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, 1996 <TABLE> <CAPTION> <S> <C> <C> Registrant; State of Incorporation; IRS Employer COMMISSION FILE NUMBER ADDRESS; AND TELEPHONE NUMBER IDENTIFICATION NO. 1-5532 PORTLAND GENERAL CORPORATION 93-0909442 (an Oregon Corporation) 121 SW Salmon Street Portland, Oregon 97204 (503) 464-8820 1-5532-99 PORTLAND GENERAL ELECTRIC COMPANY 93-0256820 (an Oregon Corporation) 121 SW Salmon Street Portland, Oregon 97204 (503) 464-8000 </TABLE> Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X . No . The number of shares outstanding of the registrants' common stocks as of April 30, 1996 are: Portland General Corporation 51,103,657 Portland General Electric Company 42,758,877 (owned by Portland General Corporation) 1
INDEX PAGE NUMBER PART I. PORTLAND GENERAL CORPORATION AND SUBSIDIARIES FINANCIAL INFORMATION Management's Discussion and Analysis of Financial Condition and Results of Operations 3 Consolidated Statements of Income 10 Consolidated Statements of Retained Earnings 10 Consolidated Balance Sheets 11 Consolidated Statements of Cash Flow 12 Notes to Consolidated Financial Statements 13 Portland General Electric Company and Subsidiaries Financial Information 16 PART II. OTHER INFORMATION Item 1 - Legal Proceedings 19 Item 6 - Exhibits and Reports on Form 8-K 20 Signature Page 21 2
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Portland General Electric Company (PGE or the Company), an electric utility company and the principal operating subsidiary of Portland General Corporation (Portland General or PGC), accounts for substantially all of Portland General's assets, revenues and net income. The following discussion focuses on utility operations, unless otherwise noted. 1996 COMPARED TO 1995 FOR THE THREE MONTHS ENDED MARCH 31 Portland General earned $49 million or $0.97 per share for the first quarter of 1996 compared to a loss of $2 million or $0.04 per share in 1995. 1995 earnings include a one time $37 million after tax charge to income relating to the writeoff of 13% of PGE's investment in the Trojan Nuclear Plant (Trojan). Excluding the Trojan loss, 1995 earnings would have been $35 million or $0.69 per share. Improved 1996 operating earnings include the effects of very favorable hydro conditions, cooler temperatures and continued retail load growth. Retail revenues increased by $22 million, or 9%, for the period, due to both higher rates and a 4% overall increase in energy sales. The Company's April 1995 general rate increase and subsequent rate adjustment for Coyote Springs in November 1995 resulted in approximately $13 million of additional revenue. Energy sales increased 180,421 megawatt-hours (MWh), primarily due to cooler weather resulting in approximately $9 million of additional revenue. Average temperatures in January and February were significantly cooler than in 1995. PGE set record peak- loads during the first week of February as temperatures dropped below freezing. Weather adjusted sales were up only 1%. The continued strong growth in the high tech sector was offset by a decrease in overall industrial sales, primarily due to production cutbacks by paper manufacturing. Nevertheless, commercial and residential sales were strong with the addition of over 4,170 retail customers during the quarter. On average PGE served over 15,400 more retail customers than in 1995. Wholesale revenues increased $17 million or 82% from 1995 despite a 49% decrease in average sale prices. Aggressive marketing of abundant hydro generated power combined with a higher demand for power increased sales to 3 1/2 times last year's levels. Purchased power and fuel expense decreased $5.4 million despite a 33% increase in total system load as the average cost of power decreased from 17.9 to 12.9 mills (10 mills = 1 cent). Record rainfall resulted in excellent hydro conditions which contributed to significant supplies of low cost secondary energy in the region and kept thermal plants idle. PGE hydro generation increased 15%, or 109,900 MWh, reflecting good water conditions on the Clackamas River system. PGE thermal generation decreased 1,103,500 MWh and accounted for only 5% of total Company energy requirements compared to 27% last year. 3
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Energy purchases were up 88% due to thermal displacement and increased load while abundant supplies of energy drove wholesale prices below 1995 levels. Firm purchases averaged 14.6 mills compared to 26.3 mills last year due to favorable hydro conditions on the mid-Columbia. Spot market purchases averaged 9.3 mills compared to an average 11.9 mills in 1994. <TABLE> <CAPTION> RESOURCE MIX/VARIABLE POWER COSTS <S> <C> <C> <C> <C> <C> Average Variable Resource Mix Power Cost (Mills/KWh) 1996 1995 1996 1995 Generation 17% 40% 4.4 7.9 Firm Purchases 67 44 14.6 26.3 Spot Purchases 16 16 9.3 11.9 Total Resources 100% 100% Average 12.9 17.9 </TABLE> PGE does not have a fuel adjustment clause as part of its retail rate structure; therefore, changes in fuel and