Office of the Secretary
Service Date
February 13, 2006

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

 

IN THE MATTER OF THE JOINT

 

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APPLICATION OF MIDAMERICAN

 

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CASE NO. PAC-E-05-8

 

ENERGY HOLDINGS COMPANY (MEHC)

 

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AND PACIFICORP DBA UTAH POWER &

 

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LIGHT COMPANY FOR AN ORDER

 

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AUTHORIZING MEHC TO ACQUIRE

 

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ORDER NO. 29973

 

PACIFICORP

 

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On July 15, 2005, PacifiCorp dba Utah Power & Light Company (“PacifiCorp”) and
MidAmerican Energy Holdings Company (“MidAmerican”) filed a Joint Application
requesting that the Commission authorize MidAmerican’s acquisition of
PacifiCorp. PacifiCorp is a public utility subject to the Commission’s
jurisdiction and provides retail electric service to nearly 60,000 customers in
southeastern Idaho. At present, PacifiCorp is a wholly-owned subsidiary of
Scottish Power plc.

If the Joint Application is approved, PacifiCorp would become an indirect,
wholly-owned subsidiary of MidAmerican. MidAmerican’s principal owner is
Berkshire Hathaway, Inc. The Applicants must obtain approval from the Idaho
Commission and the regulatory commissions of the other five states where
PacifiCorp provides electric service for MidAmerican to acquire PacifiCorp. In
addition, the acquisition must also be approved by several federal agencies
including the Federal Energy Regulatory Commission (FERC).1

On August 18, 2005, the Commission issued its Notice of Application setting this
matter for hearing. On December 16, 2005, most of the parties in this proceeding
executed a settlement Stipulation urging the Commission to approve the Joint
Application conditioned upon 76 “commitments.” On January 17, 2006, the
Commission convened a technical hearing to consider the Stipulation. Based upon
our review of the Joint Application, the settlement Stipulation, the testimony
of the parties and the public comments, the Commission approves the acquisition
conditioned upon the commitments incorporated in this Order.

 

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1 The Wyoming and Utah Commissions approved the acquisition on January 26 and
27, 2006, respectively. FERC authorized the transaction on December 20, 2005 in
Docket No. EC05-110-000, 113 FERC ¶ 61,298 (2005), rehearing granted (for
limited purpose of further consideration), 113 FERC ¶ _____ (Feb. 6, 2006).

 

 

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THE APPLICATION

A. The Transaction

On May 23, 2005, ScottishPower and its wholly-owned subsidiary directly holding
PacifiCorp’s common stock, PacifiCorp Holdings, Inc. (“PHI”), entered into a
“Stock Purchase Agreement” providing for the sale of all PacifiCorp common stock
to MidAmerican. The sale of the common stock is valued at approximately $9.4
billion, consisting of approximately $5.1 billion in cash plus approximately
$4.3 billion in net debt and preferred stock that will remain outstanding at
PacifiCorp. Application at 6.

MidAmerican is an Iowa corporation whose ownership, as of January 31, 2005, was
as follows: Berkshire Hathaway, Inc. (83.75% economic interest); Walter Scott,
Jr., including family interest, (15.89% economic interest); David Sokol (0.25%
economic interest); and Greg Abel (0.11% economic interest). On a diluted basis
the economic interest would be as follows: Berkshire Hathaway (80.48% economic
interest); Walter Scott, Jr., including family interest, (15.27% economic
interest); David Sokol (2.91% economic interest); and Greg Abel (1.34% economic
interest). Id. at 3.

When the Joint Application was filed, Berkshire Hathaway held 9.9% of the voting
stock ownership of MidAmerican and 41,263,395 shares of MidAmerican’s zero
coupon convertible preferred stock. Id. This preferred stock was convertible to
MidAmerican common shares at the option of Berkshire Hathaway under specific
circumstances. One such circumstance is the repeal or amendment of the Public
Utility Holding Company Act of 1935 (PUHCA) such that the conversion of
preferred stock would not cause Berkshire Hathaway to become regulated as a
registered holding company.

On August 17, 2005, the Applicants filed a “Revised” Application and
testimonies.2 The revisions were prompted in part by the President’s signing of
the Energy Policy Act of 2005 on August 8, 2005. Section 1275 of Title XII (the
Electricity Modernization Act of 2005) repeals PUHCA effective six months after
the date of enactment, i.e., February 8, 2006. After the effective date of the
PUHCA repeal Berkshire Hathaway exercised its right to convert the zero coupon
convertible preferred stock. Thus, Berkshire Hathaway’s voting interest now
corresponds to its ownership interest. Id. at 4.

 

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2 The “revisions” consist of revised (replacement) pages to the Joint
Application and the accompanying prefiled testimonies and exhibits. The prefiled
testimony of Company witness Jeffrey Gust is withdrawn as well as Exhibit Nos. 8
and 14.

 

 

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MidAmerican has established a direct subsidiary limited liability company
referred to as PPW Holdings, LLC (“PPW”). PPW will receive an equity infusion of
approximately $5.1 billion raised by MidAmerican through the sale of either
common stock or convertible preferred stock to Berkshire Hathaway and the
issuance of long-term senior notes, preferred stock or other securities with
equity characteristics, to third parties. The transaction is not conditioned on
such financing and if funds are not available from third parties, Berkshire
Hathaway is expected to provide any required funding. PPW will have no debt of
its own for this transaction. Id. at 6.

The Stock Purchase Agreement provides that PPW will pay PHI $5.1 billion in cash
at closing in exchange for 100% of the common stock of PacifiCorp. In addition,
approximately $4.3 billion in net debt and preferred stock currently outstanding
at PacifiCorp will remain outstanding as liabilities of PacifiCorp. The
transaction is subject to customary closing conditions, including approval of
the transaction by the shareholders of ScottishPower and the receipt of required
state and federal regulatory approvals. Id.

The sale of PacifiCorp’s common stock to MidAmerican will also include transfer
of control of several PacifiCorp subsidiaries. Id. The subsidiaries consist
primarily of mining companies and companies created to handle environmental
remediation and generate carbon-offset credits. These other companies include
Centralia Mining Company, Energy West Mining Company, Glennrock Coal Company,
Interwest Mining Company, Pacific Minerals, Inc., Bridger Coal Company,
PacifiCorp Environmental Remediation Company, PacifiCorp Future Generations,
Inc., Canopy Botanicals, Inc., Canopy Botanicals SRL, PacifiCorp Investment
Management, Inc., and Trapper Mining, Inc. Id. at 7.

B. Plans for Operating PacifiCorp

The Joint Application stated that MidAmerican and its primary investor,
Berkshire Hathaway, customarily acquire “a business with the intention of
holding and investing in the business for the long term, where such investments
are fair to customers, employees and shareholders.” Application at 7. The Joint
Application further recited that

energy investments are stable investments and, if operated correctly, provide
opportunities for fair and reasonable returns. The proposed acquisition of
PacifiCorp advances [MidAmerican’s] focus on owning and operating a portfolio of
high-quality energy businesses with capable management already in place and a
strong emphasis on customer satisfaction, reliable service,

 

 

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employee safety, environmental stewardship and regulatory/legislative
credibility.

Id.

The Applicants project that PacifiCorp’s service territories will require
investments of at least $1 billion per year, for the next five years, in order
to assure reliable electric service. Id. MidAmerican asserted it is “uniquely
suited” to undertake such investments. MidAmerican noted it is “privately held
and not subject to shareholder expectations of regular, quarterly dividends and
relatively fast returns on investments.” Id. at 8. Focusing on significant,
long-term investment “should provide PacifiCorp customers, employees, the public
and regulators with valuable stability, permitting PacifiCorp’s management and
employees to apply their full attention to exceeding customer expectations.” Id.

PacifiCorp’s headquarters will remain in Portland, Oregon. All of PacifiCorp’s
financial books and records will be retained in Portland, and will continue to
be available to this Commission. The Applicants stated there are no plans for a
reduction in work force as a result of this transaction. MidAmerican will also
renew and extend the commitments that have previously been made by PacifiCorp as
part of the ScottishPower merger case, PAC-E-99-1 (Order No. 28213). Id. at 9.

The Applicants maintain that MidAmerican’s acquisition of PacifiCorp will result
in an owner of PacifiCorp with significant financial strength, expertise in
utility operations and business planning, and a focus on improving reliability
and business operations over the long term. Id. at 9. MidAmerican claimed it has
experience with operating in a diverse service area, with states that have opted
for competitive retail services as well as states that have opted for the
traditional model of regulated retail electric service. MidAmerican intends to
maintain separate debt ratings for PacifiCorp. Moreover, the Applicants expect
the transaction will have a positive impact on PacifiCorp’s bond ratings and
financing costs. Id. at 8.

