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HomeMy WebLinkAbout20180301Compliance Filing.pdfYPecrnConp RECEIVED 2Bl8 tlAR - | []l 9: 20 i[] tri:C i:'iJfiLlC I.1 ; 1.r i 1 1;.'-: ccP,t lt lss loN Pacific Powcr I Rocky Mountain Powcr 825 NE Multnomah, Suite 2000 Portland. Oregon 97232 March l, 2018 VA OVERNIGHT DELIVERY 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 attachment in compliance with Order 29973 in the above referenced 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 Commitmentl20 of the Stipulation provides that PacifiCorp willprovide 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 Commitmentl20 of the Stipulation, please find the attached credit rating agency report related to PacifiCorp. Very truly yours, Weems Vice President, Controller and Assistant Treasurer Enclosure t On April 30,2014, MidAmerican Energy Holdings Company changed its name to Berkshire Hathaway Energy Company. Idaho Public Utilities Commission 472West Washington Boise, tD 83702-5983 INFRASTRUCTURE AND PROJECT FINANCE Mooov's INVESTORS SERVICE CREDIT OPINION 21 February 2018 Update RATINGS Berkhlre Hathaway Energr Company Domicite Des Moines, lowa, United States Long Term Rating A3 Type Senior Unsecured - Dom Curr Outtook Stabte Please see the ratings section atthe end ofthis repoft for more information.The ratings and outlook shown reflect information as of the publication date. Analyst Contacts Laura Schumacher +1.2'12.553.3853 VP-Sr Credit Officer laura.schumache16moodys.com Richa N Patel +1.212.553.9475 Associate Analyst richa.patet6umoodys.com MichaelG.Haggarty +1.212.553.7172 Associate Managing Director m ichaet. haggarty@moodys.com Jim HemPstead +1.212.553.4318 MD-Utilities james. hempstead6moodys.com CLIENT SERVICES Americas Asia Pacific Japan EMEA 't-212-553-1653 852-3551-3077 81-3-5408-4100 44-20-7n2-5454 ,, .ro ,*-*.1'Ion.a .r..rt' no* r?# op"r.,,on, urara,fi.ng., ," *o,*,"g;i0., 'ource: Moody's Financial Metricsil Credit strengths > Large, diversified regutated portfolio with low business risk > Berkshire Hathaway affiliation > Lack of dividend requirement results in significant free cash flow Credit chatlenges > Acquisition event risk > Regulatory uncertainties in Nevada > Moderate cash ftow to debt metrics that are low relative to peers Berkshire Hathaway Energy Company Update to Credit Anatysis Summary Berkshire Hathaway Energy Company's (BHE, A3 stabte) credit profi[e reftect one of the largest and the most diversified portfotios of regutated assets among US utitity hotding companies. Atthough BHE is rated on a standatone basis, being privatety owned by Berkshire Hathaway (BRK, Aa2) brings some unique advantages, such as a lack of a dividend and ready financing for major investments. Like its parent, BHE is prone to making [arge acquisitions which witl cause its debt to spike periodicalty. Leveraged acquisitions can periodicalty set back BHE's credit metrics; however, the company has the capacity to generate free cash ftow to restore its credit metrics quickty. Exhibit 1 Historical CFO Pre-WC, Total Debt and CFO Pre-WC to Debt Ratio (S in millions) This document has been prepared for the use of Stephen Mccleish and is protected by law. lt may not be copied, transferred or disseminated unless authorized under a contract with Moody's or otherwise authorized in writing by Moody's. Rate this Research > MOODY'S INVESTORS SERVICE INFRASTRUCTURE AND PROJECT FINANCE Rating outlook BHE's rating outlook is stable, reflecting the company's steady cash ftow, the low business risk of its diverse regulated operations, and the financial strategy under BRK's ownership. We recognize acquisitions have periodical[y caused parent-tevel debt to spike, but we acknowledge BHE's cash flow generating abitity, and recognize its history of adjusting relativety quickty to support credit quatity. As such, we expect the company wi[[ generalty be abte to sustain its cash ftow from operations excluding changes in working capitat (CFO pre-WC) to debt in the 15% lo17Yo range and to maintain parent debt as a percentage of conso[idated debt in the 20 % to 30% range (about 27o/, as of Septemb er 2017). Factors that could lead to an upgrade Acquisition event risk, and relativety moderate cash flow to debt metrics, temper the potential for an