HomeMy WebLinkAbout20260406Direct Kobliha.pdf RECEIVED
APRIL 6, 2026
IDAHO PUBLIC
UTILITIES COMMISSION
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION ) CASE NO. PAC-E-26-04
OF PACIFICORP D/B/A ROCKY )
MOUNTAIN POWER FOR APPROVAL OF ) DIRECT TESTIMONY OF
SALE OF WASHINGTON SERVICE AREA ) NIKKI L. KOBLIHA
AND ACCOUNTING ORDER )
ROCKY MOUNTAIN POWER
CASE NO. PAC-E-26-04
April 2026
1 I . INTRODUCTION
2 Q. Please state your name, business address, and position
3 at PacifiCorp d/b/a Rocky Mountain Power.
4 A. My name is Nikki L. Kobliha and my business address is
5 825 NE Multnomah Street, Suite 1900 , Portland, Oregon
6 97232 . My present position is Senior Vice President of
7 Finance for PacifiCorp.
8 Q. Please summarize your education and professional
9 experience.
10 A. I received a Bachelor of Business Administration with a
11 concentration in Accounting from the University of
12 Portland in 1994 . I became a Certified Public Accountant
13 in 1996 . I joined PacifiCorp in 1997 and have taken on
14 roles of increasing responsibility before being
15 appointed Chief Financial Officer from 2015 to 2025 .
16 Most recently, I have taken on a Senior Vice President,
17 Finance role where I lead various special projects of
18 significant financial consequence, working directly with
19 PacifiCorp' s senior leadership.
20 II . PURPOSE OF TESTIMONY
21 Q. What is the purpose of your testimony?
22 A. The purpose of this testimony is to explain and support
23 PacifiCorp' s proposed valuation, allocation, and
24 regulatory treatment of the goodwill value and related
25 financial impacts arising from the sale of its
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I Washington service area and related assets to Gem Sub
2 LLC ( "Gem" ) , an affiliate of Portland General Electric
3 Company ( "PGE" ) Specifically, this testimony
4 demonstrates that PacifiCorp' s proposal to allocate
5 goodwill value among jurisdictions and to assign
6 68 percent to customers and 32 percent to shareholders
7 is reasonable, consistent with Idaho Public Utilities
8 Commission ( "Commission" ) precedent, and necessary to
9 ensure that customers are not harmed while maintaining
10 the financial health of PacifiCorp .
11 III . VALUATION OF ASSETS TO BE SOLD
12 Q. Can you describe the assets that are being sold by
13 PacifiCorp to Gem?
14 A. Yes, as detailed in the testimony of PacifiCorp witness
15 Joelle R. Steward, PacifiCorp is selling its
16 distribution system in Washington, the Chehalis combined
17 cycle gas turbine power plant, the Marengo I and II and
18 Goodnoe Hills wind farms, certain identified
19 transmission assets, and materials and supplies
20 inventory. Along with this real property and inventory,
21 the sale includes certain regulatory assets, accounts
22 receivable, prepaid maintenance costs, and the transfer
23 of liabilities for excess deferred income tax, certain
24 customer deposits, and employee paid time off balances .
25 In addition, PacifiCorp is selling its business of
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1 operating a public service company in Washington. Gem
2 will also remit to PacifiCorp on a quarterly basis
3 amounts associated with certain coal plant
4 decommissioning and remediation costs currently being
5 collected in Washington rates . ' The entirety of the
6 transaction is referred to as the Service Area Transfer.
7 Q. What is the total consideration to be received by
8 PacifiCorp from Gem?
9 A. Gem is paying PacifiCorp an estimated purchase price of
10 $1 . 9 billion (subject to certain adjustments) for
11 PacifiCorp' s Washington distribution system, the various
12 generation and transmission facilities described above
13 and for the business of operating a public service
14 company in Washington, net of liabilities transferring
15 at closing. Gem will also pay for the above-described
16 other assets currently estimated to be $220 . 9 million,
17 with the final amounts determined at that time .
18 Q. Has the value of the assets being sold been estimated?
19 A. Yes . The assets being sold have been valued at
20 PacifiCorp' s estimated net book value ( "NBV" ) as
21 provided in the table below.
1 Wash. Utils. & Transp. Comm'n V. PacifiCorp, dba Pac. Power & Light Co. ,
Docket Nos. UE-191024, UE-190750, UE-190929, UE-190981 and UE-180778
(consolidated) , Final Order 09/07/12 authorized PacifiCorp to recover
Washington' s share of decommissioning and remediation costs for Colstrip
Unit 4 and the Jim Bridger plant over 10 years through 2030.
