ORDER NO. 95-1139

ENTERED OCT 25 1995

THIS IS AN ELECTRONIC COPY

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UF 4133

DISPOSITION: APPLICATION APPROVED WITH CONDITIONS

On September 15, 1995, PacifiCorp (Company) filed an application pursuant to ORS 757.415 and OAR 860-27-030, requesting authority to issue and sell Exchange Bonds and Bond Credit Bonds.

At its October 17, 1995, public meeting, the Commission adopted staff's recommendation to grant the application with reporting requirements and one condition.

Based on the application and the Commission's records, the Commission makes the following:

FINDINGS OF FACT

PacifiCorp provides electric service to the public in Oregon.

In this application, the Company requests authority to issue and sell not more than $700,000,000 in fixed- or floating-rate debt in connection with its discharge of the Pacific Power and Light (PP&L) and Utah Power & Light (UP&L) mortgages. The new debt would be issued and sold in one or more public offerings or private placements, or exchanged for other debt of the company, not later than December 31, 1996.

Bond Credits A corporate mortgage is similar to a homeowner’s mortgage. It is a debt secured by real property. Bond credits allow PacifiCorp to avoid some of the expenses associated with surveys and appraisals of property as the basis for future issuance of bonds. Other expected savings include the elimination of bond applications and property releases for each transaction and recording fees associated with supplemental indentures in each of the counties in which the Company owns assets. Preservation of existing bond credits from the previously retired bonds is important because they can be used on a one-to-one basis for the issuance of first mortgage bonds. Retaining these bond credits has value because they are a finite resource which cannot be recovered. If the bond credits are not used, the Company believes that it would face the "very expensive and complex, if not impossible, task" of identifying and re-valuing property originally used as the basis for the issuance of bonds -- as long as 50 years ago.

Exchange Bonds The Company expects to issue up to $63,234,000 of first mortgage bonds (Exchange Bonds) in exchange for an equivalent principal amount of two existing PP&L bonds. These two bonds are a $13,234,000 adjustable rate bond due November 1, 2002, and a $50,000,000 9 3/8% bond due July 22, 1997. The Exchange Bonds will carry the same interest rate and maturity, and have substantially the same call provisions as the two PP&L bonds for which they are exchanged. The existing PP&L bonds to be retired were previously authorized by the Commission.

Bond Credit Bonds The Company also expects to issue up to $636,766,000 of first mortgage bonds (Bond Credit Bonds) with a maturity not to exceed two years. They will bear interest at market rates not exceeding the all-in cost parameters authorized by the Commission in Docket UF 4107. These bonds would be issued under the PacifiCorp mortgage on the basis of previously retired bonds under the PP&L and UP&L mortgages. Up to $636,766,000 of bond credits may exist or will be created as part of the bond exchange transactions. An exact estimate is not presently available.

Underwriting fees and issuance costs are estimated to be $7,167,000. These costs are reasonable.

No proceeds will be realized through the issuance and sale of the Exchange Bonds. PacifiCorp intends to use the proceeds from the sale of Bond Credit Bonds to reimburse the company’s treasury for funds expended from income and from other treasury funds that were not derived from the issuance of securities. The expenditures to be reimbursed were made for the purposes described by ORS 757.415(1)(a) and (1)(b). Pacific keeps its accounts in a manner which enables the Commission to ascertain the amount of money expended and the purposes for which the expenditures were made.

PacifiCorp should demonstrate that any privately placed debt is no more expensive than if it were publicly sold. The sale of Bond Credit Bonds should also otherwise comply with pricing parameters established in UF 4107. This authority should be valid as long as the company’s senior secured debt is designated at least BBB- by Standard and Poor’s Corporation, and Baa3 by Moody’s Investors’ Service.

There is no indication that the proposed offerings will impair the Company's ability to provide its public utility service.

OPINION

Jurisdiction

ORS 757.005 defines a "public utility" as anyone providing heat, light, water, or power service to the public in Oregon. PacifiCorp is a public utility subject to the Commission's jurisdiction.

Applicable Law

ORS 757.415(1) provides that:

A public utility may issue [bonds, notes and other forms of indebtedness] for the following purposes and no others...

(a) The acquisition of property, or the construction, completion, extension, or improvement of its facilities.

 

(b) The improvement or maintenance of its service.

 

(c) The discharge or lawful refunding of its obligations.

