20091125Compliance Filing.pdf

~~~f!BfQ~Pac Por I
Rocky Mountan Por IPaciiCrp Ene
825 NE Multomah, Suit 1900 LeT
Portland, Oreon 972322889 NOV 25 AM 10: 43
November 25, 2009
VI OVERNIGHT DELIVERY
Idaho Public Utilities Commission
472 West Washigton
Boise,ID 83702-5983
Attention:Ms. Jean D. Jewell
Commssion Secreta
Re: Idaho Docket No. PAC-E-05-08 Compliance Filng
To the Idao Public Utilties Commission:
PacifiCorp submits the attchments in compliance with the Commission's Order in this case
issued on Februar 13,2006 and amended on March 14,2006. The Order approved the
Stipulation supporting the acquisition ofPacifiCorp by MidAerican Energy Holdings
Company.
Commitment I20 of the Stipulation provides that PacifiCorp will provide to the Commssion, 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 attched
reports related to PacifiCorp.
Very try yours,
~ l\ LJ.JL\A-
Bruce N. Wiliams
Vice President and Treasurer
Enclosure
Fitch!!~!~i~gs Corporates
Global Power
u.s. and Canada
Credit Analysis
\0 !;JA 0 F~;¿i",j,'!\\£~ I:; t C' NPacifiCorp\UtiES C,j;;\i\.i'J"
A Subsidiar of MidAerica Energy Holdigs Company
Ratigs
Securi Class
Issuer Default Rating (lOR)
Senior Secured
Senior Unsecured
Preferred
Shor-Term lOR
Commercial Paper
Current Rating
BBB
A-
BBB+
BBB
F2
F2
Outlook
Stable
Financia Data
PacifiCorp
($ MiL.)
Analyst
Philp W. Smyth, (FA
[phone]
phil ip. smyth~fitchratings.com
Karen Anderson
[phone]
karen. anderson~fitchratings. com
Related Research
. Mid American Energy Company and
Mid American Funding LLC,
Nov. 5,200
. Northern Natural Gas, Nov. 5, 200
Ratig Rationae
. On Oct. 2, 2009, Fitch affirmed PacifiCorp's (PPW) ratings and Stable Rating
Outlook, which reflect the utilty's solid financial position, competitive resurce
base, relatively balanced regulation in its six-state service terntory, and continued
support from its ultimate corporate parent, Berkshire Hathaway Inc.(BRK; issuer
default rating (lOR) 'AA+'; Rating Outlook Negative).
. The ratings assume recovery of capital and operating costs in rates will support
credit metncs consistent with the company's 'BBB' lOR and Stable Rating Outlook.
· Fitch estimates that PPW's funds from operations to interest and debt to FFO wil
range from 4.5x-4.8x and 4.2x-4.8x, respectively, in 200-2011, consistent with
Fitch's target median for the 'BBB' rating category.
· Regulatory risk at PPW has been meaningfully reduced in recent years through the
adoption of fuel adjustment clauses, forward test years, and single-issue rate cases.
· PPW's planned capital investment program is large, averaging $2 bilion per annum
through 2013. Unanticipated cost overruns or an inabilty to recover PPW's
investment in base rates are primary concerns for investors.
. PPW's ratings consider corporate structures that insulate the operating utilty from
its intermediate corporate parent, MidAmerican Energy Holdings Company (MEHC),
without impeding the parent's ability to infuse capital into PPW.
Key Ratig Drivers
. Manageable debt leverage and solid coverage ratios.
. Timely execution and recovery of planned capital investment in rates.
· Regulatory relations across its six-state service territory.
. Continued support of ultimate parent, BRK.
liquidity/Capita Strcte
PPW had long-term debt outstanding of $6.6 bilion at the end of second quarter 2009,
including $143 milion current portion of long-term debt. Total PPW debt outstanding
represented 51.3% of the company's $12.8 bilion capital structure. PPW's debt-to-
EBITDA ratio was 4.4x for the 12 months ended June 30, 2009. Debt matunties are
manageable in Fitch's view, with approximately $880 milion of debt scheduled to
mature over the remainder of 2009 through 2013, including $587 milion in 2011, as
indicated in the table on page 2
PPW issued $1 bilion of senior secured debt in January 200, compnsed of $350 milion
of 10-year first mortgage bonds (FMBs) and $650 milion of 30-year FMBs, with coupons
of 5.5% and 6.0%, respectively. Proceeds from the offering were used to reduce short-
and long-term debt, fund capex, and for general corporate purposes. Approximately
$125 milion of PPW FMBs matured in July 2009 and the remainder in October 2009. No
further debt is scheduled to mature in 2009.
ww.fitchratigs.com November 5, 2009
Fitc~!!~!t~gs Corporates
As of June 30, 2009, PPW had
$552 milion of cash and cash
equivalents on its balance sheet and
borrowing capacity of $1.1 bilion
under its $1.4 bilion of existing
revolving credit facilities. The credit
facilities mature in 2012 and 2013.
