20170828Compliance Filing.pdf

YPecrnEonp
' r ' :l Pacific Power I
Rocky Mountein Power
825 NE Mulmomah, Suite 2000
Portland, Oregon 97232
August 28,2017
VA OVERNIGHT DELIVERY
Idaho Public Utilities Commission
472 West Washington
Boise, lD 83702-5983
Attention: Ms. Diane Hanian
Commission Secretary
Re: Idaho Docket No. PAC-E-05-08 Compliance Filing
To the Idaho Public Utilities Commission:
PacifiCorp submits the S&P Global Ratings report dated August 22,2017, as an 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.r
Commitment I20 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 S&P
credit rating agency report related to PacifiCorp.
Very truly
Weems
Assistant Treasurer
Enclosure
t On April 30,2014, MidAmerican Energy Holdings Company changed its name to Berkshire Hathaway Energy
Company.
S&P Gtobal
Ratings
RatingsDirect'
Research Update:
Berkshire Hathaway Energy Co.
Outlook Revised To Stable On
Terminated Acquisition Agreement;
Ratings Affirmed
Primary Credit Analyst:
Safina Ali, CFA, New York (1) 212-438-1877; [e-mail]
Secondar5r Contact:
Gerrit W Jepsen, CFA, New York(1) 212-438-2529; [e-mail]
Table Of Contents
Overview
Rating Action
Rationale
Outlook
Ratings Score Snapshot
Related Criteria
Ratings List
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AUGUST 22,201.7 1
Research Update:
Berkshire Hathaway Energy Co. Outlook Revised
To Stable On Terminated Acquisition Agreement;
Ratings Affirmed
Overview
o Berkshire Hathaway Energy Co. (BHE) announced the t,ermination of a
definltj-ve agreement with Energy Future Holdings Corp. (EFH) Eo acgui-re
the reorganized EFH, lncluding Oncor Electric Delivery Co. LLC (oncor) .
. We are affirming our rA' issuer credit ratings on BHE and on all of BHE's
U.S.-based regulated utility subsidiari-es. We are also affirming our
'A-1r short-term ratings on BHE and its U.S.-based utllity subsidiaries
with short-t,erm ratings. We are revising t.he outlook to stable from
negative on BHE and iEs U.S.-based utility subsidiaries.
o The st.able outlook reflects our expectation that management will continue
Eo focus on its core ut.ility operatlons and reach constructive regulatory
outcomes supporting the exist,ing business risk profile. Although BHE has
used significant debt leverage for acguisitions and capital invesLments,
we expect credit measures to strengthen modestly, supporting the current
rating. Under our base-case forecast, we expect adjusted funds from
operations (FFO) to debt to average around 15t over the next few years.
Rating Action
On Aug. 22, 20L7, S&P Globa1 Ratings affirmed all ratings, including its 'A'j-ssuer credit ratings on Berkshire Hathaway Energy Company (BHE) and all of
BHErs U.S.-based regulated utilj-ty subsidiarles. We are revising the outlook
to stable from negative on BHE and it.s U.S.-based utility subsidiaries.
Rationale
Berkshlre Hathaway Energy announced t.hat the definitive agreement to acquire
Ehe reorganized EFH has been terminated. If the acqulsition had been
completed, we projected that it would have modestly weakened financi-a1
measures, including our core ratj-o of adjusted FFO to debt. We had expected
this to remain slightly above 13?, or at t,he very 1ow end of our financial
profile benchmark range. Wit,h t,he termination of the acquisition, we expect
BHE's financiaL measures to remain in line with the current financial risk
profile, with adjusted FFO t.o debt that we expect will average 15* over next
Ewo years.
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hle are also affirming our 'A-1' short-term ratings on BHE and its U.S.-based
utility subsidiaries wlth short-term ratings.
Research Update: Berkshire Hathaway Energy Co. Outlook Reuised To Stable On Terminated Acquisition
Agreement; Ratings Affirmed
We also affirmed our 'A' rating on BHE and U.S.-based subsidiarles. The
affirmatj-on is based on our expectation that BHE wj-II continue to operate in a
manner that will maintain an excellent buslness risk profile and preserve its
financial rj-sk profife assessment. that we consider as significant.
