20060915Compliance filing, credit reports.pdf

~ ~~~t~t~Qo RECEIVED Pacific Power I
Rocky Mountain Power I
PacifiCorp Energy
825 NE Multnomah. Suite 1900 LCT
Portland. Oregon 97232
2006 SEP I 5 AM 9: 18
IDAHO (UdL_
UTILITIES COiAMISSION
September 15 2006
Idaho Public Utilities Commission
472 West Washington
Boise, ill 83702-5983
Attention:Ms. Jean D. Jewell
Commission Secretary
Re:Idaho Docket No. PAC-O5-08 Compliance Filing
To the Idaho Public Utilities Commission:
PacifiCorp hereby submits an original and eight (8) copies of the attachment in compliance with
the Commission s Order in this case issued on February 13 2006 and amended on March 14
2006. The Order approved the Stipulation supporting MEHC's acquisition ofPacifiCorp from
ScottishPower.
Commitment 120 of the Stipulation provides that, PacifiCorp will provide to the Commission, on
an informational basis, credit rating agency news releases and final reports regarding PacifiCorp
when such reports are known to PacifiCorp and are available to the public.
Therefore, in compliance with Commitment 120 of the Stipulation, please find the attached report
~elated to PacifiCorp.
Very truly yours
Bruce Williams
Treasurer
Enclosure
Fi tchRatings
KNOW YOUR RISK Corporate Finance
Global Power/North America
Credit Analysis PacifiCorp
(Subsidiary of MidAmerican Energy Holdings
Co.
Ratings
Security
Class
lOR
Senior Secured
Sr. Unsecured
Preferred Stock
Short-Term lOR
Current
Rating
BBB+
BBB
Previous
Rating
BBB+
BBB+
Date
Changed
1/31/06
1/31/06
1/31/06
1/31/06
12/6/05
!DR - Issuer default rating. NR - Not rated.
Rating Watch................................................ None
Rating Outlook............................................Stable
Analysts
Philip W. Smyth, CFA
[phone]
philip. smyth~fi tchratings .com
Karen Anderson
[phone]
karen .anderson~fi tchra tings.com
Profile
PPW is an indirect operating utility subsidiary
of MidAmerican Energy Holdings Co., which
is 88% owned by Berkshire Hathaway Inc.
PPW provides integrated electric service to
6 million retail customers in parts of six
Western states: Utah, Oregon, Wyoming,
Washington, Idaho and California.
Related Research
Credit Analysis: March 7, 2006.
Credit Update: April 14, 2005.
Key Credit Strengths
Solid operating cash flow and
financial position.
Relatively low-cost energy resource
base.
Key Credit Concerns
Ongoing negative fi-ee cash flow due to
high capital expenditure requirements.
Growing reliance on natural gas-fired
generation.
Adverse Oregon tax ruling in GRC
may signal deterioration in the state
regulatory climate.
August 31 , 2006
Rating Rationale
PacifiCorp s (PPW) ratings and Stable Rating Outlook reflect the
company solid operating cash flow and financial position
competitive resource base, and relatively low business risk profile. The
ratings assume reasonable outcomes in pending and future rate
proceedings. Fitch Ratings' analysis also takes into account the
utility s projected above-industry-average service territory growth
(primarily in its Eastern service territory), significant planned
investment in new plant and infrastructure to meet its load
requirements, and its growing exposure to gas-fired generating
capacity.
Capital expenditures for the nine months ended Dec. 31 , 2006, are
expected to approximate $945 million. The primary credit concern is
the potential for unsupportive regulatory actions, especially in light of
the company s large construction budget and historically low earned
returns. Additionally, PPW faces growing exposure to gas-fired
generation and potentially high commodity costs in the event of a
prolonged, unscheduled, base-load plant outage during a period of high
demand. Recent unfavorable regulatory developments in Washington
and uncertainty regarding utility tax policy in Oregon are sources of
concern for investors.
Fitch views recent general rate case (GRC) settlements in PPW's two
largest jurisdictions, Utah and Oregon, favorably. In addition, PPW
recently implemented rate increases consistent with the tenns of its
commission-approved stipulation in its Wyoming GRC (see the Recent
Developments section for further infonnation). However, regulators
and policy makers in Oregon continue to send mixed signals to
investors. The Oregon Public Utility Commission s (OPUC)
anticipated September 2006 final order in a proceeding to establish
pennanent rules implementing Senate Bill No. 408 (SB 408) could
have an adverse effect on PPW. Fitch notes that the OPUC reduced
PPW's revenue requirement by $26.6 million in its 2005 GRC to
reflect the provisions of SB 408, which was enacted in September
2005.
Recent Developments
PPW recently reached settlement agreements in its pending GRCs in
Utah and Oregon, which, if approved by regulators, would result in
base-rate increases of $115 million and $43 million, respectively.
Under the tenns of the settlement agreement in Utah, the $115 million
(10%) rate increase will be phased in, with the rates scheduled to
increase of $85 million (7.4%) initially on Dec. 11 2006. The second-
phase rate increase of $30 million (2.6%) is to be implemented on
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June 1 , 2007. PPW agreed not to file another ORC
until after Dec. 11 2007. In addition, PPW agreed to
withdraw its petition to implement a fuel-adjustment
mechanism in Utah. Hearings on the proposed
settlement are scheduled to begin later this month
and a final order is expected in the fall of 2006.
The $43 million rate increase included in the
settlement of PPW's 2006 Oregon ORC, if approvedby the commission, would be effective on
Jan. 1 2007. Under the te1Tl1s of the agreement, PPW
will not file a new rate case prior to Sept. 1, 2007. A
final OPUC ruling is expected in December 2006.
