PACIFICORP /OR/ - Quarter Report: 2007 March (Form 10-Q)

---

Commission		Exact name of registrant as specified in its charter		IRS Employer
File Number		State or other jurisdiction of incorporation or organization		Identification No.
1-5152		PacifiCorp		93-0246090
		(An Oregon Corporation)
		825 N.E. Multnomah Street,
		Portland, Oregon 97232
		503-813-5000
N/A
(Former name, former address and former fiscal year, if changed since last report)

Large accelerated filer མ

Accelerated filer མ

Non-accelerated filer T

 

 

Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24
Item 4.	Controls and Procedures	24
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Submission of Matters to a Vote of Security Holders	25
Item 5.	Other Information	25
Item 6.	Exhibits	25
Signature		26
Exhibit Index		27

 

 

Item 1.

Financial Statements

 

 

 

 

		Three-Month Periods
		Ended March 31,
		2007			2006
Revenues		$	1,027		$	1,230
Operating expenses:
Energy costs			415			548
Operations and maintenance			262			274
Depreciation and amortization			121			113
Taxes, other than income taxes			28			24
Total			826			959
Income from operations			201			271
Interest expense and other (income) expense:
Interest expense			75			69
Interest income			(3	)		(2	)
Allowance for borrowed funds			(7	)		(5	)
Allowance for equity funds			(7	)		(6	)
Other			-			(2	)
Total			58			54
Income before income tax expense			143			217
Income tax expense			44			70
Net income			99			147
Preferred dividend requirement			(1	)		(1	)
Earnings on common stock		$	98		$	146

		As of
		March 31,			December 31,
		2007			2006
ASSETS
Current assets:
Cash and cash equivalents		$	449		$	59
Accounts receivable, net			316			342
Unbilled revenue			153			178
Amounts due from affiliates - MEHC			11			53
Inventories at average costs:
Materials and supplies			150			140
Fuel			111			104
Derivative contract asset			123			151
Deferred income taxes			61			28
Other			55			57
Total current assets			1,429			1,112
Property, plant and equipment			16,008			15,843
Accumulated depreciation and amortization			(5,932	)		(5,842	)
			10,076			10,001
Construction work-in-progress			1,000			809
Total property, plant and equipment, net			11,076			10,810
Other assets:
Regulatory assets			1,412			1,397
Derivative contract asset			208			235
Deferred charges and other			295			298
Total other assets			1,915			1,930
Total assets		$	14,420		$	13,852

 

		As of
		March 31,			December 31,
		2007			2006
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	382		$	385
Amounts due to affiliates - MEHC			38			1
Accrued employee expenses			117			85
Taxes payable, other than income taxes			46			30
Interest payable			63			57
Derivative contract liability			110			110
Long-term debt and capital lease obligations, currently maturing			121			127
Preferred stock subject to mandatory redemption, currently maturing			38			38
Short-term debt			216			397
Other			132			135
Total current liabilities			1,263			1,365
Deferred credits:
Deferred income taxes			1,625			1,641
Investment tax credits			60			62
Regulatory liabilities			815			822
Derivative contract liability			494			504
Pension and other post employment liabilities			666			691
Other			394			374
Total deferred credits			4,054			4,094
Long-term debt and capital lease obligations, net of current maturities			4,567			3,967
Total liabilities			9,884			9,426
Commitments and contingencies (See Note 6)
Shareholders’ equity:
Preferred stock			41			41
Common equity:
Common shareholder’s capital - 750 shares authorized, no par value, 357 shares issued and outstanding			3,602			3,600
Retained earnings			901			789
Accumulated other comprehensive loss, net			(8	)		(4	)
Total common equity			4,495			4,385
Total shareholders’ equity			4,536			4,426
Total liabilities and shareholders' equity		$	14,420		$	13,852

 

 

		Three-Month Periods
		Ended March 31,
		2007			2006
Cash flows from operating activities:
Net income		$	99		$	147
Adjustments to reconcile net income to net cash provided by operating activities:
Unrealized gain on derivative contracts, net			(3	)		(53	)
Depreciation and amortization			121			113
Deferred income taxes and investment tax credits, net			(12	)		8
Regulatory asset/liability establishment and amortization			2			6
Other			8			6
Changes in:
Accounts receivable, net and other assets			49			32
Inventories			(17	)		(23	)
Amounts due to/from affiliates - MEHC, net			79			-
Amounts due to/from affiliates - ScottishPower, net			-			(1	)
Accounts payable and other liabilities			12			86
Net cash provided by operating activities			338			321
Cash flows from investing activities:
Capital expenditures			(376	)		(333	)
Proceeds from sale of assets			6			-
Proceeds from available-for-sale securities			14			32
Purchases of available-for-sale securities			(12	)		(20	)
Other			8			(15	)
Net cash used in investing activities			(360	)		(336	)
Cash flows from financing activities:
Changes in short-term debt			(181	)		(30	)
Proceeds from long-term debt, net of issuance costs			600			-
Proceeds from equity contributions			-			110
Dividends paid			(1	)		(17	)
Repayments and redemptions on long-term debt and capital lease obligations			(6	)		(100	)
Other			-			8
Net cash provided by (used in) financing activities			412			(29	)
Change in cash and cash equivalents			390			(44	)
Cash and cash equivalents at beginning of period			59			164
Cash and cash equivalents at end of period		$	449		$	120