upgrade; however, a ratio of CFO pre-WC to Debt sustained above20o/, could put upward pressure on the rating. Factors that could lead to a downgrade BHE's ratings could be downgraded if its financia[ profite is hurt by a rise in regulatory contentiousness in multiple jurisdictions or adverse poticy devetopments; if major investments are financed with excessive leverage; or if there is an increase in business risk. lf credit metrics sustain a decline, for exampte, CFO pre-WC to Debt stays below 15o/o for a prolonged period or BHE hotding company debt remains over 30% of conso[idated debt, there coutd be downward pressure on the ratings. Key indicators Exhibit 2 KEY TNDTCATORS [11 Berkshlre Hathaway Energy Company 12t31t2013 12t31t2014 12t31t2015 12t31t2016 9/30/2017(LTM) CFO pre-WC + lnterest / lnterest 4.4x 4.7x 4.4x 4.1x 4.2x CFO pre-WC / Debt 13.0o/o 15.5o/o 16.0o/o 15.0%15.60/o CFO pre-WC - Oividends / Debt 13.0o/o 15.5%16.0%15.0%15.6% Debt / Capitalization 53.6%56.4o/o 53.5%50.9%48.8o/o [1] Atl ratios are based on hdjusted'financiaI data and incorporate Moody's Clobal Standard Adjustments for Non-Financial Corporations. Source: Moody's Financial Metricsft Profile Berkshire Hathaway Energr Company (BHE) is the utitity/energy investment vehicle for Berkshire Hathaway lnc. The company owns four US electric and gas utitities (PacifiCorp, 43; MidAmerican Energy Company, 41; Nevada Power Company, Baal; Sierra Pacific Power Company, Baal); two gas pipetines (Northern Natural Cas Company, A2; Kern River Funding, not rated); two electric distribution networks in the UK (Northern Powergrid (Yorkshire) plc and Northern Powergrid (Northeast) Limited, both A3);and a Canadian transmission-on[y electric utitity (Ahalink 1.P., not rated). BHE also owns some non-utility businesses inctuding BHE Renewabtes, which hotds renewabtes and other independent power projects in the US and a hydro facility in the Phitippines; and HomeServices, a rea[ estate brokerage firm. BHE has a regulated rate base of approximatety S42 bittion and serves about 8.7 mittion etectric and gas customers. As of September 2017, the company's generation capacity owned and under construction totated approximatety 31,856 MW and is about 29o/o coal and 360/o renewables. This pubtication does not announce a c.edit rating action. For any credit ratings referenced in this pubtication, ptease see the ratings tab on the issuer/entity page on m.moodys.com for the most updated credit rating action information and rating history. 2 21 February 2018 Berkshire Hathaway Energy Company: Update to Credit Anatysis This document has been prepared for the use of Stephen Mccleish and is protected by law. lt may not be copied, transferred or disseminated unless authorized under a contract with Moody's or otherwise authorized in writing by Moody's. MOODY'S INVESTORS SERVICE INFRASTRUCTURE AND PROJECT FINANCE Exhibit 3 Berkshire Hathaway Energy Company Organization Chart Source: Betkhire Hathaway Enetgy Company €, Moody's lnvestorsSeNice Exhibit 4 Berkshire Hathaway Energy Company Mid-Year Average Rate Base by Subsidiary (S in biltions) .htrq !ffidnE@y .btuPffigil. .BHEPipthGq .wEryy reht- S39.4 54t.2 rc!54 m1M m17 F [1] Northern Powergrid rate base converted into US at December GBP+USD Fx rate each year inctuding 1.55 (June 2015), 1.42 (june 2016), and 1.28 (June 2017) [2] * AttaLink rate base converted into US at December CAD*U5o Fx rate each year inctuding O.8O (June 2015), 0.77 (June 2016), and 0.75 (June 2017) Source: Company Presentations & Moody's lnvestors SeNice Detailed credit considerations Large, diversified regulated portfolio with low business risk BHE operates a gtobatty diverse portfolio of regulated businesses located in eleven US states, the UK, Canada, and the Phitippines. This high degree of diversification across regulatory regimes and business units helps to insutate the company from isolated instances of unfavorable regutatory rulings and earnings votatility associated with local weather changes and economic conditions. These businesses 3 21 February 20 18 Berkshire Hathaway Enerty Company: Update to Credit Anatysis This document has been prepared for the use of Stephen McCleish and is protected by law. lt may not be copied, transferred or disseminated unless authorized under a contract with Moody's or otheruise authorized in writing by Moody's. 16.0 t0.o 1t5.0 ts.0 15.0 t20 0 315.0 110.0 05.0 .g Sertshlre Halhamy Energy $rry.