UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO _______________
COMMISSION FILE NUMBER 1-5532-99
PORTLAND GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
OREGON 93-0256820
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
121 SW SALMON STREET, PORTLAND, OREGON 97204
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (503) 464-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of October 31, 1999: 42,758,877 shares of
Common Stock, $3.75 par value. (All shares are owned by Enron Corp.)
TABLE OF CONTENTS
PAGE
NUMBER
DEFINITIONS................................................ 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income .............. 3
Consolidated Statement of Retained Earnings ... 3
Consolidated Balance Sheet .................... 4
Consolidated Statement of Cash Flow ........... 5
Notes to Consolidated Financial Statements .... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................. 25
Item 6. Exhibits and Reports on Form 8-K ............. 25
Signature Page ....................................... 26
DEFINITIONS
FERC.....................Federal Energy Regulatory Commission
kWh.............................................Kilowatt-Hour
Mill....................................One tenth of one cent
MWh.............................................Megawatt-hour
OPUC or the Commission.......Oregon Public Utility Commission
PGE or the Company..........Portland General Electric Company
PART I
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
Consolidated Income Statement
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
(MILLIONS OF DOLLARS)
OPERATING REVENUES $ 408 $ 274 $ 1,001 $ 848
OPERATING EXPENSES
PURCHASED POWER AND FUEL 241 101 459 313
PRODUCTION AND DISTRIBUTION 33 32 101 100
ADMINISTRATIVE AND OTHER 28 29 79 84
DEPRECIATION AND 36 40 115 113
AMORTIZATION
TAXES OTHER THAN INCOME 16 14 47 44
TAXES
INCOME TAXES 15 17 63 60
369 233 864 714
NET OPERATING INCOME 39 41 137 134
OTHER INCOME (DEDUCTIONS)
MISCELLANEOUS 1 2 7 5
INCOME TAXES - 1 2 3
1 3 9 8
INTEREST CHARGES
INTEREST ON LONG-TERM DEBT
AND OTHER 14 17 46 50
INTEREST ON SHORT-TERM
BORROWINGS 2 2 6 5
ALLOWANCE FOR BORROWED FUNDS
USED DURING CONSTRUCTION - (1) (1) (1)
16 18 51 54
NET INCOME 24 26 95 88
PREFERRED DIVIDEND REQUIREMENT - 1 2 2
INCOME AVAILABLE FOR COMMON
STOCK $ 24 $ 25 $ 93 $ 86
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
(MILLIONS OF DOLLARS)
BALANCE AT BEGINNING
OF PERIOD $ 385 $ 314 $ 356 $ 270
NET INCOME 24 26 95 88
409 340 451 358
DIVIDENDS DECLARED
COMMON STOCK 20 16 60 33
PREFERRED STOCK - 1 2 2
20 17 62 35
BALANCE AT END
OF PERIOD $ 389 $ 323 $ 389 $ 323
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited)
SEPTEMBER 30 DECEMBER 31
1999 1998
(MILLIONS OF DOLLARS)
ASSETS
Electric Utility Plant - Original Cost
Utility plant(includes Construction
Work in Progress of $37 and $35) $ 3,273 $ 3,182
Accumulated depreciation and
amortization (1,426) (1,363)
1,847 1,819
OTHER PROPERTY AND INVESTMENTS
Contract termination receivable 88 95
Receivable from parent 91 97
Nuclear decommissioning trust, at
market value 51 72
Corporate and trust owned
life insurance,less loans of
$0 and $30 76 63
Miscellaneous 17 15
323 342
CURRENT ASSETS
Cash and cash equivalents 13 4
Accounts and notes receivable 154 135
Unbilled and accrued revenues 37 45
Inventories, at average cost 34 28
Prepayments and other 53 31
291 243
DEFERRED CHARGES
Unamortized regulatory assets 687 731
Miscellaneous 29 27
716 758
$ 3,177 $ 3,162
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 $ 160
Other paid-in capital - net 480 480
Retained earnings 389 356
Cumulative preferred stock
Subject to mandatory redemption 30 30
Long-term obligations 709 744
1,768 1,770
CURRENT LIABILITIES
Long-term debt due within one year 25 102
Short-term borrowings 213 105
Accounts payable and other accruals 162 145
Accrued interest 14 11
Dividends payable 21 1
Accrued taxes 64 35
499 399
OTHER
Deferred income taxes 344 351
Deferred investment tax credits 36 39
Trojan decommissioning and
transition costs 241 274
Unamortized regulatory liabilities 204 237
Miscellaneous 85 92
910 993
$ 3,177 $ 3,162
The accompanying notes are an integral part of these consolidated financial
statements.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30
1999 1998
(MILLIONS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Reconciliation of net income
to net cash provided by (used in)
operating activities
Net Income $ 95 $ 88
Non-cash items included in net income:
Depreciation and amortization 115 113
Deferred income taxes (4) -
Changes in working capital:
(Increase) Decrease in receivables (11) 30
Increase (Decrease) in payables 50 (59)
Other working capital items - net (28) (10)
Other - net (16) 44
NET CASH PROVIDED BY OPERATING ACTIVITIES 201 206
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (133) (96)
Other - net 16 (10)
NET CASH USED IN INVESTING ACTIVITIES (117) (106)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (109) (211)
Increase in short-term borrowings 107 185
Dividends paid (42) (18)
Repayment of loans on corporate owned
life insurance (32) (31)
Other - net 1 -
NET CASH USED IN FINANCING ACTIVITIES (75) (75)
INCREASE IN CASH AND CASH EQUIVALENTS 9 25
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 4 3
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 13 $ 28
Supplemental disclosures of cash flow
information
Cash paid during the period:
Interest, net of amounts capitalized $ 41 $ 45
Income taxes 90 109
The accompanying notes are an integral part of these consolidated financial
statements.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - PRINCIPLES OF INTERIM STATEMENTS
The interim financial statements have been prepared by PGE and, in the
opinion of management, reflect all material adjustments which are necessary
for a fair statement of results for the interim period presented. Certain
information and footnote disclosures made in the last annual report on Form
10-K have been condensed or omitted for the interim statements. Certain
costs are estimated for the full year and allocated to interim periods
based on the estimates of operating time expired, benefit received or
activity associated with the interim period. Accordingly, such costs are
subject to year-end adjustment. It is PGE's opinion that, when the interim
statements are read in conjunction with the 1998 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
to conform to current year presentation.
