Settlement C
STATE OF IOWA
IOWA UTILITIES BOARD
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IN RE: ) DOCKET NO. APP-96-1 AND
) RPU-96-8
MIDAMERICAN ENERGY COMPANY ) (CONSOLIDATED)
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SETTLEMENT AGREEMENT
ARTICLE I - INTRODUCTION
On June 4, 1996, MidAmerican Energy Company (MidAmerican)
filed with the Iowa Utilities Board (Board) an "Application for Adoption of
Market-Based Pricing Proposal." In its filing, MidAmerican requested Board
approval of certain waivers, procedures, elimination of the energy adjustment
clause (EAC), and a series of six price reductions primarily for the residential
customer class totaling approximately $20 million annually. The Board docketed
the filing, identified as Docket No. APP-96-1, and set a procedural schedule.
On August 1, 1996, the Consumer Advocate Division of the
Department of Justice (OCA) filed a petition pursuant to Iowa Code
(Section)476.3 (1995) to reduce MidAmerican's electric rates by approximately
$100 million.
During its November 1996 billing cycle, MidAmerican reduced
its rates by $8,698,806 annually in the following rate classes and amounts:
South Industrial/Large General Service - $214,246; East Residential -
$2,352,988; and South Residential -
$6,131,572. In addition, MidAmerican provided its North Residential customer
class with a one time $10 bill credit ($1,359,300) during the same billing
month.
By order entered September 6, 1996, the Board consolidated the
two proceedings. Interventions were granted to Deere & Company, Aluminum
Company of America, Izaak Walton League of America, Iowa Energy Consumers, Iowa
Industrial Intervenors, Interstate Power Company, IES Utilities, Inc.,
Utilicorp United Inc., Iowa Association of Municipal Utilities, Iowa Community
Action Association, Iowa Citizen Action Network, Cargill, Inc., and United
States Gypsum Company. Numerous parties have filed statements or testimony and
sponsored evidence in the Consolidated Dockets.
ARTICLE II - PURPOSE
This Settlement Agreement has been prepared and executed by
the signatories hereto for the purpose of resolving all issues among the
signatories except for the issue of whether MidAmerican should be authorized to
create and show separately on utility bills a Public Programs Charge for (1)
electric energy efficiency expenditures and deferrals pursuant to Section
476.6(19) of the Iowa Code; (2) alternate energy production purchases required
by Section 476.43 of the Code; (3) alternate energy revolving loan fund payments
required by Section 476.46 of the Code; and (4) new taxes or mandated
expenditures.
This Settlement Agreement is applicable only to Docket Nos.
APP-96-1 and RPU-96-8. This Settlement Agreement supersedes the Stipulation
Regarding 1995 Income Tax
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Expense filed by MidAmerican and the OCA with the Board in these Dockets. This
Settlement Agreement does not supersede the agreement between MidAmerican's
predecessor, Midwest Power Systems, and OCA dated October 20, 1994, a copy of
which is attached hereto as Appendix I.
In consideration of the mutual agreements hereinafter set
forth, the signatories stipulate as follows:
RATES
1. The initial reduction (approximately $8.5 million annually for certain
residential customers and approximately $200,000 annually for certain
industrial customers), already implemented in the November 1996 billing
cycle, will be applied retroactively to August 1, 1996. Interest at a
15.37% annual rate will apply to the refund amounts from August 1996 to
the month the refund occurs. No interest will be paid on the
approximate $1.35 million credit previously provided to North system
residential customers. There will be no reallocation of the initial
reduction among customers or classes.
2. An additional base rate reduction of $25 million shall be made as
follows:
CLASS AMOUNT EFFECTIVE DATE
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Residential $10 million Consumption on and after approval of
settlement
Residential $ 5 million Consumption on and after
June 1, 1998
Commercial/Small General Service $ 4 million *
Industrial/Large General Service $ 6 million *
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*These amounts shall be utilized for customer savings/price reductions
in pilot projects such as unbundled pricing/retail access or in
negotiated individual contract prices for customers within the class.
