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, 1995 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 September 30, 1995 are: Portland General Corporation 50,824,141 Portland General Electric Company 42,758,877 (owned by Portland General Corporation) 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 11 Statements of Retained Earnings 11 Balance Sheets 12 Statements of Capitalization 13 Statements of Cash Flow 14 Notes to Financial Statements 15 Portland General Electric Company and Subsidiaries Financial Information 18 PART II. OTHER INFORMATION Item 1 - Legal Proceedings 22 Item 6 - Exhibits and Reports on Form 8-K 22 Signature Page 23 2
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Portland General Electric Company (PGE or the Company), an electric utility company and the principal operating subsidiary of Portland General Corporation (Portland General), accounts for substantially all of Portland General's assets, revenues and net income. The following discussion focuses on utility operations, unless otherwise noted. 1995 COMPARED TO 1994 FOR THE THREE MONTHS ENDED SEPTEMBER 30 Portland General earned $14 million or $0.28 per share for the third quarter of 1995 compared to earnings of $12 million or $0.24 per share in 1994. Earnings for the period include an after tax provision against earnings of $13 million, related to unrecoverable deferred power costs. Excluding this charge to income, earnings would have been $27 million. The quarters' strong operating earnings reflect continued retail load growth as well as low variable power costs driven by improved hydro conditions throughout the western region and a competitive wholesale market. Operating revenues increased $8 million or 4% for the quarter. Retail revenues increased by $14 million, or 8%, due primarily to the company's April 1995 general rate increase and increased retail energy sales. A strong local economy and continued increase in the number of retail customers contributed to a 3% rise in retail energy sales. PGE is serving 13,600, or 2.2 %, more retail customers than served in the same period last year with 2,580 new retail customers added during this quarter. A $6 million wholesale, or 23%, decline in wholesale revenues partially offset the increase in retail revenues. Wholesale energy sales decreased 11% and average wholesale prices decreased 13%. A competitive wholesale market coupled with the availability of inexpensive power narrowed wholesale margins and decreased sales. PGE took advantage of the competitive wholesale market and the availability of inexpensive power and purchased 54% of its total system load compared to 48% last year. Increased low-cost energy purchases, good hydro generation and low natural gas prices drove variable power costs down despite increased total system load. The average cost of power decreased from 19.7 to 16.0 mills (10 mills = 1 cent) as variable power costs decreased $19 million, or 23% for the quarter (see table below). Abundant supplies of energy drove secondary prices below 1994 levels. Spot market purchases averaged 11.4 mills, ranging from 6 to 20 mills, compared to an average 22.4 mills in 1994. Hydro generation increased 14%, or 53,600 MWh, reflecting good water conditions on the Clackamas River system. While thermal generation decreased 15%, lower gas prices allowed the Beaver Combustion Turbine Plant to generate energy at 39% lower variable cost. 3
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS <TABLE> <CAPTION> RESOURCE MIX/VARIABLE POWER COSTS <S> <C> <C> <C> <C> <C> Average Variable Resource Mix Power Cost (Mills/KWh) 1995 1994 1995 1994 Generation 46% 52% 8.4 11.3 Firm Purchases 35% 35% 24.5 26.6 Spot Purchases 19% 13% 11.4 22.4 Total 100% 100% Average 16.0 19.7 Resources </TABLE> Operating expenses (excluding variable power, depreciation and income taxes) were comparable with 1994. Depreciation increased $2 million, or 7%, largely due to higher depreciation levels effective with the Company's recent general rate increase in April 1995. Income taxes included in Net Operating Income increased $14 million primarily due to an increase in before tax operating income. PGE recorded a $13 million, after tax, provision against earnings as a result of an agreement with the Oregon Public Utility Commission's (PUC) Staff which allows for only partial recovery of the Company's outstanding power cost deferrals. For further information regarding this agreement see the Power Cost Recovery and Coyote Springs Filing discussion in the Financial and Operating Outlook section below. 1995 COMPARED TO 1994 FOR THE NINE MONTHS ENDED SEPTEMBER 30 Portland General earned $45 million or $0.88 per share for the nine months ended September 30, 1995, compared to earnings of $75 million or $1.51 per share in 1994. 1995 results include after tax charges to income of $37 million related to the PUC's rate order disallowing 13% of PGE's remaining investment in Trojan and $13 million related to the Company's agreement with PUC Staff allowing only partial recovery of the Company's deferred power costs. 1994 earnings include $7 million, after tax, in previously recorded real estate reserves. Excluding these items, earnings would have been $94 million in 1995 and $69 million in 1994. Strong operating results reflect improved hydro conditions, favorable secondary power costs and continued retail load growth, partially offset by narrowing margins in a competitive wholesale market. Although operating revenues only increased $7 million, retail MWh sales rose 3% and revenues increased by $23 million. Colder temperatures during the early part of the year and an increase in retail customers contributed to a higher level of energy sales. The increased sales combined with the general rate increase boosted revenues from energy sales nearly 7%. Fewer accrued revenues partially offset increases from energy sales. PGE recorded $12 million in power cost deferrals in 1995 ($11 million in the first quarter), compared with $19 million in 1994 ($18 million in the first quarter). 4
