Text

Pacific Power & Light Co 1989 Annual Rept
	ML20055F890
Person / Time
Site:	Trojan File:Portland General Electric icon.png
Issue date:	12/31/1989
From:	Drummond G; PACIFICORP (FORMERLY PACIFIC POWER & LIGHT)
To:	;
Shared Package
ML20055F881	List: ML20055F879; ML20055F887; ML20055F889; ML20055F890;
References
	NUDOCS 9007190329
	Download: ML20055F890 (64)
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[ -h 'N ~~ - f * (, J. . ANNQ AL REPOR T 1989-I L ~ wa s 1 -'F // %j'm - - 4 Ay/ q' q -

3 i i r i ifi(lory, ill bIlhillehh hi!!a' 1910. ih sl sliverh5fIcti electril ?yn utility cornpany witil 59 persent of ith 53.7 billion in atinual revertue sterivest frorn provilling CIectric service in seven western states. A 1980 rnerger with Utali l'imvr pohitionh tile colnpan.V sih tile tilirsi largest electrit utility west of'tlle lichky Mounfilinh. Nonelectric bHhillehbeh inclUtle NIllW alhi l'alifIL Telecorn - rnin!ng anti rehource tievelopInent athi telecolnlnUnitations hubsislistries fortnellin the 1970h. ()peratirlR as a rnelged Wstein, the two divi-4 '[ Y sions tornhine to rank as the third largest elev .i; $. in( uuhn in the Weu and the 14th largest in .y _5 [J N ILEGRK OPER Ail 0N5 di the nation in terrns of sales 'l he sen ne area 6 ('./. ? i f ,7,.g@Q:; @ o, includes ponions of Utah. Oregon. Wyorning. MiE5h . {:h Washington. Idaho. Montana and northern rm r-( alifornia kilowatt-hour sales rose three per-ggg I .h 5. (ent in l'3Mll to 4h hilhon lotal energy sales are igt ihvided among several customer (lawifications - M3il Pacific Power and l'tah Power. the two divi-2 4 penent. residential: 1 () perc ent. (onunercial; UIZCM sions of Pacifit orp's electru operations group. 40 penent, industrial, and.18 percent to other (13 provide ele (tricity and related energy servaes to utilities Generating (apatity es(eeds '.000 l.2 nuthon customers in 'to s onununities of a megawatts - h5 penent wal tired.14 penent ^ 'A seven-state servu e territorv. hydroelectra and I penet;t other. - - - ~~ --- - y metals minmg and exploration t. /, ?" A lottune son wmpany in its own right. N1 R( 0 n the nation % ninth largest wal pro-MINING & RESOURCI q< 0(VELOPMINT ducer, with the majorits of its surtate-mined low-sultur mal sohl to electrit utilities under + long-term wntracts ( oal sales were a rewrd 52 Itulliori tofb in 1984 A pnititable and grow-e ing bull ( oast gas and oil unit n the nation \\ Wi ~ (Mth largest gas prodiner N1 Rl OT production IL1h ' Pacihcorp's nuning and resoune develop-of preaous metah ranks it as the nation's tturd ment activities are managed by NI R( O. an 82-largest primary sih et produ(er and tenth wasoprn 3M percent-ow ned subsidian Nl Rl O.s primats largest ( anadian gold produter. husille%es are toal nHning. riatural gas and oil e 5 w-- produc tion and exploration and pretious ' ' D-states An internanonal operation otten world-lf wide vowe and data wmmunications services i o m _. "..g - - ],, ( ) '.( rwg-P*niht leneuunT Mng distante carrier, ""ft TELECOMMUNKAil0NS Alasuun handles approximately M rnilhon p " El ungmatmg (alb annually as the predonunant s.. M_. e* @ f. provider of intentate and intrastate service in ~- Aiasta ihe wmpany s iotai teiephone opera-9 3h t fy h - tions serve 25 tn00 au ess imes in Oregon. $w"_- W.ashmgion. Alaska h iswnsin. Montana Pacitit 'lelewm. an S'-penent owned sub-( o do Idaho and W Wa. 3 sgem. sidiary and one of the nation's largest nonikll tele-twal qmue m h m h 200 1 1 phone wmpanies. operates the onh long distan* wuntnes through undersea tah!e and satclhte telephone wstem servmg all of Alaska lhe wmpa-l g ny provides lot.al telephone servae m parts of nine

p> A t 1 5 si I p l\\ w i n,u tii t s.., *ns n., r iii s i s; ..'n,3.'E 1989 1988 lil.;['S UM OPl RAllN(i RI.st 'I'l$ Revenues 5 3))7 5 4.519 6% 6% Income f rom Operatiorn 1,037 1,046 ili 1 Net income 466 447 4 5 1.arnings Available for ( ommon Stm k 444 426 4 9 11NI A l'I R ( OMMON sH ARI latnings 5 1.81 5 1.73 5% 6% 1)ivklends Pakl 1.35 1.305 3 4 ikok Value 12.29 11 91 3 3 23 % 16 */ u. 18 v. 16 W 31 13 - Stock Price Range. IIN AN' l Al P( AllRIN -\\1 till 1 Mitt R 31 A wets 5 11,M95 5 11,396 4% 9% ( apitalization 7,694 ',585 1 5 Capital Structure j 1.ongJ1erm !)et" and (.apital trase Obligations 57 % 57% l Preferred Stot k 4 4 Common 1.quity 39 39 01 lit R s~l AIisI K s Return on Average (.ommon 1.quity 14.9 % 14.6 % Market to Ikok Value ebut f.thh 186 % 147 % Gnh now' 5 1,121 5 1,123 Common shares ( An rap. Thominh/W ' 245,818 246,410 i uetii iwr ourt amounn,ii wustnt to refini th. two tor.oni tommon sno y hi ettnini ianuan 2 t im (21 IWM%i Lif t n eill-4*fid [if h t ItF f f ofil i t}M'rdllilg dC11Vllies CONSOLIDAilD 1ARNIN05 REVINVE5 AND DIYlDEND5 .MIGt045 N 00LAk5 PAID PER SHARE ' 00uMS 430C ?X 3000 1 50 l I 2000 , oc i I i j 1300 50 E Func5 ewe E te6Kavvtatiam 5 % gte w e Devecomerit B [myy N lledTh Opet0tl0f5 0 ( E )Nt)eri(t old P 64 85 Be 81 B8 89 84 85 Bt 8' 58 P9

I i s t 6 i l' A i s g~ '.m Sg deselop our reasorung for thn conclusion. explore our other findings and present specific financial goals for the coming decade. \\llRGI R hl(( LhhilI - AIORE TO DO 9 With nearly 75 per ent of our net income n(m derived from the electric operations group nonyxned of Pacith I'ower and Utah Power) their financial performance is ven important, NII f.,. b U I O,3 md. In 1984. On pq ddMM Over 1988, 1989 [lHdHild/ PCT /OTHidHCC Wdh d electra revenues were up one pu(ent to 52.2 [illillf COllflHS/Oli !O (l (lvCd(/C O/~ bilhon and earnings contrilnition gained seven +1 pertent to 5 4 in million dcllieVeHient. I he 1..tah Power merger, as these results sug- + Net unome was up tour penent to gest. is a suuess We've met our prke conunit-5466 nulhon ments to tustomers made in the regulatory 41.artungs per wmmon share atter the approval proteu and enhained our competitive . -. - 1..... stos k split gained 5 ns or th e pertent. position w hile maintaining the support of to 51.81 employees whose ettorts achieved these auorn-4 ( (ir11thon dividends were h(h 6ted l 5 Lontinuing to deliver the merger's addition-1989 RIVINUl5 pert en t (PfKl@ al benefits. reducing tosts and increasing energy 6 \\ il penent stm k prae un rease led to sales remain top ob;ectives of the electric opera-a two-tor-one wnunon stoc k split tions group during the current period of stable e ue to be thallenged bs specith goals estabhshed o And. as measured by stot L pnte t harigt to dechmng energy prkes and divuh nd intome. the total annual h was not out original mtention to pursue illvestment returti was 5h percent another merger in 1484 Ilowevet when i While pleased with these results. We wntiri-Pinninle West, owner of an attractive electric ! utilits. \\rizona Publa Service ( ompany, looked as a part of a maior strategn review wmplete-Ske thes might be a merger candidate. it was m 1984 tme to act. Itased on our Utah experience and iou will see us use this annual report as ai elettrk system knowledge merging PacitiCorp opportunity to both share turrent results and and Arizona Pubin Servite operations would cre-1989 [ ARNIN05 des nbe strategh plans and hnanaal goals for ate significant further value for customers and MI" Pacili( orp in the luuns shareholders ahke. And. creating value is our job' \\TR tlI Gic RI VII \\V IOII OlVA NONI l.1 CTRIC ( ORI Ill'AINI Shl:8 O l"IAH Po\\VIR hilRGIR CONTINll TO ADD valli t he year 10x0 began dramatically with tht Nonelectra diversified opcrat ons conduct-closmg of the Utah Power N light merget an ed through N1.REO and Pacific 'lelecom now ovemight cloubhng ot total revenues and earn-represent a smaller percentage of PacitiCorp's ings derived from electrk utihts operations total revenue and earnings However, these oper-In view of thn major event and the ever ations each major enterprises in their own right, t hanging tacton attecting all of our businewes I (ontinue to be important tontributors to O h b>-w asked iern 1)rummond executn e vne presi. Pacit t oro dent. to lead a thorough review and analvsn of Nlla U. the nuning and resource develop-Owm t %,twe= =n. Owmme our strategn p!an and tmancial goak ()ne sig-ment subsidiarv. posted rewrd performante for 3 Fnomo Wes mtitant wrulusion h that the wmpans will the year Revenues rose seven percent to 571I wntinue to be compot J of three wre businew-nullion and earnings contribution gamed 54 es electrk operationv numng and resoune milhon to 5o4 m.llion. des elopment and telemmmunnations in the t oal n still Nilu O s " bread and butter" tollow ing ( orporate st rategv set tion. w e'l: busmeu However the bulk of NI RL UN earn-l \\

r i i. 4 i3 ( utrenth, sescral large users are still hnahring ! ings growth fhms trom large and times pur-l (hases of natural Pas rescrs es in the liult uiast then needs in preparation tot a wwrul market-l area of 1.ouisiana ant. lesas mg meeting 'lakitig ath antage W a bus er s market for ()ur santiago ( hile tellular telephone oper-natural gas reserves during tne... t three years. ation. reat tutig a population base of sis million.

NI.R(() estanhshed itself as one of the nations t ontmues to develop tapalk as that (ountrv%

i top 40 gas podusers. While investmg 5540 nul-emniims remains strong bon in the gas and oil businew sitne 1986 5;n 1 i N()N( ()Rf fit TINI MI 5 Rf f (X [31 f) - bilhon cuba teet of et uvaient gas resen es were a(quired at an averagt prli e of Icw than $1 per Witli tiur diret tia m tot used heavik on the thousand t ubh feet Retent gas prKe leveh indF thier tiite businewes we have deemphasized (ate that our tinung was euellent and the s alue <iut tinatuial servue activity. Businew units with of these reserves will enharht itkome during the WHi inillion in awets have been sold and tur-riest several years ther selet tne restrut turing and downsi7mg h l'ltiinatch NI Rl ( R solid tmantial perf or-underw as Although we will romani active in mathe stems troni its staius as a low 40st pro-(ertain fina'u nal servnes those ;xirtions of the diner m the t oal. natural gas and pret ious niet-ah markets In wmmodity rnarkets hke these (ost (ofitaintuent is the ditteterke between prot-it and lou \\nd. as you might espect, wntain-ing (twls will IR NI R( lh prinlah itKus if t the yt ars ahead. Patitu lele(om also oriios ed a tino yeai Revenues rose 14 per(ent to 565' qullion and earnings (ontributioil grew to Shi nullion. up { 25 pen efit f rom a veaf ago. With strong wntri-butions f rom thith ltwal eu hange and lottg dis-tatu e operatiotis >\\s in the electrh utihts industh we wntin-uo to behese s alue n (reated hv tonsohdating smallet telephone eu hangt (ompanies Although unsu((essf ul in at quiring the An(horage. Alaska munnipal hual euhange operation w heie we obtained 52 per(ent of a required 60 pertent voter approval, we did enter an agreement to atqmre a sigmtaant Wiswmm-based telephone (ompans Ihn 5250 nullion transa(tion. (losing later m 1990. adds n UNin busmess will be retocused to direct!v wmple-ac(ess lines. of 25 pen ent to our custing ment our (ore businewes and overall tas situa-25MKMbauess lme base as well as signithant tion other small notwore businewes were sold. tellular telephone holdings Pau ht lelemm has tlosed or are under wntinu.ng review. several smaller eu hange atqunitions pending Pacita orp ended the detade of the '80s sutx and wntmues to pursue sinular opportumties stannalk stronger and better prepared for the for growth through atquisitions future l ot this I thank our dedhated employees And we are not iust a domesta telemmmu-and los al shareholder whose support will wn-naations wmpanv' In 10S0 grow th in our tmut to make the ditterente in the 1990s internatior'al custorner base and capatits auel-erated while progress wntinued on the trans-l'acilR tiber opth (ahle w heduled for servt(e in late 1940 lollowmg the proietti h.st marketmg \\ M ( > leas. :n ineeting m lokyo, (arners esprewed interest in President and ( hiet I set utn e l itther about 4 5 pert ent of t he t able s t ap.n it y

f d the folloWins interview, Jerry Drutninond, e PacipCorp's executive vice president, shares solne thoughts on the cornpany's strategic plan R>r the 1990s: Al Girason indhated in his letter that Utan Power merget uhen we doubled the site )on directed a thorough trelru of the cornpa-of our electnt operations Our findings, for-nfs Stratryl( plan and finatulal goals. What mahred and adopted in the 1984 strategic had been the (ornpany's stratrgs ! Afr. Drutntnond: Historicalh. our strategy g.h knohd N W WW has been to be both flexible and opportutusth planning proc en? In approac hing (omplex busineu detisions. Af r. Drurntnond: We nied to inmive as t his simple approac h led us to sette diversiti-niant wunger nianagers honi our busineu (ation opportunities that resulted m Pacith 'lelecom and Nilu O. Ultimatch, their suuew units as the protew (ould auommodate. T he result i* they are now having to hve with the plan thev helped treate. \\vhat was incohrd in the proccu? Af r. Drutnmond: We began with a self-examination - how we see oursches and how y, s alid is our utiderstariding of our busineu. Next. we asked where are we inost succentul? Where have we tailed and why? Where should we invest (apital? In shoit. what (an we do to produce masunum shatcholder return within aueptable risk levek What (oruluslorn dhi vou rCach' Af r. Drutntnond: Atter careful study, we came up with not unexpected reuiltv t il Pacitiforp pertof ms best in businewes where existing management has experiente. (2i Management is experiented in capital-intensive industries with long lived awets and in managing Commoditv type businewes. and growth suggested increasing the size of the ih Suneu is lew tertam where outside electric utility in order to restore it to preemi-management has to be auluired along with an nence within our overall businen mix. "his operation or. it) the case of a start up, where led to the merger with Utah Power and our we only provide capital interest in combining with Arizona l ubli' i4i liiversitkation is beneticial up to a herde. point - ar'd we niust take (are not to stret(h Wh.l then wouhl thr t ornpant fr< ornhler managerial resourtes bevond our ability to Mhat appears to br a pron rn approa(tl to provide sound oversight doing businen? ,5, lhe most prornising and attractive Atr. Drurntnond: We know we should peri-ins estment opportu.uties continue to reside m odicalk reawew our direction and goah Such our (ore busineue 't elet trk utility opera-a reaucument was required tollowing the tions. mining an(' source development and

5 r i o- 'pl* l ' s[,,. ~ ~ KIGHT Mans iety on the 2hv deperdo%t> ond ~_ ~ r quahty of IJcscom, the companis statewde bng dis-ton:e ne*wM Ihe untove sateMittbased operchon cott ~' ne:ts Mons wrtt each other and the test of the wtdd g. .y n % '7 _. '.;. . l4 a+ i '.+ 'g kh$hNbGhSN& h ' Y NAhdt$6; f J - )k'l d N 1 ~ ' jG., - R '. $ $ @u & W ) Q w % k k T .~ pe f W.. m wg, 5"- . ',u - w: y M yk ~ u ? Q;f W M: % a $ X Q ? 9 pnif %l$ %Q7 4 f Ar gm w fy.yM6p , jijg W ~ j L .y

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y L' h ~ + +. t.y r . 4 Y: A y .4 , kBOVf Hightottoge ttwtsmtsson knes SU(b Os this company owned '-- A g' I ~_ l kne under cons %nor on Utah, are Interstate highways to wholesale +- ~ enefg> 0Cdth of the Western United States P cIh(otf's 1989 ter-l ? 0 enue from soles tc other unhhes was neoth $270 mdhon l L - -*,-l- ~ EIGH1 Ihtough acoutsthor, devdopmental dnIhng and explorchon. ; ',. g' ~ NIKO conhnves gmwung its Investment un natural gas and oil reserves T.V ' ~. _..s Non produong 180 mdhor cubr< feet daily N!RCO ts the nahon's 38th '.5. . 'j ' -

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m l o r i,. ) hl t elewm m u nic a t io n s in other wordt the las law (hanges are another external fan grass is not greener on the other ude of the tot influenting our plans When the ns.v tax f e n( e. law negath eh affected the wmplementary in w hat ual do ettornal fat fors influrme role of our financial servkes businew. it caused your plata? us to redirect and reduce the size of this unit. increasing cornpetition. risk relative to reward Mr. l)rutntnond: 'I hev have a *.ignificant and higher interen costs are other examples influence. lor instante. both the investment community's view of our wmmon stoc k and of external f actors mfluencing our decision making the federal tax law impact what we do Before the Utah Power merger about 50 We'i r wi rred Jour ifru s on internal percent of total revenue and earnings (ame characterhtf(s and enternal fattors afferfing f rom our nonelectric busmenes liow es er. the strategic plan. P.nat t.dr do inanagr-inent oNn th es fda) ? because a substantial portion of our revenues came f rotn ele (trit operationt we were 101 Af r.1)rumanond: lloth management's and lowed only by electrk utility analysts. We the board of directors' ob ectives play a strong l believe that we would still be viewed by them role in formulating our plant These objectives as an electnc utility even it the electnt portion are umple and (Icar ili maintain an " A" cred-of our busineu had dropped well below 50 it ratmg: G meet financial performance goals; percent. T his wntluuon led us to wnduct and. < h perto m better than peer group aver-l aueuments of each of our units to wntirm ages in each businew and overall. l whether their risks are wnsistent with the Maintaining an " A" credit rating gives us level and type of thks deemed aueptable b) access to capital markets at a reasonable cost. electrk utility investort Although we ar" not at present experiencing y m a e q,c <..e% - p 4 hkN/k, }, (, i b>- ., 06 &a r t A .c ,- w : f j'(~ * %: g"j;,my, s g3 y c k' W %':s .o 9m g .g..,.y i av - . fg e a we

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p r. <g. J m, o, f. btock tI3 ding and pricing patterns a! O Iel! the heav) financing deman( s of a large con-u,- c-ac _ _ _ _ _ _ p,, _ , m., _ _,e heavi!y influctued by interest rat es. our divi-greativ reduce our strategic th Nibility. dend rate and the market % perteption of our Our financial performance goak of annual probable dividend growth rate. k a result and earnings per share growth of six pertent and to try and meet the market s expectations. we dividend growth of tour to 'ive percent repre. view and manage oursehes as though we are a sent the weighted aserage of the individual " pure" electric utilits. es en though we are wn-buuneu umt goak lo achieve these overall sidered one of the nationi most suuentulh goah. electnt operations' more modest earn-diveruf ted elec tric util ties I h n i m p h e'. a ings growth must be augmented by the higher j strong emphaus on earnmes. sh flow and grow th rate espet ted f rom the nonelettric l dividend growth buu newes 1

c-u 7 F ~~ ~ We established these aggreuive financial performance goals to challenge our managert l'INNACl.f IVEST AfLNGER COULD i URTilER GRolsTil Ol'I'ORTUNITILS knowing that it we can at hieve them. our overall financial performance should rank us in late 1989 and again in early 1990, I among the leaders within our peer groups the company made offers to acquire, by another f actor influencitig our stot k prhe merger, Pinnacle West Capital Corporation ; "'" ' ^ " " " * ' *' "'E l What willit take to anale the plan work? originally intended to pursue another elec. j Afr. Druttnrrotul: lot our plan to succeed. l tric utility merger in 1989. However, as ' rnanagement and employees alike must under- ' Pinnacle West, owner of Arizona Public l stand it, support it and deliver the needed Service Conipany, looked like they might l results. Our employees are sensitise to the be a merger candl-absolute i,veu > uintain (osts and improve date, it was time l productivity. 't ha.C ine n not enough Man-to act. ! agers must make everv...,ior deusion with the A combina- ! plan (learly in mind. I xecern e and manage-tion of PactflCorp's ment compensation programs are (aref ulls electric operations tied to our strategk plan and a signitit ant and Arizona Public l amount of top management (ompensation n Service Company I at risk it we tail to at hieve our goals' would enhance Arry < losing thoughts on the des ade the power supply l ahrad? resource base, ex-P*"d U*"'" U" Afr. Drutninorul: In the de(ade of the Nnt

