SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Registrant; State of Incorporation; IRS
Employer
Commission File Number Address; and Telephone Number
Identification No.
1-5532 PORTLAND GENERAL CORPORATION
93-0909442
(an Oregon Corporation)
121 SW Salmon Street
Portland, Oregon 97204
(503) 464-8820
1-5532-99 PORTLAND GENERAL ELECTRIC COMPANY
93-0256820
(an Oregon Corporation)
121 SW Salmon Street
Portland, Oregon 97204
(503) 464-8000
Indicate by check mark whether the registrants (1) have filed all
reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the
registrants were required to file such reports), and (2) have
been subject to
such filing requirements for the past 90 days. Yes X . No .
The number of shares outstanding of the registrants' common
stocks as of
October 31, 1994 are:
Portland General Corporation
50,474,453
Portland General Electric Company
42,758,877
(owned by Portland General Corporation)
1
1
Index
Page
Number
Part I. Portland General Corporation and Subsidiaries
Financial Information
Management's Discussion and Analysis of
Financial Condition and Results of Operations
3
Statements of Income
14
Statements of Retained Earnings
14
Balance Sheets
15
Statements of Capitalization
16
Statements of Cash Flow
17
Notes to Financial Statements
18
Portland General Electric Company and
Subsidiaries Financial Information
24
Part II. Other Information
Item 1 - Legal Proceedings
29
Item 6 - Exhibits and Reports on Form 8-K
29
Signature Page
31
2
2
Portland General Corporation and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial and Operating Outlook
Utility
General Rate Filing
In late 1993 Portland General Electric Company (PGE or the
Company)
filed a general rate case with the Oregon Public Utility
Commission
(PUC) requesting an increase in electric rates by an average of
5% to
take effect January 1, 1995. PGE's request included a return on
equity
of 11.5% and 11.8% for the years 1995 and 1996 respectively, down
from the current authorized return of 12.5%, and
full
recovery of the Trojan Nuclear Plant (Trojan) investment and
decommissioning costs (see Portland General's and PGE's reports
on Form
10-K for the period ended December 31, 1993 for additional
background
information regarding the rate request). Subsequently, Trojan
Nuclear
Plant (Trojan) and cost of capital issues were bifurcated from
non-
Trojan issues. In July 1994, PGE agreed to the PUC Staff's
request to
delay a final order addressing all rate case matters to no later
than
March 31, 1995 in return for approval of a first quarter 1995
power cost
deferral.
In September 1994, the PUC Staff issued its recommendation for
Trojan
and cost of capital issues. The PUC Staff recommended that PGE
be
allowed to earn a 10.4% return on equity. The PUC Staff also
recommended that PGE be allowed to collect 80% of its remaining
investment in Trojan and that PGE recover all of its anticipated
decommissioning costs. The PUC Staff presented other
alternatives with
respect to PGE's recovery of its remaining investment in Trojan,
ranging
from zero to full recovery, but recommended 80% recovery.
If the PUC Staff's recommendation on Trojan were the ultimate
outcome of
the regulatory process, PGE estimates that it could record a loss
of up to approximately
$50 million. Hearings are scheduled to begin in
early
December 1994
and an order on all rate case matters is expected to be issued no
later
than March 31, 1995.
On November 11, 1994, PGE and the PUC staff agreed to enter
into a stipulation addressing PGE's and the PUC Staff's joint
recommendation to the PUC on all outstanding cost of capital
issues in PGE's general rate filing. The stipulation will
recommend an 11.6% return on equity for PGE for the years 1995
and 1996.
Recovery of power cost deferrals is addressed in separate rate
proceedings, not in the general rate case (see the discussion of
Power
Cost Recovery below).
Trojan Related Issues
Shutdown - In early 1993, PGE ceased commercial operation of
Trojan as
recommended in PGE's Least Cost Plan (LCP).
3
3
Portland General Corporation and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Decommissioning - The Company's current estimated cost to
decommission
Trojan has increased $7 million to $417 million (comprised of
$351
million of dismantlement costs and $66 million of transition
costs)
reflected in nominal dollars (actual dollars expected to be spent
in
each year). The increase in the estimated cost of
decommissioning
reflects a refinement in the timing and scope of certain
dismantlement
activities and lower anticipated transition costs. Stated in
1993
dollars the current estimate
is virtually unchanged from the previous estimate of $289
million. The
decommissioning cost estimate includes the cost of planning,
removal and
burial of irradiated equipment and facilities as required by the
Nuclear
Regulatory Commission (NRC); building demolition and
non-radiological
site remediation; and spent nuclear fuel management costs
including
licensing, surveillance and transition costs. Transition costs,
which
are now estimated at $66 million for the period 1994 through 1998
inclusive, are the costs associated with operating and
maintaining the
spent fuel pool and securing the plant until dismantlement can
begin.
While most decommissioning costs will utilize funds from PGE's
Nuclear
Decommissioning Trust (NDT), transition costs will continue to be
paid
from current operating funds.
The decommissioning plan is based on a site-specific
decommissioning
cost estimate performed for Trojan by an experienced
decommissioning
engineering firm. The updated estimate assumes that the majority
of
decommissioning activities will occur between 1997 and 2000,
beginning
with the removal of certain large plant components, while
construction of
a temporary dry spent fuel storage facility is taking place.
Decommissioning of the temporary dry spent fuel storage facility
and
final non-radiological site remediation activities will occur in
2018
after PGE completes shipment of spent fuel to a United States
Department
of Energy (USDOE) facility. As of September 30, 1994 the Company
has
expensed approximately $9 million in transition costs for 1994.
Annual
transition costs are estimated to be $10 million to $15 million
per year
through 1998. In addition, since plant closure the Company has
spent $3
million on decommissioning planning and related activities
reducing the
remaining decommissioning liability, including transition costs,
to $405
million.
PGE plans to submit a formal decommissioning plan to the NRC and
Energy
Facility Siting Council of Oregon (EFSC) in late 1994. The NRC
and EFSC
rules require the plan be submitted before January 23, 1995.
The updated decommissioning estimate reflects PGE's current plan
to
accelerate the removal of some of Trojan's large components,
which is
expected to result in overall decommissioning cost savings.
Since the
Company plans to begin this work in 1994, prior to receiving NRC
and
EFSC approval of its formal decommissioning plan, specific
approval will
be obtained from EFSC. Request for this approval was filed with
EFSC on
July 7, 1994. Legal challenges have been filed in opposition to
the planned early removal of some of Trojan's large components.
Additionally, PGE
has requested NRC approval for the use of PGE's NDT funds for
removal of
large components. Assumptions used to develop the site-specific
cost
estimate for decommissioning represent the best information PGE
has
currently. The Company is continuing to evaluate various options
which
could change the timing and scope of decommissioning activities
and
expects any future changes in estimated decommissioning costs to
be
incorporated in future revenues to be collected from customers.
4
4
Portland General Corporation and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Investment Recovery - In its general rate filing PGE requested
continued
recovery of Trojan plant costs, including decommissioning. See
the
General Rate Filing discussion above for further details
regarding the
rate case proceedings.
LCP analysis assumed that continued recovery of the Trojan plant
investment, including future decommissioning costs, would be
granted by
the
PUC. Regarding the authority of the PUC to grant recovery, the
Oregon
Department of Justice (Attorney General) issued an opinion that
the PUC
may allow rate recovery of total plant costs, including operating
expenses, taxes, decommissioning costs, return of capital
invested in
the plant and return on the undepreciated investment. While the
Attorney General's opinion does not guarantee recovery of costs
associated with the shutdown, it does clarify that under current
law the
PUC has authority to allow recovery of such costs in rates.
PGE asked the PUC to resolve certain legal and policy questions
regarding the statutory framework for future ratemaking
proceedings
related to the recovery of the Trojan investment and
decommissioning
costs. On August 9, 1993 the PUC issued a declaratory ruling
agreeing
with the Attorney General's opinion discussed above. The ruling
also
stated that the PUC will favorably consider allowing PGE to
recover in
rates some or all of its return on and return of its
undepreciated
investment in Trojan, including decommissioning costs, if PGE
meets
certain conditions. PGE believes that its general rate filing
provides
evidence that satisfies the conditions established by the PUC.
In early
1994, appeals of the PUC's declaratory ruling related to the
recovery of
the Trojan investment and decommissioning costs were filed in
Marion
County Circuit Court (see Legal Proceedings for
further discussion of legal challenges to the declaratory
ruling).
