Monopoly power without regulation

With few watching, backroom efforts produce unforeseen blows to public utility oversight

Editor’s Note: This post updates a previous post by David Osterberg, “New blows to public accountability,” about features of a proposal to weaken regulation of Iowa electric utilities.

A version of this piece appeared as a guest opinion in The Gazette, Cedar Rapids

170118_capitol_170603-4x4A bill scheduled for debate the week of February 26th in the Iowa Senate would remove the public’s principal check on monopoly power of the state’s regulated electric utilities.

Utilities are permitted monopoly status for economic efficiency. It would be difficult, and expensive, to set up two or more competing electric or gas utilities to serve one community, with separate lines connecting homes and businesses. In exchange for a monopoly presence in a given area, privately owned utilities are subject to community scrutiny and state regulation of their rates and services.

Senate File 2311 would remove a significant share of oversight from electric utilities. Presently the Iowa Utilities Board (IUB) oversees MidAmerican Energy and Alliant Energy. This protects customers, who have no choice as to which company brings them electricity.

It is ironic that legislators would threaten a structure that works and promotes economic development. Iowa has some of the lowest energy rates in the nation (third- or fourth- lowest depending on the year). At the same time, this state has been developing one of the strongest clean energy economies. These features make Iowa a big draw for certain industries — a far more attractive reason to locate here than the tax breaks offered by so many states.

Under the proposed bill, many policies that have led to Iowa’s cost-effective clean energy leadership would disappear, especially energy efficiency programs mandated almost 30 years ago by the Iowa Legislature, which require utilities to file energy efficiency plans every five years.

Without regulation, monopolies could profit by producing more power, rather than helping customers save energy. They could unfairly treat customer-generated solar and wind energy and discriminate in favor of their own energy generation.

Left to their own preferences, monopolies might charge the smallest users more. Alliant proved this in its last rate increase filing. The Alliant plan would have increased the cost of residential electricity by about 10 percent while increasing the mandatory fixed charge just to hook up by 30 percent. The plan was designed to put more costs on those who use less, including those with low-income, essentially penalizing customers who have used the utility rebates to buy efficient appliances or those who generate solar energy.

But because Alliant needed permission from the IUB to raise rates, this rate scheme was reviewed and ultimately not allowed. Instead, the energy charge and the mandatory fixed charge were allowed to increase by roughly the same percentage.

SF2311 would reduce this longstanding oversight on all utilities, shifting costs and risks to their customers. Alliant could discriminate against solar customers by putting them in a separate rate category so they could be assessed a higher fixed charge. This could shut down solar firms and cost many of the state’s 700 solar jobs. The changes threatening the energy efficiency industry endangers even more jobs — more than 20,000.

The forces behind this bill lessen public oversight and public accountability. They would change Iowa law in ways never promoted publicly in the last legislative campaigns.

160915-59170_dox35x45David Osterberg, a former state representative (1983-95), is professor emeritus of occupational and environmental health at the University of Iowa, and co-founder of the non-partisan Iowa Policy Project.

dosterberg@iowapolicyproject.org

What happened to infrastructure plans?

Already, federal help to improve drinking water and wastewater systems has been on the decline. How much appetite will there be for necessary construction when taxes to pay for it are being cut?

At the beginning of this year there was talk of possible bipartisan legislation to repair America’s crumbling infrastructure.

Both candidates for president had promised a new emphasis on repairing the nation’s roads, rails, sewage treatment plants and airports. The number kicked around during the campaign was often $500 billion. After President Trump won, he pushed up the rhetoric and spoke of a $1 trillion plan.

If Congress passes the tax bill now being considered, there will be little room in the budget to pay for present services, as we have emphasized here at IPP. How can this nation also invest in the things that will certainly produce jobs and make the nation more competitive?

The chances for implementing an ambitious infrastructure spending plan seem remote, as Congress is on course to add $1.4 trillion or even more in deficit spending over the next 10 years.

Already, federal help to improve drinking water and wastewater systems has been on the decline. How much appetite will there be spend more on what most agree is necessary construction when taxes to pay for those expenditures decrease so drastically?

When there is no appetite for spending, state governments sometimes resort to tax credits. That seems unwieldy in this case and, in the next few weeks, tax credits will lose much of their value anyway. When taxes are lower, there is less to gain by giving credits.

The new tax cut will give a benefit just for being a corporation or for being wealthy. Why invest in something productive when you are given a reward simply for “being?”

David Osterberg co-founded the nonpartisan Iowa Policy Project and remains its lead environment and energy researcher. dosterberg@iowapolicyproject.org

Tax cuts vs. clean energy

The Midwest, and especially Iowa, has invested in wind and solar power. Both wind and solar are under attack in the new plan.

Much is being written about the effects of the House Republican tax proposal on different states. By excluding or limiting deductions for state taxes, the proposed tax plan favors states with no income tax — which often is the tax most fair to all of a state’s residents.

