20160415Notice of Affiliate Transaction.pdf

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April 15,2016
VIA OVERNIGHT DELIVERY
Idaho Public Utilities Commission
472West Washington
Boise,ID 83702-5983
Attention: Jean D. Jewell
Commission Secretary
Re: PacifiCorp Notice of Affiliate Transaction
Case No. PAC-E-05-8
Dear Ms. Jewell:
This letter will serve as notice pursuant to Commitmentl l7(2), incorporated in the
Idaho Public Utilities Commission Order No. 29973 issued February 13,2006, as supplemented
by Order No. 29998 March 14,2006, in the above-referenced proceeding, approving the
acquisition of PacifiCorp by MidAmerican Energy Holdings Company (now "Berkshire
Hathaway Energy Company" or "BHE"), of an affiliated interest transaction with Ferron Canal
& Reservoir Company ("FCRC") for a Share Assessment Agreement which will provide
financial protection to PacifiCorp and will allow PacifiCorp to represent itself as a member of
the FCRC Board of Trustees. A verified copy of the Share Assessment Agreement
("Agreement") is included with this Notice as Attachment A.
FCRC is a non-profit mutual irrigation company, which is a privately owned water stock
company. PacifiCorp holds approximately 37% of the outstanding water stock in FCRC. FCRC
holds water rights in the Ferron Creek drainage, of which PacifiCorp, by virtue of its share
ownership, is entitled to a proportionate amount of FCRC's water right entitlements. FCRC
manages the water rights on behalf of PacifiCorp and the other shareholders in the company.
While irrigation companies typically use "ownership by shares" exclusively to allocate and grant
water rights (and as such, they are not typical equlty interests in the entity), this ownership
interest could be deemed to create an affiliate interest in some PacifiCorp jurisdictions. Rocky
Mountain Power hereby submits this filing out of an abundance of caution.
PacifiCorp pays annual assessment fees to FCRC to help cover its operating and maintenance
costs, as well as other costs pertinent to conducting its business, in exchange for receiving access
to water used by PacifiCorp's Hunter generating facility, located in Emery County, Utah.
PacifiCorp also contracts additional water from FCRC, which is made available to the Hunter
generating facility through a long-term agreement between FCRC and PacifiCorp.
Idaho Public Utilities Commission
April 15,2016
Page2
PacifiCorp, as an industrial water user, has historically been assessed equal rates by FCRC to
those of its agricultural water users. However over the past six years, FCRC has steadily
increased PacifiCorp's share assessment rate from an equal rate to arate five times that of the
agricultural rate. Under the Utah Share Assessment Act, FCRC's Board of Trustees sets the
value of the share assessments for its water users, which are divided into different classes much
like electric utilities. On February 11,2016, the FCRC Board of Trustees passed a resolution
formalizing the restructuring of its share assessments by establishing assessment rates based on
the classification of water use (e.g., industrial, agriculture). This resolution establishes a share
assessment ratio for industrial class shares of 5:l as compared to agriculfural class shares, which
effectively represents arate increase to PacifiCorp. As an industrial user, PacifiCorp will pay a
5:l ratio to the share assessment for agricultural users.
PacifiCorp proposes to enter into the Agreement, which will limit FCRC's future ability to
increase PacifiCorp's assessment rate beyond a 5:1 ratio as compared to the agricultural
assessment rate. The Agreement will also provide industrial user representation on FCRC's
Board of Trustees by creating a position for PacifiCorp on the Board. The Agreement has a term
of 10 yeils. Entering into the Agreement is in the public interest because it will protect
PacifiCorp from increased share assessment rates and will allow PacifiCorp to have
representation on the FCRC Board of Trustees, which will help to ensure that PacifiCorp is able
to meet its obligation to provide safe and reliable electric service.
Please do not hesitate to contact me if you have any questions.
Best Regards,
R. Jeff Richards
Vice President and General Counsel
PacifiCorp
Enclosures
2-29-20L6 draft
Share Assessment Agreement
bv and between Ferron Cana! & Reservoir Companv and PacifiCorp
This Share Assessment Agreement ("Agreement") is effective as of the _ day of ,
20L6, ("Effective Date") by and between Rocky Mountain Power, an unincorporated division of
PacifiCorp, ("PacifiCorp") and Ferron Canal and Reservoir Company ("Ferron"), a Utah nonprofit
irrigation company. PacifiCorp and Ferron shall collectively be referred to as the "parties" or
individually as a "party" as the context so requires.
RECITAI.S
A. PacifiCorp owns7,647 shares of stock in Ferron (the "PacifiCorp Shares"), which Ferron
classifies as "lndustrial" for purposes of imposing share assessments on PacifiCorp Shares.
