10-K405 1 10-K405 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 OR / / 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 1-5152 ------------------------ PACIFICORP (Exact name of registrant as specified in its charter) STATE OF OREGON 93-0246090 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 700 N.E. MULTNOMAH, PORTLAND, OREGON (Address of principal executive 97232-4116 offices) (Zip Code)
Registrant's telephone number, including area code: (503) 731-2000 ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON WHICH TITLE OF EACH CLASS REGISTERED ------------------------------------------- --------------------------------------- Common Stock New York Stock Exchange Pacific Stock Exchange $1.98 No Par Serial Preferred Stock, New York Stock Exchange ($25 Stated Value), Series 1992
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: TITLE OF EACH CLASS -------------------------------------------------------------------------------- 5% Preferred Stock (Cumulative; $100 Stated Value) Serial Preferred Stock (Cumulative; $100 Stated Value) No Par Serial Preferred Stock (Cumulative; Various Stated Values) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ On March 1, 1995, the aggregate market value of the shares of voting stock of the Registrant held by nonaffiliates was approximately $5.8 billion. As of March 1, 1995, there were 284,259,719 shares of the Registrant's common stock outstanding. ------------------------ DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders of the Registrant for the year ended December 31, 1994 are incorporated by reference in Parts I and II. Portions of the Annual Reports on Form 10-K of Pacific Telecom, Inc. and PacifiCorp Financial Services, Inc. for the year ended December 31, 1994 are incorporated by reference in Part I. Portions of the proxy statement of the Registrant for the 1995 Annual Meeting of Shareholders are incorporated by reference in Part III. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE NO. ----- Definitions............................................................. ii Part I Item 1. Business.................................................. 1 The Organization........................................ 1 Electric Utility Operations............................. 1 Pacific Telecom......................................... 9 Other................................................... 9 Employees............................................... 10 Item 2. Properties................................................ 10 Item 3. Legal Proceedings......................................... 12 Item 4. Submission of Matters to a Vote of Security Holders....... 13 Item 4A. Executive Officers of the Registrant...................... 13 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................................... 15 Item 6. Selected Financial Data................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 15 Item 8. Financial Statements and Supplementary Data............... 15 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................... 15 Part III Item 10. Directors and Executive Officers of the Registrant........ 15 Item 11. Executive Compensation.................................... 15 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................... 15 Item 13. Certain Relationships and Related Transactions............ 15 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................................. 16 Signatures.............................................................. 20 Appendices Schedule II Statements of Computation of Ratio of Earnings to Fixed Charges Statements of Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends List of Subsidiaries Portions of the Annual Reports on Form 10-K of Pacific Telecom, Inc. and PacifiCorp Financial Services, Inc. for the year ended December 31, 1994
i DEFINITIONS When the following terms are used in the text they will have the meanings indicated:
TERM MEANING --------------------------------------------- ------------------------------------------------------------------- BPA.......................................... Bonneville Power Administration Company...................................... PacifiCorp, an Oregon corporation FERC......................................... Federal Energy Regulatory Commission Holdings..................................... PacifiCorp Holdings, Inc., a wholly owned subsidiary of the Company PGC.......................................... Pacific Generation Company, a wholly owned subsidiary of Holdings, and its subsidiaries PFS.......................................... PacifiCorp Financial Services, Inc., a wholly owned subsidiary of Holdings, and its subsidiaries Pacific Power................................ Pacific Power & Light Company, the assumed business name of the Company under which it conducts a portion of its retail electric operations Pacific Telecom.............................. Pacific Telecom, Inc., an approximately 87% owned subsidiary of Holdings, and its subsidiaries Utah Power................................... Utah Power & Light Company, the assumed business name of the Company under which it conducts a portion of its retail electric operations
ii PART I ITEM 1. BUSINESS THE ORGANIZATION The Company is an electric utility that conducts a retail electric utility business through Pacific Power and Utah Power, and engages in power production and sales on a wholesale basis under the name PacifiCorp. The Company formed Holdings in 1984 to hold the stock of the Company's principal subsidiaries and to facilitate the conduct of businesses not regulated as electric utilities. The Company's strategic business plan is to strengthen the scope and competitive position of its electric utility and telecommunications operations, to develop and expand its independent power production and cogeneration business, and to reduce the size and narrow the scope of its other diversified activities. Through Holdings, the Company indirectly owns approximately 87% of Pacific Telecom, a telecommunications company that provides local telephone service and access to the long distance network in Alaska, seven other western states and three midwestern states, intrastate and interstate long distance communication services in Alaska, and cellular mobile telephone services. Pacific Telecom is also involved in the operation and maintenance of and sale of capacity in a submarine fiber optic cable between the United States and Japan. Holdings has entered into an agreement and plan of merger with Pacific Telecom under which Holdings would acquire the 13% publicly held minority interest in Pacific Telecom for $30 per share. The merger requires approval by the holders of a majority of the outstanding shares of Pacific Telecom not owned by Holdings (5.3 million shares), and is subject to regulatory approvals and other conditions customary to such transactions. Holdings owns 100% of PGC, which is engaged in the independent power production and cogeneration business. Holdings also owns 100% of PFS. Consistent with PacifiCorp's strategic plan, PFS has sold substantial portions of its loan, leasing, manufacturing and real estate investments and expects to continue its disposition activities over the next several years. PFS presently expects to retain only its tax-advantaged investments in leveraged lease assets (primarily aircraft) and low-income housing projects. Note 16 to the Company's Consolidated Financial Statements, incorporated herein by reference under Item 8, contains information with respect to the revenue and income from operations contributed by each of the Company's industry segments for the past three years and the identifiable assets attributable to each segment at the end of each of those years; this information is incorporated herein by this reference. For the year ended December 31, 1994, 76% of PacifiCorp's revenues from operations were derived from Electric Operations, while Pacific Telecom contributed 20%. The Company's common stock (symbol PPW) is traded on the New York Stock Exchange and the common stock of Pacific Telecom, Inc. (symbol PTCM) is traded on the national over-the-counter market. The Company's $1.98 No Par Serial Preferred Stock, Series 1992, is traded on the New York Stock Exchange. ELECTRIC UTILITY OPERATIONS PacifiCorp conducts its retail electric utility operations as Pacific Power and Utah Power, and engages in wholesale electric transactions under the name PacifiCorp. Pacific Power and Utah Power provide electric service within their respective service territories. Power production, wholesale sales, fuel supply and administrative functions are managed on a coordinated basis. SERVICE AREA The Company serves 1.3 million retail customers in service territories aggregating about 153,000 square miles in portions of seven Western states: Utah, Oregon, Wyoming, Washington, Idaho, California and Montana. The service area contains diversified industrial and agricultural economies. 1 Principal industries include oil and gas extraction, lumber and wood products, paper and allied products, chemicals and primary metals and mining. Agricultural products include potatoes, hay, grain and livestock. The Company's distribution assets in northern Idaho were sold on December 31, 1994 following approval of the sale by the Idaho Public Utilities Commission. The decision to sell these assets was based on a number of competitive factors, including the likelihood of significant future price increases. The sale affects 9,800 residential, commercial and industrial customers. The geographical distribution of retail electric operating revenues for the year ended December 31, 1994 was Utah, 36%; Oregon, 31%; Wyoming, 15%; Washington, 8%; Idaho, 5%; California, 3%; and Montana, 2%. CUSTOMERS Electric utility revenues and energy sales, by class of customer, for the three years ended December 31, 1994 were as follows:
1994 1993 1992 -------------- -------------- -------------- Operating Revenues (Dollars in millions): Residential................. $ 724.9 28% $ 698.9 29% $ 649.8 28% Commercial.................. 570.4 22 543.9 22 526.9 23 Industrial.................. 726.3 28 696.2 28 695.6 30 Government, Municipal and Other...................... 30.7 1 29.8 1 29.9 1 -------- ---- -------- ---- -------- ---- Total Retail Sales........ 2,052.3 79 1,968.8 80 1,902.2 82 Wholesale Sales-Firm........ 456.2 18 422.5 17 356.5 15 Wholesale Sales-Nonfirm... 76.5 3 77.3 3 71.3 3 -------- ---- -------- ---- -------- ---- Total Energy Sales........ 2,585.0 100% 2,468.6 100% 2,330.0 100% ---- ---- ---- ---- ---- ---- Other Revenues (1).......... 62.8 38.3 32.4 -------- -------- -------- Total Operating Revenues................. $2,647.8 $2,506.9 $2,362.4 -------- -------- -------- -------- -------- -------- Kilowatt-hours Sold (kWh in millions): Residential................. 12,127 21% 12,055 21% 11,230 21% Commercial.................. 10,645 18 10,085 18 9,733 18 Industrial.................. 20,306 34 19,671 34 19,942 36 Government, Municipal and Other...................... 623 1 602 1 606 1 -------- ---- -------- ---- -------- ---- Total Retail Sales........ 43,701 74 42,413 74 41,511 76 Wholesale Sales-Firm........ 12,418 21 11,919 21 10,455 19 Wholesale Sales-Nonfirm..... 3,207 5 3,030 5 2,965 5 -------- ---- -------- ---- -------- ---- Total kWh Sold............ 59,326 100% 57,362 100% 54,931 100% -------- ---- -------- ---- -------- ---- -------- ---- -------- ---- -------- ---- ------------------------ (1) Includes miscellaneous and steam heating revenues.
The Company's seven-state service territory has complementary seasonal load patterns. In the western sector, customer demand peaks in the winter months due to space heating requirements. In the eastern sector, customer demand peaks in the summer when irrigation and cooling systems are heavily used. Many factors affect per customer consumption of electricity. For residential customers, within a given year, weather conditions are the dominant cause of usage variations from normal seasonal patterns. However, the price of electricity is also considered a significant factor. During 1994, no single retail customer accounted for more than 1.5% of the Company's retail utility revenues and the 20 largest retail customers accounted for 12% of total retail electric revenues. 2 COMPETITION Although the Company operates as a regulated monopoly within its service territories, the Company encounters significant competition from both traditional and nontraditional energy suppliers. Competition varies in form and intensity and includes competition from both utility and nonutility energy suppliers for industrial customers, as well as for wholesale power sales to other utilities; self generation and cogeneration by industrial customers; and substitute energy forms for residential and commercial space heating, cooling and water heating. The Energy Policy Act of 1992 eased restrictions on independent power production and gave the FERC authority to mandate wholesale wheeling. The FERC is moving quickly to set the stage for competition. In a series of recently released orders and notices of proposed rulemaking, the FERC has heightened the level of industry discussion regarding topics such as transmission access and pricing, stranded investment, unbundling of services and comparability of service standards. In addition, several states have taken actions that may increase competition at the retail level. For example, the California Public Utilities Commission is conducting a rulemaking that would allow competition for all retail electric customers in California. The Michigan Public Service Commission has also ordered an experimental five-year program to evaluate competition for large retail customers in that state. The Company is formulating strategies to meet these new challenges and maintain its competitive position. The Company has restructured its electric operations into three internal business units -- generation, wholesale transactions and transmission, and retail sales. The Company is also seeking alternate forms of regulation that will include performance indices to give shareholders an appropriate opportunity to share in the rewards and risks of competition. The Company plans to focus on the development of new products and services, as well as the use of existing technologies in new ways. The Company has begun to offer power supply services to other utilities, including dispatch assistance, daily system load monitoring, backup power, power storage and power marketing, and services to retail customers that encourage efficient use of energy. In addition, the Company has recently opened a wholesale power marketing office in Nevada. Depending upon the success of these strategies, the Company will continue to adjust its competitive direction. For a discussion of accounting for the effects of regulation, see Note 1 to the Company's Consolidated Financial Statements incorporated herein by reference under Item 8. CURRENT POWER AND FUEL SUPPLY The Company's generating facilities are interconnected through its own transmission lines or by contract through the lines of others. Substantially all generating facilities and reservoirs located within the Pacific Northwest are managed on a coordinated basis to obtain maximum load carrying capability and efficiency. The Company's transmission system connects with other utilities in the Northwest having low-cost hydroelectric generation and with utilities in California and the Southwest having higher-cost, fossil-fuel generation. In periods of favorable hydro conditions, the Company utilizes lower-cost hydroelectric power to supply a greater portion of its load and attempts to sell its displaced higher-cost thermal generation to other utilities. In periods of less favorable hydro conditions, the Company seeks to sell excess thermal generation to utilities which are more dependent on hydroelectric generation than the Company. During the winter, the Company is able to purchase power from Southwest utilities, either for its own peak requirements or for resale to other Northwest utilities. During the summer, the Company is able to sell excess power to Southwest utilities to assist them in meeting their peak requirements. See "Wholesale Sales and Purchased Power." The Company owns or has interests in generating plants with an aggregate nameplate rating of 8,413.5 megawatts ("MW") and plant net capability of 7,983.1 MW. See "Item 2. Properties." With its present generating facilities, under average water conditions, the Company expects that approximately 7% of its energy requirements for 1995 will be supplied by its hydroelectric plants and 79% by 3 its thermal plants. The balance of 14% will be obtained under long-term purchase contracts, interchange and other purchase arrangements. Note 9 to the Company's Consolidated Financial Statements, incorporated by reference under Item 8, contains additional details relating to the Company's purchase of power under long-term arrangements. The Company is purchasing 1,100 MW of firm capacity from the BPA pursuant to a recently executed long-term agreement that extends through August 1, 2011. The Company's current annual payment under this agreement is $77.2 million. The agreement provides for this amount to escalate at the rate of increase of BPA's average system cost. See "Regulation" for information concerning an increase in the BPA's rates. In January 1993, the Operating Committee for the Trojan Plant formally approved the permanent cessation of nuclear operations at the plant, which had been shut down since November 9, 1992 when a leak was detected in a steam generator tube. Portland General Electric Company is the operator of the Trojan Plant and owns a 67.5% share. The Eugene Water and Electric Board has assigned its 30% interest in the plant to the BPA, and the Company owns a 2.5% interest. Recovery of the Company's remaining investment in the Trojan Plant ($13.4 million at December 31, 1994) and estimated share of plant closure and decommissioning costs ($15.4 million at December 31, 1994) is subject to regulatory approval. Under the requirements of the Public Utility Regulatory Policies Act of 1978 ("PURPA"), the Company purchases the output of qualifying facilities constructed and operated by entities that are not public utilities. During 1994, the Company purchased an average of 102 MW from qualifying facilities, compared to an average of 94 MW in 1993. The Company plans and manages its capacity and energy resources based on critical water conditions. Under critical or better water conditions in the Northwest, the Company believes that it has adequate reserve generation capacity for its requirements. The Company's historical total firm peak load (including both retail and firm wholesale sales) of 8,903 MW occurred on December 5, 1994, and historical on-system firm peak load of 7,623 MW occurred on December 21, 1990. WHOLESALE SALES AND PURCHASED POWER Wholesale sales continue to contribute significantly to total revenues. The Company's wholesale sales complement its retail business and enhance the efficient use of its generating capacity. In 1994, wholesale sales accounted for 26% of total energy sales and 21% of total energy revenues. In addition to its base of thermal and hydroelectric resources, the Company utilizes a mix of long-term and short-term firm power purchases and nonfirm purchases to meet its load obligations and to make sales to other utilities when prices are favorable. Firm power purchases supplied 9% of the Company's total energy requirements in 1994. Nonfirm purchases were 5% of total energy requirements in 1994 and slightly less than the total amount of energy sold by the Company on the nonfirm wholesale market during the year. PROPOSED ASSET ADDITIONS In accordance with the Company's long range integrated resource planning process, also referred to as "least-cost planning," the Company considers various future demand and supply options for providing customers with reliable, low-cost energy services. See "Projected Demand." In this connection, the Company also seeks opportunities to acquire existing assets from other utilities. In 1993, the Company signed a contract to purchase the entire output from the Hermiston Generating Project located near Hermiston, Oregon. This 474 megawatt natural gas cogeneration project is being developed by U.S. Generating Company ("U.S. Generating"). In November 1994, U.S. Generating commenced construction of the plant. The Company has entered into an agreement to purchase, subject to certain conditions, a 50% ownership interest in this project for approximately $156 million. The payment is also contingent upon commercial operation of the project, which is expected to occur in July 1996. 4 The Company has signed a contract to build a 50 MW cogeneration project at the James River paper mill in Camas, Washington. The steam royalty agreement extends for 20 years. The facility will use steam produced for the paper making process to drive an electric turbine generator and is expected to begin operating in late 1995. The Company plans to participate in two wind generation projects, a 70 MW project in Wyoming and a 31 MW project in Washington, both of which are to be built by Kenetech Windpower and scheduled to begin producing power in 1996. The Company plans to own 53.2%, or about 38 MW of the Wyoming project, and 60%, or about 19 MW, of the Washington project. The terms of the Company's 1991 transaction with Arizona Public Service Company ("APS") call for the construction by APS of 150 MW of combustion turbines to be owned by the Company. The Company will pay a $20 million fee in January 1997 for rights and services provided by APS. Commercial operation dates for the turbines have not been established. PROJECTED DEMAND Annual increases in retail kilowatt-hour sales for the Company have averaged 2% since 1989. The Company has benefited from improved economic conditions in portions of its service territory and the Company's commitment to price stability. Substantial price reductions in many of the Company's service territories have helped sustain sales volume growth. In connection with its long-range integrated resource planning process, which includes load growth projections for its service areas, the Company considered a range of average annual growth in energy requirements from 0.3% to 3.8% over a 20-year horizon. For the period 1995 to 1999, the average annual growth is expected to be about 2%. Actual growth in the future will be determined by economic and demographic growth, competition and the effectiveness of energy efficiency programs. The Company's base of existing resources, in combination with actions outlined in its integrated resource plan, are expected to be sufficient to meet the above range of possible load growth conditions throughout the 1990s. Actions outlined in the integrated resource plan include energy efficiency by customers (demand-side management), efficiency improvements to existing generation, transmission and distribution systems, and investments in cogeneration, single cycle and combined cycle combustion turbines and in renewable resources. See "Proposed Asset Additions." The Company intends to use the results of its integrated resource planning process as a framework to evaluate opportunities to acquire surplus generating facilities from other utilities. Demand-side management is an element of the Company's diversified portfolio of resources identified in its integrated plan. The use of an energy service charge concept in the Company's demand-side resource programs is intended to allow these resources to be acquired at competitive costs. Under the energy service charge program, the customers receiving the benefits of energy efficiency measures are expected to pay most of the related costs. The Company expended an aggregate of $44 million for demand-side resources in 1994, while acquiring 18.7 average MW of energy efficiency. ENVIRONMENT In addition to land use restrictions and other controls by local governments, the Company is subject to regulation by federal, state and local authorities pursuant to legislation designed to protect and enhance the quality of the environment, including air and water quality, remediation of contamination, waste disposal and protection of endangered species. Environmental regulation has not only increased the cost of providing electric service, it has adversely affected various industrial groups, thereby negatively impacting kWh sales by the Company to certain customers in those industries. However, the Company has been able to manage these additional costs to date without having to pass the costs directly to its customers in the form of higher rates. The Company's ability to avoid such price increases in the future is uncertain. 5 AIR QUALITY. The Company's operations are subject to regulation under the Federal Clean Air Act, as enforced by the Environmental Protection Agency ("EPA") and various state agencies. The Company believes that all of the coal-fired generating plants operated by it comply in all material respects with current emission standards. Some of the plants have recently modified their fuel supply systems or processes in order to meet those standards. The Company believes that it can continue to operate its plants at or below currently mandated emission rates without incurring costs that would have a material adverse effect on its consolidated results of operations. In August 1993, the Sierra Club filed an action against the owners of the Hayden Generating Station alleging violations of state and federal air quality regulations at the station since 1988. In April 1992, the Company acquired interests in two units of the station, which is operated by Public Service Company of Colorado. Among other things, the complaint alleges violations of opacity emission standards and seeks civil monetary penalties and an injunction. Various federal and state agencies have raised concerns with respect to perceived visibility degradation in areas where the Company owns coal-fired generating plants. Two visibility studies have been completed within the Company's service territory, one in Washington and the other in the Canyonlands area of Utah. To date, no additional emission control requirements have resulted from these studies. The Company is participating in additional visibility studies in western Wyoming, Colorado and the Grand Canyon area. The findings of these studies may have a significant impact on operations at a number of generating plants owned by the Company or in which the Company has an ownership interest. The 1990 Clean Air Act Amendments require an overall reduction in the emission of sulfur dioxide ("SO(2)") and nitrogen oxides ("NO(x)") from utility generating plants, and establish a system of marketable SO(2) emission allowances. The Company's generating plants burn low-sulfur coal and the majority of the Company's plants representing a majority of its installed capacity have been equipped with SO(2) emission controls. However, the new law will result in additional operating costs because the Company will be required to maintain and manage SO(2) emission levels, install approximately $12 million of emission monitoring equipment, and reduce NO(x) emissions at some of its generating plants. The SO(2) emission allowances awarded to the Company are sufficient to enable the Company to meet its current needs and expansion plans and to enable the Company to take advantage of opportunities to sell surplus allowances to other utilities. In 1994, the Company recorded the sales of a portion of its surplus allowances for $9 million. The Company may have approximately 20,000 to 25,000 tons of surplus SO(2) emission allowances available for sale each year until 2024. In February 1995, the Southwest Air Pollution Control Authority ("SWAPCA") published a preliminary determination of the SO(2) emission limitations to be imposed on the Centralia steam electric generating plant through the application of Reasonably Available Control Technology ("RACT") as mandated by the state of Washington's Clean Air Act. The RACT determination considers technical feasibility, economic impact and other issues in setting an emissions level for the plant. Such limitations could be achieved through the use of low-sulfur coal from sources other than the Centralia mine, or by flue gas desulfurization systems on a portion of the flue gasses, or a combination of those or other means, certain of which could require capital expenditures. The Company and SWAPCA are discussing the appropriate emission level to be imposed at the plant. Emissions from coal-fired generating plants include carbon dioxide (CO(2)). Carbon dioxide emissions are not currently subject to regulation, but have been the subject of increasing public concern. In 1994, the Company joined with 37 other investor-owned utilities to sign a voluntary agreement with the U.S. Department of Energy addressing CO(2) emissions. The Company's specific agreement includes a commitment to reduce its 1990 CO(2) emissions rate by 10% and to spend $1 million on offset projects by the year 2000. The Company is testing various techniques of offsetting CO(2) emissions to determine their feasibility and cost effectiveness. 6 ENDANGERED SPECIES. Enforcement of the Endangered Species Act ("ESA") and other laws by the National Marine Fisheries Service ("NMFS") and the U.S. Fish and Wildlife Service ("FWS") is affecting the Company's operations in a number of areas. Environmental regulation under the ESA has resulted in reduced availability of timber for use by the Company's customers in the wood products industry, and long-range timber management plans for timberlands managed by federal and state agencies are expected to further reduce the volume of timber available for processing. In addition, the listing of the Northern Spotted Owl and other species under the ESA is expected to result in further restrictions on timber harvesting from both public and private timber lands. These actions have adversely affected energy sales to the Company's customers in the wood products industry. Protection of habitat of endangered and threatened species will make it more difficult to site and construct new transmission and distribution facilities and generating plants, and is also a consideration in connection with the relicensing of existing hydroelectric generating projects. NMFS is responsible for ESA actions regarding marine fish and certain marine mammals. As a result of recent decisions with respect to the listing of species of Columbia River salmon as endangered or threatened, NMFS is involved in recovery measure planning that could result in changes in federal hydrosystem operations and flows. These changes could affect the availability and cost of power from the BPA. Pending and threatened lawsuits under the ESA and the Northwest Power Act could result in further restrictions on the federal hydropower system and affect regional power supplies and costs. The FWS has identified the Lost River sucker, the shortnose sucker, and the bald eagle as species listed under the ESA that may be affected by operations of the Klamath Project, a hydroelectric project in southern Oregon and Northern California. Waterflows through the Klamath Project are directed by the U.S. Bureau of Reclamation during periods of critically low flows. Because of recent drought conditions, flows past the Link River Dam have been substantially reduced, which has contributed to a reduction in hydroelectric generation at certain of the Company's downstream hydroelectric plants. The Company anticipates that other fish species will be nominated for ESA listings, and such actions could further impact the Company's hydroelectric resources. The Company is continuing to monitor and participate in regional ESA activities to minimize the generation and economic impacts resulting from such actions. It is unknown at this time what impact, if any, these actions will have on the Company's operations. ELECTROMAGNETIC FIELDS. A number of studies have examined the possibility of adverse health effects from electromagnetic fields ("EMF"), without conclusive results. Certain states and cities have enacted regulations to limit the strength of magnetic fields at the edge of transmission line rights-of-way; however, other than California, none of the jurisdictions in which the Company operates has adopted formal rules or programs with respect to EMF or EMF considerations in the siting of electric facilities. In California, the Public Utilities Commission has issued an interim order requiring utilities to implement no cost or low-cost mitigation measures in the certification process for their facilities. The Company expects that public concerns about EMF will make it more difficult to site and construct new power lines and substations in the future. It is uncertain whether the Company's operations may be adversely affected in other ways as a result of EMF concerns. ENVIRONMENTAL CLEANUPS. Under the Comprehensive Environmental Response, Compensation and Liability Act and comparable state statutes, entities that disposed of or arranged for the disposal of hazardous substances, and the owners and operators of the affected property, may be liable for the remediation of contaminated sites. The Company has been identified as a potentially responsible party in connection with a number of cleanup sites to which it may have sent transformers containing polychlorinated biphenyls ("PCBs"), used oil and other hazardous wastes. In addition, certain of the Company's own properties have been identified as requiring remediation. The Company is conducting 7 or participating in investigations and remedial actions with respect to those sites; however, the costs associated with those actions are not expected to be material to the Company's consolidated financial position or results of operations. WATER QUALITY. The Clean Water Act requires permits for the discharge of certain pollutants into the waters of the United States, including storm water runoff. Under this Act, the EPA has issued effluent limitation guidelines, pretreatment standards and new source performance standards for the control of certain pollutants; and individual states may impose still more stringent limitations. The Company currently has the required discharge permits for its facilities, except for a dredging permit with respect to Bear Lake in Idaho which is expected to involve a contested hearing. Failure to obtain that permit could adversely affect certain of the Company's hydroelectric facilities on the Bear River. Additional regulations may be promulgated in the future, but the Company is unable to predict the extent to which such additional regulations will affect its operations and capital expenditure requirements. HAZARDOUS WASTES. The federal Resource Conservation and Recovery Act ("RCRA") has established a national program for the handling, treatment, recycling, storage and disposal of hazardous wastes. To date, RCRA has not had a material impact on the Company's operations or expenditures; however, the EPA and the Congress are studying the impacts of high volume, low toxicity utility wastes, such as fly ash, which are now exempt from RCRA regulations. If this exception were to be withdrawn, the Company may be faced with considerable expense to change its disposal practices and modify its existing disposal facilities. MISCELLANEOUS. In cooperation with Bureau of Land Management ("BLM") and the FWS, the Company has installed a system to prevent birds from landing in the flue gas desulfurization waste pond at the Naughton Plant pond. The Company is studying possible methods of preventing bird landings on a similar pond at the Jim Bridger plant. REGULATION The Company is subject to the jurisdiction of public utility regulatory authorities of each of the states in which it conducts retail electric operations as to prices, services, accounting, issuance of securities and other matters. The Company is a "licensee" and a "public utility" as those terms are used in the Federal Power Act and is, therefore, subject to regulation by the FERC as to accounting policies and practices, certain prices and other matters. Most of the Company's hydroelectric plants are licensed as major projects under the Federal Power Act and certain of these projects are licensed under the Oregon Hydroelectric Act. The Company is currently in the process of relicensing certain of its hydroelectric projects under the Federal Power Act and will be seeking licenses for other projects in the future. The licenses of 11 of the Company's hydroelectric projects expire within the next 10 years. These projects represent 458 MW, or 43%, of the Company's hydroelectric generating capacity. In the new licenses, the FERC is expected to impose conditions designed to address the impact of the projects on fish and other environmental concerns. See "Environment; Endangered Species." The Company is unable to predict the impact of imposition of such conditions, but capital expenditures and operating costs are expected to increase in future periods. In addition, the Company may refuse relicenses for certain projects if the terms of renewal make the projects uneconomical to operate. Prices charged to retail customers are subject to regulation in each of the states the Company serves. Interstate sales of electricity at wholesale prices and interstate wheeling rates are regulated by the FERC. Except in Montana, where the commission is elected, commissioners are appointed by the individual state's governor for varying terms. While regulation varies from state to state, industry analysts consider the overall quality of the regulatory commissions having jurisdiction over the Company to be about average in their treatment of the rate applications of utilities. BPA plans to increase its power and wheeling rates effective in late 1995 or early 1996. The Company's firm capacity purchase and wheeling expenses will be affected by this increase. In addition, 8 any increase in the BPA's rates will reduce the exchange benefits directly received by the Company's residential and small farm customers. The Company intends to request price increases that will allow it to recover the loss of exchange benefits. CONSTRUCTION PROGRAM The following table shows actual construction costs for 1994 and the Company's estimated construction costs for 1995 through 1997, including costs of acquiring demand-side resources. The estimates of construction costs for 1995 through 1997 are subject to continuing review and the Company makes appropriate revisions. These estimates do not include expected expenditures for purchases of generating assets. See "Proposed Asset Additions" for information concerning recent and proposed additions to the Company's generating assets.
ESTIMATED ACTUAL ---------------- TYPE OF FACILITY 1994 1995 1996 1997 ------------------------------ ------ ---- ---- ---- (DOLLARS IN MILLIONS) Production.................... $143 $105 $181 $181 Transmission.................. 81 55 66 60 Distribution.................. 246 221 204 206 Mining........................ 77 20 29 42 Other......................... 91 133 82 80 ------ ---- ---- ---- Total....................... $638 $534 $562 $569 ------ ---- ---- ---- ------ ---- ---- ----
PACIFIC TELECOM Pacific Telecom provides local telephone service and access to the long distance network in Alaska, seven other western states and three midwestern states. Alascom, Inc., Pacific Telecom's long distance telephone subsidiary, provides Alaska with both intrastate and interstate long distance communication services. Pacific Telecom's sale of Alascom, Inc. to AT&T Corp. is pending. Pacific Telecom has acquired and is developing, operating and managing cellular mobile telephone services in seven states. Pacific Telecom is also involved in the operation and maintenance of and sale of capacity in a submarine fiber optic cable between the United States and Japan. For further information with respect to the business of Pacific Telecom and the pending merger under which Holdings would acquire the minority interest in Pacific Telecom, see "Item 1. Business" of the Annual Report on Form 10-K of Pacific Telecom, Inc. for the year ended December 31, 1994; such information is incorporated herein by this reference. See "Item 3. Legal Proceedings" for a discussion of certain litigation affecting Pacific Telecom. OTHER Consistent with PacifiCorp's strategic plan, PFS plans to continue to sell portions of its loan, leasing and real estate investments over the next several years. PFS expects to retain only its tax-advantaged investments in leveraged lease assets (primarily aircraft) and low-income housing projects. For further information with respect to the business of PFS, see "Item 1. Business" of the Annual Report on Form 10-K of PacifiCorp Financial Services, Inc. for the year ended December 31, 1994; such information is incorporated herein by this reference. During 1994, the Company's wholly owned independent power production and cogeneration business, PGC, through its subsidiaries, began construction of a 240 MW cogeneration facility in California. When completed, the facility will be operated by PGC and PGC will own approximately 46% of the completed project. PGC plans to continue to pursue opportunities in the U.S. market and has begun a preliminary investigation of opportunities in the international markets. 9 EMPLOYEES PacifiCorp and its subsidiaries had 12,845 employees on December 31, 1994. Of these employees, 9,281 were employed by PacifiCorp and its mining affiliates, 2,762 were employed by Pacific Telecom and 802 were employed by PFS, PGC and other subsidiaries. Approximately 64% of the employees of PacifiCorp and its mining affiliates are covered by union contracts, principally with the International Brotherhood of Electrical Workers, the Utility Workers Union of America and the United Mine Workers of America. For information with respect to the employees of Pacific Telecom and PFS, see "Item 1. Business" of the Annual Reports on Form 10-K of Pacific Telecom, Inc. and PacifiCorp Financial Services, Inc., for the year ended December 31, 1994; such information is incorporated herein by this reference. In the Company's judgment, employee relations are satisfactory. ITEM 2. PROPERTIES The Company owns 52 hydroelectric generating plants and has an interest in one additional plant, with an aggregate nameplate rating of 1,079.2 MW and plant net capability of 1,124.5 MW. It also owns or has interests in 15 thermal-electric generating plants with an aggregate nameplate rating of 7,334.3 MW and plant capability of 6,858.6 MW. The following table summarizes the Company's existing generating facilities:
INSTALLATION NAMEPLATE PLANT NET LOCATION ENERGY SOURCE DATES RATING(MW) CAPABILITY(MW) --------------------- --------------- ------------ ---------- -------------- HYDROELECTRIC PLANTS Swift....................... Cougar, Washington Lewis River 1958 240.0 267.9 Merwin...................... Ariel, Washington Lewis River 1931-1958 136.0 144.0 Yale........................ Amboy, Washington Lewis River 1953 134.0 132.0 Five North Umpqua Plants.... Toketee Falls, Oregon N. Umpqua River 1950-1956 133.5 135.5 John C. Boyle............... Keno, Oregon Klamath River 1958 80.0 82.0 Copco Nos. 1 and 2 Plants... Hornbrook, California Klamath River 1918-1925 47.0 54.5 Clearwater Nos. 1 and 2 Plants..................... Toketee Falls, Oregon Clearwater River 1953 41.0 41.0 Grace....................... Grace, Idaho Bear River 1914-1923 33.0 33.0 Prospect No. 2.............. Prospect, Oregon Rogue River 1928 32.0 36.0 Cutler...................... Collinston, Utah Bear River 1927 30.0 29.1 Oneida...................... Preston, Idaho Bear River 1915-1920 30.0 28.0 Iron Gate................... Hornbrook, California Klamath River 1962 18.0 20.0 Soda........................ Soda Springs, Idaho Bear River 1924 14.0 14.0 Fish Creek.................. Toketee Falls, Oregon Fish Creek 1952 11.0 12.0 33 Minor Hydroelectric Plants..................... Various Various 1896-1990 99.7 95.5* ---------- ------- Subtotal (53 Hydroelectric Plants) 1,079.2 1,124.5
10
INSTALLATION NAMEPLATE PLANT NET LOCATION ENERGY SOURCE DATES RATING(MW) CAPABILITY(MW) --------------------- --------------- ------------ ---------- -------------- THERMAL ELECTRIC PLANTS Jim Bridger................. Rock Springs, Wyoming Coal-Fired 1974-1979 1,495.0* 1,386.7* Huntington.................. Huntington, Utah Coal-Fired 1974-1977 892.8 845.0 Dave Johnston............... Glenrock, Wyoming Coal-Fired 1959-1972 816.7 772.0 Naughton.................... Kemmerer, Wyoming Coal-Fired 1963-1971 707.2 700.0 Centralia................... Centralia, Washington Coal-Fired 1972 693.5* 636.5* Hunter 1 and 2.............. Castle Dale, Utah Coal-Fired 1978-1980 687.7* 639.4* Hunter 3.................... Castle Dale, Utah Coal-Fired 1983 446.4 395.0 Cholla Unit 4............... Joseph City, Arizona Coal-Fired 1981 414.0 380.0 Wyodak...................... Gillette, Wyoming Coal-Fired 1978 289.7* 268.0* Gadsby...................... Salt Lake City, Utah Gas-Fired 1951-1955 251.6 237.0 Carbon...................... Castle Gate, Utah Coal-Fired 1954-1957 188.6 175.0 Craig 1 and 2............... Craig, Colorado Coal-Fired 1979-1980 172.1* 165.0* Colstrip 3 and 4............ Colstrip, Montana Coal-Fired 1984-1986 155.6* 144.0* Hayden 1 and 2.............. Hayden, Colorado Coal-Fired 1965-1976 81.3* 78.0* Blundell.................... Milford, Utah Geothermal 1984 26.1 23.0 Little Mountain............. Ogden, Utah Gas Turbine 1971 16.0 14.0 ---------- ------- Subtotal (15 Thermal Electric Plants) 7,334.3 6,858.6 ---------- ------- Total Hydro and Thermal Generating Facilities (68) 8,413.5 7,983.1 ---------- ------- ---------- ------- ------------------------------ * Jointly owned plants; amount shown represents the Company's share only. NOTE: Hydroelectric project locations are stated by locality and river watershed.
The Company's generating facilities are interconnected through its own transmission lines or by contract through the lines of others. Substantially all generating facilities and reservoirs located within the Pacific Northwest region are managed on a coordinated basis to obtain maximum load carrying capability and efficiency. Portions of the Company's transmission and distribution systems are located, by franchise or permit, upon public lands, roads and streets and, by easement or license, upon the lands of others. Substantially all of the Company's electric utility plants are subject to the liens of the Company's Mortgages and Deeds of Trust. The following table describes the Company's recoverable coal reserves as of December 31, 1994. All coal reserves are dedicated to nearby Company operated generating plants. Recoverability by surface mining methods typically ranges between 90% and 95%. Recoverability by underground mining techniques ranges from 50% to 70%. The Company considers that the respective reserves assigned to the Centralia, Craig, Dave Johnston, Huntington, Hunter and Jim Bridger plants, together with coal available under both long-term and short-term contracts with external suppliers, will be sufficient to provide these plants with fuel that meets the Clean Air Act standards effective in 1995, for their current economically useful lives. The sulfur content of the reserves ranges from 0.43% to 0.84% and the BTU value per pound of the reserves ranges from 7,600 to 11,400. Reserve estimates are subject to adjustment as a result of the development of additional data, new mining technology and changes in regulation and economic factors affecting the utilization of such reserves.
RECOVERABLE TONS LOCATION PLANT SERVED (IN MILLIONS) ------------------------------ --------------------- ---------------- Centralia, Washington......... Centralia 44(1) Craig, Colorado............... Craig 72(2) Glenrock, Wyoming............. Dave Johnston 64(1) Emery County, Utah............ Huntington and Hunter 141(1)(3) Rock Springs, Wyoming......... Jim Bridger 138(4) ------------------------ (1) These reserves are mined by subsidiaries of the Company.
11 (2) These reserves are leased and mined by Trapper Mining Company, a wholly owned subsidiary of Williams Fork Company, in which the Company owns approximately 20% of the outstanding stock. (3) These reserves are in underground mines. (4) These reserves are leased and mined by Bridger Coal Company, a joint venture between Pacific Minerals, Inc., a subsidiary of the Company, and a subsidiary of Idaho Power Company. Pacific Minerals, Inc. has a two-thirds interest in the joint venture.
