20050818order no 29846.pdf

Office of the Secretary
Service Date
August 18, 2005
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE JOINT
APPLICATION OF MIDAlVlERICAN
ENERGY HOLDINGS COMPANY (MEHC)
AND P ACIFICORP DBA UTAH POWER &
LIGHT COMPANY FOR AN ORDER
AUTHORIZING MEHC TO ACQUIRE
ACIFICORP
CASE NO. P AC-O5-
NOTICE OF APPLICATION
NOTICE OF REVISED
APPLICATION
NOTICE OF INTERVENTION
DEAD LINE
ORDER NO. 29846
On July 15, 2005 , PacifiCorp dba Utah Power & Light Company ("PacifiCorp ) and
MidAmerican Energy Holdings Company ("MidAmerican ) filed a Joint Application requesting
that the Commission authorize MidAmerican to acquire all of the outstanding common stock of
PacifiCorp. Following the transaction, PacifiCorp would become an indirect, wholly-owned
subsidiary of MidAmerican. PacifiCorp is a wholly-owned subsidiary of Scottish Power pIc.
PacifiCorp is a public utility providing retail electric service to nearly 60 000 customers in
southeastern Idaho through its operating division, Utah Power & Light. Pursuant to Idaho Code
9 61-328 the proposed transaction is prohibited except when authorized by the Commission.
NOTICE OF APPLICATION
A. The Transaction
YOU ARE HEREBY NOTIFIED that on May 23 , 2005, ScottishPower and its
wholly-owned subsidiary directly holding PacifiCorp s common stock, PacifiCorp Holdings, Inc.
PHI"
),
entered into a "Stock Purchase Agreement" providing for the sale of all PacifiCorp
common stock to MidAmerican. The sale of the common stock is valued at approximately $9.4
billion, consisting of approximately $5.1 billion in cash plus approximately $4.3 billion in net
debt and preferred stock, which will remain outstanding at PacifiCorp. Application at 6.
YOU ARE FURTHER NOTIFIED that MidAmerican is an Iowa corporation whose
ownership, as of January 31, 2005, is as follows: Berkshire Hathaway, Inc. (83.75% economic
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ORDER NO. 29846
interest); Walter Scott, Jr., including family interest, (15.89% economic interest); David Sokol
(0.25% economic interest); and Gray Abel (0.11 % economic interest). On a diluted basis the
economic interest would be as follows: Berkshire Hathaway (80.48% economic interest); Walter
Scott, Jr., including family interest, (15.27% economic interest); David Sokol (2.91 % economic
interest); and Gray Abel (1.34% economic interest). Id. at 3.
YOU ARE FURTHER NOTIFIED that Berkshire Hathaway currently holds 9.9% of
the voting stock ownership of MidAmerican and 41 263 395 shares of MidAmerican s zero
coupon convertible preferred stock. Id. According to the Joint Application, this preferred stock
is convertible to MidAmerican common shares at the option of Berkshire Hathaway under
specific circumstances. One such circumstance is the repeal or amendment of the Public Utility
Holding Company Act of 1935 (PUHCA) such that the conversion of preferred stock would not
cause Berkshire Hathaway to become regulated as a registered holding company.
YOU ARE FURTHER NOTIFIED that on August 17,2005, the Applicants filed a
Revised" Application and testimonies.l The revisions were prompted in part by the President'
signing of the Energy Policy Act of 2005 on August 8 , 2005. Section 1275 of Title XII (the
Electricity Modernization Act of 2005) repeals PUHCA effective six months after the date of
enactment. The Applicants indicate that on or shortly after February 8, 2006 - the effective date
of PUHCA repeal - Berkshire Hathaway will exercise its right to convert the zero coupon
convertible preferred stock whereupon Berkshire Hathaway s voting interest will correspond to
its ownership interest. Id. at 4.
YOU ARE FURTHER NOTIFIED that MidAmerican has established a direct
subsidiary limited liability company referred to as PPW Holdings, LLC ("PPW"
).
PPW will
receive an equity infusion of approximately $5.1 billion raised by MidAmerican through the sale
of either common stock or zero coupon convertible preferred stock to Berkshire Hathaway and
the issuance of long-term senior notes, preferred stock or other securities with equity
characteristics, to third parties. The transaction is not conditioned on such financing and if funds
I The "revisions" consist of revised (replacement) pages to the Joint Application and the accompanying prefiled
testimonies and exhibits. The prefiled testimony of Company witness Jeffrey Gust is withdrawn as well as Exhibit
Nos. 8 and 14.
