UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO _______________
COMMISSION FILE NUMBER 1-5532-99
PORTLAND GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
OREGON 93-0256820
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
121 SW SALMON STREET, PORTLAND, OREGON 97204
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (503) 464-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of April 30, 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 Income Statement................................. 3
Consolidated Statements 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 ............................................ 21
Item 6. Exhibits and Reports on Form 8-K ............................. 22
DEFINITIONS
BPA ........................................ Bonneville Power Administration
Enron ...........................................................Enron Corp.
KWh .......................................................... Kilowatt-Hour
Mill ................................................. One tenth of one cent
MWh .......................................................... Megawatt-hour
OPUC or the Commission .................... Oregon Public Utility Commission
PGE or the Company ....................... Portland General Electric Company
Trojan ................................................ Trojan Nuclear Plant
`
PART I
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
1999 1998
(MILLIONS OF DOLLARS)
OPERATING REVENUES $299 $314
OPERATING EXPENSES
Purchased power and fuel 100 123
Production and distribution 33 34
Administrative and other 22 27
Depreciation and amortization 39 37
Taxes other than income taxes 17 16
Income taxes 30 25
241 262
NET OPERATING INCOME 58 52
OTHER INCOME (DEDUCTIONS)
Miscellaneous 4 2
Income taxes 2 1
6 3
INTEREST CHARGES
Interest on long-term debt and other 17 17
Interest on short-term borrowings 2 1
19 18
NET INCOME 45 37
PREFERRED DIVIDEND REQUIREMENT 1 1
INCOME AVAILABLE FOR
COMMON STOCK $ 44 $ 36
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
1999 1998
(MILLIONS OF DOLLARS)
BALANCE AT BEGINNING OF PERIOD $356 $270
NET INCOME 45 37
401 307
DIVIDENDS DECLARED
Common stock 20 -
Preferred stock 1 1
21 1
BALANCE AT END OF PERIOD $380 $306
The accompanying notes are an integral part of these consolidated financial
statements.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
MARCH 31, DECEMBER 31,
1999 1998
(MILLIONS OF DOLLARS)
ASSETS
Electric Utility Plant - Original Cost
Utility plant (includes Construction
Work in Progress of $35 and $35) $3,207 $3,182
Accumulated depreciation and (1,396) (1,363)
amortization 1,811 1,819
OTHER PROPERTY AND INVESTMENTS
Contract termination receivable 93 95
Receivable from parent 96 97
Nuclear decomissioning trust, at
market value 66 72
Corporate owned life insurance,
less loans of $30 and $30 65 63
Miscellaneous 16 15
336 342
CURRENT ASSETS
Cash and cash equivalents 5 4
Accounts and notes receivable 123 135
Unbilled and accrued revenues 40 45
Inventories, at average cost 31 28
Prepayments and other 48 31
247 243
DEFERRED CHARGES
Unamortized regulatory assets 721 731
Miscellaneous 27 27
748 758
$3,142 $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 380 356
Cumulative preferred stock
Subject to mandatory redemption 30 30
Long-term obligations 959 951
2,009 1,977
CURRENT LIABILITIES
Accounts payable and other accruals 132 145
Accrued interest 15 11
Dividends payable 1 1
Accrued taxes 15 35
163 192
OTHER
Deferred income taxes 351 351
Deferred investment tax credits 37 39
Trojan decommissioning and transition
costs 263 274
Unamortized regulatory liabilities 224 237
Miscellaneous 95 92
970 993
$3,142 $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)
THREE MONTHS ENDED
MARCH 31,
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 $ 45 $ 37
Non-cash items included in net
income:
Depreciation and amortization 39 37
Deferred income taxes (3) -
Changes in working capital:
Decrease in receivables 16 12
(Decrease) in payables (31) (39)
Other working capital
items - net (17) (11)
Other-net (2) 3
NET CASH PROVIDED BY OPERATIING
ACTIVITIES 47 39
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (29) (31)
Other-net (3) (2)
NET CASH USED IN INVESTING
ACTIVITIES (32) (33)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of long-term debt (26) -
Issuance of long-term debt 35 -
Dividends paid (21) (1)
Other-net (2) (4)
NET CASH USED IN FINANCING
ACTIVITIES (14) (5)
INCREASE IN CASH AND CASH
EQUIVALENTS 1 1
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 4 3
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 5 $ 4
Supplemental disclosures of cash flow information
Cash paid during the period:
Interest, net of amounts
capitalized $ 10 $ 14
Income taxes 54 40
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 percent 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 12, 1999, the Oregon House of Representatives approved and sent to the
Oregon Senate House Bill 3220, a measure that would affirm the OPUC's authority
to allow PGE's recovery of a 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
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 MARCH 31
PGE earned $44 million during the first quarter of 1999 compared to $36 million
in 1998. Increased earnings were largely attributable to higher retail energy
sales and reduced operating expenses.