-.*f{rd rilicu Enq!D. Pacrrcorp ilo.{rrgoarqft oalrllffte Cmr..t K.m Rig 15.fi.nt{erd G6 BHE m BH: m ol Amnca AITALINKm Ratffi Comgany br ffieltruy Po./ar Co. Bo.l U(B E UX xg 16.8$.8t6.8 t3.0t3.0t3.0 t7.s $8.3 19.0 t140 3140 MOODY'S INVESTORS SERVICE INFRASTRUCTURE AND PROJECT FINANCE have demonstrated low corre[ations among one another and against macroeconomic variables. Roughty 95o/o of its earnings come from stabte regulated or contracted businesses which resutts in low business risk. BHE's subsidiaries are prominently positioned in their respective markets. BHE is one of the largest owners of renewable generation capacity in North America, with capacity owned or under construction representing about 360/o of its approximate 32 CW of generating resources. ln the western US, ownership of PacifiCorp, NV Energy, and Attalink makes BHE the [argest transmission owner in the Western lnterconnection. BHE's Kern River pipeline subsidiary is a major gas supptier to the Southwest, where BHE atso owns some of the largest sotar farms in the world (Solar Star Funding, Baa2 Positive; Topaz Sotar Farms, Baal Positive). Exhibit 5 Exhibit 6 Berkshire Hathaway Energy Company Net lncome by Subsidiary Berkshire Hathaway Energr Company Revenue [1] (S in mitlions) As ot 9l3Ol2O17 As ol 913012017 5 ource: Compa ny P rese ntati ons [1] Excludes Home Seruices & equity income 5 ouce : Co m pany P re se ntati ons Berkshire Hathaway affiliation: a positive factor but not a ratings determinant With market capitatization of approximatety S500 bittion currentty, BRK is one of the [argest companies in the US and is exceptionatty diversified across insurance and many other businesses. For the nine months ending September ?017, BRK's 90% stake in BHE accounted for 160/o of BRK's reported earnings. BRK generatty takes a decentralized approach to the management of its major business lines [ike BHE. Atthough a consolidated subsidiary of BRK, BHE is fairty autonomous, its debt is non-recourse to BRK, and consequentty, we rate BHE on the standalone basis and not based on BRK's ratings. Our rating of BHE does however consider the benefits of being owned by deep-pocketed BRK. For example, BRK itsetf pays no dividend, and neither has it ever required BHE to pay a dividend. This way, BHE has been abte to accrete more equity value than its utility peers, which tend to be free cash flow negative and need constant infusions of capitat. This atso al[ows BHE to repay acquisition related debt on an acceterated basis. BRK's buy-and-hotd investment approach also tricktes down to BHE, which has reinvested its capitaI in its assets that may have been underinvested in under prior ownership. Evolving [andscape in Nevada BHE faces some significant challenges in Nevada, a regulatory jurisdiction that accounts for roughly 20o/o of its revenue and '13% of its net income, but we assume the process wi[[ continue to balance various stakeholder's interests, and to support financiatty heatthy utititles. Net Metering: About 2% of BHE's customers in Nevada are equipped with rooftop sotar systems. ln September 2012 the Pubtic Utitity Commission of Nevada (PUCN) issued an order implementing Assembly Bitt 405, which was signed into law by the governor in.June 2017 and essentiatly reversed a creditsupportive orderon net metering issued bythe PUCN in 20'15. The bi[[ removed the existing net metering cap, established higher crediting rates for excess energy from new solar customers, and prohibited charging net 2 l Febru a ry 2 0 1 8 Berks hi re Hathaway E nergy Com pa ny: Update to Credit Ana tysis This document has been prepared for the use of Stephen Mccleish and is protected by law. lt may not be copied, transferred or disseminated unless authorized under a contract with Moody's or otherwise authorized in writing by Moody's. 4 MOODY'S INVESTORS SERVICE INFRASTRUCTURE AND PROJECT FINANCE metering customers additional fees to cover the costs of serving them. The order puts Nevada utilities back in a position where they are unable to recover the costs of serving solar customers directly from those customers, potentiat[y adding votatitity to