BERKSHIRE HATHAWAY ENERGY CO (Form: 10-Q, Received: 08/06/2018 07:29:43)

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 June 30, 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 July 31, 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 July 31, 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 July 31, 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 July 31, 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 July 31, 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 July 31, 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	160
Item 4.	Controls and Procedures	160

PART II



Item 1.	Legal Proceedings	161
Item 1A.	Risk Factors	161
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	161
Item 3.	Defaults Upon Senior Securities	161
Item 4.	Mine Safety Disclosures	161
Item 5.	Other Information	161
Item 6.	Exhibits	161
Signatures		165

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
PCAM		Power Cost Adjustment Mechanism
PUCN		Public Utilities Commission of Nevada
REC		Renewable Energy Credit
RPS		Renewable Portfolio Standards
RRA		Renewable Energy Credit and Sulfur Dioxide Revenue Adjustment Mechanism
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;

iii


•	changes in business strategy or development plans;


•	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		54
Consolidated Balance Sheets		55
Consolidated Statements of Operations		57
Consolidated Statements of Changes in Shareholders' Equity		58
Consolidated Statements of Cash Flows		59
Notes to Consolidated Financial Statements		60
MidAmerican Energy Company
Report of Independent Registered Public Accounting Firm		81
Balance Sheets		82
Statements of Operations		84
Statements of Changes in Shareholder's Equity		85
Statements of Cash Flows		86
Notes to Financial Statements		87
MidAmerican Funding, LLC and its subsidiaries
Report of Independent Registered Public Accounting Firm		97
Consolidated Balance Sheets		98
Consolidated Statements of Operations		100
Consolidated Statements of Changes in Member's Equity		101
Consolidated Statements of Cash Flows		102
Notes to Consolidated Financial Statements		103
Nevada Power Company and its subsidiaries
Report of Independent Registered Public Accounting Firm		119
Consolidated Balance Sheets		120
Consolidated Statements of Operations		121
Consolidated Statements of Changes in Shareholder's Equity		122
Consolidated Statements of Cash Flows		123
Notes to Consolidated Financial Statements		124
Sierra Pacific Power Company and its subsidiaries
Report of Independent Registered Public Accounting Firm		140
Consolidated Balance Sheets		141
Consolidated Statements of Operations		142
Consolidated Statements of Changes in Shareholder's Equity		143
Consolidated Statements of Cash Flows		144
Notes to Consolidated Financial Statements		145


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



Berkshire Hathaway Energy Company and its subsidiaries		30
PacifiCorp and its subsidiaries		72
MidAmerican Funding, LLC and its subsidiaries and MidAmerican Energy Company		107
Nevada Power Company and its subsidiaries		132
Sierra Pacific Power Company and its subsidiaries		153

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 June 30, 2018 , the related consolidated statements of operations and comprehensive income for the three-month and six-month periods ended June 30, 2018 and 2017 , and of changes in equity and cash flows for the six-month periods ended June 30, 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 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

August 3, 2018

BERKSHIRE HATHAWAY ENERGY COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Amounts in millions)



	As of
	June 30,		December 31,
	2018		2017
ASSETS
Current assets:
Cash and cash equivalents	$	1,224	$	935
Restricted cash and cash equivalents	297		327
Trade receivables, net	1,966		2,014
Income tax receivable	123		334
Inventories	860		888
Mortgage loans held for sale	763		465
Other current assets	881		815
Total current assets	6,114		5,778

Property, plant and equipment, net	66,709		65,871
Goodwill	9,670		9,678
Regulatory assets	2,783		2,761
Investments and restricted cash and cash equivalents and investments	4,404		4,872
Other assets	1,261		1,248

Total assets	$	90,941	$	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
	June 30,			December 31,
	2018			2017
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,189		$	1,519
Accrued interest	516			488
Accrued property, income and other taxes	413			354
Accrued employee expenses	356			274
Short-term debt	3,424			4,488
Current portion of long-term debt	3,358			3,431
Other current liabilities	1,152			1,049
Total current liabilities	10,408			11,603

BHE senior debt	7,629			5,452
BHE junior subordinated debentures	100			100
Subsidiary debt	25,620			26,210
Regulatory liabilities	7,496			7,309
Deferred income taxes	8,592			8,242
Other long-term liabilities	2,792			2,984
Total liabilities	62,637			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	6,358			6,368
Long-term income tax receivable	(494		)	—
Retained earnings	23,976			22,206
Accumulated other comprehensive loss, net	(1,665		)	(398		)
Total BHE shareholders' equity	28,175			28,176
Noncontrolling interests	129			132
Total equity	28,304			28,308

Total liabilities and equity	$	90,941		$	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						Six-Month Periods
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017
Operating revenue:
Energy	$	3,720		$	3,598		$	7,399		$	7,179
Real estate	1,273			956			2,034			1,541
Total operating revenue	4,993			4,554			9,433			8,720

Operating expenses:
Energy:
Cost of sales	1,126			1,049			2,294			2,168
Operations and maintenance	849			817			1,633			1,562
Depreciation and amortization	739			660			1,443			1,270
Property and other taxes	142			137			286			279
Real estate	1,165			846			1,934			1,429
Total operating expenses	4,021			3,509			7,590			6,708

Operating income	972			1,045			1,843			2,012

Other income (expense):
Interest expense	(461		)	(457		)	(927		)	(915		)
Capitalized interest	15			10			27			20
Allowance for equity funds	24			18			45			35
Interest and dividend income	32			27			58			53
(Losses) gains on marketable securities, net	(387		)	2			(596		)	5
Other, net	1			(1		)	31			25
Total other income (expense)	(776		)	(401		)	(1,362		)	(777		)

Income before income tax (benefit) expense and equity income	196			644			481			1,235
Income tax (benefit) expense	(168		)	83			(389		)	135
Equity income	14			26			26			50
Net income	378			587			896			1,150
Net income attributable to noncontrolling interests	6			13			11			20
Net income attributable to BHE shareholders	$	372		$	574		$	885		$	1,130

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						Six-Month Periods
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017

Net income	$	378		$	587		$	896		$	1,150

Other comprehensive income, net of tax:
Unrecognized amounts on retirement benefits, net of tax of $16, $(3), $12 and $(4)	54			(4		)	51			1
Foreign currency translation adjustment	(307		)	221			(234		)	308
Unrealized gains on marketable securities, net of tax of $-, $53, $- and $71	—			81			—			119
Unrealized gains (losses) on cash flow hedges, net of tax of $1, $(2), $- and $(4)	3			(2		)	1			(6		)
Total other comprehensive (loss) income, net of tax	(250		)	296			(182		)	422

Comprehensive income	128			883			714			1,572
Comprehensive income attributable to noncontrolling interests	6			13			11			20
Comprehensive income attributable to BHE shareholders	$	122		$	870		$	703		$	1,552

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
							Long-term						Accumulated
				Additional			Income						Other
	Common			Paid-in			Tax			Retained			Comprehensive			Noncontrolling			Total
	Shares	Stock		Capital			Receivable			Earnings			Loss, Net			Interests			Equity

Balance, December 31, 2016	77	$	—	$	6,390		$	—		$	19,448		$	(1,511	)	$	136		$	24,463
Net income	—	—		—			—			1,130			—			9			1,139
Other comprehensive income	—	—		—			—			—			422			—			422
Common stock purchases	—	—		(1		)	—			(18		)	—			—			(19		)
Common stock exchange	—	—		(6		)	—			(94		)	—			—			(100		)
Distributions	—	—		—			—			—			—			(12		)	(12		)
Other equity transactions	—	—		(21		)	—			1			—			(3		)	(23		)
Balance, June 30, 2017	77	$	—	$	6,362		$	—		$	20,467		$	(1,089	)	$	130		$	25,870

Balance, December 31, 2017	77	$	—	$	6,368		$	—		$	22,206		$	(398	)	$	132		$	28,308
Adoption of ASU 2016-01	—	—		—			—			1,085			(1,085		)	—			—
Net income	—	—		—			—			885			—			8			893
Other comprehensive loss	—	—		—			—			—			(182		)	—			(182		)
Reclassification of long-term income tax receivable	—	—		—			(609		)	—			—			—			(609		)
Long-term income tax receivable adjustments	—	—		—			115			(115		)	—			—			—
Common stock purchases	—	—		(5		)	—			(85		)	—			—			(90		)
Distributions	—	—		—			—			—			—			(12		)	(12		)
Other equity transactions	—	—		(5		)	—			—			—			1			(4		)
Balance, June 30, 2018	77	$	—	$	6,358		$	(494	)	$	23,976		$	(1,665	)	$	129		$	28,304

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)



	Six-Month Periods
	Ended June 30,
	2018			2017
Cash flows from operating activities:
Net income	$	896		$	1,150
Adjustments to reconcile net income to net cash flows from operating activities:
Losses (gains) on marketable securities, net	596			(5		)
Depreciation and amortization	1,466			1,292
Allowance for equity funds	(45		)	(35		)
Equity income, net of distributions	1			(9		)
Changes in regulatory assets and liabilities	206			21
Deferred income taxes and amortization of investment tax credits	(264		)	341
Other, net	26			8
Changes in other operating assets and liabilities, net of effects from acquisitions:
Trade receivables and other assets	(226		)	(73		)
Derivative collateral, net	(5		)	(13		)
Pension and other postretirement benefit plans	(23		)	(25		)
Accrued property, income and other taxes, net	174			(244		)
Accounts payable and other liabilities	16			20
Net cash flows from operating activities	2,818			2,428

Cash flows from investing activities:
Capital expenditures	(2,779		)	(1,813		)
Acquisitions, net of cash acquired	(107		)	(588		)
Purchases of marketable securities	(209		)	(122		)
Proceeds from sales of marketable securities	184			127
Equity method investments	(151		)	(79		)
Other, net	43			(6		)
Net cash flows from investing activities	(3,019		)	(2,481		)

Cash flows from financing activities:
Proceeds from BHE senior debt	2,176			—
Repayments of BHE senior debt and junior subordinated debentures	(650		)	(950		)
Common stock purchases	(90		)	(19		)
Proceeds from subsidiary debt	1,313			1,163
Repayments of subsidiary debt	(1,082		)	(668		)
Net (repayments of) proceeds from short-term debt	(1,048		)	617
Purchase of redeemable noncontrolling interest	(131		)	—
Other, net	(23		)	(31		)
Net cash flows from financing activities	465			112

Effect of exchange rate changes	(3		)	3

Net change in cash and cash equivalents and restricted cash and cash equivalents	261			62
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	$	1,544		$	1,065

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 June 30, 2018 and for the three- and six-month periods ended June 30, 2018 and 2017 . The results of operations for the three- and six-month periods ended June 30, 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 six-month period ended June 30, 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 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

The Company completed various acquisitions totaling $107 million , net of cash acquired, for the six-month period ended June 30, 2018 . The purchase price for each acquisition was allocated to the assets acquired and liabilities assumed, which primarily related to residential real estate brokerage businesses. There were no other material assets acquired or liabilities assumed. Additionally, 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 price totaling $131 million .

The Company completed various acquisitions totaling $588 million , net of cash acquired, for the six-month period ended June 30, 2017. The purchase price for each acquisition was allocated to the assets acquired and liabilities assumed, which primarily related 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	June 30,			December 31,
	Life	2018			2017
Regulated assets:
Utility generation, transmission and distribution systems	5-80 years	$	74,975		$	74,660
Interstate natural gas pipeline assets	3-80 years	7,240			7,176
		82,215			81,836
Accumulated depreciation and amortization		(25,155		)	(24,478		)
Regulated assets, net		57,060			57,358

Nonregulated assets:
Independent power plants	5-30 years	6,553			6,010
Other assets	3-30 years	1,589			1,489
		8,142			7,499
Accumulated depreciation and amortization		(1,697		)	(1,542		)
Nonregulated assets, net		6,445			5,957

Net operating assets		63,505			63,315
Construction work-in-progress		3,204			2,556
Property, plant and equipment, net		$	66,709		$	65,871

Construction work-in-progress includes $2.8 billion as of June 30, 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
	June 30,		December 31,
	2018		2017
Investments:
BYD Company Limited common stock	$	1,364	$	1,961
Rabbi trusts	387		441
Other	186		124
Total investments	1,937		2,526

Equity method investments:
BHE Renewables tax equity investments	1,159		1,025
Electric Transmission Texas, LLC	535		524
Bridger Coal Company	124		137
Other	149		148
Total equity method investments	1,967		1,834

Restricted cash and cash equivalents and investments:
Quad Cities Station nuclear decommissioning trust funds	522		515
Restricted cash and cash equivalents	320		348
Total restricted cash and cash equivalents and investments	842		863

Total investments and restricted cash and cash equivalents and investments	$	4,746	$	5,223

Reflected as:
Current assets	$	342	$	351
Noncurrent assets	4,404		4,872
Total investments and restricted cash and cash equivalents and investments	$	4,746	$	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 related to investments still held as of June 30, 2018 is calculated as follows (in millions):



	Three-Month Period			Six-Month Period
	Ended June 30,			Ended June 30,
	2018			2018
Losses on marketable securities recognized during the period	$	(387	)	$	(596	)
Less: Net (losses) gains recognized during the period on marketable securities sold during the period	(1		)	1
Unrealized losses recognized during the period on marketable securities still held at the reporting date	$	(386	)	$	(597	)

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 $14 million previously recognized within investing cash flows to operating cash flows for the six-month period ended June 30, 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 June 30, 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 June 30, 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
	June 30,		December 31,
	2018		2017
Cash and cash equivalents	$	1,224	$	935
Restricted cash and cash equivalents	297		327
Investments and restricted cash and cash equivalents and investments	23		21
Total cash and cash equivalents and restricted cash and cash equivalents	$	1,544	$	1,283


( 6 )	Recent Financing Transactions

Long-Term Debt

In July 2018, BHE issued $1.0 billion of its 4.45% Senior Notes due 2049. BHE used the net proceeds to refinance a portion of the Company's short-term indebtedness and for general corporate purposes.

In July 2018, Northern Natural Gas issued $450 million of its 4.30% Senior Bonds due 2049. Northern Natural Gas used the net proceeds to repay at maturity all of its $200 million 5.75% Senior Notes due July 2018 and for general corporate purposes.

In July 2018, PacifiCorp issued $600 million of its 4.125% First Mortgage Bonds due 2049. PacifiCorp used a portion of the net proceeds to repay all of its $500 million 5.65% First Mortgage Bonds due July 2018 and intends to use the remaining net proceeds to fund capital expenditures and for general corporate purposes.

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

In February 2018, MidAmerican Energy issued $700 million of its 3.65% First Mortgage Bonds due 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 2.80% Senior Notes due 2023, $600 million of its 3.25% Senior Notes due 2028 and $750 million of its 3.80% 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 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 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. During the three- and six-month periods ended June 30, 2018 , the Company reduced the liability estimate by $20 million and $45 million , respectively, based on additional guidance for certain state income tax implications of the repatriation tax. The accounting is estimated to be completed by December 2018.

Iowa Senate File 2417

In May 2018, Iowa Senate File 2417 was signed into law in the state of Iowa, which, among other items, reduces the state of Iowa corporate tax rate from 12% to 9.8% and eliminates corporate federal deductibility, both for tax years starting in 2021. GAAP requires the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate change was enacted. As a result of Iowa Senate File 2417, the Company reduced deferred income tax liabilities $61 million and decreased deferred income tax expense by $2 million . As it is probable the change in deferred taxes for the Company's regulated businesses will be passed back to customers through regulatory mechanisms, the Company increased net regulatory liabilities by $59 million . In connection with Iowa Senate File 2417, the Company determined it was more appropriate to present the deferred income tax assets of $609 million associated with the state of Iowa net operating loss carryforward as a long-term income tax receivable from Berkshire Hathaway as a component of BHE's shareholders' equity. As the Company does not currently expect to receive any income tax amounts from Berkshire Hathaway related to the state of Iowa prior to the 2021 effective date, the Company has remeasured the long-term income tax receivable with Berkshire Hathaway at the enactment date and recorded a decrease to the long-term income tax receivable from Berkshire Hathaway of $115 million for the six-month period ended June 30, 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				Six-Month Periods
	Ended June 30,				Ended June 30,
	2018		2017		2018		2017

Federal statutory income tax rate	21	%	35	%	21	%	35	%
Income tax credits	(78	)	(19	)	(58	)	(17	)
State income tax, net of federal income tax benefit	(19	)	1		(25	)	(2	)
Income tax effect of foreign income	(4	)	(5	)	(11	)	(5	)
Effects of ratemaking	(8	)	—		(8	)	—
Equity income	1		1		1		1
Other, net	1		—		(1	)	(1	)
Effective income tax rate	(86	)%	13	%	(81	)%	11	%

The effective tax rate decreased for the second quarter of 2018 compared to 2017 primarily due to the reduction in the United States federal corporate income tax rate from 35% to 21% , effective January 1, 2018, higher production tax credits recognized of $33 million , lower consolidated state income tax expense, including a reduction to the state provision for the repatriation tax, and the favorable impacts of rate making.

The effective tax rate decreased for the first six months of 2018 compared to 2017 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, including a reduction to the state provision for the repatriation tax, higher production tax credits recognized of $62 million , lower United States income tax on foreign earnings 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.

The Company's provision for income tax has been computed on a stand-alone basis. Berkshire Hathaway includes the Company in its United States federal and Iowa state income tax returns and substantially all of its currently payable or receivable income tax is remitted to or received from Berkshire Hathaway . For the six-month period ended June 30, 2018 , the Company received net cash payments for federal income tax from Berkshire Hathaway totaling $311 million . For the six-month period ended June 30, 2017 , the Company made net cash payments for federal income tax to Berkshire Hathaway totaling $24 million . As of June 30, 2018 , the Company had a long-term income tax receivable from Berkshire Hathaway of $494 million for Iowa state income tax reflected as a component of BHE's shareholders' equity.


( 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- and six-month periods ended June 30, 2017 of $4 million and $8 million , respectively, have been reclassified to Other, net in the Consolidated Statements of Operations.

Domestic Operations

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



	Three-Month Periods						Six-Month Periods
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017
Pension:
Service cost	$	5		$	6		$	10		$	12
Interest cost	26			29			52			58
Expected return on plan assets	(41		)	(40		)	(82		)	(80		)
Net amortization	7			8			15			15
Net periodic benefit (credit) cost	$	(3	)	$	3		$	(5	)	$	5

Other postretirement:
Service cost	$	3		$	2		$	5		$	4
Interest cost	6			8			12			14
Expected return on plan assets	(12		)	(11		)	(22		)	(21		)
Net amortization	(3		)	(4		)	(6		)	(7		)
Net periodic benefit credit	$	(6	)	$	(5	)	$	(11	)	$	(10	)

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 $37 million and $7 million , respectively, during 2018 . As of June 30, 2018 , $6 million of contributions had been made to both the domestic pension and 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						Six-Month Periods
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017

Service cost	$	5		$	7		$	10		$	13
Interest cost	14			15			28			29
Expected return on plan assets	(26		)	(25		)	(53		)	(49		)
Settlement	24			—			24			—
Net amortization	14			16			29			33
Net periodic benefit cost	$	31		$	13		$	38		$	26

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 June 30, 2018 , £23 million , or $32 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 June 30, 2018
Assets:
Commodity derivatives	$	—	$	46		$	101		$	(33	)	$	114
Interest rate derivatives	1		17			17			—			35
Mortgage loans held for sale	—		763			—			—			763
Money market mutual funds ⁽²⁾	600		—			—			—			600
Debt securities:
United States government obligations	184		—			—			—			184
International government obligations	—		4			—			—			4
Corporate obligations	—		36			—			—			36
Municipal obligations	—		2			—			—			2
Equity securities:
United States companies	289		—			—			—			289
International companies	1,370		—			—			—			1,370
Investment funds	187		—			—			—			187
	$	2,631	$	868		$	118		$	(33	)	$	3,584
Liabilities:
Commodity derivatives	$	—	$	(184	)	$	(18	)	$	117		$	(85	)
Interest rate derivatives	—		(8		)	—			—			(8		)
	$	—	$	(192	)	$	(18	)	$	117		$	(93	)



	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 June 30, 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						Six-Month Periods
	Ended June 30,						Ended June 30,
				Interest						Interest
	Commodity			Rate			Commodity			Rate
	Derivatives			Derivatives			Derivatives			Derivatives
2018:
Beginning balance	$	81		$	16		$	94		$	9
Changes included in earnings	4			56			4			86
Changes in fair value recognized in OCI	1			—			—			—
Changes in fair value recognized in net regulatory assets	(5		)	—			(14		)	—
Purchases	—			—			1			—
Settlements	2			(55		)	(2		)	(78		)
Ending balance	$	83		$	17		$	83		$	17



2017:
Beginning balance	$	72		$	9		$	60		$	6
Changes included in earnings	—			39			12			66
Changes in fair value recognized in OCI	—			—			(2		)	—
Changes in fair value recognized in net regulatory assets	(3		)	—			(2		)	—
Purchases	1			—			1			(2		)
Settlements	11			(40		)	12			(62		)
Ending balance	$	81		$	8		$	81		$	8

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 June 30, 2018				As of December 31, 2017
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value

Long-term debt	$	36,707	$	40,139	$	35,193	$	40,522


( 10 )	Commitments and Contingencies

Easements

During the six-month period ended June 30, 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. In April 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, in September 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 in September 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. In March 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. In April 2018, PacifiCorp filed a motion to stay the effective date of the license amendment until transfer is approved. In June 2018, the FERC granted PacifiCorp’s motion to stay the effective date of the Lower Klamath Project license and all related compliance obligations, pending a Commission order on the license transfer. Meanwhile, the FERC continues to assess the KRRC’s capacity to become a project licensee for purposes of dam removal.

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 June 30, 2018 and December 31, 2017 , trade receivables, net on the Consolidated Balance Sheets relate substantially to Customer Revenue, including unbilled revenue of $722 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 (in millions):



	For the Three-Month Period Ended June 30, 2018
	PacifiCorp		MidAmerican Funding		NV Energy		Northern Powergrid		BHE Pipeline Group		BHE Transmission		BHE Renewables		BHE and Other			Total
Customer Revenue:
Regulated:
Retail Electric	$	1,115	$	505	$	691	$	—	$	—	$	—	$	—	$	—		$	2,311
Retail Gas	—		99		19		—		—		—		—		—			118
Wholesale	9		87		6		—		—		—		—		(1		)	101
Transmission and distribution	30		14		25		216		—		174		—		—			459
Interstate pipeline	—		—		—		—		236		—		—		(25		)	211
Other	—		—		1		—		—		—		—		—			1
Total Regulated	1,154		705		742		216		236		174		—		(26		)	3,201
Nonregulated	—		5		1		10		—		3		186		158			363
Total Customer Revenue	1,154		710		743		226		236		177		186		132			3,564
Other revenue	39		8		7		20		—		—		60		22			156
Total	$	1,193	$	718	$	750	$	246	$	236	$	177	$	246	$	154		$	3,720



	For the Six-Month Period Ended June 30, 2018
	PacifiCorp		MidAmerican Funding		NV Energy		Northern Powergrid		BHE Pipeline Group		BHE Transmission		BHE Renewables		BHE and Other			Total
Customer Revenue:
Regulated:
Retail Electric	$	2,211	$	891	$	1,230	$	—	$	—	$	—	$	—	$	—		$	4,332
Retail Gas	—		345		59		—		—		—		—		—			404
Wholesale	31		180		17		—		—		—		—		(2		)	226
Transmission and distribution	52		30		45		465		—		354		—		—			946
Interstate pipeline	—		—		—		—		610		—		—		(66		)	544
Other	—		—		1		—		—		—		—		—			1
Total Regulated	2,294		1,446		1,352		465		610		354		—		(68		)	6,453
Nonregulated	—		5		1		21		—		3		303		302			635
Total Customer Revenue	2,294		1,451		1,353		486		610		357		303		234			7,088
Other revenue	83		14		14		38		2		—		97		63			311
Total	$	2,377	$	1,465	$	1,367	$	524	$	612	$	357	$	400	$	297		$	7,399

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 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 (in millions):



	HomeServices
	Three-Month Period		Six-Month Period
	Ended June 30,		Ended June 30,
	2018		2018
Customer Revenue:
Brokerage	$	1,168	$	1,853
Franchise	19		34
Total Customer Revenue	1,187		1,887
Other revenue	86		147
Total	$	1,273	$	2,034

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 June 30, 2018 and December 31, 2017 , there were no material contract assets or contract liabilities recorded on the Consolidated Balance Sheets. During the three- and six-month periods ended June 30, 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 revenue it expects to recognize in future periods related to significant unsatisfied remaining performance obligations for fixed contracts with expected durations in excess of one year as of June 30, 2018 , by reportable segment (in millions):



	Performance obligations expected to be satisfied:
	Less than 12 months		More than 12 months		Total
BHE Pipeline Group	$	810	$	5,955	$	6,765
BHE Transmission	350		—		350
Total	$	1,160	$	5,955	$	7,115


( 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 tax (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)	1			308			119			(6		)	422
Balance, June 30, 2017	$	(446	)	$	(1,367	)	$	704		$	20		$	(1,089	)

Balance, December 31, 2017	$	(383	)	$	(1,129	)	$	1,085		$	29		$	(398	)
Adoption of ASU 2016-01	—			—			(1,085		)	—			(1,085		)
Other comprehensive income (loss)	51			(234		)	—			1			(182		)
Balance, June 30, 2018	$	(332	)	$	(1,363	)	$	—		$	30		$	(1,665	)

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				Six-Month Periods
	Ended June 30,				Ended June 30,
	2018		2017		2018		2017
Operating revenue:
PacifiCorp	$	1,193	$	1,245	$	2,377	$	2,526
MidAmerican Funding	718		659		1,465		1,355
NV Energy	750		753		1,367		1,337
Northern Powergrid	246		219		524		464
BHE Pipeline Group	236		192		612		507
BHE Transmission	177		158		357		324
BHE Renewables	246		220		400		364
HomeServices	1,273		956		2,034		1,541
BHE and Other ⁽¹⁾	154		152		297		302
Total operating revenue	$	4,993	$	4,554	$	9,433	$	8,720



Depreciation and amortization:
PacifiCorp	$	197		$	202	$	399		$	398
MidAmerican Funding	208			141		366			258
NV Energy	114			106		227			210
Northern Powergrid	64			52		127			101
BHE Pipeline Group	30			43		72			73
BHE Transmission	61			53		123			107
BHE Renewables	66			63		130			124
HomeServices	11			10		23			22
BHE and Other ⁽¹⁾	(1		)	—		(1		)	(1		)
Total depreciation and amortization	$	750		$	670	$	1,466		$	1,292



	Three-Month Periods						Six-Month Periods
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017
Operating income:
PacifiCorp	$	284		$	333		$	531		$	672
MidAmerican Funding	87			131			166			233
NV Energy	144			192			233			290
Northern Powergrid	111			100			258			240
BHE Pipeline Group	57			54			283			262
BHE Transmission	81			73			162			150
BHE Renewables	104			84			132			99
HomeServices	108			110			100			112
BHE and Other ⁽¹⁾	(4		)	(32		)	(22		)	(46		)
Total operating income	972			1,045			1,843			2,012
Interest expense	(461		)	(457		)	(927		)	(915		)
Capitalized interest	15			10			27			20
Allowance for equity funds	24			18			45			35
Interest and dividend income	32			27			58			53
(Losses) gains on marketable securities, net	(387		)	2			(596		)	5
Other, net	1			(1		)	31			25
Total income before income tax expense and equity income	$	196		$	644		$	481		$	1,235



Interest expense:
PacifiCorp	$	96	$	95	$	192	$	190
MidAmerican Funding	61		59		124		118
NV Energy	59		58		117		116
Northern Powergrid	36		33		73		64
BHE Pipeline Group	10		10		20		22
BHE Transmission	42		39		85		80
BHE Renewables	49		52		101		102
HomeServices	6		1		10		2
BHE and Other ⁽¹⁾	102		110		205		221
Total interest expense	$	461	$	457	$	927	$	915



Operating revenue by country:
United States	$	4,570	$	4,177	$	8,548	$	7,924
United Kingdom	245		219		522		464
Canada	177		158		357		324
Philippines and other	1		—		6		8
Total operating revenue by country	$	4,993	$	4,554	$	9,433	$	8,720



Income before income tax expense and equity income by country:
United States	$	93	$	529	$	211	$	952
United Kingdom	49		62		161		164
Canada	41		38		82		80
Philippines and other	13		15		27		39
Total income before income tax expense and equity income by country	$	196	$	644	$	481	$	1,235



	As of
	June 30,		December 31,
	2018		2017
Assets:
PacifiCorp	$	23,124	$	23,086
MidAmerican Funding	18,998		18,444
NV Energy	14,311		13,903
Northern Powergrid	7,537		7,565
BHE Pipeline Group	5,194		5,134
BHE Transmission	8,644		9,009
BHE Renewables	8,343		7,687
HomeServices	3,213		2,722
BHE and Other ⁽¹⁾	1,577		2,658
Total assets	$	90,941	$	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 six-month period ended June 30, 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
Acquisitions	—		—		—		—			—		—			—		75		75
Foreign currency translation	—		—		—		(16		)	—		(67		)	—		—		(83		)
June 30, 2018	$	1,129	$	2,102	$	2,369	$	975		$	73	$	1,504		$	95	$	1,423	$	9,670


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 Second Quarter and First Six Months of 2018 and 2017

Overview

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



	Second Quarter											First Six Months
	2018			2017			Change					2018			2017			Change
Net income attributable to BHE shareholders:
PacifiCorp	$	185		$	176		$	9		5	%	$	333		$	355		$	(22	)	(6	)%
MidAmerican Funding	103			131			(28		)	(21	)	206			233			(27		)	(12	)
NV Energy	77			91			(14		)	(15	)	110			124			(14		)	(11	)
Northern Powergrid	41			53			(12		)	(23	)	125			135			(10		)	(7	)
BHE Pipeline Group	40			27			13			48		207			148			59			40
BHE Transmission	53			53			—			—		109			113			(4		)	(4	)
BHE Renewables	111			71			40			56		165			105			60			57
HomeServices	77			62			15			24		67			62			5			8
BHE and Other	(315		)	(90		)	(225		)	*		(437		)	(145		)	(292		)	*
Total net income attributable to BHE shareholders	$	372		$	574		$	(202	)	(35	)	$	885		$	1,130		$	(245	)	(22	)

* Not meaningful

Net income attributable to BHE shareholders decreased $202 million for the second quarter of 2018 compared to 2017 due to an after-tax unrealized loss on the investment in BYD Company Limited in 2018 totaling $283 million and the following factors:

•

PacifiCorp's net income increased $9 million primarily due to a decrease in income tax expense of $56 million from lower federal tax rates due to the impact of the Tax Cuts and Jobs Act enacted on December 22, 2017 ("2017 Tax Reform") and lower depreciation and amortization of $5 million, partially offset by lower utility margins of $55 million. 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 1.2%, mainly from the unfavorable impact of weather and lower industrial usage, and higher purchased electricity costs, partially offset by higher wholesale revenue.

•

MidAmerican Funding's net income decreased $28 million primarily due to higher depreciation and amortization of $67 million from increases for Iowa revenue sharing and additional plant in-service and higher fossil-fueled generation maintenance of $13 million, partially offset by higher electric utility margins of $44 million and a higher income tax benefit of $6 million primarily from a lower federal tax rate due to the impact of 2017 Tax Reform, net of a $15 million reduction in recognized production tax credits. Electric utility margins increased due to higher recoveries through bill riders and higher retail customer volumes of 8.1% primarily from industrial growth and the favorable impact of weather, partially offset by lower average rates of $27 million predominantly from accruals related to 2017 Tax Reform and higher generation and purchased power costs.

•

NV Energy's net income decreased $14 million primarily due to a decrease in electric utility margins of $21 million, an increase in operations and maintenance expense of $17 million primarily due to higher political activity expenses and an increase in depreciation and amortization of $8 million as a result of the Nevada Power 2017 regulatory rate review, partially offset by a decrease in income tax expense of $33 million primarily from lower federal tax rates due to the impact of 2017 Tax Reform. Electric utility margins decreased due to lower average retail rates, including $22 million of rate impacts related to 2017 Tax Reform, partially offset by higher retail customer volumes of 2.1%, mainly from the favorable impact of weather.

•

Northern Powergrid's net income decreased $12 million primarily due to higher pension expense of $16 million, largely resulting from pension settlement losses recognized in 2018 due to higher lump sum payments, and higher distribution-related operating expenses and depreciation, partially offset by higher distribution revenue of $5 million and the weaker United States dollar of $2 million. Distribution revenue increased mainly due to higher tariff rates, partially offset by unfavorable movements in regulatory provisions.

•

BHE Pipeline Group’s net income increased $13 million primarily due to a decrease in income tax expense of $5 million from lower federal tax rates due to the impact of 2017 Tax Reform, higher transportation revenues from higher volumes and rates and costs incurred in 2017 associated with the early redemption of the 4.893% Senior Notes at Kern River, partially offset by higher operations and maintenance expense.


•	BHE Transmission's net income was unchanged as higher earnings at AltaLink due to a weaker United States dollar were offset by 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 $40 million primarily due to favorable earnings from additional tax equity investments, additional wind and solar capacity placed in-service and higher generation and pricing at the solar and wind projects.

•

HomeServices' net income increased $15 million primarily due to net income of $24 million contributed from acquired businesses and a decrease in income tax expense from lower federal tax rates due to the impact of 2017 Tax Reform, partially offset by higher operating expenses and lower net revenues at existing businesses and higher interest expense from increased borrowings related to acquisitions.

•

BHE and Other net loss increased $225 million primarily due to the aforementioned after-tax unrealized loss on the investment in BYD Company Limited totaling $283 million and a lower income tax benefit of $12 million from 2017 Tax Reform, partially offset by higher federal income tax credits recognized on a consolidated basis, lower other operating costs and lower consolidated state income tax expense, including a reduction to the state provision for the repatriation tax.

Net income attributable to BHE shareholders decreased $245 million for the first six months of 2018 compared to 2017 due to an after-tax unrealized loss on the investment in BYD Company Limited in 2018 totaling $432 million and the following factors:

•

PacifiCorp's net income decreased $22 million primarily due to lower utility margins of $144 million, partially offset by a decrease in income tax expense of $116 million from lower federal tax rates due to the impact of 2017 Tax Reform and lower operations and maintenance expenses of $6 million. Utility margins decreased due to lower average retail rates, including $106 million of refund accruals related to 2017 Tax Reform, lower retail volumes of 2.3%, mainly from the unfavorable impact of weather and lower industrial usage, and higher purchased electricity costs, partially offset by higher wholesale revenue and lower coal costs.

•

MidAmerican Funding's net income decreased $27 million primarily due to higher depreciation and amortization of $108 million from increases for Iowa revenue sharing and additional plant in-service, higher fossil-fueled generation maintenance of $15 million, higher wind-powered generation maintenance of $11 million and increases in other operating expenses, partially offset by higher electric utility margins of $74 million, higher natural gas utility margins of $8 million and a higher income tax benefit of $29 million primarily from a lower federal tax rate due to the impact of 2017 Tax Reform, net of a $10 million reduction in recognized production tax credits. Electric utility margins increased due to higher recoveries through bill riders and higher retail customer volumes of 7.5% from the favorable impact of weather and industrial growth, partially offset by lower average rates of $53 million predominantly from accruals related to 2017 Tax Reform and higher generation and purchased power costs.

•

NV Energy's net income decreased $14 million primarily due to a decrease in electric utility margins of $22 million, an increase in depreciation and amortization of $17 million as a result of the Nevada Power 2017 regulatory rate review and an increase in operations and maintenance expense of $17 million primarily due to higher political activity expenses, partially offset by a decrease in income tax expense of $44 million primarily from lower federal tax rates due to the impact of 2017 Tax Reform. Electric utility margins decreased due to $22 million of rate impacts related to 2017 Tax Reform, partially offset by higher retail customer volumes of 1.3%, mainly from the favorable impact of weather.

•

Northern Powergrid's net income decreased $10 million primarily due to higher pension expense of $18 million, largely resulting from pension settlement losses recognized in 2018 due to higher lump sum payments and higher distribution-related operating expenses and depreciation, partially offset by the weaker United States dollar of $11 million and higher distribution revenue of $5 million. Distribution revenue increased mainly due to higher tariff rates and higher units distributed, partially offset by unfavorable movements in regulatory provisions.

•

BHE Pipeline Group’s net income increased $59 million primarily due to a decrease in income tax expense of $31 million from lower federal tax rates due to the impact of 2017 Tax Reform, higher transportation revenues from colder temperatures and other market opportunities and costs incurred in 2017 associated with the early redemption of the 4.893% Senior Notes at Kern River, partially offset by higher operations and maintenance expense.


•	BHE Transmission's net income decreased $ 4 million primarily 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, partially offset by higher earnings at AltaLink primarily due to a weaker United States dollar.


•	BHE Renewables' net income increased $60 million primarily due to favorable earnings from additional tax equity investments, additional wind and solar capacity placed in-service, higher generation and pricing at the solar, wind and geothermal projects, and a settlement received in 2018 related to transformer issues in 2016.

•

HomeServices' net income increased $5 million primarily due to net income of $26 million contributed from acquired businesses and a decrease in income tax expense from lower federal tax rates due to the impact of 2017 Tax Reform, partially offset by higher operating expenses and lower net revenues at existing businesses and higher interest expense from increased borrowings related to acquisitions.

•

BHE and Other net loss increased $292 million primarily due to the aforementioned after-tax unrealized loss on the investment in BYD Company Limited totaling $432 million and a lower income tax benefit of $29 million from 2017 Tax Reform, partially offset by lower consolidated state income tax expense, including a reduction to the state provision for the repatriation tax, higher federal income tax credits recognized on a consolidated basis, lower United States income tax on foreign earnings and lower other operating costs.

