20150709Compliance Filing.pdf

YPecrnConp
July 9,2015
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
Company.l
Commitmentl20 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,
f;t;rt*
Bruce Williams
Vice President and Treasurer
Enclosure
t On April 30,2074, MidAmerican Energy Holdings Company changed its name to Berkshire Hathaway Energy
Company.
Pacific Power I
Rocky Mountain Powcr
825 NE Multnomah, Suite 2000
Portland, Oregon 97232
PacifiCorp
A Subsidiary of Berkshire Hathaway Energy
Full Rating Report
Ratings
Long-Term IDR
Senior Unsecured
IDR - lssuer Default Rating.
Rating Outlook
Long-Term IDR
Financial Summary
PaclflCorp
LTT'I
3t31tl5
BBB+
A-
Key Rating Drivers
Strong Credit Metrics: PacifiCorp's (PPW) 'BBB+' lssuer Default Rating (lDR) and Positive
Rating Outlook reflect the utility's strong credit metrics, supported by rate increases granted by
state regulators in recent years to recover its large, historic capex. The ratings and outlook also
consider PPW's relatively low business risk, more manageable prospective capex, a
competitive resource base and below-industry-average retail rates. Fitch estimates 201F2019
FFO coverage ratios of 4.8x or higher and leverage ratios of 4.0x or lower.
Lower Capex: PPW's annual capex is expected to average $842 million during the
2015-2017 period, significantly lower than the average annual run rate of approximately
$1.065 billion in 2013 and 2014 and peak investment levels of $1.5 billion per year seen in
201(J-2012. Given the sharply lower trend in 201*2017 capex, Fitch expects cash flow to be
slightly negative on average after capex and dividends. Lower capex is expected by Fitch to
mitigate upward pressure on retail customer rates.
Constructive Regulation: Regulation across PPW's multistate service territory is generally
stable and balanced, in Fitch's view, supporting its credit ratings and Positive Rating Outlook.
An unexpected, meaningful and sustained deterioration in regulatory oversight would likely
trigger adverse rating actions.
Ownership Structure: PPWs credit profile benefits from affiliation with Berkshire Hathaway
Energy (BHE). Ownership of BHE by Berkshire Hathaway lnc. (BRK, M-/Stable) provides the
former with greater flexibility to manage utility subsidiary capital structures and liquidity
because there is no dividend payment to ultimate parent BRK from BHE. PPW is ring-fenced to
preserve its stand-alone credit profile.
Rating OuUook: The Positive Rating Outlook considers PPWs relatively predictable earnings
and cash flows, strong credit metrics and generally supportive tariff regimes across its six-state
service territory.
Rating Sensitivities
Positive Rating Action: Sustained PPW earnings and FFO leverage ratios below 3.4x and
4.0x, respectively, along with continued efficient operating performance and balanced
regulation could trigger future credit rating upgrades.
Negative Rating Action: Unexpected deterioration across key PPW regulatory jurisdictions
and/or a prolonged plant outage or other event causing PPWs FFO-adjusted leverage to rise
above 5.0x and EBITDA leverage above 3.75x on a sustained basis could trigger negative
rating actions.
Adjusted RelGnus
Operating EBITDAR
Cash Flowfrom
Op€rations
Total Adjusted Debt
Tdal Capitalization
Cape/
Depreciation (%)
FFO Fixe6'
Charge Cov€rage (x)
FFGAdjusted
Leverage (x)
Total Adjusted
DebUEBITDAR (x)
5,214 5,2522,034 2,042
1,570 1,570
7,310 7j20't4,703 14,829
't.4 1.s
5.0 5.0
3.7 3.6
3_6 3.5
Related Research
U.S. Transmission and Distribution
Utilities Handbook (A Detailed Reviewof Electric and Gas T&O Utilities)
(May 2015)
U.S. Utilities, Power and Gas: Ratings
Navigator Companion (February 2015)
Analysts
Philip Smyth, CFA
[phone]
philip.srny'h@fi tsfldings.com
Roshan Bains
+'t 212 9084211
roshan. bain@fit*ralings.corn
Charlie Penicook
+1 312 36&3137
chadie. penbook(Dfi bhratings.com
www.fitchratings.com July 2,2015
Financial Overview
Liquidity and Debt Structure
PPW's liquidity position at March 31, 2015, was $796 million, including $12 million in available
cash and remaining borrowing capacity of $784 million under its credit facilities. PPW's stand-
alone borrowing capacig under its revolving credit facilities totals $1.2 billion and is composed
of two separate facilities equally sized at $600 million maturing 2017 and 2018.