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A decline in wholesale revenues of $18 million from 1994 levels also partially offset the increase in retail revenues. Wholesale energy sales declined 13% and prices averaged 13% lower. The Northwest region's traditional price advantage over the Southwest eroded due to abundant energy supplies and improved hydro conditions in California and made for a more competitive wholesale marketplace. Variable power costs decreased $50 million, or 20%, resulting from increased hydro production and lower secondary prices. PGE reduced thermal plant generation 30% to take advantage of favorable secondary energy prices, decreasing average variable power costs from 19.1 to 16.0 mills (see table below). PGE hydro generation increased 21%, or 307,704 MWh, reflecting improved water conditions on the Clackamas River system. Spot market purchases averaged 10.7 mills compared to 19.8 mills in 1994 due to the availability of low-cost secondary power. <TABLE> <CAPTION> RESOURCE MIX/VARIABLE POWER COSTS <S> <C> <C> <C> <C> <C> Average Variable Resource Mix Power Cost (Mills/KWh) 1995 1994 1995 1994 Generation 37% 45% 7.5 10.6 Firm Purchases 36% 33% 24.8 25.5 Spot Purchases 27% 22% 10.7 19.8 Total Resources 100% 100% Average 16.0 19.1 </TABLE> The Company held operating expenses (excluding variable power, depreciation and income taxes) at levels comparable to 1994. Depreciation increased $7 million, or 8%, largely due to increased depreciation rates effective with the Company's general rate increase in April 1995. Income taxes increased $19 million, or 37%, due to an increase in before tax operating income. 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, leasing rentals, short- and intermediate-term borrowings and the sale of its common stock. 5
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Portland General received $11.5 million in dividends from PGE during the third quarter of 1995 and $2.3 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. Improved cash flow for the current year reflects the Company's general price increase and lower variable power costs. 1994 third quarter cash flows were also affected by a $20 million prepayment to the IRS related to the 1985 tax deduction discussed below. Portland General has reached a tentative settlement with the IRS regarding the Washington Public Power Supply System Unit 3 (WNP-3) abandonment loss deduction on its 1985 tax return. Portland General does not expect future cash requirements to be materially affected by the resolution of this matter (see Note 3, Income Taxes, for further information). INVESTING ACTIVITIES PGE invests in facilities for generation, transmission and distribution of electric energy and products and services for energy efficiency. Estimated capital expenditures for 1995 are expected to be $225 million. Approximately $160 million has been expended for capital projects, including energy efficiency, through September 30, 1995. PGE funds an external trust for the Trojan decommissioning costs. The April 1995 general rate order authorized PGE to increase its collections from customers and its corresponding contribution to the trust from $11 million to $14 million annually. The trust invests in investment-grade tax-exempt bonds. Total-to-date cash withdrawn from the trust to pay for decommissioning costs is approximately $8 million. FINANCING ACTIVITIES During the third quarter the Company used strong operating cash flows to reduce short-term debt $26 million. 6
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In early October 1995, PGE issued $75 million in 8.25% Quarterly Income Debt Securities (QUIDS) Junior Subordinated Deferrable Interest Debentures maturing on December 31, 2035. The proceeds will be used to redeem the balance of outstanding shares of the 8.20%, 7.88% and 7.95% Preferred stock series. PGE will redeem each of the preferred stock series at $101.00 per share which including partial period dividends will require funding of approximately $71 million. The redemption is scheduled for early November 1995. 