BERKSHIRE HATHAWAY ENERGY CO (Form: 10-Q, Received: 05/07/2018 11:39:46)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2018

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______ to _______



Commission File Number	Exact name of registrant as specified in its charter; State or other jurisdiction of incorporation or organization	IRS Employer Identification No.
001-14881	BERKSHIRE HATHAWAY ENERGY COMPANY	94-2213782
	(An Iowa Corporation)
	666 Grand Avenue, Suite 500
	Des Moines, Iowa 50309-2580
	515-242-4300

001-05152	PACIFICORP	93-0246090
	(An Oregon Corporation)
	825 N.E. Multnomah Street
	Portland, Oregon 97232
	888-221-7070

333-90553	MIDAMERICAN FUNDING, LLC	47-0819200
	(An Iowa Limited Liability Company)
	666 Grand Avenue, Suite 500
	Des Moines, Iowa 50309-2580
	515-242-4300

333-15387	MIDAMERICAN ENERGY COMPANY	42-1425214
	(An Iowa Corporation)
	666 Grand Avenue, Suite 500
	Des Moines, Iowa 50309-2580
	515-242-4300

000-52378	NEVADA POWER COMPANY	88-0420104
	(A Nevada Corporation)
	6226 West Sahara Avenue
	Las Vegas, Nevada 89146
	702-402-5000

000-00508	SIERRA PACIFIC POWER COMPANY	88-0044418
	(A Nevada Corporation)
	6100 Neil Road
	Reno, Nevada 89511
	775-834-4011

	N/A
	(Former name or former address, if changed from last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Registrant	Yes	No
BERKSHIRE HATHAWAY ENERGY COMPANY	X
PACIFICORP	X
MIDAMERICAN FUNDING, LLC		X
MIDAMERICAN ENERGY COMPANY	X
NEVADA POWER COMPANY	X
SIERRA PACIFIC POWER COMPANY	X

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web sites, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Registrant	Large accelerated filer	Accelerated filer	Non-accelerated filer	Smaller reporting company	Emerging growth company
BERKSHIRE HATHAWAY ENERGY COMPANY			X
PACIFICORP			X
MIDAMERICAN FUNDING, LLC			X
MIDAMERICAN ENERGY COMPANY			X
NEVADA POWER COMPANY			X
SIERRA PACIFIC POWER COMPANY			X

If an emerging growth company, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrants are a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

All shares of outstanding common stock of Berkshire Hathaway Energy Company are privately held by a limited group of investors. As of April 30, 2018 , 77,025,044 shares of common stock, no par value, were outstanding.

All shares of outstanding common stock of PacifiCorp are indirectly owned by Berkshire Hathaway Energy Company . As of April 30, 2018 , 357,060,915 shares of common stock, no par value, were outstanding.

All of the member's equity of MidAmerican Funding, LLC is held by its parent company, Berkshire Hathaway Energy Company , as of April 30, 2018 .

All shares of outstanding common stock of MidAmerican Energy Company are owned by its parent company, MHC Inc. , which is a direct, wholly owned subsidiary of MidAmerican Funding, LLC . As of April 30, 2018 , 70,980,203 shares of common stock, no par value, were outstanding.

All shares of outstanding common stock of Nevada Power Company are owned by its parent company, NV Energy, Inc. , which is an indirect, wholly owned subsidiary of Berkshire Hathaway Energy Company . As of April 30, 2018 , 1,000 shares of common stock, $1.00 stated value, were outstanding.

All shares of outstanding common stock of Sierra Pacific Power Company are owned by its parent company, NV Energy, Inc. As of April 30, 2018 , 1,000 shares of common stock, $3.75 par value, were outstanding.

This combined Form 10-Q is separately filed by Berkshire Hathaway Energy Company , PacifiCorp , MidAmerican Funding, LLC , MidAmerican Energy Company , Nevada Power Company and Sierra Pacific Power Company . Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes no representation as to information relating to the other companies.

TABLE OF CONTENTS

PART I



Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	145
Item 4.	Controls and Procedures	145

PART II



Item 1.	Legal Proceedings	146
Item 1A.	Risk Factors	146
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	146
Item 3.	Defaults Upon Senior Securities	146
Item 4.	Mine Safety Disclosures	146
Item 5.	Other Information	146
Item 6.	Exhibits	146
Signatures		149

Definition of Abbreviations and Industry Terms

When used in Forward-Looking Statements, Part I - Items 2 through 3, and Part II - Items 1 through 6, the following terms have the definitions indicated.



Berkshire Hathaway Energy Company and Related Entities
BHE		Berkshire Hathaway Energy Company
Berkshire Hathaway Energy or the Company		Berkshire Hathaway Energy Company and its subsidiaries
PacifiCorp		PacifiCorp and its subsidiaries
MidAmerican Funding		MidAmerican Funding, LLC and its subsidiaries
MidAmerican Energy		MidAmerican Energy Company
NV Energy		NV Energy, Inc. and its subsidiaries
Nevada Power		Nevada Power Company and its subsidiaries
Sierra Pacific		Sierra Pacific Power Company and its subsidiaries
Nevada Utilities		Nevada Power Company and Sierra Pacific Power Company
Registrants		Berkshire Hathaway Energy Company, PacifiCorp, MidAmerican Funding, MidAmerican Energy, Nevada Power and Sierra Pacific
Subsidiary Registrants		PacifiCorp, MidAmerican Funding, MidAmerican Energy, Nevada Power and Sierra Pacific
Northern Powergrid		Northern Powergrid Holdings Company
Northern Natural Gas		Northern Natural Gas Company
Kern River		Kern River Gas Transmission Company
AltaLink		BHE Canada Holdings Corporation
ALP		AltaLink, L.P.
BHE U.S. Transmission		BHE U.S. Transmission, LLC
HomeServices		HomeServices of America, Inc. and its subsidiaries
BHE Pipeline Group or Pipeline Companies		Consists of Northern Natural Gas and Kern River
BHE Transmission		Consists of AltaLink and BHE U.S. Transmission
BHE Renewables		Consists of BHE Renewables, LLC and CalEnergy Philippines
Utilities		PacifiCorp, MidAmerican Energy Company, Nevada Power Company and Sierra Pacific Power Company
Berkshire Hathaway		Berkshire Hathaway Inc.

Certain Industry Terms
AESO		Alberta Electric System Operator
AFUDC		Allowance for Funds Used During Construction
AUC		Alberta Utilities Commission
CPUC		California Public Utilities Commission
Dth		Decatherms
EBA		Energy Balancing Account
ECAM		Energy Cost Adjustment Mechanism
EPA		United States Environmental Protection Agency
FERC		Federal Energy Regulatory Commission
GHG		Greenhouse Gases
GWh		Gigawatt Hours
GTA		General Tariff Application
IPUC		Idaho Public Utilities Commission
IUB		Iowa Utilities Board



kV		Kilovolt
MW		Megawatts
MWh		Megawatt Hours
OPUC		Oregon Public Utility Commission
PUCN		Public Utilities Commission of Nevada
REC		Renewable Energy Credit
RPS		Renewable Portfolio Standards
SEC		United States Securities and Exchange Commission
SIP		State Implementation Plan
TAM		Transition Adjustment Mechanism
UPSC		Utah Public Service Commission
WPSC		Wyoming Public Service Commission
WUTC		Washington Utilities and Transportation Commission

Forward-Looking Statements

This report contains statements that do not directly or exclusively relate to historical facts. These statements are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements can typically be identified by the use of forward-looking words, such as "will," "may," "could," "project," "believe," "anticipate," "expect," "estimate," "continue," "intend," "potential," "plan," "forecast" and similar terms. These statements are based upon the relevant Registrant's current intentions, assumptions, expectations and beliefs and are subject to risks, uncertainties and other important factors. Many of these factors are outside the control of each Registrant and could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors include, among others:


•	general economic, political and business conditions, as well as changes in, and compliance with, laws and regulations, including income tax reform, initiatives regarding deregulation and restructuring of the utility industry, and reliability and safety standards, affecting the respective Registrant's operations or related industries;


•	changes in, and compliance with, environmental laws, regulations, decisions and policies that could, among other items, increase operating and capital costs, reduce facility output, accelerate facility retirements or delay facility construction or acquisition;


•	the outcome of regulatory rate reviews and other proceedings conducted by regulatory agencies or other governmental and legal bodies and the respective Registrant's ability to recover costs through rates in a timely manner;


•	changes in economic, industry, competition or weather conditions, as well as demographic trends, new technologies and various conservation, energy efficiency and private generation measures and programs, that could affect customer growth and usage, electricity and natural gas supply or the respective Registrant's ability to obtain long-term contracts with customers and suppliers;


•	performance, availability and ongoing operation of the respective Registrant's facilities, including facilities not operated by the Registrants, due to the impacts of market conditions, outages and repairs, transmission constraints, weather, including wind, solar and hydroelectric conditions, and operating conditions;

•

the effects of catastrophic and other unforeseen events, which may be caused by factors beyond the control of each respective Registrant or by a breakdown or failure of the Registrants' operating assets, including severe storms, floods, fires, earthquakes, explosions, landslides, an electromagnetic pulse, mining incidents, litigation, wars, terrorism, embargoes, and cyber security attacks, data security breaches, disruptions, or other malicious acts;


•	a high degree of variance between actual and forecasted load or generation that could impact a Registrant's hedging strategy and the cost of balancing its generation resources with its retail load obligations;


•	changes in prices, availability and demand for wholesale electricity, coal, natural gas, other fuel sources and fuel transportation that could have a significant impact on generating capacity and energy costs;


•	the financial condition and creditworthiness of the respective Registrant's significant customers and suppliers;


•	changes in business strategy or development plans;

iii


•	availability, terms and deployment of capital, including reductions in demand for investment-grade commercial paper, debt securities and other sources of debt financing and volatility in interest rates;


•	changes in the respective Registrant's credit ratings;


•	risks relating to nuclear generation, including unique operational, closure and decommissioning risks;


•	hydroelectric conditions and the cost, feasibility and eventual outcome of hydroelectric relicensing proceedings;


•	the impact of certain contracts used to mitigate or manage volume, price and interest rate risk, including increased collateral requirements, and changes in commodity prices, interest rates and other conditions that affect the fair value of certain contracts;


•	the impact of inflation on costs and the ability of the respective Registrants to recover such costs in regulated rates;


•	fluctuations in foreign currency exchange rates, primarily the British pound and the Canadian dollar;


•	increases in employee healthcare costs;


•	the impact of investment performance and changes in interest rates, legislation, healthcare cost trends, mortality and morbidity on pension and other postretirement benefits expense and funding requirements;


•	changes in the residential real estate brokerage, mortgage and franchising industries and regulations that could affect brokerage, mortgage and franchising transactions;


•	the ability to successfully integrate future acquired operations into a Registrant's business;


•	unanticipated construction delays, changes in costs, receipt of required permits and authorizations, ability to fund capital projects and other factors that could affect future facilities and infrastructure additions;


•	the availability and price of natural gas in applicable geographic regions and demand for natural gas supply;


•	the impact of new accounting guidance or changes in current accounting estimates and assumptions on the consolidated financial results of the respective Registrants; and


•	other business or investment considerations that may be disclosed from time to time in the Registrants' filings with the SEC or in other publicly disseminated written documents.

Further details of the potential risks and uncertainties affecting the Registrants are described in the Registrants' filings with the SEC, including Part II, Item 1A and other discussions contained in this Form 10-Q. Each Registrant undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing factors should not be construed as exclusive.


Item 1.	Financial Statements



Berkshire Hathaway Energy Company and its subsidiaries
Report of Independent Registered Public Accounting Firm		4
Consolidated Balance Sheets		5
Consolidated Statements of Operations		7
Consolidated Statements of Comprehensive Income		8
Consolidated Statements of Changes in Equity		9
Consolidated Statements of Cash Flows		10
Notes to Consolidated Financial Statements		11
PacifiCorp and its subsidiaries
Report of Independent Registered Public Accounting Firm		47
Consolidated Balance Sheets		48
Consolidated Statements of Operations		50
Consolidated Statements of Changes in Shareholders' Equity		51
Consolidated Statements of Cash Flows		52
Notes to Consolidated Financial Statements		53
MidAmerican Energy Company
Report of Independent Registered Public Accounting Firm		71
Balance Sheets		72
Statements of Operations		74
Statements of Changes in Equity		75
Statements of Cash Flows		76
Notes to Financial Statements		77
MidAmerican Funding, LLC and its subsidiaries
Report of Independent Registered Public Accounting Firm		87
Consolidated Balance Sheets		88
Consolidated Statements of Operations		90
Consolidated Statements of Changes in Equity		91
Consolidated Statements of Cash Flows		92
Notes to Consolidated Financial Statements		93
Nevada Power Company and its subsidiaries
Report of Independent Registered Public Accounting Firm		108
Consolidated Balance Sheets		109
Consolidated Statements of Operations		110
Consolidated Statements of Changes in Shareholder's Equity		111
Consolidated Statements of Cash Flows		112
Notes to Consolidated Financial Statements		113
Sierra Pacific Power Company and its subsidiaries
Report of Independent Registered Public Accounting Firm		126
Consolidated Balance Sheets		127
Consolidated Statements of Operations		128
Consolidated Statements of Changes in Shareholder's Equity		129
Consolidated Statements of Cash Flows		130
Notes to Consolidated Financial Statements		131


Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations



Berkshire Hathaway Energy Company and its subsidiaries		28
PacifiCorp and its subsidiaries		63
MidAmerican Funding, LLC and its subsidiaries and MidAmerican Energy Company		97
Nevada Power Company and its subsidiaries		120
Sierra Pacific Power Company and its subsidiaries		139

Berkshire Hathaway Energy 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 Shareholders of Berkshire Hathaway Energy Company

Results of Review of Interim Financial Information

We have reviewed the accompanying consolidated balance sheet of Berkshire Hathaway Energy Company and subsidiaries (the "Company") as of March 31, 2018 , the related consolidated statements of operations, comprehensive income, changes in equity and cash flows, for the three-month periods ended March 31, 2018 and 2017 , 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 statements 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 the Company as of December 31, 2017 , 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 23, 2018 , 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, 2017 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 the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company 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 the 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

May 7, 2018

BERKSHIRE HATHAWAY ENERGY COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Amounts in millions)



	As of
	March 31,		December 31,
	2018		2017
ASSETS
Current assets:
Cash and cash equivalents	$	1,644	$	935
Restricted cash and cash equivalents	212		327
Trade receivables, net	1,772		2,014
Income taxes receivable	458		334
Inventories	864		888
Mortgage loans held for sale	440		465
Other current assets	963		815
Total current assets	6,353		5,778

Property, plant and equipment, net	66,054		65,871
Goodwill	9,665		9,678
Regulatory assets	2,812		2,761
Investments and restricted cash and cash equivalents and investments	4,796		4,872
Other assets	1,232		1,248

Total assets	$	90,912	$	90,208

The accompanying notes are an integral part of these consolidated financial statements.

BERKSHIRE HATHAWAY ENERGY COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited) (continued)

(Amounts in millions)



	As of
	March 31,			December 31,
	2018			2017
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,089		$	1,519
Accrued interest	507			488
Accrued property, income and other taxes	446			354
Accrued employee expenses	319			274
Short-term debt	2,608			4,488
Current portion of long-term debt	4,314			3,431
Other current liabilities	1,209			1,049
Total current liabilities	10,492			11,603

BHE senior debt	7,627			5,452
BHE junior subordinated debentures	100			100
Subsidiary debt	25,457			26,210
Regulatory liabilities	7,368			7,309
Deferred income taxes	8,086			8,242
Other long-term liabilities	2,988			2,984
Total liabilities	62,118			61,900

Commitments and contingencies (Note 10)

Equity:
BHE shareholders' equity:
Common stock - 115 shares authorized, no par value, 77 shares issued and outstanding	—			—
Additional paid-in capital	6,363			6,368
Retained earnings	23,719			22,206
Accumulated other comprehensive loss, net	(1,415		)	(398		)
Total BHE shareholders' equity	28,667			28,176
Noncontrolling interests	127			132
Total equity	28,794			28,308

Total liabilities and equity	$	90,912		$	90,208

The accompanying notes are an integral part of these consolidated financial statements.

BERKSHIRE HATHAWAY ENERGY COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Amounts in millions)



	Three-Month Periods
	Ended March 31,
	2018			2017
Operating revenue:
Energy	$	3,679		$	3,581
Real estate	761			585
Total operating revenue	4,440			4,166

Operating costs and expenses:
Energy:
Cost of sales	1,168			1,119
Operating expense	928			887
Depreciation and amortization	704			610
Real estate	769			583
Total operating costs and expenses	3,569			3,199

Operating income	871			967

Other income (expense):
Interest expense	(466		)	(458		)
Capitalized interest	12			10
Allowance for equity funds	21			17
Interest and dividend income	26			26
Realized and unrealized (loss) gain on marketable securities, net	(209		)	3
Other, net	30			26
Total other income (expense)	(586		)	(376		)

Income before income tax (benefit) expense and equity income	285			591
Income tax (benefit) expense	(221		)	52
Equity income	12			24
Net income	518			563
Net income attributable to noncontrolling interests	5			7
Net income attributable to BHE shareholders	$	513		$	556

The accompanying notes are an integral part of these consolidated financial statements.

BERKSHIRE HATHAWAY ENERGY COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Amounts in millions)



	Three-Month Periods
	Ended March 31,
	2018			2017

Net income	$	518		$	563

Other comprehensive income, net of tax:
Unrecognized amounts on retirement benefits, net of tax of $(4) and $(1)	(3		)	5
Foreign currency translation adjustment	73			87
Unrealized gains on marketable securities, net of tax of $- and $18	—			38
Unrealized losses on cash flow hedges, net of tax of $(1) and $(2)	(2		)	(4		)
Total other comprehensive income, net of tax	68			126

Comprehensive income	586			689
Comprehensive income attributable to noncontrolling interests	5			7
Comprehensive income attributable to BHE shareholders	$	581		$	682

The accompanying notes are an integral part of these consolidated financial statements.

BERKSHIRE HATHAWAY ENERGY COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)

(Amounts in millions)



	BHE Shareholders' Equity
										Accumulated
				Additional						Other
	Common			Paid-in			Retained			Comprehensive			Noncontrolling			Total
	Shares	Stock		Capital			Earnings			Loss, Net			Interests			Equity

Balance, December 31, 2016	77	$	—	$	6,390		$	19,448		$	(1,511	)	$	136		$	24,463
Net income	—	—		—			556			—			4			560
Other comprehensive loss	—	—		—			—			126			—			126
Distributions	—	—		—			—			—			(7		)	(7		)
Common stock purchases	—	—		(1		)	(18		)	—			—			(19		)
Other equity transactions	—	—		(8		)	—			—			(3		)	(11		)
Balance, March 31, 2017	77	$	—	$	6,381		$	19,986		$	(1,385	)	$	130		$	25,112

Balance, December 31, 2017	77	$	—	$	6,368		$	22,206		$	(398	)	$	132		$	28,308
Net income	—	—		—			513			—			4			517
Other comprehensive income	—	—		—			—			68			—			68
Adoption of ASU 2016-01	—	—		—			1,085			(1,085		)	—			—
Distributions	—	—		—			—			—			(9		)	(9		)
Common stock purchases	—	—		(5		)	(85		)	—			—			(90		)
Balance, March 31, 2018	77	$	—	$	6,363		$	23,719		$	(1,415	)	$	127		$	28,794

The accompanying notes are an integral part of these consolidated financial statements.

BERKSHIRE HATHAWAY ENERGY COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Amounts in millions)



	Three-Month Periods
	Ended March 31,
	2018			2017
Cash flows from operating activities:
Net income	$	518		$	563
Adjustments to reconcile net income to net cash flows from operating activities:
Realized and unrealized loss (gain) on marketable securities, net	209			(3		)
Depreciation and amortization	716			622
Allowance for equity funds	(21		)	(17		)
Equity income, net of distributions	(5		)	(13		)
Changes in regulatory assets and liabilities	94			20
Deferred income taxes and amortization of investment tax credits	(166		)	224
Other, net	19			(2		)
Changes in other operating assets and liabilities, net of effects from acquisitions:
Trade receivables and other assets	250			308
Derivative collateral, net	(14		)	(23		)
Pension and other postretirement benefit plans	(21		)	(17		)
Accrued property, income and other taxes	(60		)	(187		)
Accounts payable and other liabilities	(40		)	(37		)
Net cash flows from operating activities	1,479			1,438

Cash flows from investing activities:
Capital expenditures	(1,075		)	(865		)
Acquisitions, net of cash acquired	—			(579		)
Purchases of marketable securities	(155		)	(81		)
Proceeds from sales of marketable securities	132			83
Equity method investments	(156		)	(84		)
Other, net	31			(12		)
Net cash flows from investing activities	(1,223		)	(1,538		)

Cash flows from financing activities:
Proceeds from BHE senior debt	2,176			—
Repayments of BHE junior subordinated debentures	—			(200		)
Common stock purchases	(90		)	(19		)
Proceeds from subsidiary debt	687			844
Repayments of subsidiary debt	(550		)	(425		)
Net (repayments of) proceeds from short-term debt	(1,873		)	140
Other, net	(14		)	(12		)
Net cash flows from financing activities	336			328

Effect of exchange rate changes	1			1

Net change in cash and cash equivalents and restricted cash and cash equivalents	593			229
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period	1,283			1,003
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	1,876		$	1,232

The accompanying notes are an integral part of these consolidated financial statements.

BERKSHIRE HATHAWAY ENERGY COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


( 1 )	General

Berkshire Hathaway Energy Company (" BHE ") is a holding company that owns a highly diversified portfolio of locally managed businesses principally engaged in the energy industry (collectively with its subsidiaries, the "Company") and is a consolidated subsidiary of Berkshire Hathaway Inc. (" Berkshire Hathaway ").

The Company's operations are organized as eight business segments: PacifiCorp , MidAmerican Funding, LLC (" MidAmerican Funding ") (which primarily consists of MidAmerican Energy Company (" MidAmerican Energy ")), NV Energy, Inc. (" NV Energy ") (which primarily consists of Nevada Power Company (" Nevada Power ") and Sierra Pacific Power Company (" Sierra Pacific ")), Northern Powergrid Holdings Company (" Northern Powergrid ") (which primarily consists of Northern Powergrid (Northeast) Limited and Northern Powergrid (Yorkshire) plc ), BHE Pipeline Group (which consists of Northern Natural Gas Company (" Northern Natural Gas ") and Kern River Gas Transmission Company (" Kern River ")), BHE Transmission (which consists of BHE Canada Holdings Corporation (" AltaLink ") (which primarily consists of AltaLink, L.P. (" ALP ")) and BHE U.S. Transmission, LLC ), BHE Renewables (which primarily consists of BHE Renewables, LLC and CalEnergy Philippines ) and HomeServices of America, Inc. (collectively with its subsidiaries, " HomeServices "). The Company, through these locally managed and operated businesses, owns four utility companies in the United States serving customers in 11 states, two electricity distribution companies in Great Britain, two interstate natural gas pipeline companies in the United States, an electric transmission business in Canada, interests in electric transmission businesses in the United States, a renewable energy business primarily investing in solar, wind, geothermal and hydroelectric projects, the second largest residential real estate brokerage firm in the United States and one of the largest residential real estate brokerage franchise networks in the United States.

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, 2018 and for the three-month periods ended March 31, 2018 and 2017 . The results of operations for the three-month period ended March 31, 2018 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 the Company's Annual Report on Form 10-K for the year ended December 31, 2017 describes the most significant accounting policies used in the preparation of the unaudited Consolidated Financial Statements. There have been no significant changes in the Company's assumptions regarding significant accounting estimates and policies during the three-month period ended March 31, 2018 .

( 2 ) New Accounting Pronouncements

In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-02, which amends FASB Accounting Standards Codification ("ASC") Topic 220, "Income Statement - Reporting Comprehensive Income." The amendments in this guidance require a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects that were created from the Tax Cuts and Jobs Act enacted on December 22, 2017 ("2017 Tax Reform"). The reclassification is the difference between the historical income tax rates and the enacted rate for the items previously recorded in accumulated other comprehensive income. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted, and is required to be adopted retrospectively to each period in which the effect of the change in the 2017 Tax Reform is recognized. Considering the significant components of the Company's accumulated other comprehensive income relate to (a) unrecognized amounts on retirement benefits of foreign pension plans and (b) unrealized gains on available-for-sale securities, which were reclassified as required by ASU No. 2016-01 that was adopted on January 1, 2018, the adoption of ASU No. 2018-02 will not have a material impact on its Consolidated Financial Statements and disclosures included within Notes to Consolidated Financial Statements.

In August 2017, the FASB issued ASU No. 2017-12, which amends FASB ASC Topic 815, "Derivatives and Hedging." The amendments in this guidance update the hedge accounting model to enable entities to better portray the economics of their risk management activities in the financial statements, expands an entity's ability to hedge non-financial and financial risk components and reduces complexity in fair value hedges of interest rate risk. In addition, it eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in fair value of a hedging instrument to be presented in the same income statement line as the hedged item and also eases certain documentation and assessment requirements. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted, and is required to be adopted using a modified retrospective approach by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of adopting this guidance on its Consolidated Financial Statements and disclosures included within Notes to Consolidated Financial Statements.

In February 2016, the FASB issued ASU No. 2016-02, which creates FASB ASC Topic 842, "Leases" and supersedes Topic 840 "Leases." This guidance increases transparency and comparability among entities by recording lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous guidance. In January 2018, the FASB issued ASU No. 2018-01 that provides for an optional transition practical expedient allowing companies to not have to evaluate existing land easements if they were not previously accounted for under ASC Topic 840, "Leases." This guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted, and is required to be adopted using a modified retrospective approach. The Company plans to adopt this guidance effective January 1, 2019 and is currently evaluating the impact on its Consolidated Financial Statements and disclosures included within Notes to Consolidated Financial Statements.


( 3 )	Business Acquisitions

In April 2018, HomeServices acquired the remaining 33.3% interest in a real estate brokerage franchise business from the noncontrolling interest member at a contractually determined option exercise formula totaling $131 million .

The Company completed various acquisitions totaling $579 million , net of cash acquired, for the three-month period ended March 31, 2017. The purchase price for each acquisition was allocated to the assets acquired and liabilities assumed, which related primarily to development and construction costs for the 110-megawatt Alamo 6 solar-powered generation project, the remaining 25% interest in the Silverhawk natural gas-fueled generation facility at Nevada Power and a residential real estate brokerage business. There were no other material assets acquired or liabilities assumed.


( 4 )	Property, Plant and Equipment, Net

Property, plant and equipment, net consists of the following (in millions):



		As of
	Depreciable	March 31,			December 31,
	Life	2018			2017
Regulated assets:
Utility generation, transmission and distribution systems	5-80 years	$	75,068		$	74,660
Interstate natural gas pipeline assets	3-80 years	7,230			7,176
		82,298			81,836
Accumulated depreciation and amortization		(24,957		)	(24,478		)
Regulated assets, net		57,341			57,358

Nonregulated assets:
Independent power plants	5-30 years	6,034			6,010
Other assets	3-30 years	1,588			1,489
		7,622			7,499
Accumulated depreciation and amortization		(1,644		)	(1,542		)
Nonregulated assets, net		5,978			5,957

Net operating assets		63,319			63,315
Construction work-in-progress		2,735			2,556
Property, plant and equipment, net		$	66,054		$	65,871

Construction work-in-progress includes $2.4 billion as of March 31, 2018 and $2.2 billion as of December 31, 2017 , related to the construction of regulated assets.


( 5 )	Investments and Restricted Cash and Cash Equivalents and Investments

Investments and restricted cash and cash equivalents and investments consists of the following (in millions):



	As of
	March 31,		December 31,
	2018		2017
Investments:
BYD Company Limited common stock	$	1,754	$	1,961
Rabbi trusts	387		441
Other	183		124
Total investments	2,324		2,526

Equity method investments:
BHE Renewables tax equity investments	1,177		1,025
Electric Transmission Texas, LLC	536		524
Bridger Coal Company	129		137
Other	143		148
Total equity method investments	1,985		1,834

Restricted cash and cash equivalents and investments:
Quad Cities Station nuclear decommissioning trust funds	512		515
Restricted cash and cash equivalents	232		348
Total restricted cash and cash equivalents and investments	744		863

Total investments and restricted cash and cash equivalents and investments	$	5,053	$	5,223

Reflected as:
Current assets	$	257	$	351
Noncurrent assets	4,796		4,872
Total investments and restricted cash and cash equivalents and investments	$	5,053	$	5,223

Investments

In January 2016, the FASB issued ASU 2016-01 which amended FASB ASC Subtopic 825-10, "Financial Instruments - Overall." The amendments in this guidance addressed certain aspects of recognition, measurement, presentation and disclosure of financial instruments including a requirement that all investments in equity securities that do not qualify for equity method accounting or result in consolidation of the investee be measured at fair value with changes in fair value recognized in net income. The Company adopted this guidance effective January 1, 2018 with a cumulative-effect increase to retained earnings of $1,085 million and a corresponding decrease to accumulated other comprehensive income (loss) ("AOCI").

The portion of unrealized losses for the three-month period ended March 31, 2018 related to investments still held as of March 31, 2018 is calculated as follows (in millions):



Realized and unrealized losses on marketable securities recognized during the period	$	(209	)
Less: Net gains recognized during the period on investments sold during the period	2
Unrealized losses recognized during the period on investments still held at the reporting date	$	(211	)

Equity Method Investments

In August 2016, the FASB issued ASU No. 2016-15, which amends FASB ASC Topic 230, "Statement of Cash Flows." The amendments in this guidance address the classification of eight specific cash flow issues within the statement of cash flows with the objective of reducing the existing diversity in practice. The Company adopted this guidance retrospectively effective January 1, 2018 which resulted in the reclassification of certain cash distributions received from equity method investees of $19 million previously recognized within investing cash flows to operating cash flows for the three-month period ended March 31, 2017 .

Cash and Cash Equivalents and Restricted Cash and Cash Equivalents

In November 2016, the FASB issued ASU No. 2016-18, which amends FASB ASC Subtopic 230-10, "Statement of Cash Flows - Overall." The amendments in this guidance require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this guidance January 1, 2018.

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, 2018 and December 31, 2017 , consist substantially of funds restricted for the purpose of constructing solid waste facilities under tax-exempt bond obligation agreements and debt service obligations for certain of the Company's nonregulated renewable energy projects. A reconciliation of cash and cash equivalents and restricted cash and cash equivalents as of March 31, 2018 and December 31, 2017 , 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,
	2018		2017
Cash and cash equivalents	$	1,644	$	935
Restricted cash and cash equivalents	212		327
Investments and restricted cash and cash equivalents and investments	20		21
Total cash and cash equivalents and restricted cash and cash equivalents	$	1,876	$	1,283


( 6 )	Recent Financing Transactions

Long-Term Debt

In April 2018, Nevada Power issued $575 million of its 2.75% General and Refunding Mortgage Notes, Series BB, due April 2020. Nevada Power intends to use the net proceeds, together with available cash, to repay all of Nevada Power's $325 million 6.50% General and Refunding Mortgage Notes, Series O, maturing in May 2018, a portion of Nevada Power's $500 million 6.50% General and Refunding Mortgage Notes, Series S, maturing in August 2018 and for general corporate purposes.

In February 2018, MidAmerican Energy issued $700 million of its 3.65% First Mortgage Bonds due August 2048. An amount equal to the net proceeds was used to finance capital expenditures, disbursed during the period from February 2, 2017 to October 31, 2017, with respect to investments in MidAmerican Energy's 2,000-megawatt (nameplate capacity) Wind XI project and the repowering of certain of MidAmerican Energy's existing wind facilities, which were previously financed with MidAmerican Energy's general funds.

In January 2018, BHE issued $450 million of its 2.375% Senior Notes due 2021, $400 million of its 2.800% Senior Notes due 2023, $600 million of its 3.250% Senior Notes due 2028 and $750 million of its 3.800% Senior Notes due 2048. The net proceeds were used to refinance a portion of the Company's short-term indebtedness and for general corporate purposes.

Credit Facilities

In April 2018, BHE terminated its $1.0 billion unsecured credit facility expiring May 2018 and amended and restated, with lender consent, its existing $2.0 billion unsecured credit facility expiring June 2020, increasing the lender commitment to $3.5 billion , extending the expiration date to June 2021 and increasing from one to two, the available one-year extension options, subject to lender consent.

In April 2018, PacifiCorp amended and restated its existing $400 million unsecured credit facility expiring June 2020, increasing the lender commitment to $600 million , extending the expiration date to June 2021 and increasing from one to two, the available one-year extension options, subject to lender consent.

In April 2018, PacifiCorp and MidAmerican Energy amended and restated their existing $600 million and $900 million unsecured credit facilities, respectively, each expiring June 2020, extending the expiration dates to June 2021 and reducing from two to one, the available one-year extension options, subject to lender consent.

In April 2018, Nevada Power and Sierra Pacific amended and restated their existing $400 million and $250 million secured credit facilities, respectively, each expiring June 2020, extending the expiration dates to June 2021 and reducing from two to one, the available one-year extension options, subject to lender consent.

In April 2018, ALP amended its existing C$750 million secured credit facility expiring December 2019, decreasing the lender commitment to C$500 million effective December 2018 and extending the expiration date to December 2022. ALP also amended its C$75 million secured credit facility expiring December 2019, extending the expiration date to December 2022.


( 7 )	Income Taxes

Tax Cuts and Jobs Act

2017 Tax Reform impacts many areas of income tax law. The most material items include the reduction of the federal corporate tax rate from 35% to 21% effective January 1, 2018, the one-time repatriation tax of foreign earnings and profits and limitations on bonus depreciation for utility property.

In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") 118 to assist in the implementation process of the 2017 Tax Reform by allowing for calculations to be classified as provisional and subject to remeasurement. There are three different classifications for the accounting: (1) completed, (2) not complete but reasonably estimable or (3) not complete and amounts are not reasonably estimable. The Company has recorded the impacts of the 2017 Tax Reform and believes all the impacts to be complete with the exception of the repatriation tax on foreign earnings and interpretations of the bonus depreciation rules. The Company has determined the amounts recorded and the interpretations relating to these two items to be provisional and subject to remeasurement during the measurement period upon obtaining the necessary additional information to complete the accounting. The Company believes the estimates for the repatriation tax to be reasonable, however, additional time is required to validate the inputs to the foreign earnings and profits calculation, the basis on which the repatriation tax is determined, and additional guidance is required to determine state income tax implications. The Company also believes its interpretations for bonus depreciation to be reasonable, however, as the guidance is clarified, estimates may change. The accounting is estimated to be completed by December 2018. During the three-month period ended March 31, 2018 , the Company reduced the liability estimate by $25 million based on additional guidance for certain state income tax implications of the repatriation tax. The accounting is estimated to be completed by December 2018.

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,
	2018		2017

Federal statutory income tax rate	21	%	35	%
Income tax credits	(45	)	(16	)
State income tax, net of federal income tax benefit	(30	)	(5	)
Income tax effect of foreign income	(16	)	(5	)
Effects of ratemaking	(8	)	(1	)
Equity income	1		1
Other	(1	)	—
Effective income tax rate	(78	)%	9	%

The effective tax rate decreased primarily due to the reduction in the United States federal corporate income tax rate from 35% to 21% , effective January 1, 2018, lower consolidated state income tax expense, lower United States income taxes on foreign earnings, higher production tax credits recognized of $29 million and the favorable impacts of rate making.

Income tax credits relate primarily to production tax credits from wind-powered generating facilities owned by MidAmerican Energy , PacifiCorp and BHE Renewables . Federal renewable electricity production tax credits 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 are eligible for the credits for 10 years from the date the qualifying generating facilities are placed in-service.

Berkshire Hathaway includes the Company in its United States federal income tax return. The Company's provision for income taxes has been computed on a stand-alone basis, and substantially all of its currently payable or receivable federal income taxes are remitted to or received from Berkshire Hathaway . For the three-month periods ended March 31, 2018 and 2017 , the Company did not receive or make any cash payments for federal income taxes from or to Berkshire Hathaway .


( 8 )	Employee Benefit Plans

In March 2017, the FASB issued ASU No. 2017-07, which amends FASB ASC Topic 715, "Compensation - Retirement Benefits." The amendments in this guidance require that an employer disaggregate the service cost component from the other components of net benefit cost and report the service cost component in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the statement of operations separately from the service cost component and outside the subtotal of operating income. Additionally, the guidance only allows the service cost component to be eligible for capitalization when applicable. The Company adopted this guidance January 1, 2018 prospectively for the capitalization of the service cost component in the Consolidated Balance Sheets and retrospectively for the presentation of the service cost component and the other components of net benefit cost in the Consolidated Statements of Operations applying the practical expedient to use the amounts previously disclosed in the Notes to Consolidated Financial Statements as the estimation basis for applying the retrospective presentation requirement. As a result, amounts other than the service cost for pension and other postretirement benefit plans for the three-month period ended March 31, 2017 of $4 million have been reclassified to Other, net in the Consolidated Statements of Operations.

Domestic Operations

Net periodic benefit cost (credit) for the domestic pension and other postretirement benefit plans included the following components (in millions):



	Three-Month Periods
	Ended March 31,
	2018			2017
Pension:
Service cost	$	5		$	6
Interest cost	26			29
Expected return on plan assets	(41		)	(40		)
Net amortization	8			7
Net periodic benefit cost	$	(2	)	$	2

Other postretirement:
Service cost	$	2		$	2
Interest cost	6			6
Expected return on plan assets	(10		)	(10		)
Net amortization	(3		)	(3		)
Net periodic benefit credit	$	(5	)	$	(5	)

Amounts other than the service cost for pension and other postretirement benefit plans are recorded in Other, net in the Consolidated Statements of Operations. Employer contributions to the domestic pension and other postretirement benefit plans are expected to be $39 million and $4 million , respectively, during 2018 . As of March 31, 2018 , $4 million of contributions had been made to the domestic pension benefit plans and no contributions had been made to the other postretirement benefit plans.

Foreign Operations

Net periodic benefit cost for the United Kingdom pension plan included the following components (in millions):



	Three-Month Periods
	Ended March 31,
	2018			2017

Service cost	$	5		$	6
Interest cost	14			14
Expected return on plan assets	(27		)	(24		)
Net amortization	15			17
Net periodic benefit cost	$	7		$	13

Amounts other than the service cost for the United Kingdom pension plan are recorded in Other, net in the Consolidated Statements of Operations. Employer contributions to the United Kingdom pension plan are expected to be £46 million during 2018 . As of March 31, 2018 , £11 million , or $16 million , of contributions had been made to the United Kingdom pension plan.

