20140515Compliance Filing.pdf

YPACITICORP
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VA 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
Companyl.
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 PacifiCory and are available to the public.
Therefore, in compliance with Commitnentl20 of the Stipulation, please find the attached report
related to PacifiCorp.
Very truly yours,
G-- LJ"al,"-
Bruce Williams
Vice President and Treasurer
Enclosure
I On April 30,2}l4,MidAmerican Energy Holdings Company changed its name to Berkshire Hathaway Energy
Company.
825 NE Multnomah, Suite 2000
RECE lvti.l Portland, oregon97232
Mooov's
INVESTORS SERVICE
Credit Opinion: PacifiGorp
Global Credit Research -07l/&y2014
Poilland, Oregon, United States
Rdings
C@ory
Oufl@k
lssua Ratirg
First tt/brtgrye Bonds
Senior Secured
Sr Ursec Bark Credit Facility
Senior Ursecued MTNftd Stak
Cormercid Paper
Ut Parent Berkshire lhthamay !nc.Oufl@k StaHe
lssuer Ratirg Aa2
Senior Unsecured Aa2
ST lssuer Ratirg P-1
Parent BEFIGHRE HAI}IAWAY ENERGY
@IUIPANT
Outook
Sr Ursec Bank Credil Facility
Senior Unsecured
Cornrercial Paper
Gorilacns
nnayst
Mhoko lrrklabdl.lary York City
Wllian L Hess/t,latr York City
Key lndlcators
[1]Paoncorp
CFO pe\AC + lnterest/ lnterest
CFOpe\AC/DeH
CFO pe\AC - Dividends / Deil
DeH / Capitdization
fl311m11 1.2131t2010 1Z31t200,J4&( 5.$( 5.2(21.V/o ET/o 26.0/o13.*h E?/o fr.e/o39.8% fi.e/o A-rylo
Itlooq/s
Raling
StaHe
A3
A1
A1
A3
(P)A3w2
P-2
SHe
43
43
P-2
Phone
212.#3.19t2
212.553.3837
fl31tmB fl31tn12s.fi 4$(
ZL$/o 21.1o/o
1Ae/o 18.4o/o3dT/o 38.3%
fl]Al ratim are b6ed on 'Adjrcted financial data and irrcorporde l/loody's Global Standard Adjrstnents for Norr
Financial Corporations. Source: lt/loody's Financid ]tletrics
Note: For definitions of Moody's most common ntio tenns please see the accompanying Use/s Guide.
Opini,m
Page 1 of7
Rating Drivers
Reasonably supportive regdatory environnent
Diversified generation portfiCio and service tenitoies
Sdtul credit nr*rics
Benefib ftonr Berkshire Hatfa ay affliation
Corporate Profile
PeifiCorp (A3 senior unsecured, stde) is a vatically integrated dectric utility conpany @urtered in
Pofland, Oregon seruing 1 .8 nillion rdail dectric ctstoners in six states, inclld'r,g W (4% d @E9orpls
201 3 retait elefuricity volunes) , Oregon e4n , Wcrdrq (T/o) , Vlhhingtm (T/o) , lcefrc On , dd Cdifomia
(1%d. PrcffiCorp dso has ancillary operdions in ufdesale porcr narketirB(So/od2013 dectricity vdurEs, 6
a result of e,xcess dectricity generation or oher syster bdarrcing *tivities) ard c@l nining senrices, bdh wftich
support its core utility business.
kifiCorp is the largest subsidiary of Berkshire Hattar'ray Energy Conpany (BHEC, fonrerty k19qvn as
MdA,nBrican Energy Hddirgs Co.: A3 senior unsecured, staHe), accantirB for rq€hly 45% of BHECs
opaating irrcolre in 2013. BHEC, in tum, is a corsolidated subsidiary of Berkshire Hdfra^ay lrn. (BRK Aa2
lssuaRatiry, staHe).
