Commission taking comments on PacifiCorp acquisition
The Idaho Public Utilities Commission is seeking public comment through Jan. 19 on a proposed settlement that would approve the acquisition of PacifiCorp by Iowa-based MidAmerican Energy Holdings Co. PacifiCorp does business in southeastern Idaho as Utah Power and would still be known as PacifiCorp after the transaction. PacifiCorp, currently a subsidiary of ScottishPower Plc, provides retail electric service to 1.6 million customers in six states, including about 60,000 customers in southeastern Idaho.
Commission staff and most other parties to the case have signed the settlement and submitted it to the commission for consideration. Because most parties are in agreement, the commission has decided to take written comments from the public rather than conduct public hearings, previously scheduled for Jan. 19 in Grace and Shelley. However, depending on the amount and type of comments the commission receives, public hearings could be rescheduled. The Jan. 17 technical hearing in Boise is still scheduled.
Parties signing the proposed settlement include commission staff; PacifiCorp; MidAmerican; J.R. Simplot Co.; Monsanto Co.; the Idaho Irrigation Pumpers Association, which represents irrigators; and the Community Action Partnership of Idaho, which represents low-income customers. The International Brotherhood of Electrical Workers and Idaho Power Co. did not sign the settlement but do not oppose it.
MidAmerican Energy Holdings Company, based in Des Moines, Iowa, is seeking authority from Idaho and five other states to acquire PacifiCorp in a sale of common stock valued at about $9.4 billion.
If the transaction is approved, PacifiCorp would become an indirect, wholly owned subsidiary of MidAmerican, a privately held Iowa corporation whose principal owner is Berkshire Hathaway, Inc., headed by billionaire investor Warren Buffett. The Federal Energy Regulatory Commission (FERC) approved the transaction on Dec. 20.
MidAmerican is engaged primarily in the production and delivery of energy. It reports global assets of about $20 billion with 2004 revenues totaling $6.6 billion. The stock purchase agreement provides for the sale of all PacifiCorp common stock to MidAmerican. The sale of the common stock is valued at about $9.4 billion, consisting of about $5.1 billion in cash plus about $4.3 billion in net debt and preferred stock, which will remain outstanding at PacifiCorp.
As the result of settlement discussions, the parties agreed upon 76 commitments, of which 50 are general commitments and 26 are Idaho-specific. The parties maintain the commitments are in the public interest and satisfy the requirements outlined in Idaho Statute for utility mergers and acquisitions.
The commission’s job, as defined in state statute, is to ensure that 1) the transaction is in the public interest, 2) rates will not increase as a direct result of the transaction and 3) MidAmerican has the intent and financial ability to operate and maintain PacifiCorp’s operation in Idaho.
Rates will not increase as a result of the acquisition. However, MidAmerican indicates that it will file a rate case later this spring, as had been planned by PacifiCorp.
The Idaho settlement also includes a “most favored nation” clause that permits the Idaho commission to adopt any commitment or condition that is adopted by any of the five other states. Parties in California, Utah and Oregon have also filed settlement agreements.
Commission staff, which operates separately from the commissioners who decide the case, recommends approval, stating the settlement is in the public interest. Commission staff cites MidAmerican’s commitment to invest capital toward generation and transmission upgrades, to continue the same customer service guarantees that now exist under PacifiCorp and to allow commission staff access to books and records of MidAmerican and its affiliates. Further, the staff cites the “ring-fencing provisions” of the agreement that isolate PacifiCorp’s credit risks from the credit risk of the parent company or its affiliates. Staff notes that cost of debt under MidAmerican, due to its association with Berkshire Hathaway, is significantly reduced, saving customers about $6.3 million over the next five years. Historically, MidAmerican’s utility subsidiaries have been able to issue long-term debt at levels below their peers with similar credit ratings.
All 76 conditions are available on the commission’s Web site at www.puc.idaho.gov. Under “Hot” items in the upper right-hand corner, click on “PacifiCorp Stipulation.” Those without access to the Internet can receive a mailed or e-mailed copy of the stipulation by contacting the commission at 472 W. Washington St., Boise, 83720, telephone 208-334-0300.
