-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, fdAPWPOuWv7vbNl/1kpAO6if4WAEFwQoVawtyzYem3aZLscFCxRxwfytjICLxxiR qDzC7Cetsij0VK0AfrdP8w== 0000784977-94-000010.txt : 19940822 0000784977-94-000010.hdr.sgml : 19940822 ACCESSION NUMBER: 0000784977-94-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PORTLAND GENERAL ELECTRIC CO /OR/ CENTRAL INDEX KEY: 0000784977 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 930256820 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05532-99 FILM NUMBER: 94543387 BUSINESS ADDRESS: STREET 1: 121 SW SALMON ST CITY: PORTLAND STATE: OR ZIP: 97204 BUSINESS PHONE: 5034648000 10-Q 1 10-Q DOCUMENT FOR 6/30/94 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, 1994 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from __________ to __________ Registrant; State of Incorporation; IRS Employer Commission File Number Address; and Telephone Number Identification No. 1-5532 PORTLAND GENERAL CORPORATION 93-0909442 (an Oregon Corporation) 121 SW Salmon Street Portland, Oregon 97204 (503) 464-8820 1-5532-99 PORTLAND GENERAL ELECTRIC COMPANY 93-0256820 (an Oregon Corporation) 121 SW Salmon Street Portland, Oregon 97204 (503) 464-8000 Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X . No . The number of shares outstanding of the registrants' common stocks as of July 31, 1994 are: Portland General Corporation 50,285,571 Portland General Electric Company 42,758,877 (owned by Portland General Corporation) 1 Index Page Number Part I. Portland General Corporation and Subsidiaries Financial Information Management's Discussion and Analysis of Financial Condition and Results of Operations 3 Statements of Income 14 Statements of Retained Earnings 14 Balance Sheets 15 Statements of Capitalization 16 Statements of Cash Flow 17 Notes to Financial Statements 18 Portland General Electric Company and Subsidiaries Financial Information 25 Part II. Other Information Item 1 - Legal Proceedings 30 Item 4 - Results of Votes of Security Holders 30 Item 6 - Exhibits and Reports on Form 8-K 31 Signature Page 32 2 Portland General Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Financial and Operating Outlook Utility General Rate Filing On November 8, 1993, Portland General Electric Company (PGE or the Company) filed a request with the Oregon Public Utility Commission (PUC) to increase electric prices by an average of 5% beginning January 1, 1995. Commercial and industrial customers' rates would increase, on average, 3.2%. The proposed increase in average annual revenues is $43 million, after the effects of the Regional Power Act (RPA) exchange benefits. Under provisions of the Regional Power Act PGE exchanges its higher-cost power for lower- cost federal hydroelectric power with Bonneville Power Administration (BPA) and passes the benefits to residential and small farm customers. PGE requested a return on equity of 11.5%, down from the current authorized return of 12.5%. If approved, this would be the Company's first general price increase since 1991. The general rate filing includes PGE's request for continued recovery of Trojan Nuclear Plant (Trojan) costs including decommissioning, operating expenses, taxes, return of capital invested in the plant and return on the undepreciated investment. PGE's current rates include recovery of these Trojan costs. In May 1994, the PUC issued an order to delay consideration of the Trojan-related issues and cost of capital in order to allow the PUC Staff to retain an expert to consult and advise the PUC regarding Trojan issues. In July 1994, PGE and the PUC Staff agreed to delay a final order addressing all rate case matters to no later than March 31, 1995, contingent upon the PUC approving PGE's first quarter 1995 deferred accounting application. In the application the Company seeks to defer, for later collection, certain costs incurred from January 1, 1995, through March 31, 1995, or until the PUC issues an order in the general rate case, if earlier (see the Power Cost Recovery discussion below). If approved, the amount of revenues PGE will be allowed to collect will be the lesser of the recorded deferral, PGE's requested increase or the same level of revenue as if rates had become effective January 1, 1995. The delay, requested by the PUC Staff, provides additional review time for the PUC Staff's expert and allows the PUC more time to review the entire rate proceeding and issue a final order. The Company expects the PUC Staff's recommendations regarding Trojan issues and cost of capital in September 1994. Recovery of power cost deferrals is addressed in separate rate proceedings, not in the general rate case (see the discussion of Power Cost Recovery below). 3 Portland General Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Trojan Related Issues Shutdown - In early 1993, PGE ceased commercial operation of Trojan as recommended in PGE's Least Cost Plan (LCP). On June 3, 1993 the PUC acknowledged PGE's LCP. Decommissioning Estimate - The Company estimates the total cost to decommission Trojan, including costs incurred to date, to be $409 million, reflected in nominal dollars (actual dollars expected to be spent in each year). The decommissioning cost estimate includes the cost of decommissioning planning, removal and burial of irradiated equipment and facilities as required by the Nuclear Regulatory Commission (NRC); building demolition and nonradiological site remediation; and spent nuclear fuel management costs including licensing, surveillance and transition costs. Transition costs of $75 million are the costs associated with operating and maintaining the spent fuel pool and securing the plant until dismantlement can begin. While most decommissioning costs will utilize funds from PGE's Nuclear Decommissioning Trust (NDT), transition costs will continue to be paid from current operating funds. The decommissioning plan represents a site-specific decommissioning cost estimate performed for Trojan by an experienced decommissioning engineering firm and assumes that the majority of decommissioning activities will occur between 1998 and 2002, after construction of a temporary dry spent fuel storage facility. Decommissioning of the temporary dry spent fuel storage facility and final nonradiological site remediation activities will occur in 2018 after PGE completes shipment of spent fuel to a United States Department of Energy (USDOE) facility. In 1994, transition costs have leveled off and are estimated to continue at $10 to $15 million per year. As of June 30, 1994 the Company has expensed approximately $6 million in transition costs for 1994. In addition, since plant closure the Company has spent $2 million on decommissioning planning and related activities resulting in a remaining decommissioning liability, including transition costs, of $401 million. PGE plans to submit a formal decommissioning plan to the NRC and Energy Facility Siting Council of Oregon (EFSC) in late 1994. This is later than the previously expected submittal date of mid-1994 due to the additional time required to further evaluate decommissioning options. The NRC and EFSC rules require the plan be submitted before January 23, 1995. Presently, PGE is planning to accelerate the removal of some of Trojan's large components which is expected to result in overall decommissioning cost savings. Since the Company plans to begin this work in 1994, prior to receiving NRC and EFSC approval of its formal decommissioning plan, specific approval will be required from EFSC. Request for this approval was filed with EFSC on July 7, 1994. Additionally, the NRC must approve the use of PGE's NDT funds for removal of large components. 4 Portland General Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Assumptions used to develop the site-specific cost estimate for decommissioning represent the best information PGE has currently. The Company is continuing to evaluate various options which could change the timing and scope of decommissioning activities and expects any future changes in estimated decommissioning costs to be incorporated in future revenues to be collected from customers. Investment Recovery - In its general rate filing PGE requested continued recovery of Trojan plant costs, including decommissioning. See the General Rate Filing discussion above for details regarding the order to delay the schedule for Trojan-related issues and the agreement to delay issuance of a final order addressing all rate case matters. The analysis performed for the LCP assumed that continued recovery of the Trojan plant investment, including future decommissioning costs, would be granted by the PUC. Regarding the authority of the PUC to grant recovery, the Oregon Department of Justice (Attorney General) issued an opinion that the PUC may allow rate recovery of total plant costs, including operating expenses, taxes, decommissioning costs, return of capital invested in the plant and return on the undepreciated investment. While the Attorney General's opinion does not guarantee recovery of costs associated with the shutdown, it does clarify that under current law the PUC has authority to allow recovery of such costs in rates. PGE asked the PUC to resolve certain legal and policy questions regarding the statutory framework for future ratemaking proceedings related to the recovery of the Trojan investment and decommissioning costs. On August 9, 1993 the PUC issued a declaratory ruling agreeing with the Attorney General's opinion discussed above. The ruling also stated that the PUC will favorably consider allowing PGE to recover in rates some or all of its return on and return of its undepreciated investment in Trojan, including decommissioning costs, if PGE meets certain conditions. PGE believes that its general rate filing provides evidence that satisfies the conditions established by the PUC. See Legal Proceedings for further discussion of legal challenges to the declaratory ruling. Management believes that the PUC will grant future revenues to cover all, or substantially all, of Trojan plant costs with an appropriate return. However, future recovery of the Trojan plant investment and future decommissioning costs requires PUC approval in a public regulatory process. Although the PUC has allowed PGE to continue, on an interim basis, collection of these costs in the same manner as prescribed in the Company's last general rate proceeding, the PUC has yet to address recovery of costs related to a prematurely retired plant when the decision to close the plant was based upon a least cost planning process. Due to uncertainties inherent in a public process, management cannot predict, with certainty, whether all, or substantially all, of the $355 million Trojan plant investment and $346 million of decommissioning charges (to be collected through future rates) will be recovered. Management believes the ultimate outcome of this public regulatory process will not have a material adverse effect on the financial condition, liquidity or capital resources of Portland General. However, it may have a material impact on the results of operations for a future reporting period. 