Utility Margin
A comparison of key operating results related to utility margin is as follows for the quarters ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
|
|
Utility margin (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
$
|
1,242
|
|
|
$
|
1,206
|
|
|
$
|
36
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
Cost of fuel and energy
|
424
|
|
|
417
|
|
|
7
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Utility margin
|
$
|
818
|
|
|
$
|
789
|
|
|
$
|
29
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales (GWhs):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
4,632
|
|
|
4,421
|
|
|
211
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
Commercial
|
4,470
|
|
|
4,410
|
|
|
60
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Industrial, irrigation and other
|
4,474
|
|
|
4,702
|
|
|
(228)
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
Total retail
|
13,576
|
|
|
13,533
|
|
|
43
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Wholesale
|
1,591
|
|
|
1,281
|
|
|
310
|
|
|
24
|
|
|
|
|
|
|
|
|
|
Total sales
|
15,167
|
|
|
14,814
|
|
|
353
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of retail customers
(in thousands)
|
1,989
|
|
|
1,955
|
|
|
34
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average revenue per MWh:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
$
|
84.15
|
|
|
$
|
82.97
|
|
|
$
|
1.18
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
Wholesale
|
$
|
30.89
|
|
|
$
|
26.35
|
|
|
$
|
4.54
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heating degree days
|
4,687
|
|
|
4,605
|
|
|
82
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of energy (GWhs)(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
|
7,644
|
|
|
7,228
|
|
|
416
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
Natural gas
|
3,065
|
|
|
3,041
|
|
|
24
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Hydroelectric(2)
|
923
|
|
|
1,046
|
|
|
(123)
|
|
|
(12)
|
|
|
|
|
|
|
|
|
|
Wind and other(2)
|
1,803
|
|
|
1,112
|
|
|
691
|
|
|
62
|
|
|
|
|
|
|
|
|
|
Total energy generated
|
13,435
|
|
|
12,427
|
|
|
1,008
|
|
|
8
|
|
|
|
|
|
|
|
|
|
Energy purchased
|
3,028
|
|
|
3,391
|
|
|
(363)
|
|
|
(11)
|
|
|
|
|
|
|
|
|
|
Total
|
16,463
|
|
|
15,818
|
|
|
645
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average cost of energy per MWh:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy generated(3)
|
$
|
17.66
|
|
|
$
|
17.80
|
|
|
$
|
(0.14)
|
|
|
(1)
|
%
|
|
|
|
|
|
|
|
|
Energy purchased
|
$
|
47.13
|
|
|
$
|
47.41
|
|
|
$
|
(0.28)
|
|
|
(1)
|
%
|
|
|
|
|
|
|
|
|
(1) GWh amounts are net of energy used by the related generating facilities.
(2) All or some of the renewable energy attributes associated with generation from these sources may be: (a) used in future years to comply with RPS or other regulatory requirements or (b) sold to third parties in the form of RECs or other environmental commodities.
(3) The average cost per MWh of energy generated includes only the cost of fuel associated with the generating facilities.
Quarter Ended March 31, 2021 Compared to Quarter Ended March 31, 2020
Utility margin increased $29 million, or 4%, for the first quarter of 2021 compared to 2020 primarily due to:
•$20 million increase in retail revenue primarily due to higher customer volumes and higher average rates from sales mix, partially offset by lower prices due to certain general rate case orders. Retail customer volumes increased 0.3%, primarily due to an increase in the average number of customers across the service territory and favorable impact of weather, partially offset by lower customer usage;
•$18 million of lower purchased electricity costs from lower market prices and lower purchased volumes, partially due to higher wind generation from new Energy Vision 2020 ("EV 2020") generation and repowered facilities; and
•$15 million of higher wholesale revenue due to higher wholesale volumes and higher average wholesale market prices.
The increases above were partially offset by:
•$12 million of higher natural gas-fueled generation costs primarily due to higher average prices;
•$8 million primarily from higher net amortization of deferred net power costs in accordance with established adjustment mechanisms; and
•$6 million of higher coal-fueled generation costs primarily due to higher volumes, partially offset by lower average prices.
Operations and maintenance increased $5 million, or 2%, for the first quarter of 2021 compared to 2020 primarily due to higher vegetation management costs of $14 million, partially offset by cost savings from the retirement of Cholla unit 4 in December 2020 and decreased bad debt expense.
Depreciation and amortization increased $12 million, or 5%, for the first quarter of 2021 compared to 2020 primarily due to the impacts of a new depreciation study effective January 1, 2021 of approximately $37 million, including accelerated depreciation on coal-fueled units in Washington and an increase in assets placed in service, partially offset by a $44 million decrease resulting from lower accelerated depreciation for Oregon's share of certain retired wind equipment due to repowering ($3 million in the current quarter (fully offset in other revenue) compared to $47 million in the first quarter of 2020 ($7 million offset in other revenue and $40 million offset in income tax expense)).
Property and other taxes increased $12 million, or 24%, for the first quarter of 2021 compared to 2020 primarily due to higher property taxes from higher assessed property values.
Interest expense increased $5 million, or 5%, for the first quarter of 2021 compared to 2020 primarily due to a higher average long-term debt balance.
Allowance for borrowed and equity funds decreased $12 million, or 39%, for the first quarter of 2021 compared to 2020 primarily due to lower qualified construction work-in-progress balances due to large EV 2020 projects being placed in service.
Other, net increased $10 million from a loss of $4 million for the first quarter of 2020 to income of $6 million for the first quarter of 2021, primarily due to market movements related to corporate-owned life insurance policies.
Income tax benefit decreased $3 million, or 21%, for the first quarter of 2021 compared to the first quarter of 2020. The effective tax rate was (7)% for 2021 and (9)% for 2020. The effective tax rate increased primarily as a result of lower amortization of excess deferred income taxes in the current year, partially offset by increased PTCs from PacifiCorp's new wind-powered generating facilities. For the first quarter of 2021, $3 million of excess deferred income taxes was amortized pursuant to regulatory orders for Wyoming, whereby portions of excess deferred income taxes were used to offset certain regulatory balances for Wyoming. For the first quarter of 2020, $30 million of excess deferred income taxes was amortized pursuant to the Oregon RAC settlement, whereby a portion of excess deferred income taxes was used to accelerate depreciation for Oregon's share of certain retired wind equipment.
Liquidity and Capital Resources
As of March 31, 2021, PacifiCorp's total net liquidity was as follows (in millions):
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
43
|
|
|
|
|
Credit facilities
|
|
1,200
|
|
Less:
|
|
|
Short-term debt
|
|
(95)
|
|
Tax-exempt bond support
|
|
(218)
|
|
Net credit facilities
|
|
887
|
|
|
|
|
Total net liquidity
|
|
$
|
930
|
|
|
|
|
Credit facilities:
|
|
|
Maturity dates
|
|
2022
|
|
Operating Activities
Net cash flows from operating activities for the three-month periods ended March 31, 2021 and 2020 were $469 million and $437 million, respectively. The change was primarily due to lower cash paid for income taxes, lower purchased power prices and volumes and lower fuel expense payments due to timing, partially offset by higher operating expense payments due to timing and higher cash paid for interest.
The timing of PacifiCorp's income tax cash flows from period to period can be significantly affected by the estimated federal income tax payment methods and assumptions for each payment date.
Investing Activities
Net cash flows from investing activities for the three-month periods ended March 31, 2021 and 2020 were $(440) million and $(339) million, respectively. The change is primarily due to an increase in capital expenditures of $73 million and prior year proceeds from the settlement of notes receivable of $25 million associated with the sale of certain Utah mining assets in 2015. Refer to "Future Uses of Cash" for discussion of capital expenditures.
Financing Activities
Net cash flows from financing activities for the three-month period ended March 31, 2021 was $1 million. Sources of cash consisted of $2 million from the borrowing of short-term debt.
Net cash flows from financing activities for the three-month period ended March 31, 2020 was $(74) million. Uses of cash consisted of $74 million for the repayment of short-term debt.
Short-term Debt
Regulatory authorities limit PacifiCorp to $1.5 billion of short-term debt. As of March 31, 2021, PacifiCorp had $95 million of short-term debt outstanding at a weighted average interest rate of 0.16%. As of December 31, 2020, PacifiCorp had $93 million of short-term debt outstanding at a weighted average interest rate of 0.16%.
Debt Authorizations
PacifiCorp currently has regulatory authority from the OPUC and the IPUC to issue an additional $3 billion of long-term debt. PacifiCorp must make a notice filing with the WUTC prior to any future issuance. PacifiCorp currently has an effective shelf registration statement with the SEC to issue an indeterminate amount of first mortgage bonds through September 2023.
Future Uses of Cash
PacifiCorp has available a variety of sources of liquidity and capital resources, both internal and external, including net cash flows from operating activities, public and private debt offerings, the issuance of commercial paper, the use of unsecured revolving credit facilities, capital contributions and other sources. These sources are expected to provide funds required for current operations, capital expenditures, debt retirements and other capital requirements. The availability and terms under which PacifiCorp has access to external financing depends on a variety of factors, including PacifiCorp's credit ratings, investors' judgment of risk and conditions in the overall capital markets, including the condition of the utility industry.
Capital Expenditures
PacifiCorp has significant future capital requirements. Capital expenditure needs are reviewed regularly by management and may change significantly as a result of these reviews, which may consider, among other factors, impacts to customers' rates; changes in environmental and other rules and regulations; outcomes of regulatory proceedings; changes in income tax laws; general business conditions; load projections; system reliability standards; the cost and efficiency of construction labor, equipment and materials; commodity prices; and the cost and availability of capital.
Historical and forecast capital expenditures, each of which exclude amounts for non-cash equity AFUDC and other non-cash items, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
Annual
|
|
Ended March 31,
|
|
Forecast
|
|
2020
|
|
2021
|
|
2021
|
|
|
|
|
|
|
Wind generation
|
$
|
106
|
|
|
$
|
33
|
|
|
$
|
193
|
|
Electric distribution
|
99
|
|
|
195
|
|
|
730
|
|
Electric transmission
|
92
|
|
|
60
|
|
|
426
|
|
Other
|
69
|
|
|
151
|
|
|
548
|
|
Total
|
$
|
366
|
|
|
$
|
439
|
|
|
$
|
1,897
|
|
PacifiCorp's 2019 IRP identified a significant increase in renewable resource generation and associated transmission. PacifiCorp has included an estimate of the 2019 IRP resources in its forecast capital expenditures for 2021 through 2023. These estimates are likely to change as a result of the RFP process. PacifiCorp's historical and forecast capital expenditures include the following:
•Wind generation includes both growth projects and operating expenditures. Growth projects include:
◦Construction of wind-powered generating facilities at PacifiCorp totaling $27 million and $89 million for the three-month periods ended March 31, 2021 and 2020, respectively. Construction includes 674 MWs of new wind-powered generating facilities that were placed in-service in 2020 and 516 MWs expected to be placed in-service in 2021. The energy production for these new facilities is expected to qualify for 100% of the federal PTCs available for 10 years once the equipment is placed in-service. PacifiCorp's 2019 IRP identified 1,920 MWs of new wind-powered generating resources that are expected to come online in 2024. PacifiCorp anticipates that the additional new wind-powered generation will be a mixture of owned and contracted resources. PacifiCorp anticipates costs associated with the construction of wind-powered generating facilities will total an additional $100 million for 2021.
◦Repowering existing wind-powered generating facilities at PacifiCorp totaling $5 million and $16 million for the three-month periods ended March 31, 2021 and 2020, respectively. Certain repowering projects were placed in service in 2019 and 2020 with the remaining repowering projects expected to be placed in-service in 2021. The energy production from such repowered facilities is expected to qualify for 100% of the federal renewable electricity PTCs available for 10 years following each facility's return to service. Planned additional spending for certain existing wind-powered generating facilities totals $6 million for 2021.
◦Acquisition and repowering of wind-powered generating facilities totals $1 million for the three-month period ended March 31, 2021. Planned additional spending for these wind-powered generating facilities totals $44 million for 2021.
•Electric distribution includes both growth projects and operating expenditures. Operating expenditures includes planned spend on wildfire mitigation, wildfire damage restoration and storm damage repairs. Expenditures for these items totaled $83 million and $4 million for the three-month periods ended March 31, 2021 and 2020, respectively. PacifiCorp anticipates costs associated with these activities will total an additional $145 million in 2021. Remaining investments relate to expenditures for new connections and distribution.
•Electric transmission includes both growth projects and operating expenditures. Transmission investment through 2020 primarily reflects costs for the 140-mile 500-kV Aeolus-Bridger/Anticline transmission line, a major segment of PacifiCorp's Energy Gateway Transmission expansion program, placed in-service in November 2020. Planned spending for the additional Energy Gateway Transmission segments totals $182 million in 2021 and are expected to be placed in service in 2023 - 2024.
•Other includes both growth projects and operating expenditures. Expenditures for information technology totaled $13 million and $10 million for the three-month periods ended March 31, 2021 and 2020, respectively. PacifiCorp anticipates costs associated with information technology will total an additional $118 million for 2021. Remaining investments relate to operating projects that consist of routine expenditures for generation and other infrastructure needed to serve existing and expected demand.
Requests for Proposals
PacifiCorp issues individual RFPs to procure resources identified in the IRP or resources driven by customer demands. The IRP and the RFPs provide for the identification and staged procurement of resources to meet load or state-specific compliance obligations. Depending upon the specific RFP, applicable laws and regulations may require PacifiCorp to file draft RFPs with the UPSC, the OPUC and the WUTC. Approval by the UPSC, the OPUC or the WUTC may be required depending on the nature of the RFPs.
PacifiCorp issued the 2020 All Source RFP to the market in July 2020. The 2020 All Source RFP sought bids for resources capable of coming online by the end of 2024 up to the level of resources identified in PacifiCorp's 2019 IRP. An initial shortlist was identified in October 2020. The final shortlist of winning bids will be identified by June 2021.
Contractual Obligations
As of March 31, 2021, there have been no material changes outside the normal course of business in contractual obligations from the information provided in Item 7 of PacifiCorp's Annual Report on Form 10-K for the year ended December 31, 2020.
Regulatory Matters
PacifiCorp is subject to comprehensive regulation. Refer to "Regulatory Matters" in Berkshire Hathaway Energy's Part I, Item 2 of this Form 10-Q for discussion regarding PacifiCorp's current regulatory matters.
Environmental Laws and Regulations
PacifiCorp is subject to federal, state and local laws and regulations regarding climate change, wildfire prevention and mitigation, RPS, air and water quality, emissions performance standards, coal combustion byproduct disposal, hazardous and solid waste disposal, protected species and other environmental matters that have the potential to impact PacifiCorp's current and future operations. In addition to imposing continuing compliance obligations, these laws and regulations provide regulators with the authority to levy substantial penalties for noncompliance including fines, injunctive relief and other sanctions. These laws and regulations are administered by various federal, state and local agencies. PacifiCorp believes it is in material compliance with all applicable laws and regulations, although many are subject to interpretation that may ultimately be resolved by the courts. Environmental laws and regulations continue to evolve, and PacifiCorp is unable to predict the impact of the changing laws and regulations on its operations and financial results.
Refer to "Environmental Laws and Regulations" in Berkshire Hathaway Energy's Part I, Item 2 of this Form 10-Q for additional information regarding environmental laws and regulations.
Critical Accounting Estimates
Certain accounting measurements require management to make estimates and judgments concerning transactions that will be settled several years in the future. Amounts recognized on the Consolidated Financial Statements based on such estimates involve numerous assumptions subject to varying and potentially significant degrees of judgment and uncertainty and will likely change in the future as additional information becomes available. Estimates are used for, but not limited to, the accounting for the effects of certain types of regulation, derivatives, pension and other postretirement benefits, income taxes and revenue recognition-unbilled revenue. For additional discussion of PacifiCorp's critical accounting estimates, see Item 7 of PacifiCorp's Annual Report on Form 10-K for the year ended December 31, 2020. There have been no significant changes in PacifiCorp's assumptions regarding critical accounting estimates since December 31, 2020.
MidAmerican Funding, LLC and its subsidiaries and MidAmerican Energy Company
Consolidated Financial Section
PART I
Item 1.Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of
MidAmerican Energy Company
Results of Review of Interim Financial Information
We have reviewed the accompanying balance sheet of MidAmerican Energy Company ("MidAmerican Energy") as of March 31, 2021, the related statements of operations, changes in shareholder's equity, and cash flows for the three-month periods ended March 31, 2021 and 2020, and the related notes (collectively referred to as the "interim financial information"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheet of MidAmerican Energy as of December 31, 2020, and the related statements of operations, changes in shareholder's equity, and cash flows for the year then ended (not presented herein); and in our report dated February 26, 2021, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of December 31, 2020, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of MidAmerican Energy's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to MidAmerican Energy in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Deloitte & Touche LLP
Des Moines, Iowa
April 30, 2021
MIDAMERICAN ENERGY COMPANY
BALANCE SHEETS (Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
ASSETS
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
37
|
|
|
$
|
38
|
|
Trade receivables, net
|
521
|
|
|
234
|
|
Income tax receivable
|
293
|
|
|
—
|
|
Inventories
|
231
|
|
|
278
|
|
Other current assets
|
103
|
|
|
73
|
|
Total current assets
|
1,185
|
|
|
623
|
|
|
|
|
|
Property, plant and equipment, net
|
19,223
|
|
|
19,279
|
|
Regulatory assets
|
439
|
|
|
392
|
|
Investments and restricted investments
|
938
|
|
|
911
|
|
Other assets
|
215
|
|
|
232
|
|
|
|
|
|
Total assets
|
$
|
22,000
|
|
|
$
|
21,437
|
|
The accompanying notes are an integral part of these financial statements.
MIDAMERICAN ENERGY COMPANY
BALANCE SHEETS (Unaudited) (continued)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
LIABILITIES AND SHAREHOLDER'S EQUITY
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
292
|
|
|
$
|
408
|
|
Accrued interest
|
86
|
|
|
78
|
|
Accrued property, income and other taxes
|
124
|
|
|
161
|
|
Short-term debt
|
387
|
|
|
—
|
|
|
|
|
|
Other current liabilities
|
186
|
|
|
183
|
|
Total current liabilities
|
1,075
|
|
|
830
|
|
|
|
|
|
Long-term debt
|
7,224
|
|
|
7,210
|
|
Regulatory liabilities
|
1,257
|
|
|
1,111
|
|
Deferred income taxes
|
3,107
|
|
|
3,054
|
|
Asset retirement obligations
|
711
|
|
|
709
|
|
Other long-term liabilities
|
414
|
|
|
458
|
|
Total liabilities
|
13,788
|
|
|
13,372
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
Shareholder's equity:
|
|
|
|
Common stock - 350 shares authorized, no par value, 71 shares issued and outstanding
|
—
|
|
|
—
|
|
Additional paid-in capital
|
561
|
|
|
561
|
|
Retained earnings
|
7,651
|
|
|
7,504
|
|
|
|
|
|
Total shareholder's equity
|
8,212
|
|
|
8,065
|
|
|
|
|
|
Total liabilities and shareholder's equity
|
$
|
22,000
|
|
|
$
|
21,437
|
|
The accompanying notes are an integral part of these financial statements.
MIDAMERICAN ENERGY COMPANY
STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
|
Ended March 31,
|
|
|
|
|
|
2021
|
|
2020
|
Operating revenue:
|
|
|
|
|
|
|
|
Regulated electric
|
|
|
|
|
$
|
545
|
|
|
$
|
471
|
|
Regulated natural gas and other
|
|
|
|
|
522
|
|
|
210
|
|
Total operating revenue
|
|
|
|
|
1,067
|
|
|
681
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Cost of fuel and energy
|
|
|
|
|
151
|
|
|
80
|
|
Cost of natural gas purchased for resale and other
|
|
|
|
|
432
|
|
|
128
|
|
Operations and maintenance
|
|
|
|
|
193
|
|
|
165
|
|
Depreciation and amortization
|
|
|
|
|
207
|
|
|
176
|
|
Property and other taxes
|
|
|
|
|
36
|
|
|
34
|
|
Total operating expenses
|
|
|
|
|
1,019
|
|
|
583
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
48
|
|
|
98
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
(74)
|
|
|
(76)
|
|
Allowance for borrowed funds
|
|
|
|
|
2
|
|
|
3
|
|
Allowance for equity funds
|
|
|
|
|
6
|
|
|
8
|
|
Other, net
|
|
|
|
|
11
|
|
|
(5)
|
|
Total other income (expense)
|
|
|
|
|
(55)
|
|
|
(70)
|
|
|
|
|
|
|
|
|
|
(Loss) income before income tax benefit
|
|
|
|
|
(7)
|
|
|
28
|
|
Income tax benefit
|
|
|
|
|
(154)
|
|
|
(123)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
$
|
147
|
|
|
$
|
151
|
|
The accompanying notes are an integral part of these financial statements.
MIDAMERICAN ENERGY COMPANY
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Retained
Earnings
|
|
Total Shareholder's
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
$
|
—
|
|
|
$
|
561
|
|
|
$
|
6,679
|
|
|
$
|
7,240
|
|
Net income
|
—
|
|
|
—
|
|
|
151
|
|
|
151
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020
|
$
|
—
|
|
|
$
|
561
|
|
|
$
|
6,830
|
|
|
$
|
7,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
$
|
—
|
|
|
$
|
561
|
|
|
$
|
7,504
|
|
|
$
|
8,065
|
|
Net income
|
—
|
|
|
—
|
|
|
147
|
|
|
147
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
$
|
—
|
|
|
$
|
561
|
|
|
$
|
7,651
|
|
|
$
|
8,212
|
|
The accompanying notes are an integral part of these financial statements.
MIDAMERICAN ENERGY COMPANY
STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
Ended March 31,
|
|
2021
|
|
2020
|
Cash flows from operating activities:
|
|
|
|
Net income
|
$
|
147
|
|
|
$
|
151
|
|
Adjustments to reconcile net income to net cash flows from operating activities:
|
|
|
|
Depreciation and amortization
|
207
|
|
|
176
|
|
Amortization of utility plant to other operating expenses
|
8
|
|
|
9
|
|
Allowance for equity funds
|
(6)
|
|
|
(8)
|
|
Deferred income taxes and amortization of investment tax credits
|
154
|
|
|
91
|
|
Settlements of asset retirement obligations
|
(4)
|
|
|
(2)
|
|
Other, net
|
(4)
|
|
|
14
|
|
Changes in other operating assets and liabilities:
|
|
|
|
Trade receivables and other assets
|
(299)
|
|
|
15
|
|
Inventories
|
46
|
|
|
(6)
|
|
Derivative collateral, net
|
(14)
|
|
|
1
|
|
Pension and other postretirement benefit plans
|
1
|
|
|
(6)
|
|
Accrued property, income and other taxes, net
|
(331)
|
|
|
(286)
|
|
Accounts payable and other liabilities
|
10
|
|
|
70
|
|
Net cash flows from operating activities
|
(85)
|
|
|
219
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Capital expenditures
|
(298)
|
|
|
(472)
|
|
Purchases of marketable securities
|
(52)
|
|
|
(127)
|
|
Proceeds from sales of marketable securities
|
47
|
|
|
124
|
|
Other, net
|
—
|
|
|
5
|
|
Net cash flows from investing activities
|
(303)
|
|
|
(470)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from short-term debt
|
387
|
|
|
50
|
|
Other, net
|
—
|
|
|
(1)
|
|
Net cash flows from financing activities
|
387
|
|
|
49
|
|
|
|
|
|
Net change in cash and cash equivalents and restricted cash and cash equivalents
|
(1)
|
|
|
(202)
|
|
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period
|
45
|
|
|
330
|
|
Cash and cash equivalents and restricted cash and cash equivalents at end of period
|
$
|
44
|
|
|
$
|
128
|
|
The accompanying notes are an integral part of these financial statements.
MIDAMERICAN ENERGY COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) General
MidAmerican Energy Company ("MidAmerican Energy") is a public utility with electric and natural gas operations and is the principal subsidiary of MHC Inc. ("MHC"). MHC is a holding company that conducts no business other than the ownership of its subsidiaries. MHC's nonregulated subsidiary is Midwest Capital Group, Inc. MHC is the direct, wholly owned subsidiary of MidAmerican Funding, LLC ("MidAmerican Funding"), which is an Iowa limited liability company with Berkshire Hathaway Energy Company ("BHE") as its sole member. BHE is a holding company based in Des Moines, Iowa, that owns subsidiaries principally engaged in energy businesses. BHE is a consolidated subsidiary of Berkshire Hathaway Inc. ("Berkshire Hathaway").
The unaudited Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and the United States Securities and Exchange Commission's rules and regulations for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures required by GAAP for annual financial statements. Management believes the unaudited Financial Statements contain all adjustments (consisting only of normal recurring adjustments) considered necessary for the fair presentation of the unaudited Financial Statements as of March 31, 2021, and for the three-month periods ended March 31, 2021 and 2020. The Statements of Comprehensive Income have been omitted as net income equals comprehensive income for the three-month period ended March 31, 2021 and 2020. The results of operations for the three-month periods ended March 31, 2021, are not necessarily indicative of the results to be expected for the full year.
The preparation of the unaudited Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited Financial Statements and the reported amounts of revenue and expenses during the period. Actual results may differ from the estimates used in preparing the unaudited Financial Statements. Note 2 of Notes to Financial Statements included in MidAmerican Energy's Annual Report on Form 10-K for the year ended December 31, 2020, describes the most significant accounting policies used in the preparation of the unaudited Financial Statements. There have been no significant changes in MidAmerican Energy's assumptions regarding significant accounting estimates and policies during the three-month period ended March 31, 2021.
