BEFORE THE PUBLIC SERVICE COMMISSION OF WYOMING

 

IN THE MATTER OF THE JOINT APPLICATION OF MIDAMERICAN ENERGY HOLDINGS COMPANY
AND PACIFICORP FOR APPROVAL OF A REORGANIZATION OF PACIFICORP AS A WHOLLY-OWNED
SUBSIDIARY OF MIDAMERICAN ENERGY HOLDINGS COMPANY

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Docket No. 20000-EA-05-226

(Record No. 10015)

 

Appearances

For the Joint Applicants, MidAmerican Energy Holdings Company (“MEHC”) and
PacifiCorp (together with MEHC the “Applicants”):

PAUL J. HICKEY and ROGER C. FRANSEN of Hickey & Evans, LLP, Cheyenne, Wyoming
and MARK C. MOENCH of MidAmerican Energy Holdings Company, Salt Lake City, Utah.

For the Intervenor, Office of Consumer Advocate (“OCA”):

IVAN WILLIAMS of the Office of Consumer Advocate, Cheyenne, Wyoming.

For the Intervenor, Wyoming Infrastructure Authority (“WIA”):

THOMAS DOUGHERTY of Rothgerber, Lyons & Johnson, Denver, Colorado.

For the Intervenors, Wyoming Industrial Energy Consumers (“WIEC”), and the
members of WIEC (B.P. America, BreitBurn Energy Company, Chevron U.S.A., Church
& Dwight Co., Inc.,

 

 

 

 

 

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ConocoPhillips Company, Exxon Mobil Corporation, FMC Corporation, General
Chemical Industrial Products, Howell Petroleum Corporation, Marathon Oil
Company, Monsanto Company, OCI Wyoming LP, Simplot Phosphates LLC, Sinclair Oil
Corporation, and Solvay Chemicals, Inc.,) individually (collectively, the “WIEC
Members”):

THOMAS R. O’DONNELL and JAMES K. TARPEY of Holland & Hart, Greenwood Village,
Colorado.

For the Intervenor, AARP:

DALE COTTAM of Hirst & Applegate, Cheyenne, Wyoming.

For the Intervenors, the Utility Workers Union of America, AFL-CIO and the
Utility Workers Union of America Local 127 (together “UWUA”):

ELIZABETH ZERGA of Jubin & Zerga, Cheyenne, Wyoming; and DAVID LIEB of Speigel &
McDiarmid, Washington, D.C.

For the Intervenor, Western Resource Advocates (“WRA”):

ERIC C. GUIDRY of Western Resource Advocates, Boulder, Colorado.

For the Intervenor, Black Hills Corporation, for itself and its subsidiaries
Black Hills Power, Inc. (Retail Utility), Black Hills Power, Inc. (Merchant
Function), Wyodak Resources Development Corp., Black Hills Wyoming, Inc., and
Enserco, Inc. (collectively, “Black Hills”):

JOHN SUNDAHL of Sundahl, Powers, Kapp & Martin, Cheyenne, Wyoming.

Heard Before

 

Chairman STEVE FURTNEY

Deputy Chair KATHLEEN A. “CINDY” LEWIS

Commissioner MARY BYRNES

Chief Counsel STEPHEN G. OXLEY, presiding

 

 

 

 

 

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Docket No. 20000-EA-05-226

 

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pursuant to the order of the Commission

ORDER APPROVING APPLICATION FOR REORGANIZATION

(Issued February 28, 2006)

1.        This matter is before the Wyoming Public Service Commission
(Commission) on the Joint Application of MEHC and PacifiCorp for approval of a
reorganization of PacifiCorp as a wholly owned subsidiary of MEHC; on the
interventions of OCA, AARP, UWUA, WIA, WRA, Black Hills, Basin Electric Power
Cooperative (“Basin”), WIEC, the WIEC members, Kinder Morgan, Inc., and Kinder
Morgan Interstate Gas Transportation, LLC (together with Kinder Morgan, Inc.,
“Kinder Morgan”); and on the evidence adduced in the public hearings held in
this matter or otherwise admitted to the record by the Commission. The
Commission, having considered the evidence of record in this case, its files
concerning the case and the Applicants generally, having reviewed applicable
Wyoming utility law and being otherwise fully advised in the premises, HEREBY
FINDS AND CONCLUDES:

Parties and Procedure

2.       On July 15, 2005, MEHC and PacifiCorp filed their Joint Application
requesting approval of a reorganization of PacifiCorp as a wholly owned
subsidiary of MEHC (the Application), reflecting the May 23, 2005, agreement of
ScottishPower PLC and PacifiCorp Holdings, Inc. (PHI, its wholly owned
subsidiary which directly holds PacifiCorp’s common stock), to sell all of
PacifiCorp’s common stock held by PHI to MEHC for approximately $9.4 billion,
consisting of about $5.1 billion in cash and about $4.3 billion in net debt and
preferred stock, which would remain outstanding at PacifiCorp. In the proposed
transaction, MEHC would acquire all of the common stock of PacifiCorp through a
new subsidiary of MEHC to be known as PPW Holdings, LLC and would assume
ownership and control of PacifiCorp as an indirect subsidiary of MEHC. The
transaction will include the transfer to MEHC of all of PacifiCorp’s
subsidiaries, including Centralia Mining Company; Energy West Mining Company;
Glenrock 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. PacifiCorp’s interests in
any subsidiaries that are less than 100% owned by PacifiCorp (e.g., Bridger Coal
Company, Trapper Mining and PacifiCorp Environmental Remediation Company) are
included in the sale. The affiliates of PacifiCorp owned by ScottishPower PLC
through PHI are not included in the transaction and will not be sold. These
include, e.g., PPM Energy, Inc., a competitive power marketing company, and
PacifiCorp Group Holdings Company. With the Application, the Applicants filed
the prepared

 

 

 

 

 

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Docket No. 20000-EA-05-226

 

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direct testimony and exhibits of Gregory E. Abel, Judi A. Johansen, Brent E.
Gale, Patrick J. Goodman, Thomas B. Specketer and Jeffrey J. Gust.

3.       On July 20, 2005, the OCA filed its Notice of Intervention.

4.       On July 22, 2005, the Applicants filed their Motion for Approval of
Confidentiality Agreement, requesting that the Commission approve a form of
confidentiality agreement to facilitate the exchange of commercially sensitive
and otherwise confidential information among the parties.

5.       On August 4, 2005, the Commission issued its Notice of Application. The
Commission’s Notice generally described the Applicants and the nature of the
transaction for which approval was sought in this proceeding. Notice of the
Application was published once a week for two consecutive weeks in the Buffalo
Bulletin, the Casper Star Tribune, the Cody Enterprise, the Douglas Budget, the
Uinta County Herald (Evanston), the Northern Wyoming Daily News (Worland), the
Thermopolis Independent Record, the Rock Springs Daily Rocket-Miner, the
Riverton Ranger, the Rawlins Daily Times, the Pinedale Roundup, the Lovell
Chronicle, the Laramie Daily Boomerang, the Kemmerer Gazette, the Lander
Journal, the Green River Star, and the Glenrock Independent. Notice of the
Application was also broadcast over a two week period on KBBS (Buffalo), KTWO
(Casper), KKTY (Douglas), KODI (Cody), KEVA (Evanston), KOVE (Lander), KMER
(Kemmerer), KUWR (Laramie), KPIN (Pinedale), KRAL (Rawlins), KRKK (Rock
Springs), KTHE (Thermopolis), and KWOR (Worland).

6.       On August 9, 2005, Black Hills filed its Petition to Intervene for
itself and its subsidiary companies which conduct business with PacifiCorp. The
Black Hills petition was granted by the Commission in its Order Authorizing
Intervention issued August 16, 2005, and Black Hills became a party for all
purposes in this proceeding.

7.       On August 16, 2005, the Applicants filed revised direct testimony and
exhibits of Gregory E. Abel, Brent E. Gale, Patrick J. Goodman and Thomas B.
Specketer and withdrew the previously filed direct testimony and exhibits of
Jeffrey J. Gust. This was done in response to the repeal of the Public Utility
Holding Company Act of 1935 (PUHCA) by the Energy Policy Act of 2005, which was
signed into law on August 8, 2005 (EPAct).

 

 

 

 

 

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8.       On August 26, 2005, the Applicants filed their Motion for Approval of
Procedural Schedule and Request for Setting in which the Applicants submitted a
proposed procedural schedule for Commission approval and asked the Commission to
set the matter for hearing.

9.       By their Petition dated August 29, 2005, WIEC and the WIEC Members
sought to intervene both individually and collectively as WIEC in the captioned
proceeding. On September 13, 2005, the Commission issued its Orders Authorizing
Intervention for WIEC and the WIEC Members as individual entities; and it and
each of them thereupon became parties for all purposes in this proceeding.

10.     By motions dated August 30, 2005, Kinder Morgan requested leave to
intervene. On September 13, 2005, the Commission issued its Orders Authorizing
Intervention for the two petitioning Kinder Morgan entities; and each of them
thereupon became a party for all purposes in this proceeding.

11.     On August 31, 2005, the Commission issued its Notice of Setting, in
which it set a scheduling conference to be held on September 8, 2005.

12.     By Petition dated September 1, 2005, the WIA requested leave to
intervene in the proceeding. This petition was granted by the Commission’s
September 13, 2005, Order Authorizing Intervention; and it thereupon became a
party for all purposes in this proceeding.

13.     By a petition for leave to intervene dated September 2, 2005, AARP
requested leave to intervene in the case. This petition was granted by the
Commission’s September 13, 2005, Order Authorizing Intervention; and it
thereupon became a party for all purposes in this proceeding.

14.     By its pleading dated September 3, 2005, WRA requested leave to
intervene. This request was granted by the Commission’s September 13, 2005,
Order Authorizing Intervention; and it thereupon became a party for all purposes
in this proceeding.

15.     On September 6, 2005, the UWUA moved to intervene in the proceeding.
This petition was granted by the Commission’s September 13, 2005, Order
Authorizing Intervention; and the National Union and Local 127 each became
parties for all purposes in this proceeding.

 

 

 

 

 

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16.     On September 8, 2005, the Commission held a procedural conference
pursuant to its Notice issued on August 31, 2005. On September 9, 2005, the
Applicants filed a Motion for Order Establishing Procedural Schedule in which
they requested adoption by the Commission of a procedural schedule establishing
procedural dates consistent with discussions held on September 8, 2005 at the
Commission’s procedural conference.

17.     On September 13, 2005, the Commission issued its Order Establishing
Procedural Schedule and Public Hearing Date, reflecting the consensus of the
parties and others on a procedural schedule, discovery limitations and public
hearing date, and establishing January 23, 2006, for the date of the public
hearing.

18.     During the pendency of this case, the Commission admitted certain
counsel pro hac vice as described in the table below:

 

Name

 

Representing

 

Wyoming State Bar
Compliance Certificate

 

Commission Order

 

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Scott Strauss

 

UWUA

 

September 8, 2005

 

September 13, 2005

 

David Lieb

 

UWUA

 

September 14, 2005

 

September 15, 2005

 

Robert M. Pomeroy, Jr.

 

WIEC, the WIEC Members

 

September 9, 2005

 

September 22, 2005

 

Thomas R. O’Donnell

 

WIEC, the WIEC Members

 

September 9, 2005

 

September 22, 2005

 

Thomas J. Dougherty

 

WIA

 

September 29, 2005

 

October 17, 2005

 

James K. Tarpey

 

WIEC, the WIEC Members

 

September 28, 2005

 

October 17, 2005

 

19.     On September 23, 2005, the Commission issued its Order Granting Joint
Motion for Approval of Confidentiality Agreement and Protective Order. By that
Order, the Commission established procedures for the exchange and use of
commercially sensitive and otherwise confidential information by the parties to
this proceeding.

20.     On December 12, 2005, the Commission gave public notice of the public
hearing in this case. The notice was published once a week for two consecutive
weeks in the Buffalo Bulletin, the Casper Star Tribune, the Cody Enterprise, the
Douglas Budget, the Uinta County

 

 

 

 

 

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Herald (Evanston), the Northern Wyoming Daily News (Worland), the Thermopolis
Independent Record, the Rock Springs Daily Rocket-Miner, the Riverton Ranger,
the Rawlins Daily Times, the Pinedale Roundup, the Lovell Chronicle, the Laramie
Daily Boomerang, the Kemmerer Gazette, the Lander Journal, the Green River Star,
and the Glenrock Independent. Notice of the public hearing was also broadcast
over a two week period on KBBS (Buffalo), KTWO (Casper), KKTY (Douglas), KODI
(Cody), KEVA (Evanston), KOVE (Lander), KMER (Kemmerer), KUWR (Laramie), KPIN
(Pinedale), KRAL (Rawlins), KRKK (Rock Springs), KTHE (Thermopolis), and KWOR
(Worland).

21.     On December 15, 2005, and in accordance with the deadline established in
the Order Establishing Procedural Schedule and Public Hearing Date:

 

a.

WIA filed the direct testimony of Steve Waddington;

 

b.

OCA filed the testimony of Bryce J. Freeman and Marci Norby (with revisions);

 

c.

UWUA filed the testimony of Harold Giberson;

 

d.

WRA filed the testimony of Bruce Driver and Roger Hamilton;

 

e.

Black Hills filed the testimony of Thomas Ohlmacher; and

 

f.

WIEC filed the testimony of Richard M. Anderson and Ronald J. Binz.

22.     By its petition dated December 16, 2005, Basin sought to intervene out
of time in this proceeding. Its petition to intervene was granted by
Commission’s Order Authorizing Intervention Out of Time, issued on January 9,
2006, allowing Basin to participate as a party for all purposes in this
proceeding but conditioning that approval on Basin taking the case as it finds
it and not seeking to modify the procedural schedule already established in the
proceeding.

23.     On December 20, 2005, the Applicants filed a Motion to Strike Exhibit,
asking the Commission to strike certain exhibits to the testimony of UWUA
witness Giberson. The UWUA filed its answer to the Applicants’ motion on
December 28, 2005; and, after a hearing held on January 5, 2006, the Commission
resolved the matter in its Order on Motion to Strike Exhibits issued January 11,
2006, which, upon the agreement of the Applicants and the UWUA, allowed redacted
versions of the objected-to exhibits to be used in this case.

 

 

 

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24.     On January 3, 2006, the Applicants submitted rebuttal testimony and
exhibits of Brent E. Gale, Patrick J. Goodman, Thomas B. Specketer and Paul B.
Priest.

25.     On January 19, 2006, the Commission issued its Special Order Authorizing
One Commissioner and/or Hearing Examiner to Conduct Public Hearing.

