20051031Part II response Staff request.pdf

05-035-54/PacifiCorp
August 22, 2005
DPU 2nd Set Data Request 2.3
DPU Data Request 2.
If not included in the documents provided in the above request (request number
1), please provide complete copies of any "comfort letters" and supporting reports
and documentation provided to any party to this transaction.
Response to DPU Data Request 2.
MEHC did not receive any "comfort letters" in connection with the proposed
acquisition of PacifiCorp.
05-035-54/PacifiCorp
August 22, 2005
DPU 2nd Set Data Request 2.4
DPU Data Request 2.
Has PacifiCorp, or any affiliate or parent, prepared a study of PacifiCorp assets
pursuant to FAS 142 anytime during the last 24 months? If so, please provide
complete copies of all such studies.
Response to DPU Data Request 2.
Yes. Scottish Power objects to this request to the extent that it seeks information
covered by the attorney-client and work product privileges. Scottish Power also
objects to this request because it seeks highly confidential and proprietary
information. Without waiving this objection, information will be made available
upon agreement to special handling procedures for these highly confidential and
proprietary documents.
05 -03 5- 54/Pacifi Corp
August 24, 2005
DPU 2nd Set Data Request 2.
DPU Data Request 2.
Please provide complete copies of analyses and reports prepared by investment
bankers or other consultants advising either ScottishPower, PacifiCorp,
MidAmerican Energy Holding Company, Berkshire Hathaway, or any subsidiary
or affiliate regarding the advisability or feasibility of the proposed transaction
between MidAmerican Energy Holding Company and PacifiCorp.
PPW's Response to DPU Data Request 2.
PacifiCorp has no responsive documents.
Scottish Power objects to this request to the extent that it may seek information
covered by the attorney-client and work product privileges. Scottish Power also
objects to this data request because it seeks extremely confidential, price and
transaction sensitive and commercially proprietary information. Subject to and
without waiving the foregoing objection, pursuant to Paragraph (D) of the
Protective Order issued by the Commission in this docket, Scottish Power
provides notice to the Division of Public Utilities that the documents requested
from Scottish Power constitute extremely confidential, price and transaction
sensitive and commercially proprietary information. Disclosure of this material
may give an undue advantage to competitors and speculative investors and
therefore, requires the highest level of confidential treatment. These documents
which include copies of the board minutes at which the proposed acquisition of
PacifiCorp by MEHC was discussed and any reports or analysis and/or
presentations that exist will be made available for review, upon advance notice, at
a convenient location in Utah. Please contact David Taylor at 801-220-2923 to
make arrangements to review the documents.
This response contains material that is extremely confidential and price and
transaction sensitive to Scottish Power and should not be disclosed directly or
indirectly to MEHC.
05-035-54/PacifiCorp
August 24, 2005
DPU 2nd Set Data Request 2.3 Supplemental
DPU Data Request 2.
If not included in the documents provided in the above request (request number
1), please provide complete copies of any "comfort letters" and supporting reports
and documentation provided to any party to this transaction.
Supplemental Response to DPU Data Request 2.
PacifiCorp and Scottish Power did not receive any "comfort letters" in connection
with the proposed acquisition of PacifiCorp.
05-035-54/PacifiCorp
August 24, 2005
DPU 2nd Set Data Request 2.4 Supplemental
DPU Data Request 2.
Has PacifiCorp, or any affiliate or parent, prepared a study of PacifiCorp assets
pursuant to FAS 142 anytime during the last 24 months? If so, please provide
complete copies of all such studies.
Supplemental Response to DPU Data Request 2.
Yes. Pursuant to Paragraph 1 (D) of the Protective Order issued by the
Commission in this docket, Scottish Power provides notice to the Division of
Public Utilities that the documents requested from Scottish Power constitute
extremely confidential, price and transaction sensitive, and commercially
proprietary information. Disclosure of this material may give an undue advantage
to competitors and speculative investors and therefore, requires the highest level
of confidential treatment. These documents, which include the studies of
PacifiCorp assets pursuant to FAS 142 will be made available for review, upon
advance notice, at a convenient location in Utah. Please contact David Taylor at
801-220-2923 to make arrangements to review the documents.
This response contains material that is extremely confidential and price and
transaction sensitive to Scottish Power and should not be disclosed directly or
indirectly to MEHC.
05-035-54/PacifiCorp
September 15, 2005
DPU 3rd Set Data Request 3.
DPU Data Request 3.
Please provide any studies or analyses that show how MEHClPacifiCorp will
prove the 10 basis point reduction in PacifiCorp s debt rates indicated in the filing
testimony (e.g. Testimony of Patrick J. Goodman, page 9) as the expected result
from the acquisition.
MEHC's Response to DPU Data Request 3.
At this time it is envisioned that over the five-year commitment period, on each
occasion that PacifiCorp makes a long-term debt issuance, an investment banking
firm familiar with the public utility debt issuance market would be requested to
compile examples of comparable debt issuances by other public utilities that have
similar credit ratings (excluding similarly-rated MEHC public utility
subsidiaries). The difference between the simple average spread of the
comparable issuances would then be compared to the spread PacifiCorp was able
to obtain.
This analysis could be provided to the regulatory authority for its review at a time
convenient to that agency. Please see the attached documents, labeled as
Attachment DPU 3.2 on the enclosed CD, showing how the ten basis point spread
was derived.
UTAH
05 -035-
MEH CIPPW
DPU 3rd Set DATA REQUEST
ATTACHMENT DPU 3.
ON THE ENCLOSED CD
05-035-54IPacifiCorp
September 15, 2005
DPU 3rd Set Data Request 3.
DPU Data Request 3.
Please outline the anticipated composition of PPW Holdings LLC's board.
MEHC's Response to DPU Data Request 3.
Currently the board members of PPW Holdings LLC are as follows:
Gregory Abel - President and COO of MEHC;
Douglas Anderson - Senior Vice President and General Counsel of MEHC; and
Patrick Goodman - Senior Vice President and CFO of MEHC.
Prior to closing, and pursuant to MEHC's commitment to undertake "ring-fencing
protections, the PPW Holdings LLC board will also have an independent director. (See
the testimony of MEHC witness Goodman, at page 16.
05-035-54IPacifiCorp
September 15 , 2005
DPU 3rd Set Data Request 3.
DPU Data Request 3.
Please outline the anticipated composition of PacifiCorp s board after its
acquisition by MEHC.
MERC's Response to DPU Data Request 3.
MEHC has not yet formulated plans for composition of the PacifiCorp board after
completion of the acquisition. However, as indicated in the direct testimony of
MEHC witness Abel, Mr. Abel will serve as Chairman of that board (page 2), and
the ScottishPower representatives on the board will be replaced (page 25).
addition, it is expected some, as yet unspecified, restructuring of the board will
take place (page 25).
05-035-54IPacifiCorp
September 15, 2005
DPU 3rd Set Data Request 3.
DPU Data Request 3.
Does Berkshire Hathaway hold Notes issued by MEC as authorized by the lllinois
Commerce Commission in Docket NO. 03-0493? Do any of Berkshire
Hathaway s subsidiaries or affiliates hold notes issued by MEC as authorized by
the Commission in this docket? Have the notes been acquired by MEHC, its
subsidiaries and/or its affiliates?
MERC's Response to DPU Data Request 3.
Berkshire Hathaway does not hold any notes issued by MidAmerican Energy
Company. In addition, MidAmerican Energy Company is not aware that any
Berkshire Hathaway subsidiary or affiliate holds any such securities either.
Finally, other than MidAmerican Energy Company s common stock, neither
MEHC, nor any of its subsidiaries, hold any MidAmerican Energy Company
securities.
05-035-54IPacifiCorp
September 15 , 2005
DPU 3rd Set Data Request 3.
DPU Data Request 3.
What direct involvement or influence will Berkshire Hathaway have with
PacifiCorp, i., business plans, budgets, policy decisions, et cetera.
MEHC's Response to DPU Data Request 3.
It is not expected that Berkshire Hathaway will have any direct involvement or
influence over PacifiCorp. Berkshire Hathaway follows the approach described
in response to DPU 3.11.
05-035- 54/Pacifi Corp
September 15, 2005
DPU 3rd Set Data Request 3.
DPU Data Request 3.
What indirect involvement or influence will Berkshire Hathaway have with
PacifiCorp, Le., business plans, budgets, policy decisions, et cetera.
MEHC's Response to DPU Data Request 3.
Please refer to the response to DPU 3.13. The same holds true for "indirect"
involvement or influence.
05-035-54IPacifiCorp
September 15, 2005
DPU 3rd Set Data Request 3.
DPU Data Request 3.
In contrast, in the case that PacifiCorp does not meet certain expectations, does
Berkshire have the right to participate in PacifiCorp s operations such as
arranging its financing and maintaining and improving its credit standing? Please
explain.
MEHC's Response to DPU Data Request 3.
If the proposed acquisition is approved, Berkshire Hathaway would have the
right, should they choose to use it, to participate in the arrangement of
PacifiCorp s financing and to assist in maintaining and improving PacifiCorp
credit standing. However, Berkshire Hathaway has not exercised such rights with
respect to the current MEHC subsidiaries. Berkshire Hathaway s position has
been to purchase companies with good management teams in place and maintain a
hands-off policy, allowing those management teams to continue to operate their
respective businesses.
05 -03 5- 54/Pacifi Corp
September 15 , 2005
DPU 3rd Set Data Request 3.
DPU Data Request 3.
According to Goodman s revised testimony, he explains that PacifiCorp is
expected to act autonomously. Considering this, please explain why MEHC and
MECs shared corporate services and shared services are not in direct
contradiction to this statement.
MEHC's Response to DPU Data Request 3.
If the proposed acquisition is approved, PacifiCorp will replace one parent,
ScottishPower, with a new parent, MEHC. As testified by MEHC witnesses
Specketer (Revised Direct Testimony of Thomas B. Specketer, page 2, line 12)
and Goodman (Revised Direct Testimony of Patrick J. Goodman, page 21, lines
18 - 21), PacifiCorp will continue to operate very much as it does today.
Currently, ScottishPower provides shared corporate services to PacifiCorp. There
will also be shared corporate services under MEHC ownership. This is not a
, contradiction. The shared corporate services are described in the testimony of
MEHC witness Specketer (See Revised Direct Testimony of Thomas B.
Specketer, page 3, line 11 through page 5, line 14). The sharing of these common
functions will still allow PacifiCorp to manage its own affairs and execute its ownbusiness plan.
05 -03 5 - 54/Pacifi Corp
September 15, 2005
DPU 3rd Set Data Request 3.
DPU Data Request 3.
Does PacifiCorp have similar groups of employees on staff to handle these issues
of shared services? If so, what will happen to these PacifiCorp employees? How
will these PacifiCorp employees' job responsibilities change?
MEHC's Response to DPU Data Request 3.
The shared services provided by MEHC and MEC are for executive management
and other coordination services for all business platforms of MEHC. The shared
services to be provided by MEHC and MEC are comparable to shared services
currently being provided by Scottish Power. PacifiCorp has no employees
performing such functions today.
05-035- 54IPacifiCorp
September 15 2005
DPU 3rd Set Data Request 3.
DPU Data Request 3.
According to Goodman s revised testimony, MEHC already has employees
providing shared corporate services and will continue following the merger. Why
then does MEC also need to have employees to handle shared services? Are these
new employees?
MERC's Response to DPU Data Request 3.
Only senior executives of MEHC will be employed by MEHC. The costs of
support for such MEHC executives, as they provide shared corporate services,
will come from MEC. No new employees are contemplated in the shared services
cost estimates provided in Mr. Specketer s testimony.
05-035-54/PacifiCorp
October 5, 2005
DPU 4th Set Data Request 4.
DPU Data Request 4.
In the Scottish Power Board Minutes dated June 28 2005 there is a section titled
Documents Produced to the Meeting." In the minutes there is a description of
each document and they are labeled "a-x , please provide a copy of each
document that was distributed at this Board Meeting that was under the section
Documents Produced to the Meeting.
PPW's Response to DPU Data Request 4.
Scottish Power objects to this request to the extent it may seek information
covered by the attorney-client and work product privileges. Scottish Power also
objects to this request because it seeks extremely confidential, price and
transaction sensitive and commercially proprietary information. Subject to and
without waiving the foregoing objectio~ Scottish Power responds that responsive
documents will be provided for review with the exception of the following: Item
t" is not being provided by Scottish Power because it is irrelevant to the
Commission s inquiry and relates only to future prospects of the continuing
Scottish Power group and item "h" is a document produced by PwC for which
PwC will seek a release letter before producing for review. Upon execution of the
release letter, Scottish Power will produce for review.
