ML20205C305

Portland General Corp,1985 Annual Rept

ML20205C305
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Site:	Trojan File:Portland General Electric icon.png
Issue date:	12/31/1985
From:	Short R PORTLAND GENERAL ELECTRIC CO.
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ML20205C235	List: ML20205C229 ML20205C250 ML20205C286 ML20205C305
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NUDOCS 8608120303
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Text

PORTLAND GENERALCORPORATION 1985 ANNUAL REPOIE i

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8608120303 860731 PDR ADOCK 05000344 I PDR NEW FLEXIBILITY TO MANAGE TIIE FUTURE

PORFLAND GENERALCORPORMION 1

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lmsins. lac-Portland General Electric Co. Columbia Willamette Devel- Western EnerTech, Inc. (Ener-(PGE) is a regulated electric utility opment Co. (CWD) acquires and Tech) sells and finances energy engaged in the generation, pur- develops real estate. Portland management senices and systems.

chase, transmission, distribution, General Corporation owns 100 per- Portland General Corporation owns and sale of electricity to a 3,l'io cent of the company. 100 percent of the company.

square mile area in Oregon. It Cornerstone Columbia Devel- Columbia Willamette Finan-senes some 524.0tk) customers- opment Co. is a partnership of cial Gruup, Inc. (CWF) owns the 44 percent of the electric customers CWD and WRECO Iloldings, stock of Columbia Willamette in Oregon. Portland General Cor. Inc.-a subsidiary of Weyerhaeuser Leasing, Inc. Portland General Cor-poration owns 100 percent of PGE. Real Estate Co. Each has a 50 per- potation owns 100 percent of CWE North American Energy Ser- cent interest in the partnership. Columbia Willamette Leasing, vices Co. (NESCO) pnwides main. Cornerstone Columbia develops Inc. (CWL) acquires and leases tenance, construction management, both public and private mixed use property. CWL is 100 percent and technical senice3 to electric real estate projects. owned by Columbia Willamette utilities, and to companies in the Financial Group, Inc.

pulp and paper industry. PGE owns 25 percent of NESCO.

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Portland General Corporation is a holding a>mpany. On Afarch 28,1986, each outstanding share ofPortland GeneralElectric Co.

(PGE) a>mmon stock was exchangedfor a a>mmon share ofPortland General Corporation pursuant to a plan previously approved l by PGE shareho!Jers. PGE is mw a wholls owned subsidiary of the holJing a mpans. Common shares of Portland General l U Corporation are traJed on the New York and PaafcStock Exchanges under the symbol, PGN.

Pordand General Electric Company and Subsidiaries FINANCIAL HIGHIlGHTS

% Increase 1985 1984 (Decrease)

Operating rewnues $ 826,M 3,000 $ 722,068,000 14.5 Net income $ 168,958,000 $ 158,364,000 6.7 Income available for common stock $ 134,857,000 $ 123,892,000 8.8 Earnings per awrage common share Before extraordir.ary item $3.12 $2.80 11.4 Extraordinary item (.15) - --

1 After extraordinary item $2.97 $2.80 6.1 Dividends declared per common share $1.88 $1.81 3.9 Book value per common share $20.13 $19.05 5.7 Return on average common equity before extraordinary item 16.01 % 15.10 % 6.0 Net utility plant $1,869,981,000 $1,991,065,000 (6.1)

Gross utility construction expenditures $ 108,740,000 $ 128,957,000 (15.7)

Kilowatt-hours sold (in thousands) to ultimate customers 13,344,000 13,144.000 1.5 Customers serwd at vear-end 524,156 516,129 1.6 Arrace kikwatt-hours used per residential customer 12,781 12,644 1.1 CONTENTS Portland General Corporation Structure Inside Front Gn er Ilighlights I j Report toShareholders 23 1985 CalendarofEvents 4-5 Electric Operati<ms Review 6-1I i Business Development Review 12-13 Portland General Corporati<m andSubsidiaries Pro Forma ConsolidatedStatements ofIna>me 14 Pro Forma GmsolidatedBalanceSheets 15-16 Notes to Pro Forma Consolidated FinancialStatements 16 PortIanJ GeneralElectric Company andSubsidiaries Afanagement's Discussi<m and Analysis ofFinancial Gmdition 18-21 Report ofIndependent Public Aca>untants 22 1 ConsolidatedStatements ofIna>me and Retained Earnings 23 GmsoliJaredBalanceSheets 24 GnisolidatedStatements ofCapitalizati<m 2s Gmsolidated Statemc nts of Changes in Financial Position 26 Notes to FinancialStatements 27-34 Quarterly Comparisonfor i985 anJ l984 35 Supplementary Infonnation to Disclose the Effects ofChanging Prices 35-36 hiarket and DividendInformation 37 Selected Financial Data anJ Statistics 38-39 ShareholderInfr>rmation 40 BoarJofDirectors inside Back Cover Portlmd General Corporation Senior 0;fcers inside Back Cover Portland General Electric Company Senior Officers inside Back Cover 1

TO OUR SHAREHOLDERS: l Your company made some Total sales from PGE's electric This success reflects how PGE important changes in the past year. operations increased to 17.6 billion is making good things happen in The most significant step is the kiknvatt-hours in 1985, up 15 per- many important ways.The tremen-I formation ofIbrtland GeneralCor- cent. Ibtnues reached an all-time dous effort put into cost controlis poration, the new holding company high of $827 million, up 14.5 percent. working and new ways are being recently approwd by shareholders. I The market value.of PGE's found to get more done with less in am pleased to be sending you its common stock also did well, closing cwry area.

first annual report. 1985 at $22 per share. The stock 'Ib ensure long-term growth As a diversified holding com- finished 1984 at $16%,and 1983 at and security, howewr, we beliew it pany, Portland General is the parent $13%. is important to reduce our reliance of wholly owned operating com- The quarterly dividend on on a single business. Under the panies. These companies are active PGE's common stock was increased Ibrtland General holding company in electric utility services, real estate to 47H cents per share in May 1985, structure, our strategy will be to bal-dewlopment, energy services and for a total annualdividend of $1.90 ance inwstments in the regulated financial senices. a share. utility business with diversification Ibrtland General began oper- Ibrtland General will now into nonregulated businesses.

ating as a holding company on make the common stock dividend Restructuring into a holding March 28,1986, when its common payments. It is contemplated the company provides several advan-stock was exchanged for the com- payments will at least equal those tages in financial and organizational mon stock of Portland General previously paid by PGE. We will flexibility. Regulated utility opera-Electric Co. 'Ile new stock is listed also continue the policy of review- tions haw been separated from non-on the New York and Pacific Stock ing the dividend annually each May. regulated business operations. This Exchanges under the same sym- Major investment rating firms allows us to use separate, specialized bol-PGN. again recognized PGE's financial financing techniques, spread busi-Electric operations remain improvements. Moody's Investors ness risk and facilitate acquisition under PGE. We expect PGE Senice, Standard & Ibor's, Duff & and integration of new businesses to continue to be the core business Phelps, and Fitch all upgraded and operations.

and primary contributor to reve- PGE's ratings in 1985. First mort. Although PGE's financial con-nues and earnings for many years. gage bonds and preferred stock rat- dition continued to improw in 1985, PGE's financial performance ings now fallin the "A" range with the outlook for future growth in the continued to improw in 1985. Earn- these senices. These equal the high. electric utility business remains ings increased to $2.97 per common est ratings in PGE's 96-year history. modest.

share. This compares with 1984 Growth in demand for earnings of $2.80. Net income for electricity has slowed to about the year was $169 million, an 1.5 percent a year, compared increase of 6.7 percent.

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with 7 percent a decade ago. As a Nuclear Project No. 3. The settle- Our successis closely tied to result, the program of building new ment is currently being reviewed by economic growth in the Northwest.

power plants that consumed so the courts. The region's economy continues much of PGE's time, attention, and PGE improved its financial tolag slightly behind the rest of the money is near an end. PGE now has position without a rate increase to nation as it mows into new areas sufficient energy to meet customer our electric utility customers. A pri- from its historic base ir. forest needs until the late 1990s. mary goalis to keep PGE's electric products.

To better match its energy rates stable. PGE is working hard to help resources with the needs of existing Retail marketing efforts are Northwest businesses manage

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customers, PGE has sold an showing good results. A number of this transition and grow. Indeed, the undivided interest in the Boardman programs haw been developed to retention and expansion oflocal Coal Plant and the Pacific North- make electricity the customer's business is the backbone of eco-west Intertie to General Electric choice for meeting energy needs at nomic dewlopment. Erough a spe-Credit Corp.The sale price home and at work. cial PGE program, new ways are was $233 million,with a net gain PGE's Good dents homes are being found to help local businesses to PGE of $102 million. well receiwd by builders, realtors, and governments identify and PGE's goalis to sell another and home owners. The energy- remove barriers to growth.

125,000 kilowatts of power plant efficient homes achieved an impres- Our representatives have and transmission line capacity by siw share of the electric heat market joined state and localleaders to the end of 1986. Negotiations are in their first year. encourage new businesses outside )

l under way with sewral interested PGE has developed programs the Northwest to locate here. The utilities. for zonal electric heating and financ- region's well-educated and produc-Major progress was made in ing new heat pumps. Toll. free hot rive labor force,its location as a the resolution of severallawsuits lines have been established to transportation hub for trade with relating to nuclear projects that had answer customers' questions and the Pacific Rim, and its beautiful been terminated or put on hokl. help them with sewice on electric environment ensure its future eco-Lawsuits relating to the Pbbble space and water heating equipment nomic health.

Springs and Skagit/Hanford and appliances. Additional details on 1985 and nuclear projects were settled out Progress in resolving the Ibrtland General Corporation's of court. nuclear issues, the sharp decrease in plans for the future are contained A settlement has been reached the construction program, and suc- in the text of this report and the in thelawsuits brought by PGE cesses in wholesale and retail accompanying financial statements.

and other investor. owned utilities marketing have greatly strengthened As you read them,I am confident against the Washington Public PGE's financial position. you willagree your Company truly byer Supply System and BPA for is making good things happen for stopping work on Washington today and tomorrow.

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Robert I1. Short Chairman of the Board, Chief Executive Officer j' ;g and President

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CALENDAR 1985 January May a 1984R5 Project HEI.P campaign m A proposed settlement frame- a Good Cents Show of Homes fea- ends. Employees, customers, and work was agreed to in the litiga- tures 13 energy-efficient, PGE- shareholders contributed don surrounding Washington certified homes. $262,712 to help needy families Nuclear Project No. 3 (WFP-3). m U.S. District Court judge voids pay winter heating bills.

BeginningJanuary 1,1987, PGEis ruling that contract with PGE was = Oregon legislature refers three-to receise an amount of energy breached when work was halted member appointed Public Utility based on its imestment in on WNP-3. Action based upon Commission measure to voters in WNP-3, through a power concern over questions of conflict Nosember 1986 generalelection.

exchange with the Bonneville ofinterest surrounding previous a PGE and British Columbia Ihver Administration. ruling. Hydro sign six-month power pur-l February a Board of Directors authorizes chaseagreement. Agreement

= Our Teamworks goals / incentive increasein quarterly common allows PGE to receive 400 awrage program announced for PGE stock dividend of 2 cents per megawatts of electricity at a price employees. Program is designed share to 476 cents. less than that required to operate to encourage employee teamwork the Boardman Coal Plant.

June in achieving corporate objectives. m PGE and local high schools join July a Oregon's governor appoints nine forces to build Good Cents a Cooperatim efforts between PGE members to interim board of homes. Program enables voca- and Oregon Department of directors for Citizens' Utility tionalstudents to gain practical Human Resources Community Board. skills through building and mar- Action Office make home weath.

March keting energy-saving Good Cents erization assistance available to

a PGE's Trojan Nuclear Plant sur. homes. Iow-income residents.

passes its previous record by ,,  ;.4 N *g y 3.g -

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twiers aosJ sharehouers to Pmint I11H Sponsoredby PGEandadministeredby '- U The Sahutum Ar"ry, theprogram helps needyfamthes heat their hwres m winter , r[ 0 Portlants verg umg smerergnis 37fust gr- Q ' ' ' '

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y= / ~ e6 Kaskey en Washington DC natlands - O -

i aturns urkomed PortlanJua to her new . t - t gs .

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i o U.S. District Court judge November Inc., form partnership to develop

) reaffirms most of rulings on a Cold snap sets record for power urban properties in the WNP-3 that had been earlier consumed during month; PGE's Northwest.

voided due to a concern regarding net system load of nearly 1.4 bil- m PGE common stock ends year a potential conflict ofinterest. lion kilowatt-hours is 3.4 percent trading at $22 a share, up 34 per-o New marketing program higher than any previous cent from Dec. 31,1984.

announced. "A Ilear Pump for All November. 1986 Seasons" features PGE-financed December loan package, toll-free hot line, a First Good Cents manufactured m$dl m W Gallagher, President, and PGE-certdied heat pump home rolls off essembly line at Sil- Gallagher Capital Corp. of Purt-ealers. vercrest Industries in Woodburn. land, appointed to the Board of August a loth anniversary of first power Directors.

o Centsable Zonal Ileating program generation at Trojan. Since February announced. Program assures December 1975, Trojan generated a Edward L. Clark,Jr., partner in combination of zonal heating sys- more than 50 billion kilowatt-

. . law firm of Clark, Alarsh, Lin-tem design and insulation provide hours. Operation m 1985 was at a d#" & Kt'L,1i"'""' "EP i "*"J

• i comfortable and cost-effective record-breaking capacity factor of the Ik>ard of Directors.

operation. 73 percent.

a Shareholders approve Plan of September m An undivided interest in PGE's Exchange to form holding com-a Settlement executed by PGE with Ikurdman Coal Plant and the pany for PGE and subsidiaries.

BPA and WPPSS relating to con. Pacific Northwest Intertie sok! to p struction delay on WNP-3. General Electne Credit Corp. for land General Corporation.

October a Subsidiary Columbia Wdlamette a h uipment i {mm Harbonon com-a Board of Directors euthorizes for~ busu,on turbme plant sold to City Development Co. and

mation of a holding company, f A"*""' b SI""C d"" *"

Weyerhaeuser Real Estate Co.

t subject to shareholders' approval the plant's urbanon locan."'"'had subsidiary WRECO Holdings,

of a Plan of Exchange at special kept PGE from operating it since meeting in February 1986. 1979.

o Out-of-court settlement reached h1 arch by PGE on lawsuits regarding a Plan of Exchange takes place on

abandonment ofIthble Springs hlarch 28. Each share of PGE l and Skagit/IIanford nuclear common stock was exchanged for pmjects. -

a common share of Portland Gen. i

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I 1986. Warren is a former Board l Chairman of PGE. Knudsen is I [ Vice Chairman of the Board and Chairman of the Executive Com-chanp una 4 hexan gennamg asfn, ponm awn /wim itis s<hauta mittee of hiachtillan Bkulel Ltd.,

to ente n=~emalenat= uwh Vancouwr, B.C., Canada.

100,000 kW</p<an m ApnlVM6 ICEouns a 20penrntsharerf Umt 4 andits tum Umt 3 laatedm Atem-tana. the mme nmth, assifraplants Reantly appanted to the lhorJ </Uminn are EJwarJ I. Gark. Jr , tkft) a pa tnn with the Salem "'nP"uwent by The ht<mtana Pcme lawfrm e/Gark, hIanh, linJauer & A1dimton, G""P""?

and Wdlum W Gallagher, PrnuJent e/the regwnal mmtment hunkmgfrms </Gallagher GiputalGap andGallaghe. Platt & G>

5

PORTLAND GENERAL CORPORATION: ELECTRIC OPERATIONS

'lixlay's electric utility faces Settlement oflawsuits regard- energy resources with anticipated unprecedented competition and ing the abandonment of the Ibbble future demands for electricity. The change in the energy marketplace. Springs and Skagit/llanford company is working to sell another New technologies, advanced energy nuclear projects reduced 1985 carn- 125.000 kW ofl xwer plant and management systems, and rapidly ings by an extraordinary loss of transmission line capacity in 1986.

changing prices for competing fuels $7 million net ofincome taxes. Expenditures Down all play a role. Latein 1985, PGE soki a PGE's construction expendi-Ibrtland General Electric Co.'s 15 percent undivided share in its tures were d(wn to $109 million in

ability to compete and adapt to Boardman Coal Plant equal to 1985 from recent levels of more than change is evident in its recent hnan- t 5,000 kikwatts of capacity ak>ng $300 million a year. Expenditures cial performance as well as its suc- with a portion ofits share of the are expected to be at about $80 mil-cesses in marketing and asset Pacific Northwest Intertie transmis- lion to $100 million for the next management. sion line to California atual to the sewral years.