Another way states will be affected differently is in energy development.

The Midwest, and especially Iowa, has invested in wind and solar power. There is a production tax credit for wind and an investment tax credit for solar. Both wind and solar are under attack in the new plan.

The wind tax credit already is scheduled to phase out over the next five years but the Republican plan would both speed up the date and cut the present amount of the tax credit. Authors of the bill may not succeed because of something obvious to everyone in Congress, and noted in one news report:

“A report released by Morgan Stanley last week said the Senate is unlikely to pass changes to the tax credit, noting that 85 percent of wind projects are in Republican jurisdictions.

“Sen. Chuck Grassley (R-Iowa) issued a statement last week saying he’s working to block the proposed changes. He told reporters last year that he would fight to preserve the PTC, saying President Trump will ‘have to get a bill through Congress, and he’ll do it over my dead body.’”

As someone who ran against Senator Grassley in 1998, I can tell you we agree on this issue. Proponents of the tax plan claim wind has to get a reduced tax benefit so that taxes on business can be cut overall.

Oddly, they do not see the same need to rein in all tax credits for all energy industries. The state of Georgia where a two-unit nuclear plant is way over budget and way late being finished gets the benefit of extending a tax credit for its big utility company. I bet our Senator Grassley will point that out if and when the tax plan gets to the Senate.

The Trump Administration ignores climate change and wants to subsidize coal plants. But now the U.S. House tax plan would add to the problem of warming our atmosphere by helping to cut back on the cleanest, safest, cheapest new energy source.

It turns out the skewing of benefits to the wealthy, clearly evident in this plan, may not be the plan’s only problems.

David Osterberg, founder of the Iowa Policy Project

dosterberg@iowapolicyproject.org

 

The Matrix: What if we told you it doesn’t work?

Proposed large hog operations have to show little to get what they want. “Right now it’s almost not possible to not pass,” says IPP’s David Osterberg.

Several Iowa counties are dissatisfied with the so-called “Master Matrix” designed to put standards for locations where large hog operations may be built. The Matrix keeps state requirements ahead of local concerns on this one type of industry.

A state panel soon will hear arguments for a stronger system to protect environmental quality and public health.

IPP’s David Osterberg and Fort Dodge radio host Michael Devine discussed the issues on the “Devine Intervention” program on KVFD 1400-AM.

Osterberg noted the low bar for approval under the Matrix means proposed large hog operations have to show little to get what they want.

“Right now it’s almost not possible to not pass,” says Osterberg, who asks for a “little bit of reasonableness” that will not harm the industry but will satisfy neighbors.

Devine noted the political landscape poses challenges to change on the Matrix or efforts to achieve local control.

“There is a blind defense of pork production in the state of Iowa,” said Devine.

Hear the conversation. Click here.

Toxic blooms for Iowa waters

Iowa’s water-quality issues are likely to become more severe without well-funded mandates that are enacted and enforced.

The Iowa Environmental Council (IEC) recently reported on the first toxic algal blooms of the summer beach season in Iowa. Two state park beaches posted swimming advisories warning people to stay out of the water because of the presence of high levels of microcystin. Microcystin is a toxin produced by blue-green algae, also known as cyanobacteria, that can cause health issues, particularly in children and pets.

As summer water temperatures climb, these closures and warnings will become more commonplace. The Iowa Policy Project first published a report on cyanobacteria in 2009 — a year with only one swimming advisory. The advisories have increased each year since and last year there were 37. (IEC has compiled a history of warnings.)

Cyanobacteria quickly multiply into high-density blooms in the presence of excess nutrients in the water. Several research reports by the Iowa Policy Project (links below) concluded that the most significant contributing factor of nutrients in the Mississippi River Basin is from agricultural runoff. Algal blooms have the potential to not only restrict recreational activities in our waterways, but to obstruct access to clean drinking water. This happened most notably in 2014 when a water treatment plant in Toledo, Ohio, warned its 500,000 customers not to use water from the tap because algae blooms surrounded water intakes at its Lake Erie source. The catastrophic algal bloom prompted the mayor to declare a state of emergency, as the city was forced to find alternative sources of drinking water.

Clean drinking water in Iowa is already threatened because of high nutrient concentrations in our waterways. The recent Des Moines Water Works (DMWW) lawsuit against three counties in north central Iowa highlighted this very problem. The DMWW must spend increasing sums to remove nutrients from the water obtained from the Raccoon and Des Moines rivers — so much it will now build a new nitrate removal facility. The nitrate present in these source rivers is primarily from agricultural runoff coming from the three counties named in the suit.

The magnitude of Iowa’s water quality issues cannot be overstated and the data we have show that these issues are only likely to deepen in severity without well-funded mandates for water quality that not only are enacted, but enforced. Voluntary conservation measures will not clean up our lakes, beaches, rivers and drinking water sources. If Iowa legislators are serious about luring businesses, jobs and families to this state, then it is time to make sure state revenues can support the protection of the very resource that supports our quality of life.

