High power costs in the Pacific Northwest prompted Moody’sInvestors Service yesterday to change its outlook on securitiesissued by PacifiCorp (senior secured debt at A2) to negative fromstable.

PacifiCorp needs to procure a portion of its energy requirementsin the spot energy markets and prices remain abnormally high due toa shortage in electric capacity caused by increased regionaldemand, lower hydro levels, abnormal weather patterns, and the lackof new regional generation, Moody noted. PacifiCorp’s reliance onspot purchases has further increased due to an accident at thecompany’s 430 MW Hunter plant in Utah, which has rendered the plantinoperative for four to six months. According to the company, thenet cost impact of the outage is $1 million per day.

PacifiCorp, like California’s beleaguered utilities, is not ableto pass through higher wholesale costs to ratepayers under itscurrent tariff structure in most of the states in which itoperates. As a result, the company is expensing the cash costsassociated with the problem. In recent months, PacifiCorp has takenswift action to mitigate these rising procurement costs withregulatory filings in four different states. These include filingsfor deferred accounting of excess purchased power costs, includingthe cost of the Hunter outage, and rate cases for the recovery ofthese costs. To date, the company has secured an order for deferredcost accounting in Wyoming. In Oregon, PacifiCorp is working tosecure a deferred accounting order, which if approved could beretroactive to November 2000. It also requested a $160 million rateincrease. A decision on the rate hike is expected by late summer,while a decision on deferred accounting could come sooner. In Utah,in addition to filing for deferred accounting, PacifiCorp filed arate case seeking an immediate $142 million rate increase from theUtah Public Service Commission. A hearing is scheduled Jan. 30.

While these regulatory initiatives, if successful, will helpPacifiCorp recover these costs over time, Moody’s “remains somewhatcautious” about the outcomes of these regulatory proceedings atthis juncture.

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