26.     On January 20, 2006, the Stipulation was filed and offered to the
Commission by the parties as a comprehensive settlement of the above-captioned
proceeding. The settlement package consists of [i] the Stipulation itself; [ii]
a group of 53 general and 34 Wyoming-specific commitments; [iii] two additional
appendices providing specific detail regarding ring fencing and rate credit
commitments; [iv] the Addendum to Stipulation (addressing the concerns of Black
Hills regarding PacifiCorp’s contract commitments to it); and [v] the January
20, 2006, Notice of Stipulation. The Stipulation itself was executed by all
parties except Kinder Morgan and AARP, with Black Hills agreeing to the
Stipulation through its signing of the Addendum to Stipulation. Throughout this
order, the term Stipulation shall mean the Stipulation document together with
all of the above-described attached documents unless the context clearly
requires otherwise.

27.     By motion dated January 20, 2006, WIA requested leave to present the
hearing testimony of its witness, Waddington, by telephone. This Motion was
granted at the outset of the public hearing. (Transcript of January 23-24 and
26, 2006, public hearing, hereinafter Tr., p. 17.)

28.     Pursuant to public notice and under the Wyoming Administrative Procedure
Act, Title 37 of the Wyoming Statutes and the Commission’s Rules, the Commission
held a public hearing in this matter at its hearing room at Cheyenne, Wyoming
beginning on January 23, 2006 and continuing through January 26, 2006. At the
public hearing, the Applicants, OCA, WIEC, WIA, WRA, and Black Hills appeared in
person and through counsel. UWUA and AARP appeared through counsel. Kinder
Morgan and Basin did not appear or otherwise participate. At hearing, the
Applicants presented the testimony of Brent E. Gale, Thomas Specketer and Andrea
Kelly. Gale adopted the pre-filed testimony of Applicants’ witness Abel, and
Specketer adopted the pre-filed testimony of Goodman. Kelly adopted the
pre-filed testimony of Judi Johansen. Bryce Freeman and Marci Norby testified on
behalf of OCA. Binz and Anderson testified on behalf of WIEC, Waddington
testified by telephone on behalf of WIA, Driver testified in person and Hamilton
testified by phone on behalf of WRA, and Ohlmacher testified on behalf of Black
Hills. The testimony of UWUA witness Giberson was not offered in evidence, but
the Commission took judicial notice of his testimony. (Tr., p. 236.) The
Commission similarly took judicial notice of the rebuttal testimony of the
Applicants’ witness Priest. (Tr., pp. 322-323.)

 

 

 

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29.     At the close of the hearing on January 24, 2006, the Commission
established January 26, 2006, as the date for formal closing of the hearing
record and deliberation.

30.     On January 26, 2006, the Commission formally closed the record in the
case and, pursuant to due notice, deliberated this case. The Commission decided
to approve the transaction on the terms and conditions of the Stipulation, as
clarified and modified at hearing, mindful that the terms of the Stipulation
provide for the subsequent election of additional terms and conditions which
have been agreed to in the other jurisdictions served by PacifiCorp (California,
Idaho, Oregon, Utah, and Washington).

The Proposed Transaction

31.     On May 23, 2005, ScottishPower PLC and PacifiCorp Holdings, Inc., its
wholly owned subsidiary directly holding PacifiCorp’s common stock, reached a
definitive agreement with MEHC providing for the sale of all of PacifiCorp
common stock to MEHC for approximately $9.4 billion consisting of approximately
$5.1 billion in cash and approximately $4.3 billion in debt and preferred stock,
which will remain outstanding in PacifiCorp. In the transaction, MEHC, through
its new subsidiary, PPW Holdings, LLC, will acquire PacifiCorp and its
subsidiaries or interests in subsidiaries, as described above, associated with
PacifiCorp’s regulated business. Following the transaction, PacifiCorp will be
an indirect, wholly-owned subsidiary of MEHC. On or about February 9, 2006,
following the effective date of the repeal of PUHCA, MEHC would become a
partially-owned subsidiary of Berkshire Hathaway, one of four shareholders of
MEHC, but MEHC would remain the company acquiring PacifiCorp. According to the
Application, PacifiCorp would continue to have its corporate headquarters in
Oregon and would continue to operate much as it did prior to the transaction.

Positions of the Parties: The Applicants

32.     Brent E. Gale, Senior Vice President, Legislation & Regulation, of
MidAmerican Energy Company (MEC — a wholly-owned subsidiary of MEHC) testified
on behalf of the Applicants. MEC provides regulated utility services in Iowa,
Illinois and South Dakota. Gale adopted the prefiled testimony of Applicants’
witness Gregory Abel. (Tr., pp. 36-38, 375-376.) Gale sponsored the Stipulation
and testified chiefly regarding the Stipulation and the commitments undertaken
by the Applicants under its terms. (Tr., pp. 40-41.) Gale explained that there
were a total of 53 general commitments applicable to all of the states in which
PacifiCorp operates (two of those 53 general commitments are replaced by
state-specific commitments in Wyoming) and 34 Wyoming-specific commitments made
by the Applicants in connection with the Stipulation. (Tr., pp. 45-47.) Gale
testified to his hope that MEHC’s actions

 

 

 

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Docket No. 20000-EA-05-226

 

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would show the Commission that “. . . we are not — we, MEHC, are not attempting
to take cash in the form of dividends of PacifiCorp; that we are in this for the
long term, that we’re allowing PacifiCorp to retain earnings, particularly
during this period of heavy investment.” (Tr., pp. 184-185.) In the adopted
testimony of Gregory Abel, he observed:

“MEHC is uniquely suited to undertake the infrastructure investments PacifiCorp
faces in the coming years since it is privately-held and not subject to
shareholder expectations of regular, quarterly dividends and relatively high
returns on investments. MEHC’s investors are focused on increasing value through
significant, long-term investment in well-operated energy companies that offer
predictable, reasonable returns.

“MEHC’s business strategy should provide PacifiCorp customers, employees,
communities, and regulators with valuable stability. Indeed, they would be
justified in expecting that MEHC will be the last owner of PacifiCorp. As a
result, PacifiCorp’s management and employees will be able to focus on exceeding
customer expectations.” (Joint Applicants’ Exhibit 6, p. 12.)

Customer Service

33.     Among their customer service commitments, Applicants have agreed to
Commitment 1, which affirms the continuation through March 31, 2008, of existing
customer service guarantees and performance standards. Pursuant to Commitment
45, Applicants will continue the customer service guarantees and performance
standards established in each jurisdiction through 2011, provided that
Applicants could request modifications of the guarantees and standards after
March 31, 2008, and could request termination (as well as modification) of one
or more guarantees or standards after 2011. No guarantee or standard may be
eliminated or modified without Commission approval. (Tr., pp. 48-49.)

Financial Protection

34.     Gale testified to the financial protection mechanisms contained in the
Stipulation. First among those is a “ring fencing” provision, described in
Commitment 11 and Appendix 1 to the Commitments, which is designed to ensure
that PacifiCorp’s business will be maintained and operated separately from that
of MEHC and its business affiliates. Ring fencing also addresses the repeal of
PUHCA and is designed to protect PacifiCorp from the financial difficulties of
its parent and affiliates, including bankruptcy. MEHC commits to obtain a
non-consolidation opinion regarding its ring fencing mechanism and no
modifications of the ring fencing mechanism will be made without prior notice to
the Commission. If it cannot obtain such an opinion, it will, with the approval
of the Commission, take other protective measures

 

 

 

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(Commitment Wy 16, Commitment Wy 17.) In addition, the Applicants committed to
provide draft and final operating agreements for PPW Holdings, LLC, which will
include the ring fencing provisions. (Commitment Wy 32.) The Commission will be
notified of any acquisition of a business amounting to 5% or more of the
capitalization of MEHC or a change in effective control or acquisition of any
material part of PacifiCorp. (Commitment 12.) PacifiCorp will maintain separate
debt and preferred stock. (Commitment 15.) PacifiCorp will make no dividends to
PPW Holdings, LLC or MEHC without Commission approval that would reduce
PacifiCorp’s common equity below certain specified ratios applicable from time
to time. (Commitment 18, Commitment Wy 15.) Capital requirements of PacifiCorp
will be given high priority by the board of both MEHC and PacifiCorp. Gale
clarified that a “high priority” means:

“. . . that we will recognize the obligation of PacifiCorp to provide reliable
service and safe service when we determine the allocation of capital to the
various business units and the approval of those allocations of capital. It
would also include any necessary support that might be provided for any
financings, et cetera, by those boards of directors of both MEHC and
particularly PacifiCorp with regard to financing.”

(Commitment 19; and Tr., pp. 49-52 and 202-203.)

Access to Information

35.     Gale explained the various commitments made by Applicants to facilitate
access to information. PacifiCorp will maintain its own accounting system,
separate from MEHC’s, and all PacifiCorp financial books and records will be
kept in Portland, Oregon and they will be available to the Commission at
PacifiCorp’s offices in “Portland, Oregon, Salt Lake City, Utah, and elsewhere
in accordance with current practice.” (Commitment 3.) MEHC, PacifiCorp and
Berkshire Hathaway 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. (Commitment 4.) 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. (Commitment 5.)
The Commission 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. (Commitment 6.) MEHC, PacifiCorp and
Berkshire Hathaway will provide the Commission with unrestricted access to all
written information provided by and to credit rating agencies that pertains to
PacifiCorp or MEHC. (Commitment 17.) MEHC will provide the Commission with
unrestricted access to all written information provided by and to credit rating
agencies that pertains to MEHC’s subsidiaries to the extent such information may
potentially impact

 

 

 

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PacifiCorp. Applicants will give the Commission access to corporate minutes
relevant to PacifiCorp and access to operational, internal and risk audit
reports. (Commitments Wy 30 and Wy 31.) The Applicants reserved the opportunity
to request confidential treatment of information as appropriate. (Commitment
32.) Gale acknowledged that the Commission already has the right to conduct
audits and stated that some commitments made by the Applicants were in the
nature of reassurance. (Tr., pp. 52-55.)

Affiliate Transactions

36.     Gale testified to the commitments related to affiliate transactions
following the acquisition of PacifiCorp. Gale affirmed that the Applicants will
comply with all applicable statutes and regulations regarding affiliated
interest transactions and that PacifiCorp will file an annual affiliated
interest report. (Commitment 7, Commitment 8.) The Applicants will not
cross-subsidize between regulated and non-regulated businesses. (Commitment 9.)
The impact of the repeal of PUHCA with respect to affiliate transactions is
addressed in Commitment 10, in which the Applicants waive certain defenses
available to them under federal law through the effective date of the repeal of
PUHCA. The Inter-Company Administrative Services Agreement (IASA), which
establishes corporate and affiliate cost allocation methodologies, and any
amendments to the IASA, will be filed with the Commission “as soon as
practicable after the closing of the transaction”. (Commitment 13.) Any cost
allocation methodology for the allocation of corporate or affiliate investments,
expenses, and overheads, required by law or rule to be submitted to the
Commission for approval, will comply with certain principles set out in
Commitment 14. Neither PacifiCorp nor its subsidiaries will, without prior
approval of the Commission, make loans or transfer funds to MEHC, Berkshire
Hathaway or its subsidiaries except under certain defined circumstances. Neither
will PacifiCorp obtain debt from an affiliate except under certain defined
circumstances. (Commitment 20, Commitment Wy 18.) The Commission will be
notified of specific plans regarding creation or dissolution of affiliates and
new affiliate transactions. (Commitment Wy 3.) The Applicants additionally agree
to use asymmetrical pricing for certain affiliate charges or costs. (Commitment
Wy 14.) (Tr., pp. 55-62.)

Financial Benefits to Consumers

37.     Gale testified regarding a number of commitments that provide the
opportunity for financial benefits to consumers. The cost of new long-term debt
issued by PacifiCorp after the transaction and included in PacifiCorp’s rates is
expected to be decreased by at least 10 basis points following the transaction
from what it would have been absent the transaction. If it is not so reduced,
PacifiCorp will file future rate cases showing at least a 10 basis point
reduction. (Commitment 37.) The Applicants have committed to $142.5 million
(total company) of offsettable rate credits, which will be reflected in
PacifiCorp rates. (Commitment Wy 7.) Those

 

 

 

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rate credits are described in detail in Commitments Wy 8 through Wy 12 and
Appendix 2 to the Commitments. Commitments Wy 8 and Wy 9 provide for cost of
service reductions not available without the transaction. These offsettable rate
credits will operate to ensure that financial benefits will be reflected in
rates, either through holding customers harmless for increases in the costs of
specified elements of revenue requirements, through reductions in other
specified elements of revenue requirements, or through operation of the rate
credits. (Tr., pp. 62-69.)

Hold Harmless Provisions

38.     Gale testified regarding provisions of the Stipulation that will protect
ratepayers from any potential for adverse impacts arising out of the
transaction. No costs incurred in connection with the transaction will be
recovered in rates. (Commitment 16.) PacifiCorp will not argue for a higher cost
of capital than it would have experienced absent the transaction. (Commitment
21.) Applicants will continue to make provision of safe, adequate and reliable
service at reasonable rates a priority. (Commitment Wy 2.) Following the
transaction, MEHC and PacifiCorp will hold customers harmless for increases in
costs [i] retained by PacifiCorp that were previously assigned to affiliates
relating to management fees, and [ii] resulting from PacifiCorp corporate costs
previously billed to PPM and other former affiliates of PacifiCorp. (Commitment
Wy 9, Commitment Wy 11.) MEHC will ensure that PacifiCorp insurance costs
following the transaction for insurance coverage previously provided by
ScottishPower’s captive insurance company will not be increased through 2010.
(Commitment Wy 10.) The acquisition premium will not be recorded in the utility
accounts of PacifiCorp and PacifiCorp will not argue for recovery of any part of
the acquisition premium in rates so long as no argument is made for an
asymmetrical imputation to PacifiCorp of benefits accruing to PPW Holdings, LLC,
MEHC or its affiliates. (Commitment Wy 13; and Tr., pp. 69-76.)

Generation, Renewables and Environmental Issues

39.     Gale summarized the large number of commitments that address generation,
environmental and renewable energy matters. PacifiCorp will continue to offer
and support its “Blue Sky” tariff. (Commitment 23.) It will continue to gather
input on environmental matters and continue to have environmental management
systems in place. (Commitment 24, Commitment 25.) It will continue to produce
Integrated Resource Plans (“IRP”) and will provide public notice and encourage
stakeholders to participate in the IRP process. (Commitment 30, Commitment 48.)
When acquiring certain new generation resources, PacifiCorp will issue Requests
For Proposals that comply with all state requirements and will include a utility
“own/operate” alternative for renewable energy resources and other resource
types under certain specified circumstances. (Commitment 31, Commitment 39.)