Pursuant to Paragraph I(D) of the Protective Order issued by the Commission in
this docket, Scottish Power provides notice to the Division of Public Utilities that
the documents requested from Scottish Power constitute extremely confidential
price and transaction sensitive and commercially proprietary information.
Disclosure of this material may give an undue advantage to competitors and
speculative investors and therefore, requires the highest level of confidential
treatment. These documents will be made available for review, upon advance
notice, at a convenient location in Utah. Please contact Dave Taylor at (801)
220-2923 to make arrangements to review the documents.
This response contains material that is extremely confidential and price and
transaction sensitive to Scottish Power and should not be disclosed directly or
indirectly to MERC.
05-035-54/PacifiCorp
October 5 2005
DPU 4th Set Data Request 4.3
DPU Data Request 4.
Please provide a list of officers, directors, and board members and their terms of
service for each MEHC affiliate. Please separately provide a list of officers
directors, and board members and their terms of service for anyone serving on
two or more MEHC affiliates. This is to include anyone acting as, serving as
voting as, or otherwise performing or assuming the duties and responsibilities
an officer, director, or board member.
MERC's Response to DPU Data Request 4.
MEHC objects to this data request on the grounds that it is overly broad and
unduly burdensome, and vague and indefinite. Without waiving this objection,
MEHC provides the following response.
It is not clear what distinction, if any, is being drawn between "directors" and
board members" but for purposes of this response MEHC assumes the two are
the same.
Below, MEHC has listed the requested information for the officers and board
members of its domestic, regulated utility operations and of its primary regulated
utility operations in Great Britain. All officers and directors are elected annually.
The information provided is a list of both the officers and the directors of each
company.
If information is required with respect to other affiliates, please so advise and the
additional information will be provided on an expedited basis.
MidAmerican Energy Company
.,~
N8me .~pnaltTitie .
. .
rJ!181
Todd M Raba President DIRECTOR
Keith D. Hartje Senior Vice President
Brent E. Gale Senior Vice President
Paul J. Leighton Vice President & Secretary
Thomas B. Specketer Vice President & Controller
Brian K. Hankel
James Averweg
Vice President & Treasurer
Vice President & Asst. SecretaJy
DIRECTOR
Steven R Weiss
David L. Graham
Vice President & General Counsel DIRECTOR
Vice President
Gany W. Osborn Vice President
Russell H. White Vice President
05-035- 54/Pacifi Corp
October 5, 2005
DPU 4th Set Data Request 4.
N..TItle 118g
Cathy S. Woollwns Vice President
Steven R Evans Vice President
James C. Galt Assistant Treasurer
Kern River Gas Transmission Company
TItle.m.g
Robert L. Sluder President DIRECTOR
Jo1m Smith Vice President Marketing and Regulatory Affairs
Michael G. Dwm Vice President Operations Information Tech. and Engineering
Richard Stapler Vice President &. General Counsel
Brian K Hankel Vice President &. Treasurer
Steven R Evans Vice President, Taxation
Mitchell F. Ludwin Secretary
Gregory E. Abel DIRECTOR
Patrick 1. Goodman DIRECTOR
Douglas L. Anderson DIRECTOR
Northern Natural Gas Company
N:....
.:.. ,.,. ..
).f.".!i 04_
GregoryE. Abel CEO DIRECTOR
Mark. Hewett President
Patrick J. Goodman Senior Vice President DIRECTOR
Douglas L Anderson Senior Vice President DIRECTOR
Gary Hoogeven Vice President
Joseph M Lillo Vice President
Mike McGowan Vice President
Kent Miller Vice President
Mary K. Miller Vice President
Jo M Williams Vice President
Royce Ramsay Vice President
KiIk L Lavengood Vice President
Thomas A. Mertz Vice President
Gregory Porter Vice President, General Counsel &. Secretary
05-035-54/PacifiCorp
October 5, 2005
DPU 4th Set Data Request 4.
NORTHERN ELECTRIC PLC
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I ~1'I8g
Gregory E. Abel CEO DIRECTOR
David L. Sokol DIRECTOR
Eric Connor President DIRECTOR
Patrick 1. Goodman DIRECTOR
101m France DIRECTOR
Mark Horsley DIRECTOR
Brian K. Hankel DIRECTOR
Ron Dixon Independent Director t
lohn Elliott Secretary
YORKSHIRE POWER GROUP LIMITED
Name
, .
r:i1IIg
Gregory E. Abel DIRECTOR
Eric Connor DIRECTOR
lohn France DIRECTOR
Patrick 1- Goodman DIRECTOR
Ken Linge DIRECTOR
Mark Horsley DIRECTOR
Brian K. Hankel DIRECTOR
lohn Elliott Secretary
05-035-54/PacifiCorp
October 5 2005
D PU 4th Set Data Request 4.
DPU Data Request 4.
Will MEHC or any of its affiliates make any changes to officers, directors, or
board members in light of the Federal Energy Regulatory Commission s final
rule
, "
Commission Authorization to Hold Interlocking Positions
MEHC's Response to DPU Data Request 4.
No.
It is not clear what distinction, if any, is being drawn between "directors" and
board members" but for purposes of this response MEHC assumes the two are
the same.
05-035-54/PacifiCorp
October 5, 2005
DPU 4th Set Data Request 4.
DPU Data Request 4.
When were Morgan Stanley and UBS retained as advisors to Scottish Power with
regard to corporate strategy involving PacifiCorp? What was the scope of their
assignment? Please provide all documents, reports, and work papers associated
with the engagement of Morgan Stanley and UBS.
PPW's Response to DPU Data Request 4.
Pursuant to Paragraph 1 (D) of the Protective Order issued by the Commission in
this docket, Scottish Power provides notice to the Division of Public Utilities that
the documents requested ftom Scottish Power constitute extremely confidential
price and transaction sensitive and commercially proprietary information.
Disclosure of this material may give an undue advantage to competitors and
speculative investors and therefore, requires the highest level of confidential
treatment. These documents will be made available for review, upon advance
notice, at a convenient location in Utah. Please contact Dave Taylor at (801)
220-2923 to make arrangements to review the documents.
This response contains material that is extremely confidential and price and
transaction sensitive to Scottish Power and should not be disclosed directly or
indirectly to MEHC.
05-035-54/PacifiCorp
October 5, 2005
DPU 4th Set Data Request 4.
DPU Data Request 4.
Please provide any documents, statements, analyses, reports or work papers
related to the deferred income tax expense and account balances and amounts
subsequent to calendar year 2004.
PPW's Response to DPU Data Request 4.
Proj ected deferred tax expense and accumulated deferred tax balances for years
2006 through 2014 from PacifiCorp s 10-year plan are highly confidential. This
information will be made available for inspection at PacifiCorp s offices in Salt
Lake City upon reasonable prior notice. Please contact BaITy Bell at 801-220-
4985.
05-035-54/PacifiCorp
August 25,2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Pensions. Please provide a complete copy of the most recent actuarial report for
each pension and post retirement health care benefit plan provided by PacifiCorp.
Response to CCS Data Request 2.
Applicants object to this request because it seeks information that is not relevant
and not reasonably calculated to lead to the discovery of admissible evidence.
Without waiving this objection, Applicants state as follows:
Valuation reports with measurement dates of January 1 , 2004 are provided as
Attachments CCS 2.1 -1 and CCS 2.1 -2 on the enclosed CD.
UTAH
05-035-
MEH CIPPW
CCS 2nd Set DATA REQUEST
ATTACHMENTS CCS 2.1 -1 and 2.1 -
ON THE ENCLOSED CD
05-035-54/PacifiCorp
August 25 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Pensions. Please provide PacifiCorp s pension funding plan for 2005 through
2008.
Response to CCS Data Request 2.
Applicants object to this request because it seeks information that is not relevant
and not reasonably calculated to lead to the discovery of admissible evidence.
Without waiving this objection, Applicants state as follows:
Current expected contributions for the PacifiCorp Retirement Plan are:FY2005 $61.FY2006 $63. 1MFY2001 $98.FY2008 $91.5M
05-035- 54/Pacifi Corp
August 25, 2005
CCS 2nd Set Data Request 2.3
CCS Data Request 2.
Pensions. Please identify and describe in detail how much pension funding
contribution would be needed in order to bring the plan into a fully funded status
by December 31 , 2005. Include supporting calculations.
Response to CCS Data Request 2.
Applicants object to this request because it seeks information that is not relevant
and not reasonably calculated to lead to the discovery of admissible evidence.
Without waiving this objection, Applicants state as follows:
The most recent calculations for the PacifiCorp Retirement Plan are as of January
1, 2005. The following calculations provide the detail for the projections to
December 31, 2005. First, the assets are projected assuming they earn the 8% that
is assumed for the funding calculations:
Market Value of Assets, 1/1/2005
Contribution, 4/15/2005
Expected Benefit Payments During 2005
Expected Return at 8%
Projected Market Value of Assets,
12/31/2005
(in Thousands)
$ 806 506
59,997
(90 000)
320
$ 840 823
Next, the present value of accrued benefits determined under the funding
assumptions (which includes a discount rate of 8%) is projected as follows:
Present Value of Accrued Benefits at 8%, 1/1/2005
Expected Benefit Payments During 2005
Interest at 8 % on Above
Expected Additional Benefit Accrued During 2005
Projected Present Value of Accrued Benefits at 8%
12/31/2005
(in Thousands)
$ 891 700
(90 000)
736
820
$ 896,256
05-035- 54/Pacifi Corp
August 25, 2005
CCS 2nd Set Data Request 2.3
So, on a funding assumption basis, it is expected that an additional contribution of
$55 433,000 ($896 256,000 - $840 823,000) on December 31 , 2005 would bring
the plan into a fully funded status.
On an accounting basis, the additional contribution would be greater because the
assumed discount rate is lower. Statement of Financial Accounting Standards No.
87 requires the discount rate be set each year by looking to rates of return on high-
quality fixed-income investments that are currently available. On this basis, the
discount rate for accounting purposes is 5.75% as of January 1 2005. Assuming
no change in this rate through the end of this year, the present value of accrued
benefits on an accounting basis is projected as follows:
Expected Additional Benefit Accrued During 2005
Projected Present Value of Accrued Benefits at 5.75%,
12/31/2005
(in Thousands)
141 234
(90 000)
63,033
382
149,649
Present Value of Accrued Benefits at 5.75%, 1/1/2005
Expected Benefit Payments During 2005
Interest at 5.75% on Above
Thus, on an accounting basis and assuming the projected assets from above, an
additional contribution of $308,826,000 ($1 149,649,000 - $840 823 000) would
be necessary to bring the plan into a fully funded status.
05-035- 54/Pacifi Corp
August 25 2005
CCS 2nd Set Data Request 2.4
CCS Data Request 2.4
Pensions. Please identify and describe all changes that would be made to the
PacifiCorp pension plan under MEHC ownership.
Response to CCS Data Request 2.4
Given that the parties are still in the very early stages of the transaction and the
fact that no formal integration or transition activities between the organizations
have taken place to date, there have been no decisions regarding any changes in
the pension plan.
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Acquisition premium. (a) Please identify the amount of estimated acquisition
premium resulting from the transaction. (b) Please describe how the acquisition
premium will be accounted for on the books of PacifiCorp and MEHC. (c) Please
describe fully any and all circumstances that would result in MEHC or PacifiCorp
requesting any recovery of the acquisition premium from Utah ratepayers in
future rate proceedings.
Response to CCS Data Request 2.
(a)The acquisition premium resulting from the proposed transaction is estimated to
be $1.2 billion as of the expected closing date of March 31 , 2006. Please see
the Direct Testimony of Patrick J. Goodman, Page 11, Lines 1-11.
The acquisition premium will be recorded on the books of the acquisition
company, PPW Holdings LLC. Please see the Direct Testimony of Patrick J.
Goodman, Page 11 , Lines 14-19.
It is not intended that PacifiCorp will ask for recovery of the acquisition
premium. However, if a regulatory agency effects reductions to PacifiCorp
revenue requirement by recognizing, in the revenue requirement calculation, a
perceived benefit that belongs to a direct or an indirect parent of PacifiCorp,
then PacifiCorp reserves the right to request that the regulatory agency also
recognize acquisition company costs-e., the acquisition premium-in the
revenue requirement calculation, of a magnitude equal to the direct or indirect
parent benefit being used as a reduction to revenue requirement. It is not
possible to describe "any and all" possible circumstances that might result in
PacifiCorp seeking recovery of the acquisition premium from Utah ratepayers
in future rate proceedings; however, imputing double leverage to the capital
structure of the operating utility would be one example where PacifiCorp might
respond by requesting recovery of a portion of the acquisition premium.