Reportable Segment Results

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



	Second Quarter									First Six Months
	2018		2017		Change					2018		2017		Change
Operating revenue:
PacifiCorp	$	1,193	$	1,245	$	(52	)	(4	)%	$	2,377	$	2,526	$	(149	)	(6	)%
MidAmerican Funding	718		659		59			9		1,465		1,355		110			8
NV Energy	750		753		(3		)	—		1,367		1,337		30			2
Northern Powergrid	246		219		27			12		524		464		60			13
BHE Pipeline Group	236		192		44			23		612		507		105			21
BHE Transmission	177		158		19			12		357		324		33			10
BHE Renewables	246		220		26			12		400		364		36			10
HomeServices	1,273		956		317			33		2,034		1,541		493			32
BHE and Other	154		152		2			1		297		302		(5		)	(2	)
Total operating revenue	$	4,993	$	4,554	$	439		10		$	9,433	$	8,720	$	713		8



Operating income:
PacifiCorp	$	284		$	333		$	(49	)	(15	)%	$	531		$	672		$	(141	)	(21	)%
MidAmerican Funding	87			131			(44		)	(34	)	166			233			(67		)	(29	)
NV Energy	144			192			(48		)	(25	)	233			290			(57		)	(20	)
Northern Powergrid	111			100			11			11		258			240			18			8
BHE Pipeline Group	57			54			3			6		283			262			21			8
BHE Transmission	81			73			8			11		162			150			12			8
BHE Renewables	104			84			20			24		132			99			33			33
HomeServices	108			110			(2		)	(2)		100			112			(12		)	(11	)
BHE and Other	(4		)	(32		)	28			88		(22		)	(46		)	24			52
Total operating income	$	972		$	1,045		$	(73	)	(7	)	$	1,843		$	2,012		$	(169	)	(8	)

PacifiCorp

Operating revenue decreased $52 million for the second quarter of 2018 compared to 2017 due to lower retail revenue of $67 million, partially offset by higher wholesale and other revenue of $15 million. Retail revenue decreased $54 million due to lower average rates, including $53 million of refund accruals related to 2017 Tax Reform, and $13 million from lower volumes. Retail customer volumes decreased 1.2% due to lower industrial usage primarily in Utah and Washington, the impacts of weather on residential customers primarily in Oregon and Utah, lower residential usage across the entire service area and lower commercial usage primarily in Utah, partially offset by an increase in the average number of commercial and residential customers primarily in Utah and Oregon, higher industrial usage in Wyoming and higher irrigation usage primarily in Idaho and Utah. Wholesale and other revenue increased primarily due to higher wholesale sales volumes and market prices.

Operating income decreased $49 million for the second quarter of 2018 compared to 2017 mainly due to lower utility margins of $55 million, partially offset by lower depreciation and amortization of $5 million. Utility margins decreased due to lower average retail rates, higher purchased electricity costs from higher market prices and volumes and lower retail customer volumes, partially offset by higher wholesale revenue and higher net deferrals of incurred net power costs in accordance with established adjustment mechanisms.

Operating revenue decreased $149 million for the first six months of 2018 compared to 2017 due to lower retail revenue of $178 million, partially offset by higher wholesale and other revenue of $29 million. Retail revenue decreased $125 million due to lower average rates, including $106 million of refund accruals related to 2017 Tax Reform, and $53 million from lower volumes. Retail customer volumes decreased 2.3% due to the impacts of weather on residential and commercial customers primarily in Oregon, Utah and Washington, lower industrial usage primarily in Utah, Oregon and Washington, lower residential usage primarily in Wyoming, Washington and Oregon and lower commercial usage primarily in Oregon, partially offset by an increase in the average number of commercial and residential customers primarily in Utah and Oregon, higher industrial usage in Wyoming and Idaho and higher irrigation usage primarily in Idaho and Utah. Wholesale and other revenue increased primarily due to higher wholesale sales volumes, partially offset by lower wholesale market prices.

Operating income decreased $141 million for the first six months of 2018 compared to 2017 primarily due to lower utility margins of $144 million, partially offset by lower operations and maintenance expense of $6 million. Utility margins decreased due to lower average retail rates, lower retail customer volumes and higher purchased electricity costs from higher market prices and volumes, partially offset by higher wholesale revenue, higher net deferrals of incurred net power costs and lower coal costs.

MidAmerican Funding

Operating revenue increased $59 million for the second quarter of 2018 compared to 2017 due to higher electric operating revenue of $52 million and higher natural gas operating revenue of $7 million. Electric operating revenue increased due to higher retail revenue of $62 million, partially offset by lower wholesale and other revenue of $10 million. Electric retail revenue increased $54 million from higher recoveries through bill riders (substantially offset in cost of sales, operating expense and income tax expense), $21 million from the impact of weather in 2018 and $14 million from higher other usage factors, including higher industrial sales volumes, partially offset by lower average rates of $27 million predominantly from accruals related to 2017 Tax Reform. Electric retail customer volumes increased 8.1% primarily from industrial growth and the favorable impact of weather. Electric wholesale revenue decreased due to a 14.7% reduction in sales volumes, partially offset by higher average per-unit prices of $3 million. Natural gas operating revenue increased due to 38.5% higher retail sales volumes from cooler temperatures in 2018 and industrial growth, partially offset by a lower average per-unit price of $14 million (offset in cost of sales) and other usage and rate factors, including the impact of accruals related to 2017 Tax Reform.

Operating income decreased $44 million for the second quarter of 2018 compared to 2017 primarily due to higher depreciation and amortization of $67 million, higher fossil-fueled generation maintenance of $13 million, higher wind-powered generation maintenance of $5 million and increases in other operating expenses, partially offset by higher electric utility margins of $44 million, including the impact of an increase in electric DSM program revenue of $5 million (offset in operating expense) and higher natural gas utility margins of $2 million. The increase in depreciation and amortization reflects increases for Iowa revenue sharing of $51 million and $15 million related to wind generation and other plant placed in-service. Electric utility margins were higher due to higher recoveries through bill riders and higher retail customer volumes, partially offset by lower average rates and higher generation and purchased power costs.

Operating revenue increased $110 million for the first six months of 2018 compared to 2017 primarily due to higher electric operating revenue of $88 million and higher natural gas operating revenue of $20 million. Electric operating revenue increased due to higher retail revenue of $94 million, partially offset by lower wholesale and other revenue of $7 million. Electric retail revenue increased $87 million from higher recoveries through bill riders (substantially offset in cost of sales, operating expense and income tax expense), $31 million from the impact of weather in 2018 and $29 million from higher other usage factors, including higher industrial sales volumes, partially offset by lower average rates of $53 million predominantly from accruals related to 2017 Tax Reform. Electric retail customer volumes increased 7.5% from the favorable impact of weather and industrial growth. Electric wholesale revenue decreased due to a 10.2% reduction in sales volumes, partially offset by higher average per-unit prices of $4 million. Natural gas operating revenue increased due to 24.7% higher retail sales volumes from the impact of weather in 2018 and industrial growth, partially offset by a lower average per-unit price of $27 million (offset in cost of sales) and other usage and rate factors, including the impact of accruals related to 2017 Tax Reform.

Operating income decreased $67 million for the first six months of 2018 compared to 2017 primarily due to higher depreciation and amortization of $108 million, higher fossil-fueled generation maintenance of $15 million, higher wind-powered generation maintenance of $11 million and increases in other operating expenses, partially offset by higher electric utility margins of $74 million, including the impact of an increase in electric DSM program revenue of $12 million (offset in operating expense), and higher natural gas utility margins of $8 million. The increase in depreciation and amortization reflects increases for Iowa revenue sharing of $79 million and $29 million related to wind generation and other plant placed in-service. Electric utility margins were higher due to higher recoveries through bill riders and higher retail customer volumes, partially offset by lower average rates and higher generation and purchased power costs. Natural gas utility margins increased due to higher retail sales volumes of 24.7% from colder temperatures, partially offset by lower average rates partially due to accruals related to 2017 Tax Reform.

NV Energy

Operating revenue decreased $3 million for the second quarter of 2018 compared to 2017 primarily due to lower electric operating revenue of $4 million. Electric operating revenue decreased due to lower electric retail revenue of $3 million and lower wholesale and other revenue of $1 million. Electric retail revenue decreased primarily due to the tax rate reduction rider of $22 million and lower rates from the Nevada Power 2017 regulatory rate review of $6 million, partially offset by higher energy rates (offset in cost of sales) of $18 million, higher residential volumes of $4 million, primarily due to the impacts of weather, and residential customer growth of $3 million. Electric retail customer volumes, including distribution only service customers, increased 2.1% compared to 2017.

Operating income decreased $48 million for the second quarter of 2018 compared to 2017 primarily due to a decrease in electric utility margins of $21 million, an increase in operations and maintenance expense of $17 million primarily due to higher political activity expenses and higher depreciation and amortization of $8 million as a result of the Nevada Power 2017 regulatory rate review. Electric utility margins decreased due to higher energy costs of $18 million and lower electric operating revenue of $4 million. Energy costs increased due to higher net deferred power costs of $53 million, partially offset by a lower average cost of fuel for generation of $24 million and lower purchased power costs of $12 million.

Operating revenue increased $30 million for the first six months of 2018 compared to 2017 primarily due to higher electric operating revenue of $21 million and higher natural gas operating revenue of $9 million. Electric operating revenue increased due to higher electric retail revenue of $25 million, partially offset by lower wholesale and other revenue of $4 million. Electric retail revenue increased primarily due to higher energy rates (offset in cost of sales) of $46 million and $9 million primarily from customer growth, partially offset by a decrease due to the tax rate reduction rider of $22 million and lower rates from the Nevada Power 2017 regulatory rate review of $8 million. Electric retail customer volumes, including distribution only service customers, increased 1.3% compared to 2017. Natural gas operating revenue increased due to a higher average per-unit price (offset in cost of sales), partially offset by 2.3% lower retail sales volumes.

Operating income decreased $57 million for the first six months of 2018 compared to 2017 due to a decrease in electric utility margins of $22 million, higher depreciation and amortization of $17 million as a result of the Nevada Power 2017 regulatory rate review and an increase in operations and maintenance expense of $17 million primarily due to higher political activity expenses. Electric utility margins decreased as higher energy costs of $43 million were offset by higher electric operating revenue of $21 million. Energy costs increased due to higher net deferred power costs of $106 million, partially offset by a lower average cost of fuel for generation of $55 million and lower purchased power costs of $8 million.

Northern Powergrid

Operating revenue increased $27 million for the second quarter of 2018 compared to 2017 due to the weaker United States dollar of $15 million, higher smart meter revenue of $7 million and higher distribution revenue of $5 million. Distribution revenue increased mainly due to higher tariff rates of $11 million, partially offset by unfavorable movements in regulatory provisions of $4 million. Operating income increased $11 million for the second quarter of 2018 compared to 2017 primarily due to the weaker United States dollar of $7 million and the increase in operating revenue, partially offset by higher distribution-related operating expenses and higher depreciation expense related to additional smart meter and distribution assets placed in-service.

Operating revenue increased $60 million for the first half of 2018 compared to 2017 primarily due to the weaker United States dollar of $45 million, higher smart meter revenue of $13 million and higher distribution revenue of $5 million. Distribution revenue increased mainly due to higher tariff rates of $6 million and higher units distributed of $3 million, partially offset by unfavorable movements in regulatory provisions of $5 million. Operating income increased $18 million for the first half of 2018 compared to 2017 primarily due to the weaker United States dollar of $23 million and the increase in operating revenue, partially offset by higher distribution-related operating expenses and higher depreciation expense related to additional smart meter and distribution assets placed in-service.

BHE Pipeline Group

Operating revenue increased $44 million for the second quarter of 2018 compared to 2017 due to higher gas sales of $37 million related to system balancing activities (largely offset in cost of sales) and higher transportation revenues of $7 million. Operating income increased $3 million for the second quarter of 2018 compared to 2017 primarily due to the increase in transportation revenue, partially offset by higher operations and maintenance expenses.

Operating revenue increased $105 million for the first six months of 2018 compared to 2017 due to higher gas sales of $61 million related to system balancing activities (largely offset in cost of sales) and higher transportation revenues of $43 million. Operating income increased $21 million for the first six months of 2018 compared to 2017 primarily due to the increase in transportation revenue, partially offset by higher operations and maintenance expenses.

BHE Transmission

Operating revenue increased $19 million for the second quarter of 2018 compared to 2017 largely due to a weaker United States dollar of $7 million and $6 million from additional assets placed in-service and recovery of higher costs. Operating income increased $8 million for the second quarter of 2018 compared to 2017 primarily due to a weaker United States dollar of $3 million and the higher operating revenue from additional assets placed in-service.

Operating revenue increased $33 million for the first six months of 2018 compared to 2017 primarily due to a weaker United States dollar of $15 million and $15 million from additional assets placed in-service and recovery of higher costs. Operating income increased $12 million for the first six months of 2018 compared to 2017 primarily due to a weaker United States dollar of $7 million and the higher operating revenue from additional assets placed in-service.

BHE Renewables

Operating revenue increased $26 million for the second quarter of 2018 compared to 2017 due to higher generation and favorable pricing of $13 million at the wind, solar, and hydro projects and additional solar and wind capacity placed in-service of $10 million. Operating income increased $20 million for the second quarter of 2018 compared to 2017 primarily due to the increase in operating revenue, partially offset by higher operating expenses of $4 million, mainly due to the timing of maintenance costs at certain geothermal facilities, and higher depreciation expense of $3 million related to the additional solar and wind capacity placed in-service.

Operating revenue increased $36 million for the first six months of 2018 compared to 2017 due to overall higher generation and pricing of $26 million at the solar, wind and geothermal projects and additional wind and solar capacity placed in-service of $17 million, partially offset by an unfavorable change in the valuation of a power purchase agreement of $5 million. Operating income increased $33 million for the first six months of 2018 compared to 2017 due to the increase in operating revenue and a decrease in property and other taxes of $3 million due to a property tax refund received in 2018, partially offset by higher depreciation expense of $6 million related to the additional solar and wind capacity placed in-service.

HomeServices

Operating revenue increased $317 million for the second quarter of 2018 compared to 2017 due to an increase from acquired businesses. Operating income decreased $2 million for the second quarter of 2018 compared to 2017 primarily due to lower brokerage segment earnings at existing businesses, mainly due to higher operating expenses and lower net revenues, and lower franchise segment earnings, largely due to a favorable settlement and a gain on the collection of receivables in 2017, partially offset by higher earnings from acquired businesses.

Operating revenue increased $493 million for the first six months of 2018 compared to 2017 due to an increase from acquired businesses. Operating income decreased $12 million for the first six months of 2018 compared to 2017 primarily due to lower brokerage segment earnings at existing businesses, mainly due to higher operating expenses and lower net revenues, and lower franchise segment earnings, largely due to a favorable settlement and a gain on the collection of receivables in 2017, partially offset by higher earnings from acquired businesses.

BHE and Other

Operating loss improved $28 million for the second quarter of 2018 compared to 2017 due to lower other operating costs and higher net revenues at MidAmerican Energy Services, LLC.

Operating revenue decreased $5 million for the first six months of 2018 compared to 2017 due to lower electricity and natural gas rates at MidAmerican Energy Services, LLC. Operating loss improved $24 million for the first six months of 2018 compared to 2017 due to lower other operating costs and higher net revenues at MidAmerican Energy Services, LLC.

Consolidated Other Income and Expense Items

Interest expense

Interest expense is summarized as follows (in millions):



	Second Quarter									First Six Months
	2018		2017		Change					2018		2017		Change

Subsidiary debt	$	355	$	345	$	10		3	%	$	715	$	691	$	24		3	%
BHE senior debt and other	104		106		(2		)	(2	)	209		211		(2		)	(1	)
BHE junior subordinated debentures	2		6		(4		)	—		3		13		(10		)	(77	)
Total interest expense	$	461	$	457	$	4		1		$	927	$	915	$	12		1

Interest expense increased $4 million for the second quarter of 2018 compared to 2017 and $12 million for the first six months of 2018 compared to 2017 due to the impact of foreign currency exchange rate movements of $4 million in the second quarter and $10 million in the first six months 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 $5 million for the second quarter of 2018 compared to 2017 and $7 million for the first six months 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 $6 million for the second quarter of 2018 compared to 2017 and $10 million for the first six months of 2018 compared to 2017 primarily due to higher construction work-in-progress balances at MidAmerican Energy.

Interest and dividend income

Interest and dividend income increased $5 million for the second quarter and first six months of 2018 compared to 2017 primarily due to the timing of dividends from the Company's investment in BYD Company Limited.

(Losses) gains on marketable securities, net

(Losses) gains on marketable securities, net increased $389 million for the second quarter of 2018 compared to 2017 and $601 million for the first six months of 2018 compared to 2017 primarily due to an unrealized loss in 2018 on the Company's investment in BYD Company Limited totaling $391 million in the second quarter and $598 million in the first six months.

Other, net

Other, net increased $2 million for the second quarter of 2018 compared to 2017 primarily due to costs incurred in 2017 associated with the early redemption of subsidiary long-term debt and favorable changes in the valuations of interest rate swap derivatives of $3 million, partially offset by higher pension expense, largely resulting from pension settlement losses recognized in 2018 at Northern Powergrid due to higher lump sum payments.

Other, net increased $6 million for the first six months 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, costs incurred in 2017 associated with the early redemption of subsidiary long-term debt and favorable changes in the valuations of interest rate swap derivatives of $7 million, partially offset by higher pension expense, largely resulting from pension settlement losses recognized in 2018 at Northern Powergrid due to higher lump sum payments, and lower investment returns.

Income tax (benefit) expense

Income tax expense decreased $251 million , including a $108 million benefit related to an unrealized loss on the Company's investment in BYD Company Limited, for the second quarter of 2018 compared to 2017 and the effective tax rate was (86)% for 2018 and 13% 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, higher production tax credits recognized of $33 million, lower consolidated state income tax expense, including a reduction to the state provision for the repatriation tax, and the favorable impacts of rate making.

Income tax expense decreased $524 million , including a $166 million benefit related to an unrealized loss on the Company's investment in BYD Company Limited, for the first six months of 2018 compared to 2017 and the effective tax rate was (81)% for 2018 and 11% 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, including a reduction to the state provision for the repatriation tax, higher production tax credits recognized of $62 million, lower United States income tax on foreign earnings 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 $265 million, or $62 million higher than 2017, while production tax credits earned in 2018 were $304 million, or $34 million higher than 2017. The difference between production tax credits recognized and earned of $39 million as of June 30, 2018 , primarily at MidAmerican Energy, will be reflected in earnings over the remainder of 2018.

Equity income

Equity income decreased $12 million for the second quarter of 2018 compared to 2017 and $24 million for the first six months 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 and lower pre-tax equity earnings from tax equity investments at BHE Renewables.

Net income attributable to noncontrolling interests

Net income attributable to noncontrolling interests decreased $7 million for the second quarter of 2018 compared to 2017 and $9 million for the first six months of 2018 compared to 2017 primarily due to the April 2018 purchase of a redeemable noncontrolling interest at HomeServices.

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 June 30, 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	$	11		$	22		$	370		$	490		$	24	$	53		$	254		$	1,224

Credit facilities ⁽¹⁾	3,500			1,200			909			650			198		1,009			1,635			9,101
Less:
Short-term debt	(1,721		)	(108		)	—			—			—		(375		)	(1,220		)	(3,424		)
Tax-exempt bond support and letters of credit	—			(89		)	(370		)	(80		)	—		(5		)	—			(544		)
Net credit facilities	1,779			1,003			539			570			198		629			415			5,133

Total net liquidity	$	1,790		$	1,025		$	909		$	1,060		$	222	$	682		$	669		$	6,357
Credit facilities:
Maturity dates ⁽¹⁾	2021			2021			2019, 2021			2021			2020		2018, 2022			2018, 2019, 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.

Operating Activities

Net cash flows from operating activities for the six-month periods ended June 30, 2018 and 2017 were $2.8 billion and $2.4 billion , respectively. The change was primarily due to changes in income tax cash flows.

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 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. 2017 Tax Reform and the related regulatory outcomes will result in lower revenue, income tax and cash flow in 2018 and future years. BHE does not expect 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 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 six-month periods ended June 30, 2018 and 2017 were $(3.0) billion and $(2.5) billion , respectively. The change was primarily due to higher capital expenditures of $966 million , partially offset by lower cash paid for acquisitions, net of cash acquired, of $481 million . Refer to "Future Uses of Cash" for further discussion of capital expenditures.

Acquisitions

The Company completed various acquisitions totaling $588 million , net of cash acquired, for the six-month period ended June 30, 2017 . The purchase price for each acquisition was allocated to the assets acquired and liabilities assumed, which primarily related 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 six-month period ended June 30, 2018 was $465 million . Sources of cash totaled $3.5 billion and consisted of proceeds from BHE senior debt issuances totaling $2.2 billion and proceeds from subsidiary debt issuances totaling $1.3 billion . Uses of cash totaled $2.9 billion and consisted mainly of repayments of subsidiary debt totaling $1.1 billion , net repayments of short-term debt totaling $1.0 billion , repayments of BHE senior debt of $650 million and the purchase of redeemable noncontrolling interest of $131 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 six-month period ended June 30, 2017 was $112 million . Sources of cash totaled $1.8 billion and consisted of $1.2 billion of proceeds from subsidiary debt issuances and $617 million of net proceeds from short-term debt. Uses of cash totaled $1.7 billion and consisted mainly of repayments of BHE junior subordinated debentures of $950 million and repayments of subsidiary debt totaling $668 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):



	Six-Month Periods				Annual
	Ended June 30,				Forecast
	2017		2018		2018
Capital expenditures by business:
PacifiCorp	$	370	$	499	$	1,198
MidAmerican Funding	546		818		2,468
NV Energy	226		229		565
Northern Powergrid	288		313		654
BHE Pipeline Group	83		118		457
BHE Transmission	146		150		265
BHE Renewables	137		624		866
HomeServices	11		25		47
BHE and Other	6		3		16
Total	$	1,813	$	2,779	$	6,536



Capital expenditures by type:
Wind generation	$	234	$	1,094	$	2,610
Electric transmission	190		56		196
Other growth	308		319		792
Operating	1,081		1,310		2,938
Total	$	1,813	$	2,779	$	6,536

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 $313 million and $129 million for the six-month periods ended June 30, 2018 and 2017 , respectively. MidAmerican Energy anticipates costs for wind-powered generating facilities will total an additional $865 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 $2 million for each of the six-month periods ended June 30, 2018 and 2017 . PacifiCorp anticipate costs for these activities will total an additional $63 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 $194 million and $87 million for the six-month periods ended June 30, 2018 and 2017 , respectively. PacifiCorp and MidAmerican Energy anticipate costs for these activities will total an additional $438 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 $584 million and $18 million for the six-month periods ended June 30, 2018 and 2017 , respectively. In April, BHE Renewables completed the asset acquisition of 300 MW of wind-powered generating facilities in Texas totaling $495 million. BHE Renewables anticipates costs will total an additional $152 million in 2018 for development and construction of up to 212 MW of wind-powered generating facilities.

•

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.


•	Other growth includes investments in solar generation for the construction of the community solar gardens project in Minnesota comprised of 28 locations with a nominal facilities capacity of 98 MW, 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 , investments in routine expenditures for generation, transmission, distribution and other infrastructure needed to serve existing and expected demand and environmental spending relating to emissions control equipment and the management of coal combustion residuals.

In May 2018, MidAmerican Energy filed with the IUB an application for ratemaking principles related to the construction of up to 591 MW (nominal ratings) of additional wind-powered generating facilities expected to be placed in-service by the end of 2020. The filing, which is subject to IUB approval, establishes a cost cap of $922 million, including AFUDC, and a fixed rate of return on equity of 11.25% 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 proposed ratemaking principles maintain the revenue sharing mechanism currently in effect. MidAmerican Energy expects all of these wind-powered generating facilities to qualify for 100% of production tax credits available.

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 June 30, 2018 , and has commitments as of June 30, 2018 , subject to satisfaction of certain specified conditions, to provide equity contributions of $630 million for the remainder of 2018 and $204 million in 2019 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 June 30, 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 ("ZECs") 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. On May 29, 2018, The U.S. Department of Justice and FERC filed an amicus brief concluding federal rules do not preempt Illinois' ZEC program. Additional briefing and a request to consider a recent potentially applicable FERC decision was submitted after the amicus brief was filed. 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. 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 in April 2018. The settlement supports 950 MWs of owned wind resources and the 200 MW purchase power agreement. Hearings were held by the UPSC and IPUC in May 2018. The UPSC approved the application in an order issued in June 2018. The order grants approval of the 1,150 MWs of new wind and transmission facilities up to the projected costs. PacifiCorp can seek recovery of any actual costs in excess of the estimates in a general rate case. The IPUC approved a partial settlement agreement in an order issued in July 2018. The settlement provides cost recovery through a tracking mechanism. The IPUC order caps cost recovery at the overall estimated costs for the new wind and transmission facilities. 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, including recovery of the replaced equipment. 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. In May 2018, the UPSC approved the application for repowering, up to the estimated costs, with the exception of the Leaning Juniper project, for which the commission expressed concern with the economics. If PacifiCorp chooses to proceed with this project, the project will be subject to a standard prudence review in future general rate cases. The WPSC approved an all-party settlement agreement to repower wind facilities in a bench decision in June 2018. In the decision, the WPSC specifically removed the Leaning Juniper project, located in Oregon, from the agreement and the approval, consistent with the treatment in Utah.

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 proposed reducing 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, July 1, 2018 in Wyoming, and June 1, 2018 in Idaho. In April 2018, the UPSC ordered a rate reduction of $61 million, or 3.1%, 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. PacifiCorp filed a partial settlement with the WPSC in April 2018 that provides a rate reduction of $26 million, or 3.8%, beginning July 1, 2018, with the remaining tax savings to be deferred with offsets to other costs. In June 2018, the WPSC approved the rate reduction on an interim basis. In May 2018, the IPUC approved an all-party settlement to implement a rate reduction of $8 million, or 3.0%, beginning June 1, 2018, to begin passing back a portion of the tax benefit. The credit may be adjusted following the next phase of the proceeding. In June 2018, PacifiCorp filed reports with the UPSC, WPSC and IPUC with the calculation of the full impact of the tax law change on revenue requirements. These reports will initiate the next phase of the proceedings in these states.

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 became 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 $11 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 was updated in July to reflect an all-parties partial stipulation resolving all but one issue in the proceeding, subject to OPUC approval, and to update changes in contracts and market conditions. The updated filing is requesting an annual increase of $1 million. The filing will be updated for changes in contracts and market conditions again in November 2018, before final rates become effective in January 2019.

Wyoming

In April 2018, PacifiCorp filed its annual ECAM and RRA application with the WPSC. The filing requests approval to refund to customers $3 million in deferred net power costs for the period January 1, 2017 through December 31, 2017. The rate change was approved by the WPSC on an interim basis, effective July 1, 2018.

Washington

In December 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 resulted in a net credit to customers of $2 million, effective April 1, 2018.

In May 2018, PacifiCorp filed a settlement stipulation and joint narrative in support of the settlement stipulation resolving all issues in the 2016 PCAM with the WUTC. The settlement agreement resulted in a net credit to the PCAM balancing account of $5 million. The WUTC issued an order in July 2018 approving the settlement in full.

In June 2018, PacifiCorp submitted its 2017 PCAM filing with WUTC seeking approval to credit $13 million to the PCAM balancing account. No rate changes were requested.

In June 2018, PacifiCorp filed with WUTC a proposal to decrease the System Benefits Charge ("SBC") collection rate by $2 million. In July 2018, the WUTC approved the proposed rates to go into effect August 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 IPUC approved recovery of the deferred costs, which resulted in a rate reduction of $2 million, or 0.8% effective June 1, 2018.

California

In April 2017, PacifiCorp filed an application with the CPUC for an overall rate increase of $3 million, or 1.3%, to recover 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.

In April 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

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 pursuant to mechanisms approved in Iowa. 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 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. The Iowa Utilities Board approved MidAmerican Energy's Iowa tax reform rate reduction tariff on April 27, 2018, although it has opened a docket to consider concerns by certain stakeholders. MidAmerican Energy currently estimates that its 2018 revenue will be reduced by approximately $81 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 regulatory earnings above 9.7% . As a result of the order, Nevada Power recorded expense of $28 million in December 2017 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.

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 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 2017 Tax Reform and a hearing was held in July 2018. The Nevada Utilities cannot predict the timing or ultimate outcome of further regulatory proceedings.

In March 2018, the FERC issued a Show Cause Order related to 2017 Tax Reform. In May 2018, in response to the Show Cause Order, the Nevada Utilities proposed a reduction to transmission and certain ancillary service rates under the NV Energy Open Access Transmission Tariff for the lower annual income tax expense anticipated from 2017 Tax Reform. The new rates became effective March 21, 2018. The Utilities began billing at the new rate in June 2018. Upon FERC’s acceptance of the rates, the Utilities will issue refunds of $1 million from the effective date through May 2018.

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 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.

In June 2018, Station Casinos LLC ("Station"), 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.

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 November 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. In April 2018, the PUCN released a study on the potential effects of electricity deregulation on Nevada. In July 2018, the Governor's Committee on Energy Choice released a report of findings and recommendations to the Governor. 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

The Gas and Electricity Markets Authority through its office of gas and electric markets (known as "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).

BHE Pipeline Group

In July 2018, the FERC issued a final rule adopting procedures for determining which natural gas pipelines may be collecting unjust and unreasonable rates in light of the reduction in the federal corporate tax rate from 2017 Tax Reform. Under the final rule, all interstate natural gas pipelines must file an informational filing on Form No. 501-G prior to December 2018 for FERC to evaluate each respective natural gas pipeline's rates.

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.

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 in August 2018, the AUC issued its decision approving ALP's return on equity at 8.5% with a 37% equity ratio for 2018, 2019 and 2020.

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 included 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 .

Clean Air Act Regulations

The Clean Air Act is a federal law administered by the EPA that provides a framework for protecting and improving the nation's air quality and controlling sources of air emissions. The implementation of new standards is generally outlined in SIPs, which are a collection of regulations, programs and policies to be followed. SIPs vary by state and are subject to public hearings and EPA approval. Some states may adopt additional or more stringent requirements than those implemented by the EPA. The major Clean Air Act programs most directly affecting the Registrants' operations are described below.

Regional Haze

The EPA's Regional Haze Rule, finalized in 1999, requires states to develop and implement plans to improve visibility in designated federally protected areas ("Class I areas"). Some of PacifiCorp's coal-fueled generating facilities in Utah, Wyoming, Arizona and Colorado and certain of Nevada Power's and Sierra Pacific's fossil-fueled generating facilities are subject to the Clean Air Visibility Rules. In accordance with the federal requirements, states are required to submit SIPs that address emissions from sources subject to best available retrofit technology ("BART") requirements and demonstrate progress towards achieving natural visibility requirements in Class I areas by 2064.

The state of Colorado regional haze SIP requires selective catalytic reduction ("SCR") controls at Craig Unit 2 and Hayden Units 1 and 2, in which PacifiCorp has ownership interests. Each of those regional haze compliance projects are either already in service or currently being constructed. In addition, in February 2015, the state of Colorado finalized an amendment to its regional haze SIP relating to Craig Unit 1, in which PacifiCorp has an ownership interest, to require the installation of SCR controls by 2021. In September 2016, the owners of Craig Units 1 and 2 reached an agreement with state and federal agencies and certain environmental groups that were parties to the previous settlement requiring SCR controls to retire Unit 1 by December 31, 2025, in lieu of SCR controls installation, or alternatively to remove the unit from coal-fueled service by August 31, 2021 with an option to convert the unit to natural gas by August 31, 2023, in lieu of SCR controls installation. The terms of the agreement were approved by the Colorado Air Quality Board in December 2016. The terms of the agreement were incorporated into an amended Colorado regional haze SIP in 2017 and were submitted to the EPA for its review and approval. The EPA’s approval of the amended Colorado regional haze SIP was published in the Federal Register July 5, 2018, with an effective date of August 6, 2018. Until the EPA takes final action in each state and decisions have been made in the pending appeals, PacifiCorp, cannot fully determine the impacts of the Regional Haze Rule on its respective generating facilities.

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 took 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. On July 9, 2018, the EPA sent a proposal to replace the Clean Power Plan to the White House Office of Management and Budget for interagency review. 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.

GHG Litigation

Each Registrant closely monitors ongoing environmental litigation applicable to its respective operations. Numerous lawsuits have been unsuccessfully pursued against the industry that attempt to link GHG emissions to public or private harm. The lower courts initially refrained from adjudicating the cases under the "political question" doctrine, because of their inherently political nature. These cases have typically been appealed to federal appellate courts and, in certain circumstances, to the United States Supreme Court. In the U.S. Supreme Court's 2011 decision in the case of American Electric Power Co., Inc., et al. v. Connecticut et al., the court addressed the question of whether federal common law nuisance claims could be maintained against certain electric power companies' for their GHG emissions and require the setting of an emissions cap for the emitters. The court held that the Clean Air Act and the EPA actions it authorizes displace any federal common law right to seek abatement of carbon dioxide emissions from fossil-fuel-fired power plants. Recent efforts by the EPA to repeal the Clean Power Plan could increase the filing of common law nuisance lawsuits against emitters of GHG. Adverse rulings in GHG-related cases could result in increased or changed regulations and could increase costs for GHG emitters, including the Registrants' generating facilities. While the Registrants are not a party to pending climate-related lawsuits, there are several suits pending in federal and state courts related to product liability, public nuisance, consumer protection and trespass cases against certain fossil fuel companies, as well as a case brought under the public trust doctrine against several federal government entities and officials. The GHG rules, changes to those rules, and the Registrants' compliance requirements are subject to potential outcomes from proceedings and litigation challenging the rules.

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. The proposal included provisions 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 closed April 30, 2018 and the EPA published the first phase of the coal combustion rule amendments July 30, 2018, with an effective date of August 28, 2018. Additional substantive revisions to the rule are expected to be finalized by the EPA by December 2019 but have not yet been released for public comment. If adopted, certain elements of the proposal have the potential to reduce costs of compliance. However, until such time as the current or future proposals are final, the impacts on the Registrants cannot be determined. In addition, a notice of intent to sue the EPA under the citizens' suit provisions of the Resource Conservation and Recovery Act was issued July 26, 2018, alleging the EPA's failure to perform nondiscretionary duties related to the development and publication of minimum guidelines for public participation in the approval of state permit programs for coal combustion residuals.

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 June 28, 2018, the EPA's approval of the application was published in the Federal Register. 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 June 30, 2018 , the related consolidated statements of operations for the three-month and six-month periods ended June 30, 2018 and 2017 , and of changes in shareholders’ equity and cash flows for the six-month periods ended June 30, 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

This interim financial information is the responsibility of PacifiCorp 's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to PacifiCorp in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Deloitte & Touche LLP

Portland, Oregon

August 3, 2018

PACIFICORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Amounts in millions)



	As of
	June 30,		December 31,
	2018		2017
ASSETS
Current assets:
Cash and cash equivalents	$	22	$	14
Accounts receivable, net	701		684
Inventories	449		433
Prepaid expenses	62		73
Other current assets	78		111
Total current assets	1,312		1,315

Property, plant and equipment, net	19,292		19,203
Regulatory assets	1,034		1,030
Other assets	321		372

Total assets	$	21,959	$	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
	June 30,			December 31,
	2018			2017
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	390		$	453
Accrued interest	115			115
Accrued property, income and other taxes	139			66
Accrued employee expenses	121			70
Short-term debt	108			80
Current portion of long-term debt and capital lease obligations	852			588
Other current liabilities	257			245
Total current liabilities	1,982			1,617

Long-term debt and capital lease obligations	6,088			6,437
Regulatory liabilities	3,086			2,996
Deferred income taxes	2,556			2,582
Other long-term liabilities	710			733
Total liabilities	14,422			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	3,071			3,089
Accumulated other comprehensive loss, net	(15		)	(15		)
Total shareholders' equity	7,537			7,555

Total liabilities and shareholders' equity	$	21,959		$	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							Six-Month Periods
	Ended June 30,							Ended June 30,
		2018			2017			2018			2017

Operating revenue		$	1,193		$	1,245		$	2,377		$	2,526

Operating expenses:
Cost of fuel and energy		402			399			835			840
Operations and maintenance		261			263			511			517
Depreciation and amortization		197			202			399			398
Property and other taxes		49			48			101			99
Total operating expenses		909			912			1,846			1,854

Operating income		284			333			531			672

Other income (expense):
Interest expense		(96		)	(95		)	(192		)	(190		)
Allowance for borrowed funds		4			4			8			8
Allowance for equity funds		8			7			15			14
Other, net		11			9			22			18
Total other income (expense)		(73		)	(75		)	(147		)	(150		)

Income before income tax expense		211			258			384			522
Income tax expense		27			83			52			168
Net income		$	184		$	175		$	332		$	354

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	—		—		—		354			—			354
Common stock dividends declared	—		—		—		(200		)	—			(200		)
Balance, June 30, 2017	$	2	$	—	$	4,479	$	3,075		$	(12	)	$	7,544

Balance, December 31, 2017	$	2	$	—	$	4,479	$	3,089		$	(15	)	$	7,555
Net income	—		—		—		332			—			332
Common stock dividends declared	—		—		—		(350		)	—			(350		)
Balance, June 30, 2018	$	2	$	—	$	4,479	$	3,071		$	(15	)	$	7,537

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

PACIFICORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Amounts in millions)



	Six-Month Periods
	Ended June 30,
	2018			2017
Cash flows from operating activities:
Net income	$	332		$	354
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	399			398
Allowance for equity funds	(15		)	(14		)
Changes in regulatory assets and liabilities	116			24
Deferred income taxes and amortization of investment tax credits	(52		)	(5		)
Other, net	1			1
Changes in other operating assets and liabilities:
Accounts receivable and other assets	22			65
Inventories	(16		)	(12		)
Derivative collateral, net	(3		)	(4		)
Prepaid expenses	11			10
Accrued property, income and other taxes, net	111			205
Accounts payable and other liabilities	11			21
Net cash flows from operating activities	917			1,043

Cash flows from investing activities:
Capital expenditures	(499		)	(370		)
Other, net	—			1
Net cash flows from investing activities	(499		)	(369		)

Cash flows from financing activities:
Repayments of long-term debt and capital lease obligations	(87		)	(53		)
Net proceeds from (repayments of) short-term debt	28			(270		)
Dividends paid	(350		)	(200		)
Other, net	(1		)	(1		)
Net cash flows from financing activities	(410		)	(524		)

Net change in cash and cash equivalents and restricted cash and cash equivalents	8			150
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	$	37		$	183

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 June 30, 2018 and for the three- and six-month periods ended June 30, 2018 and 2017 . The Consolidated Statements of Comprehensive Income have been omitted as net income equals comprehensive income for the three- and six-month periods ended June 30, 2018 and 2017 . The results of operations for the three- and six-month periods ended June 30, 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 six-month period ended June 30, 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

Cash and Cash Equivalents and Restricted Cash and Cash Equivalents



	As of
	June 30,		December 31,
	2018		2017
Cash and cash equivalents	$	22	$	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	$	37	$	29

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. PacifiCorp adopted this guidance retrospectively effective January 1, 2018 which resulted in the reclassification of certain cash distributions received from equity method investees of $14 million previously recognized within investing cash flows to operating cash flows for the six-month period ended June 30, 2017 .