Total revenues declined $15 million compared to the first quarter of 1998 due
primarily to a reduction in wholesale energy sales, reflecting PGE's decision
to limit wholesale trading to those short-term transactions necessary to the
efficient management of power supplies required for retail customers. Retail
revenues increased $26 million, or 11%, due to an increase in energy sales
caused by a 21,000 increase in total customers served and colder weather during
the first quarter of 1999. Wholesale revenues decreased $39 million, with a
63% reduction in energy sales partially offset by slightly higher prices than
in last year's first quarter. Other operating revenues decreased $2 million.
MEGAWATT-HOURS SOLD (THOUSANDS)
1999 1998
Retail 5,178 4,621
Wholesale 1,338 3,575
Total power costs decreased $23 million, or 19%, due largely to a decline in
energy purchases. Decreased purchases made to support PGE's wholesale sales
were partially offset by increased generation costs to serve increased retail
load. The average price of purchased power was comparable to the first quarter
of 1998 as both firm and spot market prices changed only slightly. Generation
approximated last year's first quarter and accounted for 35% of total load, up
from 31% last year.
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 2,403 2,543 8.0 7.0
Firm Purchases 3,205 5,648 16.7 16.3
Spot Purchases 1,196 377 15.0 14.2
Total Send-Out 6,805 8,568 15.0* 14.4*
(*includes wheeling costs)
Operating expenses (excluding purchased power and fuel, depreciation, and
income taxes) decreased $5 million, or 6%, due in part to a reduction in
pension accruals as a result of negotiated changes to union pension and
Retirement Savings Plan enhancements.
Depreciation and amortization expense increased $2 million, or 5%, 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 $47 million in the first quarter
of 1999 as compared to $39 million in the same period last year. The increase
reflects higher net income in 1999, adjusted for the net effects of non-cash
items included therein.
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 $29 million through March 31,
1999 were primarily for the expansion and improvement of PGE's distribution
system to support the addition of new customers within PGE's service territory.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCING ACTIVITIES provide supplemental cash for day-to-day operations and
capital requirements as needed. PGE relies on commercial paper borrowings and
cash from operations to manage its day-to-day financing requirements. During
the first quarter of 1999, commercial paper borrowings increased $35 million.
In January 1999, the Company retired $24 million of First Mortgage Bonds and in
March paid common stock dividends of $20 million to its parent. On April 30,
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.
The issuance of additional First Mortgage Bonds and preferred stock requires
PGE to meet earnings coverage and security provisions set forth in the Articles
of Incorporation and the Indenture securing its First Mortgage Bonds. As of
March 31, 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.
The issue of restructuring is currently being addressed by the 1999 Oregon
Legislature. On April 20, 1999, the Oregon Senate approved and sent to the
House of Representatives Senate Bill 1149, a measure that would give commercial
and industrial customers access to competing electricity suppliers and
gradually introduce residential customers to competition beginning October 1,
2001. Residential customers could choose between a regulated rate similar to
what they now have, a "green" plan that offers energy from renewable resources,
or a market rate that would fluctuate with wholesale electricity prices. The
measure would give the Commission broad authority to control the pace and
structure of deregulation. PGE may support the measure if additional
amendments are made.