cash ftow, a credit negative. The new rates and restrictions became effective 1 December 2012 Also in December, the PUCN ordered Nevada Power Company (NPC) to decrease its annual revenue by 526.4 miltion. The decision was rendered in a base rate case the company initiated in.June in accordance with state law that requires etectric utitities to file rate cases every three years. NPC did not seek a rate increase, but indicated that, assuming a 107o return on equity (ROE) the company was experiencing an approximate S30 mittion revenue deficiency. The PUCN's decision was premised on a9.4o/o ROE versus a prior authorized [eve[ of 9.87o. On a more positive note, the order atso established a profit-sharing mechanism that atlows NPC to retain 100% of earnings between 9.4% and 9.7o/o, and to share equatty with ratepayers earnings in excess of 91%, The establishment of a profit sharing mechanism is, i n part, a means to address tax savings that are expected as a result of the Tax Cuts & jobs Act of 2017. The mechanism provides the opportunity for NPC to retain a portion of the savings, and is not prescriptive as to the manner in which savings wi[[ be returned to ratepayers. Energl Choice: ln November 2016, Nevada voters initia[ty approved a measure to attow retaiI customers to choose an electricity provider other than their regulated utitity. Atong with other stakeholders, BHE's Nevada utitities are participating in the Covernor's Committee on Energy Choice (CCEC) that is tasked with making recommendations to the governor by luty 2018 regarding legislative and regulatory actions to be taken, shoutd energy choice be confirmed with another vote in November 2018. ln October 2012 the PUCN opened a docket to begin an investigation into possib[e issues, including costs and benefits, related to the Energy Choice lnitiative and the possible restructuring of Nevada's energy market. The PUCN is expected to provide its final report to the CCEC by Aprit 2018. lf voters approve the measure in the 2018 election, the state constitution wi[[ be amended to require legis[ation by 2023 to open the retaiI etectric market in Nevada to competition. ln the event energy choice is imptemented, BHE woutd tikety seek to divest the power plants serving its Nevada utilities. lf this happens, we expect the Nevada utitities woutd also seek a plan that avoids stranded assets, possibly through securitization or other means, to attow utitities to recoup these past investments. Furthermore, BHE would atso tikely seek to avoid any obligation to be a provider of last resort to customers who do not migrate to an unregulated supptier. Assuming these issues are addressed in a credit-neutral manner, exiting the riskier supply function wou[d leave BHE's Nevada utitities as lower risk, regutated transmission and distribution utitities. Loss of Load from Major Customers: Over the past coupte of years, several of BHE's largest customers in Nevada opted to procure their power from another supptier, retaining distribution on[y services from the utilities. When customers e[ect an alternative supptier, the PUCN requires them to pay a one-time impact fee as wetl as ongoing non-bypassabte charges. This enables the utitity to recover past investment and to avoid shifting those costs to other customers, a credit positive. These actions do however hightight the need for utilities to remain attentive to the needs and objectives of their customers, which may inctude more renewabte and/or [ower cost " alternatives. We note these short-term uncertainties hightight the benefits of BHE's diversification. Atthough regulatory decisions in Nevada have generatty been supportive of credit quality, these emerging shifts in the utitity business nevertheless put pressure on the state's utitities to be more competitive to retain customers, white keeping costs low and tempering rate increases. Above-average regulatory environment in lowa BHE benefits from the above-average regulatory treatment in the state of lowa (roughty 17o/o of its revenue), where one of its largest subsidiary MidAmerican Energy (MEC) (about22o/o of net income) operates. The lowa Utitities Board, (lUB) provides for a credit supportive framework as it has pre-approved more than hatf of MEC's electric rate base with ROE's authorized in