5 Portland General Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations SCE Complaint - On August 3, 1994, Southern California Edison (SCE) filed a complaint claiming PGE's decision to close Trojan violated the terms of a long-term firm power sales and exhcange agreement entered into on July 31, 1986. The 25-year contract is for 75 megawatts of firm energy and capacity plus a 225 megawatt seasonal exchange. SCE contends that PGE appointed itself liquidator of a substantial portion of its assets under the general bankruptcy default provision of the contract. SCE is seeking termination of the agreement and damages, including a return of payments made to PGE from the date of PGE's alleged default (approximately $27 million). Under the agreement SCE is obligated to pay to PGE a reservation fee for system capacity, seasonal exchange and other services equal to $16.9 million annually. SCE continues to make these payments. The Company will vigorously defend itself and believes it will succeed in the defense of these claims. See the Legal Proceedings discussion below. Power Cost Recovery In early 1993, the PUC authorized PGE to defer 80% of the incremental power costs incurred from December 4, 1992 through March 31, 1993 to replace Trojan generation. In total, $44 million of accrued revenues were recorded for later collection. In accordance with Oregon law collection is subject to PUC review of PGE's reported earnings, adjusted for the regulatory treatment of unusual and/or nonrecurring items, as well as the determination of an appropriate rate of return on equity for the deferral period. In early 1994, the PUC granted approval for full recovery and PGE began collection in April 1994. Amounts will be collected over a three year period. In August 1993, the PUC authorized PGE to defer, for later collection, 50% of the incremental replacement power costs incurred from July 1, 1993 through March 31, 1994. The PUC granted the lower deferral rate to reflect expected nuclear operating cost savings. In total, $49 million of revenues were recorded. The amount of revenues PGE will be allowed to collect will be established by the PUC following its review of PGE earnings, as adjusted, and its determination of a rate of return on equity for the April 1, 1993 through March 31, 1994 review period. The PUC approved a 45-day extension to allow PGE to submit its filing to the PUC by August 15, 1994. PGE has since filed a request to delay this earnings review to June 30, 1995 to coincide with the timing of the review of the first quarter 1995 power cost deferral (see discussion below). If approved by the PUC, this will result in a concurrent review of PGE's earnings for these separate deferral periods. In July 1994, PGE filed an application to defer, for later collection, 40% of the incremental replacement power costs incurred from January 1, 1995 through March 31, 1995, or until a PUC order in the general rate case, if earlier (see the General Rate Filing discussion above). PGE expects PUC approval of its application by fall 1994. In addition to the limitation discussed in the General Rate Filing section above, the amount of revenues PGE would be allowed to collect will be established by the PUC following 6 Portland General Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations its review of PGE earnings, as adjusted, and its determination of a rate of return on equity for the April 1, 1994 through March 31, 1995 review period. PGE would file an earnings review by June 30, 1995. Power Supply Restoration of Salmon Runs - The Snake River chinook salmon has been listed as a threatened species and the Snake River sockeye salmon has been listed as endangered under the federal Endangered Species Act. The National Marine Fisheries Service proposed minor changes to current river operations in a draft recovery plan. In April 1994, a U.S. District Court judge rejected the draft recovery plan. In May 1994, the federal government ordered a temporary spilling of water over the Columbia and Snake River dams in an attempt to increase the number of salmon that survive their downriver trip to the Pacific Ocean. This emergency spill was halted in July 1994, when it was not clear that the spill actually helped the migrating fish. PGE purchases power from many sources including the mid-Columbia dams run by the federal government. Reductions in the amount of water allowed to flow through the dams' turbines reduce the amount and increase the cost of power available to purchase on a non-contract or secondary basis. The attempt to improve fish passage by releasing more water from the reservoirs in the spring and summer could mean less water available in the fall and winter when the demand for electricity in the Pacific Northwest is the highest. This could lead to higher costs for hydro power and the need to run more expensive gas- and coal-fired plants. Fuel Supply In May 1994, PGE signed an agreement with Pacific Gas & Electric (PG&E) to take assignment of a portion of PG&E's excess firm natural gas transportation on the Pacific Gas Transmission (PGT) system. In July 1994, PGE signed an agreement with Alberta & Southern (A&S) to take assignment of a portion of PG&E's excess Canadian firm transportation on both the Alberta Natural Gas (ANG) system and the Nova Corporation of Alberta (NOVA) system. These agreements collectively provide for 41,000 MMBtu/day of delivered capacity to PGE's existing and proposed natural gas-fired generating facilities and replace earlier agreements PGE signed with PGT and ANG. Service under these agreements is scheduled to start in winter 1995/6. Under the terms of the agreements, PGE is committed to paying annual demand charges for the capacity on all three systems of approximately $3.2 million to $4.5 million, depending upon resolution of federal rate treatment issues. The agreements provide for service with PGT, ANG and NOVA for 15 years, 10 years and 6 years, respectively. However, PGE has renewal rights upon expiration and the right to assign unused capacity to other parties. In order to fully utilize these contracts for its facilities, PGE may incur a capital expenditure in 1995 of approximately $17 million for pipeline construction or may incur additional capacity charges in lieu of construction. 7 Portland General Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Customer Growth and Revenues During the second quarter of 1994, 3,000 retail customers were added to PGE's service territory. For the twelve-months ended June 30, 1994, 13,000 retail customers were added. PGE's weather- adjusted retail energy sales through the second quarter of 1994 were 2.7% higher than weather-adjusted retail energy sales for the same period in 1993. The Company expects 1994 load growth to be approximately 2.6%. Seasonality PGE's retail sales peak in the winter, therefore, second quarter earnings are not necessarily indicative of results to be expected for fiscal year 1994. Nonutility Portland General Corporation (Portland General), Portland General Holdings, Inc. (Holdings) and certain Portland General affiliated individuals have been named in a class action suit by investors in Bonneville Pacific Corporation (Bonneville Pacific) and in a suit filed by the bankruptcy trustee for Bonneville Pacific. The class action suit alleges various violations of securities law, fraud and misrepresentation. The suit by the bankruptcy trustee for Bonneville Pacific alleges common law fraud, breach of fiduciary duty, tortious interference, negligence, negligent misrepresentation and other actionable wrongs. Regarding the class action suit, in May 1994 the U.S. District Court for the District of Utah (the Court) issued an order dismissing the claims filed by the plaintiffs against Portland General, Holdings and the Portland General affiliated individuals for common law fraud and negligent misrepresentation, primary liability for violations of the federal securities laws and secondary liability for aiding and abetting and conspiracy to violate the federal securities laws. The order permanently dismisses the secondary liability claims. The Court stated that it will consider an amendment to the complaint with regard to the other claims. The Court also held that it would not consider the claims for Utah state securities law violations until certain issues are addressed by the Utah state courts. Holdings has filed a complaint seeking approximately $228 million in damages against Deloitte & Touche and certain parties associated with Bonneville Pacific alleging that it relied on fraudulent and negligent statements and omissions when it acquired a 46% interest in and made loans to Bonneville Pacific. 