20111013Compliance Filing.pdf

PACIFICORP
A MIDAMERICAN ENERGY HOLDINGSCOMPANY PacifiCorp Energy
r”--—I ri ip.r 825 NE Multnomah.Suite 1900 LCTL.I I F .-‘U Portland,Oregon 97232
ir -.-)!I2I-”-
October 13,2011 UTL
VIA OVERNIGHT DELIVERY
Idaho Public Utilities Commission
472 West Washington
Boise,ID 83702-5983
Attention:Ms.Jean D.Jewell
Commission Secretary
Re:Idaho Docket No.PAC-E-05-08 Compliance Filing
To the Idaho Public Utilities Commission:
PacifiCorp submits the attachments 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 the acquisition of PacifiCorp by MidAmerican Energy Holdings
Company.
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
reports related to PacifiCorp.
Very truly yours,
Bruce Williams
Vice President and Treasurer
Enclosure
Fitch Ratini.is Press Release Pai.t 1 of 4
Fitch H at 1 ngs
Fitch Affirms MEHC and Subsidiary Ratings;Outlook Stable Ratings29Sep2011354PM(ECO)
Fch Ratings-New York-29 September 2011.Flico Ratir,qs has affirmed the MdAmcricar Enoqy HoldIngs Conipanc’s(MEHC)long-and short-term Issuer Defau:t Ratngs ODR)at ‘BBB-and ‘F2,respectively.Fitch his also afInned MEHC’sIndivirlualsecurityratingsandtssubsid.ary OR and rstrument ratings as listed hrlrw.TIre Raticq Outiook is Stable.Approxrnateiy S20 bill on of debt is affected by the ra:nq acton.
Key MHC rating drivers include:
--The underIyng f:nanc.a strength and reatve prod ctac ity of its core US.-uased eectr:n L.:i:ity anC nalura:gas ppe cecompaniesandU.K electric distribution utrtie.s:
--The salutary financial affects of MLHCs affiliation with Berkshire riathaway Inc.(E3RK:bR AA-’with a Stah:e Outlook byFitch)
--Regulatory outcomes in pending and ft.tue rote case proceedings;
--Exeoitiin of MEHCs tug.::ai ixpe9Citure prncj-.m
Stable Ratng Outlook
MEHOs ratings and Stable OO.ook refiect diversified cash flows from its six relatively ow-risk utllites and natural gaspipetineslocatedintheUS.and U.K.Fitch’s expectaton of mprovoq cred t metrics throucin 2015 ard strong liquditypositionTheratingsandStauleOutlookalsocorsderMEHCslarge,hut manageable,p anned 2011 -2015 capexprogram
Fitch estimates that MEHC’s EBI DA coverage ratio will improve from 3.1 times (x)in 2010 to 34x in 2011 and better than4xin2015.Similarly,debt-tu-EBITDA is projected by Fitch to strengthen from 5.3x 02010 to 5.Cx in 2011 and 4x in 2015.These credit metrics are somewhat weak for MEHC’s rating category,in Fitch’s view.However,Fitch beliees thecompany’s credit profile Is bolstered by its affIliation with BRK and its commitment to strateq:c nvestment in the regulatedeourgysector.Folure tc noel F:tch’s cred:t metrics coo (I resoit n tuturu acvese ratr.g actions.
MEHCs ratings also consicier the positive credit mp.:catons of its statjs as a SubsIdiary of BRK rc.odlnq BRK’s strategccummitmenttouseMEHCtoexpanditsnestrnentsinpowerandgasassets[uitchs projected credo metrics in concertwiththequalitatvebenefitsassociatedwithBRKsupportMFHCs‘BBB+’ratirgs and Stable Outlook.
BRK has npportnisticaiiy Vovded capta and fnacc.nq to MEHC to pjrsoe cquls:tors.tu.ud.nc the \larch cCgPac.flCcrp (PPW)acqus.tun and Conste;laton Energy Gm (CEG)n 2008,MEHC’s CEO acqus.Loc bid was ulbniateiyrejected.Hnweer,MEHC as a result of the termuatun ot th0 transaction rucuived cash proceeds of approximately S/25inlllunnet
MEHOs uflliatirc with BRK confers two unique,specif.c financial arlvdntages to tie ntemudiie buitlog ccmpacy and itssubsidar.s.These two factors mit.ga:e coccern roqireng MEEC’s rr.oderatey bicih nosoCra:cn1 tInenr:iai leveragerelotvotoFOhs‘ABBi-’qde.ic.ts ard :arge consoiiaated rap ta expenditure oooram
Divicend F:exihirty
Fist,unlike most utlity hoeng ccrnpanics MEl IC henefit.s significantly [rum captal reta,nud as It-c direct mso t of BRK’sfinancialstrengthw[iiuh navates the cud to uj sterm diedends.
F CA
Second.MEHC nrid BRK trae o :o::ced are eqji:y ccri-mtment agoeir:ti’:çECA tn:ough February 2114.A:the scInreImetheamoun:of capita:prcvded to MFIh C under tIle ECA was nwnreir P S2 riiion from S3.5 billion.The reductionretlctsruituucdequitycapitarequirementsatPEWandoeranticpateaMEHCpareateveldebtriratur:tis.The ECAwasoriginallyputini0ninMaira2C06.
FCA cc.:,.‘tlautis may onry be uset for the p pus’of peyni;\1EHC cccl ec.gc:uns when due and funng theceneralcurcoratepurpusesandcr111renLiireirrnntsofMErtC’s regulated subsidiaries The ECA v.rrs set to expire Feb.20,2011
MEHC CverCew
hop:\\\\\.iilc’hrHli los.urmnl crcditdesk press releasu’sd..’tat .c an ?pr tail I cp;ta 9h’)9 3f 1/291 1
Fitch Ratinits Prcss Release Patte 2 oL4
MEtrOs principal operations include two domestic nOities,two domestic natural gas pipelines,and two eectrlc dstribution
companies in the UK.
MEl-Cs operating utility and natural gas subsidiarIes in the U.S.and U.K.benefit from solid stand-none credt profiles
reiatively stable earnings and dsh flow cliaracteristics and generally Stable regulatory ,ur.sarcticns.
The ratings assume that futue ‘egulatory rulngs v.T ruirinueto supporl reasonahe earned returns and credit metrics
consrstent wh Fltchs projections.n Fitchs vw trney “ecccerv of PPWs large capital expencture program is crucial to
the future creditworthiness PEA rind MEHC.
ri the intermediate-to-longer-term,a reasonable outcome in MdAmerlcan Energy Co s (MEC)next own rate case filing to
address post-setternerit rates in 2014 w he a ey factor drivlnq MEHCs future creditworthiness.
Etch notes that regu atory decisions since MEHC has owned PPW have been generally reasnnabe and balanced and that
the regulatory environment in owa has been balanced nstcrlcally.
L:qurdiry
M[HC’s l.quidity pos.tion was strong as of June 30,201 1,with $1.0 billion of cash and cash equiaier.ts on itS consulidaterl
balancu sheet anc $2.4 billion of avaahie bcrrow.nq capacdy under its $2 9 billion of consodated re\oving crecit
agreements.
In addition the cnmpanys ECA with BRK.as descrhed above provides up to S2 hllfion through February 2014.
During 2011 -2015,S46 blilon (23%)of MEHCs $19.9 biiiion of outstanding long-term debt is scheduled to mature.
PPw
Fitchs attirmaton ci PPWs ‘BBB DR c.onsiners the company’s sold hnnrrcJal position competilvo resource base and
relatively balanced,tbversified regulatory env.ronment
The current ratings and S:able Outlook assume PW continues to benef.t tram parent company support and ruasonabte
outcumes in pending and fi.ture rate proceedIngs to recover anticipated.sgnlf;carit capital investment
Rating concerns for PPW nestors include execution and recovery of its capex program.Emergence of more stringent
environmental rules ard regulations are also a concern.
M PC
The affrmation of MidArriercan Energy Co.(MEC)A and tVidAnetcan Fndinq LLCs (ME)BESt URs ofiect MOOs
relatively ow husness risk profile and SOlO credt n’etrius.The rat:nqs also COflSiOU[the utirties suppcrtve owa regulatory
envi ronrner.t.
Commodity price risk at MC is mtigated by the uti itys lung generating capacty position.Howecr,the combned effects
of cyclical downturn and a lackuster recovery and ON wholesale power prices and oh-system sales pressured MEC’s
operating results since 2008,
A final order that results in lower-than-expected credit nrcnrics in its antlcipa:ed general rate case effective 2);4 could
result in future,adverse rating actions.
M F
Mt is an niormedate noicig comoany that .s a wholly cwe.J suasidiary of MFnC and toe indcuct parent c MEC.ME’s
-at.ngs are basec on the credit carr:.ty of MEC,chich is the prlmay source of cash flow to send cs itS GoUt S:.DOS and
aisc nenef:s from the suppart of its Utma:e corporate parent,BRK
N NO
The ra:ngs affirnaton for Nortoerri Naturo Gas Company (NNG)ruhocts the pipelnes strong stancalone crect 0101cc,
solid credit protectIon measures,fs.uraDe operatIng characterallus and ICN regulatory risk.
NNCs ompeiiiie pos.t.un is strng wIn access to Oe major suaply has os and a customer basis p.ncary :Ompr:Sec:or
Ocri:I stribuLon uompan:es Dumper tje prissros are :r..:.gated by thu p.po cc’s .stab e uustor-osr base and gengraphic
local on,in Htch’s op:nmon.
KRE
The ratings atfirmaton for Kern Ridt;r Funding Corporation 1KRF)reflects the pipelines rulfoeci piediutrmblo earn.njjs and
h:tp:\\o u .lteliruit rter.eoni ot’erlitdesk press releases deiri:ci’m!pr:ii I &pr in
Fitch Ratinus Prcss Rclcasc Pat1c 3 o14
cash flow metrics,reasonable requlator’oversight,strong credit metrics and manageabe capital exoendihire plans.KRF
is a financing ehcle for the long-terni dent ohlgatons of Kern River Gas Transmiss:on Co.(KRGT.
KRFC’S debt s uncondihonay guaranteed by KRGT.which uwns and operates a 1 ,d80 nun interstate piper.e ceilverr.gprirnariyRockyMountainGasfromWyomingtomaiketsinCaiforniaUtah,and Neaaa.
KRF’s ‘A-’rating reflects KRFKRGT’s standa:one credit quaity as the result of specific ega and strjctcra sopa-ations
from its pa-ent.MEHC KRF;KRGT’s credit qua ty benefits from a portfo:a of hindng long-term :rnnsportatlon contracts,ac’orrpetitve market pus.tion access to relatvety ow cost catcral cas seppiy and a so’id operaiinp track record.