( 9 ) Fair Value Measurements

The carrying value of the Company'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. The Company 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 the Company 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 the Company's judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. The Company develops these inputs based on the best information available, including its own data.

The following table presents the Company's 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			Other ⁽¹⁾			Total
As of March 31, 2018
Assets:
Commodity derivatives	$	1	$	36		$	98		$	(27	)	$	108
Interest rate derivatives	—		17			16			—			33
Mortgage loans held for sale	—		440			—			—			440
Money market mutual funds ⁽²⁾	413		—			—			—			413
Debt securities:
United States government obligations	183		—			—			—			183
International government obligations	—		4			—			—			4
Corporate obligations	—		37			—			—			37
Municipal obligations	—		1			—			—			1
Equity securities:
United States companies	278		—			—			—			278
International companies	1,760		—			—			—			1,760
Investment funds	185		—			—			—			185
	$	2,820	$	535		$	114		$	(27	)	$	3,442
Liabilities:
Commodity derivatives	$	—	$	(191	)	$	(17	)	$	111		$	(97	)
Interest rate derivatives	—		(8		)	—			—			(8		)
	$	—	$	(199	)	$	(17	)	$	111		$	(105	)



	Input Levels for Fair Value Measurements
	Level 1			Level 2			Level 3			Other ⁽¹⁾			Total
As of December 31, 2017
Assets:
Commodity derivatives	$	1		$	42		$	104		$	(29	)	$	118
Interest rate derivatives	—			15			9			—			24
Mortgage loans held for sale	—			465			—			—			465
Money market mutual funds ⁽²⁾	685			—			—			—			685
Debt securities:
United States government obligations	176			—			—			—			176
International government obligations	—			5			—			—			5
Corporate obligations	—			36			—			—			36
Municipal obligations	—			2			—			—			2
Equity securities:
United States companies	288			—			—			—			288
International companies	1,968			—			—			—			1,968
Investment funds	178			—			—			—			178
	$	3,296		$	565		$	113		$	(29	)	$	3,945
Liabilities:
Commodity derivatives	$	(3	)	$	(167	)	$	(10	)	$	105		$	(75	)
Interest rate derivatives	—			(8		)	—			—			(8		)
	$	(3	)	$	(175	)	$	(10	)	$	105		$	(83	)


(1)	Represents netting under master netting arrangements and a net cash collateral receivable of $84 million and $76 million as of March 31, 2018 and December 31, 2017 , respectively.


(2)	Amounts are included in cash and cash equivalents; other current assets; and noncurrent investments and restricted cash and investments 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 the Company transacts. When quoted prices for identical contracts are not available, the Company uses forward price curves. Forward price curves represent the Company's estimates of the prices at which a buyer or seller could contract today for delivery or settlement at future dates. The Company 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 the Company. Market price quotations are generally readily obtainable for the applicable term of the Company's outstanding derivative contracts; therefore, the Company's forward price curves reflect observable market quotes. Market price quotations for certain electricity and natural gas trading hubs are not as readily obtainable due to the length of the contract. Given that limited market data exists for these contracts, as well as for those contracts that are not actively traded, the Company 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.

The Company's mortgage loans held for sale are valued based on independent quoted market prices, where available, or the prices of other mortgage whole loans with similar characteristics. As necessary, these prices are adjusted for typical securitization activities, including servicing value, portfolio composition, market conditions and liquidity.

The Company's investments in money market mutual funds and debt and equity securities 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. 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.

The following table reconciles the beginning and ending balances of the Company's assets and liabilities measured at fair value on a recurring basis using significant Level 3 inputs (in millions):



	Three-Month Periods
	Ended March 31,
				Interest
	Commodity			Rate
	Derivatives			Derivatives
2018:
Beginning balance	$	94		$	9
Changes included in earnings	—			30
Changes in fair value recognized in OCI	(1		)	—
Changes in fair value recognized in net regulatory assets	(9		)	—
Purchases	1			—
Settlements	(4		)	(23		)
Ending balance	$	81		$	16



2017:
Beginning balance	$	60		$	6
Changes included in earnings	12			27
Changes in fair value recognized in OCI	(2		)	—
Changes in fair value recognized in net regulatory assets	1			—
Purchases	—			(2		)
Settlements	1			(22		)
Ending balance	$	72		$	9

The Company's long-term debt is carried at cost on the Consolidated Balance Sheets. The fair value of the Company'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 the Company'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 the Company's long-term debt (in millions):



	As of March 31, 2018				As of December 31, 2017
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value

Long-term debt	$	37,498	$	41,579	$	35,193	$	40,522


( 10 )	Commitments and Contingencies

Easements

During the three-month period ended March 31, 2018 , MidAmerican Energy entered into non-cancelable easements with minimum payments totaling $283 million through 2058 for land in Iowa on which some of its wind-powered generating facilities will be located.

Legal Matters

The Company is party to a variety of legal actions arising out of the normal course of business. Plaintiffs occasionally seek punitive or exemplary damages. The Company does not believe that such normal and routine litigation will have a material impact on its consolidated financial results. The Company is also involved in other kinds of legal actions, some of which assert or may assert claims or seek to impose fines, penalties and other costs in substantial amounts and are described below.

Environmental Laws and Regulations

The Company is subject to federal, state, local and foreign laws and regulations regarding air and water quality, renewable portfolio standards, emissions performance standards, climate change, coal combustion byproduct disposal, hazardous and solid waste disposal, protected species and other environmental matters that have the potential to impact the Company's current and future operations. The Company believes it is in material compliance with all applicable laws and regulations.

Hydroelectric Relicensing

PacifiCorp 's Klamath hydroelectric system is currently operating under annual licenses with the Federal Energy Regulatory Commission ("FERC"). In February 2010, PacifiCorp , the United States Department of the Interior, the United States Department of Commerce, the state of California, the state of Oregon and various other governmental and non-governmental settlement parties signed the Klamath Hydroelectric Settlement Agreement ("KHSA"). Among other things, the KHSA provided that that United States Department of the Interior would conduct scientific and engineering studies to assess whether removal of the Klamath hydroelectric system's mainstem dams was in the public interest and would advance restoration of the Klamath Basin's salmonid fisheries. If it was determined that dam removal should proceed, dam removal would begin no earlier than 2020.

Congress failed to pass legislation needed to implement the original KHSA. On April 6, 2016, the principal parties to the KHSA ( PacifiCorp , the states of California and Oregon and the United States Departments of the Interior and Commerce) executed an amendment to the KHSA. Consistent with the terms of the amended KHSA, on September 23, 2016, PacifiCorp and the Klamath River Renewal Corporation ("KRRC"), a private, independent nonprofit 501(c)(3) organization formed by certain signatories of the amended KSHA, jointly filed an application with the FERC to transfer the license for the four mainstem Klamath River hydroelectric generating facilities from PacifiCorp to the KRRC. Also on September 23, 2016, the KRRC filed an application with the FERC to surrender the license and decommission the same four facilities. The KRRC's license surrender application included a request for the FERC to refrain from acting on the surrender application until after the transfer of the license to the KRRC is effective. On March 15, 2018, the FERC issued an order splitting the existing license for the Klamath Project into two licenses: the Klamath Project (P‑2082) contains East Side, West Side, Keno and Fall Creek developments; the new Lower Klamath Project (P‑14803) contains J.C. Boyle, Copco No. 1, Copco No. 2 and Iron Gate developments. In the same order, the FERC deferred consideration of the transfer of the license for the Lower Klamath facilities from PacifiCorp to the KRRC until some point in the future. PacifiCorp is currently the licensee for both the Klamath Project and Lower Klamath Project facilities and will retain ownership of the Klamath Project facilities after the approval and transfer of the Lower Klamath Project facilities. On April 16, 2018, PacifiCorp filed a motion to stay the effective date of the license amendment until transfer is approved.

Under the amended KHSA, PacifiCorp and its customers are protected from uncapped dam removal costs and liabilities. The KRRC must indemnify PacifiCorp from liabilities associated with dam removal. The amended KHSA also limits PacifiCorp 's contribution to facilities removal costs to no more than $200 million , of which up to $184 million would be collected from PacifiCorp 's Oregon customers with the remainder to be collected from PacifiCorp 's California customers. California voters approved a water bond measure in November 2014 from which the state of California's contribution toward facilities removal costs are being drawn. In accordance with this bond measure, additional funding of up to $250 million for facilities removal costs was included in the California state budget in 2016, with the funding effective for at least five years. If facilities removal costs exceed the combined funding that will be available from PacifiCorp 's Oregon and California customers and the state of California, sufficient funds would need to be provided by the KRRC or an entity other than PacifiCorp for removal to proceed.

If certain conditions in the amended KHSA are not satisfied and the license does not transfer to the KRRC, PacifiCorp will resume relicensing with the FERC.

Guarantees

The Company has entered into guarantees as part of the normal course of business and the sale of certain assets. These guarantees are not expected to have a material impact on the Company's consolidated financial results.


( 11 )	Revenue from Contracts with Customers

Adoption

In May 2014, the FASB issued ASU No. 2014-09, which created FASB ASC Topic 606, "Revenue from Contracts with Customers" ("ASC 606") and superseded ASC Topic 605, "Revenue Recognition." The guidance replaced industry-specific guidance and established a single five-step model to identify and recognize revenue from contracts with customers ("Customer Revenue"). The core principle of the guidance is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Following the issuance of ASU No. 2014-09, the FASB issued several ASUs that clarified the implementation guidance for ASU No. 2014-09 but did not change the core principle of the guidance. The Company adopted this guidance for all applicable contracts as of January 1, 2018 under a modified retrospective method and the adoption did not have a cumulative effect impact at the date of initial adoption.

Customer Revenue

The Company recognizes revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company records sales, franchise and excise taxes collected directly from customers and remitted directly to the taxing authorities on a net basis on the Consolidated Statements of Operations.

Energy Products and Services

A majority of the Company's energy revenue is derived from tariff based sales arrangements approved by various regulatory bodies. These tariff based revenues are mainly comprised of energy, transmission, distribution and natural gas and have performance obligations to deliver energy products and services to customers which are satisfied over time as energy is delivered or services are provided. The Company's energy revenue that is nonregulated primarily relates to the Company's renewable energy business. Other revenue consists primarily of revenue recognized in accordance with ASC 815, "Derivatives and Hedging", ASC 840, "Leases" and amounts not considered Customer Revenue within ASC 606.

Revenue recognized is equal to what the Company has the right to invoice as it corresponds directly with the value to the customer of the Company's performance to date and includes billed and unbilled amounts. As of March 31, 2018 and December 31, 2017 , trade receivables, net on the Consolidated Balance Sheets relate substantially to Customer Revenue, including unbilled revenue of $582 million and $665 million , respectively. Payments for amounts billed are generally due from the customer within 30 days of billing. Rates charged for energy products and services are established by regulators or contractual arrangements that establish the transaction price as well as the allocation of price amongst the separate performance obligations. When preliminary regulated rates are permitted to be billed prior to final approval by the applicable regulator, certain revenue collected may be subject to refund and a liability for estimated refunds is accrued.

The following table summarizes the Company's energy products and services revenue by regulated energy and nonregulated energy, with further disaggregation of regulated energy by customer class and line of business, including a reconciliation to the Company's reportable segment information included in Note 14 , for the three-month period ended March 31, 2018 (in millions):



	PacifiCorp		MidAmerican Funding		NV Energy		Northern Powergrid		BHE Pipeline Group		BHE Transmission		BHE Renewables		BHE and Other			Total
Customer Revenue:
Regulated:
Retail Electric	$	1,096	$	386	$	539	$	—	$	—	$	—	$	—	$	—		$	2,021
Retail Gas	—		246		40		—		—		—		—		—			286
Wholesale	22		93		11		—		—		—		—		(1		)	125
Transmission and distribution	22		16		20		249		—		180		—		—			487
Interstate pipeline	—		—		—		—		374		—		—		(41		)	333
Total Regulated	1,140		741		610		249		374		180		—		(42		)	3,252
Nonregulated	—		—		—		11		—		—		117		144			272
Total Customer Revenue	1,140		741		610		260		374		180		117		102			3,524
Other revenue	44		6		7		18		2		—		37		41			155
Total	$	1,184	$	747	$	617	$	278	$	376	$	180	$	154	$	143		$	3,679

Real Estate Services

The Company's HomeServices reportable segment consists of separate brokerage, mortgage and franchise businesses. Rates charged for brokerage, mortgage and franchise real estate services are established through contractual arrangements that establish the transaction price and as well as the allocation of the price amongst the separate performance obligations. Other revenue consists primarily of revenue related to the mortgage businesses recognized in accordance with ASC 815, "Derivatives and Hedging", ASC 825, "Financial Instruments" and ASC 860, "Transfers and Servicing."

The full-service residential real estate brokerage business has performance obligations to deliver integrated real estate services including brokerage services, title and closing services, property and casualty insurance, home warranties, relocation services, and other home-related services to customers. All performance obligations related to the full-service residential real estate brokerage business are satisfied in less than one year at the point in time when a real estate transaction is closed or when services are provided. Commission revenue from real estate brokerage transactions and related amounts due to agents are recognized when a real estate transaction is closed. Title and escrow closing fee revenue from real estate transactions and related amounts due to the title insurer are recognized at closing. Payments for amounts billed are generally due from the customer at closing.

The franchise business operates a network that has performance obligations to provide the right to use certain brand names and other related service marks as well as to provide orientation programs, training and consultation services, advertising programs and other services to its franchisees. The performance obligations related to the franchise business are satisfied over time or when the services are provided. Franchise royalty fees are sales-based variable consideration and are based on a percentage of commissions earned by franchisees on real estate sales, which are recognized when the sale closes. Meetings and training revenue, referral fees, late fees, service fees and franchise termination fees are earned when services have been completed. Payments for amounts billed are generally due from the franchisee within 30 days of billing.

The following table summarizes the Company's real estate services revenue by line of business for the three-month period ended March 31, 2018 (in millions):



	HomeServices
Customer Revenue:
Brokerage	$	685
Franchise	15
Total Customer Revenue	700
Other revenue	61
Total	$	761

Contract Assets and Liabilities

In the event one of the parties to a contract has performed before the other, the Company would recognize a contract asset or contract liability depending on the relationship between the Company's performance and the customer's payment. As of March 31, 2018 and December 31, 2017 , there were no material contract assets or contract liabilities recorded on the Consolidated Balance Sheets. During the three-month period ended March 31, 2018 , there was no material revenue recognized that was included in the contract liability balance at the beginning of the period or from performance obligations satisfied in previous periods.

Remaining Performance Obligations

The following table summarizes the Company's aggregate transaction price allocated to performance obligations that are unsatisfied as of March 31, 2018 , relative to contracts with an original expected duration of more than one year and contain fixed consideration, that is expected to be recognized as revenue for the remaining nine months of 2018 and the years ended December 31, 2019 and thereafter by reportable segment (in millions):



	2018		2019 and Thereafter		Total
BHE Pipeline Group	$	471	$	4,352	$	4,823
BHE Transmission	536		—		536
Total	$	1,007	$	4,352	$	5,359

( 12 ) BHE Shareholders' Equity

Common Stock

In March 2018, BHE repurchased from certain family interests of Mr. Walter Scott, Jr. 149,281 shares of its common stock for $90 million . In February 2017, BHE repurchased from certain family interests of Mr. Walter Scott, Jr. 35,000 shares of its common stock for $19 million .


( 13 )	Components of Other Comprehensive Income (Loss), Net

The following table shows the change in AOCI attributable to BHE shareholders by each component of OCI, net of applicable income taxes (in millions):



	Unrecognized			Foreign			Unrealized			Unrealized			AOCI
	Amounts on			Currency			Gains on			Gains (Losses)			Attributable
	Retirement			Translation			Marketable			on Cash			To BHE
	Benefits			Adjustment			Securities			Flow Hedges			Shareholders, Net

Balance, December 31, 2016	$	(447	)	$	(1,675	)	$	585		$	26		$	(1,511	)
Other comprehensive income (loss)	5			87			38			(4		)	126
Balance, March 31, 2017	$	(442	)	$	(1,588	)	$	623		$	22		$	(1,385	)

Balance, December 31, 2017	$	(383	)	$	(1,129	)	$	1,085		$	29		$	(398	)
Adoption of ASU 2016-01	—			—			(1,085		)	—			(1,085		)
Other comprehensive income (loss)	(3		)	73			—			(2		)	68
Balance, March 31, 2018	$	(386	)	$	(1,056	)	$	—		$	27		$	(1,415	)

For more information regarding the adoption of ASU 2016-01, refer to Note 5 .

( 14 ) Segment Information

The Company's reportable segments with foreign operations include Northern Powergrid , whose business is principally in the United Kingdom, BHE Transmission , whose business includes operations in Canada, and BHE Renewables , whose business includes operations in the Philippines. Intersegment eliminations and adjustments, including the allocation of goodwill, have been made. Information related to the Company's reportable segments is shown below (in millions):



	Three-Month Periods
	Ended March 31,
	2018		2017
Operating revenue:
PacifiCorp	$	1,184	$	1,281
MidAmerican Funding	747		696
NV Energy	617		584
Northern Powergrid	278		245
BHE Pipeline Group	376		315
BHE Transmission	180		166
BHE Renewables	154		144
HomeServices	761		585
BHE and Other ⁽¹⁾	143		150
Total operating revenue	$	4,440	$	4,166



	Three-Month Periods
	Ended March 31,
	2018		2017
Depreciation and amortization:
PacifiCorp	$	202	$	196
MidAmerican Funding	158		117
NV Energy	113		104
Northern Powergrid	63		49
BHE Pipeline Group	42		30
BHE Transmission	62		54
BHE Renewables	64		61
HomeServices	12		12
BHE and Other ⁽¹⁾	—		(1		)
Total depreciation and amortization	$	716	$	622



Operating income:
PacifiCorp	$	247		$	339
MidAmerican Funding	79			102
NV Energy	89			98
Northern Powergrid	147			140
BHE Pipeline Group	226			208
BHE Transmission	81			77
BHE Renewables	28			15
HomeServices	(8		)	2
BHE and Other ⁽¹⁾	(18		)	(14		)
Total operating income	871			967
Interest expense	(466		)	(458		)
Capitalized interest	12			10
Allowance for equity funds	21			17
Interest and dividend income	26			26
Realized and unrealized (loss) gain on marketable securities, net	(209		)	3
Other, net	30			26
Total income before income tax expense and equity income	$	285		$	591



Interest expense:
PacifiCorp	$	96	$	95
MidAmerican Funding	63		59
NV Energy	58		58
Northern Powergrid	37		31
BHE Pipeline Group	10		12
BHE Transmission	43		41
BHE Renewables	52		50
HomeServices	4		1
BHE and Other ⁽¹⁾	103		111
Total interest expense	$	466	$	458



	Three-Month Periods
	Ended March 31,
	2018		2017
Operating revenue by country:
United States	$	3,978	$	3,747
United Kingdom	277		245
Canada	180		166
Philippines and other	5		8
Total operating revenue by country	$	4,440	$	4,166



Income before income tax expense and equity income by country:
United States	$	118	$	423
United Kingdom	112		102
Canada	41		42
Philippines and other	14		24
Total income before income tax expense and equity income by country	$	285	$	591



	As of
	March 31,		December 31,
	2018		2017
Assets:
PacifiCorp	$	22,989	$	23,086
MidAmerican Funding	18,707		18,444
NV Energy	13,911		13,903
Northern Powergrid	7,897		7,565
BHE Pipeline Group	5,252		5,134
BHE Transmission	8,762		9,009
BHE Renewables	7,790		7,687
HomeServices	2,739		2,722
BHE and Other ⁽¹⁾	2,865		2,658
Total assets	$	90,912	$	90,208


(1)	The differences between the reportable segment amounts and the consolidated amounts, described as BHE and Other , relate principally to other entities, corporate functions and intersegment eliminations.

The following table shows the change in the carrying amount of goodwill by reportable segment for the three-month period ended March 31, 2018 (in millions):



									BHE Pipeline Group
			MidAmerican Funding		NV Energy		Northern Powergrid				BHE Transmission			BHE Renewables		HomeServices
	PacifiCorp		MidAmerican Funding		NV Energy		Northern Powergrid				BHE Transmission			BHE Renewables		HomeServices		Total

December 31, 2017	$	1,129	$	2,102	$	2,369	$	991	$	73	$	1,571		$	95	$	1,348	$	9,678
Foreign currency translation	—		—		—		26		—		(39		)	—		—		(13		)
March 31, 2018	$	1,129	$	2,102	$	2,369	$	1,017	$	73	$	1,532		$	95	$	1,348	$	9,665


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 the Company during the periods included herein. Explanations include management's best estimate of the impact of weather, customer growth and other factors. This discussion should be read in conjunction with the Company's historical unaudited Consolidated Financial Statements and Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. The Company's actual results in the future could differ significantly from the historical results.

The Company's operations are organized as eight business segments: PacifiCorp, MidAmerican Funding (which primarily consists of MidAmerican Energy), NV Energy (which primarily consists of Nevada Power and Sierra Pacific), Northern Powergrid (which primarily consists of Northern Powergrid (Northeast) Limited and Northern Powergrid (Yorkshire) plc), BHE Pipeline Group (which consists of Northern Natural Gas and Kern River), BHE Transmission (which consists of AltaLink and BHE U.S. Transmission), BHE Renewables and HomeServices. BHE , through these locally managed and operated businesses, owns four utility companies in the United States serving customers in 11 states, two electricity distribution companies in Great Britain, two interstate natural gas pipeline companies in the United States, an electric transmission business in Canada, interests in electric transmission businesses in the United States, a renewable energy business primarily investing in solar, wind, geothermal and hydroelectric projects, the second largest residential real estate brokerage firm in the United States and one of the largest residential real estate brokerage franchise networks in the United States. The reportable segment financial information includes all necessary adjustments and eliminations needed to conform to the Company's significant accounting policies. The differences between the reportable segment amounts and the consolidated amounts, described as BHE and Other , relate principally to other entities, corporate functions and intersegment eliminations.

Results of Operations for the First Quarter of 2018 and 2017

Overview

Net income for the Company's reportable segments is summarized as follows (in millions):



	First Quarter
	2018			2017			Change
Net income attributable to BHE shareholders:
PacifiCorp	$	148		$	179		$	(31	)	(17	)%
MidAmerican Funding	103			102			1			1
NV Energy	33			33			—			—
Northern Powergrid	84			82			2			2
BHE Pipeline Group	167			121			46			38
BHE Transmission	56			60			(4		)	(7	)
BHE Renewables	54			34			20			59
HomeServices	(10		)	—			(10		)	(100	)
BHE and Other	(122		)	(55		)	(67		)	*
Total net income attributable to BHE shareholders	$	513		$	556		$	(43	)	(8	)

* Not meaningful

Net income attributable to BHE shareholders decreased $43 million for the first quarter of 2018 compared to 2017 due to an after-tax unrealized loss on the investment in BYD Company Limited totaling $149 million and the following factors:

•

PacifiCorp's net income decreased $31 million primarily due to lower utility margins of $89 million and higher depreciation and amortization of $7 million, partially offset by lower income tax expense of $60 million from lower tax rates due to the impact of 2017 Tax Reform. Utility margins decreased due to lower average retail rates, including $53 million of refund accruals related to 2017 Tax Reform, lower retail customer volumes of 3.5%, mainly from the unfavorable impact of weather and lower industrial usage, and higher purchased electricity costs, partially offset by lower coal costs and higher wholesale revenue.

•

MidAmerican Funding's net income increased $1 million primarily due to higher electric utility margins of $30 million, higher natural gas utility margins of $6 million and a higher income tax benefit of $23 million from lower tax rates due to the impact of 2017 Tax Reform and higher recognized production tax credits, substantially offset by higher depreciation and amortization of $41 million from changes in accruals for Iowa regulatory arrangements and additional plant in-service, higher wind-powered generation maintenance of $6 million and increases in other operating expenses. Electric utility margins increased due to higher recoveries through bill riders, higher retail customer volumes of 6.9% from industrial growth and the favorable impact of weather and higher transmission revenue, partially offset by $22 million of refund accruals related to 2017 Tax Reform and higher coal-fueled generation costs. Natural gas utility margins increased due to higher retail sales volumes of 20.9% from colder temperatures, partially offset by $7 million of refund accruals related to 2017 Tax Reform.


•	NV Energy's net income was unchanged as lower income tax expense of $11 million, primarily due to 2017 Tax Reform, was offset by higher depreciation and amortization of $9 million as a result of the Nevada Power 2017 regulatory rate review.

•

Northern Powergrid's net income increased $2 million mainly due to the weaker United States dollar of $9 million, partially offset by lower distribution revenue of $3 million and higher depreciation from the distribution business of $3 million. Distribution revenue decreased mainly due to lower tariff rates and unfavorable movements in regulatory provisions, partially offset by higher units distributed.

•

BHE Pipeline Group’s net income increased $46 million primarily due to lower income tax expense from the impact of 2017 Tax Reform and higher transportation revenues from colder temperatures and other market opportunities, partially offset by a reduction in expenses and regulatory liabilities in 2017 related to the impact of an alternative rate structure approved by the FERC at Kern River and higher other operating expenses.


•	BHE Transmission's net income decreased $4 million due to lower earnings at BHE U.S. Transmission from lower equity earnings at Electric Transmission Texas, LLC due to the impacts of a regulatory rate order in March 2017.


•	BHE Renewables' net income increased $20 million mainly due to favorable earnings from tax equity investments reaching commercial operation, higher solar generation, a settlement received in 2018 related to transformer issues in 2016 and commitment fee income from new tax equity investments.


•	HomeServices' net income decreased $10 million primarily due to lower brokerage segment earnings from higher operating expenses, partially offset by higher net revenues, and higher interest expense.

•

BHE and Other net loss increased $67 million primarily due to the aforementioned after-tax unrealized loss on the investment in BYD Company Limited totaling $149 million, a lower income tax benefit of $16 million from 2017 Tax Reform and higher other operating costs, partially offset by lower consolidated state income tax expense, lower United States income taxes on foreign earnings and higher federal income tax credits recognized on a consolidated basis.

Reportable Segment Results

Operating revenue and operating income for the Company's reportable segments are summarized as follows (in millions):



	First Quarter
	2018		2017		Change
Operating revenue:
PacifiCorp	$	1,184	$	1,281	$	(97	)	(8	)%
MidAmerican Funding	747		696		51			7
NV Energy	617		584		33			6
Northern Powergrid	278		245		33			13
BHE Pipeline Group	376		315		61			19
BHE Transmission	180		166		14			8
BHE Renewables	154		144		10			7
HomeServices	761		585		176			30
BHE and Other	143		150		(7		)	(5	)
Total operating revenue	$	4,440	$	4,166	$	274		7



Operating income:
PacifiCorp	$	247		$	339		$	(92	)	(27	)%
MidAmerican Funding	79			102			(23		)	(23	)
NV Energy	89			98			(9		)	(9	)
Northern Powergrid	147			140			7			5
BHE Pipeline Group	226			208			18			9
BHE Transmission	81			77			4			5
BHE Renewables	28			15			13			87
HomeServices	(8		)	2			(10		)	*
BHE and Other	(18		)	(14		)	(4		)	(29)
Total operating income	$	871		$	967		$	(96	)	(10	)

* Not meaningful

PacifiCorp

Operating revenue decreased $97 million for the first quarter of 2018 compared to 2017 due to lower retail revenue of $111 million, partially offset by higher wholesale and other revenue of $14 million. Retail revenue decreased due to lower average rates of $71 million, primarily due to refund accruals of $53 million related to 2017 Tax Reform, and lower customer volumes of $40 million. Retail customer volumes decreased 3.5% due to the impacts of weather on residential and commercial customers primarily in Oregon, Washington, and Utah, lower industrial usage primarily in Utah and Oregon and lower residential usage primarily in Washington, Oregon, and Wyoming, partially offset by an increase in the average number of commercial and residential customers in Utah and Oregon and higher commercial usage in Utah. Wholesale and other revenue increased due to higher wholesale sales volumes, partially offset by lower wholesale market prices.

Operating income decreased $92 million for the first quarter of 2018 compared to 2017 mainly due to lower utility margins of $89 million and higher depreciation and amortization of $7 million. Utility margins decreased due to lower average retail rates, lower retail customer volumes and higher purchased electricity costs from higher prices and volumes, partially offset by lower coal costs from lower volumes and prices and higher wholesale revenue.

MidAmerican Funding

Operating revenue increased $51 million for the first quarter of 2018 compared to 2017 primarily due to higher electric operating revenue of $36 million and higher natural gas operating revenue of $13 million. Electric operating revenue increased due to higher retail revenue of $32 million and higher wholesale and other revenue of $4 million, primarily due to higher transmission revenue. Electric retail revenue increased $33 million from higher recoveries through bill riders (substantially offset in cost of sales, operating expense and income tax expense), $11 million from higher usage, including higher industrial sales volumes, and $10 million from the impact of colder temperatures in 2018, partially offset by refund accruals of $22 million related to 2017 Tax Reform. Electric retail customer volumes increased 6.9% from industrial growth and the favorable impact of weather. Natural gas operating revenue increased due to 20.9% higher retail sales volumes from colder temperatures in 2018, partially offset by 11.3% lower wholesale sales volumes, a lower average per-unit price of $13 million (offset in cost of sales) and refund accruals of $7 million related to 2017 Tax Reform.

Operating income decreased $23 million for the first quarter of 2018 compared to 2017 primarily due to higher depreciation and amortization of $41 million, higher wind-powered generation maintenance of $6 million and increases in other operating expenses, partially offset by higher electric utility margins of $30 million, including the impact of an increase in electric DSM program revenue of $7 million (offset in operating expense), and higher natural gas utility margins of $6 million. The increase in depreciation and amortization reflects higher accruals of $27 million for Iowa regulatory arrangements and $14 million related to wind generation and other plant placed in-service. Electric utility margins were higher due to higher recoveries through bill riders, higher retail customer volumes and higher transmission revenue, partially offset by refund accruals related to 2017 Tax Reform and higher coal costs. Natural gas utility margins were higher due to higher retail sales volumes, partially offset by refund accrual related to 2017 Tax Reform.

NV Energy

Operating revenue increased $33 million for the first quarter of 2018 compared to 2017 primarily due to higher electric operating revenue of $25 million and higher natural gas operating revenue of $7 million. Electric operating revenue increased due to higher retail revenue of $28 million, partially offset by lower wholesale and transmission revenue of $3 million. Electric retail revenue increased primarily due to $35 million from higher rates from energy costs (offset in cost of sales) and residential customer growth totaling $3 million, partially offset by $8 million of lower residential volumes primarily due to the impacts of weather. Electric retail customer volumes, including distribution only service customers, increased 0.4% compared to 2017. Natural gas operating revenue increased due to a higher average per-unit price (offset in cost of sales), partially offset by 2.7% lower retail sales volumes.

Operating income decreased $9 million for the first quarter of 2018 compared to 2017 due to higher depreciation and amortization of $9 million as a result of the Nevada Power 2017 regulatory rate review. Electric utility margins were relatively flat as higher energy costs were offset by higher electric operating revenue. Energy costs increased due to lower net deferred power costs of $53 million and higher purchased power costs, partially offset by a lower average cost of fuel for generation of $31 million.

Northern Powergrid

Operating revenue increased $33 million for the first quarter of 2018 compared to 2017 due to the weaker United States dollar of $30 million and higher smart meter revenue of $6 million, partially offset by lower distribution revenue of $3 million. Distribution revenue decreased mainly due to lower tariff rates of $5 million and unfavorable movements in regulatory provisions of $3 million, partially offset by higher units distributed of $5 million. Operating income increased $7 million for the first quarter of 2018 compared to 2017 due to the weaker United States dollar of $16 million, partially offset by higher distribution-related operating expenses and depreciation and the lower distribution revenue.

BHE Pipeline Group

Operating revenue increased $61 million for the first quarter of 2018 compared to 2017 due to higher transportation revenues of $36 million and higher gas sales of $24 million related to system balancing activities (largely offset in cost of sales). Operating income increased $18 million for the first quarter of 2018 compared to 2017 primarily due to the higher transportation revenue, partially offset by an increase in operating expenses, which included a reduction in expenses and regulatory liabilities in 2017 related to the impact of an alternative rate structure approved by the FERC at Kern River and higher other operating expenses.

BHE Transmission

Operating revenue increased $14 million for the first quarter of 2018 compared to 2017 largely due to $9 million from additional assets placed in-service and recovery of higher costs and the weaker United States dollar of $8 million. Operating income increased $4 million for the first quarter of 2018 compared to 2017 due to the weaker United States dollar.

BHE Renewables

Operating revenue increased $10 million for the first quarter of 2018 compared to 2017 due to higher geothermal revenues of $8 million due to higher pricing and timing of outages, additional solar capacity placed in-service of $6 million and higher solar generation of $6 million due to a scheduled maintenance outage in 2017, partially offset by an unfavorable change in the valuation of a power purchase agreement derivative of $7 million and lower variable energy fees at the Casecnan project of $4 million due to lower rainfall. Operating income increased $13 million for the first quarter of 2018 compared to 2017 primarily due to the increase in operating revenue and lower operating expenses of $7 million, mainly due to the timing of overhaul costs at certain geothermal facilities, partially offset by higher depreciation expense of $4 million related to the additional solar capacity placed in-service.

HomeServices

Operating revenue increased $176 million for the first quarter of 2018 compared to 2017 due to an increase from acquired businesses totaling $179 million, partially offset by lower mortgage revenue at existing businesses of $3 million. Operating income decreased $10 million for the first quarter of 2018 compared to 2017 primarily due to lower brokerage segment earnings from higher operating expenses, partially offset by higher net revenues.

BHE and Other

Operating revenue decreased $7 million for the first quarter of 2018 compared to 2017 due to lower electricity and natural gas rates at MidAmerican Energy Services, LLC. Operating loss increased $4 million for the first quarter of 2018 compared to 2017 due to higher other operating costs.

Consolidated Other Income and Expense Items

Interest Expense

Interest expense is summarized as follows (in millions):



	First Quarter
	2018		2017		Change

Subsidiary debt	$	360	$	346	$	14		4	%
BHE senior debt and other	105		105		—			—
BHE junior subordinated debentures	1		7		(6		)	(86	)
Total interest expense	$	466	$	458	$	8		2

Interest expense increased $8 million for the first quarter of 2018 compared to 2017 due to the impact of foreign currency exchange rate movements of $6 million and debt issuances at BHE, MidAmerican Funding, BHE Renewables and HomeServices, partially offset by repayments of BHE junior subordinated debentures of $944 million in 2017, scheduled maturities and principal payments and early redemptions of subsidiary debt.

Capitalized Interest

Capitalized interest increased $2 million for the first quarter of 2018 compared to 2017 primarily due higher construction work-in-progress balances at MidAmerican Energy and BHE Renewables.

Allowance for Equity Funds

Allowance for equity funds increased $4 million for the first quarter of 2018 compared to 2017 primarily due to higher construction work-in-progress balances at MidAmerican Energy.

Realized and Unrealized (Loss) Gain on Marketable Securities, net

Realized and unrealized (loss) gain on marketable securities, net increased $212 million primarily due to an unrealized loss on the Company's investment in BYD Company Limited totaling $207 million.

Other, net

Other, net increased $1 million for the first quarter of 2018 compared to 2017 primarily due to a $7 million settlement received in 2018 related to transformer related outages at the Solar Star projects in 2016 and favorable changes in the valuations of interest rate swap derivatives of $4 million, largely offset by lower investment returns.

Income Tax Expense

Income tax expense decreased $273 million , including a $58 million benefit related to an unrealized loss on the Company's investment in BYD Company Limited, for the first quarter of 2018 compared to 2017 and the effective tax rate was (78)% for 2018 and 9% for 2017 . The effective tax rate decreased primarily due to the reduction in the United States federal corporate income tax rate from 35% to 21%, effective January 1, 2018, lower consolidated state income tax expense, lower United States income taxes on foreign earnings, higher production tax credits recognized of $29 million and the favorable impacts of rate making.

Production tax credits are recognized in earnings for interim periods based on the application of an estimated annual effective tax rate to pretax earnings. Federal renewable electricity production tax credits are earned as energy from qualifying wind-powered generating facilities is produced and sold based on a per-kilowatt rate pursuant to the applicable federal income tax law and are eligible for the credit for 10 years from the date the qualifying generating facilities are placed in-service. Production tax credits recognized in 2018 were $115 million, or $29 million higher than 2017, while production tax credits earned in 2018 were $160 million, or $19 million higher than 2017. The difference between production tax credits recognized and earned of $45 million as of March 31, 2018 , primarily at MidAmerican Energy, will be reflected in earnings over the remainder of 2018.

Equity Income

Equity income decreased $12 million for the first quarter of 2018 compared to 2017 primarily due to lower equity earnings at Electric Transmission Texas, LLC due to the impacts of new retail rates effective March 2017.

Liquidity and Capital Resources

Each of BHE 's direct and indirect subsidiaries is organized as a legal entity separate and apart from BHE and its other subsidiaries. It should not be assumed that the assets of any subsidiary will be available to satisfy BHE 's obligations or the obligations of its other subsidiaries. However, unrestricted cash or other assets that are available for distribution may, subject to applicable law, regulatory commitments and the terms of financing and ring-fencing arrangements for such parties, be advanced, loaned, paid as dividends or otherwise distributed or contributed to BHE or affiliates thereof. The Company's long-term debt may include provisions that allow BHE or its subsidiaries to redeem such debt in whole or in part at any time. These provisions generally include make-whole premiums. Refer to Note 17 of Notes to Consolidated Financial Statements in Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 2017 for further discussion regarding the limitation of distributions from BHE 's subsidiaries.

As of March 31, 2018 , the Company's total net liquidity was as follows (in millions):



							MidAmerican			NV			Northern
	BHE			PacifiCorp			Funding			Energy			Powergrid			AltaLink			Other			Total

Cash and cash equivalents	$	735		$	17		$	380		$	134		$	23		$	51		$	304		$	1,644

Credit facilities ⁽¹⁾⁽²⁾	3,000			1,000			909			650			239			1,027			1,635			8,460
Less:
Short-term debt	(1,487		)	(124		)	—			—			(29		)	(226		)	(742		)	(2,608		)
Tax-exempt bond support and letters of credit	(7		)	(89		)	(370		)	(80		)	—			(5		)	—			(551		)
Net credit facilities	1,506			787			539			570			210			796			893			5,301

Total net liquidity	$	2,241		$	804		$	919		$	704		$	233		$	847		$	1,197		$	6,945
Credit facilities:
Maturity dates ⁽¹⁾	2018, 2020			2020			2018, 2020			2020			2020			2018, 2019, 2022			2018, 2022


⁽¹⁾	Refer to Note 6 of the Notes to Consolidated Financial Statements in Item 1 of this Form 10-Q for further discussion regarding the Company's recent financing transactions.