 

 

 

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39a.    Applicants reaffirmed PacifiCorp’s commitment to acquire 1400 MW of new
cost-effective renewable resources, with a target of 400 MW to be acquired by
the end of 2007. PacifiCorp will additionally develop a plan for achieving its
goal to acquire 1400 MW of renewable resources. (Commitment 40, Commitment Wy
21, Commitment Wy 22.) Applicants support wind generation in Wyoming as an
important part of PacifiCorp’s renewable resource portfolio and will include a
wind penetration study and an assessment of transmission options that address
new wind resources in PacifiCorp’s 2006 IRP. (Commitment Wy 19, Commitment Wy
20.) Applicants additionally commit that PacifiCorp will consider utilization of
Integrated Gasification Combined Cycle (IGCC) and other advanced generation
technologies; MEHC and PacifiCorp commit to study the economics and viability of
an IGCC option as a resource alternative to inform the resource selection in its
current RFP process; PacifiCorp will develop an IGCC utility build benchmark
option for consideration in its RFP process for non-renewable resources
beginning in 2014; and it will form an IGCC working group and undertake
appropriate studies related to deployment of IGCC technology, including analysis
of IGCC carbon sequestration. (Commitment 41, Commitment Wy 25, Commitment Wy
26.)

39b.    The Applicants will participate in the United States Environmental
Protection Agency’s SF6 Emission Reduction Partnership for Electric Power
Systems and will establish a global warming working group within six months of
the close of the transaction. (Commitment 42.) The Applicants will undertake
cost effective installation of equipment likely to be necessary under future
emissions control requirements at a cost of approximately $812 million.
(Commitment 43.) Upon the occurrence of certain conditions, MEHC will transfer
its ownership interest in the Intermountain Geothermal Company to PacifiCorp and
the Applicants will immediately undertake to evaluate the potential to increase
generation capacity of the associated Blundell geothermal facility. (Commitment
51, Commitment 52.) The Applicants will conduct a Demand Side Management (DSM)
study, with MEHC shareholders absorbing the first $1 million of study costs.
(Commitment 44.) The Applicants will evaluate existing DSM programs for possible
application in Wyoming. (Commitment Wy 5.) Finally, the Applicants will
undertake a review and determination of appropriate avoided cost methodologies
for certain Qualifying Facilities. (Commitment Wy 4.) (Tr., pp. 76-87.)

Transmission

40.     Gale described the transmission-related commitments included with the
Stipulation. Commitment 34 identifies three transmission projects the Applicants
will use best efforts to achieve, with target completion dates in 2010 and 2011.
Those projects, known as the Path C Upgrade, Mona-Oquirrh and Walla Walla-Yakima
projects, although not located in Wyoming, nevertheless will strengthen the
PacifiCorp transmission system and enhance PacifiCorp’s ability to meet its
goals for the addition of new renewable resources. The

 

 

 

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Applicants also made commitments to improve system reliability, including
investment in an Asset Risk Program, investment in local transmission risk
projects and other programs. (Commitment 35.) MEHC will commit its resources and
leadership to assist PacifiCorp states in the development of other transmission
projects, such as those recommended by the Rocky Mountain Area Transmission
Study (RMATS) and the proposed Frontier Line. It will consider the Trans-West
Express project as a potential for analysis. (Commitment 36, Commitment Wy 24.)
The Applicants will also commence a system impact study to examine the
feasibility of a Jim Bridger to Miners transmission line, and will discuss with
stakeholders the feasibility of performing subsequent facilities studies.
Applicants will also complete a system impact study and conduct a facilities
study of a Jim Bridger to Ben Lomond transmission line. The Applicants will also
conduct a system impact study that combines the two transmission projects.
(Commitment 53; Commitment Wy 23; and Tr., pp. 87-92.)

Low Income and Community Programs

41.     Gale testified to MEHC’s commitment to maintain at least the existing
level of PacifiCorp’s community-related contributions and to continue to consult
with regional groups to better understand local issues. (Commitment 26,
Commitment 27.) MEHC will continue PacifiCorp’s existing economic development
practices and use its own expertise to enhance those efforts. (Commitment 46.)
The Applicants commit to a contribution level for Wyoming low-income bill
payment assistance of a least $70,000 per year for five years, beginning July 1,
2006. MEHC will additionally provide shareholder funding for an arrearage
management project for low-income customers. (Commitment Wy 27; Commitment Wy
28; and Tr., pp. 92-95.)

Federal Litigation

42.     Gale spoke generally about future issues regarding the inclusion of
wholesale transactions in Wyoming retail rates. Gale discussed the Applicants’
commitment to bring such issues to the Commission for decision and to pursue any
associated challenges regarding matters over which the Commission has exclusive
jurisdiction through an appeal from the Commission’s decision. Gale identified
two areas which, in his opinion, clearly fall within the meaning of “exclusive
jurisdiction.” They are the determination of just and reasonable retail rates
and the determination of prudence of wholesale power transactions under the Pike
County doctrine. (Commitment Wy 6.) (Tr., pp. 95-97, 142-144, 210-211.)

Administrative Procedures

 

 

 

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43.     Gale explained the Applicants commitments regarding procedures and other
largely administrative matters. The Applicants agree that the Commission may
designate the entity or fund to which penalties will be paid if penalties become
due for failure to meet performance standards. In Wyoming, the parties support
making such payments to Energy Share of Wyoming. (Commitment 2, Commitment Wy
1.) The Applicants have suggested a mechanism for enforcement of the Stipulation
that includes an opportunity to cure any violation and an agreement that
penalties may be assessed as allowed by law for an uncorrected violation.
(Commitment 33.) The Applicants will provide an annual status report on their
implementation of the Stipulation commitments. (Commitment 49.) The Applicants
acknowledge the binding nature of their commitments and that the Commission’s
approval of the Application does not constitute a determination of any rate
making issues that might arise in connection with the commitments. (Commitment
Wy 33.) In addition, MEHC has agreed that it will file with the Commission a
letter from Berkshire Hathaway committing that Berkshire Hathaway will be bound
by Commitments 4 and 5 and other commitments applicable to MEHC affiliates.
(Commitment Wy 34.)

Employees and Corporate Presence

44.     Gale testified to MEHC’s commitment to honor existing labor agreements.
(Commitment 28.) MEHC and PacifiCorp also commit that they will [i] make no
unilateral changes to the PacifiCorp pension plan prior to May 23, 2007, that
would reduce benefits and [ii] maintain PacifiCorp’s current pension funding
policy for at least two years. (Commitment 29, Commitment 50.) MEHC and
PacifiCorp will maintain adequate staffing, consistent with the provision of
safe, adequate and reliable service. (Commitment 47.) In addition, the Chairman
of the Board and the President of PacifiCorp will meet at least annually with
the Commission to discuss customer service and other issues of importance to the
Commission and PacifiCorp. (Commitment Wy 29; and Tr., pp. 97-102.)

Stipulation

45.     Gale clarified the applicability of the Stipulation and the Commitments:

“The agreements and commitments in the Stipulation are at the same level or
degree of commitment as those in the appendix to the Stipulation. The difference
simply is that the commitments in the appendix to the Stipulation apply broadly
across all individuals, whether they are parties or not to the proceedings or
whether they are signatories to the Stipulation. The commitments or agreements
that are in the Stipulation generally apply only to the specific parties or to
the signatories to the Stipulation.” (Tr., p. 146.)

 

 

 

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The Stipulation addresses several issues that are also addressed in the
Commitments. The parties recognized the significance of IGCC Commitments Wy 25
and Wy 26 and the importance of IGCC technology to Wyoming. The Stipulation asks
the Commission to make a similar acknowledgement in its order in this case.
(Stipulation ¶7.) The Applicants acknowledged that federal law is developing
with respect to the role of the Federal Energy Regulatory Commission (“FERC”)
following the repeal of PUHCA by EPAct and agreed to monitor developments in
that area. (Stipulation ¶8.) The Applicants agreed to provide the settling
parties with access to information consistent with the Commitments and the rules
of discovery. (Stipulation ¶9.) The Applicants will provide Parties copies of
its Commission filings made in connection with the Commitments. (Stipulation
¶10.) The Applicants agree to pursue expedited discussions for resolution of
pending federal court litigation to which PacifiCorp and the Commission are
parties in the event that litigation is not otherwise resolved. (Stipulation
¶11.) Neither “MEHC nor PacifiCorp will initiate or support legislation prior to
2015 that would repeal the legislation creating the OCA. (Stipulation ¶12; but
MEHC noted that this did not bind it or PacifiCorp to affirmatively oppose such
legislation. See, Tr., p. 188.) The Applicants will provide notice to the
signatories and discuss any legislative initiatives they intend to pursue
through December 31, 2011, that would impact Wyoming utility regulation.
(Stipulation¶13.)

46.     The Stipulation includes a “most favored state” process under which the
signatory parties agree that the Commission may adopt commitments agreed to by
the Applicants in the five other jurisdictional states and conditions imposed by
other states, even after the Commission’s approval of the acquisition of
PacifiCorp in this case. Such commitments and conditions can be incorporated
into the Stipulation and become fully approved parts thereof. (Stipulation ¶15.)
In the Addendum to Stipulation, PacifiCorp agrees that it will continue to be
bound by certain existing contracts between it and Black Hills following the
close of the transaction. (Tr., pp. 104-108.) Finally, all parties to the
Stipulation averred that the Applicants have satisfied the statutory standard
for approval of the transaction and made a request that the Commission grant the
Application. (Stipulation ¶17.)

Clarifications and Modifications to the Stipulation and Commitments

47.     Gale clarified certain of the commitments and expressed the Applicants’
willingness to accept those commitments as clarified by his testimony. In
addition, Gale offered two modifications to the commitments. The affected
commitments and their clarifications/modifications follow:

 

 

 

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a.        Regarding the availability of documents described in Commitment 3, the
phrase “elsewhere in accordance with current practice” is clarified to include
current practice “under state law.” (Tr., p. 201.)

b.        Commitment 14(f) is clarified to reflect the agreement that allocation
methodologies will be submitted for approval if required by law, rule or “if
required by order of the Commission.” (Tr., p. 202.)

c.        Commitment 16 is clarified to reflect the fact that, although
transaction costs will not be reflected in PacifiCorp accounts used for setting
rates, “transition costs” will not be so excluded. (Tr., p. 151.) This meets the
basic requirement regarding the costs of a reorganization, expressed at W.S. §
37-1-105(b), which states:

“No charge for any expenses of any reorganization shall be included in the rate
base of any Wyoming public utility.”

d.        The phrase “dependable life” in Commitment 31 was clarified to mean
“operating life as opposed to a depreciable life.” (Tr., p. 209.)

e.        The goal of having 1400 MW of renewables in PacifiCorp’s portfolio by
2015, expressed in Commitment 40, was modified at hearing to “at least 1400
megawatts.” (Tr., p. 78.)

f.        Commitment 44(a) is clarified to state that the $1,000,000.00
referenced therein is a MEHC shareholder commitment to the study and that the
cost of the study could exceed that amount. (Tr., p. 145.)

g.        Commitment Wy 13 is clarified to reflect the Applicants’ agreement
that the right to argue for recovery of some part of the acquisition premium is
state specific, so that the argument could only be raised in a state in which a
party or the commission sought to impute benefits accruing from PPW Holdings,
Inc., MEHC or affiliates to PacifiCorp. (Tr., p. 155.)

 

 

 

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h.        Commitment Wy 14 is clarified to state that the $500,000.00 threshold
in that commitment is a company-wide amount. (Tr., p. 142.)

i.        Commitment Wy 25 is clarified to reflect the agreement of Applicants
that the process of forming an IGCC working group will begin within 60 days of
the close of the transaction. (Tr., pp. 350 and 381-382.)

j.         Stipulation ¶8 is clarified to reflect the Applicants agreement that,
if there is an issue the Applicants believe the Commission needs to be aware of
or that the Commission needs to address, including any significant federal
developments regarding the pricing of affiliate transactions after the close of
the transaction, the Applicants will affirmatively initiate a dialogue with the
Commission on matters related to PUHCA. (Tr., p. 187.)

k.        Stipulation ¶14 (legislation sought by the Applicants) and Stipulation
¶16 (other-state agreements and covenants bearing on the transaction) are
clarified to include the Commission as well as the signatories or parties. (Tr.,
pp. 188-189.)

l.         Stipulation ¶15 (the “most favored state” clause) is clarified as
broadly applying to “the stipulations, the commitments and the orders that are
entered in the other five jurisdictions. You’ll have the opportunity then to
select any commitments or conditions or stipulation provisions for Wyoming that
were approved in those states.” (Tr., p. 106.)

m.       Stipulation ¶20 contains a list of specific issues with respect to
which the Commission would not be bound in the future. Gale confirmed that the
list was illustrative, not exclusive, and was not intended to place any limits
on the issues the Commission could consider in future proceedings. (Tr., p.
191.)

n.        The cross reference error in Stipulation ¶23 was corrected to read:
“Subject to Paragraph 24 of this Stipulation.” (Tr., p. 107.)

o.        The following new language is added to Commitment Wy 6. “In the event
that PacifiCorp anticipates a court challenge to a Commission order that would
trigger the provisions of Commitment Wy 6, PacifiCorp will (1) seek a rehearing
of such Commission order; and (2) identify in writing in its petition for
rehearing those contested issues which it

 

 

 

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believes are and are not within the areas reserved to the exclusive jurisdiction
of the Commission.” (Tr., pp. 378, 396-397, 405-406.)

p.        The Applicants have agreed that two Washington state-specific
commitments, Wa 9 and Wa 10, are added to the Wyoming commitments. Commitment Wa
9 provides, “MEHC and PacifiCorp commit that PacifiCorp will not directly own
equity shares of either Berkshire Hathaway or MEHC, if MEHC were ever to become
publicly traded.” Commitment Wa 10 provides, “MEHC commits to provide 30 days’
notice to the Commission if it intends to create a corporate entity between PPW
Holdings LLC and MEHC. MEHC further states that it has no current intention to
create such a corporate entity.” (Tr., pp. 173-174.)

q.        Gale confirmed for the Commission that none of the
clarifications/modifications discussed, supra, were material modifications which
would trigger the ability of a party to withdraw from the Stipulation as
provided for in ¶21 thereof. All other parties participating in the hearing
agreed. (Tr., passim.)

48.     Andrea Kelly, PacifiCorp’s Managing Director of Strategic Projects,
testified for the Applicants in favor of the Stipulation and adopted the
pre-filed testimony of Judi Johansen. (Tr., p. 338.) Kelly stated that for the
near future, PacifiCorp anticipates company-wide cost increases of at least 4%
annually and estimates it will need to make new capital investments in the range
of $1 billion per year over the next several years. Kelly stated her opinion,
with respect to capital expenditures, that, following the transaction,
PacifiCorp would have a parent company that has the ability to support needed
investments and ScottishPower was not able to support such capital investment.
Kelly further stated her belief that in connection with the transaction, the
contemplated investment in installation of emission control equipment will
assist PacifiCorp to meet air permitting requirements and will help to improve
the longevity of the generation fleet. Kelly testified that PacifiCorp would
continue its support for the development of Grid West (as it has evolved). She
stated that PacifiCorp’s commitment to Grid West has not changed since the
transaction was announced. (Tr., pp. 341-343, 346 and 360.)

49.     Kelly said PacifiCorp will continue to contribute to Energy Share of
Wyoming and, under Commitment Wy 27, contributions will increase above those
experienced in recent years. Under Commitment Wy 27, PacifiCorp has committed to
contributions of $70,000 per year for a five year period beginning July 1, 2006.
(Tr., p. 345.)