Debt Maturities and Liquidity
($ Mil.. as of March 31.2015)
Total Debt and Leverage
2015
20'16
2017
2018
Thereafter
Cash and Cash Equivalenb
Undrawn Committed Facilities
Source: Comoenv deta. Fitch.Source: Company data, Fitch.
Cash Flow Analysis
As indicated in the chart below, PPW was moderately FCF-negative during 201 1-2014, owing
primarily to the utility's large capex program. PPW's capex averaged $1.2 billion per year
during 201 1-2014. Over the same time horizon, PPW's average annual utility FFO totaled
$1.5 billion. Factoring in dividends, FCF deficit averaged $145 million per year, or 12o/o ot
average annual 201 1-2014 capex. PPW's annual 2015-2017 capex run rate is estimated at
$842 million per year on average.
CFO and Cash Use
. capex . Dividends
($ uit.1
1,800
1,600:
1,400
1,200 |
1,000
800
6oo
rcol
200 :o;
Source: Company data, Fitch.
't37
62
62
592
6,241
12
7U
($ Mil.)
8,000
6,000
4,000
2,000
0
-TotalAdjustedDebt(LHS)
(x)
-DebUEBITDAR
(RHS)
4.5
LL
2014 LTM 3/31/15
4.0
3.5
3.0
Related Criteria
Corporate Rating Methodology -lncluding Short-Term Ratings and
Parent and Subsidiary Linkage
(May 2014)
Rating U.S. Utilities, Power and Gas
Companies (Sector Credit Factors)
(March 2014)
Recovery Ratings and Notching Criteria
for Utilities (November 2013)
Parent and Subsidiary Rating Linkage
Fitch's Approach to Rating Entities
within a Corporate Group Structure
(August 201 3)
L
2013
rCFOI
2012
I
2011
201't 2012 20',t3 2014 LTM
PacifiCorp
July 2,2015
Peer Group
llluer Countrv
A-
fuizona Public SeMco Co. Unitad Stabs
Public Service Companyofoolorado UnitBd States
Southom Cdifiomia
Edison Company Unibd States
lssuer Rating History
LT IDR OutloouDate (FCl Wetch
Nil24,2015
Oct. 3,2014
Nil7,20',t4
Sept 16,2013
Sopt 17,2012
Sept. 29, 201 1
Oct 1,2010
Oct. 2,2009
Aug. 13,2008
July 13,2007
Jan.31,2006
D6c. 6,2005
Mey 24,2OOs
Oct. 5,2004
May 24, 1995
LT IDR - Long-term Issuer Default Rating
FC - Foreign currency.
Source: Fitch.
Peer and Sector Analysis
Peer Group Analysis
Publlc Servlce
Arlzona Public company of iouthem Cellfornla
(g Mil.) PaclflCorp Service Co. Colorado Edi.on Company
tuof
IDR
Ou0ook
Fundamentel Ratios (x)
Op€raling EBITDAR/
(Gross lntsrlst Expense + Rents)
FFO Fixed-Charge Coverage
Total Adjustad Dsbuop€ratng EBITDAR
FFO/Total Adjusted Debt (7o)
FFGMju3tod Lev€rege
Common Dividend Payout (0/6)
lnbmd Caslvcapex (%)
Cap€)dDepreciation (%)
R6trm on Equity (%)
Flnanclal lnfomation
R€vonue
Revenue Growth (o/o)
EBITDA
Operating EBITDA Margin (o/o)
FCF
Total Adjusted Debt with Equity Credit
Ca3h and Cash Equvalonts
Funds Flow fiom Operations
Capcx
IDR - lssuer Default Rating.
Source: Comoanv data. Fitch.