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 grew by 4.3 percent for the three months
ended March 31, 1999 compared to the same period last year. PGE forecasts
retail energy sales growth of approximately 3 percent in 1999. Commercial
sales growth remains strong at 5.6% over last year's first quarter;
manufacturing sector energy sales have remained flat as the metals and high
tech industries return to average growth rates from those experienced in the
last two years.
Quarterly Increase in Retail Customers
Residential Commercial/Industrial
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
1Q96 3633 539
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
averaged in excess of $64 million a year from inception of the program through
1997, 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 percent
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.
POWER SUPPLY
Hydro conditions in the region are significantly above normal this year.
Current projections forecast the January-to-July runoff at 115 percent of
normal, compared to 86 percent 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.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
On November 1, 1998, PGE signed a definitive agreement to sell its 20 percent
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, which would
become effective on the date of the 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 impact on the results of operations.
WHOLESALE MARKETING
Wholesale sales have declined from 1997 and 1998 levels consistent with PGE's
plan to participate in the wholesale marketplace primarily to balance its
supply of power to meet the needs of its retail customers, manage risk, and
administer 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 percent 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 12, 1999, the Oregon House of Representatives approved and sent to the
Oregon Senate House Bill 3220, a measure that would affirm the OPUC's authority
to allow PGE's recovery of a return on 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.
If the Supreme Court were to affirm the Court of Appeals ruling that the OPUC
cannot authorize PGE to earn a return on its investment in Trojan, the matter
would be referred back to the OPUC. Due to uncertainties in the regulatory
process, management cannot predict, with certainty, what ultimate rate making
action the OPUC will take regarding PGE's recovery of a rate of return on its
Trojan investment.
For further information regarding the legal challenges to the OPUC's authority
to grant recovery for PGE's Trojan investment 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.
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
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
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 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
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 May 7, 1999, PGE is at various stages in implementation of the Plan, as
shown in the following table, which lists the status of both mission-critical
internal systems (including embedded chips) and Outside Systems. 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 to closely monitor work under the Plan and to revise estimated
completion dates for the initial iteration of each listed process.
YEAR 2000 READINESS PLAN
MISSION-CRITICAL MISSION-CRITICAL
INTERNAL ITEMS OUTSIDE ENTITIES
STATUS COMPLETION DATE STATUS COMPLETION DATE*
Inventory Complete December 1997 Complete October 1998
Assessment Complete October 1998 Complete November 1998
Analysis Complete October 1998 Complete November 1998
Conversion In Process June 1999 In Process June 1999
Testing In Process June 1999 In Process June 1999
Y2K-Ready In Process June 1999 In Process June 1999
Contingency Plan In Process June 1999 In Process June 1999
* The June 1999 completion date for Mission-Critical Outside Entities conveys
only the date when PGE anticipates it will have evaluated the progress of
most Outside Entities with respect to Conversion, Testing, Y2K-Ready, and
Contingency Plans.
Completion of mission-critical work is planned for June 30, 1999, with a few
exceptions.
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-third of which has been spent
to date; 1999 expenditures are currently estimated at approximately $10
million. On April 19, 1999, PGE received an accounting order from the OPUC to
defer 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.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Although management believes that its estimates are reasonable, there can be no
assurance, for the reasons stated in the "Outlook" section below, that the
actual costs of implementing the plan will not differ materially from the
estimated costs or that PGE will not be materially adversely affected by Year
2000 issues.
YEAR 2000 RISK FACTORS
REGULATORY REQUIREMENTS. PGE expects to satisfy all requirements of regulatory
authorities for achieving Year 2000 readiness. If its reasonable expectations
in this regard are in error, the adverse effect on PGE could be material.
Outside Entities could force temporary cessation of operations that materially
adversely affect PGE.
POTENTIAL SHORTCOMING. PGE 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.
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
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.
PGE plans to file with the Western Systems Coordinating Council by June 15,
1999 its contingency plan related to Mission-Critical Internal Systems
(including embedded chips) and Outside Systems. PGE plans to perform
additional contingency planning relating to other systems both before and after
its June 15, 1999 filing.