Earnings, Revenues Increase same capacity. Internal funds haw met all PGE's consolidated earnings in The net gain to PGE was capital expenditures for the past 1985 were $2.97 per common share, $102 million. Under a directim two years. This contrasts with peri-up 6 percent from $2.80 in 1984. issued by the Oregon Public Utility ods when more than 80 percent had Annual revenues for 1985 reached Commissioner, $37 million of the to be raised externally.

$827 million, up from $722 million net gain was recorded as earnings in Funds not needed immediately a year earlier, while net income 1985. The remaining $65 million has are inwstal in marketable securi-increased to $169 million from been deferred pending final disposi- ties. At the end of 1985 these invest-

$158 million in 1984. tion of the entire gain, which will be ments totaled almut $75 million, decided as part of a rate case filed in contributing $9 million to pre-p- March 1986. tax income. Another $233 million In addition to raising capital, was invested in commercial paper the sale helps PGE better match its at year-end from the proceeds of the lbardman and Intertie sale.

WNP-3 Lawsuit Resolval Progress continues toward sat-

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isfactory resolution of lawsuits sur- As part ofits March 1986 gen- Trojan Nuclear Plant. PGE owns rounding the Washington Public eral rate case, PGE asked the PUC 67 5 percent and operates the Ptwer Supply System's Nuclear to assign a value for this supply of 1.1 million kilowatt plant.

I Project No. 3 (WNP-3). PGE sued energy and to determine the Trojan has prmen to be a reli-the Supply System and the Ben- method of recarring this valuein able, kwv-cost resource. The plant neville Pbwer Administration for rates. supplied 32 percent of PGE's retail stopping work on the project in Power Supply customers' electricity in 1985 and 1983. Sales to retail customers con- broke its previous record by operat-A settlement to the construe- tinue to show modest increases, ing without interruption for 139 days.

tion halt issue was agreed to in 1985 refketing their efforts to consent Colstrip 4 On-Line by PGE, BPA, the Supply System, energy and a slowly reemering local Coalis another important the other imestor-owned utilities economy PGE's 524,000 retail cus- resource having met 9 percent of and certain of the Supply System tomers used 13.3 billion kilowatt- retail customers' needs in 1985.

i participants invohrd in thelitiga- hours in 1985, an increase of Ibwer from startup testing I tion. Under the settlement, PGE is 1.5 percent from the prior year. began flowingin December 1985 to to receive approximately 54,000 Wiesale sales to other util. PGE from its 20 percent share of kilowatts of electricity through a ities almost doubled in 1985 to the 700,002-kW Colstrip Unit 4 i

power exchange with BPA.This is 4.3 billion kilowatt-hours. The sales project. PGE had imested $186 mil-about equal to PGE's imestment in increase is due to the availability of lion in the project at the end of 1985.

WNP-3 at the time the project was surplus power, increased access to hn Colstrip Unit 4 is com-mothballed. the Intertie and a favorable market pleted in April 1986, PGE will haw in addition, PGE has granted for sales to California utilities. A more than 600,000 kW of coal-fired

, BPA an option to acquireits share portion of the profits fnvu these plant capacity available.

I of any future output of WNP-3. sales is passed on to PGE's custom. To keep prices low, PGE buys Costs for work on WNP-3 afterJan- ers through lower rates. power from other sources when the uary 1985 are BPA's responsibility. PGE provides a highly reliable cost is less than operating one ofits PGE will begin receiving electrical supply from one of the own plants. In 1985, PGE was able power from the exchange for about nation's most diversified energy to purchase the remainder ofits a 30-year period starting in 1987. resource systems. needs for retail and wholesale cus-The amount of power PGE actually At its heart are eight hydro- tomers from other sources.

receives and the price it pays for the electric projects PGE owns and energy during this time depend operates, and long-term contracts upon the operating availability with four large non-federal projects and costs of several nuclear plants on the Columbia River. low-cost

! similar to WNP-3, or WNP-3 if it is pmver from these hydro resources completed and placed in service. met 37 percent of our retail cus.

I tomer needs in 1985.

Christmas Eve 1985 was the

.( 10th anniversary of the first elec.

j g trical power generation at the i

i The l'atz)ic Northriest Innstre as a sin av svdi ehtree brehu ay hnhing Northurst peer plants u sth uMesale automers en ik Smthu est ICE sold more than 4 3 bdlam kohaust brors an the Y bne m 1%1 i

Water uurmedby heat euharigers en tk Tmun l %learl*lant\ anderg t<sn n rantto nur utmem and stalkaJ rn pmJs at ik site 1he L%n I% ret ~re it e/ Fr 1, a.:J Tr!.2:lc

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PORTLAND GENERAL CORPORATION: ELECTRIC OPERATIONS Competition to keep existing In addition, residential cus- Realtors find this added quality customers and attract new ones tomers with electric water heaters helps sell the home, and the lower

increases ewry day in the energy can ask for a free water heater wrap. fuel bills make it easier for the new marketplace. In response, PGE is More than 126,000 water heaters owner to pay the mortgage.

taking steps to thoroughly under- have been wrapped, saving each of Pn sidential Praise j stand its customers' needs and their owners about 540 kilowatt- Students at 18 Oregon high i

to fulfill those needs better than hours a year. schools are building 11 Good Cents

, its competitors. Builders, buyers, and realtors homes as part of their vocational

! Through programs emphasiz- are enthusiastic about PGE's Good training. PGEloans the schools the ing the wise and efficient use of Cents home program. They under- money to buy the home site and the energy, PGE helps customers stand the value added features of materials.

understand how to get the most for the Good Cents home. President Ronald Reagan 1

their energy dollar. These houses, condomin- praised this unique public-private Conservation Important iums, and apartments draw from partnership, and it has been nomi-i Residentialcustomers who use 11 energy-saving features to cut nated for the President's Private Sec-electricity as their primary source of heating and cooling costs as much tor Initiative Award.

heating are eligible for a free in. as 50 percent. When PGE customers have home energy analysis. Energy Construction work is trouble with their electric water auditois identify and recommend monitored by PGE representatiws heaters, all they have to do to get weatherization measures, and to ensure the energy-saving mea- help is pick up the phone. By dial.

explain the costs, benefits, and sures are properly installed. Once ing 1-800-HOT.WATR, they can

! financing options. PGE then assists completed, the homeis certified; obtain an accurate diagnosis of the the customer in financing the weath- having energy efficiency, quality, problem and advice on how to cor-i erization measures. and other Good Cents values rect it. PGE's HOT WATR repre-PGE has performed 70,000 built in. sentative will suggest repair and energy audits for its customers, and _ ~ .

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replacement parts or help arrange Centsable Zonal also means high Wholesale Marketing for a professional repair service. standards of insulation and building Foresight in having built a The toll-free service is so pop- construction. PGE assures custom- portion of the Pacific Northwest ular other Northwest utilities are ers of the highest quality by care- Intertie, a high-voltage power line to contracting with PGE to provideit fully inspecting the homes during California,giws PGE important for their customers. construction. access to the electric highway to the Eleat Pumps Save Another popular PGE senice southwest wholesale market.

Adding a heat pump to an is the Electric Outlet-a resource PGE can deliwr as much as existing furnace can cut annual center for ideas on thelatest in 625,000 kW mer the 2.8 million heating costs in half, while praiding energy efficiency and the ultimate in kW line. Upgrades to equipment year-round comfort. Customers convenience in the home. At this willincrease PGE's share by learn more about add-on heat pump electric product display room, 90,000 kW in 1986.

systems through PGE's program employees and customers learn PGE views the wholesale "A Fleat Pump For All Seasons." about the newest applications for market as an important business A select group of heat pump electric energy. segment. It helps meet wholesale dealers and installers haw received Commercial customers are the customers' needs by providing PGE certification to participate in fastest growing segment of the energy capacity, storage, and shap-the program. They install the equip- rapidly emerging service economy. ing to meet peak demand. Acting ment to meet strict PGE standards. They account for 33 percent of on behalf of other utilities, and A 10-year financing package for cus- PGE's retail sales. using the flexibility ofits own power tomers who add on heat pumps can PGE has made energy producing and transmission be arranged through the Company. audits available to its commercial resources, PGE sold 4.3 billion Encouraging the use of high. customers since 1980. More than kWh in the wholesale market in quality zonal electrical heating sys- 1,400 in-depth audits have been 1985. Future sales depend upon the tems in new construction is the aim performed to date. availability of surplus power in the of PGE's Centsable ZonalIIeating Northwest, access to the Intertie program. This heating program pro- and changing prices of fossil fuels.

vides customers with the most .

equipment choices, individual con-

__l trol, and flexibility at the least cost.

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informatum on uhat's new and u hat's ahead m the u uv </elatncalapphatums to impnee the quabts

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_ - ~ _

PORTLAND GENERAL CORPORATION: ELECTRIC OPERATIONS IIelping existing businesses metropolitan area, while industry thanks to PGE's Project Ilelp. More grow and attracting new ones to its leaders like Tektronix and Floating than $1 million has been donated service area are as important to Point Systems callOregon their from PGE,its employees, and cus-PGE as marketing its product. PGE home. tomers to keep homes warm in the

is well aware that its success is Oregon offers an environment winter during the three years the l closely tied to the economic health that's favorable to business and program has been in place.

of the businesses and the area it just about everyone's life-style. It's Employees Volunteer sents. a transportation hub for goods Community Teamworks is the j Through its business retention shipped to and from the nation's theme of an employee-sponsored )

and expansion suntys, PGE works heartland, to the Pacific and the Far volunteer program that started in to identify and help communities East. And Oregon's ocean beaches, 1985. Employees have given of their remove barriers to economic wild rivers, and snow-costred own time and resources to build a development. mountains attract visitors from wheelchair ramp for a handicapped Strengths and weaknesses in around the world. person, take elderly persons to local regulations and ordinances are Employment in wholesale and lunch, haul firewood and clean yard ,

pointed out. In one example, Sandy, retail trade, transportation equip- debris, and raise $10,000 for differ.

Oregon has streamlined its permit ment manufacturing, and transpor- ent food banks.

process as a result of a PGE sunty. tation allshowed gains in 1985. Even PGE has joined with the Silicon Forest Grows the depressed forest products Oregon Road Runners Club to co-Nicknamed the " Silicon For- industry appears to be on the mend. sponsor the annualIbrtland est," the Ibrtland metropolitan area Community Relations Marathon. The 26.2-mile course has been successfulin attracting Economic development is only through the streets ofIbrtland I high technology companies from one part of PGE's close relationship attracts world-class competitors.

the Far East and Europe. Wacker with the communities it sents. So friends, family, and race Siltronic, NEC, Fujitsu, and others Thousands of Oregonians fans can share the thrill of victory on have built plants in the Portland receive emergency ft:el assistance a less demanding level, PGE orga-

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nized a Good Cents 5-mile run in Low Electric Rates To help address this public conjunction with the marathon. Sev- At an awrage of 4.5 cents per concern, PGE supported legislation eral thousand people run in the two kiknvatt-hour, PGE's residential placing before the suters a ballot races, while many more line the emetric rates are among the kwvest measure to establish a three-streets. in the nation. The national average is member commission to be ap-Fulfilling PGE's mission takes about 8 cents per kWh and the pointed by the garrnor. A sute is teamwork at alllewis. Indeed,"Our price reaches as high as 12 cents per scheduled in Narmber 1986, and if Teamworks"is the name of a special kWh in some markets. approved, the three commissioners program designed to enhance pro- Still, the price of electricity is will take officein April 1987.

ductivity and the quality of work life one of PGE's customers' foremost Oregonians apressed within the Company. concerns when making their energy similar concernsin 1984 when they In 1985, employees worked decisions. PGE is taking steps to apprmed the establishment of a toward the achievement of nine keep electric rates stable nmv that it Citizens' Utility Iloard (Cull).

I goals. Imprmrments in customer has a respite from the compounded The originallaw gave the Cull senice, safety, equal employment pressures of double-digit intlation essentially free access to insert its I opportunity, marketing, and absen- and the need to build expensiw material in imestor-mvned utilities' I tecism are a few of the goals. new plants. unthly billings. A U.S. District i "Our Teamworks" standards Thelast rate increase occurred Court judge has found this pro-l were tough, but employees met in late 1984. A decrease in rates for vision in the Oregon law unconsti-l sewn of the goals. Financial all customer groups is expected in tutional. A similar provision in a j bonuses were awarded for this suc- 1986. This will greatly boost market- California law was ruled unconstitu-cess. For 1986,10 even more diffi- ing efforts against competing fuels. tional by the U.S. Supreme Court in cult goals have bcen chosen. Regulatory Changes February 1986.

Oregon remains the only state with utility regulation in the hands -.

l of a single Public Utility Commis-sioner. The system pro $ ides for clear responsibility in decision making,

[. ,

i but it has led to public concern about the adequacy of the review ._

process. '

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I A t Wm gva stjmm l%Eis helpmg reseanhn at the Oregon Graduate Guter perfa t a netc u av to mett and nfine ingon <fstect Sa crall,<alhust

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Gmiertmg sunlidt mhniatruits u ah the ""' '"' ""R th's P"um s to cohma t!w sho!rt, tac <{stJJrpIv>travdlatc t eth is r>ne rlthe I" O'*P''N IIY '"*'I 'I#IMd'b'l marry researth and Jettfrpment f.rrmtts

! ICE supports thmugh amvlurment u rth the Elasne Prnar Resean h instatute tIJWD LIEl e,ndmis to hnualrescanh and 4rel *

!l opment orthe US clatrn unhts mJiatrv

. Estry ICE erriplus<rp' ass aIstrim whurma the aumparty's g<sth irrinJia ed

,' Among its pnnnis are time Jiratedima arJ m Im, Gur Trannarh measures and

equipment Jarigment, pou rvplant mam. ra,ards ,um.,,fida<harmerun m areas rena*ue and<pratmn pna edun1 and nac sua h as safers. aaromer un a c. pla it over or rmpnnrd tahn,Jogies atmns. halth arudaltirmarnr s-tmn l

! !1

PORTLAND GENERAL CORPORATION: BUSINESS DEVELOPMENT i Ibrtland General Corpora- currently h>cated in the states of mercial uses in ways that are gmxl tion's business dewlopment strategy Washington and Oregon, Columbia for the community and gmxi for l is to enhance financial and operat- Willamette Devek>pment's objective business.

ing results by making inwstments is to diversify into other actiw real Cornerstone Columbia proj-i that build on its experience and estate markets in the western United ects haw brought new life to parts resources. States. of duntwn Seattle and Tacoma, Finding opportunities that Real Estate Partnership Washington and Ibrtland, Oregon.

match its strengths has led Ibrtland In late 1985, Columbia RiwrPlace on Ibrtland's waterfront General to focus on realestate Willamette Development Co. and includes condomimums, a marina, development, financial services, and Weyerhaeuser Real Estate Co. restaurants, retail shops, a YMCA, energy services. New businesses entered into an agreement to office space, and the Alexis Hotel.

formed since 1984 are active and acquire the assets of Cornerstone growing in each of these fields. Development-a company that has .D-1985 was a busy yearin real received national acclaim for its . . '. . %

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estate for Columbia Willamette urban, mixed use real estate .s -

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Development Co. as its assets grew projects. c to $21 million. Cornerstone Columbia Devel- .. .)

This wholly owned subsidiary opment Co., the newly formed part- p acquires and dewtops suburban nership, will develop urban projects ..

