19940322Final_Order_No_25443.pdf

Office of the SecretaServiceDate
MAR 2 2 1994
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
PACIFICORP FOR AUTHORITY TO (1))CASE NO.PAC-S-94-1
BORROW THE PROCEEDS OF NOT MORE )
THAN $225,000,000 OF POLLUTION )ORDER NO.25443
CONTROL REVENUE REFUNDING BONDS )
TO BE ISSUED BY VARIOUS COUNTIES,)
(2)ENTER INTO SUCH AGREEMENTS OR )
ARRANGEMENTS WITH THE COUNTIES )
AND WITH OTHER ENTITIES AS MAY BE )
REASONABLY NECESSARY TO EFFECT )
THE BORROWINGS AND TO PROVIDE )
CREDIT ENHANCEMENT FOR THE RE-)
FUNDING BONDS,INCLUDING THE )
ISSUANCE OF FIRST MORTGAGE AND )
COLLATERAL TRUST BONDS,AND (3))
REPLACE OR MODIFY FROM TIME TO )
TIME THE CREDIT ENHANCEMENT )
ARRANGEMENTS SUPPORTING THE )
REFUNDING BONDS.)
On February 22,1994,PacifiCorp(Company)filed its Application,pursuant
to Idaho Code §61-901 et seq.,and Rule 141 (IDAPA 31.01.01141)of the
Commission's Rules of Procedure for authority to (1)borrow the proceeds of not more
than $225,000,000 of Pollution Control Revenue RefundingBonds (RefundingBonds)
to be issued by the Counties of Emery,Carbon (Utah),Lincoln,Sweetwater,Converse
(Wyoming),and Moffat,Colorado (Counties),(2)enter into such agreements or
arrangements with the Counties and with other entities as may be reasonably
necessary to effect the borrowings and to provide credit enhancement for the
Refunding Bonds,including the issuance of its First Mortgage and Collateral Trust
Bonds as collateral for the Refunding Bonds,and (3)replace or modify from time to
time the credit enhancement arrangements supporting the Refund Bonds.
The borrowingswill be made in connection with the refunding of up to nine
series of outstanding pollution control revenue bonds (Prior Bonds)which were issued
ORDER NO.25443 -1 -
to finance,or refinance,the cost of certain pollution control,solid waste disposaland
sewage facilities at the Jim Bridger,Carbon,Dave Johnston,Huntington,Hunter,
Naughton and Craig electric generating plants.
On September2,1992,under Case No.PAC-S-92-4,Order No.24479,the
Commission authorized the Company to borrow the proceeds of not more than
$150,000,000 of pollution control revenue refunding bonds to be issued by various
counties.Pursuant to that authority,the Company refunded six series of bonds
aggregating$109,325,000.This Application is intended to increase and replacethe
unused authority granted by the Commission under Case No.PAC-S-92-4.
The Commission,having considered the Application and appended exhibits,
the information in its files concerning the Company,the applicable law,and being
fully advised in the premises,finds and concludes:
FINDINGS OF FACT
The Companywas incorporatedunder Oregon law in August 1987 for the
purpose of facilitating consummation of a merger with Utah Power &Light Company,
a Utah corporation,and changingthe state of incorporation of PacifiCorpfrom Maine
to Oregon.The Companyuses the assumed business names of Pacific Power &Light
Company and Utah Power &Light Company within their respective service
territories located in the states of California,Idaho,Montana,Oregon,Utah,
Washington and Wyoming.
Approximately 99%of the Company'sdirect utility revenues in 1992 were
derived from its electric operations and approximately 6%of those revenues were
derived from its Idaho operations.
The Counties will issue the RefundingBonds.The Companywill enter into
an agreementwith the Counties pursuant to which it will receive the proceeds of
such issuance and agree to make paymentssufficient to pay principal of,interest on,
and premium (if any)on the Refunding Bonds,and to cover certain additional
expenses.The aggregateprincipal amount of the Refunding Bonds will not exceed
$225,000,000.In order to achieve the lowest cost of money,the Companyalso expects
to enter into one or more agreements with unrelated third parties,such as
ORDER NO.25443 -2 -
commercial banks or insurance companies,to provide further assurance to the
purchasers of the Refunding Bonds that the principal of,the interest on,and the
premium (if any)on the Refunding Bonds will be paid on a timely basis.These
arrangements may involve the issuance of the Company's First Mortgage and
Collateral Trust Bonds as collateral for the Refunding Bonds in an amount not
greater than the aggregateprincipal amount of the Refunding Bonds.
The borrowingswill be made in connection with the refunding of the Prior
Bonds,which were issued by the Counties to finance or refinance air and water
pollution control,solid waste disposal and sewage facilities (Facilities)at the Jim
Bridger,Carbon,Dave Johnston,Huntington,Hunter,Naughton and Craig plants
(Plants).The Facilities consist principally of systemsto remove and finally dispose
of particulates and sulfur dioxide from flue gases and certain solid and sewage
wastes.