Most of the Company's coal reserves are held pursuant to leases from the federal government through the BLM and from certain states and private parties. The leases generally have multi-year terms that may be renewed or extended and require payment of rentals and royalties. In addition, federal and state regulations require that comprehensive environmental protection and reclamation standards be met during the course of mining operations and upon completion of mining activities. In 1994, the Company expended $3.6 million of reclamation costs and accrued $5.7 million of estimated final mining reclamation costs. Final mine reclamation funds have been established with respect to certain of the Company's mining properties. At December 31, 1994, the Company's pro rata portion of these reclamation funds totaled $26 million and the Company had an accrued reclamation liability of $104 million at December 31, 1994. For a description of the properties of Pacific Telecom and PFS, see "Item 1. Business" and "Item 2. Properties" of the Annual Reports on Form 10-K of Pacific Telecom, Inc. and PacifiCorp Financial Services, Inc. for the year ended December 31, 1994; such information is incorporated herein by this reference. ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries are parties to various legal claims, actions and complaints, certain of which are described below. Although it is impossible to predict with certainty whether or not the Company and its subsidiaries will ultimately be successful in its legal proceedings or, if not, what the impact might be, management believes that disposition of these matters will not have a material adverse effect on the Company's consolidated results of operations. In November 1991, former shareholders of American Network, Inc. ("AmNet") filed a third amended complaint against Pacific Telecom and others, suing individually and also derivatively on behalf of AmNet for damages allegedly arising out of the acquisition of AmNet by United States Transmission Systems, Inc. ("USTS"), a subsidiary of ITT Corporation, in 1988 and various alleged actions in connection with certain transactions that occurred in 1984 and 1986 between AmNet or its subsidiaries and Pacific Telecom or between AmNet and other parties. (LOEWEN, ET AL. V. GALLIGAN, ET AL., Circuit Court for the State of Oregon, County of Multnomah; United States District Court, District of Oregon.) At the time of the acquisition by USTS, Pacific Telecom owned 36.4% of the common shares of AmNet. On September 14, 1994, the Oregon Court of Appeals affirmed the trial court's grant of summary judgment to defendants. Plaintiffs' petition for review of that decision by the Oregon Supreme Court was denied on December 27, 1994. A class action complaint was filed against Equitec Financial Group, Inc. ("Equitec"), certain of its subsidiaries and former directors and officers, as well as the Company, PacifiCorp Holdings and PacifiCorp Financial Services. (DUVAL, ET AL. V. GLEASON, ET AL., Alameda County Superior Court, filed August 16, 1989). PacifiCorp Holdings acquired an interest in Equitec in December 1987 and owns approximately 49% of Equitec's stock. The complaint, as amended, was filed on behalf of the limited partners in twelve real estate limited partnerships sponsored by Equitec during the 1980-1988 period, and alleges fraud and breach of fiduciary duty by the defendants in connection with the public offering 12 and management of the real estate partnerships. Plaintiffs seek an unspecified amount of compensatory and punitive damages, an accounting of transactions entered into by the partnerships and rescission of the purchase of their partnership interests. The PacifiCorp defendants filed a demurrer to the amended complaint, which was allowed with prejudice and without further leave to amend. The plaintiffs in the DUVAL case have also filed two actions in the federal district court for the Northern District of California alleging fraud under the federal securities laws in connection with the sale of interests in the same partnerships. (SPENCER, ET AL. V. GLEASON, ET AL. and DUVAL, ET AL. V. GLEASON, ET AL., United States District Court for the Northern District of California.) The PacifiCorp defendants filed a motion to dismiss the federal actions, which has been held in abeyance pending settlement discussions. The parties have reached a tentative settlement of the federal and state actions subject to court approval. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No information is required to be reported pursuant to this item. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The following is a list of all executive officers of the Company. There are no family relationships among the executive officers. Officers are normally elected annually. Frederick W. Buckman, born March 9, 1946, President and Chief Executive Officer of the Company Mr. Buckman was elected President and Chief Executive Officer of the Company effective February 1, 1994 and became a director of the Company and PacifiCorp Holdings, Inc. in February 1994. He formerly served as President and Chief Executive Officer of Consumers Power Company, Jackson, Michigan, from 1992 to 1994 and as President and Chief Operating Officer of Consumers Power Company from 1988 to 1991. Charles E. Robinson, born December 3, 1933, Chairman, President and Chief Executive Officer of Pacific Telecom, Inc. and Chairman, President and Director of Alascom, Inc. Mr. Robinson was elected Chairman of Pacific Telecom, Inc. in February 1989. He has been serving as Chief Executive Officer since April 1985 and served as President from April 1985 to October 1990. He resumed the role of President on December 31, 1992. John A. Bohling, born June 23, 1943, Senior Vice President of the Company Mr. Bohling was elected Senior Vice President of the Company in February 1993. He served as Executive Vice President of Pacific Power from September 1991 to February 1993 and as Senior Vice President of Utah Power from February 1990 to September 1991. Shelley R. Faigle, born June 8, 1951, Senior Vice President of the Company Ms. Faigle was elected Senior Vice President of the Company in November 1993. She served as Vice President from February 1992 to November 1993 and as Vice President of Pacific Power from 1989 to February 1992. Paul G. Lorenzini, born April 16, 1942, Senior Vice President of the Company Mr. Lorenzini was elected Senior Vice President of the Company in May 1994. He served as President of Pacific Power from January 1992 to May 1994 and as Executive Vice President from January 1989 to January 1992. John E. Mooney, born March 9, 1937, Senior Vice President of the Company Mr. Mooney was elected Senior Vice President of the Company in November 1994. He served as Executive Vice President of Utah Power from September 1991 to November 1994 and as Vice President of Pacific Power from August 1990 to September 1991. 13 Daniel L. Spalding, born December 23, 1953, Senior Vice President of the Company and Senior Vice President of PacifiCorp Holdings, Inc. Mr. Spalding was elected Senior Vice President of the Company in February 1992. He served as Vice President from October 1987 to February 1992. Dennis P. Steinberg, born December 5, 1946, Senior Vice President of the Company Mr. Steinberg was elected Senior Vice President of the Company in August 1994. He served as Vice President of the Company from February 1992 to August 1994 and as Vice President of Electric Operations from August 1990 to February 1992. Verl R. Topham, born August 25, 1934, Senior Vice President and General Counsel of the Company Mr. Topham was elected Senior Vice President and General Counsel and a director of the Company in May 1994. He had served as President of Utah Power from February 1990 to May 1994. Sally A. Nofziger, born July 5, 1936, Vice President and Corporate Secretary of the Company, Secretary of PacifiCorp Holdings, Inc. and PacifiCorp Financial Services, Inc. Mrs. Nofziger was elected Vice President of the Company in 1989 and has been Corporate Secretary since 1983. Thomas J. Imeson, born March 20, 1950, Vice President of the Company Mr. Imeson was elected Vice President of the Company in February 1992. He had served as Vice President of Electric Operations from 1990 to February 1992. Robert F. Lanz, born October 30, 1942, Vice President of the Company Mr. Lanz was elected Vice President of the Company in 1980. He served as Treasurer of the Company from June 1984 to December 1993. Richard T. O'Brien, born March 20, 1954, Vice President of the Company and Senior Vice President of PacifiCorp Holdings, Inc. Mr. O'Brien was elected Vice President of the Company in August 1993. He served as Senior Vice President, Treasurer and Chief Financial Officer of NERCO, Inc., a former subsidiary of the Company, during 1992 and 1993 and Vice President and Treasurer of NERCO from 1989 to 1992. Jacqueline S. Bell, born November 17, 1941, Controller of the Company and PacifiCorp Holdings, Inc. Ms. Bell became Controller of the Company and of PacifiCorp Holdings, Inc. in June 1989 and served as Controller of PacifiCorp Financial Services, Inc. from October 1993 to December 1994. William E. Peressini, born May 23, 1956, Treasurer of the Company Mr. Peressini was elected Treasurer of the Company in January 1994. He served as Executive Vice President of PacifiCorp Financial Services, Inc. from January 1992 to January 1994 and as Senior Vice President and Chief Financial Officer of that company from 1989 to January 1992. 14 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is included under "Summary Information" and "Quarterly Financial Data" on pages 20 and 53 of the Company's Annual Report to Shareholders and is incorporated herein by this reference. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is included under "Summary Information" and "Capitalization" on pages 20 and 26 of the Company's Annual Report to Shareholders and is incorporated herein by this reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is included under "Summary Information," "Liquidity and Capital Resources," "Electric Operations," "Telecommunications," "Other" and "Discontinued Operations" on pages 20 through 35 of the Company's Annual Report to Shareholders and is incorporated herein by this reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated by this reference from the Company's Annual Report to Shareholders or filed with this Report as listed in Item 14 hereof. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No information is required to be reported pursuant to this item. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item with respect to the Company's directors is incorporated herein by this reference to "Election of Directors" in the Proxy Statement for the 1995 Annual Meeting of Shareholders. The information required by this item with respect to the Company's executive officers is set forth in Part I of this report under Item 4A. The information required by this item with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by this reference to "Compliance within Section 16(a) of the Securities Exchange Act of 1934" in the Proxy Statement for the 1995 Annual Meeting of Shareholders. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by this reference to "Executive Compensation" in the Proxy Statement for the 1995 Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by this reference to "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement for the 1995 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by this reference to "Director Compensation and Certain Transactions" in the Proxy Statement for the 1995 Annual Meeting of Shareholders. 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE REFERENCES ---------- (a) 1. Index to Consolidated Financial Statements:* Independent Auditors' Report.......... 36 Statements of consolidated income and retained earnings for each of the three years ended December 31, 1994................................. 37 Consolidated balance sheets at December 31, 1994 and 1993........... 38 Statements of consolidated cash flows for each of the three years ended December 31, 1994.................... 40 Notes to consolidated financial statements........................... 41 2. Schedules:** Independent Auditors' Report.......... 22 II -- Valuation and qualifying accounts for the three years ended December 31, 1994.................... 23
------------------------ * Page references are to the incorporated portion of the Annual Report to Shareholders of the Registrant for the year ended December 31, 1994. ** All other schedules have been omitted because of the absence of the conditions under which they are required or because the required information is included elsewhere in the financial statements incorporated by reference herein. 3. Exhibits: *(2)a -- Agreement and Plan of Merger dated as of March 9, 1995 by and among Pacific Telecom, Inc., PacifiCorp Holdings, Inc. and PXYZ Corporation. (Exhibit 2A, Form 8-K dated March 9, 1995, File No. 0-873.) *(2)b -- Agreement dated as of March 9, 1995 between PacifiCorp and Pacific Telecom, Inc. (Exhibit 2B, Form 8-K dated March 9, 1995, File No. 0-873.) *(3)a -- Second Restated Articles of Incorporation of the Company, as amended. (Exhibit (3)a, Form 10-K for fiscal year ended December 31, 1992, File No. 1-5152). *(3)b -- Bylaws of the Company (as restated and amended November 17, 1993). (Exhibit (3)b, Form 10-K for fiscal year ended December 31, 1993, File No. 1-5152). *(4)a -- Mortgage and Deed of Trust dated as of January 9, 1989, between the Company and Morgan Guaranty Trust Company of New York (Chemical Bank, successor), Trustee, as supplemented and modified by nine Supplemental Indentures (Exhibit 4-E, Form 8-B, File No. 1-5152; Exhibit (4)(b), File No. 33-31861; Exhibit (4)(a), Form 8-K dated January 9, 1990, File No. 1-5152; Exhibit 4(a), Form 8-K dated September 11, 1991, File No. 1-5152; Exhibit 4(a), Form 8-K dated January 7, 1992, File No. 1-5152; Exhibit 4(a), Form 10-Q for the quarter ended March 31, 1992, File No. 1-5152; and Exhibit 4(a), Form 10-Q for the quarter ended September 30, 1992, File No. 1-5152; Exhibit 4(a), Form 8-K dated April 1, 1993, File No. 1-5152; Exhibit 4(a), Form 10-Q for the quarter ended September 30, 1993, File No. 1-5152); and Exhibit 4(a), Form 10-Q for the quarter ended June 30, 1994, File No. 1-5152). (4)b -- Tenth Supplemental Indenture dated as of August 1, 1994 to the Mortgage and Deed of Trust dated as of January 9, 1989 between the Company and Morgan Guaranty Trust Company of New York (Chemical Bank, successor), Trustee. *(4)c -- Mortgage and Deed of Trust dated as of July 1, 1947, between Pacific Power & Light Company and Guaranty Trust Company of New York (Chemical Bank, successor) and Oliver R. Brooks et al. (resigned) Trustees, as supplemented and modified by
16 fifty-two Supplemental Indentures (Exhibit 7(d), File No. 2-7118; Exhibit 7(b), File No. 2-8354; Exhibit 4(b)-3, File No. 2-9446; Exhibit 4(b)-4, File No. 2-9809; Exhibit 4(b)-5, File No. 2-10731; Exhibit 4(b)-6, File No. 2-11022; Exhibit 4(b)-7, File No. 2-12576; Exhibit 4(b)-8, File No. 2-13403; Exhibit 4(b)-2, File No. 2-13793; Exhibit 4(b)-2, File No. 2-14125; Exhibit 4(b)-2, File No. 2-14706; Exhibit 4(b)-2, File No. 2-16843; Exhibit 4(b)-2, File No. 2-19841; Exhibit 4(b)-2, File No. 2-20797; Exhibit 4(b)-3, File No. 2-20797; Exhibit 4(b)-2, File No. 2-15327; Exhibit 4(b)-2, File No. 2-21488; Exhibit 4(b)-2, File No. 2-15327; Exhibit 4(b)-2, File No. 2-23922; Exhibit 4(b)-5, File No. 2-15327; Exhibit 4(b)-2, File No. 2-32390; Exhibit 4(b)-2, File No. 2-34731; Exhibit 2(b)-1, File No. 2-37436; Exhibit 2(b)-4, Thirteenth Amendment, File No. 2-15327; Exhibit 5(gg), File No. 2-43377; Exhibit 2(b)-1, File No. 2-45648; Exhibit 2(b)-1, File No. 2-49808; Exhibit 2(b)-1, File No. 2-52039; Exhibit 2, Form 8-K for the month of June 1975, File No. 1-5152; Exhibit 2, Form 8-K for the month of January 1976, File No. 1-5152; Exhibit 3(c), Form 8-K for the month of July 1976, File No. 1-5152; Exhibit 2, Form 8-K for the month of December 1976, File No. 1-5152; Exhibit 3(c), Form 8-K for the month of January 1977, File No. 1-5152; Exhibit 5(yy), File No. 2-60582; Exhibit 5(m)-2, File No. 2-66153; Exhibit 4(a)-2, File No. 2-70905; Exhibit (4)a, Form 10-K for the fiscal year ended December 31, 1980, File No. 1-5152; Exhibit 4(b), Form 10-K for the fiscal year ended December 31, 1981, File No. 1-5152; Exhibit (4)b, Form 10-K for the fiscal year ended December 31, 1982, File No. 1-5152; Exhibit (4)b, File No. 2-82676; Exhibit (4)b, Form 10-K for the fiscal year ended December 31, 1985, File No. 1-5152; Exhibit 4, Form 8-K dated July 25, 1986, File No. 1-5152; Exhibit 4, Form 8-K dated May 18, 1988, File No. 1-5152; Exhibit 4(a), Form 8-K dated January 9, 1989, File No. 1-5152; Exhibit (4)(d), File No. 33-31861; Exhibit (4)(b), Form 8-K dated January 9, 1990, File No. 1-5152; Exhibit 4(b), Form 8-K dated September 11, 1991, File No. 1-5152; Exhibit 4(b), Form 8-K dated January 7, 1992, File No. 1-5152; Exhibit 4(b), Form 10-Q for the quarter ended March 31, 1992, File No. 1-5152; Exhibit 4(b), Form 10-Q for the quarter ended September 30, 1992, File No. 1-5152; Exhibit 4(b), Form 8-K dated April 1, 1993, File No. 1-5152; Exhibit 4(b), Form 10-Q for the quarter ended September 30, 1993, File No. 1-5152; and Exhibit 4(b), Form 10-Q for the quarter ended June 30, 1994, File No. 1-5152). (4)d -- Fifty-third Supplemental Indenture dated as of August 1, 1994 to the Mortgage and Deed of Trust dated as of July 1, 1947 between Pacific Power & Light Company and Guaranty Trust Company of New York (Chemical Bank, successor) and Oliver R. Brooks et al. (resigned), Trustees. *(4)e -- Mortgage and Deed of Trust dated as of December 1, 1943, between Utah Power & Light Company and Guaranty Trust Company of New York (Morgan Guaranty, successor) and Arthur E. Burke et al. (resigned) Trustees, as supplemented and modified by fifty-four Supplemental Indentures (Exhibits 7(a), 7(b) and 7(e), File No. 2-6245; Exhibit 7(a), File No. 2-7420; Exhibit 7(a), File No. 2-7880; Exhibit 7(a), File No. 2-8057; Exhibit 7(g), File No. 2-8564; Exhibit 7(h), File No. 2-9121; Exhibit 4(d), File No. 2-9796; Exhibit 4(d), File No. 2-10707; Exhibit 4(d), File No. 2-11822; Exhibit 4(d), File No. 2-13560; Exhibit 4(d), File No. 2-16861; Exhibit 4(d), File No. 2-20176; Exhibit 2(c), File No. 2-21141; Exhibit 2(c), File No. 2-59660; Exhibit 2(e), File No. 2-28131; Exhibit 2(e), File No. 2-59660; Exhibit 2(e), File No. 2-36342; Exhibit 2(e), File No. 2-39394; Exhibits 2(h) and 2(i), File No. 2-59660; Exhibit 2(d), File No. 2-51736; Exhibit 2(c), File No. 2-54812; Exhibit 2(c), File No. 2-55331; Exhibit 2(c), File No. 2-55762; Exhibit 2(d), File No. 2-56990; Exhibit 2(e), File No. 2-56990; Exhibits 2(c) and 2(d), File No. 2-58227; Exhibit 2(r), File No. 2-59660; Exhibits 2(c) and 2(d), File No. 2-61221; Exhibit 2(c), File No. 2-63813; Exhibit 2(c), File No. 2-65221; Exhibit 2(c)-1, File No. 2-66680;
17 Exhibits 4(b) and 4(c)-1, File No. 2-74773; Exhibit 4(d), File No. 2-80100; Exhibits 4(d)-2 and 4(d)-3, File No. 2-76293; Exhibit 4(b), File No. 33-9932; Exhibit 4(b), File No. 33-13207; Exhibits 4(a) and 4(b), File No. 33-01890; Exhibit 4(b), Form 8-K dated January 9, 1989, File No. 1-5152; Exhibit (4)(f), File No. 33-31861; Exhibit (4)(c), Form 8-K dated January 9, 1990, File No. 1-5152; Exhibit 4(c), Form 8-K dated September 11, 1991, File No. 1-5152; Exhibit 4(c), Form 8-K dated January 7, 1992, File No. 1-5152; Exhibit 4(c), Form 10-Q for the quarter ended March 31, 1992, File No. 1-5152; Exhibit 4(c), Form 10-Q for the quarter ended September 30, 1992, File No. 1-5152; Exhibit 4(c), Form 8-K dated April 1, 1993, File No. 1-5152; Exhibit 4(c), Form 10-Q for the quarter ended September 30, 1993, File No. 1-5152; and Exhibit 4(c), Form 10-Q for the quarter ended June 30, 1994, File No. 1-5152). (4)f -- Fifty-fifth Supplemental Indenture dated as of August 1, 1994 to the Mortgage and Deed of Trust dated as of December 1, 1943 between Utah Power & Light Company and Guaranty Trust Company of New York (Chemical Bank, successor) and Arthur E. Burke et al. (resigned), Trustees. *(4)g -- Second Restated Articles of Incorporation, as amended, and Bylaws. See (3)a and (3)b above. In reliance upon item 601(4)(iii) of Regulation S-K, various instruments defining the rights of holders of long-term debt of the Registrant and its subsidiaries are not being filed because the total amount authorized under each such instrument does not exceed 10 percent of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant hereby agrees to furnish a copy of any such instrument to the Commission upon request. *+(10)a -- PacifiCorp Deferred Compensation Payment Plan (Exhibit 10-F, Form 10-K for fiscal year ended December 31, 1992, File No. 1-8749). +(10)b -- PacifiCorp Compensation Reduction Plan dated December 1, 1994, as amended. *+(10)c -- Pacific Telecom Executive Bonus Plan, dated October 26, 1990 (Exhibit 10B, Form 10-K for the fiscal year ended December 31, 1990, File No. 0-873). +(10)d -- PacifiCorp 1995 PerformanceShare Incentive Plan. +(10)e -- PacifiCorp 1995 Individual Incentive Plan. +(10)f -- PacifiCorp Non-Employee Directors' Stock Compensation Plan dated August 1, 1985, as amended. *+(10)g -- PacifiCorp Long Term Incentive Plan, 1993 Restatement (Exhibit 10G, Form 10-K for the year ended December 31, 1993, File No. 0-873). *+(10)h -- Form of Restricted Stock Agreement under PacifiCorp Long Term Incentive Plan, 1993 Restatement (Exhibit 10H, Form 10-K for the year ended December 31, 1993, File No. 0-873). +(10)i -- PacifiCorp Supplemental Executive Retirement Plan 1988 Restatement, as amended. *+(10)j -- PacifiCorp Executive Severance Plan (Exhibit (10)m, Form 10-K for fiscal year ended December 31, 1988, File No. 1-5152). *+(10)k -- Pacific Telecom Executive Deferred Compensation Plan dated as of January 1, 1994, as amended (Exhibit 10L, Form 10-K for the year ended December 31, 1994, File No. 0-873). *+(10)l -- Pacific Telecom Long Term Incentive Plan 1994 Restatement dated as of January 1, 1994 (Exhibit 10F, Form 10-K for the fiscal year ended December 31, 1993, File No. 0-873).
18 *+(10)m -- Pacific Telecom Executive Officer Severance Plan (Exhibit 10N, Form 10-K for the year ended December 31, 1994, File No. 0-873). *+(10)n -- Form of Restricted Stock Agreement under Pacific Telecom Long-Term Incentive Plan 1994 Restatement (Exhibit (10)o, Form 10-K for the year ended December 31, 1993, File No. 1-5152). *+(10)o -- Incentive Compensation Agreement dated as of February 1, 1994 between PacifiCorp and Frederick W. Buckman (Exhibit (10)k, Form 10-K for the fiscal year ended December 31, 1993, File No. 1-5152). *+(10)p -- Restricted Stock Agreement dated as of December 3, 1992 between PacifiCorp and A. M. Gleason (Exhibit (10)k, Form 10-K for the fiscal year ended December 31, 1992, File No. 1-5152). *+(10)q -- Compensation Agreement dated as of February 9, 1994 between PacifiCorp and Keith R. McKennon. (Exhibit (10)m, Form 10-K for the fiscal year ended December 31, 1993, File No. 1-5152). +(10)r -- Amendment No. 1 to Compensation Agreement between PacifiCorp and Keith R. McKennon dated as of February 9, 1995. *(10)s -- Short-Term Surplus Firm Capacity Sale Agreement executed July 9, 1992 by the United States of America Department of Energy acting by and through the Bonneville Power Administration and Pacific Power & Light Company (Exhibit (10)n, Form 10-K for the fiscal year ended December 31, 1992, File No. 1-5152). (10)t -- Restated Surplus Firm Capacity Sale Agreement executed September 27, 1994 by the United States of America Department of Energy acting by and through the Bonneville Power Administration and Pacific Power & Light Company. (12)a -- Statements of Computation of Ratio of Earnings to Fixed Charges. (See page S-1.) (12)b -- Statements of Computation of Ratio of Earnings to combined Fixed Charges and Preferred Stock Dividends. (See page S-2.) (13) -- Portions of Annual Report to Shareholders of the Registrant for the year ended December 31, 1994 incorporated by reference herein. (21) -- Subsidiaries. (See pages S-3 and S-4.) (23) -- Consent of Deloitte & Touche LLP with respect to Annual Report on Form 10-K. (24) -- Powers of Attorney. (27) -- Financial Data Schedule (filed electronically only). (99) -- "Item 1. Business" and "Item 2. Properties" from the Annual Reports on Form 10-K of Pacific Telecom, Inc. and PacifiCorp Financial Services, Inc. for the year ended December 31, 1994. ------------------------ * Incorporated herein by reference. + This exhibit constitutes a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K. On Form 8-K dated March 9, 1995, under "Item 5. Other Events," the Company filed a press release reporting a proposed merger under which the minority interest in Pacific Telecom, Inc. would be acquired by PacifiCorp Holdings. In addition, the Company reported certain summary financial information. (c) See (a) 3. above. (d) See (a) 2. above. 19 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. PACIFICORP By /s/ FREDERICK W. BUCKMAN ----------------------------------- Frederick W. Buckman (PRESIDENT) Date: March 30, 1995 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE ------------------------------------------------------ /s/ FREDERICK W. BUCKMAN ------------------------------------------- President, Chief Executive Frederick W. Buckman Officer and Director March 30, 1995 (President) /s/ DANIEL L. SPALDING ------------------------------------------- Senior Vice President (Chief Daniel L. Spalding Accounting Officer) March 30, 1995 (Senior Vice President) *KATHRYN A. BRAUN ------------------------------------------- Kathryn A. Braun *C. TODD CONOVER ------------------------------------------- C. Todd Conover Director March 30, 1995 *RICHARD C. EDGLEY ------------------------------------------- Richard C. Edgley *A. M. GLEASON ------------------------------------------- A. M. Gleason (Vice Chairman)
20
SIGNATURE TITLE DATE ------------------------------------------------------ *JOHN C. HAMPTON ------------------------------------------- John C. Hampton *NOLAN E. KARRAS ------------------------------------------- Nolan E. Karras *KEITH R. MCKENNON ------------------------------------------- Keith R. McKennon (Chairman) Director March 30, 1995 *ROBERT G. MILLER ------------------------------------------- Robert G. Miller *VERL R. TOPHAM ------------------------------------------- Verl R. Topham *DON M. WHEELER ------------------------------------------- Don M. Wheeler *NANCY WILGENBUSCH ------------------------------------------- Nancy Wilgenbusch *By /s/ NANCY WILGENBUSCH -------------------------------------- Nancy Wilgenbusch (Attorney-in-Fact)
21 INDEPENDENT AUDITORS' REPORT PacifiCorp: We have audited the consolidated financial statements of PacifiCorp and subsidiaries as of December 31, 1994 and 1993, and for each of the three years in the period ended December 31, 1994, and have issued our report thereon dated February 17, 1995, March 9, 1995 as to the agreement to acquire the minority interest in Pacific Telecom, Inc. described in Note 1, (which expresses an unqualified opinion and includes an explanatory paragraph relating to the change in the Company's method of accounting for income taxes and other postretirement benefits); such consolidated financial statements and report are included in your 1994 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedules of PacifiCorp and subsidiaries, listed in Item 14. These consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Portland, Oregon February 17, 1995 (March 9, 1995 as to the agreement to acquire the minority interest in Pacific Telecom, Inc. described in Note 1) 22 PACIFICORP SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 1994 (MILLIONS OF DOLLARS)
BALANCE CHARGED TO BALANCE AT CHARGED TO OTHER AT END BEGINNING COSTS AND ACCOUNTS OF DESCRIPTION OF PERIOD EXPENSES (1) DESCRIBE DEDUCTIONS (2) PERIOD ---------------------------------------- --------- ---------- ---------- ---------- ------- Year Ended December 31, 1994: Accumulated amortization of estimated recoverable nuclear project costs.... $61.8 $ 1.0 $-- $-- $62.8 Allowance for credit losses........... 53.4 1.5 -- 10.3 44.6 Other reserves........................ 36.6 10.7 (.6) 14.5 32.2 Year Ended December 31, 1993: Accumulated amortization of estimated recoverable nuclear project costs.... 60.0 1.8 -- -- 61.8 Allowance for credit losses........... 56.5 2.6 24.6 30.3 53.4 Other reserves........................ 79.0 14.0 (24.6) 31.8 36.6 Year Ended December 31, 1992: Accumulated amortization of estimated recoverable nuclear project costs.... 59.0 1.0 -- -- 60.0 Allowance for credit losses........... 15.0 77.1 -- 35.6 56.5 Other reserves........................ 33.4 83.5 -- 37.9 79.0 ------------------------ (1) Charged principally to depreciation and amortization, provision for uncollectible accounts, provision for credit losses and other expense. (2) Uncollectible amounts written off net of recoveries.
23 EX-4.(B) 2 EXHIBIT 4(B) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PACIFICORP (AN OREGON CORPORATION) TO MORGAN GUARANTY TRUST COMPANY OF NEW YORK (A NEW YORK CORPORATION) WHICH HEREIN RESIGNS AS TRUSTEE AND CHEMICAL BANK (A NEW YORK CORPORATION) HEREIN BECOMING SUCCESSOR TRUSTEE TO MORGAN GUARANTY TRUST COMPANY OF NEW YORK AS TRUSTEE UNDER PACIFICORP'S MORTGAGE AND DEED OF TRUST, DATED AS OF JANUARY 9, 1989 --------------------- TENTH SUPPLEMENTAL INDENTURE DATED AS OF AUGUST 1, 1994 --------------------- THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A TRANSMITTING UTILITY THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TENTH SUPPLEMENTAL INDENTURE THIS INDENTURE, dated as of the 1st day of August, 1994, made and entered into by and among (a) PACIFICORP, a corporation of the State of Oregon, whose address is 700 NE Multnomah, Portland, Oregon 97232 (hereinafter sometimes called the "Company"), (b) MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a New York corporation, whose address is 60 Wall Street, New York, New York 10260 (the "Resigning Trustee"), and (c) CHEMICAL BANK, a New York corporation whose address is 450 West 33rd Street, New York, New York 10001 (the "Successor Trustee"), as Trustee under the Mortgage and Deed of Trust, dated as of January 9, 1989, as heretofore amended and supplemented (hereinafter called the "Mortgage"), is executed and delivered by PacifiCorp in accordance with the provisions of the Mortgage, this indenture (hereinafter called the "Tenth Supplemental Indenture") being supplemental thereto. WHEREAS, the Mortgage was or is to be recorded in the official records of the States of Arizona, California, Colorado, Idaho, Montana, New Mexico, Oregon, Utah, Washington and Wyoming and various counties within such states, which counties include or will include all counties in which this Tenth Supplemental Indenture is to be recorded; and WHEREAS, by the Mortgage the Company covenanted that it would execute and deliver such supplemental indenture or indentures and such further instruments and do such further acts as might be necessary or proper to carry out more effectually the purposes of the Mortgage and to make subject to the Lien of the Mortgage any property thereafter acquired, made or constructed and intended to be subject to the Lien thereof; and WHEREAS, in addition to the property described in the Mortgage, the Company has acquired certain other property, rights and interests in property; and 2 WHEREAS, the Company has executed, delivered, recorded and filed Supplemental Indentures as follows:
DATED AS OF ------------------------- First March 31, 1989 Second December 29, 1989 Third March 31, 1991 Fourth December 31, 1991 Fifth March 15, 1992 Sixth July 31, 1992 Seventh March 15, 1993 Eighth November 1, 1993; Ninth June 1, 1994;
and WHEREAS, the Company has heretofore issued, in accordance with the provisions of the Mortgage, bonds entitled and designated First Mortgage and Collateral Trust Bonds, of the series and in the principal amounts as follows:
AGGREGATE AGGREGATE PRINCIPAL AMOUNT PRINCIPAL AMOUNT SERIES DUE DATE ISSUED OUTSTANDING ------------------------ ----------- ----------------- ----------------- First --10.45% 1/9/90 $ 500,000 0 Second --Medium-Term Notes, various 250,000,000 $ 240,000,000 Series A Third --Medium-Term Notes, various 200,000,000 175,000,000 Series B Fourth --Medium-Term Notes, various 300,000,000 289,428,781 Series C Fifth --Medium-Term Notes, various 250,000,000 250,000,000 Series D Sixth --C-U various 250,432,000 236,471,000 Seventh --Medium-Term Notes, various 500,000,000 500,000,000 Series E Eighth --6 3/4% 4/1/2005 150,000,000 150,000,000 Ninth --Medium-Term Notes, various 480,000,000 480,000,000 Series F Tenth --E-L various 71,200,000 71,200,000 Eleventh --Medium-Term Notes, various 0 0; Series G
and 3 WHEREAS, Section 2.03 of the Mortgage provides that the form or forms, terms and conditions of and other matters not inconsistent with the provisions of the Mortgage, in connection with each series of bonds (other than the First Series) issued thereunder, shall be established in or pursuant to one or more Resolutions and/or shall be established in one or more indentures supplemental to the Mortgage, prior to the initial issuance of bonds of such series; and WHEREAS, Section 22.04 of the Mortgage provides, among other things, that any power, privilege or right expressly or impliedly reserved to or in any way conferred upon the Company by any provision of the Mortgage, whether such power, privilege or right is in any way restricted or is unrestricted, may be in whole or in part waived or surrendered or subjected to any restriction if at the time unrestricted or to additional restriction if already restricted, and the Company may enter into any further covenants, limitations, restrictions or provisions for the benefit of any one or more series of bonds issued thereunder and provide that a breach thereof shall be equivalent to a Default under the Mortgage, or the Company may cure any ambiguity contained therein, or in any supplemental indenture, or may (in lieu of establishment in or pursuant to Resolution in accordance with Section 2.03 of the Mortgage) establish the forms, terms and provisions of any series of bonds other than said First Series, by an instrument in writing executed by the Company; and WHEREAS, the Company now desires to create a new series of bonds and (pursuant to the provisions of Section 22.04 of the Mortgage) to add to its covenants and agreements contained in the Mortgage certain other covenants and agreements to be observed by it; and WHEREAS, the execution and delivery by the Company of this Tenth Supplemental Indenture, and the terms of the bonds of the Twelfth series herein referred to, have been duly authorized by the Board of Directors in or pursuant to appropriate Resolutions; NOW, THEREFORE, THIS INDENTURE WITNESSETH: That PACIFICORP, an Oregon corporation, in consideration of the premises and of good and valuable consideration to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the 4 receipt and sufficiency whereof is hereby acknowledged, and in order to secure the payment of both the principal of and interest and premium, if any, on the bonds from time to time issued under the Mortgage, according to their tenor and effect and the performance of all provisions of the Mortgage (including any instruments supplemental thereto and any modification made as in the Mortgage provided) and of such bonds, and to confirm the Lien of the Mortgage on certain after-acquired property, hereby mortgages, pledges and grants a security interest in (subject, however, to Excepted Encumbrances as defined in Section 1.06 of the Mortgage), unto Chemical Bank, as Trustee, and to its successor or successors in said trust, and to said Trustee and its successors and assigns forever, all properties of the Company real, personal and mixed, owned by the Company as of the date of the Mortgage and acquired by the Company after the date of the Mortgage, subject to the provisions of Section 18.03 of the Mortgage, of any kind or nature (except any herein or in the Mortgage expressly excepted), now owned or, subject to the provisions of Section 18.03 of the Mortgage, hereafter acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) and wheresoever situated, including the properties described in Articles V and VI hereof, and including (without limitation) all real estate, lands, easements, servitudes, licenses, permits, franchises, privileges, rights of way and other rights in or relating to real estate or the occupancy of the same; all power sites, flowage rights, water rights, water locations, water appropriations, ditches, flumes, reservoirs, reservoir sites, canals, raceways, waterways, dams, dam sites, aqueducts, and all other rights or means for appropriating, conveying, storing and supplying water; all rights of way and roads; all plants for the generation of electricity and other forms of energy (whether now known or hereafter developed) by steam, water, sunlight, chemical processes and/or (without limitation) all other sources of power (whether now known or hereafter developed); all power houses, gas plants, street lighting systems, standards and other equipment incidental thereto; all telephone, radio, television and other communications, image and data transmission systems, air-conditioning systems and equipment incidental thereto, water wheels, water works, water systems, steam and hot water plants, substations, lines, service and supply systems, bridges, culverts, tracks, ice or 5 refrigeration plants and equipment, offices, buildings and other structures and the equipment thereof; all machinery, engines, boilers, dynamos, turbines, electric, gas and other machines, prime movers, regulators, meters, transformers, generators (including, but not limited to, engine-driven generators and turbogenerator units), motors, electrical, gas and mechanical appliances, conduits, cables, water, steam, gas or other pipes, gas mains and pipes, service pipes, fittings, valves and connections, pole and transmission lines, towers, overhead conductors and devices, underground conduits, underground conductors and devices, wires, cables, tools, implements, apparatus, storage battery equipment and all other fixtures and personalty; all municipal and other franchises, consents or permits; all lines for the transmission and distribution of electric current and other forms of energy, gas, steam, water or communications, images and data for any purpose including towers, poles, wires, cables, pipes, conduits, ducts and all apparatus for use in connection therewith and (except as herein or in the Mortgage expressly excepted) all the right, title and interest of the Company in and to all other property of any kind or nature appertaining to and/or used and/or occupied and/or enjoyed in connection with any property hereinbefore described; TOGETHER WITH all and singular the tenements, hereditaments, prescriptions, servitudes and appurtenances belonging or in anywise appertaining to the aforesaid property or any part thereof, with the reversion and reversions, remainder and remainders and (subject to the provisions of Section 13.01 of the Mortgage) the tolls, rents, revenues, issues, earnings, income, product and profits thereof, and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, which the Company now has or may hereafter acquire in and to the aforesaid property and franchises and every part and parcel thereof. IT IS HEREBY AGREED by the Company that, subject to the provisions of Section 18.03 of the Mortgage, all the property, rights and franchises acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) after the date hereof, except any herein or in the Mortgage expressly excepted, shall be and are as fully mortgaged and pledged hereby and as fully embraced within the Lien of 6 the Mortgage as if such property, rights and franchises were now owned by the Company and were specifically described herein or in the Mortgage and mortgaged hereby or thereby. PROVIDED THAT the following are not and are not intended to be now or hereafter mortgaged or pledged hereunder, nor is a security interest therein hereby granted or intended to be granted, and the same are hereby expressly excepted from the Lien and operation of the Mortgage, namely: (1) cash, shares of stock, bonds, notes and other obligations and other securities not hereafter specifically pledged, paid, deposited, delivered or held under the Mortgage or covenanted so to be; (2) merchandise, equipment, apparatus, materials or supplies held for the purpose of sale or other disposition in the usual course of business or for the purpose of repairing or replacing (in whole or part) any rolling stock, buses, motor coaches, automobiles or other vehicles or aircraft or boats, ships or other vessels, and any fuel, oil and similar materials and supplies consumable in the operation of any of the properties of the Company; rolling stock, buses, motor coaches, automobiles and other vehicles and all aircraft; boats, ships and other vessels; all crops (both growing and harvested), timber (both growing and harvested), minerals (both in place and severed), and mineral rights and royalties; (3) bills, notes and other instruments and accounts receivable, judgments, demands, general intangibles and choses in action, and all contracts, leases and operating agreements not specifically pledged under the Mortgage or covenanted so to be; (4) the last day of the term of any lease or leasehold which may be or become subject to the Lien of the Mortgage; (5) electric energy, gas, water, steam, ice and other materials, forms of energy or products generated, manufactured, produced or purchased by the Company for sale, distribution or use in the ordinary course of its business; (6) any natural gas wells or natural gas leases or natural gas transportation lines or other works or property used primarily and principally in the production of natural gas or its transportation, primarily for the purpose of sale to natural gas customers or to a natural gas distribution or pipeline company, up to the point of connection with any distribution system; (7) the Company's franchise to be a corporation; (8) any interest (as lessee, owner or otherwise) in the Wyodak Facility, including, without limitation, any equipment, parts, improvements, substitutions, replacements or other 7 property relating thereto; (9) all properties that PacifiCorp, a Maine corporation, and/or Utah Power & Light Company, a Utah corporation, had contracted to dispose of and that had been released from the liens of the Pacific Mortgage and the Utah Mortgage, respectively, prior to January 9, 1989, but title to which properties had not passed to the grantee(s) thereof as of said date; and (10) any property heretofore released pursuant to any provision of the Mortgage and not heretofore disposed of by the Company; provided, however, that the property and rights expressly excepted from the Lien and operation of the Mortgage in the above subdivisions (2) and (3) shall (to the extent permitted by law) cease to be so excepted in the event and as of the date that the Trustee or a receiver for the Trustee shall enter upon and take possession of the Mortgaged and Pledged Property in the manner provided in Article XV of the Mortgage by reason of the occurrence of a Default; AND PROVIDED FURTHER, that as to any property of the Company that, pursuant to the after-acquired property provisions thereof, is now or hereafter becomes subject to the lien of a mortgage, deed of trust or similar indenture that is now or may in accordance with the Mortgage hereafter become designated as a Class "A" Mortgage, the Lien hereof shall at all times be junior and subordinate to the lien of such Class "A" Mortgage; TO HAVE AND TO HOLD all such properties, real, personal and mixed, mortgaged and pledged, or in which a security interest has been granted by the Company as aforesaid, or intended so to be (subject, however, to Excepted Encumbrances as defined in Section 1.06 of the Mortgage), unto Chemical Bank, as Trustee, and its successors and assigns forever; IN TRUST NEVERTHELESS, for the same purposes and upon the same terms, trusts and conditions and subject to and with the same provisos and covenants as are set forth in the Mortgage, this Tenth Supplemental Indenture being supplemental to the Mortgage. AND IT IS HEREBY COVENANTED by the Company that all the terms, conditions, provisos, covenants and provisions contained in the Mortgage shall affect and apply to the property hereinbefore described and conveyed, and to the estates, rights, obligations and duties of the Company and the Trustee and the beneficiaries of the trust with respect to said 8 property, and to the Trustee and its successor or successors in the trust, in the same manner and with the same effect as if the said property had been owned by the Company at the time of the execution of the Mortgage, and had been specifically and at length described in and conveyed to said Trustee by the Mortgage as a part of the property therein stated to be conveyed. The Company further covenants and agrees to and with the Trustee and its successor or successors in such trust under the Mortgage, as follows: ARTICLE I REGARDING THE RESIGNATION OF THE RESIGNING TRUSTEE AND APPOINTMENT OF SUCCESSOR TRUSTEE SECTION 1.01. Morgan Guaranty Trust Company of New York hereby gives written notice to the Company that it hereby resigns as Trustee under the Mortgage, such resignation to take effect as of September 1, 1994. SECTION 1.02. Pursuant to Section 19.15 of the Mortgage, and by order of its Board of Directors, the Company hereby accepts the foregoing resignation and appoints Chemical Bank as Successor Trustee under the Mortgage, effective as of September 1, 1994. By execution hereof Chemical Bank hereby acknowledges its acceptance of its appointment by the Company as Successor Trustee under the Mortgage. SECTION 1.03. The Resigning Trustee hereby conveys, assigns and transfers to the Successor Trustee, and its successors and assigns, upon the trusts expressed in the Mortgage (as amended hereby), all rights, title, powers and trusts of the Resigning Trustee under and pursuant to the Mortgage and all property and money held by the Resigning Trustee under the Mortgage. The Resigning Trustee and the Company agree, upon request of the Successor Trustee, to execute, acknowledge and deliver such further instruments of conveyance and further assurances and to do such other things as may reasonably be required for more fully and certainly vesting in and confirming to the Successor Trustee such rights, title, powers and trusts. 9 ARTICLE II TWELFTH SERIES OF BONDS SECTION 2.01. There shall be a series of bonds designated "Series 1994-1 Bonds" (herein sometimes referred to as the Twelfth Series), each of which shall also bear the descriptive title "First Mortgage and Collateral Trust Bond," and the form thereof, which shall be established by or pursuant to a Resolution, shall contain suitable provisions with respect to the matters hereinafter in this Section specified. (I) Bonds of the Twelfth Series shall mature on such date or dates not more than 30 years from the date of issue as shall be set forth in or determined in accordance with a Resolution filed with the Trustee and, unless otherwise established by or pursuant to a Resolution, shall be issued as fully registered bonds in the denomination of Five Thousand Dollars and, at the option of the Company, of any multiple or multiples of Five Thousand Dollars (the exercise of such option to be evidenced by the execution and delivery thereof). (II) Bonds of the Twelfth Series shall bear interest at such rate or rates (which may either be fixed or variable), payable on such dates, and have such other terms and provisions not inconsistent with the Mortgage as may be set forth in or determined in accordance with a Resolution filed with the Trustee. Bonds of the Twelfth Series shall be dated and shall accrue interest as provided in Section 2.06 of the Mortgage. (III) The principal of and interest on each bond of the Twelfth Series shall be payable at the office or agency of the Company in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for public and private debts or in such other currency or currency unit as shall be determined by or in accordance with a Resolution filed with the Trustee. (IV) Each bond of the Twelfth Series may be redeemable prior to maturity at the option of the Company, as determined by or in accordance with a Resolution filed with the Trustee. 