F itch has affirmed the fo.owing ratinqs;
MidArnerican Energy Hcldings Company (MEHO)
-Issuer Default Rating (IDR)at ‘BBB÷’;
--Senor Unsecured Debt .t ‘BBB’:
--Trust Prefermd Stock at BBB-’;
--Short-term DR at F2’.
PacrfiCorp (PPW)
—rDR at BBB’,
--Senior Secured Debt at A-:
--Senior Unsecured Debt -at ‘BSB+’,
--Preferred Stock at ‘BBB-’,
--Short-term OR at ‘F2’:
--Commercial Paper at F2.
MidAmerican Funding,LLC (MF)
--IDR at ‘BBB-’:
--Senior Secured Debt at A-.
MidAmerican Energy Company (MEC)
--lDr at A-’;
--Senior Unsecured Debt at ‘A’;
--Preferred Stock at BBB÷’;
--Short-terra IOR at Fl;
--CommerCial Paper at Fl’.
Northern Natural Gas Company (NNG)
--IDR at A’;
--Sen;or Unsecured Debt at ‘A’.
Kern River Fur:ding CorporaLon (KRFC)
--ICR at ‘A-’;
--Senior Unsecured Deb:at ‘A-’
Contact:
Primary Analst
f-mr-p ‘N Sn;ii;,CFA
Senor Director
-‘-1 -21 2-908-G531
FInn.Inc
C-ne Stale Street P az;
Nev York,NY lOO4
Secondary Ara’st
Donna McMorci(jIo
Manaq nq Director
ti-212-a-i 25h
Committee Chair
hap:\-inch rail Hus,cottt r’cdttdcprss ft’luaScsfdctail.clm’.’pnnt -I &p;id 7)(1.i)r 3
Fitch Ratinis Press Release Pate 4 o14
Glen Grabeisky
Maiiagiriq Director
±1-212-908-0577
Media Relations:Boa;,Bertsch New York,Tel:÷ 212-908-3549,Erna.I:bnanbertschfitchratings.com.
Additional information is aa able at www fitchrahngs.corn’.
Applicable Criteria and Related Research:
--‘Corporale Ratng Methodology (Aug.lb.20iJ):
--‘Recovery RoLngs and Nntchr.g Criter.a for 1:tes’(May 12,2011);--‘Rating North Amencan UtTIes,Power,C;as and Water Campan.es’(May 16,2011)
Applicable Criteria and Related Research:
Corporate Rat.ng Metbodoogy
Recovery Rat:ngs and Nntchncj criteria for Utiiities
Ratng North Amencan Utilitips,Power,Gas and Water Companies
At L FITCH CREDIT RATINGS ARE SUBjECT TO CERTAN LIMTADONS AND DISCLAIMERS PLEASE READTHESELM;TAT.ONS AND DISCA MERS 3Y FOLLOW;NG THS L:NK:HTIP:i.’FIICHRATINGS cOMUNDERsTANDINGcREDTRAI;Nc;s.N ACDT:ON,RA3;NG DFF.N;TtONS AND THETERMSOFUSEOFSUCHRAT;NGS ARE AVA:l ABi F ON THE AGENCYS PBL:C WEBS TE‘WW’N FiTCHRATINGS.COM’.PUBL;SHED RAfINGS,CR;FERIA AND METHODOLOGIES ARE AVAILABLE FROMTHISS;1E AT ALL TIMES.FITCH’S CODE OF CONDUCT CONFIDENTIALITY,CONFLtCS OF N tEREST,AFFILIATEFIREJALL,COMPLiANCE AND OIHER REL EVAN f POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROMTHE‘CODE OF CONDUCT’SECLON OF THIS SiTE.
Copyrght )2C11 oy FircO,Icc,Etch REicqs Ltd.and :s subsidar.es
till):\\\\\.tttchrailltLts.Comcreditdeskpress ;clcuscs deta;Iclm?pr;it I &pr id 7)(r31)()3U 2U II
STANDARD Global Credit Portal®
&POOR’S RatingsDirect®
PacifiCorp
Primary Credit Analyst:
Anne Selting,San Francisco (1)415-371-5009;[e-mail]
Secondary Contact:
Todd A Shipman,New York (1)212-438-7675;[e-mail]
Table Of Contents
Major Rating Factors
Rationale
Outlook
www.standardandpoors.comlratingsdirect
8964°3O(ti J91J-
October 3,2011
PacifiCorp
Major Rating Factors
Strengths:
•Market and regulatory diversity is afforded by PacifiCorps electric utility
business,which serves portions of six western U.S.states;
•Retail electric rates compare favorably with those of other electric suppliers
operating in the states PacifiCorp serves,suggesting that the company may
be able to maintain its competitive advantage despite its ongoing need for
rate relief to support a large capital program;
•The recent approval of a fuel and purchased power adjuster in Utah is a
positive development because the state is the company’s largest market and
will limit the amount that the utility will have to absorb if purchased fuel
and power costs exceed levels authorized in electric rates;
•Dependence on purchased power has decreased;and
•A settlement reached in February 2010 regarding the contentious Kiamath
hydro relicensing case protects the company from any financial
consequences if the project is decommissioned,which will not occur before
2020.
Corporate Credit Rating
A-/Stable/A-2
Weaknesses:
•Despite the company’s practice of filing nearly annual rate cases,regulatory lag continues to allow only modest
improvement in the companys financial profile:Its return on equity remains under authorized levels and cash
flow metrics remain just adequate to support the rating,although adjusted leverage has improved since
MidAmerican Energy Holdings Co.acquired the utility in 2006;
•Regulators will need to consistently support retail rate increases to recover PacifiCorps large capital investment
program amid sluggish economic indicators;and
•Retail electric sales growth has stalled in the portions of the Pacific Northwest that PacifiCorp serves,which,if it
becomes a medium-to long-term trend,could lower profitability and put additional pressure on retail electric
The ‘A-’corporate credit rating (CCR)on PacifiCorp reflects what Standard &Poors Ratings Services views as a
significant financial profile and is supported by PacifiCorps modest use of leverage to finance a large capital
program and parent MidAmerican Energy Holdings Co.’s (MEHC;BBB+/Stable)willingness to deploy equity into
PacifiCorp as needed to support the company’s capital structure as it expands its rate base.Since acquiring the
company in 2006,MEHC has provided $1.06 billion in equity support for the utility’s capital needs.
PacifiCorp’s excellent business profile benefits from the geographical,market,and regulatory diversity provided by
its six-state service territory.PacifiCorp provides power to retail customers under the name Rocky Mountain Power
in Utah,Wyoming,and Idaho,and as Pacific Power in Oregon,Washington,and California.Utah and Oregon are
2
p96499 I 3000309fi6
rates.
Rationale
Standard &Poors RatingsDirect on the Global Credit Portal I October 3,2011
PacifiCorp
the most important markets for the company,providing around 42%and 24%of annual retail sales,respectively,as
of year-end 2010.
Since being acquired in 2006 by MEHC,the electric utility has made modest strides in improving key business and
regulatory aspects of the utility that serves more than 1.7 million retail electric customers.Despite sluggish economic
recovery in the company’s Pacific Northwest territory,its western states,especially Utah,continue to exhibit some
growth.PacifiCorp has been able to eke out rate increases that are in line with our expectations,and the utility was
recently granted a fuel and purchased power adjuster in Utah.Despite its weak design (the utility may collect only
70%of any difference between actual and budgeted costs)and its pilot status (it will sunset in four years),we view
the Utah adjuster as a step forward for credit quality because it mitigates a key business risk for electric utilities,the
vast majority of which were afforded such mechanisms beginning shortly after the western energy crisis in 2001 and
2002.About 90%of PacifiCorps retail electric sales are now covered by some type of fuel adjusters.(None exist in
Washington state.)The company is building an additional baseload natural-gas—fired plant and in 2010 relied on
natural gas for 12%of energy supplies.
The company’s deferred tax balances are lifting cash flows due to an extension of bonus depreciation,and credit
metrics this year are likely to exceed our expectations for this reason.For the 12 months ended June 30,adjusted
funds from operations (FF0)to total debt and FF0 interest coverage were 24.3%and 5.4x,respectively.Beneath
this benefit,operating income and EBITDA in the first half of 2011 are approximately flat relative to the prior-year
period,but a $117 million (7%)electric rate increase approved in Utah and a $62 million (11%)increase in
Wyoming,both effective at the end of September,should nudge earnings metrics up in the fourth quarter.Adjusted
debt to total capitalization was 52.4%as of June 30,an increase from 50.1%at year-end 2010.The leverage uptick
is due to a $400 million May debt issuance and a common stock distribution of $550 million to its parent,which
reduced shareholder equity.
The cash credit metrics we expect the company to achieve after this year are just adequate,in our view,to support
the ratings,providing little cushion for the company to deviate.For 2012 we project adjusted FF0 to total debt in
the range of 20%,FF0 interest coverage of 4.6x,and debt to total capitalization of around 51%.These
expectations reflect our view that the company’s earned return on equity (ROE)will be in line with past
performance and that electric sales will grow 1.5%on average.
A key ongoing challenge for PacifiCorp is whether it will be able to achieve rate relief at levels necessary to sustain
the company’s capital investment program.The program has been at high levels throughout the recession and will
remain so in the next few years,despite the dimming prospects for economic recovery.MEHC has been consistent in
its investment thesis for the company,seeking to deploy capital in the electric utility in exchange for an opportunity
to earn its authorized return,which varies by state but is in the area of 10%.Since acquisition,MEHC has spent an
average of $1.7 billion per year on capital investment,providing equity investments in PacifiCorp totaling more than
$1 billion to maintain a balanced capital structure.We expect PacifiCorp to spend $1.6 billion this year (it had
spent $712 million as of June 30),and it is budgeting $1.8 billion for 2012 and $1.7 billion in 2013,according to its
10-K filing.This level of spending will continue to require regular retail electric rate increases in all of PacifiCorp’s
markets over the next three years.This begs the issue of whether rate case fatigue will set in,creating regulator or
ratepayer resistance to further increases.Through the first half of this year,retail electric sales were up 2%,but this
is largely a result of Rocky Mountain Power,which accounts for about two-thirds of PacifiCorp’s total retail sales
and includes Salt Lake City,Utah.Pacific Power,which accounts for the balance of utility electric sales,has seen
load growth stagnate.Further weakening of the economy,which is increasingly appearing to he likely,could
www.standardandpoors.com/ratingsdirect 3
PacifiCorp
increase revenue requirements as the company seeks to spread fixed costs over smaller sales volumes.
