Stipulation and Agreement regarding Ratemaking Principles


    
      
        

      


      EXHIBIT
        10.3

       

      STIPULATION
        AND AGREEMENT

      


      Dated
        December 14, 2005

      


      Article
        I -
        Introduction

      


      On
        October 17, 2003, the Iowa Utilities Board (“Board”) issued an “Order
        Approving Stipulation and Agreement” in Docket No. RPU-03-1. In that
        decision the
        Board
        approved a settlement between the Iowa Consumer Advocate (“OCA”) and MidAmerican
        Energy Company (“MidAmerican” or “Company”) addressing ratemaking principles
        pursuant to Iowa Code Section 476.53 for MidAmerican Energy Company’s
        (“MidAmerican” or “Company”) proposed 310 megawatt (MW) wind-powered generating
        project. On January 25,2005, the Board issue an order “Order Approving
        Stipulation and Agreement” in Docket No. RPU-04-3. In that decision the Board
        again, approved a settlement between OCA and
        addressing ratemaking principles pursuant to Iowa Code Section
        476.53 for
        MidAmerican to expand its initial 310 MW wind-power generating project. Except
        for the size of the projects and the cost cap, the two decisions approve
        the
        same substantive ratemaking principles.

      


      MidAmerican
        has determined that it would be beneficial to the Company and its customers
        to
        pursue a 2006-2007 Expansion Project at this time because of the following
        factors:

      


      
        	 	
                1.

              	
                The
                  State of Iowa is encouraging more renewable energy be built in
                  the state
                  as set forth in Iowa Code Section 476.41(2005) and. Executive Order
                  41
                  which among other objectives promotes the use of a 10% renewable
                  energy
                  for state-owned facilities;

              
	 	 	 
	 	
                2.

              	
                MidAmerican’s
                  positive experience with existing wind projects (operationally
                  and
                  installation costs);

              
	 	 	 
	 	3.	
                The
                  2006-2007 Expansion Project has favorable economics to customers
                  and
                  MidAmerican.

              
	 	 	 


      

       

       

      
        
          
          

        

        
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                4.

              	
                The
                  need to further increase diversity as fuel costs (coal and natural
                  gas)
                  have become increasingly volatile;

              
	 	 	 
	 	
                5.

              	
                The
                  current production tax credit ends January 1, 2008 and if it is
                  extended
                  will most likely be of less value.

              


      

      


      The
        Office of Consumer Advocate (“OCA”) supports the Expansion Project and concurs
        with the ratemaking principles specified below.

       

      Article
        II - Purpose

       

      This
        Stipulation has been prepared and executed by the signatories for the purpose
        of
        stipulating to their mutually-agreed position in the ratemaking principles
        case
        regarding the 2006-2007 Expansion Project, to be commenced by MidAmerican
        pursuant to Section 476.53 of the Iowa Code. MidAmerican commits to commencing
        such case as soon as feasible after executing this Stipulation.

       

      In
        consideration of the mutual agreements set forth, the signatories stipulate
        that
        the Board should issue an order that allows the terms and provisions of this
        Stipulation to be fully implemented.

      


      Terms:

       

      The
        signatories to this Stipulation agree to support the 2006-2007 Expansion
        Project
        with the following ratemaking principles and ratemaking provisions:

      


      RATEMAKING
        PRINCIPLES

      


      
        	 	
                Topic

              	
                Ratemaking
                  Principle

              
	 	
                Iowa
                  Jurisdictional

                portion

              	
                The
                  2006-2007 Expansion Project will be allocated to Iowa in the same
                  manner
                  as for the new generation (Greater Des Moines Energy Center, Council
                  Bluffs Energy Center Unit 4, initial wind project and wind expansion
                  project) specified in Dockets SPU-05-09 and SPU-05-12.

