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, 1997
Registrant; State of Incorporation; IRS Employer
COMMISSION FILE NUMBER ADDRESS; AND TELEPHONE NUMBER IDENTIFICATION NO.
1-5532-99 PORTLAND GENERAL ELECTRIC COMPANY 93-0256820
(an Oregon Corporation)
121 SW Salmon Street
Portland, Oregon 97204
(503) 464-8000
Indicate by check mark whether the 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
registrants was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
The number of shares outstanding of the registrant's common stock as of August
14, 1997 are:
Portland General Electric Company 42,758,877
1
TABLE OF CONTENTS
PAGE
NUMBER
DEFINITIONS........................................................2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income...............3
Consolidated Statements of Retained Earnings....3
Consolidated Balance Sheets.....................4
Consolidated Statements of Cash Flow............5
Notes to Consolidated Financial Statements......6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.... 7
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings...........................13
Item 6 - Exhibits and Reports on Form 8-K............13
Signature Page.......................................14
DEFINITIONS
AFDC...................Allowance For Funds Used During Construction
Bonneville Pacific...................Bonneville Pacific Corporation
BPA.................................Bonneville Power Administration
Coyote Springs......................Coyote Springs Generation Plant
Enron...................................................Enron Corp.
FERC...........................Federal Energy Regulatory Commission
Holdings............................Portland General Holdings, Inc.
kWh...................................................Kilowatt-Hour
Mill..........................................One tenth of one cent
MWa...............................................Average megawatts
MWh...................................................Megawatt-hour
NYMEX..................................New York Mercantile Exchange
OPUC or the Commission.............Oregon Public Utility Commission
Portland General or PGC................Portland General Corporation
PGE or the Company................Portland General Electric Company
PUHCA....................Public Utility Holding Company Act of 1935
Trojan.........................................Trojan Nuclear Plant
USDOE............................United States Department of Energy
WAPA...................................Western Area Power Authority
WNP-3..................Washington Public Power Supply System Unit 3
2
Portland General Electric Company and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME FOR THE
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
(Thousands of Dollars)
OPERATING REVENUES $307,595 $232,921 $675,277 $533,116
OPERATING EXPENSES
Purchased power and fuel 127,835 44,875 284,514 125,091
Production and distribution 20,982 20,018 41,093 41,970
Maintenance and repairs 13,663 11,845 21,609 25,094
Administrative and other 25,391 27,066 49,835 54,136
Depreciation and amortization 38,939 38,529 78,230 76,041
Taxes other than income taxes 13,626 12,746 28,799 27,593
Income taxes 21,291 25,420 60,198 62,693
-------- -------- -------- --------
261,727 180,499 564,278 412,618
-------- -------- -------- --------
NET OPERATING INCOME 45,868 52,422 110,999 120,498
-------- -------- -------- --------
OTHER INCOME (DEDUCTIONS)
Other 540 256 1,001 (77)
Income taxes 781 920 1,786 2,064
-------- -------- -------- --------
1,321 1,176 2,787 1,987
-------- -------- -------- --------
INTEREST CHARGES
Interest on long-term debt and other 17,846 16,413 35,904 32,950
Interest on short-term borrowings 1,251 2,771 2,322 5,259
Allowance for borrowed funds used
