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HomeMy WebLinkAbout20140530Application.pdf3Effi*. An IDACORP Company LISA D. NORDSTROM Lead Gounsel RECEIVE N t0lq ilAY 30 pH ?t Za ,r,tl?ffin tu*l*is*,0,, May 30, 2014 VIA HAND DELIVERY Jean D. Jewe!|, Secretary ldaho Public Utilities Commission 472 West Washington Street Boise, ldaho 83702 Re: Case No. !PC-E-14-14 Extension of Accumulated Deferred lnvestment Tax Credits/Revenue Sharing Mechanism - ldaho Power Company's Application Dear Ms. Jewell: Enclosed for filing please find an original and seven (7) copies of ldaho Power Company's Application in the above matter. Very truly yours, 6*P.%*Ean-)Lisa D. Nordstrom LDN:csb Enclosures 1221 W. ldaho St. (83702) P.O. Box 70 Boise, lD 83707 LISA D. NORDSTROM (lSB No. 5733) ldaho Power Company 1221West ldaho Street (83702) P.O. Box 70 Boise, ldaho 83707 Telephone: (208) 388-5825 Facsimile: (208) 388-6936 lnordstrom@idahopower. co m Attomey for ldaho Power Company IN THE MATTER OF THE APPLICATION OF IDAHO POWER COMPANY'S REQUEST TO EXTEND ITS ACCUMULATED DEFERRED I NVESTMENT TAX CREDITS/REVENUE SHARING MECHANISM BEYOND 2014. REC HIVfi I] u r tI ?#i0ctYJiil I U*, * uu BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION NfrW GA$H CASE NO. |PC-E-14-14 APPLICAT!ON Idaho Power Company ("ldaho Powe/' or "Company") hereby requests that the ldaho Public Utilities Commission ("Commission") issue an order extending the terms set forth in the settlement stipulation ("Stipulation") approved by Order No.32424 under which ldaho Power is authorized to either (1) amortize additional accumulated deferred investment tax credits ("AD|TC") or (2) share a portion of revenues with its ldaho customers. lnstead of allowing the terms of the Stipulation to expire at the end of 2014, ldaho Power requests that the Commission allow the terms of the Stipulation to remain in effect until the Company has accelerated the amortization of a total of $45 million in ADITC or until the terms of the Stipulation are otherwise modified or terminated by a Commission order. APPLICATION - 1 I. BACKGROUND 1. On December 27, 2011, the Commission issued Order No. 32424 in Case No. IPC-E-11-22 approving a three-year mechanism (2012-2014) with the following structure: a. ADITC Provisions. lf in any year of the mechanism's existence the ldaho jurisdictional annual return on equity ("ROE') is less than 9.5 percent, the Company is allowed to amortize an additional amount of ADITC up to $45 million to achieve an actual ROE up to a maximum of 9.5 percent.l No more than $45 million could be used over the life of the mechanism. b. Revenue Sharino Provisions. lf in any year of the mechanism's existence the ldaho jurisdictional annual ROE is greater than 10 percent up to and including 10.5 percent, the earnings will be shared equally between ldaho customers and the Company. Idaho earnings above a 10.5 percent ROE will also be shared, with customers receiving 75 percent of the earnings applied as an offset in the pension balancing account.2 There is no upper bound on shared earnings. c. Other Provisions. lf a new ROE level is established by the Commission in a general rate case, the thresholds will be automatically adjusted proportionally on a prospective basis. The Stipulation uses 10 percent as the ROE level for the threshold adjustments. The new ADITC threshold would be 95 percent of the t ln 2012, the Company would have been permitted to use a maximum level of $25 million in additionalAD|TC amortization. However, no additionalADlTC amortization was required. 2 A one-time adjustment to the sharing portion of the previous ADITC/revenue sharing mechanism (established by Order No. 30978 in Case No. IPC-E-09-30) was applied in 2011 to allow one- half of the Company's share of the ldaho jurisdictional return in excess of 10.5 percent to be provided as a customer benefit in the form of a reduction in rates or an offset to amounts that would otherwise be collected from future rates. APPLICATION - 2 newly established ROE, and the sharing thresholds would be set at the new ROE for 50 percent sharing and at 105 percent of the new ROE for 75 percent sharing. II. BENEFITS FROM THE MECHANISM AND ITS PREDECESSOR 2. To date, the provisions of the mechanism and its predecessor (established by Order No. 30978 in Case No. IPC-E-09-30) have provided significant financial benefits to customers. During the existence of the mechanism and its predecessor (2009-2013), customers have received more than $93 million in benefits as either a direct offset to rates or as an offset to amounts that would otherwise be collected in future rates. During that same period of time, the