PPW Long-Term Debt Maturities
Schedule - 2009-2013
($ Mil.)
Year
200
2010
2011
2012
2013
Total
Amount
138
15
587
17
261
1,018
Lae Capita InvesbnentProgram
PPW's capital investment is expected Source: Company reports.
to approximate $10 bilion during
2009-2013, reaching its apex in 2012,
when capex is expected to approximate $2.21 bilion, 23% above the $1.79 bilion
invested in 2008 and 45% higher than the $1.52 bilion invested in 2007. See the Capital
Expenditure Summary table below for further detaiL.
PPW Capital Expenditure Summary - 2007-2013
($ Mil.)
2oo7A
Capital Exenditures 1,519
Year-to-Year Change
A - ActuaL. E - Estimate.
Sorce: Company report.
2011E
1,985
(2.6)
2009-
2013
Total
10,373
2oo8A
1,789
17.7
2oo9E
2,160
20.7
2010E
2,039
(5.6)
2012E
2,209
11.3
20UE
1,980
(10.4)
Fitch estimates that PPW's 2009-2013 operating cash flow wil fund approximately
three-quarters of projected capex, with the remainder financed via a balanced mix of
new debt and equity infusions from MEHC. Fitch projects that the ratio of equity to
total capitalization wil remain in the low 50s during the same period.
PPW's capital spending program is comprised of wind, transmission, environmental
remediation, and generation projects, as well as sytem overhauls to maintain
reliabilty and serve new load. Among PPW's largest expansion projects is the
$6.1 bilion Energy Gateway transmission project.
Energy Gateway contemplates the addition of approximately 2,00 miles of high-
voltage transmission lines primarily in Utah, Wyoming, Idaho, Oregon, and the desert
Southwest during 2010-2018. The first phase of the project, from Populus (located in
southern Idaho) to Terminal (located near Salt Lake City, UT), is underway and
expected to be completed in 2010. Phase I is a 135-mile double circuit 345-kV line,
which is expected to cost approximately $900 milion.
In 2008, PPW placed in commercial operation 382 MW of wind generation and acquired
the 520-MW Chehalis combined-cycle-combustion turbine for $308 milion ($592 per
kWh). Future demand growth is expected to be met through a mix of effcient wind and
fossil generation as well as demand-side management and energy efficiency programs.
Although the risk of cost overrun and significant delay to PPW's capex program are
potential concerns for investors, Fitch notes that management has compiled a solid
record of executing its investment plans.
2 PacifiCorp November 5,2009
Fitch!!~!~i~gs Corporates
Reguatory Developments
Given the size of its planned capital investment, timely recovery of capital and related
operating and maintenance costs is crucial for PPW's creditworthiness. Therefore, an
adverse change to PPW's regulatory compact leading to greater regulatory lag or
recoveries that result in weaker coverage ratios compared with Fitch's projections
would likely lead to future deterioration in PPW's creditworthiness and lower credit
ratings.
However, PPW management remains keenly focused on managing the regulatory process
through effective communication with regulators, frequent rate cas fiings, and
working closely with policy makers and intervener groups to implement effective rate
mechanisms and policies. Indeed, PPW has compiled a track record of settled general
rate case (GRC) proceeings with balanced outcomes across its service territory in
recent years, most recently reaching settlement agreements ultimately approved by
regulators in Utah, Wyoming, and Idaho.
In addition, PPW has worked with regutators and other relevant parties to implement
regulatory mechanisms to reduce risk exposures, significantly improving the utilty's
business risk profie in Fitch's view. Such measures include adoption of a forward-
looking test year in Utah GRC fiings, as well as adoption of fuel/net power supply cost
adjustment mechanisms in Oregon, California, Idaho, and Wyoming. Earlier this year,
PPW fied a request to implement a fuel adjustment clause in Utah that is now pending
before state regulators.