To the extent that by June 1, 1998 the Board has approved a pilot
project or projects, if any, for the class that, in combination with
individually negotiated rate reductions, will not utilize the full
amount of the rate
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reduction amount, the remaining rate reduction amount shall be applied
as an annual base rate reduction for the class to be effective June 1,
1998.
The signatories agree that there will be no pilot project required for
the residential class before December 31, 2000.
MidAmerican may, at its option, propose pilot projects or negotiate
individual contracts with customers that collectively exceed the
amounts in the table above. MidAmerican shall not attempt at any time
to recover from other retail customers any reduction in electric
revenues caused by any pilot project approved between the date of this
Settlement Agreement and June 1, 1998. With respect to any reduction in
electric revenues resulting from any pilot project approved between
June 1, 1998 and December 31, 2000, MidAmerican may only seek to
recover such revenue reductions from other customers within the same
class eligible for the pilot project. With respect to any revenue
reduction resulting from additional negotiated individual contracts,
MidAmerican may only seek to recover the revenue reduction in
accordance with paragraph 1 of the section titled "Waiver" of this
Article II.
MidAmerican may allocate the rate reductions within a given class in
such a manner as will reduce price disparity for comparable service
within the given class. The tariffs for the $10 million residential
rate reduction to be effective upon Board approval of this Settlement
Agreement are attached hereto as Appendix II. The tariffs in Appendix
II do not include any of the costs that would be recovered through a
Public Programs Charge and do not include the EAC factors discussed in
paragraph 3 below. The tariffs do include the initial charge for the
Cooper Nuclear Station cost tracking mechanism discussed in paragraph 4
below. Proposed tariffs for the June 1, 1998 residential rate reduction
and any June 1, 1998 commercial or industrial rate reduction as
discussed above shall be provided to the parties by February 1, 1998.
3. MidAmerican will eliminate the EAC on or prior to July 1, 1997. Base
rates for energy shall be increased at the time of the EAC elimination
by a roll-in factor. The factor applicable to former Iowa-Illinois
customers shall be 0.8650 cents per kilowatt-hour and the factor
applicable to former Midwest Power Systems customers shall be 0.9151
cents per kilowatt hour.
On February 1, 1999, MidAmerican will file with the Board the
calculation of calendar year 1998 costs per kWh (1998 roll-in factor)
that would have been eligible for EAC recovery if the EAC had remained
in effect. If the calculated 1998 roll-in factor, calculated consistent
with the method the 0.8650 cents per kilowatt hour was
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calculated in MidAmerican's filing in Docket No. APP-96-1, is less than
0.7353 cents per kWh (i.e., less than 85% of 0.8650 cents per kWh),
base rates shall be reduced by the difference between the 1998 roll-in
factor and 0.7353 cents per kWh. If the calculated 1998 roll-in factor
exceeds 0.9948 cents per kWh (i.e., 115% of 0.8650 cents per kWh), base
rates shall be increased by the difference between the 1998 roll-in
factor and 0.9948 cents per kWh. Any adjustment shall be effective
prospectively from March 1, 1999. The methodology for normalizing the
1998 nuclear refueling outage costs is attached hereto as Appendix III.
The EAC or any portion thereof may only be reinstated with Board
approval. With the exception of revenues associated with required
energy efficiency expenditures, alternate energy production payments
and alternate energy loan fund assessments, all revenues associated
with costs that would have been recovered through the EAC shall be
included in the calculation of revenues for the purpose of the sharing
mechanism of paragraph 5.