( 4 )	Property, Plant and Equipment, Net

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



		As of
		June 30,			December 31,
	Depreciable Life	2018			2017
Utility Plant:
Utility plant in-service	5-75 years	$	28,106		$	27,880
Accumulated depreciation and amortization		(9,613		)	(9,366		)
Utility plant in-service, net		18,493			18,514
Other non-regulated, net of accumulated depreciation and amortization	45 years	11			11
Plant, net		18,504			18,525
Construction work-in-progress		788			678
Property, plant and equipment, net		$	19,292		$	19,203


( 5 )	Regulatory Matters

Retail Regulated Rates

The Tax Cuts and Jobs Act enacted on December 22, 2017 ("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 proposed reducing 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, July 1, 2018 in Wyoming and June 1, 2018 in Idaho. In April 2018, the Utah Public Service Commission ("UPSC") ordered a rate reduction of $61 million , or 3.1% , 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. PacifiCorp filed a partial settlement with the Wyoming Public Service Commission ("WPSC") in April 2018 that provides a rate reduction of $26 million , or 3.8% , beginning July 1, 2018, with the remaining tax savings to be deferred to offset other costs. In June 2018, the WPSC approved the rate reduction on an interim basis. In May 2018, the Idaho Public Utility Commission ("IPUC") approved an all-party settlement to implement a rate reduction of $8 million , or 3.0% , beginning June 1, 2018, to begin passing back a portion of the tax benefit. The credit may be adjusted following the next phase of the proceeding. In June 2018, PacifiCorp filed reports with the UPSC, WPSC and IPUC with the calculation of the full impact of the tax law change on revenue requirements. These reports will initiate the next phase of the proceedings in these states. As of June 30, 2018 , the estimated potential refund liability attributable to lower customer rates enabled by the benefits of tax reform was $88 million .


( 6 )	Recent Financing Transactions

Long-Term Debt

In July 2018, PacifiCorp issued $600 million of its 4.125% First Mortgage Bonds due 2049. PacifiCorp used a portion of the net proceeds to repay all of PacifiCorp's $500 million 5.65% First Mortgage Bonds due July 2018 and intends to use the remaining net proceeds to fund capital expenditures and for general corporate purposes.

Credit Facilities

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.

In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") 118 to assist in the implementation process of 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. PacifiCorp has recorded the impacts of 2017 Tax Reform and believes all the impacts to be complete with the exception of the interpretations of the bonus depreciation rules. PacifiCorp has determined the amounts recorded and the interpretations relating to this item to be provisional and subject to remeasurement during the measurement period upon obtaining the necessary additional information to complete the accounting. PacifiCorp 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- and six-month periods ended June 30, 2018 , PacifiCorp did not make material revisions to its previous calculations.

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				Six-Month Periods
	Ended June 30,				Ended June 30,
	2018		2017		2018		2017

Federal statutory income tax rate	21	%	35	%	21	%	35	%
State income tax, net of federal income tax benefit	4		3		4		3
Federal income tax credits	(5	)	(5	)	(5	)	(5	)
Effects of ratemaking	(4	)	1		(4	)	1
Other	(3	)	(2	)	(2	)	(2	)
Effective income tax rate	13	%	32	%	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.


( 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- and six-month periods ended June 30, 2017 of $5 million and $11 million , respectively, have been reclassified to Other, net in the Consolidated Statements of Operations.

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



	Three-Month Periods				Six-Month Periods
	Ended June 30,				Ended June 30,
	2018		2017		2018		2017
Pension:
Service cost	—		—		—		—
Interest cost	10		13		21		25
Expected return on plan assets	(18	)	(18	)	(36	)	(36	)
Net amortization	4		3		7		7
Net periodic benefit credit	(4	)	(2	)	(8	)	(4	)

Other postretirement:
Service cost	1		—		1		1
Interest cost	3		4		6		7
Expected return on plan assets	(6	)	(5	)	(11	)	(11	)
Net amortization	(2	)	(2	)	(3	)	(3	)
Net periodic benefit credit	(4	)	(3	)	(7	)	(6	)

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 June 30, 2018 , $2 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 June 30, 2018
Not designated as hedging contracts ⁽¹⁾ :
Commodity assets	$	12		$	1	$	6		$	—		$	19
Commodity liabilities	(6		)	—		(42		)	(90		)	(138		)
Total	6			1		(36		)	(90		)	(119		)

Total derivatives	6			1		(36		)	(90		)	(119		)
Cash collateral receivable	—			—		19			58			77
Total derivatives - net basis	$	6		$	1	$	(17	)	$	(32	)	$	(42	)

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 June 30, 2018 and December 31, 2017 , a regulatory asset of $116 million and $101 million , respectively, was recorded related to the net derivative liability of $119 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						Six-Month Periods
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017

Beginning balance	$	122		$	103		$	101		$	73
Changes in fair value recognized in net regulatory assets	6			6			34			30
Net (losses) gains reclassified to operating revenue	(1		)	1			6			13
Net losses reclassified to cost of fuel and energy	(11		)	(15		)	(25		)	(21		)
Ending balance	$	116		$	95		$	116		$	95

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	June 30,		December 31,
	Measure	2018		2017

Electricity sales	Megawatt hours	(6	)	(9	)
Natural gas purchases	Decatherms	119		113
Fuel oil purchases	Gallons	5		—

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 June 30, 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 $128 million and $110 million as of June 30, 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 June 30, 2018 and December 31, 2017 , PacifiCorp would have been required to post $41 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 June 30, 2018
Assets:
Commodity derivatives	$	—	$	19		$	—	$	(12	)	$	7
Money market mutual funds ⁽²⁾	21		—			—		—			21
Investment funds	25		—			—		—			25
	$	46	$	19		$	—	$	(12	)	$	53

Liabilities - Commodity derivatives	$	—	$	(138	)	$	—	$	89		$	(49	)

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 June 30, 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 June 30, 2018				As of December 31, 2017
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value

Long-term debt	$	6,920	$	7,849	$	7,005	$	8,370


( 11 )	Commitments and Contingencies

Commitments

During the six-month period ended June 30, 2018 , PacifiCorp entered into non-cancelable agreements totaling $613 million through 2021 for the repowering of certain existing wind facilities in Wyoming and Washington and supply of coal.

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. In April 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, in September 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 in September 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. In March 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. In April 2018, PacifiCorp filed a motion to stay the effective date of the license amendment until transfer is approved. In June 2018, the FERC granted PacifiCorp’s motion to stay the effective date of the Lower Klamath Project license and all related compliance obligations, pending a Commission order on the license transfer. Meanwhile, the FERC continues to assess the KRRC’s capacity to become a project licensee for purposes of dam removal.

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 June 30, 2018 and December 31, 2017 , accounts receivable from contracts with customers, net of allowance for doubtful accounts was $614 million and $635 million , respectively, including unbilled revenue of $271 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- and six-month periods ended June 30, 2018 (in millions):



	Three-Month Period		Six-Month Period
	Ended June 30,		Ended June 30,
	2018		2018
Customer Revenue:
Retail:
Residential	$	365	$	806
Commercial	369		711
Industrial	288		557
Other retail	73		98
Total retail	1,095		2,172
Wholesale	9		31
Transmission	30		52
Other Customer Revenue	20		39
Total Customer Revenue	1,154		2,294
Other revenue	39		83
Total operating revenue	$	1,193	$	2,377

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 June 30, 2018 and December 31, 2017 , there were no material contract assets or contract liabilities recorded on the Consolidated Balance Sheets. During the three- and six-month periods ended June 30, 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.


(13)	Related Party Transactions

Berkshire Hathaway includes BHE and its subsidiaries in its United States federal income tax return. Consistent with established regulatory practice, PacifiCorp's provision for federal and state income tax has been computed on a stand-alone basis, and substantially all of its currently payable or receivable income tax is remitted to or received from BHE. For the six-month periods ended June 30, 2018 and 2017, PacifiCorp made net cash payments for federal and state income tax to BHE totaling $32 million and $3 million , respectively.


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

The following is management's discussion and analysis of certain significant factors that have affected the consolidated financial condition and results of operations of 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 Second Quarter and First Six Months of 2018 and 2017

Overview

Net income for the second quarter of 2018 was $184 million , an increase of $9 million , or 5% , compared to 2017 . Net income increased primarily due to a decrease in income tax expense of $56 million from lower federal tax rates due to the impact of the Tax Cuts and Jobs Act enacted on December 22, 2017 ("2017 Tax Reform") and lower depreciation and amortization of $5 million , partially offset by lower utility margins of $55 million . Utility margins decreased due to lower retail revenue of $67 million from lower average retail rates, including $53 million of refund accruals related to 2017 Tax Reform, and lower volumes, higher purchased electricity costs from higher prices and volumes, and higher natural gas costs from higher volumes, partially offset by higher wholesale revenue from higher volumes and prices and lower coal costs, primarily from lower coal volumes. Retail volumes decreased 1.2% due to lower industrial usage primarily in Utah and Washington, lower residential usage across the entire service area, lower commercial usage primarily in Utah and the impacts of weather on residential customers primarily in Oregon and Utah, partially offset by an increase in the average number of commercial and residential customers primarily in Utah and Oregon, higher industrial customer usage in Wyoming and higher irrigation usage primarily in Idaho and Utah. Energy generated decreased 3% for the second quarter of 2018 compared to 2017 primarily due to lower hydroelectric and coal-fueled generation, offset by higher natural gas-fueled and wind-powered generation. Wholesale electricity sales volumes increased 26% and purchased electricity volumes increased 11% .

Net income for the first six months of 2018 was $332 million , a decrease of $22 million , or 6% , compared to 2017 . Net income decreased primarily due to lower utility margins of $144 million , partially offset by lower income tax expense of $116 million from lower federal tax rates due to the impact of 2017 Tax Reform and lower operations and maintenance expenses of $6 million . Utility margins decreased due to lower retail revenue of $178 million from lower average retail rates, including $106 million of refund accruals related to 2017 Tax Reform, lower retail volumes, higher purchased electricity from higher market prices and volumes, and higher natural gas volumes, partially offset by higher wholesale revenue, primarily from higher volumes, lower coal costs from lower coal volumes, and lower gas prices. Retail customer volumes decreased 2.3% due to the impacts of weather on residential and commercial customers primarily in Oregon, Utah and Washington, lower industrial usage primarily in Utah, Oregon and Washington, lower residential usage primarily in Washington, Wyoming and Oregon and lower commercial usage primarily in Utah, partially offset by an increase in the average number of commercial and residential customers primarily in Utah and Oregon, higher industrial usage in Wyoming and Idaho, and higher irrigation usage primarily in Idaho and Utah. Energy generated decreased 2% for the first six months of 2018 compared to 2017 primarily due to lower hydroelectric and coal-fueled generation, offset by higher natural gas-fueled and wind-powered and generation. Wholesale electricity sales volumes increased 38% and purchased electricity volumes increased 12% .

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

PacifiCorp’s cost of fuel and energy is 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 fuel and energy 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):



	Second Quarter									First Six Months
	2018		2017		Change					2018		2017		Change
Utility margin:
Operating revenue	$	1,193	$	1,245	$	(52	)	(4	)%	$	2,377	2,526		$	(149	)	(6	)%
Cost of fuel and energy	402		399		3			1		835		840		(5		)	(1	)
Utility margin	791		846		(55		)	(7	)	1,542		1,686		(144		)	(9	)
Operations and maintenance	261		263		(2		)	(1	)	511		517		(6		)	(1	)
Depreciation and amortization	197		202		(5		)	(2	)	399		398		1			—
Property and other taxes	49		48		1			2		101		99		2			2
Operating income	$	284	$	333	$	(49	)	(15	)	$	531	$	672	$	(141	)	(21	)

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



	Second Quarter									First Six Months
	2018		2017		Change					2018		2017		Change
Utility margin (in millions):
Operating revenue	$	1,193	$	1,245	$	(52	)	(4	)%	$	2,377	$	2,526	$	(149	)	(6	)%
Cost of fuel and energy	402		399		3			1		835		840		(5		)	(1	)
Utility margin	$	791	$	846	$	(55	)	(7	)	$	1,542	$	1,686	$	(144	)	(9	)

Sales (GWh):
Residential	3,458		3,577		(119		)	(3	)%	7,649		8,038		(389		)	(5	)%
Commercial	4,291		4,264		27			1		8,589		8,520		69			1
Industrial, irrigation and other	5,360		5,425		(65		)	(1	)	10,066		10,378		(312		)	(3	)
Total retail	13,109		13,266		(157		)	(1	)	26,304		26,936		(632		)	(2	)
Wholesale	1,713		1,362		351			26		4,161		3,012		1,149			38
Total sales	14,822		14,628		194			1		30,465		29,948		517			2

Average number of retail customers
(in thousands)	1,895		1,864		31			2	%	1,893		1,861		32			2	%

Average revenue per MWh:
Retail	$	83.58	$	87.65	$	(4.07	)	(5	)%	$	82.56	$	87.22	$	(4.66	)	(5	)%
Wholesale	$	27.19	$	23.99	$	3.20		13	%	$	27.03	$	29.92	$	(2.89	)	(10	)%

Heating degree days	1,111		1,410		(299		)	(21	)%	5,447		6,168		(721		)	(12	)%
Cooling degree days	448		536		(88		)	(16	)%	448		538		(90		)	(17	)%

Sources of energy (GWh) ⁽¹⁾ :
Coal	7,079		7,516		(437		)	(6	)%	15,721		16,356		(635		)	(4	)%
Natural gas	1,981		1,323		658			50		3,929		3,161		768			24
Hydroelectric ⁽²⁾	1,037		1,578		(541		)	(34	)	2,173		2,957		(784		)	(27	)
Wind and other ⁽²⁾	715		690		25			4		1,784		1,570		214			14
Total energy generated	10,812		11,107		(295		)	(3	)	23,607		24,044		(437		)	(2	)
Energy purchased	4,718		4,237		481			11		8,773		7,822		951			12
Total	15,530		15,344		186			1		32,380		31,866		514			2

Average cost of energy per MWh:
Energy generated ⁽³⁾	$	18.82	$	18.22	$	0.60		3	%	$	18.64	$	18.80	$	(0.16	)	(1	)%
Energy purchased	$	34.07	$	34.50	$	(0.43	)	(1	)%	$	36.90	$	37.85	$	(0.95	)	(3	)%


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


(2)	All or some of the renewable energy attributes associated with generation from these generating facilities may be: (a) used in future years to comply with RPS or other regulatory requirements or (b) sold to third parties in the form of RECs or other environmental commodities.


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

Utility margin decreased $55 million , or 7% , for the second quarter of 2018 compared to 2017 primarily due to:


•	$54 million of lower retail revenue primarily due to lower average retail rates, including the impact of lower federal tax rates due to 2017 Tax Reform of $53 million;


•	$15 million of higher purchased electricity costs due to higher prices and volumes;

•

$13 million of lower retail revenues due to decreased volumes of 1.2% due to lower industrial usage primarily in Utah and Washington, the impacts of weather on residential customers primarily in Oregon and Utah, lower residential usage across the entire service area and lower commercial usage primarily in Utah, partially offset by an increase in the average number of commercial and residential customers primarily in Utah and Oregon, higher industrial usage in Wyoming and higher irrigation usage primarily in Idaho and Utah; and


•	$6 million of higher natural gas costs due to higher volumes partially offset by lower prices.

The decreases above were partially offset by:


•	$14 million of higher wholesale revenue from higher volumes and average prices;


•	$14 million of higher net deferrals of incurred net power costs in accordance with established adjustment mechanisms; and


•	$5 million of lower coal costs primarily due to lower volumes partially offset by higher prices.

Operations and maintenance decreased $2 million , or 1% , for the second quarter of 2018 compared to 2017 primarily due to lower salary and benefits expense.

Depreciation and amortization decreased $5 million , or 2% , for the second quarter of 2018 compared to 2017 primarily due to an adjustment to the Oregon accelerated depreciation reserve based on the Oregon allocation factor in 2018, partially offset by increased assets placed in service in the current quarter.

Income tax expense decreased $56 million , or 67% , for the second quarter of 2018 compared to 2017. The effective tax rate was 13% 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.

Utility margin decreased $144 million , or 9% , for the first six months of 2018 compared to 2017 primarily due to:


•	$125 million of lower retail revenue from lower prices, including the impact of lower federal tax rates due to 2017 Tax Reform of $106 million;

•

$53 million of lower retail revenue from lower retail customer volumes. Retail volumes decreased 2.3% 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;


•	$28 million of higher purchased electricity costs due to higher prices and volumes; and


•	$3 million of higher natural gas costs due to higher volumes, offset by lower prices.

The decreases above were partially offset by:


•	$23 million of higher net deferrals of incurred net power costs in accordance with established adjustment mechanisms;


•	$22 million of higher wholesale revenue from higher volumes, offset by lower average prices; and


•	$15 million of lower coal costs primarily due to lower volumes.

Operations and maintenance decreased $6 million , or 1% , for the first six months of 2018 compared to 2017 primarily due to a lower salary and benefits expense.

Income tax expense decreased $116 million , or 69% , for the first six months 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 June 30, 2018 , PacifiCorp's total net liquidity was as follows (in millions):



Cash and cash equivalents	$	22

Credit facilities	1,200
Less:
Short-term debt	(108		)
Tax-exempt bond support	(89		)
Net credit facilities	1,003

Total net liquidity	$	1,025

Credit facilities:
Maturity dates	2021

Operating Activities

Net cash flows from operating activities for the six-month periods ended June 30, 2018 and 2017 were $917 million and $1,043 million , respectively. The change was primarily due to lower current year collections from retail customers, higher current year purchased power costs and income tax paid, partially offset by a current year decrease in payroll payments due to timing and higher current year collections from wholesale customers.

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 tax as well as lower bonus depreciation benefits as a result of 2017 Tax Reform and related regulatory treatment. PacifiCorp does not expect 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.

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. PacifiCorp’s current repowering projects are expected to earn production tax credits at 100% of the value of such credits.

Investing Activities

Net cash flows from investing activities for the six-month periods ended June 30, 2018 and 2017 were $(499) million and $(369) million , respectively. The change is primarily the result of a current year increase in capital expenditures of $129 million . Refer to "Future Uses of Cash" for discussion of capital expenditures.

Financing Activities

Net cash flows from financing activities for the six-month period ended June 30, 2018 was $(410) million . Uses of cash consisted substantially of $350 million for common stock dividends paid to PPW Holdings LLC and $86 million for the repayment of long-term debt, offset by $28 million net proceeds from short-term debt.

Net cash flows from financing activities for the six-month period ended June 30, 2017 was $(524) million . Uses of cash consisted substantially of $270 million for the repayment of short-term debt, $200 million for common stock dividends paid to PPW Holdings LLC and $50 million for the repayment of long-term debt.

Short-term Debt

Regulatory authorities limit PacifiCorp to $1.5 billion of short-term debt. As of June 30, 2018 , PacifiCorp had $108 million of short-term debt outstanding at a weighted average interest rate of 2.15%. 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

In July 2018, PacifiCorp issued $600 million of its 4.125% First Mortgage Bonds due January 2049. PacifiCorp used a portion of the net proceeds to repay all of PacifiCorp's $500 million 5.65% First Mortgage Bonds due July 2018 and intends to use the remaining net proceeds to fund capital expenditures and for general corporate purposes.

PacifiCorp currently has regulatory authority from the OPUC and the IPUC to issue an additional $725 million of long-term debt. PacifiCorp must make a notice filing with the WUTC prior to any future issuance.

As of June 30, 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 June 30, 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):



	Six-Month Periods				Annual
	Ended June 30,				Forecast
	2017		2018		2018

Transmission system investment	$	49	$	23	$	71
Wind investment	5		55		412
Advanced meter infrastructure	14		29		78
Operating and other	302		392		637
Total	$	370	$	499	$	1,198

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.

•

Construction of wind-powered generating facilities at PacifiCorp totaling $2 million for each of the six-month periods ended June 30, 2018 and 2017 . PacifiCorp anticipates costs for these activities will total an additional $63 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 totaling $53 million and $3 million for the six-month periods ended June 30, 2018 and 2017 , respectively. PacifiCorp anticipates costs for these activities will total an additional $294 million for 2018 . The repowering projects are expected to be placed in-service at various dates in 2019 and 2020. 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.


•	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.

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 in December 2017, the UPSC acknowledged the 2017 IRP in March 2018, the IPUC acknowledged the 2017 IRP in April 2018, and the WUTC acknowledged the 2017 IRP in May 2018. PacifiCorp filed its 2017 IRP Update with its state commissions, except for California, in May 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 is finalizing agreements to acquire energy and capacity from three wind facilities totaling 1,150 MWs, consisting of 950 MWs owned and 200 MWs as a power-purchase agreement.

Contractual Obligations

As of June 30, 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 June 30, 2018 , the related statements of operations for the three-month and six-month periods ended June 30, 2018 and 2017 , and of changes in shareholder's equity and cash flows for the six-month periods ended June 30, 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 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 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

August 3, 2018

MIDAMERICAN ENERGY COMPANY

BALANCE SHEETS (Unaudited)

(Amounts in millions)



	As of
	June 30,		December 31,
	2018		2017
ASSETS
Current assets:
Cash and cash equivalents	$	369	$	172
Accounts receivable, net	339		344
Income tax receivable	18		51
Inventories	201		245
Other current assets	117		134
Total current assets	1,044		946

Property, plant and equipment, net	14,672		14,207
Regulatory assets	225		204
Investments and restricted investments	729		728
Other assets	216		233

Total assets	$	16,886	$	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
	June 30,		December 31,
	2018		2017
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable	$	270	$	452
Accrued interest	53		48
Accrued property, income and other taxes	239		132
Current portion of long-term debt	500		350
Other current liabilities	139		128
Total current liabilities	1,201		1,110

Long-term debt	4,880		4,692
Regulatory liabilities	1,779		1,661
Deferred income taxes	2,190		2,237
Asset retirement obligations	538		528
Other long-term liabilities	321		326
Total liabilities	10,909		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	5,416		5,203
Total shareholder's equity	5,977		5,764

Total liabilities and shareholder's equity	$	16,886	$	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						Six-Month Periods
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017
Operating revenue:
Regulated electric	$	589		$	537		$	1,058		$	970
Regulated gas and other	128			121			405			383
Total operating revenue	717			658			1,463			1,353

Operating expenses:
Cost of fuel and energy	118			110			226			212
Cost of gas purchased for resale and other	67			62			246			234
Operations and maintenance	207			186			397			357
Depreciation and amortization	208			141			366			258
Property and other taxes	30			29			62			60
Total operating expenses	630			528			1,297			1,121

Operating income	87			130			166			232

Other income (expense):
Interest expense	(56		)	(53		)	(114		)	(106		)
Allowance for borrowed funds	4			3			8			5
Allowance for equity funds	13			8			23			14
Other, net	12			7			21			18
Total other income (expense)	(27		)	(35		)	(62		)	(69		)

Income before income tax benefit	60			95			104			163
Income tax benefit	(46		)	(39		)	(108		)	(76		)

Net income	$	106		$	134		$	212		$	239

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

MIDAMERICAN ENERGY COMPANY

STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (Unaudited)

(Amounts in millions)



	Common Stock		Additional Paid-in Capital		Retained Earnings			Total Shareholder's Equity

Balance, December 31, 2016	$	—	$	561	$	4,599		$	5,160
Net income	—		—		239			239
Other equity transactions	—		—		(1		)	(1		)
Balance, June 30, 2017	$	—	$	561	$	4,837		$	5,398

Balance, December 31, 2017	$	—	$	561	$	5,203		$	5,764
Net income	—		—		212			212
Other equity transactions	—		—		1			1
Balance, June 30, 2018	$	—	$	561	$	5,416		$	5,977

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

MIDAMERICAN ENERGY COMPANY

STATEMENTS OF CASH FLOWS (Unaudited)

(Amounts in millions)



	Six-Month Periods
	Ended June 30,
	2018			2017
Cash flows from operating activities:
Net income	$	212		$	239
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	366			258
Amortization of utility plant to other operating expenses	17			17
Allowance for equity funds	(23		)	(14		)
Deferred income taxes and amortization of investment tax credits	(10		)	27
Other, net	7			(1		)
Changes in other operating assets and liabilities:
Accounts receivable and other assets	1			16
Inventories	45			30
Derivative collateral, net	—			2
Contributions to pension and other postretirement benefit plans, net	(7		)	(5		)
Accounts payable and other liabilities	(97		)	(75		)
Accrued property, income and other taxes, net	140			(83		)
Net cash flows from operating activities	651			411

Cash flows from investing activities:
Capital expenditures	(818		)	(545		)
Purchases of marketable securities	(147		)	(81		)
Proceeds from sales of marketable securities	125			77
Other, net	27			(3		)
Net cash flows from investing activities	(813		)	(552		)

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		)
Other, net	(1		)	—
Net cash flows from financing activities	336			489

Net change in cash and cash equivalents and restricted cash and cash equivalents	174			348
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	$	456		$	374

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 June 30, 2018 , and for the three- and six-month periods ended June 30, 2018 and 2017 . The results of operations for the three- and six-month periods ended June 30, 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 six-month period ended June 30, 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 June 30, 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 June 30, 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
	June 30,		December 31
	2018		2017

Cash and cash equivalents	$	369	$	172
Restricted cash and cash equivalents in other current assets	87		110
Total cash and cash equivalents and restricted cash and cash equivalents	$	456	$	282


( 4 )	Property, Plant and Equipment, Net

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



		As of
		June 30,			December 31,
	Depreciable Life	2018			2017
Utility plant in service, net:
Generation	20-70 years	$	12,102		$	12,107
Transmission	52-75 years	1,858			1,838
Electric distribution	20-75 years	3,463			3,380
Gas distribution	29-75 years	1,671			1,640
Utility plant in service		19,094			18,965
Accumulated depreciation and amortization		(5,731		)	(5,561		)
Utility plant in service, net		13,363			13,404
Nonregulated property, net:
Nonregulated property gross	20-50 years	7			7
Accumulated depreciation and amortization		(1		)	(1		)
Nonregulated property, net		6			6
		13,369			13,410
Construction work-in-progress		1,303			797
Property, plant and equipment, net		$	14,672		$	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.

Iowa Senate File 2417

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				Six-Month Periods
	Ended June 30,				Ended June 30,
	2018		2017		2018		2017

Federal statutory income tax rate	21	%	35	%	21	%	35	%
Income tax credits	(80	)	(67	)	(104	)	(73	)
State income tax, net of federal income tax benefit	(7	)	(4	)	(8	)	(2	)
Effects of ratemaking	(9	)	(5	)	(13	)	(7	)
Other, net	(2	)	—		—		—
Effective income tax rate	(77	)%	(41	)%	(104	)%	(47	)%

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 and Iowa state income tax returns. Consistent with established regulatory practice, MidAmerican Energy 's provision for income tax has been computed on a stand-alone basis, and substantially all of its currently payable or receivable income tax is remitted to or received from BHE . MidAmerican Energy received net cash payments for income tax from BHE totaling $228 million and $7 million for the six-month periods ended June 30, 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, for the three- and six-month periods ended June 30, 2017 , amounts other than the service cost for pension and other postretirement benefit plans totaling $6 million and $11 million have been reclassified to other, net in the Statements of Operations of the participating subsidiaries, of which $5 million and $10 million , respectively, relates to MidAmerican Energy.

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						Six-Month Periods
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017
Pension:
Service cost	$	2		$	3		$	4		$	5
Interest cost	7			7			14			15
Expected return on plan assets	(11		)	(11		)	(22		)	(22		)
Net amortization	—			1			1			1
Net periodic benefit credit	$	(2	)	$	—		$	(3	)	$	(1	)

Other postretirement:
Service cost	$	2		$	1		$	3		$	2
Interest cost	2			2			4			4
Expected return on plan assets	(4		)	(4		)	(7		)	(7		)
Net amortization	(1		)	(1		)	(2		)	(2		)
Net periodic benefit credit	$	(1	)	$	(2	)	$	(2	)	$	(3	)

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 June 30, 2018 , $3 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 June 30, 2018:
Assets:
Commodity derivatives	$	—	$	2		$	1		$	(1	)	$	2
Money market mutual funds ⁽²⁾	346		—			—			—			346
Debt securities:
United States government obligations	184		—			—			—			184
International government obligations	—		4			—			—			4
Corporate obligations	—		36			—			—			36
Municipal obligations	—		2			—			—			2
Equity securities:
United States companies	289		—			—			—			289
International companies	6		—			—			—			6
Investment funds	20		—			—			—			20
	$	845	$	44		$	1		$	(1	)	$	889

Liabilities - commodity derivatives	$	—	$	(7	)	$	(2	)	$	2		$	(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 $1 million and $- million as of June 30, 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						Six-Month Periods
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017

Beginning balance	$	—		$	1		$	3		$	(2	)
Changes in fair value recognized in net regulatory assets	(1		)	(2		)	(3		)	—
Settlements	—			—			(1		)	1
Ending balance	$	(1	)	$	(1	)	$	(1	)	$	(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 June 30, 2018				As of December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value

Long-term debt	$	5,380	$	5,653	$	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 required 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 June 30, 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, 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 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. The approved tax reform rider mechanisms for each jurisdiction function consistent with MidAmerican Energy's other bill riders in that over or under collection from customers at any given time is included in accounts receivable, net, on the Balance Sheets.


( 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 June 30, 2018 and December 31, 2017 , receivables, net on the Balance Sheets relate substantially to Customer Revenue, including unbilled revenue of $123 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- and six-month periods ended June 30, 2018 (in millions):



Three-Month Period	Electric		Gas		Other		Total
Customer Revenue:
Retail:
Residential	$	173	$	65	$	—	$	238
Commercial	80		21		—		101
Industrial	195		5		—		200
Gas transportation services	—		6		—		6
Other retail ⁽¹⁾	57		6		—		63
Total retail	505		103		—		608
Wholesale	63		23		—		86
Multi value transmission projects	14		—		—		14
Other Customer Revenue	—		—		1		1
Total Customer Revenue	582		126		1		709
Other revenue	7		1		—		8
Total operating revenue	$	589	$	127	$	1	$	717




Six-Month Period	Electric		Gas		Other		Total
Customer Revenue:
Retail:
Residential	$	334	$	233	$	—	$	567
Commercial	151		83		—		234
Industrial	340		10		—		350
Gas transportation services	—		19		—		19
Other retail	67		—		—		67
Total retail	892		345		—		1,237
Wholesale	125		55		—		180
Multi value transmission projects	29		—		—		29
Other Customer Revenue	—		—		3		3
Total Customer Revenue	1,046		400		3		1,449
Other revenue	12		2		—		14
Total operating revenue	$	1,058	$	402	$	3	$	1,463

(1)

Other retail for the three-month period ended June 30, 2018, includes the reversal of provisions for potential retail rate refunds previously accrued during the three-month period ended March 31, 2018. Upon resolution of the related regulatory proceedings, rates were reduced and such reductions are reflected in the applicable customer classes. 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 June 30, 2018 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						Six-Month Periods
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017
Operating revenue:
Regulated electric	$	589		$	537		$	1,058		$	970
Regulated gas	127			120			402			382
Other	1			1			3			1
Total operating revenue	$	717		$	658		$	1,463		$	1,353

Operating income:
Regulated electric	$	78		$	125		$	114		$	188
Regulated gas	8			5			51			44
Other	1			—			1			—
Total operating income	87			130			166			232
Interest expense	(56		)	(53		)	(114		)	(106		)
Allowance for borrowed funds	4			3			8			5
Allowance for equity funds	13			8			23			14
Other, net	12			7			21			18
Income before income tax benefit	$	60		$	95		$	104		$	163



	As of
	June 30, 2018		December 31, 2017
Assets:
Regulated electric	$	15,612	$	14,914
Regulated gas	1,274		1,403
Other	—		1
Total assets	$	16,886	$	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 June 30, 2018 , the related consolidated statements of operations for the three-month and six-month periods ended June 30, 2018 and 2017 , and of changes in member's equity and cash flows for the six-month periods ended June 30, 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 member'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 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

August 3, 2018

MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Amounts in millions)



	As of
	June 30,		December 31,
	2018		2017
ASSETS
Current assets:
Cash and cash equivalents	$	370	$	172
Accounts receivable, net	341		348
Income tax receivable	18		64
Inventories	201		245
Other current assets	116		134
Total current assets	1,046		963

Property, plant and equipment, net	14,686		14,221
Goodwill	1,270		1,270
Regulatory assets	225		204
Investments and restricted investments	731		730
Other assets	214		233

Total assets	$	18,172	$	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
	June 30,		December 31,
	2018		2017
LIABILITIES AND MEMBER'S EQUITY
Current liabilities:
Accounts payable	$	270	$	451
Accrued interest	58		53
Accrued property, income and other taxes	230		133
Note payable to affiliate	161		164
Current portion of long-term debt	500		350
Other current liabilities	140		128
Total current liabilities	1,359		1,279

Long-term debt	5,120		4,932
Regulatory liabilities	1,779		1,661
Deferred income taxes	2,188		2,235
Asset retirement obligations	538		528
Other long-term liabilities	322		326
Total liabilities	11,306		10,961

Commitments and contingencies (Note 10)

Member's equity:
Paid-in capital	1,679		1,679
Retained earnings	5,187		4,981
Total member's equity	6,866		6,660

Total liabilities and member's equity	$	18,172	$	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						Six-Month Periods
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017
Operating revenue:
Regulated electric	$	589		$	537		$	1,058		$	970
Regulated gas and other	129			122			407			385
Total operating revenue	718			659			1,465			1,355

Operating expenses:
Cost of fuel and energy	118			110			226			212
Cost of gas purchased for resale and other	67			63			247			235
Operations and maintenance	208			185			398			357
Depreciation and amortization	208			141			366			258
Property and other taxes	30			29			62			60
Total operating expenses	631			528			1,299			1,122

Operating income	87			131			166			233

Other income (expense):
Interest expense	(61		)	(59		)	(124		)	(118		)
Allowance for borrowed funds	4			3			8			5
Allowance for equity funds	13			8			23			14
Other, net	13			7			23			18
Total other income (expense)	(31		)	(41		)	(70		)	(81		)

Income before income tax benefit	56			90			96			152
Income tax benefit	(47		)	(41		)	(110		)	(81		)

Net income	$	103		$	131		$	206		$	233

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

100

MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES

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

(Amounts in millions)



	Paid-in Capital		Retained Earnings		Total Member's Equity

Balance, December 31, 2016	$	1,679	$	4,407	$	6,086
Net income	—		233		233
Balance, June 30, 2017	$	1,679	$	4,640	$	6,319

Balance, December 31, 2017	$	1,679	$	4,981	$	6,660
Net income	—		206		206
Balance, June 30, 2018	$	1,679	$	5,187	$	6,866

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

101

MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Amounts in millions)



	Six-Month Periods
	Ended June 30,
	2018			2017
Cash flows from operating activities:
Net income	$	206		$	233
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	366			258
Amortization of utility plant to other operating expenses	17			17
Allowance for equity funds	(23		)	(14		)
Deferred income taxes and amortization of investment tax credits	(10		)	27
Other, net	9			(1		)
Changes in other operating assets and liabilities:
Accounts receivable and other assets	4			18
Inventories	45			30
Derivative collateral, net	—			2
Contributions to pension and other postretirement benefit plans, net	(7		)	(5		)
Accounts payable and other liabilities	(96		)	(74		)
Accrued property, income and other taxes, net	143			(88		)
Net cash flows from operating activities	654			403

Cash flows from investing activities:
Capital expenditures	(818		)	(545		)
Purchases of marketable securities	(147		)	(81		)
Proceeds from sales of marketable securities	125			77
Other, net	27			(5		)
Net cash flows from investing activities	(813		)	(554		)

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	(3		)	10
Net repayments of short-term debt	—			(99		)
Net cash flows from financing activities	334			499

Net change in cash and cash equivalents and restricted cash and cash equivalents	175			348
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	$	457		$	375

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

102

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 June 30, 2018 , and for the three- and six-month periods ended June 30, 2018 and 2017 . The results of operations for the three- and six-month periods ended June 30, 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 six-month period ended June 30, 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

103

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 June 30, 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 June 30, 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
	June 30		December 31
	2018		2017

Cash and cash equivalents	$	370	$	172
Restricted cash and cash equivalents in other current assets	87		110
Total cash and cash equivalents and restricted cash and cash equivalents	$	457	$	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 June 30, 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

Tax Cuts and Jobs Act

Iowa Senate File 2417

104

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				Six-Month Periods
	Ended June 30,				Ended June 30,
	2018		2017		2018		2017

Federal statutory income tax rate	21	%	35	%	21	%	35	%
Income tax credits	(86	)	(71	)	(113	)	(78	)
State income tax, net of federal income tax benefit	(8	)	(5	)	(9	)	(2	)
Effects of ratemaking	(10	)	(5	)	(14	)	(8	)
Other, net	(1	)	—		—		—
Effective income tax rate	(84	)%	(46	)%	(115	)%	(53	)%

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 and Iowa state income tax returns. Consistent with established regulatory practice, MidAmerican Funding 's and MidAmerican Energy's provisions for income tax have been computed on a stand-alone basis, and substantially all of their currently payable or receivable income tax is remitted to or received from BHE . MidAmerican Funding received net cash payments for income tax from BHE totaling $234 million and $8 million for the six-month periods ended June 30, 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 June 30, 2018				As of December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value

Long-term debt	$	5,620	$	5,953	$	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.

105


( 11 )	Revenue from Contracts with Customers

Refer to Note 11 of MidAmerican Energy's Notes to Financial Statements. Additionally, MidAmerican Funding had $1 million and $2 million of other Accounting Standards Codification Topic 606 revenue for the three-month and six-month periods ended June 30, 2018 , respectively.


( 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						Six-Month Periods
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017
Operating revenue:
Regulated electric	$	589		$	537		$	1,058		$	970
Regulated gas	127			120			402			382
Other	2			2			5			3
Total operating revenue	$	718		$	659		$	1,465		$	1,355

Operating income:
Regulated electric	$	78		$	125		$	114		$	188
Regulated gas	8			5			51			44
Other	1			1			1			1
Total operating income	87			131			166			233
Interest expense	(61		)	(59		)	(124		)	(118		)
Allowance for borrowed funds	4			3			8			5
Allowance for equity funds	13			8			23			14
Other, net	13			7			23			18
Income before income tax benefit	$	56		$	90		$	96		$	152



	As of
	June 30, 2018		December 31, 2017
Assets ⁽¹⁾ :
Regulated electric	$	16,803	$	16,105
Regulated gas	1,353		1,482
Other	16		34
Total assets	$	18,172	$	17,621



(1)	Assets by reportable segment reflect the assignment of goodwill to applicable reporting units.

106


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 Second Quarter and First Six Months of 2018 and 2017

Overview

MidAmerican Energy -

MidAmerican Energy's net income for the second quarter of 2018 was $106 million , a decrease of $28 million , or 21% , compared to 2017 primarily due to higher depreciation and amortization of $67 million from changes in accruals for Iowa revenue sharing and additional plant in-service and higher fossil-fueled generation maintenance of $13 million, partially offset by higher electric utility margins of $44 million and a higher income tax benefit of $6 million primarily from a lower federal tax rate, net of a $15 million reduction in recognized production tax credits. Electric utility margins increased due to higher recoveries through bill riders, higher retail customer volumes of 8.1% from industrial growth and the favorable impact of weather, partially offset by lower average rates of $27 million predominantly from accruals related to the Tax Cuts and Jobs Act enacted on December 22, 2017 ("2017 Tax Reform") and higher generation and purchased power costs.

