A clean energy group is calling on the Iowa Utilities Commission and policymakers to ensure utility companies don’t use data center energy demands to build new facilities and pass the costs on to ratepayers.
Iowa Business for Clean Energy, in a news release Thursday, said Alliant Energy Corporation is using “loopholes” and “secret” rate agreements with data centers to build natural gas “peaker” plants without proving they are in the best interest of ratepayers.
“Iowa law does not require Alliant to prove this is the best option for ratepayers, nor do they need to prove the data center rates will cover the cost before these plants are built,” Bob Rafferty, executive director of Iowa Business for Clean Energy, said. “That’s backwards, it’s unfair and it’s wrong.”
Alliant Energy said in a statement that “existing customers will not pay for new large-energy-user growth.”
“As energy demand grows across the communities we serve, we are obligated to serve all customers,” a spokesperson for Alliant wrote. “We are also required to plan for and ensure that all customers receive reliable, cost-effective energy service, both now and into the future. Growth from new large energy users also helps spread costs across a larger customer base and supports long-term rate stability for customers.”
Rafferty flagged the planned construction of several natural gas plants, combined with confidential rate agreements between Alliant and data center projects, as reasons for concern that ratepayers, rather than data centers, could be “stuck” paying for plants.
Further, Rafferty argues that Iowa’s “utility friendly laws” mean that the Iowa Utilities Commission will not have to determine the “appropriateness” of the decision to build the peaker plants until the utility’s next rate case, at which point the plants will already be built.
Peaker plant ‘loophole’
Alliant Energy is planning three natural gas plants that would serve as “flexible” energy sources, able to quickly turn on and off during times of peak electricity demand. The proposed plants, often called “peaker plants” include the Morgan Valley Energy Center in Cedar Rapids, Bobcat Energy Center in Marshalltown and Riverhawk Energy Center in Cerro Gordo County.
Per the project websites, Alliant says these projects are necessary to “meet growing demand and load obligations” and specifies that the plants are not because of data centers.
Recent earnings reports from the company, which serves customers in Wisconsin and Iowa, show 3.4 gigawatts of contracted demand from data centers, and that the company anticipates 60% load growth by 2031.
Iowa Business for Clean Energy argued, in its news release, that Alliant is using data centers “as an excuse” to build the plants. Rafferty said the plants would increase profits for Alliant.
According to the most recent levelized cost of energy analysis from the industry group Lazard, gas peaker plants are the most expensive form of new energy generation.
Growing Iowa’s Economy, a group dedicated to promoting “responsible” data center development in Iowa, put out a news release Thursday afternoon arguing against the Iowa Business for Clean Energy claims.
On this point, the group said the generation methods compared in the Lazard study are “not necessarily interchangeable on a one-for-one basis” and that a resource designed to provide flexibility should not be evaluated “as though it were intended to operate continuously.”
According to Alliant’s application for a certificate of public convenience filed with the IUC for its Morgan Valley Energy Center, daily operations at the plant are dependent on “system loads and market conditions” which it says is largely dictated by the time of year. The document also states that operation at the plant could vary based on “anticipated increased customer and system loads” and other factors like diminished solar and battery capacities.
Rafferty argued that utilities don’t have to show that the capital expense of building a peaker plant is in the ratepayers’ best interest, prior to its construction.
“Alliant doesn’t even need to show the gas plants are needed, that the plants are the best option or that the data centers will pay their fair share to receive Iowa Utility Commission approval to build that massive amount of added capacity,” Rafferty said.
Growing Iowa’s Economy argued that because the investments will be evaluated at a future rate case, it is not accurate to “imply that billions of dollars can simply be added to customer rates without Commission scrutiny.”
The Iowa Utilities Commission did not respond to a request for comment Thursday.
Alliant’s spokesperson said customers have “stability” through the end of the decade due to the utility’s five-year base rate freeze.
“In addition, the costs of new generation facilities are not included in customer rates unless and until they are reviewed in a future rate proceeding before the IUC,” the spokesperson said. “Rates for large energy users are designed to ensure those customers bear the costs associated with serving their growth.”
‘Secret’ rates for data centers
Alliant has filings with IUC for individual customer rates with QTS for its Cedar Rapids data center. These rates, which are confidential to the public, exist to “spur economic development through attraction of incremental large loads,” according to Alliant’s request for review of individual customer rate service agreements with QTS filed with the IUC.
The filing says the individual customer rate is “designed to recover no less than the marginal costs to serve a customer over the term of the service agreement.”
Iowa Business for Clean Energy, citing the levelized cost of energy comparison, said the marginal costs – the cost of producing additional electricity – are “approximately half of the full costs” of peaker plant developments.
Rafferty said if data center usage “does not materialize” then “expenses would show up in public rates paid by Iowa households, small businesses, manufacturers, farms, schools, and local governments.”
Alliant said the individual customer rate agreements “protect existing customers while supporting economic growth.” The tariff rates, the spokesperson said, are “reviewed and approved” by the IUC and include “protections not available under standard customer tariffs.”
“The agreements are structured to ensure large energy users pay the full cost of serving their load, including costs associated with new infrastructure, rather than shifting those costs to existing customers,” the spokesperson said.
The review filed with IUC also states that the contract terms ensure the company will “recover its costs to serve the customer while protecting all other customers from bearing costs to serve the new load.”
Jesse Harris, a spokesperson for Growing Iowa’s Economy, said “it is fair” to question major energy investments.
“It is not fair to tell Iowa families they are being handed a multibillion-dollar energy bill while ignoring the agreements, regulatory oversight and customer protections specifically designed to prevent that from happening.”
Rafferty said if the projects are “good for Iowa,” then the “numbers should be able to withstand public scrutiny.”
