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HomeMy WebLinkAbout20140204Compliance Filing.pdfYPacrnEonp \ A MIOAI{ER|CA|{ EI{EIGY HObTNGS ffiilNY t - ,. 1 - , t?i,. rri -r, ,'li !i: ;:L in['rt'[,T*ili" re,.Lcr VIA OVERNIGHT DELIVERY Idaho Public Utilities Commission 472West 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 attachment in compliance with the Commission's Order in this case issued on February 13,2006 and amended on March 14,2006. The Order approved the Stipulation supporting the acquisition of PacifiCorp by MidAmerican Energy Holdings Company. Commitment I20 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 Comminnentl20 of the Stipulation, please find the attached report related to PacifiCorp. Very truly yours, \!- wll* Bruce Williams Vice President and Treasurer Enclosure Paclllc Forverl Rocky Mountain Pover I PaclflCorp Energy Mooov's INVESTORS SERVICE Rating Action: Moody's upgrades MidAmerican Energy and its US utility subsidiaries; outlooks stable Global Credit Research - 30 Jan 2014 ApproximatelV 124 billion of debt affected New York, January 30,2014 .- Moody's lnvestors Service upgraded the ratings of MidAmerican Energy Holdings Co. (MEHC, including its senior unsecured to A3 from Baal ) and its subsidiaries PacifiCorp (including its lssuer Rating to A3 from Baal ); MidAmerican Funding, LLC (its senior unsecured to A2 fom A3); MidAmerican Energy Company (MEC, including its lssuer Rating to Al from A2); NV Energy lnc. (NVE, including its senior unsecured loBaa2from Baa3); Nevada Power Company (NPC, including its lssuer Rating to Baal from Baa2); and Siena Pacific Power Company (SPPC, including its lssuer Rating to Baal from Baa2). These rating actions completes Moody's review of MEHC and its US utility subsidiaries initiated on November 8, 2013. The outlook for allthese entities is stable. RATING RATIONALE The primary driver of today's rating action was Moody's more favorable view of the relative credit supportiveness of the US regulatory environment, as detailed in our September 2013 Request for Comment tited "Proposed Refinements to the Regulated Utilities Rating Methodology and our Evolving View of US Utility Regulation." "MidAmerican Energy Holdings' credit quality has benefited from improvements in the regulatory environments throughout its many jurisdictions," said Moody's senior vice president Mihoko Manabe. MEHC's A3 rating befits one of the largest, diversified portfolio of regulated assets among US utility holding companies. Moody's notes that just last month, MEHC closed on its $10 billion purchase of NVE, bolstering its position as a leading owner of regulated utilities. This acquisition adds NVE as MEHC's second-largest subsidiary (20Yo of pro forma EBITDA as of LTM September 30, 2013) behind PacifiCorp (33% of pro forma EBITDA) and Nevada to an already long list of regulatory jurisdictions in which it operates. Leverage will spike from the acquisition debt, but Moody's expects it will be managed back down over the next few years with the substantial ftee cash flow and tax credits that will be generated by MEHC's nor expanded organization. This acquisition is also positive for MEHC's business risk profile as the company has lately ficcused on renewable investments that provide less durability than regulated assets. Still, unregulated businesses (8% of pro forma EBITDA) remain minor in the scheme of MEHC's large balance sheet. For NVE and its subsidiaries NPC and SPPC, this merger is a credit-positive event as they become a part of a larger, well-capitalized organization that has a demonstrated track record within the regulated utility space of being a longrterm investor, attentive to credit quality and able to strengthen regulatory and end-use customer relationships. Moreover, given NVE's service tenitory and the reliance on the gaming and mining sectors which can lead to boorn-or-bust cycles, being a part of a deeppocketed parent will be a favorable credit development. NVE is an improving credit, having been upgraded three times over the last three years, the last time in May 2013 to investment-grade just before the merger with MEHC was announced. These upgrades were driven by a more credit-supportive regulatory environment in Nevada accompanying the company's improving financial position. The company generates healthy cash flovv, but the disparity between the utility subsidiary ratings at NVE (NPC and SPPC both at Baal)and MEHC's other utility subsidiaries PacifiCorp (A3) and MEC (A1) reflects NVE's still relatively high leverage. As of LTM September 2013, NPC and SPPC's cash flow pre-working capital-todebt ratios were in the high 15olo range, distinctly weaker than 20o/o at both PacifiCorp and MEC. PacifiCorp's A3 rating is supported by the geographically diverse and relatively constructive regulatory environments in the six western states where it operates. ln the context of Moody's more favorable view of US utility regulation, Moody's assesses PacifiCorp's overall regulatory treatment as average. Afthough PacifiCorp has been filing rate cases every year or so in its largest jurisdictions and gefting reasonable outcomes, regulatory lag remains an ongoing challenge. The company however has made strides in obtaining multi-year rate