-----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, PUd7q2NvUb+Qp4gbyH2lxN5WeUNxXGhFRvw6er6QtYu5TE4VEnhQ3qetoeNqLbmi TeqAw7b+OHEpxTgma+wsRg== 0000079636-95-000005.txt : 19950609 0000079636-95-000005.hdr.sgml : 19950609 ACCESSION NUMBER: 0000079636-95-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950306 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PORTLAND GENERAL ELECTRIC CO /OR/ CENTRAL INDEX KEY: 0000784977 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 930256820 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05532-99 FILM NUMBER: 95518727 BUSINESS ADDRESS: STREET 1: 121 SW SALMON ST CITY: PORTLAND STATE: OR ZIP: 97204 BUSINESS PHONE: 5034648000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PORTLAND GENERAL CORP /OR CENTRAL INDEX KEY: 0000079636 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 930909442 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05532 FILM NUMBER: 95518728 BUSINESS ADDRESS: STREET 1: 121 SW SALMON ST CITY: PORTLAND STATE: OR ZIP: 97204 BUSINESS PHONE: 5034648820 FORMER COMPANY: FORMER CONFORMED NAME: PORTLAND GENERAL ELECTRIC CO DATE OF NAME CHANGE: 19860804 10-K 1
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered Portland General Corporation Common Stock, par value $3.75 per share New York Stock Exchange Pacific Stock Exchange Portland General Electric Company None Securities registered pursuant to Section 12(g) of the Act: Portland General Corporation None Portland General Electric Company, Cumulative Preferred Stock, par value $100 per share 7.75% Series, Cumulative Preferred Stock, no par value
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 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. Yes X No . The aggregate market value of Portland General Corporation voting stock held by non- affiliates of the registrant as of February 28, 1995 is $1,031,163,041 The number of shares outstanding of the registrants' common stocks as of February 28, 1995 are: Portland General Corporation 50,609,229 Portland General Electric Company 42,758,877 (owned by Portland General Corporation) Document Incorporated by Reference The information required to be included in Part III hereof is incorporated by reference from Portland General Corporation's definitive proxy statement to be filed on or about March 27, 1995.
2 2 TABLE OF CONTENTS Page Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 5 Portland General Corporation . . . . . . . . . . . . . 5 Portland General Electric Company . . . . . . . . . . . 5 Portland General Holdings, Inc. . . . . . . . . . . . . 15 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 16 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 17 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . 20 Executive Officers of the Registrant . . . . . . . . . . 21 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . 22 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . 23 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . 24 Item 8. Financial Statements and Supplementary Data . . . . . . . 33 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . 55 PART III Item 10. Directors and Executive Officers of the Registrant . . . 55 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 55 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . 55 Item 13. Certain Relationships and Related Transactions . . . . . 55 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 56 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Appendix - PGE Financial Information . . . . . . . . . . . . . . . . . . 65 3 3
DEFINITIONS The following abbreviations or acronyms used in the text and notes are defined below: Abbreviations or Acronyms Term Beaver . . . . . . . . . . . . . . Beaver Combustion Turbine Plant Bethel . . . . . . . . . . . . . . Bethel Combustion Turbine Plant Boardman . . . . . . . . . . . . . Boardman Coal Plant Bonneville Pacific . . . . . . . . Bonneville Pacific Corporation BPA . . . . . . . . . . . . . . . . Bonneville Power Administration Centralia . . . . . . . . . . . . . Centralia Coal Plant Colstrip . . . . . . . . . . . . . Colstrip Units 3 and 4 Coal Plant Coyote Springs . . . . . . . . . . Coyote Springs Generation Project CWDC . . . . . . . . . . . . . . . Columbia Willamette Development Company CWL . . . . . . . . . . . . . . . . Columbia Willamette Leasing, Inc. DEQ . . . . . . . . . . . . . . . . Oregon Department of Environmental Quality EPA . . . . . . . . . . . . . . . . Environmental Protection Agency FASB . . . . . . . . . . . . . . . Financial Accounting Standards Board FERC . . . . . . . . . . . . . . . Federal Energy Regulatory Commission Financial Statements . . . . . . . Refers to Financial Statements of Portland General included in Part II, Item 8 of this report. Holdings . . . . . . . . . . . . . Portland General Holdings, Inc. Intertie . . . . . . . . . . . . . Pacific Northwest Intertie Transmission Line IOUs . . . . . . . . . . . . . . . Investor-Owned Utilities IRS . . . . . . . . . . . . . . . . Internal Revenue Service ITC . . . . . . . . . . . . . . . . Investment Tax Credits kWh . . . . . . . . . . . . . . . . Kilowatt-Hour MMBtu . . . . . . . . . . . . . . . Million British thermal units MW . . . . . . . . . . . . . . . . Megawatt MWa . . . . . . . . . . . . . . . . Average megawatts NRC . . . . . . . . . . . . . . . . Nuclear Regulatory Commission PGE . . . . . . . . . . . . . . . . Portland General Electric Company PRP . . . . . . . . . . . . . . . . Potentially Responsible Party PUC . . . . . . . . . . . . . . . . Oregon Public Utility Commission Portland General or PGC . . . . . . Portland General Corporation Regional Power Act . . . . . . . . Pacific Northwest Electric Power Planning and Conservation Act SFAS . . . . . . . . . . . . . . . Statement of Financial Accounting Standards issued by the FASB Supply System . . . . . . . . . . . Washington Public Power Supply System Trojan . . . . . . . . . . . . . . Trojan Nuclear Plant Tule . . . . . . . . . . . . . . . Tule Hub Services Company USDOE . . . . . . . . . . . . . . . United States Department of Energy WNP-3 . . . . . . . . . . . . . . . Washington Public Power Supply System Unit 3 Nuclear Project WSA . . . . . . . . . . . . . . . . WNP-3 Settlement Exchange Agreement
4 4 Part 1 Item 1. Business Portland General Corporation - Holding Company Portland General Corporation (Portland General), an electric utility holding company, was organized in December 1985. Portland General Electric Company (PGE or the Company), an electric utility company and Portland General's principal operating subsidiary, accounts for substantially all of Portland General's assets, revenues and net income. Portland General is also the parent company of Portland General Holdings, Inc. (Holdings), which provides organizational separation for Portland General's nonutility businesses (see page 16). Portland General is exempt from regulation under the Public Utility Holding Company Act of 1935, except Section 9(a)(2) thereof relating to the acquisition of securities of other public utility companies. As of December 31, 1994, Portland General and its subsidiaries had 2,536 regular employees compared to 2,618 and 3,253 at December 31, 1993 and 1992, respectively. Portland General Electric Company - Electric Utility General PGE, incorporated in 1930, is an electric utility engaged in the generation, purchase, transmission, distribution, and sale of electricity in the State of Oregon. PGE also sells energy in the wholesale market to other utilities, primarily in the State of California. PGE's Oregon service area is 3,170 square miles, including 54 incorporated cities of which Portland and Salem are the largest, within a state-approved service area allocation of 4,070 square miles. PGE estimates that at the end of 1994 its service-area population was approximately 1.35 million, constituting approximately 45% of the state's population. At December 31, 1994 PGE served over 637,000 customers. In early 1993 PGE ceased commercial operation of the Trojan Nuclear Plant (Trojan) of which it is a 67.5% owner. PGE is seeking to recover its investment in Trojan and the plant decommissioning costs in its electric rates. See Oregon Regulatory Matters below and Note 5, Trojan Nuclear Plant, in the Notes to Financial Statements for further discussion. 5 5 Portland General Electric Company Operating Revenues PGE's operating revenues from customers peak during the winter season. The following table summarizes operating revenues and kWh sales for the years ended December 31:
1994 1993 1992 Operating Revenues (thousands) Residential $360,651 $339,174 $311,213 Commercial 315,156 303,783 293,768 Industrial 147,347 147,274 137,901 Public Street Lighting 11,205 11,002 10,998 Tariff Revenues 834,359 801,233 753,880 Accrued Revenues 10,644 57,160 12,053 Retail 845,003 858,393 765,933 Wholesale 105,911 79,035 108,793 Other 8,041 7,103 5,372 Total Operating Revenues $958,955 $944,531 $880,098 Kilowatt-Hours Sold (millions) Residential 6,704 6,760 6,285 Commercial 6,142 5,885 5,737 Industrial 3,863 3,764 3,615 Public Street Lighting 93 98 99 Retail 16,802 16,507 15,736 Wholesale 2,701 1,599 2,739 Total Kwh Sold 19,503 18,106 18,475 Improved wholesale sales, retail load growth and the pass through of a Bonneville Power Administration (BPA) price increase resulted in higher operating revenues for 1994. These were partially offset by a decline in accrued revenues due to a $48 million decrease in power cost deferrals. Total kilowatt-hour sales increased a total of 8% supported by PGE's active wholesale marketing throughout the Western United States and the availability of low cost power for resale. While commercial and industrial sales remained strong, residential sales were flat due to mild first quarter weather.
6 6 Portland General Electric Company Regulation PGE is subject to regulation by the Oregon Public Utility Commission (PUC), which consists of a three-member commission appointed by the Governor. The PUC approves PGE's retail rates and establishes conditions of utility service. The PUC ensures that prices are fair and equitable and provides PGE an opportunity to earn a fair return on its investment. In addition, the PUC regulates the issuance of securities and prescribes the system of accounts to be kept by Oregon utilities. PGE is also subject to the jurisdiction of the Federal Energy Regulatory Commission (FERC) with regard to the transmission and sale of wholesale electric energy, licensing of hydroelectric projects and certain other matters. Construction of new generating facilities requires a permit from the Energy Facility Siting Council (EFSC). The Nuclear Regulatory Commission (NRC) regulates the licensing and decommissioning of nuclear power plants. In 1993 the NRC issued a possession-only license amendment to PGE's Trojan operating license. Trojan will be subject to NRC regulation until Trojan is fully decommissioned, all nuclear fuel is removed from the site and the license is terminated. The Oregon Department of Energy also monitors Trojan. Oregon Regulatory Matters General Rate Filing On November 8, 1993 PGE filed a general rate case with the PUC requesting an increase in electric prices by an average of 5.1% beginning January 1, 1995. PGE's request included a return on equity of 11.5% and 11.8% for the years 1995 and 1996, respectively, down from the prior authorized return of 12.5%, and full recovery of the Trojan investment and decommissioning costs. In mid-1994 PGE and the PUC Staff reached settlement on the majority of non-Trojan issues. In July 1994 PGE agreed to delay a final order addressing all rate case matters to no later than March 31, 1995 in return for approval of a first quarter 1995 power cost deferral. Recovery of power cost deferrals is addressed in separate rate proceedings (see discussion below). On November 11, 1994 PGE and the PUC Staff stipulated to a joint recommendation to the PUC on all outstanding cost of capital issues including an 11.6% return on equity for 1995 and 1996. The PUC Staff recommended that PGE be allowed to recover 100% of Trojan decommissioning and transition costs and 85.9% of the remaining Trojan investment. Hearings were held in January 1995 and PGE expects a rate order no later than March 31, 1995. See General Rate Filing discussion in Management's Discussion and Analysis of Financial Condition and Results of Operations for further details. Trojan Replacement Power Cost Deferrals PGE operates without a power cost adjustment provision which necessitates separate filings with the PUC to recover increases in power costs not reflected in current rates. The PUC authorized PGE to defer, for later collection, 80% of the incremental power costs incurred from December 4, 1992 to March 31, 1993 to replace power no longer generated by Trojan. The PUC authorized PGE to start collecting this power cost deferral over a three year period beginning in April 1994. The PUC authorized PGE to defer, for later collection, 50% of the incremental power costs incurred from July 1, 1993 to March 31, 1994, subject to a review of PGE earnings. The first quarter 1995 power cost deferral (see General Rate Filing discussion above) authorizes PGE to defer, for later collection, 40% of the incremental power costs incurred from January 1, 1995 to March 31, 1995, subject to a review of PGE earnings. PGE will file for recovery of this and its prior power cost deferral on June 30, 1995. 1993 Residential and Small Farm Customer Price Increase Under provisions of the Regional Power Act (RPA), PGE exchanges with BPA higher-cost power for lower-cost federal hydroelectric power and passes the benefits to residential and small farm customers. In September 1993 the PUC approved PGE's request to raise its electricity prices to residential and small farm customers an average of 7.8%, or approximately $29 million in annual revenues, effective October 1, 1993. This allowed PGE to 7 7 Portland General Electric Company pass through the BPA's nearly 16% price increase which reduced the power exchange credit to PGE's residential and small farm customers. 1992 Temporary Rate Increase The PUC authorized PGE to recover a portion of the incremental power costs it incurred during Trojan's 1991 extended outage. PGE was allowed to recover 90% of the excess power costs incurred from November 1, 1991 until Trojan returned to service in early March 1992. Revenue collections started on January 1, 1992, with commercial and industrial rates increasing 4.8% and residential rates increasing 0.6%. On April 7, 1992, the PUC approved the Company's request to decrease the rate at which it was recovering excess power costs. Residential rates decreased by 0.5% while commercial and industrial rates decreased by 3.3%. Revenue collections were completed in June 1993. The PUC's temporary rate increase order has been challenged by the Utility Reform Project. See Item 3, Legal Proceedings. Energy Efficiency PGE and the PUC work together to provide the appropriate financial incentives for PGE's energy efficiency programs. PGE is allowed a return of and a return on energy efficiency program expenditures. PGE and the PUC also developed the Share All Value Equitably (SAVE) program to remove a financial disincentive and encourage PGE to aggressively pursue cost- effective energy efficiency measures. SAVE consisted of a lost revenue component, an energy efficiency investment true-up mechanism, and a shared savings incentive that rewards PGE with additional revenues for a portion of the difference between the equivalent cost of new generation and the cost of the energy efficiency measures. The shared savings component of the SAVE tariff can result in a penalty if the amount of energy savings falls short of the established benchmark levels. During the four years of the program, PGE exceeded benchmarks set by the PUC, and qualified programs achieved an annualized 55 average megawatts of saved energy. SAVE, which began as a three-year tariff in 1991, was extended for 1994. A program for 1995 and beyond is being discussed with the PUC. Litigation Settlement In July 1990, PGE reached an out-of-court settlement with the PUC on two of three rate matters being litigated. PGE had sought judicial review of the three rate matters related to a 1987 general rate order. The settlement did not resolve the issue related to the gain on PGE's sale of a portion of the Boardman Coal Plant (Boardman) and the Pacific Northwest Intertie transmission line (Intertie). 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. In accordance with the 1987 rate order the unamortized gain, $119 million before taxes, at December 31, 1994, is being distributed as a reduction of customer revenue requirements. On January 23, 1995 the Marion County Circuit Court affirmed the PUC's decision in the 1987 rate order discussed above. PGE has sixty days from the date of the decision to appeal. Least Cost Energy Planning The PUC adopted Least Cost Energy Planning for all energy utilities in Oregon with the goal of selecting the mix of options that yields an adequate and reliable supply of energy at the least cost to the utilities and customers. "Demand side" options (e.g., conservation and load management) as well as traditional "supply side" options (e.g., generation and purchase of power) are evaluated. Although utility management continues to be fully responsible for decision-making, the process allows the PUC and the public to participate in resource 8 8 Portland General Electric Company planning. Ratemaking decisions are not made in the planning process. However, participation by the PUC and the public may reduce the uncertainty regarding the ratemaking treatment of the acquisition of new resources. PGE will file its next Least Cost Plan (LCP) in 1995. Competition and Marketing The passage of the Energy Policy Act of 1992 (Energy Act) fostered increased competition in the electric utility industry. Currently, wholesale markets are reflecting the greatest competitive challenges. The Energy Act created new entrants in the wholesale market by facilitating the ownership and operation of generating facilities by exempt wholesale generators (which may include independent power producers as well as affiliates of electric utilities). The Energy Act also authorized FERC to require a utility to provide transmission service for other entities generating electric energy for sale or resale. In addition, the Energy Act granted states the authority to adopt retail wheeling, the transmission by an electric utility of electric power from another supplier to a customer located within the utilities service area. Certain states, including California, are considering proposals which would allow customers to select their electricity provider. The Oregon PUC has not yet considered similar measures. Retail Competition and Marketing PGE operates within a state-approved service area and is substantially free from direct retail competition with other electric utilities. However, a local natural gas utility competes with PGE for residential and commercial customers' space and water heating. Additionally, industrial and commercial customers have become more aggressive in managing their energy costs. PGE is working to be the energy expert and utility of choice for its retail customers. A key initiative is PGE's Power Smart Program which is targeted at residential and commercial customers. It includes a program which offers home buyers high energy efficiency homes built with the use of construction techniques and materials specifically designed to minimize the impact of construction on the environment, programs to influence market growth through high value electrical applications and managing capacity demand through load shaping, an Energy Resource Center to provide customers with technical assistance and training for energy-related business issues, and a joint program with the Oregon Superintendent of Public Instruction and other utilities to develop a curriculum to encourage teachers, students, and parents to use energy more efficiently in their homes. Wholesale Competition and Marketing PGE's generating resources, coupled with its transmission rights on the Pacific Northwest Intertie (Intertie) provides the Company with flexibility to buy and sell power in California, the desert Southwest, the Northwest and Canada. The ability to make wholesale energy sales depends on the availability and price of surplus power, access to transmission systems, changing prices of fossil fuels, competition from alternative suppliers, and the demand for power by other parties. The Intertie is a transmission line with a total capacity of 4,800 megawatts that links winter-peaking northwest utilities with summer-peaking wholesale customers in the South. PGE has scheduling capability for 850 megawatts on the Intertie and 100 megawatts of scheduling capability on BPA's DC Intertie. The federal Energy Act established competition in bulk power generation as national policy. FERC can now order wholesale transmission of electric power, called wholesale wheeling. Wholesale wheeling allows independent power producers, utilities, and brokers with little or no generating capacity to market power over wide geographic areas. Ownership of 950 megawatts of transmission rights secures the Company's presence in the increasingly competitive wholesale market by providing access to power and wholesale customers beyond PGE's service territory. Power Supply PGE's decision in January 1993 to immediately cease operation of Trojan (see Note 5, Trojan Nuclear Plant in the Notes to Financial Statements) ended 17 years of operation during which the plant provided 745 megawatts of capacity, and supplied about one quarter of PGE's annual energy requirements. PGE is replacing this output and meeting new load growth with a mix of energy purchases, new generating resources and demand-side programs. 9 9 Portland General Electric Company Generating Capability PGE's existing hydroelectric, coal-fired and gas-fired plants are key economic resources for the Company providing 1,911 megawatts of generating capability. PGE's lowest-cost producers are its eight hydroelectric projects on the Clackamas, Sandy, Deschutes, and Willamette rivers in Oregon. The gas-fired Beaver Combustion Turbine Plant (Beaver) set operating records in 1994, providing 13% of PGE's energy requirements at a cost competitive with the Company's spot market purchases. The Boardman Coal-Fired Plant (Boardman) also set records in 1994, operating at an 86% capacity factor. Purchased Power PGE relies on long-term power contracts with four hydro projects on the mid-Columbia River which provide PGE with 667 megawatts. PGE also purchases surplus energy, primarily hydro-generated, from other Pacific Northwest utilities with firm contracts for 1,377 megawatts ranging in term from one to 22 years. In addition, PGE has long-term exchange contracts with summer-peaking California utilities to help meet its winter- peaking requirements. PGE has a total of 2,299 megawatts of firm capacity to serve PGE's peak loads. PGE also has access to surplus energy in the spot market, called secondary energy, which is utilized to meet customers' needs when it is economical to do so, and to provide replacement energy during plant outages. Reserve Margin Reserve margin is the amount of firm resource capacity in excess of customer demand during a period of peak loads. Based on its generating plants and firm purchased power contracts in place as of December 31, 1994, capacity available to PGE compared with historical peak loads is:
Source: Megawatts Hydro plants 610 Coal-fired plants 651 Gas-fired plants 650 Firm power purchases 2,299 contracts Total 4,210 Peak Load: System record (Dec. 1990) 3,698 1994 peak (February) 3,332
Year in Review PGE generated 47% of its load requirements in 1994 compared with 42% in 1993. Firm and secondary purchases met the remaining load. Below average precipitation in some parts of the Columbia River basin reduced the availability of inexpensive hydro power on the secondary market in 1994. Regional water conditions were about 71% of normal. However, mild weather, increased thermal-unit production, and lower gas prices mitigated the effect of poor water conditions. 10 10 Portland General Electric Company 1995 Outlook The early predictions of water conditions indicate they will be about 95% of normal. While this should improve PGE hydro generation, efforts to restore salmon runs on the Columbia and Snake Rivers may affect the supply and price of purchased power (see the Restoration of Salmon Runs discussion below). Commercial operation of The Coyote Springs Generation Project (Coyote Springs), a 220 megawatt cogeneration facility being constructed near Boardman, Oregon is planned for late 1995. See Item 3, Legal Proceedings for discussion of legal challenges to the development of Coyote Springs. Even with the addition of Coyote Springs, PGE will continue to purchase power in 1995 and beyond. Price and supply of power purchases will continue to be of particular importance. Adequate supplies of secondary energy are expected to be available to meet customer demand. The Company will proceed with obtaining required site permits for potential new generating resources but does not anticipate new construction in the foreseeable future. Restoration of Salmon Runs - Several species of Snake River salmon are protected as threatened under the Endangered Species Act (ESA). In an attempt to save the endangered fish the federal government has taken emergency actions that have reduced the amount of electricity generated at the Columbia and Snake River dams. In January 1995 the National Marine Fisheries Service (NMFS) released, for public comment, a draft plan calling for altering the management of federal dams and reservoirs in the Columbia River basin in order to protect dwindling salmon stocks. The plan proposes to boost river flows while young salmon are migrating which reduces the water available for hydropower generation. NMFS is empowered by the ESA to require salmon- protection measures by the Bureau of Reclamation and the Army Corps of Engineers, the agencies which operate the federal dams on the river. The Columbia river and its tributaries produce nearly two thirds of the electricity used in the region. PGE purchases power from many sources, including the mid-Columbia dams. Reductions in the amount of water allowed to flow through the dams' turbines reduces generation and increases 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 power costs. By utilizing its transmission system to increase seasonal power exchanges with California and the Southwest PGE could partially offset the cost of reduced hydro generation on the Columbia and Snake Rivers. California energy demand peaks in 11 11 Portland General Electric Company the summer, while the Pacific Northwest demand peaks in winter. Furthermore, PGE is less vulnerable to operational changes on the Columbia and Snake Rivers' hydro projects because of its base of thermal generating resources. PGE's fish biologists are working with state and federal agencies to ensure that PGE's hydro operations located on several Columbia River tributaries are compatible with the survival of wild salmon and other wildlife. PGE does not expect the ESA process to significantly impact its own hydro generation. Fuel Supply Coal Boardman. PGE has an agreement to supply coal to Boardman through the year 2000. The agreement does not require a minimum amount of coal to be purchased. PGE did not take deliveries under this agreement during 1994 but utilized several short and medium term contracts to supply coal for Boardman generation. Coal purchased in 1994 contained less than 0.5% of sulfur by weight and emitted less than the EPA allowable limit of 1.2 pounds of sulfur dioxide per million British thermal units (MMBtu) when burned. The coal is from both surface mining operations and underground operations, each subject to federal, state, and local regulations. Coal is delivered to Boardman by railroad. Colstrip. Coal for Units 3 and 4, located in southeastern Montana, is provided under contract with Western Energy Company, a wholly-owned subsidiary of Montana Power Company. The contract provides that the coal delivered will not exceed a maximum sulfur content of 1.5% by weight. The Colstrip plant has sulfur dioxide removal equipment to allow operation in compliance with EPA's source performance emission standards. Centralia. Coal for Units 1 and 2, located in southwestern Washington, is provided under contract with PacifiCorp doing business as PacifiCorp Electric Operations. Most of Centralia's coal requirements are expected to be provided under this contract. About one quarter of PGE's firm resources comes from coal-fired plants:
PGE's % Sulfur Type of Pollution Plant Ownership and MWs Content Control Equipment Boardman, OR 65%; 330 MW 0.4% Electrostatic precipitators Centralia, WA 2.5%; 33 MW 0.6% Electrostatic precipitators Colstrip, MT 20%; 288 MW 0.7% Scrubbers and precipitators
