20060213final_order_no_29973.pdf

Office of the Secretary
Service Date
February 13 2006
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE JOINT
APPLICATION OF MIDAMERICAN
ENERGY HOLDINGS COMPANY (MEHC)
AND PACIFICORP DBA UTAH POWER &
LIGHT COMPANY FOR AN ORDER
AUTHORIZING MEHC TO ACQUIRE
ACIFICORP
ORDER NO. 29973
CASE NO. P AC-O5-
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 s acquisition ofPacifiCorp. PacifiCorp is a public
utility subject to the Commission s jurisdiction and provides retail electric service to nearly
000 customers in southeastern Idaho. At present, PacifiCorp is a wholly-owned subsidiary of
Scottish Power pic.
If the Joint Application is approved, PacifiCorp would become an indirect, wholly-
owned subsidiary of MidAmerican. MidAmerican s principal owner is Berkshire Hathaway, Inc.
The Applicants must obtain approval from the Idaho Commission and the regulatory
commissions of the other five states where PacifiCorp provides electric service for MidAmerican
to acquire PacifiCorp. In addition, the acquisition must also be approved by several federal
agencies including the Federal Energy Regulatory Commission (FERC).
On August 18, 2005, the Commission issued its Notice of Application setting this
matter for hearing. On December 16, 2005, most of the parties in this proceeding executed a
settlement Stipulation urging the Commission to approve the Joint Application conditioned upon
76 "commitments." On January 17, 2006, the Commission convened a technical hearing to
consider the Stipulation. Based upon our review of the Joint Application, the settlement
Stipulation, the testimony of the parties and the public comments, the Commission approves the
acquisition conditioned upon the commitments incorporated in this Order.
1 The Wyoming and Utah Commissions approved the acquisition on January 26 and 27 2006, respectively. FERC
authorized the transaction on December 20, 2005 in Docket No. EC05-110-000, 113 FERC 'if 61 298 (2005),
rehearing granted (for limited purpose of further consideration), 113 FERC 'if (Feb. 6, 2006).
ORDER NO. 29973
THE APPLICATION
A. The Transaction
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
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 that will remain
outstanding at PacifiCorp. Application at 6.
MidAmerican is an Iowa corporation whose ownership, as of January 31 , 2005, was
as follows: Berkshire Hathaway, Inc. (83.75% economic interest); Walter Scott, Jr., including
family interest, (15.89% economic interest); David Sokol (0.25% economic interest); and Greg
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 Greg Abel (1.34%
economic interest). Id. at 3.
When the Joint Application was filed, Berkshire Hathaway held 9.9% of the voting
stock ownership of MidAmerican and 41 263 395 shares of MidAmerican' s zero coupon
convertible preferred stock. Id. This preferred stock was 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.
On August 17, 2005 , the Applicants filed a "Revised" Application and testimonies.
The revisions were prompted in part by the President's 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, i., February 8, 2006. After
the effective date of the PUHCA repeal Berkshire Hathaway exercised its right to convert the
zero coupon convertible preferred stock.Thus, Berkshire Hathaway s voting interest now
corresponds to its ownership interest. Id. at 4.
2 The "revisions" consist of revised (replacement) pages to the Joint Application and the accompanying prefiled
testimonies and exhibits. The pre filed testimony of Company witness Jeffrey Gust is withdrawn as well as Exhibit
Nos. 8 and 14.
ORDER NO. 29973
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.
billion raised by MidAmerican through the sale of either common stock or 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 are not available from third parties, Berkshire Hathaway is expected to
provide any required funding. PPW will have no debt of its own for this transaction. Id. at 6.
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.
The sale ofPacifiCorp 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. Plans for Operating PacifiCorp
The Joint Application stated 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 recited that
energy investments are stable investments and, if operated correctly, provide
opportunities for fair and reasonable returns. The proposed acquisition of
PacifiCorp advances (MidAmerican sJ 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
ORDER NO. 29973
employee safety, environmental stewardship and regulatory/legislative
credibility.
Id.
The Applicants project that PacifiCorp s 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 asserted it is "uniquely suited" to undertake such investments. MidAmerican
noted 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.
PacifiCorp s headquarters will remain in Portland, Oregon. All of PacifiCorp
financial books and records will be retained in Portland, and will continue to be available to this
Commission. The Applicants stated 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, P AC-99-
(Order No. 28213). Id. at 9.
The Applicants maintain that MidAmerican s 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. MidAmerican claimed 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. MidAmerican intends to maintain separate
debt ratings for PacifiCorp. Moreover, the Applicants expect the transaction will have a positive
impact on PacifiCorp s bond ratings and financing costs. Id. at 8.
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 biomass. MidAmerican has six major business
operations including: MidAmerican Energy Company; CalEnergy Generation; Kern River Gas
Transmission Company; Northern Natural Gas Company; CE Electric UK Funding pic; and
HomeServices of America, Inc.
ORDER NO. 29973
C. Financial Strength
The Applicants state 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.
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.
After announcement of the proposed transaction, the three credit rating agencies
noted that MidAmerican s senior unsecured debt was rated stable and positive. Moody s 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.
D. Public Interest
The Applicants maintain the transaction is consistent with the public interest and will
benefit Idaho and PacifiCorp s customers in Idaho. Id. at 15. The Applicants claim
, "
the
transaction will not increase the percentage ofrate 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 assert that MidAmerican will continue state-specific
commitments given by PacifiCorp as part of the ScottishPower merger. Id. MidAmerican is
poised to invest a significant amount of capital to ensure PacifiCorp has the infrastructure
necessary for the provision of reliable and economic electric service.
MidAmerican intends to own PacifiCorp for the long term leading to stability in
ownership and investment in infrastructure. The Applicants further state 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
ORDER NO. 29973
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.
E. Requested Timing of the Transaction
The Applicants 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. They
maintain that closing on or before March 31 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 s 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.
PROCEDURAL HISTORY
A. The Parties
The Commission s Order No. 29846 set a deadline for intervention and directed that
parties informally convene to develop a schedule for processing this case.
Applicants, the following parties were granted intervention:PacifiCorp James M. Van Nostrand
Stoel Rives LLP
Besides the
MidAmerican Energy
Holdings Company
Douglas L. Anderson
Mark C. Moench
Commission Staff Donald L. Howell, II
Deputy Attorney General
Monsanto Company Randall C. Budge
Racine, Olsen, Nye, Budge & Bailey,
Chartered
Idaho Power Company Barton L. Kline
Monica B. Moen
Idaho Irrigation Pumpers
Association, Inc.
Eric. L. Olson
Racine, Olsen, Nye, Budge & Bailey,
Chartered
ORDER NO. 29973
The Community Action Partnership
Association of Idaho
Brad M. Purdy
IBEW Local 57 Arthur F. Sandack
Alan Herzfeld
Herzfeld & Piotrowski LLP
R. Simplot Company R. Scott Pasley
B. Proceedings
On September 7 2005 , the parties convened a telephonic prehearing conference. The
parties participating in the conference call agreed on a proposed schedule that was subsequently
adopted by the Commission in Order No. 29867. Pursuant to the Commission s scheduling
Order, a technical workshop was convened on October 4 2005. The parties held two settlement
conferences on November 2 and December 8, 2005. Most of the parties or their representatives
attended or participated in at least one of the settlement conferences. As a result of the
settlement negotiations, a settlement Stipulation was filed on December 16, 2005.
On December 20, 2005 , the Commission Staff and the Community Action
Partnership filed testimony in support of the settlement Stipulation. On January 6, 2006, the
Applicants filed testimony in support of the settlement Stipulation and the Joint Application. On
January 5 , 2006, the Commission issued Order No. 29942 serving as a public notice that the
parties had entered into a settlement Stipulation. In its Order, the Commission invited public
comment regarding the Stipulation or the Joint Application be filed no later than January 19
2006. The Commission determined that the public hearings were unnecessary and that the
request for public comment will allow members of the public to provide their views on the
settlement Stipulation and the Joint Application. Order No. 29942 at 3. The Commission
convened its technical hearing on January 17 2006.
THE STIPULATION
In the Stipulation, participating parties reached settlement regarding the issues in this
proceeding and recommended that the Commission approve the Joint Application. The parties
joining in the Stipulation include: MidAmerican, PacifiCorp, Commission Staff, Community
Action Partnership Association of Idaho, Idaho Irrigation Pumpers Association, J.R. Simplot
ORDER NO. 29973
Company and Monsanto.3 The settlement Stipulation contains 76 "commitments" or conditions
that the Applicants or other named parties commit to perform in support of the Application. The
commitments are comprised of two groups: 50 general commitments applicable to all states and
26 Idaho-specific commitments. The Stipulation parties assert that the commitments satisfy the
statutory standards for MidAmerican s acquisition of PacifiCorp as set out in Idaho Code ~ 61-
328. Stipulation at ~ 9. In the Motion that accompanied the Stipulation, the parties urged the
Commission to adopt the Stipulation, its commitments, and issue an Order approving the
acquisition.
The settlement Stipulation also contains a "most favored nations prOVISIOn.
Stipulation at ~ 7. This provision allows the Commission to review and adopt any commitment
or condition ordered by the other five states, even after this Order is issued. In other words, any
assurances, conditions or benefits adopted in the other five states that would create a benefit to
Idaho customers could subsequently be adopted in Idaho under the terms of the Stipulation.
The parties to the Stipulation recommend that the Commission approve and adopt the
commitments in their entirety. They further agree not to appeal any portion of the Stipulation or
any Order approving the same. The Stipulation parties also recognize that approval of the
Stipulation and commitments shall not bind the Commission "in other proceedings with respect
to the determination of prudence, just and reasonable character, rate or ratemaking treatment, or
public interest of services, accounts, costs, investments, in any particular construction project
expenditures or actions referred to in (the) Commitments.Id. at ~ 12.
THE TECHNICAL HEARING
AND PUBLIC COMMENTS
The following parties entered appearances at the technical hearing: the Applicants,
Commission Staff, the Community Action Partnership Association of Idaho (CAP AI), and
Monsanto. Four witnesses testified in support of the settlement Stipulation at the technical
hearing. The Applicants presented two witnesses, and the Commission and CAP AI each
presented one witness.
1. The Applicants.The first witness to testify was Brent Gale, Senior Vice President
of Legislation and Regulation for MidAmerican Energy Company. Mr. Gale explained that
3 Although it is not a signatory, Idaho Power Company did not oppose settlement of this matter or the terms of the
Stipulation. Stipulation at n.l. The IBEW Local 57 did participate in the settlement discussion but did not appear at
the technical hearing to oppose the Joint Application or Stipulation. Motion for Approval of Stipulation at n.
ORDER NO. 29973
General Commitments 1 through 32 were the "hold-harmless commitments that are
continuation from the ScottishPower-PacifiCorp transaction.Tr. at 41. He described the
remaining general commitments as providing "net benefits" to the states where PacifiCorp does
business.Tr. at 43. The latter general commitments generally address investments and
initiatives that the Applicants will implement after the transaction is completed.
Mr. Gale did take exception to a recommendation contained in Staff witness Terri
Carlock's supplemental testimony. She proposed that the Commission adopt a condition in the
Oregon stipulation that any shareholder who owns more than five percent of an acquiring
company will not exercise control on matters pertaining to PacifiCorp. See Tr. at 107.
explained that two of the four shareholders of MidAmerican Energy Holdings Company are
Warren Buffett and Walter Scott, Jr. Treating these two individuals as "applicants" could be
particularly problematic" if the statute were read to require the Oregon Commission s approval
before these individuals could transfer their interest in MEHC, e., for estate planning purposes.
Tr. at 46. Consequently, he recommended that the Commission not adopt this provision
contained in the Oregon stipulation. Tr. at 47-48. Ms. Carlock agreed that this condition is not
required. Tr. at 109.
