ML20217M238
| ML20217M238 | |
| Person / Time | |
|---|---|
| Site: | Trojan File:Portland General Electric icon.png |
| Issue date: | 12/31/1996 |
| From: | PORTLAND GENERAL CORP. |
| To: | |
| Shared Package | |
| ML20217M235 | List: |
| References | |
| NUDOCS 9708220094 | |
| Download: ML20217M238 (46) | |
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t O Po rtla n d Ge n e ral Co rp o ra tio n Sele c te d Fin a n cial D a t a f a ress ads of Delle rs Estopt for 5aa ro Amounts for the Yearn , Endod Deeraber al 1990 1995 )put ley 3 Iyyg _ _ . ~ . . - _ . _ . _ . . . _ . . - . _ _ . _ _ _ _ _ _. _ Kos Results
- Operating itetenue: $1,111,816 $ 983,582 5 959,409 $ 946,829 $ kM3,r66 j Net Operating income 224,559 195,576 154,290 158,181 163,500 )
j Income frorn Continuing ] Operations 129,536' 81,0368 93,058 69,11N 69,623 Cain frorn Discontinued ) j Operations' - - 6,472 - - Net inconne $ 129,536' 1 81,036' $ 99,530 $ 89,118 $ k9,623 Earnings per Average Common Shate Continuing Operations 5 2.53 $ 1,60 $ l.k6 $ 1,kk $ 1,rs3 e Discontinued Operations' - -
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$~ 2.51 $ 1.60 $ l.99 ,$..
i -- - Total Assets $3,583,249 1 4 4 k,ol7 $ 3,5 59,271 $3,4 4 9,31 M $ 3.140,62 5 Long Terrn Obli,a tions'_. ____ _ _963,04 2 930,556 885,614 912,994 93 7,93 k ! A h a r e h e l ,l a a s ' 1; 't "
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l Iteturn on Average Common Equity 13,7 % 9.2% 11.0% 11.7% 12.5%
- Common Stoel Equity $ 971,4 4 4 693,14 h $ 85k,313 $ 759,696 $ 713,429 Ilook Value l'er Shate' 1k.99 17.67 17.27 16.35 15.fi5 Dividende Paid Per Share 1,28 1.20 1.20 1.20 1.20 ,
Average Shares Outstanding 51,144,462 50,706,916 49,896,685 47,392,185 46,h M 7.18 4
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Customer Ibata Kilowatt.lluurs Sold to Retail Customers,(000) 17JS9,000 17,065,000 16,h02,000 16,507,000 15,736,000
- Itetail Customera Served at Year.End 667,510 649,955 635,272 621,571 010,559 E m pley r e Doln Number of Employees 2,649 2,562 2,536 2,618 3,253 4
- lauludes $18 million thergu for merger tests.
- Inuledes a leu ef $50 mallien from regulatory disallearances.
- Reflects the results of ducentinued real estatt etsrelsens.
Includes leng.orra debt. proferred st*<i subject to ma ndatery redemption requiremruts and long term tupital loane ebhgations. Ess-Indus s en tre.sgeity -- n aear ned compse nation. truth en t......I ta,pa, n.se e t.s.rha ,, s lett $ 7
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1* v r i l a n d G e n e r a l C o r p o r a t i o n . Hviding Company Graoral : Portland General Corporation (Portland General or PGC), an electric utility holding <ompany, ! was organised in Deternbet 1985. Portland General 1;lectric Cornpany (PGE or the Coinpany), t en electric utility (cmpany and Portland GeneraPs principal operating subsidiary, accounts for , substantially all of Poitland General's assets, tevenues and net income. Portisnd Generalis also i the patent company of Portland Generallloldings,Inc. (lloldings), which provides organisational [ separation for Portland General's nonutility husinesses. Portland Generalis escenpt fiom regula- ; tion under the Public Utility lloiding Company Act of 1935, except Section 9(a)(2) thereof relating i to the acquisition of setutities of other public utility cornpanies. I' u r. f. e s e d M e o g a o During 1990 Portland General entered into an Annended and 1(estated Agacement and Plan of hierger (Original hierger Agreement) with Enron Corp. (Enron) and Enton Oregon Corp. (New Enton), a wholly owned subsidiary of Enron. The Original hietger Agreernent was approved by the shareholders of both Portland General Corporation and Enron Corp. on November 12,1996. In addition, all regulatory approvals required for consummation of the proposed merger have been ,
' obtained, except the approval of the Oregon Public Utility Commissiota (OPUC), Significant developments with regard to the OPUC approval have occutted since the dist unnion of the pro. _
posed merger contained in the hianagernent's Discussion and Analysis of Finantial Conditions , and l(esults of Operations, included with the 1996 financial staternents in this Annual iteport. As part of the OPUC apptotal process, the OPUC staff,interrenors and public interest groups raised a number ofissues, including the amount of merger.related benefits to PGE's customers. On April 11,1997, the OPUC staffissued a repott recommending that the proposed merger not ' be auptoved because of the staft's position that sufficient benefits and compensation had not been offered to PGE's customers. Subsequently, Portland General and Enron agreed to amend the Original hierget Agtcement to addiens the issues f alsed through the OPUC approval process, including to provide guaranteed energer telated benefits to PGE'a customers of $141 million. The effect of the amendment is to reduce the conversion ratio to 0.9N25 shates of New Enron Common Stock for each share of Portland Central Common Stock, as compared to a one to-one ratio before the amendenent. On April 29,1997 Enron and Portland General finalited a settlement agreement with OPUC staff and other intettsted parties. The final decision of the OPUC with respect to Enton's merger application is currently scheduled forJune 4,1997. Approvat of the Amended hierger Agtcement by Portland General shareholders is required and is scheduled to take place at Portland GeneraPs annual shareholdet meeting. Po r tla n d Ge n e ral Elect ric Company - Electric U t ili ty General PUE, incorporated in 1930,is an elec8 tic utility engaged in the generation, purchase, transenission. distribution and sale of electricity in the State of Oregon. PGE also sells energy to wholesale customers throughout the western United States. PGE's Otegon service area is 3,170 square miles, including 54 incorporated cities, of which Portland and Salem are the largest, within a state. approved service area allocation of 4,070 square miles. PGE estimates that at the end of 199tiits service area population was approsimately 1.4 million, constituting approximately H% of the state's population. At December 31,1996, PGE sened approximately 668,0nD customers, [S.tf/pa .I bp giedi 4e+pu4te F a F $ .I m 4 ) in 9r 5 4f f .' I page 18 m . _ .. . - , , - - - ,
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s 9 cperating bronuon PGE serves a diverse retail customer base, ltesidential customers constitute the largest custorner s tans and annunt for 40% of the retail demand and 44% of retail revenues, itesidential demand is highly sensitive to the effects of weather. Commercial tustomers comprise 39% and industrial customers 17% of retail revenues. Sine 1994 commercial demand has grown by nearly 10%, making this the Company's most rapidly growing customer class. Despite a 20% increase in sales to high tec hnology custorners during 1990, industrial demand decreased nearly 3% in 1996 due to continued production cut hatka by both paper enanufacturers and metal fabricators. The commer. cial and industrial classes are not dorninated by any single itidustry. While the 20 largest custom. ces constitute 20% of retail demand, they represent 10 different industrial groups including papet inanufac turing, high technology, enetal fabrication, transportation equipment and health settices. No single custorner represents move than 5% of PGE's retailload. Wholesale revenuts continue to make a significant contribution to Company revenues providing over 17% of total operating rnenues for 1996. PGE actively markets wholesale power throughout the western United States and has more than tripled its level of sales since 1994. During that tiene, a majority of PGE's wholesale sales were to its traditional customers cornprised ofloUs, federal agencies, municipalities and PUDS. !!owever, most of the Cornpany's recent wholesale growth has come through sales to marketers and brokers, relatively new entrants to the increasingly competi. tive wholesale electric energy market. These sales are predominantly of a short term nature. Sustained revenue growth will be more challenging in future periods. During 1996 PGE worked with the OPUC staff and other interested parties to develop a plan that addressed significant savings resulting from lower natural gas and purchased power prices. This resulted in a $55 million annual rate seduction effective December 1.1990. Also,in a move to position for the future, PGE has launched sneral experimental programs that allow certain ofits largest customers to acquire electricity at market based prites. These programs resuhrd in annual rate redudions of $13 million. As the electric utility industry moves toward deregulation, retail customers will uhimately have
- the ability to purc hase enogy from any electric utility or power supplier. Consequendy, PGE will have to compete with other energy suppliers for customers within its traditionally culusive service territory. Inneased competition is expected to result in loor prices and less revenue per tuntomer.
While PGE's participation in the wholesale marketplace has resulted in significant increases in wholesale revenues, primarily from short term transactions, these revenues are also vulnerable to industry changes. FERG mandated open access to transmission facilities, the advent of New York Mercantile Exchange (NHIEX) electricity contracts, and the entrance of power marketers, brokers and independent power producers hate resulted in increased competition, reduced margins and increased risks associated with all transactions, especially the long term ones. 1 l l l l n,m.i m.a en.ou. .a w a,o. . f*E* b l
a e PGE's op,-tiling retenues from customers peak during the winter season. The following table suminatires operating revenues and LWh sales for the years ended Decembet 31 1990 1995 1994 _ _ _ . _ _ . _ ~ ~ . - , - _ _ _ _ _ _ . _ _ _ _ . _ _ _ _ . . Operating flesenues (thensands) ltesidential 5 426,777 $ 379,4 k 5 $360,651 Cominertial 345,640 335,607 315,156 ludustrial 149,269 153,347 147,347 Public Street 1.ighting I I,10 k 11,311 11,205 Tatiff llev enues 93 2,k 20 879,750 834,35.1 Accrued (Collected) llevenues (27,142) (2,973) 10,644 lietail 90 (678 876,777 845,003 Wholciale 193.720 94,967 105,911 Other 10,427 9,984 8,041 Total Operating Itet enots $1[109h31 $9Ei628 $955,955 _ _ w a =_ Kilowatt llours Sold (millicas) 1(eside ntial 7,073 6,622 0,704 Commercial 6,475 6.2 k 5 6,142 Industrial 3,909 4,056 3,k63 Public Street 1,ighting 102 102 93 Itetail 17,559 17,065 16,802 Wholesale 10.188 3,3 k3 2,701
' ~ ~
Total kWh Sold 3 7,747 20,448 19,503 R tg u Iu tie a The OPUC, a three enernher commission appointed by the Governor, approves PGE's retail rates and establishes conditions of utility servite. The OPUC ensures that prices are fair and equitable sud provides PGE an opportunity to earn a falt return on its investment. In addition, the OP(IC regulates the issuance of securities and prescribes the system of accounts to be kept by Oregon utilities. PGE is also subject to thejurisdiction of the FERC with regard to the transmission and sale of wholesale electric energy, licensing of h)droelectric projects and certain other matters, 4 Construction of new generating facilities requires a permit from the Oregon Energy facility Siting Cou ncil (EFS C). The NRC regulates the licensing and decommissioning of nuclear power plants, in 1993 the NltC issued a possession only license amendment to PGE's Trojan operating license and in early 1996 approved the Trojan Decommissioning Plan. Approval of the Trojan Decommissioning Plan by the NRC and EFSC has allowed PGE to commence decommissioning activities. Trojan will he subject to NRC regulation until Trojan is fully decommissioned, all nuclear fuel is removed from the site and the license is terminated, The Oregon Department of Energy also monitors Trojan. Drogen R e g u l a t e r s Al a t t e r s In ,I. t ry R < 4 i e .'s a 'i a r !!istnrically the OPUC has approached the issues of retail competi-tion on an informal, utility by utility basis, rather than through generic, broad based proceedings, llowever,in June 1996 the OPUC began an investigation into restructuring the state's electric utility industry by meeting with state utility executives, c- :omers, environmental advocates and other interested parties to discuss how competition in the generation of electric power could be intro-duced and when to allow customers access to competing power suppliers. e...n.rz....oc.9...n,...,%,n.. p.t. 4
e Iour specific issues were the focus of substquent tutelingst liow an electricity distributioll coln. pany would operate and be regulatedt how energy efficiency and other public purpose programs will be offered and funded in a restructured environments what treatment is appropriate for utility investment in a gerarating plant that is no longer economitt and whether verticalintegration of electrical utilities should be discouraged or prohibited. The OPUG has stated its intent to use these discussions to prepare itself for action on the competitive initiatises that can be implemented under its direct authority and to work with the legislature in assessing proposals for restructuring. The staff of the OPUG has rnommended that the tommission open a proceeding to develop a policy for the treatment of transition costs for electric utihties. Transition or stranded costs are costs a utility would not recover in a fully competitive environment. The proposed issues to be discussed include: how should a utility's transition costs be determinedi what portion of these costs should be recovered from customeret and what types of charges should be used for transition cost ruovery. Discussions have begun on an informal basis to sort through issues and establish consensus before moving to a more formal process of written comments and a prolmsed order. 1996 R ,, r , s , I t I , = r u i Durin- 1996 PGE worked with the Ort'G staff and other interested parties to develop a plan for dealing with significant savings which resulted from lower natural gas and power purchase prices. This decision resulted in $55 million hi annual rate reductions that began December 1,1990. The sate reductions will result in an after tax carnings decrease of }' apptoximately $32 million for 1997. In addition, the order incorporated $15 million in rate reduc. tions previously approved by the OPUG, resulting in total 1997 rate reduttions of $70 million. It k e l e s us i r Ur m p rinIir n er n d M to r i e t o u g During the last Icw yeats, the western United States has become a vibrant marketplace for the trading of elettricity in which PGE has betti an active participant. Wholesale sales continue to j i intribute to Company revenues. During 1996 PGE's wholesale retenues increased 104% over 1995 i! levels with wholesale activities accounting for th% of total revenues and 37% of total sales. The j advent oINYklEX clectricity contracts and broker markets has increased prhe discovery. This,
!. along with the entrance of numerous power snatketers, brokers and independent power produurs, i has reduced margins significantly and increased risks. During 1996, the average price of PGE's wholesale sales durcased SSE 4
s The FERG has taken steps to provide a framework for increased competition in the electric indus. 3 try, in 1096 the FERG issued Order 1a8 requiring non discriminatory open access transmission by ! all public utilities that own interstate transmission. The final rule requires utilities to file tariffs j that offer others the same transmission services they provide thernselves unde comparable terms and conditions. This rule also allows public utilities to recover stranded costs in anordance with
, the terms, conditions and procedures set forth in Or.ler 888. The ruling requnes reciprocity hom i municipals, cooperatives and federal power markete~s receiving servire under the tariff. The new j rules became effe tiveJul) 1996 and are expected to result in increased competition, lower prices j and more choices to wholesale energy custnmers.