MidAmerican Energy's net income for the first six months of 2018 was $212 million , a decrease of $27 million , or 11% , compared to 2017 primarily due to higher depreciation and amortization of $108 million from changes in accruals for Iowa revenue sharing and additional plant in-service, higher fossil-fueled generation maintenance of $15 million, higher wind-powered generation maintenance of $11 million and increases in other operating expenses, partially offset by higher electric utility margins of $74 million, higher natural gas utility margins of $8 million and a higher income tax benefit of $29 million primarily from a lower federal tax rate, net of a $10 million reduction in recognized production tax credits. Electric utility margins increased due to higher recoveries through bill riders, higher retail customer volumes of 7.5% from the favorable impact of weather and industrial growth and higher transmission revenue, partially offset by lower average rates of $53 million predominantly from accruals related to 2017 Tax Reform and higher generation and purchased power costs. Natural gas utility margins increased due to higher retail sales volumes of 24.7% from colder temperatures, partially offset by lower average rates partially due to accruals related to 2017 Tax Reform.

MidAmerican Funding -

MidAmerican Funding's net income for the second quarter of 2018 was $103 million , a decrease of $28 million , or 21% , compared to 2017 . MidAmerican Funding's net income for the first six months of 2018 was $206 million , a decrease of $27 million , or 12% , compared to 2017 . The decreases 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 and energy, which are captions presented on the Statements of Operations. Gas Utility Margin is calculated as regulated gas operating revenue less regulated cost of gas purchased for resale, which are included in regulated gas and other and cost of gas purchased for resale and other, respectively, on the Statements of Operations.

107

MidAmerican Energy’s cost of fuel and energy and regulated cost of gas purchased for resale 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 MidAmerican Energy's operating income (in millions):



	Second Quarter									First Six Months
	2018		2017		Change					2018		2017		Change
Electric utility margin:
Regulated electric operating revenue	$	589	$	537	$	52		10	%	$	1,058	$	970	$	88		9	%
Cost of fuel and energy	118		110		8			7		226		212		14			7
Electric utility margin	471		427		44			10		832		758		74			10

Gas utility margin:
Regulated gas operating revenue	127		120		7			6	%	402		382		20			5
Cost of gas purchased for resale	67		62		5			8		246		234		12			5
Gas utility margin	60		58		2			3		156		148		8			5

Utility margin	531		485		46			9	%	988		906		82			9

Other operating revenue	1		1		—			—		3		1		2			*
Operations and maintenance	207		186		21			11	%	397		357		40			11
Depreciation and amortization	208		141		67			48		366		258		108			42
Property and other taxes	30		29		1			3		62		60		2			3

Operating income	$	87	$	130	$	(43	)	(33	)%	$	166	$	232	$	(66	)	(28	)

* Not meaningful.

108

Regulated Electric Utility Margin

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



	Second Quarter									First Six Months
	2018		2017		Change					2018		2017		Change
Electric utility margin (in millions):
Operating revenue	$	589	$	537	$	52		10	%	$	1,058	$	970	$	88		9	%
Cost of fuel and energy	118		110		8			7		226		212		14			7
Electric utility margin	$	471	$	427	$	44		10		$	832	$	758	$	74		10

Electricity Sales (GWh):
Residential	1,569		1,394		175			13	%	3,355		2,963		392			13	%
Commercial	934		882		52			6		1,919		1,809		110			6
Industrial	3,483		3,250		233			7		6,608		6,255		353			6
Other	400		382		18			5		803		774		29			4
Total retail	6,386		5,908		478			8		12,685		11,801		884			7
Wholesale	2,454		2,878		(424		)	(15	)	5,019		5,591		(572		)	(10	)
Total sales	8,840		8,786		54			1		17,704		17,392		312			2

Average number of retail customers (in thousands)	778		769		9			1	%	778		767		11			1	%

Average revenue per MWh:
Retail	$	79.32	$	75.19	$	4.13		5	%	$	70.55	$	67.78	$	2.77		4	%
Wholesale	$	25.79	$	24.37	$	1.42		6	%	$	24.19	$	23.43	$	0.76		3	%

Heating degree days	700		496		204			41	%	4,035		3,159		876			28	%
Cooling degree days	511		346		165			48	%	511		346		165			48	%

Sources of energy (GWh) ⁽¹⁾ :
Coal	3,405		3,703		(298		)	(8	)%	6,734		6,665		69			1	%
Nuclear	957		927		30			3		1,848		1,859		(11		)	(1	)
Natural gas	229		10		219			*		274		17		257			*
Wind and other ⁽²⁾	3,280		3,416		(136		)	(4	)	7,265		7,200		65			1
Total energy generated	7,871		8,056		(185		)	(2	)	16,121		15,741		380			2
Energy purchased	1,168		868		300			35		1,956		1,944		12			1
Total	9,039		8,924		115			1		18,077		17,685		392			2


*	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.

109

Regulated electric utility margin increased $44 million for the second quarter of 2018 compared to 2017 primarily due to:


(1)	Higher retail utility margin of $46 million due to -


•	an increase of $54 million from higher recoveries through bill riders, including $5 million of electric DSM program revenue (offset in operating expense);


•	an increase of $19 million from the impact of weather;


•	an increase of $14 million from non-weather-related usage factors, including higher industrial sales volumes; partially offset by


•	a decrease of $27 million in average rates predominantly from accruals related to 2017 Tax Reform; and


•	a decrease of $14 million from higher retail energy costs primarily due to higher generation and purchased power costs; and


(2)	Lower Multi-Value Projects ("MVPs") transmission revenue of $2 million due to refund accruals for lower than anticipated capital additions.

Regulated electric utility margin increased $74 million for the first six months of 2018 compared to 2017 primarily due to:


(1)	Higher retail utility margin of $68 million due to -


•	an increase of $87 million from higher recoveries through bill riders, including $12 million of electric DSM program revenue (offset in operating expense);


•	an increase of $28 million from the impact of weather;


•	an increase of $27 million from non-weather-related usage factors, including higher industrial sales volumes; partially offset by


•	a decrease of $53 million in averages rates predominantly from accruals related to 2017 Tax Reform; and


•	a decrease of $21 million from higher retail energy costs primarily due to higher generation and purchased power costs;


(2)	Higher Multi-Value Projects ("MVPs") transmission revenue of $4 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, substantially offset by lower sales volumes.

110

Regulated Gas Utility Margin

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



	Second Quarter									First Six Months
	2018		2017		Change					2018		2017		Change
Gas utility margin (in millions):
Operating revenue	$	127	$	120	$	7		6	%	$	402	$	382	$	20		5	%
Cost of gas purchased for resale	67		62		5			8		246		234		12			5
Gas utility margin	$	60	$	58	$	2		3		$	156	$	148	$	8		5

Natural gas throughput (000's Dth):
Residential	7,641		5,551		2,090			38	%	33,720		26,669		7,051			26	%
Commercial	3,757		2,740		1,017			37		16,010		13,009		3,001			23
Industrial	1,289		870		419			48		2,705		2,353		352			15
Other	8		6		2			33		30		27		3			11
Total retail sales	12,695		9,167		3,528			38		52,465		42,058		10,407			25
Wholesale sales	9,195		7,697		1,498			19		20,371		20,296		75			—
Total sales	21,890		16,864		5,026			30		72,836		62,354		10,482			17
Gas transportation service	22,632		20,288		2,344			12		52,092		45,647		6,445			14
Total gas throughput	44,522		37,152		7,370			20		124,928		108,001		16,927			16

Average number of retail customers (in thousands)	755		746		9			1	%	757		747		10			1	%
Average revenue per retail Dth sold	$	7.56	$	9.81	$	(2.25	)	(23)	%	$	6.24	$	7.25	$	(1.01	)	(14)	%
Average cost of natural gas per retail Dth sold	$	3.42	$	4.38	$	(0.96	)	(22)	%	$	3.63	$	4.17	$	(0.54	)	(13)	%

Combined retail and wholesale average cost of natural gas per Dth sold	$	3.04	$	3.69	$	(0.65	)	(18)	%	$	3.37	$	3.75	$	(0.38	)	(10)	%

Heating degree days	734		552		182			33	%	4,177		3,361		816			24	%

Regulated gas revenue includes purchased gas adjustment clauses through which MidAmerican Energy is allowed to recover the cost of gas purchased for resale from its retail gas utility customers. Consequently, fluctuations in the cost of gas purchased for resale do not directly affect utility margin or net income because regulated gas revenue reflects comparable fluctuations through the purchased gas adjustment clauses. For the second quarter of 2018 , MidAmerican Energy's combined retail and wholesale average per-unit cost of gas decreased 18% , resulting in a decrease of $14 million in gas revenue and cost of gas purchased for resale compared to 2017 , which was more than offset by higher gas sales volumes. For the first six months of 2018 , MidAmerican Energy's combined retail and wholesale average per-unit cost of gas decreased 10% , resulting in a decrease of $27 million in gas revenue and cost of gas purchased for resale compared to 2017 , which was more than offset by higher gas sales volumes.

Regulated gas utility margin increased $2 million for the second quarter of 2018 compared to 2017 primarily due to:


(1)	An increase of $4 million from higher retail sales volumes due to the impact of colder temperatures; partially offset by


(2)	A decrease of $1 million from other usage and rate factors, including the impact of accruals related to 2017 Tax Reform; and


(3)	A decrease of $1 million from lower gas transportation service prices.

Regulated gas utility margin increased $8 million for the first six months of 2018 compared to 2017 primarily due to:


(1)	An increase of $13 million from higher retail sales volumes due to the impact of colder temperatures;


(2)	An increase of $1 million from higher gas transportation services; partially offset by


(3)	A decrease of $7 million from other usage and rate factors, including the impact of accruals related to 2017 Tax Reform.

111

Operating Expenses

MidAmerican Energy -

Operations and maintenance increased $21 million for the second quarter of 2018 compared to 2017 primarily due to higher fossil-fueled generation maintenance of $13 million from planned outages, higher wind-powered generation maintenance from additional wind turbines of $5 million and higher demand side management program expense of $4 million, which is recoverable in bill riders and offset in operating revenue.

Operations and maintenance increased $40 million for the first six months of 2018 compared to 2017 primarily due to higher fossil-fueled generation maintenance of $15 million from planned outages, higher demand side management program expense of $12 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 $11 million.

Depreciation and amortization increased $67 million for the second quarter of 2018 compared to 2017 due to higher accruals for Iowa revenue sharing of $51 million and $15 million related to wind generation and other plant placed in-service.

Depreciation and amortization increased $108 million for the first six months of 2018 compared to 2017 due to higher accruals for Iowa revenue sharing of $79 million and $29 million related to wind generation and other plant placed in-service.

Other Income (Expense)

MidAmerican Energy -

Interest expense increased $3 million and $8 million for the second quarter and first six months of 2018 , respectively, compared to 2017 primarily 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 and $12 million for the second quarter and first six months of 2018 , respectively, compared to 2017 primarily due to higher construction work-in-progress balances related to wind-powered generation.

Other, net increased $5 million and $3 million for the second quarter and first six months of 2018 , respectively, compared to 2017 primarily due to higher interest income from favorable cash positions and, for the second quarter , higher returns on corporate-owned life insurance policies.

Income Tax Benefit

MidAmerican Energy -

MidAmerican Energy's income tax benefit increased $7 million for the second quarter of 2018 compared to 2017 , and the effective tax rate was (77)% for 2018 and (41)% for 2017 . For the first six months of 2018 compared to 2017 , MidAmerican Energy's income tax benefit increased $32 million in 2018 compared to 2017 , and the effective tax rate was (104)% for 2018 and (47)% for 2017 . The changes in the effective tax rates for 2018 compared to 2017 were substantially due to the reduction in the United States federal corporate income tax rate from 35% to 21%, effective January 1, 2018, the recognition of production tax credits and the effects of ratemaking.

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 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 were placed in-service. Production tax credits recognized in the first six months of 2018 were $108 million, or $10 million lower than the first six months of 2017, while production tax credits earned in the first six months of 2018 were $164 million, or $7 million higher than the first six months of 2017 due primarily to wind-powered generation placed in-service in late 2017, partially offset by facilities no longer eligible to earn production tax credits. The difference between production tax credits recognized and earned of $56 million as of June 30, 2018, will be reflected in earnings over the remainder of 2018.

112

MidAmerican Funding -

MidAmerican Funding's income tax benefit increased $6 million for the second quarter of 2018 compared to 2017 , and the effective tax rate was (84)% for 2018 and (46)% for 2017 . For the first six months of 2018 compared to 2017 , MidAmerican Funding's income tax benefit increased $29 million of 2018 compared to 2017 , and the effective tax rate was (115)% for 2018 and (53)% for 2017 . The changes in the effective tax rates were principally due to the factors discussed for MidAmerican Energy.

Liquidity and Capital Resources

As of June 30, 2018 , MidAmerican Energy's and MidAmerican Funding's total net liquidity were as follows (in millions):



MidAmerican Energy:
Cash and cash equivalents	$	369

Credit facilities, maturing 2019 and 2021	905
Less:
Tax-exempt bond support	(370		)
Net credit facilities	535

MidAmerican Energy total net liquidity	$	904

MidAmerican Funding:
MidAmerican Energy total net liquidity	$	904
Cash and cash equivalents	1
MHC, Inc. credit facility, maturing 2019	4
MidAmerican Funding total net liquidity	$	909

Operating Activities

MidAmerican Energy's net cash flows from operating activities for the six-month periods ended June 30, 2018 and 2017 , were $651 million and $411 million , respectively. MidAmerican Funding's net cash flows from operating activities for the six-month periods ended June 30, 2018 and 2017 , were $654 million and $403 million , respectively. Cash flows from operating activities increased primarily due to the timing of MidAmerican Energy's income tax cash flows with BHE and higher cash gross margins for MidAmerican Energy's regulated electric business, partially offset by greater payments to vendors and the timing of working capital. MidAmerican Energy's income tax cash flows with BHE totaled net cash receipts in 2018 and 2017 of $246 million and $7 million, respectively. 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.

In December 2017, 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 is required to pass 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 tax as well as lower bonus depreciation benefits as a result of 2017 Tax Reform and related regulatory treatment. MidAmerican Energy does not expect 2017 Tax Reform and related regulatory treatment to have a material adverse impact on its cash flows. Refer to Regulatory Matters for further discussion of regulatory matters associated with 2017 Tax Reform.

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.

113

Investing Activities

MidAmerican Energy's net cash flows from investing activities for the six-month periods ended June 30, 2018 and 2017 , were $(813) million and $(552) million , respectively. MidAmerican Funding's net cash flows from investing activities for the six-month periods ended June 30, 2018 and 2017 , were $(813) million and $(554) 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 six-month periods ended June 30, 2018 and 2017 were $336 million and $489 million , respectively. MidAmerican Funding's net cash flows from financing activities for the six-month periods ended June 30, 2018 and 2017 , were $334 million and $499 million , respectively. In February 2018, MidAmerican Energy issued $700 million of its 3.65% First Mortgage Bonds due 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 2027 and $475 million of its 3.95% First Mortgage Bonds due 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 $250 million of its 5.95% Senior Notes due July 2017. Through its commercial paper program, MidAmerican Energy made payments totaling $99 million in 2017. MidAmerican Funding repaid $(3) million and received $10 million in 2018 and 2017, respectively, through its note payable with BHE.

Debt Authorizations and Related Matters

MidAmerican Energy has authority from the FERC to issue through July 31, 2020, commercial paper and bank notes aggregating $1.3 billion at interest rates not to exceed the applicable London Interbank Offered Rate plus a spread of 400 basis points. MidAmerican Energy has a $900 million unsecured credit facility expiring in June 2021 for which MidAmerican Energy may request that the banks extend the credit facility up to one year. 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 June 26, 2021. 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 June 30, 2018 , MidAmerican Energy's common equity ratio was 52% computed on a basis consistent with its commitment.

114

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.

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):



	Six-Month Periods				Annual
	Ended June 30,				Forecast
	2017		2018		2018

Wind-powered generation	$	129	$	313	$	1,178
Wind-powered generation repowering	84		141		285
Transmission Multi-Value Projects	13		6		47
Other	319		358		958
Total	$	545	$	818	$	2,468

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.

115

•

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 June 30, 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 June 30, 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 .

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

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. On May 29, 2018, The U.S. Department of Justice and FERC filed an amicus brief concluding federal rules do not preempt Illinois' ZEC program. Additional briefing was done after the amicus brief was filed and in July 2018, the Plaintiffs requested Notice of New Authority asking the court to consider a recent FERC decision relating to the impacts of out-of-market payments in the markets of the PJM interconnection. MidAmerican Energy cannot predict the outcome of these lawsuits.

116

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.

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 .

117

Nevada Power Company and its subsidiaries

Consolidated Financial Section

118

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 June 30, 2018 , the related consolidated statements of operations for the three-month and six-month periods ended June 30, 2018 and 2017 , and of changes in shareholder's equity and cash flows for the six-month periods ended June 30, 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 Nevada Power in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

/s/ Deloitte & Touche LLP

Las Vegas, Nevada

August 3, 2018

119

NEVADA POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Amounts in millions, except share data)



	As of
	June 30,			December 31,
	2018			2017
ASSETS
Current assets:
Cash and cash equivalents	$	416		$	57
Accounts receivable, net	303			238
Inventories	59			59
Regulatory assets	5			28
Other current assets	54			44
Total current assets	837			426

Property, plant and equipment, net	6,834			6,877
Regulatory assets	908			941
Other assets	39			35

Total assets	$	8,618		$	8,279

LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable	$	166		$	156
Accrued interest	51			50
Accrued property, income and other taxes	78			63
Regulatory liabilities	105			91
Current portion of long-term debt and financial and capital lease obligations	1,013			842
Customer deposits	68			73
Other current liabilities	36			16
Total current liabilities	1,517			1,291

Long-term debt and financial and capital lease obligations	2,303			2,233
Regulatory liabilities	1,015			1,030
Deferred income taxes	758			767
Other long-term liabilities	283			280
Total liabilities	5,876			5,601

Commitments and contingencies (Note 10)

Shareholder's equity:
Common stock - $1.00 stated value; 1,000 shares authorized, issued and outstanding	—			—
Additional paid-in capital	2,308			2,308
Retained earnings	438			374
Accumulated other comprehensive loss, net	(4		)	(4		)
Total shareholder's equity	2,742			2,678

Total liabilities and shareholder's equity	$	8,618		$	8,279

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

120

NEVADA POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Amounts in millions)



	Three-Month Periods						Six-Month Periods
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017

Operating revenue	$	562		$	574		$	957		$	966

Operating expenses:
Cost of fuel and energy	239			238			409			403
Operations and maintenance	107			92			198			180
Depreciation and amortization	84			78			168			154
Property and other taxes	10			9			20			19
Total operating expenses	440			417			795			756

Operating income	122			157			162			210

Other income (expense):
Interest expense	(45		)	(44		)	(90		)	(88		)
Allowance for borrowed funds	1			—			1			—
Allowance for equity funds	—			—			1			1
Other, net	5			7			9			12
Total other income (expense)	(39		)	(37		)	(79		)	(75		)

Income before income tax expense	83			120			83			135
Income tax expense	19			43			19			48
Net income	$	64		$	77		$	64		$	87

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

121

NEVADA POWER COMPANY AND SUBSIDIARIES

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

(Amounts in millions, except shares)



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

Balance, December 31, 2016	1,000	$	—	$	2,308	$	667		$	(3	)	$	2,972
Net income	—	—		—		87			—			87
Dividends declared	—	—		—		(322		)	—			(322		)
Other equity transactions	—	—		—		1			—			1
Balance, June 30, 2017	1,000	$	—	$	2,308	$	433		$	(3	)	$	2,738

Balance, December 31, 2017	1,000	$	—	$	2,308	$	374		$	(4	)	$	2,678
Net income	—	—		—		64			—			64
Balance, June 30, 2018	1,000	$	—	$	2,308	$	438		$	(4	)	$	2,742

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

122

NEVADA POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Amounts in millions)



	Six-Month Periods
	Ended June 30,
	2018			2017
Cash flows from operating activities:
Net income	$	64		$	87
Adjustments to reconcile net income to net cash flows from operating activities:
Gain on nonrecurring items	—			(1		)
Depreciation and amortization	168			154
Allowance for equity funds	(1		)	(1		)
Deferred income taxes and amortization of investment tax credits	(14		)	34
Changes in regulatory assets and liabilities	28			13
Deferred energy	25			(25		)
Amortization of deferred energy	7			7
Other, net	9			(2		)
Changes in other operating assets and liabilities:
Accounts receivable and other assets	(62		)	(88		)
Inventories	1			7
Accrued property, income and other taxes, net	12			18
Accounts payable and other liabilities	13			48
Net cash flows from operating activities	250			251

Cash flows from investing activities:
Capital expenditures	(135		)	(139		)
Acquisitions	—			(77		)
Other, net	1			4
Net cash flows from investing activities	(134		)	(212		)

Cash flows from financing activities:
Proceeds from long-term debt	573			91
Repayments of long-term debt and financial and capital lease obligations	(332		)	(81		)
Dividends paid	—			(322		)
Net cash flows from financing activities	241			(312		)

Net change in cash and cash equivalents and restricted cash and cash equivalents	357			(273		)
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	$	423		$	17

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

123

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 June 30, 2018 and for the three- and six-month periods ended June 30, 2018 and 2017 . The Consolidated Statements of Comprehensive Income have been omitted as net income equals comprehensive income for the three- and six-month periods ended June 30, 2018 and 2017 . The results of operations for the three- and six-month periods ended June 30, 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 six-month period ended June 30, 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.


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

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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 June 30, 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 June 30, 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
	June 30,		December 31,
	2018		2017
Cash and cash equivalents	$	416	$	57
Restricted cash and cash equivalents included in other current assets	7		9
Total cash and cash equivalents and restricted cash and cash equivalents	$	423	$	66


( 4 )	Property, Plant and Equipment, Net

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



		As of
	Depreciable Life	June 30,			December 31,
	Depreciable Life	2018			2017
Utility plant:
Generation	30 - 55 years	$	3,713		$	3,707
Distribution	20 - 65 years	3,352			3,314
Transmission	45 - 70 years	1,861			1,860
General and intangible plant	5 - 65 years	811			793
Utility plant		9,737			9,674
Accumulated depreciation and amortization		(2,984		)	(2,871		)
Utility plant, net		6,753			6,803
Other non-regulated, net of accumulated depreciation and amortization	45 years	1			1
Plant, net		6,754			6,804
Construction work-in-progress		80			73
Property, plant and equipment, net		$	6,834		$	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 $4 million for the six-month period ended June 30, 2018 , based on depreciable plant balances at the time of the change.


( 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 and energy in future time periods.

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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 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 2017 Tax Reform and a hearing was held in July 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 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 .


( 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 used a portion of the net proceeds to repay all of Nevada Power's $325 million 6.50% General and Refunding Mortgage Notes, Series O, maturing in May 2018. In August 2018, Nevada Power used the remaining net proceeds, together with available cash, to repay all of Nevada Power's $500 million 6.50% General and Refunding Mortgage Notes, Series S, maturing in August 2018.

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.

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( 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 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 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.

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				Six-Month Periods
	Ended June 30,				Ended June 30,
	2018		2017		2018		2017

Federal statutory income tax rate	21	%	35	%	21	%	35	%
Effects of ratemaking	(1	)	—		(1	)	—
Nondeductible expenses	2		—		2		—
Other	1		1		1		1
Effective income tax rate	23	%	36	%	23	%	36	%

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( 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
	June 30,			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 assets	1			—
Other long-term liabilities	—			1


( 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.

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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 June 30, 2018
Assets:
Money market mutual funds ⁽¹⁾	$	25	$	—	$	—		$	25
Investment funds	1		—		—			1
	$	26	$	—	$	—		$	26

Liabilities - commodity derivatives	$	—	$	—	$	(9	)	$	(9	)

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 June 30, 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.

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						Six-Month Periods
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017

Beginning balance	$	(8	)	$	(14	)	$	(3	)	$	(14	)
Changes in fair value recognized in regulatory assets	(3		)	(1		)	(8		)	(2		)
Settlements	2			11			2			12
Ending balance	$	(9	)	$	(4	)	$	(9	)	$	(4	)

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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 June 30, 2018				As of December 31, 2017
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value

Long-term debt	$	2,850	$	3,196	$	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.

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.

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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 June 30, 2018 and December 31, 2017 , accounts receivables, net on the Consolidated Balance Sheets relate substantially to Customer Revenue, including unbilled revenue of $194 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- and six-month periods ended June 30, 2018 (in millions):



	Three-Month Period		Six-Month Period
	Ended June 30,		Ended June 30,
	2018		2018
Customer Revenue:
Retail:
Residential	$	312	$	505
Commercial	110		205
Industrial	108		187
Other	5		11
Total fully bundled	535		908
Distribution only service	8		15
Total retail	543		923
Wholesale, transmission and other	13		23
Total Customer Revenue	556		946
Other revenue	6		11
Total revenue	$	562	$	957

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 June 30, 2018 and December 31, 2017 , there were no contract assets or contract liabilities recorded on the Consolidated Balance Sheets.

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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.

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Results of Operations for the Second Quarter and First Six Months of 2018 and 2017

Overview

Net income for the second quarter of 2018 was $64 million , a decrease of $13 million , or 17% , compared to 2017 primarily due to $15 million of higher operations and maintenance mainly due to increased political activity expenses and an accrual for earnings sharing ordered in the Nevada Power 2017 regulatory rate review, $13 million of lower utility margin primarily due to the tax rate reduction rider as a result of the Tax Cuts and Jobs Act ("2017 Tax Reform") and $6 million in higher depreciation expense primarily due to the Nevada Power 2017 regulatory rate review, partially offset by $24 million of lower income tax primarily due to 2017 Tax Reform, which reduced the federal statutory tax rate.

Net income for the first six months of 2018 was $64 million , a decrease of $23 million , or 26% , compared to 2017 primarily due to $18 million of higher operations and maintenance mainly due to increased political activity expenses, a legal settlement and an accrual for earnings sharing ordered in the Nevada Power 2017 regulatory rate review, $15 million of lower utility margin primarily due to the tax rate reduction rider as a result of 2017 Tax Reform and a $14 million increase in depreciation expense primarily due to the Nevada Power 2017 regulatory rate review, partially offset by $29 million of lower income tax 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, utility margin, to help evaluate results of operations. Utility margin is calculated as electric operating revenue less cost of fuel and energy, which are captions presented on the Consolidated Statements of Operations.

Nevada Power’s cost of fuel and energy are directly recovered from its customers through regulatory recovery mechanisms and as a result, changes in 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):



	Second Quarter									First Six Months
	2018		2017		Change					2018		2017		Change
Utility margin:
Operating revenue	$	562	$	574	$	(12	)	(2	)%	$	957	$	966	$	(9	)	(1	)%
Cost of fuel and energy	239		238		1			—		409		403		6			1
Utility margin	323		336		(13		)	(4	)	548		563		(15		)	(3	)
Operations and maintenance	107		92		15			16		198		180		18			10
Depreciation and amortization	84		78		6			8		168		154		14			9
Property and other taxes	10		9		1			11		20		19		1			5
Operating income	$	122	$	157	$	(35	)	(22	)	$	162	$	210	$	(48	)	(23	)

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



	Second Quarter									First Six Months
	2018		2017		Change					2018		2017		Change
Utility margin (in millions):
Operating revenue	$	562	$	574	$	(12	)	(2	)%	$	957	$	966	$	(9	)	(1	)%
Cost of fuel and energy	239		238		1			—		409		403		6			1
Utility margin	$	323	$	336	$	(13	)	(4	)	$	548	$	563	$	(15	)	(3	)

GWh sold:
Residential	2,604		2,482		122			5	%	4,086		4,000		86			2	%
Commercial	1,201		1,178		23			2		2,191		2,152		39			2
Industrial	1,416		1,640		(224		)	(14	)	2,650		3,087		(437		)	(14	)
Other	46		45		1			2		96		94		2			2
Total fully bundled ⁽¹⁾	5,267		5,345		(78		)	(1	)	9,023		9,333		(310		)	(3	)
Distribution only service	671		430		241			56		1,163		750		413			55
Total retail	5,938		5,775		163			3		10,186		10,083		103			1
Wholesale	84		46		38			83		128		155		(27		)	(17	)
Total GWh sold	6,022		5,821		201			3		10,314		10,238		76			1

Average number of retail customers (in thousands):
Residential	824		809		15			2	%	821		807		14			2	%
Commercial	108		106		2			2		107		106		1			1
Industrial	2		2		—			—		2		2		—			—
Total	934		917		17			2		930		915		15			2

Average per MWh:
Revenue - fully bundled ⁽¹⁾	$	101.41	$	103.85	$	(2.44	)	(2	)%	$	100.53	$	99.56	$	0.97		1	%
Total cost of energy ⁽²⁾	$	41.75	$	42.54	$	(0.79	)	(2	)%	$	42.89	$	41.29	$	1.60		4	%

Heating degree days	23		16		7			44	%	839		791		48			6	%
Cooling degree days	1,473		1,378		95			7	%	1,492		1,489		3			—	%

Sources of energy (GWh) ⁽³⁾ :
Natural gas	3,612		3,286		326			10	%	6,013		5,746		267			5	%
Coal	239		309		(70		)	(23	)	488		815		(327		)	(40	)
Renewables	21		22		(1		)	(5	)	36		38		(2		)	(5	)
Total energy generated	3,872		3,617		255			7		6,537		6,599		(62		)	(1	)
Energy purchased	1,849		1,976		(127		)	(6	)	2,995		3,165		(170		)	(5	)
Total	5,721		5,593		128			2		9,532		9,764		(232		)	(2	)

* 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 23 and 50 GWh of coal and 363 and 485 GWh of gas generated energy that is purchased at cost by related parties for the second quarter of 2018 and 2017 , respectively. 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 93 and 187 GWh of coal and 1,043 and 1,150 GWh of gas generated energy that is purchased at cost by related parties for the first six months of 2018 and 2017 , respectively.


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

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Utility margin decreased $13 million , or 4% , for the second quarter of 2018 compared to 2017 primarily due to:


•	$16 million in lower retail rates due to the tax rate reduction rider as a result of 2017 Tax Reform;


•	$6 million due to lower retail rates as a result of the 2017 regulatory rate review with rates effective February 2018 and


•	$3 million in lower commercial and industrial retail revenue from customers purchasing energy from alternative providers and becoming distribution only service customers.

The decrease in utility margin was offset by:


•	$5 million in higher residential volumes primarily from the impacts of weather 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 $15 million , or 16% , for the second quarter of 2018 compared to 2017 primarily due to higher political activity expenses, an accrual for earnings sharing ordered in the Nevada Power 2017 regulatory rate review and regulatory amortizations in 2017 from a gain on sale of property. These increases were partially offset by increased regulatory amortizations.

Depreciation and amortization increased $6 million , or 8% , for the second quarter of 2018 compared to 2017 primarily due to various regulatory directed amortizations and increased depreciation expense as a result of the Nevada Power 2017 regulatory rate review.

Income tax expense decreased $24 million , or 56% , for the second quarter of 2018 compared to 2017 . The effective tax rate was 23% in 2018 and 36% in 2017 . The decrease in the effective tax rate is primarily due to 2017 Tax Reform, which reduced the United States federal corporate income tax rate from 35% to 21%, effective January 1, 2018, and the favorable impacts of rate making, partially offset by nondeductible expenses.

Utility margin decreased $15 million , or 3% , for the first six months of 2018 compared to 2017 primarily due to:


•	$16 million in lower retail rates due to the tax rate reduction rider as a result of 2017 Tax Reform;


•	$8 million due to lower retail rates as a result of the 2017 regulatory rate review with rates effective February 2018 and


•	$3 million in lower commercial and industrial retail revenue from customers purchasing energy from alternative providers and becoming distribution only service customers.

The decrease in utility margin was offset by:


•	$4 million due to higher residential customer growth;


•	$3 million in higher other revenue primarily from impact fees and revenue relating to customers becoming distribution only service customers and


•	$2 million in higher residential volumes primarily from the impacts of weather.

Operations and maintenance increased $18 million , or 10% , for the first six months of 2018 compared to 2017 primarily due to higher political activity expenses, a legal settlement, an accrual for earnings sharing ordered in the Nevada Power 2017 regulatory rate review and regulatory amortizations in 2017 from a gain on sale of property. These increases were partially offset by decreased maintenance costs and increased regulatory amortizations.

Depreciation and amortization increased $14 million , or 9% , for the first six months of 2018 compared to 2017 primarily due to various regulatory directed amortizations and increased depreciation expense as a result of the Nevada Power 2017 regulatory rate review.

Other income (expense) is unfavorable $4 million , or 5% , for the first six months of 2018 compared to 2017 primarily due to interest on deferred charges.

Income tax expense decreased $29 million , or 60% , for the first six months of 2018 compared to 2017 . The effective tax rate was 23% in 2018 and 36% in 2017 .The decrease in the effective tax rate is primarily due to 2017 Tax Reform, which reduced the United States federal corporate income tax rate from 35% to 21%, effective January 1, 2018, and the favorable impacts of rate making, partially offset by nondeductible expenses.

135

Liquidity and Capital Resources

As of June 30, 2018 , Nevada Power's total net liquidity was as follows (in millions):



Cash and cash equivalents	$	416
Credit facility	400
Total net liquidity	$	816
Credit facility:
Maturity date	2021

Operating Activities

Net cash flows from operating activities for the six-month periods ended June 30, 2018 and 2017 were $250 million and $251 million , respectively. Decreases were due to impact fees received in 2017, higher federal tax payments, and higher payments for operating costs in 2018 partially offset by a decrease in fuel costs and increased collections from customers due to higher deferred energy rates.

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, 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 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 2017 Tax Reform and a hearing was held in July 2018. Nevada Power expects lower revenue collections and income tax payments as well as lower bonus depreciation benefits as a result of 2017 Tax Reform and related regulatory treatment. Nevada Power does not expect 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.

Investing Activities

Net cash flows from investing activities for the six-month periods ended June 30, 2018 and 2017 were $(134) million and $(212) million , respectively. The change was due to the acquisition of the remaining 25% in the Silverhawk generating station in 2017 and decreased capital expenditures.

Financing Activities

Net cash flows from financing activities for the six-month periods ended June 30, 2018 and 2017 were $241 million and $(312) million , respectively. The change was due to greater proceeds from issuance of long-term debt in 2018 and dividends paid to NV Energy, Inc. of $322 million in 2017 compared to no dividends paid in 2018, partially offset by higher redemptions of long-term debt 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 June 30, 2018 .

136

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):



	Six-Month Periods				Annual
	Ended June 30,				Forecast
	2017		2018		2018

Distribution	28		55		174
Transmission system investment	5		5		23
Other	106		75		152
Total	$	139	$	135	$	349

Nevada Power's 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 June 30, 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.

Integrated Resource Plan ("IRP")

In June 2018, Nevada Power and Sierra Pacific filed with the PUCN a joint application for approval of a 2019-2038 Triennial IRP, 2019-2021 Action Plan, and 2019-2021 Energy Supply Plan ("ESP"). As part of the filings, the Nevada Utilities seek the PUCN authorization to add 1,001 MW of renewable energy and 100 MW of energy storage capacity. The Nevada Utilities are requesting to achieve with power purchase agreements from six new solar generating resources, three battery storage systems, transmission network upgrades and the conditional early retirement of North Valmy Unit 1 generating station. The agreements are conditional upon voters not approving the ballot measure on energy choice in November 2018.

137

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 .

138

Sierra Pacific Power Company and its subsidiaries

Consolidated Financial Section

139

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 June 30, 2018 , the related consolidated statements of operations for the three-month and six-month periods ended June 30, 2018 and 2017 , and of changes in shareholder's equity and cash flows for the six-month periods ended June 30, 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

This interim financial information is the responsibility of Sierra Pacific 's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Sierra Pacific in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

/s/ Deloitte & Touche LLP

Las Vegas, Nevada

August 3, 2018

140

SIERRA PACIFIC POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Amounts in millions, except share data)



	As of
	June 30,			December 31,
	2018			2017
ASSETS
Current assets:
Cash and cash equivalents	$	71		$	4
Accounts receivable, net	91			112
Inventories	48			49
Regulatory assets	12			32
Other current assets	18			17
Total current assets	240			214

Property, plant and equipment, net	2,923			2,892
Regulatory assets	297			300
Other assets	8			7

Total assets	$	3,468		$	3,413

LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable	$	77		$	92
Accrued interest	14			14
Accrued property, income and other taxes	22			10
Regulatory liabilities	37			19
Current portion of long-term debt and financial and capital lease obligations	2			2
Customer deposits	18			15
Other current liabilities	23			12
Total current liabilities	193			164

Long-term debt and financial and capital lease obligations	1,153			1,152
Regulatory liabilities	473			481
Deferred income taxes	332			330
Other long-term liabilities	105			114
Total liabilities	2,256			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	—			—
Additional paid-in capital	1,111			1,111
Retained earnings	102			62
Accumulated other comprehensive loss, net	(1		)	(1		)
Total shareholder's equity	1,212			1,172

Total liabilities and shareholder's equity	$	3,468		$	3,413

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

141

SIERRA PACIFIC POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Amounts in millions)



	Three-Month Periods						Six-Month Periods
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017
Operating revenue:
Electric	$	169		$	160		$	350		$	319
Natural gas	19			17			60			51
Total operating revenue	188			177			410			370

Operating expenses:
Cost of fuel and energy	78			61			155			117
Cost of natural gas purchased for resale	8			6			31			22
Operations and maintenance	48			40			87			81
Depreciation and amortization	29			28			59			56
Property and other taxes	6			6			12			12
Total operating expenses	169			141			344			288

Operating income	19			36			66			82

Other income (expense):
Interest expense	(11		)	(11		)	(21		)	(22		)
Allowance for borrowed funds	1			—			1			—
Allowance for equity funds	1			—			2			1
Other, net	3			1			5			2
Total other income (expense)	(6		)	(10		)	(13		)	(19		)

Income before income tax expense	13			26			53			63
Income tax expense	6			9			12			22
Net income	$	7		$	17		$	41		$	41

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

142

SIERRA PACIFIC POWER COMPANY AND SUBSIDIARIES

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

(Amounts in millions, except shares)



									Accumulated
				Additional		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	—	—		—		41			—			41
Dividends declared	—	—		—		(5		)	—			(5		)
Other equity transactions	—	—		—		(1		)	—			(1		)
Balance, June 30, 2017	1,000	$	—	$	1,111	$	33		$	(1	)	$	1,143

Balance, December 31, 2017	1,000	$	—	$	1,111	$	62		$	(1	)	$	1,172
Net income	—	—		—		41			—			41
Other equity transactions	—	—		—		(1		)	—			(1		)
Balance, June 30, 2018	1,000	$	—	$	1,111	$	102		$	(1	)	$	1,212

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

143

SIERRA PACIFIC POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Amounts in millions)



	Six-Month Periods
	Ended June 30,
	2018			2017
Cash flows from operating activities:
Net income	$	41		$	41
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	59			56
Allowance for equity funds	(2		)	(1		)
Deferred income taxes and amortization of investment tax credits	2			23
Changes in regulatory assets and liabilities	19			7
Deferred energy	26			(20		)
Amortization of deferred energy	(5		)	(34		)
Other, net	—			(1		)
Changes in other operating assets and liabilities:
Accounts receivable and other assets	21			23
Accrued property, income and other taxes, net	11			1
Accounts payable and other liabilities	(10		)	(54		)
Net cash flows from operating activities	162			41

Cash flows from investing activities:
Capital expenditures	(94		)	(87		)
Net cash flows from investing activities	(94		)	(87		)

Cash flows from financing activities:
Repayments of long-term debt and financial and capital lease obligations	(1		)	(1		)
Dividends paid	—			(5		)
Net cash flows from financing activities	(1		)	(6		)

Net change in cash and cash equivalents and restricted cash and cash equivalents	67			(52		)
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	$	75		$	8

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

144

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 June 30, 2018 and for the three- and six-month periods ended June 30, 2018 and 2017 . The Consolidated Statements of Comprehensive Income have been omitted as net income equals comprehensive income for the three- and six-month periods ended June 30, 2018 and 2017 . The results of operations for the three- and six-month periods ended June 30, 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 six-month period ended June 30, 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 )	Cash and Cash Equivalents and Restricted Cash and Cash Equivalents

145

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 June 30, 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 June 30, 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
	June 30,		December 31,
	2018		2017
Cash and cash equivalents	$	71	$	4
Restricted cash and cash equivalents included in other current assets	4		4
Total cash and cash equivalents and restricted cash and cash equivalents	$	75	$	8


( 4 )	Property, Plant and Equipment, Net

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



		As of
	Depreciable Life	June 30,			December 31,
	Depreciable Life	2018			2017
Utility plant:
Electric generation	25 - 60 years	$	1,144		$	1,144
Electric distribution	20 - 100 years	1,506			1,459
Electric transmission	50 - 100 years	818			786
Electric general and intangible plant	5 - 70 years	190			181
Natural gas distribution	35 - 70 years	396			390
Natural gas general and intangible plant	5 - 70 years	14			14
Common general	5 - 70 years	303			294
Utility plant		4,371			4,268
Accumulated depreciation and amortization		(1,553		)	(1,513		)
Utility plant, net		2,818			2,755
Other non-regulated, net of accumulated depreciation and amortization	70 years	5			5
Plant, net		2,823			2,760
Construction work-in-progress		100			132
Property, plant and equipment, net		$	2,923		$	2,892


( 5 )	Regulatory Matters

Deferred Energy

146

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 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 2017 Tax Reform and a hearing was held in July 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

147

In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin 118 to assist in the implementation process of 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 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				Six-Month Periods
	Ended June 30,				Ended June 30,
	2018		2017		2018		2017

Federal statutory income tax rate	21	%	35	%	21	%	35	%
Effects of ratemaking	14		—		(1	)	—
Nondeductible expenses	8		—		3		—
Other	3		—		—		—
Effective income tax rate	46	%	35	%	23	%	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. Sierra Pacific contributed $6 million to Other Postretirement Plan for the six-month period ended June 30, 2018 . 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
	June 30,			December 31,
	2018			2017
Qualified Pension Plan -
Other long-term liabilities	$	(1	)	$	(2	)

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

Other Postretirement Plans -
Other long-term liabilities	(14		)	(20		)

148


( 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 June 30, 2018
Assets - money market mutual funds ⁽¹⁾	$	40	$	—	$	—		$	40

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 June 30, 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.