Natural Gas In addition to the agreements discussed below the Company utilizes short-term agreements and spot-market purchases to secure transportation capacity and gas supplies sufficient to fuel plant operations. Beaver. PGE owns 90% of a pipeline which directly connects Beaver to Northwest Pipeline (NWP), an interstate gas pipeline operating between British Columbia and New Mexico. PGE presently has access to 30,000 MMBtu per day of firm capacity on NWP or enough to operate Beaver at approximately a 30% capacity. The contracted firm capacity on NWP increases to 76,000 MMBtu per day in late 1995 or enough to operate Beaver at approximately 70% capacity. Coyote Springs. During 1994 PGE took assignment of existing firm transportation capacity on the interconnected systems of various suppliers sufficient to deliver 41,000 MMBtu per day of natural gas from Alberta, Canada to Coyote Springs. This service should be sufficient to fuel 100% of plant operations and will start in late 1995 when the plant is expected to come on-line. In late 1995 PGE will begin purchasing under two-year contracts for the supply of natural gas to Coyote Springs at a 75 percent load factor. 12 12 Portland General Electric Company Environmental Matters PGE operates in a state recognized for environmental leadership. PGE's environmental stewardship policy emphasizes minimizing waste in its operations, minimizing environmental risk and promoting energy efficiency. Environmental Regulation PGE is subject to regulation by federal, state, and local authorities with regard to air and water quality, noise, waste disposal and other environmental issues. PGE is also subject to the Rivers and Harbors Act of 1899 and similar Oregon laws under which it must obtain permits from the U.S. Army Corps of Engineers or the Oregon Division of State Lands to construct facilities or perform activities in navigable waters or in waters of the State. The EPA regulates the proper use, transportation, clean up and disposal of polychlorinated biphenyls (PCBs). State agencies or departments which have direct jurisdiction over environmental matters include the Environmental Quality Commission, the Department of Environmental Quality (DEQ), the Oregon Department of Energy, and the Energy Facility Siting Council. Environmental matters regulated by these agencies include the siting and operation of generating facilities and the accumulation, clean-up and disposal of toxic and hazardous wastes. Air/Water Quality Congress passed amendments to the Clean Air Act (Act) in 1990 that will renew and intensify national efforts to reduce air pollution. Significant reductions in emissions of sulfur dioxide, nitrogen oxide and other contaminants will be required over the next several years. Coal-fired plant operations will be affected by these emission limitations. Federal implementing standards under the Act are being drafted at the present time. State governments are also charged with monitoring and administering certain portions of the Act. Each state is required to set guidelines that at least equal the federal standards. In 1993, the EPA issued its final allocation of emission allowances. Boardman was assigned sufficient allowances to operate after the year 2000 at a 60 to 67% capacity factor without having to further reduce emissions or to buy additional credits. Centralia will be required to reduce emissions by the year 2000 and the owners are examining several options such as installing scrubbers, converting to lower-sulfur coal or natural gas, or purchasing emission allowances. It is not anticipated that Colstrip will be required to reduce emissions because it utilizes scrubbers. However, future legislation, if adopted, could affect plant operations and increase operating costs or reduce coal-fired capacity. Boardman's air contaminant discharge permit, issued by the DEQ, has no restrictions on plant operations. This permit expired in 1994 and is being renewed in 1995. Plant operations have not been affected as a result of this routine renewal process. The water pollution control facilities permit for Boardman expired in May 1991. The DEQ is processing the permit application and renewal is expected. In the interim, Boardman is permitted to continue operating under the terms of the original permit. The waste- water discharge permit for Beaver was approved in 1994. DEQ air contaminant discharge permits for the combustion turbine generators at Bethel expire in 1995 but are expected to be replaced by new permits during the year. The current permits allow unrestricted plant operations during the day. Due to noise limitations only one unit may operate at night. The combustion turbines are allowed to operate on either natural gas or oil. PGE has developed an emergency oil spill response plan for the fuel oil storage tanks and unloading dock at Beaver. This plan has been submitted to the Coast Guard, EPA and DEQ in compliance with new federal and state oil spill regulations. The plan includes employee training and the acquisition of clean up equipment. Environmental Clean Up PGE is involved with others in environmental clean up of PCB contaminants at various sites as a potentially responsible party (PRP). The clean up effort is considered complete by the PRP's at several sites which are awaiting consent orders from the appropriate regulatory agencies. Future clean-up costs associated with these sites are not expected to be material. 13 13 Portland General Electric Company Human Resources As of December 31, 1994, PGE had 2,502 regular employees, including 164 employees at Trojan. This compares to 2,577 and 3,157 regular PGE employees at December 31, 1993 and 1992, respectively. 14 14 Portland General Holdings, Inc. - Nonutility Businesses General Portland General Holdings, Inc. (Holdings) is a wholly-owned subsidiary of Portland General and is the parent company of Portland General's subsidiaries presently engaged in leveraged leasing and administrative services for electric futures trading. Holdings has provided organizational separation from PGE and financial flexibility and support for the operation of non-utility businesses. The assets and businesses of Holdings are its investments in its subsidiaries. Leasing Columbia Willamette Leasing Columbia Willamette Leasing (CWL) acquires and leases capital equipment on a leveraged basis. During 1994 and 1993, CWL made no new investments in leveraged leases. CWL's investment portfolio consists of six commercial aircraft, two container ships, 5,500 containers, coal, tank, and hopper railroad cars, a truck assembly plant, an acid treatment facility, and a wood chipping facility, totaling $153 million of net investment. No new investments are expected or planned for the foreseeable future. Electricity Trading Administrative Services Tule Hub Services Company (Tule) Tule, incorporated in Oregon during 1994, was created to provide administrative services to facilitate the trading of electric futures at the California-Oregon border. Tule is modeled after similar companies in the crude oil and natural gas industries which evolved as a result of deregulation and trading of related futures contracts. Independent Power Investment in Bonneville Pacific Corporation In October 1990, Holdings purchased 20% of the common stock of Bonneville Pacific, an independent power producer headquartered in Salt Lake City, Utah. Over the next six months, Holdings purchased additional shares of Bonneville Pacific common stock, increasing its investment to 46% of the outstanding stock. Holdings also has outstanding loans of $28 million to Bonneville Pacific and its subsidiaries. In November 1991, Portland General announced that it was halting further investments, and Holdings wrote off its equity investment in and loans to Bonneville Pacific. In addition, Holdings' representatives resigned from Bonneville Pacific's board of directors. These decisions were based in part on Bonneville Pacific underperforming expectations, the impairment of the investment in Bonneville Pacific and the inability of Bonneville Pacific to meet project sell-down commitments under the original purchase agreement. Bonneville Pacific has filed for protection under Chapter 11 of the Federal Bankruptcy Code. Holdings has instituted legal proceedings with regard to its investment in Bonneville Pacific. Numerous lawsuits have been filed in this matter by Bonneville Pacific and other parties since late 1991. See Note 13, Legal Matters, in the Notes to the Financial Statements and Item 3. Legal Proceedings for more information. Real Estate Columbia Willamette Development Company The process of liquidating real estate projects was substantially completed during 1994. See Note 2, Real Estate - Discontinued Operations, in Notes to the Financial Statements. 15 15 Item 2. Properties Portland General Corporation Discussion regarding nonutility properties is included in the previous section. Portland General Electric Company Generating facilities owned by PGE are set forth in the following table:
Net MW Facility Location Fuel Capability Wholly owned: Sullivan Willamette River Hydro 16 Faraday Clackamas River Hydro 43 River Mill Clackamas River Hydro 23 Bull Run Sandy River Hydro 22 Oak Grove Clackamas River Hydro 44 Pelton Deschutes River Hydro 108 North Fork Clackamas River Hydro 54 Round Butte Deschutes River Hydro 300 Bethel* Salem, OR Gas/Oil 116 Beaver* Clatskanie, OR Gas/Oil 534 Coyote Springs** Boardman, OR Gas/Oil 220 PGE % Jointly Owned: Interest Boardman Boardman, OR Coal 508 65.0 Colstrip 3 & 4 Colstrip, MT Coal 1,440 20.0 Centralia Centralia, WA Coal 1,310 2.5 Trojan*** Rainier, OR Nuclear - 67.5 * Combustion turbine generators at Bethel and Beaver are leased by PGE ** The facility is under construction and is expected to be completed in late 1995 *** Trojan ceased commercial operation in early 1993
PGE holds licenses under the Federal Power Act (which expire during the years 2001 to 2006) for all of its hydroelectric generating plants and state licenses covering all or portions of certain plants. Following the 1993 closure, PGE has been granted a possession-only license amendment for Trojan by the NRC. In addition, in early 1995 PGE filed its Trojan decommissioning plan with the NRC. PGE's principal plants and appurtenant generating facilities and storage reservoirs are situated on land owned by PGE in fee or land under the control of PGE pursuant to valid existing leases, federal or state licenses, easements, or other agreements. In some cases meters and transformers are located upon the premises of customers. The Indenture securing PGE's first mortgage bonds constitutes a direct first mortgage lien on substantially all utility property and franchises, other than expressly excepted property. Leased Properties Combustion turbine generators at Bethel and Beaver are leased by PGE. These leases expire in 1999. PGE leases its headquarters complex in downtown Portland and the coal-handling facilities and certain railroad cars for Boardman. 16 16 Item 3. Legal Proceedings Nonutility Gerhard W. Gohler, IRA, et al v. Robert L. Wood et al, U.S. District Court for the District of Utah This case was originally filed on August 31, 1992 as the consolidation of various class actions filed on behalf of certain purchasers of Bonneville Pacific Corporation common (Bonneville Pacific) shares and subordinated debentures. In April 1994 the Court dismissed certain of the plaintiffs' claims and thereafter plaintiffs filed a second amended consolidated class action complaint. The defendants in the action are certain Bonneville Pacific insiders and other individuals associated with Bonneville Pacific, Portland General Corporation (Portland General), Portland General Holdings, Inc. (Holdings), certain Portland General individuals, Deloitte & Touche (Bonneville Pacific's independent auditors) and one of its partners, Mayer, Brown & Platt, a law firm used by Bonneville Pacific, and two partners of that firm, three underwriters of a Bonneville Pacific offerings of convertible subordinated debentures (Kidder, Peabody & Co., Piper Jaffray & Hopwood Incorporated, and Hanifen, Imhoff Inc.), and Norwest Bank, Minnesota, N.A., indenture trustee on a Bonneville Pacific's offering of convertible subordinated debentures. The amount of damages sought is not specified. The claims asserted against Portland General, Holdings, and the Portland General individuals allege violations of federal and Utah state securities laws and of the Racketeer Influenced and Corrupt Organizations Act (RICO). Further motions to dismiss have been filed in response to the amended complaint, however hearing on the motions of Portland General, Holdings, and the Portland General individuals has been deferred pending ongoing settlement discussions between those parties and the plaintiffs. Roger G. Segal, as the Chapter 11 Trustee for Bonneville Pacific Corporation v. Portland General Corporation, Portland General Holdings, Inc. et al, U.S. District Court for the District of Utah This action was originally filed on April 24, 1992 by Bonneville Pacific against Portland General, Holdings, and certain individuals affiliated with Portland General or Holdings alleging breach of fiduciary duty, tortious interference, breach of contract, and other actionable wrongs related to Holdings' investment in Bonneville Pacific. On August 2, 1993 an amended complaint was filed by the Bonneville Pacific bankruptcy trustee against Portland General, Holdings, certain individuals affiliated with Portland General or Holdings and over 50 other defendants unrelated to Portland General or Holdings. This complaint and another subsequent amended version were dismissed by the Court in whole or in part. The Trustee has currently on file his Fifth Amended Complaint. The complaint includes allegations of RICO violations and RICO conspiracy, collusive tort, civil conspiracy, common law fraud, negligent misrepresentation, breach of fiduciary duty, liability as a partner for the debts of partnership, and other actionable wrongs. Although the amount of damages sought is not specified in the Complaint, the Trustee has filed a damage disclosure calculation which purports to compute damages in amounts ranging from $340 million to $1 billion - subject to possible increase based on various factors. The Portland General parties have again filed motions to dismiss. Arguments were heard in December, 1994, and the motions are awaiting decision by the Court. Portland General Holdings, Inc. v. Deloitte & Touche, et al, Third Judicial District Court for Salt Lake County On January 22, 1992, Holdings filed a complaint alleging Deloitte & Touche and certain individuals associated with Bonneville Pacific misrepresented the financial condition of Bonneville Pacific. The complaint alleges that Holdings relied on fraudulent statements and omissions by Deloitte & Touche and the individual defendants in acquiring a 46% interest in and making loans to Bonneville Pacific starting in September 1990. Holdings alleges, among other things, the existence of transactions in which generation projects developed or purchased by Bonneville Pacific were transferred at exaggerated valuations or artificially inflated prices to Bonneville Pacific's affiliated entities, Bonneville Pacific related parties or third parties. The suit claims that Bonneville Pacific's books, as audited by Deloitte & Touche, led Holdings to conclude wrongly that Bonneville Pacific's management was effective and could 17 17 achieve the profitable sale of certain assets, as called for in Holdings purchase agreement with Bonneville Pacific. Holdings is seeking approximately $228 million in damages. This case has been consolidated for all purposes with Portland General Holdings, Inc. v. Bonneville Group and Raymond L. Hixson noted below. Some of the defendants in the consolidated case have asserted counterclaims against Holdings. Certain counterclaims do not presently specify an amount of damages. The remaining counterclaims, taken together, seek approximately $80 million in specified and punitive damages. The Company believes the counterclaims have little merit. Portland General Holdings, Inc. v. The Bonneville Group and Raymond L. Hixson, Third Judicial District Court for Salt Lake County On June 1, 1993 Holdings filed a complaint alleging The Bonneville Group and Raymond L. Hixson misrepresented the financial condition of Bonneville Pacific. The complaint contains substantially the same allegations against these defendants as claimed in Portland General Holdings, Inc. v. Deloitte & Touche, et al and seeks the same damages. Utility BPA v. WPPSS (WPPSS v. 88 Participants), U.S. District Court for the Western District of Washington Cost Sharing Litigation On October 26, 1982 the Washington Public Power Supply System filed suit against Portland General Electric Company (PGE) and other entities that are participants in Supply System Units 1, 3, 4 and 5 (the Participants), and the Morgan Guaranty Trust Company of New York seeking a declaration of the respective rights and obligations of the parties for the proper allocation of shared costs between and among the various Supply System Units (the Cost-Sharing Litigation). While the Cost-Sharing Litigation was pending, the Supply System ceased work on Unit 3, the unit owned by PGE, Puget, PacifiCorp, and other investor owned utilities (IOUs) in common with the Supply System. In August 1983 PGE and two IOUs filed counterclaims, cross-claims, third-party claims and a motion for a preliminary injunction against the Supply System, BPA, and certain of the Participants. PGE and the IOUs also sought a declaratory judgment against the Supply System, PacifiCorp and the Unit 4 and 5 Participants requiring costs between Units 3 and 5 to be allocated in accordance with a 1976 Policy Statement or if the Policy Statement was found to be non-binding, damages from the Supply System and others for misrepresentations and omissions. Following decisions by the Washington Supreme Court that certain of the Unit 4 and 5 Participants were not responsible for Unit 4 and 5 costs, Chemical Bank, as trustee for the Unit 4 and 5 bondholders, intervened in this litigation. On February 25, 1992 the Ninth Circuit Court of Appeals ruled in support of PGE and the IOUs. A trial remains necessary to assure that the allocations were properly performed. PGE has agreed to a tentative settlement in the case which would result in a $1 million payment by the Company. Any final settlement will require court approval. PGE v. Ronald Eachus, Myron Katz, Nancy Ryles (Oregon Public Utility Commissioners) and the Oregon Public Utility Commission, Marion County Circuit Court In July 1990 PGE reached an out-of-court settlement with the Oregon Public Utility Commission (PUC) on two of three matters arising from the 1987 rate case. The settlement resolved the dispute regarding the treatment of certain investment tax credits and the 1986-1987 interim relief. The settlement did not resolve the issue related to the gain on PGE's sale of a portion of Boardman and the Intertie. On January 23, 1995, the judge affirmed the PUC decision allocating 77% of the gain to customers over a 27 year period. See Note 12, Regulatory Matters, in the Notes to the Financial Statements for more details. PGE has sixty days to appeal from the date of the decision. Utility Reform Project v. Oregon Public Utility Commission, Multnomah County Circuit Court On February 18, 1992 the Utility Reform Project (URP) filed a complaint in Multnomah County Oregon Circuit Court asking the PUC to set aside and rescind PUC Order No. 91-1781 that authorized PGE a temporary rate increase to recover a portion of the excess power costs incurred during the 1991 Trojan outage. URP and the PUC agreed to stay the case pending PUC hearings on the PUC order. On February 22, 1992 18 18 the PUC issued an order approving the rate increase. The case is currently under a stay. PGE has not intervened in this case. Pacificorp v. PGE, Columbia Steel Casting Co., Inc., and Public Utility Commission of Oregon, U.S. District Court for the District of Oregon In 1972, PGE and PacifiCorp, dba Pacific Power & Light Company (PP&L) entered into an agreement (Agreement) subsequently approved by the PUC and the City of Portland, which PGE and the PUC believe created exclusive service territory for PGE and PP&L in defined areas within the City of Portland. Columbia Steel Casting Co. (Columbia Steel), an industrial customer of PGE located inside the area allocated to PGE, requested that PP&L provide it with electric service. On May 31, 1990 PP&L filed a complaint for declaratory judgment in the US District Court for the District of Oregon seeking a determination of the respective rights and responsibilities of the parties under the Agreement and the Sherman Antitrust Act with regard to Columbia Steel's request. On June 19, 1990, Columbia Steel also filed a complaint in US District Court for the District of Oregon with regard to the allocation of the service territories between PGE and PP&L. (See Columbia Steel Casting Co., Inc. v. PGE, et al below.) These two cases were consolidated. On July 2, 1990 PGE requested the PUC, the governmental agency charged with allocating the service territories among utilities, to affirm the exclusive territories allocated under the 1972 Agreement. Columbia Steel intervened. On May 2, 1991 PGE and PP&L entered into an agreement to settle the District Court litigation filed by PP&L. The settlement provided, among other things, that the parties would file a joint application to the PUC for exclusive territories within the City of Portland and that PP&L would serve Columbia Steel in exchange for certain assets. On April 16, 1992 the PUC issued an order which corrected and affirmed the 1972 Order, approved the Agreement, and the 1992 territorial allocation agreement between PGE and PP&L. Columbia Steel requested reconsideration by the PUC of the 1992 Order, which the PUC denied on August 7, 1992. Columbia Steel Casting Co., Inc. v. PGE, Pacificorp, and Myron Katz, Nancy Ryles and Ronald Eachus, Ninth Circuit Court of Appeals On June 19, 1990 Columbia Steel filed a complaint for declaratory judgment, injunctive relief and damages in U.S. District Court for the District of Oregon contending that the 1972 territory allocation agreement (Agreement) (see above case for background information) does not give PGE the exclusive right to serve them nor does it allow PP&L to deny service to them. Columbia Steel is seeking an unspecified amount in damages amounting to three times the excess power costs paid over a ten year period. On July 3, 1991 the Court ruled that the Agreement did not allocate customers for the provision of exclusive services and that the 1972 order of the PUC approving the Agreement did not order the allocation of territories and customers. On August 19, 1993 the Court ruled that Columbia Steel was entitled to receive from PGE approximately $1.3 million in damages which represented the additional costs incurred by Columbia Steel for electric service from July 1990 to July 1991, trebled, plus costs and attorney's fees. Both PGE and Columbia Steel have appealed the ruling. Portland General Electric Company v. Westinghouse Electric Corporation, U.S. District Court for the Western District of Pennsylvania On February 17, 1993 PGE filed a complaint against Westinghouse Electric Corporation (Westinghouse), the manufacturer of Trojan's steam generators, alleging breach of contract, negligence, fraud, negligent misrepresentation and violation of federal and state racketeering statutes relating to Westinghouse's design, manufacture and installation of the steam generators. On June 28, 1993 the Court dismissed PGE's claims of negligence and negligent misrepresentation. A Trial date has not been set. In the Matter of Portland General Electric Company, U.S. Environmental Protection Agency PGE and the U.S. Environmental Protection Agency (EPA) have settled a civil complaint against PGE, for a nominal amount. The complaint alleged violations of environmental standard with 19 19 respect to storage of materials and related recordkeeping at a transmission substation. Southern California Edison Company v. PGE, U.S. District Court for the District of Oregon 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 exchange agreement entered into in 1986. The 25-year contract is for 75 megawatts of firm energy and capacity plus a 225 megawatt seasonal exchange. 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 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 $34 million). PGE has filed a petition with FERC asking FERC to assume jurisdiction and seeking a Declaratory Order and Motion for Summary Disposition. PGE also removed the case from the State court to federal court. Subsequent to removal, SCE filed a motion for remand to the state court. The motion was granted. PGE's motion for the state court to stay or dismiss the case pending a decision by FERC was denied. Trial in the state court has been set for October 1995. The Company will vigorously defend itself and believes it will succeed in the defense of these claims. Utility Reform Project and Don't Waste Oregon Council v. Energy Facility Siting Council, Portland General Electric Company and Oregon Department of Fish and Wildlife, Supreme Court of the State of Oregon On November 16, 1994 and November 17, 1994, Utility Reform Project (URP) and Don't Waste Oregon Council (DWOC), respectively, filed Petitions for Judicial Review of the order of the Energy Facility Siting Council (EFSC) granting a site certificate for the Coyote Springs Generation Plant. The Petitions have been consolidated. URP and DWOC seek to have the order remanded to EFSC for reconsideration. They allege that EFSC did not adequately address standards related to the need for power and financial assurances, and erred in its treatment of certain confidential information. Briefs have been filed and argument is set for early March. Item 4. Submission of Matters to a Vote of Security Holders None. 20 20
Executive Officers of Portland General Corporation and Portland General Electric (*) Name Age Business Experience Ken L. Harrison 52 Appointed to current position of Chairman of the Board and Chief Chairman of the Board, Chief Executive Officer on December 1, 1988 and President of Portland General Executive Officer - PGC/PGE since August 4, 1992. Served as President of Portland General Electric President - PGC from June 1987 until September 1989. Richard G. Reiten 55 Appointed to current position on August 4, 1992. Served as President of President and Chief Operating Portland General from January 1989 until appointed to current position. Officer - PGE Leonard A. Girard 52 Appointed to current position on September 1, 1988. Served as Vice Senior Vice President, President, Legal and Regulatory Affairs, and Secretary from January 1988 General Counsel and Secretary until appointed to current position. PGC/PGE Joseph M. Hirko 38 Appointed to current position on December 3, 1991. Served as Treasurer Vice President-Finance, Chief beginning in June 1989. Served as Vice President, Portland General Financial Officer, Chief Financial Services, Inc. from November 1985 until June 1989. Accounting Officer and Treasurer PGC/PGE Donald F. Kielblock 53 Appointed to current position on October 4, 1989. Previously served as Vice President - PGC/PGE General Manager, Information Services of PGE until appointed to current Human Resources position. Alvin Alexanderson 47 Appointed to current position on February 5, 1991. Served as President of Vice President - PGE Portland General Exchange from May 1988 until appointed to current position. Rates and Regulatory Affairs David K. Carboneau 48 Appointed to current position on October 1, 1991. Served as Vice President, Vice President - PGE Information Resources from October 1989 until appointed to current Administration position. For four years prior to October 1989, served as an executive officer of PGE. Richard E. Dyer 52 Appointed to current position on July 17, 1991. Served as PGC Vice Vice President - PGE President and Assistant to the Chairman of the Board from October 1990 Marketing and Supply until appointed to current position. Prior to October 1990 served as Vice President, PGE Power Management. Peggy Y. Fowler 43 Appointed to current position on January 1, 1990 (assumed responsibility Vice President - PGE for Distribution on February 15, 1994). Served as General Manager, Hydro Distribution Production and Transmission from September 1989 until appointed to current position. Previously served as General Manager, Service and Installation. Frederick H. Lamoureaux 55 Appointed to current position on July 17, 1991 (assumed responsibility for Vice President - PGE Hydro Production and Utility Services on February 15, 1994). Served as Hydro Production and Vice President, Distribution from September 1989 until appointed to current Utility Services position. Previously served as General Manager, Hydro Production and Transmission. Frederick D. Miller 53 Appointed to current position on October 15, 1992. Served as Director of Vice President - PGE Executive Department, State of Oregon, from 1987 until appointed to current position. (*) Officers are listed as of January 31, 1995. The officers serve for a term of one year or until their successors are elected and qualified.