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and urban, mixed use real estate that mix retail, residential, and com-l f2 projects. While most of its assets are 't6 3 ,. - -

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Columbia Willamette Develop- nance and financing of energy The leasing market offers j anent will enter into other segments equipment and mechanical systems attractive returns through the l

of the real estate dewlopment mar- ofits customers' facilities. Its tech- ownership and subsequent lease of ket independent ofits partnership nicalapertise combined with the large equipment. In its first trans-interest in Cornerstone Columbia. availability of financing creates a action, Columbia Willamette Leas-Suburban, mixed use, residential financial / technical service package ing purchased, and simultaneously development will become a major which few competitors can match. leased to llepublic Airlines, a focusin 1986. Several projects are Energy management and Boeing 757 jet airliner.

currently under consideration in cogeneration projects in the western Through its management western cities. In addition, Colum- states are the primary focus of Ener- arrangement with GATX Leasing, bia Willamette Development will Tech's sales force. Among its cus. Columbia Willamette Leasing

apand its property management tomers are grocery stores, schools, acquires over 20 gars of aperience l services. colleges, retirement homes, indus- in the acquisition, management, and j Energy Services Active trial plants, and sports facilities. leasing of transportation equipment.

i Western EnerTech,Inc., our Leasing Market Attractive While the future of the leasing energy service subsidiary, provides a Our initialentry into the finan. market is determined,in part, by

) current and future tax legislation,

full range of services to improve the cial services market was completed I productivity and reliability of energy with the formation of Columbia we spect favorable financial

delivery systems, and hold down Willamette Financial Group, Inc. returns from leasing to continue i energy costs for its industrial, com- This subsidiary will become the par- and for our portfolio to expand into

! mercial and institutional customers. ent of future financial service com- rail, telecommunications, shipping, j EnerTech's services include panies of which Columbia and other specialized equipment.

engineering, construction, mainte- Willamette Leasing, Inc., is the first.

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Nrtland Gencral Corporation and Subsidiaries PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (Unaudited) rm de un raica netember si iTh.,wh <4 ILI!mi 1985 1984 1983 Opating Reveat'es $826,6-13 $722,068 $586,101 Operating Expenses Purchasedt wer . 88,081 22,671 31J75 Production . .. . Ii1,57I 96,057 73,032 Transmission and distribution . 40,835 32,509 18,876 Administratiw and other . 96,314 89,755 84,469 11aintenance and repairs . 31,698 34,039 24,11I Depreciation and amortization . 87,288 80,355 59,755 1 Taxes other than income taxes 45,600 41,308 34,190 income taxes 121,427 54,057 51,131 j 622,814 450,751 376,939 Operating income . 203,829 271.317 209,465 Other income and Deductions Alkwance for equity funds used during construction 16,862 3,389 39,579 Other-net of income taxes . 13,896 (8.389) (646)

Gain on sale of facilities-net of income taxes of $22,247 37,287 - -

68,045 (5,(XX)) 38,933 Interest Charges Interest on long-term debt and other 102,723 107,437 112,674 Interest on short. term borrowings 3,220 3,005 2,396 Alkwance for bornwed funds used during construction (10,006) (2,489) (29,414) 95.937 107,953 85,656 Pirfened Dividend Requirement of Subsidiary 34,101 34,472 34,810 Income Before Extraordinary item 141,836 123,892 127,932 Extraordinary item Unrecarrable costs of abandoned nucicar project, less income tax reductions of $7,021 and $9,756 . (6,979) - (48,598)

Nc: Income . $134,857 $123,892 $ 79,334 Common Seock Average shares outstanding 45J43,310 44,221.525 42,512,999 Eamings per average share liefore extraordinary item . $3.12 $2.80 $ 3.01 Extraonlinary itcm Unrecmtrable costs of abandoned nuclear project, less income tax reductions (,15) -

( l.14)

$2.97 $2.80 $ 1.87 Dividends declared per share . $1.88 $1.81 $ l.77

& un npumng n,e ut unrmynd p.,n.Olm u.mmm 14

Ibrtland General Corporation and Subsidiaries PRO FORMA CONSOLIDATED BALANCE SHEETS (Unaudited)

Ahnic H dhnJs ,4 niksi 1985 1984 Electric Utility Plant-Original Cost Plant in senice $2,0M,016 $2,096,320 Accumulated depreciation (517,920) (466,942)

Accumulated deferred income taxes . (148,122) (134,!69)

Accumulated deferred inststment tax credits (55,721) (2,420) 1,342,25) 1,492,789 Construction work in progress 425,56) 401,951 Nuclear fuel,less amortization of $119,312 and $97,460 , 75,267 68,197 Capital leases, less amortization of $10,420 and $9,190 . 26,898 28,128 1,869,981 1,991,065 Other Property and Investments Conservation programs . 34,454 35,553 Other . 169,962 22,047 204,416 57/A)

Cunent Assets Cash and temporary cash investments 236,734 57,N7 Receivables Customer accounts-net 68.253 65,973 Other accounts and notes . 20,142 24,258 Estimated unhilled restnues . 41,110 46,916 Fuel stock-mvrage cost 9,725 18,937 Alaterials and supplies-astrage cost ... . 25,582 24,934 Prepayments and property taxes applicable to subsequent perials 23,125 25,357 424,671 263,422 Deferred Charges Abandoned nuclear project,less amortization of $17,784 and $5,31) 18,479 30,950 income taxes . 12,815 15,823 Other . 49,135 43,111 80,429 89,884

$2,579,497 $2.401.97i

& aumpanew iua are an hmyral pan it h v.nm.nis i

l 15 l l

Ibrtland General Corporation and Subsidiaries PRO FORMA CONSOLIDATED BALANCE SHEETS (Unaudited)

At Dnnntwr u ab=nw th> 1985 1984 CAPITAI17ATION AND LLABILITIES Capitalization Common stock equity:

Common stock, $3.75 par value per share,100,000,000 shares authorized, 45,716,584 and 44,703,853 shares outstanding $ 171,437 $ 167,M0 Other paid-in capital-net . 508,337 492,870 Retained earnings 240,646 191,045 Totalcommon stock equity . 920,420 851,555 Cumulative preferred stock of subsidiary:

Subject to mandatory redemption 19,800 32,093 Not subject to mandatory redemption . 230,000 230,000

'Ibtal cumulatiw preferred stock 249,800 262,093 long-term debt . 871,035 948,568 2,N I,255 2,062,216 Other Noncurmnt Liabilities Nuclear fuel storage liability . - 42,505 Obligations under capitalleases 25,588 26,898 25,588 69,40)

Curnnt Liabilities long-term debt due within one year . . . , 120,369 46,160 Current sinking fund-preferred stock . 1,800 2,611 Short term borrowings ....

34J00 11,500 Accounts payable and other accruals 93,920 108,310 Accrued interest 20,349 24,590 Dividends payable . 29,949 28,939 Accrued taxes 84,245 15,107 Deferred income taxes 17,464 17,025 402,3 % 254,242 Other Deferred tax benefits . 8,543 8,988 Miscellaneous ....._ 36,562 7,122 Deferred gain on sale of facilities-net 65,153 -

110,258 16,110

$2,579,497 $2,401,97I lb caumpanymg ne an an integral part at dee samenen Ibrtland General Corporation and Subsidiaries l NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMEN'I3 (Unaudited)

Note 1. Ibrtland General Cormratim (PGCt an Oregm wrporation having general business powers, was organized on December 3,1985. PGC was formed by Ibrtland General Electric Company (the Company) for the purpose of con) orate cffecting a Plan of Exchange (Plan) whereby PGC would become the sole common shareholder and parent of the l Reorganization Company.

and Related ne plan was effected on wrch 28,1986. See Note 11, Subsequent Ewnts, of the accompanying audited financial EcStRICluring staten cnts of the Company.

Note 2. %e pro forma mnsolidated financial statements of PGC set forth herein giw the effect of the c< change of common st ck and the repurchase by the Company of a portion ofits common stock in achange for certain prinCjkjO assets of the Company. For accounting purpnes, the exchange was treated as a pooling of interests.

SC UhC Since the Company is PGC's only material subsidiary, the consolidated financial statements are substantially the Preparation of same for PGC and the Company. Accordingly, the accounts of PGC and subsidiaries are derived from the Consolidated Company's acmunis for financial reporting purposes.

Statements ofIncome and Balance Sheets 16 1

1

POKILbND GENERAL ELECTRIC COMPebNY AND SUBSIDIARIES FINANCIAL STATEMENTS I

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Ibrtland General Electric Company and Subsidiaries f

! MANAGEMENTS DISCUSSION AND ANALYS5 OF FINANCIAL CONDITION AND l RESULTS OF OPERATIONS l

Results of Operations i Net income increased 7% in 1985, when compared with 1984, tax credit amortization. In addition, the Company cannot at this

! while earnings per share increased 6"h. The imprmement in 1985 time estimate what effect, if any, the uncertainties surrounding its

! carnings resuhed primarily from a net gain of $37 million resulting remaining imestment in Supply System Unit 3 will h.nr on the j from the sale of a 15% undivided interest in the ikurdman coal financial condition of the Company. See Note 8, Imutment in i plant (Ikurdman) and a ponion of the Pacific Northwest Interrie Supply System Unit 3 and Note to, I itigation.

{ (Intertie). See Note 4 Disposition of Utility Plant Facilities. This ,

! gain was partially offset by an extraordinaly loss of approximately Operatmg Revenues I $7 million net ofincome taxes associated with the settlement of Rate Actions In May 1984, the Public Utility Commissioner of the litigation surrounding the R hble Springs and SkagiUI lanford Oregon (Commissioner) granted the Company a five$ var, M5 (Skagit) nudear projects. See Note 1, Abandonment of Skagit/ milhon annual rate increase fi>r the reuntry of a ponmn of the j Ilanford Nuclear Project. In addition, the war.co.vear com. Company's imvstment in the abandoncti Skagit project. In i l parison was aho affieted hv a $42 million r'a luction in 1984 Nmvmher 1984, the Commissioner grantal the Company a $26 i income tax expense resuhing from the accelerated amonization of million annual rate increase to ofTset reduced rarepayer benefits

! certain unamortized inwstment tax credits tITC), as well as a net resuhing from changes in the pnvisions of the Regional !\mtr

! charge to 1984 income of $47 milhon resuhing from an adjustment Aa. This action should h.nr no direct impact on the Company's i

to the Company's imtstment in the Washington Public limvr earnings, ahhough it may have an a(hrrse effed on the Company's

Supply System (Supply Systemi Unit 3. oimpetitiw posnion and grmeth imtential. In addition, in May in 19S4, net income and earnings per share increased 39"o and

, w Conuniniona ordan an annual raw deuw d $23 nulhon to reia dw thsaintinuante of a tanporay inucaw 50"o compared to 1985. The increases were primarily due to timely rate action and increased sales of electricity. In' addition to 8' "! !i n May 1984 for accrued revenues associated with the the accelerated amorti/ation of ITC and adjustment to the Suppiv C"b'"P U"" 3 ""I P Cb I anions nd odm. dwI"."n'mg"e nw pap"'P kihml ^ '""h of these anlx>unold io rate i System Unit 1 imtstment mentioned alur,1984 earnings uhimate customers increased 6"o as comparul to 1984.

1 included a net gain of approximately $4 million from the sale of a portion of the Company's transmission and distribution properties Sales of Energy Kihm att-hour sales of energy to ultimate cus.

to the Columbia Riwr IWple's Utilny District (CRPUlh tomers increasal 1.5% in 1985 mvr 19X4 due to comparatively colder weather in the winter and warmer weather in dw sumnwr

! Net income for 1986 as comparal to 1985 taduthng the gain l j from the Ikurdman and Intenie sale and the loss from the settic. In adthnon, inovasa 2 poimm>wanliounain of enagy to mu IW due to dw avadahmty otha tuihno d surplus ,

i ment of htigation, discussed ahmt) is expected to be hurr due energy, incre sed access to the Intertie, and a f.nurable market ior I primanly to an increase in cenain purchased pimer costs and a decrease in other income resuhing from a reduction in in vstment u to Lhfornia utilities.

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l j $ 2.25 !l { , ![ v 6N Eaming, Per Average Common operating Rewnues & Net hicome Sharv & DhidenJs Dalarni e t>peraung Resennes Per Share

" N I "' "*'

n l'auung lu slure W IM dnds ptr 51urc l

l '

\

18

i l

/

Regional Power Act Operating rewnues and purchased pturr 1985 19S-1 1983 costs wrre rnluced by approximately $75 million, $93 million and Trojan-Nuclear:

$55 million in 1985,19S4 and 1983, respectiwly, as a direct result Paduction of the purr exchange pnsisions of the Pacific Northwest Electric expenses $49,138 $42,017 $ 38,379 I\mtr Planning and Conservation Act tRegionall\mtr Aat The 3tw1rs Regional I\mtr Act alkm s the Company to exchange nmer with generated . 4,6M,814 3.252,568 2,783,703 the Ik>nneville l\mtr hiministration (IlPA) and pass the benefit Colstrip 3-L,oal:

of this kmrr-cost smvr to its residential and snull farm custom. Pnxluction i ers. In September 1984, the Federal Energv Regulatory Commis.

' S 7,862 $ 8,940 -

sion appanrd llPA s changes to the methtUology usetl to calculate AIW,P',nses hene6'.s under the Regional limvr Act. These changes substan-II*  !

tially reduced the benefits receiwd by these customers.

genaatal . M O,101 . Rif04 i

1 Ikurdman-Coal:

Operating Expenses Pnduction Purchased Power Purchasett pmtr expenses increased due to expenses $33,823 $21,003 $16,661 l hieher sales for resale and the reduaion in Regional I\m er Act AlWIl's

, benefits mentioned ahtsv. generatet! . 499,969 620,384 433,366 Praluction Expenses . Production expenses increased 16"o in i l 1985 twrr 1954 pnmanly due to fuel commitment costs for Generation at Trojan increased 43% in 1985 due to an extended i

refueling and maintenance outage in 1984 flhis outage was longer )

Ikuniman, h0"o of which were rectnrrable thnu gh the l\mtr than anticipated due to the replacement of damaged control nxi .

Lost Mustment, and intreased operation of thelIropn nudear '

support pins and repairs and modifications to a coolant pump and plant ( IropnL During 19M5, Iropn, Colstrip 3 and Ikurdman certain backu 3 safety systems. The Company plans to operate generated 32" ,4"n and 3"'o of the Companys net system load Trojan throup midIA 5ril 1 1986, the commencement of the next requirements, compared with 2 3"o. 5"o and 4"o in 1954. Pnwhyc- scheduled annual refaling and maintenance outage. Ikurdman

, non expt;nses increased sharply in 1984, primarily due to Colstnp g.as off-line for the last four months of 1985 due to the availability luonung operanonal and the inacased operation of nipn. of km'-cost hydronm cr pursuant to a mmvr purchase agreemen't

] }the folkmang n .3 summary of related statistics forColumbia the L}ompany,s with Ilritish 1Iydro.

i pump il generaung plants (dollar amounts in thousands t I

I i

j  !

l .

! l i I i

i l $25 i

l i

! $20 i $15 i

l $10 . . j j -

I

$5 (

i l

l Ikmk %Iue & Alarket Wlue Sources of Electric Energy 1 (Per Gronon % re) <sc, y,cm jmy l E Ilook Value a pdt:I hilui !T'..

E M uket Val"e E Nudcar 12",

et Coal 9"o E l'irm purt hae 30""

l E Non l' inn pmdu es 12",

I f 19 t

I

Transmission and Distribution Expenses Transmission and dis. Other-Net ofIncome Tues ne increase in 1985 results from tribution expenses increased 26's in 1985 mer 1984 primarily due the amortization of deferred imestment tax credits (see Income to the additioaal wheeling apenses resulting from increased pur. Tax Expense alxnt) and an increase in imtstment income. Le chased power. He increase in 1984 resulted from increased trans. decrease in 1984 reflects a charge for preservation costs incurred mission rates implemented by the llPA in March 1984 and the on Supply System Unit 3 during the construction delay In addi-additional transmission apenses for Colstrip 3. tion, the Company recorde I a net gain of approximately $4 million Maintenance and Repairs ne increase in maintenance and in 1984 from the sale of a small portion of its transmission and repair expenses in 1984 mer 1983 was primarily due to the work distribution system to the Columbia Riwr PUD.

performed at Trojan during the atended refueling and mainte- Inflation The Company is particularly sensitiw to inflation nance period. because current raremaking practices alkne for the rcustry Depreciation and Amortization Expense Depreciation and through rewnues of the original cost,instead of the replacement amortization expense increased 34% in 1984 mvr 1983 primarily '

cost, of plant and equipment. For information on the ef fects of due to Colstrip 3 being placed in scisice and the amortization of inflation, see Supplementary Information to Disck>se the Effects of the Company's recarrable inwstment in Skagit. Le increase for Changing Prices.

1985 results primarily from the Skagit amortization.