PacifiCorp’s authorized ROE varies by state but is around 10%.(In its most recent rate case in Utah,its authorized
ROE was lowered from 10.6%to 10.0%).Based on our calculations,PacifiCorps actual ROE has been in the range
of 8.1%to 8.5%since 2007.Achieving stronger ROE may prove difficult given the level of capital the company is
deploying,because regulatory lag is inherent given its high spending.
Among the larger projects PacifiCorp is pursuing is the buildout of Lakeside 2,a 647-megawatt combined-cycle gas
plant in Utah expected in service in 2014.Coal plant environmental upgrades are also planned,as is a major
transmission investment,including the multi-segment transmission line,the Energy Gateway Transmission project
(EGTE).The EGTE is a multiyear,$6 billion-plus transmission project that will add approximately 2,000 miles of
new transmission line across the West.The project is being completed in phases,with the last phase expected to go
into service in 2019.Construction of the first,135-mile segment,running from the Populus substation in southern
Idaho to the Terminal substation near Salt Lake City,was completed December 2010 at a cost of $830 million.
Some 89%of the total costs are being recovered in current rates in the various states.But in its December 2010 rate
case,the Idaho Public Utilities Commission (IPUC)disallowed recovery in current rates of 27%of its 6%share of
the investment (or about 1.62%or $13 million).In December 2010 the IPUC ordered the company to carry the
asset as plant held for future use.The company has filed an appeal of the IPUCs order with the Idaho Supreme
Court.The IPUCs ruling is an unfavorable precedent.Given that no transmission projects have received explicit
pre-approval in any of the jurisdictions PacifiCorp serves,the onus is on the company to demonstrate the value of its
transmission investment to regulators,largely on an ex post basis.The next segment to be completed is
Mona-to-Oquirrh,a 100-mile segment within Utah expected in service summer 2013 at a cost of $440 million.
Construction is underway.
PacifiCorp is wholly owned by MEHC and has put in ring-fencing provisions that allow us to rate PacifiCorp above
the ‘BBB+’CCR on MEHC,if its stand-alone credit metrics and business profile risks warrant.In turn,MEHC is
privately held and majority owned by Berkshire Hathaway (AA+/Negative/A-1+).PacifiCorp benefits from
regulatory insulation from its parent.Our criteria provide that the PacifiCorp CCR can be no more than three
notches above the MEHC consolidated credit rating.The parent and subsidiary are currently rated within one notch
of one another.
Liquidity
On a stand-alone basis (i.e.,unenhanced by the existing $2 billion contingent equity agreement available to MEHC
to support any of its regulated subsidiaries,including PacifiCorp)we view PacifiCorp’s liquidity as adequate under
our corporate liquidity methodology.This methodology categorizes liquidity in five standard descriptors
(exceptional,strong,adequate,less than adequate,and weak).Projected sources of liquidity,which consist of
operating cash flow and available bank lines,exceed projected uses,including capital expenditures,debt maturities,
and common dividends,by more than 1.2x.Under our criteria,we exclude as sources of liquidity any facilities
expiring within one year of the liquidity assessment date.
The utility maintains unsecured credit facilities that totaled $1.395 billion as of June 30.Of this total,$304 million
of liquidity is reserved for letters of credit to support tax exempt bond obligations,reducing available borrowings to
$1.091 billion.(In July 2011,as scheduled,$40 million in bank commitments under one of its facilities expires;
current credit lines total $1.355 billion.)There are no rating triggers on the credit lines.One facility,for $635
million,expires in October 2012.(We have included this facility as source of liquidity based on this assessment
Standard &Poors I RatingsDirect on the Global Credit Portal October 3,2011 4
30003UY6Ei
PacifiCorp
completed in late September.)The other credit facility is sized at $720 million and will decline to $630 million in
July 2012 and expire in 2013.Regulatory restrictions limit PacifiCorps short-term debt to $1.5 billion.
PacifiCorp’s liquidity is indirectly supported by Berkshire Hathaway,which has in place through February 2014 a
$2 billion equity commitment agreement between itself and MEHC under which MEHC can unilaterally call upon
Berkshire Hathaway to support either its parent debt repayment or the capital needs of its regulated subsidiaries,
including MidAmerican Energy Co.Nevertheless,we assess PacifiCorps liquidity on a stand-alone basis because the
utility has no authority to cause MEHC to make an equity contribution from Berkshire Hathaway through an
MEHC board request.Although MEHC would typically have strong incentives to support the utility by tapping the
Berkshire Hathaway contingent equity,MEHC would be expected to do so only if doing so were in the parent’s best
economic interests.Because Berkshire has up to 180 days to fund an equity request,we also do not count on the
agreement to provide PacifiCorp with immediate cash.For these reasons,we consider the equity agreement a
qualitative enhancement to liquidity but continue to calculate the utility’s liquidity metrics on a stand-alone basis.
Recovery analysis
We rate PacifiCorp’s first mortgage bonds (FMB)‘A’,a notch higher than the A-issuer credit rating,and have
assigned them a recovery rating of 1+.We assign recovery ratings to FMBs issued by investment-grade U.S.
utilities,and this can result in issue ratings that are higher than the utility CCR depending on the CCR category and
the extent of the collateral coverage.We base our investment-grade FMB recovery methodology on the ample
historical record of nearly 100%recovery for secured-bond holders in utility bankruptcies and on our view that the
factors that supported those recoveries (the limited size of the creditor class and the durable value of utility
rate-based assets during and after a reorganization,given the essential service provided and the high replacement
cost)will persist.Under our notching criteria,we consider the limitations of FMB issuance under the utility’s
indenture relative to the value of the collateral pledged to bondholders,management’s stated intentions on future
FMB issuance,and the regulatory limitations on bond issuance.FMB ratings can exceed a utility CCR by as many as
one notch in the ‘A’category,two notches in the ‘BBB’category,and three notches in speculative-grade categories.
(See “Changes To Collateral Requirements For 1+Recovery Ratings On U.S.Utility First Mortgage Bonds,”
published Sept.6,2007,on RatingsDirect on the Global Credit Portal.)
PacifiCorp’s FMBs benefit from a first-priority lien on substantially all of the utility’s real property owned or
subsequently acquired.Collateral,in combination with regulatory covenants that restrict borrowing that were
entered into as a condition of MEHC’s acquisition of PacifiCorp in 2006,provides coverage of more than 1.Sx,
supporting a recovery rating of 1+and an issue rating one notch above the CCR.
Outlook
The stable outlook incorporates our anticipation that PacifiCorp will be able to perform to forecast,achieving
adjusted FF0 to debt in the area of 20%,FF0 interest coverage of at least 4.Sx and adjusted debt to total
capitalization of around 50%.We view these cash flow levels as merely adequate to maintain the ratings,and could
lower the ratings if FF0 to total debt drops to less than 18%on a sustained basis,with FF0 interest coverage or
adjusted leverage creeping above 52%over our outlook horizon.We do not expect upward ratings momentum for
the utility,given its heavy investment program.
www.standardandpoors.com/ralingsdirect 5
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PacifiCorp
Table 1.
PacifiCorp --Peer Colnparison*
PacifiCorp Portland General Electric Co.Pacific Gas &Electric Co.
Rating as of Sept.22,2010 A-/Stable/A-2 BBB/Stable/A-2 BBB+/Watch Neg/A-2
--Average of past three fiscal years-
(Mil.$)
Revenues 4,404.3 1,764.0 13,218.9
Net income from cant.oper.479.7 109.0 1,157.7
Funds from operations (FF0)1,342.3 326.5 3,030.0
Capital expenditures 1,850.2 511.4 3,437.7
Cash and short-term investments 134.7 38.0 175.7
Debt 6,641.7 1,875.2 12,662.8
Preferred stock 34.2 0.0 258.0
Equity 5,926.2 1,404.3 10,032.3
Debt and equity 12,567.9 3,279.5 22,695.2
Adjusted ratios
EBIT interest coverage (x)2.8 2.2 2.9
FF0 mt.coy.(x)4.3 3.5 4.1
FFO/debt)%)20.2 17.4 23.9
Discretionary cash flow/debt )%((10.5)(14.4)(14.1)
Net cash flow/capital expenditure (%)72.5 51.5 71.2
Total debt/debt plus equity (%)52.8 57.2 55.8
Return on common equity )%)7.2 6.3 11.1
Common dividend payout ratio )unadj.;%(2.7 59.6 49.6
FulIy adjusled (including postretirement obligationsl.
Table 2.
PacifiCorp --Financial Summary*
--Fiscal year ended Dec.31--
2009 2008 2007 2006 2006
Rating history A-/Stable/A-2 A-/Watch Neg/A-1 A-/Stable/A-i A-/Stable/A-i A-/Stable/A-i
(Mu.$)
Revenues 4,457.0 4,498.0 4,258.0 4,154.1 3,896.7
Net income from continuing operations 542.0 458.0 439 0 307.9 360.7
Funds from operations (FF0)1,760.1 1,272.1 9948 927.6 864.5
Capital expenditures 2,297.1 1,757.0 1496.4 1,375.0 1,030.5
Cash and short-term investments 117.0 59.0 228.0 59.0 11 9.6
Debt 7,415.8 6,635.9 5,873.5 5,473.6 5,185.3
Preferred stock 20.5 41.0 41 0 41.3 41.3
Equity 6,711.5 5,987.0 5,080.0 4,426.8 3,750.7
Debt and equity 14,127.3 12,622.9 10,953.5 9,900.4 8,935.0
Adjusted ratios
EBIT interest coverage (x)2.7 2.8 2.8 2.5 3.0
FF0 in,coy.(x(4.9 4.2 3.5 3.8 3.8
Standard &Poors RatingsDirect on the Global Credit Portal I October 3,2011 6
I 3OOO3fltt
PaciliCorp
Table 2.
PacifiCorp --Financial Summary*(cont.)
23.7 19.2FFD/debt(%)16.9 16.9 16.7
Discretionary cash flow/debt (%)(10.2)(10.7)(10.5)(10.7)(5.6)
Net cash flow/capital expenditure (%(76.6 72.3 66.3 66.1 66.7
Debt/debt and equity (%(52.5 52.6 53.6 55.3 58.0
Return on common equity (%)7.0 6.8 7.8 6.2 8.9
Common dividend payout ratio (unadi.:%(7.0 0.0 0.0 5.2 49.1
*Fully adjusted (including postretirement obligations).
Table 3.