03/31/15 03/31/15 12t31t',t4 12131114
BBB+ A- A- A-
Raling Ou0ook Raling Outook Rating Outook Rating OutookPositiw StaU6 Stable Stable
BBB+ PositiveBBB+ Positive
BBB StableBBB Stable
BBB StablgBBB Stable
BBB StableBBB Stable
BBB StableBBB Stable
BBB StaUe
BBB+ Stable
5.15
4.96
3.59
26.8
3.73
99.7
89.1
136.4
9.1
5,214
0.2
2,018
36.9
(10e)
7,310
12
1,565
(1,004)
6.17
6.00
2.79
34.8
2.88
61.0
78.7
214.2
9.5
3,474
0.7
1,26e
29.'l
(187)
3,585
6
1,039
(93{)
6.37
6.93
3.63
30.0
3.33
95.4
48.2
293.9
9.4
4,383
4.3
1,181
26.9
(600)
4,341
8
1,114
(1,114)
6.88
7.20
2.75
38.0
2.63
4',t.3
81.9
238.6
14.2
12,9U
0.8
4,442
40.4
065)
12,499
36
4,094
(4,230)
A-
A-
A-
Stable
StaHe
Stable
PacifiCorp
July 2,2015
Key Rating lssues
Constructive Regulation
Regulatory outcomes across PPW's multistate service territory have been and are expected to
continue to be balanced, with the notable exception of Washington. PPW operates in six
states: Utah, Wyoming, ldaho, Oregon, Washington and California. Various riders are in place
to facilitate recovery of certain costs outside of general rate case proceedings, including fuel
adjustment clauses that mitigate commodity price exposure in all of PPW's regulatory
jurisdictions.
PPW filed a general rate case with the Wyoming Public Service Commission (WPSC) in
March 2015 requesting a $32 million (5%) rate increase. The requested rate hike is based on a
9.85% authorized return on equity (ROE) and a51 .4o/o equity ratio. ln its previous rate case,
the WPSC granted PPW a $20.2 million rate increase based on a below-industry-average 9.5%
authorized ROE. The December 2014 WPSC authorized rate increase represented
approximately 62% of the company supported $32.6 million rate increase rate increase request.
PPW filed the rate case in March 2014. ln Fitch's opinion, the WPSC order provides the
company with a reasonable opportunity to earn its authorized ROE and is credit-neutral,
notwithstanding the below-industry-average ROE authorized by the commission.
Recent rulings by the Washington Utilities and Transportation Commission (WUTC) in PPW
general rate cases in March 2015 and December 2013 were notably unfavorable for investors.
The WUTC orders disallowed costs related to purchased power from qualifying facilities
located outside the state of Washington and authorized a below-industry-average 9.5% ROE.
ln its March 2015 order, the WUTC authorized a rate increase of $9.6 million, 32% of the $30.4
million requested by PPW in the proceeding. PPW has appealed both WUTC orders.
Fitch notes that Washington is a relatively small slice of PPW's operations, representing
approximately 8% of consolidated 2014 kilowatt hour (k\A/h) sales. By comparison, Utah,
Oregon and Wyoming represent 44o/o, 24o/o and 17o/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.
Declining Gapex Trend
PPW's annual capex was essentially flat in 2014 and 2013 at $1.065 billion and $1.066 billion,
respectively, 21o/o below 2012 capex of $1.346 billion. Capex averaged $1.5 billion per year in
201F2012. Projected 291ti-2017 capex approximates $842 million per year on average, more
than 4Oo/o below PPW's $1.5 billion 2010-2012 capex. Meaningfully lower projected PPW
capex reflects completion of large capital projects, including major transmission and
renewables investment in the past several years. ln addition, capex incorporates slower PPW
service tenitory load grov(h and efforts by management to minimize customer rate increases.
Efforts by management to minimize customer rate increases while maintaining system reliability,
safety and customer service have resulted in generally flat O&M expense.
Slowing PPW service territory load growth trends are driven primarily, in Fitch's view, by energy
efficiency gains and are a source of some uncertainty along with the impact of environmental
rules and regulations on PPW's 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.
PacifiCorp
July 2,2015
California I ndependent System Operator
PPW is considering the fieasibility, costs and benefits of joining the Califomia lndependent
System Operator organization as a participating transmission owner. The analysis is expected
to be completed during summer 2015 and, if PPW decides to move forward, would be subject
to stakeholder review and input and regulatory approvals.
Strong Corporate Parent
PPW is a wholly owned indirect subsidiary of BHE, which in turn is majority owned by BRK.