Company has not used any of the $45 million of available ADITC. The Company's ldaho jurisdictional earnings in 201 1,2012, and 2013 triggered the revenue sharing provisions of the mechanism. The chart below details the results of the mechanism and its predecessor. ldaho Jurisdictional ReductionROE to Rates Offset to Pension BalancingAccount Total 2009 2010 2011 2012 2013 9.75% 10.37o/o 12.55o/o 11j8% 11.22o/o No Action - ROE within the deadband No Action - ROE within the deadband $27,098,897 $20,324,173 $47,423,070 $7,151,221 $14,618,532 $21,769,753 $7,602,043 $16,512,853 $24,114,896 Grand Total $93J07J19 3. The direct financial benefits that customers have received to date under the mechanism are evident; however, it is important to recognize other benefits that customers and the Company have derived from this mechanism. ldaho Power's ability to utilize additional ADITC when ldaho jurisdictional earnings fall below a 9.5 percent ROE (although unutilized to date) has provided comfort to investors and credit rating agencies in that the Company has had a greater opportunity to achieve earnings near APPLICATION - 3 the Commission-authorized rate of return in years when revenue from rates alone would not have otherwise provided that same opportunity. ln fact, in its latest Credit Opinion included as Attachment 1 to this Application, Moody's Investors Service states: This settlement stipulation is also viewed positively from a credit perspective, since it provides a good amount of certainty that the company will actually achieve an ROE that compares well relative to allowed ROEs and utility earnings in neighboring jurisdictions, in recent years.' The Company's credit ratings directly impact the availability and cost of capital, which in turn affects the rates that customers pay when new rates are determined. Banks and fixed income investors rely on a company's credit ratings to determine its return-a lower credit rating means more risk and therefore a higher return (interest rate) is necessary to attract investors. Credit ratings also affect access to working capital needed for shortterm financing needs. III. PROPOSED EXTENSION AND MODIFICATIONS TO THE ADITC/REVENUE SHARING MEGHANISM 4. The Company has used none of the $45 million available ADITC to date. At the time of this filing, the Company expects to use less than $5 million of additional ADITC tn 2O14. lf the Company's forecasted level of additional ADITC amortization in 2014 is correct, more than $40 million in additional ADITC will remain unused from the original $+S million level set aside under the Stipulation. Because the current ADITC/revenue sharing mechanism has been beneficial for both customers and the Company and because the Company expects a significant portion of the ADITC set aside under the Stipulation to still be available for future amortization at the end of 2014, 3 Moody's lnvestors Service - Credit Opinion: ldaho Power Company, February 7,2014, p.2. APPLICATION - 4 ldaho Power proposes to extend the mechanism approved by Order No.32424 beyond 2014. 5. ldaho Power requests that the mechanism be extended until the Company has accelerated the amortization of up to a total of $45 million in additional ADITC (including any ADITC applied toward 2014) or until the terms are othenruise modified or terminated by a Commission order. The Company believes that because there is now an adequate level of familiarity with the mechanism combined with the demonstrated benefits to customers and the Company, it is appropriate to extend the provisions of the Stipulation beyond 2014 without modification. Therefore, the Company proposes that the Commission issue an order extending the terms set forth in the Stipulation approved by Order No. 32424 as described in paragraph 1 of this Application. IV. COMMUNICATIONS 6. Communications and service of pleadings with reference to this Application should be sent to the following: Lisa D. Nordstrom Regulatory Dockets ldaho Power Company P.O. Box 70 Boise, ldaho 83707 I nord strom @id a hopower. co m dockets@ idahopower. co m Timothy E. Tatum ldaho Power Company P.O. Box 70 Boise, ldaho 83707 ttatu m@ id ahopower. com V. MODIFIED PROCEDURE 7. ldaho Power believes that a technical hearing is not necessary to consider the issues presented herein and respectfully requests that this Application be processed under Modified Procedure; i.e., by written submissions rather than by hearing. RP 201 APPLICATION - 5 ef seg. ln order for the mechanism to remain in effect for 2015, the Company requests a Commission order no later than December 31,2014. 