Management believes that the PUC will grant future revenues to
cover
all, or substantially all, of Trojan plant costs with an
appropriate
return. However, future recovery of the Trojan plant investment
and
future decommissioning costs requires PUC approval in a public
regulatory process. Although the PUC has allowed PGE to
continue, on an
interim basis, collection of these costs in the same manner as
prescribed in the Company's last general rate proceeding, the PUC
has
not previously addressed recovery of costs related to a
prematurely
retired plant when the decision to close the plant was based upon
a
least cost planning process. Due to uncertainties inherent in a
public
process, management cannot predict, with certainty, whether all,
or
substantially all, of the $348 million Trojan plant investment
and $347
million of decommissioning charges (to be collected through
future
rates) will be recovered. Management believes the ultimate
outcome of
this public regulatory process will not have a material adverse
effect
on the financial condition, liquidity or capital resources of
Portland
General. However, it may have a material impact on the results
of
operations for a future reporting period.
SCE Complaint - In early August 1994, Southern California Edison
(SCE)
filed a complaint claiming PGE's decision to close Trojan
violated the
terms of a long-term firm power sales and exchange agreement
entered
into in 1986. The 25-year contract is for 75 megawatts of firm
energy
and capacity, plus a 225 megawatt seasonal exchange.
SCE contends that PGE appointed itself liquidator of a
substantial
portion of its assets under the general bankruptcy default
provision of
the
5
5
Portland General Corporation and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
contract. SCE is seeking termination of the agreement and
damages,
including a return of payments made to PGE from the date of PGE's
alleged default (approximately $30 million).
Under the agreement SCE is obligated to pay to PGE a reservation
fee for
system capacity, seasonal exchange and other services equal to
$16.9
million annually. SCE continues to make these payments.
The Company will vigorously defend itself and believes it will
succeed
in the defense of these claims (see Legal Proceedings for
additional
information).
Power Cost Recovery
In early 1993, the PUC authorized PGE to defer 80% of the
incremental
power costs incurred from December 4, 1992 through March 31, 1993
to
replace Trojan generation. In total, $44 million of accrued
revenues
were recorded for later collection. In early 1994, the PUC
granted
approval for full recovery and PGE began collection in April
1994.
Amounts will be collected over a three year period.
In accordance with Oregon law, collection of the following
deferrals is
subject to PUC review of PGE's reported earnings, adjusted for
the
regulatory treatment of unusual and/or non-recurring items, as
well as
the determination of an appropriate rate of return on equity for
a given
review period.
In August 1993, the PUC authorized PGE to defer, for later
collection,
50% of the incremental replacement power costs incurred from July
1,
1993 through March 31, 1994. The PUC granted the lower deferral
rate to
reflect expected nuclear operating cost savings. In total, $49
million
of revenues were recorded. The earnings review for this deferral
will cover a April 1,
1993 through March 31, 1994 review period. The PUC has approved
PGE's
request to delay this earnings review to June 30, 1995 to
coincide with
the timing of the review of the first quarter 1995 power cost
deferral
(see discussion below). This will result in a concurrent review
of
PGE's earnings for these separate deferral periods.
In September 1994, the PUC approved PGE's request to defer, for
later
collection, 40% of incremental power costs incurred from January
1, 1995
through March 31, 1995, or until a PUC order in the general rate
case,
if earlier. The amount of revenues PGE would be allowed to
collect is
the lesser of the recorded deferral, PGE's requested increase or
the
same level of revenue as if new rates had become effective
January 1,
1995. In addition, an earnings review will be filed by June 30,
1995
using an April 1, 1994 through March 31, 1995 review period for
amounts
deferred under this order.
In September 1994, PGE filed an application to defer, for later
collection, 40% of incremental power costs from October 1, 1994
until
December 31, 1994. PGE expects action on this application by
the end of March 1995.
6
6
Portland General Corporation and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Synopsis of Power Cost Deferrals
Period Covered Deferral Earnings Amounts
Rate Review Deferred
Collected
December 4, 1992 - 80% Approved (1) $52 million $7
million
March 31, 1993 (4)(a)
July 1, 1993 - 50% Mid-1995 (2) $54 million
N/A
March 31, 1994 (4)(b)
October 1, 1994 - Pending Pending N/A
N/A
December 31, 1994
January 1, 1995 - 40% Mid-1995 (3) N/A
N/A
March 31, 1995
(1) Approved for collection which began on 4/1/94.
(2) Subject to earnings review for the period 4/1/93
through 3/31/94 to be filed on June 30, 1995.
(3) Subject to earnings review for the period 4/1/94
through 3/31/95 to be filed on June 30, 1995.
(4) Includes accrued interest of (a) $8 million and (b) $5
million.
Power Supply
Restoration of Salmon Runs - The Snake River chinook salmon has
been
listed as a threatened species and the Snake River sockeye salmon
has
been listed as endangered under the federal Endangered Species
Act. The
National Marine Fisheries Service proposed minor changes to
current
river operations in a draft recovery plan. In April 1994, a U.S.
District Court judge rejected the draft recovery plan. In May
1994, the
federal government ordered a temporary spilling of water over the
Columbia and Snake River dams in an attempt to increase the
number of
salmon that survive their downriver trip to the Pacific Ocean.
This
emergency spill was halted in July 1994.
PGE purchases power from many sources including the mid-Columbia
dams.
Reductions in the amount of water allowed to flow through the
dams'
turbines reduce the amount and increase the cost of power
available to
purchase on a non-contract or secondary basis. The attempt to
improve
fish passage by releasing more water from the reservoirs in the
spring
and summer could mean less water available in the fall and winter
when
the demand for electricity in the Pacific Northwest is the
highest.
This could lead to higher costs for hydro power and the need to
run more
expensive gas- and coal-fired plants.
Fuel Supply
PGE has entered into agreements with two U.S. and one Canadian
gas
supplier for firm purchases of approximately 54,000 MMBtu/day of
natural
gas for the
7
7
Portland General Corporation and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
months October 1, 1994 through February 28, 1995. The Canadian
agreement is for a fixed price and PGE has
entered into hedging transactions on the remaining two agreements
to reduce exposure
to increases in gas prices.
The result of these transactions is to lock in a fixed price for
approximately 60% of the expected fuel needed to operate the
Beaver gas-
fired plant during the winter period.
Customer Growth and Revenues
During the third quarter of 1994
approximately 2,600 retail customers were
added to PGE's service territory. For the
twelve-months ended September 30, 1994,
10,000 retail customers were added. PGE's
weather-adjusted retail energy sales
through the third quarter of 1994 were 3.1%
higher than energy sales for the same
period in 1993. Greatest growth was
experienced in the commercial and
manufacturing sectors which realized a
combined load growth of 3.8% for the year.
Residential load grew 2.0%. The Company
expects 1994 load growth to be
approximately 2.6%.
Seasonality
PGE's retail sales peak in the winter, therefore, quarterly
earnings
are not necessarily indicative of results to be expected for
fiscal year
1994.
Nonutility
Portland General Corporation (Portland General), Portland General
Holdings, Inc. (Holdings) and certain Portland General affiliated
individuals have been named in a class action suit by investors
in
Bonneville Pacific Corporation (Bonneville Pacific) and in a suit
filed
by the bankruptcy trustee for Bonneville Pacific. The class
action suit
alleges various violations of securities law, fraud and
misrepresentation. The suit by the bankruptcy trustee for
Bonneville
Pacific alleges common law fraud, breach of fiduciary duty,
tortious
interference, negligence, negligent misrepresentation and other
actionable wrongs.
Regarding the class action suit, in May 1994 the U.S. District
Court for
the District of Utah (the Court) issued an order dismissing the
claims
filed by the plaintiffs against Portland General, Holdings and
the
Portland General affiliated individuals for common law fraud and
negligent misrepresentation, primary liability for violations of
the
federal securities laws and secondary liability for aiding and
abetting
and conspiracy to violate the federal securities laws. The order
permanently
dismisses the secondary liability claims. The Court stated that
it will
consider an amendment to the complaint with regard to the other
claims.
8
8
Portland General Corporation and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Court also held that it would not consider the claims for
Utah state
securities law violations until certain issues are addressed by
the Utah
state courts.
Holdings has filed a complaint seeking approximately $228 million
in
damages against Deloitte & Touche and certain parties associated
with
Bonneville Pacific alleging that it relied on fraudulent and
negligent
statements and omissions when it acquired a 46% interest in and
made
loans to Bonneville Pacific.
A detailed report released in June 1992, by a U.S. Bankruptcy
examiner
outlined a number of questionable transactions that resulted in
gross
exaggeration of Bonneville Pacific's assets prior to Holdings'
investment. This report includes the examiner's opinion that
there was
significant mismanagement and very likely fraud at Bonneville
Pacific.
These findings support management's belief that a favorable
outcome on
these matters can be achieved.
For background information and further details, see Note 3, Legal
Matters, in Notes to Financial Statements.
Results of Operations
Portland General Electric company, an electric utility company
and
Portland General's principal operating subsidiary, accounts for
substantially all of Portland General's assets, revenues and net
income.
The following discussion focuses on utility operations, unless
noted.
