UNITED STATES
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, 1997
Registrant; State of Incorporation; IRS Employer
COMMISSION FILE NUMBER ADDRESS; AND TELEPHONE NUMBER IDENTIFICATION NO.
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 registrant (1) has 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
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
The number of shares outstanding of the registrant's common stock as of
November 14, 1997 are:
Portland General Electric Company 42,758,877
1
TABLE OF CONTENTS
PAGE
NUMBER
DEFINITIONS..........................................................2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income.....................3
Consolidated Statements of Retained Earnings..........3
Consolidated Balance Sheets...........................4
Consolidated Statements of Cash Flow..................5
Notes to Consolidated Financial Statements............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........8
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings...............................16
Item 6 - Exhibits and Reports on Form 8-K................16
Signature Page...........................................17
DEFINITIONS
AFDC...............................Allowance For Funds Used During Construction
Bonneville Pacific...............................Bonneville Pacific Corporation
BPA.............................................Bonneville Power Administration
Coyote Springs..................................Coyote Springs Generation Plant
Enron...............................................................Enron Corp.
FERC.......................................Federal Energy Regulatory Commission
Holdings........................................Portland General Holdings, Inc.
kWh...............................................................Kilowatt-Hour
Mill......................................................One tenth of one cent
MWa...........................................................Average megawatts
MWh...............................................................Megawatt-hour
NYMEX..............................................New York Mercantile Exchange
OPUC or the Commission.........................Oregon Public Utility Commission
Portland General or PGC............................Portland General Corporation
PGE or the Company............................Portland General Electric Company
PUHCA................................Public Utility Holding Company Act of 1935
Trojan.....................................................Trojan Nuclear Plant
USDOE........................................United States Department of Energy
WAPA...............................................Western Area Power Authority
WNP-3..............................Washington Public Power Supply System Unit 3
2
Portland General Electric Company and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME FOR THE
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
(Thousands of Dollars)
OPERATING REVENUES $390,883 $259,656 $1,066,160 $792,772
OPERATING EXPENSES
Purchased power and fuel 223,694 80,299 508,208 205,390
Production and distribution 20,099 22,698 61,192 64,668
Maintenance and repairs 11,381 12,016 32,990 37,110
Administrative and other 25,936 26,726 75,771 80,862
Depreciation and amortization 36,661 38,868 114,891 114,909
Taxes other than income taxes 13,857 12,325 42,656 39,918
Income taxes 13,703 19,243 73,901 81,936
-------- -------- ---------- --------
345,331 212,175 909,609 624,793
-------- -------- ---------- --------
NET OPERATING INCOME 45,552 47,481 156,551 167,979
-------- -------- ---------- --------
OTHER INCOME (DEDUCTIONS)
Other (24,111) (732) (23,110) (809)
Income taxes 10,867 856 12,653 2,920
-------- -------- ---------- --------
(13,244) 124 (10,457) 2,111
-------- -------- ---------- --------
INTEREST CHARGES
Interest on long-term debt and other 16,788 17,770 52,692 50,720
Interest on short-term borrowings 1,377 2,525 3,699 7,784
Allowance for borrowed funds used
during construction (365) (609) (995) (1,351)
-------- -------- ---------- --------
17,800 19,686 55,396 57,153
-------- -------- ---------- --------
NET INCOME 14,508 27,919 90,698 112,937
PREFERRED DIVIDEND REQUIREMENT 581 581 1,744 2,212
-------- -------- ---------- --------
INCOME AVAILABLE FOR COMMON STOCK $ 13,927 $ 27,338 $ 88,954 $110,725
======== ======== ========== ========
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS FOR THE
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
(Thousands of Dollars)
BALANCE AT BEGINNING OF PERIOD $335,947 $295,610 $ 292,124 $246,282
NET INCOME 14,508 27,919 90,698 112,937
ESOP TAX BENEFIT AND OTHER (530) (530) (1,589) (1,665)
-------- -------- ---------- --------
349,925 322,999 381,233 357,554
-------- -------- ---------- --------
DIVIDENDS DECLARED
Common stock - cash 16,676 56,014 46,821 88,938
Common stock - property 96,941 - 96,941 -
Preferred stock 581 581 1,744 2,212
-------- -------- ---------- --------
114,198 56,595 145,506 91,150
-------- -------- ---------- --------
BALANCE AT END OF PERIOD $235,727 $266,404 $ 235,727 $266,404
======== ======== ========== ========
_____________________________________________________________________________
The accompanying notes are an integral part of these consolidated statements.