NOTE 2 - LEGAL MATTERS
TROJAN INVESTMENT RECOVERY. On June 24, 1998, the Oregon Court of Appeals
ruled that the OPUC does not have the authority to allow PGE to recover a
return on its undepreciated investment in the Trojan generating facility.
The court upheld the OPUC's authorization of PGE's recovery of its
undepreciated investment in Trojan.
The Court of Appeals decision was a result of combined appeals from earlier
circuit court rulings. In April 1996, a Marion County Circuit Court judge
ruled 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 upholding the OPUC's authority. The 1996 ruling was
the result of an appeal of PGE's 1995 general rate order which granted PGE
recovery of, and a return on, 87% of its remaining investment in Trojan.
On August 26, 1998, PGE and the OPUC filed petitions for review with the
Oregon Supreme Court, supported by amicus briefs filed by three other major
utilities seeking review of that portion of the Oregon Court of Appeals
decision relating to PGE's return on its undepreciated investment in
Trojan.
Also on August 26, 1998, the Utility Reform Project filed a petition for
review with the Oregon Supreme Court seeking review of that portion of the
Oregon Court of Appeals decision relating to PGE's recovery of its
undepreciated investment in Trojan.
On April 29, 1999, the Oregon Supreme Court accepted the petitions for
review of the June 24, 1998, Oregon Court of Appeals decision.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On June 16, 1999, Oregon's governor signed Oregon House Bill 3220
authorizing the OPUC to allow recovery of a return on the undepreciated
investment in property retired from service. One of the effects of the
bill is to affirm retroactively the OPUC's authority to allow PGE's
recovery of a return on its undepreciated investment in the Trojan
generating facility.
Relying on the new legislation, on July 2, 1999, the Company requested the
Oregon Supreme Court to vacate the June 24, 1998, adverse ruling of the
Oregon Court of Appeals and affirm the validity of the OPUC's order
allowing PGE to recover a return on its undepreciated investment in Trojan.
The Utility Reform Project and the Citizens Utility Board, another party to
the proceeding, opposed such request on the ground that an effort was
underway to gather sufficient signatures to place on the ballot a
referendum to negate the new legislation; such effort by the referendum's
sponsors was successful and the referendum will appear on the November 2000
ballot.
At September 30, 1999, PGE's after-tax Trojan plant investment was $156
million. PGE is presently collecting annual revenues of approximately $21
million, representing a return on its undepreciated investment. Revenue
amounts reflecting a recovery of a return on the Trojan investment decline
through the recovery period, which ends in the year 2011.
Management believes that the ultimate outcome of this matter will not have
a material adverse impact on the financial condition of the Company.
However, it may have a material impact on the results of operations for a
future reporting period.
OTHER LEGAL MATTERS. PGE is party to various other claims, legal actions
and complaints arising in the ordinary course of business. These claims
are not considered material.
NOTE 3 - SUBSEQUENT EVENT
On November 8, 1999, Enron announced that it has entered into a purchase and
sale agreement to sell Enron's wholly-owned electric utility subsidiary, PGE,
to Sierra Pacific Resources for $2.1 billion, comprised of $2.02 billion in
cash and the assumption of Enron's approximately $80 million merger payment
obligation. Sierra Pacific Resources will also assume $1 billion in PGE debt
and preferred stock. The proposed transaction, which is subject to customary
regulatory approvals, is expected to close in the second half of 2000.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
The following review of PGE's results of operations should be read in
conjunction with the Consolidated Financial Statements.
Due to seasonal fluctuations in electricity sales, as well as the price of
wholesale energy and fuel costs, quarterly operating earnings are not
necessarily indicative of results to be expected for calendar year 1999.
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.
1999 COMPARED TO 1998 FOR THE THREE MONTHS ENDED SEPTEMBER 30
PGE earned $24 million during the third quarter of 1999 compared to
earnings of $26 million in 1998. The decrease was primarily due to the
higher cost of purchased power, partially offset by a decrease in
depreciation and amortization expenses.
Revenues increased $134 million compared to the third quarter of 1998, with
significant increases in both retail and wholesale energy sales. Retail
revenues increased $40 million, or 7%, from 11% higher energy sales,
including significantly higher sales to lower-priced industrial customers;
the number of retail customers increased by approximately 16,000 during the
last year. Wholesale revenues increased $96 million, or 137%, as PGE sold
on the wholesale market excess power purchased; sales for resale increased
84% at average prices that increased 29%. Other operating revenues
decreased $2 million, largely due to the decrease in power delivery service
revenues received from energy service providers participating in last
year's Customer Choice pilot program; such amounts are billed directly
to customers and reflected in Retail revenues this year.
MEGAWATT-HOURS SOLD (THOUSANDS)
1999 1998
Retail 4,553 4,098
Wholesale 4,921 2,675
Purchased power and fuel costs increased $140 million due to both higher
power prices and increased purchases; purchased power comprised 73% of
total load. Power costs averaged 24.7 mills as the cost of firm power
purchases, driven largely by the region's higher-priced thermal resources,
averaged 30.3 mills, up 54% from last year. Company generation,
averaging 10.1 mills during the quarter, decreased 13% due to the
economic displacement of one of the Company's gas-fired combustion turbine
plants.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
MEGAWATT/VARIABLE POWER COSTS
Megawatt-Hours Average Variable
(thousands) Power Cost (Mills/kWh)
1999 1998 1999 1998
Generation 2,648 3,060 10.1 9.6
Firm Purchases 6,028 3,359 30.3 18.8
Spot Purchases 1,155 724 22.0 32.1
Total Send-Out 9,831 7,143 24.7* 17.2*
(*includes wheeling costs)
Depreciation and amortization decreased $4 million, due to adjustments of
depreciation recorded in prior periods.