8. To facilitate broad participation in these discussions, ldaho Power has served this Application upon parties to its last general rate case, Case No. IPC-E-11-08. VI. REQUEST FOR RELIEF Idaho Power requests that the Commission issue its order approving a modified accounting order authorizing the Company to extend the mechanism under the provisions described herein and authorizing this proceeding to be processed such that a final Commission order will be issued no later than December 31,2014. Respectfully submitted this 30th day of May 2014. Power Company APPLICATION - 6 CERTIFICATE OF SERVICE I HEREBY CERTIFY that on this 30th day of May 2014 t served a true and correct copy of the within and foregoing APPLICATION upon the following named parties by the method indicated below, and addressed to the following: Commission Staff Donald L. Howell, II Karl T. Klein Deputy Attorneys General ldaho Public Utilities Commission 47 2 W est Wash i ngton (83702) P.O. Box 83720 Boise, ldaho 83720-007 4 lndustrial Customers of Idaho Power Peter J. Richardson Gregory M. Adams RICHARDSON ADAMS, PLLC 515 North 27th Street (83702) P.O. Box 7218 Boise, ldaho 83707 Dr. Don Reading 6070 Hill Road Boise, Idaho 83703 ldaho lrrigation Pumpers Association, lnc. Eric L. Olsen RACINE, OLSON, NYE, BUDGE & BAILEY, CHARTERED 201 East Center P.O. Box 1391 Pocatello, ldaho 83204-1 391 Anthony Yanke! 29814 Lake Road Bay Village, Ohio 44140 Hand Delivered U.S. Mail Overnight Mail FAX Email Don.Howell@puc.idaho.qov Karl. Klein@puc. idaho.qov Hand Delivered U.S. Mail Overnight Mai! FAX Email peter@richardsonadams.com q reo@ richa rd so nadams. co m Hand Delivered U.S. Mail Overnight Mail FAX Email dreadinq@mindsprinq.com Hand Delivered U.S. Mail Overnight Mail FAXX Emai! elo@racinelaw.net Hand Delivered U.S. Mail Overnight Mail FAX Email tonv@vankel.net APPLICATION - 7 The Kroger Go. Kurt J. Boehm BOEHM, KURTZ & LOWRY 36 East Seventh Street, Suite 1510 Cincinnati, Ohio 45202 Kevin Higgins Energy Strategies, LLC 215 South State Street, Suite 200 Salt Lake City, Utah 84111 Micron Technology, lnc. Mary V. York HOLLAND & HART, LLP 101 South Capital Boulevard, Suite 1400 Boise, ldaho 83702 Richard E. Malmgren Senior Assistant General Counsel Micron Technology, lnc. 800 South FederalWay Boise, ldaho 83716 The United States Department of Energy Arthur Perry Bruder, Attorney-Advisor United States Department of Energy 1 000 lndependence Avenue SW Washington, DC 20585 Dwight D. Etheridge Exeter Associates, lnc. 10480 Little Patuxent Parkway, Suite 300 Columbia, Maryland 21044 Hand Delivered U.S. Mail Overnight Mail FAXX Email kboehm@BKllawfirm.com irh@battfisher.com Hand Delivered U.S. Mail Overnight Mail FAXX Email khiqqins@enerqvstrat.com _Hand Delivered U.S. Mail Overnight Mail FAX Email mvork@hollandhart.com tnelson@hol land ha rt. com madavidson@holland hart.com fsch midt@hol land ha rt. com lnbuchanan@holland hart.com Hand Delivered U.S. Mail Overnight Mail FAXX Email remalmgren@micron.com Hand Delivered U.S. Mai! Overnight Mail FAXX Email Arthur.bruder@hq.doe.qov Steven. porter@ hq. d oe. qov Hand Delivered U.S. Mail Overnight Mail FAX Email detheridqe@exeterassociates.com APPLICATION - 8 Community Action Partnership Association of ldaho Brad M. Purdy Attorney at Law 2019 North 17th Street Boise, ldaho 83702 ldaho Conservation League Benjamin J. Otto Idaho Conservation League 710 North Sixth Street (83702) P.O. Box 844 Boise, ldaho 83701 Snake River Alliance Ken Miller Snake River Alliance P.O. Box 1731 Boise, ldaho 83701 NW Energy Goalition Nancy Hirsh, Policy Director NW Energy Coalition 811 First Avenue, Suite 305 Seattle, Washington 981 04 Hand Delivered U.S. Mail Overnight Mail FAXX Emai! bmpurdv@hotmail.com Hand Delivered U.S. Mail Overnight Mai! FAXX Email botto@idahoconservation.orq Hand Delivered U.S. Mai! Overnight Mail FAXX Email kmiller@snakeriveralliance.org Hand Delivered U.S. Mail Overnight Mail FAX Email nancv@nwenergv.orq sta Bearry, Legal Assista APPLICATION - 9 BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION GASE NO. IPC-E-14-14 IDAHO POWER GOMPANY ATTACHMENT 1 Moopv's INVESTORS SERV!CE Credit Opinion: ldaho Power Company Global Credit Research - 07 Feb2014 Boise, ldaho, United States Ratiqgs Category Outlook lssuer Rating First Mortgage Bonds Senior Secured Commercial Paper Parent IDACORP, lnc. Outlook lssuer Rating Senior Unsecured Shelf Commercial Paper Contiacts : Analyst Ryan Wobbrock/New York City William L. Hess/New York City Key lrdicators [1]ldaho Porer Company CFO pre-WC + lnterest / lnterest CFO pre-WC / Debt CFO pre-WC - Dividends / Debt Debt / Capitalization 9/3U20r3G) 1213',u2012 121311m113.Sr 3.&( 40x1450/o 14.4% 15.6io/o10.7% 10.8% 12.?/o42.4% 41.80/" 42.