20050506Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:TERRI CARLOCK
DATE:MAY 6, 2005
RE:P ACIFICORP'S SHELF AUTHORITY REQUEST OF $1 BILLION DEBT
CASE NO. PAC-05-
On April 11 , 2005, PacifiCorp filed an Application requesting authority to incur debt up
to $1 000 000 000 aggregate principal amount at anyone time. PacifiCorp requests a five-year
shelf authorization period through May 31 , 2010 so long as the Company s bond ratings for
senior secured debt remains investment grade (BBB- or higher by Standard & Poor s Rating
Services and Baa3 or higher by Moody s Investors ' Service , Inc.
).
PacifiCorp also requests
authority to enter into the following as may be appropriate: letter of credit arrangements to
provide additional credit support, currency swaps, or contributions to or sale of debt to special
purpose entities (SPE).
The securities will consist of securities issued or exchanged as public or private
placements, domestically or overseas, in the form of secured or unsecured debt, trust preferred
securities or other indebtedness. The terms and interest rate for each issue will be determined at
the time of issuance. The issuance(s) may be at a fixed or variable interest rate based on LIBOR
the applicable prime rate, or other established rate. Fees will be charged based on the type of
security issued but are expected to average 1 % of the outstanding balance with some transactions
carrying fees up to 3.5%. The variety of funding options will allow the Company to evaluate the
all-in cost of each to borrow at lower costs.
The requested financing authority will provide funds to refinance $650 million of debt
that matures over the next three years. Use of the remainder includes capital requirements for
the following purposes: acquisition or construction of new plant along with the improvement or
DECISION MEMORANDUM - 1 -MAY 6, 2005
maintenance of existing generation, distribution, transmission and general plant to provide or
improve utility services; additional refunding of financing instruments; reimbursement of the
treasury for other corporate purposes.
STAFF RECOMMENDATION
Staff recommends approval of the shelf authority of $1 billion debt for the five-year
period through May 31 2010. The Company s prior commitment in Case No. PAC-99-3 to a
cost test remains effective where foreign transactions will not be utilized for ratemaking unless
and until PaCifiCorp can show that the all-in costs are not greater than the all-in cost of similar
domestic borrowings.
Staff informally recommended and the Company accepted the requirement to maintain
investment grade ratings for senior secured debt as a condition of the five-year authority. As an
additional requirement with the five-year authority, PacifiCorp also accepts providing Quarterly
Financing Activity Reports and credit rating reports.
Staff recommends PacifiCorp be required to notify the Commission of its intent to utilize
a SPE and provide all details anticipated with the transaction.
COMMISSION DECISION
Should the $1 billion shelf authority for debt be approved?
Should the authority be approved with the all-in cost test commitment for foreign
transactions?
Should the authority be approved for a five-year term with the investment grade rating
and additional reporting requirements?
Should PacifiCorp be required to notify the Commission when a SPE will be utilized and
provide the anticipated details of the transaction?
~':J LeL 1 tOCR
Terri Carlock'
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DECISION MEMORANDUM - 2-MAY 6, 2005