the 11% range. This is higher than most US utilities. Moreover, the company operates on a revenue sharing arrangement that returns a portion of its earnings above certain thresholds (based on ROEs exceedingllo/ofor 2017; moving to a btended earnings rate of around 10.5olo beginning in 2018) to ratepayers in the form of rate base reductions. This arrangement helps maintain competitive rates and mitigate the need for future rate increases. As a result, MEC currentty does not anticipate the need to fite for an electric rate increase untit 2029. As the [argest utitity in lowa, MEC has ptayed an important role in achieving the state's energy and economic goals, inctuding the construction of a series of wind projects that have become the biggest economic devetopment program in the state's history. MEC's 5 2l February 2018 Berkshire Hathaway EnerSy Company: Update to Credit Analysis This document has been prepared for the use of Stephen McCleish and is protected by law. lt may not be copied, transferred or disseminated unless authorized under a contract with Moody's or otherwise authorized in writing by Moody's. MOODY'S INVESTORS SERVICE INFRASTRUCTURE AND PROJECT FINANCE wind fteet has grown from sequential projects over more than a decade. The latest is the 53.6 bittion Wind Xl project, which witt place 2,000 megawatts in service between 2017 lo 2019. The IUB has allowed MEC to earn a ROE of 11.0% specific to the Wind Xl investment. lt is the largest wind project that MEC has ever undertaken and the biggest among BHE's capital programs forecast over the next few years. ln addition, MEC received approval from the IUB to repower up to '1,059 MW of earty vintage wind turbines which witt re-estabtish production tax credits from these facilities for another ten years. The upgrades are being completed during the 2017-2020 time frame. Exhibit 7 Wind driven projects at MEC drive Berkshire Hathaway Enerry Company Capital Expenditure Plan (S in miltions) $4,000 $3,500 $3,000 $2,500 $2,000 s1,500 91,000 0500 s .2017E 12018-2019 E t3,,t29 $2,006 $3,774 $1,221 $798 $1,022 $616 $659 $463s315 Sglg $465 t47 t102 lW Energy Norlhom Porcrgrid BHE Pip3lin€ Group BHE Renembles BHE Transmission Home Seryie & Other $433 $309 PacifiCorp MidAmricsn En€tgy Source: Company FilLings & Presentation PacifiCorp contributes to geographic, and increasing fuet, diversity BHE benefits from the geographicalty diversified operations of PacifiCorp, which contributes roughly 27o/o lo its net income. PacifiCorp conducts business through two utitity divisions: Rocky Mountain Power (Ulah, 44o/o of PacifiCorp's 2016 retaiI etectricity sates; Wyoming,lT% of sales; ldaho,T%) and Pacific Power (Oregon,24o/o of retaitsates;Washington, T%; Catifornia,lTo). The company also sells power In the whotesale market (11o/o of 2016 totat etectricity sales). The geographic diversity of PacifiCorp's six-state service territory is favorabte, because it mitigates the economic and regutatory impacts in any one jurisdiction. PacifiCorp has ptedged to stay- out of rate case in Utah, Oregon and Wyoming untitZ0Zl. Over the next several years, PacifiCorp wi[[ be increasing renewab[e resources while reducing its coal fleet, driven by BHE's strategic priorities, customer preferences, and the improving economics of wind generation from better technotogy and the extension of federal production tax credits. The company's robust capital ptan is focused on repowering nearty 1,000 MW of owned wind facilities, acquiring up to 1,270 MW of new wind resources, and adding transmission. As of 30 September 2012 PacifiCorp's generation portfolio consisted of approximateLy 54o/o coal,25% gas,11o/o hydro and 10% wind and other sources. This is a meaningful change from its March 2006 portfotio which inctuded approximatelyT2o/o coaL and about 1% wind and other. Acquisition event risk BHE grows through acquisitions and regutarly makes major investments in new business platforms, as demonstrated by its purchases of the equity of NV Energy (Baa2 stabte) for 55.6 bittion in 2013, Attalink (not rated) for 527 bittion in 2014, and PacifiCorp (A3 stabte ) for S5l bittion in 2006. BHE targets regutated or contracted energy businesses that broaden its scale and diversification. As evident in its ho[dings in the UK and Canada, BHE is witting to invest abroad in developed countries with a strong rute of [aw. The NV Energy and AttaLink acquisitions were largely debt financed, much of it with junior subordinated debentures issued to BRK. As of 30 September 2012 S100 mi[[ion of BHE junior subordinated debentures remain outstanding; however a[[ subordinated debt retated to the acquisitions has been repaid. 