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are not available from third parties, Berkshire Hathaway is not expected to provide any required
funding. PPW will have no debt of its own for this transaction. Id. at 6.
YOU ARE FURTHER NOTIFIED that the Stock Purchase Agreement provides that
PPW will pay PHI $5.1 billion in cash at closing in exchange for 100% of the common stock of
PacifiCorp. In addition, approximately $4.3 billion in net debt and preferred stock currently
outstanding at PacifiCorp will remain outstanding as liabilities of PacifiCorp. The transaction is
subject to customary closing conditions, including approval of the transaction by the
shareholders of ScottishPower and the receipt of required state and federal regulatory approvals.
Id.
YOU ARE FURTHER NOTIFIED that the sale of PacifiCorp s common stock to
MidAmerican will also include transfer of control of several PacifiCorp subsidiaries. Id. The
subsidiaries consist primarily of mining companies and companies created to handle
environmental remediation and generate carbon-offset credits. These other companies include
Centralia Mining Company, Energy West Mining Company, Glennrock Coal Company,
Interwest Mining Company, Pacific Minerals Inc., Bridger Coal Company, PacifiCorp
Environmental Remediation Company, PacifiCorp Future Generations, Inc., Canopy Botanicals
Inc., Canopy Botanicals SRL, PacifiCorp Investment Management, Inc., and Trapper Mining,
Inc. Id. at 7.
B. Jurisdiction
YOU ARE FURTHER NOTIFIED that the Commission has jurisdiction over this
matter pursuant to Title 61 of the Idaho Code and specifically Idaho Code 9 61-328. Section 61-
328 prohibits MidAmerican from acquiring PacifiCorp without the written authorization of this
Commission. Before authorizing such a transaction, the Commission must find that: (1) the
transaction is consistent with the public interest; (2) the transaction will not cause the cost of or
rates for supplying electricity to increase; and (3) that MidAmerican has the intent and financial
ability to operate and maintain PacifiCorp s operation in Idaho. The Commission may attach
conditions to its authorization and enter any final Order consistent with its authority under Title
61.
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C. Plans for Operating PacifiCorp
YOU ARE FURTHER NOTIFIED that the Joint Application states that
MidAmerican and its primary investor, Berkshire Hathaway, customarily acquire "a business
with the intention of holding and investing in the business for the long term where such
investments are fair to customers, employees and shareholders.Application at 7. The Joint
Application further states that
energy investments are stable investments and, if operated correctly, provide
opportunities for fair and reasonable returns. The proposed acquisition of
PacifiCorp advances (MidAmerican s) focus on owning and operating a
portfolio of high-quality energy businesses with capable management already
in place and a strong emphasis on customer satisfaction, reliable service
employee safety, environmental stewardship and regulatory/legislative
creditability.
Id.
YOU ARE FURTHER NOTIFIED that the Applicants project that PacifiCorp
service territories will require investments of at least $1 billion per year, for the next five years
in order to assure reliable electric service. Id. MidAmerican states that it is "uniquely suited" to
undertake such investments. MidAmerican notes that it is "privately held and not subject to
shareholder expectations of regular, quarterly dividends and relatively fast returns on
investments.Id. at 8. Focusing on significant, long-term investment "should provide
PacifiCorp customers, employees, the public and regulators with valuable stability, permitting
PacifiCorp s management and employees to apply their full attention to exceeding customer
expectations.Id.
YOU ARE FURTHER NOTIFIED that MidAmerican states that it has experience
with operating in a diverse service area, with states that have opted for competitive retail services
as well as states that have opted for the traditional model of regulated retail electric service.
YOU ARE FURTHER NOTIFIED that MidAmerican intends to maintain separate
debt ratings for PacifiCorp. Moreover, the Applicants expect that the transaction will have a
positive impact on PacifiCorp s bond ratings and financing costs. Id.
YOU ARE FURTHER NOTIFIED that PacifiCorp s headquarters will remain in
Portland, Oregon. All of PacifiCorp s financial books and records will be retained in Portland
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and will continue to be available to this Commission. The Applicants state that there are no
plans for a reduction in work force as a result of this transaction. MidAmerican will also renew
and extend the commitments that have previously been made by PacifiCorp as part of the
ScottishPower merger case, PAC-99-l (Order No. 28213). Id. at 9.
YOU ARE FURTHER NOTIFIED that the Applicants maintain that MidAmerican
acquisition of PacifiCorp will result in an owner of PacifiCorp with significant financial strength,
expertise in utility operations and business planning, and a focus on improving reliability and
business operations over the long term. Id. at 9.