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)
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
hardware and software systems, including both internal
business systems and systems (such as those with embedded chips) controlling
operational facilities such as electrical generation, transmission, and
distribution systems; and the failure of Outside Systems, the effects of which
would have a cumulative material adverse impact on PGE's mission-critical
systems. Among other things, PGE could face substantial claims by customers or
loss of revenues due to service interruptions, inability to fulfill contractual
obligations, inability to account for certain revenues or obligations or to
bill customers accurately and on a timely basis, and increased expenses
associated with litigation, stabilization of operations following mission-
critical failures, and the execution of contingency plans. PGE could also
experience an inability by customers, traders, and others to pay, on a timely
basis or at all, obligations owed to PGE. Under these circumstances, the
adverse effect on PGE, and the diminution of PGE's revenues, would be material,
although not quantifiable at this time. Further in this scenario, the
cumulative effect of these failures could have a substantial adverse effect on
the economy, domestically and internationally. The adverse effect on PGE, and
the diminution of its revenues, from a domestic or global recession or
depression also is likely to be material, although not quantifiable at this
time.
PGE will continue to monitor business conditions with the aim of assessing and
quantifying material adverse effects, if any, that result from the Year 2000
problem.
SUMMARY
PGE has a Plan to deal with the Year 2000 challenge and believes that it will
be able to achieve substantial Year 2000 readiness with respect to the mission
critical systems that it controls. From a forward-looking perspective, the
extent and magnitude of the Year 2000 problem as it will affect PGE, both
before and for some period after January 1, 2000, are difficult to predict or
quantify for a number of reasons. Among these are: the difficulty of locating
"embedded" chips that may be in a great variety of mission-critical hardware
used for process or flow control, environmental, transportation, access,
communications and other systems; the difficulty of inventorying, assessing,
remediating, verifying and testing Outside Systems; the difficulty in locating
all mission-critical software (computer code) internal to PGE that is not Year
2000 compatible; 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
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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"), to be effective January 1, 2000. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in 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 is effective for fiscal years beginning after June 15, 1999. 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.
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 April 12, 1999, the House of Representatives approved and sent to the Oregon
Senate House Bill 3220, a measure that would affirm the OPUC's authority to
allow PGE's recovery of a return on 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.
COLUMBIA RIVER PEOPLE'S UTILITY DISTRICT V PORTLAND GENERAL ELECTRIC COMPANY
On December 1, 1998, the Columbia River People's Utility District (CRPUD) filed
an anti-trust complaint in Federal District Court which seeks to overturn a
1984 Judgment and Acquisition Agreement that confirmed PGE's exclusive right to
serve Boise Cascade Corporation. The complaint seeks to declare as invalid and
unenforceable a provision establishing the amount to be paid by CRPUD upon
their condemnation of PGE facilities serving Boise Cascade; it also seeks an
injunction barring PGE from enforcing earlier agreements and judgments related
to this matter. Attorney fees and costs were sought but no claim was made for
monetary damages.
On March 24, 1999, the Court entered Summary Judgment in favor of PGE.
On April 21, 1999, CRPUD filed a Notice of Appeal, with briefing and oral
argument to follow. A decision from the Ninth Circuit Court of Appeals is not
anticipated until 2000.
PART II
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
OTHER INFORMATION (CONTINUED)
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
registrants have duly caused this report to be signed on their behalf by
the undersigned hereunto duly authorized.
PORTLAND GENERAL ELECTRIC COMPANY
(Registrants)
May 7, 1999 By: /s/ Mary K. Turina
Mary K. Turina
Treasurer, Controller and
Chief Accounting Officer
(Principal financial officer and
principal accounting officer)
UT
1,000,000
3-MOS
DEC-31-1999
MAR-31-1999
PER-BOOK
1,811
336
247
748
0
3,142
160
480
380
1,020
30
0
818
0
0
140
0
0
0
1
1,133
3,142
299
30
211
241
58
6
64
19
45
1
44
20
16
47
0
0