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 Indenture securing its First Mortgage Bonds. As of September 30, 1995, PGE could issue approximately $300 million of preferred stock and $350 million of additional First Mortgage Bonds. FINANCIAL AND OPERATING OUTLOOK UTILITY RETAIL CUSTOMER GROWTH AND ENERGY SALES During the third quarter of 1995, 2,580 retail customers were added to PGE's service territory. For the nine-months ended September 30, 1995, approximately 8,500 retail customers were added. Weather adjusted retail energy sales growth for the nine months ended September 30, 1995 was approximately 2.7%. The Company expects annual 1995 weather-adjusted retail energy sales growth to be approximately 2.9%. <GRAPH> Quarterly Increase in Retail Customers Quarter/Year Residential Customers Commercial/Industrial Customers 2Q 93 1697 429 3Q 93 2802 446 4Q 93 2775 563 1Q 94 2986 390 2Q 94 2476 550 3Q 94 2219 454 4Q 94 4247 379 1Q 95 3010 270 2Q 95 2194 509 3Q 95 2145 435 </GRAPH> SEASONALITY 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 1995. COMPETITION The Energy Policy Act of 1992 (Energy Act) set the stage for federal and state regulations directed toward the stimulation of both wholesale and retail competition in the electric industry. The Energy Act eased restrictions on independent power production, and bestowed authority on the Federal Energy Regulatory Commission (FERC) to mandate open access for the wholesale transmission of electricity. 7
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FERC has since taken steps to provide a framework for increased competition in the electric industry. In March 1995 it issued a Notice of Proposed Rulemaking (NOPR) regarding non-discriminatory open access transmission requirements for all public utilities. The proposed rules address several issues including stranded asset recovery and the open access transmission of electricity. If adopted, the proposed open access transmission requirements would give wholesale competitors access to PGE's transmission facilities and, in turn, give PGE access to other's transmission facilities. PGE is in the process of preparing an open access transmission tariff for its transmission facilities. Since the passage of the Energy Act, various state utility commissions are considering proposals which would gradually allow customers direct access to generation suppliers, marketers, brokers and other service providers in a competitive marketplace for energy services. Although presently operating in a cost-based regulated environment, PGE expects increasing competition from other forms of energy and other suppliers of electricity. While the Company is unable to determine precisely the future impact of increased competition, it believes that ultimately it will result in reduced wholesale and retail prices in the industry. POWER COST RECOVERY AND COYOTE SPRINGS FILING PGE operates without a power cost adjustment tariff, therefore adjustments for power costs above or below those set in existing general tariffs are not automatically reflected in customers' rates. As a result, PGE obtained PUC approval to defer incremental replacement power costs related to the closure of Trojan. The following table sets out the amounts deferred and the collection status of the various deferrals. In accordance with Oregon law, collection of the 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. The table below indicates the balance of outstanding power cost deferrals as of September 30, 1995. SYNOPSIS OF POWER COST DEFERRALS <TABLE> <CAPTION> Deferral Earnings Amounts Period Covered Rate Review Deferred Collected <S> <C> <C> <C> <C> December 4, 1992 - 80% Approved (1) $57 million $27 million March 31, 1993 (4)(a) July 1, 1993 - 50% Late 1995 (2) $59 million N/A March 31, 1994 (4)(b) January 1, 1995 - 40% Late 1995 (3) $11 million N/A March 31, 1995 (4)(c) (1) Approved for collection which began on 4/1/94. (2) See discussion below on settlement with PUC staff. (3) See discussion below on settlement with PUC staff. (4) Includes accrued interest of (a) $12 million, (b) $10 million, and (c) $.7 million. </TABLE> 8
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On October 17, 1995 PGE and the Oregon Public Utility Commission's (PUC) Staff agreed to jointly recommend to the PUC a settlement on PGE's August 1995 consolidated filing which supports increasing Company annual revenues by $20 million or approximately 2.0%. The increase includes an additional $40 million for the Coyote Springs Generation Project (Coyote Springs) and Bonneville Power Administration (BPA) price increases offset by the cancellation of the current collection of deferred power costs. See Portland General's and PGE's reports on form 10-Q dated June 30, 1995 and form 8-K dated October 5, 1995 for further information on PGE's consolidated filing. While the agreement supports full recovery of the $11 million of power costs deferred from January through March 1995, it supports recovery of only $9 million of the $50 million of power costs deferred from July 1993 through March 1994. The agreement also includes a provision for immediate recovery of approximately $27 million in incentive revenues associated with prior years' achievements of the Company's energy efficiency programs. Lastly, the stipulation supports the Company's proposal to offset the uncollected balance of all power cost deferrals, incentive revenues, certain other regulatory assets, and a portion of the remaining Trojan investment, against PGE's unamortized gain on the prior sale of a portion of the Boardman Coal Plant. If approved, the offsets will allow for recovery of the deferred power costs and incentive revenues discussed above, without increasing customer rates as well as