10 (V) Each bond of the Twelfth Series may be subject to the obligation of the Company to redeem such bond, as determined by or in accordance with a Resolution filed with the Trustee. (VI) Each bond of the Twelfth Series may have such other terms as are not inconsistent with Section 2.03 of the Mortgage, including, without limitation, terms and conditions regarding interest rates and the payment thereof, place or places for payment, exchange privileges, rights with respect to redemption, prepayment or purchase, and default provisions, and as may be determined by or in accordance with a Resolution filed with the Trustee. (VII) At the option of the registered owner, any bonds of the Twelfth Series, upon surrender thereof for cancellation at the office or agency of the Company in the Borough of Manhattan, The City of New York, shall be exchangeable for a like aggregate principal amount of bonds of the same series of other authorized denominations. (VIII) Bonds of the Twelfth Series shall be transferable, subject to any restrictions thereon set forth in any such bond of the Twelfth Series, upon the surrender therefor for cancellation, together with a written instrument of transfer in form approved by the registrar duly executed by the registered owner or by his duly authorized attorney, at the office or agency of the Company in the Borough of Manhattan, The City of New York. Upon any transfer or exchange of bonds of the Twelfth Series, the Company may make a charge therefor sufficient to reimburse it for any tax or taxes or other government charge, as provided in Section 2.08 of the Mortgage, but the Company hereby waives any right to make a charge in addition thereto for any exchange or transfer of bonds of the Twelfth Series. (IX) After the execution and delivery of this Tenth Supplemental Indenture and upon compliance with the applicable provisions of the Mortgage and this Tenth Supplemental Indenture, it is contemplated that there shall be an issue of bonds of the Twelfth Series in an aggregate principal amount not to exceed Two Hundred Twenty-Five Million Dollars ($225,000,000). Bonds of the Twelfth Series shall be issued pro rata on the basis of Class "A" Bonds of the Fifty-eighth Series, designated "First Mortgage Bond Series 1994-1," issued under each of the Utah 11 Mortgage and the Pacific Mortgage and delivered to the Trustee. The claim of the registered owner of any such Class "A" Bond shall be limited to the principal amount of the bonds of the Twelfth Series issued and Outstanding on the basis of such Class "A" Bond. (X) Upon receipt by the Trustee from time to time of a written request or requests (stating that the Trustee holds an aggregate principal amount of Class "A" Bonds of the Fifty-eighth Series, designated "First Mortgage Bond Series 1994-1," issued under the Utah Mortgage and the Pacific Mortgage which exceeds the principal amount of bonds of the Twelfth Series then Outstanding and stating the amount of such excess and the principal amount of any such Class "A" Bonds to be cancelled) executed by an Authorized Executive Officer of the Company, the Trustee shall return to the corporate trustee under the Utah Mortgage or corporate trustee under the Pacific Mortgage, as the case may be, for cancellation, a principal amount of Class "A" Bonds issued in the name of and held by the Trustee with respect to bonds of the Twelfth Series not to exceed the excess of the principal amount of such Class "A" Bonds then so held over the principal amount of bonds of the Twelfth Series then Outstanding. Upon cancellation of any such principal amount of Class "A" Bonds, the Trustee shall receive from the corporate trustee under the Utah Mortgage or corporate trustee under the Pacific Mortgage, as the case may be, a Class "A" Bond in the principal amount not so cancelled. ARTICLE III THE COMPANY RESERVES THE RIGHT TO AMEND PROVISIONS REGARDING PROPERTIES EXCEPTED FROM LIEN OF MORTGAGE SECTION 3.01. The Company reserves the right, without any consent or other action by holders of bonds of the Eighth Series, or any other series of bonds subsequently created under the Mortgage (including the bonds of the Twelfth Series), to make such amendments to the Mortgage, as heretofore amended and supplemented, as shall be necessary in order to amend the first proviso to the granting clause of the Mortgage, which proviso sets forth the properties excepted from the Lien of the Mortgage, to add a new exception (10) which shall read as follows: 12 "(10) allowances allocated to steam-electric generating plants owned by the Company or in which the Company has interests, pursuant to Title IV of the Clean Air Act Amendments of 1990, Pub. L. 101-549, Nov. 15, 1990, 104 Stat. 2399, 42 USC 7651, et seq., as now in effect or as hereafter supplemented or amended." ARTICLE IV MISCELLANEOUS PROVISIONS SECTION 4.01. The right, if any, of the Company to assert the defense of usury against a holder or holders of bonds of the Twelfth Series or any subsequent series shall be determined only under the laws of the State of New York. SECTION 4.02. The terms defined in the Mortgage shall, for all purposes of this Tenth Supplemental Indenture, have the meanings specified in the Mortgage. SECTION 4.03. The Trustee hereby accepts the trusts hereby declared, provided, created or supplemented, and agrees to perform the same upon the terms and conditions herein and in the Mortgage, as hereby supplemented, set forth, including the following: The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Tenth Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. Each and every term and condition contained in Article XIX of the Mortgage shall apply to and form part of this Tenth Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and insertions, if any, as may be appropriate to make the same conform to the provisions of this Tenth Supplemental Indenture. SECTION 4.04. Whenever in this Tenth Supplemental Indenture either of the Company or the Trustee is named or referred to, this shall, subject to the provisions of Articles XVIII and XIX of the Mortgage, be deemed to include the successors and assigns of such party, and all the 13 covenants and agreements in this Tenth Supplemental Indenture contained by or on behalf of the Company, or by or on behalf of the Trustee, shall, subject as aforesaid, bind and inure to the respective benefits of the respective successors and assigns of such parties, whether so expressed or not. SECTION 4.05. Nothing in this Tenth Supplemental Indenture, expressed or implied, is intended, or shall be construed to confer upon, or to give to, any person, firm or corporation, other than the parties hereto and the holders of the bonds and coupons outstanding under the Mortgage, any right, remedy or claim under or by reason of this Tenth Supplemental Indenture or any covenant, condition, stipulation, promise or agreement hereof, and all the covenants, conditions, stipulations, promises and agreements in this Tenth Supplemental Indenture contained by or on behalf of the Company shall be for the sole and exclusive benefit of the parties hereto, and of the holders of the bonds and of the coupons outstanding under the Mortgage. SECTION 4.06. This Tenth Supplemental Indenture shall be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. ARTICLE V SPECIFIC DESCRIPTION OF PROPERTY (Added to Pacific Power System) The following described properties of the Company, owned as of the date hereof, and used (or held for future development and use) in connection with the Pacific Power Division of the Company's electric utility systems, or for other purposes, as hereinafter indicated, respectively: H--OFFICE BUILDINGS The following office and service center of the Company in the State of Washington including the following described real property: 14 H-48--YAKIMA OFFICE AND SERVICE CENTER In YAKIMA County, State of WASHINGTON H-48 ITEM: That part of the East 1/2 of the Southeast 1/4 of Section 17, Township 13 North, Range 19 East, W.M., lying northerly of the Northerly right-of-way line of the Burlington Northern, Inc. Railroad (now W.C.R.C.) right-of-way as conveyed by deed recorded in Volume 83 of Deeds, page 552; EXCEPTING THEREFROM the following: 1) That portion thereof conveyed to Union Gap Irrigation District by deed dated April 6, 1916, and recorded in Volume 165 of Deeds, page 285, under Auditor's File No. 90399, described as all of the Northeast 1/4 of the Southeast 1/4 of said Section 17 lying North of a line 25 feet South of and parallel with the centerline of the Union Gap Ditch; 2) That portion thereof lying Westerly of the following described line: Commencing at a point on the South line of the tract of land conveyed to Union Gap Irrigation District by deed recorded in Volume 165 of Deeds, page 285, under Auditor's File No. 90399, which point is 23.8 feet South and 59 feet North 89 DEG. 55' East of the Northwest corner of said subdivision; thence North 89 DEG. 55' East along the South line of said Union Gap Irrigation District property 653.11 feet to the point of beginning of said described line; thence South 00 DEG. 05' East to the Northeasterly right-of-way line of said Burlington Northern, Inc. Railroad right-of-way and the terminus of said described line; 3) That portion thereof lying Easterly of the following described line: Beginning at the point of intersection of the Northeasterly right-of-way line of said Burlington Northern, Inc. Railroad right-of-way, with the West line of the East 30.00 feet of the Southeast 1/4 of said Section 17; thence North 00 DEG. 32' 30" West parallel with the East line of said Section 1146.28 feet to the P.C. of a curve to the left; thence along the arc of a curve to the left having a radius of 925.00 feet, through a central angle of 30 DEG. 00'; 15 thence North 30 DEG. 32' 30" West to the North line of the Southeast 1/4 of said Section 17 and the terminus of said described line (Parcel No. 191317-41001/Levy Code 385). ARTICLE VI SPECIFIC DESCRIPTION OF PROPERTY (Added to Utah Power System) The following described properties of the Company, owned as of the date hereof, and used (or held for future development and use) in connection with the Utah Power Division of the Company's electric utility systems, or for other purposes, as hereinafter indicated, respectively: SAND CREEK 46 KV SUBSTATION--PARCEL NUMBER: I8B00038 Lands in BONNEVILLE County, State of IDAHO A portion of the SE 1/4 SE 1/4, Section 10, Township 2 North, Range 38 East, of the Boise Meridian, described as beginning at a point 240 feet North and 48 feet West, more or less, from the Southeast Corner of said Section 10; thence North 250 feet along a boundary line; thence West 150 feet; thence South 250 feet; thence East 150 feet to the point of beginning. TOGETHER WITH an Easement and Right-of-Way described as beginning at a point 240 feet North and 198 feet West, more or less, from the Southeast corner of said Section 10; thence North 27 feet; thence West 300 feet to the East boundary line of Richard Avenue; thence South 27 feet along said East boundary line; thence East 300 feet to the point of beginning. TOOELE-DUGWAY 46 KV REGULATOR SITE--PARCEL NUMBER: UT00028 Lands in TOOELE County, State of UTAH Beginning at a point on an existing right-of-way fence, said point being North 89 DEG. 22' 38" East along Section line 820.24 feet and South 2417.15 feet from the Northwest corner of Section 18, Township 5 South, Range 5 West, Salt Lake Base and Meridian; 16 and running thence South 6 DEG. 20' 58" East along said right-of-way fence 100.00 feet; thence South 83 DEG. 39' 02" West 100.00 feet; thence North 6 DEG. 20' 58" West 100.00 feet; thence North 83 DEG. 39' 02" East 100.00 feet to the point of beginning. NEW HARMONY 46 KV SUBSTATION--PARCEL NUMBER: UI00045 Lands in IRON County, State of UTAH A tract of land situate in the S 1/2 of the SE 1/4 of Section 17, Township 38 South, Range 12 West, Salt Lake Meridian, described as beginning South 89 DEG. 43' 36" East 1090.73 feet along the section line and NORTH 964.94 feet from the south one quarter corner of said Section 17; thence North 65 DEG. 08' 25" East 54.12 feet, North 11 DEG. 15' 29" West 65.05 feet, North 71 DEG. 44' 47" West 69.92 feet, North 38 DEG. 23' 55" East 143.93 feet, and North 46 DEG. 23' 39" East 203.42 feet along the easterly top of bank of an existing wash, thence NORTH 86.36 feet, more or less, to a north boundary fence; thence EASTERLY 422.24 feet, more or less, along said fence to the easterly boundary line, said easterly boundary line also being the westerly right of way line of Interstate 15, thence Southwesterly along said right of way line and the arc of a 1818.08 foot radius curve to the right 233.59 feet (chord bears South 21 DEG. 39' 47" West 233.43 feet), South 25 DEG. 19' 40" West 203.82 feet, and southwesterly along the arc of a 1238.28 foot radius curve to the right 58.3706 feet (chord bears South 23 DEG. 58' 33" West 58.3652 feet), thence North 89 DEG. 43' 36" West, 431.85 feet to the point of beginning. COTTONWOOD DISTRICT GARAGE--PARCEL NUMBER: US01016 Lands in SALT LAKE County, State of UTAH Beginning at a point which is North 579.21 feet and West 279.96 feet from the Southeast corner of Section 26, Township 2 South, Range 1 West, SLB&M; and running thence North 89 DEG. 53' 21" West 174.00 feet; thence North 00 DEG. 21' 20" West 72.00 feet; thence South 89 DEG. 53' 21" East 174.00 feet; thence South 00 DEG. 21' 20" East 72.00 feet to the point of beginning. 17 IN WITNESS WHEREOF, PACIFICORP has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by an Authorized Executive Officer of the Company, and its corporate seal to be attested to by its Secretary or one of its Assistant Secretaries for and in its behalf, and Morgan Guaranty Trust Company Of New York has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents or one of its Assistant Vice Presidents, and its corporate seal to be attested to by one of its Assistant Secretaries, and Chemical Bank has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents or one of its Assistant Vice Presidents, and its corporate seal to be attested to by one of its Senior Trust Officers, all as of the day and year first above written. [SEAL] PACIFICORP By RICHARD T. O'BRIEN ------------------------------- Vice President Attest: JOHN M. SCHWEITZER ---------------------------------- Assistant Secretary 18 MORGAN GUARANTY TRUST COMPANY OF NEW YORK [SEAL] as Resigning Trustee By PETER VITELLIO ------------------------------- Vice President Attest: TAMARA FELICETTI ---------------------------------- Assistant Secretary CHEMICAL BANK as Successor Trustee By F.J. GRIPPO ------------------------------- Vice President Attest: M. KATZ ---------------------------------- Senior Trust Officer 19 STATE OF OREGON COUNTY OF MULTNOMAH ss.: On this 7th day of September, 1994, before me, SHERYL LEE STRATTON, a Notary Public in and for the State of Oregon, personally appeared RICHARD T. O'BRIEN and JOHN M. SCHWEITZER, known to me to be a Vice President and an Assistant Secretary, respectively, of PACIFICORP, an Oregon corporation, who being duly sworn, stated that the seal affixed to the foregoing instrument is the corporate seal of said corporation and acknowledged this instrument to be the free, voluntary and in all respects duly and properly authorized act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year first above written. SHERYL LEE STRATTON ---------------------------------- My commission expires: May 25, 1996 [SEAL] Residing at: Portland, Oregon STATE OF NEW YORK COUNTY OF NEW YORK ss.: On this 1st day of September, 1994, before me, JOHN MIECHKOWSKI a Notary Public in and for the State of New York, personally appeared PETER VITELLIO and TAMARA FELICETTI, known to me to be a Vice President and Assistant Secretary, respectively, of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a New York corporation, who being duly sworn, stated that the seal affixed to the foregoing instrument is the corporate seal of said corporation and acknowledged this instrument to be the free, voluntary and in all respects duly and properly authorized act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year first above written. JOHN MIECHKOWSKI ---------------------------------- [SEAL] Notary Public, State of New York No. 30-4893319 Qualified in Nassau County Commission expires: May 18, 1995 20 STATE OF NEW YORK COUNTY OF NEW YORK ss.: On this 2nd day of September, 1994, before me, EMILY FAYAN a Notary Public in and for the State of New York, personally appeared F.J. GRIPPO and M. KATZ, known to me to be a Vice President and a Senior Trust Officer, respectively, of CHEMICAL BANK, a New York corporation, who being duly sworn, stated that the seal affixed to the foregoing instrument is the corporate seal of said corporation and acknowledged this instrument to be the free, voluntary and in all respects duly and properly authorized act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year first above written. EMILY FAYAN ---------------------------------- [SEAL] Notary Public, State of New York No. 24-4737006 Qualified in Kings County Commission expires December 31, 1995 EX-4.(D) 3 EXHIBIT 4(D) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PACIFICORP (AN OREGON CORPORATION) TO MORGAN GUARANTY TRUST COMPANY OF NEW YORK (A NEW YORK CORPORATION) WHICH HEREIN RESIGNS AS CORPORATE TRUSTEE AND CHEMICAL BANK (A NEW YORK CORPORATION) HEREIN BECOMING SUCCESSOR CORPORATE TRUSTEE TO MORGAN GUARANTY TRUST COMPANY OF NEW YORK AS TRUSTEE UNDER UTAH POWER & LIGHT COMPANY'S MORTGAGE AND DEED OF TRUST, DATED AS OF DECEMBER 1, 1943 --------------------- FIFTY-FIFTH SUPPLEMENTAL INDENTURE DATED AS OF AUGUST 1, 1994 SUPPLEMENTAL TO UTAH POWER & LIGHT COMPANY'S MORTGAGE AND DEED OF TRUST DATED AS OF DECEMBER 1, 1943 --------------------- THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A TRANSMITTING UTILITY THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FIFTY-FIFTH SUPPLEMENTAL INDENTURE THIS INDENTURE, dated as of the 1st day of August, 1994 (hereinafter referred to as the "Fifty-fifth Supplemental Indenture") is made as a supplement to that certain Mortgage and Deed of Trust, dated as of December 1, 1943, as heretofore amended and supplemented (the "Mortgage"), executed and delivered by Utah Power & Light Company, a Maine corporation that subsequently merged into Utah Power & Light Company, a Utah corporation (hereinafter referred to respectively as the "Maine Company" and the "Utah Company"; and hereinafter referred to collectively as the "Original Mortgagor"). This Fifty-fifth Supplemental Indenture is entered into by and among (a) PACIFICORP, a corporation of the State of Oregon into which the Original Mortgagor heretofore was merged, whose address is 700 NE Multnomah, Portland, Oregon 97232 (the "Company"); (b) MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a New York corporation whose address is 60 Wall Street, New York, New York 10260 (the "Resigning Corporate Trustee"); and (c) CHEMICAL BANK, a New York corporation whose address is 450 West 33rd Street, New York, New York 10001 (the "Successor Corporate Trustee" or "Trustee"). WHEREAS, the Mortgage (including all indentures supplemental thereto) was recorded in the official records of the States of Colorado, Idaho, New Mexico, Utah and Wyoming and various counties within said states in which this Fifty-fifth Supplemental Indenture is to be recorded, and was filed as a financing statement in accordance with the Uniform Commercial Code of each of said states; and WHEREAS, the Maine Company executed, delivered, recorded and filed the First Supplemental Indenture through the Twenty-fifth Supplemental Indenture to the Mortgage, inclusive, and the Utah Company executed, delivered, recorded and filed subsequent Supplemental Indentures as follows:
DATED AS OF ------------------------- First January 1, 1945 Second May 1, 1946 Third April 1, 1948 Fourth May 1, 1949 Fifth October 1, 1949 Sixth October 1, 1950
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DATED AS OF ------------------------- Seventh October 1, 1951 Eighth October 1, 1952 Ninth May 1, 1954 Tenth September 1, 1955 Eleventh October 1, 1957 Twelfth September 1, 1960 Thirteenth June 1, 1962 Fourteenth April 1, 1963 Fifteenth August 1, 1964 Sixteenth March 1, 1968 Seventeenth December 1, 1969 Eighteenth April 1, 1970 Nineteenth March 1, 1971 Twentieth May 1, 1972 Twenty-first February 1, 1974 Twenty-second October 1, 1974 Twenty-third November 1, 1975 Twenty-fourth February 1, 1976 Twenty-fifth April 1, 1976 Twenty-sixth August 31, 1976 Twenty-seventh September 1, 1976 Twenty-eighth November 1, 1976 Twenty-ninth March 1, 1977 Thirtieth September 1, 1977 Thirty-first April 1, 1978 Thirty-second May 1, 1978 Thirty-third April 1, 1979 Thirty-fourth September 1, 1979 Thirty-fifth March 1, 1980 Thirty-sixth April 1, 1981 Thirty-seventh December 1, 1981 Thirty-eighth July 1, 1982 Thirty-ninth December 1, 1982 Fortieth September 1, 1984 Forty-first October 1, 1986
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DATED AS OF ------------------------- Forty-second December 1, 1986 Forty-third May 1, 1987 Forty-fourth June 1, 1987;
and WHEREAS, the Maine Company has heretofore issued, in accordance with the provisions of the Mortgage, bonds entitled and designated First Mortgage Bonds, of the First Series through the Twenty-ninth Series, inclusive, and the Utah Company has heretofore issued subsequent Series, all in the principal amounts as follows:
AGGREGATE PRINCIPAL AMOUNT AGGREGATE PRINCIPAL SERIES DUE DATE ISSUED AMOUNT OUTSTANDING ----------------------------- ------------- ------------------ ------------------- 1968 $ 42,000,000 0 1. First--3 3/4% 1976 32,000,000 0 2. Second--2 3/4% 1978 3,000,000 0 3. Third--3 1/8% 1979 3,000,000 0 4. Fourth--3% 10/1/1979 3,000,000 0 5. Fifth--2 7/8% 1980 8,000,000 0 6. Sixth--2 7/8% 1981 9,000,000 0 7. Seventh--3 5/8% 1982 10,000,000 0 8. Eighth--3 1/2% 1984 15,000,000 0 9. Ninth--3 1/4% 1985 15,000,000 0 10. Tenth--3 5/8% 1987 15,000,000 0 11. Eleventh--5 1/4% 1990 16,000,000 0 12. Twelfth--4 7/8% 1992 22,000,000 0 13. Thirteenth--4 1/2% 1993 15,000,000 0 14. Fourteenth--4 1/2% 1994 15,000,000 0 15. Fifteenth--4 5/8% 1998 20,000,000 $ 16,000,000 16. Sixteenth--7% 2000 30,000,000 0 17. Seventeenth--9 1/4% 1976 35,000,000 0 18. Eighteenth--6 1/4% 2002 25,000,000 20,310,000 19. Nineteenth--7 1/2% 2004 14,000,000 13,190,000 20. Twentieth--6 1/8% First Series 2004 11,000,000 9,365,000 21. Twenty-first--6 1/8% Second Series
4
AGGREGATE PRINCIPAL AMOUNT AGGREGATE PRINCIPAL SERIES DUE DATE ISSUED AMOUNT OUTSTANDING ----------------------------- ------------- ------------------ ------------------- 2004 $ 16,000,000 $ 15,060,000 22. Twenty-second--6 1/8% Third Series 1983 40,000,000 0 23. Twenty-third--10 1/4% 2005 60,000,000 0 24. Twenty-fourth-- 10 1/4% 2006 35,000,000 0 25. Twenty-fifth--9% 4/1/2006 32,000,000 0 26. Twenty-sixth--8 3/4% 9/1/2006 40,000,000 0 27. Twenty-seventh-- 8 3/8% 11/1/2006 50,000,000 50,000,000 28. Twenty-eighth--6 3/8% 3/1/2007 55,000,000 0 29. Twenty-ninth--8 1/2% 9/1/2007 50,000,000 0 30. Thirtieth--8 1/4% 4/1/2008 42,000,000 42,000,000 31. Thirty-first--5.90% 5/1/2008 50,000,000 0 32. Thirty-second--9 1/8% 4/1/2009 35,000,000 0 33. Thirty-third--10 1/8% 9/1/2009 65,000,000 0 34. Thirty-fourth--10 1/4% 3/1/2010 60,000,000 0 35. Thirty-fifth--14 3/4% 4/1/2011 45,000,000 0 36. Thirty-sixth--11 1/8% First Series 4/1/2011 45,000,000 0 37. Thirty-seventh-- 11 1/8% Second Series 12/1/2011 90,000,000 0 38. Thirty-eighth--16 3/8% 7/1/2012 46,500,000 0 39. Thirty-ninth--13 1/2% 12/1/2012 90,000,000 0 40. Fortieth--13% 9/1/2014 16,750,000 16,750,000 41. Forty-first--10.70% 10/1/2016 170,000,000 0 42. Forty-second--9 3/8% 12/1/2016 92,000,000 0 43. Forty-third--8 3/4% 5/1/2017 95,000,000 0 44. Forty-fourth--9 7/8% 6/1/2017 46,500,000 0 45. Forth-fifth--8 1/4% First Series 6/1/2017 16,400,000 0 46. Forty-sixth--8 5/8% Second Series 6/1/2017 8,300,000 0; 47. Forty-seventh--8 5/8% Third Series
and 5 WHEREAS, the Utah Company entered into a Reorganization Agreement and Plan of Merger dated August 12, 1987, as amended, pursuant to which, among other things, the Utah Company was merged into the Company as of January 9, 1989, upon such terms as fully to preserve and in no respect to impair the Lien or security of the Mortgage or any of the rights or powers of the trustees or the bondholders thereunder; and WHEREAS, pursuant to Article XVII of the Mortgage, the Company executed, delivered, recorded and filed its Forty-fifth Supplemental Indenture dated as of January 9, 1989, whereby the Company assumed and agreed to pay, duly and punctually, the principal of and interest on the bonds issued under the Mortgage, in accordance with the provisions of said bonds and coupons and the Mortgage, and agreed to perform and fulfill all the covenants and conditions of the Mortgage to be kept or performed by the Original Mortgagor, and whereby The Chase Manhattan Bank (National Association) was appointed Corporate Trustee in succession to Morgan Guaranty Trust Company of New York (formerly Guaranty Trust Company of New York), resigned, under the Mortgage, and C.J. Heinzelmann was appointed Co-Trustee in succession to W.A. Spooner, resigned, under the Mortgage; and WHEREAS, the Company executed, delivered, recorded and filed additional Supplemental Indentures to the Mortgage as follows:
DATED AS OF ------------------------- Forty-sixth March 31, 1989 Forty-seventh December 29, 1989 Forty-eighth March 31, 1991;
and WHEREAS, pursuant to said Forty-eighth Supplemental Indenture, Morgan Guaranty Trust Company of New York was appointed Corporate Trustee in succession to The Chase Manhattan Bank (National Association), resigned, under the Mortgage and C.J. Heinzelmann resigned as Co-Trustee under the Mortgage and all the right, title and powers of the Co-Trustee devolved upon the Corporate Trustee and its successors alone until such time as a successor to the Co-Trustee shall be appointed; and 6 WHEREAS, the Company executed, delivered, recorded and filed additional Supplemental Indentures to the Mortgage as follows:
DATED AS OF ------------------------- Forty-ninth December 31, 1991 Fiftieth March 15, 1992 Fifty-first July 31, 1992 Fifty-second March 15, 1993 Fifty-third November 1, 1993 Fifty-fourth June 1, 1994;
and WHEREAS, the Company has heretofore issued, in accordance with the provisions of the Mortgage, bonds entitled and designated First Mortgage Bonds, of the Series and in the principal amounts as follows:
AGGREGATE AGGREGATE PRINCIPAL AMOUNT PRINCIPAL AMOUNT SERIES DUE DATE ISSUED OUTSTANDING ------------------------------- ------------- ----------------- ----------------- various $ 125,000,000 $ 120,000,000 48. Forty-eighth--Medium-Term Notes, Series A various 100,000,000 87,500,000 49. Forty-ninth--Medium-Term Notes, Series B various 150,000,000 144,714,391 50. Fiftieth--Medium-Term Notes, Series C various 125,000,000 125,000,000 51. Fifty-first--Medium-Term Notes, Series D various 125,216,000 118,235,500 52. Fifty-second--C-U various 250,000,000 250,000,000 53. Fifty-third--Medium-Term Notes, Series E 4/1/2005 75,000,000 75,000,000 54. Fifty-fourth--6 3/4% various 250,000,000 250,000,000 55. Fifty-fifth--Medium-Term Notes, Series F various 35,600,000 35,600,000 56. Fifty-sixth--E-L various 250,000,000 250,000,000; 57. Fifty-seventh--Medium Term Notes, Series G
and 7 WHEREAS, in addition to the property described in the Mortgage, the Company has acquired certain other property, rights and interests in property; and WHEREAS, Section 8 of the Mortgage provides that the form of each series of bonds (other than the First Series) issued thereunder and of the coupons to be attached to coupon bonds of such series shall be established by Resolution of the Board of Directors of the Company and that the form of such series, as established by said Board of Directors, shall specify the descriptive title of the bonds and various other terms thereof, and may also contain such provisions not inconsistent with the provisions of the Mortgage as the Board of Directors may, in its discretion, cause to be inserted therein expressing or referring to the terms and conditions upon which such bonds are to be issued and/or secured under the Mortgage; and WHEREAS, Section 130 of the Mortgage provides, among other things, that any power, privilege or right expressly or impliedly reserved to or in any way conferred upon the Company by any provision of the Mortgage, whether such power, privilege or right is in any way restricted or is unrestricted, may be in whole or in part waived or surrendered or subjected to any restriction if at the time unrestricted or to additional restriction if already restricted, and the Company may enter into any further covenants, limitations or restrictions for the benefit of any one or more series of bonds issued thereunder and provide that a breach thereof shall be equivalent to a default under the Mortgage, or the Company may cure any ambiguity contained therein or in any supplemental indenture or may establish the terms and provisions of any series of bonds other than the First Series, by an instrument in writing executed and acknowledged by the Company in such manner as would be necessary to entitle a conveyance of real estate to record in all of the states in which any property at the time subject to the Lien of the Mortgage shall be situated; and the Trustee is further authorized by said Section 130 to join with the Company in the execution of any such instrument or instruments, and such instrument, executed and acknowledged as aforesaid, shall be delivered to the Trustee and thereupon any modification of the provisions of the Mortgage therein set forth, authorized by said Section 130, shall be 8 binding upon the parties to the Mortgage, their successors and assigns, and the holders of the bonds and coupons thereby secured; provided, however, anything therein contained to the contrary notwithstanding, said Section 130 shall not be construed to permit any act, waiver, surrender or restriction adversely affecting any bonds then Outstanding under the Mortgage; and WHEREAS, in Section 42 of the Mortgage, the Original Mortgagor covenanted that it would execute and deliver such supplemental indenture or indentures and such further instruments and do such further acts as might be necessary or proper to carry out more effectually the purposes of the Mortgage and to make subject to the Lien of the Mortgage any property thereafter acquired, made or constructed and intended to be subject to the Lien thereof, and to transfer to any new trustee or trustees or co-trustee or co-trustees, the estates, powers, instruments or funds held in trust thereunder; and WHEREAS, the Company now desires to create a new series of bonds and (pursuant to Section 130 of the Mortgage) to add to its covenants and agreements contained in the Mortgage certain other covenants and agreements to be observed by it; and WHEREAS, the execution and delivery by the Company of this Fifty-fifth Supplemental Indenture has been duly authorized by the Board of Directors by appropriate Resolutions; NOW, THEREFORE, THIS INDENTURE WITNESSETH: ARTICLE I GRANTING CLAUSES The Company, in consideration of the premises and of One Dollar ($1) to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and in further evidence of assurance of the estate, title and rights of the Trustee under the Mortgage and in order further to secure the payment of both the principal of and interest and premium, if any, on the bonds from time to time issued under the Mortgage, according to their tenor and effect, 9 and the performance of all the provisions of the Mortgage (including any instruments supplemental thereto and any modification made as in the Mortgage provided) and of such bonds, and to confirm the Lien of the Mortgage on certain after-acquired property, hereby grants, bargains, sells, releases, conveys, assigns, transfers, mortgages, pledges, sets over and confirms (subject, however, to Excepted Encumbrances as defined in Section 6 of the Mortgage) unto Chemical Bank as Trustee under the Mortgage, and to its successor or successors in said trust, and to said Trustee and its successors and assigns forever, all property, real, personal and mixed, owned by the Original Mortgagor as of the date of the Mortgage and acquired by the Original Mortgagor or the Company after the date of the Mortgage, subject to the provisions of Section 97 of the Mortgage and Section 2.02 of the Forty-fifth Supplemental Indenture thereto, of the kind or nature specifically mentioned in Paragraphs One through Twelve, inclusive, of the Mortgage, or of any other kind or nature (except any herein or in the Mortgage expressly excepted), now owned, or, subject to the provisions of Section 97 of the Mortgage and Section 2.02 of the Forty-fifth Supplemental Indenture thereto, hereafter acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) and wheresoever situated, including the properties described in Article VI hereof, and including (without in anywise limiting or impairing by the enumeration of the same the scope and intent of the foregoing) all lands, power sites, flowage rights, water rights, water locations, water appropriations, ditches, flumes, reservoirs, reservoir sites, canals, raceways, dams, dam sites, aqueducts, and all other rights or means for appropriating, conveying, storing and supplying water; all rights of way and roads; all plants for the generation of electricity by steam, water and/or other power; all power houses, gas plants, street lighting systems, standards and other equipment incidental thereto, telephone, radio and television systems, air conditioning systems and equipment incidental thereto, water works, water systems, steam heat and hot water plants, substations, lines, service and supply systems, bridges, culverts, tracks, street and interurban railway systems, offices, buildings and other structures and equipment thereof; all machinery, engines, boilers, dynamos, electric, gas and other 10 machines, regulators, meters, transformers, generators, motors, electrical, gas and mechanical appliances, conduits, cables, water, steam heat, gas or other pipes, mains and pipes, service pipes, fittings, valves and connections, pole and transmission lines, wires, cables, tools, implements, apparatus, furniture, chattels and chooses in action; all municipal and other franchises, consents or permits; all lines for the transmission and distribution of electric current, gas, steam heat or water for any purpose, including towers, poles, wires, cables, pipes, conduits, ducts and all apparatus for use in connection therewith; all real estate, lands, easements, servitudes, licenses, permits, franchises, privileges, rights of way and other rights in or relating to real estate or the occupancy of the same and (except as herein or in the Mortgage expressly excepted) all the right, title and interest of the Company in and to all other property of like kind and character as herein described or of any other kind or character appertaining to and/or used and/or occupied and/or enjoyed in connection with any property herein or in the Mortgage described; And the Company does hereby confirm that the Company will not cause or consent to a partition, either voluntarily or through legal proceedings, of property subject to the Lien of the Mortgage whether herein described or heretofore or hereafter acquired, in which its ownership shall be as a tenant in common, except as permitted by and in conformity with the provisions of the Mortgage and particularly of Article XII thereof; TOGETHER WITH all and singular the tenements, hereditaments and appurtenances belonging or in anywise appertaining to the aforesaid property or any part thereof, with the reversion and reversions, remainder and remainders and (subject to the provisions of Section 67 of the Mortgage) the tolls, rents, revenues, issues, earnings, income, product and profits thereof, and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, which the Company now has or (subject to the provisions of Section 97 of the Mortgage and Section 2.02 of the Forty-fifth Supplemental Indenture thereto) may hereafter acquire in and to the aforesaid property and franchises and every part and parcel thereof. 11 IT IS HEREBY AGREED by the Company that, subject to the provisions of Section 97 of the Mortgage and Section 2.02 of the Forty-fifth Supplemental Indenture thereto, all the property, rights and franchises acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) after the date hereof, except any herein or in the Mortgage expressly excepted, shall be and are as fully granted and conveyed hereby and by the Mortgage, and as fully embraced within the Lien of the Mortgage as if such property, rights and franchises were now owned by the Company and were specifically described herein or in the Mortgage and conveyed hereby or thereby; PROVIDED THAT the following are not and are not intended to be now or hereafter granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed hereunder and are expressly excepted from the Lien and operation of the Mortgage, viz.: (1) cash, shares of stock, bonds, notes and other obligations and other securities not hereafter specifically pledged, paid, deposited, delivered or held under the Mortgage or covenanted so to be; (2) merchandise, equipment, materials or supplies held for the purpose of sale or other disposition in the usual course of business and fuel, oil and similar materials and supplies consumable in the operation of any of the properties of the Company; electric trolley coaches, rolling stock, buses, motor coaches, automobiles and other vehicles; (3) bills, notes and accounts receivable, and all contracts, leases and operating agreements not specifically pledged under the Mortgage or covenanted so to be; the last day of the term of any lease or leasehold which may be or become subject to the Lien of the Mortgage; (4) electric energy, gas and other materials or products generated, manufactured, produced or purchased by the Company for sale, distribution or use in the ordinary course of its business; and (5) the Company's franchise to be a corporation; provided, however, that the property and rights expressly excepted from the Lien and operation of the Mortgage in the above subdivisions (2) and (3) shall (to the extent permitted by law) cease to be so excepted in the event and as of the date that the Trustee or a receiver or trustee shall enter upon and take possession of the Mortgaged and Pledged Property in the manner provided in Article XIV of the Mortgage by reason of the occurrence of a Default as defined in Section 75 thereof. 12 TO HAVE AND TO HOLD all such properties, real, personal and mixed, granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed by the Company as aforesaid, or intended so to be, unto Chemical Bank as Trustee, and its successors and assigns forever; IN TRUST NEVERTHELESS, for the same purposes and upon the same terms, trusts and conditions and subject to and with the same provisos and covenants as are set forth in the Mortgage, this Fifty-fifth Supplemental Indenture being supplemental to the Mortgage. AND IT IS HEREBY COVENANTED by the Company that all the terms, conditions, provisos, covenants and provisions contained in the Mortgage shall affect and apply to the property hereinbefore described and conveyed, and to the estates, rights, obligations and duties of the Company and the Trustee under the Mortgage and the beneficiaries of the trust with respect to said property, and to the Trustee under the Mortgage and its successors in the trust, in the same manner and with the same effect as if the said property had been owned by the Company at the time of the execution of the Mortgage, and had been specifically and at length described in and conveyed to said Trustee by the Mortgage as a part of the property therein stated to be conveyed. ARTICLE II REGARDING THE RESIGNATION OF THE RESIGNING CORPORATE TRUSTEE AND APPOINTMENT OF SUCCESSOR CORPORATE TRUSTEE SECTION 2.01. Morgan Guaranty Trust Company of New York hereby gives written notice to the Company that it hereby resigns as Corporate Trustee under the Mortgage, such resignation to take effect as of September 1, 1994. SECTION 2.02. Pursuant to Section 112 of the Mortgage, and by order of its Board of Directors, the Company hereby accepts the foregoing resignation and appoints Chemical Bank as Successor Corporate Trustee under the Mortgage, effective as of September 1, 1994. By execution 13 hereof Chemical Bank hereby acknowledges its acceptance of its appointment by the Company as Successor Corporate Trustee under the Mortgage. SECTION 2.03. The Resigning Corporate Trustee hereby conveys, assigns and transfers to the Successor Corporate Trustee, and its successors and assigns, upon the trusts expressed in the Mortgage (as amended hereby), all rights, title, powers and trusts of the Resigning Corporate Trustee under and pursuant to the Mortgage and all property and money held by the Resigning Corporate Trustee under the Mortgage. The Resigning Corporate Trustee and the Company agree, upon request of the Successor Corporate Trustee, to execute, acknowledge and deliver such further instruments of conveyance and further assurances and to do such other things as may reasonably be required for more fully and certainly vesting in and confirming to the Successor Corporate Trustee such rights, title, powers and trusts. ARTICLE III FIFTY-EIGHTH SERIES OF BONDS SECTION 3.01. There shall be a series of bonds designated "First Mortgage Bonds, Series 1994-1" (herein sometimes referred to as the "Fifty-eighth Series"), each of which shall also bear the descriptive title First Mortgage Bond, and the form thereof, which shall be established by Resolution of the Board of Directors of the Company, shall contain suitable provisions with respect to the matters hereinafter in this Section specified. Bonds of the Fifty-eighth Series shall mature on the maturity date, and in principal amounts corresponding to the principal amounts, of first mortgage and collateral trust bonds designated "Series 1994-1," issued under the Company's Mortgage and Deed of Trust, dated as of January 9, 1989, as amended and supplemented, to Chemical Bank, as trustee, on the basis of such bonds of the Fifty-eighth Series. Bonds of the Fifty-eighth Series shall be issued as fully registered bonds in the denomination of One Thousand Dollars and, at the option of the Company, in any multiple or multiples of One Thousand Dollars (the exercise of such option to be evidenced by the execution and delivery thereof); they shall bear no interest; and the principal of each such bond shall be payable at 14 the office or agency of the Company in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for public and private debts. Bonds of the Fifty-eighth Series shall be dated as in Section 10 of the Mortgage provided. (I) Bonds of the Fifty-eighth Series shall be redeemable either at the option of the Company or pursuant to the requirements of the Mortgage (including, among other things, the provisions of Sections 39 or 74 of the Mortgage or with the proceeds of released property pursuant to Section 71 of the Mortgage). (II) At the option of the registered owner, any bonds of the Fifty-eighth Series, upon surrender thereof for cancellation at the office or agency of the Company in the Borough of Manhattan, The City of New York, together with a written instrument of transfer whenever required by the Company duly executed by the registered owner or by his duly authorized attorney shall (subject to the provisions of Section 12 of the Mortgage) be exchangeable for a like aggregate principal amount of bonds of the same series of other authorized denominations. Bonds of the Fifty-eighth Series shall be transferable (subject to the provisions of Section 12 of the Mortgage and to the limitations set forth in this Fifty-fifth Supplemental Indenture), upon the surrender thereof for cancellation, together with a written instrument of transfer in form approved by the registrar duly executed by the registered owner or by his duly authorized attorney, at the office or agency of the Company in the Borough of Manhattan, The City of New York. Upon any transfer or exchange of bonds of the Fifty-eighth Series, the Company may make a charge therefor sufficient to reimburse it for any tax or taxes or other governmental charge, as provided in Section 12 of the Mortgage, but the Company hereby waives any right to make a charge in addition thereto for any exchange or transfer of bonds of the Fifty-eighth Series. The Trustee may conclusively presume that the obligation of the Company to pay the principal of the bonds of the Fifty-eighth Series as the same shall become due and payable shall have been fully satisfied and discharged unless and until it shall have received a written notice from the trustee under the Company's Mortgage and Deed of Trust, dated as of 15 January 9, 1989, as amended and supplemented, to Chemical Bank, as trustee, signed by the President, a Vice President, an Assistant Vice President or a Trust Officer of such trustee, stating that interest or principal due and payable on any bonds issued under said Mortgage and Deed of Trust has not been fully paid and specifying the amount of funds required to make such payment. Bonds of the Fifty-eighth Series shall be initially issued in the name of Chemical Bank, as trustee under the Company's Mortgage and Deed of Trust, dated as of January 9, 1989, as amended and supplemented, and shall not be transferable, except to any successor trustee under said Mortgage and Deed of Trust. After the execution and delivery of this Fifty-fifth Supplemental Indenture and upon compliance with the applicable provisions of the Mortgage, as supplemented, it is contemplated that there shall be issued bonds of the Fifty-eighth Series in an aggregate principal amount not to exceed One Hundred Twelve Million Five Hundred Thousand Dollars ($112,500,000). ARTICLE IV THE COMPANY RESERVES THE RIGHT TO AMEND PROVISIONS REGARDING PROPERTIES EXCEPTED FROM LIEN OF MORTGAGE SECTION 4.01. The Company reserves the right, without any consent or other action by holders of bonds of the Fifty-fourth Series, or any other series of bonds subsequently created under the Mortgage (including the bonds of the Fifty-eighth Series) to make such amendments to the Mortgage, as heretofore amended and supplemented, as shall be necessary in order to amend the first proviso to the granting clause of the Mortgage, which proviso sets forth the properties excepted from the Lien of the Mortgage, to add a new exception (6) which shall read as follows: "(6) allowances allocated to steam-electric generating plants owned by the Company or in which the Company has interests, pursuant to 16 Title IV of the Clean Air Act Amendments of 1990, Pub. L. 101-549, Nov. 15, 1990, 104 Stat. 2399, 42 USC 7651, ET SEQ., as now in effect or as hereafter supplemented or amended." ARTICLE V MISCELLANEOUS PROVISIONS SECTION 5.01. The right, if any, of the Company to assert the defense of usury against a holder or holders of bonds of the Fifty-eighth Series or any subsequent series shall be determined only under the laws of the State of New York. SECTION 5.02. The terms defined in the Mortgage shall, for all purposes of this Fifty-fifth Supplemental Indenture, have the meanings specified in the Mortgage. SECTION 5.03. The Trustee hereby accepts the trusts declared, provided, created or supplemented in the Mortgage and herein, and agrees to perform the same upon the terms and conditions set forth herein and in the Mortgage, and upon the following terms and conditions: The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Fifty-fifth Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article XVIII of the Mortgage shall apply to and form part of this Fifty-fifth Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and insertions, if any, as may be appropriate to make the same conform to the provisions of the Fifty-fifth Supplemental Indenture. SECTION 5.04. Whenever in this Fifty-fifth Supplemental Indenture either the Company or the Trustee is named or referred to, this shall, subject to the provisions of Articles XVII and XVIII of the Mortgage, be deemed to include the successors and assigns of such party, and all the covenants and agreements in this Fifty-fifth Supplemental Indenture contained by or on behalf of the Company, or by or on behalf of the 17 Trustee, or either of them, shall, subject as aforesaid, bind and inure to the respective benefits of the respective successors and assigns of such parties, whether so expressed or not. SECTION 5.05. Nothing in this Fifty-fifth Supplemental Indenture, expressed or implied, is intended, or shall be construed, to confer upon, or to give to any person, firm or corporation, other than the parties hereto and the holders of the bonds and coupons Outstanding under the Mortgage, any right, remedy or claim under or by reason of this Fifty-fifth Supplemental Indenture or any covenant, condition, stipulation, promise or agreement hereof, and all the covenants, conditions, stipulations, promises and agreements in this Fifty-fifth Supplemental Indenture contained by or on behalf of the Company shall be for the sole and exclusive benefit of the parties hereto, and of the holders of the bonds and coupons Outstanding under the Mortgage. SECTION 5.06. This Fifty-fifth Supplemental Indenture shall be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. ARTICLE VI SPECIFIC DESCRIPTION OF PROPERTY The following described properties of the Company, owned as of the date hereof, and used (or held for future development and use) in connection with the Utah Power Division of the Company's electric utility systems, or for other purposes, as hereinafter indicated, respectively: SAND CREEK 46 KV SUBSTATION--PARCEL NUMBER: I8B00038 Lands in BONNEVILLE County, State of IDAHO A portion of the SE 1/4 SE 1/4, Section 10, Township 2 North, Range 38 East, of the Boise Meridian, described as beginning at a point 240 feet North and 48 feet West, more or less, from the Southeast Corner of said Section 10; thence North 250 feet along a boundary line; thence West 150 feet; thence South 250 feet; thence East 150 feet to the point of beginning. 18 TOGETHER WITH an Easement and Right-of-Way described as beginning at a point 240 feet North and 198 feet West, more or less, from the Southeast corner of said Section 10; thence North 27 feet; thence West 300 feet to the East boundary line of Richard Avenue; thence South 27 feet along said East boundary line; thence East 300 feet to the point of beginning. TOOELE-DUGWAY 46 KV REGULATOR SITE--PARCEL NUMBER: UT00028 Lands in TOOELE County, State of UTAH Beginning at a point on an existing right-of-way fence, said point being North 89 DEG.22'38" East along Section line 820.24 feet and South 2417.15 feet from the Northwest corner of Section 18, Township 5 South, Range 5 West, Salt Lake Base and Meridian; and running thence South 6 DEG.20'58" East along said right-of-way fence 100.00 feet; thence South 83 DEG.39'02" West 100.00 feet; thence North 6 DEG.20'58" West 100.00 feet; thence North 83 DEG.39'02" East 100.00 feet to the point of beginning. NEW HARMONY 46 KV SUBSTATION--PARCEL NUMBER: UI00045 Lands in IRON County, State of UTAH A tract of land situate in the S 1/2 of the SE 1/4 of Section 17, Township 38 South, Range 12 West, Salt Lake Meridian, described as beginning South 89 DEG.43'36" East 1090.73 feet along the section line and NORTH 964.94 feet from the south one quarter corner of said Section 17; thence North 65 DEG.08'25" East 54.12 feet, North 11 DEG.15'29" West 65.05 feet, North 71 DEG.44'47" West 69.92 feet, North 38 DEG.23'55" East 143.93 feet, and North 46 DEG.23'39" East 203.42 feet along the easterly top of bank of an existing wash, thence NORTH 86.36 feet, more or less, to a north boundary fence; thence EASTERLY 422.24 feet, more or less, along said fence to the easterly boundary line, said easterly boundary line also being the westerly right of way line of Interstate 15, thence Southwesterly along said right of way line and the arc of a 1818.08 foot radius curve to the right 233.59 feet (chord bears South 21 DEG.39'47" West 233.43 feet), South 25 DEG.19'40" 19 West 203.82 feet, and southwesterly along the arc of a 1238.28 foot radius curve to the right 58.3706 feet (chord bears South 23 DEG.58'33" West 58.3652 feet), thence North 89 DEG.43'36" West, 431.85 feet to the point of beginning. COTTONWOOD DISTRICT GARAGE--PARCEL NUMBER: US01016 Lands in SALT LAKE County, State of UTAH Beginning at a point which is North 579.21 feet and West 279.96 feet from the Southeast corner of Section 26, Township 2 South, Range 1 West, SLB&M; and running thence North 89 DEG.53'21" West 174.00 feet; thence North 00 DEG.21'20" West 72.00 feet; thence South 89 DEG.53'21" East 174.00 feet; thence South 00 DEG.21'20" East 72.00 feet to the point of beginning. 20 IN WITNESS WHEREOF, PACIFICORP has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents, and its corporate seal to be attested to by its Secretary or one of its Assistant Secretaries; and Morgan Guaranty Trust Company of New York has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents or one of its Assistant Vice Presidents, and its corporate seal to be attested to by one of its Assistant Secretaries and Chemical Bank has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents or one of its Assistant Vice Presidents, and its corporate seal to be attested to by one of its Senior Trust Officers, all as of the day and year first above written. [SEAL] PACIFICORP By RICHARD T. O'BRIEN ------------------------------- Vice President Attest: JOHN M. SCHWEITZER ---------------------------------- Assistant Secretary MORGAN GUARANTY TRUST COMPANY OF NEW YORK [SEAL] as Resigning Corporate Trustee By PETER VITELLIO ------------------------------- Vice President Attest: TAMARA FELICETTI ---------------------------------- Assistant Secretary CHEMICAL BANK as Successor Corporate Trustee By F.J. GRIPPO ------------------------------- Vice President Attest: M. KATZ ---------------------------------- Senior Trust Officer 21 STATE OF OREGON ) COUNTY OF MULTNOMAH ) ss.: On this 8th day of September, 1994, before me, SHERYL LEE STRATTON, a Notary Public in and for the State of Oregon, personally appeared RICHARD T. O'BRIEN and JOHN M. SCHWEITZER, known to me to be a Vice President and an Assistant Secretary, respectively, of PACIFICORP, an Oregon corporation, who being duly sworn, stated that the seal affixed to the foregoing instrument is the corporate seal of said corporation and acknowledged this instrument to be the free, voluntary and in all respects duly and properly authorized act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year first above written. SHERYL LEE STRATTON ---------------------------------- My commission expires: May 25, 1996 [SEAL] Residing at: Portland, Oregon STATE OF NEW YORK ) COUNTY OF NEW YORK ) ss.: On this 1st day of September, 1994, before me, JOHN MIECHKOWSKI, a Notary Public in and for the State of New York, personally appeared PETER VITELLIO and TAMARA FELICETTI, known to me to be a Vice President and Assistant Secretary, respectively, of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a New York corporation, who being duly sworn, stated that the seal affixed to the foregoing instrument is the corporate seal of said corporation and acknowledged this instrument to be the free, voluntary and in all respects duly and properly authorized act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year first above written. JOHN MIECHKOWSKI ---------------------------------- Notary Public, State of New York No. 30-4893319 Qualified in Nassau County Commission expires: May 18, 1995 22 [SEAL] STATE OF NEW YORK ) COUNTY OF NEW YORK ) ss.: On this 2nd day of September, 1994, before me, EMILY FAYAN, a Notary Public in and for the State of New York, personally appeared F.J. GRIPPO and M. KATZ, known to me to be a Vice President and a Senior Trust Officer, respectively, of CHEMICAL BANK, A NEW YORK CORPORATION, who being duly sworn, stated that the seal affixed to the foregoing instrument is the corporate seal of said corporation and acknowledged this instrument to be the free, voluntary and in all respects duly and properly authorized act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year first above written. EMILY FAYAN ---------------------------------- Notary Public, State of New York No. 24-4737006 Qualified in Kings County Commission expires: December 31, 1995 [SEAL] EX-4.(F) 4 EXHIBIT 4(F) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PACIFICORP (AN OREGON CORPORATION) TO MORGAN GUARANTY TRUST COMPANY OF NEW YORK (A NEW YORK CORPORATION) WHICH HEREIN RESIGNS AS CORPORATE TRUSTEE AND CHEMICAL BANK (A NEW YORK CORPORATION) HEREIN BECOMING SUCCESSOR CORPORATE TRUSTEE TO MORGAN GUARANTY TRUST COMPANY OF NEW YORK AS TRUSTEE UNDER PACIFIC POWER & LIGHT COMPANY'S MORTGAGE AND DEED OF TRUST, DATED AS OF JULY 1, 1947 --------------------- FIFTY-THIRD SUPPLEMENTAL INDENTURE DATED AS OF AUGUST 1, 1994 SUPPLEMENTAL TO PACIFIC POWER & LIGHT COMPANY'S MORTGAGE AND DEED OF TRUST DATED AS OF JULY 1, 1947 --------------------- THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A TRANSMITTING UTILITY THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FIFTY-THIRD SUPPLEMENTAL INDENTURE THIS INDENTURE, dated as of the 1st day of August, 1994 (hereinafter referred to as the "Fifty-third Supplemental Indenture") is made as a supplement to that certain Mortgage and Deed of Trust, dated as of July 1, 1947, as heretofore amended and supplemented (the "Mortgage"), executed and delivered by Pacific Power & Light Company, a Maine corporation that heretofore changed its name to PacifiCorp (the "Original Mortgagor"). This Fifty-third Supplemental Indenture is entered into by and among (a) PACIFICORP, a corporation of the State of Oregon into which the Original Mortgagor heretofore was merged, whose address is 700 NE Multnomah, Portland, Oregon 97232 (the "Company"); (b) MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a New York corporation whose address is 60 Wall Street, New York, New York 10260 (the "Resigning Corporate Trustee"); and (c) CHEMICAL BANK, a New York corporation whose address is 450 West 33rd Street, New York, New York 10001 (the "Successor Corporate Trustee" or "Trustee"). WHEREAS, the Mortgage (including all indentures supplemental thereto) was recorded in the official records of the States of California, Idaho, Montana, Oregon, Utah, Washington and Wyoming and various counties within said states in which this Fifty-third Supplemental Indenture is to be recorded, and was filed as a financing statement in accordance with the Uniform Commercial Code of each of said states; and WHEREAS, the Original Mortgagor executed, delivered, recorded and filed its Supplemental Indentures as follows:
DATED AS OF ------------------------- First April 1, 1950 Second March 1, 1952 Third September 1, 1952 Fourth April 1, 1954 Fifth August 1, 1954 Sixth October 1, 1955 Seventh January 1, 1957 Eighth September 1, 1957 Ninth January 1, 1958 Tenth July 1, 1958
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DATED AS OF ------------------------- Eleventh September 1, 1960 Twelfth June 22, 1961 Thirteenth April 1, 1962 Fourteenth December 1,1962 Fifteenth April 1, 1963 Sixteenth August 1, 1963 Seventeenth October 1, 1964 Eighteenth October 1, 1965 Nineteenth December 15, 1967 Twentieth May 1, 1969 Twenty-first November 1, 1969 Twenty-second July 1, 1970 Twenty-third February 1, 1971 Twenty-fourth October 1, 1971 Twenty-fifth October 1, 1972 Twenty-sixth January 1, 1974 Twenty-seventh October 1, 1974 Twenty-eighth May 1, 1975 Twenty-ninth January 1, 1976 Thirtieth July 1, 1976 Thirty-first December 1, 1976 Thirty-second January 1, 1977 Thirty-third November 1, 1977 Thirty-fourth April 1, 1979 Thirty-fifth October 1, 1980 Thirty-sixth March 1, 1981 Thirty-seventh October 15, 1981 Thirty-eighth August 1, 1982 Thirty-ninth April 1, 1983 Fortieth March 1, 1986 Forty-first July 1, 1986 Forty-second July 1, 1987;
and 3 WHEREAS, the Original Mortgagor has heretofore issued, in accordance with the provisions of the Mortgage, bonds entitled and designated First Mortgage Bonds, of the Series and in the principal amounts as follows:
