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, 1996 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, 1996 are: Portland General Corporation 51,203,763 Portland General Electric Company 42,758,877 (owned by Portland General Corporation) 1
TABLE OF CONTENTS PAGE NUMBER DEFINITIONS ......................................................2 PART I. PORTLAND GENERAL CORPORATION AND SUBSIDIARIES FINANCIAL INFORMATION Management's Discussion and Analysis of Financial Condition and Results of Operations ..... 3 Consolidated Statements of Income ..................12 Consolidated Statements of Retained Earnings .......12 Consolidated Balance Sheets ........................13 Consolidated Statements of Cash Flow ...............14 Notes to Consolidated Financial Statements .........15 Portland General Electric Company and Subsidiaries Financial Information ................18 PART II. OTHER INFORMATION Item 1 - Legal Proceedings .........................21 Item 6 - Exhibits and Reports on Form 8-K ..........21 Signature Page .....................................23 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 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 Systen Unit 3 2
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL AND OPERATING OUTLOOK PORTLAND GENERAL CORPORATION - HOLDING COMPANY Portland General Corporation (Portland General or PGC), an electric utility holding company, was organized in December 1985. Portland General Electric Company (PGE or the 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. PROPOSED MERGER On July 20, 1996, Portland General entered into an Agreement and Plan of Merger with Enron, a Delaware corporation, to merge in a tax-free, stock-for- stock transaction. The transaction which has been approved by both companies' boards of directors, will entitle Portland General shareholders to receive one share of Enron common stock for each share of Portland General common stock held by them. Under the terms of the merger agreement, Enron will reincorporate in Oregon to allow it to qualify as an intrastate holding company that is exempt from the registration requirements of PUHCA. In the event that PUHCA is amended or repealed in a manner that would make this reincorporation no longer necessary, PGC will merge directly into the present Enron. PGE, Portland General's utility subsidiary, will retain its name, most of its functions and maintain its principal corporate offices in Portland, Oregon. The merger is subject to the approval of each company's shareholders. Both Enron and PGC have scheduled special shareholder meetings each of which will take place on November 12, 1996 in which shareholders of record for each corporation as of September 23, 1996 will vote upon a proposal to approve the Merger Agreement. The affirmative vote of holders of a majority of the shares of both the PGC Common Stock and Enron Voting Stock outstanding is required for merger approval under the state laws where each company is incorporated. In addition the merger is conditioned upon, among other things, regulatory approvals including those already initiated at the OPUC and the FERC. It is anticipated that the regulatory procedures can be completed in less than 12 months from the date of the merger agreement. The merger agreement may be terminated by Enron if the average of the closing prices of Enron Common Stock during the 20 consecutive trading day period ending five trading days prior to the date of the special meeting of the shareholders of Portland General is more than $47.25 per share, and may be terminated by PGC if the average of the closing prices of Enron Common Stock during such period is less than $36.25 per share. APPROVALS AND CONSENTS OPUC - Upon completion of the merger, Enron will be the owner of the PGE common stock. PGE is subject to the jurisdiction of the OPUC with respect to its electric utility operations. The approval of the OPUC is required for any transaction in which a person acquires the power to exercise any substantial influence over the policies and actions of a public utility subject to its jurisdiction. On August 30, 1996, Enron filed an application with the Commission seeking approval of the merger. The OPUC must approve the merger if they find that it will serve the customers of PGE in the public interest. In making that finding the OPUC may consider whether the change in ownership of the public utility will impair the ability of the utility to provide adequate service at just and reasonable rates. Enron has requested OPUC action on its application by early 1997. There is no assurance, however, that the OPUC will have taken any action by such time. 3
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In addition to Enron's application for approval of the merger, PGE has filed an application seeking the OPUC's approval to change certain provisions of PGE's tariffs. PGE will also seek OPUC approval for the separation from PGE of certain nonutility business and activities (see the PGE, Rate Proposal discussion below). FERC - The approval of the FERC is required to consummate the merger under the Federal Power Act, which provides that no public utility may sell or otherwise dispose of its jurisdictional facilities or, directly or indirectly, merge or consolidate such facilities with those of any other person or acquire any security of any other public utility without first having obtained authorization from the FERC. Under the Federal Power Act, the FERC will approve a merger if it finds such merger "consistent with the public interest". On September 20, 1996, Enron and PGC filed an application with the FERC seeking approval of the merger under the Federal Power Act. It is expected that the FERC will not take action on the application until sometime in 1997. OTHER - The merger will require the consent and approval of various other regulatory agencies. PGC and Enron will seek to obtain all necessary consents and approvals in order to consummate the merger. It is anticipated that regulatory procedures can be completed in less than 12 months from the date of the merger agreement. PORTLAND GENERAL ELECTRIC COMPANY - ELECTRIC UTILITY REGULATORY MATTERS RATE PROPOSAL - On August 6, 1996 PGE submitted a proposed rate plan to the OPUC which included approximately $25 million in proposed rate reductions for 1997 and acceleration of the recovery of PGE's Trojan