A more than 2 percent decline in MidAmerican Energy's return on common equity in 2011 has prompted the utility to abandon a nearly decade-long rate deal and seek a two-year electric rate increase totaling $115 million.
The privately owned utility sent customers notices of the rate increase a week ago and MidAmerican is expected to file the rate case with the Iowa Utilities Board (IUB) next week.
The IUB already has set customer comment meetings on the proposed rates, including a Tuesday, Feb. 28 session in Davenport at Modern Woodmen Park, 209 S. Gaines St.
MidAmerican could begin collecting the first year of the proposed rate increase ($39 million) as soon as March 2 on an interim basis. The remainder of the increase ($76 million) would go into effective January 2013, according to the rate letter to customers.
The utility wants to boost electric rates by implementing two energy adjustment riders -- an "environmental cost" and "fuel adjustment" clause -- which would be adjusted to reflect higher expenses from environmental upgrades to its power plants and higher priced coal contracts.
By avoiding full rate case review by the IUB over the past 10 years, MidAmerican has been able to retain a 12.2 percent allowed return on common equity. It also has been able to reduce its interest costs by refinancing its long-term debt at lower rates.
The utility also was able to sell large amounts of electricity on the wholesale market to other utilities, improving their returns and profiting both the utility and ratepayers under the revenue-sharing clause of the rate freeze.
With electric sales on the wholesale market falling amid the recession and excess generating capacity, so have returns under the rate freeze agreement, which allows MidAmerican to opt out should the return on common equity fall below 10 percent.
After hovering around 11 percent the past two years, MidAmerican's returns fell to 8.94 percent in 2011, according to the annual report filed with the IUB at the end of January.
One bright spot for the utility is the deal it struck with the IUB in connection with Its most recent wind-energy project, WInd VII, involving a total of 1,001 megawatts of electricity from wind turbines in Iowa.
The "advanced ratemaking" in the Wind VII settlement with the IUB assures MidAmerican a 10 percent return on equity from the Wind VII generating capacity. Under the "reverse revenue sharing" provision of the Wind VII order, MidAmerican received an estimated $2.8 million in additional revenue in 2011.
The exact investment cost of the Wind VII project, however, is confidential.
MidAmerican provided the project costs to the IUB and Office of Consumer Advocate in 2011, but asked the information not be made public claiming it would harm the utility's competitive position in future negotiations with wind turbine manufacturers.
The IUB granted the request for confidentiality.
MidAmerican Energy is a wholly owned subsidiary of Berkshire Hathaway, the Omaha-based conglomerate controlled by Warren Buffet.