during construction (334) (500) (630) (742)
-------- -------- -------- --------
18,763 18,684 37,596 37,467
-------- -------- -------- --------
NET INCOME 28,426 34,914 76,190 85,018
PREFERRED DIVIDEND REQUIREMENT 582 645 1,163 1,631
-------- -------- -------- --------
INCOME AVAILABLE FOR COMMON STOCK $ 27,844 $ 34,269 $ 75,027 $ 83,387
======== ======== ======== ========
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS FOR THE
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
(Thousands of Dollars)
BALANCE AT BEGINNING OF PERIOD $325,095 $279,904 $292,124 $246,282
NET INCOME 28,426 34,914 76,190 85,018
ESOP TAX BENEFIT AND OTHER (529) (605) (1,059) (1,135)
-------- -------- -------- --------
352,992 314,213 367,255 330,165
-------- -------- -------- --------
DIVIDENDS DECLARED
Common stock 16,463 17,958 30,145 32,924
Preferred stock 582 645 1,163 1,631
-------- -------- -------- --------
17,045 18,603 31,308 34,555
-------- -------- -------- --------
BALANCE AT END OF PERIOD $335,947 $295,610 $335,947 $295,610
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
3
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997 AND DECEMBER 31, 1996
(Unaudited)
June 30 December 31
1997 1996
(Thousands of Dollars)
ASSETS
ELECTRIC UTILITY PLANT - ORIGINAL COST
Utility plant (includes Construction Work in
Progress of $34,554 and $36,919) $ 2,966,497 $ 2,899,746
Accumulated depreciation (1,179,782) (1,124,337)
----------- -----------
1,786,715 1,775,409
Capital leases - less amortization of 5,438 6,750
$31,880 and $30,569
----------- -----------
1,792,153 1,782,159
----------- -----------
OTHER PROPERTY AND INVESTMENTS
Contract termination receivable 107,565 111,447
Trojan decommissioning trust, at market 82,030 78,448
value
Corporate owned life insurance, less loans 58,091 51,410
of $26,411 and $26,411
Other investments 21,975 20,700
----------- -----------
269,661 262,005
----------- -----------
CURRENT ASSETS
Cash and cash equivalents 19,091 19,477
Accounts and notes receivable 127,548 145,372
Unbilled and accrued revenues 39,066 53,317
Inventories, at average cost 35,300 32,903
Prepayments and other 14,605 16,476
----------- -----------
235,610 267,545
----------- -----------
DEFERRED CHARGES
Unamortized regulatory assets
Trojan investment 263,770 275,460
Trojan decommissioning 269,887 282,131
Income taxes recoverable 183,477 195,592
Debt reacquisition costs 26,823 28,063
Conservation investments - secured 76,904 80,102
Energy efficiency programs 14,318 11,974
Other 20,583 22,575
WNP-3 settlement exchange agreement 158,884 163,217
Miscellaneous 31,873 27,389
----------- -----------
1,046,519 1,086,503
----------- -----------
$ 3,343,943 $ 3,398,212
=========== ===========
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 477,981 475,055
Retained earnings 335,947 292,124
Cumulative preferred stock
Subject to mandatory redemption 30,000 30,000
Long-term debt 876,741 933,042
----------- -----------
1,881,015 1,890,567
----------- -----------
CURRENT LIABILITIES
Long-term debt and preferred stock due 95,826 92,559
within one year
Short-term borrowings 111,087 92,027
Accounts payable and other accruals 134,446 144,712
Accrued interest 13,451 14,372
Dividends payable 868 17,117
Accrued taxes 22,280 31,485
----------- -----------
377,958 392,272
----------- -----------
OTHER
Deferred income taxes 485,598 497,734
Deferred investment tax credits 45,248 47,314
Deferred gain on contract termination 107,840 112,697
Trojan decommissioning and transition costs 349,058 357,844
Miscellaneous 97,226 99,784
----------- -----------
1,084,970 1,115,373
----------- -----------
$ 3,343,943 $ 3,398,212
=========== ===========
The accompanying notes are an integral part of
these consolidated balance sheets.