eliminate approximately $117 million of regulatory assets and liabilities from the Company's Balance Sheets. A PUC order on the regulatory proceeding is expected during the fourth quarter 1995. TROJAN DECOMMISSIONING UPDATE As of October 31, 1995 PGE has substantially completed the early removal of some of Trojan's large components. The large component removal project (LCRP) commenced in November 1994 following public hearings in a lengthy state approval process. On two separate occasions LCRP work was interrupted pending review of legal challenges in both state and federal courts. Despite the work stoppages the LCRP was completed in time to take advantage of lower near- term burial costs and provide cost savings. The LCRP was the subject of an NRC review initiated in early September 1995. The NRC solicited comments from interested parties on whether to halt the LCRP and any further decommissioning activities at Trojan until public hearings could be held regarding the Trojan Decommissioning Plan. For further information see Portland General's and PGE's reports on form 8-K dated August 30, 1995. The NRC completed its review on October 12, 1995 with an order that allowed the completion of the LCRP. However, the NRC Order stated that no further major dismantling at Trojan would be allowed until final NRC approval of the Trojan Decommissioning Plan is obtained. This does not preclude further planning or minor dismantling activities. The Trojan Decommissioning Plan is presently under review by the NRC. The order notes that the NRC intends to give notice of an opportunity for a public hearing on the plan. A hearing may require additional time beyond that originally anticipated by the Company in obtaining final approval of the Trojan Decommissioning Plan. 9
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NONUTILITY In April 1992 legal action was filed by Bonneville Pacific against Portland General, Holdings, and certain individuals affiliated with Portland General and Holdings alleging breach of fiduciary duty, tortious interference, breach of contract, and other actionable wrongs related to Holdings' investment in Bonneville Pacific. Following his appointment, the Bonneville Pacific bankruptcy trustee, on behalf of Bonneville Pacific, filed numerous amendments to the complaint. The complaint now includes allegations of RICO violations and RICO conspiracy, collusive tort, civil conspiracy, common law fraud, negligent misrepresentation, breach of fiduciary duty, liability as a partner for the debts of a partnership, and other actionable wrongs. Although the amount of damages sought is not specified in the Complaint, the Trustee has filed a damage disclosure calculation which purports to compute damages in amounts ranging from $340 million to $1 billion - subject to possible increase based on various factors. 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 an 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. For background information and further details, see Note 2, Legal Matters in the Notes to Financial Statements. 10
<TABLE> <CAPTION> Portland General Corporations and Subsidaries <S> <C> <C> <C> <C> Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 1995 and 1994 (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 1995 1994 1995 1994 (Thousands of Dollars) Operating Revenues $ 222,612 $ 214,180 $ 701,681 $ 694,304 Operating Expenses Purchased power and fuel 64,428 83,732 198,740 248,549 Production and distribution 15,963 15,282 47,404 46,295 Maintenance and repairs 10,563 12,267 31,880 35,495 Administrative and other 25,346 24,836 76,895 72,562 Depreciation and amortization 33,340 31,331 99,583 92,579 Taxes other than income taxes 11,889 12,057 38,672 39,144 161,529 179,505 493,174 534,624 Operating Income Before Income Taxes 61,083 34,675 208,507 159,680 Income Taxes 20,817 7,150 71,509 46,216 Net Operating Income 40,266 27,525 136,998 113,464 Other Income (Deductions) Regulatory disallowances - net of income taxes of $8,441 and $25,542 (12,859) 0 (49,567) 0 Interest expense (19,592) (18,951) (58,921) (53,870) Allowance for funds used during construction 3,608 1,243 8,682 2,507 Preferred dividend requirement - PGE (2,380) (2,583) (7,380) (8,217) Other - net of income taxes 5,138 4,653 14,818 14,661 Income From Continuing Operations 14,181 11,887 44,630 68,545 Discontinued Operations Gain on disposal of real estate operations - net of income taxes of $4,226 0 0 0 6,472 Net Income $ 14,181 $ 11,887 $ 44,630 $ 75,017 Common Stock Average shares outstanding 50,798,082 50,285,669 50,696,185 49,706,398 Earnings per average share Continuing operations $0.28 $0.24 $0.88 $1.38 Discontinued operations 0 0 0 0.13 Earnings per average share $0.28 $0.24 $0.88 $1.51 Dividends declared per share $0.30 $0.30 $0.90 $0.90 Consolidated Statements of Retained Earnings for the Three Months and Nine Months Ended September 30, 1995 and 1994 (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 1995 1994 1995 1994 (Thousands of Dollars) Balance at Beginning of Period $ 117,777 $ 113,427 $ 118,676 $ 81,159 Net Income 14,181 11,887 44,630 75,017 ESOP Tax Benefit and Amortization of Preferred Stock Premium (470) (484) (1,418) (1,280) 131,488 124,830 161,888 154,896 Dividends Declared on Common Stock 15,247 15,094 45,647 45,160 Balance at End of Period $ 116,241 $ 109,736 $ 116,241 $ 109,736 The accompanying notes are an integral part of these consolidated statements. </TABLE> 11