MidAmerican is a privately held Iowa corporation engaged primarily in the
production and delivery of energy from a variety of fuel sources including:
coal, natural gas, geothermal, hydroelectric, nuclear, wind and biomass.
MidAmerican has six major business operations including: MidAmerican Energy
Company; CalEnergy Generation; Kern River Gas Transmission Company; Northern
Natural Gas Company; CE Electric UK Funding plc; and HomeServices of America,
Inc.

 

 

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C. Financial Strength

The Applicants state MidAmerican has access to significant financial and
managerial resources through its relationship with Berkshire Hathaway. Berkshire
Hathaway has a debt rating of AAA. MidAmerican has global assets totaling
approximately $20 billion with 2004 revenues totaling $6.6 billion. As of March
31, 2005, on a consolidated basis (PacifiCorp and MidAmerican), MidAmerican’s
pro forma combined assets would be approximately $34 billion, and pro forma
combined revenues would be $9.6 billion. Id. at 11.

The senior debt of MidAmerican’s United States energy subsidiaries (MidAmerican
Energy, Kern River and Northern Natural Gas) are all “A-” rated by the major
credit rating agencies. All of MidAmerican’s senior debt also holds investment
grade ratings from the three major bonding rating agencies (BBB- by Standard &
Poor’s (S&P), Baa3 by Moody’s and BBB by Fitch). Id.

After announcement of the proposed transaction, the three credit rating agencies
noted that MidAmerican’s senior unsecured debt was rated stable and positive.
Moody’s and Fitch also characterized PacifiCorp’s credit rating as stable with
an improving future. Although S&P placed PacifiCorp’s debt on “CreditWatch,” S&P
also expressed its intention to review its rating as the transaction progresses.
Id. at 12.

D. Public Interest

The Applicants maintain the transaction is consistent with the public interest
and will benefit Idaho and PacifiCorp’s customers in Idaho. Id. at 15. The
Applicants claim, “the transaction will not increase the percentage of rate
increases in PacifiCorp’s existing projections. Thus, costs and rates for
supplying service in Idaho will not be increased by reason of the transaction.”
Id. at 16. The Applicants also assert that MidAmerican will continue
state-specific commitments given by PacifiCorp as part of the ScottishPower
merger. Id. MidAmerican is poised to invest a significant amount of capital to
ensure PacifiCorp has the infrastructure necessary for the provision of reliable
and economic electric service.

MidAmerican intends to own PacifiCorp for the long term leading to stability in
ownership and investment in infrastructure. The Applicants further state
MidAmerican has a demonstrated willingness to invest in a diverse mix of
generating technologies, energy efficiencies, demand-side management
technologies, and environmental technologies. Diversifying PacifiCorp’s
generating resources, improving its environmental performance and

 

 

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balancing reliance on generation with technology that manages the demand for
power and energy, will further the energy security of the region. Id. at 17.

E. Requested Timing of the Transaction

The Applicants requested that the Commission complete its review of the proposed
transaction no later than February 28, 2006. An Order issued no later than
February 28 would allow the parties to complete the transaction on or before
March 31, 2006. Id. at 2. They maintain that closing on or before March 31 will
facilitate the transition of PacifiCorp’s financial reporting from a fiscal year
ending March 31 (the ScottishPower approach) to a calendar fiscal year
consistent with MidAmerican’s financial statements. MidAmerican asserts that
calendar year reporting is consistent with its regulatory reporting and should
enable the Commission to utilize a single year’s audited financial statements
rather than having regulatory reporting span across two fiscal years. Id. at 2.

PROCEDURAL HISTORY

A. The Parties

The Commission’s Order No. 29846 set a deadline for intervention and directed
that parties informally convene to develop a schedule for processing this case.
Besides the Applicants, the following parties were granted intervention:

 

PacifiCorp

 

James M. Van Nostrand

Stoel Rives LLP

 

 

MidAmerican Energy

Holdings Company

 

Douglas L. Anderson

Mark C. Moench

 

 

Commission Staff

 

Donald L. Howell, II

Deputy Attorney General

 

 

Monsanto Company

 

Randall C. Budge

Racine, Olsen, Nye, Budge & Bailey, Chartered

 

 

Idaho Power Company

 

Barton L. Kline

Monica B. Moen

 

 

Idaho Irrigation Pumpers

Association, Inc.

 

Eric. L. Olson

Racine, Olsen, Nye, Budge & Bailey, Chartered

 

 

 

 

 

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The Community Action Partnership

Association of Idaho

 

 

Brad M. Purdy

 

IBEW Local 57

 

Arthur F. Sandack

Alan Herzfeld

Herzfeld & Piotrowski LLP

 

 

J.R. Simplot Company

 

R. Scott Pasley

 

B. Proceedings

On September 7, 2005, the parties convened a telephonic prehearing conference.
The parties participating in the conference call agreed on a proposed schedule
that was subsequently adopted by the Commission in Order No. 29867. Pursuant to
the Commission’s scheduling Order, a technical workshop was convened on October
4, 2005. The parties held two settlement conferences on November 2 and December
8, 2005. Most of the parties or their representatives attended or participated
in at least one of the settlement conferences. As a result of the settlement
negotiations, a settlement Stipulation was filed on December 16, 2005.

On December 20, 2005, the Commission Staff and the Community Action Partnership
filed testimony in support of the settlement Stipulation. On January 6, 2006,
the Applicants filed testimony in support of the settlement Stipulation and the
Joint Application. On January 5, 2006, the Commission issued Order No. 29942
serving as a public notice that the parties had entered into a settlement
Stipulation. In its Order, the Commission invited public comment regarding the
Stipulation or the Joint Application be filed no later than January 19, 2006.
The Commission determined that the public hearings were unnecessary and that the
request for public comment will allow members of the public to provide their
views on the settlement Stipulation and the Joint Application. Order No. 29942
at 3. The Commission convened its technical hearing on January 17, 2006.

THE STIPULATION

In the Stipulation, participating parties reached settlement regarding the
issues in this proceeding and recommended that the Commission approve the Joint
Application. The parties joining in the Stipulation include: MidAmerican,
PacifiCorp, Commission Staff, Community Action Partnership Association of Idaho,
Idaho Irrigation Pumpers Association, J.R. Simplot

 

 

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Company and Monsanto.3 The settlement Stipulation contains 76 “commitments” or
conditions that the Applicants or other named parties commit to perform in
support of the Application. The commitments are comprised of two groups: 50
general commitments applicable to all states and 26 Idaho-specific commitments.
The Stipulation parties assert that the commitments satisfy the statutory
standards for MidAmerican’s acquisition of PacifiCorp as set out in Idaho Code §
61-328. Stipulation at ¶ 9. In the Motion that accompanied the Stipulation, the
parties urged the Commission to adopt the Stipulation, its commitments, and
issue an Order approving the acquisition.

The settlement Stipulation also contains a “most favored nations” provision.
Stipulation at ¶ 7. This provision allows the Commission to review and adopt any
commitment or condition ordered by the other five states, even after this Order
is issued. In other words, any assurances, conditions or benefits adopted in the
other five states that would create a benefit to Idaho customers could
subsequently be adopted in Idaho under the terms of the Stipulation.

The parties to the Stipulation recommend that the Commission approve and adopt
the commitments in their entirety. They further agree not to appeal any portion
of the Stipulation or any Order approving the same. The Stipulation parties also
recognize that approval of the Stipulation and commitments shall not bind the
Commission “in other proceedings with respect to the determination of prudence,
just and reasonable character, rate or ratemaking treatment, or public interest
of services, accounts, costs, investments, in any particular construction
project, expenditures or actions referred to in [the] Commitments.” Id. at ¶ 12.

THE TECHNICAL HEARING

AND PUBLIC COMMENTS

The following parties entered appearances at the technical hearing: the
Applicants, Commission Staff, the Community Action Partnership Association of
Idaho (CAPAI), and Monsanto. Four witnesses testified in support of the
settlement Stipulation at the technical hearing. The Applicants presented two
witnesses, and the Commission and CAPAI each presented one witness.

1. The Applicants. The first witness to testify was Brent Gale, Senior Vice
President of Legislation and Regulation for MidAmerican Energy Company. Mr. Gale
explained that

 

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3Although it is not a signatory, Idaho Power Company did not oppose settlement
of this matter or the terms of the Stipulation. Stipulation at n.1. The IBEW
Local 57 did participate in the settlement discussion but did not appear at the
technical hearing to oppose the Joint Application or Stipulation. Motion for
Approval of Stipulation at n.1.