21 21 Part II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters Portland General Corporation Portland General's common stock is publicly held and traded on the New York and Pacific Stock Exchanges. The table below reflects the dividends on Portland General's common stock and the stock price ranges as reported by The Wall Street Journal for 1994 and 1993.
1994 1993 Quarter 1st 2nd 3rd 4th 1st 2nd 3rd 4th High 20-1/2 18-7/8 18-1/4 19-3/4 21-1/8 22-1/4 23-1/8 22 7/8 Low 17-1/4 16-3/8 16-1/2 16-1/2 16 19-7/8 21-1/2 18 3/4 Closing price 17-1/2 17 16-7/8 19-1/4 21 22-1/8 22-1/4 20 1/2 Cash dividends declared (cents) 30 30 30 30 30 30 30 30
The approximate number of shareholders of record as of December 31, l994 was 45,152. Portland General Electric Company PGE is a wholly owned subsidiary of Portland General. PGE's common stock is not publicly traded. Aggregate cash dividends declared on common stock were as follows (thousands of dollars):
Quarter 1994 1993 First $ 15,393 $ 18,206 Second 15,393 18,206 Third 12,828 18,206 Fourth 12,828 18,206
PGE is restricted, without prior PUC approval, from making any dividend distributions to Portland General that would reduce PGE's common equity capital below 36% of total capitalization. 22 22 Item 6. Selected Financial Data Portland General Corporation
For the Years Ended December 31 1994 1993 1992 1991 1990 (Thousands of Dollars except per share amounts) Operating Revenues $959,409 $946,829 $883,266 $889,876 $852,105 Net Operating Income 154,296 158,181 163,500 136,531 176,457 Income (loss) from Continuing Operations 93,058 89,118 89,623 (20,698) 1 99,952 2 Gain (loss) from Discontinued Operations 3 6,472 - - - (29,169) - - Net Income (loss) $99,530 $ 89,118 $ 89,623 $(49,867) $ 99,952 Earnings (loss) per Average Common Share Continuing Operations $ 1.86 $ 1.88 $ 1.93 4 $ (.43) 4 $2.17 Discontinued Operations 3 .13 - - - (.63) - - $ 1.99 $ 1.88 $ 1.93 4 $(1.06) 4 $2.17 Dividends Declared per Common Share $ 1.20 $ 1.20 $ 1.20 $1.20 $1.20 Total Assets $3,559,271 $3,449,328 $3,140,625 $3,092,596 $3,104,736 Long-Term Obligations 5 885,814 912,994 937,938 967,968 820,538
Portland General Electric Company
For the Years Ended December 31 1994 1993 1992 1991 1990 (Thousands of Dollars) Operating Revenues $958,955 $944,531 $880,098 $885,578 $884,720 Net Operating Income 153,208 154,200 160,037 139,257 181,344 Net Income 106,118 99,744 105,562 74,075 121,949 2 Total Assets $3,354,151 $3,226,674 $2,920,980 $2,912,254 $2,855,809 Long-Term Obligations 5 855,814 872,994 887,938 887,952 810,538 1 Includes a loss of $74 million from independent power. 2 Includes a gain of $16 million for settlement of certain regulatory issues in 1990. 3 Portland General discontinued its real estate operations. Current and prior years' amounts are not reflected in operating revenues and net operating income. 4 Includes $.02 for tax benefits from ESOP dividends. 5 Includes long-term debt, preferred stock subject to mandatory redemption requirements and long-term capital lease obligations.
23 23 Item 7. Management's Discussion and Analysis of Condition and Results of Operations General Results of Operations Portland General Corporation (Portland General) reported 1994 earnings of $100 million or $1.99 per share. Portland General Electric (PGE or the Company), an electric utility company and Portland General's principal operating subsidiary, performed well, contributing $95 million to Portland General's earnings. 1994 Compared to 1993 PGE accounts for substantially all of Portland General's assets, revenues and net income. The following discussion focuses on utility operations, unless noted. Portland General's 1994 earnings of $100 million, $1.99 per share, compared favorably to 1993 earnings of $89 million, $1.88 per share. In 1994 previously recorded real estate reserves of $6 million, after tax, or $.13 per share, were restored to income as a result of the substantial completion of divestiture of real estate investments. Income from continuing operations was $93 million compared to $89 million in 1993. Customer growth and increased wholesale activity resulted in strong energy sales for the year. Kilowatt-hour (kWh) sales increased 8% over the prior year, adding $60 million to revenues. Weather adjusted retail load grew approximately 2.5% with the addition of nearly 13,700 retail customers. Wholesale kWh sales escalated 69% reflecting the availability of low cost power for resale and the Company's active wholesale marketing of energy throughout the Western United States. Accrued revenues of $19 million, relating to power cost deferrals, were down substantially from the $67 million in 1993. PGE deferred for later collection a portion of incremental Trojan Nuclear Plant (Trojan) replacement power costs for nine months during 1993. Nuclear cost savings allowed PGE to operate the last nine months of 1994 without the need for additional power cost deferrals. An 8% increase in total sales combined with a 14% decline in PGE's hydro generation contributed to a $35 million increase in variable power costs. Strong performance at PGE's thermal generating facilities allowed PGE to generate 47% of its total system load compared to 42% in 1993. Generation at coal fired plants increased 20%, with all plants producing above last year's levels. Despite the increased generation at its thermal plants, average fuel costs decreased by 4% due to low natural gas prices. These factors contributed to a reduction in total average variable power costs to 19.1 mills/Kwh from 19.4 mills/Kwh (10 mills = 1 cent) in 1993. Operating expenses (excluding variable power costs, depreciation, decommissioning and amortization) decreased by $24 million. Continued emphasis on cost reductions at Trojan resulted in $30 million in decreased nuclear operating expenses. Since plant closure in 1993, the number of PGE nuclear employees has dropped from 984 to 166 and correspondingly, annual nuclear operating expenses have declined from 24 24 approximately $96 million to $15 million. Increases in operating costs on PGE's distribution system partially offset nuclear cost savings. The $4 million increase in other income reflects an increase in accrued interest on deferred power costs and a gain on the sale of non-utility property, partially offset by provisions for litigation costs. Allowance for funds used during construction increased $4 million primarily due to the level of construction expenditures at the Coyote Springs Generation Project (Coyote Springs) in 1994, which helped offset increased interest costs on short-term borrowings. 1993 Compared to 1992 Portland General reported 1993 earnings of $89 million, $1.88 per share, compared to $90 million, $1.93 per share, in 1992. In 1992, upon approval from the Oregon Public Utility Commission (PUC), PGE applied capital treatment to $18 million of Trojan steam generator repair costs which were incurred in 1991. As a result, $11 million, after tax, was restored to 1992 earnings. Excluding this event, 1992 earnings would have been $79 million. Regulatory action, continued customer growth and cost reductions were the major contributors to the 1993 results. Operating revenues increased $64 million over 1992. In August 1993, the PUC authorized PGE to defer, for later collection, 50% of the incremental Trojan replacement power costs incurred from July 1, 1993, through March 31, 1994. This authorization, coupled with the 80% deferral in place for the period from December 4, 1992, to March 31, 1993, (see the Power Cost Recovery discussion in the Financial and Operating Outlook section below) allowed the Company to record $67 million of revenues related to the future recovery of replacement power costs. Retail load growth of 2.6% and cooler weather during the early part of the year increased Kwh sales 5% for 1993. Wholesale revenue declined $30 million due to the lack of low-cost power for resale. Operating expenses (excluding variable power costs, depreciation, decommissioning and amortization) declined 14% for 1993 due to a $53 million decline in nuclear expenses from closing Trojan. Nuclear operating expenses for 1993 reflect the amortization of Trojan miscellaneous closure and transition costs (which were accrued and capitalized at December 31, 1992). These costs are amortized as payments are made. During 1993 the Company amortized $45 million to nuclear operating expenses. Variable power costs increased $90 million in 1993. The average variable power cost increased from 15 mills per kWh in 1992 to 19 mills per Kwh in 1993. Trojan generated 16% of the Company's 1992 power needs at an average fuel cost of 4 mills per Kwh. This generation was primarily replaced by power purchases at an average price of 24 mills per Kwh. However, good performance at PGE's generating plants helped control the increase of variable power costs. PGE's Beaver plant operated well in 1993, generating 13% more power than in 1992. Company-owned hydro production rose 21%. Additional maintenance outage time caused generation at Units 3 and 4 of the Colstrip Coal Plant (Colstrip) to decline which slightly reduced the Company's 1993 thermal generation from the 1992 level (excluding Trojan). Fuel cost increased from 9 mills per Kwh to 10 mills per Kwh driving 1993 fuel expense up $5 million. 25 25 Depreciation, decommissioning and amortization increased $24 million in 1993. The 1992 amount includes a credit of $18 million associated with the capitalization of 1991 Trojan steam generator repair costs discussed above. The remaining increase reflects depreciation charges for new plant placed in service. Other income increased slightly reflecting accrued interest on deferred charges and declining interest costs, partially offset by an increase in charitable contributions of approximately $4 million. 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, asset sales, leasing rentals, short- and intermediate-term borrowing, and the sale of Portland General's common stock. In 1994 Portland General replaced its expiring committed borrowing facilities with a $15 million committed borrowing facility. Portland General received $62 million in dividends from PGE. In February 1994 Portland General issued 2.3 million shares of common stock. The $41 million of proceeds were used to purchase additional shares of PGE common stock. In addition, Portland General received $9 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 is the primary source of cash used for day to day operating needs of PGE. The Company 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. Cash provided by operations increased primarily due to growth in operating revenues which were comprised of fewer non-cash revenues. This was partially offset by a related increase in tax payments and a $20 million prepayment made to the IRS (see below). Cash provided by operations increased slightly in 1993 as compared to 1992 reflecting lower income tax payments. 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 PGE is contesting. In September 1994, PGE made a $20 million prepayment to the IRS to mitigate the interest cost exposure, if any, related to the alleged tax deficiency. The prepayment is refundable with interest should PGE prevail. See Notes 4 and 4A, Income Taxes, in the Notes to Financial Statements for further information. Investing Activities are primarily for generation, transmission and distribution facilities and energy efficiency improvements at PGE. PGE's capital expenditures for 1994 of $247 million were primarily for new generating resources and expansion and upgrade of its transmission and distribution system. PGE's capital expenditures for 1995 are expected to be at similar levels. Capital expenditures for distribution, system improvements and energy efficiency investmentsare expected to be approximately $180 million in 1996 . At this time the Company will proceed with obtaining required site permits for potential new generating resources but does not anticipate new construction in the foreseeable future. PGE pays $11 million per year into an external trust for the future costs of Trojan decommissioning. 26 26 Financing Activities provide supplemental cash for day-to-day operations and PGE's capital requirements. Internal funding will cover the majority of the Company's 1995 capital expenditures. PGE anticipates continued access to capital markets to finance the remainder. The maturities of intermediate and long-term debt are chosen to match expected asset lives and maintain a balanced maturity schedule. Short-term debt, which includes commercial paper and lines of credit, is used for day- to-day operations. PGE has committed borrowing facilities of $120 million and $80 millon which are used primarily as backup for PGE's $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 December 31, 1994, PGE could issue $370 million of preferred stock and $430 million of additional First Mortgage Bonds. During 1994 PGE received proceeds of $41 million from the issuance of 2.3 million shares of $3.75 par value common stock to Portland General. PGE redeemed 200,000 shares of its $100 par value 8.10% preferred stock series. In late 1994, the Company issued $30 million of three year notes and $45 million of seven year notes. PGE also borrowed $22 million against the assets of its Corporate Owned Life Insurance (COLI) program at variable rates. Proceeds from these activities were used to fund PGE's construction program. The Company has engaged in the limited use of derivative financial instruments as a means of managing its exposure to interest rate fluctuations. The Company does not use these financial instruments for speculative purposes. In November 1994, PGE entered into two $25 million interest rate swap agreements to hedge the cost of new long-term debt expected to be issued in mid-1995. See Note 8, Long-Term Debt in the Notes to Financial Statements for further discussion. Financial and Operating Outlook General Rate Filing In late 1993, PGE filed a general rate case with the PUC requesting an increase in electric rates by an average of 5.1% to take effect January 1, 1995. PGE's request included a return on equity of 11.5% and 11.8% for the years 1995 and 1996 respectively, down from the current authorized return of 12.5%, and full recovery of the Trojan investment and decommissioning costs. In early 1994 PGE and the PUC staff reached settlement on the majority of non-Trojan issues. In July 1994, PGE agreed to the PUC staff's request to delay a final order addressing all rate case matters to no later than March 31, 1995 in return for approval of a first quarter 1995 power cost deferral. 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). In early November 1994, PGE and the PUC staff entered into a stipulation jointly recommending to the PUC a settlement on all outstanding cost of capital issues which included an 11.6% return on equity for the years 1995 and 1996. The PUC staff recommended that PGE be allowed to recover 100% of Trojan decommissioning and transition costs and 85.9% of the remaining Trojan investment. If the PUC staff's recommendation on Trojan were the ultimate outcome of the regulatory process, PGE estimates that it could record a loss of up to approximately $39 million. Hearings were held in January 1995 and PGE expects a rate order no later than March 31, 1995. Trojan Related Issues Plant Shutdown and Transition Costs - In early 1993, PGE ceased commercial operation of Trojan. 27 27 Since plant closure PGE has committed itself to a safe and economical transition toward a decommissioned plant. Transition costs associated with operating and maintaining the spent fuel pool and securing the plant until dismantlement begins are estimated at $51 million for the period 1995 through 1998 inclusive. These costs are paid from current operating funds. Investment Recovery - PGE's pending general rate case addresses recovery of Trojan plant costs (see General Rate Filing discussion above), including decommissioning. In the interim, the PUC authorized PGE to continue recovery of depreciation and decommissioning costs at previously approved rates. PGE made the decision to permanently cease commercial operation of Trojan as part of its least cost planning process. Management determined that continued operation of Trojan was not cost effective. Least cost analysis assumed that 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. In 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. Management believes that the PUC will grant future revenues to cover all, or substantially all, of Trojan plant costs with an appropriate return. However, recovery of the Trojan plant investment and 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 its last general rate proceeding, the PUC has not previously addressed recovery of costs related to a prematurely retired plant when the decision to close the plant was based upon a least cost planning process. While the PUC Staff has recommended recovery of 85.9% of the Trojan investment and full recovery of decommissioning costs, the ultimate decision will be made by the PUC. Due to uncertainties inherent in a public process, management cannot predict, with certainty, whether the PUC will allow recovery of all, or substantially all, of the $342 million Trojan plant investment and $339 million of decommissioning costs. 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. Portland General's independent accountants are satisfied that management's assessment regarding the ultimate outcome of the regulatory process is reasonable. Due to the inherent uncertainties in the regulatory process discussed above, the magnitude of the amounts involved and the possible impact on the results of operations for a future reporting period, the independent accountants have added a paragraph to their audit report to give emphasis to this matter. Decommissioning - In January 1995 PGE submitted a decommissioning plan to the Nuclear Regulatory Commission (NRC) and Energy Facility Siting Council of Oregon (EFSC). PGE estimates the cost to decommission its share of Trojan is $351 million in nominal dollars (actual dollars expected to be spent in each year). The decommissioning cost estimate reflects expected cost savings from PGE's plan for the early removal of some of Trojan's large components. Since the large component removal project (LCRP) will be completed prior to NRC and EFSC approval of PGE's decommissioning plan, specific approval of the LCRP was obtained from EFSC in November 1994. The decommissioning estimate represents a site specific decommissioning cost estimate performed for Trojan by an experienced decommissioning engineering firm. This cost estimate assumes that the majority of decommissioning activities will occur between 1997 and 2001, beginning with the removal of certain large plant components while 28 28 construction of a temporary dry spent fuel storage facility is taking place. The plan anticipates final site restoration activities will begin in 2018 after PGE completes shipment of spent fuel to a United States Department of Energy (USDOE) facility. The federal repository which was originally scheduled to begin operations in 1998 is now estimated to commence no earlier than 2010. On-site storage capacity is able to accommodate fuel until the federal facilities are available. PGE collects revenues from customers for decommissioning costs and deposits them into an external trust fund. PGE expects any future changes in estimated decommissioning costs to be incorporated in revenues to be collected from customers. SCE Complaint - 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 exchange agreement under which SCE is obligated to pay to PGE a reservation fee equal to $16.9 million annually, through 2010. SCE is seeking termination of the agreement and damages. Competition The Energy Policy Act of 1992 and the California Public Utility Commission Industry Restructuring Proposal (Restructuring Proposal) have caused utilities to address their competitive environment. The 1994 Restructuring Proposal outlines an electric services industry in which consumers are gradually allowed direct access to generation suppliers, marketers, brokers and other service providers in the competitive marketplace for energy services. Although presently operating in a cost-based regulated environment, PGE expects increasing competition from other forms of energy and other suppliers of electricity. PGE's ownership of 950 megawatts of transmission rights on the Pacific Northwest Intertie (Intertie) provides it access to power and wholesale customers beyond its service territory. Customer Growth and Revenues PGE's customer base grew by 13,700 retail customers in 1994, which led to a 2.5% increase in weather-adjusted retail Kwh sales. In 1994, 11,900 residential customers were added to the system compared to 9,300 in 1993. The Company estimates retail load growth in 1995 to be approximately the same level as 1994. In addition, PGE plans to actively market wholesale energy throughout the Western United States. Power Cost Recovery PGE operates without a power cost adjustment tariff, therefore adjustments for power costs above or below those used in existing general tariffs are not automatically reflected in customers' rates. As a result, PGE has obtained PUC approval to defer incremental replacement power costs related to the closure of Trojan. The following table sets out the amounts deferred and the collection status of the 1993 and 1994 deferrals. In accordance with Oregon law, collection of the deferrals is subject to PUC review of PGE's reported earnings, adjusted for the regulatory treatment of unusual and/or non- recurring items, as well as the determination of an appropriate rate of return on equity for a given review period. 29 29
Synopsis of Power Cost Deferrals Deferral Earnings Amounts Period Covered Rate Review Deferred Collected December 4, 1992 80% Approved (1) $53 million $12 million - March 31, 1993 (4)(a) July 1, 1993 - 50% Mid-1995 (2) $55 million N/A March 31, 1994 (4)(b) January 1, 1995 - 40% Mid-1995 (3) N/A N/A March 31, 1995 (1) Approved for collection which began on 4/1/94. (2) Subject to earnings review for the period 4/1/93 through 3/31/94 to be filed on June 30, 1995. (3) Subject to earnings review for the period 4/1/94 through 3/31/95 to be filed on June 30, 1995. (4) Includes accrued interest of (a) $9 million and (b) $6 million.
