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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 MARCH 31, 2000
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 April 30, 2000: 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 Income Statement .................................. 3
Consolidated Statement of Retained Earnings ................... 3
Consolidated Balance Sheet .................................... 4
Consolidated Statement of Cash Flows .......................... 5
Notes to Consolidated Financial Statements .................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ...................................... 19
Item 6. Exhibits and Reports on Form 8-K ....................... 19
Signature Page ................................................. 20
DEFINITIONS
BPA ................................... Bonneville Power Administration
DEQ ................................Department of Environmental Quality
Enron ..................................................... Enron Corp.
EPA ....................................Environmental Protection Agency
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
Trojan ........................................... Trojan Nuclear Plant
PART I
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
2000 1999
(MILLIONS OF DOLLARS)
OPERATING REVENUES $ 397 $ 299
OPERATING EXPENSES
Purchased power and fuel 202 103
Production and distribution 26 29
Administrative and other 35 22
Depreciation and amortization 39 39
Taxes other than income taxes 18 17
Income taxes 26 30
346 240
NET OPERATING INCOME 51 59
OTHER INCOME (DEDUCTIONS)
Miscellaneous 4 4
Income taxes 1 1
5 5
INTEREST CHARGES
Interest on long-term debt and other 15 17
Interest on short-term borrowings 2 2
17 19
NET INCOME 39 45
PREFERRED DIVIDEND REQUIREMENT 1 1
INCOME AVAILABLE FOR COMMON STOCK $ 38 $ 44
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
2000 1999
(MILLIONS OF DOLLARS)
BALANCE AT BEGINNING OF PERIOD $ 401 $ 356
NET INCOME 39 45
440 401
DIVIDENDS DECLARED
Common stock 20 20
Preferred stock 1 1
21 21
BALANCE AT END OF PERIOD $ 419 $ 380
The accompanying notes are an integral part of these consolidated
financial statements.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
MARCH 31, DECEMBER 31,
2000 1999
(MILLIONS OF DOLLARS)
ASSETS
Electric Utility Plant -
Original Cost
Utility plant (includes
Construction work in
progress of $46 and $44) $3,321 $3,295
Accumulated depreciation (1,461) (1,430)
1,860 1,865
OTHER PROPERTY AND INVESTMENTS
Contract termination receivable 78 85
Receivable from parent 86 89
Nuclear decommissioning
trust, at market value 38 42
Corporate owned life insurance 91 85
Miscellaneous 17 17
310 318
CURRENT ASSETS
Cash and cash equivalents 1 -
Accounts and notes receivable 155 140
Unbilled and accrued revenues 36 49
Assets from price risk management
activities 19 -
Inventories, at average cost 34 37
Prepayments and other 54 41
299 267
DEFERRED CHARGES
Unamortized regulatory assets 683 691
Miscellaneous 25 26
708 717
$3,177 $3,167
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 419 401
Cumulative preferred stock
Subject to mandatory redemption 30 30
Long-term obligations 848 701
1,937 1,772
CURRENT LIABILITIES
Long-term debt due
within one year 32 32
Short-term borrowings 103 266
Accounts payable and
other accruals 144 167
Liabilities from price risk
management activities 14 -
Accrued interest 14 11
Dividends payable 1 1
Accrued taxes 30 12
338 489
OTHER
Deferred income taxes 351 351
Deferred investment tax credits 34 36
Trojan decommissioning and
transition costs 236 234
Unamortized regulatory liabilities 186 197
Miscellaneous 95 88
902 906
$3,177 $3,167
The accompanying notes are an integral part of these consolidated financial
statements.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
2000 1999
(MILLIONS OF DOLLARS)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Reconciliation of net income to
net cash provided by operating
activities
Net income $ 39 $ 45
Non-cash items included in net income:
Depreciation and amortization 39 39
Deferred income taxes - (3)
Net assets from price risk management
activities (5) -
Changes in working capital:
(Increase) Decrease in receivables (2) 16
Decrease in payables (2) (28)
Other working capital items - net (10) (20)
Other - net 17 (2)
NET CASH PROVIDED BY OPERATING ACTIVITIES 76 47
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (31) (29)
Other - net (7) (3)
NET CASH USED IN INVESTING ACTIVITIES (38) (32)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of long-term debt (3) (26)
Net increase (decrease) in
short-term borrowings (163) 35
Issuance of long-term debt 150 -
Dividends paid (21) (21)
Other - net - (2)
NET CASH USED IN FINANCING ACTIVITIES (37) (14)
INCREASE IN CASH AND CASH EQUIVALENTS 1 1
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - 4
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1 $ 5
Supplemental disclosures of cash
flow information
Cash paid during the period:
Interest, net of amounts capitalized $ 13 $ 10
Income taxes 14 54
The accompanying notes are an integral part of these consolidated
financial statements.