1994 Compared to 1993 for the Three Months Ended September 30
Portland General earned $12 million or $0.24 per share for the
third
quarter of 1994, compared with $6 million or $0.13 per share in
1993.
Nuclear cost savings, continued customer growth and increased
wholesale
sales made positive contributions to 1994 operating results.
However,
increased earnings were chiefly the result of lower income tax
expense.
Before tax operating income declined $6 million primarily due to
narrower margins on retail and wholesale sales and slight
increases in
non-nuclear operating costs.
Retail sales were strong for the quarter, with megawatt-hour
sales
increasing 5% over last year due to the addition of more than
2,600 new
customers to PGE's system and hot summer weather. Wholesale
megawatt-
hour sales increased 72% due to demand from northwest utilities
and
PGE's ability to acquire Desert Southwest and northern California
power
through its ownership share in the Pacific Northwest Intertie.
However,
wholesale and retail margins narrowed as a result of a more
competitive
wholesale market and poor hydro conditions which contributed to
an
increase in average power costs.
Variable power costs rose due to greater wholesale and retail
demand and
the replacement of an 18% decrease in PGE hydro generation.
PGE's total
system load increased by 10% for the
period. Solid performance by PGE's thermal
plants, such as the Beaver gas-fired
facility, which more than
9
9
Portland General Corporation and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
doubled its prior
year's output, allowed the Company to
generate 52% of its system load, offsetting
the need to acquire more costly purchased
power.
Operating revenues for 1993 include $12
million in accrued revenues related to
PGE's power cost deferral in effect during
the period.
Operating expenses (excluding variable power costs and
depreciation)
declined $3 million or 4%. The Company realized $6 million in
nuclear
operating cost savings due to fewer personnel at Trojan. During
the
third quarter of 1994, $3 million of nuclear operating costs were
expensed. Slight increases in certain non-nuclear operating
costs
partially offset the realized nuclear cost savings.
Income tax expense decreased $11 million. 1993 income tax
expense
includes approximately $7 million related to the retroactive
increase in
the federal tax rate and adjustments to consolidated tax items.
The
remaining decrease in 1994 income tax expense was caused by lower
taxable income.
1994 Compared to 1993 for the Nine Months Ended September 30
Portland General earned $75 million or $1.51 per share for the
nine
months ended September 30, 1994, compared with $56 million or
$1.19 per
share for the 1993 period. Nuclear cost savings, increased
wholesale
sales, lower income tax expense and income from discontinued
operations
resulted in increased 1994 earnings. Excluding discontinued
operations,
1994 earnings would have been $69 million.
Current year retail sales were boosted by hot summer weather and
consistent retail customer growth, which helped offset the
effects of
warmer than normal winter weather. During 1994 PGE sold 78% more
wholesale energy than in 1993. PGE's access to the Northwest
Intertie,
coupled with active marketing efforts, enabled the Company to
respond to
increased demand for wholesale energy from California and
northwest
utilities. Retail and wholesale margins narrowed due to more
competitive prices in wholesale markets, increased wheeling costs
driven
by an October 1993 rate increase by BPA, and higher average power
costs
caused by poor hydro conditions in the Northwest.
Poor regional water conditions contributed to an increase in
average
variable power costs, which rose to 19.1 mills per kilowatt-hour
(10
mills = 1 cent) in 1994 from 18.7 mills per kilowatt-hour in
1993. PGE
hydro generation fell 22.5%. Additionally, PGE system load
increased
6.5% causing PGE to rely more heavily upon PGE thermal plant
generation.
Good performance of PGE's thermal plants and favorable gas prices
allowed PGE
to meet increased demand and avoid the higher cost of secondary
power
purchases.
10
10
Portland General Corporation and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Operating revenues in 1994 include $18 million in first quarter
accrued
revenues versus $48 million in accrued revenues in 1993 relating
to
power cost deferrals in effect during each of the respective
periods (see Power
Cost Recovery in the Financial and Operating Outlook section
above).
The decrease in accrued revenues was offset
by significant nuclear cost savings. Due
to fewer personnel at Trojan, nuclear
operating costs declined $30 million in
1994, resulting in a 12% decrease in
operating expenses (excluding variable
power costs and depreciation). During the
nine months ended September 30, 1994, $9
million of nuclear operating costs were
expensed compared to $39 million in the
prior year.
Income tax expense decreased $6 million due
to a retroactive increase in the federal
tax rate in 1993, and year-to-date
adjustments for consolidated tax items also recorded in 1993.
The Company recorded a $2 million gain, after tax, on the sale of
nonutility property which is included in other income in 1994.
The divestiture of real estate holdings resulted in $6 million,
after
tax, of previously recorded real estate reserves which were
restored to
income in the second quarter of 1994.
1994 Compared to 1993 for the Twelve Months Ended September 30
Portland General earned $108 million or $2.19 per share for the
twelve
months ended September 30, 1994, compared with $95 million or
$2.02 per
share for the 1993 period. Excluding discontinued operations,
earnings
for 1994 would have been approximately $102 million. Excluding
the effects of Trojan
steam generator repair costs of $11 million, after tax, which
were
restored to 1992 calendar earnings (and included in the 1993
twelve
month period), 1993 earnings would have been $84 million.
Operating revenues rose $31 million and variable power costs
increased
$75 million in 1994 resulting in a $44 million decline in
operating
income. This decline is primarily the result of higher average
variable
power costs.
The increase in operating revenues is primarily due to a 25% rise
in
wholesale revenues.
Average variable power costs increased to 19.6 mills from 18.1
mills,
reflecting increased power purchases and thermal generation to
replace
hydro and low-cost nuclear generation. Due to poor
11
11
Portland General Corporation and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
water
conditions, PGE
hydro generation decreased 470,574 megawatt-hours or 20%. During
the
1993
period, Trojan supplied 640,902 megawatt-
hours or 3% of PGE's total system load at
an average cost of 4.7 mills per kilowatt-
hour.
Operating expenses (excluding variable
power costs and depreciation) declined $53
million in the 1994 period. This was
primarily due to $56 million in nuclear
operating cost savings.
Depreciation, decommissioning and
amortization rose 21% as a result of the
capitalization of $18 million ($11 million,
after tax) of steam generator repair costs
in the 1993 period as discussed above.
Income tax expense decreased $15 due to lower taxable income, the
recording of a retroactive increase in the federal tax rate in
1993, and
year-to-date adjustments for consolidated tax items also recorded
in
1993.
The divestiture of real estate holdings resulted in $6 million,
after
tax, of previously recorded real estate reserves being restored
to
income in the second quarter of 1994.
Cash Flow
Portland General Corporation
Portland General requires cash to pay dividends to its common
stockholders, to provide funds to its subsidiaries, to meet debt
service
obligations and for day to day operations. Sources of cash are
dividends from PGE, its principal subsidiary, asset sales and
leasing
rentals, short- and intermediate-term borrowings and the sale of
its
common stock.
Portland General received $15.4 million in dividends from PGE
during the
third quarter of 1994 and $2.4 million in proceeds from the
issuance of
shares of common stock under its Dividend Reinvestment and
Optional Cash
Payment Plan.
Portland General Electric Company
Cash Provided by Operations
Operations are the primary source of cash used for day to day
operating
needs of PGE and funding of construction activities. PGE also
obtains
cash from external borrowings, as needed.
A significant portion of cash from operations comes from
depreciation
and amortization of utility plant, charges which are recovered in
customer revenues but require no current cash outlay. Changes in
accounts receivable and accounts payable can also be significant
contributors or
users of cash. The $3 million increase in cash flow from
operations,
when comparing third quarter 1994 to third quarter 1993, is
primarily
due to collection of accrued revenues recorded in prior periods,
partially offset by a $20 million prepayment made to the IRS (see
below).
12
12
Portland General Corporation and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Future cash requirements may be affected by the ultimate outcome
of the
IRS audit of PGE's 1985 WNP-3 abandonment loss deduction. The
IRS has
issued a statutory notice of tax deficiency, which Portland
General is
contesting, related to its examination of Portland General's 1985
tax
return. In September 1994, PGE made a $20 million prepayment to
the IRS
to mitigate interest cost exposure, if any, related to the
alleged tax
deficiency. The prepayment is refundable with interest should
PGE
prevail (see Note 4, Income Taxes, for further information).
PGE has been named a "potentially responsible party" (PRP) of PCB
contaminants at various environmental cleanup sites. The total
cost of
cleanup is estimated at $27 million, of which the Company's share
is
approximately $3 million. PGE has made an assessment of the
other
involved PRP's and is satisfied that they can meet their share of
the
obligation. Should the eventual outcome of these environmental
matters
result in additional cash requirements, PGE expects internally
generated
cash flows or external borrowings to be sufficient to fund such
obligations.
Investing Activities
PGE invests in facilities for generation, transmission and
distribution
of electric energy and for energy efficiency investments.