Income Tax Expense The Company began amortizing in tst. Capital Resources and Liquidity ment tax credits generated under the Economic Recmrry Tax ne 1986 capital apenditure program is estimated at $130 million, Act of 1981 to Other Income in late 1984. As a result, income tax neluding AIOC. The 1987-88 program is estimated in the range expense for 1985 increased by approximately $10 million. of $200 million to $250 million, including AFDC. Approximately in addition, income tax expense for 1985 increased by approx- 15% of these estimated apenditures are for generating plant, imately $13 million due to various adjustments. Income tax 35% for transmission, distribution, and general facilities, and expense was reduced by approximately $42 million in 1984 and 50% for nuclear fuel and other expenditures. Cost estimates are

$26 million in 1983 as a result of the Commissioner authorizing the based on current plans for joint ownership in, and current con-C,ompany to accelerate the amortization of certain unamortized struction schedules for, certain future generating facilities. Lese imtstment tax credits. See Note 1, Summary of Significant estimates may be revised as a result of changes in such plans. Le Accounting Ibhcies.

mmplaion of Colstrip Unit 4, cuirently schedukd for commercial Other Items operation in the spring of 1986, is included in the estimates. Le Company currently has sufficient generating capacity and projects Allowance for Funds Used During Construction (AFDC) Le u er mnum ont meet hs pmject customer demand until decrease in AFDC in 1984 from 1983 veas primarih due to Col-

' ' ' ' " " ' '*P'"**""""'"'*""Y strip 3 being placed in service and the climination of AFDC ".'" *P'"'

" """ ' *"I ' E'"'"* "# E"'

presiously capitalized on Supply System Unit 3 during the con-struction delay.

5.0 25";- - - - -

' :n ,--

l 4.0 , 22.5 % - .?~

3.0 d 20"/

2.0 17.5 V - _- -

1.0 - 15% - -

t Cash Flow Dividend Coverage Ratio Construction Work in Pmgress as a (Times) Percentage of Total Plant l

20

The Company apects to use intemally generated funds to meet all in ikccmber 1985, the Company terminated the Trojan trust ofits capital requirements in 1986. As a result of an achange of agreement and the 5100 million long term bank credit agreement.

common stock, Ibriland General Grimration ( PGC) became the it a!so retkvmed 510.5 million of the remaining 11.50% Series sole shareholder of the Company's common stock. See Note 11 Cumulatiw Preferret! Stock. During 1985, the Company issued Subsequent ihrnts. The Company does not intend in the foresce- one million shares of mmmon smck under its stock purchase able future to i3 sue additional common stock to the public. Any plans for net proceeds of $19 million.

common stock issued will be soki only to PGC. PGC is autho-In March 1986, the Company issued $100 million of First Mort-rized to issue its un common and preferred stock to the pubhc.

gage iq,nds,9%% Series dul March 1,2016. 'lhe pn ceeds from Ihe L,ompany will continue to issue preferred stock and debt this financing were used to retkvm First Mortgage lkinds,13%%

securities. The Lompany (krs not anucipate selling any ackhn.onal & ries due August 1,2010 and to reduce shmt. term debt.

preferred stock in 1986. The Company plars to sell f ned mcome securities to refund maturing obligations. If market conditions are lhe issuance of additional preferred stock and first mortgage famrable, it may also sell fixed income securities to reduce its cost bonds requires the Company to meet camings etnerage and i of capital. security pnwisions set forth in the Articles of Incorporation and ,

i , .. .

the Indenture securing its first mortgage bonds. As ofIkcember 31, l ns the resJt of impnwrd internal tund generation and a reducn. on 1985, the Company estimates that under the most restrictiw of l in construction activity, the cash capital requirements were com these pnwisions, at an assumed rate of 11%, it muld issue approx-pletely funded internally in 19S5 and 19S4 as comiyared to 67" in matelv 5430 million of additional preferred stock and approx-1983. These conditions alkmrd the Company to hma as ex crnal imateli 5250 million of additional first mortgage bonds.

financings during 1985 and 1984.

At ikcember 31,1985, the Company had approximatelv 575 In May 1985, the Company redeemed $46.6 million of 14 %""

million in marketable securities which provide flexibility for future notes which were due in 1987. In April and June 1985, the (om-imtstments. In addition, the Company had in vsted 52'33 million pany arranged with the Ibrt of St. Ilelens, Oregon to issue a total in commercial paper from the pmceetls of the sale of utility plant of 536.9 million of Ibrt of St. I felens Vanable Rate Ikmand tacilities. See Note 4. Disposition of Utility Plant Facilities.' Cash Ibilution Lontrol Revenue Ibnds due April 1 and June 1,2010.

11w from current operations is the Company's primary internal Also, in June 1985, the Company i,ssued 560 milhon of b, rst Mort-source ofliquiditv. External borrwings from banks are used as a pge IkInds, lon% Series dueJune 1,1995. The proceeds from normal part of dav-to-day operations to meet interim cash needs the hrst mortgage bond financing were used for the repayment of Committed lines of credit and borrwing arrangements from vari-long-term debt and to reduce short-term debt.

ous domestic and foreign banks totaled 5315 million at ikcember In,Iuly 1985, the Gmpany began issuing commercial paper under 31,1985. Even though PGC intends to pnwide short- and long-its wn credit. It may issue up to 5100 million of such commercial term financing to its subsidiaries, the Company will continue paper. 'lhe Company has an amount of unused credit available to maintain its lines of credit and enter into short- and long-term through its committed lines of credit expiring in 198S and 1990 arrangements with domestic and foreign banks.

that exceeds the amount of commercial paper outstanding.

100"o 3.75 80"o 3.00 60"o 2.25 40"o 1.50 -

20Lo .o Internally Generated Funds as a Pn: Tax Interest Coverage Ratios Percentage ofCapital Requirements m,,yo E Interest Cintrage Iindades Al DCI E Cash brest Centrage aEuludes Al DCi 21

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the BoarJofDirectors anJShareholders of Portland GeneralElectric Cwnpany:

We have examined the amsolidated balance sheets and uatements ofcapitalization of Pardaud General Electrie Gunpany can Oregon wrporation) anJsubsidiaries as ofDecember 31,1985 anJ 1984, anJ the related amsolidateJ statements ofinmme, retained earnings and changes infnancialpositionfor each ofthe three rears in the period enJed December 31, 1985. Our examinations were made in aavrdance icith generally acceptcJ auJiting standards anJ, aanrdingly, included such tests of the aavanting reairJs and such other auditing procedures as ice amsidered necessary in the araenstances.

As discussedin Notes 8 anJ 10, amstruction on the Washington Public PoiverSupply System Unit 3 Nuclear Proica (Unit 3), in ichich the Company has a 10% interest, has been suspenJed. This suspension anJ related litigation have acated sigmfcant uncertainties regarJing the idtimate a>st of Unit 3 andichether it icillbe a>nipletedandplacedin service. A settlement agreement has been implemented ichich tvill res<dve the suspension relatedlitigation anJprovide the Company teith a long-term supply ofpoiver ichether or not Unit 3 is annpleted. In additimt, anotherparty tvillassume allfuture msts related to the Cwnpany's interest in Unit 3 and has the option ofacapiiring the Cwnpany's share ofanyfuture outputfrom Unit 3. Remeery by the Company ofits investment in Unit 3 (S235 million at December 31,1985) is siJyect to the Company receiving adequate rea>very through the ratemaking process. As discusscJin Note 8, the Company has requested the Oregon Public Utility Gunmissioner (Commissioner) to assign a sulue to the supply ofpoiver under the sentement and to deter nine l the method ofremvering such value. Management cannot at this time predia ivhat the Commissi<mer may Jacimine anJ, as a 1

restJt, ichat amount, ifany, ofits investment icillbe iJtimately remvereJ. Certain parties have challenged the sentement in the marts. I(the setdement is set aside and its implementation modined or dismntinued, remvery by the Gunpany ofits investment may depenJ upon ichether Unit 3 is annpleted or terminated. Ifterminated, remvery ofthe Cwnpany's investment and any termination a>sts is subject to the Gnnpany receiving adequate rate treatment. In a prior regulatory adion involving a terminated nuclear project, the Commissioner disalkneed a>sts incurred subsequent to passage ofa certain Oregon fair, the interpretation ofichich is currendr being addressedin the anorts. Substantially allofthe Cwnpany's investment in Unit 3 uus inairred subsequent to passage of this laic. A s a restJt ofthe above uncertainties, the recoverability ofthe Company's investment in Unit 3 presently cannot be determined.

In our auditors ' report dated Februarr X,1985 (except icith respect to the maners dismssed under " Pebble Springs"in Note 10, as to tchich the date tras Aprd 19,1985)includedin the Gunpany's AnnualReport on Form 10Efor the year enJed December 31,1984, as amendcJ on Form 8 Jated May 2,1985, our opinion on the 1984,1983 and 1982 consolidatedjnanaal statements uus anahfedas being subject to the effect ofsuch adjustments, ifany, as might have been required had the outanne ofcertain litigation related to the terminated Pebble Springs anJ SkagitIIlanforJ nuclear projects (Pehhle Springs anJShagit) been knou n. As explaincJin Note 10. on Oaober 2s,1985, a sentement agreement iras approved by the murt, restJting in dismissalofallPebble Springs anJSkagit laicsuits as to the Company. The settlement resultedin the Companyforegoing the adlectirnt ofpreviously authorized revenues, the chargefor ichich was recogni:cJ in earnings ofthe current year, as required by generally acceptedaavunting prinaples. AavrJingly, ourpresent opinion on the 1984 and 1983 amsolidatedjnana' a l statements, as presented herein, is no kmger quahfed icith respea to the matters discussed under " Pebble Springs andShagit/

Ilanford Nuclear Projects"in Note 10.

In our opini<ni, subject to the effea on the consolidatedjnancialstatements ofsuch adjustments, ifany, as might have been required haJ the outcome ofthe uncertainties relateJ to Unit 3 referreJ to in the seamdparagraph been knoten, the fnancialstatements referred to in thefrst paragraph presentfairly thefnancialposition ofPortland GeneralElearic Company and subsidiaries as of December 3 I, I985 anJ l984, and the restJts of their operations anJ the changes in theirfnancial position for each of the three years in the period enJed December 31,1985, in conformity teith generally accepted acanmting principles applied on a consistent basis.

FordanJ. Oregon.

February 14,1986 (erapt icith respea to the matters dismssedin Note i1, as to ichich the date is March 28. I986). ARTIIUR ANDERSEN & CO.

22

Ibrtland General Electric Company and Subsidiaries CONSOLIDATED STATEMENTS OFINCOME F.e ik %m I mkxi Inxmkr it abumb 4 tullmi 1985 1984 1983 Operating Revenues $826,M3 $722,068 5586,404 Operating Expenses Purchased power (Note 1) 88,081 22,671 31,375 Production . 111,571 96 057 73,032 Transmission and distribution . 40,835 32,509 18,876 Administratiw and other . 96,314 89,755 84,469 Maintenance and repairs . 31,698 34,039 24,111 Depreciation and amortization (Note 1) . 87,288 80,355 59,755 Taxes other than income taxes 45,600 41.308 34,190 Income taxes (Notes 1 and 2) 121,427 54,057 51.131 622,814 450,751 376,939 Operating Income . 203,829 271.317 209,465 Other Income and Deductions Allowance for equity funds used during construction (Note 8) . 16,862 3,389 39,579 Other-net ofincome taxes (Note 8) . 13,896 (8,389) (M61 Gain on sale of facilities-net of income taxes of $22,247 (Note 4) 37,287 - -

68,N5 (5,000) 38,933 Interest Charges l Interest on long-term debt and other 102,723 107,437 112,674  ;

Interest on short-term borrowings 3,220 3,005 2,396 l Alkwance for borrowed funds used during construction (Note 8) . (10,006) (2,489) (29,414) 95,937 107,953 85,656 Income Before Extraordinary Item 175,937 158,3M 162.742 Extraordinary Item Unrecurrable costs of abandoned nuclear project, less income tax reductions of $7,021 and $9,756 (Note 3) . (6,979) - (48,598)  !

Net Income 168,938 158,3M 114,144 Preferred Dividend Requirement . 34,101 34,472 34.810 Income Available for Common Stock S134,857 $123,892 $ 79,334 Common Seock Average shares outstanding 45,343,310 44221,525 42,512,999 Eamings per average share Before extraordinary item . $3.12 $2.80 $3.01 Extraordinary item Unrecarrable costs of abandoned nuclear project, less income tax reductions (Note 3) (.15) -

( l.14)

$2.97 $2.80 $1.87 Dividends declared per share . $1.88 $1.77

_ $1.81 lbrtland General Electric Company and Subsidiaries CONSOLIDATED STATEMENTS OF RETAINED EARNINGS 1,< tw wm I mLxt IAxmkr si ahumh of intimi 1985 1984 1983 l Balance at Beginning of Year . $191,N5 $147,248 $143,223 Net Income 168,958 158,3M 114,144 360,003 305.612 257,367 Dividends Declartd Common stock . 85,256 80,095 75,309 Preferred stock . 34,101 34,472 34,810 119,357 114,567 110,119 Balance at End of Year . $240,M6 $191,045 $147,248 ne auwnpumng nias are an iruegral part d tiee si.nnm 23

Ibrtland General Electric Company and Subsidiaries CONSOLIDATED BALANCE SHEETS At themlw H Ghmis d tute 1985 1984 Electric Utility Plant-Original Cost Plant in senice(Note l) $2,064,016 $2,096,320 l Accumulated depreciation (Note 1) (517,920) (466,942)

Accumulated deferred income taxes (Note 1) (148,122) (134,169)

( Accumulated deferred imestment tax credits (Note 1) (55,721) (2,420) 1,342,253 1,492,789 Construction wurk in progress (Notes I and 8) 425,563 401,951 Nuclear fuel, less amortization of $119,312 and $97,460 . 75,267 68,197 Capital leases, less amortization of $ 10,420 and $9,190 (Note 9) 26,898 28,128 1,869,981 1,991.065 Other Property and Investments Conservation programs . 34,454 35,553 Other (Note 11) . _ 169,962 22,N7 Current Assets 2N,416 5 7 //10 Cash and temporary cash imest:nents (Note 4) 236,734 57,N7 Ikceivables Customer accounts-net . 68,253 65,973 Other accounts and notes . 20,142 24,258 Estimated unbilled revenues . 41,110 46,916 Fuel stock-arrage cost 9,725 18,937 Materials and supplies-merage cost . 25,582 24,934 Prepayments and property taxes applicable to subsequent periods 23,125 25,357 Deferred Charges 424,671 263.422 Abandoned nuclear project, less amortization of $17,784 and $5,313 (Notes I and 3) 18,479 30,950 Income taxes 12,815 15,823 Other . 49,135 43,111 80,429 89,884

$2,579,07 $2.401,97i CAPITALIZATION AND LIABILITIES Capitalization (see accompanying statements)

Common stock equity $ 920,420 $ 851,555 Cumulatiw preferred stock Subject to mandatory redemption 19,800 32,093 Not subject to mandatory redemption . 230,000 230,000 long term debt . 871,035 948,568 Other Noncunent Liabilities ' '

Nuclear fuel storage liability (Note 1) . - 42,505 Obligations under capitalleases (Note 9) . 25,588 26,898 Current Liabilities

Long term debt due within one >rar 120,369 46,160 Current sinking fund-preferred stock . 1,800 2,611 Short term borrowings (Note 6) . 34,300 11,500 Accounts payable and other accruals . 93,920 108,310 Accrued interest . 20,349 24,590 Dividends payable . 29,949 28,939 Accrued taxes 84,245 15,107 Deferred income taxes 17,4M 17,025 Other 402,396 254.242 Deferred tax benefits . 8,543 8,988 Miscellaneous (Note 1) . .