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 1999 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.
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. The Oregon Supreme Court has stated it will hold its review of the
Court of Appeals decision in abeyance until after the election.
At March 31, 2000, PGE's after-tax Trojan plant investment was $145
million. PGE is presently collecting annual revenues of approximately $18
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 - PRICE RISK MANAGEMENT
PGE is exposed to market risk arising from the need to purchase power to
meet the needs of its retail customers and to purchase fuel for its natural
gas fired generating units. The Company uses instruments such as forward
contracts, options, and swaps to mitigate risk that arises from market
fluctuations of commodity prices. In addition, during the first quarter of
2000 PGE increased the use of such instruments for trading purposes.
Instruments utilized in connection with these trading activities are
accounted for as prescribed by Issue 98-10 of the Emerging Issues Task
Force of the Financial Accounting Standards Board ("EITF 98-10"). Under
EITF 98-10, the Company's portfolio of electric forward contracts and natural
gas swaps with third parties used in its trading activities are reflected
at fair value, with gains and losses included in earnings, and shown as
"Assets and liabilities from price risk management activities" in the
Balance Sheet. Changes in assets and liabilities from energy trading
activities result primarily from changes in the valuation of the portfolio
of contracts, newly originated transactions, and the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
timing of settlement. Market prices used to value these transactions
reflect management's best estimate considering various factors, including
closing exchange and over-the-counter quotations, time value and volatility
factors underlying the commitments.
Unrealized gains and losses from newly originated contracts and the impact
of price movements are recorded within "Purchased power and fuel" on the
Income Statement. In the first quarter of 2000, a $4.9 million net gain on
electricity trading contracts was recorded, partially offset by a $0.3
million net loss on natural gas swaps.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 2000.
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.
2000 COMPARED TO 1999 FOR THE THREE MONTHS ENDED MARCH 31
PGE earned $39 million during the first quarter of 2000 compared to $45
million in 1999. The decrease was primarily due to increased operating
expenses and costs of purchased power.
Total revenues increased $98 million compared to the first quarter of 1999,
largely due to a significant increase in wholesale energy sales and prices.
Wholesale revenues increased $88 million (from $25 million to $113
million), as PGE sold on the wholesale market excess power purchased;
energy sales for resale increased 220% at average prices that increased
41%. Retail revenues increased $8 million (3%) from last year's first
quarter due to a 4.3% increase in energy sales. Total retail customers
increased by about 15,000 (2.1%) and higher energy sales and revenues were
experienced for all major customer classes. Energy sales to industrial
customers increased 15%, accompanied by higher prices indexed to the cost
of power. Other operating revenues increased $2 million due largely to
increased sales of natural gas in excess of generation requirements.
MEGAWATT-HOURS SOLD (THOUSANDS)
2000 1999
Retail 5,402 5,178
Wholesale 4,281 1,338
Purchased power and fuel costs increased $99 million (96%) from last year's
first quarter, primarily due to higher wholesale load combined with
significantly higher power prices. Higher regional power and gas market
prices increased the cost of both firm power purchases and the average
price of power by 40%. Partially offsetting the cost of purchased power
was an approximate $5 million unrealized net gain on electricity trading
contracts and natural gas swaps recorded in this year's first quarter (see
Note 3, Price Risk Management, in the Notes to Financial Statements for
further information).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Total company generation increased 30%, partially offsetting the increased
cost of purchased power. Generation at the company's gas-fired combustion
turbine and coal plants increased 220% and 7%, respectively, while
hydroelectric generation decreased 9%.
MEGAWATT/VARIABLE POWER COSTS
Megawatt-Hours Average Variable
(thousands) Power Cost (Mills/kWh)
2000 1999 2000 1999
Generation 3,121 2,403 12.1 8.0
Firm Purchases 6,192 3,205 23.3 16.7
Spot Purchases 664 1,197 25.5 15.0
Total Send-Out 9,977 6,805 20.8* 15.0*
(*includes wheeling costs)
Operating expenses (excluding purchased power and fuel and income taxes)
increased $11 million (10%). Expenses in last year's first quarter were
reduced by the effect of a non-recurring reduction in employee benefit
accruals resulting from negotiated changes to union pension and Retirement
Savings Plan enhancements. In addition, the Company in this year's first
quarter wrote off $2.4 million of deferred costs related to the proposed
sale of the Company's 20% interest in Units 3 and 4 of the Colstrip power
plant, approval of which was denied by the OPUC. Other increases include a
combined $2.4 million increase in insurance claim provisions and employee
health insurance costs. Partially offsetting the increases were reductions
in fixed generating plant and delivery system costs.
