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Iowa Utilities Board Approves Natural Gas Rate Hike; Keokuk Considering Legal Action

May 5, 2017

The Iowa Utilities Board will allow Liberty Utilities to increase monthly natural gas rates for customers in and around Keokuk. The decision has city leaders considering legal action.

The city council received an update on the IUB’s ruling from Mayor Tom Marion and City Administrator Aaron Burnett during the city council’s meeting Thursday night. Aldermen immediately afterwards held a 10-minute closed door meeting to discuss “potential litigation.”

The complete 46-page ruling from the IUB is available here.

Aldermen took no formal action after the meeting, but city staff said the city could appeal the final ruling through the court system.

Burnett said legal action is being considered because the IUB’s system for handling utility rate cases is “broken.” He pointed to the fact that Keokuk residents and businesses must reimburse Liberty Utilities, the IUB, and the Iowa Office of Consumer Advocate for legal fees and expert witnesses.

“I find this incredibly unjust and incredibly unreasonable,” said Burnett prior to the city council’s closed door discussion. “It was astounding to me that [the] IUB would do that.”

Marion said the reimbursement for legal fees encourages utilities to regularly seek rate increases because their expenses will be paid.

“We don’t think that’s fair,” said Marion. “Why would [utilities] ever not ask for a rate increase? They need some skin in the game.”

RULING

Liberty Utilities serves about 4,000 Iowa customers, primarily in and around Keokuk. The company asked the IUB last year for permission to increase its annual revenue by $1,000,000.

The IUB issued its final ruling on the request on April 28.

In it, the board gave its approval to a negotiated rate hike settlement between Liberty Utilities and the Iowa Office of Consumer Advocate, which intervened in the rate case. Keokuk and Roquette America also intervened and signed off on the settlement.

It allows Liberty Utilities to increase its annual revenue by $870,000. The company plans to do that by increasing the monthly base rate for customers.

Spokeswoman Jill Schwartz said the base rate for residential customers will increase from $11/month to $16/month. She said commercial customers who currently pay $17/month will pay either $30/month or $50/month, depending on their usage while industrial customers will stay roughly the same.

“The board finds that the settled rate design changes are reasonable in light of the record as a whole,” wrote the IUB in its final ruling.

The IUB also said that because Liberty Utilities was able to increase its rates on an interim basis while the permanent increase was being negotiated, the possibility of “rate shock” for customers was likely eliminated.

“The Board has analyzed rate increase impacts at various usage levels for the four customer classes in this case and observes that implementation of interim rates has significantly mitigated the potential for rate shock,” wrote the IUB.

The board did order Liberty Utilities to directly contact commercial customers whose annual bills would increase by at least 50% so the company can provide reduction options. The IUB anticipates about 60 businesses falling into that category.

RATE CASE EXPENSE

The nature of the negotiated settlement between the parties involved meant the largest unknown in the IUB’s ruling on April 28 was the amount of money the IUB would allow Liberty Utilities to recover from Keokuk residents and businesses for legal fees and expert witnesses.

Iowa Code requires the IUB to allow “recovery of costs of the litigation expenses over a reasonable period of time to the extent the board deems the expenses reasonable and just.”

Liberty’s initial estimate of the rate case expenses, issued  in August 2016, was about $390,000. That number jumped to nearly $610,000 by March 2017.

Liberty said it estimated low at the start because it anticipated a quick settlement as opposed to the long, drawn-out process.

The IUB said the decision to estimate a short process “had the effect of denying the other parties and the Board a meaningful opportunity to consider the reasonableness of Liberty’s rate case expense at the hearing.”

“The Board believes it is appropriate to disallow a portion of Liberty’s actual rate case expense as being unreasonable and unjust on this basis,” wrote the IUB.

The final number up for consideration was roughly $840,000. That includes $608,931 for Liberty’s expenses and $230,712 for expenses accrued by the IUB and the Office of Consumer Advocate.

The IUB could have withheld as much as $250,000 from Liberty due to what the IUB described as an unreasonable and unjust estimate, but instead, it withheld $25,000.

That means Liberty’s customers in Keokuk and the surrounding area will have to reimburse the company, the IUB and the OCA to the tune of $814,643. The negotiated settlement says that will be collected over seven years through a separate charge based on consumption.