1999 COMPARED TO 1998 FOR THE NINE MONTHS ENDED SEPTEMBER 30
PGE earned $95 million during the nine months ended September 30, 1999,
compared to earnings of $88 million in 1998. The increase was due
primarily to continued growth in PGE's retail customer base accompanied by
a higher margin on electric energy sales.
Revenues increased $153 million compared to the first nine months of 1998,
with significant increases in both retail and wholesale energy sales.
Retail revenues increased $84 million, or 10%, on higher energy sales.
Wholesale revenues increased $77 million, or 44%, due to sales for resale
that increased 8% and average prices that increased 33%. Other operating
revenues decreased $8 million from last year due primarily to decreased
power delivery service revenues from energy service providers participating
in last year's Customer Choice pilot program; such amounts, along with
applicable amounts for delivered energy, are billed directly to customers
and included in Retail revenues this year.
MEGAWATT-HOURS SOLD (THOUSANDS)
1999 1998
Retail 14,178 12,746
Wholesale 9,312 8,632
Purchased power and fuel increased $146 million, or 47%, due to both
increased power prices and load. Power costs averaged 19.1 mills, 28%
higher than in 1998, on total load that increased 9%. The average cost of
firm power purchases increased 39% to 22.6 mills, driven largely by the
higher cost of the region's thermal resources. Company generation, which
comprised 30% of total load at costs averaging 9.0 mills, partially offset
the higher cost of purchased power.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
MEGAWATT/VARIABLE POWER COSTS
Megawatt-Hours Average Variable
(thousands) Power Cost (Mills/kWh)
1999 1998 1999 1998
Generation 7,252 7,483 9.0 8.0
Firm Purchases 14,009 13,355 22.6 16.3
Spot Purchases 3,188 1,582 18.4 21.8
Total Send-Out 24,449 22,420 19.1* 14.9*
(*includes wheeling costs)
Operating expenses (excluding purchased power and fuel, depreciation, and
income taxes) decreased $1 million. A $5 million decrease related to a
reduction in pension accruals from negotiated changes to union pension and
Retirement Savings Plan enhancements was partially offset by increases in
city franchise fees, payroll, and property taxes.
Depreciation and amortization expense increased $2 million, or 2%, with
higher amortization of regulatory assets partially offset by an adjustment
of depreciation taken in 1998.
CASH FLOW
CASH PROVIDED BY OPERATIONS is used to meet the day-to-day cash
requirements of PGE. Supplemental cash is obtained from external
borrowings, as needed.
A significant portion of cash from operations comes from depreciation and
amortization of utility plant, charges which are recovered in customer
revenues but require no current cash outlay. Changes in accounts
receivable and accounts payable can also be significant contributors or
users of cash.
Cash provided by operating activities totaled $201 million in the first
nine months of 1999, compared to $206 million in the same period last year.
The decrease is due to a reduction from the amount received last year from
the Bonneville Power Administration under terms of the Residential Exchange
Termination agreement. This was partially offset by the change in net
amounts paid and received for power purchases and associated wholesale
sales, as well as by greater margins on increased energy sales for the
year.
INVESTING ACTIVITIES consist primarily of improvements to PGE's
distribution, transmission, and generation facilities, as well as continued
energy efficiency program expenditures. Capital expenditures of $133
million through September 30, 1999 were primarily for the expansion and
improvement of PGE's distribution system to support both new and existing
customers within
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
PGE's service territory. On August 5, 1999, PGE exercised
its option to purchase the six combustion turbine generators at the Beaver
generating plant, previously operated under terms of a 25-year lease, for
$37.3 million.
FINANCING ACTIVITIES provide supplemental cash for day-to-day operations
and capital requirements as needed. PGE relies on commercial paper
borrowings and cash from operations to manage its day-to-day financing
requirements. During the first nine months of 1999, PGE repaid $109
million in long-term debt, including $94 million in matured First Mortgage
Bonds, $5 million in other long-term debt, and the early redemption of $10
million in 7 3/4% First Mortgage Bonds due in the year 2023, funded primarily
through commercial paper borrowings. The Company also repaid $30 million
($32 million less $2 million prepaid interest) in policy loans on corporate
owned life insurance during this period. The Company declared $60 million and
paid $40 million in common stock dividends to its parent and $2 million in
preferred stock dividends during the first nine months of 1999.
In April 1999, PGE filed a $200 million shelf registration statement with
the Securities and Exchange Commission for the purpose of issuing new long-
term debt, the proceeds from which will be used to refund fixed and
variable rate securities, reduce commercial paper borrowings, and fund
planned construction and other expenditures; no debt has been issued under
this registration. In July 1999, PGE received approval from the Federal
Energy Regulatory Commission to issue short-term debt, including commercial
paper, credit facilities, and other evidences of indebtedness up to $350
million. This approval is effective for two years and replaces and
supercedes PGE's prior approval from the FERC authorizing short-term
borrowing of $250 million.
In July 1999, Duff & Phelps Credit Rating Co.(DCR) assigned initial ratings
to PGE's debt, with senior secured debt rated 'AA-', senior unsecured debt
rated 'A+', preferred stock and junior subordinated debt rated 'A', and
commercial paper rated 'D1'. Also in July, Moody's Investors Services
(Moody's) changed PGE's rating outlook from 'stable' to 'positive'.
On August 6, 1999, PGE completed a $100 million revolving credit facility
with two commercial banks. This facility, combined with the Company's
existing $200 million revolving credit facility, effectively increases the
total committed credit for PGE to $300 million. These facilities are used
primarily as backup for commercial paper and borrowings from commercial
banks under uncommitted lines of credit.
