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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 JUNE 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 July 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 ............................... 24
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
(MILLIONS OF DOLLARS)
OPERATING REVENUES $ 294 $ 260 $ 593 $ 574
OPERATING EXPENSES
PURCHASED POWER AND FUEL 118 89 218 212
PRODUCTION AND DISTRIBUTION 35 34 68 68
ADMINISTRATIVE AND OTHER 29 28 51 55
DEPRECIATION AND
AMORTIZATION 40 37 79 74
TAXES OTHER THAN INCOME
TAXES 14 13 31 29
INCOME TAXES 18 18 48 43
254 219 495 481
NET OPERATING INCOME 40 41 98 93
OTHER INCOME (DEDUCTIONS)
MISCELLANEOUS 2 1 6 3
INCOME TAXES - - 2 1
2 1 8 4
INTEREST CHARGES
INTEREST ON LONG-TERM DEBT 15 16 32 33
AND OTHER
INTEREST ON SHORT-TERM
BORROWINGS 2 2 4 3
ALLOWANCE FOR BORROWED FUNDS
USED DURING CONSTRUCTION (1) - (1) -
16 18 35 36
NET INCOME 26 24 71 61
PREFERRED DIVIDEND REQUIREMENT 1 - 2 1
INCOME AVAILABLE FOR COMMON $ 25 $ 24 $ 69 $ 60
STOCK
Consolidated Statement Of Retained Earnings
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
(MILLIONS OF DOLLARS)
BALANCE AT
BEGINNING OF PERIOD $ 380 $ 306 $ 356 $ 270
NET INCOME 26 24 71 61
406 330 427 331
DIVIDENDS DECLARED
COMMON STOCK 20 16 40 16
PREFERRED STOCK 1 - 2 1
21 16 42 17
BALANCE AT END
OF PERIOD $ 385 $ 314 $ 385 $ 314
HE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited)
JUNE 30, DECEMBER 31,
1999 1998
(MILLIONS OF DOLLARS)
ASSETS
ELECTRIC UTILITY PLANT -
ORIGINAL COST
Utility plant (includes Construction
Work in Progress of $34 and $35) $ 3,233 $ 3,182
Accumulated depreciation and
amortization (1,426) (1,363)
1,807 1,819
OTHER PROPERTY AND
INVESTMENTS
Contract termination receivable 91 95
Receivable from parent 93 97
Nuclear decommissioning trust, at
market value 59 72
Corporate owned life insurance,
less loans of $0 and $30 96 63
Miscellaneous 15 15
354 342
CURRENT ASSETS
Cash and cash equivalents 5 4
Accounts and notes receivable 112 135
Unbilled and accrued revenues 36 45
Inventories, at average cost 34 28
Prepayments and other 34 31
221 243
DEFERRED CHARGES
Unamortized regulatory assets 707 731
Miscellaneous 28 27
735 758
$ 3,117 $ 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 385 356
Cumulative preferred stock
Subject to mandatory redemption 30 30
Long-term obligations 974 951
2,029 1,977
CURRENT LIABILITIES
Accounts payable and other accruals 123 145
Accrued interest 10 11
Dividends payable 1 1
Accrued taxes 12 35
146 192
OTHER
Deferred income taxes 349 351
Deferred investment tax credits 37 39
Trojan decommissioning
and transition costs 251 274
Unamortized regulatory liabilities 218 237
Miscellaneous 87 92
942 993
$ 3,117 $ 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)
SIX MONTHS
ENDED
JUNE 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 $ 71 $ 61
Non-cash items included in net income:
Depreciation and amortization 79 74
Deferred income taxes (4) -
Changes in working capital:
Decrease in receivables 32 30
Decrease in payables (46) (82)
Other working capital items - net (9) (8)
Other - net (9) 13
NET CASH PROVIDED BY OPERATING ACTIVITIES 114 88
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (60) (68)
Other - net (4) (4)
NET CASH USED IN INVESTING ACTIVITIES (64) (72)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (27) (164)
Issuance of long-term debt 52 176
Dividends paid (41) (18)
Repayment of loans on corporate owned life insurance (32) -
Other (1) -
NET CASH USED IN FINANCING ACTIVITIES (49) (6)
INCREASE IN CASH AND CASH EQUIVALENTS 1 10
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4 3
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5 $ 13
Supplemental disclosures of cash flow information
Cash paid during the period:
Interest, net of amounts capitalized $ 29 $ 33
Income taxes 77 78
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 is
underway to gather signatures to place on the November 2000 ballot a
referendum to negate the new legislation. By law, the petitioners would
have to obtain 44,424 valid signatures within 90 days of the Legislature's
July 24, 1999, adjournment to place the matter on the November 2000
statewide ballot. In its July 2, 1999 filing, the Company also requested
the Oregon Supreme Court to reverse its decision to review the Utility
Reform Project's challenge of the OPUC's determination that PGE should be
allowed to recover its investment in Trojan.