YOU ARE FURTHER NOTIFIED that MidAmerican is a privately held Iowa
corporation engaged primarily in the production and delivery of energy from a variety of fuel
sources including: coal, natural gas, geothermal, hydroelectric, nuclear wind and bio-mass.
MidAmerican has six major business operations.
MidAmerican Energy Company is a vertically integrated electric and
natural gas utility serving approximately 700 000 customers in Iowa,
Illinois, South Dakota and Nebraska.
CalEnergy Generation is a world leader in renewable energy, owning and
operating 14 geothermal power plants in the western United States and
the Philippines. The Company also owns natural gas generating stations
in Arizona, Illinois, Texas and New York.
Kern River Gas Transmission Company is natural gas pipeline
company headquartered in Salt Lake City. It has 1 700 miles of interstate
pipeline located from Wyoming to southern California.
Northern Natural Gas Company is natural gas pipeline company
headquartered in Omaha. It has more than 16,500 miles of interstate
pipeline stretching from Texas to upper Midwest. The combined pipeline
capacity of Kern River and Northern Natural Gas is nearly 6.2 billion
cubic feet per day, or approximately 10% of all natural gas consumed in
America.
CE Electric UK Funding pic owns two electricity distribution businesses
that serve 3.7 million customers in northeast England.
HomeServices of America is the second largest residential real estate
brokerage company in the United States. The company operates in
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states and generated more than $60 billion in residential real estate sales
in 2004.
D. Financial Strength
YOU ARE FURTHER NOTIFIED that the Applicants state that MidAmerican has
access to significant financial and managerial resources through its relationship with Berkshire
Hathaway. Berkshire Hathaway has a debt rating of AAA. MidAmerican has global assets
totaling approximately $20 billion with 2004 revenues totaling $6.6 billion. As of March 31
2005, on a consolidated basis (PacifiCorp and MidAmerican), MidAmerican s pro forma
combined assets would be approximately $34 billion, and pro forma combined revenues would
be $9.6 billion. Id. at 11.
YOU ARE FURTHER NOTIFIED that the senior debt of MidAmerican s United
States energy subsidiaries (MidAmerican Energy, Kern River and Northern Natural Gas) are all
rated by the major credit rating agencies. All of MidAmerican s senior debt also holds
investment grade ratings from the three major bonding rating agencies (BBB- by Standard &
Poor s (S&P), Baa3 by Moody s and BBB by Fitch). Id.
YOU ARE FURTHER NOTIFIED that after announcement of the proposed
transaction, the three credit rating agencies noted that MidAmerican' s senior unsecured debt was
rated stable and positive. Moody and Fitch also characterized PacifiCorp s credit rating as stable
with an improving future. Although S&P placed PacifiCorp s debt on "CreditWatch " S&P also
expressed its intention to review its rating as the transaction progresses. Id. at 12.
E. Public Interest
YOU ARE FURTHER NOTIFIED that the Applicants maintain that the transaction
is consistent with the public interest and will benefit Idaho and PacifiCorp s customers in Idaho.
Id. at 15. The Applicants maintain that "the transaction will not increase the percentage of rate
increases in PacifiCorp s existing projections. Thus, costs and rates for supplying service in
Idaho will not be increased by reason of the transaction.Id. at 16. The Applicants also
maintain that MidAmerican will continue state-specific commitment taken by PacifiCorp as part
of the ScottishPower merger. Id. MidAmerican is poised to invest a significant amount of
capital to ensure Pacifi Corp has the infrastructure necessary for the provision of reliable and
economic electric service.
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YOU ARE FURTHER NOTIFIED that MidAmerican intends to own PacifiCorp for
the long term leading to stability in ownership and investment in infrastructure. The Application
further states that MidAmerican has a demonstrated willingness to invest in a diverse mix of
generating technologies, energy efficiencies, demand-side management technologies, and
environmental technologies. Diversifying PacifiCorp s generating resources, improving its
environmental performance and balancing reliance on generation with technology that manages
the demand for power and energy, will further the energy security of the region. Id. at 17.
F. Requested Timing of the Transaction
YOU ARE FURTHER NOTIFIED that the Applicants have requested that the
Commission complete its review of the proposed transaction no later than February 28, 2006.