4. The cost tracking mechanism for capital additions for Cooper Nuclear
Station for 1997 and beyond, outlined in OCA witness Fuhrman's rebuttal
testimony at pages 44 through 46, will be implemented. However,
MidAmerican will be allowed to earn both a return of and a return on
capital additions at Cooper Nuclear Station that occur from January 1,
1996 through the effective date of implementation of the tracking
mechanism. MidAmerican will not include in the costs recovered through
the tracking mechanism the following three types of costs: (1) AFUDC on
1996 and January through May 1997 construction expenditures; (2)
construction work-in-progress (CWIP) as of May 1997; and (3) AFUDC on
CWIP. MidAmerican shall be allowed to include the foregoing costs in
the calculation of the jurisdictional returns on common equity, as
referenced in paragraph 5 below.
The amounts recovered through the cost tracking mechanism shall be
allocated among classes using the "average and excess" methodology, as
applied to other non-fuel expenses at Cooper Nuclear Station. The
tariffs for the cost tracking mechanism are attached hereto as Appendix
IV. OCA reserves the right to object to any unreasonable charges
proposed or assessed under the tracker.
5. In the event MidAmerican earns more than a 12% return on common equity
on jurisdictional electric operations in calendar year 1997, 1998, 1999
or 2000, 50% of any revenues in excess of the 12% earned return on
common equity shall be credited to non-contract customers prior to
April 1 of the following year. The credit amount shall be allocated
among the residential, commercial/small general service and
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industrial/large general service classes to provide an equal percentage
bill credit per class.
MidAmerican shall use two-thirds of the revenues it retains above a 14%
return on common equity on jurisdictional electric operations in 1997,
1998, 1999 or 2000 to accelerate the recovery of regulatory assets
involving, first, D.O.E. Fees and, second, Debt Refinancing Costs.
Except as provided in paragraph 3 and except to recover the costs of
energy efficiency expenditures and deferrals pursuant to Section
476.6(19) of the Code, alternate energy production purchases required
by Section 476.43 of the Code, alternate energy revolving loan fund
payments required by Section 476.46 of the Code and new taxes or
mandated expenditures, MidAmerican commits not to seek an increase in
its electric prices before December 31, 2000, unless its jurisdictional
return on common equity on electric operations in any 12-month period
falls below 9%. MidAmerican can continue to file for and recover energy
efficiency costs as approved by the Board.
The signatories commit not to request commencement of a rate reduction
proceeding against MidAmerican prior to December 31, 2000 unless
MidAmerican's jurisdictional return on common equity on electric
operations exceeds 14% after reflecting the credits to customers
provided for in this paragraph 5.
After December 31, 2000, any signatory may file with the Board for an
increase or decrease in MidAmerican's rates.
The methodology to be used to calculate the jurisdictional returns on
common equity on electric operations is attached hereto as Appendix V.
Results for 1997 and 1998 shall first be adjusted to assume a full year
of the rate reductions provided for in paragraph 2 above.
The above sharing arrangement shall be a pilot project only and is
limited solely to this proceeding.
WAIVERS
1. The signatories to the Settlement Agreement support a waiver for
MidAmerican of subsections 20.14(2), 20.14(3), 20.14(4)"d" and
20.14(5) of the Board's flexible pricing rules. MidAmerican shall be
able to negotiate non-standard prices, terms and
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conditions of service with any customer based upon the cost of serving
that customer, subject to the restrictions of this paragraph. A
negotiated price, term or condition need not be filed with the Board
before it becomes effective, but MidAmerican must continue to comply
with the reporting requirements of subsections 20.14(4)"a", "b" and "c"
of the Board's rules. MidAmerican shall not agree to a price, except
for competitive reasons, below its expected short run marginal cost of
serving the customer unless the Board approves. MidAmerican shall not
be required to offer the same price, term or condition to another
customer simply because the customer makes the same end product or
offers the same service. Upon the written joint notification of
MidAmerican and the customer filed with the Board prior to the
effective date of the contract, the negotiated contractual provisions:
(1) can be for a term exceeding five years; and/or (2) shall be treated
as confidential information. MidAmerican shall not attempt at any time
to recover from the other retail customers any reduction in electric
revenues caused by non-standard prices, terms and conditions of service
negotiated with a customer in a contract executed between January 1,
1997 and June 1, 1998. With respect to a contract with a customer for
non-standard prices, terms and conditions executed between June 1, 1998
and December 31, 2000, MidAmerican may only seek to recover any
associated revenue reduction from other customers within the same rate
class as the customer negotiating the contract.
