Elkader Council continues to debate city’s energy future
Alliant Energy responds to questions
By Willis Patenaude
The debate over a franchise fee and extending the franchise agreement with Alliant Energy continued at last week’s Elkader City Council meeting. At its core, the debate is about whether or not the city will impose what amounts to an indirect tax on the residents via the franchise fee and whether the city is willing to sign another 25-year agreement, thereby limiting it’s future energy optionality, as council member Tony Hauber put it.
Alliant’s Senior Community and Economic Development Manager Keith Sherman and Operations Manager Dustin Mohs attended the meeting over the phone to answer questions and help the council make an informed decision.
From the start, Alliant mentioned the previous meeting had an “adversarial tone,” something council member Bob Hendrickson apologized for and Hauber noted was never the intent. For Hauber, the most vocal member on the issue, it was simply a fact-finding mission.
One of the items Hauber wanted to know was, if the franchise fee is passed, how much revenue would it generate for the city. The answer is about $18,000 a year, which is currently what is collected through the LOST tax. If the city implemented the fee, it would be able to keep the entirety of the $18,000 it generated, something which it cannot do under the LOST tax, which is collected and then redistributed using a complicated formula.
Under this formula, only about 6.5 percent, or $6.47 for every $100, of LOST taxes collected in Elkader actually returns to Elkader. The rest is divvied up among other cities in the county. Since Elkader residents already pay 1 percent to LOST through their Alliant bills, all that would change is 1 percent would be categorized under franchise fee on their bill, and the money would stay in Elkader.
While there was some confusion about whether Alliant profits from the fee, Sherman, in a separate interview, stated the company doesn’t make any profit from the fee, and hasn’t since discontinuing the practice in 2009.
While mayor Josh Pope supports the fee because it means “what is generated here stays here to help the residents that generate the revenue,” Hauber sees it as simply removing money from other towns and community budgets that might rely on it, and doesn’t view it as a gain.
In response, Pope suggested that Elkader actually generates more LOST money than other communities of comparable size, which is further justification to keep the money in Elkader.
According to a Retail Trade Analysis done by Iowa State University for fiscal year 2019, the mayor is not wrong. In the per capita sales comparison based on peer groupings of towns of similar sizes, Elkader was ranked second out of 115, with over $33,000 in per capita sales. The question, on this issue at least: Does Elkader want to keep all the money at the expense of removing it from the budgets of other communities?
Another fact-finding inquiry was how much Alliant has invested in Elkader versus how much profit the company makes. At the meeting, Sherman stated the company has invested $2.6 million in the last five years and close to $3 million over the last decade. The investment includes improvements to the sub-station and renovating the operations center; installing lines underground that run to the hospital, to the north and west of the school, and low voltage lines to homes; improving reliability through limiting weather related outages; and simply the act of having four employees working in Elkader.
As far as profits go, Alliant’s Director of Customer, Community and Economic Development, Scott Drzycimski, suggested that, while the company is not against sharing that information, it is difficult to calculate because it doesn’t calculate it on a city-by-city basis. He asserted, though, that the revenue covers the costs the company incurs.
Along with this investment versus profit line of questioning is the average cost of a resident’s electric bill. As noted previously, Alliant’s average cost has increased by 2.28 percent each year since 2010, even as the company increased its use of cheaper renewable energy to nearly 40 percent. In the interview with Alliant representatives, they did respond. Drzycimski said the reason for this is due to the investments, or up front capital cost needed for upgrading older facilities and transmission systems and the cost of transitioning away from coal to renewable energy, something Alliant hopes to fully complete by 2040. All of these costs have been trending upwards.
Drzycimski also phrased it as Alliant is in the “investment phase with the transition,” which typically comes with higher rates. However, he also stated that, with the drop in fuel costs, the rates basically offset each other. Over time, the consumer will see savings.
During the interview, Alliant spokesperson Morgan Hawk stated a lot of factors go into determining rates, but he also said the average bill in Iowa is $124, which is in the “lowest quartile in the state.” He also reminded that, within that cost, each community Alliant services is undergoing the transformation process and that Alliant, as a company, is at the front of that transformation.
The meeting also returned to the issue of the $30,000 Elkader pays for servicing on the poles and changing street lights. While some council members believe collecting the $18,000 is worth implementing the franchise fee, it could be implied that money will simply cover the cost of the $30,000, thereby negating any revenue in the process.
According to Pope, that’s not how it works, as both are “different buckets of money” with their own set of rules for how it can be used.
“We pay for street lights out of road use tax funds and there are only certain things you can use RUT on. The franchise fee would have more general application and flexibility,” Pope said.
In the interview, Mohs said the $30,000 covers more than lights. It also covers basic maintenance, fixing wires, repairing transformers, tree removal, repairing weather damage and the more expensive LED lights. He also stated that, some years, resolving these issues costs more than $30,000. When that happens, the additional cost is never passed on to the customer.
A final part of the fact-finding mission by Hauber, is whether the city should sign another 25-year agreement and give up optionality, which basically means municipalization of its energy. That idea that is opposed by former Alliant employee and council member Daryl Koehn, who also took issue with the questions pertaining to Alliant’s profits, calling them “inappropriate,” before declaring that Alliant “is entitled to a profit. That’s what makes the world work.”
Regarding the idea of municipalization, Pope said in a separate interview that more information would be needed before the city pursued this path. “I don’t support being anti-big corporation for the sake of being anti-big corporation, and I get the feeling that is what this is about,” he added.
As for the actual 25-year agreement, Alliant stated at the meeting that, if the city renewed early, it would add in a renegotiation window at year 15. Both Sherman and Mohs indicated Alliant is not advocating for either a franchise fee or an early agreement renewal. The company is simply providing information to the city, and all the representatives commented on the good relationship Alliant has had with Elkader and how they wish to continue that strong partnership.
“We have had a good working relationship with Alliant Energy and I have no problem making another 25-year agreement with them,” Pope agreed in the interview.
The ordeal led usually reserved council member Randy Henning to caution the council against dragging its feet and delaying the process, because that practice has not worked out well for the city in the past.
The debate again ended in Hauber motioning to table the issue, and with Koehn representing the only “nay” vote. The motion passed 4-1, as council continues to consider its options and energy future.