4
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
Six Months Ended
June 30
1997 1996
CASH PROVIDED (USED IN)
OPERATIONS:
Net Income $ 76,190 $ 85,018
Non-cash items included in net income:
Depreciation and amortization 63,200 59,577
Amortization of WNP-3 exchange agreement 4,333 2,160
Amortization of Trojan investment 12,491 11,760
Amortization of Trojan decommissioning 7,020 7,021
Amortization of deferred charges (gains) (2,899) (118)
Deferred income taxes - net (2,532) (6,720)
Changes in working capital:
(Increase) Decrease in receivables 32,997 20,066
(Increase) Decrease in inventories (2,397) 69
Increase (Decrease) in payables (19,805) (25,441)
Other working capital items - net 1,871 (114)
Trojan decommissioning expenditures (6,199) (2,139)
Deferred items - other 2,038 11,626
Miscellaneous - net (1,522) 2,765
-------- ---------
164,786 165,530
-------- ---------
INVESTING ACTIVITIES:
Utility construction (73,461) (90,211)
Energy efficiency programs (3,546) (7,405)
Nuclear decommissioning trust deposits (7,020) (7,950)
Nuclear decommissioning trust withdrawals 6,074 1,447
Other investments (6,936) (9,170)
-------- ---------
(84,889) (113,289)
-------- ---------
FINANCING ACTIVITIES:
Short-term debt - net 19,060 54,084
Borrowings from Corporate Owned Life Insurance - 1,312
Long-term debt issued - 35,000
Long-term debt retired (51,786) (87,661)
Preferred stock retired - (20,000)
Dividends paid (47,557) (30,684)
-------- ---------
(80,283) (47,949)
-------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (386) 4,292
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF PERIOD 19,477 2,241
-------- ---------
CASH AND CASH EQUIVALENTS AT THE END
OF PERIOD $ 19,091 $ 6,533
======== =========
- --------------------------------------------------------------------------------
Supplemental disclosures of cash flow information
Cash paid during the period:
Interest, net of amounts capitalized $ 35,996 $ 34,884
Income taxes 73,185 56,635
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
5
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 Portland General
Electric Company (PGE) 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 PGE's opinion that, when the
interim statements are read in conjunction with the 1996 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
TROJAN INVESTMENT RECOVERY - In April 1996 a circuit court judge in Marion
County, Oregon found that the OPUC could not authorize PGE to collect a return
on its undepreciated investment in Trojan, contradicting a November 1994 ruling
from the same court. The ruling was the result of an appeal of PGE's 1995
general rate order which granted PGE recovery of, and a return on, 87 percent
of its remaining investment in Trojan.
The November 1994 ruling, by a different judge of the same court, upheld the
Commission's 1993 Declaratory Ruling (DR-10). In DR-10 the OPUC ruled that
PGE could recover and earn a return on its undepreciated Trojan investment,
provided certain conditions were met. The Commission relied on a 1992 Oregon
Department of Justice opinion issued by the Attorney General's office stating
that the Commission had the authority to set prices including recovery of and
on investment in plant that is no longer in service.
The 1994 ruling was appealed to the Oregon Court of Appeals and stayed pending
the appeal of the Commission's March 1995 order. Both PGE and the OPUC have
separately appealed the April 1996 ruling which was combined with the appeal of
the November 1994 ruling at the Oregon Court of Appeals.
Management believes that the authorized recovery of and on the Trojan
investment and decommissioning costs will be upheld and that these legal
challenges will not have a material adverse impact on the results of operations
or financial condition of the Company for any future reporting period.
OTHER LEGAL MATTERS - PGE is party to various other claims, legal actions and
complaints arising in the ordinary course of business. These claims are not
considered material.
NOTE 3 - SUBSEQUENT EVENT
BUSINESS COMBINATION - On July 1, 1997 Portland General Corporation (PGC), the
former parent of PGE, consummated a merger transaction pursuant to the Amended
and Restated Agreement and Plan of Merger by and among Enron Corp., PGC and
Enron Oregon Corp. dated as of July 20, 1996 and amended and restated as of
September 24, 1996 and as further amended by the First Amendment dated April
14, 1997 (Amended Merger Agreement). Pursuant to the Amended Merger Agreement,
Enron Corp., a Delaware corporation merged with and into Enron Oregon Corp.,
an Oregon corporation (Reincorporation Merger) and the name of Enron Oregon
Corp. was changed to Enron Corp. (Enron). Promptly following the
Reincorporation Merger, PGC merged with and into Enron (PGC Merger), with
Enron continuing in existence as the surviving corporation. Pursuant to the
Amended Merger Agreement PGE is now a wholly owned subsidiary of Enron and
subject to control by the Board of Directors of Enron.