⁽²⁾	Includes drawn uncommitted credit facilities totaling $29m at Northern Powergrid.

Operating Activities

Net cash flows from operating activities for the three-month periods ended March 31, 2018 and 2017 were $1.5 billion and $1.4 billion , respectively. The change was primarily due to changes in working capital.

The timing of the Company's income tax cash flows from period to period can be significantly affected by the estimated federal income tax payment methods and assumptions used for each payment date.

The Tax Cuts and Jobs Act enacted on December 22, 2017 ("2017 Tax Reform") reduced the federal corporate tax rate from 35% to 21% effective January 1, 2018, created a one-time repatriation tax of foreign earnings and profits expected to be paid over the next eight years, eliminated bonus depreciation on qualifying regulated utility assets acquired after September 27, 2017 and extended and modified the additional first-year bonus depreciation for non-regulated property. BHE's regulated subsidiaries anticipate passing the benefits of lower tax expense to customers through regulatory mechanisms including lower current rates and reductions to rate base. The 2017 Tax Reform and the related regulatory outcomes will result in lower revenue, income taxes and cash flow in 2018 and future years. BHE does not expect the 2017 Tax Reform and related regulatory treatment to have a material adverse impact on its cash flows, subject to actual regulatory outcomes, which will be determined based on rulings by regulatory commissions expected in 2018.

In December 2015, the Protecting Americans from Tax Hikes Act of 2015 ("PATH") was signed into law, extending bonus depreciation for qualifying property acquired and placed in-service before January 1, 2020 (bonus depreciation rates were set at 50% in 2015-2017, 40% in 2018, and 30% in 2019), with an additional year for certain longer lived assets. Production tax credits were extended and phased-out for wind power and other forms of non-solar renewable energy projects that begin construction before the end of 2019. Production tax credits are maintained at full value through 2016, at 80% of the published rate in 2017, at 60% of the published rate in 2018, and 40% of the published rate in 2019. Investment tax credits were extended and phased-down for solar projects that are under construction before the end of 2021 (investment tax credit rates are 30% through 2019, 26% in 2020 and 22% in 2021; they revert to the statutory rate of 10% thereafter). The Company's cash flows from operations are expected to benefit from PATH due to bonus depreciation on qualifying assets through 2019 and from the 2017 Tax Reform for non-regulated property through 2026, production tax credits through 2029 and investment tax credits earned on qualifying wind and solar projects through 2021, respectively. As a result of 2017 Tax Reform, bonus depreciation on qualifying assets acquired after September 27, 2017 is eliminated for regulated utility property and is extended and modified for non-regulated property. The Company believes property acquired on or before September 27, 2017 will remain subject to PATH.

Investing Activities

Net cash flows from investing activities for the three-month periods ended March 31, 2018 and 2017 were $(1.2) billion and $(1.5) billion , respectively. The change was primarily due to lower cash paid for acquisitions of $579 million, partially offset by higher capital expenditures of $210 million. Refer to "Future Uses of Cash" for further discussion of capital expenditures.

Acquisitions

The Company completed various acquisitions totaling $579 million, net of cash acquired, for the three-month period ended March 31, 2017. The purchase price for each acquisition was allocated to the assets acquired and liabilities assumed, which related primarily to development and construction costs for the 110-megawatt Alamo 6 solar-powered generation project, the remaining 25% interest in the Silverhawk natural gas-fueled generation facility at Nevada Power and a residential real estate brokerage business. There were no other material assets acquired or liabilities assumed.

Financing Activities

Net cash flows from financing activities for the three-month period ended March 31, 2018 was $336 million . Sources of cash totaled $2.8 billion and consisted of proceeds from BHE senior debt issuances totaling $2.2 billion and proceeds from subsidiary debt issuances totaling $687 million. Uses of cash totaled $2.5 billion and consisted mainly of net repayments of short-term debt totaling $1.9 billion and repayments of subsidiary debt totaling $550 million.

For a discussion of recent financing transactions, refer to Note 6 of Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

Net cash flows from financing activities for the three-month period ended March 31, 2017 was $328 million . Sources of cash totaled $984 million and consisted of $844 million of proceeds from subsidiary debt issuances and $140 million of net proceeds from short-term debt. Uses of cash totaled $656 million and consisted mainly of repayments of subsidiary debt totaling $425 million and repayments of BHE junior subordinated debentures of $200 million.

The Company may from time to time seek to acquire its outstanding debt securities through cash purchases in the open market, privately negotiated transactions or otherwise. Any debt securities repurchased by the Company may be reissued or resold by the Company from time to time and will depend on prevailing market conditions, the Company's liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Future Uses of Cash

The Company 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, the issuance of equity 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 BHE and each subsidiary has access to external financing depends on a variety of factors, including its credit ratings, investors' judgment of risk and conditions in the overall capital markets, including the condition of the utility industry and project finance markets, among other items.

Capital Expenditures

The Company 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. Expenditures for certain assets may ultimately include acquisitions of existing assets.

The Company'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
	2017		2018		2018
Capital expenditures by business:
PacifiCorp	$	178	$	236	$	1,248
MidAmerican Funding	238		365		2,476
NV Energy	99		109		547
Northern Powergrid	151		170		704
BHE Pipeline Group	38		53		420
BHE Transmission	85		71		228
BHE Renewables	71		59		866
HomeServices	5		11		49
BHE and Other	—		1		15
Total	$	865	$	1,075	$	6,553



Capital expenditures by type:
Wind generation	$	49	$	107	$	2,812
Solar generation	51		14		33
Electric transmission	92		21		168
Environmental	—		18		101
Other growth	136		135		754
Operating	537		780		2,685
Total	$	865	$	1,075	$	6,553

The Company's historical and forecast capital expenditures consisted mainly of the following:

• Wind generation includes the following:

◦

Construction of wind-powered generating facilities at MidAmerican Energy totaling $16 million and $29 million for the three-month periods ended March 31, 2018 and 2017 , respectively. MidAmerican Energy anticipates costs for wind-powered generating facilities will total an additional $1,239 million for 2018 . In August 2016, the IUB issued an order approving ratemaking principles related to MidAmerican Energy 's construction of up to 2,000 MW (nominal ratings) of wind-powered generating facilities expected to be placed in-service in 2017 through 2019, including 334 MW (nominal ratings) placed in-service in 2017. The ratemaking principles establish a cost cap of $3.6 billion, including AFUDC, and a fixed rate of return on equity of 11.0% over the proposed 40-year useful lives of those facilities in any future Iowa rate proceeding. The cost cap ensures that as long as total costs are below the cap, the investment will be deemed prudent in any future Iowa rate proceeding. Additionally, the ratemaking principles modify the revenue sharing mechanism in effect prior to 2018. The revised sharing mechanism, which was effective January 1, 2018, will be triggered each year by actual equity returns exceeding a weighted average return on equity for MidAmerican Energy calculated annually. Pursuant to the change in revenue sharing, MidAmerican Energy will share 100% of the revenue in excess of this trigger with customers. Such revenue sharing will reduce coal and nuclear generation rate base, which is intended to mitigate future base rate increases. MidAmerican Energy expects all of these wind-powered generating facilities to qualify for 100% of production tax credits available.

◦

Construction of wind-powered generating facilities at PacifiCorp totaling $1 million for the three-month period ended March 31, 2018 . PacifiCorp anticipate costs for these activities will total an additional $202 million for 2018 .The new wind-powered generating facilities are expected to be placed in-service in 2020. The energy production from the new wind-powered generating facilities is expected to qualify for 100% of the federal production tax credits available for ten years once the equipment is placed in-service.

◦

Repowering certain existing wind-powered generating facilities at PacifiCorp and MidAmerican Energy totaling $71 million and $2 million for the three-month periods ended March 31, 2018 and 2017 , respectively. PacifiCorp and MidAmerican Energy anticipate costs for these activities will total an additional $549 million for 2018 . The energy production from such repowered facilities is expected to qualify for 100% of the federal renewable electricity production tax credits available for ten years following each facility's return to service.


◦	Construction of wind-powered generating facilities at BHE Renewables totaling $18 million for the three-month period ended March 31, 2018 . BHE Renewables anticipates costs will total an additional $717 million in 2018 for development and construction of up to 512 MW of wind-powered generating facilities.


•	Solar generation includes the construction of the community solar gardens project in Minnesota totaling $14 million and $36 million for the three-month periods ended March 31, 2018 and 2017 , respectively. BHE Renewables expects to spend an additional $9 million in 2018 to complete the project, which will be comprised of 28 locations with a nominal facilities capacity of 98 MW.

•

Electric transmission includes PacifiCorp 's costs associated with main grid reinforcement and the Energy Gateway Transmission Expansion Program, MidAmerican Energy 's Multi-Value Projects approved by the Midcontinent Independent System Operator, Inc. for the construction of approximately 250 miles of 345 kV transmission line located in Iowa and Illinois and AltaLink's directly assigned projects from the AESO.

•

Environmental includes the installation of new or the replacement of existing emissions control equipment at certain generating facilities at the Utilities , including installation or upgrade of selective catalytic reduction control systems and low nitrogen oxide burners to reduce nitrogen oxides, particulate matter control systems, sulfur dioxide emissions control systems and mercury emissions control systems, as well as expenditures for the management of coal combustion residuals.


•	Other growth includes projects to deliver power and services to new markets, new customer connections and enhancements to existing customer connections.


•	Operating includes ongoing distribution systems infrastructure needed at the Utilities and Northern Powergrid and investments in routine expenditures for generation, transmission, distribution and other infrastructure needed to serve existing and expected demand.

Acquisitions

Other Renewable Investments

The Company has invested in projects sponsored by third parties, commonly referred to as tax equity investments. Under the terms of these tax equity investments, the Company has entered into equity capital contribution agreements with the project sponsors that require contributions. The Company has made contributions of $403 million, $584 million and $170 million in 2017, 2016 and 2015, respectively. Additionally, the Company has made contributions of $164 million through March 31, 2018 , and has commitments as of March 31, 2018 , subject to satisfaction of certain specified conditions, to provide equity contributions of $537 million for the remainder of 2018 pursuant to these equity capital contribution agreements as the various projects achieve commercial operation. Once a project achieves commercial operation, the Company enters into a partnership agreement with the project sponsor that directs and allocates the operating profits and tax benefits from the project.

Contractual Obligations

As of March 31, 2018 , there have been no material changes outside the normal course of business in contractual obligations from the information provided in Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2017 other than the recent financing transactions and the renewable tax equity investments previously discussed.

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, as a result of Illinois not passing adequate legislation and Quad Cities Station not clearing the 2019-2020 PJM Interconnection, L.L.C. capacity auction. MidAmerican Energy expressed to Exelon Generation its desire for the continued operation of the facility through the end of its operating license in 2032 and worked with Exelon Generation on solutions to that end. 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 and recover the costs from certain ratepayers in Illinois, subject to certain limitations. The proceeds from the zero emission credits will provide Exelon Generation additional revenue through 2027 as an incentive for continued operation of Quad Cities Station. For the nuclear assets already in rate base, MidAmerican Energy's customers will not be charged for the subsidy, and MidAmerican Energy will not receive additional revenue from the subsidy.

On February 14, 2017, two lawsuits were filed with the United States District Court for the Northern District of Illinois ("Northern District of Illinois") against the Illinois Power Agency alleging that the state's zero emission credit program violates certain provisions of the U.S. Constitution. Both complaints argue that the Illinois zero emission credit program will distort the FERC's energy and capacity market auction system of setting wholesale prices. As majority owner and operator of Quad Cities Station, Exelon Generation intervened and filed motions to dismiss in both matters. On July 14, 2017, the Northern District of Illinois granted the motions to dismiss. On July 17, 2017, the plaintiffs filed appeals with the United States Court of Appeals for the Seventh Circuit. Parties have filed briefs and presented oral argument. MidAmerican Energy cannot predict the outcome of these lawsuits.

On January 9, 2017, the Electric Power Supply Association filed two requests with the FERC seeking to expand Minimum Offer Price Rule ("MOPR") provisions to apply to existing resources receiving zero emission credit compensation. If successful, an expanded MOPR could result in an increased risk of Quad Cities Station not clearing in future capacity auctions and Exelon Generation no longer receiving capacity revenues for the facility. As majority owner and operator of Quad Cities Station, Exelon Generation has filed protests at the FERC in response to each filing. The timing of the FERC's decision with respect to both proceedings is currently unknown and the outcome of these matters is currently uncertain.

Regulatory Matters

BHE's regulated subsidiaries and certain affiliates are subject to comprehensive regulation. The discussion below contains material developments to those matters disclosed in Item 1 of each Registrant's Annual Report on Form 10-K for the year ended December 31, 2017 , and new regulatory matters occurring in 2018 .

PacifiCorp

In June 2017, PacifiCorp filed two applications each with the UPSC, IPUC and the WPSC for the Energy Vision 2020 project. The first application sought approvals to construct or procure four new Wyoming wind resources with a total capacity of 860 MWs identified as benchmark resources and certain transmission facilities. A request for proposals was issued in September 2017 seeking up to 1,270 MWs to compete against PacifiCorp's benchmark resources in the final resource selection process for the project. PacifiCorp has identified four winning wind resource bids from this solicitation totaling 1,311 MWs, consisting of 1,111 MWs owned and 200 MW as a power-purchase agreement. The combined new wind and transmission projects will cost approximately $2 billion. The WPSC approved a settlement agreement and certificates of public convenience and necessity for the transmission facilities and three of the winning wind resources in a bench decision on April 12, 2018. The settlement supports 950 MWs of owned wind resources and the 200 MW purchase power agreement. Hearings are set by the UPSC and IPUC to occur in May 2018. The second application sought approval of PacifiCorp's resource decision to upgrade or "repower" existing wind resources, as prudent and in the public interest. PacifiCorp estimates the wind repowering project will cost approximately $1 billion. Applications filed in Utah, Idaho and Wyoming seek approval for the proposed rate-making treatment associated with the projects. The hearings on repowering in Utah and Wyoming have been extended to provide time for supplemental analyses for updated costs and the Tax Cuts and Jobs Act enacted on December 22, 2017 ("2017 Tax Reform") and are scheduled to occur in May and June 2018. In December 2017, the IPUC approved an all-party stipulation for approval of the application to repower existing wind facilities and allow recovery of costs in rates through an adjustment to the annual ECAM filing.

The 2017 Tax Reform enacted significant changes to the Internal Revenue Code, including, among other things, a reduction in the U.S. federal corporate income tax rate from 35% to 21%. PacifiCorp has agreed to defer the impact of the tax law change with each of its state regulatory bodies. PacifiCorp will be proposing to reduce customer rates for a portion of the lower annual income tax expense resulting from the decrease in federal tax rates, and deferring the remainder to offset other costs as approved by the regulatory bodies. In March 2018, PacifiCorp proposed 1% rate reductions in Utah, Wyoming and Idaho. PacifiCorp proposed the rate reductions to be effective May 1, 2018 in Utah and June 1, 2018 in Idaho. In April 2018, the UPSC ordered a rate reduction of $61 million effective May 1, 2018 through December 31, 2018 based on a preliminary estimate of the revenue requirement impact of 2017 Tax Reform. This credit will likely be adjusted effective January 1, 2019 when the final rates are approved in the next phase of the proceeding later in 2018. A procedural schedule is expected to be set by the IPUC. PacifiCorp filed a partial settlement with the WPSC on April 11, 2018 that provides a rate reduction of approximately 3% beginning July 1, 2018 with the remaining tax savings to be deferred with offsets to other costs.

Utah

In March 2018, PacifiCorp filed its annual EBA with the UPSC seeking approval to recover from customers $3 million in deferred net power costs for the period January 1, 2017 through December 31, 2017, reflecting the difference between base and actual net power costs in the 2017 deferral period. The rate change was approved by the UPSC effective May 1, 2018 on an interim basis.

In March 2018, PacifiCorp filed its annual REC balancing account application with the UPSC seeking to recover $1 million from customers for the period January 1, 2017 through December 31, 2017 for the difference in base and actual RECs. The rate change will become effective on an interim basis June 1, 2018.

Oregon

In March 2018, PacifiCorp submitted its filing for the annual TAM filing in Oregon requesting an annual increase of $17 million, or an average price increase of 1.3%, based on forecasted net power costs and loads for calendar year 2019. The filing includes an update of the impact of expiring production tax credits, which accounts for $6 million of the total rate adjustment, consistent with Oregon Senate Bill 1547 and reflecting the decrease in the revenue requirement benefit of production tax credits due to the change in the federal income tax rate. The filing will be updated for changes in contracts and market conditions in July and November 2018, before final rates become effective in January 2019.

Wyoming

In April 2018, PacifiCorp filed its annual ECAM and REC applications with the WPSC. The ECAM filing requests approval to refund to customers $3 million in deferred net power costs for the period January 1, 2017 through December 31, 2017. PacifiCorp is seeking interim rates to be effective July 1, 2018.

Washington

On December 1, 2017, PacifiCorp submitted a tariff filing to implement the first price change for the decoupling mechanism approved in PacifiCorp's 2015 regulatory rate review. WUTC staff disputed PacifiCorp's interpretation of the WUTC's order for the decoupling mechanism and PacifiCorp's subsequent calculations requesting additional funds be booked for return to customers. In February 2018, the WUTC granted the staff's motions and rejected PacifiCorp's tariff revision and required that PacifiCorp re-file price changes for its decoupling mechanism. In March 2018, the WUTC issued a letter accepting PacifiCorp's revised compliance filing in the Washington Decoupling Revenue Adjustment docket. The filing results in a net credit to customers of $2 million, effective April 1, 2018.

Idaho

In March 2018, PacifiCorp filed its annual ECAM application with the IPUC requesting recovery of $8 million for deferred costs in 2017. This filing includes recovery of the difference in actual net power costs to the base level in rates, an adder for recovery of the Lake Side 2 resource, recovery of Deer Creek longwall mine investment and changes in production tax credits and renewable energy credits. The filing requests no change in rates as the requested recovery amount remained constant.

California

In April 2017, PacifiCorp filed an application with the CPUC for an overall rate increase of 1.3% to recover $3 million of costs recorded in the catastrophic events memorandum account over a two-year period effective April 1, 2018. The catastrophic events memorandum account includes costs for implementing drought-related fire hazard mitigation measures and storm damage and recovery efforts associated with the December 2016 and January 2017 winter storms. The CPUC issued an order in February 2018 approving this request.

On April 12, 2018, PacifiCorp filed a general rate case with the CPUC for an overall rate increase of $1 million or 0.9% effective January 1, 2019.

MidAmerican Energy

The 2017 Tax Reform enacted significant changes to the Internal Revenue Code, including, among other things, a reduction in the U.S. federal corporate income tax rate from 35% to 21%. Accumulated deferred income tax balances were re-measured at the 21% rate and regulatory liabilities increased reflective of the probability of such balances being passed back to customers. MidAmerican Energy has made filings or has been in discussions with each of its state rate regulatory bodies proposing either a reduction in retail rates or rate base for all or a portion of the net benefits of the 2017 Tax Reform for 2018 and beyond. MidAmerican Energy proposed in Iowa, its largest jurisdiction, to reduce customer revenue via a rider mechanism for the impact of the lower statutory rate on current operations, subject to change depending on actual results, and defer as a regulatory liability the amortization of excess deferred income taxes. The Illinois Commerce Commission approved MidAmerican Energy's Illinois tax reform rate reduction tariff on March 21, 2018, and the Iowa Utilities Board approved MidAmerican Energy's Iowa tax reform rate reduction tariff on April 27, 2018. MidAmerican Energy currently estimates that its 2018 revenue will be reduced by approximately $53 million due to rate reductions for tax reform.

NV Energy (Nevada Power and Sierra Pacific)

Regulatory Rate Reviews

In June 2017, Nevada Power filed an electric regulatory rate review with the PUCN. The filing supported an annual revenue increase of $29 million , or 2% , but requested no incremental annual revenue relief. In December 2017, the PUCN issued an order which reduced Nevada Power's revenue requirement by $26 million and requires Nevada Power to share 50% of revenues related to equity returns above 9.7% . As a result of the order, Nevada Power recorded expense of $28 million primarily due to the reduction of a regulatory asset to return to customers revenue collected for costs not incurred. The new rates were effective on February 15, 2018. In January 2018, Nevada Power filed a petition for clarification of certain findings and directives in the order and intervening parties filed motions for reconsideration. The PUCN has not yet ruled on the filed motions. Nevada Power cannot predict the timing or ultimate outcome of the PUCN rulings.

The 2017 Tax Reform enacted significant changes to the Internal Revenue Code, including, among other things, a reduction in the U.S. federal corporate income tax rate from 35% to 21% . In February 2018, the Nevada Utilities made filings with the PUCN proposing a tax rate reduction rider for the lower annual income tax expense anticipated to result from the 2017 Tax Reform for 2018 and beyond. The filing supported an annual rate reduction of $59 million and $25 million for Nevada Power and Sierra Pacific, respectively. In March 2018, the PUCN issued an order approving the rate reduction proposed by the Nevada Utilities. The new rates were effective April 1, 2018. The order has extended the procedural schedule to allow parties additional discovery relevant to the 2017 Tax Reform with a hearing scheduled in June 2018. The Nevada Utilities cannot predict the timing or ultimate outcome of further regulatory proceedings.

Chapter 704B Applications

Chapter 704B of the Nevada Revised Statutes allows retail electric customers with an average annual load of one MW or more to file with the PUCN an application to purchase energy from alternative providers of a new electric resource and become distribution only service customers. On a case-by-case basis, the PUCN will assess the application and may deny or grant the application subject to conditions, including paying an impact fee, paying on-going charges and receiving approval for specific alternative energy providers and terms. The impact fee and on-going charges are assessed to alleviate the burden on other Nevada customers for the applicant's share of previously committed investments and long-term renewable contracts and are set at a level designed such that the remaining customers are not subjected to increased costs.

In October 2016, Wynn became a distribution only service customer and started procuring energy from another energy supplier. In April 2017, Wynn filed a motion with the PUCN seeking relief from the January 2016 order that established the impact fee that was paid in September 2016 and requested the PUCN adopt an alternative impact fee and revise on-going charges associated with retirement of assets and high cost renewable contracts. This request is still pending.

In November 2016, Caesars Enterprise Service ("Caesars"), a customer of the Nevada Utilities , filed an application with the PUCN to purchase energy from alternative providers of a new electric resource and become a distribution only service customer of Nevada Power and Sierra Pacific. In March 2017, the PUCN approved the application allowing Caesars to purchase energy from alternative providers subject to conditions, including paying an impact fee. In March 2017, Caesars provided notice that it intends to pay the impact fee monthly for three and six years at Sierra Pacific and Nevada Power, respectively, and proceed with purchasing energy from alternative providers. In July 2017, Caesars made the required compliance filings and, in September 2017, the PUCN issued an order allowing Caesars to acquire electric energy and ancillary services from another energy supplier and become a distribution only service customer of the Nevada Utilities. In December 2017, Caesars provided notice that it intends to transition eligible meters in the Nevada Power service territory to unbundled electric service in February 2018 at the earliest. In January 2018, Caesars became a distribution only service customer and started procuring energy from another energy supplier for its eligible meters in the Sierra Pacific service territory. In February 2018, Caesars became a distribution only service customer and started procuring energy from another energy supplier for its eligible meters in the Nevada Power service territory. Following the PUCN’s order from March 2017, Caesars’ will pay Nevada Power and Sierra Pacific impact fees of $44 million in 72 equal monthly payments and $4 million in 36 monthly payments , respectively.

In May 2017, Peppermill Resort Spa Casino ("Peppermill"), a customer of Sierra Pacific, filed an application with the PUCN to purchase energy from alternative providers of a new electric resource and become a distribution only service customer of Sierra Pacific. In August 2017, the PUCN approved a stipulation allowing Peppermill to purchase energy from alternative providers subject to conditions, including paying an impact fee. In September 2017, Peppermill provided notice that it intends to pay the impact fee and proceed with purchasing energy from alternative providers. In April 2018, Peppermill paid a one-time impact fee of $3 million and became a distribution only service customer and started procuring energy from another energy supplier.

Net Metering

Nevada enacted Assembly Bill 405 ("AB 405") on June 15, 2017. The legislation, among other things, established net metering crediting rates for private generation customers with installed net metering systems less than 25 kilowatts. Under AB 405, private generation customers will be compensated at 95% of the rate the customer would have paid for a kilowatt-hour of electricity supplied by the Nevada Utilities for the first 80 MWs of cumulative installed capacity of all net metering systems in Nevada, 88% of the rate the customer would have paid for a kilowatt-hour of electricity supplied by the Nevada Utilities for the next 80 MWs of cumulative installed capacity in Nevada, 81% of the rate the customer would have paid for a kilowatt-hour of electricity supplied by the Nevada Utilities for the next 80 MWs of cumulative installed capacity in Nevada and 75% of the rate the customer would have paid for a kilowatt-hour of electricity supplied by the Nevada Utilities for any additional private generation capacity. In July 2017, the Nevada Utilities filed with the PUCN proposed amendments to their tariffs necessary to comply with the provisions of AB 405. The filing in July 2017 also included a proposed optional time of use rate tariff for both Nevada Power and Sierra Pacific, which has not yet been set for procedural review. In September 2017, the PUCN issued an order directing the Nevada Utilities to place all new private generation customers who have submitted applications after June 15, 2017, into a new rate class with rates equal to the rate class they would be in if they were not private generation customers. Private generation customers with installed net metering systems less than 25 kilowatts prior to June 15, 2017, may elect to migrate to the new rate class created under AB 405 or stay in their otherwise-applicable rate class. The new AB 405 rates became effective December 1, 2017. In February 2018, the Nevada Utilities filed with the PUCN a settlement agreement resolving the outstanding issues related to its proposal for optional time-differentiated rate schedules. In March 2018, the PUCN approved the settlement agreement.

Energy Choice Initiative - Deregulation

In November 2016, a majority of Nevada voters supported a ballot measure to amend Article 1 of the Nevada Constitution. If approved again in 2018, the proposed constitutional amendment would require the Nevada Legislature to create, on or before July 2023, an open and competitive retail electric market that includes provisions to reduce costs to customers, protect against service disconnections and unfair practices and prohibit the granting of monopolies and exclusive franchises for the generation of electricity. The outcome of any customer choice initiative could have broad implications to the Nevada Utilities. The Governor issued an executive order establishing the Governor's Committee on Energy Choice in which the Nevada Utilities have representation. The Nevada Utilities have been engaged in the legislative process before the Governor's committee and related proceedings before the PUCN and the legislature. The Nevada Utilities cannot assess or predict the outcome of the potential constitutional amendment or the financial impact, if any, at this time. The uncertainty created by the ballot initiative complicates both the short-term allocation of resources and long-term resource planning for the Nevada Utilities, including the ability to forecast load growth and the timing of resource additions. This uncertainty in planning is evidenced by a decision the PUCN issued denying Nevada Power's proposed purchase of the South Point Energy Center, citing the unknown outcomes of the Energy Choice Initiative as one of the factors considered in their decision.

Northern Powergrid Distribution Companies

Ofgem published its RIIO-2 framework consultation on March 7, 2018, marking the first milestone in the development of the price control arrangements that will apply to Northern Powergrid from April 2023. The consultation confirms that outputs and incentives will remain as central components of the regulatory model. A significant part of the proposals relate to setting the allowed return on capital, where Ofgem has set out an early view of the allowed cost of equity which is no higher than 5% (plus inflation measured using the UK retail price index).

ALP

2018 Generic Cost of Capital Proceeding

In July 2017, the AUC denied the utilities' request that the interim determinations of 8.5% return on equity and deemed capital structures for 2018 be made final, by stating that it is not prepared to finalize 2018 values in the absence of an evidentiary process and its intention to issue the generic cost of capital decision for 2018, 2019 and 2020 by the end of 2018 to reduce regulatory lag. The AUC also confirmed the process timelines with an oral hearing scheduled for March 2018.

In October 2017, ALP's expert witness evidence and company evidence was submitted recommending a range of 9% to 10.75% return on equity, on a recommended equity ratio of 40%. ALP also filed company evidence that outlined increased uncertainties in the Alberta utility regulatory environment. In January 2018, the Consumers' Coalition of Alberta, the Utilities Consumer Advocate and the City of Calgary filed intervenor evidence. The return on equity recommended by the intervenors ranges from 6.3% to 7.75%. The equity ratio recommended by the intervenors for ALP ranges from 35% to 37%.

In March 2018, an oral hearing was held, and a decision regarding the 2018 generic cost of capital proceeding is expected later in 2018.

Deferral Account Reconciliation Application

In April 2017, ALP filed its application with the AUC with respect to ALP's 2014 projects and deferral accounts and specific 2015 projects. The application includes approximately C$2.0 billion in net capital additions. In June 2017, the AUC ruled that the scope of the deferral account proceeding would not be extended to consider the utilization of assets for which final cost approval is sought. However, the AUC will initiate a separate proceeding to address the issue of transmission asset utilization and how the corporate and property law principles applied in the Utility Asset Disposition ("UAD") decision may relate.

In December 2017, ALP amended its application to include the remaining capital projects completed in 2015. The amended 2014 and 2015 deferral account reconciliation application includes 110 completed projects with total gross capital additions, excluding AFUDC, of C$3.8 billion.

Environmental Laws and Regulations

Each Registrant is subject to federal, state, local and foreign laws and regulations regarding air and water quality, RPS, emissions performance standards, climate change, coal combustion byproduct disposal, hazardous and solid waste disposal, protected species and other environmental matters that have the potential to impact each Registrant'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, local and international agencies. Each Registrant 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 "Liquidity and Capital Resources" of each respective Registrant in Part I, Item 2 of this Form 10-Q for discussion of each Registrant's forecast environmental-related capital expenditures. The discussion below contains material developments to those matters disclosed in Item 1 of each Registrant's Annual Report on Form 10-K for the year ended December 31, 2017 , and new environmental matters occurring in 2018 .

Climate Change

In December 2015, an international agreement was negotiated by 195 nations to create a universal framework for coordinated action on climate change in what is referred to as the Paris Agreement. The Paris Agreement reaffirms the goal of limiting global temperature increase well below 2 degrees Celsius, while urging efforts to limit the increase to 1.5 degrees Celsius; establishes commitments by all parties to make nationally determined contributions and pursue domestic measures aimed at achieving the commitments; commits all countries to submit emissions inventories and report regularly on their emissions and progress made in implementing and achieving their nationally determined commitments; and commits all countries to submit new commitments every five years, with the expectation that the commitments will get more aggressive. In the context of the Paris Agreement, the United States agreed to reduce greenhouse gas emissions 26% to 28% by 2025 from 2005 levels. After more than 55 countries representing more than 55% of global greenhouse gas emissions submitted their ratification documents, the Paris Agreement became effective November 4, 2016. Under the terms of the Paris Agreement, ratifying countries are bound for a three-year period and must provide one-year's notice of their intent to withdraw. On June 1, 2017, President Trump announced the United States would withdraw from the Paris Agreement. Under the terms of the agreement, the withdrawal would be effective in November 2020. The cornerstone of the United States' commitment was the Clean Power Plan which was finalized by the EPA in 2015 but has since been proposed for repeal by the EPA.

GHG Performance Standards

Under the Clean Air Act, the EPA may establish emissions standards that reflect the degree of emissions reductions achievable through the best technology that has been demonstrated, taking into consideration the cost of achieving those reductions and any non-air quality health and environmental impact and energy requirements. On August 3, 2015, the EPA issued final new source performance standards, establishing a standard of 1,000 pounds of carbon dioxide per MWh for large natural gas-fueled generating facilities and 1,400 pounds of carbon dioxide per MWh for new coal-fueled generating facilities with the "Best System of Emission Reduction" reflecting highly efficient supercritical pulverized coal facilities with partial carbon capture and sequestration or integrated gasification combined-cycle units that are co-fired with natural gas or pre-combustion slipstream capture of carbon dioxide. The new source performance standards were appealed to the D.C. Circuit and oral argument was scheduled for April 17, 2017. However, oral argument was deferred and the court held the case in abeyance for an indefinite period of time. Until such time as the EPA undertakes further action to reconsider the new source performance standards or the court takes action, any new fossil-fueled generating facilities constructed by the relevant Registrants will be required to meet the GHG new source performance standards.

Clean Power Plan

In June 2014, the EPA released proposed regulations to address GHG emissions from existing fossil-fueled generating facilities, referred to as the Clean Power Plan, under Section 111(d) of the Clean Air Act. The EPA's proposal calculated state-specific emission rate targets to be achieved based on the "Best System of Emission Reduction." In August 2015, the final Clean Power Plan was released, which established the Best System of Emission Reduction as including: (a) heat rate improvements; (b) increased utilization of existing combined-cycle natural gas-fueled generating facilities; and (c) increased deployment of new and incremental non-carbon generation placed in-service after 2012. The compliance period would have begun in 2022, with three interim periods of compliance and with the final goal to be achieved by 2030 and was expected to reduce carbon dioxide emissions in the power sector to 32% below 2005 levels by 2030. On February 9, 2016, the United States Supreme Court ordered that the EPA's emission guidelines for existing sources be stayed pending the disposition of the challenges to the rule in the D.C. Circuit and any action on a writ of certiorari before the U.S. Supreme Court. Oral argument was heard before the D.C. Circuit on September 27, 2016. The court has not yet issued its decision. On October 10, 2017, the EPA issued a proposal to repeal the Clean Power Plan and the EPA will take comments on the proposed repeal until April 26, 2018. In addition, the EPA published in the Federal Register an Advance Notice of Proposed Rulemaking on December 28, 2017, seeking public input on, without committing to, a potential replacement rule. The public comment period for the Advance Notice of Proposed Rulemaking concluded February 26, 2018. The full impacts of the EPA's recent efforts to repeal the Clean Power Plan are not expected to have a material impact on the Registrants. PacifiCorp, MidAmerican Energy, Nevada Power and Sierra Pacific have historically pursued cost-effective projects, including plant efficiency improvements, increased diversification of their generating fleets to include deployment of renewable and lower carbon generating resources, and advanced customer energy efficiency programs.

Coal Combustion Byproduct Disposal

In May 2010, the EPA released a proposed rule to regulate the management and disposal of coal combustion byproducts under the RCRA. The final rule was released by the EPA on December 19, 2014, was published in the Federal Register on April 17, 2015 and was effective on October 19, 2015. The final rule regulates coal combustion byproducts as non-hazardous waste under RCRA Subtitle D and establishes minimum nationwide standards for the disposal of coal combustion residuals. Under the final rule, surface impoundments and landfills utilized for coal combustion byproducts may need to be closed unless they can meet the more stringent regulatory requirements. The final rule requires regulated entities to post annual groundwater monitoring and corrective action reports. The first of these reports were posted to the respective Registrant's coal combustion rule compliance data and information websites prior to March 2, 2018. Based on the results in those reports, additional monitoring and action may be required under the rule.

On March 15, 2018, the EPA issued a proposal to address provisions of the final coal combustion rule that were remanded back to the agency on June 14, 2016, by the D.C. Circuit. In addition, the proposal includes provision that establish alternative performance standards for owners and operators of coal combustion residuals units located in states that have approved permit programs or are otherwise subject to oversight through a permit program administered by the EPA. The public comment period closes April 30, 2018. If adopted, certain elements of the proposal have the potential to reduce costs of compliance. However, until such time as the proposal is final, the impacts on the Registrants cannot be determined.

At the time the rule was published in April 2015, PacifiCorp operated 18 surface impoundments and seven landfills that contained coal combustion byproducts. Prior to the effective date of the rule in October 2015, nine surface impoundments and three landfills were either closed or repurposed to no longer receive coal combustion byproducts and hence are not subject to the final rule. As PacifiCorp proceeded to implement the final coal combustion rule, it was determined that two surface impoundments located at the Dave Johnston Generating Station were hydraulically connected and effectively constitute a single impoundment. In November 2017, a new surface impoundment was placed into service at the Naughton Generating Station. At the time the rule was published in April 2015, MidAmerican Energy owned or operated nine surface impoundments and four landfills that contain coal combustion byproducts. Prior to the effective date of the rule in October 2015, MidAmerican Energy closed or repurposed six surface impoundments to no longer receive coal combustion byproducts. Five of these surface impoundments were closed on or before December 21, 2017 and the sixth is undergoing closure. At the time the rule was published in April 2015, the Nevada Utilities operated ten evaporative surface impoundments and two landfills that contained coal combustion byproducts. Prior to the effective date of the rule in October 2015, the Nevada Utilities closed four of the surface impoundments, four impoundments discontinued receipt of coal combustion byproducts making them inactive and two surface impoundments remain active and subject to the final rule. The two landfills remain active and subject to the final rule. Refer to Note 13 of the Notes to Consolidated Financial Statements of Berkshire Hathaway Energy in Item 8 of this Form 10-K and Note 10 of the Notes to Consolidated Financial Statements of PacifiCorp in Item 8 of this Form 10-K for discussion of the impacts on asset retirement obligations as a result of the final rule.

Multiple parties filed challenges over various aspects of the final rule in the D.C. Circuit in 2015, resulting in settlement of some of the issues and subsequent regulatory action by the EPA, including subjecting inactive surface impoundments to regulation. On September 13, 2017, EPA Administrator Pruitt issued a letter to parties petitioning for administrative reconsideration of certain aspects of the coal combustion byproducts rule concluding it was appropriate and in the public interest to reconsider the provisions of the final rule addressed in the petitions. On September 27, 2017, the D.C. Circuit issued an order to the EPA requiring the agency to identify provisions of the rule that the agency intended to reconsider. The EPA submitted its list of potential issues to be reconsidered on November 15, 2017 and oral argument was held by the D.C. Circuit November 20, 2017 over certain portions of the final rule. The court has not yet issued a decision on the issues presented in the oral arguments. Separately, on August 10, 2017, the EPA issued proposed permitting guidance on how states' coal combustion residuals permit programs should comply with the requirements of the final rule as authorized under the December 2016 Water Infrastructure Improvements for the Nation Act. Utilizing that guidance, the state of Oklahoma submitted an application to the EPA for approval of its state program and, on January 16, 2018, the EPA proposed to approve the application. To date, none of the states in which the Registrants operate has submitted an application for approval of state permitting authority. The state of Utah adopted the federal final rule in September 2016, which required two landfills to submit permit applications by March 2017. It is anticipated that the state of Utah will submit an application for approval of its coal combustion residuals permit program prior to the end of 2018.

