Fitch Rates MidAmerican Energy's FMBs 'A+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'A+' rating to MidAmerican Energy Company's (MEC) First Mortgage Bond (FMB) issuance. The Rating Outlook is Stable.

KEY RATING DRIVERS

Low Operating Risk: MEC's ratings are supported by the utility's low business risk profile, relatively predictable earnings and cash flows, constructive regulation, competitive rates and strong FFO-based coverage and leverage metrics.

Regulatory Regime: In Fitch's view, Iowa regulation has been and is expected to remain credit-supportive. The Iowa Utility Board (IUB) approved MEC's 2013 general rate case (GRC) settlement with minor adjustments. The IUB order authorized a total $266 million rate increase, MEC's entire requested amount. In addition, the IUB approved the company's request for adjustment clauses to facilitate recovery of retail fuel and transmission costs as well as a mechanism to recover expiring production tax credits in retail rates.

Significant Wind Development: MEC is the largest owner of wind generation among U.S. utilities, driven by tax credits and supportive state regulation. In Fitch's view, MEC's wind generation is credit-supportive, providing an economic alternative to environmental coal restrictions. Considerable tax benefits associated with MEC's wind investment are a key driver of strong FFO metrics compared with EBITDA.

Ownership Structure: MEC's credit profile benefits from affiliation with Berkshire Hathaway Energy (BHE). Ownership of BHE by Berkshire Hathaway Inc. (BRK) provides the former with greater flexibility to manage utility subsidiary capital structures and liquidity because there is no dividend payment to ultimate parent BRK from BHE. MEC and its intermediate parent company, MidAmerican Funding (MF; Issuer Default Rating 'BBB+'; Stable Outlook) are ring-fenced to preserve their stand-alone credit profiles.

Credit Metrics: MEC's FFO-based coverage and leverage ratios are strong at 6.4x and 3.4x, respectively, while earnings-based financial ratios are somewhat less robust at 4.9x and 4.4x. Earnings-based coverage and leverage metrics are projected by Fitch to strengthen to 5.3x and 3.7x, respectively. Any significant deterioration to the regulatory compact in Iowa and/or business risk could lead to future credit rating downgrades.

KEY ASSUMPTIONS

Fitch assumes the following in its base case for MEC. MEC rate increases as authorized by the IUB in MEC's last GRC, including an anticipated $45 million rate hike Jan. 1, 2016. Fitch expects above-industry-average kilowatt-hour sales growth of 2% driven by strong large commercial and industrial demand. Fitch also assumes non-labor operating and maintenance expense increases of 2% per annum.

RATING SENSITIVITIES

Positive Rating Action: Positive rating actions seem unlikely in the near to intermediate term for MEC or its corporate parent. However, stronger than expected operating results, including a continuation of the credit-supportive regulatory compact in Iowa, and sustained earnings and FFO leverage ratios of 3.3x and 3.5x or lower, respectively, could trigger positive rating actions.

Negative Rating Action: An unexpected deterioration in Iowa regulation, a major base-load plant outage or other factors pressuring earnings and FFO leverage to 3.6x and 4.5x or higher, respectively, on a sustained basis could result in rating downgrades.

LIQUIDITY

MEC's liquidity position at June 30, 2015 was $712 million, including $302 million of cash and cash equivalents. MEC's $605 million unsecured revolving credit facilities expire March 2018. MEC's available borrowing capacity was $410 million under the utility's bank facilities. The bank credit agreements support MEC's commercial paper program, variable-rate tax exempt debt and issuance of letters of credit. MEC's credit agreement includes a maximum ratio of consolidated debt to total capitalization of 0.65:1.0, including short-term debt.

Date of related committee: Oct. 2, 2014.

Additional information is available on www.fitchratings.com.

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=991791

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20151005006270/en/

Fitch Ratings
Primary Analyst
Philip W. Smyth, CFA
Senior Director
+1-212-908-0531
Fitch Ratings
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Roshan Bains
Director
+1-212-908-0211
or
Committee Chairperson
Shalini Mahajan, CFA
Managing Director
+1-212-908-0351
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]

Source: Fitch Ratings

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