Text

Pacificorp,1985 Annual Rept
	ML20205C250
Person / Time
Site:	Trojan File:Portland General Electric icon.png
Issue date:	12/31/1985
From:	Frisbee D, Gleason A; PACIFICORP (FORMERLY PACIFIC POWER & LIGHT)
To:	;
Shared Package
ML20205C235	List: ML20205C229; ML20205C250; ML20205C286; ML20205C305;
References
	NUDOCS 8608120291
	Download: ML20205C250 (65)
	v • d • e

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! INANCIAL HIGHI1GHTS i

19111 19113 ,,M 2iumi r ,

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} _ _ _ . _ _ _ _ . _ _ . . . -_ _ _ - _ . _ . _ _ . _ . _ _ _ _ _ _ _ _ _ _ _ _ _ _ . . .

YOR Tile \ EAR Milll0NS OFIX)LLfW 'M" Revenues S1.706 S 1,9113 1l'%

i income f rom Operations 607 3111 13 Net locome 2 13 2 111 10 '**

I $

AT \ ETR END I Assets 1.736 a,122 6 So Capitalization 3.611 3,1110 -1 Common I-:quity 1.3113 1,371 9 l'ER 00\lil0% SilARE 1:arnings 3.12 3.-4-1 3 Dividends Paid 2.21 2.38 3 si2m s i<m t.vm i m om C.tsh I';or 9 .1111 9. l.1 9 llook V.due 22.17 23.111 3 RIM I:S 1

\tllLinNS OF IM H.l ARS ilEASI REilETTS

. n.,n iii,crai

! Rettirt) of) Average Coillmt)H 15yllity 16.0'% 13.0'% .1,,,n,,,,,,,,,,,

hl.trkd to Ilook Value Ofar end) ll0,7'% j3l,l'S ,y,,,,y,,,,,,,,,,pp,,,,,,,,,,,,,,,

]

C(llOlllon l flllity/lYrCClli tll' CJpital 311.0'% 10.9'%

j Common Sharestaterage mdh"ns) 311 6 63.9

%at t twr saw a mvemu

(//44mrshti/n ms;tr ah">u 2VI r '

1 2tNI I

'~'

CONTENTS

,tm

! Significant 13 ents 2 l Irt ter to Sh.u cholders i

.\lanagement Vicws of Key issues

% 4 I let inc sen k c 12 ,, ,, g g

$ lining 16

'li Iccominunications 20 sn in m ni 2:a i New est llusiness 1.ine 2i i 56 ope of Operations and M.sps 28 ) tl.t I:0F $100 i 1%%I:51)lt.TT'I)

I in.mt ial Su tion Content s 30 1 _

P t( H it ONP hish l Iloard of I)iret tors -

W -

j ( )llit ers 60 'teemessno miewar>.m.,an j lt h esh ir I nlt it fila tit in ll}(; l'MI a d annmelittidywis rem rurno ao nse emt a.w.a un r E

l l

1 IGNIFICANT l

i EVENTSl1985

l'or the first time.since 19'a, l'acitiCorp senior debt achieved an A or equivalent rating from 5tandard M Poor's. .\1oodyi,1)utf &

)

Phelps, and Fitch investor Services 'I he higher ratings recogni/c the company's improved financial position, capital structure and earnings record. l<cduced construction spending and resolution ofissues associated w ith nuclear pow er plant investments w cre also f actors.

pjCfyC + InJtn$e, Pacific l'ow'er observed its Nth year of providing

! electric service. When the coinpany w,is formed in 1910, it lud ",300 1M'ER clectric customers in ()regon and Washington. 'thday it sers es 000,000 customers in six Testern states.

+ A settiement was reached in September that would etfective-ly end Pacific Power's obligatioa to pay for any f urther construction of l' nit 3 of the Washington Public Power Supply 5ystem. Construction

! of Ihe plant was halted by the llonneville Power Administration and I

the Supply sy stem in mid 1983 The investor-ow ned utihty participants, i including Pacific Power, objected and sued. Public power interus have clu!Ienged the settiement. The company is not participating in I any other nu(lear power pl. int construction.

+ The long hattic continued os er cont rol of Pacific Pow eis )

.\lerw in hydroc!ct tric plant on the Irwis River in southwest Wastiing ton. In ( ktober a three lodge panelof the l' S. Court of Appeals ruled j t h.it a federal license to operate the f acilit y should have gone to two pubhc power agencies instead of Pacitic Power. InJ.inuary 1980, the f ull court vacated tlut ruling and decided to rehear the case. The Federal I.ncrgy Hegulatory Commission in 19H3 granted Pacific Power a I 3t) )c.ir liceIhe t()(()ntintle ti)(1per;ite t he d. int it huil( ill tlie l.ite 19.'(h.

! latigation over .\lerwin is ex pected to event ually reach t he I f.S.

Supicme Cour t. .\1canu lule, legislation th.it would eitlier gr.mt prefer-ent e to ctirrent operators or provkle for a "neut ral" rehcensing procedure lus been appros ed by llouse and Senate comtnittecs w ith tuul passage expected in 1986.

l l

l B

l l

+ The Oregon communities ofJunction City and Coburg voted overw helmingly to stay with Pacilie Power as t heir c!cctricity supplier rather than join a public agency. Proposed annexation of these service areas by the I?merald People's l'tility I)istrict was rejected 2 to 1 injunction City and 3 to 1 in Coburg.

NERCO + NIC broughuogether its w'estern and castern coal l businesses in April, consolidating the two separate operations at

new headquarters in St. Inuis, Missouri. Cost savings and impros ed

] m.irketing etticiencies from the consolidation are expected to increase NiiliCO's compet als eness, sust.iining n s position as one of the nation's top coal companics. \' {

+ NI:ltCO redirected its oil and g.is business away f rom higher risk expioration after sutf ering a $35 million operating loss in this area in 1981 f3{Cfffg

Pacific 'It leu em acquired fit e local telephone systems and exp.inded its local telephone sers ice business by 50.0n0 access TELEL,O31 lines, or 3 6 percent more lines than at the end of 1981. ~1 he new acqtlisititins int hided Iw o systems in Alaska and three sniall $\ stems I 9' 1 0 in Washiligton. Wp > ming. and (:Olt irJdo '

l>aafic lhu er hyanits IllCIFICORP

Pd'itiC"rp took signific;ua steps in developing a tounh lonx bni,9 ofa<im CRElllT/FINAA,CE line of business in commercial financial services under a new w holly sert accin /9/oin .btoria, ou ned subsidiary, P.a ihCorp C.redit. Inc. .I.he new firm encom- onxon. andfu c otber p.isses the former Northw est Acceptance Corpor.uion acquired in smallo,mmuentwun hcl)(elill)ct alid expandeti thrtitigli;t l >cceriiber acciuisita ni c)f ilyster oregon and mobington Credit Corporation. Pacil; Colp i inante, Inc., formed in 1985 for leveraged leasing, is to be realigned under PacitiCorp Credit. At year end, assets in PacitiCorp Credit totalled about 5 400 million.

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0 OUR SHAREHOLDERS 1985 results fell below our expectations. Through the first half of the y ear. we were on schedule in achieving our earnings growth target of H to 10 percent, but alter mid summer, there were settucks. We closed the year at $3.+1 per common share, only a slight gain over our previous best of 5 Lilin 198-t The performante of l'acitiCorp common stock during ihe year was st rong. Our stock opened the year at

$2188 and closed at $3125 It then hit an all time high of

$33 25 inJanuary 1986. Annual dividends were increased H cents per share, and slurcholders had a 35 percent total return on investment in 1985-9. i percent in dividend yield and 254 percent in share price appreciarion.

SEGTIENT OPERATING REStil:IS Pacific Power h.id another solid year, holstered by record sales of power into a robust wholesale market. 'lhpping

$1.1 billion on 11 percent higher revenues, our electric segment contributed $1~H mi!! ion to overall net income.

Yet Pacific Power's net income growth didn't keep pace, 4

reflecting slow retail load grow th, reduced margins on w holesale sales, and less room to squeeze cost reductions from operations.

On net revenues of $.606 million, NERCO added $39 mil- '

lion to os crall net income, a 28 percent drop from last year. Strong A.M. Gl.F.ASnN revenues and earnings under otn long-term coal contracts were off. rmident set by a coal contract divute in w hit h a customer halted deliveries.

Ilowever, NERCO's major settuck stemmed from poor exploration results in our oil and gas unit-a $35 million oper ating loss, most of l

it in the last quarter.

i l'acific Telecom recovered some momentum lost in 198 6 i

f rom slower sales and investment losses Our telecommunications '

segment posted revenues of 5159 million, providing pacitiCorp carnings of $2 million-a $12 million increase.

j Tot'GilER TITRKE'IS -

1 In all of our basic businesses, market growth has remained slow since 8 the recession, and it doesn't promise to improve soon. And competition is intense. lion ever, w e rcjc( t the notion w e can't do b

anytning about these factors. What we've achieved in recent years demonstrates that we're wringing good performance out of our organ-ization and markets. Steps we've taken to enhance sales, reduce oper-ating costs, cut invest ment losses, and lower financing charges are described in the pages that follow.

7MIMR llERITAGE in 1985, we observed Ihe 75th anniversary of our enterprise. llack in 1910, Pacific Power & l.ight Company had only 7,300 electric j customers in a handful of small towns in Oregon and Washington.

1.ike many utilities, ours giew in partnership with our service communities. Ilut our company also thrived on opportunity and the willingness to push out ahead. This spirit is what has made u3 the financially healthy, dis ersified enterprise we are today. In 1985, that spirit took us in a new direction.

FINANCIAL, SERVICES l'nder a wholly owned subsidiary, PacifiCorp Credit, Inc., we have taken early steps into a fourth line of business-commercial financial services. PacifiCorp Credit includes the former Northwest Acceptance Corporation, which we acquired in September,liyster Credit Corporation, which Northwest Acceptance acquired in December, and PacifiCorp l'inance, Inc., a unit started in March. These businesses, which help companics acquire of fice and indust rial equipment through leasing or lending, total $ 100 million in assets and give us a special niche of the commercial finance litid.

These acquisitions stem from guidelines and criteria developed in our long-range planning efforts. l'inancial services fits our need for carnings growth with competitive returns in a business ;

line that complements our existing talents and operations.

Our immediate task is to integrate PacifiCorp Credit into our overall enterprise. Meanw hile, we'll continue to refine our plans, stay flexible, and be on the lookout for further opportunities.

Sincerely, I

Chairman and President Chief lixecutive Of ficer n

b ANAGEMENT VIEWS OFKEYISSUES The questions below highlight several important issues that sur-faced this past year at ratifiCorp. licre is how top management views some tough questions about our enterprise.

Overall ananagernent ofa diversified openttion pn'sents certain challenges, particularly one ofinvoir-ing rnanagement ofthe various business segments in the broadercorporatepicture. Ilou'do)tna accornplish this at l'acifiCorp?

DOT l'RISilLE It would be easy in a diverse company to have little interaction hetween the businesses except on the income statement. Ilut, we make a concerted cf fort to be sure that there is management interaction. A cor-porate pohey group consisting of the executives featured in this Q& A meets regularly-to share ideas, identify synergies among the businesses and to develop and communicate overall corporate objectives that can only be achieved by each segment's contribution.

Although we're closely knit at the corporate

__ levelin terms of planning and communication, there's still room for p3cgg,gCogp what we've fostered through the years-entrepreneurship. We Pol.lC) CROI P continue to promote ihe " stand alone" nature of our businesses Iduo Ret and the opportunity ef each segment to shape its destiny. I'm DnN C.FRISHEE convinced that this approach has given us the edge in making rbairman and cbwfErecutue ofpvr diversification work at l'acifiCorp.

A.M GLEA5nN rnuknt Given l'aciflCorp 's regulated utility backgmund, is natuVnotLNittR there concern thatstate regulatory conunissions tnight I%knt captun* earnings of)vntr nonelectric businesses in the Iaqfw thu e' ratesettingpmcess?

(

, ,{;)E RnBNnN 3g,gg,g.3SO) This certainly hasn't been the case so far l Im rjic &lco,m and we don't expect that our continued diversification willincrease GIR 4RD K.DRI l\fnND that likelihood.

rn utent

f" All our businesses are " stand alone" and are operated apart and separate from our electric business. Each segment I ,

loffverana is financed independently. Without any expenses of the other seg-ebairman ofth yto,rp ern/a ments being borne by Ihe electrie utility portion ofIhe company, Iheir carnings could not properly be considered in determining rate I

levels. Under this arrangement, electric utilit y ratepayers are also assured that there will be no costs to bear if the nonregulated businesses should be unsuccessful

i l

l i l i

'Ib date, the regulatory agencies have, as required by law focused only on the requirements of our elect ric utihty in setting l

l rates. Any other action would, of course, diminish the value of the i

other businesses to shareholders. If that were to happcn. we would take a hard look at spinning off the subsidiaries in the share-holders best interest.

Regionalforvcasts indicate a period ofslotegmteth in electricity usefor theforeseeablefuture. Does this signala period oflacklusterperforrnancefor Pacific nnter?

Du 01101.13Di'R Not necc.ssaril). We have advantages that enable us to boost and meet market demand.

It's clear to us that near-term economic conditiens in our service territory will not produce significant sales growth.

Ilut that doesn't mean we can't help change those tonditions and take other steps to improve our pros- ,

pects. Our baseline load growth forecast is 2 percent, but we think we can add another 2 to .4 percent to that Ibrough a combination of targeted marketing anJ acqui- ;

sition of other electric utility properties. '

'Ib achieve our retail marketing goals. we re I

taking a lead role in economic development as a way to add load, as i well as stimulating new sales to existing consumers. We're also l working harder to sign more long-term wholesale power contracts l with other utilities. As for acquisitions, we're going af ter utility prop-etties that have profit potential and that fit well w ith our existing operations.

We're in an ideal position to meet new growth bec ause we have ample generating capacity, especially from our coai-fired plants. llecause we don't need to raise huge amounts of capital for large new generating plants, our electricity prices are also stabili/ing. When loads do grow beyond the rapacit y we have now, w e'll handic the growth through power ptirchases, ci >thervation incentives, and (ogtneration - not by const ructiott of big plants.

Coalprices arv ctramatically lotter than they trere afete years ago tchen NiiRCO negotiatect its rnajorlong-terrn contracts. Wee seen severalcustarners challenging these contracts in court recently, llote serious is this threat?

.II{RR) DRI ilil0\D Any contract di.spute is serious.

It's even more serious when it involves our long-term contracts NiiRCO's main revenue source. At one time in 1985, the I)ecker Mine, in which wc*rc lulf owner, had contract disputes with all three ofits electric utility customers Those three contracts accounted for 20

. percent of NI!HCO's 1985 revenuts.

'l\vo of the Decker disputes have centered on -

contract interpretation. Through negotiations, we ironed out dif ferences with Detroit lidi. son, and hope to ,

reach an accord with Commonwealth tidison. Only in the dispute with the Inwer Colorado River Authority / City of Austin, which involves about 5 percent of NiiRCO's annual revenues, is contract termination sought.

Ti> date, the disputes tlut luve been resolved were settled 1 9 1 0 out of court and without significant economic danuge to N!!RCO.

I 9 8 5 1he unique natum oflong-clistancesert' ice in Alaska Workersin 190 huilt a has complicatectcleregulation anelcost recot ery in that umtenpipeline to carry state. What is the outlookfor this lonportant source of irater the compans 's Pacific 7elecorn revenue? primars sourceofgenera

(:111 a Rolliwn; Alaska is sparsely populated and tionforitsfirst m n ars. to be a vast land area with rugged terrain and extreme a b.n/rowne ratingplant wcather conditions ( her the years, sute and federal reg-ulators have beto sensitive to the high costs of building and operating a sprem m this environment, and they allowed us to recover a pornon of those costs under nationwide rost shanng arrangements. \\e negotiated those arr.mgements with AT&T hefore deregulation, at a time when it was miportant to both of us to develop the Alask.ilong distance netw or k.

These arrangements lus e been wniplicated by Ihe new deregulatory ( hnute w Int h allows nonregul.ned carriers to cornpete against regulated long lines operators like P.a ific 'li:lc .

com In addition. ATM T is now tn ing to lower all costs irnposed on it s iutionw ide net u ork, whit h is f acing significant competition.

l l

Without some continued nationwide cost sharing, a greater revenue burden would be shifted to the Alaska consumer through higher intrastate rates.

A special panel of state and federal regulators, formed by the Federal Communications Commission, has just begun to review the problem. If some form of the cost sharing system is con-tinued, a transition to more competitive interstate rates can occur without too many financial pro'.ilems for na PacifiCorp diversijledfurther in 1985 by in resting in c<nnmerrialfinancialservices. Does this nete diwction fit thecompany?

' G uII: \ LilElt Yes,it fitsin a number of ways.

Probably the most important is the opportunity we see for enhancing overall PacifiCorp performance. We ex pect t l'acifiCorp Credit, our financial services company. ;

to achieve carnings growt h rates and ret urns substan-

- tially higher than our other core businesses.

'I he other important fit is with our existing l skills. In our st rategic planning process, we rediscovered the talent and experience we have in financiall) oriented l employees.