investment. Trojan ceased commercial operations in early 1993 and in March 1995, the OPUC authorized the recovery in rates of PGE's remaining investment in Trojan. The price and earnings reductions in PGE's proposal stem primarily from savings in variable power costs representing, in part, benefits from PGE's decision to close Trojan. PGE believes it appropriate to apply a portion of such savings to offset the accelerated amortization of the Trojan investment. PGE believes acceleration of the amortization of the Trojan investment would benefit PGE customers by reducing their total payment over time and is consistent with PGE's objective of reducing its level of regulatory assets in anticipation of an increasingly competitive market. PGE's proposed amortization would result in an additional $18 million of before tax expense for calendar year 1997 and, based on current forecasts, would reduce the total amortization period by as much as nine years. PGE's proposed plan, if adopted, would result in a $43 million before tax ($28 million after tax) reduction to PGE's 1997 earnings, consisting of a $25 million before tax ($15 million after tax) decrease due to the rate reductions and an $18 million before tax ($13 million after tax) decrease due to accelerated amortization of its Trojan investment. As part of the plan, PGE proposed acceleration of eligibility for PGE's market-based retail rates for certain customers; reductions in the rate charged to PGE's residential customers; a direct access experiment for certain large industrial customers; development of tariffs for time of day and direct access experiments for residential and small commercial customers. In response to PGE's plan, the OPUC staff proposed to recommend adoption of the proposals included in PGE's plan but with a modification of the rate consequences of the Trojan accelerated amortization, plus an additional $51 million in rate reductions for 1997. The OPUC staff's proposal, if adopted, would result in a $93 million before tax ($57 million after tax) reduction to PGE's 1997 earnings. Formal settlement discussions with the OPUC staff are currently scheduled for November 1996. 4
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PGE's rate plan is based on a forecast that assumes regulatory approval of the merger between Portland General and Enron. The Company has included in the plan a request to accelerate certain of the rate reductions upon the OPUC's approval of the merger application. 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 were combined with the appeal of the November 1994 ruling at the Oregon Court of Appeals. For further information regarding the legal challenges to the OPUC's authority to grant recovery of PGE's Trojan investment see Item 3, Legal proceedings, of Portland General's and PGE's Forms 10-K for the year ended December 31, 1995. LEAST COST ENERGY PLANNING - On August 26, 1996 the OPUC acknowledged PGE's 1995-1997 Integrated Resource Plan (IRP). The OPUC adopted Least Cost Energy Planning for all energy utilities in Oregon with the goal of selecting the mix of options that yields an adequate and reliable supply of energy at the least cost to the utilities and customers. The IRP reflects: a recognition that the geographic area we presently serve no longer defines our customer base; the accelerated pace of technological change; transition of a key fuel, natural gas, to a market commodity; and the development of a vibrant electricity marketplace. The IRP outlines a strategy which emphasizes: (1) the purchase of energy in the marketplace at competitive prices, (2) acquisition of energy efficiency at reduced levels while maintaining market presence and capability for possible future increases when justified, (3) economical use of our existing assets and (4) the use of other supply-side actions, including acquisition of renewable resources. BONDABLE CONSERVATION INVESTMENT - The OPUC designated $81 million of PGE's energy efficiency investment as Bondable Conservation Investment, pursuant to recent Oregon legislation, and approved PGE's request to issue conservation bonds collateralized by the future revenue stream assured by the OPUC designation. Subsequently, PGE issued a 10 year conservation bond which is expected to provide an estimated $21 million in present value savings to customers while granting PGE immediate recovery of its energy efficiency program expenditures. Future revenues collected from customers will pay debt service obligations. Once the Commission designates a Bondable Conservation Investment it may not revalue or affect the timing of the revenue stream. Therefore, the OPUC may not remove the debt service obligation from rates. COMPETITION The Energy Policy Act of 1992 (Energy Act) set the stage for change in federal and state regulations aimed at increasing both wholesale and retail competition in the electric industry. The Energy Act eased 5
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS restrictions on independent power production and granted authority to the FERC to mandate open access for the wholesale transmission of electricity. The FERC has taken steps to provide a framework for increased competition in the electric industry. In 1996 the FERC issued Order 888 requiring non- discriminatory open access transmission by all public utilities that own interstate transmission. The final rule requires utilities to file tariffs that offer others the same transmission services they provide themselves under comparable terms and conditions. This rule also allows public utilities to recover stranded costs in accordance with the terms, conditions and procedures set forth in Order 888. The ruling requires reciprocity from municipals, cooperatives and federal power marketers receiving service under the tariff. The new rules became effective July 1996 and are expected to result in increased competition, lower prices and more choices to wholesale energy customers. The FERC action applies only to the wholesale transmission of electricity and does not proscribe terms and conditions of retail transmission service which is subject to individual state regulation. Since the passage of the Energy Act, various state utility commissions have addressed proposals which would allow retail customers direct access to generation suppliers, marketers, brokers and other service providers in a competitive marketplace for energy services (retail wheeling). 