At June 30, 1999, PGE's after-tax Trojan plant investment was $161 million.
PGE is presently collecting annual revenues of approximately $21 million,
which represent 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 these matters 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.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following review of 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 JUNE 30
PGE earned $26 million during the second quarter of 1999 compared to
earnings of $24 million in 1998. The increase was primarily due to
continued growth in PGE's retail customer base accompanied by higher
margins on both retail and wholesale energy sales.
Revenues increased $34 million compared to the second quarter of 1998, with
significant increases in both retail and wholesale energy sales. Retail
revenues increased $14 million, or 7%, on energy sales that increased 10%;
the number of retail customers increased by approximately 18,000 during the
last year. Wholesale revenues increased $20 million, or 51%, due to
trading activity that increased 28% and average prices that increased 18%.
MEGAWATT-HOURS SOLD (THOUSANDS)
1999 1998
Retail 4,447 4,027
Wholesale 3,053 2,382
Purchased power and fuel increased 33% due to both the increased load and
higher power prices. Power costs averaged 15.5 mills as both firm and spot
market prices increased compared to 1998 and significantly higher gas
prices resulted in an increased average cost of company generation. Power
purchases averaged 17.1 mills, up 21% from 1998, while company generation
averaged 8.7 mills, up 32% from 1998.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MEGAWATT/VARIABLE POWER COSTS
Megawatt-Hours Average Variable
(thousands) Power Cost (Mills/kWh)
1999 1998 1999 1998
Generation 2,202 1,880 8.7 6.6
Firm Purchases 4,776 4,347 16.8 14.3
Spot Purchases 836 482 18.5 12.4
Total Send-Out 7,813 6,709 15.5* 13.2*
(*includes wheeling costs)
Operating expenses (excluding variable power and depreciation) were
comparable to last year's second quarter.
Depreciation and amortization increased $3 million, or 8%, due to both
normal capital additions and to higher amortization of regulatory assets.
1999 COMPARED TO 1998 FOR THE SIX MONTHS ENDED JUNE 30
PGE earned $71 million during the six months ended June 30, 1999, compared
to earnings of $61 million in 1998. The increase was due primarily to
continued growth in PGE's retail customer base accompanied by a higher
margin on retail energy sales.
Revenues increased $19 million compared to the first half of 1998; with
significantly higher retail revenues partially offset by lower wholesale
revenues. Retail revenues increased $38 million, or 9%, from last year, on
11% higher energy sales resulting primarily from an approximate 18,000
increase in customers served. Wholesale revenues decreased $19 million, or
18%, due to a 26% decrease in trading activity; this was partially offset
by average wholesale prices that increased 12%.
MEGAWATT-HOURS SOLD (THOUSANDS)
1999 1998
Retail 9,625 8,648
Wholesale 4,391 5,957
Purchased power and fuel increased 3% due to increased power prices. Power
costs averaged 15.2 mills, 9% higher than in 1998, with the average cost of
both purchased power and company generation higher than in the first half
of last year. Higher coal and gas production costs were
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
only slightly
offset by the effect of increased hydro generation. As purchase power
prices increased, PGE increased its generation to 32% of total load from
29% in the first half of 1998.
MEGAWATT/VARIABLE POWER COSTS
Megawatt-Hours Average Variable
(thousands) Power Cost (Mills/kWh)
1999 1998 1999 1998
Generation 4,605 4,423 8.4 6.8
Firm Purchases 7,981 9,996 16.8 15.4
Spot Purchases 2,033 858 16.4 13.2
Total Send-Out 14,618 15,277 15.2* 13.9*
(*includes wheeling costs)
Operating expenses (excluding purchased power and fuel, depreciation, and
income taxes) decreased $2 million, or 2%. 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 an
increase in city franchise fees related to higher retail revenues.