6
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 Portland General Electric Company's (PGE) 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 1997.
1997 COMPARED TO 1996 FOR THE THREE MONTHS ENDED JUNE 30
PGE earned $28 million during the second quarter of 1997 compared to earnings
of $34 million in 1996. Reduced earnings were the result of a decline in retail
sales margins caused by lower prices and increased power costs.
Retail revenues of $205 million were 3% higher than 1996. Increased sales
volume to commercial and industrial customers offset a December 1996 price
decrease.
Wholesale revenues increased $69 million from 1996 due to increased trading
activities.
Increased wholesale sales activity contributed to an $83 million or 185%
increase in purchased power and fuel expense. Energy purchases, which were up
88%, averaged 12.6 mills compared to 10.0 mills for 1996. This increase in
price was driven by tight market conditions in the southwestern United States.
Company generation, primarily hydro, provided 10% of total power needs.
RESOURCE MIX/VARIABLE POWER COSTS
Average Variable
Resource Mix Power Cost (Mills/kWh)
1997 1996 1997 1996
Generation 10% 13% 4.4 3.6
Firm Purchases 82 72 12.8 10.3
Spot Purchases 8 15 10.7 8.8
---- ---- ---- ----
Total Resources 100% 100% Average 12.5 10.4
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 comparable to 1996. Increased maintenance expenses at PGE's
generating facilities were offset by reduced Administration and General
expenses.
7
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1997 COMPARED TO 1996 FOR THE SIX MONTHS ENDED JUNE 30
PGE earned $75 million during the six months ended June 30, 1997 compared
to earnings of $83 million in 1996. Reduced earnings were the result of a
decline in retail revenues caused by lower prices and warmer temperatures.
Decreased operating expenses (excluding variable power, depreciation and
income taxes) partially offset lower retail revenues.
Retail revenues were down for the period due to a December 1996 rate
decrease. This decrease was partially offset by additional revenues
resulting from strong sales growth in the industrial and commercial
customer classes.
Wholesale revenues increased $147 million from 1996 due to increased
trading activities.
Increased wholesale sales activity contributed to a $159 million or 127%
increase in purchased power and fuel expense. Energy purchases, which were
up 76%, averaged 14.3 mills compared to 11.9 mills for 1996. Increased gas
prices during the winter followed by tight market conditions in the
southwestern United States were the major contributors to this increase in
price. Company generation, primarily hydro, provided 12% of total power
needs.
RESOURCE MIX/VARIABLE POWER COSTS
Average Variable
Resource Mix Power Cost (Mills/kWh)
1997 1996 1997 1996
Generation 12% 15% 4.3 4.1
Firm Purchases 81 70 14.5 12.5
Spot Purchases 7 15 11.3 9.1
---- ---- ---- ----
Total Resources 100% 100% Average 13.8 11.7
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) decreased $7 million due to non-recurring storm and
flood related expenditures incurred during the first quarter of
1996.
Depreciation and amortization expense increases resulting from normal asset
additions (primarily distribution assets) were substantially offset by
the amortization of a gain associated with the termination of a
power sales agreement.
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
operations were comparable to 1996.
8
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INVESTING ACTIVITIES include improvements to generation,
transmission and distribution facilities and continued investment in
energy efficiency programs. Through June 30, 1997 nearly $73 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 through
customer collections at a rate of $14 million annually. The trust
invests in investment-grade tax-exempt and U.S. Treasury bonds. The
Company makes withdrawals from the trust, as necessary for
reimbursement of decommissioning expenditures. During the first two
quarters of 1997 PGE has withdrawn $6 million from the trust.