<TABLE> <CAPTION> Portland General Corporation and Subsidaries <S> <C> <C> <C> Consolidated Balance Sheets as of September 30, 1995 and December 31, 1994 (Unaudited) September 30 December 31 1995 1994 (Thousands of Dollars) Assets Electric Utility Plant - Original Cost Utility plant (includes Construction Work in Progress of $201,963 and $148,267) $ 2,699,334 $ 2,563,476 Accumulated depreciation (1,019,142) (958,465) 1,680,192 1,605,011 Capital leases - less amortization of $27,423 9,895 11,523 1,690,087 1,616,534 Other Property and Investments Leveraged leases 153,106 153,332 Net assets of discontinued real estate operations 2,770 11,562 Trojan decommissioning trust, at market value 69,261 58,485 Corporate Owned Life Insurance less loans of $24,320 in 1995 and $21,731 in 1994 69,964 65,687 Other investments 27,999 28,626 323,100 317,692 Current Assets Cash and cash equivalents 10,323 17,542 Accounts and notes receivable 84,845 91,418 Unbilled and accrued revenues 127,938 162,151 Inventories, at average cost 33,512 31,149 Prepayments and other 45,864 34,455 302,482 336,715 Deferred Charges Unamortized regulatory assets Trojan investment 330,521 402,713 Trojan decommissioning 316,434 338,718 Income taxes recoverable 200,595 217,967 Debt reacquisition costs 30,222 32,245 Energy efficiency programs 68,502 58,894 Other 45,265 47,787 WNP-3 settlement exchange agreement 169,626 173,308 Miscellaneous 22,109 16,698 1,183,274 1,288,330 $ 3,498,943 $ 3,559,271 Capitalization and Liabilities Capitalization Common stock $ 190,591 $ 189,358 Other paid-in capital 571,137 563,915 Unearned compensation (8,906) (13,636) Retained earnings 116,241 118,676 869,063 858,313 Cumulative preferred stock of subsidiary Subject to mandatory redemption 40,000 50,000 Not subject to mandatory redemption 69,704 69,704 Long-term debt 874,051 835,814 1,852,818 1,813,831 Current Liabilities Long-term debt and preferred stock due within 113,483 81,506 Short-term borrowings 74,216 148,598 Accounts payable and other accruals 82,420 104,254 Accrued interest 23,050 19,915 Dividends payable 17,999 18,109 Accrued taxes 48,389 27,778 359,557 400,160 Other Deferred income taxes 645,217 687,670 Deferred investment tax credits 53,558 56,760 Deferred gain on sale of assets 117,840 118,939 Trojan decommissioning and transition costs 383,836 396,873 Miscellaneous 86,117 85,038 1,286,568 1,345,280 $ 3,498,943 $ 3,559,271 The accompanying notes are an integral part of of these consolidated balance sheets. </TABLE> 12
<TABLE> <CAPTION> Portland General Corporation and Subsidiaries Consolidated Statements of Capitalization as of September 30, 1995 and December 31, 1994 <S> <C> <C> <C> <C> (Unaudited) September 30 December 31 1995 1994 (Thousands of Dollars) Common Stock Equity Common stock, $3.75 par value per share 100,000,000 shares authorized, 50,824,141 and 50,495,492 shares outstanding $ 190,591 $ 189,358 Other paid-in capital - net 571,137 563,915 Unearned compensation (8,906) (13,636) Retained earnings 116,241 118,676 869,063 46.9% 858,313 47.3% 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, 200,000 shares and 300,000 shares outstanding 20,000 30,000 Current sinking fund (10,000) (10,000) 40,000 2.1 50,000 2.8 Not subject to mandatory redemption, $100 par value 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 3.8 69,704 3.8 Long-Term Debt First mortgage bonds Maturing 1995 through 2000 4.70% Series due March 1, 1995 0 3,045 5-7/8% Series due June 1, 1996 5,066 5,216 6.60% Series due October 1, 1997 15,363 15,363 Medium-term notes - 5.65%-9.27% 276,000 251,000 Maturing 2001 through 2007 - 6.47%-9.07% 260,845 210,845 Maturing 2021 through 2023 - 7.75%-9.46% 195,000 195,000 Pollution control bonds Port of Morrow, Oregon, variable rate (Average 2.7% for 1994), due 2013 23,600 23,600 City of Forsyth, Montana, variable rate (Average 2.9% for 1994), due 2013 through 2016 118,800 118,800 Amount held by trustee (8,117) (8,355) Port of St. Helens, Oregon, due 2010 and 2014 (Average variable 2.7%-2.9% for 1994) 51,600 51,600 Medium-term notes maturing 1996 - 8.09% 30,000 30,000 Capital lease obligations 9,895 11,523 Other (518) (317) 977,534 907,320 Long-term debt due within one year (103,483) (71,506) 874,051 47.2 835,814 46.1 Total Capitalization $1,852,818 100.0% $1,813,831 100.0% The accompanying notes are an integral part of these consolidated statements. </TABLE> 13
