SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act 1934
DATE OF REPORT JANUARY_11, 2000
(Date of earliest event reported)
MIDAMERICAN ENERGY COMPANY
(Exact name of registrant as specified in its charter)
IOWA 1-11505 42-1425214
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation or
organization)
666 GRAND AVENUE DES MOINES, IA 50309
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(Address of principal
executive offices) Zip Code
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (515) 242-4300
N/A
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
CAUTIONARY STATEMENTS. In connection with the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"),
MidAmerican Energy Company (the "Company") is hereby filing cautionary
statements identifying important factors that could cause the Company's actual
results to differ materially from those expressed or implied by forward-looking
statements of the Company made by or on behalf of the Company, whether oral or
written. The Company wishes to ensure that any forward-looking statements are
accompanied by meaningful cautionary statements in order to maximize to the
fullest extent possible the protections of the safe harbor established in the
Reform Act. Accordingly, any such statements are qualified in their entirety by
reference to, and are accompanied by, the following important factors, among
others, that could cause the Company's actual results to differ materially from
those expressed or implied by forward-looking statements of the Company made by
or on behalf of the Company.
The Company cautions that the following important factors, among others
(including but not limited to factors mentioned from time to time in the
Company's reports filed with the Securities and Exchange Commission), could
affect the Company's actual results and could cause the Company's actual
consolidated results to differ materially from those expressed or implied by any
forward-looking statements of the Company made by or on behalf of the Company.
The factors included here are not exhaustive. Forward looking statements, by
their nature, are speculative and are based on then current expectations
involving a number of known and unknown risks and uncertainties that could cause
the actual results and performance of the Company to differ materially from any
expected future results or performance, expressed or implied, by the
forward-looking statements. Further, any forward-looking statement speaks only
as of the date on which such statement is made, and the Company undertakes no
obligation to update any forward-looking statement or statements to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events. New factors emerge from time to
time and it is not possible for management to predict all of such factors, nor
can it assess the impact of each such factor on the business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those expressed or implied by any forward-looking statements.
Therefore, forward-looking statements should not be relied upon as a prediction
of actual future results.
1. General Operating Uncertainties. The operation of a utility
(including transmission and distribution systems and power generating
facilities) involves many risks, including the breakdown or failure of power
generation equipment, pipelines, transmission and distribution lines or other
equipment or processes, fuel interruption, and performance below expected levels
of output or efficiency, operator error and catastrophic events such as severe
storms, fires, earthquakes or explosions. The occurrence of any of these events
could significantly reduce or eliminate revenues generated by the Company or
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significantly increase the expenses of the Company. The Company currently
maintains property, business interruption, catastrophic and general liability
insurance. There can be no assurance that such insurance coverage will be
available in the future at commercially reasonable costs or terms or that the
amounts for which the Company is or will be insured will cover all potential
losses. Sales and revenues of a utility may also be adversely affected by
general economic, regulatory and business conditions in its territory, including
inflation, interest rates and economic growth, and weather conditions in its
territory. Each generating facility may depend on a single or limited number of
entities to purchase electricity, to supply water, to supply or transport gas,
coal or other fuels, to dispose of wastes or to wheel electricity. The failure
of any such third party to fulfill its contractual obligations could have a
material adverse impact on the Company.
2. Fuel Supply Operations. The primary fuel source for certain of the
Company's generating facilities is natural gas or coal and a substantial portion
of the operating expenses of such facilities consists of the costs of obtaining
natural gas or coal through gas and coal supply agreements and transporting that
gas or coal to the facilities under transportation agreements. Although the
Company believes that it has contracted for natural gas and coal supply and
transportation in sufficient quantities to satisfy the needs of its generating
facilities, the gas and coal suppliers are not required in all cases to provide
dedicated reserves in support of their contractual obligations. Unless the gas
or coal generating facilities were able to obtain substitute volumes of natural
gas and coal, including the requisite transportation services, for such volumes
at a price not materially higher than the sum of the contract price under the
existing gas and coal supply agreements and any damages paid by the supplier for
failure to deliver, the sustained failure of a supplier to deliver natural gas
or coal in accordance with its contract could have a material adverse effect on
the cash flows to the Company. In addition, under certain gas and coal supply
contracts the Company is obligated to pay for a certain minimum quantity of
natural gas and coal even if it cannot utilize it. The Company intends to manage
its requirements for contract volumes under the gas and coal supply agreements
so as to meet the minimum take requirements through a combination of utilization
of nominated volumes in operations and resales of the remainder of the volumes
to third-party customers, if necessary. Finally, the state and federal
regulatory authorities that have jurisdiction over natural gas and coal supply
and transportation have the right to disallow recovery of certain costs with
respect to such contracts and modify aspects of the rates, terms and conditions
of future contracts. It is possible that such a disallowance or modification
could have a material adverse impact on the Company.