Notwithstanding the status of the final coal combustion residuals rule, citizens' suits have been filed against regulated entities seeking judicial relief for contamination alleged to have been caused by releases of coal combustion byproducts. Some of these cases have been successful in imposing liability upon companies if coal combustion byproducts contaminate groundwater that is ultimately released or connected to surface water. In addition, actions have been filed against regulated entities seeking to require that surface impoundments containing coal combustion residuals be subject to closure by removal rather than being allowed to effectuate closure in place as provided under the final rule. The Registrants are not a party to these lawsuits and until they are resolved, the Registrants cannot predict the impact on overall compliance obligations.

New Accounting Pronouncements

For a discussion of new accounting pronouncements affecting the Company, refer to Note 2 of Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

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 goodwill and long-lived assets, pension and other postretirement benefits, income taxes and revenue recognition - unbilled revenue. For additional discussion of the Company's critical accounting estimates, see Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2017 . There have been no significant changes in the Company's assumptions regarding critical accounting estimates since December 31, 2017 .

PacifiCorp 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 Shareholders of PacifiCorp

Results of Review of Interim Financial Information

We have reviewed the accompanying consolidated balance sheet of PacifiCorp and subsidiaries (" PacifiCorp ") as of March 31, 2018 , the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the three-month periods ended March 31, 2018 and 2017 , 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 PacifiCorp as of December 31, 2017 , and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 23, 2018 , 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, 2017 , is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

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

Portland, Oregon

May 7, 2018

PACIFICORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Amounts in millions)



	As of
	March 31,		December 31,
	2018		2017
ASSETS
Current assets:
Cash and cash equivalents	$	17	$	14
Accounts receivable, net	630		684
Income taxes receivable	17		59
Inventories	445		433
Regulatory assets	34		31
Prepaid expenses	66		73
Other current assets	28		21
Total current assets	1,237		1,315

Property, plant and equipment, net	19,190		19,203
Regulatory assets	1,068		1,030
Other assets	330		372

Total assets	$	21,825	$	21,920

The accompanying notes are an integral part of these consolidated financial statements.

PACIFICORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited) (continued)

(Amounts in millions)



	As of
	March 31,			December 31,
	2018			2017
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	376		$	453
Income taxes payable	10			—
Accrued employee expenses	112			70
Accrued interest	106			115
Accrued property and other taxes	96			66
Short-term debt	124			80
Current portion of long-term debt and capital lease obligations	851			588
Regulatory liabilities	80			75
Other current liabilities	178			170
Total current liabilities	1,933			1,617

Regulatory liabilities	3,055			2,996
Long-term debt and capital lease obligations	6,087			6,437
Deferred income taxes	2,565			2,582
Other long-term liabilities	732			733
Total liabilities	14,372			14,365

Commitments and contingencies (Note 11)

Shareholders' equity:
Preferred stock	2			2
Common stock - 750 shares authorized, no par value, 357 shares issued and outstanding	—			—
Additional paid-in capital	4,479			4,479
Retained earnings	2,987			3,089
Accumulated other comprehensive loss, net	(15		)	(15		)
Total shareholders' equity	7,453			7,555

Total liabilities and shareholders' equity	$	21,825		$	21,920

The accompanying notes are an integral part of these consolidated financial statements.

PACIFICORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Amounts in millions)



	Three-Month Periods
	Ended March 31,
	2018			2017

Operating revenue	$	1,184		$	1,281

Operating costs and expenses:
Energy costs	433			441
Operations and maintenance	250			254
Depreciation and amortization	202			196
Taxes, other than income taxes	52			51
Total operating costs and expenses	937			942

Operating income	247			339

Other income (expense):
Interest expense	(96		)	(95		)
Allowance for borrowed funds	4			4
Allowance for equity funds	7			7
Other, net	11			9
Total other income (expense)	(74		)	(75		)

Income before income tax expense	173			264
Income tax expense	25			85
Net income	$	148		$	179

The accompanying notes are an integral part of these consolidated financial statements.

PACIFICORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)

(Amounts in millions)



										Accumulated
					Additional					Other			Total
	Preferred		Common		Paid-in		Retained			Comprehensive			Shareholders'
	Stock		Stock		Capital		Earnings			Loss, Net			Equity

Balance, December 31, 2016	$	2	$	—	$	4,479	$	2,921		$	(12	)	$	7,390
Net income	—		—		—		179			—			179
Common stock dividends declared	—		—		—		(100		)	—			(100		)
Balance, March 31, 2017	$	2	$	—	$	4,479	$	3,000		$	(12	)	$	7,469

Balance, December 31, 2017	$	2	$	—	$	4,479	$	3,089		$	(15	)	$	7,555
Net income	—		—		—		148			—			148
Common stock dividends declared	—		—		—		(250		)	—			(250		)
Balance, March 31, 2018	$	2	$	—	$	4,479	$	2,987		$	(15	)	$	7,453

The accompanying notes are an integral part of these consolidated financial statements.

PACIFICORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Amounts in millions)



	Three-Month Periods
	Ended March 31,
	2018			2017
Cash flows from operating activities:
Net income	$	148		$	179
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	202			196
Allowance for equity funds	(7		)	(7		)
Deferred income taxes and amortization of investment tax credits	(28		)	(5		)
Changes in regulatory assets and liabilities	60			19
Other, net	1			—
Changes in other operating assets and liabilities:
Accounts receivable and other assets	90			115
Derivative collateral, net	(3		)	(7		)
Inventories	(12		)	2
Prepaid expenses	7			6
Income taxes	52			97
Accounts payable and other liabilities	23			(7		)
Net cash flows from operating activities	533			588

Cash flows from investing activities:
Capital expenditures	(236		)	(178		)
Other, net	(1		)	—
Net cash flows from investing activities	(237		)	(178		)

Cash flows from financing activities:
Repayments of long-term debt and capital lease obligations	(87		)	(51		)
Net proceeds from (repayments of) short-term debt	44			(262		)
Common stock dividends	(250		)	(100		)
Net cash flows from financing activities	(293		)	(413		)

Net change in cash and cash equivalents and restricted cash and cash equivalents	3			(3		)
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period	29			33
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	32		$	30

The accompanying notes are an integral part of these consolidated financial statements.

PACIFICORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

( 1 ) General

PacifiCorp, which includes PacifiCorp and its subsidiaries, is a United States regulated electric utility company serving retail customers, including residential, commercial, industrial, irrigation and other customers in portions of Utah, Oregon, Wyoming, Washington, Idaho and California. PacifiCorp owns, or has interests in, a number of thermal, hydroelectric, wind-powered and geothermal generating facilities, as well as electric transmission and distribution assets. PacifiCorp also buys and sells electricity on the wholesale market with other utilities, energy marketing companies, financial institutions and other market participants. PacifiCorp is subject to comprehensive state and federal regulation. PacifiCorp's subsidiaries support its electric utility operations by providing coal mining services. PacifiCorp is an indirect subsidiary of Berkshire Hathaway Energy Company (" BHE "), 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, 2018 and for the three-month periods ended March 31, 2018 and 2017 . The Consolidated Statements of Comprehensive Income have been omitted as net income equals comprehensive income for the three-month periods ended March 31, 2018 and 2017 . The results of operations for the three-month periods ended March 31, 2018 and 2017 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 PacifiCorp's Annual Report on Form 10-K for the year ended December 31, 2017 describes the most significant accounting policies used in the preparation of the unaudited Consolidated Financial Statements. There have been no significant changes in PacifiCorp's assumptions regarding significant accounting estimates and policies during the three-month period ended March 31, 2018 .

( 2 ) New Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, which creates FASB Accounting Standards Codification ("ASC") Topic 842, "Leases" and supersedes Topic 840 "Leases." This guidance increases transparency and comparability among entities by recording lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous guidance. In January 2018, the FASB issued ASU No. 2018-01 that provides for an optional transition practical expedient allowing companies to not have to evaluate existing land easements if they were not previously accounted for under ASC Topic 840, "Leases." This guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted, and is required to be adopted using a modified retrospective approach. PacifiCorp plans to adopt this guidance effective January 1, 2019 and is currently evaluating the impact on its Consolidated Financial Statements and disclosures included within Notes to Consolidated Financial Statements.

( 3 ) Cash and Cash Equivalents and Restricted Cash and Cash Equivalents



	As of
	March 31,		December 31,
	2018		2017
Cash and cash equivalents	$	17	$	14
Restricted cash included in other current assets	13		13
Restricted cash included in other assets	2		2
Total cash and cash equivalents and restricted cash and cash equivalents	$	32	$	29

( 4 ) Property, Plant and Equipment, Net

Property, plant and equipment, net consists of the following (in millions):



		As of
		March 31,			December 31,
	Depreciable Life	2018			2017
Utility Plant:
Utility plant in-service	5-75 years	$	27,947		$	27,880
Accumulated depreciation and amortization		(9,503		)	(9,366		)
Utility plant in-service, net		18,444			18,514
Other non-regulated, net of accumulated depreciation and amortization	45 years	11			11
Plant, net		18,455			18,525
Construction work-in-progress		735			678
Property, plant and equipment, net		$	19,190		$	19,203

( 5 ) Regulatory Matters

Retail Regulated Rates

In December 2017, the Tax Cuts and Jobs Act ("2017 Tax Reform") was signed into law, reducing the federal tax rate from 35% to 21% . Accumulated deferred income tax balances were re-measured at the 21% rate, and regulatory liabilities increased reflective of the probability of such balances being passed back to customers. In March 2018, PacifiCorp proposed 1% rate reductions in Utah, Wyoming, and Idaho. PacifiCorp proposed the rate reductions to be effective May 1, 2018, in Utah and June 1, 2018, in Idaho. In April 2018, the Utah Public Service Commission ordered a rate reduction of $61 million effective May 1, 2018, through December 31, 2018, based on a preliminary estimate of the revenue requirement impact of 2017 Tax Reform. This credit will likely be adjusted effective January 1, 2019, when the final rates are approved in the next phase of the proceeding later in 2018. A procedural schedule is expected to be set by the Idaho Public Utilities Commission. PacifiCorp filed a partial settlement with the Wyoming Public Service Commission on April 11, 2018, that provides a rate reduction of approximately 3% beginning July 1, 2018 with the remaining tax savings to be deferred with offsets to other costs. As of March 31, 2018 , $53 million was accrued for the estimated potential refund liability attributable to lower customer rates enabled by the benefits of tax reform effective January 1, 2018.

( 6 ) Recent Financing Transactions

In April 2018, PacifiCorp amended and restated, its existing $400 million unsecured credit facility expiring June 2020, increasing the lender commitment to $600 million , extending the expiration date to June 2021 and increasing from one to two, the available one-year extension options, subject to lender consent.

In April 2018, PacifiCorp amended and restated, its existing $600 million unsecured credit facility expiring June 2020, extending the expiration date to June 2021 and reducing from two to one, the available one-year extension options, subject to lender consent.

( 7 ) Income Taxes

Tax Cuts and Jobs Act

2017 Tax Reform impacts many areas of income tax law. The most material items include the reduction of the federal corporate tax rate from 35% to 21% effective January 1, 2018 and limitations on bonus depreciation for utility property.

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,
	2018		2017

Federal statutory income tax rate	21	%	35	%
State income tax, net of federal income tax benefit	4		3
Federal income tax credits	(5	)	(5	)
Effects of ratemaking	(4	)	1
Other	(2	)	(2	)
Effective income tax rate	14	%	32	%

Income tax credits relate primarily to production tax credits earned by PacifiCorp’s wind-powered generating facilities. Federal renewable electricity production tax credits 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 are eligible for the credits for 10 years from the date the qualifying generating facilities are placed in-service.

Berkshire Hathaway includes PacifiCorp in its United States federal income tax return. PacifiCorp's provision for income taxes has been computed on a stand-alone basis, and substantially all of its currently payable or receivable federal income taxes are remitted to or received from Berkshire Hathaway Energy Company. For the three-month periods ended March 31, 2018 and 2017 , PacifiCorp did not receive or make any cash payments for federal income taxes from or to Berkshire Hathaway Energy Company.

( 8 ) Employee Benefit Plans

In March 2017, the FASB issued ASU No. 2017-07, which amends FASB ASC Topic 715, "Compensation - Retirement Benefits." The amendments in this guidance require that an employer disaggregate the service cost component from the other components of net benefit cost and report the service cost component in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the statement of operations separately from the service cost component and outside the subtotal of operating income. Additionally, the guidance only allows the service cost component to be eligible for capitalization when applicable. PacifiCorp adopted this guidance January 1, 2018 prospectively for the capitalization of the service cost component in the Consolidated Balance Sheets and retrospectively for the presentation of the service cost component and the other components of net benefit cost in the Consolidated Statements of Operations utilizing the practical expedient to use the amounts previously disclosed in the Notes to Consolidated Financial Statements as the estimation basis for applying the retrospective presentation requirement. As a result, amounts other than the service cost for pension and other postretirement benefit plans for the three-month period ended March 31, 2017 of $6 million have been reclassified to Other, net in the Consolidated Statements of Operations.

Net periodic benefit (credit) cost for the pension and other postretirement benefit plans included the following components (in millions):



	Three-Month Periods
	Ended March 31,
	2018			2017
Pension:
Service cost	$	—		$	—
Interest cost	11			12
Expected return on plan assets	(18		)	(18		)
Net amortization	3			4
Net periodic benefit credit	$	(4	)	$	(2	)

Other postretirement:
Service cost	$	—		$	1
Interest cost	3			3
Expected return on plan assets	(5		)	(6		)
Net amortization	(1		)	(1		)
Net periodic benefit credit	$	(3	)	$	(3	)

Amounts other than the service cost for pension and other postretirement benefit plans are recorded in Other, net in the Consolidated Statements of Operations. Employer contributions to the pension and other postretirement benefit plans are expected to be $4 million and $- million, respectively, during 2018 . As of March 31, 2018 , $1 million and $- million of contributions had been made to the pension and other postretirement benefit plans, respectively.

( 9 ) Risk Management and Hedging Activities

PacifiCorp is exposed to the impact of market fluctuations in commodity prices and interest rates. PacifiCorp is principally exposed to electricity, natural gas, coal and fuel oil commodity price risk as it has an obligation to serve retail customer load in its regulated service territories. PacifiCorp's load and generating facilities represent substantial underlying commodity positions. Exposures to commodity prices consist mainly of variations in the price of fuel required to generate electricity and wholesale electricity that is purchased and sold. Commodity prices are subject to wide price swings as supply and demand are impacted by, among many other unpredictable items, weather, market liquidity, generating facility availability, customer usage, storage, and transmission and transportation constraints. Interest rate risk exists on variable-rate debt and future debt issuances. PacifiCorp does not engage in a material amount of proprietary trading activities.

PacifiCorp has established a risk management process that is designed to identify, assess, manage, mitigate, monitor and report each of the various types of risk involved in its business. To mitigate a portion of its commodity price risk, PacifiCorp uses commodity derivative contracts, which may include forwards, options, swaps and other agreements, to effectively secure future supply or sell future production generally at fixed prices. PacifiCorp manages its interest rate risk by limiting its exposure to variable interest rates primarily through the issuance of fixed-rate long-term debt and by monitoring market changes in interest rates. Additionally, PacifiCorp may from time to time enter into interest rate derivative contracts, such as interest rate swaps or locks, to mitigate PacifiCorp's exposure to interest rate risk. No interest rate derivatives were in place during the periods presented. PacifiCorp does not hedge all of its commodity price and interest rate risks, thereby exposing the unhedged portion to changes in market prices.

There have been no significant changes in PacifiCorp's accounting policies related to derivatives. Refer to Note 10 for additional information on derivative contracts.

The following table, which reflects master netting arrangements and excludes contracts that have been designated as normal under the normal purchases or normal sales exception afforded by GAAP, summarizes the fair value of PacifiCorp's derivative contracts, on a gross basis, and reconciles those amounts to the amounts presented on a net basis on the Consolidated Balance Sheets (in millions):



	Other					Other			Other
	Current			Other		Current			Long-term
	Assets			Assets		Liabilities			Liabilities			Total

As of March 31, 2018
Not designated as hedging contracts ⁽¹⁾ :
Commodity assets	$	7		$	2	$	2		$	1		$	12
Commodity liabilities	(3		)	—		(45		)	(89		)	(137		)
Total	4			2		(43		)	(88		)	(125		)

Total derivatives	4			2		(43		)	(88		)	(125		)
Cash collateral receivable	—			—		19			58			77
Total derivatives - net basis	$	4		$	2	$	(24	)	$	(30	)	$	(48	)

As of December 31, 2017
Not designated as hedging contracts ⁽¹⁾ :
Commodity assets	$	11		$	1	$	1		$	—		$	13
Commodity liabilities	(3		)	—		(32		)	(82		)	(117		)
Total	8			1		(31		)	(82		)	(104		)

Total derivatives	8			1		(31		)	(82		)	(104		)
Cash collateral receivable	—			—		17			57			74
Total derivatives - net basis	$	8		$	1	$	(14	)	$	(25	)	$	(30	)


(1)	PacifiCorp's commodity derivatives are generally included in rates and as of March 31, 2018 and December 31, 2017 , a regulatory asset of $122 million and $101 million , respectively, was recorded related to the net derivative liability of $125 million and $104 million , respectively.

The following table reconciles the beginning and ending balances of PacifiCorp's net regulatory assets and summarizes the pre-tax gains and losses on commodity derivative contracts recognized in net regulatory assets, as well as amounts reclassified to earnings (in millions):



	Three-Month Periods
	Ended March 31,
	2018			2017

Beginning balance	$	101		$	73
Changes in fair value recognized in net regulatory assets	28			24
Net gains reclassified to operating revenue	7			12
Net losses reclassified to energy costs	(14		)	(6		)
Ending balance	$	122		$	103

Derivative Contract Volumes

The following table summarizes the net notional amounts of outstanding commodity derivative contracts with fixed price terms that comprise the mark-to-market values as of (in millions):



	Unit of	March 31,		December 31,
	Measure	2018		2017

Electricity (sales)	Megawatt hours	(6	)	(9	)
Natural gas purchases	Decatherms	115		113
Fuel oil purchases	Gallons	7		—

Credit Risk

PacifiCorp is exposed to counterparty credit risk associated with wholesale energy supply and marketing activities with other utilities, energy marketing companies, financial institutions and other market participants. Credit risk may be concentrated to the extent PacifiCorp's counterparties have similar economic, industry or other characteristics and due to direct or indirect relationships among the counterparties. Before entering into a transaction, PacifiCorp analyzes the financial condition of each significant wholesale counterparty, establishes limits on the amount of unsecured credit to be extended to each counterparty and evaluates the appropriateness of unsecured credit limits on an ongoing basis. To further mitigate wholesale counterparty credit risk, PacifiCorp enters into netting and collateral arrangements that may include margining and cross-product netting agreements and obtains third-party guarantees, letters of credit and cash deposits. If required, PacifiCorp exercises rights under these arrangements, including calling on the counterparty's credit support arrangement.

Collateral and Contingent Features

In accordance with industry practice, certain wholesale derivative contracts contain credit support provisions that in part base certain collateral requirements on credit ratings for senior unsecured debt as reported by one or more of the three recognized credit rating agencies. These derivative contracts may either specifically provide bilateral rights to demand cash or other security if credit exposures on a net basis exceed specified rating-dependent threshold levels ("credit-risk-related contingent features") or provide the right for counterparties to demand "adequate assurance," or in some cases terminate the contract, in the event of a material adverse change in PacifiCorp's creditworthiness. These rights can vary by contract and by counterparty. As of March 31, 2018 , PacifiCorp's credit ratings from the three recognized credit rating agencies were investment grade.

The aggregate fair value of PacifiCorp's derivative contracts in liability positions with specific credit-risk-related contingent features totaled $129 million and $110 million as of March 31, 2018 and December 31, 2017 , respectively, for which PacifiCorp had posted collateral of $77 million and $74 million , respectively, in the form of cash deposits. If all credit-risk-related contingent features for derivative contracts in liability positions had been triggered as of March 31, 2018 and December 31, 2017 , PacifiCorp would have been required to post $48 million and $34 million , respectively, of additional collateral. PacifiCorp's collateral requirements could fluctuate considerably due to market price volatility, changes in credit ratings, changes in legislation or regulation, or other factors.

( 10 ) Fair Value Measurements

The carrying value of PacifiCorp'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. PacifiCorp 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 PacifiCorp has the ability to access at the measurement date.

•


•	Level 3 — Unobservable inputs reflect PacifiCorp's judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. PacifiCorp develops these inputs based on the best information available, including its own data.

The following table presents PacifiCorp's 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		Other ⁽¹⁾			Total
As of March 31, 2018
Assets:
Commodity derivatives	$	—	$	12		$	—	$	(6	)	$	6
Money market mutual funds ⁽²⁾	12		—			—		—			12
Investment funds	24		—			—		—			24
	$	36	$	12		$	—	$	(6	)	$	42

Liabilities - Commodity derivatives	$	—	$	(137	)	$	—	$	83		$	(54	)

As of December 31, 2017
Assets:
Commodity derivatives	$	—	$	13		$	—	$	(4	)	$	9
Money market mutual funds ⁽²⁾	21		—			—		—			21
Investment funds	21		—			—		—			21
	$	42	$	13		$	—	$	(4	)	$	51

Liabilities - Commodity derivatives	$	—	$	(117	)	$	—	$	78		$	(39	)


(1)	Represents netting under master netting arrangements and a net cash collateral receivable of $77 million and $74 million as of March 31, 2018 and December 31, 2017 , respectively.


(2)	Amounts are included in cash and cash equivalents, other current assets and other assets 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 PacifiCorp transacts. When quoted prices for identical contracts are not available, PacifiCorp uses forward price curves. Forward price curves represent PacifiCorp's estimates of the prices at which a buyer or seller could contract today for delivery or settlement at future dates. PacifiCorp 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 energy brokers, exchanges, direct communication with market participants and actual transactions executed by PacifiCorp. Market price quotations for certain major electricity and natural gas trading hubs are generally readily obtainable for the first six years; therefore, PacifiCorp's forward price curves for those locations and periods reflect observable market quotes. Market price quotations for other electricity and natural gas trading hubs are not as readily obtainable for the first six years. Given that limited market data exists for these contracts, as well as for those contracts that are not actively traded, PacifiCorp 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. Refer to Note 9 for further discussion regarding PacifiCorp's risk management and hedging activities.

PacifiCorp's investments in money market mutual funds and investment funds are stated at fair value. When available, PacifiCorp uses a readily observable quoted market price or net asset value of an identical security in an active market 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.

PacifiCorp's long-term debt is carried at cost on the Consolidated Balance Sheets. The fair value of PacifiCorp'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 PacifiCorp'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 PacifiCorp's long-term debt (in millions):



	As of March 31, 2018				As of December 31, 2017
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value

Long-term debt	$	6,919	$	8,007	$	7,005	$	8,370

( 11 ) Commitments and Contingencies

Legal Matters

PacifiCorp is party to a variety of legal actions arising out of the normal course of business. Plaintiffs occasionally seek punitive or exemplary damages. PacifiCorp does not believe that such normal and routine litigation will have a material impact on its consolidated financial results.

Environmental Laws and Regulations

PacifiCorp is subject to federal, state and local laws and regulations regarding air and water quality, renewable portfolio standards, emissions performance standards, climate change, 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. PacifiCorp believes it is in material compliance with all applicable laws and regulations.

Hydroelectric Relicensing

PacifiCorp's Klamath hydroelectric system is currently operating under annual licenses with the Federal Energy Regulatory Commission ("FERC"). In February 2010, PacifiCorp, the United States Department of the Interior, the United States Department of Commerce, the state of California, the state of Oregon and various other governmental and non-governmental settlement parties signed the Klamath Hydroelectric Settlement Agreement ("KHSA"). Among other things, the KHSA provided that that United States Department of the Interior would conduct scientific and engineering studies to assess whether removal of the Klamath hydroelectric system's mainstem dams was in the public interest and would advance restoration of the Klamath Basin's salmonid fisheries. If it was determined that dam removal should proceed, dam removal would begin no earlier than 2020.

Congress failed to pass legislation needed to implement the original KHSA. On April 6 2016, the principal parties to the KHSA (PacifiCorp, the states of California and Oregon and the United States Departments of the Interior and Commerce) executed an amendment to the KHSA. Consistent with the terms of the amended KHSA, on September 23, 2016, PacifiCorp and the Klamath River Renewal Corporation ("KRRC"), a private, independent nonprofit 501(c)(3) organization formed by certain signatories of the amended KSHA, jointly filed an application with the FERC to transfer the license for the four mainstem Klamath River hydroelectric generating facilities from PacifiCorp to the KRRC. Also on September 23, 2016, the KRRC filed an application with the FERC to surrender the license and decommission the same four facilities. The KRRC's license surrender application included a request for the FERC to refrain from acting on the surrender application until after the transfer of the license to the KRRC is effective. On March 15, 2018, the FERC issued an order splitting the existing license for the Klamath Project into two licenses: the Klamath Project (P‑2082) contains East Side, West Side, Keno and Fall Creek developments; the new Lower Klamath Project (P‑14803) contains J.C. Boyle, Copco No. 1, Copco No. 2 and Iron Gate developments. In the same order, the FERC deferred consideration of the transfer of the license for the Lower Klamath facilities from PacifiCorp to the KRRC until some point in the future. PacifiCorp is currently the licensee for both the Klamath Project and Lower Klamath Project facilities and will retain ownership of the Klamath Project facilities after the approval and transfer of the Lower Klamath Project facilities. On April 16, 2018, PacifiCorp filed a motion to stay the effective date of the license amendment until transfer is approved.

Under the amended KHSA, PacifiCorp and its customers are protected from uncapped dam removal costs and liabilities. The KRRC must indemnify PacifiCorp from liabilities associated with dam removal. The amended KHSA also limits PacifiCorp's contribution to facilities removal costs to no more than $200 million , of which up to $184 million would be collected from PacifiCorp's Oregon customers with the remainder to be collected from PacifiCorp's California customers. California voters approved a water bond measure in November 2014 from which the state of California's contribution toward facilities removal costs are being drawn. In accordance with this bond measure, additional funding of up to $250 million for facilities removal costs was included in the California state budget in 2016, with the funding effective for at least five years. If facilities removal costs exceed the combined funding that will be available from PacifiCorp's Oregon and California customers and the state of California, sufficient funds would need to be provided by the KRRC or an entity other than PacifiCorp for removal to proceed.

If certain conditions in the amended KHSA are not satisfied and the license does not transfer to the KRRC, PacifiCorp will resume relicensing with the FERC.

Guarantees

PacifiCorp has entered into guarantees as part of the normal course of business and the sale of certain assets. These guarantees are not expected to have a material impact on PacifiCorp's consolidated financial results.

( 12 ) Revenue from Contracts with Customers

Adoption

In May 2014, the FASB issued ASU No. 2014-09, which created FASB ASC Topic 606, "Revenue from Contracts with Customers" ("ASC 606") and superseded ASC Topic 605, "Revenue Recognition." The guidance replaced industry-specific guidance and established a single five-step model to identify and recognize revenue from contracts with customers ("Customer Revenue"). The core principle of the guidance is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Following the issuance of ASU No. 2014-09, the FASB issued several ASUs that clarified the implementation guidance for ASU No. 2014-09 but did not change the core principle of the guidance. PacifiCorp adopted this guidance for all applicable contracts as of January 1, 2018 under a modified retrospective method. The adoption did not have a cumulative effect impact at the date of initial adoption.

Customer Revenue

PacifiCorp recognizes revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. PacifiCorp records sales, franchise and excise taxes collected directly from customers and remitted directly to the taxing authorities on a net basis on the Consolidated Statements of Operations.

Substantially all of PacifiCorp's Customer Revenue is derived from tariff based sales arrangements approved by various regulatory bodies. These tariff based revenues are mainly comprised of energy, transmission and distribution and have performance obligations to deliver energy products and services to customers which are satisfied over time as energy is delivered or services are provided. Other revenue consists primarily of revenue recognized in accordance with ASC 815, "Derivatives and Hedging".

Revenue recognized is equal to what PacifiCorp has the right to invoice as it corresponds directly with the value to the customer of PacifiCorp's performance to date and includes billed and unbilled amounts. As of March 31, 2018 and December 31, 2017 , accounts receivable from contracts with customers, net of allowance for doubtful accounts was $552 million and $635 million , respectively, including unbilled revenue of $215 million and $255 million , respectively, and was included in accounts receivables, net on the Consolidated Balance Sheets. Payments for amounts billed are generally due from the customer within 30 days of billing. Rates charged for energy products and services are established by regulators or contractual arrangements that establish the transaction price as well as the allocation of price amongst the separate performance obligations. When preliminary regulated rates are permitted to be billed prior to final approval by the applicable regulator, certain revenue collected may be subject to refund and a liability for estimated refunds is accrued.

The following table summarizes PacifiCorp's revenue by regulated energy, with further disaggregation of regulated energy by customer class, for the three-month period ended March 31, 2018 (in millions):



Customer Revenue:
Retail:
Residential	$	441
Commercial	342
Industrial	269
Other retail	25
Total retail	1,077
Wholesale	22
Transmission	22
Other Customer Revenue	19
Total Customer Revenue	1,140
Other revenue	44
Total operating revenue	$	1,184

Contract Assets and Liabilities

In the event one of the parties to a contract has performed before the other, PacifiCorp would recognize a contract asset or contract liability depending on the relationship between the PacifiCorp's performance and the customer's payment. As of March 31, 2018 and December 31, 2017 , there were no material contract assets or contract liabilities recorded on the Consolidated Balance Sheets. During the three-month period ended March 31, 2018 , there was no material revenue recognized that was included in the contract liability balance at the beginning of the period or from performance obligations satisfied in previous periods.


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 PacifiCorp during the periods included herein. Explanations include management's best estimate of the impact of weather, customer growth and other factors. This discussion should be read in conjunction with PacifiCorp's historical unaudited Consolidated Financial Statements and Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10‑Q. PacifiCorp's actual results in the future could differ significantly from the historical results.

Results of Operations for the First Quarter of 2018 and 2017

Overview

Net income for the first quarter of 2018 was $148 million , a decrease of $31 million , or 17% , compared to 2017 . Net income decreased primarily due to lower utility margins of $89 million, higher depreciation and amortization of $6 million , partially offset by lower income tax expense of $60 million from lower tax rates due to the impact of 2017 Tax Reform and lower operations and maintenance expenses of $4 million . Utility margins decreased due to lower average retail rates, including $53 million from the impact of refund accruals related to 2017 Tax Reform, lower retail customer volumes, higher purchased electricity costs from higher prices and volumes, and lower wholesale market prices, partially offset by higher wholesale volumes, lower coal-fueled generation from lower coal volumes and prices, and lower natural gas-fueled generation from lower prices. Retail customer volumes decreased 3.5% due to impacts of weather on residential and commercial customers primarily in Oregon, Washington, and Utah, lower industrial usage primarily in Utah and Oregon, lower residential usage primarily in Washington, Oregon, and Wyoming, and lower commercial usage in Oregon, partially offset by an increase in the average number of commercial and residential customers in Utah and Oregon, higher commercial and residential usage, primarily in Utah. Energy generated decreased 1% for the first quarter of 2018 compared to 2017 primarily due to lower hydroelectric and coal-fueled generation, offset by higher wind-powered and natural gas-fueled generation. Wholesale electricity sales volumes increased 48% and purchased electricity volumes increased 13% .

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 operating revenue less energy costs, which are captions presented on the Consolidated Statements of Operations.

PacifiCorp’s energy costs are directly recovered from its customers through regulatory recovery mechanisms and as a result, changes in PacifiCorp’s revenue are comparable to changes in such expenses. As such, management believes Utility Margin more appropriately and concisely explain 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 comparable financial measure prepared in accordance with GAAP. The following table provides a reconciliation of utility margin to operating income (in millions):



	First Quarter
	2018		2017		Change
Utility margin:
Operating revenue	$	1,184	$	1,281	$	(97	)	(8	)%
Energy costs	433		441		(8		)	(2	)
Utility margin	751		840		(89		)	(11	)
Operations and maintenance	250		254		(4		)	(2	)
Depreciation and amortization	202		196		6			3
Taxes, other than income taxes	52		51		1			2
Operating income	$	247	$	339	$	(92	)	(27	)

A comparison of PacifiCorp's key operating results is as follows:



	First Quarter
	2018		2017		Change
Utility margin (in millions):
Operating revenue	$	1,184	$	1,281	$	(97	)	(8	)%
Energy costs	433		441		(8		)	(2	)
Utility margin	$	751	$	840	$	(89	)	(11	)

Sales (GWh):
Residential	4,191		4,461		(270		)	(6	)%
Commercial ⁽¹⁾	4,298		4,256		42			1
Industrial, irrigation and other ⁽¹⁾	4,706		4,953		(247		)	(5	)
Total retail	13,195		13,670		(475		)	(3	)
Wholesale	2,448		1,650		798			48
Total sales	15,643		15,320		323			2

Average number of retail customers
(in thousands)	1,890		1,859		31			2	%

Average revenue per MWh:
Retail	$	81.54	$	86.80	$	(5.26	)	(6	)%
Wholesale	$	26.92	$	34.81	$	(7.89	)	(23	)%

Heating degree days	4,336		4,758		(422		)	(9	)%

Sources of energy (GWh) ⁽²⁾ :
Coal	8,642		8,840		(198		)	(2	)%
Natural gas	1,948		1,838		110			6
Hydroelectric ⁽³⁾	1,136		1,379		(243		)	(18	)
Wind and other ⁽³⁾	1,069		880		189			21
Total energy generated	12,795		12,937		(142		)	(1	)
Energy purchased	4,055		3,585		470			13
Total	16,850		16,522		328			2

Average cost of energy per MWh:
Energy generated ⁽⁴⁾	$	18.48	$	19.30	$	(0.82	)	(4	)%
Energy purchased	$	40.20	$	41.82	$	(1.62	)	(4	)%


(1)	Effective in April 2017, one customer was reclassified from "Industrial, irrigation and other" into "Commercial" resulting in an increase of 61 GWh to "Commercial" in 2018.


(2)	GWh amounts are net of energy used by the related generating facilities.


(3)	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.


(4)	The average cost per MWh of energy generated includes only the cost of fuel associated with the generating facilities.

Utility margin decreased $89 million , or 11% , for the first quarter of 2018 compared to 2017 primarily due to:


•	$70 million of lower retail revenue primarily due to lower average retail rates, including the impact of lower tax rates as a result of the 2017 Tax Reform of $53 million;

•

$40 million of lower retail revenues due to decreased volumes of 3.5% due to impacts of weather on residential and commercial customers primarily in Oregon, Washington, and Utah, lower industrial usage primarily in Utah and Oregon, lower residential usage primarily in Washington, Oregon, and Wyoming, and lower commercial usage in Oregon, partially offset by an increase in the average number of commercial and residential customers in Utah and Oregon, higher commercial and residential usage, primarily in Utah;


•	$13 million of higher purchased electricity costs due to higher prices and volumes; and


•	$10 million of lower wholesale revenue due to lower wholesale market prices.

The decreases above were partially offset by:


•	$19 million of higher wholesale revenue from higher volumes;


•	$10 million of lower coal costs from lower volumes and prices;


•	$9 million of lower amortization of incurred net power costs in accordance with established adjustment mechanism; and


•	$4 million of lower natural gas costs primarily due to lower prices.

Operations and maintenance decreased $4 million , or 2% , for the first quarter of 2018 compared to 2017 primarily due to a decrease in reserves for assets under construction and lower labor costs.

Depreciation and amortization increased $6 million , or 3% , for the first quarter of 2018 compared to 2017 primarily due to higher plant-in-service.

Income tax expense decreased $60 million , or 71% , for the first quarter of 2018 compared to 2017. The effective tax rate was 14% for 2018 and 32% for 2017. The effective tax rate decreased primarily as a result of the reduction in the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018, and the amortization of the excess deferred income taxes resulting from the reduction in the U.S. federal corporate income tax rate.

Liquidity and Capital Resources

As of March 31, 2018 , PacifiCorp's total net liquidity was as follows (in millions):



Cash and cash equivalents	$	17

Credit facilities	1,000
Less:
Short-term debt	(124		)
Tax-exempt bond support	(89		)
Net credit facilities	787

Total net liquidity	$	804

Credit facilities:
Maturity dates	2020

Operating Activities

Net cash flows from operating activities for the three-month periods ended March 31, 2018 and 2017 were $533 million and $588 million , respectively. The change was primarily due to lower current year collections from retail customers and higher current year purchased power costs, partially offset by higher current year collections from wholesale customers and a decrease in payments for payroll due to timing.

The Tax Cuts and Jobs Act ("2017 Tax Reform") reduced the federal corporate tax rate from 35% to 21% effective January 1, 2018, and eliminated bonus depreciation on qualifying regulated utility assets acquired after September 27, 2017. PacifiCorp anticipates passing the benefits of lower tax expense to customers through regulatory mechanisms. PacifiCorp expects lower revenue and income taxes as well as lower bonus depreciation benefits as a result of the 2017 Tax Reform and related regulatory treatment. PacifiCorp does not expect the 2017 Tax Reform and related regulatory treatment to have a material adverse impact on its cash flows, subject to actual regulatory outcomes, which will be determined based on rulings by regulatory commissions expected in 2018. 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, 2018 and 2017 were $(237) million and $(178) million , respectively. The change mainly reflects a current year increase in capital expenditures of $58 million. 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, 2018 was $(293) million . Uses of cash consisted substantially of $250 million for common stock dividends paid to PPW Holdings LLC and $86 million for the repayment of long-term debt, offset by $44 million net proceeds from short-term debt.

Net cash flows from financing activities for the three-month period ended March 31, 2017 was $(413) million . Uses of cash consisted substantially of $100 million for common stock dividends paid to PPW Holdings LLC, $50 million for the repayment of long-term debt and $262 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, 2018 , PacifiCorp had $124 million of short-term debt outstanding at a weighted average interest rate of 2.21%. As of December 31, 2017 , PacifiCorp had $80 million of short-term debt outstanding at a weighted average interest rate of 1.83%.

Long-term Debt

PacifiCorp currently has regulatory authority from the OPUC and the IPUC to issue an additional $1.3 billion of long-term debt. PacifiCorp must make a notice filing with the WUTC prior to any future issuance.

As of March 31, 2018 , PacifiCorp had $170 million of letters of credit providing credit enhancement and liquidity support for variable-rate tax-exempt bond obligations totaling $168 million plus interest. These letters of credit were fully available as of March 31, 2018 and expire periodically through March 2019.

