9. Assignment of Proceeding
John Bohn is the Assigned Commissioner and Timothy Kenney is the assigned ALJ for this proceeding.
1. A.05-07-010 asks the Commission to use its authority under § 853(b) to exempt from § 854(a) the proposed acquisition of PacifiCorp by MEHC. If the Commission declines to exempt the transaction from § 854(a), the Applicants ask the Commission to approve the transaction pursuant to § 854(a).
2. Despite the Applicants' request described in Finding of Fact (FOF) 1, the Applicants contend that § 854(a) does not apply to the proposed transaction because PacifiCorp is incorporated in Oregon, not California.
3. After the proposed transaction was announced, S&P placed PacifiCorp's credit rating on credit watch with negative implications citing the structure of the proposed transaction as one of several factors that could affect PacifiCorp's future credit rating. If S&P downgrades PacifiCorp by one notch, the impact in today's market would be approximately 5 basis points. If all three major credit rating agencies downgrade PacifiCorp by one notch, the impact in today's market would be 10 to 15 basis points. The adverse effect of a downgrade could be much higher if market conditions change.
4. Downgrading PacifiCorp's credit rating could increase its cost of capital.
5. The conditions adopted by today's Decision ensure that the adverse effect the proposed transaction will have on PacifiCorp's credit rating, if any, will not affect PacifiCorp's ratepayers or the public at large.
6. The proposed transaction will maintain or improve the quality of PacifiCorp's services and management.
7. The transaction will be fair and reasonable to PacifiCorp's employees.
8. The transaction will not cause economic harm to California or the local communities served by PacifiCorp.
9. There is no evidence that the transaction will adversely affect competition.
10. Authorizing MEHC to acquire PacifiCorp will not affect PacifiCorp's ratepayers adversely for the reasons set forth in the body of this Decision.
11. The adopted conditions provide tangible benefits to PacifiCorp's ratepayers and the communities served by PacifiCorp.
12. Public utilities provide enormous benefits to California.
13. It is in the public interest to foster a business climate in California that is hospitable to investment in public utilities.
14. Commitment 23 provides that PacifiCorp's customers will be held harmless if the transaction results in a higher revenue requirement than if the transaction had not occurred. Commitment C-14 provides a guaranteed reduction in PacifiCorp's A&G expenses of $6 million annually through December 31, 2010. The Applicants state that they are willing to offer Commitment 23 or C-14, but not both. According to the Applicants, it is unfair for them to bear the costs and risks for both of these Commitments. They also assert that the general protection from rate increases offered by Commitment 23 is redundant with the protection from rate increases associated with specific types of costs provided by Commitments 16, 22, C-11, C-12, C-13, and C-15.
15. The Applicants seek to reserve the right to request rate recovery of the acquisition premium under certain circumstances.
16. If a regulated utility purchasing dedicated property were allowed to pass on to its customers a price higher than original cost, the parties to the transaction would be in a position to frustrate the application of the original cost principle by arranging a transfer of ownership at a premium. The seller would receive, at the expense of future ratepayers, more than the seller's original cost, and there would be little disincentive for the purchaser to pay such a premium because the purchaser would not bear the burden.
17. The Settlement Agreement asks the Commission to approve A.05-07-010, subject to the conditions set forth in Appendix A of the Settlement, as supplemented on January 5, 2006, and as corrected on January 10, 2006.
18. The California Commitments in the Settlement Agreement address significant, California-specific issues raised by several parties.
19. The Applicants promise to apply to California on a most-favored-nation basis the conditions adopted by other states that provide additional benefits or protections. The most-favored-nation conditions are included in the adopted Commitments in Appendix D of today's Decision.
20. After today's Decision is issued, other states may adopt additional or revised most-favored-nation conditions.
21. It can be seen with certainty that today's Decision will not have a significant effect on the environment because today's Decision does not authorize any new construction, changes to the operations of PacifiCorp or other entities, or changes in the use of existing assets and facilities.
1. The purpose of § 854(a) is to enable the Commission to review a proposed transaction, before it takes place, in order to take such actions as the public interest may require. The need for Commission review is especially acute where, as here, the utility is a monopoly provider of electricity and is subject to traditional cost-of-service regulation. The Commission's obligation under § 854(a) is not diminished by the fact that PacifiCorp's nearly 44,000 customers in California represent only a small part of PacifiCorp's operations.
2. For the reasons set forth in the body of today's Decision, the proposed acquisition of PacifiCorp by MEHC should not be exempted from § 854(a) pursuant to § 853(b).
3. For the reasons stated in the body of today's Decision, § 854(a) applies to the acquisition of PacifiCorp by MEHC, even though PacifiCorp is incorporated in Oregon.
4. The Commission has broad authority under § 854(a) to (i) approve or deny transfers of control of public utilities that operate in California, and (ii) impose such conditions as the Commission deems necessary or appropriate.
5. The criteria set forth in the body of today's Decision should be used to decide if MEHC should be authorized to acquire PacifiCorp pursuant to § 854(a).
6. The proposed transaction does not affect the Commission's jurisdiction or capacity to regulate and audit PacifiCorp. After the transaction is complete, the Commission will continue to exercise the same degree of regulatory oversight of PacifiCorp as it does today. The Public Utilities Code and all Commission decisions, rules, and orders will continue to apply to PacifiCorp.
7. The proposed transaction does not raise any antitrust or anticompetitive issues that warrant the Commission's intervention.
8. The acquisition of PacifiCorp by MEHC should be approved pursuant to § 854(a), subject to (i) the Commitments in Appendix D of today's Decision, and (ii) the most-favored-nation conditions adopted in other states.
9. The adopted conditions identified in the previous Conclusion of Law should supersede the conditions adopted in D.02-04-061, D.01-12-013, D.99-10-059, and D.99-06-049. The adopted conditions should not supersede other Commission decisions. To the extent there is a conflict between today's Decision and another Commission decision (other than the four previously identified decisions), the other decision should control.
10. For the reasons set forth in the body of this Decision, Commitment 1 is unnecessary and should be eliminated.
11. Commitment C-14 should be adopted because it provides concrete and quantifiable benefits for PacifiCorp's ratepayers.
12. Although today's Decision does not adopt Commitment 23, the rejection of this Commitment does not authorize the recovery of a higher revenue requirement than if the transaction had not occurred. If the transaction does result in a higher revenue requirement that is outside the scope of Commitments 16, 22, C-11, C-12, C-13, and C-15, the Applicants will have the burden of demonstrating why it is reasonable for ratepayers to bear the cost of the higher revenue requirement.
13. The acquisition premium should not be included in rates under any circumstances. Commitment 17 should not be adopted to the extent it allows PacifiCorp to request rate recovery of the acquisition premium under some circumstances.
14. Because today's Decision does not authorize the recovery of the acquisition premium, any benefits from the premium should accrue to MEHC.
15. Any benefits of the transaction that occur solely at the holding company level, such as tax benefits to MEHC, should not be imputed for ratemaking purposes.
16. PacifiCorp should not recover in rates any increase in its cost of capital caused by the proposed transaction. Any higher costs should be the responsibility of the Applicants, not PacifiCorp's ratepayers.
17. Commitment 22 provides for additional ratemaking adjustments to PacifiCorp's cost of capital if the actual cost of a credit downgrade exceeds the parameters set forth in Commitments C-15a and 15b.
