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Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 1994, for Portland General Corporation (Parent) and its principal subsidiary, Portland General Electric Company (PGE). PGE is an Oregon-based electric utility. The reporting period is characterized by the ongoing shutdown and decommissioning of the Trojan Nuclear Plant, regulatory proceedings regarding rate recovery, and the divestiture of non-utility real estate operations.

Key Financial Metrics

Income Statement Highlights (Parent Company)

Note: Net Income includes a $6.5 million after-tax gain from discontinued real estate operations in the second quarter.

Balance Sheet and Liquidity (Parent Company)

• Cash and Cash Equivalents: $31.4 million (June 30, 1994) vs. $3.2 million (Dec 31, 1993).
• Total Assets: $3.48 billion.
• Long-Term Debt: $828.1 million.
• Preferred Stock: $119.7 million (including $50 million subject to mandatory redemption).
• Working Capital: Current assets of $320.4 million exceed current liabilities of $367.3 million, resulting in a working capital deficit of approximately $46.9 million, typical for utilities with significant short-term borrowings.

Cash Flow (Parent Company)

• Cash from Operations (6 months): $127.4 million.
• Cash Used in Investing (6 months): $119.0 million (primarily utility construction and Trojan decommissioning trust funding).
• Cash from Financing (6 months): Net use of $7.3 million (includes $20 million preferred stock redemption and $19.6 million COLI borrowing).

Material Changes vs. Prior Period

Three Months Ended June 30, 1994 vs. 1993

• Earnings: Net income increased from $13.3 million to $24.0 million. This increase is primarily driven by a $6.5 million after-tax gain from the restoration of real estate reserves due to the divestiture of discontinued operations.
• Operating Margin: Operating margin declined by $8 million. While operating revenues rose $10 million (due to wholesale sales growth and customer additions), variable power costs increased $18 million.
• Power Costs: Average variable power costs rose to 17.4 mills/kWh from 15.2 mills/kWh in 1993, driven by poor regional water conditions and higher purchased power costs to replace Trojan generation.
• Operating Expenses: Declined $9 million (12%) due to $7 million in nuclear operating cost savings from the Trojan shutdown.

Six Months Ended June 30, 1994 vs. 1993

• Earnings: Net income increased from $49.9 million to $63.1 million. Excluding the $6.5 million real estate gain, earnings were $56.6 million.
• Margin Decline: Operating margin decreased by $18 million. Revenues increased $11 million, but variable power costs rose $29 million.
• Revenue Drivers: Wholesale revenues rose $15 million (82% increase in energy sold), offsetting a $3 million decline in retail revenues caused by mild weather and lower power cost deferral accruals.

Guidance, Outlook, and Risks

Regulatory and Rate Matters

• General Rate Case: PGE filed for a 5% average rate increase effective Jan 1, 1995. The Oregon Public Utility Commission (PUC) delayed a final order until March 31, 1995, to review Trojan-related costs and the cost of capital.
• Trojan Recovery: PGE seeks recovery of $355 million in plant investment and $346 million in decommissioning charges. While the PUC has allowed interim collection, final approval is pending. Management believes recovery is likely but cannot guarantee it.
• Power Cost Deferrals: PGE has deferred $44 million (1992-93) and $49 million (1993-94) in replacement power costs. Recovery of these amounts is subject to PUC earnings reviews.

Legal Proceedings

• SCE Complaint: Southern California Edison (SCE) filed a complaint alleging PGE's closure of Trojan violated a 1986 power sales agreement. SCE seeks termination of the contract and approximately $27 million in damages. PGE intends to vigorously defend the claim.
• Bonneville Pacific Litigation: PGE and its affiliates are named in class action suits and a bankruptcy trustee suit regarding the Bonneville Pacific investment. In May 1994, a federal court dismissed several claims against PGE, though others remain pending. PGE is also pursuing a $228 million claim against Deloitte & Touche.

Operational Risks

• Power Supply: Federal mandates to spill water from dams to aid salmon migration reduced hydroelectric generation, increasing reliance on more expensive thermal generation and purchased power.
• Decommissioning Costs: Total estimated decommissioning cost for Trojan is $409 million. Transition costs are estimated at $10-$15 million annually. The Nuclear Decommissioning Trust holds $53 million.
• Environmental: PGE is a "potentially responsible party" for PCB cleanup at various sites, with an estimated share of $3 million.

Investor Verification Checklist

• Trojan Cost Recovery: Verify the status of the PUC's final order on the recovery of $355 million in Trojan plant investment and $346 million in decommissioning costs.
• SCE Litigation Outcome: Monitor the defense against Southern California Edison's $27 million claim regarding the Trojan shutdown.
• Power Cost Deferrals: Confirm the PUC's approval of the earnings review for the $49 million power cost deferral period (July 1993–March 1994).
• Real Estate Divestiture: Confirm the completion of the real estate portfolio divestiture and the finality of the $6.5 million gain recognized in Q2 1994.
• Capital Expenditures: Track the $250 million estimated capital expenditure for 1994, noting delays in the Coyote Springs Generation Project.