Iowa Utilities Bd Elec. Inc Ltr
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Fields of Opportunities
STATE OF IOWA
TH{jMAS J. VILSACK
GOVERNOR
SALLY J. PEDERSON
LT. GOVERNOR
IOWA UTILITIES BOARD
IOWA DEPARTMENT OF COMMERCE
April 13, 2004
File: RPU-04-01
Mr. Michael C. Van Milligen
City Manager,
City of Dubuque
50 West 13th
Dubuque, Iowa 52001-4864
Dear Mr. Milligen:
Your letter to the Iowa Utilities Board (lUB) regarding the Interstate Power and Light Company
(IPL) electric rate increase request has been received and reviewed. Because the matter is
pending before the Board, the members have asked me to respond to your letter.
The Board is very aware of the magnitude and the various potential customer impacts this rate
request represents. The decision will be made within the framework of Iowa law and rules and
based on the evidence entered into the record by participants in the case.
Based on your acknowledgement of some of the ratemaking principals, I have enclosed
summary information from the IPL filing for your review. The largest single item is the new
Emery Generating Station that is due to come on line this June. The ratemaking principals for
this plant have already been approved pursuant to a change in Iowa law about two' years ago.
Many other physical plant improvements are included in this filing. While the Board will examine
the prudence of each these expenses, such expenses tend to be more clear-cut than return on
equity and other fiscal issues.
Nine consumer comment hearings have been scheduled, including in Dubuque on May 20,
1 p.m. at the Great River Center. We encourage Dubuque leaders and other interested
consumers to attend this hearing and share their views with the Board and the other
participating parties.
Thank you for taking the time to share your views.
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Manager, Customer Service
CUSTOMER SERVICE 1515-281-38391 Tol/free 877-565-4450 1 iubcustomer@iub.state.ia.us
350 MAPLE STREET 1 DES MOINES, IOWA 50319-0069/515-281-59791 fax 515-281-5329
http://www.state.ia.us/iub
IOWA UTILITIES BOARD
Energy Section
Docket No.: RPU-04-1
Utility: Interstate Power and Light
Memo Date: April 6, 2004
TO: The Board
FROM: Dan Fñtz
SUBJECT: Summary of Major Issues in RPU-04-1
Following is a brief summary of the major issues in RPU-04-1. Each issue listed
will include a description of the issue along with the revenue requirement impact.
. Thet<>ta! increase is approximately $150,000,000
RATE BASE
1. Emerv Generatina Station: Emery Generating Station is a new gas-fired
power plant located near Mason City. It has a planned in-service target
of June 2004. There is a rate base adjustment for $353,000,000 and a
corresponding income statement adjustment for approximately
$8,000,000 to cover O&M, depreciation and taxes. This adjustment also
includes a reduction to purchased power expenses of approximately
$11,ODO,000. The revenue requirement effect is an increase of
approximately $65,000,000.
2. Deliverv Replacement Svstem: IPL proposed to include approximately
$46,000,000 in additional delivery system upgrades through September
2004, including $31,500,000 in distribution and $15,500,000 in
transmission. The revenue requirement effect is an increase of
approximately $7,500,000.
3. Combustion Initiatives: The combustion initiative relates to emissio"n
reiaieå upgrades needed to meet ;õiatutory environmental requ;raments.
The adjustment includes upgrades through September 2004. The
revenue requirement impact is an increase of approximately $4,500,000.
4. Maior Non-Revenue Producina Plant Additions: This,adjustment
includes major plant additions that exceed $750,000 and are non-
revenue producing. These additions were in-service at the end of the
test year. The revenue requirement impact is an increase of
approximately $13,000,000.
5. Revenue Producina Plant Additions: This adjustment includes all plant
additions in-service at the end of the test year and not included in the
above adjustment. It includes small additions plus additions that could
State of Iowa
Department of Commerce
Utilities Division
Docket No.: RPLI-O4-1
April 6, 2004
Page 2
be construed as revenue producing. A corresponding year-end customer
level adjustment is included to address the matching principle. The
revenue requirement impact is an increase of approximately $8,500,000.
INCOME STATEMENT
1. Salaries and Waaes: This adjustment includes two parts, one to
annualize the mid-year increases in the test year, and one to include
known and measurable increases to 2004 salaries and wages. The
revenue requirement effect is an increase of approximately $3,000,000.
2. DAEC Refuelina Normalization: This adjustment is necessary to
nOrmalize refueling outages. Since the normal cycle is now 23 months, an
adjustment is necessary to allocate the costs to each year. The proposed
aåjustment results in an increase to the revenue requirement of
approximately $3,000,000.
3. Decommissionina: This adjustment reflects 2004 updated cost estimates
to decommission the Duane Arnold Energy Center. For final rates, IPL is
proposing a different method than approved by the Board in Docket No.
RPU-02-3. For interim, IPL uses the previously approved methodology.
The proposed adjustment for final rates results in an increase to the
revenue requirement of approximately $3,000,000.
4. Property Tax Increases: This adjustment reflects increases to property
taxes that IPL will incur. The adjustment also includes a $3,000,000
reduction resulting from a settlement reached with the Department of
Revenue and Finance for overcharges from 1994-1998. The total revenue
requirement impact is an approximate increase of $4,000,000 but would
be approximately $6,500,000 without the refund.