On November 8, 1999, in response to the announced purchase and sale agreement
for PGE (see Note 3 to Consolidated Financial Statements) and uncertainties
regarding the future status of certain OPUC stipulations that were agreed to in
its 1997 merger with Enron, credit agencies reviewed their ratings of the
Company. DCR placed the Company on Rating Watch--Uncertain, Moody's placed
PGE's ratings on review for possible downgrade, and Standard and Poor's placed
the ratings of the Company on CreditWatch with negative
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
implications. On November 11, 1999, Moody's confirmed the Prime-1 short-term
debt rating for commercial paper issued by PGE and maturing prior to regulatory
approval of the proposed purchase and sale.
The issuance of additional First Mortgage Bonds and preferred stock
requires PGE to meet earnings coverage and security provisions set forth in
the Articles of Incorporation and the Indenture securing its First Mortgage
Bonds. As of September 30, 1999, PGE has the capability to issue preferred
stock and additional First Mortgage Bonds in amounts sufficient to meet its
capital requirements.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
FINANCIAL AND OPERATING OUTLOOK
OREGON REGULATORY MATTERS
In late 1997, PGE filed its "Customer Choice" proposal with the Oregon
Public Utility Commission (OPUC), designed to give all of its customers a
choice of electricity providers as early as 1999. In conjunction with its
proposal, PGE initiated the Customer Choice Introductory Program as a one-
year pilot to test deregulation readiness by allowing certain customers to
buy their power from competing energy service providers; this program
terminated as scheduled at the end of 1998, with all participating
customers returned to PGE.
In response to PGE's proposal, the OPUC in January 1999 issued an order
containing an alternate restructuring proposal significantly different from
the fully competitive model proposed by PGE. The proposal recommends that
PGE offer customers a limited set of options, including the ability to
continue to purchase rate-regulated electricity. Most commercial and
industrial customers (those with demand exceeding 30kW) would be able to
choose their electricity provider through direct access. Although the
order would allow PGE to sell its coal- and gas- fired generation plants,
it rejected PGE's request to sell its hydroelectric assets. The
Commission's order further requires PGE to refile a new rate case should it
choose to adopt the plan recommended by the order, which is also contingent
upon the adoption of certain statutory changes by the Oregon Legislature.
On July 23, 1999, Oregon's governor signed into law legislation that
provides large industrial and commercial customers of investor-owned
utilities direct access to competing energy suppliers no later than October
1, 2001. Residential customers will be able to purchase electricity from a
"portfolio" of rate options that will include a regulated cost-of-service
rate, a new renewable resource rate, and a market-based rate that would
fluctuate with wholesale electricity prices. The new law also provides for
a 10-year public purposes charge equal to 3% of retail revenues, designed
to fund cost-effective conservation measures, new renewable energy
resources, and weatherization measures for low-income housing. In
addition, the law provides for low income electric bill assistance through
proportionate collections by affected utilities, beginning January 1, 2000.
Also included in the new law is a requirement that investor-owned utilities
unbundle the costs of service into power generation, transmission,
distribution, and retail services. The law also provides for "transition"
charges and credits that would allow recovery on uneconomic utility
investment or a refund of benefits from economic utility investment.
Incentives for the divestiture of generation assets are authorized,
provided any divestiture does not deprive customers of the benefit of the
utility's or the region's low cost resources. The law further requires
that its implementation have no material adverse impact on the ability of
investor-owned utilities to access cost-based power from the Bonneville
Power Administration for its residential and small farm customers.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
PGE continues to evaluate the effects of the new law, assess its impact on
the operations of the Company, and work closely with the OPUC and other
parties in determining specific actions necessary to implement its
provisions. It is not yet certain what affect the new law will have on the
OPUC's January 1999 order issued in response to PGE's Customer Choice
proposal, as described above.
RETAIL CUSTOMER GROWTH AND ENERGY SALES
Weather adjusted retail energy sales grew by 2.2% for the nine months ended
September 30, 1999, compared to the same period last year. PGE forecasts
retail energy sales growth of approximately 2% in 1999. Commercial sales
growth remains strong at 4% over last year; manufacturing sector sales have
remained flat as a decline in energy sales to metals customers has offset
growth in other industries.
QUARTERLY INCREASE IN RETAIL CUSTOMERS
Residential Commercial/Industrial
3rd Qtr 99 2376 352
2nd Qtr 99 2554 338
1st Qtr 99 3860 473
4th Qtr 98 5244 646
3rd Qtr 98 3822 671
2nd Qtr 98 4710 603
1st Qtr 98 2762 670
4th Qtr 97 3698 12
3rd Qtr 97 3529 388
2nd Qtr 97 4693 537
1st Qtr 97 3953 509
RESIDENTIAL EXCHANGE PROGRAM - The Regional
Power Act (RPA) was passed in 1980 to reduce power supply and cost
inequities between customers of government and publicly-owned utilities,
who have priority access to low-cost power from the federal hydroelectric
system, and the customers of investor-owned utilities. The RPA created the
Residential Exchange Program to ensure that all residential and small farm
customers in the region receive similar benefits from the publicly funded
federal power system. Exchange program benefits, which have averaged in
excess of $60 million a year since inception of the program, are passed
directly to PGE's residential and small farm customers in the form of price
adjustments contained in OPUC-approved tariffs. In January 1998, the
Bonneville Power Administration (BPA) eliminated the Residential Exchange
Credit and rates for PGE's residential and small farm customers increased
11.9%. PGE contested this decision and in September 1998 signed a
Residential Exchange Termination Agreement with BPA that provides for BPA
payments to PGE totaling $34.5 million over the next two years (through
September 2000). The agreement further provides that such amount be passed
to residential and small farm customers in the form of a tariff-based
billing credit, which reduced the previous rate increase to approximately
5.7% for all eligible customers through the middle of the year 2001. The
current customer credit under the Residential Exchange Program approximates
1% to 2% on the average monthly electricity bill; the total credit for 1998
was about $3 million and is estimated at $8 million for 1999.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
POWER SUPPLY
Hydro conditions in the region are significantly above normal this year.
The January-to-July runoff was 116% of normal, compared to 86% of normal
last year. A significant number of salmon species in the Pacific Northwest
have been granted or are being evaluated for protection under the federal
Endangered Species Act (ESA). Although the impacts to date have been
minimal for PGE and current hydro conditions are favorable, efforts to
restore salmon will continue to reduce the amount of water available for
generation.