1 rewar s u pp!, ] Growth within PGE's service territory, as well as its aggressive wholesale .narketing plans, has i underscored the Company's need for sources cf reliable, low-cost energ) supplies. The demand i for energy within PGE's service territory has experienced an average annual growth rate of approxi. matJy 2.5% over the last 10 ) cars. Wholesale demand has experienced significant increases. In 1990 alone, PGE's wholesale sales increased by oser 200% PGE has relied increasingly on short. term punhases to supplement its existing base of generating resource and long term power con. tracts to meet its energy needs. Short term purchases indude spot market, or secondary, pur. chases as well as firm purchases for periods less than one 3 ear in duration. The availability of short term firm purchase agreements and PGE's ability to renew these contracts on a month.by-month basis has enabhd PGE to minimise risk and enhance its ability to provide reliable, low cost energy to retail customers. The emitgence of NYhlEX electricity futures contracts and open transmission are expected to place competitive pressures on the price of short. term power as well an enhance its availability. Northwest hydro conditions also have a significant impact on regional power supply, plentiful water conditions can lead to surplus power and the economic displace. ment of more expensive thermal generation. c.n.eo,-,,, ..o. ~ s. % , . pegs b
l e f G r n , e a I e s. g C u f. a le i l , t y PGE's asisting hydroelerttir,4oal fited and gas fif td platits are Itupottant resourtes for the Company, providit.g 2,119 MW of generating tapability. PGE's lowest-tost produters ate its eight hydf oelettric projects on the Clat kamas, Sandy, Deat hutes and Willatncite tivets in Oregon. ln 1996 getittaliots frotti PGE's h)droelettric fatilities met 9% of the Company's totalload. These facilities operate under federallicenses which will he up for renewal httweeti the years 2001 arid 2006. l* G l. N e t M tt' feriltty L e s n tir a l' u o l Cetaestity li~ h e ll s toward l'a raday Cla(Lamas itis er Ilydro 44 North I'ott Clat Lamas itiver flydro 54 Oak Grote Clackamas itivet Ilydro 44 Riser Mill Clackamas ltiver Ilydro 23 Pelton Deschutes itiver Ilydro w Itound liutte Dest-hutes ititer Ilydro 300 llull Itu ti Sandy Itiier Ilydro 22 Sullivan Willamette Itis er Ilydro 16 Iltaver Clatskanie, OR Gas / Oil 500 lle thel Salem, OR Gas /Dil i16 Coyote Sptings lluardman OR Gan/Gil 24I l' G I: I*' T r i a ll s Owurd floard man lloard man, OR Coal 330 64 65.0% Cs n t ralia Centralia, W A Coal 33 6 P.5% Colstrip 3 & 4 Colstrip, MT Coal 2% @ 20.0% Trojan itainie r, OR Nutlear -4 67.3% 2,119 I's s ( 4 a i t d /* c u r r PGE has long term power contracts with four hydro projects on the mid-Columbia ltiter which provide PGE with 590 MW of firin tapacity. PGE also has firtu contratto, ranging in term from one to 30 years, to putt base 673 MW, primarily hydro generated, from other Pacific Northwest utilities, in addition, PGE has long term exchange contracts with sutumer-peaking Southwest utilities to help meet its winter peaking requirements. These resources, along with short term contracts, provide PGE with sufficient firm (apacity to serve its peak loads. 1996 .t<t u al Powe r So u rces 1997 Ferocasted Power Sources Alega wa tt lieu rs (000) blega wall fleu rs (000) 59 Coal PGl: Ilydro PGkli tdte 1,td7 -
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~~-- 3.3 9 0 Comt.usuon Coinhusunn Tue Wi.e e Pun k.ned Tu & nes Pun haned 1,s64 Power 2,450 - Pomes
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4 s s eis, m if,14.Aefiti .diA, in or PGL relies on wholesale matket puttbases witidu the Western Systems Coordinating Council (WSCC)in eonjunttion with its base of generating re-sources to supply its resource needs and maintain system reliability. The WSCC is geographically the largest of the nine regional electric relitbility countils. The WSCC performs an essential role in developing and monitoring established reliability criteria guides and procedures to ensure continued reliability of the electric system. During the last few years, the area covered by WSCC has become a dynamic nuketplue for the trading of electricity. This area, which includes il Western states,is very diverse in climates. Peak loads onur at different times of the year in the different regions within the WSCC area. Energy loads in the South 'est peak in summer due to air conditioningt northern loads peak during winter heating months, further, according to WSCC forecasts, the nearly 80 electric organisations participating in the WSCC, which include utilities, independent power producers and transmission utilities, have sufficient generating capacity to roter loads 2$% to 30% greater than anticipated peak loads for enh month of the year beyond the year 2000, even assuming adverse water conditions, Fatorable water tonditions have the ability to further inc rease energy supplies. This generating capacity and the resultant wholesale power in the WSCC has made the traditional utility reserve margin less relevant. The need for an individual utility to maintain a reserse rnargin of 20% or higher in older tu assute that it has the capatity to enett, without interruption, tuttorner peak energy needs is no longer necessary. li a r in It s t= i t a. PGE generated 25% ofits load requirements in 1996 compared with 36% in 1995. Fiten and secondary purchases met the remaining load. Low gas prices,lutreased compeli. Ilun and abundant hydro power resulting from above average pretipitation in the Columbia f(iver basin contributed to the availability ofinexpensive power and the economic displattment of more capensive thermal generation. During 1996 PGE's peak load was 3,888 h!W, of which 49% was met through cronomical short term purchases. PCL's firm resource tapatity, including short term putt-hase agreements, totaled approxilnately 1,759 hlW as of Deternher 31,1996, t 99 7 Up fle o A The early predictions of water conditions indicate they will he above normalin 1997 but not quite as favorable as those experienced in 1996. Efforts to restore salmon runs on the Columbia and Snake risers may reduce hydro generation which would adversely affect the supply and price of purchaud power.
"o r tla n d G e n e ral Holdin gs, Inc. -
No n u tility Businesses cae,< rat
.lloidings is a wholly owned subsidiary of Portland General and is the parent company of Portland GeneraPs subsidiaries engaged in leveraged leasing, administrative services for electric futures trading, telecommunications and non regulated energy services, lloidings has provided organina.
tional separation from PGE and financial flexibility and support for the operation of non utility businesses. The assets and businesses ofIloldings are primarily its investments in its subsidiaries. f.,m o c... .,...n.,n ..os.m- . page 7
.\l a n a g e rn e n t 's Dis c u s s io n a n d .4 n a l., s i s of Fin a n c ia l Co n ditio n a n d Re s ults of Op e ra tio n s No ort *s e l t ' t. < < v t o r << ,
( , ,ev/ Portland General reported 1996 tattilngs of $130 Inillion of $2.53 per thate, toinpated to $ki inillion of $1.60 per share for 1995, 1996 results in(lude $lh inillion of after tax nierger related (osts. 1995 carnitigs include a $50 tuillioti after tax charge to iritoine related to the OPl'C's rate orders disallowing (citain deferred power tosts and 13% of PGE's tertiaining itnestnient in Trojan. Op e r a ting Re s t u u r and.Vollureme floss) M ells o n n
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P G l: llle c t r it i ty S a le s Billio n s of i lt's la 10 lh!L!blbI N Resulenoat iw2 iwi Com men ial iwa E in.lueimi im im E Wimle .le Excluding the cIfert ofluerget related c'osts and f cgulatory disallowanres, income from continuing operations would have been $148 million and $131 million, respectively. PGE auounts for substantially all of Portland General's assets, revenues and net incotw. The following discussion focuses on PGE utility operations, unless otherwise noted. page 8
e s-19 9 n c o n p o r , ,1 to 19 41 Strong operating earnings reflected the htnefite oflow variable power costs due to optimal hydro conditions and a competitive wholesale market. Sales growth-due to a growing retail customer base, along with favorable weather conditions, contributed to new record p ak loads for"ooth the summer and winter penods. Itetail revenues exceeded the prior year by $29 million,largely due to rate increases accompanied by 3% higner energy sales. These increcies were partially offset by retenue refund provisions for PCE's Share All Value Equitably (SAVE) adjustments and certain state tax benefits. Favorable weather conditions contributed to higher energy sales in both residential and commercial classes. InJanuary and February mean temperatures were colder than average by 2.6 and 4.5 degrees respectively, and temperatures in August and September were warmer than average by 3.1 and 3.2 degrees respectively.
' Industrialleads declined 3.8% due to weak demand from paper manufacturers and metals fabrica-tors despite benefiting from growth in the hi;;h tech industries.
During 1996, PCE revenues decreased $20 million due to adjustments related to SAVE refund provisions, decoupling revenues and certain state tax benefits.
-Wholesale revenues exceeded 1995 levels by $99 million due to aggressise marketing efforts. Sales increased by 6.8 million htWh over 1995: however, average sales prices decreased by 33%.
The price of variable power dropped t h% in 1996, averaging 13 mille versus 15.9 mills (10 mills = 1 cent)last year. Total costs increased only $23 million ot 8%, despite a 36% rise in total Company energy requirements. Optimal hydro conditions brought steep reductions in the cost of secondary power, as well as the cost of firm power purchased from the mid-Columbia projects. Power purchases amounted to 75% of total PGE load in 1996 at an average cost of 13.9 mills compared to 18.3 mills in 1995, PGE hydro projects generated 9% of the' Company's energy needs, an i1% increase in production levels. PGE's thermal plants operated efficiently, and with the addition of Coyote Springs, average overall costs dropped to 6.1 mills from H.o mills in 1995 Excluding Coyote Springs, thermal plant generation was down 13% due to economic displactment early in the year. Res o u rce Mir / Variable Power Cents derrage Variable Pen or Cen t Resou rro Mix (Mills /K W A) 1996 1995 1996 1993
~
Genecation 25 % 36% 6.1 8.0 Firm Purchases 62 % 39% 14.6 a.7 Secondary Purchases 13 % 25% 10,4 11.3 Total '100 % '100% "is.o ~~ IU9 Operating expensen (excluding variable power, depreciation and income taxts) were $32 million or 12% higher than 1995. The increase is primarily due to additional costs associated with fixed natural gas transportation, storm related repair and maintenance projects, and increased customer support. Incremental operating costs associated with Coyote Springs, which was placed in opera-tion in late 1995, were offset by decreased costs at other thermal facilities resulting from economic displacement. Throughout the year PGE was able to economically dispatch or displace thermal generation in response to movements in the cost of short term power and the availability oflow-cost hydro power.
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e e Op t t a lin g Es p e n s e s t M e llio n s SHM) 400 3q0 f , , y 100
- neo 0 i 1992 IW IM 19 % 1996 Deptuistian b Opsraung Coen Varial.le Poner Depreciation and amortization increased $20 million, oi 15%, due primarily to depreciation related to Coyote Springs.
Excluding regulatory disallowances of $50 million in 1995, other income declined $9 million due to a reduced return on regulatory assets and the absence of equity AFDC. Interest charges are $7 million above 1995 due to reduced AFDC and higher levels of short term debt. Preferred dividend requirements were down $7 million due to the retirement of nearly $80 million in preferred stock in 1995. I995 c,mp.:r,d ic i99t Strong operating carnings reflected the benefits oflow variable power costa due to improved hydro conditions, lawer natu;al gas prices and a competitive whole. sale market. The Company also benefited from continued sales growth and a retail price increase, lietail revenues increased $32 million, or nearly 4%, due largely to ne Company's general rate increase and continued load growth. An average 5% general rate increase effective in 1995, coupled with a 263,000 MWh increase in energy sales, resulted in $45 million of additional revenue. An increase in retail customers of 14,600 and a continuing strong local economy tesulted in wcather adjusted load growth of 2.8%. Induurial customers contributed the major portion of load growth for the year due to the recent expansion of high-technology and supporting industries in the region. Weather adjusted load for residential customers increased 1.2% over 1994. Over 12,900 residential customers were added during 1995, lietail revenue increases were partially offset by warmer than normal weather during winter heating months which decreased residential demand for energy, and a decrease in accrued revenues, a result of fewer power cost deferrals and SAVE incenthe revenues. Wholesale sales contributed $95 million or approximately 10% of total operating revenues. The Company's aggressive marketing efforts resUted in a 25% increase in sales; however, revenues declined $11 nailion as average prices decreased 28%. Variable power costs fell $54 million, or 15%, despite increased Company load as the average cost of power decreased from 19.1 to 15.9 mills (10 mills = 1 cent). Improved hydro conditions, mild weather, cheaper natural gas, acd competition among suppliers all contributed to abundant and low cost supplies of secondary energy in the region. Company hydro generation inc~, sed 20%, or 412,000 MWh, reflecting good water conditions on the Clackamas itiver system sunilar to those experienced throughout the West. Energy purchases were up 28% due to increased loads and economic displacement of thermal generation, while abundant supplies of energy drove secondary prices below 1994 levels. Secondary purchases averaged 11.3 mills, ranging from 1.8 to 28 mills, compared to an average 20.1 mills in 1994. 1* + r t i e eiGa me s ie.ke <re w sed %,k a n s rev 10
1 Throughout the year PGE was able to economically dispatch or displace thermal generation in response to movements in the cost of short term power. Low cost hydro significantly displaced PGE thermal generation, which decreased 32% from 1994. Ileaver generated electricity at 38% lower cost due to favorable gas prices. Operating expenses (excluding variable power costs, depreciation and income taxes) were $10 million, or 4%, higher primarily due to storm damages incurred in December 1995. A combination
- of wind and ice storms caused a tecord number of customer outages in PGE's service territory.
Repair efforts to restore customers' service included around the cinck efforts from PGE personnel and contract crews at a total cost exceeding $10 million, of which PGE is self insured for the first
$5 million.