Ferron stock represents interests in water rights of Ferron. PacifiCorp uses the water delivered
by Ferron under its shares at the Hunter Power Plant for power generation and industrial
purposes.
B. Prior to 2009, Ferron assessed PacifiCorp Shares on an equal basis, or at a 1:1 ratio, with
the assessment rate for the Agricultural shares within Ferron ("Agricultural Share Assessment
Rate"). ln 2009, Ferron assessed PacifiCorp Shares al a 2:L ratio as compared to the
Agricultural Share Assessment Rate. Then in 20L3, Ferron assessed PacifiCorp Shares at a 3:1
ratio as compared to the Agricultural Share Assessment Rate. By letters dated July 9, 2015 and
August 6,20L5 from Ferron to PacifiCorp, and pursuant to the Utah Share Assessment Act,
Ferron desires to increase the assessment rate for PacifiCorp Shares to a 5:1 ratio as compared
to the Agricultural Share Assessment Rate, hereafter referred to as the "lndustrial Share
Assessment Ratio lncrease".
C. Ferron's Board of Directors approved the lndustrial Share Assessment Ratio lncrease on
February 7I,2016. A copy of such approval is included as Attachment 1 ("FERRON CANAL &
RESERVOT R COM PANY RESOLUTTON")
D. Ferron believes the lndustrial Share Assessment Ratio lncrease is necessary in order to
adequately fund ongoing Ferron operations, more equitably balance the assessment burden
between share water use categories, and better reflect the benefits PacifiCorp receives
pursuant to the PacifiCorp Shares, as an industrial user, as compared to the benefits the
agricultural shareholders receive pursuant to the Agricultural Shares. Ferron further believes
the lndustria! Share Assessment Ratio lncrease is consistent with Ferron's internal governance
requirements and the Utah Share Assessment Act.
E. The parties now agree to an assessment structure that, among other things, establishes
PacifiCorp's assessment rate at a 5:l ratio as compared to the assessment rate of the
agricultural shareholders in Ferron, as set forth in this Agreement.
2-29-20L6 draft
F. From the Effective Date of this Agreement, PacifiCorp will not challenge or oppose the
!ndustrial Share Assessment Ratio lncrease or the efficacy or regularity of all actions of Ferron
necessary to approve the lndustrial Share Assessment Ratio lncrease on the terms and
conditions stated herein.
G. Ferron will not challenge or oppose the terms and conditions of this Agreement during
the effective Term of this Agreement.
TERMS AND CONDITIONS
For the exchange of valuable consideration, the parties agree as follows:
t. Term: The term of this Agreement shall be from the Effective Date until December 31,2025
(the "Term.") This Agreement may be renewed for an additional ten year term by mutual
written agreement of the parties.
2. Share Assessments:
2.L. A comparison between the Agricultural Share Assessment and the lndustrial Share
Assessment shall be used for purposes of assessing the lndustrial Share Assessment
Ratio under this Agreement.
z.L.L. lf Ferron assesses all Agricultural users equally, Ferron shall provide the amount
of the Agricultural Share Assessment with its annual assessment notice to
PacifiCorp.
2.L.2. !f Ferron does not assess all Agricultural users equally, for purposes of this
Agreement, Ferron shall determine annuallythe average Agricultural Share
Assessment by totaling all assessments levied on Agricultural users and dividing
the total by the total number of Agricultural Shares ("Annual Average
Agricultural Assessment"). Ferron shall provide the reasonably detailed
calculations used to determine the Annual Average Agricultural Assessment as
part of its annual assessment notice to PacifiCorp.
2.2. Ferron shal! assess the PacifiCorp Shares in accordance with Ferron governance
requirements, this Agreement and the Utah Share Assessment Act. Beginning with
share assessments for 20L6, and based on the share assessment categories described
in Paragraph 2.1, the share assessment rate for the PacifiCorp Shares (the "lndustrial
Share Assessment") shall be no more than a 5:1 ratio as compared to either (1) the
Annua! Agricultural Assessment or (2) Annual Average AgriculturalAssessment, as
further explained in Paragraph 2.L. By way of example only, if the Annual Agricultural
Assessment is 517.50 per share, then the lndustrial Share Assessment shall be no more
than 587.50 per share, and if the Annual Agricultural Assessment is S10.00 per share,
the lndustrial Share Assessment shall be no more than SSO.OO per share.
3.
4.
