20160304Compliance Filing.pdf

YPacrnConp
March 4,2016
VA OWRNIGHT DELIWRY
Idaho Public Utilities Commission
472West Washington
Boise,ID 83702-5983
Attention: Ms. Jean D. Jewell
Commission Secretary
Re: Idaho Case No. PAC-E-05-08 Compliance Filing
To the Idaho Public Utilities Commission:
PacifiCorp hereby submits the attached Standard & Poor's Rating Services report in compliance
with the Commission's Order Nos. 29973 and29998 in the above referenced case. The Orders
approved the Stipulation supporting the acquisition of PacifiCorp by MidAmerican Energy
Holdings Company.l
Commitmentl2} 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 Commitmentl2} of the Stipulation, please find the attached report
related to PacifiCorp.
Very truly yours,
, [)oz l/rit;/'";--Fruce Williams
Vice President and Treasurer
Enclosure
t On April 30,2014, MidAmerican Energy Holdings Company changed its name to Berkshire Hathaway Energy
Company.
REC E IVED
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Pacific Power I
Rocky Mountain Power
825 NE Multnomah, Suite 2000
Portland, Oregon 97232
fnro
STANDARD & POOR'S
RATINGS SERVICES
McGRAI{ Httt FI}lA}lGlAt
RatingsDirect'
Research Update:
Berkshire Hathaway Energy Co. And
Subs Ratings Raised To'A' On New
View Of Relationship To Parent;
Outlook Stable
Prinary Credit Analyst:
Gerrit W Jepsen, CFA, New York (1) 212-438-2529; [e-mail]
Secondar5r Contact:
Dimitri Nikas, New York (l) 212-438-7807; [e-mail]
Table Of Contents
Overview
Rating Action
Rationale
Other Credit Considerations
Group Influence
Outlook
Ratings Score Snapshot
Issue Ratings
Related Criteria And Research
Ratings List
FEBRUARY t9,2016 I
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Research Update:
Berkshire Hathaway Energy Co. And Subs Ratings
Raised To 'A' On New View Of Relationship To
Parent; Outlook Stable
Overview
o We have reassessed our view of Berkshire Hathaway Energy Co.rs (BHE)
relationship with its parent company Berkshire Hathaway Inc. The
reassessment reflects BHE's strategic importance and contributions to it,s
parent.
. we are raising our issuer credit rating on BHE to rAr from|BBB+'. We are
also raising our issuer credits ratings on BHEts U.S.-based utility
subsidiaries tso tAr.
. At the same tsime, we are raising our rating on BHE's senior unsecured
debt to 'A-' from'BBB+I. We are also raising the short-term issuer
credit and commercial paper ratings for BHE and its U.S.-based utilities
to rA-1r from tA-21
r We are assigning an rAI i-ssuer credit rating to BHE-owned intermediate
holding company MidAmerican Funding LLC.
o The out.look is stable.
Rating Action
On Feb. L9, 20L6, Standard & Poor's Ratings Services raised its issuer credit
raEing (ICR) on Berkshire Hat,haway Energy Co. (BHE) to tAr from 'BBB+'. we
raised the rat.ing on BHErs senior unsecured debt to 'A-' from'BBB+! and the
short-t.erm rating on BHE and it,s U.S.-based utility subsidiaries Eo tA-1t from
I A-21 .
We also raised the ICRs on BHE's subsidiaries PacifiCorp and MidAmerican
Energy Co. to rAr fromrA-r, and the ICRs on BHE's subsidiaries Nevada Power
Co. and Sierra Pacific Power Co., and int,ermediate holding company liM Energy
Inc. to rAr from 'BBB+t.
In addition, we assigned our rAr ICR to BHE-owned intermediate holding company
MidAmerican Funding LLC.
The outlook is stable for all companies.