1 i A March 1995 general rate order disallowed recovery of 13% of PGE's Trojan investment resulting in a $3'l million after tax charge to income. PGE also recorded a $13 million after tax third quarter losa as a result of an OPUC order which disallowed recovery of a portion of the Company's deferred power costs. Depreciation increased $10 million, or 8%,largely due to higher depteciation rates effective with the Company's general rate increase. Income taxes increased $18 million primarily due to an increase in before tax operating income. The Company benefited from a one-time state tax refund of approximately $4 million which contributed to a lower effective tax rate for the year. The construction of Coyote Sprin;;s accounted for the increases in capitalized interest during each year, which partially offset a corresponding increase in interest expenu. Income also includes a $5 million charge for increased charit3hle donations. Ca k Fle w r , e i t u n .1 G , a < , o i c,i p c r,i s c
- Portland General requires cash to pay dividends to its common shareholders, to provide funds to its subsidiaries, to meet debt service obligations and for day to day operations. Sources of cash are dividends from PGE, leasing rentals, short and inter-mediate term borrowings, and the sale of Portland General's common stock. In order to meet periodic liquidity and operational nuds, Portland General maintains a $20 million one-year credit facility.
Utility Ca pital Ex p e n dit u res M illio n s swo 2M 20 foo y,3 gg 149 100 50 0 IN2 1993 1994 1995 1996 In February 1996 the lloard of Directors approved an increase in PGC's quarterly dividend from
$.30 to $.32 per share. This was the first change in Portland General's dividend since 1990 Portland General received $103 million in dividends from PGE. In addition, Portland General received $3 million in proceeds from the issuance of new shares of common stock under its Divi-dend Reinvestment and Optional Cash Payment Plan, enau,uw<- u . . a w a ., ,
p.se i 1
e P c , t l a = J . G , = < r a I I:1 < r I r i < C c = p a = y Cash provided by operations is used to meet the day-to day cash requirements of PGE. Supplemental cash is obtained from external borrowings as needed. PGE maintains varying levels of short term debt, primarily in the form of commercial paper, which serve as the primary form of daily liquidity with 1996 balances ranging from $83 million to $251 million. PGE has committed borrowing facilities totaling $200 million which are used as backup for PGE's commercial paper facility, A significant portion of cash provided by operations comes from depreciation and amortiration of utility plant, charges which are recovered in customer revenues but requite no current cash outlay. Changes in accounts receivable and accounts payable can also be significant contributors or users of cuh. Improved cash flow for 1996 reflects a higher percentage of cash revenues combined with lower variable power costs, lao,sieag .1 e t e r it e < i include generation, transmission and distribution facilities improve. Inents, as well u energy efficiency programs. 1996 capital expenditures of $185 million were primarily for the expansion and upgrade of the transmission and distribution system. Annual capital expenditures are expected to be approximately $170 million over the next few years. The majority of anticipated capital expenditut are for improvements to the Company's expanding distribution system to support the addition of new customers. The Company does not anticipate construction of new generating resources in the foreseeable future. The Company will continue to make energy efficiency expenditures similar to 1996 levels. I e n a a r i e g <f r # i e i f i t i provide supplemental cash for day to day operations and capital require-ments as needed. During 1996 poth Standard & Poor's Investor Services (S&P) and hloody's investor Services (hloody's) reviewed and upgraded PGE's debt ratings. S&P upgraded PGE's senior secured debt from A to A,its unsecured debt from IlBlu to A., and commercial paper from A2 to Al with a Stable Outlook. Similarly bloody's upgraded the Company's debt ratings, raising PGE's secured debt from A3 to A2, unsecured debt from Haal to As and commercial paper from P2 to Pl. The improved ratings, especially on short term debt, should help low er the Company's future borrowing costs. During 1997 internal funding is expected to cover the Company's capital expenditures. During 1996 the Company issued $170.6 million oflong term debt. The proceeds were used to - retire $97.6 million in long term debt and to pay down outstanding short term debt. Also in 1996 PGE redeemed the final 200,000 outstanding shares ofits 8.10% preferred stock, at par. The $20 million redemption leaves only the Company's 7.75% preferred stock' outstanding which g has sinking fund requirements beginning in 2002. The issuance of additional First Niortgage Honds and preferred stock requires PGE to meet earnings coverage and security provisions set forth in the Articles ofincorporation and the Indenture securing its First hlortgage Bonds. As of December 31,1996, PGE had the capability to issue preferred stock and additional First hlortgage Bonds in amounts sufficient to meet its capital requirements. t..n..J ca.,,,ui c. . w a n , a .i s.s..i., .. p so 12
m Fin a n cial a n d Ope ra ting Outlook Po rtla n d Gen e ral Co rpo ra tio n - fleiding Co m p a ny f* r e ji v a r d M r u g r r Ur n e a al During 1996 Portland General entered into an Amended and Restated Agreement and Plan of hierger (klerger Agreement) with Enron Corp. (Enron) and Enron Oregon Corp. (New Enron), a wholly owned subsidiary of Enron. Under the terms of th- Merger Agreement, Portland General will merge into New Enron (hierger) and each share of the common stock of Portland General will be converted into one share of the common stock of New Enron. Immediately prior to the consummation of the Merger, Enron will merge into New Enron for the purpose of reincorpo-rating Enron in Oregon (Reincorporation Merger). The Merger Agreement provides that if certain regulatory reforms are enacted, the structure of the u.c.aaction contemplated by e 'i crger Agreement will be revised to eliminate the Reincorporation Merger. The Merger . - ocen ap-proved by both companies' boards of directors, shareholders and the FERC. However, before the Merger can be (ompleted, approvals and consents must be obtained from the NRC and the OPUC. A p p ro vals a nd Ce n ne n t s O l' U C PGE is subject to thejurisdiction of the OPUC with respect to its electric utility o}iera. tions. The approsal of the OPUC is required for any transaction in which a person seeks to acquire the power to exercise any substantialin0uence over the policies and actions of a a lic utility subject to OPUC'sjurisdiction. Upon colupletion of the Merger, Enron will be tin , ole owner of PGE common stock, On August 30,1996, Enron fHed an application with the OPUC seeking approval of the Merger. The OPUC must approve the merger if they find that it wN serve the customers of PGE in the public interest. In making that finding the OPUC may consider whether the change in ownership of PGE willimpair the ability of the utility to provide adequate service at just and reasonable rates. The Staff of the OPUC issued a preliminary recommendation that the OPUC approve the merger application subject to certain conditions, Portland General and Enron have enteted into discussions with the Staff which are intended to settle differences over the proposed conditions. There is no assurance that the parties will reach agreement. An OPUC decision on the merger application was expected by the end of March 1997. llowever, there is no assurance that the OPUC will have rendered a decision by that time. F E lt C The FERC approved the Merger, without conditions, on February 26,1997. OIAer Consent and approval of the Merger is still pending before the NRC. Op r e aIic a ,- Afte r iAe 11 = s i n a s : Ce m oia aiie a When the merger is complete, Portland General will cease to exist. PGE, Portland GeneraPs utility subsidiary, will retain its name and most ofits functions and maintain its principal corporate officts in Portland, Oregon. It will be a subsidiary of Enron, an integrated natural gas company headquartered in llouston, Texas. Essen-tially all of Enron's operations are conducted through its subsidiaries and affiliates which are principally engaged in the gathering, transportation and wholesale marketing of natural gas; the exploration and production of natural gas and crude oil; the production, purchase, transportation and marketing of natural gas liquids and refined petroleum products; the independent develop-ment, promotion, construction and operation of pcwer plants, natural gas liquids facilities and
. pipelines; and the non-price regulated purc'asing and marketing of energy-related commitments.
.tu ,wnfiag 'l r e n 4 m e a t The Merger will be accounted for by Enron as a purchase for financial reporting purposes. PGE will continue to report its assets and liabilities at historical cost.
Po rila n d Ge n e ral Ele e t ric Cempany - Electric U t ili ty cc = p a tit e e a The Energy Policy Act of 1992 (Energy Act) set the stage for change in federal and state regulations aimed at increasing both wholesale and retail competition in the electric industry. The Energy Act cased restrictions on independent power production and granted authority to the FERC to mandate open access for the wholesale transmission of electricity.
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The FERC has taken steps to provide a framework for increased competition in the electric indus, try, in 1996 the FERC issued Order M8 requiring non discriminatory open access transmission by all public utilities that own interstate transmission. The final rule tequires utilities to file tariffs that offer others the same transmission services they provide themselves under comparable terms and conditions. This rule also allows public utilities to recover stranded costs in accordance with the terms, conditions and procedures set forth in Order 888. The ruling requires reciprocity ftom municipals, cooperatives and federal powei marketers receiving service under the tariff. The new rules became effectiveJuly 1996 and are espected to result in increased competition, lower prices and more choices to wholesale energy customers. 2 in l'ebruary 1997, PGE signed a long term transmission agreement with Washington Water Power (WWP) under these new rules. WWP will reccige 100 hlW of firm transmission capacity through the end of 1997 and a total 200 hlW of firm transmission capacity fromJanuary 1998 through the end of the year 2001. PGE, along with a number of other public and private Northwest utilities and the llonneville Power Administration (BPA), have signed a memorandum of understanding to create an indepen.
- dent transmission grid operator (Indnio). Under the agreement,indeGo would assume responsi.
bility for day to day operatioti of main transmission lines which are directly owned by the various parties. The parties would maintain ownership of the lines, as well as responsibility for repair and upgrades. FERC actions apply only to the wholesale transmission of electricity. Terms and conditions of retail tratismission settice are subject to individual state regulation. Since the passage of the Energy Act, various state utility commissions have addressed proposals which would allow tetail customers direct access to generation suppliers, marketers, brokers and other service providers in a competitive marketplace for energy services (retail wheeling), it is expected that several bills proposing retail competition will be introduced during the 1997 Oregon legislative session. PGE has initiated several experimental tariff schedules during the past two years that have allowed certain ofits larger customers to acquire electricity at market based prices. Eligible customers have the opportunity to purchase energy at prices that reflect actual market conditions. The tariffs are limited to a total of 250 hlW or 12% of total PGE retailload. PGE has filed a tariff which, upon approval by the OPUC, will allow large industrial and commercial customers to pu' chase as much as one-third of their electricity needs from any provider. This Power Delivery Service Tariffinitially will be available for up to 75 klw ofload per > car, if the OPUC approves the merger of Portland General and Enron, affected customers will be allowed to purchase 100 percent of their electricity through the tariff, up to 225 hlW per year. Absent OPUC approval of the merger, PGE will phase in the tariff ovee a longer period of time. In November 1996 Portland General and Enron committed to submit to the OPUC within 60 days of the merger completion a plan to open PGE's service area to competition. The plan will allow residential, commercial and industrial customers to cho isc their energy provider and will inchide a proposal to separate PGE generating facilities from its transmission and distribution system, in addition, the plan willinclude a proposal for the treatmcot of transition or stranded costs. The action will position the generating side of the organization to compete more effectively in an open marketplace, and will allow the distribution side to focus on quality of ser ice, safety and reliability. R a ulatery .it u t t e r ,
-I=du4iry Rr,tiuetu,ing llistorically the GPLC has approached the issues of retail competi.
tion on an informal, utility by-utihty basis, rather than through generic, broad based proceedings, flowever, in June 1996 the OPUC began an investigation into restructuring the state's electric utility industry by meeting with state utility executives, customers, environmental advocates and other interested parties to discuss how competition in the generation of electric power could he intro. duced and when to allow customers access to competing power suppliers, ra w. . w r..r., m , w w w n, page E4
Four specific issues were the focus of subsequent meetings: how an electricity distribution com. pany would operate and be regulairdt how energy efficiency and other public purpose programs will be offered and funded in a restructured environmentt what treatment is appropriate for utility investment in a generating plant that is no longer economict and whether verticalintegration of elecitical utilities should be discouraged or prohibited. The OPUC has stated its intent to use these discussions to prepare for action on the competitive initiatives that can be implemented under its direct authority and to work with the legislature in assessing proposals for restructuring, it remains to be determined what effect future competitive factors may have on retail rates in Oregon and the Company's ability to fully tecover remaining regulatory assets. Ino RuIt Ar!Ilr=<ni During 1996 PGE worked with the OPUC staff and other interested parties to develop a plan for dealing with significant savings which resulted from lower natural j gas and power purchase prices. This resulted in $55 million in annual rate reductions that began ; December 1,1996c The rate reductions will result in an after tax earnings decrease of approxi- I mately $32 million for 1997, in addition, the order incorporated $15 million in rate reductions previously approved by the OPUC, resulting in total 1997 rate reductions of $70 million.
# < = J n 1 1, o r a i r r e a f , e a I=rrie=<ai in late 1996, the OPUG designated $54I million of PGE's energy efficiency investment as liondable Conservation Insentment, pursuant to recent Oregon legislation, and authorised issuance of conservation bonds collateralised by an OPUC assured future revenue stream. Subsequently, PGE issued a 10 year conservation bond which is expected to provide an estimated $21 million in present ulue savings to customers while granting PGE immedi.
ate recovery ofits energy efficiency program expenditures. The OPUC assured future revenues collected from customers will pay debt service obligations.
'I r e j u a i=t,iimeni Rrtcoery in April 1996 a circuit court judge in hlarion County, Oregon found that the OPUC could not authorise PGE to collect a return on its undepreciated insestment in Trojan, contradicting a November 1994 ruling from the same court. The ruling was the result of an appeal of PGE's 1995 general rate order which granted PGE recovery of, and a return on,87%
ofits remaining insentment in Trojan. The November 1994 ruling, by a differentjudge of the same court, upheld the Commission's 1993 Declaratory Ituling (DR 10). In DR.10 the OPUC ruled that PGE could recover and earn a return on its undepreciated Trojan investment, provided certain conditions were met. The Commission relied on a 1992 Oregon Department ofjustice opinion issued by the Attorney GeneraPs office stating that the Commission had the authority to set prices including recovery of and on imestment in plant that is no longer in service. The 1994 ruling was appealed to the Oregon Court of Appeals and stayed pending the appeal of the Commission's hlarch 1995 order, lloth PGE and the OPUC have separately appealed the April 1996 ruling which was combined with the appeal of the November 1994 ruling at the Oregon Court of Appeals. Irast Ocil Lwrrgi /*l a = n i n g in August 1996 the OPUC acknowledged PGE's 1995+1997 Integrated llesource Plan (IRP). The OPUC adopted Least Cost Energy Planning for all energy utilities in Oregon with the goal of selecting the mix of options that yields an adequate and reliable supply of energy at the least cost to the utilities and customers. The 1995 1997 IRP reflects: the recognition that the geographic area PGE presently serves no longer defines our customer base; the accelerated pace of technological change; transition of a key fuel, natural gas, to a market commodityt and the development of a vibrant electricity marketplace. The IRP outlines a strategy which emphasites:(I) the purchase of energy in the marketplace at
' competitive prices,(2) acquisition of energy efliciency at rednced levels while maintaining market presence and capability for possible future increases w hen justified,(3) economical use of our- - existing assets, and (4) the use of other supply-side actions, including acquisition of renewable resources.