36,562 7,122 Deferred gain on sale of facilities-net (Note 4) 65,153 -

110,258 16,110 j $2,579,497 $2,401,971 l Tb accompaming nacs an an integral part of these stacments.

i 24

Ibrtland General Electric Company and Subsidiaries CONSOLIDATED STATEMENTS OF CAPITALIZATION Arnn m wr m h smiss n w 1985 1984 Common Stock Equity (Notes 5 and i1)

Common stock, $3.75 par value per share, 100,000,000 shares authorized,45,716,584 and 44,703,853 shares outstanding S 171,437 $ 167,M 0 Other paid-in capital 517,618 502,477 Capital stock expense . (9,281) (9/i07)

Retained earnings . 240,646 191,045 920,420 45.0 % 851.555 41.3 %

Cumulative lhferm! Stock (Note 5) l Subject to mandatory redemption

$100 par value per share,2,500,000 shares authorized

{ l1.50% Series, 113,037 shares outstanding in 1984 . - 11,304 I Current sinking fund . . -

(8111 8.875% Series,2161)00 and 234,000 shares outstanding . 21,600 23,400 Current sinking fund . (I,800) (1,800) 19,800 1.0 32,093 1.6 Not subject to mandatory redemption 9.76% Series, 100,000 shares outstanding 10,000 10,000 7.95% Series,300,000 shares outstanding 30,000 30,000 7.88% Series,200,000 shares outstanding 20,000 20,000 820% Series,200,000 shares outstanding 20,000 201100

$25 par value per share,6,000,000 shares authorized

$2.60 Series,1,000A)00 shares outstanding . 25,000 25,000

$4.40 Series,3,000,000 shares outstanding . 75,000 75,000

$4.32 Series,2,000,000 shares outstanding . 50,000 50Axx) 230,000 11.3 230,000 11.1 Long-Term Debt (Note 7)

First mortgage bonds hiaturing 1985 through 1989 9%% Series dueJune 1,1985 -

27,000 4%% Series due September 1,1986 8,M0 8,960 {

4%% Series dueJune 1,1987 4,236 4,436 i

hiaturing 1990 through 1995 - 4 % % 10 % % 109,363 50 626 hiaturing 1996 through 2000-5%L 13 %% 237,111 242,678 Alaturing 2001 through 2005-7%% 11 %% 133,399 133,399 hiaturing 2006 through 2012-8%%-13%% 232,078 232,078 lbilution control bonds Ibrt of Alorrtw, Oregon,8% 12%,

l serially due 1984 to2011 25,050 25,250 l City of Forsyth, Montana, variable rate.

dueJune 1,2013, and August 1,2014. 97,800 97,800 l

Amount held by trustee . (9,299) (10,764)

Ibrt of St. Ilelens, Oregon, variable rate, due April 1 andJune 1,2010 36,900 -

16L% bank loan due Nowmber 13,1986 25,000 25,000 14%% notes due Slay 1,1987 -

46,642 Trojan trust agreement -

11,610 Bank credit agreement . -

100,000 Commercial paper 90,000 -

Other 1,126 13 991,4N 994,728 Long-term debt due within one p ar . (120,369) (46,160) 871,035 42.7 948,568 46.0 Total capitalization . $2,041,255 100.0 % $2,062216 100.0 %

The auxnpanying runes are an integral pan of these st.ncrnents.

I 25

Ibrtland General Electric Company and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION rm se un Enant oc<ernser si au nas of nero 1985 1984 1983 Source of Funds Funds prmided internally Income before atraordinary item . $ 175,937 $ 158,364 $ 162,742 Non-funds charges (credits) to income Depreciation and amortization 109,444 95,3 % 74,549 Deferred income taxes-net . .. 19,355 13,691 38,881 Alkwance for equity funds used during construction (16,862) (3,389) (39,579)

Adjustment to Supply System Unit 3-net - 42,324 -

Nuclear fuel storage . 5,592 5,592 5,9 M Other-net (5,400) 5,108 3,041 Funds from current operations . 288,066 316,996 245,598 Funds from extraordinary item Unrecomrable costs of abandoned nuclear project (6,979) -

(48,598)

Non-funds charge to income Unrecomrable costs of abandoned nuclear project 14,000 -

58.354 Funds from extraordinary item . 7,021 - 9,756 Dividends declared (l19,357) (l14,567) (110,119)

Funds prmided internally 175,730 202,429 145235 Funds from external financing long-term debt 209,370 141,120 91,763 Common stock . 18,996 18,706 29,410 Short-term borrowings-net . . 22,800 (3,500) 10,000 Retirement oflong-term debt and preferred stock (227,746) (200,509) (86,597)

Funds from external financing 23,420 (44,183) 44,576 Sale of properties-net .

171,966 5,615 -

Change in obligations under capital leases (1,310) (1230) (1,155)

$ 369,806 $ 162,631 5 188,656 Application of Funds Gross utility construction . S 108,740 $ 128,957 $ 191,131 Alkwance for equity funds used during construction (16,862) (3,389) (39,579)

Adjustment to Supply System Unit 3- AFDC equity - (26,597) -

91,878 98,971 151,552 l Imtstment in marketable securities . 75,240 - -

Imtstment in subsidiary companies 69,964 - -

Nuclear fuel storage . . 20,312 - -

Changes in net property under capitalleases . (1,230) (1,155) (1,084)

Miscellaneous-net . .

4,349 (4,439) 9,548 l

Increase (decrease) in working capital excluding current maturities, sinking funds and short term borrowings Cash and temporary cash imrstments 179,687 53,653 2,087 Receivables . (1,836) 25,694 (1259)

Estimated unbilled rewnues (5,806) 8,229 1,845 Inwntories . .. (8,5M) (31) (5,431)

Accounts payable and accruals (51,956) (19,433) 21,912 Other-net (2,232) 1,142 9,486

$ 369,806 $ 162,631 5 188.656 lb aaumpanving rues are an intgral pan ddue surements.

26

Ibrtland General Electric Company and Subsidbries NOTES TO FINANCIAL STATEMENTS Note 1. Le Company's accounting policies conform to generally accepted accounting principles for regulated pubiic Summaryof utilities. He policies are in accordance with the accounting requirements and the raremaking practices of the

. regulatory authorities hasing jurisdiction.

Significant Consolidation Principles-The financial statements include the acmunts of the Company and certain of its I\CCounting wholly ownal subsidiaries. Intercompany balances and transactions haw been eliminated. The (empany s mws:-

blCles ments in its unconsolidated subsidiaries are accountal for under the equity method.

Revenues-The Company accrues estimatal unbilled rewnues for senicer prmidal to month.cnd.

Purchased Power-The Company credits purchasal power costs for the net amount of benefits received through a pmver purchase and sale contract with the Bonnesille Ibwer Administration (BPA). Reductions in purchasal power costs that result from this achange are passal directly to the Company's residential and small farm customers in the form oflower rates.

Allowance for Funds Used During Construction ( AFDC)-AFDC represents the pretax cost of bornal funds used for construction purposes and a reasonable rate for equity funds. AFDC is capitalized as part of the cost of utility plant and is credited to income but does not represent current cash earnings. %e maximum AFDC rates i used are determined by a formula established by the Federal Energy Regulatory Commission ( FERC). He maxi-mum AFDC rates used were 12.36%,12.24% and 13.20% for theyears 1985,1984 and 1983.

l Depreciation-Depreciation is computed on the straight.line methal based upon the estimatal awrage senice liws of the various classes of plant in senice. Depreciation apense as a percent of the related awrage depreciable plant in senice approximated 3.6% in 1985 and 1984, and 3.4% in 1983.

Depreciation of the Trojan nuclear plant (Trojan) includes praisions for decommissioning costs. These costs are estimated to be $117,000,000. The sinking fund method is used to determine the current decommissioning prmision that is included in rates charged to customers.

Le costs of renewals and replacement of property units are charged to plant, and repairs and maintenance are charged to apense. The cost of property units retire 1 other than land, is charged to accumulatal depreciation.

Nuclear Fuel- Amortization of the cost of nuclear fuel is based on the quantity of heat producal for the generation of ekctric energv Under the Nuclear Waste Disposal Act of 1982, the federal gmtrnment is to prmide a repository for spent nuclear fuel by 1998 for which the Company will pay a fee.

He Public Utility Commissioner of Oregon (Commissioner) has alkwed increase i rewnues to prmide for estimated disposal costs. Disposal cost basal on energy generated after Apnl 6,1983 is being paid quarterly.

Disposal cost basal on energy generated prior to April 7,1983 ($20,312,000) was paid inJune 1985. Rewnues collected in excess of this amount haw been deferred in Miscellaneous Liabilities on the Consolidatal Balance Sheet as of December 31,1985, pending ultimate disposition by the Cornissioner. His excess amounted to

$27,785,000 as of December 31,1985. See Note 11, Subsequent Events.

Retirement Benefits-The Company has a noncontributory pension plan cmtring substantially all ofits employ-ces. The total pension expense for 1985,1984 and 1983 was $6,119,000,56,685,000 and $6,106,000 including amortization of prior senice costs over not more than 15 years. The Company makes annual contributions to the plan equal to the amounts accrued for pension expense. A comparison of the actuarial present value of accumu-lated plan benefits, using an assumed interest rate of 9%, and net assets available for benefits is presented behw, as of the date of the latest act uarial valuation.

Janum I Januarv I 1985 1984 l flhousandwfIbilam  !

ActuanalIbem Value Vem d .... $57,837 $50.276 Nonwsted . 4.250 3.(01

]

$62,087 $43.877 l Mt Assts . $94,105 $h2.M25 Le present value of accumulated plan benefits and net assets available for benefits has not changed materially as of December 31,1985.

The Company also pnxides certr.in health care and life insurance benefits for retired empk3res. Company empkwees become eligible for these benefits if thev reach normal retirement age while working for the Company.

%ese benefits are provided through the operation of a qualified plan under the Internal Revenue Cale. He Company records expenses equal to its contributions to the plan, which totalal $1,080,000 and $1,520,000 in 1985 and 1984, respectively. The Company's benefit plans will be extended to cover the empkiyces of Ibrtland General Corporation (PGC), the Company's parent.

27

Pbwer Cost P- - m Tadff (PCA)-Le PCA, which is adjusted quarterly by the Commissioner, permits 80% recmery of variable power costs in excess of those used for setting existing general tariffs. These pour costs include those of Company-owned generation and purchased power. He PCA also prmides for refunds of 80% of underruns in power costs from those used in setting existing general tariffs. Allowed costs are collected or refunded through an adjustment to customers' bills. Costs that are more or less than the total monthly adjustment are deferred.

Income Taxes-Deferred income taxes are prmided for timing differences between financial and income tax reporting to the extent permitted by the Commissioner fer raremaking purposes. To comply with the praisions of the 1981 Economic Recmery Tax Act (EIEA), the Company is providing deferred income taxes on timing differences assoctated with propeny depreciated under the Accelerated Cost Recarry System of ElEA. For property placed in service prior to ElEA, deferred taxes are provided for only a portion of the excess accelerated deprecision mer book depreciation. His has the effect af passing some income tax reductions on to the Company's ratepayers. At December 31,1985, the cumulatiw net amount of all timing differences for which deferred taxes haw not been recorded was approximately $529,000,000. Le tax effect of this amount (approx-immely $265,000,000) represents future income tax inct eases, which the Company anticipates to recmer through  !

rates. Deferred income taxes assoctated with property are reflected as a reduction to electric utility plant. Nrtions of the deferred income taxes are classified as current to the extent the related assets are current. %e net proceeds from the sale of tax benefits under the praisions of EITA are deferred and are Mng amortized to income mer the estimated liws of the related properties.

Tax reductions resulting from imestment tax credits are deferred and amortized to income mer periods not to i exceed 25 years, the approximate liws of the related properties. Deferred imestment tax credits are reflected as a reduction to electric utility plant. Imestment tax credits generated prior to 1981 are amortized to operating income taxes. Imestment tax credits generated after 1980 are amortized to other income and deductions to comply with prmisions of EIEA.

Le Company receiwd approval from the Commissioner to amortize to income certain unamortized imestment tax credits mer a fne-year period. Such credits were previously being amortized to income mer a 30-year period.

His action reduced income tax expense by approximately $42,000,000 in 1984 and $26,000,000 in 1983.

Abandoned Nuclear Project-The net amount in abandoned nuclear project represents the recmerable portion of the Company's imestment in the Skagit/Hanford nuclear project (Skagit). In May 1984, the Company began amortizing, on a straight.line basis, its deferred imestment mer a five-year period. The unamortized balance is excluded from the Company's rate base. As the result of the settlement oflitigation related to the Rbble Springs and Skagit nuclear projects, an adjustment was made to reduce the recarrable ponion by $14,000,000 during the fourth quarter of 1985. See Note 3, Abandonment of Skagit/Hanford Nuclear Project.

! Reclassdications-Certain reclassifications have been made in the prior year amounts to make them comparable to the classification of such items in 1985.

Note 2. Le following table shows the detail of taxes on income and the items used in computing the differences between the statutory federal income tax rate and the Company's effectim tax rate.

Income g Years Ended Dttember 31 1985 1984 1983

% SO (IhousandsofDollars)

Income Tax Expense Currendy pavable . $ 95,827 $ 16,091 $ 1,108 Deferred income taxes Abandoned nudcar project . . . . . . (6,770) (2238) 31,773 Ad iustment to Supply System Unit 3 504 (10,580) -

Capitalized interest 2,6M 368 12.820 Accelerated depreciation . 15,990 18,023 12,361 l l Property taxes . 1,152 1,006 2.369 Unbilled revenue . 439 519 (24) ,

Nudcar fuel storage . (2,154) (3,461) 7,102 I Rent accrual . . . . . 9,197 (4,918) (1,449)

Capitalized panoiltaxes and other...........

emplowe benefas . . . . . . . . . . 1,666 1,437 1,773 Deferred gain on sale of facihtics . (44,344) - -

Fuel u A% . (7,852) - -

Othcr . .......... 1,608 5,837 2ihl Inwstment tax creda ad iustments 55,946 22.198 (29.959)

$123,893 $ 44282 5 39.965 Utility $121,427 $ 54.057 $ 51,131 Namatsy . . . . 9,487 (9,775) (1,410)

E-. -. , Isem . (7,021) -

(9.756)

$123,893 $44282 $ 39.%5 28

Years Ended December 31 1985 1984 1983 (IhotmandsdDdlars)

Efecove Tax Raner ,

Computed tax based on simutory federal income tax rees apphed to incane beforc income taxes . .. .. $134,094 $93217 $ 70.890 (Decreases) increases rcsulung from-Auclermed deprecision . . . . . . . . . . . . . (326) (1,478) (4217)-

Alkwance for equiry funds used during construction . (7,756) (1,559) (18205)

Stae and kvaltaxes-net . 9J47 289 5,175 Inwstment tax credas . ........ (9,048) (49,051) (29.959)

Abandoned nudcar prticct-AI'DC equity . . 430 - 17,894 Saledfacilnics . (7,865) - -

Other . . 5,017 2,8M (1,613)

$123,893 $ 44282 $ 39.%5 Effective ax rme . 42.5 % 21.9 % 25.9 %

l Note 3. In 1983, Puget Sound Ihver & Light Company terminated the Skagit/IIanford nuclear project in which the  ;

dbandonment Company had a 30% interest. Uncertainties relaed to construction costs, future energy demands, and the l

. regulatory and political environment were cited as reasons for termination. Le Company was granted a rate I ofSkagit/ increase to recmer a portion ($36,263,000, net of related inco ne tax reductions of $31,773,000) ofits investment in i Hanford Skagit mer a rive.3 ear period. Le write-off of the unrecmerable portion resuhed in an extraordinary loss of Nuclear $48,598,000, net of related income tax reductions of $9,756,000, or $1.14 per share. As a resuh of the settlement of litigation related to itbble Springs and Skagit in 1985, the Company will forego the collection of $14,000,000 gJect which it was previously authorized to collect from its customers. See Note 10, Litigation. %e reduced collections are estimated to he in effect until April 1986. As a result of the settlement, during the fourth quarter of 1985, the Company recorded an extraordinary loss of $6,979,000, net of related income tax reductions of $7,021,000, or $.15 per share.

Note 4. On December 31,1985, the Company sold a 15% undivided interest in the Boardman coal plant (Boardman)

(75,000 kilowatts of capacity or 18.75% of the Company's 80% undivided interest) and a 10.714% undivided gisposition interest in the Grizzly-Malin 500-kilovolt Pacific Nonhwest Intertie transmission line (Intertie) to General Electric ofUtility Credit Corporation (GECC) for gross cash proceeds of $233,000,000, which were imested in commercial papet Plant The sale to GECC resulted in a gain of $102,440,000, net of related income taxes of $61,113,000. Generally Facilities accepted accounting principles require that $27,865,000 of the gain be deferred and amortized mer the three-year period that the Company is subleasing back Boardman (see Note 9, Commitments and Contingencies) and that the remaining $74,575,000 be recognized in income currently. Iloweser, the Commissioner directed the Company to defer 50% of the gain pending final disposition of the entire gain in a rate case filed in March 1986. As a result, the effect on 1985 earnings was $37,287,000 or $.82 per share (half of the $74,575,000 current gain). InJanuary 1986, the Company began antortizing $13,933,000 (half of the $27,865,000 deferred gain) mer a three.3 ear period pending final disposition in the rate case mentioned abme.