Legislation enacted in Utah (Senate Bil 75) clarifies the authority of the Utah Public
Service Commission to create energy-balancing accounts, granting recovery of major
plant additions outside of GRC fiings, and authority to approve an energy cost
adjustment mechanism.
Corporate Strct
Berkshire Hathaway
PPW's affiiation with intermediate holding company, MEHC, and its ultimate parent,
BRK, provides two unique, specific financial advantages that confer, in Fitch's view, a
measure of incremental financial flexibilty to PPW.
First, unlike most utilty holding companies, MEHC benefits significantly from capital
retained as the direct result of BRK's financial strength, which obviates the need for
MEHC to upstream dividends, in turn lowering dividend requirements from its operating
subsidiaries.
Second, MEHC and BRK have entered into an equity commitment agreement (ECA). The
ECA provides equity capital of up to 53.5 bilion at the request of MEHC to be used for
the purpose of paying MEHC debt obligations when due, and funding the general
corporate purposes and capital requirements of MEHC's regulated subsidiaries. The ECA
expires Feb. 28, 2011.
PPW's ratings benefit from the strong financial position of BRK, its ultimate corporate
parent, and BRK's strategy to invest in utilty assets for the long term.
Structural Protecons
MEHC has implemented policies and procedures, including the creation of a special
purpose entity, PacifiCorp Holdings, LLC (PPWH), designed to insulate PPW from MEHC
and its affiiates. PPW has received a non-consolidation opinion from independent
counseL.
PacifiCorp November 5,2009 3
Fitch!!~!~i~gs Corprates
Among other things, ring-fence provisions include: an independent director; non-
recourse structure; dividend restrictions; a prohibition against the use of PPWH's credit
or pledge of its assets for the benefit of any other company; and the maintenance of
separate books, financial records, and employees.
Long-Term Debt Organizational Chart
($ BiI., as of June 30, 2009)
Note: Ratings reflect senior unsecured or issuer default rating (lOR).
Source: Company reports.
4 PacifiCorp November 5, 2009
Fitcii!!~!t~gs Corporates
Financial Summary - PacifiCorp
(S MiL., Fiscl Years Ended Dec. 31)
LTMEnded
6/30/09 2008 2007 2006 2005
Fundamental Ratios (x)
FFO/lnterest Exense 4.5 4.3 4.0 3.9 4.2
CFO/lnterest Exse 4.3 3.9 3.6 3.0 3.8
Debt/FFO 4.9 5.0 5.5 7.0 5.4
Operating EBIT /Interest Expense 2.6 2.8 2.8 1.9 2.6
Operating EBITDA/lnterest Exense 4.0 4.2 4.4 3.5 4.3
Debt/Operating EBITDA 4.4 3.9 3.7 5.9 4.0
Common Dividend Payout (%)77.2
Internal Cash/Capex (%)55.9 55.3 54.1 40.9 60.7
Capex/Depreciation (%)429.1 365.1 305.6 296.1 195.0
Profitabilty
Adjusted Revenues 4,480 4,498 4,258 2,924 3,049
Net Revenue 2,639 2,541 2,490 1,627 2,101
Operating and Maintenance Expense 1,011 992 1,00 780 913
Operating EBITDA 1,507 1,437 1,385 770 1,094
Depreciation and Amortization Exse 519 490 497 355 437
Opeating EBIT 988 947 888 415 657
Gross Interest Exense 378 343 314 no 253
Net Income for Common 484 458 439 159 250
Operating Maintenance Exense % of Net Revenues 38.3 39.0 40.3 47.9 43.5
Operating EBIT % of Net Revenues 37.4 37.3 35.7 25.5 31.3
Cash Flow
Cash Flow from Operations
Change in Working Capital
Funds from Operations
Dividends
Capital Exenditures
Free Cash Flow
Net Other Investment Cas Flow
Net Change in Debt
Net Equity Procees
Capital StructureShort-Term Debt 85 397Long-Term Debt 6,568 5,578 5,177 4,114Total Debt 6,568 5,663 5,177 4,511Total Hybrid Equity and Minority Interest 113 31 31 59Common Equity 6,177 5,946 5,039 4,386Total Capital 12,858 11,640 10,247 8,956Total Debt/Total Capital (%) 51.1 48.7 50.5 50.4Total Hybrid Equity and Minority Interest/Total Capital (%) 0.9 0.3 0.3 0.7Common Equity/Total Capital (%) 48.0 51.1 49.2 49.0
Operating EBIT - Operating income before total reported state and federal income ta expense. Operating EBITDA - Operating income before total reported state and
federal income ta expense plus depreciation and amortization expnse. Note: Numbers may not add due to rounding.
