-of-service
study, on the other hand, is used as a guide in setting specific rates between the
various classes of service, such as residential, commercial, and industrial.
Subparagraph 199 lAC 7.4(6)"e"(9) provides:
Schedules showing that the rates proposed will produce the
revenues requested. In addition to these schedules, the
utility shall submit in support of the design of the proposed
rate a narrative statement describing and justifying the
objectives of the proffered rate. If the purpose of the rate
design is to reflect costs, the narrative should state how that
objective is achieved, and should be accompanied by a cost
analysis that would justify the rate design. If the rate design
is not intended to reflect costs, a statement should be
furnished justifying the departure from cost-based rates.
This filing shall be in compliance with all other rules of the
board concerning rate design and cost studies.
The rule does not specifically require a class cost-of-service study. In the
October 16, 1991, docketing order in Docket No. RPU~91-7, an electric rate case
involving a predecessor to Interstate Power, the Board said that the rule "does not
DOCKET NO. RPU-02-3
PAGE 6
require a class cost-of-service study in the initial rate case filing. The rule only
requires the utility to support its proposed rate design When there are no proposed
changes to rate design, a class cost-of-service study is not part of the filing
requirements." A narrative explaining the departure from cost-based rates is
included in witness Berentsen's direct testimony, exhibits, and workpapers.
The reference in the order to "no proposed changes in rate design" generally
refers to-changes in rate structure and in the cost allocations between the various
customer classes. Subrule 199 lAC 20.10(2), cited by the Community Coalition.
similarly applies to changes in rate structure and in the cost allocations between the
various customer classes. Also, the phrase "to the maximum extent practicable"
contained in the rule indicates that there are factors other than costs considered in
seeing rates, such as rate shock. The order and the rule do not mean, however, that
there cannot be movement towards narrowing per kilowatt hour differences between
pricing zones if there are no apparent cost-based reasons for the distinctions.
Interstate Power's prefiled testimony acknowledges that there is no cost-basis for the
zonal differentials.
It would be inconsistent with past Board precedent to reject the filing for failure
to file a class cost-of-service study. This does not mean, however, that the Board
cannot begin to address zonal differences in Docket No. RPU-02-3. Any revenue
increase, or decrease, could be allocated so that zonal differentials begin to be
reduced. In fact, this process could begin in temporary rates. Community Coalition's
DOCKET NO. RPU-02-3
PAGE 7
objection to temporary rates filed April 29, 2002, asks that any temporary increase
not be implemented for customers in the Northern and Southeastern zones.
Because Interstate Power has committed to filing a class cost-of-service
study, rate design, and rebalancing application no later than July 31, 2002, the
primary question becomes whether the ten-month deadline in Docket No. RPU-02-3
should be extended to accommodate this filing.
As indicated earlier, the absence of a class cost-of-service study does not
mean that steps toward narrowing zonal differences cannot be taken in Docket No.
RPU-02-3. Allocation of any change in revenue requirement could be done so that
zonal disparities are reduced. This can be accomplished within the current ten-
month deadline for Docket No. RPU-02-3.
The class cost-of-service study, rate design, and rate rebalancing filing could
then completely focus on class cost-of-service study, rate design, and any remaining
rate rebalancing issues. In other words, that docket would focus on rate design and
cost allocation issues between the various rate olasses as well as consider any
remaining issues related to equalization of rates between the geographic zones.
This raises issues, however, of whether customer rates would then change
dramatically with the conclusion of the rate design and rate consolidation case
approximately four months following the revenue requirement case. Certainly,
customer rates in a class or zone should not be allowed to change in one direotion at
the conclusion of the revenue requirement case, and then change dramatically four
months later at the conclusion of the rate design and rate consolidation case.
DOCKET NO. RPU-02-3
PAGE 8
Because the rate design and rate consolidation case would likely be revenue neutral
with respect to Interstate Power, any rate design/rate consolidation changes may
need to be phased in to minimize rate shock and customer confusion. Interstate
Power in its filings committed not to seek temporary rates in the rate design filing, so
any changes from the second docket would be prospective only.