The emphasis of our new business is on com-l mercial leasing and financing. We has e been running

! an equipment leasing business at l'acitic Telecom. We have even l more experience in leasing, from a buyer's perspective. Our peopic l have negotiated leases for power plants, heary mining equipment

) and es en satellites.

inw-cost money is key to making a profit in finance com-panies and we have experience in raising capital. In meeting the capital needs of our operations over the past lo y cars, we've raised close to $3.3 billion cheaply and ef ficiently.

l 50, basically, the knowhow to help manage and grow j this business was already in place. Our acquisitions in financial serv-

ices focused on two companies headquartered in Portland. Iloth j have t he talent, and infrast ructure to enhance this expansion.

1 I

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B_ e, LONG-RANGEDEMANM

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OMPETINGFORMARKETS f __

TOSELLAMPLEPOWER ,

E = In 1985,we observed our diamond anniversary at Pacific Power in a h

_ competitive frame of mind, aware that we face tough, long-term F h

marketing challenges. Pacific is up against conditions common to many electric utilities: slow load growth, excess power capacity.

e intense competition from nonclectric energy suppliers, and equally

__ ._g keen competition among wholesalers of elect ric power.

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lb overcome these obstacles, we are increasing revenues E by expanding our markets, and improving margins by keeping costs w_z. M down. We have also made a commitment to stabilize prices-with

C' increases at or below the level of inflation-helpingour product

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GROMTilSTRATEGIES E . D "..

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'd One of our main goals at Pacific Power is to bring sales into line with f.

6 our power resources, which currently exceed market demand. We

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d would like to grow at least i percent per year, so we are striving to U D ,' " 1 rg S find or create more demand than presently exists in the slow-grow- ' ^ " 9 _ ~

I ing retail market. ' ' "

' m To compete against orher energy suppliers, we are stress-M ing our role as a service provider and pointing up the value of 1 9 1 0 y E electricity as a product. lb grow our existing markets, we are empha-1 9 8 5 h-sizing economic development. To broaden our market territory, we Selling eledricityin the

- are on the h>okout for att ractive acquisitions. Meanwhile, in order to

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- 1 efficiently utilize our generating capacit y, reduce unit costs, and demonstratingthemarats

- d enhance carnings, we are compcting vigorously to sell surplus ofnercelectncappliances.

S1 power on the wholesale market.

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-- 1 PROD 001E AND SERVICES -

E We are using a variety of marketing approaches to retain our existing um _m load and promote growth. One of our programs, aimed at both -

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_2 residential and commercial markets, promotes the energy efficiency of heat pumps. Another shows customers how to repai rather than /

replace tbeir c!cctric water heaters, countering the conversion incentives offered by gas suppliers.

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in another approach, advertised as the Good

.; Cents llome, we have teamed up with builders to intro- )

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features of electricity in new housing construction. [

We are currently capturing -'i percent of the new residential market for water heating and 69 percent for space heating.

ECONOMIC DEVEI.0PMENT While such efforts are designed to keep or enlarge our ,

share of the existing market, we are also expanding the !

market itself through economic development. We are directly involved in industry siting decisions. We are also !

helping our service communities support the growth of existing businesses as well as attract new enterprises. As these com-acinc munities grow and prosper, so do we.

Power's senice area, in 1985, we teamed with nine communities to geographically the largest either retain or attract industry. This will add $2 million per year of of any electric ut lity in direct electric sales, while stimulating commercial and residential sales the nation, reaches north through the multiplier effect of healthier local economies.

into Montana's Qscier in southern Oregon alone, our efforts resulted in 225 new l National Park. jobs. We played a key role in locating a 125-job manufacturing plant and I assisted a seafood processor in a plant expansion plan which added l another 100 jobs. ;

AG)UISITION STRATEGY Acquisitions offer a means of expanding markets and revenues and improving operating economics. We are interested in acquiring elec- i tric distribution systems that fit our growth and profit criteria, pri- l marily smaller operations adjacent to our existing service territories.

In 1985 we made competitive offers on four systems and

, reached agreement to buy two, both in Wyoming. Acquisition of l Svilar Light & Power Company, a tiny, family-owned utility in liud-l son was completed in early 1986. Customers of Shoshone River l Power. Ir.c., in Cody, approved the acquisition of that system, but its l current supplier of wholesale power has filed suit to block the trans-action and seeks damages from Pacific Power. There are 16 mega-watts of annualload in this system.

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Acquisition costs for these two systems were snull-59 6 million. We are accelerating acquisition efforts in 1986.

WIIDI.ESAI.E SAI.ES The wholesale power nurket provides an important supplement to revenues. llecause we have a broad mix of regional generating resources. and because our transmission system interconnects wit h other utilities at over 200 points in our service region, we are well positioned to take advantage of wholesale opportunities in the West.

In 1985, we began deliveries to Pacinc Gas and I!!cctric under a 10-year contract calling for 28 average megawatts. In Decem-ber, we signed a 19-month contract with Southern California lidison to deliver 108 average megawatts and inJanuary 1986 began delivery of 141 average megawatts under a 12-month contract with the Cityofins Angeles. These contracts add stability to our non-retail sales.

We also enjoyed brisk spot wholesale sales in 1983, contnbuting to a record wholesale year of $185 million,17 percent of total electric revenua ",i :.a l mal hydro conditions in the Pacific Northwest left federal I dams unabic to meet spot demand from California utili- s2 s ns n ties. Part of this void was readily filled by our coal-fired gg g ,gggg,gsg,gg generating plants, enabling us to move south virtually all 1983: si.e niu.tos of the surplus power we could generate.

Output at our coal-fired plants was an impor- [";'""[

tant factor in these sales. Ilecause of operational improve- , , .

= ments made over the past five years, our coal plants were able to transmission respond with high efficiency and high availability when spot sales system that isintercon- opportunities arose.

nected throughout the region is one of the advan-tages Pacific Power hasin competingin the whole-sale market.

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M DJUSTINGTOCHANGESIN NATURALRESOURCEMARKETS Soft demand and depressed prices characterize the indust ries in which NERCO does business. In coal, NERCO's basic and most prof-itable business, and in precious metals, we face sluggish markets that M .* * -

may persist into the 1990s. Our oil and gas business has been more u- 4,_:.w.f:]~&. .% a,' affected by exploration and drilling results than market conditions.

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While NERCO has been attentive to costs and operating

)g. ."' 'MA efficiencies all along, the toll that these market conditions took on us 2.J; M Ql' U N E in 1985 intensified our resolve to become even leaner and more Mb

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, . e competitive. We made headway on two fronts, increasing coal sales Mf.h ' ,

and reducing operating costs in both coal and precious metals. ;

As a result, our mining businesses held steady despite weak prices '

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' 7- Q 5 h Hut we lost ground in our oil and gas business. In 1985, the costs of exploration greatly exceeded the value of newly discov-

' e. <.r] .wyem;&g:.9 y "" cred reserves, resulting in an operating loss of $35 mi!! ion. Most of n.: JM..L~~

+ 2 this occurred in the fourth quarter, as drilling results for the year s ?'"

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?.% ' d e As a result, we are making major adjustments in the way

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-$ we are developing our oil and ga3 business. We are putting more f emphasis on less risky elements such as development drilling and 1 ,3 1 0 acquisition of producing properties while substantially reducing our exploration activities. Our adjustments also include management 1 9' 8 '3 changes and significant personnel reductions in this unit. Tbeinterestin coat ubic6 Despite the changes in oil and gas, our most important erentuallyledtoNERCOs A managtment initiatives in 1985 took piace in our coal busine ss. There f>rmation, goes back to we st rengthened our marketing and sales programs, and reduced 19M reben Parda McKee, overhead costs by combining our western and castern coal mining lep. firmer cbairman, and operations under one company headquartered in St. Inuis, Missouri. Darefobnston, ricepresi-There were two other notable events in our coal dent. brokegroundfor operations. In the southern Powder River Basin in Wyoming, the company'sprstcoalpiva g new Antelope Mine began operations with contracted sales of about pouvrplantin ir)vming.

800,000 tons per year. We also sold Alabama coal properties in order to reinvest the sales proceeds in more promising coal opportunities.

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l l NEUIARKETING EFFORTS More than 75 percent of our coal revenues at NERCO are covered ;

I j under long-term contracts with escalator clauses. These contracts l were written in the 1970s when coal prices were higher than today and expected to rise at least at the pace ofinflation. Beyond this i>ase l

j revenue st ream, we must compete for all of our new coal business-our primary source of growth-in a market where substantial excess l production capacity has driven real prices to near-record lows in recent years. l Despite intense competition, increased sales efforts are paying off. In 1985, our coal sales reached nearly 28 million tons, up

more than three million tons from 198 i. In September, we signed a 20-year contract to supply coal to Wisconsin Public Service Corp.,

estern coal an electric utility. With annual deliveries of 375,000 tons in 1986, reserves lie primarily in increasing to 850,000 tons in 1992, this contract represents a market Wyoming and Montana. breakthrough for our eastern mining operations, giving us a long-term sales foundation in an environment where most of our sales are L_ .._y_. - , - , - ~ +

shorter in duration.

We also increased industrial sales with two new agreements reached in 1985. Coal from our Spring

, Creek Mine, approximately 210,000 tons per year, will fuel j boilers at four Western Sugar Company refineries in Mon-1 tana and Nebraska for the next six years. We expanded a [

1984 contract with American CrystalSugar Company, stretching it from three to ten years and increasing annual deliveries from 500,000 to 600,000 tons.

InJuly, our coal subsidiary laid the foundation l a

for entering the international coal market, signing a joint-venture agreement with a subsidiary of Mitsubishi Corp.

to market coat and coal services in Europe. The venture, called the MitNer Group, is headquartered in Inndon.

GUARDING LONG-TER11 CONTRACTS We are intensifying our efforts to work closely with cus-tomers to maintain our long-term coal contracts. Our most pressing challenge along this line is a dispute with a Texas customer attempting to void a long-term contract with the Decker Coal Company, a joint venture in which we have a non-operating hat' interest.

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l In April 1985, the Inwer Colorado River Authority / City of Austin stopped accepting contracted deliveries from Decker. The contract in question calls for delivery of two million tons of coal per year through 2003. In 198 i, this contract accounted for $26 million of NERCO's total 5470 million in revenues and about $13 million of operating income. Although the case is in the courts, settlement discu sions are being held.

METAIS UNIT COST REDUCTIONS As precious metals prices remained in the doldrums, our minerals mining subsidiary slashed both administrative and operating costs, and increased the value of mines by discovering significant new reserves. Most of these improvements were made at the Candelaria silver mine in Nevada and the DeLamar silver mine in Idaho.

In 1985, our minerals unit cut its average direct cost to pro duce an ounce of silver to 54.60, a 27 percent reduction. Part of the gains w cre achieved through improved use of chenucals in the metal extraction process and through the purchase of newer, more efficient mining equipment at DeLamar.

At the same time, we discovered approxi-2n 2 " "

mately 14 million ounces of silver and 9.i,000 ounces of gold reserves at the Candelaria Mine in Nevada and the RE) E%t E coitrosITiog 198 >: su 4:11.1.10% DeLamar Mine in Idaho. The silver and gold reserves we ;4. Q added at Candelaria, combined with new finds in 198 i, i- ^ ' M *$

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have essentially doubled the known reserves at this mine [

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+ rm i. . u,4.m an We had other successes exploring for precious metals in -

l 1985, and we held down the costs of exploration by involving joint- xploration venture partners. One discovery in Alaska will be more fully explored in 1985 added significant in 1986 under an agreement with a subsidiary of Burlington Northern. reserves at NERCO's All of these efforts will leave our precious metals business candelaria silver mine.

on a solid footing when prices cycle back. In the second half of 1985, we sold $ 26 million of gold and silver from inventory in amounts equal to new production, providing cash for operations.

The remaining inventory-5.8 million ounces of silver and 42,000 ounces of gold-is substantially hedged against price declines.

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ONFRONTINGCHATIENGES INTELECOMMUNICATIONS Pacific Tc!ccom operates in several sectors of the telecommunica-tions industry, and in each sector, it confronts different challenges.

Evolving changes in cost recovery and competition are ahering the structure of the Alaska long-distance market served by Alascom, our biggest revenue producer. The economics served by our multi-state local telephone operations are growing at a slower pace than we would like. At the same time, our private network service group faces a scramble for early position in a fast-growing, promising

-LZ new realm of business.

We are also reappraising our port folio of newer, non-regulated businesses. While several of these investments are doing nicely, others have not yet realized their potential, have not worked out, or no longer fit our overall goal.s. This has required us to make 4

changes in several companies and in the mix of the portfolio itself. t m; 1

A RESTRlUIURING IN AIASKA Growth in the Alaska long-distance market has slowed down somewhat the past two years, although it is still growing faster than gg in the Inwer 48. Our long-lines originating message traffic reached 60 million calls in 1985, a 10 percent increase over 198 i. Most of 1 9 1 0 that growth occurred in the intrastate market. I J 8 a While our long distance business base in Alaska remains Tuusmazzteterb,me sound, there are several factors in this environment that could affect sntemsacquiredinIbe our pricing and profitability. Among the most significant of these 19W uvretbe bashfor factors are competition, and the pressure to redistribute our revenue racepc Elecom. u bicb requirement netween starc and feder l jurisdictions. launcbeditsoren satelhte At the same time, we may lose a cost-sharing supplement in 19e that we have been receiving from the Inwer 48 states by way of

\T&T to make up for the higher costs of providing service in Alaska.

lty The FCC late last year created a federal-state joint board to recommend a long-term solution to this matter. I!ntil the panel makes a recommendation and the FCC acts, AT&T is under order to continue paying an annual cost supplement at the 1985 level of $15 million. We have filed for authorization to raise intrastate rates in Alaska should this support he discontinued or reduced.

, I,0CAI.GROWTilTIIR00Gli ACQUISITION Over the years, Pacific Telecom has acquired local telephone proper-ties where the opportunity and price have been attractive. In 1985, we spent $62 million adding Ove systems to our local operations.

These additions were the main reason our local access lines grew from 165,000 to 221,000, a 34 percent increase.

Our purchase of theJuneau and Douglas, and the Glacier State telephone companies in Alaska finally closed after two years.

The acquisition added 39,000 access lines, upping our market share in that state to 30 percent. We also acquired three smaller systems in Washington, Wyoming, and Colorado with a total of 11,000 access lines. The Rocky Mountain properties expanded our local opera-tions into 10 states. , .

ADDITIONS T0 Tilh 7 NETWORK HUSINESS The private network business will grew rapidly in the next few years as volume users increasingl e turn to these l I systems to handle their communica.hn needs. We are in two parts of this business, providing :orporate and Rn at I: CostrosITios government clients with customized network services, 198 nsn 9sittt.ios and selling wholesale wideband transmission in bulk capacity, point to point-via satellite, microwave, and

[ (( *."," fiber optic cable. In 1985, we made progress developing the fac- _ _

. o i sm , ilities needed to compete for a share of these market segments. a addition

+ inner The experience we've gained in developing Pacific toits long-lines business in Telecom's existing system gives us a broad foundation on which to Alaska. Pacific Telecom build. That system includes satellite earth stations and microwave operateslocaltelephone relays throughout Alaska and the connnental U.S., as well as major exchangesin 10 states-teleports in the Atlanta, New York City and San Francisco Bay from Oregon's coastline areas-all reat tily linked together by our communications satellite. to wisconsin.

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j During the year, we expanded our custom f network service by adding several satellite earth station l

facilities. Under a defense contract to build and operate a i

data link, we now have earth stations connecting McClel- ,

tan Air Force llase in Cahfornia and Ilickam Air Force liase -

in Hawaii, extending our network into the PaciGc. An ,,.

earth station facility we built to serve CompuServe, the b 2, business data service in Columbus, Ohio, put us in the ., a ?

Midwest. Acquisition of UpSouth, an Atlanta, Georgia, teleport, gives us a presence in the Sout h.

lb take a position in the wholesale transmis-sion network business, we began construction of a por-tion of fiber optic cable that willlink Seattle and Portland.

Ily the end of 1986, we plan to acquire bulk fiber optic l transmission capacity between several major cities on both the cast and west coasts.

Ilecause of the importance of this market to our future, we =

formed a new subsidiary, National Gateway Telecom. \','e incurred sperience small losses in developing this business in 1985 and do not expect to and equipment knowledge receive earnings contribution before 1987 are pluses as Pacific Telecom developsits net-i NONREGLIATEI)lNVESTMENTS mking capability in the private line arena.

PaciDc Telecom invested in its portfolio of smaller, nonregulated ventures during a period of rapid change in the telecommunications industry knowing that risks were involved. In 1985, we made 1 adjustments in this portfolio, selling our interest in the telephone interconnect business and reaching an agreement to sell the bulk of our cable television operation 3. These actions should improve our i near-term carnings while recovering capital for reinvestment.

l Comdial, in which we have a 37 percent investment, is J showing improvement. Although it stillisn't profitable, the tele-phone equipment and component manufacturer is becoming cash self-sufficient. Its strategy of targeting the office systems market is

winning customer acceptance and orders. Our investment in Comdial, including our guarantee ofits debt, is now $34 million.

j In total, our interests in non regulated communications, l network and technology businesses amounted to $202 million at the end of 1985. After-tax losses in the.se businesses declined by 59 million to 522 million in 1985.