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 the future impact of increased competition, it believes that ultimately it will result in reduced retail as well as wholesale prices. RETAIL CUSTOMER GROWTH AND ENERGY SALES Weather adjusted retail energy sales grew 0.5% for the nine months ended September 30, 1996 compared to the same period last year. Residential sales grew 1.7% while commercial sales increased 2.3%. High-tech and transportation industrial sales were strong as well; however, continued production cutbacks by paper and metal manufacturers caused total industrial sales to decline approximately 4.4% for the year. Year-to-date energy sales also reflect the impact of the winter windstorms and flooding which interrupted service for extended periods. As a result, the Company has revised its projected weather adjusted retail energy load growth to be less than 1 percent for 1996. Actual sales growth (non-weather adjusted) is projected to be approximately 3.5%. <GRAPH> Graph Descripton: Quarterly Increase in Retail Customers Quarter/Year Residential Commercial/Industrial 2Q 94 2476 550 3Q 94 2219 454 4Q 94 4247 379 1Q 95 3010 270 2Q 95 2194 509 3Q 95 2145 435 4Q 95 5566 554 1Q 96 3633 539 2Q 96 3664 76 3Q 96 3021 594 </GRAPH> 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 will contribute to increasing pressure on the price of power. In addition the development of financial markets and the NYMEX futures trading have led to increased information available to market participants, further adding to the competitive pressure on wholesale prices. Company wholesale revenues continue to make a growing contribution providing nearly 22% of total 6
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS operating revenues for the quarter and 16% year to date, representing a significant increase over the same periods in 1995. The growth in wholesale sales is in part attributed to PGE's aggressive sales efforts as part of the Company's plan to expand its existing marketing capabilities and activities throughout the Western U.S. POWER SUPPLY Hydro conditions for the year have been extremely favorable. 1996 January-to- July runoff on the Columbia River was the fourth largest since 1930 and totaled 132% of normal. As a result, the Company has benefited from lower variable power costs due to the abundance of hydro generation throughout the region. However, hydro conditions for the remainder of the year are highly dependent upon levels of precipitation. The runoff season has left the region with reservoir levels in the region at approximately 97% of capacity compared to 91% in 1995. Nearly full reservoirs will allow the region to use rainfall for generation of electricity rather than to fill reservoirs for electric generation during the winter months. RESULTS OF OPERATIONS The following discussion focuses on utility operations, unless otherwise noted. 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 1996. 1996 COMPARED TO 1995 FOR THE THREE MONTHS ENDED SEPTEMBER 30 Portland General earned $21 million or $0.40 per share for the third quarter of 1996 compared to earnings of $14 million or $0.28 per share in 1995. Earnings for 1996 include $10 million in after tax charges for Enron/PGC merger related costs and revenue refund provisions. Earnings for 1995 include a $13 million, after tax, regulatory disallowance related to unrecoverable deferred power costs. Operating earnings improved over 1995 due to decreases in wholesale power prices driven by favorable hydro conditions coupled with a competitive wholesale market, continued growth of residential and high-tech industrial demand and the success of Company wholesale marketing efforts. Decreased demand from paper and wood products customers adversely impacted revenues and earnings. Operating revenues of $260 million increased 17% compared to the same period last year. Retail revenues of $199 million were comparable to the third quarter last year, while wholesale revenues of $58 million, increased 177%. Continued robust sales to high-tech customers as well as residential and commercial classes, along with positive effects of higher average sales prices, contributed to revenue increases from these customers. However, production cutbacks by paper manufacturers, PGE's largest manufacturing customer group coupled with $10 million in revenue refund provisions related to energy efficiency programs kept total retail revenues comparable to 1995. Residential and Commercial sales benefited from warm summer weather, increasing 3.4% and 2.3% respectively. Mean temperatures for July and August exceeded those of last year, with a resultant increase in air conditioning loads for the residential and commercial customer classes. Additionally, there was a 17,600 increase in total retail customers compared to the end of the quarter last year. The number of residential customers grew 2.8% over the past twelve months, exceeding the Company's 10 year annual growth rate of 2.2%. High tech, construction and services industries together represented growth of 7.2%, 7
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS high tech was 11.8%, for the quarter which helped compensate for weakness in lumber and paper industries. Wholesale revenues jumped $37 million from 1995, despite a 44% drop in average sale prices. Company marketing efforts increased the level of sales as PGE was able to profitably broker much of the surplus NW hydro-generated power. For the quarter, wholesale sales comprised 42% of total kWh sales. Continued decline in the price per kWh of variable power was reflected in earnings as total costs increased only $19 million or 29% to support a 50% increase in total Company sales. An abundant supply of wholesale power, much of it hydro-generated, kept more expensive thermal generation below 1995 levels throughout the region. PGE took advantage of competitive wholesale prices and purchased 67% of its power requirements. However, PGE had good performance from its generating facilities which provided 33% of total Company loads at an average cost of 7.4 mills (10 mills = 1 cent) compared to 8.4 mills in 1995. Coyote Springs provided nearly 6% of total energy requirements at 5.7 mills. Hydro plant generation also provided 6% of total loads, with increased production reflecting improved water conditions on the Clackamas