Both Interstate Power and the Community Coalition agree that a class cost-of-
service study, rate design, and rate consolidation case is necessary. The only
disagreement is how to get there. The Board will therefore grant Interstate Power's
motion to file such a class cost-of-service study, rate design, and rate consolidation
proceeding on or before July 31, 2002, and encourages Interstate Power to file as
soon as possible. The Board at this time will not extend the ten-month deadline, but
reserves the right to rule on the Community Coalition's request for alternative relief at
a later date. If it becomes necessary, the two dockets can be consolidated and the
ten-month deadline extended
There may be advantages to addressing revenue requirement issues in one
proceeding and class cost-of-service issues in a subsequent proceeding, with zonal
differences being addressed in both. This is particularly true if Interstate Power
proposes substantive changes in rate design. However, the Board does not want the
class cost-of-service study case to dictate or delay any progress on alleviating the
zonal differences that can be made in Docket No. RPU-02-3.
The Board recognizes that Docket No. RPU-02-3 is in its early stages and that
Consumer Advocate and other intervenors do not file their direct testimony until
DOCKET NO. RPU-02-3
PAGE 9
July 29, 2002. However, because Interstate Power's initial direct testimony only
proposed across-the-board increases, the Board directs Interstate Power to file
supplemental direct testimony to provide alternatives to across-the-board increases,
assuming $20 million, $40 million, $60 million, and $80 million revenue requirement
increases, that would address the geographic zonal disparities. Interstate Power
shall file such supplemental direct testimony on or before June 3, 2002. A good faith
proposal by Interstate Power to address the zonal disparities in Docket No. RPU-02-
3 will likely be a factor in the Board's ultimate determination as to extension of the
ten-month deadline.
The Board did not schedule consumer comment hearings in its docketing
order, because it first wanted to rule on the pending motions. Pursuant to
199 IAC 7.7(16), the Board will now schedule eight consumer comment hearings to
provide an opportunity for Interstate Power's customers to express their views
regarding the pending rate case. the zonal disparities, and the general quality of
service provided by Interstate Power. However, persons with specific service
complaints must follow the procedure prescribed in 199 lAC 6.2. Specific service
complaints cannot be addressed at the consumer comment hearings.
IT IS THEREFORE ORDERED:
1. The application for authority pursuant to Iowa Code § 476.10 filed by
Interstate Power and Light Company on April 15, 2002. is granted. Interstate Power
is directed to file a class cost-of-service, rate design, and rate consolidation case no
later than July 31 2002.
DOCKET NO. RPU-02-3
PAGE 10
2. The req west for rejection and alternative relief filed by the Community
Coalition for Rate Fairness on April 18, 2002, is denied with respect to the request
for rejection. The Board reserves its ruling to a later date on the request for
altemative relief,
3. Interstate Power shall file supplemental direct testimony as described in
this order on or before June 3. 2002.
4. Consumer comment hearings shall be held at the following locations for
the purpose of receiving comments from the general public:
a. Wednesday, May 15, 2002, beginning at 7 p.m. at the Ottumwa
High School Cafeteria, 501 East 2nd Street, Ottumwa, Iowa.
b. Wednesday, May 22, 2002, beginning at 12 noon at the Grand
Theater, 26 North 6th Street, Keokuk, Iowa.
c. Wednesday, May 22. 2002, beginning at 7 p.m. at the James
Madison Auditorium, 2132 Madison Avenue, Burlington, Iowa.
d. Thursday, May 23, 2002, beginning at 10 a.m. at St. Mary's
Parish Center, 415 11t~ Street, Fort Madison, Iowa.
e. Wednesday, May 29, 2002, beginning at 1 p.m. at the North-
Iowa Community College Muse-Norris Conference Center, 500 College Drive,
Mason City, Iowa.
f. Thursday, June 13, 2002, beginning at 1 p.m. at the Wahlert
High School Cafeteria, 2005 Kane Street. Dubuque, Iowa.
DOCKET NO. RPU-02-3
PAGE 11
g. Thursday, June 13, 2002, beginning at 7 p.m. at Kirkwood
Community College, Room 316, Iowa Hall, 6301 Kirkwood Blvd.. Cedar
Rapids, Iowa.
h.
Lake High School gymnasium. 2701 Hill Avenue, Spirit Lake, Iowa.
Persons with disabilities requiring assistive services or devices to observe or
participate should contact the Utilities Board at (515) 281-5256 in advance of the
scheduled date to request that appropriate arrangements be made.
UTILITIES BOARD
Thursday, June 20, 2002, beginning at 2:30 p.m. at the Spirit
/s/Diane Munns
/s/Mark O. Lambert
/s/Elliot[ Smith
ATTEST:
/s/Judi K. Cooper
Executive Secretary
Dated at Des Moines, Iowa, this 3~d day of May, 2002.