PGE's base of hydro and thermal generating capacity and the surplus of
electric generating capability in the Western U.S. provide PGE the
flexibility needed to respond to seasonal fluctuations in the demand for
electricity both within its service territory and from its wholesale
customers.
In conjunction with its federal relicensing process, PGE has reached
a tentative agreement with the City of Portland, the State of Oregon, and
the National
Marine Fisheries Service to decommission its 22 MW Bull Run Hydroelectric
Project, removing the Marmot and Little Sandy dams. The purpose of the
agreement is to improve habitat for salmon, steelhead, and the other fish
protected by the Endangered Species Act in the Little Sandy/Bull Run
watersheds. The cost of removing the dams, constructed in the early
1900's, is estimated at $8 million. The regulatory approval process and
dam decommissioning are expected to take approximately three years. The
agreement is not expected to have a material effect on the financial
condition or results of operations of the Company. There are no current
plans to remove any other of the Company's hydroelectric projects.
ASSET SALES
On November 1, 1998, PGE signed a definitive agreement to sell its 20%
interest in coal-fired generating units 3 and 4 of the Colstrip power
plant, located in eastern Montana. The agreement, subject to both state
and federal approval, would transfer ownership of PGE's 322 megawatt
interest in the plant to PP&L Global, a subsidiary of PP&L Resources, for
$230.4 million. On April 7, 1999, PGE filed an application for approval of
the sale with the OPUC; such application, as subsequently amended, includes
a $26.6 million (excluding transition costs) retail rate reduction, to
become effective upon approval and sale. OPUC Staff has since recommended
that approval of the proposed sale be denied absent both a higher sales
price and further retail rate reduction. The Federal Energy Regulatory
Commission (FERC) has approved the sale of associated transmission
facilities. It is not anticipated that the proposed sale, if it is
consummated, will have an adverse effect on the financial condition or
results of operations of the Company.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
On May 10, 1999, the utilities who jointly own the 1,340 MW coal-fired
Centralia Power Plant announced their intention to sell their interests in
the plant. PGE owns a 2.5% share of the plant, which is operated by
PacifiCorp. Requests for regulatory approval of the sale have been filed
with both the OPUC and the FERC. The sale is not expected to have a
material effect on the financial condition or results of operations of the
Company.
In June 1999, PGE reached an agreement for the sale of the Company's
distribution system in four cities in Columbia County to West Oregon
Electric Cooperative (West Oregon) for $7.9 million. The agreement,
subject to approval by the Oregon Public Utility Commission, provides for
the transfer of approximately 7,200 PGE customers to West Oregon.
In September 1999, the voters within three of the cities
approved annexation to the Columbia River People's Utility District
(CRPUD); voters in the remaining city approved annexation to the Clatskanie
People's Utility District (Clatskanie). CRPUD and Clatskanie have taken
initial steps to condemn most of the facilities PGE agreed to sell to West
Oregon. PGE, West Oregon, CRPUD, Clatskanie, and the OPUC staff are
negotiating to resolve issues related to this matter. Although not
expected to have a material effect on the financial condition or results of
operations of the Company, it is not yet certain what the ultimate outcome
of these negotiations will be.
TROJAN INVESTMENT RECOVERY
On June 24, 1998, the Oregon Court of Appeals ruled that the OPUC does not
have the authority to allow PGE to recover a return on its undepreciated
investment in the Trojan generating facility. The court upheld the OPUC's
authorization of PGE's recovery of the undepreciated balance of its
investment in Trojan.
The Court of Appeals decision was a result of combined appeals from earlier
circuit court rulings. In April 1996, a Marion County Circuit Court judge
ruled 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 upholding the OPUC's authority.
The 1996 ruling was the result of an appeal of PGE's 1995 general rate
order which granted PGE recovery of, and a return on, 87% of its remaining
investment in Trojan.
On August 26, 1998, PGE and the OPUC filed a Petition for Review with the
Oregon Supreme Court, supported by amicus briefs filed by three other major
utilities seeking review of that portion of the Oregon Court of Appeals
decision relating to PGE's return on its undepreciated investment in
Trojan.
Also on August 26, 1998, the Utility Reform Project filed a Petition for
Review with the Oregon Supreme Court seeking review of that portion of the
Oregon Court of Appeals decision relating to PGE's recovery of its
undepreciated investment in Trojan.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
On April 29, 1999, the Oregon Supreme Court accepted the petitions for
review of the June 24, 1998, Oregon Court of Appeals decision.
On June 16, 1999, Oregon's governor signed Oregon House Bill 3220
authorizing the OPUC to allow recovery of a return on the undepreciated
investment in property retired from service. One of the effects of the
bill is to affirm retroactively the OPUC's authority to allow PGE's
recovery of a return on its undepreciated investment in the Trojan
generating facility.
Relying on the new legislation, on July 2, 1999, the Company requested the
Oregon Supreme Court to vacate the June 24, 1998, adverse ruling of the
Oregon Court of Appeals and affirm the validity of the OPUC's order
allowing PGE to recover a return on its undepreciated investment in Trojan.
The Utility Reform Project and the Citizens Utility Board, another party to
the proceeding, opposed such request on the ground that an effort was underway
to gather sufficient signatures to place on the ballot a referendum to negate
the new legislation; such effort by the referendum's sponsors was
successful and the referendum will appear on the November 2000 ballot.
For further information, see Part II, Other Information, Item 1. - Legal
Proceedings.
ENVIRONMENTAL MATTER
PGE received a letter dated September 27, 1999 from the Oregon Department
of Environmental Quality (DEQ) requesting that PGE perform a voluntary
remedial investigation of its Harborton Substation Site to confirm whether
any regulated hazardous substances have been released from the substation
property into a portion of the Willamette River known as the Portland
Harbor. A 1997 investigation of the Portland Harbor conducted by a U.S.
