20160721Compliance Filing.pdf

YPacrnConp
July 21,2016
VIA OWRNIGHT DELIVERY
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 F'iling
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
CommitmefiI2D 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 Commitmentl2D of the Stipulation, please find the attached report
related to PacifiCorp.
Very truly yours,. -t,i!,*^Bruce Williams
Vice President and Treasurer
Enclosure
I On April 30,2014, MidAmerican Energy Holdings Company changed its name to Berkshire Hathaway Energy
Company.
.1TCIIVED
Pacific Power I
Rocky Mountain Power
825 NE Multnomah, Suite 2000
Portland, Oregon 97232iii|J _lrll 2l All 9: 58
],.:,iISSICN
FitchRatings
PacifiGorp
A Subsidiary of Berkshire Hathaway Energy Company
Full Rating Report
Ratings
Long-Term IDR
Short-Term IDR
Preferred Stock
Senior Secured
Senior Unsecured
IDR - lssuer Default Rating.
Rating Outlook
Long-Term IDR
Financial Summary
PacifiCorp
($ Mit )
LTM
il31t16
Adjusted Revenue
Operating EBITDAR
Cash Flow from
Operations
Total Adjusted Debt
Total Capitalization
Capexl
Depreciation (%)
FFO Fixed-
Charge Coverage (x) 5.3 5.2
FFO-Adjusted
Leverage (x) 3.4 3.5
Total Adjusted
DebUEBITDAR (x) 3.3 3.5
Related Research
U.S. Transmission and DistributionUtilities Handbook (A Detailed
Review of Electric and Gas Utilities -Second Edition) (May 2016)
U.S. Utilities, Power and Gas RatingsNavigator Companion
(February 201 5)
Analysts
Philip Smyth, CFA
[phone]
philip.smylh@fi bhratings.com
Kevin Beicke
[phone]
kevin. bercke@Frtchrat ngs.com
F1
BBB+
A+
A
Key Rating Drivers
Strong Credit Metrics: PacifiCorp's (PPW) 'A-' lssuer Default Rating (lDR) and Stable Rating
Outlook reflect the utility's strong credit metrics and generally supportive regulatory regimes
across its six-state service territory. 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 Ratings estimates 2UA-2018 FFO coverage and leverage
ratios will be better than 5.0x and 4.0x, respectively.
Manageable Capex: PPW's prospective capex is expected to average $807 million per year in
2016-2018,21o/o lower than the average annual run rate of approximately $1.016 billion in
2013-2015 and well below peak investment levels of $1.5 billion per year seen in 2010-2012.
Given the sharply lower trend in 2016-2018 capex, Fitch expects cash flow to be slightly
negative on average after capex and dividends. Lower capex is expected by Fitch to mitigate
upward pressure on retail customer rates.
Constructive Regulation: Regulation across PPW's multistate service territory is generally
stable and balanced, in Fitch's view, supporting its credit ratings and Stable Rating Outlook. An
unexpected, meaningful and sustained deterioration in regulatory oversight would likely trigger
adverse rating actions.
Rating Outlook: The Stable Rating Outlook considers PPW's strong credit metrics, relatively
low business risk profile, more manageable prospective capex, competitive resource base,
below-industry-average retail rates, and management focus on cost control and rate stability.
Rating Sensitivities
Positive Rating Action: Sustained PPW EBITDA and FFO leverage ratios of 3.25x and 3.5x,
respectively, or better, along with continued efficient operating performance and balanced
regulation could trigger future credit rating upgrades.
Negative Rating Action: Unexpected deterioration across key PPW regulatory jurisdictions
and/or a prolonged plant outage or other event causing PPW's FFO-adjusted leverage to
decline to 5.0x and EBITDA leverage to 3.75x, or worse, on a sustained basis could trigger
adverse rating actions.