(b)
(c)
05-035-54/PacifiCorp
August 12, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Fiscal year. (a) What fiscal year does MEHC use? (b) Please describe in detail
the tax and financial consequences of changing PacifiCorp s fiscal year to a
calendar year.
Response to CCS Data Request 2.
(a) MEHC's books and tax returns are maintained on a calendar year basis.
(b) The financial consequences are limited to: modifications to PacifiCorp
accounting system to accommodate a new cutoff date for annual reporting, the
acceleration of certain Sarbanes-Oxley requirements pertaining to internal
control testing and specific SEC "transition" reporting requirements for the
nine months ended December 31 2006 (assuming the transaction closes by
March 31 , 2006).
The tax consequences are related to the requirement to compute
PacifiCorp s taxable income corresponding to the respective periods of its
ownership by Scottish Power and MEHC. PacifiCorp Holdings, Inc. ("PHI
the U.S. subsidiary of Scottish Power) had a fiscal tax year ended March 31
whereas MEHC has a calendar tax year ended December 31. For the tax year
ended March 31 , 2006, PacifiCorp will be fully included in the tax returns
filed by PHI. Similarly, to the extent PacifiCorp is owned by Scottish
PowerlPHI for any period of time after March 31, 2006, PacifiCorp operating
results for that partial period of ownership would be included as part of the tax
returns filed by PHI for tax year ended March 31 , 2007. However, once the
transaction is complete and ownership of PacifiCorp transfers to MEHC,
PacifiCorp operating results from that date forward will be included in the tax
returns filed by MEHC for MEHC's tax year ended December 31 , 2006 and
for each calendar tax year beyond.
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Income taxes. Will the transfer of ownership of PacifiCorp from Scottish Power
to MEHC trigger any adverse income tax consequences and/or recapture of tax
benefits (such as accelerated depreciation, bonus depreciation or investment tax
credits) previously recognized by PacifiCorp? If so, please identify, quantify and
explain all such tax consequences.
Response to CCS Data Request 2.
The transfer of PacifiCorp from ScottishPower to MEHC will not trigger any
adverse income tax consequences and/or recapture of tax benefits previously
recognized by PacifiCorp.
05-035- 54/Pacifi Corp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Shared service company. If the shared service company is not formed (for
whatever reasons, such as repeal of the PUHCA), please indicate what entity will
perform the functions that were going to be performed by the shared service
company and show in detail how the cost of the functions that were going to be
performed by the service company but would now be performed by another entity
are going to be allocated to PacifiCorp and to Utah Power. Include supporting
documentation and workpapers.
Response to CCS Data Request 2.
Due to the repeal of PUHCA, the shared services company (ServCo) is not
expected to be formed and the services contemplated to be provided by ServCo in
Mr. Specketer s testimony will instead be provided by MERC and MEC. MEHC
will follow the same cost assignment methodology of direct bill and allocations as
described, in Mr. Specketer s testimony, for ServCo, and total estimated costs to
be charged to PacifiCorp remain the same.
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Refer to Specketer testimony page 12, item H. Do PacifiCorp and MEHC agree
unequivocally that the Commission and its staff shall have full access to
PacifiCorp and MEHC books and records necessary to investigate in detail
affiliated interest transactions, regardless of whether the PUHCA is repealed?
not, explain fully why not. Also explain fully what restrictions PacifiCorp and
MEHC would intend to impose on Utah Commission access to PacifiCorp and
MEHC books and records necessary to investigate in detail affiliated interest
transactions.
Response to CCS Data Request 2.
Yes, MEHC and PacifiCorp agree that the Commission and its staff shall have full
access to PacifiCorp and MEHC books and records necessary to investigate in
detail affiliated interest transactions between the two entities.
05-035-54/PacifiCorp
August 25 , 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Refer to Specketer testimony pages 12-, item J, and to Exhibit TBS-2. (a)
Please show in detail how each of the ServCo, MEC and CalEnergy amounts on
TBS-2 comply with each provision (a) through (f) from pages 12-13~ item J of the
testimony. (b) Please provide a detailed breakout of the $15 million
Expected Net Scottish Power charges for Fiscal Year 2006" on TBS-2 and show
in detail how each of those amounts comply with each provision (a) through (t)
from pages 12-, item J of the testimony.
MEHC's Response to CCS Data Request 2.
(A) The following points describe how the amounts presented in Exhibit TBS-2 are
consistent with the commitments made in item J of Mr. Specketer s testimony.
a) The shared services contemplated in the testimony of Mr. Specketer are for
executive management, and in support of executive management, of MEHC'
portfolio of companies and assets, or for matters that are of a corporate nature.
These services are similar to the services provided to PacifiCorp
ScottishPower today. Therefore, there will be no duplication of services already
being performed within PacifiCorp since these services will replace the services
currently provided by ScottishPower. Further, the cost of such executive services
is reasonable relative to the benefits of being part of the MERC group companies
and is necessary to ensure the success and viability of these entities.
b) MEHC uses a positive time reporting system and continually stresses to
employees the need to direct charge time and expense whenever practicable
benefiting entities. For the reasons outlined in the testimony of Mr. Specketer
MEHC believes that the two-factor allocator properly and fairly distributes
indirect costs to benefiting MERC group companies.
c) See b) above.
d) MERC and MEC have well established systems and processes to adequately
support and document costs assigned to its subsidiaries, including the rate-
regulated operations of Northern Natural Gas, Kern River Gas Transmission
Company and MidAmerican Energy. Since these companies have been part of
the MEHC group, their processes and systems have been subjected to significant
scrutiny (to their satisfaction) from the various regulatory bodies that have set
rates or otherwise have an interest in the financial results of these companies.
e) MEHC expects that PacifiCorp will comply with any and all regulatory orders
subsequent to the transaction close, including rate treatment of allocated costs,
consistent with its practice prior to this transaction.
f) The estimated indirect allocations on TBS-2 are based on the two-factor allocator
described on pages 8 and 9 of Mr. Specketer s direct testimony. The Commission
will be notified of anticipated or mandated changes to this cost allocation
methodology and will determine the appropriate corporate cost allocation for
establishing rates.
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
Please refer to PPW's response to CCS Data Request 2.16 for information related
to the "Expected Net Scottish Power charges for Fiscal Year 2006.
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Refer to Specketer testimony pages 12-, item J, and to Exhibit TBS-2. (a)
Please show in detail how each of the ServCo, MEC and CalEnergy amounts
TBS-2 comply with each provision (a) through (f) from pages 12-~ item J of the
testimony. (b) Please provide a detailed breakout of the $15 million of
Expected Net Scottish Power charges for Fiscal Year 2006" on TBS-2 and show
in detail how each of those amounts comply with each provision (a) through (f)
from pages 12-, item J of the testimony.
PPW's Response to CCS Data Request 2.
See Attachment CCS 2.16 on the enclosed CD for a detailed breakout of the $15
million.
Provisions (a) through (f) are not applicable to the Scottish Power cross charge.
Requirements from the ScottishPower transaction relating to cross charges are not
continuing in nature.
Please refer to MEHC's response to CCS Data Request 2.16 for information
related to the ServCo, MEC and CalEnergy amounts on Exhibit TBS-
UTAH
05-035-
MEH CIPPW
CCS 2nd Set DATA REQ DES T
ATTACHMENT CCS 2.
ON THE ENCLOSED
05-035- 54/PacifiCorp
August 25 , 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Staffing. Please identify, quantify and describe all changes in staffing at
PacfiCorp and UP&L that are anticipated to occur under MEHC ownership.
Response to CCS Data Request 2.
As stated in the direct testimony of MEHC witness Abel, at page 25, lines 11-
there are no plans for any reduction in force at PacifiCorp as a result of the
transaction. At this point, that is the only staffing decision that has been made.
05-035- 54IPacifiCorp
August 25 , 2005
CCS 2nd Set Data Request 2.19 MEHC
CCS Data Request 2.19 MEHC
Staffing and organizational charts. (a) Please provide a current detailed
organizational chart for PacifiCorp. (b) Please provide an organizational chart
for Utah Power. (c) Please provide an organizational chart ofMEC showing all
departments which would provide indirect services to PacifiCorp under MERC
ownership.
MEHC's Response to CCS Data Request 2.
c)See Attachment CCS 2.19 c on the enclosed CD. Indirect service charges to
PacifiCorp from MEC will come from the "Corporate Services" box. The
departments in this organization include:
CEO
Corporate Insurance
Legislative and Regulatory Affairs
Financial Services
Financial Reporting
Treasury
Tax Services
CFO
Corporate Communications
Human Resources
Information Technology
Please refer to PPW's response to CCS Data Request 2.19 for parts (a) and (b).
UTAH
05-035-
MEH CIPPW
CCS 2nd Set DATA REQUEST
ATTACHMENT CCS 2.19 c
ON THE ENCLOSED CD
05 -035- 54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.19 PPW
CCS Data Request 2.19 PPW
Staffing and organizational charts. (a) Please provide a current detailed
organizational chart for PacifiCorp. (b) Please provide an organizational chart
for Utah Power. (c) Please provide an organizational chart of MEC showing all
departments which would provide indirect services to PacifiCorp under MEHC
ownership.
PPW's Response to CCS Data Request 2.
a) The current PacifiCorp organization chart is attached as Attachment CCS 2.
a on the enclosed CD.
b) This request is not applicable.
Please refer to MEHC's response to CCS Data Request 2.19 for part (c).
UTAH
05 -035 -
MEH CIPPW
CCS 2nd Set DATA REQUEST
ATTACHMENT CCS 2.19 a
ON THE ENCLOSED
05-035-54IPacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Transaction costs. (a) Please explain in detail how any transaction costs
(including but not limited to due diligence analyses and reports, meetings, travel
filing fees, etc.) that are being incurred by MEHC are being identified and
accounted for. (b) Please confirm that all transaction costs (including but not
limited to due diligence analyses and reports, meetings, travel, filing fees, etc.
will be excluded from rate recovery as well. If this is not the case, explain fully
and identify all transaction costs for which MERC or PacifiCorp intend to request
rate recovery.
Response to CCS Data Request 2.
(a)Guidance has been provided to all employees involved in the PacifiCorp
acquisition to bill all transaction costs being incurred by MEHC and
affiliates to MERC. These costs are being tracked through the use of unique
project numbers that have been assigned specifically to the transaction.
(b)Incremental costs directly related to the acquisition will be capitalized and
included in the calculation of goodwill, while internal costs associated with
the acquisition will be recorded as an expense on the books of MEHC and
not billed or allocated to any other entity in the MEHC group, including
PacifiCorp.
05-035-54/PacifiCorp
August 25 2005
CCS 2nd Set Data Request 2.21 MEHC
CCS Data Request 2.21 MERC
Insurance costs. (a) Please provide an itemized listing of all insurance coverage
(other than employee health and life) and the cost as of the most recent policy
renewal date for PacifiCorp. (b) For each insurance policy identified in part a
please provide the following information: (1) description, (2) renewal date, (3)
summary of coverage, (4) total and annual costs, (5) how it is accounted for by
PacifiCorp (e.g. prepaid insurance amortized to expense ratably over the policy
period, etc.), (5) the annual expense recorded in 2004 and estimated for 2005. (c)
Can BHlMEHC obtain any savings in lower insurance costs for PacifiCorp?
not, explain fully why not. If so, please provide estimates and descriptions of all
such savings. (d) Will the acquisition and operation under BH/MEHC ownership
allow the purchase of insurance of any sort (employee, property, general liability,
etc.) to be acquired at a better rate than that currently being paid? If not, explain
fully why not. If so, please provide estimates and descriptions of all such savings.
(e) Will the acquisition and change of ownership have any effect on the current
insurance plan in Ireland? If so, please identify, quantify and explain the impact
(for example, either more or less costly or could they keep the same plan?).
MEHC's Response to CCS Data Request 2.
(c) The parties are still in the early stages of the transaction and no formal
integration or transition activities between the organizations have taken place to
date. MEHC has not identified any opportunities for savings in lower insurance
costs.
