Utilities say: More power to you, Iowa!

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De Moines Register

January 6, 2005

The new year opens with Iowa poised to deliver more of a home-grown commodity - electricity.

MidAmerican Energy's new generating facility at Pleasant Hill is fully operational. Along with an Alliant Energy power plant that opened last spring near Mason City, Iowa saw in 2004 its first new power plants in 20 years.

"We're building diversity into our generation portfolio," said Jack Alexander, a MidAmerican executive.

The new plants come as energy prices remain volatile and utilities work to improve power reliability after the 2003 blackout that affected much of the Northeast and parts of the Midwest.

But some industry observers frown upon construction of new natural gas-fired plants, such as the Mason City and Pleasant Hill plants, which they say contribute to natural gas demand when prices already are high.

"What it does is it keeps up the price of the natural gas that (utilities are) selling to people," said David Osterberg , executive director of nonprofit research group the Iowa Policy Project.

Five years ago, an Iowa Utilities Board study warned that increasing energy use could lead to an energy shortage in Iowa. Utilities typically have contracts by which they purchase power from various providers. With some of those contracts expiring, MidAmerican needed to build new generation, Alexander said.

In 2001, the Legislature changed an Iowa law that utilities said deterred building new plants. Utilities used to find out how much of their costs they could recover only after building a plant.

Now utilities can determine their rate of return before building, giving them the chance to consider the expense beforehand, Alexander said.

MidAmerican also has broken ground on a new coal-fired plant in Council Bluffs.

The Iowa Utilities Board last month granted a rate increase for Alliant, which the utility sought to recover costs for its Mason City plant.

Costs for MidAmerican's Pleasant Hill facility won't be immediately passed on to customers, whose rates are set until 2010. Mid- American has surplus energy to sell, which Alexander said will help recover expenses and lessen the chance the utility will need a rate increase.

But natural gas prices remain volatile. The North American Electric Reliability Council has noted the industry's growing dependence on natural gas as "an emerging area of concern."

The new Mason City and Pleasant Hill plants use natural gas to turn power-generating turbines, but also recover heat from the process to produce steam that turns another turbine in what the industry calls a "combined cycle."

The steam portion of the cycle produces energy without any additional fuel expense. And the plants don't run all the time. Unlike coal plants that run continuously to provide "baseload" electricity, the natural gas plants are used only at peak demand times.

Iowa's two largest utilities also are pursuing renewable energy. Alliant is a partner in a Chariton Valley plant that burns switchgrass to produce electricity. MidAmerican is in the midst of building a 310-megawatt wind project in northern Iowa.

Osterberg said he understands utilities need to add more generating capacity, but he said they should do so by boosting renewable generation. He advocates a requirement that 20 percent of a utility's energy comes from renewable sources.

"This is not Denmark yet," Osterberg said, referring to that country's extensive wind generation. "But (MidAmerican and Alliant are) doing better than a lot of companies are."