Power Supply PGE expects to generate approximately 50% of its 1995 load requirements from company owned resources. Coyote Springs, a 220 megawatt cogeneration facility under construction near Boardman, Oregon is expected to be completed and on-line in late 1995. PGE expects to purchase the remainder of its 1995 load requirement. Although early predictions of 1995 water conditions indicate they will be about 95% of normal, efforts to restore salmon runs on the Columbia and Snake Rivers may affect the supply and price of purchased power. Additional factors that could affect purchased power include weather conditions in the Northwest during winter months and in California and the Southwest during the summer months, and the performance of major generating facilities in those regions. Restoration of Salmon Runs - Several species of Snake River salmon are protected as threatened under the Endangered Species Act (ESA). The federal government has taken emergency actions that have reduced the amount of electricity generated at the Columbia and Snake River dams in an attempt to save the endangered fish. In January 1995 the National Marine Fisheries Service (NMFS) released a draft plan calling for altering the management of federal dams and reservoirs in the Columbia River basin in order to protect dwindling salmon stocks. The plan takes steps to boost river flows while young salmon are migrating and further reduces the water available for generation. NMFS is empowered by the ESA to require salmon protection measures by the Bureau of Reclamation and the Army Corps of Engineers, which operate the federal dams. The Columbia river and its tributaries produce nearly two thirds of the electricity used in the region. PGE purchases power from many sources, including the mid-Columbia dams. Reductions in the amount of water allowed to flow through the dams' turbines reduces generation and increases 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 power costs. Hydro Relicensing - PGE's licenses for its hydroelectric generating plants under the Federal Power Act will expire during the years 2001 to 2006. PGE is actively pursuing relicensing of these low-cost power resources. Fuel Supply Natural Gas - In addition to the agreements discussed below the Company utilizes short-term agreements and spot-market purchases to secure transportation capacity and gas supplies sufficient to fuel plant operations. PGE seeks to manage a portion of market risk associated with the fluctuations in the price of natural gas through its hedging program. PGE entered into hedge agreements to fix the price of a portion of the natural gas purchased to fuel operations at its Beaver plant during October 1994 through February 1995. Additional natural gas hedging activity is expected in 1995. The Company does not enter into natural gas hedging agreements for speculative purposes. See Note 9, Commitments in Notes to Financial Statements for further discussion. 30 30 Beaver - PGE owns 90% of a pipeline which directly connects Beaver Beaver to Northwest Pipeline (NWP), an interstate gas pipeline operating between British Columbia and New Mexico. PGE presently has access to 30,000 MMBtu per day of firm capacity on NWP or enough to operate Beaver at approximately 30% of capacity. The contracted firm capacity on NWP increases in late 1995 to 76,000 MMBtu per day or enough to operate Beaver at approximately 70% capacity. Coyote Springs - During 1994 PGE took assignment of existing firm transportation capacity on the interconnected systems of various shippers sufficient to deliver 41,000 MMBtu per day of natural gas from Alberta, Canada to Coyote Springs. This service should be sufficient to fuel 100% of plant operations and will start in late 1995 when the plant is expected to come on-line. In late 1995 PGE will begin purchasing under two-year contracts for the supply of natural gas to Coyote Springs at a 75% load factor. Nonutility Bonneville Pacific Litigation - Portland General, Portland General Holdings, Inc. (Holdings), and certain affiliated individuals, along with others, have been named as defendants in a class action by investors in Bonneville Pacific Corporation (Bonneville Pacific) and in a suit filed by the bankruptcy trustee for Bonneville Pacific. The class action includes allegations of various violations of federal and Utah securities laws and of the Racketeer Influenced and Corrupt Organizations Act (RICO). The suit by the bankruptcy trustee for Bonneville Pacific alleges RICO violations and RICO conspiracy, collusive tort, civil conspiracy, common law fraud, negligent misrepresentation, breach of fiduciary duty, liability as a partner for the debts of a partnership and other actionable wrongs. Holdings has filed a complaint seeking approximately $228 million in damages against Deloitte & Touche and certain parties associated with Bonneville Pacific alleging that it relied on fraudulent and negligent statements and omissions when it acquired a 46% interest in and made loans to Bonneville Pacific. A detailed report released in June 1992, by a U.S. Bankruptcy examiner outlined a number of questionable transactions that resulted in gross exaggeration of Bonneville Pacific's assets prior to Holdings' investment. This report includes the examiner's opinion that there was significant mismanagement and very likely fraud at Bonneville Pacific. For background information and further details, see Note 13, Legal Matters in the Notes to Financial Statements. 31 31 Appendix (Electronic Filing Only) Omitted graphic material: Page 8 Retail Price v. Inflation graph comparing PGE retail price (cents per KWh) to Portland CPI: Retail Price CPI 1985 5.12 106.7 1986 5.0 108.2 1987 4.93 110.9 1988 4.77 114.7 1989 4.69 120.3 1990 4.57 127.4 1991 4.69 134 1992 4.78 140 1993 4.86 143.6 1994 4.97 147.7 Page 10 1994 Actual Power Sources pie chart: (megawatt hours) PGE Hydro: 10% (2,022,000) Coal: 24% (4,918,000) Secondary Purchases: 20% (4,036,000) Firm Purchases: 33% (6,905,000) Combustion Turbines: 13% (2,766,000) Page 11 1995 Forecasted Power Sources pie chart: (megawatt hours) PGE Hydro: 12% (2,356,000) Coal: 24% (4,810,000) Secondary Purchases: 16% (3,173,000) Firm Purchases: 34% (6,784,000) Combustion Turbines: 14% (2,912,000) Page 11 Loads v. Firm Resources graph: (average MW) Loads Firm Resources 1990 1973 2078 1991 2018 2071 1992 2138 2225 1993 2195 2022 1994 2350 1887 1995 2398 2068 1996 2431 2073 1997 2481 2017 1998 2531 2049 1999 2583 2038 Page 24 Operating Revenue and Net Income (Loss) graph: ($ Millions): Operating Net Revenue Income 1990 852 100 1991 890 -50 1992 883 90 1993 947 89 1994 959 100 Page 24 PGE Electricity Sales graph: (Billions of KWh) 1990 Residential 6.4 Commercial 5.5 Industrial 3.6 Wholesale 4.3 1991 Residential 6.5 Commercial 5.6 Industrial 3.6 Wholesale 3.9 1992 Residential 6.3 Commercial 5.8 Industrial 3.6 Wholesale 2.7 1993 Residential 6.8 Commercial 6.0 Industrial 3.8 Wholesale 1.6 1994 Residential 6.7 Commercial 6.2 Industrial 3.9 Wholesale 2.7 Page 25 Retail Revenues and Power Costs Graph: (Mills/KWh) Net Variable Retail Power Revenues 1990 8 50 1991 10 52 1992 11 53 1993 17 56 1994 16 53 Page 25 Operating Expenses graph: ($ Millions) 1990 Operating Costs 302 Variable Power 200 Depreciation 90 1991 Operating Costs 361 Variable Power 226 Depreciation 112 1992 Operating Costs 327 Variable Power 222 Depreciation 99 1993 Operating Costs 283 Variable Power 311 Depreciation 122 1994 Operating Costs 262 Variable Power 347 Depreciation 124 Page 26 Utility Capital Expenditures graph: ($ Millions) 1990 115 1991 150 1992 159 1993 149 1994 247 Page 27 Capitalization graph: ($ Millions) 1990 Long-term Debt 763 Common Equity 771 Preferred Stock 152 1991 Long-term Debt 913 Common Equity 679 Preferred Stock 150 1992 Long-term Debt 874 Common Equity 724 Preferred Stock 152 1993 Long-term Debt 803 Common Equity 744 Preferred Stock 140 1994 Long-term Debt 806 Common Equity 834 Preferred Stock 120 Page 29 Residential Customers graph: (Thousands) 1984 454732 1985 461076 1986 470136 1987 476481 1988 484293 1989 496165 1990 512913 1991 526699 1992 536111 1993 545410 1994 557338 Management's Statement of Responsibility Portland General Corporation's management is responsible for the preparation and presentation of the consolidated financial statements in this report. Management is also responsible for the integrity and objectivity of the statements. Generally accepted accounting principles have been used to prepare the statements, and in certain cases informed estimates have been used that are based on the best judgment of management. Management has established, and maintains, a system of internal accounting controls. The controls provide reasonable assurance that assets are safeguarded, transactions receive appropriate authorization, and financial records are reliable. Accounting controls are supported by written policies and procedures, an operations planning and budget process designed to achieve corporate objectives, and internal audits of operating activities. Portland General's Board of Directors includes an Audit Committee composed entirely of outside directors. It reviews with management, internal auditors and independent auditors, the adequacy of internal controls, financial reporting, and other audit matters. Arthur Andersen LLP is Portland General's independent public accountant. As a part of its annual audit, selected internal accounting controls are reviewed in order to determine the nature, timing and extent of audit tests to be performed. All of the corporation's financial records and related data are made available to Arthur Andersen LLP. Management has also endeavored to ensure that all representations to Arthur Andersen LLP were valid and appropriate. Joseph M. Hirko Vice President Finance, Chief Financial Officer, Chief Accounting Officer and Treasurer Report of Independent Public Accountants To the Board of Directors and Shareholders of Portland General Corporation: We have audited the accompanying consolidated balance sheets and statements of capitalization of Portland General Corporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As more fully discussed in Note 5 to the consolidated financial statements, the realization of assets related to the abandoned Trojan Nuclear Plant in the amount of $681 million is dependent upon the ratemaking treatment as determined by the Public Utility Commission of Oregon. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Portland General Corporation and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. Arthur Andersen LLP Portland, Oregon, February 7, 1995 32 32 Item 8. Financial Statements and Supplementary Data
Portland General Corporation and Subsidiaries Consolidated Statements of Income For the Years Ended December 31 1994 1993 1992 (Thousands of Dollars except per share amounts) Operating Revenues $959,409 $946,829 $883,266 Operating Expenses Purchased power and fuel 347,125 311,713 222,127 Production and distribution 61,891 73,576 93,677 Maintenance and repairs 47,391 55,320 70,496 Administrative and other 100,596 100,321 112,010 Depreciation, decommissioning and amortization 124,081 122,218 98,706 Taxes other than income taxes 52,151 55,730 55,515 733,235 718,878 652,531 Operating Income Before Income Taxes 226,174 227,951 230,735 Income Taxes 71,878 69,770 67,235 Net Operating Income 154,296 158,181 163,500 Other Income (Deductions) Interest expense (71,653) (70,802) (73,895) Allowance for funds used during construction 4,314 785 2,769 Preferred dividend requirement - PGE (10,800) (12,046) (12,636) Other - net of income taxes 16,901 13,000 9,885 Income From Continuing Operations 93,058 89,118 89,623 Discontinued Operations Gain on disposal of real estate operations - net of income taxes of $4,226 6,472 - - Net Income $ 99,530 $ 89,118 $ 89,623 Common Stock Average shares outstanding 49,896,685 47,392,185 46,887,184 Earnings per average share Continuing operations $1.86 $1.88 $1.93 * Discontinued operations 0.13 - - Earnings per average share $1.99 $1.88 $1.93 * Dividends declared per share $1.20 $1.20 $1.20 * Includes $.02 for tax benefits from ESOP dividends.
Portland General Corporation and Subsidiaries Consolidated Statements of Retained Earnings For the Years Ended December 31 1994 1993 1992 (Thousands of Dollars) Balance at Beginning of Year $ 81,159 $ 50,481 $19,635 Net Income 99,530 89,118 89,623 ESOP Tax Benefit & Amortization of Preferred Stock Premium (1,705) (1,524) (2,505) 178,984 138,075 106,753 Dividends Declared on Common Stock 60,308 56,916 56,272 Balance at End of Year $118,676 $ 81,159 $ 50,481 The accompanying notes are an integral part of these consolidated statements.
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Portland General Corporation and Subsidiaries Consolidated Balance Sheets At December 31 1994 1993 (Thousands of Dollars) Assets Electric Utility Plant - Original Cost Utility plant (includes Construction Work in Progress of $148,267 and $46,679) $2,563,476 $2,370,460 Accumulated depreciation (958,465) (894,284) 1,605,011 1,476,176 Capital leases - less amortization of $25,796 and $23,626 11,523 13,693 1,616,534 1,489,869 Other Property and Investments Leveraged leases 153,332 155,618 Net assets of discontinued real estate operations 11,562 31,378 Trojan decommissioning trust, at market value 58,485 48,861 Corporate Owned Life Insurance, less loan of $21,731 in 1994 65,687 72,612 Other investments 28,626 29,552 317,692 338,021 Current Assets Cash and cash equivalents 17,542 3,202 Accounts and notes receivable 91,418 91,641 Unbilled and accrued revenues 158,259 133,476 Inventories, at average cost 43,269 46,534 Prepayments and other 38,347 22,128 348,835 296,981 Deferred Charges Unamortized regulatory assets Trojan abandonment - plant 342,276 366,712 Trojan abandonment - decommissioning 338,718 355,718 Trojan - other 65,922 66,387 Income taxes recoverable 217,967 228,233 Debt reacquisition costs 32,245 34,941 Energy efficiency programs 58,894 39,480 Other 30,182 33,857 WNP-3 settlement exchange agreement 173,308 178,003 Miscellaneous 16,698 21,126 1,276,210 1,324,457 $3,559,271 $3,449,328 Capitalization and Liabilities Capitalization Common stock $ 189,358 $ 178,630 Other paid-in capital 563,915 519,058 Unearned compensation (13,636) (19,151) Retained earnings 118,676 81,159 858,313 759,696 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 835,814 842,994 1,813,831 1,742,394 Current Liabilities Long-term debt and preferred stock due within one year 81,506 51,614 Short-term borrowings 148,598 159,414 Accounts payable and other accruals 104,254 109,479 Accrued interest 19,915 18,581 Dividends payable 18,109 17,657 Accrued taxes 27,778 25,601 400,160 382,346 Other Deferred income taxes 687,670 660,248 Deferred investment tax credits 56,760 60,706 Deferred gain on sale of assets 118,939 120,410 Trojan decommissioning and transition costs 396,873 407,610 Miscellaneous 85,038 75,614 1,345,280 1,324,588 $3,559,271 $3,449,328 The accompanying notes are an integral part of these consolidated balance sheets.
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Portland General Corporation and Subsidiaries Consolidated Statements of Capitalization At December 31 1994 1993 (Thousands of Dollars) Common Stock Equity Common stock, $3.75 par value per share 100,000,000 shares authorized, 50,495,492 and 47,634,653 shares outstanding $ 189,358 $ 178,630 Other paid-in capital - net 563,915 519,058 Unearned compensation (13,636) (19,151) Retained earnings 118,676 81,159 858,313 47.3% 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 per share, 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, $100 par value 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 3.8 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% 251,000 242,000 Maturing 2001 through 2005 - 6.47%-9.07% 210,845 166,283 Maturing 2021 through 2023 - 7-3/4%-9.46% 195,000 195,000 Pollution control bonds Port of Morrow, Oregon, variable rate (Average 2.7% for 1994), due 2013 23,600 23,600 City of Forsyth, Montana, variable rate (Average 2.9% for 1994), due 2013 through 2016 118,800 118,800 Amount held by trustee (8,355) (8,537) Port of St. Helens, Oregon, due 2010 and 2014 (Average variable 2.7%-2.9% for 1994) 51,600 51,600 Medium-term notes maturing 1994 through 1996 - 7.19%-8.09% 30,000 50,000 Capital lease obligations 11,523 13,693 Other (317) 101 907,320 884,608 Long-term debt due within one year (71,506) (41,614) 835,814 46.1 842,994 48.4 Total capitalization $1,813,831 100.0% $1,742,394 100.0% The accompanying notes are an integral part of these consolidated statements.
35 35
Portland General Corporation and Subsidiaries Consolidated Statements of Cash Flow For the Years Ended December 31 1994 1993 1992 (Thousands of Dollars) Cash Provided (Used) By - Operations: Net income $ 99,530 $ 89,118 $ 89,623 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 94,217 89,749 113,405 Amortization of WNP-3 exchange agreement 4,695 4,489 5,658 Amortization of deferred charges - Trojan plant 24,417 24,015 - Amortization of deferred charges - Trojan decomm. 11,220 11,220 - Amortization of deferred charges - Trojan other 2,321 2,314 1,609 Amortization of deferred charges - other 2,712 6,713 7,080 Deferred income taxes - net 37,396 61,086 26,480 Other noncash income (677) (1,926) (2,659) Changes in working capital: (Increase) in receivables (24,440) (72,837) (12,736) (Increase) Decrease in inventories 3,264 15,017 (4,181) (Decrease) in payables (1,300) (29,837) (6,231) Other working capital items - net (18,509) 12,473 7,020 Gain from discontinued operations (6,472) - - Deferred items 10,258 (7,174) (12,835) Miscellaneous - net 12,369 17,728 21,260 251,001 222,148 233,493 Investing Activities: Utility construction - new resources (91,342) (28,666) - Utility construction - general (131,675) (101,692) (148,348) Energy efficiency programs (23,745) (18,149) (10,705) Rentals received from leveraged leases 20,886 15,530 9,007 Trojan decommissioning trust (11,220) (11,220) (11,220) Other investments (14,058) (10,763) (7,245) (251,154) (154,960) (168,511) Financing Activities: Short-term debt - net (10,816) 18,736 48,273 Borrowings from Corporate Owned Life Insurance 21,731 - - Long-term debt issued 75,000 252,000 123,000 Long-term debt retired (49,882) (279,986) (143,902) Repayment of nonrecourse borrowings for leveraged leases (18,046) (13,095) (9,035) Preferred stock issued - - - 30,000 Preferred stock retired (20,000) (3,600) (31,225) Common stock issued 50,074 9,520 9,753 Dividends paid (59,856) (56,850) (56,230) (11,795) (73,275) (29,366) Net Cash Provided By (Used In) Continuing Operations (11,948) (6,087) 35,616 Discontinued Operations 26,288 2,600 (30,948) Increase (Decrease) in Cash and Cash Equivalents 14,340 (3,487) 4,668 Cash and Cash Equivalents at the Beginning of Year 3,202 6,689 2,021 Cash and Cash Equivalents at the End of Year $ 17,542 $ 3,202 $ 6,689 Supplemental disclosures of cash flow information Cash paid during the year: Interest $ 64,895 $ 74,261 $ 72,535 Income taxes 31,539 12,259 22,241 The accompanying notes are an integral part of these consolidated statements.