<TABLE> <CAPTION> Portland General Corporation and Subsidaries <S> <C> <C> <C> <C> Consolidated Statements of Cash Flow for the Three Months and Nine Months Ended September 30, 1995 and 1994 (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 1995 1994 1995 1994 (Thousands of Dollars) Cash Provided (Used) By - Operations: Net income $ 14,181 $ 11,887 $ 44,630 $ 75,017 Adjustment to reconcile net income to net cash provided by operations: Depreciation and amortization 24,695 25,442 75,540 70,596 Amortization of WNP-3 exchange agreement 1,227 1,174 3,682 3,521 Amortization of Trojan investment 6,456 6,425 18,865 19,641 Amortization of Trojan decommissioning 3,511 2,805 9,826 8,415 Amortization of deferred charges - other (30) (339) (208) 2,547 Deferred income taxes - net 2,221 7,075 (1,651) 19,607 Other noncash revenues (1,597) (296) (3,969) (954) Changes in working capital: (Increase) Decrease in receivables 8,175 5,147 18,976 4,268 (Increase) Decrease in inventories 5,228 2,661 (2,363) 1,303 Increase (Decrease) in payables 16,931 27,071 (176) 5,830 Other working capital items - net (12,132) (32,379) (11,347) (28,980) Gain from discontinued operations 0 0 0 (6,472) Deferred charges - other (3,465) 5,622 (13,205) 5,378 Miscellaneous - net 5,985 6,258 11,713 13,573 Regulatory Disallowances 12,859 0 49,567 0 84,246 68,553 199,881 193,290 Investing Activities: Utility construction - new resources (8,386) (19,667) (37,797) (69,520) Utility construction - other (43,056) (33,179) (108,219) (94,587) Energy efficiency programs (4,439) (5,757) (13,391) (15,789) Rentals received from leveraged leases 8,050 6,469 19,735 19,351 Nuclear decommissioning trust contributions (3,046) (2,805) (13,553) (8,415) Nuclear decommissioning expenditures 1,805 0 8,413 0 Discontinued operations 1,853 (181) 8,792 26,884 Other (215) (2,310) (4,907) (4,637) (47,434) (57,430) (140,927) (146,713) Financing Activities: Short-term borrowings - net (25,856) (48,458) (74,381) (47,324) Borrowings from Corporate Owned Life Insurance 0 0 2,589 19,619 Long-term debt issued 0 75,000 75,000 75,000 Long-term debt retired 0 (34,112) (3,045) (45,577) Repayment of nonrecourse borrowings for leveraged leases (6,815) (4,804) (17,443) (16,865) Preferred stock retired 0 0 (10,000) (20,000) Common stock issued 2,303 2,479 6,865 47,685 Dividends paid (15,218) (15,044) (45,757) (44,754) (45,587) (24,939) (66,173) (32,216) Increase (Decrease) in Cash and Cash Equivalents (8,775) (13,816) (7,219) 14,361 Cash and Cash Equivalents at the Beginning of Period 19,098 31,379 17,542 3,202 Cash and Cash Equivalents at the End of Period $ 10,323 $ 17,563 $ 10,323 $ 17,563 Supplemental disclosures of cash flow information Cash paid during the period: Interest $ 14,923 $ 12,488 $ 50,934 $ 45,426 Income taxes 26,220 2,100 67,610 20,339 The accompanying notes are an integral part of these consolidated statements. </TABLE> 14
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 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 1994 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 LEGAL MATTERS BONNEVILLE PACIFIC CLASS ACTION AND LAWSUIT In April 1992 legal action was filed by Bonneville Pacific against Portland General, Holdings, and certain individuals affiliated with Portland General and Holdings alleging breach of fiduciary duty, tortious interference, breach of contract, and other actionable wrongs related to Holdings' investment in Bonneville Pacific. Following his appointment, the Bonneville Pacific bankruptcy trustee, on behalf of Bonneville Pacific, filed numerous amendments to the complaint. The complaint now includes allegations of RICO violations and RICO conspiracy, collusive tort, civil conspiracy, common law fraud, negligent misrepresentation, breach of fiduciary duty, liability as a partner for the debts of a partnership, and other actionable wrongs. Although the amount of damages sought is not specified in the Complaint, the Trustee has filed a damage disclosure calculation which purports to compute damages in amounts ranging from $340 million to $1 billion - subject to possible increase based on various factors. 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. 15
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (Unaudited) OTHER BONNEVILLE PACIFIC RELATED LITIGATION Holdings has filed complaints seeking approximately $228 million in damages 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 an interest in and made loans to Bonneville Pacific. NOTE 3 INCOME TAXES As a result of its examination of PGE's 1985 tax return the IRS proposed to disallow PGE's 1985 WNP-3 abandonment loss deduction on the premise that it is a taxable exchange. Portland General and the IRS have reached a tentative settlement regarding this issue. Management has previously 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 results of operations or cash flows of Portland General. NOTE 4 DEFERRED POWER COST RECOVERY In accordance with Oregon law, collection of PGE's power costs deferrals is subject to PUC review of PGE's reported earnings, adjusted for 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. On August 8, 1995 as part of a consolidated request to recover deferred power costs and fixed costs associated with Coyote Springs, PGE filed earnings reviews for both of its outstanding power cost deferrals. On October 17, 1995 PGE and the PUC Staff reached an agreement on the Company's August 1995 filing that, if approved, would allow full recovery of the power costs deferred from January to March 1995 and partial recovery of the power costs deferred from July 1993 to March 1994. As a result of the agreement management believes that it is unlikely that the PUC will authorize collection of all of the deferred power costs and has recorded a third quarter $13 million, after tax, loss provision. A PUC order on the regulatory proceeding is expected during the fourth quarter 1995. 16
