Alliant discusses the prediction that rates would increase 30 percent in Decorah under a municipal electric utility

(decorahnews.com has been fielding questions about Alliant Energy's predictions that electric rates in Decorah would increase under a municipal electric utility.)

In January Alliant Energy posted a statement on its Decorah Facebook page which said in part, "Electric customers in Decorah could face rates approximately 30 percent higher than Alliant Energy charges if the city moved to a municipal utility rather than staying with Alliant Energy, says Ann Bulkley, a certified utility appraiser with Concentric Energy Advisors."

However, the Concentric Energy Advisors' "Alliant Energy Feasibility Analysis, which is posted on-line at the City of Decorah's website (http://www.decorahia.org/reminders-and-notices/2018/decorah-municipal-feasibility-studies), on page 17 has a chart which estimates that the cost of a kilowatt hour of electricity in 2021 would be $0.1455 for a Decorah MEU and $0.1391 for Alliant, with the figures changing by 2027 to $0.1687 for a Decorah MEU to $0.1476 for Alliant.  Those figures, which were created by Bulkley, would mean the MEU's rates would be 4 percent higher than Alliant's in 2012 and 14 percent higher in 2018.

Recently Alliant sent out a mailer to Decorah residents which stated, "A study by Concentric Energy Advisors…suggests (our emphasis) a Decorah municipal electric utility would need 30 percent higher rates just to pay its bills."  Then a position statement e-mailed to decorahnews.com stated, "If the city of Decorah shifts to a municipal utility, residents and businesses in the community will face tens of millions of dollars in added costs, double digit rate increases (our emphasis), and fewer renewable energy resources."

decorahnews.com contacted Alliant Energy for clarification and was e-mailed a statement from Alliant and Concentric.  The statement is posted below, along with some of our notes.

"Net Present Value is an accounting tool used to estimate the future value in today's dollars. It helps the community see the long-term value or cost of an acquisition. It has been a key figure in past IUB decisions, so that's why it's key in this case. It's also a quick way to estimate the additional rate revenue needed to break even in operations."

(Our comment: In order to translate accounting talk, we consulted the appropriately-titled "Accounting for Dummies."  The book says, "Net present value techniques use time value of money tools to estimate the current value of a series of future cash flows. For example, suppose you hit the lottery, winning $1 million a year for the next 20 years. The state lottery board will publicize your winnings as a $20 million prize, but that figure is misleading.  After all, time value of money principles say that the $1 million received a year from now is somewhat less valuable than the $1 million received today. The next installment, two years from now, would be worth even less than that, and so on."  In other words, using "net present value" would decrease the financial value of future utility revenues, requiring rates to be higher to make up for the fact that future revenues would be "worth less" in terms of 2018 dollars).

"The 30 percent number was borne from the initial work done on net present value calculations for our January presentation. The numbers were updated before the council presentation in February."

(However, Alliant continued to use the 30 percent estimate.  On March 9th on Alliant's Decorah Facebook page, it again says "the city would have to raise your rates by 30 percent in order to afford to deliver the same service Alliant Energy provides today.")
 
"While the Decorah Power study has chosen one potential outcome, our study recognizes that a range of outcomes are possible."

(Actually, the Decorah Power study is identical to the Alliant Energy study in that they both present three potential outcomes. Read the Decorah Power feasibility study posted on-line at the City of Decorah's website, http://www.decorahia.org/reminders-and-notices/2018/decorah-municipal-feasibility-studies

"Because of the multiple potential outcomes considered in our work, the 30 percent figure is a midpoint of the most reasonable scenarios. This midpoint provides citizens a view of the additional costs of a Decorah MEU vs. continued Alliant Energy operation." 

(It's true there are multiple potential outcomes if a municipal electric utility is created, however the Alliant Energy feasibility study conducted by Concentric Energy does not present any other scenarios besides the one that predicts municipal utility electric rates would be 4 percent to 18 percent higher than Alliant's rates.)

"For background, the key drivers of rates that customers can expect to pay under the two alternatives are: (1) the City's cost of acquiring Alliant's utility assets and other initial actions necessary to prepare to serve as the electric utility, (2) the City's annual costs of providing electric service, including operating and maintaining, continuing to invest in utility assets, and acquiring power supplies and having them delivered to Decorah, (3) a forecast of the City's expected cost of providing service based on the initial investment and ongoing operating costs, and (4) a forecast of Alliant's rates to serve as a benchmark for comparing the municipal electric utility alternative."

(This concluding statement by Alliant is absolutely 100 percent correct!  Of course, Alliant and Decorah Power are using conflicting figures about all four factors)