              
	 	 	 
	 	
                Cost
                  Cap

              	
                Cost
                  Cap.
                  The Iowa jurisdictional portion of MidAmerican’s prudently incurred
                  capital costs, operation and maintenance expenses and other actual
                  costs
                  of the 2006- 2007 Expansion Project shall be included in MidAmerican’s
                  regulated electric rates. MidAmerican shall be permitted to include
                  in
                  rates the actual costs, up to the Iowa jurisdictional portion of
                  [CONFIDENTIAL]
                  million
                  per MW installed
                  (inclusive of associated costs necessary for the reliable integration
                  of
                  the expansion project into the MidAmerican or other transmission
                  provider’s delivery system), without the need to establish prudence or
                  reasonableness. MidAmerican anticipates installing up to545 MW
                  of
                  additional wind capacity. MidAmerican shall be required to establish
                  the
                  prudence and reasonableness of any project costs in excess of the
                  foregoing calculated per MW amount before the Iowa jurisdictional
                  portion
                  of such excess can be included in
                  rates

              


      

       

      
        
          
          

        

        
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                Depreciation

              	
                The
                  depreciation life of the 2006-2007 Expansion Project for ratemaking
                  purposes shall be 20 years.

              
	 	 	 
	 	
                Return
                  on Equity

              	
                The
                  allowed return on common equity investment (ROE) on the portion
                  of the
                  2006-2007 Expansion Project included in Iowa electric rate base
                  shall be
                  11.9%.

              
	 	 	 
	 	
                Renewable
                  Energy

                and
                  CO2
                  Credits

              	
                The
                  Iowa jurisdictional portion of any revenues from the sale of renewable
                  energy credits and carbon dioxide credits associated with the 2006-2007
                  Expansion Project shall be recorded above-the-line by MidAmerican
                  in the
                  accounts specified in Appendix 2 and included in the revenue sharing
                  calculations of items “g” and “h” of, the Stipulation and Settlement in
                  Docket No. RPU-03-1 and included in the revenue sharing calculation
                  through calendar year 2012.

              
	 	 	 
	 	
                Federal
                  Production

                Tax
                  Credit

              	
                The
                  Iowa jurisdictional portion of any federal production tax credits
                  associated with the 2006-2007 Expansion Project shall be recorded
                  above-the-line by MidAmerican in the accounts specified in Appendix
                  2 and
                  included in the revenue sharing calculations of items “g” and “h” of the
                  Stipulation and Settlement in Docket No. RPU-03-1 and included
                  in the
                  revenue sharing calculation through calendar year 2012.

              
	 	 	 
	 	
                Wholesale
                  Sales

                Revenue

              	
                The
                  Iowa jurisdictional portion of wholesale sales revenue associated
                  with all
                  generating units included in MidAmerican’s Iowa jurisdictional electric
                  rate base (including the wind power facilities of the 2006-2007
                  Expansion
                  Project) shall be recorded above-the-line in the accounts specified
                  in
                  Appendix 2 and included in the revenue sharing calculations of
                  items “g”
                  and “h” of the Stipulation and Settlement in Docket No. RPU-03-1 and
                  included in the revenue sharing calculation for through calendar
                  year
                  2012.

              


      

       

      RATEMAKING
        PROVISIONS

      


      The
        signatories to this Stipulation agree to support the Expansion Project with
        the
        following ratemaking provisions:

      


      
        	 	
                a.

              	
                Revenue
                  Sharing 2012.
                  Revenue sharing as approved by the Board in its October 17, 2003,
“Order
                  Approving Stipulation and Agreement,” in Docket No. RPU-03-l for the years
                  2006-20 10 shall continue throughout 2012, except with respect
                  to the
                  method for crediting customers for any revenue sharing benefits.
                  The
                  customers’ share of any revenue sharing for 2012 earnings will he returned
                  to the customers in 2013 through a bill-crediting mechanism approved
                  by
                  the Board in accordance with the methodology set out in the enclosed
                  Attachment.

              


      

       

       

      
        
          
          

        

        
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                b.

              	
                Restrictions
                  on General Rate Increases.
                  MidAmerican commits not to seek any general rate increase in Iowa
                  electric
                  base rates to become effective during 2012, unless its Iowa jurisdictional
                  return on equity on electric operations for calendar year 2011
                  falls below
                  10%. This provision shall not be interpreted to prevent the
                  implementation, prior to December 31, 2012, of any electric rate or
                  tariff changes approved by the Board in Docket No. RPU-04-2 and
                  associated
                  dockets.

              
	 	 	 
	 	
                c.

