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Home My WebLink About20150626Compliance Filing.pdfJrne26,2ot5 ?il: ,t,J,: i i fl.i.i g' 33 va TryRNIGHT DELIVER\ . iT lllr':li -::-:i ; ' . - ;, 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. CommitmentI20 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 Commitnentl20 of the Stipulation, please find the attached report related to PacifiCorp. Very truly yours, O^- UJA"-- Bruce Williams Vice President and Treasurer Enclosure t On April 30,2014, MidAmerican Energy Holdings Company changed its name to Berkshire Hathaway Energy Company. 825 NE Multnomah, Suite 2000 Portland, Oregon97232 FitchRatings FITCH RATES PACIFICORP'S FIRST MORTGAGE BONDS 'A'; OUTLOOK POSITIVE Fitch Ratings-New York- I 6 June 20 I 5: Fitch Ratings has assigned an 'A' rating to PacifiCorp's (PPW; IDR 'BBB+'; Outlook Positive) offering of first mortgage bonds (FMB). 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. PPW's Rating Outlook is Positive. KEY RATING DRIVERS --Improving credit metrics; --Balanced rate treatment diversified across six state regulatory jurisdictions; --Manageable debt and capex; --Ownership by Berkshire Hathaway Energy Co. (BHE; IDR'BBB+', Stable Outlook). The rating and Positive Outlook reflect PPWs strong credit metrics and rate increases granted by regulators to recover its large, historic capex. The ratings and outlook also consider PPW's relatively low business risk, lower prospective capex relative to recent historic levels, a competitive resource base and below-industry-average retail rates. Fitch forecasts 2015-2019 funds from operations (FFO) coverage and leverage ratios will be equal to or better than 4.8x and 4.0x, respectively. Performance consistent with Fitch's expectations would likely result in a one-notch credit rating upgrade, resolving the Positive Outlook. PPW's multi-state service territory and diversified regulatory environment support the ratings and Positive Outlook. PPW operates in six states: Utah, Wyoming, Idaho, Oregon, Washington and California. Regulatory compacts across PPWs service territory are generally well-balanced. However, in Fitch's opinion, recent rulings by Commission (WUTC's) in PPW general rate cases unfavorable from an investor point of view. the Washington Utilities and Transportation issued in March 2015 and December 2013 were The rulings disallowed costs related to purchased power from qualifuing facilities located outside the state of Washington and authorized a below-industry average 9.5% authorized return on equity. In its March 2015 order, the WUTC authorized a rate increase of $9.6 million, 32oh of the $30.4 million requested by PPW in the proceeding. PPW has appealed both WUTC orders. Fitch notes that Washington is relatively small slice of PPWs consolidated operations, representing approximately 8% of consolidated 2014 kilowatt hour (kwh) sales. By comparison, Utah, Oregon and Wyoming represent 44yo,24yo and 17%o of kwh sales respectively. Regulatory outcomes across the remainder of PPW's service territory have been and are expected to continue to be balanced. PPW has approved fuel adjustment clauses in place that mitigate commodity price exposure in allof its regulatory jurisdictions. In March 2015, PPW filed a general rate case with the Wyoming Public Service Commission (WPSC) requesting a $32 million(5%) rate increase. The requested rate hike is based on a9.85% authorized ROE and a 51.4o/o equity ratio. In its last rate case, the WPSC granted PPW a $20.2 million rate increase based on a below industry average 9.5%oauthorized return on equity (ROE). The December2014 WPSC authorized rate increase represented approximately 62% of the company supported $32.6 million rate increase rate increase request. PPW filed the rate case March 2014. In Fitch's view, the commission order provides the company with a reasonable opportunity to earn its authorized return and is credit neutral notwithstanding the below industry average authorized return. PPWs annual capital expenditures were essentially flatin2014 and2013 at $1.065 billion and $1.066 billion, respectively, 2loh below 2012 capex of $1.346 billion. Capex averaged $1.5 billion per annum 2010-2012. Projected 2015-2017 capex approximates $842 million per annum on average. The meaningfully reduced 2015-2017 capex reflects slower load growth and efforts by management to minimize customer rate increases. Slowing PPW service territory load growth trends are driven primarily in Fitch's view by energy efficiency gains and are a source of uncertainty along with the impact of environmental rules and regulations on PPWs coal-fired generation. Fitch believes these dynamics are manageable within the regulatory compact and unlikely to meaningfully weaken PPW's creditworthiness in the near-to- intermediate term. PPW is considering the feasibility, costs and benefits ofjoining the California Independent System Operator (CAISO) as a participating transmission owner. The analysis is expected to be completed summer 2015 and, if PPW decides to move forward, would be subject to stakeholder review and input and regulatory approvals. PPW is a wholly-owned indirect subsidiary of BHE which in turn is majority owned by Berkshire Hathaway Inc. (BRK; IDR'AA-', Outlook Stable). Ownership of BHE by BRK is in Fitch's view a positive as dividend retention affords BHE greater flexibility in managing operating company growth, dividends and capital structure. Ring fence provisions at PPW including a special purpose entity are designed to preserve credit quality including a non-recourse structure to limit PPW exposure to BFIE liabilities and dividend restrictions. KEY ASSUMPTIONS --Revenue increases approximating2%o per annum, reflecting modest sales growth and rate increases. --Earned ROE approximates 9%o over the forecast period. --Capex averages $850 million-$900 million per annum through 2019. --Continued credit supportive regulatory regimes across PPW's jurisdictional service territory. RATING SENSITIVITIES Positive - Future developments that may, individually or collectively, lead to a positive rating action include: Sustained PPW earnings and FFO leverage ratios of 3.4x and 4.0x or better, respectively, along with continued balanced regulation. Negative - Future developments that may, individually or collectively, lead to a negative rating action include: Unexpected deterioration across PPW's regulatory jurisdictions; A prolonged outage at a major generating facility; These or other factors collectively or individually causing PPW's FFO-adjusted leverage to deteriorate to worse than 5x and EBITDAR leverage to 3.75x, or worse, on a sustained basis. LIQUIDITY PPWs available liquidity position at March 31,2015 was $796 million, including $12 million in cash and cash equivalents and remaining borrowing capacity of $784 million under its revolving credit facilities. PPWs stand-alone total borrowing capacity under its revolving credit facilities is $1.2 billion and is comprised of two separate facilities equally sized at $600 million maturing 2017 and 20 I 8, respectively. Primary Analyst Philip W. Smyth, CFA Senior Director +1-212-908-0531 Fitch Ratings, [nc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Roshan Bains Director +t-212-908-0211 Committee Chairperson Shalini Mahajan, CFA Managing Director +1-212-908-0351 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: alyssa.castelli@fi tchratings.com. Date of relevant rating committee Oct.2,2014. Additional information is available at'www.fitchratings.com'. Applicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 28 May 2014) https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id:749393 Parent and Subsidiary Rating Linkage Fitch's Approach to Rating Entities within a Corporate Group Structure (pub. 05 Aug 2013) https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id:714476 Recovery Ratings and Notching Criteria for Utilities (pub. 05 Mar 2015) https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id:863298 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONSAND DISCLATMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP:/IFITCHRATTNGS.COI\4/ T]NDERSTANDINGCREDITRATINGS. TN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATTNGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE'WWW.FITCHRATINGS.COM'. PUBLI SHED RATING S, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLTANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM TIIE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTIIE,RPERMISSIBLE SERVICE TO TTM RATED ENTITY ORITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH T}IE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOT,ND ON TI{E ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.