18. Commitment 34 does not constrain the Commission's ability to enforce today's Decision using whatever procedures the Commission deems appropriate. There is no need for the Commission or its staff to notify the Applicants before deviating from Commitment 34.
19. Commitments 35, 36, and 45 require the Applicants to spend more than $1.3 billion for utility infrastructure investments. Other Commitments, including 36, 37, 40, 41, 42, and 43, require the Applicants to take certain actions regarding the operation and acquisition of transmission and generation resources. Today's Decision is limited to the review of the proposed acquisition of PacifiCorp by MEHC. Today's Decision does not authorize or require any of the expenditures or actions set forth in the previously identified Commitments. The matters set forth in these Commitments should be addressed, as appropriate, in other proceedings. No costs associated with these Commitments should be included in rates unless and until authorized by the Commission.
20. The Applicants are obligated to fulfill all the Commitments adopted by today's Decision and the Commission may enforce these Commitments.
21. None of the Commitments bind the Commission in any respect, or mandate any particular ratemaking result, in future rate cases.
22. DRA's recommendation to delay PacifiCorp's GRC by one year should not be adopted for the reasons set forth in the body of today's Decision.
23. If other states adopt additional or revised most-favored-nation conditions that are not reflected in today's Decision, the Applicants should file a petition to modify today's Decision to incorporate the additional or revised conditions.
24. The Settlement Agreement is reasonable, consistent with the law, and in the public interest to the extent it is consistent with all facets of the decision herein to conditionally authorize MEHC's acquisition of PacifiCorp pursuant to § 854(a).
25. The Settlement Agreement should be adopted to the extent it is consistent with all facets of the decision herein to conditionally authorize MEHC to acquire PacifiCorp pursuant to § 854(a).
26. The California Commitments in the Settlement Agreement should be adopted because they address substantial, California-specific issues that were raised by several parties.
27. The adopted California Commitments do not predetermine: (i) whether PacifiCorp will provide electric service to unserved Indian communities; (ii) any matters regarding Klamath River hydroelectric facilities; (iii) the type, location, or reasonableness of renewable resources that PacifiCorp may acquire; (iv) the type, location, costs, and benefits associated with utility infrastructure investments; and (v) the recoverability of any costs. PacifiCorp will have to seek and obtain the Commission's approval before including in rates any costs associated with the California Commitments.
28. Consistent with Commission precedent, none of the gain or loss from the sale of PacifiCorp should be allocated to PacifiCorp's ratepayers.
29. Because it can be seen with certainty that today's Decision will not have a significant effect on the environment, the acquisition of PacifiCorp by MEHC as authorized by today's Decision qualifies for an exemption from CEQA pursuant to Section 15061(b)(3)(1) of the CEQA guidelines, and there is no need for further environmental review.
30. The Applicants should notify the Director of the Commission's Energy Division of any changes to the ring-fencing protections within 30 days. Such notice should include (i) the consent provided by PPW's independent director, and (ii) the rating agencies' confirmation that there will be no credit downgrade from the amended ring-fencing protections.
31. The following Order should be effective immediately so that the acquisition of PacifiCorp by MEHC can be consummated expeditiously.
IT IS ORDERED that:
1. MidAmerican Energy Holdings Company (MEHC) is authorized to acquire PacifiCorp (referred to jointly hereafter as the Applicants) pursuant to Pub. Util. Code § 854(a), subject to the following conditions: (i) the Commitments identified in Appendix D of this Decision, and (ii) the conditions adopted in other states that apply to California on a most-favored-nation basis.
2. The adopted conditions identified in Ordering Paragraph 1 supersede the conditions adopted in Decision (D.) 02-04-061, D.01-12-013, D.99-10-059, and D.99-06-049. The adopted conditions do not supersede other Commission decisions. If there is a conflict between the conditions in today's Decision and another Commission decision (other than the four previously identified decisions), the other decision shall control.
3. The adopted Commitments in Appendix D are subject to the clarifications, interpretations, and constraints set forth in the body of this Decision and the preceding Conclusions of Law.
4. If other states adopt most-favored-nation conditions that are not reflected in today's Decision, the Applicants shall file a petition to modify today's Decision to incorporate the additional conditions.
5. None of the gain or loss from the sale of PacifiCorp shall accrue to PacifiCorp's ratepayers.
6. The Applicants shall notify the Director of the Commission's Energy Division in writing of the transfer of control of PacifiCorp as authorized herein. The Applicants shall provide notice within 30 days of the date of the transfer. A true copy of the instruments of transfer shall be attached to the notification.
7. The authority to transfer control of PacifiCorp granted by this Order shall expire if not exercised within one year from the effective date of this Order.
8. The Settlement Agreement in Appendix C is adopted to the extent it is consistent with today's Decision.
9. The Applicants shall notify the Director of the Commission's Energy Division of any changes to the ring-fencing protections within 30 days. Such notice shall contain the information specified in the body of this Decision.
10. Any benefits that MidAmerican Energy Holdings Company (MEHC) receives from the acquisition premium shall accrue exclusively to MEHC. Any benefits of the transaction that occur solely at the holding company level, such as tax benefits to MEHC, shall not be imputed for ratemaking purposes.
11. Application 05-07-010 is granted and denied to the extent set forth in the previous Ordering Paragraphs.
12. Application 05-07-010 is closed.
This Order is effective today.
Dated February 16, 2006, at San Francisco, California.
MICHAEL R. PEEVEY
President
GEOFFREY F. BROWN
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
Commissioners
Appendix A: PacifiCorp & MEC Service Territories
Appendix B: Post Transaction Corporate Structure
Appendix C: Settlement Agreement
Note: The Signed Copy of the Settlement Agreement is in the Formal File for this proceeding. Appendix A of today's Decision is an electronic copy of the Settlement Agreement that does not show the parties' signatures.
Note: The attached Settlement Agreement does not reflect the amendments and corrections to the Agreement filed by the Applicants on January 5 and 10, 2006. These amendments are reflected, as appropriate, in Appendix D of today's Decision.
Application of PacifiCorp (U 901-E) and MidAmerican Energy Holdings Company for Exemption Under Section 853(b) from the Approval Requirements of Section 854(a) of the Public Utilities Code With Respect to the Acquisition of PacifiCorp by MidAmerican. |
A. 05-07-010 | |
STIPULATION AND SETTLEMENT AGREEMENT
The purpose of this Stipulation and Settlement Agreement ("Settlement Agreement" or "Settlement") is to resolve contested issues in the above-captioned proceeding before the California Public Utilities Commission ("Commission") in A.05-07-010, the Application of PacifiCorp and Mid-American Energy Holdings Company ("MEHC") (collectively, "Applicants") for an exemption from the provisions of Public Utilities Code Section 854(a) by means of an exemption to be granted by the Commission under Section 853(b) of the Code. The "Settlement Parties" include Applicants and all entities, organizations and Tribes which are signatories to this Settlement Agreement. A schedule has been set by means of an Assigned Commissioner's Ruling and Scoping Memo, and this Settlement is intended to reduce or eliminate the need for the hearings in this proceeding.