149

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					Six-Month Periods
	Ended June 30,					Ended June 30,
	2018			2017		2018			2017

Beginning balance	$	(2	)	$	—	$	—		$	—
Changes in fair value recognized in regulatory assets	(1		)	—		(3		)	—
Settlements	1			—		1			—
Ending balance	$	(2	)	$	—	$	(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 June 30, 2018				As of December 31, 2017
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value

Long-term debt	$	1,120	$	1,168	$	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.

150

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 June 30, 2018 and December 31, 2017 , accounts receivables, net on the Consolidated Balance Sheets relate substantially to Customer Revenue, including unbilled revenue of $53 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- and six-month periods ended June 30, 2018 (in millions):



	Three-Month Period						Six-Month Period
	Ended June 30,						Ended June 30,
	2018						2018
	Electric		Gas		Total		Electric		Gas		Total
Customer Revenue:
Retail:
Residential	$	59	$	13	$	72	$	127	$	39	$	166
Commercial	58		4		62		115		15		130
Industrial	38		2		40		77		5		82
Other	1		—		1		3		—		3
Total fully bundled	156		19		175		322		59		381
Distribution only service	1		—		1		2		—		2
Total retail	157		19		176		324		59		383
Wholesale, transmission and other	10		—		10		23		—		23
Total Customer Revenue	167		19		186		347		59		406
Other revenue	2		—		2		3		1		4
Total revenue	$	169	$	19	$	188	$	350	$	60	$	410

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 June 30, 2018 and December 31, 2017 , there were no contract assets or contract liabilities recorded on the Consolidated Balance Sheets.

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( 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						Six-Month Periods
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017
Operating revenue:
Regulated electric	$	169		$	160		$	350		$	319
Regulated natural gas	19			17			60			51
Total operating revenue	$	188		$	177		$	410		$	370

Operating income:
Regulated electric	$	18		$	34		$	55		$	70
Regulated natural gas	1			2			11			12
Total operating income	19			36			66			82
Interest expense	(11		)	(11		)	(21		)	(22		)
Allowance for borrowed funds	1			—			1			—
Allowance for equity funds	1			—			2			1
Other, net	3			1			5			2
Income before income tax expense	$	13		$	26		$	53		$	63



	As of
	June 30,		December 31,
	2018		2017
Assets:
Regulated electric	$	3,089	$	3,103
Regulated natural gas	301		300
Regulated common assets ⁽¹⁾	78		10
Total assets	$	3,468	$	3,413


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

152

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.

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Results of Operations for the Second Quarter and First Six Months of 2018 and 2017

Overview

Net income for the second quarter of 2018 was $7 million , a decrease of $10 million , or 59% , compared to 2017 primarily due to $8 million of higher operations and maintenance primarily due to increased political activity expenses and $8 million of lower utility margin primarily due to the tax rate reduction rider as a result of the Tax Cuts and Jobs Act ("2017 Tax Reform").

Net income for the first six months of 2018 and 2017 was $41 million . Lower utility margin of $7 million primarily due to the tax rate reduction rider as a result of 2017 Tax Reform and $6 million of higher operations and maintenance primarily due to increased political activity expenses, was offset by lower income tax primarily due to 2017 Tax Reform, which reduced the federal statutory tax rate, and lower pension expense.

Non-GAAP Financial Measure

Management utilizes various key financial measures that are prepared in accordance with GAAP, as well as non-GAAP financial measures such as, electric utility margin and natural gas utility margin, to help evaluate results of operations. Electric utility margin is calculated as electric operating revenue less cost of fuel and energy while natural gas utility margin is calculated as natural gas operating revenue less cost of natural gas purchased for resale, which are captions presented on the Consolidated Statements of Operations.

Sierra Pacific’s cost of fuel and energy and cost of natural gas purchased for resale are 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):



	Second Quarter									First Six Months
	2018		2017		Change					2018		2017		Change
Electric utility margin:
Electric operating revenue	$	169	$	160	$	9		6	%	$	350	$	319	$	31		10	%
Cost of fuel and energy	78		61		17			28		155		117		38			32
Electric utility margin	91		99		(8		)	(8	)	195		202		(7		)	(3	)

Natural gas utility margin:
Natural gas operating revenue	19		17		2			12	%	60		51		9			18	%
Cost of natural gas purchased for resale	8		6		2			33		31		22		9			41
Natural gas utility margin	11		11		—			—		29		29		—			—

Utility margin	102		110		(8		)	(7	)%	224		231		(7		)	(3	)%

Operations and maintenance	48		40		8			20	%	87		81		6			7	%
Depreciation and amortization	29		28		1			4		59		56		3			5
Property and other taxes	6		6		—			—		12		12		—			—

Operating income	$	19	$	36	$	(17	)	(47	)%	$	66	$	82	$	(16	)	(20	)%

154

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

Electric Utility Margin



	Second Quarter									First Six Months
	2018		2017		Change					2018		2017		Change
Electric utility margin (in millions):
Electric operating revenue	$	169	$	160	$	9		6	%	$	350	$	319	$	31		10	%
Cost of fuel and energy	78		61		17			28		155		117		38			32
Electric utility margin	$	91	$	99	$	(8	)	(8	)	$	195	$	202	$	(7	)	(3	)

GWh sold:
Residential	527		538		(11		)	(2	)%	1,140		1,168		(28		)	(2	)%
Commercial	711		742		(31		)	(4	)	1,408		1,421		(13		)	(1	)
Industrial	811		805		6			1		1,630		1,549		81			5
Other	4		4		—			—		8		8		—			—
Total fully bundled ⁽¹⁾	2,053		2,089		(36		)	(2	)	4,186		4,146		40			1
Distribution only service	387		345		42			12		749		693		56			8
Total retail	2,440		2,434		6			—		4,935		4,839		96			2
Wholesale	111		107		4			4		282		289		(7		)	(2	)
Total GWh sold	2,551		2,541		10			—		5,217		5,128		89			2

Average number of retail customers (in thousands):
Residential	299		295		4			1	%	298		294		4			1	%
Commercial	47		47		—			—		47		47		—			—
Total	346		342		4			1		345		341		4			1

Average per MWh:
Revenue - fully bundled ⁽¹⁾	$	76.36	$	71.32	$	5.04		7	%	$	77.16	$	70.61	$	6.55		9	%
Revenue - wholesale	$	42.54	$	49.81	$	(7.27	)	(15	)%	$	46.76	$	49.97	$	(3.21	)	(6	)%
Total cost of energy ⁽²⁾	$	33.99	$	26.41	$	7.58		29	%	$	33.24	$	24.70	$	8.54		35	%

Heating degree days	485		572		(87		)	(15	)%	2,625		2,705		(80		)	(3	)%
Cooling degree days	240		331		(91		)	(27	)%	240		331		(91		)	(27	)%

Sources of energy (GWh) ⁽³⁾ :
Natural gas	1,078		996		82			8	%	2,135		2,006		129			6	%
Coal	197		102		95			93		197		102		95			93
Renewables	12		14		(2		)	(14	)	18		19		(1		)	(5	)
Total energy generated	1,287		1,112		175			16		2,350		2,127		223			10
Energy purchased	999		1,201		(202		)	(17	)	2,305		2,624		(319		)	(12	)
Total	2,286		2,313		(27		)	(1	)	4,655		4,751		(96		)	(2	)

* 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 19 GWh of coal and 49 GWh of gas generated energy that is purchased at cost by related parties for the second quarter and first six months of 2018 .In the second quarter and first six months of 2017 , there were no GWh of coal or gas excluded.


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

155

Natural Gas Utility Margin



	Second Quarter									First Six Months
	2018		2017		Change					2018		2017		Change
Natural gas utility margin (in millions):
Natural gas operating revenue	$	19	$	17	$	2		12	%	$	60	$	51	$	9		18	%
Cost of natural gas purchased for resale	8		6		2			33		31		22		9			41
Natural gas utility margin	$	11	$	11	$	—		—		$	29	$	29	$	—		—

Dth sold:
Residential	1,461		1,572		(111		)	(7	)%	5,780		6,031		(251		)	(4	)%
Commercial	788		832		(44		)	(5	)	2,900		3,028		(128		)	(4	)
Industrial	407		351		56			16		1,097		1,011		86			9
Total retail	2,656		2,755		(99		)	(4	)	9,777		10,070		(293		)	(3	)

Average number of retail customers (in thousands)	167		164		3			2	%	166		164		2			1	%
Average revenue per retail Dth sold	$	7.13	$	6.05	$	1.08		18	%	$	6.02	$	4.98	$	1.04		21	%
Average cost of natural gas per retail Dth sold	$	2.73	$	4.26	$	(1.53	)	(36	)%	$	3.09	$	4.19	$	(1.10	)	(26	)%
Heating degree days	485		572		(87		)	(15	)%	2,625		2,705		(80		)	(3	)%

Electric utility margin decreased $8 million , or 8% , for the second quarter of 2018 compared to 2017 primarily due to:


•	$6 million in tax rate reduction rider as a result of 2017 Tax Reform and


•	$2 million in lower customer volumes primarily from the impacts of weather.

Operations and maintenance increased $8 million , or 20% , for the second quarter of 2018 compared to 2017 primarily due to increased political activity expenses.

Other income (expense) is favorable $4 million , or 40% , for the second quarter of 2018 compared to 2017 primarily due to lower pension expense and an increase in allowance for funds used during construction.

Income tax expense decreased $3 million , or 33% , for the second quarter of 2018 compared to 2017 . The effective tax rate was 46% in 2018 and 35% in 2017 . The increase in the effective tax rate is primarily due to increases in the impacts of ratemaking and nondeductible expenses, partially offset by 2017 Tax Reform, which reduced the United States federal corporate income tax rate from 35% to 21%, effective January 1, 2018.

Electric utility margin decreased $7 million , or 3% , for the first six months of 2018 compared to 2017 primarily due to:


•	$5 million in tax rate reduction rider as a result of 2017 Tax Reform and


•	$3 million in lower customer volumes primarily from the impacts of weather.

Operations and maintenance increased $6 million , or 7% , for the first six months of 2018 compared to 2017 primarily due to increased political activity expenses.

Depreciation and amortization increased $3 million , or 5% , for the first six months of 2018 compared to 2017 primarily due to higher plant placed in service.

Other income (expense) is favorable $6 million , or 32% , for the first six months of 2018 compared to 2017 primarily due to lower pension expense and an increase in allowance for funds used during construction.

156

Income tax expense decreased $10 million , or 45% , for the first six months of 2018 compared to 2017 . The effective tax rate was 23% in 2018 and 35% in 2017 . The decrease in the effective tax rate is primarily due to 2017 Tax Reform, which reduced the United States federal corporate income tax rate from 35% to 21%, effective January 1, 2018, and the favorable impacts of rate making, partially offset by nondeductible expenses.

Liquidity and Capital Resources

As of June 30, 2018 , Sierra Pacific's total net liquidity was as follows (in millions):



Cash and cash equivalents	$	71

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

Total net liquidity	$	241
Credit facility:
Maturity date	2021

Operating Activities

Net cash flows from operating activities for the six-month periods ended June 30, 2018 and 2017 were $162 million and $41 million , respectively. The change was due to a decrease in fuel costs, increased collections from customers due to higher deferred energy rates and lower payments for operating costs.

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, 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 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 2017 Tax Reform and a hearing was held in July 2018. Sierra Pacific expects lower revenue collections and income tax payments as well as lower bonus depreciation benefits as a result of 2017 Tax Reform and the related regulatory treatment. Sierra Pacific does not expect 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 six-month periods ended June 30, 2018 and 2017 were $(94) million and $(87) million , respectively. The change was primarily due to increased capital expenditures.

Financing Activities

Net cash flows from financing activities for the six-month periods ended June 30, 2018 and 2017 were $(1) million and $(6) million , respectively. The change was primarily due to dividends paid to NV Energy, Inc. in 2017.

157

Ability to Issue Debt

Sierra Pacific's ability to issue debt is primarily impacted by its financing authority from the PUCN. As of June 30, 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 June 30, 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.

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):



	Six-Month Periods				Annual
	Ended June 30,				Forecast
	2017		2018		2018

Distribution	$	38	$	69	$	155
Transmission system investment	6		2		9
Other	43		23		52
Total	$	87	$	94	$	216

Sierra Pacific's 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 June 30, 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 .

158

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.

Integrated Resource Plan ("IRP")

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 .

159


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 June 30, 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 June 30, 2018 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

160

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.

161


Exhibit No.	Description

BERKSHIRE HATHAWAY ENERGY


4.1	Thirteenth Supplemental Indenture, dated as of July 25, 2018, by and between Berkshire Hathaway Energy Company and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to the 4.45% Senior Notes due 2049 .


4.2	Fiscal Agency Agreement, dated as of July 12, 2018, by and between Northern Natural Gas Company and The Bank of New York Mellon Trust Company, N.A., Fiscal Agent, relating to the $450,000,000 in principal amount of the 4.30% Senior Bonds due 2049 .

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 (incorporated by reference to Exhibit 10.1 to the Berkshire Hathaway Energy Company Quarterly Report on Form 10-Q for the quarter ended March 31, 2018) .


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 (incorporated by reference to Exhibit 10.2 to the Berkshire Hathaway Energy Company Quarterly Report on Form 10-Q for the quarter ended March 31, 2018) .


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 (incorporated by reference to Exhibit 10.3 to the Berkshire Hathaway Energy Company Quarterly Report on Form 10-Q for the quarter ended March 31, 2018) .


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 .

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


4.3	Twenty-Ninth Supplemental Indenture, dated as of July 1, 2018, to PacifiCorp's Mortgage and Deed of Trust dated as of January 9, 1989 (incorporated by reference to Exhibit 4.1 to the PacifiCorp Current Report on Form 8-K dated July 13, 2018) .

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 (incorporated by reference to Exhibit 10.4 to the PacifiCorp Quarterly Report on Form 10-Q for the quarter ended March 31, 2018) .

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 (incorporated by reference to Exhibit 10.5 to the PacifiCorp Quarterly Report on Form 10-Q for the quarter ended March 31, 2018) .


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

162


Exhibit No.	Description

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 (incorporated by reference to Exhibit 10.6 to the MidAmerican Energy Company Quarterly Report on Form 10-Q for the quarter ended March 31, 2018) .

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 .

NEVADA POWER


3.1	Amended and Restated By-Laws of Nevada Power Company as amended December 21, 2017 (incorporated by reference to Exhibit 3.1 to the Nevada Power Company Quarterly Report on Form 10-Q for the quarter ended March 31, 2018) .


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


4.4	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 (incorporated by reference to Exhibit 10.7 to the Nevada Power Company Quarterly Report on Form 10-Q for the quarter ended March 31, 2018) .

163


Exhibit No.	Description

SIERRA PACIFIC


3.2	Amended and Restated By-Laws of Sierra Pacific Power Company as amended December 21, 2017 (incorporated by reference to Exhibit 3.2 to the Sierra Pacific Power Company Quarterly Report on Form 10-Q for the quarter ended March 31, 2018) .


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 (incorporated by reference to Exhibit 10.8 to the Sierra Pacific Power Company Quarterly Report on Form 10-Q for the quarter ended March 31, 2018) .

ALL REGISTRANTS

101

The following financial information from each respective Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 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.

164

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: August 3, 2018	/s/ Patrick J. Goodman
	Patrick J. Goodman
	Executive Vice President and Chief Financial Officer
	(principal financial and accounting officer)

	PACIFICORP

Date: August 3, 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: August 3, 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: August 3, 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: August 3, 2018	/s/ E. Kevin Bethel
	E. Kevin Bethel
	Senior Vice President and Chief Financial Officer
	(principal financial and accounting officer)

165

EXHIBIT 4.1

EXECUTION VERSION

BERKSHIRE HATHAWAY ENERGY COMPANY

and

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,

as Trustee

4.450% Senior Notes due 2049 Thirteenth Supplemental Indenture Dated as of July 25, 2018

THIRTEENTH SUPPLEMENTAL INDENTURE, dated as of July 25, 2018 (this

“ Thirteenth Supplemental Indenture ”), between BERKSHIRE HATHAWAY ENERGY COMPANY, an Iowa corporation (the “ Company ”), and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a national banking association, as Trustee (the “ Trustee ”) under the Base Indenture referred to below.

WITNESSETH:

WHEREAS, the Company has heretofore executed and delivered that certain Indenture, dated as of October 4, 2002, between the Company and The Bank of New York, as trustee (as amended by Article IV of the Second Supplemental Indenture thereto, dated as of May 16, 2003, between the Company and The Bank of New York, as trustee, Article IV of the Fourth Supplemental Indenture thereto, dated as of March 24, 2006, between the Company and The Bank of New York Trust Company, N.A., as trustee, and Article IV of the Fifth Supplemental Indenture thereto, dated as of May 11, 2007, between the Company and The Bank of New York Trust Company N.A., as trustee, the “ Base Indenture ,” and, together with this Thirteenth Supplemental Indenture, the “ Indenture ”), to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness, the form and terms of which are to be established as set forth in Sections 2.01 and 3.01 of the Base Indenture;

WHEREAS, Section 9.01 of the Base Indenture provides, among other things, that the Company and the Trustee may enter into indentures supplemental to the Base Indenture for, among other things, the purpose of establishing the form and terms of the Securities as permitted in Sections 2.01 and 3.01 of the Base Indenture and of appointing an Authenticating Agent with respect to the Securities;

WHEREAS, the Company desires to create (i) a series of its unsecured notes in an initial aggregate principal amount of one billion dollars ($1,000,000,000) to be designated the “4.450% Senior Notes due 2049” (the “ Securities ”), and all action on the part of the Company necessary to authorize the issuance of the Securities under the Base Indenture and this Thirteenth Supplemental Indenture has been duly taken; and

WHEREAS, all acts and things necessary (i) to make the Securities, when executed by the Company and authenticated and delivered by the Trustee as provided in the Base Indenture, the valid and binding obligations of the Company and (ii) to constitute these presents a valid and binding supplemental indenture and agreement according to its terms, have been done and performed.

NOW, THEREFORE, THIS THIRTEENTH SUPPLEMENTAL INDENTURE WITNESSETH:

That in consideration of the premises and of the acceptance and purchase of the Securities by the holders thereof and of the acceptance of this trust by the Trustee, the Company covenants and agrees with the Trustee, for the equal benefit of holders of the Securities, as follows:

ARTICLE I. DEFINITIONS

The use of the terms and expressions herein is in accordance with the definitions, uses

and constructions contained in the Base Indenture and the forms of Securities attached hereto as Exhibits A through E. In addition, for all purposes of this Thirteenth Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise expressly requires, the following terms shall have the respective meanings assigned to them as follows and shall be construed as if defined in Article I of the Base Indenture:

“ Exchange Security ” means a security in global or definitive form substantially in the form set forth in Exhibit E to this Thirteenth Supplemental Indenture.

“ Global Security ” means a Rule 144A Global Security, a Regulation S Temporary Global Security or a Regulation S Permanent Global Security, in global form substantially in the form set forth in Exhibits A, B and C, respectively, to this Thirteenth Supplemental Indenture.

“ Registration Rights Agreement ” means the Registration Rights Agreement, dated July 25, 2018, between the Company and the Representatives.

“ Representatives ” means Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Scotia Capital (USA) Inc. and Wells Fargo Securities, LLC, as representatives of the initial purchasers of the Securities.

ARTICLE II.

TERMS AND ISSUANCE OF THE SECURITIES

Section 2.01 Issue of Securities . The Securities shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, the terms, conditions and covenants of the Base Indenture and this Thirteenth Supplemental Indenture (including the forms of Securities set forth in Exhibits A through E, as applicable). There shall be no limit upon the aggregate principal amount of Securities that may be authenticated and delivered under this Thirteenth Supplemental Indenture.

Section 2.02 Optional Redemption . The Securities may be redeemed, in whole or in part, at the option of the Company pursuant to the terms set forth in paragraph 2 of the Securities to be redeemed. The provisions of Article XI of the Base Indenture, including the amendments set forth in Article IV of the Fourth Supplemental Indenture, dated March 24, 2006, shall also apply to any redemption of the Securities by the Company.

Section 2.03 Limitation on Liens . The covenant provided by Section 10.04 of the Base Indenture shall be applicable to the Securities.

Section 2.04 Change of Control . The covenant provided by Section 10.10 of the Base Indenture shall be applicable to the Securities.

Section 2.05 Place of Payment . The Place of Payment in respect of the Securities will be in The City of New York, initially at the Corporate Trust Office of The Bank of New York Mellon Trust Company, N.A. (which as of the date hereof is located at 2 N. LaSalle Street, Suite 700, Chicago, Illinois 60602, Attention: Corporate Trust Administration).

Section 2.06 Form of Securities; Incorporation of Terms . The form of Securities shall be substantially in the forms of Exhibits A through E attached hereto, as applicable, the respective terms of which are incorporated herein by reference and which are part of this Thirteenth Supplemental Indenture. The Securities shall be issued as one or more Global Securities in fully registered form and one or more Definitive Securities in fully registered form, as determined in accordance with Section 2.01 of the Base Indenture. The Global Securities shall be delivered by the Trustee to the Depositary, as the Holder thereof, or a nominee or custodian therefor, to be held by the Depositary in accordance with the Base Indenture.

Section 2.07 Exchange of the Global Securities . Each of the Global Securities shall be exchangeable for Definitive Securities only as provided in Section 3.07(b)(ii) of the Base Indenture.

Section 2.08 Interest Payment Dates for the Securities . The Interest Payment Dates for the Securities shall be January 15 and July 15 in each year, commencing January 15, 2019, continuing until the Principal Amount of Securities is paid in full or made available for payment in accordance with the terms of the Indenture and the Securities.

Section 2.09 Regular Record Date for the Securities . The Regular Record Date for the Securities shall be the January 1 or July 1 (whether or not a Business Day) immediately prior to each Interest Payment Date.

Section 2.10 Authorized Denominations . Beneficial interests in Global Securities, as well as Definitive Securities, may be held only in denominations of $2,000 and integral multiples of $1,000 in excess thereof.

ARTICLE III. DEPOSITARY

Section 3.01 Depositary . The Depository Trust Company, its nominees and their

respective successors are hereby appointed Depositary with respect to the Global Securities.

ARTICLE IV. MISCELLANEOUS

Section 4.01 Execution as Supplemental Indenture . This Thirteenth

Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Base Indenture and, as provided in the Base Indenture, this Thirteenth Supplemental Indenture forms a part thereof.

Section 4.02 Effect of Headings . The Article and Section headings herein are for convenience only and shall not affect the construction hereof.

Section 4.03 Successors and Assigns . All covenants and agreements in this Thirteenth Supplemental Indenture by the Company shall bind its successors and assigns, whether so expressed or not.

Section 4.04 Separability Clause . In case any provision in this Thirteenth Supplemental Indenture or the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 4.05 Benefits of Thirteenth Supplemental Indenture . Nothing in this Thirteenth Supplemental Indenture or in the Securities, express or implied, shall give to any person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Thirteenth Supplemental Indenture.

Section 4.06 Execution in Counterparts . This Thirteenth Supplemental Indenture may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

Section 4.07 Trustee . The Trustee makes no representations as to the validity or sufficiency of this Thirteenth Supplemental Indenture. The recitals and statements herein are deemed to be those of the Company and not of the Trustee.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have caused this Thirteenth Supplemental Indenture to be duly executed by their respective officers or directors duly authorized thereto, all as of the day and year first above written.

BERKSHIRE HATHAWAY ENERGY COMPANY

By: /s/ Calvin D. Haack

Name: Calvin D. Haack

Title: Vice President and Treasurer

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee

By: /s/ R. Tarnas

Name: R. Tarnas

Title: Vice President

Sig na ture Page to Supplemental Indenture

EXHIBITS

Exhibit A Form of 144A Global Senior Note

Exhibit B Form of Regulation S Temporary Global Senior Note Exhibit C Form of Regulation S Permanent Global Senior Note Exhibit D Form of Restricted Definitive Senior Note

Exhibit E Form of Private Exchange Senior Note

Exhibit A

[See Attached]

FORM OF FACE OF RULE 144A GLOBAL SENIOR NOTE DUE 2049

THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.

UNLESS THIS GLOBAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DEFINITIVE SECURITY IS ISSUED IN THE NAME OR NAMES AS DIRECTED IN WRITING BY THE DEPOSITARY, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, THE DEPOSITARY, HAS AN INTEREST HEREIN.

THIS SECURITY HAS BEEN INITIALLY RESOLD IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT AND SHALL BEAR THE FOLLOWING LEGEND UNTIL REMOVABLE IN ACCORDANCE WITH ITS TERMS AND THE TERMS OF THE INDENTURE.

TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. UNLESS THE COMPANY DETERMINES OTHERWISE IN ACCORDANCE WITH APPLICABLE LAW, THIS LEGEND WILL BE REMOVED BY THE COMPANY (1) UPON REQUEST OF THE HOLDER, AFTER ONE YEAR FROM THE LATER OF (A) THE ORIGINAL ISSUE DATE OF THIS SECURITY AND (B) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) IN ACCORDANCE WITH THE INDENTURE OR (2) WITH RESPECT TO SECURITIES SOLD IN RELIANCE ON REGULATION S, FOLLOWING THE EXPIRATION OF 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH INTERESTS IN THIS SECURITY ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE ORIGINAL ISSUE DATE OF THIS SECURITY. AS USED HEREIN, THE TERMS “OFFSHORE TRANSACTION,” “UNITED STATES” AND “U.S. PERSON” HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.

BERKSHIRE HATHAWAY ENERGY COMPANY

4.450% Senior Notes due 2049

$[ ]

No. [ ] CUSIP No. 084659 AQ4

ISIN No. US084659AQ40

BERKSHIRE HATHAWAY ENERGY COMPANY, a corporation organized under the laws of Iowa (herein called the “ Company ,” which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & Co., or registered assigns, the principal amount of [ ] Dollars (such Initial Principal Amount, as it may from time to time be adjusted by endorsement on Schedule A hereto, is hereinafter referred to as the “ Principal Amount ”) on January 15, 2049, and to pay interest thereon from July 25, 2018, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on January 15 and July 15 in each year, commencing January 15, 2019, at the rate of 4.450% per annum, until the Principal Amount hereof is paid or made available for payment; provided that any Principal Amount and premium, and any such installment of interest, which is overdue shall bear interest at the rate of 4.450% per annum (or, if lower, the maximum rate legally enforceable) from the dates such amounts are due until they are paid or made available for payment; provided, further, that if a Registration Default (as defined in the Registration Rights Agreement) occurs with respect to this Security, additional interest will accrue on this Security for as long as it remains a Transfer Restricted Security (as defined in the Registration Rights Agreement) at a rate of 0.50% per annum from and including the date on which any such Registration Default shall occur, until but excluding the date on which all Registration Defaults have been cured. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be January 1 or July 1 (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Person in whose name this Security (or one or more Predecessor Securities) is registered on such Regular Record Date and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.

Payment of the principal of (and premium, if any) and interest, if any, on this Security will be made at any place of payment or at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States as at the time of payment is legal tender for the payment of public and private debts, provided , however , that payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Payment of interest, if any, in respect of this Security may also be made, in the case of a Holder of at least U.S. $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. Dollar account maintained by the Holder with a bank in the United States; provided that such Holder elects payment by wire transfer by giving

written notice to the Trustee or Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion).

REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE.

Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

[ Remainder of Page Intentionally Left Blank ]

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.

BERKSHIRE HATHAWAY ENERGY COMPANY

By:

Name:

Title:

Attest:

By:

Name:

Title:

[Rule 144A Global Note]

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture.

THE BANK OF NEW YORK MELLON TRUST

COMPANY, N.A., as Trustee

Dated: By:

Authorized Signatory

[Rule 144A Global Note]

FORM OF REVERSE OF RULE 144A GLOBAL SENIOR NOTE DUE 2049

BERKSHIRE HATHAWAY ENERGY COMPANY

4.450% Senior Notes due 2049


1.	GENERAL

This Security is one of a duly authorized issue of securities of the Company (the “ Securities ”), issued and to be issued in one or more series under an Indenture, dated as of October 4, 2002 (as amended by Article IV of the Second Supplemental Indenture thereto, dated as of May 16, 2003, the “ Base Indenture ”), between the Company and The Bank of New York, as trustee, as amended and supplemented by the Fourth Supplemental Indenture, dated as of March 24, 2006, the Fifth Supplemental Indenture, dated as of May 11, 2007, and the Thirteenth Supplemental Indenture, dated as of July 25, 2018 (collectively, together with the Base Indenture, the “ Indenture ”), between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the “ Trustee ”), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. Terms defined in the Indenture which are not defined herein are used with the meanings assigned to them in the Indenture. This Security is one of the series designated on the face hereof.


2.	OPTIONAL REDEMPTION

The Securities of this series are subject to redemption upon not less than 30 or more than 60 days’ notice to the Holders of such Securities as provided in the Indenture, at any time or from time to time prior to July 15, 2048, as a whole or in part, at the election of the Company, at a redemption price equal to the sum of (a) the greater of: (i) 100% of the principal amount of the Securities of this series being redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal of and interest thereon that would be due if such Securities matured on July 15, 2048 (not including any portion of such payments of interest accrued to the Redemption Date) discounted to, but not including, the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Rate plus 25 basis points, plus , for (i) or (ii) above, whichever is applicable, (b) accrued and unpaid interest on the Securities of this series to, but not including, the Redemption Date.

“ Comparable Treasury Issue ” means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities of this series (assuming, for this purpose, that such Securities matured on July 15, 2048) to be redeemed that would be utilized, at the time of selection and in accordance with customary

financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series.

“ Comparable Treasury Price ” means, with respect to any Redemption Date, the Reference Treasury Dealer Quotation for such Redemption Date.

“ Independent Investment Banker ” means an investment banking institution of international standing appointed by the Company.

“ Reference Treasury Dealer ” means a primary U.S. government securities dealer in New York City appointed by the Company.

“ Reference Treasury Dealer Quotation ” means, with respect to the Reference Treasury Dealer and any Redemption Date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount and quoted in writing to the Company by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day in New York City preceding such Redemption Date).

“ Treasury Rate ” means the rate per annum equal to the semi-annual equivalent or interpolated (on a daycount basis) yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for that redemption date.

Notice of redemption pursuant to this paragraph 2 shall be given as provided for in the Indenture not less than 30 days nor more than 60 days prior to the Redemption Date. Notwithstanding Section 11.04 of the Indenture, notice of any redemption prior to July 15, 2048 need not set forth the redemption price but only the manner of calculation thereof. The Company shall give the Trustee notice of the amount of such redemption price promptly after the calculation thereof and the Trustee shall not be responsible for such calculation.

If fewer than all the Securities of this series are to be redeemed, selection of Securities of this series for redemption will be made by the Trustee on a pro rata basis; provided, that if the Securities of this series are represented by one or more Global Securities, beneficial interests in such Securities will be selected for redemption by the Depositary in accordance with its standard procedures therefor.

Unless the Company defaults in payment of the Redemption Price, from and after the Redemption Date, the Securities of this series or portions thereof called for redemption will cease to bear interest, and the Holders thereof will have no right in respect of such Securities of this series except the right to receive the Redemption Price thereof.

In the event of redemption of this Security in part only, the Trustee will reduce the Principal Amount hereof by endorsement on Schedule A hereto such that the Principal Amount shown on Schedule A after such endorsement will reflect only the unredeemed portion hereof.


3.	DEFEASANCE

The Indenture contains provisions for defeasance of (a) the entire indebtedness of this Security and (b) certain restrictive covenants upon compliance by the Company with certain conditions set forth therein.


4.	DEFAULTS AND REMEDIES

If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. At any time after such declaration of acceleration with respect to Securities of this series has been made, but before a judgment or decree for payment of money has been obtained by the Trustee as provided in the Indenture, if all Events of Default with respect to Securities of this series have been cured or waived (other than the non-payment of principal of the Securities of this series which has become due solely by reason of such declaration of acceleration) then, and in every such case, the Holders of a majority in aggregate principal amount of the Outstanding securities of such series may, by written notice to the Company and to the Trustee, rescind and annul such declaration and its consequences on behalf of all of the Holders, but no such rescission or annulment shall extend to or affect any subsequent default or impair any right consequent thereon.

As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver or trustee or for any other remedy thereunder, unless (a) such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities, (b) the Holders of not less than 33% or a majority, as applicable, in principal amount of the Securities at the time Outstanding under the Indenture shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee, (c) such Holder shall have offered the Trustee indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, (d) the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding under the Indenture a direction inconsistent with such request and (e) the Trustee for 90 days after its receipt of such notice and offer of indemnity from the Holder, and request from the Holders, shall have failed to institute any such proceeding. The foregoing shall not apply to certain suits described in the Indenture, including any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein.


5.	AMENDMENT AND WAIVER

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the Indenture or any supplemental indenture or the rights and obligations of the Company and rights of the Holders of the Securities of any series at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the affected Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder

of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.

No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest, if any, on this Security at the times, place and rate, and in the coin or currency, herein prescribed.


6.	TRANSFER AND EXCHANGE; DENOMINATIONS

As provided in the Indenture and subject to certain limitations therein set forth, the transfer of a Security of the series of which this Security is a part is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest, if any, on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.

The Securities of the series of which this Security is a part are issuable only in registered form, without coupons, in denominations of $2,000 and any integral multiple of

$1,000 in excess thereof.

No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.


7.	SUCCESSOR OBLIGORS

When a successor assumes all the obligations of its predecessor under the Securities of this series and the Indenture in accordance with the terms of the Indenture, the predecessor will be released from those obligations.


8.	TRUSTEE DEALINGS WITH THE COMPANY

The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities of this series and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee.


9.	NO RECOURSE AGAINST OTHERS

No stockholder, director, officer, employee, incorporator or Affiliate of the Company shall have any liability for any obligation of the Company under the Securities of this series or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of the Securities of this series by accepting a Security of this series waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities of this series.


10.	AUTHENTICATION

This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security.


11.	CUSIP NUMBERS

Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Securities of this series as a convenience to the Holders of the Securities of this series.


12.	GOVERNING LAW

This Security shall be governed by and construed in accordance with the laws of the State of New York, including Section 5-1401 of the New York General Obligations Law, but otherwise without regard to the principles of conflict of laws thereof.


13.	DEFINED TERMS

All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.

SCHEDULE A

SCHEDULE OF ADJUSTMENTS

Initial Principal Amount: U.S. $[ ]



Date Adjustment Made	Principal Amount Increase	Principal Amount Decrease	Principal Amount Following Adjustment	On Behalf of the Security Exchange Agent/Registrar

OPTION OF HOLDER TO ELECT PURCHASE

If you wish to elect to have all or any portion of the Securities purchased by the Company pursuant to a Change of Control Offer made in accordance with Section 10.10 of the Base Indenture, check the applicable boxes:

I wish to have the Securities purchased by the Company:

¨ in whole

¨ in part

Amount to be

purchased: $

Dated: Signature:

(sign exactly as your name appears

on the other side of this Security)

Signature

Guarantee:

(Your signature must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program (“ STAMP ”), the Securities Exchange Medallion Program (“ SEMP ”), the New York Stock Exchange, Inc. Medallion Signature Program (“ MSP ”) or such other signature guarantee program as may be determined by the Securities Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended.)

Social Security Number or

Taxpayer Identification Number:

Exhibit B

N/A.

Exhibit C

[See Attached]

FORM OF FACE OF REGULATION S PERMANENT GLOBAL SENIOR NOTE DUE 2049

BERKSHIRE HATHAWAY ENERGY COMPANY

4.450% Senior Notes due 2049

$[ ]

No. [ ] CUSIP No. U0740L AH8

ISIN No. USU0740LAH88

with a bank in the United States; provided that such Holder elects payment by wire transfer by giving written notice to the Trustee or Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion).