purchased power expenses are reflected currently in earnings. Operating expenses (excluding variable power, depreciation and income taxes) were nearly $14 million higher than last year. The increase included approximately $5 million in storm and flood related expenditures and maintenance of the distribution system deferred from last year, $4 million in incremental firm natural gas transportation capacity to support Coyote Springs operations and additional firm capacity at Beaver as well as increased marketing and support costs to serve PGE's growing base of retail customers. Depreciation increased $6 million, or 19%, largely due to new depreciation rates and Coyote Springs being placed in service. Income taxes increased $10 million primarily due to an increase in before tax operating income. Preferred stock dividends decreased due to less preferred stock outstanding. During 1995 PGE redeemed nearly $80 million of preferred stock. Allowance for Funds Used During Construction has dropped to levels which reflect no further significant investment in new generating resources. In addition, the 1995 period included approximately $3 million in accrued interest income on regulatory assets primarily related to the Company's outstanding power cost deferrals. Due to seasonal fluctuations in electricity sales, as well as the price of wholesale energy and fuel costs, quarterly operating earnings are not necessarily indicative of results to be expected for calendar year 1996. 4
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CASH FLOW PORTLAND GENERAL CORPORATION Portland General requires cash to pay dividends to its common stockholders, to provide funds to its subsidiaries, to meet debt service obligations and for day to day operations. Sources of cash are dividends from PGE, leasing rentals, short- and intermediate-term borrowings and the sale of its common stock. In February 1996, the Board of Directors approved an increase in PGC's quarterly dividend from $.30 to $.32 per share. This is the first change to Portland General's dividend since April 1990. Portland General received $13.7 million in dividends from PGE during the first quarter of 1996 and $1.4 million in proceeds from the exercise of stock options and purchases under the Employee Stock Purchase Plan. Beginning in November 1995 PGC began open market purchases of common stock for its Dividend Reinvestment and Optional Cash Payment Plan. PORTLAND GENERAL ELECTRIC COMPANY CASH PROVIDED BY OPERATIONS is used to meet the day-to-day cash requirements of PGE. Supplemental cash is obtained from external borrowings as needed. A significant portion of cash from operations comes from depreciation and amortization of utility plant, charges which are recovered in customer revenues but require no current cash outlay. Changes in accounts receivable and accounts payable can also be significant contributors or users of cash. Improved cash flow for the current year reflects a higher percentage of cash revenues combined with lower variable power costs. INVESTING ACTIVITIES include improvements to generation, transmission and distribution facilities and continued investment in energy efficiency programs. Capital expenditures for 1996 of approximately $170 million are expected to be fully funded by operating cash flows. Through March 31, 1996 nearly $33 million has been expended for capital projects, primarily improvements to the Company's distribution system to support the addition of new customers to PGE's service territory. PGE funds an external trust for Trojan decommissioning costs. The April 1995 general rate order authorized PGE to increase its collections from customers and its corresponding contribution to the trust from $11 million to $14 million annually. The trust invests in investment-grade tax-exempt and U.S. Treasury bonds. The Company makes regular withdrawals from the trust for reimbursement of decommissioning expenditures. 5
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCING ACTIVITIES - In January 1996 the Company called $47.6 million of the 7 3/4% and the 7.95% First Mortgage Bonds due in 2002 and 2003 respectively. In addition, in March 1996 PGE retired a $35 million variable rate note which the Company had issued to a commercial bank in January 1996. The note was not due to mature until January 1997. On April 15, 1996 PGE redeemed the 200,000 outstanding shares of its 8.10% preferred stock, at par. The $20 million redemption leaves only the Company's 7.75% preferred stock outstanding which has sinking fund requirements beginning in 2002. In March 1996 both Standard & Poor's Investor Services (S&P) and Moody's Investor Services (Moody's) upgraded PGE's debt ratings. S&P upgraded PGE's senior secured debt from A- to A, its unsecured debt from BBB+ to A-, and commercial paper from A2 to A1 with a Stable Outlook. Similarly Moody's upgraded the Company's debt ratings, raising PGE's secured debt from A3 to A2, unsecured debt from Baa1 to A3 and commercial paper from P2 to P1. The improved ratings, especially on short-term