 

 

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General Commitments 1 through 32 were the “hold-harmless commitments that are a
continuation from the ScottishPower-PacifiCorp transaction.” Tr. at 41. He
described the remaining general commitments as providing “net benefits” to the
states where PacifiCorp does business.4 Tr. at 43. The latter general
commitments generally address investments and initiatives that the Applicants
will implement after the transaction is completed.

Mr. Gale did take exception to a recommendation contained in Staff witness Terri
Carlock’s supplemental testimony. She proposed that the Commission adopt a
condition in the Oregon stipulation that any shareholder who owns more than five
percent of an acquiring company will not exercise control on matters pertaining
to PacifiCorp. See Tr. at 107. He explained that two of the four shareholders of
MidAmerican Energy Holdings Company are Warren Buffett and Walter Scott, Jr.
Treating these two individuals as “applicants” could be “particularly
problematic” if the statute were read to require the Oregon Commission’s
approval before these individuals could transfer their interest in MEHC, e.g.,
for estate planning purposes. Tr. at 46. Consequently, he recommended that the
Commission not adopt this provision contained in the Oregon stipulation. Tr. at
47-48. Ms. Carlock agreed that this condition is not required. Tr. at 109.

The Applicants’ other witness was Mark Moench, Senior Vice President – Law for
MEHC. He discussed several of the Idaho-specific commitments and their benefit
to Idaho ratepayers. In particular, he noted that Idaho-specific Commitment 1
obligates PacifiCorp to continue having a dedicated irrigation specialist in
Idaho. Tr. at 80. In Idaho-specific Commitment 22, the Company commits to
setting up a process to address the technical, economic and planning issues
associated with integrated gasification combined cycle (IGCC) technology. The
Company will form a working group to develop and share information concerning
IGCC technology. Tr. at 81.

He also explained Idaho-specific Commitment 18 requires that the acquisition
premium for the transaction be recorded in the accounts of MEHC and not in
PacifiCorp’s accounts. Tr. at 82. The “only way that the acquisition premium
could ever be included in PacifiCorp’s rates would be if PacifiCorp
affirmatively proposed to include the premium in retail rates and the Commission
agreed.” Id.

 

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4 General Commitment 33 is a procedural commitment.

 

 

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2. CAPAI. Teri Ottens, the Policy Director for CAPAI, testified in support of
the settlement Stipulation. In particular, she supported Idaho-specific
Commitment Nos. 13 through 15 as improvements to PacifiCorp’s low-income and
weatherization programs. Tr. at 69-70. While CAPAI believes that PacifiCorp can
do more to support the low-income weatherization and the low-income billing
assistance program (Lend-a-Hand), she recognized the Applicants have committed
to improving the programs and will address these issues in the next rate case.
Tr. at 69.

3. Staff. The final witness at the technical hearing was Staff witness Carlock.
She too testified in support of the settlement Stipulation. She stated that the
Idaho commitments satisfied the statutory standards set out in Idaho Code §
61-328. The acquisition is in the public interest because Idaho customers are
benefited by the Applicants’ “capital commitments, ongoing customer guarantees,
access to books and records, ring-fencing provisions, and guaranteed reduced
cost of debt.” Tr. at 93. She also asserted that the cost of and rates for
PacifiCorp service will not increase due to the acquisition itself. Tr. at 94.
She noted several commitments require that the acquisition premium and other
costs be excluded from PacifiCorp’s accounts. Based upon her review of the
annual financial statements and reports, statements of regulatory accounts, due
diligence reports, disclosure letters, board meeting minutes, and the production
request responses in this case, she concluded the Applicants have the bona fide
intent and financial ability to operate and maintain PacifiCorp’s delivery of
service to Idaho customers. Tr. at 95.

She also urged the Commission to modify some of the existing Idaho commitments
in Staff Exhibit 101 to reflect the recent stipulation in Oregon. Tr. at 101.
She recommended modification of General Commitment Nos. 11, 17, 18, 22, 37, 38,
and 48. She proposed adding two new General Commitment Nos. 51 and 52. These
general commitments reflect the ownership transfer to PacifiCorp of
Intermountain Geothermal Company and associated steam rights. These commitments
will eliminate some affiliate transactions and future costs for steam purchases
at the Blundell geothermal facility. See Staff Exhibit 102 at 3.

She explained the proposed change to General Commitment 11 clarifies the
ring-fencing provision and Commitment 17 clarifies obtaining unrestricted access
to information and documents used for credit rating purposes. Tr. at 102.
General Commitment 18 provides additional detail related to the restrictions on
dividend payments. General Commitment Nos. 22,

 

 

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37 and 38 are deleted and intentionally left blank. They are replaced with four
Oregon commitments now found in Idaho-specific Commitment Nos. 28, 30, 31, and
32. Tr. at 103; Staff Exh. 102. Finally, General Commitment 48 is modified to
add the cross-reference to Commitment No. 52.

In addition to the general commitments, she also recommended that the Idaho
Commission adopt in whole or in part Oregon-specific Commitment Nos. 5, 7-12,
14-18, 21, and 22. Tr. at 103. In particular, she noted that adoption of the
Oregon-specific Commitment 22 would increase the annual contribution to the
Idaho Lend-a-Hand program to $40,000 and eliminate the matching requirement. She
also noted that adoption of the Oregon-specific commitments would provide rate
credits to the benefit of Idaho customers of approximately $640,000 annually for
test years 2006 and 2007. Staff Exh. 102, I-27 and I-31. Idaho-specific
Commitments 28-30 would guarantee that “approximately $820,000 annually in costs
will not be reflected in Idaho rates for test years 2006 through 2010 with
approximately $380,000 annually thereafter.” Tr. at 106.

4. Public Comments. The Commission received five written comments, four
supporting the proposed acquisition and one offering no opinion. The four
comments supporting the transaction all noted that, if approved, PacifiCorp
would gain better access to capital resources. They also stated MidAmerican and
PacifiCorp both have similar priorities to providing exceptional customer
service.

DISCUSSION AND FINDINGS

A. Standard of Review

The Commission has jurisdiction over this transaction pursuant to Idaho Code §
61-328. This section prohibits MidAmerican from acquiring PacifiCorp without the
written authorization of the Commission. Before authorizing such a transaction,
the Commission must find that: (1) the transaction is consistent with the public
interest; (2) the transaction will not cause the cost of or rates for supplying
electrical service to increase; and (3) that MidAmerican has the bona fide
intent and financial ability to operate and maintain PacifiCorp’s operations in
Idaho. Idaho Code § 61-328(3). The Commission may also attach such “other terms
and

 

 

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conditions as in its judgment the public convenience and necessity may
require.”5 Idaho Code § 61-328(4).

B. Findings

Based upon our review of the record in light of the standards set out above, we
find that the Applicants have met their burden of demonstrating that the
acquisition of PacifiCorp by MEHC meets the statutory standards. We begin our
analysis by noting the lack of any opposition to this transaction. This is our
third merger/acquisition transaction concerning Utah Power & Light and the least
contentious. Most of the parties in this proceeding entered into a comprehensive
settlement Stipulation that provides significant benefits to PacifiCorp’s Idaho
ratepayers. We commend the parties for their diligent work in this case and
addressing the concerns of Idaho ratepayers.

Taken as a whole, we find the general and Idaho-specific commitments attached to
this Order satisfy the public interest standard. The hold-harmless commitments
will foster ongoing customer guarantees, insure continued access to books and
records, and implement important ring-fencing protections. As Staff witness
Carlock testified ring-fencing provisions isolate the credit risks of PacifiCorp
from the credit risks of MEHC and other affiliates. Her recommendation to amend
General Commitment 11, along with other commitments, clarifies and strengthens
the ring-fencing provisions. We further find that the commitments addressing
low-income assistance, low-income weatherization programs, conservation, DSM,
and new coal technology will focus the Applicants’ attention on Idaho
ratepayers.

We further find that MidAmerican’s acquisition of PacifiCorp will not cause an
increase in the rates for electric service. The adopted commitments provide that
the acquisition premium is not on PacifiCorp’s books. Idaho ratepayers will have
access to lower-cost capital. Idaho-specific Commitments 26-31 provide
additional protections for rates in the form of hold-harmless clauses and rate
credits. Idaho customers will be the beneficiaries of $640,000 in rate credits
for 2006 and 2007. In addition, approximately $820,000 per year in expenses will
not be reflected in Idaho rates for 2006 through 2010 with additional cost
savings thereafter. Obtaining these rate credits and cost savings now will
capture benefits for Idaho ratepayers.

