Will PacifiCorp's credit rating be downgraded below investment grade (BB+ or lower) by any major agency by year-end 2026?

The FY2025 10-K data is materially bearish for a junk downgrade scenario. The accrual trajectory -- $1.9B (2023) → $346M (2024) → $100M (2025) -- tells a clear story: the worst-case liability is NOT materializing. Rating agencies have now seen PacifiCorp maintain BBB- through the beginning of weekly mini-trials. The $1.2B remaining unpaid tail against $8.4B BHE annual cash flow is roughly 14% of a single year's operating cash flow. For a downgrade below investment grade to occur before year-end 2026, we would need either: (1) a catastrophic adverse verdict batch in Q2/Q3 2026 that forces a sudden reserve revision of $2B+, or (2) a dramatic reversal in trial outcomes from the current deceleration trajectory. The exculpatory Oregon DOF finding on Santiam Canyon (60% of claims) and the accrual trend both point against this. Prior was 0.20 based on Q3 data; this update meaningfully reduces probability.

Bayesian update from FY2025: the prior 0.20 was anchored on $2.75B cumulative reserves vs $48B total claims (a 17x gap that rating agencies must evaluate). The FY2025 data narrows this gap further -- reserve is now $2.85B, accruals have decelerated dramatically, and the unpaid tail is roughly $1.2B. The 17x gap was always misleading because total claims include speculative plaintiff attorney demands, not realistic settlement ranges. The actual resolution trajectory is being established through mini-trials, and the pace of reserve additions is decelerating. Rating agencies are providing implicit parent support credit -- Berkshire's demonstrated willingness to absorb BHE losses (vs. letting the $87B→$48.8B BHE valuation collapse speak for itself) keeps PacifiCorp in investment grade. To see a junk downgrade by year-end 2026, you need an extraordinary adverse verdict sequence that overturns the current trajectory entirely.

I assign slightly higher weight than my prior run to the residual risk from the HomeServices Texas antitrust case ($9B claimed, oral arguments Jan 14, 2026). While this is a separate risk vector, if it compounds with PacifiCorp at a moment of vulnerability it could affect rating agency perception of BHE/Berkshire's overall liability exposure. That said, S&P rates PacifiCorp on its own standalone balance sheet plus parent support -- not on Berkshire's aggregate litigation. The accrual deceleration remains the dominant signal. Weekly mini-trials are producing data that is being incorporated in $100M annual increments, not $1.9B shock revisions. The remaining tail risk is real but the magnitude has shrunk. I put the probability of a year-end 2026 junk downgrade at approximately 14%.

Analyzing the FY2025 update through a credit methodology lens: rating agencies assess both standalone credit and parent support overlay. On standalone: PacifiCorp's $100M FY2025 accrual vs $346M FY2024 suggests the annual claims cost is becoming a manageable operating expense rather than a balance-sheet stress event. On parent support: Berkshire's $369B parent cash and BHE +6.7% earnings growth in FY2025 reinforce that the parent is not under capital strain. For S&P to downgrade to BB+, they would need to conclude that (a) PacifiCorp cannot service its obligations without parent support AND (b) parent support is not reliably forthcoming. Given Berkshire's behavioral history (never a subsidiary default) and its capital position, condition (b) seems very unlikely. Condition (a) would require a liability shock well above the current trajectory. I estimate 12% probability.

I weight the mini-trial schedule risk somewhat more heavily. Mini-trials are weekly from February 2026 and accelerating to twice weekly in 2027. While the FY2025 accrual trajectory is encouraging, the mini-trial schedule means that in any given quarter of 2026, there could be a cluster of adverse verdicts that forces an emergency reserve revision. The rating agencies typically react to realized outcomes, not just trajectories. If Q1 or Q2 2026 mini-trial results diverge from the FY2025 pattern -- perhaps on the non-Santiam claims where exculpatory evidence is less available -- a sudden $500M-$1B reserve revision could prompt a rating watch. However, even this scenario would likely result in a BBB negative watch, not an immediate junk downgrade. A full two-notch downgrade within a single year seems aggressive. Net: 15%.

The most important data point in this update is not the accrual number itself but what it implies about the per-claim liability benchmarks being established in mini-trials. If mini-trials were producing verdicts at 3-4x the reserve levels (the downgrade scenario), we would see accrual acceleration, not the $1.9B→$346M→$100M deceleration. The deceleration is direct evidence that the per-claim outcomes are within or below the reserved range. This collapses the primary pathway to a junk downgrade. The remaining risk is essentially a black swan: a single large federal government claim resolution, a jury shock on the non-Santiam cohort, or an unprecedented shift in verdict trends. With the FY2025 data, I put this at 11%.

FY2025 update reduces probability meaningfully from the prior 0.20. Three factors drive this: (1) Accrual deceleration to $100M confirms that the liability is resolving at manageable pace -- the $48B total claims number was always an attorney demand figure, not a realistic settlement range; (2) BBB- maintained with no rating watch assigned through the beginning of mini-trials -- this is active evidence that agencies are comfortable with the trajectory; (3) $1.2B remaining tail against $8.4B BHE annual cash flow is a 14% coverage ratio, manageable for a Berkshire subsidiary with explicit behavioral parent support. The scenario that gets you to junk by year-end 2026 requires a sudden, large adverse verdict that agencies could not see coming given the current trial pace -- a tail risk but no longer a base-case concern.

Consider what needs to go wrong for a junk downgrade by December 31, 2026: (a) Mini-trials must produce adverse verdict clusters that imply total liability materially exceeds the $2.85B reserve -- say, a revised estimate of $4-5B+ emerges; (b) PacifiCorp's standalone balance sheet must appear unable to fund the gap; (c) Rating agencies must conclude parent support is uncertain or insufficient. On (a): the $100M FY2025 accrual argues strongly against this -- the trajectory is deceleration not escalation. On (b): PacifiCorp's $13B+ secured bonds provide refinancing capacity if needed. On (c): $369B Berkshire parent cash and BHE +6.7% earnings growth makes this essentially impossible. All three conditions would need to co-occur within a single year. That's a very narrow path. 12%.

I give slightly more weight to the structural uncertainty in the remaining ~$1.2B unpaid liability and the ongoing federal government claims ($900M+). The federal government claims represent a settlement dynamic that is distinct from the mini-trial process -- they negotiate as a single large counterparty and could demand resolution on an accelerated timeline. If the federal settlement comes in at $700M-$900M+ during 2026, the combined reserve pressure could trigger a rating watch. That said, even a rating watch is not a junk downgrade -- there's typically a two-step process (watch → downgrade) that would likely extend beyond year-end 2026. The OxyChem acquisition at $9.5B also signals Abel's willingness to deploy capital aggressively, which may signal to rating agencies that parent willingness to support PacifiCorp remains intact. Net: 14%.