Study says Marion could save millions by taking over the city's utilities, Alliant disputes it

Marion could save $220 million over 25 years

Trish Mehaffey
Published: July 14 2013 | 11:00 am - Updated: 29 March 2014 | 4:59 am in

The City of Marion is considering establishing a new electric utility, which could save the city more than $220 million over 25 years, according to the Electric Utility Municipalization Preliminary Feasibility Study.

Ryan Miller, Marion Public Service director, said the city leaders are focused on sustainability and what will be the best course of action for the future. If the city decides to go forward, it would take over the electric distribution facilities of Interstate Power and Light Company (IPC), an Alliant Energy subsidiary, and establish a city electric utility.

The study analyzes the economic feasibility of acquiring IPL's local substations, distribution and service lines, transformers, meters, lighting and related equipment within the proposed electric service area.

John Reed, consultant with Concentric Energy Advisors working for Alliant, disputes the Marion study, saying most of the costs and savings estimated by Latham and Associates, the company which conducted the study, are inaccurate. Instead of Marion saving $220 million over 25 years, it will be in the red $40 million. The study underestimates the replacement cost of a new city system, the reintegration of customers from IPL to the city system, inflation costs and energy costs.

Reed and others from Alliant presented their analysis of the Marion study to the council on Thursday.

Miller acknowledged the fact that they expected Alliant would have a different view on the study, but he stressed the fact that no decisions have been made at this point. The council was only presented with the study a few months ago.

"We will consider the Alliant information," Miller said Friday."The objective is to get correct information. We will ask many more questions. We're not at a point to dispute any information."

Miller said the main reason Marion decided to look at this possibility is that it's a growing community that is progressive and they have to consider all options that might work best for the businesses and residents.

"We have to determine if Marion owned the distribution, would it benefit the residents," Miller said. "We also have to look at the financial capability of the city in taking this on."

According to the study the total operating expenses in the first year for Marion would be $23. 5 million, which is compared to IPL's estimated revenue from Marion electric utilities of nearly $28.1 million. The city's estimated savings would be $4.4 million that first year and over 25 years the city would save more than $220 million.

The operating expenses slightly go down to $23,449,850 in the second year because the costs associated with start up are eliminated but they go up after that because the cost of power and distribution continue to increase, according to the study. Purchased power including transmission is $14.7 million and distribution operation is more than $3.1 million in the first year and more than $15 million and more than $3 million in the second year.

The distribution operation then stays in the $3 million range for the next several years but the cost of power goes up about $1 to $6 million over the next eight years, according to the study.

Marion's operating costs continue to increase from $23.4 million to $29.7 million over the next eight years but are lower than IPL's estimated revenues which also continue to increase from more than $28 million to 38.7 million over eight year period, according to the study.

Reed said most of the costs were "grossly" underestimated and the savings is inflated. The study also estimates different inflation rates for the city and IPL, which makes no sense. IPL rates would increase 6.4 initially and then 4 percent the following years. The city's inflation would only go up 2.3 percent.

"Inflation would be the same for both," Reed said. "There's no justification for it."

Louie Ervin, Latham and Associates executive vice-president, said Friday the study doesn't adjust the inflation rate differently for IPL and the city. He said it's an inflation rate of 2 percent for both.

Reed also pointed out that of the six municipalization efforts in Iowa over the past 25 years were denied by the Iowa Utility Board, which has the jurisdiction to approve or deny the petitions. The cities were Sheldon, Everly, Kalona, Terril, Rolfe and Wellman. The board said the plans were not in the public interest and in some cases had concerns about the city's ability to safely operate the facilities, he said.

The other two cities, Titonka and Iowa City, who attempted to take over city utilities didn't make it to the board, Reed said. Titonka asked the board to dismiss its petition before the case was over and Iowa City didn't pass a public vote.

Ervin said the studies conducted for those other cities isn't the same as for Marion. In at least, one of those cases, the assumption was that a substation would be shared between Alliant and the city. There would be not sharing of substations in the Marion study. He said it was unfair to compare those smaller cities with Marion.

Ervin said there also were distortions of the study in Reed's presentation. Marion leaders did have another company out of St. Louis conduct a peer review of the Latham study and found the study's assumptions or projected estimates to be reasonable.

"We do agree on one thing and that is the city needs to do its due diligence before making any decisions," Ervin said.

 

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