CCC55 I" UU"O management % ettorts will wntinue to tot us on amas of the desert the profitable expansion of out three mainstav Southwest and im-businesset our finantial goals will center on P""

earnings and (ash flow growth bined utilities' l Within the wre businesses wst wntain ment and reductions will wntinue to ret rive mmpeduve Mans I"E I" N* ** the highest level attention We will also seek j Bawd on manage-i to capitahze on benefits available through oui busineu units working together suc h as jomt ment and enginecting experience gleaned j purchase of services or finantial servites' sup. frmn the Utah comNnadon, nwrging j < port of an electric servhe territory economit PaclHCorp and Admna MHc SnWe ; opnadons wou cwa $n cant valu, l development projett. fm cuMonwn and @are m a he. l'inally, PacitiCorp will iemam flexible and direct resources to areas with equity returns Cornhination Could Also l'Irld Cusforner that contribute to our financial goals In doing UCHflIf5 d'ut Sharrholdct Valur i so, we want to build ott of managementT Combining the two companies' electric t expenence and asoid or elinunate investments operations would also produce the substan-requinng disproportionate management ettort tial savings necessary to help contain elec. We will wntinue explonng ways to add to the tric price increases for APS' customers. In taster growth of the nonelettric busmenes. January 1990, APS filed a three year phased while wntinuing to look for value enhancmg 22 percent price increase request. additions to the electnc utility busmew PaciflCorp, as with the Utah merger, pro-i In short. I beheve that Pacitit orp's flexible poses to share merger benefits with cus-and opportunistk strategs, as turther rehned tomers by limiting APS' price increases to through our lu8u strategn review ettort will two per;ent a year for four yeart indeed be a succentul plan for the Nns f

1 o o 6 i I'_._..._.__ The 1980s: A Decade OfAchicvement \\960

NI R( 0 bus s Oc cidental Minerais e Pauf a Power's elettra revenue first tops

( orporation and becomes a maior Nonh 55(K) milhon f or the year, rtsord consoli-Anientan producer of wher and gold dated revenues. net m(ome, earntngs per

Pacifu 1elecom issues common stoc k.

shart and dividerids Annuahlrd dividend reducing the company s ownership interest i rate is $102 on a p(nt spht baus to 89 per(ent and providing needed capital + NI RC 0 opens the Spnng ( reek (oal for growth mint and twgins deltven on a 25 year.181 ]9$4 milhon ton contract to a Houston, le Aa' + Company (hanges its name to utility. Spring Creek b N1.R( 0% hrst mine PacifiCorp to twtter represent its diverufied completion nature. 4 Punhased m lune 10N, Alanom takes 4 Ratmg agende mtore single A credit additional steps along with Albfl to bring ratint 'c nuclear write offs and I Alaskal interstate long distance rates into "ng dechnet Program parlt) with those of the lower 48 states financing cost's by e 1981 ebt and preferred d 6 lotai revenue hrst tops 51 bilhon l t 5125 nulhon on 4 A MK) mile-long high voltage transmiv u.. st in decade. slon line c ostmg $240 milhon b pla ed in servne. pe rmitting large uale energy 6 Agg .ad Liric marketing exchange between Wyoming the North-boosts udes. larget goal of adding 200,00n west and Califorma megawatt-hours above the yearT normal 4 growth exceeded by 25 penent. Mergers l 6 Pacifk Power halts or curtalk its share of construction spending h,r three troubled and acquiutions added as a strategic means of broadening the ekctrk utility base. nuclear plants 4 NIIM O increases puuout metak hold. 6 N1.RCO selb 10 penent of its stock in an I ings by atquinng 5 nulhon acres of Alaskan initial public offering that raises capital and helps estabbsh value. mineral rights

Reduced supplemental long dhtance rev-l 39g enue, emergmg long distance com1wtition

+ 1went> q ear power supply agreement and poor results from its high tech venture i signed with the Bonneville Pow er capital and investment portfolio dampen Administration Resulting prne (hang" Pacifk leleconis hnancial performana reduce the public private uttht) rate dispar-I90 ity plaguing the company for more than a decade. 4 Wholesale electnc sales compfhe 17 per-j (ent of total electric revenue. Mw sales 4 hrst serious challenge to NI.R( O's long. term coal contracts launched bs Utlhty agttements with three California utilities total 280 megawatts of under used thermal luck. Inc. of Houston. lesas capacitv. 0 N1.RCO enters the oil and gas business

NI RC O's Antelope coal mine in
Pacihc lelecom chosen as new name for Wyoming twgms operations with contiact. '

lelephone Utlhties Alasom combmation. ed sales of 800.000 tons per year. 4 Alascom% first satelhte. Aurora 1. plated , 3. RC04 average cash silvei production in orbit - knking Alaskans with each other (osts dechne 27 pertent from the pnor year and the rest of the worki to 14.58 per ounce. I983

Pacific lelecom purchases two local 4 Pacific l'ower signtfhantly cuts its work.

Alaskan telephone compames. The acquisi-g force and operating and capital budgets in tion adds 34 000 access hnes and increases vww of the axession and reduced need for the companv's market share in that state to new base load power plants lhe utility 30 pertent. ramps up retail and wholesale energy mar-j9gg Leting activities and begms seeking ways to e total consohdated revenues pass $2 bil-broaden its customer base hon five years atter topping 51 bilhon

PacifK orp's offer to acquire L.P. National.

a combination ekctnc. gas distnbution and telephone utilits. is regrted

e i o e, m-9 \\ $ Pa(if K Power s ottavstem rnarketing $ NI RC O rnolyn three major wal con-push rnults m a 120 penent int rease in tract disputet two of the troubled con-firm sales to other utthtin lirm wntract tracts are amended. substantially preser" i sales represent 75 percent of wholesale mg ongmal emnomia A thad a tanteled electrl( revenue wmpared to 13 penent in in tuhangt for a lumpaurn payment IW5 - eaung Pauf a P(mer4 dependerne

NI RC () pun hasn 5284 mill on of pro-

,i on the more volatile spot rnarket ducing gn propertin in the Gult Coast area e NI R( 0 makes its first settlemerit of a of Inuniana and 'lexav Las revenue n up i long-term mal wntract dnpute. wloid over 1987 arx1 the gas arx1 oil unit l 6 bas and oil operating loues iause tun.s us hnt operating profit. I Nl kt () to revne strategs to haus primarily 4 Pa(if R 'lelec om acquires 'llf! Commu- ' on punlut tion, rather than esploration nkations increaung to more than 2(K) the e NI R( OT ( andeleria and Del amar number of countnes reac hed by its interna-minn rank as the lownt production 40st tional operations priman siher nunn ni the natlon 4 Alaswm settle a maior antitrust lawsuit 4 bold produc tion (ap.uits doubin with relat og to (ompetitis e inues in the i the pun base of tht t on mine in the Alaskan market iong datance market. j Northwnt lerritonn of (.anada lhe mine ]989 l pnwiutn NW1 ountn of gold dunng the

M Po ng>r (lom kne 9, i

V'd' 1989. f ollowing a 17 month regulatory l 4 Parita leietom begins worldwide servhe approval pnwns

with the punhase of a maiority internt in

PxM o nW lhtm Uuh4 N We l'It (. an mternational wmmunnations M by Ikm Wht N Pom r gmne l

t arrier I 4 llelhering on merger prorrines, PiKifR 4 Patit.it lele(om annountes plans to pg .s pran remain stable to de(lining, j iointh tonstrut t a tranvPacif a fiber opta M& U d Po dew i (able with a w heduled maen ne date of 1990 I he t able will link the t % and 6 Nl.R( 0 wmpletes its sewnd stotL offer-lapan and hase a spur to Alaska ing, ratung 585 nuhion and reducing Paciti( orp% ownership to 82 percent. 1987

NI.Rl () buys 44 million tons of pnmari-4 A plan to merge Utah Powt r N light lv low suhm Wot Yugmm cod The trans-I with PacifR orp approved by both wmpa-action n N1 R( Oi tirst wid acqukition in

! nin' boards and shareholden more than tive sean. r' $ Pinita Poweri retail kilowatt hour sal"

Las busmeu i ontmun growmg. A 19M9

/ i up us per ent - the largest penentage pun haw agnen a nt involving a 51t>2 mil-increaw smie 1974 hon properts t ioses in 1990 'lotal gas and $ P5nith P'twer Wins a 124 t at regulatory oil revenues top 5 l bl milhon i ! and wurt battle with pubht power mter-

Agreement reat hed to bm a Wiwonsin-nts and retains its laense to operate the based kxal telephone wmpany. Purchase, low 4 0st Merwm dam in Washmgton state-(losing n 1990, will m(rease Pacifh

+ N1 R( O settin its mal wntract dnpute 'lelemmi total auess lines by 63nkt or with Utilits luelv substantialk protectmg 25 penent original wntract economas

htegn planning tollowing the Utah

! 6 NI R( O selk more than nme milhon Power merger prompts the company to ! oun(es of sih er and 153.000 outun of retocus and deemphau/e its noncore buu-gold. contnbuting 5132 milhon to rnenue new activitin. irkluding financial services. V 4 lhe tranoPinifh ttber opth tatile project 9 Pacif R orp stock prRe gains 510.75 for Y~ i uscivo regulatory clearan(n f rom the U.S the sear - closing at 545 75. up 31 penent. !g9gg 9at Annuahted dividend rate n 51.38 on 1

j i and lapanne governments l he board declares a two f or-one sto(L 3

post sphi shares e linal regulaton appros al asued in 4 du q m mdtk1 Wrn adm IIete!riIku for the l'tah Power nierger Best Positioned for the 1990s bs lorbn l

l'aciht Power enrolh on3m customen ma p/nx-in its llawle-l ret plan guarantering hot

! water heater replatement and building resi-dential sales

I , t _. - -_. q 101 s 6 ? '4 .. q $ llc CICCll'il 0l)eldtions glonf), Colllf)Tised Of'llie Pacific Power and Utall Powel divisions, tumed in solid financial wsults for 1989. Eantings contlibution incleased seven pelcent tu a record S330 Inillion as levCllnC lose $ 16 InilliOll, Ol' Olle f)CICCilt, f0 $2.2 blll50ll. hv adhering to the strategn plan adopted .loining power supply systems creates opportu-in the earls 19hnt the elet t ra operations nities through the 'n' re efficient year round group is now a low 4ost provider of ( aergs u t-use of ge'".anng resoun.ev ' e(ause of seasonal peak demand dif f er-vies to a growitig number of custorners Both o the Pacilk I'ower and Utah Power divisions are ernes between i tah and Pacif k divisions - firmh wm.mtted to the oblectives of reducing i tah m the sununer and Pacifk in the winter (ostt impros ing eithletu s and in( teasing - the mmpany is able to redun its production sales of e\\nting servhes and products tosts and tree up add Honal power for sale in Supplementing these obiet tis es are the w holesale market 'l he two utilities saw plans to broaden and expand the tus-thn important advantage first pay off barely a tomer bau and des elop new products month af ter merging. I)unng a severe 14 day and servkes wiu spell in lebruary 19h9. the company not I he (ompany n at hies ing these only met its own needs it was abo able to sell goals through a (ombination of power to 27 other utilities in 11 states by draw-aggf essis e sales and marketing pro ^ ing on the power suppls resounes 01 both grams. c(onoma des elopmen' and. divismns when making sense. mergers and I s en more entouraging. the company auluisitions signed two new long term wholesale agree. i ments as a direct result of the merger. The hrst, UTAlllT)wlR AflR6f R a tontract with Puget Sound Power and light, 4 I)l:lIVI;R5 Ill \\l iIIh produced $ 15 nullion of revenue in 1989 The Patita Power and i'tah Powet ot t u ially setond. sign d in lune with Sierra Pa(itic beldli)O t)ile on lanuars 9, 1989. (Iverflight, Power. Will prodLhe an estimated 54.5 million Pacifit'orp's electra utilits operations became in its 'irst tull y ear, esc alating to a projected the third largest in the Western United States - $15 million in the second year And the com-serving 1.2 million customers in seven states pany wntmues to aggressisely pursue other and operating the nation % largest mtegrated w holesale market opportunities electrical transnussion and dntribution system. Produ(ing $5h milhon of benefitt the tit ( O\\tPI TITIVT I4)hlTION between the two utilities more than met initial espectations I he mmpany euceded its hrst-Nierger related cost reductions help both year benefits goal of 54h milhon as a result of Utah I'ower and Pacitit Power redute or stabi-the etthiern ies of t ombining pow er supply lize prices and become more competitive. ()n resoun es and redut tions in w orkton e and an annuahzed basis. pnces paid by the compa-lower insurante wsts lotal benetits f or the ns s retail customen dethned 5102 million, or first tive years of tomt operation should reat h 5 4 pertent While t reating short term down-5500 nidlion w ard pressure on res enues. such at tlon is While tuttmg wsts n a maior tocus it bs essential f or load retentmn and long-term no nicarn is the (miv benetit <it the merger growth.

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--g e 4 ( i e i ( o a e 12I l 1 CONOkflC DLTELOl'htENT 1%YS Gil \\VITil NE\\Y CUSTOhfLRS 1 Groundwork laid in the past f ew years continues to net etonomit development suc-cess. In 1989,24 projects were connected to i the company's system, ultimately yicl ding an estimated 519 million in annual revenue while creating 4,(XX) service terntory jobs in Cedar City, Utah, four projects opened for business. 'Ihe largest of these rew cus-tomers is Western 1.lectrochemical Company, a manuf acturer of ro(ket tuel previously located I s in Nevada. ~lhe new plant produces over il million n direct eNctnc sales and some 150 ; jobsio, the communhy. Roseburg. Oregon landed new tactones for llayliner lloats and Alcan cable. When fully operational, these two facilities will tombine to employ nearly 400 i people and produce 5750,000 of annual elec-tric revenue. RETAll AIARIGTSilARE GRO\\VS With reduced or stable prices and aggres-i sive sales, the company is strengthening its market share in spite of tiert > competition from natural gas. In 1989,78 percent of new ; residential construction in the l'acitic Powe. division incorporated electtk water heating -- 72 percent selected electric space heating. These figures are up four percent os er 1985. 'Ihe gains aie due to the company's promotion I of heat pumps and super-energy etficient homes whith enable customers to satisfy their energy service needs with cost-ettective appli-cations of electricity. Existing customer', also are using more electrk ity. Kilowatt-hour sales were up 3.3 per-cent in 19S9, with most of the increase com-ing from industrial customers in Utah and ! Company construction crews uct,*e ivoe man customers in Oregon. I990 completion chte of a I90 mile long high NE\\Y l'RODUCTS ANO ENERG Y SLRVICES voltcge transmosuon Ime extendmg from centrol I' LAY ROLE IN FUTURE Grot \\Til J, tch to ttte h.evcco border near las Vegas With a 20 year film nholesale contract m hond. A kev to positioning PxthCorp's electric PorfUrp will begm electnoty soles to Nevade o erations for long-term growth is tN devel-Powenn tune for ttnett summer peak opment o; new products anu serva. that com. 1 men' th. basit mergy delivery busi-ness. Iwo such progrsms initiated on a pilot l gy y;; n 3 y

li A ( l I f t l' N I 113 I basis in 1989 are tne llome Wiring hafety fl.fXIllifl1Y AND WlSI TNERGF USE 11GURf I'ROMINTNTly lN I UTURE Inspection and Power Conditioning programs. in the llome Wiring program, customers The compane ently completed its first pay $60 tor a (omprehensive inspection of long range post merger supply and demand home winng by a certified eles trkal wntrac-r esou rt plan. It proposes matching the tor. As a tollor on, the prograin otters financ-demand growth of the next 20 years with a ing for neede" repairs amd upgraJes that sub'e-variety of flexible, low-cost and low-risk power l quently allow customers to install large electrk resourtes requiring short in service lead times. applian(es like heat pumps clothes dryers and I;nergy efficiency also figures prominently hot tubt f irst mtroduced in Casper, Wyoming in the future. In 1989, Pacific Power, and Medford, ()tegon, the program ended the with the support of the Oregon Public year 25 percent ahead of plan and will be Utility Commission, began experi-ottered system-wide in 1(No-menting with nine new efficiency ini-1 he Power Londitioning progtam of fers tiatives. One called Design Advantage custoniers equipment that protects computers otters wmpany assistante in planning and other electroni( appliances from voltage new energy ef ficient commercial surges spikes and sags Unit sales are MO per-buildings Upon accepting the energy cent above target. prompting pursuit of large-plan. the building owner receives up-l scale commercial apphcations in 1440. ttout money for energy etficient con-l 'l he (ompany also took steps to retocus struction with no loan obligation. and improve the protitability of its two non-When the bul. ding is completed, the traditional energy market subsidiaries. A new savings are shared with I.cific Power company, Pas if k Generation ( ompany, was through an energy service charge. If formed to mmbine ONSITi.1.nergy of Pacific packaged properly, the company feels that Power and I nergy National of Utah Power. this and other energy efficiency initiatives, Paufic Generation will serve a more narrowly can bc1h save customers money and serve as defined niarket of power supply projects for new res enue sources. utilities and others. 't he new wmpany's hold-f lesibility and innovation will be impor-mgs already include over 400 megawatts of tant t a the smessfui electric utihties of 'he generating capacity at 17 locations across 1940s and ?he strategy to turn change to the North America. company's advantage is in place and working. ~.

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r A i i i i i i, e RIGHI EconomK deveiopment conhnves to pby on irr,portant ^ ' ' ' ' ' Y:; - j + role In buildtag the company's electoc sales In Orem, Uroh ' near 50 lake Oty c high tech Industnol pork spnngung up wound WordPedect Corpwohon odds jobs and eleutK revenue k ~~ ' v to the Utah Power divtsson Wo dPedect soid 17 molhon copies of its (cgship word processmg schwore product bst year l*_^ K m a, *. N,f ~ W. N$ i Gi L.-. w 4 4 l>l ; y 7' -

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.) .$yY :{$(l l kl ! W'.. I!! 6, RIGHT Pacific Power's new Portiond area service center facih-totes the qual and efficuent dis-porch of overhead and under-ground hne uews ABOVE Portiond creo manager Carl Tolton (leftl and hm Wohers, overhead hne supenntendent. VtS!!In front of the 5eryge cen-ter's disporch mop Areas clus-tered around Portland Inter-notional Attport are expenenang healthy growth in electricity C demand t i ll ?, "" - RIGHT Boyhner Boots and Akon i.i luote are new lacionei In foohc Powers Reseourg Oregon servwe territory When fully operononoj, '}A [ these two Southern Oregon loale ); heS Clone combine to empicy ,wA Ao0VE: 'n building the new UrcMevecc power nectly 400 anc produce onnv2 kne, core is taken In hondhng tite conducting kne ele (MK revenue of $750 000 a w ~uw s as even shght domoge con result un power dehv-ery loss

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r i i o e i. 16 i i T .L MERCO produced excellent financial and operating results in 1989 by building and strengthening the coal, gas and oil and pre-clous metals businesses. Total revenue rose seven percent to a new high of 5711 million and earnings contribution gained seven percent to a record $64 ) million. In 1989, NERCO sold record coal tonnage to an expanded customer base. Its gas business also had a record year. As a result of acquisitions in 1988 and 1989, gas and oil revenues gained 70 percent over the prio vear. And, the precious metals busi-ness reduced gold production costs, began bringing new properties into production, added reserves and acquired properties with long-tenn gmwth potential. COAL: RECORD SALES, STRONG FUTURE Coal sales of 5435 million represented 61 percent of NERCO's 1989 revenue with two highlights best charac-terizing the year: major new sales and a large eastern-coal reserve acquisition. NERCO's success in domestic and international coal .narkets directly relates to low costs and aggressive mar-keting.1:or the year. sales rose 7(X),(KK) tons to 32 million tons with domestic electric utilities representing the majority of purchases. I:or the second year in a row, NERCO also made shipments to Canada and Japan. Lower costs and increased efficiency at the company's mines support the expanded sales. During the year, the Antelope mine installed a large new dragline as a major step in increasing its annual capacity from 3.4 million to 6 milllon tons. A new conveyor system installed at the Jim Bridger mine also improves efficiency and reduces future costs. Aggressive marketing resulted in se.eral new sales and i I numerous prospects. Detroit Edison, one of the company's largest I

P A ( l i I ( (. k I' 17 l RIGHI The 80 foot thd cool seam at the Spong Deek mme ~ ~ .~ near Shendon, Wyormng reqvves kiKO to work o two 40 ~ ^ ~ foot 'litts

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r A ( i e i ( o a r j N .. ~........ _ -.. b = b- / 700,000 tons, raising its total 1980 Spring y p, Creek mine purchases to 3.8 million tons. u g ,~ 1 Also, the Platte River Power Authority commit-lb.', ted to take a minimum of 700,000 tons annu-4, y.J y g,,, J-. ally from the Antelope mine through 1995. +. r-Several other utilities purchased test coal for .v '