 

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5 Before approving any acquisition, the Commission must also include any
condition required by the director of the Department of Water Resources under
Idaho Code § 42-1701(6). Idaho-Specific Commitment No. 2 provides that the
Applicants will continue to abide by existing water rights agreements. See
Condition Nos. 19 & 20, Order No. 28213 at 11 (ScottishPower-PacifiCorp
transaction).

 

 

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Finally, we find that the Applicants have the bona fide intent and financial
ability to operate and maintain PacifiCorp’s electric service to Idaho
ratepayers. As indicated by the parties, one of the advantages of the
acquisition is PacifiCorp’s greater access to capital. General Commitments 34
and 35 both reflect the Applicants’ pledge to making investments in both
transmission and distribution. MidAmerican already operates energy companies in
other regions of the United States and provides service to nearly 1.4 million
electric and natural gas customers. MidAmerican Energy operates coal plants,
natural gas and oil plants, a large wind project, hydroelectric facilities,
biomass facilities and nuclear facilities. Tr. at 15.

We now turn to the one area of contention. We decline to adopt the Staff’s
proposed condition from paragraph 10 of the Oregon stipulation. This specific
condition is based upon an Oregon statute. There is no similar Idaho statute
and, therefore, adoption of this condition is not necessary.

In summary, we conclude that MidAmerican’s acquisition of PacifiCorp meets the
standards set out in Idaho Code § 61-328(3). We find it reasonable to approve
the Stipulation and the commitments as modified in Staff Exhibit 102. The “most
favored nations” provision of the Stipulation also allows the Commission to
subsequently adopt commitments ordered in the remaining state proceedings. We
expect the Staff and other parties to apprise us if there are new or modified
commitments that would benefit Idaho ratepayers.

O R D E R

IT IS HEREBY ORDERED that the Joint Application filed by MidAmerican Energy
Holdings Company and PacifiCorp dba Utah Power & Light Company is approved as
conditioned by the commitments attached to this Order. The Commission recognizes
under the “most favored nations” provision of the Stipulation, the commitments
may be amended based upon the orders issued in the other five (5) states.

IT IS FURTHER ORDERED that the settlement Stipulation and commitments (as
amended by Staff’s review of the Oregon commitments) are accepted and adopted.

THIS IS AN INITIAL FINAL ORDER. Any person interested in this Order or in issues
decided in this Order may petition for reconsideration within twenty-one (21)
days of the service date of this Order. Within seven (7) days after any person
has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code § 61-626.

 

 

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DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this day
of February 2006.

 

 

 

 

 

 

 

/s/ Paul Kjellander

 

 

 

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PAUL KJELLANDER, PRESIDENT

 

 

 

 

 

 

 

/s/ Marsha H. Smith

 

 

 

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MARSHA H. SMITH, COMMISSIONER

 

 

 

 

 

 

 

/s/ Dennis S. Hansen

 

 

 

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DENNIS S. HANSEN, COMMISSIONER

 

 

ATTEST:

 

 

 

 

 

/s/ Jean D. Jewell

 

 

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Jean D. Jewell
Commission Secretary

 

 

 

 

 

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MEHC Acquisition of PacifiCorp

Idaho

Consolidated List of Commitments

Commitments Applicable to All States

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 45 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.

 

 

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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)

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. These provisions have been derived from those in effect for NNGC
Acquisition, LLC as of December 1, 2005.

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 Intercompany 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.

 

 

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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)

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)

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

 

 

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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.

18)

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.

19)

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.

20)

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 or its
affiliates, or assume any obligation or liability as guarantor, endorser, surety
or otherwise for MEHC or its affiliates; provided

 

 

18

 

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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 business of PacifiCorp as backing for any securities which
MEHC or its affiliates (but excluding PacifiCorp and its subsidiaries) may
issue.

21)

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.

22)

[This Commitment number has intentionally been left blank. Commitment 22 is not
available if a state selects Oregon-Specific Commitment 0 12 as Staff recommends
in Idaho-Specific Commitment No. I 31.]

23)

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.

24)

PacifiCorp will continue its commitment to gather outside input on environmental
matters, such as through the Environmental Forum.

25)

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.

26)

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.

27)

MEHC will continue to consult with regional advisory boards to ensure local
perspectives are heard regarding community issues.

28)

MEHC will honor PacifiCorp’s existing labor contracts.

29)

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 the reduction of employee benefits.

30)

PacifiCorp will continue to produce Integrated Resource Plans according to the
then current schedule and the then current Commission rules and orders.

31)

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 (RFPs) or otherwise comply with state laws, regulations and orders
that pertain to procurement of new generation resources for PacifiCorp.

 

 

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32)

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.

33)

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 shall
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.

34)

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 improvements6:

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.
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. The target completion date for this project is 2011. This
project:

 

•

enhances reliability by enabling the import of power from Southern California
entities during emergency situations,

 

•

facilitates the acceptance of renewable resources, and

______________

6 While MEHC has immersed itself in the details of PacifiCorp’s business
activities in the short time since the announcement of the transaction, it is
possible that upon further review a particular investment might not be
cost-effective, optimal for customers or able to be completed by the target
date. 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.

 

 

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•

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. The target completion date for this project is 2010.

35)

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 support the Bonneville Power Administration in its
development of short-term products such as conditional firm. Based on the
outcome from BPA’s efforts, PacifiCorp will initiate a process to
collaboratively design similar products at PacifiCorp. PacifiCorp will continue
its Partial Interim Service product and its tariff provision that allows
transmission customers to alter pre-scheduled transactions up to twenty minutes
before any hour, and will notify parties to this proceeding if it proposes
changes to these two elements of its OATT.

36)

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.

37)

[This Commitment number has intentionally been left blank. Commitment 37 is not
available if a state selects Oregon-Specific Commitment 0 14 as Staff recommends
in Idaho-Specific Commitment No. I 32.].

 

 

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38)

[This Commitment number has intentionally been left blank. Commitment 38 is not
available if a state selects Oregon-Specific Commitments 0 9 and 0 11 as Staff
recommends in Idaho-Specific Commitment Nos. I 28 and I 30.]

39)

Future Generation Options: In Commitment 31, 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.

40)

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 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 1400 MW of cost-effective renewable energy resources by 2015. Such
renewable energy resources are not limited to wind energy resources.

41)

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.

42)

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

 

 

22

 

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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. Additionally, PacifiCorp will develop
a strategy to identify and implement cost-effective measures to reduce
PacifiCorp’s greenhouse gas emissions.

43)

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. 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. 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.

 

 

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44)

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 fifteen 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 MEHC 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.

45)

Customer Service Standards: 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.

46)

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.

47)

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 safe and reliable service and cost-effective operations.

 

 

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48)

IRP Stakeholder Process: PacifiCorp will provide public notice and an invitation
to encourage stakeholders to participate in the Integrated Resource Plan (IRP)
process. The IRP process will be used to consider Commitments 34, 39, 40, 41, 44
and 52. PacifiCorp will hold IRP meetings at locations or using communications
technologies that encourage broad participation.

49)

Reporting on Status of Commitments: 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 the performance of each of the commitments that have
quantifiable results. If any of the commitments 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. PacifiCorp
will make publicly available at the Commission non-confidential portions of the
report.

50)

Pension Funding Policy: 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.

51)

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 PUIHCA Audit Report of ScottishPower 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.

52)

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 maybe 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.

 

 

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Idaho-Specific Commitments

I 1.

MEHC/PacifiCorp will continue to make a dedicated Irrigation Specialist
available in Rexburg and Shelley in the Idaho service territory. The
effectiveness of this service will be reviewed at the end of the 2007 irrigation
season to determine whether it should be continued. The Irrigation Hotline will
continue to be available Monday through Saturday, except holidays, from 7 AM to
7 PM, with the number published in the phone directory.

I 2.

Water Rights agreements will be abided by MEHC and PacifiCorp.

I 3.

MEHC and PacifiCorp will provide the Commission access to corporate minutes,
including Board of Director’s minutes and all committee minutes, along with any
related source documents that are relevant to the business and risk analysis of
PacifiCorp. PacifiCorp and the Commission Staff will establish an agreeable
procedure to review these confidential documents in Portland, Oregon, Salt Lake
City, Utah or Boise, Idaho.

I 4.