Source: Company repo, Fitch Ratings.
1,247
(91)
1,338
(2)
(2,227)
(982)
2
1,539
250
992
(142)1,134
(2)
(1,789)
(799)
6
469
450
824
(115)939
(2)
(1,519)
(697)
8
669
162
432
(213)
645
(2)
(1,051)
(621)9
350
207
712
(103)
815
(195)
(852)
(335)
(7)
479
(8)
469
3,899
4,368
3,336
7,704
56.7
43.3
PacifiCorp November 5,2009 5
Fitch,!!~!~i~gs
Co rpo rates
AL ArCH CRIT RATING AR SUBJECT TO CERTAIN UMATIONS AND DISRS. PLE RE THESE LIATIOS
AND DISIM BY FOUDWING THIS UNK: HTIP:IIWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERM OF USE OF SUCH RATINGS ARE AVAILABLE ON THE
AGENCY' PUBLIC WEB SITE AT WW.FITCHRATINGS.COM.PUBLISHEDRATINGS.CRITERIA. AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT,
CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT
POLICIES AND PROCEDURE ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE.
Copyright ~ 200 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries. One State Street Plaza, NY, NY
1000. Telephone: [phone]. Fax: [phone]. Reproduction or retransmission in
whole or in part is prohibited except by permission. All rights reserved. All of the information contained
herein is bad on information obtained from issuers, other obligors, underwriters, and other sources which
Fitch believes to be reliable. Fitch doe not audit or verify the truth or accuracy of any such information. As
a result, the information in this reprt is provided "as is" without any representation or warranty of any
kind. A Fitch rating is an opinion as to the creditworthiness of a security. The rating doe not address the
risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged
in the offer or sale of any security. A report provding a Fitch rating is neither a prospetus nor a substitute
for the informtion assembled, verified and presented to investors by the issuer and its agents in connection
with the sale of the securities. Ratings may be changed, supended, or withdrawn at anytime for any reason
in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a
recommendation to buy, sell, or hold any security. Ratings do not commet on the adequacy of market
price, the suitability of any security for a particular investor, or the tax-exempt nature or taxbility of
payments made in respect to any security. Fitch receives fee from issuers, insurers, guarantors, other
obligors, and underwriters for rating securities. Such fees generally vary from USD1,00 to USD750,000 (or
the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues
issued by a particular issuer, or insured or guarantee by a particular insurer or guarantor, for a single annual
fee. Such fee are expted to vary from USD10,00 to USD1,500,OOO (or the applicable currency
equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent
by Fitch to use its name as an expert in connection with any registration statement fied under the United
States securities laws, the Financial Servces and Markets Act of 2000 of Great Britain, or the securities laws
of any particular jurisdiction. Due to the relative efficiency of elecronic publishing and distribution, Fitch
research may be available to electronic subscribers up to three days earlier than to print subscribers.
6 PacifiCorp November 5, 2009
I)acifiCorp
Primary Credit Analyst:
Anne Selting, San Francisco (1) 415-371-5009; anne_selting(!standardandpoors.com
Table Of Contents
Rationale
Outlook
ww.standardandpoors.comlratingsdirect 1
Standard & Poor's. All rights reserved. No reprint or dissemination without S&P's permission. See Terms of
Use/Disclaimer on the last page.
754509130057291
Summary:
PacifiCorp
Rationale
The 'A-' corporate credit rating (CCR) on PacifiCorp reflects its "excellent" business risk profile, evidenced by a
diverse and growing service territory, and an "aggessive" financial risk profile that reflects a large capital program
and the need to shore up cash flow metrics. Although the ring-fenced utility's credit metrics are more consistent on a
stand-alone basis with a 'BBB' category rating, Standard & Poor's Ratings Services expects that management wil
achieve cash flow metrics more consistent with an 'A' category rating over the next several years. PacifiCorp is
owned by MidAerican Energy Holdings Co. (MEHC; BBB+/Stablel--). In turn, MEHC is privately held and
majority owned by Berkshire Hathaway Inc. (AAegativelA-1+), which at year-end 2008 had an 87.4% interest
in MEHC on an undiluted basis. MEHC has demonstrated a wilingness to deploy equity to support the utilty's
large capital program.
