20111129Compliance Filing.pdf

PAC ‘F’Co PP Pacific Power
I
I Rocky Mouintain Power I
AMIDAMERICAN ENERGY HOLDINGS COMNY PacifiCorp Energy
825 NE Multnomah,Suite 1900 LCT
November 29,2011 Portland,Oregon 97232
VIA OVERNIGHTDELIVERY
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 report
related to PacifiCorp.
Very truly yours,
Bruce Williams
Vice President and Treasurer
Enclosure
FitchRatings
PacifiCorp
Full Rat Report
Ratings Key Rating Drivers
Current
Security Class Rating
Long-Tern,1DR BBS
Short-Term IDR F2
Senior Secured A—
Senior Unsecured BBB+
Prelerred Stock BBS—
Commercta Paper F2
DR —Issuer default rat:ng,
Rating Outlook
Stab
Financial Data
PacifiCorp
LTM
(S Mil.l 9130111 2010
Revenues 4,517 4,432
Gross Margins 293 2.814
Cash from Operations 1818 1410
Operating EB1TDA 1685 1,597
Total Debt 6748 6458
Total CapitaLization 13 912 13 749
ROE (%)7.68 5.16
Capex/Depreciatiori (%236.5 286.5
Related Research
Analysts
Philip W.Srnyth.CFA
+212 9O8O531
Donna MoMonagle
÷ 212 908-0255
r
Ratings Affirmed:On Sept.29,2011,Fitch Ratings affirmed PacifiCorp’s (PPW)ratings with a
Stable Rating Outlook.PPW’s ratings and outlook reflect the electric utility’s solid credit-
protection measures,a diversified service territory,a generally balanced regulatory
environment,and relatively predictable operating earnings and cash flow characteristics.
Affiliation with Berkshire:PPW’s ratings and outlook also reflect the benefits of affiliation with
ultrnate Corporate parent.Berkshire Hathaway (BRK,issuer default rating [IDR]‘AA—”Outlook
Stable).
Ring-Fence Provisions:Structural protections insulate PW in the event of financial stress at
ntermedtate holding company MidAmerican Energy Holdings Co.(MEHC,IDR ‘BBB÷’!Qutlook
Stabe)without Impeding the parent’s ability to infuse capital into PPW,
Regulation Key:Timely recovery of large capital investment program in rates is crucial to
PW’s credit quality in Fitch’s view.The ratings assume recovery of capita:and operat;ng costs
in rates will support credit metrics consistent with the company’s BBB’IDR and Stable Outlook.
Credit Metrics Solid:Fitch estimates that PPW’s FF0 coverage arid leverage ratios will
remain consistent with the ratings category,with FF0 to interest of 4.2x—4.8x in 2011—2015,
and FF0 to debt of 19.0%—22.4%.
Improved Risk Profile:Since being acquired by MidAmencan Energy Holdings Company
(MEHC)in 2006,the utility’s business risk has been improved by the adoption of rate
mechanisms designed to reduce regulatory lag and facilitate timely recovery of fuel and
purchase power costs.
What Could Trigger a Rating Action
Improving Credit Metrics:A meaningful decrease in leverage relative to earnings and cash
flows coud ead to future positive rating actions.
Deterioration in Regulation:A significant deterioration in the utility’s relatively balanced
regulatory environment could ead to future credit downgrades.
Capex:Meaningful cost overruns to PW’s capex program or disallowance of sunk costs could
lead to adverse credit rating actions.
Ownership Change:Loss of the benefits of BRK ownership would have negative rating
impications.
‘ww.fitchratings .com November 16,2011
Fitch Ratings
Liquidity and Debt Structure
PPW has total revolving debt of $1.4 billion in place,composed of a $635 million facility that
matures in October 2012,and a $720 million line that matures in July 2013.The revolverssupportPPW’s CP program and certain variable tax-exempt debt.PPW’s total availablelquiditywas$1.2 bi;lion at the end of th:rd-quarter 2011,including $151 million of cash and
equivalents,avaiabty under its credit facilities and net of letters of credit Issued.Long-term
debt outstanding was $6.7 billion as of Sept.30.2011,representing 48.5%of PPW’s totalcapitalization.