MEHC and PacifiCorp will provide the Commission access to operational, internal
and risk audit reports and documentation. PacifiCorp and the Commission Staff
will establish an agreeable procedure to review these confidential documents and
the timeline to provide an annual listing of such audits.

I 5.

A near-final draft agreement for PPW Holdings LLC that contains the ring-fencing
provisions of Commitment 11 will be sent to the Commission Staff by January 15,
2006. The final signed agreement will be filed with the Commission within 30
days after the close of the transaction.

I 6.

Within 30 days of the close of the transaction, PacifiCorp will provide the
Commission with a written list of changes that were made to employee benefit
plans between the announcement of the transaction and the close of the
transaction. PacifiCorp and MEHC will provide 30 days’ notice to the Commission
prior to merging PacifiCorp’s pension with the pension plan of another MEHC
business.

I 7.

Through December 31, 2015, PacifiCorp will provide the Commission notice when it
intends to increase the amount of dividend payments by 10% or more.

I 8.

As part of the DSM study in Commitment 44, PacifiCorp will also consider the
market potential associated with the expansion of existing programs, including
the Irrigation and Monsanto load curtailment programs in Idaho. The study will
compare the cost effectiveness of DSM resources with comparable supply side
resources.

I 9.

MEHC and PacifiCorp commit to maintain a bid evaluation methodology that
prudently compares any company owned and operated alternative to valid and
conforming bid proposals submitted in response to a supply-side RFP.

 

 

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I 10.

On January 31, 2005, the Commission accepted PacifiCorp’s proposal to eliminate
its Network Performance Standard relating to Momentary Average Interruption
Frequency Index (MAIFI) in light of the Company’s commitment to develop an
acceptable alternative to MAIFI as soon as possible. The Company has developed
its proposed measurement plan and is scheduled to present to the Commission
Staff at its next reliability meeting (scheduled for December 20, 2005). Within
60 days after this meeting, the Company will file the plan with the Commission.
MEHC and PacifiCorp commit to implement this plan and provide the results of
these calculations to Commission Staff and other interested parties in
reliability review meetings.

I 11.

PacifiCorp is required to apply to the Commission for approval of security
issuances pursuant to Idaho Code Title 61, Chapter 9. PacifiCorp will not seek
an exemption from this requirement for twelve months following the closing of
this transaction. Staff will evaluate the “all-in-cost” of issuances for
inclusion in rates and as it relates to the Reduced Cost of Debt.

I 12.

MEHC and PacifiCorp acknowledge that the Commitments being made by MEHC and
PacifiCorp are binding only upon them and their affiliates where noted (and upon
Berkshire Hathaway where specifically mentioned). In this proceeding Applicants
are not requesting a determination of the prudence, just and reasonable
character, rate or ratemaking treatment, or public interest of the investments,
expenditures or actions referenced in the Commitments. In other appropriate
proceedings, the parties may take positions regarding the prudence, just and
reasonable character, rate or ratemaking treatment, or public interest of the
investments, expenditures or actions referenced in these Commitments as the
parties deem appropriate.

I 13.

With respect to the Low Income Weatherization Program managed by community
action agencies in Idaho, PacifiCorp commits to the following:

a)

Within 30 days of completion of the transaction, PacifiCorp will file proposed
revisions to its Schedule 21 Tariff to effect a change in funding of
conservation measures from 50% of measure cost to 100% of measure cost when
federal matching funds are no longer available to fund measures at PacifiCorp
customer’s premise, subject to the $150,000 annual funding limit in the tariff.

b)

In PacifiCorp’s next Idaho general rate case, PacifiCorp will include in its
direct testimony an analysis of the costs and benefits of changing its current
practice of matching 50% of federal contributions to matching at a higher
percentage amount.

I 14.

MEHC and PacifiCorp commit to a total contribution level for Idaho low income
bill payment assistance in the amount of $40,000 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.

 

 

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I 15.

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 Idaho 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.

I 16.

MEHC and PacifiCorp will provide notification of and file for Commission
approval of the divestiture, spin-off, or sale of any integral PacifiCorp
function. This condition does not limit any jurisdiction the Commission may
have.

I 17.

PacifiCorp or MEHC will notify the Commission prior to implementation of plans
by PacifiCorp or MEHC: (1) to form an affiliate for the purpose of transacting
business with PacifiCorp’s regulated operations; (2) to commence new business
transactions between an existing affiliate and PacifiCorp; or (3) to dissolve an
affiliate which has transacted substantial business with PacifiCorp.

I 18.

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. By this
commitment, MEHC and PacifiCorp are not agreeing or otherwise committing to
waive any arguments that they might have pertaining to a symmetrical expense
adjustment based on the regulatory theory of the matching principle in the event
a party in a proceeding before the Commission proposes an adjustment to
PacifiCorp’s revenue requirement associated with the imputation of benefits
(other than those benefits committed to in this transaction) accruing from PPW
Holdings LLC, MEHC, or affiliates. MEHC and PacifiCorp acknowledge that neither
the Commission nor any party to this proceeding is being asked to agree with or
accept any such arguments or to waive any right to assert or adopt such
positions regarding the prudence, just and reasonable character, rate or
ratemaking impact or treatment, or public interest as they deem appropriate
pertaining to this commitment.

I 19.

PacifiCorp will provide semi annual reports to the Commission and Commission
Staff describing PacifiCorp’s performance in meeting service standard
commitments, including both performance standards and customer guarantees.

 

 

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I 20.

PacifiCorp will provide to the Commission, on an informational basis, credit
rating agency news releases and final reports regarding PacifiCorp when such
reports are known to PacifiCorp and are available to the public.

I 21.

a)

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 18b:

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)

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 18c.

c)

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 to consider additional
ring-fencing provisions that may be appropriate.

I 22.

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. 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 SB 26 on development of IGCC plants given the implications of
long development lead times, development costs, project risk, and cost
uncertainty.

 

 

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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.

I 23.

PacifiCorp agrees to include the following items in the 2006 IRP:

a)

a wind penetration study to reappraise wind integration costs and cost-effective
renewable energy levels; and

b)

an assessment of transmission options for PacifiCorp’s system identified in the
RMATS scenario 1 related to facilitating additional generation at Jim Bridger
and, on equal footing, new cost-effective wind resources.

I 24.

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 17 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.

I 25.

The scope of the “most favored nation” commitment contained in Section III of
the Stipulation will extend to and include any resolution or settlement prior to
closing of the transaction of any procedural, jurisdictional or federal law
issues or disputes raised in PacifiCorp vs. Rob Hurless, Case No. CV-04-031J,
United States District Court, District of Wyoming, regardless of the manner,
context or proceeding in which any such settlement or resolution paid in
connection with such settlement or resolution, to the extent such settlement or
resolution includes any kind of ongoing waiver, or agreement to litigate in
state tribunals, of any federal preemption, filed rate doctrine or similar
federal issues, or any other limitation, condition or waiver of federal
jurisdiction or federal forum as it relates to state ratemaking (referred to
hereinafter as a procedural limitation clause (“PLC”). If any PLC is agreed to
by PacifiCorp in any such settlement or resolution, PacifiCorp agrees to
identify the PLC in stand-alone language and MEHC agrees to include such PLC as
a deemed commitment to the Wyoming transaction docket and by virtue of the most
favored nations clause referred to above, the PLC will be available for adoption
in Idaho pursuant to the procedures in the Stipulation.

I 26.

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 I 27 through I 31. 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 I 27 and I 31 are subject to deferred accounting as specified
therein. Where total company values are referenced, the amount allocated to
Idaho will equal the Idaho-allocated amount using Commission-adopted allocation
factors.

 

 

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I 27.

a)

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, Idaho’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.)

b)

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.

I 28.

a)

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 38, and a state must choose between this Commitment I 28 and
Commitment 38. (The commitment is reflected in Row 2 of Appendix 2.)

b)

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.

I 29.

a)

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

 

 

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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.

b)

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 are not more than $7.4 million
(total company). (This commitment is reflected in Row 3 in Appendix 2.)

I 30.

a)

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 38, and a state must choose between this Commitment I 30 and
Commitment 38.

b)

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.)