FINANCING ACTIVITIES - Cash used for financing activities totaled
$80 million in 1997 compared to $48 million in 1996. Through June
30, 1997 PGE made three dividend payments totaling $46 million to PGC
compared to two dividend payments of $29 million during the same
period in 1996. PGE redeemed $49 million of First Mortgage bonds
during 1997.
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, 1997 PGE has the
capability to issue preferred stock and additional First Mortgage
Bonds in amounts sufficient to meet its capital requirements.
FINANCIAL AND OPERATING OUTLOOK
BUSINESS COMBINATION
On July 1, 1997 Portland General Corporation (PGC), the former
parent of PGE, consummated a merger transaction pursuant to the
Amended and Restated Agreement and Plan of Merger by and among Enron
Corp., PGC and Enron Oregon Corp. dated as of July 20, 1996 and
amended and restated as of September 24, 1996 and as further amended
by the First Amendment dated April 14, 1997 (Amended Merger
Agreement). Pursuant to the Amended Merger Agreement, Enron Corp., a
Delaware corporation merged with and into Enron Oregon Corp., an
Oregon corporation (Reincorporation Merger) and the name of Enron
Oregon Corp. was changed to Enron Corp. (Enron). Promptly following
the Reincorporation Merger, PGC merged with and into Enron (PGC
Merger), with Enron continuing in existence as the surviving
corporation. Pursuant to the Amended Merger Agreement PGE is now a
wholly owned subsidiary of Enron and subject to control by the Board
of Directors of Enron.
Essentially all of Enron's operations are conducted through its
subsidiaries and affiliates which are principally engaged in the
gathering, transportation and wholesale marketing of natural gas;
the exploration and production of natural gas and crude oil; the
production, purchase, transportation and marketing of natural gas
liquids and refined petroleum products; the independent development,
promotion, construction and operation of power plants, natural gas
liquids facilities and pipelines; and the non-price regulated
purchasing and marketing of energy related commitments.
The Merger will be accounted for by Enron as a purchase for
financial reporting purposes.
9
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPETITION
Since the passage of the Energy Policy Act of 1992 and the advent of
open access for the wholesale transmission of electricity, various
state utility commissions have addressed proposals which would allow
retail customers direct access to generation suppliers, marketers,
brokers and other service providers in a competitive marketplace for
energy services. Several states have implemented pilot programs to
evaluate the effects that competition will have on retail customers.
Other states, such as California, have passed legislation that
mandates the phase in of customer access to energy suppliers.
Although several bills proposing retail competition were introduced
during the 1997 Oregon legislative session, none were approved.
Industry restructuring bills have also been introduced at the
federal level.
In a move to prepare for future retail competition, PGE recently
submitted to the OPUC a proposal for an introductory Customer Choice
Plan to allow 50,000 PGE customers in four cities to buy their power
from competing energy service providers by the end of this year.
This program will allow certain customers in Oregon to experience a
competitive electricity market on an introductory basis. The
program will be available to residential, small business and
commercial customers in the four cities, and industrial customers
throughout the service territory. If approved by the OPUC, these
customers could begin receiving electricity from a company of their
choice by December, 1997. PGE is working closely with the OPUC and
other interested parties to address their goals of customer benefits
through customer choice with the desire to have as many qualified energy
service providers participating in this program as possible. Although
customers may choose to purchase electricity from companies other than
PGE, the power will be delivered over PGE's existing distribution system.
PGE will continue to maintain all wires, power poles and equipment and
will make all repairs in the event of an outage. Safety and
reliability remain a high priority for PGE. This program is being
launched to provide information to PGE and the OPUC on the effects
of future retail competition on PGE and its customers.
As a condition to the OPUC's approval of the Enron/PGC merger, on or
before September 1, 1997 PGE will submit to the OPUC a plan
to open it's entire service territory to competition. This plan will
allow residential, commercial and industrial customers to choose
their energy provider and will include a proposal to separate PGE
generating facilities from its transmission and distribution system.