(2) Cash and Cash Equivalents and Restricted Cash and Cash Equivalents
Cash equivalents consist of funds invested in money market mutual funds, United States Treasury Bills and other investments with a maturity of three months or less when purchased. Cash and cash equivalents exclude amounts where availability is restricted by legal requirements, loan agreements or other contractual provisions. Restricted cash and cash equivalents as of March 31, 2021 and December 31, 2020, consist substantially of funds restricted for wildlife preservation and, as of December 31, 2020, the purpose of constructing solid waste facilities under tax-exempt bond obligation agreements. A reconciliation of cash and cash equivalents and restricted cash and cash equivalents as of March 31, 2021 and December 31, 2020, as presented in the Statements of Cash Flows is outlined below and disaggregated by the line items in which they appear on the Balance Sheets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
|
|
|
|
Cash and cash equivalents
|
$
|
37
|
|
|
$
|
38
|
|
Restricted cash and cash equivalents in other current assets
|
7
|
|
|
7
|
|
Total cash and cash equivalents and restricted cash and cash equivalents
|
$
|
44
|
|
|
$
|
45
|
|
(3) Property, Plant and Equipment, Net
Property, plant and equipment, net consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
March 31,
|
|
December 31,
|
|
Depreciable Life
|
|
2021
|
|
2020
|
Utility plant in service, net:
|
|
|
|
|
|
Generation
|
20-70 years
|
|
$
|
17,083
|
|
|
$
|
16,980
|
|
Transmission
|
52-75 years
|
|
2,372
|
|
|
2,365
|
|
Electric distribution
|
20-75 years
|
|
4,433
|
|
|
4,369
|
|
Natural gas distribution
|
29-75 years
|
|
1,970
|
|
|
1,955
|
|
Utility plant in service
|
|
|
25,858
|
|
|
25,669
|
|
Accumulated depreciation and amortization
|
|
|
(7,061)
|
|
|
(6,902)
|
|
Utility plant in service, net
|
|
|
18,797
|
|
|
18,767
|
|
Nonregulated property, net:
|
|
|
|
|
|
Nonregulated property gross
|
20-50 years
|
|
7
|
|
|
7
|
|
Accumulated depreciation and amortization
|
|
|
(1)
|
|
|
(1)
|
|
Nonregulated property, net
|
|
|
6
|
|
|
6
|
|
|
|
|
18,803
|
|
|
18,773
|
|
Construction work-in-progress
|
|
|
420
|
|
|
506
|
|
Property, plant and equipment, net
|
|
|
$
|
19,223
|
|
|
$
|
19,279
|
|
(4) Regulatory Matters
Natural Gas Purchased for Resale
In February 2021, severe cold weather over the central United States caused disruptions in natural gas supply from the southern part of the United States. These disruptions, combined with increased demand, resulted in historically high prices for natural gas purchased for resale to MidAmerican Energy's retail customers and caused an approximate $245 million increase in natural gas costs above those normally expected. These increased costs are reflected in cost of natural gas purchased for resale and other on the Statement of Operations and their recovery through the Purchased Gas Adjustment Clause is reflected in regulated natural gas and other revenue.
To mitigate the impact to customers, the Iowa Utilities Board ordered the recovery of these higher costs to be applied to natural gas sales over the period April 2021 through April 2022. While sufficient liquidity is available to MidAmerican Energy, the increased costs and longer recovery period resulted in higher working capital requirements during three-month period ended March 31, 2021.
(5) Income Taxes
The effective income tax rate for the three-month period ended March 31, 2021, is 2,200% and results from a $154 million income tax benefit associated with a $7 million pre-tax loss. The $154 million income tax benefit is primarily comprised of a $2 million benefit (21%) from the application of the statutory income tax rate to the pre-tax loss and a $168 million benefit (2,400%) from income tax credits, partially offset by a $13 million expense (186%) from the effects of ratemaking.
A reconciliation of the federal statutory income tax rate to MidAmerican Energy's effective income tax rate applicable to income before income tax benefit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
|
Ended March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
Federal statutory income tax rate
|
|
|
|
|
21
|
%
|
|
21
|
%
|
Income tax credits
|
|
|
|
|
2,400
|
|
|
(430)
|
|
State income tax, net of federal income tax impacts
|
|
|
|
|
(29)
|
|
|
(28)
|
|
Effects of ratemaking
|
|
|
|
|
(186)
|
|
|
(3)
|
|
Other, net
|
|
|
|
|
(6)
|
|
|
1
|
|
Effective income tax rate
|
|
|
|
|
2,200
|
%
|
|
(439)
|
%
|
Income tax credits relate primarily to production tax credits ("PTCs") from MidAmerican Energy's wind-powered generating facilities. Federal renewable electricity PTCs are earned as energy from qualifying wind-powered generating facilities is produced and sold and are based on a per-kilowatt hour rate pursuant to the applicable federal income tax law. MidAmerican Energy recognizes its renewable electricity PTCs throughout the year based on when the credits are earned and excludes them from the annual effective tax rate that is the basis for the interim recognition of other income tax expense. Wind-powered generating facilities are eligible for the credits for 10 years from the date the qualifying generating facilities are placed in-service. PTCs for the three-month periods ended March 31, 2021 and 2020 totaled $151 million and $120 million, respectively.
Berkshire Hathaway includes BHE and subsidiaries in its United States federal and Iowa state income tax returns. Consistent with established regulatory practice, MidAmerican Energy's provision for income tax has been computed on a stand-alone basis, and substantially all of its currently payable or receivable income tax is remitted to or received from BHE. The timing of MidAmerican Energy's income tax cash flows from period to period can be significantly affected by the estimated federal income tax payment methods and assumptions for each payment date. MidAmerican Energy made no cash payments for income tax to BHE for the three-month period ended March 31, 2021, and made net cash payments for income tax to BHE totaling $46 million for the three-month period ended March 31, 2020.
(6) Employee Benefit Plans
MidAmerican Energy sponsors a noncontributory defined benefit pension plan covering a majority of all employees of BHE and its domestic energy subsidiaries other than PacifiCorp and NV Energy, Inc. MidAmerican Energy also sponsors certain postretirement healthcare and life insurance benefits covering substantially all retired employees of BHE and its domestic energy subsidiaries other than PacifiCorp and NV Energy, Inc.
Net periodic benefit cost (credit) for the plans of MidAmerican Energy and the aforementioned affiliates included the following components (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
|
Ended March 31,
|
|
|
|
|
|
2021
|
|
2020
|
Pension:
|
|
|
|
|
|
|
|
Service cost
|
|
|
|
|
$
|
5
|
|
|
$
|
1
|
|
Interest cost
|
|
|
|
|
6
|
|
|
6
|
|
Expected return on plan assets
|
|
|
|
|
(9)
|
|
|
(10)
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (credit)
|
|
|
|
|
$
|
2
|
|
|
$
|
(3)
|
|
|
|
|
|
|
|
|
|
Other postretirement:
|
|
|
|
|
|
|
|
Service cost
|
|
|
|
|
$
|
2
|
|
|
$
|
1
|
|
Interest cost
|
|
|
|
|
2
|
|
|
2
|
|
Expected return on plan assets
|
|
|
|
|
(2)
|
|
|
(3)
|
|
Net amortization
|
|
|
|
|
(1)
|
|
|
(1)
|
|
Net periodic benefit cost (credit)
|
|
|
|
|
$
|
1
|
|
|
$
|
(1)
|
|
Amounts other than the service cost for pension and other postretirement benefit plans are recorded in Other, net in the Statements of Operations. Employer contributions to the pension and other postretirement benefit plans are expected to be $7 million and $12 million, respectively, during 2021. As of March 31, 2021, $2 million and $3 million of contributions had been made to the pension and other postretirement benefit plans, respectively.
(7) Fair Value Measurements
The carrying value of MidAmerican Energy's cash, certain cash equivalents, receivables, payables, accrued liabilities and short-term borrowings approximates fair value because of the short-term maturity of these instruments. MidAmerican Energy has various financial assets and liabilities that are measured at fair value on the Financial Statements using inputs from the three levels of the fair value hierarchy. A financial asset or liability classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The three levels are as follows:
•Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that MidAmerican Energy has the ability to access at the measurement date.
•Level 2 — Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
•Level 3 — Unobservable inputs reflect MidAmerican Energy's judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. MidAmerican Energy develops these inputs based on the best information available, including its own data.
The following table presents MidAmerican Energy's financial assets and liabilities recognized on the Balance Sheets and measured at fair value on a recurring basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Input Levels for Fair Value Measurements
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Other(1)
|
|
Total
|
As of March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
(2)
|
|
|
$
|
3
|
|
Money market mutual funds(2)
|
|
38
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
United States government obligations
|
|
210
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
210
|
|
International government obligations
|
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Corporate obligations
|
|
—
|
|
|
71
|
|
|
—
|
|
|
—
|
|
|
71
|
|
Municipal obligations
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Agency, asset and mortgage-backed obligations
|
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
United States companies
|
|
395
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
395
|
|
International companies
|
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
Investment funds
|
|
24
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24
|
|
|
|
$
|
675
|
|
|
$
|
86
|
|
|
$
|
2
|
|
|
$
|
(2)
|
|
|
$
|
761
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities - commodity derivatives
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
$
|
(1)
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Input Levels for Fair Value Measurements
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Other(1)
|
|
Total
|
As of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
5
|
|
|
$
|
(5)
|
|
|
$
|
4
|
|
Money market mutual funds(2)
|
|
41
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
41
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
United States government obligations
|
|
200
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
200
|
|
International government obligations
|
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Corporate obligations
|
|
—
|
|
|
73
|
|
|
—
|
|
|
—
|
|
|
73
|
|
Municipal obligations
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Agency, asset and mortgage-backed obligations
|
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
United States companies
|
|
381
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
381
|
|
International companies
|
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
Investment funds
|
|
17
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
|
$
|
648
|
|
|
$
|
90
|
|
|
$
|
5
|
|
|
$
|
(5)
|
|
|
$
|
738
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities - commodity derivatives
|
|
$
|
—
|
|
|
$
|
(4)
|
|
|
$
|
(3)
|
|
|
$
|
5
|
|
|
$
|
(2)
|
|
(1)Represents netting under master netting arrangements and a net cash collateral receivable of $— million as of March 31, 2021 and December 31, 2020, respectively.
(2)Amounts are included in cash and cash equivalents and investments and restricted investments on the Balance Sheets. The fair value of these money market mutual funds approximates cost.
MidAmerican Energy's investments in money market mutual funds and debt and equity securities are stated at fair value, with debt securities accounted for as available-for-sale securities. When available, a readily observable quoted market price or net asset value of an identical security in an active market is used to record the fair value. In the absence of a quoted market price or net asset value of an identical security, the fair value is determined using pricing models or net asset values based on observable market inputs and quoted market prices of securities with similar characteristics.
MidAmerican Energy's long-term debt is carried at cost on the Balance Sheets. The fair value of MidAmerican Energy's long-term debt is a Level 2 fair value measurement and has been estimated based upon quoted market prices, where available, or at the present value of future cash flows discounted at rates consistent with comparable maturities with similar credit risks. The carrying value of MidAmerican Energy's variable-rate long-term debt approximates fair value because of the frequent repricing of these instruments at market rates. The following table presents the carrying value and estimated fair value of MidAmerican Energy's long-term debt (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2021
|
|
As of December 31, 2020
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
Long-term debt
|
$
|
7,224
|
|
|
$
|
8,305
|
|
|
$
|
7,210
|
|
|
$
|
9,130
|
|
(8) Commitments and Contingencies
Legal Matters
MidAmerican Energy is party to a variety of legal actions arising out of the normal course of business. Plaintiffs occasionally seek punitive or exemplary damages. MidAmerican Energy does not believe that such normal and routine litigation will have a material impact on its financial results.
Environmental Laws and Regulations
MidAmerican Energy is subject to federal, state and local laws and regulations regarding climate change, renewable portfolio standards, air and water quality, emissions performance standards, coal combustion byproduct disposal, hazardous and solid waste disposal, protected species and other environmental matters that have the potential to impact its current and future operations. MidAmerican Energy believes it is in material compliance with all applicable laws and regulations.
Transmission Rates
MidAmerican Energy's wholesale transmission rates are set annually using Federal Energy Regulatory Commission ("FERC")-approved formula rates subject to true-up for actual cost of service. MidAmerican Energy is authorized by the FERC to include a 0.50% adder beyond the approved base return on equity ("ROE") effective January 2015. Prior to September 2016, the rates in effect were based on a 12.38% ROE. In November 2013 and February 2015, a coalition of intervenors filed successive complaints with the FERC requesting that the 12.38% ROE no longer be found just and reasonable and sought to reduce the base ROE to 9.15% and 8.67%, respectively. In September 2016, the FERC issued an order for the first complaint, which reduces the base ROE to 10.32% and required refunds, plus interest, for the period from November 2013 through February 2015. Customer refunds relative to the first complaint occurred in February 2017. In November 2019, the FERC issued an order addressing the second complaint and issues on appeal in the first complaint. The order established a ROE of 9.88% (10.38% including the 0.50% adder) for the 15-month refund period of the first complaint and prospectively from September 2016 forward. In May 2020, the FERC issued an order on rehearing of the November 2019 order. The May 2020 order affirmed the FERC's prior decision to dismiss the second complaint and established an ROE of 10.02% (10.52% including the 0.50% adder) for the 15-month refund period of the first complaint and prospectively from September 2016 to the date of the May 2020 order. These orders continue to be subject to judicial appeal. MidAmerican Energy cannot predict the ultimate outcome of these matters and, as of March 31, 2021, has accrued a $10 million liability for refunds of amounts collected under the higher ROE during the periods covered by both complaints.
(9) Revenue from Contracts with Customers
The following table summarizes MidAmerican Energy's revenue from contracts with customers ("Customer Revenue") by line of business and customer class, including a reconciliation to MidAmerican Energy's reportable segment information included in Note 10, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-Month Period Ended March 31, 2021
|
|
|
|
|
|
|
|
|
|
Electric
|
|
Natural Gas
|
|
Other
|
|
Total
|
Customer Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
$
|
161
|
|
|
$
|
308
|
|
|
$
|
—
|
|
|
$
|
469
|
|
Commercial
|
|
|
|
|
|
|
|
|
71
|
|
|
129
|
|
|
—
|
|
|
200
|
|
Industrial
|
|
|
|
|
|
|
|
|
190
|
|
|
12
|
|
|
—
|
|
|
202
|
|
Natural gas transportation services
|
|
|
|
|
|
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
Other retail(1)
|
|
|
|
|
|
|
|
|
30
|
|
|
1
|
|
|
—
|
|
|
31
|
|
Total retail
|
|
|
|
|
|
|
|
|
452
|
|
|
460
|
|
|
—
|
|
|
912
|
|
Wholesale
|
|
|
|
|
|
|
|
|
74
|
|
|
51
|
|
|
—
|
|
|
125
|
|
Multi-value transmission projects
|
|
|
|
|
|
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
15
|
|
Other Customer Revenue
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
10
|
|
Total Customer Revenue
|
|
|
|
|
|
|
|
|
541
|
|
|
511
|
|
|
10
|
|
|
1,062
|
|
Other revenue
|
|
|
|
|
|
|
|
|
4
|
|
|
1
|
|
|
—
|
|
|
5
|
|
Total operating revenue
|
|
|
|
|
|
|
|
|
$
|
545
|
|
|
$
|
512
|
|
|
$
|
10
|
|
|
$
|
1,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-Month Period Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
Electric
|
|
Natural Gas
|
|
Other
|
|
Total
|
Customer Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
$
|
148
|
|
|
$
|
128
|
|
|
$
|
—
|
|
|
$
|
276
|
|
Commercial
|
|
|
|
|
|
|
|
|
70
|
|
|
43
|
|
|
—
|
|
|
113
|
|
Industrial
|
|
|
|
|
|
|
|
|
163
|
|
|
4
|
|
|
—
|
|
|
167
|
|
Natural gas transportation services
|
|
|
|
|
|
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
Other retail(1)
|
|
|
|
|
|
|
|
|
29
|
|
|
—
|
|
|
—
|
|
|
29
|
|
Total retail
|
|
|
|
|
|
|
|
|
410
|
|
|
186
|
|
|
—
|
|
|
596
|
|
Wholesale
|
|
|
|
|
|
|
|
|
42
|
|
|
22
|
|
|
—
|
|
|
64
|
|
Multi-value transmission projects
|
|
|
|
|
|
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
16
|
|
Other Customer Revenue
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Total Customer Revenue
|
|
|
|
|
|
|
|
|
468
|
|
|
208
|
|
|
1
|
|
|
677
|
|
Other revenue
|
|
|
|
|
|
|
|
|
3
|
|
|
1
|
|
|
—
|
|
|
4
|
|
Total operating revenue
|
|
|
|
|
|
|
|
|
$
|
471
|
|
|
$
|
209
|
|
|
$
|
1
|
|
|
$
|
681
|
|
(1) Other retail includes provisions for rate refunds, for which any actual refunds will be reflected in the applicable customer classes upon resolution of the related regulatory proceeding.
(10) Segment Information
MidAmerican Energy has identified two reportable segments: regulated electric and regulated natural gas. The regulated electric segment derives most of its revenue from regulated retail sales of electricity to residential, commercial, and industrial customers and from wholesale sales. The regulated natural gas segment derives most of its revenue from regulated retail sales of natural gas to residential, commercial, and industrial customers and also obtains revenue by transporting natural gas owned by others through its distribution system. Pricing for regulated electric and regulated natural gas sales are established separately by regulatory agencies; therefore, management also reviews each segment separately to make decisions regarding allocation of resources and in evaluating performance. Common operating costs, interest income, interest expense and income tax expense are allocated to each segment based on certain factors, which primarily relate to the nature of the cost.
The following tables provide information on a reportable segment basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
|
Ended March 31,
|
|
|
|
|
|
2021
|
|
2020
|
Operating revenue:
|
|
|
|
|
|
|
|
Regulated electric
|
|
|
|
|
$
|
545
|
|
|
$
|
471
|
|
Regulated natural gas
|
|
|
|
|
512
|
|
|
209
|
|
Other
|
|
|
|
|
10
|
|
|
1
|
|
Total operating revenue
|
|
|
|
|
$
|
1,067
|
|
|
$
|
681
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
Regulated electric
|
|
|
|
|
$
|
9
|
|
|
$
|
59
|
|
Regulated natural gas
|
|
|
|
|
39
|
|
|
39
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
|
|
|
48
|
|
|
98
|
|
Interest expense
|
|
|
|
|
(74)
|
|
|
(76)
|
|
Allowance for borrowed funds
|
|
|
|
|
2
|
|
|
3
|
|
Allowance for equity funds
|
|
|
|
|
6
|
|
|
8
|
|
Other, net
|
|
|
|
|
11
|
|
|
(5)
|
|
(Loss) income before income tax benefit
|
|
|
|
|
$
|
(7)
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31,
2021
|
|
December 31,
2020
|
Assets:
|
|
|
|
Regulated electric
|
$
|
20,272
|
|
|
$
|
19,892
|
|
Regulated natural gas
|
1,725
|
|
|
1,544
|
|
Other
|
3
|
|
|
1
|
|
Total assets
|
$
|
22,000
|
|
|
$
|
21,437
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Managers and Member of
MidAmerican Funding, LLC
Results of Review of Interim Financial Information
We have reviewed the accompanying consolidated balance sheet of MidAmerican Funding, LLC and subsidiaries ("MidAmerican Funding") as of March 31, 2021, the related consolidated statements of operations, changes in member's equity, and cash flows for the three-month periods ended March 31, 2021 and 2020, and the related notes (collectively referred to as the "interim financial information"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) and in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of MidAmerican Funding as of December 31, 2020, and the related consolidated statements of operations, changes in member's equity, and cash flows for the year then ended (not presented herein); and in our report dated February 26, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of MidAmerican Funding's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to MidAmerican Funding in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB and with auditing standards generally accepted in the United States of America applicable to reviews of interim financial information. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB and with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Deloitte & Touche LLP
Des Moines, Iowa
April 30, 2021
MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
ASSETS
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
38
|
|
|
$
|
39
|
|
Trade receivables, net
|
521
|
|
|
234
|
|
Income tax receivable
|
295
|
|
|
—
|
|
Inventories
|
231
|
|
|
278
|
|
Other current assets
|
102
|
|
|
74
|
|
Total current assets
|
1,187
|
|
|
625
|
|
|
|
|
|
Property, plant and equipment, net
|
19,223
|
|
|
19,279
|
|
Goodwill
|
1,270
|
|
|
1,270
|
|
Regulatory assets
|
439
|
|
|
392
|
|
Investments and restricted investments
|
940
|
|
|
913
|
|
Other assets
|
215
|
|
|
232
|
|
|
|
|
|
Total assets
|
$
|
23,274
|
|
|
$
|
22,711
|
|
The accompanying notes are an integral part of these consolidated financial statements.
MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited) (continued)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
LIABILITIES AND MEMBER'S EQUITY
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
292
|
|
|
$
|
408
|
|
Accrued interest
|
87
|
|
|
83
|
|
Accrued property, income and other taxes
|
124
|
|
|
161
|
|
Note payable to affiliate
|
184
|
|
|
177
|
|
Short-term debt
|
387
|
|
|
—
|
|
|
|
|
|
Other current liabilities
|
187
|
|
|
183
|
|
Total current liabilities
|
1,261
|
|
|
1,012
|
|
|
|
|
|
Long-term debt
|
7,464
|
|
|
7,450
|
|
Regulatory liabilities
|
1,257
|
|
|
1,111
|
|
Deferred income taxes
|
3,104
|
|
|
3,052
|
|
Asset retirement obligations
|
711
|
|
|
709
|
|
Other long-term liabilities
|
414
|
|
|
458
|
|
Total liabilities
|
14,211
|
|
|
13,792
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
Member's equity:
|
|
|
|
Paid-in capital
|
1,679
|
|
|
1,679
|
|
Retained earnings
|
7,384
|
|
|
7,240
|
|
|
|
|
|
Total member's equity
|
9,063
|
|
|
8,919
|
|
|
|
|
|
Total liabilities and member's equity
|
$
|
23,274
|
|
|
$
|
22,711
|
|
The accompanying notes are an integral part of these consolidated financial statements.
MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
|
Ended March 31,
|
|
|
|
|
|
2021
|
|
2020
|
Operating revenue:
|
|
|
|
|
|
|
|
Regulated electric
|
|
|
|
|
$
|
545
|
|
|
$
|
471
|
|
Regulated natural gas and other
|
|
|
|
|
522
|
|
|
215
|
|
Total operating revenue
|
|
|
|
|
1,067
|
|
|
686
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Cost of fuel and energy
|
|
|
|
|
151
|
|
|
80
|
|
Cost of natural gas purchased for resale and other
|
|
|
|
|
432
|
|
|
129
|
|
Operations and maintenance
|
|
|
|
|
193
|
|
|
165
|
|
Depreciation and amortization
|
|
|
|
|
207
|
|
|
176
|
|
Property and other taxes
|
|
|
|
|
36
|
|
|
34
|
|
Total operating expenses
|
|
|
|
|
1,019
|
|
|
584
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
48
|
|
|
102
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
(78)
|
|
|
(81)
|
|
Allowance for borrowed funds
|
|
|
|
|
2
|
|
|
3
|
|
Allowance for equity funds
|
|
|
|
|
6
|
|
|
8
|
|
Other, net
|
|
|
|
|
10
|
|
|
(6)
|
|
Total other income (expense)
|
|
|
|
|
(60)
|
|
|
(76)
|
|
|
|
|
|
|
|
|
|
(Loss) income before income tax benefit
|
|
|
|
|
(12)
|
|
|
26
|
|
Income tax benefit
|
|
|
|
|
(156)
|
|
|
(124)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
$
|
144
|
|
|
$
|
150
|
|
The accompanying notes are an integral part of these consolidated financial statements.
MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY (Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
Capital
|
|
Retained
Earnings
|
|
Total Member's
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
$
|
1,679
|
|
|
$
|
6,422
|
|
|
$
|
8,101
|
|
Net income
|
—
|
|
|
150
|
|
|
150
|
|
|
|
|
|
|
|
Balance, March 31, 2020
|
$
|
1,679
|
|
|
$
|
6,572
|
|
|
$
|
8,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
$
|
1,679
|
|
|
$
|
7,240
|
|
|
$
|
8,919
|
|
Net income
|
—
|
|
|
144
|
|
|
144
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
$
|
1,679
|
|
|
$
|
7,384
|
|
|
$
|
9,063
|
|
The accompanying notes are an integral part of these consolidated financial statements.
MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
Ended March 31,
|
|
2021
|
|
2020
|
Cash flows from operating activities:
|
|
|
|
Net income
|
$
|
144
|
|
|
$
|
150
|
|
Adjustments to reconcile net income to net cash flows from operating activities:
|
|
|
|
Depreciation and amortization
|
207
|
|
|
176
|
|
Amortization of utility plant to other operating expenses
|
8
|
|
|
9
|
|
Allowance for equity funds
|
(6)
|
|
|
(8)
|
|
Deferred income taxes and amortization of investment tax credits
|
153
|
|
|
93
|
|
|
|
|
|
Settlements of asset retirement obligations
|
(4)
|
|
|
(2)
|
|
Other, net
|
(3)
|
|
|
15
|
|
Changes in other operating assets and liabilities:
|
|
|
|
Trade receivables and other assets
|
(298)
|
|
|
16
|
|
Inventories
|
46
|
|
|
(6)
|
|
Derivative collateral, net
|
(14)
|
|
|
1
|
|
Pension and other postretirement benefit plans
|
1
|
|
|
(6)
|
|
Accrued property, income and other taxes, net
|
(332)
|
|
|
(290)
|
|
Accounts payable and other liabilities
|
6
|
|
|
66
|
|
Net cash flows from operating activities
|
(92)
|
|
|
214
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Capital expenditures
|
(298)
|
|
|
(472)
|
|
Purchases of marketable securities
|
(52)
|
|
|
(127)
|
|
Proceeds from sales of marketable securities
|
47
|
|
|
124
|
|
|
|
|
|
Other, net
|
—
|
|
|
6
|
|
Net cash flows from investing activities
|
(303)
|
|
|
(469)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in note payable to affiliate
|
7
|
|
|
3
|
|
Net proceeds from short-term debt
|
387
|
|
|
50
|
|
Other, net
|
—
|
|
|
(1)
|
|
Net cash flows from financing activities
|
394
|
|
|
52
|
|
|
|
|
|
Net change in cash and cash equivalents and restricted cash and cash equivalents
|
(1)
|
|
|
(203)
|
|
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period
|
46
|
|
|
331
|
|
Cash and cash equivalents and restricted cash and cash equivalents at end of period
|
$
|
45
|
|
|
$
|
128
|
|
The accompanying notes are an integral part of these consolidated financial statements.
MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) General
MidAmerican Funding, LLC ("MidAmerican Funding") is an Iowa limited liability company with Berkshire Hathaway Energy Company ("BHE") as its sole member. BHE is a holding company based in Des Moines, Iowa, that owns subsidiaries principally engaged in energy businesses. BHE is a consolidated subsidiary of Berkshire Hathaway Inc. ("Berkshire Hathaway"). MidAmerican Funding's direct, wholly owned subsidiary is MHC Inc. ("MHC"), which constitutes substantially all of MidAmerican Funding's assets, liabilities and business activities except those related to MidAmerican Funding's long-term debt securities. MHC conducts no business other than the ownership of its subsidiaries. MHC's principal subsidiary is MidAmerican Energy Company ("MidAmerican Energy"), a public utility with electric and natural gas operations, and its direct, wholly owned nonregulated subsidiary is Midwest Capital Group, Inc.
The unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and the United States Securities and Exchange Commission's rules and regulations for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures required by GAAP for annual financial statements. Management believes the unaudited Consolidated Financial Statements contain all adjustments (consisting only of normal recurring adjustments) considered necessary for the fair presentation of the unaudited Consolidated Financial Statements as of March 31, 2021, and for the three-month periods ended March 31, 2021 and 2020. The Consolidated Statements of Comprehensive Income have been omitted as net income materially equals comprehensive income for the three-month period ended March 31, 2021 and 2020. The results of operations for the three-month periods ended March 31, 2021, are not necessarily indicative of the results to be expected for the full year.
The preparation of the unaudited Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited Consolidated Financial Statements and the reported amounts of revenue and expenses during the period. Actual results may differ from the estimates used in preparing the unaudited Consolidated Financial Statements. Note 2 of Notes to Consolidated Financial Statements included in MidAmerican Funding's Annual Report on Form 10-K for the year ended December 31, 2020, describes the most significant accounting policies used in the preparation of the unaudited Consolidated Financial Statements. There have been no significant changes in MidAmerican Funding's assumptions regarding significant accounting estimates and policies during the three-month period ended March 31, 2021.
(2) Cash and Cash Equivalents and Restricted Cash and Cash Equivalents
Cash equivalents consist of funds invested in money market mutual funds, United States Treasury Bills and other investments with a maturity of three months or less when purchased. Cash and cash equivalents exclude amounts where availability is restricted by legal requirements, loan agreements or other contractual provisions. Restricted cash and cash equivalents as of March 31, 2021 and December 31, 2020, consist substantially of funds restricted for wildlife preservation and, as of December 31, 2020, the purpose of constructing solid waste facilities under tax-exempt bond obligation agreements. A reconciliation of cash and cash equivalents and restricted cash and cash equivalents as of March 31, 2021 and December 31, 2020, as presented in the Consolidated Statements of Cash Flows is outlined below and disaggregated by the line items in which they appear on the Consolidated Balance Sheets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
|
|
|
|
Cash and cash equivalents
|
$
|
38
|
|
|
$
|
39
|
|
Restricted cash and cash equivalents in other current assets
|
7
|
|
|
7
|
|
Total cash and cash equivalents and restricted cash and cash equivalents
|
$
|
45
|
|
|
$
|
46
|
|
(3) Property, Plant and Equipment, Net
Refer to Note 3 of MidAmerican Energy's Notes to Financial Statements.
(4) Regulatory Matters
Refer to Note 4 of MidAmerican Energy's Notes to Financial Statements.
(5) Income Taxes
The effective income tax rate for the three-month period ended March 31, 2021, is 1,300% and results from a $156 million income tax benefit associated with a $12 million pre-tax loss. The $156 million income tax benefit is primarily comprised of a $3 million benefit (21%) from the application of the statutory income tax rate to the pre-tax loss and a $168 million benefit (1,400%) from income tax credits, partially offset by a $13 million expense (108%) from the effects of ratemaking.
A reconciliation of the federal statutory income tax rate to MidAmerican Funding's effective income tax rate applicable to income before income tax benefit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
|
Ended March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
Federal statutory income tax rate
|
|
|
|
|
21
|
%
|
|
21
|
%
|
Income tax credits
|
|
|
|
|
1,400
|
|
|
(463)
|
|
State income tax, net of federal income tax impacts
|
|
|
|
|
(8)
|
|
|
(31)
|
|
Effects of ratemaking
|
|
|
|
|
(108)
|
|
|
(3)
|
|
Other, net
|
|
|
|
|
(5)
|
|
|
(1)
|
|
Effective income tax rate
|
|
|
|
|
1,300
|
%
|
|
(477)
|
%
|
Income tax credits relate primarily to production tax credits ("PTCs") from MidAmerican Energy's wind-powered generating facilities. Federal renewable electricity PTCs are earned as energy from qualifying wind-powered generating facilities is produced and sold and are based on a per-kilowatt hour rate pursuant to the applicable federal income tax law. MidAmerican Funding recognizes its renewable electricity PTCs throughout the year based on when the credits are earned and excludes them from the annual effective tax rate that is the basis for the interim recognition of other income tax expense. Wind-powered generating facilities are eligible for the credits for 10 years from the date the qualifying generating facilities are placed in-service. PTCs for the three-month periods ended March 31, 2021 and 2020 totaled $151 million and $120 million, respectively.
Berkshire Hathaway includes BHE and subsidiaries in its United States federal and Iowa state income tax returns. Consistent with established regulatory practice, MidAmerican Funding's and MidAmerican Energy's provisions for income tax have been computed on a stand-alone basis, and substantially all of their currently payable or receivable income tax is remitted to or received from BHE. The timing of MidAmerican Funding's income tax cash flows from period to period can be significantly affected by the estimated federal income tax payment methods and assumptions for each payment date. MidAmerican Funding made no cash payments for income tax to BHE for the three-month period ended March 31, 2021, and made net cash payments for income tax to BHE totaling $47 million for the three-month period ended March 31, 2020.
(6) Employee Benefit Plans
Refer to Note 6 of MidAmerican Energy's Notes to Financial Statements.
(7) Fair Value Measurements
Refer to Note 7 of MidAmerican Energy's Notes to Financial Statements. MidAmerican Funding's long-term debt is carried at cost on the Consolidated Financial Statements. The fair value of MidAmerican Funding's long-term debt is a Level 2 fair value measurement and has been estimated based upon quoted market prices, where available, or at the present value of future cash flows discounted at rates consistent with comparable maturities with similar credit risks. The carrying value of MidAmerican Funding's variable-rate long-term debt approximates fair value because of the frequent repricing of these instruments at market rates. The following table presents the carrying value and estimated fair value of MidAmerican Funding's long-term debt (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2021
|
|
As of December 31, 2020
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
Long-term debt
|
$
|
7,464
|
|
|
$
|
8,622
|
|
|
$
|
7,450
|
|
|
$
|
9,466
|
|
(8) Commitments and Contingencies
MidAmerican Funding is party to a variety of legal actions arising out of the normal course of business. Plaintiffs occasionally seek punitive or exemplary damages. MidAmerican Funding does not believe that such normal and routine litigation will have a material impact on its consolidated financial results.
Refer to Note 8 of MidAmerican Energy's Notes to Financial Statements.
(9) Revenue from Contracts with Customers
Refer to Note 9 of MidAmerican Energy's Notes to Financial Statements. Additionally, MidAmerican Funding had other Accounting Standards Codification Topic 606 revenue of $— million and $5 million for the three-month periods ended March 31, 2021 and 2020, respectively.
(10) Segment Information
MidAmerican Funding has identified two reportable segments: regulated electric and regulated natural gas. The regulated electric segment derives most of its revenue from regulated retail sales of electricity to residential, commercial, and industrial customers and from wholesale sales. The regulated natural gas segment derives most of its revenue from regulated retail sales of natural gas to residential, commercial, and industrial customers and also obtains revenue by transporting natural gas owned by others through its distribution system. Pricing for regulated electric and regulated natural gas sales are established separately by regulatory agencies; therefore, management also reviews each segment separately to make decisions regarding allocation of resources and in evaluating performance. Common operating costs, interest income, interest expense and income tax expense are allocated to each segment based on certain factors, which primarily relate to the nature of the cost. "Other" in the tables below consists of the financial results and assets of nonregulated operations, MHC and MidAmerican Funding.
The following tables provide information on a reportable segment basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
|
Ended March 31,
|
|
|
|
|
|
2021
|
|
2020
|
Operating revenue:
|
|
|
|
|
|
|
|
Regulated electric
|
|
|
|
|
$
|
545
|
|
|
$
|
471
|
|
Regulated natural gas
|
|
|
|
|
512
|
|
|
209
|
|
Other
|
|
|
|
|
10
|
|
|
6
|
|
Total operating revenue
|
|
|
|
|
$
|
1,067
|
|
|
$
|
686
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
Regulated electric
|
|
|
|
|
$
|
9
|
|
|
$
|
59
|
|
Regulated natural gas
|
|
|
|
|
39
|
|
|
39
|
|
Other
|
|
|
|
|
—
|
|
|
4
|
|
Total operating income
|
|
|
|
|
48
|
|
|
102
|
|
Interest expense
|
|
|
|
|
(78)
|
|
|
(81)
|
|
Allowance for borrowed funds
|
|
|
|
|
2
|
|
|
3
|
|
Allowance for equity funds
|
|
|
|
|
6
|
|
|
8
|
|
Other, net
|
|
|
|
|
10
|
|
|
(6)
|
|
(Loss) income before income tax benefit
|
|
|
|
|
$
|
(12)
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31,
2021
|
|
December 31,
2020
|
Assets(1):
|
|
|
|
Regulated electric
|
$
|
21,463
|
|
|
$
|
21,083
|
|
Regulated natural gas
|
1,804
|
|
|
1,623
|
|
Other
|
7
|
|
|
5
|
|
Total assets
|
$
|
23,274
|
|
|
$
|
22,711
|
|
|
|
|
|
|
|
(1)
|
Assets by reportable segment reflect the assignment of goodwill to applicable reporting units.
|
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
The following is management's discussion and analysis of certain significant factors that have affected the consolidated financial condition and results of operations of MidAmerican Funding and its subsidiaries and MidAmerican Energy during the periods included herein. Information in Management's Discussion and Analysis related to MidAmerican Energy, whether or not segregated, also relates to MidAmerican Funding. Information related to other subsidiaries of MidAmerican Funding pertains only to the discussion of the financial condition and results of operations of MidAmerican Funding. Where necessary, discussions have been segregated under the heading "MidAmerican Funding" to allow the reader to identify information applicable only to MidAmerican Funding. Explanations include management's best estimate of the impact of weather, customer growth, usage trends and other factors. This discussion should be read in conjunction with MidAmerican Funding's historical unaudited Consolidated Financial Statements and Notes to Consolidated Financial Statements and MidAmerican Energy's historical unaudited Financial Statements and Notes to Financial Statements in Part I, Item 1 of this Form 10-Q. MidAmerican Funding's and MidAmerican Energy's actual results in the future could differ significantly from the historical results.
Results of Operations for the First Quarter of 2021 and 2020
Overview
MidAmerican Energy -
MidAmerican Energy's net income for the first quarter of 2021 was $147 million, a decrease of $4 million, or 3%, compared to 2020 primarily due to higher depreciation and amortization expense of $31 million from additional assets placed in-service and the expiration of a regulatory mechanism deferring certain depreciation expense, and higher operations and maintenance expenses of $28 million, partially offset by a greater income tax benefit of $31 million from higher PTCs recognized, higher investment earnings of $19 million and higher company-retained margins of $9 million on natural gas wholesale sales. PTCs recognized increased due to higher wind-powered generation driven primarily by new wind projects placed in-service.
MidAmerican Funding -
MidAmerican Funding's net income for the first quarter of 2021 was $144 million, a decrease of $6 million, or 4%, compared to 2020. The decrease was primarily due to the changes in MidAmerican Energy's earnings discussed above.
Non-GAAP Financial Measure
Management utilizes various key financial measures that are prepared in accordance with GAAP, as well as non-GAAP financial measures such as, electric utility margin and natural gas utility margin, to help evaluate results of operations. Electric utility margin is calculated as regulated electric operating revenue less cost of fuel and energy, which are captions presented on the Statements of Operations. Natural gas utility margin is calculated as regulated natural gas operating revenue less regulated cost of natural gas purchased for resale, which are included in regulated natural gas and other and cost of natural gas purchased for resale and other, respectively, on the Statements of Operations.
MidAmerican Energy's cost of fuel and energy and cost of natural gas purchased for resale are generally recovered from its retail customers through regulatory recovery mechanisms, and as a result, changes in MidAmerican Energy's expense included in regulatory recovery mechanisms result in comparable changes to revenue. As such, management believes electric utility margin and natural gas utility margin more appropriately and concisely explain profitability rather than a discussion of revenue and cost of sales separately. Management believes the presentation of electric utility margin and natural gas utility margin provides meaningful and valuable insight into the information management considers important to running the business and a measure of comparability to others in the industry.
Electric utility margin and natural gas utility margin are not measures calculated in accordance with GAAP and should be viewed as a supplement to, and not a substitute for, operating income, which is the most comparable financial measure prepared in accordance with GAAP. The following table provides a reconciliation of utility margin to MidAmerican Energy's operating income (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
Electric utility margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
|
|
|
|
|
|
|
$
|
545
|
|
|
$
|
471
|
|
|
$
|
74
|
|
16
|
%
|
Cost of fuel and energy
|
|
|
|
|
|
|
|
|
151
|
|
|
80
|
|
|
71
|
|
89
|
|
Electric utility margin
|
|
|
|
|
|
|
|
|
394
|
|
|
391
|
|
|
3
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas utility margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
|
|
|
|
|
|
|
512
|
|
|
209
|
|
|
303
|
|
145
|
%
|
Natural gas purchased for resale
|
|
|
|
|
|
|
|
|
432
|
|
|
128
|
|
|
304
|
|
238
|
|
Natural gas utility margin
|
|
|
|
|
|
|
|
|
80
|
|
|
81
|
|
|
(1)
|
|
(1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility margin
|
|
|
|
|
|
|
|
|
474
|
|
|
472
|
|
|
2
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating revenue
|
|
|
|
|
|
|
|
|
10
|
|
|
1
|
|
|
9
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and maintenance
|
|
|
|
|
|
|
|
|
193
|
|
|
165
|
|
|
28
|
|
17
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
207
|
|
|
176
|
|
|
31
|
|
18
|
|
Property and other taxes
|
|
|
|
|
|
|
|
|
36
|
|
|
34
|
|
|
2
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
|
|
$
|
48
|
|
|
$
|
98
|
|
|
$
|
(50)
|
|
(51)
|
%
|
Electric Utility Margin
A comparison of key operating results related to electric utility margin is as follows for the quarters ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
Utility margin (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
|
|
|
|
|
|
|
$
|
545
|
|
|
$
|
471
|
|
|
$
|
74
|
|
|
16
|
%
|
Cost of fuel and energy
|
|
|
|
|
|
|
|
|
151
|
|
|
80
|
|
|
71
|
|
|
89
|
|
Utility margin
|
|
|
|
|
|
|
|
|
$
|
394
|
|
|
$
|
391
|
|
|
$
|
3
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales (GWhs):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
1,738
|
|
|
1,668
|
|
|
70
|
|
|
4
|
%
|
Commercial
|
|
|
|
|
|
|
|
|
938
|
|
|
969
|
|
|
(31)
|
|
|
(3)
|
|
Industrial
|
|
|
|
|
|
|
|
|
3,819
|
|
|
3,524
|
|
|
295
|
|
|
8
|
|
Other
|
|
|
|
|
|
|
|
|
370
|
|
|
385
|
|
|
(15)
|
|
|
(4)
|
|
Total retail
|
|
|
|
|
|
|
|
|
6,865
|
|
|
6,546
|
|
|
319
|
|
|
5
|
|
Wholesale
|
|
|
|
|
|
|
|
|
4,051
|
|
|
2,434
|
|
|
1,617
|
|
|
66
|
|
Total sales
|
|
|
|
|
|
|
|
|
10,916
|
|
|
8,980
|
|
|
1,936
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of retail customers (in thousands)
|
|
|
|
|
|
|
|
|
801
|
|
792
|
|
9
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average revenue per MWh:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
|
$
|
65.82
|
|
|
$
|
62.75
|
|
|
$
|
3.07
|
|
|
5
|
%
|
Wholesale
|
|
|
|
|
|
|
|
|
$
|
16.64
|
|
|
$
|
15.71
|
|
|
$
|
0.93
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heating degree days
|
|
|
|
|
|
|
|
|
3,211
|
|
|
2,952
|
|
|
259
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of energy (GWhs)(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wind and other(2)
|
|
|
|
|
|
|
|
|
6,122
|
|
|
4,846
|
|
|
1,276
|
|
|
26
|
%
|
Coal
|
|
|
|
|
|
|
|
|
2,902
|
|
|
1,573
|
|
|
1,329
|
|
|
84
|
|
Nuclear
|
|
|
|
|
|
|
|
|
895
|
|
|
993
|
|
|
(98)
|
|
|
(10)
|
|
Natural gas
|
|
|
|
|
|
|
|
|
143
|
|
|
116
|
|
|
27
|
|
|
23
|
|
Total energy generated
|
|
|
|
|
|
|
|
|
10,062
|
|
|
7,528
|
|
|
2,534
|
|
|
34
|
|
Energy purchased
|
|
|
|
|
|
|
|
|
1,018
|
|
|
1,643
|
|
|
(625)
|
|
|
(38)
|
|
Total
|
|
|
|
|
|
|
|
|
11,080
|
|
|
9,171
|
|
|
1,909
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average cost of energy per MWh:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy generated(3)
|
|
|
|
|
|
|
|
|
$
|
6.15
|
|
|
$
|
5.00
|
|
|
$
|
1.15
|
|
|
23
|
%
|
Energy purchased
|
|
|
|
|
|
|
|
|
$
|
87.45
|
|
|
$
|
25.59
|
|
|
$
|
61.86
|
|
|
*
|
* Not meaningful.
(1) GWh amounts are net of energy used by the related generating facilities.
(2) All or some of the renewable energy attributes associated with generation from these generating facilities may be: (a) used in future years to comply with RPS or other regulatory requirements or (b) sold to third parties in the form of RECs or other environmental commodities.
(3) The average cost per MWh of energy generated includes only the cost of fuel associated with the generating facilities.
Natural Gas Utility Margin
A comparison of key operating results related to natural gas utility margin is as follows for the quarters ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
Utility margin (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
|
|
|
|
|
|
|
$
|
512
|
|
|
$
|
209
|
|
|
$
|
303
|
|
|
*
|
Natural gas purchased for resale
|
|
|
|
|
|
|
|
|
432
|
|
|
128
|
|
|
304
|
|
|
*
|
Utility margin
|
|
|
|
|
|
|
|
|
$
|
80
|
|
|
$
|
81
|
|
|
$
|
(1)
|
|
|
(1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Throughput (000's Dths):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
25,282
|
|
|
23,910
|
|
|
1,372
|
|
|
6
|
%
|
Commercial
|
|
|
|
|
|
|
|
|
11,733
|
|
|
10,951
|
|
|
782
|
|
|
7
|
|
Industrial
|
|
|
|
|
|
|
|
|
1,437
|
|
|
1,512
|
|
|
(75)
|
|
|
(5)
|
|
Other
|
|
|
|
|
|
|
|
|
37
|
|
|
35
|
|
|
2
|
|
|
6
|
|
Total retail sales
|
|
|
|
|
|
|
|
|
38,489
|
|
|
36,408
|
|
|
2,081
|
|
|
6
|
|
Wholesale sales
|
|
|
|
|
|
|
|
|
10,773
|
|
|
12,910
|
|
|
(2,137)
|
|
|
(17)
|
|
Total sales
|
|
|
|
|
|
|
|
|
49,262
|
|
|
49,318
|
|
|
(56)
|
|
|
—
|
|
Natural gas transportation service
|
|
|
|
|
|
|
|
|
29,640
|
|
|
34,954
|
|
|
(5,314)
|
|
|
(15)
|
|
Total throughput
|
|
|
|
|
|
|
|
|
78,902
|
|
|
84,272
|
|
|
(5,370)
|
|
|
(6)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of retail customers (in thousands)
|
|
|
|
|
|
|
|
|
777
|
|
|
770
|
|
|
7
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average revenue per retail Dth sold
|
|
|
|
|
|
|
|
|
$
|
11.70
|
|
|
$
|
4.85
|
|
|
$
|
6.85
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heating degree days
|
|
|
|
|
|
|
|
|
3,301
|
|
|
3,067
|
|
|
234
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average cost of natural gas per retail Dth sold
|
|
|
|
|
|
|
|
|
$
|
9.87
|
|
|
$
|
2.91
|
|
|
$
|
6.96
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined retail and wholesale average cost of natural gas per Dth sold
|
|
|
|
|
|
|
|
|
$
|
8.76
|
|
|
$
|
2.60
|
|
|
$
|
6.16
|
|
|
*
|
* Not meaningful.
Quarter Ended March 31, 2021 Compared to Quarter Ended March 31, 2020
MidAmerican Energy -
Electric utility margin increased $3 million for the first quarter of 2021 compared to 2020, due to:
•a $15 million increase in retail utility margin due to an increase of $6 million, net of energy costs, from higher recoveries through bill riders (offset in operations and maintenance expense and income tax benefit); an increase of $6 million from the favorable impact of weather; and an increase of $4 million due to price impacts from changes in sales mix and other rate and usage variances, including increased usage for certain industrial customers; partially offset by
•a $12 million decrease in wholesale utility margin due to lower margins per unit, reflecting higher energy costs, partially offset by higher sales volumes of 66.4%.
Natural gas utility margin decreased $1 million for the first quarter of 2021 compared to 2020 primarily due to:
•a $7 million decrease from higher rider refunds related to the ratemaking treatment of 2017 Tax Reform (offset in income tax benefit); partially offset by
•$3 million from higher natural gas energy efficiency program revenue (offset in operations and maintenance expense); and
•$2 million from the favorable impact of weather.
Operations and maintenance increased $28 million for the first quarter of 2021 compared to 2020 primarily due to higher generation operations and maintenance expenses of $6 million due to additional wind turbines and easements, higher electric and natural gas distribution costs of $6 million, higher energy efficiency program expense of $5 million (offset in operating revenue) and higher employee-related expenses of $5 million.
Depreciation and amortization for the first quarter of 2021 increased $31 million compared to 2020 primarily due to wind-powered generating facilities and other plant placed in-service and $13 million from the expiration of a regulatory mechanism deferring certain depreciation expense.
Interest expense decreased $2 million for the first quarter of 2021 compared to 2020 due to lower average interest rates on variable rate long-term debt.
Allowance for borrowed and equity funds decreased $3 million for the first quarter of 2021 compared to 2020 primarily due to lower construction work-in-progress balances related to wind-powered generation.
Other, net increased $16 million for the first quarter of 2021 compared to 2020 primarily due to higher cash surrender values of corporate-owned life insurance policies.
Income tax benefit increased $31 million for the first quarter of 2021 compared to 2020, and the effective tax rate was 2,200% for 2021 and (439)% for 2020. The change in the effective tax rates for 2021 compared to 2020 was due to the higher PTCs and a lower pretax income, partially offset by the effects of ratemaking and state income tax impacts.
Federal renewable electricity PTCs are earned as energy from qualifying wind-powered generating facilities is produced and sold and are based on a per-kilowatt hour rate pursuant to the applicable federal income tax law. Wind-powered generating facilities, including those facilities where a significant portion of the equipment was replaced, commonly referred to as repowered facilities, are eligible for the credits for 10 years from the date the qualifying generating facilities are placed in-service. PTCs for the first quarter of 2021 and 2020 totaled $151 million and $120 million, respectively.
MidAmerican Funding -
Income tax benefit increased $32 million for the first quarter of 2021 compared to 2020, and the effective tax rate was 1,300% for 2021 and (477)% for 2020. The changes in the effective tax rates were principally due to the factors discussed for MidAmerican Energy.
Liquidity and Capital Resources
As of March 31, 2021, the total net liquidity for MidAmerican Energy and MidAmerican Funding was as follows (in millions):
|
|
|
|
|
|
|
|
|
MidAmerican Energy:
|
|
|
Cash and cash equivalents
|
|
$
|
37
|
|
|
|
|
Credit facilities, maturing 2021 and 2022
|
|
1,505
|
|
Less:
|
|
|
Short-term debt outstanding
|
|
(387)
|
|
Tax-exempt bond support
|
|
(370)
|
|
Net credit facilities
|
|
748
|
|
|
|
|
MidAmerican Energy total net liquidity
|
|
$
|
785
|
|
|
|
|
MidAmerican Funding:
|
|
|
MidAmerican Energy total net liquidity
|
|
$
|
785
|
|
Cash and cash equivalents
|
|
1
|
|
MHC, Inc. credit facility, maturing 2021
|
|
4
|
|
MidAmerican Funding total net liquidity
|
|
$
|
790
|
|
Operating Activities
MidAmerican Energy's net cash flows from operating activities for the three-month periods ended March 31, 2021 and 2020, were $(85) million and $219 million, respectively. MidAmerican Funding's net cash flows from operating activities for the three-month periods ended March 31, 2021 and 2020, were $(92) million and $214 million, respectively. Cash flows from operating activities reflect lower cash margins for MidAmerican Energy's regulated electric and natural gas businesses, including delayed recovery of higher natural gas costs in February 2021, discussed below, and higher payments to vendors.
