Answering Alliant

Decorah Power Responds to
Alliant-Funded Feasibility Study

Watch this video for a comprehensive overview of the differences between the NewGen feasibility study and the Alliant-sponsored feasibility report, featuring Dave Berg, one of the authors of the NewGen study. (Click the little speaker icon at the bottom of the video to turn on the sound.)

Utility Expert, Dave Berg, Unravels Feasibility Study Differences

At a community meeting Thursday March 8th, national utility expert Dave Berg provided a detailed explanation of the differences between the two studies that analyzed the feasibility of a municipal electric utility (MEU) for Decorah. With approximately 50 community members in attendance at Carrie Lee Auditorium, Berg outlined several major differences, concluding that even if Alliant Energy were correct in most of their numbers, the establishment of a Decorah MEU would show a positive financial return for the Decorah community.

Several major differences were identified between the two studies, including the assumed service areas, asset acquisition costs, and startup costs. Berg also discussed discrepancies in rate assumptions, and explained how the differing assumptions affect overall financial projections.

Berg, an electrical engineer with over 30 years of experience in the utility industry, began by outlining the results of the feasibility study completed by NewGen Strategies and Solutions, a national consulting firm that specializes in utility analyses. This study concluded that Decorah could save over $5 million per year with a reduction in costs of 30% compared to the current operation with Alliant Energy. The total costs considered in establishing the MEU included system acquisition and startup expenses, all of which are managed and paid for outside of taxpayer dollars, with the City of Decorah bearing no financial risk.

As Berg noted, a study released by Alliant Energy arrived at very different conclusions, and the majority of the presentation focused on those differences. He explained that roughly $15 million of the Alliant study total projected cost could be easily eliminated as fees that have no basis in Iowa law.

The first area of difference was the assumed service area. “Would a new utility serve only the city of Decorah or would all Alliant customers in the region be served by the MEU?,” Berg asked. Alliant’s study assumes that the MEU would separate existing customers into two groups: those within the city limits, and those without, at a price tag of $11 million for a “reintegration fee.” Berg explained that the Iowa Utilities Board (IUB) would never approve this since their mandate is to make decisions in the best interests of the community, not necessarily by geographic city limits.

Berg quoted the IUB’s ruling stating that, “the Board does not rule out establishing electric service area boundaries that go beyond the city limit.” He also emphasized the IUB’s repeated statement that, “unreasonable duplication of facilities should be avoided.”

In addition to eliminating the $11 million cost of separating the service area, Berg also dismissed Alliant’s claim that they would be paid $4.5 million for “going concern.” As Berg explained, this term is used to describe the value of a customer base in a competitive marketplace. Since Alliant has a monopoly, “they are assigned their customers, they do not earn them, and there is no precedent for a utility being paid this sort of fee.”

The studies also differ in the cost to acquire the physical assets in Decorah. The inventory completed by NewGen arrived a cost of $5.6 million while Alliant estimated the cost to be $20 million. According to Berg, the significant difference in the numbers is based on different ways to calculate assets. “If you’re not embroiled in this stuff, it’s hard to recognize that there are so many ways to estimate assets,” said Berg.

He explained a “sensitivity analysis” based on a comparison of the two studies and seeking to find a middle ground between the two approaches. Based on this financial analysis, Berg concluded that a locally managed public MEU in Decorah would be profitable even if you double or triple the acquisition costs proposed by NewGen.

A final issue of analysis was differences in rate projections. Berg explained that the major difference was Alliant’s assertion that their rates would only increase at 0.7% per year. Berg noted that Alliant’s rates have increased by an average of 2.5% per year for the last 15 years and they recently raised rates by 7.8%.

There were also significant areas of agreement between the two studies. The analyses arrived at similar conclusions on costs of wholesale electricity and transmission costs from major energy producers to the Decorah substation.

Berg further clarified a few significant misconceptions that currently exist related to a possible Decorah MEU, including potential tax implications or additional expenditures. “The establishment of an MEU would not increase Decorah property taxes,” stated Berg. MEUs are independently managed, non-profit entities that are obligated to manage utility service in a community’s best interest, with operating revenues channeled back to the community in the form of property-like taxes and general fund transfers. Currently Alliant pays $168,000 annually to the City of Decorah in property taxes; according to conservative accounting, NewGen estimated that in addition to lowering individual customer rates, a Decorah MEU would contribute approximately $650,000 annually to the city.

After the presentation, members of the audience asked questions ranging from detailed inquiries about the studies to general questions about the referendum and application process.  The city-wide vote is scheduled for May 1.  As Berg explained, this is not a vote to choose Decorah’s utility. Rather, it is a vote to “continue the conversation” and allow the Decorah City Council to apply to the Iowa Utilities Board, who ultimately makes the decision about the electric utility provider for Decorah based on what they deem to be in the best interest of all customers in the community.