20140319Compliance Filing.pdf

YPacrnConp
\ A tEEirc il ctGaGY Hor.olNGS oofimr{Y
:r ii :; ,,,i ! ,t ;,li il' ! 8 i:t"i:,t 3':rTTdll" re00 Lcr
YA OWRNIGHT DELIWRY
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 Commitment I20 of the Stipulation, please find the attached report
related to PacifiCorp.
Very truly yours,
\ 1--- Lcac,.--
Bruce Williams
Vice President and Treasurer
Enclosure
Paclflc Fouarl
Rocky Mountaln Foryerl
PaclflCorp Enorgy
Fitch Ratings I Press Release Page 1 of3
FitchRatings
Tagging lnfo
Fitch Rates PacifiCorp's Offering of First Mortgage Bonds 'A-' Ratings Endorsement Policy
'10 Mar 2014 12:15 PM (EDT)
Fitch Ratings-New York-10 March 2014: Fitch Ratings has assigned an'A-' rating to Pacifioorp's (PPW) offering of First
Mortgage Bonds. Proceeds will be used to repay short-term debt and for general corporate purposes. The notes will rank
equally and ratably with all other debt issued under the Mortgage. The Rating Outlook is Stable.
Stable Outlook: PPWs rating and Stable Outlook reflect its solid financial position, competitive resource base and
balanced regulatory treatment.
KEY RATING DRIVERS:
--Solid financial position;
--Balanced rate treatment diversified across six state regulatory jurisdictions;
--Revised capital plan;
--Good stand-alone liquidity;
--Ownership by MidAmerican Energy Holdings Co. (MEHC, IDR'BBB+', Stable Outlook).
Financial Profile: Fitch expects financial metrics to remain consistent with, or slightly ahead of guidelines for the rating
category and risk profile, with forecasts for EBlTDA-to-interest to trend upward of 4.8 times (x) and funds from operations
(FFO)-to-debt to be at or near 19% through 2015. Fitch attributes lower FFO in the forecast to the absence of bonus
depreciation. Balanced rate treatment, including timely recovery of capital costs is central, in Fitch's opinion, to maintaining
a solid utility financial profile.
Rate Treatment: PPW is an integrated electric utility with operations in six western state jurisdictions which limits exposure
to any one jurisdiction. Fitch considers rate treatment fair. Regulatory lag is mitigated through rate features designed for
timely recovery of, or deferral of capital investments amongst other items. Rate constructs in five of the six jurisdictions
include power cost adjustments, the State of Washington being the exception. The Stable Outlook assumes reasonable
outcomes in pending and future rate proceedings.
Final Rate Order in Washington: The Washington Utilities and Transport Commission (WUTC) approved a $17 million
electric rate increase based on a9.5/" return on equity (ROE) in December 2013. The final order approved recovery of
costs related to plant additions, with one exception where costs were not known or measurable at the time. The utility had
filed for a $42.8 million electric rate increase earlier in January 2013 based on a historical test year period ended June 30,
20'12, adjusted for known and measurable changes, and a 10% ROE. The utility's prior allowed return was 9.8%, effective
in 2010. The allowed return, in Fitch's opinion, is lower than the sector average of around 107o.
The Washington rate order does not include a power cost adjustment. The 2013 rate filing included a proposal for a power
cost adjustment mechanism; however, the proposal was denied by the WUTC on the grounds that it did not meet
commission precedent; specifically it did not include a sharing or dead band. With operations well-diversified across six
state jurisdictions, of which all but Washington have power cost adjustment mechanisms, Fitch considers the utility's
vulnerability to commodity price volatility as manageable. According to management, over 90% of retail electric sales are
covered by a power cost mechanism. Fitch would expect PPW to pursue a power cost mechanism in a future rate filing.
Rate Settlement in Oregon: PPW entered into a rate settlement agreement with the Public Utility Commission of Oregon
(PUC) with new rates effective in January 2014. The settlement authorized a $23.7 million electric rate increase, based on
a 9.8% ROE. The utility had filed for a $56 million electric rate increase based on a 12-month historical period ended June
2012 with pro forma adjustments to calculate a2014 test period, and a 9.8% allowed ROE. lncluded in the initial filing were
costs related to capital investments, as well as revised depreciation estimates and pension drivers. The settlement
included capital cost recovery for certain pro,iects, while other projects will have costs recovered separately in tariff riders.