6 21 February 2018 Berkshire Hathaway Energy Company: Updat€ to Credit Anatysis This document has been prepared for the use of Stephen McCleish and is protected by law. lt may not be copied, transfened or disseminated unless authorized under a contract with Moody's or otherwise authorized in writing by Moody's. MOODY'S INVESTORS SERVICE Environmental Sustainabitity BHE is focused on growing its renewabte energy portfolio and leading the way to a sustainable energy future. As of September 2017, BHE's consolidated generating portfotio inctuded about29% coat-fired resources, versus about 58% In 2006; renewable resources made up about 36% of the portfotio versus about 16% in 2006. By 2025, BHE plans to eliminate an additional 1,274 MW of coal generation (approximatety 4% of the current generation portfotio) either through fuel switching and retirements. Exhibit 8 Berkshire Hathaway Energy Company's Net Capacity Owned and Under Construction Nuclear & Other 20/r Natural Gas 33% Source: Company Fillings €, Presentations Moderate cash ftow to debt metrics BHE's ratio of CFO pre-WC to debt has recovered from a low of 13% at December 2013, just after the NV Energy merger, to15.60/o in LTM September 2017, due to accreting cash flow from the NV Energy and the AttaLink acquisitions, rate relief, and organic projects. Atthough CFO pre-WC to debt in the 15-16% range is low when compared to metrics historicatty demonstrated by 43 rated utltity hotding company peers such as Xce[ Energy lnc. (A3 stabte) and Edison lnternationat (A3 stabte), BHE draws strength from its unique financial poticies. BHE pays no dividends, so its retained cash ftow to debt ratio is relativety strong, and more in line with peers. ln addition, BHE is unusual among US utilities in that it keeps sizable amounts of cash on hand. lf we were to catculate CFO pre-WC to debt, net of the 51l bittion of cash BH E had on hand at September 20'17 (not a standard key credit metric under our regulated utilities rating methodotogy), and the ratio rises to 16.0% f rom our '1 5.6% standard calculation. Coing fonvard, we expect that absent mitigation, the recentty enacted tax reform poticy witt put some downward pressure on credit metrics; however we anticipate BHE witt continue to demonstrate financia[ metrics that are consistent with its credit quality. BHE uses its free cash f[ow to make discretionary payments on its debt and, barring new investments, expects to have the capacity to generate substantial free cash flow (see Liquidity betow). For exampte, as of September 30 2012 BHE's parent company retired a[[ of the junior subordinated debt incurred in conjunction with its NV Energy and AltaLink acquisitions. Liquidity anatysis BHE has good tiquidity. As a holding company, BHE's primary sources of tiquidity are dividends received from its operating subsidiaries, tax deductions from interest expense and tax credits retated to its renewab[es projects. ln 2016, BHE received 51.1 bittion of cash payments for tax benefits from BRK, for the nine months ended 30 September 2017,9HE received 5659 mittion. BHE also has sizable cash balances. As of March 31,2017, the company had a consolidated cash balance of about 51l bittion, of which S75 mittion was at the BHE parent. 7 21 February 2018 Berkshire Hathaway Energy Company; Update to Credit Analysis law. lt may not be copied, transfened or disseminated unlessThis document has been prepared for the use of Stephen McCleish and is protected by authorized under a contract with Moody's or otherwise authorized in writing by Moody's. INFRASTRUCTURE AND PROJECT FINANCE 1'/o 50/" Wind INFRASTRUCTURE AND PROJECT FINANCEMOODY'S INVESTORS SERVICE Over the next several years, BHE estimates it wi[[ generate annua[ cash ftow from operations of about S6 bittion while capex on currently identified pro1ects is in the range of S4.5-6.0 bi[[ion per year, which would resu[t in sizeable amounts