AGGREGATE PRINCIPAL AMOUNT AGGREGATE PRINCIPAL SERIES DUE DATE ISSUED AMOUNT OUTSTANDING ------------------------------- -------------- ------------------ ------------------- 1. First--3 1/4% 1977 $ 38,000,000 0 2. Second--3% 1980 9,000,000 0 3. Third--3 5/8% 1982 12,500,000 0 4. Fourth--3 3/4% 9/1/1982 7,500,000 0 5. Fifth--3 3/8% 1984 8,000,000 0 6. Sixth--3 1/2% 8/1/1984 30,000,000 0 7. Seventh--3 5/8% 1985 10,000,000 0 8. Eighth--5 3/8% 1987 12,000,000 0 9. Ninth--5 3/4% 9/1/1987 20,000,000 0 10. Tenth--4 1/4% 1988 15,000,000 0 11. Eleventh--4 3/8% 7/1/1988 20,000,000 0 12. Twelfth--5 1/8% 1990 20,000,000 0 13. Thirteenth--4 3/4% 1992 35,000,000 0 14. Fourteenth--4 1/2% 12/1/1992 32,000,000 0 15. Fifteenth--3 5/8% 11/1/1974 11,434,000 0 16. Sixteenth--3 5/8% 4/1/1978 4,500,000 0 17. Seventeenth--3 3/8% 8/1/1979 4,951,000 0 18. Eighteenth--4 1/8% 6/1/1981 5,849,000 0 19. Nineteenth--4 1/8% 10/1/1982 6,157,000 0 20. Twentieth--3 3/4% 3/1/1984 8,659,000 0 21. Twenty-first--4 3/8% 5/1/1986 14,454,000 0 22. Twenty-second--4 5/8% 1993 30,000,000 0 23. Twenty-third--4 5/8% 1994 30,000,000 $ 20,261,000 24. Twenty-fourth--5% 1995 30,000,000 14,168,000 25. Twenty-fifth--8% 1999 25,000,000 0 26. Twenty-sixth--8 3/4% 11/1/1999 20,000,000 0 27. Twenty-seventh--9 5/8% 2000 25,000,000 0 28. Twenty-eighth--7 7/8% 2001 40,000,000 0 29. Twenty-ninth--8% 10/1/2001 35,000,000 0 30. Thirtieth--7 3/4% 2002 30,000,000 19,744,000 31. Thirty-first--8 3/8% 2004 60,000,000 0 32. Thirty-second--9 7/8% 1983 70,000,000 0 33. Thirty-third--10 3/4% 1990 60,000,000 0
4
AGGREGATE PRINCIPAL AMOUNT AGGREGATE PRINCIPAL SERIES DUE DATE ISSUED AMOUNT OUTSTANDING ------------------------------- -------------- ------------------ ------------------- 34. Thirty-fourth--10% 2006 75,000,000 0 35. Thirty-fifth--7 3/4% 7/1/2006 35,000,000 0 36. Thirty-sixth--8 5/8% 12/1/2006 50,000,000 0 37. Thirty-seventh--6 3/8% 1/1/2007 17,000,000 $ 8,190,000 38. Thirty-eighth--8 7/8% 11/1/2007 100,000,000 0 39. Thirty-ninth--10 1/4% 2009 100,000,000 0 40. Fortieth--14 3/4% 2010 50,000,000 0 41. Forty-first--15 5/8% 1991 75,000,000 0 42. Forty-second--18% 10/15/1991 100,000,000 0 43. Forty-third--Adjustable Rate 11/1/2002 50,000,000 13,234,000 44. Forty-fourth--12 5/8% 2013 100,000,000 0 45. Forty-fifth--8 5/8% 3/1/1996 80,000,000 0 46. Forty-sixth--8 1/2% 7/1/1996 75,000,000 0 47. Forty-seventh--9 3/8% 1997 50,000,000 50,000,000;
and WHEREAS, the Original Mortgagor entered into a Reorganization Agreement and Plan of Merger dated August 12, 1987, as amended, pursuant to which, among other things, the Original Mortgagor was merged into the Company as of January 9, 1989, upon such terms as fully to preserve and in no respect to impair the Lien or security of the Mortgage or any of the rights or powers of the trustees or the bondholders thereunder; and WHEREAS, pursuant to Article XVI of the Mortgage, the Company executed, delivered, recorded and filed its Forty-third Supplemental Indenture dated as of January 9, 1989, whereby the Company assumed and agreed to pay, duly and punctually, the principal of and interest on the bonds issued under the Mortgage, in accordance with the provisions of said bonds and coupons and the Mortgage, and agreed to perform and fulfill all the covenants and conditions of the Mortgage to be kept or performed by the Original Mortgagor, and whereby Bankers Trust Company was appointed Corporate Trustee in succession to Morgan Guaranty Trust Company of New York, resigned, under the Mortgage, and James F. Conlan was appointed Co-Trustee in succession to R.E. Sparrow, resigned, under the Mortgage; and 5 WHEREAS, the Company executed, delivered, recorded and filed additional Supplemental Indentures to the Mortgage as follows:
DATED AS OF ------------------------- Forty-fourth March 31, 1989 Forty-fifth December 29, 1989 Forty-sixth March 31, 1991;
and WHEREAS, pursuant to said Forty-sixth Supplemental Indenture, Morgan Guaranty Trust Company of New York was appointed Corporate Trustee in succession to Bankers Trust Company, resigned, under the Mortgage and James F. Conlan resigned as Co-Trustee under the Mortgage and all the right, title and powers of the Co-Trustee devolved upon the Corporate Trustee and its successors alone until such time as a successor to the Co-Trustee shall be appointed; and WHEREAS, the Company executed, delivered, recorded and filed additional Supplemental Indentures to the Mortgage as follows:
DATED AS OF ------------------------- Forty-seventh December 31, 1991 Forty-eighth March 15, 1992 Forty-ninth July 31, 1992 Fiftieth March 15, 1993 Fifty-first November 1, 1993; Fifty-second June 1, 1994;
and 6 WHEREAS, the Company has heretofore issued, in accordance with the provisions of the Mortgage, bonds entitled and designated First Mortgage Bonds, of the Series and in the principal amounts as follows:
AGGREGATE AGGREGATE PRINCIPAL AMOUNT PRINCIPAL AMOUNT SERIES DUE DATE ISSUED OUTSTANDING ------------------------------------ ------------- ----------------- ----------------- 48. Forty-eighth--Medium-Term Notes, various $ 125,000,000 $ 120,000,000 Series A 49. Forty-ninth--Medium-Term Notes, various 100,000,000 87,500,000 Series B 50. Fiftieth--Medium-Term Notes, Series various 150,000,000 144,714,391 C 51. Fifty-first--Medium-Term Notes, various 125,000,000 125,000,000 Series D 52. Fifty-second--C-U various 125,216,000 118,235,500 53. Fifty-third--Medium-Term Notes, various 250,000,000 250,000,000 Series E 54. Fifty-fourth--6 3/4% 4/1/2005 75,000,000 75,000,000 55. Fifty-fifth--Medium-Term Notes, various 250,000,000 250,000,000 Series F 56. Fifty-sixth--E-L various 35,600,000 35,600,000 57. Fifty-seventh Medium-Term Notes, various 250,000,000 250,000,000; Series G
and WHEREAS, in addition to the property described in the Mortgage, the Company has acquired certain other property, rights and interests in property; and WHEREAS, Section 8 of the Mortgage provides that the form of each series of bonds (other than the First Series) issued thereunder and of the coupons to be attached to the coupon bonds, if any, of such series shall be established by Resolution of the Board of Directors of the Company; that the form of such series, as established by said Board of Directors, shall specify the descriptive title of the bonds and various other terms thereof; and that such series may also contain such provisions not inconsistent with the provisions of the Mortgage, as supplemented, as the Board of 7 Directors may, in its discretion, cause to be inserted therein expressing or referring to the terms and conditions upon which such bonds are to be issued and/or secured under the Mortgage; and WHEREAS, Section 120 of the Mortgage provides, among other things, that any power, privilege or right expressly or impliedly reserved to or in any way conferred upon the Company by any provision of the Mortgage, whether such power, privilege or right is in any way restricted or is unrestricted, may (to the extent permitted by law) be in whole or in part waived or surrendered or subjected to any restriction if at the time unrestricted or to additional restriction if already restricted, and the Company may enter into any further covenants, limitations or restrictions for the benefit of any one or more series of bonds issued thereunder and provide that a breach thereof shall be equivalent to a default under the Mortgage, or the Company may cure any ambiguity contained therein, or in any supplemental indenture, or may (in lieu of establishment by Resolution as provided in Section 8 of the Mortgage) establish the terms and provisions of any series of bonds other than the First Series, by an instrument in writing executed and acknowledged by the Company in such manner as would be necessary to entitle a conveyance of real estate to record in all of the states in which any property at the time subject to the Lien of the Mortgage shall be situated; and the Trustee is further authorized by said Section 120 to join with the Company in the execution of such instrument or instruments, and such instrument, executed and acknowledged as aforesaid, shall be delivered to the Trustee, and thereupon any modification of the provisions of the Mortgage therein set forth, authorized by said Section 120, shall be binding upon the parties to the Mortgage, their successors and assigns, and the holders of the bonds and coupons thereby secured; provided, however, anything therein contained to the contrary not withstanding, said Section 120 shall not be construed to permit any act, waiver, surrender or restriction adversely affecting any bonds then Outstanding under the Mortgage; and WHEREAS, in Section 42 of the Mortgage the Original Mortgagor covenanted that it would execute and deliver such supplemental indenture or indentures and such further instruments and do such further acts 8 as might be necessary or proper to carry out more effectually the purposes of the Mortgage and to make subject to the Lien of the Mortgage any property thereafter acquired, made or constructed and intended to be subject to the Lien thereof, and to transfer to any new trustee or trustees or co-trustee or co-trustees, the estates, powers, instruments or funds held in trust thereunder; and WHEREAS, the Company now desires to create a new series of bonds and (pursuant to the provisions of Section 120 of the Mortgage) to add to its covenants and agreements contained in the Mortgage, as heretofore supplemented, certain other covenants and agreements to be observed by it; and WHEREAS, the execution and delivery by the Company of this Fifty-third Supplemental Indenture has been duly authorized by the Board of Directors of the Company by appropriate Resolutions; NOW, THEREFORE, THIS INDENTURE WITNESSETH: ARTICLE I GRANTING CLAUSES The Company, in consideration of the premises and of One Dollar ($1) to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and in further assurance of the estate, title and rights of the Trustee under the Mortgage and in order further to secure the payment of both the principal of and interest and premium, if any, on the bonds from time to time issued under the Mortgage, according to their tenor and effect, and the performance of all the provisions of the Mortgage (including any instruments supplemental thereto and any modification made as in the Mortgage provided) and of such bonds, and to confirm the Lien of the Mortgage on certain after-acquired property, hereby grants, bargains, sells, releases, conveys, assigns, transfers, mortgages, pledges, sets over and confirms (subject, however, to Excepted Encumbrances as defined in Section 6 of the Mortgage) unto Chemical Bank as Trustee under the Mortgage, and to its successor or successors in said trust, and to said Trustee and its successors and assigns forever, all property, real, personal 9 and mixed, owned by the Original Mortgagor as of the date of the Mortgage and acquired by the Original Mortgagor or the Company after the date of the Mortgage, subject to the provisions of subsection (I) of Section 87 of the Mortgage and Section 2.02 of the Forty-third Supplemental Indenture thereto, of the kind or nature specifically mentioned in Article XXI of the Mortgage or of any other kind or nature (except any herein or in the Mortgage expressly excepted), now owned, or, subject to the provisions of subsection (I) of Section 87 of the Mortgage and Section 2.02 of the Forty-third Supplemental Indenture thereto, hereafter acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) and wheresoever situated, including the properties described in Article VI hereof, and including (without in anywise limiting or impairing by the enumeration of the same the scope and intent of the foregoing) all lands, power sites, flowage rights, water rights, water locations, water appropriations, ditches, flumes, reservoirs, reservoir sites, canals, raceways, dams, dam sites, aqueducts, and all other rights or means for appropriating, conveying, storing and supplying water; all rights of way and roads; all plants for the generation of electricity by steam, water and/or other power; all power houses, gas plants, street lighting systems, standards and other equipment incidental thereto, telephone, radio, television and air conditioning systems and equipment incidental thereto, water works, water systems, steam heat and hot water plants, substations, lines, service and supply systems, bridges, culverts, tracks, ice or refrigeration plants and equipment, offices, buildings and other structures and the equipment thereof; all machinery, engines, boilers, dynamos, electric, gas, and other machines, regulators, meters, transformers, generators, motors, electrical, gas and mechanical appliances, conduits, cables, water, steam heat, gas or other pipes, gas mains and pipes, service pipes, fittings, valves and connections, pole and transmission lines, wires, cables, tools, implements, apparatus, furniture and chattels; all franchises, consents or permits; all lines for the transmission and distribution of electric current, gas, steam heat or water for any purpose, including towers, poles, wires, cables, pipes, conduits, ducts and all apparatus for use in connection therewith; all real estate, lands, easements, servitudes, licenses, permits, franchises, privileges, rights of way and other rights in or relating to public or 10 private property, real or personal, or the occupancy of such property and (except as herein or in the Mortgage expressly excepted) all right, title and interest the Company may now have or may hereafter acquire in and to any and all property of any kind or nature wheresoever situated; And the Company does hereby confirm that the Company will not cause or consent to a partition, either voluntarily or through legal proceedings, of property subject to the Lien of the Mortgage whether herein described or heretofore or hereafter acquired, in which its ownership shall be as a tenant in common, except as permitted by and in conformity with the provisions of the Mortgage and particularly of Article XI thereof; TOGETHER WITH and all and singular the tenements, hereditaments, prescriptions, servitudes and appurtenances belonging or in anywise appertaining to the aforementioned property or any part thereof, with the reversion and reversions, remainder and remainders and (subject to the provisions of Section 57 of the Mortgage) the tolls, rents, revenues, issues, earnings, income, product and profits thereof, and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, which the Company now has or (subject to the provisions of subsection (I) of Section 87 of the Mortgage and Section 2.02 of the Forty-third Supplemental Indenture thereto) may hereafter acquire in and to the aforementioned property and franchises and every part and parcel thereof. IT IS HEREBY AGREED by the Company that, subject to the provisions of subsection (I) of Section 87 of the Mortgage and Section 2.02 of the Forty-third Supplemental Indenture thereto, all the property, rights and franchises acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) after the date hereof, except any herein or in the Mortgage expressly excepted, shall be and are as fully granted and conveyed hereby and by the Mortgage, and as fully embraced within the Lien of the Mortgage, as if such property, rights and franchises were now owned by the Company and were specifically described herein or in the Mortgage and conveyed hereby or thereby; Provided that the following are not and are not intended to be now or hereafter granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed hereunder and are 11 hereby expressly excepted from the Lien and operation of the Mortgage, viz.: (1) cash, shares of stock, bonds, notes and other obligations and other securities not hereafter specifically pledged, paid, deposited, delivered or held under the Mortgage or covenanted so to be; (2) merchandise, equipment, apparatus, materials or supplies held for the purpose of sale or other disposition in the usual course of business; fuel, oil and similar materials and supplies consumable in the operation of any of the properties of the Company; all aircraft, tractors, rolling stock, trolley coaches, buses, motor coaches, automobiles, motor trucks, and other vehicles and materials and supplies held for the purpose of repairing or replacing (in whole or part) any of the same; (3) bills, notes and accounts receivable, judgments, demands and choses in action, and all contracts, leases and operating agreements not specifically pledged under the Mortgage or covenanted so to be; the Company's contractual rights or other interest in or with respect to tires not owned by the Company; (4) the last day of the term of any lease or leasehold which may be or become subject to the Lien of the Mortgage; (5) electric energy, gas, steam, water, ice and other materials or products generated, manufactured, stored, produced, purchased or acquired by the Company for sale, distribution or use in the ordinary course of its business; all timber, minerals, mineral rights and royalties and all Natural Gas and Oil Production Property, as defined in Section 4 of the Mortgage; and (6) the Company's franchise to be a corporation; provided, however, that the property and rights expressly excepted from the Lien and operation of the Mortgage in the above subdivisions (2) and (3) shall (to the extent permitted by law) cease to be so excepted in the event and as of the date that the Trustee or a receiver or trustee shall enter upon and take possession of the Mortgaged and Pledged Property in the manner provided in Article XIII of the Mortgage by reason of the occurrence of a Default as defined in Section 65 thereof. TO HAVE AND TO HOLD all such properties, real, personal and mixed, granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed by the Company as aforesaid, or intended so to be, unto Chemical Bank as Trustee, and its successors and assigns forever; 12 IN TRUST NEVERTHELESS, for the same purposes and upon the same terms, trusts and conditions and subject to and with the same provisions and covenants as are set forth in the Mortgage, this Fifty-third Supplemental Indenture being supplemental to the Mortgage; AND IT IS HEREBY COVENANTED by the Company that all the terms, conditions, provisos, covenants and provisions contained in the Mortgage shall affect and apply to the property hereinbefore described and conveyed, and to the estates, rights, obligations and duties of the Company and the Trustee under the Mortgage and the beneficiaries of the trust with respect to said property, and to the Trustee under the Mortgage and its successors in the trust, in the same manner and with the same effect as if the said property had been owned by the Company at the time of the execution of the Mortgage, and had been specifically and at length described in and conveyed to said Trustee by the Mortgage as a part of the property therein stated to be conveyed. ARTICLE II REGARDING THE RESIGNATION OF THE RESIGNING TRUSTEE AND APPOINTMENT OF SUCCESSOR TRUSTEE SECTION 2.01. Morgan Guaranty Trust Company of New York hereby gives written notice to the Company that it hereby resigns as Corporate Trustee under the Mortgage, such resignation to take effect as of September 1, 1994. SECTION 2.02. Pursuant to Section 102 of the Mortgage, and by order of its Board of Directors, the Company hereby accepts the foregoing resignation and appoints Chemical Bank as Successor Corporate Trustee under the Mortgage, effective as of September 1, 1994. By execution hereof Chemical Bank hereby acknowledges its acceptance of its appointment by the Company as Successor Corporate Trustee under the Mortgage. SECTION 2.03. The Resigning Corporate Trustee hereby conveys, assigns and transfers to the Successor Corporate Trustee, and its successors and assigns, upon the trusts expressed in the Mortgage (as amended hereby), all rights, title, powers and trusts of the Resigning Corporate 13 Trustee under and pursuant to the Mortgage and all property and money held by the Resigning Corporate Trustee under the Mortgage. The Resigning Corporate Trustee and the Company agree, upon request of the Successor Corporate Trustee, to execute, acknowledge and deliver such further instruments of conveyance and further assurances and to do such other things as may reasonably be required for more fully and certainly vesting in and confirming to the Successor Corporate Trustee such rights, title, powers and trusts. ARTICLE III FIFTY-EIGHTH SERIES OF BONDS SECTION 3.01. There shall be a series of bonds designated "First Mortgage Bonds, Series 1994-1" (herein sometimes referred to as the "Fifty-eighth Series"), each of which shall also bear the descriptive title First Mortgage Bond, and the form thereof, which shall be established by Resolution of the Board of Directors of the Company, shall contain suitable provisions with respect to the matters hereinafter in this Section specified. Bonds of the Fifty-eighth Series shall mature on the maturity date, and in principal amounts corresponding to the principal amounts, of first mortgage and collateral trust bonds designated "Series 1994-1," issued under the Company's Mortgage and Deed of Trust, dated as of January 9, 1989, as amended and supplemented, to Chemical Bank, as trustee, on the basis of such bonds of the Fifty-eighth Series. Bonds of the Fifty-eighth Series shall be issued as fully registered bonds in the denomination of One Thousand Dollars and, at the option of the Company, in any multiple or multiples of One Thousand Dollars (the exercise of such option to be evidenced by the execution and delivery thereof); they shall bear no interest; and the principal of each such bond shall be payable at the office or agency of the Company in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for public and private debts. Bonds of the Fifty-eighth Series shall be dated as in Section 10 of the Mortgage provided. 14 (I) Bonds of the Fifty-eighth Series shall be redeemable either at the option of the Company or pursuant to the requirements of the Mortgage (including, among other things, the provisions of Sections 39, 64 or 87 of the Mortgage or with the Proceeds of Released Property). (II) At the option of the registered owner, any bonds of the Fifty- eighth Series, upon surrender thereof for cancellation at the office or agency of the Company in the Borough of Manhattan, The City of New York, shall be exchangeable for a like aggregate principal amount of bonds of the same series of other authorized denominations. Bonds of the Fifty-eighth Series shall be transferable (subject to the provisions of Section 12 of the Mortgage and to the limitations set forth in this Fifty-third Supplemental Indenture), upon the surrender thereof for cancellation, together with a written instrument of transfer in form approved by the registrar duly executed by the registered owner or by his duly authorized attorney, at the office or agency of the Company in the Borough of Manhattan, The City of New York. Upon any transfer or exchange of bonds of the Fifty-eighth Series, the Company may make a charge therefor sufficient to reimburse it for any tax or taxes or other governmental charge, as provided in Section 12 of the Mortgage, but the Company hereby waives any right to make a charge in addition thereto for any exchange or transfer of bonds of the Fifty-eighth Series. The Trustee may conclusively presume that the obligation of the Company to pay the principal of the bonds of the Fifty-eighth Series as the same shall become due and payable shall have been fully satisfied and discharged unless and until it shall have received a written notice from the trustee under the Company's Mortgage and Deed of Trust, dated as of January 9, 1989, as amended and supplemented, to Chemical Bank, as trustee, signed by the President, a Vice President, an Assistant Vice President or a Trust Officer of such trustee, stating that interest or principal due and payable on any bonds issued under said Mortgage and Deed of Trust has not been fully paid and specifying the amount of funds required to make such payment. Bonds of the Fifty-eighth Series shall be initially issued in the name of Chemical Bank, as trustee under the Company's Mortgage and Deed of 15 Trust, dated as of January 9, 1989, as amended and supplemented, and shall not be transferable, except to any successor trustee under said Mortgage and Deed of Trust. After the execution and delivery of this Fifty-third Supplemental Indenture and upon compliance with the applicable provisions of the Mortgage, as supplemented, it is contemplated that there shall be issued bonds of the Fifty-eighth Series in an aggregate principal amount not to exceed One Hundred Twelve Million Five Hundred Thousand Dollars ($112,500,000). ARTICLE IV THE COMPANY RESERVES THE RIGHT TO AMEND PROVISIONS REGARDING PROPERTIES EXCEPTED FROM LIEN OF MORTGAGE SECTION 4.01. The Company reserves the right, without any consent or other action by holders of bonds of the Fifty-fourth Series, or any other series of bonds subsequently created under the Mortgage (including the bonds of the Fifty-eighth Series), to make such amendments to the Mortgage, as heretofore amended and supplemented, as shall be necessary in order to amend the first proviso to the granting clause of the Mortgage, which proviso sets forth the properties excepted from the Lien of the Mortgage, to add a new exception (7) which shall read as follows: "(7) allowances allocated to steam-electric generating plants owned by the Company or in which the Company has interests, pursuant to Title IV of the Clean Air Act Amendments of 1990, Pub. L. 101-549, Nov. 15, 1990, 104 Stat. 2399, 42 USC 7651, ET SEQ., as now in effect or as hereafter supplemented or amended." ARTICLE V MISCELLANEOUS PROVISIONS SECTION 5.01. The right, if any, of the Company to assert the defense of usury against a holder or holders of bonds of the Fifty-eighth Series or any subsequent series shall be determined only under the laws of the State of New York. 16 SECTION 5.02. The terms defined in the Mortgage shall, for all purposes of this Fifty-third Supplemental Indenture, have the meanings specified in the Mortgage. SECTION 5.03. The Trustee hereby accepts the trusts declared, provided, created or supplemented in the Mortgage and herein, and agrees to perform the same upon the terms and conditions set forth herein and in the Mortgage, and upon the following terms and conditions: The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Fifty-third Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article XVII of the Mortgage shall apply to and form part of this Fifty-third Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and insertions, if any, as may be appropriate to make the same conform to the provisions of this Fifty-third Supplemental Indenture. SECTION 5.04. Whenever in this Fifty-third Supplemental Indenture either the Company or the Trustee is named or referred to, this shall, subject to the provisions of Articles XVI and XVII of the Mortgage, be deemed to include the successors and assigns of such party, and all the covenants and agreements in this Fifty-third Supplemental Indenture contained by or on behalf of the Company, or by or on behalf of the Trustee, or either of them, shall, subject as aforesaid, bind and inure to the respective benefits of the respective successors and assigns of such parties, whether so expressed or not. SECTION 5.05. Nothing in this Fifty-third Supplemental Indenture, expressed or implied, is intended, or shall be construed, to confer upon, or to give to, any person, firm or corporation, other than the parties hereto and the holders of the bonds and coupons Outstanding under the Mortgage, any right, remedy or claim under or by reason of this Fifty-third Supplemental Indenture or any covenant, condition, stipulation, promise or agreement hereof, and all the covenants, conditions, stipulations, promises and agreements in this Fifty-third Supplemental Indenture 17 contained by or on behalf of the Company shall be for the sole and exclusive benefit of the parties hereto, and of the holders of the bonds and coupons Outstanding under the Mortgage. SECTION 5.06. This Fifty-third Supplemental Indenture shall be executed in several counterparts each of which shall be an original and all of which shall constitute but one and the same instrument. ARTICLE VI SPECIFIC DESCRIPTION OF PROPERTY The following described properties of the Company, owned as of the date hereof, and used (or held for future development and use) in connection with the Pacific Power Division of the Company's electric utility systems, or for other purposes, as hereinafter indicated, respectively: H--OFFICE BUILDINGS The following office and service center of the Company in the State of Washington including the following described real property: H-48--YAKIMA OFFICE AND SERVICE CENTER In YAKIMA County, State of WASHINGTON H-48 ITEM: That part of the East 1/2 of the Southeast 1/4 of Section 17, Township 13 North, Range 19 East, W.M., lying northerly of the Northerly right-of-way line of the Burlington Northern, Inc. Railroad (now W.C.R.C.) right-of-way as conveyed by deed recorded in Volume 83 of Deeds, page 552; EXCEPTING THEREFROM the following: 1) That portion thereof conveyed to Union Gap Irrigation District by deed dated April 6, 1916, and recorded in Volume 165 of Deeds, page 285, under Auditor's File No. 90399, described as all of the Northeast 1/4 of the Southeast 1/4 of said Section 17 lying North of a line 25 feet South of and parallel with the centerline of the Union Gap Ditch; 18 2) That portion thereof lying Westerly of the following described line: Commencing at a point on the South line of the tract of land conveyed to Union Gap Irrigation District by deed recorded in Volume 165 of Deeds, page 285, under Auditor's File No. 90399, which point is 23.8 feet South and 59 feet North 89 DEG. 55' East of the Northwest corner of said subdivision; thence North 89 DEG. 55' East along the South line of said Union Gap Irrigation District property 653.11 feet to the point of beginning of said described line; thence South 00 DEG. 05' East to the Northeasterly right-of-way line of said Burlington Northern, Inc. Railroad right-of-way and the terminus of said described line; 3) That portion thereof lying Easterly of the following described line: Beginning at the point of intersection of the Northeasterly right-of-way line of said Burlington Northern, Inc. Railroad right-of-way, with the West line of the East 30.00 feet of the Southeast 1/4 of said Section 17; thence North 00 DEG. 32' 30" West parallel with the East line of said Section 1146.28 feet to the P.C. of a curve to the left; thence along the arc of a curve to the left having a radius of 925.00 feet, through a central angle of 30 DEG. 00'; thence North 30 DEG. 32' 30" West to the North line of the Southeast 1/4 of said Section 17 and the terminus of said described line (Parcel No. 191317-41001/Levy Code 385). 19 IN WITNESS WHEREOF, PACIFICORP has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents, and its corporate seal to be attested to by its Secretary or one of its Assistant Secretaries; and MORGAN GUARANTY TRUST COMPANY OF NEW YORK has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents or one of its Assistant Vice Presidents, and its corporate seal to be attested to by one of its Assistant Secretaries; and Chemical Bank has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents or one of its Assistant Vice Presidents, and its corporate seal to be attested to by one of its Senior Trust Officers, all as of the day and year first above written. [SEAL] PACIFICORP By RICHARD T. O'BRIEN ------------------------------- Vice President Attest: JOHN M. SCHWEITZER ---------------------------------- Assistant Secretary MORGAN GUARANTY TRUST COMPANY OF NEW YORK [SEAL] as Resigning Corporate Trustee By PETER VITELLIO ------------------------------- Vice President Attest: TAMARA FELICETTI ---------------------------------- Assistant Secretary 20 CHEMICAL BANK as Successor Corporate Trustee By F.J. GRIPPO ------------------------------- Attest: Vice President M. KATZ ---------------------------------- Senior Trust Officer 21 STATE OF OREGON ) COUNTY OF MULTNOMAH ) ss.: On this 8th day of September, 1994, before me, SHERYL LEE STRATTON, a Notary Public in and for the State of Oregon, personally appeared RICHARD T. O'BRIEN and JOHN M. SCHWEITZER, known to me to be a Vice President and an Assistant Secretary, respectively, of PACIFICORP, an Oregon corporation, who being duly sworn, stated that the seal affixed to the foregoing instrument is the corporate seal of said corporation and acknowledged this instrument to be the free, voluntary and in all respects duly and properly authorized act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year first above written. SHERYL LEE STRATTON ---------------------------------- My commission expires: May 25, 1996 [SEAL] Residing at: Portland, Oregon STATE OF NEW YORK ) COUNTY OF NEW YORK ) ss.: On this 1st day of September, 1994, before me, JOHN MIECHOWSKI, a Notary Public in and for the State of New York, personally appeared PETER VITELLIO and TAMARA FELICETTI, known to me to be a Vice President and Assistant Secretary, respectively, of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a New York corporation, who being duly sworn, stated that the seal affixed to the foregoing instrument is the corporate seal of said corporation and acknowledged this instrument to be the free, voluntary and in all respects duly and properly authorized act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year first above written. JOHN MIECHKOWSKI ---------------------------------- Notary Public, State of New York No. 30-4893319 Qualified in Nassau County [SEAL] Commission expires: May 18, 1995 22 STATE OF NEW YORK ) COUNTY OF NEW YORK ) ss.: On this 2nd day of September, 1994, before me, EMILY FAYAN, a Notary Public in and for the State of New York, personally appeared F.J. GRIPPO and M. KATZ, known to me to be a Vice President and a Senior Trust Officer, respectively, of CHEMICAL BANK, a New York corporation, who being duly sworn, stated that the seal affixed to the foregoing instrument is the corporate seal of said corporation and acknowledged this instrument to be the free, voluntary and in all respects duly and properly authorized act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year first above written. EMILY FAYAN ---------------------------------- Notary Public, State of New York No. 24-4737006 Qualified in Kings County Commission expires: December 31, [SEAL] 1995 EX-10.(B) 5 EXHIBIT 10(B) EXHIBIT (10)b PACIFICORP COMPENSATION REDUCTION PLAN DECEMBER 1, 1994 (AS AMENDED THROUGH AMENDMENT NO. 1) PACIFICORP AN OREGON CORPORATION 700 NE MULTNOMAH PORTLAND, OREGON 97232 COMPANY i TABLE OF CONTENTS Page ---- 1. ADMINISTRATION; PLAN YEAR 1 2. ELIGIBILITY 1 3. DEFERRAL ELECTION 2 4. DEFERRED COMPENSATION ACCOUNTS 3 5. TRUST 5 6. TIME AND MANNER OF PAYMENT 5 7. DEATH OR DISABILITY 7 8. WITHDRAWALS 9 9. SUPPLEMENTAL PENSION BENEFIT 9 10. AMENDMENT; TERMINATION 10 11. CLAIMS PROCEDURE 10 12. GENERAL PROVISIONS 11 13. EXPENSES 12 14. EFFECTIVE DATE 12 ii INDEX OF TERMS Section Page _______ ____ Accounts 4.1 3 Advisory Boards 2.1(b) 2 Code 3.3 2 Committee 1.2 1 Common Stock 3.3 2 Company Preamble 1 Compensation 3.2 2 Controlled Group of Corporations 6.1(b) 6 Credit Account 4.3 4 Deferred Election 3.1 2 Disabled 7.6 8 Employer 1.1 1 Financial Hardship 8.2 9 LTIP 3.3 2 Participant 2.2 2 Plan 1 1 Plan Year 1.3 1 Restricted Stock Awards 3.3 2 Retirement Plan 6.3(a) 6 Stock Account 4.2 3 Trust 5.1 4 Years of Service 6.3(b) 6 PACIFICORP COMPENSATION REDUCTION PLAN DECEMBER 1, 1994 (AS AMENDED BY AMENDMENT NO. 1) PACIFICORP AN OREGON CORPORATION 700 NE MULTNOMAH PORTLAND, OREGON 97232 "COMPANY" The Company adopts this Compensation Reduction Plan (the "Plan") as a nonqualified plan of deferred compensation for directors and a select group of management or highly compensated employees. The purpose of the Plan is to provide an additional benefit to eligible directors and employees as a means to attract and retain highly effective individuals. Furthermore, by allowing Participants to elect to have their deferred compensation adjusted by the performance of Company stock, the Plan provides a vehicle for further incentive to improve the economic return to shareholders. 1. ADMINISTRATION; PLAN YEAR. 1.1 The Plan shall apply to the Company and affiliates of the Company for whom an eligible employee or director performs services. The term "Employer" refers to the Company or such affiliate for which such services are performed. 1.2 This Plan shall be administered by the Personnel Committee of the Board of Directors of the Company (the "Committee"). The Committee shall interpret the Plan, determine eligibility and the amount of benefits, maintain records, determine interest rates and stock credits and generally be responsible for seeing that the purposes of the Plan are accomplished. The Committee may delegate all or part of its administrative duties to others. 1.3 The fiscal year of the Plan (the "Plan Year") shall be a calendar year. 1.4 The Plan is unfunded for tax purposes and for purposes of Title I of ERISA. 2. ELIGIBILITY. 2.1 The following persons shall be eligible to participate in this Plan: 2 (a) A director of the Company; (b) A member of the Advisory Boards of Pacific Power and Light Company and Utah Power and Light Company (together the "Advisory Boards"); (c) An executive officer of the Company; and (d) Any other employee of the Company or an affiliate who is designated in writing for participation in the Plan by the Chief Executive Officer of the Company. 2.2 An eligible employee or director who elects to defer Compensation or Restricted Stock Awards pursuant to Section 3 for any Plan Year shall participate in the Plan (a "Participant"). 3. DEFERRAL ELECTION. 3.1 An eligible employee or director may elect to participate for each Plan Year by completing a form prescribed by the Committee (a "Deferral Election"), signing it and returning it to the Committee. The Deferral Election may provide for a deferral of Compensation under 3.2 or deferral of Restricted Stock Awards under 3.3, or both. 3.2 "Compensation" means an eligible director's retainer and fees and an eligible employee's salary and bonus earned within the Plan Year for which a Deferral Election is made. The Deferral Election shall designate a dollar amount or percentage to be deferred out of the director's annual retainer and/or fees, or the employee's annual salary and/or bonus, which dollar amount or percentage may be different as between retainer and fee, or salary and bonus. The minimum annual retainer deferred shall be $3,600 and the minimum monthly salary deferred shall be $300. 3.3 "Restricted Stock Award" means a grant to a Participant of restricted Common Stock of the Company (the "Common Stock") under the PacifiCorp Long-Term Incentive Plan, as amended by the 1993 Restatement (the "LTIP") or under another plan or arrangement providing for the grant of Common Stock in connection with performance of services that is not substantially vested for purposes of Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"). The Deferral Election shall apply to any portion of a Restricted Stock Award that vests during the next Plan Year based on actions required to be taken during such Plan Year. The Participant may elect deferral of all or one-half of such portion, except that no deferral shall be allowed of a Restricted Stock Award as to which the Participant has made an election under Section 83(b) of the Code. If a Participant is required to remain employed as of a date within the year following the relevant Plan Year in order to become vested in a portion of a Restricted Stock Award, such portion shall be treated for purposes of this 3.3 as 3 becoming vested based on actions required to be taken in the Plan Year for which the Deferral Election is made. 3.4 To be effective for a Plan Year, the Deferral Election must be returned before January 1 of the Plan Year, except as follows: (a) The Deferral Election of an eligible employee's 1994 bonus must be returned by December 30, 1994. (b) The Deferral Election of an eligible employee's Restricted Stock Award granted under the LTIP or an individual agreement and becoming vested as of a date in February 1995 based on actions required to be taken in 1994 must be returned by December 30, 1994. (c) A Participant who becomes eligible under 2.1 during a Plan Year may return a Deferral Election for that Plan Year within 30 days after the eligibility date. Such Deferral Election shall be effective for Compensation and Restricted Stock Awards for such Plan Year that are payable after the eligibility date. 3.5 The Employer shall reduce the Participant's Compensation by the amounts deferred and shall credit such amounts and any deferred Restricted Stock Awards to the Participant's Account(s) as provided under Section 4. Amounts due for FICA taxes on an employee-Participant's elected amounts, including all deferred Compensation and Restricted Stock Awards, will be withheld from the Participant's remaining nondeferred Compensation. If an employee-Participant has no remaining nondeferred Compensation, such employee-Participant shall pay cash to the Employer in an amount sufficient to cover amounts due for FICA taxes on the employee-Participant's deferrals. 4. DEFERRED COMPENSATION ACCOUNTS. 4.1 Each Participant shall have one or two Accounts in the Plan: a Stock Account and/or a Credit Account (individually, an "Account" and collectively, the "Accounts"). Compensation deferred by a Participant under Section 3 shall be credited to the Stock Account or Credit Account as elected by the Participant in the Deferral Election. Such election may be divided between the two Accounts in increments of 25 percent of the deferred Compensation governed by the election, except as provided in 4.4. An election between the Stock Account or the Credit Account shall be irrevocable as to the deferred Compensation covered by the election. Restricted Stock Awards deferred by a Participant under Section 3 shall be credited to the Stock Account. 4 4.2 A Participant's Stock Account shall be denominated in shares of the Company's publicly traded common stock ("Common Stock"), including fractional shares. With respect to each amount of Compensation deferred to the Stock Account, the Participant's Stock Account shall be credited with a number of shares equal to the deferred Compensation divided by the market value of the Common Stock on the day the deferred Compensation would have been paid had it not been deferred. As of each date for payment of dividends on the Common Stock, the Participant's Stock Account shall be credited with an additional number of shares (including fractional shares) equal to the amount of dividends that would be paid on the number of shares recorded as the balance of the Stock Account as of the record date for such dividend divided by the market value per share of Common Stock on such payment date. As of each date for payment of dividends on the Common Stock, the Participant's Stock Account shall be credited with an additional number of shares (including fractional shares) equal to the amount of dividends that would be paid on the number of shares then recorded as the balance of the Stock Account divided by the market value per share of Common Stock on such payment date. Market value for purposes of this section shall be the closing price on the New York Stock Exchange as of the relevant date. If the day to be used for valuing Common Stock in a deferral of Compensation or a dividend payment date is not a trading day, market value shall be taken from the last preceding trading day. 4.3 A Participant's Credit Account shall be denominated in dollars. As of each date on which a Participant would have received Compensation deferred to the Credit Account had it not been deferred, the amount of the deferred Compensation shall be credited to the Participant's Credit Account. The Credit Account also shall be credited with interest on the balance in the Account until the entire Account has been paid out. Interest shall be compounded monthly at the rate determined as of the last business day of the preceding calendar quarter. The rate of interest shall be the Moody's Intermediate Corporate Bond Yield for Aa rated Public Utility Bonds. If the index described in the foregoing sentence ceases to exist, the rate of interest shall be determined under the most nearly comparable index as selected by the Committee. 4.4 A Participant shall be permitted to transfer amounts from the Credit Account to the Stock Account up to two times each year. Such transfers shall be permitted within a period commencing with the third business day following each date on which the Company releases its earnings report for the preceding calendar quarter and ending with the twelfth business day following such date. The minimum amount of each transfer shall be $2,000. 4.5 The Accounts shall be established solely for the purpose of measuring the amount owed to a Participant under the Plan and shall not give Participants any ownership rights in any assets of the Company or the Trust. 5. TRUST. 5.1 The Company shall establish a trust with a financial institution for payment of benefits under the Stock Account described in 4.2 (the "Trust"). The Trust may be established by amendment to the PacifiCorp Supplemental Executive Retirement Trust or by separate agreement. The Trust shall be a grantor trust for tax purposes and shall provide that any assets contributed to the trustee shall be used exclusively for payment of benefits under 4.2 of this Plan except in the event the Company becomes insolvent, in which case the trust fund shall be held for payment of the Company's obligations to its general creditors. The Trust shall further provide that all rights associated with the assets of the Trust shall be exercised by the trustee, or a person 5 designated by the trustee, and in no event shall be exercisable by or rest with Participants. 5.2 The Company shall periodically contribute to the Trust the amounts necessary to purchase Common Stock equal to the total balance of all Stock Accounts. Such contributions shall be held in a separate fund within the Trust for the sole purpose of paying benefits under the Plan measured by Stock Accounts, except as provided in the Trust document upon the Company's insolvency. The assets of such fund shall be invested by the trustee in Common Stock. If the assets of such fund exceed the total balance of all Stock Accounts, the excess shall be retained in the fund until reduced by payment of benefits. 5.3 The Company may, in its discretion, contribute amounts to the Trust to be held in a separate fund for the sole purpose of paying benefits under the Plan measured by the Credit Accounts described in 4.3, except as provided in the Trust document upon the Company's insolvency. The assets of such fund shall be invested by the trustee in accordance with instructions by the Committee. If the assets of such fund exceed the total balance of all Credit Accounts, the excess shall be retained in the fund until reduced by payment of benefits. 5.4 Common Stock included in any deferred Restricted Stock Award shall be transferred to the Trustee as soon as practicable after the date that such Restricted Stock Award vests, which date may be after the end of the Plan Year for which the Deferral Election was made. 6. TIME AND MANNER OF PAYMENT 6.1 A benefit based on the Participant's deferrals shall be paid to the Participant at a time determined as follows: (a) A benefit derived from deferral of Compensation or from deferral of Restricted Stock Awards receivable as a member of the Company's Board of Directors or the Advisory Boards shall be payable upon termination of membership of the Participant on such Board of Directors and Advisory Boards. (b) A benefit derived from deferral of Compensation or from deferral of Restricted Stock Awards receivable as an employee shall be payable upon termination of all employment with the controlled group of corporations, as defined in Section 1563(a) of the Code, of which the Company is a member. (c) A benefit derived from deferral of Compensation or from deferral of Restricted Stock Awards with respect to which the Participant elected payment on a date certain under 6.5(c) shall be payable on that date. 6 6.2 The total benefit payable to a Participant shall be an amount equal to the Participant's Accounts. Subject to 6.4, the method of payment shall be determined as follows: (a) An amount payable to an employee-Participant upon a termination of employment described in 6.1(b) that does not constitute a retirement under 6.3 shall be paid as soon as practicable after the January 15 following the employment termination. (b) An amount payable in circumstances other than those described in (a) shall be paid by the method selected by the Participant under 6.5. 6.3 An employee-Participant's termination of employment shall constitute a retirement if: (a) The employee-Participant qualifies at the time of employment termination for early, normal or deferred retirement under the PacifiCorp Retirement Plan (the "Retirement Plan"); or (b) At the time of employment termination the employee- Participant is not covered by the Retirement Plan, has attained age 55 and has completed five "Years of Service" under the definition of such term in that Retirement Plan as in effect at the time this Plan is adopted. 6.4 Subject to 8.1, benefits payable to a Participant from a Stock Account shall only be paid to such Participant as a distribution of Common Stock plus cash for fractional shares of Common Stock credited to such Participant's Stock Account. 6.5 In the Participant's Deferral Election the Participant shall select the method of payment under 6.2(a) from among the following: (a) A lump sum from the Credit Account and a distribution of Common Stock plus cash for fractional shares from the Stock Account, both as soon as practicable after the January 15 following the termination of membership on the Board of Directors or Advisory Boards, or employment. (b) Substantially equal annual installments of cash from the Credit Account and Common Stock and cash for fractional shares from the Stock Account beginning, both as soon as practicable after the January 15 following the termination of membership on the Board of 7 Directors or Advisory Boards, or employment and continuing for 5, 10 or 15 years. (c) A lump sum from the Credit Account and a distribution of Common Stock plus cash for fractional shares from the Stock Account, both as soon as practicable after a date certain. 6.6 A Participant's selection under 6.5 shall be irrevocable for deferrals credited to the Participant's Account(s) while the selection is in effect and any interest credited thereto. Upon application from a Participant at the time of termination of membership on the Board of Directors or Advisory Boards, termination of employment or at the date certain specified in such Participant's Deferral Election, the Company, in its sole discretion, may change the form of payment. The application shall be submitted to the Committee, which shall transmit it to the Company. The Company shall consider its capital requirements and the effective cost of funds. If the Company modifies the form of payment, such a change may require a reduction in the rate of interest credited to the Participant's Credit Account to three percentage points less than the rate stated in 4.3, or such a change may require the Company to reduce the total value of Participant's Stock Account by a specified discount determined upon such application. 6.7 The Employer may withhold from any payments any deductions required by law. If payments of cash are insufficient to cover the entire amount required to be withheld, the Employer may withhold the required amounts from nondeferred Compensation or require the Participant to pay such amounts. 7. DEATH OR DISABILITY. 7.1 Regardless of the provisions of Section 6, amounts payable to a Participant thereunder shall be payable under 7.2 through 7.6 on the Participant's death or disability. 7.2 On death, the amount payable shall be paid as follows: (a) If the recipient is the surviving spouse and the Participant had selected an installment payout, by installments in accordance with the selection under 6.5, beginning within 60 days after the Participant's death. (b) In all other cases, by a lump sum from the Credit Account and a distribution of Common Stock plus cash for fractional shares from the Stock Account, payable within 60 days after the Participant's death. 7.3 An amount payable on death of a Participant shall be paid to the Participant's beneficiary in the following order of priority: 8 (a) To the surviving beneficiaries designated by the Participant in writing to the Committee. (b) To the Participant's estate. 7.4 If a surviving spouse is receiving installments from a Credit Account and dies when a balance remains in one or both Accounts, the balance shall be paid to the spouse's estate in a lump sum from the Credit Account and a distribution of Common Stock plus cash for fractional shares from the Stock Account. 7.5 A Participant temporarily disabled while employed or receiving long-term disability benefits under a plan described in 7.6 shall be treated as employed, and no payments will be made under this Plan. If disability benefits stop and disability continues, the amount payable shall be paid in the manner selected under 6.5, with either the lump sum or the first installment due within 30 days of the date the disability benefits stop. If the Participant dies, the provisions applicable to death shall be followed. If the Participant ceases to be disabled and does not resume active employment, the amount payable shall be paid in accordance with Section 6. 7.6 A Participant is disabled if the Committee determines that either of the following apply: (a) The Participant is eligible to receive long-term disability benefits under a plan maintained by the Employer. (b) In the absence of eligibility for a plan described in (a), the Participant is permanently and totally disabled on the basis of comparable criteria. 8. WITHDRAWALS. 8.1 A Participant or surviving spouse may withdraw amounts from an Account before those amounts would otherwise have been paid because of Financial Hardship, as determined by the Committee. The withdrawal shall be limited to the amount reasonably necessary to meet the Financial Hardship. Distributions based upon Financial Hardship shall be paid entirely in cash even if withdrawals are from a Stock Account. 8.2 "Financial Hardship" means a Participant's or surviving spouse's immediate and substantial financial need that cannot be met from other reasonably available resources and is caused by one or more of the following: 9 (a) Medical expenses for the Participant or surviving spouse, a member of the Participant's or surviving spouse's immediate family or household, or other dependent. (b) Loss of or damage to a Participant's possessions or property due to casualty. (c) Other extraordinary and unforeseeable circumstances arising from events beyond the Participant's control. 