This Settlement Agreement is entered into by the Settlement Parties, as identified by their attached signatures. Settlement Parties agree to actively support approval of this Settlement Agreement in A.05-07-010 as specified in Section 3.1 below. Settlement Parties also agree not to support any changes to this Settlement Agreement that would be effective during the term of this Settlement in any other California regulatory, legislative or judicial forum, other than as allowed under this Settlement Agreement. A successor company to a Settlement Party will be bound by this Agreement and Commission orders approving this Settlement. Except as set forth herein, this provision does not restrict the participation by any of the Settlement Parties in any rate case or other proceeding in which modifications, clarifications, or enforcements of the Commitments in Appendix A are at issue during any time subsequent to the adoption of a final decision by the Commission in A. 05-07-010.
1.2.1 This Settlement is admissible in the Oregon Docket No. UM1209 as the Settlement Party's joint representation that the Commitments (as defined in Section 3.2) will protect the public interest of California in this transaction under Public Utilities Code section 853(b). Through this Settlement, the Settlement Parties make no representation whether the Commitments satisfy the requirements of Oregon law.
1.2.2 If any Settlement Party contends that another Party has engaged in conduct in violation of its duty to support this Settlement arising under Sections 1.2, 1.2.1, or 3.1, the complaining Party must provide written notice to the Party allegedly in violation within 5 days of the receipt of the information or filing which raises the issue of a violation. Notice to counsel of record for a Party is sufficient notice for purposes of this Section. In the event of the issuance of such notice, both Parties must coordinate a means of meeting or otherwise communicating with each other and must confer to resolve the dispute within 5 days of the issuance of the notice in an attempt to resolve the dispute regarding the violation. A Settlement Party in violation of its obligations under the above-referenced Sections to support this Settlement is to be given a reasonable period of time to cure any violation following the meeting or conference. Such period and the means of curing the violation are to be determined by the Parties based upon the circumstances, but in no event shall a Party have less than 7 days to effect a cure. This is the exclusive remedy for such violation of the duty to support arising under Sections 1.2 and its subparts and 3.1, and no contract remedies or damages shall be available.
This Settlement Agreement is a negotiated compromise of contested issues in this proceeding and is supported by the Settlement Parties with stakeholder interests in the Klamath River Basin where PacifiCorp operates three dams and hydroelectric generation facilities. The Settlement Parties, by signing this Settlement Agreement and taking the other actions specified in Section 3.1 and its subparts, will support Commission approval and subsequent implementation of this Settlement. Furthermore, Applicants will not oppose recovery of reasonable intervenor compensation requests made by other Settlement Parties to the extent the requests comply with the statutory and Commission requirements for such compensation.
1.3.1. Except as provided in Section 1.2.1, nothing contained herein shall be deemed to constitute an admission or an acceptance by any Settlement Party of any fact, principle, or position asserted by any other Settlement Party contained herein.
1.3.2. Nothing contained herein shall be deemed to compromise or resolve any contested issue in any other pending or future administrative or judicial proceeding, including the pending proceeding before the Federal Energy Regulatory Commission and other agencies with respect to relicensing the Klamath River Project, any proceeding related to any damages asserted to be caused by the project, and any proceeding related to PacifiCorp's obligations for utility service. This Settlement shall not be admissible as evidence, argument, or admission on any contested issue in any such proceeding, except that the Settlement will be offered in the Oregon Docket UM1209 as provided in Section 1.2.1.
1.4. Complete Package
This Settlement Agreement is to be treated as a complete package not as a collection of separate agreements on discrete issues or proceedings. To accommodate the interests of different Settlement Parties on diverse issues, the Settlement Parties acknowledge that changes, concessions, or compromises by a Party or Parties in one section of this Settlement Agreement necessitated changes, concessions, or compromises by other Parties in other sections.
1.5. Modifications by Commission
In the event the Commission rejects or modifies this Settlement Agreement, the Settlement Parties reserve their rights under Rule 51.7 of the Commission's Rules of Practice and Procedure. The Parties agree to a good faith negotiation process in the event the Commission modifies the settlement.
The effective date of this Settlement Agreement shall be the date of the Commission order approving this Settlement.
Once it is approved and takes effect, the Settlement will remain in effect indefinitely, until modified by subsequent Commission order. The Settlement Parties agree not to seek any changes to this Settlement, absent consent of the Applicants, prior to June 1, 2011, except to the extent permitted in Section 1.2 above.
3. Support for the Application
3.1. Overview of the Settlement
In exchange for the commitment of Applicants to commit to undertake and perform the specific commitments contained in Appendix A hereto, the undersigned Settlement Parties agree to withdraw any pending protests and support Application 05-07-010 by recommending that the Commission approve of the requested exemption under Section 853(b) of the Public Utilities Code, on conditions pursuant to and consistent with the Commitments in Appendix A. Such support shall be conveyed by the following appropriate means: (1) joinder in Applicants' motion for approval of the Settlement, and (2) the filing of conforming comments on the Proposed Decision of the Commission in A.05-07-010.
3.2. Commitments by the Applicants
Appendix A contains the complete list of Commitments that Applicants collectively and individually agree to make in exchange for the support of the Settlement Parties in this proceeding (hereafter, "Commitments"). The Commitments are comprised of several separate categories of commitments, specifically, extensions of existing commitments previously entered into by PacifiCorp and/or Scottish Power, new commitments entered into by PacifiCorp and MEHC applicable to all the states to which PacifiCorp's service territory extends, and, finally, California-specific commitments which apply only to the activities and operations of Applicants within California. By virtue of executing this Settlement, upon closing of the transaction, the Applicants agree to perform all of the Commitments set forth in Appendix A according to the provisions of each Commitment as set forth therein, with the reservation that in the process of obtaining approval for the transaction in other states, the Commitments applicable to all jurisdictions within the PacifiCorp service territory may be altered by regulatory decisions or settlements, and in that event the Applicants will conform the Commitments in this Settlement to match those applicable to all other jurisdictions.
4. Recovery of Costs Related to Hydroelectric System Relicensing
All Settlement Parties agree that this Settlement and the instant transaction do not affect in any way their position regarding the recovery in retail electric rates of the costs of the mandated conditions for the relicensing and operation of PacifiCorp's hydroelectric facilities.
Executed this 21st day of October, 2005.
By
Michael B. Day
Joseph Wiedman
Goodin, MacBride, Squeri, Ritchie & Day, LLP
505 Sansome Street, Suite 900
San Francisco, CA 94111
Attorneys for PacifiCorp and MidAmerican Energy Holdings Company
Rebecca R. Wodder
Executive Director, American Rivers;
Richard Roos-Collins
Director, Legal Services
Natural Heritage Institute
100 Pine Street, Ste. 1550
San Francisco, CA 94111-5117
Attorney for American Rivers
By __________________________________
Brian Stranko
Executive Director
California Trout, Inc.;
Richard Roos-Collins
Director, Legal Services
Natural Heritage Institute
100 Pine Street, Ste. 1550
San Francisco, CA 94111-5117
Attorney for California Trout, Inc.