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AKING THEFIRSTSTEPSIMRD A NEWIJNEOFBUSINESS During 1985, the trend toward diversification gained momentum among the nation's electric utilities. Although the mining and telecommunications businesses we started more than a decade ago have already made PacifiCorp the nation's most diversified electric utility, we extended our scope further in 1985, moving into the finan-cial services arena.

During the year we acquired and combined two com-mercial financing / leasing companies and we 11unched a business r ,

that buys and leases major capital equipment All are now operated for financing purposes under a wholly owned subsidiary, l'acitiCorp Credit.

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One of our principal motives for further diversification is to build shareholder value through asset and earnings grow th.

Our three basic businesses are solid, profitable enterprises, but in all of them we foresee lower rates of growth in the years ahead.

3 Tile I?OliND \ TION l'OR NEW DIVERSil'ICXI' ION

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The groundwork for this newest expansion has been in place for some time. An important element of this foundation is the experi-

, g , g ence and success we already have in developing small units that were g g once a part of electric operations into major mining and telecom-x munications enterprises. Tuu mergersplayeaan Ily 1985, through our strategic planning process, we importanipast en raafi.

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s had identified a number of criteria to examine potential new lines of business expansion at l'acifiCorp. 'lo be considered a favorable 0;rp'sbstorr-one u stb 3 fountain states / burr M opportunity, a potential new kne of business had to meet a return-on- G,mpanyin 199 andtbe N N- equity target and generate current income, had to balance some of otberantb Tbecahprnia our maturing businesses with a growth position in an expanding oregon / burr oimpany

.N industry, had to be compatible with our organizational strengths and in/%I.

culture, and had to be a provider of services rather than a manu-3, , facturer of goods.

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Financial services topped the list of businesses litting these criteria.

In 1985, we took a series of steps into this business, starting small, sticking to specialized areas of commercial financing and leasing, and investing in businesses that are headquartered in the Northwest, self-sufficient, and profitable.

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Early in 1985 we entered the leveragsIleasing business with the creation of PacifiCorp Finance, Inc. This subsidiary invests in major equipment and facilities through complex, tax oriented transactions. Ily the end of 1985, it wa:4 profitable. acquiring and l leasing SIT' million worth of equipment, including several commer-cial jet aircraft and an offshore oil drilling platform.

Acquisition of Northwest Acceptance Cor-poration in September signalled our further commitment to financial services. Now renamed PacifiCorp Credit, the firm has three lines of business. It provides financing !

and leasing services for end users of office equipment such as copy ma. hines, telephone systems, and comput-ers. It provides point-of-sale financing service to equipment dealers and their business customers, either financing or leasing machinery needed for operations such

. as retailing and manufacturing. It is also a straight :

commercial lender, providing business borrowca s fi-nancing on accounts rectivable and ins entory. PacifiCorp Credit has six regional offices nationwide and 21,000 customers in 10 states.

In December, IScifiCorp Credit was expanded gr - through the acquisition ofIlyster Credit Corporation from flyster Company, a world-wide manufacturer othift trucks and materials handling equipment. Under our ownership, Ilyster Credit will cont:nue to be a customer financing resource to Ilyster Company dealers.

Ilyster Credit has good giowth potential. At the time of acquisition, ihe company was handling less than 30 percent of the customer financing for flyster sales. With t he access to lower cost funds afforded by association with lbeitiCorp Credit, and with a stronger marketing E urinsihe efrort, iiyster Credit shouid be abic to capture a greater share year,3177 mi!! ion in major of financing business for ilyster sales, equipment,induding commercial aircraft,was

, acquired and then leased as I

partof thecompany's leveraged leasing activity.

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l'aciliCorp Credit, through its various operations, is expected to grow substantially from its 1985 asset base.

Tile NEXTSTEPS In the penod just ahead, we will concentrate on integrat-ing our new linancial operations into the overall l'acifi-Corp enterprise and giving them the support needed to grow. At the same time, we will continue to refine our long-range plans, analyze new, related fields of husiness, and main-cifiCorp tain our readiness to act when the right opportunities arise.

Credit's six regionaloffices arelocatedin major U.S.

3 cities, including Dallas.

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COPEOFOPERATIONS i'ERCt;\T PACil'IC P0H ER serves M>0.000 customers in 2-60 commu- autuou orvottius 198i I!)33 til \NGE nities, in parts of Os egon, Washington, Idaho, .\1ontana, S t.010 $1,1 til Operating revenues iI northern California and 4 yoming. The service territory 376, Operating income ,17I

. (I) i encompasses 63,000 square miles and a network of

. Net income contribution S 17 8 $ 1 711 2, some 30 local ol.hces. Installed generating capacity totals -_ _ - _ _ _ _ - - - _ _ _ - - . . -- - - - ---

nearly four million kilowatts, with approximately 5 Energy sales (hdlioru ofAT/// 21 27 1i percent ofIhat amount at five coal-fired power plants. Customers (year end.

The generation system also includes 32 hydroelectric thousands) 636 660 1 plants. In addition, the company operates tbree Employees (year end) 1,360 4,4111 3 water systems and has developed businesses in computer software and materials distribution.

PERCENT TERCO's coal operations encompass 10 mines in six .turnou orpottius 19a1 !!)83 Cil \NGE states-Wyoming. .\1ontana, Tennessee, Indiana, Ala-S 17 i S a 14 Operating revenues 13 hama and Kentucky. Coal gathering and distribution

. Operatingincome 10-a Ill ill) facilities are located in two states. N ERCO has five silver -

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Net income contribution S a-1 S . ( 2 11) and gold mines in N,evada, Idaho and Colorado. It i involved in exploration for precious metals and minerals 'Ibns of coal sold /inillions) 23 2 11 13 in Nevada, Oregon and Alaska. The company also has Ounces of silver mined interests in oil and gas and a small technology company (Ib<msand() 3.260 3,6110 13 developing gallium arsenide semiconductor wafers. Dunces of gold mined (thmuands) -11 36 27 Employees ocar end) 2.196 1,9!)2 (!h PI'RCENT PACll'ICTEl.EC0\l handles the majority oflong. distance .intzlon orvottius ions !ias CilisGE telephone needs for the state of Alaska through a net-O at ogrevenues S 399 S 43!) 15 work of more than 200 satellite carth stations, a Operatingincome 126 132 5 company-owned satclhte, more than 3,000 miles of Net income contribution S 13 $ 27 80 microwave radio knks, and three major switching cen- -------- - - - _ - - - - _ - - - - - . - - - -

ters. The company provides local telephone service to Originating messages (long-lines) i 195 exchanges with 221,000 access lines in 10 states- (millions) 33 60 10 Oregon, Washington, ,\lontana, Alaska, Idaho, Colorado, Access lines (year. cud, j Wyoming, Nevada, California and Wisconsin. Pacific tboruandv) 163 221 31 ,

Telecom also builds and operates private data and voice Employees (year end) 2.82-1 3,420 21 '

communication networks throughout the nation and holds equity positions in several technology companies.

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$ k5 Yk_E5YSN$g :k n$ l-r*SL

M ANAGEMENT'SFINANCIAL REVIEW Strong financial performance characterized some, but not all, seg-ments of PacifiCorp operations in 1985. Our absolute level of profit-ability, measured by return on common equity, was again above industry norms at li percent. Credit quality strengthened; common

( equity capitalization reached il percent and the Company attained a single A bond rating from all credit agencies for the first time since 19~-i. Exceptions to the strong performance rule, how ever, were numerous enough and severe enough to hold down consohdated ,,

earnings improvement to levels u ell below the Company's targets.

Net income rose 2 percent to $218 million w hile carnings per share ,

gained I percent to $3.+i.

PacifiCorp's EPS has grown at a 5 percent rate since 1981.

14 somewhat below the H pert ent EPS growth rate for electric utilitie3.

Ilowes er. general indust ry, measured by Ihe SK P .iOO index, has

'2 actually shown a small EP5 decline os er the same period.

REVENUE GRO%Til 00TPACES EARNINGS On the positive side. consolidated revenues increased 11 percent to almost $2 billion. Electric resenues. 50 percent of the consolidated . , , , .g ; ,3 total, matched the overall growth rate as sales to other utilities were strong. Pacific Telecom's sales grew faster,15 percent, mainly due to RETT RN 0% M ER%GE acquisitions of local telephone companies. NEltCO's revenues ""WW increased 13 percent, driven by 13 percent growth in coal tonnage . r inem sales and resumed precious metal sales in Ihe last half of 1985. i33 13 7' i43' i6 o is **

Net income growth varied widely among PacitiCorp's 12 8 13 6 14 9 14 7 14.8 %

husiness segments. Pacific Power's $1~8 million contribution was up , w o,, , ,,,.

I 2 percent, repre3cnting about ~2 percent of the total. Pacific Tele- n, na iz a i47 it.sv com's contribution improved $12 million to $2' million, led by ,,

higher regulated telephone income and reduced losses from nonreg- m,,,,, ,um,,,, ..., , , w ulated businesses. NEl(CO's contribution declined 28 percent to waiwan.i ,9u

$ 39 million as low er operating income reflected oil and gas losses.

Aided by a $15 million dechne in preferred dividend requirements, earnings on common stock rose 10 percent to $22n million. Since the average number of common shares outstanding rose 9 percent. EPS increased about I percent to $3ci 6.

l

l 1

I DIVIDEND INCREASES CONTINUE 1)uring 1985 PacifiCorp's common dividend was increased 8 cents to $2.10 per share annually, providing a current yield of ? percent on the year end stock price. This dividend action followed 198 als hike of over ~ percent. PacifiCorp's dividend rate reflects payout levels ihr each of the principal businesses u e operate. This normally me, , results in a dividend payout ratio somewhat below that ofihe clee-

, t ric utilit y industry.

, , . - _ RECORD FUNDS FI.0W FROM OPERATIONS Cash gener:acd (resources from operations) improved again, topping 5600 million in aggregate or about 59.++ per average common share.

At about the same level, capital spending for const ruction, acquisi-tions and investments totalled $020 inillion. Capital spending of the nonelectric utility businesses represented 76 percent of the total.

Preferred and common dividends paid to shareholders were $ 180 B E million for the year.

ni a2 m s4 as numcsi ru FINANCINGS TARGET RECAPITAl.lZATION Cn%IMO) S11 LuE Financing activity during the year was brisk but dedicated primarily

+ r= <nne to strengthening our balance sheet rather than raising new tunds.

sa n2 a w 229 3 42 aes

. <,,e a n.< 22 tw

()ur recapitalization program completed a second year in 1985. This 32e am a is an aav program, by increas og common equity and lowering both preferred e s ai.no a n.<. .m i,w-w dividend requilmt nts and interest costs, cont ributed to improved s m 222 zo a si

credit ratings and h< t om line financial results in 1985,5127 milhon

,w,,c.,,.,,,,,,- of preferred stotk v a s retired, mostly with common stock issues-

=-==<osoomtw2=l Iligh coupon debt : l 5139 million was retired and refinanced. I 112auf e IM1 2kkh'ard N l%I w

IMPROVING CREDIT QUAI lTY RECOGNIZED PacitiCorp's common equity portion of total capitalization increased f rom 38 percent to 11 percent in 1985, bringing this ratio w ithin our i goal range of-60-45 percent. Two y ears ago our common equity ratio j was only 33 percent. Pre-tax intercsr coverage slipped shghtiv to 2.6 i times. but book value per share grew 6 percent for 1985. l 1

1 i

1 I

i 1

i J

Our credit building efforts gained further recognition by the major fixed income rating agencies. During 1985, Stan< lard &

Poor's Corporation and Fitch invester Services upgraded ratings on l PacifiCorp's tirst mortgage bonds to A- from BBil+. These upgrades make PacifiCorp's A rating unanimous among four of the major l I

credit rating agencies; Moody's and Duff & Phelps had awarded A-equivalent ratings in 1984. Other rating agency action in 1985 included Dutf & Phelps granting PacifiCorp commercial paper a 25

'I minus" rating,and the establishment ofinvestment grade commer-cial paper ratings for PacifiCorp Credit, our new commercial finance ,

arm, from S&P and Du!f & Phelps.

n BUILDING SIIAREIIOLDER VALUE Totalinvestment return-the sum of stock price appreciation and dividend yield-is an important measure ofincreasing shareholder ,

value. In 1985, PacitiCorp common shareholders received a total 5 l

im esunent return of 35.0 percent. This return was composed of l 254 percent price appreciation and 9.4 percent dividend yield. Tlus compares very favorably to total returns provided by industrial nn,2u as l

companics and other electric utilities in 1985. The S&P 400 indus-

_ . 1UTSL IM E'STMENT trials returned 30.0 percent in 1983 and the S&P 22 electnc utih. .t ic.i RFit R%

returned 25.5 percent. EM E H3R mMPol %D Over the longer period, 1981 - 1985, PacifiCorp's annual. AMITL R UE, 1981'83 i/ed totalinvestment return on common stock was 17.1 percent. This ,

performance again con'; arcs well with generalindustry's annual . m ,oan.nz m vn return of 12.8 perce: >, but was lower than the 24.1 percent return for

h wan"^** "

electric utilities.

SUMMARY

RESUI150FOPERATIONS R>R ?IlE iL1R limi 19112 19113 1911-1 !!i!!3 m mu TO Ptk+ (94MMsD Pt to s1kJ nst st u eMMBN A ot u rH i i

MilllfIM OFINi/LARS REVE.W ES S 1.2F8.6 S1.103!! S 1,3911. I S 1.71Ni. I $ 1, fill 3.0 11 % 1I"o 1%C0\lE fro %I OPERATIO.TS 361.9 1311.6 a29.fl 606.11 3111.1 11) 13 INC0\lE CO.NTRIH0 TION HEFORE E\TRAGRDINARY AND ACColJ.%Ti%G CIIANGE ITEllS"'

Electric operatinns 10611 129 2 173 0 17-12 177.7 2 1 -1 Telecommunicanons 27.l 1 2 .11 6'l7 13 0 27.1 11 0 Mining and Resource Development 3:13 262 -10.1 312 39.3 (2th 1 Corporate and Commercial Financial Services 12 1. 8 TUTAL 167.3 1911 9 977.I 2 I l.6 2 411.3 2 10 M:T ITC0\lE S 167.3 S 197 2 S 70.9 S 2Ii6 S 2 111.3 2 10 EAR. TINGS PER SIIARE Before extraordinary and acc ounung change items S 2 .11 2 S 3.03 S l.11 S 3.12 S 3.44 1 3 Tbtal 2 .11 9 't.03 .la .l.12 3.44 1 3 C\Sil DIVil)E.TDS PER C0\lil0N Sil \RE Paid S 2.01 S 2.16 S 2.16 S 221 $ 2.34 1 3 Declared 2.07 2 16 2.16 1.7&a 2.34

3 lbral assets S 1.017 S -l.112 S .l.131 S l.736 S 3.122 11 6 Corporate identifiable awers* S 19 S 19 S 11 3 $ 130 $ 129 (I:1) 27 ih>ok value per share S 21.33 S 22.23 S 20 31 S 22.17 $ 23.84 6 3 Market price per share S 177n S 21 "n S 2 l'!2 S 2 17'n S 31'/s 26 13 Price carnings muluple (i.3 69* (xtra ". 3 9.1 *

Pre-tax interest coserage tall d( 5t) 2O la 3 (7" 2.- 2.6 ( 11 7 lbt al employees 9.137 923' 9.166 9.137 10.169 11 3 Common sa rkholders l7bearido 122.0 121.9 117 2 111.3 106.3 (il 1:0

u a nwa ungJ nu rh r l (l} frw *v 0 ntr:%:r~n Wn wra~rJ; nan anda+ tan:nig ihanye u, on t; nment (af ts,e na npe t a.mora:1~nfr:ntwl on snun.:mpwy h-rr..u ang arrangmen:s .

(h) fn' Un.$t S ins f r*If $a.it 8 ***l LA H[hi?id!C drts j an t SeOM (2)lha- la a sh:ll:n J, tfarafri vt a qJ jrt;me n Jal0 thw u err r 91l) [hnt s am r mern si,x k JsnJcnds J, star,J pr rm (J) tarrf~,ra:e a9, ' are [ rmapa:!) uult temju raq, ca>h m n;ments and oth e min!ments (4)Ik(.n' < xtr.2. rd:n.in a"J au 1 nlm;: a hmy skmi

()t'ARII:Ril lTI'0IDIATION OF.4RTER EVDEI) l \l \ REll JI NE SE M EilBER DFLE\tBER

n ao 30 31 1984 MllHONS OF1)GIL4RS Revenue.s S 1 Ifi. I S393 i S 130.7 $ 193.11 Income trom operations 167.0 130(i 133.3 173.7 Net income 67.3 19.9 31.I 77.0 Earnings on common stock 33.9 3 7 .11 39 9 fi7.0 Earnings per common slure . 9 11 .66 .69 1.09 Common dividends declared per slure .3 I . 311

.31!