The flexible pricing arrangement as set forth in this paragraph shall
be a pilot project only and is limited solely to this proceeding.
2. The signatories to this Settlement Agreement support a procedure before
the Board by which tariffs filed by MidAmerican that are optional for
customers shall be allowed to become effective immediately upon filing
with the Board. The signatories agree that unbundled pricing tariffs
and a retail wheeling/direct access pilot project could be subject to
suspension at the Board's discretion for no more than six months. The
Board shall have the full authority to investigate the tariff option
filings and to fashion appropriate remedies within its statutory
authority at the conclusion of its investigation. MidAmerican agrees
that it will not protest a decision by the Board to order appropriate
refunds in those cases in which the Board determines it to be in the
public interest; however, such refunds shall be without interest in
recognition of the optional and consensual nature of the tariffs.
MidAmerican shall not be required to reduce other rates, charges or
prices to reflect anticipated revenues from the optional tariffs.
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BUY-THROUGH OPTION
MidAmerican and any interested signatories to this Settlement
Agreement will collaborate to develop a buy-through option for customers served
under interruptible electric tariffs. The signatories agree to cooperate to
obtain Iowa Utilities Board approval and any approvals for such buy-through
option required by the Board, other regulators, and the MidContinent Area Power
Pool. Any revenue loss shall be recovered, if at all, from participating
customers or from a portion of the $6 million industrial and $4 million
commercial flexible rate and pilot project amounts. The OCA's participation in
the development of the buy-through option tariff shall not be construed to
preclude it from submitting testimony challenging those parts of the tariff with
which it disagrees when the tariff is filed with the Board or other regulatory
agency.
MARKET ACCESS SERVICE PILOT
MidAmerican will engage in good faith negotiations with the
signatories to develop a Market Access Service Pilot for industrial/large
general service customers. The pilot will be optional for industrial customers.
All signatories will cooperate to achieve the objective of filing the Market
Access Service Pilot within 90 days from the effective date of the final Board
order in Consolidated Docket Nos. APP-96-1 and RPU-96-8. Unless otherwise agreed
to by the signatories, the Market Access Service Pilot will comport with the
outline in Appendix VI, attached hereto. The OCA's participation in the
development of the Market
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Access Service Pilot shall not be construed to prelude it from submitting
testimony challenging those parts of the Pilot with which it disagrees when the
Pilot is filed with the Board or other regulatory agency.
MidAmerican agrees that it will not seek to recover from
residential or commercial/small general service customers any reduction in
revenues associated with the Market Access Service Pilot.
ARTICLE III - JOINT MOTION
Upon execution of this Settlement Agreement, the signatories
shall file the same with the Board, together with a joint motion requesting that
the Board accept the Settlement Agreement for the purpose of these Consolidated
Dockets, without condition or modification.
ARTICLE IV - CONDITION PRECEDENT
This Settlement Agreement shall not become effective unless
and until the Board accepts the same in its entirety without condition or
modification.
ARTICLE V - PRIVILEGE AND LIMITATION
This Settlement Agreement is made pursuant to Iowa Code
(section)17A.10 and 199I.A.C. (section)7.2(11). The Settlement Agreement shall
become binding upon the signatories upon its execution; provided, however, that
if this Settlement Agreement does not become effective in accordance with
Article IV above, it shall be null, void and privileged. This Settlement
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Agreement is intended to relate only to the specific matters referred to herein.
No signatory waives any claim or right which it may otherwise have with respect
to any matter not expressly provided for herein. No signatory shall be deemed
to have approved, accepted, agreed or consented to any ratemaking principle,
any method of cost of service determination, or any method of cost allocation
underlying the provisions of this Settlement Agreement or be prejudiced or
bound thereby in any other current or future proceeding before any agency. No
signatory shall directly or indirectly refer to this Settlement Agreement as
precedent in any other current or future proceeding before the Board.