Estimated
capital expenditures for 1994 are expected to be $250 million.
Approximately $183 million has been expended for capital
projects,
including energy efficiency investments, through September 30,
1994.
PGE continues to fund an external trust for the future costs of
Trojan
decommissioning. Funding began in March 1991. Currently PGE
funds
$11 million each year. As of September 30, 1994, the fund had a
current
market value of $56 million which was invested in
investment-grade tax-
exempt bonds. Upon approval from the NRC these funds will become
available to PGE for use in the removal of some of Trojan's large
components, in addition to other future dismantlement activities.
Financing Activities
Third quarter 1994 financing activities include the issuance of
$30
million of three year notes at 6.75% maturing September 15, 1997
and $45
million of seven year notes at 7.40% maturing September 15, 2001.
Proceeds were used to fund PGE's construction program.
The issuance of additional preferred stock and First Mortgage
Bonds
requires PGE to meet earnings coverage and security provisions
set forth
in the Articles of Incorporation and the Indenture securing its
First
Mortgage Bonds. As of September 30, 1994, PGE could issue $470
million
of preferred stock and $420 million of additional First Mortgage
Bonds.
13
13
Graph Descriptions
Page 8
Quarterly Increase in Retail Customers
Increase in Increase in
Residential Commercial and Industrial
Quarter/Year Customers Customers
2Q 92 1839 427
3Q 92 2272 376
4Q 92 2927 380
1Q 93 2025 275
2Q 93 1697 429
3Q 93 2802 446
4Q 93 2775 563
1Q 94 2986 390
2Q 94 2476 550
3Q 94 2219 454
Page 10
Gross Margin
12 Months Ending September 30
1992 1993 1994
Net Variable Power 6 11 14
Retail Revenues 48 52 51
(Net variable power costa are variable power less wholesale
revenues)
Page 11
Operating Expenses
12 Months Ending September 30
Millions of Dollars
1992 1993 1994
Operating Costs 335 311 258
Variable Power 232 277 353
Depreciation 117 102 123
Page 11
PGE Electricity Sales
12 Months Ending September 30
Billions of KWhs
1992 1993 1994
Residential 6.2 6.7 6.6
Commercial 5.8 5.9 6.2
Industrial 3.6 3.7 3.8
Wholesale 3.1 1.6 2.4
Portland General
Corporation and Subsidiaries
Consolidated
Statements of Income for the
Three Months, Nine Months and Twelve
Months Ended September30, 1994 and 1993
(Unaudited)
Three Months Ended
Nine Months Ended Twelve Months Ended
September 30
September 30 September 30
1994 1993
1994 1993 1994 1993
(Thousands of Dollars)
Operating Revenues $214,180 $209,160
$694,304 $678,228 $962,905 $932,197
Operating Expenses
Purchased power and fuel 83,732 71,141
248,549 207,350 352,912 277,480
Production and distribution 15,282 16,661
46,295 56,251 63,620 80,736
Maintenance and repairs 12,267 12,392
35,495 44,958 45,857 70,379
Administrative and other 24,836 25,245
72,562 76,441 96,442 106,094
Depreciation, decommissioning and
amortization 31,331 30,526
92,579 91,431 123,366 102,012
Taxes other than income taxes 12,057 12,824
39,144 42,705 52,169 54,035
179,505 168,789
534,624 519,136 734,366 690,736
Operating Income Before
Income Taxes 34,675 40,371
159,680 159,092 228,539 241,461
Income Taxes 6,008 16,645
42,885 48,915 61,490 76,917
Net Operating Income 28,667 23,726
116,795 110,177 167,049 164,544
Other Income (Deductions)
Interest expense (18,951) (17,463)
(53,870) (53,288) (71,384) (71,283)
Allowance for funds used
during construction 1,243 151
2,507 539 2,753 2,048
Preferred dividend requirement - PGE (2,583) (2,988)
(8,217) (9,057) (11,206) (12,125)
Other - net of income taxes 3,511 2,923
11,330 7,862 14,218 12,306
Income from Continuing
Operations 11,887 6,349
68,545 56,233 101,430 95,490
Discontinued Operations
Gain on disposal of real estate
operations - net of income
taxes of $4,226 - -
6,472 - 6,472 -
Net Income $ 11,887 $ 6,349
$ 75,017 $ 56,233 $107,902 $ 95,490
Common Stock
Average shares outstanding 50,285,669 47,458,575
49,706,398 47,352,130 49,166,616 47,287,240
Earnings per average share
Continuing operations $0.24 $0.13
$1.38 $1.19 $2.06 $2.02
Gain on disposal of real
estate operations - -
0.13 - 0.13 -
Earnings per average share $0.24 $0.13
$1.51 $1.19 $2.19 $2.02
Dividends declared per share $0.30 $0.30
$0.90 $0.90 $1.20 $1.20
Consolidated Statements of
Retained Earnings for the
Three Months, Nine Months and Twelve
Months Ended September 30, 1994 and 1993
(Unaudited)
Three Months Ended
Nine Months Ended Twelve Months Ended
September 30
September 30 September 30
1994 1993
1994 1993 1994 1993
(Thousands of Dollars)
Balance at Beginning of Period $113,427 $ 71,240
$ 81,159 $ 50,481 $ 62,957 $ 27,222
Net Income 11,887 6,349
75,017 56,233 107,902 95,490
ESOP Tax Benefit & Amortization of
Preferred Stock Premium (484) (390)
(1,280) (1,132) (1,672) (3,000)
124,830 77,199
154,896 105,582 169,187 119,712
Dividends Declared on
Common Stock 15,094 14,242
45,160 42,625 59,451 56,755
Balance at End of Period $109,736 $ 62,957
$109,736 $ 62,957 $109,736 $ 62,957
[FN]
The accompanying notes are an integral part of these consolidated
statements.
14
14
Portland General
Corporation and Subsidiaries
Consolidated Balance Sheets as of
September 30, 1994 and December 31, 1993
(Unaudited)
September 30 December 31
1994 1993
(Thousands of Dollars)
Assets
Electric Utility Plant - Original Cost
Utility plant (includes Construction Work
in Progress of $132,507 and $46,679)
$2,525,630 $2,370,460
Accumulated depreciation
(950,654) (894,284)
1,574,976 1,476,176
Capital leases - less amortization of $25,253 and $23,626
12,065 13,693
1,587,041 1,489,869
Other Property and Investments
Leveraged leases
154,217 155,618
Net assets of discontinued real estate operations
10,966 31,378
Trojan decommissioning trust, at market value
56,320 48,861
Corporate Owned Life Insurance, less loan of $19,619 in 1994
58,146 72,612
Other investments
27,462 29,552
307,111 338,021
Current Assets
Cash and cash equivalents
17,563 3,202
Accounts and notes receivable
79,620 91,641
Unbilled and accrued revenues
147,494 133,476
Inventories, at average cost
45,231 46,534
Prepayments and other
37,318 22,128
327,226 296,981
Deferred Charges
Unamortized regulatory assets
Trojan abandonment - Plant
348,280 366,712
Trojan abandonment - Decommissioning
347,207 355,718
Trojan other
65,927 66,387
Income taxes recoverable
219,457 228,233
Debt reacquisition costs
32,919 34,941
Energy efficiency programs
52,499 39,480
Other
31,101 33,857
WNP-3 settlement exchange agreement
174,482 178,003
Miscellaneous
21,592 21,126
1,293,464 1,324,457
$3,514,842 $3,449,328
Capitalization and Liabilities
Capitalization
Common stock
$ 188,579 $ 178,630
Other paid-in capital
558,721 519,058
Unearned compensation
(14,585) (19,151)
Retained earnings
109,736 81,159
842,451 759,696
Cumulative preferred stock of subsidiary
Subject to mandatory redemption
50,000 70,000
Not subject to mandatory redemption
69,704 69,704
Long-term debt
902,302 842,994
1,864,457 1,742,394
Current Liabilities
Long-term debt and preferred stock due within one year
22,971 51,614
Short-term borrowings
112,090 159,414
Accounts payable and other accruals
83,953 109,479
Accrued interest
21,718 18,581
Dividends payable
18,063 17,657
Accrued taxes
56,961 25,601
315,756 382,346
Other
Deferred income taxes
664,717 660,248
Deferred investment tax credits
57,760 60,706
Regulatory reserves
119,315 120,410
Trojan decommissioning reserve and misc. closure costs
405,474 407,610
Miscellaneous
87,363 75,614
1,334,629 1,324,588
$3,514,842 $3,449,328
[FN]
The accompanying notes are an integral part of these consolidated
balance sheets.