5,234 5,232
2,165 2,112
1,784 1,7347,222 7,287
14,660 14,668
1 19.8 121 .0
www.fitchratings.com July 11,2016
FitchRatings
Related Criteria
Recovery Ratings and Notching Criteria
for Utilities (March 2016)
Corporate Rating Methodology-lncluding Short-Term Ratings andParent and Subsidiary Linkage
(August 2015)
Parent and Subsidiary Rating Linkage
Fitch's Approach to Rating Entitieswithin a Corporate Group Structure
(August 201 5)
Rating U.S. Utilities, Power and Gas
Companies (Sector Credit Factors)
(March 2014)
12
52
586
350
38
b,ub /
167
1,050
($ Mil.)
8,000
6,000
4,000
2,000
0 2012 2013 2014
Source: Company data, Fitch.
r Dividends
'tii'
Financial Overview
Liquidity and Debt Structure
PPW's liquidity position at March 31, 2016 was $1.2 billion, including $167 million in available
cash and remaining borrowing capacity of $1 ,050 billion under its credit facilities. PPW's stand-
alone borrowing capacity under its revolving credit facilities totals $1.2 billion and comprises
two separate facilities equally sized at $600 million maturing in 2017 and 2018, respectively.
2015 LTM
2016
Cash FIow Analysis
PPW was modestly FCF negative during 2012-2015, reflecting stable cash flows, a declining
trend in capex and higher dividends paid. PPW's capex declined more than 30% to
$916 million in 2015 from $1.3 billion in 2012. Meanwhile, PPW's utility FFO averaged
$1.5 billion per year in 2012-2015. Factoring in dividends and capex, PPW's FCF deficit
averaged $72 million per year or 7o/o of average annual 2012-2015 capex. PPW's annual
2016-2018 capex run rate is estimated at $807 million per year on average.
I
2012
h
2013
h
20't4
h
2015
L
LTM 2016
Source: Company data, Fitch
Debt Maturities and Liquidity
($ Mil., As of March 3'1,2016)
2016
2017
2018
2019
2020
Thereafter
Cash and Cash Equivalents
Undrawn Committed Facilities
Source: Company data, Fitch.
CFFO and Cash Use
rCFFO
($ Mil.)
2,000
1,800
1,600
1,400
1,200
1,000
800 r
600
400
200
0
Total Debt and Leverage
r Total Adjusted Debt (LHS)
-DebUEBITDAR
(RHS)(x)
5.0
4.0
3.0
2.0
'1.0
0.0
PacifiCorp
July 11, 2016
Ia',;
Peer and Sector AnalysisPeer Group
l!3uor Country
A-
Arizona Public SoMce Co. U.S.
Public SeMc€ Company
of Colorado U.S.
Soulhem Calitomia
Edison Company U.S.
lssuer Rating History
LT IDR OutlooUDato (FC) Watch
May 5, 2016 A- Stabl€
Nov.24,2015 A- Stable
April 24,2015 BgB+ PGitivo
Oct. 3,2014 BBB+ Positive
Nfl7,2O14 BBB StaHe
Sept. 16,2013 BBB StaHe
S6pt 17,2012 BBB Stable
Sept. 29,2011 BBB Stable
&. 1,2010 BBB NegatiwOct.2,2009 BBB Stable
Aug. 13,2008 BBB StaHe
July 13,2007 BBB Stable
Jan. 31,2006 BBB Staue
Dec.6,2005 BBB+ Stable
May 24,2OOS A- StableOct.5,2004 A- Stable
May24,1995 A-
LT IDR - Long-brm lssuer Default Rating.
FC - Foreign cunency.
Source: Fitch.
Peer Group Analysis
Arlzona Public
/s Mil ) PacifiCom Seryice Co-
Publlc Serylce Southern
Company of Galifomia
Color.do Edlron Comoanv
As cf
IDR
Outook
Fundamental Ratios (x)
Operating EBITDAR/
(Gro3s lnterest Expen3r + Rcnts)
FFO Fixed-Charge Coverage
Total AdjusEd Debuop€rating EBITDAR
FFO/Total Adjusted Debt (o/o)
FFGAdjustod Lev€rage
Common Dividend Payout (%)
Inbmd Cash/Capex (%)
Cape/Depreciation (Yo)
Rstum on Equity (%)
Finencial lnformatlon
Rewnue
Revenue Gror/vth (o/o)
EBITDA
Operating, EBITDA Margin (%)
FCF
Total Adjusted Debt with Equity Credit
Readily A\railable Cash
Funds Flow ftom Operations
Capex
IDR - lssuer Default Rating.
