MidAmerican Energy wants to boost electric rates, and is proposing a first-ever "environmental compliance" adjustment clause to reflect those costs on customers' electric bills.
The privately owned utility says it plans to seek approval for an overall 3.5 percent rate increase in February 2012. Interim rates could be in place by March.
Rather than file a general rate case, the utility has outlined in filings with the Iowa Utilities Board (IUB) that it wants to add two automatic adjustment clauses for "environmental compliance" and "coal and coal transportation" costs.
Fuel (coal) adjustment clauses have been used by many utilities to reflect frequent variations in those expenses, but a separate adjustment for environmental compliance costs would be a first for state public utilities.
MidAmerican has avoided seeking an electric rate increase since 1996 and had agreed not to increase rates through 2013 under a deal with the IUB. That agreement, however, allows the utility to opt out if MidAmerican's return on equity falls below 10 percent.
MidAmerican President Bill Fehrman told the Des Moines Register Wednesday (12/7) the company's returns would fall below the 10 percent level this year. CLICK HERE for a five-year picture MidAmerican's returns and additional financial information.
The agreement enabled the utility to keep in place a high allowed rate of return while offsetting its higher operating costs with substantial sales to other utilities (wholesale buyers in the Midwest region) and lower borrowing (interest) costs.
MidAmerican has been able to sell between 35 to 42 percent of its total electrical generation on the wholesale market over the past five years. Prices on the wholesale market, however, have fallen and along with it utility revenues.
In its proposed notice to customers, MidAmerican said the automatic adjustment clause for "environmental compliance" costs would cover the "depreciation, operation and maintenance of environmental upgrades designed to reduce emissions."
The notice also said the expiration of a 10-year coal transportation contract in 2012 will result in a "significant increase" in fuel costs at its coal-fired power plants.
General rate cases are far more involved than reviews of adjustment clauses. A full rate case looks at the entire financial structure of the utility, including how much profit (return on equity) the company should be allowed and the cost of its debt to be recovered from customers.
MidAmerican is owned by Berkshire-Hathaway, the Omaha-based conglomerate controlled by Warren Buffet.
CLICK HERE to download the MidAmerican notice it plans to send customers when it files its electric rate case with the IUB.