Depreciation and amortization expense increased $5 million, or 7%, due to
both normal capital additions and higher amortization of regulatory assets.
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 $114 million in the first
half of 1999, compared to $88 million in the same period last year. The
increase is due primarily to decreased payments for power purchases and
federal income taxes and to greater margins on increased retail energy
sales.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 $60
million through June 30, 1999 were primarily for the expansion and
improvement of PGE's distribution system to support both new and existing
customers within PGE's service territory. In early August, 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 half of 1999, commercial paper borrowings
increased $52 million, of which $32 million was utilized to repay policy
loans on corporate owned life insurance. The Company paid common stock
dividends of $40 million to its parent and $1 million in preferred stock
dividends during the first half 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 short-term debt, 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. 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 Investor Services
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.
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 June 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 OPERATIONS
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,
low income electric bill assistance is provided through proportionate
collections by affected utilities.
Also included in the new law is a requirement that investor-owned utilities
separate 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 OPERATIONS
PGE will continue to evaluate the effects of the new law, assess its impact
on the operations of the Company, and work closely with the OPUC 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 2.5% for the three months
ended June 30, 1999, compared to the same period last year. PGE forecasts
retail energy sales growth of approximately 3% in 1999. Commercial sales
growth remains strong at 4.2% 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
2Q99 2554 338
1Q99 3860 473
4Q98 5244 646
3Q98 3822 671
2Q98 4710 603
1Q98 2762 670
4Q97 3698 12
3Q97 3529 388
2Q97 4693 537
1Q97 3953 509
4Q96 5151 877
3Q96 3021 594
2Q96 3664 76
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 $5 million for 1999.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
POWER SUPPLY
Hydro conditions in the region are significantly above normal this year.
Current projections forecast the January-to-July runoff at 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
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 includes a $23.2 million (2.3%)
retail rate reduction, to become effective upon approval and sale.
Further approval by the Federal Energy Regulatory Commission (FERC) is
required for the sale of associated transmission facilities. It is not
anticipated that the sale will have an adverse effect on the financial
condition or results of operations of the Company.
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. The sale, which is subject to regulatory approval, is not
expected to have a material 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 OPERATIONS
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
conjunction with the agreement, a new unregulated company has been formed
to provide utility distribution services within West Oregon's service
territory. The sale is not expected to have a material effect on the
financial condition or results of operations of the Company.
In July 1999, petitions were submitted by voters within the four cities in
Columbia County to annex these cities to the Columbia River People's Utility
District (CRPUD), with an election to be held in September. A similar
petition was submitted by voters in one of these four cities to annex to the
Clatskanie People's Utility District; that election is to be held in September
also. If one or more of these annexations are approved, the utility district
could attempt to block the sale of the Company's distribution systerm to
West Oregon.
WHOLESALE MARKETING
Wholesale sales have declined from 1997 and 1998 levels consistent with
PGE's movement away from term trading to trading primarily for the purpose
of balancing its supply of power to meet the needs of its retail customers,
managing risk, and administering its long-term wholesale contracts.
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.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 is
underway to gather signatures to place on the November 2000 ballot a
referendum to negate the new legislation. By law, the petitioners would
have to obtain 44,424 valid signatures within 90 days of the Legislature's
July 24, 1999, adjournment to place the matter on the November 2000
statewide ballot. In its July 2, 1999 filing, the Company also requested
the Oregon Supreme Court to reverse its decision to review the Utility
Reform Project's challenge of the OPUC's determination that PGE should be
allowed to recover its investment in Trojan.
For further information, see Part II, Other Information, Item 1. - Legal
Proceedings.
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.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 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 will attempt reasonably to
coordinate with these Outside Entities in an ongoing effort to obtain
assurance that the Outside Systems that are mission-critical to PGE will be
Year 2000 compatible well before January 1, 2000. Consequently, PGE will
work prudently with Outside Entities in a reasonable attempt to inventory,
assess, analyze, convert (where necessary), test, and develop contingency
plans for PGE's connections to these mission-critical
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Outside Systems and
to ascertain the extent to which they are, or can be made to be, Year 2000
ready and compatible with PGE's mission-critical systems.