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Table 1
Asset N BV
Chehalis 191,883,635
Marengo 328,264,376
Goodnoe Hills 171,400,112
Distribution,WA only 421,603,837
Transmission, Chehalis adjacent 9,460,917
Transmission,all other 248,258,753
General, Intangible, &Other-Chehalis adjacent 6,793,294
General, Intangible, &Other 3,728,132
General, Intangible, &Other-distribution related 20,277,733
Subtotal: Fixed Assets 1,401,670,788
Regulatory Assets: PCAMs, Decoupling, other misc 33,655,862
Inventory 34,399,331
Accounts Receivable: Billed and unbilled 109,042,187
Prepaid Maintenance-Chehalis and wind 48,994,498
Construction Work In Progress 39,876,545
Decommissioning/Reclamation Costs 19,586,059
Reg liability: Excess Deferred Income tax (61,906,375)
Security Deposit Liability:Transmission and Customer deposits (6,700,000)
Assumed PTO (2,444,000)
Total 1,616,174,895
1 Q. Why is the value of the assets estimated and not
2 finalized at this time?
3 A. Balances are subject to adjustment until the transaction
4 closes . PacifiCorp has projected the balances through
5 December 31, 2026 , based on available information at
6 this time .
7 Q. How does the NBV of the assets being sold compare to the
8 estimated purchase price?
9 A. The estimated purchase price of the assets being sold,
10 net of liabilities assumed, plus other consideration to
11 be provided upon closing for certain assets transferred,
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1 exceeds the NBV. This results in estimated excess
2 consideration of $504 . 7 million, or $441 . 6 million after
3 estimated selling costs of $63 . 1 million. This excess
4 consideration is attributable to the goodwill value of
5 the business being sold, as discussed in more detail
6 below.
7 Q. What is included in the selling costs?
8 A. The selling costs consist of various attorney and
9 consulting fees necessary to effectuate the transaction,
10 but by far the largest selling costs relate to Washington
11 State' s real estate excise tax ( "REET" ) and Washington' s
12 retail sales tax.
13 Q. What are these Washington taxes and how are they
14 calculated?
15 A. The REET is a tax outlined in the Revised Code of
16 Washington and the Washington Administrative Code
17 imposed on the sale of real property. PacifiCorp expects
18 a sizable portion of the assets transferred will be
19 classified as real property and subject to the REET. The
20 state portion of the REET has a graduated tax rate that
21 tops out at three percent for the portion of the selling
22 price in excess of $3 . 025 million. Counties and cities
23 also have the authority to impose local option real
2 RCW Chapter 82 .45; WAC Chapter 458-61A.
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1 estate excise taxes ; the maximum rate is between
2 0 . 25 percent and one percent of the selling price .
3 Washington' s retail sales tax outlined in the
4 Revised Code of Washington and the Washington
5 Administrative Code3 is imposed upon the sale of taxable
6 tangible personal property. The state portion of
7 Washington' s retail sales tax is 6 . 5 percent with local
8 city/county rates ranging between 1 . 5 percent and
9 2 . 6 percent, for example, in the counties of Lewis,
10 Walla Walla, and Yakima .
11 During the period between execution of the Asset
12 Purchase and Service Area Transfer Agreement (the
13 "Agreement" ) and closing of the transaction, PacifiCorp
14 will be conducting a detailed study of the nature of the
15 assets transferred (real property, tangible personal
16 property, etc . ) and determining the applicable taxes .
17 Consistent with the Agreement' s approach to the Internal
18 Revenue Code Section 1060 purchase price allocation,
19 PacifiCorp intends to use the NBV (not including
20 deferred tax liabilities) of the assets as reported on
21 PacifiCorp' s internal books and records immediately
22 prior to the closing as the selling price of the property
23 transferred in this transaction for the purposes of
24 Washington state and local transfer taxes . PacifiCorp
3 RCW Chapters 82 . 08 and 82 .14; WAC Chapter 458-20.
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1 provides a high-level estimate of these taxes in this
2 filing. Later in my testimony, I describe how this cost
3 is allocated to Washington, and the benefits of this tax
4 flow directly to state and local communities .
5 Q. Outside of changes in the estimated NBV of the assets,
6 what other items could impact the estimated amount of
7 goodwill value?
8 A. The items that could impact the estimated goodwill value
9 include true-ups to the estimated NBV of the assets,
10 other assets and liabilities being transferred or
11 selling costs .
12 IV. TREATMENT OF GOODWILL VALUE
13 Q. Please explain what is meant by goodwill value and how
14 it relates to this transaction.
15 A. The goodwill value is the consideration received in
16 excess of the fair market value of the assets sold in
17 this transaction. PacifiCorp and Gem have agreed that
18 the fair market value of the assets being sold is equal
19 to their NBV because such value is the basis for what is
20 currently being recovered in PacifiCorp' s retail rates .
21 Accordingly, Gem will record the cost and accumulated
22 depreciation of such assets at PacifiCorp' s NBV in
23 accordance with the Federal Energy Regulatory
24 Commission' s Uniform System of Accounts Electric Plant
25 Instruction No. 5 and any excess consideration is
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1 attributable to the value of PacifiCorp' s operations as
2 an ongoing public service company in Washington, also
3 known as goodwill .
