Alternative to a Coal Plant

Client: Iowa’s Office of Consumer Advocate (OCA)

Challenge:

In 2007 Interstate Power and Light (IPL) was proposing to build a new 640 MW coal generating facility in Marshalltown Iowa (Sutherland Generation Station, or SGS-4).  VEIC was hired by the Office of Consumer Advocate (OCA) to work with a team of experts to assess the need for the plant, and to examine whether aggressive procurement of energy efficiency and renewable energy resources could meet the needs of IPL customers (including lower costs, reduced environmental damage, and decreased ratepayer risk).

Solution:

VEIC had worked for years with the OCA to advocate for aggressive energy efficiency programs in Iowa.  In part because of that partnership and experience, VEIC was able to make the case that Iowa had a solid base upon which to build a more aggressive approach to distributed resource acquisition.  VEIC demonstrated that a doubling of savings in Iowa would delay the need for the coal plant by as much as a decade,  and thereby allow other renewable energy and distributed resource options (such as customer-sited combined heat and power) to be deployed.  That deferral would also allow for greater clarity to emerge about the coal plant risks from construction cost increases and possible climate change regulation.  The argument was that efficiency was the low-risk, prudent acquisition strategy.  Testimony took place in January, 2008.

Results:

By a 2-1 vote the Iowa Utilities Board (IUB) approved the construction of the plant.  However, in a subsequent proceeding to approve cost recovery rules (“ratemaking principles” as they are termed in Iowa), the Board did not grant IPL a desired guarantees that it could recover all costs of constructing the plant - even if those costs exceeded projected budgets on which the cost-effectiveness of the plant had been argued.  The IUB also set a return on equity (ROE) that was significantly lower than IPL had sought.  Such cost recovery restrictions are unusual in Iowa, and they resulted in a decision by IPL not to construct the plant.

While the testimony of VEIC and other parties did not initially carry the day (in part because Iowa law is designed to promote the construction of new generating plants), the arguments about risk and the case for a lower cost alternative appear to have limited the willingness of the IUB to write a blank check for IPL.  In this case the perception of risk by the regulators caused them to pass that risk back to the utility.  When confronted with that risk, the utility decided not to build.

VEIC continues to work with the OCA and utilities in Iowa to increase the effectiveness and coordination of EE programs there.