Environmental Protection Agency (EPA) contractor purportedly revealed
significant contamination of sediments within the harbor. The DEQ has
advised PGE that based on analytical results from the 1997 study, the U.S.
EPA is considering Portland Harbor for inclusion on the federal National
Priority List pursuant to the
federal Comprehensive Environmental Response,
Compensation, and Liability Act. The DEQ is requesting that PGE perform the
remedial investigation pursuant to a DEQ-approved Voluntary Agreement, and
that the work be coordinated with other Portland Harbor sediment
investigations currently being pursued by the DEQ that involve more than 50
potentially responsible parties. PGE met with DEQ representatives on
October 20, 1999, and advised the agency that PGE does not believe it bears any
responsibility for the sediment contamination in Portland Harbor. Even though
PGE believes that it is not responsible for any contamination in Portland
Harbor, on October 26, 1999 PGE notified DEQ that it was willing to perform a
voluntary remedial investigation under DEQ oversight. The scope of the
voluntary investigation will be negotiated with DEQ in November and December of
1999.
PGE does not expect this to have a material adverse impact on the financial
condition or results of operations of the Company.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
YEAR 2000
The Year 2000 problem results from the use in computer hardware and
software of two digits rather than four digits to define the applicable
year. The use of two digits was a common practice for decades when
computer storage and processing was much more expensive than today. When
computer systems must process dates both before and after January 1, 2000,
two-digit year "fields" may create processing ambiguities that can cause
errors and system failures. For example, computer programs that have date-
sensitive features may recognize a date represented by "00" as the year
1900, instead of 2000. These errors or failures may have limited effects,
or the effects may be widespread, depending on the computer chip, system or
software, and its location and function.
The effects of the Year 2000 problem are exacerbated because of the
interdependence of computer and telecommunications systems in the United
States and throughout the world. This interdependence certainly is true
for PGE and PGE's suppliers, trading partners, and customers.
STATE OF READINESS
PGE's Board of Directors has adopted the Enron Corp. Year 2000 Plan (the
"Plan"), which covers all of PGE's and other Enron Corp. subsidiaries'
activities. The aim of the plan is to take reasonable steps to prevent
Enron's mission-critical functions from being impaired due to the Year 2000
problem. "Mission-critical" functions are those critical functions whose
loss would cause an immediate stoppage of or significant impairment to
major business areas (a major business area is one of material importance
to Enron's business).
PGE's Year 2000 Plan has been assigned to a centralized staff under the
direction of a Year 2000 Project Manager, who coordinates the
implementation of the Plan within all affected areas of the company. PGE
has also engaged outside consultants, technicians and other external
resources to aid in implementing the Plan. For purposes of implementing
the Plan, PGE has defined "mission-critical" to be those functions
necessary for PGE reliably and safely to deliver electric service.
PGE is implementing the Plan, which will be modified as events warrant.
Under the Plan, PGE will continue to inventory its mission-critical
computer hardware and software systems and embedded chips (computer chips
with date-related functions, contained in a wide variety of devices);
assess the effects of Year 2000 problems on the mission-critical functions
of PGE's business; remedy systems, software and embedded chips in an effort
to avoid material disruptions or other material adverse effects on mission-
critical functions, processes and systems; verify and test the mission-
critical systems to which remediation efforts have been applied; and
attempt to mitigate those mission-critical aspects of the Year 2000 problem
that are not
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
remediated by January 1, 2000, including the development of
contingency plans to cope with the mission-critical consequences of Year
2000 problems that have not been identified or remediated by that date.
The Plan recognizes that the computer, telecommunications, and other
systems ("Outside Systems") of outside entities ("Outside Entities") have
the potential for major, mission-critical, adverse effects on the conduct
of PGE's business. PGE does not have control of these Outside Entities
or Outside Systems. However, the Plan includes an ongoing process of
identifying and contacting Outside Entities whose systems, in PGE's judgment,
have or may have a substantial effect on PGE's ability to continue to
conduct the mission-critical aspects of its business without disruption
from Year 2000 problems. The Plan envisions PGE's attempting to inventory
and assess the extent to which these Outside Systems may not be "Year 2000
ready" or "Year 2000 compatible." PGE continues to
coordinate with these Outside Entities in an ongoing effort to obtain
assurance that the Outside Systems that are mission-critical to PGE are
year 2000 compatible.
It is important to recognize that the processes of inventorying, assessing,
analyzing, converting (where necessary), testing, and developing
contingency plans for mission-critical items in anticipation of the Year
2000 event are necessarily iterative processes. That is, the steps are
repeated as PGE learns more about the Year 2000 problem and its effects on
PGE's internal systems and on Outside Systems, and about the effects that
embedded chips may have on PGE's systems and Outside Systems. As the steps
are repeated, it is likely that new problems will be identified and
addressed. PGE anticipates that it will continue with these processes
through January 1, 2000 and, if necessary based on experience, into the
Year 2000 in order to assess and remediate problems that reasonably can be
identified only after the start of the new century.
As of November 15, 1999, PGE believes that its mission-critical internal
systems (including embedded chips) are ready; this was reported to the
North American Electric Reliability Council on September 30, 1999.
However, as explained elsewhere in this statement, that does not guarantee
that these systems do not continue to contain
hidden Year 2000 defects in computer code or in embedded
devices. Completion dates of mission-critical internal and outside systems
for the several phases of the plan are shown in the following table. Any
notation of "complete" or reference to a "completion date" conveys the fact
only that the initial iteration of this phase has been substantially
completed. Because PGE's Year 2000 Plan treats Year 2000 efforts as an
iterative process, PGE is continuing additional cycles of inventory,
assessment, remediation, and validation testing, which will be conducted in
parallel, and in coordination, with PGE's Year 2000 contingency planning.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
YEAR 2000 READINESS PLAN
MISSION-CRITICAL MISSION-CRITICAL
INTERNAL ITEMS OUTSIDE ENTITIES
STATUS COMPLETION DATE STATUS COMPLETION DATE*
Inventory Complete December 1997 Complete October 1998
Assessment Complete October 1998 Complete November 1998
Analysis Complete October 1998 Complete June 1999
Conversion Complete June 1999 Complete August 1999
Testing Complete August 1999 Complete August 1999
Y2K-Ready Complete September 1999 Complete August 1999
Contingency
Plan Complete November 1999 Complete August 1999
* The completion dates for Mission-Critical Outside Entities convey the
date when PGE will have evaluated the progress of Outside Entities with
respect to their Conversion, Testing, Y2K-Ready, and Contingency Plan
efforts.