3
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(Unaudited)
September 30 December 31
1997 1996
(Thousands of Dollars)
ASSETS
ELECTRIC UTILITY PLANT - ORIGINAL COST
Utility plant (includes Construction Work in
Progress of $28,435 and $36,919) $ 3,002,771 $ 2,899,746
Accumulated depreciation (1,206,639) (1,124,337)
----------- -----------
1,796,132 1,775,409
Capital leases - less amortization of $32,536 and $30,569 4,783 6,750
----------- -----------
1,800,915 1,782,159
----------- -----------
OTHER PROPERTY AND INVESTMENTS
Contract termination receivable 105,576 111,447
Receivable from parent 105,870 -
Trojan decommissioning trust, at market value 86,091 78,448
Corporate owned life insurance, less loans
of $26,411 and $26,411 58,552 51,410
Other investments 17,460 20,700
----------- -----------
373,549 262,005
----------- -----------
CURRENT ASSETS
Cash and cash equivalents 27,288 19,477
Accounts and notes receivable 146,657 145,372
Unbilled and accrued revenues 39,779 53,317
Inventories, at average cost 30,883 32,903
Prepayments and other 26,266 16,476
----------- -----------
270,873 267,545
----------- -----------
DEFERRED CHARGES
Unamortized regulatory assets
Trojan investment 257,599 275,460
Trojan decommissioning 261,325 282,131
Income taxes recoverable 177,419 195,592
Debt reacquisition costs 26,315 28,063
Conservation investments - secured 75,423 80,102
Energy efficiency programs 14,628 11,974
Other 20,065 22,575
WNP-3 settlement exchange agreement - 163,217
Miscellaneous 33,638 27,389
----------- -----------
866,412 1,086,503
----------- -----------
$ 3,311,749 $ 3,398,212
=========== ===========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock equity
Common stock, $3.75 par value per share,
100,000,000 shares authorized,
42,758,877 shares outstanding $ 160,346 160,346
Other paid-in capital - net 478,522 475,055
Retained earnings 235,727 292,124
Cumulative preferred stock
Subject to mandatory redemption 30,000 30,000
Long-term debt 839,598 933,042
----------- -----------
1,744,193 1,890,567
----------- -----------
CURRENT LIABILITIES
Long-term debt and preferred stock due within one year 85,962 92,559
Short-term borrowings 114,517 92,027
Accounts payable and other accruals 158,255 144,712
Accrued interest 14,743 14,372
Dividends payable 868 17,117
Accrued taxes 102,252 31,485
----------- -----------
476,597 392,272
----------- -----------
OTHER
Deferred income taxes 366,596 497,734
Deferred investment tax credits 44,242 47,314
Deferred gain on contract termination 105,346 112,697
Merger obligation 104,359 -
Trojan decommissioning and transition costs 342,094 357,844
Miscellaneous 128,322 99,784
----------- -----------
1,090,959 1,115,373
----------- -----------
$ 3,311,749 $ 3,398,212
=========== ===========
- -----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated balance sheets.