SUMMARY RANNG RATIONALE
hifiCorp's Etingp are supported by the sHility cf fie utility's regdated cah flovs, fte geographically diverse
and reHively corstrrtive regdatory ernrironrents in which it operates, the diversificatbn cf ib generatim
po{tfrrio, ad sdid credit nrcffics. The ratirU also considrs PaifiCorp's pcition a a subskliry of BHEC, a
hdding conpany r,rfrce subsidiaies are ptnaily engaged in regulated ativities, and the benefits fiorn ib
affiliatimwitr BRK
DETAILED RANNG CONSIDERATIONS
REA\SOMBLY SUPPORTI\E REGULATORY Ett4RONnrENT
hifiCorp's rating recognizes the rateregulated rnture of iF dectric utility operations which generate staHe and
predictaHe cash flotrtrs. PacifiCorp operates in reguldory jurisdictions that vve corside as avemge in tenrs of
franEu/ork, corsistency and pedictdility of decisiors alongwith an o<pectation of tirrdy recovery of csts and
investnents.
Rerrenues in 2014 will benefit from recent bme rate ircreases in Oregon ($24 nilion) and Vlbshington ($17
nillion) a udlas stepups under its tuveyear rate flars in Utah ($54 nilion) and Wlfonirg ($18 nillion).
hifiCorp is dso cunently prrsuing a generd rate case in utafr ($71 nillion requested) and Wlfoning ($36 nillion
request). prn ng ib jurisdictions, the conpany's nret challerging is \Abshington, wherethe allorcd ROE is the
lorrrest at 9.5% and where it is contestirg ib last rate decisim, while filing for a naar bce rate increce ($27 nillion
request).
ftftoJgh PacifiCorp ha ber filirB rate caes s/ery year or so in its hgest jurisdictiors and gdting re*mde
otconBs, regdatory 14 is still aident. Rde rdid ha inprored ib actLd ROE ftorn the 70/o rat1ge in 201 1 and
2012to 8.*/o in 2013. NanertHess, these retuns ae still bdoru the upper 9/o rage tM the conpany t6 been
dlo,ed in ib recent rate caes ard bdo rfte indrctyarer4e dlo^ed ROEs cf roglty 1tr/o.
Expecting flat lod gronffi orer the next decde, trc conparry tre curtailed its annrd cadhl oeendifures to
about $1.1 hillion, about Hf wfiat it spent in 2009. lt is dso kee#ng operding and ndntenance oeenses dcrarn in
orderto rcdrcethe need for rate rdief and, corsequenty, regulatory lag.
Future rate filirBs will arise ftorn iE $6 k llim Energy @amy tarsnission program wih the SigurdRed futte
segnent cunenfly under corsfrctim, and b e$nega^ratt l-ake Side 2 gre flant, which is expected to conre
mline in W 2014. The aHlity to rce a fonrtaard test year in its rate requests hdps to linit regdatory lag in LJHr,
Oregm, Wfoning, and Cdifornia The conparry h6 been successful in gdtirg apprords for its najor pcjects;
honever, it is e,xpced to sone disdlol/ances in nret of its jurisdictions, vrfue preapprwds on prcjects or cah
Page 2 ol 7
retums m constrwtion vrork in progress are ncfr granted.
The conpany h6 obtained enerry cct adjustnent nrechanisms in all iE jurisdictions noru e><cept Vlhhington.
Srrch mechahisms to recorer frrd ard purchced poler ccts - a large, vdatile e,xpense +re npre estaHished
in ottrer parts of the curntry. \Mrile this devdopnEnt is supportive of credit qrdity, tl'rere rermins sone 14 in
recovenng portions of energy ccts. For exanple, in lJt€fi, Vl&oning, and ldaho, the rnajor(y of the difierence
betu/een the actud porrrer ccts ard ccts estaHished in its bme rates is defened. This difierence is then
recovered or refi.rnded after an annualfiling.
D]VERSI FI ED GENERATI ON PORTFOU O AI{D SERVICE TERRITORI ES
P*ifiCorp benefits fiom a ud! diversified generation portftlio. lls f ,m [tWof net generating cap*ity is
conprised pnmarily of its loarcost bm+led cod da@(55%of theconpany's gerreration), alongwith Z5o/ofrqn
its ga msds, 1O%from hydro, and the remainirg 10%fromwind and otfrcr sources.