Reconciliation Of PacifiCorp Reported Amounts With Standard &Poors Adjusted Amounts (Mu.S)*
--Fiscal year ended Dec.31.2009--
PacifiCorp reported amounts
Operating Operating Operating
income income income Cash flow Cash flow
Shareholders (before (before (after Interest from from Dividends Capital
Debt equity D&A)D&A)D&A)expense operations operations paid expenditures
Reported 6,416.0 6,732.0 1,609.0 1,609.0 1,060.0 359.0 1,500.0 1,500.0 2.0 2,328.0
Standard &Poors adjustments
Operating 36.5 --5.0 2.3 2.3 2.3 2.7 2.7 --4.1
leases
Intermediate 20.5 (20.5)------1.0 (1.0)(1.0)(1.0)--
hybrids
reported as
equity
Postretirement 369.9 --20.0 20.0 20.0 5.0 33.8 33.8 ---
benefit
obligations
Accrued 111.0 ------------------
interest not
included in
reported debt
Capitalized ----------35.0 (35.0)(35.0)--(35.0)
interest
Power purchase 395.7 --63.3 63.3 25.8 25.8 37.5 37.5 ----
agreements
Asset 66.3 --9.0 9.0 9.0 9.0 5.2 5.2 ----
retirement
obligations
Reclassification --------83.0 ----------
of nonoperating
income
(expenses)
Reclassification --------------217.0 ----
of
working-capital
cash flow
changes
Total 999.8 (20.5)97.3 94.6 140.2 78.2 43.1 260.1 (1 0)(30.9)
adjustments
www.standardandpoors.com/ratingsdirect 7
30(1030566
PacifiCorp
Table 3.
Reconciliation Of PacifiCorp Reported Amounts With Standard &Poors Adjusted Amounts (Mit.S)*(cont.)
Standard &Poors adjusted amounts
Operating
income Cash flow Funds
(before Interest from from Dividends Capital
Debt Equity D&A)EBITDA EBIT expense operations operations paid expenditures
Adjusted 7,415.8 6,711.5 1,706.3 1,703.6 1,200.2 437.2 1,543.1 1,760.1 1.0 2,297.1
PacifiCorp reported amounts shown are taken from the company’s financial statements but might include adjustments made by data providers or reclassifications made by
Standard &Pours analysts.Please note thattwo reported amounts (operating income before 0&A and cash flow from operations)are used to derive more than one Standard
&Poor’s-adjusted amount (operating income before D&A and EBITOA,and cash flow from operations and funds from operations,respectively).Consequently,the first Section
in some tables may feature duplicate descriptions and amounts.
PacifiCorp
Corporate Credit Rating A-/Stable/A-2
Commercial Paper
Local Currency A-2
Preferred Stock (2 Issues)BBB
Senior Secured (54 Issues)A
Senior Unsecured (2 Issues)
Corporate Credit Ratings History
27-Mar-2009 A-/Stable/A-2
18-Sep-2008 A-/Watch Neg/A-1
22-Mar-2006 A-/Stable/A-i
Business Risk Profile Excellent
Financial Risk Profile Significant
Related Entities
CE Electric U.K.Funding Co.
Issuer Credit Rating BBB+/Stable/A-2
Senior Unsecured (1 Issue)888+
CE Generation LLC
Senior Secured (1 Issue)88+/Stable
Cordova Energy Co.LLC
Senior Secured (1 Issue)88/Stable
Iowa-Illinois Gas &Electric Co.
Senior Unsecured (5 Issues)A-/A-2
Kern River Gas Transmission Co.
Senior Secured (2 Issues)A-/Stable
MidAmerican Energy Co.
Issuer Credit Rating A-/Stable/A-2
Commercial Paper
Local Currency A-2
Preferred Stock (1 Issue)888+
Senior Unsecured (8 Issues)A
Senior Unsecured (2 Issues)A-/A-2
Standard &Poors I RatingsDirect on the Global Credit Portal I October 3,2011 8
Ratings Detail (As Of October 3,2011 )(cont)
MidAnierican Energy Holdings Co.
Issuer Credit Rating
Preferred Stock (2 Issues)
Senior Unsecured (B Issues)
MidAmerican Funding LLC
Senior Secured (1 Issue)BBB+
Midwest Power Systems Inc.
Senior Unsecured (1 Issue)A-/A-2
Northern Electric Distribution Ltd.
Issuer Credit Rating A-/Stable!-
Senior Unsecured (1 Issue)A-
Northern Electric Finance PLC
Senior Unsecured (1 Issue)A-
Northern Electric PLC
Issuer Credit Rating
Senior Unsecured (1 Issue)
Northern Natural Gas Co.
Issuer Credit Rating A/Stable!--
Senior Unsecured )5 Issues)A
Salton Sea Funding Corp.
Senior Secured)]Issue)BBB-/Stable
Yorkshire Electricity Distribution PLC
Issuer Credit Rating A-/Stable/A-2
Senior Unsecured )2 Issues)A-
Yorkshire Electricity Group PLC
Issuer Credit Rating BBB+/Stable/-
Yorkshire Power Group Ltd.
Issuer Credit Rating BBB÷/Stable/A-2
Senior Unsecured )1 Issue)BBB+
Unless otherwise noted,all ratings in this report are global scale ratings.Standard &Poors credit ratings on the global scale are comparable across countries.Standard
&Pours credit ratings on a national scale are relative to obligors or obligations within that specific country
www.standardandpoors.com/ratingsdirect
Paci[iCorp
BBB+/Stable/-
BBB
BBB+
BBB+/Stable/A-2
A
9
J3%.
Copyright ©2011 by Standard &Poors Financial Sarvicen LLC )S&P),a subsidiary of The Mct3raw-Hill Companies,Inc.All rights reserved.
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SLandard &Poors RatingsDirect on the Global Credit Portal I OctDber 3,2011 10
996199 I 39rL939959
OCTOBER 7,2011 INFRASTRUCTURE FINANCE
MOODY’S
INVESTORS SERVICE
CREDIT ANALYSIS MidAmerican Energy Ho[dings Co.
Des Moines,Iowa,United States
Table of Contents:
BUSINESS PROFILE 2
TOP CREDITTOPICS 4
RATE STABILITY IN MOST
JURISDICTIONS EXCEPT AT PACIFICORP 6
PEER COMPARISONS 6
APPENDIX 14
MOODYS RELATED RESEARCH 18
Analyst Contacts:
NEW YORK 1.212553.1653
Mihoko Manabe,CFA 1.212553.1942
Vice President -Senior Credit Office,
[e-mail]
A.J.Sabatelie 1.212.553.4136
Senior Vice President
[e-mail]
William L.Hess 1.212.553.3837
Managing Director-Utilities
[e-mail]
This Cedit Ana{ysis provides ar in-depth
discussion of credit rating(s)for
MdAmer’can Energy Holdings Co.end
should be read in conjunction with Moodys
most recent Credit Opinion and rating
information avaiable on Moodys website.
MidAmerican Energy Holdings Company (MEHC)owns and operates a well diversified
portfolio of regulated,energy related businesses,a credit positive.The regulated or
contracted businesses provide stability and lower MEHC’s business risk profile.These
businesses include:
—U.S.state-regulated vertically integrated utilities,
—U.S.FERC-regulated interstate natural gas pipelines,
—U.K.federally regulated electric distribution network operators,and
—Unregulated contracted power generation in the U.S.and Asia.
Non-regulated operations include HomeServices,a real estate brokerage business which
is higher risk,non-core,and thus a credit-negative for MEHC.Nevertheless,the
business is minor,self-financing,and not a drag on MEHC’s credit profile despite the
continuing difficulties in the housing market.
>>Certain of consolidated cash flow metrics are weak for the rating;however,we premise
MEHC’s Baal rating on expected steady improvement through organic means,as
demonstrated for example by cash flow pre-working capital (CFO pre-w/c)I debt ratios
rising from their current levels in the mid-teens to the high teens.Our expectations are
based on sustainable improvement and exclude the temporary positive impacts ofbonus
depreciation.
>>MEHC and its subsidiaries compare favorably to their peers,much due in part to the
benefits of being a Berkshire Hathaway vehicle,including having a reliable source of
alternative liquidity and equity and a lack of a regular dividend requirement.This
financial flexibility and long-term horizon have promoted reinvestment and resulted in
well-run operations.Historically,these benefits have provided some uplift to the rating.
MOODY’S INVESTORS SERVICE
18%
INFRASTRUCTURE FINANCE
CE Electric UK
18%
Business ProfiLe
MidAmerican Energy Holdings Company (MEHC,Baal Sr.uns.)is a sizable electric utility holding
company with a diverse mix of mostly regulated electric and gas companies.The majority of its assets
are located in the U.S.,but the company also has a significant presence in the U.K.and a project in the
Philippines.Unlike most other U.S.investor-owned utilities,MEHC has been a private company
since 2000 when Berkshire Hathaway (BRK,Aa2 Sr.uns.)and Senior management took control,and
this has differentiated its financial strategy (see “Management Strategy”).
FIGURE 1
ReguLated Businesses Exceeding 96%Indicate StabiLity
2010 Operating Income by PLatform
CalEnergy Generation-
Domestic
0%CalEnergy Generation-
Foreign •‘\HomeServices
Kern River __—‘
8%
Northe’n Natural Gas j
11%
Source.Moody’s FM
Through its history,MEHC has grown from major acquisitions,which have become segment
“platforms.”Beginning as CalEnergy (not rated1),an independent power producer,the company
acquired a regulated electric distribution network operator (DNO)Northern Electric (A3 sr.uns.,now
a subsidiary of CE Electric UK,rated Baal)in 1996.In 1998,MEHC acquired Iowa electric utility
MidAmerican Energy Company (MEC,A2 sr.uns.)as well as two Midwestern real estate brokerage
firms which began the HomeServices residential real estate brokerage platform.These acquisitions
were followed by another UK DNO Yorkshire Electric (A3 Sr.uns.and also a subsidiary of CE Electric
UK)in 2001 and two gas pipelines Northern Natural (A2 Sr.uns.)and Kern River (A3)in 2002,In
2006,it made its largest acquisition of PacifiCorp (Baal),an electric utility system in western U.S.In
addition to these platforms,some meaningful investments exist,such as Electric Transmission Texas
(ETT),a transmission development joint venture with AEP,an Alaska gas storage joint venture with
SEMCO Energy;and a minority interest in BYD,a Chinese rechargeable battery and electric
carmaker.
Moody’s however does rate three of CalEnergy’s project vehicles:Cordova Energy Funding (Ba3 sr.sec.),CE Generation (Bal sr.sec.),Salton Sea Funding (Bsa3 Sr.
Sec.).
MidAmerican Funding
2 OCTOBER 7,2011 CREDIT ANALYSiS:M,DAMEFICAN ENERGY HOLDINGS (0.
MOODY’S INVESTORS SERVICE
FIGURE 2
Organization Chart
MidAmerican Energy Holdings Co.