River system. Energy purchases were up 84% providing nearly all of the incremental energy to support the demand created by wholesale sales. Increased mid-Columbia generation helped reduce the average cost of firm purchases. RESOURCE MIX/VARIABLE POWER COSTS Average Variable Resource Mix Power Cost (Mills/kWh) 1996 1995 1996 1995 Generation 33% 46% 7.4 8.4 Firm Purchases 54 35 14.7 24.5 Spot Purchases 13 19 8.7 11.4 Total Resources 100% 100% Average 12.9 16.0 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) increased $10 million or 16% compared to 1995 primarily due to additional firm natural gas transportation capacity and operating costs related to Coyote Springs. Additionally, efforts to complete distribution projects deferred as a result of the winter storms and increased customer marketing and service costs also contributed to this increase. Lower operating costs at Company coal generating plants as well as a decrease in general administration costs helped partially offset the increases for the quarter. Other Income decreased $11 million, excluding the 1995 $13 million regulatory disallowance, due to Enron/PGC merger costs, lower interest income on regulatory asset balances and decreased AFDC. 8
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1996 COMPARED TO 1995 FOR THE NINE MONTHS ENDED SEPTEMBER 30 Portland General earned $103 million or $2.03 per share for the nine months ended September 30, 1996 compared to $45 million or $0.88 per share in 1995. 1995 earnings include regulatory disallowances of $50 million after tax. Excluding the disallowances, 1995 earnings would have been $94 million. Improved earnings for the year include the benefits of plentiful water conditions, favorable weather conditions, a growing residential customer base and the Company's aggressive wholesale marketing efforts. These factors also contributed to the Company achieving record sales during the year as well as establishing new record peak loads for both the summer and winter seasons. Operating revenues of $794 million increased $92 million compared to the same period last year driven by a $69 million increase in wholesale revenues combined with $23 million of retail revenue increases. Retail revenue gains were largely due to 1995 rate increases accompanied by 2% higher energy sales. These gains were partially offset by a $16 million revenue refund provision related to energy efficiency programs and Oregon excise tax "kicker" benefits. Favorable weather conditions contributed to higher energy sales in both residential and commercial classes with significantly colder mean temperatures in January and February by 2.6 and 4.5 degrees respectively, and warmer mean summer weather in July and August by 1.4 and 3.1 degrees respectively. Industrial loads have benefited from the growth in high-tech industries; however, weak demand from paper and metals manufacturers has led to a 6.8% decline in sales for the year. Wholesale revenues comprised 36% of PGE loads and an additional 5.5 million in MWh sales. The average sales price was 49% below last year. The price per kWh of variable power dropped 24% keeping total variable power costs to a $13 million increase despite a 39% rise in total Company energy requirements. Optimal hydro conditions brought steep reductions in the cost of wholesale power in general as well as the cost of firm power purchased from the mid-Columbia projects. PGE hydro projects generated 9% of the Company's energy needs, with an 11% increase in production levels. PGE's thermal plants operated efficiently, however, excluding Coyote Springs, thermal plant generation was down 50% due to economic displacement early in the year as power purchases provided 79% of total PGE loads. RESOURCE MIX/VARIABLE POWER COSTS Average Variable Resource Mix Power Cost (Mills/KWh) 1996 1995 1996 1995 Generation 21% 37% 5.9 7.5 Firm Purchases 64 36 13.2 24.7 Spot Purchases 15 27 9.0 10.7 Total Resources 100% 100% Average 12.1 16.0 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) were $28 million or 14% higher than last year. The increase is primarily due to additional operating costs related to Coyote Springs including fixed natural gas transportation costs, increased costs for transmission and distribution most of 9
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS which is related to storm related repair costs and maintenance projects deferred during winter storms, and an increase in planned customer marketing and support costs to meet 1996 marketing objectives. PGE realized decreased costs at its coal generating facilities due to lower levels of operation. Depreciation, Decommissioning and Amortization increased $15 million, or 15%, due to depreciation taken on Coyote Springs and other 1995 plant additions. Excluding regulatory disallowances of $50 million, other income and deductions declined $15 million due to merger costs, the absence of carrying costs on regulatory assets for the current year and decreased AFDC. CASH FLOW PORTLAND GENERAL CORPORATION Portland General requires cash to pay dividends to its common shareholders, to provide funds to its subsidiaries, to meet debt service obligations and for day to day operations. Sources of cash are dividends from PGE, leasing rentals, short- and intermediate- term borrowings and the sale of its common stock. During the third quarter of 1996 Portland General received $56 million in cash dividends from PGE. Portland General used a portion of these proceeds to retire $30 million in medium term notes which matured in September 1996. Portland General has agreed, as to itself, PGE and other subsidiaries, to certain limitations on its ability to declare or pay dividends on or repurchase or redeem its securities, issue securities, or incur indebtedness pending consummation of the merger with Enron. This is not expected to interfere with the ability of Portland General or PGE to declare dividends, obtain financing or conduct its business operations in a manner consistent with past practice. For further information regarding these limitations please see the Merger Agreement included with Portland General's Form 8-K dated July 20, 1996. PORTLAND GENERAL ELECTRIC COMPANY 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 flow for the current year reflects a higher percentage of cash revenues combined with lower variable power costs. INVESTING ACTIVITIES include improvements to generation, transmission and distribution facilities and continued investment in energy efficiency programs. Capital expenditures for 1996 of approximately $170 million are expected to be fully funded by operating cash flows. Through September 30, 1996 nearly $144 million has been expended for capital projects, including energy efficiency programs, primarily for 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. 10