Ownership of BHE by BRK is viewed favorably by Fitch, as dividend retention affords BHE
greater flexibility in managing operating company growth, dividends and capital structure than
other investor-owned utilities. Ring-fence provisions at PPW, including a special purpose entity
and a nonrecourse structure to limit PPW exposure to BHE liabilities, are designed to preserve
credit quality.
PacifiCorp
July 2, 2015
Organizational Structure
aRated by Fitch EMEA. LT IDR - Long-term lssuer Default Rating. IDR - lssuer Default Rating.
Source: Company Repods, Fitch analysis.
PacifiCorp
July 2,2015
I
ll
Definitions
o FFO-Adjusted Leverage: Gross
debt plus lease adjustment minus
equity credit for hybrid instruments
plus prefened stock diMded by
FFO plus gross interest paid plus
prefened dividends plus rental
expense.
. FFO/Debt: FFO divided by gross
debt plus lease adjustment minus
equity credit for hybrid instruments
plus preferred stock.
Key Metrics
Total Adjusted DebUOp. EBITDAR
-p2sifiQ67p -lUC
Median
(x)
5.0 ,
I
4.0 t
3.0
2.o t,
t.o I
0.0 2011 2012 2013
Source: Company data, Fitch.
FFO FixedCharge Coverage
-Pacmcorp -lUC
Median
(x)
8.0
6.0
4.0
2.0
0.0
2014 LTM
3t31t15
2011 2012 2013
Source: Company data, Fitch.
2014 LTM
3/31/15
FFO-Adjusted Leverage
-Pacifioorp -lUC
Median
Capex/Depreciation
-Pacificorp -lUC
Median
(%)
300 l
250 i
zoo i
150
100
so,
0 20'11 2012 2013 2014 LTM
3t31t15
Sourc€: Company data, Fitch.
(x)
4.0
l
3.0
2.0 ',
t.o ,
I
0.0 2011 2012 2013 2014 LTM
3t31t15
Source: Company data, Fitch.
PacifiCorp
July 2,2015
Company Profile
PPW is an integrated electric utility with operations spanning six states throughout portions of
the U.S. Rocky Mountains and the Pacific Northwest. PPW owns net 11,136 megawatt of
generating capacity, and 60% of its 2014 output was coal-fired, with the remainder supplied via
natural gas (16%), hydroelectric (5%), wind or other (5%) and purchased power (14%). Utah,
Oregon and Wyoming account for approximately 85% of electricity sold to PPW retail
customers by jurisdiction. During 2011-2014, revenue, operating income and net income
logged compound annual growth rates of 4.60/o, 6.20/o and 7.9%, respectively. Load growth in
2015 is expected to be in the 0.5%-1% range.
Business Trends
I
2014
Revenue Dynamics
I Revenue
-Revenue
Groryth
($ litil.l
6,000
5,000
4,000
3,000 ,
I
2,OOO i
t,ooo j
I
0 2011 2012 2013 20'.t4 LTM
3t3'.115
Source: Company data, Fitch.
EBITDA Dynamics
-EB|TDA
_EB|TDAMargin
($ ltlit.l
2,500
2,000 ,
t,soo
1,ooo i
5oo
0
Source:Company data, Fitch
(Yo)
7
6
5
4
l3
2
1
0 ll
2011 2012
(%)
45
40
35
30
25
20
15
10
5
0
PacifiCorp
July 2,2015
.,,r,r,i.;-ii.rj#:llq:!1i1t'h
:li. ti,l lf.!.titi
Financial Summary - PacifiCorp
(lDR: BBB+rRating Outlook Positive)
(S Mil.. as of March 31. 2015)2014201320112012
LTM Ended
2015
Fundamental Ratios (x)
Operating EBITDAR(Gross lnterest Expense + Renk)
FFO Fixed-Charge Coverage
Total Adjusted Debuoporating EBITDAR
FFO/Total Adjusted Debt (%)
FFcAdjust€d LevErage
Common Dividend Payout (%)
lntemal Cash/Capex (0/6)
Capex/Depreciation (o/o)
Retum on Equity (%)
Profitability
Revenues
Revenue Growth (%)
Net Re\renues
Operating and Maintenance Expense
Operating EBITDA
Operating EBITDAR
Deprecialion and Amortization Expense
Operating EBIT
Gross lntelest E)ipsnse
Net lncome for Common
Operating Maintenance Epense % of Net Revenues
Operating EBIT 0/6 of Net Revenues
Cash Flow
Cash FIow from Operations
Change in Working Capital
Funds from Operaiions
Dividends
Capex
FCF
Net Other lnvestrnent Cash Flow
Net Change in Debt
Net Equity Proceedg
Capital Structure
Short-Term Debt
Total Long-Term Debt
To&l Debt with Equity Credit
Total Adjusted Debt with Equity Credit
Total HyMd Equity and Minority lnter$t
Total Common Shareholde/s Equity
Totel Capital
Total DebuTotal Capital (o/o)
Total Hybfid Equity and Minority lntercsUTotal Capital (%)
Common Equity/Total Capital (7o)
IDR - lssuer Default Rating.