Common stock price per sture (NYSF) i liigh 23 237/a 2 l 'S 3 "li i Iow 2tTi 21 21 % 23'in i l

1 I!Ill3 '

Revenues $30fi.1 S 132.6 S493.3 S3 211.7 l Income from operations 1112.3 123.0 131.I 143.4 no Nct income 7 11. 1 3 6 .11 17.I 66.2 Earnings on common sto< k . 611.!) 1 11. 4 41.6 60.!) t.

Earnings per common slure 1.12 .77 .68 .93 Common dividends declared per slure . 3 11 . 3 11 . 3 11 .60 ,,

Commi >n stock price per slure (NY5E) liigh 27 % 30 % 31 % 31 %

im Inw 21% 27 % 27 277/a

^

s i;:n ar:it.ortom ,j th ;;rrannilan:ot a wa ;:s~a nan rs ~~ ^ ^ 'm

-' ~ ~

(1) h how ' m dv b.,mi of hn ::i n ei.YI Hw SismMterlma,ud np rimg to a u ;cnJ.ir <p , ., kw w;J anwqwal; J nnut N Jinda nJf..n w: Ja:e . nut ii din Ih J:nd. r.d r.vrrn.i:ly J.x Lm J sn N j t<whr and[a:1in i A1:kr I, as y Jen i.m d tn s k ihr a nJj'ai.i m %i< mha r 111 82 '83 '84 ~BS 83 0 M0 l19 5 110 7 138.1 41tRkLT PRICE 10 IMXIK MLt E R STIO l

l

j l

unumrTYAND CAPTTALRESOURCFS FOR THE IE4R 19111 19112 19113 1981 1 9113 l RES0l'RCES FRoll OPERATIO.TS 9/n11oss ofIxH14Rs Electric Operations $166 S230 5301 S289 S2119 Telecommunications 79 117 1 12 150 163 Mining and Resource Development 83 86 122 129 l12 Corporate iI 9 TOTAL 328 133 Sha as9 603 Irss Dividends (133) (153) (167) (1310 (1150)

NrT S193 S300 S398 SIII S.123 ACTUAL, PROJECTED EDR THE FEclR 1981 1982 1983 1981 19113 1986 1987 1988 CONSTRl'CTION EXPENDITl'RES " .t#I110Xs OF DOLL 4RS Electric operations S281 $251 S165 S123 S149 Sil7 S129 Sl76 Telecommunications Ill 189 103 66 1 13* 9 11 103 93 Mining and Resource Development 51 79 a4 a2 11 6 87 9 11 101 Corporate 5 116 519 327 2 18 3110 339 '130 370 ACQl'ISITIONS AND INVESTilEYl'S Electric Operations Telecommunications 22 11 11 62 117 Mining and Resource Development 29 26 26 62 3 11 Corporate 91 Unidentified business expansion 109-209 113-213 23133i TOTAL CAPITAL SPLNDING lbt a86 391 372 626 l I l-5-l I 173-573 601701 31ATL RITIFS OF LONG-TERil DI:llT Electnc Operations 6 137 93 le 33 23 3 37

'li!ccommunications 23 21 18 -13 28 31 19 50 Mining and Resource Development la 19 7 22 Ii 19 7 13 Corporate 3 79 200 150 111 72 73 59 107 Refinancing < 171 139 TOTAL. $316 $786 S311 S360 5837 S311-6II S332-632 $711-Il1I (1)Ikluan Internt uqttalL nl on rpt:) lunk (Lht<!u. tan 5n mdlt~n offl ant cLt1:bau thmugh cajul.slinau The Company anticipates that in the P)Mo-88 Colstrip Unit 1, retrofit of coal-fired plants w ith period resources from operations net of dis i- pollution abatement equipment, and const ruc- I dends will be more than suthuent to(over tion of dntribution and transmission facilit;es construction expenditures and nutunties of in the period 1946 through P>6d. Allof the $2 long t(im d<ht if the Company also achin es nullion to be spent on the pollution abatement the highest t urrent estunates of acquisitions facihues dunng this perioJ has already been l a id investments, approximately 2n% of the financed w ith the issuance of pollution cont rol I required tot al f unds will have to be obtained resenue honds, the proceeds of w hich are on j from external sources. deposit w ith t rustees and are temporan- l Elet t nc Operations' const ruction is ly invested until spent on the const ruction of l ex peued to he hmited to completion of t he f.n ihties. l

alining and Resourc e !)cyclopmenti 198n MulnVisions, Ltd.,its 9 i% owned partnership construction expenditures are expected to w luch operates cable teles ision systems pn-include capital replacement requirements, manly in Anchorage, Alaska. The proposed sale l mincrats lease acquisitiotts, and exploration for approximatcly 5 '9 million is subic( t to and des clopment. both state and federal regulatory . approvals and Telecommunicationn ons t ruchon is expected to be comp?cted dunng catly 1986.

expenditures for 198n are expet ted to be. long No significant gain or loss is anticipated as a lines, $ 2 5 milhon; local telephone operations. result of the sale.

5 m million. and nontegulated at tis ines. 52' The Restated Articles of incorpora-million The majority of Telecommunications tion limit the amount of unsecured debt out-198' and 1988 construction expendit ures will standing to the eqmvalent of $n"i of total be for long lines and local telephone opera- dehned equity and secured dcht. I'nder flus l tions. Teleconununications expet ts to con pros ision, approximately Sinn nulhon print i-tinue to advance funds to its cwting non pal amount of additional unsecured debt could regulated equit y ins esters and subsidia ries h.n c been outstJndmg at 1)ecember 31,1985.

The projected acquisinons and issuant c of hrst mortgage bonds or preferred im estments int lude equity investments m the stot k is linuted by carmngs coverage and f und-Compc.ny s !cretaged leasing subsidiary of able propert3 provisions of the Company's approximately 55n nullion oser the hree year mortgge mdenture and Rest.ned Articlcs of '

penod, as w cll as other business esp.insion incorporation im est ments These im est ments are ex pct ted l'or inf ormation regarding bank to f urther expand the exisung businesses and credit agreements lines of credit and other *~ - - - - '

des clop or acquire complementary assets shott term borrow ing Iacilities and related in ()ctobcr 196 Telet i:mmumc1 hmitations on biirrow ings, see Note i to an - - - - - -

tions signed an agreement to sellIhe awets of Consohdated I mant ial 5tatements.

so . . . . . .

DIGUW.R ll

~ ~ ~ '

1981 1982 1m13 IWti 19113 20 - - - - - :

CWITAllDTION Muon orluiLLIRs Conunon cquity S t.091 S1.233 SI lh9 S l .333 S I,37 3 Preferred stock 276 331 33' 991 161 E E I I I I i Redccmabic preterred stock 67 67 67 67 67 si s2 m s4 ss Iwg term debt 1.821 1232 1,913 1.900 2,0 311 CAPITRIMTION TUI'AL S3.261 S3.303 S3.301 S3.6 11 $:1.11 to The Company ciintinued its recapitah/atii>n e G mpany(5'l nullion) The pri>cceds from the ss 53 55 52 saw program begun in 108 e using redemptions, t ommon e it k issuance and short term debt *0" N repurt hases. and interest rate ext hanges to w cre used to redeem and report base preferred 34 35 33 38 4

decrease les crage (debt and pretcrred stot k stot k.1)uring 1985, the Company redecmed or *"""8" pcti entage). unprm e interest and preferred ret red $~9 nullion in first mortgage bonds w uh e io to a 4%

dividend cm crage and redut e nuerest mtcrest rates of 18%. I F."o, In h .and *""'""*"'""*'"

expense s olanhty 2 2 2 2 2%

.N As part ot tins ongouig recapitahzation In 1985. tlic Company iwurd 2 5 program,in lanuary losn the Company's nuthon shares of common stot k tot 528 ;n per Boa rd of I b ret tors elected to redeem all 5's share. Tlic new swuc was sold m the instuu- nulhon ofits 15 M, l'irst Mortgage Ibnds due tional m.n ket. keeping the cost of issuance low 1991.1 he bonds will be redeemed on March 1, and m.ixinu/ing the net proceeds to the 198n at a i '2"i prenuum plus au rued interest I)ec to the capital miensive n.n ure of Ihe Com- of tset the impat t of inflation I hey also will g7gg

panv's at tivitics, inflation mav h.n e a signito cononne to urge improvernent in regulatory cant imp.it t i m con 3tructa in, desch epment iir practices to hnut the ellet1 of attntion c.tused acijuisill(ms !!.lectriC t Iperatif ms and ^]clCt (Int by regillatitry 1.lg Sec SuppletlientJr) munications expect to conunue to pursue intorn.ation-i f tct t of Innation on pages adequate and tuncly rate rehef in Ihe tuture to Fand58 l

l

_- _ ._ _- _ . _ _ _ _ . - _ , _ . _ _., ._ ..-,__m - _ _ _ _ _ . . . , ,__.m ElFCTRIC OPERATIONS FOR lilE IEAR 1981 1982 19113 1981 19113 '* 4"'"

m m. wwr ,i su l'I m i%14t J WN141

( OMPt RN 's t.H TH OPERATING REVE%lES .Ul//10.\N OF lx>/Lt/a General sales S331. I S 6:10.9 $717.3 SH llL7 $913..I It "o 13"u Sales to other utihnes i17.7 116 0 107.I 12!L6 Iil1.Il 13 6 5 team heat water,and other 20.I 23.I 21.0 31.3 19.6 (3 11; iIi T(YTAL 721.9 802.0 !!78.6 1.009 8 1.117.11 11 12 OPERATING EXPE.NSES Depreciation and amortuanon 41.1 31.1 92.8 1012 10!!.I 3 10 Opcrations. maintenant c. and 200 orher i16.9 110.6 166.3 33011 6 311.6 20 9 TOTAL 321.0 322 0 33H 7 631.0 7-16.7 18 9 150 IAC0\lE FRO \l DPERATIONS 200.9 2H0 0 319.9 373 8 371.1 (1) 17

,oo - - - - _ _

ITC0\lE CO.NTRil10 TION l llEFORE EXTRAORDINARY l 7,o AND ACCOL.TTING CIIANGE ITEilS 510611 S l29.2 S IT3 0 S1712 Sl77.7 2 1 -1 Identifiable assets 52.H81 52.980 S2.837 S2.930 $2.9Il3 2 I Construction ex penduures S 281 S 231 S 167 S 123 S II9 19 (15' '

si a2 na 84 as Hesidential .n cra.cc annu.il l s to7 12e 132* 174 7s usage dit /h 12.091 12.621 I l .709 12.239 12.2fl7 63 1 nm 6'imrW . 637.6 630.I liil.7 660.3 l WT I%CostE Number of emph iyees 1.7:11 1.713 1.332 1.360 8.1111 3 ill CGTTRIIM T10%

\tlljJONS OF Doll \RS Mwe ewaareman nlumawl I kN tmW HFMS ld($1 RNifkm) M 190l2 DIN 14$165 RNilkm> ht l%83 l

l l

l

.-.~e 1983 COMPARED TO 1984 Revenuesincreased $10srnillion or from reduced generation from the Company i IJ% hydro plants and increased sales for resale,:rnd

General sales were up 565 millier! redecting due to higher fuel prices.

increases in residential sales revenues of 10%, + Purchased power increased 537 million due to ,

in commercial sales revenues of 7%, and in increased sales to ot her utilities.

industrial sales revenues of 5% primarily due + Maintenance expense increased 514 million to higher rates as total general KWil volume or19% 30 increased 3 % incorne contribution irnproved

$ ales to other utilitics, generally under short- $4 rnillion orJE 23 term arrangements, rose $ 55 million as a result + Income from operations declined 55 million.

of a C, increase in energy volume attnbut- + Interest capitahzed increased 56 million able to favorable market conditions, due to higher accumulated construction ,

l Operating expensesincreased $113 expenditures.

'5 l rnillion or 18% + Provision for income taxes decrea3ed 54 mil-

!

Fuct expenses were up 543 million generally lion generally due to the tax benefit from dona-due to increased coal consumption resulting tion of property. 10 1984 CfMIPAREDID 1983 Ret enues increased $1J1 rnillion or + Depreciation and amorti/ation rose 5;l million IS E due to ir creased plant in scrvice and amortia

General sales w cre up I 19, due to rate increases tion of recoverable nuclear project codtd. Si a2 m 's4 'ss

, and a 3 % s alume increase. Incorne contribution before extra-E%ERGY SALES

Sales to of her utilities rose 21% due to ordina rp and accounting change iterns ElWONS OF KWil improved prices. volume dropped due to low raf t SI million or 1%

margin, nonrecurring 1983 sales. + locoax trom operations increased $ 56 million orl'", *""

Operating expensesincreased $ 75 18 6 18 9 18.9 19.5 20.0 inillion or IJ E + Interest <:apitahzed decim.ed i 3n million due to

+ sawtoouirel'uuurs

+ Wheeling expen'es were 59 million higher reductions in const ruction expenditures and ss 58 s a u primarily because Colstrip l' nit 3 began opera- discontinuance of capitalizat ion of interest on tion inJanuary 198 6. WNPNo.3

I uci expenses were up 530 million, due to + Income taxes were up 517 milhon: 531 milhou , .,

, increased coal consumption and higher prices. due to higher taxable income, otf3ct by 51 r

.

M.untenance expense increased 58 million; milhon of increased invest ment Iax credit .

~

~ '

'80 ~ ~

1 property taxes were up 53 million. amortization. ; ' ,

~ ~ ~

80 t-g( . . . _

4g _ ..

l l

l g_ . __ . -

l i

, E I I I I I

'81 '82 '83 '84 '8s ESERGY SOL RCE PERCENT

+ coa 60 59 54 64 68 %

Hvdm 13 17 la 17 12 % l

Purchaara F.schasseContrate 27 24 28 19 20 %

TFTECOMMUNICATIONS FOR TliE IE.4R 19111 19112 19113 19111 19113 * ' " '8 pipet 1.0% Pot %D l't RE l%iW.E 4%%lO U k4Ptatw% i.3 4 TM GPERATI.TG REVENUES 111/>X).VS OF Doll _1RY local service $ 19.11 S 21.6 S 23.1 S 27.3 S 311.!) -12 % 18 %

Toll and access service 201.9 237.6 280.I 280.9 3 211.3 17 13 Private line service 39.7 lo.a a18 36 6 36.4 9 Other 13.1 17.7 26.9 31.1 33.6 1 21 TOTAL 279.3 3 13.1 386.2 399.1 -139.4 13 13 OPERATING ENPENSES Depreciation and amortization 33 6 12.7 67.8 71.3 79.3 22 Operations. nuintenance.and 11

(

other I112 !!!2.7 181.3 202.0 2'I7.3 23 11 TUTAL 18011 223.l 2 19.1 273.3 327.0 20 16 4o INC0\lE l'R0il OPERATIONS 98.7 l 111.0 137.1 123.6 132.4 5 8 3 M:T ITCOilE CONTRIll0Tl0N S 27. l S 12.8 S 63.7 8 13.0 S 27.1 80 Identifiable as ets S 637 S 831 S 961 S 962 St.212 29 18 Construction expenditure.% S 8-1 S 189 S 103 S 66 S I 13+ 122 13

. , Number of employees 2.302 2.631 2.933 2.821 3,420 21 10 m w m

es _ _ _ _ _ _ _ _ _ _ _ _ _ . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . _ _ _ _ _ _ ,

(1) hiduki 5 + 5 mGs :n nff.hm! aD:st ons Ibnnab aif.:.tl hwe l

.%ET 1%COM E CONTRIlllTION MiljJONS OF DOLLARS

=sehn unusaat nummeitem av sa milkun.

1983 00\lPARED TO 1984 Ret'enues rose $60 million or 15 %. Operating expenses trere up $5J

+ Acquisitions of local telephone operating inillion or 20 %.

companies in 1985 added $ 40 million to total + $24 million increase was attributahic to operat-revenues. ing expenses of acquired companies.

+ Longlines operation's recovery of access- + $29 million increase was due to access-related related costs increased $ 27 million due in part expenses.

Lo the system of access charges not being in Net income contribution increased effect Ior the full year in 198 6. SIJ million orso%.

After recognition of access charge 3 and in- + Income from operations increased $' nullion creases due to acquisitions,1985 toll revenues or 5"i, primarily due to the acquisitions of two 2 ,o decreased 5 a million. The long lines subside localtelephonecompaniesin Alaska.

ary's out-of-period revenues decreased 57 + 1.osses from equity investments and other non-million. An additional $3 million revenue regulated activities decreased $ i mi!! ion, from 200 reduction was primarily from the toll settle- $ a 1 million in 1981 to $37 million in 1985, pri- ,

ment revenue cifect of the recoverv of reduced marily due to an $ 11 million decrease in losses l

'58 operating costs and the effect of co'mpetition relate'd to disposition and investment valuation )

on those revenues. Offsetting these dec reases adjustments, a $ 5 million decrease in losses 1 l

was a $7 million increase in access revenue 3 relating to the equity investment in Comdial ,oo and out-of-period toll settiement revenues of Corporation, and offset by $ 12 million of l the local telephone companies. increased losses of nonregulated subsidiaries.