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mm, r ~ ABOVE: From shore e ig crtd bad again, helicopters are ; .,+ -. 1 } the only practucal mans of modng woders and urgent ; v' i ~ -l supplies ~ .r ^ l. l RIGHT The Eugene Island platform contains 9 pr.;Jucing N _ e gas wells Deveicemental cnd wodover dnlling from the "[ _I _ ? g pictform is expected to continue for several years M v

r 4 ( i i i i o a e t i contract labor at the six mines purc hased t he precious metals unit has a clear strate-NERCO expects these new operations to ini-gy for the years ahead: increase gold produc-tially produce 1.5 million tons per year. tion. (ontinue to redut e costs and add to The West Virginia (oal reserves are primar. reserves adjacent to existing mine sites ily low sulf ur and close to large utility and through exploration or acquisition of new industrial customers along the Kanawha and properties. e Ohio rivers. 'l he acquisition, along with P rod uc tivit y NLRCO's nearly one billion tons of lowaultur improvements at western (oal, ueates market opportunities NI RCO's major gold should future acid rain legislation allow utili-mine, t he under-ties the option to reduce emissions by switch. ground ('on mine lng to lowoulfur (oal. in Carwda, helped reduce cash costs in [ GAS k Oll. CONTINUTS GROWill, UNIT gygy .,3 PRolWCLS STRONG RESULTS to about $230 per in setting a new revenue high of $151 mil-ounce. I he compa-lion, the gas and oil unit represented 21 per-ny's cash silser pro-cent of Nl RCO's 1984 total. Natural gas is sold duction costs, al-to intrastate pipelines. interstate markets and a ready among the large L ouisiana gas fired electrit utility. nation's lowest f or 1.videncing NLRCO's continuing desire to primary producers, bu;ld this business. a $162 million acquisition stands at 53.44 per in early 1990 represented yet another major ounce. addition to reserves and production in the 1 x plora tion Gulf Coast areas of 1.ouisiana and lexas. results more than in addition to acquisitions. NLRCO added replaced the year's more than 40 billion equivalent cubic feet to production, proving year-end reserves through performance u p 37 6,000 ounces improvements and drilling success on existing of gold and 12.6 properties The company's equivalent gas and million ounces of oil reserves now total 477 bilhon cubic teet. a 32 silver percent increase over 1988, with daily net pro-A new gold mine, with product!on sched-duction increasing to 180 million cubic feet. uled for the early 1990s, is in planning and per-IL Pr- - g for when gas acquisitions are mit stages near the (ompany's 1)elamar mine ' ll less a~ NLRCO also began limited par-Southwestern Idaho. 'lotaling 581,000 0unces of m ticipatiu .th industry partners in exploring , roved gold reserves and 7.2 million ounces of 1 offshor 't Coast waters. silver, the Stone Cahm site is designed to be a satellite of the existing operation. Other pros-PRICIOUS SILTALS 5fAM GAINS pects mclude exploration properties acquired in At 5122 million. precious metals opera-1984 in the heart of (:olorado's historic Cripple j tions represented 17 percent of Nl.R(:ON 1984 Creek mming distnct. l revenue as sales increased to 149,000 ounces of in summary, N1 RO). with its core busi-I s ld und 6.1 million ounces of silver. Revenue nesses of coal, gas and oil and precious metals. o { rose $21 million over 1988, up 21 percent. is well positioned for the decade ahead. l Income from precious metals was up as a result i of increased sales and lower costs, despite sof t prices for much of the year. l

e ' -] P A ( l e I ( U ll l' 20 1 l i fic Telecom, one the nation's largest nonBell phone companies, ended the decade with record nvenue and net incoine. Revenues of'$657 million and earnings contribution of'563 million were 19 percent and 25 percent above 1988 levels, respectively. hi 1989, Pacific Telecom's unique range of' business activities and geographic scope again proved their worth to PacifiCorp shareholders. "I ower 48" costs just 51.61 today - the same SUCCESS IN A DYNAhlIC hlARKLTI' LACE as an eqinvalent distance call between other Producing consistently strong financial areas of the country. In-state calling prices performance in the midst of dramatic change have also been lowered. is ditticult. This is particulariy true for the Alascom is introducing digital technology telecommunications industry where chal-to its transmission systems. spending over $44 lenges of rapid growth, advancing technolo-million in 1989 alone. Major links in satellite pies deregulation and competition abound. and microwave radio systems were upgraded; llut for Pacific 'lelecom. the strategy of growing increasing capacity and serva e quality. And I the core businesses of local and long distance the late 1990 connection h the trans-telephone service and international communi-Pacific fiber optic cable wi!! aho significantly cations is paying of f. Ihis growth is also result-improve reliability and efficiency. ing in efficiency f rom investing in The long distance communications busi-cost-saving technologies and creating ness m Alaska has become more competitive economies of scale through acquisi-since the mid-1980s when another carrier was j tions and consolidation. authoriz.ed to provide interstate service. This ! competitor is also seeking to enter the ALASCOhf PRorIDE5 QUALITF ntrastate market. Federal md state regulators LONG DISTANCE SERVICL TO have, for several years, been deliberating the j 3g3g4y3 complex competitive issues factag the Alaskan l Alascom, Pacitic Telecom's long market. The company believes some of the l distance carrier, links Alaskans with market struc:ure changes occu ring in the each other and the res: of the world. lower 48 states are not readily idaptable to in a land known for its remoteness. Alaska. Although final decisions i.re unknown, enormous scale and widely scattered they promise to strongly influ(nce the mar- ; population this is no easy task. The ket's future shape. Nevertheh ss, Alascom company meets these challenges every day stands firmly (ommitted to meeting the state's ! I with its own satellite, over 160 earth stations, communication needs in th' years ahead. 3,000 miles of microwave radio systems and i MM RMIN MN state-of the-art switching centers AND CONSOLIDATE The company did not neglect its compett-tive position while investing the large Pacific Telecom's local telephone operations j amounts of capital necessary to significantly stretch from the Arctic Circle to the Great t.akes improve the system since its acquisition in and serve 2W)00 customer access hnes in nine 1979. With rate reductions and special calling states. In 1989, as in past years, these operations j plans, a $10 call in 1971 f rom Alaska to the produced strong earnings and cash flows. l

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c. q r 4 i u e 22 l l p c i ,. y N g ' { the state, with significant cus-y .. f^ g, g:M ? ,1 ". tomer contentrations around >b j R< l Milwaukee. This acqui>ition fits well with Pacific 'Telecom's l [ existing Wisconsm operations and will help f urther cost-l = reduction efforts 'I he company t elieves, adaitional local exchange l [ f* acquisition opportunities I exist within the Li p pe r 1 = gy wlq pMn gy. Midwest - finding and put-I g g ting them to work for Pacific l f o[{]{ f NNG. R e Telecom is a strategy guiding [ g.{ N f " ?)3 n 'Ha the local operations gtoup in y

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[ e ^ ' MW 'l CELI ULA R TLE LPHONE \\ ' MW POILNTIAL PROMIMNG 3,y. l The developmentai stage 3 As with Alastom, technology and etticient of the celle'ar teiephone industry is shifting [ businsss growth undergird success. 'l he com-trom the metropolitan to suburban and rural i pany completed its goal of system-wide con-markets. Pacihc Telecom will p!ay an active i version to digital switching technologv. This role in these markets with ownership interests technology, along with the 622 miles iif fiber representing 750#0 potential customers. l he t optic cable laid by the company in the 1960s, North-West acquisition adds another 720.000 f allows customers to choose trom an array ot potential cellular customers in Wisconsin. l revenue-enhancing services including call for-In 1989 the company also began operat-l warding, speed dialing and voice mail. ing the first cellular phone system in Chile. ! g I Ihe new technology also boosts productivity. The number of customer access lines e,erved per employee rose from 145 in 1981 to 22 i in 1984 The benefits of technical efficien-cies multiply as business size grows. As in the electric utility industry the com-pany believes etticiency results when smaller local telephone operations are d folded into larger ones a ~ Although unable to purchase the Anchorage. Alaska sy stem. the company entered a 5250 million deal to acquire a L medium-sized Wa.nsin com pany. M s;q i ' C ( D,.dEUIM North West Teleco" nunications. based h(J N' in I.aCrasse. sm e edOOO customer E %[- .[ r aness hnes in u eunanges tnrougnout m-__ -

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b Q j n ~ 3 iN 6 h i ? r w EE-a. l ! Based in Santiago, the system serves a poten. market alone is estimated to approach 54 bil-l tial customer base of.tx million people. hon annually and is expected to double by the i mid.1990s. INTERNATIONAL OPERATIONS S gr..titant competitive pressure exists in GATilER MOMENTUM i some segments of the international market. 't " #y. ;@ Built by acquisition Pacific 'l elecom's Responding. the company stepped-up its mar-z. j international operations. FRI/ITC Communi. Letmg reorganized and consolidated its opera-l cations, is the nationN tourth largest carrier o: tions into a holding company structure. The international communications t raf fic. new struc ture eliminates redundancies. N TRT/irlC reathes more than 200 countries improves ef ficiencies and lowers costs. A s 2 . A with a wide range of voice. private line and I rench company betame an investe. in the data services through undersea cabic and satel-oporation, iking a 15 percent position. Er m dr NM lite systenis. \\\\.t h (.ref ul and deliberitte positioning of International communications demand i, Pacilit lelecom's wre businesses, the 1990s expanding rapidly f ueled bv sttongtr ties promise to be rewarchng. _g,he _,, __m,mmd t re emergente of cost reducing digital and tibe. optic technology. t he U.S.-based international ~ +n ~;p wh aw

l 1 s o a e ie 241 l Severai nonc(ce business units remain in with financial services units reached sirmlar PacifiCorp s portfolio. Their objective is three-conclusions at about the same time. Within a fold: complement core business units. produce month, what once w as a seller's market positivc earnings and achieve an above average became a buyer's market return on equity. Management will continue to The company sold two of Pl5' operating carefully review these businesses and, it neces-divi, ions with a net book valut of $460 mii-sary, retocus or dispose of them as appropriate. lion to a subsidiary of ATk1 Credit Corpo-ration. With this sale. Pl$ assets tell to about f lNANCIAl. SLRUICES ACTIVI1T 51.8 bilhon. The number of operating divi-REIOCUSEI) ANI) DOWNSl7ED sions were also pared from 14 to 4. With year end assets of $2.2 billion and The newly refocused unit better comple- ! common equity ol 5257 milhon. PacifiCorp ments PaciflCorp's tax position. It also pro-linancial Services is the company's largest duces greater efficiency and savings by sup-noncore business. Nluch of 1989 was devoted porting project finance. analytical and tax to repositioning the financial services segment management capabilities of Pacific Generation. which produced a loss of 54.8 million - with the electric operaticas group nontraditional ! Pl$ tthe maiority of the segment) reporting energy supply company The financial services ! income and Paccom l. easing and Equitec each segment is also positioned to support econom-reporting losses at the corporate level. ic development activities in the electric service With the lanuary 1990 sale of a major territory and match nontraditional investors piece of Pl5 the remaming portions are being to projects. redirected so as to better complement the core IllGII TECil UENTL !T CAPITAL 5 PORTTOEIO PARED 'Ihe financial losses and the decision to sell stem trom a variety of reasons - increasing Pacific Telecom's interests in a high-tech ! competition and risk changing tax law and venture capital and investment portfolio were thinner profit margins. Making the sale, how-largely transferred to the corporate level dur-j ever, was not easy! Several other companies mg the year. These interests included Cardkey. f%g., [I{ 1 %.w< ( y p^

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L .m._.~_--. l'.yedentity, liight ()ynamic s, ( omdial and I Paccom 1 ca'.ing. 't ransf erring t he portf oho frees l'acific 'lelecom to focus its resources on its basic telecornmunications busine',s. Seseral businesses were subsequentIy sold M000gement's finunCio! Review -. ........... 26 and others rnade progress toward profitability. Cardkey, a security device manutatturer, was Summarylnformation.. 20 sold to a linnish company. Ilie (ompany elim-inated its ownership interest in 1 yedentify. Uquidfly Ond(Opit0l Resourcos - - 30 Paccom 1. casing was downsited and Pacifit orp 34 Hnancial Servaes is overseeing its portfolio-Industry 5egments-- l'ACll'IC IilXI.'l Ol'All:NT ACl'lVI. gypni3 gl gggggggggg,- f) _= IN l'ORl'IANI)'S GROMTIl Partlic llevelopment, through several part-Report Ollndependent Public Accountants.- 42 neabips. owns or controls three oitice towers and 70 square blocks of deseloped and under- $10tements 0I (onsolidated ln(Om0 0nd developed property in and around the 1.loyd Retained E0rnings........ J3 i district of Portland's near eastside. In ( ktober. Paciti(:orp relocated its torporate othtes to the (On30lid0ted B010n(85htels 44 s..... i district, a growing part of Portland included in the electric sereke territory or Pacita Power. Statements of (0ns0hdated (Osh Flows - 46 Pacific Development is also activel) in-volved in promoting the revitali/.ation of the ll0lesl0(Ons0lidated finantiOl5tatements.....47 area through extensive work in urban plan. ning and commercial development New p; jects in the area include ihe Uregon j Convention Center. the State at oregon ottice building an l a hotel t I i i i i 1 .....,...--.-__-------ii..--.-

j@%M$ '? y h @, %h. k,, ,.,,f,,,,b ki REVENUE, EARNINGS AND DIYlDENDS UTAH POWER MERGER PRODUCES RISEIN 1989 5S6 MILLION OF BENEl'115 increases were posted at the consolidated in 1989, the $56 million of benefits pro-level for total annual revenues, net i come duced by combining the Company's electric and earnings per share. Revenues rose six per-utility operations more than met initial expec-cent to 53.7 billion -.eflecting record sales by totions. Including one time savinp, the Com-all business units. Earnings per share gained pany exceeded the first year goal ol 548 mil. five percent to 51.81 as net income grew four lion. Savings and benefits accrued from effi-percent to 5466 million. ciencies in power supply, insurance, labor Each of the Company's three primary bust-costs, taxes and other categories of operations, ness units - Electric Operations, Mming and Power supply, the largest cost center of Electric Resource Development and Telecommuni. Operations, furnished 36 percent of the sav-cations - produced record net income and ings. Insurance and work force categones com-earnings contributions. A 25 percent, or $13 bined to produce '3 percent of the total. .... - ~... - million, earnings contribution gain from in 1990,the >mpany expects to further 7 64.,tARNINGS PER Telecommunications was the largest percent-the Pacific-Utah Power merger benefits with a pl ON SHARE age increase among the core units. Income budgeted benefits total of $70 million. Over from operations in that business rose 17 per-the first five years of joint operation, total ben. T cent with increased long distance message vol-efits are projected to reach $500 million. [ umes in its Alaskan operation and net favor-able out-of-period revenue settlements. Both the Electric Operations and Mining and Comparative stock price, dividend growth, Resource Development segments posted earn-total investment return and return on equity 7 Ings contribution increases of seven percent, or are definitive measures of how PacifiCorp per-1 521 million and 04 million, respectively. forneci for its shareholders. Losses of 55 million and 57 million each were in 1989, the Company's common stock "b reported by the Financial Services segment and rose 31 percent, or $10.75, to $45.75 per share, y at the Corporate level. These losses are largely This compares favorably with the 16 percent attributable to losses from Equitec, a 49 per-average stock-price gain reported for 96 g, 64 B5 86 81 88 89 . cent-owned investment, the expenses associat. Investor owned utilities followed by Shearson c ed with the restnicturing and downsizing of Lehman Hutton. PaciflCorp's increasing price , the Financial Services unit tnd poor results prompted the Board of Directors to effect a >J LTOTALINVESTNLENT from an investment portfolio transferred from two-for-one common stock split effective hfhI Telecommunications to the Corporate levei at January 23,1990. The split is intended to facil-T a [ 11934 1939 ' the beginning of the year. More detailed finan-itate broader market interest and individual. g (PfmD clat performance information for each of the investor participation in the stock. It was the "g business segments begins on page 34. Board's opinion that the pre-split price had 1 w risen to a level that limited the purchasing {, abilities of many individual investors. The common stock dividend, adjusted N for the split, was raised 4.5 percent with the August 1989 payment to $1.38 per year from 51.32. Based on the stock's year end close, the y dividend yleid was 6.0 percent compared to the M Shearson average of 6.4 percent. With 1989 earnings per share of $1.81 and cash dividends 30 paid of 51.35, the pay-out ratio was 75 percent. ' ? l3 Total Investment retum, the sum measure B ramp I of stock price appreciation and dividends, is 'OSmrM&Pwd h s another way of evaluating a stock's perfor-

$ 9mianf 8 Fcc6 400hfuds mance. PacifiCoro's 1989 total investment

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' 400 Industrials comparable figure was 29.1 per-Financial Services' additions to operating g . cent and the Standard & Poor's 22 elect.., util-assets, was 5728, a decrease from 5873 million g' Itles was 31.9 percent, in 1988. A(quisitions and investments aggre-in a longer term view, PaciflCorp's five-year gated 5122 million or 17 percent of the year's total investment return was 20.9 percent, capital spending. Construction expenditures slightly higher than the 20.2 percent and 18.2 increased 42 percent to 5606 million in 1989 RETURN ON AVERAGE. e U percent reported for the Standard & Poor's 400 from 5427 ml:llon in 1988. Capital spending CONLNLON EQUITY 9ffM } ' Industrials and 22 electric utilltles, respective y. by PaciflCorp's nonelectric utility operations V lleturn on shareholders' eqalty was 14.9 per-was at $384 million, or 53 percent of capital 20 g cent, up slightly from 1988 and almost two per-spending. Construction expenditures by y centage points above 1984. The 1989 return was Electric Operations continue to represent more 17 f [ above comparative electric utilities as the than 50 percent of the Company's total F _ Salomon llrothers' 100 electric utilities stood at construction expenditures. Telecommunica-f 12.5 percent but was below the 18.9 percent pro-tions' construction expenditures increased to f W g duced by the Standard & Poor's 400 industrials. 25 percent of the Company's total construc-PaciflCorp's common stock book value tion expenditures, up from 16 percent in 1988, N s" increased three percent over 1988 and has Construction of the trans-Pacific fiber optic n grown at an annual compound rate of three cable and a new satellite were primarily percent since 1984. The ratio of market price responsible for the increase, 0 to book value at year-end stood at 186 percent, Long term debt, including Financl. i 84 M 86 81 88.89 while the average for the electric utility indus-Services, remained virtually unchanged. New try was 141 percent, PactflCorp's price / carn-issuances during 1989 were primarily through ings ratto at year end v.as 12.6 times, above medium-term note programs. g g Goldman Sach's 78 selected electric utility During 1989, the Company completed an average of 11.5 times. odd lot common stock repurchase program and other repurchases, retiring a total of CASil FLOW REMAINS filGif 1,199,842 common shares. During 1989, inner Cash flow from operating activities has PaciflCorp purchased 1,773,612 common shares CASH ROW FRONL-remained constant at 51.1 billion for each of in the market which will be used in the antici-OPERATIONS ACilVITIES' the past three years. During 1989, cash flow pated telecommunications merger. BY SIGalENT NN# from operadng activities, less cash dividends Also during 1989, the Company issued paid, exceeded capital spending, excluding 1,048,982 common shares under the Dividend 1200 Financial Services' additions to operating Reinvestment and Stock Purchase Plan. The assets. Financial Services and Telecommunt-C m1pany anticipates that 1990 funding of the cations each produced significant cash flow Dividend lleinvestment and Stock Purchase Increases. Compared to 1988 performance, Plan will continue to be through original Financial Services rose 534 million, or 17 per-Issuances. g 4 cent, and Telecommunications gained 53S mil-tion, or 26 percent. Mining and Resource 300 Development rose 54 million to $197 million. Electric Operations decrea3ed $82 million pri-marily due to payments relating to the settle-ment of various issues relating to coal at the g7 gg g9, Utah Power division and increased materials g and supplies inventory. ggg Cash dividends paid rose 513 million pri-g g g gg marily due to a three percent increase in cash g g%. dividends paid per share. Since 1984, cash div-g% idenus paid have risen four perceni com-pounded annually. j J

(Q :%g " h,fdf. N- - m;y ,,, aw,,, n c -m-- r k $bi... 94 .,1 A-c c 1 /@{r QWQ utmoss os nouansnonint vaan Mear 1989 to 1968 Gmgul 1989 1988 1987 1986 1985 1984 cNp7nT cd - REVENUES 53,717.4 $3,519.3 53,277.0 53,117.7 53.041.3 52,751.7 6% 6% INCOME FROM OPERATIONS 1,037.3 1,046.2 1,031.2 932.0 967.0 968.7 (1) 1 NETINCOME 465.6 446.7 411.1 353.4 401.0 358.1 4 5 EARNINGS CONTRIBUTION ON COMMON STOCK Electric Operations 329.6 309.0 291.0 227.0 284.1 224.8 7 8 Mining and Resource i Development 64.0 59.8 54.2 52.0 35.8 52.2 7 4 Telecommunications 62.8 50.2 35.8 33.9 25.3 15.0 25 33 i ',* W i:inanetal Services (4.8) 8.6 10.0 4.1 2.4 x s Corporate (7.2) (1.6) (2.5) (2.2) 3.8 1.2 l k; TOTAL 5 444,4 5 426.0 $ 388.5 5 314.8 5 351.4 5 293.2 4 9 u%p EARNINGS PER SliARE 5 1.81 5 1.73 5 1.59 5 1.33 5 1,55 5 1.37 5 6 w J CASH DIVIDENDS PAID PER COMMON SHARE 5 1.35'" 5 :.305* 5 1.245 5 1.20 5 1.17 5 1.12"' 3 4 [ Total assets 5 11,895 5 11,396 5 10,303 5 9,362 5 8,730 5 7,750 4 9 I t ( Corporate identifiable s }3 asnts* 395 5 346 5 274 5 157 5 47 5 180 14 17 } Itook value per share 5 12.29 5 11.91 5 11.77 5 11.34 5 11.09 5 10.63 3 3 l g '. f M:irket price per share 5 22 % 5 17 t/ 5 161/u, 5 171% 5 155/. 5 12 % 31 13 2 l( Price earnings multiple 12.6 10.1 10.1 13.5 10.1 9.1 25 7 Pre-tax Inteiest coverage 2.4 2.5 2.7 2.6 2.9 2.8 (4) (3) { j Total employees 15,492 16.418 15,718 16,124 14,901 14,113 (6) 2 l 1.' Common shareholders of 1 da. record (77 onsmds) 171.0 188.0 196.7 192.0 202.2 210.4 (9) (4) { i