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n< suit c=isem<r crewsA a n d E n < rgy sales Weather adjusted retail energy sales grew less than I percent during 1996, tenecting cutbacks by paper manufacturers and metal fabricators. Neverthelets, the Company benefited from continued growth in residential sales of 1.8% with the addition of nearly 15,500 new customers as well as increased commercial sales which rose 3%. _ industrial sales, although negatively affected in 1996 by weak demand from the paper manufactur. ces and incials fabricator 6 continue to benefit from growth in the high tech and transportation-sectors. Rising demand from the high tech industry in Oregon, combined with continued gains in residential and commercial customer classes,is expected to contribute to 6.7% load growth for 1997. n A c i,i u I< A a I,i The surplus of electric generating capability in the western U.S., the entrance of numerous wholesale marketers and brokers into the market, and open access transmission are contributing to increasing pressure on the price of power. In addition the development of financial markets and NYMEX electricity contract trading has led to increased price discovery available to tuarket participants, further adding to the competitise pressure on wholesale margins. During 1996 PGE's wholesale revenues increased 104% over 1995 levels, with wholesale activity acrounting for IN% of total revenues and 37% of total sales, in future ) cars PGE will continue its participatlon in the wholesale ma*Leiplace to balance its supply of power 'o meet the needs ofits retail customers, manage risk and to administer PGE's current long term wholesale contracts. Due to increasing volatility and reduced margins resulting from increased competition,long term wholesale market-ing activities will be performed by PGE's non regulated affiliates. O e ur m e J i t y l'rirr R44 A Na a ugc m eni The Company is exposed to market risk arising from the need to purchase fuel for its generating units (both natural gas and coal) as well as the direct purchase and sale of wholesale electricity in support of its retail and wholesale markets. PGE operates without a power cost adjustment tariff, and therefore adjustments for power costs above or below those used in existing general tariffs are not automatically reflected in retail customers' rates. Through the formation of the trading Door, PGE integrated its wholesale trading, fuels, energy supply, power operations and price risk management functions. The Company must purchase energy to serve its wholesale markets. This, along with the development of a broader, more competitive wholesale electricity tuarket, means the Company must actively hedge its market price risk. The Company uses financialinstruments, such as commodity futures, options, forwards and swaps, to hedge the price of natural gas and electricity and reduce its exposure to fluctuations in these commodities, in addition to hedging activities, financial instruments are used for trading pur. poses. PGE trades instruments on the NYMEX as well as in the over the counter market. Consetpiently the Company is exposed to credit risk in the event of non performance by the counterparties and has established guidelines to mitigate that risk. rev,r e Fa <l A u t ply PGE's base nf hydro und thermal generating capacity provides the Company with the flexibility needed to respond to seasonal nuctuations in the demand for elec-tricity both within its service territory and from its wholesale customers. PGE plans to generate 27% ofits energy requirements during 1997, approximately the same level achieved during 1996. PGE maintains Dexihility in fuel supply contracts to allow for the economic dispatch of PGE's thermal resources in conjunction with hydro operations and the current market price of wholesale power. The Company benents from a strategic location which places it adjacent to two competing natural gas pipelines with access to three significant producing basins. Firm transportation on hoth pipelines provides an adequate supply of natural gas to meet plant generating capacities. In addition, the Company maintains a Ocxible portfolio of physical supply.which relics heavily on short term agreements and spot market purchases of fuel to meet plant operations. During 1996 the Company relied on wholesale purchases to supply approximately 75% ofits energy needs, and expects to purchase approximately 73% ofits 1997 load requirements. PGE has long-term power contracts with four hydro projects on the mid Columbia River which provide PGE with 590 MW. Early forecasts indicate above average water conditions for t997. Ilowever, efforts to restore salmon runs on the Columbia and Snake Rivers may reduce the amount of water available I n m m a rw _ . ~ m . . ~ op 16
for generation which could affect the supply, availability and price of purchased power. Additional factors that could affect the availability and price of purchased power include weather conditions in the Northwest during winter months and in the Southwest during summer months, as well as the performance of major generating facilities in both regions. PGE has increasingly relied upon short term purchases to meet its energy needs. The Company anticipates that an active wholesale market and a surplus of generating capacity within the WhCG should provide sufficient wholesale (nergy available at competitive prices to supplement Company generation and purchases under existing firm power contracts. I
#rsIrea1iea ef5almea Aua5 Several species of ulmon found in the Snake River, a major tributary of the Columbia River, have been granted protection under the Federal Endangered Species Act (ESA), in an effors to help restore these fish, the federal government has reduced the amount of water allowed to flow through the turbines at the hydroelectric dams on the Snake and Columbia rivers while the young salmon are migrating to the ocean. This has resulted in reduced amounts of electricity generated at the dams. Favorable hydro conditions helped mitigate the effect of these actions in 1996. Similar conditions are expected in 1997. If this practice is continued in future years it could mean less water available in the fall and winter for generation when demand for electricity in the Pacific Northwest is highest. Although PGE does not own any hydroelectric facilities on the Columbia and Snake rivers,it does buy large amounts of energy from the agencies which do.
Several other species of salmon have been proposed for protection under the ESA. Actions taken to protect these species will not be in effect for several years, it is unclear how these potential ESA listing willimpact future hydro operations. PGE's hydroelectric projects are located on rivers with depressed but not endangered salmon runs. PGE biologists are working with state and federal natural resource agencies to ensure PGE's hydro operations are compatible with the survival and enhancement o.~ these populations of salmon. PGE does not expect that any actions will be taken that will have an adscrse impact on PGE hydro operations in the foreseeable future, flydre Retire n sing
/* G E // e d r e PGE's hydroelectric plants are some of the Company's most valuable resources supplying cronomical generation and flexible load following capabilities. Company ow ned hydro generation produced 2,7 million MWh of renewable energy in 1996, meeting 9% of PGE's load.
PGE's hydroelectric plants operate under federallicenses which will be up for renewal between the years 2001 and 200fi. PCE officially began the relicensing process for its 1084tw Pelton Round Butte Project inJuly 1996. The Confederated Tribes of Warm Springs, currently the liccuser for a powerhouse located at the reregulating dam (one of three dams within the Pelton Round Butte Project), have also filed a notice stating their intent to scel a license for the entire project. Should relicensing not be completed prior to the expiration of the originallicense, annuallicenses will be issued, usually under the original terms and conditions. The relicensing process includes the involvement of numerous interested parties such as govern-mental agetnics, public interest groups and communities, with much of the focus on environ-mental concerns. PGE has already performed many pre-filing activities including nearly 50 public meetings with such groups. The cost of relicensing includes legal and filing fees as well as the cost of environmental studies, possible fish passage measures and wildlife habitat enhance-ments. Relicensing cost may be a significant factor in determining whether a project remains cost-effective after a new license is obtained, especially for smaller projects. Although FEltC has never denied an application or issued a license to anyone other than the incumbent licensee, there is no assurance that a new license will be granted to PGE. r, . a . a < . o . <~n.o, .m wm ,, op 17
.lf i d - C # l a a A i n 113 dr. PCE's long term power purchase contracts with certain public utility districts in the state of Washington expire between 2005 and 20th. Certain Idaho Electric Utility Cooperatives have initiated proceedings with FEltC seeking to change the allocation of generation from the Priest Rapids and Wanapum datus between electric utilities in the region upon the expira-tion of the current contracts An initial decision was issued in December 1990 by the presiding FERC administrative lawjudge. This decision does not substantially change PGE's share of power from these two dams. This decision is expected to be appealed, PGE will continue to seek renewal of these contracts under terms and conditions similar to the original. X. < t r a r /> < < c m ei i s n i c n i n g in 1996 the NRC and EFSC approved PGE's Trojan decommission-ing plan. The plan, which estimates PGE's cost to decommission Trojan at $358 million in nominal dollars (actual dollars to he spent in each year), represents a site specific decommissioning esti-mate performed for Trojan by an engineering firm experienced in decommissioning nuclear plants. This estiinate assumes that the majority of decommissioning activities will occur between 1997 and 2001, after the spent fuel has been transferred to a temporary dry spent fuel storage facility. The plan anticipates final site restoration activities will begin in 201ll after PGE completes shipment of spent fuel to a USDOE facility (see Note 12 Trojan Nuclear Plant, for further discussion of the decommissioning plan and other Trojan issues). Current decommissioning activities are focused on the licensing, planning and construction of a temporary dry spent fuel storage facility and the removal of the Trojan reactor vessel. J l [fff YWd bfMi tt ! IfFpeP ab#t*# 49d 54b4Jd 6 r,ffs4 fngt $$ l
M a n a g e m e n t 's S, a t e m e n t of R e s p o n s ib ility Portland General Corporation's inanagement is responsible for the preparation and presentation of the consolidated Gnancial statements in this report. hianagement is also responsible for the integrity and objectivity of the statements. Generally accepted accounting principles base been used to prepare the statements, and in certain cases informed estimates have been used that are based on the bestjudgment of management, hlanagement has established, and maintains, a system ofinternal accounting controls. The con-trols provide reasonable assurance that assets are safeguarded, transactions receive appropriate authorisation, and financial records are reliable. Accounting controh are supported by written policies and proc edures, an operations planning and budget process designed to achieve corporate objec tives, and internal audits of operating activities, Portland Generare lloard of Directors includes an Audit Committee composed entirely of outside directors. ll reviews with management, internal auditors and independent auditors the adequacy ofinternal controls, financial reporting and other audit matters. Arthur Andersen LLP in Portland GeneraPs independent public accountant. As a part ofits annual audit, selected internal accounting controls are reviewed in order to deterrnine the nature, timing and extent oiaudit tests to be performed, All of the corporation's financial records and related data are made available to Arthur Andersen LLP. hlanagement has also endeavored to ensure that all representations to Arthur Andersen LLP were valid and appropriate. J o s e p h hl. iiir k o Sanier i* ice Pres :drut, Cherf financial Offhrr Report of I n d e p e n d e n t P u blic Accountants To the lloard of Directors and Shareholders of Portland General Corporation: We base audited the accompanyisig consolidated bal... e sheets of Portland General Corporation and nubsidiaries as of Decemher 31,1996 and 1995, and the related consolidated statements of income, retained earnings and tash Hows for each of the three years in the period ended December 31,1996. These financial statements are the responsibility of the Company's management. Our responsibility is to exprc9s an opinion on these Gnancial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those stan-dards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimate. made by management, as well as esaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the Gnancial statements referred to above present fairly, in all material respects, the financial position of Portland General Corporation and subsidiaries as of December 31,1996 and 1995, and the results of their operations and their cash Rows for each of the three years in the period ended December 31,1996 in conformity with generally accepted accounting principles. Arthur Andersen L t. P Ye~tla nd, Orrgen, ja n n e ry 20,1997
& , s .x r . a e v s. . . ,, . s ,.se as pas, ! 9
Fin a n -ia l S t a t e m e n t s' a n d S u p ple m e n t a ry - D a t a Co n s olida t t d Sta t e m e n ts of in c e m e i for the Years reded Dreember si, l996 1995 1994 T h e m s e n d e ej. <lle rs Ea rep t Pe r $ h a r e A m o u n ts Operating Revent.es $1,lli,N16 $9RS,582 $ 959,409 Operating Expe nses Purchased power and fuel 316,729 293,589 347,125 Production and distribution 81,968 63,441 61,891 Maihtenance and repairs $5,508 47,532 47,391 Administrative and other 115,881 108,067 100,596 Depreciation and amortisation 154.670 I?4,423 124,081 l Taxes other than income taxes 52,513 51,490 52,151 777,269 698,942 733,235 Operating income liefore income Taxes 334,547 284,640 226,174 Income Taxes 109,988 89,064 71,878 Net Operating income 274,559 195,576 154,296 OtArt in n e m e ( lb o d u c t i o n s ) Regulatory disallowances - net of income taxca of $25,542 (49,567) - Interest expense (79,180) (79,128) (71,653)
-. Allowance for funds used during construction 1,642 11,065 4,314 Preferred dividend requirement - PGE (2,793) (9,644) (10,800)
Other - net ofincome taxes (14,692) 12,734 16,901 Income From Continuing Operations 129,536 - 81,036 93,058 lh is s e n t i n u e d O p e r a t i o n s Gain on disposal of real estate operations - net ofincome taxes of $4,226 - - 6,472 Net income $ 129,536 $ 81,036 $ 99,530 s ._. == - . - = = , . - - _
= = = _ -
Co m m e n Steri - Average shares outstanding 51,144,462 50,766,916 49,896,685 Earnings per average share Continuing operations 5 2.53 $ 1.60 $ 1.86 Discontinued operations - - 0.13 ,
~~$ T 130
~
~ Earnings per average share -I 2.53 $~i~.~9 9
~ . , . , - - -- =- = = . - = = = _ = - =
Dividends declared per share $ 1.28 $ 1.20 $ 1.20 _ _ - _ _ _ _ == - == m = - -
==
f0V$$RGk $NtEF 4$ (m?fd$6! $ $9$ bNh>a)+qF5tt pas. 20
.Co n s olida tid S t a t e m e n ts of R e t a in e d Ea r n in gs
. Fo r t h e Ya n e s e n d e d D e c e na b e r .11, 1996 1993 1994
- Th r a s e n ds of Dolla rs flalance at !!eginning of Year $135,885 $118,676 $ 81,159 Net inconne 129,536 81,036 99,530
- ESol' Tax Benefit and Other. (2,093) - (2,872) (1,705) 263,328 196,840 178,984 Dividends Declared on Common Stock 65,516 60,955 60,308 l
llalance at End of Year $ 197,812 $ 135,885 $ 118,676
.; := = = _ . = , , = =
The escompensing notes are ne integralpart of these eraselidated statemente. h s' # 8 f i d e d I$ p e t t e l C e t p
- t a t ics aeJ inhipJh4ste resa 21
1 l l Co n s olida t e d Bala n ce Sheets for t h e Ye a r s o n d e d D e g r ae b e r 31, 1996- 1993 Th e m sn a ds of Delle rs Assels Elettait l!!ility I'l a n t O rigin al Cen t Utility plant (includes construction work in progress of $36,919 and $33,382) $ 2,899,746 $ 2,754,280 Accumulated depreciation (1,124,337) (1,040,014) 1,775,409 1,714,266 Capitalleases - less amortisation of $30,569 and $27,966 6,750 9,353
- . - - - . . - . . - - . - - ~ . .