[ Remainder of Page Intentionally Left Blank ]

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.

BERKSHIRE HATHAWAY ENERGY COMPANY

By:

Name:

Title:

Attest:


By:

Name:

Title:

[Regulation S Permanent Global Note]

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture.

THE BANK OF NEW YORK MELLON TRUST

COMPANY, N.A., as Trustee

Dated: By: Authorized Signatory

[Regulation S Permanent Global Note]

FORM OF REVERSE OF REGULATION S PERMANENT GLOBAL SENIOR NOTE DUE 2049

BERKSHIRE HATHAWAY ENERGY COMPANY

4.450% Senior Notes due 2049


1.	GENERAL


2.	OPTIONAL REDEMPTION

financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series.

“ Comparable Treasury Price ” means, with respect to any Redemption Date, the Reference Treasury Dealer Quotation for such Redemption Date.

“ Independent Investment Banker ” means an investment banking institution of international standing appointed by the Company.

“ Reference Treasury Dealer ” means a primary U.S. government securities dealer in New York City appointed by the Company.


3.	DEFEASANCE


4.	DEFAULTS AND REMEDIES


5.	AMENDMENT AND WAIVER


6.	TRANSFER AND EXCHANGE; DENOMINATIONS

The Securities of the series of which this Security is a part are issuable only in registered form, without coupons, in denominations of $2,000 and any integral multiple of

$1,000 in excess thereof.


7.	SUCCESSOR OBLIGORS


8.	TRUSTEE DEALINGS WITH THE COMPANY


9.	NO RECOURSE AGAINST OTHERS


10.	AUTHENTICATION

This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security.


11.	ISIN NUMBER

This Security will bear an ISIN number. No representation is made as to the accuracy of such number as printed on the Securities of this series and reliance may be placed only on the other identification numbers printed hereon.


12.	GOVERNING LAW


13.	DEFINED TERMS

All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.

SCHEDULE A

SCHEDULE OF ADJUSTMENTS

Initial Principal Amount: U.S. $[ ]



Date Adjustment Made	Principal Amount Increase	Principal Amount Decrease	Principal Amount Following Adjustment	On Behalf of the Security Exchange Agent/Registrar

OPTION OF HOLDER TO ELECT PURCHASE

I wish to have the Securities purchased by the Company:

¨ in whole

¨ in part

Amount to be

purchased: $

Dated: Signature:

(sign exactly as your name appears

on the other side of this Security)

Signature

Guarantee:

Social Security Number or

Taxpayer Identification Number:

Exhibit D

[See Attached]

FORM OF FACE OF RESTRICTED DEFINITIVE SENIOR NOTE DUE 2049

THIS SECURITY HAS INITIALLY BEEN RESOLD TO AN INSTITUTIONAL “ACCREDITED INVESTOR” (AS DESCRIBED BY RULE 501(a)(1), (2), (3) or (7) UNDER THE SECURITIES ACT) IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND SHALL BEAR THE FOLLOWING LEGEND UNTIL REMOVABLE IN ACCORDANCE WITH ITS TERMS AND THE TERMS OF THE INDENTURE:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, EACH HOLDER OF THIS SECURITY AND ANY OWNERS OF INTERESTS HEREIN (1) REPRESENTS THAT IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY AFFILIATE THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” THAT PRIOR TO SUCH TRANSFER FURNISHED TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. UNLESS THE COMPANY DETERMINES OTHERWISE IN ACCORDANCE WITH APPLICABLE LAW, THIS LEGEND WILL BE REMOVED BY THE COMPANY (1) UPON REQUEST OF THE HOLDER, AFTER ONE YEAR FROM THE LATER OF (A) THE ORIGINAL ISSUE DATE OF THIS SECURITY AND (B) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) IN ACCORDANCE WITH THE INDENTURE OR (2) WITH RESPECT TO SECURITIES SOLD IN RELIANCE ON REGULATION S, FOLLOWING THE EXPIRATION OF 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH INTERESTS IN THIS SECURITY ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE ORIGINAL ISSUE DATE OF THIS SECURITY. AS USED HEREIN, THE TERMS “OFFSHORE TRANSACTION,” “UNITED STATES” AND “U.S. PERSON” HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.

BERKSHIRE HATHAWAY ENERGY COMPANY

4.450% Senior Notes due 2049

$[ ]

No. [_] CUSIP No. [ ]

ISIN No. [ ]

BERKSHIRE HATHAWAY ENERGY COMPANY, a corporation organized under the laws of Iowa (herein called the “ Company ,” which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to [name of registered owner or its registered assigns], the principal amount of [ ] Dollars (the “ Principal Amount ”) on January 15, 2049, and to pay interest thereon from July 25, 2018, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on January 15 and July 15 in each year, commencing January 15, 2019, at the rate of 4.450% per annum, until the Principal Amount hereof is paid or made available for payment; provided that any Principal Amount and premium, and any such installment of interest, which is overdue shall bear interest at the rate of 4.450% per annum (or, if lower, the maximum rate legally enforceable) from the dates such amounts are due until they are paid or made available for payment; provided, further, that if a Registration Default (as defined in the Registration Rights Agreement) occurs with respect to this Security, additional interest will accrue on this Security for as long as it remains a Transfer Restricted Security (as defined in the Registration Rights Agreement) at a rate of 0.50% per annum from and including the date on which any such Registration Default shall occur, until but excluding the date on which all Registration Defaults have been cured. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be January 1 or July 1 (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Person in whose name this Security (or one or more Predecessor Securities) is registered on such Regular Record Date and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.

[ Remainder of Page Intentionally Left Blank ]

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.

BERKSHIRE HATHAWAY ENERGY COMPANY

By:

Name:

Title:

Attest:

By:

Name:

Title:

[Restricted Definitive Senior Note]

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture.

THE BANK OF NEW YORK MELLON TRUST

COMPANY, N.A., as Trustee

Dated: By:

Authorized Signatory

[Restricted Definitive Senior Note]

FORM OF REVERSE OF RESTRICTED DEFINITIVE SENIOR NOTE DUE 2049

BERKSHIRE HATHAWAY ENERGY COMPANY

4.450% Senior Notes due 2049


1.	GENERAL


2.	OPTIONAL REDEMPTION

financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series.

“ Comparable Treasury Price ” means, with respect to any Redemption Date, the Reference Treasury Dealer Quotation for such Redemption Date.

“ Independent Investment Banker ” means an investment banking institution of international standing appointed by the Company.

“ Reference Treasury Dealer ” means a primary U.S. government securities dealer in New York City appointed by the Company.


3.	DEFEASANCE


4.	DEFAULTS AND REMEDIES


5.	AMENDMENT AND WAIVER


6.	TRANSFER AND EXCHANGE; DENOMINATIONS

The Securities of the series of which this Security is a part are issuable only in registered form, without coupons, in denominations of $2,000 and any integral multiple of

$1,000 in excess thereof.


7.	SUCCESSOR OBLIGORS


8.	TRUSTEE DEALINGS WITH THE COMPANY


9.	NO RECOURSE AGAINST OTHERS

all such liability. The waiver and release are part of the consideration for the issuance of the Securities of this series.


10.	AUTHENTICATION

This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security.


11.	CUSIP NUMBERS


12.	GOVERNING LAW


13.	DEFINED TERMS

All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.

OPTION OF HOLDER TO ELECT PURCHASE

I wish to have the Securities purchased by the Company:

¨ in whole

¨ in part

Amount to be

purchased: $

Dated: Signature:

(sign exactly as your name appears

on the other side of this Security)

Signature

Guarantee:

Social Security Number or

Taxpayer Identification Number:

Exhibit E

[See Attached]

FORM OF FACE OF SENIOR EXCHANGE NOTE DUE 2049 OR PRIVATE EXCHANGE NOTE DUE 2049

BERKSHIRE HATHAWAY ENERGY COMPANY

4.450% Senior Notes due 2049

$[ ]

No. [_] CUSIP No. [ ]

ISIN No. [ ]

BERKSHIRE HATHAWAY ENERGY COMPANY, a corporation organized under the laws of Iowa (herein called the “ Company ,” which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & Co., the principal amount of [ ] Dollars (such Initial Principal Amount, as it may from time to time be adjusted by endorsement on Schedule A hereto, is hereinafter referred to as the “ Principal Amount ”) on January 15, 2049, and to pay interest thereon from July 15, 2018, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on January 15 and July 15 in each year, commencing January 15, 2019, at the rate of 4.450% per annum, until the Principal Amount hereof is paid or made available for payment; provided that any Principal Amount and premium, and any such installment of interest, which is overdue shall bear interest at the rate of 4.450% per annum (or, if lower, the maximum rate legally enforceable) from the dates such amounts are due until they are paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be January 1 or July 1 (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Person in whose name this Security (or one or more Predecessor Securities) is registered on such Regular Record Date and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.

15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion).

[ Remainder of Page Intentionally Left Blank ]

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.

BERKSHIRE HATHAWAY ENERGY COMPANY

By:

Name:

Title:

Attest:


By:

Name:

Title:

[Senior Exchange Note]

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture.

THE BANK OF NEW YORK MELLON TRUST

COMPANY, N.A., as Trustee

Dated: By: Authorized Signatory

[Senior Exchange Note]

FORM OF REVERSE OF SENIOR EXCHANGE NOTE DUE 2049 OR PRIVATE EXCHANGE NOTE DUE 2049

BERKSHIRE HATHAWAY ENERGY COMPANY

4.450% Senior Notes due 2049


1.	GENERAL


2.	OPTIONAL REDEMPTION

financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series.

“ Comparable Treasury Price ” means, with respect to any Redemption Date, the Reference Treasury Dealer Quotation for such Redemption Date.

“ Independent Investment Banker ” means an investment banking institution of international standing appointed by the Company.

“ Reference Treasury Dealer ” means a primary U.S. government securities dealer in New York City appointed by the Company.


3.	DEFEASANCE


4.	DEFAULTS AND REMEDIES


5.	AMENDMENT AND WAIVER


6.	TRANSFER AND EXCHANGE; DENOMINATIONS

The Securities of the series of which this Security is a part are issuable only in registered form, without coupons, in denominations of $2,000 and any integral multiple of

$1,000 in excess thereof.


7.	SUCCESSOR OBLIGORS


8.	TRUSTEE DEALINGS WITH THE COMPANY


9.	NO RECOURSE AGAINST OTHERS

Each Holder of the Securities of this series by accepting a Security of this series waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities of this series.


10.	AUTHENTICATION

This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security.


11.	CUSIP NUMBERS


12.	GOVERNING LAW


13.	DEFINED TERMS

All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.

SCHEDULE A

SCHEDULE OF ADJUSTMENTS

Initial Principal Amount: U.S. $[ ]



Date Adjustment Made	Principal Amount Increase	Principal Amount Decrease	Principal Amount Following Adjustment	On Behalf of the Security Exchange Agent/Registrar

OPTION OF HOLDER TO ELECT PURCHASE

I wish to have the Securities purchased by the Company:

¨ in whole

¨ in part

Amount to be

purchased: $

Dated: Signature:

(sign exactly as your name appears

on the other side of this Security)

Signature

Guarantee:

Social Security Number or

Taxpayer Identification Number:

EXHIBIT 4.2

EXECUTION VERSION

FISCAL AGENCY AGREEMENT

Between

NORTHERN NATURAL GAS COMPANY,
as Issuer

and

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,
as Fiscal Agent

__________

Dated as of July 17, 2018

__________

4.30% Senior Bonds due 2049

TABLE OF CONTENTS



	Page
1. The Securities	1

(a) General	1
(b) Form of Securities; Denominations of Securities	1
(c) Temporary Securities	4
(d) Legends	5
(e) Book-Entry Provisions	5

2. Fiscal Agent; Other Agents	6

3. Authentication	7

4. Payment and Cancellation.	7

(a) Payment	7
(b) Cancellation	8

5. Transfer and Exchange of Securities	8

(a) Transfers of Global Securities as Such	8
(b) Exchanges of Global Securities for Definitive Securities	8
(c) Beneficial Interests.	10
(d) Special Provisions Regarding Transfer of Beneficial Interests in a Regulation S Global Security	10
(e) Special Provisions Regarding Transfer of Beneficial Interests in a Rule 144A Global Security	13
(f) Special Provisions Regarding Transfer of Restricted Definitive Securities	15

6. Mutilated, Destroyed, Stolen or Lost Securities	17

7. Register; Record Date for Certain Actions	18

8. Delivery of Certain Information	19

(a) Non-Reporting Issuer	19
(b) Information After One Year	20
(c) Periodic Reports	20

Page




9. Conditions of Fiscal Agent’s Obligations	20

(a) Compensation and Indemnity	21
(b) Agency	21
(c) Advice of Counsel	21
(d) Reliance	21
(e) Interest in Securities, etc	22
(f) Certifications	22
(g) No Implied Obligations	22
(h) No Liability	22
(i) No Inquiry	22
(j) Agents	22
(k) Directors, Officers	23

10. Resignation and Appointment of Successor	23

(a) Fiscal Agent and Paying Agent	23
(b) Resignation	23
(c) Successors	23
(d) Acknowledgment	24
(e) Merger, Consolidation, etc.	24

11. Payment of Taxes	24

12. Amendments	25

(a) Approval	25
(b) Binding Nature of Amendments, Notice, Notations, etc.	25
(c) “Outstanding” Defined	26

13. GOVERNING LAW	27

14. Notices	27

15. Defeasance (Legal and Covenant)	27

(a) Issuer’s Option to Effect Defeasance or Covenant Defeasance	27
(b) Defeasance and Discharge	28
(c) Covenant Defeasance	28
(d) Conditions to Defeasance and Covenant Defeasance	28
(e) Deposit in Trust; Miscellaneous	30
(f) Reinstatement	31

Page




16. Headings	31

17. Counterparts	31

18. Successors and Assigns	31

19. Separability Clause	32

20. Waiver of Jury Trial.	32

21. Force Majeure.	32

2 2. FATCA.	32

iii

FISCAL AGENCY AGREEMENT (this “ Agreement ”), dated as of July 17, 2018, between NORTHERN NATURAL GAS COMPANY, a corporation duly organized under the laws of the State of Delaware (the “ Issuer ”), and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a national banking association, as Fiscal Agent (as defined in Section 2 hereof).

RECITALS OF THE ISSUER

The Issuer has duly authorized the creation of an issue of its 4.30% Senior Bonds due January 15, 2049 (the “ Securities ”) of substantially the tenor and amount hereinafter set forth, and to provide therefor the Issuer has duly authorized the execution and delivery of this Agreement.

All things necessary to make the Securities, when executed by the Issuer and authenticated and delivered hereunder and duly issued by the Issuer, the valid and legally binding obligations of the Issuer, and to make this Agreement a valid and legally binding agreement of the Issuer, in accordance with their and its terms, have been done.

1. The Securities .

(a) General . The initial aggregate principal amount of Securities issued under this Agreement will be $450,000,000. The aggregate principal amount of Securities which may be authenticated and delivered under this Agreement is unlimited, including without limitation, Securities authenticated and delivered upon registration of transfer, or in exchange for, or in lieu of other Securities pursuant to the provisions of this Agreement or the Securities. The Securities and any additional Securities subsequently issued under this Agreement will be treated as a single class for all purposes under this Agreement.

The Securities shall be known and designated as the “4.30% Senior Bonds due 2049” of the Issuer. The Securities will be unsecured, direct, unconditional and general obligations of the Issuer and will rank pari passu with all other unsecured and unsubordinated indebtedness of the Issuer.

(b) Form of Securities; Denominations of Securities . The Securities will be issued in registered form without coupons in substantially the form, and including the terms, provided for herein and on Exhibit A . The Securities shall be executed manually or in facsimile on behalf of the Issuer by its Chairman of the Board, President or a Vice President and by its Secretary or an Assistant Secretary (the “ Authorized Officers ”), notwithstanding that such officers, or any one of them, shall have ceased, for any reason, to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. The Securities may also have such additional provisions, omissions, variations or substitutions as are not inconsistent with the provisions of this Agreement and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with any law or with any rules made pursuant thereto or with the rules of any securities exchange or governmental agency or as may, consistently herewith, be determined by the Authorized Officers of the Issuer executing such Securities, as conclusively evidenced by their execution of such Securities. All of the Securities shall be otherwise substantially identical except as to denominations of Securities and as provided herein.

(i)

Except as otherwise set forth in this Agreement, the Securities offered and sold in their initial resale distribution to a qualified institutional buyer (as defined in Rule 144A (“ Rule 144A ”) under the United States Securities Act of 1933, as amended (the “ Act ”), each a “ QIB ”) in reliance on Rule 144A (“ Rule 144A Securities ”) shall initially be issued in the form of one or more Global Securities (as defined in Section 1(e) hereof) in definitive, fully registered form, substantially in the form set forth on Exhibit A , with such applicable legends as are provided for herein and on Exhibit A , and in minimum denominations of $2,000 and in integral multiples of $1,000 in excess of $2,000. Such Global Securities shall be duly executed by the Issuer and authenticated by the Fiscal Agent as hereinafter provided, and deposited with the U.S. Depository (as defined in Section 1(e) hereof). Until such time as the Holding Period (as defined below) shall have terminated, each such Security shall be referred to as a “ Rule 144A Global Security .” The aggregate principal amount of any Rule 144A Global Security may be adjusted by endorsements to Schedule A on the reverse thereof in any situation where adjustment is permitted or required by this Agreement or provided for on Exhibit A . Unless the Issuer determines otherwise in accordance with applicable law, the legend setting forth transfer restrictions shall be removed or deemed removed from a Rule 144A Security in accordance with the procedures set forth in Section 1(d) after such time as the applicable Holding Period shall have terminated, and each such Security shall thereafter be held as an unrestricted Security. As used herein, the term “ Holding Period ,” with respect to Rule 144A Securities, means the period referred to in Rule 144(d) under the Act or any successor provision thereto (“ Rule 144(d) ”) and as may be amended or revised from time to time, beginning from the later of (i) the original issue date of such Securities or (ii) the last date on which the Issuer or any affiliate of the Issuer was the beneficial owner of such Securities (or any predecessor thereof).

(ii)

Except as otherwise set forth in this Agreement, Securities offered and sold in reliance on Regulation S under the Act (“ Regulation S ”) will be issued initially in the form of one or more temporary Global Securities in the form provided for herein and on Exhibit A , with such applicable legends as are provided for herein and on Exhibit A , and in minimum denominations of $2,000 and in integral multiples of $1,000 in excess of $2,000 equal to the outstanding principal amount of the Securities initially sold in reliance on Rule 903 of Regulation S under the Act (the “ Regulation S Temporary Global Securities ”). The Regulation S Temporary Global Securities, which will be deposited on behalf of the purchasers of the Securities represented thereby with the Fiscal Agent, as custodian for the U.S. Depository,

and registered in the name of the U.S. Depository or the nominee of the U.S. Depository for the accounts of designated agents holding on behalf of Euroclear Bank S.A./N.V., as operator of the Euroclear System (“ Euroclear ”), or Clearstream Banking, S.A. (“ Clearstream ”), shall be duly executed by the Issuer and authenticated by the Fiscal Agent as hereinafter provided. Following the termination of the Distribution Compliance Period (as defined below) and upon the receipt by the Fiscal Agent of:

a. a written certificate from the U.S. Depository, together with copies of certificates from Euroclear and Clearstream, certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Securities (except to the extent of any beneficial owners thereof who acquired an interest therein during the Distribution Compliance Period pursuant to another exemption from registration under the Act and who will take delivery of a beneficial ownership interest in a Rule 144A Global Security or a Restricted Definitive Security (as defined below), all as contemplated by Section 5(d) hereof); and

b. a certificate signed by the Authorized Officers (“ Officers’ Certificate ”),

beneficial interests in the Regulation S Temporary Global Securities will be exchanged for beneficial interests in a permanent global Security in the form provided for herein and on Exhibit A , issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Securities (the “ Regulation S Permanent Global Securities ”) pursuant to the rules and regulations of the U.S. Depository, Euroclear or Clearstream, as applicable, in each case pertaining to beneficial interests in Global Securities (“ Applicable Procedures ”). Simultaneously with the authentication of the Regulation S Permanent Global Securities, the Fiscal Agent will cancel the Regulation S Temporary Global Securities. As used herein, “ Regulation S Global Securities ” means the Regulation S Temporary Global Securities or the Regulation S Permanent Global Securities, as applicable.

The aggregate principal amount of the Regulation S Temporary Global Securities and the Regulation S Permanent Global Securities may be adjusted by endorsements to Schedule A on the reverse thereof in any situation where adjustment is permitted or required by this Agreement. As used herein, the term “ Distribution Compliance Period ,” with respect to Regulation S Securities, means the period of 40 consecutive days beginning on and including the later of (i) the date on which interests in such Securities are offered to Persons (as defined below) other than distributors (as defined in Regulation S) and (ii) the original issue date of such Securities. Except as otherwise provided in this Agreement, no Regulation S Global Security shall be issued except as provided in this paragraph to evidence Securities offered and sold in reliance on Regulation S. Unless the Issuer determines otherwise in accordance with applicable law, the legend setting forth transfer restrictions shall be removed or deemed removed from a Regulation S Security in accordance with the procedures set forth in Section 1(d) hereof, and each such Security shall

thereafter be held as an unrestricted Security. As used herein, “ Person ” means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

The provisions of the “Operating Procedures of the Euroclear System” and “Terms and Conditions Governing Use of Euroclear” and the “General Terms and Conditions of Clearstream Banking” and “Customer Handbook” of Clearstream will be applicable to transfers of beneficial interests in the Regulation S Temporary Global Securities and the Regulation S Permanent Global Securities that are held by Agent Members (as defined in Section 1(e) ) through Euroclear or Clearstream.

(iii)

Except as otherwise provided in this Agreement, upon resale of the Securities to purchasers who are institutional “accredited investors” as described in Rule 501(a)(1), (2), (3) or (7) under the Act and who are not QIBs shall be issued in the form of fully registered, definitive, physical certificates, substantially in the form set forth herein and on Exhibit A , with such applicable legends as are provided for on Exhibit A , and in minimum denominations of $200,000 and in integral multiples of $1,000 in excess of $200,000 (such securities are herein referred to as “ Restricted Definitive Securities ”). Unless the Issuer determines otherwise in accordance with applicable law, the legend setting forth transfer restrictions shall be removed or deemed removed from a Restricted Definitive Security in accordance with the procedures set forth in Section 1(d) after such time as the applicable Holding Period shall have terminated, and each such Security shall thereafter be held as an unrestricted Security. As used herein, the term “ Holding Period ,” with respect to Restricted Definitive Securities, means the period referred to in Rule 144(d) or any successor provision thereto and as may be amended or revised from time to time, beginning from the later of (i) the original issue date of such Securities or (ii) the last date on which the Issuer or any affiliate of the Issuer was the beneficial owner of such Securities (or any predecessor thereof).

(c) Temporary Securities . Until definitive Securities are prepared, the Issuer may execute, and there shall be authenticated and delivered in accordance with the provisions of Section 3 hereof (in lieu of definitive printed Securities), temporary Securities. Such temporary Securities may be in registered global form. Such temporary Securities shall be subject to the same limitations and conditions and entitled to the same rights and benefits as definitive Securities, except as provided herein or therein. Temporary Securities shall be exchangeable for definitive Securities, when such definitive Securities are available for delivery; and upon the surrender for exchange of such temporary Securities, the Issuer shall execute and there shall be authenticated and delivered, in accordance with the provisions of Sections 6 and 7 hereof, in exchange for such temporary Securities, a like aggregate principal amount of definitive Securities of like tenor. The Issuer shall pay all charges, including (without limitation) stamp and other taxes and governmental charges, incident to any exchange of temporary Securities for definitive Securities. All temporary Securities shall be identified as such and shall describe the right of the holder thereof to effect an exchange for definitive Securities and the manner in which such an exchange may be effected.

(d) Legends . Securities shall be stamped or otherwise be imprinted with the legends set forth on the face of the text of the Securities attached as Exhibit A , including any legend provided for pursuant to Section 1(e) hereof. The legends so provided on the face of the text of the Securities may be removed from any Security, upon written order signed in the name of the Issuer by the Authorized Officers and delivered to the Fiscal Agent (“ Order ”), (i) one year from the later of issuance of the Security or the date such Security (or any predecessor) was last acquired from an “affiliate” of the Issuer within the meaning of Rule 144 (“ Rule 144 ”) under the Act or (ii) in connection with a sale made pursuant to the volume (and other restrictions) of Rule 144 following one year from such time, provided that, if the legend is removed and the Security is subsequently

held by such an affiliate of the Issuer, the legend shall be reinstated. Any legends provided pursuant to Section 1(e) hereof may be removed in the event the applicable Global Securities cease to be Global Securities in accordance with Section 5 hereof.

(e) Book-Entry Provisions . Subject to the other provisions of this Section 1, the Securities may be issued initially in the form of one or more registered global Securities (“ Global Securities ”) deposited with or on behalf of a depository located in the United States, which initially shall be The Depository Trust Company together with its nominee Cede & Co. (the “ U.S. Depository ”), that (i) shall be registered in the name of the U.S. Depository for such Global Security or Securities or the nominee of such U.S. Depository, (ii) shall be delivered by the Fiscal Agent to such U.S. Depository or pursuant to such U.S. Depository’s instruction and (iii) shall bear a legend substantially similar to the following:

“THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE FISCAL AGENCY AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE U.S. DEPOSITORY OR A NOMINEE OF THE U.S. DEPOSITORY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE U.S. DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE FISCAL AGENCY AGREEMENT, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE U.S. DEPOSITORY TO A NOMINEE OF THE U.S. DEPOSITORY OR BY A NOMINEE OF THE U.S. DEPOSITORY TO THE U.S. DEPOSITORY OR ANOTHER NOMINEE OF THE U.S. DEPOSITORY OR BY THE U.S. DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR U.S. DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR U.S. DEPOSITORY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.

UNLESS THIS GLOBAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE U.S. DEPOSITORY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE IS ISSUED IN THE NAME OR NAMES AS DIRECTED IN WRITING BY THE U.S. DEPOSITORY, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED HOLDER HEREOF, THE U.S. DEPOSITORY, HAS AN INTEREST HEREIN.”

Members of, or direct or indirect participants in, the U.S. Depository (“ Agent Members ”) shall have no rights under this Agreement with respect to any Global Security held on their behalf by the U.S. Depository or under the Global Security, and such U.S. Depository may be treated by the Issuer, the Fiscal Agent, and any agent of the Issuer or the Fiscal Agent as the owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Issuer, the Fiscal Agent, or any agent of the Issuer or the Fiscal Agent from giving effect to any written certification, proxy or other authorization furnished by the U.S. Depository or impair, as between the U.S. Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Security.

So long as the U.S. Depository or its nominee is the registered holder of the Securities, the U.S. Depository or such nominee will for all purposes of the Securities and this Agreement be

considered the sole owner or holder of such Securities. Until such time as definitive Securities may be issued, beneficial owners of Securities will not be entitled to have Securities registered in their names, will not receive or be entitled to receive physical delivery of Securities in definitive form, and will not be considered the owners or holders thereof under this Agreement for any purpose.

The Issuer initially appoints the Fiscal Agent to serve as custodian for the Global Securities.

This Section 1(e) shall apply only to Global Securities deposited with or on behalf of the U.S. Depository.

2. Fiscal Agent; Other Agents .

The Issuer hereby appoints The Bank of New York Mellon Trust Company, N.A., acting through its corporate trust office in Chicago, Illinois (the “ Corporate Trust Office ”), as fiscal agent of the Issuer in respect of the Securities, upon the terms and subject to the conditions herein set forth, and The Bank of New York Mellon Trust Company, N.A., hereby accepts such appointment. The Bank of New York Mellon Trust Company, N.A., and any successor or successors as such fiscal agent qualified and appointed in accordance with Section 10 hereof, are herein called the “ Fiscal Agent .” The Fiscal Agent shall have the powers and authority granted to and conferred upon it in the Securities and hereby and such further powers and authority to act on behalf of the Issuer as may be mutually agreed upon by the Issuer and the Fiscal Agent. All of the terms and provisions with respect to such powers and authority contained in the Securities are subject to and governed by the terms and provisions hereof.

The Issuer may appoint one or more agents (a “ Paying Agent ” or “ Paying Agents ”) for the payment (subject to applicable laws and regulations) of the principal of and interest on the Securities, and one or more agents (a “ Transfer Agent ” or “ Transfer Agents ”) for the transfer and exchange of securities, at such place or places as the Issuer may determine; provided , however , the Issuer shall at all times maintain a Paying Agent or agent thereof and Transfer Agent or agent thereof in the Borough of Manhattan, The City of New York (which Paying Agent and Transfer Agent may be the Fiscal Agent or any of its affiliates). The Issuer initially appoints the Fiscal Agent, acting through its offices in the Borough of Manhattan, The City of New York, as Paying Agent and Transfer Agent. The Issuer shall promptly notify the Fiscal Agent of the name and address of each Paying Agent and Transfer Agent appointed, and will notify the Fiscal Agent of the resignation or termination of any Paying Agent or Transfer Agent. Subject to the provisions of Section 10(c) hereof, the Issuer may vary or terminate the appointment of any such Paying Agent or Transfer Agent at any time and from time to time upon giving not less than 90 days’ notice to such Paying Agent or Transfer Agent, as the case may be, and to the Fiscal Agent.

The Issuer shall cause notice of any resignation, termination or appointment of any Paying Agent or Transfer Agent or of the Fiscal Agent and of any change in the office through which any such Agent will act to be given to registered holders of the Securities.

3. Authentication .

The Fiscal Agent is authorized, upon receipt of Securities duly executed on behalf of the Issuer for the purposes of the original issuance of the Securities, (i) to authenticate said Securities in an aggregate principal amount of $450,000,000 and to deliver said Securities in accordance with an Order or Orders and thereafter to authenticate such additional Securities for which it has received subsequent Orders and (ii) thereafter to authenticate and deliver said Securities in accordance with the provisions hereinafter set forth.

The Fiscal Agent may, with the consent of the Issuer, appoint by an instrument or instruments in writing one or more agents (which may include itself) for the authentication of Securities and, with such consent, vary or terminate any such appointment upon written notice and approve any change in the office through which any authenticating agent acts. The Issuer (by written notice to the Fiscal Agent and the authenticating agent whose appointment is to be terminated) may also terminate any such appointment at any time. The Fiscal Agent hereby agrees to acknowledge written acceptances from the entities concerned (in form and substance satisfactory to the Issuer) of such appointments. In its acceptance of such appointment, each such authenticating agent shall agree to act as an authenticating agent pursuant to the terms and conditions of this Agreement.

4. Payment and Cancellation .

(a) Payment . Subject to the following provisions, the Issuer shall provide to the Fiscal Agent in funds available on or prior to each date on which a payment of principal of or any interest on the Securities shall become due, as set forth in the text of the Securities, such amount, in such coin or currency, as is necessary to make such payment, and the Issuer hereby authorizes and directs the Fiscal Agent from funds so provided to it to make or cause to be made payment of the principal of and interest on, as the case may be, the Securities set forth herein and in the text of the Securities. The Fiscal Agent shall arrange directly with any Paying Agent who may have been appointed pursuant to the provisions of Section 2 hereof for the payment from funds so paid by the Issuer of the principal of and interest on the Securities as set forth herein and in the text of the Securities. Notwithstanding the foregoing, the Issuer may provide directly to a Paying Agent funds for the payment of the principal thereof and premium and interest, if any, payable thereon under an agreement with respect to such funds containing substantially the same terms and conditions set forth in this Section 4(a) and in Section 9(b) hereof; and the Fiscal Agent shall have no responsibility with respect to any funds so provided by the Issuer to any such Paying Agent.

Any interest on the Securities shall be paid, unless otherwise provided in the text of the Securities, to the Persons in whose names such Securities are registered on the register maintained pursuant to Section 7 hereof at the close of business on the record dates designated in the text of the Securities (the “ registered holders ”). Payments of principal of Securities shall be payable against surrender thereof at the Corporate Trust Office or office of an agent of the Fiscal Agent and at the offices of such other Paying Agents as shall have been appointed pursuant to Section 2 hereof. Payments of principal shall be made against surrender of Securities, and payments of interest on Securities shall be made, in accordance with the foregoing and subject to applicable laws and regulations, by check mailed on or before the due date for such payment to the Person entitled thereto at such Person’s address appearing on the register of the Securities maintained pursuant to Section 7 hereof, or, in the case of payments of principal, to such other address as the registered

holder shall provide in writing at the time of such surrender; provided , however , that such payments may be made, in the case of a registered holder of greater than $1,000,000 aggregate principal amount of Securities, by wire transfer to an account maintained by the payee with a bank if such registered holder so elects by giving notice to the Fiscal Agent, not less than 15 days (or such fewer days as the Fiscal Agent may accept at its discretion) prior to the date of the payments to be obtained, of such election and of the account to which payment is to be made.

(b) Cancellation . All Securities delivered to the Fiscal Agent (or any other Agent appointed pursuant to Section 2 hereof) for payment, registration of transfer or exchange as herein or in the Securities provided shall be forwarded to the Fiscal Agent by the Agent to which they are delivered. All such Securities shall be canceled and disposed of by the Fiscal Agent or such other Person as may be jointly designated by the Issuer and the Fiscal Agent, which shall thereupon furnish certificates of such disposal to the Issuer upon the Issuer’s request.

5. Transfer and Exchange of Securities .

(a) Transfers of Global Securities as Such . Except as otherwise expressly set forth in this Agreement or any amendment hereto, a Global Security representing all or a portion of the Securities may not be transferred in global form, except as a whole (i) by the U.S. Depository to a nominee of such U.S. Depository, (ii) by a nominee of such U.S. Depository to such U.S. Depository or another nominee of such U.S. Depository or (iii) by such U.S. Depository or any such nominee to a successor U.S. Depository or a nominee of such successor U.S. Depository.

(b) Exchanges of Global Securities for Definitive Securities . A Global Security shall be exchangeable, in whole but not in part, for definitive Securities if (a) the U.S. Depository notifies the Issuer that it is unwilling or unable to continue to hold book-entry interests in such Global Security or the U.S. Depository at any time ceases to be a “clearing agency” registered as such under the United States Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and, in either case, a successor is not appointed by the Issuer within 120 days, (b) while a Global Security is a restricted Security the book-entry interests in such Global Security cease to be eligible for the U.S. Depository’s services because the Securities are neither (i) rated in one of the top four categories by a nationally recognized statistical rating organization nor (ii) included within a Self-Regulatory Organization system approved by the U.S. Securities and Exchange Commission (the “ Commission ”) for the reporting of quotation and trade information of securities eligible for transfer pursuant to Rule 144A, such as the PORTAL system, (c) the U.S. Depository for Securities notifies the Issuer that it is unwilling or unable to continue as U.S. Depository with respect to such Global Security and no successor is appointed within 120 days or (d) the Issuer in its sole discretion executes and delivers to the Fiscal Agent an Officers’ Certificate providing that such Global Security shall be so exchangeable; provided , however , that in no event shall the Regulation S Temporary Global Securities be exchanged by the Issuer for definitive Securities prior to (x) the expiration of the Distribution Compliance Period and (y) the receipt by the Transfer Agent of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Act. Securities so issued in exchange for any such Global Security shall have the same interest rate, if any, and maturity and have the same terms as such Global Security, in authorized denominations and in the aggregate having the same principal amount as such Global Security and registered in such names as the U.S. Depository for such Global

Security shall direct. Upon such exchange, the surrendered Global Security shall be cancelled by the Fiscal Agent.

A Global Security shall be exchangeable, in whole or in part, for definitive registered Securities if there shall have occurred and be continuing an event of default (as set forth in paragraph 7 of the Securities) and the registered holder, in such circumstances, shall have requested in writing that all or a part of the Global Security be exchanged for one or more definitive Securities (an “ Optional Definitive Security Request ”), provided , however , that in no event shall the Regulation S Temporary Global Securities be exchanged by the Issuer for definitive registered Securities prior to (x) the expiration of the Distribution Compliance Period and (y) the receipt by the Transfer Agent of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Act. Upon any such surrender, (i) the Issuer shall execute and the Fiscal Agent shall authenticate and deliver without charge to each Person specified by the U.S. Depository, in exchange for such Person’s beneficial interest in the Global Security, a new Security or Securities in definitive registered form having the same interest rate, if any, and maturity and having the same terms as such Global Security, in any authorized denomination requested by such Person and in an aggregate principal amount equal to such Person’s beneficial interest in the Global Security, and (ii) if the Global Security is being exchanged (x) as a whole, then the surrendered Global Security shall be cancelled by the Fiscal Agent, or (y) in part, then the principal amount of the surrendered Global Security shall be reduced by an endorsement on Schedule A thereto in the appropriate amount.

Unless otherwise provided by the Issuer, definitive Securities issued in exchange for a Global Security pursuant to this Section 5(b) shall be issued only in registered form and shall be registered in such names and in such authorized denominations as the U.S. Depository for such Global Security, pursuant to instructions of its Agent Members or otherwise, shall instruct the Fiscal Agent. The Fiscal Agent shall deliver such Securities to the Persons in whose names such Securities are so registered.

(c) Beneficial Interests. Subject to the provisions herein, beneficial interests in a Global Security may be transferred in any manner consistent with the Applicable Procedures.

(d) Special Provisions Regarding Transfer of Beneficial Interests in a Regulation S Global Security . The transfer of beneficial interests in a Regulation S Global Security shall be effected in a manner not inconsistent with the following provisions:

(i)

Transfer Through a Rule 144A Global Security . If the holder of a beneficial interest in a Regulation S Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Rule 144A Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 5(d)(i) , provided , however , that prior to the expiration of the Distribution Compliance Period, transfers of beneficial interests in the Regulation S Temporary Global Securities may not be made to a U.S. person (as defined under Regulation S) or for the account or benefit of a U.S. person (other than an initial purchaser). Upon receipt by the U.S. Depository of

the instructions, order and certificate set forth below, the U.S. Depository shall promptly forward the same to the Transfer Agent at the Corporate Trust Office. Upon receipt by the Transfer Agent from the U.S. Depository at the Corporate Trust Office of (1) written instructions given in accordance with the Applicable Procedures from an Agent Member directing the U.S. Depository to cause to be credited to a specified Agent Member’s account a beneficial interest in the Rule 144A Global Security equal to that of the beneficial interest in the Regulation S Global Security to be so transferred, (2) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Member to be credited with, and the account of the Agent Member held for Euroclear or Clearstream to be debited for, such beneficial interest, and (3) a certificate substantially in the form set forth in or contemplated by Exhibit B given by the transferor of such beneficial interest, the Transfer Agent, shall (A) reduce the principal amount of the Regulation S Global Security, and increase the principal amount of the Rule 144A Global Security, in each case by an amount equal to the principal amount of the beneficial interest in the Regulation S Global Security to be so transferred, as evidenced by appropriate endorsements on Schedule A of the respective Global Securities, and (B) instruct the U.S. Depository, (x) to make corresponding reductions and increases in the amounts represented by the respective Global Securities and (y) to cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Rule 144A Global Security having a principal amount equal to the amount by which the principal amount of the Regulation S Global Security was reduced upon such transfer.