(d) The parties are still in the early stages of the transaction and no formal
integration or transition activities between the organizations have taken place to
date. MEHC has not identified any opportunities for savings in lower insurance
rates.
(e) The parties are still in the early stages of the transaction and no formal
integration or transition activities between the organizations have taken place to
date.
See also PPW's response to CCS Data Request 2.21 for parts (a), (b) and (e).
05-035- 54/Pacifi Corp
August 25 , 2005
CCS 2nd Set Data Request 2.21 PPW
CCS Data Request 2.21 PPW
Insurance costs. (a) Please provide an itemized listing of all insurance coverage
(other than employee health and life) and the cost as of the most recent policy
renewal date for PacifiCorp. (b) For each insurance policy identified in part a
please provide the following information: (1) description, (2) renewal date, (3)
summary of coverage, (4) total and annual costs, (5) how it is accounted for by
PacifiCorp (e.g. prepaid insurance amortized to expense ratably over the policy
period, etc.), (6) the annual expense recorded in 2004 and estimated for 2005. (c)
Can BH/MEHC obtain any savings in lower insurance costs for PacifiCorp?
not, explain fully why not. If so, please provide estimates and descriptions of all
such savings. (d) Will the acquisition and operation under BHlMEHC ownership
allow the purchase of insurance of any sort (employee, property, general liability,
etc.) to be acquired at a better rate than that currently being paid? If not, explain
fully why not. If so, please provide estimates and descriptions of all such savings.
(e) Will the acquisition and change of ownership have any effect on the current
insurance plan in Ireland? If so, please identify, quantify and explain the impact
(for example, either more or less costly or could they keep the same plan?).
PPW's Response to CCS Data Request 2.21 PPW
Applicants object to this request because it seeks information that is not relevant
and not reasonably calculated to lead to the discovery of admissible evidence.
Without waiving this objection, Applicants state as follows:
(a) The requested information is provided as Confidential Attachment CCS 2.
(a) on the enclosed Confidential CD. This document contains confidential
information and is provided subject to the terms and conditions of the
protective order in this proceeding.
(b) (1) Please refer to CCS Data Response 2.21 a.
(2) Please refer to CCS Data Response 2.21 a.
(3) The requested information is provided as Confidential Attachment CCS
21 (b) -3 on the enclosed Confidential CD. This document contains
confidential information and is provided subject to the terms and
conditions of the protective order in this proceeding.
(4) Please refer to CCS Data Response 2.21 a.
(5) Please refer to CCS Data Response 2.21 a.
(6) Please refer to CCS Data Response 2.21 a.
05-035- 54/Pacifi Corp
August 25 , 2005
CCS 2nd Set Data Request 2.21 PPW
(e) The acquisition and change of ownership will have an effect on the current
insurance plan in Ireland. The Ireland-based captive insurer Domoch
International Insurance Limited ('Domoch') has been established by
ScottishPower to provide insurance cover to companies within the
ScottishPower group. Accordingly, insurance cover from Domoch will no
longer be available to PacifiCorp once it leaves the ScottishPower group.
See also MEHC's response to CCS Data Request 2.21 regarding parts (c) through
(e).
UTAH
05-035-
MEH CIPPW
CCS 2nd Set DATA REQUEST
CONFIDENTIAL ATTACHMENT CCS 2.21 (a)
CONFIDENTIAL (LEVEL YELLOW)
ON THE ENCLOSED CD
UTAH
05-035-
MEH CIPPW
CCS 2nd Set DATA REQUEST
CONFIDENTIAL ATTACHMENT CCS
21 (b )-
CONFIDENTIAL (LEVEL YELLOW)
ON THE ENCLOSED CD
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Returns expected by MEHC. (a) Refer to Mr. Abel's testimony at page 1 , lines
11-13. Please define quantitatively his use of the terms "great returns" that he
indicates MEHC does not expect and "reasonable returns" that MEHC does
expect. (b) Please quantify the "predictable, reasonable returns" per Abel's
testimony, page 12, line 8.
Response to CCS Data Request 2.
(a) Mr. Abel did not quantify his remark because he intended it to be a qualitative
comment. Mr. Abel's reference to "reasonable returns" means that he expects
to be allowed an opportunity to earn a rate of return upon the value of the
property that PacifiCorp employs for the convenience of the public that is
equal to that generally being earned at the same time on investments in other
business undertakings with corresponding risks. A "reasonable return" should
also be sufficient to assure confidence in the financial integrity of the firm so
as to maintain its credit and attract capital on reasonable terms. There are
certainl yother businesses that, due to their risk profile, require a return
significantly in excess of that generally being earned in the electric utility
business which might be considered a "great return " but such returns again
must correspond to the risk of the undertaking.
(b) A "predictable, reasonable return" was not quantified because it was meant in
a qualitative sense - as described in the answer to part (a) above.
05-035-54/PacifiCorp
August 25 , 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Capital forecasts. Please provide the PacifiCorp capital forecasts that were
reviewed by MEHC, including but not limited to the ones mentioned in Mr.
Abel's testimony at page 13, line 21-23.
Response to CCS Data Request 2.
See Confidential Attachment CCS 2.24 - 1 and Confidential Attachment CCS
24 - 2 on the enclosed Confidential CD. This information is provided subject
the terms and conditions of the protective order in this proceeding.
UTAH
05-035-
MEHC/PPW
CCS 2nd Set DATA REQUEST
CONFIDENTIAL ATTACHMENTS
CCS 2.24 -1 and 2.24 -
CONFIDENTIAL (LEVEL YELLOW)
ON THE ENCLOSED CD
05-035-54/PacifiCorp
August 25 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Cost reductions. Please detail by year and by component how MEHC intends to
achieve the "reductions in PacfiCorp s costs totaling more than $36 million over
five years and more than $75 million over a longer period" mentioned by Mr.
Abel at page 28, lines 18-19 of his testimony.
Response to CCS Data Request 2.
The more than $36 million over five years is made up of the following:
($000)2006 2007 2008 2009 2010 Total
Corporate
Overheads ($6 000)($6 000)($6 000)($6 000)($6 000)($30 000)
Cost of Debt ($400)($600)($859)($1 726)($2 376)($5 961)
EE & DSM Study ($1 000)($0)($0)($0)($0)($1 000)
Net Purchase
Power Cost
Reductions ($0)($0)($0)($0)($0)($0)
Total ($7,400)($6 600)($6 859)($7 726)($8 376)($36 961 )
The more than $75 million over a longer period includes the above plus:
($000)2011 2012 2013 2014 2015 Total
Corporate
Overheads ($6 000)($6 000)($6 000)($6 000)($6 000)($30 000)
Cost of Debt ($2 735)($3 797)($4 079)($4 843)($4 843)($20 297)
EE & DSM
Study ($0)($0)($0)($0)($0)($0)
Net Purchase
Power Cost
Reductions ($1 500)($1 500)($1 500)($1 500)($1 500)($7 500)
Total ($10 235)($11 297)($11 579)($12 343)($12 343)($57 797)
The 10-year total cost reduction is estimated at $94 758 000. The $75 million was
a conservative estimate.
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Reference Exhibit GEA-, page
Please provide copies of the correspondence, studies, analyses and other
documents which form the basis for the conclusion that each of the
following transmission projects will "enhance reliability, facilitate the
receipt of renewable resources or enable further system optimization.
Path C Upgrade
Mona-Oquirrh
Walla Walla - Yakima or Mid-
Please provide the correspondence, studies, analyses and other documents
which form the basis for the estimated costs of each of the transmission
projects listed in part a. of this request.
Response to CCS Data Request 2.
Please refer to Confidential Attachment CCS 2.27-1 on the enclosed
Confidential CD, which includes the documents which form the basis for
the conclusion that the transmission projects will "enhance reliability,
facilitate the receipt of renewable resources or enable further system
optimization. "
Please see Confidential Attachment CCS 2.27-2 on the enclosed
Confidential CD for the costs (excluding AFUDC) estimated by
PacifiCorp for these projects in 2005 dollars. Confidential Attachment
CCS 2.27-3 on the enclosed Confidential CD translates these into nominal
dollars by time period. Confidential Attachment CCS 2.27-4 on the
enclosed Confidential CD calculates AFUDC and detennines a total cost
that would be expected to be included in rate base.
UTAH
05-035-
MEHC/PPW
CCS 2nd Set DATA REQUEST
CONFIDENTIAL ATTACHMENTS
CCS 2.27 (1-
CONFIDENTIAL (LEVEL YELLOW)
ON THE ENCLOSED CD
05-035- 54IPacifiCorp
August 25,2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Reference Exhibit GEA-, page 2.
Please provide copies of the correspondence, studies , analyses and other
documents which form the basis for the conclusion that each of the
following transmission and distribution projects will improve system
reliability.
investment in the Asset Risk Program of $75 million during the
years 2007 - 2009.
investment of $69 million over eight years in local transmission
risk projects.
Please provide the correspondence, studies, analyses and other documents
which form the basis for the decision that $75 million should be invested
in the Asset Risk Program during the years 2007-2009.
Please provide the correspondence, studies, analyses and other documents
. which form the basis for the decision that $69 million should be invested
in local transmission risk projects over eight years.
Describe and provide documents that explain the Asset Risk Program and
any changes to that program planned by MidAmerican.
Specify the expected source(s) of the $75 million to be invested in the
Asset Risk Program during the years 2007-2009.
Specify the expected source(s) of the $69 million to be invested in local
transmission risk projects over eight years.
Response to CCS Data Request 2.
Please see Confidential Attachment CCS 2.27-1 in response to CCS 2.27.
Please see Confidential Attachments CCS 2.27-, 2 , and 4 in response
to CCS 2.27.
Please see Confidential Attachments CCS 2.27-, 2, 3, and 4 in response
to CCS 2.27.
Please see Confidential Attachment CCS 2.27-1 in response to CCS 2.27.
PacifiCorp capital expenditures will be financed by the overall capital
structure of the organization. Thus over the long term, projects will
financed by a capital structure consistent with that of an investment grade
rates utility which implies a capital structure of approximately 50% debt
and 50% equity.
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
Please see response to part e.
05-035- 54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Reference page 21 of the Direct Testimony of Gregory Abel and Exhibit GEA-
page 4.
Provide the studies and analyses in which PacifiCorp and/or MEHC
evaluated the specific pollution control equipment to be installed at each
of PacifiCorp s coal-fueled units.
Specify the cost of each of the pollution control commitments listed in the
table on page 21 of Mr. Abel's testimony.
Specify the reductions in S02, NOx, and mercury emissions expected to
be achieved by each of the pollution control equipment commitments
listed in the table on page 21 of Mr. Abel's testimony.
Provide the correspondence, studies, analyses and other documents and
anal yses that show that these commitments are the appropriate or optimal
plan and investments to be made to reduce emissions from PacifiCorp
coal-fueled generating plans.
Provide the correspondence, studies, analyses and other documents which
form the basis for the belief that implementation of these pollution control
measures will cost approximately $812 million.
Provide the correspondence, studies, analyses and other documents which
form the basis for the conclusion that implementation of this plan will
result in a decrease in the S02 emissions rates of more than 50%, a
decrease in the NOx emissions rates of more than 40%, a reduction in the
mercury emissions rates of almost 40%, and no increase in the expected
CO2 emissions rates.
MEHC's Response to CCS Data Request 2.
See Confidential Attachment CCS 2.29 f on the enclosed Confidential CD.
Please refer to PPW's response to CCS Data Request 2.29 for parts (a) through
(e).
UTAH
05-035-
MEHC/PPW
CCS 2nd Set DATA REQUEST
CONFIDENTIAL ATTACHMENT
CCS 29 f
CONFIDENTIAL (LEVEL YELLOW)
ON THE ENCLOSED CD
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Reference page 21 of the Direct Testimony of Gregory Abel and Exhibit GEA-
page 4.
Provide the studies and analyses in which PacifiCorp and/or MERC
evaluated the specific pollution control equipment to be installed at each
of PacifiCorp s coal-fueled units.
Specify the cost of each of the pollution control commitments listed in the
table on page 21 of Mr. Abel's testimony.
Specify the reductions in S02, NOx, and mercury emissions expected to
be achieved by each of the pollution control equipment commitments
listed in the table on page 21 of Mr. Abel's testimony.
Provide the correspondence, studies, analyses and other documents and
anal yses that show that these commitments are the appropriate or optimal
plan and investments to be made to reduce emissions from PacifiCorp
coal-fueled generating plans.