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCING ACTIVITIES - In August 1996 PGE issued $50 million in additional medium-term notes due September 1999. The proceeds were used to pay down outstanding short-term debt. The Company has entered into an interest rate swap agreement for the same period which effectively puts PGE in a floating rate position on the additional $50 million of long term debt. In early October 1996 the Company issued a 10 year $81 million energy conservation bond with a coupon rate of 6.91%. The bond is collateralized by the OPUC's designation of a portion of the Company's energy efficiency investments as Bondable Conservation Investment. 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, 1996, PGE has the capability to issue preferred stock and additional First Mortgage Bonds in amounts sufficient to meet capital requirements. 11
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) <TABLE> <CAPTION> <S> <C> <C> <C> <C> Three Months Ended Nine Months Ended SEPTEMBER 30 September 30 1996 1995 1996 1995 (Thousands of Dollars) OPERATING REVENUES $ 260,091 $ 222,612 $ 794,097 $ 701,681 OPERATING EXPENSES Purchased power and fuel 83,073 64,428 211,632 198,740 Production and distribution 22,698 15,963 64,668 47,404 Maintenance and repairs 12,016 10,563 37,110 31,880 Administrative and other 27,653 25,346 82,904 76,895 Depreciation and amortization 38,889 33,340 114,972 99,583 Taxes other than income taxes 12,336 11,889 39,995 38,672 196,665 161,529 551,281 493,174 OPERATING INCOME BEFORE INCOME TAXES 63,426 61,083 242,816 208,507 INCOME TAXES 18,684 20,817 79,655 71,509 NET OPERATING INCOME 44,742 40,266 163,161 136,998 OTHER INCOME (DEDUCTIONS) Regulatory disallowances - net of income taxes of $8,441 and $25,542 - (12,859) - (49,567) Interest expense (20,894) (19,592) (60,497) (58,921) Allowance for funds used during construction 609 3,608 1,351 8,682 Preferred dividend requirement - PGE (581) (2,380) (2,212) (7,380) Other - net of income taxes (3,335) 5,138 1,779 14,818 NET INCOME $ 20,541 $ 14,181 $ 103,582 $ 44,630 COMMON STOCK Average shares outstanding 51,158,923 50,798,082 51,110,760 50,696,185 Earnings per average share $0.40 $0.28 $2.03 $0.88 Dividends declared per share $0.32 $0.30 $0.96 $0.90 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) Three Months Ended Nine Months Ended SEPTEMBER 30 September 30 1996 1995 1996 1995 (Thousands of Dollars) BALANCE AT BEGINNING OF PERIOD $ 185,081 $ 117,777 $ 135,885 $ 118,676 NET INCOME 20,541 14,181 103,582 44,630 ESOP TAX BENEFIT AND OTHER (530) (470) (1,665) (1,418) 205,092 131,488 237,802 161,888 DIVIDENDS DECLARED ON COMMON STOCK 16,384 15,247 49,094 45,647 BALANCE AT END OF PERIOD $ 188,708 $ 116,241 $ 188,708 $ 116,241 The accompanying notes are an integral part of these consolidated statements. </TABLE> 12
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 <TABLE> <CAPTION> <S> <C> <C> (Unaudited) September 30 December 31 1996 1995 (Thousands of Dollars) ASSETS ELECTRIC UTILITY PLANT - ORIGINAL COST Utility plant (includes Construction Work in Progress of $50,616 and $33,382) $2,856,770 $2,754,280 Accumulated depreciation (1,104,274) (1,040,014) 1,752,496 1,714,266 Capital leases - less amortization of $29,953 and $27,966 7,365 9,353 1,759,861 1,723,619 OTHER PROPERTY AND INVESTMENTS Leveraged leases 150,721 152,666 Trojan decommissioning trust, at market value 77,726 68,774 Corporate owned life insurance, less loans of $27,763 and $26,432 77,639 74,574 Other investments 40,463 28,603 346,549 324,617 CURRENT ASSETS Cash and cash equivalents 17,114 11,919 Accounts and notes receivable 113,356 104,815 Unbilled and accrued revenues 25,527 64,516 Inventories, at average cost 34,832 38,338 Prepayments and other 25,629 16,953 216,458 236,541 DEFERRED CHARGES Unamortized regulatory assets Trojan investment 283,888 301,023 Trojan decommissioning 294,077 311,403 Income taxes recoverable 206,794 217,366 Debt reacquisition costs 28,682 29,576 Energy efficiency programs 83,222 77,945 Other 26,153 27,611 WNP-3 settlement exchange agreement 164,512 168,399 Miscellaneous 29,051 29,917 1,116,379 1,163,240 $3,439,247 $3,448,017 CAPITALIZATION AND LIABILITIES CAPITALIZATION Common stock equity Common stock, $3.75 par value per share, 100,000,000 shares authorized, 51,203,763 and 51,013,549 shares outstanding $ 192,010 $ 191,301 Other paid-in capital - net 579,346 574,468 Unearned compensation (6,275) (8,506) Retained earnings 188,708 135,885 953,789 893,148 Cumulative preferred stock of subsidiary Subject to mandatory redemption 30,000 40,000 Long-term debt 869,059 890,556 1,852,848 1,823,704 CURRENT LIABILITIES Long-term debt and preferred stock due within one year 81,582 105,114 Short-term borrowings 174,893 170,248 Accounts payable and other accruals 96,781 133,405 Accrued interest 17,385 16,247 Dividends payable 17,347 16,668 Accrued taxes 51,364 15,151 439,352 456,833 OTHER Deferred income taxes 631,608 652,846 Deferred investment tax credits 48,031 51,211 Trojan decommissioning and transition obligation 368,036 379,179 Miscellaneous 99,372 84,244 1,147,047 1,167,480 $3,439,247 $3,448,017 The accompanying notes are an integral part of these consolidated balance sheets. </TABLE> 13
