Pella Electric Cooperative trying to discourage customers from installing solar or wind

Solar power made big news in Iowa today, as former Secretary of State Hillary Clinton spoke in Des Moines about ambitious goals for installing solar panels. In a forthcoming post, Bleeding Heartland will compare the Democratic presidential candidates' proposals to combat climate change by increasing renewable energy production and decreasing carbon emissions.

Iowa has tremendous potential to generate electricity from the sun. Recognizing that fact, large bipartisan majorities in the Iowa House and Senate "triple[d] the size of Iowa's successful solar tax incentive program" in 2014 and during this year's session increased available solar energy tax incentive funds by another $500,000 to $5 million per year.

But some segments of the utilities sector have been slow to embrace solar power. One of Iowa's major investor-owned utilities persuaded the Iowa Utilities Board to block certain financing arrangements that made it easier for customers to install solar panels. An appeal of that administrative decision went to the Iowa Supreme Court, which overturned the Iowa Utilities Board last year.

Rural electric cooperatives, which supply electricity to roughly 650,000 Iowans, have approached renewable energy and solar power in vastly different ways. Farmers Electric Cooperative in the Kalona area installed the largest solar farm in Iowa last year.  

But as first reported by Karen Uhlenhuth at Midwest Energy News last week, the Pella Electric Cooperative is seeking to penalize customers who choose to install new solar or other renewable technology. Lee Rood picked up the story on the front page of today's Des Moines Register. The cooperative's new monthly charge for a handful of consumers is brazen and probably illegal.  

Uhlenhuth reported for Midwest Energy News on July 23 that at least one Pella Cooperative Electric customer "has ditched his plan to install solar panels" and another "foresees removing the solar panels on his home and his two hog barns before mid-August, 2020" because of a new fee the cooperative announced in June. Customers installing new solar or other renewable energy systems after August 15 will be charged $85 per month. Existing solar customers will be subject to the $85 monthly charge beginning five years from now.

Pella's announced charge is "definitely an extremely high fee," according to Amy Heart, the senior manager of public policy for The Alliance for Solar Choice. It appears to be one of the highest in the Midwest. [...]

Pella's board of directors decided to hike the fee for distributed generators on its system after it did a "cost of service" study, something it does periodically "to make sure the cost-causer is the cost-payer," according to John Smith, the co-op's chief executive officer.

The study concluded that customers who generate some of their own energy - there are now 12 of them in Pella's territory - are not paying their share of the co-op's costs to maintain and operate assets such as poles and power lines and transformers.

Smith declined to allow Midwest Energy News to review the study, saying it is "confidential" and "not subject to distribution."

Those "confidential" calculations led the cooperative to conclude that solar customers pay $57.50 per month less "towards maintaining the entire transmission and distribution system," which is why their monthly "facilities fee" will increase from the $27.50 other customers pay to $85.

Michelle Wei, a solar installer in the Des Moines area, dismissed that as "total nonsense," and said that the increased fee likely would exceed the total monthly bill of many customers.

In his June 5 bill, for example, [Pella Electric Cooperative member Mike] Lubberden said there's an "energy charge" of $83 - less than the $85 fee the co-op is proposing.

Unhappy customers plan to challenge the Pella cooperative's action at the Iowa Utilities Board. Lee Rood's story for today's Des Moines Register has more on that angle.

Environmental groups not only think the charge discourages the use of green energy, they think it is discriminatory.

"We're very concerned about this situation," said Josh Mandelbaum, a staff attorney at the Environmental Law & Policy Center in Des Moines. "We are hoping to get engaged in some capacity. We think it clearly violates Iowa law that prohibits discrimination against customers based on their choice to use renewable energy."

Mandelbaum said he's been researching the new monthly charge for new solar customers, which would be in addition to basic facility fees and user charges on utility bills that I recently wrote about in another Reader's Watchdog column. The new fee by Pella's cooperative, which serves five counties, is "far and away the highest proposal I've heard of," he said.

I am an active supporter of the Environmental Law and Policy Center as well as the Iowa Environmental Council, which collaborates with the ELPC on some of its work in Iowa. When I asked Mandelbaum about this story today, he pointed me to Iowa Code 476.21, which reads:


        A municipality, corporation or co-operative association providing

     electrical or gas service shall not consider the use of renewable

     energy sources by a customer as a basis for establishing

     discriminatory rates or charges for any service or commodity sold to

     the customer or discontinue services or subject the customer to any

     other prejudice or disadvantage based on the customer's use or

     intended use of renewable energy sources.  As used in this section,

     "renewable energy sources" includes but is not limited to, solar

     heating, wind power and the conversion of urban and agricultural

     organic wastes into methane gas and liquid fuels.  

That language seems unambiguous. An electric coop cannot penalize a customer for choosing to use renewable energy sources.

Speaking to Rood, the cooperative's chief executive served up some of the least convincing spin I've heard lately:

John Smith, CEO of the Pella cooperative, said early adopters of any new technology tend to pay more.

Currently, only about 12 customers interconnect with the cooperative's grid now - and only five or six of them are solar users.

He says the cooperative based the new monthly charge on cost of service and a desire to treat all customers fairly. As solar or wind energy takes off, consumption from the cooperative will decrease and other customers will have to pick up more of the cost.