8 Portland General Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations A detailed report released in June 1992, by a U.S. Bankruptcy examiner outlined a number of questionable transactions that resulted in gross exaggeration of Bonneville Pacific's assets prior to Holdings' investment. This report includes the examiner's opinion that there was significant mismanagement and very likely fraud at Bonneville Pacific. These findings support management's belief that a favorable outcome on these matters can be achieved. For background information and further details, see Note 3, Legal Matters, in Notes to Financial Statements. Results of Operations 1994 Compared to 1993 for the Three Months Ended June 30 Portland General earned $24 million or $0.48 per share for the second quarter of 1994, compared with $13 million or $0.28 per share in 1993. Increased earnings were primarily the result of $6 million, after tax, in previously recorded real estate reserves relating to discontinued operations which were restored to income in June 1994. Excluding discontinued operations, 1994 earnings would have been $17 million. Net operating income was consistent with the earlier period due to customer growth, higher wholesale sales and nuclear cost savings helping to offset the effects of mild weather and poor regional water conditions in 1994. Operating revenues rose $10 million and variable power costs increased $18 million in 1994 resulting in an $8 million decline in margin. The decline in margin is primarily the result of higher average variable power costs in 1994. Increased operating revenues reflect improved wholesale sales and continued growth in the retail market. Wholesale megawatt-hour sales increased 43% due to increased availability of power and opportunities for sales. Despite mild 1994 weather, retail revenues rose $5 million partially due to an increase in the number of customers. A decrease in RPA exchange benefits (due to the 1993 BPA rate increase) resulted in a $3 million increase in retail revenues and a corresponding increase in variable power costs, therefore having no effect on margin. Variable power costs rose significantly in 1994. Poor water conditions in the region resulted in higher purchased power costs and increased generation at PGE thermal plants. Average variable power costs rose to 17.4 mills per kilowatt-hour (10 mills = 1 cent) in 1994 from 15.2 mills per kilowatt-hour in 1993, resulting in approximately $9 million more 1994 expense. Total system send-out (megawatt-hours purchased and generated, net) increased by 204,103 megawatt-hours or 5% to meet the needs of increased retail and wholesale sales. The decrease in RPA exchange benefits caused a $3 million increase in variable power costs and retail revenues as discussed above. Operating expenses (excluding variable power costs and depreciation) declined $9 million or 12%. The Company experienced $7 million in nuclear operating cost savings due to fewer personnel at Trojan. During the second 9 Portland General Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations quarter of 1994, $3 million of nuclear operating costs were expensed to operating expenses. The increase in other income reflects a $2 million gain, after tax, on the sale of nonutility property. The Company has substantially completed the divestiture of its real estate portfolio with the disposition of its largest remaining holdings. As a result $6 million, after tax, of previously recorded real estate reserves were restored to income in the second quarter of 1994. 1994 Compared to 1993 for the Six Months Ended June 30 Portland General earned $63 million or $1.28 per share for the six months ended June 30, 1994, compared with $50 million or $1.05 per share for the 1993 period. Higher operating revenues, nuclear cost savings and the divestiture of real estate holdings resulted in increased earnings in 1994. Excluding discontinued operations which contributed $6 million, after tax, in previously recorded real estate reserves which were restored to income, 1994 earnings would have been $57 million. Operating revenues increased $11 million and variable power costs rose $29 million resulting in an $18 million decline in margin. The decline in margin is primarily due to $17 million fewer accrued revenues associated with the deferral of replacement power costs and an increase in variable power costs. The lower margin is offset by nuclear operating cost savings of $24 million. The increase in operating revenues reflects improved wholesale revenues offset by lower retail revenues. Wholesale revenues rose $15 million due to increased availability of power and opportunities for sales. During 1994, PGE sold 82% more wholesale energy than in 1993. Retail revenues decreased $3 million. Despite 2.7% load growth, retail megawatt-hour sales declined slightly as a result of mild weather in 1994 and colder than normal weather in 1993. In 1994, $19 million in revenues associated with the 50% deferral of replacement power costs (see Power Cost Recovery in the Financial and Operating Outlook section above) were accrued, down from $36 million relating to the 80% deferral in 1993. The PUC granted the lower deferral rate to reflect expected nuclear operating cost savings. The lower deferral rate, coupled with lower power costs during the deferral period ending March 31, 1994, reduced the amount of the power cost deferral. The decrease in RPA exchange benefits caused a $16 million increase in retail revenues and a corresponding increase in variable power costs, therefore having no effect on margin. Variable power costs rose 21%. Increased wholesale sales resulted in a 453,387 megawatt-hour or 5% increase in total system send-out. This caused variable power costs to increase approximately $8 million in 1994. Poor regional water conditions resulted in increased generation at PGE thermal plants. Average variable power costs rose slightly to 18.9 mills per kilowatt-hour in 1994 from 18.4 mills per kilowatt-hour in 1993. Decreased RPA exchange benefits resulted in a $16 million increase in variable power costs and retail revenues as discussed above. 10 Portland General Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations The Company continued to experience significant nuclear cost savings. Due to fewer personnel at Trojan, nuclear operating costs declined $24 million in 1994 resulting in a 16% decrease in operating expenses (excluding variable power costs and depreciation). During the six months ended June 30, 1994, $7 million of nuclear operating costs were expensed to operating expenses. The Company recorded a $2 million gain, after tax, on the sale of nonutility property which is included in other income. The divestiture of real estate holdings resulted in $6 million, after tax, of previously recorded real estate reserves which were restored to income in the second quarter of 1994. 1994 Compared to 1993 for the Twelve Months Ended June 30 Portland General earned $102 million or $2.11 per share for the twelve months ended June 30, 1994, compared with $102 million or $2.15 per share for the 1993 period. Earnings for 1994 would have been $96 million excluding the $6 million, after tax, of previously recorded real estate reserves restored to income. Excluding the effects of Trojan steam generator repair costs of $11 million, after tax, which were restored to 1992 calendar earnings (and included in the 1993 twelve month period), 1993 earnings would have been $91 million. Operating revenues rose $40 million and variable power costs increased $88 million in 1994 resulting in a $48 million decline in margin. The decline in margin is primarily the result of higher average variable power costs. The increase in operating revenues is primarily due to a 5% rise in retail revenues. Increased variable power costs reflect a 21% increase in the amount of power purchased by PGE in 1994. During the 1993 twelve month period, Trojan supplied 10% of PGE's total system send-out at an average price of 3.5 mills per kilowatt-hour. Increased purchases to replace Trojan generation helped to drive the average variable power cost up from 16.5 mills per kilowatt-hour in 1993 to 19.6 mills per kilowatt- hour in 1994. Operating expenses (excluding variable power costs and depreciation) declined $64 million in the 1994 period. This was primarily due to $62 million in nuclear operating cost savings. 