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 $76 million in this year's
first quarter compared to $47 million in the same period last year. The
increase was primarily due to lower tax and pension related payments as
well as reduced coal and material purchases. "Other - net" on the
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Consolidated Statement of Cash Flows increased $19 million from last year's
first quarter, due primarily to an $8 million reduction from last year's
first quarter refunds to customers related to reduced Oregon Excise Taxes
and energy savings under PGE's SAVE program, a $2 million increase in pay-
ments from Enron for merger-related customer benefits, and certain other
items impacting operations for the period.
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 $31
million through March 31, 2000, were primarily for the expansion and
improvement of PGE's distribution system to support the addition of new
customers within PGE's service territory.
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 quarter of 2000, the Company reduced its
short-term commercial paper by $163 million and in March issued $150
million of 7.875% unsecured notes maturing in 2010. A discount on the
newly-issued notes and payment of conservation bonds are reflected in
"Repayment of long-term debt". The
Company paid $20 million in common stock dividends to its parent and $1
million in preferred stock dividends during the first quarter.
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 March 31, 2000, PGE has the capability to issue preferred
stock and additional First Mortgage Bonds in amounts sufficient to meet its
capital requirements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL AND OPERATING OUTLOOK
PROPOSED ACQUISITION
On November 8, 1999, Enron announced that it had entered into a purchase
and sale agreement to sell PGE to Sierra Pacific Resources (Sierra) for
$2.1 billion, comprised of $2.02 billion in cash and the assumption of
Enron's approximately $80 million merger payment obligation. Sierra will
also assume approximately $1 billion in PGE debt and preferred stock. The
proposed transaction, which is subject to regulatory approval, is expected
to close in late 2000. On January 18, 2000, Sierra filed with the OPUC an
application to acquire PGE. On February 3, 2000, Sierra filed with the SEC
and application to acquire PGE and also to become a registered public
utility holding company. On March 3, 2000, Sierra filed with the FERC and
the U.S. Department of Justice a request for approval of its acquisition of
PGE.
RESTRUCTURING
On July 23, 1999, Oregon's governor signed into law State Senate Bill
SB1149 that provides all industrial and commercial customers of investor-
owned utilities in the state 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 cost-of-
service rate, a new renewable resource rate, and a market-based rate.
SB1149 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, SB1149 provides for low-income electric bill
assistance by affected utilities, which began in January 2000.
Also included in SB1149 is a requirement that investor-owned utilities
unbundle the costs of service into power generation, transmission,
distribution, and retail services. The law further provides for
"transition" charges and credits that would allow recovery on prior
uneconomic utility investment or a refund of benefits from prior 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. SB1149
further requires that its implementation have no material adverse impact on
the ability of the affected investor-owned utilities to access cost-based
power from the Bonneville Power Administration for its residential and
small farm customers.
In October 1999, the OPUC began a series of workshops designed to discuss
the issues associated with SB1149 and to develop administrative rules for
implementation of the law. In February 2000, the OPUC began its formal
rulemaking process with the expectation that rules enabling utilities to
develop tariffs will be adopted in June 2000. PGE is participating in this
rulemaking process. Additional rulemakings regarding non-tariff-related
items are also expected. PGE expects to file its restructuring plan,
including associated tariffs, in time to allow
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
for direct access by October
1, 2001. In accordance with a March 17, 2000 Order from the OPUC, PGE is
deferring incremental costs of implementing SB1149 for recovery in future
electricity rates.
RETAIL CUSTOMER GROWTH AND ENERGY SALES
Weather adjusted retail energy sales grew by 3.9% for the three months
ended March 31, 2000, compared to the same period last year. PGE forecasts
retail energy sales growth of approximately 3.5% in 2000. Manufacturing
sector energy sales increased 13.0% as large paper, high tech, and other
manufacturers significantly increased their usage. Commercial sales growth
remains strong at 4.0% over last year's first quarter.