8.3 The Committee shall establish guidelines and procedures for implementing withdrawals. An application shall be written, be signed by the Participant or surviving spouse and include a statement of facts causing the Financial Hardship and any other facts required by the Committee. 8.4 The withdrawal date shall be fixed by the Committee. The Committee may require a minimum advance notice and may limit the amount, time and frequency of withdrawals. 9. SUPPLEMENTAL PENSION BENEFIT. 9.1 The Company's Retirement Plan provides retirement benefits for eligible employees based in part on Compensation. A Participant that elects deferral of Compensation may receive smaller benefits under the Retirement Plan than would have been paid if none of the Participant's Compensation had been deferred. If the Participant receives benefits under the PacifiCorp Supplemental Executive Retirement Plan, or another nonqualified deferred compensation plan providing benefits that are offset by benefits of the Retirement Plan, the reduction in Retirement Plan benefits may be made up. 9.2 If a Participant receives benefits under the Company's Retirement Plan that are reduced as a result of deferrals under this Plan and not made up by another nonqualified deferred compensation plan, a supplemental pension benefit shall be paid under this Plan as follows: (a) The supplemental pension benefit shall be the amount by which the benefit payable from the Retirement Plan is less than the amount of such benefit that would have been payable if the Participant had not deferred Compensation under this Plan. (b) Employer shall pay the supplemental pension benefit to the Participant at the same time and in the same form as the Participant's benefit is paid under the Retirement Plan. 10 10. AMENDMENT; TERMINATION. 10.1 The Company may amend this Plan effective the first day of any month by notice to the Participants, except the provisions in 4.2 on adjustments of Stock Accounts shall not be changed, nor shall the rate of interest credited under 4.3 be reduced, without the consent of a Participant as to the Participant's Credit Account or Stock Account balance as of the date of the change or reduction. 10.2 At any time the Company may terminate the Plan and pay out all amounts payable to the Participants, spouses or other persons then entitled to such amounts and thereby discharge all the benefit obligations of the Plan. Upon such termination any assets remaining in the Trust shall be returned to the Company. 10.3 If the Internal Revenue Service issues a final ruling that any amounts deferred under this Plan will be subject to current income tax, all amounts to which the ruling is applicable shall be paid to the Participants within 30 days. 11. CLAIMS PROCEDURE. 11.1 Any person claiming a benefit or requesting an interpretation, ruling or information under the Plan shall present the request in writing to the Committee, which shall respond in writing as soon as practicable. 11.2 If the claim or request is denied, the written notice of denial shall state: (a) The reasons for denial, with specific reference to the Plan provisions on which the denial is based. (b) A description of any additional materials or information required and an explanation of why it is necessary. (c) An explanation of the Plan's claim review procedure. 11.3 The initial notice of denial shall normally be given within 90 days of receipt of the claim. If special circumstances require an extension of time, the claimant shall be so notified and the time limit shall be 180 days. 11.4 Any person whose claim or request is denied or who has not received a response within the time period described in 11.3 may request review by notice in writing to the Committee. The original decision shall be reviewed by the Committee, which may, but shall not be required to, grant the claimant a hearing. On review, whether or not there is a hearing, the claimant may have representation, examine pertinent documents and submit issues and comments in writing. 11 11.5 The decision on review shall ordinarily be made within 60 days. If an extension of time is required for a hearing or other special circumstances, the claimant shall be so notified and the time limit shall be 120 days. The decision shall be in writing and shall state the reasons and the relevant plan provisions. All decisions on review shall be final and bind all parties concerned. 12. GENERAL PROVISIONS. 12.1 If suit or action is instituted to enforce any rights under this Plan, the prevailing party may recover from the other party reasonable attorneys' fees at trial and on any appeal. 12.2 Any notice under this Plan shall be in writing and shall be effective when actually delivered or, if mailed, when deposited as first class mail postage prepaid. Mail shall be directed to the Company at the address stated in this Plan, to the Participant's last known home address shown in the Company's records, or to such other address as a party may specify by notice to the other parties. Notices to an Employer or the Committee shall be sent to the Company's address. 12.3 The rights of a Participant under this Plan are personal. Except for the limited provisions of Section 7 no interest of a Participant or one claiming through a Participant may be directly or indirectly assigned, transferred or encumbered and no such interest shall be subject to seizure by legal process or in any other way subjected to the claims of any creditor. A Participant's rights to benefits payable under this Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge or encumbrance. Such rights shall not be subject to the debts, contracts, liabilities, engagements or torts of the Participant or the Participant's beneficiary. 12.4 Following termination of membership on the Board of Directors of the Company or Advisory Boards or employment, a Participant shall not be a director or an employee of an Employer or an affiliate for any purpose, and payments under Sections 6 and 7 shall not constitute salary or wages. A Participant shall receive such payments as retirement benefits, not as compensation for performance of any substantial services. 12.5 Amounts payable under this Plan shall be an obligation of the Company and the Trust described in Section 5. If an Employer merges, consolidates, or otherwise reorganizes or if its business or assets are acquired by another company, this Plan shall continue with respect to those eligible individuals who continue in the employ of the successor company. The transition of Employers shall not be considered a termination of employment for purposes of this Plan. In such an event, however, a successor corporation may terminate this Plan as to its Participants on the effective date of the succession by notice to Participants within 30 days after the succession. 12.6 The Committee may decide that because of the mental or physical condition of a person entitled to payments, or because of other relevant factors, it is in 12 the person's best interest to make payments to others for the benefit of the person entitled to payment. In that event, the Committee may in its discretion direct that payments be made as follows: (a) To a parent or spouse or a child of legal age; (b) To a legal guardian; or (c) To one furnishing maintenance, support, or hospitalization. 13. EXPENSES. Costs of administration of the Plan will be paid by the Company. 14. EFFECTIVE DATE. This Plan shall be effective December 1, 1994. Adopted: November 9, 1994 PACIFICORP By: MICHAEL J. PITTMAN _______________________________ Executed: November 30, 1994 AMENDMENT NO. 1 EXECUTED AS FOLLOWS EFFECTIVE JANUARY 1, 1995: _____________________________________________________________ COMPANY PACIFICORP By: MICHAEL J. PITTMAN _______________________________ Executed: February 7, 1995 EX-10.(D) 6 EXHIBIT 10(D) EXHIBIT (10)d PACIFICORP 1995 PERFORMANCESHARE INCENTIVE PLAN FEBRUARY 1995 1 2/7/95 PACIFICORP 1995 PERFORMANCESHARE INCENTIVE PLAN PURPOSE The purpose of the PerformanceShare Incentive Plan is to provide a means for sharing company financial success and rewarding employees for their contributions to the operational effectiveness of their business units and the company overall. INCENTIVE OPPORTUNITY The maximum award opportunity for participating employees is 4% of their eligible earnings as defined below: Bargaining Unit: Eligible Earnings (includes Overtime) Salaried: Greater of Eligible Earnings or Annualized Year-end Salary This maximum award is the result of multiplying a guideline award of 2.67% of eligible earnings by company and organization unit factors which indicate exceptional achievement. ELIGIBILITY Eligible employees are all regular employees, full- and part-time, who have been continuously employed for at least six months prior to December 31, 1995. A participant must be actively employed at payout to receive an award. Participants who have at least six months of service, but less than twelve, will be eligible for pro rata awards. An employee who retires during the year will be eligible for a pro rata payout based on eligible earnings at the time of retirement. TERM The plan year is defined as January 1 through December 31, 1995. PERFORMANCE TARGETS Two primary performance targets influence incentive opportunity. These are company performance and organizational unit performance, as follows: 2 2/7/95 COMPANY PERFORMANCE FACTOR (CPF) The Company Performance Factor is determined considering several components including Earnings Available for Common (EAC), Safety, Company Renewal, Total Shareholder Return, and Prices. A financial threshold of $330M in earnings has been established as well as a maximum EAC of $365M. Performance between the threshold and maximum will be calculated utilizing the formula displayed in Exhibit 1. No awards will be paid if the EAC threshold is not achieved. This EAC performance factor is subject to being modified by the following: SAFETY - PacifiCorp's commitment to a safe work place for our employees and the people in the communities in which we serve must be absolute. Therefore, the Company's demonstration of this commitment to safety will be assessed by the CEO and Personnel Committee at year-end. Based upon this assessment the Committee will assign a factor in the range of minus twenty percentage points to zero percentage points. COMPANY RENEWAL - PacifiCorp is committed to continuous renewal of the business through reaching new customers and markets beyond our current geographic constraints, developing new competencies, and introducing new products and services. PacifiCorp's ability to demonstrate to the Personnel Committee our success in these areas of Company renewal will determine this factor. At year-end the Personnel Committee will receive a report on the Company's renewal accomplishments. The Personnel Committee will be asked to subjectively determine PacifiCorp's success and assign a renewal factor in the range of minus ten to plus ten percentage points. TOTAL SHAREHOLDER RETURN - PacifiCorp's Total Shareholder Return (TSR) (stock price movement plus dividends) is compared with the performance of a peer group (top 50 electric utilities as listed by Salomon Brothers.) If PacifiCorp's total shareholder return for the year equals the average performance of the peer group, then the factor will be zero percentage points. The relative percentage of performance above or below the peer group will be added to or subtracted from zero; not to be greater than plus ten points or less than minus ten points. 3 2/7/95 PRICES - The Company's residential, commercial, and industrial tariff prices will be compared with competing investor-owned and publicly-owned utilities' tariff prices in the seven states in which PacifiCorp serves. As of the fourth quarter of 1994 our prices were 94% of the weighted average price in our seven state service territory. If our prices continue to equal 94% of the average price in our service territory then this factor will be five percentage points. If our prices exceed 94% of the average price in our service territory, then for each full percentage point by which we exceed that level, one point will be reduced from five to no less than a factor of minus ten points. If our prices are less than 94% of the average price in our service territory, then each full percentage point by which we are lower is added to five for a maximum price factor of plus ten percentage points. The modifier is calculated as follows: Safety Factor + Company Renewal Factor + Total Shareholder Return Factor + Prices Factor This final modifier is added to or subtracted from the EAC performance factor to produce the Company Performance Factor (CPF). Maximum CPF is 180%. OPERATIONS PERFORMANCE FACTOR (OPF) The Operations Performance Factor (OPF) is determined based upon performance against pre-established goals set by each organizational unit and approved by the CEO. Individuals responsible for overseeing multiple organizations will have their OPF calculated based upon the weighted average of subordinate OPFs. Maximum OPF is 120%. 4 2/7/95 AWARD FORMULA The formula for all employees is the same: Guideline Award x [(.50 x CPF) + (.50 x OPF)] = Individual Award AWARD EXAMPLE: Assumptions: Employee eligible earnings = $40,000 Employee incentive guideline = 2.67% Company Performance Factor (CPF) EAC Performance = 1.00 + Modifier (Safety, Renewal, TSR, Prices) = .20 ______ Final CPF = 1.20 Organization Performance Factor (OPF) = 1.10 Award Calculation: $40,000 x .0267 x [(.50 x 1.20) + (.50 x 1.10)] = Award Guideline Award $1,068 x 1.15 = $1,228 PAYOUT Awards will be paid in cash. Awards will be paid as soon as is practicable after 1995 financial statements close. Payout will be based on the organizational unit to which an employee is assigned at year-end. 5 2/7/95 AUDIT AND APPROVAL OF AWARD RECOMMENDATIONS The financial calculations necessary to determine the company earnings and corresponding EAC Performance Factor, as well as other steps in determining the award for each individual, will be reviewed by the corporate auditing staff before incentive payments are made. The Personnel Committee of the Board of Directors will approve awards prior to payout. If minor errors are identified after audit or approval have occurred which result in nonmaterial adjustments to individual awards, the Vice President of Human Resources will have the authority to approve adjusted awards according to the procedures defined in the administrative guidelines. ADMINISTRATIVE GUIDELINES Administrative issues not specifically included in the plan document will be included in the administrative guidelines to the plan. The CEO will approve these guidelines and has authority to amend them. EX-10.(E) 7 EXHIBIT 10(E) EXHIBIT (10)e PACIFICORP 1995 INDIVIDUAL INCENTIVE PLAN FEBRUARY 1995 1 2/7/95 PACIFICORP 1995 INDIVIDUAL INCENTIVE PLAN PURPOSE The purpose of the Individual Incentive Plan is to provide a means for sharing company financial success and rewarding employees for their contributions to the operational effectiveness of their business units and the company overall. The Plan is designed to augment the PerformanceShare program in aligning the interests of employees with those of shareholders and promoting the achievement of business-driven organizational unit and individual goals. ELIGIBILITY All regular, non-bargaining unit employees are eligible to participate in the individual incentive plan. A participant must be employed in an incentive eligible position for at least six months, and must be actively employed at the time of payout to receive an award. Individuals with at least six months of service but less than twelve months will receive prorated awards. Employment of less than one plan year due to retirement, disability, or death of a participant may result in a prorated award regardless of the six-month requirement. Officers who change guideline incentives during the year will receive prorated awards based on the appropriate guidelines. All other full- year participants will have their full incentives based on the guideline in effect at year-end. GUIDELINE INCENTIVE Each participant in the Plan is assigned a guideline incentive which is dependent upon the responsibility level of the participant (see Appendix A). Each participant's guideline incentive opportunity is calculated as a percentage of year-end annual salary, including any merit and promotional lump sums, (or other payments as may be included at the discretion of the PacifiCorp President and CEO). However, if actual earnings plus overtime compensation would result in a greater amount, that number will serve as the base for determining the award. Guideline incentive opportunity must be approved by the President and CEO of PacifiCorp. Guideline incentive opportunity for officers is determined by the Personnel Committee of the Board of Directors. 2 2/7/95 INCENTIVE OPPORTUNITY The incentive award is based on overall company performance, achievement of organizational unit goals, and achievement of individual goals for each participant. Assuming exceptional performance at both company and organization unit levels, a typical employee would receive between 150% and 165% of guideline. Officers' individual award opportunity is limited to 150% of guideline. PERFORMANCE GOALS Three primary performance targets influence incentive opportunity. These are company performance, organizational unit performance, and individual performance: COMPANY PERFORMANCE FACTOR (CPF) The Company Performance Factor is determined considering several components including Earnings Available for Common (EAC), Safety, Company Renewal, Total Shareholder Return, and Prices. A financial threshold for earnings has been established as well as a maximum EAC. Performance between the threshold and maximum will be calculated utilizing the formula displayed in Exhibit 1. No awards will be paid if the EAC threshold is not achieved. This EAC performance factor is subject to being modified by the following: SAFETY - PacifiCorp's commitment to a safe work place for our employees and the people in the communities in which we serve must be absolute. Therefore, the Company's demonstration of this commitment to safety will be assessed by the CEO and Personnel Committee at year-end. Based upon this assessment the Committee will assign a factor in the range of minus twenty percentage points to zero percentage points. COMPANY RENEWAL - PacifiCorp is committed to continuous renewal of the business through reaching new customers and markets beyond our current geographic constraints, developing new competencies, and introducing new products and services. PacifiCorp's ability to demonstrate to the Personnel Committee our success in these areas of Company renewal will determine this factor. At year-end the Personnel Committee will receive a report on the Company's renewal accomplishments. The Personnel Committee will be asked to subjectively determine PacifiCorp's success and assign a renewal factor in the range of minus ten to plus ten percentage points. 3 2/7/95 TOTAL SHAREHOLDER RETURN - PacifiCorp's Total Shareholder Return (TSR) (stock price movement plus dividends) is compared with the performance of a peer group (top 50 electric utilities as listed by Salomon Brothers.) If PacifiCorp's total shareholder return for the year equals the average performance of the peer group, then the factor will be zero percentage points. The relative percentage of performance above or below the peer group will be added to or subtracted from zero; not to be greater than plus ten points or less than minus ten points. PRICES - The Company's residential, commercial, and industrial tariff prices will be compared with competing investor-owned and publicly-owned utilities' tariff prices in the seven states in which PacifiCorp serves. As of the fourth quarter of 1994 our prices were 94% of the weighted average price in our seven state service territory. If our prices continue to equal 94% of the average price in our service territory then this factor will be five percentage points. If our prices exceed 94% of the average price in our service territory, then for each full percentage point by which we exceed that level one point will be reduced from five to no less than a factor of minus ten points. If our prices are less than 94% of the average price in our service territory, then each full percentage point by which we are lower is added to five for a maximum price factor of plus ten percentage points. The modifier is calculated as follows: Safety Factor + Company Renewal Factor + Total Shareholder Return Factor + Prices Factor This final modifier is added to or subtracted from the EAC performance factor to produce the Company Performance Factor (CPF). Maximum company performance factor is 180%. OPERATIONS PERFORMANCE FACTOR (OPF) The Operations Performance Factor (OPF) is determined based upon performance against pre-established goals set by each organizational unit and approved by the CEO. Individuals responsible for overseeing multiple organizations will have their OPF calculated based upon the weighted average of subordinates' OPFs. Maximum OPF is 120%. 4 2/7/95 INDIVIDUAL PERFORMANCE FACTOR (IPF) The Individual Performance Factor (IPF) is determined by measuring year-end performance against specific goals as established and approved by each participant's immediate supervisor. Maximum IPF is 150% for an individual; however the average IPF within an officer's organization must average 110% or less. AWARD FORMULA Individual Award = Guideline Award [(.50 x CPF) + (.50 x OPF)] x IPF Officers are limited to maximum payout equal to 150% of Guideline. AWARD EXAMPLE Assumptions: Employee eligible earnings = $40,000 Employee incentive guideline = 2.33% Company Performance Factor (CPF) EAC Performance Factor = 1.00 + Modifier (Safety, Renewal, TSR, Prices) = .20 ______ Final CPF = 1.20 Organization Performance Factor = 1.10 Individual Performance Factor = 1.30 Award Calculation: $40,000 x .0233 x [(.50 x 1.20) + (.50 x 1.10)] x 1.30 = Guideline Award CPF OPF IPF $932 x 1.15 x 1.30 = $1,393 Award Note: This employee would receive an additional $1,228 from the PerformanceShare Plan, calculated as follows: $40,000 x .0267 x [(.50 x 1.20) + (.50 x 1.10)] = $1,228 Guideline Award CPF OPF Award Note: The total award from both plans would be $2,621. 5 2/7/95 AUDIT AND APPROVAL OF AWARD RECOMMENDATIONS The financial calculations necessary to determine the company earnings and corresponding EAC Performance Factor, as well as other steps in determining the award for each individual, will be reviewed by the corporate auditing staff before incentive payments are made. The Personnel Committee of the Board of Directors will approve awards prior to payout. If minor errors are identified after audit or approval have occurred which result in nonmaterial adjustments to individual awards, the Vice President of Human Resources will have the authority to approve adjusted awards according to the procedures defined in the administrative guidelines. ADMINISTRATIVE GUIDELINES Administrative issues not specifically included in the plan document will be included in the administrative guidelines to the plan. The CEO will approve these guidelines and has authority to amend them. 6 2/7/95 APPENDIX A GUIDELINE AWARDS
1995 1995 1995 Individual Total 1995 Typical Grade 1994 PerfShare Incentive Guideline Max Level (1) Guideline Guideline Guideline Incentive Incentive (2) Bargaining Unit 2.67% 2.67% 0% 2.67% 4.00% 41 - 49 2.67% 2.67% .83% 3.50% 5.37% 50 - 55 4.00% 2.67% 2.33% 5.00% 7.84% 56 - 60 4.00% 2.67% 4.33% 7.00% 11.14% 61 - 64 8.00% 2.67% 8.33% 11.00% 17.74% 65 - 67 12.00% - 2.67% 12.33% 15.00% 24.34% 15.00% Officers Officer Award Guidelines vary by individual and are determined by the Board of Directors. (1) Grade ranges generally apply. Exceptions, if any, will be approved by the CEO and communicated to affected employees by their management. (2) Based on maximum company and organization unit performance, adjusted for individual performance at the organizational unit limit of 110%.
EX-10.(F) 8 EXHIBIT 10(F) EXHIBIT (10)f 8-10-94 PACIFICORP NON-EMPLOYEE DIRECTORS' STOCK COMPENSATION PLAN PacifiCorp 700 N.E. Multnomah, Suite 1600 Portland, OR 97204 PacifiCorp PacifiCorp considers it desirable that members of the board of directors, who represent shareholders, be themselves shareholders. In order to supplement the direct efforts of the directors themselves towards this end, PacifiCorp wishes to increase the ownership interest of non-employee directors through awards of PacifiCorp Common Stock. PacifiCorp wishes by this means to increase the community of interest of the shareholders at large and the PacifiCorp directors and to make ownership a dynamic influence on the attitudes of the board. The following plan is therefore adopted: 1. Administration. ______________ The plan shall be administered by the Corporate Secretary of PacifiCorp (the Administrator) who may delegate all or part of that authority and responsibility. The Administrator shall interpret the plan, arrange for the purchase and delivery of shares, determine forfeitures, and otherwise assume general responsibility for administration of the plan. Any decision by the Administrator shall be final and bind all parties. The Administrator may be replaced from time to time in the discretion of the chief executive officer of PacifiCorp. 2. Awards. ______ 2.1 Each non-employee director of PacifiCorp shall participate in this plan as follows: 2 (a) Directors shall participate as of the date of their election or appointment. (b) A director's date of participation shall be the award date. Each annual meeting of shareholders after that date shall be an anniversary date; provided, however, that if a participant's term as a director ends because of age between annual meetings, the date the director's term ends shall be deemed an anniversary date. 2.2 As of the award date a participant shall, subject to 2.3, be awarded $75,000 worth of stock as follows: (a) As soon as practicable after the award date the Administrator shall deliver cash in the amount of the award and applicable commissions to one or more brokers or other third persons with instructions to purchase PacifiCorp common stock on the open market. It is understood that market conditions or regulations affecting open market purchases by a corporation of its own shares may extend the period of purchase over several days or weeks when substantial sums are involved. (b) When several participants have the same award date, all of the stock shall be purchased and then divided equally among the participants so that each receives the same number of shares regardless of any changes in price that occur while purchases are being carried out. (c) When all of the stock has been purchased, certificates in the names of the participants for their respective shares shall be delivered to the Administrator. Each participant shall deposit with the Administrator a blank stock power duly executed and guaranteed in a form satisfactory to the Administrator for each certificate for shares standing in the participant's name. 3 (d) The Administrator shall hold the certificates and stock powers until the shares are vested and released from time to time as provided in 3.7. 2.3 If, assuming that the participant were reelected, a participant's term as a director would end because of age before the fifth anniversary date after an award date, the amount awarded shall be reduced by one-fifth for each anniversary date that would fall after the date the term ends. 2.4 If a participant continues to be a non-employee director after all of the shares from an award have vested, the award cycle shall be repeated for such participant. The award date for the next award shall be the date of the annual meeting of shareholders coinciding with the last anniversary date for the prior award. The next award shall be $75,000 worth of stock, subject to 2.3. Such stock shall be acquired, vest and otherwise be subject to all the provisions of this plan. 3. Vesting; Delivery of Shares; Forfeitures. ________________________________________ 3.1 Subject to 3.2 through 3.6, awarded shares shall vest as follows:
Percent Vested Cumulative Percent ______________ __________________ Award Date 0% 0% First Anniversary Date 20 20 Second Anniversary Date 20 40 Third Anniversary Date 20 60 Fourth Anniversary Date 20 80 Fifth Anniversary Date 20 100
3.2 If a participant receives a reduced award under 2.3, the vesting percentages shall be accelerated so that the entire award shall vest evenly over the anniversary dates that fall on or before the date the director's term ends. For example, if the award were reduced to $30,000 worth of stock, one-third of the shares would vest on each of the first three anniversary dates. 4 3.3 Subject to 3.5 and 3.6, the following shall apply with respect to awards to a participant whose award date is not the date of an annual meeting of shareholders: (a) The shares which would otherwise vest on the first anniversary date shall instead vest on the date six months immediately following the date certificates for the shares are delivered to the Administrator under 2.2(c), or the first anniversary date for the award, whichever is later. (b) Notwithstanding (a), if the participant's term as a director ends because of age on the first anniversary date, the shares which would otherwise vest at a later date under (a) shall instead vest on the first anniversary date. 3.4 If a participant ceases to be a non-employee director on an anniversary date, that anniversary date shall be included in determining the number of shares vested for that participant. 3.5 The following shall apply if a participant dies while serving as a non-employee director: (a) The participant's awarded shares scheduled to vest on the date specified in 3.3 shall instead vest as of the date of death. (b) If the date of death is not an anniversary date, the participant's awarded shares scheduled to vest on the anniversary date immediately following the date of death shall instead vest as of the date of death. (c) If the date of death is an anniversary date, the number of shares vested for the participant shall be determined in accordance with 3.4. 3.6 Subject to 3.5, if a participant ceases to be a non-employee director on a date other than an anniversary date, the participant's awarded 5 shares scheduled to vest on the immediately following anniversary date shall vest as of the date the participant ceases to be a non-employee director prorata based on the number of days the participant served as a non-employee director that year. 3.7 The certificate and stock power covering vested shares shall be delivered to the participant or in accordance with 5.2 as soon as practicable after the shares vest. 3.8 If a participant ceases to be a non-employee director, awarded shares remaining unvested shall be forfeited. The Administrator, acting for the participant pursuant to the blank stock power, shall transfer the unvested shares to PacifiCorp. The participant or the participant's representative shall execute any documents reasonably requested by the Administrator to facilitate the transfer. 4. Status Before Full Vesting. __________________________ 4.1 Each participant shall be a shareholder of record with respect to all shares awarded, whether or not vested, and shall be entitled to all of the rights of such a holder, except that a participant's share certificates shall be held by the Administrator until delivered in accordance with 3.7. 4.2 Any dividend checks or communications to shareholders received by the Administrator with respect to shares held by the Administrator shall promptly be transmitted to the participant. The participant shall furnish to the Administrator or PacifiCorp a current mailing address for such purpose. 4.3 No participant may transfer any interest in unvested shares to any person other than PacifiCorp. 5. Death of a Participant. ______________________ 5.1 Any vested shares held by the Administrator for a participant who has died shall be delivered as soon as practicable to the participant's death beneficiary under 5.2. 6 5.2 Any vested shares to be delivered on death of a participant under 5.1 shall go to a participant's beneficiary in the following order of priority: (a) To the surviving beneficiary designated by the participant in writing to the Administrator; (b) To the participant's surviving spouse; or (c) To the participant's estate. 6. Amendment or Termination; Miscellaneous. _______________________________________ 6.1 The Board of Directors of PacifiCorp may amend or terminate this plan at any time. No amendment or termination shall adversely affect any then outstanding award. 6.2 Subject to the rights of amendment and termination in 6.1, this plan shall continue indefinitely and future awards will be made in accordance with 2.1 and 2.4. 6.3 Nothing in this plan shall create any obligation on the part of the Board of Directors of PacifiCorp to nominate any director for reelection by the shareholders or the Board. PACIFICORP By: FREDERICK W. BUCKMAN _________________________________ Executed August 11, 1994 Originally Adopted: August 1, 1985 Amended: January 11, 1989 Amended: May 16, 1990 Amended: August 10, 1994 EX-10.(I) 9 EXHIBIT 10(I) EXHIBIT (10)i PACIFICORP SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 1988 RESTATEMENT January 1, 1988 (As Amended Through Amendment No. 5) PacifiCorp an Oregon corporation 700 NE Multnomah Portland, Oregon 97232 Company i TABLE OF CONTENTS _________________ Page ____ Index of Terms (iii) 1. Purpose; Employers; Administration __________________________________ 1.1 Purpose 1 1.2 Employers 1 1.3 Administration 2 2. Participation; Service; Forfeiture __________________________________ 2.1 Designation; Participants 2 2.2 Service 2 2.3 Misconduct Forfeiture 2 2.4 Change in Control 3 2.5 Removal from Active Participation 3 3. Participants' Retirement Benefits _________________________________ 3.1 Entitlement; Retirement Dates 4 3.2 Normal Retirement Benefit 4 3.3 Actuarial Equivalents 7 3.4 Early Retirement Benefit 7 3.5 Deferred Retirement Benefit 8 3.6 Termination Benefit 8 3.7 Time and Manner of Payment 8 3.8 Basic Plan Make-Up 9 4. Preretirement Death Benefits ____________________________ 4.1 Spouse's Benefit 10 4.2 Dependent Child's Benefit 10 5. Disability __________ 5.1 Service Continuation 10 5.2 Benefits 11 6. Claims Procedure ________________ 6.1 Original Claim 11 6.2 Denial 11 6.3 Request for Review 11 6.4 Final Decision 11 ii 7. Amendment; Termination ______________________ 7.1 Amendment 12 7.2 Termination 12 8. General Provisions __________________ 8.1 Nonassignability 13 8.2 Funding 13 8.3 Trust 13 8.4 Notices 13 8.5 Attorneys' Fees 13 8.6 Indemnity 14 8.7 Applicable Law 14 8.8 Company Obligation 14 8.9 Payment for Individual's Benefit 14 8.10 Not Contract of Employment 15 9. Effective Date 15 ______________ APPENDIX A 17 iii INDEX OF TERMS ______________ Section Page _______ ____ Accrued Benefit 3.6 8 Actuarial Equivalent 3.3 7 Basic Plan Preamble 1 Benefit Starting Date 3.7 8 Benefit Year 2.2 2 Board 1.3 2 Career Ratio 3.4(b) 7 Chief Executive Officer 2.1 2 Committee 1.3 2 Earliest Normal Retirement Date 3.5 8 Early Retirement Date 3.1(b) 4 Early Retirement Factor 3.4(c) 7, 8, 9 Final Average Pay 3.2(a) 4 Normal Retirement Benefit 3.2 4 Normal Retirement Date 3.1(a) 4 Participant 2.1 2 Primary Social Security Benefit 3.2(c) 5 Prior Affiliate Plans Preamble 1 Prior PacifiCorp Plan Preamble 1 Prior Plans Preamble 1 Projected Short Service Factor 3.4(a) 7 Qualified Plan Offset 3.2(d) 6 Short Service Factor 3.2(b) 5 Years of Service 2.2 2 PACIFICORP SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 1988 RESTATEMENT January 1, 1988 (As Amended Through Amendment No. 5) PacifiCorp an Oregon corporation 700 NE Multnomah Portland, Oregon 97232 Company The Company maintains a Supplemental Retirement Plan (the Prior PacifiCorp Plan) providing retirement benefits for its executive employees. Several affiliates of the Company also maintain supplemental retirement plans for their executive employees (the Prior Affiliate Plans). The benefits provided by the Prior PacifiCorp Plan and the Prior Affiliate Plans (collectively, the Prior Plans) are in addition to those provided by the tax qualified defined benefit plans maintained by the Company and its affiliates (the Basic Plans). In order to limit eligibility for participation, expand the definition of compensation, change the benefit formula, provide for vesting, and expand death benefits, the Company adopts this plan as a complete restatement of the Prior PacifiCorp Plan. The Prior Affiliate Plans will be consolidated into this plan through affiliate adoptions. 1. Purpose; Employers; Administration __________________________________ 1.1 Purpose _______ The purpose of this plan is to provide eligible employees of the Company and its affiliates with additional retirement benefits that will help to attract and retain individuals of very high quality. 1.2 Employers _________ The plan shall apply to the Company and to corporations or other entities affiliated with the Company that adopt the plan for their employees with the approval of the Company. An entity shall be affiliated with the Company for this purpose if it is a member, with the Company, of a controlled group or group of trades or businesses under common control under sections 414(b) or (c) of the Internal Revenue 2 Code. The term "Employer" refers to the Company and such an adopting affiliate. Adoption of the plan by an affiliate shall be by a statement in writing that is signed by the affiliate and by the Company. The statement shall include the effective date of adoption and any special provisions that are to be applicable to employees of the adopting affiliate. 1.3 Administration ______________ This plan shall be administered by the Personnel Committee (the Committee) of the Company's Board of Directors (the Board). The Committee shall interpret the plan and make determinations about benefits. Any decision by the Committee within its authority shall be final and binding on all parties. The Committee shall consider recommendations from the President of the Company where provided for in this plan and otherwise in its discretion. 2. Participation; Service; Forfeiture __________________________________ 2.1 Designation; Participants _________________________ An executive officer of Employer shall accrue benefits under this Restatement upon being designated for participation in writing by the President or chief executive officer of Employer and approved in writing by the President of the Company and the Committee. An individual who has benefits accrued under a Prior Plan and is not so designated shall participate in the plan for the purpose of receiving Prior Plan benefits. An executive officer or other individual who has an accrued benefit under the plan shall be referred to as a participant. 2.2 Service _______ A participant's Years of Service and Benefit Years for purposes of this plan shall be determined under the rules for such service under the Basic Plan covering the participant, except as follows. Any limitation of the Basic Plan on the length of service counted for periods in which no services are performed shall be disregarded. 2.3 Misconduct Forfeiture _____________________ Subject to 2.4, the Committee may forfeit the benefit for any participant, or the participant's spouse, beneficiary or contingent annuitant, if: (a) The participant is discharged for any act that is materially inimical to the best interests of the Company and that 3 constitutes, on the part of the participant, common law fraud, felony, or other gross malfeasance of duty; or (b) After retirement, the participant performs services for an organization where there is a major conflict of interest that is materially adverse to the Company as a whole or any of its principal subsidiaries. 2.4 Change in Control _________________ After a Change in Control no misconduct forfeiture shall occur with respect to benefits for participants who were designated for participation prior to such Change in Control. A "Change in Control" shall occur if: (a) Any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Act)) becomes the "beneficial owner" (as defined in Rule 13-d under the Act) of more than 20 percent of the then outstanding voting stock of the Company, otherwise than through a transaction arranged by, or consummated with the prior approval of, the Board; or (b) During any period of two consecutive years, individuals who at the beginning of such period constitute the Board (and any new director whose election by the Board or whose nomination for election by the stockholders of the Company was approved by a vote of at least 2/3 of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority thereof. 2.5 Removal from Active Participation _________________________________ An individual who previously has been designated under 2.1 may be removed from active participation at any time by the Committee. Removal from active participation shall be effective as of a date fixed by the Committee, but no sooner than the date of notice to the participant of such removal. Upon removal the participant shall have an Accrued Benefit determined under 3.6 on the basis of the participant's 4 Final Average Pay, Projected Short Service Factor, Primary Social Security Benefit, Career Ratio, and Qualified Plan Offset, all calculated as of the effective date of removal. If the participant qualifies for a retirement benefit under 3.1, the Accrued Benefit shall be paid as either a normal retirement benefit or an early retirement benefit depending on whether the participant terminates employment before normal retirement date. If an early retirement benefit is paid, the Early Retirement Factor shall be based on the months by which commencement of benefit precedes normal retirement date. 3. Participants' Retirement Benefits _________________________________ 3.1 Entitlement; Retirement Dates _____________________________ A participant shall be entitled to retirement benefits under this plan on becoming eligible for benefits under a Basic Plan because of termination of employment after vesting under 3.6 or one of the following retirement dates: (a) Normal retirement - the earlier of age 65 or age 62 and 30 Years of Service. (b) Early retirement - age 55 and 5 Years of Service. 3.2 Normal Retirement Benefit _________________________ A participant's normal retirement benefit under this plan shall be a single life annuity for the life of the participant equal to 65 percent of Final Average Pay (FAP) times the Short Service Factor (SSF) minus the Primary Social Security Benefit (PSSB) and the Qualified Plan Offset (QPO) as follows: Benefit = (65% x FAP x SSF) - PSSB - QPO The benefit shall be no less than the participant's accrued benefit under the Prior Plan as of December 31, 1987. The terms used in this formula are defined as follows: (a) Final Average Pay (FAP) means the amount determined for the participant under the Basic Plan, with the following adjustments: (1) The limit on annual compensation counted for any participant to $200,000 per year through 1993 and to $150,000 per year 5 thereafter (both subject to cost of living adjustments) shall not apply. (2) No reduction shall be made for deferrals elected by the participant under a nonqualified deferred compensation plan maintained by the Company or an affiliate. (3) No benefit payments under a nonqualified deferred compensation plan shall be counted. (4) No part of long-term incentive, stock bonus or stock option compensation shall be counted. (5) All cash bonuses that are not part of a long- term incentive plan or arrangement shall be counted, without the 10 percent limit of the Basic Plan. (6) A bonus earned in one calendar year and paid in the following calendar year, including any bonus paid in the year following employment termination, shall be divided evenly among the participant's completed calendar months of employment with Employer during the year the bonus was earned and counted as compensation in those months. (b) Short Service Factor (SSF) means a percentage, not to exceed 100 percent, determined by dividing the participant's Benefit Years by 15. (c) Primary Social Security Benefit (PSSB) means the primary insurance amount for the participant on retirement at or after age 65 under the federal Social Security Act determined as follows: (1) The amount shall be estimated from the regular pay rate under rules established by the Committee assuming a standard pay progression over a full working career. 6 (2) The amount shall not be changed by amendments to the Act or cost of living index adjustments after the participant's actual termination date or attainment of Social Security retirement age, whichever is first. (3) If a participant retires early, the Primary Social Security Benefit shall be the amount that would be received at age 65 assuming no further earnings and no change in the Act. (d) Qualified Plan Offset (QPO) means the sum of the straight life actuarial equivalents of (1) through (4) below, as interpreted under (5) below: (1) Retirement benefits payable under the Basic Plan and under the Utah Power & Light Company Deferred Compensation Plan. (2) Retirement benefits payable under a defined benefit plan or individual retirement benefit agreement, whether or not tax-qualified, on account of service before employment with Employer. (3) Benefits paid or payable under a defined contribution plan on account of service before employment with Employer if the earlier employer maintained no defined benefit plan covering the participant during the period of such service and the aggregate employer contributions to the defined contribution plan were 3 percent or more of the participant's compensation, as defined for determining Final Average Pay under this plan, with the earlier employer. (4) Any amount added to an account of the participant under a nonqualified deferred compensation plan maintained by Employer to compensate for reduction in the Basic 7 Plan benefit on account of compensation deferrals. (5) For purposes of determining whether employer contributions to a defined contribution plan are 3 percent or more of compensation, and for measuring the amount of offset, elective contributions under a 401(k) plan and contributions individually elected by a self- employed person shall be disregarded. 3.3 Actuarial Equivalents _____________________ Actuarial equivalents shall be determined on the basis of the actuarial equivalency factors used by the Basic Plan. 3.4 Early Retirement Benefit ________________________ A participant's early retirement benefit shall be a single life annuity for the life of the participant equal to 65 percent of Final Average Pay (FAP) times the Projected Short Service Factor (PSSF) times the Career Ratio (CR) minus the Primary Social Security Benefit (PSSB) times the Early Retirement Factor (ERF) minus the Qualified Plan Offset (QPO) as follows: Benefit = ([(65% x FAP x PSSF x CR)-PSSB] x ERF) - QPO The terms Final Average Pay (FAP), Primary Social Security Benefit (PSSB) and Qualified Plan Offset (QPO) are defined in 3.2. The definitions of the remaining terms are as follows: (a) Projected Short Service Factor (PSSF) means the Short Service Factor the participant would have had at normal retirement date if Years of Service had continued to that date. (b) Career Ratio (CR) means the participant's actual Benefit Years, up to a maximum of 30, divided by the participant's projected Benefit Years at normal retirement date, up to a maximum of 30, assuming continuous full-time service to that date. (c) Early Retirement Factor (ERF) means a percentage equal to 100 percent 8 minus .25 percent for each month by which the commencement of benefits precedes the participant's normal retirement date. 3.5 Deferred Retirement Benefit ___________________________ A participant's benefit commencing after the earliest date on which the participant could have terminated employment and received a normal retirement benefit (the Earliest Normal Retirement Date) shall be the benefit provided in 3.2, increased as follows: (a) The normal retirement benefit calculated under 3.2 shall be increased by one-third of one percent for each month by which the participant's Earliest Normal Retirement Date precedes the participant's actual benefit commencement date. (b) No increase under (a) shall be made for a month beginning after the participant's 65th birthday. 3.6 Termination Benefit ___________________ A participant who terminates employment before retirement date shall receive the Accrued Benefit if the participant is vested as provided below. The Accrued Benefit is a single life annuity for the life of the participant equal to 65 percent of Final Average Pay (FAP) times the Projected Short Service Factor (PSSF) minus the Primary Social Security Benefit (PSSB) times the Career Ratio (CR) times the Early Retirement Factor (ERF) minus the Qualified Plan Offset (QPO) as follows: Benefit = ([(65% x FAP x PSSF)-PSSB] x CR x ERF) - QPO The terms used in this formula are defined in 3.2 and 3.4. A participant is vested if the participant has five or more Years of Service and terminates, either voluntarily or involuntarily, from all employment with the Company or its affiliates within twenty-four months after a Change in Control. 3.7 Time and Manner of Payment __________________________ Retirement benefits shall commence as of the first day of the month beginning after a termination of employment that constitutes a retirement under 3.1 or a vested termination under 3.6, which shall be the participant's Benefit Starting Date. Payment shall be made monthly in one of the forms listed below on the payment schedule maintained for that form by the Basic Plan covering the participant. If the participant is covered by more than one Basic Plan, the payment schedule for the plan with the largest benefit shall apply. The amount paid 9 in the forms provided in (b), (c) or (d) shall be the actuarial equivalent, as determined under 3.3, of the amount paid in the form provided in (a). However, the percentage reduction from the benefit in the form provided in (a) shall be no greater than the percentage reduction that would have applied at the participant's Earliest Normal Retirement Date. The form shall be irrevocably elected by the participant on a form provided by the Committee prior to receipt of the first payment, subject to the following. An election by a married participant of a form provided in (a) or (d) shall not be effective unless the spouse consents in the manner provided under the Basic Plan for elections not to receive a joint and survivor annuity. (a) A single life annuity for the life of the participant. (b) A life annuity with payments continuing after the participant's death at 50 percent to a contingent annuitant for life. (c) A life annuity with payments continuing after the participant's death at 100 percent to a contingent annuitant for life. (d) A life annuity with payments continuing to a designated beneficiary for the remainder of the first 120 months if the participant dies before then. 3.8 Basic Plan Make-Up __________________ If a participant in this plan has a reduced benefit under the Basic Plan as a result of having elected deferral of pay under a nonqualified deferred compensation plan of Employer for a year in which the participant is removed from participation under 2.5 and such reduction is not otherwise made up by this plan, the amount of such reduction shall be paid as an additional benefit under this plan. The additional benefit provided by this 3.8 shall be paid at the same time and in the same form as it would have been under the Basic Plan if there had been no reduction. 4. Preretirement Death Benefits ____________________________ If a participant with a spouse or dependent children dies before the Benefit Starting Date while employed with the Company or an affiliate, whether or not an adopting Employer, a death benefit shall be paid as provided below. The death benefit shall be a percentage of the participant's Accrued Benefit as of the date of death, based on an Early Retirement Factor of 100 percent. 10 4.1 Spouse's Benefit ________________ A surviving spouse shall be paid a benefit as follows: (a) The amount shall be 50 percent of the participant's Accrued Benefit. (b) The form shall be a single life annuity for the life of the spouse starting with the month following the date of death. 4.2 Dependent Child's Benefit _________________________ If the participant is unmarried with one or more dependent children, the benefit shall be paid to such children. A dependent child is one who is age 19 to 22 and enrolled in a full-time program of education at a secondary school or at a college, university or other post-secondary school or who is age 18 or younger. The dependent child's benefit shall be paid as follows: (a) The amount payable to a sole dependent child shall be 25 percent of the participant's Accrued Benefit. (b) The amount payable to two or more dependent children shall be 40 percent of the participant's Accrued Benefit, divided equally among such children. (c) The dependent child's benefit shall be paid monthly starting with the month following the date of death and ending with the month the individual ceases to be a dependent child. If one of two dependent children receiving a share of the amount under (b) ceases to be a dependent child, the remaining dependent child then shall receive the amount under (a). 5. Disability __________ 5.1 Service Continuation ____________________ A disabled participant shall continue to accrue benefit service under this plan so long as Benefit Hours are accrued for the participant under the Basic Plan. 11 5.2 Benefits ________ A disabled participant continuing to accrue service shall be treated like any other employee until disability ends or retirement or death occurs. In the event of death or retirement after disability, retirement or spouse's death benefits under this plan shall be determined in the same manner as for any participant. 6. Claims Procedure ________________ 6.1 Original Claim ______________ Any person whose benefit under this plan is not promptly paid may present a written claim for the benefit to the Committee. The Committee shall respond to the claim in writing as soon as practicable. 6.2 Denial ______ If the claim is denied, the written notice of denial shall state: (a) The reasons for denial, with specific reference to the plan provisions on which the denial is based. (b) A description of any additional material or information required and an explanation of why it is necessary. (c) An explanation of the plan's claim review procedure. 6.3 Request for Review __________________ Any person whose claim is denied or who has not received a response within 30 days may request review of the claim by the trustee for the plan appointed under 8.3 by notice given in writing to the trustee. The claim or request shall be reviewed by the trustee which may, but shall not be required to, have the claimant and a representative of the Committee appear before it. On review, the claimant may have representation, examine pertinent documents, and submit issues and comments in writing. 