11 Portland General Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Depreciation, decommissioning and amortization rose 23% as a result of the capitalization of $18 million ($11 million, after tax) of steam generator repair costs in the 1993 period as discussed above. The divestiture of real estate holdings resulted in $6 million, after tax, of previously recorded real estate reserves being restored to income in the second quarter of 1994. Cash Flow Portland General Corporation Portland General requires cash to pay dividends to its common stockholders, to provide funds to its subsidiaries, to meet debt service obligations and for day to day operations. Sources of cash are dividends from PGE, its principal subsidiary, asset sales and leasing rentals, short- and intermediate-term borrowings and the sale of its common stock. Portland General received $15.4 million in dividends from PGE during the second quarter of 1994 and $2.2 million in proceeds from the issuance of shares of common stock under its Dividend Reinvestment and Optional Cash Payment Plan. Portland General Electric Company Cash Provided by Operations Operations are the primary source of cash used for day to day operating needs of PGE and funding of construction activities. PGE also obtains cash from external borrowings, as needed. A significant portion of cash from operations comes from depreciation and amortization of utility plant, charges which are recovered in customer revenues but require no current cash outlay. Changes in accounts receivable and accounts payable can also be significant contributors or users of cash. The decrease in cash flow from operations, when comparing second quarter 1994 to second quarter 1993, is primarily due to fewer deferred income taxes and higher receivables. Future cash requirements may be affected by the ultimate outcome of the IRS audit of PGE's 1985 WNP-3 abandonment loss deduction. The IRS has issued a statutory notice of tax deficiency, which Portland General is contesting, related to its examination of Portland General's 1985 tax return. See Note 4, Income Taxes, for further information. PGE has been named a "potentially responsible party" (PRP) of PCB contaminants at various environmental cleanup sites. The total cost of cleanup is estimated at $27 million, of which the Company's share is 12 Portland General Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations approximately $3 million. PGE has made an assessment of the other involved PRP's and is satisfied that they can meet their share of the obligation. Should the eventual outcome of these environmental matters result in additional cash requirements, PGE expects internally generated cash flows or external borrowings to be sufficient to fund such obligations. Investing Activities PGE invests in facilities for generation, transmission and distribution of electric energy and for energy efficiency improvements. Estimated capital expenditures for 1994 are expected to be $250 million. This represents a decrease from the previous estimate of $265 million due to construction activity delays relating to various new generating resources. Completion of the Coyote Springs Generation Project (a 220 megawatt cogeneration facility), previously estimated for fall 1995, is now estimated for the 1995/6 winter due to delays in the site certification process. The Company does not expect to incur significant additional costs as a result of this delay. Approximately $124 million has been expended for capital projects, including energy efficiency, through June 30, 1994. PGE continues to fund an external trust for the future costs of Trojan decommissioning. Funding began in March 1991. Currently PGE funds $11 million each year. As of June 30, 1994, the fund had a current market value of $53 million which was invested in investment-grade tax-exempt bonds. Upon approval from the NRC these funds will become available to PGE for use in the removal of some of Trojan's large components in addition to other future decommissioning activities. Financing Activities Second quarter 1994 financing activities include a $20 million sinking fund redemption of 200,000 shares of PGE's $100 par value 8.10% preferred stock series. The redemption included 100,000 optional shares in addition to the required 100,000 share redemption. In May 1994, PGE borrowed $20 million from the assets of its Corporate Owned Life Insurance (COLI) policy. The COLI loan is a long-term variable rate (6.5% in 1994) arrangement with varying maturity dates. Proceeds were used for PGE's construction program. Portland General replaced expiring committed credit facilities in July 1994. As a result, Portland General now has a $35 million committed facility expiring in July 1995. PGE has a committed facility of $120 million expiring in July 1997 and an $80 million commitment expiring July 1995. The lines of credit have annual facility fees ranging from 0.125 to 0.20 percent and do not require compensating cash balances. The facilities are used primarily as backup for commercial paper. Portland General has a commercial paper facility of $35 million and PGE has a $200 million commercial paper facility. The issuance of additional preferred stock and First Mortgage Bonds requires PGE to meet earnings coverage and security provisions set forth in the Articles of Incorporation and the Indenture securing its First Mortgage Bonds. As of June 30, 1994, PGE could issue $460 million of preferred stock and $440 million of additional First Mortgage Bonds. 13
Graph Description, Page 8 Quarterly Increase in Retail Customers Increase in Increase in Quarter/Year Residential Commercial and Industrial Customers Customers 1Q 1992 2,374 344 2Q 1992 1,839 427 3Q 1992 2,272 376 4Q 1992 2,927 380 1Q 1993 2,025 275 2Q 1993 1,697 429 3Q 1993 2,802 446 4Q 1993 2,775 563 1Q 1994 2,986 390 2Q 1994 2,476 550
Graph Description, Page 12 Gross Margin 12 Months Ending June 30 Mills/kWh 1992 1993 1994 Net Variable Power 7 9 14 Retail Revenues 49 50 52
Graph Description, Page 11 Operating Expenses 12 Months Ending June 30 Millions of Dollars 1992 1993 1994 Operating Costs 349 324 261 Variable Power 244 252 341 Depreciation 117 100 123
Graph Description, Page 11 PGE Electricity Sales 12 Months Ending June 30 Billions of kWhs 1992 1993 1994 Residential 6.2 6.7 6.6 Commercial 5.7 5.9 6.1 Industrial 3.6 3.7 3.8 Wholesale 3.3 2.0 2.2
Portland General Corporation and Subsidiaries Consolidated Statements of Income for the Three Months, Six Months and Twelve Months Ended June 30, 1994 and 1993 (Unaudited) Three Months Ended Six Months Ended Twelve Months Ended June 30 June 30 June 30 1994 1993 1994 1993 1994 1993 (Thousands of Dollars) Operating Revenues $202,110 $192,146 $480,124 $468,978 $957,975 $918,020 Operating Expenses Purchased power and fuel 63,847 45,401 164,817 136,209 340,321 252,277 Production and distribution 15,607 18,999 31,013 39,590 64,999 87,827 Maintenance and repairs 14,069 17,448 23,228 32,566 45,982 73,874 Administrative and other 25,294 26,625 47,726 51,196 96,851 106,994 Depreciation, decommissioning and amortization 30,399 30,161 61,248 60,905 122,561 99,917 Taxes other than income taxes 12,793 13,756 27,087 29,881 52,936 55,870 162,009 152,390 355,119 350,347 723,650 676,759 Operating Income Before Income Taxes 40,101 39,756 125,005 118,631 234,325 241,261 Income Taxes 9,089 8,582 36,877 32,270 72,127 68,962 Net Operating Income 31,012 31,174 88,128 86,361 162,198 172,299 Other Income (Deductions) Interest expense (17,868) (18,085) (34,919) (35,825) (69,896) (71,900) Allowance for funds used during construction 800 215 1,264 388 1,661 2,349 Preferred dividend requirement - PG (2,646) (3,001) (5,634) (6,069) (11,611) (12,205) Other - net of income taxes 6,195 3,025 7,819 5,029 13,540 11,034 Income from Continuing Operations 17,493 13,328 56,658 49,884 95,892 101,577 Discontinued Operations Gain on disposal of real estate operations - net of income taxes of $4,226 6,472 - 6,472 - 6,472 - Net Income $ 23,965 $ 13,328 $ 63,130 $ 49,884 $102,364 $101,577 Common Stock Average shares outstanding 50,145,565 47,354,072 49,411,959 47,298,907 48,449,925 47,163,990 Earnings per average share Continuing Operations $0.35 $0.28 $1.15 $1.05 $1.98 $2.15 Gain on disposal of real estate operations 0.13 0.00 0.13 0.00 0.13 0.00 Earnings per average share $0.48 $0.28 $1.28 $1.05 $2.11 $2.15 Dividends declared per share $0.30 $0.30 $0.60 $0.60 $1.20 $1.20
Consolidated Statements of Retained Earnings for the Three Months, Six Months, and Twelve Months ended June 30, 1994 and 1993 (Unaudited) Three Months Ended Six Months Ended Twelve Months Ended June 30 June 30 June 30 1994 1993 1994 1993 1994 1993 (Thousands of Dollars) Balance at Beginning of Period $104,939 $ 72,481 $ 81,159 $ 50,481 $ 71,240 $ 30,009 Net Income 23,965 13,328 63,130 49,884 102,364 101,577 ESOP Tax Benefit & Amortization of Preferred Stock Premium (426) (363) (796) (742) (1,578) (3,740) 128,478 85,446 143,493 99,623 172,026 127,846 Dividends Declared on Common Stock 15,051 14,206 30,066 28,383 58,599 56,606 Balance at End of Period $113,427 $ 71,240 $113,427 $ 71,240 $113,427 $ 71,240
[FN] The accompanying notes are an integral part of these consolidated statements. 14
Portland General Corporation and Subsidiaries Consolidated Balance Sheets as of June 30, 1994 and December 31, 1993 (Unaudited) June 30 December 31 1994 1993 (Thousands of Dollars) Assets Electric Utility Plant - Original Cost Utility plant (includes Construction Work in Progress of $109,031 and $46,679) $2,475,693 $2,370,460 Accumulated depreciation (930,473) (894,284) 1,545,220 1,476,176 Capital leases - less amortization of $24,711 and $23,626 12,608 13,693 1,557,828 1,489,869 Other Property and Investments Leveraged leases 155,302 155,618 Net assets of discontinued real estate operations 10,785 31,378 Trojan decommissioning trust, at market value 53,018 48,861 Corporate Owned Life Insurance less loan of $19,619 in 1994 55,740 77,612 Other investments 28,020 29,552 302,865 338,021 Current Assets Cash and cash equivalents 31,379 3,202 Accounts and notes receivable 80,292 91,641 Unbilled and accrued revenues 148,476 133,476 Inventories, at average cost 47,892 46,534 Prepayments and other 12,405 22,128 320,444 296,981 Deferred Charges Unamortized regulatory assets Trojan abandonment - Plant 354,543 366,712 Trojan abandonment - Decommissioning 345,726 355,718 Trojan - other 66,443 66,387 Income taxes recoverable 219,128 228,233 Debt reacquisition costs 33,593 34,941 Energy efficiency programs 47,751 39,480 Other 32,019 33,857 WNP-3 settlement exchange agreement 175,655 178,003 Miscellaneous 23,533 21,126 1,298,391 1,324,457 $3,479,528 $3,449,328 Capitalization and Liabilities Capitalization Common stock $ 188,143 $ 178,630 Other paid-in capital 556,090 519,058 Unearned compensation (16,195) (19,151) Retained earnings 113,427 81,159 841,465 759,696 Cumulative preferred stock of subsidiary Subject to mandatory redemption 50,000 70,000 Not subject to mandatory redemption 69,704 69,704 Long-term debt 828,122 842,994 1,789,291 1,742,394 Current Liabilities Long-term debt and preferred stock due within one year 53,936 51,614 Short-term borrowings 160,548 159,414 Accounts payable and other accruals 80,104 109,479 Accrued interest 18,329 18,581 Dividends payable 18,013 17,657 Accrued taxes 36,359 25,601 367,289 382,346 Other Deferred income taxes 661,020 660,248 Deferred investment tax credits 58,429 60,706 Regulatory reserves 119,658 120,410 Trojan decommissioning reserve and misc. closure costs 401,429 407,610 Miscellaneous 82,412 75,614 1,322,948 1,324,588 $3,479,528 $3,449,328