Provide the correspondence, studies, analyses and other documents which
form the basis for the belief that implementation of these pollution control
measures will cost approximately $812 million.
Provide the correspondence, studies, analyses and other documents which
form the basis for the conclusion that implementation of this plan will
result in a decrease in the S02 emissions rates of more than 50%, a
decrease in the NOx emissions rates of more than 40%, a reduction in the
mercury emissions rates of almost 40%, and no increase in the expected
CO2 emissions rates.
PPW's Response to CCS Data Request 2.
a-e Applicants object to this request to the extent that it seeks the production
of documents protected by the attorney-client privilege or the work product
doctrine. Without waiving their objections , Applicants respond as follows:
Pursuant to Paragraph 1 (D) of the Protective Order issued by the Commission in
this Docket, Applicants provide notice to the Committee of Consumer Services
that the documents sought constitute highly sensitive documents and will be
made available for review, upon advance notice, at PacifiCorp' s Salt Lake
office. Please contact Barry Bell at [phone] to make arrangements to
review the documents.
Please refer to MEHC's response to CCS Data Request 2.29 for part (t).
05-035-54IPacifiCorp
August 25 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Reference page 19, lines 20-, of the Direct Testimony of Gregory Abel. Please
provide the correspondence, studies, analyses and other documents in which
PacifiCorp and/or MERC examined or evaluated the economic and/or reliability
benefits of committing now to install new and upgraded emissions control
equipment as compared to waiting to install the controls.
Response to CCS Data Request 2.
Applicants object to this request to the extent that it seeks the production of
documents protected by the attorney-client privilege or the work product doctrine.
Without waiving their objections, Applicants respond as follows.
Pursuant to Paragraph 1 (D) of the Protective Order issued by the Commission in
this Docket, Applicants provide notice to the Committee of Consumer Services
that the documents sought constitute highly sensitive documents and will be made
available for review, upon advance notice, at PacifiCorp s Salt Lake office.
Please contact Barry Bell at [phone] to make arrangements to review thedocuments.
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Mr. Abel states that "MEHC is committing to $1.3 billion of infrastructure
investment in PacifiCorp s system." (p. 3 , lines 17-19) Please reconcile this
statement with the statement made elsewhere (e., p 11 , line 20 and Mr.
Goodman, Direct Testimony, p.13) that PacifiCorp will need over $1 billion a
year capital expenditure during the next five years.
Response to CCS Data Request 2.
Mr. Abel's testimony (p., lines 17-19) refers to MEHC's commitment to fund
$1.3 billion of specific infrastructure projects. The specific investments are
detailed in Mr. Abel's testimony and accompanying exhibit, with the expenditures
occurring over a number of years. The statement made by Mr. Abel and Mr.
Goodman that PacifiCorp will need over $1 billion a year in capital expenditures
during the next five years refers to the annual capital expenditures in the
PacifiCorp plan provided in response to CSS Data Request No. 2.24. A portion of
the expenditures in the MEHC $1.3 billion infrastructure commitment represent
projects that are included in the PacifiCorp plan.
The investments comprising the $1.3 billion are outlined in Witness Abel'
testimony.
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Do the $1.3 billion infrastructure investment commitment referred to in the
previous question and the $1 billion/year capital expenditure requirement include
the $800 million ECT investment? Please reconcile these various expenditure
numbers.
Response to CCS Data Request 2.
The approximately $800 million for ECT investment is included in the $1.3
billion infrastructure investment commitment by MEHC referred to above. A
comparable amount for environmental expenditures is included in the $1 billion
per year capital expenditure requirement (PacifiCorp capital plan), however, the
PacifiCorp capital plan does not include the same mix of projects that make up the
$800 million ECT investment included in the MEHC commitment. In addition
the amounts are not comparable in that the $1 billion per year is an annual amount
for five years and the $1.3 billion is a single amount to be expended between now
and 2012.
05-035-54/PacifiCorp
August 25 , 2005
CCS 2nd Set Data Request 2.36 MERC
CCS Data Request 2.36 MEHC
Questions Regarding Mr. Goodman s Direct Testimony
The following questions refer to Table 1 (p. 5) and the comment that MERC'
77.1 % consolidated debt ratio "may appear relatively high" (p. 6~ lines 2-6).a. Please explain why the fact that "much of the debt on the consolidated
balance sheet is issued by creditworthy non-recourse subsidiaries" is regarded as
sufficient to justify MEHC's relatively high overall debt ratio.b. Please cite any instances in other utility holding companies or similar
utility corporate structures in the U.S. with such high debt ratios including any
assessments of the benefits or risks thereof.c. To the extent the proposed MERC capitalization differs from a traditional
or average 50-50 debt-equity structure, please list and evaluate the advantages
disadvantages and risks of the MEHC proposal.
d. Does Berkshire Hathaway s own capitalization include debt and thereby
further increase the overall debt leverage situation?e. Please explain why it should not be of concern to PacifiCorp ~ s customers
and regulators that MEHC has Standard & Poor s and Moody s credit ratings at
the lowest investment grade.f. Please evaluate the risk that adverse developments could result in
MERC's credit ratings dropping one grade to "junk bond" status.
g.
Please evaluate the costs and benefits of MERC having a more traditional
utility capital structure.
h. Please provide the proposed capitalization and capital structure of
PacifiCorp on stand-alone basis after the acquisition.i. Please provide the comparable stand-alone capitalization and capital
structures of MidAmerican Energy Company and Northern Natural Gas
Company.
j.
Is double-leverage (or triple leverage) taken into account in determining
cost of capital of MidAmerican Energy Company and Northern Natural Gas
Company, i., is the cost of equity of the subsidiary company determined as the
weighted average cost of capital of the parent company?
05-035- 54/Pacifi Corp
August 25 2005
CCS 2nd Set Data Request 2.36 MEHC
k. Would regulatory determination of the cost of equity of PacifiCorp on
double-leverage basis be appropriate to provide PacifiCorp customers with the
benefits of higher leverage at the consolidated MEHC level as compensation for
the apparent risk of MEHC's high debt ratio and low credit rating?
The following questions refer to financial forecasts of PacifiCorp (p. 13)1. Please furnish a copy of the financial forecast provided to MEHC by
Pacifi Corp.
m. Do the financial forecasts include the $1.3 billion MEHC commitment and
reflect the $1 billion/year capital expenditure projection? Please reconcile and
explain.
n. Regarding PacifiCorp s projected capital expenditures of at least $1 billion
per year over the next five years, please provide the expected sources
investment funds for each year.
What is the expected dividend policy of PacifiCorp after the acquisition?
p.
What load growth and rate increase assumptions are included in the
financial forecast, e.g., an approximate 4% per year rate increase?
Regarding "Ring-Fencing
q.
In the "simplified MEHC organizational chart" provided in Exhibit PJG-
by Mr. Goodman, some subsidiaries (like MidAmerican Funding) are shown
included in the ring-fencing structure and some (like Home Services of America)
are not so included. Please describe the differences with regard to ring-fencing
between the two groups of subsidiaries.r. Regarding "ring-fencing" protections of PacifiCorp (p. 16), please provide
any studies or reports in the possession of MEHC the by analysts, rating agencies
or other authorities of the effectiveness or otherwise of such protections.
Other Questionss. Please furnish copies of all MEHC and PacifiCorp presentations to credit
rating agencies since the acquisition announcement, as referred to in Table 3,
15 of Mr. Goodman s testimony.
1. Please furnish copies of all credit rating agencies' and analysts
assessments of the acquisition and/or the financial outlook for MEHC and
PacifiCorp in the posse"sion of the applicants.
05-035- 54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.36 MEHC
u. Please explain the impact if any on the acquisition of the repeal of PUHCA.
MERC's Response to CCS Data Request 2.36 MEHC.
a. The comment means that significant portions of the debt consolidated onto
MEHC's balance sheet belongs to subsidiaries that are fully capable of servicing
their own debt. Thus while the debt ratio of MEHC "... may appear relatively
high ..." MEHC is not servicing all of this debt. As an example, Kern River, an
interstate natural gas pipeline subsidiary of MEHC, has tariffs that are structured
around long term contracts which allows debt as a percentage of capital in the mid
60 percent range. This debt is consolidated on MEHC's balance sheet even
though Kern River is servicing the debt. Additionally, MEHC's senior parent
company debt is only 19.92% of the capital structure at March 31 , 2005.
b. As mentioned in the response to part (a) above, significant portions of the debt
on MEHC's balance sheet is the obligation of subsidiaries that are fully capable of
meeting the servicing of these obligations. MEHC notes that three independent
credit rating agencies have all rated MEHC investment grade, indicating the debt
on MEHC's balance sheet exhibits adequate protection parameters. Since a credit
rating is a combination of business risk and financial risk, it is inappropriate to
simply compare capital structures of various firms. In fact, a firm with high
business risk will be able to support relatively low financial risk in order to be
considered investment grade. Alternatively, a company with relatively low
business risk can support relatively high financial risk and still be considered
investment grade. Thus an exercise simply comparing utility holding companies
with similar debt ratios would not result in meaningful comparisons.
c. A total debt to total capital ratio of 50% could be representative of an entity
with a credit rating anywhere from "AA" to ". This spans most of the
investment grade category and goes well into the below investment grade
category. Thus, MEHC is unsure of the characterization in the question that a 50-
50 debt-equity structure is "traditional" or "average . MEHC believes that an
investment grade rating, generally in the single A category, is important for its
public utility subsidiaries. The advantages of such a credit rating are lower
financing costs and easier access to both long and short-term capital markets. The
disadvantages of higher credit ratings above the single A level for a public utility
subsidiary are that the public utility may be required to maintain an equity ratio
and coverage ratios that are too costly.
d. Berkshire Hathaway s credit rating (see Prepared Direct Testimony of MEHC
witness Patrick J. Goodman, Page 7, Table 2.) reflects the business risk that it has
assumed and the financial risk it has chosen to employ given its business risk.
Berkshire Hathaway s 2004 Form 10k, a publicly available document, (See Page
68) suggests that tl1~ financial leverage it has employed is de minimis. MERC
05-035-54/PacifiCorp
August 25 , 2005
CCS 2nd Set Data Request 2.36 MEHC
notes that its public utility subsidiaries are ring-fenced, thus protecting each such
public utility from the financial obligations of one another and of those of MEHC.
As indicated in Mr. Goodman s prepared direct testimony, MEHC intends to
similarly protect PacifiCorp. (See Page 16, Line 1 through Page 17, Line 17.
Since the jurisdictional public utility subsidiaries are not responsible for any
obligations other than their own, the relevancy of leverage employed elsewhere in
the organization is questionable.
e. While MEHC's credit rating may be of interest to PacifiCorp' s customers and
its regulators, it seems the credit ratings of PacifiCorp should be the concern.
explained in the response to part (d), above, PacifiCorp will be ring-fenced,
therefore, its customers are not responsible for any debt that may exist or be
incurred by MEHC or any of MEHC' s subsidiaries. MEHC notes that the credit
rating agencies employ as a general rule that parent organizations receive lower
credit ratings than their operating subsidiaries. Thus a mid-range investment
grade rating for public utility subsidiaries nearly ensures that the holding
company parent will receive a credit rating no better than a low investment grade
rating. For MEHC to improve its credit rating implies that the utility subsidiaries
(i.e., PacifiCorp) will have to improve their credit ratings. The price of improving
the credit ratings of the utility subsidiaries would likely be higher rates for
consumers to support higher equity components in their capital structures and
improved coverage ratios. Finally, MEHC's BBB-/Baa3/BBB credit ratings are
actually already reasonably strong. For instance, both S&P and Moody s report
that the average industry credit rating (operating and holding company) is
BBB/Baal (Standard & Poor s, S. Utility Upgrades Beat Downgrades In
Second Quarter, But Negative Watch Listings Grew July 28, 2005; Moody
Investors Service S. Electric Utilities December 2004). Moody s further
reports that the ratings of utility holding companies range from a low of B2 to a
high of AI. The fact that MEHC holds a BBB-/Baa3 credit rating, which is
approximately equal to the industry average for both utility operating and holding
companies, in combination with the reported spread of Moody s credit ratings for
utility holding companies implies that MEHC is among the higher-rated holding
companies that these credit agencies rate.
f. MEHC believes it is unlikely that its credit ratings will drop below investment
grade. The financial position of a company is "stress tested" by the rating
agencies before a credit rating is assigned. Thus, the risk of an adverse
development has already been discounted into the current investment grade credit
rating. The fact that the company is rated similarly by all three major agencies
gives some assurance that an adverse event will not result in an immediate credit
downgrade. Currently, MEHC is on positive outlook at both Moody s and S&P
which implies that an upgrade in credit rating is possible.