4 When MidAmerican Energy Holdings Company, now
5 Berkshire Hathaway Energy Company ( "BHE" ) , acquired
6 PacifiCorp in 2006 , an acquisition premium, also known
7 as goodwill, was recorded at the PacifiCorp parent
8 company level . The excess consideration paid by Gem in
9 the Service Area Transfer confirms that a portion of the
10 goodwill paid in 2006 is attributable to PacifiCorp' s
11 Washington service area.
12 Q. Because the excess consideration is entirely
13 attributable to goodwill (i .e. , the ability to continue
14 as an ongoing public service company in Washington) , how
15 did PacifiCorp determine an amount allocable to each
16 state?
17 A. Although the excess consideration is attributable to
18 goodwill (i . e . , operations as an ongoing public service
19 company) rather than the specific assets being sold,
20 PacifiCorp allocated the value of the goodwill from this
21 transaction across the state jurisdictions by first
22 breaking down the asset listing into the NBV of each
23 asset category being sold. This enabled the allocation
24 of a specific percentage to each asset category,
25 facilitating the distribution of the value of the
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1 goodwill based on the relative share of each asset
2 category being sold. The asset categories and
3 percentages are listed below.
Table 2
NBV Goodwill
Asset Amount % Assignment
Chehalis 191.883.635 13.69% 69.099.752
Marengo 328.264.376 23.42at 118211.555
Goodnoe Hills 171.400.112 12.23% 61.730.458
Distribution.WAonly 421.603.837 30.08% 151.827.651
Transmission.Chehailsadjacent 9.460.917 0.67% 3,381,799
Transmission.all other 248.258.753 17.71% 89.390,549
General.Intangible.&Other-Chehalis adjacent 6.793.294 0.48% 2.422.782
General.Intangible.&Other 3.728.132 0.27?t 1.362.815
General.Intangible.&Other-Distribution related 20.277.733 1.45?t 7.318.819
Subtotal:Fixed Assets 1,401,670,788 100.00% 504,746,180
4 Q. Why does the allocation across asset categories not
5 include an allocation for the other assets and
6 liabilities being sold, such as accounts receivable or
7 the regulatory assets?
8 A. The other assets being transferred and liabilities
9 assumed are at book value, less an amount for an assumed
10 level of working capital typical for a business of this
11 size, and adjustments for the time value of money. These
12 adjustments are immaterial to the value of goodwill as
13 a whole and were therefore not considered.
14 Q. Once the value of goodwill was apportioned to the asset
15 categories, how did PacifiCorp allocate the value among
16 the states?
17 A. PacifiCorp proposes that the allocation of the goodwill
18 value should be guided by the 2020 PacifiCorp Inter-
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I Jurisdictional Cost Allocation Protocol ( 112020
2 Protocol" ) , which was adopted by all states in 2020 for
3 allocating certain system costs, including Washington
4 (which also adopted a Washington-specific protocol , the
5 Washington Interjurisdictional Allocation Methodology
6 ( "WIJAM" ) ) . While the 2020 Protocol has now expired, it
7 is the basis for current rates in all of PacifiCorp' s
8 states except Washington. PacifiCorp has therefore
9 relied upon the 2020 Protocol to guide allocation of the
10 goodwill value in this transaction.
11 Q. Which provision of the 2020 Protocol is most relevant to
12 the allocation of goodwill value?
13 A. There is no provision of the 2020 Protocol that directly
14 addresses consideration paid for the intangible,
15 goodwill value of the business . Section 7 of the 2020
16 Protocol provides indirect guidance, stating that, "Any
17 gain or loss from the sale of Company-owned assets will
18 be allocated among or to states based upon the
19 proportional allocation or assignment of the asset at
20 the time of the execution date of the sale agreement . "4
21 The approach outlined above is consistent with the
22 principles set forth in Section 7 .
4 In the Matter of Rocky Mountain Power's Application for Approval of the
2020 PacifiCorp Inter-Jurisdictional Allocation Protocol, Case
No. PAC-E-19-20, Steward Exhibit No. 1 at 43 (filed Dec. 3, 2019) .
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1 V. ASSIGNMENT OF GOODWILL VALUE BETWEEN
2 CUSTOMERS AND PACIFICORP
3 Q. What amount of the goodwill value does PacifiCorp
4 propose to return to Idaho customers?
5 A. PacifiCorp proposes returning goodwill value of
6 approximately $8 . 9 million to Idaho customers
7 ($141 million for the remaining five states) . This
8 figure represents 68 percent of the total assignable
9 goodwill value for Idaho prior to the accumulated
10 deferred income tax ( "ADIT" ) remeasurement referenced
11 below. PacifiCorp plans to record this amount as a
12 regulatory liability and amortize the benefit as a rate
13 credit over three years, beginning in the next general
14 rate case .
15 Q. Please describe the calculation PacifiCorp used to
16 determine Idaho customers' share of the goodwill value.
