Nevada Power Co.

The stable outlook on NPC reflects our stable outlook on parent Berkshire Hathaway Energy Co. (BHE) over the next 24 months. S&P Global Ratings expects management will effectively integrate the acquired gas storage and transmission businesses into BHE's energy operations. At the same time, management will continue to focus on its core utility operations and reach constructive regulatory outcomes supporting the business risk profile. In addition, we expect financial measures to initially weaken following the acquisition but modestly strengthen beginning in 2021, supporting the rating. Under our base-case forecast, we expect funds from operations (FFO) to debt of 14%-16% in 2021 and 2022. We could lower ratings if core financial measures continuously underperform our base-case forecast and remain consistently less

...Regulatory lag is reduced through various mechanisms. Nevada Power Co. (NPC) is permitted to use a hybrid test period, reflecting known and measurable adjustments for certain construction work in progress for seven months after the initial test period. The regulatory commission also allows for credit-supportive cost-recovery mechanisms such as revenue decoupling, fuel cost recovery riders, infrastructure replacement mechanisms, and energy efficiency-related recoveries. NPC uses a high percentage of purchased power. The company purchases about 30% of power from both renewable and nonrenewable sources. This requires maintaining strong rate recovery through the fuel cost recovery rider. Regulatory independence has weakened in Nevada. The state's market framework and energy policies might be less supportive of long-term financing of utilities. The heightened politicization of utility policies, including long-term energy generation planning, creates some uncertainty around investing in the state's...

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