50.     Kelly explained that the asset risk programs referenced in Commitment 35
are designed to address the aging of PacifiCorp’s transmission and distribution
assets as well as improving reliability performance. The purpose of the program
is to consider replacing and

 

 

 

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rebuilding specific assets based on asset life as well as modernizing and
upgrading assets. She termed the asset risk program a proactive approach to
asset replacement that over time would allow PacifiCorp to reduce O&M and
capital costs. Likewise, the accelerated distribution circuit fusing program
identified in Commitment 35(c) is a proactive maintenance program. According to
Kelly, there will be a Wyoming investment of about $6.24 million over three
years in connection with the asset risk program that probably would not have
happened absent the transaction. Accordingly, Kelly expects PacifiCorp to be a
healthier utility, with customers and communities benefiting from the
transaction if it is approved. (Tr., p. 356.)

51.     Kelly identified the rate credits set out in the Commitments, the
extension of PacifiCorp’s performance standards, transmission risk projects, the
accelerated investment in the asset risk programs generally, and commitments
that provide a reasonable prospect of significant investment in transmission
together with opportunities for development of IGCC technology and wind
resources as among the quantifiable or tangible changes that would occur in
Wyoming as a result of the transaction. Kelly also confirmed that under
Commitment Wy 26(a), the IGCC studies in the current RFP process will include an
analysis of constructing the IGCC resource option to be carbon capture ready.
(Tr., pp. 369-373.)

52.     Thomas Specketer, Vice President, U. S. Regulatory Accounting and
Controller of MEC, testified for the Applicants and adopted the pre-filed
testimony of Patrick J. Goodman. Specketer provided an overview of the process
by which shared services costs will be distributed to PacifiCorp and other MEHC
affiliates following the transaction. Specketer explained that through the rate
credit set out in Wy 9, the Applicants have committed to decrease the amount of
corporate overhead charged to PacifiCorp by its parent MEHC and its affiliate
MEC to no more than $7.3 million, which is less than the amount PacifiCorp
previously incurred from its ScottishPower affiliates. (Tr., pp. 324-327,
329-331.) The prefiled testimony of Goodman (Senior Vice President and Chief
Financial Officer of MEHC and a director and officer of many MEHC subsidiaries)
addresses the MEHC-PacifiCorp corporate structure, MEHC’s financing of the
acquisition of PacifiCorp, the financial forecast for the acquisition and the
ring-fencing protections MEHC intends to employ. Regarding Goodman’s testimony,
Specketer testified that the ratings outlook for MEHC remains positive and that
the ratings outlook for PacifiCorp, while neutral, is developing and does not
establish that the transaction will have a negative effect. (Tr., pp. 333-334.)

Positions of the Parties: The Office of Consumer Advocate

53.     Bryce Freeman, Administrator of the Office of Consumer Advocate,
presented testimony in support of the Stipulation. He explained the OCA’s
statutory focus on representing the interests of Wyoming citizens and all
classes of utility customers in matters involving public utilities. Freeman
cited a number of the Commitments as being important protections in

 

 

 

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avoiding any adverse impact of the transaction and in creating circumstances in
which the transaction will be more likely to yield positive benefits. Freeman
first noted the commitments made to study Wyoming investments, particularly the
Bridger to Miners and Bridger to Ben Lomond transmission projects. Freeman also
found the commitments regarding IGCC studies and asset risk management as
important to creating benefits for Wyoming. (Tr., pp. 220-223.) Freeman
observed:

“We have discussed these matters with the company, and I am now satisfied that,
based on certain performance measures that the company uses to distribute
investment dollars under the risk management program, that Wyoming will be
fairly treated.” (Tr., p. 223.)

54.     Freeman noted PacifiCorp’s commitment to maintaining the integrity of
the Integrated Resource Planning process that it has developed and to
maintaining the integrity of the interjurisdictional allocation methodology
developed through the multi-state proceedings. Freeman also identified the
Applicants’ commitments to examine existing energy efficiency and demand-side
management programs for application to Wyoming to be very important for Wyoming.
(Tr., pp. 224-225.)

55.     Freeman testified that MEHC is better positioned to commit capital
dollars to PacifiCorp throughout its system and in Wyoming than is
ScottishPower. Freeman stated:

“. . . some of the investments that the company has committed to, of course,
weren’t contained in the original application, and — well, I guess I should say
that they haven’t actually committed to investing dollars in transmission and
generation assets in Wyoming, but they have committed to studying those
potential investments. And I think that that is a big benefit for Wyoming and
PacifiCorp’s customers. (Tr., p. 238.)

Freeman noted that the Applicants have committed to at least 1400 megawatts of
cost-effective renewable resources, with a target to acquire 400 megawatts by
December 31, 2007, if available and cost-effective. (Tr., pp. 238-239.) Freeman
testified:

“MEHC and PacifiCorp are not seeking cost recovery of any of these investment
commitments in this proceeding, and that’s a very important point for us to
make, because while there is potential benefit associated with these investment
commitments, there is also some risk. And we want to make sure that we maintain
all available avenues for the Commission to review these investment decisions
and these commitments as they’re made and make sure that they are in the best
interests of Wyoming consumers.” (Tr., p. 239.)

 

 

 

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56.     Freeman supported the Applicants’ various commitments to make personnel,
books and records available to the Commission. Freeman also endorsed the
Applicants’ commitments with regard to affiliate transactions and ring fencing.
(Tr., p. 241.)

57.     According to Freeman, the rate credits that the Applicants’ have agreed
to are important because the Applicants are willing to commit to reducing the
cost of service in a number of cost categories, and this commitment will have
specific benefits for customers. Freeman urged the Commission to adopt the
Stipulation as presented. (Tr., pp. 244 and 247.)

58.     Freeman characterized the Stipulation as one of the most thorough and
extensive settlements with which he has been involved. Freeman confirmed that,
at a minimum, Wyoming consumers will not be adversely impacted by MEHC’s
acquisition of PacifiCorp. He commented:

“. . . even just a couple of commitments in this stipulation that demonstrate,
without a doubt, consumer benefits. The rate credits certainly will be consumer
benefits that are measurable. The fact that the company has committed to
contributing more money to low-income energy assistance programs, that is a
demonstrable benefit that wasn’t present under PacifiCorp ownership. So just a
few commitments that actually have quantifiable benefits tip the scales in favor
of this acquisition.”

(Tr., pp. 258-259.)

59.      Marci Norby, Senior Rate Analyst, testified for the OCA, stating that
her initial concerns about possible attempts by PacifiCorp to recover some
portion of the acquisition premium from customers were sufficiently addressed in
the Stipulation and specifically in Commitment Wy 13. (Tr., pp. 409-411.) Norby
also stated that her concerns about affiliate transactions were sufficiently
addressed by the Stipulation and Commitments. She cited Commitment 18,
Commitment Wy 14 and Commitment Wy 18 as providing adequate assurance that
affiliate transactions which might occur after the transaction would not
adversely affect customers. Commitment 18 provides that PacifiCorp dividends to
PPW Holdings, LLC or MEHC will not reduce PacifiCorp’s common equity below
specified levels without the Commission’s approval. Commitment Wy 14 provides
for asymmetrical pricing of certain affiliate transactions and Commitment Wy 18
commits PacifiCorp to demonstrate that any loans it might obtain from affiliates
were obtained on terms comparable to those available in the market. Norby cited
the importance of Applicants’ agreement to employ a ring fencing mechanism.
Norby testified that, overall, the Commitments reasonably address consumer

 

 

 

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protection, cross subsidization and issues that arise or could arise as a result
of the repeal of PUHCA. (Tr., pp. 411-413.)

 

 

 

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Positions of the Parties: Wyoming Infrastructure Authority

60.     Steve Waddington, Executive Director of the WIA, testified by telephone
in support of the Stipulation.

Waddington cited the Applicants’ commitments to “look seriously at transmission
infrastructure needs through and out of Wyoming” as significant positive aspects
of the Commitments and the proposed transaction. Waddington also identified the
Applicants’ commitment to explore the potential for cost effective investments
in wind and clean coal resources as important benefits of the transaction.
Waddington testified that the WIA believes the proposed reorganization to be in
the public interest. (Tr., pp. 195-196.) Waddington saw the possibility of
widely distributed benefits from the transaction. He stated:

“The point . . . is that if PacifiCorp were to look at diversifying its power
supply as was illustrated in the Rocky Mountain Area Transmission Study, seeking
high-quality wind and low-cost coal resources from Wyoming by way of example,
that that would benefit all of PacifiCorp’s customers given the nature of the
integrated system and the way the system is operated and the costs are shared
across the system. * * * Traditional coal-fired generation is not as
dispatchable as IGCC technology would be, and a higher level of dispatchability
in the coal-fired generation to the gasification in the IGCC process would, I
believe, be a natural marriage with wind generation.” (Tr., pp. 199-200.)

Positions of the Parties: Wyoming Industrial Energy Consumers

61.     Richard Anderson, a principal in the firm of Energy Strategies, LLC, of
Salt Lake City, Utah, testified on behalf of WIEC and the WIEC Members. Anderson
stated that various provisions of the Stipulation and Commitments sufficiently
addressed his concerns with the transaction that he would recommend approval of
the transaction subject to the Applicants’ agreement to meet the requirements of
the Stipulation and Commitments. (Tr., pp. 112-113, 121-122.) Anderson
previously recommended a 12 month moratorium on future rate case filings as a
condition of approval. He testified, however, that the Applicants’ agreement to
implement rate credits was sufficient to render a moratorium unnecessary. (Tr.,
pp. 113-114.) Although Anderson had recommended against any recovery of the
acquisition premium, he testified that Commitments addressing the acquisition
premium, its recovery and contestability, are sufficient to protect rate payers.
(Tr., pp. 114-115.) Anderson had additionally recommended an unqualified
prohibition against recovery of retention payments and severance package
payments to employees in connection with the transaction. At the hearing, he
concluded that such matters may be reserved to a future rate case. Anderson
testified to his belief that, after the repeal of PUHCA, Commitment 10 and ¶8 of
the Stipulation provide adequate protection. (Tr., pp. 115-116.) Anderson opined
that it is unlikely PacifiCorp has any outstanding underfunded

 

 

 

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obligations of the kind described in his pre-filed testimony and that Commitment
33, in any event, would adequately address those issues. (Tr., pp. 116-117.)
Anderson testified that he believes the Commitments make adequate provision for
Commission access to books, records and other relevant documents. Anderson
concluded that the Stipulation, Addendum and Commitments fairly and reasonably
resolve all of the issues he has identified concerning the Application. (Tr.,
pp. 117-118.) He commented finally:

“And to the extent that there are other things in the future that may pop up,
all parties again reserve their right to come before this Commission and present
their various cases.” (Tr., p. 118.)

62.     Ronald Binz, President of Public Policy Consulting of Denver, Colorado,
testified on behalf of WIEC and the WIEC Members. He stated that a pending
federal district court suit by PacifiCorp against the Commission created a
significant problem involving PacifiCorp’s relationship with the Commission and,
absent some resolution of that issue, would make it difficult for the Commission
to know whether the proposed transaction would result in no harm. As a result,
he had recommended conditioning approval of the merger on PacifiCorp’s
commitments [i] to bring all issues associated with net power costs to the
Commission, including any federal preemption theories and any constitutional or
statutory claims; [ii] to refrain from seeking a federal court trial in any
future case involving a fact pattern similar to that in Docket No.
20000-ER-02-184 regarding excess net power, and [iii] if PacifiCorp were to
prevail in the pending federal lawsuit, the Commission should review the
regulatory scheme applicable to wholesale power costs, including such mechanisms
as pass-through accounts and PCAMS. Binz further testified that Commitment Wy 6
and Stipulation ¶11 adequately accommodated his issues. (Tr., pp. 308-314.)

Positions of the Parties: Western Resource Advocates

63.     Bruce Driver, an energy and water policy consultant, attorney and former
Executive Director of WRA, testified on its behalf. Driver urged the Commission
to support development of IGCC technology and in particular, Commitment Wy 25
and Commitment Wy 26. Driver testified on environmental policy developments
regionally, nationally and internationally and expressed his opinion on the
likelihood that carbon dioxide emissions in electricity generation would be
regulated in the future. Driver provided evidence on, and expressed his opinion
that, IGCC is the cleanest way to use the energy value of coal for power
production, and if carbon dioxide costs are considered, the least expensive way
to use coal in power production. Driver provided his analysis of coal market
shares and expressed his opinion that developing IGCC processes utilizing
sub-bituminous coal may be necessary to allow western coal to continue in the
future to compete effectively with eastern coal. Driver expressed his hope that
the Commission would adopt the Stipulation. (Tr., pp. 289-290.) Current western
wholesale electricity market developments suggested to him

 

 

 

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Docket No. 20000-EA-05-226

 

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“. . . that at least new exports of coal-fired power from this state will not be
allowed to be made into the state of California. IGCC plants give the state of
Wyoming a much greater opportunity to continue and to expand its exports of
coal-fired power than conventional pulverized coal plants.” (Tr., p. 292.)

64.     Roger Hamilton, a consultant to WRA and Project Director for West Wind
Wires, also testified on behalf of WRA. West Wind Wires focuses on wind-related
transmission infrastructure issues and operational and tariff issues related to
grid access for wind and integration of wind-generated power into the Western
Interconnection. (Tr., pp. 126-127.) Hamilton brought two major issues to the
Commission’s attention: [i] the expansion of transmission to access the high
quality Wyoming wind resources and the benefits thereof for Wyoming customers;
and [ii] the Applicants’ commitments to regulatory and operational changes that
would help to optimize the use of the PacifiCorp transmission system, and
provide wind, especially in the near-term, access to the transmission grid.
(Tr., pp. 128-129.) Hamilton described:

:. . . importance to wind of an expansion of the Bridger project from the
Bridger area, Bridger substation east to the Miners substation, which would be a
340 kV line which would considerably enhance the development of wind in that
area up to 500 megawatts east of Bridger and then going west from Bridger also
include the expansion of that line into Utah and the Idaho areas of about 350
megawatts * * * The expansion of the line east would add about 500 megawatts of
transfer of capacity from Bridger to Miners, and then that would link to about
350 megawatts of expansion capacity — transfer capacity to the west of the
Bridger substation.” (Tr., p. 129.)

Hamilton testified that development of wind resources could have a positive
impact on economic development in rural Wyoming, citing a recent study showing
that a Colorado wind project of 162 MW would create 400 construction jobs, 15
permanent jobs, $3000 to $6000 in royalty payments to landowners and a 24%
increase in tax revenues in the project area. (Tr., p. 131) Finally, Hamilton
cited transmission upgrades as an important positive aspect of the Stipulation
and concluded that the Stipulation was in the public interest, particularly in
light of the commitment to developing at least 1400 MW of renewable resources
over a ten-year period ending in 2015 and the 400 MW target for year end 2007.
(Tr., p. 132.)