[FN] The accompanying notes are an integral part of these consolidated balance sheets. 15
Portland General Corporation and Subsidiaries Consolidated Statements of Capitalization as of June 30, 1994 and December 31, 1993 (Unaudited) June 30 December 31 1994 1993 (Thousands of Dollars) Common Stock Equity Common stock, $3.75 par value per share 100,000,000 shares authorized, 50,171,330 and 47,634,653 shares outstanding $ 188,143 $ 178,630 Other paid-in capital - net 556,090 519,058 Unearned compensation (16,195) (19,151) Retained earnings 113,427 81,159 841,465 47.0% 759,696 43.6% Cumulative Preferred Stock Subject to mandatory redemption No par value, 30,000,000 shares authorized 7.75% Series, 300,000 shares outstanding 30,000 30,000 $100 par value, 2,500,000 shares authorized 8.10% Series, 300,000 and 500,000 shares outstanding 30,000 50,000 Current sinking fund (10,000) (10,000) 50,000 2.8 70,000 4.0 Not subject to mandatory redemption 7.95% Series, 298,045 shares outstanding 29,804 29,804 7.88% Series, 199,575 shares outstanding 19,958 19,958 8.20% Series, 199,420 shares outstanding 19,942 19,942 69,704 3.9 69,704 4.0 Long-Term Debt First mortgage bonds Maturing 1994 through 1999 4-3/4% Series due April 1, 1994 - 8,119 4.70% Series due March 1, 1995 3,045 3,220 5-7/8% Series due June 1, 1996 5,216 5,366 6.60% Series due October 1, 1997 15,363 15,363 Medium-term notes - 5.65%-9.27% 242,000 242,000 Maturing 2002 through 2005 - 6.47%-9.07% 165,845 166,283 Maturing 2021 through 2023 - 7 3/4%-9.46% 195,000 195,000 Pollution control bonds Port of Morrow, Oregon, variable rate (Average 2.3% for 1993), due 2013 23,600 23,600 City of Forsyth, Montana, variable rate (Average 2.4% for 1993), due 2013 through 2016 118,800 118,800 Amount held by trustee (8,559) (8,537) Port of St. Helens, Oregon, due 2010 and 2014 (Average variable 2.2%-2.4% for 1993) 51,600 51,600 Medium-term notes maturing 1994 through 1996 - 7.23%-8.09% 47,500 50,000 Capital lease obligations 12,608 13,693 Other 40 101 872,058 884,608 Long-term debt due within one year (43,936) (41,614) 828,122 46.3 842,994 48.4 Total capitalization $1,789,291 100.0% $1,742,394 100.0%
[FN] The accompanying notes are an integral part of these consolidated statements. 16
Portland General Corporation and Subsidiaries Consolidated Statements of Cash Flow for the Three Months, Six Months and Twelve Months Ended June 30, 1994 and 1993 (Unaudited) Three Months Ended Six Months Ended Twelve Months Ended June 30 June 30 June 30 1994 1993 1994 1993 1994 1993 Cash Provided (Used) By - Operations: Net income $ 23,965 $ 13,328 $ 63,130 $ 49,884 $102,364 $101,577 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 21,497 21,900 43,221 43,765 85,693 90,452 Amortization of WNP-3 exchange agreement 1,173 1,122 2,347 2,244 4,592 5,073 Amortization of deferred charges - Trojan Plant 5,915 6,093 12,056 11,942 24,129 11,942 Amortization of deferred charges - Trojan Decomm. 2,805 2,805 5,610 5,610 11,220 5,610 Amortization of deferred charges - Trojan Other 580 548 1,160 1,162 2,312 2,430 Amortization of deferred charges - other 2,235 (461) 4,574 994 10,293 3,708 Deferred income taxes - net 8,032 6,875 10,844 22,138 49,792 44,068 Other noncash income (324) (435) (658) (893) (1,691) (2,259) Changes in working capital: (Increase) Decrease in receivables 14,185 17,528 (3,584) (10,565) (65,856) (52,432) (Increase) Decrease in inventories (2,475) (883) (1,358) (203) 13,862 1,365 Increase (Decrease) in payables (47,367) (49,100) (18,609) (33,694) (14,752) (11,175) Other working capital items - net 13,722 18,264 6,104 10,166 8,411 7,010 Gain from discontinued operations (6,472) - (6,472) - (6,472) - Deferred items 1,991 (220) 1,689 200 (2,173) (8,870) Miscellaneous - net 6,768 4,290 7,315 4,525 21,903 15,983 46,230 41,654 127,369 107,275 243,627 214,482 Investing Activities: Utility construction - new resources (28,191) - (52,485) - (81,151) - Utility construction - other (36,108) (26,469) (61,408) (47,380) (115,720) (134,009) Energy efficiency programs (5,198) (3,745) (10,032) (6,124) (22,057) (12,155) Rentals received from leveraged leases 3,214 5,456 12,882 9,588 15,299 15,062 Trojan decommissioning trust (2,805) (2,805) (5,610) (5,610) (11,220) (11,220) Other investments (1,987) (2,503) (2,327) (2,069) (11,021) (5,623) (71,075) (30,066) (118,980) (51,595) (225,870) (147,945) Financing Activities: Short-term debt - net 40,283 13,297 1,134 (5,406) 25,276 60,963 Borrowings from Corporate Owned Life Insurance 19,619 - 19,619 - 19,619 - Long-term debt issued - 177,000 - 177,000 75,000 237,000 Long-term debt retired (233) (185,550) (11,465) (194,239) (97,212) (275,690) Repayment of nonrecourse borrowings for leveraged leases (2,902) (4,473) (12,061) (9,415) (13,601) (12,987) Preferred stock retired (20,000) (3,600) (20,000) (3,600) (20,000) (31,225) Common stock issued 1,899 2,262 45,206 4,942 49,784 10,182 Dividends paid (15,482) (14,255) (29,710) (28,401) (58,159) (56,698) 23,184 (15,319) (7,277) (59,119) (19,293) (68,455) Net Cash Provided By (Used In) Continuing Operations (1,661) (3,731) 1,112 (3,439) (1,536) (1,918) Discontinued Operations 26,454 793 27,065 1,829 27,836 (375) Increase (Decrease) in Cash and Cash Equivalents 24,793 (2,938) 28,177 (1,610) 26,300 (2,293) Cash and Cash Equivalents at the Beginning of Period 6,586 8,017 3,202 6,689 5,079 7,372 Cash and Cash Equivalents at the End of Period $ 31,379 $ 5,079 $ 31,379 $ 5,079 $ 31,379 $ 5,079 Supplemental disclosures of cash flow information Cash paid during the period: Interest $ 20,330 $ 21,414 $ 32,938 $ 38,524 $ 68,675 $ 74,044 Income taxes 18,450 10,860 18,239 10,370 20,128 18,845
[FN] The accompanying notes are an integral part of these consolidated statements. 17 Portland General Corporation and Subsidiaries Notes to Financial Statements (Unaudited) Note 1 Principles of Interim Statements The interim financial statements have been prepared by Portland General Corporation (Portland General) and, in the opinion of management, reflect all material adjustments which are necessary to a fair statement of results for the interim periods presented. Certain information and footnote disclosures made in the last annual report on Form 10-K have been condensed or omitted for the interim statements. Certain costs are estimated for the full year and allocated to interim periods based on the estimates of operating time expired, benefit received or activity associated with the interim period. Accordingly, such costs are subject to year-end adjustment. It is Portland General's opinion that, when the interim statements are read in conjunction with the 1993 Annual Report on Form 10- K, the disclosures are adequate to make the information presented not misleading. Reclassifications Certain amounts in prior years have been reclassified for comparative purposes. Note 2 Regulatory Matters Public Utility Commission of Oregon Portland General Electric Company (PGE) had sought judicial review of three rate matters related to a 1987 general rate case. In 1989, PGE reserved $89 million for an unfavorable outcome of these matters. In July 1990 PGE reached an out-of-court settlement with the Oregon Public Utility Commission (PUC) on two of the three rate matter issues being litigated. As a result of the settlement $16 million was restored to income in 1990. The settlement resolved the dispute with the PUC regarding treatment of accelerated amortization of certain investment tax credits (ITC) and 1986- 1987 interim relief. As a settlement of the interim relief issue, PGE refunded approximately $17 million to customers. In 1991 the Utility Reform Project (URP) petitioned the PUC to reconsider the order approving the settlement. The Oregon legislature subsequently passed a law clarifying the PUC's authority to approve the settlement. As a result, the PUC issued an order implementing the settlement. URP filed an appeal in Multnomah County Circuit Court to overturn the PUC's order implementing settlement which was later dismissed in December 1992. In addition, the Citizen's Utility Board (CUB) filed a complaint in 1991 in Marion County Circuit Court seeking to modify, vacate, set aside or reverse the PUC's order implementing settlement. In September 1992 the Marion County Circuit Court judge issued a decision upholding the PUC 18 Portland General Corporation and Subsidiaries Notes to Financial Statements (Unaudited) orders approving the settlement. CUB appealed this decision to the Oregon Supreme Court which denied CUB's petition for review in April 1994. The settlement, however, did not resolve the Boardman/Intertie gain issue, which the parties continue to litigate. PGE's position is that 28% of the gain should be allocated to customers. The 1987 rate order allocated 77% of the gain to customers over a 27-year period. PGE has fully reserved this amount, which is being amortized over a 27-year period in accordance with the 1987 rate order. The unamortized gain, $120 million at June 30, 1994, is shown as "Regulatory reserves" on the balance sheet. Note 3 Legal Matters WNP Cost Sharing PGE and three other investor-owned utilities (IOUs) are involved in litigation surrounding the proper