Delivery of a beneficial interest in the Regulation S Global Security may not be taken in the form of a beneficial interest in the Rule 144A Global Security if immediately prior to the contemplated transfer no Rule 144A Global Security is then Outstanding (as defined in Section 12(c) hereof).


(ii)	Interests in Regulation S Global Security Initially to be Held Through Euroclear or Clearstream . Beneficial interests in a Regulation S Temporary Global Security may be held only through Agent Members acting for and on behalf of Euroclear or Clearstream.

(iii)

Transfer Through Restricted Definitive Security . If the holder of a beneficial interest in a Regulation S Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a Restricted Definitive Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 5(d)(iii) , provided , however , that in no

event shall the Regulation S Temporary Global Securities be exchanged by the Issuer for Restricted Definitive Securities prior to (x) the expiration of the Distribution Compliance Period and (y) the receipt by the Transfer Agent of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Act. Upon receipt by the U.S. Depository of the instructions and certificate set forth below, the U.S. Depository shall promptly forward the same to the Transfer Agent at the Corporate Trust Office. Upon receipt by the Transfer Agent from the U.S. Depository at the Corporate Trust Office of (1) written instructions given in accordance with the Applicable Procedures from an Agent Member directing the U.S. Depository to cause to be issued a Restricted Definitive Security to such Person in a principal amount equal to that of the beneficial interest in the Global Security to be so transferred and (2) a certificate substantially in the form set forth in or contemplated by Exhibit C given by the transferor of such beneficial interest and, if the transferee is an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act), a certificate substantially in the form set forth in or contemplated by Exhibit I given by such transferee, the Transfer Agent shall (A) reduce the principal amount of the Regulation S Global Security by an amount equal to the principal amount of the beneficial interest in the Regulation S Global Security to be so transferred, as evidenced by appropriate endorsement on Schedule A of the Regulation S Global Security and (B) cause to be issued a Restricted Definitive Security to such Person in a principal amount equal to the amount by which the principal amount of the Regulation S Global Security was reduced upon such transfer.

(iv)

Transfer Through an Unrestricted Global Security . If the holder of a beneficial interest in a Regulation S Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in an unrestricted Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 5(d)(iv) . Upon receipt by the U.S. Depository of the instructions, order and certificate set forth below, the U.S. Depository shall promptly forward the same to the Transfer Agent at the Corporate Trust Office. Upon receipt by the Transfer Agent from the U.S. Depository at the Corporate Trust Office of (1) written instructions given in accordance with the Applicable Procedures from an Agent Member directing the U.S. Depository to cause to be credited to a specified Agent Member’s account a beneficial interest in the unrestricted Global Security equal to that of the beneficial interest in the Regulation S Global Security to be so transferred, (2) a written order given in accordance with the Applicable Procedures containing information regarding the account

of the Agent Member, and the Euroclear or Clearstream account for which such Agent Member’s account is held, to be credited with, and the account of the Agent Members to be debited for, such beneficial interest, and (3) a certificate substantially in the form set forth in or contemplated by Exhibit D given by the transferor of such beneficial interest, the Transfer Agent shall (A) reduce the principal amount of the Regulation S Global Security, and increase the principal amount of the unrestricted Global Security, in each case by an amount equal to the principal amount of the beneficial interest in the Regulation S Global Security to be so transferred, as evidenced by appropriate endorsements on Schedule A of the respective Global Securities and (B) instruct the U.S. Depository, (x) to make corresponding reductions and increases to the transferor’s beneficial interests in the respective Global Securities and (y) to cause to be credited to the account of the Person specified in such instructions a beneficial interest in the unrestricted Global Security having a principal amount equal to the amount by which the principal amount of the Regulation S Global Security was reduced upon such transfer.

(v)

Beneficial Interests in Regulation S Temporary Global Securities to Definitive Securities . Notwithstanding the foregoing, a beneficial interest in a Regulation S Temporary Global Security may not be exchanged for a definitive Security or transferred to a Person who takes delivery thereof in the form of a definitive Security prior to (A) the expiration of the Distribution Compliance Period and (B) the receipt by the Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Act other than Rule 903 or Rule 904.

(e) Special Provisions Regarding Transfer of Beneficial Interests in a Rule 144A Global Security . The transfer of beneficial interests in a Rule 144A Global Security shall be effected in a manner not inconsistent with the following provisions:

(i)

Transfer Through a Regulation S Global Security . If the holder of a beneficial interest in a Rule 144A Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Regulation S Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 5(e)(i) . Upon receipt by the U.S. Depository of the instructions, order and certificate set forth below, the U.S. Depository shall promptly forward the same to the Transfer Agent at the Corporate Trust Office. Upon receipt by the Transfer Agent from the U.S. Depository at the Corporate Trust Office of (1) written instructions given in accordance with the

Applicable Procedures from an Agent Member directing the U.S. Depository to cause to be credited to a specified Agent Member’s account a beneficial interest in the Regulation S Global Security equal to that of the beneficial interest in the Rule 144A Global Security to be so transferred, (2) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Members held for Euroclear to be credited with, and the account of the Agent Members to be debited for, such beneficial interest, and (3) a certificate substantially in the form set forth in or contemplated by Exhibit E given by the transferor of such beneficial interest, the Transfer Agent shall (A) reduce the principal amount of the Rule 144A Global Security, and increase the principal amount of the Regulation S Global Security, in each case by an amount equal to the principal amount of the beneficial interest in the Rule 144A Global Security to be so transferred, as evidenced by appropriate endorsements on Schedule A of the respective Global Securities and (B) instruct the U.S. Depository, (x) to make corresponding reductions and increases to the amounts represented by the respective Global Securities and (y) to cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Regulation S Global Security having a principal amount equal to the amount by which the principal amount of the Rule 144A Global Security was reduced upon such transfer.

Delivery of a beneficial interest in the Rule 144A Global Security may not be taken in the form of a beneficial interest in the Regulation S Global Security if immediately prior to the contemplated transfer no Regulation S Global Security is then Outstanding.

(ii)

Transfer Through Restricted Definitive Security . If the holder of a beneficial interest in a Rule 144A Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a Restricted Definitive Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 5(e)(ii) . Upon receipt by the U.S. Depository of the instructions and certificate set forth below, the U.S. Depository shall promptly forward the same to the Transfer Agent at the Corporate Trust Office. Upon receipt by the Transfer Agent from the U.S. Depository at the Corporate Trust Office of (1) written instructions given in accordance with the Applicable Procedures from an Agent Member directing the U.S. Depository to cause to be issued a Restricted Definitive Security to such Person in a principal amount equal to that of the beneficial interest in the Rule 144A Global Security to be so transferred and (2) a certificate substantially in the form set forth in or contemplated by Exhibit F given by the transferor of such beneficial interest and, if the transferee is an institutional “accredited

investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act), a certificate substantially in the form set forth in or contemplated by Exhibit I given by such transferee, the Transfer Agent shall (A) reduce the principal amount of the Rule 144A Global Security by an amount equal to the principal amount of the beneficial interest in the Rule 144A Global Security to be so transferred, as evidenced by appropriate endorsement on Schedule A of the Rule 144A Global Security and cause to be issued a Restricted Definitive Security to such Person in a principal amount equal to the amount by which the principal amount of the Rule 144A Global Security was reduced upon such transfer and (B) instruct the U.S. Depository to make a corresponding reduction to the transferor’s beneficial interest in the Rule 144A Global Security.

(iii)

Transfer Through an Unrestricted Global Security . If the holder of a beneficial interest in a Rule 144A Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in an unrestricted Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 5(e)(iii) . Upon receipt by the U.S. Depository of the instructions, order and certificate set forth below, the U.S. Depository shall promptly forward the same to the Transfer Agent at the Corporate Trust Office. Upon receipt by the Transfer Agent from the U.S. Depository at the Corporate Trust Office of (1) written instructions given in accordance with the Applicable Procedures from an Agent Member directing the U.S. Depository to cause to be credited to a specified Agent Member’s account a beneficial interest in the unrestricted Global Security equal to that of the beneficial interest in the Rule 144A Global Security to be so transferred, (2) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Members to be credited with, and the account of the Agent Members to be debited for, such beneficial interest, and (3) a certificate substantially in the form set forth in or contemplated by Exhibit G given by the transferor of such beneficial interest, the Transfer Agent shall (A) reduce the principal amount of the Rule 144A Global Security, and increase the principal amount of the unrestricted Global Security, in each case by an amount equal to the principal amount of the beneficial interest in the Rule 144A Global Security to be so transferred, as evidenced by appropriate endorsements on Schedule A of the respective Global Securities and (B) instruct the U.S. Depository, (x) to make corresponding reductions and increases to the transferor’s beneficial interests in the respective Global Securities and (y) to cause to be credited to the account of the Person specified in such instructions a beneficial

interest in the unrestricted Global Security having a principal amount equal to the amount by which the principal amount of the Rule 144A Global Security was reduced upon such transfer.

(f) Special Provisions Regarding Transfer of Restricted Definitive Securities . Unless expressly provided otherwise in this Agreement, whenever any Restricted Definitive Security is presented or surrendered for registration of transfer, such Restricted Definitive Security must be accompanied by a certificate in substantially the form set forth in or contemplated by Exhibit H (which may be attached to or set forth in the Restricted Definitive Security), appropriately completed, dated the date of such surrender and signed by the holder of such Restricted Definitive Security, as to compliance with such restrictions on transfer, unless the Issuer shall have notified the Fiscal Agent that there is an effective registration statement under the Act with respect to such Restricted Definitive Security. The Transfer Agent shall not be required to accept for such registration of transfer or exchange any Restricted Definitive Security not so accompanied by a properly completed certificate. The transfer of Restricted Definitive Securities shall be effected in a manner not inconsistent with the following provisions:

(i)

Transfer Through Regulation S Global Security . If the holder of a Restricted Definitive Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Regulation S Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 5(f)(i) . Upon receipt by the Transfer Agent at the Corporate Trust Office of (1) written instructions from the transferor directing it to cause the U.S. Depository to cause to be credited to such Person a beneficial interest in the Regulation S Global Security in a principal amount equal to that of the Restricted Definitive Security to be so transferred and (2) a certificate substantially in the form set forth in or contemplated by Exhibit H given by the transferor of such Restricted Definitive Security, the Transfer Agent shall (A) increase the principal amount of the Regulation S Global Security by an amount equal to the principal amount of the beneficial interest in the Regulation S Global Security to be received by such Person, as evidenced by appropriate endorsement on Schedule A of the Regulation S Global Security, and cancel such Restricted Definitive Security, and (B) instruct the U.S. Depository, (x) to make corresponding increases in the amount represented by the Regulation S Global Security and (y) to cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Regulation S Global Security having a principal amount equal to the principal amount of the Restricted Definitive Security that was cancelled.


(ii)	Transfer Through Rule 144A Global Security . If the holder of a Restricted Definitive Security wishes at any time to transfer such

interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in the Rule 144A Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 5(f)(ii) . Upon receipt by the Transfer Agent at the Corporate Trust Office of (1) written instructions from the transferor directing it to cause the U.S. Depository to cause to be credited to such Person a beneficial interest in the Rule 144A Global Security in a principal amount equal to that of the Restricted Definitive Security to be so transferred and (2) a certificate substantially in the form set forth in or contemplated by Exhibit H given by the transferor of such Restricted Definitive Security, the Transfer Agent shall (A) increase the principal amount of the Rule 144A Global Security by an amount equal to the principal amount of the beneficial interest in the Rule 144A Global Security to be received by such Person, as evidenced by appropriate endorsement on Schedule A of the Rule 144A Global Security, and cancel such Restricted Definitive Security, and (B) instruct the U.S. Depository, (x) to make corresponding increases in the amount represented by the Rule 144A Global Security and (y) to cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Rule 144A Global Security having a principal amount equal to the principal amount of the Restricted Definitive Security that was cancelled.

(iii)

Transfer Through Unrestricted Global Security . If the holder of a Restricted Definitive Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in the unrestricted Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 5(f)(iii) . Upon receipt by the Transfer Agent at the Corporate Trust Office of (1) written instructions from the transferor directing it to cause the U.S. Depository to cause to be credited to such Person a beneficial interest in the unrestricted Global Security in a principal amount equal to that of the Restricted Definitive Security to be so transferred and (2) a certificate substantially in the form set forth in or contemplated by Exhibit H given by the transferor of such Restricted Definitive Security, the Transfer Agent shall (A) increase the principal amount of the unrestricted Global Security by an amount equal to the principal amount of the beneficial interest in the unrestricted Global Security to be received by such Person, as evidenced by appropriate endorsement on Schedule A of the unrestricted Global Security, and cancel such Definitive Security, and (B) instruct the U.S. Depository, (x) to make corresponding increases in the amount represented by the Rule 144A Global Security and (y) to cause to be credited to the

account of the Person specified in such instructions a beneficial interest in the unrestricted Global Security having a principal amount equal to the principal amount of the Restricted Definitive Security that was cancelled.

(iv)

Transfer Through Restricted Definitive Security . If the holder of a Restricted Definitive Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of another Restricted Definitive Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 5(f)(iv) . Upon receipt by the U.S. Depository of the instructions and certificate set forth below, the U.S. Depository shall promptly forward the same to the Transfer Agent at the Corporate Trust Office. Upon receipt by the Transfer Agent from the U.S. Depository at the Corporate Trust Office of a certificate substantially in the form set forth in or contemplated by Exhibit H given by the transferor of such Restricted Definitive Security and, if the transferee is an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act), a certificate substantially in the form set forth in or contemplated by Exhibit I given by such transferee, the Transfer Agent shall register the transfer of such Restricted Definitive Security.

6. Mutilated, Destroyed, Stolen or Lost Securities .

The Fiscal Agent, or its agent duly authorized by the Fiscal Agent, is hereby authorized from time to time in accordance with the provisions of the Securities, Section l(e) , Section 5 and of this Section to authenticate and deliver:


(i)	Securities in exchange for or in lieu of Securities of like tenor and of like form which become mutilated, destroyed, stolen or lost; and


(ii)	registered Securities of authorized denominations in exchange for a like aggregate principal amount of Securities of like tenor and of like form.

The Securities shall be dated the date of their authentication by the Fiscal Agent. Each Security authenticated and delivered upon any transfer or exchange for or in lieu of the whole or any part of any Security shall carry all the rights if any, to interest accrued and unpaid and to accrue which were carried by the whole or such part of such Security.

7. Register; Record Date for Certain Actions .

The Fiscal Agent, as agent of the Issuer, shall maintain at its Corporate Trust Office in Chicago, Illinois and at its agent’s office in the Borough of Manhattan, The City of New York, a register for the Securities for the registration and registration of transfers of the Securities. Upon

presentation for the purpose at the said office of the Fiscal Agent or its agent of any Security, accompanied by a written instrument of transfer in the form approved by the Issuer and the Fiscal Agent (it being understood that, until notice to the contrary is given to holders of Securities, the Issuer and the Fiscal Agent shall each be deemed to have approved the form of instrument of transfer, if any, printed on any definitive Security), executed by the registered holder, in person or by such registered holder’s attorney thereunto duly authorized in writing, such Security shall be transferred upon the register for the Securities, and a new Security of like tenor shall be authenticated and issued in the name of the transferee. Transfers and exchanges of Securities shall be subject to Section 1(e) and Section 5 hereof, to such restrictions as shall be set forth in the text of the Securities and to such reasonable regulations as may be prescribed by the Issuer and the Fiscal Agent. Successive registrations and registrations of transfers as aforesaid may be made from time to time as desired and each such registration shall be noted on the Security register. No service charge shall be made for any registration, registration of transfer or exchange of Securities, but, except as otherwise provided herein with respect to the exchange of temporary Securities for definitive Securities, the Fiscal Agent (and any Transfer Agent or authenticating agent appointed pursuant to Section 2 or 3 hereof, respectively) may require payment of a sum sufficient to cover any stamp or other tax or governmental charge in connection therewith and any other amounts required to be paid by the provisions of the Securities.

Any Transfer Agent appointed pursuant to Section 2 hereof shall provide to the Fiscal Agent such information as the Fiscal Agent may reasonably require in connection with the delivery by such Transfer Agent of Securities in exchange for other Securities.

Neither the Fiscal Agent nor any Transfer Agent shall be required to make registrations of transfer or exchange of Securities except as set forth in this Agreement.

Upon receipt by the Fiscal Agent of any written demand, request or notice with respect to any matter on which the holders of Securities are entitled to act under this Agreement, a record date shall be established for determining registered holders of Outstanding Securities entitled to join in such demand, request or notice, which record date shall be at the close of business on the day the Fiscal Agent receives such demand, request or notice. The holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such demand, request or notice, whether or not such holders remain holders after such record date; provided , however , unless the holders of the requisite principal amount of the Outstanding Securities shall have joined in such demand, request or notice prior to the day which is 90 days after such record date, such demand, request or notice shall automatically and without further action by any holder be cancelled and of no further effect. Nothing in this paragraph shall prevent a holder, or a proxy of a holder, from giving, (i) after expiration of such 90-day period, a new demand, request or notice identical to a demand, request or notice which has been cancelled pursuant to the proviso in the preceding sentence or (ii) during any such 90-day period, a new demand, request or notice contrary to or different from such demand, request or notice, in either of which events a new record date shall be established pursuant to the provisions of this paragraph.

The Issuer may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to consent to or approve any action or waive any term, provision

or condition of any covenant of this Agreement. If a record date is fixed, the holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to consent to or approve any such action or waive any such term, provision, condition or covenant, whether or not such holders remain holders after such record date; provided , however , that unless such consent, waiver or approval is obtained from the requisite principal amount of holders of Outstanding Securities, or their duly designated proxies, prior to the date which is ninety (90) days after such record date, any such consent, waiver or approval previously given shall automatically and without further action by any holder be cancelled and of no further effect.

8. Delivery of Certain Information .

(a) Non-Reporting Issuer . Subject to Section 8(b) , as long as the Issuer is not subject to Section 13 or 15(d) of the Exchange Act, at any time, upon the request of a holder of a Security who is a QIB or, a prospective investor who is a QIB designated by such holder, the Issuer, or the Fiscal Agent upon request by and at the expense of the Issuer, will promptly furnish or cause to be furnished “Rule 144A Information” (as defined below) with respect to the Issuer to such holder or to a prospective purchaser of such Security designated by such holder in order to permit compliance by such holder with Rule 144A under the Act in connection with the resale of such Security by such holder. “ Rule 144A Information ” with respect to the Issuer shall be such information with respect to it as is specified pursuant to Rule 144A(d)(4)(i) under the Act (or any successor provision thereto) which, at the date of this Agreement, consists of (x) a very brief statement of the nature of the business, products and services of the Issuer, as the case may be, (which statement shall be as of a date within 12 months prior to the date of the intended resale) and (y) the most recent financial statements of the Issuer and its financial statements for the two fiscal years preceding the period covered in the most recent financial statements. Such financial statements of the Issuer shall include its balance sheet (as of a date less than 16 months before the date of the intended resale) and its profit and loss and retained earnings statements (for the twelve-month period preceding the date of such balance sheet and, if the balance sheet is not as of a date less than six months before the date of the intended resale, the most recent profit and loss and retained earnings statements shall be for the period from the date of such balance sheet to a date less than six months before the date of the intended resale) and shall be audited to the extent reasonably available.

(b) Information After One Year . Neither the Issuer nor the Fiscal Agent shall be required to furnish Rule 144A Information with respect to the Issuer as contemplated by Section 8(a) hereof, (x) to the holder or a prospective purchaser of a Security in connection with any request made on or after the date which is one year from the later of (i) the date such Security (or any predecessor Security) was acquired from the Issuer or (ii) the date such Security (or any predecessor Security) was last acquired from an “affiliate” of the Issuer within the meaning of Rule 144 under the Act or (y) at any time to a prospective purchaser located outside the United States who is not a U.S. person within the meaning of Regulation S under the Act.

(c) Periodic Reports . So long as any Securities are Outstanding, the Issuer, or the Fiscal Agent upon request by and at the expense of the Issuer, will furnish or cause to be furnished to holders of Securities and to the Fiscal Agent, (i) at any time when the Issuer is subject to Section 13 or 15(d) of the Exchange Act, copies of its annual and quarterly reports to stockholders and of

each report or definitive proxy statement filed with the Commission under the Exchange Act, such reports or statements to be so furnished within 15 days after the due date for filing with the Commission, and (ii) at any time when the Issuer is not subject to Section 13 or 15(d) of the Exchange Act, (A) its annual financial statements prepared in accordance with generally accepted accounting principles applied consistently (except as otherwise noted therein) with those of the prior years (together with notes thereto and a report thereon by an independent accounting firm of established national reputation), such report to be so furnished as soon as reasonably available and in any event within 120 days after the end of the fiscal year covered thereby, (B) its unaudited comparative financial statements for each of the first three fiscal quarters and the corresponding quarter of the prior year prepared in accordance with generally accepted accounting principles applied consistently (except as otherwise noted therein) with those of the most recent annual financial statements (which unaudited statements and related notes may be condensed to the extent permitted by Form 10-Q under the Exchange Act or any successor form), such statements to be so furnished as soon as reasonably available and in any event within 60 days after the end of the fiscal quarter covered thereby, (C) any other interim reports or financial statements prepared generally for its nonaffiliated investors or lenders, such reports or statements to be so furnished concurrently with their distribution to such investors or lenders, and (D) at each time of delivery of the financial statements in (A), an Officers’ Certificate stating whether or not to the best knowledge of the signers thereof the Issuer is in default in the performance and observance of any of the terms, provisions and conditions of the Securities or this Agreement and, if the Issuer shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge; provided that if the Issuer cannot reasonably furnish the financial statements specified in clause (i) or (ii) (A) or (B) above within the time periods specified, the Issuer shall have such additional period as required to finish such reports and statements so long as it is diligently pursuing the finishing of such reports and statements.

9. Conditions of Fiscal Agent’s Obligations .

The Fiscal Agent accepts its obligations herein set forth upon the terms and conditions hereof, including the following, to all of which the Issuer agrees and to all of which the rights of holders from time to time of Securities are subject:

(a) Compensation and Indemnity . The Fiscal Agent shall be entitled to reasonable compensation as agreed with the Issuer for all services rendered by it, and the Issuer agrees promptly to pay such compensation and to reimburse the Fiscal Agent for the reasonable out-of-pocket expenses (including reasonable counsel fees and expenses) incurred by it or its agents in connection with its services hereunder. The Issuer also agrees to indemnify the Fiscal Agent for, and to hold it harmless against, any loss, liability or expense, including, without limitation, damages, claims, fines, suits, actions, demands, penalties, costs, out-of-pocket or incidental expenses, legal fees and expenses, and the allocated costs and expenses of in-house counsel, incurred without gross negligence or willful misconduct, arising out of or in connection with its acting as Fiscal Agent or in any other capacity hereunder, as well as the reasonable costs and expenses of defending against any claim of liability in the premises. The obligations of the Issuer under this Section 9(a) shall survive payment of all the Securities, the termination of this Agreement or the resignation or removal of the Fiscal Agent.

(b) Agency . In acting under this Agreement and in connection with the Securities, the Fiscal Agent is acting solely as agent of the Issuer and does not assume any responsibility for the correctness of the recitals herein or in the Securities (except for the correctness of the statement in its certificate of authentication on the Securities) or any obligation or relationship of agency or trust, for or with any of the owners or holders of the Securities, except that all funds held by the Fiscal Agent for the payment of principal of, premium, if any, and any interest on the Securities shall be held in trust for such owners or holders, as the case may be, as set forth herein and in the Securities; provided , however , that monies held in respect of the Securities remaining unclaimed at the end of two years after any principal of, premium, if any, or any interest on the Securities shall have become due and payable (whether at maturity or otherwise) and monies sufficient therefor shall have been duly made available for payment shall, together with any interest made available for payment thereon, if any, be repaid to the Issuer upon an Order. Upon such repayment, the aforesaid trust with respect to the Securities shall terminate and all liability of the Fiscal Agent and Paying Agents with respect to such funds shall thereupon cease. In the absence of an Order from the Issuer to return unclaimed funds to the Issuer, the Fiscal Agent shall from time to time deliver all unclaimed funds to or as directed by applicable escheat authorities, as determined by the Fiscal Agent in its sole discretion, in accordance with the customary practices and procedures of the Fiscal Agent.

(c) Advice of Counsel . The Fiscal Agent and any Paying Agent or Transfer Agent appointed by the Issuer pursuant to Section 2 hereof may consult with their respective counsel or other counsel satisfactory to them, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by them hereunder in good faith and without gross negligence and in accordance with such opinion.

(d) Reliance . The Fiscal Agent and any Paying Agent or Transfer Agent appointed by the Issuer pursuant to Section 2 hereof each may conclusively rely upon and shall be protected and shall incur no liability for or in respect of any action taken or thing suffered by it in reliance upon any Security, notice, direction, consent, certificate, affidavit, statement, or other paper or document believed by it, in good faith and without gross negligence, to be genuine and to have been passed or signed by the proper party or parties.

(e) Interest in Securities, etc . The Fiscal Agent, any authenticating agent, and any Paying Agent or Transfer Agent appointed by the Issuer pursuant to Section 2 hereof and their respective officers, directors and employees may become the owners of, or acquire any interest in, any Securities, with the same rights that they would have if they were not the Fiscal Agent, such authenticating agent, such other Paying Agent or Transfer Agent or such Person, and may engage or be interested in any financial or other transaction with the Issuer, and may act on, or as depository, trustee or agent for, any committee or body of holders of Securities or other obligations of the Issuer, as freely as if they were not the Fiscal Agent, such authenticating agent, such other Paying Agent or Transfer Agent or such Person. The provisions of this Section 9(e) shall extend to affiliates of the Fiscal Agent, such authenticating agent, any Paying Agent or any Transfer Agent.

(f) Certifications . Whenever in the administration of this Agreement the Fiscal Agent shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Fiscal Agent (unless other evidence be herein specifically prescribed) may, in the absence of willful misconduct or gross negligence on its part, request and conclusively rely upon a certificate signed by any Authorized Officer of the Issuer and delivered to the Fiscal Agent.

(g) No Implied Obligations . The duties and obligations of the Fiscal Agent shall be determined solely by the express provisions of this Agreement, and the Fiscal Agent shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Fiscal Agent. In no event shall the Fiscal Agent be liable for any lost profits, lost savings or other special, exemplary, indirect, punitive, consequential or incidental damages.

(h) No Liability . The Fiscal Agent shall not be liable for any interest on any funds held by the Fiscal Agent and shall never be required to use, advance or risk its own funds or otherwise incur financial liability in the performance of its duties hereunder. The Fiscal Agent shall not be liable for any action taken, suffered, or omitted to be taken by it, in the absence of its own gross negligence, and in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement.

(i) No Inquiry . The Fiscal Agent shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements of the Securities or other documents on the part of the Issuer or as to the existence of any event of default thereunder.

(j) Agents . The Fiscal Agent may execute any of its trusts or powers or perform any duties under this Agreement either directly or by or through agents or attorneys, may in all cases pay (with reimbursement from the Issuer) such reasonable compensation as it deems proper to all such agents and attorneys reasonably employed or retained by it, and shall not be responsible for any misconduct or negligence of any agent or attorney appointed with due care by it.

(k) Directors, Officers . The protections from liability provided to the Fiscal Agent hereunder, including the right to indemnification, shall extend to its directors, officers, employees and agents. The rights, privileges, protections, immunities and benefits given to the Fiscal Agent, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Fiscal Agent in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder.

10. Resignation and Appointment of Successor .

(a) Fiscal Agent and Paying Agent . The Issuer agrees, for the benefit of the holders from time to time of the Securities, that there shall at all times be a Fiscal Agent hereunder which shall be a bank or trust company organized and doing business under the laws of the United States of America, any state thereof or the District of Columbia, in good standing and having an established place of business or agency in the Borough of Manhattan, The City of New York, and

authorized under such laws to exercise corporate trust powers until all the Securities authenticated and delivered hereunder (i) shall have been delivered to the Fiscal Agent for cancellation or (ii) become due and payable and monies sufficient to pay the principal of and any interest on the Securities shall have been made available for payment and either paid or returned to the Issuer as provided herein and in such Securities.

(b) Resignation . The Fiscal Agent may at any time resign by giving written notice to the Issuer of such intention on its part, specifying the date on which its desired resignation shall become effective, provided that such date shall not be less than 30 days from the date on which such notice is given, unless the Issuer agrees to accept shorter notice. The Fiscal Agent hereunder may be removed at any time by the filing with it of an instrument in writing signed on behalf of the Issuer and specifying such removal and the date when it shall become effective. Notwithstanding the dates of effectiveness of resignation or removal, as the case may be, to be specified in accordance with the preceding sentences, such resignation or removal shall take effect only upon the appointment by the Issuer of a successor Fiscal Agent (which, to qualify as such, shall be a bank or trust company organized and doing business under the laws of the United States of America, any state thereof or the District of Columbia, in good standing and having and acting through an established place of business or agency in the Borough of Manhattan, The City of New York, authorized under such laws to exercise corporate trust powers and having a combined capital and surplus in excess of U.S. $100,000,000) and the acceptance of such appointment by such successor Fiscal Agent. Upon its resignation or removal, the Fiscal Agent shall be entitled to payment by the Issuer pursuant to Section 9 hereof of compensation for services rendered and to reimbursement of reasonable out-of-pocket expenses incurred or any other amounts due hereunder.

(c) Successors . In case at any time the Fiscal Agent or any Paying Agent in respect of the Securities (if such Paying Agent is the only Paying Agent located in a place where, by the terms of the Securities or this Agreement, the Issuer is required to maintain a Paying Agent) shall resign, or shall be removed, or shall become incapable of acting, or shall be adjudged bankrupt or insolvent, or shall file a voluntary petition in bankruptcy or make an assignment for the benefit of its creditors or consent to the appointment of a receiver of all or any substantial part of its property, or shall admit in writing its inability to pay or meet its debts as they severally mature, or if a receiver of it or of all or any substantial part of its property shall be appointed, or if an order of any court shall be entered approving any petition filed by or against it under the provisions of the Federal Bankruptcy Act or under the provisions of any similar legislation, or if a receiver of it or its property shall be appointed, or if any public officer shall take charge or control of it or of its property or affairs, for the purpose or rehabilitation, conservation or liquidation, a successor Fiscal Agent or Paying Agent, as the case may be, qualified as aforesaid, shall be appointed by the Issuer by an instrument in writing, filed with the successor Fiscal Agent or Paying Agent, as the case may be, and the predecessor Fiscal Agent or Paying Agent, as the case may be. Upon the appointment as aforesaid of a successor Fiscal Agent or Paying Agent, as the case may be, and acceptance by such successor of such appointment, the Fiscal Agent or Paying Agent, as the case may be, so succeeded shall cease to be Fiscal Agent or Paying Agent, as the case may be, hereunder. If no successor Fiscal Agent or other Paying Agent, as the case may be, shall have been so appointed by the Issuer and shall have accepted appointment as hereinafter provided, and, in the case of such other Paying Agent, if such other Paying Agent is the only Paying Agent located in a place where, by the terms

of the Securities or this Agreement, the Issuer is required to maintain a Paying Agent, then any holder of a Security who has been a bona fide holder of a Security for at least 6 months, on behalf of such holder and all others similarly situated, or the Fiscal Agent may petition any court of competent jurisdiction at the expense of the Issuer for the appointment of a successor agent. The Issuer shall give prompt written notice to each other Paying Agent of the appointment of a successor Fiscal Agent.

(d) Acknowledgment . Any successor Fiscal Agent appointed hereunder shall execute, acknowledge and deliver to its predecessor and to the Issuer an instrument accepting such appointment hereunder, and thereupon such successor Fiscal Agent, without any further act, deed or conveyance, shall become vested with all the authority, rights, powers, trusts, immunities, duties and obligations of such predecessor with like effect as if originally named as Fiscal Agent hereunder, and such predecessor, upon payment of its charges hereunder, including compensation, and reimbursement of its disbursements then unpaid, shall thereupon become obligated to transfer, deliver and pay over, and such successor Fiscal Agent shall be entitled to receive, all monies, securities, books, records or other property on deposit with or held by such predecessor as Fiscal Agent hereunder.

(e) Merger, Consolidation, etc. Any corporation into which the Fiscal Agent hereunder may be merged, or any corporation resulting from any merger or consolidation to which the Fiscal Agent shall be a party, or any corporation to which the Fiscal Agent shall sell or otherwise transfer all or substantially all of the corporate trust business of the Fiscal Agent, provided that it shall be qualified as aforesaid, shall be the successor Fiscal Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto.

11. Payment of Taxes .

The Issuer will pay all stamp and other duties, if any, which may be imposed by the United States of America or any political subdivision thereof or taxing authority of or in the foregoing with respect to this Agreement or the issuance of the Securities.

12. Amendments .

(a) Approval . With the written consent of the registered holders of not less than a majority in aggregate principal amount of the Securities then Outstanding (or of such other percentage as may be set forth in the text of the Securities with respect to the action being taken), the Issuer and the Fiscal Agent may modify, amend or supplement the terms of the Securities and this Agreement in any way, and the holders of Securities may make, take or give any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Agreement or the Securities to be made, given or taken by holders of Securities; provided , however , that no such action may, without the consent of the holder of each Security affected thereby, (A) change the due date for the payment of the principal of or any installment of interest on any Security, (B) reduce the principal amount of any Security or the interest rate thereon (C) change the coin or currency in which or the place at which payment with respect to interest or principal in respect of Securities are payable as required by the proviso of the first sentence of the second paragraph of Section 2 hereof, or (D) reduce the proportion of the principal amount of Securities, the consent of

the holders of which is necessary to modify, amend or supplement this Agreement or the terms and conditions of the Securities or to make, take or give any request, demand, authorization, direction, notice, consent, waiver or other action provided hereby or thereby to be made, taken or given. The Issuer and the Fiscal Agent may, without the consent of any holder of Securities, amend this Agreement or the Securities for the purpose of (i) adding to the covenants of the Issuer for the benefit of the holders of Securities, (ii) surrendering any right or power conferred upon the Issuer, (iii) securing the Securities pursuant to the requirements of the Securities or otherwise, (iv) evidencing the succession of another corporation to the Issuer and the assumption by any such successor of the covenants and obligations of the Issuer in the Securities or in this Agreement, (v) providing for the issuance of additional Securities in accordance with this Agreement, or (vi) correcting or supplementing any defective provision contained in the Securities or in this Agreement, and in any manner which the Issuer may determine that shall not be inconsistent with the Securities and shall not adversely affect the interest of any holder of Securities.

It shall not be necessary for the consent of the holders of Securities to approve the particular form of any proposed modification, amendment, supplement, request, demand, authorization, direction, notice, consent, waiver or other action, but it shall be sufficient if such consent shall approve the substance thereof.

In entering into any amendment hereof, the Fiscal Agent shall receive, and may conclusively rely on, an opinion of counsel that such amendment is authorized or permitted by the terms of this Agreement.

(b) Binding Nature of Amendments, Notice, Notations, etc. Any instrument given by or on behalf of any holder of a Security in connection with any consent to any such modification, amendment, supplement, request, demand, authorization, direction, notice, consent, waiver or other action will be irrevocable once given and will be conclusive and binding on all subsequent holders of such Security or any Security issued directly or indirectly in exchange or substitution therefor or in lieu thereof. Any such modification, amendment, supplement, request, demand, authorization, direction, notice, consent, waiver or other action will be conclusive and binding on all holders of Securities, whether or not they have given such consent, and whether or not notation of such modification, amendment, supplement, request, demand, authorization, direction, notice, consent, waiver or other action is made upon the Securities. Notice of any modification or amendment of, supplement to, or request, demand, authorization, direction, notice, consent, waiver or other action with respect to the Securities or this Agreement (other than for purposes of curing any ambiguity or of curing, correcting or supplementing any defective provision hereof or thereof) shall be given to each holder of Securities affected thereby.

Securities authenticated and delivered after the effectiveness of any such modification, amendment, supplement, request, demand, authorization, direction, notice, consent, waiver or other action may bear a notation in the form approved by the Fiscal Agent and the Issuer as to any matter provided for in such modification, amendment, supplement, request, demand, authorization, direction, notice, consent, waiver or other action. New Securities modified to conform, in the opinion of the Fiscal Agent and the Issuer, to any such modification, amendment, supplement, request, demand, authorization, direction, notice, consent, waiver or other action may

be prepared by the Issuer, authenticated by the Fiscal Agent (or any authenticating agent appointed pursuant to Section 3 hereof) and delivered in exchange for Outstanding Securities.

(c) “Outstanding” Defined . For purposes of the provisions of this Agreement and the Securities, any Security authenticated and delivered pursuant to this Agreement shall, as of any date of determination, be deemed to be “Outstanding,” except :


(i)	Securities theretofore canceled by the Fiscal Agent or delivered to the Fiscal Agent for cancellation or held by the Fiscal Agent for reissuance but not reissued by the Fiscal Agent;


(ii)	Securities which have become due and payable at maturity or otherwise and with respect to which monies sufficient to pay the principal thereof and any interest thereon shall have been made available to the Fiscal Agent;


(iii)	Securities which have been defeased pursuant to Section 15(b) hereof; or


(iv)	Securities in lieu of or in substitution for which other Securities shall have been authenticated and delivered pursuant to this Agreement;

provided , however , that in determining whether the holders of the requisite principal amount of Outstanding Securities have consented to any request, demand, authorization, direction, notice, consent, waiver, amendment, modification or supplement hereunder, Securities owned directly or indirectly by the Issuer or any affiliate of the Issuer shall be disregarded and deemed not to be Outstanding.

13. GOVERNING LAW .

THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.

14. Notices .

All notices or communications hereunder, except as herein otherwise specifically provided, shall be in writing and if sent to the Fiscal Agent shall be mailed, delivered or transmitted by facsimile to it at 2 N. LaSalle Street, Suite 700, Chicago, Illinois 60602 , Attention: Corporate Trust Administration, facsimile no. (312) 827-8542 or if sent to the Issuer shall be mailed, delivered or transmitted by facsimile to it at 1111 South 103rd Street, Omaha, Nebraska 68124, Attention: General Counsel, facsimile no. (402) 398-7426 and electronic mail address Laura.Demman@nngco.com. The foregoing addresses for notices or communications may be changed by written notice given by the addressee to each party hereto, and the addressee’s address shall be deemed changed for all purposes from and after the giving of such notice.

If the Fiscal Agent shall receive any notice or demand addressed to the Issuer by the holder of a Security, the Fiscal Agent shall promptly forward such notice or demand to the Issuer.