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 * 3-10 Financial Statements 18-21 Notes to Financial Statements ** 15-16 * The discussion is substantially the same as that disclosed by Portland General and, therefore, is incorporated by reference to the information on the page numbers listed above. ** The notes are substantially the same as those disclosed by Portland General and are incorporated by reference to the information on the page numbers shown above, excluding the Bonneville Pacific litigation discussion contained in Note 2 which relates solely to Portland General. 17
<TABLE> <CAPTION> Portland General Electric Company and Subsidiaries <S> <C> <C> <C> <C> Consoliated Statements of Income for the Three Months and Nine Months Ended September 30, 1995 and 1994 (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 1995 1994 1995 1994 (Thousands of Dollars) Operating Revenues $ 222,240 $ 213,897 $ 699,607 $ 693,342 Operating Expenses Purchased power and fuel 64,428 83,732 198,740 248,549 Production and distribution 15,963 15,282 47,404 46,295 Maintenance and repairs 10,563 12,267 31,880 35,494 Administrative and other 24,943 25,013 75,904 71,425 Depreciation and amortization 33,318 31,257 99,520 92,345 Taxes other than income taxes 11,915 12,073 38,650 39,092 Income taxes 21,208 7,931 71,720 52,511 182,338 187,555 563,818 585,711 Net Operating Income 39,902 26,342 135,789 107,631 Other Income (Deductions) Regulatory disallowances - net of income taxes of $8,441 and $25,542 (12,859) 0 (49,567) 0 Allowance for equity funds used during construction 1,274 0 1,960 0 Other 5,348 5,286 14,852 15,565 Income taxes (258) (689) (518) (1,639) (6,495) 4,597 (33,273) 13,926 Interest Charges Interest on long-term debt and other 17,735 15,706 51,546 45,551 Interest on short-term borrowings 1,217 1,669 5,463 3,979 Allowance for borrowed funds used during construction (2,334) (1,243) (6,722) (2,507) 16,618 16,132 50,287 47,023 Net Income 16,789 14,807 52,229 74,534 Preferred Dividend Requirement 2,380 2,583 7,380 8,217 Income Available for Common Stock $ 14,409 $ 12,224 $ 44,849 $ 66,317 Consolidated Statements of Retained Earnings for the Three Months and Nine Months Ended September 30, 1995 and 1994 (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 1995 1994 1995 1994 (Thousands of Dollars) Balance at Beginning of Period $ 222,870 $ 201,808 $ 216,468 $ 179,297 Net Income 16,789 14,807 52,229 74,534 ESOP Tax Benefit & Amortization of Preferred Stock Premium (470) (484) (1,418) (1,280) 239,189 216,131 267,279 252,551 Dividends Declared Common stock 13,682 12,828 36,772 43,614 Preferred stock 2,380 2,583 7,380 8,217 16,062 15,411 44,152 51,831 Balance at End of Period $ 223,127 $ 200,720 $ 223,127 $ 200,720 The accompanying notes are an integral part of these consolidated statements. </TABLE> 18
<TABLE> <CAPTION> Portland General Electric Company and Subsidiaries <S> <C> <C> <C> Consolidated Balance Sheets as of September 30, 1995 and December 31, 1994 (Unaudited) September 30 December 31 1995 1994 (Thousands of Dollars) Assets Electric Utility Plant - Original Cost Utility plant (includes Construction Work in Progress of $201,963 and $148,267) $ 2,699,334 $ 2,563,476 Accumulated depreciation (1,019,142) (958,465) 1,680,192 1,605,011 Capital leases - less amortization of $27,423 and $25,796 9,895 11,523 1,690,087 1,616,534 Other Property and Investments Trojan decommissioning trust, at market value 69,261 58,485 Corporate Owned Life Insurance, less loans of $ 24,320 in 1995 41,785 40,034 and $ 21,731 in 1994 Other investments 25,101 26,074 136,147 124,593 Current Assets Cash and cash equivalents 4,438 9,590 Accounts and notes receivable 82,420 91,672 Unbilled and accrued revenues 127,938 162,151 Inventories, at average cost 33,512 31,149 Prepayments and other 44,082 33,148 292,390 327,710 Deferred Charges Unamortized regulatory assets Trojan investment 330,521 402,713 Trojan decommissioning 316,434 338,718 Income taxes recoverable 200,595 217,967 Debt reacquisition costs 30,222 32,245 Energy efficiency programs 68,502 58,894 Other 45,265 47,787 WNP-3 settlement exchange agreement 169,626 173,308 Miscellaneous 19,143 13,682 1,180,308 1,285,314 $ 3,298,932 $ 3,354,151 Capitalization and Liabilities Capitalization Common stock equity $ 847,211 $ 834,226 Cumulative preferred stock Subject to mandatory redemption 40,000 50,000 Not subject to mandatory redemption 69,704 69,704 Long-term debt 874,051 805,814 1,830,966 1,759,744 Current Liabilities Long-term debt and preferred stock due within one year 83,483 81,506 Short-term borrowings 74,216 148,598 Accounts payable and other accruals 82,723 104,612 Accrued interest 22,835 19,084 Dividends payable 16,350 15,702 Accrued taxes 53,999 32,820 333,606 402,322 Other Deferred income taxes 509,491 549,160 Deferred investment tax credits 53,558 56,760 Deferred gain on sale of assets 117,840 118,939 Trojan decommissioning and transition costs 383,836 396,873 Miscellaneous 69,635 70,353 1,134,360 1,192,085 $ 3,298,932 $ 3,354,151 The accompanying notes are an integral part of these consolidated balance sheets. </TABLE> 19