PGE continues to be concerned with hidden defects in computer code,
including re-coding errors in remediated code; sabotage of remediated
code; embedded devices with Year 2000 defects; and the potential failure
of mission-critical external entities. PGE is developing reasonable
contingency plans to prepare to the extent practicable to avoid
substantial Year 2000-related disruptions that may have a material adverse
effect on PGE. Because of the imponderable nature of potential Year 2000
deficiencies, their impact cannot be quantified. None of these problems
is unique to PGE.
COSTS TO ADDRESS YEAR 2000 ISSUES
Under the Plan, PGE currently estimates that it will spend approximately
$20-25 million relating to Year 2000 issues, about two-thirds of which has
been spent to date; 1999 expenditures are currently estimated at
approximately $11 million. On April 19, 1999, PGE received an accounting
order from the OPUC to capitalize 1999 incremental Y2K costs, to be
amortized over a 5-year period beginning January 1, 2000. The order defers
to a future proceeding whether PGE will be allowed to recover such costs in
rates. PGE anticipates that its costs relating to Year 2000 issues will
not have a material adverse effect on its financial condition or results of
operations.
Although management believes that its estimates are reasonable, there can
be no assurance, for the reasons stated in the "Outlook" section below,
that the actual costs of implementing the plan will not differ materially
from the estimated costs or that PGE will not be materially adversely
affected by Year 2000 issues.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
YEAR 2000 RISK FACTORS
REGULATORY REQUIREMENTS. PGE expects to satisfy all requirements of
regulatory authorities for achieving Year 2000 readiness. If its
reasonable expectations in this regard are in error, the adverse effect on
PGE could be material. Outside Entities could force temporary cessation of
operations that materially adversely affect PGE.
POTENTIAL SHORTCOMING. PGE believes that its mission-critical systems are
Year 2000-ready. However, there is no assurance that the Plan has succeeded
in accomplishing its purposes or that unforeseen circumstances will not
arise during implementation of the Plan that would materially and adversely
affect PGE.
CASCADING EFFECT. Despite PGE's reasonable efforts to identify, assess, and
where appropriate, replace devices that contain embedded chips, there is
no assurance that PGE will be able to
find and remediate all embedded chips in its systems. Further, there is no
assurance that Outside Entities on which PGE depends will be able to find
and remediate all embedded chips in their systems. Some of the embedded
chips that fail to operate or that produce anomalous results may create
system disruptions or failures. Some of these disruptions or failures may
spread from the systems in which they are located to other systems in a
cascade. These cascading failures may have adverse effects upon PGE's
ability to maintain safe operations and may also have adverse effects upon
PGE's ability to serve its customers and otherwise to fulfill certain
contractual and other legal obligations. The embedded chip problem is
widely recognized as one of the more difficult aspects of the Year 2000
problem across industries and throughout the world. PGE believes that the
possible adverse impact of the embedded chip problem is not, and will not
be, unique to PGE.
THIRD PARTIES. PGE cannot assure that suppliers upon which it depends for
essential goods and services will convert and test their mission-critical
systems and processes in a timely manner. Failure or delay by all or some
of these entities, including U.S. federal, state or local governments,
could create substantial disruptions having a material adverse effect on
PGE's business.
U.S. Y2K ACT. PGE may face additional risk as a result of the
uncertainties, and probable additional litigation, resulting from the
enactment of the U.S. federal "Y2K Act". Because experience with this
recently enacted legislation is very limited, PGE cannot at this time
quantify the financial impact or potential business disruption that may
result from this legislation. However, the adverse impact on PGE's
business might be material.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
CONTINGENCY PLANS
As part of the Plan, PGE is developing contingency plans that deal with two
aspects of the Year 2000 problem: (1) that PGE, despite its good-faith,
reasonable efforts, may not have satisfactorily identified and remediated
all of its
internal mission-critical systems; and (2) that Outside Systems may not be
Year 2000 ready, despite PGE's good-faith, reasonable efforts to work with
Outside Entities. PGE's contingency plans are being designed to minimize
the disruptions or other adverse effects resulting from Year 2000
incompatibilities regarding these mission-critical functions or systems,
and to facilitate the early identification and remediation of mission-
critical Year 2000 problems that first manifest themselves after January 1,
2000.
PGE's contingency plans contemplate an assessment of all its mission-
critical internal information technology systems and its internal
operational systems that use computer-based controls. This process will
commence in the early minutes of January 1, 2000, and continue for hours,
days, or weeks, as circumstances require. Further, PGE will in that time
frame assess any mission-critical disruptions due to Year 2000-related
failures that are external to PGE. The assessment process will cover, for
example, loss of electrical power from other utilities; telecommunications
services from carriers; or building access, security, or elevator service
in facilities occupied by PGE.
On June 15, 1999, PGE filed with the Western Systems Coordination Council
(WSCC) its response to recommendations which, along with responses from
other utilities, comprise a major portion of WSCC's contingency plan. PGE
plans to perform additional contingency planning relating to its systems
continually throughout the year.
PGE's contingency plans include the creation of teams that will be standing
by on the eve of the new millennium, prepared to respond rapidly and
otherwise as necessary to mission-critical Year 2000-related problems as
soon as they become known. The composition of teams that are assigned to
deal with Year 2000 problems will vary according to the nature, mission-
criticality, and location of the problem.