The Applicants' other witness was Mark Moench , Senior Vice President - Law for
MEHc. He discussed several of the Idaho-specific commitments and their benefit to Idaho
ratepayers. In particular, he noted that Idaho-specific Commitment 1 obligates PacifiCorp to
continue having a dedicated irrigation specialist in Idaho. Tr. at 80. In Idaho-specific
Commitment 22, the Company commits to setting up a process to address the technical
economic and planning issues associated with integrated gasification combined cycle (IGCC)
technology. The Company will form a working group to develop and share information
concerning IGCC technology. Tr. at 81.
He also explained Idaho-specific Commitment 18 reqUIres that the acquisition
premium for the transaction be recorded in the accounts of MEHC and not in PacifiCorp
accounts. Tr. at 82. The "only way that the acquisition premium could ever be included in
PacifiCorp s rates would be if PacifiCorp affirmatively proposed to include the premium in retail
rates and the Commission agreed.Id.
4 General Commitment 33 is a procedural commitment.
ORDER NO. 29973
2. CAP AI.Teri Ottens, the Policy Director for CAP AI, testified in support of the
settlement Stipulation. In particular, she supported Idaho-specific Commitment Nos. 13 through
15 as improvements to PacifiCorp s low-income and weatherization programs. Tr. at 69-70.
While CAP AI believes that PacifiCorp can do more to support the low-income weatherization
and the low-income billing assistance program (Lend-a-Hand), she recognized the Applicants
have committed to improving the programs and will address these issues in the next rate case.
Tr. at 69.
3. Staff.The final witness at the technical hearing was Staff witness Carlock. She
too testified in support of the settlement Stipulation. She stated that the Idaho commitments
satisfied the statutory standards set out in Idaho Code ~ 61-328. The acquisition is in the public
interest because Idaho customers are benefited by the Applicants
' "
capital commitments
ongoing customer guarantees, access to books and records, ring-fencing provisions, and
guaranteed reduced cost of debt." Tr. at 93. She also asserted that the cost of and rates for
PacifiCorp service will not increase due to the acquisition itself. Tr. at 94. She noted several
commitments require that the acquisition premium and other costs be excluded from
PacifiCorp s accounts. Based upon her review of the annual financial statements and reports
statements of regulatory accounts, due diligence reports, disclosure letters, board meeting
minutes, and the production request responses in this case, she concluded the Applicants have the
bona fide intent and financial ability to operate and maintain PacifiCorp s delivery of service to
Idaho customers. Tr. at 95.
She also urged the Commission to modify some of the existing Idaho commitments
in Staff Exhibit 10 1 to reflect the recent stipulation in Oregon. Tr. at 101. She recommended
modification of General Commitment Nos. 11 , 17, 18, 22, 37, 38 , and 48. She proposed adding
two new General Commitment Nos. 51 and 52.These general commitments reflect the
ownership transfer to PacifiCorp of Intermountain Geothermal Company and associated steam
rights. These commitments will eliminate some affiliate transactions and future costs for steam
purchases at the Blundell geothermal facility. See Staff Exhibit 102 at
She explained the proposed change to General Commitment 11 clarifies the ring-
fencing provision and Commitment 17 clarifies obtaining unrestricted access to information and
documents used for credit rating purposes. Tr. at 102. General Commitment 18 provides
additional detail related to the restrictions on dividend payments. General Commitment Nos. 22
ORDER NO. 29973
37 and 38 are deleted and intentionally left blank. They are replaced with four Oregon
commitments now found in Idaho-specific Commitment Nos. 28, 30, 31 , and 32. Tr. at 103;
Staff Exh. 102. Finally, General Commitment 48 is modified to add the cross-reference to
Commitment No. 52.
In addition to the general commitments, she also recommended that the Idaho
Commission adopt in whole or in part Oregon-specific Commitment Nos. 5, 7-, 14-, and
22. Tr. at 103. In particular, she noted that adoption of the Oregon-specific Commitment 22
would increase the annual contribution to the Idaho Lend-a-Hand program to $40 000 and
eliminate the matching requirement. She also noted that adoption of the Oregon-specific
commitments would provide rate credits to the benefit of Idaho customers of approximately
$640 000 annually for test years 2006 and 2007. Staff Exh. 102 27 and I-31. Idaho-specific
Commitments 28-30 would guarantee that "approximately $820 000 annually in costs will not be
reflected in Idaho rates for test years 2006 through 2010 with approximately $380 000 annually
thereafter." Tr. at 106.
Public Comments.The Commission received five written comments, four
supporting the proposed acquisition and one offering no opinion. The four comments supporting
the transaction all noted that, if approved, PacifiCorp would gain better access to capital
resources. They also stated MidAmerican and PacifiCorp both have similar priorities to
providing exceptional customer service.
DISCUSSION AND FINDINGS
A. Standard of Review
The Commission has jurisdiction over this transaction pursuant to Idaho Code g 61-
This section prohibits MidAmerican from acquiring PacifiCorp without the written328.
authorization of the 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 electrical service to increase; and (3) that MidAmerican
has the bona fide intent and financial ability to operate and maintain PacifiCorp s operations in
Idaho. Idaho Code ~ 61-328(3). The Commission may also attach such "other terms and
ORDER NO. 29973
conditions as in its judgment the public convenience and necessity may require.Idaho Code
61-328(4).
B. Findings
Based upon our review of the record in light of the standards set out above, we find
that the Applicants have met their burden of demonstrating that the acquisition of PacifiCorp by
MEHC meets the statutory standards. We begin our analysis by noting the lack of any
opposition to this transaction. This is our third merger/acquisition transaction concerning Utah
Power & Light and the least contentious. Most of the parties in this proceeding entered into a
comprehensive settlement Stipulation that provides significant benefits to PacifiCorp s Idaho
ratepayers. We commend the parties for their diligent work in this case and addressing the
concerns of Idaho ratepayers.
Taken as a whole, we find the general and Idaho-specific commitments attached to
this Order satisfy the public interest standard. The hold-harmless commitments will foster
ongoing customer guarantees, insure continued access to books and records, and implement
important ring-fencing protections. As Staff witness Carlock testified ring-fencing provisions
isolate the credit risks of PacifiCorp from the credit risks of MEHC and other affiliates. Her
recommendation to amend General Commitment 11 , along with other commitments, clarifies
and strengthens the ring-fencing provisions. We further find that the commitments addressing
low-income assistance, low-income weatherization programs, conservation, DSM, and new coal
technology will focus the Applicants' attention on Idaho ratepayers.
We further find that MidAmerican s acquisition of PacifiCorp will not cause an
increase in the rates for electric service. The adopted commitments provide that the acquisition
premium is not on PacifiCorp s books. Idaho ratepayers will have access to lower-cost capital.
Idaho-specific Commitments 26-31 provide additional protections for rates in the form of hold-
harmless clauses and rate credits. Idaho customers will be the beneficiaries of $640 000 in rate
credits for 2006 and 2007. In addition, approximately $820 000 per year in expenses will not be
reflected in Idaho rates for 2006 through 20 I 0 with additional cost savings thereafter. Obtaining
these rate credits and cost savings now will capture benefits for Idaho ratepayers.
5 Before approving any acquisition, the Commission must also include any condition required by the director of the
Department of Water Resources under Idaho Code ~ 42-1701(6). Idaho-Specific Commitment No.2 provides that
the Applicants will continue to abide by existing water rights agreements. See Condition Nos. 19 & 20, Order No.
28213 at 11 (ScottishPower-PacifiCorp transaction).
ORDER NO. 29973
Finally, we find that the Applicants have the bona fide intent and financial ability to
operate and maintain PacifiCorp s electric service to Idaho ratepayers. As indicated by the
parties, one ofthe advantages of the acquisition is PacifiCorp s greater access to capital. General
Commitments 34 and 35 both reflect the Applicants ' pledge to making investments in both
transmission and distribution. MidAmerican already operates energy companies in other regions
ofthe United States and provides service to nearly 1.4 million electric and natural gas customers.
MidAmerican Energy operates coal plants, natural gas and oil plants, a large wind project
hydroelectric facilities, biomass facilities and nuclear facilities. Tr. at 15.
We now turn to the one area of contention. We decline to adopt the Staffs proposed
condition from paragraph 10 of the Oregon stipulation. This specific condition is based upon an
Oregon statute. There is no similar Idaho statute and, therefore, adoption of this condition is not
necessary.
In summary, we conclude that MidAmerican s acquisition of PacifiCorp meets the
standards set out in Idaho Code ~ 61-328(3). We find it reasonable to approve the Stipulation
and the commitments as modified in Staff Exhibit 102. The "most favored nations" provision of
the Stipulation also allows the Commission to ,subsequently adopt commitments ordered in the
remaining state proceedings. We expect the Staff and other parties to apprise us if there are new
or modified commitments that would benefit Idaho ratepayers.
ORDER
IT IS HEREBY ORDERED that the Joint Application filed by MidAmerican Energy
Holdings Company and PacifiCorp dba Utah Power & Light Company is approved as
conditioned by the commitments attached to this Order. The Commission recognizes under the
most favored nations" provision of the Stipulation the commitments may be amended based
upon the orders issued in the other five (5) states.
IT IS FURTHER ORDERED that the settlement Stipulation and commitments (as
amended by Staff s review of the Oregon commitments) are accepted and adopted.
THIS IS AN INITIAL FINAL ORDER. Any person interested in this Order or in
issues decided in this Order may petition for reconsideration within twenty-one (21) days of the
service date of this Order. Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code g 61-
626.
ORDER NO. 29973
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 13-tA
day of February 2006.
~!~
MARSHA H. SMITH, COMMISSIONER
ATTEST:
#eltnfP
Commission Secretary
bls/O:PAC-05-dh5
ORDER NO. 29973
MEHC Acquisition of PacifiCorp
Idaho
Consolidated List of Commitments
Commitments Applicable to All States
1 )MEHC and PacifiCorp affirm the continuation (through March 31 2008) of the
existing customer service guarantees and performance standards in each jurisdiction.
MEHC and PacifiCorp will not propose modifications to the guarantees and standards
prior to March 31 , 2008. Refer to Commitment 45 for the extension of this
commitment through 2011.
Penalties for noncompliance with performance standards and customer guarantees
shall be paid as designated by the Commission and shall be excluded from results of
operations. PacifiCorp will abide by the Commission s decision regarding payments.
PacifiCorp will maintain its own accounting system, separate from MEHC'
accounting system. All PacifiCorp financial books and records will be kept in
Portland, Oregon. PacifiCorp s financial books and records and state and federal
utility regulatory filings and documents will continue to be available to the
Commission, upon request, at PacifiCorp s offices in Portland, Oregon, Salt Lake
City, Utah, and elsewhere in accordance with current practice.
MEHC and PacifiCorp will provide the Commission access to all books of account
as well as all documents, data, and records of their affiliated interests, which pertain
to transactions between PacifiCorp and its affiliated interests or which are otherwise
relevant to the business ofPacifiCorp. This commitment is also applicable to the
books and records of Berkshire Hathaway, which shall retain its books and records
relevant to the business ofPacifiCorp consistent with the manner and time periods of
the Federal Energy Regulatory Commission s record retention requirements that are
applicable to PacifiCorp s books and records.
MEHC, PacifiCorp and all affiliates will make their employees, officers, directors
and agents available to testify before the Commission to provide information relevant
to matters within the jurisdiction of the Commission.
The Commission or its agents may audit the accounting records of MEHC and its
subsidiaries that are the bases for charges to PacifiCorp, to determine the
reasonableness of allocation factors used by MEHC to assign costs to PacifiCorp and
amounts subject to allocation or direct charges. MEHC agrees to cooperate fully with
such Commission audits.