MEHC's credit profie is supported by Berkshire, which has in place though February 2011 a $3.5 billon equity
commitment agreement between itself and MEHC in which MEHC can unilaterally call upon Berkshire to support
either its debt repayment or the capital needs of its regulated subsidiaries, including PacifiCorp. We view this
agreement between PacifiCorp's parent and a 'AA'-rated entity as reducing the likelihood of a PacifiCorp default.
Nevertheless, we expect PacifiCorp to have a standalone credit profile consistent with the 'A-' rating. We take this
view because the utility has no right to cause MEHC to make an equity contribution, either from MEHC or via
Berkshire through an MEHC board request. Although MEHC would typically have strong incentives to support the
utility by tapping the Berkshire contingent equity, we note that in a catastrophic utilty event, we would expect
MEHC to do so only if it were in the parent's best economic interests. Such a scenario is remote and would require
an unprecedented event such as what occurred during the Western energy crisis, when regulators refused to allow
utilities to recover power procurement costs.
PacifiCorp serves 1.7 milion customers in portions of six Western states: Utah, Oregon, Wyoming, Washington,
Idaho, and California. The company operates as Pacific Power in Oregon, Washington, and California, and as
Rocky Mountain Power in Utah, Wyoming, and Idaho. The company's two largest markets, Utah and Oregon,
comprised about 68% of the company's retail electric sales in 2008, with Wyoming and Washington at 24%, and
the balance being sold to customers in Idaho and California. As of June 30, 2009, the utility's long-term debt was
$6.6 bilion. Consolidated long-term debt at MEHC (which includes PacifiCorp's debt) was nearly $20 bilion as of
the same date.
Supportive rate case outcomes remain key to maintaining and improving upon the company's financial performance.
When MEHC purchased PacifiCorp in 2006 from ScottishPower, the utility had consistently been unable to earn its
authorized return on equity (ROE), which varies by jurisdiction but ranges from 10% to 10.6%. Management has
focused on improving its returns, with some success. In 2008, our calculations suggest that the consolidated ROE
for Paci£iCorp was 8.3%. Regulatory lag remains an issue for the company, although the company is permitted
under state regulation to use forward test years for rate cases in Utah, Oregon, Wyoming, and California. (Idaho
Standard & Poor's RatingsDirect I October 30. 2009 2
Standard & Poor's. All right reservd. No reprint or dissemination without S&P's pennission. See T enns of Use/Oisclaimer on the last page.754509 i 300572281
Summary: PacifiCorp
and Washington require historical test years.)
PacifiCorp has power and fuel cost adjusters in Wyoming and California that allow for the deferral of these costs for
later collection. In Oregon, fuel and purchased power costs are updated in rates every January based on forecast
power prices, but there is no true-up to reconcile these projected costs with actuals. The company has pending
before the Idaho Public Utilities Commission a request to establish an energy cost adjustment mechanism to recover
the difference between base power costs set in a general rate case and actual power costs incurred.
Recent rate case activities include:
. In Utah, in April 2009, the Utah Public Service Commission approved the settlement reached in the company's
2008 general rate case that provided for a $45 milion rate increase, relative to the $57.4 milion originally
sought. Also, in June 2009 the company filed its 2009 general rate case with the UPSC requesting a $67 milion,
or 5%, increase in the base rates, to be effective Feb. 18,2010.
. In Wyoming, the commssion approved the company's $18 milion settlement over its 2008 general rate case,
relative to the $28.8 milion sought, with rates going into effect May 24, 2009.
. In Idaho, the company received authorization to implement its $4.4 milion rate case settlement, relative to the
$5.9 milion it sought.
. In Oregon, the company filed its 2009 general rate case with the Oregon Public Utility Commission, requesting a
$92 milion, or 9%, increase in the base rates, to be effective by February 2010.
. In Washington, the company filed its 2009 general rate case with the Washington Utilties and Transportation
Commission, requesting a $39 milion, or 15%, increase in the base rates, effective Jan. 11,2010.
In September 2008 the company purchased for $308 milion the Chehalis plant, a 520-megawatt (MW)
combined-cycle plant that wil now have to be authorized for recovery in current or futue rate cases in all the states
PacifiCorp serves except California. The investment wil be par of the Washington and Oregon 2009 general rate
cases and is par of pending cases in Wyoming and in Utah, which has preapproved the purchase. The company also
brought online 382 MW of new wind generation in 2008. Nevertheless, the company's supply portfolio remains
predominantly coal, meeting about 65% of all requirements in 2008.