By
Thomas P. Schlosser, WSBA 06276
Thane D. Somerville, WSBA 31468
Morisset, Schlosser, Jozwiak & McGaw
801 Second Avenue, Suite 1115
Seattle, WA 98104-1509
Attorney for Hoopa Valley Tribe
By
Grett L. Hurley, CSB 221418
Office of Tribal Attorney
Hoopa Valley Tribe
PO Box 188
Hoopa, CA 95546
Attorney for Hoopa Valley Tribe
By
Charlton H. Bonham, Senior Attorney,
Brian Johnson, Staff Attorney
828 San Pablo Avenue, Suite 208
Albany, CA 94706
Attorney for Trout Unlimited
By
Scott W. Williams
Alexander, Berkey, Williams & Weathers LLP
2000 Center Street, Suite 308
Berkeley, CA 94704
Attorney for Yurok Tribe
By
Barbara Lee Norman Peacemaker
P.O. Box 657
Yreka, CA 96097
Attorney for Karuk Tribe of California
By
Glen H. Spain, Esq.
P.O. Box 11170
Eugene, OR 97440-3370
Attorney for the following organizations: Pacific Coast Federation Of Fishermen's Associations, Institute For Fisheries Resources, Northcoast Environmental Center, Friends Of The River, Oregon Natural Resources Council, Headwaters, Klamath Forest Alliance, And Waterwatch Of Oregon
By
Glen H. Spain, Esq.
P.O. Box 11170
Eugene, OR 97440-3370
The Sierra Club
Commitments of PacifiCorp and MEHC
Consolidated List of Commitments
MEHC Acquisition of PacifiCorp
California Docket A.05-07-010
Extension of Existing Commitments Applicable to All Jurisdictions
1) MEHC and PacifiCorp affirm the continuation of the existing customer service guarantees and performance standards in each jurisdiction through 2009.
2) 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.
3) PacifiCorp will maintain its own accounting system, separate from MEHC's accounting system. All PacifiCorp financial books and records will be kept in Portland, Oregon, and 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.
4) 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.
5) 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.
6) 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.
7) MEHC and PacifiCorp will comply with all existing Commission statutes and regulations regarding affiliated interest transactions, including timely filing of applications and reports.
8) 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.
9) 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 then-existing practice 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's regulation of MEHC and PacifiCorp. However, while PUHCA is in effect, Berkshire Hathaway and MEHC waive such defenses.
11) Any diversified holdings and investments (e.g., non-utility business or foreign utilities) of MEHC and PacifiCorp following approval of the transaction will be held in a separate company(ies) other than PacifiCorp, the entity for utility operations. Ring-fencing provisions (i.e., measures providing for separate financial and accounting treatment) will be provided for each of these diversified activities, including but not limited to provisions protecting the regulated utility from the liabilities or financial distress of MEHC. This condition will not prohibit the holding of diversified businesses.
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 of MEHC; or (2) the change in effective control or acquisition of any material part or all of PacifiCorp by any other firm, whether by merger, combination, transfer of stock or assets.
13) Within 30 days of receiving all necessary state and federal regulatory approvals of the final corporate and affiliate cost allocation methodology, a written document setting forth the final corporate and affiliate cost methodology will be submitted to the Commission. On an on-going basis, the Commission will also be notified of anticipated or mandated changes to the corporate and affiliate cost allocation methodologies.
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:
a) 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.
b) 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.
c) MEHC will have in place time reporting systems adequate to support the allocation of costs of executives and other relevant personnel to PacifiCorp.
d) 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.
e) 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.
f) 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's 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.
17) The premium paid by MEHC for PacifiCorp will be recorded in the accounts of the acquisition company and not in the utility accounts of PacifiCorp. MEHC and PacifiCorp will not propose to recover the acquisition premium in PacifiCorp's regulated retail rates; provided, however, that if the Commission in a rate order issued subsequent to the closing of the transaction reduces PacifiCorp's retail revenue requirement through the imputation of benefits (other than those benefits committed to in this transaction) accruing from the acquisition company (PPW Holdings LLC), Berkshire Hathaway, or MEHC, MEHC and PacifiCorp will have the right to propose upon rehearing and in subsequent cases a symmetrical adjustment to recognize the acquisition premium in retail revenue requirement.
18) MEHC and PacifiCorp will provide the Commission with unrestricted access to all written information provided to credit rating agencies that pertains to PacifiCorp.
19) PacifiCorp will not make any distribution to PPW Holdings LLC or MEHC that will reduce PacifiCorp's common equity capital below 40 percent of its total capital without Commission approval. 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 one year or more. The Commission and PacifiCorp may reexamine this minimum common equity percentage as financial conditions or accounting standards change, and may request that it be adjusted.
20) The capital requirements of PacifiCorp, as determined to be necessary to meet its obligation to serve the public, will be given a high priority by the Board of Directors of MEHC and PacifiCorp.
21) PacifiCorp will not, without the approval of the Commission, 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 of PacifiCorp. MEHC will not pledge any of the assets of the regulated business of PacifiCorp as backing for any securities which MEHC or its affiliates (but excluding PacifiCorp and its subsidiaries) may issue.
22) 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.
23) MEHC and PacifiCorp guarantee that the customers of PacifiCorp will be held harmless if the transaction between MEHC and PacifiCorp results in a higher revenue requirement for PacifiCorp than if the transaction had not occurred. However, this hold harmless provision shall not apply to incremental costs associated with cost-effective investments in renewable and thermal generation, energy efficiency programs, demand-side management programs, environmental measures, and transmission and distribution facilities approved by the Commission.
24) PacifiCorp will continue its Blue Sky tariff offering in all states.
25) PacifiCorp will continue its commitment to gather outside input on environmental matters, such as through the Environmental Forum.
26) 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.
27) MEHC will maintain the existing level of PacifiCorp's community-related contributions, both in terms of monetary and in-kind contributions. The distribution of PacifiCorp's community-related contributions among the states will be done in a manner that is fair and equitable to each state.
28) MEHC will continue to consult with regional advisory boards to ensure local perspectives are heard regarding community issues.
29) MEHC will honor existing labor contracts with all levels of staff.
30) MEHC and PacifiCorp will make no changes to employee benefit plans for at least two (2) years following the effective date of the Stock Purchase Agreement.
31) PacifiCorp will continue to produce Resource Plans every two years, according to the then current schedule and the then current Commission rules.
32) When acquiring new generation resources in excess of 100 MW, 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.
33) 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.
34) Unless otherwise specified by Commission regulations, the Commission shall 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 shall take no action. MEHC or PacifiCorp may request, for cause, an extension of these time periods. If MEHC 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, but not both, as allowed under state laws and regulations.
New Commitments Applicable to All Jurisdictions
35) 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 improvements1:
a) Path C Upgrade (~$78 million) - Increase Path C capacity by 300 MW (from S.E. Idaho to Northern Utah). This project:
· enhances reliability because it increases transfer capability between the east and west control areas,
· 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.
b) 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. 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.
c) 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.
36) Other Transmission and Distribution Matters: MEHC and PacifiCorp make the following commitments to improve system reliability:
a) investment in the Asset Risk Program of $75 million over the three years, 2007-2009,
b) investment in local transmission risk projects across all states of $69 million over eight years after the close of the transaction,
c) O & 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 of the transaction, and
d) 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.
e) MEHC and PacifiCorp will also support the Bonneville Power Administration in its development of short-term products such as conditional firm and redispatch products. PacifiCorp will also initiate a process to collaboratively design similar products at PacifiCorp.
37) 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 projects would be RMATS and the proposed Frontier transmission line.