4
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
Nine Months Ended
September 30
1997 1996
(Thousands of Dollars)
CASH PROVIDED (USED IN)
OPERATIONS:
Net Income $ 90,698 $ 112,937
Non-cash items included in net income:
Depreciation and amortization 92,541 89,765
Amortization of WNP-3 exchange agreement 6,500 3,887
Amortization of Trojan investment 19,037 18,118
Amortization of Trojan decommissioning 10,531 10,531
Amortization of deferred charges (credits) (3,264) 354
Deferred income taxes - net (56,656) (8,900)
Other non-cash expenses 24,000 -
Changes in working capital:
(Increase) Decrease in receivables 11,702 27,890
(Increase) Decrease in inventories 2,020 3,506
Increase (Decrease) in payables and accrued taxes 85,268 7,896
Other working capital items - net (9,790) (8,697)
Trojan decommissioning expenditures (11,057) (4,836)
Deferred items - other 5,550 12,841
Miscellaneous - net 10,421 4,440
-------- ---------
277,501 269,732
-------- ---------
INVESTING ACTIVITIES:
Utility construction (115,560) (133,344)
Energy efficiency programs (4,543) (10,243)
Nuclear decommissioning trust deposits (10,530) (11,692)
Nuclear decommissioning trust withdrawals 8,469 3,229
Other investments (6,936) (9,301)
-------- ---------
(129,100) (161,351)
-------- ---------
FINANCING ACTIVITIES:
Short-term debt - net 22,490 4,277
Borrowings from Corporate Owned Life Insurance - 1,312
Long-term debt issued - 85,000
Long-term debt retired (98,267) (87,661)
Preferred stock retired - (20,000)
Dividends paid (64,813) (88,989)
-------- ---------
(140,590) (106,061)
-------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 7,811 2,320
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF PERIOD 19,477 2,241
-------- ---------
CASH AND CASH EQUIVALENTS AT THE END
OF PERIOD $ 27,288 $ 4,561
======== =========
_______________________________________________________________________________________________________________________
Supplemental disclosures of cash flow information
Cash paid during the period:
Interest, net of amounts capitalized $ 51,535 $ 53,485
Income taxes 73,185 75,667
_______________________________________________________________________________________________________________________
The accompanying notes are an integral part of these consolidated statements.
5
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - PRINCIPLES OF INTERIM STATEMENTS
The interim financial statements have been prepared by Portland General
Electric Company (PGE) and, in the opinion of management, reflect all material
adjustments which are necessary to a fair statement of results for the interim
period 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 PGE's opinion that, when the
interim statements are read in conjunction with the 1996 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 - BUSINESS COMBINATION
On July 1, 1997 Portland General Corporation (PGC), the former parent of PGE,
consummated a merger transaction pursuant to the Amended and Restated Agreement
and Plan of Merger by and among Enron Corp., PGC and Enron Oregon Corp. dated
as of July 20, 1996 and amended and restated as of September 24, 1996 and as
further amended by the First Amendment dated April 14, 1997 (Amended Merger
Agreement). Pursuant to the Amended Merger Agreement, Enron Corp., a Delaware
corporation merged with and into Enron Oregon Corp., an Oregon corporation
(Reincorporation Merger) and the name of Enron Oregon Corp. was changed to
Enron Corp. (Enron). Promptly following the Reincorporation Merger, PGC
merged with and into Enron (PGC Merger), with Enron continuing in existence as
the surviving corporation. Pursuant to the Amended Merger Agreement PGE is now
a wholly owned subsidiary of Enron and subject to control by the Board of
Directors of Enron.
PGE's consolidated financial statements have been prepared on the historical
cost basis and do not reflect an allocation of the purchase price to PGE that
was recorded by Enron as a result of the PGC Merger.
NOTE 3 - WNP-3 SETTLEMENT EXCHANGE AGREEMENT
On August 28, 1997, PGE's Board of Directors declared a special dividend in the
form of a transfer of PGE's rights and certain obligations under the WNP-3
Settlement Exchange Agreement (WSA) and the long-term power sale agreement with
the Western Area Power Administration (WAPA). This transaction was recorded
during the third quarter of 1997 with the transfer of PGE's net investment in
these contracts to Enron Corp., PGE's parent and sole common stockholder. The
FERC is currently reviewing this transaction with approval expected by the end
of 1997.
6
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - LEGAL MATTERS
TROJAN INVESTMENT RECOVERY - In April 1996 a circuit court judge in Marion
County, Oregon found that the OPUC could not authorize PGE to collect a return
on its undepreciated investment in Trojan, contradicting a November 1994 ruling
from the same court. The ruling was the result of an appeal of PGE's 1995
general rate order which granted PGE recovery of, and a return on, 87 percent
of its remaining investment in Trojan.