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) <TABLE> <CAPTION> <S> <C> <C> <C> <C> Three Months Ended Nine Months Ended SEPTEMBER 30 September 30 1996 1995 1996 1995 (Thousands of Dollars) CASH PROVIDED (USED) BY - OPERATIONS: Net income $ 20,541 $ 14,181 $ 103,582 $ 44,630 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 30,212 24,695 89,828 75,540 Amortization of WNP-3 exchange agreement 1,727 1,227 3,887 3,682 Amortization of Trojan investment 6,358 6,456 18,118 18,865 Amortization of Trojan decommissioning 3,510 3,511 10,531 9,826 Amortization of deferred charges - other 472 (30) 354 (208) Deferred income taxes - net (1,663) 2,221 (13,522) (1,651) Other noncash revenues (419) (2,282) (1,218) (3,969) Regulatory disallowance - 12,859 - 49,567 Changes in working capital: (Increase) Decrease in receivables 7,177 8,175 29,902 18,976 (Increase) Decrease in inventories 3,437 5,228 3,506 (2,363) Increase (Decrease) in payables 39,946 16,931 7,401 (176) Other working capital items - net (8,959) (12,132) (8,676) (11,347) Trojan decommissioning expenditures (2,697) (2,343) (4,836) (6,214) Deferred items - other 1,215 (1,122) 12,841 (6,991) Miscellaneous - net 2,679 6,670 5,826 11,713 103,536 84,245 257,524 199,880 INVESTING ACTIVITIES: Utility construction - new resources 156 (8,386) 141 (37,797) Utility construction - other (43,289) (43,056) (133,485) (108,219) Energy efficiency programs (2,838) (4,439) (10,243) (13,391) Rentals received from leveraged leases 11,165 8,050 27,257 19,735 Nuclear decommissioning trust deposits (3,742) (3,046) (11,692) (13,553) Nuclear decommissioning trust withdrawals 1,782 1,805 3,229 8,413 Other (674) 1,638 (11,276) 3,885 (37,440) (47,434) (136,069) (140,927) FINANCING ACTIVITIES: Short-term borrowings - net (51,639) (25,856) 4,645 (74,381) Borrowings from Corporate Owned Life Insurance - - 1,312 2,589 Long-term debt issued 50,000 - 85,000 75,000 Long-term debt retired (30,000) - (117,661) (3,045) Repayment of nonrecourse borrowings for leveraged leases (9,321) (6,815) (23,711) (17,443) Preferred stock retired - - (20,000) (10,000) Common stock issued 784 2,303 2,570 6,865 Dividends paid (16,355) (15,218) (48,415) (45,757) (56,531) (45,586) (116,260) (66,172) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,565 (8,775) 5,195 (7,219) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 7,549 19,098 11,919 17,542 CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 17,114 $ 10,323 $ 17,114 $ 10,323 Supplemental disclosures of cash flow information Cash paid during the period: Interest, net of amounts capitalized $ 19,738 $ 12,589 $ 55,912 $ 44,212 Income taxes 11,460 26,220 79,130 67,610 The accompanying notes are an integral part of these consolidated statements. </TABLE> 14
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED 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 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 Portland General's opinion that, when the interim statements are read in conjunction with the 1995 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 LAWSUIT - On October 7, 1996 the bankruptcy court approved the settlement entered into by Portland General and Portland General Holdings (collectively referred to as Portland General) with the Bonneville Pacific Corporation's (Bonneville) bankruptcy trustee (Trustee). Pursuant to the settlement, Bonneville and its estate will release all claims and causes of action, including those asserted in the Trustee's civil action against Portland General and its current and former officers and directors. In exchange, Portland General will release any and all claims against Bonneville, its estate and related entities and individuals relating to its equity investment in and loans to Bonneville except that Portland General will retain ownership of 2 million shares of Bonneville common stock. The settlement will not have a material impact on Portland General's results of operations. Portland General will pursue recovery of certain litigation and settlement costs from its Director and Officer liability carrier. Any such revenues would be recognized into income during periods received. 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 were 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. 15
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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. NOTE 3 - WNP-3 SETTLEMENT EXCHANGE AGREEMENT PGE is selling energy received under a WNP-3 Settlement Exchange Agreement (WSA) to WAPA for 25 years, which began October 1990. Revenues from the WAPA contract are used to support the carrying value of the WSA asset. A portion of the energy under the WSA contract is sold at market prices. In light of reduced prices for wholesale power the Company is performing an evaluation for potential impairment of the WSA asset. This evaluation is expected to be completed during the fourth quarter of 1996. NOTE 4 - PROPOSED MERGER On July 20, 1996, Portland General entered into an Agreement and Plan of Merger with Enron, a Delaware corporation, to merge in a tax-free, stock-for- stock transaction. The transaction which has been approved by both companies' boards of directors, will entitle Portland General shareholders to receive one share of Enron common stock for each share of Portland General common stock held by them. Under the terms of the merger agreement, Enron will reincorporate in Oregon to allow it to qualify as an intrastate holding company that is exempt from the registration requirements of PUHCA. In the event that PUHCA is amended or repealed in a manner that would make this reincorporation no longer necessary, PGC will merge directly into the present Enron. PGE, Portland General's utility subsidiary, will retain its name, most of its functions and maintain its principal corporate offices in Portland, Oregon. The merger is subject to the approval of each company's shareholders. Both Enron and PGC have scheduled special shareholder meetings each of which will take place on November 12, 1996 in which shareholders of record for each corporation as of September 23, 1996 will vote upon a proposal to approve the Merger Agreement. The affirmative vote of holders of a majority of the shares of both the PGC Common Stock and Enron Voting Stock outstanding is required for merger approval under the state laws where each company is incorporated. In addition the merger is conditioned, among other things, upon and the completion of regulatory procedures including those already initiated at the OPUC and the FERC. The companies are hopeful that the regulatory procedures can be completed in less than 12 months from the date of the agreement. The merger agreement may be terminated by Enron if the average of the closing prices of Enron Common Stock during the 20 consecutive trading day period ending five trading days prior to the date of the special meeting of the shareholders of Portland General is more than $47.25 per share, and may be terminated by PGC if the average of the closing prices of Enron Common Stock during such period is less than $36.25 per share.