g. As mentioned in the response to part (c) above, a traditional capital structure
is not a well-defined tenll. However, if MEHC assumes the question implies a
05-035- 54/Pacifi Corp
August 25 2005
CCS 2nd Set Data Request 2.36 MEHC
capital structure that contains a heavier equity allocation and improved leverage
ratios, such a result may not lower the rates PacifiCorp customers may be asked to
pay. As a ring-fenced entity, PacifiCorp s capital costs should reflect only the
business and financial risk that it bears itself. PacifiCorp should be effectively
insulated from MEHC and MERC's other subsidiaries.
h. After the acquisition, PacifiCorp s capitalization and capital structure are not
expected to change from that existing prior to the acquisition.
i. Both MidAmerican Energy Company and Northern Natural Gas Company carry
A- senior unsecured credit ratings. While their business risk and financial risk
may differ, these two fundamental risks have been combined to construct
capitalizations and capital structures that yield comparable credit ratings.
j. No, such an adjustment is not required. As ring-fenced entities, the relevancy
leverage above MidAmerican Energy Company and Northern Natural Gas
Company is questionable because their credit ratings and their cost of capital do
not reflect MEHC's debt. However, if a regulator imputed any debt from a parent
- to the subsidiary utility s capital structure, a proper calculation of the utility s cost
of capital would also require that the higher cost of the equity resulting from a
more leveraged capital structure be assigned to the utility subsidiary.
k. No, it would not be appropriate to assign higher leverage to PacifiCorp
capital structure because PacifiCorp s cost of capital does not reflect such
leverage. The question clearly recognizes that higher leverage implies higher
capital costs, both debt and equity. However, the structure MEHC proposes for
PacifiCorp insulates PacifiCorp from the higher capital costs that are borne by
MEHC. The capital costs ofPacifiCorp, and those PacifiCorp s customers will be
asked to pay, are the prudently incurred debt costs and the equity costs required
on investments, and such capital costs will be consistent with those of other
business undertakings with corresponding risks. These capital costs should result
in a level of revenues sufficient to assure confidence in the financial integrity of
the finn, maintain its credit quality and attract additional capital when needed
reasonable terms.
1. Please see response to CCS Data Request 2.24.
m. The PacifiCorp capital forecasts include a portion of the $1.3 billion MEHC
commitment in some form and reflect the actual yearly capital expenditure
projections that are in excess of $1 billion per year. Please also refer to the
response to CCS Data Request 2.32.
n. The source of funding for PacifiCorp' s capital expenditures for the next five
years may likely include cash from operations, long and short-term bank and
capital market debt obligation~, capital contributions, retained earnings and other
05-035- 54/Pacifi Corp
August 25 , 2005
CCS 2nd Set Data Request 2.36 MEHC
sources the company deems appropriate to maintain a reasonable capital structure.
The conditions of capital markets can and do change frequently. Thus, it is
difficult to accurately predict the source of these funds at this time
o. At this point a formal dividend policy for PacifiCorp has not been formulated.
However, it is expected that any dividend policy will take into consideration
important financial and business factors such as the desire to maintain an
investment grade corporate credit rating from the major credit rating agencies, the
maintenance of an appropriate capital structure for a regulated electric utility, and
the fulfillment of all commitments made to the regulators during the approval
process of this acquisition transaction. MERC recognizes that both customers and
shareholders are well served when the financial markets have confidence in the
financial soundness of the utility and in the utility s ability to maintain investment
grade credit ratings and attract capital on reasonable terms. Achieving these
objectives will require flexibility because:
Credit rating agency standards and industry practices vary over time;
No single formula will necessarily guarantee the retention of or loss of an
investment grade credit rating;
. Weather, catastrophic events and other factors beyond management
control can impact cash flow, net income and capital ratios;
Significant external debt financings and capital requirements such
major construction activities will result in some fluctuations in capital
ratios; and
A capital structure with an excessive level of debt can threaten the
maintenance of an investment grade credit rating.
p. For load growth assumptions please see Confidential Attachment CCS 2.36 P
conf.doc.
q. Generally, MEHC has ring-fenced entities within its corporate structure that
have the financial strength to earn credit ratings superior to those of MEHC. The
ring-fencing structure allows those entities to be awarded the credit ratings they
have on a stand-alone basis. Clearly there is no advantage to incurring the
expense of ring-fencing an entity with the corporate structure that can benefit
from the credit position of MEHC.
r. MidAmerican Energy Holdings Company has not obtained copyright
permission from the rating agencies to include entire documents from their
services. However, the following are quotes from rating agencies concerning the
ring-fencing issue:
05-035- 54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.36 MEHC
(1) Moody s Investors Service, March, 2005 Rating Methodology: Global
Regulated Electric Utilities, Summary, page 12: "... The degree of notching (i.
the rating differential) between entities in a single family of companies depends
upon the degree of insulation that exists between regulated and unregulated
entities. If the regulatory framework or regulatory practice establishes that there
is substantial ring-fencing type insulation for the regulated entity, there may
three or more notches of rating differential between the regulated and the
unregulated entities. If there is little or no ring-fencing, there will usually be only
a one- or two-notch differential between the unregulated entity (in most cases
holding company) and the regulated entity (in most cases an operating company).
Regulatory ring-fencing for utilities may include minimum equity requirements
limitations on the movement of funds from regulated entities to unregulated
entities, and prohibitions against credit support by regulated entities for
unregulated entities. .
. "
(2) From Standard & Poor Research: Summary: MidAmerican Funding LLC
15-Jun-2005: "
...
Standard & Poor s Ratings Services applies its consolidated
rating methodology to MEC and MidAmerican Funding, which are ring-fenced
from parent MidAmerican Energy Holdings Co. (MERC; BBB-/W atch Pos/--).
In most circumstances, Standard & Poor s will not rate the debt of a wholly
owned subsidiary higher than the rating on the parent. Exception of up to three
notches can be made, and were in this case, on the basis of the cumulative value
provided by enhancements, such as structural protections, covenants, a pledge of
stock and an independent director, assuming the stand-alone credit quality of the
entity supports such elevation. These provisions serve to make MidAmerican
Funding and MEC bankruptcy-remote from its parent, MERC.
. . "
See also:
Standard & Poor s, Ring-Fencing a Subsidiary, October 19, 1999;
Portland General Electric Co s BBB+ Corporate Credit
Rating Affirmed on Ring-Fenced Structure, November 25, 2002;
S&P Comments on an Enron Subsidiary s "Ring-Fencing
Janauary 16, 2003; and
An Enron Subsidiary is "Ring-Fenced , January 16, 2003.
s. Please see Confidential Attachment CCS 2.36 s -1 conf.pdf, and Confidential
Attachment CCS 2.36 s -2 conf.pdf on the Confidential enclosed CD
t. MidAmerican Energy Holdings Company has not obtained copyright
permission from the rating agencies to include entire documents from their
services. However, the following are quotes from rating agencies re the outlook
for MidAmerican Energy Holdings Company:
(1) Moody s Investors Service, announcement of May 26, 2005 includes:
.. . Moody' s Investors Service affirmed the ratings of MidAmerican Energy
Holdings Company (MERC, Baa3 senior unsecured). The rating outlook for
MERC remains positive. This actioll follows the announcement that MEHC plans
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.36 MEHC
to acquire PacifiCorp (PacifiCorp, Baal senior unsecured) from Scottish Power
pIc... The positive rating outlook is being maintained because it reflects Moody
view that the acquisition of PacifiCorp will have long-term positive benefits for
MEHC...
(2) Standard & Poor s announcement of May 25, 2005 includes: "... On May 25,
2005, Standard & Poor s Ratings Services placed its '/A-2' corporate credit
rating on PacifiCorp on CreditWatch with negative implications and its "BBB-
corporate credit rating on MidAmerican Energy Holdings Co. (MEHC) on
CreditWatch with positive implications. The rating actions follow the
announcement by Scottish Power PLC (A-/Stable/A-2) that it has agreed to sell
PacifiCorp to MEHC...
(3) From Fitch Rating History - Long Term Rating: "24-May-2005, Affirmed
BBB.
u. There are four major impacts on the acquisition, due to the repeal of PUHCA:
(1) MEC does not need a contract path for transmission to the PacifiCorp
operating territory; (2) A joint operating agreement is no longer needed to
operate the contract path; (3) The restriction on the level of ownership of
MEHC's common stock by Berkshire Hathaway has been removed; and (4)
Approval of the transaction by the Securities Exchange Commission is no longer
required.
UTAH
05-035-
MEHC/PPW
CCS 2nd Set DATA REQUEST
CONFIDENTIAL ATTACHMENT
CCS 36 P
CONFIDENTIAL (LEVEL YELLOW)
ON THE ENCLOSED CD
UTAH
05-035-
MEHC/PPW
CCS 2nd Set DATA REQUEST
CONFIDENTIAL ATTACHMENTS
CCS 2.36 s-and 2.36 s-
CONFIDENTIAL (LEVEL YELLOW)
ON THE ENCLOSED CD
05-035- 54/Pacifi Corp
August 25 , 2005
CCS 2nd Set Data Request 2.36 PPW
CCS Data Request 2.36 PPW
Questions Regarding Mr. Goodman s Direct Testimony
The following questions refer to Table 1 (p. 5) and the comment that MERC'
77.1 % consolidated debt ratio "may appear relatively high" (p. 6 , lines 2-6).a. Please explain why the fact that "much of the debt on the consolidated
balance sheet is issued by creditworthy non-recourse subsidiaries" is regarded as
sufficient to justify MEHC's relatively high overall debt ratio.
b. Please cite any instances in other utility holding companies or similar
utility corporate structures in the U.S. with such high debt ratios, including any
assessments of the benefits or risks thereof.c. To the extent the proposed MERC capitalization differs from a traditional
or average 50-50 debt-equity structure, please list and evaluate the advantages,
disadvantages and risks of the MEHC proposal.
d. Does Berkshire Hathaway s own capitalization include debt and thereby
further increase the overall debt leverage situation?e. Please explain why it should not be of concern to PacifiCorp' s customers
and regulators that MEHC has Standard & Poor s and Moody s credit ratings
the lowest investment grade.f. Please evaluate the risk that adverse developments could result in
MEHC's credit ratings dropping one grade to "junk bond" status.
g.
Please evaluate the costs and benefits of MEHC having a more traditional
utility capital structure.
h. Please provide the proposed capitalization and capital structure of
PacifiCorp on stand-alone basis after the acquisition.i. Please provide the comparable stand-alone capitalization and capital
structures of MidAmerican Energy Company and Northern Natural Gas
Company.
j.
Is double-leverage (or triple leverage) taken into account in determining
cost of capital of MidAmerican Energy Company and Northern Natural Gas
Company, i.e., is the cost of equity of the subsidiary company determined as the
weighted average cost of capital of the parent company?
05-035-54/PacifiCorp
August 25 , 2005
CCS 2nd Set Data Request 2.36 PPW
k. Would regulatory determination of the cost of equity of PacifiCorp on
double-leverage basis be appropriate to provide PacifiCorp customers with the
benefits of higher leverage at the consolidated MEHC level as compensation for
the apparent risk of MEHC's high debt ratio and low credit rating?
The following questions refer to financial forecasts of PacifiCorp (p. 131
1. Please furnish a copy of the financial forecast provided to MEHC by
PacifiCorp.
m. Do the financial forecasts include the $1.3 billion MEHC commitment and
reflect the $1 billion/year capital expenditure projection? Please reconcile and
explain.
n. Regarding PacifiCorp s projected capital expenditures of at least $1 billion
per year over the next five years, please provide the expected sources
investment funds for each year.
What is the expected dividend policy of PacifiCorp after the acquisition?
p.
What load growth and rate increase assumptions are included in the
financial forecast, e.g., an approximate 4% per year rate increase?
Regarding "Ring-Fencing
q.
In the "simplified MEHC organizational chart" provided in Exhibit PJG-
by Mr. Goodman, some subsidiaries (like MidAmerican Funding) are shown as
included in the ring-fencing structure and some (like Home Services of America)
are not so included. Please describe the differences with regard to ring-fencing
between the two groups of subsidiaries.r. Regarding "ring-fencing" protections of PacifiCorp (p. 16), please provide
any studies or reports in the possession of MEHC the by analysts, rating agencies
or other authorities of the effectiveness or otherwise of such protections.
