MidAmerican Case Reaches Settlement Agreement

A lot happened over the holidays, and if you weren’t deliberately avoiding the newspapers (we did some of that ourselves), you may have heard the news: The MidAmerican offer to purchase PacifiCorp (Pacific Power here in Oregon) from ScottishPower was settled in late December. The parties to the case, including CUB, the Industrial Customers of Northwest Utilities, and the Staff of the Public Utility Commission, reached a Settlement Agreement that should allow MidAmerican Energy Holdings Co. to move ahead with becoming the new owner of PacifiCorp.

The current owner of PacifiCorp, ScottishPower, is a multinational corporation that has expressed interest in selling PacifiCorp, and which has itself been under threat of takeover. The end result of the MidAmerican case might have looked very different had PacifiCorp been a stand-alone company—our approach to it would certainly have been different. In this case, however, the choice was between the current international corporate holding company and a potential national holding company. The devil, as they say, was in the details.

And the details of this Settlement include substantial commitments from MidAmerican on a number of fronts that are important to Pacific Power customers. MidAmerican made 53 commitments to all the states within the PacifiCorp territory (Oregon, Utah, Idaho, Wyoming, California, and Washington) and another 34 commitments that were negotiated by Oregon parties for the benefit of Oregon customers (on issues such as global warming, low-income assistance, access to information, and more). The most important commitments include:

1) Rate Credits: MidAmerican has promised $143 million in rate credits for customers, $40 million of that just for Oregon, most of those credits to be given within the next 5 years. All of these credits for all states were won in settlement negotiation by Oregon parties. This is not a large amount of money per customer, but does force MidAmerican to think about cost efficiency issues. In addition, the strong arguments of CUB and PUC Staff about customer rates and a real “net benefits” standard forced MidAmerican to give a more in-depth analysis of their proposed investment strategy for the utility. This analysis shows that many of their investment plans were not significantly different from the plans already in place under ScottishPower. Most importantly, this means that rates for Pacific Power customers are expected to be lower under MidAmerican ownership than they would have been under ScottishPower.

2) Developing Renewables: CUB has made addressing the issue of global warming emissions resulting from energy production a larger part of our mission. We took that new sense of urgency into these settlement negotiations and are happy to report that MidAmerican responded with some meaningful renewable energy commitments. MidAmerican has committed to developing almost 300 megawatts of new renewable energy by the end of 2007. For perspective, this is more renewable power than PGE and Pacific Power have purchased, together, in the past five years. In addition, MidAmerican has affirmed their support for the conservation and renewables programs managed by the Energy Trust of Oregon. Finally, MidAmerican has said they will turn over the steam rights to the Blundell Geothermal Plant in Utah to PacifiCorp, at no cost, making it possible for PacifiCorp to pursue expansion of this plant.

3) Local Control: Maintaining a reasonable amount of local control became a ground level issue for CUB, as we examined the dangers not only inherent in holding company structures, but how those dangers were exacerbated by last year’s repeal of the Public Utility Holding Company Act of 1935. MidAmerican has stated that PacifiCorp headquarters will remain in Oregon. They also were responsive to concerns about PUHCA repeal, agreeing to retention of, and access to, records at both MidAmerican and at Berkshire Hathaway (which owns MidAmerican). MidAmerican also agreed to provide “ring-fencing” around PacifiCorp, a method of financially and structurally protecting the utility from any economic trouble suffered by either holding company. Finally, it was agreed that Warren Buffet (who owns Berkshire Hathaway) would exercise no control over the PacifiCorp, nor could his heirs inherit a power of control over the utility.

Part of the test of any merger or acquisition case is whether the people at the purchasing company are people you can work with. We found the negotiating staff of MidAmerican to be more creative and willing to find common ground solutions than ScottishPower has been.

By working out this Settlement agreement, we at CUB are not advocating ownership by a large holding company as our preferred utility model, by any means. The choice in this case was whether to stay with Scottish Power ownership, ownership which has pushed hard for higher rates almost every year, or whether to allow the purchase by MidAmerican to go through. CUB staff worked hard on these negotiations during the first 3 weeks of December. We believe the deal we worked so hard to reach is one that will offer some real improvements, or in PUC lingo, some real “net benefits” to Oregon customers. 

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