1,782,159 1,723,619 o t h e r l* f e f e r t y a n d l u t e s t m e n t s Leveraged leases 150,695 152,666 Trojan decommissioning trust, at market value 78,448 68,774 Corporate Owned Life insurance less loans of $26,411 and $26,432 83,666 74,574 Contract termination receivable 1 1,447 - Other investments 29,745 28,603 454,001 324',617 CurrrutAssets Cash and cash equivalents 29,802 11,919 Accounts and notes receivable 125,314 104,815 Unbilled and accrued revenues 53,317 64,516 inventories, at average cost 32,903 38,338 Prepayments and other 17,613 16,953
~
258,94U 236,541 1 Dife r r e d Ch a rges Unamortised regulatory assets. Trojan investment 275,460 301,023 Trojan decommissioning 282,131 311,403 income taxes re;overable 195,592 217,366 Debt reacquisition costs . 28,063 29,576 Conservation investments - secured 80,102 - Energy efficiency programs 11,974 77,945 Other 22,575 24,322
- WNP-3 settlement exchange agreement 163,217 168,399 Miscellaneous 29,026 33,206 1,088,140 1,161,240
$ 3,583,249 $ 3,448,017
- .. . . ~ . . . . - ..
Pe r eiv e d C t a a rel ferpereJess e e 4 A m e s e .f s e r i e s tege SS
l Fo r t h e Yo n es e n de d D at o m b e r 31, 1996 -1995 7 A r a s n a ds ej Delle rs
;I C a p_it a lis a t io n a ri d L i n lo il i t s e s )
J C a p i t a lit a li t. n Common stock equity Common stock, $3,75 par value per share 100,000,000 shares authosised, 51,317,828 and 51,013,549 shares outstanding $ 192,442 $ 191,301 Other paid in capital- net 584,272 574,468 Unearned compensation (3,072) (8,506) Retained earnings 197,h12 135,885 971,454 893,148 - Cumulative preferred stock of subsidiary subject to mandatory redemption 30,000 40,000 1,ong term debt 933,042 890,556 1,934,496 1,823,704 Curtent L ia b ili t ie s 1.ong term debt and preferred stock due within one year 92,559 105,114-Short term borrowings 92,027 170,248 Accounts payable and other accruals 149,255 133,405 Accrued interest 14,372 16,247
' Dividends payable 17,386 16,668 Accrueri taxes 30,985 15,151 396,584 456,833 Diker Deferred income taxes __ 614.576 652,846 Deferred investment tax credits 47,314 51,211 Deferred gain on contract termination 112,697 -
Trojan decommissioning and transition costa 337,844 379,179 Miscellaneous 119,738 84,244 1,252,169 1,167,480
$3,583,249 $ 3,4 4 8,017
. . . , _ - - ~ .
- - _ _ _ . . - . . . . , _ _ _ _ . , _ - _ _ _ =
==w: w:= ma-The assempanyeng netos are se satogral part of Sken tennisdated balsace skests P e r ale e) 4. e u s e l f. e r p a r a s n e e en sosssden a, page $3
i C o n s olid a t e d S t a t e m e n t of Cash Flows l'e r t h e Yea rs e a de d Dese a be r 3 I, 196a 199$ )g94 1heasesds af Dellars Ca8h /* r e n i d a d (!'s e d ) Hy O p e r a t i n- u s Net incorne $ 129,536 $ 81,036 $ 99,530 [ Adjustment to reconcile net incotne to net cash provided by operationn Depreciation and amortization 118,929 102,266 94,217 Annortiration of WNP-3 exchange agreement 5,182 4,910 4,695 Amortisation of Trojan investment 24,244 24,884 26,738 Amortization of Trojan decommissioning 14.041 13,336 11,220 Amortisation of deferred charges - other 5,034 (1,777) 2,712 Deferred income taxes - net (19,979) (9,555) 37,396 Other noncash revenues (1,697) (5,037) (2,570) llegulatory Disallowances - 49,567 - Changes in working capital: (Increase) Decrease in roccivables (9,381) (14,b87) (22,952) (Increase) Decrease in inventories 5,435 (7,189) 3,264 increase (Decrease)in payables 40,052 22,122 (5,105) Other working capital items - net (644) 1,957 (18,104) Trojan decommissioning expenditures (8,231) (10,927) (3,360) Deferred charges - other 35,454 (9,472) 13,987 Miscellaneous - net 7,772 15,108 5,897 345,747 256,542 247,565 Investeng A c tir t tir s Utility construction - new resources - (49,096) (87,537) , Utility construction - other (184,717) (158,198) (131,675) Energy efficiency programs (12,318) (25,013) (23,745) llentals received from leveraged leases 29,623 21,204 20,886 Nuclear decommissioning trust deposits (15,435) (16,598) (11,220) Nuclear decommissioning trust withdrawals 7,888 13,521 - Discontinued operations - - 26,2 8 N Other (10,659) (1,465) (14,058)
$(185,618) $(215,645) $(221,061) 0 b
b rn..sc.. ., , , , . ..a 3.+, s. vie 24
e e for the Ye a r s o n d o d D e t s u b o r 31, 1996 1993 1994
- - . - . - .~ .
7 4 e m sa a da of Defim e s _ _ , . - . - fin a n cin g .f t livitie s Short term borrowings - net $ (78,221) $ 21.650 $ (10,816) llorrowings from Ci>rporate Owned Life insurance
- 4,679 21.731 1,ong term debt issued 170,590 147,138 74,631 Long term debt retired (127,661) (69,445) (49,882)
Repayment of nonrecourse borrowings for leveraged leases (25,535) (18,741) (18,046) Preferred stock retired (20,000) (79,704) (20,000) Common stock issued 3,380 10,299 50,074 Dividends paid (64,799) (62,396) (59,856) (142,246) (46,520) (12,164) Increase (Decrease)in Cash and Cash Equivalents 17,883 (5,623) 14,340 Cash and Cash Equivalents at the lleginning of Year i1,919 17,542 3,202 Cash and Cash Equivalents at the End of Year $ 29.802 $ 11,919 $ 47,542
. - - . = . = = ~
S u p plo m a nial Dis ele s u r a s of Cash flo w info r m a t s e n Cash paid during the year Interest, net of amounts capitalised $ 76,105 $ 66,584 $ 60,b52 Income taxes ! ! !,630 86,778 31,539
- . . _ _ _ . - _ . ~ . . _ - . . _ _ _ . _ . . _ . . . _ _ . . . . - . ..
1kg etreafenprog netos are no integral fort of those sonneleisted sistements. Vertined Caser.rl 4: o r p o r a t + , e ass .teksedsortou
. pegt $$
Po rtla n d G e n e r a l C o r f> e r a t i o n a n d S u li s i d i a r i e s Notes to Fin a n cia l S t a te m e n t s latu,< ,f o t ,, n t ir u . Portland General Corporation is an electric utility holding company. PGE, an electric utility cornpany and Portland General's principal operating subsidiary, accounts for substantially all af Portland GeneraPs assets, revenues and net income. During 1996 Portland General entered into an Amended and Restated Agreement and Plan of hjerger with Enro a Corp and Etiron Oregon Cotp., a wholly owned subsidiary of Enron. The hjer),cr will be accounied for by Enron as a purchase for financial reporting purposes. PGE will coritinue to report its assets and liabilities at historial cost. PGE is caigaged in the generation, purchase, tratismission, distribution, and sale of electricity in the State oIOregon. PGE also sells energy to wholesale customers, predominately utilities throughout the western United States. PGE's Oregon service area is 3,170 square mile s, including 54 incorpo-rated citics, of which Portland and Salem ire the largest, within a state approsed service area allocation of 4,070 square miles. At the end of 1996, PGE's service area population was approxi-mately 1,4 million, constituting approximately 44% of the state's population, At December 31, 1996, PGE sers ed approximately 6 WOO customers. No t r ] S u m m a ry of Sig n ific a n t .t c t e u n t i n g Policies (eu,eIiJuieeu l' e s a < e p I , i The consolidated financial statements include the anonnes of l ' Portland General and all ofits majority owned subsidiaries. Significant intercompany balances and transactions have been eliminated, nuiii e/ .1, , e u u r , u x Portland General and its subsidiaries' financial staternente conforan to generally accepted accounting principles, in addition, PGE's accounting policies are in accordance with the requirements and the ratemaking practices of regulatory authorities havingjurisdiction. I',, c/ /<rimuiri The preparation of fimncial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. R,,Iu3s,/iratieni Certain amounts in prior years hase been reclaasified for comparative purposes. Ret <uu4IeaIs liighly liquid investments with original maturities of three months or less are classified as cash equivalents. De r! raIis e fin a a eini la a t r a m e nis PGE uses financialinstruments such as commodity - futures, options, forwards and swaps to LHge against exposures to interest rate, foreign currency and commodity price risks. The objective of PGE's hedging program is to mitigate risks due to market fluctuations associated with external financings or the purchase of natural gas, electricity
-land related products. Gains and losses from derivatives that reduce commodity price risks are recognised as fuel or purchased power expense, Gains and losses on financialinstruments that
. reduce interest rate risk of future debt issuances are deferred and amortised over the life of the related debt as an adjustment to interest expense; Gompany policy also allows the use of the financial instruments, noted abuse, for trading purposes.
Gains or losses on financiat instruments that are used for trading purposes or otherwise do not qualify for hedge accounting are recognited in income on a current basis (see Note 7, Othe< Financial instruments, for further information), WS r i 3 Settlemrat E=rAang< .1 g r e r m e n t The WNP-3 Settlement Exchange Agreement, which has becu excluded from PGE's rate base,is an intangible asset with the carrying amount
.being amortised over the life of the related agreement.
rwu.i un a t . .p m.n a w m,a , res. 2 7
R r g
- i n t si r y A n s e / - 4nd I.#n6ilitiri The Cornpan is st@ect to the provisions of State.
ment t.f Financial Accounting standards No. 71, Accountin-ior the Effects of Certain Types of Regulation (SFAS No. 71). When the requirements of 5. AS No. 71 are met, PGE defers, or accrues revenue for, scrimin costs which wondd otherwise be charged to expense, ifit is probable that future rates will pstt9it recovery of such costs (regulatory assets). In addition PGE defers, or accrues a liability for- certain teve nues, gains or cost reductions u hich would otherwise be reDetted its income but through (hc ratemaking process ultimately will be refunded to customers (regulatory liabilitiet). These regulatory asnets and liabilities are redected as deferred chetges, accrued revenues and other liabilities in the financial statements and are amortised over the period in which they are included in billings to customers. Regulatory assets and liabilities reDected in the Consolidated Balance Sheets as o1 Deceu t,er 31 relate to the Ivllowingt Th o a n a n d s of thella r s - 1996 1993 Regulatory Assets Trojan related $ 557,591 $ 612,426 Income taxes recoverabic 195,592 217,366 Debt reacquisition and other 50,638 53,898 Conservation investments - secured 80,102 - Energy cfficiency programs 11,974 77,945 Total Regulatory Assets $895,897 $961,635
- - - - - . . _ = = = = = = == ~ -
R e g u l an t e ry lin k ils t e r s Deferred gain on SCE Termination $ 112,697 $ - hliscellaneous 35,893 11,081 Total Reg datory Li.bilities $ 148,590 $ 11,081 As of December 31,1996, all of the Company's regulaton assets and liabilities are being icaceted in rates charged to customers over periods ranging from approximately 5 to 28 years. Based on - rates in place at year end 1996, the Company estimates that it will collect the majority ofits regulatory assets within the next 10 years and substantially all ofits regulatory assets within the next 20 years. In late 1996, the OPUC designated $81 million of PGE's energy efficiency investment as Bondable Conservation Investment, pursuant to recent Oregon legislation, and approved PGE's request to issue conservation bonds collateralised by an OPUC assured future revenue stream. Subsequently, PGE issued a 10-year conservation bond providing savings to customers while granting PGE imme-diate recovery ofits energy efficiency program expenditures. Future revenues collected from customers will pay debt service obligations. No ta 2 E ne p l o y r o li e n efi t s ranseen Pla . Pordand General has a non+ contributory defined benefit pension plan (the Plan) covering substantially all ofits employees. Benefits under the Plan are based on years of service, Gnal average pay and covered compensation. - Portland General's policy is to contribute annually to the Plan at least the minimum required under the Employee Retirement income Security Act of 1974 but not more than the maximum amount deductible for income tax purposes. The Plan's
, sets are held in a trust and consist primarily ofinvestments in common stocks, corporate bonds and U.S. government issues.
N, . a u . .s< o n.o,~ o s s... a , pegt $N
Portland General determines net periodic pension expense according to the principles of SFAS No.