 

 

 

 

 

														Accumulated
											Regulatory			Other
		Derivative Net Asset (Liability)									Net Asset			Comprehensive
		Assets			Liabilities			Total			(Liability)			Income (Loss) (1)
Commodity derivatives		$	330		$	(604	)	$	(274	)	$	271		$	(3	)
Foreign currency contracts			1			-			1			(1	)		-
Total		$	331		$	(604	)	$	(273	)	$	270		$	(3	)
Current		$	123		$	(110	)	$	13
Non-current			208			(494	)		(286	)
Total		$	331		$	(604	)	$	(273	)

(1)	Before income taxes.

														Accumulated
											Regulatory			Other
		Derivative Net Asset (Liability)									Net Asset			Comprehensive
		Assets			Liabilities			Total			(Liability)			Income (Loss) (1)
Commodity derivatives		$	383		$	(614	)	$	(231	)	$	233		$	3
Foreign currency contracts			3			-			3			(3	)		-
Total		$	386		$	(614	)	$	(228	)	$	230		$	3
Current		$	151		$	(110	)	$	41
Non-current			235			(504	)		(269	)
Total		$	386		$	(614	)	$	(228	)

(1)	Before income taxes.

		Three-Month Periods
		Ended March 31,
		2007			2006
Revenues		$	6		$	278
Operating expenses:
Energy costs			(3	)		(223	)
Operations and maintenance			-			(2	)
Total unrealized gain on derivative contracts		$	3		$	53

 

 

 

 

 

 

								Other
		Pension						Postretirement
		2007			2006			2007			2006
Service cost		$	8		$	8		$	2		$	2
Interest cost			19			19			8			8
Expected return on plan assets			(17	)		(19	)		(6	)		(7	)
Amortization and other costs			8			9			5			5
Net periodic benefit cost		$	18		$	17		$	9		$	8

 

 

 

		2007			2006
Net income		$	99		$	147
Fair value adjustment on cash flow hedges, net of tax of $(3) and $-			(4	)		-
Minimum pension liability, net of tax of $- and $3			-			5
Unrealized losses on marketable securities, net of tax of $- and $-			-			(1	)
Total comprehensive income		$	95		$	151

		As of
		March 31,			December 31,
			2007			2006
Unrecognized amounts on retirement benefits, net of tax of $(4) and $(4)		$	(6	)	$	(6	)
Fair value adjustment on cash flow hedges, net of tax of $(1) and $1			(2	)		2
Total accumulated other comprehensive loss, net		$	(8	)	$	(4	)

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

·	The outcome of general rate cases and other proceedings conducted by regulatory commissions or other governmental and legal bodies;

 

·	Changes in prices and availability for both purchases and sales of wholesale electricity and purchases of coal, natural gas and other fuel sources that could have a significant impact on generation capacity and energy costs;

 

·	Changes in regulatory requirements or other legislation, including limits on the ability of public utilities to recover income tax expense in rates such as Oregon Senate Bill 408;

 

·	Changes in economic, industry or weather conditions, as well as demographic trends, that could affect customer growth and electricity usage or supply;

 

·	A high degree of variance between actual and forecasted load and prices that could impact the hedging strategy and costs to balance electricity load and supply;

 

·	Hydroelectric conditions, as well as the cost, feasibility and eventual outcome of hydroelectric relicensing proceedings, that could have a significant impact on electric capacity and cost and on PacifiCorp’s ability to generate electricity;

 

·	Performance of PacifiCorp’s generation facilities, including unscheduled outages or repairs;

 

·	Changes in, and compliance with, environmental and endangered species laws, regulations, decisions and policies that could increase operating and capital improvement costs, reduce plant output and/or delay plant construction;

 

·	The impact of new accounting pronouncements or changes in current accounting estimates and assumptions on financial position and results of operations;

 

·	The impact of increases in healthcare costs, changes in interest rates and investment performance on pension and other post-retirement benefits expense, as well as the impact of changes in legislation on funding requirements;

 

·	Availability, terms and deployment of capital;

 

·	Financial condition and creditworthiness of significant customers and suppliers;

 

·	The impact of financial derivatives used to mitigate or manage interest rate risk and volume and price risk and changes in the commodity prices, interest rates and other conditions that affect the value of the derivatives;

 

 

·	Changes in PacifiCorp’s credit ratings;

 

·

Timely and appropriate completion of PacifiCorp’s resource procurement process; unanticipated construction delays, changes in costs, receipt of required permits and authorizations, ability to fund capital projects and other factors that could affect future generation plants and infrastructure additions;

 

·	Other risks or unforeseen events, including wars, the effects of terrorism, embargos and other catastrophic events; and

 

·	Other business or investment considerations that may be disclosed from time to time in the U.S. Securities and Exchange Commission (the “SEC”) filings or in other publicly disseminated written documents.