To accomplishthis refinancing,the Companywill apply the gross proceeds
from the appropriate issuance of Refunding Bonds to the redemption and cancellation
of the aggregateprincipal amount of the Prior Bonds.Because some of the Prior
Bonds have a redemption premium,this premium (as well as the costs of issuance)
will be funded from sources other than the proceeds of the Refunding Bonds.
The Refunding Bonds will be issued pursuant to an Indenture of Trust
between the County and a trustee.Pursuant to an agreementbetween the County
and the Company,the proceeds from the sale of the Refunding Bonds,other than
refundable accrued interest,will be loaned to the Companyto refund the Prior Bonds,
and thereby refinance the Facilities.Under the agreement,the Company will be
obligated to pay absolutelyand unconditionally,to the extent sufficient funds are not
already in the possession of the trustee,the principal of,the interest on,and the
premium (if any)on the Refunding Bonds,as well as certain fees and expenses of the
County.Under no circumstances will the Refunding Bonds and their related costs
become an obligation of the County.
To achieve the lowest cost of money,the Company may enter into
reimbursement agreements,guarantees,pledges,or other security agreementsor
arrangements,guarantees,pledges,or other security agreementsor arrangementsto
ORDER NO.25443 -3 -
assure timely payment of amounts due in respect of the Refunding Bonds.For
example,a letter of credit may be added in order to support the Refunding Bonds.
In connection with a letter of credit,the Companywould enter into a reimbursement
agreementunder which a bank would issue a letter of credit to support paymentsin
respectof the RefundingBonds.Under the reimbursement agreement,the Company
would be required to reimburse the bank for any drawings under its letter of credit.
Amounts advanced by a bank under a letter of credit are expectedto bear interest
based upon various short-term rates.The Companyexpects that any letter of credit
bank will have a long-term credit rating not less than AA and a short-term credit
rating of A-1/P-1.In the event a letter of credit is obtained,it is expectedto have an
initial term of three years unless extended by mutual consent of the bank and the
Companyor replacedby the Companywith another letter of credit or an alternative
credit enhancement arrangement.
The fees associated with the credit enhancement arrangement are not
expectedto exceed 0.75%per annum.The Companybelieves,and its experiencein
previoustax-exemptfinancing confirms,that the interest savingsfrom enhancingthe
credit support for the Refunding Bonds will exceed the cost of the letter of credit or
alternative credit arrangements;that is,the effective cost of the RefundingBonds will
be lowered by the credit enhancement arrangements.
Over the life of the Refunding Bonds,it may be necessary or desirable to
replaceone or more letters of credit or alternative credit enhancement arrangements
from time to time as,for example,the credit ratings of the various banks (and thus
the Company'sinterest costs)fluctuate or market rates for letters of credit change.
The Companytherefore requests authority to substitute,as necessary or desirable
from time to time,letters of credit or other credit enhancement arrangements for
letters of credit or other credit enhancement arrangementsthen in effect with respect
to the Refunding Bonds.
The Refunding Bonds will be issued with floating or fixed interest rates in
several series with an aggregateprincipal amount not to exceed $225,000,000.
While floating rate Refunding Bonds have a nominal long-term maturity,
the obligation will have a "put"feature which enables the holder to tender the bonds
ORDER NO.25443 -4 -
at par within a short notice period.The floating rate Refunding Bonds will be
marketed with one or more put frequencies,including,but not limited to,daily,
weekly and monthly puts.Because of the put feature,investors are indifferent to the
final maturity of the instrument;as a result,the floating rate Refunding Bonds may
be structured with the longest maturity justified by the underlying assets being
financed,while obtaining rates reflective of short maturities.
In view of the put feature,the Companywill enter into an agreementwith
a remarketing agent who will agree in advance to seek new purchasers for the
floating rate Refunding Bonds on a best-efforts basis if and when the bonds are put.
To satisfy the investment criteria of potential purchasers,the Companyexpects to
arrange for a letter of credit or insurance contract as a source of credit support and
liquidity.For example,a letter of credit will provide amounts required to purchase
tendered floating rate RefundingBonds which have not been successfullyremarketed
immediately,as well as amounts required for payment of scheduled interest and
principal at maturity or through acceleration.The floating rate RefundingBonds not
immediately remarketed may thereafter be sold to other investors.
Floating rate Refunding Bonds may include the selection of one of several
tax-exemptmarket rate pricing modes,including pricing modes as short as daily and
as long as annually.The Refunding Bonds may also include an option to convert to
a fixed rate mode.The pricing mode selection will depend upon a number of factors,
including expectationsas to which mode offers the lowest relative rates at the time
of issuance.During the time the floating rate Refunding Bonds carry a floating rate,
the bonds would be prepayableat par plus accrued interest at the end of any interest
rate period.