16 NOTE 5 - SUBSEQUENT EVENT Bondable Conservation Investment - In early October 1996 the Company issued a 10 year $81 million conservation bond with a coupon rate of 6.91%. The issuance was authorized by the OPUC which earlier designated $81 million of PGE's energy efficiency investment as Bondable Conservation Investment. The bond is collateralized by the future revenue stream assured by the OPUC designation. The financing provides an estimated $21 million in present value savings for customers while granting PGE immediate recovery of its energy efficiency program expenditures. Future revenues collected from customers will pay debt service obligations. Once the Commission designates a Bondable Conservation Investment it may not revalue or affect the timing of the revenue stream. Therefore, the OPUC may not remove the debt service obligation from rates. 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* 3-11 Financial Statements 18-20 Notes to Financial Statements** 15-17 * 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
Portland General Electric Company and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) <TABLE> <CAPTION> <S> <C> <C> <C> <C> Three Months Ended Nine Months Ended SEPTEMBER 30 September 30 1996 1995 1996 1995 (Thousands of Dollars) OPERATING REVENUES $ 259,656 $ 222,240 $ 792,772 $ 699,607 OPERATING EXPENSES Purchased power and fuel 83,074 64,428 211,633 198,740 Production and distribution 22,698 15,963 64,668 47,404 Maintenance and repairs 12,016 10,563 37,110 31,880 Administrative and other 26,726 24,943 80,862 75,904 Depreciation and amortization 38,868 33,318 114,909 99,520 Taxes other than income taxes 12,325 11,915 39,918 38,650 Income taxes 18,435 21,208 79,492 71,720 214,142 182,338 628,592 563,818 NET OPERATING INCOME 45,514 39,902 164,180 135,789 OTHER INCOME (DEDUCTIONS) Regulatory disallowances - net of income taxes of $8,441 and $25,542 - (12,859) - (49,567) Allowance for equity funds used during construction - 1,274 - 1,960 Other 2,043 5,348 5,434 14,852 Income taxes 48 (258) 476 (518) 2,091 (6,495) 5,910 (33,273) INTEREST CHARGES Interest on long-term debt and other 17,770 17,735 50,720 51,546 Interest on short-term borrowings 2,525 1,217 7,784 5,463 Allowance for borrowed funds used during construction (609) (2,334) (1,351) (6,722) 19,686 16,618 57,153 50,287 NET INCOME 27,919 16,789 112,937 52,229 PREFERRED DIVIDEND REQUIREMENT 581 2,380 2,212 7,380 INCOME AVAILABLE FOR COMMON STOCK $ 27,338 $ 14,409 $ 110,725 $ 44,849 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) <S> <C> <C> <C> <C> Three Months Ended Nine Months Ended SEPTEMBER 30 September 30 1996 1995 1996 1995 (Thousands of Dollars) BALANCE AT BEGINNING OF PERIOD $ 295,610 $ 222,870 $ 246,282 $ 216,468 NET INCOME 27,919 16,789 112,937 52,229 ESOP TAX BENEFIT AND OTHER (530) (470) (1,665) (1,418) 322,999 239,189 357,554 267,279 DIVIDENDS DECLARED Common stock 56,014 13,682 88,938 36,772 Preferred stock 581 2,380 2,212 7,380 56,595 16,062 91,150 44,152 BALANCE AT END OF PERIOD $ 266,404 $ 223,127 $ 266,404 $ 223,127 The accompanying notes are an integral part of these consolidated statements. </TABLE> 18
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 <TABLE> <CAPTION> <S> <C> <C> (Unaudited) September 30 December 31 1996 1995 (Thousands of Dollars) ASSETS ELECTRIC UTILITY PLANT - ORIGINAL COST Utility plant (includes Construction Work in Progress of $50,616 and $33,382) $2,856,770 $2,754,280 Accumulated depreciation (1,104,274) (1,040,014) 1,752,496 1,714,266 Capital leases - less amortization of $29,953 and $27,966 7,365 9,353 1,759,861 1,723,619 OTHER PROPERTY AND INVESTMENTS Trojan decommissioning trust, at market value 77,726 68,774 Corporate owned life insurance, less loans of $27,763 and $26,432 47,096 44,635 Other investments 35,096 24,943 159,918 138,352 CURRENT ASSETS Cash and cash equivalents 4,561 2,241 Accounts and notes receivable 113,145 102,592 Unbilled and accrued revenues 25,527 64,516 Inventories, at average cost 34,832 38,338 Prepayments and other 24,316 15,619 202,381 223,306 DEFERRED CHARGES Unamortized regulatory assets Trojan investment 283,888 301,023 Trojan decommissioning 294,077 311,403 Income taxes recoverable 206,794 217,366 Debt reacquisition costs 28,682 29,576 Energy efficiency programs 83,222 77,945 Other 26,153 27,611 WNP-3 settlement exchange agreement 164,512 168,399 Miscellaneous 27,178 26,997 1,114,506 1,160,320 $3,236,666 $3,245,597 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 471,522 466,325 Retained earnings 266,404 246,282 Cumulative preferred stock Subject to mandatory redemption 30,000 40,000 Long-term debt 869,059 890,556 1,797,331 1,803,509 CURRENT LIABILITIES Long-term debt and preferred stock due within one year 81,582 75,114 Short-term borrowings 174,525 170,248 Accounts payable and other accruals 97,656 132,064 Accrued interest 16,015 15,442 Dividends payable 17,117 14,956 Accrued taxes 48,473 12,870 435,368 420,694 OTHER Deferred income taxes 508,555 525,391 Deferred investment tax credits 48,031 51,211 Trojan decommissioning and transition costs 368,036 379,179 Miscellaneous 79,345 65,613 1,003,967 1,021,394 $3,236,666 $3,245,597 The accompanying notes are an integral part of these consolidated balance sheets. </TABLE> 19