Positions of the Parties: Black Hills Corporation

65.     Thomas Ohlmacher, Chief Operating Officer of Black Hills Energy, the
wholesale division of Black Hills Corporation, testified for Black Hills,
stating that, because it is joint owner with PacifiCorp of the Wyodak plant,
Black Hills initially had concerns regarding its potential exposure related to
the Applicants’ commitments for future investment in emissions

 

 

 

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control equipment. Ohlmacher testified that Black Hills’ concerns were
reasonably accommodated by the Applicants’ commitment to undertake those
investments in consultation with joint owners of the affected facilities. In
addition, Ohlmacher testified that the January 20, 2006, Addendum to
Stipulation, setting out Applicants’ agreement that PacifiCorp will fully
perform its contractual commitments to Black Hills, sufficiently addressed Black
Hills’ concerns in that regard. Ohlmacher agreed that the Stipulation, with the
Addendum, was in the public interest and recommended that the Commission support
the Stipulation. (Tr., pp. 282-284; and Commitment 43.)

Positions of the Parties: UWUA

66.     At commencement of the second day of the hearing, counsel for the UWUA
stated that the UWUA would “not be participating any further in the hearing” and
reiterated that UWUA supported the Stipulation. (Tr., pp. 235-236.)

Positions of the Parties: AARP

67.     AARP did not present a witness in this proceeding, but stated through
counsel that it does not oppose either approval of the Stipulation or the
proposed transaction. Counsel noted that AARP’s national policy on corporate
mergers is not to take a position, but that they give individual state AARP
offices the ability to become involved in such proceedings. Counsel stated that
AARP was then devoting its resources to pending PacifiCorp rate matters in
Wyoming. (Tr., p. 446.)

 

 

 

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Positions of the Parties:

Kinder Morgan, Inc.

Kinder Morgan Interstate Gas Transmission LLC

Basin Electric Power Cooperative

68.     These intervenors neither appeared nor participated in the hearing in
the case. None presented any evidence, and none indicated opposition to the
Application or the Stipulation. Basin signed the Stipulation.

Written Direct and Rebuttal Testimony in General

69.     In addition to the examination conducted at the public hearing in this
case, the Commission has reviewed and taken into account in its decision herein
the prefiled written direct testimony of [i] Gregory E. Abel, Judi A, Johansen,
Brent E. Gale, Patrick J. Goodman, Thomas B. Specketer, and Paul B. Priest for
the Applicants; [ii] Bryce J. Freeman and Marci L. Norby for the OCA; [iii]
Richard M. Anderson and Ronald J. Binz for WIEC and the WIEC Members; [iv] Steve
Waddington for WIA; [v] Roger Hamilton and Bruce Driver for WRA; and Thomas
Ohlmacher for Black Hills; [vi] and the written rebuttal testimony of Brent E.
Gale, Patrick J. Goodman, Thomas B. Specketer, and Paul B. Priest. All of this
written testimony was made a part of the record through sponsoring witnesses who
stood cross examination on the contents. (Tr., passim.)

Law to be Applied

70.     The term “public utility” includes electric public utilities, as
described in W.S. § 37-1-101(a)(vi)(C), which states that the term includes:

“Any plant, property or facility for the generation, transmission, distribution,
sale or furnishing to or for the public of electricity for light, heat or power,
including any conduits, ducts or other devices, materials, apparatus or property
for containing, holding or carrying conductors used or to be used for the
transmission of electricity for light, heat or power;”

 

 

 

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71.     Under W.S. § 37-2-112, the Commission has the “...general and exclusive
power to regulate and supervise every public utility within the state in
accordance with the provisions of this act.”

72.     The Commission has jurisdiction over “reorganizations” defined under
W.S. § 37-1-104(b) as:

“(b) For purposes of this section, “reorganization” means any transaction which,
regardless of the means by which it is accomplished, results in a change in the
ownership of a majority of the voting capital stock of a public utility, or the
ownership or control of any entity which owns or controls a majority of the
voting capital stock of a public utility.”

73.     The basic statutory merger standard which we are bound to apply to a
reorganization is found at W.S. § 37-1-104(a), which states:

(a) No reorganization of a public utility shall take place without prior
approval by the public service commission. The commission shall not approve any
proposed reorganization if the commission finds, after public notice and
opportunity for public hearing, that the reorganization will adversely affect
the utility’s ability to serve the public.

There has been some discussion as to whether or not this is a public interest
standard, but the arguments are circular and of no particular legal import. The
Commission is bound in all cases to act in the public interest, and in doing so,
it will apply the relevant statutes. Our general legal standard in this case is
that we must uphold the public interest, and the desires of the utility are
secondary to the public interest. Mountain Fuel Supply Company v. Public Service
Commission, 662 P.2d 878 (Wyo. 1983).

74.     In deciding whether the transaction could “adversely affect” the ability
of a utility to serve the public we are additionally guided, in a general way,
by W.S. § 37-2-121, which requires the rates of public utilities to be just and
reasonable, and by W.S. § 37-2-122(b) which provides, in part, that utility
services and facilities should not be “inadequate or unsafe . . . .”

Further Findings and Conclusions

 

 

 

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75.     PacifiCorp is an electric public utility providing retail electric
utility service in Wyoming as defined in W.S. § 37-1-101(a)(vi)(C). It is
subject to the Commission’s jurisdiction under W.S. § 37-2-112.

76.     Each intervention described hereinabove was properly granted under the
Commission’s Rules and the Wyoming Administrative Procedure Act. Each grant of
intervention served to make the intervenor a full party to the proceeding with
all rights, privileges and obligations of a party. The OCA’s notice of
intervention served to confirm it as a party.

77.     The transaction proposed by MEHC and PacifiCorp constitutes a
“reorganization” as defined in W.S. § 37-1-104(b).

78.     Proper public notice of this proceeding was given in accordance with the
Wyoming Administrative Procedure Act (W.S. § 16-3-101, et seq.), W.S. §
37-1-104(a), 37-2-201, 37-2-202, and the relevant sections of the Commission’s
Rules. The public hearing was held and conducted pursuant to W.S. §§ 16-3-107,
16-3-108, 37-1-104(a), 37-2-102, 37-2-201, 37-2-203 and the relevant sections of
the Commission’s Rules.

79.     The order allowing one Commissioner or a hearing examiner to conduct and
preside at this hearing was properly granted under W.S. §§ 37-2-102 and
16-3-112.

80.     We conclude that the transaction together with the Stipulation will have
no adverse effect on the utility’s ability to serve the public. This standard
has been met and proved by the overwhelming preponderance of the evidence
adduced at the public hearing and as prefiled in connection therewith by the
parties. The transaction done in accordance with the Stipulation serves the
public interest. The Stipulation serves the public interest.

81.     Although certain commitments agreed upon by the parties simply restate
existing rights and obligations under the law, those commitments have value in
the context of a six-state effort to conclude the transaction as they provide
verbatim reassurance to certain otherwise skeptical parties of the good
intentions of the Applicants. However, nothing in the Stipulation may be
construed as a limitation of the prerogatives of the Commission to act in the
public interest under Wyoming law or to exercise the discretion given it
thereunder. The discussion of the Stipulation in this order may not be construed
as making binding changes in or varying the terms or conditions of the
Stipulation, except where specific clarifications, modifications or

 

 

 

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additions are discussed and approved. The Stipulation does not abrogate the
Commission’s jurisdiction under Wyoming law but sometimes describes it. In all
situations, including instances in which only part of a right or jurisdictional
power is described in the Stipulation, Wyoming law will apply and the full right
and power will be retained, it being the intent and conclusion of the Commission
that its discretion to act in the public interest in appropriate proceedings is
not diminished by the transaction, the Stipulation, or this order.

82.     To help in finalizing the documentation for this case, the Applicants
should file with the Commission, at the time of the closing of the transaction,
a narrative and an organizational chart showing the relationship among
PacifiCorp, MEHC, Berkshire Hathaway and their subsidiary and affiliated
business entities. This documentation should clearly show the owners of
PacifiCorp and the percentages held, up to the level of the ultimate parent,
Berkshire Hathaway.

83.     Many commitments made by the Applicants in settling this case have the
potential to yield positive benefits for customers and for Wyoming in general.
We note particularly the Applicants’ commitment to offsettable rate credits
totaling $142.5 million, for the whole company, and to the Applicants’
undertakings regarding deployment of new renewable generation resources,
investment in emission controls and the active study and evaluation for
deployment of IGCC and other advanced technologies.

84.     The evidence shows that the level of investment in system maintenance
and infrastructure would likely be higher if PacifiCorp were acquired by MEHC
than if PacifiCorp remained a subsidiary of ScottishPower PLC. We also believe
that the Applicants’ commitment to renewable and advanced generation technology,
together with the commitments regarding transmission, hold the promise of
benefits for consumers and possibly better utilization of Wyoming’s energy
resources. Consistent with our understanding of the subject, the Parties’
recommendation in Stipulation ¶7 and the testimony of the OCA, the WIA and WRA,
the Commission acknowledges the significance of Wyoming-specific Commitments Wy
25 and Wy 26 concerning IGCC and the importance of IGCC technology to the state
of Wyoming.

85.     This order only approves the transaction on the terms discussed herein,
and it does not determine or set any PacifiCorp rate. Consequently, this order
makes no ruling concerning the effect any provision of the Stipulation might or
might not have on rates or other issues addressed by the parties herein. All
such issues must be examined and decided separately by the Commission in
appropriate proceedings.

 

 

 

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Docket No. 20000-EA-05-226

 

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86.     Paragraph 15 of the Stipulation establishes a “most favored state”
process which allows the Commission to adopt commitments agreed to by the
Applicants in the five other jurisdictional states and conditions imposed by
those other states, even if the adoption is ordered subsequent to the date of
this order. To assist the Commission in implementing ¶15, the Commission directs
the parties to undertake, at the earliest date possible following entry of this
Order, a review of the decisions issued in other states and to submit a motion
as may be appropriate requesting modification of this Order. Such a motion, if
filed, will be heard and decided by the Commission at a regularly scheduled or
special open meeting. The Commission staff should also review the commitments
and conditions in the five other jurisdictional states and make recommendations
to the Commission concerning the advisability of adopting [i] any commitment or
condition urged on us by the parties and [ii] any other condition or commitment
which the staff believes would be of material benefit to PacifiCorp’s Wyoming
customers and operations. The filing of a motion pursuant to this paragraph will
not affect the finality of this Order or suspend its operation.

87.     The provisions of the Stipulation concerning how PacifiCorp will
identify and raise issues in contested cases in the future adequately and
properly state the correct methodology for bringing issues to the Commission and
for obtaining thereafter an efficient and timely resolution thereof. The need
for this forward-looking improvement has been illustrated by a pending federal
case involving the Commission and PacifiCorp, but that case is not otherwise
relevant to our decision here.

88.     We conclude that an overwhelming preponderance of the evidence of record
in this proceeding demonstrates that the transaction proposed by the Applicants
together with the terms of the Stipulation as modified will not adversely affect
PacifiCorp’s ability to serve the public in Wyoming. We conclude that the
probability is high the transaction will help PacifiCorp and the people of
Wyoming with infrastructure and other investments which enhance the ability of
PacifiCorp to serve in Wyoming. It appears that the transaction will bring
benefits to Wyoming consumers, the state in general and ultimately to Wyoming’s
economic development efforts. Our approval sets the stage for the acquisition of
the PacifiCorp regulated businesses by MEHC and the realization of the benefits,
inter alia, of Applicants’ agreements to continued customer service commitments,
sound, long term planning, ring-fencing of the new PacifiCorp, and emissions
control upgrades for the PacifiCorp generating fleet. At every turn, the
Applicants have demonstrated a conscientious, informed and forward looking
commitment to the business of PacifiCorp in Wyoming.

89.     The Application for acquisition of PacifiCorp by MEHC should be approved
on condition of faithful, timely and complete observance of the letter of the
Stipulation, with the modifications and clarifications described above in ¶47,
above. A complete copy of the Stipulation is attached hereto and made a part
hereof by reference.

 

 

 

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Docket No. 20000-EA-05-226

 

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NOW THEREFORE IT IS ORDERED:

1.     The transaction and Stipulation are hereby approved.

2.     The parties shall faithfully, promptly and completely observe and carry
out all of the terms and conditions of the Stipulation as attached to this Order
and as modified and clarified in ¶ 47 of this Order.

3.     If any party or other person believes that the Stipulation is in any way
unclear or a difference may exist between the Stipulation and this order, that
party or other person shall bring the issue before the Commission for
resolution, it being the Commission’s general intent that the plain language of
the Stipulation should control.

4.     The Applicants shall promptly file the organizational information
discussed above at paragraph 82.

5.     The Commission will rule separately and promptly on the incorporation
into the Stipulation of any further commitments or conditions used in other
jurisdictional states, all as more fully described in ¶ 86 of this order.

6.     All Confidential Information in this case, as that term is used in the
Commission’s September 23, 2005, Order Granting Joint Motion for Approval of
Confidentiality Agreement and Protective Order, except for any Confidential
Information required by the Commission to be retained by it, shall be, in
accordance with paragraph 5(e) of the Confidentiality Agreement, redelivered to
the disclosing party within thirty (30) days of the conclusion of all
proceedings before the Commission and any related appellate proceedings.
Compliance shall be evidenced by the filing with the Commission of the Affidavit
of Counsel provided for in paragraph 5(e). No party may thereafter retain, in
any form, any copies, notes, extrapolations, recordings, or summaries of any
Confidential Information disclosed to it.

7.     This order is effective immediately.

 

 

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MADE and ENTERED at Cheyenne, Wyoming, on February 28, 2006.

 

 

 

 

PUBLIC SERVICE COMMISSION OF WYOMING

 

 

/s/ STEVE FURTNEY

 

 

 

STEVE FURTNEY, Chairman

 

 

 

 

/s/ KATHLEEN A. LEWIS

 

 

 

KATHLEEN A. LEWIS, Deputy Chair

 

 

 

 

/s/ MARY BYRNES

(SEAL)

 

 

MARY BYRNES, Commissioner

 

Attest:

 

 

 

/s/ STEPHEN G. OXLEY

 

 

STEPHEN G. OXLEY,
Secretary and Chief Counsel

 

 

 

 

 

 

 

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Docket No. 20000-EA-05-226

 

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BEFORE THE PUBLIC SERVICE COMMISSION OF WYOMING

IN THE MATTER OF THE JOINT

)

 

APPLICATION OF MIDAMERICAN

)

 

ENERGY HOLDINGS COMPANY AND

)

 Docket No. 20000-EA-05-226

PACIFICORP FOR APPROVAL OF A

)

 

REORGANIZATION OF PACIFICORP

)

  (Record No. 10015)

AS A WHOLLY-OWNED SUBSIDIARY

)

 

OF MIDAMERICAN ENERGY

)

 

HOLDINGS COMPANY

)

 

STIPULATION

This Stipulation (“Stipulation”) is entered into by and among PacifiCorp,
MidAmerican Energy Holdings Company (“MEHC”), the Office of Consumer Advocate
(“OCA”), Wyoming Industrial Energy Consumers (“WIEC”), Wyoming Infrastructure
Authority (“WIA”), Utility Workers Union of America, AFL-CIO (“UWUA”) and
Utility Workers Union of America Local 127 (“Local 127”), Western Resource
Advocates (“WRA”), and Basin Electric Power Cooperative (“Basin Electric”),
(collectively referred to as the “Parties”).