Note 5. The follmving changes occurred in the common stock, cumularise preferred stock and other paid-in capital b mon c.cc unts (do!!ar amounts in thousands).

ggd Cumulmise Preferred Stadt Subject to Preferred mnanmy Stock C""""" S' "' "'d'""""

Number $3.75 Number $100 Other i cf Par d Par Paid-in ,

I Value Shares Shares Value Capital l l December 31,1982 41,347.651 $155,053 .KM,757 $ 40,476 $466,963 l

Sales d stodc . . . . . . . 2,053,921 7,703 - - 21,708 l Redemption of stock . - -

(27.9(O (2.796) 16 l December 31,1983 43,401,572 162,756 376,797 37,680 488,687 Sales of stock . . . . . . . 1,302281 4,8M - - 13,822 Redemption of stock . - - (29,7N)) (2.976) (32)

Dmmher 31,19M 44,703,853 167,640 347,037 34,704 502,477 Sales dstock . . . . . . . 1,012,731 3.797 - - 15,199 lkdemption dstodc . - -

(131.037) (13,1(M) (58)

December 31,1985 45.716.584 $171.437 216.000 $ 21.600 $517,618 29

Common Stock At December 31,1985, the Company had resened 1,100,117, 45,037 and 1,500,000 othorized but unissued shares of common stock for issuance under its common stock irnestment plan, emplo>re stock purchase plan, and stock ownership program. As a result of the corporate reorganization in March 1986, these plans haw been amended so that shares of PGC common stock will be issued in lieu of the Company's common stock. As ordered by the Commissionen the Company is prohibited from paying dividends or making other distributions to its parent, PGC, to the extent such payment or distribution would reduce the Company's common stock equity capital below 36% of total capitalization. See Note 11, Subsequent Ewnts.

Cumulative Nfened Stock Subject to Mandatory Redempton Mandatory sinking fund requirements on the 8/a75% Series preferred stock are $1,800.000 per > rat %e Company is required to redeem annually 18,000 shares at $100 per share. At its option, the Company may redeem, through the sinking fund, an additional 18,000 shares each3rat This Series is redeemable at the option of the Company at $105 per share to April 30,1986 and at reduced amounts thereaftet No dhidends may be paiJ on i common stock or any class of stock owr which the preferred stock has priority unless all amounts required to bc l paid for dhidends and sinking fund payments haw been paid or set aside.

I No Par Cumulative Nfened Stock The Company has 30,000.000 shares of no par cumulative preferred stock authorized. No shares haw been issued.

Note 6. At December 31,1985, the Company had committed lines of credit totaling $200,000,000. %ese lines include a g gN $100,000,000 domestic remlvir g credit agreement expiring in 1988 and a $100,000,000 remhing credit facility with a group of foreign banks expiring in 1990. A provision in the $100,000,000 domestic remhing credit htWing5 agreement provides up to a tuu->rar extension of the 1988 expiration date upon approval of the banks. Both lines of credit currently require commitment fees ranging from K to % ofone percent, but they do not require compensating cash balances. To back up the Company's commercial paper, the aggregate unused committed lines of credit will be at least equal to the amount of commercial paper outstanding. See Note 7, Long. Term Debt. In addition, the Company has arrangements to borrow up to $70,000,000 from a group oflocal banks and a total of

$45,000,000 from two domestic banks. Funds are available at a variety of options based on certi6cate of deposit rate, london Interbank-offered rate, prime commercial rate, or other rates that are generally beknv the prime commercial rate. Most of the Company's shon-term borrowings in 1985 were at rates below the prime commercial rate.

Short. term borrowings and related interest rates were as follows (dollar amounts in thousandsh Ilumber 3l' 1981 1984 1983 As dthe end dthe > tar:

Aggregae shon-tenn ik outstandmg 5 34,500 $ 11,500 $ 1590 Mightal arrage intenst rac on shon-term &h outstanding . 8.8% 8.9% 10.3 %

l'nused conunitted lines dcredir . $200,000 $145,0i0 $170.0l0 fix the >rar en&sl:

Aerage daily amounts dslxoterm

&h outstanding . S 36,839 $ 26M7 $ 22.811 Mighted daily arrage interest rae . . . 8.6% 11.1 % 10 2 %

htmum amount dshort tenn debt outstanding dunng the > car . . . . . . . . .... $110,800 $ 6390 $ 52,5(0 Interts rzesecdudetheeffectofcommitnrnt fas Note 7, The Indenture securing the Company's first mortgage bonds constitutes a direct first mortgage lien on substan-Long-TetTn tially 11 utility pr perty nd franchises, other than expressly excepted property.

g Ee Company entered into an arrangement with the City of Forsyth, Montana during 1983 and 1984 to issue a total of $97,800,000 of City of Forsyth variable rate pollution control revenue bonds. Interest is computed on a variable rate basis using an interest index based on selected similar tax-exempt securities. During 1985, the weighted arrage interest rate on outstanding debt was 5.3% Proceeds were used to finance pollution control facilities for the Colstrip project.

%e Company also entered into an arrangement with Ibrt of St. I Ielens, Oregon during 1985 to issue a total of

$36,900,000 of Port of St. Ilelens variable rate pollution control rewnue bonds. The variable interest rate is based on selected tax-exempt obligations comparable to the bonds. During 1985, the weighted merage interest rate on outstanding debt was 5.1% Proceeds were used to finance pollution conuul facilities for Trojan.

He Company may issue up to $100,000,000 of commercial paper under its own credit. Based on management's intent to refinance the obligations on a long-term basis and the ability to support the amount of commercial paper 30

outstanding on a long-term basis through committed lines of credit expiring in 1988 and 1990, the commercial paper has been classified as long-term debt. At December 31,1985, the weighted awrage interest rate on the outstanding commercial paper was 8.1%.

During 1984, the Company entered into two $25,000,000 interest rate exchange agreements whereby the Company pays a fixed interest rate of 13% and 13.86% and receives a variable interest rate based on the three-month Lendon Interbank-offered rate. The agreements will terminate in 1989 and 1990.

The following principal amounts oflong-term debt become due for redemption through sinking funds and maturities during the years 1986 through 1990.

long-Tmn IMt Sinking Funds Maunties (lhomandsdIL!!ars) 1986. $14.730 $108,M0

( 1987. 9.531 4236 l

1988. 10281 2(O 1989. 10281 2to 1990. 9,981 6.M7 "Ihe sir. king funds include $3201.0tU in htth 1986 and 1987 and $3.951.cio in 1988 through 19%hith in accordance with the terms d the Indenture. the Cornpany anticip.acs saisfving by pk4ing availahk-additions equal to 166M% dthe sinking fund rtwirernents.

Note 8. As of December 31,1985, the Company's inwstment in Washington Public lhrr Supply System (Supply System)

Unit 3 totaled $235 million, including $57 million of AFDC. Le Company has a 10% ownership interest in the InWstment

. project, which is approximately 75% complete. Construaion work was suspended in May 1983 due to the Supply in Supply System's alleged inability to pay for its 70% share of the project. %e suspension was originally anticipated to be System for a period of two 3 rats. A further delay was adopted inJuly 1985 which extends the suspension period to late Unit 3 1987. Numerous lawsuits and related negotiations, initiated by the Company and others, haw to date been unsuccessful in causing the resumption of construction.

Because of the extended delay and the resulting likelihood of a significant increase in the project's ultimate cost, the Company determined that its costs incurred during the suspension period should not be capitalized. %erefore, beginningJanuary 1,1985, the Company ceased capitalizing AFDC and began expensing preservation costs related to Unit 3. Costs, primarily AFDC, which had been capitalized subsequent to the May 1983 suspension date were charged to income. This resulted in a $69 million reduction of the Company's imestment in Unit 3 during December 1984. The effects of such action on 1984 income were a reduaion of AFDC of approximately $47 million ($20 million borrowed; $27 million equity) combined with an increase in other deductions of approx-imately $22 million, which generated related income tax reduaions of approximately $22 million.

In September 1985, the Company, the other three imestor-owned utilities (IOUs) in Unit 3, BPA, the Supply System, and certain Supply System participants agreed to a settlement of the suspension-related litigation. Under the settlement, which became effective in December 1985, BPA is obligated to deliwr and the Company to take, beginning in 1987, an amount of power through an exchange agreement for a period of approximately 30 years.

Le amount of power that the Company will receim under this exchange agreement is based on the Company's inwstment in Unit 3, whether or not Unit 3 is completed. BPA will also assume all future costs related to Unit 3 and has the option of acquiring the Company's share of any future output from Unit 3 As pan ofits March 1986 general rate case filing, the Company requested the Commissioner to assign a value for the supply of energy under the exchange agreement as well as determine the method of recowring such value. See Note 11, Subsequent Ewnts. Management cannot at this time predict what the Commissioner may determine and, as a result, cannot presently determine what amount, if any, of its inwstment will be ultimately recowred.

Certain Supply System participants and others have objeaed to the settlement. See Note 10, Litigation. If the settlement is set aside and, as a result, implementation of such settlement, including the power supply provisions, is modified or discontinued, recomry by the Company ofits investment in Unit 3 may depend upon whether or not l Unit 3 is completed and placed in senice. Because of the delay in construction and the related litigation discussed l l herein, management cannot presently determine the ultimate cost of Unit 3 and if or when it will be completed and placed in senice. Oregon law (Ballot Measure 9) prohibits utilities from including in rate base the cost of new plants prior to being placed in senice. In a prior regulatory action invohing a terminated nuclear project, costs incurred subsequent to the passage of this law were disallowed. The interpretation of the law is currently being addressed in the courts. Because a substantial portion of the Company's costs in Unit 3 were incurred subsequent to the passage of the law, if Unit 3 were ultimately terminated, management cannot presently determine what amount, if any, of its imestment would be recomrable.

31-

Note 9. Commi..d other g Purchase commitments outstanding, relating principally to construction, totaled approximately $52,000,000 at December 31,1985. Cancellation of these purchase agreements could result in cancellation charges.

. . Commitments hae been made under long-term agreements to purchase fuel for the Company's thermal generat-OntingCDCICS ing plants. Such agreements may be terminated and would require payment of termination charges.

Le Company is a member of Nuclear Electric Insurance Limited (NEIL) which was established to provide insurance cowrage for replacement power costs resulting from an accidental outage at a member's nuclear site and for excess property damage and decontamination liability. Under the replacement pm er and excess property damage coverages, the Company could be subject to a maximum assessment of $10,750,000 in the ewnt of a loss to any NEIL insured nuclear plant, including Trojan.

In addition, the Nuclear Regulatory Commission's indemnity for public liability cowrage under the Price- j Anderson Act is supported by a mandatory industry-wide program. Under the program, owners of nuclear generating facilities could be assessed in the ewnt of nuclear incidents. Ee Company could be subject to a retrospectiw assessment of $3,000,000 in the event of an incident, limited to a maximum of $7,000,000 in any calendar 3 rat Purchased Power Ee Company has entered into long-term power purchase contracts with certain public utility districts in the state of Washington and with the City of Ibrtland, Oregon. Annual costs to the Company are based on its proportion-are share of the operating and debt senice costs of each hydroelectric project whether or not operable. Significant l statistics inmh'ing these purchase commitments folkw (dollar amounts in thousands). _i 4 '

lbcky Priest Ihtland

, Rach Rapils Tanapum Teus IIvdn>

I IkwnueIbrx!s Amount solito finance projects. . $331,500 $166,000 $197Jin $207/40 $55,010 Outstarxiing a Ihember 31,1985 . $199,795 $ 71,391 $107,985 $176,845 $53,550 Gunpany's current share doutput, capacav, and cmt Ihcentage doutput . 12.0 % 13.9 "o 18.7 % 23.0%* 100"'.

Netcapaharyinmegawats . 154 125 170 189 36 Annual cat,induding debt servke 1985 , $2.800 $2,300 $3,100 $3,M) $3,600 1984 . $2,800 $2,100 $3/100 $4,500 $5,500 l 1983 ... $2,800 $2,200 $2,900 $4,400 $5,700 j Completion dre . . . . . . 1971 1%I 19M 1%9 1982 l Guitract expirmion dme . 2011 2005 20W 2018 2017 l' *%e Cornpuy's perct'ntage doutput of Wells will be reducul to 21% by 1988.

The Company's share of debt service costs, excluding interest, under the abow contracts for the years 1986 through 1990 is approximately $3,000,000 per yeat Minimum payments through the remamder of the contracts are estimated to total $129,000,000.

Leases The Company has leasing arrangements for its headquarters complex, combustion turbines and its share of the -

coal-handling facilities at Boardman. The Company's aggregate rental payments charged to expense amounted to

$23,600,000 in 1985, $27,850,000 in 1984, and $19,325,000 in 1983.

In accordance with Financial Accounting Standards Board (FASB) Statements No. 71 and 13, the Company has capitalized its combustion turbine leases at December 31,1985. The Consolidated Balance Sheet at December 31, 1984 has been restated to reflect such treatment. Le capitalization of such leases does not hae any effect on net income. Under FASB 71, the amortization ofleased assets is modified so that the total ofinterest on the obligation and amortization of the leased asset is equal to the rental expense allowed for raremaking purposes.

As of December 31,1985, the Company's future minimum lease payments are as follows-Year Endmg Sublesse Rentals Doremher 31 Capital Irases Operming Irases Cnslit) Total

(%ousands d Dollars) 1986. $ 3,016 5 37,118 $(2.500) $ 37,634 1987. 3,016 36,422 (1,377) 38,061 1988. 3,016 35,787 (1,052) 37,751 1989. 1,016 17,910 (525) 20,401 1990. 3,016 17,906 (252) 20,670 Rcmander . 26.510 319.690 (331) 345.869 Total 41,590 $4M.833 $f6.037) $500,386 ImputedInterest . (14.692)

Present Value d Minimum Future Net Izase Pavments . $ 26.898 32

On December 31,1985, the Company sold a portion ofits undivided intcrest in Boardman and the Intertie to GECC. See Note 4, Disposition of Utility Plant Facilities. GECC's share of Boardman and the Intertie haw been leased to an independent lessee (Lessee) for a term of 283 rars. %e Company has retained the right to purchase the leased assets or renew the lease at the end of the lease term. Le Lessee has subleased GECC's share of Boardman to the Company for a three->rar period beginning in 1986 at $17,250,000 per 3rar. Also included in the future minimum lease payments schedule abow is approximately $180,000,000 for the Company's headquarters complex.

Note 10. Supply System Unit 3 y$j In May 1983, the Supply System suspended work on Supply System Unit 3. InJuly 1983, the Supply System extended the construction delay of Unit 3 untilit could obtain an assured source of funding for continued construction of the unit. See Note 8, Imtstment in Supply System Unit 3. In response, the Company and two of the other three IOUs in the project filed a motion with the United States District Court asking for an injunction requiring the Supply System to prepare a budget for immediate resumption of construction of Unit 3 and to require the BPA to pay for its share of such construction. In October 1983, a United States District Court judge denied this motion and ordered that a special arbitration board be set up to determine whether BPA's proposal for a two->rar suspension of construction was a prudent utility practice. InJanuary 1984, the arbitrators rendered their l decision holding the proposed two-year suspension was not a prudent utility practice if funds were available and a prudent utility practice if funds were not available.

In late Nmember 1984, the judge, on motions for summary judgment, issued an order finding the Supply System's construction costs for Unit 3 should haw been net billed to BPA once the Supply System alleged it was unable to obtain other financing. In that regard, the judge also made clear that the special arbitration board decision was limited to the finding that the construction suspension on Unit 3 was not a prudent utility practice, as the findings of the special board relating to the Supply System's ability to finance were be>und the special arbitration board's authority and could not be considered. The judge then determined that funds were available to the Supply System through the net billing procedure with BPA. The judge ruled that the mvnership agreement between the IOUs and the Supply System was breached by the construction suspension. Also, the judge found the BPA to be in breach of the Project Agreement and Net Billing Agreement. De issue of the materiality of the Supply System's breach was reserwd for a subsequent trial. Materiality of the breach goes to the issue of the remedies available to the IOUs, and must be resohrd in order to determine the effect of the breach.

To meet possible procedural requirements and ensure the ability to make possible future claims, in Nowmber l

1984, the Company filed an administratiw claim for damages against BPA for $490 million in the emnt Unit 3 is l terminated and for $527 million in the ewnt construction is resumed.

