FINNEGAN, CONRAD & PETERSON L.C.

Iowa Utilities Board Questions Provisions
of MidAmerican Settlement;
Hearing Set in October

At the end of 2000, MidAmerican Energy's "Alternative Regulatory Plan" or "ARP" expired.  As it should have done, the Office of Consumer Advocate in Iowa filed a complaint early in 2001 asserting the MEC was overearing its allowed rate of return.  That complaint was docketed as RPU-01-3.  In mid-summer, however, MEC responded with its own rate case [RPU-01-5] asserting that it needed a rate increase of roughly $50 million.  The spread between these two positions was nearly $100 million.

In July, the OCA and MEC announced that they had reached an agreement to settle the two cases, the "Memorandum of Settlement" that was submitted would result in essentially a reinstitution of the terms of the ARP, including MEC's ability to retain 50% of its earnings over a 12 percent ROE (up to 14 percent, then the retained share drops to 16.5%) with the difference that the customer share would be established as a "regulatory credit" that would be offset against future plant additions by MEC.

While selectively continuing portions of the old ARP, the proposed settlement is incomplete and excludes numerous parties who had special contracts.  As a result, as these contracts expire during the proposed 5-year term of this settlement, MEC would obtain a "hidden" rate increase from these customers.  Further, such intergenerational mechanisms have the effect of overcharging today's customers so that tomorrow's customers may (in theory) enjoy a marginally lower rate.  Finally, the 12 percent rate "trigger" was reasonable in 1996 when the original ARP was accepted, but is exceptionally high in today's markets.

There are serious concerns about such an approach.  Finnegan, Conrad & Peterson prepared opposing comments for one of its clients and suggested that there were numerous problems with the selected approach.  One other large MEC customer also filed comments opposing the settlement.

The Iowa Utility Board has now ordered that MEC and the OCA respond to a series of questions concerning terms of the settlement and its customer impact.  The matter was heard before the Board on October 4, 2001.  Stu Conrad appeared for a client and cross-examined two of the MEC witnesses and the OCA witness, bringing out the unfairness of the proposed settlement and also that MEC has never been subject to a fully litigated rate case investigation in Iowa. MEC represents the result of several utility mergers and has thus far successfully escaped full regulatory scrutiny by settling cases and "voluntarily" reducing rates pursuant to settlement agreements.  Mr. Conrad challenged this lack of regulatory supervision for the largest utility in Iowa on behalf of his client and for the benefit of other customers of the utility.

A decison is pending before the Board and should be released in the next few weeks.

Updated 05/17/06