At a community meeting hosted by Decorah Power Thursday, national utility expert Dave Berg provided a detailed explanation of the differences between two recently completed studies that analyzed the feasibility of a municipal electric utility (MEU) for Decorah.
Berg of Dave Berg Consulting of Rosemount, Minn., NewGen Strategies and Solutions of Denver, Colo. and Exponential Engineering of Fort Collins, Colo., completed Decorah Power’s feasibility study. Alliant Energy, the city’s current electrical provider, had its own feasibility study of a Decorah MEU conducted by Concentric Energy Advisors, which has offices in Marlborough, Mass. and Washington, D.C. Results of the two studies were reported to the Decorah City Council during separate meetings earlier this year.
Decorah Power is a non-profit citizens group exploring the possibility of a Decorah MEU. The group's current focus is to educate the community on the benefits of public power and to address concerns raised about emergency response, financial impact and other aspects of municipalization before Decorah residents vote on whether to pursue a MEU at special election May 1.
The referendum is not a vote to choose Decorah’s utility, Berg said. Rather, it is a vote to “continue the conversation” and allow the Decorah City Council to apply to the Iowa Utilities Board, which ultimately makes the decision about the electric utility provider for Decorah based on what the Board deems to be in the best interest of all customers in the community.

Differences
With approximately 50 community members in attendance at Carrie Lee Auditorium Thursday evening, Berg outlined several “major differences” between the two studies concluding that even if Alliant Energy’s study was correct in most of its numbers, the establishment of a Decorah MEU would show a positive financial return for the Decorah community.
Berg said differences between the studies include the assumed service areas, asset acquisition costs and startup costs. Berg also discussed discrepancies in rate assumptions, and explained how the differing assumptions affect overall financial projections.
An electrical engineer with over 30 years of experience in the utility industry, Berg began by outlining the results of the feasibility study completed by NewGen Strategies and Solutions, a national consulting firm that specializes in utility analyses. The study concluded that Decorah could save over $5 million per year with a reduction in costs of 30 percent compared to the current operation with Alliant Energy. The total costs considered in establishing the MEU included system acquisition and startup expenses, all of which are managed and paid for outside of taxpayer dollars, with the city of Decorah bearing no financial risk, Berg said.
Berg noted a study released by Alliant Energy arrived at different conclusions, and the majority of the presentation focused on those differences. He explained that roughly $15 million of the Alliant study total projected cost could be easily eliminated as fees that have no basis in Iowa law.

Service area
The first area of difference was the assumed service area.
“Would a new utility serve only the city of Decorah or would all Alliant customers in the region be served by the MEU?” Berg asked.
Alliant’s study assumes that the MEU would separate existing customers into two groups: those within the city limits, and those without, at a price tag of $11 million for a “reintegration fee,” Berg said. He explained the Iowa Utilities Board (IUB) would never approve the separation since their mandate is to make decisions in the best interests of the community, not necessarily by geographic city limits.
Berg quoted the IUB’s ruling that stated, “the Board does not rule out establishing electric service area boundaries that go beyond the city limit.” He also emphasized the IUB’s repeated statement that, “unreasonable duplication of facilities should be avoided.”
In addition to eliminating the $11 million cost of separating the service area, Berg also dismissed Alliant’s claim the company would be paid $4.5 million for “going concern.” According to Berg, this term is used to describe the value of a customer base in a competitive marketplace. Since Alliant has a monopoly, “they are assigned their customers, they do not earn them, and there is no precedent for a utility being paid this sort of fee.”
The studies also differ in the cost to acquire the physical assets in Decorah, Berg said. The inventory completed by NewGen arrived at a cost of $5.6 million while Alliant estimated the cost to be $20 million. According to Berg, the significant difference in the numbers is based on different ways to calculate assets.
“If you’re not embroiled in this stuff, it’s hard to recognize that there are so many ways to estimate assets,” said Berg.
He explained the use of a “sensitivity analysis” based on a comparison of the two feasibility studies that sought to find a middle ground between the two approaches. Based on this financial analysis, Berg concluded a locally managed public MEU in Decorah would be profitable even if the acquisition costs proposed by NewGen were doubled or tripled.

Rate projects
A final issue of analysis was differences in rate projections. Berg said the major difference was Alliant’s assertion that their rates would only increase at 0.7 percent per year. Berg noted that Alliant’s rates have increased by an average of 2.5 percent per year for the last 15 years and the company recently raised rates by 7.8 percent.
Berg also cited significant areas of agreement between the two studies. The analyses arrived at similar conclusions on costs of wholesale electricity and transmission costs from major energy producers to the Decorah substation.
In addition, Berg clarified “ misconceptions” that currently exist related to a possible Decorah MEU, including potential tax implications or additional expenditures.
“The establishment of an MEU would not increase Decorah property taxes,” stated Berg. “MEUs are independently managed, non-profit entities that are obligated to manage utility service in a community’s best interest, with operating revenues channeled back to the community in the form of property-like taxes and general fund transfers.”
Currently Alliant pays $167,000 annually to the city of Decorah in property taxes; according to conservative accounting, NewGen estimated that in addition to lowering individual customer rates, a Decorah MEU would contribute approximately $572,000 annually to the city.
After the presentation, members of the audience asked questions ranging from detailed inquiries about the studies to general questions about the referendum and application process.

Alliant responds
Officials from Alliant maintain their feasibility study showed a MEU would be detrimental for Decorah.
“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 and fewer renewable energy resources,” a statement issued by Alliant Tuesday said.
“Those are the conclusions of a study conducted by Concentric Energy Advisors, a team of nationally respected experts with significant experience evaluating energy issues. The approach they utilized in developing the report has been used and approved in the municipalization cases that have come before the Iowa Utilities Board over the past 20 years. These findings underscore the substantial risks facing Decorah that could impact the community’s finances for years to come.
“For more than a century, Alliant Energy has partnered with Decorah to provide reliable, affordable, and increasingly cleaner energy to residents and businesses throughout the community. Our team of 17 local, Decorah-area employees have the knowledge and local equipment and supplies to respond effectively and quickly to unexpected issues. Alliant Energy’s local investments are enhancing the security of the power grid, delivering clean energy resources, and providing more reliable service.
“Over the next several weeks, we look forward to continuing to speak with customers about the upcoming referendum and the significant risks in municipalizing,” the statement from Alliant concluded.