38) Reduced Cost of Debt: MEHC believes that PacifiCorp's incremental cost of long-term debt will be reduced as a result of the proposed transaction, due to the association with Berkshire Hathaway. Historically, MEHC's utility subsidiaries have been able to issue long-term debt at levels below their peers with similar credit ratings. MEHC commits that over the next five years it will demonstrate that PacifiCorp's incremental long-term debt issuances will be at a yield ten basis points below its similarly rated peers. If it is unsuccessful in demonstrating that PacifiCorp has done so, PacifiCorp will accept up to a ten (10) basis point reduction to the yield it actually incurred on any incremental long-term debt issuances for any revenue requirement calculation effective for the five-year period subsequent to the approval of the proposed acquisition. It is projected that this benefit will yield a value roughly equal to $6.3 million over the post-acquisition five-year period.
39) Corporate Overhead Charges: MEHC commits that the corporate charges to PacifiCorp from MEHC and MEC will not exceed $9 million annually for a period of five years after the closing on the proposed transaction. (In FY2006, Scottish Power's net cross-charges to PacifiCorp are projected to be $15 million.)
40) Future Generation Options: In Commitment 32, 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 RFPs --including renewable energy RFPs --a 100 MW or more utility "own/operate" proposal for the particular resource. It is not the intent or objective that such proposals 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 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's ability to increase the proportion of cost-effective renewable energy in its generation portfolio, based upon the actual experience of MEC and the "Renewable Energy" commitment offered below.
41) 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 of 2008 -2010. MEHC and PacifiCorp commit to actively work with developers to identify other transmission improvements that can facilitate the delivery of wind energy in PacifiCorp's service area.
In addition, MEHC and PPW commit to work constructively with states to implement renewable energy action plans so as to enable achievement of PacifiCorp's 1400 MW commitment.
42) 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.
43) 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.
44) 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. These investments would commence as soon as feasible after the close of the transaction. 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 of PacifiCorp'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.
45) 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 of the 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. 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 one year after the closing on the transaction, and MEHC shareholders will absorb the first $1 million of the costs of the study.
b) 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.
c) In addition, MEHC and PacifiCorp commit that PacifiCorp and MEC 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.
46) Customer Service Standards: MEHC and PacifiCorp commit to extend, through 2011, Commitment 1 above regarding customer service guarantees and performance standards as established in each jurisdiction, a two-year extension.
47) 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.
48) 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 reliable service and cost-effective operations.
49) IRP Stakeholder Process: PacifiCorp will provide public notice and an invitation to encourage stakeholders to participate in the Integrated Resource Plan process to consider Commitments 35, 40, 41, 42, and 45.
50) Reporting on Status of Commitments: By June 1, 2007 and each June 1 thereafter through 2011, PacifiCorp will file a report with the Commission regarding the implementation of the Commitments specified below. The report will, at a minimum, provide a description of the performance of each of the specified commitments that have quantifiable results. If any of the commitments specified herein 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. The Commitments subject to this reporting requirement are 13, 15, 16, 19, and 35 through 46.
California State-Specific Commitments
C1) MEHC commits that the transaction will not diminish in any way PacifiCorp's ability or willingness to perform its legal obligations associated with the Klamath River hydroelectric system or PacifiCorp's ability to recover the costs thereof in rates.
C2) In implementing Commitment 36, PacifiCorp will make cost-effective investments in California to the extent reasonably required to serve load.
C3) Subject to the costs being recoverable on a timely basis in PacifiCorp's California retail electric rates, PacifiCorp will continue offering cost-effective demand-side management programs in California.
C4) PacifiCorp will take the following actions to address extending electrical service to unserved Yurok, Hoopa Valley, Karuk or other Indian communities located within PacifiCorp's allocated service territory. Following the closing of the transaction by MEHC and commencing within 30 days of receipt by PacifiCorp of a request for service by the Tribe(s), PacifiCorp will undertake good faith discussions with the affected Tribes, the Commission's Energy Division and DRA, Pacific Gas & Electric Company, and other appropriate stakeholders, regarding such extension in electrical service. PacifiCorp will consider a reasonable range of options for rural electrification consistent with PacifiCorp's filed tariff regarding line extensions. PacifiCorp will conclude the discussion regarding rural electrification within 1 year of the closing and will at that time file an application or other pleading: (A) seeking permission to extend electrical service to these specified areas or (B) stating its decision not to extend service, and the basis therefore.
C5) PacifiCorp will provide $150,000 per year for three years to fund a study to be jointly administered by U.S. Environmental Protection Agency (EPA or lead agency), CalEPA's North Coast Regional Water Quality Control Board, California Department of Fish and Game, Del Norte, Humboldt, Klamath and Siskiyou County health agencies, the Klamath, Yurok, Karuk and Hoopa Valley Tribes, Oregon Department of Environmental Quality, Oregon Department of Fish and Wildlife, U.S. Fish and Wildlife Service, and the National Marine Fisheries Service. The study will be conducted by an independent consultant acceptable to EPA and PacifiCorp. The study purpose is to identify the presence, distribution, and possible causes of blue-green algae (including Microcystis aeruginosa and any other similar toxic species of such algae, hereinafter referred to as "microcystis"), and their toxins, within the Klamath Basin. Within 60 days of the closing of the transaction by MEHC, PacifiCorp will ask that EPA convene, and PacifiCorp will participate in, a working group of the above-referenced governmental agencies, in order to design the study protocols and oversee the study implementation. All Settlement Parties acknowledge that the active participation of governmental agencies and full public accessibility to the monitoring information will assist in addressing the presence of microcystis in the Klamath Basin. All study data will be publicly available.
PacifiCorp will cooperate in appropriate implementation efforts to support the study, and will cooperate in providing information for grant applications to secure additional (including public) funding for the study. However, neither the provision of funds for this study nor participation in the study constitutes an admission by PacifiCorp or MEHC of any responsibility or legal liability for microcystis outbreaks, nor shall it be deemed as such by any Settlement Party.
C6) PacifiCorp will provide an opportunity for the Settlement Parties to discuss implementation of Commitment 44 and will provide advance notice of same to the Settlement Parties in the California docket.
C7) By June 1, 2007 and each June 1 thereafter through 2011, PacifiCorp will file a supplemental report with the CPUC regarding the implementation of the California State-Specific Commitments specified above. The report will, at a minimum, provide a description of the performance of each of the specified commitments that have quantifiable results. If any of the commitments specified herein 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. The Commitments subject to this reporting requirement are C2, C4, and C5.
Appendix D: Adopted Conditions
The authority granted by this Decision is subject to conditions set forth below, with the clarifications set forth in the body of this Decision. The conditions adopted by today's Decision replace the conditions adopted in Decision Nos. 02-04-061, 01-12-013, D.99-10-059, and 99-06-049. The adopted conditions do not supersede other Commission decisions. To the extent there is a conflict between today's Decision and another Commission decision (other than the four previously identified decisions), the other decisions shall control.
General Commitments
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 46 for the extension of this commitment through 2011.
2. 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.
3. PacifiCorp will maintain its own accounting system, separate from MEHC's 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.
4. 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 of PacifiCorp. This commitment is also applicable to the books and records of Berkshire Hathaway, which shall retain its books and records relevant to the business of PacifiCorp 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.
5. 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.
6. 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.
7. MEHC and PacifiCorp will comply with all applicable Commission statutes and regulations regarding affiliated interest transactions, including timely filing of applications and reports.