PacifiCorp completed $1.8 bilion in capital expenditures in 2008, up from $1.5 bilion in 2007. The company is
projected to spend $6.1 bilion in 2009-2011, excluding non-cash allowance for funds used during construction. The
largest component of PacifiCorp's capital program is the construction of the Gateway transmission project, an
estimated $6.1 bilion, 2,000-mile transmission line connectng portions of Wyoming, Utah, Idaho, Oregon, and the
southwestern U.S. The project is being completed in phases, with initial portions of new lines being placed into
service as early as 2010 and a completion date scheduled for 2018. About 38% of the company's total capital
budget over the next three years is devoted to transmission investment, of which Gateway is a component. In 2008,
the Federal Energy Regulatory Commission awarded the company incentive rate treatment of 200 basis points for
seven of the eight project segments.
High fuel prices affected PacifiCorp's 2008 results, as did hydro conditions that were about 90% of normaL.
However, declining fuel prices during the latter half of 2008 and during 2009, together with regulatory rate relief,
have resulted in an improvement in the gross margin per MW hour sold for the 12 months ended June 30, 2009.
Operating income increased about 4% due in large part to lower fuel costs. For the 12 months ended June 30, 2009,
cash flow from operations was boosted by increased net income and the changes in regulatory assets and liabilities,
ww.standardandpoors.com/ratingsdirect 3
Standard & Poor's. All rights reserved. No reprint or dissemination without S&P's pennission. See Terms of Use/Oisclaimer on the last page.754509130057291
Summary: PacifiCorp
as compared with year-end 2008 cash flows. Approximately 30%-32% of PacifiCorp's total electric sales are to
industrial customers. Retail and wholesale sales were roughly flat in 2008 relative to 2007. However, due to the
economic downturn the company experienced an approximate 5% decline in retail sales for the first six months of
2009, and we expect the sales contraction to continue through the year, possibly becoming a drag on 2009
performance.
Leverage as of June 30, 2009, for the company was 54.6%, up from 52.6% as of year-end 2008, which reflects
approximately $990 millon of new long-term borrowing in the first half of 2009, net of maturities. During 2008,
MEHC infused $850 million in equity. Such equity investments wil remain a key to maintaining a balanced
structure thoughout the company's capital program. Debt to total capitalization reflects several adjustments we
make, the largest of which include adding $424 milion for power purchase obligations and $379 milion for
post-retirement obligations. We expect that PacifiCorp wil not be in a position to make distributions to its parent
while it executes its capital program, and that MEHC wil lower PacifiCorp's debt leverage to the 50% area in the
next several years.
Cash flow metrics remain weak for the rating but are improving modestly. For the 12 months ended June 30, 2009,
funds from operations (FFO) to total debt was nearly 18% and FFO interest coverage was 4.1x, which are
consistent with 2008 ratios. We would expect PacifiCorp to produce FFO interest coverage in the range of
4.0x-4.5x and to achieve FFO to total debt in the 20% area.
Short-term credit factors
The company's liquidity position is strong. The 'A-2' short-term rating reflects our view that although a $3.5 bilion
contingent equity agreement between MEHC and Berkshire supports MEHC and its subsidiaries, the agreement is
not a source of instantaneous liquidity. The agreement allows Berkshire up to 180 days to fund MEHC's request.
Given the recent tuoil in both liquidity and capital markets, we have taken a firmer view on the need to link the
short-term ratings on PacifiCorp to its stand-alone credit quality, which supports an 'A-2' short-term rating.
However, we note that although Berkshire contractually has up to six months to respond to an MEHC call for
liquidity, it has strong economic incentives to do so.
PacifiCorp's cash and cash equivalents totaled $552 milion as of June 30, 2009. In addition, the company has $1.4
bilion in unsecured revolving credit structured in two separate agreements: an $800 milion line expiring July 2013
and a $700 milion line extending through October 2012. As of June 30, 2009, the company had no outstanding
balances under the credit facilities and had letters of credit in place for $258 milion, leaving $1.14 bilion available
under its revolving credit facilities. PacifiCorp's single largest exposure to any banks under its revolving facility as a
percentage of total commtments is 15%, which is manageable. Regulators limit PacifiCorp to no more than $1.5
bilion in debt outstanding.