~87,* Employers' Accounting for Pensions." Differences between the actual and expected return on Plan assets are included in net amortiration and deferral and are considered in the determination of future pension expense,
. The following table sets forth the Plan's funded status and arnounts recognized in Portland General's financial statementet Ta o e s a n ds of Delle rs __
1996 1995
-. - . . . ~ . ~ - - . . _
Actu a rial p r esc u t value of b e a t fi t e blig a lie n s l Accumulated benefit obligation, including l Vested benefits of $174,540 and $174,694 $ 187,847 $ 187,977 Effect of projected future compensation levels 38,841 34,345 ) 1 Projected benefit obligation (PBO) 226,688 222.322 Plan assets at fair value 323,717 295,516 Plan assets in excess of PBO 97,029 73,19h Unrecognized net experience gain (95,055) (71,691) Unrecognized prior service costs amortised over 15 to 16-year periods 11,846 13,180 Unrecognized net transition asset being recognised over 18 years (15,660) (17,618) Pension liability $ (1,8 4 ) $ (2,935) 7k o n sa n ds of Delin rs 1996 1995 1954
.I s s n m p t i e a s Discount rate used to calculate PBO 7.50% 7.00 % 8.50%
Rate ofincrease in future compensation levels 5.50 5,00 6.50 Long-term rate of return on assets 8.50 8.50 8.50 Ca m p e n e n ts of ut t pr vicdie p e n sie n unpense Service cost $ 6,940 $ 5,500 $ 6,199 Interest cost on PHO 15,911 15,722 14,693 Actual return on plan assets (39,542) (61,377) 6,011 Net amortisation and deferral 15,596 37,830 (25,971) Net periodic pension expense /(benefit) $ (1,095) $(2,325) $ 932
. _ _ _ . . _ _ _ . _ . , _ _ . . _- . . _ _ _ . ~ ._. _m-.., _
_ - . = _um.: - oi4<r rf s < - in i i r e a < a i nearfif ela n s Portland General accrues for health, medical and
- life insurance costs during the employees' service years,in accordance with SFAS No.106. PGE receives recovery for the annual provision in customer rates. Employees are covered under a Defined Dollar Medical llenefit Plan which limits Portland General's obligation by establishing a maximum contribution per employee. The accumulated benefit obligation for post-retirement health and life insurance benefits at December 31,1996 was $27 million, for which there were $28 taillion nf assets held in trust. The benefit obligation for post-retirement health and life insurance benefits at Dec-mber 31,1995 was $30 million.
." e r tin s d Generes tarpe ale e esJ sobssdosento page E 9
m.. _ _ _ _... . __.m . . .m _ - . _ - . _ _ _ . . . _ _ _ . _ _ _ _ . k i M . . 4 Portland General also provides senior officers with additional benefits under an unfunded Supple-mental Executive itetirement Plan (SERP). Projected benefit obligations for the SERP are $15 millitin at December Si,1996 and 1995. 4 D rf, r r r J C c a p r = 4 a t io n - Portland General provides certain employees with benefits under an i I unfunded hlanagement Deferred Compensation Plan (MDCP). Obligations for the MDCP are $30 l 1 million and $25 million at December 31,1996 and 1995, respectively. 1. ! IlmpIcyra 5rc:1 O w a e e s A e p I'l a n Portland General has an Employee Stock Ownership Plan (ESOP) which is a part ofits 401(k) retirement savings plan Employee contributions up to 6% of base pay are matched by employer contributions in the form of ESOP common stock. Shares of
- common stock to be used to match contributions by PGE eruployees were purchased from a $36 .l' 1
million loan from PGE to the ESOP trust in late 1990. This loan is presented in the common equity section as unearned compensation. Cash contributions from PGE and dividends on shares held in 4 the trust are used to pay the debt service on PGE's loan. As the loan is retired, an equivalent amount of stock is allocated to employee accounts. Contributions to the ESOP, combined with dicidends on unallocated shares, were used to pay principal and interest on PGE's loan. These amounts are not material. Shares of commoi; stock used to match contributions by en ployees of Portland General and its non-regulated subsidiaries are purchased on the open market. 4 I f 1 l i 4 'i 4 l l i I 4 1 a l l r . o , . s e. , . m t c . , , , , , , , , . . . s . 3 . > , . s a . <. l . r.u 3 0 l 1
. . . ._ _ . _ _ _ ,_ _ _ - . . _ _ _._ __ . _ . . _..___m Note 3 in co m e Taxes The following table shows the detail of taxes on income and the items used in computing the
, differences between the statutory federalincome tax rate and Portland General's effective tax rate. Note: The table does not include income taxes related to 1994 gains on discontinued real est.ite
- operations.-
l T h e n sa n ds of Delle rs 1996 ]993 1994 Income Tax Expense: j Currently payable Federal $ 102,066 $ 77,8 45 $ 41,833 State ' 21,472 9,230 7,072 l, 123,538 87,075 4N,905 a _ _ . _ _ _ _ -._ . _._ _ . . _ i Deferred income taxes i Federal (13,401) (15,359) 22,269 State (2,539) (6,741) 4,472 l (15,940) (22,100) 26,741 Investmen' tax credit adjustments (4,193) (5,725) (4,145)
$ 103,405 $ 59,250 $ 71,501
- - .- - - - - - === === = == - -
- = = = = = = .
l Provision Allocated to: I Operations $ 109,988 $ 89,064 $ 71,878 Other income and deductions (6,583) (29,814) (377) { $ 103,405 $ 59,250 $ 71,501 m_m = .m == .m m _ Effective Tax Rate Computation:
- Computed tax based on statutory federal income tax rates applied to income before income taxes $ 81,529 $ 49,101 $ 57,596 lucreases (Decreases) resulting from:
-Flow through depreciation 9,497 6,71J 8,283 Regulatory disallowance -
3,470 - - State and local taxes - net 11,719 4,857 8,953 i State of Oregon refund - (3,668) - Investment tax credits (4,193) (5,725) (4,145) Excess deferred taxes (750)- (700) (767)
- Merger expenses 3.724 - -
Preferred dividend requirement 912 3,155 3,526 , Other 967 2,045 (1,945) '
$ 103,405 $ 59,250 $71,501
= . -
Effective tax rate 44.4 % 42.2 % 43.5 % a= r . . u t a . ,6 c.r m i eopar.na. **essus.. a. av 31
As of December 31,1996 and 1995, the significant components of the Company's deferred income tax assets and liabilities were as follows: 7koesenis ej Drileen 1996 '1995
-Defstred 7ax .4ssels Plant in service $ 64,471 $ 86,721 Other 61,012 60,245 125,483 146,966 D efe r r e d Te s L ie b ilitie s Plant in service (414,417) (4 4 b,049)
Energy efficiency programs (32,026) (30,314) Trojan abandonment (69,315) (54,335). WNP-3 exchange contract (59,302) (60,489) , Leasing (13ti,478) (142,606) Other (7,918) (43,470) a (719,456) (779,263) Less current deferred taxes (430) (414) Less valuation allowance (20,173) (20,135) Total $(614,576) $(652,846)
. - - - . _ _ - . - - . _ _ . - _ w== n-- .:===
Portland General has recorded deferred tax asse,s and liabilities for all temporary differences between the financial statement and tax basis of assets and liabilities. Valuation allowancer represent capitalloss carryforwards that presently cannot be offset with capital gains. r,<,r..s <.,.,,,, c.,r...,... ..e s ..... .... < os. 3 2
e e Note 4 Ce m m o n- a n d Prefe r re d Sle ei Ce m uta tive Preferred Common Stun Other 3ef Su bsidie rs Unearned Tk e as n a ds of DeiIa rs Nu mber 53.75 Ka a ber $100 No Par Paid en Co m pre-EseapI 3hn re A aea aIs Par l'aloo Capital of Shares far fielee of Shares l'alu e serien
- December 31,1993 47,634,653 $170,630 - 1,497,040 $119,704 $30,000 $519,058 $(19,151)
Sales of stock 2,h64,839 10,743 - - - 40,390 - Redemption of stock (4,000) (15) (200,000) (20,000) - 2,055 - Repayment of ESOP loan and other - - - - - 2,412 5,515 December 31,1994 50,495,492 189,358 1,297,040 99,704 30,000 563,915 (13,636) Sales of stock 539,057 2,022 - - - 9,355 - Redemption of stock (21,000) (79) (797,040) (79,704) - 2,778 - Repayment of ESOP loan and other - - - - - (1,580) 5,130 December 31,1995 51,013,549 191,301 500,000 20,000 30,000 574,468 (8,506) Sales of stock 350,778 1,315 - - - 5,335 - Redemption of stock (46,499) (174) (200,000) (20,000) - 449 - Repayment of ESOP loan and other - - - - - 4,020 5,434 December 31,1996 51,317,828 $ 192,442 300,000 $ -
$30,000 $584,272 $ (3,072)
---v -. w=n= = . = =
*3ee the diseassion of steen seaponsatsee pleas below and Note t, Employee Bo,,efine, for e denreption of the Esor.
Ce m m e a StceA As of December 31,1996, Portland General had reserved 2,333,386 and 8,185 authorised but unissued common shares for issuance under its dividend reinvestment plan and employee stock purchase plan, respectively, Cammiaiice Prefe r r e d Sie e A The 7,75% series preferred stock has an annual sinking fund requirement which requires the redemption of 15,000 shares at $100 per share beginning in 2002, At its option, PGE may redeem, through the sinking fond, an additional 15,000 shares each year, All remaining shares shall be mandate,rily redeemed by sinking fund in 2007. This series is only
~
redeemable by operation of the sinking fund, PCE's cumulative preferred stock consisted of:
^ Th e s sa n ds of Dolla rs As of Deso a b e r 31, 1996 l993 Subject to mandatory redemption ;
No par value 30,000,000 shares aathorized l 7,75% Series 300,000 shares outstanding $30,000 $30,000
$100 par value, 2,500,000 shores authorized ;
8,10% Series 200,000 shares outstanding - 20,000 j Current sinking fund - (10,000)
$30,000 $ 40,000 i'
e , , , s . . s e , . , , ., ' t , , , , , . , . . . .e 3.s.,s..r... h&$o 1
No dividends may be paid on cornmon stock or any class of stock over which the preferred stock has priority unless all amounts required to be paid for dividends and sinking fund payments have been 1 aid or set aside, respectively. C, a m e a Diride n d /t v s Ir ir tic a cf 5 m&sid(ae. PGE is restricted from paying dividends - or making other distributions to Portland General without prior OPUG approval to the extent such payment or distribution would reduce PGE's common stock equity capital below 36% ofits total capitalisation. At December 31,1996, PGE's common stock equity capital was 49% ofits total capitalization. $/cr1 Cemp,n,aIi,= l' t a a 4 Portland General has authorized 2.3 million shares of Portland General common stock under its Long-Term incentive Plan (LTIP), Stock options represent the majority of activity under this plan. Stock option plan attivity is as follows: Op tie a n Op tic a Prit e Pe r 5 h e re December 31,1993 856,600 $ 14,00 - $22,25 Granted 32,000 $13.00 - $ 18.125 Exercised (10,000) $ 15.75 Canceled (43,500) ' ' 4.00 - $22.25 December 31,1994 835,300 $ 13.00 - $22.25 Granted 88,600 $ 17.00 - $25.00 Exercised (184,400) $ 14,75 - $ 18.125 Canceled (17,000) $ 14.00 - $ 20.00 December 31,1995 792,500 $13.00 - $ 25.00 Granted 373,029 $25.00 - $43.50 Exercised (30fi,930) $ 14.00 - $25.00 Canceled (31,096) $ 14.00 - $ 37.625 December 31,199fi 827,503 $ 13.00 - $43.25 tock options exercisable at December 31,'1996 473,870 $ 13.00 - $ 25.00 At December 31,1996, H31,946 common shares were available for issuance under the LTIP. Portland General accounts for stock based compensation plans under AP11 Opinion 25. Due to a limited number of Portland General stock options granted on an annual basis, the amount of compensation expense which would be required to be disclosed under Statement of I'inancial Accounting Standards No.123," Accounting for Stock llased Compensation," is not material. f* 4 rets el Ge ne s al terparasi se as = J .% = 4. e j r v e < yege 3 $
e Note 3 S h o rt Te r m Borrowings At December 31,1996, Portland General and PGE had total committed lines of credit of $220 million.- Portland General has a $20 million committed facility expiring in July 1997 PGE has a comnaitted facility of $200 million expiring in July 2000. These lines of credit have annual fees of 0.10% and do not require coinpensating cash balances. The facilities are used primarily as backup for leoth commercial paper and borrowings from (commercial banks under uncommitted lines of credit. At December 31,1996, there were no outstanding borrowings under the committed facili, tie s. PCE has a $200 million commercial paper facility. Unused committed lines of credit must be at least equal to the amount of PGE's commercial paper outstanding. Commercial paper and lines of credit borrowings are at rates reflecting current market conditions. Short term borrowings and related interest rates were as follows: 14 e m a n a de of Della rs 1996 1995 1994 el s of y e a t - e n d
- Aggregate short-term debt outstanding l
Commercial paper $ 83,c27 $ 170,24 8 $ 148,598 Ila nk loans 9,000 - - Weighted average interest rate' Commercial paper 5.6% 6.1 % 0.2% Bank loans 7.3 - - Unused committed lines cf credit $ 220,000 $ 215,000 $ 215,000 For the star e n d e .I Average daily amounts of short-term debt outstanding Commercial paper $ 158,259 $111,366 $ 138,718 llank loans 7,013 206 1,273 Weighted daily average interest rate' Commercial paper 5.6% 6.3 % 4.5% Bank loans- 5.8 6.5 4.3 Maximum amount outstanding
. - _ - . _ .- during the year $ 251,462 $ 170,248 *174,082
'internet reten etelade the offset of remastmoetfees, facilely frer and other fseneeeng fees.