8. 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.
9. 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's regulation of MEHC and PacifiCorp. However, while PUHCA is in effect, Berkshire Hathaway and MEHC waive such defenses.
11. Diversified Holdings and Ring Fencing:
a) Any diversified holdings and investments (e.g., non-utility business or foreign utilities) of MEHC following approval of the transaction will not be held by PacifiCorp or a subsidiary of PacifiCorp. This condition will not prohibit MEHC or its affiliates other than PacifiCorp from holding diversified businesses.
b) Ring-fencing provisions for PPW Holdings LLC will include the provisions in Appendix 1 of the Oregon Settlement.67 These provisions have been derived from those in effect for NNGC Acquisition, LLC as of December 1, 2005.
c) PacifiCorp will notify the Commission of any changes in the ring-fencing provisions. Such notice shall include verification that (i) the change has been approved by the independent director of PacifiCorp's parent company, and (ii) the rating agencies have confirmed that there will be no credit downgrade from the changed ring-fencing protections.
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 of MEHC; or (2) the change in effective control or acquisition of any material part or all of PacifiCorp by any other firm, whether by merger, combination, transfer of stock or assets.
13. The Inter-company 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 (f). Amendments to the IASA will also be filed with the Commission.
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:
a) 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.
b) 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.
c) 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.
d) 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.
e) 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.
f) 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. MEHC and PacifiCorp commit that PacifiCorp will maintain separate debt and preferred stock, if any. PacifiCorp will maintain its own corporate credit rating, as well as ratings for long-term debt and preferred stock, from Moody's and S&P or their successor rating agencies.
16. MEHC and PacifiCorp will exclude all costs of the transaction from PacifiCorp's 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.
17. For accounting purposes, the premium paid by MEHC for PacifiCorp will be recorded in the accounts of the acquisition company and not in the utility accounts of PacifiCorp. MEHC and PacifiCorp will not propose to recover the acquisition premium in PacifiCorp's regulated retail rates. ; provided, however, that (1) if the Commission in a rate order issued subsequent to the closing of the transaction reduces PacifiCorp's retail revenue requirement through the imputation of benefits (other than those benefits committed to in this transaction) accruing from the acquisition company (PPW Holdings LLC), Berkshire Hathaway or MEHC; and (2) if the Commission fails to recognize in rates the costs associated with such benefits, then MEHC and PacifiCorp reserve the right to propose upon rehearing and in subsequent cases a symmetrical adjustment to recognize the acquisition premium in retail revenue requirement. MEHC and PacifiCorp acknowledge that neither the Commission nor any party to a rate proceeding subsequent to the closing of the transaction is required by this commitment to allow or support inclusion of any portion of the acquisition premium in PacifiCorp's rates.
18. 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.
19. Dividends and Capital Structure.
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 of the 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.
b) 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 of PacifiCorp 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 of PacifiCorp by MEHC. In 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.
c) 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 of PacifiCorp 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.
d) 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.
20. The capital requirements of PacifiCorp, as determined to be necessary to meet its obligation to serve the public, will be given a high priority by the Board of Directors of MEHC and PacifiCorp.
21. MEHC and PacifiCorp commit that 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. Berkshire Hathaway, or their respective subsidiaries, or assume any obligation or liability as guarantor, endorser, surety or otherwise for MEHC, Berkshire Hathaway of their respective subsidiaries; provided that this condition will not prevent PacifiCorp, to the extent allowed by law, from making loans or transferring funds to a subsidiary of PacifiCorp or assuming any obligation or liability on behalf of a subsidiary of PacifiCorp. MEHC and Berkshire Hathaway will not pledge any of the assets of the business of PacifiCorp as backing for any securities that MEHC or Berkshire Hathaway or their respective subsidiaries (but excluding PacifiCorp and its subsidiaries) may issue.
22. MEHC and PacifiCorp will not advocate a higher cost of capital as compared to what PacifiCorp's cost of capital would have been, using Commission standards, absent MEHC's ownership.
23. MEHC and PacifiCorp guarantee that the customers of PacifiCorp's customers will be held harmless if the transaction between MEHC and PacifiCorp results in a higher revenue requirement for PacifiCorp than if the transaction had not occurred; provided, however, that this hold harmless provision will not apply to prudently incurred costs approved for inclusion in revenue requirement by the Commission.
24. 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.
25. PacifiCorp will continue its commitment to gather outside input on environmental matters, such as through the Environmental Forum.
26. 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.
27. MEHC will maintain at least the existing level of PacifiCorp's community-related contributions, both in terms of monetary and in-kind contributions. The distribution of PacifiCorp's community-related contributions among the states will be done in a manner that is fair and equitable to each state.
28. MEHC will continue to consult with regional advisory boards to ensure local perspectives are heard regarding community issues.
29. MEHC will honor PacifiCorp's existing labor contracts.
30. 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 a reduction in employee benefits.
31. PacifiCorp will continue to produce Integrated Resource Plans according to the then current schedule and the then current Commission rules and orders.
32. 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 or otherwise comply with state laws, regulations and orders that pertain to procurement of new generation resources for PacifiCorp.
33. 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.
34. 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 should 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. If MEHC 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.
35. MEHC and PacifiCorp have identified incremental transmission projects that MEHC and PacifiCorp believe will 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:
a) Path C Upgrade (~$78 million) - Increase Path C capacity by 300 MW (from S.E. Idaho to Northern Utah). The target completion date for this project is 2010. MEHC and PacifiCorp assert that this project:
· enhances reliability because it increases transfer capability between the east and west control areas,
· 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.
b) Mona - Wasatch (~$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. MEHC and PacifiCorp assert that 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.
c) 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). MEHC and PacifiCorp assert that this project 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.
36. MEHC and PacifiCorp make the following commitments to improve system reliability:
a) investment in the Asset Risk Program of $75 million over the three years, 2007-2009,
b) investment in local transmission risk projects across all states of $69 million over eight years after the close of the transaction,
c) O & 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 of the transaction, and
d) 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.
e) MEHC and PacifiCorp will support the Bonneville Power Administration in its development of short-term products such as conditional firm. No less than three months following the close of the transaction, PacifiCorp will initiate a process to collaboratively design similar transmission products and will include stakeholders in the process. PacifiCorp will make every reasonable effort to complete a product by the end of 2008.
f) PacifiCorp will continue to offer its Partial Interim Service product and will make commercially reasonable efforts to offer transmission customers as much firm service as the Company's transmission studies show is available, including weeks with a month. PacifiCorp will also continue its OATT tariff provision that allows transmission customers to alter pre-scheduled transactions up to 20 minutes before the hour as long as such provision is consistent with established scheduling practices and does not jeopardize system reliability. PacifiCorp will notify parties to this proceeding if it proposes changes to these two elements of its OATT.
37. 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 commits its resources and leadership to assist PacifiCorp states in the development of transmission projects upon which the states can agree. Examples of such projects would be RMATS and the proposed Frontier transmission line.
38. Reduced Cost of Debt: This Commitment is intentionally left blank. Commitment 38 is superseded by California Commitment C-15.
39. Corporate Overhead Charges: This Commitment is intentionally left blank. Commitment 39 is superseded by California Commitments C-11 and C-13.
40. In Commitment 32, 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's ability to increase the proportion of cost-effective renewable energy in its generation portfolio, based upon the actual experience of MEC and the "Renewable Energy" commitment offered below.
