IPUC approves PacifiCorp-MidAmerican acquisition
MidAmerican Energy Holdings Company's bid to acquire PacifiCorp, which does business in southeastern Idaho as Utah Power & Light, was approved by the Idaho Public Utilities Commission Monday.
Idaho is the third of six states that must approve the acquisition before it is final. PacifiCorp is currently a wholly-owned subsidiary of ScottishPower. If the acquisition is approved in all six states, PacifiCorp becomes an indirect, wholly-owned subsidiary of MidAmerican, retaining its name and headquarters in Portland. ScottishPower will sell all of PacifiCorp common stock, valued at $9.4 billion, to MidAmerican. That includes $5.1 billion in cash and about $4.3 billion in net debt and preferred stock.
The acquistion is in the public interest, commissioners said, because of Iowa-based MidAmerican's desire to invest at least $1 billion per year for the next five years in transmission and generation upgrades, its long-term commitment to the utility business, its commitment to maintain or improve upon PacifiCorp's customer service standards and its promise that rates will not increase as a result of the acquisition. PacifiCorp indicates that it does plan to follow through on its plan to file a rate case this spring, which would have been filed regardless of the acquisition. However, rates will not increase for PacifiCorp's 60,000 customers in southeastern Idaho as a direct result of the acquisition.
The commission said there was no opposition from the public or intervening parties during the course of the commission's seven-month analysis of the case. "This is our third merger-acquisition concerning Utah Power & Light and the least contentious," the commission said. ScottishPower merged with PacifiCorp in 1999.
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's principal owner is Berkshire Hathaway, Inc, headed by billionaire investor Warren Buffett.
As part of the acquisition, MidAmerican agrees to abide by 52 commitments that apply to all six states in PacifiCorp’s territory and another 36 commitments specific to Idaho. One of the Idaho commitments grants Idaho customers $640,000 in rate credits in each of 2006 and 2007. Another requires PacifiCorp to maintain its dedicated irrigation specialist in eastern Idaho. Another Idaho condition requires PacifiCorp to establish a process to address the technical, economic and planning issues associated with the development of integrated gasification combined cycle (IGCC) technology. IGCC plants convert coal into a gas and then burn it, significantly reducing greenhouse gas emissions.
Another commitment requires that none of the acquisition costs be included in PacifiCorp rates without commission approval.
The agreement also includes, "ring-fencing provisions" which will isolate the credit risks of PacifiCorp from the credit risks of MidAmerican or any of its subsidiaries. PacifiCorp will maintain its own accounting system, maintain separate debt and its own credit rating. MidAmerican and PacifiCorp will provide the commission access to all books of accounts as well as documents and records of MidAmerican's affiliates. Neither PacifiCorp, nor its subsidiaries will, without commission approval, make loans or transfer funds to MidAmerican or its affiliates or assume MidAmerican's obligations or liabilities.
The commission also liked the fact that MidAmerican intends to own PacifiCorp for the long term, leading to stability in ownership and investment in infrastructure. MidAmerican is uniquely suited to make sizeable investment because it is privately held and, therefore, not subject to shareholder expectations of regular, quarterly dividends and a fast return on investments. The PacifiCorp cost of debt under MidAmerican, due to its association with Berkshire Hathaway, should be 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.
MidAmerican and PacifiCorp commit to contribute $40,000 annually for low-income bill payment assistance to Idaho customers for a five-year period beginning July 1 this year. MidAmerican will also 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.
The commission’s order approves a settlement agreement reached by parties in the case including commission staff; PacifiCorp; MidAmerican; J.R. Simplot Co.; Monsanto Co.; the Idaho Irrigation Pumpers Association 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.
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 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 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 $40,000 annually for five years to match customer and employee contributions to the Lend-A-Hand program, which helps low-income customers pay their electric bills.
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 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 will maintain at least the existing level of PacifiCorp’s community-related contributions.
n MidAmerican will honor PacifiCorp’s existing labor contracts and maintain for two years PacifiCorp’s current pension funding policy. 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.
A full text of the commission’s order, along with other documents related to this case, are available on the commission’s Web site at www.puc.idaho.gov. Click on “File Room” and then on “Electric Cases” and scroll down to Case No. PAC-E-05-08. Interested parties may petition the commission for reconsideration by no later than March 6. Petitions for reconsideration must set forth specifically why the petitioner contends that the order is unreasonable, unlawful or erroneous. Petitions should include a statement of the nature and quantity of evidence the petitioner will offer if reconsideration is granted.
Petitions can be delivered to the commission at 472 W. Washington St. in Boise, mailed to P.O. Box 83720, Boise, ID, 83720-0074, or faxed to 208-334-3762.