IDAHO COMMITMENTS
CASE NO. P AC-05-
ORDER NO. 29973
MEHC and PacifiCorp will comply with all applicable Commission statutes and
regulations regarding affiliated interest transactions, including timely filing of
applications and reports.
PacifiCorp will file on an annual basis an affiliated interest report including an
organization chart, narrative description of each affiliate, revenue for each affiliate
and transactions with each affiliate.
PacifiCorp and MEHC will not cross-subsidize between the regulated and non-
regulated businesses or between any regulated businesses, and shall comply with the
Commission s applicable orders and rules with respect to such matters.
10) Due to PUHCA repeal, neither Berkshire Hathaway nor MEHC will be registered
public utility holding companies under PUHCA. Thus, no waiver by Berkshire
Hathaway or MEHC of any defenses to which they may be entitled under Ohio Power
Co. v. FERC 954 F.2d 779 (D.c. Cir.
),
cert. denied sub nom. Arcadia v. Ohio Power
Co.506 u.S. 981 (1992) Ohio Power
),
is necessary to maintain the Commission
regulation ofMEHC and PacifiCorp. However, while PUHCA is in effect, Berkshire
Hathaway and MEHC waive such defenses.
11)a) Any diversified holdings and investments (e., non-utility business or foreign
utilities) ofMEHC following approval of the transaction will not be held by
PacifiCorp or a subsidiary ofPacifiCorp. This condition will not prohibit MEHC or
its affiliates other than PacifiCorp from holding diversified businesses.
Ring- fencing provisions for PPW Holdings LLC will include the provisions in
Appendix 1. These provisions have been derived from those in effect for NNGC
Acquisition, LLC as of December 2005.
12) PacifiCorp or MEHC will notify the Commission subsequent to MEHC's board
approval and as soon as practicable following any public announcement of: (1) any
acquisition of a regulated or unregulated business representing 5 percent or more of
the capitalization ofMEHC; or (2) the change in effective control or acquisition of
any material part or all ofPacifiCorp by any other firm, whether by merger
combination, transfer of stock or assets.
13) The Intercompany Administrative Services Agreement (IASA) will include the
corporate and affiliate cost allocation methodologies. The IASA will be filed with the
Commission as soon as practicable after the closing of the transaction. Approval of
the IASA will be requested if required by law or rule, but approval for ratemaking
purposes will not be requested in such filing. Refer to Commitment 14 (t).
Amendments to the IASA will also be filed with the Commission.
IDAHO COMMITMENTS
CASE NO. P AC-05-
ORDER NO. 29973
14) Any proposed cost allocation methodology for the allocation of corporate and affiliate
investments, expenses, and overheads, required by law or rule to be submitted to the
Commission for approval, will comply with the following principles:
For services rendered to PacifiCorp or each cost category subject to allocation to
PacifiCorp by MEHC or any of its affiliates, MEHC must be able to demonstrate that
such service or cost category is necessary to PacifiCorp for the performance of its
regulated operations, is not duplicative of services already being performed within
PacifiCorp, and is reasonable and prudent.
Cost allocations to PacifiCorp and its subsidiaries will be based on generally accepted
accounting standards; that is, in general, direct costs will be charged to specific
subsidiaries whenever possible and shared or indirect costs will be allocated based
upon the primary cost-driving factors.
MEHC and its subsidiaries will have in place positive time reporting systems
adequate to support the allocation and assignment of costs of executives and other
relevant personnel to PacifiCorp.
An audit trail will be maintained such that all costs subject to allocation can be
specifically identified, particularly with respect to their origin. In addition, the audit
trail must be adequately supported. Failure to adequately support any allocated cost
may result in denial of its recovery in rates.
Costs which would have been denied recovery in rates had they been incurred by
PacifiCorp regulated operations will likewise be denied recovery whether they are
allocated directly or indirectly through subsidiaries in the MEHC group.
Any corporate cost allocation methodology used for rate setting, and subsequent
changes thereto, will be submitted to the Commission for approval if required by law
or rule.
15) PacifiCorp will maintain separate debt and, if outstanding, preferred stock ratings.
PacifiCorp will maintain its own corporate credit rating, as well as ratings for each
long-term debt and preferred stock (if any) issuance.
16) MEHC and PacifiCorp will exclude all costs of the transaction from PacifiCorp
utility accounts. Within 90 days following completion of the transaction, MEHC will
provide a preliminary accounting of these costs. Further, MEHC will provide the
Commission with a final accounting of these costs within 30 days of the accounting
close.
IDAHO COMMITMENTS
CASE NO. P AC-05-
ORDER NO. 29973
17) MEHC and PacifiCorp will provide the Commission with unrestricted access to all
written information provided by and to credit rating agencies that pertains to
PacifiCorp or MEHc. Berkshire Hathaway and MEHC will also provide the
Commission with unrestricted access to all written information provided by and to
credit rating agencies that pertains to MEHC's subsidiaries to the extent such
information may potentially impact PacifiCorp.
18)
a) MEHC and PacifiCorp commit that PacifiCorp will not make any dividends to PPW
Holdings LLC or MEHC that will reduce PacifiCorp s common equity capital below
the following percentages of its Total Capital without Commission approval:
48.25% from the date of the close ofthe transaction through
December 31 , 2008;
47.25% from January 1 , 2009, through December 31 2009;
46.25% from January 1 , 2010 through December 31 , 2010;
45.25% from January 1 2011 through December 31 , 2011;
44.00% after December 31 2011.
PacifiCorp s Total Capital is defined as common equity, preferred equity and long-
term debt. Long-term debt is defined as debt with a term of more than one year. For
purposes of calculating the numerator of the percentage, common equity will be
increased by 50% of the remaining balance of preferred stock that was in existence
prior to the acquisition ofPacifiCorp by MEHc. PacifiCorp and MEHC will work
with Commission staff to determine a percentage of common equity credit to apply to
preferred stock issued by PacifiCorp after the acquisition ofPacifiCorp by MEHC.
the absence of such an agreement between Commission staff and the Companies
MEHC and PacifiCorp agree to treat new issuances of preferred stock as 100% debt
unless a Commission order approves a different percentage.
MEHC and PacifiCorp commit that PacifiCorp will not make any dividends to PPW
Holdings LLC or MEHC that will reduce PacifiCorp s common equity capital below
35% of its Total Adjusted Capital without Commission approval. For purposes of
calculating the numerator of the percentage, common equity will not include any
portion ofPacifiCorp preferred stock issued and outstanding. PacifiCorp s Total
Adjusted Capital is defined as common equity, preferred equity, long-term debt
short-term debt and capitalized lease obligations.
The Commission, on its own motion or at the request of any party, may reexamine the
minimum common equity percentages as financial conditions or accounting standards
warrant.
19) The capital requirements ofPacifiCorp, as determined to be necessary to meet its
obligation to serve the public, will be given a high priority by the Board of Directors
ofMEHC and PacifiCorp.
IDAHO COMMITMENTS
CASE NO. P AC-05-
ORDER NO. 29973
20) Neither PacifiCorp nor its subsidiaries will, without the approval of the Commission
make loans or transfer funds (other than dividends and payments pursuant to the
Intercompany Administrative Services Agreement) to MEHC or its affiliates, or
assume any obligation or liability as guarantor, endorser, surety or otherwise for
MEHC or its affiliates; provided that this condition will not prevent PacifiCorp from
assuming any obligation or liability on behalf of a subsidiary ofPacifiCorp. MEHC
will not pledge any of the assets of the business ofPacifiCorp as backing for any
securities which MEHC or its affiliates (but excluding PacifiCorp and its subsidiaries)
may Issue.
21) MEHC and PacifiCorp, in future Commission proceedings, will not seek a higher cost
of capital than that which PacifiCorp would have sought if the transaction had not
occurred. Specifically, no capital financing costs should increase by virtue of the fact
that PacifiCorp was acquired by MEHc.
22) (This Commitment number has intentionally been left blank. Commitment 22 is not
available if a state selects Oregon-Specific Commitment 012 as Staff recommends in
Idaho-Specific Commitment No. I31.
23) PacifiCorp will continue a Blue Sky tariff offering in all states. PacifiCorp will
continue to support this offering through innovative marketing, by modifying the
tariff to reflect the developing green power market and by monitoring national
certification standards.
24) PacifiCorp will continue its commitment to gather outside input on environmental
matters, such as through the Environmental Forum.
25) PacifiCorp will continue to have environmental management systems in place that are
self-certified to ISO 14001 standards at all PacifiCorp operated thermal generation
plants.
26) MEHC will maintain at least the existing level ofPacifiCorp s community-related
contributions, both in terms of monetary and in-kind contributions. The distribution
ofPacifiCorp s community-related contributions among the states will be done in a
manner that is fair and equitable to each state.
27) MEHC will continue to consult with regional advisory boards to ensure local
perspectives are heard regarding community issues.
28) MEHC will honor PacifiCorp s existing labor contracts.
29) After the closing of the transaction, MEHC and PacifiCorp will make no unilateral
changes to employee benefit plans prior to May 23, 2007 that would result in the
reduction of employee benefits.
IDAHO COMMITMENTS
CASE NO. PAC-05-
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30) PacifiCorp will continue to produce Integrated Resource Plans according to the then
current schedule and the then current Commission rules and orders.
31) When acquiring new generation resources in excess of 100 MW and with a
dependable life of 10 or more years, PacifiCorp and MEHC will issue Requests for
Proposals (RFPs) or otherwise comply with state laws, regulations and orders that
pertain to procurement of new generation resources for PacifiCorp.
32) Nothing in these acquisition commitments shall be interpreted as a waiver of
PacifiCorp s or MEHC's rights to request confidential treatment for information that
is the subject of any commitments.
33) Unless another process is provided by statute, Commission regulations or approved
PacifiCorp tariff, MEHC and PacifiCorp encourage the Commission to use the
following process for administering the commitments. The Commission should give
MEHC and PacifiCorp written notification of any violation by either company of the
commitments made in this application. If such failure is corrected within ten (10)
business days for failure to file reports, or five (5) business days for other violations
the Commission should take no action. The Commission shall have the authority to
determine if the corrective action has satisfied or corrected the violation. MEHC or
PacifiCorp may request, for cause, an extension of these time periods. IfMEHC or
PacifiCorp fails to correct such violations within the specified time frames, as
modified by any Commission-approved extensions, the Commission may seek to
assess penalties for violation of a Commission order, against either MEHC or
PacifiCorp, as allowed under state laws and regulations.
34) Transmission Investment:MEHC and PacifiCorp have identified incremental
transmission projects that enhance reliability, facilitate the receipt of renewable
resources, or enable further system optimization. Subject to permitting and the
availability of materials, equipment and rights-of-way, MEHC and PacifiCorp
commit to use their best efforts to achieve the following transmission system
infrastructure improvements 1 :
Path C Upgrade (~$78 million)- Increase Path C capacity by 300 MW (from S.
Idaho to Northern Utah). The target completion date for this project is 2010. This
project:
enhances reliability because it increases transfer capability between the east and
west control areas
1 While MEHC has immersed itself in the details ofPacifiCorp s business activities in the short time
since the announcement of the transaction, it is possible that upon further review a particular investment
might not be cost-effective, optimal for customers or able to be completed by the target date. If that should
occur, MEHC pledges to propose an alternative to the Commission with a comparable benefit. The
Commission may investigate the reasonableness of any determination by MEHClPacifiCorp that one or more
of the identified transmission investments is not cost-effective or optimal for customers.
IDAHO COMMITMENTS
CASE NO. PAC-05-
ORDER NO. 29973
facilitates the delivery of power from wind projects in Idaho, and
provides PacifiCorp with greater flexibility and the opportunity to consider
additional options regarding planned generation capacity additions.
