The company expects the proposed change in electric rates to impact customers’ electric bills in two stages – interim and final rates.
IPL anticipates implementing interim electric rates on March 20, 2010. The interim rates are expected to increase annual electric revenues by approximately $119 million, or 10 percent. IPL has relied on past precedent to establish a return on equity for interim rates of 10.5 percent. These returns would apply to all assets other than IPL’s Emery Generating Station, which has an associated return on equity of 12.23 percent and the portion of Whispering Willow – East up to the authorized cap of $417 million, which has an associated return on equity of 11.7 percent, based on prior ratemaking principles.
The capital structure in interim rates includes 42.9 percent long-term debt, 7.6 percent preferred stock and 49.5 percent common equity. The weighted average cost of capital is 9.63 percent for Emery, 9.37 percent for Whispering Willow – East and 8.77 percent for all other investments.
Interim rates will include the impact of increased transmission service rates from ITC-Midwest that went into effect on January 1, 2010. IPL is proposing, commencing with final rates, to implement an automatic adjustment clause for transmission service costs different than those in the final rate level. The automatic adjustment clause would allow for annual revision of transmission service costs charged to IPL’s retail electric customers, without a base rate case, and would require that the costs incurred be fully reconciled against revenues collected.
Interim rates will remain in effect until the IUB issues a decision on the company’s electric rate request, expected in the first quarter of 2011. If the final electric revenue requirements approved by the IUB are lower than those reflected in the interim rates, IPL will grant refunds equal to the difference between the interim and final revenue requirement levels plus interest.
IPL’s final rate request includes an Iowa electric rate base of $2.4 billion, which includes the full cost incurred for the Whispering Willow – East Wind Farm and Lansing Unit 4 environmental controls.
Cost management plan
IPL is also requesting approval of a customer cost management plan to reduce the impact of this rate increase on customers over the next several years. If approved by the IUB, IPL expects the cost management plan to:
— Reduce billing impacts in 2011 by about $90 million, which would be approximately a four percent reduction from interim rates.
— The decrease would be reflected in the energy (fuel) cost part of customers’ bills.
— Phase-in billing impacts over a three year period, beginning in 2011.
The proposed plan intends to utilize the remaining proceeds from previous asset sales, as well as pending tax benefits, to temporarily offset the impacts of the rate increase.
If the customer cost management plan is not approved, the average final rate increase for all customer classes is expected to be approximately four percent above interim rates.
In 2005, IPL sold its Duane Arnold Energy Center (DAEC) nuclear generating facility. As part of the DAEC sale process, IPL established a regulatory liability account with a portion of the net proceeds from the DAEC sale that would be used to mitigate future rate increases. IPL proposes to refund approximately $22 million of the regulatory liability back to customers through the energy adjustment clause (EAC) clause. In addition, $27 million of this liability account was used to fully offset the Iowa allocation of AFUDC costs for the Whispering Willow – East Wind Farm.
IPL is proposing to reduce transmission-related customer costs by approximately $24 million through the use of a regulatory account established as part of the asset sale approval. IPL’s proposal would refund this amount through its fuel clause in the first year of the cost management plan.
In February 2009, IPL filed a docket with the IUB, ARU-2010-0001, to create a new regulatory liability account pertaining to the potential tax benefits resulting from a change in accounting methodologies and tax elections available in the Internal Revenue Code. These potential tax benefits are related to the tax treatment of repair expenditures, insurance proceeds from the floods in 2008, and mixed service costs.
IPL is proposing a Tax Benefit Rider in this rate case to provide a mechanism to reduce customer bills over a three year period by approximately $130 million while the issues are under IRS audit. The Tax Benefit Rider proposal would provide a mechanism to ensure only those amounts sustained under IRS audit are retained by customers.
IPL believes that the cost management plan benefits are one-time events and has proposed to reflect these savings in a temporary credit rather than through a reduction in base rates.
Alliant Energy is an energy-services provider with subsidiaries serving approximately 1 million electric and 412,000 natural gas customers. Providing its customers in the Midwest with regulated electric and natural gas service is the company’s primary focus. Interstate Power and Light, the company’s Iowa and Minnesota utility subsidiary, serves approximately 527,000 electric and 234,000 natural gas customers. Alliant Energy is a Fortune 1000 company traded on the New York Stock Exchange under the symbol LNT.