15
15
Portland
General Corporation and Subsidiaries
Consolidated
Statements of Capitalization
as of September
30, 1994 and December 31, 1993
(Unaudited)
September 30 December 31
1994 1993
(Thousands of Dollars)
Common Stock Equity
Common stock, $3.75 par value per share,
100,000,000 shares authorized, 50,318,723
and 47,634,653 shares outstanding
$ 188,579 $ 178,630
Other paid-in capital - net
558,721 519,058
Unearned compensation
(14,585) (19,151)
Retained earnings
109,736 81,159
842,451 45.2 % 759,696 43.6 %
Cumulative Preferred Stock
Subject to mandatory redemption
No par value, 30,000,000 shares authorized
7.75% Series, 300,000 shares outstanding
30,000 30,000
$100 par value, 2,500,000 shares authorized
8.10% Series, 300,000 and 500,000 shares outstanding
30,000 50,000
Current sinking fund
(10,000) (10,000)
50,000 2.7 70,000 4.0
Not subject to mandatory redemption
7.95% Series, 298,045 shares outstanding
29,804 29,804
7.88% Series, 199,575 shares outstanding
19,958 19,958
8.20% Series, 199,420 shares outstanding
19,942 19,942
69,704 3.7 69,704 4.0
Long-Term Debt
First mortgage bonds
Maturing 1994 through 1999
4-3/4% Series due April 1, 1994
- 8,119
4.70% Series due March 1, 1995
3,045 3,220
5-7/8% Series due June 1, 1996
5,216 5,366
6.60% Series due October 1, 1997
15,363 15,363
Medium-term notes - 5.65%-9.27%
251,000 242,000
Maturing 2001 through 2005 - 6.47%-9.07%
210,845 166,283
Maturing 2021 through 2023 - 7 3/4%-9.46%
195,000 195,000
Pollution control bonds
Port of Morrow, Oregon, variable rate
(Average 2.3% for 1993), due 2013
through 2016
23,600 23,600
City of Forsyth, Montana, variable rate
(Average 2.4% for 1993), due 2013
118,800 118,800
Amount held by trustee
(8,495) (8,537)
Port of St. Helens, Oregon, due 2010 and 2014
(Average variable 2.2%-2.4% for 1993)
51,600 51,600
Medium-term notes maturing 1994 through 1996 - 7.23%-8.09%
37,500 50,000
Capital lease obligations
12,065 13,693
Other
(266) 101
915,273 884,608
Long-term debt due within one year
(12,971) (41,614)
902,302 48.4 842,994 48.4
Total capitalization
$1,864,457 100.0 % $1,742,394 100.0 %
[FN]
The accompanying notes are an integral part of these consolidated
statements.
16
16
Portland
General Corporation and Subsidiaries
Consolidated
Statements of Cash Flow for the
Three Months, Nine Months and
Twelve Months Ended September 30, 1994 and 1993
(Unaudited)
Three
Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
1994
1993 1994 1993 1994 1993
(Thousands of Dollars)
Cash Provided (Used) By -
Operations:
Net Income $ 11,887
$ 6,349 $ 75,017 $ 56,233 $ 107,902 $ 95,490
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 25,442
22,039 70,596 67,535 92,810 82,187
Amortization of WNP-3 exchange agreement 1,174
1,123 3,521 3,367 4,643 4,781
Amortization of deferred charges - Trojan Plant 5,844
5,601 17,900 17,543 24,372 17,543
Amortization of deferred charges - Trojan Decomm. 2,805
2,805 8,415 8,415 11,220 8,415
Amortization of deferred charges - Trojan Other 581
576 1,741 1,738 2,317 2,843
Amortization of deferred charges - other (339)
1,513 2,547 3,791 5,469 4,330
Deferred income taxes - net 7,075
20,042 19,607 42,180 38,513 57,944
Other noncash income (296)
(658) (954) (1,551) (1,329) (2,280)
Changes in working capital:
(Increase) Decrease in receivables 2,029
(16,241) (1,555) (26,806) (47,586) (68,662)
(Increase) Decrease in inventories 2,661
(804) 1,303 (1,007) 17,327 1,909
Increase (Decrease) in payables 27,886
19,804 9,277 (13,890) (6,670) (17,395)
Other working capital items - net (29,261)
(7,644) (23,157) 2,522 (13,206) 14,693
Gain from discontinued operations -
- (6,472) - (6,472) -
Deferred items 5,622
2,073 5,378 (1,666) (130) (11,617)
Miscellaneous - net 6,258
2,400 13,573 6,011 25,290 10,529
69,368
58,978 196,737 164,415 254,470 200,710
Investing Activities:
Utility construction - new resources (20,482)
(11,239) (72,967) (11,239) (90,394) (11,239)
Utility construction - other (33,179)
(25,754) (94,587) (73,134) (123,145) (118,945)
Energy efficiency programs (5,757)
(4,334) (15,789) (10,458) (23,480) (13,521)
Rentals received from leveraged leases 6,469
3,229 19,351 14,058 20,823 15,286
Trojan decommissioning trust (2,805)
(2,805) (8,415) (8,415) (11,220) (11,220)
Other investments (2,310)
(779) (4,637) (2,848) (12,552) (6,776)
(58,064)
(41,682) (177,044) (92,036) (239,968) (146,415)
Financing Activities:
Short-term debt - net (48,458)
(6,109) (47,324) (11,515) (17,073) 39,113
Borrowings from Corporate Owned Life Insurance -
- 19,619 - 19,619 -
Long-term debt issued 75,000
75,000 75,000 252,000 75,000 252,000
Long-term debt retired (34,112)
(73,871) (45,577) (267,186) (58,377) (282,936)
Repayment of nonrecourse borrowings for
leveraged leases (4,804)
(2,288) (16,865) (12,030) (17,930) (13,007)
Preferred stock retired -
- (20,000) (3,600) (20,000) (3,600)
Common stock issued 2,479
2,222 47,685 7,164 50,041 9,466
Dividends paid (15,044)
(14,209) (44,754) (42,610) (58,994) (56,703)
(24,939)
(19,255) (32,216) (77,777) (27,714) (55,667)
Net Cash Provided By (Used In)
Continuing Operations (13,635)
(1,959) (12,523) (5,398) (13,212) (1,372)
Discontinued Operations (181)
1,526 26,884 3,355 26,129 (631)
Increase (Decrease) in Cash and
Cash Equivalents (13,816)
(433) 14,361 (2,043) 12,917 (2,003)
Cash and Cash Equivalents at the Beginning
of Period 31,379
5,079 3,202 6,689 4,646 6,649
Cash and Cash Equivalents at the End
of Period $ 17,563
$ 4,646 $ 17,563 $ 4,646 $ 17,563 $ 4,646
Supplemental disclosures of cash flow information
Cash paid during the period:
Interest $ 12,488
$ 15,738 $ 45,426 $ 54,262 $ 65,425 $ 72,392
Income taxes 2,100
5,140 20,339 15,510 17,088 23,985
[FN]
The accompanying notes are an integral part of these consolidated
statements.
17
17
Portland General Corporation and
Subsidiaries
Notes to Financial
Statements
(Unaudited)
Note 1
Principles of Interim Statements
The interim financial statements have been prepared by Portland
General Corporation (Portland General) and, in the opinion of
management, reflect all material adjustments which are necessary
to a
fair statement of results for the interim periods presented.
Certain
information and footnote disclosures made in the last annual
report on
Form 10-K have been condensed or omitted for the interim
statements.
Certain costs are estimated for the full year and allocated to
interim
periods based on the estimates of operating time expired, benefit
received or activity associated with the interim period.
Accordingly,
such costs are subject to year-end adjustment. It is Portland
General's opinion that, when the interim statements are read in
conjunction with the 1993 Annual Report on Form 10-K, the
disclosures
are adequate to make the information presented not misleading.
Reclassifications
Certain amounts in prior years have been reclassified for
comparative
purposes.
Note 2
Regulatory Matters
Public Utility Commission of Oregon
Portland General Electric Company (PGE) had sought judicial
review of
three rate matters related to a 1987 general rate case. In July
1990
PGE reached an out-of-court settlement with the Oregon Public
Utility
Commission (PUC) on two of the three rate matter issues being
litigated.
The settlement resolved the dispute with the PUC regarding
treatment of
accelerated amortization of certain investment tax credits (ITC)
and
1986-1987 interim relief.
The settlement, however, did not resolve the Boardman/Intertie
gain
issue, which the parties continue to litigate. PGE's position is
that
28% of the gain should be allocated to customers. The 1987 rate
order
allocated 77% of the gain to customers over a 27-year period.
PGE has
fully reserved this amount, which is being amortized over a
27-year
period in accordance with the 1987 rate order. The unamortized
gain,
$119 million at September 30, 1994, is shown as "Regulatory
reserves" on
the balance sheet.