Mona - Oquirrh (~$196 million)- Increase the import capability from Mona into the
Wasatch Front (from Wasatch Front South to Wasatch Front North). This project
would enhance the ability to import power from new resources delivered at or to
Mona, and to import from Southern California by "wheeling" over the Adelanto DC
tie. The target completion date for this project is 2011. This project:
enhances reliability by enabling the import of power from Southern California
entities during emergency situations
facilitates the acceptance of renewable resources, and
enhances further system optimization since it enables the further purchase or
exchange of seasonal resources from parties capable of delivering to Mona.
Walla Walla - Yakima or Mid-C (~$88 million)- Establish a link between the "Walla
Walla bubble" and the "Yakima bubble" and/or reinforce the link between the "Walla
Walla bubble" and the Mid-Columbia (at Vantage). Either of these projects presents
opportunities to enhance PacifiCorp s ability to accept the output from wind
generators and balance the system cost effectively in a regional environment. The
target completion date for this project is 2010.
35) Other Transmission and Distribution Matters:MEHC and PacifiCorp make the
following commitments to improve system reliability:
investment in the Asset Risk Program of$75 million over the three years, 2007-2009
investment in local transmission risk projects across all states of$69 million over
eight years after the close of the transaction
0 & M expense for the Accelerated Distribution Circuit Fusing Program across all
states will be increased by $1.5 million per year for five years after the close ofthe
transaction, and
extension of the O&M investment across all states for the Saving SAIDI Initiative for
three additional years at an estimated cost of $2 million per year.
MEHC and PacifiCorp will support the Bonneville Power Administration in its
development of short-term products such as conditional firm. Based on the outcome
from BP A's efforts, PacifiCorp will initiate a process to collaboratively design similar
products at PacifiCorp. PacifiCorp will continue its Partial Interim Service product
and its tariff provision that allows transmission customers to alter pre-scheduled
transactions up to twenty minutes before any hour, and will notify parties to this
proceeding ifit proposes changes to these two elements of its OATT.
IDAHO COMMITMENTS
CASE NO. P AC-05-
ORDER NO. 29973
36) Regional Transmission:MEHC recognizes that it can and should have a role in
addressing the critical importance of transmission infrastructure to the states in which
PacifiCorp serves. MEHC also recognizes that some transmission projects, while
highly desirable, may not be appropriate investments for PacifiCorp and its regulated
customers. Therefore, MEHC shareholders commit their resources and leadership to
assist PacifiCorp states in the development of transmission projects upon which the
states can agree. Examples of such proj ects would be RMA TS and the proposed
Frontier transmission line.
37) (This Commitment number has intentionally been left blank. Commitment 37 is not
available if a state selects Oregon-Specific Commitment 0 14 as Staff recommends in
Idaho-Specific Commitment No. I 32.
38) (This Commitment number has intentionally been left blank. Commitment 38 is not
available if a state selects Oregon-Specific Commitments 0 9 and 0 11 as Staff
recommends in Idaho-Specific Commitment Nos. 128 and I 30.
39) Future Generation Options:In Commitment 31 , MEHC and PacifiCorp adopt a
commitment to source future PacifiCorp generation resources consistent with the then
current rules and regulations of each state. In addition to that commitment, for the
next ten years, MEHC and PacifiCorp commit that they will submit as part of any
commission approved RFPs for resources with a dependable life greater than 10 years
and greater than 100 MW
, --
including renewable energy RFPs --a 100 MW or
more utility "own/operate" alternative for the particular resource. It is not the intent
or objective that such alternatives be favored over other options. Rather, the option
for PacifiCorp to own and operate the resource which is the subject of the RFP will
enable comparison and evaluation of that option against other viable alternatives. In
addition to providing regulators and interested parties with an additional viable option
for assessment, it can be expected that this commitment will enhance PacifiCorp
ability to increase the proportion of cost-effective renewable energy in its generation
portfolio, based upon the actual experience ofMEC and the "Renewable Energy
commitment offered below.
40) Renewable Energy:MEHC reaffirms PacifiCorp s commitment to acquire 1400 MW
of new cost-effective renewable resources, representing approximately 7% of
PacifiCorp s load. MEHC and PacifiCorp commit to work with developers and
bidders to bring at least 100 MW of cost-effective wind resources in service within
one year of the close of the transaction.
MEHC and PacifiCorp expect that the commitment to build the Walla-Walla and Path
C transmission lines will facilitate up to 400 MW of renewable resource projects with
an expected in-service date of2008 -2010. MEHC and PacifiCorp commit to actively
work with developers to identify other transmission improvements that can facilitate
the delivery of cost-effective wind energy in PacifiCorp s service area.
In addition, MEHC and PacifiCorp commit to work constructively with states to
implement renewable energy action plans so as to enable PacifiCorp to achieve at
IDAHO COMMITMENTS
CASE NO. P AC-05-
ORDER NO. 29973
least 1400 MW of cost-effective renewable energy resources by 2015. Such
renewable energy resources are not limited to wind energy resources.
41) Coal Technology:MEHC supports and affirms PacifiCorp s commitment to consider
utilization of advanced coal-fuel technology such as super-critical or IGCC
technology when adding coal-fueled generation.
42) Greenhouse Gas Emission Reduction:MEHC and PacifiCorp commit to participate
in the Environmental Protection Agency s SF6 Emission Reduction Partnership for
Electric Power Systems. Sulfur hexafluoride (SF6) is a highly potent greenhouse gas
used in the electric industry for insulation and current interruption in electric
transmission and distribution equipment. Over a 100-year period, SF6 is 23 900 times
more effective at trapping infrared radiation than an equivalent amount of CO2,
making it the most highly potent, known greenhouse gas. SF6 is also a very stable
chemical, with an atmospheric lifetime of 3 200 years. As the gas is emitted, it
accumulates in the atmosphere in an essentially un-degraded state for many centuries.
Thus, a relatively small amount of SF6 can have a significant impact on global
climate change. Through its participation in the SF6 partnership, PacifiCorp will
commit to an appropriate SF6 emissions reduction goal and annually report its
estimated SF6 emissions. This not only reduces greenhouse gas emissions, it saves
money and improves grid reliability. Since 1999, EPA's SF6 partner companies have
saved $2.5 million from the avoided gas loss alone. Use of improved SF6 equipment
and management practices helps protect system reliability and efficiency.
Additionally, PacifiCorp will develop a strategy to identify and implement cost-
effective measures to reduce PacifiCorp s greenhouse gas emissions.
43) Emission Reductions from Coal-Fueled Generating Plants:Working with the
affected generation plant joint owners and with regulators to obtain required
approvals, MEHC and PacifiCorp commit to install the equipment likely to be
necessary under future emissions control scenarios at a cost of approximately $812
million. Concurrent with any application for an air permit, MEHC and PacifiCorp
will discuss its plans regarding this commitment with interested parties and solicit
input. While additional expenditures may ultimately be required as future emission
reduction requirements become better defined, MEHC believes these investments in
emission control equipment are reasonable and environmentally beneficial. The
execution of an emissions reduction plan for the existing PacifiCorp coal-fueled
facilities, combined with the use of reduced-emissions coal technology for new coal-
fueled generation, is expected to result in a significant decrease in the emissions rate
ofPacifiCorp s coal-fueled generation fleet. The investments to which MEHC is
committing are expected to result in a decrease in the SO2 emissions rates of more
than 50%, a decrease in the NOx emissions rates of more than 40%, a reduction in the
mercury emissions rates of almost 40%, and no increase expected in the CO2
emissions rate.
IDAHO COMMITMENTS
CASE NO. PAC-05-
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44) Energy Efficiency and DSM Management:
a) MEHC and PacifiCorp commit to conducting a company-defined third-party market
potential study of additional DSM and energy efficiency opportunities within
PacifiCorp s service areas. The objective ofthe study will be to identify
opportunities not yet identified by the company and, if and where possible, to
recommend programs or actions to pursue those opportunities found to be cost-
effective. The study will focus on opportunities for deliverable DSM and energy
efficiency resources rather than technical potentials that may not be attainable
through DSM and energy efficiency efforts. On-site solar and combined heat and
power programs may be considered in the study. During the three-month period
following the close of the transaction, MEHC and PacifiCorp will consult with DSM
advisory groups and other interested parties to define the proper scope of the study.
The findings of the study will be reported back to DSM advisory groups, commission
staffs, and other interested stakeholders and will be used by the Company in helping
to direct ongoing DSM and energy efficiency efforts. The study will be completed
within fifteen months after the closing on the transaction, and MEHC shareholders
will absorb the first $1 million of the costs of the study.
PacifiCorp further commits to meeting its portion of the NWPPC's energy efficiency
targets for Oregon, Washington and Idaho, as long as the targets can be achieved in a
manner deemed cost-effective by the affected states.
In addition, MEHC and PacifiCorp commit that PacifiCorp and MEHC will annually
collaborate to identify any incremental programs that might be cost-effective for
PacifiCorp customers. The Commission will be notified of any additional cost-
effective programs that are identified.
45) Customer Service Standards:MEHC and PacifiCorp commit to continue customer
service guarantees and performance standards as established in each jurisdiction
provided that MEHC and PacifiCorp reserve the right to request modifications of the
guarantees and standards after March 31 , 2008, and the right to request termination
(as well as modification) of one or more guarantees or standards after 2011. The
guarantees and standards will not be eliminated or modified without Commission
approval.
46) Community Involvement and Economic Development:MEHC has significant
experience in assisting its communities with economic development efforts. MEHC
plans to continue PacifiCorp s existing economic development practices and use
MEHC's experience to maximize the effectiveness of these efforts.
47) Corporate Presence (All States):MEHC understands that having adequate staffing
and representation in each state is not optional. We understand its importance to
customers, to regulators and to states. MEHC and PacifiCorp commit to maintaining
adequate staffing and presence in each state, consistent with the provision of safe and
reliable service and cost-effective operations.
IDAHO COMMITMENTS
CASE NO. P AC-05-
ORDER NO. 29973
48) IRP Stakeholder Process:PacifiCorp will provide public notice and an invitation to
encourage stakeholders to participate in the Integrated Resource Plan (IRP) process.
The IRP process will be used to consider Commitments 34, 39 44 and 52.
PacifiCorp will hold IRP meetings at locations or using communications technologies
that encourage broad participation.
49) Reporting on Status of Commitments: By June 1 2007 and each June 1 thereafter
through June 1 2011 , PacifiCorp will file a report with the Commission regarding the
implementation of the Commitments. The report will, at a minimum, provide a
description of the performance of each of the commitments that have quantifiable
results. If any of the commitments is not being met, relative to the specific terms of
the commitment, the report shall provide proposed corrective measures and target
dates for completion of such measures. PacifiCorp will make publicly available at the
Commission non-confidential portions of the report.
50) Pension Funding Policy:PacifiCorp will maintain its current pension funding policy,
as described in the 2005 Actuarial Report, for a period of two years following the
close of the transaction.
51) Subject to, and in consideration for, dismissal of all existing proceedings and no
commencement of any future state regulatory proceeding against PacifiCorp
involving or arising from the SEC PUIHCA Audit Report of ScottishPower dated
May 11 , 2004, MEHC will contribute to PacifiCorp, at no cost to PacifiCorp,
MEHC's stock ownership in the Intermountain Geothermal Company and the
associated steam rights (approximately 70% of the total rights) to the steam resources
serving PacifiCorp s Blundell geothermal plant and terminate MEHC's and
Intermountain Geothermal Company s rights and obligations under the contracts.