              	
                Restrictions
                  on Show Cause Filings. The
                  OCA commits not to seek any decrease in Iowa electric base rates
                  to become
                  effective before January 1, 2013.

              
	 	 	 
	 	
                d.

              	
                Data
                  Submission. On or
                  before April 30, 2013, MidAmerican shall provide to the OCA all
                  of the
                  information (except written testimony), including electronic copies,
                  required by the 199 Iowa Administrative Code 26.5(5) as
                  this rule is written and in effect on the date of this settlement.
                  The
                  information shall reflect a 2012 test year and include a calculation
                  and
                  explanation of all known and measurable changes m costs and revenues
                  that
                  MidAmerican believes should be included as pro forma adjustments
                  to test
                  year 2012 results under the provisions of Iowa Code Section 476.33
                  (2005).

              


      

       

      Article
        III
        -
Joint
        Motion

      


      The
        signatories shall jointly file this Stipulation and Agreement in the ratemaking
        principles proceeding for the 2006-2007 Expansion Project to be commenced
        by
        MidAmerican pursuant to Section 476.53. The signatories shall also file with
        the
        Board a joint motion requesting that the Board accept this Stipulation and
        Agreement without condition or modification.

      


      Article
        IV -Condition
        Precedent

      


      This
        Stipulation shall not become effective unless and until the Board accepts
        the
        same in its entirety without condition or modification.

       

      
        
          
          

        

        
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      Article
        V  - Privilege and Limitation

      


      This
        Stipulation and Agreement is made pursuant to Iowa Code §17A.10 and 199 I.A.C.
§7.2(11). The Stipulation and Agreement shall become binding upon the
        signatories upon its execution; provided, however, that if this Stipulation
        and
        Agreement does not become effective in accordance with Article IV above,
        it
        shall be null, void and privileged. This Stipulation and Agreement is intended
        to relate only to the specific matters referenced herein, and no signatory
        waives any claim or right that it may otherwise have with respect to any
        matter
        not expressly provided for herein. Except as expressly provided in this
        Stipulation and Agreement, 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 allocation underlying the
        provisions of this Stipulation and Agreement or be prejudiced or bound thereby
        in any other current or future proceeding before any agency. This Stipulation
        and Agreement sha1l not, directly or indirectly, be referred to as precedent
        in
        any other current or future proceeding before the Board.

      


      Article
        VI - Execution

      


      To
        facilitate and expedite execution, the Stipulation and Agreement may be 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
        Board. The facsimile signatures of the signatories shall be deemed to constitute
        original signatures, and facsimile copies hereof shall be deemed to constitute
        duplicate originals.

       

      Article
        VII - Modification and Amendment

      


      This
        Stipulation and Agreement shall not be amended or modified except by an
        instrument in writing signed by all signatories.

      


      
        
          
          

        

        
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      Article
        VIII -Term

      


      
        	
                1.

              	
                Unless
                  terminated earlier by operation of paragraph 2 of this Article,
                  this
                  Stipulation and Agreement shall terminate January 1, 2013, except
                  for
                  MEC’s responsibility for revenue sharing for the year 2012 and except
                  for
                  the Ratemaking Principles of the “Term” section in Article II that shall
                  remain in effect as long as the wind power facilities of the Expansion
                  Project continue to provide regulated electric service to Iowa
                  consumers.

              
	 	 
	
                2.

              	
                This
                  Stipulation and Agreement and the obligations of the signatories
                  shall
                  terminate if:

              


      

      


      
        	 	
                a.

              	
                the
                  Board does not approve the terms of this Stipulation and
                  Agreement;

              
	 	 	 
	 	
                b.

              	
                MidAmerican
                  is unable to secure access to sufficient transmission for the 2006-2007
                  Expansion Project; or

              
	 	 	 
	 	
                c.

              	
                On
                  or before June 30, 2007, if MidAmerican determines that it is not
                  likely
                  to secure acceptable contracts that will result in the 2006-2007
                  Expansion
                  Project obtaining revenues in excess of
                  costs.

              


      

      


      
        	
                3.