50 1984 C0\lPARED TO 1983 Revenues increased Stj million orJ %. + Depreciation and amortization was up $ 4 mil-

+ Revenues and operating ex penses both lion due to increased plant in service; adminis- .s i 82 83 s\ ss increased .16 milhon due to FCC mandated t rative and general was up $ 3 million due to - - - - - - -

accounting classification for access charges. January 198 a wage increases and increased 130 137 is9 iss 22:

+ lbli service decreased $16 million(before FCC- employee benefits.

mandated accounting classification) due to Net income contribution decline.l S 19 EESS LIM Tii00 SANDS decreased AT&T long lines contractual settie- million or 76%.

, ments and increased competition for interstate + Insses from equity and other investments rose services, despite a 1-i"o increase in originating $ 37 million in 1984 primarily due to $ 16 mil-message volume. lion in losses from Comdial, approximately $7 so r s

+ Other revenue was up $7 million due largely to million of losses from disposition of an interest carrier access service related billings by local in b otek and $6 million oflosses from a cable telephonc operating compames. television partnership. so -- --- m - -

Operating expenses increased $1-) + $ 22 million of pre-tax gains in 1983 from issu-million or 10% ances of Pacific Telecom and Comdial stock.

+ $lh million increase due to I CC mandated __ _.

accou nting clJssification.

20 ~

E E 1 4

'a i a3 a4 g5

=

_ 'a2__ _ . _ _ _ _ _ _

36.0 43 i 48 5 55 0 60.4 .

I' ORIGl%ATITG MESS tGES LOTG Ll%ES MilJJONS l

MININGANDRESOURCEDEVELOPMENT IT>R THE )DR 1981 1982 19113 19lIl 1983 '* '"a 70 l'assi UsWhH AD Pt RO N'I%i 4%%t 4L 4.t'4htN ps I,b 4 T H OPERATI.TG REVE.Tt'ES .w ulo3s ofvol14Rs Coal /Unatfiliated customers S2H6.2 S231cl S293.0 S371.1 $373.6 7 "o

/Af filiated customers 81.9 89.3 H l .H 93.7 128.1 37"n 11 Gold, silver, and ot her 1.0 6.0 38.6 3I 30.2 *

TOTAL. 372.I 319.7 -113zi 170.9 333.9 13 9 OPERATI.TG EXPENSES Depreciation. depletion, and amortization 19 6 35.3 19.2 311 8 6 11. 1 73 37 l Operations. n uintenance. and other 290.2 233 6 2931 326.7 383.2 111 7 TUFAI. 304.8 289.I 3 12.6 363.3 433.3 2I lo 40 IN00\lE l'RO\l GPERATIONS 62.3 60 6 72.8 103.I 110.6 (21 7 20 -

.TET INC0\lE CONTRil10 TION S 33.3 S 26 2 S 10.I S 31.2 $ 39.3 (28) -l Identifiable assets S 130 S 329 S 370 S 691 S 766... 10 11 Construction expenditures S 31 S 79 S 37 S 32 S 86 63 11 l E E Number of employees 2.101 1.Hlut 1.879 2.196 1,992 19) (1) ni w u 84 as samkwiguin61 r

-- -- - - ~~ --

y.T nonIE illTERTI.S RESl'.R\ ES 1981 19112 1983 1981 19113 unTIulti Tio) TTD PRICE ITI'ORil \TIOT

-~

MiuloNS or DouaRs C0 \lo IN THul'S.4NDS Proven and probable reserves / tons 1,07ti.000 1.001.000 1.010.000 1.067.000 1,033,000 Amounts mined! tons 21,900 17.200 16.000 17.900 20.1100 Reserves purclused/ net / tons 26.000 1.700 12.-100 AverJge sales price /per ton S16 $19 $19 $20 SID ,

SillER l Proven and probable reserves / ounces 6.100 23.200 10,000 Amounts mined' ounces 1,600 3 260 3,6110 Reserves purchased / ounces H.000 13 000 7.600 Average sales pricciper ounce $l1 $6 GOI.D )

Proven and probable reserves / ounces 111 130 .l.18 )

Amounts mined / ounces 3 38 11 36 l Reserves purchased'oances 216 160 10I '

.herage sales price /per ounce S377 $303 S371 S327 1

i

. - - - - . - ~ . - . . - . - . - . - -. - . ~ . - - ~ . - - - -

1983 00\lPARED TO 1984 Rerennesincreasell$63 snillion + Depreciation, depletion. and amortuation orIJ K increased 5 29 million or ~5'? .. pnnunty due to

+ lievenues fr m coal operations increased 5 % wnte down in the cart ying value of oil and gas million and tons of ctul sold increased 13" , properties of f in million in 198; compared A Texas coal customer stopped acccptmg con- to S; million in 198 4. 1 tr.n red coal dtIn erks early in 1985 decreasing Netincome contribution decreaserl !

rm enucs by 516 million fram the prior year. S15 million orJNE ao r -

19H e revenues included $ 1o nulhon f rom the + Int ome Irom operations decreased $2; mil-l sale of(oalin the ground as part of a contract hon, primarily due to oil and gas operaung modificatii sn. n< d occurring in 1985 ()tisetting losses. lack of 19Hi sales of coal in t he ground the ahos e declines was a $ 3 e nulhon :ncrease and reduced delis cries to a Texas coal cus~

20 - - - - '

in sales to af fihated customers. tomer. Of fsetting these dechnes werc .

Revenues f rom precious metals saics w cre up increax d coal sales to affiliated customers.

52 i million. A hedgmg strategy has been imp!c- + Minority interest increased 5H milhon; So mil-mented and metals inventory at 1)cccmher 3 I, lion from int reased earnings of a two-thirds ,

198; and most of us anta ipated 1980 hulhon owned joint venture and the remainder due to 10 - -

produc ion is substantully protet tcd agamst the effect of Ihe sale to the pubhc of a 91 "

price dn Unes f rom year end levcis interest m the common stock of NI RCO in Operating expenses increass)SSH August 19H 6. .

inillion orJ-i% + Pros i3 ion for income taxes decreased 5.'3 g g g g _

+ t iperations expense increased $;n million or milhon due t< > decreased income trom opera-22" prunanly due to incremed coal volume tions and a 50 million det rease reflecting a '8 ' '82 m m as and prectous rictal, sales reduction of the tax liabilitv for amounts m extess of those required. ' CottS\LES NfllJJONS OF1mS 198 i CoilPARED TO 1983 + wo 219 17 2 m o 17 9 20 a Revenues rose S S 5 million or IJ K Net incarne contribution Increased SH

+ Res enues trom wal operations increased $91 + rmaawdtur w m 1 million orf f %. 3 ,, 3, ,, ,, l nulhon primanly due to increased coal + Operatmgintome was up $33 milhon. includ- l s olume sold. ing a 5 5 milhon pre-tax gain from the sale of

+ Gold, sils cr. and other res enues were down i astern cual reserve- mo 5 to milhon as prccu ius metals produt non was + Pre tax g.no of $ 5 miilion trism the sale of ins entoned in 198 6. NFRG)commi>n stack m 108-6 publicof fering, Operating expenses increased SJJ largely o!! set by $2 million of mmority interest million or 71 resulting trom suth sale.

Operati< ins were up 521 nulhiin pnmanly as a

Net interest expense rose $~ million prinunty *""

result of mcreecd coal m!ume sold, adnunis. due to issuance of additionallong term dcht.

tutive.unigeneral c<ist s rose appr ninutely + in ome taxes increa,cd 513 milhon as a result 600

$H niillu m due f ar cir to gu m t h m operatii >ns of higher taxable income.

400 ELECTRIC OPERATIONS 2m CO R A(TIVITIES In ad hfron to t nal at tu tites hr NFIM ).Inc gencr<ning fac ilities information cont erm ny Eh < tric c hjnerations has mterests m in a v al these nunes im luded in Fla tric operations tv ,

nunn u bu h e.n tusn cly ruppit cual to ela tru a < lalion s ~*' '*2 ~*3 '*4 '85 l l

GOLD A%D Sitt ER l 1981 IflH2 19H3 1981 I!)83 Ol %CFS SOLD l Til0LSBDS

.lllll10M OF linLL4/N - -

l'uci cxpense ires enue etpuvalent) $ i 1.6 S16.3 $~,0.3 S33 3 $70.8

Wd I)cprecution iH 1.7 -19 aa a.7 3 ai 7 sa l Const ruction ex penditurcs 60 11.1 ll W 3.1 !). I Identifiable assets 62.3 72.2 78.9 81.8 78.8 RESERVES ATI) PRICE IVORilATION IX Tilninux Pros en and j'niluble reserves t< ms 192.000 180.000 220.000 232.000 222,000 Amtiunts nuned/tims 2.000 2.000 2.000 1.800 2,100 Resers es pun hased tons 10.000 Ascrage sales price per ton S13 SlH $13 S?l $21 E

EPORTOFMANAGEMENT The accompanying consohdated financial Judgments are required to assess and I alance statements were prepared by management. Ihe relative cost and expected benefits ofIhese w ho is re3ponsible for the integrity and objec- controls. The systems are supported by a staff tivity of the data pres-nted, m(luding amounts of professional corporate auditors w ho, among ihat must necessarily be ba3ed on judgments other duties, evaluate and monitor the systents and estimates.1 he consolidated financial state- of internal accounting control in coordination ments were prepared in conformity with gen- with t he independent auditors. The corporate crally actcpted accounting principles, and in auditors are supplemented by operating com-situations w here acceptable ahernative pnnci- pany internal auditors w ho conduct special pies exist, management selet ted the method and operational audits that was most appropriate in the circum- The Audit Committeeof the Board stances. l'inancial information appearing of Directors, composed solely of outside direc-tbroughout this Annual Report is consistent tors, meets periodically with t he independent l w ith the consolidated financial statements. certified public accountants, management, and l In recognition ofits responsibility corporate auditors to review the work of eac h for the conmbdated financial 3tatements, nun- and en3ure that each is properly dischar3 ing its agement maintains and rehes upon systems of responsibilities. The independent public internal accounting cont rols. The systems are accountants and corporate auditors have f rec designed to provide reasonable assurance that access to the Conuniitee, w ithout management assets are safeguarded and that transactions are present, to discu3s the results of their audit executed in accordance with management's work and their evaluatinns of the adequacy of authorizatiiin and properly recorded to permit internal controls and the quality of financial preparation of reliable financial statements. reporting. ,

i PINIONOFINDEPENDENTCERTIFIED PUBI1CACCOUNTANTS To theDirectors and Stockholders ofPacifiCorp:

We have examined the consolidated balance in our opinion, the above mentioned consoli-sheets of PacifiCorp and subsitharies as of dated financial statements present fairly Ihe Det ember 31,198 4 and 1985 and the related financial position of the comp.inies at Decem statements of consolidated mcome and her 31, P)8 4 and 1985 and the results of their retained earnings and of consolidated source operations and the thanges in their Iinancial and use ut financut resourt es for each ofIhe position for each of the three 3 cars in the per-t bree y ears in the period ended December 31, tod ended December 31,1985, in conformity 1985 Our examinations wcre nude in accord- with generally accepted accounting principles ance w ith generaiiy accepted a udit mg stan- consistently applied during the period subsc-dards and, accordingly, included such tests of qucnt to the change, with which we concur, the accounting records and such other auditing made as ofjanu.ny 1, P)M in the method ot pro ( edures as we considered necessai y in the recording revenues as described in Note 1.

l circumstances.

l i

MAM A. .d

l'ortlam/Dregon i Ibbruary I b,19X6 l 1

c e . - , - , , ~ ,- r,,, -- -- - - - , - , - - ,----------,-.n---, - . - - - ,.--r-.~.----n , -- -n+ - , .n---

TATEMENTS OFCONSOUDATEDINCOMEAND RETAINED EARNINGS >nxxvnsa vecesinsx si 1983 1981 19113 1Ilil10.\T OF DolLixS REVENITS Sl.5911i S t .786.1 $ 1,9113.0 EXPENSES Operations and maintenance 589.I 675.0 1114.5

/.dministrative and general 133 2 I fi2.-l 161.1 Depreciation and amortization 209.1 213.6 233.7 Taxes, other than income taxes l ifi.9 1211.3 131.6 TOTAL 1.068L 1.179.3 1,3 911.9 l

INC0\lE l'R0il DPERATIO.TS 529 8 606.8 584.I INTEREST EXPENSE AND OTilER

, Intere.st expense 208.0 223cl 224.6 Interest capitalized 16 9.9) (38.14 (13.6)

Gains from issuances of subsidi.iries' and eqmty investec's . stock (22.5) (3.3) - - -

Ins.scs from equity and other investments 38 41.0 36.2

.\linority interest and other 1.7 (l.7) 9.2 TOTAL 121.1 217.6 226.-l Income liefore Income Taxes. Extraordinary item and Cumulative Effect oflinbilled Revenue Accrual 408. t 389.2 337.7 Income Taxes 131.6 I i16 109.2 locome liefore Extraordinary item and Cumulatne Effect ofl'nhilled Revenue Accrual 277.1 211.6 2 111.5 Extraordinary Provision for Nuclear Projects l'nrecoverability, Net of income Tax Benefits of $121.2 (228.3)

Cumulative Effect toJanuary 1.1983 of tlnhilled Revenue Accrual. ;

Net of Deferred Taxes of $20.5 (Note 1) 22.1 -

.TET INC0\lE 70.9 211.6 2 111.5 Retained Earnings. January 1 326H 230.a 336.9 l CASil DIVIDETDS DECI.ARED (Note 5)

Preferred stock ( 13.1) 13 8.3) (31.1)

Common stock /per share: 1983/ 5 2.16,198 4 /51.70, and 1985 / 5 2.3 i (121.14 19 9.9) (1411.3)

RETitTED ETRNITGS, DECEilllER 31 S 230.5 S 336.9 $ 103.11 EARil.TGS ON 00\lil0N SMCK (Net income less 1 eferred dividend requirements) $ 23.5 S 200.6 $ 219.11 Average number of common shares outst.mding(Ibomando 56.361 58.602 63.1163 EAR. TINGS (LOSS) PER C0\lil0N SilARE locome before extraordinary item and ,

cumularis e ettect of unbilled revenue accrual S 1. I I $ 3ct2 S 3. l I Extraordinary item ( 1.03)

Cumulative effect toJanuary 1.1983 of unbilled resenue accrual (Note 1) .39 1

TOTAL S .13 S 3cl2 $ 3.11 tsee am,m;=an un .%to to ninahian J nnanaal Marments)

E - -

O E _ NSOUDATEDBALANC A%SE'IS 1911-1 DHDIMAJI 19113 PROPERTY, PIMT, ATI) EQl'IP.)lETT .t!/u l" \S or no/Lt#V Electric S3.021.1 S3,099.fi Telecommunications 92 i3 1,213.0 Mining aad Resource Development 331.fi fi91.3 Accumulated depreciatian an(1 amortization i1.131.7) (1,379.3)

Net 3.31 Lii 3.fi3fi.Il Canstruction work in progress 233.0 230.!!

Exploration and development properties fil.I a l.3 TUTAL PROPERTY, PLANT, AND EQl:!PMENT 3 fi10 3 3,9(i2. I Cl RREAT ASSE1S Cash and temporary cash investments 13fL I 20.7 Accounts receisable (less allowance for doubtful accounts-198 H51.2 and 1985/5 e ') 323(i 3ti7.3

- Materuts, supplies, and f uel stock (at average cost) 63.9 li9.Il Inventory 93.3 10ll.fi 20 Prepay ments 12.0 13.9 2o TUTAL CI'RRENT ASSETS li33. I 3110.3

,0 UIllER ASSI:1S l'nrecovered investments in nut Icar projects 23311 233.11 Allowance for estimated unrecoverahihty !233.1h (233.111 si 82 'na s4 as 1 3c,(3utc 2)

$4 0 44 43 47 S. : Estimated recoverable nutlear pn)lCet Ciots (less accumulated amortvation H and W O M pow 4 FR<l IN i soFDotLtRs Investments m and advances to affiliated companies i12 2 172.1 Excess of cost oser nct assets of busmesses aaluired 73 0 113.11 Deterred charges and other I 19.fi 172.11 l TUTALOTilER ASSE13 162.2 379.1 1DTU. ASSElS S-l.733.9 $3,121.7 na a. o rij anyn&tc li G mwlal.0, J nmmaal Statanaan l

l l

l DECE.t!!!ER Jl C\l'IT\l.lL\ TION AND II\lllLITIES 1911-1 ifHl3 cal'lI\LIL\Tio.N .t!!Luo.',5 or nozLt#v Common stock. $3..'5 par value; authori/ed 1984 /75.000.000; 1985 /100.ooo.oon .shares, outstJnding 1981/hl.539,'6 h 19S3/h5,880.673 shJres S 200.0 S 214.1 Premium on capital stock fl7tL2 !N10.4 Capital stock expense (3:L3) (29.3)

Retained earnings 33ti9 403.11 Total common equity 1.3112.11 1,370.ll Preferred stock 291.6 164.1 Redeemable preferred stock 67.0 67.0 lung term debt 1.899.7 2,0 311.3 TUTAL CAPITAllZATION 3.6 11.1 3.1110.2 CI'RRE.TT LIAlllLITIES Inng term debt t urrently maturing 92.3 70.3 Notes payable and commerci.il paper 31L i 103.6 Accounts payahic 106.7 124.3 Tnes and interest accrued 137.7 130.!!