Other Questionss. Please furnish copies of all MEHC and PacifiCorp presentations to credit
rating agencies since the acquisition announcement, as referred to in Table 3
, p.
15 of Mr. Goodman s testimony.t. Please furnish copies of all credit rating agencies' and analysts
assessments of the acquisition and/or the financial outlook for MEHC and
PacifiCorp in the possession Vi the applicants.
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.36 PPW
u. Please explain the impact if any on the acquisition of the repeal of PUHCA.
PPW's Response to CCS Data Request 2.
s. PacifiCorp has not made any presentations to credit rating agencies since the
acquisition announcement.
PacifiCorp objects to this request on the basis that it is unduly broad and
burdensome. Not withstanding this objection, Pacificorp provides as follows:
Copies of credit rating agencies reports are provided as Attachment CCS 2.
t on the enclosed CD.
UTAH
05-035 -
MEH CIPPW
CCS 2nd Set DATA REQUES
ATTACHMENT CCS 2.36 t
ON THE ENCLOSED CD
05-035-54/PacifiCorp
August 25 , 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
How has the financial performance of MidAmerican Energy Company and
Northern Natural Gas Company changed since each was acquired by MEHC?
Response to CCS Data Request 2.
MidAmerican Energy Company
The financial performance of MidAmerican Energy Company has steadily
improved since it was acquired by MEHC in 1999. Net income has increased
cost of debt capital has decreased, and equity to total capitalization has increased
while expenditures for such items as safety and reliability, transmission, and
generation have increased significantly. This improvement in financial
performance was achieved during a period when Iowa and Illinois electric retail
rates were frozen as the result of agreements with regulators or restructuring
legislation. The increase in net income is demonstrated by the following:
Per MidAmerican Energy Company s 1998 FERC Form No.Page 114, the net
utility operating income for 1998 was $ 200 234 199.
Per MidAmerican Energy Company s 2004 FERC FonnNo., Page 114, the net
utility operating income for 2004 was $ 243 336 350
The decrease in cost of debt is demonstrated by the following:
The cost of debt for Iowa for the 13-point average periods ending December 31
1999, and December 31 2004 was 7.6170/0 and 6.253%, respectively;
The equity to total capitalization increase is demonstrated by the following:
Per Mr. Goodman s Direct Testimony, page 19, lines 10 -, this ratio was
approximately 480/0 at December 31 , 1998 , and the ratio was approximately 53%
at December 31 , 2004.
The increase in generation expenses is demonstrated by the following:
Per MidAmerican Energy Company s 1998 FERC Form No.1 , Page 321 , the total
power production expenses for 1998 were $ 426 433 236.
Per MidAmerican Energy Company s 2004 FERC Form No.1 , Page 321 , the total
power production expenses for 2004 were $ 568 008 511.
Northern Natural Gas Company
MEHC implemented a capital structure improvement plan shortly after MEHC'
purchase of Northern, from Dynegy, in August 2002. (See the response CCS
Data Request 2.35 where the capital structure improvement plan is described).
This was the primary catalyst for Northern s improved financial results
subsequent to its acquisition by MEHC. For the years 2002 and 2001 , Northern
net loss after preferred stock dividends, as reported in FERC Forms 2, was $(27.1)
05-035-54/PacifiCorp
August 25 , 2005
CCS 2nd Set Data Request 2.37
million and $(64.2) million, for the two years, respectively. For 2004 and 2003
(the first two full fiscal years after the Northern acquisition), financial results
improved substantially with positive net income of $133.4 million and $48.
million for the two years, respectively.
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
How have the credit ratings of MidAmerican Energy Company and Northern
Natural Gas Company changed since each was acquired by MEHC? (Please
provide S&P, Moody , and Fitch credit ratings for each company over the last 5
years.
Response to CCS Data Request 2.
Northern Natural Gas Company Credit Ratings:
Northern Natural Gas Company was purchased by MEHC in March, 2002. The
ratings below for Northern Natural Gas Company begin with those in effect at the
date of purchase by MEHC. The ratings are for senior unsecured debt.
Moody s Investors Service:
November 1998: Baal
December 2002: Baa2
April 2005: A3
Standard & Poor
November 200 1: CC
July 2002: B+
August 2002: BBB-
September 2002: A-
May 2005: A-
Fitch Ratings:
November 2001: CC
August 2002: B
September 2002: BBB+
April 2005: A-
05-035- 54/Pacifi Corp
August 25, 2005
CCS 2nd Set Data Request 2.
MidAmerican Energy Company Credit Ratings:
The following represent senior unsecured credit ratings.
Moody s Investors Service:
July 1998: A3
(No change since July 1998, or earlier)
Standard & Poor
July 1995: A+
March 1999: A
July 2004: A-
Fitch Ratings:
March 1999:
January 2002:
November 2002:
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
How has customer performance of MidAmerican Energy Company and
Northern Natural Gas Company changed since each was acquired by
MER C?
Response to CCS Data Request 2.
MidAmerican Ellerey Company
MEC uses the Market Strategies , Inc. (residential and commercial customers, all
fuel types) and TQS (Key Account customers, electric service only) national
benchmarking studies to measure its performance on customer satisfaction. (The
D. Power electric utility study for residential customers started in 2000, and
MEC did not qualify (based on company size) to participate in the commercial
study until 2004.
Prior to MEHC ownership (1999), there was no benchmarking information
available from Market Strategies, Inc. However, MEC scored 83% "total
positive" responses from residential customers, and 88% "total positive
responses from commercial customers. In 1999, residential customers gave 80%
total positive" responses, and MEC was ranked 56th out of 81 utilities.
Commercial customers gave 89% "total positive" responses, and MEC was
ranked 10th out of 52 utilities. In 2000, residential customers gave 85% "total
positive" responses, and MEC was ranked 5th out of 18 utilities. Commercial
customers gave 86% "total positive" responses, and MEC was ranked 6th out of
11 utilities.
(The number of utilities included in the benchmark declined significantly in 2000
due to most utilities switching to a 0-10 "overall satisfaction" scale; MEC
continued to use a 1-5 "overall satisfaction" scale until it was phased out in 2002.
The fact that MEC used a different scale than the majority of utilities means that
MEC could not be compared to utilities using the "other" scale).
In 2001 , residential customers gave 84% "total positive" responses, and MEC was
ranked 12 out of 65 utilities. Commercial customers gave 870/0 "total positive
responses, and MEC was ranked 6 out of 44 utilities.
In 2002, residential customers gave 85% "total positive" responses, and MEC was
ranked 15 out of 76 utilities. Commercial customers gave 86% "total positive
responses, and MEC was ranked 19 out of 55 utilities.
. .
Beginning in 2003, MEC had two waves for the MSI Study; one in May and one
in November. In May 2003, residential customers gave 79% "total positive
responses, and MEC was ranked 40 out of 80 utilities. Commercial customers
gave 85% "total positive" responses, and MEC was ranked 35 out of 60 utilities.
05-035-54/PacifiCorp
August 25 2005
CCS 2nd Set Data Request 2.
In November 2003 , residential customers gave 820/0 "total positive" responses,
and MEC was ranked 27 out of 77 utilities. Commercial customers gave 86%
total positive" responses, and MEC was ranked 29 out of 57 utilities.
In May 2004, residential customers gave 830/0 "total positive" responses, and
MEC was ranked 20 out of 86 utilities. Commercial customers gave 870/0 "total
positive" responses, and MEC was ranked 22 out of 63 utilities. In November
2004, residential customers gave 86% "total positive" responses, and MEC was
ranked 8 out of 86 utilities. Commercial customers gave 890/0 "total positive
responses, and MEC was ranked 13 out of 66 utilities.
In 2005, Residential customers gave 85% "total positive" responses, and MEC
was ranked 13 out of 89 utilities. Commercial customers gave 91
% "
total
positive" responses, and MEC was ranked 8 out of 66 utilities.
Key Account customers gave 620/0 "very satisfied" responses in 1998, for a
ranking of 19 out of 60 utilities.
In 1999, the percentage of "very satisfied" responses increased to 630/0, and the
national ranking improved to 15 out of 60 utilities.
In 2000, the percentage of "very satisfied" responses increased again, to 73%
and MEC's national ranking improved to 4 out of 60 utilities.
In 2001 , the percentage of "very satisfied" responses remained the same at 73%
and the national ranking went to 5 out of 60.
In 2002, the percentage of "very satisfied" responses increased to 85%, and the
national ranking improved to 2 out of 60.
In 2003, the percentage of "very satisfied" responses decreased to 80%, and the
national ranking declined to 4 out of 60.
In 2004, the percentage of "very satisfied" responses increased to 84.20/0, and the
national ranking improved to 2 out of 60.
In 2005, the percentage of "very satisfied" scores given by Key Account
customers decreased to 83., and MEC was ranked 2nd in the nation.
Northern Natural Gas Company
Northern Natural Gas Company benchmarks its customer satisfaction ranking
with the Mastio & Company annual survey. After the first full year ofMEHC
ownership, the 2003-2004 Mastio results ranked Northern last (43 out of 43) in
customer satisfaction. In the 2004-2005 Mastio results, Northern s rank improved
to 30 out of39, the second best improvement of the survey participants.
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.47
CCS Data Request 2.
Is Mr. Gale aware of any situations in which PacifiCorp failed to "make
significant investments in infrastructure improvements...where the investments
were cost-effective for customers?"a. If so, please identify those situations, the costs involved, and the
consequences of the failure to make the investments.b. If not, please explain how MEHC ownership of PacifiCorp could
improve its willingness to make significant investments in
infrastructure improvements.
Response to CCS Data Request 2.
Mr. Gale is not aware of any situations in which PacifiCorp failed to
make significant investments in infrastructure improvements... where the
investments were cost-effective for customers.
Although PacifiCorp, under ScottishPower ownership, has made necessary
. improvements in the past, Mr. Gale believes ScottishPower s desire to sell
PacifiCorp, in and of itself, indicates reluctance on ScottishPower s part to
continue to make the significant infrastructure investments needed in the
future. MEHC's willingness to purchase PacifiCorp with full knowledge
of the size of investments needed, and MEHC's willingness to make
commitments to ensure those investments are made in a timely manner
clearly demonstrate that MEHC feels no such reluctance.
05-035- 54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.48
CCS Data Request 2.
Please identify any situations in which Mr. Gale believes PacifiCorp failed
make significant investments in infrastructure improvements...where the
investments were cost-effective for customers" because there was no "opportunity
for a fair return to shareholders.
Response to CCS Data Request 2.
Mr. Gale is not aware of any situations in which PacifiCorp failed to "make
significant investments in infrastructure improvements... where the investments
were cost-effective for customers" because there was no "opportunity for a fair
return to shareholders.
05-035- 54/Pacifi Corp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Please demonstrate that the "delivered cost of coal is among the lowest in the
United States" for both MEC and PacifiCorp.
Response to CCS Data Request 2.
Please refer to Attachment CCS 2.54 on the enclosed CD, Coal Plants
Production Cost - Platt Power.
UTAH
05-035-
MER CIPPW
CCS 2nd Set DATA REQUEST
TT A CHMENT C CS 2.
ON THE ENCLOSED
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
If MEC' s delivered cost of coal is among the lowest in the United States, despite
its distance from the Western low-sulfur coal basin, does Mr. Gale believe that
MEC has lessons for PacifiCorp in coal procurement? If so, please explain the
nature of those lessons.
Response to CCS Data Request 2.
Both MEC and PacifiCorp have a track record of procuring fuel at favorable
prices as the response to CCS Data Request 2.54 illustrates. At this time, it is not
yet known if either utility s fuel supply system can benefit from the experience of
the other.
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Please provide each PacifiCorp report on operational performance since the
Scottish Power merger.
Response to CCS Data Request 2.
The Applicants object to this request on the basis that it is overly broad and
burdensome. Notwithstanding this objection, Applicants provide:
Please see Attachment CCS 2.70 -Ion the enclosed CD for equivalent availability
data from 2000 to the present.
Please see Attachment CCS 2.70 -2 on the enclosed CD for PacifiCorp network
reliability-related reports for FY 2002 - 2005.
UTAH
05-035-
MEHC/PPW
CCS 2nd Set DATA REQUEST
ATTACHMENTS CCS 2.70 -1, and 2.
ON THE ENCLOSED CD
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Please provide forced outage rates for each year 1990-2004, for each PacifiCorp
power plant.
Response to CCS Data Request 2.