*/" 1213112010 12t31t200p.46( 4.}x18.8% 18.?/o15.60lo A.e/o 6.7oh 6.20/0 Moody's Rating Stable A3 A1 A1 P-2 Stable Baal (P)Baal P-2 Phone 212.553.71M 212.553.3837 [1] All ratios are based on'Adjusted'financial data and incorporate Moody's Global Standard Adjustments for Non- Financial Corporations. Source: Moody's Financial Metrics Note: For definitions of Moody's mosf common ratio terms p/ease see fhe accompanying User's Guide. Opinion Rating Drivers Strong regulatory support and cost recovery provisions Weak financial metrics expected to improve with pension adjustments Considerable capital expenditures continue over intermediate-term lncreasing dividend payout toward industry averages Corporate Profile ldaho Power Company (lPC) is a vertically integrated electric utility and principal wholly-owned subsidiary of IDACORP, lnc. (lDA). IPC's service territory encompasses southern ldaho (which constitutes approximately 95% of rate base) and eastern Oregon and its rates are regulated by the ldaho Public Utilities Commission (IPUC) and the Oregon Public Utility Commission (OPUC), while the Federal Energy Regulatory Commission (FERC) regulates its transmission operations. IDA's holdings, on a revenue basis, are nearly 100% regulated. SU MMARY RATING RATIONALE IPC's A3 senior unsecured rating reflects its low-risk utility operations in an above average regulatory environment. We view the regulatory support that IPC receives as a key component in offsetting weak financial metrics, given its rating category. The company benefits from an impressive suite of cost recovery provisions, which helps to lower IPC's business risk and results in highly stable and predictable cash flow from operations year-over-year. The rating also considers a dividend policy that will increase the amount of negative free cash flow that the company produces over the next several years, as the company targets a 5Oo/o - 60% payout ratio in the presence of an increasing capex plan. Recent Developrnents On 30 January , 2014 we upgraded the ratings of IDA to Baal from Baa2 and IPC to A3 from Baal . The primary driver of the rating action was Moody's more favorable view of the relative credit supportiveness of the US regulatory framework, as detailed in our September 23,2013 Request for Comment: "Proposed Refinements to the Regulated Utilities Rating Methodology and our Evolving View of US Utility Regulation.' Factors supporting this view include better cost recovery provisions, reduced regulatory lag, and generally fair and open relationships between utilities and regulators. The US utility secto/s low number of defaults, high recovery rates, and generally strong financial metrics from a global perspective provide additional corroboration for these upgrades. DETAILED RATING CONSIDERANONS IPUC SUPPORT IS FUNDAMENTAL TO RATING We view the suite of cost recovery provisions allowed by the IPUC to be well above average compared to the other states across the US. These mechanisms provide a good amount of certainty to cash flow generation in any given year, with any variances typically due to hydro conditions that average out over time. Some of the more important credit positive features of IPUC regulation include: 1) a relatively swift 7-month statutory period governing rate cases and partially forecast test years to reduce regulatory lag; 2) frequent decisions based on settlements instead of litigated proceedings; 3) reasonable allowed returns on equity; 4) reliance on various cost tracking mechanisms (e.9., the annual power cost adjustment, or PCA, which reconciles forecasted purchased power costs in rates to the actual amount spent on a95%15% customer/shareholder basis) 5) pre-approval of future rate treatment for certain capital investments allowed under ldaho state law (i.e., Senate Bill 1123 which grants the IPUC pre-approval of rate treatment for certain capex); 6) legislatively available inclusion of CWIP in rate base allowed under ldaho state law; and 7) a decoupling mechanism via the fixed cost adjustment (FCA; which allows IPC to recover up to 3% of base revenues in the current year, with any excess recovered in subsequent years). IPC is currently operating under a 201 1 regulatory settlement stipulation in its ldaho jurisdiction. The settlement expires at year-end 2014 and allows the company to amortize additional Accumulated Deferred lnvestment Tax Credits in an aggregate amount up to $45 million should its ROE fall below 9.5% in its ldaho jurisdiction. IPC did not need to use any additional ADITC in2012 or 2013 to earn this return. The rate settlement stipulation also details earnings sharing between IPC and customers, on