In February 2021, severe cold weather over the central United States caused disruptions in natural gas supply from the southern part of the United States. These disruptions, combined with increased demand, resulted in historically high prices for natural gas purchased for resale to MidAmerican Energy's retail customers and caused an approximate $245 million increase in natural gas costs above those normally expected. To mitigate the impact to MidAmerican Energy's customers, the IUB ordered the recovery of these higher costs to be applied to sales over the period April 2021 through April 2022. While sufficient liquidity is available to MidAmerican Energy, the increased costs and longer recovery period resulted in higher working capital requirements during three-month period ended March 31, 2021.
The timing of MidAmerican Energy's income tax cash flows from period to period can be significantly affected by the estimated federal income tax payment methods and assumptions for each payment date.
Investing Activities
MidAmerican Energy's net cash flows from investing activities for the three-month periods ended March 31, 2021 and 2020, were $(303) million and $(470) million, respectively. MidAmerican Funding's net cash flows from investing activities for the three-month periods ended March 31, 2021 and 2020, were $(303) million and $(469) million, respectively. Net cash flows from investing activities consist almost entirely of capital expenditures, which decreased primarily due to lower wind-powered generating facility construction expenditures. Purchases and proceeds related to marketable securities substantially consist of activity within the Quad Cities Generating Station nuclear decommissioning trust and other trust investments.
Financing Activities
MidAmerican Energy's net cash flows from financing activities for the three-month periods ended March 31, 2021 and 2020 were $387 million and $49 million, respectively. MidAmerican Funding's net cash flows from financing activities for the three-month periods ended March 31, 2021 and 2020, were $394 million and $52 million, respectively. Through its commercial paper program, MidAmerican Energy received $387 million in 2021 and $50 million in 2020. MidAmerican Funding received $7 million and $3 million in 2021 and 2020, respectively, through its note payable with BHE.
Debt Authorizations and Related Matters
MidAmerican Energy has authority from the FERC to issue, through April 2, 2022, commercial paper and bank notes aggregating $1.5 billion at interest rates not to exceed the applicable London Interbank Offered Rate plus a spread of 400 basis points. MidAmerican Energy has a $900 million unsecured credit facility expiring in June 2022. The credit facility, which supports MidAmerican Energy's commercial paper program and its variable-rate tax-exempt bond obligations and provides for the issuance of letters of credit, has a variable interest rate based on the Eurodollar rate or a base rate, at MidAmerican Energy's option, plus a spread that varies based on MidAmerican Energy's credit ratings for senior unsecured long-term debt securities. MidAmerican Energy has a $600 million unsecured credit facility, which, following MidAmerican Energy's exercise of an option to extend the facility, expires in August 2021, and has a variable interest rate based on the Eurodollar rate or a base rate, at MidAmerican Energy's option, plus a spread. Additionally, MidAmerican Energy has a $5 million unsecured credit facility for general corporate purposes.
MidAmerican Energy currently has an effective automatic registration statement with the SEC to issue an indeterminate amount of long-term debt securities through June 26, 2021. Additionally, MidAmerican Energy has authorization from the FERC to issue, through June 30, 2021, long-term debt securities up to an aggregate of $850 million at interest rates not to exceed the applicable United States Treasury rate plus a spread of 175 basis points and preferred stock up to an aggregate of $500 million and from the ICC to issue long-term debt securities up to an aggregate of $850 million through August 20, 2022.
Future Uses of Cash
MidAmerican Energy and MidAmerican Funding have available a variety of sources of liquidity and capital resources, both internal and external, including net cash flows from operating activities, public and private debt offerings, the issuance of commercial paper, the use of unsecured revolving credit facilities and other sources. These sources are expected to provide funds required for current operations, capital expenditures, debt retirements and other capital requirements. The availability and terms under which MidAmerican Energy and MidAmerican Funding have access to external financing depends on a variety of factors, including regulatory approvals, their credit ratings, investors' judgment of risk and conditions in the overall capital markets, including the condition of the utility industry.
Capital Expenditures
MidAmerican Energy has significant future capital requirements. Capital expenditure needs are reviewed regularly by management and may change significantly as a result of these reviews, which may consider, among other factors, impacts to customers' rates; changes in environmental and other rules and regulations; outcomes of regulatory proceedings; changes in income tax laws; general business conditions; load projections; system reliability standards; the cost and efficiency of construction labor, equipment and materials; commodity prices; and the cost and availability of capital.
MidAmerican Energy's historical and forecast capital expenditures, each of which exclude amounts for non-cash equity AFUDC and other non-cash items, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
Annual
|
|
Ended March 31,
|
|
Forecast
|
|
2020
|
|
2021
|
|
2021
|
|
|
|
|
|
|
Wind generation
|
$
|
166
|
|
|
$
|
32
|
|
|
$
|
865
|
|
Electric distribution
|
51
|
|
|
46
|
|
|
298
|
|
Electric transmission
|
38
|
|
|
23
|
|
|
197
|
|
Solar generation
|
—
|
|
|
3
|
|
|
245
|
|
Other
|
217
|
|
|
194
|
|
|
595
|
|
Total
|
$
|
472
|
|
|
$
|
298
|
|
|
$
|
2,200
|
|
MidAmerican Energy's capital expenditures provided above consist of the following:
•Wind generation includes the construction, acquisition, repowering and operation of wind-powered generating facilities in Iowa.
◦Construction and acquisition of wind-powered generating facilities totaled $154 million for 2020. MidAmerican Energy's forecast expenditures in 2021 for the construction of additional wind-powered generating facilities total $391 million and include 202 MWs of wind-powered generating facilities expected to be placed in-service in 2021.
◦Repowering of wind-powered generating facilities totaled $24 million for 2021 and $6 million for 2020. Planned spending for repowering generating facilities totals $379 million for the remainder of 2021. MidAmerican Energy expects its repowered facilities to meet Internal Revenue Service guidelines for the re-establishment of PTCs for 10 years from the date the facilities are placed in-service. The rate at which PTCs are re-established for a facility depends upon the date construction begins. Of the 1,078 MWs of current repowering projects not in-service as of March 31, 2021, 80 MWs are currently expected to qualify for 100% of the PTCs available for 10 years following each facility's return to service, 591 MWs are expected to qualify for 80% of such credits and 407 MWs are expected to qualify for 60% of such credits.
•Electric distribution includes expenditures for new facilities to meet retail demand growth and for replacement of existing facilities to maintain system reliability.
•Electric transmission includes expenditures to meet retail demand growth, upgrades to accommodate third-party generator requirements and replacement of existing facilities to maintain system reliability.
•Solar reflects MidAmerican Energy's current plan for the construction of 117 MWs of small- and utility-scale solar generation during 2021, of which 37 MWs are expected to be placed in-service in 2021.
•Remaining expenditures primarily relate to routine expenditures for other generation, natural gas distribution, technology, facilities and other operational needs to serve existing and expected demand.
Contractual Obligations
As of March 31, 2021, there have been no material changes outside the normal course of business in MidAmerican Energy's and MidAmerican Funding's contractual obligations from the information provided in Item 7 of their Annual Report on Form 10-K for the year ended December 31, 2020.
Quad Cities Generating Station Operating Status
Exelon Generation Company, LLC ("Exelon Generation"), the operator of Quad Cities Generating Station Units 1 and 2 ("Quad Cities Station") of which MidAmerican Energy has a 25% ownership interest, announced on June 2, 2016, its intention to shut down Quad Cities Station on June 1, 2018. In December 2016, Illinois passed legislation creating a zero emission standard, which went into effect June 1, 2017. The zero emission standard requires the Illinois Power Agency to purchase zero emission credits ("ZECs") and recover the costs from certain ratepayers in Illinois, subject to certain limitations. The proceeds from the ZECs will provide Exelon Generation additional revenue through 2027 as an incentive for continued operation of Quad Cities Station. MidAmerican Energy will not receive additional revenue from the subsidy.
The PJM Interconnection, L.L.C. ("PJM") capacity market includes a Minimum Offer Price Rule ("MOPR"). If a generation resource is subjected to a MOPR, its offer price in the market is adjusted to effectively remove the revenues it receives through a government-provided financial support program, resulting in a higher offer that may not clear the capacity market. Prior to December 19, 2019, the PJM MOPR applied only to certain new gas-fired resources. An expanded PJM MOPR to include existing resources would require exclusion of ZEC compensation when bidding into future capacity auctions, resulting in an increased risk of Quad Cities Station not receiving capacity revenues in future auctions.
On December 19, 2019, the FERC issued an order requiring the PJM to broadly apply the MOPR to all new and existing resources, including nuclear. This greatly expands the breadth and scope of the PJM's MOPR, which is effective as of the PJM's next capacity auction. While the FERC included some limited exemptions in its order, no exemptions were available to state-supported nuclear resources, such as Quad Cities Station. The FERC provided no new mechanism for accommodating state-supported resources other than the existing Fixed Resource Requirement ("FRR") mechanism under which an entire utility zone would be removed from PJM's capacity auction along with sufficient resources to support the load in such zone. In response to the FERC's order, the PJM submitted a compliance filing on March 18, 2020, wherein the PJM proposed tariff language reflecting the FERC's directives and a schedule for resuming capacity auctions. On April 16, 2020, the FERC issued an order largely denying requests for rehearing of the FERC's December 2019 order but granting a few clarifications that required an additional PJM compliance filing, which the PJM submitted on June 1, 2020. On October 15, 2020, the FERC issued an order denying requests for rehearing of its April 16, 2020 order and accepting the PJM's two compliance filings, subject to a further compliance filing to revise minor aspects of the proposed MOPR methodology. As part of that order, the FERC also accepted the PJM's proposal to condense the schedule of activities leading up to the next capacity auction but did not specify when that schedule would commence given that a key element of the MOPR level computation remains pending before the FERC in another proceeding. In November 2020, the PJM announced that the next capacity auction will be conducted in May 2021.
On May 21, 2020, the FERC issued an order involving reforms to the PJM's day-ahead and real-time reserves markets that need to be reflected in the calculation of MOPR levels. In approving reforms to the PJM's reserves markets, the FERC also directed the PJM to develop a new methodology for estimating revenues that resources will receive for sales of energy and related services, which will then be used in calculating a number of parameters and assumptions used in the capacity market, including MOPR levels. The PJM submitted its new revenue projection methodology on August 5, 2020. On review of this compliance filing, the FERC is expected to address how these additional reforms will impact MOPR levels, the timeline for implementing the new revenue projection methodology, and the timing for commencing the capacity auction schedule.
Exelon Generation is currently working with the PJM and other stakeholders to pursue the FRR option as an alternative to the next PJM capacity auction. If Illinois implements the FRR option, Quad Cities Station could be removed from the PJM's capacity auction and instead supply capacity and be compensated under the FRR program. If Illinois cannot implement an FRR program in its PJM zones, then the MOPR will apply to Quad Cities Station, resulting in higher offers for its units that may not clear the capacity market. Implementing the FRR program in Illinois will require both legislative and regulatory changes. MidAmerican Energy cannot predict whether or when such legislative and regulatory changes can be implemented or their potential impact on the continued operation of Quad Cities Station.
Regulatory Matters
MidAmerican Energy is subject to comprehensive regulation. Refer to "Regulatory Matters" in Berkshire Hathaway Energy's Part I, Item 2 of this Form 10-Q for discussion regarding MidAmerican Energy's current regulatory matters.
Environmental Laws and Regulations
MidAmerican Energy is subject to federal, state and local laws and regulations regarding climate change, RPS, air and water quality, emissions performance standards, coal combustion byproduct disposal, hazardous and solid waste disposal, protected species and other environmental matters that have the potential to impact its current and future operations. In addition to imposing continuing compliance obligations and capital expenditure requirements, these laws and regulations provide regulators with the authority to levy substantial penalties for noncompliance including fines, injunctive relief and other sanctions. These laws and regulations are administered by the EPA and various state and local agencies. All such laws and regulations are subject to a range of interpretation, which may ultimately be resolved by the courts. Environmental laws and regulations continue to evolve, and MidAmerican Energy is unable to predict the impact of the changing laws and regulations on its operations and consolidated financial results. MidAmerican Energy believes it is in material compliance with all applicable laws and regulations.
Refer to "Environmental Laws and Regulations" in Berkshire Hathaway Energy's Part I, Item 2 of this Form 10-Q for additional information regarding environmental laws and regulations.
Critical Accounting Estimates
Certain accounting measurements require management to make estimates and judgments concerning transactions that will be settled several years in the future. Amounts recognized on the Financial Statements based on such estimates involve numerous assumptions subject to varying and potentially significant degrees of judgment and uncertainty and will likely change in the future as additional information becomes available. Estimates are used for, but not limited to, the accounting for the effects of certain types of regulation, derivatives, impairment of goodwill and long-lived assets, pension and other postretirement benefits, income taxes and revenue recognition - unbilled revenue. For additional discussion of MidAmerican Energy's and MidAmerican Funding's critical accounting estimates, see Item 7 of their Annual Report on Form 10-K for the year ended December 31, 2020. There have been no significant changes in MidAmerican Energy's and MidAmerican Funding's assumptions regarding critical accounting estimates since December 31, 2020.
Nevada Power Company and its subsidiaries
Consolidated Financial Section
PART I
Item 1.Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of
Nevada Power Company
Results of Review of Interim Financial Information
We have reviewed the accompanying consolidated balance sheet of Nevada Power Company and subsidiaries ("Nevada Power") as of March 31, 2021, the related consolidated statements of operations, changes in shareholder's equity and cash flows for the three-month periods ended March 31, 2021 and 2020, and the related notes (collectively referred to as the "interim financial information"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of Nevada Power as of December 31, 2020, and the related consolidated statements of operations, changes in shareholder's equity, and cash flows for the year then ended (not presented herein); and in our report dated February 26, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of Nevada Power's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Nevada Power in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Deloitte & Touche LLP
Las Vegas, Nevada
April 30, 2021
NEVADA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in millions, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
ASSETS
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
92
|
|
|
$
|
25
|
|
Trade receivables, net
|
180
|
|
|
234
|
|
Inventories
|
65
|
|
|
69
|
|
Derivative contracts
|
48
|
|
|
26
|
|
Regulatory assets
|
22
|
|
|
48
|
|
Prepayments
|
45
|
|
|
38
|
|
|
|
|
|
Other current assets
|
37
|
|
|
26
|
|
Total current assets
|
489
|
|
|
466
|
|
|
|
|
|
Property, plant and equipment, net
|
6,751
|
|
|
6,701
|
|
Finance lease right of use assets, net
|
348
|
|
|
351
|
|
Regulatory assets
|
741
|
|
|
746
|
|
Other assets
|
71
|
|
|
72
|
|
|
|
|
|
Total assets
|
$
|
8,400
|
|
|
$
|
8,336
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDER'S EQUITY
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
189
|
|
|
$
|
181
|
|
Accrued interest
|
38
|
|
|
32
|
|
Accrued property, income and other taxes
|
38
|
|
|
25
|
|
|
|
|
|
|
|
|
|
Current portion of finance lease obligations
|
30
|
|
|
27
|
|
Regulatory liabilities
|
63
|
|
|
50
|
|
Customer deposits
|
42
|
|
|
47
|
|
Asset retirement obligation
|
18
|
|
|
25
|
|
|
|
|
|
Other current liabilities
|
38
|
|
|
22
|
|
Total current liabilities
|
456
|
|
|
409
|
|
|
|
|
|
Long-term debt
|
2,497
|
|
|
2,496
|
|
Finance lease obligations
|
328
|
|
|
334
|
|
Regulatory liabilities
|
1,171
|
|
|
1,163
|
|
Deferred income taxes
|
740
|
|
|
738
|
|
Other long-term liabilities
|
267
|
|
|
257
|
|
Total liabilities
|
5,459
|
|
|
5,397
|
|
|
|
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
Shareholder's equity:
|
|
|
|
Common stock - $1.00 stated value; 1,000 shares authorized, issued and outstanding
|
—
|
|
|
—
|
|
Additional paid-in capital
|
2,308
|
|
|
2,308
|
|
Retained earnings
|
636
|
|
|
634
|
|
Accumulated other comprehensive loss, net
|
(3)
|
|
|
(3)
|
|
Total shareholder's equity
|
2,941
|
|
|
2,939
|
|
|
|
|
|
Total liabilities and shareholder's equity
|
$
|
8,400
|
|
|
$
|
8,336
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
|
NEVADA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
|
Ended March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
|
|
|
$
|
370
|
|
|
$
|
389
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Cost of fuel and energy
|
|
|
|
|
165
|
|
|
170
|
|
Operations and maintenance
|
|
|
|
|
63
|
|
|
82
|
|
Depreciation and amortization
|
|
|
|
|
101
|
|
|
90
|
|
Property and other taxes
|
|
|
|
|
12
|
|
|
12
|
|
Total operating expenses
|
|
|
|
|
341
|
|
|
354
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
29
|
|
|
35
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
(38)
|
|
|
(42)
|
|
Allowance for borrowed funds
|
|
|
|
|
1
|
|
|
1
|
|
Allowance for equity funds
|
|
|
|
|
1
|
|
|
2
|
|
Other, net
|
|
|
|
|
9
|
|
|
(1)
|
|
Total other income (expense)
|
|
|
|
|
(27)
|
|
|
(40)
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax benefit
|
|
|
|
|
2
|
|
|
(5)
|
|
Income tax benefit
|
|
|
|
|
—
|
|
|
(1)
|
|
Net income (loss)
|
|
|
|
|
$
|
2
|
|
|
$
|
(4)
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
NEVADA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (Unaudited)
(Amounts in millions, except shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
Total
|
|
|
Common Stock
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
Shareholder's
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Loss, Net
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
1,000
|
|
|
$
|
—
|
|
|
$
|
2,308
|
|
|
$
|
493
|
|
|
$
|
(4)
|
|
|
$
|
2,797
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4)
|
|
|
—
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other equity transactions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Balance, March 31, 2020
|
|
1,000
|
|
|
$
|
—
|
|
|
$
|
2,308
|
|
|
$
|
490
|
|
|
$
|
(4)
|
|
|
$
|
2,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
1,000
|
|
|
$
|
—
|
|
|
$
|
2,308
|
|
|
$
|
634
|
|
|
$
|
(3)
|
|
|
$
|
2,939
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
|
1,000
|
|
|
$
|
—
|
|
|
$
|
2,308
|
|
|
$
|
636
|
|
|
$
|
(3)
|
|
|
$
|
2,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
NEVADA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
Ended March 31,
|
|
2021
|
|
2020
|
Cash flows from operating activities:
|
|
|
|
Net income (loss)
|
$
|
2
|
|
|
$
|
(4)
|
|
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
101
|
|
|
90
|
|
Allowance for equity funds
|
(1)
|
|
|
(2)
|
|
Changes in regulatory assets and liabilities
|
(15)
|
|
|
3
|
|
Deferred income taxes and amortization of investment tax credits
|
(10)
|
|
|
(4)
|
|
Deferred energy
|
41
|
|
|
4
|
|
|
|
|
|
Other, net
|
(1)
|
|
|
8
|
|
Changes in other operating assets and liabilities:
|
|
|
|
Trade receivables and other assets
|
41
|
|
|
32
|
|
Inventories
|
4
|
|
|
(1)
|
|
Accrued property, income and other taxes
|
3
|
|
|
(6)
|
|
Accounts payable and other liabilities
|
14
|
|
|
(41)
|
|
Net cash flows from operating activities
|
179
|
|
|
79
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Capital expenditures
|
(106)
|
|
|
(111)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities
|
(106)
|
|
|
(111)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
Proceeds from long-term debt
|
—
|
|
|
719
|
|
Repayments of long-term debt
|
—
|
|
|
(575)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
(5)
|
|
|
(4)
|
|
Net cash flows from financing activities
|
(5)
|
|
|
140
|
|
|
|
|
|
Net change in cash and cash equivalents and restricted cash and cash equivalents
|
68
|
|
|
108
|
|
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period
|
36
|
|
|
25
|
|
Cash and cash equivalents and restricted cash and cash equivalents at end of period
|
$
|
104
|
|
|
$
|
133
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
NEVADA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) General
Nevada Power Company, together with its subsidiaries ("Nevada Power"), is a wholly owned subsidiary of NV Energy, Inc. ("NV Energy"), a holding company that also owns Sierra Pacific Power Company and its subsidiaries ("Sierra Pacific") and certain other subsidiaries. Nevada Power is a United States regulated electric utility company serving retail customers, including residential, commercial and industrial customers, primarily in the Las Vegas, North Las Vegas, Henderson and adjoining areas. NV Energy is an indirect wholly owned subsidiary of Berkshire Hathaway Energy Company ("BHE"). BHE is a holding company based in Des Moines, Iowa that owns subsidiaries principally engaged in energy businesses. BHE is a consolidated subsidiary of Berkshire Hathaway Inc. ("Berkshire Hathaway").
The unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and the United States Securities and Exchange Commission's rules and regulations for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures required by GAAP for annual financial statements. Management believes the unaudited Consolidated Financial Statements contain all adjustments (consisting only of normal recurring adjustments) considered necessary for the fair presentation of the unaudited Consolidated Financial Statements as of March 31, 2021 and for the three-month periods ended March 31, 2021 and 2020. The Consolidated Statements of Comprehensive Income have been omitted as net income equals comprehensive income for the three-month periods ended March 31, 2021 and 2020. The results of operations for the three-month period ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year.
The preparation of the unaudited Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited Consolidated Financial Statements and the reported amounts of revenue and expenses during the period. Actual results may differ from the estimates used in preparing the unaudited Consolidated Financial Statements. Note 2 of Notes to Consolidated Financial Statements included in Nevada Power's Annual Report on Form 10-K for the year ended December 31, 2020 describes the most significant accounting policies used in the preparation of the unaudited Consolidated Financial Statements. There have been no significant changes in Nevada Power's assumptions regarding significant accounting estimates and policies during the three-month period ended March 31, 2021.
(2) Cash and Cash Equivalents and Restricted Cash and Cash Equivalents
Cash equivalents consist of funds invested in money market mutual funds, United States Treasury Bills and other investments with a maturity of three months or less when purchased. Cash and cash equivalents exclude amounts where availability is restricted by legal requirements, loan agreements or other contractual provisions. Restricted cash and cash equivalents as of March 31, 2021 and December 31, 2020, consist of funds restricted by the Public Utilities Commission of Nevada ("PUCN") for a certain renewable energy contract. A reconciliation of cash and cash equivalents and restricted cash and cash equivalents as of March 31, 2021 and December 31, 2020, as presented in the Consolidated Statements of Cash Flows is outlined below and disaggregated by the line items in which they appear on the Consolidated Balance Sheets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
Cash and cash equivalents
|
$
|
92
|
|
|
$
|
25
|
|
Restricted cash and cash equivalents included in other current assets
|
12
|
|
|
11
|
|
Total cash and cash equivalents and restricted cash and cash equivalents
|
$
|
104
|
|
|
$
|
36
|
|
(3) Property, Plant and Equipment, Net
Property, plant and equipment, net consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
Depreciable Life
|
|
March 31,
|
|
December 31,
|
|
|
2021
|
|
2020
|
Utility plant:
|
|
|
|
|
|
Generation
|
30 - 55 years
|
|
$
|
3,691
|
|
|
$
|
3,690
|
|
Transmission
|
45 - 70 years
|
|
1,465
|
|
|
1,468
|
|
Distribution
|
20 - 65 years
|
|
3,803
|
|
|
3,771
|
|
General and intangible plant
|
5 - 65 years
|
|
798
|
|
|
791
|
|
Utility plant
|
|
|
9,757
|
|
|
9,720
|
|
Accumulated depreciation and amortization
|
|
|
(3,224)
|
|
|
(3,162)
|
|
Utility plant, net
|
|
|
6,533
|
|
|
6,558
|
|
Other non-regulated, net of accumulated depreciation and amortization
|
45 years
|
|
1
|
|
|
1
|
|
Plant, net
|
|
|
6,534
|
|
|
6,559
|
|
Construction work-in-progress
|
|
|
217
|
|
|
142
|
|
Property, plant and equipment, net
|
|
|
$
|
6,751
|
|
|
$
|
6,701
|
|
(4) Employee Benefit Plans
Nevada Power is a participant in benefit plans sponsored by NV Energy. The NV Energy Retirement Plan includes a qualified pension plan ("Qualified Pension Plan") and a supplemental executive retirement plan and a restoration plan (collectively, "Non‑Qualified Pension Plans") that provide pension benefits for eligible employees. The NV Energy Comprehensive Welfare Benefit and Cafeteria Plan provides certain postretirement health care and life insurance benefits for eligible retirees ("Other Postretirement Plans") on behalf of Nevada Power. Amounts attributable to Nevada Power were allocated from NV Energy based upon the current, or in the case of retirees, previous, employment location. Offsetting regulatory assets and liabilities have been recorded related to the amounts not yet recognized as a component of net periodic benefit costs that will be included in regulated rates. Net periodic benefit costs not included in regulated rates are included in accumulated other comprehensive loss, net.
Amounts receivable from (payable to) NV Energy are included on the Consolidated Balance Sheets and consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
Qualified Pension Plan:
|
|
|
|
Other non-current assets
|
$
|
9
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Qualified Pension Plans:
|
|
|
|
|
|
|
|
Other current liabilities
|
(1)
|
|
|
(1)
|
|
Other long-term liabilities
|
(9)
|
|
|
(9)
|
|
|
|
|
|
Other Postretirement Plans:
|
|
|
|
Other non-current assets
|
4
|
|
|
4
|
|
|
|
|
|
|
|
|
|
(5) Fair Value Measurements
The carrying value of Nevada Power's cash, certain cash equivalents, receivables, payables, accrued liabilities and short-term borrowings approximates fair value because of the short-term maturity of these instruments. Nevada Power has various financial assets and liabilities that are measured at fair value on the Consolidated Balance Sheets using inputs from the three levels of the fair value hierarchy. A financial asset or liability classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The three levels are as follows:
•Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that Nevada Power has the ability to access at the measurement date.
•Level 2 — Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
•Level 3 — Unobservable inputs reflect Nevada Power's judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. Nevada Power develops these inputs based on the best information available, including its own data.