3. Competition and Industry Restructuring. The energy market is
characterized by numerous strong and capable competitors, many of which have
more extensive and more diversified developmental or operating experience
(including international experience) and greater financial resources than the
Company. Further, in recent years, the domestic utility industry has been
characterized by strong and increasing competition with respect to generation
and power sales.
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Throughout the United States, the utility industry continues to move
towards a competitive environment. Although the extent of restructuring varies
between states, increased competition is becoming a reality in virtually every
region of the country. Numerous states have passed restructuring legislation,
some of which initiated a phase-in of customer choice in 1998. Legislators and
regulators in many other states are addressing the issue. As part of many
restructuring legislation packages, electric utilities are required to unbundle
traditional services previously provided as a "packaged product" under their
rate tariffs. Unbundling allows customers to choose their energy supplier and
the level of energy delivery and retail services they desire. Gas utilities are
also experiencing separation of the merchant and delivery functions for all
classes of customers.
The generation segment of the electric industry will be significantly
impacted by competition. The introduction of competition in the wholesale market
has resulted in a proliferation of power marketers and a substantial increase in
market activity. As retail competition evolves, margins will be pressured by
competition from other utilities, power marketers and self-generation. In
addition, many states are implementing or considering regulatory initiatives
that would increase access to electric utilities' transmission and distribution
systems for independent power producers, utilities, power marketers and
electricity customers. Although the anticipated changes in the U.S. electric
utility industry may create opportunities, they will also create additional
challenges and risks for utilities. Competition will put pressure on margins for
traditional electric services.
In Illinois, the electric retail business is opening up to competition
which will be phased in between October 1999 and May 2000. These and other
industry restructuring efforts by states where the Company has or expects to
have substantial operations could materially impact the results of operations of
the Company in a manner which is difficult to predict, since such efforts will
depend on the terms and timing of such restructuring.
4. Regulatory Environment. The Company is subject to comprehensive
regulation by several utility regulatory agencies which significantly influences
the operating environment and the recoverability of costs from utility
customers. That regulatory environment has to date, in general, given the
Company an exclusive right to serve electricity customers within its service
territory and, in turn, the obligation to provide electric service to those
customers.
In Iowa, pursuant to a rate settlement agreement in 1997, if the
Company's annual electric jurisdictional return on common equity exceeds 12%,
then an equal sharing between customers and shareholders of earnings above the
12% level begins; if it exceeds 14%, then two-thirds of the Company's share of
those earnings will be used for accelerated recovery of certain regulatory
assets. The Company is precluded from filing for increased rates prior to 2001
unless the return on common equity falls below 9%. Other parties signing the
agreement are prohibited from filing for reduced rates prior to 2001 unless the
return on common equity, after reflecting credits to customers, exceeds 14%.
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Prior to July 11, 1997, the Company recouped its fuel costs for
electricity generation from its Iowa customers on a current basis through the
Iowa energy adjustment clause, and thus, fuel costs had little impact on net
income. Since then, base rates for Iowa customers include a factor for recovery
of a representative level of fuel costs. However, to the extent actual fuel
costs vary from that factor, earnings are impacted. However, there is no
assurance that future regulatory action could not have a material adverse effect
on the Company's fuel costs or results of operations.
The Company provides gas service at retail pursuant to non-exclusive
municipal franchises.
In connection with the approval by the Iowa Utilities Board of the
acquisition of the Company's parent company in March 1999, the Company agreed,
among other things, to use all commercially reasonable efforts to maintain an
investment grade credit rating for the Company and its long-term debt and to
seek the approval of the Iowa Utilities Board of a reasonable utility capital
structure if the Company's common equity level decreases below 42% of total
capitalization unless the decrease is beyond the control of the Company. The
Company is also required to seek the approval of the Iowa Utilities Board if the
Company's equity level decreases to below 39%, even if the decrease is due to
circumstances beyond its control.
Statement of Financial Accounting Standards (SFAS) No. 71 sets forth
accounting principles for operations that are regulated and meet certain
criteria. For operations that meet the criteria, SFAS 71 allows, among other
things, the deferral of costs that would otherwise be expensed when incurred. A
possible consequence of the changes in the utility industry is the discontinued
applicability of SFAS 71. The majority of the Company's electric and gas utility
operations currently meet the criteria of SFAS 71, but its applicability is
periodically reexamined. If utility operations no longer meet the criteria of
SFAS 71, the Company would be required to write off the related regulatory
assets and liabilities from its balance sheet and thus, a material adjustment to
earnings in that period could result.