36 36 Portland General Corporation and Subsidiaries Notes to Financial Statements Note 1 Summary of Significant Accounting Policies Consolidation Principles The consolidated financial statements include the accounts of Portland General Corporation (Portland General) and all of its majority-owned subsidiaries. Significant intercompany balances and transactions have been eliminated. Basis of Accounting Portland General and its subsidiaries' financial statements conform to generally accepted accounting principles. In addition, Portland General Electric Company's (PGE or the Company) accounting policies are in accordance with the requirements and the ratemaking practices of regulatory authorities having jurisdiction. Revenues PGE accrues estimated unbilled revenues for services provided from the meter read date to month-end. Purchased Power PGE credits purchased power costs for the net amount of benefits received through a power purchase and sale contract with the Bonneville Power Administration (BPA). Reductions in purchased power costs that result from this exchange are passed directly to PGE's residential and small farm customers in the form of lower prices. Depreciation PGE's depreciation is computed on the straight-line method based on the estimated average service lives of the various classes of plant in service. Excluding the Trojan Nuclear Plant (Trojan), depreciation expense as a percent of the related average depreciable plant in service was approximately 3.8% in 1994, 3.9% in 1993 and 3.8% in 1992. The cost of renewal and replacement of property units is charged to plant, and repairs and maintenance are charged to expense as incurred. The cost of utility property units retired, other than land, is charged to accumulated depreciation. Allowance for Funds Used During Construction (AFDC) AFDC represents the pretax cost of borrowed funds used for construction purposes and a reasonable rate for equity funds. AFDC is capitalized as part of the cost of plant and is credited to income but does not represent current cash earnings. The average rates used by PGE were 4.65%, 3.52%, and 4.72% for the years 1994, 1993 and 1992, respectively. Income Taxes Portland General files a consolidated federal income tax return. Portland General's policy is to collect for tax liabilities from subsidiaries that generate taxable income and to reimburse subsidiaries for tax benefits utilized in its tax return. Income tax provisions are adjusted, when appropriate, for potential tax adjustments. Deferred income taxes are provided for temporary differences between financial and income tax reporting. See Notes 4 and 4A, Income Taxes, for more details. Amounts recorded for Investment Tax Credits (ITC) have been deferred and are being amortized to income over the approximate lives of the related properties, not to exceed 25 years. Nuclear Fuel Amortization of nuclear fuel (reflected only in 1992 expenses) was based on the quantity of heat produced for the generation of electric energy. 37 37 Investment in Leases Columbia Willamette Leasing (CWL), a subsidiary of Portland General Holdings, Inc. (Holdings), acquires and leases capital equipment. Leases that qualify as direct financing leases and are substantially financed with nonrecourse debt at lease inception are accounted for as leveraged leases. Recorded investment in leases is the sum of the net contracts receivable and the estimated residual value, less unearned income and deferred ITC. Unearned income and deferred ITC are amortized to income over the life of the leases to provide a level rate of return on net equity invested. The components of CWL's net investment in leases as of December 31, 1994 and 1993, are as follows (thousands of dollars):
1994 1993 Lease contracts receivable $ 550,620 $ 600,710 Nonrecourse debt service (434,542) (481,988) Net contracts receivable 116,078 118,722 Estimated residual value 86,202 88,047 Less - Unearned income (39,391) (41,395) Investment in leveraged leases 162,889 165,374 Less - Deferred ITC (9,557) (9,756) Investment in leases, net $ 153,332 $ 155,618
Cash and Cash Equivalents Highly liquid investments with original maturities of three months or less are classified as cash equivalents. WNP-3 Settlement Exchange Agreement The Washington Public Power Supply System Unit 3 (WNP-3) Settlement Exchange Agreement, which has been excluded from PGE's rate base, is carried at present value and amortized on a constant return basis. Regulatory Assets PGE defers, or accrues revenue for, certain costs which would otherwise be charged to expense, if it is probable that future rates will permit recovery of such costs. These costs are reflected as deferred charges or accrued revenues in the financial statements and are amortized over the period in which revenues are collected. Trojan plant and decommissioning costs are currently covered in customer rates. Of the remaining regulatory assets of approximately $500 million, 78% have been treated by the Oregon Public Utility Commission (PUC) as allowable cost of service items in PGE's most recent rate processes. The remaining amounts, primarily comprised of power cost deferrals, are subject to regulatory confirmation in future ratemaking proceedings. Hedge Accounting PGE may use derivative products to hedge against exposures to interest rate and commodity price risks. The objective is to mitigate risks due to market fluctuations associated with external financings or the purchase of natural gas, electricity and related products. PGE's hedging programs are intended to reduce such risks. Gains and losses from derivatives that reduce commodity price risks are recognized as fuel or purchased power expense. Gains and losses from derivatives that reduce interest rate risk of future debt issuances are deferred and amortized over the life of the related debt. Reclassifications Certain amounts in prior years have been reclassified for comparative purposes. 38 38 Note 2 Real Estate - Discontinued Operations Portland General has substantially completed divestiture of its real estate operations in Columbia Willamette Development Company (CWDC). In June 1994, CWDC sold the largest remaining property in its real estate holdings for $16 million. As a result, the real estate reserve was liquidated. Note 3 Employee Benefits Pension Plan Portland General has a non-contributory pension plan (the Plan) covering substantially all of its employees. Benefits under the Plan are based on years of service, final average pay and covered compensation. Portland General's policy is to contribute annually to the Plan at least the minimum required under the Employee Retirement Income Security Act of 1974 but not more than the maximum amount deductible for income tax purposes. The Plan's assets are held in a trust and consist primarily of investments in common stocks, corporate bonds and US government issues. Portland General determines net periodic pension expense according to the principles of SFAS No. 87, Employers' Accounting for Pensions. Differences between the actual and expected return on plan assets is included in net amortization and deferral and is considered in the determination of future pension expense. The following table sets forth the Plan's funded status and amounts recognized in Portland General's financial statements (thousands of dollars):
1994 1993 Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $142,082 and $151,334 $154,320 $166,301 Effect of projected future compensation levels 35,134 32,608 Projected benefit obligation (PBO) 189,454 198,909 Plan assets at fair value 245,225 262,412 Plan assets in excess of PBO 55,771 63,503 Unrecognized net experience gain (54,391) (60,445) Unrecognized prior service costs 12,935 14,147 Unrecognized net transition asset being (19,575) (21,533) recognized over 18 years Pension - prepaid cost (liability) $ (5,260) $ (4,328)
1994 1993 1992 Assumptions: Discount rate used to calculate PBO 8.50% 7.25% 8.00% Rate of increase in future compensation levels 6.50 5.25 6.00 Long-term rate of return on assets 8.50 8.50 8.50
39 39 Net pension expense for 1994, 1993 and 1992 included the following components (thousands of dollars):
1994 1993 1992 Service cost $ 6,199 $ 6,151 $ 6,082 Interest cost on PBO 14,693 14,241 13,792 Actual return on plan assets 6,011 (48,231) (18,272) Net amortization and deferral (25,971) 29,839 1,496 Net periodic pension expense $ 932 $ 2,000 $ 3,098
Other Post-Retirement Benefit Plans Portland General accrues for health, medical and life insurance costs during the employees' service years, per SFAS No. 106. PGE receives recovery for the annual provision in customer rates. Employees are covered under a Defined Dollar Medical Benefit Plan which limits Portland General's obligation by establishing a maximum contribution per employee. The accumulated benefit obligation for postretirement health and life insurance benefits at December 31, 1994 was $27 million, for which there were $25 million of assets held in trust. The benefit obligation for postretirement health and life insurance benefits at December 31, 1993 was $31 million. Portland General also provides senior officers with additional benefits under an unfunded Supplemental Executive Retirement Plan (SERP). Projected benefit obligations for the SERP are $15 million and $16 million at December 31, 1994 and 1993, respectively. Deferred Compensation Portland General provides certain employees with benefits under an unfunded Management Deferred Compensation Plan (MDCP). Obligations for the MDCP are $21 million and $18 million at December 31, 1994 and 1993, respectively. Employee Stock Ownership Plan Portland General has an Employee Stock Ownership Plan (ESOP) which is a part of its 401(k) retirement savings plan. Employee contributions up to 6% of base pay are matched by employer contributions in the form of ESOP common stock. Shares of common stock to be used to match contributions of PGE employees were purchased from a $36 million loan from PGE to the ESOP trust in late 1990. This loan is presented in the common equity section as unearned compensation. Cash contributions from PGE and dividends on shares held in the trust are used to pay the debt service on PGE's loan. As the loan is retired, an equivalent amount of stock is allocated to employee accounts. In 1994, total contributions to the ESOP of $5 million combined with dividends on unallocated shares of $1 million were used to pay debt service and interest on PGE's loan. Shares of common stock used to match contributions by employees of Portland General and its subsidiaries are purchased on the open market. 40 40 Note 4
Income Taxes The following table shows the detail of taxes on income and the items used in computing the differences between the statutory federal income tax rate and Portland General's effective tax rate. Note: The table does not include income taxes related to 1994 gains on discontinued real estate operations (thousands of dollars): 1994 1993 1992 Income Tax Expense: Currently payable $ 48,905 $ 2,989 $ 44,057 Deferred income taxes 26,741 72,889 27,648 Investment tax credit adjustments (4,145) (4,356) (6,981) $ 71,501 $ 71,522 $ 64,724 Provision Allocated to: Operations $ 71,878 $ 69,770 $ 67,235 Other income and deductions (377) 1,752 (2,511) $ 71,501 $ 71,522 $ 64,724 Effective Tax Rate Computation: Computed tax based on statutory federal income tax rates applied to income before income taxes $ 57,596 $ 56,224 $ 52,478 Increases (Decreases) resulting from: Accelerated depreciation 8,283 10,748 9,462 State and local taxes - net 8,953 3,288 10,117 Investment tax credits (4,145) (4,356) (6,981) Excess deferred taxes (767) (3,419) (1,816) USDOE nuclear fuel assessment - 5,075 - Preferred dividend requirement 3,526 3,935 4,296 Other (1,945) 27 (2,832) $ 71,501 $ 71,522 $ 64,724 Effective tax rate 43.5% 44.5% 41.9%
41 41
As of December 31, 1994 and 1993, the significant components of the Company's deferred income tax assets and liabilities were as follows (thousands of dollars): 1994 1993 Deferred Tax Assets Plant-in-service $ 72,012 $ 73,625 Deferred gain on sale of assets 47,134 47,718 Other 51,924 74,334 171,070 195,677 Deferred Tax Liabilities Plant-in-service (444,546) (448,559) Energy Efficiency programs (23,024) (15,395) Trojan abandonment (80,944) (75,948) WNP-3 exchange contract (68,698) (70,542) Replacement power costs (38,136) (29,574) Leasing (146,468) (147,101) Other (40,829) (41,451) (842,645) (828,570) Less current deferred taxes 4,040 842 Less valuation allowance (20,135) (28,197) Total $(687,670) $(660,248) Portland General has recorded deferred tax assets and liabilities for all temporary differences between the financial statement bases and tax bases of assets and liabilities. Portland General has benefits of capital loss carryforwards that presently cannot be offset with capital gains and accordingly has recorded a valuation allowance totalling $20.1 million at December 31, 1994 to fully reserve against these assets. The IRS completed its examination of Portland General's tax returns for the years 1985 to 1987 and has issued a statutory notice of tax deficiency which Portland General is contesting. As part of this audit, the IRS has proposed to disallow PGE's 1985 WNP-3 abandonment loss deduction on the premise that it is a taxable exchange. PGE 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.
42 42 Note 5 Trojan Nuclear Plant Plant Shutdown and Transition Costs - PGE is the 67.5% owner of Trojan. In early 1993 PGE ceased commercial operation of Trojan. Since plant closure PGE has committed itself to a safe and economical transition toward a decommissioned plant. Transition costs associated with operating and maintaining the spent fuel pool and securing the plant until dismantlement begins are estimated at $51 million for the period 1995 through 1998 inclusive. These costs are recorded as part of the Trojan decommissioning reserve and transition costs on the Company's balance sheet. Unlike decommissioning costs which will utilize funds from PGE's Nuclear Decommissioning Trust (NDT), transition costs are paid from current operating funds. Decommissioning - In January 1995 PGE submitted a decommissioning plan to the Nuclear Regulatory Commission (NRC) and Energy Facility Siting Council of Oregon (EFSC). The plan estimates PGE's cost to decommission Trojan at $351 million reflected in nominal dollars (actual dollars expected to be spent in each year). The decommissioning estimate represents a site specific decommissioning cost estimate performed for Trojan by an experienced decommissioning engineering firm. This cost estimate assumes that the majority of decommissioning activities will occur between 1997 and 2001, beginning with the removal of certain large plant components while construction of a temporary dry spent fuel storage facility is taking place. The plan anticipates final site restoration activities will begin in 2018 after PGE completes shipment of spent fuel to a United States Department of Energy (USDOE) facility (see the Nuclear Fuel Disposal discussion below). As noted above, the decommissioning plan reflects PGE's current efforts to remove some of Trojan's large components which is expected to result in overall decommissioning cost savings. Since the Trojan large component removal project (LCRP) will be completed prior to NRC and EFSC approval of PGE's formal decommissioning plan, specific approval of the LCRP was obtained from EFSC in November 1994. Decommissioning activities reflected in the cost estimate include the cost of decommissioning planning, removal and disposal of radioactively contaminated equipment and facilities as required by the NRC; building demolition; nonradiological site remediation; and extended fuel management costs including licensing and surveillance through the year 2018. The Trojan decommissioning plan filed with the NRC was the culmination of a two-year process undertaken by PGE to evaluate the most economical way to safely decommission Trojan in a regulated environment. Both the 1994 update and the 1993 site specific cost estimates are reflected in the financial statements in nominal dollars (actual dollars expected to be spent in each year). The $17 million difference between the 1993 $334 million estimate and the 1994 $351 million estimate, stated in nominal dollars, is due to refinement of the timing and scope of certain dismantlement activities. Stated in 1994 dollars the current estimate of $234 million is not significantly changed from the previous estimate of $230 million. Following is a reconciliation of the decommissioning cost estimate from December 31, 1992 to December 31, 1994 (thousands of dollars): Decommissioning estimate - 12/31/92 $281,779 Adjustments: Site specific cost estimate - 12/31/93 52,431 Rate case testimony filed with PUC - 9/30/94 16,556 NRC decommissioning plan filed - 12/31/94 528 351,294 Decommissioning expenditures through 12/31/94 (4,986) Decommissioning liability - 12/31/94 $346,308 Decommissioning liability $346,308 Transition costs 50,565 Trojan decommissioning liability and transition costs $396,873
PGE expects any future changes in estimated decommissioning costs to be incorporated in future revenues to be collected from customers. PGE collects revenues from customers for decommissioning costs and deposits them into an 43 43 external trust fund. Earnings on the trust fund will be used to adjust the amount of decommissioning costs to be collected from customers. Trojan decommissioning trust assets are invested primarily in investment grade tax- exempt bonds which are available for sale. Year-end balances are valued at market which approximates cost. For the year ended December 31, 1994 and 1993 the trust reflected the following activity (thousands of dollars):
1994 1993 Beginning Balance $48,861 $32,945 Activity Contributions 11,220 11,220 Gain (loss) (1,596) 4,696 Disbursements - - Ending Balance $58,485 $48,861
Investment Recovery - PGE filed a general rate case on November 8, 1993 which addresses recovery of Trojan plant costs, including decommissioning. In late February 1993 the PUC granted PGE accounting authorization to continue using previously approved depreciation and decommissioning rates and lives for its Trojan investment. PGE made the decision to permanently cease commercial operation of Trojan as part of its least cost planning process. Management determined that continued operation of Trojan was not cost effective. Least cost analysis assumed that 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. Management believes that the PUC will grant future revenues to cover all, or substantially all, of Trojan plant costs with an appropriate return. However, recovery of the Trojan plant investment and 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 its last general rate proceeding, the PUC has not previously addressed recovery of costs related to a prematurely retired plant when the decision to close the plant was based upon a least cost planning process. While the PUC Staff has recommended recovery of 85.9% of the Trojan investment and full recovery of decommissioning costs, the ultimate decision will be made by the PUC. If the PUC staff's recommendation on Trojan were the ultimate outcome of the regulatory process, PGE estimates that it could record a loss of up to approximately $39 million. Due to uncertainties inherent in a public process, management cannot predict, with certainty, whether the PUC will allow recovery of all, or substantially all, of the $342 million Trojan plant investment and $339 million of decommissioning costs. 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. Portland General's independent accountants are satisfied that management's assessment regarding the ultimate outcome of the regulatory process is reasonable. Due to the inherent uncertainties in the regulatory process discussed above, the magnitude of the amounts involved and the possible impact on the results of operations for a future reporting period, the independent accountants have added a paragraph to their audit report to give emphasis to this matter. Nuclear Fuel Disposal and Clean up of Federal Plants - PGE contracted with the USDOE for permanent disposal of its spent nuclear fuel in USDOE facilities at a cost of .1 cent per net kilowatt-hour sold at Trojan which PGE pre- paid during the period of Trojan's operations. Significant 44 44 delays are expected in the USDOE acceptance schedule of spent nuclear fuel from domestic utilities. The federal repository which was originally scheduled to begin operations in 1998 is now estimated to commence no earlier than 2010. Based on this projection, PGE anticipates the possibility of difficulties in disposing of its high-level radioactive waste by 2018. However, on-site storage capacity is able to accommodate fuel until the federal facilities are available. The Energy Policy Act of 1992 provided for the creation of a Decontamination and Decommissioning Fund (DDF) to provide for the clean up of the USDOE gas diffusion plants. The DDF is to be funded by domestic nuclear utilities and the Federal Government. The legislation provided that each utility pays based on the ratio of the amount of enrichment services the utility purchased to the total amount of enrichment services purchased by all domestic utilities prior to the enactment of the legislation. Based on Trojan's 1.1% usage of total industry enrichment services, PGE's portion of the funding requirement is approximately $17.3 million. Amounts are funded over 15 years beginning with the USDOE's fiscal year 1993. Since enactment PGE has made the first three of the 15 annual payments with the first annual payment made in September 1993. Nuclear Insurance - The Price-Anderson Amendment of 1988 limits public liability claims that could arise from a nuclear incident to a maximum of $9.0 billion per incident. PGE has purchased the maximum primary insurance coverage currently available of $200 million. The remaining $8.8 billion is covered by secondary financial protection required by the NRC. This secondary coverage provides for loss sharing among all owners of nuclear reactor licenses. In the event of an incident at any nuclear plant in which the amount of the loss exceeds $200 million, PGE could be assessed retrospective premiums of up to $53.5 million per incident, limited to a maximum of $6.75 million per incident in any one year under the secondary financial protection coverage. Based upon Trojan's permanently defueled condition and following the NRC and other regulators' approval, PGE and co-owners carry property insurance coverage on the Trojan plant in the amount of $155 million and self- insure for on-site decontamination. 45 45 Note 6
Common and Preferred Stock Cumulative Preferred Common Stock of Subsidiary Other Number $3.75 Par Number $100 Par $25 Par No-Par Paid-in Unearned of Shares Value of Shares Value Value Value Capital Compensation* (Thousands of Dollars except share amount) December 31, 1991 46,525,163 $174,469 2,269,040 $ 126,904 $ 25,000 - $502,559 $(30,070) Sales of stock 574,538 2,155 300,000 - - $30,000 7,293 - Redemption of stock - - (1,036,000) (3,600) (25,000) - 871 - Repayment of ESOP loan and other - - - - - - (921) 6,592 December 31, 1992 47,099,701 176,624 1,533,040 123,304 - 30,000 509,802 (23,478) Sales of stock 534,952 2,006 - - - - 8,802 - Redemption of stock - - (36,000) (3,600) - - 2,130 - Repayment of ESOP loan and other - - - - - - (1,676) 4,327 December 31, 1993 47,634,653 178,630 1,497,040 119,704 - 30,000 519,058 (19,151) Sales of stock 2,864,839 10,743 - - - - 40,390 - Redemption of stock (4,000) (15) (200,000) (20,000) - 2,055 - Repayment of ESOP loan and other - - - - - - 2,412 5,515 December 31, 1994 50,495,492 $189,358 1,297,040 $ 99,704 $ - $30,000 $563,915 $(13,636) * See the discussion of stock compensation plans below and Note 3, Employee Benefits for a discussion of the ESOP.
Common Stock As of December 31, 1994, Portland General had reserved 2,872,476 authorized but unissued common shares for issuance under its dividend reinvestment plan. In addition, new shares of common stock are issued under an employee stock purchase plan. Cumulative Preferred Stock of Subsidiary No dividends may be paid on common stock or any class of stock over which the preferred stock has priority unless all amounts required to be paid for dividends and sinking fund payments have been paid or set aside, respectively. The 7.75% Series preferred stock has an annual sinking fund requirement which requires the redemption of 15,000 shares at $100 per share beginning in 2002. At its option, PGE may redeem, through the sinking fund, an additional 15,000 shares each year. All remaining shares shall be mandatorily redeemed by sinking fund in 2007. This Series is only redeemable by operation of the sinking fund. The 8.10% Series preferred stock has an annual sinking fund requirement which requires the redemption of 100,000 shares at $100 per share which began in 1994. At its option, PGE may redeem, through the sinking fund, an additional 100,000 shares each year. This Series is redeemable at the option of PGE at $102 per share to April 14, 1995 and at reduced amounts thereafter. Common Dividend Restriction of Subsidiary PGE is restricted from paying dividends or making other distributions to Portland General, without prior PUC approval, to the extent such payment or distribution would reduce PGE's common stock equity capital below 36% of its total capitalization. At December 31, 1994, PGE's common stock equity capital was 47% of its total capitalization. Stock Compensation Plans Portland General has a plan under which 2.3 million shares of Portland General common stock are available for stock-based incentives. Upon termination, expiration or lapse of certain types of awards, any shares remaining subject to the award are again available for grant under the plan. As of December 31, 1994, stock options for 835,300 shares of common stock were outstanding. Options for 15,000 shares are currently exercisable: 2,500 at $17.375 per share; 7,500 at $14.75 per share and 5,000 shares at $17.125 per share. The options for the remaining 820,300 shares are exercisable beginning in 1995 through 1999 at prices ranging from $13 to $22.25 per share. During 1994, Portland General issued 60,882 restricted common shares for officers and selected employees of both Portland General and PGE. As of December 31, 1994, 120,882 restricted common shares under the plan were outstanding for officers and employees. 46 46 Note 7 Short-Term Borrowings At December 31, 1994, Portland General had total committed lines of credit of $215 million. Portland General has a $15 million committed facility expiring in July 1995. PGE has committed facilities of $120 million expiring in July 1997 and $80 million expiring in July 1995. These lines of credit have annual fees ranging from 0.125% to 0.15% and do not require compensating cash balances. The facilities are used primarily as backup for both commercial paper and borrowings from commercial banks under uncommitted lines of credit. At December 31, 1994, there were no outstanding borrowings under the committed facilities. PGE has a $200 million commercial paper facility. Unused committed lines of credit must be at least equal to the amount of PGE's commercial paper outstanding. Commercial paper and lines of credit borrowings are at rates reflecting current market conditions and, generally, are substantially below the prime commercial rate. Short-term borrowings and related interest rates were as follows (thousands of dollars):
1994 1993 1992 As of year end: Aggregate short-term debt outstanding Bank loans - - $ 10,002 Commercial paper $148,598 $159,414 130,676 Weighted average interest rate Bank loans - - 4.4% Commercial paper 6.2% 3.5% 4.1 Unused committed lines of credit $215,000 $240,000 $180,000 For the year ended: Average daily amounts of short-term debt outstanding Bank loans $ 1,273 $ 10,949 $ 7,671 Commercial paper 138,718 123,032 89,077 Weighted daily average interest rate Bank loans 4.3% 3.6% 5.0% Commercial paper 4.5 3.5 4.2 Maximum amount outstanding during the year $174,082 $171,208 $144,056 Interest rates exclude the effect of commitment fees, facility fees and other financing fees.