17 A. PacifiCorp' s calculation begins with the total goodwill
18 value allocated by category of assets sold as presented
19 in Table 2 above . The goodwill assignment for the
20 distribution assets was 100 percent allocated to
21 Washington as Washington customers alone paid for those
22 assets . Those assets included in Idaho rates which
23 received an allocation of the goodwill value are
24 Chehalis, Goodnoe Hills, Marengo, certain transmission
25 assets and other general plant assets . The allocation of
26 the goodwill value related to these assets was then
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1 allocated to Idaho based on the system generation ( "SG" )
2 factor described in the 2020 Protocol . For Idaho,
3 PacifiCorp used 6 percent .
4 Next, PacifiCorp proposes assigning 68 percent of
5 the goodwill value, net of selling costs, to customers
6 with 32 percent retained by PacifiCorp. This outcome is
7 then reduced by Idaho' s share of the ADIT remeasurement
8 discussed below. Idaho is allocated 7 percent of that
9 remeasurement . The resulting assignment is approximately
10 $8 . 9 million.
11 Q. Did Idaho receive a portion of all selling expenses?
12 A. No. Both the REET and retail sales tax amounts are
13 allocated 100 percent to Washington as a reduction to
14 their available goodwill value . These tax payments will
15 directly benefit Washingtonians .
16 Q. What is the ADIT remeasurement mentioned above and how
17 has PacifiCorp calculated it?
18 A. For financial reporting purposes, at each balance sheet
19 date, PacifiCorp must estimate its deferred income tax
20 liability for temporary differences between book and
21 tax, known as the ADIT liability, which is generally
22 expressed as a product of gross temporary differences
23 and enacted tax rates . A gross temporary difference is
24 a measure of future taxable income or deductions
25 resulting from amounts that have already been recognized
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I in PacifiCorp' s financial statements . As of December 31,
2 2025 , PacifiCorp has an estimated $13 . 7 billion of gross
3 temporary differences, representing future taxable
4 income, primarily resulting from accelerated tax
5 depreciation.
6 For federal income tax purposes, the ADIT liability
7 is the product of PacifiCorp' s gross temporary
8 differences and the enacted federal tax rate of
9 21 percent . For state income tax purposes, the ADIT
10 liability is the product of PacifiCorp' s gross temporary
11 differences and the "applicable state tax rate, " where
12 the applicable state tax rate is the product of the
13 applicable state apportionments percentage and the
14 enacted state tax rate . State apportionment factors are
15 a significant part of the equation, especially because
16 they change from period to period, primarily based on
17 changes in where gross receipts are sourced based on a
18 company' s business activities for the taxable period.
19 For more than 20 years, PacifiCorp has used a
20 blended applicable state tax rate of 4 . 54 percent to
s For multi-state corporations like PacifiCorp, state apportionment refers
to the division of federal taxable income (as adjusted by state tax law)
among the states in which a corporation is taxable using a mathematical
formula. The predominant formula in use today is called a single sales
factor formula with the numerator being sales within the state and the
denominator being sales everywhere and the where the term "sales" is more
accurately described as "gross receipts." PacifiCorp is also taxable in
states that use a three-factor formula based on property, payroll, and
sales, with each factor evenly weighted or with the sales factor double-
weighted.
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1 measure ADIT . PacifiCorp annually compares this rate to
2 the actual state tax rate based on its most recently
3 filed state income tax returns and historically
4 speaking, the amounts have been well aligned, typically
5 within a tolerance of 0 . 1 percent .
6 Should this transaction be approved, while
7 PacifiCorp will continue to have a presence in
8 Washington state, it will be greatly reduced and
9 PacifiCorp estimates that its applicable state tax rate
10 will increase from 4 . 54 percent to approximately
11 5 . 00 percent . While the apportionment factor denominator
12 in PacifiCorp' s states with an income tax will generally
13 remain the same, the numerator will decrease meaning
14 that more of the gross temporary differences that form
15 the basis of PacifiCorp' s post-transaction ADIT will
16 reverse as taxable income in the remaining states with
17 an income tax. Much like ADIT was remeasured in 2017
18 when the federal income tax rate was reduced from 35
19 percent to 21 percent , the increase in PacifiCorp' s
20 applicable state tax rate will also require an ADIT
21 remeasurement . Based on 2025 balances, PacifiCorp
22 projects the remeasurement will increase its ADIT
23 liability by approximately $50 million.
24 Absent regulatory treatment for recovery of this
25 deficient ADIT PacifiCorp would take a one-time charge
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1 to its income statement for the remeasurement . Idaho
2 customers have been benefiting from lower taxes in rates
3 due to having a zero income tax state as part of
4 PacifiCorp' s system. Since this remeasurement is the
5 result of this transaction, PacifiCorp proposes
6 offsetting the goodwill value with the impact of the
7 ADIT remeasurement . Future rate cases will include the
8 higher ADIT balance as an offset to rate base .