a 50/50 basis (via customer refunds), when IPC's actual earned ROE in the ldaho jursidiction falls between 10.0% and 10.5%. Furthermore, if jurisdictional eamings exceed a1O.So/o ROE, the additional earnings are shared with customers on a 75% customers I 25o/o IPC basis, in the form of a reduction to its pension regulatory asset. This setflement stipulation is also viewed positively from a credit perspective, since it provides a good amount of certainty that the company will actually achieve an ROE that compares well relative to allowed ROEs and utility earnings in neighboring jurisdictions, in recent years. The fact that IPC has not needed to use the ADITC amortization is also viewed positively, since it gives the company additional support should they run into operational challenges or poor hydro conditions, the latter of which is more likely since over half of the company's power supply is hydro based. The IPUC has recently approved the recovery of over $46 million of efficiency and demand side management costs for lPC, through an energy efficiency rider or through the PCA as well as approval to invest around $130 million for environmental upgrades (i.e., installation of selective catalytic reduction, "SCR," equipment to minimize nitrogen oxide emissions) atthe Jim Bridger coal plant (lPC owns approximately 33% of the roughly 2,100 MW Wyoming facility). The IPUC did, however, refrain from granting IPC a binding commitment for rate base treatment of the investment. We view these developments as further evidence of IPUC support for the company's credit profile. WEAK FINANCIAL PROFILE DESPITE COST RECOVERY FEATURES Despite strong regulatory support through rate increases, a relatively high ROE and an impressive suite of cost recovery provisions, IPC has produced weak financial metrics for its rating category over the past several years. For LTM 3Q13 the company's cash flow before working capital (CFO preWC) to debt was 15.0%. This level has remained steady since 201 1, but is lower than vertically integrated A3 peers, who have averaged 19% over that same period. lmportantly, these metrics include the one-time benefits of bonus depreciation that have inflated the industry's cash flow to debt metrics by around 200-300 basis points since 2010. We typically adjust these amounts out for ratings purposes and doing so would maintain IPC's relation to peers, but would support a financial profile that is more in-line with Baa3 rating levels according to our ratings methodology. While the strong support of the IPUC and very stable and predictable cash flow generation have been the offset to these weak financial metrics in the past, the company is likely to beneflt from anticipated improvements in pension funding levels, which will in-turn improve IPC's cash flow to debt metrics. The impact for IPC is likely to be twofold, in regard to pension funding: 1) Moody's standard adjustments impute pension liabilities as debt. As interest rates rise and increase pension discount rates, the amount of underfunded pension and Moody's adjusted debt will decline. 2) IPC has been contributing significant amounts to the pension in recent years (i.e., $44 million in2012 and $30 million as of September 2013), which should reduce the amount of CFO reduction as the funded status improves. We also recognize that the company's cash position can benefit from additional unused tax benefits, although we do not consider those as part of ongoing, core utility cash flow production. STEP-UP IN CAPEX WITH SCR INSTALLATION IPC expects to spend roughly $300 million in capitalexpenditures in both 2014 and 2015. The majority of these expenditures are in maintenance of existing facilities and infrastructure, though the most significant single item is the company's share of the SCR installation at Jim Bridger, which will be around $45 million in each of the next two years. There are two large, long term transmission pro,lects in the development pipeline (i.e., 500 kV Boardman- Hemmingway estimated at around $890-$%0 million of total costs and the 500 kV Gateway West, which IPC's share is estimated between $150 and $300 million) that involve partnerships with other utilities. These are both currently in the permitting process and the only commitments to date have been around its share of permitting costs. The total costs and dates of service of these projects is highly subject to change as the development process continues. Given the persistent delay in siting and uncertainty of siting and construction, these projects are not a material part of our credit analysis. The construction costs of these projects are not included in the company'|s