Maturities Summary —2011—2015
1$Mu.)
Year
2011
2012
2013
2014
2015
A —Actual.6—EstmateSource.Conipany filings.
Total capex at PPW was $1.6 billion in 2010,and is expected to approximate $5.1 billion during
2011—2013,or $1 .7 billion per annum on average.
PPWs capex program .s focused on transmission,environmental remediation,natural gas-generation projects and system overhauls to maintain reliability and serve new load.
Among PPW’s largest projects is the
Energy Gateway (EG)transmission
project,wh ch is expected to cost
more than $6 bil:ion.EG would add
approximate:y 2,000 miles of high-
voltage transmission lines primarily in
Utah,Wyoming,Idaho,Oregon,and
the desert southwest during
2011—2019.The first phase of the
project.Populus (southern Idaho)to
Thrmina.(near Salt Lake City,UT),is
a 135-mile double-circjit,345-kilovolt
line that was competed and placed in service in November 2010.
Estimated and Historic PPW
Capex —2008—2013
$Bil.)
Year Amount
2008A 2.12009A2.32010A1.62011E1.6
20126
20136
Source:Company filings.
Risk of cast overrun and significant delay to PPWs capex program is a potential source ofconcernforinvestors.Management has compiled a solid track record in executing itsinvestmentplansandrecoveringitscapexinvestment.
Related Research
2 2
Regulatory Update
Management has focused on improving its reLationship with regulators across its six-state
service territory since acquiring PPW in 2006.Management has compiled a solid track recordofbalancedoutcomesinpastratecasefilingsriFitchsopinion.PPW files freqdently to
PacifCorp
Ncvember 16,2011 2
Debt Maturities
PPW’s debt maturities are
manageable,with approximately
$1.3 billion of its total $6.7 billion of
long-term debt and capital lease
obligations as of Sept.30,2011,
maturing during 2011—2015,as
indicated in the table below.
Capex
Amount
55A
24E
273E
2616
1296
FitCh Rat ing
recover costs associated with its large capex program to minimize the magnitude of rate hikes.
At $0.07 per kWh,PPWs average retail rate is well below the industry average,PPW has
power cost adjustment mechanisms in place in five of six states in its service territory.
In recent rate case activity,the Utah Public Service Commission approved a settlement inPPWs2011generaLratecase(GRC)filing that included a $117 mllion (7%)rate increase.
representing 50%of the original filing amount.Regulators in Wyoming approved a settlement
granting a $62 million (11%rate increase,approximately 63%of its original $98 mililon rate
increase request.
State Date Flied
Wyoming November2010
Utati January2011
Ldaho May2010
Washirigto,May 2010
Total N.A.
NA.—Not apphcable.
Source Company filings.Fitch Ratings.
The Idaho Public Utilities Commission
(IPUC)approved a $14 million rate
hike in a GRC concluded earlier this
year,The IPUC concluded n that rate
case that 27%of the company’s
Populus-to-Terrninal segment of the
EG project was not used and useful,
and is to be carried as pant held for
Recent Rate Case Activity
($Miij
Final Order Amount Amount Authorized %Issued Requested Authorized %Requested IncreaseJune201198626311Aigust20ll232117507February2oll2814507March201157335812N.A.415 226 54 N.A.
Pending GRCs
(S Mu.)
Data Filed State Amount %Increase
July 2011 Wasiington 13 4May2011lca3315
GRC —Cenerau rate case.
Source Company filings.
future use.PPW has appeaed this aspect of the IPUC order to the Idaho Supreme Court.
On May 27,2011,PPW flied for a $32.7 mIlion (15%)base rate increase.In September 2011,
PPW reached a two-year settlement agreement wth the IPUC staff and other intervenors in the
proceeding.The settlement proposes $17 million average annual rate increases each in 2012
and 2013.If approved by the IPUC,the rate increases wil be effective Jan,1,2012,and
Jan.1,2013,respectively.
The agreement proposes that the IPUC make a specific finding that the portion of the Populus
to-Termina’transmission line determined by the commission to be plant held for future use is
now used and useful.A final order in the proceeding is expected before year-end.