Sr Unsecured Notes Baa]
Total Debt $6024 mm
FacifiCerp MidAmnrican Funding,ILC CE Elnctnic UK Funding Northen Natural
Sr Securec Notes 03 5:Unsncurnd Notes Eaai S Onsecun-c Notes 53‘ssuerRati’sglaa Tota.Oebt $325 im Total 3ev $320 mi Total Dnbt 51,030mm
Sr Secrec Nones 52
°re’er’ec Snsck taa3
Tona.Debt:56.803 mm HidAmenicar Enengy Co.S unsecured Noses 03SUnsecuredNones52
°‘rs:Mongage Bonds i
Ynrtuhinn tledrki Dictributiun
________
Total Teot.$923 mTotalDebt53.153nm
Northern Electric
Ss Unsecured N’stesb3
tsnal Debt $300 ‘nm
Source:Moody’s
____________________________________________________
Opportunities/Strengths:
>3 Well diversified portfolio of stable regulated assets
3>Comfortably positioned to meet environmental mandates while capital expenditure remains high
>3 Good track record as operator of regulated assets
3>Benefits from BRK ownership
ChaLLenges/Weaknesses:
>3 Significant parent-level debt
>3 Consolidated metrics weak for rating
H Minor but higher risk unregulated businesses
5>Event risk
3 OCTOBER 7,201t
INFRASTRUCTURE FINANCE
Keno Ree Cal Ennrgy Humo5nmvicesSrSecuredNotes53NotOutedNotSated
Sr Lrsrcured Notes A3
Total Deot $799 mm
Foreign csCasecoan Water and Energy
NotOuted
Curduea Funding CorFuratian
Sr Secured Notes tas05TotaLDebt5170mm
5t%
CE Cmeeatiun LLC
St Secsred Notes Ian
Total Debt.$220 rn-nt
Salten Sea Funding
Sr Soured Notes lass
Total Dent 5t30 ‘n-re
cREST ANALYS’b M’DAMEOCAN ENERGY HOLDINGS CO.
MOODY’S INVESTORS SERVICE INFRASTRUCTURE FINANCE
FIGURE 3
MidAmerican Energy HoLdings
Summary FinanciaLs
As of December 31,2010
MidAmerican MidAmerican
Energy Energy Northern CK Electric CE*Cordova
Holdings PacifiCorp Company Natural Gas Kern River UK Funding Generation Salton Sea*Funding
(in $millions)Baal/Stable Baal/Stable A2/Stab[e A2/Stable A3/Stable Baal/Stab[e Bal/Stable Baa3/Stab[e Ba3/Stable
Revenue $11,127 $4,432 $3,810 $624 $357 $936 $261 $225 $32
EBITDA 4,040 1,700 858 349 217 725 122 113 28
Net Property Plant &
Equipment 32,427 16,437 7,045 2,193 1,717 5,865 672 542 199
Total Assets 46,196 20,191 9,136 2,786 1,936 6,495 1,109 747 242
Total Debt 20,829 6,803 3,183 1,030 799 2,317 205 138 170
Total Equity 13,232 7,278 2,958 1,214 704 1,636 524 445 71
Cash From Operations 2,983 1,480 852 305 184 356 87 105 13
Capital Expenditures (2,652)(1,572)(351)(139)(162)(347)(38)(38)0
Dividends --(375)-(15)-(18)(49)-
Source.Moody’s Financial Metrics
Amounts shown arefor 100%of CE Generation andits subsidiaty Salton Sea.MEHCowns 50%of CE Generation.
Top Credit Topics
Credit-Positive FinanciaL PoLicy Mitigates Weak Metrics
MEHC benefits from being owned by the strong,highly liquid BRK,which typically buys and holds
its platform acquisitions as compared to a typical private equity firm.This long-term investment
approach has helped MEHC accrue a good track record as operator.For instance,MEHC has never
paid a common dividend to BRK,and MEHC’s utility subsidiaries usually retain their earnings to
reinvest in the business and to dc-lever2.BRK’s $2 billion equity commitment to MEHC also provides
an alternative “back door”source of liquidity.This financial strategy has allowed a slow organic
improvement in MEHC’s consolidated credit profile,although credit metrics are still weak for its
rating.This lack of a regular dividend requirement is more credit-friendly than the typical utility
corporate finance model,which entails high dividend payouts to public shareholders on a regular basis.
Longer term,the MEHC bondholder will be subject to event risk.As indicated by its history,MEHC
is open to making multi-billion dollar acquisitions that could be transforming.Much of the
acquisition debt financing will likely be done at the MEHC parent level.The company has been
disciplined in what it would pay,eschewing asset auctions which could heat up valuations.On certain
instances,it has profited as a “white knight”for companies in distress (e.g.,acquisition of two pipelines
in 2002,bid for Constellation Energy in 2008).The vast liquid resources of BRK allows MEHC to
strike when such opportunities arise.BRK is likely to provide some equity financing,which could
2 In part due to the additional cash flow from bonus depreciation in 2011,maturing dcbt has been refinanced with less new debt at PacifiCorp and Northern Natural.
MEHC parent company repaid its trust preferreds with internal cash flow,
4 OCTOBER 7,2011 CREDIT ANALYS’S fr’DAMERC’AN ENERGY HOLDINGS CO.
MOODY’S INVESTORS SERVICE INFRASTRUCTURE FINANCE
include some form of hybrids,such as a trust preferred stock which it has used in the past.Such
securities offer attractive returns to BRK’s insurance units.
Although we expect large investments at MEHC to be similar to what it already owns (mostly
regulated energy assets),BRK has occasionally used MEHC as a vehicle for investments not related to
its core energy business,such as HomeServices and BYD which have higher risk.For example,
MEHC’s $230 million original equity investment in BYD made in 2008 peaked in value in 2009 but
has given up those gains this year3.
Ratings Notched to Reflect Standalone Credit Qualities
Although certain of MEHC’s cash flow ratios map to Baa2 levels,the company is rated a notch higher
reflecting some of the above-mentioned benefits from geographic and regulatory diversity as well as
BRK’s ownership.MEHC and its subsidiaries are rated “bottoms up”on a legal entity basis to reflect
their standalone credit profiles rather than as a function of BRK’s Aa2 rating.Their credit profiles are
separate and distinct by virtue of their being non-guaranteed self-financing businesses with their own
risks and default probabilities.PaciflCorp,MEC,the two pipelines,and CE Electric UK all exist
within legal ringfencing corporate structures to further delineate their individual credit profiles.
MEHC does not have a money pool which could more closely align its affiliates’ratings.
This corporate structure thus includes rated entities with ratings ranging from single A to Ba.MEHC’s
Baal rating for holding company debt reflects not only a consolidated view of its assets,but also the
structural subordination of the holding company debt to several of its operating companies being rated
single A.The lower parent rating indicates a sizable proportion of parent debt,which at roughly 30%
of consolidated debt,is relatively high compared to many other utihty holding companies.A relatively
minor amount of non-recourse debt exists off-balance sheet4 at some of its equity investments,such as
CE Gen and ETT.
Capital Expenditures Remain High But WelL Positioned to Meet Environmental RuLes
As with the rest of the electric industry,MEHC is undergoing an extended capital spending cycle.
During this period,it plans to apply a boost in cash flow from bonus depreciation (estimated to be
$840 million in 2011 and $390 million in 2012)to accelerate spending.The biggest projects are in
electric transmission and wind projects,as parts of a decade-long carbon risk reduction strategy.
Because it had a head start in investing for anticipated environmental mandates,the company does not
expect a big increase in capital expenditures to catch up:
>>Transmission:PacifiCorp’s $6 billion Energy Gateway project includes segments which are
completed and in-service as well as segments expected to be completed through 2019.Electric
Transmission Texas (a 50%150%joint venture with AEP)has ongoing transmission investments
in ERCOT estimated at $2 billion which include projects scheduled to be on-line in 2013.
>Wind:With 1,284 megawatts (MW)of owned capacity,MEC is the largest utility owner of wind-
powered generation in the US.Its 593 MW $913 million Wind VII will be completed by year-
end 2011.
>>Generation:PacifiCorp is constructing Lakeside 2,a 637 MW $756 million natural gas combined
cycle power plant to be in service in 2014.
Stock price graph for BYE)Co Ltd.12/31/08 —10/7/Il via reuters.com,accessed 10/7/11.
MEHCs 50%proportional share ofjoint venture debt equating to about 2%of MEFIC’s consolidated debt.
5 OCTOBER 7.2011 CRtDIT ANALYS MDAM3RCAN ENERGY HOLDiNGS CO.
MOODY’S INVESTORS SERVICE INFRASTRUCTURE FINANCE
>>Pipelines:Sizable projects are winding down.Kern River’s $373 million Apex expansion is due to
be in service in the fourth quarter 2011.Northern Natural’s $350 million Northern Lights
expansion concluded in November 2010.
>>CE Electric UK:Investment expected to be 40%higher in Distribution Price Control Review 5
(DPCR5,the five year period from April 2010 to March 2015)compared to DPCR4 (2005 to
2010)for asset replacement,growth,and reliability.
Rate StabiLity in Most Jurisdictions Except at PacifiCorp
Regulatory risk is manageable because MEHC’s operations are well diversified among many
jurisdictions.In a number of them,MEHC enjoys rate stability under a multi-year rate plan,which
does not expire for a few years.It faces no make-or-break rate proceedings in near term:
>>PacifiCorp continues to under-earn its allowed returns (return-on-equity on a GAAP basis at 8%
in 2010 compared to 7%in 2006 when MEHC acquired it)although a series of rate cases have
provided a significant amount of rate relief.Given the ongoing capital spending forecast to keep
up with a disperse,growing service territory,this regulatory lag is likely to persist.
We note that PacifiCorp operates in regulatory environments that have been historically less
amenable than others to rate designs that promote more timely and certain cost recovery.In recent
years,however,we have seen some improvements in that regard.For example,fuel adjustment clauses
are available now in all its jurisdictions except Washington,but the negative effect of this is minor,
since this state accounts for only 8%of sales to retail customers.The company recently concluded a
rate case in Utah,its largest jurisdiction.We expect PacifiCorp will continue on a treadmill of filing
rate cases in its various jurisdictions every year or so.
>MEC enjoys a favorable regulatory environment,where it is allowed and has earned returns-on-
equity above 10%,which is average now for the US utility sector.The company is under a rate
plan which expires in 2013.
>>CE Electric UK is operating under a five-year price control period which is in place until 2015
(DPCR5).