6.4 Final Decision ______________ The trustee's decision on review shall normally be made within 60 days. If an extension is required for a hearing or other special circumstances the claimant shall be so 12 notified and the time limit shall be 120 days. The trustee's decision shall be in writing and shall state the reasons and the relevant plan provisions. All decisions on review shall be final and bind all parties concerned. 7. Amendment; Termination ______________________ 7.1 Amendment _________ The Company may amend this plan at any time so long as the rights preserved on termination under 7.2 are not reduced. No amendment may accelerate the time of payment of benefits to persons participating in the plan at the time of the amendment. 7.2 Termination ___________ The Board of Directors of the Company may terminate the plan at any time as follows: (a) Termination shall be by notice to the Committee, which shall notify participants of the termination. The termination date shall not be earlier than the first day of the month in which notice is given. (b) After the effective date of termination no further executive officers shall be selected for participation and no further benefits shall accrue for existing participants. (c) The Accrued Benefit of each existing participant shall be paid under the terms of the plan as in effect before termination. The Accrued Benefit shall be calculated as follows: (1) Final Average Pay and Years of Service shall be determined as though the effective date of plan termination were a termination of employment. (2) The Primary Social Security Benefit shall be estimated on the basis of the pay level and the Social Security Act as in existence at the time of plan termination. 13 (3) The Qualified Plan Offset shall be based on the benefits accrued under the Basic Plan and other qualified plans at the time of plan termination. 8. General Provisions __________________ 8.1 Nonassignability ________________ The rights of a participant under this plan are personal. No interest of a participant or any beneficiary or representative of a participant may be directly or indirectly transferred, encumbered, seized by legal process or in any other way subjected to the claims of any creditor. 8.2 Funding _______ The rights of the participants and beneficiaries under this plan shall be an unfunded, unsecured promise of the Company to make future payments. 8.3 Trust _____ The Company shall establish a trust with a financial institution for payment of benefits under the plan, which shall be a grantor trust for tax purposes. The trust shall provide that any assets contributed to the Trustee shall be used exclusively for payment of benefits under this plan except in the event the Company becomes insolvent, in which case the trust fund shall be held for payment of the Company's obligations to its general creditors. 8.4 Notices _______ A notice under this plan shall be in writing and shall be effective when actually delivered or, if mailed, when deposited postpaid as first class mail. Mail shall be directed to the Company at the address stated in this plan, to the participant at the address shown on the Company's employment records, or to such other address as a party shall specify by notice to the other parties or as the Committee may determine to be appropriate. Notices to the Committee shall be sent to the Company's address. 8.5 Attorneys' Fees _______________ If suit or action is instituted to enforce any rights under this plan, the prevailing party may recover from the other party reasonable attorneys' fees at trial and on any appeal. 14 8.6 Indemnity _________ The Company shall indemnify and defend any member of the Committee or any officer, director or employee of an Employer from any claim or liability that arises from any action or inaction in connection with the plan subject to the following rules: (a) Coverage shall be limited to actions taken in good faith that the fiduciary reasonably believed were not opposed to the best interests of the plan; (b) Negligence by the fiduciary shall be covered to the fullest extent permitted by law; and (c) Coverage shall be reduced to the extent of any insurance coverage. 8.7 Applicable Law ______________ This plan shall be construed according to the laws of Oregon except as preempted by federal law. 8.8 Company Obligation __________________ Benefits payable under this plan shall be an obligation of the Company, which may charge the cost back to the Employer of the participant. If an Employer merges, consolidates, or otherwise reorganizes or if its business or assets are acquired by another entity and it remains an affiliate of the Company, this plan shall continue with respect to those eligible individuals who continue as employees of the successor company. The transition of Employers shall not be considered a termination of employment for purposes of this plan. If an Employer ceases to be an affiliate of the Company, a participant employed by that Employer shall cease accruing Years of Service and changes in Final Average Pay. The participant shall receive benefits under this plan on a later termination of employment with Employer if the participant had reached a retirement date or become vested before the affiliation ceased. 8.9 Payment for Individual's Benefit ________________________________ Payment for a person entitled to benefits shall be made to one of the following if the recipient is court-appointed or the payment is ordered by a court: 15 (a) To a parent or spouse or a child of legal age; (b) To a legal guardian; or (c) To one furnishing maintenance, support, or hospitalization. 8.10 Not Contract of Employment __________________________ Nothing in this plan shall give any employee the right to continue employment. The plan shall not prevent discharge of any employee at any time for any reason. 9. Effective Date ______________ This Restatement shall be effective January 1, 1988. RESTATEMENT EXECUTED AS FOLLOWS EFFECTIVE JANUARY 1, 1988. Adopted: October 14, 1987. PACIFICORP By A. M. GLEASON __________________________ President Executed: June 24, 1988 AMENDMENT NO. 1 EXECUTED AS FOLLOWS EFFECTIVE JANUARY 1, 1988. PACIFICORP By A. M. GLEASON __________________________ President Executed: August 31, 1988 16 AMENDMENT NO. 2 EXECUTED AS FOLLOWS EFFECTIVE JANUARY 1, 1988 PACIFICORP By A. M. GLEASON __________________________ President Executed: September 23, 1988 AMENDMENT NO. 3 EXECUTED AS FOLLOWS EFFECTIVE JANUARY 1, 1988 PACIFICORP By A. M. GLEASON __________________________ President Executed: March 14, 1989 AMENDMENT NO. 4 EXECUTED AS FOLLOWS EFFECTIVE JANUARY 1, 1992 PACIFICORP By A. M. GLEASON __________________________ President Executed: August 14, 1992 AMENDMENT NO. 5 EXECUTED AS FOLLOWS EFFECTIVE JANUARY 1, 1994 PACIFICORP By MICHAEL J. PITTMAN __________________________ Executed: January 25, 1994 17 APPENDIX A TO PACIFICORP SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 1988 RESTATEMENT ENHANCED EARLY RETIREMENT PROGRAM FOR NERCO, INC. EMPLOYEES Enhanced early retirement benefits shall be paid under this Appendix to the PacifiCorp Supplemental Executive Retirement Plan (THE PLAN) to eligible Plan participants who qualify for enhanced benefits under the Enhanced Early Retirement Program provided in Appendix A to the NERCO Retirement Plan (THE PROGRAM) as provided below. Terms used in this Appendix and not defined in it shall have the same meaning as the Plan document. 1. ELIGIBILITY ___________ Benefits under this Appendix shall be provided to Plan participants who elect to participate and receive benefits under the Program. 2. BENEFIT ENHANCEMENT ___________________ A participant eligible under Section 1 shall receive enhanced early retirement benefits under the Plan as follows: 2.1 FIVE ADDITIONAL BENEFIT YEARS. The participant's _____________________________ early retirement benefit shall be calculated with a Career Ratio based on the sum of actual Benefit Years plus five additional Benefit Years, up to a maximum of 30. This sum shall be divided by projected Benefit Years, up to a maximum of 30, determined in the manner provided in Plan Section 3.4(b) with no additional Benefit Years. 2.2 NO EARLY RETIREMENT REDUCTION. The participant's _____________________________ early retirement benefit shall be calculated with an Early Retirement Factor of 100 percent. 2.3 SOCIAL SECURITY BRIDGE. The participant's benefit ______________________ before reduction by the Qualified Plan Offset shall be increased by $1,000 per month. The Social Security Bridge benefit paid a participant by the Basic Plan pursuant to the Program shall be included in the Qualified Plan Offset in calculating the participant's benefit under the Plan. The additional monthly benefit, if any, shall commence along with the regular retirement benefit and shall be paid on the same 18 monthly schedule. The additional benefit shall terminate with the month prior to the first month for which the participant is eligible to receive a Social Security retirement benefit, or the month of the participant's death if earlier. 3. DEATH OF PARTICIPANT ____________________ The surviving spouse or qualifying dependent of an eligible individual who has elected to participate in the Program and who dies while employed by Employer or an affiliate shall have a preretirement death benefit under the Plan calculated without regard to the enhancements provided by the Program. Company: PACIFICORP By: A.M. GLEASON __________________________________ Executed: May 25, 1993 EX-10.(R) 10 EXHIBIT 10(R) EXHIBIT (10)r AMENDMENT NO. 1 TO COMPENSATION AGREEMENT BETWEEN PACIFICORP AND KEITH R. McKENNON PacifiCorp entered into a Compensation Agreement (the "Agreement") with Keith R. McKennon (the "Director") effective as of February 9, 1994. In order to reflect that the PacifiCorp Non-Employee Directors' Stock Compensation Plan has been amended to increase the amount of Common Stock awarded from $10,000 worth of Common Stock per year to $15,000 worth of Common Stock per year, the Company and the Director hereby amend the Agreement as follows: 1. ANNUAL COMPENSATION OF DIRECTOR The third sentence of Section 1 of the Agreement is amended to read as follows: "Of the total annual compensation, $15,000 shall be provided through the Directors' participation in the PacifiCorp Non-Employee Directors' Stock Compensation Plan." 2. GRANT OF COMMON STOCK The first sentence of Section 2.2 is amended to read as follows: "If the Director continues as Chairman of the Company's Board of Directors on February 9 of any year after 1994 (the "Grant Date"), the Company shall grant to the Director Common Stock equal in value on the Grant Date to the Director's total annual compensation for the 12 months beginning on the Grant Date, minus $15,000, subject to the following vesting restriction." 3. MISCELLANEOUS The effective date of this Amendment shall be February 9, 1995. Except as specifically amended hereby, the Agreement shall remain unmodified and in full force and effect. PACIFICORP, an Oregon corporation By: JOHN C. HAMPTON ______________________________ John C. Hampton, Chairman of the Personnel Committee KEITH R. MCKENNON _________________________________ Keith R. McKennon EX-10.(T) 11 EXHIBIT 10(T) EXHIBIT (10)t Contract No. DE-MS79-88BP92497 RESTATED SURPLUS FIRM CAPACITY SALE AGREEMENT executed by the UNITED STATES OF AMERICA DEPARTMENT OF ENERGY acting by and through the BONNEVILLE POWER ADMINISTRATION and PACIFIC POWER & LIGHT COMPANY Index to Sections ______________________________________________________________________________ Section Page 1. Term of Agreement ........................................ 3 2. Exhibits ................................................. 3 3. Definitions .............................................. 3 4. Points of Delivery ....................................... 5 5. Sale of Capacity and Amounts Sold ........................ 5 6. Scheduling Provisions .................................... 8 7. Contract Demand .......................................... 10 8. Payment and Rates ........................................ 14 9. Termination of Prior Agreements .......................... 17 Exhibit A(General Contract Provisions GCP Form PSC-2) .. 3 Exhibit B(General Rate Schedule Provisions) ............ 3 Exhibit C(Contract Demand and Points of Delivery) ...... 3 This AGREEMENT, executed 9/27/94 , by the UNITED STATES OF AMERICA _______________ (Government), Department of Energy, acting by and through the BONNEVILLE POWER ADMINISTRATION (Bonneville) and PACIFICORP, doing business as PACIFIC POWER & LIGHT COMPANY (Pacific), a corporation organized and existing under the laws of the State of Oregon, hereinafter sometimes referred to individually as "Party" and collectively as "Parties". 2 W I T N E S S E T H: WHEREAS Bonneville is engaged in the sale of electric capacity and energy at wholesale and plans to meet the requirements of this Agreement only with surplus firm capacity. WHEREAS Bonneville, in accordance with subsection 5(f) of the Pacific Northwest Electric Power Planning and Conservation Act, Public Law 96-501 (Northwest Power Act), has capacity available that is surplus to its obligations incurred pursuant to subsections 5(b), 5(c), and 5(d) of the Northwest Power Act; and WHEREAS Pacific is a utility engaged in the generation, transmission, and distribution of electric energy in the Pacific Northwest; and WHEREAS Bonneville and Pacific were Parties to a Power Sales Contract dated August 31, 1971, which provides for the sale of firm capacity by Bonneville to Pacific (Contract No. 14-03-29136) and which expired under its own terms at 2400 hours on August 31, 1991; and WHEREAS Pacific, in reliance on the former regional Hydro-Thermal Program, incorporated the purchase of firm capacity from Bonneville into its long-term resource planning decisions and therefore desires to continue to purchase surplus firm capacity from Bonneville in order to meet its Pacific Northwest firm load obligations; and WHEREAS Bonneville desires to sell surplus firm capacity to Pacific under the terms specified herein; and WHEREAS the Parties intend that Bonneville's surplus firm capacity obligations under this Agreement shall be incorporated into Bonneville's long- term planning forecasts and associated capacity marketing decisions; and 3 WHEREAS Bonneville is authorized pursuant to law to dispose of electric power and energy generated at various federal hydroelectric projects in the Pacific Northwest or acquired from other resources, to construct and operate transmission facilities, to provide transmission and other services, and to enter into agreements to carry out such authority; NOW, THEREFORE, the Parties hereto mutually agree as follows: 1. TERM OF AGREEMENT This Agreement shall be effective at 2400 hours on August 31, 1991, and shall continue until 2400 hours on August 31, 2011. All obligations incurred hereunder shall be preserved until satisfied. 2. EXHIBITS General Contract Provisions GCP Form PSC-2 (Exhibit A), Bonneville Wholesale Power Rate Schedules and General Rate Schedule Provisions (Exhibit B), and Contract Demand and Points of Delivery (Exhibit C) are hereby made a part of this Agreement. If a provision in the body of this Agreement or of Exhibit C is in conflict with a provision in Exhibit A or B, the provision in the body of this Agreement or in Exhibit C shall prevail. If a provision of Exhibit A is in conflict with a provision of Exhibit B, the provision of Exhibit A shall prevail. 3. DEFINITIONS The following terms, when used in this Agreement with initial capitalization, whether singular or plural, shall have the meanings specified: (a) "Agreement" means this Restated Surplus Firm Capacity Sale Agreement between Bonneville and Pacific. 4 (b) "Calendar Week" means the week beginning at 0001 hours on Sunday, and ending at 2400 hours on the following Saturday. (c) "Contract Demand" means the maximum rate of delivery in any hour, in megawatts (MW), for surplus firm capacity as specified in Exhibit C. (d) "Contract Year" means the period September 1, 1991, through June 30, 1992, and thereafter each 12 months beginning July 1, or such other 12- month period as may be adopted as a contract year under the Pacific Northwest Coordination Agreement, as it may be amended or replaced. (e) "Heavy Load Hours" means the period from 0700 hours through 2200 hours on any day Monday through Saturday. (f) "Light Load Hours" means those hours which are not Heavy Load Hours. (g) "Peaking Energy" means the electric energy associated with the delivery of surplus firm capacity to Pacific. (h) "Peaking Replacement Energy" means an amount of energy equal to the Peaking Energy which Pacific is obligated to return to Bonneville. (i) "Point(s) of Delivery" means the point(s) of interconnection between Bonneville's and Pacific's systems as specified in Exhibit C. (j) "Whitebook" means Bonneville's publication of its forecasted firm loads and planned firm resources in an annual long-range planning document entitled PACIFIC NORTHWEST LOADS AND RESOURCES STUDY or its comparable successor planning document. 5 (k) "Workday" means each day which both Parties observe as a regular day of work. 4. POINTS OF DELIVERY Bonneville shall make surplus firm capacity and associated Peaking Energy available to Pacific pursuant to section 5(a), and Pacific shall make available Peaking Replacement Energy to Bonneville pursuant to section 5(b) at the Points of Delivery specified in Exhibit C. 5. SALE OF CAPACITY AND AMOUNTS SOLD Bonneville shall make available and Pacific shall purchase each month of each Contract Year an amount of surplus firm capacity equal to the Contract Demand specified in Exhibit C for such Contract Year. (a) SURPLUS FIRM CAPACITY AND PEAKING ENERGY Bonneville shall make scheduled amounts of surplus firm capacity and associated Peaking Energy available to Pacific in any hour or in any portion of an hour, in amounts up to the Contract Demand, pursuant to the scheduling provisions of section 6. During the Heavy Load Hours, such scheduled amounts of Peaking Energy shall not exceed 10 megawatthours (MWh) per MW of Contract Demand in any day and shall not exceed 50 MWh per MW of Contract Demand in any Calendar Week. (b) PEAKING REPLACEMENT ENERGY (1) DEADLINE FOR RETURNS Except as provided in section 5(b)(3), or unless arrangements for compensation pursuant to section 8(c) have been agreed to by the Parties, Pacific shall, within 168 hours after the receipt of any 6 Peaking Energy at the Points of Delivery, deliver an equal amount of Peaking Replacement Energy to Bonneville at the Points of Delivery. The Parties' schedulers or dispatchers may agree to delay deliveries of Peaking Replacement Energy beyond 168 hours or provide for advanced delivery of such Peaking Replacement Energy. (2) NORMAL RATE OF RETURN. Except as provided in section 5(b)(3), Pacific may deliver Peaking Replacement Energy at hourly rates of up to 100 percent of Contract Demand, or at hourly rates greater than 100 percent of Contract Demand upon agreement by Bonneville. (3) RESTRICTED RATE OF RETURN. Bonneville shall have the right, subject to the limitations in section 5(b)(4), to limit such hourly schedules of Peaking Replacement Energy during any month of any Contract Year to amounts not less than, unless otherwise mutually agreed, an amount (MWhs per hour) equal to the Contract Demand applicable for such month of such Contract Year, as set forth in Exhibit C, multiplied by the Limitation Factor for such month as set forth below: LIMITATION MONTH FACTOR July 0.60 August 0.60 September 0.60 October 0.60 November 1.00 December 1.00 January 1.00 February 1.00 March 0.60 April 0.60 May 0.80 June 0.80 7 (4) LIMITATIONS ON RATE OF RETURN RESTRICTIONS. If, pursuant to section 5(b)(3), Bonneville elects to limit Pacific's hourly schedules of Peaking Replacement Energy during any hour(s) of any Contract Year, such hourly limitations shall, unless otherwise mutually agreed, be imposed for a minimum of five (5) consecutive hours and provided, that the sum of such hourly limitations in any Contract Year or in any Calendar Week shall not exceed the maximum number of hours per Contract Year or per Calendar Week set forth below for such Contract Year and provided further, that the number of hours of such limitations shall be calculated for each hour during the months of March through October of any Contract Year as: 1.0 - ((ASL)/(CD)) H = __________________ (1.0 - LF) Where: H = The number of hours of limitations on Peaking Replacement Energy, calculated to the nearest 0.1 hour. ASL = The maximum hourly schedule of Peaking Replacement Energy allowed by Bonneville in the hour (MWh/hr). CD = The Contract Demand (MW). LF = The Limitation Factor for such hour. CONTRACT MAXIMUM HOURS MAXIMUM HOURS YEAR(S) PER CONTRACT YEAR PER CALENDAR WEEK 1 500 35 2-5 600 35 6-10 850 42 11-20 1100 42 8 6. SCHEDULING PROVISIONS Unless otherwise agreed by the Parties' respective schedulers or dispatchers for a specific schedule, all schedules of Peaking Energy and Peaking Replacement Energy shall be subject to the following provisions: (a) All deliveries of Peaking Energy and Peaking Replacement Energy shall be prescheduled on each Workday for each hour of the following day or days through the next regular Workday. (1) Except as provided in section 6(a)(2), all preschedules under this Agreement shall be submitted in accordance with Bonneville's prevailing scheduling practice within the Pacific Northwest under Bonneville's utility firm power sales contracts entered into pursuant to section 5(b) of the Northwest Power Act as such contracts may be amended or replaced; provided that Pacific shall not be required to submit a preschedule earlier than 1200 hours. (2) In the event Bonneville elects to limit schedules of Peaking Replacement Energy pursuant to section 5(b)(3), Bonneville shall give reasonable advance notice to Pacific but in no event shall such notice be later than 1100 hours on any Workday for the following day or days through the next Workday. If such schedules are so restricted, preschedules will be due the later of: (A) three hours from the time such notice is received by Pacific, or (B) the time preschedules are normally due pursuant to section 6(a)(1). 9 (b) CHANGES TO PRESCHEDULES Pacific shall have the right to make limited changes to prescheduled deliveries of Peaking Energy as described below, provided that the schedule of Peaking Energy in any hour or portion of an hour shall not exceed the Contract Demand. (1) HEAVY LOAD HOURS Upon verbal notice given not less than 30 minutes prior to the beginning of any Heavy Load Hour, or less than 30 minutes if agreed by Bonneville, Pacific shall have the right to increase or decrease the amount of Peaking Energy prescheduled or scheduled for delivery during such Heavy Load Hour; provided that the sum of the absolute values of any differences between the final schedule and the original preschedule pursuant to section 6(a)(1) for Peaking Energy (expressed in MWh) during the Heavy Load Hours of any day shall not exceed an amount equal to six times Contract Demand (expressed in MWh). (2) LIGHT LOAD HOURS Upon verbal notice given not less than 30 minutes prior to the beginning of any Light Load Hour, or less than 30 minutes if agreed by Bonneville, Pacific shall have the right to increase the amount of Peaking Energy prescheduled or scheduled for delivery during such Light Load Hour. (c) Bonneville shall schedule Peaking Energy to Pacific in hourly amounts requested by Pacific pursuant to this section. (d) Except as provided in section 6(b), any changes to preschedules or schedules of Peaking Energy and Peaking Replacement Energy under this Agreement shall be only upon mutual agreement of the Parties. The Parties shall use best efforts to avoid requesting such additional changes from the prescheduled amounts. 10 7. CONTRACT DEMAND (a) INCREASES IN CONTRACT DEMAND Based on Bonneville's determination of the availability of surplus firm capacity, the Parties may mutually agree to increase the Contract Demand specified in Exhibit C. (b) DECREASES IN CONTRACT DEMAND (1) DECREASE BY BONNEVILLE Upon 5 years' written notice to Pacific, Bonneville may, based on the then current Whitebook, reduce Pacific's Contract Demand as follows: (A) To the extent necessary to meet Bonneville's obligations under its firm power sales contracts entered into pursuant to sections 5(b), (c), and (d) of the Northwest Power Act and under any renewal or extension of such contracts, and (B) To the extent necessary to meet Bonneville's obligations pursuant to other contracts for the sale of capacity (or capacity with energy) to Pacific Northwest public bodies and cooperatives entitled to preference and priority under the then applicable law, and (C) To the extent necessary to meet Bonneville's capacity/energy exchange obligations under contracts entered into prior to November 1, 1989, and (D) To the extent necessary to meet Bonneville's capacity/energy exchange obligations under contracts entered into subsequent 11 to November 1, 1989; provided that, at the time such exchange obligations were incurred, Bonneville, for the term of this Agreement had a projected firm capacity surplus of at least 300 MW in excess of the aggregate of such new obligations, based on the medium load forecast projection in the Whitebook in effect at the time such obligations were incurred. (E) In the event that Bonneville, pursuant to (A), (B), (C), or (D) above, elects to provide notice of a reduction in Pacific's Contract Demand, such reductions shall be limited to the amounts and for the months and Contract Years as necessary to meet the obligations as specified in this section 7(b)(1). In such event, Pacific may elect to apply any monthly reduction to any other or to all months of the Contract Year or subsequent Contract Years or for the remaining term of this Agreement. (2) DECREASE BY PACIFIC (A) Pacific, upon 5-years' written notice to Bonneville, may commence reducing, including to zero, the Contract Demand applicable to subsequent Contract Year(s), provided that any such reductions shall be limited to amounts of up to 175 MW per Contract year and shall be effective at the beginning of such subsequent Contract Year(s). (B) Pacific shall have a limited right to decrease its Contract Demand on one (1) years' notice if Bonneville executes a contract(s) to sell or exchange surplus firm capacity based on 12 the then current Whitebook and utilizing planned resources not then in service to support such sale or exchange. Such right to decrease Contract Demand shall be limited to the lesser of (i) 175 MW per year (including to zero), or (ii) the amount by which the surplus firm capacity sale or exchange entitled to priority over Pacific pursuant to section 7(b)(1), exceeds during any period, the amount of the sale or exchange which would have been entitled to such priority if such Whitebook had included only resources then in service. The required notice by Pacific may be given any time after the execution of such sale or exchange contract(s). Any such Contract Demand reductions by Pacific shall be effective one (1) year from the date of such notice, without regard to the period for which such sale or exchange contract(s) rely on such planned Whitebook resources. (3) RESTORATION OF CONTRACT DEMAND In the event that Bonneville, pursuant to section 7(b)(1), elects to provide notice of a reduction in Pacific's Contract Demand and: (A) subsequently determines, based upon the medium load forecast from the then current Whitebook projection, that in any month, amounts of surplus firm capacity will become available which are in excess of the sum of: (i) any of Bonneville's obligations under section 7(b)(1) (A) and (B); (ii) Bonneville's obligations resulting from contracts under section 7(b)(1)(C) and (D) which existed at the time of Bonneville's notice; 13 (iii) the capacity obligations hereunder which have not been so reduced; and (iv) 300 MW; or (B) prior to any restoration of service to other customers or other disposition of capacity (or capacity with energy), other than: (i) any of Bonneville's obligations under section 7(b)(1) (A) and (B); and (ii) Bonneville's obligations resulting from contracts under section 7(b)(1)(C) and (D) which existed at the time of Bonneville's notice; then Bonneville shall offer such excess firm capacity calculated under section 7(b)(3)(A) or the amount of such proposed restoration or disposition of capacity under section 7(b)(3)(B) to Pacific in writing under the terms of this Agreement and up to the amount of Contract Demand that was reduced pursuant to section 7(b)(1). Such increase shall be effective at the beginning of the next Contract Year, or earlier by mutual agreement. Pacific shall have sixty (60) days to accept Bonneville's offer. (4) TRANSMISSION ASSISTANCE In the event that Pacific's Contract Demand is reduced pursuant to section 7(b)(1) or 7(b)(2)(B), Bonneville will use its best efforts to grant any reasonable request by Pacific for transmission services as may be required to acquire replacement peaking capacity from other sources, provided, that excess transmission capacity is available, and the 14 provision of such capacity is consistent with applicable statutory requirements as well as Bonneville's then existing policies and practices. 8. PAYMENT AND RATES (a) PAYMENT Bonneville shall prepare a consolidated power bill for net payments due by either Party to the other Party under this and other agreements. In accordance with Bonneville's General Rate Schedule Provisions in Exhibit B, Bonneville shall submit such bill to Pacific, and Pacific shall pay Bonneville each month, for all amounts described in this section. (b) RATE FOR SURPLUS FIRM CAPACITY Payment for surplus firm capacity made available by Bonneville under this Agreement shall be at the rate specified in this section 8(b). The effective rate shall be rounded to the nearest cent. The rates for surplus firm capacity are as follows: (1) INITIAL RATE $4.92 per kilowatt (kW) - month of Contract Demand. (2) ESCALATION Beginning on September 1, 1991, the rate for surplus firm capacity purchased by Pacific under this Agreement shall be adjusted periodically to reflect changes in Bonneville's average system cost. Such adjustment shall be made whenever Bonneville has a general rate case and such adjustment shall be effective on the same day that adjustments to Bonneville's other rates become effective. 15 The adjusted rate for firm capacity shall be determined from the following formula: BASCn PPL - 90n = PPL - 90inst = ________ BASCinst WHERE: PPL-90n = The adjusted firm capacity rate (in $/kW-month of Contract Demand and calculated to the nearest cent) to be effective subsequent to Bonneville's then most recent general rate case on the effective date of Bonneville's other newly adjusted rates. PPL-90inst = $4.92 per kW-month of Contract Demand. BASCn = Bonneville's average system cost (in mills per kWh and calculated to the nearest one-tenth of a mill) as determined in Bonneville's then most recent general rate case that will be used to adjust Bonneville's wholesale power rate schedules. Bonneville's average system cost shall be equal to Bonneville's total system costs for the test period of such general rate case divided by Bonneville's total annual system sales (kWh) forecasted for such test period. Bonneville's total system costs shall be the sum of all Bonneville's costs forecasted in each general rate case for the applicable rate period, including total transmission costs, Federal base system costs, 16 new resource costs, exchange resource costs, and other costs not specifically allocated to a rate pool, such as section 7(g) costs under the Northwest Power Act. Bonneville's total annual system sales shall be the sum of all Bonneville's system firm and nonfirm sales forecasted in each general rate case for the applicable test period. Bonneville average system cost shall be redetermined in each subsequent general rate case according to the above formula and will be in effect for the entire rate period over which the rates are in effect. BASCinst = 23.8 mills per kilowatthour. 17 (c) CASHOUT The Parties may agree that Pacific shall provide a payment rather than deliver Peaking Replacement Energy to Bonneville pursuant to section 5(b)(1). Any such payment shall be at a rate authorized under Bonneville's then-effective rate schedules. 9. TERMINATION OF OTHER AGREEMENTS This Agreement supersedes and replaces all other agreements related to the purchase by Pacific of surplus firm capacity from Bonneville; namely the Bridge Agreement, Contract No. DE-MS79-91BP93119 and the Short-Term Surplus Firm Capacity Agreement, Contract No. DE-MS79-92BP93757. IN WITNESS WHEREOF the Parties hereto have executed this Agreement. UNITED STATES OF AMERICA Department of Energy Bonneville Power Administration By PATRICK MCRAE _________________________________ Senior Account Executive Name Patrick McRae _________________________________ (Print/Type) Date 9/27/94 _________________________________ PACIFIC POWER & LIGHT COMPANY By DENNIS P. STEINBERG _______________________ Name Dennis P. Steinberg _______________________ (Print/Type) Title Senior Vice President _______________________ Date September 30, 1994 _______________________ Exhibit C, Page 1 of 4 Contract No. DE-MS79-88BP92497 CONTRACT DEMAND Subject to changes as provided in this Agreement, the Contract Demand for any month of any contract period shall be 1100 megawatts (MW). In the event of any such changes to the Contract Demand, the Parties shall prepare an amended Exhibit C to reflect such changes. POINTS OF DELIVERY GENERAL The Parties agree that for the purposes of this Agreement, Peaking Energy and Peaking Replacement Energy shall be scheduled between the Parties' systems for receipt and/or delivery at all of the Points of Delivery set forth below, provided that: 1. Nothing in this Agreement shall be construed to limit or change either Party's rights to receive and/or deliver power and energy at other points of delivery or locations under other agreements. 2. Nothing in this Agreement shall be construed to obligate either Party to construct new facilities at any Point of Delivery unless the Parties mutually agree upon a set of objectives for the provision of such facilities. 3. Nothing in this Agreement shall be construed to limit or change either Party's ownership or contractual rights or obligations (including intertie rights or obligations) under other agreements. 4. By mutual agreement, the Parties may from time to time add or delete Points of Delivery from this Exhibit C and in such event, the Parties shall prepare an amended Exhibit C to reflect such changes. Exhibit C, Page 2 of 4 Contract No. DE-MS79-88BP92497 POD DESCRIPTIONS 1. ALVEY 500 kV POINT OF DELIVERY LOCATION: the point in Bonneville's Alvey Substation where the 500 kV facilities of the Parties hereto are connected; VOLTAGE: 500 kV; METERING: in Bonneville's Alvey Substation, in the 500 kV circuits over which electric power and energy flows; 2. FAIRVIEW 230 kV POINT OF DELIVERY LOCATION: the point in Bonneville's Fairview Substation where the 230 kV facilities of the Parties hereto are connected; VOLTAGE: 230 kV; METERING: in Bonneville's Fairview Substation, in the 230 kV circuit over which electric power and energy flows; 3. MCNARY 230 kV POINT OF DELIVERY LOCATION: the point in Bonneville's McNary Substation where the 230 kV facilities of the Parties hereto are connected; VOLTAGE: 230 kV; METERING: in Bonneville's McNary Substation, in the 230 kV circuit over which electric power and energy flows; 4. MIDWAY POINT OF DELIVERY LOCATION: the point in Bonneville's Midway Substation where the 230 kV facilities of the Parties hereto are connected; VOLTAGE: 230 kV; METERING: in Bonneville's Midway Substation, in the 230 kV circuit over which electric power and energy flows; 5. OUTLOOK POINT OF DELIVERY LOCATION: the point in Pacific's Outlook Substation where the 230 kV facilities of the Parties hereto are connected; Exhibit C, Page 3 of 4 Contract No. DE-MS79-88BP92497 VOLTAGE: 230 kV; METERING: in Pacific's Outlook Substation, in the 115 kV circuit over which electric power and energy flows; EXCEPTION: there shall be an adjustment for losses between the point of metering and the point of delivery; 6. PILOT BUTTE POINT OF DELIVERY LOCATION: the point in Bonneville's Redmond-Yamsay 230 kV transmission line where the facilities of the Parties hereto are connected; VOLTAGE: 230 kV; METERING: in Pacific's Pilot Butte Substation, in the 69 kV circuits over which electric power and energy flows; EXCEPTION: there shall be an adjustment for losses between the point of metering and point of delivery; 7. PONDEROSA POINT OF DELIVERY LOCATION: the point in Bonneville's Ponderosa Substation where the 230 kV facilities of the Parties hereto are connected; VOLTAGE: 230 kV; METERING: in Bonneville's Ponderosa Substation, in the 230 kV circuit over which electric power and energy flows; 8. RESTON POINT OF DELIVERY LOCATION: the point in Bonneville's Reston Switching Station where the 230 kV facilities of the Parties hereto are connected; VOLTAGE: 230 kV; METERING: in Bonneville's Reston Switching Station, in the 230 kV circuit over which electric power and energy flows; 9. TROUTDALE POINT OF DELIVERY LOCATION: the points in Bonneville's Troutdale Substation where the 230 kV facilities of the Parties hereto are connected; Exhibit C, Page 4 of 4 Contract No. DE-MS79-88BP92497 VOLTAGE: 230 kV; METERING: in Bonneville's Troutdale Substation, in the 230 kV circuits over which electric power and energy flows; EXCEPTION: the Integrated Demands of the two circuits are totalized; 10. YAMSAY POINT OF DELIVERY LOCATION: the point where Bonneville's Redmond-Yamsay 230 kV transmission line and Pacific's Yamsay-Klamath Falls 230 kV transmission line are connected; VOLTAGE: 230 kV; METERING: (a) in Pacific's Chiloquin Substation in the 230 kV circuit over which electric power and energy flows; (b) in Pacific's Pilot Butte Substation, in the 69 kV circuit over which electric power and energy flows; EXCEPTION: there shall be an adjustment for losses between the point of delivery and the points of metering; 11. SUMMER LAKE POINT OF DELIVERY LOCATION: the point in Bonneville's Summer Lake Substation where the 500 kV facilities of the Parties hereto are connected; VOLTAGE: 500 kV; METERING: in Bonneville's Summer Lake Substation, in the 500 kV circuits over which electric power and energy flows. EX-12.(A) 12 EXHIBIT 12(A) EXHIBIT (12)A PACIFICORP STATEMENTS OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN MILLIONS OF DOLLARS)
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1990 1991 1992 1993 1994 ---------- ---------- ---------- ---------- ---------- Fixed Charges, as defined:* Interest expense.................................. $ 431.2 $ 428.0 $ 409.7 $ 377.8 $ 336.8 Estimated interest portion of rentals charged to expense.......................................... 23.3 20.4 17.1 20.1 19.5 Preferred dividend requirement of majority-owned subsidiary....................................... 4.2 -- -- -- -- ---------- ---------- ---------- ---------- ---------- Total fixed charges........................... $ 458.7 $ 448.4 $ 426.8 $ 397.9 $ 356.3 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Earnings, as defined:* Income from continuing operations................. $ 413.4 $ 446.8 $ 150.2 $ 422.7 $ 468.0 Add (deduct): Provision for income taxes...................... 179.1 176.7 90.8 187.4 249.8 Minority interest............................... 18.1 14.1 8.4 11.3 13.3 Undistributed income of less than 50% owned affiliates..................................... -- (1.8) (5.7) (16.2) (14.7) Fixed charges as above.......................... 458.7 448.4 426.8 397.9 356.3 ---------- ---------- ---------- ---------- ---------- Total earnings................................ $ 1,069.3 $ 1,084.2 $ 670.5 $ 1,003.1 $ 1,072.7 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Ratio of Earnings to Fixed Charges.................. 2.3x 2.4x 1.6x 2.5x 3.0x ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------------------ * "Fixed charges" represents consolidated interest charges, an estimated amount representing the interest factor in rents and preferred stock dividend requirements of majority-owned subsidiaries. "Earnings" represent the aggregate of (a) income from continuing operations, (b) taxes based on income from continuing operations, (c) minority interest in the income of majority-owned subsidiaries that have fixed charges, (d) fixed charges and (e) undistributed income of less than 50% owned affiliates without loan guarantees.
S-1 EX-12.(B) 13 EXHIBIT 12(B) EXHIBIT (12)B PACIFICORP STATEMENTS OF COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (IN MILLIONS OF DOLLARS)
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1990 1991 1992 1993 1994 ---------- ---------- ---------- ---------- ---------- Fixed Charges, as defined:* Interest expense.................................. $ 431.2 $ 428.0 $ 409.7 $ 377.8 $ 336.8 Estimated interest portion of rentals charged to expense.......................................... 23.3 20.4 17.1 20.1 19.5 Preferred dividend requirement of majority-owned subsidiary....................................... 4.2 -- -- -- -- ---------- ---------- ---------- ---------- ---------- Total fixed charges........................... 458.7 448.4 426.8 397.9 356.3 Preferred Stock Dividends, as defined:*........... 31.7 37.4 59.9 56.8 60.8 ---------- ---------- ---------- ---------- ---------- Total fixed charges and preferred dividends... $ 490.4 $ 485.8 $ 486.7 $ 454.7 $ 417.1 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Earnings, as defined:* Net income from continuing operations............. $ 413.4 $ 446.8 $ 150.2 $ 422.7 $ 468.0 Add (deduct): Provision for income taxes...................... 179.1 176.7 90.8 187.4 249.8 Minority interest............................... 18.1 14.1 8.4 11.3 13.3 Undistributed income of less than 50% owned affiliates..................................... -- (1.8) (5.7) (16.2) (14.7) Fixed charges as above.......................... 458.7 448.4 426.8 397.9 356.3 ---------- ---------- ---------- ---------- ---------- Total earnings................................ $ 1,069.3 $ 1,084.2 $ 670.5 $ 1,003.1 $ 1,072.7 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.......................... 2.2x 2.2x 1.4x 2.2x 2.6x ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------------------ * "Fixed charges" represent consolidated interest charges, an estimated amount representing the interest factor in rents and preferred stock dividend requirements of majority-owned subsidiaries. "Preferred Stock Dividends" represent preferred dividend requirements multiplied by the ratio which pre-tax income from continuing operations bears to income from continuing operations. "Earnings" represent the aggregate of (a) income from continuing operations, (b) taxes based on income from continuing operations, (c) minority interest in the income of majority-owned subsidiaries that have fixed charges, (d) fixed charges and (e) undistributed income of less than 50% owned affiliates without loan guarantees.
S-2 EX-13 14 EXHIBIT 13 19 EXHIBIT 13 FINANCIAL SECTION CONTENTS ______________________________________________ ______________________________________________ Management's Discussion and Analysis of Financial Condition and Results of Operations 20 ______________________________________________ Report of Management 36 ______________________________________________ Independent Auditors' Report 36 ______________________________________________ Statements of Consolidated Income and Retained Earnings 37 ______________________________________________ Consolidated Balance Sheets 38 ______________________________________________ Statements of Consolidated Cash Flows 40 ______________________________________________ Notes to Consolidated Financial Statements 41 ______________________________________________ 20 SUMMARY INFORMATION
MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS/FOR THE YEAR 5-Year 1994 to 1993 Compound Percentage Annual 1994 1993 1992 1991 1990 1989 Comparison Growth __________________________________________________________________________________________________________________________ REVENUES $3,506.5 $3,405.4 $3,235.7 $3,163.9 $3,093.9 $3,007.0 3% 3% _______ _______ _______ _______ _______ _______ ____ ___ INCOME FROM OPERATIONS 986.6 915.5 633.0 941.3 923.0 900.1 8 2 _______ _______ _______ _______ _______ _______ ____ ___ NET INCOME (LOSS) 468.0 479.1 (340.4) 507.2 473.9 465.6 (2) - _______ _______ _______ _______ _______ _______ ____ ___ EARNINGS CONTRIBUTION (LOSS) ON COMMON STOCK Continuing operations Electric Operations 339.8 322.3 202.9 346.6 334.2 329.6 5 1 Telecommunications 70.5 50.9 57.3 76.6 76.6 64.2 39 2 Other (a) 18.0 10.2 (147.3) (3.1) (19.3) (12.0) 76 * _______ _______ _______ _______ _______ _______ ____ ___ TOTAL 428.3 383.4 112.9 420.1 391.5 381.8 12 2 Discontinued operations (b) - 52.4 (490.6) 60.4 60.5 62.6 * * Cumulative effect of change in accounting for income taxes - 4.0 - - - - * * _______ _______ _______ _______ _______ _______ ____ ___ TOTAL $ 428.3 $ 439.8 $ (377.7) $ 480.5 $ 452.0 $ 444.4 (3) (1) _______ _______ _______ _______ _______ _______ ____ ___ _______ _______ _______ _______ _______ _______ ____ ___ EARNINGS (LOSS) PER SHARE Continuing operations Electric Operations $ 1.20 $ 1.17 $ .76 $ 1.34 $ 1.37 $ 1.34 3 (2) Telecommunications .25 .19 .21 .30 .31 .26 32 (1) Other (a) .06 .04 (.55) (.01) (.08) (.04) 50 * _______ _______ _______ _______ _______ _______ ____ ___ TOTAL 1.51 1.40 .42 1.63 1.60 1.56 8 (1) Discontinued operations (b) - .19 (1.84) .23 .25 .25 * * Cumulative effect of change in accounting for income taxes - .01 - - - - * * _______ _______ _______ _______ _______ _______ ____ ___ TOTAL $ 1.51 $ 1.60 $ (1.42) $ 1.86 $ 1.85 $ 1.81 (6) (4) _______ _______ _______ _______ _______ _______ ____ ___ _______ _______ _______ _______ _______ _______ ____ ___ CASH DIVIDENDS PER COMMON SHARE Paid $ 1.08 $ 1.195 $ 1.52 $ 1.47 $ 1.41 $ 1.35 (10) (4) Declared $ 1.08 $ 1.08 $ 1.53 $ 1.485 $ 1.425 $ 1.365 - (5) OTHER INFORMATION Total assets $ 11,846 $ 11,957 $ 11,257 $ 11,910 $ 11,201 $ 10,886 (1) 2 Total employees (c) 12,845 13,464 12,901 13,239 13,411 12,560 (5) - Common shareholders of record (Thousands) 149.4 157.5 165.7 162.3 164.6 171.0 (5) (3) Book value per share $ 12.17 $ 11.61 $ 10.75 $ 13.40 $ 12.69 $ 12.29 5 - Market price per share $ 18 1/8 $ 19 1/4 $ 19 3/4 $ 25 1/8 $ 22 3/8 $ 22 7/8 (6) (5) Price earnings multiple (d) 12.0 13.8 47.0 15.4 14.0 14.7 (13) (4) Pretax interest coverage (d) 3.1 2.6 1.6 2.5 2.4 2.3 19 6 Return on average common equity (d) 12.8 12.5 3.4 12.5 12.9 12.8 2 - _______ _______ _______ _______ _______ _______ ____ ___ _______ _______ _______ _______ _______ _______ ____ ___ ____________________ *Not a meaningful number. (a) Other includes the operations of PacifiCorp Financial Services, Inc. and Pacific Generation Company, as well as the activities of PacifiCorp Holdings, Inc. (b) Discontinued operations represented the Company's interest in NERCO, Inc. and TRT Communications, Inc. (c) Excludes employees of discontinued operations. (d) Calculated using earnings from continuing operations. Excluding the effect of special charges, see Note 14 to Consolidated Financial Statements, 1992 ratios were as follows: price earnings multiple, 21.5; pretax interest coverage, 2.0; and return on average common equity, 7.4.
21 In 1994, PacifiCorp (the "Company") made substantial progress toward strengthening the scope and competitive position of its electric utility and telecommunications operations, and continued the reduction in the size and scope of its financial services activities. 1994 COMPARED TO 1993 _____________________ .. Electric Operations' earnings contribution increased $18 million or 5% primarily due to increased energy sales in all customer categories and after-tax gains of $6 million relating to the sale of a portion of its emission allowances and $4 million relating to the sale of distribution facilities in Sandpoint, Idaho. .. Telecommunications' earnings contribution from continuing operations increased $20 million or 39% primarily due to long lines settlement revenue, decreased interest expense, increased local telephone exchange access lines and continued growth in cellular operations. .. The earnings contribution of other businesses increased $8 million primarily due to a $12 million increase in interest revenues from a note received in connection with the June 1993 sale of NERCO, Inc. ("NERCO"), the Company's former mining and resource development subsidiary. .. Discontinued operations contribution decreased $52 million due to the effect of a gain in 1993 relating to the sale of an international communications subsidiary. .. The average number of common shares outstanding rose 3% due to the issuance of 6 million shares in a September 1993 public offering and issuances under dividend reinvestment and employee stock ownership plans. In November 1994, the Company ceased issuing new shares to meet the requirements under the plans. The Company periodically evaluates the advantages of common share issuances in the context of its current capital structure, financing needs and market price and may consider future issuances. 1993 COMPARED TO 1992 _____________________ .. Electric Operations' earnings contribution increased $119 million or 59% primarily due to the effects of $70 million of write-offs and adjustments in 1992, an increase in energy sales and increased hydroelectric generation, partially offset by higher employee benefit expenses. .. Telecommunications' earnings contribution from continuing operations declined $6 million or 11% primarily due to the effect of gains in 1992 on sales of a noncore investment and certain cellular operations. .. The earnings contribution of other businesses increased $158 million primarily due to the effect of special charges of $132 million in 1992, interest revenues from a note received in June 1993 in connection with the sale of NERCO and income from an independent power subsidiary. .. Discontinued operations earnings contribution in 1993 was $52 million compared with losses of $491 million in 1992. A $52 million gain on the closing of the sale of an international communications subsidiary was recorded in 1993. Losses from asset dispositions and write-downs at NERCO of $451 million and valuation adjustments and operating losses of $40 million relating to the international communications subsidiary were recorded in 1992. .. The average number of common shares outstanding increased 3% due to the issuance of 6 million shares in a September 1993 public offering and issuances under the dividend reinvestment and employee stock ownership plans. 22 LIQUIDITY AND CAPITAL RESOURCES
MILLIONS OF DOLLARS/FOR THE YEAR Actual Forecasted ________________________________ __________________________________ 1992 1993 1994 1995 1996 1997 ________________________________ __________________________________ NET CASH FLOWS FROM CONTINUING OPERATIONS Electric Operations $ 642 $ 764 $ 747 Telecommunications 177 180 141 Other 123 93 74 _____ _____ _____ TOTAL 942 1,037 962 CASH DIVIDENDS PAID 440 366 345 _____ _____ _____ NET $ 502 $ 671 $ 617 $550-600 $625-675 $675-725 _____ _____ _____ _______ _______ _______ _____ _____ _____ _______ _______ _______ CONSTRUCTION Electric Operations $ 585 $ 636 $ 638 $ 534 $ 562 $ 569 Telecommunications 109 103 148 128 117 109 Other - 3 3 4 8 58 _____ _____ _____ _______ _______ ______ TOTAL 694 742 789 666 687 736 ACQUISITIONS AND INVESTMENTS Electric Operations 279(a) 1 - - 156(b) - Telecommunications 31 23 5 380(c) - - Other (3) 39 4 160(d) - - _____ _____ _____ _______ _______ _______ TOTAL CAPITAL SPENDING $1,001 $ 805 $ 798 $ 1,206 $ 843 $ 736 _____ _____ _____ _______ _______ _______ _____ _____ _____ _______ _______ _______ MATURITIES OF LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS Electric Operations $ 111 $ 62 $ 76 $ 52 $ 183 $ 211 Telecommunications 19 32 17 15 6 16 Other 321 273 61 29 21 6 _____ _____ _____ _______ _______ _______ TOTAL $ 451 $ 367 $ 154 $ 96 $ 210 $ 233 _____ _____ _____ _______ _______ _______ Other Refinancings $ 751 $ 864 $ 295 _____ _____ _____ _____ _____ _____ (a) Includes noncash acquisition costs of $255 million relating to Colorado-Ute properties acquired in April 1992 through the assumption of long-term debt and liabilities. (b) PacifiCorp has entered into an agreement to purchase a 50% interest in a 474 megawatt, natural gas-fired generating plant in Hermiston, Oregon. (c) Pacific Telecom's acquisitions of certain US WEST Communications, Inc. assets in Colorado, Oregon and Washington. The construction numbers above for 1995, 1996 and 1997 include expenditures relating to these assets. (d) Holdings' acquisition of the minority shareholders' interest in Pacific Telecom.
23 ELECTRIC OPERATIONS Electric Operations uses several tools to plan for future growth. The planning process starts with the Electric Operations' least-cost plan, which is frequently revised. Electric Operations' three-year financial forecast is derived, in part, from the least-cost plan. These plans define how Electric Operations intends to acquire efficient, cost-effective energy resources for its customers and achieve its financial and operating goals. For the period 1995 to 1999, annual retail megawatt-hour sales are expected to increase at an average rate of about 2% per year. In 1995, Electric Operations currently plans to acquire new demand-side resources that are expected to conserve about 30 average megawatts. Electric Operations' plan relies on no single energy source to meet customers' needs. Electric Operations has identified a variety of resource alternatives to manage supply and demand, such as purchases of existing power plants, improvements in equipment and operations at its own generating facilities, power purchase agreements and demand-side resources. Demand-side options include customer efficiency programs to reduce existing energy use and to make new customer usage more efficient. Construction-- During 1994, Electric Operations invested in construction consisting of production, $143 million; transmission, $81 million; distribution, $246 million; and other, $168 million. Electric Operations' estimated construction expenditures for 1995 through 1997 are set forth below. Electric Operations rigorously reviews its capital budgets and makes appropriate revisions.