18
18
Portland General Corporation and Subsidiaries
Notes to Financial Statements
(Unaudited)
Note 3
Legal Matters
WNP Cost Sharing
PGE and three other investor-owned utilities (IOUs) are involved
in
litigation surrounding the proper allocation of shared costs
between
Washington Public Power Supply System (Supply System) Units 1 and
3 and
Units 4 and 5. A court ruling, issued in May 1989, stated that
Bond
Resolution No. 890, adopted by the Supply System, controlled
disbursement of proceeds from bonds issued for the construction
of Unit
5, including the method for allocation of shared costs. It is
the IOUs'
contention that at the time the project commenced there was
agreement
among the parties as to the allocation of shared costs and that
this
agreement and the Bond Resolution are consistent, such that the
allocation under the agreement is not prohibited by the Bond
Resolution.
In February 1992, the Court of Appeals ruled that shared costs
between
Units 3 and 5 should be allocated in proportion to benefits under
the
equitable method supported by PGE and the IOUs. A trial remains
necessary to assure that the allocations are properly performed.
Bonneville Pacific Class Action Suit and Lawsuit
A consolidated case of all previously filed class actions has
been filed
in U.S. District Court for the District of Utah (the Court),
purportedly
on behalf of purchasers of common shares and convertible
subordinated
debentures of Bonneville Pacific Corporation (Bonneville Pacific)
in the
period from August 18, 1989 until January 22, 1992, alleging
violations
of federal and Utah state securities laws, common law fraud and
negligent misrepresentation. The defendants are specific
Bonneville
Pacific insiders, Portland General, Portland General Holdings,
Inc.
(Holdings), certain Portland General affiliated individuals,
Deloitte &
Touche and three underwriters of a Bonneville Pacific offering of
subordinated debentures.
In May 1994 the Court issued an order dismissing the claims filed
by the
plaintiffs against Portland General, Holdings and the Portland
General
affiliated individuals for common law fraud and negligent
misrepresentation, primary liability for violations of the
federal
securities laws and secondary liability for aiding and abetting
and
conspiracy to violate the federal securities laws. The order
permanently dismisses the secondary liability claims. The Court
stated
that it will consider an amendment to the complaint with regard
to the
other claims. The Court also held that it would not consider the
claims
for Utah state securities law violations until certain issues are
addressed by the Utah state courts.
A separate legal proceeding has been initiated by the bankruptcy
trustee
for Bonneville Pacific who has filed an amended complaint against
Portland General, Holdings and certain affiliated individuals in
US
District Court for the District of Utah alleging common law
fraud,
breach of fiduciary duty, tortious interference, negligence,
negligent
misrepresentation and other actionable wrongs. The original suit
was
filed by Bonneville Pacific
19
19
Portland General Corporation and Subsidiaries
Notes to Financial Statements
(Unaudited)
prior to the appointment of the bankruptcy trustee. The amount
of
damages sought is not specified in the complaint.
Other Legal Matters
Portland General and certain of its subsidiaries are party to
various
other claims, legal actions and complaints arising in the
ordinary
course of business. These claims are not considered material.
Summary
While the ultimate disposition of these matters may have an
impact on
the results of operations for a future reporting period,
management
believes, based on discussion of the underlying facts and
circumstances
with legal counsel, that these matters will not have a material
adverse
effect on the financial condition of Portland General.
Other Bonneville Pacific Related Litigation
Holdings filed complaints seeking approximately $228 million in
damages
in the Third Judicial District Court for Salt Lake County (Utah)
against
Deloitte & Touche and certain other parties associated with
Bonneville
Pacific alleging that it relied on fraudulent and negligent
statements
and omissions by Deloitte & Touche and the other defendants when
it
acquired a 46% interest in and made loans to Bonneville Pacific
starting
in September 1990.
Note 4
Income Taxes
The IRS has issued a statutory notice of tax deficiency, which
Portland
General is contesting, related to its examination of PGE's 1985
tax
return. The IRS has proposed to disallow PGE's 1985 WNP-3
abandonment
loss deduction on the premise that it is a taxable exchange.
Portland
General disagrees with this position and will take appropriate
action to
defend its deduction. Management believes that it has
appropriately
provided for probable tax adjustments and is of the opinion that
the
ultimate disposition of this matter will not have a material
adverse
impact on the financial condition of Portland General.
Note 5
Trojan Nuclear Plant
Shutdown - In early 1993, PGE ceased commercial operation of
Trojan as
recommended in PGE's Least Cost Plan (LCP).
Decommissioning - PGE's current estimated cost to decommission
Trojan
has been increased $7 million to $417 million (comprised of $351
million
of dismantlement costs and $66 million of transition costs)
reflected in
nominal dollars (actual dollars expected to be spent in each
year). The
increase in the estimated cost of decommissioning reflects a
refinement
in
20
20
Portland General Corporation and Subsidiaries
Notes to Financial Statements
(Unaudited)
the timing and scope of certain dismantlement activities and
lower
anticipated transition costs. Stated in 1993 dollars, the
current
estimate
is virtually unchanged from the previous estimate of $289
million. The
decommissioning cost estimate includes the cost of planning,
removal and
burial of irradiated equipment and facilities as required by the
Nuclear
Regulatory Commission (NRC); building demolition and
non-radiological
site remediation; and spent nuclear fuel management costs
including
licensing, surveillance and transition costs. Transition costs,
which
are now estimated at $66 million for the period 1994 through 1998
inclusive, are the costs associated with operating and
maintaining the
spent fuel pool and securing the plant until dismantlement can
begin.
While most decommissioning costs will utilize funds from PGE's
Nuclear
Decommissioning Trust (NDT), transition costs will continue to be
paid
from current operating funds.
The decommissioning plan is based on a site-specific
decommissioning
cost estimate performed for Trojan by an experienced
decommissioning
engineering firm. The updated estimate assumes that the majority
of
decommissioning activities will occur between 1997 and 2000,
beginning
with the removal of certain large plant components while
construction of
a temporary dry spent fuel storage facility is taking place.
Decommissioning of the temporary dry spent fuel storage facility
and
final non-radiological site remediation activities will occur in
2018
after PGE completes shipment of spent fuel to a United States
Department
of Energy (USDOE) facility. As of September 30, 1994 PGE has
expensed
approximately $9 million in transition costs for 1994. Annual
transition costs are estimated to be $10 million to $15 million
per year
through 1998. In addition, since plant closure PGE has spent $3
million
on decommissioning planning and related activities reducing the
remaining decommissioning liability, including transition costs,
to $405
million.
PGE plans to submit a formal decommissioning plan to the NRC and
Energy
Facility Siting Council of Oregon (EFSC) in late 1994. The NRC
and EFSC
rules require the plan be submitted before January 23, 1995.
The updated decommissioning estimate reflects PGE's current plan
to
accelerate the removal of some of Trojan's large components which
is
expected to result in overall decommissioning cost savings.
Since PGE
plans to begin this work in 1994, prior to receiving NRC and EFSC
approval of its formal decommissioning plan, specific approval
will be
obtained from EFSC. Request for this approval was filed with
EFSC on
July 7, 1994 (see Legal Proceedings for discussion of legal
challenges
of PGE's plan to accelerate the removal of some of Trojan's large
components). Additionally, PGE has requested NRC approval for
the use
of PGE's NDT funds for removal of large components. Assumptions
used to
develop the site-specific cost estimate for decommissioning
represent
the best information PGE has currently. PGE is continuing to
evaluate
various options which could change the timing and scope of
decommissioning activities and expects any future changes in
estimated
decommissioning costs to be incorporated in future revenues to be
collected from customers.
Investment Recovery - In its general rate filing PGE requested
continued
recovery of Trojan plant costs, including decommissioning (see
Note 5, Trojan Nuclear Plant, in Portland General's and PGE's
reports on Form 10-Q
21
21
Portland General Corporation and Subsidiaries
Notes to Financial Statements
(Unaudited)
for the period ended March 31, 1994 for
further details regarding the rate case proceedings).
LCP analysis assumed that continued recovery of the Trojan plant
investment, including future decommissioning costs, would be
granted by
the PUC. Regarding the authority of the PUC to grant recovery,
the
Oregon Department of Justice (Attorney General) issued an opinion
that
the PUC may allow rate recovery of total plant costs, including
operating expenses, taxes, decommissioning costs, return of
capital
invested in the plant and return on the undepreciated investment.
While
the Attorney General's opinion does not guarantee recovery of
costs
associated with the shutdown, it does clarify that under current
law the
PUC has authority to allow recovery of such costs in rates.
PGE asked the PUC to resolve certain legal and policy questions
regarding the statutory framework for future ratemaking
proceedings
related to the recovery of the Trojan investment and
decommissioning
costs. On August 9, 1993 the PUC issued a declaratory ruling
agreeing
with the Attorney General's opinion discussed above. The ruling
also
stated that the PUC will favorably consider allowing PGE to
recover in
rates some or all of its return on and return of its
undepreciated
investment in Trojan, including decommissioning costs, if PGE
meets
certain conditions. PGE believes that its general rate filing
provides
evidence that satisfies the conditions established by the PUC.