The Fiscal Agent agrees to accept and act upon instructions or directions pursuant to this Fiscal Agency Agreement sent by unsecured e-mail, pdf, facsimile transmission or other similar unsecured electronic methods, provided, however, that the Fiscal Agent shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. The Fiscal Agent shall not be liable for any losses, costs or expenses arising directly or indirectly from the Fiscal Agent’s reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The Issuer agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Fiscal Agent, including without limitation the risk of the Fiscal Agent acting on unauthorized instructions, and the risk or interception and misuse by third parties.

15. Defeasance (Legal and Covenant) .

(a) Issuer’s Option to Effect Defeasance or Covenant Defeasance . The Issuer may at its option, by an Order of the Issuer delivered to the Fiscal Agent, elect to have either Section 15(b) or Section 15(c) applied to the Outstanding Securities upon compliance with the conditions set forth below in this Section 15 .

(b) Defeasance and Discharge . Upon exercise by the Issuer of the option provided in Section 15(a) applicable to this Section 15(b) , the Issuer shall be deemed to have been discharged from its obligations with respect to the Outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, “ Defeasance ”). For this purpose, such Defeasance means that the Issuer shall be deemed to have paid and discharged the entire Indebtedness represented by the Outstanding Securities and to have satisfied all its other obligations under such Securities and this Agreement insofar as the Securities are concerned (and the Issuer and the Fiscal Agent shall execute proper instruments acknowledging the same), except for the following, which shall survive until otherwise terminated or discharged hereunder: (i) the rights of holders of the Securities to receive, solely from the trust fund described in Section 15(d) and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and any interest on the Securities when such payments are due, (ii) the Issuer’s obligations with respect to the Securities under Sections 1(d) , 2 , 4 , 6 , 7 , 8(a) , 8(b) and 10 of this Agreement and paragraphs 3, 4, 6, 10 (insofar as it relates to Sections 8(a) and 8(b) of this Agreement), 11 and 12 of the Securities and (iii) this Section 15 . Subject to compliance with this Section 15 , the Issuer may exercise its option under this Section 15(b) notwithstanding the prior exercise of its option under Section 15(c) .

(c) Covenant Defeasance . Upon the Issuer’s exercise of the option provided in Section 15(a) applicable to this Section 15(c) , the Issuer shall be released from its obligations under paragraphs 7(iii), 8, and 9(a)(iii) of the Securities on and after the date the conditions set forth below are satisfied (hereinafter, “ Covenant Defeasance ”). For this purpose, such Covenant Defeasance means that the Issuer may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section, whether directly or indirectly by reason of any

reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document, but the remainder of the Issuer’s obligations shall be unaffected thereby.

(d) Conditions to Defeasance and Covenant Defeasance . The following shall be the conditions to application of either Section 15(b) or Section 15(c) to the then Outstanding Securities:

(i)

The Issuer shall irrevocably have deposited or caused to be deposited with a trustee, who may be the Fiscal Agent and who shall agree to comply with the provisions of this Section 15 applicable to it (the “ Defeasance Trustee ”), as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the holders of the Securities, (A) money in an amount, or (B) U.S. Government Obligations and/or Eligible Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Defeasance Trustee, to pay and discharge, and which shall be applied by the Defeasance Trustee to pay and discharge, the principal of, premium, if any, and each installment of interest on the Securities not later than one day before the stated maturity of such principal or installment of interest in accordance with the terms of this Agreement and of the Securities. For this purpose: “ U.S. Government Obligations ” means securities that are (x) direct obligations of the United States of America for the payment of which its full faith and credit are pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Act) as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such

depository receipt; and “ Eligible Obligations ” means interest bearing obligations as a result of the deposit of which the Securities are rated in the highest generic long-term debt rating category assigned to legally defeased debt by one or more nationally recognized rating agencies.

(ii)

In the case of an election under Section 15(b) , the Issuer shall have delivered to the Defeasance Trustee an opinion of counsel stating that (x) the Issuer has received from, or there has been published by, the U.S. Internal Revenue Service a ruling, or (y) since the date of this Agreement there has been a change in the applicable U.S. Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the holders of the Outstanding Securities will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to U.S. Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred.

(iii)

In the case of an election under Section 15(c) , the Issuer shall have delivered to the Defeasance Trustee an opinion of counsel to the effect that the holders of the Outstanding Securities will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such deposit and Covenant Defeasance and will be subject to U.S. Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit and Covenant Defeasance had not occurred.

(iv)

No event of default under paragraph 7 of the Securities or event which with notice or lapse of time or both would become such an event of default shall have occurred and be continuing on the date of such deposit or, insofar as paragraphs 7(iv) and (v) of the Securities are concerned, at any time during the period ending on the 121st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period).


(v)	Such Defeasance or Covenant Defeasance shall not result in a breach or violation of or constitute a default under, any other agreement or instrument to which the Issuer is a party or by which it is bound.


(vi)	The Issuer shall have delivered to the Fiscal Agent and the Defeasance Trustee an Officers’ Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to either the Defeasance under Section 15(b) or the Covenant Defeasance under Section 15(c) (as the case may be) have been complied with.


(vii)	Such Defeasance or Covenant Defeasance shall not result in the trust arising from such deposit constituting an investment company as defined in the United States Investment Company Act of 1940, as amended, or such trust shall be qualified under such act or exempt from regulation thereunder.

(e) Deposit in Trust; Miscellaneous . All money, U.S. Government Obligations and Eligible Obligations (including the proceeds thereof) deposited with the Defeasance Trustee pursuant to Section 15(d) in respect of the Securities shall be held in trust (which in the case of cash, shall be uninvested) and applied by the Defeasance Trustee, in accordance with the provisions of the Securities and this Agreement, to the payment, either directly or through any Paying Agent as the Defeasance Trustee may determine, to the holders of the Securities, of all sums due and to become due thereon in respect of principal, premium, if any, and any interest, but such money need not be segregated from other funds except to the extent required by law. Any money deposited with the Defeasance Trustee for the payment of the principal of, premium, if any, or any interest on any Security and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Issuer upon an Order; and the holder of such Security shall thereafter, as an unsecured general creditor, look only to the Issuer for payment thereof and all liability of the Defeasance Trustee with respect to such trust money shall thereupon cease. In the absence of an Order from the Issuer to return unclaimed funds to the Issuer, the Defeasance Trustee shall from time to time deliver all unclaimed funds to or as directed by applicable escheat authorities, as determined by the Defeasance Trustee in its sole discretion, in accordance with the customary practices and procedures of the Defeasance Trustee.

The Issuer shall pay and indemnify the Defeasance Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations or Eligible Obligations deposited pursuant to Section 15(d) or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the holders of the Outstanding Securities.

Anything in this Section 15 to the contrary notwithstanding, the Defeasance Trustee shall deliver or pay to the Issuer from time to time upon the request of the Issuer any money, U.S. Government Obligations or Eligible Obligations held by it as provided in Section 15(d) which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Defeasance Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance.

(f) Reinstatement . If the Defeasance Trustee is unable to apply any money in accordance with Section 15(b) or 15(c) by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Issuer’s obligations under this Agreement and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Section 15 until such time as the Defeasance Trustee is permitted to apply all such money in accordance with Section 15(b) or 15(c) ; provided , however , that if the Issuer makes any payment of principal of, premium, if any, or interest on any Security

following the reinstatement of its obligations, the Issuer shall be subrogated to the rights of the holders of such Securities to receive such payment from the money held by the Defeasance Trustee.

16. Headings .

The section headings herein are for convenience only and shall not affect the construction hereof.

17. Counterparts .

This Agreement may be executed in one or more counterparts, and by each party separately on a separate counterpart, and each such counterpart when executed and delivered shall be deemed to be an original. Such counterparts shall together constitute one and the same instrument.

18. Successors and Assigns .

All covenants and agreements in this Agreement by the Issuer shall bind its respective successors and assigns, whether so expressed or not.

19. Separability Clause .

In case any provision in this Agreement or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

20. Waiver of Jury Trial .

EACH OF THE ISSUER AND THE FISCAL AGENT HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTION CONTEMPLATED HEREBY.

21. Force Majeure .

In no event shall the Fiscal Agent be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services; it being understood that the Fiscal Agent shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.

22. FATCA .

The Issuer agrees (i) to provide the Fiscal Agent with such reasonable information as it has in its possession to enable the Fiscal Agent to determine whether any payments pursuant

to this Agreement are subject to the withholding requirements described in Section 1471(b) of the US Internal Revenue Code of 1986 (the “ Code ”) or otherwise imposed pursuant to Sections 1471 through 1474 of the Code and any regulations, or agreements thereunder or official interpretations thereof (“ Applicable Law ”), and (ii) that the Fiscal Agent shall be entitled to make any withholding or deduction from payments under this Agreement to the extent necessary to comply with Applicable Law, for which the Fiscal Agent shall not have any liability.

(SIGNATURE PAGE FOLLOWS)

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

NORTHERN NATURAL GAS COMPANY

By:    /s/ Joseph M. Lillo
Name:    Joseph M. Lillo
Title:    Vice President, Finance

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,
as Fiscal Agent


By	/s/ R. Tarnas Name: R. Tarnas Title: Vice President

EXHIBIT A

FORM OF SECURITY

This section has been REDACTED.

A-1

EXHIBIT B

FORM OF TRANSFER CERTIFICATE
FOR TRANSFER OR EXCHANGE FROM REGULATION S
GLOBAL SECURITY TO RULE 144A GLOBAL SECURITY

The Bank of New York Mellon Trust Company, N.A.
2 N. LaSalle Street
Suite 700
Chicago, Illinois 60602

Attention: Corporate Trust Administration


Re :	NORTHERN NATURAL GAS COMPANY 4.30% SENIOR BONDS DUE 2049

Reference is hereby made to the Fiscal Agency Agreement, dated as of July 17, 2018 (the “ Fiscal Agency Agreement ”), between Northern Natural Gas Company and The Bank of New York Mellon Trust Company, N.A., as Fiscal Agent. Capitalized terms used but not defined herein shall have the meanings given to them in the Fiscal Agency Agreement.

This letter relates to U.S. $_________ principal amount of Securities which are evidenced by one or more Regulation S Global Securities in fully registered form (CUSIP No. U66480 AH4; ISIN No. USU66480AH46) and held with the U.S. Depository by means of a book-entry interest through Euroclear or Clearstream in the name of [insert name of transferor] (the “ Transferor ”). The Transferor has requested a transfer of such beneficial interest in the Regulation S Global Security to a Person that will take delivery thereof (the “ Transferee ”) in the form of any equal principal amount of Securities evidenced by one or more Rule 144A Global Securities (CUSIP No. 665501 AL6).

In connection with such request and in respect of such Securities, the Transferor does hereby certify that the interests in the Regulation S Global Security are being transferred pursuant to and in accordance with Rule 144A under United States Securities Act of 1933, as amended (the “ Act ”), and, accordingly, the Transferor does hereby further certify that the interests in the Regulation S Global Security are being transferred to a Person that the Transferor reasonably believes is purchasing the Securities for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a “qualified institutional buyer” within the meaning of Rule 144A, in each case in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States.

B-1

This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer and the underwriters and initial purchasers of the Securities being transferred.

[Insert Name of Transferor]

By:

Name:

Title:

Dated: __________

cc: NORTHERN NATURAL GAS COMPANY

Signature Guaranty:_____________________

Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Transfer Agent, which requirements include membership or participation in the Security Transfer Agent Medallion Program (“ STAMP ”) or such other “signature guarantee program” as may be determined by the Transfer Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

B-2

EXHIBIT C

FORM OF TRANSFER CERTIFICATE FOR
TRANSFER OR EXCHANGE FROM REGULATION S GLOBAL
SECURITY TO RESTRICTED DEFINITIVE SECURITY

The Bank of New York Mellon Trust Company, N.A.
2 N. LaSalle Street
Suite 700
Chicago, Illinois 60602

Attention: Corporate Trust Administration


Re :	NORTHERN NATURAL GAS COMPANY 4.30% SENIOR BONDS DUE 2049

This letter relates to U.S. $___________ principal amount of Securities which are evidenced by one or more Regulation S Global Securities in fully registered form (CUSIP No. U66480 AH4; ISIN No. USU66480AH46) and held with the U.S. Depository by means of a book-entry interest through Euroclear or Clearstream in the name of [insert name of transferor] (the “ Transferor ”). The Transferor has requested a transfer of such beneficial interest in the Regulation S Global Security to a Person that will take delivery thereof (the “ Transferee ”) in the form of an equal principal amount of Securities evidenced by a Restricted Definitive Security.

In connection with such request and in respect of such Securities, the Transferor does hereby certify that the interests in the Regulation S Global Security are being transferred to a Person that the Transferor reasonably believes is purchasing the Securities for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is an institutional “accredited investor” as described in Rule 501(a)(1), (2), (3) or (7) under the Unites States Securities Act of 1933, as amended (the “ Act ”), and is purchasing such Securities for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Act, in a transaction in accordance with any applicable securities laws of the United States or any state thereof.

C-1

This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer and the underwriters and initial purchasers of the Securities being transferred.

[Insert Name of Transferor]

By:

Name:

Title:

Dated:____________

cc: NORTHERN NATURAL GAS COMPANY

C-2

EXHIBIT D

FORM OF TRANSFER CERTIFICATE
FOR EXCHANGE OR TRANSFER FROM REGULATION S GLOBAL
SECURITY TO UNRESTRICTED GLOBAL SECURITY

The Bank of New York Mellon Trust Company, N.A.
2 N. LaSalle Street
Suite 700
Chicago, Illinois 60602

Attention: Corporate Trust Administration


Re:	NORTHERN NATURAL GAS COMPANY 4.30% SENIOR BONDS DUE 2049

This letter relates to U.S.$ _________ principal amount of Securities which are evidenced by one or more Regulation S Global Securities (CUSIP No. U66480 AH4; ISIN No. USU66480AH46) and held with the U.S. Depository by means of a book-entry interest through Euroclear or Clearstream in the name of [insert name of transferor] (the “ Transferor ”). The Transferor has requested a transfer of such beneficial interest in the Securities to a Person who will take delivery thereof in the form of an equal principal amount of Securities evidenced by one or more unrestricted Global Securities (CUSIP No. _____________).

In connection with such request and in respect of such Securities, the Transferor does hereby certify that such transfer has been effected pursuant to and in accordance with either Rule 903, Rule 904 or Rule 144 under the Unites States Securities Act of 1933, as amended (the “ Act ”), and accordingly the Transferor does hereby further certify that:

(1) if the transfer has been effected pursuant to Rule 903 or Rule 904:

(a) the offer of the Securities was not made to a Person in the United States;

(b) either:

(i) at the time the buy order was originated, the transferee was outside the United States or the Transferor and any Person acting on its behalf reasonably believed that the transferee was outside the United States, or

D-1

(ii) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any Person acting on its behalf knows that the transaction was pre-arranged with a buyer in the United States;

(c) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and

(d) the transaction is not part of a plan or scheme to evade the registration requirements of the Act; or

(2) if the transfer has been effected pursuant to Rule 144, the Securities have been transferred in a transaction permitted by Rule 144.

This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer and the underwriters and initial purchasers, if any, of the Securities being transferred. Terms used in this certificate and not otherwise defined in the Fiscal Agency Agreement have the meanings set forth in Regulation S under the Act.

[Insert Name of Transferor]

By:

Name:

Title:

Dated: _____________

cc: NORTHERN NATURAL GAS COMPANY

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EXHIBIT E

FORM OF TRANSFER CERTIFICATE
FOR EXCHANGE OR TRANSFER FROM RULE 144A GLOBAL
SECURITY TO REGULATION S GLOBAL SECURITY

The Bank of New York Mellon Trust Company, N.A.
2 N. LaSalle Street
Suite 700
Chicago, Illinois 60602

Attention: Corporate Trust Administration


Re:	NORTHERN NATURAL GAS COMPANY 4.30% SENIOR BONDS DUE 2049

This letter relates to U.S.$ ________ principal amount of Securities which are evidenced by one or more Rule 144A Global Securities (CUSIP No. 665501 AL6) and held through the U.S. Depository in the name of [insert name of transferor] (the “ Transferor ”). The Transferor has requested a transfer of such beneficial interest in the Securities to a non-U.S. person who will take delivery thereof in the form of an equal principal amount of Securities evidenced by one or more Regulation S Global Securities (CUSIP No. U66480 AH4; ISIN No. USU66480AH46), which amount, immediately after such transfer, is to be held with the U.S. Depository through Euroclear or Clearstream (Common Code _______).

In connection with such request and in respect of such Securities, the Transferor does hereby certify that such transfer has been effected pursuant to and in accordance with Rule 903 or Rule 904 under the Unites States Securities Act of 1933, as amended (the “ Act ”), and accordingly the Transferor does hereby further certify that:

(1) the offer of the Securities was not made to a Person in the United States;

(2) either:

(a) at the time the buy order was originated, the transferee was outside the United States or the Transferor and any Person acting on its behalf reasonably believed that the transferee was outside the United States, or

E-1

(b) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any Person acting on its behalf knows that the transaction was pre-arranged with a buyer in the United States;

(3) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable;

(4) the transaction is not part of a plan or scheme to evade the registration requirements of the Act; and

(5) upon completion of the transaction, the beneficial interest being transferred as described above is to be held with the U.S. Depository through Euroclear or Clearstream (Common Code ___________).

This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer and the underwriters or initial purchasers, if any, of the initial offering of such Securities being transferred. Terms used in this certificate and not otherwise defined in the Fiscal Agency Agreement have the meanings set forth in Regulation S under the Act.

[Insert Name of Transferor]

By:

Name:

Title:

Dated: ________________

cc: NORTHERN NATURAL GAS COMPANY

Signature Guaranty:____________________

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EXHIBIT F

FORM OF TRANSFER CERTIFICATE
FOR EXCHANGE OR TRANSFER FROM RULE 144A GLOBAL
SECURITY TO RESTRICTED DEFINITIVE SECURITY

The Bank of New York Mellon Trust Company, N.A.
2 N. LaSalle Street
Suite 700
Chicago, Illinois 60602

Attention: Corporate Trust Administration


Re:	NORTHERN NATURAL GAS COMPANY 4.30% SENIOR BONDS DUE 2049

This letter relates to U.S.$ _________ principal amount of Securities which are evidenced by one or more Rule 144A Global Securities (CUSIP No. 665501 AL6) and held through the U.S. Depository in the name of [insert name of transferor] (the “ Transferor ”). The Transferor has requested a transfer of such beneficial interest in the Securities to a Person who will take delivery thereof in the form of an equal principal amount of Securities evidenced by a Restricted Definitive Security.

In connection with such request and in respect of such Securities, the Transferor does hereby certify that the interests in the Rule 144A Global Security are being transferred to a Person that the Transferor reasonably believes is purchasing the Securities for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is an institutional “accredited investor” as described in Rule 501(a)(1), (2), (3) or (7) under the Unites States Securities Act of 1933, as amended (the “ Act ”), and is purchasing such Securities for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Act, in a transaction in accordance with any applicable securities laws of the United States or any state thereof.

F-1

This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer and the underwriters and initial purchasers, if any, of the Securities being transferred.

[Insert Name of Transferor]

By:

Name:

Title:

Dated: ____________

cc: NORTHERN NATURAL GAS COMPANY

F-2

EXHIBIT G

FORM OF TRANSFER CERTIFICATE
FOR EXCHANGE OR TRANSFER FROM RULE 144A GLOBAL
SECURITY TO UNRESTRICTED GLOBAL SECURITY

The Bank of New York Mellon Trust Company, N.A.
2 N. LaSalle Street
Suite 700
Chicago, Illinois 60602

Attention: Corporate Trust Administration


Re:	NORTHERN NATURAL GAS COMPANY 4.30% SENIOR BONDS DUE 2049

(1) if the transfer has been effected pursuant to Rule 903 or Rule 904:

(a) the offer of the Securities was not made to a Person in the United States;

(b) either:

G-1

US-DOCS\101618522.7

(c) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and

(d) the transaction is not part of a plan or scheme to evade the registration requirements of the Act; or

(2) if the transfer has been effected pursuant to Rule 144, the Securities have been transferred in a transaction permitted by Rule 144.

[Insert Name of Transferor]

By:

Name:

Title:

Dated: _____________

cc: NORTHERN NATURAL GAS COMPANY

G-2

EXHIBIT H

FORM OF TRANSFER CERTIFICATE
FOR TRANSFER AND EXCHANGE OF RESTRICTED DEFINITIVE SECURITIES

The Bank of New York Mellon Trust Company, N.A.

2 N. LaSalle Street

Suite 700

Chicago, Illinois 60602

Attention: Corporate Trust Administration


Re:	NORTHERN NATURAL GAS COMPANY 4.30% SENIOR BONDS DUE 2049

This letter relates to U.S. $________________ principal amount of Securities presented or surrendered on the date hereof (the “ Surrendered Securities ”) which are registered in the name of [insert name of transferor] (the “ Transferor ”). The Transferor has requested a transfer of such Surrendered Securities registered in the name of a Person (the “ Transferee ”) other than the Transferor (each such transaction being referred to herein as a “transfer”).

In connection with such request and in respect of such Surrendered Securities, the Transferor does hereby certify that:

[CHECK ONE]



¨	(1)	the Surrendered Securities are being transferred to the Issuer or an Affiliate thereof;
¨	(2)	the Surrendered Securities are being transferred pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the “ Act ”) and, accordingly, the Transferor does hereby further certify that the Surrendered Securities are being transferred to a Person that the Transferor reasonably believes is purchasing the Surrendered Securities for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a “qualified institutional buyer” within the meaning of Rule 144A, in each case in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States;

H-1



¨	(3)	the Surrendered Securities are being transferred to a Person that the Transferor reasonably believes is purchasing the Surrendered Securities for its own account or for one or more accounts with respect to which such Person exercise sole investment discretion, and such Person and each such account is an institutional “accredited investor” as described in Rule 501(a)(1), (2), (3) or (7) under the Act and is purchasing such Surrendered Securities for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Act in a transaction in accordance with any applicable securities laws of the United States or any state thereof;
¨	(4)	the Surrendered Securities are being transferred pursuant to and in accordance with Regulation S and: (a) the offer of the Surrendered Securities was not made to a Person in the United States; (b) either: (i) at the time the buy order was originated, the transferee was outside the United States or the Transferor and any Person acting on its behalf reasonably believed that the transferee was outside the United States, or (ii) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States; (c) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and (d) the transaction is not part of a plan or scheme to evade the registration requirements of the Act; or
¨	(5)	the Surrendered Securities are being transferred in a transaction permitted by Rule 144.

H-2

This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer and the underwriters and initial purchasers of the Securities being transferred.

[Insert Name of Transferor]

By:

Name:

Title:

Dated:________________

cc: NORTHERN NATURAL GAS COMPANY

Signature Guaranty:_____________________

H-3

EXHIBIT I

FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR

The Bank of New York Mellon Trust Company, N.A.

2 N. LaSalle Street

Suite 700

Chicago, Illinois 60602

Attention: Corporate Trust Administration


Re:	NORTHERN NATURAL GAS COMPANY 4.30% SENIOR BONDS DUE 2049

Reference is hereby made to the Fiscal Agency Agreement, dated as of July 17, 2018 (the “ Fiscal Agency Agreement ”), between Northern Natural Gas Company (the “ Company ”) and The Bank of New York Mellon Trust Company, N.A., as Fiscal Agent (the “ Fiscal Agent ”). Capitalized terms used but not defined herein shall have the meanings given to them in the Fiscal Agency Agreement.

In connection with our proposed purchase of $____________ aggregate principal amount of the Company’s 4.30% Senior Bonds due 2049 (the “ Bonds ”) we confirm that:

1. We will take delivery of the entire aggregate principal amount of Bonds we are acquiring only in the form of a Restrictive Definitive Security.

2. We understand that any subsequent transfer of the Bonds or any interest therein is subject to certain restrictions and conditions set forth in the Fiscal Agency Agreement and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Bonds or any interest therein except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the “ Securities Act ”).

3. We understand that the offer and sale of the Bonds have not been registered under the Securities Act, and that the Bonds and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the securities we are acquiring or any interest therein prior to the date which is one year after the later of the original issue date of the Bonds and the last date on which Northern Natural Gas Company, or any of its affiliates, was the holder of such securities (or any predecessor securities thereof), such sales will be made only (A) to Northern Natural Gas Company or any of its Subsidiaries, (B) pursuant to a registration statement that has been declared effective under the Securities Act, (C) for so long as the securities are eligible for resale pursuant to Rule 144, to a person reasonably believed to be a qualified institutional buyer (as defined in Rule 144A) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that the transfer is being made in

I-1

reliance on Rule 144A, (D) in a transaction meeting the requirements of Rule 144 under the Securities Act, (E) to an institutional “accredited investor” within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is purchasing for its own account or for the account of an institutional accredited investor, and that executes and delivers a certificate substantially in the form of this certificate, (F) pursuant to offers and sales that occur outside the United States in an offshore transaction in accordance with Rule 904 under the Securities Act, or (G) pursuant to any other available exemption from the registration requirements of the Securities Act and, in each of the cases above, in accordance with the applicable Securities laws of any state of the United States or any other applicable jurisdiction, and, for so long as the Bonds we are acquiring are represented by a Restricted Definitive Security, we further agree to provide (i) to any Person purchasing the Restrictive Definitive Security or a beneficial interest in a Global Security from us in a transaction meeting the requirements of clauses (A) or (C) through (G) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein and (ii) to the Fiscal Agent and the Company, a duly completed certificate in the form of Exhibit H to the Fiscal Agency Agreement.

4. We understand that, on any proposed resale of the Bonds or beneficial interest therein, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Bonds purchased by us will bear a legend to the foregoing effect.

5. We are an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Bonds, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment.

6. We are acquiring the Bonds purchased by us for our own account or for one or more accounts (each of which is an institutional “accredited investor”) as to each of which we exercise sole investment discretion.

You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby.

    [Insert Name of Accredited Investor]

By:
    Name:
    Title:

Dated: _______________________

I-2

EXHIBIT 15.1

August 3, 2018

To the Board of Directors and Shareholders of

Berkshire Hathaway Energy Company

Des Moines, Iowa

We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited consolidated interim financial information of Berkshire Hathaway Energy Company and subsidiaries for the periods ended June 30, 2018 and 2017 , as indicated in our report dated August 3, 2018 ; because we did not perform an audit, we expressed no opinion on that information.

We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 , is incorporated by reference in Registration Statement No. 333-214946 on Form S-8.

We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

/s/ Deloitte & Touche LLP

Des Moines, Iowa

EXHIBIT 15.2

August 3, 2018

To the Board of Directors and Shareholders of

PacifiCorp

Portland, Oregon

We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited consolidated interim financial information of PacifiCorp and subsidiaries for the periods ended June 30, 2018 and 2017 , as indicated in our report dated August 3, 2018 ; because we did not perform an audit, we expressed no opinion on that information.

/s/ Deloitte & Touche LLP

Portland, Oregon

EXHIBIT 15.3

August 3, 2018

To the Board of Directors and Shareholder of

MidAmerican Energy Company

Des Moines, Iowa

We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited interim financial information of MidAmerican Energy Company for the periods ended June 30, 2018 and 2017 , as indicated in our report dated August 3, 2018 ; because we did not perform an audit, we expressed no opinion on that information.

We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 , is incorporated by reference in the Registration Statement No. 333-225916 on Form S-3.

/s/ Deloitte & Touche LLP

Des Moines, Iowa

EXHIBIT 15.4

August 3, 2018

To the Board of Directors and Shareholder of

Nevada Power Company

Las Vegas, Nevada

We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited consolidated interim financial information of Nevada Power Company and subsidiaries for the periods ended June 30, 2018 and 2017 , as indicated in our report dated August 3, 2018 ; because we did not perform an audit, we expressed no opinion on that information.

/s/ Deloitte & Touche LLP

Las Vegas, Nevada

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, William J. Fehrman , certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Berkshire Hathaway Energy Company ;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 3, 2018	/s/ William J. Fehrman
	William J. Fehrman
	President and Chief Executive Officer
	(principal executive officer)

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Patrick J. Goodman , certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Berkshire Hathaway Energy Company ;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 3, 2018	/s/ Patrick J. Goodman
	Patrick J. Goodman
	Executive Vice President and Chief Financial Officer
	(principal financial officer)

EXHIBIT 31.3

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, William J. Fehrman , certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of PacifiCorp ;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 3, 2018	/s/ William J. Fehrman
	William J. Fehrman
	Chairman of the Board of Directors, President and Chief Executive Officer
	(principal executive officer)

EXHIBIT 31.4

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Nikki L. Kobliha , certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of PacifiCorp ;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 3, 2018	/s/ Nikki L. Kobliha
	Nikki L. Kobliha
	Vice President, Chief Financial Officer and Treasurer
	(principal financial officer)

EXHIBIT 31.5

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Adam L. Wright , certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of MidAmerican Energy Company ;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 3, 2018	/s/ Adam L. Wright
	Adam L. Wright
	President and Chief Executive Officer
	(principal executive officer)

EXHIBIT 31.6

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Thomas B. Specketer , certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of MidAmerican Energy Company ;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 3, 2018	/s/ Thomas B. Specketer
	Thomas B. Specketer
	Vice President and Chief Financial Officer
	(principal financial officer)

EXHIBIT 31.7

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Adam L. Wright , certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of MidAmerican Funding, LLC ;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 3, 2018	/s/ Adam L. Wright
	Adam L. Wright
	President
	(principal executive officer)

EXHIBIT 31.8

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Thomas B. Specketer , certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of MidAmerican Funding, LLC ;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 3, 2018	/s/ Thomas B. Specketer
	Thomas B. Specketer
	Vice President and Controller
	(principal financial officer)

EXHIBIT 31.9

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Paul J. Caudill , certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Nevada Power Company (dba NV Energy );


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 3, 2018	/s/ Paul J. Caudill
	Paul J. Caudill
	Chief Executive Officer
	(principal executive officer)

EXHIBIT 31.10

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, E. Kevin Bethel , certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Nevada Power Company (dba NV Energy );


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 3, 2018	/s/ E. Kevin Bethel
	E. Kevin Bethel
	Senior Vice President and Chief Financial Officer
	(principal financial officer)

EXHIBIT 31.11

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Paul J. Caudill , certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Sierra Pacific Power Company (dba NV Energy );


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 3, 2018	/s/ Paul J. Caudill
	Paul J. Caudill
	Chief Executive Officer
	(principal executive officer)

EXHIBIT 31.12

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, E. Kevin Bethel , certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Sierra Pacific Power Company (dba NV Energy );


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 3, 2018	/s/ E. Kevin Bethel
	E. Kevin Bethel
	Senior Vice President and Chief Financial Officer
	(principal financial officer)

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, William J. Fehrman , President and Chief Executive Officer of Berkshire Hathaway Energy Company (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:


(1)	the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2018 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.



Date: August 3, 2018	/s/ William J. Fehrman
	William J. Fehrman
	President and Chief Executive Officer
	(principal executive officer)

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, Patrick J. Goodman , Executive Vice President and Chief Financial Officer of Berkshire Hathaway Energy Company (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:


(1)	the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2018 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.



Date: August 3, 2018	/s/ Patrick J. Goodman
	Patrick J. Goodman
	Executive Vice President and Chief Financial Officer
	(principal financial officer)

EXHIBIT 32.3

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, William J. Fehrman , Chairman of the Board of Directors, President and Chief Executive Officer of PacifiCorp , certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:


(1)	the Quarterly Report on Form 10-Q of PacifiCorp for the quarterly period ended June 30, 2018 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PacifiCorp .



Date: August 3, 2018	/s/ William J. Fehrman
	William J. Fehrman
	Chairman of the Board of Directors, President and Chief Executive Officer
	(principal executive officer)

EXHIBIT 32.4

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, Nikki L. Kobliha , Vice President, Chief Financial Officer and Treasurer of PacifiCorp , certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:


(1)	the Quarterly Report on Form 10-Q of PacifiCorp for the quarterly period ended June 30, 2018 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PacifiCorp .



Date: August 3, 2018	/s/ Nikki L. Kobliha
	Nikki L. Kobliha
	Vice President, Chief Financial Officer and Treasurer
	(principal financial officer)

EXHIBIT 32.5

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, Adam L. Wright , President and Chief Executive Officer of MidAmerican Energy Company , certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:


(1)	the Quarterly Report on Form 10-Q of MidAmerican Energy Company for the quarterly period ended June 30, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of MidAmerican Energy Company .



Date: August 3, 2018	/s/ Adam L. Wright
	Adam L. Wright
	President and Chief Executive Officer
	(principal executive officer)

EXHIBIT 32.6

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, Thomas B. Specketer , Vice President and Chief Financial Officer of MidAmerican Energy Company , certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:


(1)	the Quarterly Report on Form 10-Q of MidAmerican Energy Company for the quarterly period ended June 30, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of MidAmerican Energy Company .



Date: August 3, 2018	/s/ Thomas B. Specketer
	Thomas B. Specketer
	Vice President and Chief Financial Officer
	(principal financial officer)

EXHIBIT 32.7

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, Adam L. Wright , President of MidAmerican Funding, LLC , certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:


(1)	the Quarterly Report on Form 10-Q of MidAmerican Funding, LLC for the quarterly period ended June 30, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of MidAmerican Funding, LLC .



Date: August 3, 2018	/s/ Adam L. Wright
	Adam L. Wright
	President
	(principal executive officer)

EXHIBIT 32.8

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, Thomas B. Specketer , Vice President and Controller of MidAmerican Funding, LLC , certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:


(1)	the Quarterly Report on Form 10-Q of MidAmerican Funding, LLC for the quarterly period ended June 30, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of MidAmerican Funding, LLC .



Date: August 3, 2018	/s/ Thomas B. Specketer
	Thomas B. Specketer
	Vice President and Controller
	(principal financial officer)

EXHIBIT 32.9

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, Paul J. Caudill , Chief Executive Officer of Nevada Power Company (dba NV Energy ), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:


(1)	the Quarterly Report on Form 10-Q of Nevada Power Company for the quarterly period ended June 30, 2018 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of Nevada Power Company .



Date: August 3, 2018	/s/ Paul J. Caudill
	Paul J. Caudill
	Chief Executive Officer
	(principal executive officer)

EXHIBIT 32.10

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, E. Kevin Bethel , Senior Vice President and Chief Financial Officer of Nevada Power Company (dba NV Energy ), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:


(1)	the Quarterly Report on Form 10-Q of Nevada Power Company for the quarterly period ended June 30, 2018 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of Nevada Power Company .



Date: August 3, 2018	/s/ E. Kevin Bethel
	E. Kevin Bethel
	Senior Vice President and Chief Financial Officer
	(principal financial officer)

EXHIBIT 32.11

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, Paul J. Caudill , Chief Executive Officer of Sierra Pacific Power Company (dba NV Energy ), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:


(1)	the Quarterly Report on Form 10-Q of Sierra Pacific Power Company for the quarterly period ended June 30, 2018 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of Sierra Pacific Power Company .



Date: August 3, 2018	/s/ Paul J. Caudill
	Paul J. Caudill
	Chief Executive Officer
	(principal executive officer)

EXHIBIT 32.12

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, E. Kevin Bethel , Senior Vice President and Chief Financial Officer of Sierra Pacific Power Company (dba NV Energy ), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:


(1)	the Quarterly Report on Form 10-Q of Sierra Pacific Power Company for the quarterly period ended June 30, 2018 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of Sierra Pacific Power Company .



Date: August 3, 2018	/s/ E. Kevin Bethel
	E. Kevin Bethel
	Senior Vice President and Chief Financial Officer
	(principal financial officer)

EXHIBIT 95

MINE SAFETY VIOLATIONS AND OTHER LEGAL MATTER DISCLOSURES

PURSUANT TO SECTION 1503(a) OF THE DODD-FRANK WALL STREET

REFORM AND CONSUMER PROTECTION ACT

PacifiCorp and its subsidiaries operate certain coal mines and coal processing facilities (collectively, the "mining facilities") that are regulated by the Federal Mine Safety and Health Administration ("MSHA") under the Federal Mine Safety and Health Act of 1977 (the "Mine Safety Act"). MSHA inspects PacifiCorp's mining facilities on a regular basis. The total number of reportable Mine Safety Act citations, orders, assessments and legal actions for the three-month period ended June 30, 2018 are summarized in the table below and are subject to contest and appeal. The severity and assessment of penalties may be reduced or, in some cases, dismissed through the contest and appeal process. Amounts are reported regardless of whether PacifiCorp has challenged or appealed the matter. Mines that are closed or idled are not included in the information below if no reportable events occurred at those locations during the three-month period ended June 30, 2018 . There were no mining-related fatalities during the three-month period ended June 30, 2018 . PacifiCorp has not received any notice of a pattern, or notice of the potential to have a pattern, of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of coal or other mine health or safety hazards under Section 104(e) of the Mine Safety Act during the three-month period ended June 30, 2018 .



	Mine Safety Act							Legal Actions
						Total
	Section 104				Section	Value of
	Significant		Section		107(a)	Proposed		Pending
	and	Section	104(d)	Section	Imminent	MSHA		as of Last	Instituted	Resolved
	Substantial	104(b)	Citations/	110(b)(2)	Danger	Assessments		Day of	During	During
Mining Facilities	Citations ⁽¹⁾	Orders ⁽²⁾	Orders ⁽³⁾	Violations ⁽⁴⁾	Orders ⁽⁵⁾	(in thousands)		Period ⁽⁶⁾	Period	Period

Bridger (surface)	—	—	—	—	—	$	—	—	—	—
Bridger (underground)	3	—	1	—	—	20		2	2	2
Wyodak Coal Crushing Facility	—	—	—	—	—	—		—	—	—

(1)

Citations for alleged violations of mandatory health and safety standards that could significantly or substantially contribute to the cause and effect of a safety or health hazard under Section 104 of the Mine Safety Act. One of the Section 104(a) Significant and Substantial citations was modified to a Section 104(d)-1 citation which upon review by MSHA was reverted back to a Section 104(a) Significant and Substantial citation.


(2)	For alleged failure to totally abate the subject matter of a Mine Safety Act Section 104(a) citation within the period specified in the citation.


(3)	For an alleged unwarrantable failure (i.e., aggravated conduct constituting more than ordinary negligence) to comply with a mandatory health or safety standard. The Section 104(d)-1 citation included in this table was subsequently modified by MSHA to a Section 104(a) Non-Significant and Substantial citation.


(4)	For alleged flagrant violations (i.e., reckless or repeated failure to make reasonable efforts to eliminate a known violation of a mandatory health or safety standard that substantially and proximately caused, or reasonably could have been expected to cause, death or serious bodily injury).


(5)	For the existence of any condition or practice in a coal or other mine which could reasonably be expected to cause death or serious physical harm before such condition or practice can be abated.


(6)	Amounts include two contests of proposed penalties under Subpart C of the Federal Mine Safety and Health Review Commission's procedural rules. The pending legal actions are not exclusive to citations, notices, orders and penalties assessed by MSHA during the reporting period.