Rationale
The upgrades fo1low our reassessment of the linkage between parent Berkshire
Hathaway Inc. and its subsidiary BHE. The reassessment reflects BHEts
FEBRUAnY tg,zot0 2
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Researcb IJpdate: Berkshire Hathaway Energy Co. And Subs Ratings Raised To 'A' On Neut View Of Relationship
To Parent; Outlooh Stable
straEegic importance and contributions to consolj-dated Berkshi-re Hathaway
(Ehis is a change from our previ-ous view of moderately strategic; see the
research update on Berkshire Hatshaway published Feb. 19, 20L6), incorporaElng
our view of BHE's growing importance to Ehe group's consolidated earnings. As
a result, BHEts ICR is now two notches closer to its parent. Our view of BHE's
own credit profile is unchanged. The relationship between BHE and its
U.S.-based utilities and intermediate holding companies are unchanged, and
therefore we assign the same fCR as BHE co each subsidiary.
we are raising BHE's unsecured debt rating only one notch to better reflect
its subordinated position in t,he capital structure. We view recovery prospects
aE the holding company as margJ-na11y weaker Ehan t,hose at its subsidiaries.
Priority liabilities at the subsidiaries have accumulated such that they now
overcome the diversity benefits that we previ-ously relied on to equate the
rating with the ICR.
Our excellent business risk assessment of BHE incorporaEes our view of the
companyts st.rong competitive position and very 1ow country risk wit,h
operations in the U.S., the U.K., and Canada. In addition, the very 1ow
industry risk determination for BHE stems from the regulat.ed utility industry
that. provides indispensable and strategically important services to regional
economies, have material bamiers to entry, and essentially operate as a
monopoly insulated from market challenges. BHE's strong competitive posiEion
reflects substantial geographical and operational diversity from numerous
utsilities. The cusEomer base is roughly divided among residential, commercial,
and industrial customers, which provide customer diversity and a base Ievel of
usage. The utilities have efficient electricity generating operat,ions that
produce compet.it.ively priced power, high 1evels of plant usage, few unforced
outages, and high reliability. In addit.ion, utility subsidiaries operate under
regulatory terms thaE largely support credit quality and are generally
constructive, which include good fuel clause mechanisms and other cost
pass-through mechanisms. BHEts nonutility operations will 1ike1y continue to
contribute abouts 20* of consolidated EBIDTA, and our base case reflect.s our
view t,hat these operat.ions will not reach a 1eve1 that would result in a
business risk profile change.
The financial risk profile is significant. based on our medial volatilit,y
financial ratio benchmarks. This takes into consideration our expectation that
financial measures will remain roughly at current 1eve1s after taking into
account the company's capiEal spending and limitsed owner distributions. Parent
Berkshire Hathaway does not rely on BHE to make dist,ribut.ions, bolstering
BHE's eguit.y capital through retained earnings and helping to support its
balance sheet, even as BHE makes acquj-sitions and capital investments. Our
baseline forecast over the next t.hree years includes adjust,ed funds from
operations (FFO) to debt ranging from 14t to 15t, below the midpoint of the
significant category. Over the same period, our supplemental ratio of
operating cash flow to debt ranges from 15t to l-7?, above t.he midpoint. of the
significant category. Total adjusted debt to EBITDA ranges from about 5.3x to
about 5.5x, trending Eoward Ehe aggressive financial risk profile benchmark
range. Discretionary cash f1ow, which is strengthened due to limited
EEBRUARY 19,2010 3
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Research update: Berkshire Hathautay Energy Co. And Subs Ratings Raised To 'A' On New View Of Relationsbip
To Parent; Outlook Stable
dividends, continues to remain robust, providing capital for various purposes,
including invesEments and acquisitions.
Liquidity
BHE has adequate liquidit.y. I,le believe the company's liquidity sources are
Iikely to cover its uses by more than 1.1x over t.he next l-2 months and to meeE
cash outflows, even with a 10t decline in EBITDA. The adequate assessment also
reflects the companyts generally prudent risk management, sound relat.ionshj-ps
with banks, and a generally satj-sfactory standing in credit market,s.