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y. is };h,.g [P[" ' I e o R P ?A' c 1-y v y. j yy [p[h$ l'1 e s y,,. s' i + MilllONS Oi l101.l ARS/QUARit R INDED g ~ g jf, MARCil JUNE 50!'TI'M Bl R Di.Cl:MBFR 3 31 30 30 31 . i;*' '.989 g;y[ j Revenues $949.1 5860.0 5916.4 5991.9 5' Income from operations 294.6 234.6 256f 251.3 Id

Net income 131.7 98.7 111.7 123.5

%w-farnings on common stock 126.3 93.1 106.5 118.5 '9' Eartilngs per common share .51 .38 .43 .48 Common dividends paid per share 33 .33 .345 .345 [ Common stock price pet share (NYSE) y;; tilgh 17'/ a 20 % 201% 23 % i l.ow 16 17 % 19 % 20 %g .J 1988 m Revenues 5885.0t h 5813.6 5889.0 5931.7 income from operations 312.8 217.0 256.7 259.7 Net income 144.1 89.8 t 06.9 105.9 Earnings on comr mn stock 138.9 84.8 101.7 100.6 Earnings per common share .56 .34 .4 I .41 Common dividends paid per share .315 .33 .33 .33ai Common stock price per share (NYSE) lingh 17 9/,, 18 % 18 % 18 % i tow 16 % 16 % 16 % 17 % A signifkant portton of the operations are of a seasonal nature. g .(l) includes approximately $4s million in revenues from mal mntract settlements. MRKET PRICE ~ (2) In addition, a divhtend of 5.33 per share was declared in December 19MM payable in February 1989. (M0hf!ffN0lN D0(LAR$! 23 22 21 1 20 e 19 18 11 16.................. 01 02 03 04 01 02 03 04 88 89 i ,$ J$,( .b 'I

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p, .,- y a i r Qljf.f I' A C 1 i l C O lt P i 3, g, ,q hh $!bbh ' h 2 p ; 'i. ,*a 6 MittlON5 01 [R1LIAlt5/ TOR T14 ti Mt ACTUAL PROjtCTED f 1987 1988 1989 1990 1991 1992 NIT CASH FLOW FROM OPERATING ACTI\\Trir.$ Electric Operations 5 646 5 598 5 516 Mining and Resource Development 192 193 197 Telecommunicattom 131 135 170 Financial Services 115 203 237 Other 13 (6) 1 TOTAL 1,097 1,123 1,121 CASH DIVIDl:NDS PAID 333 339 352 i NET 5 764 5 784 5 769 5790-840 5730-780 5795-845 CONSTRUC110N j; Electric Operations 5 258 5 259 5 328 5 405 5 440 5 457 ,9 Mining and Resource Development 60 94 118 146 148 104 [' Telecommunications 76 70 150 274 240 133 Other 5 4 to 17 16 17 399 427 606 842 844 711 ACQUISTIlONS AND INVESl%1FNFSo> Electric Operations 28 6 16 I Mining and Resource Development 96 284 93 212 Telecommunications 14 100 30 251 Financial Services 138 42 8 Other 8 14 (25) 25 TOTAL. CAPfl AL SPENDING 683 873 728 1,330 844 711 ~ MATURIT!!3 OF LONG-TERM DEBT AND CAPITAL LEASE OBLIGKlONS +. Electric Operations 1 40 2d 43 82 85 T Mining and Resource Development 50 17 95 6 37 6 Telecommunications 24 29 23 26 14 11 Financial Services 49 283 374 385 186 137 Other 3 1 1 23 36 g 127 369 521 461 342 275 Other refinancings 172 456 177 ( h Iaciudes Hruncial Servkes addittom to operatmg aswts, f P,> a

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p.,' ' During 1989, the Company undertook, of These contracts are expected to produce $31 mil-w. u lion of addittorial electric revenue in-1990iin R$[ $stratfgic review of-its' existing businesses?Thish { review concluded that'thclCompan)(wou line is scheduled for completion in June 1990 in g W[. l tinue to emphasize its'three core businessesi /IketrikOperations Mining and Resource Deve1 time for Electric Operations td sell electricity to = 3;} ,3 7 " % topment and Telecommunications i Also, 'a decit the summer peaking Nevada Power Company. CAPITAL $PENDING; g: ; ston was made to reduce and redirect the Com-under terms of a long term cor 'ract. Under the MIX BY 5tGMEWL, f pan >ds financial services activities. . contract, Electric Operations has agreed to sell 1

NIND l9, i The Company anticipates that in the 1990 to 140 megawatts of power to Nevada Power for up/

100 ~

1992 period capital spending will exceed net cash to a'20-year period. The new transmission line to 4 d, flow from operating activities less dividends - Nevada is expected to faelhtate additional sales of; 3 L by $420.t6 $570 million; principally'as a result of firm and nonfirm surplus power to the' wholesale : 'D;, ' the major l1990 NERCO and Pacifle Telecom market. 5

acquhittons described below l'inancing activities,-

1 NERCO's 1990 construction and acquisittor). M J expenditures are expected to be: coal operations,; A N

primarl_ly.the issuance of debt and to a lesser extent jquliy, will. be increased 'to support the

$40 million; precious metals and minerals, $43 '

$0 j Companies l anticipated growth.

million; oil and gas,5274 million; and corporatec l , - Electric Operations' construction program 'or and other,51 milltorkThese amounts are expect-ak

i s

~ f

1990 consists oh production,582 million; trans-ed to be used for the purchase of mining equip-3 Vmissiont 5117 million; and distribution and ment and facilities and the purchase of oil and

'4 a ot.13er',[$206 inllli,oni Electric' Operations believes gas producing properties. 4[ J I the merger of Pac!flCorp and Utah: Power & NERCO significantly increased its investment 1 >M 0 Light Company (the " Merger") has extended the > 'in oil and gas producing properties with acquisle _m g' s fperiod of its energy sufficiency until the mid- - tions aggregating $39 million in 1989 and $284 My !1990s. Accordingly; constfuction expenditures in : - million in 1988s Other 1989 expenditures includ- ~- [SO y ; the years 1990 through 1992 do not include' ed. coal and minerals acquisitions'of $35 million - gf gy , amounts ist const'ruction of major generatidn. and'518 million, respectivelh, and capital asset ' B Ening& tous Depunis;p h e facilltles. Electric Operations has developed a additions:to existing properties of $118 million, ggg .y !!ong range; resource:and market plamylng pro- ; hfajor mining equipment.added at coal mines-is ; ^ g f ' igratsinitially:ldentifying approximately 1,500, expected'tofincrease production capacity ' t - a

avekelmeg'awatt.s of low cost energy available) Antelope and, decrease costs per ton at Antelope.

4 $[ '(vation measures and togeneration projects, (from' amide var ety of s'ources including conser-and Bridgeriimprovements were made to pre-uous metals mines aimed-at increasing produc- +a ilniconnectlon withi he hierger.the'.tivity and decreastna, cNs, and additional expen, t g (Comjiany agreed to price stability for Pacific ditures were made to develop newly acquired oil ? iPower cust6ineis 'through:1992 and to effect 5% ' nd gas propertiesc a [ (; tai 10% pride reductions by 1993 fot regular, firm NERCO completed a comman stock offering. 4 retail customers served by Utah Power. Electric. In 1989 consisting of 3.16 millira shares sold in a W [Operadoris is committed to maintaining stable to'.. global offering and 2.0 million shares sold to 9 j [dhlin(npiptices. On an anmialized basis, prices lnner PactflCorp, Inc. (" Inner"), a wholly-owned V ~ 'pald by the Electric Operation ' customers were'. subsidiary of the Company. The net proceeds of [ red 0ced $102 millionior 5.4%in 1989 and early ' $85 million were used-for the expansion of M (,' [199%Over time, the Company expects Merger NERCO's existing businesses, primarily oil and ? benefits to be sufficient to support these price gas and for general corporate purposes. E commitmentsi Benefits in 1989l derived primarl-In January 1990, NERCO acquired for 5162 f (fryiii po$er supply coordination, insurance million oli and gas properties in the Gulf Coast. l Vsavings;and work force reductions were approxi-region, including an additional 97.2 billion cubic imately 556 million.- feet of equivalent gas reserves, as we. as market-i yin { late 1988 and early 1989,. Electric Oper-Ing rights and exploration potential. The acquist-P ( sations signed two new firm wholesale power sale tion was financed with debt and equity. h %ntrhch,. representing 275 megawatts of capacity. In early 1989, Pacific Telecom sold substantially l 1o g(pp (% >

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, 1;o[I R 'a~, h bPi ,gr W ! 32 g }h[y '( I' M: 'gg "j[ol WW s m s fQ .e - [s\\x',.., - u an [n f all of its diversified investments to Inner, there-J of the cable's total capacity, $ntiacts to fin'alize? K[NhSW ' its core business, telecommunications. Pacific K include arrangements for' progress payments l~fD .:Zy liy allowing its managemem to concentrate on.these subscriptions are;being prepared and mayL ~ ,. j M. ' y .Telecom also reorganized.its International opera. isubsenbsrs~1 '. i [M' tions, acquired in 1986 and late 1988, to better utti ' Pacific TeieNm's 199hNI 1992 construcJ ([ lize resources and managemerit expertise in serv-]s 135% to lo tion (experiditures Are ex'pfded to be.allocaleM g h MM 10g Ing its international customers. Pacific Telecom f(MlWM50/00(W9. operates predominately in the telecommunica. International; operations and 3% to other com (F tions industry, providing voice, data, video'andt L munications subsidlailesblong lines 1990 and, 4+

. ~- r 4-other services through operations contributing the J 1991'cbnstruction estimates include 552 million

~ 3% following revenue percentages: long lines;45%; forla(replacement satelllte? scheduled to be? %D local exchange, 34%; and international,19%f. ~ launched in May 1991hk g, v Pacific Telecom is actively seeking acquisi.: g part of;the C;ompany's strategic review 1 Qh((l 000 s tions of local exchange properties that will: (mentioned earlier a dectslogwas~made to selec. Gj enhance its existing operations, such as its antici. tively sell or liquidate certain of the financial'ser. oated 1990 5250 million acquisition expenditure lvicds businesses.(IrUjinuaryL199,0,' PaciflCorp J M@ocf 3 W for a Wisconsin based local exchange company. ; Financial Servicci("PFSI)" completed the sale of f Funds i.eeded to consummate the transaction: L subs'tantially all 'the finance, a, ssets of two general ' ~ y.f, c ,.c

g will be provided by a combination of equity;and) ] easing operatingyntts(to a subsidia'ry of AT&T[

q q external debt issuances and proceeds from the: ; Credit Corporationtika transaction valued at ; l i C 39 sale of certain subsidiar es an investments, approximatelyV5480 mill _lorG l FS(refelved; i i d Tclecommunications' construction expendl. $appro,x'hnately;54!!4 milliotiin castiand 557 mili { J ' 3, 8 mas. se az' nun f r IW an> expectd t be: I c 1 exchange, s Lilon in pregrredjstockfThe remaining proceeds l ] ,; T 88-89 563 million; long lines,~ 596 million; interna. Twere depositediin a. collateral account Proceedst i

g' tional,5108 million; and other communications). cfromTthe sale were used drimdrily fo'r the repayC j

l subsidiaries,57 million. J nient 'of short term' debte t i f@N expenditures for a fiber optic cabl(be* ween lthe- (to 15%.of the Company's consolidated assets willi eThe[Coml anyjexpecti thatjultimately 10%l Jf Pacific Telecom's portion of constrtiction : 93 i ljAh a $q g ' United States and Japan are included tn interrup (be[employedSn'the finknciall services businesses 1 1 $TW tional, with costs for a spur between:Alask'a amli ? of/PFS;(TheiCompanyiexpec's;to focus,the* j t hh, -the lower 48 stat (s included in long lines.2FheL;jIemaining(finanhal s'ervkes'actistles ' olas, tog j s Q4 cable is expected to be placed in service InNbetter complement;the omAll:PaciflCorp consol. d F, i December 1990. The cable will provide the; firsts 1ldated group $ml a ~ M$ / direct service between the U.S. and Japan,!andi. (ThefC i k > M." limit the amount of unsecuredI ] f iM the spur will provide the first digital fiber opticj -. Incorporation (hg toth' 7%i link between Alaska and the lowerJ48 states. At 'a detWoutstandt 30% of o y meeting held in Japan daring Sep' ember?t989,; (tbtal d$ fined [ equity and secur'ed debt. Urider tiilE d {k t ,E' carriers expressed interest in subscribing for 45% provision,'ap;sriixiniately 5111) bill.lon principal : j p' .m.m.. I J NijoN F rdlAR$/DF.CEMNR 31 ) i [1K L1989 ' 11988-il987 ' r1986"

198s

' 19M J s @ld;V sl*y v n 4 e CAPITALIZATION k?EN Common equity C53,007i,52,93,6 J52,901L $2J24 52,582 52,347 [ N[ ' ' 249J D284 389- .516' Preferred stock '242-246 D hh Redeemable preferred stock

50 $, I56,,[564[67J y67 6'7 '

.j T@hh Long term debt and capitallease obitgations - 3,539 j.3,441; - 3,395 O3,399, 3,264:

3,138 MU',

Financial Services'long term debt .856 S906-L551 139 L128 i [ hm TOTAL 57,694 : 57,585 s $7,152 :.56,713 56,430 56.068 i W t l% [1[ 39jy J k.y& & Fl, ~ y ^j,[- 9 m n x 1 u

, jn < 'y {# h 4 [ _c' I r i C o R r a: 33 "s L i O; 1 (amount of additional unsecured debt could have able incorne and pre-tax financial income and to T been outstanding at December 31, 1989. adjust deferred tax liabilities or assets for changes '/~ Issuance of the Company's first mortgage ar,d in tax rates in the period such law is enacted. Due I collateral trust bonds or preferred stock is limited to the primarily regulated nature of the by earnings coverage and fundable property pro-Company, adoption of this new standard is not lf visions of the Company's mortgage indentures expected to have a material effect on results of dnd Restated Articles of Incorporation. Under operations. The Company's unrecorded deferred l these provisions and at current interest rates, tax liabilities and corresponding future Teceiv-approximately 51.7 billion of additional first ables from customers will be recorded upon mortgage and collateral trust bonds or 52.0 bil-adoption of this new standard. The Company O lion of additional preferred stock could have expects to adopt this accounting standard begin-m issued at December 31,1989,1-lowever, cer-ning in 1992 and, at that time, plans to present i tain of the Company's credit facilities would have the effects in a manner similar to the cumulative limited additional borrowinr to approximately effect of a change in accounting principle rather 5540 million. than restate prior griod financial statements. For information wgarding bank credit agree- "### NUU ments, lines 01 credit and other short-term bor. towing tacilities and related limitations on bor. The Company expects that Congress will rowings, see Note 4 to Consolldated Financial enact.., rain legislation in 1990. Mining and Statements. Resource Development's top priority is to keep its low sulfur coal competitive, while a cost-sharing INFIA770N program pioviding credit for past clean up efforts Due to the capital Intensive nature of the would have a positive outcome for Electric Company's businesses, inflation may have a sig-Operations. The timing and content of such leg-nificant impact on replacement of property or Istation cannot be predicted, acquisttlon and development activities, The Several superfund sites where Electric Oper. effects of inflation on the Company's utility busi-attons has been or may be designated as a poten-nesses are not significant to ongoing operations. tially responsibli: party have been identified, in While the rate making process gives no recogni-such cases, Electric Operations reviews the cir-tion to the current cost of replacing plant, based cumstances and where possible negotiates with upon past practices, the Company's utility bust-other potentially responsible parties to provide nesws will be allowed to recover and cam on the funds for clean up activities, in addition, Insur-Increased cost of its net investment when ance resources are reviewed and investigated. replacement of facilities actually occurs. The Costs associated with the disposition of these ma}ority of Mining and Resource Development's matters are not expected to be material to the long term coal contracts and a long term gas sup-Company's consolidated results of operations. y ply agreement provide for the adjustment over time of elements of the sales price either through indexes, formulas or direct pass through of costs. Prices for precious tuetals, oil and gas may fluctu-ate dramatically over short periods of time due to i the rate of inflation and other factors not con-trolled by Mining and Resource Development. ACCOUNT 7NG FOR INCOME TAXES The Financial Accounting Standards lloard issued Statement No. 96 " Accounting for income Taxes" effective for fiscal years beginning after December 15, 1991. The new standard requires companies to use the liability method to reflect the tax effect of differences between tax-p t A

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? -.- :;........ 9-3 u A Mit LKM O!1glA_R5f,M1R THE_)1A,R 198v to 1968 Cam 1989 1988 1987 1986 1985 1984 ($D 0 REVENUES General sales 51,872.5 51,890.4 51,852.1 51,816.6 51,784.2 51,64'. ' (1)% 3% Sales to other utilities 269.3 238.2 191.5 203.7 333.4 281.3 13 (1) Other 33.9 31.0 35.2 35.5 37.5 44.4 9 (5) TOTAL 2,175.7 2,159.6 2,078.8 2,055.8 2,155.1 1,975.4 1 2 EXPENSES Depreciation and amortization 227.8 231.4 230.4 212.8 205.0 197.2 (2) 3 Operations, maintenance and other 1,192.9 1,183.4 1,096.6 1,186.8 1,190.6 1,033.9 1 3 1,4 0.7 1,4,14.8 1,327._0, 1,399.6 1,395.6 1,231.1 3 2 TOTAL ....._5.0. _. - .... 5._1.8 ___656_.2. _._7_59.5_ _._. _7.4_4 3.__ .._.1 INCOME FROM_OP_ER.A.T_IO_NS 75 744.8 7 NET INCOME __, _ 350.8 _ 329.7 313.6 _ 2,65.6 333.7 289.7,,_ _6_ 4,, PREFERRED DIVIDEND REQUIREMENT 21.2 20.7 22.6 38.6 49.6 64.9 2 (20) EARNINCS CONTRIBUTIONo' 5329.6 5309.0 5291.0 $227.0 $284.1 5224.8 7 8 _.w._..._ Identifiable assets 56,728 56,459 56,480 56,382 56,278 55,957 4 2 Capital spending 5 344 5 265 5 286 5 359 5 334 5 278 30 4 ENERGY SALES (BuHom ofkwh) General sales 39.2 38.0 3f. 9 34.3 34.4 33.5 3 3 Sales to other utilities 8.6 8.4 8.1 8.2 11.7 9.4 2 (2) ENERGY SOURCE (%) Coal 78 81 77 64 74 70 (4) 2 Hydro 8 7 8 10 8 12 14 (8) Other l 1 1 1 1 (100) (100) Purchase anri exchange contracts 14 11 14 25 17 17 27 (4) Residential average annual usage (kwh) 10,209 10,070 9,780 9,863 10,496 10,546 1 (1) Number of customers u z ELECTRIC OPERAtl0N$ (nomands) 1,218 1,202 1,189 1,179 1,167 1,lr 1 1 Nul0N50T Matts' Number of employees 8,843 9,092 9,376 9,861 9,213 9,6 (3) -. t, .t rt _. .. n.. _... ~tae==tr. _..- _ _. __ _ _. _. _ m.,._ f (1) Dm not reflect ehmination of interest on Intewom{uny terrowing attangements and includes income tam on a wparate. company tmis. l ELECTRIC OPERATIONS' COAL ACTIVITIES l } I in addition to coal activities by NERCO, Flectric Operations has interests in coal mines that supply coal exclu-gno sively to affiliated electric generating facilities. Coal Infonnation, included in Electric Operations is as follows: uwON5 OF rollAR$/FOR DIE YFAR j 198'tol'n c=h0 i '1200 i coYmI. ord I 1989 1988 1987 1986 1985 1984 l l Fuel expense (revenue equivalent) 5211.4 5219.3 5196.6 5206.7 5151.3 5194.3 (4)% 2% ..M ' l Depreciation 17.2 16.2 16.0 14.4 16.2 23.5 6 (6) Capital spending 26.3 18.1 23.4 34.5 31.0 7.7 45 28 p p rE M M Identifiable assets 237.0 242.7 ?23.2 224.9 197.0 196.0 (2) 4 ,0I l { ( RESERVFS AND PRICE INFORMATION (Thomands of h>ns) 84 m' u g; as e Proven and prr,bable reserves 311,000 318,000 341,000 350,000 393,00() v.4,000 (2) (7) 5 te Amounts mined 9,200 8.900 7.800 6.300 5,100 ,NO 3 9 M@* Average transfer price per ton $18 517 520 522 521 522 6 (4) 12 hmre(owu . - - - ~ k,#. w y' 'k .m e p 7