>>At Northern Natural,no rate cases are expected or required following the FERC Section 5 rate
investigation in 2010.
>>Kern River recently finalized a rate order with the FERC for Period Two rates that begin after the
expiration of existing Period One contracts.Period One contracts expire during the period from
September 2011 through April 2018.Period Two contracts are for a term of 10 or 15 years.
Peer Comparisons
MEHC’s Metric Lag Utility HoLding Company Peers
MEHC compares best to similarly rated electric holding companies that are predominantly rate
regulated and operate in multiple jurisdictions,mostly in the Midwest where the regulatory
frameworks are similar.Such companies would include Xcel Energy,Duke,and AEP.Prospectively,
PPL will be more comparable after it increased its regulated businesses with its recent acquisitions of
Kentucky utilities and UK DNOs.
6 oCTOBER 7,2011 CRDT AALYSO:MDAMERICAN ENERGY H0LDNGS CO
MOODY’S INVESTORS SERVICE
FIGURE 4
UtiLity Ho[dco Peers
Revenue
Company Name Rating 2006 2007
MidAmerican Energy Holdings Baal $10,301,000 $12,376,000
Xce[Energy Inc.Baal $9,840,304 $10,034,170
Duke Energy Baa2 $10,607,000 $12,720,000
American Electric Power Company,Inc.Baa2 $12,622,000 $13,380,000
PPL Corporation Baa3 $6,131,000 $6,498,000
Total Debt
Company Name Rating 2006 2007
MidAmerican Energy Holdings Baal $19,406,000 $20,935,000
Xce[Energy Inc.Baal $7,757,324 $8,409,796
Duke Energy Baa2 $21,870,000 $12,932,000
American Electric Power Company,Inc.Baa2 $13,716,000 $15,654,000
PPL Corporation Baa3 $8,971,730 $8,197,071
(CEO Pre-W/C)I Debt
Company Name Rating 2006
MidAmerican Energy Holdings Baal 11.5%
Xce[Energy Inc.Baal 19.2%
Duke Energy Baa?18.9%
American Electric Power Company,Inc.Baa?16.9%
PPL Corporation Baa3 18.9%
(CFO Pre-W/C +Interest)I Interest Expense
INFRASTRUCTURE FINANCE
2008 2009 2010
$12,668,000 $11,204,000 $11,127,000
$11,203,156 $9,644,303 $10,310,947
S 13,207,000 $12,731,000 $14,272,000
$14,440,000 $13,489,000 $14,427,000
$8,007,000 $7,449,000 $8,521,000
2008 2009 2010
$21,599,000 $21,152,000 $20,829,000
$9,297,251 $9,375,177 $10,367,423
$17,187,000 $18,539,000 $19,323,000
$17,959,000 $17,624,000 $18,157,000
$9,942,916 $9,601,430 $15,021,818
2007 2008 2009 2010
12.0%12.4%16.8%16.1%
21.3%18.5%19.9%20.6%
37.3%23.2%22.5%20.9%
14.5%13.5%17.8%17.1%
21.2%16.4%18.8%18.6%
Company Name Rating 2006 2007 2008 2009 2010
MidAmerican Energy Holdings Baal 2.9x 2.9x 2.9x 3.7x 3.lx
Xcel Energy Inc.Baal 4.Ox 4.3x 4.Ox 4.?x 4.8x
Duke Energy Baa2 7.Ox 6.7x 5.2x 5.2x 4.8x
American Electric Power Company,Inc.Baa?4.Ox 3.5x 3.4x 4.Ox 3.9x
PPL Corporation Baa3 4.4x 4.Ox 3.9x 4.Sx 5.3x
Source.Moody’s FM
7 OCTOBER 7.2019 CRLDITANALYS M’DAMERICAN ENERGY HOLDINGS CO
MOODY’S INVESTORS SERVICE
Compared to these peers,MEHC has distinctly weaker credit metrics although they have improved
steadily as expected in its current ratings.MEHC’s ratings are premised on this improvement
continuing,so that its credit metrics are sustained at no lower than recent levels.For example,cash
flow before working capital (CFO Pre-W/C)/Debt is currently about 16%,which maps to the iow
end of the Baa2 range in Moody’s rating grid,but the rating anticipates the ratio gradually rising to about
19%without bonus depreciation,which is on the high end of the Baa2 range and more in line with its
peers.
Utility Operating Companies Comfortably Positioned in Rating Category
MEC and PacifiCorp also compare best to similarly rated vertically integrated utilities that operate in
the same region under similar regulatory frameworks.MEC’s peers include its smaller Iowa neighbor
Interstate Power and Light,and to its north,Northern States Power (Minnesota),located in
Minnesota,where Moody’s considers regulatory environment to be above-average as in Iowa.As for
PacifiCorp,operations in six states (in order by sales volumes Utah,Oregon,Wyoming,Washington,
Idaho,and California)makes it comparable to other multi-state electric systems in the Rockies and the
Pacific Northwest,such as Idaho Power (operations in Idaho and Oregon)and Avista (Washington,
Idaho,Oregon).
FIGURES
Utility Opco Peers
Revenue
___________________________
Company Name Rating 2006 2007
MidAmerican Energy Company A2 $3,447,931 $4,258,000
Interstate Power and Light Company A3 S 1,754,800 $1,695,900
Northern States Power (Minnesota)A3 S 4,027,615 S 4,272,214
PacifiCorp Baal $4,154,100 $4,258,000
Idaho Power Company Baal $920,473 S 875,401
Avista Corp.Baa?$1,506,311 $1,417,757
Total Debt
________________________________________________
Company Name Rating 2006 2007
MidAmerican Energy Company A2 $1,998,201 $2,750,000
Interstate Power and Light Company AB $1,106,500 $938,508
Northern States Power (Minnesota)A3 $2,388,228 $2,899,709
PacifiCorp Baal $5,132,300 $5,459,000
Idaho Power Company Beal $1,072,340 S 1,302,771
Avista Corp.Baa?$1,328,124 $1,256,565
(CEO Pre-W/C)I Debt
________________________________________________
Company Name Rating 2006
MidAmerican Energy Company A?27.3%
Interstate Power and Light Company A3 29.2%
Northern States Power (Minnesota)A3 25.0%
8 OCTOBER 7,2011
INFRASTRUCTURE FINANCE
2008 2009 2010
$4,700,000 $3,693,000 S 3,810,000
$1,758,000 S 1,708,000 S 1,795,800
S 4,493,636 $4,066,689 S 4,234,316
$4,498,000 5 4,457,000 $4,432,000
$956,076 $1,045,996 $1,033,052
$1,676,763 $1,512,565 S 1,558,740
2008 2009 2010
$3,669,033 S 3,181,000 5 3,183,000
$1,202,229 S 1,454,900 S 1,599,900
$3,091,249 S 3,013,178 $3,337,912
5 6,127,000 $6,868,000 $6,803,000
$1,564,038 5 1,615,872 $1,802,682
$1,400,803 $1,354,688 $1,485,597
2007 2008 2009 2010
22.4%21.7%29.8%28.0%
38.6%21.6%29.8%26.1%
28.6%25.4%25.2%26.6%
CRLDIT A\ALYS “DAMERICAN ENERGY HOLDINGS CO
MOODY’S INVESTORS SERVICE INFRASTRUCTURE FINANCE
FIGURE 5
UtiLity Opco Peers
PacifiCorp Baal 17.8%17.9%18.7%26.0%25.7%
Idaho Power Company Baal 14.4%7.1%10.4%18.2%18.8%
Avista Corp.Baa2 14.4%14.2%17.5%19.8%17.7%
(CEO Pre-W/C +Interest)I Interest Expense
Company Name Rating 2006 2007 2008 2009 2010
MidAmerican Energy Company A?5.9x 5.3x 5.6x 6.4x 6.2x
Interstate Power and Light Company A3 5.3x 6.4x 5.7x 8.lx 6.2x
Northern States Power (Minnesota)A3 4.6x 5.5x 5.Ox 4.9x 5.4x
PacifiCorp Baal 4.3x 3.8x 4.2x 5.2x 5.3x
Idaho Power Company Baal 3.6x 2.4x 3.Ox 4.3x 4.6x
Avista Corp.Baa?2.8x 2.9x 3,7x 4.4x 4.lx
Source:Moody’s FM
MEG and PacifiCorp are both comfortably positioned in their respective rating categories.Of the two
sister companies,MEG merits being rated two notches higher with stronger,more stable credit metrics
than PaciflGorp.Although the gap between the two has narrowed since 2009,we note much of
PacifiGorp’s improvement is a temporary one due to bonus depreciation,and when those tac benefits
end in 2012,we expect that its ratios will fall back down to levels typical before 2009 and more in line
with its Baa-rated peers,such as CFO pre-W/G I Debt around 20%and CFO pre-W/G I Interest in
the low to mid 4 times range.
Stronger metrics for the Iowa and Minnesota utilities are products of more favorable and timely cost
recovery mechanisms in those states,while the weaker metrics for the Baa-rated western utilities reflect
a history of more restrictive regulation.
Pipeline Subsidiaries Favorably Positioned Against RegionaL Peers
Northern Natural and Kern River compare best to long-haul pipelines that have similar supply sources
and markets and which serve a like function and configuration (e.g.,market-pull with a web-like
network versus a supply-push bullet line).Northern Natural’s peers thus include midwestern pipes that
stretch from the Midcontinent and the Gulf Goast to market areas in the upper Midwest,such as
Panhandle Eastern and NGPL PipeGo.Kern River’s closest peers extend from the Rockies to the West
Goast,such as El Paso Natural Gas and the new Ruby Pipeline.
9 OCTOBER 7,2011 CIODIS ANALYS’S:H’DAMERICAN ENERGY HOLDINGS CO.
MOODY’S INVESTORS SERVICE INFRASTRUCTURE FINANCE
Kern River Funding Corporation
El Peso Natural Gas Company
Source:Moody’s FM
Of the two MEHC pipes,Northern has distinctly stronger metrics,meriting a rating that is a notch
higher than Kern’s.Northern is a larger system serving a stable,mature market,while Kern is much
exposed to the southern California market and its long-running rate case,since resolved,which
resulted in refunds that periodically lowered cash flow ratios.Kern also has higher counterparty risk
with its concentration of marketer customers,compared to Northern,which is anchored by higher-
rated utility shippers.The two MEHC pipes have better credit metrics than Panhandle and El Paso,
much in part to the credit profiles of their parent companies (Baa3-rated Southern Union and Ba3-
rated El Paso Corp.,respectively)which have more aggressive financial policies than MEHC,and
which in the past have used these pipelines as vehicles to raise funds.
