MidAmerican wants to separate fuel costs from base rates

MidAmerican Energy, in a rate case application filed May 17 at the Iowa Utilities Board, is proposing to implement a retail Energy Adjustment Clause (EAC), which would includes costs of coal, to become effective with the final rates in this rate case.

The EAC is designed to remove the fuel and purchased power costs related to Iowa jurisdictional sales from base rates and recover those costs through the EAC. Additionally, MidAmerican seeks to include consumable chemical costs and apply Production Tax Credits (PTCs) and Renewable Energy Credits (RECs) within the EAC to offset some of these fuel and other costs.

Debra Kutsunis, MidAmerican’s Manager, Regulated Pricing, testified that MidAmerican is proposing that all fuel and purchased power costs related to Iowa jurisdictional sales be recovered through the EAC and that none of these costs remain in base rates. This proposal will offer administrative ease and provide greater transparency for fuel costs, Kutsunis added.

Costs for coal, coal transportation, natural gas, oil and nuclear fuel will be included in the EAC, including credits from the coal refinement process. The cost of contract, emergency and economy energy purchased for jurisdictional load, as well as capacity and energy purchases, will also be included. Emission allowances and gains and losses on those allowances are included as well.

“Most of the costs requested for recovery are already allowed to be recovered through the EAC either under Board rules, or by waivers that have been granted to Interstate Power and Light Company (‘IPL’) for comparable EAC inclusions,” Kutsunis wrote. “In the Notice of Termination issued by the Board in Docket No. RMU-2012-001 on December 26, 2012 (‘EAC Notice of Termination’), the proceeding where the Board considered changes to the EAC rules, the Board stated that other utilities could apply for similar waivers based on their unique circumstances. MidAmerican has made a separate application for the same waivers that have been granted to IPL, which is included in this request for rate relief.”

The reference to coal refinement is to the fact that during 2012, at the Louisa, Walter Scott Energy Center Units 3 and 4, and Neal Station South generating stations, chemicals were sprayed on coal to reduce mercury emissions at these plants. In future years, the coal refinement process may be expanded to other MidAmerican generating stations.

RECs and PTCs are credits generated by MidAmerican’s renewable energy production, which can be used to offset costs incurred in supplying energy. If no renewable energy is generated, no PTCs or RECs are created. MidAmerican’s major source of renewable energy is from wind. The amount of wind energy produced by MidAmerican wind resources is not controllable by management, a key criteria for the EAC.

MidAmerican says its rates no longer reflect actual costs

William Fehrman, President and CEO of MidAmerican Energy, said that the utility has had a long rate stability period leading up to this rate increase request. He noted that during this stability period, environmental compliance costs have exceeded $425m. The company has acquired, installed and operated scrubber and baghouse units and other required environmental equipment at Louisa Generating Station and Walter Scott, Jr. Unit 3. MidAmerican is currently adding scrubbers and baghouses at Neal Units 3 and 4. Interstate Power and Light is adding similar equipment to the Ottumwa Generating Station in which MidAmerican owns 52%. All of this is required to meet environmental regulations and has been found prudent by the board in environmental plan and budget proceedings, Fehrman said.

Coal and coal transportation costs in base rates reflect 1995 costs, he added. The 2012 costs exceed what is in base rates and coal transportation costs have increased substantially in 2013, because of a costly coal transportation contract that replaced an old one that expired at the end of 2012.

“The current market rates for transportation increased substantially since 1995 and even though we did extremely well in the competitive bidding process, a new coal transportation contract resulted in significant cost increases,” Fehrman said. “In that previous case the Board found the new coal transportation contract to be prudent.”

MidAmerican is proposing to increase electric rates substantially less than what is supported in this application, Fehrman said. The utility is also proposing to phase-in the smaller increase over three years.

MidAmerican has calculated its fully justified rate increase at around $207m, or about a 17% increase above rates currently in effect. MidAmerican could have asked for this increase to be effective at the conclusion of this proceeding in early 2014, but chose not to. Instead, it is asking for implementation of three smaller increases of about $45.2m each in 2014, 2015 and 2016. This amounts to approximately a 3.6% annual increase or a total increase of around $135.5m, or less than 11%. The smaller request is more than $70m below what is justified; however, customer savings compared to the fully justified increase are considerably more than $70m.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.