Source: Company data, Fitch.
Rating Outook Rating Outook Rating Outook Rating Outook
Stabl6 Stable Stablo
3/31/16
A-
38',u16
A-
3l31/16
A-
3t31116
A-
Outook
StaHe
5.5
5.3
3.3
29.1
3.4
82.6
121.8
119.8
9.7
5,2U
0.4
2,150
41.1
276
7,222
167
1,706
(e08)
7.5
7.3
2.8
34.5
2.9
61.6
81.7
202.4
9.5
3,498
0.7
1,427
40.8
(327t
4,086
5
1,216
(1,1 58)
6.5
6.8
3.2
33.0
3.0
69.9
89.2
229.9
9.4
4,085
(5.3)
1,331
32.6
(15s)
4,271
5
1,201pril
6.5
4.1
3.0
25.O
4.0
82.O
47.2
168.1
8.0
11,412
(12.0)
4,011
35.1
195
12,364
21
2,493
(3,378)
Key Rating lssues
Constructive Regulataon
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 (GRC) proceedings, including
fuel adjustment clauses that mitigate commodity price exposure in all of PPW's regulatory
jurisdictions. GRC filings have slowed along with the step down in capex at PPW and
management focus on rate stability.
Recent rulings by the Washington Utilities and Transportation Commission (WUTC) in PPW
GRCs issued by the commission in March 2015 and December 2013 were notably unfavorable
from an investor point of view, in Fitch's opinion. The WUTC orders disallowed costs related to
purchased power from qualifying facilities located outside the state of Washington and
authorized a below-industry average of 9.50/o authorized return on equity. PPW subsequently
filed a petition for judicial review of certain flnding in the WUTC's December 2013 order. ln
April 2016 the Washington Court of Appeals affirmed the WUTC order, deferring to the
commission's discretion in ratemaking and concluding that the commission did not abuse that
discretion.
PacifiCorp
July '11, 20'16
FitchRatings
Washington is a relatively small slice of PPW's operations, representing approximately 8% of
consolidated 2015 kwh sales. By comparison, Utah, Oregon and Wyoming represent 44%,
24% 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 Capex Trend
PPW's annual capex in 2015 declined 14o/oto $916 million from $1,066 million in 2014 and
32% below 2012 capex of $1,346 million. Capex averaged $1 .5 billion per year in 201Q-2012.
Projected 2016-2018 capex approximates $807 million per year on average. Lower capex
levels at PPW in recent years reflect completion of large projects, including major transmission
and renewables investments. ln addition, capex incorporates slower PPW service territory load
growth 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.
California ISO
PPW is considering the feasibility, costs and benefits of joining the California lndependent
System Operator (CAISO) as a participating transmission owner and has completed a
comprehensive benefits study. The results of the study, showing net benefits to constituents,
were released in October 2015, along with an extension of the nonbinding memorandum of
understanding originally entered into by PPW in April 2015. The results of the study supports
further analysis; PPW and the CAISO have initiated a stakeholder input and review process.
Regulatory approvals would be required if PPW decides to become a participating transmission
owner in the CAISO. ln that scenario, PPW would participate in the day-ahead market operated
by the CAISO and unified planning and operation of PPW's transmission network. PPW
currently participates in CAISO's energy imbalance market since November 2014.
Strong Corporate Parent
PPW is a wholly owned indirect subsidiary of Berkshire Hathaway Energy Company (BHE),
which in turn is majority-owned by Berkshire Hathaway lnc. (BRK, IDR M-/Outlook Stable).
Ownership of BHE by BRK is viewed favorably by Fitch as dividend retention affords BHE
greater flexibility in managing operating company groMh, dividends and capital structure
compared to other investor-owned utilities. Ring-fence provisions at PPW, including a special
purpose entity, are designed to preserve credit qualig including a nonrecourse structure to limit
PPW exposure to BHE liabilities.