This action will allow the generating assets to be used more
effectively to compete in an open marketplace, and will allow
distribution assets to be focused on providing quality service,
safety and reliability. In addition the plan will include a proposal
for the treatment of transition costs or the costs a utility would
not recover in a fully competitive environment. The amount of these
transition costs has yet to be determined.
PGE is dependent upon the regulatory process to ensure that future
revenues will be provided for the recovery of regulatory assets and
the transition costs mentioned above. In the event that all or a
portion of PGE's operations are no longer subject to cost-based
regulation (due to a change in regulation or the effects of
competition), PGE could have write-offs associated with these costs
if they are not recovered through another regulatory mechanism.
10
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RETAIL CUSTOMER GROWTH AND ENERGY SALES
Weather adjusted retail energy sales were up 5.6% for the six months
ended June 30, 1997 compared to the same period last year.
Industrial and commercial sales increased by 12.6% and 4.8%,
respectively due to strong growth in most industry segments. Sales
to high-tech and lumber industrial customers increased by 15% to
20%. Most commercial sectors grew between 3% and 8%. The addition of
over 10,017 customers resulted in residential sales growth of 2.3%.
The Company expects 1997 retail energy sales growth to be
approximately 6%.
Quarterly Increase in Retail Customers
Quarter/Year Residential Commercial/Industrial
1Q 95 3010 270
2Q 95 2194 509
3Q 95 2145 435
4Q 95 5566 554
1Q 96 3633 539
2Q 96 3664 76
3Q 96 3021 594
4Q 96 5151 877
1Q 97 3953 509
2Q 97 4693 537
WHOLESALE MARKETING
The surplus of electric generating capability in the Western U.S.,
the entrance of numerous wholesale marketers and brokers into the
market, and open access transmission is contributing to increasing
pressure on the price of power. In addition, the development of
financial markets and NYMEX electricity contract trading has led to
increased price discovery available to market participants, further
adding to the competitive pressure on wholesale margins. During the
first six months of 1997 PGE's wholesale revenues increased $147
million compared to the same period last year, accounting for 32% of
total revenues and 60% of total sales volume. In future years PGE
will continue its participation in the wholesale marketplace to
balance its supply of power to meet the needs of its retail
customers, manage risk and to administer PGE's current long-term
wholesale contracts. Due to increasing volatility and reduced
margins resulting from increased competition, long-term wholesale
marketing activities will eventually be performed by PGE's non-
regulated affiliates.
POWER SUPPLY
Current projections forecast the annual runoff of the Columbia River
at The Dalles to be 149 percent of normal, assuming normal
precipitation for the rest of the run-off season. If this forecast
holds true, this year's runoff will be the largest since record
keeping began. The last record was set in 1974. 1997 hydro
conditions should provide more than ample water supplies to refill
reservoirs for the remainder of the year. Hydro generation will
continue to be a major factor in the availability of low-cost
secondary power and the economic displacement of higher cost thermal
generation.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income". Comprehensive income includes all changes in
equity during a period except those resulting from investments by
and distributions to shareholders. The primary components include
net income as well as adjustments for foreign currency translation,
minimum pension liability and unrealized gains and losses on
securities. The new standard requires that comprehensive income be
shown on the financial statements effective in 1998 and requires
reclassification of earlier financial statements for comparative
purposes. PGE does not expect the adoption of this statement to
have a significant effect on its financial position and results of
operation.
11
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In June 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 131, Disclosures
About Segments of Enterprise and Related Information". This
statement will change the way public companies report information
about segments of their business in their annual financial
statements and requires them to report selected segment information
in their quarterly reports. This standard will be effective for
fiscal years beginning after December 15, 1997. Since PGE has only
one major operating segment that is material to its operations, PGE
does not expect the adoption of this statement to have a significant
effect on its financial position and results of operation.