MEHC will assist PacifiCorp in determining the cost-effectiveness of acquiring the
remaining 30% of the rights. No more than six months after the close of the
transaction, MEHC will provide parties a clear and complete disclosure statement that
details any potential liabilities and risks, identified by or for MEHC, associated with
the ownership rights ofMEHC in Intermountain Geothermal. MEHC also commits
that PacifiCorp customers will not be harmed from the contribution to PacifiCorp of
the Intermountain Geothermal steam resources and stock.
52) Upon closing, MEHC and PacifiCorp commit to immediately evaluate increasing the
generation capacity of the Blundell geothermal facility by the amount determined to
be cost-effective. Such evaluation shall be summarized in a report and filed with the
Commission concurrent with the filing ofPacifiCorp s next IRP. This incremental
amount is expected to be at least 11 MW and maybe as much as 100 MW. All cost
effective increases in Blundell capacity, completed before January 1 , 2015 , should be
counted toward satisfaction ofPacifiCorp s 1400 MW renewable energy goal, in an
amount equal to the capacity of geothermal energy actually added at the plant.
IDAHO COMMITMENTS
CASE NO. PAC-05-
ORDER NO. 29973
Idaho-Specific Commitments
I 1. MEHC/PacifiCorp will continue to make a dedicated Irrigation Specialist available in
Rexburg and Shelley in the Idaho service territory. The effectiveness of this service
will be reviewed at the end of the 2007 irrigation season to determine whether it
should be continued. The Irrigation Hotline will continue to be available Monday
through Saturday, except holidays, from 7 AM to 7 PM, with the number published in
the phone directory.
12. Water Rights agreements will be abided by MEHC and PacifiCorp.
13. MEHC and PacifiCorp will provide the Commission access to corporate minutes
including Board of Director s minutes and all committee minutes, along with any
related source documents that are relevant to the business and risk analysis of
PacifiCorp. PacifiCorp and the Commission Staffwill establish an agreeable
procedure to review these confidential documents in Portland, Oregon, Salt Lake
City, Utah or Boise, Idaho.
14. MEHC and PacifiCorp will provide the Commission access to operational, internal
and risk audit reports and documentation. PacifiCorp and the Commission Staffwill
establish an agreeable procedure to review these confidential documents and the
timeline to provide an annual listing of such audits.
I5. A near-final draft agreement for PPW Holdings LLC that contains the ring-fencing
provisions of Commitment 11 will be sent to the Commission Staffby January 15
2006. The final signed agreement will be filed with the Commission within 30 days
after the close of the transaction.
16. Within 30 days of the close of the transaction, PacifiCorp will provide the
Commission with a written list of changes that were made to employee benefit plans
between the announcement of the transaction and the close of the transaction.
PacifiCorp and MEHC will provide 30 days' notice to the Commission prior to
merging PacifiCorp s pension with the pension plan of another MEHC business.
I7. Through December 31 2015 , PacifiCorp will provide the Commission notice when it
intends to increase the amount of dividend payments by 10% or more.
18. As part of the DSM study in Commitment 44, PacifiCorp will also consider the
market potential associated with the expansion of existing programs, including the
Irrigation and Monsanto load curtailment programs in Idaho. The study will compare
the cost effectiveness ofDSM resources with comparable supply side resources.
I9. MEHC and PacifiCorp commit to maintain a bid evaluation methodology that
prudently compares any company owned and operated alternative to valid and
conforming bid proposals submitted in response to a supply-side RFP.
IDAHO COMMITMENTS
CASE NO. PAC-05-
ORDER NO. 29973
110. On January 31 2005 , the Commission accepted PacifiCorp s proposal to eliminate its
Network Performance Standard relating to Momentary Average Interruption
Frequency Index (MAIFI) in light of the Company s commitment to develop an
acceptable alternative to MAIFI as soon as possible. The Company has developed its
proposed measurement plan and is scheduled to present to the Commission Staff at its
next reliability meeting (scheduled for December 20 2005). Within 60 days after this
meeting, the Company will file the plan with the Commission. MEHC and
PacifiCorp commit to implement this plan and provide the results of these
calculations to Commission Staff and other interested parties in reliability review
meetings.
I 11. PacifiCorp is required to apply to the Commission for approval of security issuances
pursuant to Idaho Code Title 61 , Chapter 9. PacifiCorp will not seek an exemption
from this requirement for twelve months following the closing of this transaction.
Staff will evaluate the "all-in-cost" of issuances for inclusion in rates and as it relates
to the Reduced Cost of Debt.
I 12. MEHC and PacifiCorp acknowledge that the Commitments being made by MEHC
and PacifiCorp are binding only upon them and their affiliates where noted (and upon
Berkshire Hathaway where specifically mentioned). In this proceeding Applicants
are not requesting a determination of the prudence, just and reasonable character, rate
or ratemaking treatment, or public interest of the investments, expenditures or actions
referenced in the Commitments. In other appropriate proceedings, the parties may
take positions regarding the prudence, just and reasonable character, rate or
ratemaking treatment, or public interest of the investments, expenditures or actions
referenced in these Commitments as the parties deem appropriate.
I 13. With respect to the Low Income Weatherization Program managed by community
action agencies in Idaho, PacifiCorp commits to the following:
Within 30 days of completion of the transaction, PacifiCorp will file proposed
revisions to its Schedule 21 Tariff to effect a change in funding of conservation
measures from 50% of measure cost to 100% of measure cost when federal matching
funds are no longer available to fund measures at PacifiCorp customer s premise
subject to the $150 000 annual funding limit in the tariff.
In PacifiCorp s next Idaho general rate case, PacifiCorp will include in its direct
testimony an analysis of the costs and benefits of changing its current practice of
matching 50% of federal contributions to matching at a higher percentage amount.
I 14. MEHC and PacifiCorp commit to a total contribution level for Idaho low income bill
payment assistance in the amount of $40 000 annually, for a five-year period
beginning July 1 2006. The contributions may be comprised of contributions from
corporate, employee, other sources, and customer donations. The corporate
contribution will be recorded in non-utility accounts. Before the end of the five-year
IDAHO COMMITMENTS
CASE NO. PAC-05-
ORDER NO. 29973
period, MEHC and PacifiCorp commit to work with low income advocates and
customer groups to evaluate additional contributions.
I 15. MEHC commits to provide shareholder funding to hire a consultant to study and
design for possible implementation of an arrearage management project for low
income customers that could be made applicable to Idaho and other states that
PacifiCorp serves. PacifiCorp will provide a resource for facilitation of a working
group to oversee the project. The study shall commence no later than 180 days after
close of the transaction and be completed, through the issuance of a formal report to
the Commission, no later than 365 days after close of the transaction. MEHC
recognizes that such a program may have to be tailored to best fit the unique low-
income environment of each individual state. The project will be developed by
PacifiCorp in conjunction with the relevant regulatory and governmental agencies
low-income advocates, and other interested parties in each state that is interested in
participating. The goals for the project will include reducing service terminations
reducing referral of delinquent customers to third party collection agencies, reducing
collection litigation and reducing arrearages and increasing voluntary customer
payments of arrearages. The costs of this study will be at least $66 000 on a total
company basis paid for by shareholders. If less than six states participate, the amount
of the shareholder funds will be reduced proportionally.
116. MEHC and PacifiCorp will provide notification of and file for Commission approval
of the divestiture, spin-off, or sale of any integral PacifiCorp function. This condition
does not limit any jurisdiction the Commission may have.
I 17. PacifiCorp or MEHC will notify the Commission prior to implementation of plans by
PacifiCorp or MEHC: (1) to form an affiliate for the purpose of transacting business
with PacifiCorp s regulated operations; (2) to commence new business transactions
between an existing affiliate and PacifiCorp; or (3) to dissolve an affiliate which has
transacted substantial business with PacifiCorp.
I 18. The premium paid by MEHC for PacifiCorp will be recorded in the accounts of the
acquisition company and not in the utility accounts ofPacifiCorp. By this
commitment, MEHC and PacifiCorp are not agreeing or otherwise committing to
waive any arguments that they might have pertaining to a symmetrical expense
adjustment based on the regulatory theory of the matching principle in the event a
party in a proceeding before the Commission proposes an adjustment to PacifiCorp
revenue requirement associated with the imputation of benefits (other than those
benefits committed to in this transaction) accruing from PPW Holdings LLC, MEHC
or affiliates. MEHC and PacifiCorp acknowledge that neither the Commission nor
any party to this proceeding is being asked to agree with or accept any such
arguments or to waive any right to assert or adopt such positions regarding the
prudence, just and reasonable character, rate or ratemaking impact or treatment, or
public interest as they deem appropriate pertaining to this commitment.
IDAHO COMMITMENTS
CASE NO. PAC-05-
ORDER NO. 29973
I 19. PacifiCorp will provide semi annual reports to the Commission and Commission
Staff describing PacifiCorp s performance in meeting service standard commitments
including both performance standards and customer guarantees.
I20. 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.
I21.
a) MEHC commits that immediately following the closing of the transaction, the
acquiring company (PPW Holdings LLC) will have no debt in its capital structure.
MEHC and PacifiCorp commit that the consolidated capital structure ofPPW
Holdings LLC will not contain common equity capital below the following
percentages of its Total Capital as defined in Commitment 18b:
48.25% from the date of the close of the transaction through
December 31 2008;
47.25% from January 2009 through December 31 2009;
46.25% from January 1 , 2010 through December 31 , 2010;
45.25% from January 1 , 2011 through December 31 2011;
44.00% after December 31 , 2011.
MEHC and PacifiCorp commit that the consolidated capital structure ofPPW
Holdings LLC will not contain common equity capital below 35% of its Total
Adjusted Capital as defined in Commitment 18c.
MEHC will provide the Commission 30 days prior notice ifPPW Holdings LLC
intends to issue debt. MEHC and PacifiCorp acknowledge that ifPPW Holdings
LLC does issue debt, the Commission has the authority to consider additional ring-
fencing provisions that may be appropriate.
122. MEHC and PacifiCorp commit to form an IGCC Working Group, sponsored by
PacifiCorp to discuss various policy and technology issues associated with IGCC
carbon capture, and sequestration. Working Group members would include
representatives from major stakeholder and regulatory groups, PacifiCorp and MEHC
officials, and others as appropriate. Some issues and challenges to development that
would be considered by the Working Group would include:
the status of development of carbon sequestration policy and methods, including
requirements for monitoring and verifying sequestration options;
information sharing, so that, to the extent possible, all parties develop a shared
understanding of expected IGCC technology benefits, expected capital and
O&M costs, and potential risks;
information sharing to understand such terms and associated requirements with
concepts such as "carbon capture ready" and "permanent sequestration
issues related to technology of and permitting for IGCC air emissions, waste
disposal, water use and site usage;
IDAHO COMMITMENTS
CASE NO. PAC-05-
ORDER NO. 29973
commercial terms and conditions associated with IGCC plant development
construction, and maintenance; and
implications ofSB 26 on development ofIGCC plants given the implications of
long development lead times, development costs, proj ect risk, and cost
uncertainty.
The IGCC Working Group would meet periodically to discuss the above issues and
identify possible solutions, and to stay abreast of the evolving technology and
commercial environment.
123. PacifiCorp agrees to include the following items in the 2006 IRP:
a wind penetration study to reappraise wind integration costs and cost-effective
renewable energy levels; and
an assessment oftransmission options for PacifiCorp s system identified in the
RMA TS scenario 1 related to facilitating additional generation at Jim Bridger and, on
equal footing, new cost-effective wind resources.
I 24. Berkshire Hathaway acknowledges the Commitments made by MEHC and
PacifiCorp and will not impede satisfaction of the Commitments. Berkshire
Hathaway acknowledges that it is bound by Commitments 4, 5 and 17 and that it is
subject to Commitments that are applicable to the affiliates ofPacifiCorp and MEHC;
provided, however, that Berkshire Hathaway does not guarantee or agree to be
responsible for performance of Commitments made by MEHC and PacifiCorp.