Outlook
The stable outlook for PacifiCorp incorporates our expectation that MEHC will continue to support the utility by
contributing equity sufficient to ensure that fully adjusted debt to total capitalization is managed over the next few
years to an adjusted level closer to 50%, and that FFO to total debt and FFO interest coverage wil be 20% or better
and in the range of 4.0x-4.5x, respectively. Given that PacifiCorp's financial risk profile is weak for the current
ratings, we do not expect near-term upward ratings momentum, which would require the company to sustain
Standard & Poor's RatingsDirect I October 30. 2009 4
Standard & Poor's. All rights reserved. No reprint or dissemination without S&P's pennission. See Terms of Use/Disclaimer on the last page.7545091300572291
Summary: PacífiCorp
metrics above these levels. PacifiCorp's ring-fenced structure insulates it from some MEHC credit deterioration.
Specifically, our criteria provides that the PacifiCorp CCR can be no more than three notches above the MEHC
CCR. The company is comfortably within this range, so we see no significant prospects for the utility rating to fall
as a result of adverse rating changes at MEHC, which also enjoys a stable outlook.
ww.standardandpoors.com/ratingsdirect 5
Standard & Poor's. All rights reserved. No reprint or dissemination without S&P's pennission. See T enns of Use/Disclaimer on the last page.ì54509 I 30057291
Copyright (£ 2009 by Standard & Poors Financial Services LLC (S&P). a subsidiary of The McGraw-Hili Companies, Inc. All rights reserved. No part of this information may be
reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of S&P. S&P, its affiliates, and/or
their thirdpart providers have exclusive proprietary rights in the information. including ratings, creditrelated analyses and data, provided herein. This information shall not be
used for any unlawful or unauthorized purposes. Neither S&P, nor its affliates, nor their third-part providers guarantee the accuracy, completeness, timeliness or availabilty
of any information. S&P, its affiliates or their third-part providers and their directors, offiærs, shareholders, employees or agents are not responsible for any errors or
omissions, regardless of the cause,or for the results obtained from the use of such information. S&P, ITS AFFILIATES AND THEIR THIRD-PARTY PROVIDERS DISCLAIM ANY
AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR
USE. In no event shall S&P, its affiliates or their third-part providers and their directors, offiærs, shareholders, employees or agents be liable to any part for any direct,
indiret, incidental,exemplary, compensatory, punitive, special or consequential damages, costs. expnses, legal fees, or losses (including, without limitation, lost income or
lost profits and opportunity coss) in connection with any use of the information contained herein even if advised of the possibility of such damages.
The ratings and credit-related analyses of S&P and its affiliates and the observations contained herein are statements of opinion as of the date they are expressed and not
statements of fact or recommendations to purchase, hold, or sell any securities or make any investment decisions. S&P assumes no obligation to update any information
following publication. Users of the information contained herein should not rely on any of it in making any investment decision. S&P's opinions and analyses do not address
the suitability of any security. S&P does not act as a fiduciary or an investment advisor. While S&P has obtained information from sources it believes to be reliable, S&P
does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. S&P keeps certain activities of its business units
separate from each other in order to preserve the independence and objectivity of each of these activities. As a result, certain business units of S&P may have information
that is not available to other S&P business units. S&P has established policies and procdures to maintain the confidentiality of certin non-public information received in
connection with each analytical process.
S&P's Ratings Services business may receive compensation for its ratings and credit-related analyses, normally from issuers or underwriters of securities or frm obligors.
S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites. ww.stndardandpoors.com (free of
charge) and ww.ratingsdirect.com (subscription). and may be distributed through other means, including via S&P publications and third-part redistributors. Additional
information about our ratings fees is available at ww.standardandpoors.com/usratingsfees.
Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of
passwords/user IDs and no simultaneous access via the same passord/user ID is permitted. To reprint, translate, or use the data or information other than as provided
herein, contact Client Services, 55 Water Street, New York, NY 10041; (1)212.438.7280 or by e-mail to:research_request~standardandpoors.com.
Copyright (£ 1994-2009 by Standard & Poors Financial Serviæs LLC, a subsidiary of The McGraw-Hili Companies, Inc. All Rights Reserved.
The McGraw HíI Compames
Standard & Poor's RatingsDirect I October 30, 2009 6
754509 I 300572291