Because of historically low interest rates,the Companymay choose to issue
the Refunding Bonds with fixed interest rates.It is expectedthat interest payments
would be made on a semi-annual basis.The fixed rate RefundingBonds may include
call provisionsat fixed prices at future dates.The Companymay choose to purchase
credit enhancement from insurance companies to achieve lower borrowing costs
because the bonds would carry a AAA/Aaa rating.The insurance companies may
require the Companyto collateralize the Refunding Bonds with the Company's First
ORDER NO.25443 -5 -
Mortgage and Collateral Trust Bonds.However,if the anticipated interest savings
are not sufficient or the terms relating to the bond insurance are considered to be
unduly restrictive,the Company may choose not to obtain insurance and may
collateralize the Refunding Bonds with the Company'sFirst Mortgage and Collateral
Trust Bonds in an aggregateprincipal amount not exceedingthe principal amount
of the Refunding Bonds,thereby providing the Refunding Bonds with a credit rating
equal to its senior debt (A/A3).The Commission previously authorized the Company
to incur the lien of the PacifiCorpMortgagein Case No.U-1046-15,Order No.22157.
As in its previousissuances,the Companywould expectto issue first mortgagebonds
under the Pacific Power Mortgage and Utah Power Mortgage as the basis for the
issuance of its First Mortgage and Collateral Trust Bonds.Bonds issued under the
Pacific Power and Utah Power Mortgages would not count toward the maximum
amount of bond authority granted in this docket.
The underwriting fee is not expected to exceed 1.25%of the principal
amount of the Refunding Bonds.If floating rate Refunding Bonds are issued,the
annual remarketing fee is not expectedto exceed 0.125%of the principal amount of
the Refunding Bonds.The Counties may receive an issuance fee paid up front and/or
annually at an effective rate not expected to exceed 0.125%per annum on the
principal amount of the Refunding Bonds.The Companywill also pay the expenses
of the offering incurred by the Counties.
The results of the offering are expectedto be as follows:
ORDER NO.25443 -6 -
ESTIMATED RESULTS OF THE FINANCING (1)
Proceeds from Refunding Bonds $225,000,000
RedemptionPremium $767,575
Issuance Costs:
Underwriters Fees (1.25%)(2)2,812,500
Other Expenses 5,500,000
Total Costs to Issue Refunding Bonds $9,080.075
(1)As the financings are special purpose financings,the interest on
which is exempt from taxation to the holder,the proceeds may be
used only to refinance the principal amount of the Prior Bonds issued
to finance the Facilities.All issuance costs and redemption
premiums associated with the Refunding Bonds must be derived
from other capital sources of the Company.
(2)Based upon a fixed rate offering.
OTHER EXPENSES
Regulatory Agency Fees $1,500
Issuer Fees (1)2,500,000
Trustee Fees 50,000
CompanyCounsel Fees 150,000
Underwriters'Counsel Fees 200,000
Bond Counsel Fees 200,000
Accountants'Fees 50,000
Credit Enhancement Fees (2)2,000,000
Rating Agency Fees 100,000
Printing Fees 100,000
Miscellaneous $148,500
Total Other Expenses $5.500,000
(1)The Companymay be required to pay an Issuer's Fee to the Counties
to compensate the Counties for providing the Company the
opportunity to issue the Refunding Bonds.The Company's past
experience indicates that Emery County and Lincoln County will
charge such a fee.Sweetwater County and Converse County
generally have not charged a fee.At this time,the Companyis not
familiar with Moffat County's policy regarding such fees.For
purposes of this estimated expense,it is assumed that all Counties
will require the Company to pay an Issuer's Fee.Issuer's Fees are
ORDER NO.25443 -7 -
not expectedto exceed an effective cost of 0.125%per annum of the
principal amount over the life of the Refunding Bonds.
(2)Representsinitial commitment fee for bond insurance.If a letter of
credit is used,credit enhancement cost is not expectedto exceed 0.75
percent per annum.
The net proceeds of the borrowings will be used to refund Prior Bonds
currently outstanding that were issued previously to finance,or refinance,Facilities
at the Plants.
The proposed borrowings are part of an overall plan to finance the cost of
the Company'sfacilities taking into consideration prudent capital ratios,earnings
coverage tests,and market uncertainties as to the relative merits of the various types
of securities the Company could sell.
The Companyhas paid the fees required by Idaho Code §61-129.
CONCLUSIONS OF LAW
The Company is an electrical corporation within the definition of Idaho
Code §61-119 and is a public utility within the definition of Idaho Code §61-129.
The Idaho Public Utilities Commission has jurisdiction over this matter
pursuant to the provisions of Idaho Code §61-901 et seq.,and the Application
reasonablyconforms to Rule 141 of the Commission's Rules of Procedure.