9 Q. How did you calculate Idaho' s allocation of the ADIT
10 remeasurement?
11 A. For the purposes of Exhibit No. 1 to my testimony, to
12 provide an estimate of each state' s allocation of the
13 ADIT remeasurement, I removed Washington from the SG
14 factor totals making it 92 percent . I then recalculated
15 each state' s new percentage based on their relative
16 share of the 92 percent . For example, Idaho was 6 percent
17 of the SG factor so 6 percent of 92 percent is 7 percent .
18 This is consistent with the recalculation of allocation
19 factors discussed in the testimony of PacifiCorp witness
20 Shelley E . McCoy. Each state' s actual allocation will be
21 finalized after the transaction closes, and will be a
22 detailed calculation for each individual component of
23 ADIT and the actual allocation factor assigned.
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1 Q. Have you prepared an exhibit that shows the state
2 allocation calculation?
3 A. Yes, please see Exhibit No. 1 to my testimony.
4 Q. Why is PacifiCorp' s proposal to share the goodwill value
5 with customers reasonable?
6 A. First, PacifiCorp' s approach is generally consistent
7 with direction the Commission has provided PacifiCorp in
8 connection with prior property sales, and is nearly
9 double the amount that customers have paid in
10 depreciation expense for the generation assets . Second,
11 PacifiCorp' s proposal reasonably assigns to PacifiCorp
12 a share of the goodwill value consistent with the risk
13 that PacifiCorp has borne relating to the Washington
14 service area. Third, allowing PacifiCorp to retain
15 32 percent of the goodwill value will strengthen its
16 financial position, which generally benefits customers .
17 Fourth, PacifiCorp is absorbing additional costs that
18 effectively reduce its share of retained goodwill value .
19 Q. Turning to the first argument, how is PacifiCorp' s
20 proposal consistent with Commission guidance?
21 A. In prior asset sale orders, the Commission has approved
22 applying what is known as "the depreciation reserve
23 methodology, " which shares gains according to the ratio
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1 of accumulated depreciation to gross plant . 6
2 Q. Please explain the depreciation reserve methodology.
3 A. The depreciation reserve methodology reflects the
4 relationship between net plant and gross plant by
5 establishing the percentage of capital costs of the sold
6 assets that has been recovered through customers' prices
7 and the percentage of these costs that remain on the
8 utility' s books . The depreciation reserve methodology
9 balances the interests of customers and the utility by
10 recognizing that the utility bears the initial risk for
11 investing capital in new resources and that through
12 depreciation expense, customers pay for the cost of
13 assets over their operating lives, consistent with the
14 period in which those assets provide service .
15 Q. Is the depreciation reserve methodology applicable to
16 the goodwill value in the Service Area Transfer?
17 A. The depreciation reserve methodology is not directly
18 applicable here because the gain is associated with the
19 goodwill value . However, comparing PacifiCorp' s proposal
20 with the depreciation reserve methodology further
6 In the Matter of the Application of PacifiCorp for an Order Approving
the Sale of its Interest in (1) The Centralia Steam Electric Generating
Plant, (2) The Rate Based Portion of its Centralia Coal Mine, and (3)
Related Facilities; For a Determination of the Amount of and the Proper
Ratemaking Treatment of the Gain Associated with the Sale; and (4) an EWG
Determination, Case No. PAC-E-99-2, Order No. 28296 (Mar. 1, 2000) ; In
the Matter of the Application of Avista Corporation for an Order Approving
the Sale of Its Interest in the Skookumchuck Hydroelectric Plant and for
EWG Determinations, Case No. AVU-E-04-2, Order No. 29484 (Apr. 28, 2004) .
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1 demonstrates that PacifiCorp' s proposed assignment of
2 the goodwill value to customers is reasonable because
3 the three generation assets PacifiCorp is selling
4 (Chehalis, Goodnoe Hills and Marengo) are only
5 37 percent depreciated, while PacifiCorp is proposing to
6 share 68 percent of the goodwill value .
7 Q. How did you determine that the generation assets are
8 only 37 percent depreciated?
9 A. PacifiCorp records and maintains accumulated
10 depreciation by depreciation group, as established in
11 its Commission-approved depreciation studies . For
12 example, accumulated depreciation associated with
13 distribution assets is maintained on a state-by-state
14 basis . This allows PacifiCorp to determine the extent to
15 which customers have contributed to the recovery of the
16 costs of the assets included within each depreciation
17 group. By the end of 2026 , PacifiCorp estimates that
18 customers will have paid the percentages outlined in the
19 table below.
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Table 3
Depreciation
Asset Ratio
Chehalis 49%
....................
Marengo 31%
.....................
Goodnoe Hills 30%
....................
Distribution,WA only 45%
.....................
Transmission. Chehaiis adjacent 24%
.....................
Transmission, all other 23%
......................
General. Intangible, & Other-Chehalis adjacent 58%
..............................................
General, Intangible,&Other 32%
...................