1.

I. INTRODUCTION

1.        The terms and conditions of this Stipulation are set forth herein. The
Parties agree that this Stipulation represents a fair, just and reasonable
compromise of the issues raised in this proceeding and that this Stipulation is
in the public interest. The Parties, therefore,

 

 

STIPULATION – Page 1

 

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recommend that the Public Service Commission of Wyoming (“Commission”) approve
the Stipulation and all of its terms and conditions.

2.

II. BACKGROUND

2.       On July 15, 2005, MEHC and PacifiCorp (sometimes hereinafter jointly
referred to as “Applicants”) filed an Application with the Commission seeking
authorization pursuant to Wyoming Statute § 37-1-104 and Section 209 of the
Procedural Rules and Special Regulations of the Public Service Commission of
Wyoming  authorizing a proposed transaction (“Transaction”) whereby MEHC would
acquire all of the outstanding common stock of PacifiCorp and PacifiCorp would
thereafter become an indirect wholly owned subsidiary of MEHC.

3.       On August 4, 2005, the Commission issued a Notice of Application.

4.       Petitions to intervene in this proceeding were filed by OCA, WIEC,
Black Hills, WIA, UWUA and Local 127, Kinder Morgan, AARP, WRA, and Basin
Electric. By various orders, the Commission granted these interventions.

5.       Representatives of the Parties met on September 28, 2005 for a
Technical Conference, for subsequent Settlement Conferences on October 31, 2005,
November 18, 2005, January 5, 2006, January 12, 2006 and by phone on January 13,
2006, and engaged in initial settlement discussions with a view toward resolving
the Application in this case.

Based upon the settlement discussions among the Parties, as a compromise of the
positions in this case, and for other consideration as set forth below, the
Parties agree to the following terms:

 

 

STIPULATION – Page 2

 

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3.

III. TERMS OF THE STIPULATION

6.        Appendix A contains the complete list of Commitments that Applicants
collectively and individually agree to make in exchange for the support of the
Parties in this proceeding (hereinafter referred to as “Commitments”). The
Commitments are comprised of general commitments applicable to all the states in
which PacifiCorp’s service territory extends and Wyoming-specific commitments
that apply only to the activities and operations of Applicants within Wyoming.
By virtue of executing this Stipulation, the Applicants agree to perform all of
the Commitments set forth in Appendix A according to the provisions of each
Commitment as set forth therein.

7.        Wyoming-specific Commitments Wy 25 and Wy 26 further the analysis of
IGCC technology as part of PacifiCorp’s generation portfolio. By these
Commitments, the signatories have recognized the importance to Wyoming of IGCC
technology. The signatories request that the Commission’s order approving the
transaction acknowledge the significance of these Commitments and the importance
of IGCC technology to the state.

8.        Commitment 10 addresses waiver of certain defenses under Ohio Power
Co. v. FERC by MEHC and Berkshire until PUHCA repeal is effective on February 8,
2006. Since no case law has yet developed regarding the same subject matter
after the repeal of PUHCA, the parties have not addressed the issue beyond
February 8, 2006. The parties acknowledge that the Commission should monitor
federal developments on this subject matter and may need to address the same in
the future

9.        For the purpose of rate cases and formal regulatory proceedings,
PacifiCorp will provide the parties to this stipulation filed in the acquisition
docket who are also intervenors in

 

 

STIPULATION – Page 3

 

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any future rate case or formal regulatory proceeding with access, subject to
Commitment 32 and the discovery rules of the Commission, to its financial books
and records, including documents, data, and records of transactions between
PacifiCorp and its affiliated interests which are relevant to issues in the
docket.

10.     PacifiCorp will provide in writing to the Office of Consumer Advocate,
at the same time as the Commission, with the filings, data and documents made
with or provided in writing to Commission pursuant to Commitments 3, 4, 8, 12,
13, 14, 16, 18, 49, Wy 3, Wy 5, Wy 15c, Wy 16, Wy 17, Wy 28, Wy 32 and Wy 34.
PacifiCorp further will provide notice to the Parties of filings made with the
Commission pursuant to Commitments 3, 4, 8, 12, 13, 14, 16, 18, 49, Wy 3, Wy 5,
Wy 15c, Wy 16, Wy 17, Wy 28, Wy 32 and Wy 34.

11.     To the extent issues regarding the federal litigation involving 2003
Wyoming power purchase costs remain outstanding at the time of the transaction,
MEHC and PacifiCorp commit to work in good faith with the Commission and the
parties to expeditiously resolve the issues in a mutually acceptable manner.

12.      MEHC and PacifiCorp recognize the importance of independent consumer
representation before the Commission regarding filings made by PacifiCorp. MEHC
and PacifiCorp support the continuing viability of the Wyoming Office of
Consumer Advocate with the full rights and responsibilities granted to all other
parties that may from time to time appear before the Commission. Applicants
commit that neither MEHC nor PacifiCorp will initiate or support legislation
prior to 2015 that would repeal W.S. 37-2-401 through 404 or diminish the
authority of the OCA thereunder. Applicants further commit that during the
appropriate legislative proceedings they will support repeal of W.S.
37-2-404(b).

 

 

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13.     The Parties will not oppose in any proceeding the concept of the captive
insurance affiliate for the purposes proposed in this Stipulation.

14.     Through December 31, 2011, MEHC and PacifiCorp will both confer with the
signatories and provide drafts in a timely manner prior to introducing
legislation in the Wyoming Legislature that would impact Wyoming utility
regulation.

15.     In the process of obtaining approvals of the Transaction in other
states, the Commitments may be expanded or modified as a result of regulatory
decisions or settlements. In developing this Stipulation, the Parties
considered, and agreed upon adoption of various commitments from, the
stipulations entered into by Applicants in approval proceedings in the states of
Utah, Oregon, Idaho, and California. The Applicants agree that the Commission
shall have an opportunity and the authority to consider and adopt in Wyoming any
commitments or conditions to which the Applicants agree or with which the
Applicants are required to comply in other jurisdictions, even if such
commitments and conditions are agreed to after the Commission enters its order
in this docket. To facilitate the Commission’s consideration and adoption of the
commitments and conditions from other jurisdictions, the Parties urge the
Commission to issue an order accepting this Stipulation as soon as practical,
but to reserve in such order the explicit right to re-open Appendix A to add
(without modification of the language thereof except such non-substantive
changes as are necessary to make the commitment or condition applicable to
Wyoming) commitments and conditions accepted or ordered in another state
jurisdiction. To provide input to the Commission to facilitate a prompt decision
regarding the desirability or lack of desirability for these out-of-state
commitments and conditions to be adopted in Wyoming, the Parties agree to and
recommend the following process:

 

 

STIPULATION – Page 5

 

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•

Within five calendar days after a stipulation with new or amended commitments is
filed by the Applicants with a commission in another state jurisdiction,
Applicants will send a copy of the stipulation and commitments to the Parties.

 

•

Within five calendar days after a commission in another state jurisdiction
issues an order that accepts a stipulation to which Applicants are a party or
otherwise imposes new or modified commitments or conditions, that order,
together with all commitments and conditions of any type agreed to by Applicants
or ordered by the commission in such other state, will be filed with the
Commission and served on all parties to this docket by the most expeditious
means practical. Within ten calendar days after the last such filing from the
other states (“Final Filing”), any party to the docket wishing to do so shall
file with the Commission its response, including its position as to whether any
of the covenants, commitments and conditions from the other jurisdictions
(without modification of the language thereof except such non-substantive
changes as are necessary to make the commitment or condition applicable to
Wyoming) should be adopted in Wyoming.

 

•

Within five calendar days after any such response filing, any party to the
docket may file a reply with the Commission. The parties agree to support in
their filings (or by representation of same by MEHC) the issuance by the
Commission of an order regarding the adoption of such commitments and conditions
as soon as practical thereafter, recognizing that the transaction cannot close
until final state orders have issued.

16.     Not later than the Final Filing, MEHC and PacifiCorp will disclose to
the Parties any written commitments, conditions or covenants made in another
state jurisdiction (between

 

 

STIPULATION – Page 6

 

--------------------------------------------------------------------------------

the date of the filing of the Stipulation and the receipt of the last state
order in the transaction docket) intended to encourage approval of the
transaction or avoidance of an objection thereto.

17.      The Parties, by signing this Stipulation, acknowledge that the
Applicants have satisfied the standard under W. S. § 37-1-104 for approval of
the Transaction and request that the Commission issue its order approving the
Application and this Stipulation. The Parties encourage the Commission to enter
a final Wyoming approval order by February 28, 2006.

18.      The Parties submit this Stipulation to the Commission and recommend
approval in its entirety pursuant to W. S. § 37-1-104. Parties shall support
this Stipulation before the Commission, and no Party shall appeal any portion of
this Stipulation or Order approving the same. If this Stipulation is challenged
by any person not a party to the Stipulation, the Parties to this Stipulation
reserve the right to cross-examine witnesses and put on such case as they deem
appropriate to respond fully to the issues presented, including the right to
raise issues that are incorporated in the settlements embodied in this
Stipulation. Notwithstanding this reservation of rights, the Parties to this
Stipulation agree that they will continue to support the Commission’s adoption
of the terms of this Stipulation.

19.      The Parties agree that this Stipulation represents a compromise of the
positions of the Parties in this case. Other than the above referenced positions
and any testimony filed in support of the approval of this Stipulation, and
except to the extent necessary for a Party to explain before the Commission its
own statements and positions with respect to the Stipulation, all negotiations
relating to this Stipulation shall not be admissible in evidence in this or any
other proceeding regarding this subject matter.

20.      Applicants acknowledge that the Commission’s approval of the
Stipulation, the Commitments or the Joint Application shall not bind the
Commission in other proceedings with respect to the determination of prudence,
just and reasonable character, rate or ratemaking

 

 

STIPULATION – Page 7

 

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treatment, or public interest of services, accounts, costs, investments, any
particular construction project, expenditures or actions referenced in these
Commitments.

21.     In the event the Commission rejects any part or all of this Stipulation,
or imposes any additional material conditions on approval of this Stipulation,
each Party reserves the right, upon written notice to the Commission and the
other Parties to this proceeding, within 14 days of the date of such action by
the Commission, to withdraw from this Stipulation. In such case, no Party shall
be bound or prejudiced by the terms of this Stipulation, and each Party shall be
entitled to seek reconsideration of the Commission’s order, file testimony as it
chooses, cross-examine witnesses, and do all other things necessary to put on
such case as it deems appropriate. In such case, the Parties immediately will
request the prompt reconvening of a prehearing conference for purposes of
establishing a procedural schedule for the completion of the case. The Parties
agree to cooperate in development of a schedule that concludes the proceeding
expeditiously, taking into account the needs of the Parties in participating in
hearings and preparing briefs.

22.     No Party shall be bound, benefited or prejudiced by any position
asserted in the negotiation of this Stipulation, except to the extent expressly
stated herein, nor shall this Stipulation be construed as a waiver of the rights
of any Party unless such rights are expressly waived herein. Execution of this
Stipulation shall not be deemed to constitute an acknowledgment by any Party of
the validity or invalidity of any particular method, theory or principle of
regulation or cost recovery. No Party shall be deemed to have agreed that any
method, theory or principle of regulation or cost recovery employed in arriving
at this Stipulation is appropriate for resolving any issues in any other
proceeding in the future. No findings of fact or conclusions of law other than
those stated herein shall be deemed to be implicit in this Stipulation.

 

 

STIPULATION – Page 8

 

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23.      Subject to Paragraph 23 of this Stipulation, the effective date of this
Stipulation shall be the date of the closing of the Transaction.

24.      The obligations of the Applicants under this Stipulation are subject to
the Commission’s approval of the Application in this docket on terms and
conditions acceptable to the Applicants, in their sole discretion, and the
closing of the Transaction.

25.      To the extent any of above referenced filing dates falls on a weekend
or a holiday, the filing shall be due on the next business day.

Respectfully submitted this 20th day of January, 2006.

 

PacifiCorp

 

MidAmerican Energy Holdings Company

 

 

By 

/s/ D. Douglas Larson

 

By 

/s/ Mark C. Moench

 

--------------------------------------------------------------------------------

 

 

--------------------------------------------------------------------------------

 

D. Douglas Larson

 

 

Mark C. Moench

 

Vice President, Regulation

 

 

Senior Vice President, Law

 

 

Wyoming Industrial Energy Consumers (WIEC)

 

Office of Consumer Advocate

By 

 /s/ Holland and Hart LLP

 

By 

/s/ Bryce J. Freeman

 

--------------------------------------------------------------------------------

 

 

--------------------------------------------------------------------------------

 

 Holland and Hart LLP

 

 

Bryce J. Freeman

 

 

 

 

 

 

 

 

 

Administrator

 

 

 

STIPULATION – Page 9

 

--------------------------------------------------------------------------------

 

 

 

Wyoming Infrastructure Authority

Utility Workers Union of America, AFL-CIO and
Utility Workers Union of America Local 127

 

 

 

 

By

/s/ Thomas J. Dougherty II

 

 

 

 

--------------------------------------------------------------------------------

 

 

 

Thomas J. Dougherty II

 

 

 

Rothgerber, Johnson & Lyons, LLP

By

/s/ David B. Lieb

 

 

 

 

--------------------------------------------------------------------------------

 

 

 

 

 

Western Resource Advocates

David B. Lieb

 

 

 

 

 

 

 

Spiegel & McDiarmid

 

 

 

 

 

By

/s/ Eric C. Guidry

 

 

 

 

--------------------------------------------------------------------------------

Basin Electric Power Cooperative

 

Eric C. Guidry

By

/s/ Eydie L. Johnson

 

 

 

--------------------------------------------------------------------------------

 

 

 

 

 

 

Eydie L. Johnson

 

 

 

 

 

 

 

 

Sherard, Sherard and Johnson

 

 

 

 

 

STIPULATION – Page 10

 

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MEHC Acquisition of PacifiCorp

Wyoming Docket No. 20000-EA-5-226

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.

 

Commitments - 1

 

 

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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 the costs and allocation factors used by MEHC to assign costs
to PacifiCorp and amounts subject to allocation or direct charges. MEHC agrees
to cooperate fully with such Commission audits.

7)

MEHC and PacifiCorp will comply with all applicable Commission statutes and
regulations regarding affiliated interest transactions, including timely filing
of applications and reports.