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
	2017		2018		2018

Transmission system investment	$	5	$	9	$	65
Environmental	5		3		12
Wind investment	2		2		550
Advanced meter infrastructure	12		14		73
Operating and other	154		208		548
Total	$	178	$	236	$	1,248

PacifiCorp's historical and forecast capital expenditures include the following:


•	Transmission system investment primarily reflects initial costs for the 140-mile 500 kV Aeolus-Bridger/Anticline transmission line, a major segment of PacifiCorp's Energy Gateway Transmission expansion program expected to be placed in-service in 2020. Planned spending for the Aeolus-Bridger/Anticline line totals $40 million in 2018.


•	Environmental includes the installation of or replacement of emissions control equipment at certain generating facilities, as well as expenditures for the management of coal combustion residuals, and expenditures to ensure facilities meet effluent limitation guidelines and requirements under the Clean Water Act.

•

Wind investment includes costs for new wind plant construction projects and repowering of certain existing wind plants. The repowering projects entails the replacement of significant component of older turbines. Planned spending for the repowering totals $347 million in 2018 and for the new wind-powered generating facilities totals $203 million in 2018. The repowering projects are expected to be placed in-service at various dates in 2019 and 2020. The new wind-powered generating facilities are also expected to be placed in-service in 2020. The energy production from the repowered and new wind-powered generating facilities is expected to qualify for 100% of the federal renewable electricity production tax credit available for 10 years once the equipment is placed in-service.


•	Advanced meter infrastructure ("AMI") includes costs for customer meter replacements and installation of infrastructure and systems to implement smart meter features that improve customers’ energy management capabilities and reduce company meter-related costs. AMI projects are in progress or planned in Oregon, California, Utah and Idaho in 2018.


•	Remaining investments relate to operating projects that consist of routine expenditures for generation, transmission, distribution and other infrastructure needed to serve existing and expected demand, including upgrades to customer meters in Oregon, California, Utah, and Idaho.

Integrated Resource Plan

In April 2017, PacifiCorp filed its 2017 Integrated Resource Plan ("IRP") with its state commissions. The IRP, which includes the Energy Vision 2020 project in the preferred portfolio, includes investments in renewable energy resources, upgrades to the existing wind fleet, and energy efficiency measures to meet future customer needs. The OPUC acknowledged PacifiCorp's 2017 IRP on December 11, 2017, and the UPSC acknowledged PacifiCorp’s 2017 IRP on March 2, 2018. PacifiCorp filed its 2017 IRP Update with its state commissions on May 1, 2018.

Request for Proposals

PacifiCorp issues individual Request for Proposals ("RFP"), each of which typically focuses on a specific category of generation resources consistent with the IRP or other customer-driven demands. The IRP and the RFPs provide for the identification and staged procurement of resources to meet load or renewable portfolio standard requirements. 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.

As required by applicable laws and regulations, PacifiCorp filed its draft 2017R RFP with the UPSC in June 2017 and with the OPUC in August 2017. The UPSC and the OPUC approved PacifiCorp's 2017R RFP in September 2017. The 2017R RFP was subsequently released to the market on September 27, 2017. The 2017R RFP sought up to approximately 1,270 MW of new wind resources that can interconnect to PacifiCorp's transmission system in Wyoming once a proposed high-voltage transmission line is constructed. The 2017R RFP also sought proposals for wind resources located outside of Wyoming capable of delivering all-in economic benefits for PacifiCorp's customers. The proposed high-voltage transmission line and new wind resources must be placed in service by December 31, 2020, to maximize potential federal production tax credit benefits for PacifiCorp's customers. Bids were received in October 2017 and best-and-final pricing, reflecting changes in federal tax law, was received in December 2017. PacifiCorp finalized its bid-selection process and established a final shortlist in February 2018. PacifiCorp has identified four winning wind-resource bids from this solicitation totaling 1,311 MWs, consisting of 1,111 MWs owned and 200 MW as a power-purchase agreement.

PacifiCorp released the 2017S RFP to the market on November 15, 2017. The 2017S RFP is seeking bids for new solar resources that can deliver energy and capacity to PacifiCorp's transmission system that provide net benefits for customers. The 2017S RFP was open to bidders offering power-purchase agreements for new solar facilities sized between 10 and 300 MW. Bids were due in December 2017, and best-and-final pricing was received in February 2018. PacifiCorp finalized its bid-selection process in March 2018 and did not select any bids to the final shortlist. PacifiCorp will continue to analyze the potential economic benefits from solar-resource opportunities in its 2019 IRP.

Contractual Obligations

As of March 31, 2018 , 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, 2017 .

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, local and foreign laws and regulations regarding air and water quality, RPS, emissions performance standards, climate change, 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 the EPA and various state, local and international 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 "Liquidity and Capital Resources" for discussion of PacifiCorp's forecast environmental-related capital expenditures.

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.

New Accounting Pronouncements

For a discussion of new accounting pronouncements affecting PacifiCorp, refer to Note 2 of Notes to Consolidated Financial Statements in Part I, Item 1 of the Form 10-Q.

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, 2017 . There have been no significant changes in PacifiCorp's assumptions regarding critical accounting estimates since December 31, 2017 .

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, 2018 , the related statements of operations, changes in equity, and cash flows for the three-month periods ended March 31, 2018 and 2017 , 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, 2017 , and the related 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 23, 2018, 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, 2017 , 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.

/s/ Deloitte & Touche LLP

Des Moines, Iowa

May 7, 2018

MIDAMERICAN ENERGY COMPANY

BALANCE SHEETS (Unaudited)

(Amounts in millions)



	As of
	March 31,		December 31,
	2018		2017
ASSETS
Current assets:
Cash and cash equivalents	$	380	$	172
Receivables, net	319		344
Income taxes receivable	119		51
Inventories	208		245
Other current assets	138		134
Total current assets	1,164		946

Property, plant and equipment, net	14,268		14,207
Regulatory assets	209		204
Investments and restricted investments	723		728
Other assets	216		233

Total assets	$	16,580	$	16,318

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,
	2018		2017
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable	$	240	$	452
Accrued interest	55		48
Accrued property, income and other taxes	119		132
Current portion of long-term debt	500		350
Other current liabilities	152		128
Total current liabilities	1,066		1,110

Long-term debt	4,879		4,692
Deferred income taxes	2,224		2,237
Regulatory liabilities	1,688		1,661
Asset retirement obligations	535		528
Other long-term liabilities	318		326
Total liabilities	10,710		10,554

Commitments and contingencies (Note 10)

Shareholder's equity:
Common stock - 350 shares authorized, no par value, 71 shares issued and outstanding	—		—
Additional paid-in capital	561		561
Retained earnings	5,309		5,203
Total shareholder's equity	5,870		5,764

Total liabilities and shareholder's equity	$	16,580	$	16,318

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,
	2018			2017
Operating revenue:
Regulated electric	$	469		$	433
Regulated gas and other	277			262
Total operating revenue	746			695

Operating costs and expenses:
Cost of fuel, energy and capacity	108			102
Cost of gas sold and other	179			172
Operations and maintenance	190			171
Depreciation and amortization	158			117
Property and other taxes	32			31
Total operating costs and expenses	667			593

Operating income	79			102

Other income (expense):
Interest expense	(58		)	(53		)
Allowance for borrowed funds	4			2
Allowance for equity funds	10			6
Other, net	9			11
Total other income (expense)	(35		)	(34		)

Income before income tax benefit	44			68
Income tax benefit	(62		)	(37		)

Net income	$	106		$	105

The accompanying notes are an integral part of these financial statements.

MIDAMERICAN ENERGY COMPANY

STATEMENTS OF CHANGES IN EQUITY (Unaudited)

(Amounts in millions)



	Common Stock		Retained Earnings		Total Equity

Balance, December 31, 2016	$	561	$	4,599	$	5,160
Net income	—		105		105
Balance, March 31, 2017	$	561	$	4,704	$	5,265

Balance, December 31, 2017	$	561	$	5,203	$	5,764
Net income	—		106		106
Balance, March 31, 2018	$	561	$	5,309	$	5,870

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,
	2018			2017
Cash flows from operating activities:
Net income	$	106		$	105
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	158			117
Deferred income taxes and amortization of investment tax credits	19			13
Changes in other assets and liabilities	10			11
Other, net	(10		)	(6		)
Changes in other operating assets and liabilities:
Receivables, net	23			39
Inventories	37			22
Derivative collateral, net	(2		)	—
Contributions to pension and other postretirement benefit plans, net	(3		)	(3		)
Accounts payable	(58		)	1
Accrued property, income and other taxes, net	(82		)	(71		)
Other current assets and liabilities	32			(6		)
Net cash flows from operating activities	230			222

Cash flows from investing activities:
Capital expenditures	(365		)	(238		)
Purchases of marketable securities	(95		)	(40		)
Proceeds from sales of marketable securities	74			35
Other, net	15			(3		)
Net cash flows from investing activities	(371		)	(246		)

Cash flows from financing activities:
Proceeds from long-term debt	687			843
Repayments of long-term debt	(350		)	(255		)
Net repayments of short-term debt	—			(99		)
Net cash flows from financing activities	337			489

Net change in cash and cash equivalents and restricted cash and cash equivalents	196			465
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period	282			26
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	478		$	491

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 and related corporate services. MHC's nonregulated subsidiaries include Midwest Capital Group, Inc. and MEC Construction Services Co. 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 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, 2018 , and for the three-month periods ended March 31, 2018 and 2017 . The results of operations for the three-month periods ended March 31, 2018 , 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, 2017 , 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, 2018 .


( 2 )	New Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, which creates FASB Accounting Standards Codification ("ASC") Topic 842, "Leases" and supersedes Topic 840 "Leases." This guidance increases transparency and comparability among entities by recording lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous guidance. In January 2018, the FASB issued ASU No. 2018-01 that provides for an optional transition practical expedient allowing companies to not have to evaluate existing land easements if they were not previously accounted for under ASC Topic 840, "Leases." This guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted, and is required to be adopted using a modified retrospective approach. MidAmerican Energy plans to adopt this guidance effective January 1, 2019, and is currently evaluating the impact on its Financial Statements and disclosures included within Notes to Financial Statements.

( 3 ) 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, 2018 and December 31, 2017 , consist substantially of funds restricted for 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, 2018 and December 31, 2017 , 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, 2018		December 31, 2017

Cash and cash equivalents	$	380	$	172
Restricted cash and cash equivalents in other current assets	98		110
Total cash and cash equivalents and restricted cash and cash equivalents	$	478	$	282

( 4 ) Property, Plant and Equipment, Net

Property, plant and equipment, net consists of the following (in millions):



		As of
		March 31,			December 31,
	Depreciable Life	2018			2017
Utility plant in service, net:
Generation	20-70 years	$	12,108		$	12,107
Transmission	52-75 years	1,844			1,838
Electric distribution	20-75 years	3,418			3,380
Gas distribution	29-75 years	1,652			1,640
Utility plant in service		19,022			18,965
Accumulated depreciation and amortization		(5,670		)	(5,561		)
Utility plant in service, net		13,352			13,404
Nonregulated property, net:
Nonregulated property gross	20-50 years	7			7
Accumulated depreciation and amortization		(1		)	(1		)
Nonregulated property, net		6			6
		13,358			13,410
Construction work-in-progress		910			797
Property, plant and equipment, net		$	14,268		$	14,207

( 5 ) Recent Financing Transactions

Long-Term Debt

In March 2018, MidAmerican Energy repaid $350 million of its 5.30% Senior Notes due March 2018.

Credit Facilities

In April 2018, MidAmerican Energy amended and restated its existing $900 million unsecured credit facility, expiring June 2020, extending the expiration date to June 2021 and reducing from two to one, the available one-year extension options, subject to lender consent.

( 6 ) Income Taxes

Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act ("2017 Tax Reform") impacts many areas of income tax law. The most material items include the reduction of the federal corporate tax rate from 35% to 21% effective January 1, 2018, and limitations on bonus depreciation for utility property.

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,
	2018		2017

Federal statutory income tax rate	21	%	35	%
Income tax credits	(137	)	(80	)
State income tax, net of federal income tax benefit	(9	)	2
Effects of ratemaking	(18	)	(12	)
Other, net	2		1
Effective income tax rate	(141	)%	(54	)%

Income tax credits relate primarily to production tax credits from MidAmerican Energy 's wind-powered generating facilities. Federal renewable electricity production tax credits 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 are eligible for the credits for 10 years from the date the qualifying generating facilities are placed in-service.

Berkshire Hathaway includes BHE and subsidiaries in its United States federal income tax return. Consistent with established regulatory practice, MidAmerican Energy 's provision for income taxes has been computed on a stand-alone basis, and substantially all of its currently payable or receivable income taxes are remitted to or received from BHE . MidAmerican Energy received net cash payments for income taxes from BHE totaling $14 million and $- million for the three-month periods ended March 31, 2018 and 2017 , respectively.


( 7 )	Employee Benefit Plans

In March 2017, the FASB issued ASU No. 2017-07, which amends FASB ASC Topic 715, "Compensation - Retirement Benefits." The amendments in this guidance require that an employer disaggregate the service cost component from the other components of net benefit cost and report the service cost component in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the statement of operations separately from the service cost component and outside the subtotal of operating income. Additionally, the guidance only allows the service cost component to be eligible for capitalization when applicable. MidAmerican Energy adopted this guidance January 1, 2018 prospectively for the capitalization of the service cost component in the Balance Sheets and retrospectively for the presentation of the service cost component and the other components of net benefit cost in the Statements of Operations applying the practical expedient to use the amounts previously disclosed in the Notes to Financial Statements as the estimation basis for applying the retrospective presentation requirement. As a result, amounts other than the service cost for pension and other postretirement benefit plans for the three-month period ended March 31, 2017 of $5 million have been reclassified to Other, net in the Statements of Operations.

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 (credit) cost for the plans of MidAmerican Energy and the aforementioned affiliates included the following components (in millions):



	Three-Month Periods
	Ended March 31,
	2018			2017
Pension:
Service cost	$	2		$	2
Interest cost	7			8
Expected return on plan assets	(11		)	(11		)
Net amortization	1			—
Net periodic benefit credit	$	(1	)	$	(1	)

Other postretirement:
Service cost	$	1		$	1
Interest cost	2			2
Expected return on plan assets	(3		)	(3		)
Net amortization	(1		)	(1		)
Net periodic benefit 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 $8 million and $1 million , respectively, during 2018 . As of March 31, 2018 , $2 million and $- million of contributions had been made to the pension and other postretirement benefit plans, respectively.

( 8 ) Asset Retirement Obligations

In January 2018, MidAmerican Energy completed groundwater testing at its coal combustion residuals ("CCR") surface impoundments. Based on this information, MidAmerican Energy concluded in March 2018 that it will discontinue sending CCR to surface impoundments effective April 2018 and remove all CCR material located below the water table in such facilities, the latter of which is a more extensive closure activity than previously assumed. The incremental cost and timing of such actions is not currently reasonably determinable, but an evaluation of such estimates is expected to be completed in the third quarter of 2018, with any necessary adjustments to the related asset retirement obligations recognized at that time.


( 9 )	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 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, 2018:
Assets:
Commodity derivatives	$	—	$	1		$	1		$	(1	)	$	1
Money market mutual funds ⁽²⁾	106		—			—			—			106
Debt securities:
United States government obligations	183		—			—			—			183
International government obligations	—		4			—			—			4
Corporate obligations	—		37			—			—			37
Municipal obligations	—		1			—			—			1
Equity securities:
United States companies	278		—			—			—			278
International companies	6		—			—			—			6
Investment funds	20		—			—			—			20
	$	593	$	43		$	1		$	(1	)	$	636

Liabilities - commodity derivatives	$	—	$	(7	)	$	(1	)	$	1		$	(7	)



	Input Levels for Fair Value Measurements
	Level 1		Level 2			Level 3			Other ⁽¹⁾			Total
As of December 31, 2017:
Assets:
Commodity derivatives	$	—	$	3		$	4		$	(2	)	$	5
Money market mutual funds ⁽²⁾	133		—			—			—			133
Debt securities:
United States government obligations	176		—			—			—			176
International government obligations	—		5			—			—			5
Corporate obligations	—		36			—			—			36
Municipal obligations	—		2			—			—			2
Equity securities:
United States companies	288		—			—			—			288
International companies	7		—			—			—			7
Investment funds	15		—			—			—			15
	$	619	$	46		$	4		$	(2	)	$	667

Liabilities - commodity derivatives	$	—	$	(9	)	$	(1	)	$	2		$	(8	)


(1)	Represents netting under master netting arrangements and a net cash collateral receivable of $- million as of March 31, 2018 and December 31, 2017 , respectively.


(2)	Amounts are included in cash and cash equivalents and investments and restricted cash and investments on the Balance Sheets. The fair value of these money market mutual funds approximates cost.

Derivative contracts are recorded on the 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 MidAmerican Energy transacts. When quoted prices for identical contracts are not available, MidAmerican Energy uses forward price curves. Forward price curves represent MidAmerican Energy's estimates of the prices at which a buyer or seller could contract today for delivery or settlement at future dates. MidAmerican Energy 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 MidAmerican Energy. Market price quotations are generally readily obtainable for the applicable term of MidAmerican Energy's outstanding derivative contracts; therefore, MidAmerican Energy's forward price curves reflect observable market quotes. Market price quotations for certain electricity and natural gas trading hubs are not as readily obtainable due to the length of the contract. Given that limited market data exists for these contracts, as well as for those contracts that are not actively traded, MidAmerican Energy 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, related volatility, counterparty creditworthiness and duration of contracts.

MidAmerican Energy's investments in money market mutual funds and debt and equity securities 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. 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.

The following table reconciles the beginning and ending balances of MidAmerican Energy'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,
	2018			2017

Beginning balance	$	3		$	(2	)
Changes in fair value recognized in net regulatory assets	(2		)	2
Settlements	(1		)	1
Ending balance	$	—		$	1

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, 2018				As of December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value

Long-term debt	$	5,379	$	5,793	$	5,042	$	5,686

( 10 ) Commitments and Contingencies

Easements

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

Transmission Rates

MidAmerican Energy's wholesale transmission rates are set annually using FERC-approved formula rates subject to true-up for actual cost of service. Prior to September 2016, the rates in effect were based on a 12.38% return on equity ("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. MidAmerican Energy is authorized by the FERC to include a 0.50% adder beyond the base ROE effective January 2015. In September 2016, the FERC issued an order for the first complaint, which reduces the base ROE to 10.32% and requires refunds, plus interest, for the period from November 2013 through February 2015. Customer refunds relative to the first complaint occurred in February 2017. It is uncertain when the FERC will rule on the second complaint, covering the period from February 2015 through May 2016. MidAmerican Energy believes it is probable that the FERC will order a base ROE lower than 12.38% in the second complaint and, as of March 31, 2018 , has accrued a $10 million liability for refunds under the second complaint of amounts collected under the higher ROE from March 2015 through May 2016.

Retail Regulated Rates

In December 2017, the 2017 Tax Reform was signed into law, reducing the federal tax rate from 35% to 21% . Accumulated deferred income tax balances were re-measured at the 21% rate and regulatory liabilities increased reflective of the probability of such balances being passed back to customers. MidAmerican Energy has made filings or has been in discussions with each of its state rate regulatory bodies proposing either a reduction in retail rates or rate base for all or a portion of the net benefits of the 2017 Tax Reform for 2018 and beyond. MidAmerican Energy proposed in Iowa, its largest jurisdiction, to reduce customer revenue via a rider mechanism for the impact of the lower statutory rate on current operations, subject to change depending on actual results, and defer as a regulatory liability the amortization of excess deferred income taxes. The Illinois Commerce Commission approved MidAmerican Energy's Illinois tax reform rate reduction tariff on March 21, 2018, and the Iowa Utilities Board approved MidAmerican Energy's Iowa tax reform rate reduction tariff on April 27, 2018. As of March 31, 2018 , $29 million was accrued for the estimated potential refund liability attributable to lower customer rates enabled by the benefits of tax reform effective January 1, 2018.

( 11 ) Revenue from Contracts with Customers

Adoption

In May 2014, the FASB issued ASU No. 2014-09, which created FASB ASC Topic 606, "Revenue from Contracts with Customers" ("ASC 606") and superseded ASC Topic 605, "Revenue Recognition." The guidance replaced industry-specific guidance and established a single five-step model to identify and recognize revenue from contracts with customers ("Customer Revenue"). The core principle of the guidance is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Following the issuance of ASU No. 2014-09, the FASB issued several ASUs that clarified the implementation guidance for ASU No. 2014-09 but did not change the core principle of the guidance. MidAmerican Energy adopted this guidance for all applicable contracts as of January 1, 2018 under a modified retrospective method and the adoption did not have a cumulative effect impact at the date of initial adoption.

Customer Revenue

MidAmerican Energy recognizes revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. MidAmerican Energy records sales, franchise and excise taxes collected directly from customers and remitted directly to the taxing authorities on a net basis on the Statements of Operations and, accordingly, they do not impact revenue.

Substantially all of MidAmerican Energy's Customer Revenue is derived from tariff-based sales arrangements approved by various regulatory bodies. MidAmerican Energy’s electric wholesale and transmission transactions, including the multi value projects, are substantially with the Midcontinent Independent System Operator, Inc. under its tariffs approved by the Federal Energy Regulatory Commission. These tariff-based revenues have performance obligations to deliver energy products and services to customers, which are satisfied over time as energy is delivered or services are provided. Other revenue consists primarily of revenue recognized in accordance with ASC 815, "Derivatives and Hedging."

Revenue recognized is equal to what MidAmerican Energy has the right to invoice as it corresponds directly with the value to the customer of MidAmerican Energy's performance to date and includes billed and unbilled amounts. As of March 31, 2018 and December 31, 2017 , receivables, net on the Balance Sheets relate substantially to Customer Revenue, including unbilled revenue of $77 million and $89 million , respectively. Payments for amounts billed are generally due from the customer within 30 days of billing. Rates charged for energy products and services are established by regulators or contractual arrangements that establish the transaction price as well as the allocation of price amongst the separate performance obligations. When preliminary regulated rates are permitted to be billed prior to final approval by the applicable regulator, certain revenue collected may be subject to refund and a liability for estimated refunds is accrued.

The following table summarizes MidAmerican Energy's revenue by line of business and customer class, including a reconciliation to MidAmerican Energy's reportable segment information included in Note 12 , for the three-month period ended March 31, 2018 (in millions):



	Electric		Gas			Other		Total
Customer Revenue:
Retail:
Residential	$	161	$	168		$	—	$	329
Commercial	71		62			—		133
Industrial	145		5			—		150
Gas transportation services	—		13			—		13
Other retail ⁽¹⁾	10		(6		)	—		4
Total retail	387		242			—		629
Wholesale	62		32			—		94
Multi value transmission projects	15		—			—		15
Other Customer Revenue	—		—			2		2
Total Customer Revenue	464		274			2		740
Other revenue	5		1			—		6
Total operating revenue	$	469	$	275		$	2	$	746


(1)	Other retail includes provisions for potential retail rate refunds, for which any actual refunds will be reflected in the applicable customer classes upon resolution of the related regulatory proceeding. Refer to Note 10 for a discussion of regulatory proceedings related to 2017 Tax Reform.

Contract Assets and Liabilities

In the event one of the parties to a contract has performed before the other, MidAmerican Energy would recognize a contract asset or contract liability depending on the relationship between MidAmerican Energy's performance and the customer's payment. As of March 31, 2017 and December 31, 2017 , there were no contract assets or contract liabilities recorded on the Balance Sheets.


( 12 )	Segment Information

MidAmerican Energy has identified two reportable segments: regulated electric and regulated 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 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 gas owned by others through its distribution system. Pricing for regulated electric and regulated 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,
	2018			2017
Operating revenue:
Regulated electric	$	469		$	433
Regulated gas	275			262
Other	2			—
Total operating revenue	$	746		$	695

Operating income:
Regulated electric	$	36		$	63
Regulated gas	43			39
Total operating income	$	79		$	102
Interest expense	(58		)	(53		)
Allowance for borrowed funds	4			2
Allowance for equity funds	10			6
Other, net	9			11
Income before income tax benefit	$	44		$	68



	As of
	March 31, 2018		December 31, 2017
Assets:
Regulated electric	$	15,254	$	14,914
Regulated gas	1,323		1,403
Other	3		1
Total assets	$	16,580	$	16,318

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, 2018 , the related consolidated statements of operations, changes in equity, and cash flows for the three-month periods ended March 31, 2018 and 2017 , 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, 2017 , 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 23, 2018, 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, 2017 , 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

May 7, 2018

MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Amounts in millions)



	As of
	March 31,		December 31,
	2018		2017
ASSETS
Current assets:
Cash and cash equivalents	$	380	$	172
Receivables, net	320		348
Income taxes receivable	132		64
Inventories	208		245
Other current assets	138		134
Total current assets	1,178		963

Property, plant and equipment, net	14,282		14,221
Goodwill	1,270		1,270
Regulatory assets	209		204
Investments and restricted investments	725		730
Other assets	215		233

Total assets	$	17,879	$	17,621

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,
	2018		2017
LIABILITIES AND MEMBER'S EQUITY
Current liabilities:
Accounts payable	$	240	$	451
Accrued interest	57		53
Accrued property, income and other taxes	119		133
Note payable to affiliate	167		164
Current portion of long-term debt	500		350
Other current liabilities	152		128
Total current liabilities	1,235		1,279

Long-term debt	5,119		4,932
Deferred income taxes	2,222		2,235
Regulatory liabilities	1,688		1,661
Asset retirement obligations	535		528
Other long-term liabilities	317		326
Total liabilities	11,116		10,961

Commitments and contingencies (Note 10)

Member's equity:
Paid-in capital	1,679		1,679
Retained earnings	5,084		4,981
Total member's equity	6,763		6,660

Total liabilities and member's equity	$	17,879	$	17,621

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,
	2018			2017
Operating revenue:
Regulated electric	$	469		$	433
Regulated gas and other	278			263
Total operating revenue	747			696

Operating costs and expenses:
Cost of fuel, energy and capacity	108			102
Cost of gas sold and other	180			172
Operations and maintenance	190			172
Depreciation and amortization	158			117
Property and other taxes	32			31
Total operating costs and expenses	668			594

Operating income	79			102

Other income (expense):
Interest expense	(63		)	(59		)
Allowance for borrowed funds	4			2
Allowance for equity funds	10			6
Other, net	10			11
Total other income (expense)	(39		)	(40		)

Income before income tax benefit	40			62
Income tax benefit	(63		)	(40		)

Net income	$	103		$	102

The accompanying notes are an integral part of these consolidated financial statements.

MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)

(Amounts in millions)



	Paid-in Capital		Retained Earnings		Total Equity

Balance, December 31, 2016	$	1,679	$	4,407	$	6,086
Net income	—		102		102
Balance, March 31, 2017	$	1,679	$	4,509	$	6,188

Balance, December 31, 2017	$	1,679	$	4,981	$	6,660
Net income	—		103		103
Balance, March 31, 2018	$	1,679	$	5,084	$	6,763

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,
	2018			2017
Cash flows from operating activities:
Net income	$	103		$	102
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	158			117
Deferred income taxes and amortization of investment tax credits	19			13
Changes in other assets and liabilities	10			10
Other, net	(9		)	(6		)
Changes in other operating assets and liabilities:
Receivables, net	27			41
Inventories	37			22
Derivative collateral, net	(2		)	—
Contributions to pension and other postretirement benefit plans, net	(3		)	(3		)
Accounts payable	(57		)	2
Accrued property, income and other taxes, net	(83		)	(73		)
Other current assets and liabilities	28			(11		)
Net cash flows from operating activities	228			214

Cash flows from investing activities:
Capital expenditures	(365		)	(238		)
Purchases of marketable securities	(95		)	(40		)
Proceeds from sales of marketable securities	74			35
Other, net	15			(3		)
Net cash flows from investing activities	(371		)	(246		)

Cash flows from financing activities:
Proceeds from long-term debt	687			843
Repayments of long-term debt	(350		)	(255		)
Net change in note payable to affiliate	2			8
Net repayments of short-term debt	—			(99		)
Net cash flows from financing activities	339			497

Net change in cash and cash equivalents and restricted cash and cash equivalents	196			465
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period	282			27
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	478		$	492

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 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 and related corporate services. MHC's principal subsidiary is MidAmerican Energy Company ("MidAmerican Energy"), a public utility with electric and natural gas operations. Direct, wholly owned nonregulated subsidiaries of MHC are Midwest Capital Group, Inc. and MEC Construction Services Co.

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, 2018 , and for the three-month periods ended March 31, 2018 and 2017 . The results of operations for the three-month periods ended March 31, 2018 , 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, 2017 , 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, 2018 .


( 2 )	New Accounting Pronouncements

Refer to Note 2 of MidAmerican Energy's Notes to Financial Statements.

( 3 ) 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, 2018 and December 31, 2017 , consist substantially of funds restricted for 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, 2018 and December 31, 2017 , 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, 2018		December 31, 2017

Cash and cash equivalents	$	380	$	172
Restricted cash and cash equivalents in other current assets	98		110
Total cash and cash equivalents and restricted cash and cash equivalents	$	478	$	282


( 4 )	Property, Plant and Equipment, Net

Refer to Note 4 of MidAmerican Energy's Notes to Financial Statements. In addition to MidAmerican Energy's property, plant and equipment, net, MidAmerican Funding had as of March 31, 2018 and December 31, 2017 , nonregulated property gross of $24 million and related accumulated depreciation and amortization of $10 million , which consisted primarily of a corporate aircraft owned by MHC.

( 5 ) Recent Financing Transactions

Refer to Note 5 of MidAmerican Energy's Notes to Financial Statements.


( 6 )	Income Taxes

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,
	2018		2017

Federal statutory income tax rate	21	%	35	%
Income tax credits	(151	)	(87	)
State income tax, net of federal income tax benefit	(10	)	2
Effects of ratemaking	(20	)	(13	)
Other, net	2		(2	)
Effective income tax rate	(158	)%	(65	)%

Income tax credits relate primarily to production tax credits from MidAmerican Energy's wind-powered generating facilities. Federal renewable electricity production tax credits 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 are eligible for the credits for 10 years from the date the qualifying generating facilities are placed in-service.

Berkshire Hathaway includes BHE and subsidiaries in its United States federal income tax return. Consistent with established regulatory practice, MidAmerican Funding 's and MidAmerican Energy's provisions for income taxes have been computed on a stand-alone basis, and substantially all of their currently payable or receivable income taxes are remitted to or received from BHE . MidAmerican Funding received net cash payments for income taxes from BHE totaling $14 million and $- million for the three-month periods ended March 31, 2018 and 2017 , respectively.


( 7 )	Employee Benefit Plans

Refer to Note 7 of MidAmerican Energy's Notes to Financial Statements.

( 8 ) Asset Retirement Obligations

Refer to Note 8 of MidAmerican Energy's Notes to Financial Statements.


( 9 )	Fair Value Measurements

Refer to Note 9 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, 2018				As of December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value

Long-term debt	$	5,619	$	6,100	$	5,282	$	6,006

( 10 ) 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 10 of MidAmerican Energy's Notes to Financial Statements.

( 11 ) Revenue from Contracts with Customers

Refer to Note 11 of MidAmerican Energy's Notes to Financial Statements. Additionally, MidAmerican Funding had $1 million of other Accounting Standards Codification Topic 606 revenue for the three-month period ended March 31, 2018 .

( 12 ) Segment Information

MidAmerican Funding has identified two reportable segments: regulated electric and regulated 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 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 gas owned by others through its distribution system. Pricing for regulated electric and regulated 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,
	2018			2017
Operating revenue:
Regulated electric	$	469		$	433
Regulated gas	275			262
Other	3			1
Total operating revenue	$	747		$	696

Operating income:
Regulated electric	$	36		$	63
Regulated gas	43			39
Total operating income	79			102
Interest expense	(63		)	(59		)
Allowance for borrowed funds	4			2
Allowance for equity funds	10			6
Other, net	10			11
Income before income tax benefit	$	40		$	62



	As of
	March 31, 2018		December 31, 2017
Assets ⁽¹⁾ :
Regulated electric	$	16,445	$	16,105
Regulated gas	1,402		1,482
Other	32		34
Total assets	$	17,879	$	17,621



(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

MidAmerican Funding is an Iowa limited liability company whose sole member is BHE. MidAmerican Funding owns all of the outstanding common stock of MHC Inc., which owns all of the common stock of MidAmerican Energy, Midwest Capital Group, Inc. and MEC Construction Services Co. MidAmerican Energy is a public utility company headquartered in Des Moines, Iowa. MHC Inc., MidAmerican Funding and BHE are also headquartered in Des Moines, Iowa.

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 as presented in this joint filing. 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 and other factors. This discussion should be read in conjunction with the historical unaudited Financial Statements and Notes to Financial Statements in Part I, Item 1 of this Form 10-Q. MidAmerican Energy's and MidAmerican Funding's actual results in the future could differ significantly from the historical results.

Results of Operations for the First Quarter of 2018 and 2017

Overview

MidAmerican Energy -

MidAmerican Energy's net income for the first quarter of 2018 was $106 million , an increase of $1 million , or 1% , compared to 2017 due to higher electric utility margins of $30 million and higher gas utility margins of $6 million, a higher income tax benefit from a lower federal tax rate, higher production tax credits of $6 million and lower pre-tax income, substantially offset by higher depreciation and amortization of $41 million from changes in accruals for Iowa regulatory arrangements and additional plant in-service, higher wind-powered generation maintenance of $6 million and increases in other operating expenses. Electric utility margins increased due to higher recoveries through bill riders, higher retail customer volumes of 6.9% from the favorable impact of weather and industrial growth and higher transmission revenue, partially offset by provisions for potential refunds related to regulatory outcomes in response to the 2017 tax reform and higher coal-fueled generation costs. Gas utility margins increased due to higher retail customer volumes of 20.9% from colder temperatures.

MidAmerican Funding -

MidAmerican Funding's net income for the first quarter of 2018 was $103 million , an increase of $1 million , or 1% , compared to 2017 . The increases were 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 Gas Utility Margin, to help evaluate results of operations. Electric Utility Margin is calculated as regulated electric operating revenue less cost of fuel, energy and capacity, which are captions presented on the Statements of Operations. Gas Utility Margin is calculated as regulated gas operating revenue less regulated cost of gas sold, which are included in regulated gas and other and cost of gas sold and other, respectively, on the Statements of Operations.

MidAmerican Energy’s cost of fuel, energy and capacity and regulated cost of gas sold are directly recovered from its customers through regulatory recovery mechanisms, and as a result, changes in MidAmerican Energy’s revenue are comparable to changes in such expenses. As such, management believes Electric Utility Margin and 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 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 Gas 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 comparable financial measure prepared in accordance with GAAP. The following table provides a reconciliation of utility margin to operating income (in millions):



	First Quarter
	2018		2017		Change
Electric utility margin:
Regulated electric operating revenue	$	469	$	433	$	36		8	%
Cost of fuel, energy and capacity	108		102		6			6
Electric utility margin	361		331		30			9

Gas utility margin:
Regulated gas operating revenue	275		262		13			5	%
Cost of gas sold	179		172		7			4
Gas utility margin	96		90		6			7

Utility margin	457		421		36			9	%

Other operating revenue	2		—		2			*
Operations and maintenance	190		171		19			11	%
Depreciation and amortization	158		117		41			35
Property and other taxes	32		31		1			3

Operating income	$	79	$	102	$	(23	)	(23	)%

* Not meaningful.

Regulated Electric Utility Margin

A comparison of key operating results related to regulated electric utility margin is as follows:



	First Quarter
	2018		2017		Change
Electric utility margin (in millions):
Operating revenue	$	469	$	433	$	36		8	%
Cost of fuel, energy and capacity	108		102		6			6
Electric utility margin	$	361	$	331	$	30		9

Electricity Sales (GWh):
Residential	1,786		1,569		217			14	%
Commercial	985		927		58			6
Industrial	3,125		3,005		120			4
Other	403		392		11			3
Total retail	6,299		5,893		406			7
Wholesale	2,565		2,713		(148		)	(5	)
Total sales	8,864		8,606		258			3

Average number of retail customers (in thousands)	777		766		11			1	%

Average revenue per MWh:
Retail	$	61.66	$	60.36	$	1.30		2	%
Wholesale	$	22.66	$	22.43	$	0.23		1	%

Heating degree days	3,335		2,663		672			25	%

Sources of energy (GWh) ⁽¹⁾ :
Coal	3,329		2,962		367			12	%
Nuclear	891		932		(41		)	(4	)
Natural gas	45		7		38			*
Wind and other ⁽²⁾	3,985		3,784		201			5
Total energy generated	8,250		7,685		565			7
Energy purchased	788		1,076		(288		)	(27	)
Total	9,038		8,761		277			3


*	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 renewable portfolio standards or other regulatory requirements or (b) sold to third parties in the form of renewable energy credits or other environmental commodities.

Regulated electric utility margin increased $30 million for the first quarter of 2018 compared to 2017 primarily due to:


(1)	Higher retail utility margin of $22 million due to -


•	an increase of $33 million from higher recoveries through bill riders, including $7 million of electric DSM program revenue (offset in operating expense);


•	an increase of $9 million from the impact of colder temperatures;


•	an increase of $9 million from non-weather-related usage factors, including higher industrial sales volumes; partially offset by


•	a decrease of $22 million from a provision for potential refunds related to regulatory outcomes in response to the 2017 tax reform; and


•	a decrease of $7 million from higher retail energy costs primarily due to higher coal-fueled generation costs;


(2)	Higher Multi-Value Projects ("MVPs") transmission revenue of $6 million due to continued capital additions; and


(3)	Higher wholesale gross margin of $2 million due to higher margins per unit from higher market prices.