The SEC has amended rules and forms to clarify and expand existing
disclosure requirements for derivative financial instruments, other
financial instruments, and derivative commodity instruments. The
amendments require enhanced disclosure of accounting policies for
derivative financial instruments and derivative commodity
instruments in the footnotes to the financial statements. In
addition, the amendments expand existing disclosure requirements
outside the financial statements and related notes to include
quantitative and qualitative information about market risk inherent
in market risk sensitive instruments. These amended rules are
effective for filings that include financial statements for fiscal
periods ending after June 15, 1997. PGE does not expect the
adoption of this statement to have a significant effect on its
financial position and results of operation.
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
deregulation of retail electricity, environmental regulations,
changes in the cost of power and adverse weather conditions during
the periods covered by the forward looking statements.
12
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For further information, see PGE's report on Form 10-K for the year
ended December 31, 1996.
COLUMBIA STEEL CASTING CO., INC. V. PGE, PACIFICORP, AND MYRON KATZ,
NANCY RYLES AND RONALD EACHUS, NINTH CIRCUIT COURT OF APPEALS
On June 19, 1990 Columbia Steel filed a complaint for declaratory
judgment, injunctive relief and damages in U.S. District Court for
the District of Oregon contending that a 1972 territory allocation
agreement between PGE and PacifiCorp, dba Pacific Power & Light
Company (PP&L), which was subsequently approved by the OPUC and the
City of Portland, does not give PGE the exclusive right to serve
them nor does it allow PP&L to deny service to them. Columbia Steel
is seeking an unspecified amount in damages amounting to three times
the excess power costs paid over a 10 year period.
On July 3, 1991 the Court ruled that the Agreement did not allocate
customers for the provision of exclusive services and that the 1972
order of the OPUC approving the Agreement did not order the
allocation of territories and customers. Subsequently, on August
19, 1993 the Court ruled that Columbia Steel was entitled to receive
from PGE approximately $1.4 million in damages which represented the
additional costs incurred by Columbia Steel for electric service
from July 1990 to July 1991, trebled, plus costs and attorney's
fees.
PGE appealed to the U.S. Court of Appeals for the Ninth Circuit
which, on July 20, 1995, issued an opinion in favor of PGE,
reversing the judgment and ordering judgment to be entered in favor
of PGE. Columbia Steel filed a petition for reconsideration and on
December 27, 1996 , the Ninth Circuit Court of Appeals reversed its
earlier decision, ruling in favor of Columbia Steel. In early 1997
PGE's request for reconsideration by the Ninth Circuit was denied.
The case was remanded to the US District Court for a new
determination of damages for service rendered from early 1987 to
July 1991. On July 2, 1997 PGE filed a request for certiorari with
the US Supreme Court. A response is expected during the latter part
of 1997.
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
June 4, 1997 - Item 5. Other Events: OPUC approves merger.
June 24, 1997 - Item 5. Other Events: Shareholders approve
merger.
July 1, 1997 - Item 1. Changes in Control of Registrant: Merger
consummated.
13
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 ELECTRIC COMPANY
(Registrants)
August 14, 1997 By /S/ STEVEN N. ELLIOTT
Steven N. Elliott
Vice President, Finance,
and Treasurer
August 14, 1997 By /S/ JOSEPH E. FELTZ
Joseph E. Feltz
Controller
Assistant Treasurer
14
UT
1,000
0000784977
PORTLAND GENERAL ELECTRIC
6-MOS
DEC-31-1997
JUN-30-1997
PER-BOOK
1,792,153
269,661
235,610
1,046,519
0
3,343,943
160,346
477,981
335,947
974,274
30,000
0
871,303
0
0
111,087
93,142
0
5,438
2,684
1,256,015
3,343,943
675,277
60,198
504,080
564,278
110,999
2,787
113,786
37,596
76,190
1,163
75,027
30,145
65,398
164,786
0
0
Represents the 12 month-to-date figure ending
June 30, 1997 as applies to total interest on bonds.
