Exhibit 10.37
STATE OF IOWA
IOWA UTILITIES BOARD
IN RE: ) DOCKET NO. APP-96-1 AND
) RPU-96-8
MIDAMERICAN ENERGY COMPANY ) (CONSOLIDATED)
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 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, ▇▇▇▇▇ ▇▇▇▇▇▇ 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, ▇▇▇▇▇▇▇, 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 payment 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 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
2. 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
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 *
*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 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
initial charge for the ▇▇▇▇▇▇ 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.
2. 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 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.
2. The cost tracking mechanism for capital additions for ▇▇▇▇▇▇
Nuclear Station for 1997 and beyond, outlined in OCA witness
▇▇▇▇▇▇▇'▇ 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 ▇▇▇▇▇▇ 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 ▇▇▇▇▇▇ 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.
2. In the event MidAmerican earns more than a 12% return n
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-
contact customers prior to April 1 of the following year. The
credit amount shall be allocated among the residential,
commercial/small general service and 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
2. 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
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.
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 any approvals for
such buy-through option required by the Board, other regulators,
and the Mid-Continent Area Power Pool.
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.
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
17A.10 and 199 I.A.C. 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 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 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.
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.