allocation of shared costs between Washington Public Power Supply System (Supply System) Units 1 and 3 and Units 4 and 5. A court ruling, issued in May 1989, stated that Bond Resolution No. 890, adopted by the Supply System, controlled disbursement of proceeds from bonds issued for the construction of Unit 5, including the method for allocation of shared costs. It is the IOUs' contention that at the time the project commenced there was agreement among the parties as to the allocation of shared costs and that this agreement and the Bond Resolution are consistent, such that the allocation under the agreement is not prohibited by the Bond Resolution. In February 1992, the Court of Appeals ruled that shared costs between Units 3 and 5 should be allocated in proportion to benefits under the equitable method supported by PGE and the IOUs. A trial remains necessary to assure that the allocations are properly performed. Bonneville Pacific Class Action Suit and Lawsuit A consolidated case of all previously filed class actions has been filed in U.S. District Court for the District of Utah (the Court), purportedly on behalf of purchasers of common shares and convertible subordinated debentures of Bonneville Pacific Corporation (Bonneville Pacific) in the period from August 18, 1989 until January 22, 1992, alleging violations of federal and Utah state securities laws, common law fraud and negligent misrepresentation. The defendants are specific Bonneville Pacific insiders, Portland General, Portland General Holdings, Inc. (Holdings), certain Portland General affiliated individuals, Deloitte & Touche and three underwriters of a Bonneville Pacific offering of subordinated debentures. In May 1994 the Court issued an order dismissing the claims filed by the plaintiffs against Portland General, Holdings and the Portland General affiliated individuals for common law fraud and negligent misrepresentation, primary liability for violations of the federal securities laws and secondary liability for aiding and abetting and conspiracy to violate the federal securities laws. The order permanently dismisses the secondary liability claims. The Court stated that it will 19 Portland General Corporation and Subsidiaries Notes to Financial Statements (Unaudited) consider an amendment to the complaint with regard to the other claims. The Court also held that it would not consider the claims for Utah state securities law violations until certain issues are addressed by the Utah state courts. A separate legal proceeding has been initiated by the bankruptcy trustee for Bonneville Pacific who has filed an amended complaint against Portland General, Holdings and certain affiliated individuals in US District Court for the District of Utah alleging common law fraud, breach of fiduciary duty, tortious interference, negligence, negligent misrepresentation and other actionable wrongs. The original suit was filed by Bonneville Pacific prior to the appointment of the bankruptcy trustee. The amount of damages sought is not specified in the complaint. Other Legal Matters Portland General and certain of its subsidiaries are party to various other claims, legal actions and complaints arising in the ordinary course of business. These claims are not considered material. Summary While the ultimate disposition of these matters may have an impact on the results of operations for a future reporting period, management believes, based on discussion of the underlying facts and circumstances with legal counsel, that these matters will not have a material adverse effect on the financial condition of Portland General. Other Bonneville Pacific Related Litigation Holdings filed complaints seeking approximately $228 million in damages in the Third Judicial District Court for Salt Lake County (Utah) against Deloitte & Touche and certain other parties associated with Bonneville Pacific alleging that it relied on fraudulent and negligent statements and omissions by Deloitte & Touche and the other defendants when it acquired a 46% interest in and made loans to Bonneville Pacific starting in September 1990. Note 4 Income Taxes The IRS has issued a statutory notice of tax deficiency, which Portland General is contesting, related to its examination of Portland General's 1985 tax return. The IRS has proposed to disallow PGE's 1985 WNP-3 abandonment loss deduction on the premise that it is a taxable exchange. Portland General disagrees with this position and will take appropriate action to defend its deduction. Management believes that it has appropriately provided for probable tax adjustments and is of the opinion that the ultimate disposition of this matter will not have a material adverse impact on the financial condition of Portland General. 20 Portland General Corporation and Subsidiaries Notes to Financial Statements (Unaudited) Note 5 Trojan Nuclear Plant Shutdown - In early 1993, PGE ceased commercial operation of Trojan as recommended in PGE's Least Cost Plan (LCP). On June 3, 1993 the PUC acknowledged PGE's LCP. Decommissioning Estimate - PGE estimates the total cost to decommission Trojan, including costs incurred to date, to be $409 million, reflected in nominal dollars (actual dollars expected to be spent in each year). The decommissioning cost estimate includes the cost of decommissioning planning, removal and burial of irradiated equipment and facilities as required by the Nuclear Regulatory Commission (NRC); building demolition and nonradiological site remediation; and spent nuclear fuel management costs including licensing, surveillance and transition costs. Transition costs of $75 million are the costs associated with operating and maintaining the spent fuel pool and securing the plant until dismantlement can begin. While most decommissioning costs will utilize funds from PGE's Nuclear Decommissioning Trust (NDT), transition costs will continue to be paid from current operating funds. The decommissioning plan represents a site-specific decommissioning cost estimate performed for Trojan by an experienced decommissioning engineering firm and assumes that the majority of decommissioning activities will occur between 1998 and 2002, after construction of a temporary dry spent fuel storage facility. Decommissioning of the temporary dry spent fuel storage facility and final nonradiological site remediation activities will occur in 2018 after PGE completes shipment of spent fuel to a United States Department of Energy (USDOE) facility. In 1994, transition costs have leveled off and are estimated to continue at $10 to $15 million per year. As of June 30, 1994, PGE has expensed approximately $6 million in transition costs for 1994. In addition, since plant closure PGE has spent $2 million on decommissioning planning and related activities resulting in a remaining decommissioning liability, including transition costs, of $401 million. PGE plans to submit a formal decommissioning plan to the NRC and Energy Facility Siting Council of Oregon (EFSC) in late 1994. This is later than the previously expected submittal date of mid-1994 due to the additional time required to further evaluate decommissioning options. The NRC and EFSC rules require the plan be submitted before January 23, 1995. Presently, PGE is planning to accelerate the removal of some of Trojan's large components which is expected to result in overall decommissioning cost savings. Since the Company plans to begin this work in 1994, prior to receiving NRC and EFSC approval of its formal decommissioning plan, specific approval will be required from EFSC. Request for this approval was filed with EFSC on July 7, 1994. Additionally, the NRC must approve the use of PGE's NDT funds for removal of large components. 21 Portland General Corporation and Subsidiaries Notes to Financial Statements (Unaudited) Assumptions used to develop the site-specific cost estimate for decommissioning represent the best information PGE has currently. PGE is continuing to evaluate various options which could change the timing and scope of decommissioning activities and expects any future changes in estimated decommissioning costs to be incorporated in future revenues to be collected from customers. Investment Recovery - PGE filed a general rate case on November 8, 1993, requesting continued recovery of Trojan plant costs, including decommissioning. In May 1994, the PUC issued an order to delay consideration of the Trojan-related issues and cost of capital in order to allow the PUC Staff to retain an expert to consult and advise the PUC regarding Trojan issues. In July 1994, PGE and the PUC Staff agreed to delay a final order addressing all rate case matters to no later than March 31, 1995, contingent upon the PUC approving PGE's first quarter 1995 deferred accounting application. The delay, requested by the PUC Staff, provides additional review time for the PUC Staff's expert and allows the PUC more time to review the entire rate proceeding and issue a final order. The analysis performed for the LCP assumed that continued recovery of the Trojan plant investment, including future decommissioning costs, would be granted by the PUC. Regarding the authority of the PUC to grant recovery, the Oregon Department of Justice (Attorney General)issued an opinion that the PUC may allow rate recovery of total plant costs, including operating expenses, taxes, decommissioning costs, return of capital invested in the plant and return on the undepreciated investment. While the Attorney General's opinion does not guarantee recovery of costs associated with the shutdown, it does clarify that under current law the PUC has authority to allow recovery of such costs in rates. PGE asked the PUC to resolve certain legal and policy questions regarding the statutory framework for future ratemaking proceedings related to the recovery of the Trojan investment and decommissioning costs. On August 9, 1993, the PUC issued a declaratory ruling agreeing with the Attorney General's opinion discussed above. The ruling also stated that the PUC will favorably consider allowing PGE to recover in rates some or all of its return on and return of its undepreciated investment in Trojan, including decommissioning costs, if PGE meets certain conditions. PGE believes that its general rate filing provides evidence that satisfies the conditions established by the PUC. URP and CUB have appealed the PUC ruling. Management believes that the PUC will grant future revenues to coverall, or substantially all, of Trojan plant costs with an appropriate return. However, future recovery of the Trojan plant investment and future decommissioning costs requires PUC approval in a public regulatory process. Although the PUC has allowed PGE to continue, on an interim basis, collection of these costs in the same manner as prescribed in PGE's last general rate proceeding, the PUC has yet to address recovery of costs related to a prematurely retired plant when the decision to close the plant was based upon a least cost planning process. Due to uncertainties inherent in a public process, management cannot predict, with certainty, whether all, or substantially all, of the $355 million Trojan plant investment and $346 million of decommissioning charges (to be collected through future rates) will be recovered. 