41. 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 of 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 least 1,400 MW of cost-effective renewable energy resources by 2015. Such renewable energy resources are not limited to wind energy resources.
42. 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.
43. Greenhouse Gas Emissions Reductions:
a) 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. MEHC and PacifiCorp represent that 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. MEHC and PacifiCorp represent that 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.
b) Within six months after close of the transaction, MEHC and PacifiCorp commit that PacifiCorp will establish a global warming working group composed of representatives of the regulatory, consumer, educational and environmental communities in the six states that PacifiCorp serves, as well as representatives of PacifiCorp and MEHC. PacifiCorp will work with the global warming working group to identify cost-effective measures to reduce PacifiCorp's greenhouse emissions. PacifiCorp will develop and file with the Commission its strategy, which MEHC supports, for reducing its greenhouse gas emissions.
44. Working with the affected generation plant joint owners and with regulators to obtain required approvals, MEHC and PacifiCorp commit to install, to the extent cost effective, 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 of PacifiCorp's coal-fueled generation fleet. MEHC represents that 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.
45. 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 of the 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 15 months after the closing on the transaction, and MEHC shareholders will absorb the first $1 million of the costs of the study.
b) 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.
c) In addition, MEHC and PacifiCorp commit that PacifiCorp and MEC 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.
46. 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.
47. 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.
48. MEHC understands that having adequate staffing and representation in each state is not optional. MEHC understands 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.
49. PacifiCorp will provide public notice and an invitation to encourage stakeholders to participate in the Integrated Resource Plan (IRP) process to consider Commitments 35, 40, 41, 42, 53, and 54. PacifiCorp will hold IRP meetings at locations or using communications technologies that encourage broad participation.
50. 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 each of the commitments that have quantifiable results. If any of the commitments sis 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.
51. 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. This condition does not affect the Commission's ability to adopt a different pension funding policy for ratemaking purposes in PacifiCorp's general rate case proceedings, including the rate case filed on November 29, 2005.
52. 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 PUHCA Audit Report of Scottish Power 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 of MEHC 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.
53. 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 of PacifiCorp's next IRP. This incremental amount is expected to be at least 11 MW and may be as much as 100 MW. All cost effective increases in Blundell capacity, completed before January 1, 2015, should be counted toward satisfaction of PacifiCorp's 1400 MW renewable energy goal, in an amount equal to the capacity of geothermal energy actually added at the plant.
54. MEHC or PacifiCorp commit to commence as soon as practical after close of the transaction a system impact study to examine the feasibility of constructing transmission facilities from the Jim Bridger generating facilities to Miners Substation in Wyoming. Upon receipt of the results of the system impact study, MEHC or PacifiCorp will review and discuss with stakeholders the desirability and economic feasibility of performing a subsequent facilities study for the Bridger to Miners 500 kV transmission project.
California-Specific Commitments
C-1 MEHC commits that the transaction will not diminish in any way PacifiCorp's ability or willingness to perform its legal obligations associated with the Klamath River hydroelectric system or PacifiCorp's ability to recover the costs thereof in rates.
C-2 In implementing Commitment 36, PacifiCorp will make cost-effective investments in California to the extent reasonably required to serve load.
C-3 Subject to the costs being recoverable on a timely basis in PacifiCorp's California retail electric rates, PacifiCorp will continue offering cost-effective demand-side management programs in California.
C-4 PacifiCorp will take the following actions to address extending electrical service to unserved Yurok, Hoopa Valley, Karuk or other Indian communities located within PacifiCorp's allocated service territory. Following the closing of the transaction by MEHC and commencing within 30 days of receipt by PacifiCorp of a request for service by the Tribe(s), PacifiCorp will undertake good faith discussions with the affected Tribes, the Commission's Energy Division and Office of Ratepayer Advocates, Pacific Gas & Electric Company, and other appropriate stakeholders, regarding such extension in electrical service. PacifiCorp will consider a reasonable range of options for rural electrification consistent with PacifiCorp's filed tariff regarding line extensions. PacifiCorp will conclude the discussion regarding rural electrification within 1 year of the closing and will at that time file an application or other pleading: (A) seeking permission to extend electrical service to these specified areas or (B) stating its decision not to extend service, and the basis therefore.
C-5 PacifiCorp will provide $150,000 per year for three years to fund a study to be jointly administered by U.S. Environmental Protection Agency (EPA or lead agency), CalEPA's North Coast Regional Water Quality Control Board, California Department of Fish and Game, Del Norte, Humboldt, Klamath and Siskiyou County health agencies, the Klamath, Yurok, Karuk and Hoopa Valley Tribes, Oregon Department of Environmental Quality, Oregon Department of Fish and Wildlife, U.S. Fish and Wildlife Service, and the National Marine Fisheries Service. The study will be conducted by an independent consultant acceptable to EPA and PacifiCorp. The study purpose is to identify the presence, distribution, and possible causes of blue-green algae (including Microsystis aeruginosa and any other similar toxic species of such algae, hereinafter referred to as "microsystis"), and their toxins, within the Klamath Basin. Within 60 days of the closing of the transaction by MEHC, PacifiCorp will ask that EPA convene, and PacifiCorp will participate in, a working group of the above-referenced governmental agencies, in order to design the study protocols and oversee the study implementation. All Settlement Parties acknowledge that the active participation of governmental agencies and full public accessibility to the monitoring information will assist in addressing the presence of microsystis in the Klamath Basin. All study data will be publicly available.
PacifiCorp will cooperate in appropriate implementation efforts to support the study, and will cooperate in providing information for grant applications to secure additional (including public) funding for the study. However, neither the provision of funds for this study nor participation in the study constitutes an admission by PacifiCorp or MEHC of any responsibility or legal liability for microsystis outbreaks, nor shall it be deemed as such by any Settlement Party.
C-6 PacifiCorp will provide an opportunity for the Settlement Parties to discuss implementation of Commitment 44 and will provide advance notice of same to the Settlement Parties in the California docket.
C-7 By June 1, 2007 and each June 1 thereafter through 2011, PacifiCorp will file a supplemental report with the CPUC regarding the implementation of the California State-Specific Commitments specified herein. The report will, at a minimum, provide a description of the performance of each of the specified commitments that have quantifiable results. If any of the commitments specified herein 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. The Commitments subject to this reporting requirement are C2, C4, and C5.
C-8 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 18, and that it is subject to Commitments that are applicable to the affiliates of PacifiCorp and MEHC; provided, however, that Berkshire Hathaway does not guarantee or agree to be responsible for performance of Commitments made by MEHC and PacifiCorp.
C-9 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 C-10 through C-14. These rate credits will be reflected in rates on the 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 C-10 and C-14 are subject to deferred accounting as specified therein. Where total company values are referenced, the amount allocated to California will equal the California-allocated amount using Commission-adopted allocation factors.
C-10a 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, California's share of the monthly rate credit will be deferred for the benefit of customers and accrue interest at PacifiCorp's authorized rate of return. (This commitment is reflected in Row 1 of Appendix 2 to the Oregon Settlement.)
C-10b.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.
C-11a 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 39, and a state must choose between this Commitment C11 and Commitment 39. (The commitment is reflected in Row 2 of Appendix 2 of the Oregon Settlement).