Oregon/Utah Legislation Enacted
Oregon House Bill (H.8.) 1547-8, phasing out coal-fired generation by 2035 while sharply
increasing Oregon's renewable standard, was signed into law March 2016 by Governor Kate
Brown. The law sets firm milestones for the elimination of coal-generation for the state's two
largest electric utilities, Portland General by 2035 and Pacific Power (which is a division of
PPW), by 2030. H.B. 1547 also sets a significantly higher renewable portfolio standard (RPS)
PaciflCorp
July 11, 2016
requiring that 357o of retail load is sourced ftom qualiffing renewables by 2030, 45o/o in 2035
and 50% by 2040.
Oregon's 2007 RPS required that 207o of retail customer power needs be met by qualiffing
renewables and 25o/o in 2025. H.B. 1547 is the result of a collaborative process of stakeholders,
including PPW and environmental groups, and will help the state achieve its ambitious carbon
reduction goal of 75% below 1990 levels by 2050. PPl / estimates that the legislation will save
consumers up to $600 million compared with a proposed ballot initiative sponsored by Renew
Oregon. Fitch erpects the legislation will bring upward pressure to bear on PPW's cost
structure. Costs related to the legislation are expected to be recoverable in rates.
Governor Gary Herbert signed Utah Senate Bill (S.B.) 115 on March 30, 2016. Enactment of
S.B. 115 is a constructive developmentwhich includes, among otherthings, authorization of
recovery of 100% of net power costs outside of GRC proeedings. The law also requires the
Utah Public Service Commission to establish a fund through a change in accounting for energy
efficiency programs as a reserve for coal plant exposure. ln addition, S.B.115 establishes and
funds a pilot for investment in electric vehicle infrastructure and clean coal research.
PacifiCorp
July 11, 2016
Organizational Structure
Organizational and Debt Structure - Berkshire Hathaway Energy Company
($ Mil., As of March 31, 2016)
IDR - lssuer Default Rating.
Source: Company filings, Fitch
PacifiCorp
July 11, 2016
"-,,r.t^rrl' :'4r
':'ll
-::!;^.ii{' ':.i::
Definitionsr FFOAdjusted Leverage: Gross
debt plus lease adjustmenl minus
equity credit for hybrid instruments
plus prefened stock divided by
FFO plus gross interest paid plus
prefened diMdends plus rental
expense.
o 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
-Pacifioorp -lUC
M€dian
I L
20't4 2015 LTM 2016
IUC - lntegrated utility compani$.
Source: Company data, Fitch.
FFO-Adiusted Leverage
-Pacificorp -lUC
Median
L_.-_
2012 2013 20',t4 2015 LTM 2016
IUC - lntegrated utility compani$.
Source: Company data, Fitch.
FFO Fixed4harge Coverage
-Pacificorp -lUC
Median
(x)
8.0
i6.0 |
20',t5 LTM 2016
IUC - lntegrated utility companies.
Sourca: Company data, Fitch.
Gapex/Depreciation
-Pacmcorp -lUC
Modian
0 20't2 2013 2014 201s LTM 2016
IUC - lntegrated utility compani$.
Source: Company data, Fitch.
II
I
(x)
5.0
4.0
3.0
2.0
1.0
0.0
(o)
250
200 |
150 r
l
100
so
(x)
4'o t
3.0 I
l2.O l
i1.0 !
4.0
2.0
0_0
i
i
i
2012012 2013
0.0
PacifiCorp
July 11, 2016
Company Profile
PPW is an integrated electric utilig with operations spanning six states throughout portions of
the U.S. Rocky Mountains and the Pacific Northwest. PPW owns net 10,894 MW of generating
capacity and 61% of its 2015 output was coal-fired with the remainder supplied via natural gas
(14%), hydroelectric (4%), wind and other (4%) and purchase power (17%). Utah, Oregon and
\Afioming account for approximately 85% of electricig sold to PPW retail customers by
jurisdiction. Duing 20124015, revenue, operating income and net income logged CAGR of
7.2o/o,9.5o/o and 9%, respectively. Consolidated PPW retail sales growth in 2016 is expected to
approximate 2.1o/obefore slowing to 0.3% in2017.
Business Trends
Revenue Dynamics
-NetRevenues -NetRevenueGrowth($ uit.1
4,000
3,500 ,
e,ooo I
2,500 |
2,000 ;
1,500:
1,000 I500 ,gi.