QUARTERLY INCREASE IN RETAIL CUSTOMERS
RESIDENTIAL COMMERCIAL/INDUSTRIAL
1ST QTR 1998 2762 670
2ND QTR 1998 4710 603
3RD QTR 1998 3822 671
4TH QTR 1998 5244 646
1ST QTR 1999 3860 473
2ND QTR 1999 2554 338
3RD QTR 1999 2376 352
4TH QTR 1999 4564 666
1ST QTR 2000 3635 848
RESIDENTIAL EXCHANGE PROGRAM
The September 1998 Residential Exchange Termination Agreement with the
Bonneville Power Administration provided for a total of $34.5 million in
BPA payments to PGE over two years, along with a continuation of benefits
to PGE's residential and small farm customers through at least the June
2001 termination of the agreement. Through March 31, 2000, PGE has
received approximately $32.9 million in payments, with the remaining $1.6
million to be received by September 2000. Such exchange benefits continue
to be passed directly to PGE's customers in the form of price adjustments
contained in OPUC-approved tariffs.
POWER SUPPLY
Hydro conditions in the region are slightly below normal this year, with
current projections forecasting the January-to-July runoff at 99% of
normal, compared to 115% 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 may 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ASSET SALES
Pursuant to the voter-approved annexation of PGE service territory in four
Columbia County cities to the Columbia River People's Utility District
(CRPUD) and the Clatskanie Public Utility District, the parties have
entered into definitive agreements, which are subject to approval by the
OPUC. On February 24, 2000, PGE filed for Commission approval two proposed
Service Territory Transfer Agreements, and on April 10, 2000, the Company
filed a proposed Asset Purchase Agreement. The OPUC has established a
schedule to address issues related to the proposed transfer and sale that
provides for a public hearing in June 2000. The parties hope to resolve
any remaining issues during this process to allow for final OPUC approval
of the sale.
On April 12, 2000, the Confederated Tribes of Warm Springs (Tribes) and PGE
executed an agreement that would result in shared ownership and control of
PGE's 408-MW Pelton Round Butte Project, which provides about 20% of the
Company's power-generating capacity. The agreement with the Tribes, under
which PGE would continue to operate the project, provides for increased
ownership by the Tribes over a proposed 50-year license period, which PGE
and the Tribes will now jointly pursue with the FERC. The proposed sale
will also require approval of the OPUC.
On April 13, 2000, PGE received final approval from the FERC to sell 12% of
its interest (representing a 10.5% tenancy-in-common share) in the Kelso-
Beaver Pipeline to B-R Pipeline for approximately $2.5 million. The
proposed sale was previously approved by the OPUC and had received
preliminary approval, subject to environmental review, by the FERC. Upon
completion of the sale, PGE will own approximately 79% of the pipeline,
which directly connects its Beaver generating station to Northwest
Pipeline, an interstate gas pipeline operating between British Columbia and
New Mexico.
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 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.
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. The Oregon Supreme Court has stated it will hold its review of the
Court of Appeals decision in abeyance until after the election.
ENVIRONMENTAL MATTER
A 1997 investigation of a portion of the Willamette River known as the
Portland Harbor conducted by a U.S. Environmental Protection Agency (EPA)
contractor revealed significant contamination of sediments within the
harbor. In September 1999, the Oregon Department of Environmental Quality
(DEQ) asked that PGE perform a voluntary remedial investigation of its
Harborton Substation site to confirm whether any regulated hazardous
substances had been released from the substation property into the harbor.
While PGE does not believe that it is responsible for any contamination in
the Portland Harbor, it signed an October 1999 agreement of intent to
participate in such voluntary investigation, to be coordinated with other
sediment investigations involving more than 50 potentially responsible
parties. It is now highly likely that EPA will list the Portland Harbor as
a "superfund" site; as a result, PGE did not enter into a Voluntary
Agreement with the DEQ. While it is not clear whether the EPA or DEQ will
have direct jurisdiction over the Harborton site, investigations of the
site will occur. Subsequent investigations will almost certainly be
required if any significant soil or groundwater
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
contamination is discovered
during the course of the initial investigation being conducted by PGE.
Remedial activities, if any, that PGE may ultimately perform with respect
to this matter will depend on the results of its investigations.
PGE does not expect this investigation to have a material adverse impact on
the financial condition or results of operations of the Company.
ENERGY EFFICIENCY
On April 25, 2000, the OPUC approved PGE's application to expense all
current Demand Side Management (DSM) program expenditures beginning October
1, 2000. This change in accounting will be accompanied by a 1.18% increase
in rates. PGE's unamortized DSM investment prior to implementation of the
change will continue to be collected in rates and amortized to expense over
a five-year period. The approved change in accounting is in response to
SB1149, which encourages a competitive marketplace for energy services and
provides for a public service charge to fund conservation measures.