The November 1994 ruling, by a different judge of the same court, upheld the
Commission's 1993 Declaratory Ruling (DR-10). In DR-10 the OPUC ruled that
PGE could recover and earn a return on its undepreciated Trojan investment,
provided certain conditions were met. The Commission relied on a 1992 Oregon
Department of Justice opinion issued by the Attorney General's office stating
that the Commission had the authority to set prices including recovery of and
on investment in plant that is no longer in service.
The 1994 ruling was appealed to the Oregon Court of Appeals and stayed pending
the appeal of the Commission's March 1995 order. Both PGE and the OPUC have
separately appealed the April 1996 ruling which was combined with the appeal of
the November 1994 ruling at the Oregon Court of Appeals.
Management believes that the authorized recovery of and on the Trojan
investment and decommissioning costs will be upheld and that these legal
challenges will not have a material adverse impact on the results of operations
or financial condition of the Company for any future reporting period.
OTHER LEGAL MATTERS - PGE is party to various other claims, legal actions and
complaints arising in the ordinary course of business. These claims are not
considered material.
7
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following review of Portland General Electric Company's (PGE) results of
operations should be read in conjunction with the Consolidated Financial
Statements.
Due to seasonal fluctuations in electricity sales, as well as the price of
wholesale energy and fuel costs, quarterly operating earnings are not
necessarily indicative of results to be expected for calendar year 1997.
1997 COMPARED TO 1996 FOR THE THREE MONTHS ENDED SEPTEMBER 30
PGE earned $15 million for the third quarter of 1997 which includes a $14
million (net of income taxes) non-recurring loss provision recorded for future
costs associated with non-utility property. Excluding this provision 1997
third quarter earnings would have been $29 million compared to earnings
of $28 million in 1996. Increased retail sales volume offset the effects of a
December 1996 price decrease.
Retail revenues of $204 million were 2% higher than 1996. Increased sales
volume to all customer classes more than offset a December 1996 price decrease.
Commercial and industrial MW sales benefitted from a strong economy.
Additionally there was an 18,697 or 3% increase in the number of residential
customers compared to last year.
KILOWATT HOURS SOLD (MILLIONS)
1997 1996
Retail 4,364 4,103
Wholesale 8,665 2,913
Wholesale revenues increased $124 million from 1996 due to increased trading
activities.
The increase in wholesale sales activity along with increased retail sales
volume contributed to a $143 million or 179% increase in purchased power and
fuel expense. Energy purchases, which were up 124%, averaged 18.6 mills
compared to 13.4 mills for 1996.
8
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This increase in price was driven by increased natural gas prices along with
tight power supply conditions in the southwestern United States. Company
generation provided 16% of total power needs.
KILOWATT/VARIABLE POWER COSTS
Average Variable
Kilowatt-Hours (millions) Power Cost (Mills/kWh)
1997 1996 1997 1996
Generation 2,288 2,427 9.1 9.3
Firm Purchases 10,104 3,990 19.2 14.8
Spot Purchases 916 934 11.8 8.3
------ ----- ---- ----
Total Send-Out 13,308 7,351 Average 17.0 12.0
====== ===== ==== ====
PGE does not have a fuel adjustment clause as part of its retail rate
structure; therefore, changes in fuel and purchased power expenses are
reflected currently in earnings.
Operating expenses (excluding variable power, depreciation and income
taxes) decreased $2 million due to productivity improvements at PGE's
generating facilities.
Other Income (deductions) reflects a loss provision recorded for future
demolition and removal costs associated with non-utility property.
1997 COMPARED TO 1996 FOR THE NINE MONTHS ENDED SEPTEMBER 30
PGE earned $89 million for the nine months ended September 30, 1997 which
includes a $14 million (net of income taxes) non-recurring loss provision
recorded for future costs associated with non-utility property. Excluding
this provision 1997 earnings would have been $103 million compared to
earnings of $111 million in 1996. Reduced earnings were the result of a
decline in retail revenues caused by lower prices and warmer temperatures
during the first quarter. Decreased operating expenses (excluding variable
power, depreciation and income taxes) partially offset lower retail
revenues.