ARTICLE VI - PROCEDURE APPLICABLE TO UNRESOLVED ISSUE
The unresolved issue of whether MidAmerican should be
authorized to create and show separately on utility bills a Public Programs
Charge shall continue to be litigated on a schedule established by the Board. In
the event the Board does not approve the Public Programs Charge for MidAmerican,
the signatories agree that MidAmerican may seek approval of an alternative,
contemporaneous, cost-tracking recovery mechanism for (1) electric energy
efficiency expenditures and deferrals (including interruptible rate credits)
pursuant to Section 476.6(19) of the Iowa Code; (2) alternate energy production
purchases required by Section 476.43 of the Code; (3) alternate energy revolving
loan fund payments required by Section 476.46 of the Code; and (4) new taxes or
mandated expenditures.
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ARTICLE VII - EXECUTION
To facilitate and expedite execution, the Settlement Agreement
has been executed by the signatories in multiple conformed copies which, when
the original signature pages are consolidated into a single document, shall
constitute a fully-executed document binding upon all the signatories to be
filed with the Iowa Utilities Board.
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MIDAMERICAN ENERGY COMPANY
By: /s/ Brent E. Gale
_______________________________________
Brent E. Gale
Vice President-Law & Regulatory Affairs
One RiverCenter Place
106 East Second Street
P.O. Box 4350
Davenport, Iowa 52808
319/333-8010
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OFFICE OF CONSUMER ADVOCATE
By: /s/ James R. Maret
______________________________
James R. Maret
Leo J. Steffen, Attorney
Ben Stead, Attorney
Ronald Polle, Attorney
Lucas State Office Building
Des Moines, Iowa 50319
515/281-5984
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Signature page to "Settlement Agreement C" in Docket Nos. APP-96-1 and RPU-96-8,
In Re: MidAmerican Energy Company executed on February 26, 1997.
IOWA ENERGY CONSUMERS
By /s/ Michael R. May
__________________________________
Michael R. May
Suite 935 - Two Ruan Center
601 Locust Street
Des Moines, Iowa 50309
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SETTLEMENT AGREEMENT
ALUMINUM COMPANY OF AMERICA
By /s/ Richard P. Noland
_____________________________
Richard P. Noland
David I. Adelman
Sutherland, Asbill & Brennan
111 Congress Avenue
Twenty-Third Floor
Austin, Texas 78701-3350
William H. Penniman
Glen S. Howard
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
Coralyn Benhart, Esq.
1501 Alcoa Building
Pittsburgh, Pennsylvania 15219
Robert H. Gallagher
Wells, Gallagher, Roeder & Millage
1989 Spruce Hills Drive
Bettendorf, Iowa 52722
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DEERE & COMPANY
By /s/ Kathleen R. Gibson
_______________________________
Kathleen R. Gibson
Deere & Company
John Deere Road
Moline, Illinois 61265
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CARGILL INC.
By /s/ M. Moelle
________________________________
for Ronald L. Laumbach
15407 McGinty Road West
Wayzata, Minnesota 55391-2399
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SETTLEMENT AGREEMENT
U.S. GYPSUM COMPANY
By /s/ Richard P. Noland
________________________________
Richard P. Noland
David I. Adelman
Sutherland, Asbill & Brennan
111 Congress Avenue
Twenty-Third Floor
Austin, Texas 78701-3350
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INTERSTATE POWER COMPANY
By /s/ Christopher B. Clark
_______________________________
Christopher B. Clark
1000 Main Street
P.O. Box 769
Dubuque, Iowa 52004-0769
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IES UTILITIES, INC.
By /s/ Jonathan Rogoff
________________________________
Jonathan Rogoff
200 First Street, S.E.
P.O. Box 351
Cedar Rapids, Iowa 52406
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