MILLIONS OF DOLLARS 1995 1996 1997 ____ ____ ____ Production $105 $181 $181 Transmission 55 66 60 Distribution 221 204 206 Other 153 111 122 ___ ___ ___ Total $534 $562 $569 ___ ___ ___ ___ ___ ___
Included in the table above are Electric Operations' estimates of the capital costs of acquiring demand-side resources. Electric Operations is implementing demand-side programs to improve the energy efficiency of residences, commercial buildings and industrial facilities -- both new and existing. Proposed Acquisitions-- In 1993, Electric Operations signed a contract to purchase the entire output from the Hermiston Generating Project located near Hermiston, Oregon. This 474 megawatt natural gas cogeneration project is being developed by U.S. Generating Company ("U.S. Generating"). In November 1994, U.S. Generating commenced construction of the plant. Electric Operations entered into an agreement to purchase, subject to certain conditions, a 50% ownership interest in this project for approximately $156 million. The payment is also contingent upon commercial operation of the plant, expected to occur in July 1996. Whenever Electric Operations has power available and the market price is favorable, it makes off-system sales, generally to other utilities. Off-system sales permit Electric Operations to use power supplies in a manner that keeps costs down for retail customers and provides added flexibility in meeting changes in customer demand. Disposition-- Electric Operations' distribution facilities, based in Sandpoint, Idaho, were sold on December 31, 1994 to Washington Water Power, following approval of the sale by the Idaho Public Utilities Commission. The decision to sell the northern Idaho facilities was based on a number of competitive factors, including the likelihood of significant future price increases due to circumstances beyond Electric Operations' control. The sale affects 9,800 residential, commercial and industrial customers. Cash proceeds of $33 million were received from the sale in 1994. Capital Resources-- Electric Operations expects to support its capital and maturing debt requirements primarily through internally generated cash flows and issuances of additional debt. Sales of preferred stock and common stock may also be considered. Competition-- Competition with other energy providers has historically been limited to suppliers of natural gas, oil and wood. The energy marketplace is becoming much more competitive, with more suppliers vying for customers' energy service dollars than ever before. While utilities still have defined service areas, customers have an increasing number of choices, including energy efficiency technologies, and they are exercising their options. Electric Operations is also competing with new providers of electricity -- independent power marketing and brokering companies, independent power producers, cogenerators and emerging technologies. The Energy Policy Act of 1992 eased restrictions on independent power production and gave the Federal Energy Regulatory Commission ("FERC") authority to mandate wholesale wheeling. The FERC is moving quickly to set the stage for competition. In a series of recently released orders and notices of proposed rulemaking, the FERC has heightened the level of industry discussion regarding topics such as transmission access and pricing, stranded investment, unbundling of services and comparability of service standards. 24 Even the notion of defined service areas is likely to change, as various states begin experimenting with competition through direct access to alternative electricity suppliers at the retail level. For example, the California Public Utilities Commission is conducting a rulemaking that would allow competition for all retail electric customers in California. The Michigan Public Service Commission has also ordered an experimental five-year program to evaluate competition for large retail customers in that state. Electric Operations is formulating strategies to meet these new challenges and maintain its competitive position. Electric Operations believes the industry has become more customer-driven and to grow it must be flexible, promote entrepreneurial thinking and pursue innovative pricing approaches. Electric Operations is seeking alternate forms of regulation that will include performance indices to give shareholders an appropriate opportunity to share in the rewards and risks of competition. Electric Operations will focus on the development of new products and services, as well as the use of existing technologies in new ways. Electric Operations has begun to offer power supply services to other utilities, including dispatch assistance, daily system load monitoring, backup power, power storage and power marketing, and services to retail customers that encourage efficient use of energy. Electric Operations intends to continue to control the cost of doing business and will seek to increase profitability by expanding its investment in productive assets, redeploying capital from unproductive assets and generally continuing to minimize the amount of capital it expends. Electric Operations believes there are opportunities to grow shareholder value in today's energy marketplace by carefully managing costs and capital spending; staying attuned to customers and effectively meeting their needs; working with policymakers to gain the flexibility required to respond quickly to changes; and stepping up to both the challenges and the opportunities of increasing competition. Electric Operations will use a rigorous, ongoing strategic process to continue to adjust its competitive position and direction. For a discussion of accounting for the effects of regulation, see Note 1 to Consolidated Financial Statements. TELECOMMUNICATIONS Over the past few years, Pacific Telecom's strategy has been to focus on its core business of providing local exchange service to rural and suburban markets and to divest its diversified portfolio of noncore businesses. This strategy is being implemented through the acquisition of local exchange companies, the sale of certain international operations, the consolidation and sale of cellular holdings, and ongoing efforts to complete the sale of the Alaska long distance operations to AT&T Corp. ("AT&T"). Upon completion of the pending sale of its wholly owned subsidiary, Alascom, Inc. ("Alascom"), to AT&T, Pacific Telecom will have resolved its uncertainties relating to the Alaska long distance market. With the sale of two noncore operations in 1993, Pacific Telecom exited from all of its material noncore businesses. Construction-- In 1994, Pacific Telecom had no major construction projects that required more than one year to complete. During 1994, Pacific Telecom's construction expenditures consisted of $111 million for local exchange operations, $22 million for long lines, $10 million for cellular operations and $5 million for other. These expenditures related mainly to network upgrades and growth in Pacific Telecom's operations. Construction expenditures for 1995 through 1997 are estimated to be as follows:
MILLIONS OF DOLLARS 1995 1996 1997 ____ ____ ____ Local exchange $109 $109 $ 99 Long lines 7 - - Cellular 9 5 7 Other 3 3 3 ___ ___ ___ Total $128 $117 $109 ___ ___ ___ ___ ___ ___
Pending Acquisitions-- In February 1995, Pacific Telecom acquired certain rural telephone exchange assets in Colorado from US WEST Communications, Inc. ("USWC"). Pacific Telecom paid $200 million in cash for these assets, which serve 50,000 access lines. In May 1994, Pacific Telecom signed definitive purchase agreements to acquire certain rural exchange assets located in Oregon and Washington from USWC. Pacific Telecom will pay $180 million in cash, subject to certain adjustments at closing, for the assets, which serve 35,000 access lines. Many of these exchanges are contiguous to or located near exchanges that Pacific Telecom owns and operates in these states. The transaction is expected to close prior to the end of 1995. Pending Disposition-- In October 1994, Pacific Telecom signed an agreement to sell the stock of Alascom to AT&T. The agreement was reached after the Federal Communications Commission ("FCC") ordered the restructuring of the Alaska telecommunications market. Among other things, the May 1994 FCC order required the termination of the Joint Services Agreement between AT&T and Alascom effective January 1, 1996 and the payment by AT&T to Alascom of a $150 million transition payment in two installments of $75 million each. Although the FCC order remains in effect, the agreement to sell Alascom to AT&T was reached as a solution to issues that remained unresolved by the order. 25 In the transaction, Pacific Telecom will receive $365 million in proceeds. Under the terms of the agreement, AT&T will pay $290 million in cash for the Alascom stock and for settlement of all past cost study issues. Pacific Telecom will retain the $75 million transition payment made by AT&T to Alascom in July 1994. AT&T made a down payment of $30 million to Pacific Telecom upon signing the stock purchase agreement, which would be applied to the final $75 million transition payment required in the FCC order if the transaction failed to close. The $30 million down payment received from AT&T was included in Other Deferred Credits at December 31, 1994, pending completion of the transaction. The remaining $260 million is to be paid when the transaction closes. Closing of the sale of Alascom is subject to certain conditions, including receipt of state and federal regulatory approvals that are expected to be received during the first half of 1995. Pacific Telecom anticipates recognizing a material gain from the sale of Alascom, but the lost earnings from Alascom would be substantial. See "Telecommunications" on page 32. Capital Resources-- Pacific Telecom funded the Colorado acquisition with short-term borrowings and anticipates repaying these borrowings with proceeds from the sale of Alascom. Pacific Telecom expects to fund the Oregon and Washington acquisitions with proceeds from the sale of Alascom, the issuance of external debt and the use of internally generated funds. Future local exchange company acquisitions may require a significant amount of funding depending on Pacific Telecom's success in pursuing its strategy. Pacific Telecom expects to fund such acquisitions through a combination of internally generated funds and external debt. Pacific Telecom expects to fund its construction expenditures primarily through internally generated cash. Competition-- Approximately 80% of Pacific Telecom's revenues are derived from operations subject to state and federal regulation. While urban telecommunication companies are operating in increasingly competitive environments, Pacific Telecom's regulated operations continue to be based on rate of return and/or cost recovery regulation. The environment of increasing competition in urban markets may raise concerns over the valuation of embedded long-lived assets. Pacific Telecom's situation is not expected to change significantly in the foreseeable future because its operations are predominantly in rural areas where there is less competitive pressure. OTHER During 1994, PacifiCorp Financial Services, Inc. ("PFS") reduced its assets by $400 million. Proceeds from sales of its assets were used to reduce debt. PacifiCorp Holdings, Inc. ("Holdings") has entered into an agreement and plan of merger with Pacific Telecom under which Holdings would acquire the 13% publicly held minority interest in Pacific Telecom for $30 per share. The merger requires approval by the holders of a majority of the outstanding shares of Pacific Telecom not owned by Holdings (5.3 million shares), and is subject to regulatory approvals and other conditions customary to such transactions. During 1994, the Company's wholly owned independent power production subsidiary, Pacific Generation Company ("PGC"), through its subsidiaries, began construction of a 240 megawatt cogeneration facility in California. When completed, the facility will be operated by PGC, and PGC will effectively own approximately 46% of the completed project. PGC plans to continue to pursue opportunities in the U.S. market and has begun a preliminary investigation of opportunities in the international markets. PFS and Holdings expect to fund scheduled debt maturities and financing commitments through cash flows from operations, further asset sales and through issuances of additional debt. OPERATING ACTIVITIES Consolidated operating needs, dividends and construction expenditures are primarily funded from cash provided by operations. Cash provided by continuing operations less dividends paid provided for 78%, 90% and 72% of construction expenditures in 1994, 1993 and 1992, respectively. Consolidated cash flows from operations declined $75 million in 1994. Pacific Telecom's cash provided by operating activities was reduced by $64 million for taxes paid on $150 million of transition payments received or to be received from AT&T. The cash used for the tax payment relates directly to $75 million of cash received in July 1994 for the first transition payment, which is included in net cash flows used in investing activities. This tax payment had minimal effect on net income, as the increase in current tax expense was mostly offset by a reduction in deferred income tax expense. INVESTING ACTIVITIES Consolidated cash flows of $340 million were used in investing activities in 1994. Construction expenditures were $789 million, including $638 million for Electric Operations and $148 million for Telecommunications. Proceeds of $277 million from sales of assets resulted primarily from the planned disposition of finance assets. Proceeds of $105 million from the Alaska restructuring included a $75 million transition payment in July 1994 and a $30 million down payment in connection with Pacific Telecom's sale of Alascom to AT&T. Lease payments representing principal and proceeds from the sale of receivables totaled $109 million at PFS. FINANCING ACTIVITIES Common stock During 1994, the Company issued 3,230,307 shares of its common stock under the Dividend Reinvestment and Employee Savings and Stock Ownership Plans for proceeds of $57 million. In the fourth quarter of 1994, the Company ceased issuing new shares to fund requirements under these plans and beginning in November 1994, open market purchases were used for these requirements. The Company periodically evaluates the advantages of common share issuances in the context of its current capital structure, financing needs and market price and may consider future issuances. 26 The Company paid common stock dividends of $305 million in 1994 and $327 million in 1993. Short-term and long-term debt, including current maturities Consolidated debt decreased $314 million in 1994. Holdings and PFS retired $347 million of debt with the proceeds from sales of finance assets. Pacific Telecom's debt decreased $54 million primarily due to the application of net proceeds from the down payment for the sale of Alascom and the transition payment received from AT&T. The Company's debt increased $103 million due to a $169 million increase in short-term debt, partially offset by a $66 million decrease in long-term debt. During 1994, the Company refinanced long-term debt with fixed interest rates ranging from 6% to 10.7% with variable rate debt with year-end interest rates ranging from 5.2% to 6.2%. At December 31, 1994, the Company's variable rate debt totaled $1.3 billion. As of December 31, 1994, the Company had $830 million of mortgage bonds and common stock registered for sale with the Securities and Exchange Commission, including the Company's $500 million Series G Medium-Term Note program. Holdings has executed various agreements that support certain obligations of PFS, under which Holdings has agreed to maintain ownership of not less than 80% of the voting shares of PFS; provide equity contributions to PFS to maintain its tangible net worth at not less than $10 million; and provide liquidity support. Capitalization
MILLIONS OF DOLLARS/DECEMBER 31 1994 1993 1992 1991 1990 1989 ______ ______ ______ ______ ______ ______ Common equity $3,460 $3,263 $2,908 $3,512 $3,208 $3,007 Preferred stock 367 367 417 342 342 242 Preferred stock subject to mandatory redemption 219 219 219 150 50 50 Long-term borrowings 3,768 3,924 4,181 4,348 3,944 3,795 Long-term borrowings currently maturing 96 155 420 274 380 407 Short-term debt 455 554 553 681 698 1,045
Policy -- To insure access to capital markets and to produce a competitive cost of capital, the Company attempts to maintain an appropriate mix of debt and equity in its consolidated capital structure. In order to maintain its target debt rating of "A", the Company has a target debt to capitalization range of 48% to 54%. At December 31, 1994, the Company's total debt was 52% of total capitalization. Within its debt structure, the Company has historically attempted to match the life of its borrowed liabilities with its assets and to actively manage its exposure to fluctuating interest rates. Derivatives -- The Company adopted a derivative policy during 1994, including a policy statement which states that derivative products could be used, along with other tools, to manage the Company's liability exposure and will not be used for speculative purposes. Derivative products are one of the tools available to the Company in its overall liability management system. Given the nature of the Company's borrowed liabilities, its use of derivative products in the future is expected to be limited to those markets that are the most liquid. At December 31, 1994, the Companies had foreign currency and interest rate swaps on debt totaling $287 million. As the price for electricity becomes based more on market activities than on regulation, utilities and customers will be more exposed to price variations created by changes in supply and demand. To manage these risks, the Company anticipates that its derivative policy may be expanded to allow the use of electricity futures and options, as the market for those instruments expands. Limits -- The Company's Articles of Incorporation limit the amount of unsecured debt outstanding to the equivalent of 30% of total defined equity and secured debt. Under this provision, approximately $1.2 billion principal amount of additional unsecured debt could have been outstanding at December 31, 1994. Issuance of the Company's mortgage bonds or preferred stock is limited by earnings coverage and fundable property provisions of the Company's mortgage indentures and its Articles of Incorporation. Under these provisions and at current interest rates, approximately $2.3 billion of additional mortgage bonds or $2.1 billion of preferred stock could have been issued at December 31, 1994. However, certain of the Company's credit facilities would have limited additional long-term borrowings to approximately $1.1 billion. Under the Company's principal credit agreements, it is an event of default if any person or group acquires 35% or more of the Company's common shares or if, during any period of 14 consecutive months, individuals who were directors of the Company on the first day of such period (and any new directors whose election or nomination was approved by such individuals and directors) cease to constitute a majority of the Board of Directors. For additional information regarding bank credit agreements, lines of credit and other short-term borrowing arrangements, see Note 3 to Consolidated Financial Statements. 27 INFLATION Due to the capital intensive nature of the Company's core businesses, inflation may have a significant impact on replacement of property, acquisition and development activities and final mine reclamation. The effects of inflation on the Company's utility businesses are not significant to ongoing operations. While the rate-making process gives no recognition to the current cost of replacing plant, past practices have allowed the Company to recover and earn on the increased cost of its net investment when replacement of facilities actually occurs. To what extent this practice will continue in the changing regulatory environment cannot be predicted. ENVIRONMENTAL ISSUES During 1991, the Environmental Protection Agency ("EPA") and the states began the process of implementing the newly amended Clean Air Act ("Act"). Through the ongoing rulemaking process, the EPA has issued regulations to implement the Act's acid rain provisions; established a national emissions allowance trading system; and required monitoring of plant emissions. The Company's generating plants burn low-sulfur coal. Major construction expenditures have already been made at many plants to reduce sulfur dioxide emissions, but some additional expenditures may be necessary. The plant most affected by the Act is the Centralia Plant in Washington. The Company is studying how to bring this plant into compliance in a cost-effective manner by the required January 1, 2000 compliance deadline. The Company has also been engaged in discussions with the environmental authorities in the state of Washington with respect to the emission reduction technology to be applied, certain of which could involve capital expenditures. The greenhouse effect is believed to occur when certain trace gases in the atmosphere trap radiant heat. There is uncertainty regarding the amount of warming, its timing and impact and the effect, if any, carbon dioxide ("CO2") emissions have on warming. As a coal-based utility, the passage of a carbon tax or a stringent across-the-board emission reduction could make it difficult for the Company to achieve its goal of providing competitively priced energy. The Company is investigating cost-effective ways to offset future CO2 emissions and is undertaking demonstration projects involving tree planting as a possible means of offsetting emissions. In 1994, the Company joined with 37 other investor-owned utilities to sign a voluntary agreement with the U.S. Department of Energy addressing CO(2) emissions. The Company's specific agreement includes a commitment to reduce 1990 CO(2) emissions rate by 10% and to spend $1 million on offset projects by the year 2000. The Company continues to monitor the results of research concerning the possible relationship between health effects from exposure to electromagnetic fields ("EMF") and the delivery and use of electricity. The Company has supported EMF research in the past, and continues to encourage such research. Actions under the Endangered Species Act with respect to certain salmon and other endangered or threatened species could result in restrictions on the Federal hydropower system and affect regional power supplies and costs. These actions could also result in further restrictions on timber harvesting and adversely affect kilowatt-hour sales to the Company's customers in the wood products industry. The Company is currently in the process of relicensing certain of its hydroelectric projects under the Federal Power Act and will be seeking licenses for other projects in the future. The licenses of 11 of the Company's hydroelectric projects expire within the next 10 years. These projects represent 458 MW, or 43%, of the Company's hydroelectric generating capacity. In the new licenses, the FERC is expected to impose conditions designed to address the impact of the projects on fish and other environmental concerns. The Company is unable to predict the impact of imposition of such conditions, but capital expenditures and operating costs are expected to increase in future periods and certain projects may not be economical to operate. Several Superfund sites have been identified where the Company has been or may be designated as a potentially responsible party. In such cases, the Company reviews the circumstances and, where possible, negotiates with other potentially responsible parties to provide funds for clean-up and, if necessary, monitoring activities. In addition, insurance resources are reviewed and investigated. Future costs associated with the disposition of these matters are not expected to be material to the Company's consolidated financial position or results of operations. 28 ELECTRIC OPERATIONS
MILLIONS OF DOLLARS/FOR THE YEAR 5-Year 1994 to 1993 Compound Percentage Annual 1994 1993 1992 1991 1990 1989 Comparison Growth ________________________________________________________________________________________________________________________ REVENUES Residential $ 724.9 $ 698.9 $ 649.8 $ 663.8 $ 646.6 $ 646.4 4% 2% Commercial 570.4 543.9 526.9 517.4 509.0 517.3 5 2 Industrial 726.3 696.2 695.6 674.9 673.8 670.6 4 2 Other 30.7 29.8 29.9 34.2 34.3 38.2 3 (4) _______ _______ _______ _______ _______ _______ ___ ___ Retail 2,052.3 1,968.8 1,902.2 1,890.3 1,863.7 1,872.5 4 2 _______ _______ _______ _______ _______ _______ ___ ___ Wholesale - firm 456.2 422.5 356.5 264.7 209.9 190.3 8 19 Wholesale - nonfirm 76.5 77.3 71.3 59.9 78.4 79.0 (1) (1) _______ _______ _______ _______ _______ _______ ___ ___ Wholesale 532.7 499.8 427.8 324.6 288.3 269.3 7 15 Other 62.8 38.3 32.4 36.9 32.5 33.9 64 13 _______ _______ _______ _______ _______ _______ ___ ___ TOTAL 2,647.8 2,506.9 2,362.4 2,251.8 2,184.5 2,175.7 6 4 _______ _______ _______ _______ _______ _______ ___ ___ EXPENSES Depreciation and amortization 301.6 280.5 286.6 256.0 235.4 227.8 8 6 Operations, maintenance and other 1,526.9 1,442.1 1,398.1 1,212.8 1,204.1 1,192.9 6 5 _______ _______ _______ _______ _______ _______ ___ ___ TOTAL 1,828.5 1,722.6 1,684.7 1,468.8 1,439.5 1,420.7 6 5 _______ _______ _______ _______ _______ _______ ___ ___ INCOME FROM OPERATIONS 819.3 784.3 677.7 783.0 745.0 755.0 4 2 _____ _____ _____ _____ _____ _____ ___ ___ NET INCOME 379.5 361.6 240.2 373.3 356.1 350.8 5 2 PREFERRED DIVIDEND REQUIREMENT 39.7 39.3 37.3 26.7 21.9 21.2 1 13 _____ _____ _____ _____ _____ _____ ___ ___ EARNINGS CONTRIBUTION (a) $ 339.8 $ 322.3 $ 202.9 $ 346.6 $ 334.2 $ 329.6 5 1 _______ _______ _______ _______ _______ _______ ___ ___ _______ _______ _______ _______ _______ _______ ___ ___ Identifiable assets $ 9,372 $ 9,055 $ 8,192 $ 7,665 $ 7,027 $ 6,728 4 7 Capital spending $ 638 $ 637 $ 864(b)$ 796 $ 459 $ 344 - 13 Number of employees 9,281 9,304(c) 9,363 9,419 8,974 8,913 - 1 (a) Does not reflect elimination of interest on intercompany borrowing arrangements and includes income taxes on a separate-company basis. (b) Includes noncash acquisition costs of $255 million relating to the Colorado-Ute properties. (c) Beginning in 1993, employees of Pacific Generation, Inc. were reported in other businesses (127 employees in 1993).
FACTORS INFLUENCING EARNINGS Electric Operations generates power primarily at coal-fired and hydroelectric plants and relies on a transmission and distribution network to serve retail and wholesale customers throughout the Pacific Northwest, Rocky Mountain and desert Southwest regions. Financial performance is dependent on efficiently and economically balancing power supply resources with customer demand; utility commission practices; regional economic conditions; retention of commercial and industrial customers and municipal franchises; weather variations affecting customer usage, competition in bulk power markets and hydroelectric production; wholesale firm power marketing results; environmental and tax legislation; and the cost of debt and equity capital. A higher effective tax rate, Bonneville Power Administration ("BPA") price increases, possible rising interest rates, hydroelectric relicensing and other cost increases are among the factors expected to place upward pressure on Electric Operations' costs and pricing structure in the next several years. See Environmental Issues on page 27. 1994 COMPARED TO 1993 _____________________ . Revenues increased $141 million or 6%. .. Residential revenues increased $26 million or 4% and kWh volume increased 1%. Revenues increased $19 million due to decreased BPA exchange benefits and $16 million due to a 2% increase in the number of customers. Revenues decreased $10 million due to unseasonably warm temperatures early in 1994, partially offset by the effects of continuing warm temperatures throughout the summer months. .. Commercial revenues increased $27 million or 5% primarily due to a 2% increase in the average number of customers and an increase in customer usage. 29
MILLIONS OF DOLLARS/FOR THE YEAR 5-Year 1994 to 1993 Compound Percentage Annual 1994 1993 1992 1991 1990 1989 Comparison Growth ________________________________________________________________________________________________________________________ EXPENSES Fuel $ 496.4 $ 464.7 $ 479.0 $ 424.1 $ 403.5 $ 397.4 7 5 Purchased power $ 310.4 $ 274.9 $ 210.2 $ 176.4 $ 149.6 $ 133.3 13 18 Other operations $ 296.1 $ 287.9 $ 288.0 $ 249.7 $ 259.5 $ 271.1 3 2 Maintenance $ 174.5 $ 172.2 $ 167.8 $ 146.6 $ 151.2 $ 158.7 1 2 Administrative and general $ 142.7 $ 138.2 $ 144.5 $ 119.1 $ 139.5 $ 135.7 3 1 Depreciation and amortization $ 301.6 $ 280.5 $ 286.6 $ 256.0 $ 235.4 $ 227.8 8 6 Taxes, other than income taxes $ 106.8 $ 104.2 $ 108.6 $ 96.9 $ 100.8 $ 96.7 2 2 Income taxes - utility $ 223.0 $ 188.8 $ 170.5 $ 180.8 $ 169.7 $ 189.1 18 3 Income taxes - other $ (2.8) $ (9.5) $ (12.8) $ (6.5) $ (7.9) $ (.9) 71 (25) INTEREST CAPITALIZED AFUDC - equity $ - $ 4.3 $ 7.3 $ 7.9 $ 8.4 $ 10.5 * * AFUDC - debt $ 14.5 $ 9.6 $ 8.9 $ 7.9 $ 14.0 $ 12.2 51 4 ENERGY SALES (Millions of kWh) Residential 12,127 12,055 11,230 11,354 10,990 10,765 1 2 Commercial 10,645 10,085 9,733 9,416 9,101 8,803 6 4 Industrial 20,306 19,671 19,942 19,322 19,507 18,878 3 1 Other 623 602 606 692 690 750 3 (4) _______ _______ _______ _______ _______ _______ ___ ___ Retail sales 43,701 42,413 41,511 40,784 40,288 39,196 3 2 _______ _______ _______ _______ _______ _______ ___ ___ Wholesale - firm 12,418 11,919 10,455 7,349 6,147 5,441 4 18 Wholesale - nonfirm 3,207 3,030 2,965 2,946 3,323 3,118 6 1 _______ _______ _______ _______ _______ _______ ___ ___ Wholesale sales 15,625 14,949 13,420 10,295 9,470 8,559 5 13 _______ _______ _______ _______ _______ _______ ___ ___ TOTAL 59,326 57,362 54,931 51,079 49,758 47,755 3 4 _______ _______ _______ _______ _______ _______ ___ ___ _______ _______ _______ _______ _______ _______ ___ ___ *Not a meaningful number.
.. Industrial revenues increased $30 million or 4% due to a 3% increase in kWh volume. Irrigation revenues increased $12 million due to the effects of drier weather in 1994. Revenues from other industrial customers increased $18 million due to customer growth, higher prices resulting from contract escalators and changes in customer mix, and increased sales to customers primarily in the paper and pulp industry. .. Wholesale revenues increased $33 million or 7% on increased volume of 5%. Long-term firm power sales increased $28 million; $15 million from higher prices and $13 million from higher volume under new and existing contracts. Increased volume in the spot market and from short-term firm contracts added revenue of $12 million, which was partially offset by a $7 million reduction in prices, mainly in the spot market. Spot market prices were influenced by the availability of energy in the region caused by mild weather and low natural gas prices which made production of natural gas-fired generation more economical, as well as by more competition in the market. .. Other revenues increased $25 million or 64% due to increases in deferred regulatory revenue of $13 million, rental revenue of $8 million and wheeling revenue of $4 million. . Operating expenses increased $106 million or 6%. .. Fuel expense increased $32 million or 7% due to a 6% increase in thermal generation, resulting from increased customer demand, a 14% reduction in hydroelectric generation and a 5% reduction in volume of purchased power. .. Purchased power expense increased $36 million or 13% while kWh volume purchased declined 5%. The increased expense was due to a decrease in BPA exchange benefits of $15 million, a price increase relating to a BPA peaking purchase contract of $8 million, price increases on other firm purchase contracts of $8 million and secondary purchase price increases of $5 million. 30 ELECTRIC OPERATIONS
FOR THE YEAR 5-Year 1994 to 1993 Compound Percentage Annual 1994 1993 1992 1991 1990 1989 Comparison Growth ________________________________________________________________________________________________________________________ ENERGY SOURCE (%) Coal 79 77 81 78 78 78 3% -% Hydroelectric 5 6 4 6 7 8 (17) (9) Other 2 1 2 1 1 - 100 * Purchase and exchange contracts 14 16 13 15 14 14 (13) - _____ _____ _____ _____ _____ _____ ___ ___ NUMBER OF RETAIL CUSTOMERS (Thousands) Residential 1,155 1,135 1,112 1,093 1,076 1,060 2 2 Commercial 156 152 149 146 142 142 3 2 Industrial 19 18 17 16 15 13 6 8 Other 4 3 3 3 3 3 33 6 _____ _____ _____ _____ _____ _____ ___ ___ TOTAL 1,334 1,308 1,281 1,258 1,236 1,218 2 2 _____ _____ _____ _____ _____ _____ ___ ___ RESIDENTIAL CUSTOMERS Average annual usage (kWh) 10,568 10,733 10,183 10,464 10,283 10,209 (2) 1 Average annual revenue per customer (Dollars) 631 622 589 612 605 613 1 1 Revenue per kWh (Cents) 6.0 5.8 5.8 5.8 5.9 6.0 3 - MILES OF LINE Transmission 14,900 14,900 14,900 14,900 14,900 14,700 - - Distribution 44,800 44,700 44,500 44,400 44,200 44,200 - - SYSTEM PEAK DEMAND (Megawatts) Net system load (a) - summer 7,151 6,554 6,734 6,405 6,407 5,978 9 4 - winter 7,174 7,268 6,968 7,019 7,623 6,875 (1) 1 Total firm load (b) - summer 8,830 8,390 8,477 7,639 7,019 6,741 5 6 - winter 8,903 8,838 8,335 7,710 8,417 7,559 1 3 SYSTEM CAPABILITY (Megawatts)(c) - summer 10,020 9,757 9,753 9,629 8,551 8,570 3 3 - winter 10,391 9,916 9,982 9,316 9,141 8,948 5 3 ______ _____ _____ _____ _____ _____ ___ ___ ______ _____ _____ _____ _____ _____ ___ ___ *Not a meaningful number. (a) Excludes off-system wholesale sales. (b) Includes off-system firm wholesale sales. (c) Owned and contractual generating capability at the time of system firm peak.
BPA, a wholesale power and wheeling supplier, increased its rates effective October 1, 1993. Electric Operations' capacity and wheeling expenses and exchange benefits were affected by that increase. BPA plans to increase its power and wheeling rates effective in late 1995 or early in 1996. Electric Operations' firm capacity purchase and wheeling expenses will be affected by this increase. In addition, any increase in BPA's rates will reduce the exchange benefits directly received by Electric Operations' residential and small farm customers. Electric Operations intends to request price increases that will allow it to recover the loss of exchange benefits. .. Other operations expense increased $8 million or 3% primarily due to $7 million of increased wheeling expense, resulting from higher volumes wheeled, and $2 million of increased distribution system expense. .. Depreciation and amortization expense increased $21 million or 8% primarily due to additional plant in service. 31 . Earnings contribution increased $18 million or 5%. .. Income from operations increased $35 million or 4%. Decreased BPA exchange benefits increased retail revenues and purchased power expense $15 million each, with no effect on income from operations. .. Interest expense decreased $9 million or 3% primarily due to an $11 million decrease relating to refinancing long-term debt during 1993 at lower interest rates and $8 million of adjustments relating to contract settlements. The decreases were offset in part by the $10 million effect of higher levels of short-term debt outstanding at higher interest rates. .. Other income increased $14 million primarily due to gains in 1994 of $9 million on the sale of a portion of its surplus sulfur dioxide emission allowances and $6 million on the sale of electric properties in Sandpoint, Idaho, partially offset by a gain in 1993 of $5 million on a sale of property. Electric Operations is a Phase II utility under the Clean Air Act of 1990 and may have approximately 20,000 to 25,000 tons of surplus sulfur dioxide emission allowances available for sale each year until 2024. .. Income tax expense increased $41 million or 23% primarily due to the $20 million effect of higher taxable income, an $11 million increase in adjustments to prior year estimates and $10 million of various tax adjustments. 1993 COMPARED TO 1992 _____________________ Revenues increased $145 million or 6%. .. Residential revenues increased $49 million or 8% primarily due to the $26 million effect of colder temperatures in 1993, a 2% increase in the number of customers and a 5% increase in average annual customer usage. Residential revenues also increased $5 million due to the effect of the decrease in BPA exchange benefits. .. Commercial revenues increased $17 million or 3%, primarily due to a 2% increase in the number of customers and a 1% increase in average customer usage. .. Wholesale revenues increased $72 million or 17% on increased volume of 11%. New contracts added $36 million and increased prices added $15 million to revenue from long-term firm contract sales. Secondary and short-term firm sales revenues increased $17 million as a result of higher volume and prices. Operating expenses increased $38 million or 2%. .. Fuel expense decreased $14 million or 3% primarily due to reductions of $10 million resulting from lower fuel costs and $7 million from a 1% decrease in thermal generation as a result of increased hydroelectric generation and increased purchases of hydroelectric power. .. Purchased power expense increased $65 million or 31% reflecting a $39 million or 23% increase in kWh purchases; a $15 million increase due to higher prices for secondary purchases in early 1993 and for firm purchases; and the effect of an $11 million decrease in BPA exchange benefits. The secondary purchases were higher due to increased kWh sales and the availability of lower cost hydroelectric power. .. Other operations expense remained constant. Increased employee expense of $16 million and increased demand-side management expense of $5 million were offset by the $19 million effect of charges in 1992 relating primarily to cancellation of a coal purchase option and a contract settlement. Employee expense increased as a result of the adoption of Statement of Financial Accounting Standards 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," on January 1, 1993, and higher pension and benefits expense. .. Maintenance expense increased $4 million or 3% primarily due to $8 million resulting from unscheduled plant outages, the $3 million effect of the addition of new plants during 1992 and $7 million of increased employee expense. The increases were offset in part by the effect of a $17 million write-off in 1992 of obsolete materials and supplies inventory. .. Administrative and general expense decreased $6 million or 4% primarily due to valuation adjustments in 1992 of $11 million relating to deferred costs, offset in part by increased employee expense of $3 million in 1993. .. Depreciation and amortization expense decreased $6 million or 2% due to a $24 million reduction primarily resulting from extending the depreciable lives of thermal plants. The reduction was largely offset by additional depreciation attributable to increased plant in service, including the addition of new plants in April 1992. Pension costs for 1993 were $46 million compared to $27 million in 1992. Approximately 69% of the cost is allocated to various categories of operating expenses as described above. Earnings contribution increased $119 million or 59%. .. Income from operations increased $107 million or 16% primarily due to $61 million of write-offs and adjustments in 1992. Decreased BPA exchange benefits increased retail sales revenue and purchased power expense $11 million each, with no effect on income from operations. .. Other income was $13 million in 1993 compared with other expense of $27 million in 1992. A gain of $5 million from the sale of property and a $5 million increase in the cash surrender value of life insurance were recorded in 1993. The 1992 expense included $20 million of valuation adjustments relating to investments in cogeneration projects, a coal lease and other properties. .. Income tax expense increased $22 million or 14% primarily due to the $50 million effect of higher taxable income and the $5 million effect of a higher federal income tax rate. The tax increase was partially offset by $8 million of 1992 tax adjustments recorded in 1993 and $25 million of other tax reductions. 32 TELECOMMUNICATIONS
MILLIONS OF DOLLARS/FOR THE YEAR 5-Year 1994 to 1993 Compound Percentage Annual 1994 1993 1992 1991 1990 1989 Comparison Growth ________________________________________________________________________________________________________________________ REVENUES Local network service $ 96.9 $ 81.8 $ 74.1 $ 68.4 $ 57.7 $ 55.4 18% 12% Network access service 168.5 183.9 174.9 168.2 147.4 127.8 (8) 6 Long distance network service 272.0 262.5 275.4 286.1 253.8 274.0 4 - Private line service 58.2 63.8 70.4 66.0 60.1 58.3 (9) - Sales of cable capacity 4.6 4.9 10.8 30.9 83.2 - (6) * Cellular and other 104.8 105.2 92.6 100.4 80.7 62.2 - 11 _____ _____ _____ _____ _____ _____ ___ ___ TOTAL 705.0 702.1 698.2 720.0 682.9 577.7 - 4 _____ _____ _____ _____ _____ _____ ___ ___ EXPENSES Depreciation and amortization 104.5 110.0 114.1 117.3 101.9 98.5 (5) 1 Operations, maintenance and other 435.8 451.3 445.5 443.1 426.8 345.4 (3) 5 _____ _____ _____ _____ _____ _____ ___ ___ TOTAL 540.3 561.3 559.6 560.4 528.7 443.9 (4) 4 _____ _____ _____ _____ _____ _____ ___ ___ INCOME FROM OPERATIONS 164.7 140.8 138.6 159.6 154.2 133.8 17 4 _____ _____ _____ _____ _____ _____ ___ ___ INCOME FROM CONTINUING OPERATIONS (a) 81.4 58.4 67.2 89.5 95.4 75.1 39 2 Minority interest and other 10.9 7.5 9.9 12.9 18.8 10.9 45 - _____ _____ _____ _____ _____ _____ ___ ___ EARNINGS CONTRIBUTION FROM CONTINUING OPERATIONS (a) $ 70.5 $ 50.9 $ 57.3 $ 76.6 $ 76.6 $ 64.2 39 2 _____ _____ _____ _____ _____ _____ ___ ___ _____ _____ _____ _____ _____ _____ ___ ___ Identifiable assets $1,378 $1,413 $1,540 $1,702 $1,732 $1,220 (2) 2 Capital spending $ 153 $ 126 $ 140 $ 236 $ 475 $ 180 21 (3) Number of employees (b) 2,762 2,834 2,891 3,050 3,412 2,737 (3) - Telephone access lines (Thousands) 418 399 379 357 340 253 5 11 Long lines originating billed minutes (Millions) 743 710 679 654 632 597 5 4 _____ _____ _____ _____ _____ _____ ___ ___ _____ _____ _____ _____ _____ _____ ___ ___ *Not a meaningful number. (a) Does not reflect elimination of interest on intercompany borrowing arrangements and includes income taxes on a separate-company basis. (b) Excludes employees of discontinued operations.
See "Other" on page 25 for information regarding a proposal by Holdings to acquire the 13% publicly held minority interest in Pacific Telecom. See "Telecommunications-Pending Disposition" on page 24 for information regarding the sale of Alascom to AT&T. In 1994, settlement revenues of $16 million were recognized in long distance network service relating to the settlement of past cost study issues. Alascom's revenues were $344 million in 1994, $338 million in 1993 and $347 million in 1992 and income from operations was $81 million in 1994, $59 million in 1993 and $60 million in 1992. Alascom's total assets were $276 million in 1994 and $384 million in 1993. FACTORS INFLUENCING EARNINGS Pacific Telecom provides voice, data, video and other services through local exchange and long lines operations. Pacific Telecom is involved in cellular operations and manages cellular properties for other owners. Pacific Telecom also operates, maintains and sells capacity on the North Pacific Cable. Pricing for services is both rate regulated and market driven. Long-term profitability is influenced by technological developments, efficiency of operations, cost of capital and competition. Pacific Telecom's revenues for 1994 were derived 49% from long lines, 45% from local exchange companies, 3% from cellular operations and 3% from cable and backhaul capacity sales and related cable services. 1994 COMPARED TO 1993 _____________________ . Revenues increased $3 million. .. Local network service revenues (local telephone services to residential and business customers) increased $15 million or 18% due to $9 million of revenue from enhanced and extended calling area service and the $5 million effect of a 5% access line growth. 33 .. Network access service revenues (fees charged to long distance interexchange carriers using the local exchange network to access their customers) decreased $15 million or 8% primarily due to a $6 million decrease as a result of the shift to extended calling area services in local exchange companies, the $5 million effect of a decrease in operating expenses used in setting interstate access rates and lower revenue adjustments of $4 million. An indexed cap was placed on Universal Service Fund ("USF") growth in 1993 to allow growth at a rate no greater than the rate of growth in the nation's total working local loops. The indexed rate may be in effect through 1995 while the FCC and a Joint Board re-evaluate the USF assistance mechanism. Revenues derived from the USF assistance mechanism were $30 million in 1994 and 1993. With the purchase of Colorado assets and the pending purchase of Oregon and Washington assets, revenues received under the USF could double in 1996 over 1994 levels. Placing the indexed cap on USF growth may have a negative impact on Pacific Telecom's revenues, but the impact is not expected to be material. .. Long distance network service revenues (charges for long distance calling services) increased $10 million or 4% due to interstate revenues of $19 million relating to the settlement of all open revenue studies and a $3 million improvement in intrastate revenue relating to increased billed minutes. These increases were offset in part by a $6 million decrease in revenue recovery for interstate access expense as a result of the exit of Anchorage Telephone Utility ("ATU") from National Exchange Carrier Association ("NECA") traffic sensitive pools, the $5 million revenue effect of other recoverable expense reductions and the $3 million effect of a reduced rate base. .. Private line service revenues (charges for dedicated facilities that provide communications services to major customers) decreased $6 million or 9% primarily due to Pacific Telecom's exit of certain noncore businesses. .. Sales of cable capacity revenues were virtually unchanged. Approximately 53% of the North Pacific Cable's capacity has been sold - - 2%, 1%, 4%, 10% and 36% sold in 1994, 1993, 1992, 1991 and 1990, respectively. A competing AT&T cable was placed in service in 1992, and AT&T has announced plans for an additional Pacific cable system for completion over the next three years. The competition from AT&T, adverse economic conditions in Japan and other Far East countries and outages on the North Pacific Cable have contributed to the slowing of cable capacity sales. These conditions may continue to have an adverse effect on future sales. Pacific Telecom is investigating use of the North Pacific Cable to provide video services. Pacific Telecom continues to market the remaining cable capacity and believes that the $63 million inventory value of the cable system at December 31, 1994 will be recovered. .. Cellular and other revenues were virtually unchanged. Increased revenues of $10 million due to growth in cellular operations were offset by other revenue declines. The declines were primarily due to $3 million of revenue in 1993 from service in Saudi Arabia, a $2 million decline in long lines equipment resale revenue and a $2 million decline in local exchange operations billing and collection revenue. . Operating expenses decreased $21 million or 4%. .. Operations expense decreased $2 million or 1%. Access expense decreased $3 million due to a $6 million decrease in intrastate access expense relating to the exit of ATU from NECA traffic sensitive pools, partially offset by the $4 million effect of increased facility costs and higher common carrier network usage. Leased circuit expense decreased $4 million primarily due to the sale of noncore businesses. The decreases were offset in part by $4 million of increased expense due to cellular customer growth. .. Maintenance expense decreased $4 million or 4% primarily due to the effect of a $3 million one-time charge in 1993 relating to service provided in Saudi Arabia. .. Administrative and general expense decreased $10 million or 11% primarily due to $8 million of reduced corporate support and employee benefit expense and $2 million relating to noncore businesses that were sold. .. Depreciation and amortization expense decreased $6 million or 5% due to the $6 million effect of a reduction in rates allowed for local exchange companies in Alaska and a $3 million reduction relating to noncore businesses that were sold, offset in part by the $3 million effect of increased local exchange company plant in service. . Earnings contribution increased $20 million or 39%. .. Income from operations increased $24 million or 17%. .. Interest expense decreased $10 million or 22% due to the $15 million effect of lower debt levels, partially offset by the $5 million effect of higher interest rates. .. Other expense decreased $7 million primarily due to decreased valuation adjustments for noncore businesses in 1994. .. Income tax expense increased $17 million or 71% primarily due to higher taxable income and a higher effective tax rate. Pacific Telecom's future results will be affected by the proposed sale of Alascom and by its pending or recently completed acquisitions. Although Pacific Telecom anticipates a material gain on the pending sale of Alascom, lost earnings from Alascom would be substantial. See information concerning Alascom on page 32. Acquisitions of rural telephone exchange assets are expected to contribute significantly to revenues and earnings over time as the assets are integrated with Pacific Telecom's existing operations. 34 1993 COMPARED TO 1992 _____________________ . Revenues increased $4 million or 1%. .. Local network service revenues increased $8 million or 10% primarily due to the effects of internal access line growth of 5% that added $6 million and $1 million of revenues from enhanced and extended services. .. Network access service revenues increased $9 million or 5% primarily due to an increase of $8 million in USF support funded by interexchange carriers, which helps fund nontraffic sensitive costs that are above the national average. .. Long distance network service revenues decreased $13 million or 5% primarily due to the $11 million revenue effect of a lower rate base resulting mainly from the sale of satellite transponders in late 1992, the $5 million revenue effect of recoverable expense reductions and $3 million due to lower average rates per minute for intrastate message toll services. These decreases were offset in part by an increase in out-of-period revenue adjustments of $6 million. .. Private line service revenues decreased $7 million or 9% primarily due to the sale of a portion of the Alaska Spur in late 1992 to a customer that previously leased those services. .. Sales of cable capacity revenues decreased $6 million or 55%. .. Cellular and other revenues increased $13 million or 14% primarily due to increased cellular revenues of $6 million, one-time revenue of $3 million from service in Saudi Arabia and $3 million from resale of long lines equipment. . Operating expenses increased $2 million. .. Operations expense increased $6 million or 3% primarily due to a $12 million increase in leased circuit expense relating mainly to the lease of satellite transponders and $4 million of increased customer operations expense relating to customer growth, acquisitions and higher directory assistance expense. The increases were partially offset by a $5 million reduction as a result of lower cable capacity sales and a $2 million reduction in access expense. .. Maintenance expense increased $5 million or 4% primarily due to $6 million of expense from a long lines service contract and equipment resale. .. Administrative and general expense decreased $6 million or 6% primarily due to the effect of an accrual in 1992 for an early retirement program. .. Depreciation and amortization expense decreased $4 million or 4% primarily due to a $7 million decrease relating to the sale of satellite transponders, offset in part by the $2 million effect of increased depreciation rates and $1 million resulting from growth in cellular operations. . Earnings contribution decreased $6 million or 11%. .. Income from operations increased $2 million. .. Interest expense decreased $8 million or 15% primarily due to lower borrowing levels in 1993. .. Other expense increased $27 million due to the effect of a $21 million gain in 1992 from the sale of an investment in a noncore business and a $6 million decrease in gains from sales and exchanges of cellular operations. .. Income tax expense decreased $9 million or 27% due to a favorable settlement of state income taxes for 1992 recorded in 1993 and lower taxable income. 35 OTHER The following is a summary of PFS' assets and revenues by business line:
MILLIONS OF DOLLARS ______________________________________________________________ 1994 1993 1992 ____________________ ____________________ ____________________ Revenues Revenues Revenues Assets at for the Assets at for the Assets at for the year end year year end year year end year __________ ________ __________ ________ __________ ________ Aviation financing(a) $ 391 $ 3.0 $ 454 $ (8.6) $ 506 $ 33.5 Computer leasing - 15.3 88 19.2 139 28.6 Other 160 12.9 217 38.6 353 43.1 _____ _____ _____ _____ _____ _____ Total finance 551 31.2 759 49.2 998 105.2 Real estate 171 41.3 324 49.3 252 29.7 Manufacturing - 16.9 31 42.4 26 40.2 Agriculture 12 35.9 20 38.7 - - _____ _____ _____ _____ _____ _____ Total $ 734 $125.3 $1,134 $179.6 $1,276 $175.1 _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ (a) Impairment charges of $17 million in 1994 and $22 million in 1993 for certain aircraft under operating leases reduced net aviation finance revenues.