Retail revenues were down for the period due to a December 1996 rate
decrease. This decrease was partially offset by additional revenues
resulting from strong sales growth in the industrial and commercial
customer classes.
KILOWATT HOURS SOLD (MILLIONS)
1997 1996
Retail 13,370 12,770
Wholesale 22,043 7,152
9
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Wholesale revenues increased $271 million from 1996 due to increased
trading activities.
The increase in wholesale sales activity along with increased retail sales
volume contributed to a $303 million or 147% increase in purchased power
and fuel expense. Energy purchases, which were up 90%, averaged 15.7
mills compared to 12.4 mills for 1996. Increased natural gas prices during
the first quarter followed by tight power supply conditions in the
southwestern United States were the major contributors to this increase in
price. Company generation, primarily hydro, provided 13% of total power
needs.
KILOWATT HOURS/VARIABLE POWER COSTS
Average Variable
Kilowatt hours (millions) Power Cost (Mills/kWh)
1997 1996 1997 1996
Generation 4,965 4,455 5.3 6.9
Firm Purchases 28,818 13,436 16.2 13.2
Spot Purchases 2,528 3,034 9.8 9.0
------ ------ ---- ----
Total Send out 36,311 20,925 Average 14.2 11.2
====== ====== ==== ====
PGE does not have a fuel adjustment clause as part of its retail
rate structure; therefore, changes in fuel and purchased power
expenses are reflected currently in earnings.
Operating expenses (excluding variable power, depreciation and
income taxes) decreased $10 million due to productivity improvements
at PGE's generating facilities. Non-recurring storm and flood
related expenditures were incurred during the first quarter of 1996.
Depreciation and amortization expense increases resulting from
normal asset additions (primarily distribution assets) were
substantially offset by the amortization of a gain associated with
the termination of a power sales agreement.
Other Income (deductions) reflects a loss provision recorded for
future demolition and removal costs associated with non-utility property.
FINANCIAL CONDITION
During the third quarter PGE's net worth decreased $97 million due
to the declaration of a special non-cash dividend by PGE's Board of
Directors. This transaction resulted in the transfer of PGE's rights
and certain obligations under the WNP-3 Settlement Exchange
Agreement (WSA) and the long-term power sale agreement with the
Western Area Power Administration (WAPA). This transaction was
recorded during the third quarter of 1997 with the transfer of PGE's
net investment in these contracts to Enron Corp., PGE's parent and
sole common stockholder. The FERC is currently reviewing this
transaction with approval expected by the end of 1997.
10
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CASH FLOW
CASH PROVIDED BY OPERATIONS is used to meet the day-to-day cash
requirements of PGE. Supplemental cash is obtained from external
borrowings as needed.
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. Improved cash flows in
the current year were due to reduced operating and maintenance
expenditures.
INVESTING ACTIVITIES include improvements to generation,
transmission and distribution facilities and continued investment in
energy efficiency programs. Through September 30, 1997 nearly $116
million has been expended for capital projects, primarily
improvements to the Company's distribution system to support the
addition of new customers to PGE's service territory.
PGE funds an external trust for Trojan decommissioning costs through
customer collections at a rate of $14 million annually. The trust
invests in investment-grade tax-exempt and U.S. Treasury bonds. The
Company makes withdrawals from the trust, as necessary for
reimbursement of decommissioning expenditures. During the first
three quarters of 1997 PGE has withdrawn $8 million from the trust.
FINANCING ACTIVITIES - Cash used for financing activities totaled
$141 million in 1997 compared to $106 million in 1996. PGE has
issued no new long-term debt in 1997 and has instead relied on
short-term borrowings to manage its day to day financing
requirements. Through September 30, 1997 PGE's cash dividend
payments to its parents totaled $65 million compared to $89 million
in 1996.
The issuance of additional First Mortgage Bonds and preferred stock
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, 1997 PGE has the
capability to issue preferred stock and additional First Mortgage
Bonds in amounts sufficient to meet its capital requirements.