47 47 Note 8
Long-Term Debt The Indenture securing PGE's First Mortgage Bonds constitutes a direct first mortgage lien on substantially all utility property and franchises, other than expressly excepted property. The following principal amounts of long-term debt become due for redemption through sinking funds and maturities (thousands of dollars): 1995 1996 1997 1998 1999 Sinking Funds $ 1,138 $ 988 $ 688 $ 688 $ 688 Maturities: PGC (Parent only) - $30,000 - - - - PGE $71,356 17,528 $86,385 $64,745 $44,000 $71,356 $47,528 $86,385 $64,745 $44,000 The sinking funds include $988,000 a year for 1995 and 1996 and $688,000 for 1997 through 1999, which, in accordance with the terms of the Indenture, PGE may satisfy by pledging available property additions equal to 166-2/3% of the sinking fund requirements.
Interest Rate Swap Agreements In November 1994, PGE entered into two 10 year forward interest rate swap agreements, each with a notional amount of $25 million. The agreements are used to hedge against interest rate movements on long-term debt which PGE anticipates issuing in mid- 1995. PGE is committed to terminate the agreements on or before May 15, 1995. PGE is exposed to credit risks in the event of nonperformance by the counterparties to these interest rate swap agreements. PGE anticipates that the counterparties will be able to fully satisfy their obligations. Note 9 Commitments Natural Gas Agreements PGE has two long-term agreements for transmission of natural gas from domestic and Canadian sources to PGE's existing and proposed natural gas-fired generating facilities. One agreement provides PGE firm pipeline capacity beginning June, 1993 and increased pipeline capacity in November 1995. The second agreement will give PGE capacity on a second interstate gas pipeline. Under the terms of these two agreements, PGE is committed to paying capacity charges of approximately $5 million during 1995, $14 million annually in 1996 through 1999, and $140 million over the remaining years of the contract which expires in 2015. Under these agreements PGE has the right to assign unused capacity to other parties. In addition, PGE will make a capital contribution for pipeline construction of approximately $3 million in 1995. For the period of October 1994 through February 1995, PGE hedged an average of 38,000 MMBtus per day of physical gas purchases which represented approximately 40% of gas usage for the period. The effect of these agreements was to fix the prices of gas. Railroad Service Agreement In October 1993, PGE entered into a railroad service agreement to deliver coal from Wyoming to the Boardman Coal Plant (Boardman) and is required to contribute $7 million over the 5 years remaining in the contract. Purchase Commitments Other purchase commitments outstanding (principally construction at PGE) totaled approximately $69 million at December 31, 1994. Cancellation of these purchase agreements could result in cancellation charges. 48 48 Purchased Power PGE has long-term power purchase contracts with certain public utility districts in the state of Washington and with the City of Portland, Oregon. PGE is required to pay its proportionate share of the operating and debt service costs of the hydro projects whether or not they are operable. Selected information is summarized as follows (thousands of dollars):
Rocky Priest Portland Reach Rapids Wanapum Wells Hydro Revenue bonds outstanding at December 31, 1994 $218,246 $131,163 $186,425 $195,320 $ 39,190 PGE's current share of output, capacity, and cost Percentage of output 12.0% 13.9% 18.7% 22.7% 100% Net capability in megawatts 155 127 194 191 36 Annual cost, including debt service 1994 $4,500 $3,400 $4,800 $6,600 $4,600 1993 4,000 3,800 5,400 5,500 4,800 1992 3,900 3,100 4,400 4,800 4,400 Contract expiration date 2011 2005 2009 2018 2017
PGE's share of debt service costs, excluding interest, will be approximately $6 million for 1995 and 1996, $7 million for 1997, and $6 million for 1998 and 1999. The minimum payments through the remainder of the contracts are estimated to total $97 million. PGE has entered into long-term contracts to purchase power from other utilities in the west. These contracts will require fixed payments of up to $67 million in 1995, $32 million in 1996, and $22 million in 1997. After that date, capacity contract charges will be up to $25 million annually until 2001. From 2001 until 2016 capacity charges total $19 million annually. Leases PGE has operating and capital leasing arrangements for its headquarters complex, combustion turbines and the coal-handling facilities and certain railroad cars for Boardman. PGE's aggregate rental payments charged to expense amounted to $22 million in 1994 and 1993, and $20 million in 1992. PGE has capitalized its combustion turbine leases. However, these leases are considered operating leases for ratemaking purposes. 49 49
As of December 31, 1994, the future minimum lease payments under non-cancelable leases are as follows (thousands of dollars): Year Ending Operating Leases December 31 Capital Leases (Net of Sublease Rentals) Total 1995 $ 3,016 $ 18,224 $21,240 1996 3,016 18,331 21,347 1997 3,016 18,821 21,837 1998 3,016 18,618 21,634 1999 1,388 19,604 20,992 Remainder - 167,015 167,015 Total 13,452 $260,613 $274,065 Imputed Interest (1,929) Present Value of Minimum Future Net Lease Payments $11,523
Included in the future minimum operating lease payments schedule above is approximately $135 million for PGE's headquarters complex. Note 10 WNP-3 Settlement Exchange Agreement PGE is selling energy received under a WNP-3 Settlement Exchange Agreement (WSA) to the Western Area Power Administration (WAPA) for 25 years, which began October 1990. Revenues from the WAPA sales contract are expected to be sufficient to support the carrying value of PGE's investment. The energy received by PGE under WSA is the result of a settlement related to litigation surrounding the abandonment of WNP-3. PGE receives about 65 average annual megawatts for approximately 30 years from BPA under the WSA. In exchange PGE will make available to BPA energy from its combustion turbines or from other available resources at an agreed- to price. Note 11 Jointly-Owned Plant At December 31, 1994, PGE had the following investments in jointly-owned generating plants (thousands of dollars):
MW PGE % Plant Accumulated Facility Location Fuel Capacity Interest In Service Depreciation Boardman Boardman, OR Coal 508 65.0 $364,947 $164,199 Colstrip 3&4 Colstrip, MT Coal 1,440 20.0 447,053 174,075 Centralia Centralia, WA Coal 1,310 2.5 9,588 5,435 The dollar amounts in the table above represent PGE's share of each jointly-owned plant. Each participant in the above generating plants has provided its own financing. PGE's share of the direct expenses of these plants is included in the corresponding operating expenses on Portland General's and PGE's consolidated income statements.
50 50 Note 12 Regulatory Matters Public Utility Commission of Oregon PGE had sought judicial review of three rate matters related to a 1987 general rate case. In July 1990 PGE reached an out-of-court settlement with the PUC on two of the three rate matter issues being litigated. The settlement resolved the dispute with the PUC regarding treatment of accelerated amortization of certain investment tax credits and 1986-1987 interim relief. The settlement, however, did not resolve the issue related to the gain on PGE's sale of a portion of Boardman and the Intertie. 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. In accordance with the 1987 rate order, the unamortized gain, $119 million at December 31, 1994, is being distributed as a reduction of customer revenue requirements . On January 23, 1995 the Marion County Circuit Court affirmed the PUC's decision in the 1987 rate order discussed above. PGE has sixty days from the date of the decision to appeal. Note 13 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. PGE has agreed to a tentative settlement in the case which would result in a $1 million payment by the Company. Any final settlement will require court approval. Bonneville Pacific Class Action and Lawsuit A complaint was originally filed on August 31, 1992 as the consolidation of various class actions filed on behalf of certain purchasers of Bonneville Pacific Corporation common shares and subordinated debentures. In April 1994 the Court dismissed certain of the plaintiffs' claims and thereafter plaintiffs filed a second amended consolidated class action complaint. The defendants in the action are certain Bonneville Pacific Corporation insiders and other individuals associated with Bonneville Pacific, Portland General Corporation (Portland General), Portland General Holdings, Inc. (Holdings), certain Portland General individuals, Deloitte & Touche (Bonneville's independent auditors) and one of its partners, Mayer, Brown & Platt, a law firm used by Bonneville, and two partners of that firm, three underwriters of a Bonneville offering of convertible subordinated debentures (Kidder, Peabody & Co., Piper Jaffray & Hopwood Incorporated, and Hanifen, Imhoff Inc.), and Norwest Bank, Minnesota, N.A., indenture trustee on a Bonneville Pacific's offering of convertible subordinated debentures. The amount of damages sought is not specified. The claims asserted against Portland General, Holdings, and the Portland General individuals allege violations of federal and Utah state securities laws and of Racketeer Influenced and Corrupt Organizations Act (RICO). Further motions to dismiss have been filed in response to the amended complaint, however hearing on the motions of Portland General, Holdings, and the Portland General individuals has been deferred pending ongoing settlement discussions between those parties and the plaintiffs. A separate legal action was filed on April 24, 1992 by Bonneville Pacific Corporation against Portland General, Holdings, and certain individuals affiliated with Portland General or Holdings alleging breach of fiduciary duty, tortious 51 51 interference, breach of contract, and other actionable wrongs related to Holdings' investment in Bonneville Pacific. On August 2, 1993 an amended complaint was filed by the Bonneville Pacific bankruptcy trustee against Portland General or Holdings and over 50 other defendants unrelated to Portland General or Holdings. This complaint and another subsequent amended version were dismissed by the Court in whole or in part. The Trustee has currently on file his Fifth Amended Complaint. The complaint includes allegations of RICO violations and RICO conspiracy, collusive tort, civil conspiracy, common law fraud, negligent misrepresentation, breach of fiduciary duty, liability as a partner for the debts of a partnership, and other actionable wrongs. Although the amount of damages sought is not specified in the Complaint, the Trustee has filed a damage disclosure calculation which purports to compute damages in amounts ranging from $340 million to $1 billion - subject to possible increase based on various factors. The Portland General parties have again filed motions to dismiss. Arguments were heard in December, 1994, and the motions are awaiting decision by the Court. 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 14 Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and cash equivalents The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of those instruments. Other investments Other investments approximate market value. Redeemable preferred stock The fair value of redeemable preferred stock is based on quoted market prices. Long-term debt The fair value of long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to Portland General for debt of similar remaining maturities. Interest Rate/Natural Gas Hedging The fair value of interest rate and natural gas derivatives is the estimated amount that the Company would receive or pay to terminate the agreements at the reporting date, taking into account current market rates. At year-end 1994 this amount was not material. 52 52 The estimated fair values of financial instruments are as follows (thousands of dollars):
1994 1993 Carrying Fair Carrying Fair Amount Value Amount Value Preferred stock subject to mandatory redemption $ 60,000 $ 60,000 $ 80,000 $ 84,815 Long-term debt PGC (Parent only) $ 30,000 $ 29,887 $ 50,000 $ 53,363 PGE 866,114 824,211 820,814 848,696 $896,114 $854,098 $870,814 $902,059
53 53
QUARTERLY COMPARISON FOR 1994 AND 1993 (Unaudited) Portland General Corporation March 31 June 30 September 30 December 31 (Thousands of Dollars except per share amounts) 1994 Operating revenues $278,014 $202,110 $214,180 $265,105 Net operating income 57,116 31,012 28,667 37,501 Net income 39,165 23,965 11,887 24,513 Common stock Average shares outstanding 48,670,211 50,145,565 50,285,669 50,461,348 Earnings per average share 1 $.80 $.48 $.24 $.49 1993 Operating revenues $276,832 $192,146 $209,250 $268,601 Net operating income 55,187 31,174 23,816 48,004 Net income 36,556 13,328 6,349 32,885 Common stock Average shares outstanding 47,243,743 47,354,072 47,458,575 47,564,862 Earnings per average share 1 $.77 $.28 $.13 $.69 1 As a result of dilutive effects of shares issued during the period, quarterly earnings per share cannot be added to arrive at annual earnings per share.
Portland General Electric Company
March 31 June 30 September 30 December 31 (Thousands of Dollars except per share amounts) 1994 Operating revenues $277,672 $201,773 $213,897 $265,613 Net operating income 54,751 28,727 27,484 42,246 Net income 41,187 18,540 14,807 31,584 Income available for common stock 38,199 15,894 12,224 29,001 1993 Operating revenues $276,304 $191,632 $208,534 $268,061 Net operating income 51,369 30,385 27,656 44,790 Net income 37,382 16,704 14,302 31,356 Income available for common stock 34,314 13,703 11,314 28,367
54 54 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Part III Items 10-13 Information Regarding Directors and Executive Officers of the Registrant Portland General Corporation Information for items 10-13 are incorporated by reference to Portland General's definitive proxy statement to be filed on or about March 27, 1995. Executive officers of Portland General are listed on page 21 of this report. Portland General Electric Company Information for items 10-13 are incorporated by reference to Portland General's definitive proxy statement to be filed on or about March 27, 1995. Executive officers of Portland General Electric are listed on page 21 of this report.
55 55 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Portland General Corporation and Portland General Electric Company (a) Index to Financial Statements and Financial Statement Schedules Page No. PGC PGE Financial Statements Report of Independent Public Accountants 32 66 Consolidated Statements of Income for each of the three years in the period ended December 31, 1994 33 67 Consolidated Statements of Retained Earnings for each of the the three years in the period ended December 31, 1994 33 67 Consolidated Balance Sheets at December 31, 1994 and 1993 34 68 Consolidated Statements of Capitalization at December 31, 1994 and 1993 35 69 Consolidated Statements of Cash Flow for each of the three years in the period ended December 31, 1994 36 70 Notes to Financial Statements 37 71 Financial Statement Schedules Schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto. Exhibits See Exhibit Index on Page 60 of this report. (b) Report on Form 8-K PGC PGE December 7, 1994 - Item 5. Other Events: X X Deferred accounting application withdrawn by PGE. December 29, 1994 - Item 5. Other Events: X X PUC staff recommends that PGE recover 85.9% of Trojan investment.
56 56 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Portland General Corporation March 2, 1995 By /s/ Ken L. Harrison Ken L. Harrison Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Chairman of the Board and /s/ Ken L. Harrison Chief Executive Officer March 2, 1995 Ken L. Harrison Vice President Finance, Chief Financial Officer, Chief Accounting Officer /s/ Joseph M. Hirko and Treasurer March 2, 1995 Joseph M. Hirko *Gwyneth Gamble Booth *Peter J. Brix *Carolyn S. Chambers *John W. Creighton, Jr. *Ken L. Harrison *Jerry E. Hudson Directors March 2, 1995 *Warren E. McCain *Jerome J. Meyer *Randolph L. Miller *Richard G. Reiten *Bruce G. Willison *By /s/ Joseph E. Feltz (Joseph E. Feltz, Attorney-in-Fact) 57 57 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Portland General Electric Company March 2, 1995 By /s/ Ken L. Harrison Ken L. Harrison Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Chairman of the Board and /s/ Ken L. Harrison Chief Executive Officer March 2, 1995 Ken L. Harrison Vice President Finance Chief Financial Officer, Chief Accounting Officer /s/ Joseph M. Hirko and Treasurer March 2, 1995 Joseph M. Hirko *Gwyneth Gamble Booth *Peter J. Brix *Carolyn S. Chambers *John W. Creighton, Jr. *Ken L. Harrison *Jerry E. Hudson Directors March 2, 1995 *Warren E. McCain *Jerome J. Meyer *Randolph L. Miller *Bruce G. Willison *By /s/ Joseph E. Feltz (Joseph E. Feltz, Attorney-in-Fact) 58 58 Note: Although the Exhibits furnished to the Securities and Exchange Commission with the Form 10-K have been omitted herein, they will be supplied upon written request and payment of a reasonable fee for reproduction costs. Requests should be sent to: Joseph M. Hirko Vice President Finance, Chief Financial Officer, Chief Accounting Officer and Treasurer Portland General Corporation 121 SW Salmon Street Portland, OR 97204 59 59
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES EXHIBIT INDEX Number Exhibit PGC PGE (3) * Restated Articles of Incorporation of Portland General Corporation [Pre-effective Amendment No. 1 to Form S-4, Registration No. 33-1987, dated December 31, 1985, Exhibit (B)]. X * Certificate of Amendment, dated July 2, 1987, to the Articles of Incorporation limiting the personal liability of directors of Portland General Corporation [Form 10-K for the fiscal year ended December 31, 1987, Exhibit (3)]. X * Copy of Articles of Incorporation of Portland General Electric Company [Registration No. 2-85001, Exhibit (4)]. X * Certificate of Amendment, dated July 2, 1987, to the Articles of Incorporation limiting the personal liability of directors of Portland General Electric Company [Form 10-K for the fiscal year ended December 31, 1987, Exhibit (3)]. X * Form of Articles of Amendment of the New Preferred Stock of Portland General Electric Company [Registration No. 33-21257, Exhibit (4)]. X * Bylaws of Portland General Corporation as amended on February 5, 1991 [Form 10-K for the fiscal year ended December 31, 1990, Exhibit (10)]. X * Bylaws of Portland General Electric Company as amended on October 1, 1991 [Form 10-K for the fiscal X year ended December 31, 1991, Exhibit (3)]. (4) * Portland General Electric Company Indenture of Mortgage and Deed of Trust dated July 1, 1945; * Fourteenth Supplemental Indenture dated March 1, 1965 (Form 8, Amendment No. 1, dated June 14, 1965). X X * Fifteenth Supplemental Indenture, dated June 1, 1966; Sixteenth Supplemental Indenture, dated October 1, 1967; Eighteenth Supplemental Indenture, dated November 1, 1970; Twentieth Supplemental Indenture, dated November 1, 1972; Twenty-First Supplemental Indenture, dated April 1, 1973; (Registration No. 2-61199, Exhibit 2.d-1). X X
60 60
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES EXHIBIT INDEX Number Exhibit PGC PGE * Fortieth Supplemental Indenture, dated October 1, 1990 [Form 10-K for the fiscal year ended December 31, 1990, Exhibit (4)]. X X * Forty-First Supplemental Indenture dated December 31, 1991 [Form 10-K for the fiscal year ended December 31, X X 1991, Exhibit (4)]. * Forty-Second Supplemental Indenture dated April 1, 1993 [Form 10-Q for the quarter ended March 31,1993, Exhibit (4)]. X X * Forty-Third Supplemental Indenture dated July 1, 1993 [Form 10-Q for the quarter ended September 30, 1993, Exhibit (4)]. X X * Forty-Fourth Supplemental Indenture dated August 1, 1994 [Form 10-Q for the quarter ended September 30, 1994, Exhibit (4)]. X X Other instruments which define the rights of holders of long-term debt not required to be filed herein will be furnished upon written request. (10) * Residential Purchase and Sale Agreement with the Bonneville Power Administration [Form 10-K for the fiscal year ended December 31, 1981, Exhibit (10)]. X X * Power Sales Contract and Amendatory Agreement Nos. 1 and 2 with Bonneville Power Administration [Form 10-K for the fiscal year ended December 31, 1982, Exhibit (10)]. X X The following 12 exhibits were filed in conjunction with the 1985 Boardman/Intertie Sale: * Long-term Power Sale Agreement, dated November 5, 1985 [Form 10-K for the fiscal year ended December 31, 1985, Exhibit (10)]. X X * Long-term Transmission Service Agreement, dated November 5, 1985 [Form 10-K for the fiscal year ended December 31, 1985, Exhibit (10)]. X X * Participation Agreement, dated December 30, 1985 [Form 10-K for the fiscal year ended December 31, 1985, Exhibit (10)]. X X
61 61
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES EXHIBIT INDEX Number Exhibit PGC PGE * Lease Agreement, dated December 30, 1985 [Form 10-K for the fiscal year ended December 31, 1985, Exhibit (10)]. X X * PGE-Lessee Agreement, dated December 30, 1985 [Form 10-K for the fiscal year ended December 31, 1985, Exhibit (10)]. X X * Asset Sales Agreement, dated December 30, 1985 [Form 10-K for the fiscal year ended December 31, 1985, Exhibit (10)]. X X * Bargain and Sale Deed, Bill of Sale and Grant of Easements and Licenses, dated December 30, 1985 [Form 10-K for the fiscal year ended December 31, 1985, Exhibit (10)]. X X * Supplemental Bill of Sale, dated December 30, 1985 [Form 10-K for the fiscal year ended December 31, 1985, Exhibit (10)]. X X * Trust Agreement, dated December 30, 1985 [Form 10-K for the fiscal year ended December 31, 1985, Exhibit (10)]. X X * Tax Indemnification Agreement, dated December 30, 1985 [Form 10-K for the fiscal year ended December 31, 1985, Exhibit (10)]. X X * Trust Indenture, Mortgage and Security Agreement, dated December 30, 1985 [Form 10-K for the fiscal year ended December 31, 1985, Exhibit (10)]. X X * Restated and Amended Trust Indenture, Mortgage and Security Agreement, dated February 27, 1986 [Form 10-K for the fiscal year ended December 31, 1985, Exhibit (10)]. X X * Portland General Corporation Outside Directors' Deferred Compensation Plan, 1990 Restatement dated November 1, 1990 [Form 10-K for the fiscal year ended December 31, 1990, Exhibit (10)]. X X * Portland General Corporation Retirement Plan for Outside Directors, 1990 Restatement dated July 10, 1990 [Form 10-K for the fiscal year ended December 31, 1990, Exhibit (10)]. X X
62 62
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES EXHIBIT INDEX Number Exhibit PGC PGE * Portland General Corporation Outside Directors Life Insurance Benefit Plan, Amendment No. 2 dated December 3, 1989 [Form 10-K for the fiscal year ended December 31, 1989, Exhibit (10)]. X X * Portland General Corporation Outside Directors' Stock Compensation Plan, Amended and Restated December 6, 1989 [Form 10-K for the fiscal year ended December 31, X 1991, Exhibit (10)]. Portland General Corporation outside Directors' Stock Compensation Plan, Amendment No. 1 dated February 8, 1994 [Form 10-Q for the quarter ended March 31, 1994, Exhibit (10)]. X (23) Portland General Corporation Consent of Independent Public Accountants (filed herewith). X Portland General Electric Company Consent of Independent Public Accountants (filed herewith). X (24) Portland General Corporation Power of Attorney (filed herewith). X Portland General Electric Company Power of Attorney (filed herewith). X (99) Form 11-K relating to Employee Stock Purchase Plan of Portland General Corporation (filed herewith). X Executive Compensation Plans and Arrangements (10) * Portland General Corporation Management Deferred Compensation Plan, 1990 Restatement dated November 1, 1990 [Form 10-K for the fiscal year ended December 31, 1990, Exhibit (10)]. X X * Portland General Corporation Management Deferred Compensation Plan, Amendment No. 1 dated December 16, 1991 [Form 10-K for the fiscal year ended December 31, X X 1991, Exhibit (10)]. * Portland General Corporation Senior Officers Life Insurance Benefit Plan, Amendment No. 2 dated December 3, 1989 [Form 10-K for the fiscal year ended December 31, 1989, Exhibit (10)]. X X * Portland General Corporation Annual Incentive Master Plan [Form 10-K for the fiscal year ended December 31, 1987, Exhibit (10)]. X X
63 63
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES EXHIBIT INDEX Number Exhibit PGC PGE (10) * Portland General Corporation Annual Incentive Master Plan, Cont. Amendments No. 1 and No. 2 dated March 5, 1990 [Form 10-K for the fiscal year ended December 31, 1989, Exhibit (10)]. X X * Portland General Electric Company Annual Incentive Master Plan [Form 10-K for the fiscal year ended December 31, 1987, Exhibit (10)]. X * Portland General Electric Company Annual Incentive Master Plan, Amendments No. 1 and No. 2 dated March 5, 1990 [Form 10-K for the fiscal year ended December 31, 1989, Exhibit (10)]. X * Portland General Corporation Supplemental Executive Retirement Plan, 1990 Restatement dated July 10, 1990 [Form 10-K for the fiscal year ended December 31, 1990, Exhibit (10)]. X X * Portland General Corporation Supplemental Executive Retirement Plan, Amendment No. 1 dated January 1, 1991, [Form 10-K for the fiscal year ended December 31, 1991, X X Exhibit (10)]. Change in Control Severance Agreement, effective October 1, 1994 (filed herewith). X X * Portland General Corporation Amended and Restated 1990 Long-Term Incentive Master Plan, amended July 1993. X * Portland General Corporation 1990 Long-Term Incentive Master Plan, Amendment No. 1 dated February 8, 1994. X Portland General Corporation Financial Data Schedule - UT (filed herewith - Electronic Filing Only). X Portland General Electric Company Financial Data Schedule - UT (filed herewith - Electronic Filing Only). X * Incorporated by reference as indicated.