debt, should help lower the Company's future borrowing costs. The issuance of additional preferred stock and First Mortgage Bonds requires PGE to meet earnings coverage and security provisions set forth in the Articles of Incorporation and Indenture securing its First Mortgage Bonds. As of March 31, 1996, PGE has the capability to issue up to approximately $800 million of preferred stock and $500 million of additional First Mortgage Bonds. FINANCIAL AND OPERATING OUTLOOK UTILITY COMPETITION The Energy Policy Act of 1992 (Energy Act) set the stage for change in federal and state regulations aimed at increasing both wholesale and retail competition in the electric industry. The Energy Act eased restrictions on independent power production and granted authority to the Federal Energy Regulatory Commission (FERC) to mandate open access for the wholesale transmission of electricity. FERC has taken steps to provide a framework for increased competition in the electric industry. On April 24, 1996 FERC issued final rules requiring non-discriminatory open access transmission by all public utilities that own interstate transmission. The final rule requires utilities to file tariffs that offer others the same transmission services they provide themselves under comparable terms and conditions. This rule allows public utilities to recover stranded costs resulting from investment made to provide services to wholesale customers. The new ruling requires reciprocity from municipals, cooperatives and federal power marketers receiving service under the new tariff. The new rules will go into effect mid-year 1996 and are expected to result in increased competition, lower prices and more choices to wholesale energy customers. 6
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The FERC action applies only to the wholesale transmission of electricity and does not proscribe terms and conditions of retail transmission service which is subject to individual state regulation. Since the passage of the Energy Act, various state utility commissions have addressed proposals which would gradually allow retail customers direct access to generation suppliers, marketers, brokers and other service providers in a competitive marketplace for energy services. Although presently operating in a cost-based regulated environment, PGE expects increasing competition from other forms of energy and other suppliers of electricity. While the Company is unable to determine the future impact of increased competition, it believes that ultimately it will result in reduced retail as well as wholesale prices. RETAIL CUSTOMER GROWTH AND ENERGY SALES During the first quarter of 1996, over 4,170 retail customers were added to PGE's service territory. Weather adjusted retail energy sales growth for the three months ended March 31, 1996 was approximately 1.0%. Commercial and residential weather adjusted sales increased 2.2% and 2.1% respectively. High- tech and transportation industrial sales were strong; however, production cutbacks by paper manufacturing caused total industrial sales to be off approximately 3.8% for the quarter. The Company expects annual 1996 retail energy sales growth to be approximately 4.6%. WHOLESALE MARKETING The current surplus of electric generating capability in the Western U.S., the entrance of numerous wholesale marketers and brokers into the market, and open access transmission will contribute to increasing pressure on the price of power. In addition the development of financial markets and the NYMEX futures trading (discussed below) have led to increased information available to market participants, further adding to the competitive pressure on wholesale prices. Despite increasing competition, Company wholesale revenues continue to make a growing contribution providing nearly 13% of total operating revenues and increasing almost 82% compared to first quarter of 1995. The growth in wholesale sales is attributed to PGE's aggressive sales efforts as part of the Company's plan to expand its existing marketing capabilities and activities throughout the Western U.S. 7
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS POWER SUPPLY Current projections forecast the annual runoff of the Columbia River at the Dalles to be 20 percent above normal, assuming normal precipitation for the rest of the season. Precipitation during the 1995-96 winter season has been 128 percent of normal. Not since the early 1980's has the region had more favorable hydro conditions. Current water conditions should result in continued high levels of hydro generation during the January - July run-off season as well as provide ample water supplies to refill reservoirs for the remainder of the year. As a result of the availability of low-cost hydro generation, thermal plants operated by PGE are currently in economic shutdown. Given current forecasts prove accurate it is likely that hydro generation will continue to be a major factor in the availability of low-cost secondary power and the economic dispatch of higher cost thermal