Fitch Ratings has summarized final outcomes in recently concluded rate proceedings and
pending rate case activity,as seen in the tables above.
Corporate Structure
PPW’s affiliation with intermediate holding company,MEHC.arid its ultimate parent,BRK,
provdes two unique,specfic financial advantages that confer,in Fitch’s view,a measure of
incremental financial floxibiity to PPW,
Unlike most utility 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
3‘acifiCorp
“Jovomber 16 2011
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dividends.This in turn lowers the dividend requirements from its operating subsidiaries,
including PPW.
MEHC and BRK have entered into an equity commitment agreement (ECA).The ECA initially
provided $3.5 billion of equity capital through February 2011,and was extended through
February 2014 and reduced to $2 bilion.
The ECA may be used at the request of MEHC for the purpose of paying MEHC debtobligationswhendue,and funding the general corporate purposes and capital requirements ofMEHC’s regulated subsidiaries.
PPW’s risk profile benefits from the strong fnancial positon of BRK,its ultimate corporate
parent,and BRK’s strategy to invest In util’ty assets for the long term.
Structural Protections
MEHC has implemented policies and procedures,including the creation of a special-purpose
entity,PPW Holdings (PPWH),which is designed to insulate PPW from MEHC and affiliates,PPWH has received a nonconsolidation opinion from independent counsel.Additional ring-fence provisions nclude an independent director,nonrecourse structure,dividend restrictions,a prohibition against the use of PPWH’s credit or pledge of its assets for the benefit o anyothercompany,and maintenance of separate books,financial records,and employees.
4
PaifiCorp
Ncber 16,2011
FitchFtati nj
Orgarnzational and ebt Structure
($Mu.,As of Sept.30,2011)
Berkshire Hathaway lnc
IDR Ai%.
MidAinericn Energy Holdings Co.
IDP HB
LTDe
•S •%‘
4
I I
PacCcrp
R:B8
Li Debt 6,747
cEEectric KERN RiverEtmdinq
ijic.fund4n
tDR:BB tORA
iTDebt 758
Vodcsbn’e Power
Gup
UR BBB+
DR —:ssuer default rating.LT—..g-tern.NP —Not rated.
Source.Cornany reports,
PacifiCorp
November S,201’
m E1i (‘Fitch Ratings
/4 f2 !!j
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Financial Summary—PacifiCorp
I MU.,Plans Years Ended Dec.31)LTM 9130/11 2010 2009 2008 2007 2006FundsmentaiRatios(x)
FF0/Interest Expense 5.3 5.5 4.3 4.0 3.9CFOilnterestExpense5.6 4.6 4.8 3.9 3.6 3.0FF0/Debt (%l 25,5 26.0 27.6 20.0 18.1 14.3OperatingESiTllnterestExpense2.8 2.7 2.7 2.8 2.8 1.9OperatingESITDA/interest Expense 4.3 4.1 4.1 4.2 4.4 3,5OperatingEBITDARJ(lnterest Expense +Rent)4.3 4.1 4.1 4.2 4,4 3,5Debt/Operating EBtTDA 4.0 4.0 4.0 3.9 3.7 5.9CommonDividendPayout(%100.2 —————‘nternal CashCapitsl Expendnures (%)86.8 87,6 64.3 55.3 54.1 40.9CapitalExpenditures/DeprecIation (%;236.5 288.5 424.0 365.1 305.6 296.1
ProfitabIlity
Adjusted Revenues 4,517 4432 4.457 4,498 4258 2,924NetRevenues2,930 2,814 2,780 2,541 2,490 1,627OperatingantMaintenanceExpense‘.094 11081 1,035 992 1,004 780OperatingEB1TDA1.685 1,597 1,609 1,437 1.385 770DepreciationandAmortizationExpense603561549490497355Operating58171,082 1,036 1060 947 888 415GrossInterestExpense393387394343314220NetIncomeforCommon549556542458439159OperatingMantenanceExpense%ofNet Revenues 37.3 38.4 37.2 39.0 40.3 47.9OperatingEBIT%of Net Revenues 36.9 36.8 38.1 37.3 35.7 25.5
Cash Flow