64 64 APPENDIX PORTLAND GENERAL ELECTRIC COMPANY TABLE OF CONTENTS PART II Page Item 8. Financial Statements and Notes . . . . . . 67 65 65
Management's Statement of Responsibility PGE's management is responsible for the preparation and presentation of the consolidated financial statements in this report. Management is also responsible for the integrity and objectivity of the statements. Generally accepted accounting principles have been used to prepare the statements, and in certain cases informed estimates have been used that are based on the best judgment of management. Management has established, and maintains, a system of internal accounting controls. The controls provide reasonable assurance that assets are safeguarded, transactions receive appropriate authorization, and financial records are reliable. Accounting controls are supported by written policies and procedures, an operations planning and budget process designed to achieve corporate objectives, and internal audits of operating activities. PGE's Board of Directors includes an Audit Committee composed entirely of outside directors. It reviews with management, internal auditors and independent auditors, the adequacy of internal controls, financial reporting, and other audit matters. Arthur Andersen LLP is PGE's independent public accountant. As a part of its annual audit, selected internal accounting controls are reviewed in order to determine the nature, timing and extent of audit tests to be performed. All of the corporation's financial records and related data are made available to Arthur Andersen LLP Management has also endeavored to ensure that all representations to Arthur Andersen LLP were valid and appropriate. Joseph M. Hirko Vice President Finance, Chief Financial Officer, Chief Accounting Officer and Treasurer Report of Independent Public Accountants To the Board of Directors and Shareholder of Portland General Electric Company: We have audited the accompanying consolidated balance sheets and statements of capitalization of Portland General Electric Company and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As more fully discussed in Note 5 to the consolidated financial statements, the realization of assets related to the abandoned Trojan Nuclear Plant in the amount of $681 million is dependent upon the ratemaking treatment as determined by the Public Utility Commission of Oregon. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Portland General Electric Company and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. Arthur Andersen LLP Portland, Oregon, February 7, 1995
66 66 Item 8. Financial Statements and Supplementary Data
Portland General Electric Company and Subsidiaries Consolidated Statements of Income For the Years Ended December 31 1994 1993 1992 (Thousands of Dollars) Operating Revenues $958,955 $944,531 $880,098 Operating Expenses Purchased power and fuel 347,125 311,713 222,127 Production and distribution 61,891 73,576 93,677 Maintenance and repairs 47,389 55,320 70,476 Administrative and other 97,987 98,408 107,657 Depreciation, decommissioning and amortization 124,003 121,898 98,039 Taxes other than income taxes 52,038 55,676 54,945 Income taxes 75,314 73,740 73,140 805,747 790,331 720,061 Net Operating Income 153,208 154,200 160,037 Other Income (Deductions) Allowance for equity funds used during construction 271 - 311 Other 15,500 11,771 7,717 Income taxes 377 (1,752) 2,511 16,148 10,019 10,539 Interest Charges Interest on long-term debt and other 61,493 61,817 64,718 Interest on short-term borrowings 5,788 3,443 2,754 Allowance for borrowed funds used during construction (4,043) (785) (2,458) 63,238 64,475 65,014 Net Income 106,118 99,744 105,562 Preferred Dividend Requirement 10,800 12,046 12,636 Net Income Available for Common Stock $ 95,318 $ 87,698 $ 92,926
Portland General Electric Company and Subsidiaries Consolidated Statements of Retained Earnings For the Years Ended December 31 1994 1993 1992 (Thousands of Dollars) Balance at Beginning of Year $179,297 $165,949 $146,198 Net Income 106,118 99,744 105,562 ESOP Tax Benefit & Amortization of Preferred Stock Premium (1,705) (1,524) (2,505) 283,710 264,169 249,255 Dividends Declared Common stock 56,442 72,826 70,670 Preferred stock 10,800 12,046 12,636 67,242 84,872 83,306 Balance at End of Year $216,468 $179,297 $165,949 The accompanying notes are an integral part of these consolidated statements.
67 67
Portland General Electric Company and Subsidiaries Consolidated Balance Sheets At December 31 1994 1993 (Thousands of Dollars) Assets Electric Utility Plant - Original Cost Utility plant (includes Construction Work in Progress of $148,267 and $46,679) $2,563,476 $2,370,460 Accumulated depreciation (958,465) (894,284) 1,605,011 1,476,176 Capital leases - less amortization of $25,796 and $23,626 11,523 13,693 1,616,534 1,489,869 Other Property and Investments Trojan decommissioning trust, at market value 58,485 48,861 Corporate Owned Life Insurance, less loan of $21,731 in 1994 40,034 52,008 Other investments 26,074 25,706 124,593 126,575 Current Assets Cash and cash equivalents 9,590 2,099 Accounts and notes receivable 91,672 85,169 Unbilled and accrued revenues 158,259 133,476 Inventories, at average cost 43,269 46,534 Prepayments and other 37,040 20,646 339,830 287,924 Deferred Charges Unamortized regulatory assets Trojan abandonment - plant 342,276 366,712 Trojan abandonment - decommissioning 338,718 355,718 Trojan - other 65,922 66,387 Income taxes recoverable 217,967 228,233 Debt reacquisition costs 32,245 34,941 Energy efficiency programs 58,894 39,480 Other 30,182 33,857 WNP-3 settlement exchange agreement 173,308 178,003 Miscellaneous 13,682 18,975 1,273,194 1,322,306 $3,354,151 $3,226,674 Capitalization and Liabilities Capitalization Common stock equity $ 834,226 $ 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 805,814 802,994 1,759,744 1,689,895 Current Liabilities Long-term debt and preferred stock due within one year 81,506 41,614 Short-term borrowings 148,598 129,920 Accounts payable and other accruals 104,612 111,647 Accrued interest 19,084 17,139 Dividends payable 15,702 21,486 Accrued taxes 32,820 27,395 402,322 349,201 Other Deferred income taxes 549,160 534,194 Deferred investment tax credits 56,760 60,706 Deferred gain on sale of assets 118,939 120,410 Trojan decommissioning and transition costs 396,873 407,610 Miscellaneous 70,353 64,658 1,192,085 1,187,578 $3,354,151 $3,226,674 The accompanying notes are an integral part of these consolidated balance sheets.
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Portland General Electric Company and Subsidiaries Consolidated Statements of Capitalization At 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 470,008 433,978 Unearned compensation (12,596) (17,799) Retained earnings 216,468 179,297 834,226 47.4% 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 2.8 70,000 4.2 Not subject to mandatory redemption, $100 par value 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% 251,000 242,000 Maturing 2001 through 2005 - 6.47%-9.07% 210,845 166,283 Maturing 2021 through 2023 - 7-3/4%-9.46% 195,000 195,000 Pollution control bonds Port of Morrow, Oregon, variable rate (Average 2.7% for 1994), due 2013 23,600 23,600 City of Forsyth, Montana, variable rate (Average 2.9% for 1994), due 2013 through 2016 118,800 118,800 Amount held by trustee (8,355) (8,537) Port of St. Helens, Oregon, due 2010 and 2014 (Average variable 2.7%-2.9% for 1994) 51,600 51,600 Capital lease obligations 11,523 13,693 Other (317) 101 877,320 834,608 Long-term debt due within one year (71,506) (31,614) 805,814 45.8 802,994 47.5 Total capitalization $1,759,744 100.0% $1,689,895 100.0% The accompanying notes are an integral part of these consolidated statements.
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Portland General Electric Company and Subsidiaries Consolidated Statements of Cash Flow For the Years Ended December 31 1994 1993 1992 (Thousands of Dollars) Cash Provided (Used) By - Operations: Net income $ 106,118 $ 99,744 $ 105,562 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 94,140 89,718 113,270 Amortization of WNP-3 exchange agreement 4,695 4,489 5,658 Amortization of deferred charges - Trojan plant 24,417 24,015 - Amortization of deferred charges - Trojan decomm. 11,220 11,220 - Amortization of deferred charges - Trojan other 2,321 2,314 1,609 Amortization of deferred charges - Other 2,712 6,713 7,080 Deferred income taxes - net 25,720 60,721 4,252 Other non-cash revenues (271) - (311) Changes in working capital: (Increase) in receivables (31,166) (67,431) (9,588) (Increase) Decrease in inventories 3,264 15,017 (4,181) Increase (Decrease) in payables 335 (26,588) (2,084) Other working capital items - net (19,266) 10,600 7,328 Deferred items 10,258 (7,174) (12,858) Miscellaneous - net 7,374 15,869 18,982 241,871 239,227 234,719 Investing Activities: Utility construction - new resources (91,342) (28,666) - Utility construction - general (131,675) (101,692) (148,348) Energy efficiency programs (23,745) (18,149) (10,705) Trojan decommissioning trust (11,220) (11,220) (11,220) Other investments (9,954) (7,133) (5,883) (267,936) (166,860) (176,156) Financing Activities: Short-term debt - net 18,678 29,855 27,939 Borrowings from Corporate Owned Life Insurance 21,731 - - Long-term debt issued 75,000 252,000 123,000 Long-term debt retired (29,882) (266,986) (123,902) Preferred stock issued - - 30,000 Preferred stock retired (20,000) (3,600) (31,225) Common stock issued 41,055 - - Dividends paid (73,026) (84,951) (82,293) 33,556 (73,682) (56,481) Increase (Decrease) in Cash and Cash Equivalents 7,491 (1,315) 2,082 Cash and Cash Equivalents at the Beginning of Year 2,099 3,414 1,332 Cash and Cash Equivalents at the End of Year $ 9,590 $ 2,099 $ 3,414 Supplemental disclosures of cash flow information Cash paid during the year: Interest $ 60,038 $ 68,232 $ 64,452 Income taxes 44,918 17,242 61,915 The accompanying notes are an integral part of these consolidated statements.
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Portland General Electric Company and Subsidiaries Notes to Financial Statements Certain information, necessary for a sufficient understanding of PGE's financial condition and results of operations, is substantially the same as that disclosed by Portland General in this report. Therefore, the following PGE information is incorporated by reference to Part II of Portland General's Form 10-K on the following page numbers. Page Notes to Financial Statements Note 1A. Summary of Significant Accounting Policies 37 Note 3A. Employee Benefits 39 Note 5A. Trojan Nuclear Plant 43 Note 6A. Preferred Stock 46 Note 8A. Long-Term Debt 48 Note 9A. Commitments 48 Note 10A. WNP-3 Settlement Exchange Agreement 50 Note 11A. Jointly-Owned Plant 50 Note 12A. Regulatory Matters 51 Note 13A. Legal Matters 51 Note 14A. Fair Value of Financial Instruments 52 Management's Discussion and Analysis of Financial Condition and Results of Operations 24
71 71 Note 4A Income Taxes The following table shows the detail of taxes on income and the items used in computing the differences between the statutory federal income tax rate and Portland General Electric Company's (PGE) effective tax rate (thousands of dollars):
1994 1993 1992 Income Tax Expense Currently payable $ 49,216 $ 14,086 $ 59,804 Deferred income taxes 29,667 65,481 17,584 Investment tax credit adjustments (3,946) (4,075) (6,759) $ 74,937 $ 75,492 $ 70,629 Provision Allocated to: Operations $ 75,314 $ 73,740 $ 73,140 Other income and deductions (377) 1,752 (2,511) $ 74,937 $ 75,492 $ 70,629 Effective Tax Rate Computation Computed tax based on statutory federal income tax rates applied to income before income taxes $63,369 $ 61,333 $ 59,905 Increases (Decreases) resulting from: Accelerated depreciation 8,080 9,207 9,462 State and local taxes - net 9,839 9,783 10,568 Investment tax credits (3,946) (4,075) (6,759) USDOE nuclear fuel assessment - 5,050 - - Excess deferred tax (767) (3,419) (1,816) Other (1,638) (2,387) (731) $ 74,937 $ 75,492 $ 70,629 Effective tax rate 41.4% 43.1% 40.1%
72 72 As of December 31, 1994 and 1993, the significant components of PGE's deferred income tax assets and liabilities were as follows (thousands of dollars):
1994 1993 Deferred Tax Assets Plant-in-service $ 72,012 $ 73,625 Deferred gain on sale of assets 47,134 47,718 Other 22,246 22,968 141,392 144,311 Deferred Tax Liabilities Plant-in-service (444,546) (448,559) Energy Efficiency programs (23,024) (15,395) Trojan abandonment (80,944) (75,948) Replacement power costs (38,136) (29,574) WNP-3 exchange contract (68,698) (70,542) Other (39,826) (40,238) (695,174) (680,256) Less Current deferred taxes 4,622 1,751 Total $(549,160) $ (534,194)
As a result of implementing SFAS No. 109, PGE has recorded deferred tax assets and liabilities for all temporary differences between the financial statement bases and tax bases of assets and liabilities. The IRS completed its examination of Portland General Corporation's (Portland General) tax returns for the years 1985 to 1987 and has issued a statutory notice of tax deficiency which Portland General is contesting. As part of this audit, the IRS has proposed to disallow PGE's 1985 WNP-3 abandonment loss deduction on the premise that it is a taxable exchange. PGE 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 PGE. 73 73 Note 6A Common Stock
Common Stock Other Number $3.75 Par Paid-in Unearned of Shares Value Capital Compensation (thousands of dollars) December 31, 1991 40,458,877 $151,721 $431,517 $(29,759) Sales of stock - - - - - Redemption of preferred - - 565 - stock Repayment of ESOP loan and other - - (409) 6,492 December 31, 1992 40,458,877 151,721 431,673 (23,267) Sales of stock - - - - - Sale and redemption of preferred stock - - 2,130 - Repayment of ESOP loan and other - - 175 5,468 December 31, 1993 40,458,877 151,721 433,978 (17,799) Sales of stock 2,300,000 8,625 32,430 - Redemption of stock - - - - - Sale and redemption of preferred stock - - 2,119 - Repayment of ESOP loan and other - - 1,481 5,203 December 31, 1994 42,758,877 $160,346 $470,008 $ (12,596)
Common Stock Portland General is the sole shareholder of PGE common stock. PGE is restricted, without prior Oregon Public Utility Commission (PUC) approval, from paying dividends or making other distributions to Portland General to the extent such payment or distribution would reduce PGE's common stock equity capital below 36% of total capitalization. At December 31, 1994, PGE's common stock equity capital was 47% of its total capitalization. 74 74 Note 7A Short-Term Borrowings
At December 31, 1994, PGE had a committed facility of $120 million expiring in July 1997 and an $80 million facility expiring in July 1995. These lines of credit have commitment fees and/or facility fees ranging from 0.125 to 0.15 of one percent and do not require compensating cash balances. The facilities are used primarily as back-up for both commercial paper and borrowings from commercial banks under uncommitted lines of credit. At December 31, 1994, there were no outstanding borrowings under the committed facilities. PGE has a $200 million commercial paper facility. Unused committed lines of credit must be at least equal to the amount of commercial paper outstanding. Most of PGE's short-term borrowings are through commercial paper. Commercial paper and lines of credit borrowings are at rates reflecting current market conditions and generally are substantially below the prime commercial rate. Short-term borrowings and related interest rates were as follows (thousands of dollars): 1994 1993 1992 As of year end: Aggregate short-term debt outstanding Bank loans - - - $ 4,001 Commercial paper $148,598 $129,920 96,064 Weighted average interest rate Bank loans - - - 4.1% Commercial paper 6.2% 3.5% 3.9 Unused committed lines of credit $200,000 $200,000 $125,000 For the year ended: Average daily amounts of short-term debt outstanding Bank loans $ 1,273 $ 5,025 $ 2,803 Commercial paper 126,564 94,983 62,036 Weighted daily average interest rate Bank loans 4.3% 3.6% 5.5% Commercial paper 4.6 3.5 4.2 Maximum amount outstanding during year $159,482 $144,774 $101,028 Interest rates exclude the effect of commitment fees, facility fees, and other financing fees.