Principal liquidity sources:
o Assumed cash and liquid investments of roughly $620 mi1Iion,
e EsEimated FFO of about $5 billion, and
o Revolving credit facility availability of $6.7 billion.
Principal liquidity uses:. Capitsal spending of roughly $6.5 billion, and
. Debt maturities of about $2.2 billion, including short-term debt
i-gsuances .
Other Credit Considerations
The ratings on BHE reflecE a negative adjustment. for the influence of
higher-risk nonutility businesses that include renewable power generation,
pipelines, and real esEaEe brokerage. They currently account for roughly 20*
of consolidated EBIDTA. Core financial rat.ios that indicaEe a financial risk
profile falling to the weaker end of the category also contribute Eo the
adjustment.
In addition, we further adjust downward due to BHE's financial policy to
reflect. our view of ongoing event risk related t.o acquisitions and
investments.
Group Influence
Standard & Poorrs bases its ratings on BHE on the consolidated group credit.
profile and application of our group ratj-ngs met.hodology. Reftecting our view
of BHE's growing importance to Berkshire Hathaway's consolidated earnings, we
deem BHE to be a strategically important subsidiary of Berkshire Hathaway. BHE
is important to Berkshire Hat.haway's long-term strategy, is unlikely to be
so1d, and we expect that Berkshire Hathaway will contj-nue to support BHE. As aresult, our ICR for BHE incorporat.es a three-notch uplift from its 'bbb' SACP.
Outlook
Our stable rating outlook on BHE reflects our expectation that its
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Researcb Update: Berksbire Hathaway Energy Co. And Subs Ratings Raised To 'A' On New Vieut Of Relationship
To Parent; Outlook Stable
relationship to its parent does not change and thaE management will continue
to focus on its core utility operations and reach consEructive regulatory
outcomes that support the existing business risk. Although BHE has used
significant debt leverage for acquisitions and capital investments, we expect
credit. measures to strengthen to support the current rating. Under our
base-case forecast, we expect adjusted FFO Eo debt to range from 15& to 16?
over the next few years.
Downside scenario
We could lower ratings if core financial measures conEinuously underperform
our base-case forecasE and remaj-n consisEently aE less crediE-supportive
1eve1s, including adjusted FFO to total debt of less than 13t. This could
occur if rate case outcomes are consisEently weaker Ehan expecEed, regulaEory
1ag increases, or if capital spending grows and is largely debt-financed.
Acquisition risk remains a consj-deration and could lead to a raEings change
depending on the target entity, the financial risk profile when Ehe
acquisition is announced, and the Eransaction's financing,
Upside scenario
Given our assessmenE of business risk and expectations of financial
performance, we do not expect higher ratings over the next few years. However,
we could raise Ehe ratings if the company's business risk profile sErengEhens,
including if regulated utility operations materially increase as a percentage
of tot,aI operations. we could raise the ratings if financial measures
strengthen and consistently exceed our base-case forecast, including adjusted
FFO t,o Eotal debt approaching 23?, the high end of the significanE financial
risk profile category. Stronger financial measures could occur for various
reasons, including through higher operatsing cash flow due to economic growth
in the utilitiesr service territories, debt reducEion wit.h free operat,ing cash
f1ow, or greater equiEy funding of investments.