8)

PacifiCorp will file on an annual basis an affiliated interest report including
an organization chart, narrative description of each affiliate, revenue for each
affiliate and transactions with each affiliate.

9)

PacifiCorp and MEHC will not cross-subsidize between the regulated and
non-regulated businesses or between any regulated businesses, and shall comply
with the Commission’s applicable orders and rules with respect to such matters.

10)

Due to PUHCA repeal, neither Berkshire Hathaway nor MEHC will be registered
public utility holding companies under PUHCA. Thus, no waiver by Berkshire
Hathaway or MEHC of any defenses to which they may be entitled under Ohio Power
Co. v. FERC, 954 F.2d 779 (D.C. Cir.), cert. denied sub nom. Arcadia v. Ohio
Power Co., 506 U.S. 981 (1992) (“Ohio Power”), is necessary to maintain the
Commission’s regulation of MEHC and PacifiCorp. However, while PUHCA is in
effect, Berkshire Hathaway and MEHC waive such defenses.

11) 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.

 

Commitments - 2

 

 

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12)

PacifiCorp or MEHC will notify the Commission in writing subsequent to MEHC’s
board approval and as soon as practicable following any public announcement of:
(1) any acquisition of a regulated or unregulated business representing 5
percent or more of the capitalization of MEHC; or (2) the change in effective
control or acquisition of any material part or all of PacifiCorp by any other
firm, whether by merger, combination, transfer of stock or assets.

13)

The Inter-company Administrative Services Agreement (IASA) will include the
corporate and affiliate cost allocation methodologies. The IASA will be filed
with the Commission as soon as practicable after the closing of the transaction.
Approval of the IASA will be requested if required by law or rule, but approval
for ratemaking purposes will not be requested in such filing. Refer to
Commitment 14 (f). Amendments to the IASA will also be filed with the
Commission.

14)

Any proposed cost allocation methodology for the allocation of corporate and
affiliate investments, expenses, and overheads, required by law or rule to be
submitted to the Commission for approval, will comply with the following
principles:

 

a)

For services rendered to PacifiCorp or each cost category subject to allocation
to PacifiCorp by MEHC or any of its affiliates, MEHC must be able to demonstrate
that such service or cost category is necessary to PacifiCorp for the
performance of its regulated operations, is not duplicative of services already
being performed within PacifiCorp, and is reasonable and prudent.

 

b)

Cost allocations to PacifiCorp and its subsidiaries will be based on generally
accepted accounting standards; that is, in general, direct costs will be charged
to specific subsidiaries whenever possible and shared or indirect costs will be
allocated based upon the primary cost-driving factors.

 

c)

MEHC and its subsidiaries will have in place positive time reporting systems
adequate to support the allocation and assignment of costs of executives and
other relevant personnel to PacifiCorp.

 

d)

An audit trail will be maintained such that all costs subject to allocation can
be specifically identified, particularly with respect to their origin. In
addition, the audit trail must be adequately supported. Failure to adequately
support any allocated cost may result in denial of its recovery in rates.

 

Commitments - 3

 

 

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e)

Costs which would have been denied recovery in rates had they been incurred by
PacifiCorp regulated operations will likewise be denied recovery whether they
are allocated directly or indirectly through subsidiaries in the MEHC group.

 

f)

Any corporate cost allocation methodology used for rate setting, and subsequent
changes thereto, will be submitted to the Commission for approval if required by
law or rule.

15)

MEHC and PacifiCorp commit that PacifiCorp will maintain separate debt and
preferred stock, if any. PacifiCorp will maintain its own corporate credit
rating, as well as ratings for long-term debt and preferred stock, from Moody’s
and S&P or their successor rating agencies.

16)

MEHC and PacifiCorp will exclude all costs of the transaction from PacifiCorp’s
utility accounts used in setting rates. Within 90 days following completion of
the transaction, MEHC will file with the Commission a preliminary accounting of
these costs. Further, MEHC will file with the Commission 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 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;

 

 

Commitments - 4

 

 

--------------------------------------------------------------------------------

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)

MEHC and PacifiCorp commit that neither PacifiCorp nor its subsidiaries will,
without the prior approval of the Commission, make loans or transfer funds
(other than dividends and payments pursuant to the IASA) to MEHC, Berkshire
Hathaway or their respective subsidiaries, or assume any obligation or liability
as guarantor, endorser, surety or otherwise for MEHC, Berkshire Hathaway or
their respective subsidiaries; provided that this condition will not prevent
PacifiCorp, to the extent allowed by law, from making loans or transferring
funds to a subsidiary of PacifiCorp or assuming any obligation or liability on
behalf of a subsidiary of PacifiCorp. MEHC and Berkshire Hathaway will not
pledge any of

 

Commitments - 5

 

 

--------------------------------------------------------------------------------

the assets of the business of PacifiCorp as backing for any securities which
MEHC, Berkshire Hathaway or their respective subsidiaries, but excluding
PacifiCorp and its subsidiaries, may issue.

21)

MEHC and PacifiCorp will not advocate for a higher cost of capital as compared
to what PacifiCorp’s cost of capital would have been, using Commission
standards, absent MEHC’s ownership.

22)

[This Commitment number has intentionally been left blank. Commitment 22 is not
available if a state selects Wyoming-specific Commitment Wy 12.]

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.

 

Commitments - 6

 

 

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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.

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)

MEHC and PacifiCorp have identified transmission projects that MEHC and
PacifiCorp believe will enhance reliability, facilitate the receipt of renewable
resources, or enable further system optimization. Subject to permitting and the
availability of materials, equipment and rights-of-way, MEHC and PacifiCorp

 

Commitments - 7

 

 

--------------------------------------------------------------------------------

commit to use their best efforts to achieve the following transmission system
infrastructure improvements1:

 

a)

Path C Upgrade (~$78 million) – Increase Path C capacity by 300 MW (from S.E.
Idaho to Northern Utah). The target completion date for this project is 2010.
MEHC and PacifiCorp assert that this project:

 

•

enhances reliability because it increases transfer capability between the east
and west control areas,

 

•

facilitates the delivery of power from wind projects in Idaho, and

 

•

provides PacifiCorp with greater flexibility and the opportunity to consider
additional options regarding planned generation capacity additions.

 

b)

Mona - 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. MEHC and
PacifiCorp assert that this project:

 

•

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

 

•

facilitates the acceptance of renewable resources, and

 

•

enhances further system optimization since it enables the further purchase or
exchange of seasonal resources from parties capable of delivering to Mona.

 

c)

Walla Walla - Yakima or Mid-C (~$88 million) – Establish a link between the
“Walla Walla bubble” and the “Yakima bubble” and/or reinforce the link between
the “Walla Walla bubble” and the Mid-Columbia (at Vantage). MEHC and PacifiCorp
assert that 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.

______________

1 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.

 

 

Commitments - 8

 

 

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35)

MEHC and PacifiCorp make the following commitments to improve system
reliability:

 

a)

investment in the Asset Risk Program of $75 million over the three years,
2007-2009,

 

b)

investment in local transmission risk projects across all states of $69 million
over eight years after the close of the transaction,

 

c)

O & M expense for the Accelerated Distribution Circuit Fusing Program across all
states will be increased by $1.5 million per year for five years after the close
of the transaction, and

 

d)

extension of the O&M investment across all states for the Saving SAIDI
Initiative for three additional years at an estimated cost of $2 million per
year.

 

e)

MEHC and PacifiCorp will support the Bonneville Power Administration in its
development of short-term products such as conditional firm. No less than three
months following the close of the transaction, PacifiCorp will initiate a
process to collaboratively design similar short-term transmission products and
will include stakeholders in this process. PacifiCorp will make every reasonable
effort to complete a product by the end of 2008.

 

f)

PacifiCorp will continue to offer its Partial Interim Service product, and will
make commercially reasonable efforts to offer transmission customers as much
firm service as the Company’s transmission studies show is available, including
weeks within a month. PacifiCorp will also continue its OATT tariff provision
that allows transmission customers to alter pre-scheduled transactions up to 20
minutes before the hour as long as such provision is consistent with established
scheduling practices and does not jeopardize system reliability. PacifiCorp will
notify parties to this proceeding if it proposes changes to these two elements
of its OATT.

 

Commitments - 9

 

 

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36)

MEHC recognizes that it can and should have a role in addressing the critical
importance of transmission infrastructure to the states in which PacifiCorp
serves. MEHC also recognizes that some transmission projects, while highly
desirable, may not be appropriate investments for PacifiCorp and its regulated
customers. Therefore, MEHC commits its resources and leadership to assist
PacifiCorp states in the development of transmission projects upon which the
states can agree. Examples of such projects would be RMATS and the proposed
Frontier transmission line.

37)

MEHC believes that PacifiCorp’s incremental cost of long-term debt will be
reduced as a result of the proposed transaction, due to the association with
Berkshire Hathaway. Historically, MEHC’s utility subsidiaries have been able to
issue long-term debt at levels below their peers with similar credit ratings.
MEHC commits that over the next five years it will demonstrate that PacifiCorp’s
incremental long-term debt issuances will be at least a spread of ten basis
points below PacifiCorp’s similarly rated peers. MEHC’s demonstration will
include information from a third party industry expert supporting its
calculation and conclusion. If MEHC is unable to demonstrate to the Commission’s
satisfaction that PacifiCorp has achieved at least a ten-basis point reduction,
PacifiCorp will file in any rate application to the Commission at least a ten
(10) basis point reduction to the yield it actually incurred on any incremental
long-term debt issuances for any revenue requirement calculation effective for
the five-year period subsequent to the approval of the proposed acquisition. It
is projected that this benefit will yield a value roughly equal to $6.3 million
over the post-acquisition five-year period.

38)

[This Commitment number has intentionally been left blank. Commitment 38 is not
available if a state selects Wyoming-specific Commitments Wy 9 and Wy 11.]

39)

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

 

 

Commitments - 10

 

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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)

MEHC reaffirms PacifiCorp’s commitment to acquire 1400 MW of new cost-effective
renewable resources, representing approximately 7% of PacifiCorp’s load. MEHC
and PacifiCorp commit to work with developers and bidders to bring at least 100
MW of cost-effective wind resources in service within one year of the close of
the transaction.

MEHC and PacifiCorp expect that the commitment to build the Walla-Walla and Path
C transmission lines will facilitate up to 400 MW of renewable resource projects
with an expected in-service date of 2010. MEHC and PacifiCorp commit to actively
work with developers to identify other transmission improvements that can
facilitate the delivery of cost-effective wind energy in PacifiCorp’s service
area.

In addition, MEHC and PacifiCorp commit to work constructively with states to
implement renewable energy action plans so as to enable PacifiCorp to achieve at
least 1400 MW of cost-effective renewable energy resources by 2015. Such
renewable energy resources are not limited to wind energy resources.

41)

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)    a)

MEHC and PacifiCorp commit to participate in the Environmental Protection
Agency’s SF6 Emission Reduction Partnership for Electric Power Systems. Sulfur
hexafluoride (SF6) is a highly potent greenhouse gas used in the electric
industry for insulation and current interruption in electric transmission and
distribution equipment. MEHC and PacifiCorp represent that over a 100-year
period, SF6 is 23,900 times more effective at trapping infrared radiation than
an equivalent amount of CO2, making it the most highly potent, known greenhouse
gas. SF6 is also a very stable chemical, with an atmospheric lifetime of 3,200
years. As the gas is emitted, it accumulates in the atmosphere in an essentially
un-degraded state for many centuries. Thus, a relatively small amount of SF6 can
have a significant impact on global climate change. Through its participation in
the SF6 partnership, PacifiCorp will commit to an appropriate SF6 emissions
reduction

 

 

Commitments - 11

 

--------------------------------------------------------------------------------

goal and annually report its estimated SF6 emissions. MEHC and PacifiCorp
represent that this not only reduces greenhouse gas emissions, it saves money
and improves grid reliability. Since 1999, EPA’s SF6 partner companies have
saved $2.5 million from the avoided gas loss alone. Use of improved SF6
equipment and management practices helps protect system reliability and
efficiency.

 

b)

Within six months after close of the transaction, MEHC and PacifiCorp commit
that PacifiCorp will establish a global warming working group composed of
representatives of the regulatory, consumer, educational and environmental
communities in the six states that PacifiCorp serves, as well as representatives
of PacifiCorp and MEHC. PacifiCorp will work with the global warming working
group to identify cost-effective measures to reduce PacifiCorp’s greenhouse
emissions. PacifiCorp will develop and file with the Commission its strategy,
which MEHC supports, for reducing its greenhouse gas emissions.

43)

Working with the affected generation plant joint owners and with regulators to
obtain required approvals, MEHC and PacifiCorp commit to install, to the extent
cost effective, the equipment likely to be necessary under future emissions
control scenarios at a cost of approximately $812 million. Concurrent with any
application for an air permit, MEHC and PacifiCorp will discuss its plans
regarding this commitment with interested parties and solicit input. While
additional expenditures may ultimately be required as future emission reduction
requirements become better defined, MEHC believes these investments in emission
control equipment are reasonable and environmentally beneficial. The execution
of an emissions reduction plan for the existing PacifiCorp coal-fueled
facilities, combined with the use of reduced-emissions coal technology for new
coal-fueled generation, is expected to result in a significant decrease in the
emissions rate of PacifiCorp’s coal-fueled generation fleet. MEHC represents
that the investments to which MEHC is committing are expected to result in a
decrease in the SO2 emissions rates of more than 50%, a decrease in the NOx
emissions rates of more than 40%, a reduction in the mercury emissions rates of
almost 40%, and no increase expected in the CO2 emissions rate.

44)    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

 

 

Commitments - 12

 

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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 MEC will annually
collaborate to identify any incremental programs that might be cost-effective
for PacifiCorp customers. The Commission will be notified of any additional
cost-effective programs that are identified.

45)

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)

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)

MEHC understands that having adequate staffing and representation in each state
is not optional. MEHC understands its importance to customers, to regulators and
to states. MEHC and PacifiCorp commit to maintaining adequate staffing and
presence in each state, consistent with the provision of safe and reliable
service and cost-effective operations.

 

 

Commitments - 13

 

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48)

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, 52 and 53.
PacifiCorp will hold IRP meetings at locations or using communications
technologies that encourage broad participation.

49)

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)

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 PUHCA Audit Report of Scottish Power dated May
11, 2004, MEHC will contribute to PacifiCorp, at no cost to PacifiCorp, MEHC’s
stock ownership in the Intermountain Geothermal Company and the associated steam
rights (approximately 70% of the total rights) to the steam resources serving
PacifiCorp’s Blundell geothermal plant and terminate MEHC’s and Intermountain
Geothermal Company’s rights and obligations under the contracts. MEHC will
assist PacifiCorp in determining the cost-effectiveness of acquiring the
remaining 30% of the rights. No more than six months after the close of the
transaction, MEHC will provide parties a clear and complete disclosure statement
that details any potential liabilities and risks, identified by or for MEHC,
associated with the ownership rights of MEHC in Intermountain Geothermal. MEHC
also commits that PacifiCorp customers will not be harmed from the contribution
to PacifiCorp of the Intermountain Geothermal steam resources and stock.