M UQ @g m

=

Ip},'i,'47 1cL i r i c o a r f. 35 1989 COMPARED 701988 + Other income increased $13 million primarily C, Nnrrmn inarmed $ 16 million or 1%. due to resolution of uncertaintles concerning a '1 power exchange agreement and recognition of 4 General business sales decreased $18 million or income from prepayment of previously recorded 1% primarily due to the effect of price reduc. coal settlement liabilities. tions, partially offset by a 3% increase in kilo- + Provision for income taxes increased $14 mil. ,D watt hout sales, with the largest usage increase by industrial customers. About 32% of the increased lion or 8% due to higher taxable income. Kil0 Wail HOUR = SAlf 5 H industrial kilowatt hour sales are under contracts 1988 COAfPARED TD 1987 (USTOMIR SEGMINT providing for short-term and interruptible sales at pyg, g. d 581 iMlhon or a MM lowered prices. The price decreases are generally + Geneal sain wee up 538 million or 2%, the result of Merger commitments. reflecting increased kilowatt hour sales of 6%, 4 Sales to other utilities increased 531 million or which were partlally offset by lower prices. 13% primarily due to higher prices, increased + Sales to other utilities increased $47 million or demand caused by colder weather in the 24% due to higher prices and a 4% increase in Northwest region in the first quarter of 1989 and kit watt hour sales, dereased supply of hydro-generated er'ergy in the region. GPeralins crpcmn incremed $88 million or 7% Operathw expemo incremed $t> million. + ruel and other operation expenses increased $55 million generally due to increased energy g %g + Purchased power increased $52 million or 64% 5 les and thermal generation, gwas due to a 30% increase in kilowatt hours pur-E Md chased and higher per unit prices. + Maintenance expense increased 523 million E * ** 4 ganons expense was reoum Po million primarily due to scheduled major overhauls at thermal plants. due to periodic collection rate adjustments to O. " h m" ~"-..en incremed $ 18 mdlion or ti% Utah energy balancing account. + Fuel expense decreased $13 mlllion or 3% gen-

Income from operations decreased 57 million etally due to a decline In thermal generation and or 1%.

adjustments totaling 56 million to coal royalties + Interest expense, net of interest capitalized, and inventory quantitles. Increased 58 million primarily due to increased + Taxes other than income ti.xes increased 54 short-term debt, higher interest rates and million primarily due to the effect of a 57 mil-decreased interest capitalized of 52 million, lion credit for state generation taxes recorded in + Other income declined $16 million primarily 1988 due to the net effect of the 1987 sale of power Earnings wntribution increwed $21 milli n or 7% entitlements offset by the wrlte-down of nuclear o

Income from operations increased 510 milPan pmkct costs.

on1%. + Income from equity investments ins eased 58 million primarily from the settlement of a cogen. + Interest expense decreased $13 million prlmart-cration project dispute. ly due to a 1988 Interest payment related to a federal income tax settlement and early retire- + Provision for income taxes declined 541 mil-ment of debt. lion primarily due to the lower federal income tax rate and the decrease ln taxable income. + Capitalized interest increased $8 million as a result of increased construction work in progress, primarily from construction of the Utah-Nevada intertle line. + 1.osses from equity investments increased $11 million primarily due to the effect of settlement of a cogenuation project dispute in 1988.

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YI ........ ~ =... = - _..:...:... hf!!IIM5 Of (MM! ARMOR 'lni Yi AR 1988 to 1988 Com 1989 1988 1987 1986 19H5 1984 ch"r$ w"N REVENUl:S Coal / unaffiliated customers 5350.7 5386.5 5391.8 5423.5 5375.6 5374.1 (9)% (1)% Coal / affiliated customers 84.3 84.0 93.1 88.7 128.1 93.7 (2) Oil and gas 151.1 88.9 14.1 4.5 3.8 1.6 70 148 Gold, silver and other 124.7 102.4 133.3 78.0 26.4 1.5 22 142 TOTAL 710.8 661.8 632.3 594.7 533.9 470.9 7 9 EXPENSES Depreciation, depletion and amortization 98.7 77.5 54.6 41.9 42.5 37.6 27 21 Operations, maintenance and other 477.9 435.1 457.1 421.1 416.3 334.5 10 7 ~ TOTAL 576.6 512.6 511.7 463.0 458.8 372.1 12 9 INCOhiE 1(ROM OPERATIONS 134.2 149.2 120.6 131.7 75.1 98.8 (10) 6 W NET INCOhfE 68.1 66.5 60.1 57.5 39.5 50.3 2 6 hiinority Interest and other 9.9 6.7 5.9 5.5 3.7 2.1 48 36 i I Stock sale gains 5.3 4.0 EARNINGS CONTRl!WTIONo> $ 64.0 5 59.8 5 54.2 5 52.0 5 35.8 5 52.2 7 4 identiflable assets 51,282 51,172 5 856 5 7f5-5 715 ~5 9 15 56 Capital spending 5 211 5 378 5 156 5 82 5 106 5 105 (44) 15 i COAL, Gons) l'roven and protable reserves (hfillioru) 997 1,000 1,001 1,023 1,033 1,067 G) l: Sold /hfined (Dionsands) 24,550 23,767 24,857 23,168 20,763 17.882 3 7 L Sold / Purchased for resale L (Thousands) 7,408 7,538 5,877 6,157 7,100 6,833 (2) 2 Average sales price per ton { MINING & RESOURCE mined 14 5 14 5 16 5 18 5 19 5 20 (7) r DIVIMMIM GAS thfillions ofcubic fwt) Proven and probable

800 reserves 321,251 309,657 58,883 8,819 8.978 4,463 4

135 Sold / Produced 51,730 26,738 4,538 1,327 691 306 93 f Purchased for resale 13,989 12,473 12 r [ Average sales price per rncf 5 1.85 5 1.75 5 1.71 5 1.73 5 2.68 5 3.19 6 (10) Y ['fgo f Gold (Dromands ofouncest p Proven and probable l. reserves 1,949 1,741 1,402 950 384 235 12 53 Amounts mined 177 143 146 80 61 45 24 32 '4400 Sold 199 139 153 110 58 7 43 95 Average sales price per ounce 5 420 5 455 5 428 5 372 5 327 5 371 (8) 3 l. SilA'ER Ghomands ofounm) !U200 Proven and probable A reserves 54,744 48,875 42,897 43,101 36,004 17,415 12 26 Amounts mined 6.266 4,860 5,003 4,117 3,603 3,260 29 14 s '_ ~ Sold 6.100 5,015 9,094 5,230 1,069 22 o .O I I I Average sales price 84 85 86 87 88 89 per ounce 5 5.74 5 6.92 5 6.96 5 6.69 5 6.78 (17) g% Number of employees 2,266 2,370 2,231 2,144 1,992 2,196 (4) 1 O Optciing fruonie

Not a meaningful number

@ (Glamg5 (Onftibul10n (l) lloes not reflect elimination of interest on intercompJn) borrowing Jrrangemenh and mcludes intome tdTes on a wpiraie.compan> basa.

sw ^ y p[ d 4;l [h f j; 'y. g gp p gj lp, 1 SL g 3/ ] g 4 1.1989 COkifMRED 7U 1988) with respect to retirement of certaln debt prior to lRewrmes increased $49 milllort or 75 maturity, offset b; decreased interest income inJ 1989 because of lower cash balances. L 4 + Coal revenues decreased $36 million or 8% due < to thd effects 'of $' 5 million of coal contract set.. *: Provision for income taxes decreased $7 mil. 4 tiemeht proceeds recorded I'n 1988 and a decrease. lion due to a decrease.In the effective 1ax. rate j = In the average selling price' per ton 'of coal from from 34% to 28% primarily due tol additional j h[by a 2% increase in volume sold.(h $14.24 lji 1988 'o $13.99 in 1989, partially offset depletion deductions and adjustment-of prior (og $gES4 year accruals; . NN }'I b + Oil and gas revenues increased $62 million or + Minority interest and other increased $3 mil-40 11 n r 48% primarily due to increased minority - l [i 170% itue to increased production from properties : ' wnership from 11% to 18%l increased allocated -[ K[M @cquired during the second half of 1988 and X { gas supplyLagreement entered into in june 1988. - + A $6 million after tax gain resulted from a : 'l' N (ehrt.y[1989 and increased sales under a long term Corporate interest and increased net income. 30 = 4 j . change in the Company's carrying value due to a - kn[ M Gold and sih;cr revenues increased $21 million k o'rl21% primarily duelo increased volume, par. public offering of NERCO's common stock and 20 4 f [tIAlly. offset by lower effective prlees for both gold. was allocated to this segment. j }f, l+[and silver in 1989 compared to 1988. y988 COkflMRED TO 1987 u g a m Q J Opem0ng e.tpenses Immused $64 million Or 12% Remmes increasnl $30 million or S% 10-m,pl,WOperations' expense increased $38 million prl* + Revenues from coal sales declined $14 million. I g f'marilylas a result of p'roduction growth. primarily due to a lower average selling price 'per g; / ~ WDepreciation, deplet'lon and. amortization, rose ton of coal, $14.24 in.1988 compared to $16.47: 0 [' I$21 million mainly due to increased 01. and gas, in 1987, offset in part by $45 million of coal. 85 80 al ' 88 8% j 8 f4 s prdduction attributable to acquisitions, contract settlement proceeds; D IWalfs he l E &ned A &, Administrative and general and operations + Oil and gas revenues increased $75 million due' + @g ! expenses)lncluded restructuring charges of $10 to higher natural gas sales resulting from acquisi- &4 y million for the closure of two noncore operations, tions of producing oli and gas properties during : q >' Earnings contribution incmun! $4 million or 7% A h* *"U h*\\I *I 1988 ""U * *** 25'Y**' 8*' 0 r supply agreement with a 1.oulslana utillty that -l 2 (+lIncoma from operations decreased $15 million replacda terminated. coal supply agreement O ?{ (primarily dtie to 1988 coal contract settlements,- under which no coal was sold, h opartially offset by a $22 million increase in oll t[ 6 G Id and silver revenues declined $32 million' (%"koal cont'ract sett!cm'ents,. coal operating income 9and gas operating ' profits. Excluding the 1988 due tahlgher sales volumes in 1987 resulting ,? lforl1989lncreased $14 million, primarily due to fr m the disposition of 4.4 million ounces of sil-

.{

ver inventory carried over from prior years. 37 Iadditiona' sh' ort term contract sales and W N ldecreas0d minin5 costs, pattlally offset b a $4 Operatird expenses were virtually nncimnged, d emillion charge related to a reduction in the carry' + Increased depletion and operations expense for ,l4 Ing values of certain Eastem coal assets. oil and gas operations was generally offset by }

+: Increased oli and gas operating income was the decreased coal extraction taxes and royalties j

. result of 'signlftcant acquisitions in 1988 and resulting from lower average coal sales prlces and 'i j 1989Nhile an operating profit was achieved in lower silver volume sold. N l1988 and 1989 under the gas supply a.neement Earnings contribution incrnned $6 million or Wk k and'a'related gas purchase agreemen, these t + Incmne fmm perati ns ncreased $29 million c

results are nit riccessarily indicative of future per-or 24%

formance bewuse of the pricing provisions of the contracts anJ the expiration in mid-1993 of the

+ Other income declined $15 million generally y

gas purchase agreement. NERCO is actively pur-due to costs in 1988 relating to the retirement of l

suing arrangements to meet its obligations under certain debt prior to maturity. le gas supply agreement beyond 1993.

Provision for income taxes increased $7 million

+20ther expense decreased-$9 million primarily generally due to higher taxable income. due to a $15 million charge recorded la 1988 I'x N

W~y y. ' %a m i ,r M AL .C 1 r l C o R P ll $,9k'y MlluoNs of IUllARshoR THE Yl.AR 191I9to19168 cet 1989 1988 1987 1986 1985 1984 cMM N REVENUES local network service 5 55.4 5 50.1 5 48.0 5 46.8 5 38.9 5 26.9 11 % 16% Network access service 162.2 153.6 148.6 154.9 148.0 89.9 6 13 long distance network service 216.0 198.2 187.9 188.1 177.3 188.2 9 3 Private line service 151.6 89,3 88.8 61.1 59.5 58.5 70 21 Other 71.8 60.9 53.3 43.1 37.2 35.6 18 15 TOTAL 657.0 552.1 526.6 494.0 460.9 399.1 19 10 EXPENSE 3 Depreciation and amortlzation 114.4 98.6 92.3 89.0 82.6 71.5 16 10 Operations, maintenance and other 404.9 335.7 302.4 266.0 248.0 202.0 21 15 [' TOTAL 519.3 434,3 394.7 355.0 330.6 273.5 20 14 INCOMEFROM OPERATIONS 137.7 117.8 131.9 139.0 130.3 125.6 17 2 NETINCOME 73.5 58.4 44.6 44.2 34.7 24.4 26 25 Minority interest and other 10.7 9.2 7.7 9.6 7.6 9.4 16 3 Reclassification of leasing-lending subsidiary (1.0) 1.1 .7 1.8 100 EARNINGS CONTRIBlmONm 5 62.8 5 50.2 5 35.8 5 33.9 5 25.3 5 15.0 25 33 - -. identifiable assets 51,192 5 1,206 5 1,128 5 1,171 5 1,232 5 964 (1) 4 Capital spending 5 180 5 170 5 90 5 156 5 216 5 129 6 7 Access lines (Thous 4mds) 253 240 230 225 221 165 5 9 Long lines originating calling minutes (Millions) 595 510 466 471 483 442 17 6 Number of employees 3,403 4,215m 3,626 3,749 3,395 2,824 (19) 4 'Not a meaningful numter. TELKOMMUNKATIONS '" D"" " "d""""""'" " ""'"' "" '""""P'"Y '""'"8 '"angenwan amuncludo incon* i.un on a wearatenpany imh (EliO45 Of D0tlARSi (2) includes 70t employee of companies sola to inner in 1989. .'800 revenue adjustments in 1989. Long lines opera. 1989 COMIMRED TO 1968 tions in Alaska and international operations pro-4 00 Ravnues increased 5103 milhon or 19%. vide long distance service in a competitive envi- + As a result of the acquisition of TRT ronment. In Alaska, regulatory or legislative Communications, Inc. ("TRT") in December 1988, changes may be enacted that would affect long [400-long distance network service revenues rose 511 lines' settlement arrangements with AT6tT and million, private line service revenues rose 564 long lines' status as the only authorized intrastate i million and other revenues rose 58 million. toll service carrier. Should these changes occur, + Network access service revenues, which are revenues could be adversely impacted. [200' ' j charges to common carriers for access to the h) cal Operating e.tpeme> im reascJ $85 million or 20% exchange compantes' network, increased 59 mil' + Operating expernes increased $80 million due q { 11 n or 6% because the operating expenses used to the acquisition of TRT (operations and mainte-0 84 85 86 87 83 89 in setting interstate access rotes increased. nance expense of 558 million, depreciation D hvene + Long distance network service revenues also expense of 511 million, administrative and gen-0 0ceang hme improved $7 million due to higher message vol eral expense of $8 million and taxes other than U f$#21**' umes in Alaska and net favorable out of. period income taxes of 53 million).

^ AM' M N;"fn f -d. M -Y Y M Jt (F - , 1 [. CJ i ff [PI_k M t 4^ ~~ y 7 Ms 4-t u ,n .p g :. p. p'p .v 3; m, j+ Operations and m'aintena'nce expense alsoj Operat$ty cycnAes increaseJ 540 million or N1% I ,g }lncreased $5 milllon'primarily due to plant sup +; Administrative and general expense increasedi f portfexpenses related to growth in local exchange. gj million principally due to the accounting J access lines. - treatment of the costs of a iawsuit settlement of o l Earnings contr$hblon Irks bnl $ 13 rhillion or 25% .$28 milllon and 52 million of dEvelopmenti \\ +fincome from operations increased $20 million - c sts for customer support software, offset by $10 ~ s ' *IIII n received in connection with lawsuit 9 Dor 17% primarily due to increased long distance ~ ACCEST llNIS L, c unterclaims; - @M - [ message volumes and net favorable out of-period. [ Lrevenue adjustments < + Operating expenses increased $11 million as a. 300; + Losses from equity and other investments.. result f c ns lidating the results of nonregulats " decreased $6 m'lllion primarily due to the sale of-ed communications operations 'and 53 million g Mertalh companies to inner in early:1989, fr m I:CC approved depreciation rate' adjust. yg ~ ments. n' [Other' expense dscreased $7 million primarily e [due to. $5 million relatng t'o an exchange gain I"'"I"U """N'"N"" I"*"*# N '"NN"" #f N 4 income from operatlans decreased $14 million 150 4 for a substdlary iti Chile and reduced.valua. tion adjustments for'o'therl communications-. or 11% primarily due to the effects of a lawsult'. jvenluresJ ' settlement and a reduced federal income tax rate' ih l thvision for income' taxes increased $19 mil.. on revenues. 75 i illon, reflecting' Increased taxable income and the ~ + 1.osses from equity and 6ther investments'~ 'effect of the iticome tax benefits recognized in decreased $14 million or 38% primarily due to' 1986 on tiie sale of stock Iri an equity investee.. '$11 million of pre tax gains from sales 'of two j 4 g companies and the favorable effects of discontin-tM 85 : 8E81; 66; 89 ' 3 ' 1988 CO$fP RED 1D 1987 ulng certain operations during= 1987, offset in gg s ' 16 ednes increcied JM mi# ion or 5% part by a loss from the sale of a portion of the. gg

T
t' Long distance network-service revenue common stock of an equity investee and the.

' 3 6Qg., ilncreased $10 'million or 5% due to the' revenue related valuation adjustment to the remaining

0WiW

?cffect of a' lawsuit settlement and increased common stock interest. O [ Intra' state message volume / + Provision for income taxes decreased $17' mil- [+.$9 million in additional revenues were associ. lion or 61% primarily due to the reduction in the m$, ).ated with consolidating the results of nonregulat; ' federal income tax rate and the income tax bene-Ied communications -operations, formerly fits recognized on the sale of stock in an equity f accounted for as equity investees, an'd from investee. i } growth in nonregulated communications sub- 'sidiaries.i s ,j W N Netwo'rk access service revenues increased $5 million primarily due to the effect of recognizing g gincreased operating expenses in setting interstate haccess rates that were partially offset by the effect h of the riduced federalincome tax rate, fh lW w y>, 4 i-f1 NlY,5 n i ..()7 + 2 ' QL b r! .y., %"'I h .j. .)i

y

,I !. !..i ,.____._______m__

7

-, - - - =-

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$p[ d}7 e' > P., .P. A C 1 F i C o a r .nj 4..- a O y MILLIONS OF Doti Aus/tok THF Yi AR len to 1%8 can r$ 1989 1988 1987 1986 1985 (EeN c r! REVENUFS Net financing $ 245.6 5 zi5.8 $ 129.0 $ 61.7 $ 19.5 14 % 88 % Other 12.6 14.0 3.4 .2 (10) TOTAL 258.2 229.8 132.4 61.9 19.5 12 91 Interest and debt expense 155.3 115.3 58.6 34.1 9.4 35 102 NET 102.9 114.5 73.8 27.8 10.1 (10) 79 Depreciation and amortization 15.0 11.5 5.3 .7 .3 30 Other expenses 77.5 68.6 41.6 22.0 7.7 13 78 . INCOME FROM OPERATIONS 10.4 34.4 26.9 5.1 2.1 (70) 49 NETINCOME 7.7 23.4 21.3 7.7 1.8 (67) 44 Allocated Corporate interest charges, preferred dividends and other 12.5 14.8 11.3 3.6 (.6) (16) EARNINGS CONFRIBUTIONm $ (4.8) $ 8.6 $ 10.0 $ 4.1 2.4 Identifiable assets 5 2,298m $ 2,213 $ 1,565 $ 877 $ 457 4 50 Capital spending 8 5 42 5 138 5 34 5 145 (81) (52) Number of employees $53 634 387 277 207 (13) 28 'Not a meaningful number. (1) Does not reflect income ines on a separate. company tush. P13 h compensated for certain tax benefits regardless of when the Company can utilize these benefits. th Assets sold in early 1990 reduced identifiable assets by approximately 5s00 million. During 1989, the uncertainties surrounding ness activlties. PiS will seek to build its aviation which of Financial Services' operations would be finance, computer leasing and tax advantaged retained may have impacted its ability to generate investment units. PFS will also concentrate on grow-new business in its competitive business environ-ing its reconfigured business development finance ment. Portions of Financial Services' businesses that group. This group provides debt and equity financ. f FINANGAL SERVKES rely heavily on transactions generated by longer-ing for middle-market companies needing capital M10NS0f 00fWS) term relationships have been affected. for acquisitions, restructurings, recapitalizations and The January 1990 sale of two operating units buy-outs and lease financing for venture capital will enable PFS to concentrate on its remaining busi-financed companies. 9 275 1150 u-0 i 84 85 86 87 88 89 1 C Revecues E Opecting Irrome l 0 termnss coninbuton l l 1 = L

^ kib m 2. l' ~ r, it: c 10: - R1 LP- ,. T y, g [C .t i 4L m ~ 4 4 ? i ']- n i1989 COMPARED TO 1988 ~ 1988 COMPARED TO 1987 Revenues increased $28 rnillion 'or 12% Revenues increased $97 million or ?4% ; 3 . + Net financing revenue increased $30 milltori or

Financing revenues increased $87.million or 14% primarily due to higher average investments 67% primarily due to the growth in commercial.

i ,in financing assets, principally _ operating leases,s Leomputer leasing and remarketing, aviation' + Coffset in part by a $7 million writeoff associated financing and commerclat lending, offset in part; . '? c with billings for certain computer operating leases." ' by lower traditional municipal fundings. Interest und debt e.tpense increased 540 million or: J + Other revenues increased 511 million due to' p 3S% generally due to higher average interest rates higher avetage investments in marketable securls

y l 'and increased debt asso Hed with higher hnrstment, ties and more stable market conditions in 1988;

+

le&h.