increases, notably in Utah (by far its biggest jurisdiction comprising 44o/o of PacifiCorp's 2012 retail electricity volumes), and energy cost adjustment mechanisms in all its jurisdictions no,r/ except Washington (a minor jurisdiction at 7% of electricity volumes). Under MEHC's ownership since 2006, PacifiCorp's capital structure has strengthened organically as a result of both retained earnings and substantial equity contributions from MEHC. MidAmerican Funding (A2), MEHC's thirdJargest US utility platform (pro forma 14%lTM September 2013 EBITDA), is rated the highest arnong them. MidAmerican Funding's utility subsidiary MEC is the largest utility in lowa, where Moody's views it receives above-average regulatory treatment compared to its peers. The features of its regulatory scheme, such as an eamings sharing mechanism and pre-authorization of capital projects at higher than industry-average ROEs result in stronger credit metrics than those of its sister companies. MEC is in midst of its first base rate case in nearly 20 years, in which it has reached a twoyear settlement with most of its intervenors, and which is expected be approved this quarter. This settlement, as proposed, will bring visibility to future revenues during its term, maintain many of the positive features in its cunent regulatory scheme, and importantly, introduce an energy adjustment clause which will be a significant improvement in its cost recovery mechanism. The ratings of intermediate holding companies MidAmerican Funding and NVE are notched off those of its operating subsidiaries to reflect structural subordination. WHAT COULD CHANGE RATINGS - UP MEHC's ratings are unlikely to be upgraded again in the foreseeable future given that the holding company's leverage has increased with the NVE acquisition. For its US utility subsidiaries, upgrades are possible if their regulatory treatment improves much more, enabling them to sustain stronger credit metrics. For example, the follouring levels of cash flow from operations pre-working capital-todebt ratios could indicate upgrades: around 20o/olor MEHC, above 18% for NVE and its subsidiaries, the mid-20% range for PacifiCorp, and the 30% range for MEC. WHAT COULD CHANGE MTING -- DOWN MEHC's ratings could be downgraded if business risk increases materially; major investments are financed with excessive leverage; and credit metrics sustain a decline. For example, the following levels of cash flo,v from operations pre'working capital-todebt ratios could indicate downgrades: in the low teens for MEHC, below 15% for NVE, the mid-teens for PacifiCorp, and the lw 20o/o range for MEC. The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology. Headquartered in Des Moines, lowa, MidAmerican Energy Holdings Co. is a diversified utility holding company privately owned by Berkshire Hathaway lnc. Actions Taken: MidAmerican Energy Holdings Co.: Senior Unsecured Rating to A3 from Baal Senior Unsecured Bank Credit Facility to A3 from Baal Outlook to Stable from Under Review for Upgrade MidAmerican Funding, LLC : Senior Unsecured Rating to 42 ftom A3 Outlook to Stable from Under Review for Upgrade MidAmerican Energy Company: Long Term lssuer Rating to A1 from A2 First Mortgage Bonds to Aa2 from Aa3 Senior Secured to Aa2 from Aa3 Senior Secured Shelf to (P)Aa2 from (P)Aa3 Senior Unsecured Shelf to (P)A1 from (P)A2 Subordinate Shelf to (P)A2 from (P)A3 Outlook to Stable from Under Review for Upgrade PacifiCorp: Long Term lssuer Rating to A3 from Baal Senior Unsecured MTN to (P)A3 from (P)Baal Senior Unsecured Bank Credit Facility to A3 from Baal Preferred Stock to Baa2lromBaa3 First Mortgage Bonds to A1 from A2 Senior Secured to A1 from A2 Senior Secured MTN to (P)Al from (P)A2 Outlook to Stable from Under Review for Upgrade NV Energy lnc. : Long Term lssuer Rating toBaa2from Baa3 Senior Unsecured to Baa2ftomBaa3 Outlook to Stable from Under Review for Upgrade Sierra Pacific Power Company: Long Term lssuer Rating to Baal from Baa2 First Mortgage Bonds to 42 from A3 Outlook to Stable ftom Under Review for Upgrade Nevada Power Company: Long Term lssuer Rating to Baal from Baa2 First Mortgage Bonds to 42 from A3 Senior Secured to A2 from A3 Ouflook to Stable from Under Review for Upgrade REGULATORY DISCLOSURES For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity. Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review. Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating. Please see the ratings tab on the issuer/entity page on www.rnoodys.com for additional regulatory disclosures for each credit rating. Mihoko Manabe Senior Vice President lnfrastructure Finance Group Moody's lnvestors Service, lnc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 21 2-55&0376 SUBSCRIBERS: 212-55$1653 William L. Hess MD - Utilities lnfrastructure Finance Group JOURNALISTS: 21 2-55&0376 SUBSCRIBERS: 212-55&1653 Releasing Office: Moody's lnvestors Service, lnc. 250 Greenwich Street New York, NY 10007 U.S.A. JOU RNALISTS : 212-55}10376 SUBSCRIBERS: 212-55$1653 MooDY's INVESTORS SERVICE @2014 Moody's Corporation, Moody's lnvestors Service, lnc., Moody's Analytics, lnc. and/or their licensors and affiliates (collectively, "MOODY'S'). 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