generation. COMMODITY PRICE RISK MANAGEMENT The Company is exposed to market risk arising from the need to purchase fuel for its generating units (both natural gas and coal) as well as the direct purchase and sale of wholesale electricity in support of its retail and wholesale markets. The Company uses financial instruments, such as commodity futures, options, forwards and swaps, to hedge the price of natural gas and electricity and reduce the Company's exposure to market fluctuations in the price of natural gas and electricity as well as for trading purposes. Hedging transactions consist primarily of fixed for floating swap agreements and the use of electric futures contracts. In 1996 the Company began active trading of financial instruments. Trading activities include the use of electric and natural gas swap agreements, the sale of electric and natural gas options, and participation in the recent sale and trading of electric futures contracts. PGE's total market risk is evaluated on an on-going basis and monitored against risk limits approved by PGE's Board of Directors. ELECTRIC FUTURES TRADING - The Company has been an active participant in the electric futures market since the contracts began trading on the New York Mercantile Exchange (NYMEX) on March 29, 1996. The futures contracts allow for delivery of 736 MWh of electricity at the California-Oregon Border or at Palo-Verde. REGULATORY MATTERS APPLICATION FOR RECONSIDERATION DENIED - On March 4, 1996 the Public Utility Commission of Oregon (OPUC or the Commission) denied the Citizens' Utility Board's (CUB) application for reconsideration of a November 1995 order allowing PGE to recover the capital and fixed costs associated with Coyote Springs. CUB's appeal requested review of the adequacy of natural gas forecasts in light of recent reductions 8
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS in the price of natural gas. In denying the application the Commission found that this issue was adequately addressed in the November order. However, the Commission stated their recognition of the importance of the issue raised by CUB and the eventual need for such reductions, if they continue, to benefit customers. PGE has agreed to work with OPUC staff and other interested parties to develop a plan for dealing with the issue in 1997. For further information on the November 1995 Coyote Springs order or the Company's March 1995 general rate order see Portland General's and PGE's reports on Form 10-K for the year ended December 31, 1995. TROJAN INVESTMENT RECOVERY - On April 4, 1996 a circuit court judge in Marion County, Oregon contradicted a November 1994 ruling from the same court, finding that the OPUC could not authorize PGE to collect a return on its undepreciated investment in Trojan currently in PGE's rate base. The ruling was the result of an appeal of PGE's 1995 general rate order which granted PGE recovery of, and a return on, 87% of its remaining investment in Trojan. The November 1994 ruling, by a different judge of the same court, upheld the Commission's 1993 Declaratory Ruling (DR- 10). In DR-10 the OPUC ruled that PGE could recover and earn a return on its undepreciated Trojan investment, provided certain conditions were met. The Commission relied on a 1992 Oregon Department of Justice opinion issued by the Attorney General's office stating that the Commission had the authority to set prices including recovery of and on investment in plant that is no longer in service. The 1994 ruling was appealed to the Oregon Court of Appeals and stayed pending the appeal of the Commission's March 1995 order. PGE has appealed the April 1996 ruling which will likely be combined with the appeal of the November 1994 ruling at the Oregon Court of Appeals. For further information regarding the legal challenges to the OPUC's authority to grant recovery of PGE's Trojan investment see Item 3, Legal proceedings, of Portland General's and PGE's Forms 10-K for the year ended December 31, 1995. TROJAN DECOMMISSIONING - In early 1996 both the Nuclear Regulatory Commission (NRC) and the Oregon Energy Facility Siting Council (EFSC) approved the Trojan Decommissioning Plan. Approval of the plan by these regulatory agencies will allow PGE to commence decommissioning activities, the majority of which will occur between 1997 and 2001. LITIGATION SETTLEMENT REACHED WESTINGHOUSE - PGE and Westinghouse Electric Corporation have reached a settlement in PGE's lawsuit which was filed in 1993 against Westinghouse regarding steam generators supplied by Westinghouse to Trojan. Terms of the settlement are confidential. The Company does not expect the settlement to have a material effect on the PGE's results of operations, cash flows or financial condition for any future reporting period. 9