11
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL AND OPERATING OUTLOOK
RETAIL CUSTOMER GROWTH AND ENERGY SALES
Weather adjusted retail energy sales were up 6.3% for the nine
months ended September 30, 1997 compared to the same period last
year. Industrial and commercial sales increased by 13.0% and 4.3%,
respectively due to strong growth in most industry segments. Sales
to Paper and High-Tech industrial customers have increased by more
than 300 million kWh compared to last year accounting for almost 70%
of the 440 million kWh growth in sales in this sector. Most
commercial sectors grew between 3% and 8%. The addition of over
13,546 customers resulted in residential sales growth of 3.7%. The
Company expects 1997 retail energy sales growth to be approximately
6%.
QUARTERLY INCREASE IN RETAIL CUSTOMERS
Quarter/Year Residential Commercial/Industrial
2Q 95 2,194 509
3Q 95 2,145 435
4Q 95 5,566 554
1Q 96 3,633 539
2Q 96 3,664 76
3Q 96 3,021 594
4Q 96 5,151 877
1Q 97 3,953 509
2Q 97 4,693 537
3Q 97 3,529 388
RESIDENTIAL EXCHANGE PROGRAM - The Regional Power Act (RPA), passed
in 1980, attempted to resolve growing power supply and cost
inequities between customers of government and publicly owned
utilities, who have priority access to the low-cost power from the
federal hydroelectric system, and the customers of investor owned
utilities ( IOU). The RPA created the residential exchange program
which exists to ensure that all residential and farm customers in
the region, the vast majority of which are served by IOUs, receive
similar benefits from the publicly funded federal power system.
Exchange program benefits are passed directly to residential and
farm customers. The exchange benefit provided PGE residential and
small farm customers totaled $44 million for the 12 months ended
September 30, 1997. PGE and the BPA are engaged in negotiations
about the possibility of a BPA buy out and termination of the
current exchange program. Proceeds received from the possible buy
out will be used to establish future Residential Benefits.
WHOLESALE MARKETING
The surplus of electric generating capability in the Western U.S.,
the entrance of numerous wholesale marketers and brokers into the
market, and open access transmission is contributing to increasing
pressure on the price of power. In addition, the development of
financial markets and NYMEX electricity contract trading has led to
increased price discovery available to market participants, further
adding to the competitive pressure on wholesale margins. During the
first nine months of 1997 PGE's wholesale revenues increased $270
million compared to the same period last year, accounting for 37% of
total revenues and 62% of total sales volume. PGE will continue its
participation in the wholesale marketplace in order to balance its
supply of power to meet the needs of its retail customers, manage
risk and to administer PGE's current long-term wholesale contracts.
However, due to increasing volatility and reduced margins resulting
from increased competition, long-term wholesale marketing activities
are being transferred to PGE's non-regulated affiliates. As a result
PGE expects that its future revenues from the wholesale marketplace
will decline.
12
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
POWER SUPPLY
Hydro conditions for the year have been extremely favorable. The
1997 January-to-July runoff on the Columbia River was 150% of normal
representing the largest runoff since consistent record keeping
began in 1929. Reservoirs were 95% full at the end of July which
will allow the region to use rainfall for generation of electricity
rather than to fill reservoirs. Hydro conditions for the remainder
of the year are highly dependant upon levels of precipitation.
Several species of salmon found in the Snake River, a major
tributary of the Columbia River, have been granted protection under
the Federal Endangered Species Act (ESA). In an effort to help
restore these fish, the federal government has reduced the amount of
water allowed to flow through the turbines at the hydro electric
dams on the Snake and Columbia River while the young salmon are
migrating to the ocean. This has resulted in reduced amounts of
electricity generated at the dams. Favorable hydro conditions
helped mitigate the affect of these actions in 1996 and 1997. If
this practice is continued in future years it could mean less water
available in the fall and winter for generation when demand for
electricity in the Pacific Northwest is highest. Although PGE does
not own any hydroelectric facilities on the Columbia and Snake
rivers, it does buy energy from the agencies which do.
In early 1997, the State of Oregon proposed an aggressive recovery
plan for the Oregon coastal Coho salmon. The National Marine
Fisheries Service (NMFS) accepted this recovery plan and as a result
this run of salmon was not listed for federal protection. PGE has
no hydro electric projects that will be impacted by this action.