Regulated Gas Utility Margin

A comparison of key operating results related to regulated gas utility margin is as follows:



	First Quarter
	2018		2017		Change
Gas utility margin (in millions):
Operating revenue	$	275	$	262	$	13		5	%
Cost of gas sold	179		172		7			4
Gas utility margin	$	96	$	90	$	6		7

Natural gas throughput (000's Dth):
Residential	26,079		21,118		4,961			23	%
Commercial	12,253		10,269		1,984			19
Industrial	1,416		1,483		(67		)	(5	)
Other	22		21		1			5
Total retail sales	39,770		32,891		6,879			21
Wholesale sales	11,176		12,599		(1,423		)	(11	)
Total sales	50,946		45,490		5,456			12
Gas transportation service	29,460		25,359		4,101			16
Total gas throughput	80,406		70,849		9,557			13

Average number of retail customers (in thousands)	757		748		9			1	%
Average revenue per retail Dth sold	$	5.81	$	6.54	$	(0.73	)	(11)	%
Average cost of natural gas per retail Dth sold	$	3.70	$	4.11	$	(0.41	)	(10)	%

Combined retail and wholesale average cost of natural gas per Dth sold	$	3.51	$	3.77	$	(0.26	)	(7)	%

Heating degree days	3,443		2,809		634			23	%

Regulated gas revenue includes purchased gas adjustment clauses through which MidAmerican Energy is allowed to recover the cost of gas sold from its retail gas utility customers. Consequently, fluctuations in the cost of gas sold do not directly affect utility margin or net income because regulated gas revenue reflects comparable fluctuations through the purchased gas adjustment clauses. For the first three months of 2018 , MidAmerican Energy's combined retail and wholesale average per-unit cost of gas sold decreased 7% , resulting in a decrease of $13 million in gas revenue and cost of gas sold compared to 2017 , partially offset by higher gas sales volumes.

100

Regulated gas utility margin increased $6 million for the first quarter of 2018 compared to 2017 primarily due to:


(1)	An increase of $9 million from higher retail sales volumes due to the impact of colder temperatures;


(2)	An increase of $2 million from higher gas transportation services; partially offset by


(3)	A decrease of $7 million from a provision for potential refunds related to regulatory outcomes in response to the 2017 tax reform.

Operating Costs and Expenses

MidAmerican Energy -

Operations and maintenance increased $20 million for the first quarter of 2018 compared to 2017 primarily due to higher demand side management program expense of $8 million and higher transmission operations costs from MISO of $3 million, both of which are recoverable in bill riders and offset in operating revenue, and higher wind-powered generation maintenance from additional wind turbines of $6 million.

Depreciation and amortization increased $41 million for the first quarter of 2018 compared to 2017 due to higher accruals for Iowa regulatory arrangements of $27 million and $14 million related to wind generation and other plant placed in-service.

Other Income (Expense)

MidAmerican Energy -

Interest expense increased $5 million for the first quarter of 2018 compared to 2017 due to higher interest expense from the issuance of $700 million of 3.65% first mortgage bonds in February 2018, partially offset by the redemption of $350 million of 5.30% senior notes in March 2018.

Allowance for borrowed and equity funds increased $6 million for the first quarter of 2018 compared to 2017 primarily due to higher construction work-in-progress balances related to wind-powered generation.

Income Tax Benefit

MidAmerican Energy -

MidAmerican Energy's income tax benefit increased $25 million for the first quarter of 2018 compared to 2017, and the effective tax rate was (141)% for 2018 and (54)% for 2017. The changes in the effective tax rates for 2018 compared to 2017 were substantially due to an increase in recognized production tax credits and the effects of ratemaking.

MidAmerican Funding -

MidAmerican Funding's income tax benefit increased $23 million for the first quarter of 2017 compared to 2016, and the effective tax rate was (158)% for 2017 and (65)% for 2016. 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, 2018 , MidAmerican Energy's total net liquidity was $915 million consisting of $380 million of cash and cash equivalents and $905 million of credit facilities reduced by $370 million of the credit facilities reserved to support MidAmerican Energy's variable-rate tax-exempt bond obligations. As of March 31, 2018 , MidAmerican Funding's total net liquidity was $919 million, including MHC Inc.'s $4 million credit facility.

101

Operating Activities

MidAmerican Energy's net cash flows from operating activities for the three-month periods ended March 31, 2018 and 2017 , were $230 million and $222 million , respectively. MidAmerican Funding's net cash flows from operating activities for the three-month periods ended March 31, 2018 and 2017 , were $228 million and $214 million , respectively. Cash flows from operating activities increased primarily due to higher cash gross margins for MidAmerican Energy's regulated electric business, partially offset by the timing of working capital.

In December 2017, the 2017 Tax Reform was enacted which, among other items, reduced the federal corporate tax rate from 35% to 21% effective January 1, 2018 and eliminated bonus depreciation on qualifying regulated utility assets acquired after September 27, 2017, but did not impact production tax credits. MidAmerican Energy believes for qualifying assets acquired on or before September 27, 2017, bonus depreciation will be available for 2018 and 2019. MidAmerican Energy anticipates passing the benefits of lower tax expense to customers in the form of either rate reductions or rate base reductions. MidAmerican Energy expects lower revenue and income taxes as well as lower bonus depreciation benefits as a result of the 2017 Tax Reform and related regulatory treatment. MidAmerican Energy does not expect the 2017 Tax Reform and related regulatory treatment to have a material adverse impact on its cash flows, subject to actual regulatory outcomes. Refer to Regulatory Matters for further discussion of regulatory matters associated with the 2017 Tax Reform. 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.

Internal Revenue Service ("IRS") rules provide for re-establishment of the production tax credit for an existing wind-powered generating facility upon the replacement of a significant portion of its components. Such component replacement is commonly referred to as repowering. If the degree of component replacement in such projects meets IRS guidelines, production tax credits are re-established for ten years at rates that depend upon the date in which construction begins, as noted in the above paragraph. MidAmerican Energy’s current repowering projects are expected to earn production tax credits at 100% of the value of such credits.

Investing Activities

MidAmerican Energy's net cash flows from investing activities for the three-month periods ended March 31, 2018 and 2017 , were $(371) million and $(246) million , respectively. MidAmerican Funding's net cash flows from investing activities for the three-month periods ended March 31, 2018 and 2017 , were $(371) million and $(246) million , respectively. Net cash flows from investing activities consist almost entirely of capital expenditures, which increased due to higher wind-powered generating facility construction and repowering expenditures. Purchases and proceeds related to marketable securities primarily consist of activity within the Quad Cities Generating Station nuclear decommissioning trust.

Financing Activities

MidAmerican Energy's net cash flows from financing activities for the three-month periods ended March 31, 2018 and 2017 were $337 million and $489 million , respectively. MidAmerican Funding's net cash flows from financing activities for the three-month periods ended March 31, 2018 and 2017 , were $339 million and $497 million , respectively. In February 2018, MidAmerican Energy issued $700 million of its 3.65% First Mortgage Bonds due August 2048. An amount equal to the net proceeds was used to finance capital expenditures, disbursed during the period from February 2, 2017 to October 31, 2017, with respect to investments in MidAmerican Energy's 2,000-megawatt (nameplate capacity) Wind XI project and the repowering of certain of MidAmerican Energy's existing wind facilities, which were previously financed with MidAmerican Energy's general funds. In March 2018, MidAmerican Energy repaid $350 million of its 5.30% Senior Notes due March 2018. In February 2017, MidAmerican Energy issued $375 million of its 3.10% First Mortgage Bonds due May 2027 and $475 million of its 3.95% First Mortgage Bonds due August 2047. An amount equal to the net proceeds was used to finance capital expenditures disbursed during the period from February 2, 2016 to February 1, 2017, with respect to investments in MidAmerican Energy's 551-megawatt Wind X and 2,000-megawatt Wind XI projects, which were previously financed with MidAmerican Energy's general funds. In February 2017, MidAmerican Energy redeemed in full through optional redemption its $250 million of 5.95% Senior Notes due July 2017. Through its commercial paper program, MidAmerican Energy made payments totaling $99 million in 2017. MidAmerican Funding received $2 million and $8 million in 2018 and 2017, respectively, through its note payable with BHE.

102

Debt Authorizations and Related Matters

MidAmerican Energy has authority from the FERC to issue through February 28, 2019, commercial paper and bank notes aggregating $905 million 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 2021 for which MidAmerican Energy may request that the banks extend the credit facility up to two years. 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. Additionally, MidAmerican Energy has a $5 million unsecured credit facility for general corporate purposes.

MidAmerican Energy currently has an effective registration statement with the SEC to issue an indeterminate amount of long-term debt securities through September 16, 2018. Additionally, MidAmerican Energy has authorization from the FERC to issue, through August 31, 2019, preferred stock up to an aggregate of $500 million and long-term debt securities up to an aggregate of $1.5 billion at interest rates not to exceed the applicable United States Treasury rate plus a spread of 175 basis points and from the ICC to issue preferred stock up to an aggregate of $500 million through November 1, 2020, and additional long-term debt securities up to an aggregate of $1.5 billion, of which $500 million expires March 15, 2019, and $1.0 billion expires November 1, 2020.

In conjunction with the March 1999 merger, MidAmerican Energy committed to the IUB to use commercially reasonable efforts to maintain an investment grade rating on its long-term debt and to maintain its common equity level above 42% of total capitalization unless circumstances beyond its control result in the common equity level decreasing to below 39% of total capitalization. MidAmerican Energy must seek the approval of the IUB of a reasonable utility capital structure if MidAmerican Energy's common equity level decreases below 42% of total capitalization, unless the decrease is beyond the control of MidAmerican Energy. MidAmerican Energy is also required to seek the approval of the IUB if MidAmerican Energy's equity level decreases to below 39%, even if the decrease is due to circumstances beyond the control of MidAmerican Energy. If MidAmerican Energy's common equity level were to drop below the required thresholds, MidAmerican Energy's ability to issue debt could be restricted. As of March 31, 2018 , MidAmerican Energy's common equity ratio was 53% computed on a basis consistent with its commitment.

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 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.

103

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
	2017		2018		2018

Wind-powered generation	$	29	$	16	$	1,255
Wind-powered generation repowering	—		70		273
Transmission Multi-Value Projects	8		2		46
Other	201		277		901
Total	$	238	$	365	$	2,475

MidAmerican Energy's forecast capital expenditures for 2018 include the following:

•

The construction of wind-powered generating facilities in Iowa. In August 2016, the IUB issued an order approving ratemaking principles related to MidAmerican Energy's construction of up to 2,000 MW (nominal ratings) of additional wind-powered generating facilities expected to be placed in service in 2017 through 2019, including 334 MW (nominal ratings) placed in-service in 2017. The ratemaking principles establish a cost cap of $3.6 billion, including AFUDC, and a fixed rate of return on equity of 11.0% over the proposed 40-year useful lives of those facilities in any future Iowa rate proceeding. The cost cap ensures that as long as total costs are below the cap, the investment will be deemed prudent in any future Iowa rate proceeding. Additionally, the ratemaking principles modify the revenue sharing mechanism in effect prior to 2018. The revised sharing mechanism, which was effective January 1, 2018, will be triggered each year by actual equity returns exceeding a weighted average return on equity for MidAmerican Energy calculated annually. Pursuant to the change in revenue sharing, MidAmerican Energy will share 100% of the revenue in excess of this trigger with customers. Such revenue sharing will reduce coal and nuclear generation rate base, which is intended to mitigate future base rate increases. MidAmerican Energy expects all of these wind-powered generating facilities to qualify for 100% of production tax credits available.

•

The repowering of certain existing wind-powered generating facilities in Iowa. This project entails the replacement of significant components of the oldest turbines in MidAmerican Energy's fleet. The energy production from such repowered facilities is expected to qualify for 100% of the federal production tax credits available for ten years following each facility's return to service. Under MidAmerican Energy's Iowa electric tariff, federal production tax credits related to facilities that were in-service prior to 2013 must be included in its Iowa energy adjustment clause. In August 2017, the IUB approved a tariff change that excludes from MidAmerican Energy's Iowa energy adjustment clause any future federal production tax credits related to these repowered facilities.

•

Transmission MVP investments. In 2012, MidAmerican Energy started the construction of four MVPs located in Iowa and Illinois that were approved by the Midcontinent Independent System Operator, Inc. When complete, the four MVPs will have added approximately 250 miles of 345 kV transmission line to MidAmerican Energy's transmission system and will be owned and operated by MidAmerican Energy. As of March 31, 2018 , 224 miles of these MVP transmission lines have been placed in-service.


•	Remaining costs primarily relate to routine expenditures for generation, transmission, distribution and other infrastructure needed to serve existing and expected demand.

Contractual Obligations

As of March 31, 2018 , 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, 2017 .

104

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.

Quad Cities Generating Station Operating Status

Environmental Laws and Regulations

MidAmerican Energy is subject to federal, state and local laws and regulations regarding air and water quality, emissions performance standards, climate change, 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 "Liquidity and Capital Resources" for discussion of MidAmerican Energy's forecast environmental-related capital expenditures.

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.

New Accounting Pronouncements

For a discussion of new accounting pronouncements affecting MidAmerican Energy and MidAmerican Funding, refer to Note 2 of Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

105

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, 2017 . There have been no significant changes in MidAmerican Energy's and MidAmerican Funding's assumptions regarding critical accounting estimates since December 31, 2017 .

106

Nevada Power Company and its subsidiaries

Consolidated Financial Section

107

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, 2018 , the related consolidated statements of operations for the three-month periods ended March 31, 2018 and 2017 , and of changes in shareholder's equity and cash flows for the three-month periods ended March 31, 2018 and 2017 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, 2017 , 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 23, 2018 , 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, 2017 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 the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

/s/ Deloitte & Touche LLP

Las Vegas, Nevada

May 7, 2018

108

NEVADA POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Amounts in millions, except share data)



	As of
	March 31,			December 31,
	2018			2017
ASSETS
Current assets:
Cash and cash equivalents	$	97		$	57
Accounts receivable, net	191			238
Inventories	58			59
Regulatory assets	28			28
Other current assets	59			44
Total current assets	433			426

Property, plant and equipment, net	6,855			6,877
Regulatory assets	928			941
Other assets	38			35

Total assets	$	8,254		$	8,279

LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable	$	125		$	156
Accrued interest	39			50
Accrued property, income and other taxes	70			63
Regulatory liabilities	104			91
Current portion of long-term debt and financial and capital lease obligations	1,340			842
Customer deposits	61			73
Other current liabilities	46			16
Total current liabilities	1,785			1,291

Long-term debt and financial and capital lease obligations	1,732			2,233
Regulatory liabilities	1,015			1,030
Deferred income taxes	764			767
Other long-term liabilities	280			280
Total liabilities	5,576			5,601

Commitments and contingencies (Note 10)

Shareholder's equity:
Common stock - $1.00 stated value; 1,000 shares authorized, issued and outstanding	—			—
Other paid-in capital	2,308			2,308
Retained earnings	374			374
Accumulated other comprehensive loss, net	(4		)	(4		)
Total shareholder's equity	2,678			2,678

Total liabilities and shareholder's equity	$	8,254		$	8,279

The accompanying notes are an integral part of the consolidated financial statements.

109

NEVADA POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Amounts in millions)



	Three-Month Periods
	Ended March 31,
	2018			2017

Operating revenue	$	395		$	392

Operating costs and expenses:
Cost of fuel, energy and capacity	170			165
Operations and maintenance	91			88
Depreciation and amortization	84			76
Property and other taxes	10			10
Total operating costs and expenses	355			339

Operating income	40			53

Other income (expense):
Interest expense	(45		)	(44		)
Allowance for equity funds	1			1
Other, net	4			5
Total other income (expense)	(40		)	(38		)

Income before income tax expense	—			15
Income tax expense	—			5
Net income	$	—		$	10

The accompanying notes are an integral part of these consolidated financial statements.

110

NEVADA POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (Unaudited)

(Amounts in millions, except shares)



									Accumulated
				Other					Other			Total
	Common Stock			Paid-in		Retained			Comprehensive			Shareholder's
	Shares	Amount		Capital		Earnings			Loss, Net			Equity

Balance, December 31, 2016	1,000	$	—	$	2,308	$	667		$	(3	)	$	2,972
Net income	—	—		—		10			—			10
Dividends declared	—	—		—		(75		)	—			(75		)
Balance, March 31, 2017	1,000	$	—	$	2,308	$	602		$	(3	)	$	2,907

Balance, December 31, 2017	1,000	$	—	$	2,308	$	374		$	(4	)	$	2,678
Net income	—	—		—		—			—			—
Balance, March 31, 2018	1,000	$	—	$	2,308	$	374		$	(4	)	$	2,678

The accompanying notes are an integral part of these consolidated financial statements.

111

NEVADA POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Amounts in millions)



	Three-Month Periods
	Ended March 31,
	2018			2017
Cash flows from operating activities:
Net income	$	—		$	10
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	84			76
Deferred income taxes and amortization of investment tax credits	(7		)	22
Allowance for equity funds	(1		)	(1		)
Changes in regulatory assets and liabilities	10			3
Deferred energy	—			(25		)
Amortization of deferred energy	3			3
Other, net	9			(2		)
Changes in other operating assets and liabilities:
Accounts receivable and other assets	48			52
Inventories	1			7
Accrued property, income and other taxes	(1		)	(26		)
Accounts payable and other liabilities	(36		)	(29		)
Net cash flows from operating activities	110			90

Cash flows from investing activities:
Capital expenditures	(64		)	(58		)
Acquisitions	—			(77		)
Net cash flows from investing activities	(64		)	(135		)

Cash flows from financing activities:
Repayments of long-term debt and financial and capital lease obligations	(5		)	(79		)
Dividends paid	—			(75		)
Net cash flows from financing activities	(5		)	(154		)

Net change in cash and cash equivalents and restricted cash and cash equivalents	41			(199		)
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period	66			290
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	107		$	91

The accompanying notes are an integral part of these consolidated financial statements.

112

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 ("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, 2018 and for the three-month periods ended March 31, 2018 and 2017 . The Consolidated Statements of Comprehensive Income have been omitted as net income equals comprehensive income for the three-month periods ended March 31, 2018 and 2017 . The results of operations for the three-month period ended March 31, 2018 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, 2017 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, 2018 .

( 2 ) New Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, which creates FASB Accounting Standards Codification ("ASC") Topic 842, "Leases" and supersedes Topic 840 "Leases." This guidance increases transparency and comparability among entities by recording lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous guidance. In January 2018, the FASB issued ASU No. 2018-01 that provides for an optional transition practical expedient allowing companies to not have to evaluate existing land easements if they were not previously accounted for under ASC Topic 840, "Leases." This guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted, and is required to be adopted using a modified retrospective approach. Nevada Power plans to adopt this guidance effective January 1, 2019 and is currently evaluating the impact on its Consolidated Financial Statements and disclosures included within Notes to Consolidated Financial Statements.

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( 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,
	Depreciable Life	2018			2017
Utility plant:
Generation	30 - 55 years	$	3,707		$	3,707
Distribution	20 - 65 years	3,329			3,314
Transmission	45 - 70 years	1,864			1,860
General and intangible plant	5 - 65 years	805			793
Utility plant		9,705			9,674
Accumulated depreciation and amortization		(2,930		)	(2,871		)
Utility plant, net		6,775			6,803
Other non-regulated, net of accumulated depreciation and amortization	45 years	2			1
Plant, net		6,777			6,804
Construction work-in-progress		78			73
Property, plant and equipment, net		$	6,855		$	6,877

During 2017, Nevada Power revised its electric depreciations rates effective January 2018 based on the results of a new depreciation study, the most significant impact of which was shorter estimated useful lives at the Navajo Generating Station and longer average service lives for various other utility plant groups. The net effect of these changes will increase depreciation and amortization expense by $7 million annually, or $2 million for the three-month period ended March 31, 2018 , based on depreciable plant balances at the time of the change.


( 4 )	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, 2018 and December 31, 2017, 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, 2018 and December 31, 2017 , 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,
	2018		2017
Cash and cash equivalents	$	97	$	57
Restricted cash and cash equivalents included in other current assets	10		9
Total cash and cash equivalents and restricted cash and cash equivalents	$	107	$	66

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( 5 ) Regulatory Matters

Deferred Energy

Nevada statutes permit regulated utilities to adopt deferred energy accounting procedures. The intent of these procedures is to ease the effect on customers of fluctuations in the cost of purchased natural gas, fuel and electricity and are subject to annual prudency review by the PUCN. Under deferred energy accounting, to the extent actual fuel and purchased power costs exceed fuel and purchased power costs recoverable through current rates that excess is not recorded as a current expense on the Consolidated Statements of Operations but rather is deferred and recorded as a regulatory asset on the Consolidated Balance Sheets. Conversely, a regulatory liability is recorded to the extent fuel and purchased power costs recoverable through current rates exceed actual fuel and purchased power costs. These excess amounts are reflected in quarterly adjustments to rates and recorded as cost of fuel, energy and capacity in future time periods.

Regulatory Rate Review

The Tax Cuts and Jobs Act (" 2017 Tax Reform ") enacted significant changes to the Internal Revenue Code, including, among other things, a reduction in the U.S. federal corporate income tax rate from 35% to 21% . In February 2018, Nevada Power made a filing with the PUCN proposing a tax rate reduction rider for the lower annual income tax expense anticipated to result from the 2017 Tax Reform for 2018 and beyond. The filing supports an annual rate reduction of $59 million . In March 2018, the PUCN issued an order approving the rate reduction proposed by Nevada Power. The new rates were effective April 1, 2018. The order has extended the procedural schedule to allow parties additional discovery relevant to the 2017 Tax Reform with a hearing scheduled in June 2018. Nevada Power cannot predict the timing or ultimate outcome of further regulatory proceedings.

Chapter 704B Applications

Chapter 704B of the Nevada Revised Statutes allows retail electric customers with an average annual load of one megawatt (" MW ") or more to file with the PUCN an application to purchase energy from alternative providers of a new electric resource and become distribution only service customers. On a case-by-case basis, the PUCN will assess the application and may deny or grant the application subject to conditions, including paying an impact fee, paying on-going charges and receiving approval for specific alternative energy providers and terms. The impact fee and on-going charges are assessed to alleviate the burden on other Nevada customers for the applicant's share of previously committed investments and long-term renewable contracts and are set at a level designed such that the remaining customers are not subjected to increased costs.

In November 2016, Caesars Enterprise Service ("Caesars"), a customer of Nevada Power , filed an application with the PUCN to purchase energy from alternative providers of a new electric resource and become a distribution only service customer of Nevada Power. In March 2017, the PUCN approved the application allowing Caesars to purchase energy from alternative providers subject to conditions, including paying an impact fee. In March 2017, Caesars provided notice that it intends to pay the impact fee and proceed with purchasing energy from alternative providers. In July 2017, Caesars made the required compliance filings and, in September 2017, the PUCN issued an order allowing Caesars to acquire electric energy and ancillary services from another energy supplier and become a distribution only service customer of Nevada Power. In December 2017, Caesars provided notice that it intends to transition eligible meters in the Nevada Power service territory to unbundled electric service in February 2018 at the earliest. In February 2018, Caesars became a distribution only service customer and started procuring energy from another energy supplier . Following the PUCN’s order from March 2017, Caesars’ will pay an impact fee of $44 million in 72 equal monthly payments .

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( 6 ) Recent Financing Transactions

Long-Term Debt

In April 2018, Nevada Power issued $575 million of its 2.75% General and Refunding Mortgage Notes, Series BB, due April 2020. Nevada Power intends to use the net proceeds, together with available cash, to repay all of Nevada Power's $325 million 6.50% General and Refunding Mortgage Notes, Series O, maturing in May 2018, and a portion of Nevada Power's $500 million 6.50% General and Refunding Mortgage Notes, Series S, maturing in August 2018 and for general corporate purposes.

Credit Facilities

In April 2018, Nevada Power amended and restated its existing $400 million secured credit facility, expiring June 2020, extending the expiration date to June 2021 and reducing from two to one, the available one-year extension options, subject to lender consent.

( 7 ) Income Taxes

Tax Cuts and Jobs Act

2017 Tax Reform impacts many areas of income tax law. The most material items include the reduction of the federal corporate tax rate from 35% to 21% effective January 1, 2018, the elimination of the deduction for production activities and limitations on bonus depreciation for utility property.

In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin 118 to assist in the implementation process of the 2017 Tax Reform by allowing for calculations to be classified as provisional and subject to remeasurement. There are three different classifications for the accounting: (1) completed, (2) not complete but reasonably estimable or (3) not complete and amounts are not reasonably estimable. Nevada Power has recorded the impacts of the 2017 Tax Reform and believes all the impacts to be complete with the exception of interpretations of the bonus depreciation rules. Nevada Power has determined the amounts recorded and the interpretations relating to this items to be provisional and subject to remeasurement during the measurement period upon obtaining the necessary additional information to complete the accounting. Nevada Power believes its interpretations for bonus depreciation to be reasonable, however, as the guidance is clarified estimates may change. The accounting is estimated to be completed by December 2018.

( 8 ) 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,
	2018			2017
Qualified Pension Plan -
Other long-term liabilities	$	(23	)	$	(23	)

Non-Qualified Pension Plans:
Other current liabilities	(1		)	(1		)
Other long-term liabilities	(10		)	(10		)

Other Postretirement Plans -
Other long-term liabilities	1			1

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( 9 )	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 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, 2018
Assets:
Money market mutual funds ⁽¹⁾	$	91	$	—	$	—		$	91
Investment funds	2		—		—			2
	$	93	$	—	$	—		$	93

Liabilities - commodity derivatives	$	—	$	—	$	(8	)	$	(8	)

As of December 31, 2017
Assets - investment funds	$	2	$	—	$	—		$	2

Liabilities - commodity derivatives	$	—	$	—	$	(3	)	$	(3	)


(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, 2018 and December 31, 2017 , 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.

117

Nevada Power's investments in money market mutual funds and equity securities 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 liabilities measured at fair value on a recurring basis using significant Level 3 inputs (in millions):



	Three-Month Periods
	Ended March 31,
	2018			2017

Beginning balance	$	(3	)	$	(14	)
Changes in fair value recognized in regulatory assets	(5		)	(1		)
Settlements	—			1
Ending balance	$	(8	)	$	(14	)

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, 2018				As of December 31, 2017
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value

Long-term debt	$	2,601	$	2,999	$	2,600	$	3,088


( 10 )	Commitments and Contingencies

Environmental Laws and Regulations

Nevada Power is subject to federal, state and local laws and regulations regarding air and water quality, renewable portfolio standards, emissions performance standards, climate change, 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.

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.

( 11 ) Revenue from Contracts with Customers

Adoption

In May 2014, the FASB issued ASU No. 2014-09, which created FASB ASC Topic 606, "Revenue from Contracts with Customers" ("ASC 606") and superseded ASC Topic 605, "Revenue Recognition." The guidance replaced industry-specific guidance and established a single five-step model to identify and recognize revenue from contracts with customers ("Customer Revenue"). The core principle of the guidance is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Following the issuance of ASU No. 2014-09, the FASB issued several ASUs that clarified the implementation guidance for ASU No. 2014-09 but did not change the core principle of the guidance. Nevada Power adopted this guidance for all applicable contracts as of January 1, 2018 under a modified retrospective method and the adoption did not have a cumulative effect impact at the date of initial adoption.

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Customer Revenue

Nevada Power recognizes revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which Nevada Power expects to be entitled in exchange for those goods or services. Nevada Power records sales, franchise and excise taxes collected directly from customers and remitted directly to the taxing authorities on a net basis on the Consolidated Statements of Operations.

Substantially all of Nevada Power's Customer Revenue is derived from tariff based sales arrangements approved by various regulatory bodies. These tariff based revenues are mainly comprised of energy, transmission and distribution and have performance obligations to deliver energy products and services to customers which are satisfied over time as energy is delivered or services are provided. Other revenue consists primarily of revenue recognized in accordance with ASC 840, "Leases" and amounts not considered Customer Revenue within ASC 606.

Revenue recognized is equal to what Nevada Power has the right to invoice as it corresponds directly with the value to the customer of Nevada Power's performance to date and includes billed and unbilled amounts. As of March 31, 2018 and December 31, 2017 , accounts receivables, net on the Consolidated Balance Sheets relate substantially to Customer Revenue, including unbilled revenue of $97 million and $111 million , respectively. Payments for amounts billed are generally due from the customer within 30 days of billing. Rates charged for energy products and services are established by regulators or contractual arrangements that establish the transaction price as well as the allocation of price amongst the separate performance obligations. When preliminary regulated rates are permitted to be billed prior to final approval by the applicable regulator, certain revenue collected may be subject to refund and a liability for estimated refunds is accrued.

The following table summarizes Nevada Power's revenue by customer class for the three-month period ended March 31, 2018 (in millions):



	March 31,
	2018
Customer Revenue:
Retail:
Residential	$	193
Commercial	95
Industrial	79
Other	6
Total fully bundled	373
Distribution only service	7
Total retail	380
Wholesale, transmission and other	10
Total Customer Revenue	390
Other revenue	5
Total revenue	$	395

Contract Assets and Liabilities

In the event one of the parties to a contract has performed before the other, Nevada Power would recognize a contract asset or contract liability depending on the relationship between Nevada Power's performance and the customer's payment. As of March 31, 2018 and December 31, 2017 , there were no contract assets or contract liabilities recorded on the Consolidated Balance Sheets.

119

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

General

Nevada Power's revenues and operating income are subject to fluctuations during the year due to impacts that seasonal weather, rate changes, and customer usage patterns have on demand for electric energy and resources. Nevada Power is a summer peaking utility experiencing its highest retail energy sales in response to the demand for air conditioning. The variations in energy usage due to varying weather, customer growth and other energy usage patterns, including energy efficiency and conservation measures, necessitates a continual balancing of loads and resources and purchases and sales of energy under short- and long-term energy supply contracts. As a result, the prudent management and optimization of available resources has a direct effect on the operating and financial performance of Nevada Power. Additionally, the timely recovery of purchased power, fuel costs and other costs and the ability to earn a fair return on investments through rates are essential to the operating and financial performance of Nevada Power.

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 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 2018 and 2017

Overview

Net income for the first quarter of 2018 was $- million, a decrease of $10 million , or 100% , compared to 2017 primarily due to an $8 million increase in depreciation expense due to various regulatory amortizations, $3 million of higher operations and maintenance due to a legal settlement and $2 million of lower utility margin.

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, energy and capacity, which are captions presented on the Consolidated Statements of Operations.

Nevada Power’s cost of fuel, energy and capacity and natural gas purchased for resale are directly recovered from its customers through regulatory recovery mechanisms and as a result, changes in the Nevada Power’s revenue are comparable to changes in such expenses. As such, management believes utility margin more appropriately and concisely explain 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 comparable financial measure prepared in accordance with GAAP. The following table provides a reconciliation of utility margin to operating income (in millions):



	First Quarter
	2018		2017		Change
Utility margin:
Operating revenue	$	395	$	392	$	3		1	%
Cost of fuel, energy and capacity	170		165		5			3
Utility margin	225		227		(2		)	(1	)
Operations and maintenance	91		88		3			3
Depreciation and amortization	84		76		8			11
Property and other taxes	10		10		—			—
Operating income	$	40	$	53	$	(13	)	(25	)

120

A comparison of Nevada Power's key operating results is as follows:



	First Quarter
	2018		2017		Change
Utility margin (in millions):
Operating revenue	$	395	$	392	$	3		1	%
Cost of fuel, energy and capacity	170		165		5			3
Utility margin	$	225	$	227	$	(2	)	(1	)

GWh sold:
Residential	1,482		1,518		(36		)	(2	)%
Commercial	990		974		16			2
Industrial	1,234		1,447		(213		)	(15	)
Other	50		49		1			2
Total fully bundled ⁽¹⁾	3,756		3,988		(232		)	(6	)
Distribution only service	492		320		172			54
Total retail	4,248		4,308		(60		)	(1	)
Wholesale	44		109		(65		)	(60	)
Total GWh sold	4,292		4,417		(125		)	(3	)

Average number of retail customers (in thousands):
Residential	818		805		13			2	%
Commercial	107		106		1			1
Industrial	2		2		—			—
Total	927		913		14			2

Average per MWh:
Revenue - fully bundled ⁽¹⁾	$	99.29	$	93.81	$	5.48		6	%
Total cost of energy ⁽²⁾	$	44.60	$	39.61	$	4.99		13	%

Heating degree days	816		775		41			5	%
Cooling degree days	19		111		(92		)	(83	)%

Sources of energy (GWh) ⁽³⁾ :
Natural gas	2,401		2,460		(59		)	(2	)%
Coal	249		506		(257		)	(51	)
Renewables	15		16		(1		)	(6	)
Total energy generated	2,665		2,982		(317		)	(11	)
Energy purchased	1,146		1,189		(43		)	(4	)
Total	3,811		4,171		(360		)	(9	)

* Not meaningful


(1)	Fully bundled includes sales to customers for combined energy, transmission and distribution services.


(2)	The average total cost of energy per MWh includes the cost of fuel, purchased power and deferrals and does not include other costs and excludes 70 and 137 GWh of coal and 680 and 665 GWh of gas generated energy that is purchased at cost by related parties for the first quarter of 2018 and 2017 , respectively.


(3)	GWh amounts are net of energy used by the related generating facilities.

121

Utility margin decreased $2 million , or 1% , for the first quarter of 2018 compared to 2017 due to:


•	$3 million lower residential volumes primarily from the impacts of weather;


•	$2 million in lower commercial and industrial retail revenue from customers purchasing energy from alternative providers and becoming distribution only service customers and


•	$2 million due to lower retail rates primarily due to the 2017 regulatory rate review with rates effective February 2018.

The decrease in utility margin was offset by:


•	$2 million due to commercial and industrial customer growth and usage and


•	$2 million in higher other revenue primarily from impact fees and revenue relating to customers becoming distribution only service customers.

Operations and maintenance increased $3 million , or 3% , for the first quarter of 2018 compared to 2017 due to settlement costs associated with a personal injury claim, partially offset by decreased maintenance costs.

Depreciation and amortization increased $8 million , or 11% , for the first quarter of 2018 compared to 2017 primarily due to various regulatory directed amortizations.

Income tax expense decreased $5 million for the first quarter of 2018 compared to 2017 . Nevada Power did not incur tax expense in 2018 due to $- million income before income tax expense. The effective tax rate was 33% in 2017 .

Liquidity and Capital Resources

As of March 31, 2018 , Nevada Power's total net liquidity was as follows (in millions):



Cash and cash equivalents	$	97
Credit facility	400
Total net liquidity	$	497
Credit facility:
Maturity date	2020

Operating Activities

Net cash flows from operating activities for the three-month periods ended March 31, 2018 and 2017 were $110 million and $90 million , respectively. The change was due to the timing of payments and receipts including a decrease in fuel costs and increased collections from customers due to higher deferred energy rates partially offset by lower retail general rates. The increase was partially offset by higher payments for operating costs.

Nevada Power's income tax cash flows benefited in 2017 and 2016 from 50% bonus depreciation on qualifying assets placed in service and from investment tax credits earned on qualifying solar projects. In December 2017, the 2017 Tax Reform was enacted which, among other items, reduces the federal corporate tax rate from 35% to 21% effective January 1, 2018, eliminated bonus depreciation on qualifying regulated utility assets acquired after September 27, 2017 and eliminated the deduction for production activities, but did not impact investment tax credits. Nevada Power believes for qualifying assets acquired on or before September 27, 2017, bonus depreciation will remain available for 2018 and 2019. In February 2018, Nevada Power made a filing with the PUCN proposing a tax rate reduction rider for the lower annual income tax expense anticipated to result from the 2017 Tax Reform for 2018 and beyond. The filing supported an annual rate reduction of $59 million . In March 2018, the PUCN issued an order approving the rate reduction proposed by Nevada Power. The new rates were effective April 1, 2018. The order has extended the procedural schedule to allow parties additional discovery relevant to the 2017 Tax Reform with a hearing scheduled in June 2018. Nevada Power expects lower revenue collections and income tax payments as well as lower bonus depreciation benefits as a result of the 2017 Tax Reform and related regulatory treatment. Nevada Power does not expect the 2017 Tax Reform and related regulatory treatment to have a material adverse impact on its cash flows, subject to actual regulatory outcomes. The timing of Nevada Power'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.

122

Investing Activities

Net cash flows from investing activities for the three-month periods ended March 31, 2018 and 2017 were $(64) million and $(135) million , respectively. The change was due to the acquisition of the remaining 25% in the Silverhawk generating station in 2017, partially offset by increased capital expenditures.

Financing Activities

Net cash flows from financing activities for the three-month periods ended March 31, 2018 and 2017 were $(5) million and $(154) million , respectively. The change was due to lower redemptions of long‑term debt and dividends paid to NV Energy, Inc. in 2018.

Ability to Issue Debt

Nevada Power's ability to issue debt is primarily impacted by its financing authority from the PUCN. Following the April 2018 issuance of $575 million of general and refunding mortgage securities, Nevada Power has financing authority from the PUCN consisting of the ability to: (1) issue new long-term debt securities of up to $1.3 billion ; (2) refinance up to $656 million of long-term debt securities; and (3) maintain a revolving credit facility of up to $1.3 billion . Nevada Power's revolving credit facility contains a financial maintenance covenant which Nevada Power was in compliance with as of March 31, 2018 .

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 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

Nevada Power 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. 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.

Nevada Power'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
	2017		2018		2018

Solar generation	$	—	$	—	$	8
Distribution	23		27		166
Transmission system investment	3		2		23
Other	32		35		128
Total	$	58	$	64	$	325

123

Nevada Power's approved forecast capital expenditures include investments related to operating projects that consist of routine expenditures for transmission, distribution, generation and other infrastructure needed to serve existing and expected demand.

Contractual Obligations

As of March 31, 2018 , 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, 2017 .

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 air and water quality, RPS, emissions performance standards, climate change, 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 "Liquidity and Capital Resources" for discussion of Nevada Power's forecasted environmental-related capital expenditures.

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.

New Accounting Pronouncements

For a discussion of new accounting pronouncements affecting Nevada Power, refer to Note 2 of Notes to Consolidated Financial Statements in Nevada Power's Part I, Item 1 of this Form 10-Q.

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, 2017 . There have been no significant changes in Nevada Power's assumptions regarding critical accounting estimates since December 31, 2017 .

124

Sierra Pacific Power Company and its subsidiaries

Consolidated Financial Section

125

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, 2018 , the related consolidated statements of operations for the three-month periods ended March 31, 2018 and 2017 , and of changes in shareholder's equity and cash flows for the three-month periods ended March 31, 2018 and 2017 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 Sierra Pacific as of December 31, 2017 , 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 23, 2018 , 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, 2017 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

/s/ Deloitte & Touche LLP

Las Vegas, Nevada

May 7, 2018

126

SIERRA PACIFIC POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Amounts in millions, except share data)



	As of
	March 31,			December 31,
	2018			2017
ASSETS
Current assets:
Cash and cash equivalents	$	32		$	4
Accounts receivable, net	107			112
Inventories	48			49
Regulatory assets	18			32
Other current assets	24			17
Total current assets	229			214

Property, plant and equipment, net	2,901			2,892
Regulatory assets	300			300
Other assets	9			7

Total assets	$	3,439		$	3,413

LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable	$	74		$	92
Accrued interest	11			14
Accrued property, income and other taxes	13			10
Regulatory liabilities	27			19
Current portion of long-term debt and financial and capital lease obligations	2			2
Customer deposits	17			15
Other current liabilities	18			12
Total current liabilities	162			164

Long-term debt and financial and capital lease obligations	1,151			1,152
Regulatory liabilities	474			481
Deferred income taxes	338			330
Other long-term liabilities	108			114
Total liabilities	2,233			2,241

Commitments and contingencies (Note 10)

Shareholder's equity:
Common stock - $3.75 stated value, 20,000,000 shares authorized and 1,000 issued and outstanding	—			—
Other paid-in capital	1,111			1,111
Retained earnings	96			62
Accumulated other comprehensive loss, net	(1		)	(1		)
Total shareholder's equity	1,206			1,172

Total liabilities and shareholder's equity	$	3,439		$	3,413

The accompanying notes are an integral part of the consolidated financial statements.