Source: Company data, Fitch.
4.2
4.7
4.1
27.6
3.6
99.5
72.0
246.5
7.6
4,586
3.5
2,950
1,103
1,695
1,713
611
1,084
392
553
37.4
36.7
1,636
121
1,515
(552)
(1,506)
(422)
(23)
a:
688
6,234
6,922
6,972
21
7,271
14,214
48.7
0.1
51.2
4.3
4.7
4.2
26.4
3.8
37.5
105.9
210.3
7.2
4,882
6.5
3,064
1,242
1,661
1,675
640
1,02',1
380
534
40.5
33.3
1,6n
170
1,457
(202)
(1,348)
79
4nl
6,882
6,882
7,009
21
7,603
14,506
47.4
0.1
52.4
4.9
4.8
3.5
27.7
3.6
73.3
98.7
157.8
8.9
5,'t47
5.4
3,22?
't,1't4
1,939
1,955
675
1,264
379
682
34.6
39.2
1,553
34
1,519
(s02)
(1,06s)
(14)
16
15
(40)
6,878
6,878
6,926
1
7,785
14,664
46.9
0.0
53.1
5"2
5.0
3.5
27.7
3.6
103.9
79.3
146.8
9.0
5,252
2.0
3,255
1,057
2,026
2,042
726
1,300
379
698
32.5
39.9
1,570
(1 0)
1,580
(725)
(1,066)
(221)
(1 3)
,o:
20
7,054
7,074
7,120
1
7,754
14,829
47.7
0.0
52.3
5.1
5.0
3.6
26.8
3.7
99.7
89.1
136.4
9.1
5,214
0.2
3,245
't,o52
2,018
2,O34
736
't,282
379
677
32.4
39.5
1,570
5
1,565
(675)
(1,004)
(1 0e)
(3s)
(16)
2'to
7,054
7,2U
7,310
1
7,438
14,703
49.4
0.0
50.6
PacifiCorp
July 2,2015
The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
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the infurmalion 6sernued, \,edfied and gesented to investols by the bsuer ard its agerils in connedi:n wih tfE sale of he
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prodde investnent advice of arry sort. Ratings are nd a recommemation to brry, sell, or hold arry security. Ralings do not
cornment on the adequacy of market pnce, he suitaulity of arry seority for a particr.dar investor, or the tax+xernpt nature or
ta@t lity of payrnents made in res@ to arry security. Fitdr receives Ees frorn issuers, irsuers, guarantoc, dEr obligoIs,
and under*ribrs fur rating seqrities. Strch tses gprprdV vary forn US$1,000 to US$750,000 (or tte applkaUe cunency
equivalent) per issue. ln ertain cases, Fitch will rate all or a nunber of issues issued by a partirlar issuer, or irBuled or
guaranteed by a padiadar irsurer or guarantor, for a single annual fte. Srrch ftes ale erpeded to vary forn US$10,000 to
US$1,500,000 (or tfe applicaHe cunency equi\alent). TfE assbrrnent, publication, or disseminatim of a rating W Fitch stnll
not constitute a consent by Fitcfr to use its name as an epert in connedion with arry registration statement fled under the
United States secuities lane, tp Financial Servirs and Markeb Ad of 2000 of he United Kingdom, orthe securities la,!s o,
arry parlicldar juMklion Dr to the relati\re €ffiderEy of dedronic puHbhirU and disfibrlion, Fitch researcfi mry be available
to dectroricsr.bscribee upto hree drys eadie thanto printsubsoibers.
PacifiCorp
July 2,2015
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