The following table presents Nevada Power's assets and liabilities recognized on the Consolidated Balance Sheets and measured at fair value on a recurring basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Input Levels for Fair Value Measurements
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
As of March 31, 2021
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Commodity derivatives
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
48
|
|
|
$
|
48
|
|
Money market mutual funds(1)
|
86
|
|
|
—
|
|
|
—
|
|
|
86
|
|
Investment funds
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
$
|
88
|
|
|
$
|
—
|
|
|
$
|
48
|
|
|
$
|
136
|
|
|
|
|
|
|
|
|
|
Liabilities - commodity derivatives
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(21)
|
|
|
$
|
(21)
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Commodity derivatives
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26
|
|
|
$
|
26
|
|
Money market mutual funds(1)
|
21
|
|
|
—
|
|
|
—
|
|
|
21
|
|
Investment funds
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
26
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
Liabilities - commodity derivatives
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(11)
|
|
|
$
|
(11)
|
|
(1)Amounts are included in cash and cash equivalents on the Consolidated Balance Sheets. The fair value of these money market mutual funds approximates cost.
Derivative contracts are recorded on the Consolidated Balance Sheets as either assets or liabilities and are stated at estimated fair value unless they are designated as normal purchases or normal sales and qualify for the exception afforded by GAAP. When available, the fair value of derivative contracts is estimated using unadjusted quoted prices for identical contracts in the market in which Nevada Power transacts. When quoted prices for identical contracts are not available, Nevada Power uses forward price curves. Forward price curves represent Nevada Power's estimates of the prices at which a buyer or seller could contract today for delivery or settlement at future dates. Nevada Power bases its forward price curves upon internally developed models, with internal and external fundamental data inputs. Market price quotations for certain electricity and natural gas trading hubs are not as readily obtainable due to markets that are not active. Given that limited market data exists for these contracts, Nevada Power uses forward price curves derived from internal models based on perceived pricing relationships to major trading hubs that are based on unobservable inputs. The model incorporates a mid-market pricing convention (the mid‑point price between bid and ask prices) as a practical expedient for valuing its assets and liabilities measured and reported at fair value. The determination of the fair value for derivative contracts not only includes counterparty risk, but also the impact of Nevada Power's nonperformance risk on its liabilities, which as of March 31, 2021 and December 31, 2020, had an immaterial impact to the fair value of its derivative contracts. As such, Nevada Power considers its derivative contracts to be valued using Level 3 inputs.
Nevada Power's investments in money market mutual funds and investment funds are stated at fair value. When available, a readily observable quoted market price or net asset value of an identical security in an active market is used to record the fair value.
The following table reconciles the beginning and ending balances of Nevada Power's commodity derivative assets and liabilities measured at fair value on a recurring basis using significant Level 3 inputs (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
|
Ended March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
15
|
|
|
$
|
(8)
|
|
|
|
|
|
Changes in fair value recognized in regulatory assets
|
11
|
|
|
(31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
1
|
|
|
1
|
|
|
|
|
|
Ending balance
|
$
|
27
|
|
|
$
|
(38)
|
|
|
|
|
|
Nevada Power's long-term debt is carried at cost on the Consolidated Balance Sheets. The fair value of Nevada Power's long‑term debt is a Level 2 fair value measurement and has been estimated based upon quoted market prices, where available, or at the present value of future cash flows discounted at rates consistent with comparable maturities with similar credit risks. The carrying value of Nevada Power's variable-rate long-term debt approximates fair value because of the frequent repricing of these instruments at market rates. The following table presents the carrying value and estimated fair value of Nevada Power's long‑term debt (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2021
|
|
As of December 31, 2020
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
|
|
|
|
|
|
|
|
Long-term debt
|
$
|
2,497
|
|
|
$
|
2,991
|
|
|
$
|
2,496
|
|
|
$
|
3,245
|
|
(6) Commitments and Contingencies
Legal Matters
Nevada Power is party to a variety of legal actions arising out of the normal course of business. Plaintiffs occasionally seek punitive or exemplary damages. Nevada Power does not believe that such normal and routine litigation will have a material impact on its consolidated financial results.
Environmental Laws and Regulations
Nevada Power is subject to federal, state and local laws and regulations regarding climate change, renewable portfolio standards, air and water quality, emissions performance standards, coal combustion byproduct disposal, hazardous and solid waste disposal, protected species and other environmental matters that have the potential to impact Nevada Power's current and future operations. Nevada Power believes it is in material compliance with all applicable laws and regulations.
(7) Revenue from Contracts with Customers
The following table summarizes Nevada Power's revenue from contracts with customers ("Customer Revenue") by customer class (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
|
Ended March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Customer Revenue:
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
Residential
|
$
|
196
|
|
|
$
|
193
|
|
|
|
|
|
Commercial
|
84
|
|
|
94
|
|
|
|
|
|
Industrial
|
63
|
|
|
70
|
|
|
|
|
|
Other
|
3
|
|
|
3
|
|
|
|
|
|
Total fully bundled
|
346
|
|
|
360
|
|
|
|
|
|
Distribution only service
|
5
|
|
|
7
|
|
|
|
|
|
Total retail
|
351
|
|
|
367
|
|
|
|
|
|
Wholesale, transmission and other
|
14
|
|
|
16
|
|
|
|
|
|
Total Customer Revenue
|
365
|
|
|
383
|
|
|
|
|
|
Other revenue
|
5
|
|
|
6
|
|
|
|
|
|
Total revenue
|
$
|
370
|
|
|
$
|
389
|
|
|
|
|
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following is management's discussion and analysis of certain significant factors that have affected the consolidated financial condition and results of operations of Nevada Power during the periods included herein. Explanations include management's best estimate of the impact of weather, customer growth, usage trends and other factors. This discussion should be read in conjunction with Nevada Power's historical unaudited Consolidated Financial Statements and Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. Nevada Power's actual results in the future could differ significantly from the historical results.
Results of Operations for the First Quarter of 2021 and 2020
Overview
Net income for the first quarter of 2021 was $2 million, an increase of $6 million, compared to 2020 primarily due to $19 million of lower operations and maintenance expenses, primarily due to lower net regulatory instructed deferrals and amortizations of $11 million, lower plant operations and maintenance costs and a reduction to the accrual for earning sharing, $10 million of higher other, net, mainly due to higher cash surrender value of corporate-owned life insurance policies of $7 million and lower pension expense, and lower interest expense of $4 million. This increase is offset by $14 million of lower utility margin. primarily due to lower retail rates from the 2020 regulatory rate review with new rates effective January 2021, and $11 million of higher depreciation and amortization, mainly due to regulatory amortizations approved in the 2020 regulatory rate review effective January 2021 and higher plant placed in service.
Non-GAAP Financial Measure
Management utilizes various key financial measures that are prepared in accordance with GAAP, as well as non-GAAP financial measures such as, utility margin, to help evaluate results of operations. Utility margin is calculated as electric operating revenue less cost of fuel and energy, which are captions presented on the Consolidated Statements of Operations.
Nevada Power's cost of fuel and energy are directly recovered from its customers through regulatory recovery mechanisms and as a result, changes in Nevada Power's expenses result in comparable changes to revenue. As such, management believes utility margin more appropriately and concisely explains profitability rather than a discussion of revenue and cost of sales separately. Management believes the presentation of utility margin provides meaningful and valuable insight into the information management considers important to running the business and a measure of comparability to others in the industry.
Utility margin is not a measure calculated in accordance with GAAP and should be viewed as a supplement to, and not a substitute for, operating income which is the most directly comparable financial measure prepared in accordance with GAAP. The following table provides a reconciliation of utility margin to operating income (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
Utility margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
370
|
|
|
$
|
389
|
|
|
$
|
(19)
|
|
(5)
|
%
|
|
|
|
|
|
|
|
Cost of fuel and energy
|
|
165
|
|
|
170
|
|
|
(5)
|
|
(3)
|
|
|
|
|
|
|
|
|
Utility margin
|
|
205
|
|
|
219
|
|
|
(14)
|
|
(6)
|
|
|
|
|
|
|
|
|
Operations and maintenance
|
|
63
|
|
|
82
|
|
|
(19)
|
|
(23)
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
101
|
|
|
90
|
|
|
11
|
|
12
|
|
|
|
|
|
|
|
|
Property and other taxes
|
|
12
|
|
|
12
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
29
|
|
|
$
|
35
|
|
|
$
|
(6)
|
|
(17)
|
%
|
|
|
|
|
|
|
|
Utility Margin
A comparison of key operating results related to utility margin is as follows for the quarters ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
Utility margin (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
370
|
|
|
$
|
389
|
|
|
$
|
(19)
|
|
(5)
|
%
|
|
|
|
|
|
|
|
Cost of fuel and energy
|
|
165
|
|
|
170
|
|
|
(5)
|
|
(3)
|
|
|
|
|
|
|
|
|
Utility margin
|
|
$
|
205
|
|
|
$
|
219
|
|
|
$
|
(14)
|
|
(6)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales (GWhs):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
1,587
|
|
|
1,544
|
|
|
43
|
|
3
|
%
|
|
|
|
|
|
|
|
Commercial
|
|
954
|
|
|
1,011
|
|
|
(57)
|
|
(6)
|
|
|
|
|
|
|
|
|
Industrial
|
|
1,057
|
|
|
1,151
|
|
|
(94)
|
|
(8)
|
|
|
|
|
|
|
|
|
Other
|
|
47
|
|
|
48
|
|
|
(1)
|
|
(2)
|
|
|
|
|
|
|
|
|
Total fully bundled(1)
|
|
3,645
|
|
|
3,754
|
|
|
(109)
|
|
(3)
|
|
|
|
|
|
|
|
|
Distribution only service
|
|
516
|
|
|
611
|
|
|
(95)
|
|
(16)
|
|
|
|
|
|
|
|
|
Total retail
|
|
4,161
|
|
|
4,365
|
|
|
(204)
|
|
(5)
|
|
|
|
|
|
|
|
|
Wholesale
|
|
84
|
|
|
153
|
|
|
(69)
|
|
(45)
|
|
|
|
|
|
|
|
|
Total GWhs sold
|
|
4,245
|
|
|
4,518
|
|
|
(273)
|
|
(6)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of retail customers (in thousands)
|
|
978
|
|
|
961
|
|
|
17
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average revenue per MWh:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail - fully bundled(1)
|
|
$
|
95.01
|
|
|
$
|
96.01
|
|
|
$
|
(1.00)
|
|
(1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
49.42
|
|
|
$
|
31.58
|
|
|
$
|
17.84
|
|
56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heating degree days
|
|
994
|
|
|
942
|
|
|
52
|
|
6
|
%
|
|
|
|
|
|
|
|
Cooling degree days
|
|
6
|
|
|
2
|
|
|
4
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of energy (GWhs)(2)(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
|
2,534
|
|
|
2,622
|
|
|
(88)
|
|
(3)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renewables
|
|
16
|
|
|
16
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
Total energy generated
|
|
2,550
|
|
|
2,638
|
|
|
(88)
|
|
(3)
|
|
|
|
|
|
|
|
|
Energy purchased
|
|
1,355
|
|
|
1,240
|
|
|
115
|
|
9
|
|
|
|
|
|
|
|
|
Total
|
|
3,905
|
|
|
3,878
|
|
|
27
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average cost of energy per MWh(4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy generated
|
|
$
|
14.96
|
|
|
$
|
21.95
|
|
|
$
|
(6.99)
|
|
(32)
|
%
|
|
|
|
|
|
|
|
Energy purchased
|
|
$
|
93.84
|
|
|
$
|
90.56
|
|
|
$
|
3.28
|
|
4
|
%
|
|
|
|
|
|
|
|
* Not meaningful
(1) Fully bundled includes sales to customers for combined energy, transmission and distribution services.
(2) The average cost of energy per MWh and sources of energy excludes 683 GWhs and 710 GWhs of gas generated energy that is purchased at cost by related parties for the first quarter of 2021 and 2020, respectively.
(3) GWh amounts are net of energy used by the related generating facilities.
(4) The average cost of energy per MWh includes the cost of fuel, purchased power and deferrals and does not include other costs.
Quarter Ended March 31, 2021 Compared to Quarter Ended March 31, 2020
Utility margin decreased $14 million, or 6%, for the first quarter of 2021 compared to 2020 primarily due to:
•$9 million of lower retail rates due to the 2020 regulatory rate review with new rates effective January 2021,
•$2 million due to lower energy efficiency program rates (offset in operations and maintenance expense),
•$1 million due to price impacts from changes in sales mix. Retail customer volumes, including distribution only service customers, decreased 4.7% primarily due to the impacts of COVID-19, which resulted in lower industrial, commercial and distribution only service customer usage and higher residential customer usage, offset by the favorable impacts of weather and
•$1 million of lower other revenue due to a regulatory amortization of impact fee that ended December 2020.
Operations and maintenance decreased $19 million, or 23%, for the first quarter of 2021 compared to 2020 primarily due to lower net regulatory instructed deferrals and amortizations of $11 million, mainly relating to deferrals in 2020 of the non-labor cost savings from the Navajo generating station retirement which was approved for amortization in the 2020 regulatory rate review with new rates effective January 2021, and timing of the regulatory impacts for the ON Line lease cost reallocation, lower plant operations and maintenance costs, a reduction to the accrual for earning sharing and lower energy efficiency program costs (offset in operating revenue).
Depreciation and amortization increased $11 million, or 12%, for the first quarter of 2021 compared to 2020 primarily due to regulatory amortizations approved in the 2020 regulatory rate review effective January 2021 and higher plant placed in service.
Interest expense decreased $4 million, or 10%, for the first quarter of 2021 compared to 2020 primarily due to lower interest expense on long-term debt.
Other, net increased $10 million for the first quarter of 2021 compared to 2020 primarily due to higher cash surrender value of corporate-owned life insurance policies of $7 million, lower pension expense and higher interest income, mainly from carrying charges on regulatory items.
Income tax benefit decreased $1 million, for the first quarter of 2021 compared to 2020. Nevada Power did not incur tax expense in 2021 primarily due to the recognition of amortization of excess deferred income taxes following regulatory approval effective January 2021. The effective tax rate was 20% in 2020.
Liquidity and Capital Resources
As of March 31, 2021, Nevada Power's total net liquidity was as follows (in millions):
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
92
|
|
Credit facility
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net liquidity
|
|
$
|
492
|
|
Credit facility:
|
|
|
Maturity date
|
|
2022
|
Operating Activities
Net cash flows from operating activities for the three-month periods ended March 31, 2021 and 2020 were $179 million and $79 million, respectively. The change was primarily due to lower payments for fuel and energy costs, the timing of payments for operating costs and lower inventory purchases, partially offset by lower collections from customers.
Investing Activities
Net cash flows from investing activities for the three-month periods ended March 31, 2021 and 2020 were $(106) million and $(111) million, respectively. The change was primarily due to decreased capital expenditures. Refer to "Future Uses of Cash" for further discussion of capital expenditures.
Financing Activities
Net cash flows from financing activities for the three-month periods ended March 31, 2021 and 2020 were $(5) million and $140 million, respectively. The change was primarily due to lower proceeds from the issuance of long-term debt, partially offset by lower repayments of long-term debt.
Debt Authorizations
Nevada Power currently has financing authority from the PUCN consisting of the ability to: (1) establish debt issuances limited to a debt ceiling of $3.2 billion (excluding borrowings under Nevada Power's $400 million secured credit facility); and (2) maintain a revolving credit facility of up to $1.3 billion. Nevada Power currently has an effective automatic shelf registration statement with the SEC to issue an indeterminate amount of general and refunding mortgage securities through October 2022.
Future Uses of Cash
Nevada Power has available a variety of sources of liquidity and capital resources, both internal and external, including net cash flows from operating activities, public and private debt offerings, the use of its secured revolving credit facility, capital contributions and other sources. These sources are expected to provide funds required for current operations, capital expenditures, debt retirements and other capital requirements. The availability and terms under which Nevada Power has access to external financing depends on a variety of factors, including regulatory approvals, Nevada Power's credit ratings, investors' judgment of risk and conditions in the overall capital markets, including the condition of the utility industry.
Capital Expenditures
Capital expenditure needs are reviewed regularly by management and may change significantly as a result of these reviews, which may consider, among other factors, changes in environmental and other rules and regulations; impacts to customers' rates; outcomes of regulatory proceedings; changes in income tax laws; general business conditions; load projections; system reliability standards; the cost and efficiency of construction labor, equipment and materials; commodity prices; and the cost and availability of capital. Prudently incurred expenditures for compliance-related items such as pollution control technologies, replacement generation and associated operating costs are generally incorporated into Nevada Power's regulated retail rates. Expenditures for certain assets may ultimately include acquisition of existing assets.
Historical and forecast capital expenditures, each of which exclude amounts for non-cash equity AFUDC and other non-cash items are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
Annual
|
|
Ended March 31,
|
|
Forecast
|
|
2020
|
|
2021
|
|
2021
|
|
|
|
|
|
|
Electric distribution
|
$
|
64
|
|
|
$
|
41
|
|
|
$
|
167
|
|
Electric transmission
|
8
|
|
|
13
|
|
|
77
|
|
Solar generation
|
—
|
|
|
1
|
|
|
32
|
|
Other
|
39
|
|
|
51
|
|
|
181
|
|
Total
|
$
|
111
|
|
|
$
|
106
|
|
|
$
|
457
|
|
Nevada Power's Fourth Amendment to the 2018 Joint IRP proposed an increase in solar generation and electric transmission. Nevada Power has included estimates from its latest IRP filing in its forecast capital expenditures for 2021. These estimates are likely to change as a result of the RFP process and some are still pending PUCN approval. Nevada Power's historical and forecast capital expenditures include the following:
•Electric distribution includes both growth projects and operating expenditures consisting of routine expenditures for distribution needed to serve existing and expected demand.
•Electric transmission includes both growth projects and operating expenditures. Growth projects primarily relate to the Nevada Utilities' Greenlink Nevada transmission expansion program. In this project, the company has proposed to build a 350-mile, 525 kV transmission line, known as Greenlink West, connecting the Ft. Churchill substation to the Northwest substation to the Harry Allen substation. Construction of the project has been approved by the PUCN with the exception of the Northwest substation to Harry Allen substation segment for which approval was limited to design, permitting and land acquisition only. Operating expenditures consist of routine expenditures for transmission and other infrastructure needed to serve existing and expected demand.
•Solar generation investment includes expenditures for a 150 MWs solar photovoltaic facility with an additional 100 MWs capacity of co-located battery storage, known as the Dry Lake generating facility, that will be developed in Clark County, Nevada. Commercial operation is expected by the end of 2023.
•Other investments include both growth projects and operating expenditures consisting of routine expenditures for generation, other operating projects and other infrastructure needed to serve existing and expected demand.
Contractual Obligations
As of March 31, 2021, there have been no material changes outside the normal course of business in contractual obligations from the information provided in Item 7 of Nevada Power's Annual Report on Form 10-K for the year ended December 31, 2020.
Regulatory Matters
Nevada Power is subject to comprehensive regulation. Refer to "Regulatory Matters" in Berkshire Hathaway Energy's Part I, Item 2 of this Form 10-Q for discussion regarding Nevada Power's current regulatory matters.
Environmental Laws and Regulations
Nevada Power is subject to federal, state and local laws and regulations regarding climate change, RPS, air and water quality, emissions performance standards, coal combustion byproduct disposal, hazardous and solid waste disposal, protected species and other environmental matters that have the potential to impact Nevada Power's current and future operations. In addition to imposing continuing compliance obligations and capital expenditure requirements, these laws and regulations provide regulators with the authority to levy substantial penalties for noncompliance including fines, injunctive relief and other sanctions. These laws and regulations are administered by the EPA and various state and local agencies. All such laws and regulations are subject to a range of interpretation, which may ultimately be resolved by the courts. Environmental laws and regulations continue to evolve, and Nevada Power is unable to predict the impact of the changing laws and regulations on its operations and consolidated financial results. Nevada Power believes it is in material compliance with all applicable laws and regulations.
Refer to "Environmental Laws and Regulations" in Berkshire Hathaway Energy's Part I, Item 2 of this Form 10-Q for additional information regarding environmental laws and regulations.
Critical Accounting Estimates
Certain accounting measurements require management to make estimates and judgments concerning transactions that will be settled several years in the future. Amounts recognized on the Consolidated Financial Statements based on such estimates involve numerous assumptions subject to varying and potentially significant degrees of judgment and uncertainty and will likely change in the future as additional information becomes available. Estimates are used for, but not limited to, the accounting for the effects of certain types of regulation, derivatives, impairment of long-lived assets, income taxes and revenue recognition - unbilled revenue. For additional discussion of Nevada Power's critical accounting estimates, see Item 7 of Nevada Power's Annual Report on Form 10‑K for the year ended December 31, 2020. There have been no significant changes in Nevada Power's assumptions regarding critical accounting estimates since December 31, 2020.
Sierra Pacific Power Company and its subsidiaries
Consolidated Financial Section
PART I
Item 1.Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of
Sierra Pacific Power Company
Results of Review of Interim Financial Information
We have reviewed the accompanying consolidated balance sheet of Sierra Pacific Power Company and subsidiaries ("Sierra Pacific") as of March 31, 2021, the related consolidated statements of operations, changes in shareholder's equity and cash flows for the three-month periods ended March 31, 2021 and 2020, and the related notes (collectively referred to as the "interim financial information"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheet of Sierra Pacific as of December 31, 2020, and the related statements of operations, changes in shareholder's equity, and cash flows for the year then ended (not presented herein); and in our report dated February 26, 2021, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of December 31, 2020, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of Sierra Pacific's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Sierra Pacific in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Deloitte & Touche LLP
Las Vegas, Nevada
April 30, 2021
SIERRA PACIFIC POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in millions, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
ASSETS
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
8
|
|
|
$
|
19
|
|
Trade receivables, net
|
93
|
|
|
97
|
|
|
|
|
|
Inventories
|
74
|
|
|
77
|
|
Derivative contracts
|
16
|
|
|
9
|
|
Regulatory assets
|
91
|
|
|
67
|
|
|
|
|
|
Other current assets
|
38
|
|
|
36
|
|
Total current assets
|
320
|
|
|
305
|
|
|
|
|
|
Property, plant and equipment, net
|
3,188
|
|
|
3,164
|
|
|
|
|
|
Regulatory assets
|
270
|
|
|
267
|
|
Other assets
|
185
|
|
|
183
|
|
|
|
|
|
Total assets
|
$
|
3,963
|
|
|
$
|
3,919
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDER'S EQUITY
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
103
|
|
|
$
|
108
|
|
Accrued interest
|
11
|
|
|
14
|
|
Accrued property, income and other taxes
|
16
|
|
|
14
|
|
Short-term debt
|
55
|
|
|
45
|
|
|
|
|
|
|
|
|
|
Regulatory liabilities
|
28
|
|
|
34
|
|
Customer deposits
|
14
|
|
|
15
|
|
Other current liabilities
|
33
|
|
|
25
|
|
Total current liabilities
|
260
|
|
|
255
|
|
|
|
|
|
Long-term debt
|
1,164
|
|
|
1,164
|
|
Finance lease obligations
|
119
|
|
|
121
|
|
Regulatory liabilities
|
466
|
|
|
463
|
|
Deferred income taxes
|
382
|
|
|
374
|
|
Other long-term liabilities
|
133
|
|
|
131
|
|
Total liabilities
|
2,524
|
|
|
2,508
|
|
|
|
|
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
Shareholder's equity:
|
|
|
|
Common stock - $3.75 stated value, 20,000,000 shares authorized and 1,000 issued and outstanding
|
—
|
|
|
—
|
|
Additional paid-in capital
|
1,111
|
|
|
1,111
|
|
Retained earnings
|
329
|
|
|
301
|
|
Accumulated other comprehensive loss, net
|
(1)
|
|
|
(1)
|
|
Total shareholder's equity
|
1,439
|
|
|
1,411
|
|
|
|
|
|
Total liabilities and shareholder's equity
|
$
|
3,963
|
|
|
$
|
3,919
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
|
SIERRA PACIFIC POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
|
Ended March 31,
|
|
|
|
|
|
2021
|
|
2020
|
Operating revenue:
|
|
|
|
|
|
|
|
Regulated electric
|
|
|
|
|
$
|
181
|
|
|
$
|
184
|
|
Regulated natural gas
|
|
|
|
|
39
|
|
|
48
|
|
Total operating revenue
|
|
|
|
|
220
|
|
|
232
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Cost of fuel and energy
|
|
|
|
|
82
|
|
|
80
|
|
Cost of natural gas purchased for resale
|
|
|
|
|
21
|
|
|
30
|
|
Operations and maintenance
|
|
|
|
|
36
|
|
|
42
|
|
Depreciation and amortization
|
|
|
|
|
36
|
|
|
34
|
|
Property and other taxes
|
|
|
|
|
6
|
|
|
6
|
|
Total operating expenses
|
|
|
|
|
181
|
|
|
192
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
39
|
|
|
40
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
(14)
|
|
|
(14)
|
|
|
|
|
|
|
|
|
|
Allowance for equity funds
|
|
|
|
|
1
|
|
|
1
|
|
Other, net
|
|
|
|
|
6
|
|
|
1
|
|
Total other income (expense)
|
|
|
|
|
(7)
|
|
|
(12)
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
|
|
32
|
|
|
28
|
|
Income tax expense
|
|
|
|
|
4
|
|
|
3
|
|
Net income
|
|
|
|
|
$
|
28
|
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
SIERRA PACIFIC POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (Unaudited)
(Amounts in millions, except shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
Total
|
|
|
Common Stock
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
Shareholder's
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Loss, Net
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
1,000
|
|
|
$
|
—
|
|
|
$
|
1,111
|
|
|
$
|
210
|
|
|
$
|
(1)
|
|
|
$
|
1,320
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25
|
|
|
—
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020
|
|
1,000
|
|
|
$
|
—
|
|
|
$
|
1,111
|
|
|
$
|
235
|
|
|
$
|
(1)
|
|
|
$
|
1,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
1,000
|
|
|
$
|
—
|
|
|
$
|
1,111
|
|
|
$
|
301
|
|
|
$
|
(1)
|
|
|
$
|
1,411
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
—
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
|
1,000
|
|
|
$
|
—
|
|
|
$
|
1,111
|
|
|
$
|
329
|
|
|
$
|
(1)
|
|
|
$
|
1,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
SIERRA PACIFIC POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
Ended March 31,
|
|
2021
|
|
2020
|
Cash flows from operating activities:
|
|
|
|
Net income
|
$
|
28
|
|
|
$
|
25
|
|
Adjustments to reconcile net income to net cash flows from operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
36
|
|
|
34
|
|
Allowance for equity funds
|
(1)
|
|
|
(1)
|
|
Changes in regulatory assets and liabilities
|
(13)
|
|
|
(10)
|
|
Deferred income taxes and amortization of investment tax credits
|
4
|
|
|
(3)
|
|
Deferred energy
|
(18)
|
|
|
14
|
|
Amortization of deferred energy
|
(3)
|
|
|
4
|
|
Other, net
|
—
|
|
|
1
|
|
Changes in other operating assets and liabilities:
|
|
|
|
Trade receivables and other assets
|
8
|
|
|
1
|
|
Inventories
|
3
|
|
|
(3)
|
|
Accrued property, income and other taxes
|
(3)
|
|
|
4
|
|
Accounts payable and other liabilities
|
1
|
|
|
(12)
|
|
Net cash flows from operating activities
|
42
|
|
|
54
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Capital expenditures
|
(61)
|
|
|
(52)
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities
|
(61)
|
|
|
(52)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Net proceeds from short-term debt
|
10
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Other, net
|
(2)
|
|
|
(1)
|
|
Net cash flows from financing activities
|
8
|
|
|
(1)
|
|
|
|
|
|
Net change in cash and cash equivalents and restricted cash and cash equivalents
|
(11)
|
|
|
1
|
|
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period
|
26
|
|
|
32
|
|
Cash and cash equivalents and restricted cash and cash equivalents at end of period
|
$
|
15
|
|
|
$
|
33
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
SIERRA PACIFIC POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) General
Sierra Pacific Power Company, together with its subsidiaries ("Sierra Pacific"), is a wholly owned subsidiary of NV Energy, Inc. ("NV Energy"), a holding company that also owns Nevada Power Company and its subsidiaries ("Nevada Power") and certain other subsidiaries. Sierra Pacific is a United States regulated electric utility company serving retail customers, including residential, commercial and industrial customers and regulated retail natural gas customers primarily in northern Nevada. NV Energy is an indirect wholly owned subsidiary of Berkshire Hathaway Energy Company ("BHE"). BHE is a holding company based in Des Moines, Iowa that owns subsidiaries principally engaged in energy businesses. BHE is a consolidated subsidiary of Berkshire Hathaway Inc. ("Berkshire Hathaway").
The unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and the United States Securities and Exchange Commission's rules and regulations for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures required by GAAP for annual financial statements. Management believes the unaudited Consolidated Financial Statements contain all adjustments (consisting only of normal recurring adjustments) considered necessary for the fair presentation of the unaudited Consolidated Financial Statements as of March 31, 2021 and for the three-month periods ended March 31, 2021 and 2020. The Consolidated Statements of Comprehensive Income have been omitted as net income equals comprehensive income for the three-month periods ended March 31, 2021 and 2020. The results of operations for the three-month period ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year.
The preparation of the unaudited Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited Consolidated Financial Statements and the reported amounts of revenue and expenses during the period. Actual results may differ from the estimates used in preparing the unaudited Consolidated Financial Statements. Note 2 of Notes to Consolidated Financial Statements included in Sierra Pacific's Annual Report on Form 10-K for the year ended December 31, 2020 describes the most significant accounting policies used in the preparation of the unaudited Consolidated Financial Statements. There have been no significant changes in Sierra Pacific's assumptions regarding significant accounting estimates and policies during the three-month period ended March 31, 2021.
(2) Cash and Cash Equivalents and Restricted Cash and Cash Equivalents
Cash equivalents consist of funds invested in money market mutual funds, United States Treasury Bills and other investments with a maturity of three months or less when purchased. Cash and cash equivalents exclude amounts where availability is restricted by legal requirements, loan agreements or other contractual provisions. Restricted cash and cash equivalents as of March 31, 2021 and December 31, 2020, consist of funds restricted by the Public Utilities Commission of Nevada ("PUCN") for a certain renewable energy contract. A reconciliation of cash and cash equivalents and restricted cash and cash equivalents as of March 31, 2021 and December 31, 2020, as presented in the Consolidated Statements of Cash Flows is outlined below and disaggregated by the line items in which they appear on the Consolidated Balance Sheets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
Cash and cash equivalents
|
$
|
8
|
|
|
$
|
19
|
|
Restricted cash and cash equivalents included in other current assets
|
7
|
|
|
7
|
|
Total cash and cash equivalents and restricted cash and cash equivalents
|
$
|
15
|
|
|
$
|
26
|
|
(3) Property, Plant and Equipment, Net
Property, plant and equipment, net consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
Depreciable Life
|
|
March 31,
|
|
December 31,
|
|
|
2021
|
|
2020
|
Utility plant:
|
|
|
|
|
|
Electric generation
|
25 - 60 years
|
|
$
|
1,131
|
|
|
$
|
1,130
|
|
Electric transmission
|
50 - 100 years
|
|
917
|
|
|
908
|
|
Electric distribution
|
20 - 100 years
|
|
1,763
|
|
|
1,754
|
|
Electric general and intangible plant
|
5 - 70 years
|
|
193
|
|
|
189
|
|
Natural gas distribution
|
35 - 70 years
|
|
431
|
|
|
429
|
|
Natural gas general and intangible plant
|
5 - 70 years
|
|
15
|
|
|
15
|
|
Common general
|
5 - 70 years
|
|
357
|
|
|
355
|
|
Utility plant
|
|
|
4,807
|
|
|
4,780
|
|
Accumulated depreciation and amortization
|
|
|
(1,783)
|
|
|
(1,755)
|
|
Utility plant, net
|
|
|
3,024
|
|
|
3,025
|
|
Other non-regulated, net of accumulated depreciation and amortization
|
70 years
|
|
2
|
|
|
2
|
|
Plant, net
|
|
|
3,026
|
|
|
3,027
|
|
Construction work-in-progress
|
|
|
162
|
|
|
137
|
|
Property, plant and equipment, net
|
|
|
$
|
3,188
|
|
|
$
|
3,164
|
|
(4) Income Taxes
A reconciliation of the federal statutory income tax rate to the effective income tax rate applicable to income before income tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
|
Ended March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory income tax rate
|
21
|
%
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of ratemaking
|
(10)
|
|
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
2
|
|
|
(2)
|
|
|
|
|
|
Effective income tax rate
|
13
|
%
|
|
11
|
%
|
|
|
|
|
Effects of ratemaking is primarily attributable to the recognition of excess deferred income taxes related to the 2017 Tax Cuts and Jobs Act pursuant to an order issued by the PUCN effective January 1, 2020.
(5) Employee Benefit Plans
Sierra Pacific is a participant in benefit plans sponsored by NV Energy. The NV Energy Retirement Plan includes a qualified pension plan ("Qualified Pension Plan") and a supplemental executive retirement plan and a restoration plan (collectively, "Non‑Qualified Pension Plans") that provide pension benefits for eligible employees. The NV Energy Comprehensive Welfare Benefit and Cafeteria Plan provides certain postretirement health care and life insurance benefits for eligible retirees ("Other Postretirement Plans") on behalf of Sierra Pacific. Amounts attributable to Sierra Pacific were allocated from NV Energy based upon the current, or in the case of retirees, previous, employment location. Offsetting regulatory assets and liabilities have been recorded related to the amounts not yet recognized as a component of net periodic benefit costs that will be included in regulated rates. Net periodic benefit costs not included in regulated rates are included in accumulated other comprehensive loss, net.
Amounts receivable from (payable to) NV Energy are included on the Consolidated Balance Sheets and consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
Qualified Pension Plan:
|
|
|
|
|
|
|
|
Other non-current assets
|
$
|
27
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Qualified Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
(1)
|
|
|
(1)
|
|
Other long-term liabilities
|
(8)
|
|
|
(8)
|
|
|
|
|
|
Other Postretirement Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
(14)
|
|
|
(13)
|
|
(6) Fair Value Measurements
The carrying value of Sierra Pacific's cash, certain cash equivalents, receivables, payables, accrued liabilities and short-term borrowings approximates fair value because of the short-term maturity of these instruments. Sierra Pacific has various financial assets and liabilities that are measured at fair value on the Consolidated Balance Sheets using inputs from the three levels of the fair value hierarchy. A financial asset or liability classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The three levels are as follows:
•Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that Sierra Pacific has the ability to access at the measurement date.
•Level 2 — Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
•Level 3 — Unobservable inputs reflect Sierra Pacific's judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. Sierra Pacific develops these inputs based on the best information available, including its own data.
The following table presents Sierra Pacific's assets and liabilities recognized on the Consolidated Balance Sheets and measured at fair value on a recurring basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Input Levels for Fair Value Measurements
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
As of March 31, 2021
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Commodity derivatives
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16
|
|
|
$
|
16
|
|
Money market mutual funds(1)
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
16
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
Liabilities - commodity derivatives
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(4)
|
|
|
$
|
(4)
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Commodity derivatives
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9
|
|
|
$
|
9
|
|
Money market mutual funds(1)
|
17
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
9
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
Liabilities - commodity derivatives
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2)
|
|
|
$
|
(2)
|
|
(1)Amounts are included in cash and cash equivalents on the Consolidated Balance Sheets. The fair value of these money market mutual funds approximates cost.
Sierra Pacific's investments in money market mutual funds and investment funds are stated at fair value. When available, a readily observable quoted market price or net asset value of an identical security in an active market is used to record the fair value.
Sierra Pacific's long-term debt is carried at cost on the Consolidated Balance Sheets. The fair value of Sierra Pacific's long-term debt is a Level 2 fair value measurement and has been estimated based upon quoted market prices, where available, or at the present value of future cash flows discounted at rates consistent with comparable maturities with similar credit risks. The carrying value of Sierra Pacific's variable-rate long-term debt approximates fair value because of the frequent repricing of these instruments at market rates. The following table presents the carrying value and estimated fair value of Sierra Pacific's long-term debt (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2021
|
|
As of December 31, 2020
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
|
|
|
|
|
|
|
|
Long-term debt
|
$
|
1,164
|
|
|
$
|
1,312
|
|
|
$
|
1,164
|
|
|
$
|
1,358
|
|
(7) Commitments and Contingencies
Legal Matters
Sierra Pacific is party to a variety of legal actions arising out of the normal course of business. Plaintiffs occasionally seek punitive or exemplary damages. Sierra Pacific does not believe that such normal and routine litigation will have a material impact on its consolidated financial results.
Environmental Laws and Regulations
Sierra Pacific is subject to federal, state and local laws and regulations regarding climate change, renewable portfolio standards, air and water quality, emissions performance standards, coal combustion byproduct disposal, hazardous and solid waste disposal, protected species and other environmental matters that have the potential to impact Sierra Pacific's current and future operations. Sierra Pacific believes it is in material compliance with all applicable laws and regulations.
(8) Revenue from Contracts with Customers
The following table summarizes Sierra Pacific's revenue from contracts with customers ("Customer Revenue") by customer class, including a reconciliation to Sierra Pacific's reportable segment information included in Note 9 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
Ended March 31,
|
|
2021
|
|
2020
|
|
Electric
|
|
Natural Gas
|
|
Total
|
|
Electric
|
|
Natural Gas
|
|
Total
|
Customer Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
$
|
71
|
|
|
$
|
25
|
|
|
$
|
96
|
|
|
$
|
69
|
|
|
$
|
30
|
|
|
$
|
99
|
|
Commercial
|
54
|
|
|
10
|
|
|
64
|
|
|
57
|
|
|
13
|
|
|
70
|
|
Industrial
|
39
|
|
|
3
|
|
|
42
|
|
|
41
|
|
|
4
|
|
|
45
|
|
Other
|
1
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Total fully bundled
|
165
|
|
|
38
|
|
|
203
|
|
|
168
|
|
|
47
|
|
|
215
|
|
Distribution only service
|
1
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Total retail
|
166
|
|
|
38
|
|
|
204
|
|
|
169
|
|
|
47
|
|
|
216
|
|
Wholesale, transmission and other
|
15
|
|
|
—
|
|
|
15
|
|
|
14
|
|
|
—
|
|
|
14
|
|
Total Customer Revenue
|
181
|
|
|
38
|
|
|
219
|
|
|
183
|
|
|
47
|
|
|
230
|
|
Other revenue
|
—
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
2
|
|
Total revenue
|
$
|
181
|
|
|
$
|
39
|
|
|
$
|
220
|
|
|
$
|
184
|
|
|
$
|
48
|
|
|
$
|
232
|
|
(9) Segment Information
Sierra Pacific has identified two reportable operating segments: regulated electric and regulated natural gas. The regulated electric segment derives most of its revenue from regulated retail sales of electricity to residential, commercial, and industrial customers and from wholesale sales. The regulated natural gas segment derives most of its revenue from regulated retail sales of natural gas to residential, commercial, and industrial customers and also obtains revenue by transporting natural gas owned by others through its distribution system. Pricing for regulated electric and regulated natural gas sales are established separately by the PUCN; therefore, management also reviews each segment separately to make decisions regarding allocation of resources and in evaluating performance.
The following tables provide information on a reportable segment basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
|
Ended March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Operating revenue:
|
|
|
|
|
|
|
|
Regulated electric
|
$
|
181
|
|
|
$
|
184
|
|
|
|
|
|
Regulated natural gas
|
39
|
|
|
48
|
|
|
|
|
|
Total operating revenue
|
$
|
220
|
|
|
$
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
Regulated electric
|
$
|
31
|
|
|
$
|
33
|
|
|
|
|
|
Regulated natural gas
|
8
|
|
|
7
|
|
|
|
|
|
Total operating income
|
39
|
|
|
40
|
|
|
|
|
|
Interest expense
|
(14)
|
|
|
(14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for equity funds
|
1
|
|
|
1
|
|
|
|
|
|
Other, net
|
6
|
|
|
1
|
|
|
|
|
|
Income before income tax expense
|
$
|
32
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
|
|
2021
|
|
2020
|
Assets:
|
|
|
|
|
|
|
|
Regulated electric
|
|
|
|
|
$
|
3,589
|
|
|
$
|
3,540
|
|
Regulated natural gas
|
|
|
|
|
348
|
|
|
342
|
|
Other(1)
|
|
|
|
|
26
|
|
|
37
|
|
Total assets
|
|
|
|
|
$
|
3,963
|
|
|
$
|
3,919
|
|
(1) Consists principally of cash and cash equivalents not included in either the regulated electric or regulated natural gas segments.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following is management's discussion and analysis of certain significant factors that have affected the consolidated financial condition and results of operations of Sierra Pacific during the periods included herein. Explanations include management's best estimate of the impact of weather, customer growth, usage trends and other factors. This discussion should be read in conjunction with Sierra Pacific's historical unaudited Consolidated Financial Statements and Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. Sierra Pacific's actual results in the future could differ significantly from the historical results.
Results of Operations for the First Quarter of 2021 and 2020
Overview
Net income for the first quarter of 2021 was $28 million, an increase of $3 million, or 12%, compared to 2020 primarily due to $6 million of lower operations and maintenance expenses, mainly due to lower plant operations and maintenance expenses and a reduction to the accrual for earning sharing, and $5 million of higher other, net, mainly due to higher cash surrender value of corporate-owned life insurance policies and lower pension costs, partially offset by $5 million of lower electric utility margin, mainly from lower revenue recognized due to a favorable regulatory decision.
Non-GAAP Financial Measure
Management utilizes various key financial measures that are prepared in accordance with GAAP, as well as non-GAAP financial measures such as, electric utility margin and natural gas utility margin, to help evaluate results of operations. Electric utility margin is calculated as electric operating revenue less cost of fuel and energy while natural gas utility margin is calculated as natural gas operating revenue less cost of natural gas purchased for resale, which are captions presented on the Consolidated Statements of Operations.
Sierra Pacific's cost of fuel and energy and cost of natural gas purchased for resale are generally recovered from its customers through regulatory recovery mechanisms and as a result, changes in Sierra Pacific's expenses result in comparable changes to revenue. As such, management believes electric utility margin and natural gas utility margin more appropriately and concisely explain profitability rather than a discussion of revenue and cost of sales separately. Management believes the presentation of electric utility margin and natural gas utility margin provides meaningful and valuable insight into the information management considers important to running the business and a measure of comparability to others in the industry.
Electric utility margin and natural gas utility margin are not measures calculated in accordance with GAAP and should be viewed as a supplement to, and not a substitute for, operating income which is the most directly comparable financial measure prepared in accordance with GAAP. The following table provides a reconciliation of utility margin to operating income (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
Electric utility margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
181
|
|
|
$
|
184
|
|
|
$
|
(3)
|
|
(2)
|
%
|
|
|
|
|
|
|
|
Cost of fuel and energy
|
|
82
|
|
|
80
|
|
|
2
|
|
3
|
|
|
|
|
|
|
|
|
Electric utility margin
|
|
99
|
|
|
104
|
|
|
(5)
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas utility margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
39
|
|
|
48
|
|
|
(9)
|
|
(19)
|
%
|
|
|
|
|
|
|
|
Natural gas purchased for resale
|
|
21
|
|
|
30
|
|
|
(9)
|
|
(30)
|
|
|
|
|
|
|
|
|
Natural gas utility margin
|
|
18
|
|
|
18
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility margin
|
|
117
|
|
|
122
|
|
|
(5)
|
|
(4)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and maintenance
|
|
36
|
|
|
42
|
|
|
(6)
|
|
(14)
|
%
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
36
|
|
|
34
|
|
|
2
|
|
6
|
|
|
|
|
|
|
|
|
Property and other taxes
|
|
6
|
|
|
6
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
39
|
|
|
$
|
40
|
|
|
$
|
(1)
|
|
(3)
|
%
|
|
|
|
|
|
|
|
Electric Utility Margin
A comparison of key operating results related to electric utility margin is as follows for the quarters ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
Utility margin (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
181
|
|
|
$
|
184
|
|
|
$
|
(3)
|
|
(2)
|
%
|
|
|
|
|
|
|
|
Cost of fuel and energy
|
|
82
|
|
|
80
|
|
|
2
|
|
3
|
|
|
|
|
|
|
|
|
Utility margin
|
|
$
|
99
|
|
|
$
|
104
|
|
|
$
|
(5)
|
|
(5)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales (GWhs):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
671
|
|
|
635
|
|
|
36
|
|
6
|
%
|
|
|
|
|
|
|
|
Commercial
|
|
677
|
|
|
701
|
|
|
(24)
|
|
(3)
|
|
|
|
|
|
|
|
|
Industrial
|
|
897
|
|
|
909
|
|
|
(12)
|
|
(1)
|
|
|
|
|
|
|
|
|
Other
|
|
4
|
|
|
4
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
Total fully bundled(1)
|
|
2,249
|
|
|
2,249
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
Distribution only service
|
|
397
|
|
|
412
|
|
|
(15)
|
|
(4)
|
|
|
|
|
|
|
|
|
Total retail
|
|
2,646
|
|
|
2,661
|
|
|
(15)
|
|
(1)
|
|
|
|
|
|
|
|
|
Wholesale
|
|
175
|
|
|
193
|
|
|
(18)
|
|
(9)
|
|
|
|
|
|
|
|
|
Total GWhs sold
|
|
2,821
|
|
|
2,854
|
|
|
(33)
|
|
(1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of retail customers (in thousands)
|
|
363
|
|
|
356
|
|
|
7
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average revenue per MWh:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail - fully bundled(1)
|
|
$
|
73.17
|
|
|
$
|
74.76
|
|
|
$
|
(1.59)
|
|
(2)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
60.18
|
|
|
$
|
49.05
|
|
|
$
|
11.13
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heating degree days
|
|
2,198
|
|
2,066
|
|
132
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of energy (GWhs)(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
|
1,082
|
|
|
1,215
|
|
|
(133)
|
|
(11)
|
%
|
|
|
|
|
|
|
|
Coal
|
|
29
|
|
|
66
|
|
|
(37)
|
|
(56)
|
|
|
|
|
|
|
|
|
Renewables(3)
|
|
6
|
|
|
6
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
Total energy generated
|
|
1,117
|
|
|
1,287
|
|
|
(170)
|
|
(13)
|
|
|
|
|
|
|
|
|
Energy purchased
|
|
1,373
|
|
|
1,325
|
|
|
48
|
|
4
|
|
|
|
|
|
|
|
|
Total
|
|
2,490
|
|
|
2,612
|
|
|
(122)
|
|
(5)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average cost of energy per MWh(4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy generated
|
|
$
|
25.23
|
|
|
$
|
26.53
|
|
|
$
|
(1.30)
|
|
(5)
|
%
|
|
|
|
|
|
|
|
Energy purchased
|
|
$
|
38.93
|
|
|
$
|
34.96
|
|
|
$
|
3.97
|
|
11
|
%
|
|
|
|
|
|
|
|
(1) Fully bundled includes sales to customers for combined energy, transmission and distribution services.
(2) GWh amounts are net of energy used by the related generating facilities.
(3) Includes the Fort Churchill Solar Array which is under lease by Sierra Pacific.
(4) The average cost of energy per MWh includes the cost of fuel, purchased power and deferrals and does not include other costs.
Natural Gas Utility Margin
A comparison of key operating results related to natural gas utility margin is as follows for the quarters ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
Utility margin (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
39
|
|
|
$
|
48
|
|
|
$
|
(9)
|
|
(19)
|
%
|
|
|
|
|
|
|
|
Natural gas purchased for resale
|
|
21
|
|
|
30
|
|
|
(9)
|
|
(30)
|
|
|
|
|
|
|
|
|
Utility margin
|
|
$
|
18
|
|
|
$
|
18
|
|
|
$
|
—
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold (000's Dths):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
4,658
|
|
|
4,386
|
|
|
272
|
|
6
|
%
|
|
|
|
|
|
|
|
Commercial
|
|
2,304
|
|
|
2,167
|
|
|
137
|
|
6
|
|
|
|
|
|
|
|
|
Industrial
|
|
745
|
|
|
653
|
|
|
92
|
|
14
|
|
|
|
|
|
|
|
|
Total retail
|
|
7,707
|
|
|
7,206
|
|
|
501
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of retail customers (in thousands)
|
|
176
|
|
|
173
|
|
|
3
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average revenue per retail Dth sold
|
|
$
|
5.03
|
|
|
$
|
6.58
|
|
|
$
|
(1.55)
|
|
(24)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heating degree days
|
|
2,198
|
|
|
2,066
|
|
|
132
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average cost of natural gas per retail Dth sold
|
|
$
|
2.73
|
|
|
$
|
4.22
|
|
|
$
|
(1.49)
|
|
(35)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31, 2021 Compared to Quarter Ended March 31, 2020
Electric utility margin decreased $5 million, or 5%, for the first quarter of 2021 compared to 2020 primarily due to:
•$3 million in lower revenue recognized due to a favorable regulatory decision and
•$1 million due to price impacts from changes in sales mix. Retail customer volumes, including distribution only service customers, decreased 0.6% primarily due to the impacts of COVID-19, which resulted in lower distribution only service, commercial and industrial customer usage and higher residential customer usage, offset by the favorable impacts of weather.
Operations and maintenance decreased $6 million, or 14%, for the first quarter of 2021 compared to 2020 primarily due to lower plant operations and maintenance expenses, a reduction to the accrual for earning sharing and lower regulatory amortizations.
Depreciation and amortization increased $2 million, or 6%, for the first quarter of 2021 compared to 2020 primarily due to regulatory amortizations and higher plant in service.
Other, net increased $5 million for the first quarter of 2021 compared to 2020 primarily due to higher cash surrender value of corporate-owned life insurance policies and lower pension costs.
Income tax expense increased $1 million, or 33%, for the first quarter of 2021 compared to 2020. The effective tax rate was 13% in 2021 and 11% in 2020 and increased primarily due to higher pre-tax income.
Liquidity and Capital Resources
As of March 31, 2021, Sierra Pacific's total net liquidity was as follows (in millions):
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8
|
|
|
|
|
Credit facility
|
|
250
|
|
Less -
|
|
|
|
|
|
Short-term debt
|
|
(55)
|
|
Net credit facility
|
|
195
|
|
|
|
|
Total net liquidity
|
|
$
|
203
|
|
Credit facility:
|
|
|
Maturity date
|
|
2022
|
Operating Activities
Net cash flows from operating activities for the three-month periods ended March 31, 2021 and 2020 were $42 million and $54 million, respectively. The change was primarily due to higher payments for fuel and energy costs and lower collections from customers partially offset by lower inventory purchases, the timing of payments for operating costs and increased collections of customer advances.
Investing Activities
Net cash flows from investing activities for the three-month periods ended March 31, 2021 and 2020 were $(61) million and $(52) million, respectively. The change was primarily due to increased capital expenditures. Refer to "Future Uses of Cash" for further discussion of capital expenditures.
Financing Activities
Net cash flows from financing activities for the three-month periods ended March 31, 2021 and 2020 were $8 million and $(1) million, respectively. The change was primarily due to higher proceeds from short-term debt.
Debt Authorizations
Sierra Pacific currently has financing authority from the PUCN consisting of the ability to: (1) establish debt issuances limited to a debt ceiling of $1.6 billion (excluding borrowings under Sierra Pacific's $250 million secured credit facility); and (2) maintain a revolving credit facility of up to $600 million.
Future Uses of Cash
Sierra Pacific has available a variety of sources of liquidity and capital resources, both internal and external, including net cash flows from operating activities, public and private debt offerings, the use of its secured revolving credit facility, capital contributions and other sources. These sources are expected to provide funds required for current operations, capital expenditures, debt retirements and other capital requirements. The availability and terms under which Sierra Pacific has access to external financing depends on a variety of factors, including regulatory approvals, Sierra Pacific's credit ratings, investors' judgment of risk and conditions in the overall capital markets, including the condition of the utility industry.