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited) <TABLE> <CAPTION> Three Months Ended <S> <C> <C> March 31 1996 1995 (Thousands of Dollars) OPERATING REVENUES $ 300,581 $ 259,177 OPERATING EXPENSES Purchased power and fuel 82,297 87,696 Production and distribution 21,952 15,153 Maintenance and repairs 13,249 9,933 Administrative and other 27,685 25,140 Depreciation and amortization 37,533 31,458 Taxes other than income taxes 14,893 13,757 197,609 183,137 OPERATING INCOME BEFORE INCOME TAXES 102,972 76,040 INCOME TAXES 36,228 26,487 NET OPERATING INCOME 66,744 49,553 OTHER INCOME (DEDUCTIONS) Regulatory disallowance - net of income taxes of $25,542 - (36,708) Interest expense (19,768) (19,195) Allowance for funds used during construction 242 2,148 Preferred dividend requirement - PGE (986) (2,583) Other - net of income taxes 3,130 4,831 NET INCOME/(LOSS) $ 49,362 $ (1,954) COMMON STOCK Average shares outstanding 51,063,105 50,591,449 Earnings/(Loss) per average share $0.97 ($0.04) Dividends declared per share $0.32 $0.30 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited) Three Months Ended March 31 1996 1995 (Thousands of Dollars) BALANCE AT BEGINNING OF PERIOD $ 135,885 $ 118,676 NET INCOME/(LOSS) 49,362 (1,954) ESOP TAX BENEFIT AND OTHER (530) (474) 184,717 116,248 DIVIDENDS DECLARED ON COMMON 16,352 15,185 STOCK BALANCE AT END OF PERIOD $ 168,365 $ 101,063 The accompanying notes are an integral part of these consolidated statements. </TABLE> 10
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1996 AND DECEMBER 31, 1995 (Unaudited) <TABLE> <CAPTION> (Unaudited) <S> <C> <C> March 31 December 31 1996 1995 (Thousands of Dollars) ASSETS ELECTRIC UTILITY PLANT - ORIGINAL COST Utility plant (includes Construction Work in Progress of $43,483 and $33,382) $ 2,785,437 $ 2,754,280 Accumulated depreciation (1,066,333) (1,040,014) 1,719,104 1,714,266 Capital leases - less amortization of $28,508 and $27,966 8,810 9,353 1,727,914 1,723,619 OTHER PROPERTY AND INVESTMENTS Leveraged leases 152,417 152,666 Trojan decommissioning trust, at market value 71,204 68,774 Corporate owned life insurance, less loans of $27,763 and $26,432 74,093 74,574 Other investments 35,267 28,603 332,981 324,617 CURRENT ASSETS Cash and cash equivalents 11,342 11,919 Accounts and notes receivable 110,231 104,815 Unbilled and accrued revenues 58,202 64,516 Inventories, at average cost 38,859 38,338 Prepayments and other 25,491 16,953 244,125 236,541 DEFERRED CHARGES Unamortized regulatory assets Trojan investment 295,577 301,023 Trojan decommissioning 306,768 311,403 Income taxes recoverable 213,842 217,366 Debt reacquisition costs 29,929 29,576 Energy efficiency programs 79,074 77,945 Other 27,126 27,611 WNP-3 settlement exchange agreement 167,103 168,399 Miscellaneous 29,461 29,917 1,148,880 1,163,240 $ 3,453,900 $ 3,448,017 CAPITALIZATION AND LIABILITIES CAPITALIZATION Common stock equity Common stock, $3.75 par value per share, 100,000,000 shares authorized, 51,100,857 and 51,013,549 shares outstanding $ 191,628 $ 191,301 Other paid-in capital - net 576,104 574,468 Unearned compensation (7,291) (8,506) Retained earnings 168,365 135,885 928,806 893,148 Cumulative preferred stock of subsidiary Subject to mandatory redemption 30,000 40,000 Long-term debt 865,962 890,556 1,824,768 1,823,704 CURRENT LIABILITIES Long-term debt and preferred stock due within one year 91,554 105,114 Short-term borrowings 172,399 170,248 Accounts payable and other accruals 110,148 133,405 Accrued interest 17,903 16,247 Dividends payable 17,717 16,668 Accrued taxes 64,001 15,151 473,722 456,833 OTHER Deferred income taxes 645,904 652,846 Deferred investment tax credits 49,898 51,211 Trojan decommissioning and transition obligation 376,870 379,179 Miscellaneous 82,738 84,244 1,155,410 1,167,480 $ 3,453,900 $ 3,448,017 The accompanying notes are an integral part of these consolidated balance sheets. </TABLE> 11
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED) <TABLE> <CAPTION> Three Months Ended March 31 <S> <C> <C> 1996 1995 (Thousands of Dollars) CASH PROVIDED (USED) BY - OPERATIONS: Net income $ 49,362 $ (1,954) Adjustment to reconcile net income to net cash provided by operations: Depreciation and amortization 29,113 23,806 Amortization of WNP-3 exchange agreement 1,296 1,228 Amortization of Trojan investment 5,825 6,463 Amortization of Trojan decommissioning 3,510 2,805 Amortization of deferred items - other (1,473) (1,011) Deferred income taxes - net (4,772) (3,732) Other noncash revenues (383) (403) Regulatory disallowance - 36,708 Changes in working capital: (Increase) Decrease in receivables 404 4,887 (Increase) Decrease in inventories (521) (6,645) Increase (Decrease) in payables 26,896 24,666 Other working capital items - net (8,538) (11,050) Trojan decommissioning expenditures (530) (1,374) Deferred items - other (2,083) 1,504 Miscellaneous - net 4,704 2,813 102,810 78,711 INVESTING ACTIVITIES: Utility construction - new resources (11) (15,959) Utility construction - other (33,274) (28,434) Energy efficiency programs (2,711) (3,902) Rentals received from leveraged leases 5,576 4,423 Nuclear decommissioning trust deposits (4,439) (2,805) Nuclear decommissioning trust withdrawals 1,356 4,938 Other (7,008) 5,216 (40,511) (36,523) FINANCING ACTIVITIES: Short-term borrowings - net 2,151 (23,627) Borrowings from Corporate Owned Life Insurance 1,312 2,589 Long-term debt issued 35,000 - Long-term debt retired (82,595) (3,045) Repayment of nonrecourse borrowings for leveraged leases (4,874) (3,871) Common stock issued 1,433 2,349 Dividends paid (15,303) (15,068) (62,876) (40,673) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (577) 1,515 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 11,919 17,542 CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 11,342 $ 19,057 Supplemental disclosures of cash flow information Cash paid during the period: Interest, net of amounts capitalized $ 16,901 $ 15,403 Income taxes - - The accompanying notes are an integral part of these consolidated statements. </TABLE> 12