Va rita n t e. r e .e4 n e.p e u r ose eas sas> i., e pass 33
. _ _ _ . . . . . _ - -__ - __. . . _ _ _. _ . _ _ _ . _ . - _ . _ _ m._. . _ _ _ . . . . _ _ Note 6 Long-1 arm Debt The Indenture securing PGE's First hfortgage Bonds constitutes a direct first mortgage lien on substantially all utility property and franchises, other than expressly excepted property. Sch e d u le of L o n g Te r m Debt 7'h e a s a n ds o f Dolla r s As of Dreeaber 31, 1996 l995 I'lvst Me r tg age De n ds hiaturing 199f through 2001 5.k75% Series due June 1,1996 $ -
$ 5,066 6.60% Serien due October 1,1997 15,063 15,363 hiedium term notea 5.65 % - 9.00 % 295,000 210,000, hiaturing 2002 - 2007 6.47 % - 9.07 % 168,000 260,595 Alaturing 2021 - 2023 7.75% - 9.46 % 195,000 195,300 673,063 686,024 l' u t i s t n e n C e n t r e l II e n d s Port of Alorrow, Oregon, variable rate
( Average 3.5% - 4.3% for 996), due 2013 and 2031 29,400 23,600 City of forsyth, hlontana, variable rate (Average .ariable rates 3.4% - 3.5% for 1996), due 2013 - 2016 118,800 118,800 Amount held by trustec (8,236) (8,152) Part of St. liciens, Oregon, variable rate duc 2010 and 2014 (Average variable rates 3.4% - 3.5% for 1996) 51,600 51,600 191,564 185,848 O r la e r 8.25% Junior Subordinated Deferrable interest Debenturt s, due December 31,2035 75,000 75,000 Portlants General medium term notes 8.09% due 1996 - 30,000 6.91% Conservation Bonds maturing monthly to 2006 79,790 - Capital lease obligations 6,750 9,353 Other (566) (555) 160.974 113,798
. _ . . - - . - - . ~ -
1,025,601 985,670 Long term debt due within one year (92,559) (95,114) Total long term debt $ 933,0 42 $8E0$556
.. . . . . . . _ . _ - ==_= _ - = = =
The following principal amounts orlong term debt become due through regular maturities: 1kennends of Della rs
- - . - - . . - ~ . - - - - - . - . , _ . -
1997
. - ~ --
199$ 1999 2000 2001 hlaturities: PGE $ 92,559 $ 71,073 $102,124 $32,222 $ 37,737
. - . . _ _ . . . - . - =- = =. =:- = = = --: . . . . . . . . . - -
[ p F 3 f J e ud ($ e is a gI fpPpe W$> a di/ 3 m _E r ,did I p d g e .Y 6
m m._mm_ _ _ _ _._-. -- _ e E Nets 7 O t h e r - l's m e n t i a l l a s t e e m e n t s
- IeavaeewI laefa* mea 1n The following snethods and assumptions utte ustd to es insate the fait value of each class oflihantialinstrunner** fut which it is platticel to estiniate that a alue. l I
Cu 4 4 o a d I ni A 1 r; a e i e f , n i 4 The tattying atuount of(ash a*.o se.'. tquivalcuts approxituates i fait t alue herause of the short tuaturity of those instrutuents. Ot&rr /arasta<nf, Othet insestnients approximrie market talie, j j #edeemaAI, ft:fte#4J %toa4 The fait value of redtetnahle (* fetted sto4L is based on l quoted market prites. 4 } 4
/, e a t - I e t = 1) e 1, t The fait value oflong team debt is estimated hated on the quoted ma:Let prites Iot the same or sitnilar issues of on the tuttent tales offered to portland Gencial for deln of similar teensinitig snaturilles.
The estituated fait values of financialinstruments are as follows: IVV6 JVV$ Coorfing fair Ca r ryi n g leir 14 e ss a n ds of lirlie rs
! Aarent er Ameent Velat i .. _
i _ Prefetted stotk rahject to mandatoly redemielon 8 30,000 $ 31,455 $ 50,000 $ 52 900 l
- Long.te m deht
- PGG (Pare nt only) & -
$ - $ 30,000 $ 30,531
} PGl' D39,627 459.ht h 946,h72 994,990
$939M27 3059,t fif4 $ 976,ft 72 $ 1,025,5 27 Interest rate su aps in het tercia able position -
$ 5k2 - -
.- - .. - - - _ --- ~
S e n 'l r o d e n g .t<tiaities Cemarditi Company policy allows the use of financialinstrumetits su':h as t'ominodity futures, options and swap contratts to hedge the prite of natural gas and elettricity and tedate the Company's enposure to matlet Iluttuations in thest commodities. In 1996 hedge tlansactions tonnisted of 00mmodity futures and swap tontratis where the Compa9y te(cites from of makes payments to counterparties based on the differential between a fixed prire and an indra referente
. price for natural gas or electricity. The Company is exposed to credh risk in the egent of non*
performance hy the countr'tparties and has est>ldished guidelines to raitigate this risk. At December $1,1996 and 1995 outstanding futures Lud swap rontracts related to riatural gas had an absolute notional contract quantity of 6,05L5,000 midion lltitish thermal units (hthllitu) and 4,500,000 hih1Illu, respectively, in additiott, outstanding swap (ontracts related to elecitir4 ty had an absolute notional contract quantity oil,410,000 htWh and 256,000 hlWh as of December 31,1996 and 1995, respectively. The commodity fututes and swap rontracts estend for a period of up to three years. Recognition of gains et losses on hedging instruments is deferred until the underlying physical transaction occurs. Upon recognition, these gains or losses are recognised in income as a reduttion to or increase in purchased power and fuel expense.
- e. at..i o .. w <:. r... w ..a s. w ......
9, 37
- . . - . . - . - = .- -. --._ _-- --.._.,- -- - --, ---- -
e J The totimaicd fait salut of outstatiding natuial gas Unantiat inattutuents was $5,ls'i,000 at Dtatno ht r 31,1996 and $(2h1,000) at Deteenhtt 31,1990 The estimated fait salue of outstanding titttrit- I l ity fit antialinstruturnia was $(375,000) at Dettinher 31,1990 and $(335,000) at De m nher 31,1995. l
/aieoe3i R n t r- In August 1996 PGl' enttred into a 3-) car l'iteitst tatt swap agtttment with a notional amount of $50 tuillion. This puts PGE in a Monting tatt position on the additional $%
tudlion oflong term dthiistutd in August 1990. At lle(enihtt 31,1996, the fait salut PGE trould ettelte if the intettet tale swsp agtteinent were terminated is not mattfial. ' 1<aJ!ny J < Id a e liv s in addition to hedging attisities, Cotnpan) polity allows the use of the Onancialinstf uments noted above for trading purposts in support of Cotupany operations. Rea!. ised and unttalired gains of losses on iommodity based finantialinstruments that do not qualify as , hedges att fecognited in intoint on a tuttent basis in purchased power and futl espense. Net losses arising Itotn natural gas trading attititles during the petiod ended December 31,1990 were
$4,4N1,000. Net gains arising froin tiet tritit) trading attiviiles during the period tuded Deteinher 31,199ff w ere $200,000. At Decembet 31,149fi outstanding awap and option contratts related tu natural gas had an absolute notional contract quantity of 2k0,000 hihilitu. In addition, outstanditig futures, swap and option Contracts telated to clerttitity had an absalute notional (ontrati quantity of 1,099,000 h1Wh as of Detesnhe 31,1996. The cominodity futures, swaps and option contracts extend Iot a period of up to two yeats. The Company is exposed to ottdit risk in the estut of non*
perfortnatne by the counterpa, tics and has established guidelines to fuitigate this tisk. The fait salue of the financialinstrutntnts as of Dec ember 31,1996 and the attrage fair talue of those inattuments held during the ) tar are as followat Aerrogo inir l' a l u e l' e s t l'eler es of jer the Ye a r i u sed' f Ib e r a m h e r 31,1996 littamher JI, JV9a 7Aresee k of lirtlers iserts ^ th e b ilii;r~s ~~ Asselt ~ l in bilitiv e Pteduct Natural Gas 5 4h $ 360 $ 32 $ $2h ; fltctricity $ 2.296
$ 2,469 $1.1h1 $1,476
- tompered e.,og sao end,og 6etento et seus mosta.<ed hie 8 Go m m it m e n ts JataeaI Gae ig#r<mtats fGE has long term agreements for tratismission of natural gas Itom domestic and Canadian souttes to natural gas fired generating facilities. The agtteincuts provide firin pipeline capacity. Under the terms of these agttements, PGE is como:ltted to paying capacity charges of approsimately $16 million annually in 1997 through 2001, and $124 million over the remaining years of the contracts which expire at tar)ing dates from 199M to 2015. PGl has the right to assign unued capacity to other parties.
P = ,; < A a i e Crm a4imeaIi Putthane commitments outstanding (principally constthetion at PGE) width include coal and railroad settite agtettnents, totaled approximately $63 million a December
- Jl,1996. Cancellation of these purchase agterments could result in cancellation charges.
- P m i < A e s e d l' c w , e PGE has long term power purchase contracts with rettain public utility districts in the state of Washington and with the City of Portland, Oregon. PGb is required to pay its proportionale share eithe operating and debt settite tosts of the hydro projects whether or not they are operable, n,o..,%.. ,.n.o...mw. ..i fsg4 b $
, e SelMitd infortnation is suitituatised as follow si arris rrnose to r ela e d t h e e sn e ss of thelle rs
. _ ~~ - - - - , - -.
Rrete kotids fYe a n t e ne frells flydre llettuue bondt outstanding at Decernher 31,1996 $ 200,011 $ l k6,785 $ 209.130 $ l k3,920 $16,k23 PGE's tuttent share oft Output 12.0 % 13.9 % IN.7% 21.8% 100 % Net capability (inegau atts) 154 Its 194 177 36 Annual cost, including debt settites l 1990 $ $,300 $ 3,700 t 4,700 $ 5,700 $ 4,300 { 1995 4,900 3,900 4,700 $,700 4,300 1994 4,500 3,400 4,k00 6,600 4,600 Contrati espiration date 2011 2005 2009 20th 2017 PGE's share of debt servite costs, excluding interest, will be approsianately $h inillion for 1997, $5 inillion fut 1998, $6 million for 1999 and 2000, and $7 rnillion for 2001. The ininiinum papnents through the ternaltidet ofilie contracts att entituated to total $k7 inillion. PGE has enteled into long terin contracts to purchase power Itotn othet utilities in the West.
-These contracts will requite fixed payinents of up to $20 inillion ist 1997 through 1999,$23 tuillion in 2000, and $21 tuillion in 2001. After that date, capacity contract c harges will M etage $19 inillion annually until 2016 Eresars PGF has operating and rapitalleasing arrangernetits for its headquartera coinplex, com.
bustion turbines and the coal. handling facilities and certain railroad care for lloardman. PGE's aggregate tental paynietits charged to expense atuounted to $22 tuillion for 1996,1995 atid 1994. PGE lias rapitalised its comhustion turbine leases, llowever, the6e leases are considered operating leases Iot ratemaking purposes. Future ininiinum lease payments under non.tantelable leases are as followel Operating Leases (No t of 5 e ble s s e t oe r En ding Dnee m ber 3 8 Capital lenses Re n tals) 1stal
~ ~ ^ ^ ' '
t h e a sa n ds of Delle rs 1997 $3,016 $ 19,988 $ 23,004 1998 3,010 19,446 22,462 1999 1,3 8 N 20,007 21.395 20N - 20,053 20,033 20n1 - 20,326 20.326 llerneindet - 190,800 190,k00
- - ~ . - - - . - - - . - - . - . . - . - -
Total 7,420 $290,620 $298,040 _ , _ . - ~ ._ _ _ .. _ . _ _ _ . - _ - . - - m - liuputed Instrist (670) P, resent Value ut hiinintain E "EE N!*N$fU"."I'_ _ _.- _ .I**PU Included it 3hc fuiore mbimum operating lease payments schedule above is approximately $124 million for Pa'iland General's and PGE's headquarters complex. ru a..,c,....,,,,n,,n.. ..s .s, # ..... p.t 3 9
e l
.Yole il ll' Y /' . 3 3 e t tle m e n t A a r & .# m g e Agtrement PGl;is sell:ng energy receised under a WNP 3 Settletnent f.u hange Agreenie nt (WS A) to We stern Atta Power Authorit) (W APA) for 25 3 ears w hit h l>egan in Ot tolier 1990, Itestnues froin the W APA sales contract and market sales are used to support the rettsing ulue of PGl?s instatinent. A portion of the energy under the WSA iontrut is sold at snarlet peites.
The ene rgy receised by PGl. under WNA in the result of a settlttucht relatetl to litigation surround. ing the abandonine nt of WNP 3. PGl: tet cites about 65 ag e tage asintial klW lot approsituately 30
) cars froin llPA under the W$ A which be gan in 19k7, lu ent hange, PGl. will taale available to itPA ene egy frotn its <ornbustion tvebines or froni other available suurten at an agreed to prit e, in light of declining snarket peites for wholesale power, an esaluation of espetted future ush flows was t oinple ted in late 1996 The Company's best estianates, given reasonable operating astuinptions and revenue projec tions, show that cash flow is espected to be sulfitient to support the (atr>ing ulue of PGt/s ingestenent.