<TABLE> <CAPTION> Portland General Electric Company and Subsidiaries <S> <C> <C> <C> <C> Consolidated Statements of Capitalization as of September 30, 1995 and December 31, 1994 (Unaudited) September 30 December 31 1995 1994 (Thousands of Dollars) 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 471,766 470,008 Unearned compensation (8,028) (12,596) Retained earnings 223,127 216,468 847,211 46.3% 834,226 47.4% 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, 200,000 and 300,000 shares outstanding 20,000 30,000 Current sinking fund (10,000) (10,000) 40,000 2.2 50,000 2.8 Not subject to mandatory redemption, $100 par 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 3.8 69,704 4.0 Long-Term Debt First mortgage bonds Maturing 1995 through 2000 4.70% Series due March 1, 1995 0 3,045 5-7/8% Series due June 1, 1996 5,066 5,216 6.60% Series due October 1, 1997 15,363 15,363 Medium-term notes - 5.65%-9.27% 276,000 251,000 Maturing 2001 through 2007 - 6.47%-9.07% 260,845 210,845 Maturing 2021 through 2023 - 7.75%-9.46% 195,000 195,000 Pollution control bonds Port of Morrow, Oregon, variable rate (Average 2.7% for 1994), due 2013 23,600 23,600 City of Forsyth, Montana, variable rate (Average 2.9% for 1994), due 2013 through 2016 118,800 118,800 Amount held by trustee (8,117) (8,355) Port of St. Helens, Oregon, due 2010 and 2014 (Average variable 2.7% - 2.9% for 1994) 51,600 51,600 Capital lease obligations 9,895 11,523 Other (518) (317) 947,534 877,320 Long-term debt due within one year (73,483) (71,506) 874,051 47.7 805,814 45.8 Total Capitalization $ 1,830,966 100.0% $ 1,759,744 100.0% The accompanying notes are an integral part of these consolidated statements. </TABLE> 20
<TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> <C> <C> Portland General Electric Company and Subsidaries Consolidated Statements of Cash Flow for the Three Months and Nine Months Ended September 30, 1995 and 1994 (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 1995 1994 1995 1994 (Thousands of Dollars) Cash Provided (Used In) Operations: Net Income $ 16,789 $ 14,807 $ 52,229 $ 74,534 Non-cash items included in net income: Depreciation and amortization 24,729 25,221 75,533 70,363 Amortization of WNP-3 exchange agreement 1,227 1,174 3,682 3,521 Amortization of Trojan investment 6,456 6,425 18,865 19,641 Amortization of Trojan decommissioning 3,511 2,805 9,826 8,415 Amortization of deferred charges - other (30) (339) (208) 2,547 Deferred income taxes - net 2,113 6,592 1,423 11,182 Other noncash revenues (1,275) 0 (1,960) 0 Changes in working capital: (Increase) Decrease in receivables 7,997 5,270 21,655 2,838 (Increase) Decrease in inventories 5,228 2,662 (2,363) 1,303 Increase (Decrease) in payables 19,678 26,452 781 10,399 Other working capital items - net (10,946) (31,616) (11,156) (28,623) Deferred charges - other (3,465) 5,622 (13,205) 5,378 Miscellaneous - net 6,139 6,388 11,116 9,089 Regulatory disallowances 12,859 0 49,567 0 91,010 71,463 215,785 190,587 Investing Activities: Utility construction - new resources (8,386) (19,667) (37,797) (69,520) Utility construction - other (43,056) (33,179) (108,219) (94,587) Energy efficiency programs (4,439) (5,757) (13,391) (15,789) Nuclear decommissioning trust contributions (3,046) (2,805) (13,553) (8,415) Nuclear decommissioning expenditures 1,805 0 8,413 0 Other investments (70) (451) (3,048) (2,997) (57,192) (61,859) (167,595) (191,308) Financing Activities: Short-term debt - net (25,869) (39,897) (74,381) (19,473) Borrowings from Corporate Owned Life Insurance 0 0 2,589 19,619 Long-term debt issued 0 75,000 75,000 75,000 Long-term debt retired 0 (24,195) (3,045) (33,077) Preferred stock retired 0 0 (10,000) (20,000) Common stock issued 0 0 0 41,055 Dividends paid (13,926) (17,976) (43,505) (57,615) (39,795) (7,068) (53,342) 5,509 Increase (Decrease) in Cash and Cash Equivalents (5,977) 2,536 (5,152) 4,788 Cash and Cash Equivalents at the Beginning of Period 10,415 4,351 9,590 2,099 Cash and Cash Equivalents at the End of Period $ 4,438 $ 6,887 $ 4,438 $ 6,887 Supplemental disclosures of cash flow information Cash paid during the period: Interest $ 13,709 $ 11,265 $ 48,490 $ 41,030 Income taxes 27,721 5,358 72,842 30,818 The accompanying notes are an integral part of these consolidated statements. </TABLE> 21
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS For further information, see Portland General's and PGE's reports on Form 10-K for the year ended December 31, 1994. UTILITY SOUTHERN CALIFORNIA EDISON COMPANY V. PGE, OREGON COURT OF APPEALS, OCTOBER 9, 1995 Southern California Edison (SCE) has appealed a Multnomah County Circuit Court order which granted PGE summary judgment in a long-term power sales contract dispute. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits NUMBER EXHIBIT PGC PGE 1 Underwriting agreement X X 24 Power of Attorney X X 27 Financial Data Schedule - UT X X (Electronic Filing Only) b. Reports on Form 8-K August 16, 1995 - Item 5. Other Events: Update on Trojan Decommissioning, legal proceedings and regulatory matters. October 3, 1995 - Item 5. Other Events: Financing update. Item 7. Exhibits: (4)b Indentures. (4)c Indenture supplement. October 5, 1995 - Item 5. Other Events: Regulatory update. October 17, 1995 - Item 5. Other Events: Regulatory update. 22
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) October 31, 1995 By /s/ Joseph E. Feltz Joseph E. Feltz Assistant Controller Assistant Treasurer *Joseph M. Hirko Sr. Vice President and Chief Financial Officer * Signed on behalf of this person. October 31, 1995 By /s/ Joseph E. Feltz Joseph E. Feltz (Attorney-in-Fact) 23