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) <TABLE> <CAPTION> <S> <C> <C> <C> <C> Three Months Ended Nine Months Ended SEPTEMBER 30 September 30 1996 1995 1996 1995 (Thousands of Dollars) CASH PROVIDED (USED) BY - OPERATIONS: Net Income $ 27,919 $ 16,789 $ 112,937 $ 52,229 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 30,188 24,729 89,765 75,533 Amortization of WNP-3 exchange agreement 1,727 1,227 3,887 3,682 Amortization of Trojan investment 6,358 6,456 18,118 18,865 Amortization of Trojan decommissioning 3,510 3,511 10,531 9,826 Amortization of deferred charges - other 472 (30) 354 (208) Deferred income taxes - net (2,180) 2,113 (8,900) 1,423 Regulatory disallowances - 12,859 - 49,567 Changes in working capital: (Increase) Decrease in receivables 7,824 7,997 27,890 21,655 (Increase) Decrease in inventories 3,437 5,228 3,506 (2,363) Increase (Decrease) in payables 33,337 19,678 7,896 781 Other working capital items - net (8,583) (10,946) (8,697) (11,156) Trojan decommissioning expenditures (2,697) (2,343) (4,836) (6,214) Deferred items - other 1,215 (1,122) 12,841 (6,991) Miscellaneous - net 1,675 4,864 4,440 9,156 104,202 91,010 269,732 215,785 INVESTING ACTIVITIES: Utility construction - new resources 156 (8,386) 141 (37,797) Utility construction - other (43,289) (43,056) (133,485) (108,219) Energy efficiency programs (2,838) (4,439) (10,243) (13,391) Nuclear decommissioning trust deposits (3,742) (3,046) (11,692) (13,553) Nuclear decommissioning trust withdrawals 1,782 1,805 3,229 8,413 Other investments (131) (70) (9,301) (3,048) (48,062) (57,192) (161,351) (167,595) FINANCING ACTIVITIES: Short-term debt - net (49,807) (25,869) 4,277 (74,381) Borrowings from Corporate Owned Life Insurance - - 1,312 2,589 Long-term debt issued 50,000 - 85,000 75,000 Long-term debt retired - - (87,661) (3,045) Preferred stock retired - - (20,000) (10,000) Dividends paid (58,305) (13,926) (88,989) (43,505) (58,112) (39,795) (106,061) (53,342) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,972) (5,977) 2,320 (5,152) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 6,533 10,415 2,241 9,590 CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 4,561 $ 4,438 $ 4,561 $ 4,438 Supplemental disclosures of cash flow information Cash paid during the period: Interest, net of amounts capitalized $ 18,601 $ 11,375 $ 53,485 $ 41,768 Income taxes 19,032 27,721 75,667 72,842 The accompanying notes are an integral part of these consolidated statements. </TABLE> 20
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, 1995. NONUTILITY ROGER G. SEGAL, AS THE CHAPTER 11 TRUSTEE FOR BONNEVILLE PACIFIC CORPORATION V. PORTLAND GENERAL CORPORATION, PORTLAND GENERAL HOLDINGS, INC. ET AL, U.S. DISTRICT COURT FOR THE DISTRICT OF UTAH and PORTLAND GENERAL HOLDINGS, INC. V. THE BONNEVILLE GROUP AND RAYMOND L. HIXSON, THIRD JUDICIAL DISTRICT COURT FOR SALT LAKE COUNTY On October 7, 1996 the bankruptcy court approved the settlement entered into by Portland General and Portland General Holdings (collectively referred to as Portland General) with the Bonneville Pacific Corporation's (Bonneville) bankruptcy trustee (Trustee). Pursuant to the settlement, Bonneville and its estate will release all claims and causes of action, including those asserted in the Trustee's civil action against Portland General and its current and former officers and directors. In exchange, Portland General will release any and all claims against Bonneville, its estate and related entities and individuals relating to its equity investment in and loans to Bonneville except that Portland General will retain ownership of 2 million shares of common stock of Bonneville. For further information regarding the settlement see Portland General's report on Form 8-K dated August 23, 1996. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits NUMBER EXHIBIT PGC PGE 10 Portland General Corporation Management Deferred Compensation Plan, 1996 Restatement, Amendment No. 1, dated October 18, 1996, filed herewith X X Portland General Corporation Outside Directors' Life Insurance Benefit Plan, 1996 Restatement Amendment No. 1, dated October 22, 1996, filed herewith X X 21
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES PART II. OTHER INFORMATION NUMBER EXHIBIT PGC PGE 10 Portland General Corporation Outside Directors' Deferred Compensation Plan, 1996 Restatement Amendment No. 1, dated October 18, 1996, filed herewith X X Portland General Corporation Senior Officers' Life Insurance Benefit Plan, 1996 Restatement, Amendment No. 1, dated October 22, 1996, filed herewith X X 27 Financial Data Schedule - UT X X (Electronic Filing Only) b. Reports on Form 8-K August 23, 1996 - Item 5. Other Events: Litigation Settlement between PGC and Bonneville Pacific trustee. September 6, 1996 - Item 5. Other Events: OPUC's response to PGE's rate proposal. September 11, 1996 - Item 5. Other Events: Postponement of settlement discussions on rate proposal. 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 24, 1996 By /S/ JOSEPH M. HIRKO Joseph M. Hirko Sr. Vice President and Chief Financial Officer 23