22 Portland General Corporation and Subsidiaries Notes to Financial Statements (Unaudited) Management believes the ultimate outcome of this public regulatory process will not have a material adverse effect on the financial condition, liquidity or capital resources of Portland General. However, it may have a material impact on the results of operations for a future reporting period. Note 6 Short-Term Borrowings Portland General replaced expiring committed credit facilities in July 1994. As a result, Portland General now has a $35 million committed facility expiring in July 1995 and PGE has a committed facility of $120 million expiring in July 1997 and an $80 million commitment expiring July 1995. These lines of credit have annual facility fees ranging from 0.125 to 0.20 percent and do not require compensating cash balances. The facilities are used primarily as backup for commercial paper. Portland General and PGE have commercial paper facilities of $35 million and $200 million, respectively. The amount of commercial paper outstanding cannot exceed each company's unused committed lines of credit. Note 7 Real Estate - Discontinued Operations Portland General has substantially completed divestiture of its real estate operations, which consist primarily of Columbia Willamette Development Company (CWDC). In June 1994, CWDC sold for $16 million the largest remaining property in its real estate holdings. As a result $6 million was restored to income relating to previously recorded real estate reserves. At June 30, 1994, the net assets of discontinued real estate operations primarily consist of deferred taxes. At June 30, 1994 and December 31, 1993, the net assets of real estate operations were composed of the following (thousands of dollars): June 30, December 31, 1994 1993 Assets Real estate development $ 1,987 $18,900 Other assets 9,247 21,234 Total assets 11,234 40,134 Liabilities 449 1,632 Reserve for discontinuance - net - 7,124 Net assets $10,785 $31,378 23 Portland General Corporation and Subsidiaries Notes to Financial Statements (Unaudited) Note 8 Commitments In May 1994, PGE signed an agreement with Pacific Gas & Electric (PG&E) to take assignment of a portion of PG&E's excess firm natural gas transportation on the Pacific Gas Transmission (PGT) system. In July 1994, PGE signed an agreement with Alberta & Southern (A&S) to take assignment of a portion of PG&E's excess Canadian firm transportation on both the Alberta Natural Gas (ANG) system and the Nova Corporation of Alberta (NOVA) system. These agreements collectively provide for 41,000 MMBtu/day of delivered capacity to PGE's existing and proposed natural gas-fired generating facilities and replace earlier agreements PGE signed with PGT and ANG. Service under these agreements is scheduled to start in winter 1995/6. Under the terms of the agreements, PGE is committed to paying annual demand charges for the capacity on all three systems of approximately $3.2 million to $4.5 million, depending upon resolution of federal rate treatment issues. The agreements provide for service with PGT, ANG and NOVA for 15 years, 10 years and 6 years, respectively. However, PGE has renewal rights upon expiration and the right to assign unused capacity to other parties. In order to fully utilize these contracts for its facilities, PGE may incur a capital expenditure in 1995 of approximately $17 million for pipeline construction or may incur additional capacity charges in lieu of construction. 24 Portland General Electric Company and Subsidiaries Financial Statements and Related Information Table of Contents Page Number Management Discussion and Analysis of Financial Condition and Results of Operations * 3 Financial Statements 26 Notes to Financial Statements ** 18 * The discussion is substantially the same as that disclosed by Portland General and, therefore, is incorporated by reference to information provided on the page number listed above. ** The notes are substantially the same as that disclosed by Portland General and are incorporated by reference to the information provided on the page number shown above. 25
Portland General Electric Company and Subsidiaries Consolidated Statements of Income for the Three Months, Six Months and Twelve Months Ended June 30, 1994 and 1993 (Unaudited) Three Months Ended Six Months Ended Twelve Months Ended June 30 June 30 June 30 1994 1993 1994 1993 1994 1993 (Thousands of Dollars) Operating Revenues $201,773 $191,632 $479,445 $467,936 $956,040 $915,302 Operating Expenses Purchased power and fuel 63,847 45,401 164,817 136,209 340,321 252,277 Production and distribution 15,607 18,999 31,013 39,590 64,999 87,826 Maintenance and repairs 14,068 17,448 23,227 32,566 45,981 73,868 Administrative and other 24,405 26,451 46,412 50,377 94,443 104,116 Depreciation, decommissioning and amortization 30,318 30,076 61,088 60,714 122,272 99,441 Taxes other than income taxes 12,782 13,800 27,019 29,809 52,886 55,557 Income taxes 12,019 9,072 42,391 36,917 76,964 77,471 173,046 161,247 395,967 386,182 797,866 750,556 Net Operating Income 28,727 30,385 83,478 81,754 158,174 164,746 Other Income (Deductions) Allowance for equity funds used during construction - - - - - 311 Other 8,464 4,751 10,279 7,090 14,960 8,806 Income taxes (3,003) (1,823) (3,139) (2,230) (4,911) 1,812 5,461 2,928 7,140 4,860 10,049 10,929 Interest Charges Interest on long-term debt and other 15,134 16,048 29,845 31,256 60,406 62,726 Interest on short-term borrowings 1,314 776 2,310 1,660 4,093 3,015 Allowance for borrowed funds used during construction (800) (215) (1,264) (388) (1,661) (2,038) 15,648 16,609 30,891 32,528 62,838 63,703 Net Income 18,540 16,704 59,727 54,086 105,385 111,972 Preferred Dividend Requirement 2,646 3,001 5,634 6,069 11,611 12,205 Income Available for Common Stock $ 15,894 $ 13,703 $ 54,093 $ 48,017 $ 93,774 $ 99,767
Consolidated Statements of Retained Earnings for the Three Months, Six Months and Twelve Months Ended June 30, 1994 and 1993 (Unaudited) Three Months Ended Six Months Ended Twelve Months Ended June 30 June 30 June 30 1994 1993 1994 1993 1994 1993 (Thousands of Dollars) Balance at Beginning of Period $201,670 $181,678 $179,297 $165,949 $176,811 $153,653 Net Income 18,540 16,704 59,727 54,086 105,385 111,972 ESOP Tax Benefit & Amortization of Preferred Stock Premium (426) (363) (796) (742) (1,578) (3,740) 219,784 198,019 238,228 219,293 280,618 261,885 Dividends Declared Common stock 15,393 18,207 30,786 36,413 67,199 72,826 Preferred stock 2,583 3,001 5,634 6,069 11,611 12,248 17,976 21,208 36,420 42,482 78,810 85,074 Balance at End of Period $201,808 $176,811 $201,808 $176,811 $201,808 $176,811
[FN] The accompanying notes are an integral part of these consolidated statements. 26
Portland General Electric Company and Subsidiaries Consolidated Balance Sheets as of June 30, 1994 and December 31, 1993 (Unaudited) June 30 December 31 1994 1993 (Thousands of Dollars) Assets Electric Utility Plant - Original Cost Utility plant (includes Construction Work in Progress of $109,031 and $46,679) $2,475,693 $2,370,460 Accumulated depreciation (930,473) (894,284) 1,545,220 1,476,176 Capital leases - less amortization of $24,711 and $23,626 12,608 13,693 1,557,828 1,489,869 Other Property and Investments Trojan decommissioning trust, at market value 53,018 48,861 Corporate Owned Life Insurance less loan $19,619 in 1994 34,656 52,008 Other investments 25,376 25,706 113,050 126,575 Current Assets Cash and cash equivalents 4,351 2,099 Accounts and notes receivable 75,373 85,169 Unbilled and accrued revenues 148,476 133,476 Inventories, at average cost 47,892 46,534 Prepayments and other 12,239 20,646 288,331 287,924 Deferred Charges Unamortized regulatory assets Trojan abandonment - Plant 354,543 366,712 Trojan abandonment - Decommissioning 345,726 355,718 Trojan - other 66,443 66,387 Income taxes recoverable 219,128 228,233 Debt reacquisition costs 33,593 34,941 Energy efficiency programs 47,751 39,480 Other 32,019 33,857 WNP-3 settlement exchange agreement 175,655 178,003 Miscellaneous 21,408 18,975 1,296,266 1,322,306 $3,255,475 $3,226,674 Capitalization and Liabilities Capitalization Common stock equity $ 815,067 $ 747,197 Cumulative preferred stock Subject to mandatory redemption 50,000 70,000 Not subject to mandatory redemption 69,704 69,704 Long-term debt 798,122 802,994 1,732,893 1,689,895 Current Liabilities Long-term debt and preferred stock due within one year 36,436 41,614 Short-term borrowings 150,344 129,920 Accounts payable and other accruals 79,755 111,647 Accrued interest 17,009 17,139 Dividends payable 18,268 21,486 Accrued taxes 45,996 27,395 347,808 349,201 Other Deferred income taxes 527,831 534,194 Deferred investment tax credits 58,429 60,706 Regulatory reserves 119,658 120,410 Trojan decommissioning reserve and misc. closure costs 401,429 407,610 Miscellaneous 67,427 64,658 1,174,774 1,187,578 $3,255,475 $3,226,674