I 31.

a)

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 amount of
the total company rate credit is $6 million per year. This commitment expires
December 31, 2010. Beginning with the first month after the close of the
transaction, Idaho’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 22 and U 23
from the Utah settlement, and a state must choose between this Commitment I 31
and Commitments 22 and U 23.

b)

The credit will be offsetable, on a prospective basis, by the amount that
PacifiCorp demonstrates to the Commission’s satisfaction, in a general rate
case, that total company A&G expenses included in PacifiCorp’s rates are lower
than the benchmark and have not been shifted to other regulatory accounts. The
2006 benchmark will be $228.8 million. Subsequent benchmarks shall equal the
2006 benchmark multiplied by the ratio of the

 

 

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Global Insight’s Utility Cost Information Service (UCIS)-Administrative and
General — Total Operations and Maintenance Index (INDEX CODE Series JEADGOM),
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 benchmark for
future years will equal the benchmark from the rate case in which a new index
was adopted multiplied by the ratio of the new index for the test period divided
by the index value for the first year that the index is adopted.

I 32.

a)

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 37, and a state must choose between this
Commitment I 32 and Commitment 37.

b)

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.

I 33.

MEHC commits that no amendments, revisions or modifications will be made to the
ring-fencing provisions of Commitment 11 b) without prior Commission approval
for the sole purpose of addressing the ring-fencing provisions.

I 34.

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.

 

 

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I 35.

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.

I 36.

MEHC and PacifiCorp will supplement the report filed with the Commission,
pursuant to Commitment 49 by including information regarding the implementation
of each of the Idaho-Specific Commitments I 1 through I 35.

 

 

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APPENDIX 1

PPW HOLDINGS LLC RINGFENCING PROVISIONS

1.

Purposes.

 

(a)

The purposes of the Company are to engage in the following activities:

1.        to purchase and own 100% of the capital stock in PacifiCorp
(“PacifiCorp”; and any equity interest therein, an “Equity Interest”);

2.       in connection with the purchase of the Equity Interest, to negotiate,
authorize, execute, deliver and perform documents including, but not limited to,
that certain Assignment and Assumption of Stock Purchase Agreement between the
Member and the Company pursuant to which the Member will assign to the Company
all of the Member’s rights and obligations under that certain Stock Purchase
Agreement, between the Member and the other persons parties thereto, dated as of
May 23, 2005 and any other agreement or document contemplated thereby (the
“Transaction Documents”); and

3.        to do such other things and carry on any other activities, and only
such things and activities, which the Board, defined herein, determines to be
necessary, convenient or incidental to any of the foregoing purposes, and to
have and exercise all of the power and rights conferred upon limited liability
companies formed pursuant to the Act in furtherance of the foregoing.

(b)      The Company, by or through one or more Officers of the Company, may
enter into and perform the Transaction Documents and all documents, agreements,
certificates or financing statements contemplated thereby or related thereto,
with such final terms and provisions as the Officer or Officers of the Company
executing the same shall approve, his or their execution thereof to be
conclusive evidence of his or such approval, all without any further act, vote
or approval of the Member, the Board of Directors or any other Officer
notwithstanding any other provision of this Agreement, the Act or applicable
law, rule or regulation. All actions taken by the Member, any Director or
Officer on behalf of the Company or on behalf of any of its affiliates prior to
the date hereof, to effect the transactions contemplated by the Transaction
Documents or the formation of the Company, are hereby ratified, approved and
confirmed in all respects. Simultaneously with or following the execution of
this Agreement the Company may enter into each of the Transaction Documents with
such final terms and provisions as the Officer or Officers of the Company
executing the same shall approve, his or their execution thereof to be
conclusive evidence of his or their approval.

2.

Management.

(a)      Board of Directors. The business and affairs of PPW Holdings, LLC (the
“Company”) shall be managed by or under the direction of a board of one or more
Directors (the “Board”); provided that from and after the purchase of an equity
interest in PacifiCorp (an “Equity Interest”), and for so long as the Company
shall own an Equity Interest, one of the members of the Board shall be an
Independent Director.

 

 

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An “Independent Director” shall mean a member of the Board who is not at the
time of initial appointment, or at any time while serving on the Board, and has
not been at any time during the preceding five (5) years: (a) a member,
stockholder, director (except as such Independent Director of the Company),
officer, employee, partner, attorney or counsel of the Company or any affiliate
of the Company; (b) a creditor, customer other than a consumer, supplier or
other person who has derived in any one of the preceding (5) calendar years
revenues from its activities with the Company or any affiliate of the Company
(except as such Independent Director); (c) a person related to or employed by
any person described in clause (a) or clause (b) above, or (d) a trustee,
conservator or receiver for the Company or any affiliate of the Company. As used
in this definition, “affiliate” shall have the meaning given to such term under
Rule 405 under the Securities Act of 1933, as amended.

Except as otherwise provided in this Section 1(a) with respect to the
Independent Director, MidAmerican Energy Holdings Company (the “Member”) by
unanimous vote or unanimous written consent, may determine at any time in its
sole and absolute discretion, the number of Directors to constitute the Board.
The initial number of Directors shall be two. At the time of the purchase of an
Equity Interest by the Company, if one of the Directors is not then a qualified
Independent Director, the number of Directors on the Board shall be
automatically increased by one, such additional position to be filled as soon as
practicable by an Independent Director selected by a majority vote of all of the
Directors then in office. Each Director elected, designated or appointed shall
hold office until a successor is elected and qualified or until such Director’s
earlier death, resignation or removal. Each Director shall be a “manager” within
the meaning of the Limited Liability Company Act of the State of Delaware (the
“Act”).

(b)      Powers. Subject to this Section 1, the Board shall have the power to do
any and all acts necessary, convenient or incidental to or for the furtherance
of the purposes described herein, including all powers, statutory or otherwise.
Except as provided in the certificate and subject to Section 2(e), the Board has
the authority to bind the Company by a majority of the votes held by the
Directors. For purposes of voting, each Director shall have one vote.

(c)      Quorum; Acts of the Board. At all meetings of the Board, a majority of
the Directors shall constitute a quorum for the transaction of business and,
except as otherwise provided in any other provision of this Agreement or in the
certificate of incorporation, the act of a majority of the votes held by the
Directors present at any meeting at which there is a quorum shall be the act of
the Board. In the case of an act which requires the unanimous vote of the
Directors and/or the vote of the Independent Director, only the presence at the
subject meeting of all of the Directors, including the Independent Director,
shall constitute a quorum. If a quorum shall not be present at any meeting of
the Board, the Directors present at such meeting may adjourn the meeting from
time to time, without written notice other than announcement at the meeting,
until a quorum shall be present.

(d)      Removal of Directors. Unless otherwise restricted by law, any Director
or the entire Board may be removed, with or without cause, by the Member, and
subject to Section 2, any vacancy caused by any such removal may be filled by
action of the Member. In the event of the removal of the Independent Director or
other event that causes the Independent Director to cease to be an Independent
Director on the Board, no action requiring the vote of the

 

 

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Independent Director shall take place until such time as a replacement
Independent Director is elected to the Board by the Member.

(e)

Limitations on the Company’s Activities.

1.        This Section 2(e) is being adopted in order to qualify the Company as
a “special purpose entity” and so long as the Company holds or owns an Equity
Interest, this Section 2(e) shall govern the activities of the Company
notwithstanding any other provision of this Agreement.

2.       So long as the Company holds or owns an Equity Interest, the Board
shall cause the Company to do or cause to be done all things necessary to
preserve and keep in full force and effect its existence, rights (charter and
statutory) and franchises. At all times, unless otherwise provided in that
certain Stock Purchase Agreement, between the Member and the other persons
parties thereto, dated as of May 23, 2005 and any other agreement or document
contemplated thereby (the “Transaction Documents”), the Board shall cause the
Company to:

 

a)

maintain its own separate books and records, financial statements, and bank
accounts;

 

b)

except for tax and accounting purposes, at all times hold itself out to the
public as a legal entity separate from the Member and any other Person and not
identify itself as a division of any other Person;

 

c)

have a Board, the composition of which in sum is unique from that of any other
Person;

 

d)

file its own tax returns, if any, as may be required under applicable law, and
pay any taxes required to be paid under applicable law;

 

e)

not commingle its assets with assets of any other Person;

 

f)

conduct its business in its own name and hold all of its assets in its own name;

 

g)

pay its own liabilities only out of its own funds;

 

h)

maintain an arm’s length relationship with its affiliates, including its Member;

 

i)

from its own funds, pay the salaries of its own employees;

 

j)

not hold out its credit as being available to satisfy the obligations of others;

 

 

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k)

maintain its own office and telephone line separate and apart from its
affiliates, although it may lease space from an affiliate and share a phone line
with an affiliate, having either a separate number or extension, and in
furtherance thereof allocate fairly and reasonably any overhead for shared
office space;

 

l)

use separate stationery, invoices and checks bearing its own name;

 

m)

not pledge its assets for the benefit of any other Person;

 

n)

correct any known misunderstanding regarding its separate identity;

 

o)

maintain adequate capital and an adequate number of employees in light of its
contemplated business purposes; and

 

p)

not acquire any obligations or securities of the Member or its affiliates, other
than an Equity Interest.