WORST CASE SCENARIO
The Securities and Exchange Commission requires that companies must
forecast the most reasonably likely worst case Year 2000 scenario,
assuming that the company's Year 2000 plan is not effective. Analysis of
the most reasonably likely worst case Year 2000 scenarios PGE may face
leads to contemplation of the following possibilities which, though
unlikely in some or many cases, must be included in any consideration of
worst cases: widespread failure of electrical, gas, and similar supplies by
utilities serving PGE; widespread disruption of the services of
communications common carriers; similar disruption to means and modes of
transportation for PGE and its employees, contractors, suppliers, and
customers; significant disruption to PGE's ability to gain access to, and
remain working in, office buildings and other
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
facilities; the failure of
substantial numbers of PGE's mission-critical information (computer)
hardware and software systems, including both internal business systems and
systems (such as those with embedded chips) controlling operational
facilities such as electrical generation, transmission, and distribution
systems; and the failure of Outside Systems, the effects of which would
have a cumulative material adverse impact on PGE's mission-critical
systems. Among other things, PGE could face substantial claims by
customers or loss of revenues due to service interruptions, inability to
fulfill contractual obligations, inability to account for certain revenues
or obligations or to bill customers accurately and on a timely basis, and
increased expenses associated with litigation, stabilization of operations
following mission-critical failures, and the execution of contingency
plans. PGE could also experience an inability by customers, traders, and
others to pay, on a timely basis or at all, obligations owed to PGE. Under
these circumstances, the adverse effect on PGE, and the diminution of PGE's
revenues, would be material, although not quantifiable at this time.
Further in this scenario, the cumulative effect of these failures could
have a substantial adverse effect on the economy, domestically and
internationally. The adverse effect on PGE, and the diminution of its
revenues, from a domestic or global recession or depression also is likely
to be material, although not quantifiable at this time.
PGE will continue to monitor business conditions with the aim of assessing
and quantifying material adverse effects, if any, that result from the Year
2000 problem.
SUMMARY
PGE has a Plan to deal with the Year 2000 challenge and believes that it
will be able to achieve substantial Year 2000 readiness with respect to the
mission-critical systems that it controls. From a forward-looking
perspective, the extent and magnitude of the Year 2000 problem as it will
affect PGE, both before and for some period after January 1, 2000, are
difficult to predict or quantify for a number of reasons. Among these are:
the difficulty of locating "embedded" chips that may be in a great variety
of mission-critical hardware used for process or flow control,
environmental, transportation, access, communications and other systems;
the difficulty of inventorying, assessing, remediating, verifying and
testing Outside Systems; and the difficulty in locating all mission-
critical software (computer code) internal to PGE that is not Year 2000
compatible, or that may be subject to re-coding errors or sabotage.
Accordingly, there can be no assurance that all of PGE's systems and all
Outside Systems will be adequately remediated so that they are Year 2000
ready by January 1, 2000, or by some earlier date, so as not to create a
material disruption to PGE's business. If, despite PGE's reasonable
efforts under the Plan, there are mission-critical Year 2000-related
failures that create substantial disruptions to PGE's business, the adverse
impact on PGE's business could be material. Additionally, Year 2000 costs
are difficult to estimate accurately because of unanticipated vendor
delays, technical difficulties, the impact of tests of Outside Systems and
similar events. Moreover, the estimated costs of implementing the Plan do
not take into account the costs, if any, that might be incurred as a result
of Year 2000-related failures that occur despite PGE's implementation of
the Plan.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards (SFAS) No. 133 ("Accounting for Derivative Instruments
and Hedging Activities"). SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on
the balance sheet as either an asset or liability measured at its fair
value. The Statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item
in the income statement, and requires that a company must formally
document, designate and assess the hedge effectiveness of transactions
that receive hedge accounting.
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. A company may also implement the Statement
as of the beginning of any fiscal quarter after issuance; however, SFAS No.
133 cannot be applied retroactively. PGE has not yet completed the
quantification of the impacts of adopting SFAS No. 133 on its financial
statements.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Although PGE believes that its
expectations are based on reasonable assumptions, it can give no assurance
that its goals will be achieved.
Important factors that could cause actual results to differ materially from
those in the forward looking statements herein include, but are not limited
to, political developments affecting federal and state regulatory
agencies, the pace of electric industry deregulation in Oregon and in the
United States, environmental regulations, changes in the cost of power,
adverse weather conditions, and the effects of the Year 2000 date change
during the periods covered by the forward looking statements.
PART II
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For further information, see PGE's report on Form 10-K for the year ended
December 31, 1998.
CITIZENS' UTILITY BOARD OF OREGON V. PUBLIC UTILITY COMMISSION OF OREGON
and UTILITY REFORM PROJECT AND COLLEEN O'NEILL V. PUBLIC UTILITY COMMISSION
OF OREGON, Marion County Oregon Circuit Court, the Court of Appeals of the
State of Oregon, the Oregon Supreme Court.
On June 16, 1999, Oregon's governor signed Oregon House Bill 3220
authorizing the OPUC to allow recovery of a return on the undepreciated
investment in property retired from service. One of the effects of the
bill is to affirm retroactively the OPUC's authority to allow PGE's
recovery of a return on its undepreciated investment in the Trojan
generating facility.
Relying on the new legislation, on July 2, 1999, the Company requested the
Oregon Supreme Court to vacate the June 24, 1998, adverse ruling of the
Oregon Court of Appeals and affirm the validity of the OPUC's order
allowing PGE to recover a return on its undepreciated investment in Trojan.
The Utility Reform Project and the Citizens Utility Board, another party to
the proceeding, opposed such request on the ground that an effort was
underway to gather sufficient signatures to place on the ballot a
referendum to negate the new legislation; such effort by the referendum's
sponsors was successful and the referendum will appear on the November 2000
ballot.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
NUMBER EXHIBIT
27 Financial Data Schedule - UT
(Electronic Filing Only)
b. Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on their behalf by the
undersigned hereunto duly authorized.
PORTLAND GENERAL ELECTRIC COMPANY
(Registrant)
November 15, 1999 By: /s/ Mary K. Turina
Date Mary K. Turina
Vice President, Finance
Chief Financial Officer and Treasurer