5. Sianificant Load Chances: This adjUstment reflects large'changes in
usage by 39 customers. The level used is 500 kW/month or 5000,000
kWh/month. The adjustment results in an increase to the revenue
requirement of approximately $7,500,000.
The above adjustments result in an increase in the revenue requirement of
approximately $120,000,000 of the proposed $149,000,000. Following is a
summary of the cost of capital issues. Including an ROE of 11.15% results in a
reduction to the revenue requirement of $3,750,000.
COST OF CAPITAL
1. Retum on Eauity: IPL is proposing a return on equity of 11.4% for final
rates and 11.15% for temporary rates. A ten basis point change in the
ROE is equal to approximately $1,500,000 to the revenue requirement.
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Customer Comment Hearing Schedule
Interstate Power and Light Company
Docket No. RPU-O4-1
. Monday, May 10, Osceola-
7 p.m. @ lakeside Casino Resort, 777 Casino Drive
. Thursday, May 20, Dubuque -
1 p.m. @ the Grand River Center, 500 Bell Street
. Tuesday, May 25, Fort Madison -
2 p.m. @ St. Mary's Parish Center, 415 11th Street
. Tuesday, May 25, Keokuk -
7 p.m. @ the Grand Theater, 26 North 6th Street
. Wednesday, May 26, Burlington -
Noon @ the Best Western Pzazz Conference Center, 3001 Winegard Dr.
. Thursday, May 27, Ottumwa -
7 p.m. @ the Ottumwa High School Auditorium, 501 East 2nd Street
. WednesdàY, June 2, Mason City -
5 p.m. @ the Muse-Norris Conference Center, NIACC, 500 College Drive
. Thursday, June 3, Marion -
5 p.m. @ the Kirkwood Training and Outreach Services Center, 3375
Armar Drive
. Tuesday, June 8, Newton -
7 p.m. @ DMACC Newton Center Auditorium, 600 North 2nd Avenue West
Provide written comments to: IPL Rate Case, Iowa Utilities Board, 350 Maple Street, Des
Moines, IA 50319-0069. An electronic comment form is available at www.state.ia.usliub.
The Iowa Utilities Board and Utility Rate Regulation
The Iowa Utilities Board ClUB) is an independent quasi-judicial regulatory board of three mem-
bers, each appointed by the Governor to staggered six-year terms. The appointments are subject to
confirmation by the Legislature. The decisions of the Board may be appealed to the courts.
Participants in a Rate Proceeding include the Board, the Office of Consumer Advocate, which rep-
resents general customer interests, and the utility requesting the rate change. There may also be
official intervenors in the case such as other utilities, customer groups, or other public groups that
have an interest in the outcome of the case.
Temporary Rates may be collected by the utility under Iowa law while the case is pending. The
amount of the temporary increase must be based on specific criteria and principles of law that are
stated in the Iowa Code, If the final rate approval is lower than any temporary rates established, the
over-collection is subject to refund plus interest.
The Elements of the Rate Making Process begin with a rate-regulated utility notifying customers
at the same time it files a formal petition with the IUB. The Board adopts a procedural schedule and
may take at least ten months to make a final determination in the case. The process generally
includes an opportunity for public input, filing of written testimony and cross-examination of that testi-
mony at an evidentiary hearing, and rebuttal briefs and testimony. Although open to the public, evi-
dentiary hearing participation is usually limited, to the Board and official parties of record in the case.
Rate Case Considerations. The Board reviews the utility's revenue requirement to cover the costs
of general operating expenses, new capital expenses, cost of debt, and a reasonable return on
investment necessary for the utility to provide efficient and reliable service, Actual cost data from a
one-year test period is used in this process. Those costs may be adjusted up or down to allow for
unusual or one-time occurrences. General operating expenses include things like the basic costs of
providing service to customers. Such costs include meter reading and billing, record keeping, main-
taining a 24-hour call center, collecting bad debt, and communicating necessary information to cus-
tomers. Other items include costs associated with energy production or purchasing, energy distribu-
tion, facilities maintenance and repair, general management, and utility service administrative costs,
A Test Year is established as the basis for determining the rate requirement. The test year takes
the revenue and expense data for a 12.month period. Adjustments may be made to compensate for
unusual expenses or revenues.
Customer Rate Classes differ according to the costs of providing service to each class of customer.
A Cost-of-Service Study may be performed to determine the cost differences between serving vari-
ous customer classes. Those classes typically include residential, small commercial, large commer-
cial, industrial, and municipal uses.
Rate Zones exist because today's utility is a merger of several smaller utilities. Each previous utility
had different costs and different rates which have never been fully consolidated.
How to Comment in a Rate Proceeding. Comments may be provided by speaking at a customer comment
hearing or by providing written comments. All comments become part of the permanent file in a rate case.
How to Speak at a Customer Comment Hearing. It is suggested that one or two prepared
spokespersons comment for groups. Please acknowledge other group members.
How to Provide Written Comments. The IUB receives written comments about a formal petition by a
utility to change its rates. The most effective written comments are concise and make specific points about
why someone supports or objects to the topic. Written comments may be sent to the address printed on
the front page of this flyer or submitted electronically via a comment form at www.state.ia.us/iub.