Liquidity
We assess BHE's liquidity as adequate because its liquidj-ty sources are 1j-ke1y
to cover uses by more than 1.1x over the next 12 months and will be sufficient
to meet cash outflows even with a l-0t decline in EBITDA. The assessment also
reflects the company's generally prudent risk management, sound relationships
with banks, and a generally satisfactory standing in credi-t markets.
Principal liquidity sources:
. Cash FFO of about $5.5 billion;. Average expected credit facllity avai-1abiIity of roughly $6.35 billion
annually; and. Cash and liguid investments of $800 million.
Principal liquidity uses:
. Debt maturities, including outstanding commercial paper, of about $4.3billion; and
o Maintenance capital spending of about $4.5 biIIlon.
Other credit considerations
The rat.ings on BHE lnclude a one-notch negative adjustment for comparable
rating analysis to account for the impact of hlgher-risk nonutility
businesses, which are captured neither in the industry risk analysis nor the
competitive position analysj-s. Non-utility businesses, includj-ng non-utility
renewabl-e generation, pipelines, and real-estate-related operations, currently
account for roughly 20* of consolidated EBIDTA. Moreover, the core financial
ratio indicates a financial rj-sk profile that faI1s toward the weaker end of
the significant range.
In addition, the ratings include a one-notch negative adjustment resulting
from our assessment of BHE's financial policy to reflect our view of event
risk related to unexpected acguisitions and investments, such as the attempted
acguisi-tion of a reorganized EFH, that may result in more vo1at.i1e cash flow
measures and incremental debt leverage.
Group rating methodology
We base our ratings on BHE on the consolidated group credit profile and
application of our group ratings methodology. We assess BHE as a strateglcally
important subsidiary of Berkshire Hathaway Inc. as it is important to
Berkshire Hathaway's long-term strategy, is unlikely to be so1d, and we expect
that Berkshire Hathaway will continue to support. BHE. As a result, our issuer
credit rating (ICR) on BHE incorporates a three-notch uplift from its 'bbb'stand-aIone credit profile (SACP) .
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AUGUST 22,2017 3
Research Update: Berkshire Hathauay Energy Co. Outlook Reuised To Stable On Terminated Acquisition
Agreement; Ratings Affirmed
Issue rating
We rate the senior unsecured debt at BHE one notch lower than the issuer
credit rating because priorlty liabillties, including operating subsidiary
utillty debt, exceeds 2Q* of total consolidated assets. The short-term rating
1s 'A-1'based on our issuer credit rating on the company.
Outlook
The stable outlook reflects our expect.aEion that management will continue to
focus on its core utility operations and reach constructive regulatory
outcomes supporting the existing business ri-sk prof11e. Although BHE has used
significant debt leverage for acquisitions and capital investments, we expect
credit measures to strengthen modest.ly, supporting the current rating. Under
our base-case forecasL, we expect adjusted FFO to debt to average about 15?
over the next few years.
Downside scenario
We could lower raEings if core financial- measures continuously underperform
our base-case forecast and remain consistently at less credit.-supportive
1eve1s, including adjusted FFO to debt of less than 13t. This could occur if
raEe-case outcomes are consistently weaker than expecEed, regulatory 1ag
increases, or if capltal spending increases and is primarily debt financed.
Acqui-sitlon risk remains a consideration and could lead to a ratings change
depending on the nature of a target entity, the financial risk profile at Lhe
time of the acquisition announcement, and the t,ransaction financing.
Upside scenario
Given our assessment of business risk and expectations of financj-a1
performance, we do not expect higher ratings over the next few years. However,
we could raise the ratings if the company's business rj-sk profile strengthens,
including 1f regulaEed utility operations materially increase as a percent.age
of total operations. We could also raise the ratings if business risk
continues to focus on its core regulated utility operations, while financial
measures strengthen and consistently exceed our base-case forecast, including
adjusted FFO to total debt consist,ently above 20t, the high end of the
significant financial risk profile category. Stronger financial measures could
occur for varj-ous reasons, including t.hrough higher operating cash flow due to
economic growth in the utilities' service territories, debt reduction wlth
free operating cash f1ow, or greater equit.y funding of investments.