Earlier this year, PPW received approval from the
Wyoming Public Service Commission for a total
annual rate increase of $25 million, a power cost-
adjustment mechanism and an agreement to utilize a
forward test year in its next ORe. The rate increase
was phased in under the te1Tl1s of the settlement, with
the initial $15 million rate increase effective on
March 1 , 2006, and the remaining $10 million on
July 1 2006.
In addition, settlements have been reached with
parties in Idaho and California that would permit
annual rate increases of $8.million and
$7.3 million, respectively.
In April 2006, the Washington Utilities and
Transportation Commission (WUTC) issued an order
in response to PPW's GRC filed in May 2005. The
order denied the utility s $30 million rate increase
request. The WUTC also rejected PPW's subsequent
petition for reconsideration and a limited rate
increase of not less that $11 million. In Fitch's view
the WUTC's rejection ofPPW's rate increase request
is a setback for the interjurisdictional cost allocation
method under the revised protocol and is a hurdle to
improved earned returns. The company is evaluating
its legal and regulatory options to recover prudently
incurred costs in Washington.
Liquidity and Debt Structure
At June 30, 2006, PPW had approximately
$304 million of short-te1Tl1 debt outstanding and cash
and equivalents of $73 million on its balance sheet.
On Aug. 7, 2006, PPW issued $350 million 6.10% of
its first mortgage bonds, due in 2036. Proceeds from
the issuance will be used to repay short-te1Tl1 debt and
for general corporate purposes.
PPW'total long- and short-te1Tl1 debt was
$4.3 billion, and its debt-to-total capital ratio was
51 % at June 30 2006. Debt-to-funds from
operations, at the end of the second quarter of 2006
was 5.1 times (x). PPW received a $74 million capital
infusion in the second quarter from its direct parent
PacifiCorp Holdings, Inc.
During July 2006, PPW renegotiated its committed
$800 million revolving credit facility, extending the
maturity date to July 2011 from August 2010. The
credit agreement contains a maximum debt-to-total
capitalization covenant of 65%.
Rating Outlook Rationale
The Stable Rating Outlook assumes balanced
regulatory outcomes in response to pending and
prospective rate filings. However recent
regulatory developments have been mixed.
PPW recently filed proposed settlement
agreements with regulators in its respective GRC
filings in Oregon and Utah. The filing of the
proposed settlements along with the
implementation of higher rates and adoption of a
fuel-adjustment mechanism in Wyoming, are
constructive events, in Fitch's view.
Less favorable regulatory events include the
rejection of PPW's proposed rate increase in its
2005 ORC in Washington, the 2005 rate cut
related to implementation of SB 408 in its 2005
Oregon ORC and continuing uncertainty
regarding final SB 408 rules, which are expected
to be issued by September 2006.
What Could Lead to Positive Rating
Action?
Greater than anticipated relative
reduction.
debt
What Could Lead to Negative Rating
Action?
Adverse regulatory developments, especiallyin light of the company s large capital
expenditures program.
. A major, extended generating plant outage.
PacifiCorp
FitchRatings Corporate Finance
KNOW YOUR RISK
Financial Summary - PacifiCorp
($ Mil., Fiscal Years Ended March 31)
LTM
6/30/06 2006 2005 2004 2003 2002
Fundamental Ratios (x)
Funds from Operations/Interest Expense
Cash from Operations/Interest Expense
DebUFunds from Operations 5.4 12.
Operating EBITllnterest Expense
Operating EBITDAllnterest Expense 4.4
DebUOperating EBITDA 3.4
Common Dividend Payout (%)35.65.65.94.98.
Internal Cash/Capital Expenditures (%)62.76.74.121.133.4 6.4
Capital ExpenditureslDepreciation (%)244.190.158.128.116.125.4
Profitability
Revenues 875 897 049 195 082 354
Net Revenues 347 352 101 038 902 888
O&M Expense 016 015 913 896 885 781
Operating EBITDA 232 240 093 047 923 017
Depreciation and Amortization Expense 453 448 437 429 434 403
Operating EBIT 779 792 656 618 489 614
Interest Expense 279 267 257 270 228 221
Net Income for Common 355 359 250 245 133 315
O&M % of Net Revenues 43.43.43.44.46.41.4
Operating EBIT % of Net Revenues 33.33.31.30.25.32.
Cash Flow
Cash Flow from Operations 817 895 711 832 682 343
Change in Working Capital (19)(103)(28)(75)
Funds from Operations 836 840 814 860 756 333
Dividends (126)(177)(195)(165)(7)(310)
Capital Expenditures 108)(852)(690)(550)(505)(505)
Free Cash Flow (418)(134)(175)117 169 (473)
Net Other Investment Cash Flow (13)(63)
Net Change in Debt (138)(266)472 (57)(297)668
Net Change in Equity 433 485 143 (100)
Capital Structure
Short-Term Debt 659 405 742 369 162 322
Long-Term Debt 620 762 678 577 759 895
Total Debt 278 167 4,420 945 921 217
Preferred and Minority Equity 108 116
Common Equity 121 011 336 279 194 892
Total Capital 8,441 219 797 265 224 225
Total DebtITotal Capital (%)50.50.56.54.54.58.4
Preferred and Minority EquitylTotal Capital (%)1.6
Common EquitylTotal Capital (%)48.48.42.45.44.40.
L TM - Latest 12 months. Operating EBIT - Operating income before nonrecurring items. Operating EBITDA - Operating income before
nonrecurring items plus depreciation and amortization expense. O&M - Operations and maintenance. Note: Numbers may not add due to rounding
and are adjusted for interest and principal payments on transition property securitization certificates. Long-term debt includes trust preferred
securities. Source: Financial data obtained from SNL Energy Information System, provided under license by SNL Financial, LC of Chartoltesville,
Va.
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PacifiCorp