Customer deposits and other 121.0 146.9 TUTAL Cl RRENT LIABILITIES 316.3 396.3 del' ERRED CREDI1S Income ines 217.I 262.0 Investment tn credits 133 0 133.0 l l Mining accruals .ind other 130.7 202.2 sw u 4 :

TUTAL DEFERRED CREDITS 300.8 399.2 CtPITil.IZ ulo)

CmirosITios illTORITY INTEREST 77.7 86.0 1983 ) EAR END

_ - . - - - . - _ _ _ ___ $3.8 HILI.los C0ilillTilE.\TS ATD CONTITGETCIES ,% %

See Notes e Onmon E4W s wm u ,

S3,121.7 *8*""*M"""

TOT \L C\l'lITI.ll\TIO\ ATD 1.1 \llll.Illi:S S 1.7ri 9 oce aawniunyn .we, u newda.ac,1 nrww:.a v.acmcrari l l

TATEMENI50F CONS 0IlDATED SOURCE AND USE OF MFINANCIALRESOURCES Sol RCE OF FINMCI \l, RES01 RCES 1983 rewsunnicsuaixsi 19fil !!)115 t OPERATIONS .U/IuoM OF D0/.L4R.s Income before extraordinary item and cumulattve ef fect of unbilled revenue accrual S277.I S211.6 $ 2111.5 Items not requiring (providing) current resources Depreciation and amortization 209.-l 213.G 255.7 Deferred income taxes and investment tax credits / net 97.6 93.3 39.9 Interest capitalized on equity funds ( 10.7) (21.1) (23.7)

Iosses from unconsolidated entities 3.8 36.5 18.7 Minority interest, accrued reclamation, and of her 10.5 15.5 63.7

[ g Gains frorn issuances of equity investee's

,, ,, ,, and subsidiariesitock (22.5) (3.3) -

Sol RCE OF FI) 001 %L TOTAL RESOURCES FROM OPERATIONS 565.2 579.I 602.11 RESOLRCESli1983 FINANCINGS e rmacmsa s373 uih = wg_g.m &w 23 g 3g A 131

- '"""*"d*'""'""

Con $ mon stock 31.6 107.7 119.1 4 Netinctwne.s248 41tlum lssuances of subsidiaries' stock 35.9 315 11.1 e tw.aw m weinrary can n,,,,,,,. TUfAL RES0l'RCES FROM FINANCINGS 219.6 393.9 373.0 Proceeds from sale of satellite transponders (net of current income taxes payable of $15.1) -

33.8 Decrease (increase)in temporary cash investments (net of short term debt) 187.31 (63 66 1 1111. 6 Cumulitive effect of unbilled revenue accrual / net 22.1 -

1 tihty assets sold under threat of condemnation 16.3 TOTAL S735 9 $909.1 S1,1 911.2 l'SE OF FIMNCI \l, resol RCES Construction and exploration and development ,

expenditures (excluding interest capitalized on l l equity funds) S327.6 S217.8 S 380.! l 52s 2s is s Operating companies acquired Property / net 30.6 610 219.3 L SE OF Fl% %Ci tL gung.tcrm delit .muined resol RCES IT 1983 12 1.9) (1.2) (81.7)

Other assets and liabilities / net 7.l 2.2 (7.6) e cespenow se2s um. Investments in and advances to atfiliated companies 30.I 60.5 115.7

. u ,, wa .,o w,,,4 Dividends 167.2 138 2 179.6 simucouruon.saas uma. Inng term debt reduction i19.9 288.1 210.6

+ tuudenoa siso umm Redemption and repurchases of preferred stock 59.9 127.5 l

mner twa ss4 wisik=

Other use (source) (15.5) 5.6 20.7 increase in working capital (excluding short-term debt and temporary itn estments) 10.2 15.3 33.7 i

TOTAL $735.9 $909.l $ 1,198.2 (Stf JWiti![alti}1!)g YrilVS fn 0 *9tudilifet$ [i!!s19Kle25 blt4!CT!!C? lS}

. . . . _ . _ . . . . . - - - - - - - - - - - - - - - - - - - - - = - - - - - - - - - - - - - - -

OTESTO CONSOI1DATEDFINANCIAL l STATFAIENTS vscenasas1. :>ss. im ans tw .

1 IMSIS OF PRESENTATION l\TEREST CAPITALIZEn I S(13DMRYOF The consolidated Gnancial statements of Debt and egmty costs of funds apphcabic to j PacifiCorp tt he " Company") encompass t w o utility properties are capitali/cd during con- 8IONIflCANI ;

businesses primarily of a utility nature-Elce- struction Generally, the composite capitalia l elCCOUNTINC tric Operations (Pacific Power & Light Com- tion rate used was 12 6", for 1983,12% for pany) and an H", owned Telecommunica- 198 L and 12.2 % for 1985. Interest capitali/cd tionmperation (Pacific Telecom, Inc.)-and a on mining and resource development prop. I'0I1CIES 90% owned 51 ming and Resource Des clop- ertics is hmited to interest cost incurred to ment business (NERCO,Inc.),includmg a 50", finance construction and certain exploration interest in the assets, habilities and results of and development activities.

operations of a commercial coal minmg joint ITCOTIE TAXES venture. l ogether these businesses are referred to herein as the Companics. The operations of iAferred 7'axesmicctric Opera-commercial financial services subsidiartt s are to ms provides deferred taxes for differences accounted for on the equity basis. All buse due to book versus tax depreciation in es and nesses are included smce dates of organization methods with respect to post- 1980 property or acquisition Sigmficant mtercompany trans- addition 3 and ccrtain other timing dillerences, actions and balances have been chminated. Telecommunications provides deterred taxes The financial acuvity of the above for the total tax versus book depreciation dif-segments is separately reported in the tables on ferences. Deferred income taxes are not pro-pages 38, an, and 42 of this report 5uch infor- vided for certain other differences in the ut hty mation is an integral part of these fmancial business. It is expected that regulatery prac-statements. tices atfc( ting the utility businesses will permit The Company's proportionate retovery tbrough revenues of income taxes, sha re ofincome or loss from equit y ins est - not prosided for currently, w hen such taxes ments. certain malonty-owned investments become payabic.

and commercial financul services is mcluded Deterred income taxes are pro-in losses f rom equity and other ins estments. vided for all timing diff erences in the Mining HEGlIATORY Al'Til0RITIES

""""investment

""'I"P"T*"P"#"""'

lax credits lf ederal Accounung for the unlity buunewes contorms mcome tax redut nons resulting f rom the with generally at cepted at counung prinoples investment tax credits relating to Electnc as apphed to regulated public utihties and as Operations' and Telecommunications' plant presenhed by I'ederal agencies and Ihe com- placed in service are deferred and amorti/ed missions of the vanous states in w hit h the generauy over the usef ullife of the related unlity busincues operate. asset . Shning and Resource Development's PROPERTY PIANT ATD m the year the credit is ru ogni/ed in the finan-EQl'IP\ LENT cui acm nN Property, plant, and eqmpment are stated at REVERE RECOGTITION origmal cost of cont ra red serva es, direct labor and mate nal, interest ( apitah/ed dunng in 19% Llet tric Operations changed its (onstruc tion, and indirect charges for engF merhod of accounting for res enues, actnnng neering. supers ision. and similar overht :d est . uted unhi!!cd revcnues for scrs icc3 pio-items. The cost of depret iable utihty proper- s ided alter cycle inthng tbrough month end.

ties retired. includmgihe cost of removal. less salvage, is charged to accumulated deprecianon RECOGNITION OF CARR)ING VAllE CilDGES Ol'IRESTilENTS DEPRECl STION AND

.l'he Companies' policy is to recogni/c t h.inges A\l0RTIZAT10N in carrying value from sales to the pubhc of Depreciation is computed generauy by the previously unissued securities by subsiduries st raight hoe method os er ihe estimated usetut or equity investees as income or loss at the lives of the related assets. Provisions Ior depre- timeof such sale.

cunon in the utihty businesses were t 1",

(1983)and t5",(l'98 i and 1985)of average N b depreciahic asset s. Pension costs are f unded as the liabihty

'I he excess of cost os er net assets act rues, based on actuarial determinations.

of businesses acqmred is generally bemg amor- I'ntunded poor service costs are amorti/cd ti/ed over in years. .md funded over not more than a 30 year period.

l\\ ENTORY VAllATIOT Ins entories are generally valued at .o crage cost or market, whiches er is low er.

2 NUCTMR The con of dumninatal nu&ar projects million of similar pre- 19') cost s attributable to l and a delayed nuclear project, Washington WNP No. 3 for w hich the Company has not yet PROJECTS P"hhe Po"*"PP IPY"c"W"i' 5 (WNP N" re4 "" *""""i'" d"" C""'t""" M r"" P' 3), less the tax benefits estinuted to be realiz- have appealed ihe OPL'C's order, opposing ihe able from ioss ofinvestment in such projects, allowante of any recovery. The Company lus has been recorded as ins estment in nuclear also appealed the OPI'Ci order, to obtam projects. The amounts estimated to be recover- recovery of allexpenditures in February able, based on t he Company's interpretation of 1985. the Oregon Attorney General filed a hoef requ!atory actions and court decisions involv- asserting tlut any amortization was contrary to ing other utilities as well as the Company, are Oregon law. In the es ent the OPL'C's order is transferred to estinuted recoverable nuclear ultimately res ersed,Ihe Company w ould be proicct costs to be amort ved as recos cred in obligated to charge to income as a n ext raordi-rates. The estimated amounts determined to be nary af ter-tax h os $ 29 milhon of pre 19'9 unlikcly of recovery are charged to income as nut lear proicer cost s att ributable to Oregon.

cxt raordinary losses and reflectcu as allowance Refunds of amounts amorti/ed through rates for estimated unrecos erahihty. The excess, if (approsinuttiv $9 milhont together with any, of the allow ance over the amounts finally interest t hereon. w ould be required.

determined to be unreco verable is restored to The Financul Accounting 5 tan ~

mcome. dards ikurd is currently proposing changes to 5FAS No. 'l- Accounting for the Effects of FSTIMATED DRECOVERAllt.E COSTS Certam Ty pes of Regulation Such proposed During 1981 and 1983, the Company of fset its changes u ould require the probable futurc

$ 5~3 milhon investment in ter minated nuclear revenue that is expected to result from recov-projects and in WNP No. 3 through allowances ery of abandoned plants in allow able costs for for estimated unrecoverability ( $ 28 i million), rate-making purposes to be reported at its ex pected tax benefits ($ 1 Sn million) and asset present value. The Company expects imple-accounts estimated to be recovered t brough mentation of such proposal would result in less i rate recovery already granted, or expected to than a $20 milhon retroJctive charge to 1983 be granted ($ 139 milhon). results ol operations ESTIMATED RECO)ERAHLE COSTS MP T0. 3 As of December 31,1985, the Company had The Compan) is a 10" > ow ner of WNP No.3.

remaining on its balance sheet nudear project const ruction of w hit h was suspended by Ihe costs of 5118 million w hKh it estinuted were Washington Public Power Supply System and l l retoverabic through rates in Washington ($ ~5 the Bonneville Power Ad nimstration(HPA)in s2s4 iso s?s y nulhon}andin ()regon($ 63 milhon) May 19% As the proicct n nolonger view cd The Washington pornon consisted by Ihe Company as a rtliable souro e of future NL CLE tR IM ESTMENT of (al$ 1; million of terminated nuclear pn qct t pow er at a reasonable cost, an extraordinary DISPOSITIO) costs f or 2 hich the Company has recently provision was made thiough a charge to 1983

'IUML IM ESTMENT requested amortuation. (b) S 49 million of carnings of its estimated unrecoverable im est-

$573 MILil0% WNP No 3 costs.and(c) 5 I i milhon w hit h n ment in WNP No 3 through December 31.

curmntly being amortved through rates. A 19H3 and estimat( d additional termination

""*"*"E*"*'

wnsumer representative in Washmgton has t osts to be incurred.

'"""** brought actions seekmg denul of any recovery The Company sought judicial relicf of terminated nudear proicci(osts in addi- f rom any ohhgation to participate for ther in

[" tion. on August 2,1985. the Wastun ton t 'tili-ties and 'l ransportation Commnsion (Wl:TC) the construction ot WNP No 3. A settlement agreement betw een the Company md HPA nsued an order m the Company's 1% i general was signed on September 111985. which is rate case dctermming that the Company s expct ted to resolve the htigation. The settle-allowed level of amortuation of termmated ment is being challcoged by various parties in nuc! car projects should he reduced because of Feder.d Ihstrict and Appellate Courts l'nder an error in carher orders. As a result, the Wi? TC the settlement, the Company would he uhi-significantly reduced Ihe amount allowed to be mately rches cd of any future costs of construc-amorti/cd in that proceedmg. but resers ed for tion should the umt he restarted A separate tuture rate proc eedings the determination of agreement gives the Company t he option to future amortuation les ch The Company has re( cive approximatcly M average megawatts appealed the V I!TC's order. If the Wl'TC's of power f rom HPA in return for giving liPA the change in method of calculation is upheld and right to purc hase a roughly equivalent amount apphed m f uture proceedings the Company of energy from the Company. The agreement would be muhle to recover through amortira- aho prm ides for cash payments to equali/c t he tion apprmimately 50 percent ofits renuinmg value of the power and energy being pre-tax im estment att nbutable to Washmgton. en hanged. The power to be re( ch ed f rom

'I he ()regon por tion consisted of liPA approxinutes the expected ourput of the

$r nuuion of pre-19~9 terminated nuclear Company's share ofIhe currently completed prolect costs which the Oregon Public l'tility porhon of WNP No 3. The Company has until Commissioner (()PI'C)is allowmp to be amor- 1996 to excr(ise the option to p.u tiupate m the tired os er approxinutely fis e y cars and $ 16 Exchange Agreemtnt

During 1985, t be Company formed PacifiCorp nications' lease financing subsidiary, are dis-Finance, Inc., a leveraged leasing company and similar to those of the consolidated group and 3 LVVESTREJ75 in September purchased Northwest Accept- are accounted for on the equity lusis and Jyjyg ance Corporation, a commercial financial serv- includedinimestments The renuinderof the ices company. In December 1985, Northwest investments at December 31,1985 include ADMVCESIT)

Acceptance Corporation acquired flyster Teleconununications%wnership interests in:

Credit Corporation. The Company anticipates Comdul Corporationa comp.my nunufactor- AFFILIATED changing Northwest Accepunce Corporation's ing telephone inst ruments; nonregulated com-name to PacifiCorp Credit, Inc. The operations munic ations compaaies; and several high COMPANIES of these commercial financial services subsidi- technology information service compames. ,

aries as well as Paceoin trasing Telecommu- l The Curnpanses borrou stig arrangernents are asfullotax Lo\sog.gp \1yn 4 $gggy,yggy ATDECEMBL R 3l 1%5 (MilllOM ofIboll.ARG V\CIV1CnRV 8t Khlt)l \VIVs llank revolving credit and term loan agreements S:100" $I:13e RORROWLY6

?"Cn't'n"dC' lI? ARRANGEWEN75 1.ines of credit 23 (1) Tlw Company flans to extenJIN rer4r inyerm nfIN creda a 1JW!mi ! son cn Jit agrerment axwement. etfsring in riarth 1% an ad12tiorealnt memth ()) in Ichruart iW, IN Cnmfany rn ened autburity to usue up to (2) AtDecemMjf.1%S 52 2m, nfttvauutanJatecnmmunsimnf 1125 miiwn habi'aajic Tckcom hsc. and.sERCO hsc a'rfkJuedumler H) f urunatefm/st; toiltermmate %Ian b l,1%is At December 31,1985, the Company had out- ings to 10% of defined capitalintion diminng standing 560 million of commercial paper and such borrowings to approximately $ t20 million 5 61 million under uncommined horrowing at December 31,1985). The consolidated sub-facihties available to the Company llorri .w- sidiaries had $213 million term loan and com-ings under bank lines, the revolving credit mercialluper capacity available at December agreement. and commercial paper nuy not 31,1985. Commitment fees, typically 'l+ % of exceed $425 million at any one time. Cos e- the unused amount of the borrowing arrange-nants of the $ 300 million res olving credit ment, approximated $2 million in 1983 and agreement limit unsecured short term borrow- 198 6 and 53 milhon in 1985.

InJune 198 i, the Board of Directors stufted 35 days The dividends nornully declared and shareholder financut reporting to a calendar 5 COMMONAND i accrued in Detember were shifted tojanuary.

quarter lusis and consequently delayed the Due to the stuf f in [uyment dates, there w cre only PREFERRED i dividend declaration and guyment dates about three common stock dividends declared in 198 s.

G.curges in shares of capitalstod amithe I alue t redited to premium eas capitals tod are excess of nelprowed> or erpar or stated asfollou's.

Ni\RES Ni\RES PKL\UI \1 cC\l\loN PKLFLRRLD OS C \Pil' \l.