PGl: will tontinue to tuonitor related rash flows in light of the continued tornpttitive pressure 01: clec tricity prit es, as well as possible t hanges in contrattual terms, <onditions and obligations. No te 10 Jeontly Ouned f*la n t At Dettenbe r 31,1996, PGl; had the following ingestments injointly ow ned generating plants: At iv V ta l % Via n t A u r s, m u l a t r J fesslity Letetera feel Cepensty luteurst in Servoor Ib e t t e r e n t i e n 1krusends ej li s t l e r s lloa r d m a n lloatdtnan, OR Coal 50k 65,0 $ 3 75,133 $1 Ak,332 Colettip 3R4 Colstrip, MT Coal 1,440 20.n 452,762 20 %259 Centralia Centralia, W A Coal 1,310 2 , '> 9,715 %%D The dollar aniounts in the table abuse represent PGl?s shate of ca(b joisilly ow ned plasit. f.a t- h participant in the abuse generating plants has prosided its own financing. PGl?e share of the dirett expenses of these plants is induded in the corresponding opetating expenses on Portland GenetaPs and PGl?s consolidated income statements. Ne t t ll LegalMattern li e n n a e r l l e l' a , e / r i /uninet On October 7,199n the bankruptcy tourt approved the settlement entered into by Portland General and Portland General lloldings (collet tisely referred to as Portland) with the lionneville Pacific Corporation's (llonneville) bankruptcy trustee (Trunice). Pursuant to the settlement, llonneville and its estate teleased all(laims and causes of action, including those asserted in the Trustee's t-isil action against Portland and its current and formet officens and directors. in cubange, Portland released any and all claims against llonnesille, its estate, and related entities and individuals relating to its equity ins catment in and loans to e llonneville, esrept that Portlan(I will retaisi ou tiership of 2 stiilliori shares ofIlonnesille torninoti stock, The settlement with the Trustee will not have a rnaterialimpact on Portland General's results of operations,
- i. ,. . . , . ,s
$0gt $0
e # In early 1997 Portland ret eised payments for rettain litigation and settlernent tonts in other (natters telated to the llonneville Pacific lawsuit. These psytnents will be recognised into income during the first quarter of 1997. 7 : eis u I n r r s i ea e a i #<<crr#$ in April 1990 a tira uit tourt judge in klation County, Of egon found that the OPl'G tould not authorite PGE to rollett a return on its undepteciated investment in Trojan, tontradicting a Novernber 1994 tuling from the seine court. The ruling was the result of an appeal of PGE's 1995 general tair utder whith granted PGE recovery of, and a return on,67% ofits temaining investenent in Trojath The Novetnber 1994 ruling, by a differentjudge of the saine court, upheld the Comenission's 1993 Detistatory l(uling (Dit.10). In Dit.10 the UPL'G ruled that PGE tould letover and earn a tt turn on its undepreciated Trojan investment, provided <citain conditions were met. The Commission telled on a 1992 Oregon Department ofjustite opinion issued by the Attorney General's office stating that the Commission had the authorit) to set prit.es including recovery of and on investment in plant that is no longer in service. The 1994 ruling was appealed to the Oregon Court of Appeals and stayed pending the appeal of the Commission's hlatch 1995 order, lloth PGE and the OPUG have separately appealed the April 1990 !' tuling which were combined with the appeal of the November 1994 ruling at the Oregon Court of Appeals. hlanagement believes that the authorited recovery of and on the Trojan investment and decommis. aioning costs will be uphtid and that these legal challenges will not base a material adverse impact on the resultsof operations or finantlal condition of the Company for any future reporting period, ts!A,e Leg al Ma t!r ri Portland General and rettain ofits subsidiaries are party to various other claims, legal at-tions and complaints arising in the ordinary toutse of business. These claims are not considered material. Noir 12 f r oja n Sn etr a r Plant I* l a a t TAafdcwa a n el 'leuaistica Cesii PGE is a ti7.5% owner of Trojan. In early 1993, PUE ceased commercial operation of the nuclear plant. Sin (e plant closure, PGE has committed itself to a safe and economical transition toward a decommissioned plant, itemaining transition costs assorlated with operating and maintaining the spent fuel pool and securing the plant until dismantlement begins in 199h are estimated at $24 million and will be paid from current operating fund s. Tr oj a n l> r t e m m i s s i o n i n g L in b ility t h r a s e n ds of tholin e n __ .~. _ Estimate - December 31,1994 $351,29 4
' Updates fi_ led with NilG - Noveniber 16,1995 7,084 356,378 Espenditutes through December 31,1996 (24,144)
Liability - December 31,1996 $334,23 4
. ..e -.
. - . - - - _- r u --
u -
,._s. '..J......J.- - - ,
Decommissicning $ 33 4,234 Transition costs 23,610 Total Trojan obligation $ 357,k 44
.-. - . _ , =-
It
- f Id # d b . 4 r e et! (4ap,,y(sh4 eed Neksadsaf 3e
- $sge k $
- _ - _ ~ - - . - _ - _ . _ . - _ _ . - - - ~ _ - - -___- _ _ _ .
e , I i 1 : Dr<,maeieeeaeng in IDH, PGl. tes eig ed appton al of the detoinntissioliing plan subniitted to [ the NitG and thC duiing 1995. The plan estiinates PGE's aost to decotninission Trojan at $Hk tuillion,itHetted in noniinal dollets (attual dollars espetted to be spent in tat h pat). The plan i septe sents a site spetilit detoentnissionitig estiinate perforsned for Trojan by an engineering firan l esperit tu td in e6tiniating the sont of det usumissioning nuticat planto This estimate assumes that ! the inajorit;. of detomtnissioning atfivities uill occur httuten 19uf and 2001 u hile fuel manage * ; onent tosts estetid through the year 20116 l'inal site testoration at titities are anticipated to begiti } in folk after PGl. tornpittes niilpinent of spent futi to a 13 dol; facility (see the Nuclear l'url Disposal discussion below). The tost estimate is adjusted periodically due to ttfineinent of the tiening and atope of tettain dismantleinent attititiet Stated in 199fi dollars, the tuttent det urnmis+ sioning tost estimate is $250 million. , l PGE la (oHetting $14 millioti annually through full from tuttorners lot decomtnissionitig tonts. i These amounts are deposittd iti an estettial trust fund whit h is limited to reiniburning PGt for i attitities togeted in Trojan's detommissiotilng plan. l'unds were withdraw n during 1990 to cover j the toets of planning and lic ensing attivities in suppott of the indepetident spent fuel slutage installation and the tractor tessel and irdernals reinoval project. Decominissiotting funds att invested ptimatHy in intestment gtade, tan.cstinpt and U.N Tscasuty bonds. Yeat.etid halantes l att valued at market. t l'.atnings on the trust lund are used to sedure the utnount of detotninissioning tosts to be tollitted from tuttoiners. PGE enpette any future t hanges in estimated decorninissioning toets to be stator, potated in futute rettuues to be tolletled from tuntoinett D e c e ui m i s s i o n i n g frust .4 r l i s i l s t ho usa n ds ej lbella r s 1996 (995 lleginning llalante $6h,774 $ $8,05 Asinrol1 Contributions 15,0 5 16.39k Gain 2,127 7,212 Dishursements ( 7,8 H) $(13,521) Ending llala nce $7N,44h $ 6N,774
/=ari =<=f R,,e*<r. The OPUG issued an order in klarth 1995 authotiring PGE to recoger all of the estimated costs of decommissioning Trojats and N7% of the remaining intentment in the plant. Amounts are to he tollected oger Trojan's originallicense period ending in 2011 The OPUC's order and the agency's authorit) to grant recovery of the Trojan ingestment under Oregon law are being challenged in state courts. Management believes that the authorited retosety of the Trojan investment and deconuniisioning tosis will he upheld and that these legal challengen will not have a material adverse itupart on the results of operations or financial t'ondition of the Company for any fututt tcpotting period.
Nn e lo u r f u e l D e s p r e a l u n d i I< a n u { ej Federal Pinuts PGE tontrasted with the USDOE for permanent disposal ofits spent nuticar fuelin federal facilities at a cost of.Olt per net kilowatt. hour sold at Trojan which the Company paid during the period the plant operated. Significant delays are enpected in the UsDot, acceptante schedule of spent Icel from domestic utilitiesi The federal repository, whith was originally scheduled to begia operations in 19n,is now estimated to commente operations no earlier than 2010. This may create difficulties for PGE in disposing ofits high level radioactise waste by 201k. Ilowes er, federal legislation has been introduced whit-h,if passed, would requite USDOE to provide interim storage for high les el waste until a permanent site is established. PGE intends to huild an interim storage facility at Trojan to house the nu(lear fuel until a federal site is available. E i rar m .s <..,..t n.t...urs e a s.s m .r.., resu 42
-. . _ . . _ _ . . _ _ _ _ _ _ _ - _ _ _._ ._ m. _,m__.._..__..._ _ - - _ _ _ . - _ - . . . . _
~ - - .e.
The Energy Polity Att of 1992 providtd fot the Heation of a Det ontaminatlon and Decommission-ing l'und to 6tiant t the cleanup of UNDOL gas diffusion plants. l'unding tomes Iroen dotutstir nutltar utilities and the federal gottinment. Eatis utility contributes based on the f allo of the atuoutit of entithinent servic es the utility purt hased to the total annount of entithment settites putthastd by all domestir utilities prior to the enattment of the legislation, liased on Trojan's 1% usage of totalindustry etirithment settites, PGl?s pottion of the futiding itquirement is 3 protituately $17 inillion. Amounts are funded oiet 14 years beginning with the USDul's 6stal test 1993. Since etiattmt ut, PGL lies inade the first fit- of the 15 antiual pa)tntat6 with the first paytna nt funde in Septetubet 1993. S a t l e et e /aaueau<< The Ptire Anderson Atnendinent of luu limits public liability claitne that rould arise frotn a nue. lear intident and provides for lo6s sharing among all ownets of nutlear teattot lic enses. lletause Troj.ti has been perinanently defucted, the NRC has esttupted PGE from partitipation in the secondary financial protu tion pool tonering losses in estess of $240 inilliott at other nutlear plants, in addition, the NILC has seduted the requited primary nuclear insutante (overage fut Trojati from $200 inillion to $10n tuillioti follonging a thete-) ear tool.down ptfiod of the nuclear fuel that is still(n. site. The NRG has allowed PGL to selfitinute for ori site detontami. tiation. PG0 tontinues to tatty non containination property insurante on the Trojatt plant at the
$155 inillion level, Nete I .1 S CE Ce n trac t T e r min a tio n Agreement In Matth 1996, PGL and Southern Califotnia Edison Company (SCE) tntettd into a termination agttement for the Power hales Agreetnent between the two tempaliies. The 1011C and the Califor.
nia Pubhc Utility Comtnission (CPUC) have apptoted terms and conditions of the agtettnent. The sytectnent tequires that SCL pay PGE $141 niillion over the nest 6 years ($15 inillion per year in 1997 through 1999 and $32 million pet yest in 200n through 2002), PGE tetorded a discounted tereitable in the amount of $112.7 million of whith $1.25 million was setelved in 1996. Disposition of the gain has been deferred pending OPUC detettuination of the appropriate regulatory treatment. Perila n d Co n t ral Ce epo r a tio n Q u a r t e rly Co m pa riso n Yat 1996 u n d 19 9 5 (Un a u dite d) Thr uss a ds of Delle rs
'Encept f or haste Ameents M a r s h 31 June 30 September 30 Deermber s t 19 Y t, Operating tetenue: $ 300,5k ! $ 233,4 25 $ 260,091. $317,719
. Net operating income 6ti,74 4 - - S i,tr75 44.742 61,398 Net incoine 49,362 33,679 _ 20,541 25,954 Common stotk Average shares outstanding 51,063,105 51.109.790 St 15N,923 51.243,669 Earnings pet average shate' $- .97- $ .66 $ .40 $ .51 I995 Operating tevenues . $259,177 $219,892_ $ 222,612 $ 281,901 Net operating income _49,553 47,179 40,266 58,578 Net income /(loss) (1,954) 32,403 14.181 36,406 Common stock Avetage shares outstanding 50.591,449' 50,697,040 . 50,798,082 50,976,781 Earnings /(loss) per average thatei - $ (,04) $ .64 $ .28 .
$ .71
- As e roselt of dilerne effetts of shtees insed dernag the poded, pertarly neueregs par seere remaet be edent er ordre et enesol estoings per s4ere ri.oreau a.aurai t n r p r o no r . > . eat hl.aaa.>,
f oge 40
a Offitern & Die e e ie rs illl a e o n Ken 1,, llattinon l'eggy Y, l'owltt Iticliard 1:, D)ct Don F, Kiell> lod L Anir man of tar tirard, l'e s tla n d Ge ne r al l'ertland Ge neral hs t l'ro nde n t, ChiefI ass utne offeur and Ilos tru Co. IIrrtrie Cr. Ilu ma n Restunos' l'o r n de n t' I anatn a har l'orndent and Sanier h<o l'orsident, Chief Operatong Offuer l'ener $ style Vttd D, h1 iller jo6tjih hl, liitLo l'estland Genrral Arnirr f ue l'residial. Altin lu Alttandetton David K, Catl,untau l fra tne Cc. Isnante and Anventsag, Arneer f ue /*rendent, l'er tla nd General Corp. Se nne r l*ie r l'o rnde n t, Ch uf l o n a nnel Off u rr, Ge neral Cre nsel a nd fle e l*r eside n t, l'ablu Affetus and Cher) Anruntsag Offuer Sn ot te ry' l'tilsty Arts non and Certurate $rrsius and treasurer' lolo u r m m u nic a ts e n s' lb o o o u t e r s Gw)ncth Gamhlt llootli julift W Citighiotis jt, Dt, jetty E, lludson llatidoljili L, hlillet Telesiseen producer and I'rende nt, Charf I stuartis e l'orndent, lhllemette l' resident,1ho Meere Ca, , referter, modia tensultant Offuer and thettler, l'ais ersses, $ ale m, OR. l'e n fla n d, O R a nd s am m a n nis at tnrist. U ryrrhare ser Ce , Ibiretter sener 4 98 4.* (Censumer iintrenius (Jerriter uner 19#1.s la r e m a, ll'J and Cemteter (learst l'reden ts)- Jeronic J, hit)et lis st e n & s tie n), l'stetj,Iltin Ibirester niner 1990. Chairman and Chief IDiretter siner 1987. I'vendent, liasden ins est. I:non etite Officer and me n t ocep., l',r tla nd, OR llichard Geary pir,, sc r,1,4 t,r n in, in t o litus e G Willinon ( Alarent T ra nspettatirn, l'urndent, Airu nt l'arefer thlernrello, OR /*r e side n t, l'eter'ou rn Anles and Centa ny, l'a utres e r, t\A ll:lutronin Manufasturer). Chief Operateng Offuer in ve s tme n ts), flingh m a, a nd llea ry joierater sinar 1993, and Dirreter, Diventer niner 1943.* C* n 'tr u c tio n). fl. I'. A h m a n ne n a n d Cr. Diretter sen<r 199ti- and its subsidiary, lleme Catoly n S Chamhets Annags of Amerira, CAnion eman and Ktn L, llattinon truendale,CA. Chuf 1. ara htair Offu rr, L A nie m a n, 04 stf Ditnter sener 19At ( Aam&srs Ocamsinuatien II4riktn r U//iarr and Cert , i sugeno, OR l'o r side n t ' (1tlerisivu ID r eadun ti ng Unacter siner 19M7. and Cable). Ibires ter uncs 1993. 1 Presle ad Ceaurel Co rp n ed Pn tla nd e.e ee ral lin tuu Co. E lestaden teme serud on the breed of Portland Crorrelllantru Co. tret>,.s*,. ,si <,,t., er><. ,, , a sse ,s.se , page k 4
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