Portland General Electric is in a $1.9 billion deal with a partner to buy PacifiCorp’s utility operations in Washington, the companies said Tuesday.
PGE, the largest utility in Oregon, expects the transaction will increase its customer base by 15%, to about 1.1 million customers, and its 2026 rate base by 18%, to $9 billion, according to a company presentation. PacifiCorp has an authorized 9.5% return on equity in Washington. The deal also includes a 477-MW gas-fired power plant and two wind farms totaling 328 MW.
PGE expects the transaction will close after about a year of regulatory review.
“Washington's regulatory jurisdiction includes many positive components, including multiyear rate plans, competitive ROEs, constructive fuel mechanisms and frameworks for clean energy investment,” Maria Pope, PGE president and CEO, said Tuesday during an earnings conference call. “The key upsides include additional scale, diversification into a constructive jurisdiction and enhanced capacity for system improvements to serve customers.”
The deal gives PGE opportunities to invest in system resilience, transmission and clean energy as well as the potential for industrial and large customer load growth, according to the company’s presentation.
For PacifiCorp, the transaction will ease financial pressures, according to the company, which operates in California, Idaho, Oregon, Utah, Washington and Wyoming.
Diverging policies among those states have created “extraordinary pressure, affecting the company’s ability to meet demand reliably and at the lowest cost to customers,” PacifiCorp, a Berkshire Hathaway Energy subsidiary, said in a press release. Those challenges have affected PacifiCorp’s financial stability, liquidity and credit ratings, according to the company.
“This transaction will better align the costs, benefits and obligations across PacifiCorp’s diverse service areas and help create a more workable multistate utility structure,” Darin Carroll, PacifiCorp’s CEO, said.
PGE’s partner in the deal is Manulife Infrastructure Fund III and its affiliates, including John Hancock Life Insurance Co. If the transaction is approved, Manulife will own 49% of the Washington utility and PGE will own the rest. Private-equity manager Manulife also has minority stakes in utility companies Cleco and Duquesne Light.
“This partnership structure brings value both during the transaction window and after closing, particularly reducing overall capital markets exposure and equity needs, introduction of another cost-efficient source of capital, preservation of PGE's strong balance sheet and strong support for further investment and growth opportunities at the Washington utility,” Joseph Trpik, PGE senior vice president of finance and chief financial officer, said during the conference call.
PGE expects to finance the deal with a $600 million equity contribution from Manulife, about $600 million raised by a potential holding company and about $700 million of secured debt at the Washington utility, according to the presentation.
The Oregon Public Utility Commission is reviewing PGE’s proposal to create a holding company structure that could include the company’s Oregon utility and a transmission company. It would make sense to place the Washington utility into a holding company structure, but the deal with PacifiCorp doesn’t require it, according to Trpik.
PGE has had initial talks with credit rating agencies about the deal, Trpik said.
“We've been very clear with the rating agencies about our desire to have investment-grade credit ratings and quality credit metrics across the organization,” he said. “We'll continue to have discussions with them as this matures, but it is fully our intent to have a structure of these organizations to have relatively high credit metrics.”