 

(d) The reimbursement of money actually expended from income or from any other money in the treasury of the public utility not secured by or obtained from the issue of stocks or bonds, notes, or other evidences of indebtedness, or securities of such public utility, for any of the purposes listed in paragraphs (a) to (c) of this subsection except the maintenance of service and replacements, in cases where the applicant has kept its accounts and vouchers for such expenditures in such manner as to enable the commission to ascertain the amount of money so expended and the purposes for which such expenditures were made.

 

(e) * * * *

 

When an application involves refunding of obligations, the applicant also must show that the original borrowings were made for a permissible purpose. Avion Water Company, Inc., UF 3903, Order No. 83-244 at 3; Power & Light Co., UF 3749, Order No. 81-745 at 5.

ORS 757.415(2) provides that:

[The applicant] shall secure from the commission. . . an order. . . stating:

(a) The amount of the issue and the purposes to which the. . . proceeds . . . are to be applied; and

 

(b) In the opinion of the commission, the [proceeds] reasonably [are] required for the purposes specified in the order and compatible with the public interest, which is necessary or appropriate for or consistent with the proper performance by the applicant of service as a public utility, and will not impair its ability to perform that service; and

 

(c) Except as otherwise permitted in the order in the case of bonds, notes, or other evidences of indebtedness, such purposes are not, in whole or in part, reasonably chargeable to operating expenses or to income.

 

ORS 757.480 prohibits a public utility from mortgaging or otherwise encumbering their property without the Commission’s approval.

The expenditures to be reimbursed were made for the purposes set forth in ORS 757.415(1)(a) and (1)(b). The Company keeps its accounts in a manner which enables the Commission to ascertain the amount of money expended and the purposes for which the expenditures were made.

The Commission believes that the proposed transactions are reasonably required for the purposes stated. The Company's proposed issuances are compatible with the public interest and consistent with the proper performance of its public utility service. The proposed transactions will not impair the Company's ability to perform that service.

For rate-making purposes, the Commission reserves judgment on the reasonableness of the Company's capital costs and capital structure. In its next rate proceeding, PacifiCorp will be required to show that its capital costs and structure are just and reasonable. See ORS 757.210.

ORS 469.599 provides that the Commission may not authorize the issuance of securities to finance a nuclear-fueled thermal power plant in Oregon unless construction has been authorized by the Energy Facility Siting Council.

CONCLUSIONS

1. PacifiCorp is a public utility subject to the Commission's jurisdiction.

 

2. The application meets the requirements of ORS 757.415.

 

3. The application should be granted.

 

ORDER

IT IS ORDERED that:

 

1. The application of PacifiCorp for authority, in connection with the discharge of the Pacific Power & Light Company Mortgage and Deed of Trust dated as of

July 1, 1947, and Utah Power & Light Company Mortgage and Deed of Trust dated as of December 1, 1943, to issue and sell in one or more public offerings or private placements, or to exchange for other debt of the Company, not later than December 31, 1996, its fixed or floating rate debt (Debt) in the aggregate principal amount of not more than $700,000,000 is granted.

 

2. PacifiCorp shall demonstrate that any privately placed debt is no more expensive than if they were publicly sold. The sale of Bond Credit Bonds should otherwise comply with pricing parameters established by the Commission in Docket

UF 4107.

 

3. PacifiCorp shall file as soon as available:

 

a. The Report of Securities required by OAR 860-27-030(4).

 

b. Verified copies of any agreement entered in connection with the issuance of First Mortgage and Collateral Trust Bonds pursuant to this order.

 

c. A verified statement setting forth in reasonable detail the disposition of the proceeds of each offering made pursuant to this order.

 

4. The authorities granted above shall be valid as long as the Company’s senior secured debt is designated at least BBB- as indicated by the Standard and Poor's Corporation, and Baa3 or higher, as indicated by Moody's Investors' Service, Inc.

 

 

5. Proceeds from the sale of Bond Credit Bonds shall be used to reimburse the company’s treasury for funds expended from income and from other treasury funds that were not derived from the issuance of securities. The expenditures to be reimbursed were made for the purposes set forth in ORS 757.415(1)(a) and (1)(b). The proceeds may not be used to finance construction of a nuclear-fueled thermal plant in Oregon unless construction has been authorized by the Energy Facility Siting Council.

 

 

Made, entered, and effective .

A party may request rehearing or reconsideration of this order pursuant to ORS 756.561. A request for rehearing or reconsideration must be filed with the Commission within 60 days of the date of service of this order. The request must comply with the requirements in OAR

860-14-095. A copy of any such request must also be served on each party to the proceeding as provided by OAR 860-13-070(2)(a). A party may appeal this order to a court pursuant to ORS 756.580.