An Order issued no later than February 28 would allow the parties to complete the transaction on
or before March 31, 2006. Id. at 2. The Applicants maintain that closing on or before March
will facilitate the transition of PacifiCorp s financial reporting from a fiscal year ending March
31 (the ScottishPower approach) to a calendar fiscal year consistent with MidAmerican
financial statements. MidAmerican asserts that calendar year reporting is consistent with its
regulatory reporting and should enable the Commission to utilize a single year s audited
financial statements rather than having regulatory reporting span across two fiscal years. Id. at 2.
YOU ARE FURTHER NOTIFIED that the Applicants have designated the following
persons to receive notices and communications with respect to this Joint Application.
MidAmerican s contact points are:
Douglas L. Anderson
Senior Vice President & General Counsel
MidAmerican Energy Holdings Company
302 S. 36th Street, Suite 400
Omaha, NE 68131
Phone: [phone]
FAX: [phone]
Mail: danderson(?Ymidamerican.com
Mark C. Moench
Senior Vice President - Law
MidAmerican Energy Holdings Company
201 S. Main, Suite 2300
Salt Lake City, UT 84111
Phone: [phone]
FAX: [phone]
E-mail: mcmoench($midarnerican.com
The persons authorized on behalf of PacifiCorp to receive notices and communications are:
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ORDER NO. 29846
Andrea L. Kelly
Managing Director - Strategy
PacifiCorp
825 NE Multnomah, Suite 956
Portland, OR 97232
Phone: [phone]
FAX: [phone]
Mail: andrea.kelly~paciticorp.com
James M. VanNostrand
James F. Fell
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, OR 97204
Phone: [phone]
FAX: [phone]
E-mail: mvannostrandiW,stoel.com
ffelliW,stoel. com
YOU ARE FURTHER NOTIFIED that the Revised Joint Application together with
supporting workpapers, testimonies and exhibits, have been filed with the Commission and are
available for public inspection during regular business hours at the Commission offices. The
Revised Application and testimonies are also available on the Commission s Website
www.puc.idaho.gov under the "File Room" icon and then "Electric Cases.
YOU ARE FURTHER NOTIFIED that to facilitate the processing of this Joint
Application, the Applicants have created an electronic document room containing the documents
listed in the Application. The Applicants created the electronic document room with the intent
that it would advance the discovery schedule and provide parties with information pertaining to
MidAmerican and PacifiCorp. Parties may arrange access to the electronic document room by
contacting MidAmerican s representative as indicated in the Revised Joint Application at page
YOU ARE FURTHER NOTIFIED that all hearings will be conducted pursuant to the
Rules of Procedure adopted by the Idaho Public Utilities Commission. IDAP A 31.01.01.000
seq.
NOTICE OF INTERVENTION DEADLINE
YOU ARE FURTHER NOTIFIED that persons desiring to intervene in this matter
for the purpose of presenting evidence or cross-examining witnesses at hearing must file a
Petition to Intervene with the Commission pursuant to this Commission s Rules of Procedure
72 and 73 , IDAPA 31.01.01.072 and -073. Persons intending to participate at the hearing must
file a Petition to Intervene fourteen (14) days from the date of this Order. Persons desiring to
present their views without parties' rights of participation and cross-examination are not required
to intervene and may present their comments without prior notification to the Commission or the
parties.
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YOU ARE FURTHER NOTIFIED that Petitions to Intervene in this matter have
been filed by Monsanto Company, the Idaho Irrigation Pumpers Association and Idaho Power
Company. All of the intervenors have asserted that they have a direct and substantial interest in
this proceeding and intend to participate as a party. Given the lack of any objection, the
Commission finds that it is appropriate to grant these three Petitions to Intervene.
YOU ARE FURTHER NOTIFIED that once the deadline for intervention has passed
and the Commission has ruled on the Petitions, the Commission Secretary will then issue a
Notice of Parties in this case.
YOU ARE FURTHER NOTIFIED that after the Notice of Parties is issued, the
Commission anticipates that the parties will informally convene to devise a recommended
schedule to process this case. Once a schedule is developed, the Commission will subsequently
issue the Notice of Hearing. The Commission intends to convene public hearings in this matter.
ORDER
IT IS HEREBY ORDERED that the Petitions to Intervene filed by Monsanto
Company, the Idaho Irrigation Pumpers Association, and Idaho Power Company are granted.
IT IS FURTHER ORDERED that persons interested in intervening in this matter do
so no later than 14 days from the date of this Order.
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DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this /g-t1'
day of August 2005.
ATTEST:
, p
blslO:PAC-05-
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ORDER NO. 29846
. ,
MARSHA H. SMITH, COMMISSIONER
IS S. HANSEN, COMMISSIONER