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

 

 

Commitments - 14

 

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IRP. This incremental amount is expected to be at least 11 MW and may be as much
as 100 MW. All cost effective increases in Blundell capacity, completed before
January 1, 2015, should be counted toward satisfaction of PacifiCorp’s 1400 MW
renewable energy goal, in an amount equal to the capacity of geothermal energy
actually added at the plant.

53)

MEHC or PacifiCorp commit to commence as soon as practical after close of the
transaction a system impact study to examine the feasibility of constructing
transmission facilities from the Jim Bridger generating facilities to Miners
Substation in Wyoming. Upon receipt of the results of the system impact study,
MEHC or PacifiCorp will review and discuss with stakeholders the desirability
and economic feasibility of performing a subsequent facilities study for the
Bridger to Miners transmission project.

Wyoming-Specific Commitments:

Wy 1.

Penalties for noncompliance with performance standards and customer guarantees
that are not paid to customers will be paid to EnergyShare of Wyoming.

Wy 2.

MEHC and PacifiCorp will make it a priority to provide safe, adequate, and
reliable service at reasonable rates.

Wy 3.

PacifiCorp or MEHC will notify the Commission in writing 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.

Wy 4.

MEHC and PacifiCorp commit to initiate a proceeding in Wyoming within 90 days of
the close of the transaction for Commission review and determination of
appropriate avoided cost methodologies for qualifying facilities over 1 MW in
Wyoming.

 

 

Commitments - 15

 

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Wy 5.

MEHC and PacifiCorp commit to meet with the Parties no later than 30 days after
the close of the transaction to begin dialogue on and evaluation of DSM programs
offered by PacifiCorp in other states that could be prudent and cost effective
for Wyoming. PacifiCorp will make a best-efforts attempt to file an application
with the Commission prior to December 31, 2006, or sooner if practical, to
implement prudent and cost effective DSM programs in Wyoming that can be shown
to be in the public interest and to propose in the application an appropriate
cost recovery mechanism.

Wy 6.

With respect to any proceeding, including but not limited to any rate case,
tariff filing, pass-through application, show cause, complaint or other
proceeding, wherein PacifiCorp’s Wyoming retail rates are based, in whole or in
part, upon PacifiCorp’s wholesale power transactions, PacifiCorp and MEHC
acknowledge that the Commission has jurisdiction to determine the prudence of
PacifiCorp’s wholesale power transactions and whether PacifiCorp’s retail rates
are just and reasonable. To the extent PacifiCorp contends the Commission is
required to include the costs of the wholesale power transactions in Wyoming
retail rates, PacifiCorp and MEHC commit that PacifiCorp will raise and litigate
such issues before the Commission. To the extent decisions regarding such issues
are within the areas reserved to the exclusive jurisdiction of the Commission,
PacifiCorp and MEHC agree that any challenge to the Commission order will be in
the form of an appeal of that order.

Wy 7.

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 Wy 8 through Wy 12. 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 Wy 8 and Wy 12 are subject to deferred accounting as specified
therein. Where total company values are referenced, the amount allocated to
Wyoming will equal the Wyoming-allocated amount using Commission-adopted
allocation factors.

Wy 8. 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

 

 

Commitments - 16

 

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transaction to purchase PacifiCorp, Wyoming’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.

Wy 9. 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 Wy 9 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.

 

 

Commitments - 17

 

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Wy 10.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 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 is not more than $7.4 million
(total company). (This commitment is reflected in Row 3 in Appendix 2.)

Wy 11.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 Utah
Commitment 38, and a state must choose between this Commitment Wy 11 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.)

 

 

Commitments - 18

 

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Wy 12.a)

MEHC and PacifiCorp commit that PacifiCorp’s total company A&G costs as
reflected in FERC Accounts 920 through 935 will be reduced by $6 million
annually from a baseline amount of $228.8 million. The maximum amount of the
total company rate credit in any year is $6 million per year. This commitment
expires December 31, 2010. Beginning with the first month after the close of the
transaction, Wyoming’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 Wy 12
and Commitments 22 and U 23.

 

b)

The credit will be offsetable on a prospective basis, for every dollar that
PacifiCorp demonstrates to the Commission’s satisfaction, in a subsequent
general rate case, that total company A&G expenses included in PacifiCorp’s
rates (including any adjustments adopted by the Commission to these categories)
are less than $6 million above the “Stretch Goal” and have not been shifted to
other regulatory accounts. The 2006 Stretch Goal will be $222.8 million.
Subsequent Stretch Goals shall equal the 2006 Stretch Goal multiplied by the
ratio of the Global Insight’s Utility Cost Information Service
(UCIS)-Administrative and General – Total Operations and Maintenance Index
(INDEX CODE Series 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 Stretch Goal for future years will equal the Stretch Goal
from the most recent full calendar year multiplied by the ratio of the new index
for the test period divided by the new index value for that same most recent
full calendar year.

Wy 13.

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.

 

 

Commitments - 19

 

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Wy 14.

MEHC and PacifiCorp commit to use asymmetrical pricing for affiliate charges or
costs not covered by the provisions of the IASA, if a readily identifiable
market for the goods, services or assets exists, and if the transaction involves
a cost of more than $500,000.

Wy 15.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:

 

 

Commitments - 20

 

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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.

Wy 16.

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

Wy 17.

Within three months of closing of the transaction, MEHC commits to obtain a
non-consolidation opinion that demonstrates that the ring fencing around PPW
Holdings LLC is sufficient to prevent PPW Holdings LLC and PacifiCorp from being
pulled into an MEHC bankruptcy. MEHC commits to promptly file such opinion with
the Commission. If the ring-fencing provisions of this agreement are
insufficient to obtain a non-consolidation opinion, MEHC agrees to promptly
undertake the following actions:

 

a)

Notify the Commission of this inability to obtain a non-consolidation opinion.

 

b)

Propose and implement, upon Commission approval, such ring-fencing provisions
that are sufficient to prevent PPW Holdings LLC from being pulled into an MEHC
bankruptcy.

 

 

Commitments - 21

 

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c)

Obtain a non-consolidation opinion.

Wy 18.

MEHC and PacifiCorp commit that in the event that PacifiCorp obtains a loan from
its parent company or any affiliated company, PacifiCorp will, in any subsequent
rate proceeding demonstrate that the debt obligation interest, terms, and
conditions are comparable to or less than what PacifiCorp could have obtained in
the market at the time of the debt was obtained by PacifiCorp, that the loan is
on reasonable terms and without markup to the holding company’s cost of funds,
and that the debt procurement will not interfere with any ring-fencing
mechanisms that secure the utility.

Wy 19.

MEHC and PacifiCorp support making wind generation in Wyoming an important part
of PacifiCorp’s renewable resource portfolio to the extent that it is
cost-effective to do so. MEHC and PacifiCorp will give appropriate consideration
to Wyoming wind generation in performing Commitments 40, 53, Wy 20, Wy 21 and Wy
22.

Wy 20.

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.

Wy 21.a)

Concurrent with its next IRP filing, PacifiCorp commits to file a ten-year plan
for achieving the 1400 MW renewables target, including specific milestones over
the ten years when resources will be added. The filing will include a ten-year
plan for installing transmission that will facilitate the delivery of renewable
energy and the achievement of its 2015 goal of at least 1400 MW of
cost-effective renewable energy. Within six (6) months after the close of the
transaction, MEHC and PacifiCorp will file with the Commission a preliminary
plan for achieving the 1400 MW renewable target.

 

b)

PacifiCorp commits to address as part of its next IRP the appropriate role of
incremental hydropower projects in meeting the 1400 MW renewables target.

Wy 22.

To the extent available, MEHC and PacifiCorp commit to have 400 MW of cost
effective new renewable resources in PacifiCorp’s generation portfolio by

 

 

Commitments - 22

 

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December 31, 2007. The 400 MW will include Wolverine Creek (64.5 MW) and Cove
Fort (42 MW). MEHC and PacifiCorp will analyze the projects consistent with
applicable regulatory rules and orders in effect at the time and as informed by
the IRP. Resource identification shall be performed using an RFP procedure. If
PacifiCorp fails to meet this 400 MW target it will disclose to signatories
(excluding any bidders and affiliates of bidders) the cost-effectiveness
analysis it used when rejecting the lowest cost projects. PacifiCorp shall file
a report, on the status of meeting this target, with the Commission no later
than six months after close of the transaction. In evaluating acquisition of
renewable energy, all other things being equal, MEHC and PacifiCorp will not
prefer ownership of facilities.

Wy 23.a)

MEHC and PacifiCorp commit to complete as soon as practical after close of the
transaction, a system impact study and commence a facilities study to examine
the feasibility of construction of transmission facilities from the Jim Bridger
generating facilities to Ben Lomond.

 

b)

In addition to analyzing the system impacts of the Jim Bridger to Ben Lomand
transmission facilities, MEHC and PacifiCorp will request that a system impact
study also analyze the system impacts of combining the Bridger to Ben Lomond
project with the Jim Bridger to Miners substation project addressed in
Commitment 53.

 

c)

Upon receipt of the results of the system impact studies provided for in
Commitment 53 and this Commitment Wy 23, MEHC or PacifiCorp will review and
discuss with stakeholders the desirability and economic feasibility of
performing a subsequent facilities study for the Bridger to Miners transmission
project.

Wy 24.

MEHC, and where appropriate PacifiCorp, will continue to work with stakeholders
to identify and consider the feasibility of additional cost-effective
transmission infrastructure in the states served by PacifiCorp. In addition to
the transmission projects identified in the other commitments, MEHC will
consider the Trans-West Express project as a potential for analysis.

Wy 25.

MEHC and PacifiCorp commit to form an IGCC Working Group, sponsored by
PacifiCorp to discuss various policy and technology issues associated with IGCC,
carbon capture, and sequestration. Working Group members would include
representatives from major stakeholder and regulatory groups, PacifiCorp and
MEHC officials, and others as appropriate. The Working

 

 

Commitments - 23

 

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Group will include Wyoming stakeholders as well. Some issues and challenges to
development that would be considered by the Working Group would include:

 

•

the status of development of carbon sequestration policy and methods, including
requirements for monitoring and verifying sequestration options;

 

•

information sharing, so that, to the extent possible, all parties develop a
shared understanding of expected IGCC technology benefits, expected capital and
O&M costs, and potential risks;

 

•

information sharing to understand such terms and associated requirements with
concepts such as “carbon capture ready” and “permanent sequestration”;

 

•

issues related to technology of and permitting for IGCC air emissions, waste
disposal, water use and site usage;

 

•

commercial terms and conditions associated with IGCC plant development,
construction, and maintenance;

 

•

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

 

•

the allocation of risk between shareholders and ratepayers of additional carbon
dioxide emissions in the event PacifiCorp proceeds with a coal unit that is not
able to capture and store carbon emissions.

The IGCC Working Group would meet periodically to discuss the above issues and
identify possible solutions, and to stay abreast of the evolving technology and
commercial environment.

Wy 26.

MEHC and PacifiCorp commit to the following, subject to the parties supporting
timely recovery of prudent costs:

 

a)

MEHC and PacifiCorp commit to study the economics and viability of an IGCC
option and will include the results of this study as a resource alternative to
inform the resource selection and RFP process currently underway related to the
2012 resource need identified in the Company’s IRP. PacifiCorp will suggest
procedural schedules that will facilitate this commitment. As soon as practical,
but not later than three months after the closing of the transaction, PacifiCorp
will provide to the parties estimated cost and timeline ranges for completion of
an IGCC project, as well as potential resource alternatives if an IGCC design is
not reasonably achievable in time to economically meet the resource need
presently identified in 2012 from a customer and shareholder perspective.

 

 

Commitments - 24

 

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b)

PacifiCorp will perform initial conceptual and siting studies, general
feasibility studies, and, where appropriate, other more detailed studies and
engineering work, for an IGCC plant for the 2014 resource need identified in the
October 2005 IRP Update. The studies will include an evaluation of the expected
cost and performance impacts of constructing a plant to be carbon capture ready.
These studies will be performed in parallel with similar studies to evaluate
other generation technologies. Such studies will be completed within the next
IRP cycle.

 

c)

PacifiCorp will include a utility self-build option of an IGCC unit in any RFPs
for the 2014 and later non-renewable resource needs, whether or not the IGCC
option is found to be PacifiCorp’s preferred cost-based alternative, and present
PacifiCorp’s evaluation of the IGCC option against another self-build
alternative(s) as part of the Utah SB 26 process. This will include an
evaluation of the cost and performance impacts of the IGCC resource being
constructed to be carbon capture ready.

Wy 27.

MEHC and PacifiCorp commit to a contribution level for Wyoming low-income bill
payment assistance in the amount of $70,000 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.

Wy 28.

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 Wyoming 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

 

 

Commitments - 25

 

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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.

Wy 29.

The Chairman of the Board of PacifiCorp and the President of PacifiCorp will
meet at least annually with the Commission to discuss (1) corporate presence
status, plans and commitments, and (2) customer service issues. Senior
executives of MEHC and PacifiCorp will also meet regularly with the Commission’s
Staff and the Office of Consumer Advocate to discuss regulatory and customer
service issues, including the issues discussed at the meetings among the
Chairman of the Board of PacifiCorp, the President of PacifiCorp and the
Commission.

Wy 30.

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 Cheyenne, Wyoming.

Wy 31.

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.

Wy 32.

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 February 1,
2006. The final signed agreement will be filed with the Commission within 30
days after the close of the transaction.

Wy 33.

Applicants acknowledge that the Commitments are being made by MEHC and
PacifiCorp and are binding only upon them (and their affiliates where noted).
Applicants are not requesting in this proceeding 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, and the Parties in appropriate proceedings may take such

 

 

Commitments - 26

 

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positions regarding the prudence, just and reasonable character, rate or
ratemaking treatment, or public interest of the investments, expenditures or
actions as they deem appropriate.

Wy 34.

At the time of the closing of the transaction, MEHC will file with the
Commission a letter from Berkshire Hathaway committing to be bound by
Commitments 4 and 5 and any other commitments applicable to affiliates of MEHC.

 

 

Commitments - 27

 

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APPENDIX 1

PPW HOLDINGS LLC RINGFENCING PROVISIONS

4.

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.

5.

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

 

 

Appendix - 1

 

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“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.

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

 

 

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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 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;

 

 

Appendix - 3

 

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j)

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

 

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;

 

 

Appendix - 4

 

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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

 

 

Appendix - 5

 

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case taken at the amount thereof accounted for as indebtedness in conformity
with such principles.

“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

 

 

Appendix - 6

 

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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 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

 

 

Appendix - 7

 

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(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 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.”

 

 

Appendix - 8

 

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6.

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.

7.

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.

8.

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

 

 

Appendix - 9

 

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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 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.

9.

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.

 

 

Appendix - 10

 

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