75 75 EX-23 2 Exhibit (24) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into Portland General Corporation's previously filed Registration Statement No. 33-27462 on Form S-8, Registration Statement No. 33-31441 on Form S-8, Registration Statement No. 33- 40943 on Form S-8, Registration Statement No. 33-49811 on Form S-8, Registration Statement No. 33-50637 on Form S-3 and Registration Statement No. 33-55321 on Form S-3. Arthur Andersen LLP Portland, Oregon, February 7, 1995 1 Exhibit (24) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into Portland General Electric Company's previously filed Registration Statement No. 33-62514 on Form S-3. Arthur Andersen LLP Portland, Oregon, February 7, 1995 2 EX-24 3 POWER OF ATTORNEY The undersigned director(s) of Portland General Electric Company hereby appoint(s) Leonard A. Girard, Joseph M. Hirko and Joseph E. Feltz, and each of them severally, 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, as amended, the Portland General Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 1994. Dated: February 7, 1994 Portland, Oregon /s/ Gwyneth Gamble Booth /s/ Warren E. McCain Gwyneth Gamble Booth Warren E. McCain /s/ Peter J. Brix /s/ Jerome J. Meyer Peter J. Brix Jerome J. Meyer /s/ Carolyn S. Chambers /s/ Randolph L. Miller Carolyn S. Chambers Randolph L. Miller /s/ John W. Creighton, Jr. /s/ Richard G. Reiten John W. Creighton, Jr. Richard G. Reiten /s/ Ken L. Harrison /s/ Bruce G. Willison Ken L. Harrison Bruce G. Willison /s/ Jerry E. Hudson Jerry E. Hudson 1 POWER OF ATTORNEY The undersigned director(s) of Portland General Corporation hereby appoint(s) Leonard A. Girard, Joseph M. Hirko and Joseph E. Feltz, and each of them severally, 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, as amended, the Portland General Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 1994. Dated: February 7, 1994 Portland, Oregon /s/ Gwyneth Gamble Booth /s/ Warren E. McCain Gwyneth Gamble Booth Warren E. McCain /s/ Peter J. Brix /s/ Jerome J. Meyer Peter J. Brix Jerome J. Meyer /s/ Carolyn S. Chambers /s/ Randolph L. Miller Carolyn S. Chambers Randolph L. Miller /s/ John W. Creighton, Jr. /s/ Richard G. Reiten John W. Creighton, Jr. Richard G. Reiten /s/ Ken L. Harrison /s/ Bruce G. Willison Ken L. Harrison Bruce G. Willison /s/ Jerry E. Hudson Jerry E. Hudson 2 EX-99 4 Exhibit (28) SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to Commission file number EMPLOYEE STOCK PURCHASE PLAN (Title of the Plan) PORTLAND GENERAL CORPORATION (Name of the Issuer of the Securities and Employer Sponsoring the Plan) 121 SW Salmon Street Portland OR 97204 (Address of its Principal Executive Office) 1 EMPLOYEE STOCK PURCHASE PLAN OF PORTLAND GENERAL CORPORATION Statements of Financial Condition At December 31 1994 1993 Receivable from Portland General $11,852 $10,446 Participants' Equity $11,852 $10,446 Statements of Income and Changes in Participants' Equity For the Years Ended December 31 1994 1993 1992 Dividend Income $ 5,981 $ 5,243 $ 8,465 Contributions from (Note 2): Participants 231,575 229,940 273,142 Portland General and Affiliates 26,154 25,659 31,796 Distributions to Participants: Cost of 14,582, 12,628, and 18,558 shares of common stock of Portland General issued to participants under the terms of the Plan (including $475, $2,326, and $1,592 in cash) (262,304) (257,904) (318,561) Change in Participants' Equity for the Year 1,406 2,938 (5,158) Participants' Equity, at beginning of year 10,446 7,508 12,666 Participants' Equity, at end of year $ 11,852 $ 10,446 $ 7,508 The accompanying notes are an integral part of these statements. 2 EMPLOYEE STOCK PURCHASE PLAN OF PORTLAND GENERAL CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 1. Portland General Corporation (Portland General) Employee Stock Purchase Plan (Plan) was established to enable employees of Portland General and its affiliates to acquire an ownership interest in Portland General through purchase of its common stock. Portland General acts as custodian for each participant and pays all Plan expenses. Portland General affiliates in turn reimburse Portland General for costs incurred on behalf of their employees. The Plan is not subject to income taxes. The Plan may be altered, amended, or discontinued at any time by Portland General; however, each participant has the rights of an owner of record in shares held by Portland General for the participant's account. Participants' contributions are made through payroll deductions within certain limitations. The price of the common stock to a participant is 90% of a five- day average market price which is determined by dividing the sum of the closing prices of Portland General stock on the New York Stock Exchange on the last five business days ending on or before the 15th day of the month of the allocation, by five. Shares of common stock are purchased directly from Portland General. The amount of Portland General contributions and dividends received by the Plan are reported to participants on a current basis for income tax purposes. NOTE 2. PGE PGC PGH PLC CWL Total 1994 Contributions Employer $ 26,127 $ - $ - $ - $ 27 $ 26,154 Participant 231,345 - - - 230 231,575 Total $257,472 $ - $ - $ - $ 257 $257,729 1993 Contributions Employer $ 25,587 $ 44 - - $ 28 $ 25,659 Participant 229,295 405 - - 240 229,940 Total $254,882 $ 449 - - $ 268 $255,599 1992 Contributions Employer $ 31,109 $ 619 $ 32 $ 27 $ 9 $ 31,796 Participant 267,532 5,065 215 220 110 273,142 Total $298,641 $ 5,684 $ 247 $ 247 $ 119 $304,938 3 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Portland General Corporation: We have audited the accompanying statements of financial condition of the Employee Stock Purchase Plan (Plan) of Portland General Corporation as of December 31, 1994 and 1993, and the related statements of income and changes in participants' equity for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Employee Stock Purchase Plan of Portland General Corporation as of December 31, 1994 and 1993, and the income and changes in participants' equity for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. Portland, Oregon, February 7, 1995 ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 11-K, into Portland General Corporation's previously filed Registration Statement No. 33-27462 on Form S-8, Registration Statement No. 33-31441 on Form S-8, Registration Statement No. 33- 40943 on Form S-8, Registration Statement No. 33-49811 on Form S-8, Registration Statement No. 33-50637 on Form S-3 and Registration Statement No. 33-55321 on Form S-3. Portland, Oregon, February 7, 1995 ARTHUR ANDERSEN LLP 4 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Portland General Corporation: We have audited the accompanying statements of financial condition of the Employee Stock Purchase Plan (Plan) of Portland General Corporation as of December 31, 1994 and 1993, and the related statements of income and changes in participants' equity for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Employee Stock Purchase Plan of Portland General Corporation as of December 31, 1994 and 1993, and the income and changes in participants' equity for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. Portland, Oregon, February 7, 1995 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 11-K, into Portland General Corporation's previously filed Registration Statement No. 33-27462 on Form S-8, Registration Statement No. 33-31441 on Form S-8, Registration Statement No. 33- 40943 on Form S-8, Registration Statement No. 33-49811 on Form S-8, Registration Statement No. 33-50637 on Form S-3 and Registration Statement No. 33-55321 on Form S-3. Portland, Oregon, February 7, 1995 5 EX-10 5 CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AGREEMENT between PORTLAND GENERAL CORPORATION an Oregon corporation ("PGC"), and ("Executive"), dated this of November, 1994. WITNESSETH: WHEREAS, PGC wishes to attract and retain well-qualified executives and key personnel to PGC and its family of companies, and to assure both itself and the Executive of continuity of management in the event of a change in control; NOW, THEREFORE, it is hereby agreed by and between the parties as follows: 1. Operating Agreement. 1.1 For purposes of determining the "Term of this Agreement", this Agreement shall commence as of October 1, 1994, and shall continue in effect through September 30, 1997; provided, however, that commencing on October 1, 1997, and each third anniversary of the commencement date of this Agreement thereafter, the term of this Agreement shall automatically be extended for three (3) additional years unless, not later than June 1 of the year of any such third anniversary, the either party shall have given notice that it does not wish to extend this Agreement; and provided further, that if a Change in Control, as defined in Paragraph 2, of the Company, as defined in Paragraph 1.2, shall have occurred during the original or an extended term of this Agreement, this Agreement shall continue in effect for a period of not less than thirty-six (36) months beyond the month in which such Change in Control occurred. Notwithstanding anything provided herein to the contrary, the term of this Agreement shall not extend beyond the end of the month in which Executive shall attain "normal retirement age" under the provisions of the Portland General Corporation Pension Plan then in effect. 1.2 The term "Company" shall include Portland General Corporation ("PGC"), Portland General Electric Company ("PGE"), and any present or future parent or subsidiary corporation of PGC or PGE (as defined in Sections 425(e) and (f) of the Internal Revenue Code of 1986, as amended) or any successor to such corporations. 2. Change in Control. For purposes of this Agreement, a "Change in Control" shall occur if during the Term of this Agreement: (a) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than PGC or PGE, any trustee or other fiduciary holding securities under an employee benefit plan of PGC or PGE, or any 1 corporation owned, directly or indirectly, by the stockholders of PGC or PGE in substantially the same proportions as their ownership of stock of PGC or PGE), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities representing thirty percent (30%) or more of the combined voting power of PGC's or PGE's then outstanding voting securities; (b) During any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board of Directors of Portland General Corporation ("PGC Board"), and any new director (other than a director designated by a person who has entered into an agreement with PGC to effect a transaction described in clause (a), (c) or (d) of this Paragraph) whose election by the PGC Board or nomination for election by PGC's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors as of the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (c) The stockholders of PGC or PGE approve a merger or consolidation of PGC or PGE with any other corporation, other than (a) a merger or consolidation which would result in the voting securities of PGC or PGE outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of PGC or PGE or such surviving entity outstanding immediately after such merger or consolidation or (b) a merger or consolidation effected to implement a recapitalization of PGC or PGE (or similar transaction) in which no "person" (as hereinabove defined) acquires more than thirty percent (30%) of the combined voting power of PGC's or PGE's then outstanding securities; or (d) The stockholders of PGC or PGE approve a plan of complete liquidation of PGC or PGE or an agreement for the sale or disposition by PGC or PGE of all or substantially all of PGC's or PGE's assets. 3. Employment. PGC hereby agrees to continue the Executive in the Company's employ, and the Executive hereby agrees to remain in the employ of the Company, for the period commencing on the date on which there occurs a Change in Control, and ending upon the earlier of (i) three (3) years thereafter; or (ii) the date upon which the Executive retires (the "Employment Period"). During the Employment Period the 2 Executive shall exercise such authority and perform such executive duties as are commensurate with the authority being exercised and duties being performed by the Executive immediately prior to the commencement of the Employment Period, which services shall be performed at the location where the Executive was employed immediately prior to the commencement of the Employment Period or at such other location as the Company may reasonably require; provided, that the Executive shall not be required to accept a location or travel which is unreasonable in light of the Executive's personal circumstances. The Executive agrees that during the Employment Period the Executive shall devote the Executive's full business time exclusively to the Executive's duties as described herein and perform such duties faithfully and efficiently. 4. Compensation, Compensation Plans, Perquisites. During the Employment Period, the Executive shall be compensated as follows: (a) The Executive shall receive an annual salary which is not less than the Executive's annual salary immediately prior to the commencement of the Employment Period, with the opportunity for increases, from time to time thereafter, which are in accordance with the Company's regular practices. (b) The Executive shall be eligible to participate on a reasonable basis in bonus, stock option, restricted stock and other incentive compensation plans which provide opportunities to receive compensation that are equivalent to the opportunities provided under any such plans in which the Executive was participating immediately prior to the commencement of the Employment Period. (c) The Executive shall be entitled to receive employee benefits (including, but not limited to, medical, insurance and split- dollar life insurance benefits) and perquisites which are equivalent to the employee benefits and perquisites to which the Executive was entitled immediately prior to the commencement of the Employment Period. 5. Termination. The term "Termination" shall mean termination of the employment of the Executive with the Company prior to the end of the Employment Period (i) by the Company for any reason other than death, Disability or Cause (as described below); or (ii) by resignation of the Executive upon the occurrence of either of the following events: (a) A significant detrimental change in the nature or scope of the Executive's authorities or duties from those described in Paragraph 3, a reduction in total compensation or customary increases from that provided in Paragraph 4, or the breach by the Company of any other provision of 3 this Agreement; or (b) A reasonable determination by the Executive that, as a result of a Change in Control and a change in circumstances thereafter significantly affecting the Executive's position, the Executive is unable to exercise the authorities, powers, functions or duties attached to the Executive's position as contemplated by Paragraph 3 of this Agreement. The term "Disability" means that as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of Company's intent to terminate employment is given the Executive shall not have returned to the full-time performance of the Executive's duties. The term "Cause" means gross misconduct or willful and material breach of this Agreement by the Executive. The Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the PGC Board, excluding the Executive if Executive sits on the PGC Board, at a meeting of the PGC Board of which the Executive has been given reasonable notice and at which the Executive, together with the Executive's counsel, have been given the opportunity to be heard by the Board, finding that in the good faith opinion of the PGC Board the Executive was guilty of conduct constituting gross misconduct or willful and material breach of this Agreement and specifying the particulars thereof in detail. 6. Termination Payments. In the event of a Termination, PGC and the Company shall pay to the Executive and provide him with the following: (a) The Company shall pay the Executive's full base salary through the date of termination plus all other amounts to which the Executive is entitled under any Company compensation plan at the time of termination. (b) PGC shall pay the Executive a lump sum severance payment equal to 2.99 multiplied by the Executive's "base amount" as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), reduced as hereafter provided. The base amount shall be determined in accordance with temporary or final regulations, if any, promulgated under Section 280G and based upon the advice of tax counsel selected by PGC's independent auditors and acceptable to the Executive. The severance payment shall be reduced by the amount of any other payment or the value of any benefit the Executive receives in connection with a Change in Control (whether pursuant to the terms of this Agreement or any other plan, agreement or arrangement with the 4 Company, any person whose actions result in a Change in Control, or any person affiliated with the Company or such person) unless (i) Executive has waived receipt of such payment or benefit; (ii) in the opinion of tax counsel selected by PGC's independent auditors and acceptable to the Executive such other payment or benefit does not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code; or (iii) in the opinion of such tax counsel the sum of the severance payment, plus all other payments or benefits constituting "parachute payments" within the meaning of Section 280G(b)(2) of the Code are reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4) of the Code or are otherwise not subject to disallowance as deduction by reason of Section 280G of the Code. The value of any non-cash benefit or any deferred payment or benefit shall be determined by PGC's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. (c) To the extent that the Executive or any of the Executive's dependent's may be covered under the terms of any medical and dental plans of the Company for active employees immediately prior to the Termination, the Company will provide the Executive and those dependents with equivalent coverages for a period not to exceed thirty-six (36) months from the Termination. The coverages may be procured directly by the Company apart from, and outside of the terms of the plans themselves, provided that the Executive and the Executives dependents comply with all of the conditions of the medical or dental plans. In consideration for these benefits, the Executive must make contributions equal to those required from time to time from employees for equivalent coverages under the medical or dental plans. All payments or benefits provided for above shall be made available not later than the thirtieth day following the date of Termination together with interest at the rate provided in Section 1274(b)(2)(B) of the Code computed from the date of Termination. The parties agree that, because there can be no exact measure of the damage which would occur to the Executive as a result of a Termination of Executive by PGC, the payments and benefits shall be deemed to constitute liquidated damages and not a penalty for PGC's Termination of Executive. 7. No Duty of Mitigation. PGC acknowledges and agrees that Executive shall have no duty to mitigate any damages the Executive may incur by reason of Termination under this Agreement and that Executive shall be entitled to receive the payments and benefits provided for in Paragraph 6 above regardless of any income which Executive may receive from other sources after any such termination nor shall it be offset against any amount claimed to the owed by the Executive to the Company. 5 8. Claims Procedure. 8.1 Claims for any benefits due under this Agreement shall be made in writing by the Executive to PGC which shall respond in writing as soon as practicable. Such claim shall state in full the basis of the claim and the factual information to be considered when reviewing the claim for benefits. 8.2 If the claim is denied, the written notice of denial shall state: (a) The reasons for the denial or dispute, with specific reference to the Agreement provisions upon which the denial or dispute is based; and (b) A description of any additional material or information necessary for any reconsideration and an explanation of why it is necessary. 8.3 Any person whose claim is denied or who has not received a response within fifteen (15) days may request review by notice given in writing to the Senior Administrative Officer. The claim shall be reviewed by the Senior Administrative Officer, who may, but shall not be required to grant the claimant a hearing. On review, the claimant may have representation, examine pertinent documents and submit issues and comments in writing. 8.4 The decision of the Senior Administrative Officer on review shall be made within fifteen (15) days. The decision shall be in writing and shall state the reasons and the relevant Agreement provisions. 8.5 "Senior Administrative Officer" shall mean the employee in the management position designated by the Human Resources Committee, or its successor committee, of the PGC Board, to handle administrative matters under this Agreement. 9. Appeals Procedure. Any controversy or claim arising out of or relating to this Agreement or the breach thereof, shall be settled, at the sole option of the Executive, in either of the two methods set forth in subsections (a) and (b) as follows: (a) Arbitration in the City of Portland, Oregon, in accordance with the laws of the State of Oregon by three arbitrators, one of whom shall be appointed by PGC, one by the Executive and the third of whom shall be appointed by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the Chief Judge of the United States District Court for the District of Oregon. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in Paragraph 9. Judgment upon the award 6 rendered by the arbitrators may be entered in any court having jurisdiction thereof; or (b) Suit in any court of competent jurisdiction. 10. Attorneys Fees. If the Executive, in good faith, believes PGC or the Company have failed to pay or provide payment of any amounts required to be paid or provided for hereunder at any time, the Executive shall be entitled to consult with independent counsel, and PGC agrees to pay the reasonable fees and expenses of such counsel for the Executive in advising him in connection therewith or in bringing any proceedings, or in defending any proceedings, including any appeal arising from any proceeding, involving the Executive's rights under this Agreement, such right to reimbursement to be immediate upon the presentment by the Executive of written billings of such reasonable fees and expenses. The Executive shall be entitled to the prime rate of interest established from time to time at United States National Bank of Oregon or its successor for any payments of such expenses, or any other payments under this Agreement, that are overdue. 11. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to the Executive at the last address the Executive has filed in writing with the Company or, in the case of PGC or the Company, at its principal executive offices. 12. Non-Alienation. The Executive shall not have any right to pledge, hypothecate, anticipate or in any way create a lien upon any amounts provided under this Agreement; and no benefits payable hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law. 13. Amendment. This Agreement may be amended or cancelled only by mutual agreement of the parties in writing, without the consent of any other person, and so long as the Executive lives no person, other than the parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereof. 14. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 15. Terms. Whenever necessary in this instrument and where in the context so requires the singular term and the related pronoun shall include the plural, and the masculine, feminine and neuter shall be freely interchangeable. 16. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto pertaining to the employment of the Executive in the event that a 7 Change in Control as described in Paragraph 2 above occurs and supersedes any and all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties with respect thereto, except change of control provisions in the Company's benefit and compensation plans in which Executive is a participant. No supplement, modification or waiver of this Agreement or any provisions hereof shall be binding unless executed in writing by the parties to be bound thereby. 17. Not an Employment Contract. This Agreement shall not in any way affect either the Executive's, PGC's or the Company's right to terminate the employment relationship at any time prior to a Change in Control. In such case, neither the Executive, PGC nor the Company shall have any rights under this Agreement. 18. Governing Law. The provisions of this Agreement shall be construed in accordance with the laws of the State of Oregon. 19. Successors; Binding Agreement. PGC and the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of PGC or the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that PGC or the Company would be required to perform it if no such succession had taken place. Failure of PGC or the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from PGC and the Company in the same amount and on the same terms as the Executive would be entitled to hereunder upon a Termination (as defined in Paragraph 5) following a Change in Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee or, if there is no such designee, to the Executive's estate. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. 8 Executive PORTLAND GENERAL CORPORATION By: Its: 9 EX-27 6 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FILED ON FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1994 FOR PORTLAND GENERAL CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 12-MOS DEC-31-1994 DEC-31-1994 PER-BOOK 1,616,534 317,692 348,835 1,276,210 0 3,559,271 189,358 563,915 118,676 858,313 50,000 69,704 835,814 0 0 148,598 69,195 10,000 9,212 2,311 1,515,336 3,559,271 959,409 71,878 733,235 805,113 154,296 16,901 171,197 67,339 110,330 10,800 99,530 60,308 58,014 251,001 1.99 1.99 INCLUDING CAPITAL LEASE OBLIGATIONS NET OF AMORTIZATION. INCLUDES UNEARNED COMPENSATION OF $13,636,000. NET OF MANDATORY SINKING FUND OF $10,000,000. NET OF CURRENT PORTION. NET OF CURRENT PORTION OF CAPITAL LEASE OBLIGATIONS. EXCLUSIVE OF INTEREST EXPENSE AND PREFERRED DIVIDEND REQUIREMENT. EXCLUDES DISCONTINUED OPERATIONS. INCLUDING AFUDC. PRIOR TO PREFERRED DIVIDEND REQUIREMENT BUT INCLUDES GAIN FROM DISCONTINUED OPERATIONS OF $6,472,000. PORTLAND GENERAL CORPORATION DOES NOT HAVE DILUTIVE SECURITIES OR COMMON STOCK EQUIVALENTS THAT DILUTE PRIMARY EARNINGS PER SHARE BY 3 PERCENT OR MORE AND THEREFORE IT DOES NOT REPORT A FULLY DILUTED EARNINGS PER SHARE. THE AMOUNT SHOWN IS BASED ON THE PRIMARY EARNINGS PER SHARE CALCULATION.
EX-27 7 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FILED ON FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1994 FOR PORTLAND GENERAL ELECTRIC COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 12-MOS DEC-31-1994 DEC-31-1994 PER-BOOK 1,616,534 124,593 339,830 1,273,194 0 3,354,151 160,346 470,008 216,468 834,226 50,000 69,704 805,814 0 0 148,598 69,195 10,000 9,212 2,311 1,364,303 3,354,151 958,955 75,314 730,433 805,747 153,208 16,148 169,356 63,238 106,118 10,800 95,318 56,442 57,714 241,871 0 0 INCLUDING CAPITAL LEASE OBLIGATIONS NET OF AMORTIZATION. INCLUDES UNEARNED COMPENSATION OF $12,596,000. NET OF MANDATORY SINKING FUND OF $10,000,000. NET OF CURRENT PORTION. NET OF CURRENT PORTION OF CAPITAL LEASE OBLIGATIONS. EXCLUSIVE OF INTEREST EXPENSE AND PREFERRED DIVIDEND REQUIREMENT. INCLUDING AFUDC. PRIOR TO PREFERRED DIVIDEND REQUIREMENT. ALL SHARES OF PORTLAND GENERAL ELECTRIC'S STOCK IS OWNED BY PORTLAND GENERAL CORPORATION AND IS NOT PUBLICALLY TRADED. EARNINGS PER SHARE CALCULATIONS ARE NOT REPORTED.
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