Ratings Score Snapshot
Corporate Credit Rating: A/Stable/A-1
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AUGUST 22,20T7 4
Research Update: Berksbire Hatbauay Energy Co. Outlook Reuised To Stable On Terminated Acquisition
Agr e erne nt ; R atin gs Affirm e d
Business risk: Excellent. Country risk: Very low. Industry risk: Very low
. Competitive position: Strong
Financial risk: Significant
o Cash f low,/Leverage: Signif icant
Anchor: a-
Modiflers
o Diversificatlon/portfolio effect: Neutral (no impact)
. Capital structure: Neutral (no impact)
o r,iquidity: Adeguate (no impact)
o Financial policy: Negative (-1 notch)
. Management and governance: Satisfactory (no impact)
. Comparable rating analysis: Negat.ive (-1 notch)
Stand-alone credit, profile: bbb. Group credit profile: aa
o Entity status withln group: Strategically import,ant (+3 notches from SACP)
Related Criteria
o General Criteria: Methodology For Linking lrong-Term And Short-Term Rat,ings
, April 7, 201-7
o Criteria - Corporates - General: Methodology And Assumptions: Llguidity
Descriptors For G1oba1 Corporate Issuers, Dec. 15, 20L4
o Criteria - Corporates - General: Corporate Methodology: Ratlos And
Adjustments, Nov. !9, 2Ol3
o Criteria - Corporates - General: Corporate Methodology, Nov. 19, 2013
o Criteri-a - Corporates - Utillties: Key Credit FacEors For The Regulat,ed
Utilltles Industry, Nov. 19, 2Ol3
o General Criteria: Group Ratlng Methodology, Nov. 19, 20L3
o General Criteria: Country Risk Assessment Methodology And Assumptions,
Nov. 19, 2Ot3
o General Criteria: Methodology: Industry Risk, Nov. 79, 2013
o Criteria - Corporates - Utilities: Col1at,eral Coverage And Issue Notching
Rules For '1+' And r1r Recovery Rat,ings On Senior Bonds Secured By
Utility Real Property, Feb. a4, 201-3
o General Criteria: Methodology: Management And Governance Credit Factors
For Corporate Entitles And fnsurers, Nov. a3, 201-2
. General Criteri-a: Use Of CredltWatch And Outlooks, SepL. 14, 2009
o Criteria - Corporates - Utiliti-es: Notching Of U.S. Investment-Grade
Investor-Owned Ut,ility Unsecured Debt. Now Better Reflects Anticlpated
Absolute Recovery, Nov. 10, 2008
o Criteria - Insurance - General: Hybrid Capital Handbook: September 2008
Edition, SepE. ]-5, 2008
. Criteria - Corporates - General: 2008 Corporate Criteria: Rating Each
Issue, Apr1l 15, 2008
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AUGUST 22,2017 5
Researcb Update: Berkshire Hathaway Energy Co. Outlook Reuised To Stable On Terrninated Acquisition
Agreement; Ratings Affirmed
Ratings List
Ratings Affirmed; Outlook Action
To From
Berkshire Hathaway Energy Company
Sierra Pacific Power Co.
PacifiCorp
MidAmerican Energy Co.
Corporate Credi-t Rating A/Sr,ab1e/A- 1 A/Negati-ve/A-t
MidAmerican Funding LLC
Corporate Credit Rating A/Srable/ - -A,/Negatlve/ - -
NV Energy Inc.
Nevada Power Co.
Corporate Credlt Rating A/Srable/NR A/Negatlve/NR
Ratings Affirmed
Berkshire Hathaway Energy Company
Senior Unsecured
Commercial Paper
A-
A-1
MidAmerican Energy Co
Seni-or Secured
Recovery Rating
Commercial Paper
A+
1+
A-1
MidAmerican Funding LLC
Senior Secured A-
NV Energy Inc.
Senior Unsecured A-
Nevada Power Co.
Senior Secured
Recovery Rating
A+
1+
Pac j-f iCorp
Seni-or Secured
Recovery Rating
Preferred Stock
Commercial Paper
A+
1+
BBB+
A-L
Sierra Pacific Power Co
Senior Secured
Recovery Rat,ing
A+
1+
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AUGUST 22,2017 6
Research Update: Berkshire Hathauay Energy Co. Outlook Reuised To Stable On Terminated Acquisition
Agreement; Ratings Affirmed
Certain terms used in this report., particularly certain adjectj-ves used to
express our view on rating relevant factors, have speclfic meanj-ngs ascribed
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ratings affected by this ratlng action can be found on the S&P G1obal Ratings'
public website at $,ww.standardandpoors.com. Use the Ratings search box located
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AUGUST 22,201.7 7
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