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For immediate release: Friday, July 17, 2009
Contact: John R. Perkins, Consumer Advocate, 515-281-7021

Consumer Advocate Seeks Nearly $30 Million Cut
 in Interstate Power’s Electric Rates in Iowa

            DES MOINES.  Iowa’s Office of Consumer Advocate (OCA) is asking the Iowa Utilities Board (IUB) to reduce electric rates for Interstate Power and Light Company by $29.85 million annually, or approximately 2.8 percent.

            Interstate filed an application on March 17, 2009, to increase its electric rates by $171 million annually, or an average of over 16 percent.  Under Interstate’s proposal, residential customers would see their electric rates increased by 18.1%, small business customers by 17.7%, and large industrial customers by14.6%.

            The Utilities Board has scheduled a hearing to begin on October 5, 2009, and a decision is expected by January 2010.  The Consumer Advocate’s rate reduction request was made in a detailed filing with the IUB on Friday.  OCA’s entire filing is available on the IUB website:  http://www.state.ia.us/iub/

            Interstate is owned by Alliant Energy Corporation, a holding company based in Madison, Wisconsin.  Interstate serves over 650 communities in Iowa, including Cedar Rapids, Burlington, Dubuque, Keokuk, Marshalltown, Mason City, Ottumwa, and Spirit Lake.  [See list at end.]

            Consumer Advocate John R. Perkins said:  “One of the reasons for OCA’s recommended rate reduction is to hold Interstate accountable for poor management decisions that have led to certain unreasonably high costs.  Another reason is that many of the utility’s alleged costs are not expected to be as high as Interstate claims.”

            The OCA testimony cited Interstate’s sale of its electric transmission assets to ITC Midwest in 2007 as a poor management decision.  In order to obtain IUB approval of the sale, the OCA noted, Interstate filed sworn testimony stating that the sale was structured in a way that would “zero out” any rate increase effects on customers for eight years.  OCA opposed the sale at the time and predicted that Interstate’s transmission costs would increase if the transmission assets were sold to ITC Midwest.  Based on Interstate’s promise of no transmission-based rate increase for eight years, the Utilities Board approved the sale.  In its pending rate increase application, Interstate proposed to increase rates by more than $87 million per year for increased transmission costs, violating its promise to hold customers harmless for eight years.

            “Our evidence will show that Alliant Energy’s board of directors decided on behalf of shareholders to sell Interstate’s transmission assets,” Perkins said, “and shareholders need to bear the financial consequences of Alliant’s erroneous calculations.  Interstate’s shareholders still possess a $217 million after tax gain on the sale that can be used to cover the increased costs.  The role of customers is not to protect shareholders.  Interstate should not be permitted to make and break promises that will result in huge financial consequences for customers.”

            In other written testimony filed today, OCA expert Dr. David Habr explained how Interstate’s management has made a number of other poor decisions over the years that have resulted in unnecessarily high costs and a huge disparity between the rates Interstate charges and the rates charged by MidAmerican Energy Company, Iowa’s other investor-owned electric utility.

            According to Dr. Habr, Interstate’s electric customers should not be required to pay higher rates because of inefficient management decision-making.  Dr. Habr testified that approximately $50 million of Interstate’s $1.2 billion revenue requirement should be borne by shareholders to protect customers and to provide a needed incentive to Interstate and Alliant Energy, its parent company, to reduce costs and operate more efficiently.
 
            Perkins also said his office is very concerned about the effect of Interstate’s high electric rates on economic development.  “Iowa cannot afford for factories to close or not locate or expand in Interstate’s service area because of unreasonably high electric rates,” he said.  “The evidence shows that some of Interstate’s largest industrial customers have built their own electric generation facilities to escape Interstate’s high electric rates.  Part of Interstate’s proposed rate increase is to have its remaining customers make up for these lost sales and revenues.”

            Perkins also noted that OCA has recommended that customers should be charged for all reasonably incurred costs, which include all of the costs incurred by Interstate in connection with the flood that inundated Cedar Rapids last year.

            The attached graph illustrates the estimated impact of OCA’s recommendations on Interstate’s residential electric prices. [Go to graph.]

            Some of the communities served by Interstate are Albia, Boone, Belmond, Burlington, Britt, Carroll, Cedar Rapids, Centerville, Chariton, Clear Lake, Clinton, Cresco, Creston, Decorah, De Witt, Dubuque, Dyersville, Eldora, Fairfield, Fort Madison, Grinnell, Guthrie Center, Iowa Falls, Jefferson, Keokuk, Leon, Manchester, Marengo, Marshalltown, Mason City, Mount Pleasant, Mount Vernon, Nevada, Newton, Oelwein, Ottumwa, Osceola, Perry, Reinbeck, Sigourney, Spirit Lake, Washington, and West Union.

            The Iowa Utilities Board regulates public utility rates in Iowa, and the Office of Consumer Advocate represents the interests of utility customers and the public interest before the Utilities Board.  The OCA is a division of the Iowa Department of Justice.

 

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