current capital expenditure estimates for 2014 and 2015. Other potential projects include the investigation of options to ensure additional resources are available to meet expected load growth that has recently been revised upward to five-year compound annual growth rate in residential customers of 2.1% and residential load of 1.4%. Management has stated that these options include anything from a new peaking resource, to market purchases, to demand response programs or energy efficiency programs. These options will be analyzed further given continued delays in Boardman-Hemmingway, and through the biennial integrated resource planning (lRP) process. Liquidity Profile IPC has reasonable liquidity supported by internally generated cash flow and its own committed bank credit facilities. The company recently amended and restated its standalone credit facility, so that the $300 million committed revolver now expires in October 20'18. This facility is principally used to backstop its commercial paper program. As of September 30, 2013, IPC had about $179 million of unrestricted cash on hand and there were no direct borrowings under the facility and no commercial paper outstanding. There is, however, approximately $24 million of revolver capacity unavailable as it is earmarked for American Falls and Port of Monow variable rate bonds, maturing in 2025 and 2027 , respectively, that holders may put to ldaho Power. IPC has one financial covenant that applies to the revolver, which limits the debt to total capitalization ratio to 65%. As of September 30, 2013, IPC's leverage ratio was 50%, leaving ample cushion against the covenant. During LTM 3013, IPC produced positive free cash flow - a rarity in the utility sector - with CFO of $318 million, capital expenditures at $210 million and dividends to IDACORP of $76 million. Over the past several years, IDA has been pursuing a policy to increase its dividend payout ratio, with a target of around 5G60%, (as reported amounts were about 360/oin2O11,41o/oin2O12 and 46% during LTM 3Q13). While the amounts in question would not cause any significant change in IPC's liquidity profile, the policy is likely to further exacerbate the company's weak financial metrics, such as CFO pre.WC less dividends to debt, which was 11% through LTM 3Q13, down from 160/o in 2010. IPC's maturity profile appears very manageable, with $120 million maturing in July of 2018. Rating Outlook IPC's stable rating outlook reflects a very supportive regulatory environment which offers timely cost recovery and constructive rate case outcomes. The outlook also incorporates a view that the company will fund capex conservatively and manage its dividend growth strategy with an eye toward improving cash flow coverage metrics for debt and interest. The stable outlook also incorporates our expectation that the company will be produce cash flow to debt metrics in the mid to high teens and a dividend payout ratio of less than 60%. What Could Change the Rating - Up A rating upgrade is unlikely in the near-to-medium term; however, IPC's rating outlook could tum to positive if benefits from rate relief materialize to produce metrics in the mid-20% range for CFO pre.WC to debt, on a sustainable basis. Wrat Could Ghange the Rating - Down The rating would likely be revised downward if cash flow (excluding the effects of bonus depreciation) metrics were to persist below 15% CFO Pr+WC to debt, or if IPC were to experience a decline in the level of regulatory support for future rate filings. Rating Fadors ldaho Porer Cornpany Regulated Elecfic and Gc utilities lndustry Grid [1][2] Arnent LTM s/3ryml3 Factor I : @ulatory Framarork (25old a) Legislative and Judicial Underpinnings of :he Regulatory Framework r) Consistency and Predictability of leoulation Masure A A A A Scoft larlor 2: Ability to Recover Costs and Earn Retums (25%) a) Timeliness of Recovery of Operating and 3apital Costs r) Sufficiencv of Rates and Returns Aa A Aa A Factor 3 : Diversifi cation (l tPlo) r) Market Position r) Generation and Fuel DiversiW Baa A Baa A 4: Financial Stengffr 6ryl") [3]Moodt/s 12-18 Morth Fonua d MewAs of February m14 lllleasurc A A Aa A ) CFO pre-WC + lnterest / lnterest (3 Year ) CFO pre-WC / Debt (3 Year Avg) ) CFO pr+WC - Dividends / Debt (3 Year Year 3.9x 15.2o/o 11.60/0 41.90/o Baa Baa Baa A 3.5x - 4.0x 13o/o- 17o/o 10%- 14% 40Yo - 45Yo Rating Before Notching oldCo Structural Subordination Notching ) lndicated Rating from Grid [1] All ratios are based on'Adjusted'financial data and incorporate Moody's Global Standard Adjustments for Non- Financial Corporations. 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