Capital Expenditures
Capital expenditure needs are reviewed regularly by management and may change significantly as a result of these reviews, which may consider, among other factors, changes in environmental and other rules and regulations; impacts to customers' rates; outcomes of regulatory proceedings; changes in income tax laws; general business conditions; load projections; system reliability standards; the cost and efficiency of construction labor, equipment and materials; commodity prices; and the cost and availability of capital. Prudently incurred expenditures for compliance-related items such as pollution-control technologies, replacement generation and associated operating costs are generally incorporated into Sierra Pacific's regulated retail rates. Expenditures for certain assets may ultimately include acquisition of existing assets.
Historical and forecast capital expenditures, each of which exclude amounts for non-cash equity AFUDC and other non-cash items are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
Annual
|
|
Ended March 31,
|
|
Forecast
|
|
2020
|
|
2021
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric distribution
|
$
|
37
|
|
|
$
|
20
|
|
|
$
|
126
|
|
Electric transmission
|
8
|
|
|
16
|
|
|
124
|
|
Solar generation
|
—
|
|
|
—
|
|
|
18
|
|
Other
|
7
|
|
|
25
|
|
|
129
|
|
Total
|
$
|
52
|
|
|
$
|
61
|
|
|
$
|
397
|
|
Sierra Pacific's Fourth Amendment to the 2018 Joint IRP proposed an increase in electric transmission. Sierra Pacific has included estimates from its latest IRP filing in its forecast capital expenditures for 2021. These estimates are likely to change as a result of the RFP process and some are still pending PUCN approval. Sierra Pacific's historical and forecast capital expenditures include the following:
•Electric distribution includes both growth projects and operating expenditures consisting of routine expenditures for distribution needed to serve existing and expected demand.
•Electric transmission includes both growth projects and operating expenditures. Growth projects primarily relate to the Nevada Utilities' Greenlink Nevada transmission expansion program. In this project, the company has proposed to build a 235-mile, 525 kV transmission line, known as Greenlink North, connecting the new Ft. Churchill substation to the Robinson Summit substation; a 46-mile, 345 kV transmission line from the new Ft. Churchill substation to the Mira Loma substations; and a 38-mile, 345 kV transmission line from the new Ft. Churchill substation to the Comstock Meadows substations. Construction of the project has been approved by the PUCN with the exception of the Ft. Churchill substation to the Robinson Summit substation segment for which conditional approval was limited to design, permitting and land acquisition only. Operating expenditures consist of routine expenditures for transmission and other infrastructure needed to serve existing and expected demand.
•Other investments include both growth projects and operating expenditures consisting of routine expenditures for generation, other operating projects and other infrastructure needed to serve existing and expected demand.
Contractual Obligations
As of March 31, 2021, there have been no material changes outside the normal course of business in contractual obligations from the information provided in Item 7 of Sierra Pacific's Annual Report on Form 10-K for the year ended December 31, 2020.
Regulatory Matters
Sierra Pacific is subject to comprehensive regulation. Refer to "Regulatory Matters" in Berkshire Hathaway Energy's Part I, Item 2 of this Form 10-Q for discussion regarding Sierra Pacific's current regulatory matters.
Environmental Laws and Regulations
Sierra Pacific is subject to federal, state and local laws and regulations regarding climate change, RPS, air and water quality, emissions performance standards, coal combustion byproduct disposal, hazardous and solid waste disposal, protected species and other environmental matters that have the potential to impact Sierra Pacific's current and future operations. In addition to imposing continuing compliance obligations and capital expenditure requirements, these laws and regulations provide regulators with the authority to levy substantial penalties for noncompliance including fines, injunctive relief and other sanctions. These laws and regulations are administered by the EPA and various state and local agencies. All such laws and regulations are subject to a range of interpretation, which may ultimately be resolved by the courts. Environmental laws and regulations continue to evolve, and Sierra Pacific is unable to predict the impact of the changing laws and regulations on its operations and consolidated financial results. Sierra Pacific believes it is in material compliance with all applicable laws and regulations.
Refer to "Environmental Laws and Regulations" in Berkshire Hathaway Energy's Part I, Item 2 of this Form 10-Q for additional information regarding environmental laws and regulations.
Critical Accounting Estimates
Certain accounting measurements require management to make estimates and judgments concerning transactions that will be settled several years in the future. Amounts recognized on the Consolidated Financial Statements based on such estimates involve numerous assumptions subject to varying and potentially significant degrees of judgment and uncertainty and will likely change in the future as additional information becomes available. Estimates are used for, but not limited to, the accounting for the effects of certain types of regulation, derivatives, impairment of long-lived assets, income taxes and revenue recognition - unbilled revenue. For additional discussion of Sierra Pacific's critical accounting estimates, see Item 7 of Sierra Pacific's Annual Report on Form 10‑K for the year ended December 31, 2020. There have been no significant changes in Sierra Pacific's assumptions regarding critical accounting estimates since December 31, 2020.
Eastern Energy Gas Holdings, LLC and its subsidiaries
Consolidated Financial Section
PART I
Item 1.Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Eastern Energy Gas Holdings, LLC
Results of Review of Interim Financial Information
We have reviewed the accompanying consolidated balance sheet of Eastern Energy Gas Holdings, LLC and subsidiaries ("Eastern Energy Gas") as of March 31, 2021, the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for the three-month periods ended March 31, 2021 and 2020, and the related notes (collectively referred to as the "interim financial information"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of Eastern Energy Gas as of December 31, 2020, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for the year then ended (not presented herein); and in our report dated February 26, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of Eastern Energy Gas' management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Eastern Energy Gas in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Deloitte & Touche LLP
Richmond, Virginia
April 30, 2021
EASTERN ENERGY GAS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31, 2021
|
|
December 31, 2020
|
ASSETS
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
106
|
|
|
$
|
35
|
|
Restricted cash and cash equivalents
|
9
|
|
|
13
|
|
Trade receivables, net
|
158
|
|
|
177
|
|
Receivables from affiliates
|
263
|
|
|
139
|
|
Other receivables
|
44
|
|
|
51
|
|
Inventories
|
120
|
|
|
119
|
|
|
|
|
|
Other current assets
|
145
|
|
|
122
|
|
Total current assets
|
845
|
|
|
656
|
|
|
|
|
|
Property, plant and equipment, net
|
10,099
|
|
|
10,144
|
|
Goodwill
|
1,286
|
|
|
1,286
|
|
|
|
|
|
Investments
|
262
|
|
|
244
|
|
|
|
|
|
Other assets
|
240
|
|
|
291
|
|
|
|
|
|
Total assets
|
$
|
12,732
|
|
|
$
|
12,621
|
|
The accompanying notes are an integral part of these consolidated financial statements.
EASTERN ENERGY GAS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited) (continued)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31, 2021
|
|
December 31, 2020
|
LIABILITIES AND EQUITY
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
59
|
|
|
$
|
71
|
|
Accounts payable to affiliates
|
57
|
|
|
39
|
|
Accrued interest
|
54
|
|
|
19
|
|
Accrued property, income and other taxes
|
60
|
|
|
29
|
|
|
|
|
|
Notes payable
|
—
|
|
|
9
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
500
|
|
|
500
|
|
Other current liabilities
|
127
|
|
|
147
|
|
Total current liabilities
|
857
|
|
|
814
|
|
|
|
|
|
Long-term debt
|
3,914
|
|
|
3,925
|
|
|
|
|
|
|
|
|
|
Regulatory liabilities
|
668
|
|
|
669
|
|
|
|
|
|
Other long-term liabilities
|
215
|
|
|
218
|
|
Total liabilities
|
5,654
|
|
|
5,626
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
Member's equity:
|
|
|
|
|
|
|
|
Membership interests
|
3,035
|
|
|
2,957
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss, net
|
(45)
|
|
|
(53)
|
|
Total member's equity
|
2,990
|
|
|
2,904
|
|
Noncontrolling interests
|
4,088
|
|
|
4,091
|
|
Total equity
|
7,078
|
|
|
6,995
|
|
|
|
|
|
Total liabilities and equity
|
$
|
12,732
|
|
|
$
|
12,621
|
|
The accompanying notes are an integral part of these consolidated financial statements.
EASTERN ENERGY GAS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
Ended March 31,
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
$
|
486
|
|
|
$
|
556
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Cost of gas
|
—
|
|
|
8
|
|
Operations and maintenance
|
124
|
|
|
168
|
|
Depreciation and amortization
|
80
|
|
|
93
|
|
Property and other taxes
|
39
|
|
|
39
|
|
|
|
|
|
Total operating expenses
|
243
|
|
|
308
|
|
|
|
|
|
Operating income
|
243
|
|
|
248
|
|
|
|
|
|
Other income (expense):
|
|
|
|
Interest expense
|
(44)
|
|
|
(58)
|
|
|
|
|
|
Allowance for equity funds
|
2
|
|
|
5
|
|
Interest and dividend income
|
—
|
|
|
30
|
|
|
|
|
|
Other, net
|
1
|
|
|
14
|
|
Total other income (expense)
|
(41)
|
|
|
(9)
|
|
|
|
|
|
Income before income tax expense and equity income
|
202
|
|
|
239
|
|
Income tax expense
|
27
|
|
|
52
|
|
Equity income
|
16
|
|
|
15
|
|
|
|
|
|
|
|
|
|
Net income
|
191
|
|
|
202
|
|
Net income attributable to noncontrolling interests
|
102
|
|
|
33
|
|
Net income attributable to Eastern Energy Gas
|
$
|
89
|
|
|
$
|
169
|
|
The accompanying notes are an integral part of these consolidated financial statements.
EASTERN ENERGY GAS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
Ended March 31,
|
|
2021
|
|
2020
|
|
|
|
|
Net income
|
$
|
191
|
|
|
$
|
202
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
Unrecognized amounts on retirement benefits, net of tax of $— and $1
|
2
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on cash flow hedges, net of tax of $3 and $(30)
|
10
|
|
|
(85)
|
|
Total other comprehensive income (loss), net of tax
|
12
|
|
|
(84)
|
|
|
|
|
|
Comprehensive income
|
203
|
|
|
118
|
|
Comprehensive income attributable to noncontrolling interests
|
106
|
|
|
33
|
|
Comprehensive income attributable to Eastern Energy Gas
|
$
|
97
|
|
|
$
|
85
|
|
The accompanying notes are an integral part of these consolidated financial statements.
EASTERN ENERGY GAS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership
|
|
Comprehensive
|
|
Noncontrolling
|
|
Total
|
|
|
|
|
|
|
|
|
|
Interests
|
|
Loss, Net
|
|
Interests
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
|
|
|
|
|
|
$
|
9,031
|
|
|
$
|
(187)
|
|
|
$
|
1,385
|
|
|
$
|
10,229
|
|
Net income
|
|
|
|
|
|
|
|
|
169
|
|
|
—
|
|
|
33
|
|
|
202
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
—
|
|
|
(84)
|
|
|
—
|
|
|
(84)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
|
|
|
|
|
|
|
|
|
(232)
|
|
|
—
|
|
|
(37)
|
|
|
(269)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020
|
|
|
|
|
|
|
|
|
$
|
8,968
|
|
|
$
|
(271)
|
|
|
$
|
1,381
|
|
|
$
|
10,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
|
|
|
|
|
|
|
$
|
2,957
|
|
|
$
|
(53)
|
|
|
$
|
4,091
|
|
|
$
|
6,995
|
|
Net income
|
|
|
|
|
|
|
|
|
89
|
|
|
—
|
|
|
102
|
|
|
191
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
—
|
|
|
8
|
|
|
4
|
|
|
12
|
|
Contributions
|
|
|
|
|
|
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
11
|
|
Distributions
|
|
|
|
|
|
|
|
|
(22)
|
|
|
—
|
|
|
(109)
|
|
|
(131)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
|
|
|
|
|
|
|
|
$
|
3,035
|
|
|
$
|
(45)
|
|
|
$
|
4,088
|
|
|
$
|
7,078
|
|
The accompanying notes are an integral part of these consolidated financial statements.
EASTERN ENERGY GAS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
Ended March 31,
|
|
2021
|
|
2020
|
Cash flows from operating activities:
|
|
|
|
Net income
|
$
|
191
|
|
|
$
|
202
|
|
Adjustments to reconcile net income to net cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
80
|
|
|
93
|
|
Allowance for equity funds
|
(2)
|
|
|
(5)
|
|
Equity income, net of distributions
|
(5)
|
|
|
(1)
|
|
Changes in regulatory assets and liabilities
|
6
|
|
|
7
|
|
Deferred income taxes
|
30
|
|
|
15
|
|
Other, net
|
—
|
|
|
(1)
|
|
Changes in other operating assets and liabilities:
|
|
|
|
Trade receivables and other assets
|
(56)
|
|
|
357
|
|
Derivative collateral, net
|
2
|
|
|
9
|
|
Pension and other postretirement benefit plans
|
—
|
|
|
(18)
|
|
Accrued property, income and other taxes
|
(25)
|
|
|
(17)
|
|
Accounts payable and other liabilities
|
20
|
|
|
26
|
|
Net cash flows from operating activities
|
241
|
|
|
667
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Capital expenditures
|
(55)
|
|
|
(76)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to affiliates
|
—
|
|
|
(262)
|
|
|
|
|
|
Other, net
|
(1)
|
|
|
(4)
|
|
Net cash flows from investing activities
|
(56)
|
|
|
(342)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net repayments of short-term debt
|
—
|
|
|
(32)
|
|
Repayment of notes payable, net
|
(9)
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
|
(109)
|
|
|
(269)
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities
|
(118)
|
|
|
(306)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents and restricted cash and cash equivalents
|
67
|
|
|
19
|
|
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period
|
48
|
|
|
39
|
|
Cash and cash equivalents and restricted cash and cash equivalents at end of period
|
$
|
115
|
|
|
$
|
58
|
|
The accompanying notes are an integral part of these consolidated financial statements.
EASTERN ENERGY GAS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) General
Eastern Energy Gas Holdings, LLC and its subsidiaries ("Eastern Energy Gas") is a holding company that conducts business activities consisting of Federal Energy Regulatory Commission ("FERC")-regulated interstate natural gas transportation pipeline and underground storage operations in the eastern region of the United States and operates Cove Point LNG, LP ("Cove Point"), a liquefied natural gas ("LNG") export, import and storage facility. Eastern Energy Gas owns 100% of the general partner interest and 25% of the limited partnership interest in Cove Point. In addition, Eastern Energy Gas owns a 50% noncontrolling interest in Iroquois Gas Transmission System, L.P. ("Iroquois"), a 416-mile FERC-regulated interstate natural gas transportation pipeline.
In July 2020, Dominion Energy, Inc. ("DEI") entered into an agreement to sell substantially all of its gas transmission and storage operations, including Eastern Energy Gas and a 25% limited partnership interest in Cove Point, to Berkshire Hathaway Energy Company ("BHE"). Approval of the transaction under the Hart-Scott-Rodino Act was not obtained within 75 days and DEI and BHE mutually agreed to a dual-phase closing consisting of two separate disposal groups identified as the acquisition of substantially all of the natural gas transmission and storage business of DEI and Dominion Energy Questar Corporation, exclusive of Dominion Energy Questar Pipeline, LLC and related entities (the "Questar Pipeline Group") (the "GT&S Transaction") and the proposed sale of the Questar Pipeline Group by DEI to BHE pursuant to a purchase and sale agreement entered into on October 5, 2020 ("Q-Pipe Transaction"). The Q-Pipe Transaction is currently anticipated to close in the first half of 2021, contingent on clearance or approval under the Hart-Scott-Rodino Act, and other customary closing and regulatory conditions. Prior to the completion of the GT&S Transaction, Eastern Energy Gas finalized a restructuring whereby Eastern Energy Gas distributed the Questar Pipeline Group and a 50% noncontrolling interest in Cove Point to DEI. This restructuring was accounted for by Eastern Energy Gas as a reorganization of entities under common control and the disposition was reflected as an equity transaction. The disposition was not reported as a discontinued operation as the disposal did not represent a strategic shift in the way management had intended to run the business. On November 1, 2020, BHE completed the GT&S Transaction. As a result of the GT&S Transaction, Eastern Energy Gas became an indirect wholly owned subsidiary of BHE. BHE is a holding company based in Des Moines, Iowa that owns subsidiaries principally engaged in the energy industry. BHE is a consolidated subsidiary of Berkshire Hathaway Inc. ("Berkshire Hathaway").
The unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and the United States Securities and Exchange Commission's rules and regulations for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures required by GAAP for annual financial statements. Management believes the unaudited Consolidated Financial Statements contain all adjustments (consisting only of normal recurring adjustments) considered necessary for the fair presentation of the unaudited Consolidated Financial Statements as of March 31, 2021 and for the three-month periods ended March 31, 2021 and 2020. The results of operations for the three-month periods ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year.
The preparation of the unaudited Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited Consolidated Financial Statements and the reported amounts of revenue and expenses during the period. Actual results may differ from the estimates used in preparing the unaudited Consolidated Financial Statements. Note 2 of Notes to Consolidated Financial Statements included in Eastern Energy Gas' Annual Report on Form 10-K for the year ended December 31, 2020 describes the most significant accounting policies used in the preparation of the unaudited Consolidated Financial Statements. There have been no significant changes in Eastern Energy Gas' assumptions regarding significant accounting estimates and policies during the three-month period ended March 31, 2021.
(2) Property, Plant and Equipment, Net
Property, plant and equipment, net consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
March 31,
|
|
December 31,
|
|
Depreciable Life
|
|
2021
|
|
2020
|
Utility Plant:
|
|
|
|
|
|
|
|
|
|
|
|
Interstate natural gas pipeline assets
|
24 - 43 years
|
|
$
|
8,385
|
|
|
$
|
8,382
|
|
Intangible plant
|
5 - 10 years
|
|
114
|
|
|
115
|
|
Utility plant in service
|
|
|
8,499
|
|
|
8,497
|
|
Accumulated depreciation and amortization
|
|
|
(2,792)
|
|
|
(2,759)
|
|
Utility plant in service, net
|
|
|
5,707
|
|
|
5,738
|
|
|
|
|
|
|
|
Nonutility Plant:
|
|
|
|
|
|
|
|
|
|
|
|
LNG facility
|
40 years
|
|
4,460
|
|
|
4,454
|
|
Intangible plant
|
14 years
|
|
25
|
|
|
25
|
|
Nonutility plant in service
|
|
|
4,485
|
|
|
4,479
|
|
Accumulated depreciation and amortization
|
|
|
(320)
|
|
|
(283)
|
|
Nonutility plant in service, net
|
|
|
4,165
|
|
|
4,196
|
|
|
|
|
|
|
|
Plant, net
|
|
|
9,872
|
|
|
9,934
|
|
Construction work- in-progress
|
|
|
227
|
|
|
210
|
|
Property, plant and equipment, net
|
|
|
$
|
10,099
|
|
|
$
|
10,144
|
|
Construction work-in-progress includes $211 million and $196 million as of March 31, 2021 and December 31, 2020, respectively, related to the construction of utility plant.
(3) Investments and Restricted Cash and Cash Equivalents
Investments and restricted cash and cash equivalents consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
Investments:
|
|
|
|
Investment funds
|
$
|
12
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Equity method investments:
|
|
|
|
Iroquois
|
250
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
262
|
|
|
244
|
|
|
|
|
|
Restricted cash and cash equivalents:
|
|
|
|
Customer deposits
|
9
|
|
|
13
|
|
Total restricted cash and cash equivalents
|
9
|
|
|
13
|
|
|
|
|
|
Total investments and restricted cash and cash equivalents
|
$
|
271
|
|
|
$
|
257
|
|
|
|
|
|
Reflected as:
|
|
|
|
Current assets
|
$
|
9
|
|
|
$
|
13
|
|
Noncurrent assets
|
262
|
|
|
244
|
|
Total investments and restricted cash and cash equivalents
|
$
|
271
|
|
|
$
|
257
|
|
Equity Method Investments
Eastern Energy Gas, through a subsidiary, owns 50% of Iroquois, which owns and operates an interstate natural gas pipeline located in the states of New York and Connecticut. Prior to the GT&S Transaction, Eastern Energy Gas, through the Questar Pipeline Group, owned 50% of White River Hub, which owns and operates a natural gas pipeline in northwest Colorado.
As of March 31, 2021 and December 31, 2020, the carrying amount of Eastern Energy Gas' investments exceeded its share of underlying equity in net assets by $130 million. The difference reflects equity method goodwill and is not being amortized. Eastern Energy Gas received distributions from its investments of $10 million and $15 million for the three-month periods ended March 31, 2021 and 2020, respectively.
Cash and Cash Equivalents and Restricted Cash and Cash Equivalents
Cash equivalents consist of funds invested in money market mutual funds, United States Treasury Bills and other investments with a maturity of three months or less when purchased. Cash and cash equivalents exclude amounts where availability is restricted by legal requirements, loan agreements or other contractual provisions. Restricted cash and cash equivalents as of March 31, 2021 and December 31, 2020 consist substantially of customer deposits as allowed under the FERC gas tariffs. A reconciliation of cash and cash equivalents and restricted cash and cash equivalents as of March 31, 2021 and December 31, 2020, as presented in the Consolidated Statements of Cash Flows is outlined below and disaggregated by the line items in which they appear on the Consolidated Balance Sheets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
|
|
|
|
Cash and cash equivalents
|
$
|
106
|
|
|
$
|
35
|
|
Restricted cash and cash equivalents
|
9
|
|
|
13
|
|
Total cash and cash equivalents and restricted cash and cash equivalents
|
$
|
115
|
|
|
$
|
48
|
|
(4) Regulatory Matters
Eastern Gas Transmission and Storage, Inc.
In July 2017, the FERC audit staff communicated to Eastern Gas Transmission and Storage, Inc. ("EGTS") that it had substantially completed an audit of EGTS' compliance with the accounting and reporting requirements of the FERC's Uniform System of Accounts and provided a description of matters and preliminary recommendations. In November 2017, the FERC audit staff issued its audit report. In December 2017, EGTS provided its response to the audit report. EGTS requested FERC review of the contested findings and submitted its plan for compliance with the uncontested portions of the report. EGTS reached resolution of certain matters with the FERC in the fourth quarter of 2018. EGTS recognized a charge of $129 million ($94 million after-tax) for the year ended December 31, 2018 for a disallowance of plant, originally established beginning in 2012, for the resolution of one matter with the FERC. In December 2020, the FERC issued a final ruling on the remaining matter, which resulted in a $43 million ($31 million after-tax) charge for disallowance of capitalized allowance for funds used during construction. As a condition of the December 2020 ruling, EGTS will file its proposed accounting entries and supporting documentation with the FERC by the second quarter of 2021; however, EGTS does not expect a material change from the charge recognized.
Cove Point
In January 2020, pursuant to the terms of a previous settlement, Cove Point filed a general rate case for its FERC-jurisdictional services, with proposed rates to be effective March 1, 2020. Cove Point proposed an annual cost-of-service of $182 million. In February 2020, the FERC approved suspending the changes in rates for five months following the proposed effective date, until August 1, 2020, subject to refund. In November 2020, Cove Point reached an agreement in principle with the active participants in the general rate case proceeding. Under the terms of the agreement in principle, Cove Point's rates effective August 1, 2020 result in an increase to annual revenues of $4 million and a decrease in annual depreciation expense of $1 million, compared to the rates in effect prior to August 1, 2020. The interim settlement rates were implemented November 1, 2020, and Cove Point's provision for rate refunds for August 2020 through October 2020 totaled $7 million. The agreement in principle was reflected in a stipulation and agreement filed with the FERC in January 2021. In March 2021, the FERC approved the stipulation and agreement and the rate refunds to customers were processed in late April 2021.
(5) Income Taxes
A reconciliation of the federal statutory income tax rate to the effective income tax rate applicable to income before income tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
Ended March 31,
|
|
2021
|
|
2020
|
|
|
|
|
Federal statutory income tax rate
|
21
|
%
|
|
21
|
%
|
State income tax, net of federal income tax benefit
|
3
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity interest
|
2
|
|
|
1
|
|
Effects of ratemaking
|
(1)
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Absence of noncontrolling interest
|
(11)
|
|
|
(3)
|
|
|
|
|
|
Other, net
|
(1)
|
|
|
1
|
|
Effective income tax rate
|
13
|
%
|
|
22
|
%
|
Absence of tax on noncontrolling interest is attributable to Eastern Energy Gas' ownership in Cove Point. The GT&S Transaction resulted in a change of noncontrolling interest to 75% as of March 31, 2021 from 25% as of March 31, 2020.
Through October 31, 2020, Eastern Energy Gas was included in DEI's consolidated federal income tax return and, where applicable, combined state income tax returns. All affiliate payables or receivables were settled with DEI prior to the closing date of the GT&S Transaction. Subsequent to the GT&S Transaction, Eastern Energy Gas, as a subsidiary of BHE, is included in Berkshire Hathaway's United States federal income tax return. Consistent with established regulatory practice, Eastern Energy Gas' provisions for income tax have been computed on a stand-alone basis, and substantially all of its currently payable or receivable income tax is remitted to or received from BHE. Eastern Energy Gas made no cash payments for income tax to BHE for the three-month period ended March 31, 2021.
(6) Employee Benefit Plans
Prior to the GT&S Transaction, certain Eastern Energy Gas employees not represented by collective bargaining units were covered by the Dominion Energy Pension Plan, a defined benefit pension plan sponsored by DEI that provides benefits to multiple DEI subsidiaries. As participating employers, Eastern Energy Gas was subject to DEI's funding policy, which was to contribute annually an amount that is in accordance with the Employee Retirement Income Security Act of 1974. Also prior to the GT&S Transaction, pension benefits for Eastern Energy Gas employees represented by collective bargaining units were provided by a separate plan that provides benefits to employees of both EGTS and Hope Gas, Inc. ("Hope"). Subsequent to the GT&S Transaction, Eastern Energy Gas employees are covered by the MidAmerican Energy Company ("MidAmerican Energy") Pension Plan, similar to the DEI plan.