127

SIERRA PACIFIC POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Amounts in millions)



	Three-Month Periods
	Ended March 31,
	2018			2017
Operating revenue:
Electric	$	181		$	159
Natural gas	41			34
Total operating revenue	222			193

Operating costs and expenses:
Cost of fuel, energy and capacity	77			56
Natural gas purchased for resale	23			16
Operations and maintenance	39			41
Depreciation and amortization	30			28
Property and other taxes	6			6
Total operating costs and expenses	175			147

Operating income	47			46

Other income (expense):
Interest expense	(10		)	(11		)
Allowance for equity funds	1			1
Other, net	2			1
Total other income (expense)	(7		)	(9		)

Income before income tax expense	40			37
Income tax expense	6			13
Net income	$	34		$	24

The accompanying notes are an integral part of these consolidated financial statements.

128

SIERRA PACIFIC POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (Unaudited)

(Amounts in millions, except shares)



									Accumulated
				Other		Retained			Other			Total
	Common Stock			Paid-in		Earnings			Comprehensive			Shareholder's
	Shares	Amount		Capital		(Deficit)			Loss, Net			Equity

Balance, December 31, 2016	1,000	$	—	$	1,111	$	(2	)	$	(1	)	$	1,108
Net income	—	—		—		24			—			24
Dividends declared	—	—		—		(2		)	—			(2		)
Balance, March 31, 2017	1,000	$	—	$	1,111	$	20		$	(1	)	$	1,130

Balance, December 31, 2017	1,000	$	—	$	1,111	$	62		$	(1	)	$	1,172
Net income	—	—		—		34			—			34
Balance, March 31, 2018	1,000	$	—	$	1,111	$	96		$	(1	)	$	1,206

The accompanying notes are an integral part of these consolidated financial statements.

129

SIERRA PACIFIC POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Amounts in millions)



	Three-Month Periods
	Ended March 31,
	2018			2017
Cash flows from operating activities:
Net income	$	34		$	24
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	30			28
Allowance for equity funds	(1		)	(1		)
Deferred income taxes and amortization of investment tax credits	6			13
Changes in regulatory assets and liabilities	12			3
Deferred energy	13			(11		)
Amortization of deferred energy	(4		)	(21		)
Other, net	—			2
Changes in other operating assets and liabilities:
Accounts receivable and other assets	3			20
Inventories	—			(3		)
Accrued property, income and other taxes	(2		)	(3		)
Accounts payable and other liabilities	(16		)	(63		)
Net cash flows from operating activities	75			(12		)

Cash flows from investing activities:
Capital expenditures	(45		)	(41		)
Net cash flows from investing activities	(45		)	(41		)

Cash flows from financing activities:
Net proceeds from short-term debt	—			6
Repayments of long-term debt and financial and capital lease obligations	—			(1		)
Dividends paid	—			(2		)
Net cash flows from financing activities	—			3

Net change in cash and cash equivalents and restricted cash and cash equivalents	30			(50		)
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period	8			60
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	38		$	10

The accompanying notes are an integral part of these consolidated financial statements.

130

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 ("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, 2018 and for the three-month periods ended March 31, 2018 and 2017 . The Consolidated Statements of Comprehensive Income have been omitted as net income equals comprehensive income for the three-month periods ended March 31, 2018 and 2017 . The results of operations for the three-month period ended March 31, 2018 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, 2017 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, 2018 .

( 2 ) New Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, which creates FASB Accounting Standards Codification ("ASC") Topic 842, "Leases" and supersedes Topic 840 "Leases." This guidance increases transparency and comparability among entities by recording lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous guidance. In January 2018, the FASB issued ASU No. 2018-01 that provides for an optional transition practical expedient allowing companies to not have to evaluate existing land easements if they were not previously accounted for under ASC Topic 840, "Leases." This guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted, and is required to be adopted using a modified retrospective approach. Sierra Pacific plans to adopt this guidance effective January 1, 2019 and is currently evaluating the impact on its Consolidated Financial Statements and disclosures included within Notes to Consolidated Financial Statements.


( 3 )	Restricted Cash and Cash Equivalents

131

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, 2018 and December 31, 2017, 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, 2018 and December 31, 2017 , 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,
	2018		2017
Cash and cash equivalents	$	32	$	4
Restricted cash and cash equivalents included in other current assets	6		4
Total cash and cash equivalents and restricted cash and cash equivalents	$	38	$	8

( 4 ) Property, Plant and Equipment, Net

Property, plant and equipment, net consists of the following (in millions):



		As of
	Depreciable Life	March 31,			December 31,
	Depreciable Life	2018			2017
Utility plant:
Electric generation	25 - 60 years	$	1,143		$	1,144
Electric distribution	20 - 100 years	1,470			1,459
Electric transmission	50 - 100 years	791			786
Electric general and intangible plant	5 - 70 years	181			181
Natural gas distribution	35 - 70 years	390			390
Natural gas general and intangible plant	5 - 70 years	14			14
Common general	5 - 70 years	296			294
Utility plant		4,285			4,268
Accumulated depreciation and amortization		(1,531		)	(1,513		)
Utility plant, net		2,754			2,755
Other non-regulated, net of accumulated depreciation and amortization	70 years	5			5
Plant, net		2,759			2,760
Construction work-in-progress		142			132
Property, plant and equipment, net		$	2,901		$	2,892

( 5 ) Regulatory Matters

Deferred Energy

132

Regulatory Rate Review

The Tax Cuts and Jobs Act (" 2017 Tax Reform ") enacted significant changes to the Internal Revenue Code, including, among other things, a reduction in the U.S. federal corporate income tax rate from 35% to 21% . In February 2018, Sierra Pacific made a filing with the PUCN proposing a tax rate reduction rider for the lower annual income tax expense anticipated to result from the 2017 Tax Reform for 2018 and beyond. The filing supports an annual rate reduction of $25 million . In March 2018, the PUCN issued an order approving the rate reduction proposed by Sierra Pacific, The new rates were effective April 1, 2018. The order has extended the procedural schedule to allow parties additional discovery relevant to the 2017 Tax Reform with a hearing scheduled in June 2018. Sierra Pacific cannot predict the timing or ultimate outcome of further regulatory proceedings.

Chapter 704B Applications

In November 2016, Caesars Enterprise Service ("Caesars"), a customer of Sierra Pacific , filed an application with the PUCN to purchase energy from alternative providers of a new electric resource and become a distribution only service customer of Sierra Pacific. In March 2017, the PUCN approved the application allowing Caesars to purchase energy from alternative providers subject to conditions, including paying an impact fee. In March 2017, Caesars provided notice that it intends to pay the impact fee and proceed with purchasing energy from alternative providers. In July 2017, Caesars made the required compliance filings and, in September 2017, the PUCN issued an order allowing Caesars to acquire electric energy and ancillary services from another energy supplier and become a distribution only service customer of Sierra Pacific. In January 2018, Caesars became a distribution only service customer and started procuring energy from another energy supplier for its eligible meters in the Sierra Pacific service territory. Following the PUCN’s order from March 2017, Caesars’ will pay an impact fee of $4 million in 36 monthly payments .

( 6 ) Recent Financing Transactions

Credit Facilities

In April 2018, Sierra Pacific amended and restated its existing $250 million secured credit facility, expiring June 2020, extending the expiration date to June 2021 and reducing from two to one, the available one-year extension options, subject to lender consent.

( 7 ) Income Taxes

Tax Cuts and Jobs Act

133

In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin 118 to assist in the implementation process of the 2017 Tax Reform by allowing for calculations to be classified as provisional and subject to remeasurement. There are three different classifications for the accounting: (1) completed, (2) not complete but reasonably estimable or (3) not complete and amounts are not reasonably estimable. Sierra Pacific has recorded the impacts of the 2017 Tax Reform and believes all the impacts to be complete with the exception of interpretations of the bonus depreciation rules. Sierra Pacific has determined the amounts recorded and the interpretations relating to this items to be provisional and subject to remeasurement during the measurement period upon obtaining the necessary additional information to complete the accounting. Sierra Pacific believes its interpretations for bonus depreciation to be reasonable, however, as the guidance is clarified estimates may change. The accounting is estimated to be completed by December 2018.

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,
	2018		2017

Federal statutory income tax rate	21	%	35	%
Effects of ratemaking	(5	)	—
Other	(1	)	—
Effective income tax rate	15	%	35	%

( 8 ) 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 payable to NV Energy are included on the Consolidated Balance Sheets and consist of the following (in millions):



	As of
	March 31,			December 31,
	2018			2017
Qualified Pension Plan -
Other long-term liabilities	$	(2	)	$	(2	)

Non-Qualified Pension Plans:
Other current liabilities	(1		)	(1		)
Other long-term liabilities	(8		)	(8		)

Other Postretirement Plans -
Other long-term liabilities	(20		)	(20		)

134

( 9 ) 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 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, 2018
Assets - money market mutual funds ⁽¹⁾	$	30	$	—	$	—		$	30

Liabilities - commodity derivatives	$	—	$	—	$	(2	)	$	(2	)

As of December 31, 2017
Assets - investment funds	$	—	$	—	$	—		$	—


(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 Sierra Pacific transacts. When quoted prices for identical contracts are not available, Sierra Pacific uses forward price curves. Forward price curves represent Sierra Pacific's estimates of the prices at which a buyer or seller could contract today for delivery or settlement at future dates. Sierra Pacific 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, Sierra Pacific 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 Sierra Pacific's nonperformance risk on its liabilities, which as of March 31, 2018 and December 31, 2017 , had an immaterial impact to the fair value of its derivative contracts. As such, Sierra Pacific considers its derivative contracts to be valued using Level 3 inputs.

Sierra Pacific's investments in money market mutual funds and equity securities 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.

135

The following table reconciles the beginning and ending balances of Sierra Pacific's commodity derivative liabilities measured at fair value on a recurring basis using significant Level 3 inputs (in millions):



	Three-Month Periods
	Ended March 31,
	2018			2017

Beginning balance	$	—		$	—
Changes in fair value recognized in regulatory assets	(2		)	—
Ending balance	$	(2	)	$	—

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, 2018				As of December 31, 2017
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value

Long-term debt	$	1,120	$	1,186	$	1,120	$	1,221


( 10 )	Commitments and Contingencies

Environmental Laws and Regulations

Sierra Pacific is subject to federal, state and local laws and regulations regarding air and water quality, renewable portfolio standards, emissions performance standards, climate change, 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.

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.


( 11 )	Revenue from Contracts with Customers

Adoption

In May 2014, the FASB issued ASU No. 2014-09, which created FASB ASC Topic 606, "Revenue from Contracts with Customers" ("ASC 606") and superseded ASC Topic 605, "Revenue Recognition." The guidance replaced industry-specific guidance and established a single five-step model to identify and recognize revenue from contracts with customers ("Customer Revenue"). The core principle of the guidance is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Following the issuance of ASU No. 2014-09, the FASB issued several ASUs that clarified the implementation guidance for ASU No. 2014-09 but did not change the core principle of the guidance. Sierra Pacific adopted this guidance for all applicable contracts as of January 1, 2018 under a modified retrospective method and the adoption did not have a cumulative effect impact at the date of initial adoption.

136

Customer Revenue

Sierra Pacific recognizes revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which Sierra Pacific expects to be entitled in exchange for those goods or services. Sierra Pacific records sales, franchise and excise taxes collected directly from customers and remitted directly to the taxing authorities on a net basis on the Consolidated Statements of Operations.

Substantially all of Sierra Pacific's Customer Revenue is derived from tariff based sales arrangements approved by various regulatory bodies. These tariff based revenues are mainly comprised of energy, transmission, distribution and natural gas and have performance obligations to deliver energy products and services to customers which are satisfied over time as energy is delivered or services are provided. Other revenue consists primarily of revenue recognized in accordance with ASC 840, "Leases" and amounts not considered Customer Revenue within ASC 606.

Revenue recognized is equal to what Sierra Pacific has the right to invoice as it corresponds directly with the value to the customer of Sierra Pacific's performance to date and includes billed and unbilled amounts. As of March 31, 2018 and December 31, 2017 , accounts receivables, net on the Consolidated Balance Sheets relate substantially to Customer Revenue, including unbilled revenue of $57 million and $62 million , respectively. Payments for amounts billed are generally due from the customer within 30 days of billing. Rates charged for energy products and services are established by regulators or contractual arrangements that establish the transaction price as well as the allocation of price amongst the separate performance obligations. When preliminary regulated rates are permitted to be billed prior to final approval by the applicable regulator, certain revenue collected may be subject to refund and a liability for estimated refunds is accrued.

The following table summarizes Sierra Pacific's revenue by customer class, including a reconciliation to Sierra Pacific's reportable segment information included in Note 12 , for the three-month period ended March 31, 2018 (in millions):



	Electric		Gas		Total
Customer Revenue:
Retail:
Residential	$	68	$	26	$	94
Commercial	57		11		68
Industrial	39		3		42
Other	2		—		2
Total fully bundled	166		40		206
Distribution only service	1		—		1
Total retail	167		40		207
Wholesale, transmission and other	13		—		13
Total Customer Revenue	180		40		220
Other revenue	1		1		2
Total revenue	$	181	$	41	$	222

Contract Assets and Liabilities

In the event one of the parties to a contract has performed before the other, Sierra Pacific would recognize a contract asset or contract liability depending on the relationship between Sierra Pacific's performance and the customer's payment. As of March 31, 2018 and December 31, 2017 , there were no contract assets or contract liabilities recorded on the Consolidated Balance Sheets.

137

( 12 ) 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,
	2018			2017
Operating revenue:
Regulated electric	$	181		$	159
Regulated gas	41			34
Total operating revenue	$	222		$	193

Operating income:
Regulated electric	$	37		$	36
Regulated gas	10			10
Total operating income	47			46
Interest expense	(10		)	(11		)
Allowance for equity funds	1			1
Other, net	2			1
Income before income tax expense	$	40		$	37



	As of
	March 31,		December 31,
	2018		2017
Assets:
Regulated electric	$	3,092	$	3,103
Regulated gas	307		300
Regulated common assets ⁽¹⁾	40		10
Total assets	$	3,439	$	3,413


(1)	Consists principally of cash and cash equivalents not included in either the regulated electric or regulated natural gas segments.

138

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

General

Sierra Pacific's revenues and operating income are subject to fluctuations during the year due to impacts that seasonal weather, rate changes, and customer usage patterns have on demand for electric energy and resources. Sierra Pacific is a summer peaking utility experiencing its highest retail energy sales in response to the demand for air conditioning. The variations in energy usage due to varying weather, customer growth and other energy usage patterns, including energy efficiency and conservation measures, necessitates a continual balancing of loads and resources and purchases and sales of energy under short- and long-term energy supply contracts. As a result, the prudent management and optimization of available resources has a direct effect on the operating and financial performance of Sierra Pacific. Additionally, the timely recovery of purchased power, fuel costs and other costs and the ability to earn a fair return on investments through rates are essential to the operating and financial performance of Sierra Pacific.

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 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.

139

Results of Operations for the First Quarter of 2018 and 2017

Overview

Net income for the first quarter of 2018 was $34 million , an increase of $10 million , or 42% , compared to 2017 primarily due to 2017 Tax Reform, which reduced the federal statutory tax rate.

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, energy and capacity while natural gas utility margin is calculated as natural gas operating revenue less natural gas purchased for resale, which are captions presented on the Consolidated Statements of Operations.

Sierra Pacific’s cost of fuel, energy and capacity and natural gas purchased for resale are directly recovered from its customers through regulatory recovery mechanisms and as a result, changes in the Sierra Pacific’s revenue are comparable to changes in such expenses. 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 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 comparable financial measure prepared in accordance with GAAP. The following table provides a reconciliation of utility margin to operating income (in millions):



	First Quarter
	2018		2017		Change
Electric utility margin:
Electric operating revenue	$	181	$	159	$	22		14	%
Cost of fuel, energy and capacity	77		56		21			38
Electric utility margin	104		103		1			1

Natural gas utility margin:
Natural gas operating revenue	41		34		7			21	%
Natural gas purchased for resale	23		16		7			44
Natural gas utility margin	18		18		—			—

Utility margin	122		121		1			1	%

Operations and maintenance	39		41		(2		)	(5	)%
Depreciation and amortization	30		28		2			7
Property and other taxes	6		6		—			—

Operating income	$	47	$	46	$	1		2	%

140

A comparison of Sierra Pacific's key operating results is as follows:

Electric Utility Margin



	First Quarter
	2018		2017		Change
Electric utility margin (in millions):
Electric operating revenue	$	181	$	159	$	22		14	%
Cost of fuel, energy and capacity	77		56		21			38
Electric utility margin	$	104	$	103	$	1		1

GWh sold:
Residential	613		630		(17		)	(3	)%
Commercial	697		679		18			3
Industrial	819		744		75			10
Other	4		4		—			—
Total fully bundled ⁽¹⁾	2,133		2,057		76			4
Distribution only service	362		348		14			4
Total retail	2,495		2,405		90			4
Wholesale	171		182		(11		)	(6	)
Total GWh sold	2,666		2,587		79			3

Average number of retail customers (in thousands):
Residential	298		293		5			2	%
Commercial	47		47		—			—
Total	345		340		5			1

Average per MWh:
Revenue - fully bundled ⁽¹⁾	$	77.93	$	69.89	$	8.04		12	%
Revenue - wholesale	$	49.51	$	50.06	$	(0.55	)	(1	)
Total cost of energy ⁽²⁾	$	32.52	$	23.07	$	9.45		41

Heating degree days	2,140		2,133		7			—	%

Sources of energy (GWh) ⁽³⁾ :
Natural gas	1,057		1,010		47			5	%
Renewables	6		5		1			20
Total energy generated	1,063		1,015		48			5
Energy purchased	1,306		1,423		(117		)	(8	)
Total	2,369		2,438		(69		)	(3	)

* Not meaningful


(1)	Fully bundled includes sales to customers for combined energy, transmission and distribution services.


(2)	The average total cost of energy per MWh includes the cost of fuel, purchased power and deferrals and does not include other costs.


(3)	GWh amounts are net of energy used by the related generating facilities.

141

Natural Gas Utility Margin



	First Quarter
	2018		2017		Change
Natural gas utility margin (in millions):
Natural gas operating revenue	$	41	$	34	$	7		21	%
Natural gas purchased for resale	23		16		7			44
Natural gas utility margin	$	18	$	18	$	—		—

Dth sold:
Residential	4,319		4,459		(140		)	(3	)%
Commercial	2,112		2,196		(84		)	(4	)
Industrial	690		660		30			5
Total retail	7,121		7,315		(194		)	(3	)

Average number of retail customers (in thousands)	166		163		3			2	%
Average revenue per retail Dth sold	$	5.61	$	4.58	$	1.03		22	%
Average cost of natural gas per retail Dth sold	$	3.20	$	2.20	$	1.00		45	%
Heating degree days	2,140		2,133		7			—	%

Operations and maintenance decreased $2 million , or 5% , for the first quarter of 2018 compared to 2017 primarily due to a decrease in maintenance costs, partially offset by a change in accounting for retirement benefits.

Other income (expense) is favorable $2 million , or 22% , for the first quarter of 2018 compared to 2017 primarily due to a change in accounting for retirement benefits implemented January 2018.

Income tax expense decreased $7 million , or 54% , for the first quarter of 2018 compared to 2017 . The effective tax rate was 15% in 2018 and 35% in 2017 . The decrease in the effective tax rate is primarily due to 2017 Tax Reform, which reduced the federal statutory tax rate.

Liquidity and Capital Resources

As of March 31, 2018 , Sierra Pacific's total net liquidity was as follows (in millions):



Cash and cash equivalents	$	32

Credit facility	250
Less:
Tax-exempt bond support	(80		)
Net credit facility	170

Total net liquidity	$	202
Credit facility:
Maturity date	2020

Operating Activities

Net cash flows from operating activities for the three-month periods ended March 31, 2018 and 2017 were $75 million and $(12) million , respectively. The change was due to the timing of payments and receipts including a decrease in fuel costs, increased collections from customers due to higher deferred energy rates and lower payments for operating costs.

142

Sierra Pacific's income tax cash flows benefited in 2017 and 2016 from 50% bonus depreciation on qualifying assets placed in service. In December 2017, the 2017 Tax Reform was enacted which, among other items, reduces the federal corporate tax rate from 35% to 21% effective January 1, 2018, eliminated bonus depreciation on qualifying regulated utility assets acquired after September 27, 2017 and eliminated the deduction for production activities. Sierra Pacific believes for qualifying assets acquired on or before September 27, 2017, bonus depreciation will remain available for 2018 and 2019. In February 2018, Sierra Pacific made a filing with the PUCN proposing a tax rate reduction rider for the lower annual income tax expense anticipated to result from the 2017 Tax Reform for 2018 and beyond. The filing supported an annual rate reduction of $25 million . In March 2018, the PUCN issued an order approving the rate reduction proposed by Sierra Pacific. The new rates were effective April 1, 2018. The order has extended the procedural schedule to allow parties additional discovery relevant to the 2017 Tax Reform with a hearing scheduled in June 2018. Sierra Pacific expects lower revenue collections and income tax payments as well as lower bonus depreciation benefits as a result of the 2017 Tax Reform and related regulatory treatment. Sierra Pacific does not expect the 2017 Tax Reform and related regulatory treatment to have a material adverse impact on its cash flows, subject to actual regulatory outcomes. The timing of Sierra Pacific'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, 2018 and 2017 were $(45) million and $(41) million , respectively. The change was primarily due to increased capital expenditures.

Financing Activities

Net cash flows from financing activities for the three-month periods ended March 31, 2018 and 2017 were $- million and $3 million , respectively. The change was primarily due to proceeds from short-term debt in 2017, partially offset by dividends paid to NV Energy, Inc. in 2018.

Ability to Issue Debt

Sierra Pacific's ability to issue debt is primarily impacted by its financing authority from the PUCN. As of March 31, 2018 , Sierra Pacific has financing authority from the PUCN consisting of the ability to: (1) issue additional long-term debt securities of up to $350 million ; (2) refinance up to $55 million of long-term debt securities; and (3) maintain a revolving credit facility of up to $600 million . Sierra Pacific's revolving credit facility contains a financial maintenance covenant which Sierra Pacific was in compliance with as of March 31, 2018 .

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 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

Sierra Pacific 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. 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.

143

Sierra Pacific'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
	2017		2018		2018

Distribution	$	22	$	31	$	156
Transmission system investment	1		1		13
Other	18		13		53
Total	$	41	$	45	$	222

Sierra Pacific's forecast capital expenditures include investments that relate to operating projects that consist of routine expenditures for transmission, distribution, generation and other infrastructure needed to serve existing and expected demand.

Contractual Obligations

As of March 31, 2018 , 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, 2017 .

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 air and water quality, RPS, emissions performance standards, climate change, 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 "Liquidity and Capital Resources" for discussion of Sierra Pacific's forecasted environmental-related capital expenditures.

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.

New Accounting Pronouncements

For a discussion of new accounting pronouncements affecting Sierra Pacific, refer to Note 2 of Notes to Consolidated Financial Statements in Sierra Pacific's Part I, Item 1 of this Form 10-Q.

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, 2017 . There have been no significant changes in Sierra Pacific's assumptions regarding critical accounting estimates since December 31, 2017 .

144


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk affecting the Registrants, see Item 7A of each Registrant's Annual Report on Form 10-K for the year ended December 31, 2017 . Each Registrant's exposure to market risk and its management of such risk has not changed materially since December 31, 2017 . Refer to Note 9 of the Notes to Consolidated Financial Statements of PacifiCorp in Part I, Item 1 of this Form 10-Q for disclosure of the respective Registrant's derivative positions as of March 31, 2018 .


Item 4.	Controls and Procedures

At the end of the period covered by this Quarterly Report on Form 10-Q, each of Berkshire Hathaway Energy Company , PacifiCorp , MidAmerican Funding, LLC , MidAmerican Energy Company , Nevada Power Company and Sierra Pacific Power Company carried out separate evaluations, under the supervision and with the participation of each such entity's management, including its Chief Executive Officer (principal executive officer) and its Chief Financial Officer (principal financial officer), or persons performing similar functions, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended). Based upon these evaluations, management of each such entity, including its Chief Executive Officer (principal executive officer) and its Chief Financial Officer (principal financial officer), or persons performing similar functions, in each case, concluded that the disclosure controls and procedures for such entity were effective to ensure that information required to be disclosed by such entity in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the United States Securities and Exchange Commission's rules and forms, and is accumulated and communicated to its management, including its Chief Executive Officer (principal executive officer) and its Chief Financial Officer (principal financial officer), or persons performing similar functions, in each case, as appropriate to allow timely decisions regarding required disclosure by it. Each such entity hereby states that there has been no change in its internal control over financial reporting during the quarter ended March 31, 2018 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

145

PART II


Item 1.	Legal Proceedings

Not applicable.


Item 1A.	Risk Factors

There has been no material change to each Registrant's risk factors from those disclosed in Item 1A of each Registrant's Annual Report on Form 10-K for the year ended December 31, 2017 .


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.


Item 3.	Defaults Upon Senior Securities

Not applicable.


Item 4.	Mine Safety Disclosures

Information regarding Berkshire Hathaway Energy's and PacifiCorp's mine safety violations and other legal matters disclosed in accordance with Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act is included in Exhibit 95 to this Form 10-Q.


Item 5.	Other Information

Not applicable.


Item 6.	Exhibits

The following is a list of exhibits filed as part of this Quarterly Report.


Exhibit No.	Description

BERKSHIRE HATHAWAY ENERGY


10.1	$3,500,000,000 Amended and Restated Credit Agreement, dated as of April 30, 2018, among Berkshire Hathaway Energy Company, as Borrower, the Banks, Financial Institutions and Other Institutional Lenders, as Initial Lenders, MUFG Union Bank, N.A, as Administrative Agent and the LC Issuing Banks.


10.2	Third Amending Agreement to Fourth Amended and Restated Credit Agreement, dated as of April 19, 2018, among AltaLink, L.P., as borrower, AltaLink Management Ltd., as general partner, The Bank of Nova Scotia, as administrative agent, and Lenders.


10.3	Third Amending Agreement to Third Amended and Restated Credit Agreement, dated as of April 19, 2018, among AltaLink, L.P., as borrower, AltaLink Management Ltd., as general partner, The Bank of Nova Scotia, as administrative agent, and Lenders.


15.1	Awareness Letter of Independent Registered Public Accounting Firm.


31.1	Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


31.2	Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


32.1	Principal Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


32.2	Principal Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

146


Exhibit No.	Description

PACIFICORP


15.2	Awareness Letter of Independent Registered Public Accounting Firm.


31.3	Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


31.4	Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


32.3	Principal Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


32.4	Principal Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

BERKSHIRE HATHAWAY ENERGY AND PACIFICORP


10.4	$600,000,000 Amended and Restated Credit Agreement, dated as of April 30, 2018, among PacifiCorp, as Borrower, the Banks, Financial Institutions and Other Institutional Lenders, as Initial Lenders, JPMorgan Chase Bank, N.A., as Administrative Agent, and the LC Issuing Banks.


10.5	$600,000,000 Amended and Restated Credit Agreement, dated as of April 30, 2018, among PacifiCorp, as Borrower, the Banks, Financial Institutions and Other Institutional Lenders, as Initial Lenders, JPMorgan Chase Bank, N.A., as Administrative Agent, and the LC Issuing Banks.


95	Mine Safety Disclosures Required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

MIDAMERICAN ENERGY


15.3	Awareness Letter of Independent Registered Public Accounting Firm.


31.5	Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


31.6	Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


32.5	Principal Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


32.6	Principal Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

BERKSHIRE HATHAWAY ENERGY AND MIDAMERICAN ENERGY


10.6	$900,000,000 Amended and Restated Credit Agreement, dated as of April 30, 2018, among MidAmerican Energy Company, as Borrower, the Banks, Financial Institutions and Other Institutional Lenders, as Initial Lenders, Mizuho Bank, LTD., as Administrative Agent and the LC Issuing Banks.

MIDAMERICAN FUNDING


31.7	Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


31.8	Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


32.7	Principal Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


32.8	Principal Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

147


Exhibit No.	Description

NEVADA POWER


3.1	Amended and Restated By-Laws of Nevada Power Company as amended December 21, 2017.


15.4	Awareness Letter of Independent Registered Public Accounting Firm.


31.9	Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


31.10	Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


32.9	Principal Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


32.10	Principal Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

BERKSHIRE HATHAWAY ENERGY AND NEVADA POWER


4.1	Officer's Certificate establishing the terms of Nevada Power Company’s 2.75% General and Refunding Mortgage Notes, Series BB, due 2020 (incorporated by reference to Exhibit 4.1 to the Nevada Power Company Current Report on Form 8-K dated April 12, 2018).


10.7	$400,000,000 Third Amended and Restated Credit Agreement, dated as of April 30, 2018, among Nevada Power Company, as Borrower, the Banks, Financial Institutions and Other Institutional Lenders, as Initial Lenders, Wells Fargo Bank, National Association, as Administrative Agent and the LC Issuing Banks.

SIERRA PACIFIC


3.2	Amended and Restated By-Laws of Sierra Pacific Power Company as amended December 21, 2017.


31.11	Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


31.12	Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


32.11	Principal Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


32.12	Principal Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

BERKSHIRE HATHAWAY ENERGY AND SIERRA PACIFIC


10.8	$250,000,000 Third Amended and Restated Credit Agreement, dated as of April 30, 2018, among Sierra Pacific Power Company, as Borrower, the Banks, Financial Institutions and Other Institutional Lenders, as Initial Lenders, Wells Fargo Bank, National Association, as Administrative Agent and the LC Issuing Banks.

ALL REGISTRANTS

101

The following financial information from each respective Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 , is formatted in XBRL (eXtensible Business Reporting Language) and included herein: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements, tagged in summary and detail.

148

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	BERKSHIRE HATHAWAY ENERGY COMPANY

Date: May 7, 2018	/s/ Patrick J. Goodman
	Patrick J. Goodman
	Executive Vice President and Chief Financial Officer
	(principal financial and accounting officer)

	PACIFICORP

Date: May 7, 2018	/s/ Nikki L. Kobliha
	Nikki L. Kobliha
	Vice President, Chief Financial Officer and Treasurer
	(principal financial and accounting officer)

	MIDAMERICAN FUNDING, LLC
	MIDAMERICAN ENERGY COMPANY

Date: May 7, 2018	/s/ Thomas B. Specketer
	Thomas B. Specketer
	Vice President and Controller
	of MidAmerican Funding, LLC and
	Vice President and Chief Financial Officer
	of MidAmerican Energy Company
	(principal financial and accounting officer)

	NEVADA POWER COMPANY

Date: May 7, 2018	/s/ E. Kevin Bethel
	E. Kevin Bethel
	Senior Vice President and Chief Financial Officer
	(principal financial and accounting officer)

	SIERRA PACIFIC POWER COMPANY

Date: May 7, 2018	/s/ E. Kevin Bethel
	E. Kevin Bethel
	Senior Vice President and Chief Financial Officer
	(principal financial and accounting officer)

149

EXHIBIT 3.1

AMENDED AND RESTATED BYLAWS

NEVADA POWER COMPANY

a Nevada corporation

ARTICLE I
OFFICES

Section 1.1 Principal Office . The principal office and place of business of Nevada Power Company, a Nevada corporation (the “ Corporation ”), shall be established from time to time by resolution of the board of directors of the Corporation (the “ Board of Directors ”).

Section 1.2 Other Offices . Other offices and places of business either within or without the State of Nevada may be established from time to time by resolution of the Board of Directors or as the business of the Corporation may require. The street address of the Corporation’s registered agent is the registered office of the Corporation in Nevada.

ARTICLE II
STOCKHOLDERS

Section 2.1 Annual Meeting . The annual meeting of the stockholders of the Corporation shall be held on such date and at such time as may be designated from time to time by the Board of Directors. At the annual meeting, directors shall be elected and any other business may be transacted as may be properly brought before the meeting pursuant to these Amended and Restated Bylaws (as further amended from time to time, these “ Bylaws ”).

Section 2.2 Special Meetings .

(a) Subject to any rights of stockholders set forth in the articles of incorporation of the Corporation (as amended from time to time, the “ Articles of Incorporation ”), special meetings of the stockholders may be called only by the chairman of the board or the chief executive officer, or, if there be no chairman of the board and no chief executive officer, by the president, and shall be called by the secretary upon the written request of at least a majority of the Board of Directors or the holders of not less than a majority of the voting power of the Corporation’s stock entitled to vote. Such request shall state the purpose or purposes of the meeting.

(b) No business shall be acted upon at a special meeting of stockholders except as set forth in the notice of the meeting.

Section 2.3 Place of Meetings . Any meeting of the stockholders of the Corporation may be held at the Corporation’s registered office in the State of Nevada or at such other place in or out of the State of Nevada and the United States as may be designated in the notice of meeting. A waiver of notice signed by all stockholders entitled to vote there at may designate any place for the holding of such meeting.

Section 2.4 Notice of Meetings; Waiver of Notice .

(a) The chief executive officer, if any, the president, any vice president, the secretary, an assistant secretary or any other individual designated by the Board of Directors shall sign and deliver or cause to be delivered to the stockholders written notice of any stockholders’ meeting not less than ten (10) days, but not more than sixty (60) days, before the date of such meeting. The notice shall state the place, date and time of the meeting, the means of electronic communication, if any, by which the stockholders or the proxies thereof shall be deemed to be present and vote and, in the case of a special meeting, the purpose or purposes for which the meeting is called. The notice shall be delivered in accordance with, and shall contain or be accompanied by such additional information as may be required by, the Nevada Revised Statutes (“ NRS ”), including, without limitation, NRS 78.379, 92A.120 or 92A.410.

(b) In the case of an annual meeting, any proper business may be presented for action, except that (i) if a proposed plan of merger, conversion or exchange is submitted to a vote, the notice of the meeting must state that the purpose, or one of the purposes, of the meeting is to consider the plan of merger, conversion or exchange and must contain or be accompanied by a copy or summary of the plan; and (ii) if a proposed action creating dissenters’ rights is to be submitted to a vote, the notice of the meeting must state that the stockholders are or may be entitled to assert dissenters’ rights under NRS 92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.

(c) A copy of the notice shall be personally delivered or mailed postage prepaid to each stockholder of record entitled to vote at the meeting (unless the NRS requires delivery to all stockholders of record, in which case such notice shall be delivered to all such stockholders) at the address appearing on the records of the Corporation. Upon mailing, service of the notice is complete, and the time of the notice begins to run from the date upon which the notice is deposited in the mail. If the address of any stockholder does not appear upon the records of the Corporation or is incomplete, it will be sufficient to address any notice to such stockholder at the registered office of the Corporation. Notwithstanding the foregoing and in addition thereto, any notice to stockholders given by the Corporation pursuant to Chapters 78 or 92A of the NRS, the Articles of Incorporation or these Bylaws, may be given pursuant to the forms of electronic transmission listed herein, if such forms of transmission are consented to in writing by the stockholder receiving such electronically transmitted notice and such consent is filed by the secretary in the corporate records. Notice shall be deemed given (i) by facsimile when directed to a number consented to by the stockholder to receive notice, (ii) by electronic mail when directed to an e-mail address consented to by the stockholder to receive notice, (iii) by posting on an electronic network

together with a separate notice to the stockholder of the specific posting on the later of the specific posting or the giving of the separate notice or (iv) by any other electronic transmission as consented to by and when directed to the stockholder. The stockholder consent necessary to permit electronic transmission to such stockholder shall be deemed revoked and of no force and effect if (A) the Corporation is unable to deliver by electronic transmission two consecutive notices given by the Corporation in accordance with the stockholder’s consent and (B) the inability to deliver by electronic transmission becomes known to the secretary, assistant secretary, transfer agent or other agent of the Corporation responsible for the giving of notice.

(d) The written certificate of an individual signing a notice of meeting, setting forth the substance of the notice or having a copy thereof attached thereto, the date the notice was mailed or personally delivered to the stockholders and the addresses to which the notice was mailed, shall be prima facie evidence of the manner and fact of giving such notice and, in the absence of fraud, an affidavit of the individual signing a notice of a meeting that the notice thereof has been given by a form of electronic transmission shall be prima facie evidence of the facts stated in the affidavit.

(e) Any stockholder may waive notice of any meeting by a signed writing or by transmission of an electronic record, either before or after the meeting. Such waiver of notice shall be deemed the equivalent of the giving of such notice.

Section 2.5 Determination of Stockholders of Record .

(a) For the purpose of determining the stockholders entitled to (i) notice of and to vote at any meeting of stockholders or any adjournment thereof, (ii) receive payment of any distribution or the allotment of any rights, or (iii) exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, if applicable.

(b) The Board of Directors may adopt a resolution prescribing a date upon which the stockholders of record entitled to give written consent must be determined. The date set by the Board of Directors must not precede or be more than ten (10) days after the date the resolution setting such date is adopted by the Board of Directors. If the Board of Directors does not adopt a resolution setting a date upon which the stockholders of record entitled to give written consent must be determined and

(i) no prior action by the Board of Directors is required by the NRS, then the date shall be the first date on which a valid written consent is delivered to the Corporation in accordance with the NRS and these Bylaws; or

(ii) prior action by the Board of Directors is required by the NRS, then the date shall be the close of business on the date that the Board of Directors adopts the resolution.

(c) If no record date is fixed pursuant to Section 2.5(a) or Section 2.5(b) , the record date for determining stockholders: (i) entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (ii) for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at any meeting of stockholders shall apply to any postponement of any meeting of stockholders to a date not more than sixty (60) days after the record date or to any adjournment of the meeting; provided that the Board of Directors may fix a new record date for the adjourned meeting and must fix a new record date if the meeting is adjourned to a date more than 60 days later than the date set for the original meeting.

Section 2.6 Quorum; Adjourned Meetings .