of annual free cash flow for reinvestment or debt repayment. The largest part of BHE's capital program is a series of wind generation projects at BHE's lowa utitity, MEC, forwhich it has a pre- approved return and recovery construct. MEC witt spend up to 53.6 bittion to bring into service 2,000 megawatts of new capacity on its Wind Xl project by 2019. Dividends upstreamed from BHE's subsidiaries are growing in amount, diversity, and quality. We anticipate that these large, diverse cash sources (about 52 bi[[ion per year) witt be more than sufficient to cover BHE parent company's interest expense (about S500 mittion for the twelve months ended September 2017). BHE's parent company has a S2.0 bitlion revo[ving credit facility maturing in June 2020. ln Yay 2017, BHE closed an additional 364- day credit facitity for S'1.0 bittion to support its short-term tiquidity. As of September 2017, BHE had S'1.58 bittion avaitabte. The facilities provide commerciaI paper backup, allowing for same-day borrowings. The facitities do not require the company to represent the absence of material adverse change, but they do have financial covenants that [imit BHE's consolidated debt-to-capital ratio to70o/o. As of September 2017, we estimate the ratio was about 587o. BHE's major subsidiaries a[[ benefit from their own credit facilities. Events of default under the BHE parent company's credit agreements include a payment defau[t by BHE on its other debt and cross- acceteration to debt of BHE's materiatsubsidiaries (PacifiCorp, MidAmerican Energy Company, NV Energy and its subsidiaries) for debt In excess of S100 miltion. . BHE's next parent-[evel debt maturities are 5650 million of senior notes due in April 2018, and 5350 mittion of senior notes due in November of 2018. StructuraI considerations We estimate BHE's composite cash flows to be of Baa-A quatity, coming from numerous subsidiaries which are rated in the A- Baa range. Atthough BHE parent debt is structuratty subordinated to about three-quarters of consotidated debt that resides at its subsidiaries, its A3 rating is supported by the diversification benefits that come from having muttipte cash sources, which puts BHE at less risk than any one of its assets. 21 February 2018 Berkshire Hathaway Energy Company: Update to Credit Analysis This document has been prepared for the use of Stephen McCleish and is protected by law. lt may not be copied, transferred or disseminated unless authorized under a contract with Moody's or otherwise authorized in writing by Moody's. INFRASTRUCTURE AND PROJECT FINANCEMOODY'S INVESTORS SERVICE Rating methodology and scorecard factors Exhibit 9 Ratlng Factor! Berkshire Hathaway Energy Company Regulated Electric and Gas Utilities lndustry Grid [1][2]rrent LTM 9/30/20{7 Moody's 12-18 Month Forward View As of Date Published [3] Factor 1 : Regulatory Framework (25%)Measure Score Measure Score a) Legislative and Judicial Underpinnings of the Regulatory Frame\ lork A A A A b) Consistency and Predictability of Regulation A A A A Factor 2 : Ability to Recover Costs and Earn Returns (250[) a) Timeliness of Recovery of Operating and Capital Costs A A A A b) Sufficiency of Rates and Returns Baa Baa Baa Baa Factor 3 : Diversification (10%) a) Market Position Aa Aa Aa Aa b) Generation and Fuel Diversity Aa Aa Aa Aa Factor 4 : Financial Strength (,O%) a) CFO pre-WC + lnterest / lnterest (3 Year Avg)4.4x Baa 4x-5x A b) CFO pre-WC / Debt (3 Year Avg)16.0o/o Baa 15o/o - 160/o Baa c) CFO pre-WC - Dividends / Debt (3 Year Avg)16.0o/o Baa 15o/o - 160/o Baa d) Debt / Capitalization (3 Year Avg)51.3%Baa 45o/o - 50o/o Baa Rating: Grid-lndicated Rating Before Notching Adjustment A3 A3 HoldCo Structural Subordination Notching 0 0 0 0 a) lndicated Rating from Grid A3 A3 b) Actual Rating Assigned A3 [1] Att ratios are based on hdjusted'financiaI data and incorporate Moody's Ctobat Standard Adjustments for Non-Financial Corporations. [2] As of 9/30/2017 (LTM) [3] This represents Moody's forward view; not the view of the issuer; and untess noted in the text, does not incorporate significant acquisitions and divestitures. Source: Moody's Financial Metricstu A3 9 2 l February 2018 Berkshire Hathaway Energy Company: Update to Credit Analysis This document has been prepared for the use of Stephen