Prior to the GT&S Transaction, certain retiree healthcare and life insurance benefits for Eastern Energy Gas employees not represented by collective bargaining units were covered by the Dominion Energy Retiree Health and Welfare Plan, a plan sponsored by DEI that provides certain retiree healthcare and life insurance benefits to multiple DEI subsidiaries. Also prior to the GT&S Transaction, retiree health and life insurance benefits for Eastern Energy Gas employees represented by collective bargaining units were covered by a separate other postretirement benefit plan that provides benefits to both EGTS and Hope. Subsequent to the GT&S Transaction, Eastern Energy Gas employees are covered by the MidAmerican Energy Retiree Health and Welfare plan, similar to the DEI plan.
Net periodic benefit cost (credit) for the pension and other postretirement benefit plans included the following components (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
|
Ended March 31,
|
|
|
|
|
|
2021
|
|
2020
|
Pension:
|
|
|
|
|
|
|
|
Service cost
|
|
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Interest cost
|
|
|
|
|
—
|
|
|
3
|
|
Expected return on plan assets
|
|
|
|
|
—
|
|
|
(14)
|
|
Net amortization
|
|
|
|
|
—
|
|
|
2
|
|
Net periodic benefit cost (credit)
|
|
|
|
|
$
|
—
|
|
|
$
|
(8)
|
|
|
|
|
|
|
|
|
|
Other Postretirement:
|
|
|
|
|
|
|
|
Service cost
|
|
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Interest cost
|
|
|
|
|
—
|
|
|
1
|
|
Expected return on plan assets
|
|
|
|
|
—
|
|
|
(5)
|
|
Net amortization
|
|
|
|
|
—
|
|
|
(1)
|
|
Net periodic benefit cost (credit)
|
|
|
|
|
$
|
—
|
|
|
$
|
(4)
|
|
(7) Fair Value Measurements
The carrying value of Eastern Energy Gas' cash, certain cash equivalents, receivables, payables, accrued liabilities and short-term borrowings approximates fair value because of the short-term maturity of these instruments. Eastern Energy Gas has various financial assets and liabilities that are measured at fair value on the Consolidated Financial Statements using inputs from the three levels of the fair value hierarchy. A financial asset or liability classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The three levels are as follows:
•Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that Eastern Energy Gas has the ability to access at the measurement date.
•Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
•Level 3 - Unobservable inputs reflect Eastern Energy Gas' judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. Eastern Energy Gas develops these inputs based on the best information available, including its own data.
The following table presents Eastern Energy Gas' financial assets and liabilities recognized on the Consolidated Balance Sheets and measured at fair value on a recurring basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Input Levels for Fair Value Measurements
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
As of March 31, 2021
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange rate derivatives
|
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
12
|
|
Money market mutual funds(1)
|
|
71
|
|
|
—
|
|
|
—
|
|
|
71
|
|
Investment funds
|
|
12
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
|
$
|
83
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
95
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange rate derivatives
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
$
|
—
|
|
|
$
|
(1)
|
|
Interest rate derivatives
|
|
—
|
|
|
(3)
|
|
|
—
|
|
|
(3)
|
|
|
|
$
|
—
|
|
|
$
|
(4)
|
|
|
$
|
—
|
|
|
$
|
(4)
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange rate derivatives
|
|
$
|
—
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
$
|
—
|
|
|
$
|
(1)
|
|
Foreign currency exchange rate derivatives
|
|
—
|
|
|
(2)
|
|
|
—
|
|
|
(2)
|
|
Interest rate derivatives
|
|
—
|
|
|
(6)
|
|
|
—
|
|
|
(6)
|
|
|
|
$
|
—
|
|
|
$
|
(9)
|
|
|
$
|
—
|
|
|
$
|
(9)
|
|
(1)Amounts are included in cash and cash equivalents on the Consolidated Balance Sheets. The fair value of these money market mutual funds approximates cost.
Derivative contracts are recorded on the Consolidated Balance Sheets as either assets or liabilities and are stated at estimated fair value unless they are designated as normal purchase or normal sales and qualify for the exception afforded by GAAP. When available, the fair value of derivative contracts is estimated using unadjusted quoted prices for identical contracts in the market in which Eastern Energy Gas transacts. When quoted prices for identical contracts are not available, Eastern Energy Gas uses forward price curves. Forward price curves represent Eastern Energy Gas' estimates of the prices at which a buyer or seller could contract today for delivery or settlement at future dates. Eastern Energy Gas bases its forward price curves upon market price quotations, when available, or internally developed and commercial models, with internal and external fundamental data inputs. Market price quotations are obtained from independent brokers, exchanges, direct communication with market participants and actual transactions executed by Eastern Energy Gas. Market price quotations are generally readily obtainable for the applicable term of Eastern Energy Gas' outstanding derivative contracts; therefore, Eastern Energy Gas' forward price curves reflect observable market quotes. Market price quotations for certain natural gas trading hubs are not as readily obtainable due to the length of the contracts. Given that limited market data exists for these contracts, as well as for those contracts that are not actively traded, Eastern Energy Gas uses forward price curves derived from internal models based on perceived pricing relationships to major trading hubs that are based on unobservable inputs. The estimated fair value of these derivative contracts is a function of underlying forward commodity prices, interest rates, currency rates, related volatility, counterparty creditworthiness and duration of contracts.
Eastern Energy Gas' long-term debt is carried at cost, including unamortized premiums, discounts and debt issuance costs as applicable, on the Consolidated Balance Sheets. The fair value of Eastern Energy Gas' long-term debt is a Level 2 fair value measurement and has been estimated based upon quoted market prices, where available, or at the present value of future cash flows discounted at rates consistent with comparable maturities with similar credit risks. The carrying value of Eastern Energy Gas' variable-rate long-term debt approximates fair value because of the frequent repricing of these instruments at market rates. The following table presents the carrying value and estimated fair value of Eastern Energy Gas' long-term debt (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2021
|
|
As of December 31, 2020
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
4,414
|
|
|
$
|
4,744
|
|
|
$
|
4,425
|
|
|
$
|
5,012
|
|
(8) Commitments and Contingencies
Legal Matters
Eastern Energy Gas is party to a variety of legal actions arising out of the normal course of business. Plaintiffs occasionally seek punitive or exemplary damages. Eastern Energy Gas does not believe that such normal and routine litigation will have a material impact on its consolidated financial results.
Environmental Laws and Regulations
Eastern Energy Gas is subject to federal, state and local laws and regulations regarding climate change, air and water quality, hazardous and solid waste disposal, protected species and other environmental matters that have the potential to impact its current and future operations. Eastern Energy Gas believes it is in material compliance with all applicable laws and regulations.
(9) Revenue from Contracts with Customers
The following table summarizes Eastern Energy Gas' energy products and services revenue by regulated and nonregulated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
Ended March 31,
|
|
2021
|
|
2020
|
Customer Revenue:
|
|
|
|
Regulated:
|
|
|
|
Gas transportation and storage
|
$
|
279
|
|
|
$
|
344
|
|
Wholesale
|
17
|
|
|
2
|
|
Other
|
—
|
|
|
1
|
|
Total regulated
|
296
|
|
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonregulated
|
190
|
|
|
208
|
|
Total Customer Revenue
|
486
|
|
|
555
|
|
Other revenue
|
—
|
|
|
1
|
|
Total operating revenue
|
$
|
486
|
|
|
$
|
556
|
|
Remaining Performance Obligations
The following table summarizes Eastern Energy Gas' revenue it expects to recognize in future periods related to significant unsatisfied remaining performance obligations for fixed contracts with expected durations in excess of one year as of March 31, 2021 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance obligations expected to be satisfied
|
|
|
|
Less than 12 months
|
|
More than 12 months
|
|
Total
|
Eastern Energy Gas
|
$
|
1,564
|
|
|
$
|
16,115
|
|
|
$
|
17,679
|
|
(10) Components of Accumulated Other Comprehensive Loss, Net
The following table shows the change in accumulated other comprehensive loss by each component of other comprehensive income (loss), net of applicable income tax (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
|
|
|
|
|
|
Accumulated
|
|
|
Amounts On
|
|
Unrealized
|
|
|
|
Other
|
|
|
Retirement
|
|
Losses on Cash
|
|
Noncontrolling
|
|
Comprehensive
|
|
|
Benefits
|
|
Flow Hedges
|
|
Interests
|
|
Loss, Net
|
Balance, December 31, 2019
|
|
$
|
(106)
|
|
|
$
|
(81)
|
|
|
$
|
—
|
|
|
$
|
(187)
|
|
Other comprehensive income (loss)
|
|
1
|
|
|
(85)
|
|
|
—
|
|
|
(84)
|
|
Balance, March 31, 2020
|
|
$
|
(105)
|
|
|
$
|
(166)
|
|
|
$
|
—
|
|
|
$
|
(271)
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
$
|
(12)
|
|
|
$
|
(51)
|
|
|
$
|
10
|
|
|
$
|
(53)
|
|
Other comprehensive income (loss)
|
|
2
|
|
|
10
|
|
|
(4)
|
|
|
8
|
|
Balance, March 31, 2021
|
|
$
|
(10)
|
|
|
$
|
(41)
|
|
|
$
|
6
|
|
|
$
|
(45)
|
|
(11) Variable Interest Entities
The primary beneficiary of a variable interest entity ("VIE") is required to consolidate the VIE and to disclose certain information about its significant variable interests in the VIE. The primary beneficiary of a VIE is the entity that has both 1) the power to direct the activities that most significantly impact the entity's economic performance and 2) the obligation to absorb losses or receive benefits from the entity that could potentially be significant to the VIE.
In November 2019, DEI contributed to Eastern Energy Gas a 75% controlling limited partner interest in Cove Point. In December 2019, DEI sold its retained 25% noncontrolling limited partner interest in Cove Point. As part of the GT&S Transaction, Eastern Energy Gas finalized a restructuring which included the disposition of a 50% noncontrolling interest in Cove Point to DEI, which resulted in Eastern Energy Gas owning 100% of the general partner interest and 25% of the limited partnership interest in Cove Point. Eastern Energy Gas concluded that Cove Point is a VIE due to the limited partners lacking the characteristics of a controlling financial interest. Eastern Energy Gas is the primary beneficiary of Cove Point as it has the power to direct the activities that most significantly impact its economic performance as well as the obligation to absorb losses and benefits which could be significant to it.
Eastern Energy Gas purchased shared services from Carolina Gas Services, Inc. ("Carolina Gas Services") an affiliated VIE, of $3 million and $4 million for the three-month periods ended March 31, 2021 and 2020, respectively. Eastern Energy Gas' Consolidated Balance Sheets included amounts due to Carolina Gas Services of $26 million and $22 million as of March 31, 2021 and December 31, 2020, respectively. Eastern Energy Gas determined that neither it nor any of its consolidated entities is the primary beneficiary of Carolina Gas Services as neither it nor any of its consolidated entities has both the power to direct the activities that most significantly impact its economic performance as well as the obligation to absorb losses and benefits which could be significant to them. Carolina Gas Services provides marketing and operational services. Neither Eastern Energy Gas nor any of its consolidated entities has any obligation to absorb more than its allocated share of Carolina Gas Services costs.
Prior to the GT&S Transaction, Eastern Energy Gas purchased shared services from Dominion Energy Questar Pipeline Services, Inc. ("DEQPS"), an affiliated VIE, of $7 million for the three-month period ended March 31, 2020. Eastern Energy Gas determined that neither it nor any of its consolidated entities was the primary beneficiary of DEQPS, as neither it nor any of its consolidated entities has both the power to direct the activities that most significantly impact their economic performance as well as the obligation to absorb losses and benefits which could be significant to them. DEQPS provided marketing and operational services. Neither Eastern Energy Gas nor any of its consolidated entities had any obligation to absorb more than its allocated share of DEQPS costs.
Prior to the GT&S Transaction, Eastern Energy Gas purchased shared services from Dominion Energy Services, Inc. ("DES"), an affiliated VIE, of $31 million for the three-month period ended March 31, 2020. Eastern Energy Gas determined that neither it nor any of its consolidated entities was the primary beneficiary of DES as neither it nor any of its consolidated entities had both the power to direct the activities that most significantly impact their economic performance as well as the obligation to absorb losses and benefits which could be significant to them. DES provided accounting, legal, finance and certain administrative and technical services. Neither Eastern Energy Gas nor any of its consolidated entities had any obligation to absorb more than its allocated share of DES costs.
(12) Related Party Transactions
Transactions Prior to the GT&S Transaction
Prior to the GT&S Transaction, Eastern Energy Gas engaged in related party transactions primarily with other DEI subsidiaries (affiliates). Eastern Energy Gas' receivable and payable balances with affiliates were settled based on contractual terms or on a monthly basis, depending on the nature of the underlying transactions. Through October 31, 2020, Eastern Energy Gas was included in DEI's consolidated federal income tax return and, where applicable, combined state income tax returns. All affiliate payables or receivables were settled with DEI prior to the closing of the GT&S Transaction.
Eastern Energy Gas transacted with affiliates for certain quantities of natural gas and other commodities at market prices in the ordinary course of business. Additionally, Eastern Energy Gas provided transportation and storage services to affiliates. Eastern Energy Gas also entered into certain other contracts with affiliates, and related parties, including construction services, which were presented separately from contracts involving commodities or services. Eastern Energy Gas participated in certain DEI benefit plans as described in Note 6.
DES, Carolina Gas Services, DEQPS and other affiliates provided accounting, legal, finance and certain administrative and technical services to Eastern Energy Gas. Eastern Energy Gas provided certain services to related parties, including technical services.
The financial statements for the three-month period ended March 31, 2020 include costs for certain general, administrative and corporate expenses assigned by DES, Carolina Gas Services and DEQPS to Eastern Energy Gas on the basis of direct and allocated methods in accordance with Eastern Energy Gas' services agreements with DES, Carolina Gas Services and DEQPS. Where costs incurred cannot be determined by specific identification, the costs were allocated based on the proportional level of effort devoted by DES, Carolina Gas Services and DEQPS resources that is attributable to the entity, determined by reference to number of employees, salaries and wages and other similar measures for the relevant DES service. Management believes the assumptions and methodologies underlying the allocation of general corporate overhead expenses are reasonable.
Subsequent to the GT&S Transaction, and with the exception of Cove Point, Eastern Energy Gas' transactions with other DEI subsidiaries are no longer related-party transactions.
Presented below are Eastern Energy Gas' significant transactions with DES, Carolina Gas Services, DEQPS and other affiliated and related parties for the three-month period ended March 31, 2020 (in millions):
|
|
|
|
|
|
|
|
|
|
Sales of natural gas and transportation and storage services
|
$
|
64
|
|
|
|
|
|
Purchases of natural gas and transportation and storage services
|
3
|
|
|
|
|
|
Services provided by related parties(1)
|
43
|
|
|
|
|
|
Services provided to related parties(2)
|
32
|
|
|
|
|
|
(1) Includes capitalized expenditures of $3 million.
(2) Amount primarily attributable to Atlantic Coast Pipeline, LLC, a related-party VIE prior to the GT&S Transaction.
Interest income related to Eastern Energy Gas' affiliated notes receivable from DEI was $11 million for the three-month period ended March 31, 2020.
Interest income related to Eastern Energy Gas' affiliated notes receivable from East Ohio Gas Company was $18 million for the three-month period ended March 31, 2020.
For the three-month period ended March 31, 2020, Eastern Energy Gas distributed $37 million to DEI.
Transactions Subsequent to the GT&S Transaction
Eastern Energy Gas is party to a tax-sharing agreement and is part of the Berkshire Hathaway consolidated United States federal income tax return. For current federal and state income taxes, Eastern Energy Gas had a receivable from BHE of $21 million and $20 million as of March 31, 2021 and December 31, 2020, respectively.
DEI, BHE, MidAmerican Energy, Northern Natural Gas Company and other related parties provided accounting, human resources, information technology and certain other administrative and technical services to Eastern Energy Gas, which totaled $7 million for the three-month period ended March 31, 2021. Eastern Energy Gas provided certain services to affiliates, including administrative and technical services, which totaled $9 million for the three-month period ended March 31, 2021. Eastern Energy Gas also provided transportation and storage services to affiliates, which totaled $7 million for the three-month period ended March 31, 2021. Other assets included amounts due from an affiliate of $6 million and $7 million as of March 31, 2021 and December 31, 2020, respectively.
Eastern Energy Gas has a $400 million intercompany revolving credit agreement from its parent, BHE GT&S, LLC ("BHE GT&S") expiring in November 2021. The credit facility, which is for general corporate purposes and provide for the issuance of letters of credit, has a variable interest rate based on London Interbank Offered Rate ("LIBOR") plus a fixed spread. As of March 31, 2021 and December 31, 2020, $— million and $9 million, respectively, was outstanding under the credit agreement.
BHE GT&S has an intercompany revolving credit agreement from Eastern Energy Gas expiring in December 2021. In March 2021, BHE GT&S increased its credit facility limit from $200 million to $400 million. The credit agreement has a variable interest rate based on LIBOR plus a fixed spread. As of March 31, 2021 and December 31, 2020, $234 million and $124 million, respectively, was outstanding under the credit agreement.
Eastern Energy Gas participates in certain MidAmerican Energy benefit plans as described in Note 6. As of March 31, 2021 and December 31, 2020, Eastern Energy Gas' amount due to MidAmerican Energy associated with these plans and reflected in other long-term liabilities on the Consolidated Balance Sheets was $110 million and $115 million, respectively.
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
The following is management's discussion and analysis of certain significant factors that have affected the consolidated financial condition and results of operations of Eastern Energy Gas during the periods included herein. This discussion should be read in conjunction with Eastern Energy Gas' historical Consolidated Financial Statements and Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. Eastern Energy Gas' actual results in the future could differ significantly from the historical results.
Results of Operations for the First Quarter of 2021 and 2020
Overview
Net income for the first three months of 2021 was $89 million, a decrease of $80 million compared to 2020. Net income decreased primarily a result of the GT&S Transaction consisting of an increase in net income attributable to noncontrolling interests due to DEI's 50% noncontrolling interest in Cove Point LNG, LP ("Cove Point") of $69 million and the absence of Questar Pipeline Group operations of $23 million.
Quarter Ended March 31, 2021 Compared to Quarter Ended March 31, 2020
Operating revenue decreased $70 million, or 13%, for the first quarter of 2021 compared to 2020, primarily due to the absence of Questar Pipeline Group operations of $64 million and a decrease in services performed for Atlantic Coast Pipeline, LLC of $17 million, which is offset in operations and maintenance expense. The decrease in operating revenue was partially offset by an increase in regulated gas sales primarily due to increased volumes of $17 million.
Cost of gas decreased $8 million, or 100%, for the first quarter of 2021 compared to 2020, primarily due to favorable prices of $19 million and the absence of Questar Pipeline Group operations of $2 million, partially offset by an increase in volumes sold of $14 million.
Operations and maintenance decreased $44 million, or 26%, for the first quarter of 2021 compared to 2020, primarily due to a decrease in services performed for Atlantic Coast Pipeline, LLC of $17 million and the absence of Questar Pipeline Group operations of $15 million.
Depreciation and amortization decreased $13 million, or 14%, for the first quarter of 2021 compared to 2020, primarily due to the absence of Questar Pipeline Group.
Interest expense decreased $14 million, or 24%, for the first quarter of 2021 compared to 2020, primarily due to lower interest expense of $7 million from the repayment of $700 million of long-term debt in the fourth quarter of 2020 and the absence of interest expense related to Questar Pipeline Group of $5 million.
Interest and dividend income decreased $30 million, or 100%, for the first quarter of 2021 compared to 2020, primarily due to the absence of interest income from the East Ohio Gas Company of $18 million and DEI of $11 million.
Other, net decreased $13 million, or 93%, for the first quarter of 2021 compared to 2020, primarily due to a decrease in non-service cost credits related to certain Eastern Energy Gas benefit plans that were retained by DEI as a result of the GT&S Transaction.
Income tax expense decreased $25 million for the first quarter of 2021 compared to 2020 and the effective tax rate was 13% for the first quarter of 2021 and 22% for the first quarter of 2020. The effective tax rate decreased primarily due to the change in the noncontrolling interest of Cove Point and lower pre-tax income as a result of the GT&S Transaction.
Net income attributable to noncontrolling interests increased $69 million, or 209%, for the first quarter of 2021 compared to 2020 primarily due to DEI's 50% interest in Cove Point effective with the GT&S Transaction.
Liquidity and Capital Resources
As of March 31, 2021, Eastern Energy Gas' total net liquidity was $506 million as follows (in millions):
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
106
|
|
|
|
|
Intercompany credit agreement(1)
|
|
400
|
|
Less:
|
|
|
Notes payable
|
|
—
|
|
|
|
|
Net intercompany credit agreement
|
|
400
|
|
|
|
|
Total net liquidity
|
|
$
|
506
|
|
|
|
|
Intercompany credit agreement:
|
|
|
Maturity date
|
|
2021
|
(1)Refer to Note 12 of Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for further discussion regarding Eastern Energy Gas' intercompany credit agreement.
Operating Activities
Net cash flows from operating activities for the three-month periods ended March 31, 2021 and 2020 were $241 million and $667 million. respectively. The change was primarily due to decreased repayments of affiliated receivables by DEI subsidiaries in 2021 and the absence of the Questar Pipeline Group.
The timing of Eastern Energy Gas' income tax cash flows from period to period can be significantly affected by the estimated federal income tax payment methods elected and assumptions for each payment date.
Investing Activities
Net cash flows from investing activities for the three-month periods ended March 31, 2021 and 2020 were $(56) million and $(342) million. respectively. The change was primarily due to the absence of loans to affiliates of $262 million.
Financing Activities
Net cash flows from financing activities for the three-month period ended March 31, 2021 were $(118) million. Uses of cash totaled $(118) million and consisted mainly of distributions to noncontrolling interests from Cove Point of $109 million.
Net cash flows from financing activities for the three-month period ended March 31, 2020 were $(306) million. Uses of cash totaled $306 million and consisted mainly of distributions of $269 million and repayments of short-term debt of $32 million.
Future Uses of Cash
Eastern Energy Gas has available a variety of sources of liquidity and capital resources, both internal and external, including net cash flows from operating activities, public and private debt offerings, the use of credit agreements, capital contributions and other sources. These sources are expected to provide funds required for current operations, capital expenditures, acquisitions, investments, debt retirements and other capital requirements. The availability and terms under which Eastern Energy Gas and each subsidiary has access to external financing depends on a variety of factors, including regulatory approvals, Eastern Energy Gas' credit ratings, investors' judgment of risk and conditions in the overall capital markets, including the condition of the utility industry.
Capital Expenditures
Capital expenditure needs are reviewed regularly by management and may change significantly as a result of these reviews, which may consider, among other factors, changes in environmental and other rules and regulations; impacts to customers' rates; outcomes of regulatory proceedings; changes in income tax laws; general business conditions; system reliability standards; the cost and efficiency of construction labor, equipment and materials; commodity prices; and the cost and availability of capital. Expenditures for certain assets may ultimately include acquisition of existing assets.
Eastern Energy Gas' historical and forecasted capital expenditures, each of which exclude amounts for non-cash equity AFUDC and other non-cash items, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
Annual
|
|
Ended March 31,
|
|
Forecast
|
|
2020
|
|
2021
|
|
2021
|
|
|
|
|
|
|
Natural gas transmission and storage
|
$
|
23
|
|
|
$
|
8
|
|
|
$
|
30
|
|
Other
|
53
|
|
|
47
|
|
|
432
|
|
Total
|
$
|
76
|
|
|
$
|
55
|
|
|
$
|
462
|
|
Eastern Energy Gas' natural gas transmission and storage capital expenditures primarily include growth capital expenditures related to planned regulated projects. Eastern Energy Gas' other capital expenditures consist primarily of non-regulated and routine capital expenditures for natural gas transmission, storage and liquefied natural gas terminalling infrastructure needed to serve existing and expected demand.
Contractual Obligations
As of March 31, 2021, there have been no material changes outside the normal course of business in contractual obligations from the information provided in Item 7 of Eastern Energy Gas' Annual Report on Form 10-K for the year ended December 31, 2020.
Regulatory Matters
Eastern Energy Gas is subject to comprehensive regulation. Refer to Note 4 of Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for discussion regarding Eastern Energy Gas' current regulatory matters.
Environmental Laws and Regulations
Eastern Energy Gas is subject to federal, state and local laws and regulations regarding climate change, air and water quality, hazardous and solid waste disposal, protected species and other environmental matters that have the potential to impact its current and future operations. In addition to imposing continuing compliance obligations and capital expenditure requirements, these laws and regulations provide regulators with the authority to levy substantial penalties for noncompliance, including fines, injunctive relief and other sanctions. These laws and regulations are administered by various federal, state and local agencies. Eastern Energy Gas believes it is in material compliance with all applicable laws and regulations, although many laws and regulations are subject to interpretation that may ultimately be resolved by the courts.
Refer to "Environmental Laws and Regulations" in Berkshire Hathaway Energy's Part I, Item 2 of this Form 10-Q for additional information regarding environmental laws and regulations.
Critical Accounting Estimates
Certain accounting measurements require management to make estimates and judgments concerning transactions that will be settled several years in the future. Amounts recognized on the Consolidated Financial Statements based on such estimates involve numerous assumptions subject to varying and potentially significant degrees of judgment and uncertainty and will likely change in the future as additional information becomes available. Estimates are used for, but not limited to, the accounting for the effects of certain types of regulation, impairment of goodwill and long-lived assets and income taxes. For additional discussion of Eastern Energy Gas' critical accounting estimates, see Item 7 of Eastern Energy Gas' Annual Report on Form 10-K for the year ended December 31, 2020. There have been no significant changes in Eastern Energy Gas' assumptions regarding critical accounting estimates since December 31, 2020.