20070223Decision memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
CO MMISSI 0 NER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:TERRI CARLOCK
DATE:FEBRUARY 22, 2007
RE:P ACIFICORP'S SHELF AUTHORITY REQUEST OF $1.5 BILLION
DEBT; CASE NO. P AC-07-
On February 6 2007, PacifiCorp filed an Application requesting authority to incur debt
up to $1 500 000 000 aggregate principal amount at anyone time. PacifiCorp requests this
additional authority remain in effect through March 31 2012 so long as the Company s bond
ratings for senior secured debt remains investment grade (BBB- or higher by Standard & Poor
Rating Services and Baa3 or higher by Moody s Investors ' Service , Inc.). PacifiCorp also
requests authority to enter into the following as may be appropriate: letter of credit arrangements
to provide additional credit support, currency swaps, or contributions to or sale of debt to special
purpose entities (SPE).
The requested authority will supplement the financing flexibility previously authorized in
Case No. PAC-05-, Order No. 29787 (2005 Order) approving a $1.0 Billion authority. Under
the 2005 Order, $650 Million has been issued. The remaining $350 Million is not anticipated to
be utilized if the current request is granted and could be withdrawn if the Commission so orders.
The securities will consist of securities issued or exchanged as public or private
placements, domestically or overseas, in the form of secured, unsecured, subordinated debt or
other indebtedness. The terms and interest rate for each issue will be determined at the time of
issuance. The issuance(s) may be at a fixed or variable interest rate based on LIBOR, the
applicable prime rate, or other established rate. Fees will be charged based on the type of
security issued but are expected to average 1 % - 2% of the outstanding balance with some
transactions carrying fees up to 3.15%. The variety of funding options will allow the Company
to evaluate the all-in cost of each to borrow at lower costs.
DECISION MEMORANDUM - 1 -February 22, 2007
The requested financing authority will provide funds to refinance $575 Million of debt
that matures and mandatory redeemable preferred stock over the next two years. Use of the
remainder includes capital requirements for the following purposes: acquisition or construction
of new plant, including renewable resources, along with the improvement or maintenance of
existing generation, distribution, transmission and general plant to provide or improve utility
services. The current year capital budget is approximately $1.5 Billion.
STAFF RECOMMENDATION
Staff recommends approval of the shelf authority of $1.5 Billion debt for the period
through March 31 2012. The Company s prior commitment in Case No. P AC-99-3 to a cost
test remains effective where foreign transactions will not be utilized for ratemaking unless and
until PacifiCorp can show that the all-in costs are not greater than the all-in cost of similar
domestic borrowings.
The remaining commitments and terms in Case No. P AC-05-, Order No. 29787
remains effective. As a condition ofthe extended authority, PacifiCorp s senior secured debt
will be rated at investment grade or PacifiCorp will follow the established procedure of
notification if the ratings drop. PacifiCorp be still be required to notify the Commission of its
intent to utilize a SPE and provide all details anticipated with the transaction. The required
Quarterly Financing Activity Reports and credit rating reports, to the extent not filed in the
MEHC Acquisition Case No. P AC-05-, Order No. 29998, will continue to be filed in this
case.
COMMISSION DECISION
Should the $1.5 Billion shelf authority for debt be approved?
Should the authority be approved with the existing terms and conditions including
maintaining the investment grade rating, continuing the additional reporting requirements
notifying the Commission when a SPE will be utilized and provide the anticipated details of the
transaction, meeting the all-in cost test commitment for foreign transactions?
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Terri Carlock
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DECISION MEMORANDUM - 2 -February 22, 2007