 

 

 

		Three-Month Periods
		Ended March 31,						Favorable/(Unfavorable)
		2007			2006			$ Change			% Change
Retail		$	777		$	714		$	63			9	%
Wholesale sales and other			250			516			(266	)		(52	)
Total revenues		$	1,027		$	1,230		$	(203	)		(17	)
Retail energy sales (gigawatt - hours)			13,076			12,766			310			2
Wholesale energy sales (gigawatt - hours)			3,496			3,480			16			-
Total retail customers (in thousands)			1,674			1,640			34			2

·	$42 million of increases from higher retail prices approved by regulators;

 

·	$12 million of increases relating to growth in the number of customers;

 

·	$6 million of increases due to higher average customer usage, primarily as a result of colder weather as compared to the prior period; and

 

·	$3 million of increases due to changes in customer usage at different tariff levels.

 

·	$272 million of decreases due to changes in the fair value of derivative contracts;

 

·	$15 million of decreases on wholesale electric sales substantially due to lower prices;

 

·	$11 million of decreases resulting from higher sales of sulfur dioxide emission allowances in the prior period; partially offset by,

 

·	$39 million of increases due to higher margins on non-physically settled system balancing transactions.

 

		Three-Month Periods
		Ended March 31,						Favorable/(Unfavorable)
		2007			2006			$ Change			% Change
Energy costs		$	415		$	548		$	133			24	%
Operations and maintenance			262			274			12			4
Depreciation and amortization			121			113			(8	)		(7	)
Taxes, other than income taxes			28			24			(4	)		(17	)
Total operating expenses		$	826		$	959		$	133			14

 

 

 

·	$220 million of decreases due to changes in the fair value of derivative contracts; partially offset by,

 

·	$33 million of increases related to higher volumes and higher average prices of natural gas consumed primarily due to increased generation;

 

·	$32 million of increases in purchased electricity due to higher volumes and higher average prices; and

 

·	$19 million of increases in cost of coal substantially due to higher prices.

 

·	$9 million of decreases in annual incentive plan expense;

 

·	$6 million of decreases in employee severance costs;

 

·	$4 million of decreases resulting from penalties in the prior period; partially offset by,

 

·	$4 million of increases in employee expenses, primarily due to higher pension and other post-retirement benefits costs; and

 

·	$3 million of increases in materials and supplies expense.

 

		Three-Month Periods
		Ended March 31,						Favorable/(Unfavorable)
		2007			2006			$ Change			% Change
Interest expense		$	75		$	69		$	(6	)		(9	)%
Interest income			(3	)		(2	)		1			50
Allowance for borrowed funds			(7	)		(5	)		2			40
Allowance for equity funds			(7	)		(6	)		1			17
Other			-			(2	)		(2	)		(100	)
Total		$	58		$	54		$	(4	)		(7	)

 

 

 

 

 

 

 

 

	Moody’s		Standard & Poor’s
Issuer/Corporate	Baa1		A-
Senior secured debt	A3		A-
Senior unsecured debt	Baa1		BBB+
Preferred stock	Baa3		BBB
Commercial paper	P-2		A-1
Outlook	Stable		Stable

 

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

 

 

Item 4.

Controls and Procedures.

 

 

 

 

Item 1A.

Risk Factors.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

 

Item 3.

Defaults Upon Senior Securities.

 

 

Item 4.

Submission of Matters to a Vote of Security Holders.

 

 

Item 5.

Other Information.

 

 

Item 6.

Exhibits.

 

 

 

	PACIFICORP
	(Registrant)
Date: May 7, 2007	/s/ David J. Mendez
	David J. Mendez
	Senior Vice President and Chief Financial Officer and officer duly authorized to sign this report on behalf of registrant

 

 

Exhibit No.	Description
4*	Twentieth Supplemental Indenture, dated as of March 1, 2007, to PacifiCorp’s Mortgage and Deed of Trust dated as of January 9, 1989 (Exhibit 4, Current Report on Form 8-K, filed March 14, 2007, File No. 1-5152).
12.1	Statements of Computation of Ratio of Earnings to Fixed Charges.
12.2	Statements of Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
15	Letter Re: Unaudited Interim Financial Information.
31.1	Chief Executive Officer’s Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Chief Financial Officer’s Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Chief Executive Officer’s Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Chief Financial Officer’s Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.