September 24, 2009 by ggackle
In a stinging rebuke to MidAmerican Energy's opposition to federal "cap and trade" legislation, the Iowa Department of Natural Resources (DNR) has labeled the utility's cost estimates of the proposed carbon reduction bill "inappropriate and greatly inflated."
The Iowa DNR testimony before the Iowa Utilities Board (IUB) August 27 points out MidAmerican's cost estimates of the legislation attributes both its wholesale and retail emissions to only its retail customers, thus inflating the cost to Iowa electric customers by more than $125 million.
In coming up with its impact on utility customers, MidAmerican also used a carbon price double what is estimated by the U.S. Environmental Protection Protection (EPA). The numbers cited by MidAmerican also do not reflect allowances provided by the bill for the benefit of low-income customers, the Iowa DNR pointed out.
The top 10 emitters of greenhouse gas in Iowa were all coal-fired boilers (nine utility power plants and one coal-burning power plant operated by Archer Daniels Midland). The 10 largest emitters listed above account for fully three-fourth of all greenhouse gas emissions from major sources in the state from fossil fuels. Source: Iowa DNR Greenhouse Gas Inventory 2008.
"By failing to include the cost of allowances in its wholesale electricity sales, MidAmerican would effectively be selling this electricity at a loss, then making up that loss by raising the rates of its retail customers," according to the Iowa DNR analysis. "The DNR believes that this is not a viable option and that it is unlikely that MidAmerican would propose it or that the Iowa Utilities Board would approve it. However, this is the logical implication of MidAmerican's allowance accounting as presented, and it illustrates that MidAmerican's cost estimates do not properly attribute the various allowance costs.
"If MidAmerican cannot recover the cost of wholesale allowances through charging higher prices for its wholesale electricity because the market will not support the new, higher price, then this is in fact the market signal favoring low- or no-carbon electricity, which is an intended result of the bill," the Iowa DNR stated. "If this wholesale electricity is no longer profitable, the appropriate response would seem to be to stop producing it and its associated emission in order to reduce compliance costs, or to produce it from a lower carbon source."
Nearly 40 percent of MidAmerican's electricity sales last year were "wholesale" (sales for resale) to other investor-owned utilities and electric cooperatives, who buy at a wholesale rate and then sell at a retail rate to their customers.
"MidAmerican's attribution of 100 percent of its wholesale costs to its retail customers cannot be justified and therefore the DNR considers its cost estimates to be inappropriate and greatly inflated," according to the testimony.
Total greenhouse gas emission from the burning of fossil fuels (coal and natural gas) at major sources (power plants and large industrial boilers) in Iowa totaled 55.5 million metric tons in 2008, an increase of 2.6 percent from 2007. Source: Iowa DNR Greenhouse Gas Inventory 2008
MidAmerican's Chairman of the Board David Sokol and MidAmerican President Bill Fehrman have been making the rounds in Washington citing the impact of the proposed "cap and trade" bill which has passed the U.S. House of Representatives and is awaiting consideration by the U.S. Senate.
Fehrman last week was quoted by the Des Moines Register as saying the utility would "fight to our last breath for our customers" in opposing the cap and trade bill.
And, despite the discredited MidAmerican's calculations, Fehrman again claimed the bill would hike retail electric customer bills $280 million, or "at least 25 percent in 2012," in comments Sept. 17 during an Iowa Utilities Board workshop.
"Properly attributing wholesale allowance value reduces MidAmerican's cost from $276 million to $150 million (using MidAmerican's estimate of $25/allowance). Using EPA's $13 allowance price gives a cost of $78 million," according to the Iowa DNR.
MidAmerican is owned by Berkshire-Hathaway, Warren Buffett's conglomerate headquartered in Omaha.
For additional information from Bloomberg.com on other motives MidAmerican and Berkshire-Hathaway have to oppose cap and trade legislation, CLICK HERE.
To download the entire Iowa DNR testimony before the Iowa Utilities Board, CLICK HERE.
To download the Iowa DNR's second round of comments to the Iowa Utilities Board, CLICK HERE.
To download the Iowa DNR's 2008 Greenhouse Gas Emission Inventory, CLICK HERE.
