POR

Business Context and Reporting Period

Company: Portland General Corporation (PGC) and its principal subsidiary, Portland General Electric Company (PGE).
Reporting Period: Fiscal year ended December 31, 1993.
Business Overview: PGC is an electric utility holding company. PGE generates, transmits, and distributes electricity in Oregon and sells wholesale energy, primarily to California. The company serves over 620,000 customers in a 3,170 square mile service area.
Key Operational Event: In early 1993, PGE permanently ceased commercial operation of the Trojan Nuclear Plant (745 MW) due to cost-effectiveness concerns. This decision significantly altered the company's power supply mix, necessitating increased reliance on purchased power and internal thermal generation.

Key Financial Metrics (1993)

Material Changes vs. Prior Period

• Revenue Growth: Total operating revenues increased by approximately $64 million (7.3%) compared to 1992. This was driven by a $94 million increase in retail revenues, primarily due to a $49 million increase in accrued revenues for future recovery of incremental power costs and a 5% increase in electricity sales due to cooler weather and load growth.
• Wholesale Decline: Wholesale revenues dropped $30 million due to the lack of low-cost power available for resale following the shutdown of the Trojan plant.
• Cost Structure: Variable power costs increased by $90 million as the company replaced low-cost nuclear generation with higher-cost purchased power (average cost rose from 15 mills/kWh in 1992 to 19 mills/kWh in 1993). However, operating costs excluding variable power, depreciation, and decommissioning declined 14% due to a $53 million reduction in nuclear expenses.
• Profitability: Net income for PGC remained relatively stable at $89.1 million in 1993 compared to $89.6 million in 1992. However, 1992 earnings included an $11 million after-tax benefit from the capitalization of Trojan repair costs; excluding this, 1993 earnings represented an improvement.

Guidance, Outlook, and Risks

Management Outlook

• Power Supply: PGE expects to purchase approximately 57% of its 1994 load requirements. The company is replacing Trojan's output with a mix of demand-side management, renewables, and new gas-fired resources (Coyote Springs project expected completion in late 1995).
• Rate Filing: On November 8, 1993, PGE filed a general rate case requesting a 5.1% average price increase effective January 1, 1995, to recover higher power costs and capital investments. The filing requests a return on equity of 11.5% (down from 12.5%).
• Capital Plan: Expected 1994 capital expenditures are $265 million, with $115 million allocated to new generating resources.

Risks and Contingencies

• Trojan Cost Recovery: The realization of $722 million in assets related to the abandoned Trojan plant (including $367 million in plant investment and $356 million in decommissioning costs) is dependent on ratemaking approval by the Oregon Public Utility Commission (PUC). While management believes recovery is probable, the outcome is uncertain and could materially impact future results.
• Legal Proceedings: Significant litigation exists regarding the Bonneville Pacific Corporation investment (seeking approx. $228 million in damages against auditors) and cost-sharing disputes regarding the WNP-3 nuclear project.
• Environmental: Potential impacts from the Endangered Species Act regarding salmon runs could reduce hydroelectric generation availability, increasing reliance on purchased power. Additionally, PGE faces environmental cleanup costs estimated at $3 million for PCB contamination.
• Transmission: The January 1994 Los Angeles earthquake damaged the DC Intertie, potentially limiting wholesale sales to the Southwest and affecting secondary power prices.

Investor Verification Checklist

• Trojan Regulatory Approval: Verify the status of the PUC's decision on the recovery of Trojan plant investment and decommissioning costs, as this represents a significant contingent asset.
• Power Cost Deferrals: Confirm the timeline and amount of power cost deferrals authorized by the PUC for collection from customers to offset replacement power costs.
• Legal Exposure: Monitor the status of the Bonneville Pacific litigation and the WNP-3 cost-sharing trial, which could result in significant liabilities or asset write-offs.
• Rate Case Outcome: Track the approval of the November 1993 general rate filing to ensure projected revenue increases are realized.
• Environmental Compliance: Assess the impact of EPA regulations on coal-fired plants (Centralia, Boardman) and potential costs associated with emission reductions.