In early
1994, appeals of the PUC's declaratory ruling related to the
recovery of
the Trojan investment and decommissioning costs were filed in
Marion
County Circuit Court (see Legal Proceedings in Portland General's
and
PGE's reports on Form 10-Q for the period ended March 31, 1994
for
further discussion of legal challenges to the declaratory
ruling).
Management believes that the PUC will grant future revenues to
cover
all, or substantially all, of Trojan plant costs with an
appropriate
return. However, future recovery of the Trojan plant investment
and
future decommissioning costs requires PUC approval in a public
regulatory process. Although the PUC has allowed PGE to
continue, on an
interim basis, collection of these costs in the same manner as
prescribed in PGE's last general rate proceeding, the PUC has not
previously addressed recovery of costs related to a prematurely
retired
plant when the decision to close the plant was based upon a least
cost
planning process. Due to uncertainties inherent in a public
process,
management cannot predict, with certainty, whether all, or
substantially
all, of the $348 million Trojan plant investment and $347 million
of
decommissioning charges (to be collected through future rates)
will be
recovered. Management believes the ultimate outcome of this
public
regulatory process will not have a material adverse effect on the
financial condition, liquidity or capital resources of Portland
General.
However, it may have a material impact on the results of
operations for
a future reporting period.
22
22
Portland General Corporation and Subsidiaries
Notes to Financial Statements
(Unaudited)
Note 6
Commitments
PGE has entered into agreements with two U.S. and one Canadian
gas
supplier for firm purchases of approximately 54,000 MMBtu/day of
natural
gas for the months October 1, 1994 through February 28, 1995.
This
represents
approximately 60% of the estimated fuel needed for the planned
operation
of the Beaver natural gas plant for the period. The Canadian
agreement is for a fixed price and PGE has entered
into hedging transactions on the remaining two agreements
resulting in a fixed price
for these natural gas supplies. The estimated cost of these
agreements
based on the hedged price is approximately $15 million.
23
23
Portland General Electric Company and Subsidiaries
Financial Statements and Related Information
Table of Contents
Page
Number
Management Discussion and Analysis of
Financial Condition and Results of Operations * 3
Financial Statements 25
Notes to Financial Statements ** 18
* The discussion is substantially the same as that disclosed by
Portland General and, therefore, is incorporated by reference
to information provided on the page number listed above.
** The notes are substantially the same as those disclosed by
Portland General and are incorporated by reference to the
information provided on the page number shown above.
24
24
(CAPTION>
Portland General
Electric Company and Subsidiaries
Consolidated
Statements of Income for the
Three Months, Nine Months and
Twelve Months Ended September 30, 1994 and 1993
(Unaudited)
Three Months Ended
Nine Months Ended Twelve Months Ended
September 30
September 30 September 30
1994 1993
1994 1993 1994 1993
(Thousands of Dollars)
Operating Revenues $213,897
$208,444 $693,342 $676,470 $961,403
$929,512
Operating Expenses
Purchased power and fuel 83,732
71,141 248,549 207,350 352,912 277,480
Production and distribution 15,282
16,661 46,295 56,251 63,620 80,737
Maintenance and repairs 12,267
12,392 35,494 44,958 45,856 70,379
Administrative and other 25,013
24,626 71,425 75,003 94,830 103,062
Depreciation, decommissioning and
amortization 31,257
30,475 92,345 91,189 123,054 101,655
Taxes other than income taxes 12,073
12,835 39,092 42,644 52,124 53,824
Income taxes 6,789
12,748 49,180 49,665 71,005 80,460
186,413
180,878 582,380 567,060 803,401
767,597
Net Operating Income 27,484
27,566 110,962 109,410 158,002 161,915
Other Income (Deductions)
Allowance for equity funds used
during construction -
- - - - - 226
Other 5,286
3,241 15,565 10,241 17,095 10,403
Income taxes (1,831)
(474) (4,970) (2,704) (6,268) 1,285
3,455
2,767 10,595 7,537 10,827 11,914
Interest Charges
Interest on long-term debt and other 15,706
15,459 45,551 46,715 60,653 62,419
Interest on short-term borrowings 1,669
723 3,979 2,383 5,039 3,174
Allowance for borrowed funds used
during construction (1,243)
(151) (2,507) (539) (2,753) (1,822)
16,132
16,031 47,023 48,559 62,939 63,771
Net Income 14,807
14,302 74,534 68,388 105,890 110,058
Preferred Dividend Requirement 2,583
2,988 8,217 9,057 11,206 12,125
Income Available for Common Stock $ 12,224 $
11,314 $ 66,317 $ 59,331 $ 94,684 $ 97,933
Consolidated Statements of
Retained Earnings for the
Three Months, Nine Months and Twelve
Months Ended September 30, 1994 and 1993
(Unaudited)
Three Months Ended
Nine Months Ended Twelve Months Ended
September 30
September 30 September 30
1994 1993
1994 1993 1994 1993
(Thousands of Dollars)
Balance at Beginning of Period $201,808
$176,811 $179,297 $165,949 $169,529
$147,422
Net Income 14,807
14,302 74,534 68,388 105,890 110,058
ESOP Tax Benefit & Amortization of
Preferred Stock Premium (484)
(390) (1,280) (1,132) (1,672) (3,000)
216,131
190,723 252,551 233,205 273,747
254,480
Dividends Declared
Common Stock 12,828
18,206 43,614 54,619 61,821 72,826
Preferred Stock 2,583
2,988 8,217 9,057 11,206 12,125
15,411
21,194 51,831 63,676 73,027 84,951
Balance at End of Period $200,720
$169,529 $200,720 $169,529 $200,720
$169,529
[FN]
The accompanying notes are an integral part of these consolidated
statements.
25
25
Portland General Electric
Company and Subsidiaries
Consolidated Balance Sheets as of
September 30, 1994 and December 31, 1993
(Unaudited)
September 30 December 31
1994 1993
(Thousands of Dollars)
Assets
Electric Utility Plant - Original Cost
Utility plant (includes Construction Work
in Progress of $132,507 and $46,679)
$2,525,630 $2,370,460
Accumulated depreciation
(950,654) (894,284)
1,574,976 1,476,176
Capital leases - less amortization of $25,253 and $23,626
12,065 13,693
1,587,041 1,489,869
Other Property and Investments
Trojan decommissioning trust, at market value
56,320 48,861
Corporate Owned Life Insurance, less loan of $19,619 in 1994
35,016 52,008
Other investments
25,041 25,706
116,377 126,575
Current Assets
Cash and cash equivalents
6,887 2,099
Accounts and notes receivable
74,577 85,169
Unbilled and accrued revenues
147,494 133,476
Inventories, at average cost
45,231 46,534
Prepayments and other
36,388 20,646
310,577 287,924
Deferred Charges
Unamortized regulatory assets
Trojan abandonment - Plant
348,280 366,712
Trojan abandonment - Decommissioning
347,207 355,718
Trojan other
65,927 66,387
Income taxes recoverable
219,457 228,233
Debt reacquisition costs
32,919 34,941
Energy efficiency programs
52,499 39,480
Other
31,101 33,857
WNP-3 settlement exchange agreement
174,482 178,003
Miscellaneous
19,486 18,975
1,291,358 1,322,306
$3,305,353 $3,226,674
Capitalization and Liabilities
Capitalization
Common stock equity
$ 816,293 $ 747,197
Cumulative preferred stock
Subject to mandatory redemption
50,000 70,000
Not subject to mandatory redemption
69,704 69,704
Long-term debt
872,302 802,994
1,808,299 1,689,895
Current Liabilities
Long-term debt and preferred stock due within one year
15,471 41,614
Short-term borrowings
110,447 129,920
Accounts payable and other accruals
83,967 111,647
Accrued interest
21,457 17,139
Dividends payable
15,702 21,486
Accrued taxes
64,603 27,395
311,647 349,201
Other
Deferred income taxes
530,998 534,194
Deferred investment tax credits
57,760 60,706
Regulatory reserves
119,315 120,410
Trojan decommissioning reserve and misc. closure costs
405,474 407,610
Miscellaneous
71,860 64,658
1,185,407 1,187,578
$3,305,353 $3,226,674
[FN]
The accompanying notes are an integral part of these consolidated
balance sheets.