"This tariff was put into place to protect the whole membership, not to punish one type of member," Smith said. [...]

"Everybody has a lot of passion about this topic. It's not our intent to stifle new technology," he said. "But this is a minor group of people. That will change over time ... our board will re-address that then."

It takes effort to pack so many non-sequiturs and unfounded assertions into a few sentences.

1. "early adopters of any new technology tend to pay more"

Early adopters do tend to pay more than those who benefit from economies of scale as any cutting-edge technology becomes more common. That doesn't give Smith and his board the power to levy an unreasonable facilities fee on those who install new solar panels or wind turbines. Iowa Code says cooperatives "shall not consider the use of renewable energy sources by a customer as a basis for establishing discriminatory rates or charges."

2. "the cooperative based the new monthly charge on cost of service"

The cooperative won't release the cost of service study for others to assess whether $85 per month is a reasonable fee.

3. "and a desire to treat all customers fairly."

The obvious way to treat all customers fairly is to charge them the same facilities fee, regardless of whether they choose renewable energy. That's the public interest Iowa Code 476.21 is protecting.

It's not clear how a handful of coop members installing solar panels adversely affects other customers at all today, let alone to the tune of $57.50 per month. The following sentence in Rood's article suggests the Pella coop's board sees the harm coming when renewable production becomes much more widespread: "As solar or wind energy takes off, consumption from the cooperative will decrease and other customers will have to pick up more of the cost." How about crossing that bridge when you come to it, preferably in a way that doesn't violate state law?

4. "This tariff was put into place to protect the whole membership, not to punish one type of member"

Protect the membership from what? From solar or wind energy becoming more popular, reducing the demand for electricity generated through traditional means?

Uhlenhuth's report indicates that the $85 monthly facilities fee will make it uneconomical to install solar power, or even to keep existing solar systems running after 2020. Sounds like the policy does punish one type of coop member.

5. "Everybody has a lot of passion about this topic."

Depicting critics as overly emotional is a classic tactic for discrediting them. Yet Pella coop customers who are affected by the new fee are understandably angry.

6. "It's not our intent to stifle new technology [...] But this is a minor group of people."

The "but" makes no sense in this context. How many Pella coop customers are affected by the facilities fee has no bearing on whether the policy will stifle new technology.

Not being a mind-reader, I can't prove the coop board intended to deter customers from choosing solar panels. But if an $85 monthly charge makes that choice financially non-viable, the effect will be to prevent installations of new technology.

7. "But this is a minor group of people. That will change over time ... our board will re-address that then."

Now Smith seems to be saying the board will deal later with expected growth in the number of renewable energy users. So why tack on a prohibitively high facilities fee now?

The Pella Electric Cooperative can't have it both ways. They can't claim the "minor group" of people who want to install new wind or solar will pay so much less into the system that they deserve to be charged $57.50 more per month than other customers, while also implying the impact of this "minor group" is negligible and can be reassessed when renewable energy becomes more widely adopted within the coop.

I wonder whether the cooperative's attorney or legal team will advise the board to back down sooner rather than later. It's hard to see how they could win at the Iowa Utilities Board or in court, if it comes to that.

Incidentally, the Iowa Utilities Board has much less oversight over rural electric cooperatives than over investor-owned utilities. For instance, the board does not have the power to approve or reject the electricity rates cooperatives charge customers (whereas MidAmerican and Alliant do need the board's approval for proposed rates). But according to Mandelbaum, the Iowa Utilities Board's jurisdiction over rural electric cooperatives does extend to enforcing state law's prohibition against discriminatory rates for certain kinds of customers.

Please share any relevant comments in this thread.

UPDATE: Karen Uhlenhuth reported for Midwest Energy News on July 27 that the Office of Consumer Advocate (part of the Iowa Attorney General's Office) has asked the Pella coop to provide documents related to the facilities fee by July 29.

Although he said he intends to share the study with the OCA, Pella's chief executive officer, John Smith, said he plans to continue withholding it from anyone else. [...]

Jennifer Easler, an attorney with OCA, said her office will consider "whether there's a cost justification" for Pella's intention to levy a higher monthly fee on distributed-generation customers. If her office concludes there's not a sufficient basis, it will turn the issue over to the Iowa Utilities Board for a hearing on the matter.

"Even though RECs and consumer-owned utilities are not rate-regulated," she said, "Iowa law does prohibit any utility from discriminating against a renewable-energy user. We are just trying to make sure the proposal would not be resulting in discrimination."

  • A facility fee is reasonable

    to cover fixed costs for being connected to the grid. My rural electric co-op charges a facility fee of $46.50 per month to all customers. What is unreasonable is to charge a higher fee to those who install solar or wind generation. That makes no more sense than charging a higher fee to customers who reduce consumption by other means: attic insulation, a ground-source heat pump (geothermal), or switching from an electric furnace or water heater to propane.

    • yes

      Currently the Pella coop is charging a reasonable $27.50 facilities fee to all customers.

      The law was written to protect against this exact scenario.

  • There are a range of differences among rural electric co-ops

    on there attitudes toward solar and distributed generation. Western Iowa Power Cooperative has been holding open houses on solar energy and facilitating adoption of solar by their customers (and others). I wrote a LTTE on this in December.


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