Failure of the Company to comply with any of the foregoing covenants shall not
affect the status of the Company as a separate legal entity or the limited
liability of the Member or the Directors.

3.       So long as the Company holds or owns an Equity Interest and unless
otherwise provided in the Transaction Documents, the Company shall not:

 

a)

become or remain liable, directly or contingently, in connection with any
indebtedness or other liability of any other person or entity, whether by
guarantee, endorsement (other than endorsements of negotiable instruments for
deposit or collection in the ordinary course of business), agreement to purchase
or repurchase, agreement to supply or advance funds, or otherwise;

 

b)

grant or permit to exist any lien, encumbrance, claim, security interest, pledge
or other right in favor of any person or entity in the assets of the Company or
any interest (whether legal, beneficial or otherwise) in any thereof;

 

c)

engage, directly or indirectly, in any business other than as permitted to be
performed under the Company’s limited liability company operating agreement;

 

d)

make or permit to remain outstanding any loan or advance to, or own or acquire
(a) indebtedness issued by any other person or entity, or (b) any stock or
securities of or interest in, any person or entity, other than the Equity
Interest;

 

 

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e)

enter into, or be a party to, any transaction with any of its affiliates, except
(A) in the ordinary course of business, (B) pursuant to the reasonable
requirements and purposes of its business and (C) upon fair and reasonable terms
(and, to the extent material, pursuant to written agreements)) that are
consistent with market terms of any such transactions entered into by
unaffiliated parties;

 

f)

make any change to its name or principal business or use of any trade names,
fictitious names, assumed names or “doing business as” names.

4.       So long as the Company holds or owns an Equity Interest, none of the
Company, the Member or the Board shall be authorized or empowered, nor shall
they permit the Company, without the prior unanimous written consent of all of
the Directors on the Board, including the Independent Director, (a) to
consolidate, merge, dissolve, liquidate or sell all or substantially all of the
Company’s assets or (b) to institute proceedings to have the Company adjudicated
bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency
proceedings against the Company or file a voluntary petition seeking, or consent
to, reorganization or relief with respect to the Company under any applicable
federal or state law relating to bankruptcy, or consent to appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or a substantial part of its property, or make any
assignment for the benefit of creditors of the Company, or admit in writing the
Company’s inability to pay its debts generally as they become due, or to the
fullest extent permitted by law, to take any action in furtherance of any such
action. Moreover, the Board may not vote on, or authorize the taking of, any of
the foregoing actions unless there is at least one Independent Director then
serving in such capacity.

(f)       Limitations on Distributions. So long as the Company owns or holds an
Equity Interest, the Company shall not permit PacifiCorp to declare or make any
Distribution to the Company or any other person that owns or holds an Equity
Interest, unless, on the date of such Distribution, either:

1.        at the time and as a result of such Distribution, PacifiCorp’s
Leverage Ratio does not exceed 0.65:1 and PacifiCorp’s Interest Coverage Ratio
is not less than 2.5:1; or

2.       (if PacifiCorp is not in compliance with the foregoing ratios) at such
time, PacifiCorp’s senior unsecured long term debt rating is at least BBB (or
its then equivalent) with Standard & Poor’s Ratings Group and Baa2 (or its then
equivalent) with Moody’s Investors Service, Inc.

For purposes of this Section 2(f), the following terms shall be defined as
follows:

“Capitalized Lease Obligations” means all lease obligations of PacifiCorp and
its Subsidiaries which, under GAAP, are or will be required to be capitalized,
in each case taken at the amount thereof accounted for as indebtedness in
conformity with such principles.

 

 

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“Consolidated Current Liabilities” means the consolidated current liabilities of
PacifiCorp and its Subsidiaries, but excluding the current portion of long term
Indebtedness which would otherwise be included therein, as determined on a
consolidated basis in accordance with GAAP.

“Consolidated Debt” means, at any time, the sum of the aggregate outstanding
principal amount of all Indebtedness for Borrowed Money (including, without
limitation, the principal component of Capitalized Lease Obligations, but
excluding Currency, Interest Rate or Commodity Agreements and all Consolidated
Current Liabilities) of PacifiCorp and its Subsidiaries, as determined on a
consolidated basis in conformity with GAAP.

“Consolidated EBITDA” means, for any period, the sum of the amounts for such
period of PacifiCorp’s (i) Consolidated Net Operating Income, (ii) Consolidated
Interest Expense, (iii) income taxes and deferred taxes (other than income taxes
(either positive or negative) attributable to extraordinary and non-recurring
gains or losses or sales of assets), (iv) depreciation expense, (v) amortization
expense, and (vi) all other non-cash items reducing Consolidated Net Operating
Income, less all non-cash items increasing Consolidated Net Operating Income,
all as determined on a consolidated basis in conformity with GAAP; provided,
that to the extent PacifiCorp has any Subsidiary that is not a wholly owned
Subsidiary, Consolidated EBITDA shall be reduced by an amount equal to the
Consolidated Net Operating Income of such Subsidiary multiplied by the quotient
of (A) the number of shares of outstanding common stock of such Subsidiary not
owned on the last day of such period by PacifiCorp or any Subsidiary of
PacifiCorp divided by (B) the total number of shares of outstanding common stock
of such Subsidiary on the last day of such period.

“Consolidated Interest Expense” means, for any period, the aggregate amount of
interest in respect of Indebtedness for Borrowed Money (including amortization
of original issue discount on any Indebtedness and the interest portion on any
deferred payment obligation, calculated in accordance with the effective
interest method of accounting; and all commissions, discounts and other fees and
charges owed with respect to bankers’ acceptance financing) and the net costs
associated with Interest Rate Agreements and all but the principal component of
rentals in respect of Capitalized Lease Obligations, paid, accrued or scheduled
to be paid or to be accrued by PacifiCorp and each of its Subsidiaries during
such period, excluding, however, any amount of such interest of any Subsidiary
of PacifiCorp if the net operating income (or loss) of such Subsidiary is
excluded from the calculation of Consolidated Net Operating Income for such
Subsidiary pursuant to clause (ii) of the definition thereof (but only in the
same proportion as the net operating income (or loss) of such Subsidiary is
excluded), less consolidated interest income, all as determined on a
consolidated basis in conformity with GAAP; provided that, to the extent that
PacifiCorp has any Subsidiary that is not a wholly owned Subsidiary,
Consolidated Interest Expense shall be reduced by an amount equal to such
interest expense of such Subsidiary multiplied by the quotient of (A) the number
of shares of outstanding common stock of such Subsidiary not owned on the last
day of such period by PacifiCorp or any Subsidiary of PacifiCorp divided by (B)
the total number of shares of outstanding common stock of such Subsidiary on the
last day of such period.

 

 

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“Consolidated Net Operating Income” means, for any period, the aggregate of the
net operating income (or loss) of PacifiCorp and its Subsidiaries for such
period, as determined on a consolidated basis in conformity with GAAP; provided
that the following items shall be excluded from any calculation of Consolidated
Net Operating Income (without duplication): (i) the net operating income (or
loss) of any person (other than a Subsidiary) in which any other person has a
joint interest, except to the extent of the amount of dividends or other
distributions actually paid to PacifiCorp or another Subsidiary of PacifiCorp
during such period; (ii) the net operating income (or loss) of any Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by such Subsidiary of such net operating income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation or license;
and (iii) all extraordinary gains and extraordinary losses.

“Currency, Interest Rate or Commodity Agreements” means an agreement or
transaction involving any currency, interest rate or energy price or volumetric
swap, cap or collar arrangement, forward exchange transaction, option, warrant,
forward rate agreement, futures contract or other derivative instrument of any
kind for the hedging or management of foreign exchange, interest rate or energy
price or volumetric risks, it is being understood, for purposes of this
definition, that the term “energy” shall include, without limitation, coal, gas,
oil and electricity.

“Distribution” means any dividend, distribution or payment (including by way of
redemption, retirement, return or repayment) in respect of shares of capital
stock of PacifiCorp.

“GAAP” means generally accepted accounting principles in the United States as in
effect from time to time.