Also considered separately were net variable power costs.
https://www.fitchratings.corn/creditdesk/press_releases/detail.cfm?print=1&pr_id=823131 3ll1l20l4
Fitch Ratings I Press Release Page 2 of 3
Rate Filing Pending in Utah: PPW has a general rate case pending with the Utah Public Service Commission (Utah PSC).
ln January 201 4 the utility filed for a $76.3 million electric rate increase based on a forecast year ending June 2014 and
ROE of 10%. According to management, cosls related to capital investmenls and lower retail sales are key drivers for the
rate increase, and the higher requested ROE is consistent with the higher interest rates anticipated by management over
the period new rates will be in effect. The utility's current authorized ROE is 9.8%, etfective 2012.
Rate Filing Pending in Wyoming: PPW has a general rate case pending with the Wyoming Public Service Commission
(Wyoming PSC). ln March 2014 the utility filed for a $36.1 million electric rate increase based on a 10% ROE and a 51.6%
common equity ratio. The utility's current authorized ROE is 9.8%, effective 2012. According to management, the rate
increase is largely to recover costs related to new capital investments. Other drivers include higher system costs due to
customer usage growth, and higher depreciation rates. Fitch anticipates fair outcomes in the utility's pending rate filings.
Capital Plan: PPWs capital plan is forecast to reach $6 billion over the five-year period ending 2017. The target spending
level was revised lower by $2 billion to capture declining load growth forecast for the utility's service territory. Management
has delayed investments in new generation and transmission and will convert the Naughton Unit 3 plant from coal to
natural gas to manage environmental compliance costs. Fitch's concerns relate to timely project execution and capital cost
recovery, as well as the possible emergence of more stringent environmental rules and regulation. The revised capital plan
has been incorporated in Fitch's forecast.
Liquidity: PPW's liquidity position at Dec. 31, 2013 was $932 million, including $53 million in available cash. PPWs stand-
alone bank credit is $1 .2 billion and includes two separate bank credit facilities equally sized at $600 million, which mature
in 2017 and 2018, respectively.
Refinancing Activity: Fitch considers PPW's refinancing risk as low and access to the debt capital markets as unrestricted.
The utility's debt maturity profile is manageable, with $236 million due in 2014, $122 million due in 2015 and $57 million
due in 2016.
Ownership: PPW Holdings, LLC (not rated by Fitch), an intermediate holding company for PPW, is a subsidiary of
MidAmerican Energy Holdings Co. (MEHC, IDR'BBB+', Stable Outlook), which in turn is 90% owned by Berkshire
Hathaway Corp. (BRK, IDR'M-', Stable Outlook). Fitch views MEHC's ownership structure as a credit positive for PPW.
With no dividend to ultimate parent BRK, the retention of earnings at MEHC affords flexibility in managing operating
company growth, dividends and capital structure.
Operating Co. Ring Fencing: Similar to other MEHC operating subsidiaries, PPW is ring-fenced by a special purpose entity
with features designed to preserve credit quality including a non-recourse structure to limit MEHC liabilities to PPW, and
dividend restrictions. Additionally, credit available to PPW is prohibited from being used to satisfy obligations or assets to
be pledged for the benefit of MEHC or another MEHC company.
RATING SENSITIVITIES:
--A credit upgrade could occur if FFO{o-debt were to increase and be sustained nail 20o/o.
-A credit downgrade could occur if FFO-to-debt were to decrease and be sustained below 16%.
Contact:
Primary Analyst
Lindsay Minneman
Director
[phone]
Fitch Ratings, lnc.
33 Whitehall St.
New York, NY 10004
Secondary Analyst
Philip W. Smyth
Senior Director
[phone]
Committee Chairperson
Glen Grabelsky
Managing Director
[phone]
https://www.fitchratings.corn/creditdesk/press_releases/detail.cfm?print=1&p1id=823131 3l1ll20I4
Fitch Ratings I Press Release Page 3 of 3
Media Relations: Brian Bertsch, New York, Tel: [phone], Email: [e-mail].
Additional information is available at'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Recovery Ratings and Notching Criteria for Utilities', Nov. 19, 2013;
--'Corporate Rating Methodology: lncluding Short-term Ratings and Parent and Subsidiary Linkage', Aug. 5, 2013;
--'Rating North American Utilities, Power, Gas and Water Companies', May 16, 201 1.
Appllcable Crlterla and Related Research:
Recovery Ratings and Notching Criteria for Utilities
Corporate Rating Methodology: lncluding Short-Term Ratings and Parent and Subsidiary Linkage
Rating North American Utilities, Power, Gas, and Water Companies
Addltlonal Disclosure
Solicitation Status
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ
THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP//FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE
TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE
'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM
THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE
FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE'CODE OF CONDUCT'SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE
SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS
FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY
SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
Copyright @ 2014 by Fitch Ratings, lnc., Fitch Ratings Ltd. and its subsidiaries.
https://www.fitchratings.corn/creditdesk/press_releases/detail.cfm?print=l&prjd=823131 3nU20t4