Sarah Garvin, research associate for the Iowa Policy Project
sgarvin@iowapolicyproject.org

 

 

Related IPP Reports:

Scum in Iowa’s Water: Dealing with the Impact of Excess Nutrients,” December 2009, Andrea Heffernan and Teresa Galluzzo

Solution to Pollution: It Starts on the Farm,” September 2010, Andrea Heffernan, Teresa Galluzzo and Will Hoyer

A Threat Unmet: Why Iowa’s Nutrient Reduction Strategy Falls Short Against Water Pollution,” July 2014, David Osterberg and Aaron Kline

Saving Resources: Manure and Water,” May 2016, David Osterberg, Nick Fetty and Nathan Wong

 

Rosy forecasts bring thorny budgets

Odd that Governor Branstad, burned so early in his tenure by overly rosy revenue estimates, would let this happen to his very own lieutenant governor as she took office.

Capitol-DSC_0119-7inA memo from the Legislative Services Agency (LSA) indicates a higher-than-anticipated cost of a special-interest sales-tax break primarily for manufacturers.

We could not afford it when Governor Terry Branstad attempted to implement it by rule in 2015, or when a scaled-back version passed in 2016, and we cannot afford it now.

But it appears likely that the new break is at least part of the reason sales-and-use taxes are flattening out, putting fresh pressure on the budget even after FY2017 cuts and continued reliance of state policy makers to push tax breaks that divert millions from critical services such as education.

There is great irony in this report coming as Governor Branstad was turning over the keys to Kim Reynolds, especially given this comment in the LSA piece by senior fiscal legislative analyst Jeff Robinson:

One potential explanation for the recent sales/use tax downturn is an underestimated fiscal impact of the sales/use tax exemption for manufacturing supplies and replacement parts. For proposed legislation in previous years, estimates of the impact of exempting manufacturing supplies and replacement parts from the State sales/use tax had been much higher.

As Robinson suggests, there was ample reason to think the cost would be “much higher” and that should have been taken into account in revenue estimates and crafting the FY17 budget.

Likewise, the four of us were present in the Iowa House chamber in 1983 when new Governor Branstad proposed a sales-tax increase, just a few months after bludgeoning his election opponent, Roxanne Conlin, with a “tax and spend” refrain. The new Governor inherited a budget shortfall right out of the gate, a product of overly rosy revenue projections by the Ray administration.

To be fair to Governor Ray, the farm crisis was unfolding back then, and the landscape was not necessarily as clear.

This time, the continuing revenue problem is due principally to out-of-control tax giveaways, which have accelerated long since Governor Ray left office. Just this one perk for manufacturing was expected to cost $21.3 million from the state budget.* However, the latest LSA analysis suggests, the cost to the state may be two or three times what was expected.

Odd that Governor Branstad, burned so early in his tenure by optimistic revenue estimates, would let this happen to his very own successor as she took office. Maybe he just forgot.

We did not forget.

 

* That cost figure grows to $25.6 million when including the dedicated revenue for local school infrastructure, and $29.2 million when including lost local-option tax revenue.

Posted by IPP Executive Director Mike Owen, IPP Founder David Osterberg, IPP Board President Janet Carl, and IPP Board Member Lyle Krewson. Owen was the Statehouse correspondent for the Quad-City Times and Osterberg, Carl and Krewson were state representatives from Mount Vernon, Grinnell and Urbandale, respectively — in 1983.

Osterberg to the Climate Marchers: State action works

State government can work to improve the economy of Iowa and at the same time reduce the effects of climate change.

David Osterberg — People’s Climate March Iowa 2017
David Osterberg
David Osterberg

I’m pleased to be the Master of Ceremonies at the People’s Climate March in Des Moines on April 29. The event begins at 1 p.m.

I plan to make the point that state government can work to improve the economy of Iowa and at the same time reduce the effects of climate change.

Way back in 1983, Democrats and Republicans together passed a law — signed by Governor Terry Branstad — that required the state’s investor-owned electric utilities to try renewable energy.

Utilities hated the idea and fought complying with the law for years. Yet now, 35 percent of the electricity generated in the state comes from wind power. Once we changed the direction that utility executives were looking, they found that renewables would work. They found that those who said that the intermittent nature of solar and wind could not be easily integrated into a production system. They were wrong.

The paper the Iowa Policy Project released March 30 shows that even though more than one-third of Iowa electricity comes from wind, our overall electric rates were lower in 2015 (latest data) than when the wind industry really got started in 1998.

 

 

 

 

 

 

 

 

IPP Co-founder David Osterberg was a member of the Iowa House of Representatives from 1983-94. Contact: dosterberg@iowapolicyproject.org