The method of issuance is proper.
The generalpurposes to which the proceeds will be put are lawful purposes
under the Public Utility Law of the State of Idaho and are compatiblewith the public
interest.However,this general approval of the general purposes to which the
proceeds will be put is neither a finding of fact nor a conclusion of law that any
particular construction program of the Company which may be benefitted by the
approval of this Application has been considered or approvedby this Order,and this
Order shall not be construed to that effect.
This issuance of an Order authorizing the proposed financings do not
constitute agency determination/approval of the type of financing or the related costs
ORDER NO.25443 -8 -
for ratemaking purposes which determination the Commission expressly reserves
until the appropriate proceeding.
The Application should be approved.
ORDER
IT IS THEREFORE ORDERED that the Application of PacifiCorp for
authority to (1)borrow the proceeds of not more than $225,000,000 of Pollution
Control Revenue Refunding Bonds (Refunding Bonds)to be issued by various
Counties (Counties),(2)enter into such agreements or arrangements with the
Counties and with other entities from time to time as may be reasonablynecessary
to effect the borrowingsand pursuant to which PacifiCorp would assume obligations
as guarantor,surety,or otherwise with respectto the payment of the principal of,the
interest on,and the premium (if any)on the Refunding Bonds and to enter into such
agreementsor arrangementsas may be necessary to provide credit enhancement for
said bonds,including the issuance of its First Mortgage and Collateral Trust Bonds
as collateral for the Refunding bonds,all in connection with the refunding of
outstanding Pollution Control Revenue Bonds that were issued to finance,or
refinance,certain air and water pollution control,solid waste disposal and sewage
facilities at the Jim Bridger,Carbon,Dave Johnston,Huntington,Hunter,Naughton
and Craig Generating Plants,and (3)replace or modify from time to time the credit
enhancement arrangements supporting the Refunding Bonds,is granted.
IT IS FURTHER ORDERED that the Application of PacifiCorp for
authority to issue an additional $225,000,000 of its First Mortgage and Collateral
Trust Bonds (and related first mortgage bonds issued under the Pacific Power &
Light Company and Utah Power &Light Companymortgages),which bonds may be
used as collateral support for the Refunding Bonds as described in the Application,
is approved.Such first mortgagebonds shall not count toward the bond authority
granted herein.
IT IS FURTHER ORDERED that the remaining unused authority under
Case No.PAC-S-92-4 is hereby rescinded.
ORDER NO.25443 -9 -
IT IS FURTHER ORDERED that this authorization is without prejudice
to the regulatory authority of this Commission with respect to rates,service,
accounts,valuation,estimates or determination of costs,or any other matter which
may come before this Commission pursuant to its jurisdiction and authority as
provided by law.
IT IS FURTHER ORDERED that nothing in this Order and no provision
of Chapter 9,Title 61,Idaho Code,or any act or deed done or performedin connection
with this Order shall be construed to obligatethe State of Idaho to pay or guarantee
under the provisions of Chapter 9,Title 61,Idaho Code.
IT IS FURTHER ORDERED that PacifiCorpshall file the following as they
become available:
a)The "Report of Securities Issued"required by 18 C.F.R.34.10;
b)Verified copies of any agreemententered into in connection with the
borrowings pursuant to this Order;
c)Verified copies of any credit support arrangement entered into
pursuant to this Order;
d)Averified statement setting forth in reasonable detail the disposition
of the proceeds of the borrowings made pursuant to this Order.
IT IS FURTHER ORDERED that PacifiCorpshall contact the Commission
Staff as soon as possibleprior to the issuance of debt for the purpose of reporting the
estimated interest rates and other terms of the issuance.PacifiCorpshall also,after
issuance,provide to the Staff workpapers demonstrating the cost effectiveness of the
type of security selected for issuance.These two requirements are for information
purposes and are not utilized to determine the legality of the issue.
IT IS FURTHER ORDERED that issuance of this Order does not constitute
acceptance of PacifiCorp'sexhibits or other material accompanyingthe Application
for any purpose other than the issuance of this Order.
THIS IS A FINAL ORDER.Any person interested in this Order (or in
issues finally decided by this Order)may petition for reconsideration within twenty-
one (21)days of the service date of this Order with regard to any matter decided in
this Order.Within seven (7)days after any person has petitioned for reconsideration,
ORDER NO.25443 -10 -
any other person may cross-petitionfor reconsideration in response to issues raised
in the petitions for reconsideration.See Idaho Code §61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho
this AR-6 day of March 1994.
MARSHA H.SMITH,PRESIDENT
DË J.LÉR,COMMISSIONER
RALPH NELSON,COMMISSIONER
ATTEST:
Myrna Walters
Commission Secretary
JR\O-PAC-S-94-1.WS
ORDER NO.25443 -11 -