General, Intangible, &Other- distribution related 55%
..................................
........................
Weighted average -All assets 38%
Weighted average - Generation assets only 37%
..................
1 Focusing solely on the generation assets, customers
2 have paid for approximately 37 percent of the assets
3 being sold.
4 Q. How does the portion of the assets that customers have
5 paid for support PacifiCorp' s proposed assignment of
6 68 percent of the goodwill value to customers?
7 A. Based on PacifiCorp' s accumulated depreciation,
8 customers have paid between 23 percent and 58 percent
9 for the assets sold. Using the upper end of that range
10 indicates that the value generated by goodwill could be
11 assigned 58 percent to customers and 42 percent to
12 shareholders . PacifiCorp is proposing to assign
13 68 percent to customers despite the analysis showing
14 closer to 38 percent of the value of the assets has been
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I paid for by customers on a weighted average basis, and
2 37 percent for the generation assets sold, with the
3 highest for any asset being 58 percent . This additional
4 customer assignment provides benefits to customers
5 compared to the depreciation reserve methodology and
6 recognizes that customers do share in some of the risk
7 associated with operating company assets that is
8 difficult to measure through a mathematical analysis,
9 nor captured by the depreciation reserve methodology.
10 Q. Is PacifiCorp' s proposed assignment of goodwill value
11 consistent with who has borne risks relating to the
12 Washington service area?
13 A. Yes . The risk of serving Washington customers as a multi-
14 jurisdictional utility has predominantly been borne by
15 PacifiCorp, not Idaho customers . This is demonstrated in
16 the tens of millions in annual costs PacifiCorp has been
17 forced to absorb over the last three years for Chehalis' s
18 compliance with Washington' s Climate Commitment Act
19 (CCA) . Specifically, PacifiCorp has been required to
20 purchase emissions allowances for generation from
21 Chehalis that is used to serve customers in PacifiCorp' s
22 non-Washington states, but those states did not allow
23 recovery in rates of the costs incurred to purchase the
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1 CCA-mandated emission allowances . ' In addition,
2 PacifiCorp has had to absorb other cost recovery
3 shortfalls resulting from diverging energy policies and
4 discrepancies in approved cost allocation methodologies
5 across six states . Considering the risk PacifiCorp has
6 borne serving the Washington service area, PacifiCorp' s
7 proposed sharing of the goodwill value is reasonable .
8 Q. How does the proposed assignment of goodwill value
9 benefit customers by strengthening PacifiCorp' s
10 financial health?
11 A. The ability to retain 32 percent of the goodwill value,
12 along with the net proceeds received for the NBV of the
13 assets sold, supports the financial health of PacifiCorp
14 largely through a reduction of future debt . Absent these
15 dollars, PacifiCorp will experience further pressure on
16 its credit metrics and increased borrowing costs .
17 Q. What is the estimated impact of increased borrowings if
18 this transaction is not approved?
19 A. This transaction is estimated to net cash of
20 approximately $1 . 4 billion, before retention of any of
21 the goodwill value . Without this cash, PacifiCorp would
22 need to borrow the same amount to meet liquidity targets .
23 Issuing $1 .4 billion in 10-year First Mortgage Bonds
' In the Matter of Rocky Mountain Power' s Application for Approval of
$62.4 Million SCAM Deferral, Case No. PAC-E-24-05, Order No. 36207 at 11
(May 31, 2024) .
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1 could raise annual interest expense by about $95 million
2 based on current credit ratings . A downgrade or
3 placement on CreditWatch Negative status may increase
4 debt costs beyond these estimated amounts or limit
5 access to much needed capital .
6 Q. Will retention of 32 percent of the goodwill value
7 provide additional support to PacifiCorp' s financial
8 profile?
9 A. Yes . Allowing PacifiCorp to retain 32 percent of the
10 goodwill value better positions PacifiCorp to meet the
11 financial challenges associated with the rapidly
12 changing utility landscape . A financially healthy
13 utility benefits PacifiCorp' s remaining customers,
14 including those in Idaho.
15 Q. Will PacifiCorp retain these earnings to support its
16 capital structure?
17 A. Yes, PacifiCorp will retain any earnings .
18 Q. Please summarize PacifiCorp' s need for new capital and
19 liquidity.
20 A. PacifiCorp requires capital to meet its customers' needs
21 for the required maintenance of its generation,
22 transmission, and distribution assets, for the safe and
23 reliable operation of the electric grid, and to support
24 its wildfire mitigation program. PacifiCorp also needs
25 new capital to fund its operations, such as the purchase
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Rocky Mountain Power
1 of energy for its customers and to fund long-term debt
2 maturities . Additionally, PacifiCorp is currently facing
3 significant wildfire liabilities, which have strained
4 PacifiCorp' s credit ratings and overall financial
5 stability.
6 Q. Please explain PacifiCorp' s operational needs for new
7 capital .
