It seems like utilities are becoming a big topic of discussion in Decorah again. Yes, Alliant Energy is investing in more renewable sources of energy. You might think, like I did at one point, that this means that Alliant Energy is taking some of its money and spending it on renewable energy projects for the benefit of all of us. The thing is, that’s not quite an accurate picture of what’s happening.
Alliant Energy isn’t just any old private company, it’s a private utility company. And the way utilities make money is a lot more complicated. Because Alliant Energy is the only one providing power in an area (in other words, it’s a monopoly), the government regulates it. In Iowa, this is done by the IUB or Iowa Utilities Board, which regulates the rates utilities like Alliant charge for energy. Without the IUB, a utility could charge really high rates that a customer would basically have to pay since there’s no one else to provide power.
Alliant Energy and the IUB negotiate something called the “revenue requirement”. The revenue requirement is the operating expenses plus the value of the physical assets Alliant owns (like the power lines, and, say, some wind turbines) multiplied by an agreed on rate of profit. That revenue requirement, once it is agreed on, is divided up among customers and becomes the rate you pay on electricity. Once Alliant Energy’s new wind turbine (for example) is built, it probably gets to charge you more since its physical assets are worth more. And Alliant is probably charging you a “rider” charge to recover the cost of building that turbine. Alliant itself admitted in its shareholder release for August 6th of this year that much of its increased profit was due to an increase in the value of its physical assets.
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