Cash Flow from Operations 1,818 1,410 1,500 992 824 432ChangeinWorkingCapital94(267)(274)(142)(115)(213)FundsfromOperstons 1,724 1,677 1,774 1,134 939 645Dividends(552)(2)(2)(2)(2)(2:Capital Expenditures (1,426)(1,607)(2,328)(1,789)(1,519)(1,051)FCF (160;(199)(830)(799)(697)(621;Net Other Investment Cash Flow 5 (6)5 6 8 9NetChangeInDebt27620783469669350NetEquityProceeds
—100 125 450 162 207
Capttal Structure
Short-Term Debt 36 85 —397Long-Term Debt 6,748 6,422 6,437 5,589 5,188 4,114TotalDebt6,748 6,458 6,437 5,674 5,188 4,511‘otal Hybrid Equity and Minoty ln:erest 21 21 105 21 21 59CommonEquity7,143 7.270 6,607 5,946 5,039 4,386TotalCapital13,912 13,749 13,149 11,641 10,248 8,956TotalDebt/Total Capital (%)48.5 47.0 49.0 48.7 50.6 50.4TotalHybridEquityandMinoityln:erest’Totat Capita.‘%)0.2 0.2 0.8 0.2 0.2 0.7CommonEquity/Total Capita (%j 51.3 52.9 50.2 51.1 49.2 49.0OperatingEBT-Opersing ncome be:cre tots reported state and ledera income tax expense.Operating E6ITDA —Operating income before total reported state andfederalincometaxexpenseplusdepreciationandamcrtiaationexpense.Source:Company reports.Fitch Ratings.
PaciflCorp 6November16,2311
j’—
SFitchRatmgs
The ratings above were solicited by,or on behalf of,the issuer,and therefore,Fitch has been
cornpensated for the provision of the ratings.
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Theinformation in this report is provided as is”without any representation or warnsrty of any kind,A Fitch rating is an opinionastothecieditwortlinessofasecurity.This opinion is based on established criteria and methodologies that Frtc!‘scontinuous’y evaluating and updating.Tneieore,ratings are the colective wDd<procuct of Firn and rio iridividua,or group cCindWiduals,is solely responstble for a rating.The rating does not address the nsk of loss due to risxs other man credit risk,unless such risk is specifically mentioned.Filch is not engaged in the offer or sale of any security,Afi Fitch reports have sharedauthorship.Individuals identified in a Fitch reportwere involved in,but are not solely responsible for,the opinions stated therein.The Individuals are named forcontact purposesonly.A report providing a Fitch rating is neither a prospectus nora substitute fortheinformationassembled,verified and presented to investors by the issuer and its agents in connection with the sale of thesecurities.Ratings may be changed or withdrawn at anytime for any reason in the sole dcietton of F1d.Friol,does notprovideinvestlireritadvicea’any sort Ratings aa not a ‘ecorirneidaticn to ouy,sel,or hole any seurtIy Ratngs Co notcommentontheadequacyofmarketprice,the suitanil.ty a’any security for a particular investor,or the x-exempt nature ortabilltya’payments made in respect to any security.Fitch receives fees from issuers,insurers,guarantors,other obligors,arid underwriters for rating securites Such fees generally vary from US$1 GOC to US$750,000 (or the applicable currencyequivalentperissue.In certain cases,Fitch will rate all or a number of issues issued by a partictiar issuer,or insured orguaranteedbyaparticularinsurerorguarantor,for a single annual fee.Such fees are expected to vary from US$10,000 toUS$1,500,000 i:or the applicabio currency equralent),The assignment,publication,ordissemination of a rating by Fit.cti shallnottx’instit*e a consent by Fitch to use its name as an expert in connection with any registration statement flied under theUnitedStatessecuritieslawe,ti-re Financial Services and Markets Act of 2(XX)of Great Britain,or’the securities laws of anypatilerjurisdictioftDuetotherelativeefficiencyofelectronicpublishingariddistribution,Fitch research may be available toele’orrlo subsaibers up to three days earlierthan to printsubsoribets.
7PacifiCorp
Jovember 18,2011