(a) Unless the Articles of Incorporation provide for a different proportion, stockholders holding at least a majority of the voting power of the Corporation’s capital stock, represented in person or by proxy (regardless of whether the proxy has authority to vote on all matters), are necessary to constitute a quorum for the transaction of business at any meeting. If, on any issue, voting by classes or series is required by the laws of the State of Nevada, the Articles of Incorporation or these Bylaws, at least a majority of the voting power, represented in person or by proxy (regardless of whether the proxy has authority to vote on all matters), within each such class or series is necessary to constitute a quorum of each such class or series.

(b) If a quorum is not represented, a majority of the voting power represented or the person presiding at the meeting may adjourn the meeting from time to time until a quorum shall be represented. At any such adjourned meeting at which a quorum shall be represented, any business may be transacted which might otherwise have been transacted at the adjourned meeting as originally called. When a stockholders’ meeting is adjourned to another time or place hereunder, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. However, if a new record date is fixed for the adjourned meeting, notice of the adjourned meeting must be given to each stockholder of record as of the new record date. The stockholders present at a duly convened meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the departure of enough stockholders to leave less than a quorum of the voting power.

Section 2.7 Voting .

(a) Unless otherwise provided in the NRS, the Articles of Incorporation or any resolution providing for the issuance of preferred stock adopted by the Board of Directors pursuant to authority expressly vested in it by the provisions of the Articles of Incorporation, each stockholder of record, or such stockholder’s duly authorized proxy, shall be entitled to one (1) vote for each share of voting stock standing registered in such

stockholder’s name at the close of business on the record date or the date established by the Board of Directors in connection with stockholder action by written consent.

(b) Except as otherwise provided herein, all votes with respect to shares standing in the name of an individual at the close of business on the record date or the date established by the Board of Directors in connection with stockholder action by written consent (including pledged shares) shall be cast only by that individual or such individual’s duly authorized proxy. With respect to shares held by a representative of the estate of a deceased stockholder, or a guardian, conservator, custodian or trustee, even though the shares do not stand in the name of such holder, votes may be cast by such holder upon proof of such representative capacity. In the case of shares under the control of a receiver, the receiver may vote such shares even though the shares do not stand of record in the name of the receiver but only if and to the extent that the order of a court of competent jurisdiction which appoints the receiver contains the authority to vote such shares. If shares stand of record in the name of a minor, votes may be cast by the duly appointed guardian of the estate of such minor only if such guardian has provided the Corporation with written proof of such appointment.

(c) With respect to shares standing of record in the name of another corporation, partnership, limited liability company or other legal entity on the record date, votes may be cast: (i) in the case of a corporation, by such individual as the bylaws of such other corporation prescribe, by such individual as may be appointed by resolution of the board of directors of such other corporation or by such individual (including, without limitation, the officer making the authorization) authorized in writing to do so by the chairman of the board, if any, the chief executive officer, if any, the president or any vice president of such corporation; and (ii) in the case of a partnership, limited liability company or other legal entity, by an individual representing such stockholder upon presentation to the Corporation of satisfactory evidence of his or her authority to do so.

(d) Notwithstanding anything to the contrary contained herein and except for the Corporation’s shares held in a fiduciary capacity, the Corporation shall not vote, directly or indirectly, shares of its own stock owned or held by it, and such shares shall not be counted in determining the total number of outstanding shares entitled to vote.

(e) Any holder of shares entitled to vote on any matter may cast a portion of the votes in favor of such matter and refrain from casting the remaining votes or cast the same against the proposal, except in the case of elections of directors. If such holder entitled to vote does vote any of such stockholder’s shares affirmatively and fails to specify the number of affirmative votes, it will be conclusively presumed that the holder is casting affirmative votes with respect to all shares held.

(f) With respect to shares standing of record in the name of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, husband and wife as community property, tenants by the entirety, voting trustees or otherwise and shares held by two or more persons (including proxy holders) having the same fiduciary relationship in respect to the same shares, votes may be cast in the following manner:

(i) If only one person votes, the vote of such person binds all.

(ii) If more than one person casts votes, the act of the majority so voting binds all.

(iii) If more than one person casts votes, but the vote is evenly split on a particular matter, the votes shall be deemed cast proportionately, as split.

(g) If a quorum is present, unless the Articles of Incorporation, these Bylaws, the NRS, or other applicable law provide for a different proportion, action by the stockholders entitled to vote on a matter, other than the election of directors, is approved by and is the act of the stockholders if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action, unless voting by classes or series is required for any action of the stockholders by the laws of the State of Nevada, the Articles of Incorporation or these Bylaws, in which case the number of votes cast in favor of the action by the voting power of each such class or series must exceed the number of votes cast in opposition to the action by the voting power of each such class or series.

(h) If a quorum is present, directors shall be elected by a plurality of the votes cast.

Section 2.8 Actions at Meetings Not Regularly Called; Ratification and Approval .

(a) Whenever all persons entitled to vote at any meeting consent, either by: (i) a writing on the records of the meeting or filed with the secretary, (ii) presence at such meeting and oral consent entered on the minutes, or (iii) taking part in the deliberations at such meeting without objection, such meeting shall be as valid as if a meeting were regularly called and noticed.

(b) At such meeting any business may be transacted which is not excepted from the written consent or to the consideration of which no objection for want of notice is made at the time.

(c) If any meeting be irregular for want of notice or of such consent, provided a quorum was present at such meeting, the proceedings of the meeting may be ratified and approved and rendered likewise valid and the irregularity or defect therein waived by a writing signed by all parties having the right to vote at such meeting.

(d) Such consent or approval may be by proxy or power of attorney, but all such proxies and powers of attorney must be in writing.

Section 2.9 Proxies . At any meeting of stockholders, any holder of shares entitled to vote may designate, in a manner permitted by the laws of the State of Nevada, another person or persons to act as a proxy or proxies. If a stockholder designates two or more persons to act as proxies, then a majority of those persons present at a meeting has and may

exercise all of the powers conferred by the stockholder or, if only one is present, then that one has and may exercise all of the powers conferred by the stockholder, unless the stockholder’s designation of proxy provides otherwise. Every proxy shall continue in full force and effect until its expiration or revocation in a manner permitted by the laws of the State of Nevada.

Section 2.10 Meetings Through Electronic Communications . Stockholders may participate in a meeting of the stockholders by any means of electronic communications, videoconferencing, teleconferencing or other available technology permitted under the NRS (including, without limitation, a telephone conference or similar method of communication by which all individuals participating in the meeting can hear each other). Participation in a meeting pursuant to this Section 2.10 constitutes presence in person at the meeting.

Section 2.11 Action Without a Meeting . Any action required or permitted to be taken at a meeting of the stockholders may be taken without a meeting if, before or after the action, a written consent thereto is signed by the holders of the voting power that would be required to approve such action at a meeting. A meeting of the stockholders need not be called or noticed whenever action is taken by written consent. The written consent may be signed in multiple counterparts, including, without limitation, facsimile counterparts, and shall be filed with the minutes of the proceedings of the stockholders.

Section 2.12 Organization .

(a) Meetings of stockholders shall be presided over by the chairman of the board, or, in the absence of the chairman, by the vice chairman of the board, if any, or if there be no vice chairman or in the absence of the vice chairman, by the chief executive officer, if any, or if there be no chief executive officer or in the absence of the chief executive officer, by the president, or, in the absence of the president, or, in the absence of any of the foregoing persons, by a chairman designated by the Board of Directors, or, in the absence of such designation by the Board of Directors, by a chairman chosen at the meeting by the stockholders entitled to cast a majority of the votes which all stockholders present in person or by proxy are entitled to cast. The secretary, or in the absence of the secretary an assistant secretary, shall act as secretary of the meeting, but in the absence of the secretary and any assistant secretary the chairman of the meeting may appoint any person to act as secretary of the meeting. The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, (i) the establishment of procedures for the maintenance of order and safety, (ii) limitation on participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies and such other persons as the chairman of the meeting shall permit, (iii) limitation on the time allotted for consideration of each agenda item and for questions or comments by meeting participants, (iv) restrictions on entry to such meeting after the time prescribed for the commencement thereof and (v) the opening and closing of the voting polls. The Board of Directors, in its discretion, or the chairman of the meeting,

in his or her discretion, may require that any votes cast at such meeting shall be cast by written ballot.

(b) The chairman of the meeting may appoint one or more inspectors of elections. The inspector or inspectors may (i) ascertain the number of shares outstanding and the voting power of each; (ii) determine the number of shares represented at a meeting and the validity of proxies or ballots; (iii) count all votes and ballots; (iv) determine any challenges made to any determination made by the inspector(s); and (v) certify the determination of the number of shares represented at the meeting and the count of all votes and ballots.

Section 2.13 Absentees’ Consent to Meetings . Transactions of any meeting of the stockholders are as valid as though had at a meeting duly held after regular call and notice if a quorum is represented, either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not represented in person or by proxy (and those who, although present, either object at the beginning of the meeting to the transaction of any business because the meeting has not been lawfully called or convened or expressly object at the meeting to the consideration of matters not included in the notice which are legally or by the terms of these Bylaws required to be included therein), signs a written waiver of notice and/or consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents, and approvals shall be filed with the corporate records and made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called, noticed or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not properly included in the notice, to the extent such notice is required, if such objection is expressly made at the time any such matters are presented at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of stockholders need be specified in any written waiver of notice or consent, except as otherwise provided in these Bylaws.

ARTICLE III
DIRECTORS

Section 3.1 General Powers; Performance of Duties . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as otherwise provided in Chapter 78 of the NRS or the Articles of Incorporation.

Section 3.2 Number, Tenure, and Qualifications . The Board of Directors shall consist of at least one (1) individual and not more than fifteen (15) individuals. The number of directors within the foregoing fixed minimum and maximum may be established and changed from time to time by resolution adopted by the Board of Directors or the stockholders without amendment to these Bylaws or the Articles of Incorporation. Each director shall hold office until his or her successor shall be elected or appointed and qualified or until his or her earlier death, retirement, disqualification, termination of employment, resignation or removal. No reduction of the number of directors shall have the effect of removing any

director prior to the expiration of his or her term of office. No provision of this Section 3.2 shall restrict the right of the Board of Directors to fill vacancies or the right of the stockholders to remove directors as is hereinafter provided.

Section 3.3 Chairman of the Board . The Board of Directors may elect a chairman of the board from the members of the Board of Directors, who shall preside at all meetings of the Board of Directors and stockholders at which he or she shall be present and shall have and may exercise such powers as may, from time to time, be assigned to him or her by the Board of Directors, these Bylaws or as provided by law. If no chairman of the board is appointed or if the chairman is absent from a Board meeting, then the Board of Directors may appoint a chairman for the sole purpose of presiding at any such meeting. If no chairman of the board is appointed or if the chairman is absent from any stockholder meeting, then the president shall preside at such stockholder meeting. If the president is absent from any stockholder meeting, the stockholders may appoint a substitute chairman solely for the purpose of presiding over such stockholder meeting.

Section 3.4 Removal and Resignation of Directors . Subject to any rights of the holders of preferred stock, if any, and except as otherwise provided in the NRS, any director may be removed from office with or without cause by the affirmative vote of the holders of not less than two-thirds (2/3) of the voting power of the issued and outstanding stock of the Corporation entitled to vote generally in the election of directors (voting as a single class), excluding stock entitled to vote only upon the happening of a fact or event unless such fact or event shall have occurred. Any director may resign effective upon giving written notice, unless the notice specifies a later time for effectiveness of such resignation, to the chairman of the board, if any, the president or the secretary, or in the absence of all of them, any other officer of the Corporation.

Section 3.5 Vacancies; Newly Created Directorships . Subject to any rights of the holders of preferred stock, if any, any vacancies on the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office, or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled by a majority vote of the directors then in office or by a sole remaining director, in either case though less than a quorum, and the director(s) so chosen shall hold office for a term expiring at the next annual meeting of stockholders and when their successors are elected or appointed, at which the term of the class to which he or she has been elected expires, or until his or her earlier resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent directors.

Section 3.6 Annual and Regular Meetings . Immediately following the adjournment of, and at the same place as, the annual or any special meeting of the stockholders at which directors are elected, the Board of Directors, including directors newly elected, shall hold its annual meeting without call or notice, other than this provision, to elect officers and to transact such further business as may be necessary or appropriate. The Board of Directors may provide by resolution the place, date, and hour for holding regular

meetings between annual meetings, and if the Board of Directors so provides with respect to a regular meeting, notice of such regular meeting shall not be required.

Section 3.7 Special Meetings . Subject to any rights of the holders of preferred stock, if any, and except as otherwise required by law, special meetings of the Board of Directors may be called only by the chairman of the board, if any, or if there be no chairman of the board, by the chief executive officer, if any, or by the president or the secretary, and shall be called by the chairman of the board, if any, the chief executive officer, if any, the president, or the secretary upon the request of at least a majority of the Board of Directors. If the chairman of the board, or if there be no chairman of the board, each of the chief executive officer, the president, and the secretary, fails for any reason to call such special meeting, a special meeting may be called by a notice signed by at least a majority of the Board of Directors.

Section 3.8 Place of Meetings . Any regular or special meeting of the Board of Directors may be held at such place as the Board of Directors, or in the absence of such designation, as the notice calling such meeting, may designate. A waiver of notice signed by the directors may designate any place for the holding of such meeting.

Section 3.9 Notice of Meetings . Except as otherwise provided in Section 3.6 , there shall be delivered to each director at the address appearing for him or her on the records of the Corporation, at least twenty-four (24) hours before the time of such meeting, a copy of a written notice of any meeting (a) by delivery of such notice personally, (b) by mailing such notice postage prepaid, (c) by facsimile, (d) by overnight courier, (e) by telegram, or (f) by electronic transmission or electronic writing, including, without limitation, e-mail. If mailed to an address inside the United States, the notice shall be deemed delivered two (2) business days following the date the same is deposited in the United States mail, postage prepaid. If mailed to an address outside the United States, the notice shall be deemed delivered four (4) business days following the date the same is deposited in the United States mail, postage prepaid. If sent via facsimile, by electronic transmission or electronic writing, including, without limitation, e-mail, the notice shall be deemed delivered upon sender’s receipt of confirmation of the successful transmission. If sent via overnight courier, the notice shall be deemed delivered the business day following the delivery of such notice to the courier. If the address of any director is incomplete or does not appear upon the records of the Corporation it will be sufficient to address any notice to such director at the registered office of the Corporation. Any director may waive notice of any meeting, and the attendance of a director at a meeting and oral consent entered on the minutes of such meeting shall constitute waiver of notice of the meeting unless such director objects, prior to the transaction of any business, that the meeting was not lawfully called, noticed or convened. Attendance for the express purpose of objecting to the transaction of business thereat because the meeting was not properly called or convened shall not constitute presence or a waiver of notice for purposes hereof.

Section 3.10 Quorum; Adjourned Meetings .

(a) A majority of the directors in office, at a meeting duly assembled, is necessary to constitute a quorum for the transaction of business.

(b) At any meeting of the Board of Directors where a quorum is not present, a majority of those present may adjourn, from time to time, until a quorum is present, and no notice of such adjournment shall be required. At any adjourned meeting where a quorum is present, any business may be transacted which could have been transacted at the meeting originally called.

Section 3.11 Manner of Acting . Except as provided in Section 3.13 , the affirmative vote of a majority of the directors present at a meeting at which a quorum is present is the act of the Board of Directors.

Section 3.12 Meetings Through Electronic Communications . Members of the Board of Directors or of any committee designated by the Board of Directors may participate in a meeting of the Board of Directors or such committee by any means of electronic communications, videoconferencing, teleconferencing or other available technology permitted under the NRS (including, without limitation, a telephone conference or similar method of communication by which all individuals participating in the meeting can hear each other). Participation in a meeting pursuant to this Section 3.12 constitutes presence in person at the meeting

Section 3.13 Action Without Meeting . Any action required or permitted to be taken at a meeting of the Board of Directors or of a committee thereof may be taken without a meeting if, before or after the action, a written consent thereto is signed by all of the members of the Board of Directors or the committee. The written consent may be signed manually or electronically (or by any other means then permitted under the NRS), and may be so signed in counterparts, including, without limitation, facsimile or email counterparts, and shall be filed with the minutes of the proceedings of the Board of Directors or committee.

Section 3.14 Powers and Duties .

(a) Except as otherwise restricted by Chapter 78 of the NRS or the Articles of Incorporation, the Board of Directors has full control over the business and affairs of the Corporation. The Board of Directors may delegate any of its authority to manage, control or conduct the business of the Corporation to any standing or special committee, or to any officer or agent, and to appoint any persons to be agents of the Corporation with such powers, including the power to subdelegate, and upon such terms as it deems fit.

(b) The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his or her discretion, may submit any contract or act for approval or ratification at any annual meeting of the stockholders or any special meeting properly called and noticed for the purpose of considering any such contract or act, provided a quorum is present.

(c) The Board of Directors may, by resolution passed by at least a majority of the Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Subject to applicable law and to the extent provided in the resolution of the Board of Directors, any such committee shall have and may exercise all the powers of the Board of Directors in the management of the business and affairs of the Corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. The committees shall keep regular minutes of their proceedings and report the same to the Board of Directors when required.

Section 3.15 Compensation . The Board of Directors, without regard to personal interest, may establish the compensation of directors for services in any capacity. If the Board of Directors establishes the compensation of directors pursuant to this Section 3.15 , such compensation is presumed to be fair to the Corporation unless proven unfair by a preponderance of the evidence.

Section 3.16 Organization . Meetings of the Board of Directors shall be presided over by the chairman of the board, or in the absence of the chairman of the board by the vice chairman, if any, or in his or her absence by a chairman chosen at the meeting. The secretary, or in the absence, of the secretary an assistant secretary, shall act as secretary of the meeting, but in the absence of the secretary and any assistant secretary, the chairman of the meeting may appoint any person to act as secretary of the meeting. The order of business at each such meeting shall be as determined by the chairman of the meeting.

ARTICLE IV
OFFICERS

Section 4.1 Election . The Board of Directors shall elect or appoint a president, a secretary and a treasurer or the equivalents of such officers. Such officers shall serve until their respective successors are elected and appointed and shall qualify or until their earlier termination of employment, resignation or removal. The Board of Directors may from time to time, by resolution, elect or appoint such other officers and agents as it may deem advisable, who shall hold office at the pleasure of the Board of Directors, and shall have such powers and duties and be paid such compensation as may be directed by the Board of Directors. Any individual may hold two or more offices.

Section 4.2 Removal; Resignation . Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors with or without cause. Any officer may resign at any time upon written notice to the Corporation. Any such removal

or resignation shall be subject to the rights, if any, of the respective parties under any contract between the Corporation and such officer or agent.

Section 4.3 Vacancies . Any vacancy in any office because of death, resignation, removal or otherwise may be filled by the Board of Directors for the unexpired portion of the term of such office.

Section 4.4 Chief Executive Officer . The Board of Directors may elect a chief executive officer who, subject to the supervision and control of the Board of Directors, shall have such duties and powers which are delegated to him or her by the Board of Directors. Except as expressly delegated by the board, the chief executive officer shall not be authorized to take any action that would create a binding obligation of the Company.

Section 4.5 President . The president, subject to the supervision and control of the Board of Directors, shall in general actively supervise and control the business and affairs of the Corporation. The president shall keep the Board of Directors fully informed as the Board of Directors may request and shall consult the Board of Directors concerning the business of the Corporation. The president shall perform such other duties and have such other powers which are delegated and assigned to him or her by the Board of Directors, the chief executive officer, if any, these Bylaws or as provided by law. The president shall be the chief executive officer of the Corporation unless the Board of Directors shall elect or appoint different individuals to hold such positions.

Section 4.6 Vice Presidents . The Board of Directors may elect one or more vice presidents. In the absence or disability of the president, or at the president’s request, the vice president or vice presidents, in order of their rank as fixed by the Board of Directors, and if not ranked, the vice presidents in the order designated by the Board of Directors, or in the absence of such designation, in the order designated by the president, shall perform all of the duties of the president, and when so acting, shall have all the powers of, and be subject to all the restrictions on the president. Each vice president shall perform such other duties and have such other powers which are delegated and assigned to him or her by the Board of Directors, the president, these Bylaws or as provided by law.

Section 4.7 Secretary . The secretary shall attend all meetings of the stockholders, the Board of Directors and any committees thereof, and shall keep, or cause to be kept, the minutes of proceedings thereof in books provided for that purpose. He or she shall keep, or cause to be kept, a register of the stockholders of the Corporation and shall be responsible for the giving of notice of meetings of the stockholders, the Board of Directors and any committees, and shall see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law. The secretary shall be custodian of the corporate seal, if any, the records of the Corporation, the stock certificate books, transfer books and stock ledgers, and such other books and papers as the Board of Directors or any appropriate committee may direct. The secretary shall perform all other duties commonly incident to his or her office and shall perform such other duties which are assigned to him or her by the Board of Directors, the chief executive officer, if any, the president, these Bylaws or as provided by law.

Section 4.8 Assistant Secretaries . An assistant secretary shall, at the request of the secretary, or in the absence or disability of the secretary, perform all the duties of the secretary. He or she shall perform such other duties as are assigned to him or her by the Board of Directors, the chief executive officer, if any, the president, these Bylaws or as provided by law.

Section 4.9 Treasurer . The treasurer, subject to the order of the Board of Directors, shall have the care and custody of, and be responsible for, all of the money, funds, securities, receipts and valuable papers, documents and instruments of the Corporation, and all books and records relating thereto. The treasurer shall keep, or cause to be kept, full and accurate books of accounts of the Corporation’s transactions, which shall be the property of the Corporation, and shall render financial reports and statements of condition of the Corporation when so requested by the Board of Directors, the chairman of the board, if any, the chief executive officer, if any, or the president. The treasurer shall perform all other duties commonly incident to his or her office and such other duties as may, from time to time, be assigned to him or her by the Board of Directors, the chief executive officer, if any, the president, these Bylaws or as provided by law. The treasurer shall, if required by the Board of Directors, give bond to the Corporation in such sum and with such security as shall be approved by the Board of Directors for the faithful performance of all the duties of the treasurer and for restoration to the Corporation, in the event of the treasurer’s death, resignation, retirement or removal from office, of all books, records, papers, vouchers, money and other property in the treasurer’s custody or control and belonging to the Corporation. The expense of such bond shall be borne by the Corporation. If a chief financial officer of the Corporation has not been appointed, the treasurer may be deemed the chief financial officer of the Corporation.

Section 4.10 Assistant Treasurers . An assistant treasurer shall, at the request of the treasurer, or in the absence or disability of the treasurer, perform all the duties of the treasurer. He or she shall perform such other duties which are assigned to him or her by the Board of Directors, the chief executive officer, if any, the president, the treasurer, these Bylaws or as provided by law. The Board of Directors may require an assistant treasurer to give a bond to the Corporation in such sum and with such security as it may approve, for the faithful performance of the duties of the assistant treasurer, and for restoration to the Corporation, in the event of the assistant treasurer’s death, resignation, retirement or removal from office, of all books, records, papers, vouchers, money and other property in the assistant treasurer’s custody or control and belonging to the Corporation. The expense of such bond shall be borne by the Corporation.

Section 4.11 Execution of Negotiable Instruments, Deeds and Contracts . All (a) checks, drafts, notes, bonds, bills of exchange, and orders for the payment of money of the Corporation, (b) deeds, mortgages, proxies, powers of attorney and other written contracts, documents, instruments and agreements to which the Corporation shall be a party and (c) assignments or endorsements of stock certificates, registered bonds or other securities owned by the Corporation shall be signed in the name of the Corporation by such officers or other persons as the Board of Directors may from time to time designate. The Board of Directors

may authorize the use of the facsimile signatures of any such persons. Any officer of the Corporation shall be authorized to attend, act and vote, or designate another officer or an agent of the Corporation to attend, act and vote, at any meeting of the owners of any entity in which the Corporation may own an interest or to take action by written consent in lieu thereof. Such officer or agent, at any such meeting or by such written action, shall possess and may exercise on behalf of the Corporation any and all rights and powers incident to the ownership of such interest.

ARTICLE V
CAPITAL STOCK

Section 5.1 Issuance . Shares of the Corporation’s authorized capital stock shall, subject to any provisions or limitations of the laws of the State of Nevada, the Articles of Incorporation or any contracts or agreements to which the Corporation may be a party, be issued in such manner, at such times, upon such conditions and for such consideration as shall be prescribed by the Board of Directors.

Section 5.2 Stock Certificates and Uncertificated Shares .

(a) Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation by (i) the chief executive officer, if any, the president or a vice president, and (ii) the secretary, an assistant secretary, the treasurer or the chief financial officer, if any, of the Corporation (or any other two officers or agents so authorized by the Board of Directors), certifying the number of shares of stock owned by him, her or it in the Corporation; provided that the Board of Directors may authorize the issuance of uncertificated shares of some or all of any or all classes or series of the Corporation’s stock. Any such issuance of uncertificated shares shall have no effect on existing certificates for shares until such certificates are surrendered to the Corporation, or on the respective rights and obligations of the stockholders. Whenever any such certificate is countersigned or otherwise authenticated by a transfer agent or a transfer clerk and by a registrar (other than the Corporation), then a facsimile of the signatures of any corporate officers or agents, the transfer agent, transfer clerk or the registrar of the Corporation may be printed or lithographed upon the certificate in lieu of the actual signatures. In the event that any officer or officers who have signed, or whose facsimile signatures have been used on any certificate or certificates for stock cease to be an officer or officers because of death, resignation or other reason, before the certificate or certificates for stock have been delivered by the Corporation, the certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed the certificate or certificates, or whose facsimile signature or signatures have been used thereon, had not ceased to be an officer or officers of the Corporation.

(b) Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall send to the registered owner thereof a written statement certifying the number and class (and the designation of the series, if any) of the shares owned by such stockholder in the Corporation and any restrictions on the transfer or registration of such shares imposed by the Articles of Incorporation, these Bylaws, any

agreement among stockholders or any agreement between the stockholders and the Corporation, and, at least annually thereafter, the Corporation shall provide to such stockholders of record holding uncertificated shares, a written statement confirming the information contained in such written statement previously sent. Except as otherwise expressly provided by the NRS, the rights and obligations of the stockholders of the Corporation shall be identical whether or not their shares of stock are represented by certificates.

(c) Each certificate representing shares shall state the following upon the face thereof: the name of the state of the Corporation’s organization; the name of the person to whom issued; the number and class of shares and the designation of the series, if any, which such certificate represents; the par value of each share, if any, represented by such certificate or a statement that the shares are without par value. Certificates of stock shall be in such form consistent with law as shall be prescribed by the Board of Directors. No certificate shall be issued until the shares represented thereby are fully paid. In addition to the foregoing, all certificates evidencing shares of the Corporation’s stock or other securities issued by the Corporation shall contain such legend or legends as may from time to time be required by the NRS or such other federal, state or local laws or regulations then in effect.

Section 5.3 Surrendered; Lost or Destroyed Certificates . All certificates surrendered to the Corporation, except those representing shares of treasury stock, shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been canceled, except that in case of a lost, stolen, destroyed or mutilated certificate, a new one may be issued therefor. However, any stockholder applying for the issuance of a stock certificate in lieu of one alleged to have been lost, stolen, destroyed or mutilated shall, prior to the issuance of a replacement, provide the Corporation with his, her or its affidavit of the facts surrounding the loss, theft, destruction or mutilation and, if required by the Board of Directors, an indemnity bond in an amount not less than twice the current market value of the stock, and upon such terms as the treasurer or the Board of Directors shall require which shall indemnify the Corporation against any loss, damage, cost or inconvenience arising as a consequence of the issuance of a replacement certificate.

Section 5.4 Replacement Certificate . When the Articles of Incorporation are amended in any way affecting the statements contained in the certificates for outstanding shares of capital stock of the Corporation or it becomes desirable for any reason, in the discretion of the Board of Directors, including, without limitation, the merger of the Corporation with another Corporation or the conversion or reorganization of the Corporation, to cancel any outstanding certificate for shares and issue a new certificate therefor conforming to the rights of the holder, the Board of Directors may order any holders of outstanding certificates for shares to surrender and exchange the same for new certificates within a reasonable time to be fixed by the Board of Directors. The order may provide that a holder of any certificate(s) ordered to be surrendered shall not be entitled to vote, receive distributions or exercise any other rights of stockholders of record until the holder has complied with the order, but the order operates to suspend such rights only after notice and until compliance.

Section 5.5 Transfer of Shares . No transfer of stock shall be valid as against the Corporation except on surrender and cancellation of any certificate(s) therefor accompanied by an assignment or transfer by the registered owner made either in person or under assignment. Upon receipt of proper transfer instructions from the registered owner of uncertificated shares, such uncertificated shares shall be cancelled and issuance of new, equivalent uncertificated shares or certificated shares shall be made to the stockholder entitled thereto and the transaction shall be recorded on the transfer books of the Corporation. Whenever any transfer shall be expressly made for collateral security and not absolutely, the collateral nature of the transfer shall be reflected in the entry of transfer in the records of the Corporation.

Section 5.6 Transfer Agent; Registrars . The Board of Directors may appoint one or more transfer agents, transfer clerks and registrars of transfer and may require all certificates for shares of stock to bear the signature of such transfer agents, transfer clerks and/or registrars of transfer.

Section 5.7 Miscellaneous . The Board of Directors shall have the power and authority to make such rules and regulations not inconsistent herewith as it may deem expedient concerning the issue, transfer, and registration of certificates for shares of the Corporation’s stock.

ARTICLE VI
DISTRIBUTIONS

Distributions may be declared, subject to the provisions of the laws of the State of Nevada and the Articles of Incorporation, by the Board of Directors and may be paid in cash, property, shares of corporate stock, or any other medium. The Board of Directors may fix in advance a record date, in accordance with and as provided in Section 2.5 , prior to the distribution for the purpose of determining stockholders entitled to receive any distribution.

ARTICLE VII
RECORDS; REPORTS; SEAL; AND FINANCIAL MATTERS

Section 7.1 Records . All original records of the Corporation, shall be kept at the principal office of the Corporation by or under the direction of the secretary or at such other place or by such other person as may be prescribed by these Bylaws or the Board of Directors.

Section 7.2 Corporate Seal . The Board of Directors may, by resolution, authorize a seal, and the seal may be used by causing it, or a facsimile, to be impressed or affixed or reproduced or otherwise. Except when otherwise specifically provided herein, any officer of the Corporation shall have the authority to affix the seal to any document requiring it.

Section 7.3 Fiscal Year-End . The fiscal year-end of the Corporation shall be such date as may be fixed from time to time by resolution of the Board of Directors.

Section 7.4 Reserves . The Board of Directors may create, by resolution, such reserves as the directors may, from time to time, in their discretion, deem proper to provide for contingencies, to equalize distributions or to repair or maintain any property of the Corporation, or for such other purpose as the Board of Directors may deem beneficial to the Corporation, and the Board of Directors may modify or abolish any such reserves in the manner in which they were created.

ARTICLE VIII
INDEMNIFICATION

Section 8.1 Indemnification and Insurance .

(a) Indemnification of Directors and Officers.

(i) For purposes of this Article VIII , (A) “ Indemnitee ” shall mean each director or officer who was or is a party to, or is threatened to be made a party to, or is otherwise involved in, any Proceeding (as hereinafter defined), by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was serving in any capacity at the request of the Corporation as a director, officer, employee, agent, partner, member, manager or fiduciary of, or in any other capacity for, another corporation or any partnership, joint venture, limited liability company, trust, or other enterprise; and (B) “ Proceeding ” shall mean any threatened, pending, or completed action, suit or proceeding (including, without limitation, an action, suit or proceeding by or in the right of the Corporation), whether civil, criminal, administrative or investigative.

(ii) Each Indemnitee shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the laws of the State of Nevada against all expense, liability and loss (including, without limitation, attorneys’ fees, judgments, fines, taxes, penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Indemnitee in connection with any Proceeding; provided that such Indemnitee either is not liable pursuant to NRS 78.138 or acted in good faith and in a manner such Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any Proceeding that is criminal in nature, had no reasonable cause to believe that his or her conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the Indemnitee is liable pursuant to NRS 78.138 or did not act in good faith and in a manner in which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, or that, with respect to any criminal proceeding, he or she had reasonable cause to believe that his or her conduct was unlawful. The Corporation shall not indemnify an Indemnitee for any claim, issue or matter as to which the Indemnitee has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the Corporation or for any amounts paid in settlement to the Corporation, unless and only to the extent that the court in which the Proceeding was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such amounts as the court deems proper. Except as so ordered by a court and

for advancement of expenses pursuant to this Section 8.1 , indemnification may not be made to or on behalf of an Indemnitee if a final adjudication establishes that his or her acts or omissions involved intentional misconduct, fraud or a knowing violation of law and was material to the cause of action. Notwithstanding anything to the contrary contained in these Bylaws, no director or officer may be indemnified for expenses incurred in defending any threatened, pending, or completed action, suit or proceeding (including without limitation, an action, suit or proceeding by or in the right of the Corporation), whether civil, criminal, administrative or investigative, that such director or officer incurred in his or her capacity as a stockholder.

(iii) Indemnification pursuant to this Section 8.1 shall continue as to an Indemnitee who has ceased to be a director or officer of the Corporation, or a director, officer, employee, agent, partner, member, manager or fiduciary of, or to serve in any other capacity for, another corporation or any partnership, joint venture, limited liability company, trust, or other enterprise and shall inure to the benefit of his or her heirs, executors and administrators.

(iv) The expenses of Indemnitees must be paid by the Corporation or through insurance purchased and maintained by the Corporation or through other financial arrangements made by the Corporation, as such expenses are incurred and in advance of the final disposition of the Proceeding, upon receipt of an undertaking by or on behalf of such Indemnitee to repay the amount if it is ultimately determined by a court of competent jurisdiction that he or she is not entitled to be indemnified by the Corporation. To the extent that an Indemnitee is successful on the merits or otherwise in defense of any Proceeding, or in the defense of any claim, issue or matter therein, the Corporation shall indemnify him or her against expenses, including attorneys’ fees, actually and reasonably incurred in by him or her in connection with the defense.

(b) Indemnification of Employees and Other Persons . The Corporation may, by action of its Board of Directors and to the extent provided in such action, indemnify employees and other persons as though they were Indemnitees.

(c) Non-Exclusivity of Rights . The rights to indemnification provided in this Article VIII shall not be exclusive of any other rights that any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation or these Bylaws, agreement, vote of stockholders or directors, or otherwise.

(d) Insurance . The Corporation may purchase and maintain insurance or make other financial arrangements on behalf of any Indemnitee for any liability asserted against him or her and liability and expenses incurred by him or her in his or her capacity as a director, officer, employee, member, managing member or agent, or arising out of his or her status as such, whether or not the Corporation has the authority to indemnify him or her against such liability and expenses.

(e) Other Financial Arrangements . The other financial arrangements which may be made by the Corporation may include the following: (i) the creation of a trust

fund; (ii) the establishment of a program of self-insurance; (iii) the securing of its obligation of indemnification by granting a security interest or other lien on any assets of the Corporation; and (iv) the establishment of a letter of credit, guarantee or surety. No financial arrangement made pursuant to this subsection may provide protection for a person adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable for intentional misconduct, fraud, or a knowing violation of law, except with respect to advancement of expenses or indemnification ordered by a court.

(f) Other Matters Relating to Insurance or Financial Arrangements . Any insurance or other financial arrangement made on behalf of a person pursuant to this Section 8.1 may be provided by the Corporation or any other person approved by the Board of Directors, even if all or part of the other person’s stock or other securities is owned by the Corporation. In the absence of fraud, (i) the decision of the Board of Directors as to the propriety of the terms and conditions of any insurance or other financial arrangement made pursuant to this Section 8.1 and the choice of the person to provide the insurance or other financial arrangement is conclusive; and (ii) the insurance or other financial arrangement is not void or voidable and does not subject any director approving it to personal liability for his action; even if a director approving the insurance or other financial arrangement is a beneficiary of the insurance or other financial arrangement.

Section 8.2 Amendment . The provisions of this Article VIII relating to indemnification shall constitute a contract between the Corporation and each of its directors and officers which may be modified as to any director or officer only with that person’s consent or as specifically provided in this Section 8.2 . Notwithstanding any other provision of these Bylaws relating to their amendment generally, any repeal or amendment of this Article VIII which is adverse to any director or officer shall apply to such director or officer only on a prospective basis, and shall not limit the rights of an Indemnitee to indemnification with respect to any action or failure to act occurring prior to the time of such repeal or amendment. Notwithstanding any other provision of these Bylaws (including, without limitation, Article X ), no repeal or amendment of these Bylaws shall affect any or all of this Article VIII so as to limit or reduce the indemnification in any manner unless adopted by (i) the unanimous vote of the directors of the Corporation then serving, or (ii) by the stockholders as set forth in Article X ; provided that no such amendment shall have a retroactive effect inconsistent with the preceding sentence.

ARTICLE IX
CHANGES IN NEVADA LAW

References in these Bylaws to the laws of the State of Nevada or the NRS or to any provision thereof shall be to such law as it existed on the date these Bylaws were adopted or as such law thereafter may be changed; provided that (i) in the case of any change which expands the liability of directors or officers or limits the indemnification rights or the rights to advancement of expenses which the Corporation may provide in Article VIII , the rights to limited liability, to indemnification and to the advancement of expenses provided in the Articles of Incorporation and/or these Bylaws shall continue as theretofore to the extent

permitted by law and (ii) if such change permits the Corporation, without the requirement of any further action by stockholders or directors, to limit further the liability of directors or limit the liability of officers or to provide broader indemnification rights or rights to the advancement of expenses than the Corporation was permitted to provide prior to such change, then liability thereupon shall be so limited and the rights to indemnification and the advancement of expenses shall be so broadened to the extent permitted by law.

ARTICLE X
AMENDMENT OR REPEAL

Section 10.1 Amendment of Bylaws .

(a) Board of Directors . In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to amend or repeal these Bylaws or to adopt new bylaws.

(b) Stockholders . Notwithstanding Section 10.1(a) , these Bylaws may be amended or repealed in any respect, and new bylaws may be adopted, in each case by the affirmative vote of the holders of at least a majority of the outstanding voting power of the Corporation, voting together as a single class.

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EXHIBIT 3.2

AMENDED AND RESTATED BYLAWS

SIERRA PACIFIC POWER COMPANY

a Nevada corporation

ARTICLE I
OFFICES

Section 1.1 Principal Office . The principal office and place of business of Sierra Pacific Power Company, a Nevada corporation (the “ Corporation ”), shall be established from time to time by resolution of the board of directors of the Corporation (the “ Board of Directors ”).