2-29-20L6 draft
2.3. PacifiCorp agrees not to challenge or oppose the lndustrial Share Assessment Ratio
lncrease or the efficacy or regularity of all actions of Ferron necessary to approve the
lndustrial Share Assessment Ratio lncrease. Except upon prior approval by PacifiCorp,
Ferron agrees that any changes to the categorization of the Ferron water shares will
not alter, change or impact in any way, the lndustrial Share Assessment Ratio agreed
upon pursuant to this Agreement.
2.4. lndustrial Share Assessments shall be administered according to the following
principles:
2.4.L. Ferron shall not assess any other lndustria! water users more favorably to that
Industrial water user than it assesses the PacifiCorp Industrial Shares, except as
Ferron may establish as appropriate under the Utah Share Assessment Act.
2.4.2. The lndustrial Share Assessment is intended to include a proportionate share of
all expenses, including but not limited to general operation, maintenance and
other costs , associated with Ferron that are assessable to shareholders. The
parties intend that no additional costs will be imposed on PacifiCorp or the
PacifiCorp Shares outside of the lndustrial Share Assessment.
2.4.3. Ferron shall invoice PacifiCorp only on the basis of a one-line assessment in
"dollars per share of stock" owned by PacifiCorp, and no additional special
assessments or costs shall be included in the invoice for PacifiCorp's lndustrial
Share Assessment.
lndustrial Representation on Board of Trustees: As part of the consideration for the increase
in PacifiCorp's lndustrialShare Assessment, Ferron's Bylaws were amended by a general
shareholders vote on January 9,2OLG to provide for the addition of an lndustrial representative
to be on the Ferron Board of Trustees. Such additionalTrustee shall have the same rights and
general duties as each other member of the Board of Trustees.
Designated Representative and Notices: Any notice by either party to the other shall be
delivered in writing to the office of the designated representative of the other party, or, if
deposited in the mail, properly stamped with the required postage and addressed to the office
of such representative as follows:
lf to PacifiCorp:
PacifiCorp - Hunter Plant
P.O. Box 559
Castle Dale, Utah 84513
Attn: Managing Director
Telephone: (a35) 7 48-6271
lf to Ferron:
Ferron Canal & Reservoir Company
P.O. Box 963
Ferron, Utah 84523
Attn: President
Telephone: (a35) 384-2990
2-29-2016 draft
5. Miscellaneous Provisions:
a. Governins Law. This Agreement shall be governed by the laws of the State of Utah,
without giving effects to its conflict of law rules contained therein.
b. Entire Agreement. This Agreement represents the entire agreement between PacifiCorp
and Ferron with respect to the lndustrial Share Assessment Ratio Increase and supersedes
all prior negotiations, representations or agreements, either written or ora!, relating
thereto. This Agreement may be amended only in writing signed by both parties.
c. lnterpretation. Each term hereof shall be construed simply according to its fair meaning
and not strictly for or against either party. The parties have jointly prepared this
Agreement, and no term hereof shall be construed against a party on the ground that the
party is the author of that provision. The Recitals contained herein are repeated verbatim
and are incorporated as part of this Agreement.
d. Jurv Waiver. To the fullest extent permitted by law, each party waives any right it may
have to a trial by jury in respect of litigation directly or indirectly arising in connection with
this Agreement.
e. Successors and Assigns. This Agreement shall be binding upon al! successors and assigns
of the parties.
Now, THEREFORE, this Agreement is entered into as of the day and year first written above.
PacifiCorp
Its:
Date:
Ferron Canal & Reservoir Company
Its:
Date:
Attest:
By:
By:
Secretary
2-29-20L6 draft
Attachment 1
F'ERRON CANAL & RESERVOIR COMPANY
RESOLUTION
RESOLUTION IMPLEMEITTTING AN INDUSTRIAL ASSESSMENT T1OR
SIIARES OF TIIE COMPAITIY TOR WItrCH WATER REPRESENTEI)
TEEREBY IS USED FOR INDUSTRHL USE
BE IT HEREBY RESOLVED thrt the Boad of Dirpctors of Fcrron Canal & Rescrvoir
Company does csoblish an annunl asscssmcnt on Industrial Sharcs that shall be five timcs tho
amual asscssrncnt on Agricultral Sharcs of the Compmy. This asscs$n€nt on Industrial Sharas
shall be effective for the 2015 year and continue for ten yeus with an optio,n to renew thc
agscssrn€nl
This resolution shall be effectirre upon po$nge and qhr[ rqnsin in force rmtil rwoked,
rcpcaled or amended by a subscqucnt action of the Boad of Directors of thc Company.
DATED the I t4 day of Febnrary,2016
FERRON CAI.IAL & RESERVOIR COMPAI{Y