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 PRINCIPLES OF INTERIM STATEMENTS The interim financial statements have been prepared by Portland General and, in the opinion of management, reflect all material adjustments which are necessary to a fair statement of results for the interim period presented. Certain information and footnote disclosures made in the last annual report on Form 10-K have been condensed or omitted for the interim statements. Certain costs are estimated for the full year and allocated to interim periods based on the estimates of operating time expired, benefit received or activity associated with the interim period. Accordingly, such costs are subject to year-end adjustment. It is Portland General's opinion that, when the interim statements are read in conjunction with the 1995 Annual Report on Form 10-K, the disclosures are adequate to make the information presented not misleading. RECLASSIFICATIONS Certain amounts in prior years have been reclassified for comparative purposes. NOTE 2 LEGAL MATTERS BONNEVILLE PACIFIC CLASS ACTION AND LAWSUIT In April 1992 legal action was filed by Bonneville Pacific against Portland General, Portland General Holdings, Inc. (Holdings), and certain individuals affiliated with Portland General and Holdings alleging breach of fiduciary duty, tortious interference, breach of contract, and other actionable wrongs related to Holdings' investment in Bonneville Pacific. Following his appointment, the Bonneville Pacific bankruptcy trustee, on behalf of Bonneville Pacific, filed numerous amendments to the complaint. The complaint now includes allegations of RICO violations and RICO conspiracy, collusive tort, civil conspiracy, common law fraud, negligent misrepresentation, breach of fiduciary duty, liability as a partner for the debts of a partnership, and other actionable wrongs. The amount of damages sought is not specified in the complaint. The Court has rejected the Trustee's previously filed damage study which is expected to be revised and refiled. OTHER LEGAL MATTERS Portland General and certain of its subsidiaries are party to various other claims, legal actions and complaints arising in the ordinary course of business. These claims are not considered material. SUMMARY While the ultimate disposition of these matters may have an impact on the results of operations for a future reporting period, management believes, based on discussion of the underlying facts and circumstances with legal counsel, that these matters will not have a material adverse effect on the financial condition of Portland General. 13
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 - TROJAN NUCLEAR PLANT INVESTMENT RECOVERY On April 4, 1996 a circuit court judge in Marion County, Oregon contradicted a November 1994 ruling from the same court, finding that the OPUC could not authorize PGE to collect a return on its undepreciated investment in Trojan currently in PGE's rate base. The ruling was the result of an appeal of PGE's 1995 general rate order which granted PGE recovery of, and a return on, 87% of its remaining investment in Trojan. The November 1994 ruling, by a different judge of the same court, upheld the Commission's 1993 Declaratory Ruling (DR- 10). In DR-10 the OPUC ruled that PGE could recover and earn a return on its undepreciated Trojan investment, provided certain conditions were met. The Commission relied on a 1992 Oregon Department of Justice opinion issued by the Attorney General's office stating that the Commission had the authority to set prices including recovery of and on investment in plant that is no longer in service. The 1994 ruling was appealed to the Oregon Court of Appeals and stayed pending the appeal of the Commission's March 1995 order. PGE has appealed the April 1996 ruling which will likely be combined with the appeal of the November 1994 ruling at the Oregon Court of Appeals. Management believes that the authorized recovery of the Trojan investment and decommissioning costs will be upheld and that these legal challenges will not have a material adverse impact on the results of operations or financial condition of the Company for any future reporting period. 14