Tilol54Sih 0FSHIRES Alli110NSf)f f)nf1ARS stock snw k s\ock lulANCEJ\\l \ld I.1911:1 53c192 10.563 S760.3 191L1 issuance under Employees' Stock Plan 2 711 12 Sales through Da idend Reinvestment and Stock Purcha3e Plan 1,212 2:1.0 ll \la\CI:,DECE\lilER:ll,1911:1 56,9112 10,563 7117.7 19111 Issuance under Employees' Sto( k Plans 2 12 .lci l

Sales through Dividend Reinvestment and Stock Purchase Plan 1,:116 26.0 Sales to oublic l1.000 61,I Redemption and repurcluses (2,15 l} l 1

ll \ldNCE.DECE\lllER:11.19111 61,310 11,1 I i 1179 2 19113 issuance under Emplo)ces' Stock Plans 70:1 16 0 Sales through Dividend Reinvestment and Stock Purchase Plan 1,1:1!! 2 11. I Sales to public 2,500 6:1.1 Redemption and repurcha'es ( l.:136) (6.1) l l

. Il \ldTCE,DECE\llti:R:t f.19113 6 3 ,1111 1 1,033 $9110. I '

At I)ccember 31.198; t here w cie 1. i'1.505 to redeem and repurtluse a poruon of the authon/ed but unissued shares of common 5 i 0%crics of No I r scrul Preferred stot k stock reserved for iwuante: 280.090 under the and vanous repurcluses of e ther pref er red Dnidend Reinsestment and Stot k Pun.hase stures 'I he par value and any prcmium or Plan; olo.2H + under the Employees' Stock dm ount on such pref erred shares wete Pun.hase Plan of u ha h 269.on2 were held for remos ed from toul capuahr.uion. In accord-uncompleted emplovec subscnptions, and ance u ith a regulaton order. g.un or b iw on the 50.',131 under ihe I'mplo)cc 5tock Ownerslup repurcluse of thcse sh.ncs is deterred until the Plan ant! Trust. In Jantur y 1980. the Company recapitah/ation progr.un is uimplete. at whis h regt3tertd in e mdhiin addmonal slures to be time the net gain or loss. it nuterut. w ill be reserved for iwuance under ihe Dn idend Rem- am< rti/cd Ibrough rates over a In c-year period.

u stment and Stock Purcluse Plan. Generallt. pref erred stot L is During 1983. Ihe Company u m- redcenub!c at stipulated ptices plus au rued tinued its P>S e recapitah/ation progr.nu by dn idends. subi cct to cert.un restrk tions l'pon inumg 2 5 million slures of common stot k. ins olonury hquidation. .dl pref erred stot k is

'I he proceeds irom ihe ( ommon stock contled to par or sutt d s alue per slure.

innance and short term dcht w cre used

, l'REttRREI)S17<h 01T 1.f%I)l%M/>EGtililR U 1936 lual iml3 1983

, sw M HIES 5il \ ki's

. \\lnl NI Sil %RES MIntsi l SERI \l. I'REI'ERRI:D $ 100 l'AR \ \l.1 E l'ER Sil \RI:, 1/101X1%In of sll.lR/5 i2'"

3.300 Sil \RFS At Til0Rl/ED 3/l/110As OF/>ollIRs SL'BJECT TO MANDATORY REDEMPTION 9 13 "n 300 S 30.0 300 $ 30.0 13 00"u 170 17 0 170 17.0 um . _ _ _ _ _ - _ - . - _--

TtTTAl.SL'BJECT TO MANDATORY REDEMiri10N S 670 $ 67.0 n

l j N(IT SL'BJECT TO MANDATORY REDEMPTION

1 32"o 7 s '

2 $ .2 l i.,,n n,n 7 00"o 1H Ell ill 1 .11 l

6 00"o 6 .6 6 .6 l O Pitu.81 m 300"" 12 12 12 1.2 l

touPostus 3.10"o 67 ti7 66 6.6 ulijJoss or Dou.tRs 172 "n 72 72 70 7.0 1 36"o 83 11. 3 11 3 11. 3

wmn.* rn+- +ii n 93c n gg3 l3 3 73 7,g 9 OH"n 290 29 0 1113 1 11. 3 7 90"o 211 21-1 139 13.9

$ J'H 6 tot 1

. o.nm i. w , 3% I'RLi'l:RRED.S1001'AR ni.l E, siw a ima 127 Sil tRES At:Til0Rl/ED A%D ol" INT \\DITG 127 12 7 127 12.7

.TO l'AR SERI \l. I'REFERREI), S23 SITI'l:D Hl.10,16.000 Fil \RES Al?IIl0Rl/ED S2.13 1.a e r .19 I 0113 28.6 S2.1:1 1. I11:1 29 6 702 17.3 52 29 1.366 34.I 1,0 011 23.2 s10, .l.000 73 0 322 13.0 T(TTAL N(TF Si lljECT TO M ANDATORT RLDEMPTION 8291.6 $ 16 8.1 i Mandaion rcdempto ,n icymrement s on ihe ally begmning in 1989, hoth at par ulue plus 1;" . Seriali relcued st.n k are 11.4 5 % slurcs at t rued dn idends if tiie Company is in dt f ault

.nuuuth hcgmning m 1988, and on Ihe 91;" . in its ohhganon to nuke ans sus h pun luses, u

! Scru! Preferved stot k .nc 31,2 50 slurcs .inno nu) niet ju) cash dis Jcods on common stot k.

i_-________.-_-_--_ _-- _ - - -

onsuVDNi.4TDECEMBERD 6LONG-TERM 19a !!nts DERT FIRST MORTGAGE HOTDS MW20XSoF/WL4NS Maturing 1986 through 1990 4 %% Series due May 1,1986 S II 1 S -

O/.% Series due 1988 l -1.9 iL!)

4 %% Series dueJuly 1,1988 17.7 17.7 10%% Series due May 1.1990 21.2 21.2 5 %% Series due 1990 11.3 11.3 Maturing 1991 through 1994/4 % % 18 %'" 'n 6.0 217.7 Maturing 1995 through 2001/5%9% 160.1 160A Maturing 2002 tbrough 2006/7 %%13. l'" m 971 fi 271.6 Maturing 2007 tnrough 2013 /0%%I1%% 322.0 2fl!I.6 TOTAL FIRST MORTGAGE BONDS 1,062.5 1,017A Ct'ARANTY Ol' Pol.llTION COVIROI REVERE HONDS Sweetwater County, Wyoming 6U8%% duc 2003 through 2005 36.!) 36.!)

i Su cetwater and Converse Counties, Wyoming due 2013 tbrough 2014"' Ifi3.5 163.3 City of Forsyth. Rosebud County, Montana,due 2011"> 13.0 13.0 City of Gillette.Lampbell County, Wyoming.due 2010 63.0 63.0 Funds held by trustees (179.1) (149.11)

UIllER Eurodollar loan agreement due 198T 73.0 73.0

'.50% Debenture 3 duc 1991 70.0 70.0 5.1 W 12 % First mortgage notes nuturing through 1998 12.0 31.7 2%11.25% I irst mortgage notes maturing through 2018 -13.0 fil.2 Unsecured 6% -14% notes due through 2007 19.I 1 11. 9 Unsecured revoh ing credit and term loan agreements""" 23 0 30.0 Commercial l' aper"" 63 0 80.0 8 %% Unsecured note.s due through 1997 72.0 66.0 9 02% Revolving bank kne of credit due 1992 30A Credit agreement duc 1992"'"' !)2.0 Notes due 1985"" 1030 -

6hl5% Notes due through 2002 39.9 33.6 13 %"n Unsecured notes due 1990 ~ 1999 l10.0 110.0 Capitali/ed lease obhgations 311 7 7ti.3 l'namortized premium and discount (23.9) (21.3)

Miscellaneous 7cl 6.3 TtHAL 113 7.2 1,020.9

'IUI\l.l.0%G TER41 DEllT S 1.119 9.7 $2,0311.3 (l)(*n lanuan l'.1%, th G + pan) naut J $ '5 mtlitan ofits irst Stortct;e IVndt iN % Serws Jue %e b 1.1%f The Comjuny ente nh In ume alhttonalfunt mortgage bmb to s orwrllwat ofIN redrmis n (2) Ins luJn 1illInt) Inal tn bunk Intemt rule fII i % at (% emhrt ]!. (% Dad lwls ear h %tember I, no en erd,% % ror des how twines 10 % fcanrmm h.ned ufar 10 year 7>ravun rater

(}) Ibrough IM vmkr il 1%, IN G:mpantes ban t ep% tst cly ftredik rate em i fl? mdiwn Ibronb wt en inkovi rate em iungn te bh h bat e a nratunty of seten In thtrievn yars. IN raterfl.redllrntmh na h en hanges apprnstmate ? ) % 10 Ii *%

(4) flus tuate ha vJ on t an~sa rate t pnman.y on a rrtijk ute of4]nal ratet interh nh Iv>rnsing rates urperme ra:et

($) The Gmpany hat IN ahdp In .mpfwrt t estmen talpaper horrou mgs antJt urrent Jeht h-sng npn.snt rd on a long Irrns b,urs thrwgh ruhahanes rett 4t tng ime nfimintandlerm tsan agrrrmestlunnJtkrefn, Iwed uj=,n m snage-nrent ~t triknt bas

1. tut lted!!ww b em Inp as long terns & hl Substantially all of Ihe Companici asset 5, Development busine.sses. secure long term in ludingapproximately 72% of the outstand- debt. l'irst mortgage bonds of the Company ing common shares in t he 'lblecommunications may be issued in amounts hmited by property, '

and approximately 52"a of theoutstanding carnings, and other pros isions of the mortgage conunon shares in the Mining and itesource indenture. <

.11aturity and sinkingJimd reytarements on stock outstmiding are as follous:

long term debt and redeemableprefered FOR Tile 1FAR 1911(i 1987 1 9 1111 1989 19tH)

.\111110%S OFDOLLIRS Total requirements $73.5 S39.1 S107.1 S133 3 S13 6.9 Portion ot toral payable in cash 70.3 36.2 101.4 152.7 132.0 Property additions tertifiable in ticu of cash

1.9 1.9 . l .3 l.1 1.1

Caw smtmpfwsd rn.wwwih mar tw satulwJ ws tiv haus efN)"h rff'rs prty additwru During 1985,Ihe Company retired at par value the I i % % First Mortgage Hond.s due 2010,and

$39 million of to % "i, First Mortgage Bond 3 due repurchased 58 million of the 18% First Mort-199n, redeemed at par value $22 miUion of gage lionds due 1991 at a cost of $10 million.

Ccam ioan agreements. preferred stock agree. at December 31,19ss amounted to s2io mii-7 RESTRICTIONS ments, and legal interpret ations of I he law in lion. OnJanuary 8,1986, the lloard of Dirce-ON RETAINEI) the state of Ihe Cornpan6 incorporat ion tors declared a quarterly dividend of $ 5 million restrict, cither directly or indirectly, t he pay- for preferred stock and 5 60 million for com-

"'c"' "h"""""" 'h u dends l'nder the most mon stoc k to holders of record onJanuary 20, EARNIN6S cortservariseinterpretation of theselimira- 1986, payable on February 15,1986.

tions, retained earnings available for dividend 3 8 COMMITREY75 co;sTuu:Tios.nu UTHER Construction programs are estimated at $332 The Companies are parties to SNI) milhon for 1986 As a part afIhese programs, va nous !cgal daims, act ions, a nd ( om plaint s, substantial conuniiments h.n c been made. certain of w hich involve material amounts.

CONTIN 6EYCIEF Eledric Operahons has agreed to Ahhough it n impossible to predia the out-purchase from a nonathliated supplier an come, management does not expect disposi-aggregate of an million tons of coal over a tion of tbese maners to have a tratenaleffect on W year penod begmning in 1990 t he consolidated results of operations.

Telecommunicanons is conunitted Telecommunications has a hook tbrough 1990 for tracking. mnitol and emer- investment of $21 million and is the guarantor geng hat k-up ofits satclhte at a cost of appros- of $1 i milhon m obligations of an equity inves-imately $11 milhou per year. tee (Comdial Corpora tion) which is cu rrently The Company may be ohhga:cd ex periencing significant operat mg losses. In under the ownership agreement of WNP No. 3, the opinion of management, t he subsequent in ihe es ent construction is resumed and in the losses, if any, of Comdial Corporation will not esent the settiement agreement with HPA is have a material cifect on the Company's con-overturned, to continue to fund its 10% share solidated results of operations.

of constructton costs Dec Note 2) 30l%T1% 0% %EI).nD ,1t iJecember 31. I9MS. Electric oper ations '

l.EAsEU Vl..nis participation in plants jointly on ned and jointiy leasedare asfolloirs tablRt ClinN l 1 F C1RIE PI AN I IN \CLt \tt I AIED %nRK IN Hi l.R tilow $11 \Rl; 51- R\ ICE Dt.PRI.Cl \ Tion PROGRESS JOI\TI10% %EI)PiAVIS .tfil110XS OFDo/L1NS Centraha 17.3"o S133.0 5 61.6 S 1.2 Jim tiridger l' nits I,2,3 and 6 66.s aHl.H I i 1.3 17.3 Trojan 2.5 13.2 l il ,7 Col 3rrip t' tut 3 10.0 136.1 6.3 Colst rip i'ntt 4 /under construc tion 10.0 !!2.3 J01\Till.1:TSI:U PldVT m odak H0 0 31.9

l'nder the joint ag cements, each participating project annual costs (operating expenses and utility is responsible for financing its share of debt service). These costs are included in oper.

const ruction, operating and leasing costs. ations expense. Elect ric Operations is required Electric Operations' portion is recorded in its to fund its portion of the debt, whether or not applicable operations, maintenance, and tax any power is produced. The arrangements accounts. provide for firm power and most of them also Consolidated revenues include coal provide for additional power, withdrawable by sales to theJim Bridger Power Plant joint- the ou ner upon one to five years' notice. For venture partner of 19831531 million,198 il534 1985, purchases approximated 7% of energy million and 198515 46 million. requirements,13 % was obtained tbrough Substantial amounts of power are of her purchase and net interchange arrange-purchased under long term arrangements with ments. Elect ric Operations has been notified public utility dist ricts. Purchases are made on a that the capacity available to it will be reduced

" cost-of-service" basis for a stated percentage 37,168 kw byJanuary 1,1987 of project output and for a like percentage of Long-term arrangements n ithpuhHc utility districts: ElWTRIC orER.4TR1VS ' Sil4RE AT DECEt!BER 31,1%i

) E \R C \P\Cin PERCENT \GE \NN tTI, GE%EH tTI%G FtCII.lT) CON 1R \CT E\PIRES (My Ol'O!TPt T CoSiv Wanapum 2009 17-l 562 21.0 S3.3 Priest Rapids 2003 123.006 13.6 2.5 Rocky Reach 20II 61.297 5.3 1.3 Wells 20ll! 60,392 7.8 1.5

'IUTAL $8.11

Prwh wlt statedin mainst im iu.de den xmwg$4 I manur I. EASES

'I he Companies lease certain proper ties, options to purchase at fair market value. The includmg t he Wyodak coal-fired generating Companies are also committed to pay all taxes.

plant, under leases expiring during the next expenses of operation (other than deprecia-22 years Rentals on lease renewals are subiert tion)and maintenance applicable to t he leased to negotiation. Certain leases provide for property.

i Rent expense u as asfollon's: FOR THE 1E4R I

l 1/#uo.VSOFDOLLtRS 1983 198l 1983 Total rent expense $63.2 $71.5 $81,0 less rent from subleases .fi 1.5 1.9 NET RENT EXPENSE S61.~1 S73.0 S82.1 11LYitIt '.11REVT4LS I YDER.YO.YCLYCELL4BIEIL.4SES ATDELEllBER31.108i OPER \ll%G C \ PIT \lJ/En I ESS NET 1/IluoNSofvolL4RS 11: d ES 1.E des si BtJ: des REN1\18 1986 S 61.6 S 17.8 SI Il S 77.6 1987 I l .2 16.6 1. I 56..I 1988 36.2 16.2 .9 51.5 1989 32.I 15.7 .7 47..I 1990 29.1 1 11. 2 .6 16.7 Thereafter 263.11 13.7 .2 307.3 T(TTAL S 16 1.3 128 2 $3.6 $386.9

!. css imputed interest 12.2 Present value of minimum rental payments 86.0 Irss current portion 9.7 LONG-TERM CAPITALIZED LEASE 0BLIGATIONS S 76.3 a

State regulatory agencies have treated Electric operating expenses before income taxes Operations' ! cases as operating leases for rate- would have been imnutenal for the t bree years making purposes even though some otherwise ended December 31.1985. Future minimum meet the accounting criteria for capital leases. rental payments pertaining to these leases total in accordance with such regulatory rate- approximately $3 43 million, w ith mmimum making treatment, the Wyodak jointly leased rentals approximating $21 million annually plant and other capitalizabic leases have not ibrough 2003.

been capitahzed. Instead. Ihe lease payments At December 31,1984 and i985 are charged to operating expenses. Ilad these Minmg and Resource Development and Tele- l leases been capitalized. Decemner 31,1984 communications held property under capital assets and liabilities u ould has e increased by Icases totaling $ 50 milhon and $9-' million, approximately 5166 million and $201 million, respectis cly. These amounts are recorded as i rest ectis cly, and December 31.1985 assets and propert y, plant, and equipment, together w ith liabilities would have inc reased approximately $ 14 million and $24 million, respectively, of 5156 million and 5193 million, respectivtly. related accumulated depreciation and The effect of such capitalization on amortization.