A summary of some of the major commitments include the following:
n Continuation of the same customer service guarantees and performance standards as existed under PacifiCorp until at least March 31, 2008. These include responding to power outages, customer calls and complaints within set time frames. They also include staying under stated goals for average interruption frequency.
n MidAmerican commits to a $78 million upgrade to its “Path C” transmission line, from southeast Idaho to northern Utah by 2010. That will enhance reliability, facilitate delivery of power from wind projects in Idaho and provide PacifiCorp with greater flexibility to consider other power generation options.
n MidAmerican commits to $196 million to increase the import capability from Mona (south-central Idaho) to the Wasatch Front in Utah. This would enhance the ability to import power from new resources delivered at or to Mona and to import electricity from southern California during emergency situations. It would also make it possible for PacifiCorp to accept more generation from renewable resources.
n MidAmerican will maintain adequate staffing and presence in each state. MidAmerican will continue to make a dedicated irrigation specialist available in Rexburg and Shelley. The effectiveness of this service will be reviewed at the end of the 2007 irrigation season to determine whether it will be continued. The Irrigation Hotline will continue to be available from 7 a.m. to 7 p.m.
n MidAmerican and PacifiCorp will honor current water rights agreements.
n MidAmerican will maintain PacifiCorp’s commitment to acquire 1,400 megawatts of new cost-effective renewable resources, including at least 100 MW of cost-effective wind resources within one year of the close of the transaction.
n MidAmerican will maintain PacifiCorp’s commitment to consider using advanced clean-coal technology when adding coal generation.
n PacifiCorp will increase its share of conservation measures for low-income weatherization projects from 50 percent of cost to 100 percent of cost when federal matching funds are no longer available, subject to the $150,000 annual funding limit.
n MidAmerican and PacifiCorp commit up to $20,000 annually for five years to match customer and employee contributions to the Lend-A-Hand program, which helps customers pay their electric bills.
n MidAmerican will provide shareholder funds of up to $66,000 to hire a consultant to study and then design a possible “arrearage management project” with goals of reducing service terminations, reducing referral of delinquent customers to third-party collection agencies, reducing collection litigation and increasing voluntary customer payment plans.
n PacifiCorp will maintain its own accounting system, separate from MidAmerican’s.
n MidAmerican and PacifiCorp will provide the commission access to all books of accounts as well as documents and records of their affiliated interests.
n The commission may audit MidAmerican accounting records and its subsidiaries that are the bases for charges to PacifiCorp.
n PacifiCorp and MidAmerican will not cross-subsidize between their regulated and non-regulated businesses.
n PacifiCorp will maintain separate debt and its own credit rating.
n MidAmerican and PacifiCorp will exclude all costs of the transaction from PacifiCorp utility accounts. Within 90 days of the transaction’s completion, MidAmerican will provide a preliminary accounting of these costs and final accounting within 30 days of the accounting close.
n MidAmerican and PacifiCorp will provide the commission unrestricted access to all written information provided by and to credit rating agencies that pertain to PacifiCorp.
n Neither PacifiCorp nor its subsidiaries will, without commission approval, make loans or transfer funds to MidAmerican or its affiliates or assume MidAmerican obligations or liabilities. MidAmerican will not pledge any of the assets of the business of PacifiCorp as backing for any securities with MidAmerican or its affiliates.
n MidAmerican will maintain at least the existing level of PacifiCorp’s community-related contributions.
n MidAmerican will honor PacifiCorp’s existing labor contracts and maintain PacifiCorp’s current pension funding policy.
n After the transaction’s close, MidAmerican and PacifiCorp will make no unilateral changes to employee benefit plans before May 23, 2007 that would result in the reduction of employee benefits.
n Corporate charges to PacifiCorp from MidAmerican will not exceed $9 million annually for five years after the close of the transaction. (In FY 2006, ScottishPower’s net cross-charges to PacifiCorp are projected to be $15 million.)
n Through Dec. 31, 2015, PacifiCorp will provide the commission notice when it intends to increase the amount of dividend payments to MidAmerican by 10 percent or more.
n MidAmerican and PacifiCorp will provide notice of and file for commission approval of the divestiture, spin-off or sale of any integral PacifiCorp function.
Those wishing to submit comments must do so by no later than Jan. 19. Comments are accepted via e-mail by accessing the commission’s homepage at www.puc.idaho.gov and clicking on "Comments & Questions." Fill in the case number (PAC-E-05-08) and enter your comments. Comments can also be mailed to P.O. Box 83720, Boise, ID 83720-0074 or faxed to (208) 334-3762.
A full text of the commission’s order, along with other documents related to this case, are available on the commission’s Web site. Click on “File Room” and then on “Electric Cases” and scroll down to the above case number.