“Indebtedness” means, with respect to PacifiCorp or any of its Subsidiaries at
any date of determination (without duplication), (i) all Indebtedness for
Borrowed Money, (ii) all obligations in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect thereto),
(iii) all obligations to pay the deferred and unpaid purchase price of property
or services, which purchase price is due more than six months after the date of
placing such property in service or taking delivery and title thereto or the
completion of such services, except trade payables, (iv) all Capitalized Lease
Obligations, (v) all indebtedness of other persons secured by a mortgage,
charge, lien, pledge or other security interest on any asset of PacifiCorp or
any of its Subsidiaries, whether or not such indebtedness is assumed; provided,
that the amount of such Indebtedness shall be the lesser of (A) the fair market
value of such asset at such date of determination, and (B) the amount of the
secured indebtedness, (vi) all indebtedness of other persons of the types
specified in the preceding clauses (i) through (v), to the extent such
indebtedness is guaranteed by PacifiCorp or any of its Subsidiaries, and (vii)
to the extent not otherwise included in this definition, obligations under
Currency, Interest Rate or Commodity Agreements. The amount of Indebtedness at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and, upon the occurrence of the contingency
giving rise to the obligation, the maximum liability of any contingent
obligations of the types specified in the preceding clauses (i) through (vii) at
such date; provided, that the amount outstanding

 

 

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at any time of any Indebtedness issued with original issue discount is the face
amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP.

“Indebtedness for Borrowed Money” means any indebtedness (whether being
principal, premium, interest or other amounts) for (i) money borrowed, (ii)
payment obligations under or in respect of any trade acceptance or trade
acceptance credit, or (iii) any notes, bonds, debentures, debenture stock, loan
stock or other debt securities offered, issued or distributed whether by way of
public offer, private placement, acquisition consideration or otherwise and
whether issued for cash or in whole or in part for a consideration other than
cash; provided, however, in each case that such term shall exclude any
indebtedness relating to any accounts receivable securitizations.

“Interest Coverage Ratio” means, with respect to PacifiCorp on any Measurement
Date, the ratio of (i) the aggregate amount of Consolidated EBITDA of PacifiCorp
for the four fiscal quarters for which financial information in respect thereof
is available immediately prior to such Measurement Date to (ii) the aggregate
Consolidated Interest Expense during such four fiscal quarters.

“Leverage Ratio” means the ratio of Consolidated Debt to Total Capital,
calculated on the basis of the most recently available consolidated balance
sheet of PacifiCorp and its consolidated Subsidiaries (provided that such
balance sheet is as of a date not more than 90 days prior to a Measurement Date)
prepared in accordance with GAAP.

“Measurement Date” means the record date for any Distribution.

“Subsidiary” means, with respect to any person, any corporation, association,
partnership, limited liability company or other business entity of which 50% or
more of the total voting power of shares of capital stock or other interests
(including partnership interests) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers, or trustees
thereof is at the same time owned, directly or indirectly, by (i) such person,
(ii) such person and one or more Subsidiaries of such person, or (iii) one or
more Subsidiaries of such person.

“Total Capital” of any person is defined to mean, as of any date, the sum
(without duplication) of (a) Indebtedness for Borrowed Money, and (b)
consolidated stockholder’s equity of such person and its consolidated
Subsidiaries.”

3.

Independent Director.

From the time an Independent Director is initially appointed and for so long as
the Company holds or owns an Equity Interest, the Company shall at all times
have at least one Independent Director who, except as provided in Section 2(a),
will be appointed by the Member. To the fullest extent permitted by Section
18-1101(c) of the Act, the Independent Director shall consider only the
interests of the Company, including its respective creditors, in acting or
otherwise voting on the matters that come before them. No Independent Director
shall at any time serve as trustee in bankruptcy for any affiliate of the
Company.

 

 

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4.

Enforcement by Independent Director.

Notwithstanding any other provision of the Company’s limited liability operating
agreement, the Member agrees that such agreement constitutes a legal, valid and
binding agreement of the Member, and is enforceable against the Member by the
Independent Director, in accordance with its terms. In addition, the Independent
Director shall be an intended beneficiary of the agreement.

5.

Dissolution.

(a)      The Company shall be dissolved, and its affairs shall be wound up only
upon the entry of a decree of judicial dissolution under Section 18-802 of the
Act; and shall not dissolve prior to the occurrence of such event, provided,
however, to the fullest extent permitted by law, the Member and the Directors
shall not make an application under Section 18-802 of the Act so long as the
Company holds or owns an Equity Interest.

(b)      So long as the Company owns or holds an Equity Interest, the Member
shall cause the Company to have, at all times, at least one person who shall
automatically become a member having 0% economic interest in the Company (the
“Springing Member”) upon the dissolution of the Member or upon the occurrence of
any other event that causes the Member to cease being a member of the Company.
Upon the occurrence of any such event, the Company shall be continued without
dissolution and the Springing Member shall, without any action of any person or
entity, automatically and simultaneously become a member of the Company having a
0% economic interest in the Company and the Personal Representative(s) (as
defined in the Act) of the Member shall automatically become an unadmitted
assignee of the Member, being entitled thereby only to the distributions to
which the Member was entitled hereunder and any other right conferred thereupon
by the Act. In order to implement the admission of the Springing Member as a
member of the Company, the Springing Member has executed a counterpart to this
Agreement as of the date hereof. Pursuant to Section 18-301 of the Act, the
Springing Member shall not be required to make any capital contributions to the
Company and shall not receive any limited liability company interest in the
Company. Prior to its admission to the Company as a member of the Company
pursuant to this Section 24(b), the Springing Member shall have no interest
(economic or otherwise) and is not a member of the Company.

(c)      Notwithstanding any other provision of this Agreement, the Bankruptcy
of a Member shall not cause the Member to cease to be a member of the Company
and upon the occurrence of such an event, the business of the Company shall
continue without dissolution. Notwithstanding any other provision of this
Agreement, the Member waives any right they might have under Section 18-801(b)
of the Act to agree in writing to dissolve the Company upon the Bankruptcy of a
Member or the occurrence of any other event that causes such Member to cease to
be a member of the Company. “Bankruptcy” means, with respect to a Member, if the
Member (i) makes an assignment for the benefit of creditors, (ii) files a
voluntary petition in bankruptcy, (iii) is adjudged a bankrupt or insolvent, or
has entered against itself an order for relief, in any bankruptcy or insolvency
proceeding, (iv) files a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation, (v) files an answer or
other pleading admitting or failing to contest the material allegations of a
petition filed against it in any proceeding of this

 

 

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nature, (vi) seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator of the Member or of all or any substantial part of its
properties, or (vii) 120 days after the commencement of any proceeding against
the Member seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any statute, law or
regulation, if the proceedings have not been dismissed, or if within 90 days
after the appointment, without the Member’s consent or acquiescence, of a
trustee, receiver or liquidator of the Member or of all or any substantial part
of its properties, the appointment is not vacated or stayed, or within 90 days
after the expiration of any such stay, the appointment is not vacated. With
respect to the Member, the foregoing definition of “Bankruptcy” is intended to
replace and shall supersede the definition of “bankruptcy” set forth in Sections
18-101(1) and 18-304 of the Act.

(d)      In the event of dissolution, the Company shall conduct only such
activities as are necessary to wind up its affairs (including the sale of the
assets of the Company in an orderly manner), and the assets of the Company shall
be applied in the manner, and in the order of priority, set forth in Section
18-804 of the Act. Upon completion of the winding up process, the Board shall
cause the execution and filing of a Certificate of Cancellation in accordance
with Section 18-203 of the Act.

6.

Amendments.

Neither this Agreement nor the Certificate may be modified, altered,
supplemented or amended (each such event being referred to as a “Change”) except
pursuant to a written agreement executed and delivered by the Member. So long as
the Company holds or owns an Equity Interest and PacifiCorp or any subsidiary
thereof has any debt outstanding that is rated by Standard & Poor’s, Moody’s
Investors Service, or by Fitch Ratings (each, a “Rating Agency”), no Change
shall take effect unless (i) each Rating Agency rating such debt shall have
delivered a written confirmation that such Change will not result in the
downgrade or withdrawal of any such rating assigned by it to such debt, and (ii)
the Independent Director shall have approved the Change in a vote of Directors
if the Change relates to Section 1, Section 2(i) or Section 3; provided that
none of the conditions identified in either of clause (i) or (ii) hereof needs
be satisfied if the Change is designed to: (x) cure any ambiguity or internal
inconsistency in this Agreement or the Certificate or (y) convert or supplement
any provision hereof in a manner consistent with the intent of this Agreement or
the Certificate.

 

 

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