125. The scope of the "most favored nation" commitment contained in Section III ofthe
Stipulation will extend to and include any resolution or settlement prior to closing of
the transaction of any procedural, jurisdictional or federal law issues or disputes
raised in PacifiCorp vs. Rob Hurless Case No. CV -04-0311, United States District
Court, District of Wyoming, regardless of the manner, context or proceeding in which
any such settlement or resolution paid in connection with such settlement or
resolution, to the extent such settlement or resolution includes any kind of ongoing
waiver, or agreement to litigate in state tribunals, of any federal preemption, filed rate
doctrine or similar federal issues, or any other limitation, condition or waiver of
federal jurisdiction or federal forum as it relates to state ratemaking (referred to
hereinafter as a procedural limitation clause ("PLC"). If any PLC is agreed to by
PacifiCorp in any such settlement or resolution, PacifiCorp agrees to identify the PLC
in stand-alone language and MEHC agrees to include such PLC as a deemed
commitment to the Wyoming transaction docket and by virtue of the most favored
nations clause referred to above, the PLC will be available for adoption in Idaho
pursuant to the procedures in the Stipulation.
126. MEHC and PacifiCorp commit to $142.5 million (total company amount) of
offsetable rate credits as reflected in Appendix 2 and as described in the following
Commitments I 27 through I 31. These rate credits will be reflected in rates on the
IDAHO COMMITMENTS
CASE NO. P AC-05-
ORDER NO. 29973
effective date of new rates as determined by the Commission in a general rate case.
The rate credits will terminate on December 31 , 2010, to the extent not previously
offset, unless otherwise noted. The rate credits in Commitments I 27 and I 31 are
subject to deferred accounting as specified therein. Where total company values are
referenced, the amount allocated to Idaho will equal the Idaho-allocated amount using
Commission-adopted allocation factors.
I27.
MEHC and PacifiCorp commit to reduce the annual non-fuel costs to PacifiCorp
customers of the West Valley lease by $0.417 million per month (total company) or
an expected $3.7 million in 2006 (assuming a March 31 , 2006 transaction closing), $5
million in 2007 and $2.1 million in 2008 (the lease terminates May 31 , 2008), which
shall be the amounts of the total company rate credit. Beginning with the first month
after the close of the transaction to purchase PacifiCorp, Idaho s share ofthe monthly
rate credit will be deferred for the benefit of customers and accrue interest at
PacifiCorp s authorized rate ofretum. (This commitment is reflected in Row 1 of
Appendix 2.
This commitment is offsetable, on a prospective basis, to the extent PacifiCorp
demonstrates to the Commission s satisfaction, in the context of a general rate case
that such West Valley non-fuel cost savings:
i) are reflected in PacifiCorp s rates; and
ii) there are no offsetting actions or agreements by MEHC or PacifiCorp for
which value is obtained by PPM or an affiliated company, which, directly or
indirectly, increases the costs PacifiCorp would otherwise incur.
128.
a) MEHC and PacifiCorp will hold customers harmless for increases in costs retained by
PacifiCorp that were previously assigned to affiliates relating to management fees.
The total company amount assigned to PacifiCorp s affiliates is $1.5 million per year
which is the amount of the total company rate credit. This commitment expires on
December 31 2010. This Commitment is in lieu of Commitment 38, and a state must
choose between this Commitment I 28 and Commitment 38. (The commitment is
reflected in Row 2 of Appendix 2.
This commitment is offsetable to the extent PacifiCorp demonstrates to the
Commission s satisfaction, in the context of a general rate case the following:
i) Corporate allocations from MEHC to PacifiCorp included in PacifiCorp
rates are less than $7.3 million;
ii) Costs associated with functions previously carried out by parents to
PacifiCorp and previously included in rates have not been shifted to
PacifiCorp or otherwise included in PacifiCorp s rates; and
iii) Costs have not been shifted to operational and maintenance accounts
(FERC accounts 500-598), customer accounts (FERC accounts 901-905),
customer service and informational accounts (FERC accounts 907-910),
IDAHO COMMITMENTS
CASE NO. P AC-05-
ORDER NO. 29973
sales accounts (FERC accounts 911-916), capital accounts, deferred debit
accounts, deferred credit accounts, or other regulatory accounts.
129.
a) MEHC commits to use an existing, or form a new, captive insurance company to
provide insurance coverage for PacifiCorp s operations. The costs of forming such
captive will not be reflected in PacifiCorp s regulated accounts, nor allocated directly
or indirectly to PacifiCorp. Such captive shall be comparable in costs and services to
that previously provided through ScottishPower s captive insurance company
Dornoch. MEHC further commits that insurance costs incurred by PacifiCorp from
the captive insurance company for equivalent coverage for calendar years 2006
through 2010, inclusive, will be no more than $7.4 million (total company). Oregon
Commission Staff has valued the potential increase in PacifiCorp s total company
revenue requirement from the loss of ScottishPower s captive insurance affiliate as
$4.3 million annually, which shall be the amount of the total company rate credit.
This commitment expires on December 31 , 2010.
This commitment is offsetable ifPacifiCorp demonstrates to the Commission
satisfaction, in the context of a general rate case, the costs included in PacifiCorp
rates for such insurance coverage are not more than $7.4 million (total company).
(This commitment is reflected in Row 3 in Appendix 2.
130.
a) MEHC and PacifiCorp will hold customers harmless for increases in costs resulting
from PacifiCorp corporate costs previously billed to PPM and other former affiliates
ofPacifiCorp. Oregon Commission Staff has valued the potential increase in total
company revenue requirement if these costs are not eliminated as $7.9 million
annually (total company) through December 31 2010 and $6.4 million annually (total
company) from January 2011 through December 31 2015, which shall be the
amounts of the total company rate credit. This commitment shall expire on the earlier
of December 31 , 2015 or when PacifiCorp demonstrates to the Commission
satisfaction, in the context of a general rate case, that corporate costs previously billed
to PPM and other former affiliates have not been included in PacifiCorp s rates. This
Commitment is in lieu of Commitment 38 , and a state must choose between this
Commitment 130 and Commitment 38.
This commitment is offsetable to the extent PacifiCorp demonstrates to the
Commission s satisfaction, in the context of a general rate case, that corporate costs
previously billed to PPM and other former affiliates have not been included in
PacifiCorp s rates. (The commitment is reflected in Row 4 of Appendix 2.
131.
a) MEHC and PacifiCorp commit that PacifiCorp s total company A&G costs will be
reduced by $6 million annually based on the A&G categories, assumptions, and
values contained in Appendix 3 titled
, "
UM 1209 A & G Stretch." The amount of the
total company rate credit is $6 million per year. This commitment expires December
IDAHO COMMITMENTS
CASE NO. P AC-05-
ORDER NO. 29973
2010. Beginning with the first month after the close ofthe transaction, Idaho
share of the $0.5 million monthly rate credit will be deferred for the benefit of
customers and accrue interest at PacifiCorp s authorized rate of return. This
Commitment is in lieu of Commitments 22 and U 23 from the Utah settlement, and a
state must choose between this Commitment I 31 and Commitments 22 and U 23.
The credit will be offsetable, on a prospective basis, by the amount that PacifiCorp
demonstrates to the Commission s satisfaction, in a general rate case, that total
company A&G expenses included in PacifiCorp s rates are lower than the benchmark
and have not been shifted to other regulatory accounts. The 2006 benchmark will be
$228.8 million. Subsequent benchmarks shall equal the 2006 benchmark multiplied
by the ratio of the Global Insight's Utility Cost Information Service (UCIS)-
Administrative and General- Total Operations and Maintenance Index (INDEX
CODE Series JEADGOM), for the test period divided by the 2006 index value.
another index is adopted in a future PacifiCorp case, that index will replace the
aforementioned index and will be used on a prospective basis only. If this occurs, the
benchmark for future years will equal the benchmark from the rate case in which a
new index was adopted multiplied by the ratio of the new index for the test period
divided by the index value for the first year that the index is adopted.
132.a) In the event of a ratings downgrade by two or more rating agencies ofPacifiCorp
senior long-term debt that occurs within 12 months after the Commission approves
the Transaction or issues an order adopting acquisition commitments from other
PacifiCorp states, whichever, comes later (the "Baseline Date ), and at least one such
agency identifies issues related to MEHC's acquisition ofPacifiCorp as a cause ofthe
ratings downgrade, the assumed yield for any incremental debt issued by PacifiCorp
after the downgrade will be reduced by 10 basis points for each notch that PacifiCorp
is downgraded below PacifiCorp s rating on the Baseline Date. Such adjustment will
continue until the debt is no longer outstanding. In the case where one rating agency
issues a rating downgrade, but not two or more rating agencies, denoted as a split
rating, the adjustment shall be 5 basis points for each notch. The adjustment imposed
by this commitment will be eliminated for debt issuances following the ratings
upgrade ofPacifiCorp equal to the rating on the Baseline Date. This Commitment is
in lieu of Commitment 37, and a state must choose between this Commitment 132
and Commitment 37.
In the event that debt issued by PacifiCorp within 12 months after the Baseline Date
is recalled and refinanced, PacifiCorp agrees to hold customers harmless, for the term
of the debt, as compared to the revenue requirements pursuant to subparagraph a) and
its basis point reductions, of the originally financed debt.
133. MEHC commits that no amendments, revisions or modifications will be made to the
ring- fencing provisions of Commitment 11 b) without prior Commission approval for
the sole purpose of addressing the ring- fencing provisions.
IDAHO COMMITMENTS
CASE NO. PAC-05-
ORDER NO. 29973
I34. Within three months of closing of the transaction, MEHC commits to obtain a non-
consolidation opinion that demonstrates that the ring fencing around PPW Holdings
LLC is sufficient to prevent PPW Holdings LLC and PacifiCorp from being pulled
into an MEHC bankruptcy. MEHC commits to promptly file such opinion with the
Commission. If the ring-fencing provisions of this agreement are insufficient to
obtain a non-consolidation opinion, MEHC agrees to promptly undertake the
following actions:
Notify the Commission of this inability to obtain a non-consolidation opinion.
Propose and implement, upon Commission approval, such ring-fencing provisions
that are sufficient to prevent PPW Holdings LLC from being pulled into an MEHC
bankruptcy.
Obtain a non-consolidation opinion.
I35. MEHC and PacifiCorp commit that PacifiCorp will not make any dividends to PPW
Holdings LLC or MEHC ifPacifiCorp s unsecured debt rating is BBB- or lower by
S & P or Fitch (or Baa3 or lower by Moody s), as indicated by two ofthe three rating
agencIes.
I 36. MEHC and PacifiCorp will supplement the report filed with the Commission
pursuant to Commitment 49 by including information regarding the implementation
of each of the Idaho-Specific Commitments II through I 35.
IDAHO COMMITMENTS
CASE NO. PAC-05-
ORDER NO. 29973
APPENDIX 1
PPW HOLDINGS LLC RING FENCING PROVISIONS
Purposes.
(a)The purposes of the Company are to engage in the following activities:
1. to purchase and own 100% of the capital stock in PacifiCorp
PacifiCorp ; and any equity interest therein, an "Equity Interest"
2. in connection with the purchase of the Equity Interest, to negotiate
authorize, execute, deliver and perform documents including, but not limited to, that
certain Assignment and Assumption of Stock Purchase Agreement between the Member
and the Company pursuant to which the Member will assign to the Company all of the
Member s rights and obligations under that certain Stock Purchase Agreement, between
the Member and the other persons parties thereto, dated as of May 23 2005 and any other
agreement or document contemplated thereby (the "Transaction Documents ); and3. to do such other things and carry on any other activities, and only
such things and activities, which the Board, defined herein, determines to be necessary,
convenient or incidental to any of the foregoing purposes, and to have and exercise all of
the power and rights conferred upon limited liability companies formed pursuant to the
Act in furtherance of the foregoing.