Interest and debt c.xperne-increased $57 million or. y Operating e.tpenses increased $12 million or 15% 97% generally due to increased debt associated with : ') f + Increases were due to increased personnel Wghedentsunent Im/s, ^ expenses, amortizatlon of costs relating to a tax. Operatlng e.tpenses hicreased $33 rnillion'or 71% advantaged investment and increased profession-. + The companies strens,,hened tiielt loan loss' b al services and office expenses. deserves'in 1988 increasing expenses by $13 mil < Eanangs contribution decraned $13 inillion.-

tion, n+ Income from operations declined $24 million..* Salaries increased $9 million and other operat.

J . or 70%' = ing expenses increased $11 million generally due : + 1.osses from equity investments increased $5 to acquisitions and internal growth, j ' million due to increased operating losses of ' Earnings contribution dwreased $1 million ar 14W '[k l Equitec, a 49% owned equity investee.

+ Net income rose $2 million or 10% reflecting -.

+ Provision for income taxes decreased $13 mll-PFS' increased' net income of $8 million, offset a% lion due to reduced taxable income and realiza; in part by' Telecommunication [ leasing len'd'ing( , lN $ y b' tion of state income tax credits of $3 million prli business decrease 'of $3 million and'increasedl h = marily from a tax advantaged investment. ! equliy l'n the losses of EquItec of $3 millioni T i ' 1O + A valuation: adjustment to the Company's j R investment in Equitec increased Corporate allo-1 W Jcated charges to FinanclAl Services by $4 million.! M. mi m ')$sk 1 -{ f,l Y.. 'i t 4 m. b $\\ o',. < s k I.f'% ; \\ v ? e (' l e .s ...--.u-

1 ^ @ju ?E{ _ [ [ r The management of PaciflCorp has the of the intemal control structure and recommends responsibility for preparing the accompanying possible improvements. Deloitte & Touche also financial statements and for their integrity and considered the internal control structure in con-obkctivity. The statements were prepared in accor-nection with its audit. hianagement has consid-dance with generally accepted accounting princi-ered the intemal auditors' and Deloitte & 'Ibuche's ples applied on a consistent basis. The financial recommendations concerning the Company's statements include amounts that are based on internal control structure and has taken cost effec-management's best estimates and judgments, tive actions to respond appropriately to these rec-hianagement also pref,ored the other information ommendations. In the annual report and is responsible for its accu-The Company's principles of business conduct, racy and consistency with the financial statements. publicized throughout the Company, addresses, The Company's financial statements have among other things, potential conflicts of interests, been audited by Deloitte & Touche, independent compliance with laws, including those relating to public accountants, hianagement has made avall-financial disclosure and the confidentiality of pro-able to Deloitte & Touche all the Company's finan-prietary information. clal records and related data, as well as the minutes The Audit Committee of the lloard of Direc-of shareholders' and directors' meetings. tors, comprhed solely of outside directors, meets hianagement of the Company has established periodically with the Chairpersons of subsidiary and maintains an internal control structure that audit committees, management, Deloitte & Touche provides reasonable assurance as to the integrity and internal auditors to review the work of each and reliability of the financial statements, tne pro-and ensure that its responsibilities are being prop-tection of assets from unauthorized use or disposi, erly discharged. Deloitte & Touche and internal tion and the prevention and detection of fraudu-auditors have free access to the Committee, with-lent financial reporting. The internal control struc-out management present, to discuss their audit ture provides for appropriate division of responsi-work and their evaluations of the adequacy of the bility and is continually monitored for compliance, internal control structure and the quality of finan. The Company maintains an intemal auditing pro-cial reporting. gram that independently assesses the effectiveness 70 the Directors smd Shareholders of Paci/iCorp: includes assessing the accounting principles used We have audited the accompanying consoll-and significant estimates made by management, as dated balance sheets of PaciflCorp and subsidiaries well as evaluating the overall financial statement as of December 31,1989 and 1988 and the related presentation. We believe that our audits provide a l i statements of consolidated income and retained reasonable basis for our opinion. camings and of consolldated cash flows for each of in out opinion, such consolidated financial the three years in the pe al ended December 31, statements present fairly, in all material respects, 1989. These consolidated financial statements are the consolidated financial position of PaciflCorp the responsibility of the Company's management, and subsidiaries at December 31,1989 and 1988 Our responsibility is to express an opinion on these and the results of their operations and their cash financial statements based on our audits, flows for each of the three years in the period We conducted our audits in accordance with ended December 31,1989 in conformity with gen-generally accepted auditing standards. Those stan-erally accepted accounting principles. dards require that we plan and perform the audit to obtain reasonable assurance about whether the 7 financial statements are free of material misstate-l ment. An audit includes examining, on a test lilllAllfil N h )lt ill basis, evidence supporting the amounts and disck> Portland. Oregon sures in the financial statements. An audit also February 20,1990

M" ' ' + -- Y? M ,i .t, .I f I C O R P 5 [ P f, ,1 l4p - C O rU ff Mll.110N5 OF 101LAn / YEAR F.NDID DictMBrk 31 a 1989 1988 1987 3 $3,717.4 53.519.3 53,277.0 REVENUES ti s - EXPENS13 Operations and maintenance 1,567.1 1,460.2 1,335.2 Administrative and general 320.4 307.9 274.1 455.9 419.0 382.6 Depreciation and amortization Taxes, other than income taxes 181.4 170.7 195.3 Financial Services' interest expense 155.3 115.3 58.6 TOTAL 2,680.1 2,473.1 2,245.8 INCOME FROM OPERATIONS 1,037.3 1,046.2 1,031.2 C INTEREST EXPENSE AND OTtIER 351.5 345.7 333.3 Interest cxpense Interest capitalized (25.8) (14.9) (17.2) Gain from issuance of subsidiary's stock (8.7) losses from equity and other investments 23.9 'J1 40.7 Minority interest and other (2.5) 41.4 (10.4) TOTAL 338.4 379.5 346.4 income before income taxes 698.9 666.7 684.8 Income taxes 233.3 220.0 273.7 NET INCOME 465.6 446.7 411.1 RETAINED EARNINGS, JANUARY l 711.5 650.2 570.5 CASil DIVIDENDS DECLARFD Preferred stock (24.3) (20.8) (23.6) Common stock (340.2) (364.6) (307.8) COMMON STOCK RErlRED (7.3) REFAINED EARNINGS, DECEMIlER 31 5 805.3 5 711.5 5 650.2 EARNINGS ON COMMON STOCK DISPOSITION OF (Net income less preferred dividend requiremet., 5 444.4 5 426.0 5 388.5 OPERATNG INCOME I" ## Average number of common shares outstanding (Thousands) 245.818 246,410 244,440 1700 EARNINGS PER COMMON SilARE 5 1.81 5 1.73 5 1.59 (see anompanying Notes to Consolidatal Ftnancial statemente 900 600 300 [ 0 81 88 89 E RetenedIcrnngs E Dmdends Pmd S Income Ims E Interest Chorges F. 0tm

.... ~ -... -.~. - l ' E?, K Te - A C-1 F 1 C o R p -j)hjj ? f44 Mll1 IONS of Dollars /DFCEMBFR 31 ASSE15 1989 1988 PROPERTY, PLANT AND EQUIPMENT Electric 5 7,510.5 5 7,248.0 Mining and Resource Development 1,383.4 1,223.2 Telecommunications 1,495.1 1,422.6 Other 50.6 24.4 Accumulated depreciation and amortization (3,200.2) (2,853.6) Net 7,239.4 7,064.6 Construction work in progress 308.8 212.1 TOTAL PROPERTY, PLANT AND EQUIPMENT 7,548.2 7,276.7 FINANCIAL SERVICES INVESTMENIS Marketable securities 133.5 125.7 investment in finance receivables (less allowance for .L credit losses: 1989/$14.1 and 1988/$24.8) 723.7 1,134.3 [ Net investment in leveraged leases 252.5 241.0 Net investment in equipment under V operating leases 520.5 471.3 4 Assets held for sale 499.9 W TOTAL FINANCI AL SERVICES' INVESTMEN75 2,130.1 1,972.3 1 4 i 1 9 CURRENT ASSEFS l[ Cash and cash equivalents 157.1 263.6 'h k Accounts receivable (less allowance for doubtful [I accounts: 1989/$10.2 and 1988/$9.9) 643.4 636.7 i l Materials, supplies and fuel stock (at average cost) 205.8 192.5 fn Inventory 113.9 84.7 i l PROPERTY, PLANT Prepayments 46.7 41.5 R AND EQUIPMENT / TOTAL. CURRENT ASSETS 1,1v6.9 1,219.0 (ONSTRUCTION WORK L L IN PROGRESS OTHER ASSE13 [ ' /4/USS Of 00LW1) Investments in and advances to affiliated companies 174.0 160.2 f hgg Cost in excess of net assets of businesses acquired 149.1 170.8 .i f Deferred charges and other 726.3 597.1 J; ' TOTAL OTHER ASSETS 1,049.4 928.1 g m TOTAL ASSET 5 511,894.6 $11,396.1 j{s (see accompanying Notes to Conschdated Financial statemenN R,l.. ?, ,1400n - .g :.7 jg* - h0001 0 84 85 84 8 83 89 5 00P O Mang a hace Nkoment C fehunnuntarom E flan i i m

e t; o 9"c -+, 'n + ,J.e t, + ,_, c ;-,. 'l-. r'?. of. , 4 --- r c :- ^ "

t -:

,A. 4 s.. 7 -b s h>qp r '! L AnuioNsor noumstctuntnu ' s CAPITALIZATION AND LIABILITIES : 1989-19tt8 J y ? COMMON EQUrlY ! Common shareholder capital L 5 2,220.6 .'5 2,251.9; -. Retained earnings j 805.3 711.5 - Guarantees of Employee Stock Ownership uif

Plan borrowings

(19.3) (27.5) CAPITAUZAT1091 L

tmw '

y - TOTAL COMMON EQUITY J 3,006.6-2,935.9 100' H 242.4. 246.3 i' NONREDEEMABLE PREFERRED STOCK J REDEEMABl.E PREFERRED STOCK s 50.0 56.3 - LONG!!IRM DEBT AND CAPITAL LEASE OBLIGATIONS - 3,539.0 3,441.0 45 ? / FINANCIAL SERVICES' DEBT - Short-term notes payable - 762.7 662.9. 4 blong term debt and capital lease obligations - 855.6 906.0 50 ' nTOTAL FINANCIAL SERVICES' DrliT -1,618.3 1,568.9 V f CURRENT LIABILITIES - 'D flong-term' debt ' nd capital lease obligations - a (currently maturing: 72.8 59.8.' 1 s " Noies payable add'comniercial paper. 345.4. 335.3 ], W, 344.4 372.1 ,0. e Accounts payabl,e,. 3 34.5 275.8 ' g4 85 86 61; 83 69i ' ' Taxes, triterest and dividends payable ~ , Customer deposits add other

218.1 216.6

! E C5ml*8tY :

L

B helened5*k. 3 TOT 5L CURRENT LIABILITIES 1,315.2 1,259.6 - B h6h'Mt : [ DEFERRED"CREDil3 ' E tmytermMt & -. . Captallene 09gotos ; '. income taxes 1 1,102.4 991.5 [InvestmenttakcNditsb # 264.0 249.3- [ q ; M'in$g'accrualsandMhere '523.4 500.8/ c. T, c ' ' TOTAL DEFERRED CREDITS 1,889.8 1,741.6 ~ w v.

MINORIlYINTEREST c 233.3' 146.5 '

M 'a ni f COMMirMENT5'AND CONilNGENCIES (See Notes) n MITOTALCAPITALIZATION AND LIABILITIES $11,894.6 $ 31,396.1 ' O M. O(See accompanying Notes to Comotidated Hnandal $tatements). 1 t:. I_ i, e' - t t f 'al 1llN y 1:l 'O o i i i s 'C x i '..,g..w.

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& >}( P A C 1 i i C o R P .,y g, __ j }& - ~. :.: - - :~. - - ~ =.. -.. Mll.UoNs of bouARs/ YEAR f,NDU)14CfMelR 31 1989 1988 1987 CA31 FLOWS IROM OPERATING ACTIVITIES Net income 5 465.6 5 446.7 5 411.1 Adjustments to reconcile net income to net cash provided by operating actMtles Depreciation and amortization 581.6 502.4 420.0 Deferred income taxes and investment tax credits net 116.7 83.2 95.1 Interest capitalized on equity funds (11.9) (7.2) (9.2) Gain from issuance of subsidiary's stock (8.7) (Gains) losses from unconsolidated entities net 17.1 (2.9) 23.4 Gain from sale of power entitlements (88.1) Write down of remaining WNP3 costs 66.1 Minority interest, accrued reclamation and other 5.7 130.3 7.4 Accounts receivable and prepayments (3.4) (27.6) Materials, supphes, fuel stock and inventory (21.3) (16.6) 42.1 Accounts payable and accrued liabilities (23.8) (9.6) 156.7 NET CASH PROVIDED BY OPERATING ACTIVITIFS 1,121.0 1,122.9 1,097.0 CASH FLOWS FROM INVFSTING ACflVfflFS Construction (606.4) (427.4) (399.4) Operating companies and assets acquired (118.1) (393.3) (211.5) Investments in and advances to affiliated companies (3.9) (52.3) (72.3) Proceeds from sale of assets 29.5 54.9 11.5 Hnancial Senices Proceeds from sales of assets and principal payments 764.8 597.8 440.8 Purchase of assets (1,411.9) (1,383.6) (1,031.1) Changes in short term investments (5.1) (29.8) (35.0) Other (18.3) (8.9) 47.2 NET CASH USED IN INVESTING ACTIVITIES (999.4) (1,642.6) (1,249.8) - CASH FLOWS FROM FINANCING ACTIVfflES Changes in short term debt 15.1 236.6 (88.6) Proceeds from long-term debt 366.2 520.5 279.3 Proceeds from !ssuance of common stock 22.2 1.2 97.7 Proceeds from issuance of subsidlaries' stock 53.1 2.1 41.9 Proceeds from issuance of preferred stock 147.8 Dividends paid (352.4) (339.3) (332.5) Repayments of long-term debt and capital lease obligations (267.9) (542.8) (250.3) Redemptions and repurchases of capital stock (71.0) (2.2) (210,5) Unearned revenue pursuant to bullion loans 59.7 40.0

f Unearned revenue recognized (19.9)

(19.9) (8.0) Financial SeMces Changes in short-term debt 99.8 182.0 106.5 Proceeds from long-term debt 349.0 619.5 308.1 Repayments of long term debt (399.3) (282.6) (49.1) Proceeds from leveraged teaw nouncourse debt 7.4 147.1 188.4 Repayments of leveraged lease nonrecourse debt 4 and deferred equity (30 4) (18.5) (8.8) NET CASH PROVIDED (USED) BY FINANCING ACflVfflES (228.1) 563.4 261.9 INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS 5 (106.5) $ 43.7 5 109.1 Ne accompanying Notes to Conmhdated Ftnancial statement 9 m. := - - - _ _ _ _

khk* $(p 1. .m z. m. 47 f -A c i i c o R r );p + Q E% ,d 3 N0H L SUWRAltY Of SIGNIFKA10 PROPERTr, ILtNT AND EQUIPMENT ' ACCOUNilNGPOLKitS Property, plant and equipment are stated at ,3 fiASIS Of PRESENTATION original cost of contracted services, direct labor and The consolidated financial statements of material, interest capitalized during construction PactflCorp (the " Company") encompass two bust. and indirect charges for engineering, supervision if nesses primarily of a uti!!ty nature - flectric and similar overhead items. The cost of depreciable Operations (Pacific Power and Utah Power) and an utility properties retired, including the cost of 87% owned Telecommunications operation (Pacific removal, less salvage, is charged to accumulated Telecom, Inc.), an 82% owned Mining and depreciation. Resource Development business (NERCO, Inc.), DEPRECIATION AND AMORTIZATION i including a 50% interest in the assets, liabilities Depreciation is computed generally by the and results of operations of a commercial coal min-straight line method over the estimated useful thes ing joint venture, and two leasing-lending sub-of the related assets. Provisions for depreciation sidlaries referred to as Financial Services (PaciflCorp (excluding amortization of capital leases) in the Financial Services, Inc. and Paccom 1. casing utility businesses were 4% of average depreciable Corporation). Together these businesses are referred assets in 1989 and 3.9% in 1988 and 1987. to herein as the Companies. Significant intercom-The cost in excess of net assets of consolldated pany transactions and balances have been elimi-businesses acquired is generally being amortized nated. over 10 to 40 years. The financial actkity of each of the above seg-FINANCF AND MASE INCOME RfCOGNITION ments is separately reported in the tables on pages Interest revenue on tending transactions is rec-34,36,38 and 40 of this report. Such information ognized on an accrual basis commencing in the is an integral part of these financial statements, month of origination using methods that generally The Company's proportionate share of income approximate the stated interest rate for the transac-or loss from equity investments and certain majort-tion. Direct financing lease revenue is recognized as ty owned investments, where control is expected a constant percentage return on asset carrying val-to be temporary, is included in losses from equity ues. Operating lease revenue consists of periodic and other investments. rentals, primarily monthly. The cost of equipment REGUl A7URY Af.rDIORTIlES under operating lease is depreciated on a straight-Accounting for the utility businesses conforms line basis over the lease term. I.everaged lease rev-with generally accepted accounting principles as enue is recorded so as to pnxtuce a constant yield applied to regulated public utilities and as pre-on the outstanding investments in periods when scribed by federal agencies and the commissions of the Company's net investment in the lease h post-the various states in which the utility businesses tive. Operate. AUOLVANCE FOR CREDIT LOSSES CASH AND CAMI EQUll ALEN'I5 Allowance for credit losses is maintained at a For the purposes of these financial statements, level considered adequate to provide for potential the Company considers all Itquid investments with credit losses based on management's assessment of original maturttles of three months or less to be various risk factors affecting the investment in cash equivalents. finance receivables. MARRET41kE SECURII(ES INVENTORY val UATION Equity securities are carried at their lower Inventories are generally valued at the lower of aggregate cost or market, and other investments are average cost or market. carried at cost, which approximates market. INTEREST CAPDAIRED Realized gains and losses on equity securities are Costs of debt and equity funds applicable to determined by specific identification. Income from electric utility properties are capitalized during con-Interest and dividends on investments is recog-struction. Generally, the composite capitalization nized when camed. _ = _ _ - _ _ - - - _ _ - - _ _ _ _ _ _.

f 4 z" gl >ll?'<?ff__[T#N, 'h l @f h, Wlm W s f' c 6 3' L il % CL ol 3 9' r&.. a n t dl W Wy W, 4 h;[%g, m iM"' Jin 1, ', y Y", N r, S h, 'j gp l [ g } m ~ a ;' 9,, M[ y 2 CI ...] E g rate' allowed was~10.8% for 1989,"10.3% for 19881 ;1980 by Pacific Power are deferred and amortized s @~l<,j" [t j and 10.5% for 1987.1,

to other income over the average estimated lives of, the properties. Investment tax credits generated by J[

'lNCOA$TdEES( a-Electric. Operations provides deferred taxes for : CUtah Power and Telecommunications are deferred ['s q! , y~ i differences'due to book versus tax depreciation ;and amortiz'ed t'o income over the average estimat- + {$h ~ m g lives and me' thods and certain other timing differ, : ed lives of the properties. Mining and Resource i ences. Telecommunications'Jtegulated oper5tions. Development's and other nonregulated operations' ' /C % x chake p'rovkled deferred taxes for all timing' differ, hwestment tax credits flow through to income in ences since 1987. Pursuant'to regulatory order:,. pu year the credits are recognized in the financial Ideferred income' taxes are not provided for certain statements,

