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Curious Iowa: Why can’t Iowans choose their utilities provider?
Exclusive service areas dictate a resident’s utilities provider
Bailey Cichon
Dec. 18, 2023 5:00 am, Updated: Dec. 18, 2023 11:47 am
Shopping around for the best price and product applies to many goods and services for Iowans — from insurance to cars to groceries. But when it comes to utilities, Iowans are assigned a provider based on where they live.
Service area maps show jagged lines cutting out blocks of land across the state. Take two people from the same county and, depending on where they live, they might have different utilities providers. One may pay one company for electric and gas while another may pay two different companies. One curious Iowan wondered why that is.
Curious Iowa is a series from The Gazette that seeks to answer Iowans’ questions about the state, its culture and the people who live here. To answer this question, Curious Iowa looked into how service areas came to be and how regulators ensure Iowans pay a fair price for effective and efficient utilities. To limit the scope of the response, we focused on electric utility services.
Iowans can get utilities from a few different sources: investor-owned utilities like MidAmerican and Alliant Energy, municipal utilities and rural cooperatives. Municipal utilities usually operate as a division of local city government, whereas rural cooperatives are owned by their members. Rural cooperatives are nonprofit electric utilities.
The location of a property determines which utilities provider services an area. In 1976, the Iowa Legislature passed Senate File 1258 to establish exclusive electric service areas for efficiency’s sake. Creating these areas “avoids the unnecessary duplication of electric utility facilities” according to Iowa Code 476.25.
Iowa is one of 20 states that operate this way.
Iowa's electrical service area boundaries
Changes can be made to service areas. Two utilities in mutual agreement can file a service territory modification with the Iowa Utilities Board (IUB).
How are utilities regulated?
Regulation is key to ensure that Iowans pay a fair price for utilities. Investor-owned utilities MidAmerican Energy Company and Interstate Power and Light Company — better known as Alliant Energy — are regulated by the IUB.
In October, Alliant Energy requested an increase in its electric and natural gas base rates beginning in October 2024. If it’s approved, it would translate to customers paying, on average, an additional $10 per month. The last Alliant rate increase request was filed in 2019.
Alliant Energy spokesperson Morgan Hawk said in an email to The Gazette, “Since proposing our last rate increase request in 2019, we’ve managed costs and provided safe and reliable service throughout many of the same challenges our customers have faced, including the COVID-19 pandemic, extreme weather events like the derecho, higher operational costs, and other inflationary pressures that have impacted all industries.”
Hawk said the factors that figured into the rate increase include moving overhead lines underground, upgrading infrastructure and diversifying Alliant’s energy mix by adding solar energy.
After a rate increase request is filed, the IUB sets a procedural schedule and public hearing date. In November, multiple consumer comment meetings were held for the IUB to collect comments and objections. According to the IUB’s website dedicated to the Alliant rate case, IUB can “approve or deny the request, or approve the request with modifications” following the public meetings.
The IUB will review the request within 10 months and establish final rates.
For co-ops, the regulatory construct may vary by co-op, but they are locally governed by elected directors. Iowa Association of Electric Cooperatives Director of Regulatory Affairs Ethan Hohenadel said that the IUB does regulate pieces of electric cooperatives.
“So when you’re talking about the connection or the payment of service and for late payments and those kinds of items, they fall within the board’s jurisdiction. Other than that, there’s a lot of that stuff that’s left to the local boards …” Hohenadel said. “At the end of the day, if that community is going to be impacted by it and they agree that that’s how they want to run their co-op, it’s something that they can make that local decision and not have the board necessarily oversee.”
Deregulation would bring customer choice
Could the current system ever change? Yes, it has happened in other states like New York, Texas, and Illinois where the utilities market is deregulated. This means that the market is open to competition and customers have the right to choose their provider.
“MidAmerican has still those same physical lines, but the Illinois customer has the ability to choose who actually is selling them the power and then MidAmerican just charges for delivering that power to the customer. Iowa chose not to do that,” said Steve Guyer, Iowa Environmental Council energy and climate policy specialist. “Iowa chose to remain vertically integrated so that [one provider], whether it’s Alliant or MidAmerican, has all the way from production to delivery of the commodity.”
Earlier this year, The Gazette reported that a coalition of Iowa’s largest energy users want electricity choice. The alliance, whose members want to remain anonymous for fear of retribution from investor-owned utilities, want to see legislation addressing electricity choice for large energy users.
The Iowa Utility Association, which represents Alliant, MidAmerican, Black Hills Energy, ITC Midwest and NextEra Energy Resources, said the alliance’s proposal would only benefit a few customers and leave smaller customers to take on the ongoing cost of generation.
According to previous reporting from The Gazette, the Iowa Economic Alliance favors a hybrid system that allows large companies to buy from an open market, which four states — Virginia, Georgia, California and Oregon — use.
Have a question for Curious Iowa?
Curious Iowa is a series from The Gazette that seeks to answer readers’ questions about the state, its culture and the people who live here. Tell us what you’d like us to investigate next.
Comments: bailey.cichon@thegazette.com