FIGURE 6
Pipeline Peers
Revenue
Company Name Rating 2006 2007 2008 2009 2010
Northern Natural Gas Company A2 $633,585 $663,958 $769,087 $688,509 $624,434
Panhandle Eastern Pipe Line Comp Baa3 $577,182 $658,446 $721,640 $749,161 $769,450
Kern River Funding Corporation A3 $325,165 $404,193 $443,062 $371,951 $357,322
El Paso Natural Gas Company Baa3 $588,000 $557,000 $590,000 $593,000 S 517,000
Total Debt
Company Name
Northern Natural Gas Company
Panhandle Eastern Pipe Line Comp
Kern River Funding Corporation
El Paso Natural Gas Company
Rating 2006 2007 2008 2009 2010
A2 $827,610 $978,357 $1,029,970 S 1,030,033 $1,030,100
Baa3 $1,765,014 $1,977,104 $2,023,569 $2,129,994 $2,087,335
A3 $1,091,407 $1,016,424 $943,608 $868,702 $790,034
Baa3 $1,247,000 $1,326,000 $1,342,000 $1,335,000 $1,297,000
(CEO Pre-W/C)/Debt
Company Name
Northern Natural Gas Company
Panhandle Eastern Pipe Line Comp
Kern River Funding Corporation
El Paso Natural Gas Company
Rating 2006 2007 2008 2009 2010
A2 36.5%30.5%35.5%32.7%30.6%
Baa3 14.2%13.0%14.6%18.4%14.7%
A3 16.0%29.1%15.0%28.2%23.2%
Baa3 17.8%13.9%24.9%12.7%17.1%
(CFO Pre-W/C +Interest)I Interest Expense
Company Name Rating 2006 2007 2008 2009 2010
Northern Natural Gas Company A?7.Ox 6.2x 7.Ox 6.6x 6.Zx
Panhandle Eastern Pipe Line Comp Baa3 4.6x 3.6x 3.7x 5.4x 3.7x
A3 3.4x 5.Ox 3.lx 5.4x 4.8x
Baa3 3.2x 2.8x 4.4x 2.7x 3.2x
10 OCTOBER 7.2011 CREDIT ANALYSIS.MIDAMERICAN ENERGY HO.DINGS Co
MOODY’S INVESTORS SERVICE INFRASTRUCTURE FINANCE
CE Electric UK’s Metrics Improving Under Conservative Financial Strategy
CE Electric UK is much like PPL WW Holdings (formerly known as Western Power Distribution
Holdings),which is also owned by a US energy company (PPL Corp.)and which,under a similar
corporate structure,holds two contiguous DNOs about the size of CE Electric UK’s two systems.
Under the same regulator,they share the same regulatory framework.
FIGURE 7
Distribution Network Operator Peers
Revenue1
Company Name Rating 2006 2007 2008 2009 2010
S
CE Electric UK Funding Company Baal $928,000 $1,079,000 S 993,000 $825,000 802,000
PPL WW Holdings Limited Baa3 $763,001 $825,199 $919,466 S 763,241 $768,071
Total Debt
Company Name Rating 2006 2007 2008 2009 2010
CE Electric UK Funding Company Baal $3,195,616 $3,065,431 $2,155,838 S 2,515,380 $2,317,310
PPL WW Holdings Limited Baa3 $2,338,514 $2,914,583 $2,626,903 $2,363,295 $3,135,884
(CEO Pre-W/C)/Debt
Company Name Rating 2006 2007 2008 2009 2010
CE Electric UK Funding Company Baal 125%13.7%16.4%16.2%19.4%
PPL WW Holdings Limited Baa3 16.9%14.0%17.4%14.5%13.5%
(CEO Pre-W/C +Interest)/Interest Expense
Company Name Rating 2006 2007 2008 2009 2010
CE Electric UK Funding Company Baal 2.8x 2.8x 3.5x 3.6x 3.9x
PPL WW Holdings Limited Baa3 3.4x 3.2x 3.9x 3.6x 4.4x
Net Debt/RAy
Company Name Rating 2006 2007 2008 2009 2010
CE Electric UK Funding Company Baal 75.1%71.8%75.6%77.7%66.9%
PPL WW Holdings Limited Baa3 85.0%79.9%74.2%93.2%89.5%
In US$000
Source:Moody’s FM
CE Electric UK is rated two notches above PPL WW Holdings,because of its stronger group
consolidated credit profile (A3 vs.Baa2)due to CE Electric’s steadily improving credit metrics from
declining debt and rising cash flow.In comparison,PPL WW Holdings is significantly more leveraged
“1 OCTOBER 7,2011 CREDIT ANALYSS:r DA’ERCAN ENERGY -IOLDINGS CO.
MOODY’S INVESTORS SERVICE INFRASTRUCTURE FINANCE
especially in terms of net debt /regulatory asset value5 (RAV)which is almost 90%(mapping to Ba
under Moody’s regulated electric networks methodology)reflecting a sizable pension deficit,compared
to CE Electric’s 67%(mapping to Baa).Moody’s also considers PPL WW Holdings’financial strategy
to be more aggressive (mapping to “Ba”in the grid),as demonstrated for example,by PPL WW
Holdings’history of leveraged distributions to its parent,while CE Electric (mapping to Baa under
this factor)has a more credit-accretive history,not having paid a dividend to MEHC since 2003.
CalEnergy Power Projects:Small But Much Riskier Than Regulated Assets
Moody’s currently rates three of CalEnergy’s power generation projects:CE Generation (Bal Sr.sec.),
which is a holding company for a portfolio of energy projects,a principal one being Salton Sea
Funding (Baa3 Sr.sec.).CE Generation is a 50/50 joint venture between MEHC and TransAlta (Baa2
Sr.uns.).CalEnergy also fully owns Cordova Energy (Ba3 sr.sec.).Below table illustrates how they
compare against each other.
FIGURE 8
Power Project Peers
Revenues
Company Name Rating 2006 2007 2008 2009 2010
Salton Sea Baa3 $208,688 $220,776 $227,722 $229,648 $224,571
CE Generation Ba]$476,603 $504,287 $530,831 $394,517 $260,531
Cordova Funding Ba3 $31,040 $32,211 $30,421 $31,048 $32,245
Total Debt
Company Name Rating 2006 2007 2008 2009 2010
Salton Sea Baa3 $243,841 $218,750 $190,685 $164,475 $137,734
CE Generation —Parent Ba]$349,267 $308,665 $269,810 $245,741 $442,790
Cordova Funding Ba3 $194,288 $190,125 $185,400 $178,988 $169,987
FF0!Debt
Company Name Rating 2006 2007 2008 2009 2010
Salton Sea Baa3 35.6%41.6%53.3%65.4%67.1%
CE Generation -Consolidated Ba]26.7%31.9%32.4%37.4%26.6%
Cordova Funding Ba3 5.1%4.4%5.4%5.9%7.4%
(FF0 +Interest)/Interest Expense
Company Name Rating 2006 2007 2008 2009 2010
Salton Sea Baa3 5.7x 6.Ox 7.3x 8.6x 8.8x
CE Generation —Consolidated Ba]4.4x 4.7x 4.8x 5.4x 4.2x
Cordova Funding Ba3 1.6x 1.5x ].6x 1.7x 1.8x
Regulatory Asset Value is the capital base upon a regulated nersvork earns a return set by the regulator.This value is akin to rate base in the U.S.The net debt /RAV
ratio thus is a measure ofloan-to-value.
12 OCTOBER 7,2011 CSEDIT ANALYSIS.Ti DANER:CAN ENERGY HOLDINGS CL)
MOODY’S INVESTORS SERVICE INFRASTRUCTURE FINANCE
DSCR
Company Name Rating 2006 2007 2008 2009 2010
Salton Sea Baa3 i.7x i.9x l.5x l.7x 2.ix
CE Generation Bal i.3x i.6x 9.9x l.6x i.8x
Cordova Funding Ba3 i.3x i.Zx i.Zx lix lOx
Source Company auditedfinancialstatements
The debt service coverage ratio (DSCR)shows CE Generation increasing its reliance on Salton Sea as
cash flows from another project Saranac decline due to undertaking a less favorable off-take contract.
Nevertheless,the CE Generation project was structured anticipating this fall in the DSCR,which still
remains within the Baa range according to Moody’s methodology for power generation projects.Salton
Sea’s credit metrics are robust and expected to get even stronger as its debt amortizes.Its geothermal
power facilities are an important resource to enable its majority off-taker Southern California Edison
(A3 sr.uns.)to meet California’s renewable standard,and consequently,the facilities are highly utilized.
In contrast,Cordova owns a gas-fired plant in the highly competitive MISO region,and as a peaker,
has a low run rate,and consequently has much weaker credit metrics.Moody’s is looking through
some of the recent decline in its DSCR and anticipating some near-term improvement as the facility
completes its scheduled maintenance.
HomeServices:A Non-Core Segment WeLL-CapitaLized for a DifficuLt Market
HomeServices is the second-largest residential real estate company in the U.S.Because it is unrelated to
energy,Moody’s considers it a non-core business for MEHC.We do not rate it since its only
indebtedness is a small revolver,which is little utilized;consequently,interest and debt coverage metrics
would not be meaningful for HomeServices.The only rated peer for HomeServices is Realogy (Caa2
Corporate Family Rating),the largest residential real estate company in the U.S.which has been
financially distressed since a leveraged buyout by a private equity firm about the time the housing market
turned down in 2007.The two companies thus are not comparable given the disparity in their financial
profiles,but the sustained decline in both their revenues indicate the difficult conditions in the housing
market.Since suffering a net loss in 2008,however,HomeServices has been profitable and able to
internally finance itself.