;f C

-othh differences in"the utility businessesilt is exi REhENUE RECOGNITION - s M g,, h[b j pected that regulatory practices affecting the utility. The Company accrues estimated unbilled rev- ,} ~ . businesses will permit recovery through revenues enues for services provided after cycle billing + fGR, eof income taxes / not provided for currently, when - through month end. hR,# ? ' such taxes become payable.' 'RECOGN1770N OF CARRYING VAI.UE 1 b a: ,. Deferred income taxes are provided.for all tim- ~ CllANGES Of int'ESTMENU - I y$ >;, di?

ing d.lfferences in the Mining and Resource
The Companies' policy is to recognize changes

~

Development, Telecommunications' nonrate regui cln the carrying value from sales to the public of pre-y(( ;

4 hM O, lated ~and Financial Service # operations. viously unissued securities by subsidlaries or equity ] O ,a" E 1.Inves.tment tax credits are deferred and amor- 'investees as income or loss at the time of such sale. mg, .~ 4@gif[t(*, (, ' tized in accordance with the accounting practices RECIASSIFICA770N l prescribed;by regulatory, authorities. Investment Certain amounts from prior years have been. tax credits generated before,1981 by Pacific Power.; reclassified to conform with the 1989 method of yp were deferred and amortized to reduce income tax presentetton. These reclassifications had no effect N, y y[,, : ,h ' expense over the average estimated lives of the on previously reported consolidated net income. a ;[ r. properties; investment; tax credits generated after yQ, J'~p y gy ',, . ' g,' ' T NOTE 2. MERGE' R AND A(0045fT10NS ' tain other regulatory jurisdictions. Management t' Nh'- l fori january 9,1989, PacifiCorp and; Utah. believes,' based upon testimony in the merger hear. M g' Power & Light Company ("UP&L")'were merged L: Ings, that the other regulatory jurisdictions will also 4 lIn a business combination accounted for as a pool / grant amortization of the merger costs. %ML TW' Ling N Interestsi and.the 1988 consolidated findn-On ' November 9,1989, the Company hh j, cial datements were restated to includithe announced that an agreement had been signed E' ! accounts'of UP&L, reclassified to conform to the under which a subsidiary of the Company would 1 ' y\\ L I Company's presentation, fdr all periods presented.:. acquire through merger Nort h-West

Q4[,%

As a result of the merger,'each outstanding UP&L Telecommunications, Inc. ( North West"), a com-N common share was converted into'.909 shares of-pany providing communications services in $p % - N 6 Sf the Company's common stock or an aggregate of ' Wisconsin, Under the terms of the agreement, the " y[ Q " approximately 107,052,000 shares after considera- 'NorthiWest shareholders will receive PaciflCorp l2 rtion of fractional shares paid in cash. Each UP&L. common stock with a value equal to 90% of the $ < Vf Lpreferred share as to'which dissenters' rights had $250 million purchase price and the remaining ]* g not been perfected was converted into one share of 10% of the purchase price in cash. The PaclflCorp 6 the Company's No Par Serial Preferred Stock bear-shares to be used in the merger will be acquired in U 'ing the same d vidend rate as the share converted. the market. North West.s expected to become a 4 . Costs of approximately $26 million associated subsidiary of Pacific Telecom. Pacific Telecom will y1 ed to be amortized through charges to operations in consummate the merger through equity and exter. with the merger have been deferred and are expect-provide approximately 90% of the funds needed to W Ag future periods. Amortization of merger costs has nal debt issuances and proceeds from the sale of h" been granted by the Company's principal and cer-certain subsidiaries and investments. PaciflCorp r; N f k 2

y- ' : w'A N+ - n .~.S+ 't f f : m' j

I !.

' i ' y, '

I II ll ' Q.L &j f

'v '%i- ' N; gYo Lt ![1( y (C :. o. y i y PO', 4 4" (A MC Je ..r, R P-t 49 N* fl [1, A-fh ' h 8 b b Vi U K. ' Wl' b V $$y Ap;4 i l Ml W, i -t; m, y i 4 MIIh_rovide the balance OE 52$ million. ThE merger 6 jurisd'letions where NorthMest operates..The trans-- Ils.Gxpected;to befaccounl tid for as a' purchase;f action; which is expected 'o closE in mid-1990, is; I t ,g 3 E J therefore, the purchase price will be allocated based. subject to' approval b[the shareholders of Nortis l Co~n[the fair Values"of North West assets and liabill-- West and certain regulatory agencies'i ' ' ties or as authorized;by regulatory. bodies in the < M + i J which are deferred anil amortized over the term of l N0ft 3. FINANCIAL SERVKES' INVESTMENT $ s

FINANCE RECTIt' ABLES thirnpectWe receWabin so'as to pryduce a con-Init!al payment terms of finance receivabIes. stant rateof return E are generally from 'two' td five years.' Net finance

' Contractual mat,urttles of financejreceivables N recelfables' include emounti for unearned income outstanding at December 31,1989 were as followst MluloN5 oF ! IliAR$AUR THE YrhR 199u . 1991: 1992 - 1993 a - 1994 Theredher - o i , Direct financeleases $137.0 $122.5 - 5 93.6 5$2.7: 5 21.8 t 5 36.3' 4 L' iOther finance receivables - 222.4 30.7 - 38.1 31.7 8.9\\ ' 27.8I , TOTAL FINANCE RECE!VAllLES i

$359.4', $153.2 < 5131.7 5 84.4 t 5 30.7 - 5 64.1.

I, LThe estimated unguaranteed residual value of. 586 million and 5114' m'lltion at' December 31',; ] (leased equipment lnyluded in finance leases wash 1989 and 1988, respectively. i g $26 million and $55f mllllon, at December 31,. /Nt'ESTMENT IN LEl'l24GED LEASE $ (p ; period l the lessee usually has the option to buy the - 1989 and 1988, respectively. At'the end of the lease ' Financial Services' Investment in leveraged 4 - leases was as follows:

equipment. Uneamed income related to leases was MILLloNs of Dou.ARs/DECr.MBER 31 f 11989

- 1988 L Minimum lease payments receivable - , ](net of principal and Interest on thl'd party,nonrecourse debt). $192.1 . $ 1.'89.5 ' r O - Estimated unguaranteed residual valtie of leased assets 128.73 .127.8.- N IMs deferred income and investment tax credits .(6 8.31 , (76.3) i i NET INVESTMENT IN LEVERAGED 1 EASFS : i5252.5: ! $241.0 y Deferred:1ncome tax liability arising from ment under operating leases was $521 million and m

leveraged leases was 5204 million and $151 million. 5471'million after deduction of $158 million and

~ W, at December 31,1989 and 1988, respectively. 583:million for accumulated depreclation at December 31,1989 and 1988, respectively. ' EQUll%fENT UNDER OPER4 TING LEASES . Financial Services' net investment in equip-0 NOTE 4. $HORT TERM BORROWING ARRANGEMINTS ' M* Th'c Companies' borrowing trangements are as follows: Miu loNs oF DOLLAR $/ DECEMBER 31.1989 PACirlCoRP

sVDsIDIARIEs Bank revolving credit and term loan agreements 5 350

$ 1,410 _. Commercial paper 375 1,190 At December 31,1989, PaciflCorp had out-reimbursement agreements relating to letters of standing 5230 million of commercial paper. credit limit short term borrowings to 12% of .Ilorrowings under bank'llnes, the revolving credit defined capitalization (limiting such borrowings agreement and commercial paper may not exceed to approximately 5670 million at December 31, L 5375 million at any one time. Covenants in certain 1989). Subsidiaries had $163 million bank lotm and m u

h M ~ I y -. r.: a A- - c' >l. .rt l' i c. no., .Rc r it m 3 } i i x i t h.

commercial paper capacity available at. December

$3 million in 1989, $2 million in 1988 and $3 mil-u 31,1989, Commitment fees were approximately lion in 1987. 100TE 5. (0M001 Als PREFERRIO $700( At December 31,1989 and 1988, the Com-y 1 ' On November 15,1989, the Board of Directors pany had authorized 300,000,000 shares of com-Q, s g' l ! authorized a two-for-one split of the Company's ~ mon stockFThe Company had outstanding 5m ' common stock effected by means of a 100% stock ; ; 244,592,994 common shares at December 31,19891 ] dwidend paid on klarcli 1,1990 to shareholders of Land 246,517,466. common shares at December 31,1 ^. b record on January 23,1990. All references to num;.1988, Changes in shares of capital stock and com-y ber of sharesf except shares authorimi, and to per ' mon shareholder capital are listed belowJ i ~ share infoimation in the consolidated financial M U statements have been Q.sted to reflect the stock ' p, ' ! split on a retroactWe basis. Ti(OU5ANf 6 of SilARIS/MitilONs of Doll.ARs { sHARrs. COMMON ~ i '~ - SHARr$ sitARr, - i COMMON PREifkRLD . HOLDER 4 s l stock-stock - CAPrlAl.

3 C

' HAl.ANCE, JANUARY 1,.1987, adjusted for a .)f L ~ ~two-for.one common stock split

240,202 8,877 =

$2,153.4 M n 'l 19871ssuance under Employees' Stock Plans 572^ 8.6 ' F,/ s ~ ' Sales through Dividend Reinvestment 88.2 E 2and Stock Purchase Plans 5,652 s,,' .' Sales to public;,, i. 'L 1 .. (1.4) : 4 (5,376) 1,7 ' Redemptions and repurchases g[ s Ii

ilAl.ANCE, DECEMBER 31,1987 246,426 13,502.

2,250.5 W .1988 issuance under Employees' Stock Plans 92. 1,3 '(28) Redemptions and repurchases 1 4 4 . Treasury shares W 7 Purchased D (160). '(2.8) Reissued l60 2.9 ' f,7 ]Q[ [' 4 ' HAl.ANCE, DECEMBER 31,1988 246,518 ' 3,474 - 12,251.9 W = 1989 Sales through Dividend Rett. vestment - .and Stock Purchase Plans 1,049 - 22.2 P s , Redemptions and repurchases (1,200). - (132) '. (143) f n i Shares held for investment 0) (1,774) ~ (38.7) iL BALANCE, DECEMBER 31,1989 244,593 3,342- '52,220.6 1 6^,' (1) During 1989, innet PactflCorp, Inc., a wholly. owned subsidiary of the Company, purchased common shares in the market to be med . for acquisit onu see Note 2. - a n; At December 31,1989, there were 3,193,652-When market and economic conditions were authorized but unissued shares of common stock favorable, the Company, from time to time, repur. s reserved' for issuance under the Dividend chased shares of various series of preferred stock.' In Reinvestment and Stock Purchase Plan. Eligible. accordance with regulatory orders, gain or loss on the i . employees may participate in the K.Plus Employee repurchase of these shares has been deferred and Stock Ownership and Savings Plan. Under the plan, beginning in 1988,13 being amortized through rates employees may purchase Company stock with pre-over a five-year period. At December 31,1989, the tax contributions, and the Company makes matching net loss deferred was $15 million. Y contributions equal to a percentage of each partici-Generally, prefernxi stock is redeemable at stipu-pant's elective contribution which is limited to 6% of lated prices plus accrued dividends, subject to certain i annual compensation. Shares purchased for partici-restrictions. Upon involuntary liquidation, all pre-pants under the plan are acquired in the market. ferred stock is entitled to par or stated value per share. l ' i

___._M o Ylr; ,c s c;

a,.i t'

in ic. o_

n-ze<

g $li - y r AEtEt$iEtEE$EER 5S5 RIES [. $n$$ ' ' AMOU > sit 'Akt U i $UBJrff TO MANDATORY REDEMF110N Sl' RIAL. PREIT.RRED $ 100 PAP, VALUE PER SilARE,3,500SilARfS AUTilORIZED 63 $ 6.3 R 9.15 % 5. NO PAR SERIAL PREFERRED,16,000 SI(ARi$ AITillORIZED J $7.12 ($100 stated value) 500. 50.0 500 50.0 TOTAL SUBJECT TO MANDATORY REDEMPflON $ 50.0 ' $ ' 56.3 MOf SUBjECrid MANDATORY REIU.MP110N ' ~ ~ '~ ~ ~ ' . SERIAL, PREIT.RRED $100 PAR VALUE PER 1SilARE,3,500SilARES ALTrilORIZED? 4,5'c%' 2 5 .2 2 5 .2 s J 4.56% 85 8.5 85 8.5 = 4.72%. 70 7.0 - 70 - 7.0 ' e0

5.0(M6 42 4.2 -

42 4.2 5.40% i 66 ~ 6.6 66 .6.6. [6.00% 6 .6 6 .6 - s 4 f 7.(XyW3 -18 1.8 - 18' l.8 ' ! 7.96%D, 135 13.5 139 13.9 4 L' 2$ ' - 69 6.9 .70 7.0 - 165 16.5 169 16.9 =;.y 9,08HP i L 5% PREFT.RRED, $100 PAR VALUE,127 SilARES i@O ' ^ AUTIIORIZED AND OUTSTANDING 127 12.7 127 12.7 di! hNO PAR SERIAL PREFERRED,16,000 SilARFS !'M JALTillORIZED. L$1.16 ($25 stated value). 193 4.8 200 5.0 k a N. 51.18 ($25 stated value) - 420 10.5 480' ' 12.0. -$h 5 $1,'28 ($25 stated value); 381 9.5 '400-10.0 - [h( D $E76($25 stated value)) 394 9.8 400 10.0! [ [$1.98 ($25 stated value)l 502 12.6. 520 13.0 Y ( ' 152,13 ($25 stated value) 666 16.7 - 679 16.9 ~ s i' bDutch'Au$ tion Rate Transferable. L Secur' tiesm ($ 1'00.000' stated value)mi 1 100.0 100.0 i M TOTAL NOT SUBJECT TO MANDATORY REDEMI'flON 5 242.4 5 246.3 1 g* L.____.._..._. M. j (l) At December 31,1989, the dividend rates on the 500 shares of kries A and 500 shares of Settes B were 7.44% and 7.76%. tespntively. g. 9 m; ,MAlidatory redemption requirements at par beginning in 1993. If the Company is in default in IV ^ ivalue plus accrued dividends on the $7.12 No Par its obligation to make any such purchases, it may 4.3 LSerial Preferred Stock are 15,000 shares annually not pay cash dividends on common stock; Q l 3 w s

'.g " j;# . K,, p; f A _- 'C, "l'

F I

Cj o; It ' - P -- Og y.r T -c [T[ J NOTI 6. LONG-TERM DEST AND CANTAL LEAlf OBLIGATIONS - L The Company's long. term debt and capital lease obligations were as follows: M <.8i MiuJoNs or DOLLARS /DfCrMBER 31 i i i m 3 1 1989=

1988' b

x f FIRST MORTGAGE AND COLLATERAL TRUST BONDS ' Maturing 1990 through 1994/$%%!0.45% , 5 ?175.5 -

5. 175.0 :

VEMBEDDEDC0$10F

Maturing 1995 through 20UO/5%9%%m -

' 344.7: . 344.7 L MORTGAGE BOND DiBI Maturing 2001 through 200t '7%%10.3% 472.4 . 495.2 Maturing 2007 through 2017/WW10%% ~ 722.87 761;1L 911/ Medium. term notes series A 1994 through 1999/8,43%9.5% 147.0 f 1 GUARANFY OF POLLUTION CONTROL REVENUE BONDS Variable rate due 2013 through 2018(2) > 258.2 258.2 L 6%8 %% due 2003 tbrough 2005 36.9-36.9 > g' 5.9%11 %% due 2004 tbrough 20170) 310.3 311.0 4 Funds held by trustees (76.0)_ (84.1) ~OTHER

N 25.0 w g

Eurodollar loan agreement 7.50% Debentures due 1991 70.0 70.0

j

.n U Term loan agreement du: 1994(4) 55.0 55.0-4 2%15% First mortgage notes and bonds maturing thmugh 2024 ' 139.3 .135.5

l

[f8: Unsecured 6%12% notes due through 2007 68.0 65.5 J N N ~ Unsecured domestic credit agreementi2x41 ' 20.0 ~. 20.0 Q 'l u Commercial paper k4H5) 273.9 345.4.. ] c n Q8Q8@8Q8V 88;IBF ' 7.7%12.25% Notes due through 2001 91.7 113.5 gis

8.5%10.11% Medium term notes due through 1999til 312.6-160.9 k%

' Leveraged ESOP loan guaranteesto 19.3 ) 27.5 ' ' [yi @~ '. Unamortized premium and discount (13.7) (16.7) }$' ' Capitallease obligations (Note 7) 183.9 201.2 iTOTAL 3,611.8; 3,500.8 - ..Less current maturities 72.8: 59.8-MGWl _ M em Q ',%o, _, LONG-TERM DEHT - $3,539.0 $3,441.0 7- - y. e ,W W W + : FINANCIAL SERVICES ' 4 yb: b 17.2413.5% Nonrecourse debt due through 2028 ' 5 168.2 - 5 ?144.2 ?' 7.47%10.97% Senior debt due through 1993 - 366.2 447.8 W < 'y ' 8.5410.5% Senior subordinated debt due through 1998 ' 86.0. '77.3 10%10.65% Junior sulxxdinated debt due through 1998 54.5-69.5 2 [ [- 'Commerrial paperGK4d5J 180.0' 165.0 6 Capitallease obligations (Note 7) - 1.0 2.5 ( j Discount on long term debt assumed (.3) (.3). A ^,.t Mn o . TOTAL: - $ 1855.6 $ 906.0 WQW y,:g 5 iIJ j ' ' (1) includes $s0 million in 9 %% bonds hsued to secure obhgations under an equivalent 14 year yen loan. A cunency swap converted the - ' i fixed rate yen liability to a floating rate U.s. dollar liabthty based on six. month !JBOR plus.02% Onterest rate 8Al% at December 31i1989.) - ]f

(2) Through December 31,1989, the Companies have effectively fixed the rate on $510 million through 22 Interest rate exchanges that.

" ~ have maturities cd one to eight years. The rates fix:d through such exchanges approximate 6.6% to 10.98% , h' 'i (3) Secured by pledged first mortgage Imnds generally at the same interest rates, maturtty dates and redemption provisions as the secured pollution control revenue bondt I (4) Interest rates fluc tuate based on various rates, primarily on certlftcate of deposit rates, interbank borrowing rates or prime rates, (s)The Compantes have the ability to support commercial paper terrowings and current debt being refinanced on a long term basis i through revolving hnes of credit and term loan agreements and therefore, based upon management's intent, have classified these borrow. l 'Ings as long term debt, j t (O Guarantees of debt associated with the 1.cVeraged ESoP Trust estabhshed under the PacifiCorp K Plus limployee savings and stock ownership Plan. The debt was used to acquire the Company % common stock Common equity has been reduced and long. term debt has been increased by the amount of the debt guaranteed. Remaining unalbcated common shares total 1,101,336. L 4, V At" !/ij 9f: ;

,, *, W

p? f u g , Jg! y .L

c; o-

'n! .p Q $3 ~ 46 o y 4 M 2 y : LSubstantially all of the Companies'_ assets secure. recurse to the Company, i long term debt,~ Drst mortgage and collateral trust Subordinated debt is subordinated to senior i bonds 'of the Company'may be issued in amounts short term notes payable and senior long term debt? / limited lby property, earnings and other provisions i junior subordinated debt is further subordinated toi ^of the mortgage indentures.~ senior subordinated debt. L ? Nontecourse long term notes 'are secured by' Maturity and sinking fand. requirements on allt ' assignment of certain finance receivablesiasset secu-long term debt, all long term capital lease obliga-irity interests and cash flow from operating leases as. tions and redeemable prefened stock outstanding are ' c:llateral.' The noteholders have no. additional ' as follows: MilllON?. of ICLLW/FOR THF Tl AR / 1990 1991 1992 "1993 1991 1 Total requirements : 5461.2 5341.8- $274.7, 5383.4 1.5202.0-Portion of total payable in cash 457.3 338.1 271.8 381.3 200.3 i . Property additions certifiable in lieu of cashm - 6.4 5.7 4.3 .3.6 2.9 : ) (1) Certain cash tinung fund mjulrements may tw satisfied on the tasis generally of WN of property additions. The Company's Mortgages and Deeds of Trust, these purposes was $720 million. . as supplemented, relating to its long term debt, The Company made Interest payments, net of , restrict the payment of cash dividends and other dis-capitalized interest, of 5521 million, $418 million tributions on common stock.. At December. 31,. and $362 million in 1989,1988 and 1987, respec-(1989, the Company's retained eamings available for tively.

NOTE 7. LEASES ~.

at fair market value. The Companies are also com-E The Companies: lease certain properties, in-mitted to. pay all taxes, expenses of operation ciuding the Wyodak coal fired generating plant, (other than depreciation) and maintenance appil-iunder leases expiring during the next 17 years. cable to the leased property, l t Rentals on lease renewals are subject to negotla-property, plant and equipment include the fol- . tion; Certain leases provide for options to purchase - lowing amounts for leases that have been capitalizedr MILLIONS OF IO!LARS/DECEMBFH 31 1989-1988 ElectricD 5185 5185. Mining 6t Resource Development 44 44 iTelecommunicationsi 46 46 275 275 { ! less accumulated amortization 108 92 5167 5183 Lease amortization expense is included in included in rent expense. Imputed interest compo-g;V 1dtpreciation expense except for Electric Ope-nents and amortization components of those lease < rations;fConsistent with state regulators' treatment payments approximated $11 million and $6 mil-for Electric Operations rate making purposes, an lion in 1989,512 million and 55 million in 1988 Lamount' equal to thcannual lease payments is and 513 million and 55 million in 1987. 4 4 i j

p l$4

4.'

