The bill is a veritable Christmas tree for the two monopoly utilities.
Opinion to The Des Moines Register | April 20, 2025
Gov. Kim Reynolds’ omnibus energy bill (House File 834 and Senate File 585) moving through the Iowa Legislature comes pretty close to the proverbial blank check to the monopoly and investor-owned Alliant and MidAmerican energy companies.
If passed, ratepayers such as households, businesses and communities will likely be experiencing energy rate inflation for decades, beyond even what Alliant ratepayers have experienced recently.
Ratepayers worried about energy inflation may want to firmly tell their legislators to vote no on what could be called the “Alliant and MidAmerican Energy Inflation Act.”
The bill is a veritable Christmas tree for the two monopoly utilities; here are just three reasons why it’s so bad for ratepayers.
Higher Return on Equity would enrich utility companies
Return on Equity (ROE) is essentially the level of profit that state regulators grant to the shareholders of the investor-owned utilities Alliant and MidAmerican.
It is a long-standing principle in utility ratemaking that the Return on Equity for monopoly utilities should be roughly equal to the Cost of Capital. The Cost of Capital is what investors expect to earn on their investment in company shares.
Since utilities are state-granted monopolies, they are widely understood as low-risk investments. Institutional investors are attracted to utilities with no expectation of returns above market averages.
Historically, this meant regulator granted ROEs of roughly 3 percentage points above 10-year U.S. Treasury yields, though regulatory capture has led to higher spreads and increasingly unreasonable ROEs in recent decades. The current Alliant and MidAmerican Energy Inflation Bill would authorize ROE levels of 10% to 12%, roughly 3 to 5 points above the actual Cost of Capital.
Regulators grant these ROE levels on large capital investments that ratepayers then pay for decades. Based on analysis by utility experts, unreasonably high ROEs have been costing Alliant and MidAmerican ratepayers over $20 million per year for the past decade.
Alliant and MidAmerican resource investment plans project much higher levels of capital investment over the coming decade. If the current bill passes, ratepayers could be paying high ROE on ever larger investments, inevitably representing steadily rising rates for captive customers and communities.
Bill would mean less ability to challenge capital investments
Monopoly investor-owned utilities make money for shareholders by making large capital investments in things like generation plants and the grid, because they earn a regulator-approved return on those investments.
In other words, they more they spend, the more profits they’re authorized to earn for shareholders, and the more ratepayers pay.
Ensuring that the approved Return on Equity is close to the Cost of Capital is one way to avoid incentivizing investments that unnecessarily drive up rates. Another is Integrated Resource Planning.
Integrated Resource Planning (IRP) is a process intended to ensure that ratepayers only pay for what they truly need, not whatever the utility would like to invest in. This should be done through a “contested” docket — a case before the Iowa Utilities Commission where stakeholders, ratepayers, and the Consumer Advocate are granted maximum participation, discovery, and investment modeling rights.
These rights allow stakeholders to challenge utility assumptions and plans, and present evidence to the commission supporting the most cost-effective (versus capital-intensive) investments that meet grid and ratepayer needs. A contested docket also ensures the commission has rights to modify or reject utility plans.
The current Alliant and MidAmerican Energy Inflation Act allows the utilities to conduct IRP as an inside job, rather than in a contested docket. And paired with the exorbitant levels of ROE described above, it essentially authorizes ratepayer taxation without representation.
Nuclear power nudge would mean higher costs for ratepayers
The governor’s 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.
Georgia ratepayers, for example, will now be paying exorbitant rates for 50-plus years on a $34 billion nuclear boondoggle, while monopoly utility executives and shareholders profits rise all the while. This story may soon come to Iowa.
It is possible to go down a nuclear path with strong ratepayer protections, but this bill is not that path.
The energy bill combines 1) a inside-job integrated resource planning process that enables utilities to spend billions regardless of cost-effectiveness, with 2) ratepayer robbery levels of Return on Equity, and 3) a state encouragement to build highly expensive nuclear over other generation resources.
It’s hard to imagine a more effective recipe for decades of high energy rate inflation on Alliant and MidAmerican households, businesses, and communities. All Iowa ratepayers should ask their legislators to vote no on the “Alliant and MidAmerican Energy Inflation Act.”
Posted: April 21, 2025