FINANCIAL RISK MANAGEMENT
PGE is exposed to market risk arising from the need to purchase power to
meet the needs of its retail customers and to purchase fuel for its natural
gas fired generating units. The Company uses instruments such as forward
contracts, natural gas swaps, and options for the purpose of hedging the
impact of market fluctuations on assets, liabilities, production and other
contractual commitments. Gains and losses from instruments that reduce
commodity price risks are recognized purchased power and fuel expense, or
in wholesale revenue. In addition, Company policy allows the use of these
instruments for trading purposes in support of its operations; gains or
losses on such instruments are recognized in income on a current basis
(see Note 3, Price Risk Management, in the Notes to Financial Statements
for further information).
The use of derivative commodity instruments by PGE may expose the Company
to market risks resulting from adverse changes in commodity prices; the
Company actively manages this risk to ensure compliance with its risk
management policies.
Market risks associated with commodity derivatives held at December 31,
1999, were not material. During the first quarter of 2000, PGE's market
risk profile has changed because of increased electricity and natural gas
trading activities. However, due to continuing low trading volume limits, the
Company has maintained a limited exposure to market movements. Although
the Company remains subject to limits on open commodity positions, its
maximum value at risk limit, which measures the potential impact of market
movements over a given time interval, remains at an immaterial level at
March 31, 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PROPOSED INDEPENDENT TRANSMISSION COMPANY
In December 1999, the FERC issued Order No. 2000 in a continued effort to
more efficiently manage transmission, create fair pricing policies, and
encourage competition by providing equal access to the nation's electric
power grids. The Order encourages all owners of electricity transmission
facilities to join Regional Transmission Organizations (RTOs), to be
created and implemented by December 15, 2001.
In response to this Order, PGE and five other regional utilities have
signed an agreement to study the formation of a for-profit Independent
Transmission Company (ITC) that would manage the transmission assets of the
participating companies. The proposed ITC, which would be formed by
December 15, 2001, could own, lease or maintain high-voltage transmission
lines, increasing efficiency and reliability. It would join other
organizations as members of RTO West, a non-profit Independent System
Operator (ISO), which would control transmission operations and pricing in
an eight-state western region.
As the Pacific Northwest faces potential transmission congestion in the
future, a large ITC could more quickly implement decisions to add new
facilities. PGE believes the development of an ITC would bring benefits to
both the Company and its customers as cost and service efficiencies are
created through larger scale operations.
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133 ("Accounting for Derivative
Instruments and Hedging Activities"), to be effective January 1, 2000.
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 either the income statement or the Statement
of Shareholders' Equity and requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting.
In June 1999, the FASB issued SFAS No. 137, which deferred the effective
date of SFAS No. 133 to fiscal years beginning after June 15, 2000. A
company may implement SFAS No. 133 as of the beginning of any fiscal
quarter after issuance; however, the statement cannot be applied
retroactively. PGE does not plan to adopt SFAS No. 133 early and, based
upon analysis performed to date, believes that the statement will not have
a material impact on its accounting for price risk management activities or
physical based contracts.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 and adverse weather conditions 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, 1999.
COLUMBIA RIVER PEOPLE'S UTILITY DISTRICT v PORTLAND GENERAL ELECTRIC
COMPANY
On April 21, 1999, CRPUD filed a Notice of Appeal. A briefing and oral
argument took place on May 3, 2000. A decision from the Ninth Circuit
Court of Appeals may be rendered in 2000.
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 its behalf by the
undersigned hereunto duly authorized.
PORTLAND GENERAL ELECTRIC COMPANY
(Registrant)
May 10, 2000 By: /s/ Mary K. Turina
Mary K. Turina
Vice President, Finance
Chief Financial Officer and Treasurer
May 10, 2000 By: /s/ Kirk M. Stevens
Kirk M. Stevens
Controller and Assistant Treasurer
UT 1,000,000 0000784977 PORTLAND GENERAL ELECTRIC COMPANY 3-MOS DEC-31-1999 MAR-31-2000 PER-BOOK 1,860 310 299 708 0 3,177 160 480 419 1,059 30 0 848 0 0 103 32 0 0 0 1,105 3,177 397 26 320 346 51 5 56 17 39 1 38 20 13 76 0 0