Wth coal rccounting for a sligtrt rmjority of its generation cap*ity, PacifiCorp is suhiect to nurrErous enissions
shndards, hrt the corpany is vrdl pcitioned to co@y, with the v*t rmjonty of its dants dready equip@ with
sulfur dioxide and nitrogen oxide controls. PrcifiCorp can vrdl affiord its annrd ervironnBntd o<penditures in the
$100 nillim range.
The rnarket and custoner dMersity of PrcifiCorp's six-state senrice tenitory is fuoraHe, because it nitigates the
econorric and regulatory inpacts in any one jurisdiction. For ocanple, the decline in the retail load in the P*ific
Northrest orer the lret sweral years wEs o,trsd by the cornrercial and industrid gnaMh in the Rocky Nh.rntain
states fromthe tech and energy sectors. lod groruth in the Pacific Northwest is nonr reccvering, and ue expect
flat sdes graruth orerall for the conpary.
SOUDCREDITMETRIG
I%cifiCorp produces sdid credit nHrics. 1n2013, the ratio of cah frornoperations bdore changes in uoking
cafnd (CFO peWC/DeHv'rc 23%(up ftqn21o/oin2011-2012) and CFO preWC plus lnteresVlnterestwas
S.Ox. \Ab ev<pect that these rdios will rencin at around these lsrds orer the near term a the decrease in the
defened ta( portion of CFO a a resuft of the expiration of bons depreciatim in 2013 is oftd by irrcremed
eamings ftonr rate rdief and cct control. The conparry's DebUB@k C+titdization vtx3T/odtyearsd 2013,
dueto a substantial anpunt of defened ta(es on its balance sheet.
BENEFITS FROM BERKSHIRE I-IATTIA\A'\Y AFFILIATION
PacifiCorp benefiE from its affiliation with BRK wtrich requires m regular dMidends from PacifiCorp or BHEC.
From a credit perspective, tlre conpany's attility to rdain its eamings as an entity that is privately hdd, particularlyI a deeppocketed sporsor like BRK is an advantage orer rrcst c*lrcr irvestor orvned utilities that are typcally
hdd to a regular dMiderd totheir shareholders.
As an exande, PrcifiCorp did n€f pay dividends for the first fle years after bdng acquired by BHEC in 2006, and
during that tine recdved equity contrifutions totaling $1.1 krillion forn BHEC to hdp PacifiCorp fimnce its cafitd
expenditures. lb balance sheet hm strengthened fromthis financial @icy, and PaifiCorp noar nnkes inegular
dividends that are sized to rmn4e PacffiCorp's equity ratio (* neasured I urdjusted equity to equity flusdeh) toabout Sfflo
Liquidity Profile
PrcifiCorp h6 good near-term liquidrty, with $172 nillion in cah and t\,\o $600 nillion revofuers el<prring in2017
and 2018, of which about $788 nillion wre arailaHe as of ttlarch 31,2014. The conparry genedes CFO pr+WC
at a runrate of rorrghly $1 .5 billion which will trcre than cover the $1.1 hf llion a year it plarrc on capital
expendilures. Excluding ninor arpunts of revenue bords, the only debt raturity orer the neld 12 rpnths is the
$200 nillion due on 15 August 2014.
l%cifiCorp uses its credit frcilities to backstop ib conrrercial paper pogram and to support its variable rate ta,x-
exenpt bonds. Tlrcse credit agreefiEnE do ncf require a ttlAC representation for bonoatings, which ri're viqv
pcitively. The sde financial corenant is a liniHion on deH to 65% of total c+italization. As of Nttarch 31 , 2014,
PrcifiCorp had amde hedrmm under that ccvenant with that ratio at 49% as defined in the agreenrent.
Rating Outlook
Page 3 of 7
The staHe outlmk incorporates our o<pectation ftat PrcifiCorp will cmtinue to recdve reasonaHe regdatory
featnBnt for the recovery cf its cadH ex@itures, and that the funding requirenents will be firmced in a
nmner corsistent witr nenAenEnfs cormttnent to naintain a hedttry financial pofile. Vlb anticipate that
hifiC,orp's credit nHrics will be srctained at about cunent lwds, for exafle, CFO peWC/Deh in the loru
2V/ora@.