C-11b 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's 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), sales accounts (FERC accounts 911-916), capital accounts, deferred debit accounts, deferred credit accounts, or other regulatory accounts.
C-12a 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.
C-12b This commitment is offsetable if PacifiCorp demonstrates to the Commission's satisfaction, in the context of a general rate case, the costs included in PacifiCorp's rates for such insurance coverage is not more than $7.4 million (total company). (This commitment is reflected in Row 3 in Appendix 2 of the Oregon Settlement.)
C-13a MEHC and PacifiCorp will hold customers harmless for increases in costs resulting from PacifiCorp corporate costs previously billed to PPM and other former affiliates of PacifiCorp. 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 1, 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'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. This Commitment is in lieu of Commitment 39, and a state must choose between this Commitment C13 and Commitment 39.
C-13b.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 of the Oregon Settlement.)
C-14a 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 maximum amount of the total company rate credit in any year is $6 million per year. This commitment expires December 31, 2010. Beginning with the first month after the close of the transaction, California's 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 23 and U 23 from the Utah settlement, and a state must choose between this Commitment C14 and Commitments 23 and U 23.
C-14b The credit will be offsetable, on a prospective basis, for every dollar that PacifiCorp demonstrates to the Commission's satisfaction, in a subsequent general rate case, that total company A&G expenses included in PacifiCorp's rates are less than $6 million above the "stretch Goal" and have not been shifted to other regulatory accounts. The 2006 Stretch Goal will be $222.8 million. Subsequent Stretch Goals shall equal the 2006 Stretch Goal 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 JEADGOMMS), for the test period divided by the 2006 index value. If 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 Stretch Goal for future years will equal the Stretch Goal from the most recent calendar year multiplied by the ratio of the new index for the test period divided by the new index value for that same most recent calendar year.
C-15a In the event of a ratings downgrade by two or more rating agencies of PacifiCorp's 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 of PacifiCorp as a cause of the 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 of PacifiCorp equal to the rating on the Baseline Date. This Commitment is in lieu of Commitment 38, and a state must choose between this Commitment C-15 and Commitment 38.
C-15b 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.
C-16a 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 of PPW Holdings LLC will not contain common equity capital below the following percentages of its Total Capital as defined in Commitment 19b:
· 48.25% from the date of the close of the 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.
C-16b MEHC and PacifiCorp commit that the consolidated capital structure of PPW Holdings LLC will not contain common equity capital below 35% of its Total Adjusted Capital as defined in Commitment 19c.
C-16c MEHC will provide the Commission 30 days prior notice if PPW Holdings LLC intends to issue debt. MEHC and PacifiCorp acknowledge that if PPW Holdings LLC does issue debt, the Commission has the authority pursuant to a re-opener under California Public Utilities Code §854, limited to the consideration of additional ring-fencing provisions that may be appropriate.
C-17 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:
a) Notify the Commission of this inability to obtain a non-consolidation opinion.
b) 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.
c) Obtain a non-consolidation opinion.
C-18 MEHC and PacifiCorp commit that PacifiCorp will not make any dividends to PPW Holdings LLC or MEHC if PacifiCorp's unsecured debt rating is BBB- or lower by S & P or Fitch (or Baa3 or lower by Moody's), as indicated by two of the three rating agencies.
C-19 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 California 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.
C-20 MEHC and PacifiCorp commit to a total contribution level for California low-income bill payment assistance in the amount of $30,000 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 period, MEHC and PacifiCorp commit to work with low-income advocates and customer groups to evaluate additional contributions.
C-21 To the extent available, MEHC and PacifiCorp commit to have 400 MW of cost effective new renewable resources in PacifiCorp's generation portfolio by December 31, 2007. The 400 MW will include Wolverine Creek (64.5 MW) and Cove Fort (42 MW). MEHC and PacifiCorp will analyze the projects consistent with applicable regulatory rules and orders in effect at the time and as informed by the IRP. Resource identification shall be performed using an RFP procedure. If PacifiCorp fails to meet this 400 MW target it will disclose to signatories (excluding any bidders and affiliates of bidders) the cost-effectiveness analysis it used when rejecting the lowest cost projects. PacifiCorp shall file a report, on the status of meeting this target, with the Commission no later than six months after close of the transaction. In evaluating acquisition of renewable energy, all other things being equal, MEHC and PacifiCorp will not prefer ownership of facilities.
C-22a Concurrent with its next IRP filing, PacifiCorp commits to file a ten-year plan for achieving the 1400 MW renewables target, including specific milestones over the ten years when resources will be added. The filing will include a ten-year plan for installing transmission that will facilitate the delivery of renewable energy and the achievement of its 2015 goal of at least 1400 MW of cost-effective renewable energy. Within six (6) months after the close of the transaction, MEHC and PacifiCorp will file with the Commission a preliminary plan for achieving the 1400 MW renewable target.
C-22b PacifiCorp commits to address as part of its next IRP the appropriate role of incremental hydropower projects in meeting the 1400 MW renewables target.
C-23 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. The Working Group will include California stakeholders as well. 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;
· commercial terms and conditions associated with IGCC plant development, construction, and maintenance; and
· implications of Utah SB 26 on development of IGCC plants given the implications of long development lead times, development costs, project risk, and cost uncertainty.
· the allocation of risk between shareholders and ratepayers of additional carbon dioxide emissions in the event PacifiCorp proceeds with a coal unit that is not able to capture and store carbon emissions.
· 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.
C-24 MEHC and PacifiCorp commit to the following:
a) MEHC and PacifiCorp commit to study the economics and viability of an IGCC option and will present the results of this study as a resource alternative to inform the resource selection and RFP process under consideration in Utah Docket 05-035-47. PacifiCorp will also file the results of this study and the draft RFP with the CPUC for review and public comment. PacifiCorp will suggest procedural schedules that will facilitate this commitment. As soon as practical, but not later than three months after the closing of the transaction, PacifiCorp will provide to the parties estimated cost and timeline ranges for completion of an IGCC project, as well as potential resource alternatives if an IGCC design is not reasonably achievable in time to economically meet the resource need presently identified in 2012 from a customer and shareholder perspective.
b) PacifiCorp will perform initial conceptual and siting studies, general feasibility studies, and, where appropriate, other more detailed studies and engineering work, for an IGCC plant for the 2014 resource need identified in the October 2005 IRP Update. The studies will include an evaluation of the expected cost and performance impacts of constructing a plant to be carbon capture ready. These studies will be performed in parallel with similar studies to evaluate other generation technologies. Such studies will be completed within the next IRP cycle.
c) PacifiCorp will include a utility self-build option of an IGCC unit in any RFPs for the 2014 and later non-renewable resource needs, whether or not the IGCC option is found to be PacifiCorp's preferred cost-based alternative, and present PacifiCorp's evaluation of the IGCC option against another self-build alternative(s) as part of the Utah SB 26 process. This will include an evaluation of the cost and performance impacts of the IGCC resource being constructed to be carbon capture ready.
(END OF APPENDIX D)
1 It is possible that upon further review a particular investment might not be cost-effective or optimal for customers. 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 MEHC/PacifiCorp that one or more of the identified transmission investments is not cost-effective or optimal for customers.
67 All references to the Oregon Settlement refer to the contents of the Oregon Settlement that was filed and served by the Applicants on January 5, 2006.