(b) The Company, by or through one or more Officers of the Company, may
enter into and perform the Transaction Documents and all documents, agreements, certificates or
financing statements contemplated thereby or related thereto, with such final terms and
provisions as the Officer or Officers of the Company executing the same shall approve, his or
their execution thereof to be conclusive evidence of his or such approval, all without any further
act, vote or approval of the Member, the Board of Directors or any other Officer notwithstanding
any other provision of this Agreement, the Act or applicable law, rule or regulation. All actions
taken by the Member, any Director or Officer on behalf of the Company or on behalf of any of
its affiliates prior to the date hereof, to effect the transactions contemplated by the Transaction
Documents or the formation of the Company, are hereby ratified, approved and confirmed in all
respects. Simultaneously with or following the execution of this Agreement the Company may
enter into each of the Transaction Documents with such final terms and provisions as the Officer
or Officers of the Company executing the same shall approve, his or their execution thereof to be
conclusive evidence of his or their approval.
Management.
(a) Board of Directors. The business and affairs ofPPW Holdings, LLC (the
Company ) shall be managed by or under the direction of a board of one or more Directors (the
Board"); provided that from and after the purchase of an equity interest in PacifiCorp (an
Equity Interest"), and for so long as the Company shall own an Equity Interest, one of the
members of the Board shall be an Independent Director.
Portlnd3-1537021.3 0051851-00004
APPENDIX
ORDER NO. 29973
CASE NO. P AC-05-
An "Independent Director" shall mean a member of the Board who is not at the
time of initial appointment, or at any time while serving on the Board, and has not been at any
time during the preceding five (5) years: (a) a member, stockholder, director (except as such
Independent Director of the Company), officer, employee, partner, attorney or counsel of the
Company or any affiliate of the Company; (b) a creditor, customer other than a consumer
supplier or other person who has derived in anyone of the preceding (5) calendar years revenues
from its activities with the Company or any affiliate of the Company (except as such
Independent Director); (c) a person related to or employed by any person described in clause (a)
or clause (b) above, or (d) a trustee, conservator or receiver for the Company or any affiliate of
the Company. As used in this definition
, "
affiliate" shall have the meaning given to such term
under Rule 405 under the Securities Act of 1933, as amended.
Except as otherwise provided in this Section 1 (a) with respect to the Independent
Director, MidArnerican Energy Holdings Company (the "Member ) by unanimous vote or
unanimous written consent, may determine at any time in its sole and absolute discretion, the
number of Directors to constitute the Board. The initial number of Directors shall be two. At the
time of the purchase of an Equity Interest by the Company, if one of the Directors is not then a
qualified Independent Director, the number of Directors on the Board shall be automatically
increased by one, such additional position to be filled as soon as practicable by an Independent
Director selected by a majority vote of all of the Directors then in office. Each Director elected
designated or appointed shall hold office until a successor is elected and qualified or until such
Director s earlier death, resignation or removal. Each Director shall be a "manager" within the
meaning of the Limited Liability Company Act of the State of Delaware (the "Act"
(b) Powers. Subject to this Section 1 , the Board shall have the power to do
any and all acts necessary, convenient or incidental to or for the furtherance of the purposes
described herein, including all powers, statutory or otherwise. Except as provided in the
certificate and subj ect to Section 2( e), the Board has the authority to bind the Company by a
majority of the votes held by the Directors. For purposes of voting, each Director shall have one
vote.
(c) Quorum; Acts of the Board. At all meetings of the Board, a majority of
the Directors shall constitute a quorum for the transaction of business and, except as otherwise
provided in any other provision of this Agreement or in the certificate of incorporation, the act of
a majority of the votes held by the Directors present at any meeting at which there is a quorum
shall be the act of the Board. In the case of an act which requires the unanimous vote of the
Directors and/or the vote ofthe Independent Director, only the presence at the subject meeting of
all of the Directors, including the Independent Director, shall constitute a quorum. If a quorum
shall not be present at any meeting of the Board, the Directors present at such meeting may
adjourn the meeting from time to time, without written notice other than announcement at the
meeting, until a quorum shall be present.
(d) Removal of Directors. Unless otherwise restricted by law, any Director or
the entire Board may be removed, with or without cause, by the Member, and subject to Section
, any vacancy caused by any such removal may be filled by action of the Member. In the event
of the removal of the Independent Director or other event that causes the Independent Director to
cease to be an Independent Director on the Board, no action requiring the vote of the
Portlnd3-1537021 J 0051851-00004
Independent Director shall take place until such time as a replacement Independent Director is
elected to the Board by the Member.
(e)Limitations on the Company s Activities.
1. This Section 2( e) is being adopted in order to qualify the Company
as a "special purpose entity" and so long as the Company holds or owns an Equity
Interest, this Section 2(e) shall govern the activities of the Company notwithstanding any
other provision of this Agreement.2. So long as the Company holds or owns an Equity Interest, the
Board shall cause the Company to do or cause to be done all things necessary to preserve
and keep in full force and effect its existence, rights (charter and statutory) and
franchises. At all times, unless otherwise provided in that certain Stock Purchase
Agreement, between the Member and the other persons parties thereto, dated as of May
2005 and any other agreement or document contemplated thereby (the "Transaction
Documents ), the Board shall cause the Company to:
Portlnd3-1537021.3 0051851-00004
maintain its own separate books and records, financial statements,
and bank accounts;
except for tax and accounting purposes, at all times hold itself out
to the public as a legal entity separate from the Member and any
other Person and not identify itself as a division of any other
Person;
have a Board, the composition of which in sum is unique from that
of any other Person;
file its own tax returns, if any, as may be required under applicable
law, and pay any taxes required to be paid under applicable law;
not commingle its assets with assets of any other Person;
conduct its business in its own name and hold all of its assets in its
own name;
pay its own liabilities only out of its own funds;
maintain an arm s length relationship with its affiliates, including
its Member;
from its own funds, pay the salaries of its own employees;
not hold out its credit as being available to satisfy the obligations
of others;
maintain its own office and telephone line separate and apart from
its affiliates, although it may lease space from an affiliate and share
a phone line with an affiliate, having either a separate number or
extension, and in furtherance thereof allocate fairly and reasonably
any overhead for shared office space;
use separate stationery, invoices and checks bearing its own name;
not pledge its assets for the benefit of any other Person;
correct any known misunderstanding regarding its separate
identity;
maintain adequate capital and an adequate number of employees in
light of its contemplated business purposes; and
not acquire any obligations or securities of the Member or its
affiliates, other than an Equity Interest.
Failure of the Company to comply with any of the foregoing covenants shall not affect the status
of the Company as a separate legal entity or the limited liability of the Member or the Directors.3. So long as the Company holds or owns an Equity Interest and
unless otherwise provided in the Transaction Documents, the Company shall not:
Portlnd3-1537021.3 0051851-00004
become or remain liable, directly or contingently, in connection
with any indebtedness or other liability of any other person or
entity, whether by guarantee, endorsement (other than
endorsements of negotiable instruments for deposit or collection in
the ordinary course of business), agreement to purchase or
repurchase, agreement to supply or advance funds, or otherwise;
grant or permit to exist any lien, encumbrance, claim, security
interest, pledge or other right in favor of any person or entity in the
assets of the Company or any interest (whether legal, beneficial or
otherwise) in any thereof;
engage, directly or indirectly, in any business other than as
permitted to be performed under the Company s limited liability
company operating agreement;
make or permit to remain outstanding any loan or advance to, or
own or acquire (a) indebtedness issued by any other person or
entity, or (b) any stock or securities of or interest in, any person or
entity, other than the Equity Interest;
enter into, or be a party to, any transaction with any of its affiliates
except (A) in the ordinary course of business, (B) pursuant to the
reasonable requirements and purposes of its business and (C) upon
fair and reasonable terms (and, to the extent material, pursuant to
written agreements)) that are consistent with market terms of any
such transactions entered into by unaffiliated parties;
make any change to its name or principal business or use of any
trade names, fictitious names, assumed names or "doing business
" names.4. So long as the Company holds or owns an Equity Interest, none of
the Company, the Member or the Board shall be authorized or empowered, nor shall they
permit the Company, without the prior unanimous written consent of all of the Directors
on the Board, including the Independent Director, (a) to consolidate, merge, dissolve
liquidate or sell all or substantially all of the Company s assets or (b) to institute
proceedings to have the Company adjudicated bankrupt or insolvent, or consent to the
institution of bankruptcy or insolvency proceedings against the Company or file a
voluntary petition seeking, or consent to, reorganization or relief with respect to the
Company under any applicable federal or state law relating to bankruptcy, or consent to
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or a substantial part of its property, or make any assignment for
the benefit of creditors of the Company, or admit in writing the Company s inability to
pay its debts generally as they become due, or to the fullest extent permitted by law, to
take any action in furtherance of any such action. Moreover, the Board may not vote on
or authorize the taking of, any of the foregoing actions unless there is at least one
Independent Director then serving in such capacity.
(f) Limitations on Distributions. So long as the Company owns or holds an
Equity Interest, the Company shall not permit PacifiCorp to declare or make any
Distribution to the Company or any other person that owns or holds an Equity Interest
unless, on the date of such Distribution, either:1. at the time and as a result of such Distribution, PacifiCorp
Leverage Ratio does not exceed 0.65:1 and PacifiCorp s Interest Coverage Ratio is not
less than 2.5:1; or2. (ifPacifiCorp is not in compliance with the foregoing ratios) at
such time, PacifiCorp s senior unsecured long term debt rating is at least BBB (or its then
equivalent) with Standard & Poor s Ratings Group and Baa2 (or its then equivalent) with
Moody s Investors Service, Inc.
For purposes of this Section 2(f), the following terms shall be defined as follows:
Capitalized Lease Obligations means all lease obligations ofPacifiCorp and
its Subsidiaries which, under GAAP, are or will be required to be capitalized, in each
case taken at the amount thereof accounted for as indebtedness in conformity with such
principles.
Port1nd3-1537021.3 0051 &51-00004
Consolidated Current Liabilities" means the consolidated current liabilities of
PacifiCorp and its Subsidiaries, but excluding the current portion oflong term
Indebtedness which would otherwise be included therein, as determined on a
consolidated basis in accordance with GAAP.
Consolidated Debt" means , at any time, the sum ofthe aggregate outstanding
principal amount of all Indebtedness for Borrowed Money (including, without limitation
the principal component of Capitalized Lease Obligations, but excluding Currency,
Interest Rate or Commodity Agreements and all Consolidated Current Liabilities) of
PacifiCorp and its Subsidiaries, as determined on a consolidated basis in conformity with
GAAP.
Consolidated EBITDA" means, for any period, the sum of the amounts for such
period ofPacifiCorp s (i) Consolidated Net Operating Income, (ii) Consolidated Interest
Expense, (iii) income taxes and deferred taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or ~ales of
assets), (iv) depreciation expense, (v) amortization expense, and (vi) all other non-cash
items reducing Consolidated Net Operating Income, less all non-cash items increasing
Consolidated Net Operating Income, all as determined on a consolidated basis in
conformity with GAAP; provided that to the extent PacifiCorp has any Subsidiary that is
not a wholly owned Subsidiary, Consolidated EBITDA shall be reduced by an amount
equal to the Consolidated Net Operating Income of such Subsidiary multiplied by the
quotient of (A) the number of shares of outstanding common stock of such Subsidiary not
owned on the last day of such period by PacifiCorp or any Subsidiary of PacifiCorp
divided by (B) the total number of shares of outstanding common stock of such
Subsidiary on the last day of such period.