4c

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.rt r / ' s l. }.._ /iI .a3) ~ d MINIMUM RI'NTALS UNDER NONCANCELLABLE 11ASES ' hfli.uoNs oF DoLIM$lDECrhfBLR 31 ' OPERATING - ' CAPITALIZED - 1.IAV.s LtAsLs - 1990-1L 5' 48.6-5' 35.7-1991 ~ ~ 31.0 20.9 -' 1992' .27,9 20.4 -' '1993 ! -24.7 20.3 1994' . 22.0 1 -20.3 Thereafter 190.7 172.5. . TOTAL' . 5 344.9, 290.1-i.essimputedim est 105.2- - Present value of minimum rental payments. 184.9 - Less current portion 21.5 __ TERM CAPITAL LEASE OBijGATIONS LONG 5 163.4-Net ' tent. expense, including Electric 1988 and 1987 was 589 million,583 million andr Operations' rent jxpense attributable to capitalized 581 million, respectively. l leases, for the years ending December 31,1989, EI CEE E CMM per year for a twelve-year period commencing in - f CONSTRUCTION AND OTHER 1991 fcr similar services related to the satellite cut-Construction programs are estimated at 5842 rently under construction. l. million for 1990. As a part of these programs, sub. In connection with certain option provisions j K' stantial commitments have' been made, contained in its partnership agreements, pacific ,i L; Telecommunications has contracts for the con-Development, Inc may be obligated to purchase. j struction of a fiber optic cable, with its share of the the other partners' interests at various times cost expected to range from 5235 to $250 million, through 1992 for an aggregate of approximately. and a replacement satellite, with its share of the - 558 million. cost expected to be 580 million. Estimated 1990.- The Company and its subsidiaries are parties to. l construction expenditures include $129 million of various legal claims, actions and complaints, cer-such costs. tain of which involve material amounts. Although Electric Operations has agreed to purchase ~ lt is impossible to predict whether or not the from an unaffiliated supplier 1.28 million tons of Company and its subsidiaries will ultimately be j coal per year over the next 23 years. successful in these legal proceedings or, if not, what ' i l Telecommunicationois committed until 1991 the impact might be, nianagement believes that ) l for telemetry, tracking, control and protection ser-disposition of these matters will not have a materi-j vices for its existing satellite at a cost of approxl. al adverse effect on the Company's consolidated f mately 511 million per year. Telecommunications results of operations. has also agreed to pay approximately 55 million I ) 1 d u 4

g f f k (P-Ai [o[ il, '.. r, '.'l 'C o" R' 'P i ~ 't 55 - 'gy .y' y; ( QOIN11XOlVNED AND LL45FU PLANT: i At December 31,1989. Electric Operations

participation in plants jointly owned and jointly leased was as follows:

~ hmuomof touARs rLLCrRIC ' PLAMr ' CONSTRUCTION. oPLRATioNs'. - stdvlCL ~ACCUMULArIn WORK IN - IN - sHARL DLPRECIATioN - PRoGRr5s + JOlhTIMOWNED PLANI 5:

ENERGY SOURCE -

y . Centralla ' 47.5% - $160.0 - $ 81.5 ' $ 1.3 : . (rfKfW - Jim Bridger 2 694.5 .211.9 - 28A... .100 Units 1,2,3 and 4 66.7 JTrojani 2.5 ' 18.1 7.5 : 1.5 > Colstrip Units 3 and 4 '10.0 W4 27.11 .2 i0 flunter Unit 93.8 ' 233.7 64.4 .8 0J J Hunter Unli 2 60.3 148.7 35.4 .9 - JOINTLY LEASED PLANn n^ Wyodaki 80.0 250.7 55.0

.9 :

50 ~ Under the joint agreements, each participating ' expenses and debt service). These costs are includ. ut'llity is responsible for financing its share of con-ed in operatlora expense. Electric Operations is - g . struction, operating and leasing costs.' Electric required to pay its portion of the debt service, whether cr not any power is producedlThe- . Operations' portion is recorded in its applicable p ' operations, maintenance and tax accounts, arrangements provide for nonwithdrawable power 0 i Consolklated revenues include coal sales to the and most.of them also provide for additional 64 8$ 8 8 88 69 ' l' ) Jim Bridger Power Plant joint venture partner of $42 ' power, withdrawable by the districts upon one to ^

million in 1989 and.1988 and $41 milhon in 1987.

five years' notice. For.1989, such purchases ' g g LSubstantial am'ounts of power are purchased approximated 3.7% of energy requirements; an gg s.

from several hydroelectric projects under long-term additional 10.3% was obtained through other pur-L (arrangements with public utility districts. These. chase and net interchange arrangements.

purchases are made on a " cost of service" basis for At December 31,1989, Electric Operations'.

n stated percentage of project output and for a like ' share oflong term arrangements with public utility.

H ipercentage of project annual costs (operating districts was as follows: =. GENERATING . YEAR CONTRACT CAPACITY PERCEN1' AGE ANNUAL. ip ' ' FACILITY; . EXPIRES (KW) OF OtfrPtfr COSTsm (Wanapum _. 2009 155,444 18.7 53.3 PrJest Rapidsf 2005. 109,602 13.9 2.3 t Rocky Reach. 2011 64,297 5.3 1Ai - Wells '

2018 54,198 7.0 1.3 DTOTAL '

$8.3 m..__

(1) Annual costs. stated in millions, include debt service of 54.9 million.

Th0 Company has transferred 21% of its 25% and debt service of the Project. The Company . Interest in the intermountain Power Project remains contingently liable for any obligations not [,'

(" Project"), located in central Utah, to other Project discharged by the other participants. Upon the ful-

[ Lparticipants'.The Company and the City of Los fillment of certain conditions, including refunding l1, .' Angeles have agreed that the City will purchase of approximately $50 million of bonds issued to [ (capacity and energy from Company plants equal to finance the Prolect (which the Company may [. ?the Company' remaining 4% entitlement of the request at its expense), this contingent obligation [ Project at a price equivalent'to 4% of the expenses will tx: discharged. ] I h t

8;n g % s } d f' l o I, i I' ~- M $h ,J' W z 6g+ o a p ' yg e ,a g rj2 [Il05.10 RITREMBff Mall 5l

! for federal income tax purposes. At DecemberI31[

s> g "Ihe Companies have pension plans covering ;1989, plan assets were primarily invested in common ! %".Lsubstantially all of their employees. Benefits under - stocks, bonds and U.S. i;owmment obilgations/ these plans are generally. based on_the employee'si, : Effective January 1,1967; the Company. y years of service and average monthly pay in thel changed its method of accounting for pension costs 1 y t five consecutive years of highest pay out of the last - to confonn with FAS No.= 87, " Employers' Account. i4 den yearsTwith adjustments, except for Ut'ah Power L Ing for Pensions," The change did not have a mate-h' Nmployees, to reflect benefits estimated to be ' : rial.effect on operating income. Unfunded prior ser. M J rece10ed from Social Security. Pension costs are ivice costs are amortized over the remaining service - 4 i fun'ded' annually by no.more tha'n the maximum period of employees expected to receive benefits.- g iamount of pension expense which can be deducted - Net pension cost is' summarized as followsF L> MILUONs oF DOIIAR1AoR THE YEAR - x 2 1989 -1988 - 1987 j Service cost % benefits camed 1 5 20.6 5 17.1- ~ 514.3 : "f [Intirest cost'on projected benefit obligation 53.0-52.7 148.4: i i Actualgain on plan assets (58.1) ' (43.1)

(11.0) >

d/i Net amortization and deferral 1.7 .9.0 (23.7) D [Redulatory defenal(iO '( 5.5) ' (14.8) '

(11.0) <

s. Net pension cost - 5 11.7 5 20.9 ' 5 17.0 l:1 > 1

i si} c (1) Dectric Operations has received accounting orders from its primary and certain other regulatory autherttles to defer the difference between pension cost as determined in accordance with FAs 87 and that determined for funding purposes.

I The fudded status'and net pension liability and significant assumptions are as follows: Mll.UONs oF dollars /DFIEMBER 31 PLANS wini ~. PLANS WrrH. ,t Assets IN EXCESS of . ACCUMUI.ATED BENEFITS ACCUMULATED BENEHTs ~ IN EXCE5s of AssE'Is 1989 1988

1989'

.1988 g s aActuarial present value of; Ebenefit obligations ,i

Vested benefit'oblijation 5433.1.

~ $214.1, . 5 Z 76.0 i 5255.6 : 1 e i Accumulated benefit obligation ?442.3: '219.7 l102.50 1277.0' Projected benefit obligation: 546.0 299.5 ' W102.6 i i356.2 ; 2' LPlan assets at fair value,iptimarily ~ .., SlistAd stocks and bonds 588.3 - 336.3 : 1.2 166.6 e Ii. L. f Assetsin excess of(orless than) (projected benefit obligation '

42.3 '

36.8 ;

'(101.4) (189.6) 7 nte' cognized prior service costs .(4.3)' (5.2) U /Unredognized net lo'ss (gain)' (101.4) ,.4 l(34.6) ' (35.9) h4 Urirecognized nel(asset) obilgation at January 1,'. N id,being amortized over 7 to 22 years . ' 22.2 (38.0) - i100.6 164.8 (65.9) = T IMinimum liability cdjustment a /!] g, Net pension liability" 5 (41.2) 5 (6.0) $ (101.3)i '5 (60.7) m.. S 3 Discount rate 8-9% 8-9% 9% 8.75 9 % %qff jExpected Iong. term rate of return on assets 8-9% 89% 8-9% 8% Rate of increase in compensation levels . 64.5% 6% 6-6.5% 56.5% s ,?, l y,n 6 \\. u ly ' y$ l J ' ' Ni! m...

m ;in 4,*, s a4 2 A r 4 y, R.p g ' w T ~ cc

oT

-a, r A ' 'c; T r s mv. ,9 u t -{ f;? y g ,S .....e , Lincluded in the table above is the Company %.. mulated insurance proceeds,' amounted to 5100; i ?' ) nonqualified plan for certain management employ _. million and '580fmillion, respectively, which are' - WX ees of Utah Power that provides for benefit pay-included in deferred charges in the accompanying ; y 1 ments based on. final salary upon retirement-or : < balance sheets. The life insurance policies' _whichJ cdeathi The plan.ls'being funded by Company-have total cash surrender values at Dscember 31/ g' y Lowned life. insurance on the lives of plan particli l989 and 1988 of 549 milllon and'541_' mil.llon,i l pand.i 'sLa result of regulatory orders, the; respectively, are not considered to be assets of the. A S Company defers all benefits'and costs under the plan for purposes of determining net periodic cost, W ~ plan, and maintains sufficient life insurance related The Companies provide health care and life; , to the plan such that the present value of the life 2 : Insurance benefits for their retirees on a basis sub-> 1 ", insurance proceeds will at least. equal the present ; stantially lsimilar to those who are acthfe employ.i

v'alue of all plan costs.and premiums on the life ees. The cost of these benefits,' which is charged to (

insurance. At. December 31,1989 and 1988, accu. - expense 'asiincurred, wris $7 'rElllion'in :1989)56 ,1 [ mulated deferred benefits and costs, net of accu-.million in 1988 and $7 millloriin 1987c p ,4 ~ NOTE 11. GAIN FROM 54LE OF POWER ENTITLEMENTS Washington Public Power Supply System bnit ~ 3.-

In June 1987, Pacific Power sold its rights to ; ("WNP3"). The gain of 588 million from ths sale of :

receive electric power from Bonneville Power 1the entitlements was recorded in income during' s Administration'("BPA"), under the terms of an 1987ine related Income tax expense was $37 mili f' exchange agree. ment, to Sacramento Municipal lion, in November 1989 this sale was renegotiated i s Utility District.' Pacific Power recched these entitle-and certain. contingencies were resolved such thatt ments th a settlement between the Company and { the sales price was increased approxlmately 57' mil? % s BPA resolving litigation over the Company's obliga. lion. Additional tax expense related to'this'salesh M tion to participate' further in the construction of, price adjustment was approximately $3 million,p ' 1 e ~ 4, ....y i t., ' NOTE 12.' WRITE-00WN 0F NUCLEAR PROJECT (0$TS ! . nuclear project costs, beyond thoselthat had been( d[f ' [In Olew of tN cbmpititlW energy envirodment already allowed.lAs a result, In' June 1987,,thes xlI, 3 1and t' e iness' re to keep electric prices low, it was no. Company charged to income the remaining'$,665 ":d h u 4 kk M dionge[feahlble"trS the Company's ]udgment to'antici? L million.of costs associatedivith.\\VNP 3, TIE rel5ted l

pqe futurch. ic'e' increases to allow reconry of Treduction ofincome tax expense was $25 million.i

@G s 4 4 3 } r M m. sq } l, L y t..' ,u:Q $j[pi /p " g "l% y

H d 6

s i f lg t. Y$ $?N' \\ M M ", L

s! ....~ f. .I D.. -Fdk ,, Q{? % i%n ?..l C '~ W &g g 'f { A gqi yg q\\ .c 'p. s ._n-

59. -

a,;, d. $gc- ;z% ep&b %*W;,2 ?;4 N ?? ie t w .r; y-; l o j $ i}? l'*' Don C. Frisbee,66 Williarn D. Herutry,69 ${9 lY R Chairman Former President and i F PaciflCorp Chief Executive Officer Portland, Oregon Household Finance 3i #[. h

1966 Corporation Pasadena, California i

+

Charles M. Blnkley,69 1986 '^ President and Chief &e Executive off\\cer Philly H. Knight,52 '~ Alaska Riverways, Inc. President and Chairman gh, 4. Fairbanks, Alaska NIKE, Inc. 1979 Beaverton, Oregon d 1984 4 i; C. M. Bishop, Jr. 65 %,V President Michael 0. Leavitt,39 Pendleton Woolen Mills President and Chief {x" H N Portland, Oregon Executive Officer bM 1970 The Leavitt Group 3P i Salt Lake City, Utah i 4 Richard C. Edgley,54 1989 Managing Director, W.; Finance and Records Dept. Don M, Wheeler,6l y, j The Church of Jesus Christ President and General W4 of Latter. day Saints Manager ' - - + Salt Lake City, Utah Wheeler Machinery m 1987 Company Salt Lake City, Utah , :c;T A. M. Gleason, 59 1989 4 President and Chief (J .,~ Execut\\ve offleer Nancy Wllgenhusch,42 PactflCorp President { %[*, Portland, Oregon Marythurst College 'g 1988 Marylhurst, Oregon 1986 hbs Ag[g,W John C. Harnpton,64 bd Chairman and Chief Roy A. ) bung,69 Sh,Li.- Executive Officer Director ,;3 m. e@li, y - Hampton Resources, Inc. Office for Natural ( g gl Portland, Oregon Resources Policy &g P 1983 Oregon State University 4j Corvallis, Oregon N"f Stanley K. Hathaway,65 1974 @h1 N Partner k [ffll Hathaway, Speight, Kunz. NE N Trautwein & Barrett ny Cheyenne, Wyoming llyg ? 1975 4 War each dimtor einted w kant. -g ' Betty E. Hawthorne,69 Dean Emeritus College of Home Economics Oregon State University Corvallis, Oregon ,e 1979 h,,g ' F i _g i .}f'9,pY s- .Y f

lb % ~ Q ',h}c:j'

g Lt?

..c o-n' r Lt At' Jg9g, % 60"g ~ - - - -. - ~ - - 4 s g-PAGFKORP POUCY OR00P ILIGRKOPERAfl0N5 GROUP PAOFKORP FBIAIKIAL SERVKES A. M. Gleason, $9 Robert M. Smith,61 - President and Chief Executive Vice President William f. Glasgow,43 Executive Officer 1950 President and PactflCorp Chief Executive Officer 41949 Sien M. Marks,43 1988 Vice President, Finance Gerard K. Drutnmond, M Electric Operations William E. Peressini,33 Executive Vice President 1980 Senior Vice President and PaciflCorp Chief Financial Officer "hairman and Chief PACIFIC POWER DIVISION 1985 Executive Officer NERCO Paul G. Lorenzini,47 PAOFKORP E 1977 Executive Vice President 1987 David F. Bolender,57 Robert F. Lanz,47 Vice President and Treasurer President UTAH POWER DIVISION 1973 Electric Operations 1975 Fredric D. Reed, $2 3dII A* N8IZII 33 f Executive Vice President Vice President and Robert W. Moench,63 1969 President Corporate Secretary g. 1962 Pacific Power fo'en A. Bohlirqg,46 g 1951 Senior Vice President 1 1972 Daniel L. Spalderng,36 ) Vice President o Veri R. 7bpham, SS 1981 President Harry A. Haycock, $4 Utah Power Senior Vice President ~ ! 1973 1960 Cilfford C. Cowley,61 d* Vice President Lawrence E. Heiner,51 NER(0 1952 President F NERCO Charles C. Adams,46 /acqueline S. Bell,48 g Controller j 1970 Senior Vice President 1980 1974 g Charles E. Robinson,56 M AL M EL Chairman, President and William W. Lyons, SS g Chief Executive Officer Senior Vice President and b Stoel Rives Boley Jones Pacific Telecom Chief Administrative Officer g gy,y - g-1960 1977 4 INDEPENDENT AUDITORS PAOFKTELECOM Deloitte & Tbuche Charles E. Peterson, S3 Executive Vice Presider.t 1972 b Vern K. Dunham, 56 Senior Vice President 1972

a=m-s w _ _ _ _ _ _ _ _ _._.c ANNL Al htiillNG l Slon I \\Cil ANGl I thTINGS 't he annual meetmg of Pacita orp Pacif a orp% common stock is hsted on the sharehoklers will be, New York Mock I.uhange, Pacifk Stock Luh mge WedneW4 Mn W F8xl and 1he 1.ondon Stml lachange under the sym~ l 30 p m bol l'lW Red iion inn at boven Bah Daily quotes on the company's wmmon 404 N Hndw thnd Dnve stotL can b obtamed by chetking the New iork Pordand, begon j StotL 1.uhange wmposite transaction hsted m Prou tuaknal wiu be inaded to shar@ omen Paci!H orp n usualh abbrenat-f local newspapers of wwrd donng tk lau wn s of March ed *Patilcp" for thh purpose 1he wmpany's preferred stot L and tint A ndeo tape of the meeting will be as ailable j l mortgage bonds are intrt quentiv traded in the to shanhoMen upon request. over-the-wunter market. I UN" U VU"' I AI'O 10 K,fi!ed l A wpy of the wmpans's 1984 lITIHHINIOR\\lAl10% linancial analvsts stot Lbroken, mterested wah the Securitws and I uhange ( ommaston, l may be obtained bs c ontat ting (orporate l investon and tmancial media desinng mtorma I tion about PacitK orp should contact the follow-inveuor wtanons at the corporate headquarten ! mg mdividuals m wrporate ms estor relanons address P""I """ "# ""E " " W"' " Mike Nelson ed or audio usual matenals ate aho avadable. (50h 7312125 (:hris Hunter DIFIDI VD IMDil NI l ~ " ' " " " " " i50 h 711 20(x) ~~Y'" AH ARIIIGI DI R l%IOR\\t Al10% preferred stosk m 1900 are expected to be paid l on or about. ) Inqturies conterning lost stotk terttticatev change at addrew account I* "" I 5 dividend payments ! status and dividend remsestment plan should be M"' I b August 15 { directed to No mber 15 l Pacth(.orp Shareholder senwes 700 N I Multnomah, Smte '00 DIFIDI ND R1INUI AI All NI l'l AN 47232-4107 PautiCorpN dmdend remseument plan n a 1 l Portland, Oregon (50h 236-2111 wnvenient t av tor shareholders to increaw their l 2305454 l loll I ree Number moth innunwnt in the wmpant UndM th plan. quarterk dindends f rom Pacitn.orpi transter agent n h or a portion) l Hnt Interstate Bank of Oregon. N. A tonunon and preferred shares ta ( orporate Irust Department inav be automatitally apphed toward purchase of addmonal shaws or (onunon votk in addmon. Pn hos 2471 55 000 per quarter 97208 29"I tash contnbutions of up to Portland. oregon can be made All or aru portion of the remvest- { l ONDl/OI D/'R IXIOR\\lAllON ment shares tan be sold through the plan upon Inquutes tonterrung lost bonds. mterest pay - termination of partiupation A small wmnussion }! ments, changes of address and other matters tee n tharged when apphtable relatmg to ownenhip should be directed to i xntmg shareholders can open a dindend i f irst Chhago 'Irust ( ompany of New iork reinvestment a< count with enher dmdends f rom custmg shares or mth an untial tash wntnbu-p g g, zyg g Ior a prospectus. enrolhnent tard or other (.hurch Street Station non tah o, wnte to Patih( orpT share-New York, New York luons-W81 mtormation 43133,ot.n437 Bondholden needmg f urther assntant e should contact. Pacitn orp 5haJolder setni cs i 50 $) 23h-2!Il loll I ree Number ihoth 2 4 i 545 4 I II I I h lu g i ig

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