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES FINANCIAL STATEMENTS AND RELATED INFORMATION TABLE OF CONTENTS PAGE NUMBER Management Discussion and Analysis of Financial Condition and Results of Operations* 3-10 Financial Statements 16-18 Notes to Financial Statements** 13-14 * The discussion is substantially the same as that disclosed by Portland General and, therefore, is incorporated by reference to the information on the page numbers listed above. ** The notes are substantially the same as those disclosed by Portland General and are incorporated by reference to the information on the page numbers shown above, excluding the Bonneville Pacific litigation discussion contained in Note 2 which relates solely to Portland General. 15
Portland General Electric Company and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED) <TABLE> <CAPTION> Three Months Ended <S> <C> <C> March 31 1996 1995 (Thousands of Dollars) OPERATING REVENUES $ 300,195 $ 258,891 OPERATING EXPENSES Purchased power and fuel 82,297 87,696 Production and distribution 21,952 15,153 Maintenance and repairs 13,249 9,933 Administrative and other 27,070 24,817 Depreciation and amortization 37,512 31,437 Taxes other than income taxes 14,847 13,721 Income taxes 36,452 26,746 233,379 209,503 NET OPERATING INCOME 66,816 49,388 OTHER INCOME (DEDUCTIONS) Regulatory disallowance - net of income taxes of $25,542 in 1995 - (36,708) Allowance for equity funds used during construction - 121 Other 1,748 4,690 Income taxes 323 (344) 2,071 (32,241) INTEREST CHARGES Interest on long-term debt and other 16,537 16,347 Interest on short-term borrowings 2,488 2,187 Allowance for borrowed funds used during construction (242) (2,027) 18,783 16,507 NET INCOME 50,104 640 PREFERRED DIVIDEND REQUIREMENT 986 2,583 INCOME/(LOSS) AVAILABLE FOR COMMON STOCK $ 49,118 $ (1,943) COMMON STOCK CONSOLIDATED STATEMENTS OF RETAINED EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited) Three Months Ended March 31 1996 1995 (Thousands of Dollars) BALANCE AT BEGINNING OF PERIOD $ 246,282 $ 216,468 NET INCOME 50,104 640 ESOP TAX BENEFIT AND OTHER (530) (474) 295,856 216,634 DIVIDENDS DECLARED Common stock 14,966 11,545 Preferred stock 986 2,583 15,952 14,128 BALANCE AT END OF PERIOD $ 279,904 $ 202,506 The accompanying notes are an integral part of these consolidated statements. </TABLE> 16
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1996 AND DECEMBER 31, 1995 <TABLE> <CAPTION> (Unaudited) <S> <C> <C> March 31 December 31 1996 1995 (Thousands of Dollars) ASSETS ELECTRIC UTILITY PLANT - ORIGINAL COST Utility plant (includes Construction Work in Progress of $43,483 and $33,382) $ 2,785,437 $ 2,754,280 Accumulated depreciation (1,066,333) (1,040,014) 1,719,104 1,714,266 Capital leases - less amortization of $28,508 and $27,966 8,810 9,353 1,727,914 1,723,619 OTHER PROPERTY AND INVESTMENTS Trojan decommissioning trust, at market value 71,204 68,774 Corporate owned life insurance, less loans of $27,763 and $26,432 43,853 44,635 Other investments 31,156 24,943 146,213 138,352 CURRENT ASSETS Cash and cash equivalents 9,141 2,241 Accounts and notes receivable 110,001 102,592 Unbilled and accrued revenues 58,202 64,516 Inventories, at average cost 38,859 38,338 Prepayments and other 24,356 15,619 240,559 223,306 DEFERRED CHARGES Unamortized regulatory assets Trojan investment 295,577 301,023 Trojan decommissioning 306,768 311,403 Income taxes recoverable 213,842 217,366 Debt reacquisition costs 29,929 29,576 Energy efficiency programs 79,074 77,945 Other 27,126 27,611 WNP-3 settlement exchange agreement 167,103 168,399 Miscellaneous 27,573 26,997 1,146,992 1,160,320 $ 3,261,678 $ 3,245,597 CAPITALIZATION AND LIABILITIES CAPITALIZATION Common stock equity Common stock, $3.75 par value per share, 100,000,000 shares authorized, 42,758,877 shares outstanding $ 160,346 $ 160,346 Other paid-in capital - net 468,043 466,325 Retained earnings 279,904 246,282 Cumulative preferred stock Subject to mandatory redemption 30,000 40,000 Long-term debt 865,962 890,556 1,804,255 1,803,509 CURRENT LIABILITIES Long-term debt and preferred stock due within one year 61,554 75,114 Short-term borrowings 172,399 170,248 Accounts payable and other accruals 111,526 132,064 Accrued interest 17,703 15,442 Dividends payable 16,239 14,956 Accrued taxes 66,877 12,870 446,298 420,694 OTHER Deferred income taxes 520,399 525,391 Deferred investment tax credits 49,898 51,211 Trojan decommissioning and transition costs 376,870 379,179 Miscellaneous 63,958 65,613 1,011,125 1,021,394 $ 3,261,678 $ 3,245,597 The accompanying notes are an integral part of these consolidated balance sheets. </TABLE> 17