A petition to protect winter steelhead trout under the federal
endangered species act has been filed. The affected areas include
the lower Columbia River tributaries in Oregon and Washington. PGE
biologists along with state natural resource agencies and various
stakeholders are developing a set of recommendations as an
alternative to a federal listing. This will culminate in a state
sponsored recovery plan which will be presented to the NMFS in early
1998. If this plan is accepted the steelhead will not be listed as
endangered or threatened. Regardless of the outcome of this
decision, PGE's hydro electric projects on the Willamette, Clackamas
and Sandy Rivers will not be impacted for at least another year. PGE
is examining ways to operate its hydro facilities to further
enhance these populations of steelhead.
YEAR 2000
PGE utilizes software and related technologies that will be affected
by the date change in the year 2000. An internal program is
currently underway to determine the full scope, related costs and
action plan to insure that PGE's systems continue to meet its
internal needs and those of its customers.
BUSINESS COMBINATION
On July 1, 1997 Portland General Corporation (PGC), the former
parent of PGE, consummated a merger transaction pursuant to the
Amended and Restated Agreement and Plan of Merger by and among Enron
Corp., PGC and Enron Oregon Corp. dated as of July 20, 1996 and
amended and restated as of September 24, 1996 and as further amended
by the First Amendment dated April 14, 1997 (Amended Merger
Agreement). Pursuant to the Amended Merger Agreement, Enron Corp., a
Delaware corporation merged with and into Enron Oregon Corp., an
Oregon corporation (Reincorporation Merger) and the name of
13
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Enron Oregon Corp. was changed to Enron Corp. (Enron). Promptly following
the Reincorporation Merger, PGC merged with and into Enron (PGC
Merger), with Enron continuing in existence as the surviving
corporation. Pursuant to the Amended Merger Agreement PGE is now a
wholly owned subsidiary of Enron and subject to control by the Board
of Directors of Enron.
Essentially all of Enron's operations are conducted through its
subsidiaries and affiliates which are principally engaged in the
gathering, transportation and wholesale marketing of natural gas;
the exploration and production of natural gas and crude oil; the
production, purchase, transportation and marketing of natural gas
liquids and refined petroleum products; the independent development,
promotion, construction and operation of power plants, natural gas
liquids facilities and pipelines; and the non-price regulated
purchasing and marketing of energy related commitments.
PGE's consolidated financial statements have been prepared on the historical
cost basis and do not reflect an allocation of the purchase price to PGE that
was recorded by Enron as a result of the PGC Merger.
CUSTOMER CHOICE
GENERAL
As a condition to the OPUC's approval of the Enron/PGC merger, PGE
filed with the OPUC a plan to open it's entire service territory to
competition. This plan will allow all residential, commercial and
industrial customers to choose their energy provider. This plan also
outlines how PGE proposes to separate its regulated businesses from
it's potentially competitive businesses of electricity sales,
customer service and generation. Under the plan, PGE will cease to
sell electricity, focusing instead on the transmission and
distribution of electricity. This action will allow the generating
assets to be used more effectively and compete in an open
marketplace, and will allow distribution assets to be focused on
providing quality service, safety and reliability. Enron Energy
Services, an unregulated affiliated company, will compete with other
energy service providers, but will not use the PGE name. PGE will
seek 100 percent recovery of its transition costs, the difference
between the cost of certain assets and the market value of those
assets. The amount of these transition costs has yet to be
determined.
PGE is dependent upon the regulatory process to ensure that future
revenues will be provided for the recovery of regulatory assets,
including the transition costs mentioned above. In the event that
the regulatory process does not provide revenues for recovery of
transition costs, PGE could be required to write-off all or a
portion of such amounts from its balance sheet.