              	
                In
                  the event of termination pursuant to the preceding subparagraph,
                  MidAmerican shall be permitted to record as above-the-line expenses
                  an
                  amortization over a 5-year period of all reasonable costs of the
                  2006-2007
                  Expansion Project, including cancellation costs, but shall not
                  be entitled
                  to recover a return on such costs.

              


      

      


      Article
        IX - Binding Nature

      


      This
        Stipulation and Agreement shall be binding on the signatories. The signatories
        shall take no actions directly or indirectly to eliminate or otherwise limit
        the
        scope or effect of this Stipulation and Agreement throughout its
        term.

       

      
        
          
          

        

        
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      Article
        X - Further Assurances

      


      The
        signatories agree to cooperate in order to effectuate the full and complete
        intent of the signatories as expressed in this Stipulation and
        Agreement.

      


      Article
        XI - Entire Agreement

      


      This
        Stipulation and Agreement contains the entire agreement between the signatories.
        There are no additional terms, whether consistent or inconsistent, oral or
        written, that have not been incorporated into this Stipulation and
        Agreement.

       

      


      
        	 MIDAMERICAN ENERGY COMPANY	 	 	 OFFICE OF CONSUMER
                ADVOCATE
	 	 	 	 
	/s/ Todd
                M. Raba	 	 	/s/ John
                R. Perkins  
	Name: 
                Todd M. Raba	 	 	Name: 
                John R. Perkins
	Date:  12/15/05	 	 	Date: 12/15/05


      

       

       

      
        
          
          

        

        
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      ATTACHMENT

      2011-2012
        IOWA ELECTRIC REVENUE SHARING REVENUE CREDIT

      METHODOLOGY

      


      The
        following approach will be used for Iowa Utilities Board review and approval
        for
        distribution of any revenue credits pursuant to the Stipulation and Settlement
        between the Office of Consumer Advocate and MidAmerican Energy
        Company.

      


      
        	
                1.

              	
                In
                  the event that electric earnings exceed the revenue sharing threshold
                  MidAmerican will calculate bill credits by: (1) determining the
                  amount to
                  be credited to each class, and (2) crediting to customers
                  within each class in proportion to each customer’s 2011 or 2012 electric
                  non-contract billed revenue. Credits will be applied to active
                  Iowa
                  non-contract electric customers and contract customers to the extent
                  they
                  were on tariff pricing in the year 2011 or 2012. Active customers
                  are
                  defined as customers of record receiving electric service during
                  the
                  single billing cycle in which revenue credits are applied to customers’
                  bills.

              
	 	 
	
                2.

              	
                The
                  revenue credit, if any, will 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
                  will allocate the revenue sharing credit to each class in proportion
                  to
                  2011 or 2012 non-contract billed revenues for each class. MidAmerican
                  will
                  further calculate a revenue sharing factor within each class to
                  be applied
                  to each customer’s 2011 or 2012 non-contract revenue. This factor will be
                  determined by dividing the revenue sharing credit amount for each
                  class as
                  determined above by the 2011 or 2012 non-contract revenue within
                  each
                  class.

              


      

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      
        	 	 
	
                3.

              	
                During
                  the first quarter of 2012 and 2013, MidAmerican will file its proposed
                  bill credit analysis and applicable workpapers with the Iowa Utilities
                  Board for review.

              
	 	 
	
                4.

              	
                MidAmerican
                  will apply any bill credits during a single billing cycle subsequent
                  to
                  receipt of Iowa Utilities Board approval of MidAmerican’s
                  filing.

              
	 	 
	
                5.

              	
                In
                  the event that any active customers leave MidAmerican’s service territory
                  subsequent to issuance of the bill credit and there is no bill
                  available
                  for credit, MidAmerican will contribute such revenue credit balance
                  to the
                  I-CARE program for distribution in those areas in which the former
                  active
                  customers had previously been located.

              
	 	 
	
                6.

              	
                Within
                  60 days of completion of the bill credits, MidAmerican will file
                  a final
                  report with the Iowa Utilities Board. No Iowa Utilities Board action
                  will
                  be required, unless the Iowa Utilities Board determines that MidAmerican
                  has failed to issue the revenue credits in accordance with the
                  Iowa
                  Utilities Board’s prior approval.