2012 2013 2014
Source: Company data, Fitch.
2015 LTM
2016
EBITDA Dynamics
-EB|TDA -EB|TDA
Margin
($ Mil.)
2,500
2012 2013 2014 2015 LTM
2016
Source: Company data, Fitch.
i'l lilll
(o/o)
45
40
35
30
25
20
15
10
5
0
("k)
,6
is
Ii4ie
Ii2l1
Il9
PacifiCorp
July 11, 2016
Financial Summary - PacifiCorp
($ Mil.. As of March 31. 2016. IDR -AJRatino Outook Stable)2012 201t 2014 2015 LTT IQI6
Fundamental Ratlo!
Op€rating EBITDAR(Groes lnterest Exponse + Rents) (x)
FFO Fixed-Charge Coverage (x)
Total Adjusfiad Debuoperating EBITDAR (x)
FFO/Total Adjusted Debt (o/o)
FFGAdjusted Leverage (x)
Common Dividend Payout (06)
lntemal Cash/Gapex (%)
CapexrDepreciation (0/6)
R€tum on Equity(%)
Profitabllity
Revenues
Revenue Growth (%)
Net Re\rBnues
Operating and Maintenance Expense
Operating EBITDA
Operating EBITDAR
Oepttcialion and Amortizatbn Epense
Operating EBIT
Gross lnterest Epenso
Net lncome for Common
Openlirq Maintenanca Eleen3o 96 of Nct Revcnuss
Operatlng EBIT 0/6 of Net Revenueg
Carh Flow
Cash Flow fiom Oporation3
Change in Working Capital
Fundg fom Operations
Oividends
Capex
FCF
Net O&er lnwstn€nt Cash Flow
Net Change in Debt
Not Equity Procosds
Capitel Structure
Short-Tem Debt
Total Long-Term Debt
Total Dobt wi$ Equity Credit
Total Adjusted Debt with Equity Credit
Total Common Sharaholde/s Equity
Total Capital
Total Debt/Total Capltal (%)
Common Equity/Total Capital (0/6)
IDR - lssuer Default Rating.
Source: Company data, Fitch.
4.3
4.7
4.2
26.4
3.8
37.2
93.2
210.3
7.0
4,882
6.5
3,064
(1,242)
1,661
'1,675
(640)
1,021
(380)
537
(40.s)
33.3
1,625
170
1,455
(200)
(1,s48)
79
(s)
(41)
6,861
6,881
7,008
7,64
14,484
47
53
4.9
4.8
3.5
27.6
3.6
73.3
95.5
't 57.8
8.8
5,',t47
5.4
3,223
(1,114)
1,939
1,955
(675)
1,264
(37s)
682
(34.6)
39.2
1,551
34
1,517
(500)
(1,06s)
(14)
12
15
(40)
6,877
6,878
6,926
7,787
14,663
47
53
5.2
5.0
3.5
27.7
3.6
103.9
80.2
146.8
9.0
5,252
2.0
3,255
(1,057)
2,026
2,042
o26)
1,300
(37e)
698
(32.5)
39.9
1,570
(1 0)
1,580
(72s)
(1,066)
(221)
(16),y
20
7,053
7,074
7,120
7,756
14,828
48
52
5.4
5.2
3.5
28.2
3.5
136.7
77.5
121.0
9.3
5,232
(0 4)
3,364
(1,082)
2,097
2,'.\'12
Qs7)
1,340
(37e)
695
(32.21
39.8
1,7U
74
1,660
(s50)
(s16)
(1 32)
(3)
'1
20
7,146
7,'t67
7,287
7,503
14,668
49
51
5.5
5.3
3.3
29.1
3.4
82.6
121.8
119.8
9.6
5,2U
0.4
3,415
(1,077)
2,150
2,165
(rs8)
1,392
(380)
726
(31.5)
40.8
'1,7u
78
1,706
(600)
(e08)
276
20
,',1
7,093
7,094
7,222
7,568
14,660
48
52
PacifiCorp
July 11,2016
FitchRatings
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PacifiCorp
July 11, 2016
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