What Could Changethe Rating - Up
fff'ough its flat financid outlook linib the prcpects for a rating upgrade in the foreseeHe fi.rture, the rating could
be upgrded longer term if reasonaHe regulatory support and a consenratively finarced capital expenditure
progftrn resufts in a srctained inprorenent in credit re{rics. This uould include, fur exar$e, PrcifiCorp's ratim
of CFO preWC/Debt sustained in the nid 20% range.
What Could Change the Rating - Down
The ratings conld be djtsted do/vrr ard if PacffiC;orp's darred cafital ex@itures are funded in a ranner
inconsistent with its cunent financid profile, or if thereuiere to be dverse regulatory rulirgs on cunent and future
rate cces srch tM rrre uouH *tticipate a srctdned deterioratim in firnrpid rreffics c denprstrated, for
exaqCe, by a rdio of CFO p+WC/DeH fullirg to the nid teens.
RdiqgPdors
PacifiCorp
Regul&d Elec'tric and C*s utilities lndusfry
Grid t1ll2l
Cunent LTM
fl311m13
Fac'tor 1 : Regulatory Franarork (25%)
a) Legislative and Jdicial Underplinnings of
lhe Regulatory Fanenork
b) Consistency and ftedictat lity of
Reoudatim
lllleasure
A
A
A
A
Score
ttur2: Abilityto ReooverCosts and Eam
Retums (25Plo)
a) Tindiness of Recovery of Opaatirg and
Safnd Ccts
c) Srficiencv of Rates and Retums
A
Ba
A
Ba
Facilor 3 : Eliversifi cation (107o)
, [Iarket Pcition
c) Generation and Fud Diversitv
A
Baa
A
Ba
Fac{or 4 : Financial Sbength (/Ool")
, CFO pe\AC + lnterest/ lnterest (3Year
Ng)
c) CFO pe-\AC / DeH (3 Year Avg)
;) CFO pe\AC - Dividends / Deh (3 Year
tug)
il DeH / Ca*talizatim (3 Yea Avq)
4.gx
21.tr/o
15.80/o
38.3%
A
Ba
Baa
A
iating:
Sri+hldicated Rating Before Ndchirg
Mjrctrent
lddCo Structurd Subordination Ndching
a) lndicated Rating fom Grid
r) Actml Ratinq Assioned
na
A3
na
43
A3
[3]tvtooOyrs 12-18 Montr
Foruard VievuAs ot Mry fr14
Mecure
A
A
Score
A
A
A
Ba
A
Ba
A
Baa
A
Ba
4.8x - 5.0x
2ff/e2%
15o/o- 1@/o
38o/o-4U/o
A
Ba
Ba
A
na
43
na
A3
43
[1]All ratios are bmed on'Adjusted finarrcialdata and irrcorporate ltloody's GlobalStandardAdjustnents for Non
FinancialCorporations. t2]As d 12312013; Source: lvbody's Financial ltletrics [3]This represenb lvbody's
fon ard vieut ncf, the viorv of the issuer; and unless ncfted in the to<t, does ncft ircorporate significant quisitiors
Page 4 ot 7
and divestitures.
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Page 5 of 7
Becauseof the pcsikility of hunun or nechanicalenorasudlas otfprffiors, tro,r,sy'etr, d!infonratim contained
herdn is pro/ided "AS lS' witrorlt wananty of any kind. IrcODYS adods all necessary np€Eures so that theherdn is pwided "AS lS' witput wananty of any kind. IrcODYS adoss all necessary ne€Eures so that the
infonratim it r.ses in asionirc a credit rdinq is of snffciqt ouditv and ftornsources IVIOODYS considers to Iinfonratim it rces in as(yning a credit rdirB is of srficiet qudrty and ftornsources IVIOODYS considers to be
rdide irrcludirp, uhan +propriate, independent thir+party sources. Ho re\rer, t\,pODYS is nc* an alditor and
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canncfi in wery validate infonration recdved in the rating prcess o in preparing
the tt/@'s PuHications.
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Page 6 of 7
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