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 August 6, 1999, PGE believes that its mission-critical internal
systems (including embedded chips) are ready, with two exceptions, for date
changes associated with the Year 2000; this was reported to the North
American Electric Reliability Council on June 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. PGE will continue closely to monitor work
under the Plan and to revise estimated completion dates for the initial
iteration of each listed process. Because PGE's Year 2000 Plan treats Year
2000 effort as an iterative process, PGE will commence 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.
YEAR 2000 READINESS PLAN
MISSION-CRITICAL MISSION-CRITICAL
INTERNAL ITEMS OUTSIDE ENTITIES
STATUS COMPLETION STATUS COMPLETION
DATE 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 In Process August 1999 Complete August 1999
Y2K-Ready In Process September 1999 Complete August 1999
Contingency Plan In Process November 1999 Complete August 1999
* The completion dates for Mission-Critical Outside Entities convey the date
when PGE will have evaluated the process of Outside Entities with respect
to their Conversion, Testing, Y2K-Ready, and Contingency Plan efforts.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Two systems, identified as mission-critical, have not yet been completed.
These are the Energy Management System, used by PGE's load dispatchers to
monitor and control the Company's power system, and the Interactive Voice
Response System, which helps route customer calls and provides automated
services to callers. Enhancement of the current back-up Energy Management
System and related production system, which could be used in the event the
Company's main control center experiences problems, is scheduled for
completion by August 31, 1999. The current Interactive Voice Response
System, a new and enhanced system that will include high-volume call
answering, is scheduled for completion by September 30, 1999.
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 one-half 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.
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.
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.
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.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
POTENTIAL SHORTCOMING. PGE estimates that its mission-critical systems
will be Year 2000-ready substantially before January 1, 2000. However,
there is no assurance that the Plan will succeed 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. PGE is taking reasonable steps to identify, assess, and
where appropriate, replace devices that contain embedded chips. Despite
these reasonable efforts, 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.
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 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.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PGE's contingency plans will 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 will 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 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
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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; 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; and the
unavailability of certain necessary internal or external resources,
including but not limited to trained hardware and software engineers,
technicians and other personnel to perform adequate remediation,
verification and testing of PGE systems or Outside Systems. 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.
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
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 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 quantified the
impacts of adopting SFAS No. 133 on its financial statements and has not
determined the method of its adoption of SFAS No. 133 nor the effect on the
accounting for its hedging activities or physical contracts.
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.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 is
underway to gather signatures to place on the November 2000 ballot a
referendum to negate the new legislation. By law, the petitioners would
have to obtain 44,424 valid signatures within 90 days of the Legislature's
July 24, 1999, adjournment to place the matter on the November 2000
statewide ballot. In its July 2, 1999 filing, the Company also requested
the Oregon Supreme Court to reverse its decision to review the Utility
Reform Project's challenge of the OPUC's determination that PGE should be
allowed to recover its investment in Trojan.
LLOYD K. MARBET AND LAURENCE TUTTLE V OREGON WATER RESOURCES DEPT. AND
OREGON PUC On June 4, 1999, the plaintiffs voluntarily dismissed their
complaint with respect to the two agencies of the State of Oregon, and on
June 7, 1999, the plaintiffs voluntarily dismissed their complaint with
respect to PGE.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
OTHER INFORMATION
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)
By: /s/ Mary K. Turina
Date August 12, 1999 Mary K. Turina
Vice President
Treasurer, Controller and
Chief Accounting Officer
(Principal financial officer and
principal accounting officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.UT 0000784977 PORTLAND GENERAL ELECTRIC COMPANY 1,000,000 6-MOS DEC-31-1999 JUN-30-1999 PER-BOOK 1,807,000,000 354,000,000 221,000,000 735,000,000 0 3,117,000,000 160,000,000 480,000,000 385,000,000 1,025,000,000 30,000,000 0 817,000,000 0 0 157,000,000 0 0 0 0 1,088,000,000 3,117,000,000 593,000,000 48,000,000 447,000,000 495,000,000 98,000,000 8,000,000 106,000,000 35,000,000 71,000,000 2,000,000 69,000,000 40,000,000 28,000,000 114,000,000 0 0