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited) <TABLE> <CAPTION> Three Months Ended <S> <C> <C> March 31 1996 1995 (Thousands of Dollars) CASH PROVIDED (USED IN) OPERATIONS: Net Income $ 50,104 $ 640 Non-cash items included in net income: Depreciation and amortization 29,092 23,785 Amortization of WNP-3 exchange agreement 1,296 1,228 Amortization of Trojan investment 5,825 6,463 Amortization of Trojan decommissioning 3,510 2,805 Amortization of deferred items - other (1,473) (1,011) Deferred income taxes - net (2,600) (28) Other noncash revenues - (121) Regulatory disallowance - 36,708 Changes in working capital: (Increase) Decrease in receivables (1,589) 3,661 (Increase) Decrease in inventories (521) (6,645) Increase (Decrease) in payables 35,447 28,969 Other working capital items - net (8,737) (11,839) Trojan decommissioning expenditures (530) (1,374) Deferred items - other (2,083) 1,504 Miscellaneous - net 4,047 2,171 111,788 86,916 INVESTING ACTIVITIES: Utility construction - new resources (11) (15,959) Utility construction - other (33,274) (28,434) Energy efficiency programs (2,711) (3,902) Nuclear decommissioning trust deposits (4,439) (2,805) Nuclear decommissioning trust withdrawals 1,356 4,938 Other investments (7,008) (501) (46,087) (46,663) FINANCING ACTIVITIES: Short-term debt - net 2,151 (23,608) Borrowings from Corporate Owned Life Insurance 1,312 2,589 Long-term debt issued 35,000 - Long-term debt retired (82,595) (3,045) Dividends paid (14,669) (15,409) (58,801) (39,473) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,900 780 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 2,241 9,590 CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 9,141 $ 10,370 Supplemental disclosures of cash flow information Cash paid during the period: Interest, net of amounts capitalized $ 15,713 $ 14,178 Income taxes (7,437) (697) The accompanying notes are an integral part of these consolidated statements. </TABLE> 18
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS For further information, see Portland General's and PGE's reports on Form 10-K for the year ended December 31, 1995. UTILITY SOUTHERN CALIFORNIA EDISON COMPANY V. PGE, U.S. DISTRICT COURT FOR THE DISTRICT OF OREGON On March 29, 1996 PGE and SCE reached a settlement (Termination Agreement) in the complaint filed by SCE regarding a long-term power sale and exchange agreement (Power Agreement). The complaint filed in August 1994 claimed that PGE's closure of the Trojan Nuclear Plant allowed SCE to terminate the contract. The settlement will amend and ultimately terminate the long-term contract. If approved by FERC and the California Public Utility Commission the Termination Agreement will release all previous claims asserted in the legal dispute. Until termination, SCE will continue to make annual payments under the Power Agreement of $16.9 million to PGE. Upon approval of the settlement and termination of the long-term agreement, SCE's annual payments under the Termination Agreement will be $15 million through 1999 and $32 million from 2000 through 2002. CITIZENS' UTILITY BOARD OF OREGON V. PUBLIC UTILITY COMMISSION OF OREGON and UTILITY REFORM PROJECT AND COLLEEN O'NEIL V. PUBLIC UTILITY COMMISSION OF OREGON, MARION COUNTY OREGON CIRCUIT COURT On April 4, 1996 a circuit court judge in Marion County, Oregon contradicted a November 1994 ruling from the same court, finding that the OPUC could not authorize PGE to collect a return on its undepreciated investment in Trojan currently in PGE's rate base. The ruling was the result of an appeal of PGE's 1995 general rate order which granted PGE recovery of, and a return on, 87% of its remaining investment in Trojan. The November 1994 ruling, by a different judge of the same court, upheld the Commission's 1993 Declaratory Ruling (DR-10). In DR-10 the OPUC ruled that PGE could recover and earn a return on its undepreciated Trojan investment, provided certain conditions were met. The Commission relied on a 1992 Oregon Department of Justice opinion issued by the Attorney General's office stating that the Commission had the authority to set prices including recovery of and on investment in plant that is no longer in service. The 1994 ruling was appealed to the Oregon Court of Appeals and stayed pending the appeal of the Commission's March 1995 order. PGE has appealed the April 1996 ruling which will likely be combined with the appeal of the November 1994 ruling at the Oregon Court of Appeals. PORTLAND GENERAL ELECTRIC COMPANY V. WESTINGHOUSE ELECTRIC CORPORATION, U.S. DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA PGE and Westinghouse Electric Corporation have reached a settlement in PGE's 1993 lawsuit against Westinghouse regarding steam generators supplied by Westinghouse to Trojan. Terms of the settlement are confidential. 19
PORTLAND GENERAL CORPORATION AND SUBSIDIARIES PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits NUMBER EXHIBIT PGC PGE 10 Officers Employment Agreement (Form of) X X 27 Financial Data Schedule - UT X X (Electronic Filing Only) b. Reports on Form 8-K March 29, 1996 - Item 5. Other Events: Litigation Settlement reached with Southern California Edison. April 4, 1996 - Item 5. Other Events: Marion County Circuit Court ruling on Trojan investment recovery. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned hereunto duly authorized. PORTLAND GENERAL CORPORATION PORTLAND GENERAL ELECTRIC COMPANY (Registrants) May 3, 1996 By /S/ JOSEPH M. HIRKO Joseph M. Hirko Sr. Vice President, Chief Financial Officer 20