26
26
Portland General Electric
Company and Subsidiaries
Consolidated Statements
of Capitalization
as of September 30, 1994 and
December 31, 1993
(Unaudited)
September 30 December 31
1994 1993
(Thousands of Dollars)
Common Stock Equity
Common stock, $3.75 par value per share,
100,000,000 shares authorized, 42,758,877
and 40,458,877 shares outstanding
$ 160,346 $ 151,721
Other paid-in capital - net
469,078 433,978
Unearned compensation
(13,851) (17,799)
Retained earnings
200,720 179,297
816,293 45.1 % 747,197 44.2 %
Cumulative Preferred Stock
Subject to mandatory redemption
No par value, 30,000,000 shares authorized
7.75% Series, 300,000 shares outstanding
30,000 30,000
$100 par value, 2,500,000 shares authorized
8.10% Series, 300,000 and 500,000 shares outstanding
30,000 50,000
Current sinking fund
(10,000) (10,000)
50,000 2.8 70,000 4.2
Not subject to mandatory redemption
7.95% Series, 298,045 shares outstanding
29,804 29,804
7.88% Series, 199,575 shares outstanding
19,958 19,958
8.20% Series, 199,420 shares outstanding
19,942 19,942
69,704 3.9 69,704 4.1
Long-Term Debt
First mortgage bonds
Maturing 1994 through 1999
4-3/4% Series due April 1, 1994
- 8,119
4.70% Series due March 1, 1995
3,045 3,220
5-7/8% Series due June 1, 1996
5,216 5,366
6.60% Series due October 1, 1997
15,363 15,363
Medium-term notes - 5.65%-9.27%
251,000 242,000
Maturing 2001 through 2005 - 6.47%-9.07%
210,845 166,283
Maturing 2021 through 2023 - 7 3/4%-9.46%
195,000 195,000
Pollution control bonds
Port of Morrow, Oregon, variable rate
(Average 2.3% for 1993), due 2013
23,600 23,600
City of Forsyth, Montana, variable rate
(Average 2.4% for 1993), due 2013
through 2016
118,800 118,800
Amount held by trustee
(8,495) (8,537)
Port of St. Helens, Oregon, due 2010 and 2014
(Average variable 2.2%-2.4% for 1993)
51,600 51,600
Capital lease obligations
12,065 13,693
Other
(266) 101
877,773 834,608
Long-term debt due within one year
(5,471) (31,614)
872,302 48.2 802,994 47.5
Total capitalization
$1,808,299 100.0 % $1,689,895 100.0 %
[FN]
The accompanying notes are an integral part of these consolidated
statements.
27
27
Portland General Electric
Company and Subsidiaries
Consolidated Statements
of Cash Flow for the
Three Months, Nine Months and Twelve
Months Ended September 30, 1994 and 1993
(Unaudited)
Three
Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
1994
1993 1994 1993 1994 1993
(Thousands of Dollars)
Cash Provided (Used) By -
Operations:
Net Income $ 14,807
$ 14,302 $ 74,534 $ 68,388 $ 105,890 $ 110,058
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 25,221
22,060 70,363 67,509 92,572 82,127
Amortization of WNP-3 exchange agreement 1,174
1,123 3,521 3,367 4,643 4,781
Amortization of deferred charges - Trojan Plant 5,844
5,601 17,900 17,543 24,372 17,543
Amortization of deferred charges - Trojan Decomm. 2,805
2,805 8,415 8,415 11,220 8,415
Amortization of deferred charges - Trojan Other 581
576 1,741 1,738 2,317 2,843
Amortization of deferred charges - other (339)
1,432 2,547 3,677 5,583 4,216
Deferred income taxes - net 6,592
16,384 11,182 35,841 36,062 37,402
Changes in working capital:
(Increase) Decrease in receivables 2,152
(16,491) (2,985) (22,138) (48,278) (63,918)
(Increase) Decrease in inventories 2,662
(804) 1,303 (1,007) 17,327 1,908
Increase (Decrease) in payables 27,267
20,709 13,846 (13,449) 707 (3,663)
Other working capital items - net (28,498)
(5,731) (22,800) 3,991 (16,191) 15,936
Deferred items 5,622
2,137 5,378 (1,575) (221) (11,543)
Miscellaneous - net 6,388
5,243 9,089 9,394 15,564 13,397
72,278
69,346 194,034 181,694 251,567 219,502
Investing Activities:
Utility construction - new resources (20,482)
(11,239) (72,967) (11,239) (90,394) (11,239)
Utility construction - other (33,179)
(25,754) (94,587) (73,134) (123,145) (118,946)
Energy efficiency programs (5,757)
(4,334) (15,789) (10,458) (23,480) (13,521)
Trojan decommissioning trust (2,805)
(2,805) (8,415) (8,415) (11,220) (11,220)
Other investments (451)
(421) (2,997) (2,396) (7,734) (5,147)
(62,674)
(44,553) (194,755) (105,642) (255,973) (160,073)
Financing Activities:
Short-term debt - net (39,897)
(4,609) (19,473) (6,637) 17,019 36,344
Borrowings from Corporate Owned Life Insurance -
- 19,619 - 19,619 -
Long-term debt issued 75,000
75,000 75,000 252,000 75,000 252,000
Long-term debt retired (24,195)
(73,871) (33,077) (254,186) (45,877) (259,936)
Preferred stock retired -
- (20,000) (3,600) (20,000) (3,600)
Common stock issued -
- 41,055 - 41,055 -
Dividends paid (17,976)
(21,355) (57,615) (63,757) (78,809) (85,031)
(7,068)
(24,835) 5,509 (76,180) 8,007 (60,223)
Increase (Decrease) in Cash and
Cash Equivalents 2,536
(42) 4,788 (128) 3,601 (794)
Cash and Cash Equivalents at the Beginning
of Period 4,351
3,328 2,099 3,414 3,286 4,080
Cash and Cash Equivalents at the End
of Period $ 6,887
$ 3,286 $ 6,887 $ 3,286 $ 6,887 $ 3,286
Supplemental disclosures of cash flow information
Cash paid during the year:
Interest $ 11,265
$ 13,948 $ 41,030 $ 48,564 $ 60,698 $ 65,959
Income taxes 5,358
16,518 30,818 34,371 13,689 48,329
[FN]
The accompanying notes are an integral part of these consolidated
statements.
28
28
Portland General Corporation and
Subsidiaries
Part II. Other Information
Item 1. Legal Proceedings
For further information, see Portland General's report on Form
10-K for
the year ended December 31, 1993.
UTILITY
Southern California Edison Company (SCE) v. PGE, U.S. District
Court for
the District of Oregon
In early August 1994, Southern California Edison (SCE) filed a
complaint in
Multnomah County Circuit Court in Portland, Oregon seeking
termination
of a 1986 long-term firm power sales and exchange agreement.
PGE removed the state court case to federal court in the United
States District Court for the District of Oregon. SCE moved to
remand the case to the Oregon state court. A decision on SCE's
Motion to Remand is pending. On August 31, 1994, PGE filed a
petition with FERC for a Declaratory Order and Motion for Summary
Disposition regarding the issues raised by SCE's complaint. PGE
has filed a motion in federal court to dismiss or stay the case
pending resolution of PGE's petition at FERC.
Under the agreement, SCE is obligated to pay to PGE a reservation
fee for
system capacity, seasonal exchange and other services equal to
$16.9
million annually. SCE continues to make these payments. SCE is
seeking
termination of the agreement and damages, including a return of
payments
made to PGE from the date of PGE's alleged default (approximately
$30
million).
Citizens' Utility Board of Oregon/Utility Reform Project v.
Public Utility Commission of Oregon, Marion County Circuit Court
In early 1994 the Citizens' Utility Board of Oregon and the
Utility Reform Project appealed the Public Utility Commission of
Oregon's (PUC) decision to deny reconsideration of the PUC's
order in DR-10, the Declaratory Ruling regarding recovery of
Trojan investment and decommissioning collection. In early
November 1994, the court upheld the PUC's decision in DR-10 (see
the Investment Recovery discussion of the Trojan Related
Issues in the Financial and Operating Outlook section for further
details). The Court's decision is subject to appeal.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Number Exhibit Page
4 Forty-fourth Supplemental Indenture
dated August 1, 1994 32
27 Financial Data Schedule - UT Electronic Filing Only
Portland General Corporation
29
29
Portland General Corporation and
Subsidiaries
Part II. Other Information
27 Financial Data Schedule - UT Electronic Filing Only
Portland General Electric Company
b. Reports on Form 8-K
September 15, 1994 - Item 5. Other Events
In September the PUC Staff issued its recommendation for Trojan
and cost
of capital issues in PGE's general rate case.
September 30, 1994 - Item 5. Other Events
In September the PUC approved PGE's July 1994 accounting
application.
30
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the
registrants have duly caused this report to be signed on their
behalf by
the undersigned hereunto duly authorized.
PORTLAND GENERAL CORPORATION
PORTLAND GENERAL ELECTRIC COMPANY
(Registrants)
November 14, 1994 By /s/ Joseph M. Hirko
Joseph M. Hirko
Vice President Finance,
Chief Financial Officer,
Chief Accounting Officer,
and Treasurer
31
31