De indge ordered the parties to continue discowry on the question of materiality of the breach until March 29, 1985, at which time a trial date could be set. Prior to this date, the judge excused himself from further deliberations in the case due to an appearance of a conflict ofinterest and a new judge was appointed to replace him. In May i

1985, this judge vacated all of the prior judge's substantive orders and adopted a procedure for an independent re- i examination of the record. InJuly 1985, the judge affirmed and adopted the prior judge's Nmember 1984 ruling on the jurisdiction of the special arbitration board and the effect ofits findings. %e judge has the remaining portions of the Nowmber 1984 order under advisement, in particular the rulings relating to the availability of funding and questions relating to the breach of the various agreements.

In September 1985, the Company, the other three IOUs in Unit 3, BPA, the Supply System, and certain Supply System participants agreed on a settlement of the suspension-related litigation. Under the settlement, which became effectiw in December 1985, BPA is obligated to deliwr and the Company to take, beginning in 1987, an I amount of power based upon the Company's investment in Unit 3 as of February 1,1985 at an agreed-to price. The obligation, whether or not Unit 3 is completed, extends owr approximately a 30->rar period. In exchange, the f Company will make available to BPA energy from its combustion turbines or from other available resources at an agreed-to price. Also, BPA has agreed to assume all future costs related to the Company's interest in Unit 3. In addition, the Company has granted BPA an irremcable option to acquire, subject to the Pacific Northwest Electric Pbwer Planning and Conservation Act, its share of any future output of Unit 3. Also, the Company has agreed it j will (except in certain limited cases) vote with BPA on the Owners' Committee for Unit 3 on decisions regarding l future construction of Unit 3.

In September 1985, the settlement documents were filed with the United States District Court together with a motion seeking di3 missal of the litigation. Ilowcwr, certain parties have filed motions and memoranda in opposi-tion to the settlement. In addition, the objecting parties have commenced independent challenges in the United Statc3 Court of Appeals for the Ninth Circuit. Among other things, these parties claim that the settlement violates the provisions of Ballot Measure 9. Ballot Measure 9 prohibits utilities fro n including in rate base the cost of new plants prior to being placed in service. In a prior regulatory action, costs incurred subsequent to the passage of this law were disallowed. He interpretation of the law is currently being addressed in the courts.

The Company cannot predict the outcome of the abow matters.

33

Pebble Springs and Skagit/llanford Nuclear Projects During 1982,1983 and 1984, lawsuits were filed by the Coalition for Safe Iker, Forelaws on Board, certain indhiduals and the Company challenging certain orders issued by the Commissioner with regant to accounting and rate matters invohing the terminated Itbble Springs and Skagit nuclear projects, including the Company's right to reantr a portion ofits inwstment in Skagit. On October 28,1985, a settlement agreement among the parties was appnwul by the court, resuhing in dismissal of all Ibbble Springs and Skagit lawsuits as to the Company. The settlement does not include the other utility defendant in the litigation and .kies not address the interpretation of the Oregon law (Balk >t Measure 9) that prohibits including in rate base the cost of new plants prior to being placed in senice. Under the tenus of the settlement, the Company will forego the collection of

$14 million which it was previously authorized to collect from its customers. See Note 3, Abandonment of Skagit/

Ilanford Nuclear Project.

Note 11. Corporate Reorganization On M tch 28,1986, the Company effected a Plan of Exchange (Plan) appnnul by its common and preferred l SubM uent shareholders on February 12,1986. Under the Plan, all of the outstanding common stock ($3.75 par value) of the l Ewnts Company was achanged, share for share, for common stock ($3.75 par value) of Ibrtland General Corporation (PGC). As a result, the holders of the Company's common stock became holders of PGC common stock and PGC became the sole common shareholder and parent of the Company. Neither the Company's preferred stock nor its debt was exchanged or othenvise transferred to PGC.

At the time the Plan became effectiw, the Company repurchasal from PGC and retired shares of the Company's common stock. Le consideration paid was the stock of four of the Company's wholly owned subsidiaries and its interest in three business wntures, all of which were transferred at book value as of the date of exchange. In addition, a special cash dhidend of 5e per share will be declared by the Company to prwide the initial working capital for PGC's activities. As of December 31,1985, the Company's inwstment in the transferred assets (approximately $76 million) is included in Other Property and Inwstments-Other on the Consolidatal Balance Sheet. The operations discontinued by the Company and transferred to PGC are not material to the Company for the 3 rat s presented in these financial statements.

PGC is a general business corporation organized under Oregon law. It is not a utility and is not subject to regulation by the Commissioner or FERC. In addition, PGC is exempt from regulation under the Public Utility I tolding Company Act of 1935 ( Act) acept Section 9(a)(2) thereof relating to the acquisition of securities of other public utility companies, and has fihl an aemption statement with the Securities and Exchange Commission under that Act. He Company, howewr, remains a public utility subject to the regulation of the Commissioner and FERC. In addition, certain transactions between the Company and PGC must be appnwul, in advance, by the Commissioner. Other than a dhidend restriction, the Company will continue to operate substantially as it (kies at present, including the payment of dhidends. See Note 5, Common and Preferred Stock. Disidends on common stock will be paid to the Company's new parent, PGC, which will in tum make dividend payments to its common shareholders when and if declared Rate Matters On March 6,1986, the Company filed two separate rate cases with the Commissioner. The first rate case carrs the fixed and operating costs of Colstrip Unit 4, which is schedukd to go on line in April 1986. Under this filing, the rewnue requirements of Colstrip 4 would be offset during 1986 by the amortization of excess colkctions for nuclear fuel disposal costs. See Note 1, Summary of Significant Accounting Iblicies.

ne second filing was a general rate case. As part of this filing, the Company requested that the Commissioner  !

assign a value to the power to be receiwd from BPA pursuant to the settlement of th- Supply System Unit 3 l litigation and determine a method for the Company to recwer such value in rates. See Note 8, Imtstment in l

Supply System Unit 3 and Note 10, Litigation.

l 34

Nrtland General Electric Company and Subsidiaries QUARTERLY COMPARISON FOR 1985 AND 1984 (Unaudited)

March 31 June 30 September 30 December 31 (Dunsandsof Dollm) 1985 Operating rewnues $224215 $165,988 $194,723 $241,717 Operatingincome ... $ 71,847 $ 36,674 $ 41,125 $ 54,183 Income before atraordinary item . $ 55,656 $ 19,725 $ 26288 $ 742682 Extraordinaryitem . $ -

$ - $ (6,979)5 Net income . . . . . .. $ 55,656 $ 19,725 $ 26288 $ 67,289 Income available for common stock $ 47,077 $ 11,183 $ 17,753 $ 58,844 Common stock theragesharesoutstanding . 44,978288 45226,429 45,453,640 45,714,883 Earnings per awrage share Before extraordinary item $1.05 $25 $.39 $1.44 Extraordinaryitem - - -

(.15)'

After atraordinaryitem $1.05 $25 $.39 $1.29 1984 Operating rewnues $190,977 $153,363 $156,029 $221,699 Operatingincome $ 69,621 $ 47,707 $ 40,318 $113,6714 Net income. . . . . . . $ 54,174 $ 31258 $ 29,799 $ 43,133' Income available for common stock $ 45,514 $ 22,646 $ 21,197 $ 34,535 Common stock therage shares outstanding 43,719,340 44,066,393 44,399,408 44,701,021 Eamings per average share $1D4 $.51 $A8 $.77

'As a nsuh d <hlutne effett d shans issued dunng the oml. quanctly camings nv share cannot be a kkd to arrne a annual earrungs per share numbts 2Intkxks a net g.un d $U nullkm fnxn the sale d an undnickd interest in the Ibardman coal plant and the l'acific Ninthust InitTtie.

'Litr.mirdinarv kus, rxt d inconr taxes. fnun the sitktnent d litigsion relmed to the aban<kml 1%ble Springs and Skagit,1lanford nu&ar pnbts.

• Inchides de rtductam d irmne tax opense d approxinucly $42 nullim nsuking fnun an onkr issued by the Oxnmissavuv anhonang the aculermed anw>nizath m d wrtain unannstiad irntstnwn: tax credas.

'Inchales a net charge to inumw d $47 millum resuking fnun an adjustment to the Gunpany's inwstment in Supply System Unit i Pbrtland General Electric Company and Subsidiaries SUPPLEMENTARY INFORMATION TO DISCIDSE THE EFFECTS OF CHANGING PRICES (Unaudited)

Financial statements presented in accordance with generally accepted accounting principles report historical costs which do not reflect the changing value of the dollar which occurs during periods of rapidly changing prices.

Accordingly, such statements do not adequately measure the impact of inflation on business enterprises. In

! recognizing the need to assist readers of financial statements in assessing that impact, selected information on the I

effects of changing prices is presented

'Ihe table below provides data reflecting the effects of changes in specific prices (current costs) by indexing the existing plant using the Ilandy. Whitman Inda of Public Utility Construction Costs. This measure reflects the current cost of replacing existing plant, rather than the historical cost.

Depreciation expense is the only item of the historical income statement which has been adjusted in arriving at current cost amounts of income. Depreciation is determined by applying the Company's actual depreciation rates to the corresponding current cost plant amounts. Other amounts are considered to reflect the awrage price lewis for the 3rar, and accordingly haw not been adjusted.

Pursuant to regulations, with the exception of decommissioning costs, only the depreciation of historical cost of plant is recowrable in rewnues. See Note 1 of the Notes to Financial Statements.

In 1985, the Company capitalized its combustion tuibine leases and reclassified certain ofits deferred income taxes. Prior years' data in the folkwving table do not reflect these adjustments.

35

The following information should be viewed as an approximation rather than as a precise measure of changing prices.

Statement ofIncome From Operations Mjusted for Changing Prices For the Year Ended December 31,1985 Comentional Current Dollar liistorical Cost in Arrage Cost 1985 Dollars Ghousands dlM1,s)

, Operating restnues . . . $826,643 $ 826,M3 Purchased power and production . 199,652 199,652 Other operating and maintenance expenses 214,447 214,447 Deprecision and amortization expense . . . 87,288 179,791 Income tax expense 121,427 121,427 Interest expense . . . . . . . . . 105,943 105,943 Allowance for funds used during construction (26,868) (26.868)

Other income . . . . (51,183) (51,183) 650,706 743,209 Income (excluding adjustment to net recmerable cost) . , $175,937 $ 83,434 Increase in specific prices (current cost) of during the year

• plant held

.... . $ 83,000 Adjustment to net recmerable cost ... 84,000 Eftect of increase in general price level . . (150,000)

Excess of increase in specific prices ,

mer increase in general ,

price level (after adjustment l to net recarrable cost) . . . .

. 17,000 I Gain from declinein the dollar's purchasing power on net amounts owed . . 45,000 Net $ 62,000

• At December 31,1985, current cost of electric utility plant, net of accumulated depreciation, was $4,076,438,000 while historical cost (net cost recarrable) was $2,073,824,000.

Sdected Financial Data Mjusted for Changing Prices For the Years Ended December 31 1985 1984 1983 1982 1981

('Ihousands of Aserage 1985 Dollars)

Operating restnues . $826,643 $747,831 $633,175 $637,705 $ 703,528 HistoricalCost Information Adjusted for Changes in Speedie Prices (Cunent Cost Information)

Income from operations . . . . . $ 83,434 $ M,969 $ 79,843 $ 71,568 $ 44,157 Income per common share after preferred dividend requirements . $ 1.09 $ .66 $ .99 $ 1.01 $ .72 Excess ofincreasein specific price level mer increase in general prices (after adjustment to net recmerable cost) . $ 17,000 $ (20,000) $ 13,000 $ 9,000 $(106,000)

Net assets at year-cad . $906,000 $870,000 $838,000 $833,000 $ 806,000 GeneralInformation Gain from decline in the dollar's purchasing power on net amounts owed . . . . . . . . . $ 45,000 $ 49,000 $ 52,000 $ 57,000 $ 131,000 Cash dividends declared per common share .... . . $ 1.88 $ l.87 $ 1.91 $ 1.94 $ 2.02 Market price per common share at year-end . .......... $ 21.65 $ 16.72 $ 14.07 $ 16.80 $ 14.31 herageConsumerPriceIndex . 322.2 311.1 298.4 289.1 272.4 36

Pbrtland GeneralElectric Company MARKET AND DIVIDEND INFORMATION Common Stock Le Company's common stock was principally traded on the New York Stock Exchange (trading symbol PGN). As a result of the corporate reorganization effected on March 28,1986, the Company's common stock was delisted and is no longer traded. Le common stock of Pbrtland General Corporation is now principally traded on the New York Stock Exchange under the Company's former trading symbol, PGN. The following table shows the high, low and closing sales prices of the Company's common stock on the composite tape (as reported by The WallStreet Journal) during the respectiw periods.

1985 1984 Quarter ist 2nd 3rd 4th 1st 2nd 3rd 4th liigh . 18 % 21% 21% 23 % 14 % 14 % 15 % 17 %

low 16 % 17 % 1774 18 13V4 13 13 % 15 %

Closing price . . 18 21 % 18 22 13 % 14 % 15 % 16 %

Cash dividends declared (cents) . . 45% 47 % 47 % 47 % 44 % 45 % 45 % 45 %

The approximate number of shareholders of record as of December 31,1985 is 80,432.

Preferred Stock Le $2.60, $4.40 and $4.32 Series of preferred stock are listed on the New York Stock Exchange.

Le following table shows the high and low sales prices of these three series on the composite tape I (as reported by The WallStreetJournal) for the respectiw periods. ne remaining fhe series are l traded infrequendy oser the counter and disclosure of quarterly price ranges is not meaningful.

1985 1984 Quarter Ist 2nd 3rd 4th 1st 2nd 3rd 4th

$2.60 lligh . . 22 % 24 % 24 % 25% 20 % 19 % 19 % 21%

low 20 % 21 22 % 23 % 19 17 % 18 % 18 %

$4.40 lligh . 33 % 35 % 34 % 35% 32 % 31 % 32 33 %

low 31% 32 % 32 % 32 % 29 % 28 % 29 30

$4.32 Ifigh . 33 % 34 % 34 % 35 % 32 % 30 % 31 % 32 %

low 30 % 31% 32 32 % 29 % 28 % 28 % 29 %

Quarterly cash dividends were paid on each class of the Company's preferred stock at its stated rate during 1985 and 1984.

l l

l NEW YORK STOCK EXCIIANGE OR PACIFIC STOCK EXCHANGE TRADING SYMBOL:

PGN 37

Ibrtland General Electric Conapany and Subsidiaries SELECTED FINANCIAL DATA AND STATISTICS 1985 1984 pinanCia} Key Results (thousands)

Operating income . ... .

$203,829 $271J 17' Comparisons Income Before Extraordinary items . $175,9372 J

$158J648 Extraordinary items $ (6,979)5 -

Net Income $168,958 $158,364 Earnings Itr Share Before Extraordinary Items . $3.12 $2.80 -

Extraordinary Items Ihr Share. (.15) 5 -

Earnings Per Share After Extraordinary Items . . . . . . . ........ .......... $2.97 $2.80 l Dividends Declared Per Share . . . . . . . . . . . . . . . . . . .. ... . ... .......... $1.88 $1.81 i Total Assets? $2,579,497 $2,401,971 Salesand KilowmHours Sold (miEons)

Residential . 5,842 5,768 l Customers Commercial 4J79 4209 1 Industrial 3,026 3,071 Miscellaneous . 97  %

Sales for resale 4J06 2,240 Total .......... 17,650 15,384 Operating Revenues (thousands)

Residential . $283,445 $257,996 Commercial 247,513 227,860 Industrial 142J08 140,034 Miscellaneous . 31,805 29,073 Sales for resale 121,572 67,105 Total ...... ... ... $826,643 $722 M 8 Arrage price per kwh (sales to uhimate customers) . 5.12c 4.84e Customers (at year.end)

Residential . 461,076 454,732 Commercial 62,248 60,575 Industrial 191 185 Miscellaneous . 635 631 Sales for resale 6 6 Total . . 524,156 516.129 Residential Service (average per customer)

Annual use (kilowatt-hours) . 12,781 12,M4 Annual revenue . . . . $620.07 $565.61 Price per kilowatt-hour 4.85c 4.47e Electric KilowwHour Outptit (mimons)

Generated (net)-hydro . . 2,405 2,995 Operations Generatea<nct)_thermai. 6,003 4,744 Purchased-primarily hydro . 10J82 8.451 18,790 16,190 losses and company use 1,140 806 Total 17,650 15.384 Itak load KW-Winter (thousands) 2,953 2,862 Utili Plant Gross Additions (thousands) $108,740 $128,957 Gross Plant (thousands)7 $2,721,4768 $2,626,193 Stockholders' Common Stock Equity (thousanas) . $920,420 $85i,555 Book value per share . $20.13 Equityand $19.05 Diviaenas paia per share . $i.86 $i.80

[Eng. Term Arrage shares outstanding . . . 45,343J10 44,221,525 g' Preferred Stock Equity (thousands) .