INTRODUCTORY PROGRAM
In a move to prepare for future retail competition, PGE submitted to
the OPUC a proposal for an introductory Customer Choice Plan to
allow 50,000 PGE customers in four cities to buy their power from
competing energy service providers by the end of 1997. This program
will allow certain customers in Oregon to experience a competitive
electricity market. The program, which received OPUC approval,
will be available to residential, small business and commercial
customers in the four cities, and industrial customers throughout
PGE's service territory. Effective October 22, 1997 PGE's large
industrial customers throughout its service territory have the
opportunity to purchase up to 50 percent of their electricity from
from competiting electricity providers. Residential, small business
and commercial customers can begin receiving electricity from a
company of their choice as early as December 1, 1997
14
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Seven energy service providers have been certified by the OPUC and
given the approval to begin offering to eligible customers electricity
and other energy products and services. PGE is also encouraging the
development of aggregators. Aggregators are companies or
organizations that combine the power needs of their existing
members, customers or constituents. By pooling the electricity
load, the aggregators can make larger, more economical electricity
purchases and deliver more competitive prices to the individual
customer. Although customers may choose to purchase electricity from
companies other than PGE, the power will be delivered over PGE's
existing distribution system. PGE will continue to maintain all
wires, power poles and equipment and will make all repairs in the
event of an outage. Safety and reliability remain the highest
priority for PGE. PGE does not expect that this program will have a
materially adverse impact on operating margins. This program, which
terminates on December 31, 1998, is being undertaken to provide
information to PGE and the OPUC on the effects of future retail
competition on PGE and its customers.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward looking
statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934.
Although PGE believes that its expectations are based on reasonable
assumptions, it can give no assurance that its goals will be
achieved. Important factors that could cause actual results to
differ materially from those in the forward looking statements
herein include, but are not limited to, political developments
affecting federal and state regulatory agencies, the pace of
deregulation of retail electricity, environmental regulations,
changes in the cost of power and adverse weather conditions during
the periods covered by the forward looking statements.
15
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For further information, see PGE's report on Form 10-K for the year
ended December 31, 1996.
COLUMBIA STEEL CASTING CO., INC. V. PGE, PACIFICORP, AND MYRON KATZ,
NANCY RYLES AND RONALD EACHUS, NINTH CIRCUIT COURT OF APPEALS
On June 19, 1990 Columbia Steel filed a complaint for declaratory
judgment, injunctive relief and damages in U.S. District Court for
the District of Oregon contending that a 1972 territory allocation
agreement between PGE and PacifiCorp, dba Pacific Power & Light
Company (PP&L), which was subsequently approved by the OPUC and the
City of Portland, does not give PGE the exclusive right to serve
them nor does it allow PP&L to deny service to them. Columbia Steel
is seeking an unspecified amount in damages amounting to three times
the excess power costs paid over a 10 year period.
On July 3, 1991 the Court ruled that the Agreement did not allocate
customers for the provision of exclusive services and that the 1972
order of the OPUC approving the Agreement did not order the
allocation of territories and customers. Subsequently, on August
19, 1993 the Court ruled that Columbia Steel was entitled to receive
from PGE approximately $1.4 million in damages which represented the
additional costs incurred by Columbia Steel for electric service
from July 1990 to July 1991, trebled, plus costs and attorney's
fees.
PGE appealed to the U.S. Court of Appeals for the Ninth Circuit
which, on July 20, 1995, issued an opinion in favor of PGE,
reversing the judgment and ordering judgment to be entered in favor
of PGE. Columbia Steel filed a petition for reconsideration and on
December 27, 1996 , the Ninth Circuit Court of Appeals reversed its
earlier decision, ruling in favor of Columbia Steel. In early 1997
PGE's request for reconsideration by the Ninth Circuit was denied.
The case was remanded to the US District Court for a new
determination of damages for service rendered from early 1987 to
July 1991. On July 2, 1997 PGE filed a request for certiorari with
the US Supreme Court. A response is not expected before 1998. On
August 2, 1997 the US District Court entered a new judgement in
favor of Columbia Steel for approximately $3.7 million.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
NUMBER EXHIBIT
27 Financial Data Schedule - UT
(Electronic Filing Only)
b. Reports on Form 8-K
None.
16
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 ELECTRIC COMPANY
(Registrants)
November 14 , 1997 By /S/ STEVEN N. ELLIOTT
Steven N. Elliott
Vice President Finance
and Treasurer
November 14 , 1997 By /S/ JOSEPH E. FELTZ
Joseph E. Feltz
Controller
Assistant Treasurer
17