8 A. PacifiCorp requires capital to support its liquidity
9 needs to fund its ongoing operations and to meet its
10 customers' needs, as well as liquidity to support its
11 credit rating. Maintaining utility operations is a
12 capital-intensive process, especially when facing the
13 combined operational demands of addressing emerging
14 wildfire risks and associated insurance premium
15 increases, expanding the distribution and transmission
16 systems to serve load, and additional integration of
17 renewable resources to meet both customer need and state
18 energy policies .
19 Q. Are there any other cost impacts PacifiCorp will incur
20 that should be considered when assessing the
21 reasonableness of PacifiCorp' s proposed assignment of
22 the goodwill value?
23 A. Yes, there are four additional items that will be
24 absorbed by PacifiCorp, largely offsetting its
25 32 percent of the goodwill value that will be retained
Kobliha, Di 23
Rocky Mountain Power
I by PacifiCorp . First, some of the goodwill value is being
2 double-allocated as a result of the over-allocation of
3 Chehalis between the WIJAM and 2020 Protocol . PacifiCorp
4 is allocating 22 percent of the goodwill value based on
5 the Chehalis-related assets to Washington and 92 percent
6 of the same goodwill value to other jurisdictions . This,
7 of course, is greater than 100 percent, leaving a
8 14 percent over-allocation for PacifiCorp to absorb .
9 Second, certain amounts associated with pension and
10 other post-retirement medical benefits are not being
11 transferred as part of this transaction. Accounting
12 standards for pension and other post-retirement medical
13 benefits permit deferred recognition of certain
14 actuarial gains and losses incurred by plan sponsors,
15 resulting in regulatory assets and regulatory
16 liabilities that are amortized to expense over time . In
17 addition, PacifiCorp was authorized by the Washington
18 Utilities and Transportation Commission" to defer and
19 amortize into rates the 2018 , 2021, and 2022 pension
20 settlement losses . As of December 31 , 2025, Washington' s
21 portion of these items amounted to a regulatory asset
22 balance of approximately $17 . 0 million.
8 In docket UE-181042, the Washington Utilities and Transportation
Commission approved PacifiCorp' s request to defer and amortize pension
settlement losses over the same period used to amortize the underlying
regulatory asset and liability balances.
Kobliha, Di 24
Rocky Mountain Power
1 Third, for financial and regulatory reporting
2 purposes, the calculation of income realized by
3 PacifiCorp related to this transaction consists of
4 amounts that are both deductible and non-deductible for
5 income tax purposes . The non-deductible amounts are
6 primarily attributable to the equity allowance for funds
7 used during construction and result in income tax
8 expense that is not being recovered from customers by
9 virtue of PacifiCorp' s proposed assignment of goodwill
10 value which has been calculated on a pre-tax basis .
11 Fourth, when BHE acquired PacifiCorp in 2006 , an
12 acquisition premium, also known as goodwill, was
13 recorded. This transaction confirms some of that amount
14 of goodwill is attributable to the Washington service
15 area as demonstrated through the premium paid in this
16 transaction. As part of the merger commitments,
17 PacifiCorp agreed the acquisition premium would not be
18 part of customer rates . The sale of these assets and
19 realization of an acquisition premium should therefore
20 also not be included in rates . PacifiCorp estimates the
21 amount of the original acquisition premium recorded at
22 PacifiCorp' s parent company PPW Holdings attributable to
23 Washington is $90 . 1 million, or approximately 8 percent
24 of the total recorded goodwill .
Kobliha, Di 25
Rocky Mountain Power
1 Q. Is PacifiCorp' s proposed assignment of goodwill value
2 consistent with ensuring that there is no harm to
3 customers from this transaction?
4 A. Yes, this assignment of the goodwill value is identified
5 as part of the customer impacts in Ms . Steward' s
6 testimony.
7 VI . CONCLUSION
8 Q. Please summarize your recommendation.
9 A. The Commission should approve the asset sale included in
10 the Service Area Transfer and assign the goodwill value
11 in accordance with PacifiCorp' s proposal .