Consolidated Interest Expense" means , for any period, the aggregate amount
of interest in respect of Indebtedness for Borrowed Money (including amortization of
original issue discount on any Indebtedness and the interest portion on any deferred
payment obligation, calculated in accordance with the effective interest method of
accounting; and all commissions, discounts and other fees and charges owed with respect
to bankers' acceptance financing) and the net costs associated with Interest Rate
Agreements and all but the principal component of rentals in respect of Capitalized Lease
Obligations, paid, accrued or scheduled to be paid or to be accrued by PacifiCorp and
each of its Subsidiaries during such period, excluding, however, any amount of such
interest of any Subsidiary ofPacifiCorp if the net operating income (or loss) of such
Subsidiary is excluded from the calculation of Consolidated Net Operating Income for
such Subsidiary pursuant to clause (ii) of the definition thereof (but only in the same
proportion as the net operating income (or loss) of such Subsidiary is excluded), less
consolidated interest income, all as determined on a consolidated basis in conformity
with GAAP; provided that, to the extent that PacifiCorp has any Subsidiary that is not a
wholly owned Subsidiary, Consolidated Interest Expense shall be reduced by an amount
equal to such interest expense of such Subsidiary multiplied by the quotient of (A) the
number of shares of outstanding common stock of such Subsidiary not owned on the last
day of such period by PacifiCorp or any Subsidiary ofPacifiCorp divided by (B) the total
Portlnd3-1537021.3 0051851-00004
number of shares of outstanding common stock of such Subsidiary on the last day of such
period.
Consolidated Net Operating Income" means, for any period, the aggregate of
the net operating income (or loss) ofPacifiCorp and its Subsidiaries for such period, as
determined on a consolidated basis in conformity with GAAP; provided that the
following items shall be excluded from any calculation of Consolidated Net Operating
Income (without duplication): (i) the net operating income (or loss) of any person (other
than a Subsidiary) in which any other person has ajoint interest, except to the extent of
the amount of dividends or other distributions actually paid to PacifiCorp or another
Subsidiary ofPacifiCorp during such period; (ii) the net operating income (or loss) of any
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by such Subsidiary of such net operating income is not at the time permitted
by the operation ofthe terms of its charter or any agreement, instrument, judgment
decree, order, statute, rule or governmental regulation or license; and (iii) all
extraordinary gains and extraordinary losses.
Currency, Interest Rate or Commodity Agreements" means an agreement or
transaction involving any currency, interest rate or energy price or volumetric swap, cap
or collar arrangement, forward exchange transaction, option, warrant, forward rate
agreement, futures contract or other derivative instrument of any kind for the hedging or
management of foreign exchange, interest rate or energy price or volumetric risks, it is
being understood, for purposes of this definition, that the term "energy" shall include
without limitation, coal, gas, oil and electricity.
Distribution" means any dividend, distribution or payment (including by way of
redemption, retirement, return or repayment) in respect of shares of capital stock of
PacifiCorp.
GAAP" means generally accepted accounting principles in the United States as
in effect from time to time.
Indebtedness" means, with respect to PacifiCorp or any of its Subsidiaries at
any date of determination (without duplication), (i) all Indebtedness for Borrowed
Money, (ii) all obligations in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto), (iii) all obligations to pay the
deferred and unpaid purchase price of property or services, which purchase price is due
more than six months after the date of placing such property in service or taking delivery
and title thereto or the completion of such services, except trade payables, (iv) all
Capitalized Lease Obligations, (v) all indebtedness of other persons secured by a
mortgage, charge, lien, pledge or other security interest on any asset ofPacifiCorp or any
of its Subsidiaries, whether or not such indebtedness is assumed; provided that the
amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset
at such date of determination, and (B) the amount of the secured indebtedness, (vi) all
indebtedness of other persons of the types specified in the preceding clauses (i) through
(v), to the extent such indebtedness is guaranteed by PacifiCorp or any of its Subsidiaries
and (vii) to the extent not otherwise included in this defInition, obligations under
Portlnd3-1537021J 0051851-00004
Currency, Interest Rate or Commodity Agreements. The amount of Indebtedness at any
date shall be the outstanding balance at such date of all unconditional obligations as
described above and, upon the occurrence of the contingency giving rise to the
obligation, the maximum liability of any contingent obligations of the types specified in
the preceding clauses (i) through (vii) at such date; provided that the amount outstanding
at any time of any Indebtedness issued with original issue discount is the face amount of
such Indebtedness less the remaining unamortized portion of the original issue discount
of such Indebtedness at such time as determined in conformity with GAAP.
Indebtedness for Borrowed Money" means any indebtedness (whether being
principal, premium, interest or other amounts) for (i) money borrowed, (ii) payment
obligations under or in respect of any trade acceptance or trade acceptance credit, or (iii)
any notes, bonds, debentures, debenture stock, loan stock or other debt securities offered
issued or distributed whether by way of public offer, private placement, acquisition
consideration or otherwise and whether issued for cash or in whole or in part for a
consideration other than cash; provided, however in each case that such term shall
exclude any indebtedness relating to any accounts receivable securitizations.
Interest Coverage Ratio" means, with respect to PacifiCorp on any
Measurement Date, the ratio of (i) the aggregate amount of Consolidated EBITDA of
PacifiCorp for the four fiscal quarters for which financial information in respect thereof is
available immediately prior to such Measurement Date to (ii) the aggregate Consolidated
Interest Expense during such four fiscal quarters.
Leverage Ratio" means the ratio of Consolidated Debt to Total Capital
calculated on the basis of the most recently available consolidated balance sheet of
PacifiCorp and its consolidated Subsidiaries (provided that such balance sheet is as of a
date not more than 90 days prior to a Measurement Date) prepared in accordance with
GAAP.
Measurement Date" means the record date for any Distribution.
Subsidiary" means, with respect to any person, any corporation, association
partnership, limited liability company or other business entity of which 50% or more of
the total voting power of shares of capital stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers, or trustees thereof is at the same time owned, directly or
indirectly, by (i) such person, (ii) such person and one or more Subsidiaries of such
person, or (iii) one or more Subsidiaries of such person.
Total Capital" of any person is derIDed to mean, as of any date, the sum
(without duplication) of (a) Indebtedness for Borrowed Money, and (b) consolidated
stockholder s equity of such person and its consolidated Subsidiaries.
Independent Director.
From the time an Independent Director is initially appointed and for so long as the
Company holds or owns an Equity Interest, the Company shall at all times have at least one
Port1nd3-153702U 0051851-00004
Independent Director who, except as provided in Section 2(a), will be appointed by the Member.
To the fullest extent permitted by Section 18-1101(c) of the Act, the Independent Director shall
consider only the interests of the Company, including its respective creditors, in acting or
otherwise voting on the matters that come before them. No Independent Director shall at any
time serve as trustee in bankruptcy for any affiliate of the Company.
Enforcement by Independent Director.
Notwithstanding any other provision of the Company s limited liability operating
agreement, the Member agrees that such agreement constitutes a legal, valid and binding
agreement of the Member, and is enforceable against the Member by the Independent Director
in accordance with its terms. In addition, the Independent Director shall be an intended
beneficiary of the agreement.
Dissolution.
(a) The Company shall be dissolved, and its affairs shall be wound up only
upon the entry of a decree of judicial dissolution under Section 18-802 of the Act; and shall not
dissolve prior to the occurrence of such event provided however, to the fullest extent pennitted
by law, the Member and the Directors shall not make an application under Section 18-802 of the
Act so long as the Company holds or owns an Equity Interest.
(b) So long as the Company owns or holds an Equity Interest, the Member
shall cause the Company to have, at all times, at least one person who shall automatically
become a member having 0% economic interest in the Company (the "Springing Member
upon the dissolution of the Member or upon the occurrence of any other event that causes the
Member to cease being a member of the Company. Upon the occurrence of any such event, the
Company shall be continued without dissolution and the Springing Member shall, without any .
action of any person or entity, automatically and simultaneously become a member of the
Company having a 0% economic interest in the Company and the Personal Representative(s) (as
defined in the Act) of the Member shall automatically become an unadmitted assignee of the
Member, being entitled thereby only to the distributions to which the Member was entitled
hereunder and any other right conferred thereupon by the Act. In order to implement the
admission of the Springing Member as a member of the Company, the Springing Member has
executed a counterpart to this Agreement as of the date hereof. Pursuant to Section 18-301 of the
Act, the Springing Member shall not be required to make any capital contributions to the
Company and shall not receive any limited liability company interest in the Company. Prior to
its admission to the Company as a member of the Company pursuant to this Section 24(b), the
Springing Member shall have no interest (economic or otherwise) and is not a member of the
Company.
(c) Notwithstanding any other provision of this Agreement, the Bankruptcy of
a Member shall not cause the Member to cease to be a member of the Company and upon the
occurrence of such an event, the business of the Company shall continue without dissolution.
Notwithstanding any other provision of this Agreement, the Member waives any right they might
have under Section 18-801(b) of the Act to agree in writing to dissolve the Company upon the
Bankruptcy of a Member or the occurrence of any other event that causes such Member to cease
PortInd3-1537021.30051851-OO004
to be a member of the Company. "Bankruptcy" means, with respect to a Member, if the
Member (i) makes an assignment for the benefit of creditors, (ii) files a voluntary petition in
bankruptcy, (iii) is adjudged a bankrupt or insolvent, or has entered against itself an order for
relief, in any bankruptcy or insolvency proceeding, (iv) files a petition or answer seeking for
itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or
similar relief under any statute, law or regulation, (v) files an answer or other pleading admitting
or failing to contest the material allegations of a petition filed against it in any proceeding of this
nature, (vi) seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator
of the Member or of all or any substantial part of its properties, or (vii) 120 days after the
commencement of any proceeding against the Member seeking reorganization, arrangement
composition, readjustment, liquidation, dissolution, or similar relief under any statute, law or
regulation, if the proceedings have not been dismissed, or if within 90 days after the
appointment, without the Member s consent or acquiescence, of a trustee, receiver or liquidator
of the Member or of all or any substantial part of its properties, the appointment is not vacated or
stayed, or within 90 days after the expiration of any such stay, the appointment is not vacated.
With respect to the Member, the foregoing definition of "Bankruptcy" is intended to replace and
shall supersede the definition of "bankruptcy" set forth in Sections 18-101 (1) and 18-304 of the
Act.
(d) In the event of dissolution, the Company shall conduct only such activities
as are necessary to wind up its affairs (including the sale of the assets of the Company in an
orderly manner), and the assets of the Company shall be applied in the manner, and in the order
of priority, set forth in Section 18-804 of the Act. Upon completion of the winding up process
the Board shall cause the execution and filing of a Certificate of Cancellation in accordance with
Section 18-203 of the Act.
Amendments.
Neither this Agreement nor the Certificate may be modified, altered
supplemented or amended (each such event being referred to as a "Change ) except pursuant to
a written agreement executed and delivered by the Member. So long as the Company holds or
owns an Equity Interest and PacifiCorp or any subsidiary thereof has any debt outstanding that is
rated by Standard & Poor , Moody s Investors Service, or by Fitch Ratings (each, a "Rating
Agency ), no Change shall take effect unless (i) each Rating Agency rating such debt shall have
delivered a written confirmation that such Change will not result in the downgrade or withdrawal
of any such rating assigned by it to such debt, and (ii) the Independent Director shall have
approved the Change in a vote of Directors if the Change relates to Section 1 , Section 2(i) or
Section 3; provided that none of the conditions identified in either of clause (i) or (ii) hereof
needs be satisfied if the Change is designed to: (x) cure any ambiguity or internal inconsistency
in this Agreement or the Certificate or (y) convert or supplement any provision hereof in a
manner consistent with the intent of this Agreement or the Certificate.
Portlnd3-1537021.3 0051851-00004
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