Please see response in Attachment CCS 2.71 on the enclosed CD.
UTAH
05-035-
MEHC/PPW
CCS 2nd Set DATA REQUEST
ATTACHMENT CCS 2.
ON THE ENCLOSED CD
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Please provide any analysis that indicates that the "increased levels of forced
outages" observed at PacifiCorp power plants can be explained by plant aging.
Response to CCS Data Request 2.
The Applicants object to this request on the basis that it is overly broad and
burdensome. Notwithstanding this objection, Applicants provide:
Analysis specific to forced outages caused by plant aging has not been performed
due to the complexity of isolating the age component for evaluation. The plants
in the PacifiCorp fleet are approaching or have exceeded the design life of the
plant. The probability of age related component failures is believed to increase as
component life approaches the design life.
05-03 5-54/Pacifi Corp
August 25 , 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Please provide the basis for the statement that the "overall equivalent availability
performance of our generation fleet remains high when compared to the rest of
the sector.
Response to CCS Data Request 2.
Please see Attachment CCS 2.73 on the enclosed CD.
UTAH
05-035-
MEH C/pPW
CCS 2nd Set DATA REQUEST
ATTACHMENT CCS 2.
ON THE ENCLOSED CD
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Please provide the basis for the statement that "our mining business continues to
deliver some of the lowest cost coal in the D.S on a delivered basis.
Response to CCS Data Request 2.
Attachment CCS 2.74 on the enclosed CD illustrates PacifiCorp s delivered fuel
costs for FY 05 as compared with utilities across the U.S. Ten ofPacifiCorp
owned and joint-owned plants rank in the top 90 plants nationwide in delivered
~/mmBtu.
UTAH
05-035-
MEHC/PPW
CCS 2nd Set DATA REQUEST
ATTACHMENT CCS 2.
ON THE ENCLOSED CD
05-035- 54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Please explain how "volatility in our fundamentals, primarily in the areas of load,
hydro and thermal availability" reduced PacifiCorp s return on equity.a. Please specify the years in which each of the three factors (load, hydro and
thermal availability) affected PacifiCorp s ROE, and the magnitude of that effect.
Response to CCS Data Request 2.
As stated in the ScottishPower 2004 Annual Report and PacifiCorp s 10K filing,
volatility in our power cost fundamentals has contributed to the company s weak
earnings performance and caused the need to file deferred power applications
related to poor hydro conditions and requests for power cost adjustment
mechanisms. Our recent rate case filings, point to these very problems of
increasing risks surrounding power costs, as noted in the testimony of Mr.
Widmer shown below:
Beginning in 2000, with the start of the Western energy crisis, the exposure has
become very asymmetric. From 1990 through 1999, the Company s net power
cost exposure averaged negative $10.7 million, or 2.62% of authorized net power
costs and from 2000-2004 it averaged $335.5 million in excess costs, or 68.12%
of authorized net power costs. In percentage tenus, the exposure increased by
over 3100 percent since 1999. ... Deviations from NPC in rates are primarily
related to factors not controllable by the Company. For example, hydro
conditions, weather conditions, wholesale market prices for natural gas and
electricity and the timing of forced outages are not controllable. While these
potential causes have always been present, the cost of addressing these factors has
increased dramatically." (Direct testimony of Mark T. Widmer, Washington UE-
, page 30).
An exhibit to that testimony, available on PacifiCorp s web site at
http://www.pacificorp.comIRegulatory Testimony/Regulatory Testimony5
11761691.pdf, shows this variation of net power costs in rates VS. actual results.
In summary, higher power costs over the past several years have been a
significant drag on PacifiCorp s unadjusted ROE since PacifiCorp has had
absorb over $300 million of additional costs not captured in rates. PacifiCorp
semi-annual unadjusted results were:
8% ROE March 2005
2% ROE September 2004
5% ROE March 2004
5% ROE March 2003
05-035-54IPacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Please explain whether Ms. Johansen believes that reduction in ROE due to
volatility in fundamentals since the Scottish Power merger has been the result
bad luck regarding the direction of movements in these volatile factors in the
relevant years, or that the volatility in fundamentals inherently reduces ROE.a. IT the latter, please provide the basis for that opinion.
Response to CCS Data Request 2.
Ms. Johansen believes that the risks from volatile fundamentals are asymmetric.
See the response to CCS Data Request 2.75. Whether characterized as bad luck
or a low probability of occurrence, significant downside events will suppress
returns that are set on normalized conditions.
05-035- 54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Please provide the November 2004 ScottishPower Board of Directors
' "
strategic
review of PacifiCorp as a result of its performance and the significant investment
it required.
Response to CCS Data Request 2.
Scottish Power objects to this request to the extent it may seek information
covered by the attorney-client and work product privileges. Scottish Power also
objects to this request because it seeks extremely confidential, price and
transaction sensitive and commercially proprietary information. Subject to and
without waiving the foregoing objection, Scottish Power responds that the review
in question culminated in the presentations to the Scottish Power Board of
Directors which took place on May 22, 2005 and was supported by financial
analysis. Pursuant to Paragraph I(D) of the Protective Order issued by the
Commission in this docket, Scottish Power provides notice to the Committee of
Consumer Services that the documents requested from Scottish Power constitute
extremely confidential, price and transaction sensitive and commercially
proprietary information. Disclosure of this material may give an undue advantage
to competitors and speculative investors and therefore, requires the highest level
of confidential treatment. These documents, which include a copy of the May 22
2005 Scottish Power Board minutes and supporting financial analysis, will be
made available for review, upon advance notice, at a convenient location in Utah.
Please contact Barry Bell at [phone] to make arrangements to review the
documents.
This response contains material that is extremely confidential and price and
transaction sensitive to Scottish Power and should not be disclosed directly or
indirectly to MEHC.
05-035- 54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
For each year since 1994, please provide a comparison of the capital expenditures
requests by PacifiCorp utility staff by function, management recommendations
and final authorizations.
Response to CCS Data Request 2.
PacifiCorp s records do not permit a comparison of initial requested amounts for
capital expenditures by business unit to the final authorized amounts. While
approved capital budgets by year are maintained in summary form in the
company s records, neither initial business unit requests for capital expenditures
nor the multiple iterations through the capital budgeting process prior to final
approval are maintained. This prevents the company from preparing a
comparison of the initial capital spending requests to the final authorized capital
amounts.
05-035- 54/Pacifi Corp
August 25 , 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Please identify any capital investments requested or recommended by PacifiCorp
staff that has not been funded, or has been deferred, due to Scottish Power capital
constraints or other Scottish Power limits.
a. Please describe the cost and timing of the requested and unfunded
investments.
b. Please identify any previously requested but unfunded or deferred investments
that are included in PacifiCorp s projection of "$1 billion of capital
expenditure per annum" in the future.
c. Please identify any PacifiCorp operating problems caused by the deferral of
investment since 1999.
Response to CCS Data Request 2.
a. To date no capital investments have been eliminated or deferred due to
ScottishPower capital constraints or other ScottishPower limits. While
reductions have been made to requested capital budgets during
ScottishPower s ownership of PacifiCorp, these are attributable
to management discretion and to nonnal cost pressures rather than any
inability of ScottishPower to raise capital, and arguably could have occurred
under any ownership. ScottishPower has not suffered from especially
restrictive capital constraints; it has exercised normal business judgment
on the boundaries of new investment. This is standard business practice and
has not been motivated by capital constraints.
b. Carryovers of capital projects from prior years have not been tracked and are
not reasonably identifiable.
c. No operating problems can be attributed to deferral of investment since 1999;
no identifiable deferral of investment has occurred during this period.
05-035-54/PacifiCorp
August 25, 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Please identify any investments that MEHC has made in MEC, for whicha. Scottish Power has refused to make comparable investments in PacifiCorp, or
b. Ms. Johansen believes Scottish Power would not make comparable
investments in PacifiCorp if it retained ownership.
Response to CCS Data Request 2.
There are no documents responsive to this request.
05-035-54/PacifiCorp
August 25 2005
CCS 2nd Set Data Request 2.
CCS Data Request 2.
Please describe in detail MEHC's "a solid track record in utility operations " or
cite the testimony in which that track record is discussed.
Response to CCS Data Request 2.
Please refer to pages 6 - 27 of the testimony of MEHC witness Gale, plus
associated exhibits; page 8, line 19 through page 9, line 20, and page 19, lines
14 of the testimony ofMEHC witness Goodman; as well as page 25, line
through page 28, line 8 of the testimony of MEHC witness Abel. See also the
responses to the following data requests: CCS 2.37,39,2.42
and 2.59.
These testimony excerpts, exhibits and data responses do not describe all aspects
of MEHC' s solid track record in utility operations but they provide a good
overvIew.
05-035-54IPacifiCorp
September 16, 2005
CCS 4th Set Data Request 4.
CCS Data Request 4.
Please provide full details of the PacifiCorp "re-basing" initiative, including
identification of all work force downsizing, streamlining, cost cutting, early
retirement, terminations, cost savings and related costs. (a) Include supporting
documentation. (b) Please provide the projected 2006 and 2007 impacts of the
PacifiCorp "re-basing" initiative showing how the $10 million for 2005 and $30
million for 2007 was derived, and include supporting workpapers and
calculations. (c) Please show impacts on Utah costs from the "re-basing
initiative. If exact amounts are not known, please provide the Company s best
estimates. Show how estimates of Utah impacts were derived. (d) For all work
force downsizing related to the "re-basing" initiative, please indicate the job titles
and locations of the downsized positions. (e) Please confirm that the PacifiCorp
re-basing" initiative was occurring under ScottishPower ownership and is not
being impacted by the transfer of ownership to MEHC. If this cannot be
confmned, explain fully what impact the transfer of ownership to MEHC is
having or is expected to have on the re-basing initiative.
PPW's Response to CCS Data Request 4.
The PacifiCorp Rebasing Project sought to find new ways to mitigate increases in
controllable costs going forward. The project reviewed corporate, support and
shared functions to find ways to reduce workload, streamline activities and deliver
organizational synergies and effectiveness. The project did not focus on
operational areas of the business and no cuts were made in those areas.
a) Provided on the enclosed CD's are the following documentation:
Attachment CCS 4.7 a-I "Outcomes of the Rebasing Project" slide
presentati on
Attachment CCS 4.7 a-2 "PacifiCorp Organization Activity Initiatives
organization chart.
Confidential Attachment CCS 4.7 a-3 "Impact of Specific Proposed
Initiatives" spreadsheet. (Provided on the enclosed Confidential CD)
b) Please see Confidential Attachment CCS 4.7 a-3. Amounts mentioned by
PacifiCorp representatives in the workshop ($10 million and $30 million)
should be considered estimates. The total savings anticipated from Rebasing
initiatives are $16.7 million in FY 2006 and $45.7 million in FY 2007 as
shown in Confidential Attachment CCS 4.7 a-3. These were the detailed
initiatives recommended by the project team to executive management. The
final initiatives implemented by management may be different. However, the
dollar impact is expected to be comparable to this proposal.
c) PacifiCorp has not estimated the impact of rebasing initiatives on Utah costs.
The initiatives are expected to mitigate cnt increases rather than reduce
overall costs. Rebasing initiatives relate to corporate, support and shared
05 -03 5- 54/Pacifi Corp
September 16, 2005
CCS 4th Set Data Request 4.
services costs, and as such would affect individual states in rate proceedings
proportionately to the then-appropriate state allocation factors. There are no
initiatives that are specific to the Utah service territory.
d) The focus of the Rebasing Project was primarily on activities, not positions.
However, as a result of rebasing initiatives implemented, certain positions
have now been identified as being displaced. Please see Confidential
Attachment CCS 4.7 d on the enclosed Confidential CD. This attachment
shows titles and locations of employees whose positions are being eliminated
as a result of rebasing initiatives. Workforce reductions focus on general
office functions. As of September 9,2005 52 of 57 eliminated positions were
located in Oregon. Additional future reductions of approximately 50 FTEs
haven t been specifically identified as of this date.
e) Yes, the PacifiCorp rebasing initiative has occurred under ScottishPower
ownership. The Rebasing project was formally initiated by PacifiCorp in
February 2005, well before the MEHC transaction. Due to the requirements
of the transaction, a small number of staff reductions were delayed in order to
provide staffing support for the transaction.
UTAH
05 -035-
MER CIPPW
CCS 4th Set DATA REQUEST
ATTACHMENTS CCS 4.7 a-I and 4.7 a-
ON THE ENCLOSED CD