12 Q. Does this conclude your direct testimony?
13 A. Yes .
Kobliha, Di 26
Rocky Mountain Power
Case No. PAC-E-26-04
Exhibit No. 1
Witness : Nikki L. Kobliha
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
ROCKY MOUNTAIN POWER
Exhibit Accompanying Direct Testimony of Nikki L . Kobliha
Calculation, Allocation and Assignment of Goodwill Value
April 2026
Rocky Mountain Power
Exhibit No. 1 Page 1 of 3
Case No. PAC-E-26-04
Witness:Nikki L.Kobliha
Book
Asset Cost Accum. Depr. Net Book Value
Chehalis 375,993,003 (184,109,368) 191,883,635
Marengo 326,337,354 1,927,022 328,264,376
Goodnoe Hills 157,468,913 13,931,199 171,400,112
Distribution,WA only 770,736,290 (349,132,453) 421,603,837
Transmission,Chehails adjacent 12,522,798 (3,061,881) 9,460,917
Transmission,all other 322,976,970 (74,718,217) 248,258,753
General, Intangible,&Other-Chehalis adjacent 16,208,930 (9,415,636) 6,793,294
General, Intangible,&Other 5,463,700 (1,735,568) 3,728,132
General, Intangible,&Other-Distribution related 44,884,284 (24,606,551) 20,277,733
Total:Fixed Assets 2,032,592,241 (630,921,454) 1,401,670,788
Rocky Mountain Power
Exhibit No. 1 Page 2 of 3
Case No. PAC-E-26-04
Witness:Nikki L.Kobliha
GNeback Percentage-Gain 68.00%
GNeback Percentage-WA BEET 100.00%
GNeback Percentage-ADIT Remeasur-M 100.00%
Net Book VaWe G006ea1t Customet Allocation Slate Allocation Company Allocation
Asset Amount % Assignment GNeback@68% Method Washington Oregon CalNornla Utah Idaho Wyoming Total Overa(location Retained Total Check Total
Chehalis 191.893.635 13.69% 69,099,752 46,987 831 B 10,337 323 12,216,836 469,8J8 21,1"524 2,819,270 6,578,296 53,566,121 (6,678,296) 22,111,921 15,533,625 0
Marengo 328,264,3]6 21,12% 118,211,555 80,383,852 A 6,430,709 20,899,803 803,839 36,172,236 4,823,031 11,253,140 8013831958 0 37,827,698 37,82-/,698 (1)
Goo0noe HMIs 171,400,112 12.23% 61,730,458 41,976,711 A 3,358.137 10,913,945 419,767 18,889,520 2,518,603 5,876,740 41,976,712 0 19,753,747 19,753,747 (1)
Dishibution,WAonly 421,603,837 30.08% 161,827(51 103,242,803 WA 103,242,803 0 0 0 0 0 103,242,803 0 48,564,848 a 584,848 0
Transmission,Chehails adj,cent 9,460,937 0.67% 3.381,799 2,299,623 B 605,917 597,902 22,996 1.(rU 830 137,9T 321,947 2,621,569 (321,947) 1,082,176 70,229 1
Transmission,altother 248,258,253 11.71% 89,390,549 60,T85,573 A 4,862,846 15,804,249 602,856 21,353,508 3,647,134 81509,980 60,785,519 0 28,604,916 28,604,976 0
General,Intangible,&Other-Chehalis adjacent 6,M,294 G.48% 2,422,782 1,647,492 B 362,448 428,348 16,475 741,371 98,850 230,649 1,878,141 (230,649) T 5,290 544,641 0
General,Intangible,&Other 3,728,132 0.27% 1,362,815 926,714 A 74,137 240,946 9.267 417,021 55,603 129,740 926,714 0 436,101 436,101 0
General,Intangible,&Other-Distribution relatetl 20=7W 1.45% 7.318,819 4,976,797 WA 4,976,797 0 0 0 0 0 4,9)6,]91 0 2,342,022 2,342,022 0
Sublutal:Fixed Assets 1,401,6",798 100.00% 504,746,180 343,M7,401 134,151,- 61,102,029 2,350,018 105,753,510 141100,468 32,901,091 350,358,294 (y,130,6921 261,518,729 154,3V S8T (1)
Washington Real Estate Exclse Tax (49,058,478) (49,058,478) WA (49,058,478) 0 0 0 0 0 (0,058,478) 0 0 0 0
Othersellingcosls (14,100,000) (9,588,000) A (]6],040) (2,492,880) (95,880) (4,314,600) (575,280) (1,342,320) (9,588,000) 0 (4,512,000) (4,512,000) 0
Subtotal 441,58],]02 284,560,923 84,3251599 5816091149 2,254,198 10114381910 13,525,188 31,558,"2 291,711,816 (7,130,892) 15],006,1)9 Yt9,875,881 (1)
ADIT Remeasurementt Gross-Up (66,301,200) (66,301,200) C 0 (18,564,336) (663,012) (32,187,588) (4,6,1,W) (9,945.180) (66,301,200) 0 0 0 0
Total Pre-tax 375,286,502 218,2n,123 84,325,598 4010441813 11591,186 68,951,322 8,884,104 21,613,592 225,410,626 (7,130,892) 157,006,))9 149,815,881 (1)
Rocky Mountain Power
Exhibit No. 1 Page 3 of 3
Case No. PAC-E-26-04
Witness:Nikki L.Kobliha
Allocation Methods
Description Method WA OR CA UT ID WY PAC Total
Use of SG factor from 2020 Protocol A 0.08 0.26 0.01 0.45 0.06 0.14 0.00 1.00
Use of WIJAM for WA and overallocation assigned to company B 0.22 0.26 0.01 0.45 0.06 0.14 (0.14) 1.00
Recalcuation to remove WA from allocations C 0.00 0.28 0.01 0.49 0.07 0.15 0.00 1.00
100%assignment to WA WA 1.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00