Ratings Score Snapshot
CorporaEe credit rating: A/Stsab1e/A-1
Business ri-sk: Excellent. Country risk: Very 1ow. Industry risk: Very 1ow. Competitive position: Strong
Financial risk: Significant
o Cash flow/Leverage r Significant
Anchor: a-
Modifiers
e DiversificaEion/Portfolio effect: Neutral (no impact)
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Researclt Update: Berkshire Hatbautay Energy Co. And Subs Ratings Raised To 'A' On Neut Vieut Of Relationsbip
To Parent; Outlook Stable
. Capital structure: Neutral (no impacE)
o Financial policy: Negative (-l- notch)
r LiquidiEy: Adequate (no impacE)
. Management and governance: Satisfactory (no impact)
. Comparable rating analysis: Negative (-f notch)
Stand-a1one credit profile: rbbb'
o Group credit profile: raal
e Ent,ity status within group: StraEegically important (+3 notches from SACP)
Issue Ratings
We rat.e the senior unsecured debt aE BHE one notch lower than the ICR because
priority liabilities, including operating utili-ty debt, significantly exceed
2O"t of total assets. The short-Eerm rating is 'A-1' based on the company's ICR
and our assessment of its liquidiEy as adequate.
Related Criteria And Research
Related Criteria
. Key Credit FacEors For The Regulat,ed UtiliEies Industry, Nov. !9, 20a3
. Group Rating Methodology, Nov. a9, 201'6
. Corporate Metshodology, Nov. !9, 20]-3r Methodology For Linking Short-Term And Long-Term Ratings For Corporate,
Insurance, And Sovereign Issuers, May 7, 20L3
Collat.eral Coverage And Issue Notching Rules For'1+'And'1' Recovery
Ratings On Senior Bonds Secured By Utility Real Property, Feb. 14, 20L3
Utilities: Notching Of U.S. Investment-Grade Investor-Owned Utility
Unsecured Debt Now Betster Reflects Anticipated Absolute Recovery, Nov.
t_0, 2008. 2008 Corporate Criteria: Ratsing Each Issue, April 1-5, 2008
Related researchr Berkshire Hathaway Inc. Removed From Creditwatch Negative, Ratings
Affirmed; Outlook SEable, Feb. 19, 20]-6
Ratings List
Ratings Raised
Berkshire Hathaway Energy Co.
Corporate Credit Rating
Senior Unsecured
Commercial Paper
MidAmerican Energy Co.
Corporate Credit Rating
Senior Secured
To
A/SEable/A- 1
A-
A-1
A/Srable/A- r-
A+
From
BBB+/Srable/A-Z
BBB+
A-2
A- /SLabl-e/A-2
A
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Research lJpdate: Berkshire Hathaway Energy Co. And Subs Ratings Raised To 'A' On New View Of Relationsbip
To Parent; Outlook Stable
Recovery rating
Commercial Paper
NV Energy Inc.
corporate Credit Rating
Senior Unsecured
Sierra Pacific Power Co.
Corporate Credit Rating
Senior Secured
Recovery rating
Nevada Power Co.
Corporate Credit Rat.ing
Senior Secured
Recovery rat,ing
PacifiCorp
Corporate Credit Rating
Senior Secured
Recovery rating
Preferred SEock
Commercial Paper
Corp. Credit Rating Assigned;
MidAmerican Funding LLC
Corporat.e credit rating
Senior Secured
1+
A-L
A/Sr.ab1e/ - -
A-
A/Srable/ - -
A+
1+
A/Srable/ - -
A+
1+
A/sr.able/A- 1
A+
1+
BBB+
A-1
Debt Rat,ing Raised
A/SEable/ - -
To
A-
1+
A-2
BBB+/Srable/ - -
BBB
BBB+/Srable/ - -
A
1+
BBB+,/St.able/ - -
A
1+
A- /SLable/A-2
A
1+
BBB
A-2
From
BBB+
Cert.ain terms used in this report, particularly certain adjectives used to
express our view on rating relevant factors, have specific meanings ascribed
to them in our criteria, and should therefore be read in conjunction with such
criteria. Please see RaEings Criteria at, www.sEandardandpoors.com for further
information. Complete ratings information is available Eo subscribers of
RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. A11
ratings affected by this rating action can be found on Standard & Poorrs
public Web site aL www.standardandpoors.com. Use the Ratings search box
located in the 1eft, column.
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