[FN] The accompanying notes are an integral part of these consolidated balance sheets. 27
Portland General Electric Company and Subsidiaries Consolidated Statements of Capitalization as of June 30, 1994 and December 31, 1993 (Unaudited) June 30 December 31 1994 1993 (Thousands of Dollars) Common Stock Equity Common stock, $3.75 par value per share, 100,000,000 shares authorized, 42,758,877 and 40,458,877 shares outstanding $160,346 $151,721 Other paid in capital net 468,307 433,978 Unearned compensation (15,394) (17,799) Retained earnings 201,808 179,297 815,067 47.0% 747,197 44.2% Cumulative Preferred Stock Subject to mandatory redemption No par value, 30,000,000 shares authorized 7.75% Series, 300,000 shares outstanding 30,000 30,000 $100 par value, 2,500,000 shares authorized 8.10% Series, 300,000 and 500,000 shares outstanding 30,000 50,000 Current sinking fund (10,000) (10,000) 50,000 2.9 70,000 4.2 Not subject to mandatory redemption 7.95% Series, 298,045 shares outstanding 29,804 29,804 7.88% Series, 199,575 shares outstanding 19,958 19,958 8.20% Series, 199,420 shares outstanding 19,942 19,942 69,704 4.0 69,704 4.1 Long-Term Debt First mortgage bonds Maturing 1994 through 1999 4 3/4% Series due April 1, 1994 - 8,119 4.70% Series due March 1, 1995 3,045 3,220 5 7/8% Series due June 1, 1996 5,216 5,366 6.60% Series due October 1, 1997 15,363 15,363 Medium term notes 5.65% 9.27% 242,000 242,000 Maturing 2002 through 2005 6.47% 9.07% 165,845 166,283 Maturing 2021 through 2023 7 3/4% 9.46% 195,000 195,000 Pollution control bonds Port of Morrow, Oregon, variable rate (Average 2.3% for 1993), due 2013 23,600 23,600 City of Forsyth, Montana, variable rate (Average 2.4% for 1993), due 2013 through 2016 118,800 118,800 Amount held by trustee (8,559) (8,537) Port of St. Helens, Oregon, due 2010 and 2014 (Average variable 2.2% - 2.4% for 1993) 51,600 51,600 Capital lease obligations 12,608 13,693 Other 40 101 824,558 834,608 Long term debt due within one year (26,436) (31,614) 798,122 46.1 802,994 47.5 Total capitalization $1,732,893 100.0% $1,689,895 100.0%
[FN] The accompanying notes are an integral part of these consolidated statements. 28
Portland General Electric Company and Subsidiaries Consolidated Statements of Cash Flow for the Three Months, Six Months and Twelve Months Ended June 30, 1994 and 1993 (Unaudited) Three Months Ended Six Months Ended Twelve Months Ended June 30 June 30 June 30 1994 1993 1994 1993 1994 1993 (Thousands of Dollars) Cash Provided (Used) By - Operations: Net Income $ 18,540 $ 16,704 $ 59,727 $ 54,086 $105,385 $111,972 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 21,491 21,887 43,209 43,718 85,697 90,392 Amortization of WNP-3 exchange agreement 1,173 1,122 2,347 2,244 4,592 5,073 Amortization of deferred charges - Trojan Plant 5,915 6,093 12,056 11,942 24,129 11,942 Amortization of deferred charges - Trojan Decomm. 2,805 2,805 5,610 5,610 11,220 5,610 Amortization of deferred charges - Trojan Other 580 548 1,160 1,162 2,312 2,430 Amortization of deferred charges - other 547 807 2,886 2,245 7,354 4,986 Deferred income taxes - net (2,987) 5,164 4,590 19,457 45,854 23,750 Other noncash income - - - - - (311) Changes in working capital: (Increase) Decrease in receivables 12,440 21,382 (5,137) (5,647) (66,921) (45,558) (Increase) Decrease in inventories (2,476) (883) (1,359) (203) 13,861 1,364 Increase (Decrease) in payables (47,825) (56,002) (13,421) (34,158) (5,851) (1,126) Other working capital items - net 14,428 17,473 5,698 9,722 6,576 7,310 Deferred items 1,991 (2,401) 1,689 (1,981) 8 (11,112) Miscellaneous - net 2,607 3,893 2,701 4,151 14,419 16,807 29,229 38,592 121,756 112,348 248,635 223,529 Investing Activities: Utility construction - new resources (28,191) - (52,485) - (81,151) - Utility construction - other (36,108) (26,469) (61,408) (47,380) (115,720) (134,009) Energy efficiency programs (5,198) (3,745) (10,032) (6,124) (22,057) (12,155) Trojan decommissioning trust (2,805) (2,805) (5,610) (5,610) (11,220) (11,220) Other investments (2,441) (1,514) (2,546) (1,975) (7,704) (5,669) (74,743) (34,533) (132,081) (61,089) (237,852) (163,053) Financing Activities: Short-term debt - net 63,280 12,586 20,424 (2,028) 52,307 58,611 Borrowings from Corporate Owned Life Insurance 19,619 - 19,619 - 19,619 - Long-term debt issued - 177,000 - 177,000 75,000 237,000 Long-term debt retired (150) (171,626) (8,882) (180,315) (95,553) (241,766) Preferred stock retired (20,000) (3,600) (20,000) (3,600) (20,000) (31,225) Common stock issued - - 41,055 - 41,055 - Dividends paid (18,444) (21,128) (39,639) (42,402) (82,188) (85,154) 44,305 (6,768) 12,577 (51,345) (9,760) (62,534) Increase (Decrease) in Cash and Cash Equivalents (1,209) (2,709) 2,252 (86) 1,023 (2,058) Cash and Cash Equivalents at the Beginning of Period 5,560 6,037 2,099 3,414 3,328 5,386 Cash and Cash Equivalents at the End of Period $ 4,351 $ 3,328 $ 4,351 $ 3,328 $ 4,351 $ 3,328 Supplemental disclosures of cash flow information Cash paid during the period: Interest $ 19,389 $ 20,256 $ 29,765 $ 34,616 $ 63,381 $ 66,173 Income taxes 31,560 17,853 25,460 17,853 24,849 45,834
[FN] The accompanying notes are an integral part of these consolidated statements. 29 Portland General Corporation and Subsidiaries Part II. Other Information Item 1. Legal Proceedings For further information, see Portland General's report on Form 10-K for the year ended December 31, 1993. UTILITY Southern California Edison Company (SCE) v. PGE On August 3, 1994, Southern California Edison (SCE) filed a complaint in Multnomah County Circuit Court in Portland, Oregon claiming PGE's decision to close Trojan violated the terms of a long-term firm power sales and exhcange agreement entered into on July 31, 1986. The 25-year contract is for 75 megawatts of firm energy and capacity plus a 225 megawatt seasonal exchange. SCE contends that PGE appointed itself liquidator of a substantial portion of its assets under the general bankruptcy default provision of the contract. SCE is seeking termination of the agreement and damages, including a return of payments made to PGE from the date of PGE's alleged default (approximately $27 million). Under the agreement SCE is obligated to pay to PGE a reservation fee for system capacity, seasonal exchange and other services equal to $16.9 million annually. SCE continues to make these payments. Item 4. Results of Votes of Security Holders At the Annual Meeting of Shareholders held on May 3, 1994 the matters voted upon and the results of voting were as follows: For Against Abstain Election of Class II Directors: Carolyn S. Chambers 41,466,466 680,895 603,125 Ken L. Harrison 41,312,554 892,110 545,822 Warren E. McCain 41,391,245 690,543 668,698 Jerome J. Meyer 41,511,087 596,504 642,895 Ratification of the appointment of Arthur Andersen & Co. as independent public accountants for the year 1994: 41,869,178 343,257 538,051 Names of other directors whose terms of office as director continued after the meeting are: Class I Class III Jerry E. Hudson Gwyneth E. Gamble Booth Richard G. Reiten Peter J. Brix Bruce G. Willison John W. Creighton, Jr. Randolph L. Miller 30 Portland General Corporation and Subsidiaries Part II. Other Information Item 6. Exhibits and Reports on Form 8-K a. Exhibits Number Exhibit Page (24) Powers of Attorney (filed herewith) 33 b. Reports on Form 8-K - None 31 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned hereunto duly authorized. PORTLAND GENERAL CORPORATION PORTLAND GENERAL ELECTRIC COMPANY (Registrants) August 12, 1994 By /s/ Joseph E. Feltz Joseph E. Feltz Assistant Controller Assistant Treasurer Principal Financial Officer Portland General Corporation Portland General Electric Company Joseph M. Hirko* Joseph M. Hirko Vice President Finance, Chief Financial Officer, Chief Accounting Officer and Treasurer *Signed on behalf of this person. August 12, 1994 By /s/ Joseph E. Feltz Joseph E. Feltz Assistant Controller Assistant Treasurer 32 EX-24 2 POWER OF ATTORNEY FOR 6/30/94 10-Q [TEXT] POWER OF ATTORNEY The undersigned Joseph M. Hirko, in his capacity as Chief Financial Officer and Chief Accounting Officer of Portland General Corporation (the "Corporation"), hereby appoints Joseph E. Feltz, Assistant Controller of the Corporation, as the attorney-in-fact, in any and all capacities stated herein, to execute on behalf of the undersigned and to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, the Portland General Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 1994. Dated: August 8, 1994 Portland, Oregon /s/ Joseph M. Hirko Joseph M. Hirko POWER OF ATTORNEY The undersigned Joseph M. Hirko, in his capacity as Chief Financial Officer and Chief Accounting Officer of Portland General Electric Company (the "Company"), hereby appoints Joseph E. Feltz, Assistant Controller of the Company, as the attorney- in-fact, in any and all capacities stated herein, to execute on behalf of the undersigned and to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, the Portland General Electric Company Quarterly Report on Form 10-Q for the quarter ended June 30, 1994. Dated: August 8, 1994 Portland, Oregon /s/ Joseph M. Hirko Joseph M. Hirko -----END PRIVACY-ENHANCED MESSAGE-----