Dividend requirement .

$249,800 $262,093

$34,101 $34,472 (December 31) Embedded cost ........ 13.1 % 13.0 %

long-Term Debt (thousands) . $871,035 $918,568 Interest ... $102,723 $107,437 Embedded cost 10.1% 11.0 %

Emp}o)tc Number of Employees (December 31) . 3,123 3,124 Operating Payroll (thousands) . . . . . . . . . . $81,749 $79,771 Ddl3 Construction and Other Payroll (thousands) . $26,598 $27,011 I inchales the reductkm d income tax expensedapproximsely $42 mdlkm in 19M and $26 mdlum in 1983 resuking fnun an order by the 1bblic Utility Comrnisskmer d Oregon authonzing the acalersed anuwtizzkm d certain unanuwtimi imestment tax crnliis.

2 Indudes a net gain d $37 millam from the sale d an undivided interest in the IWrdmai mal plant and the lhcr6c Northwnt Intertie.

38 5 Extraorthnary kss, net dinconr tus, fran the scttlement dlitigskm reized to the abarskmed Inble Spnngs and Skagit/llanford nuclear proiccts.

• Includes a net durge to income d $47 million resuking from an adjustment to the Company's inwsiment in Supply System Unit 3.

1933 1932 1981 1980 1979 1978 1977 1976 197'3

$209,4651 $204,097 $184,479 $132,193 $65,289 $83,239 $73,127 $82,677 $62,162

$162,742 $150,162 $112,341 $86200 $46,122 $48,784 $ 36,988 $52,021 $46,003

$(48,598)' $(26,156P - - - $7,845 - - -

$114,144 $124,000 $112,341 $86,200 $46,122 $56,629 $36,988 $52,021 $46,003

$ 3.01 $ 3.02 $2.54 $2.03 $1.06 $1.40 $1.09 $227 $2.52 (1.14 P (.64 P - - -

.32 - - -

$1.87 $2.38 $2.54 $2.03 $1.06 $1.72 $1.09 $2.27 $2.52

$1.77 $1.74 $1.71 $1.70 $1.70 $1.70 $1.70 $1.M $1.58

$2,377,402 $2,35 3,339 $2,252,758 $2,082,585 $1,841,292 $1,607,628 $1,195,930 $1226,348 $1,072,686 5,434 5,663 5,349 5.526 5,731 5,365 5,120 5,024 4,982 3,925 3,925 3,844 3,717 3,711 3,403 3,175 3,045 3,169 3,002 3,227 3,695 3,479 3,585 3,251 3,486 3,439 2,699 99 93 107 110 112 113 109 107 104 1,842 1,999 2,312 1,042 513 1,173 44 394 530 14,302 14,907 15,307 13,874 13,652 13,305 11,934 12,009 11,484 1

I

$212,590 $203,405 $212,463 $201,192 $159,135 $143,829 $130,052 $109,571 $88,351 173,401 169,932 149,507 127,165 96.462 77,000 M,695 56,027 53,628 109,133 118270 116,295 94,482 72,839 52,662 47,721 39,654 24,504 36,524 (4,829) 17,888 21,431 9,414 12,107 6,996 7,073 8,898 54,756 85.415 98,636 45,967 12,131 18.080 3/09 5,462 4,561

$586,4N $572,193 $594,789 $490.237 $349,981 $303,678 $253,073 $217,787 $179,942 4.04c 3.87c 3.73e 3.34e 2.54e 2.30c 2.08e 1.80c 1.55c 454,950 448,863 443,414 433,527 423,389 407,056 389,700 371,315 358,438 ,

59.551 57,914 56,698 55,279 54,029 52,107 49,883 47,071 45,547 190 191 197 193 184 187 192 192 187 633 629 1,397 1,373 1,367 1,347 1,444 1,367 1,370 4 3 4 3 2 1 2 3 3 515J28 507 600 501,710 490,375 478,971 460,698 441221 419,948 405,545 1

12,027 12,691 12,181 12,910 13,814 13,459 13,455 13,787 14,139

$470.51 $455.86 $483.82 $470.01 $383.54 $360.81 $341.76 $300.68 $250.74 -

3.91c 3.59c 3.97c 3.Mc 2.78e 2.68e 2.54e 2.18e 1.77c 2,841 2/A4 2,205 2271 2285 2,313 2,i14 2,537 2,693 3,352 4,003 5,888 4,941 4,523 1,307 4,675 1,147 170 8.988 9 002 8,196 7,779 7,754 10.819 5,936 9,214 9,613 l 15,181 15,M9 16,289 14,991 14,562 14,439 12,725 12,898 12,476 j 879 742 982 1.117 910 1,134 791 889 992 14,302 14,907 15,307 13,652 13,305 13.874 _ 11,934 12,009 11.484 3,166 2,7M 2,687 3,041 2,954 2,776 2,519 2,310 2,225

$191,131 $305,768 $294,651 $292,833 $254289 $278,265 $201,8% $191,475 $182,513

$2,583,549 $2,556,016 $2,413/00 $2,171,598 $1,929,163 $1,709,555 51,442,349 $1.250J61 $1,087,691

$789,027 $755,526 $703,990 $627,069 $551,612 $478,759 $410,323 $361,070 $283,938

$18.18 $18.27 $17.63 $17.39 $17,55 $18.42 $18.45 $18.94 $18.32

$1.76 $1.74 $1.70 $1.70 $1.70 $1.70 $1.685 $1.625 $1,565 42,512,999 40,737,617 39 024,435 35,788,621 30,403,911 24,709,977 21,414,344 17,687,431 14,333,333

$265,393 $268,676 $146,993 $148,500 $150,000 $151,500 $154,500 $130,500 $108,500

$34,810 $26,956 $13,373 $13/,07 $13,830 $14.175 $13,657 $11,812 $9,818 13.0 % 12.9 % 9.0% 9.1% 9.1% 9.2% 9.2% 9.3% 9.1%

$%1,398 $1,016,401 $1,068,841 $1,054,185 $754,441 $735,119 $656,724 $533,450 $444,991

$112,674 $115,137 $124,365 $95,630 $71,356 $59,389 $49,374 $41,610 $28,866 10.3 % 10.4 % 10.5 % 11.5 % 9.3% 9.3 % 8.3% 8.0% 8.1%

3,212 3,240 3,244 3,106 2,789 2,579 2,441 2,311 2,116

$75,MO $63,5M $57,809 $46,590 $37,105 $31,631 $27,808 $22,798 $18,498

$27,827 $33,071 $33,134 $32,701 $25,183 $21,293 $19,647 $18,564 $18,033

' Extramhnary km, net d iname taxes, fnwn the remun.ukvnt the Skagit/llanfon! nudear pnvst.

• Icdudes the effest d an extramlinary Ims, net d inavne taxes, fnwn the abandoned IWble Spnngs nuclear pnsxt ($79.773,9 e or $ 1.% per share), and an extranhnary gain fnwn debt /cquny ecchanges ($53.617,00 or $132 per shareL 7 I int Kars'Italana's wre aMlsted to incIude the capitaliLthin d kases reconhl in 1985 in aCCordann WHb fdhl3 71.

• Ircludes the effects d reamhng artain deferral incorne taxes in a deferrahncorne tax acuunt thz wre dalmal as plant offwes in prior yars. N

SHAREHOLDER INFORMATION Shareholder Services Open Market Stock Form 10-K All communications that Purchase Arrangement PGE's annual report to the imuhe dividends, stock certificates, If you are a current PGC com- Securities and Exchange Commis- J dividend reinvestment statements, mon sharehokler of record (with sion (Form 10-K)is available upon address changes, stock transfer, and PGC common stock registered in written request to CD Ilobbs, Vice other administratiw matters should >uur name) or if3uu participate in President, Finance and Treasurer, at be directed to our Transfer Agent, CSIP, >uu may purchase common the home office address.

U.S. National Bank of Oregon. Be stock through the Open Market ilome Office j sure to mention in all communica- Stock Purchase Arrangement Ibrtland General Corporation or tions with the Agent that 3uu are a (Arrangement), rather than directly Ibrtland General Electric Company shareholder of Portland General from a stockbroker. 121 S.W. Salmon Street Corporation or PGE. If possible, Additionaldetails are given in Ibrtland,OR 97204 include 3our account number as the Prospectus describing the CSIP Phone: (503) 226-8333 well.The mailing address is: and Arrangement, which >uu may If you wouldlike more infor-l U.S. National Bank of Oregon request from the Agent, U.S. mation about being a shareholderin Stock Transfer Department National Bank of Oregon. Ibrtland GeneralCorporation or P.O. Box 3850 Stock Exchange Listings Ibrtland General Electric Com-Ibrtland,OR 97208 'Ihe common stock of PGC is pany, please contact us directly:

Phone: (503) 225-6474. listed on the New York and Pacific lbrtland GeneralCorporation Handde/irerv of certificates for Stock Exchanges and is quoted in or Ibrtland General Electric transfer may be made to: the daily stock tables carried by Company U.S. National Bank of Oregon most newspapers under the nota- Shareholder Services Dept.

Stock Transfer Department tion IbrtGC. One Main Place 309 S.W. 6th Ave. PGE $2.60, $4.40 and $4.32 101 S.W. Main Street Fifth Floor Series Cumulative Preferred Stock Ibrtland, OR 97204 Ibrtland,OR 97204 issues are publicly traded and listed Phone:(503) 226-8599 Common Stock Investment Plan on the New York Stock Exchange.

Common shareholders of Those newspapers which list these Notice of AnnualMeeting record, as well as customers of stocks use the notation PorG. The 1986 annualmeeting of PGE, are eligible to participate in Dividend Payment Dates Ibrtland GeneralCorporation the Common Stock Imestment The Board of Directors has common shareholders will be Plan (CSIP). New common share- historically declared quarterly com- held at 2.00 p.m., Wednesday, holders of record (not " street name" mon and preferred stock dividends May28,1986 at the Red Lion holders) automatically receive Plan payab/c on the fifteenth of the Motor Inn-Jantzen Beach,909 information and an Authorization months ofJanuary, April, July and N. Ilayden Island Dr., Ibrtland, Form when they become share- October. The remrddates for these Oregon. Common shareholders holders. These documents are avail- dividendsin 1986 are planned to be of record at the close of business able to all common shareholders of. March 25, June 25, September 25, on April 9,1986 willbe entitled

record at any time from U.S. and December 26. to vote. All common share-National Bank of Oregon, the Direct Deposit holders are welcome to attend.

Agent for the Plan. Dividend checks can be depos- itjs,3,pofjcyofporffayJceyer,f The Plan allows rein estment ited directly into an existing IRA. corporation and subsidiaries io provide of dividends toward the purchase of Contact our Agent for information evadlemployment orrortanity to allartli-PGC common shares at the pre- on how this can be done. """*" e"'rlor"'c"'la"h"> i' i' corn-vailing market price without a Investor Publications j""'"#",,,,'","#

(",'fp#f,'(#""

r, f , *" ,#l[,[';

service fee. Copies of PGC shareholder training, upgrajing, promoiwn. iransfer, and Shareholders should read the reports, PGC Fact Book, and the eer->naimn o/cmplurment to allemployees Prospectus describing the CSIP for Shareholder Guide may be ""ho"' d"3i"""d'io" o' hd"d"'"e"'

more detailed information. obtained by written request to */ '""

,", "[, , . i',",#'*'""M""j"c"""p#[

the Shareholder Services Depart- marnat tratur. or arry other statur applicable ment at the listed address. to/cdcralor statelaw.

40

Ibrtland General Corporation and Ibrtland General Electric Company BOARD OF DIRECTORS Drnitor &nstra sina sina Guyneth E. Gambleikx>th 1981 Robert W. Roth 1972 Andxmlblucer KOAP, blux!-Onym Ibblic Bnakasting Rtiral hkknt and Oiief Executhe Offxts Januen Inc., Rutlast-

""""'" ""'" * " ~ " ' "

PeterJ. Brix 1983 Ouinnan arti Chief Executhe Offitt Knapptun Geraim, John L Schwahe 1977 hland-marine transpon. uke Partnts Schsabe, WCam=m, Wyat, Akxwe and Ikiherts-Rutland stonwy Robert G. Cameron 1985 Exnuhe h Ibikw, Ilmi Gwporzim Ltd., bland - real estee Robert IL Short 1971 management and skwlopnxn Guinnan d the Ikwd, GYef Executhe Offin and Ibilent, bland General Gwpormim, bland-hokhng company d Edward L Clarh,Jr.* 1986 hland General Ekuric Gwnpany Partnts Gark, Manh, Lindauer & hkClinton-Sakm stonwy Guirman d the lhard and Quef Exauhe Offist N'nland Genera %udunpan, Rwdandunc uthty William W. Gallagher** 1986 Ibibnt, Gallagher Capital Gwp and Gallaglxt Itat & Gs, luth d Earl Wantland 1973 Rutland- regkmal inwstment banking firms ibident and Chief Executhe Officer Tatronix, Inc., Beautm-l Dr. Jerry E. Iludson 1984 """"'""'""'""i'"'"ir"*"

! Ibkka, Wdluntste Unhusity Sakin Frank Af. Warren * * * *

• 1949 Rtirul Charman d the Ikurd and Quef Executhe Offin bland Gdrert K udsen* *

• 1986 b( d the Ibard and Ouuman d the Execume Gwnnuttee, ""P*"% " "' 'Y AlacMdlan BLxsiel Ltd., Vanctunts B C., Canada-forrst pnslutts William W. Wessinger 1968

i'"1 Guinnan d the aurd, Butztenhaal G<npany Rntlann William J. Lindblad 1980 lbident, Rutlast General Eksinc Gunpany, bl.uxi-dettne utility M"Y RobertJ. Wilhelm 1973 ErnestiI Miller **** 1963 3*kk" E"h* "I"' T"'"* U' raielm Tmaing Ox, Nkk.nt, $1ongage Buxtwporskm, Sakm- real oise kuns and inwstments througimma Oregon N" - "'N * "'""8 Ralph E. Williams * * * * *

• 1%3 RichardG Reiten 1983 lbklent and Chief Executhe Ottin Nicolai Gunpany Rutlaral-

"- **"'I"**'"*" 'N - P' """"*"'

manufacturer d mus! (kurs and speciahy wvaus

• Appanted February 1,19% ****Rtired Naunber15, 1985

• • Appointed Janusy 1,19% *****Sduluksi to rttire on May 28,1986

• • *Nomin.ned for ekstkm on May 28,19% ******Rtiral Daunber 1,1985 SENIOR OFFICERS Pottland GeneralCorporation 1%rtland General Electric Co. DavidK. Carhoneau Wayne A. Iluddleston RobertII.Short Robert II.Short Controller and Assistant Vice President, Operating Chairman of the Board, Chairman of the Ik>ard and Treasurn b icis Chief Executiw Officer Chief Executhe Officer Leo E. Chaffn William June and President Vice President Vice President, Public lblicy WdliamJ. Lindblad James W. Durham President W. Ken Davis Hillman Lueddemann,Jr.

SeniorVicePresident, Vice President, Vice President and jame, y' py73,,

' General Counsel and Secreta:7 Senior Vice President, Engineering and Construction Assistant to the Chairman of the Ken L llarrison General Counsel and Secretary Richard E. Dyer Ik>ard Senior Vice President and g,y g f f,77j,,y Vice President,Ibwer Supply E. KayStepp l Chief FinancialOfficer Senior Vice President and Charles Grxidwin, Jr. Vice President, Marketing and CDIfobbs Chief FinancialOfficer Vice President, Customer Operations Vice President, Finance and %ermal Operations F. D. Wieden Charles L lleinrid ln asurer Senior Vice President, C D ilohb, Vice President

Administration Vice President, Finance and Bart D. Withers

Treasurer Vice President, Nuclear Leslie E. IIodel Senior Vice President, James N. Woodaick Operations Vice President, Management

! Resources i

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PORTLAND GENERAL CORPOIb\ TION One Main Place 101 SW Main Street Ibrtland, Oregon 972(4 l

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