Alliant's 13 percent rate hike request now in board's hands

A four-day hearing on Alliant Energy's request for a 13 percent electric rate increase ended Thursday, leaving the Iowa Utilities Board with some tough decisions ahead.

Whether to penalize Alliant for going $61.6 million over on construction costs for its new Whispering Willow East Wind Farm, whether to let it consumers pay for past investments on its defunct Sixth Street Generating Station and whether to prevent it from passing on more than $47 million in transmission cost hikes from 2009 to 2010 from ITC Midwest are just a few of those decisions.

The board also must decide whether to let Alliant charge a transmission rider, or automatic pass-along of transmission costs, subject to utilities board reviews.

Alliant is asking for an overall increase of $150 million, down $13 million from its original request.

It's likely the board will approve some version of a cost management plan that would reduce the increase Alliant is seeking by $90 million in the first year, $60 million in the second year and $24 million in the first year before phasing out entirely.

Customers began paying a 10 percent interim rate increase in March that will generate about $119 million in revenue annually, subject to later revision in the board's decision.

The cost management plan would reduce customer bills by about 6 percent over current levels, depending on which customer class they are in, according to Erik Madsen, director of regulatory affairs for Alliant's Interstate Power & Light utility. One version of the plan utilitizing tax benefits the company is seeking on behalf of customers would provide about $300 million, Madsen said. That would be enough to lower customer bills by 10 percent from current levels in the first year after the rate ruling takes effect.

The state's Office of Consumer Advocate is more concerned about the long-term implications of Alliant's request, according to senior staff attorney Ron Polle, although it does support at least some aspects of the cost management plan.

"These are permanent costs that will never go away," Polle said of Alliant's $150-million-per-year request, terming the cost management plan a red herring. "The mitigation is very minimal."

Funds to reduce the increase would come from regulatory reserve accounts established from the past sale of Interstate Power & Light assets, favorable tax settlements the company is expecting and other sources.

The consumer advocate, Alliant and intervenors debated how much return on equity Alliant should receive in the final morning of testimony

Alliant Energy wants a 10.5 percent rate of return on invested capital in the company's rate case pending before state regulators, while the state's consumer advocate argues for 9.5 percent.

What seems like a small difference could be huge for customers, because the return would apply to about $1.8 billion worth of investments in things like electric substations and utility trucks, as calculated by the state's Office of Consumer Advocate.

Alliant spokesman Ryan Stensland said the 10.5 percent rate is the same rate of return on equity the board allowed in Alliant's rate case, and reflects conditions in financial markets.

"At the end of the day, it's about our ability to attract capital," Stensland said.

The consumer advocate argued that in current market conditions, 9.5 percent would be enough - especially given that the utility already has an 11.7 percent rate of return approved on the new wind farm.

The consumer advocate office believes Alliant should not be allowed to charge customers for bad management decisions it's made in the past, Polle said, citing the higher transmission costs resulting from the 2007 sale of its transmission system to ITC and wind farm overruns as examples. It is asking the board to assess a $5 million per year management inefficiency penalty, Polle said.

The Iowa Utilities Board is expected to render a ruling in January on the case.