5. Impact of Environmental, Energy and Other Regulations. The Company
is subject to a number of environmental and other laws and regulations affecting
many aspects of its present and future operations, including the operation of
coal-fired generating facilities and the disposal of various forms of waste and
the construction or permitting of new facilities. Such laws and regulations
generally require the Company to obtain and comply with a wide variety of
licenses, permits and other approvals. The Company also remains subject to a
number of complex and stringent laws and regulations that both public officials
and private individuals may seek to enforce. There can be no assurance that
existing regulations will not be revised or that new regulations will not be
adopted or become applicable to the Company which could have an adverse impact
on its operations. The structure of federal and state energy regulation is
currently undergoing change and has in the past, and may in the future, be the
subject of various challenges, initiatives and restructuring proposals by
utilities and other industry participants. The implementation of regulatory
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changes in response to such challenges, initiatives and restructuring proposals
could result in the imposition of more comprehensive or stringent requirements
on the Company, electric utilities or other industry participants, which would
result in increased compliance costs and operating restrictions and could have a
material adverse effect on the Company's results of operations. In addition,
regulatory compliance for the construction of new facilities is a costly and
time-consuming process, and intricate and rapidly changing environmental
regulations may require major expenditures for permitting and create the risk of
expensive delays or material impairment of project value if projects cannot
function as planned due to changing regulatory requirements or local opposition.
The Public Utility Holding Company Act of 1935, as amended ("PUHCA"),
is one of the laws (including the regulations thereunder) that affect the
Company's operations. PUHCA regulates public utility holding companies and their
subsidiaries. The Company and its parent are currently exempt from PUCHA based
on the intrastate exemption and is not and will not be subject to regulation as
a holding company under PUHCA (except for Section 92) as long as its utility
operations remain predominately in the state of Iowa, the domestic power plants
owned by its affiliates are "qualifying facilities" under Public Utilities
Regulatory Policy Act (and the Company's affiliates ownership interest is
limited to 50%) or are exempted as exempt wholesale generators ("EWGs"), and its
affiliates' foreign utility operations are exempted as EWGs or foreign utility
companies or are otherwise exempted under PUHCA.
In addition to Congressional initiatives, many states are implementing
or considering regulatory initiatives designed to increase competition in the
domestic power generation industry and increase access to electric utilities'
transmission and distribution systems for independent power producers and
electricity consumers. The Company cannot predict the final form or timing of
the proposed industry restructuring or the results of its operations.
Regulatory compliance for the construction of new facilities is a
costly and time-consuming process, and intricate and rapidly changing
environmental regulations may require major expenditures for permitting and
create the risk of expensive delays or material impairment of project value if
projects cannot function as planned due to changing regulatory requirements or
local opposition.
6. Nuclear Risks. In particular, regulatory requirements applicable in
the future to nuclear generating facilities could adversely affect the results
of operations of the Company. The Company is subject to certain generic risks
associated with utility nuclear generation, including risks arising from the
ownership of nuclear facilities and the storage, handling and disposal of
high-level and low-level radioactive materials; limitations on the amounts and
types of insurance commercially available in respect of losses that might arise
in connection with nuclear operations; and uncertainties with respect to the
technological and financial aspects of decommissioning nuclear plants at the end
of their licensed lives. The Nuclear Regulatory Commission ("NRC") has broad
authority under federal law to impose licensing and safety-related requirements
for the operation of nuclear generating facilities and in the event of
non-compliance, has the authority to impose fines or shut down a unit, or both,
depending upon its assessment of the severity of the situation, until compliance
is achieved. Revised safety requirements promulgated by the NRC have, in the
past, necessitated substantial capital expenditures at nuclear plants, including
those in which the Company has a long-term power purchase contract or ownership
interest, such as the Cooper and Quad-Cities units, and additional such
expenditures could be required in the future. In addition, although the Company
has no reason to anticipate a serious nuclear incident at the units in which the
Company has an interest, if such an incident did occur, it could have a material
but presently undeterminable adverse effect on the Company's financial
condition.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.s report to be signed on its behalf by the
undersigned thereunto duly authorized.
MIDAMERICAN ENERGY COMPANY
DATED: JANUARY 11, 2000 BY: /S/ DOUGLAS L. ANDERSON
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Douglas L. Anderson
Assistant Secretary