McCleish and is protected by law. lt may not be copied, transferred or disseminated unless authorized under a contract with Moody's or othenvise authorized in writing by Moody's. MOODY'S INVESTORS SERVICE INFRASTRUCTURE AND PROJECT FINANCE Appendix Exhibit 10 Cash Flow and Credit Measures ['l] CF Metrlca 2013 2014 2015 2016 LIU Sep.l7 As Adjusted FFO 4,221 6,339 6,453 5,887 6,261 +/- Other '110 82 I 37 11 CFO Pre-WC 4,331 6,421 6,461 5,924 +/- AWC 443 (1,1 86)674 191 105 cFo 4,774 5,235 7,135 6,115 6,377 Div Capex 4,308 6,578 5,997 5,065 4,723 FCF 466 (r,343)1,138 1,654 (CFO Pre-WC) / Debt 13.0o/o 15.5o/o 16.Qo/o 15.Oo/o 15.60/o (CFO Pre-WC - Dividends) / Debt 13.0o/o 15.5o/o 16.0o/o 15.0o/o 15.60/o FFO / Debt 12.7%'t 5.3olo 15.9%14.9o/o 15.60/o RCF / Debt 12.7%15.3o/o 15.9%14.90/o 15.60/o [1[ Att figures and ctios are catculated using Moody's estimates and standard adjustments. Periods are Financiat Year-End unless indicated. LTM = Last Twelve Months. Sou rce : M ooq's F i nan ci a I Metricstu Exhibit 11 &tdftHdlilyE!!yCor{0y A3S$lc Aislqn E..tdc turE OmFrry, lm E]l labar Xcrl BsOrlE A3 tru.OrJ€ BEr! Corp@f bn &.1NegltiE (inUSmlllbq F'iE t ctS FYE LIIII LII$FYE FYE LIU RE FYE LTM D@16 Oet5 D*16 FbErEcFoffi-ffiffi- lcPoETTc. I'r,sediffi;AE (CFC B+Wg/ Debt (CFCR+WC- DvidsrG)/ M Debt / bokkitdizdim upgrade and DNG = for downgrade. Source: Moody's F inancial Metricsn Ratings Exhibit 12 HATHAWAY ENERGY COMPANY Outlook Stable Sr Unsec Bank Credit A3 Sen CgmmerciaI Paper P-2 PARENT: BERKSHIRE HATHAWAY lNC. Outtook Stab[e lssuer Rating AaZ Senior Unsecured FYEFYE 5.7x 6,833 6,685 6,85514,815 15,907 6,457 41,536 49,601 52,5325.0x 59x 6.0x 51x 4.4x 4.4x16.0% 15.0o/o 15.670ffi ffi 5.^ 21.40/o 19.60/o 53.5% fi.9/o 48.8% 42.8o/o 44.7/o 43.4% AaZ NORTHERN POWERcRtD (NORTHEAST) LtMtTED Outtook Stable lssuer Rating A3 PACIFICORP Outlook Stabte lssuer Rating A3 10 21 February 2018 Berkshire Hathaway Energy Company: Update to Credit Anatysis This document has been prepared for the use of Stephen Mccleish and is protected by law. lt may not be copied, transferred or disseminated unless authorized under a contract with Moody's or otherwise authorized in writing by Moody's. 6,272 1,050 MOODY'S INVESTORS SERVICE INFRASTRUCTURE AND PROJECT FINANCE First Mortgage Bonds A1 Senior Secured A1 Pref, P_2CommerciaI Paper MIDAMERICAN ENERCY COMPANY Outlook Stable lssuer Rating A1 First Mortgage Bonds AaZ Senior Secured Aa2 LT IRB/PC A1 P-1 Other Short Term VMIC 1 NEVADA POWER COMPANYOutlook Stable A2First Mortgage Bonds Senior Secured A2 SIERRA PACIFIC POWER COMPANY Outlook Stable First Mortgage Bonds NORTHERN POWERGRID (yORKSHTRE) PLC Outtook Stabte lssuer Rating A3 Senior Unsecured -Dom Curr A3 NORTHERN NATURAL GAS COMPANY Outlook Stable Senior Unsecured A2 NORTHERN ETECTRIC FINANCE PtC Outlook Stabte Bkd Senior Unsecured -Dom Curr A3 MIDAMERICAN FUNDING, LLC Outtook Stable Senior Unsecured A2 NV ENERGY INC. Outlook Stable Senior Unsecured Baa2 YORKSHIRE POWER FINANCE LIMITED Outlook Stabte NORTHERN ETECTRIC PtC OutIook Stable Sowce: Moody's lnveston Seruice 1'l 21 February 2018 Berkshire Hathaway EnerSy Company: Update to Credit Analysis This document has been prepared for the use of Stephen McCleish and is protected by law. lt may not be copied, transferred or disseminated unless authorized under a contract with Moody's or otheMise authorized in writing by Moody's. Baa2 Bkd Senior Unsecured Baal INFRASTRUCTURE AND PROJECT FINANCEMOODY'S INVESTORS SERVICE CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES ("MIS) ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEST-LIKE SECURITIES, AND MOODY'S PUBLICATIONS MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTs, OR DEBT OR DEBT-LIKE SECURITIE5. 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MOODY'S INVESTORS SERVICE INFRASTRUCTURE AND PROJECT FINANCE CTIENT SERVICES Americas Asia Pacific Japan EMEA 1-212-553-1653 852-3551-3077 81-3-5408-4100 44-20-n7?-5454 Mooov's INVESTORS SERV!CE 13 2 l February 2018 Berkshire Hathaway Erergy Company: Update to Credit Anatysis This document has been prepared for the use of Stephen McCleish and is protected by law. lt may not be copied, transferred or disseminated unless authorized under a contract with Moody's or otheruise authorized in writing by Moody's.