Revenues
Company Name Rating 2006 2007 2008 2009 2010
HomeServices NR $1,702000 $1,500000 $1,133,000 $1,037,000 S 1,020,000
Realogy Caa2 $6,483,000 $5,964,000 $4,725,000 $3,932,000 $4,090,000
Source Moody’sFM
13 OCTOBER 7,2011 CREDIT AvALYSIS )AMERICAN ENERGY HOLDINGS CO.
MOODY’S INVESTORS SERVICE
Appendix
INFRASTRUCTURE FINANCE
Five Year HistoricaL FinanciaL Data
MidAmerican Energy Holdings
FY2006 FY2007 FY2008 FY2009 FY2O1O
(in $millions)Baal/Stabte Baal/Stab[e Beal/Stable Baal/Stab[e Baal/Stab[e
Revenue $10,301 $12,376 $12,668 $11,204 $11,127
EBITDA 3,609 4,196 5,310 4,009 4,040
Net Property Plant &Equipment 24,741 26,953 29,090 31,464 32,427
Total Assets 37,149 39,948 42,077 45,212 46,196
Total Debt 19,406 20,935 21,599 21,152 20,829
Total Equity 8,011 9,326 10,172 12,576 13,232
Cash From Operations 2,081 2,494 2,701 3,713 2,983
Capital Expenditures 2,681 3,593 3,960 3,472 2,652
Dividends -----
PacifiCorp
FY200G FY2007 FY2008 FY2009 FY2O1O
(in $millions)Baal/Stable Baal/Stable Baal/Stable Baal/Stab[e Baal/Stable
Revenue $4,154 $4,258 $4,498 $4,457 $4,432
EBITDA 1,239 1,492 1,511 1,708 1,700
Net Property Plant &Equipment 10,941 11,964 13,886 15,580 16,437
Total Assets 13,982 15,022 17,229 19,009 20,191
Total Debt 5,132 5,459 6,127 6,868 6,803
Total Equity 4,411 5,061 5,965 6,624 7,278
Cash From Operations 796 862 1,005 1,512 1,480
Capital Expenditures (1,377)(1,506)(1,766)(2,302)(1,572)
Dividends (19)----
MidAmerican Energy Company
FY200G FY2007 FY2008 FY2009 FY2O1O
(in $millions)A2/Stable A2/Stable A2/Stable A2/Stabte A2/Stable
Revenue $3,448 $4,258 $4,700 $3,693 $3,810
EBITDA 790 881 938 865 858
Net Property Plant &Equipment 5,057 5,780 7,025 7,069 7,045
Total Assets 6,564 7,323 8,631 8,733 9,136
14 OCTOBER 7,2011 CREDIT ANALYSIS:MIDAMERICAN ENERGY HOLDINGS Co
MOODY’S INVESTORS SERVICE INFRASTRUCTURE FINANCE
Total Debt 1,998 2,750 3,669 3,181 3,183
Total Equity 1,970 2,305 2,587 2,959 2,958
Cash From Operations 552 591 713 973 852
Capital Expenditures (749)(1,290)(1,469)(452)(351)
Dividends (50)---(375)
Northern Natural Gas
FY2006 FY2007 FY2008 FY2009 FYZO1O
(in S millions)A3/Stab[e A2/Stable A2/Stab[e A2/Stab[e A2/Stab[e
Revenue $634 $664 $769 $689 $624
EBITDA 364 384 531 415 349
Net Property Plant &Equipment 1,683 1,884 2,008 2,137 2,193
Total Assets 2,082 2,333 2,521 2,527 2,786
Total Debt 828 978 1,030 1,030 1,030
Total Equity 1,081 1,084 1,175 1,078 1,214
Cash From Operations 300 307 318 336 305
Capital Expenditures (124)(228)(199)(173)(139)
Dividends (250)(160)(150)(312)-
Kern River
FY2006 FY2007 FY2008 FY2009 FY2O1O
(in $millions)A3/Stable A3/Stable A3/Stable A3/Stab[e A3/Stabte
Revenue $325 $404 $443 $372 $357
EBITDA 363 362 391 222 217
Net Property Plant &Equipment 1,726 1,664 1,615 1,632 1,717
Total Assets 2,107 2,001 1,893 1,876 1,936
Total Debt 1,100 1,026 952 878 799
Total Equity 554 443 599 568 704
Cash From Operations 251 304 94 292 184
Capital Expenditures (12)(27)(49)(80)(162)
Dividends (259)(239)(97)(134)(15)
CE Electric UK Funding
FY2006 FY2007 FY2008 FY2009 FY2O1O
(in $millions)Aaa/Stab[e Aaa/Stab[e Baal/Stable Baal/Stab[e Baal/Stable
Revenue $992 $1,151 $1,043 $886 $936
is ocroess 7 2011 CREDITANALYSS X:DAN1E1’CAN tNERCY HOLD!NGS Co
MOODY’S INVESTORS SERVICE INFRASTRUCTURE FINANCE
EBITDA 692 804 721 632 725
Net Property Plant &Equipment 6,000 6,487 5,014 5,826 5,865
Total Assets 7,466 7,859 5,622 6,581 6,495
Total Debt 3,196 3,065 2,156 2,515 2,317
Total Equity 1,127 1,559 1,157 1,424 1,636
Cash From Operations 369 444 495 414 356
Capital Expenditures (265)(425)(459)(409)(347)
Dividends -----
Source Moody’s Financial Metrics
Cordova
FY2006 FY2007 FY2008 FY2009 FY2O1O
(in $millions)Ba3/Stable Ba3/Stab[e Ba3/Stable Ba3/Stab[e Ba3/Stable
Revenue $31 $32 $30 $31 $32
EBITDA 26 24 26 26 28
Net Property Plant &Equipment 227 220 213 206 199
Total Assets 256 252 246 246 242
Total Debt 194 190 185 179 170
Total Equity 60 61 60 66 71
Cash From Operations 10 8 10 11 13
Capital Expenditures 0 0 0 0 0
Dividends 0 0 0 0 0
CE Generation
FY2006 FY2007 FY2008 FY2009 FY2O1O
(in $millions)Bal/Stable Bal/Stable Bal/Stable Bal/Stable Bal/Stable
Revenue $477 $504 $531 $395 $261
EBITDA 234 256 271 198 122
Net Property Plant &Equipment 825 776 745 706 672
Total Assets 1,348 1,270 1,222 1,156 1,109
Total Debt 349 309 270 246 225
Total Equity 471 474 489 520 524
Cash From Operations 144 186 216 158 87
Capital Expenditures (27)(36)(59)(58)(38)
Dividends (41)(81)(92)(39)(18)
Satton Sea
16 OCTOBER 7,201’CREDIT AALYSS MDAMERICAN ENERGY HOLDINGS CO.
MOODY’S INVESTORS SERVICE INFRASTRUCTURE FINANCE
FY2006 FY2007 FY2008 FY2009 FY2O1O
(in $millions)Bal/Stable Baa3/Stab[e Baa3/Stable Baa3/Stable Baa3lStable
Revenue $209 $221 $228 $230 $225
EBITDA 106 113 118 122 113
Net Property Plant &Equipment 574 566 578 562 542
Total Assets 814 798 803 779 747
Total Debt 244 219 191 164 138
Total Equity 464 469 500 515 445
Cash From Operations 89 99 107 110 105
Capital Expenditures (27)(36)(59)(56)(38)
Dividends (37)(37)(18)(35)(49)
Source:AuditedFinancial Statements
17 OCTOBtR 7,2011 CREDT ANALYS:S.rDAMtRCAN ENERGY HOLDINGS Co.
M000YS INVESTORS SERVICE INFRASTRUCTURE FINANCE
Moody’s Related Research
Credit Opinions:
>MidAnierican Energy Holdings Co.
>PacifiCorp
>>MidAmerican Energy Company
,>Northern Natural Gas Company
>CE Electric UK Funding Company
>Cordova Funding Corporation
>Salton Sea Funding Corporation
>>CE Generation LLC
>Kern River Funding Corporation
Analysis:
>>Berkshire Hathaway.April 2011 (132121)
Industry OutLooks:
>>U.S.Power Companies:Regulation Provides Stability As Risks Mount.January 2011 (129930)
>>U.S.Power Projects:Offtake Contracts Provide Stability ‘While Merchant Generators Face Severe
Challenges.March 2011(131504)
Rating Methodologies:
>Regulated Electric and Gas Utilities.August 2009 (118481)
>Regulated Electric and Gas Networks,August 2009 (118786)
>>Natural Gas Pipelines.December 2009 (121678)
>>Power Generation Projects.December 2008 (112366)
>>Global Business &Consumer Service Industry.October 2010 (127102)
Special Report:
>The Great Credit Shift:Infrastructure Finance Post Crisis,September 2011(136119)
Special Comments:
>>Reducing Nuclear Reliance and Political Instability in the Electric Utility Sector is Credit
Negative.July 2011(134573)
>U.S.Natural Gas Transportation:Low Prices Pose Little Trouble for Midwest Natural Gas
Companies.May 2011(133445)
x’DPCR5:Rating-Neutral,But Greater Complexity Will Challenge Monitoring of Financial
Performance,May 2010 (124475)
To access any of these reports,click on the entry above.Note that these references are current as of the date of publication of
this report and that more recent reports may be available.All research may not be available to all clients.
18 OCTOBER 7,2011 CREDIT ANALYSIS:NOANER:CAN ENERGY HODINGS CO.
MOODY’S INVESTORS SERVICE INFRASTRUCTURE FINANCE
Senior Production Associate
Shubhra Bhatnagar
Report Number:136428
Author
Mihoko Manabe,CFA
©2011 Moody’s Investors Service,Inc.and/or its licensors and affiliates (collectively,“MOODY’S”(.All rights reserved.
CREDIT RATINGS ARE MOODY’S INVESTORS SERVICE,INC.’S (“MIS”)CURRENT OPINIONS OF THE RELATIVE FUTURE
CREDIT RISK OF ENTITIES,CREDIT COMMITMENTS,OR DEBT OR DEBT-LIKE SECURITIES.MIS DEFINES CREDIT RISK AS THE
RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL,FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY
ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT.CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK,
INCLUDING BUT NOT LIMITED TO:LIQUIDITY RISK,MARKET VALUE RISK,OR PRICE VOLATILITY.CREDIT RATINGS ARE NOT
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ssfficient qaality and from sosrces MOODY’S considers to be reliable inclading,when appropriate,independent third-party soarces.
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or selling.NO WARRANTY,EXPRESS OR IMPLIED,AS TO THE ACCURACY,TIMELINESS,COMPLETENESS,MERCHANTAEILITY OR
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Notwithstanding the foregoing,credit ratings assigned on and after October 1,2010 by Moody’s Japan K.K.(“MJKK”(are MjKK’s current
opinions of the relative future credit risk of entities,credit commitments,or debt or debt-like securities In such a case,“MIS”in the
foregoing statements shall be deemed to be replaced with ‘MJKK”.
MJKK isa wholly-owned credit rating agency subsidiary of Moody’s Group japan G.K.,which is wholly owned by Moody’s Overseas
Holdings Inc.,a wholly-owned subsidiary of MCO.
This credit rating is an opinion as to the creditworthiness or a debt obligation of the issuer,not on the equity securities of the issuer or
M any form of security that is available to retail investors.It would be dangerous for retail investors to make any investment decision0cIYYSbasedonthiscreditrating.If in doubt you should contact your financial or other professional adviser.
INVESTORS SERVICE
9 OCTOBER 7.20t1 CREDIT ANALY5;5:MDA”FCAN ENERGY HOLDINGS CO