9 INCOME lhe Co*P""v 's ellee"ee combi"ed s!'"e " """"too'leder"!!"x '"'e ' vere "PP"ed !"

Jederat income tax rate rras 30 % ia 1983."d Income beforc income taxes, extraordinary fj g 3 '% in 1984, and 31 % :n 19HS. 7he differ- item and cu mulatiec effect item and tbe em e bettecen taxes calculatedas il the 46 % ret orded tax expense u reconciled asfollotes:

FOR THE 1E4ROHIJJONSOFD01.L4RS1 l983 I98l 19113 COMPUTED FEDERALINCOME TAXES S188 0 $179.0 S I 6 4.3 REDt CI'10N IN TA\ RESI I,TIAG fro \l Interest capitalized during construcuon 28.5 11.9 1 3 .11 Excess of tax over book depreciation (flow-through basis) 3.5 1.3 2.0 investment tax credit 11.1 31.s .10.7 Depletion 9.2 7 .11 12.3 Effect ofitems taxed a3 capital gams a.2 (.5) 2.2 Insses from equity im estments (.6) (IL 1) (7.2)

Orher items capitali/cd anJ miscellaneous differences 11. 3 (3.7) 7.9 Federal tax reductions 6fi.2 13.1 fi3.9 FEDERAL,ITC0\lE TM 121.8 135.6 100.6 ST\TE ITC0\lE TAX, NET OF FEDERAI,ITC0\lE Tu HENEFIT 9.8 9.0 11. 6 Income tax expense on income before extraordinary item ,

and cumulative effect of unbilled revenue accrual 131.6 I i 1.6 109.2 ITC0\lETAX EFFECIS OF Extraordinary item (121.2) --

Cumulative effect of unbilled revenue accrual 20.5 -

TOTAL INC0\ff TAX EXPENSE $ 30.9 S i 11.6 $ 109.2 INCOE TAX EXPENSE CONSLSTS OF TIIE FOLLOWING TA\FS Cl NRENTIX PROVIDED federal S 12.3 S .10.3 $ 71.3 State 10.9 11.0 13.1 DEFERRED INCoilETAXES Depreciation differences 33.fi 3fL7 12.0 Mining costs and production financing (7.7) 12cl Terminated or delayed nuclear projects (33.1)

Cumulative effect of unbilled revenue accrual 20.5 Sale of satellite transponders (13.1)

Other (1.6) 1.5 (9.9) 1%VESTilE.% tin CREllilS/. NET 16.3 10.7 7 .11 l TOTAL INCOME TAX EXPENSE S 30.9 $ 109.2

$ 111.6

- _ _ . _ . . . - - _ _ . _ - . _ . - . _ - _ - ~ _ . _ _ - _ _ _ _ . - . . -

E

4 At December 31,1985, all the Companies' invest- 1)uring 198 e, up n approval from ment tax credits, includmg both carryforward regulatory authorities, the Company began and current gcneration, have been utili/cd. amorti/.ing investment tax credits generated Deferred income taxes have not prior to 1981 hased on ihe > car of generation been provided on certain book and ta x iiming rither tiun the year of utilization. lacome taxes differences as t he met hod of rate-nuking is were reduced 517 million in 198 i, aad 51 based on taxes currently payable, and it is million in 1985, to reilect amorti/ation of expected that there will he recovery of turme im estment tax credits utili/cd in prior years.

taxes through sevenues. At December 31,1985, locome uxes were reduced accumulated tiniing differences for which approxinutely 510 mi' lion in 1985 as a result of deferred taxes lute not been provided adjustment for various items in prior years' amounted to approximately 5"29 nuthon. provisions.

The Companies have ses cral pension plans amounts. 515 million in 1983,5 I a million in 198 e, and $ 12 nullion in '985 was charged to 10 RETIREMEVT l covering substantially all employees. Pension costs for 19H3.198 6 and 1985 w ere 519 million, operating ex pense 3 and the balance was clurged pg4yg 517 million and 514 million, respecti elv, to construt tion accounts. The Companies w hich include 3 the amortization of prior serv- nuke annual contributions to the plans ice costs generally os er 30 years. Of t hese equal to the amounts accrued for pension cost.

, Thefollorring information, as ofJanuary 1, the yea r reflects treigbred at trage assumed ra:es of date of the mos t reccnt actuarial studyjur that return. 8% en 1983 and8%9% in 1984 and 198L

FOR THE 1 LIE (.tllulnAS OFIWLLIRS) 1m13 lmli 1983 I

ACTI'ARITI, PRESETT \ \11E Ol' ACEI %It'IAI'ED PldN llE.T EITIN Vested S137.0 Sl391 $ 168.0 Nonvested 7.l 3.9 7.6 l 'IUfAL S11 Ici S163.3 $173.6 VT ASSE'IS Anlldill.E l'OR ilETEITIS $1613 S211.2 $231.1 The Companies provide heah h care ar d life active employ ees. The cost of these benefits, insurance benefits for their retirees on a haus w hich is charged to expense as incurred was substantully consistent w ith those who are 53 milhon in 198 6 and 1985.

The accompanying supplementary mfonna- of fuel costs through the basic rate schedules t" tion has been prepared m accordance with the actual costs. Ior this reason fuel inventories are SUPPLEMENTARY guidelines provided by the Financial Account- elfcctively monetary assets.

ing 5tandard3 Boatd The information is pre- l'nder ihe rate-making prescnhed INMRMATION sented in an attempt to awess the impact of the by the regulatory commissions to w hich the etfeet ofinflation on operations and financui utihry companics are subject, on!v the histori-position The :nethods used to calculate the cal cost of plant is recoverable in r'evenues as EFFECT0F etfcct ofinflanon im oh e numerous assump- depreciation. Therefore, t he ext ess of Ihe cost tions. approximations and estimates. Ihe of plant, stated in terms of current cost over the jg ,

resulting intornunon should he view ed as a historical cost of plant,is not presently recover-highly subjective estinute. able in rates as depreciation, and is retlected as a br The current cost of property. plant, reduction to net recoverabic cost. While the and equipment was essentially deternuned by rate nuking process gives no recognition to the applyingihe Handy Whitnua index,or, for currem cost of replacing propert f. plant, and elet trie generating plant ot her t han hy dro, on equipment. hased on past practices, the utility thelush of an engmeeting study of current cost comp.unes behes e ihey will he allowed to carn per megawatt of replacing the present mix of on the increased cost of their net investment nut lear, coal, oil and gas turbine generating plant . when replacemem of facilities actually occurs.

~1 he pros ision for depreciation was I ming a period of inflation, holders determined by applymg the actual functional of monetary assets klaims to receite a fixed class deprecution rates to the respectis e class sum) sulfer a loss of gencul purt iusing power indexed plant amounts. w lule hohlers of monetary liabilittes(ohhga-I uct im entories, the cost of fuel tions to pay a hxed sum) cxperience a gain. Ta med in generation. an d purclused pow er lus e further redect the cconomics of rate regulation, not been restated from their historical cost m the resutement of net propertv. plant, and nominal dollars. Regulanon limits t he ret overy equipment io net recoverable cost should be s-

offset by the gain from the decline in purchas- plant, and equipment. Sinc e the depreciation ing power of net amounts ow ed. The gain from on plant is limited to the recovery of historical the decline in purchasing power of net amounts costs, the Company does not has e the opportu-owed is primarily attributable to Ihe substantial nity to reahze a holding gain on debt and is amount of debt and preferred stock (treated as limited to recovery only of the embedded cost debt) w hich has been used to fmance property. of debt capital.

00 \ Sol.lDATED ST\TEil E.TT OF IM:0\lE WI SI ElW"R ADJt STED FOR1\ FIAT 10N ggngni, gg M '. $

1E4REVDEDDECEtIHERJ!.1%% 0:11110550FIX)lL4RS) cosi tct RRk%rcoMN RE)E.TtFS S1.910 0 $ 1.910.0 EXPENSES Operation, maintenance,and administrative and general 1.0 011.6 1.0 011.6 Depreciation and amortization 233.7 503.7 Taxes.other than income taxes 13f.6 131.6 income taxes 109 2 109.2 Interest expense and other 226cl 226.-l 1.731.5 1.!!!!2.5

.TET ITC0\lE (excluding restatement to net recoverable cost) S 2 111. 5 S .5 Increase in specific prices (current cost)of property. plant, and equipment held duringihe year S 177.2 Restatemem to net recoverable cost 22lt9 Effect of increase in general price level (3 12.9)

Excess of increase in specific prices (atter restatement to net recoverabic cost) over increase in general price level 63 2 Gain from decline in perchasing power of net amounts owed 100.6 NET S 163.11 At December 31.1985. current cost of prop- utihty property, plant. and cympment of SH.7 crt y. plant, and equipment. n( t of accumulated billion,with related historical cost or net cost depret iation was $9. i billion encompassing recoverahic through depreciation of $ 3.9 billion.

FI) E-) EAR 00\lPARISO) OF SEl.ECII:D SI PPI.EilENTARY FITATCITI. DATA AI)J1 STEI) FOR I:FFECIS OF ITFIATION 19111 19112 191G 19118 1 9153 DISCI.0St RE FOR EFFECTS OF l%FIATION .ll/ll10NS OF.4 L ER.16E 198i DOLL 1RS Revenues Sl.521.1 S1.566.11 S1.723.9 $1,!N13.0 51.1119.11 Int ome (loss) hefore ex traordmary itc ms and cumulauve effect itenf o 37 f2.1) 51.I 1108 .3 Gain f rom dectne in purchasing power of net amounts owed 2 10.6 109.7 Iil 0 106.7 100.6 Restatement to net recoverable cost 300.6 91.6 110 1 120.5 (2 211.9)

Excess (deficiency) of increase in specific prices (after restatement to net recoverable cost) over increase in general price level (122.7) 63.9 92.1 .l.2 G3.2 Net assets at year end.at net recoverabic cost 1.231.11 1.339.I 1.210.7 1,i12.2 1,3 83.11 PER SilARE1%FORilAT10N Income (loss) hefore extraordinary items and cumulath e ef fect itent" (.63) (.9 l } .0 l (cl6) (.83)

Cash dividends declared 2cl3 2.II 2.33 1.76 2.3 i Market price at year-end 20.17 23 211 26.01 23clI 30.73 A) ERAGE COTSITIER PRICE 1.) DEA 272.I 2119.I 2 911.I 311.1 322.2 av.ntan n,t.amea to er nmmum 1

0ARD OFDIRECIORS Cil tRI.ES 41 lil%I.E) W. 00%R SD F.1.1 TDGRET in Presalent ath!Lhief Executnc()ttker Co ()w ner

.llaska Rn eru ars. Inc lbur Seasons 11otor inn iku rhanks.11aska Kaltspell. .tlanta na l*> v l'Jo 1 0 \l illSilol'.JR 61 1.01 IS il. I' ERR) bH Preshtent Cluirnun

/>cndleton Wisolen .\ltlis stan<larslinsu ram e Cornpany 1%rtlanal. oregon Ibritanal. nnxon IN MEMORIAM Pi'tb l'34')

F. I'll L CtRISO4 17 GEORGE D. RI)Es 7o IIOMRD 101.I.t 41 President and Chicf 1:xecut h e ( )!hccr Stoel. Rn es, Ifole): I ravr 611 be

~

Director IM/198 i Oregon caraaluate Center Corporation Ibrilami. nnya'n lsted: Ik bruary J.1986 l

Ilearerton. nregort lM 5 JuM3 l

kET\ETilM SEl.F 70 r 1 DO) C. l'RISil0E N I ormer Chairnun of the !!oard Ch.nrnun and t 'htef Vxecut h e t )tth er l'reightliner rorporatton l'acific brp 1%rtland, t bregon 1%rtland, Oregon l'1'i 1900 I EI GENE L. SillEl.DS 66 JOll)C ll Oll"Im 60 President , j

(:h.urnun and thief Eu rutn e()lhccr shields Ifag ( l'rtnting Co ,

l Ilarnpron Resonn es. tru . litklina. V;tshington ,4 ,

l%rtlarid. t bregon l') ) l 19NI RollERT A SkOTIIEI)! Tl STt\l.E) k. IliTiltu t) hl President &

I 2 Partner W lut rnan College flathatcay. \perghland Kun: Walla Witsla. \tktshington The compostiton ofPactfi-c helenne, \\yorning los i p,,5 Corp's BoardofDrrectors

\n 5%EETti6 "'O" 'b' '"*P""5

ilETT) 1:. ll \M Til0R\E 6~. Cluirnun of the lioard diterstlyand the bmad Dean i' met ti ns Wi stern flank range oftalent needed en Coihge of florne l'conornn s c hos lia v. Gregon today k bustness enttrrm-oreson \ tate I ~nntrssty Iv'n ment But,ftistandfore-Curt allu. nregon most, Ilembruttes the Io'4 RO) \ 10t \G We bumart element-the Presalent strenglb andcharacterof I'lllI.1l'II k%IG6Il' IH lloys e I bornpw n in stitutefor I'lant endu aduals such asllou ard Presulent and Chairnun Resean h Wilum An tnrenfor engt

.VIKl'. Inc CornellI'nn ersttY neerand huutnessman u bo ficar erton, or egon 11has a, .\ete lior k punded kktmnLL InC, he los b 14'I trolllong he rememberedby bisfactftCorp colkagta sfor bispenetrating mindand trarm beart. Atthetimeof his dealb. be u as serttng on the research commtitee of factpclhurr' sboard.

follou tng 2tlyearso/Nert' Ice on the corporals > brutrd

losr //n1,'il

FFICERS PACIFICORP DOT t IRISu n m2 DuID r notENDER ia ditRLES E Roniwon POLICY GROUP Q"'""'"'"' ' * " * "' '*"*"'

Chief Execunve Othccr l'actfac lbu cr 16 afic 7Het om. Im .

A M.Gl.E 60%i, GER \HD k. DRt Milo\D la GulEl %EllER IG Prcudent Prcudent Senior Vice President and

.VIli( t A Inc Cluef I-inant ul U1ficer PACIFIC DuiD r note \ DER ;a M. n u \E Goi\ :,7 Ji \\ u SulPER :a

'*"*"' V "" P ""* " ' Y k ' *"*"'

POWER RonERTM MOET0llf6 Joll\ ME1310il k 17 Dini E STOMDET 33 I scrutar Vke Prcudent Vice President Vice Prcudent Holli:RT M S 11Til 77 J MIES E PIETO)I 12 IEE D HElstoGEl. In Senior Vn e Prcudent Vice President Vnc Prcudent RODTE) M. Ilot CllER 12 FREDRIC D. REED 13 IARR) t 0l80% ll Vn e l'rcudent \ n e Prcudent 1reasurer E RICll\HDllROMT % Mil 1.1Of D. RollERBOT JR. 38 J MIES T. M M50% 12

\ n e Preudent Vke P cudent Controller NERCO GERSHDA DuluuoTHis ELESn0RTi P.nGRuiul in RO) R. u tns as Prcudent Vice Prcudent Vice Presntent and Chic f I inant ul ()!hccr til\MI ES C \D Ols 12 Hil.l.1 Of M 1.10\S il Vn e Pn sidt nt Vh e Presalent il \R) 1101.DSitt E 3 I Treasurer IAM RETO: E IIEl\ER 17 RMIESil I\1Il0TH\ 11 Vke Prcudent va e Presatent I\RTI)) 011% 3a Controller i fMCfffC 531 Gl.E 60% 7 , i ER) k. Dt \ll UI ,2 Jolli E ticGil.l.32 TELECOM """""" "'"'V"'""'"*"' V " ' P "'" *"' '" d "'" ' Y 0lllRI ES E. ROlll%0% T2 J OIES P. IlEST 12 11. 01 tRI.ES Rt 5SE11. 39 Prcudent and Vac Presutent and Controllcr Vuc Prcudent l

( luef I set utn e ( htn er HonEur u Ut TkEin J ulES C n \Rulch an .

DETTIS % El.IlorT Ii Vn e Presidcur Vice President ITei utisc Vn e Presultnt EDM tRD R. GElGER 11 IIRi n M MIRhk\ld ti til \HI ES 0. PETER 50) 11 Yk e President \ ke Prcudent and Treasurer l%ct utn c Vu e Prcudent GliHl.ES kl Gl E),JR. Td GIORGE S Sil\GIMn Ii N n e Presalent ITet utn c Vk e Pn sk!cnt-- Alast oni PACIFICORP G u rE L \ EllER in J ulES E lillia TC ii STE% E\ r. R unill as CREDITIFINANCE U""""" P"'""' ""'" * "'

1% ofic'orp r ocdst. lasc 1 % tltt orp t'rcdst.Inc Ik tltc orp i anam e. Inc.

Ik sfoc orp l'anam e. Im RICIFICORP HoliEHr r lau la STEN E) r R \i oril an SitI) % \0rilGER Pi

\ n e Presalent and 1rcasurcr Vke Preshlent (.orporate Necretary Sin 41 41 \RkS J'i Vn e Prcudent 6ENERAL StoEL Rin I:S 1501 Ei.

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=-==<osoomtw2=l Iligh coupon debt : l 5139 million was retired and refinanced. I 112auf e IM1 2kkh'ard N l%I w

SUMMARY

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