20240911PAC to IIPA 1 Attachment.pdf

Utility Investors Wary of Exposures After
Buffet's PacifiCorp H dd Liable for Wildfires
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Destructive wildfires are now an alm cst routine part of sum m c in the Am arican West, and electrical
utilities have likewise becom eused to having their power lines and equipm ant blam al for igniting the
blazes.
But a jury verdict last m(nth ordering Warren Buffett's PacifiCorp to pay 17 owners of properties
destroyed by a series of 2020 Oregon fires an average of$5 m Ilion each setting up total liability for
thousands of others in the billions—took investors by surprise and raised new fears about the scale of
exposure utilities m ay be facing, and whether they will all survive.
At trial, Portland-based PacifiCorp itself estim aed its potential liability at $11 billion. Oakland,
California-based PG&ECorp., which agreed to settle a m u h larger group of victim claim sover
California wildfires for $13.5 billion in 2020, m ay have gotten off easy by com larison.
Warren Buffett's PacifiCorp Sued by O iegon Wineries O`er Fire Dam age
PacifiCorp still faces another wildfire trial in January and several other pending suits, including
com liaints filed last week by Oregon wineries which claim al fires destroyed their grape harvests. And
som eof the sam elawyers who brought the class action against PacifiCorp sued Public Service Co. of
Colorado and its parent com piny, Xcel Energy Inc., last week over the largest wildfire to hit the Rocky
Mountain state.

"It's not just PacifiCorp, it's not just Pacific Gas and Electric, it's not just Public Service Com lany of
Colorado, it's every utility in every m cuntain—that's the risk," said Andy DeVries, a utility analyst at
CreditSights. He said investors need to understand that utilities in the Western US are operating with
"significantly m(:re business risk than they have in the past."
PacifiCorp, which denied responsibility for the fires and blam a1 lightning and clim ae change instead,
said it's confident it will get the verdict overturned on appeal. The com lany stressed that it was
com mtted to operating safely in six states but also said its ability to provide electricity was "being
threatened by excessive wildfire dam Tes."
Liability on the scale im posed by the Oregon jury presents an existential threat to an industry that faces
increasing wildfire risk from m cre extrem eweather fueled by clim Ae change. DeVries said that, by his
calculations, if PG&Ehad been ordered to pay sim iar am cants to California claim acts, its total
dam Tes would be $1 trillion.
As a part of Buffett's Berkshire Hathaway Energy, PacifiCorp isn't publicly traded, but its bonds have
taken the hit from the verdict that its shares m ght otherwise have. S&PGlobal downgraded
PacifiCorp's issuer credit rating two notches, and its outlook for the utility and its parent com piny to
negative from stable.
PacifiCorp Bond Spread Flared After Jury Verdict, Downgrade
• • . debt due 2054done worsepeer group
• • S.S%of 1 •• • spread
downgrades -230
-220
negative• •.
-210
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•/ .
Jury hits • i. i 2.
1
Jury's initial verdid- 1
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1
May 22 May 31 Jun • Jun 15 Jun 22 Jun 30
2023
Source: Bloomberg Bloomberg 0
Berkshire Hathaway Energy is one of the largest US utility owners with 5.2 m Ilion customers. The
unit, which also owns natural gas pipelines, renewable power plants and a UK utility, booked net
incom eof$3.1 billion last year based on $26.3 billion in revenue about a fifth of it from PacifiCorp.
"We're very concerned about those risks," Gabe Grosberg, an S&Pcredit analyst, said in an interview.
"There's always an assum Dion that every parent values every asset it has. To the extent that liabilities
rise for that asset, there's a level, for every parent, where they just don't view that asset as having value
anym cre."
The liabilities PacifiCorp faces from both the June verdict and other sim iar lawsuits led S&Pto
conclude that it won't, under all "foreseeable circum lances," get a lifeline from Berkshire Hathaway
Energy. Grosberg said S&Pis re-assessing the risks that other utilities face.

PacifiCorp took the calculated risk to go to trial rather than settle claim sover the 2020 fires. A central
issue was that the com Iany allegedly failed to turn off power in the affected service areas after being
warned of hazardous weather conditions.
The jury found the com Iany grossly negligent and voted to com pensate 17 test plaintiffs well beyond
their property losses, adding m ilions of dollars m are for pain and suffering than their lawyers
requested. Collectively, they actually got 15 tim cs as m u h for em ctional distress as they were awarded
in econom b dam zges.
Those 17 plaintiffs were awarded$90 m Ilion, but dam zges for as m aiy as 5,000 other residents and
business owners will be determ fined in a later proceeding.
"No one on the bond side was looking at the potential for these huge am cants over actual econom it
dam Tes—it just caught everybody off guard,"DeVries said. "It woke a lot of people up, looking at
their portfolios, wondering what's going on."
PacifiCorp's appeal of the verdict could take years. M arisa M Aler, a lawyer who has defended
com pinnies in wildfire suits but isn't involved in the case, said it will be tough for the utility to persuade
an Oregon appeals court to overturn the jury's conclusion that it's liable for the fires, but the com pany
has a stronger argum aft that the case shouldn't have been allowed to proceed as a class action.
What Bloomberg Intelligence Says: "PacifiCorp has indicated it will appeal the jury verdict, but we
assess its likelihood of success as tenuous for now. "—Elliott Stein, senior litigation analyst, and
Mathew Palazola, senior industry analyst
PG&Efiled for Chapter I I protection in the face of wildfire litigation, em arging from bankruptcy in
2020. If Berkshire doesn't step in, that's a possibility for PacifiCorp as well, according to DeVries and
Grosberg.
PacifiCorp said in a statem ant that, in the face of growing legal liabilities, being part of Berkshire
Hathaway Energy offers com petitive advantages including flexibility of dividend paym sits and capital
spending. Berkshire Hathaway Energy didn't respond to a request for com m nt.
The com IRny could also try to pass the cost along to consum as. PacifiCorp has asked the Oregon
Public Utility Com masion to let it track costs from the litigation so that it can decide later whether to
seek reim lursem ait of the June verdict in its electric bills.
"This is outrageous," said Bob Jenks, executive director of the Oregon Citizens'Utility Board.
"Custom ars should not pay a dim eof these costs."
PacifiCorp said it rem ans open to settling outstanding legal claim s It"has resolved—and will
continue to resolve wildfire dam Te claim swhen they are reasonable, and the dam Tes were caused
by Pacific Power," according to the statem ant.
Settlem ant talks in the case going to trial in January have not been fruitful, according to Robert Julian,
a lawyer in that case who also represented PG&Efire victim s He said 17 of his clients have died
waiting for their cases to go to trial.
Julian said his understanding was that, in the case decided in June, PacifiCorp could have settled for
between $300,000 and$500,000 per household, or less than a tenth of what the jury ordered it to pay.
He said that am cunt would be on top of dam Tes for plaintiffs'property losses. PacifiCorp didn't
respond to requests for com m at on settlem ant talks.

"We're going to end up owning this com lany, and destroying all of Berkshire Hathaway Energy's
equity in it, if they don't sit down and deal with us,"Julian said.
—With assistance from Jam cs Crom he and Mark Chediak.
Photograph:A door remains standing at Gates Elementary School destroyed by wildfires in Gates,
Oregon, in September 2020. Photo credit: Go Nakamura/Bloomberg
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