Consistent with PacifiCorp's strategic focus on its core utility operations, PFS has been selling and liquidating substantial portions of its assets. PFS disposed of its computer leasing and manufacturing operations and significant portions of its real estate and asset-based lending portfolios in 1994. Future asset sales are not expected to be as significant as the level of 1994 sales. Cash generated from these sales has been used primarily to pay down debt. PFS expects to retain only its tax-advantaged investments in leveraged lease assets (primarily aircraft) and low-income housing projects (included with real estate), which presently represent $444 million of its assets. The earnings contribution of other businesses increased $8 million, or 76%, to $18 million in 1994. PFS' earnings increased $6 million primarily due to gains associated with sales of certain assets. Income from operations for PFS was virtually unchanged, reflecting decreased revenues and operating expenses that resulted from lower levels of finance assets, and lower valuation adjustments in 1994. Earnings from PGC increased $3 million. Interest revenues from a note received in connection with the sale of NERCO increased $12 million and interest expense for Holdings decreased $6 million. These positive results were partially offset by increased income tax expense for Holdings of $11 million and a $10 million charitable donation expense in 1994. The $10 million earnings contribution of other businesses in 1993 resulted from $11 million of after-tax interest income recorded on the note received in connection with the disposition of NERCO and a $3 million gain from the sale of an investment in a cogeneration project. Partially offsetting these increases was PFS' negative contribution of $3 million resulting from additional valuation and impairment charges of $25 million after-tax. At December 31, 1994, the aviation portfolio (with net assets of $391 million) consisted of 44 aircraft, 42 of which were placed with 17 separate carriers. About 91% of the aircraft are Stage III noise compliant. Given the limited number and relatively large size of individual loan and lease assets, PFS analyzes each discrete account in its process of establishing the level of allowance for credit losses. PFS' allowance and earnings are subject to a higher degree of volatility than larger more diversified finance companies. Allowances for credit losses and accumulated valuation and impairment charges were $103 million and $115 million at December 31, 1994 and 1993, respectively. DISCONTINUED OPERATIONS On June 2, 1993, Holdings sold, by means of a merger, its 82% ownership interest in NERCO to a subsidiary of RTZ America, Inc. ("RTZ") for $12 per NERCO common share, or $384 million. In connection with this transaction, a subsidiary of Holdings loaned $225 million at 13% interest to a subsidiary of RTZ, with repayment contingent upon future revenues received under a coal supply contract. The sale resulted in a gain of approximately $183 million, which has been deferred and is being recognized in earnings, using a modified installment method, as the $225 million loan is repaid. The loan could extend through 2009, but is prepayable without premium. A subsidiary of Pacific Telecom, International Communications Holdings, Inc., closed the sale of its wholly owned subsidiary, TRT Communications, Inc. ("TRT"), to IDB Communications Group, Inc. ("IDB") on September 23, 1993. Pacific Telecom received 4,500,000 shares of IDB common stock and $1 million in cash in exchange for the stock of TRT and the stock of another smaller subsidiary. Based on appreciation in the market value of IDB common stock, the Company recorded an after-tax gain of $52 million at closing of the transaction. The IDB common stock was sold in November 1993 and the net proceeds of $195 million were used to pay down Pacific Telecom debt. 36 REPORT OF MANAGEMENT The management of PacifiCorp is responsible for preparing the accompanying consolidated financial statements and for their integrity and objectivity. The statements were prepared in accordance with generally accepted accounting principles. The financial statements include amounts that are based on management's best estimates and judgments. Management also prepared the other information in the annual report and is responsible for its accuracy and consistency with the financial statements. The Company's financial statements have been audited by Deloitte & Touche LLP, independent public accountants. Management has made available to Deloitte & Touche LLP all the Company's financial records and related data, as well as the minutes of shareholders' and directors' meetings. Management of the Company has established and maintains an internal control structure that provides reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial reporting. The Company maintains an internal auditing program that independently assesses the effectiveness of the internal control structure and recommends possible improvements. Deloitte & Touche LLP also considered the internal control structure in connection with its audit. Management considers the internal auditors' and Deloitte & Touche LLP's recommendations concerning the Company's internal control structure and takes cost-effective actions to respond appropriately to these recommendations. The Company's "Guide to Business Conduct" is publicized throughout the Company. The guide addresses, among other things, potential conflicts of interests, compliance with laws, including those relating to financial disclosure and the confidentiality of proprietary information. The Audit Committee of the Board of Directors is comprised solely of outside directors. It meets at least quarterly with the Chairs of subsidiary audit committees, management, Deloitte & Touche LLP, internal auditors and counsel to review the work of each and ensure the Committee's responsibilities are being properly discharged. Deloitte & Touche LLP and internal auditors have free access to the Committee, without management present, to discuss their audit work and their evaluations of the adequacy of the internal control structure and the quality of financial reporting. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of PacifiCorp: We have audited the accompanying consolidated balance sheets of PacifiCorp and subsidiaries as of December 31, 1994 and 1993, and the related statements of consolidated income and retained earnings and of consolidated cash flows for each of the three years in the period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the consolidated financial position of PacifiCorp and subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Notes 10 and 12 to the consolidated financial statements, effective January 1, 1993, the Company changed its method of accounting for income taxes and other postretirement benefits. DELOITTE & TOUCHE LLP Portland, Oregon February 17, 1995 (March 9, 1995 as to the agreement to acquire the minority interest in Pacific Telecom, Inc. described in Note 1) 37 STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS
MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS/FOR THE YEAR ENDED DECEMBER 31 1994 1993 1992 _____________________________________________________________________________________ REVENUES $3,506.5 $3,405.4 $3,235.7 _______ _______ _______ EXPENSES Operations 1,400.3 1,369.9 1,372.9 Maintenance 292.3 294.2 285.3 Administrative and general 244.6 247.4 298.2 Depreciation and amortization 424.3 404.8 452.5 Taxes, other than income taxes 122.7 119.9 123.3 Finance interest expense 35.7 53.7 70.5 _______ _______ _______ TOTAL 2,519.9 2,489.9 2,602.7 _______ _______ _______ INCOME FROM OPERATIONS 986.6 915.5 633.0 _______ _______ _______ INTEREST EXPENSE AND OTHER Interest expense 298.8 323.2 341.4 Interest capitalized (14.5) (13.9) (16.2) Minority interest and other (15.5) (3.9) 66.8 _______ _______ _______ TOTAL 268.8 305.4 392.0 _______ _______ _______ Income from continuing operations before income taxes 717.8 610.1 241.0 Income taxes 249.8 187.4 90.8 _______ _______ _______ INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 468.0 422.7 150.2 Discontinued operations less applicable income tax expense (benefit): 1993/$26.0, 1992/($178.5) - 52.4 (490.6) Cumulative effect on prior years of change in accounting for income taxes - 4.0 - _______ _______ _______ NET INCOME (LOSS) 468.0 479.1 (340.4) RETAINED EARNINGS, JANUARY 1 351.3 210.4 999.6 Cash dividends declared Preferred stock (39.6) (39.5) (39.0) Common stock per share: 1994 and 1993/$1.08, 1992/$1.53 (305.4) (298.7) (409.8) _______ _______ _______ RETAINED EARNINGS, DECEMBER 31 $ 474.3 $ 351.3 $ 210.4 _______ _______ _______ _______ _______ _______ EARNINGS (LOSS) ON COMMON STOCK (Net income (loss) less preferred dividend requirement) $ 428.3 $ 439.8 $ (377.7) Average number of common shares outstanding (Thousands) 282,912 274,551 266,527 EARNINGS (LOSS) PER COMMON SHARE Continuing operations $ 1.51 $ 1.40 $ .42 Discontinued operations - .19 (1.84) Cumulative effect on prior years of change in accounting for income taxes - .01 - _______ _______ _______ TOTAL $ 1.51 $ 1.60 $ (1.42) _______ _______ _______ _______ _______ _______ (See accompanying Notes to Consolidated Financial Statements)
38 CONSOLIDATED BALANCE SHEETS
MILLIONS OF DOLLARS/DECEMBER 31 ASSETS 1994 1993 _______________________________________________________________________________________ PROPERTY, PLANT AND EQUIPMENT Electric Production $ 4,390.2 $ 4,281.6 Transmission 1,974.6 1,891.8 Distribution 2,628.9 2,455.1 Other 1,583.5 1,372.1 ________ ________ ELECTRIC 10,577.2 10,000.6 Telecommunications 1,572.7 1,579.8 Other 64.9 65.8 Accumulated depreciation and amortization (4,136.9) (3,863.5) ________ ________ Net 8,077.9 7,782.7 Construction work in progress 368.3 356.8 ________ ________ TOTAL PROPERTY, PLANT AND EQUIPMENT 8,446.2 8,139.5 ________ ________ CURRENT ASSETS Cash and cash equivalents 23.3 31.2 Accounts receivable less allowance for doubtful accounts: 1994/$9.4 and 1993/$8.2 442.7 451.3 Materials, supplies and fuel stock at average cost 193.2 203.2 Inventory 66.3 70.1 Finance assets 27.9 118.7 Other 62.0 76.1 ________ ________ TOTAL CURRENT ASSETS 815.4 950.6 ________ ________ OTHER ASSETS Investments in and advances to affiliated companies 189.9 242.9 Intangible assets - net 237.2 240.6 Regulatory assets - net 1,081.2 1,072.1 Finance note receivable 220.7 223.3 Finance assets 481.9 561.4 Real estate investments 166.5 303.7 Deferred charges and other 206.6 222.6 ________ ________ TOTAL OTHER ASSETS 2,584.0 2,866.6 ________ ________ TOTAL ASSETS $11,845.6 $11,956.7 ________ ________ ________ ________ (See accompanying Notes to Consolidated Financial Statements)
39
MILLIONS OF DOLLARS/DECEMBER 31 CAPITALIZATION AND LIABILITIES 1994 1993 ________________________________________________________________________________ COMMON EQUITY Common shareholders' capital shares authorized 750,000,000; shares outstanding: 1994/284,251,024 and 1993/281,020,717 $ 3,010.6 $ 2,953.4 Retained earnings 474.3 351.3 Guarantees of Employee Stock Ownership Plan borrowings (25.1) (42.1) ________ ________ TOTAL COMMON EQUITY 3,459.8 3,262.6 ________ ________ PREFERRED STOCK 367.4 367.4 ________ ________ PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION 219.0 219.0 ________ ________ LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 3,768.2 3,923.6 ________ ________ CURRENT LIABILITIES Long-term debt and capital lease obligations currently maturing 95.8 155.6 Notes payable and commercial paper 454.7 553.5 Accounts payable 338.4 355.6 Taxes, interest and dividends payable 253.3 255.0 Customer deposits and other 126.8 121.2 ________ ________ TOTAL CURRENT LIABILITIES 1,269.0 1,440.9 ________ ________ DEFERRED CREDITS Income taxes 1,822.6 1,833.3 Investment tax credits 190.1 200.0 Other 641.6 605.7 ________ ________ TOTAL DEFERRED CREDITS 2,654.3 2,639.0 ________ ________ MINORITY INTEREST 107.9 104.2 ________ ________ COMMITMENTS AND CONTINGENCIES (See Notes 8, 9 and 10) TOTAL CAPITALIZATION AND LIABILITIES $11,845.6 $11,956.7 ________ ________ ________ ________ (See accompanying Notes to Consolidated Financial Statements)
40 STATEMENTS OF CONSOLIDATED CASH FLOWS
MILLIONS OF DOLLARS/YEAR ENDED DECEMBER 31 1994 1993 1992 ________________________________________________________________________________ CASH FLOWS FROM OPERATING ACTIVITIES Income from continuing operations $ 468.0 $ 422.7 $ 150.2 Adjustments to reconcile income from continuing operations to net cash provided by operating activities Depreciation and amortization 472.5 468.3 507.7 Deferred income taxes and investment tax credits - net (7.5) 113.5 (64.1) Interest capitalized on equity funds - (4.2) (7.3) Minority interest and other 23.6 27.1 70.8 Special charges - - 185.7 Accounts receivable and prepayments 5.4 52.9 (6.6) Materials, supplies, fuel stock and inventory 11.8 26.1 56.7 Accounts payable and accrued liabilities (11.7) (69.0) 48.5 ______ ________ ________ Net cash provided by continuing operations 962.1 1,037.4 941.6 Net cash provided by discontinued operations - - 14.2 ______ ________ ________ NET CASH PROVIDED BY OPERATING ACTIVITIES 962.1 1,037.4 955.8 ______ ________ ________ CASH FLOWS FROM INVESTING ACTIVITIES Construction (788.7) (741.5) (694.0) Operating companies and assets acquired - (16.4) (40.8) Investments in and advances to affiliated companies - net (9.5) (46.8) (10.9) Proceeds from sales of assets 276.6 602.8 143.8 Proceeds from sales of finance assets and principal payments 109.1 168.3 281.9 Purchase of finance assets (13.7) (57.7) (125.6) Investment in finance note - (225.0) - Proceeds from Alaska restructuring 105.0 - - Other (18.9) 53.2 20.6 ______ ________ ________ NET CASH USED IN INVESTING ACTIVITIES (340.1) (263.1) (425.0) ______ ________ ________ CASH FLOWS FROM FINANCING ACTIVITIES Changes in short-term debt (98.7) (8.6) (74.5) Proceeds from long-term debt 246.6 698.9 849.1 Proceeds from issuance of common stock 57.2 197.4 184.8 Proceeds from issuance of preferred stock - - 195.2 Dividends paid (344.8) (366.7) (439.5) Repayments of long-term debt and capital lease obligations (448.5) (1,230.9) (1,190.2) Redemptions of capital stock - (50.0) (56.1) Other (41.7) (33.4) (25.2) ______ ________ ________ NET CASH USED BY FINANCING ACTIVITIES (629.9) (793.3) (556.4) ______ ________ ________ DECREASE IN CASH AND CASH EQUIVALENTS (7.9) (19.0) (25.6) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 31.2 50.2 75.8 ______ ________ ________ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 23.3 $ 31.2 $ 50.2 ______ ________ ________ ______ ________ ________ (See accompanying Notes to Consolidated Financial Statements)
41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1993 and 1992 ___________________________________________________________________________ NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements of PacifiCorp (the "Company") encompass two businesses primarily of a utility nature--Electric Operations (Pacific Power and Utah Power) and an 87%-owned Telecommunications operation (Pacific Telecom, Inc.); and a wholly owned Financial Services business (PacifiCorp Financial Services, Inc.). The Company's wholly owned subsidiary, PacifiCorp Holdings, Inc. ("Holdings"), holds all of its nonelectric utility investments. Together these businesses are referred to herein as the Companies. Significant intercompany transactions and balances have been eliminated. On March 9, 1995, Holdings entered into an agreement and plan of merger with Pacific Telecom, Inc. ("Pacific Telecom") under which Holdings would acquire the 13% publicly held minority interest in Pacific Telecom for $30 per share. The merger requires approval by the holders of a majority of the outstanding shares of Pacific Telecom not owned by Holdings (5.3 million shares), and is subject to regulatory approvals and other conditions customary to such transactions. In June 1993, Holdings sold by merger its 82% interest in a mining and resource development business (NERCO, Inc.). In September 1993, Pacific Telecom closed the sale of its interest in an international communications business (TRT Communications, Inc.). See Note 13. Investments in and advances to affiliated companies represent investments in unconsolidated affiliated companies carried on the equity basis, which approximates the Company's equity in their underlying net book value. REGULATION Accounting for the utility businesses conforms with generally accepted accounting principles as applied to regulated public utilities and as prescribed by federal agencies and the commissions of the various states in which the utility businesses operate. ACCOUNTING FOR THE EFFECTS OF REGULATION The Company prepares its financial statements in accordance with Statement of Financial Accounting Standards ("SFAS") 71, "Accounting for the Effects of Certain Types of Regulation." Accounting under SFAS 71 is appropriate as long as: rates are established by or subject to approval by independent, third-party regulators; rates are designed to recover the specific enterprise's cost-of- service; and in view of demand for service, it is reasonable to assume that rates set at levels that will recover costs can be charged to and collected from customers. In applying SFAS 71, the Company must give consideration to changes in the level of demand or competition during the cost recovery period. In accordance with SFAS 71, the Company's utility operations capitalize certain costs in accordance with regulatory authority whereby those costs will be expensed and recovered in future periods. Regulatory assets-net at December 31, 1994 and 1993 included the following:
MILLIONS OF DOLLARS/DECEMBER 31 1994 1993 ________ ________ Deferred taxes - net $ 707.1 $ 715.9 Deferred pension costs 148.3 142.1 Demand-side resource costs 84.6 60.4 Unamortized net losses on reacquired debt 78.2 83.2 Unrecovered Trojan Plant and regulatory study costs 29.0 29.4 Various other costs 34.0 41.1 _______ _______ TOTAL $1,081.2 $1,072.1 _______ _______ _______ _______
If the Company, at some point in the future, determines that all or a portion of the utility operations no longer meets the criteria for continued application of SFAS 71, the Company would be required to adopt the provisions of SFAS 101, "Regulated Enterprises -- Accounting for the Discontinuation of Application of FASB Statement No. 71." Adoption of SFAS 101 would require the Company to write off the regulatory assets and liabilities related to those operations not meeting SFAS 71 requirements. CASH FLOW INFORMATION For the purposes of these financial statements, the Company considers all liquid investments with original maturities of three months or less to be cash equivalents. Supplemental information required by SFAS 95, "Statement of Cash Flows," for the years 1994, 1993 and 1992 is as follows:
MILLIONS OF DOLLARS/FOR THE YEAR 1994 1993 1992 ______ ______ ______ Cash paid during the year for: Interest (net of amount capitalized) $399.4 $435.6 $ 481.5 Income taxes 225.6 142.5 145.5 Supplemental schedule of noncash investing and financing activities associated with assets purchased from Colorado-Ute Electric Association, Inc. Net assets acquired - - (279.3) Long-term debt assumed - - 250.3 Accrued liabilities and deferred credits assumed - - 4.9
42 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at original cost of contracted services, direct labor and material, interest capitalized during construction and indirect charges for engineering, supervision and similar overhead items. The cost of depreciable utility properties retired, including the cost of removal, less salvage, is charged to accumulated depreciation. DEPRECIATION AND AMORTIZATION At December 31, 1994, the average depreciable life of property, plant and equipment by category was: Electric -- Production, 41 years; Transmission, 42 years; Distribution, 29 years; Other, 18 years; and Telecommunications, 16 years. Depreciation and amortization is computed generally by the straight-line method over the estimated useful lives of the related assets. Provisions for depreciation (excluding amortization of capital leases) in the utility businesses were 3.4%, 3.5% and 3.8% of average depreciable assets in 1994, 1993 and 1992, respectively. In 1993, based on a study by an independent consultant, the Company extended the lives of its thermal generating plants, decreasing depreciation expense by $24 million and increasing net income by $16 million and earnings per share by $0.06 in that year. INTANGIBLE ASSETS Intangible assets are primarily franchises of local exchange and cellular companies ($260 million in 1994 and $256 million in 1993) and excess cost over net assets of businesses acquired ($19 million in both 1994 and 1993), offset by accumulated amortization ($42 million in 1994 and $34 million in 1993). These assets are being amortized over 10 to 40 years. The Company will recognize impairments related to intangible assets if the market value of the investment or the investment's ability to return cash to the Company through operations or through sale do not equal or exceed the carrying value of the investment, including related intangible assets. INVENTORY VALUATION Inventories are generally valued at the lower of average cost or market. FINANCE AND LEASE INCOME RECOGNITION Direct financing lease revenue is recognized as a constant yield on asset carrying values. Operating lease revenue consists of periodic rentals, primarily monthly. The cost of equipment under operating lease is depreciated on a straight-line basis over the lease term. Leveraged lease revenue is recorded so as to produce a constant yield on the outstanding investments in periods when Financial Services' net investment in the lease is positive. DERIVATIVES The Companies involvement with derivative financial instruments is currently limited to interest rate and currency swap agreements. Derivative financial instruments are not held or issued for trading or speculative purposes. The differential to be paid or received on interest rate and foreign currency swap agreements is accrued as interest rates change and is recognized as interest expense over the life of the agreements. INTEREST CAPITALIZED Costs of debt and equity funds applicable to electric and telecommunication utility properties are capitalized during construction. Generally, the composite capitalization rates were 4.7% for 1994, 5.1% for 1993 and 7.1% for 1992. INCOME TAXES Effective January 1, 1993, the Company adopted SFAS 109, "Accounting for Income Taxes." This statement requires use of the liability method of accounting for deferred income taxes. Deferred tax liabilities and assets reflect the expected future tax consequences, based on enacted tax law, of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts. The cumulative effect of adoption of SFAS 109 resulted in an increase in consolidated net income in 1993 of $4 million, or $0.01 per share. Investment tax credits are deferred and amortized to income over the average estimated lives of the properties. REVENUE RECOGNITION The Company accrues estimated unbilled revenues for electric services provided after cycle billing to month-end. Pacific Telecom participates with other telephone companies in access revenue pools for certain interstate and intrastate revenues, which are initially recorded based on estimates. Certain long distance network service revenues are estimated under cost separations procedures that base revenues on current operating costs and investments in facilities to provide such services. These estimates are subject to subsequent adjustment as refined operational information becomes available. RECLASSIFICATION Certain amounts from prior years have been reclassified to conform with the 1994 method of presentation. These reclassifications had no effect on previously reported consolidated net income. 43 NOTE 2. FINANCE ASSETS Investment in finance assets, net of allowances for credit losses and accumulated impairment charges of $68 million and $80 million at December 31, 1994 and 1993, respectively, was as follows:
MILLIONS OF DOLLARS/DECEMBER 31 1994 1993 ______ ______ Finance receivables $137.6 $225.1 Leveraged leases 308.2 339.4 Operating leases 64.0 115.6 _____ _____ TOTAL 509.8 680.1 Less current portion 27.9 118.7 _____ _____ LONG-TERM INVESTMENT IN FINANCE ASSETS $481.9 $561.4 _____ _____ _____ _____
Payment terms of finance receivables and operating leases are generally from two to five years, while payment terms of leveraged leases, which are presented net of principal and interest on third party nonrecourse debt, are up to 20 years. Finance assets are net of unearned income of $224 million and $254 million at December 31, 1994 and 1993, respectively. The estimated unguaranteed residual value of leased assets included in finance assets was $209 million and $245 million at December 31, 1994 and 1993, respectively. The deferred income tax liability related to leveraged leases was $283 million and $308 million at December 31, 1994 and 1993, respectively. NOTE 3. SHORT-TERM DEBT AND BORROWING ARRANGEMENTS The Companies' short-term debt and borrowing arrangements are as follows:
MILLIONS OF DOLLARS/DECEMBER 31 FOR THE YEAR AVERAGE AVERAGE INTEREST AVERAGE INTEREST BALANCE RATE(a) OUTSTANDING RATE(b) __________________________________________________________________________ 1994 PacifiCorp $433.0 6.01% $372.8 4.51% Subsidiaries 21.7 7.52 95.0 4.63 1993 PacifiCorp $263.6 3.37% $213.4 3.31% Subsidiaries 289.9 4.22 474.3 3.85 1992 PacifiCorp $269.6 3.95% $154.4 3.92% Subsidiaries 283.8 4.27 624.4 4.83 (a) Computed by dividing the total interest on principal amounts outstanding at the end of the period by the weighted daily principal amounts outstanding. (b) Computed by dividing the total accrued interest for the period by the average daily principal amount outstanding for the period.
At December 31, 1994, PacifiCorp's commercial paper and bank line borrowings were supported by revolving credit agreements totaling $500 million. A $150 million revolving credit agreement will terminate in August 1995. Management intends to replace this agreement with an equivalent facility prior to the termination date. At December 31, 1994, subsidiaries had committed bank revolving credit agreements totaling $660 million. The Companies have the intent and ability to support short-term borrowings through various revolving credit agreements on a long-term basis. At December 31, 1994, subsidiaries had $75 million of short-term debt classified as long-term. Consolidated commitment fees were approximately $3 million in 1994 and $4 million in 1993 and 1992. 44 NOTE 4. COMMON AND PREFERRED STOCK Changes in shares of capital stock and common shareholders' capital are listed below:
THOUSANDS OF SHARES/MILLIONS OF DOLLARS COMMON SHARES SHARES SHARE- COMMON PREFERRED HOLDERS' STOCK STOCK CAPITAL ______ _________ _________ BALANCE, JANUARY 1, 1992 262,096 4,843 $2,574.1 1992 Sales through Dividend Reinvestment and Stock Purchase Plan 3,781 - 81.4 Sales through Employees' Stock Plans 1,070 - 23.4 Sales to public 3,308 5,750 70.0 Redemptions - (60) (.8) Disposition of shares held by Holdings 324 - 7.1 _______ ______ _______ BALANCE, DECEMBER 31, 1992 270,579 10,533 2,755.2 1993 Sales through Dividend Reinvestment and Stock Purchase Plan 2,947 - 56.2 Sales through Employees' Stock Plans 853 - 15.9 Sales to public 6,642 - 128.3 Redemptions and repurchases - (1) (2.2) _______ ______ _______ BALANCE, DECEMBER 31, 1993 281,021 10,532 2,953.4 1994 Sales through Dividend Reinvestment and Stock Purchase Plan 2,194 - 38.0 Sales through Employees' Stock Plans 1,036 - 19.2 _______ ______ _______ BALANCE, DECEMBER 31, 1994 284,251 10,532 $3,010.6 _______ ______ _______ _______ ______ _______
At December 31, 1994, there were 11,805,097 authorized but unissued shares of common stock reserved for issuance under the Dividend Reinvestment and Stock Purchase Plan and the Employee Savings and Stock Ownership Plans and for sales to the public. At its February 8, 1995 meeting, the Board of Directors authorized an additional 3,000,000 shares to be reserved under employee plans. Eligible employees under the employee plans may direct their pretax elective contributions into the purchase of the Company's common stock. The Company makes matching contributions, equal to a percentage of employee contributions, which are invested in the Company's common stock. Employee contributions eligible for matching contributions are limited to 6% of compensation. Generally, preferred stock is redeemable at stipulated prices plus accrued dividends, subject to certain restrictions. Upon involuntary liquidation, all preferred stock is entitled to stated value or a specified preference amount per share plus accrued dividends. PREFERRED STOCK OUTSTANDING
THOUSANDS OF SHARES/MILLIONS OF DOLLARS/DECEMBER 31, 1994 and 1993 ___________________________________________________________________________ SERIES Shares Amount ______ ______ ______ SUBJECT TO MANDATORY REDEMPTION No Par Serial Preferred, 16,000 Shares Authorized $7.12 ($100 stated value) 440 $ 44.0 7.70 1,000 100.0 7.48 750 75.0 _____ TOTAL $219.0 _____ _____ NOT SUBJECT TO MANDATORY REDEMPTION $1.16 ($25 stated value) 193 $ 4.8 1.18 420 10.5 1.28 381 9.5 1.76 394 9.8 1.98 502 12.6 2.13 666 16.7 1.98, Series 1992 5,000 125.0 Auction Rate ($100,000 stated value)(a) 1 100.0 Serial Preferred $100 Stated Value Per Share, 3,500 Shares Authorized 4.52% 2 .2 4.56 85 8.5 4.72 70 7.0 5.00 42 4.2 5.40 66 6.6 6.00 6 .6 7.00 18 1.8 7.96 135 13.5 8.92 69 6.9 9.08 165 16.5 5% Preferred, $100 Stated Value, 127 Shares Authorized and Outstanding 127 12.7 _____ TOTAL $367.4 _____ _____ (a) Dividend rates at December 31, 1994 on 500 shares each of Series A and Series C were 4.5% and 4.8%, respectively.
Mandatory redemption requirements at stated value plus accrued dividends on No Par Serial Preferred Stock are as follows: beginning in 1997, 15,000 shares of the $7.12 series are redeemable annually; the $7.70 series is redeemable in its entirety on August 15, 2001; and 37,500 shares of the $7.48 series are redeemable on each June 15 from 2002 through 2006, with all shares outstanding on June 15, 2007 redeemable on that date. Mandatory redemption requirements for 1993 through 1996 on the $7.12 series were satisfied by the purchase of 60,000 shares at a discount in December 1992. If the Company is in default in its obligation to make any future redemptions on the $7.12 series or the $7.48 series, it may not pay cash dividends on common stock. 45 NOTE 5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS The Company's long-term debt and capital lease obligations were as follows:
MILLIONS OF DOLLARS/DECEMBER 31 1994 1993 ___________________________________________________________________________ PACIFICORP First mortgage and collateral trust bonds Maturing 1995 through 1999/4.5%-9.5% (a) $ 880.7 $ 938.4 Maturing 2000 through 2004/5.9%-10% 683.5 688.2 Maturing 2005 through 2009/6.8%-7.7% 177.7 177.7 Maturing 2010 through 2014/7.3%-9.2% 240.9 243.6 Maturing 2015 through 2019/8.3%-8.6% 80.7 82.1 Maturing 2020 through 2024/6.7%-8.6% 361.5 341.5 Guaranty of pollution control revenue bonds 6% due 2003 - 21.3 5.6%-5.7% due 2021 through 2023 (b) 71.2 271.0 Variable rate due 2013 through 2024 (b)(c) 216.5 - Variable rate due 2005 through 2019 (c) 404.9 404.9 Leveraged ESOP loan guaranty 4.6 16.7 Unamortized premium and discount 9.1 10.1 Capital lease obligations 19.5 21.6 _______ _______ TOTAL 3,150.8 3,217.1 Less current maturities 45.1 70.3 _______ _______ TOTAL 3,105.7 3,146.8 _______ _______ SUBSIDIARIES 2%-11.8% First mortgage notes and bonds maturing through 2028 159.1 155.7 6.4%-12% Notes due through 2007 68.9 165.0 Commercial paper and uncommitted bank lines (c)(d) 75.0 50.0 Variable rate notes due through 2007 (c) 57.6 49.0 5.9%-9.4% Medium-term notes due through 2006 184.5 236.0 4.5%-11% Nonrecourse debt due through 2031 139.7 172.2 Leveraged ESOP loan guaranty 20.5 25.4 Capital lease obligations 7.9 8.8 _______ _______ TOTAL 713.2 862.1 Less current maturities 50.7 85.3 _______ _______ TOTAL 662.5 776.8 _______ _______ TOTAL $3,768.2 $3,923.6 _______ _______ _______ _______ (a) Includes $50 million of 9.4% bonds issued to secure obligations under an equivalent 10-year yen loan. A currency swap converted the fixed rate yen liability to a floating rate U.S. dollar liability based on six-month LIBOR plus .02% (interest rate 5.1% at December 31, 1994). (b) Secured by pledged first mortgage and collateral trust bonds generally at the same interest rates, maturity dates and redemption provisions as the secured pollution control revenue bonds. (c) Interest rates fluctuate based on various rates, primarily on certificate of deposit rates, interbank borrowing rates or prime rates. (d) The Companies have the ability to support short-term borrowings and current debt being refinanced on a long-term basis through revolving lines of credit and, therefore, based upon management's intent, have classified $75 million of short-term debt as long-term debt.
Approximately $7 billion of the assets of the Companies secure long-term debt and capital lease obligations. First mortgage and collateral trust bonds of the Company may be issued in amounts limited by property, earnings and other provisions of the mortgage indentures. The Company and Holdings guarantee certain debt of the Leveraged ESOP Trust established under the K Plus Plan ("Trust"). The debt was used to acquire the Company's common stock. Common equity has been reduced and long-term debt has been increased by the amount of the debt guaranteed. Remaining unallocated common shares held in trust total 1,148,634 at December 31, 1994. Nonrecourse long-term notes are secured by assignment of related finance receivables, asset security interests and cash flows from operating leases. The noteholders have no additional recourse to the Companies. Maturity and sinking fund requirements on all long-term debt and capital lease obligations and redeemable preferred stock outstanding are $96 million, $210 million, $233 million, $308 million and $345 million in 1995 through 1999, respectively. Holdings has pledged its shares of Pacific Telecom and Financial Services stock and certain other assets, including the note received in connection with the NERCO disposition, as security for repayment of its obligations under certain debt agreements. 46 NOTE 6. DERIVATIVES Interest rate and currency swap agreements are used to manage interest rate fluctuations. At December 31, 1994, the Companies had nine outstanding interest rate contracts with commercial banks and Fortune 500 companies, having a total notional amount of $237 million. These agreements effectively change the Companies' interest rate exposure on the underlying variable rate debt to rates of 5.7% to 8.9%. These contracts mature at various times through 2002. A currency swap has been used to convert a 7.4 billion yen liability to a floating rate $50 million U.S. dollar liability based on the six-month London Interbank Offered Rate plus .02%. The Companies are exposed to credit loss in the event of nonperformance by the other parties to the interest rate and currency swap agreements. However, the Companies do not anticipate nonperformance by the counterparties. The credit exposure that results from interest rate and currency exchange agreements is represented by the fair value of the contracts and is reported in Note 7. NOTE 7. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of cash and cash equivalents, receivables, payables, accrued liabilities and short-term borrowings approximates fair value because of the short-term maturity of these instruments. The fair value of the finance note receivable approximates its carrying value at December 31, 1994. The fair value of redeemable preferred stock, based upon bid prices from an investment bank, is estimated to be $219 million, or 100% of the carrying value, and $234 million, or 107% of the carrying value of $219 million, at December 31, 1994 and 1993, respectively. The fair value of long-term debt has been estimated by discounting projected future cash flows, using the current rate at which similar loans would be made to borrowers with similar credit ratings and for the same maturities. Current maturities of long-term debt were included and leveraged ESOP loan guarantees and capital lease obligations were excluded. The fair value of the Company's long-term debt is estimated to be $3.7 billion, or 97% of the carrying value of $3.8 billion, and $4.3 billion, or 106% of the carrying value of $4.0 billion, at December 31, 1994 and 1993, respectively. The fair value of interest rate and currency swaps is the estimated amount the Company would pay to terminate the swap agreements, taking into account current interest rates and the current creditworthiness of the swap counterparties. The estimated termination cost would have been $27 million and $65 million at December 31, 1994 and 1993. 47 NOTE 8. LEASES The Companies lease certain properties under leases with various expiration dates and renewal options. Rentals on lease renewals are subject to negotiation. Certain leases provide for options to purchase at fair market value. The Companies are also committed to pay all taxes, expenses of operation (other than depreciation) and maintenance applicable to the leased property. Net rent expense for the years ended December 31, 1994, 1993 and 1992 was $59 million, $60 million and $51 million, respectively. Future minimum lease payments under noncancellable operating leases are $41 million, $37 million, $34 million, $52 million and $13 million for 1995 through 1999, respectively. NOTE 9. COMMITMENTS AND CONTINGENCIES CONSTRUCTION AND OTHER Construction and acquisitions are estimated at $1,206 million for 1995. As a part of these programs, substantial commitments have been made. Several Superfund sites have been identified where the Company has been or may be designated as a potentially responsible party. Future costs associated with the disposition of these matters are not expected to be material to the Company's consolidated financial position or results of operations. The Company and its subsidiaries are parties to various legal claims, actions and complaints, certain of which involve material amounts. Although the Company is unable to predict with certainty whether or not it will ultimately be successful in these legal proceedings or, if not, what the impact might be, management presently believes that disposition of these matters will not have a materially adverse effect on the Company's consolidated financial position or results of operations. JOINTLY OWNED PLANTS At December 31, 1994, Electric Operations' participation in jointly owned plants was as follows:
MILLIONS OF DOLLARS ELECTRIC PLANT CONSTRUCTION OPERATIONS' IN ACCUMULATED WORK IN SHARE SERVICE DEPRECIATION PROGRESS ___________ _______ ____________ ____________ Centralia 47.5% $178.0 $102.5 $ 4.1 Jim Bridger Units 1,2,3 and 4 66.7 784.2 285.2 .9 Trojan (a) 2.5 - - - Colstrip Units 3 and 4 10.0 199.9 52.8 1.4 Hunter Unit 1 93.8 252.5 90.1 3.1 Hunter Unit 2 60.3 184.0 58.7 3.0 Wyodak 80.0 311.9 91.5 1.3 Craig Station Units 1 and 2 19.3 147.0(b) 48.2 .9 Hayden Station Unit 1 24.5 16.7(b) 11.5 .2 Hayden Station Unit 2 12.6 16.7(b) 8.2 .1 (a) Plant, inventory, fuel and decommissioning costs totaling $29 million relating to the Trojan Plant, were included in regulatory assets-net at December 31, 1994. Recovery of these costs is pending approval of certain regulatory commissions. (b) Excludes unallocated acquisition adjustments of $129 million.
Under the joint agreements, each participating utility is responsible for financing its share of construction, operating and leasing costs. Electric Operations' portion is recorded in its applicable operations, maintenance and tax accounts. Substantial amounts of power are purchased from several hydroelectric projects under long-term arrangements with public utility districts. These purchases are made on a "cost-of-service" basis for a stated percentage of project output and for a like percentage of project annual costs (operating expenses and debt service). These costs are included in operations 48 expense. Electric Operations is required to pay its portion of the debt service, whether or not any power is produced. The arrangements provide for nonwithdrawable power and most of them also provide for additional power, withdrawable by the districts upon one to five years' notice. For 1994, such purchases approximated 2.9% of energy requirements; an additional 11.5% was obtained through other purchase and net interchange arrangements. At December 31, 1994, Electric Operations' share of long-term arrangements with public utility districts was as follows:
GENERATING YEAR CONTRACT CAPACITY PERCENTAGE ANNUAL FACILITY EXPIRES (kW) OF OUTPUT COSTS(a) __________ _____________ ________ __________ ________ Wanapum 2009 155,444 18.7% $ 4.8 Priest Rapids 2005 109,602 13.9 3.3 Rocky Reach 2011 64,297 5.3 2.0 Wells 2018 59,617 7.7 2.0 _______ ____ TOTAL 388,960 $12.1 _______ ____ _______ ____ (a) Annual costs, in millions of dollars, include debt service of $8 million.
The Company has a 4% interest in the Intermountain Power Project ("Project"), located in central Utah. The Company and the City of Los Angeles have agreed that the City will purchase capacity and energy from Company plants equal to the Company's 4% entitlement of the Project at a price equivalent to 4% of the expenses and debt service of the Project. NOTE 10. INCOME TAXES The Company's effective combined federal and state income tax rate from continuing operations was 35% in 1994, 31% in 1993 and 38% in 1992. The difference between taxes calculated as if the statutory federal tax rate of 35% in 1994 and 1993 and 34% in 1992 was applied to income from continuing operations before income taxes and the recorded tax expense is reconciled as follows:
MILLIONS OF DOLLARS/FOR THE YEAR 1994 1993 1992 ____ ____ ____ COMPUTED FEDERAL INCOME TAXES $251.2 $213.5 $ 81.9 _____ _____ _____ REDUCTION (INCREASE) IN TAX RESULTING FROM Depreciation differences (flow-through basis) (8.4) (9.4) (20.3) Investment tax credits 15.5 15.1 15.2 Depletion 4.1 5.3 4.9 Affordable housing credits 8.2 8.7 10.0 Purchase accounting adjustments - - (12.0) Other items capitalized and miscellaneous differences (3.4) 13.8 .9 _____ _____ _____ TOTAL 16.0 33.5 (1.3) _____ _____ _____ FEDERAL INCOME TAX 235.2 180.0 83.2 STATE INCOME TAX, NET OF FEDERAL INCOME TAX BENEFIT 14.6 7.4 7.6 _____ _____ _____ TOTAL INCOME TAX EXPENSE $249.8 $187.4 $ 90.8 _____ _____ _____ _____ _____ _____
The provision for income taxes is summarized as follows:
MILLIONS OF DOLLARS/FOR THE YEAR 1994 1993 1992 ____ ____ ____ CURRENT Federal $222.7 $ 70.3 $145.2 State 34.6 3.6 9.7 _____ _____ _____ TOTAL 257.3 73.9 154.9 _____ _____ _____ DEFERRED Federal 17.8 120.9 (49.6) State (9.8) 7.7 .7 _____ _____ _____ TOTAL 8.0 128.6 (48.9) _____ _____ _____ INVESTMENT TAX CREDITS (15.5) (15.1) (15.2) _____ _____ _____ TOTAL INCOME TAX EXPENSE $249.8 $187.4 $ 90.8 _____ _____ _____ _____ _____ _____
49 The Company adopted SFAS 109, "Accounting for Income Taxes," effective January 1, 1993. This statement requires use of the liability method of accounting for deferred income taxes. Deferred tax liabilities and assets reflect the expected future tax consequences, based on enacted tax law, of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts. The cumulative effect of adoption of SFAS 109 resulted in an increase in consolidated net income in 1993 of $4 million, or $0.01 per share. Assets increased $619 million and liabilities increased $619 million, reflecting deferred income tax liabilities and related regulatory assets recorded for cumulative income tax temporary differences which will be recovered through rates when the temporary differences reverse. The regulatory asset is primarily based upon differences between the book and tax bases of utility plant in service and the accumulated reserve for depreciation. See "Accounting for the Effects of Regulation" in Note 1. The tax effects of significant items comprising the Company's net deferred tax liability are as follows:
MILLIONS OF DOLLARS/DECEMBER 31 1994 1993 ________ ________ DEFERRED TAX LIABILITIES Property, plant and equipment $1,134.1 $1,155.7 Regulatory asset 797.8 816.8 Other deferred liabilities 41.5 24.3 DEFERRED TAX ASSETS Regulatory liability (90.7) (100.9) Book reserves not deductible for tax (60.1) (62.6) _______ _______ NET DEFERRED TAX LIABILITY $1,822.6 $1,833.3 _______ _______ _______ _______
The Internal Revenue Service ("IRS") completed its examination of the Company's federal income tax returns for the years 1983 through 1988. The Company and the IRS have agreed to a settlement on all of the issues, except for certain matters relating to the Company's abandonment of its 10% interest in Washington Public Power Supply System Unit 3 and a securities transaction involving stock of Comdial Corporation, an equity investee. The Company and the IRS continue to discuss the remaining unagreed issues. In the event the Company and the IRS cannot reach agreement as to these issues, litigation is likely. In the opinion of management, the outcome of the 1983 through 1988 federal income tax examinations will not have a material effect on the Company's consolidated financial position or results of operations. The Company's 1989 and 1990 federal income tax returns are currently under examination by the IRS. Financial Services acquires housing projects that qualify for the low income housing credit established as part of the Tax Reform Act of 1986 to provide an incentive for the development and preservation of privately owned affordable rental housing. Annual tax benefits scheduled to be received from these projects are expected to be $8 million each year from 1995 through 1999. NOTE 11. RETIREMENT PLANS The Companies have pension plans covering substantially all of their employees. Benefits under these plans are generally based on the employee's years of service and average monthly pay in the 60 consecutive months of highest pay out of the last 120 months, with adjustments, to reflect benefits estimated to be received from Social Security. Pension costs are funded annually by no more than the maximum amount of pension expense which can be deducted for federal income tax purposes. Unfunded prior service costs are amortized over the remaining service period of employees expected to receive benefits. At December 31, 1994, plan assets were primarily invested in common stocks, bonds and U.S. government obligations. Net pension cost is summarized as follows:
MILLIONS OF DOLLARS/FOR THE YEAR 1994 1993 1992 ______ ______ ______ Service cost - benefits earned $ 26.4 $ 19.2 $ 17.2 Interest cost on projected benefit obligation 74.1 70.8 66.8 Actual gain (loss) on plan assets 4.9 (89.5) (18.0) Net amortization and deferral (59.7) 44.0 (23.5) Regulatory deferral (a) .7 3.4 (6.5) ______ ______ ______ NET PENSION COST $ 46.4 $ 47.9 $ 36.0 ______ ______ ______ ______ ______ ______ (a) Electric Operations has received accounting orders from its primary and certain other regulatory authorities to defer the difference between pension cost as determined in accordance with SFAS 87 and 88 and that determined for funding purposes. See "Accounting for the Effects of Regulation" in Note 1.
50 The funded status, net pension liability and significant assumptions are as follows:
MILLIONS OF DOLLARS/DECEMBER 31 1994 1993 ____ ____ Actuarial present value of benefit obligations Vested benefit obligation $ 779.1 $ 835.3 _______ _______ Accumulated benefit obligation 820.6 868.0 _______ _______ Projected benefit obligation 943.7 1,003.5 Plan assets at fair value 673.3 705.4 _______ _______ Projected benefit obligation in excess of plan assets (270.4) (298.1) Unrecognized prior service cost 6.5 7.4 Unrecognized net (gain) loss (.2) 20.4 Unrecognized net obligation at January 1, being amortized over 3 to 20 years 94.7 99.9 Minimum liability adjustment (11.6) (26.3) _______ _______ NET PENSION LIABILITY $ (181.0) $ (196.7) _______ _______ _______ _______ Discount rate 8.5% 7.5% Expected long-term rate of return on assets 8.75-9% 8.75-9% Rate of increase in compensation levels 5.5% 5-6%
Electric Operations offered early retirement incentive programs in 1987 and 1990. Included in the table above is the present value of all future termination benefits provided of $65 million. Electric Operations received regulatory accounting orders to defer early retirement costs as a regulatory asset to be amortized through the year 2020. See "Accounting for the Effects of Regulation" in Note 1. NOTE 12. OTHER POSTRETIREMENT BENEFITS Electric Operations and Telecommunications provide health care and life insurance benefits for their eligible retirees on a basis substantially similar to those who are active employees. Effective January 1, 1993, the Company adopted SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The cost of postretirement benefits are now accrued over the active service period of employees. In 1992, the $12 million cost of these benefits was charged to operating expenses as claims and premiums were paid. The transition obligation, which represents the previously unrecognized prior service cost, was $319 million at January 1, 1993, and is being amortized over a period of 20 years. For those employees already retired at January 1, 1993, the Company will continue to fund postretirement benefit expense on a pay-as-you-go basis. For those employees retiring after January 1, 1993, the Company will fund postretirement benefit expense through a combination of funding vehicles. The Company funded $29 million and $36 million of postretirement benefit expense during 1994 and 1993, respectively. These funds are invested in bonds and common stock. The net periodic postretirement benefit cost is summarized as follows:
MILLIONS OF DOLLARS/FOR THE YEAR 1994 1993 ______ ______ Service costs - benefits earned $ 9.5 $ 7.6 Interest cost on accumulated postretirement benefit obligation 30.7 28.8 Amortization of transition obligation 16.3 16.0 Regulatory deferral (5.2) (5.6) Net asset loss during the period deferred for future recognition (4.4) - Actual return on plan assets .3 (.2) _____ _____ NET PERIODIC POSTRETIREMENT BENEFIT COST $ 47.2 $ 46.6 _____ _____ _____ _____
51 The accumulated postretirement benefit obligation ("APBO") was as follows:
MILLIONS OF DOLLARS/DECEMBER 31 1994 1993 ______ ______ Retirees and dependents $ 237.1 $ 257.0 Fully eligible active plan participants 20.1 20.9 Other active plan participants 125.9 130.2 ______ ______ APBO 383.1 408.1 Plan assets at fair value 68.8 39.4 ______ ______ APBO in excess of plan assets 314.3 368.7 Unrecognized prior service cost .7 .8 Unrecognized transition obligation (286.8) (302.7) Unrecognized net gain (loss) 3.8 (47.8) ______ ______ ACCRUED POSTRETIREMENT BENEFIT OBLIGATION $ 32.0 $ 19.0 ______ ______ ______ ______ Discount rate 8.5% 7.5% Estimated long-term rate of return on assets 8.5-9% 8.5-9% Initial health care cost trend rate- under 65 11% 12%-14% Initial health care cost trend rate- over 65 10% 10% Ultimate health care cost trend rate 5.5% 5%
The assumed health care cost trend rates gradually decrease over nine years. The health care cost trend rate assumptions have a significant effect on the amounts reported. Increasing the assumed health care cost trend rate by one percentage point would have increased the APBO as of December 31, 1994 by $28 million, and the annual net periodic postretirement benefit costs by $3 million. NOTE 13. DISCONTINUED OPERATIONS During 1993, Holdings sold its interest in an 82%-owned mining and resource development business, NERCO, Inc. for proceeds of $384 million. Revenues of $672 million were recorded by NERCO, Inc. in 1992 and are included in discontinued operations. In connection with this transaction, a subsidiary of Holdings loaned $225 million at 13% interest to a subsidiary of the purchaser, with repayment contingent upon future revenues received under a coal supply contract. The sale resulted in a gain of approximately $183 million which has been deferred and is being recognized in earnings, using a modified installment method, as the loan is repaid. The loan could extend through 2009, but is prepayable without premium. A gain of $52 million and proceeds of $195 million were recorded in 1993 relating to the sale of an international communications subsidiary. Revenues, net of settlements, included in discontinued operations in 1992 were $108 million. 52 NOTE 14. SPECIAL CHARGES As a result of credit rating downgrades in 1992, Financial Services and Holdings experienced restricted access to debt markets. In order to improve this situation, these subsidiaries attempted to reduce debt with cash generated by accelerating sales of underperforming and nonstrategic assets. Related to this action, Financial Services and Holdings recorded various pretax adjustments of $186 million to the carrying value of certain assets in the first quarter of 1992. The following table is a summary of the special charges by income statement category:
MILLIONS OF DOLLARS 1992 ____ Revenues $ 10 Operations expense 73 Administrative and general expense 21 Depreciation and amortization 38 Other expense 44 Income taxes (54) ___ NET AFTER-TAX CHARGE $132 ___ ___
NOTE 15. PENDING SALE In October 1994, Pacific Telecom signed an agreement to sell the stock of its wholly owned subsidiary Alascom, Inc. ("Alascom") to AT&T Corp. ("AT&T"), for proceeds of $365 million. Under the terms of the agreement, AT&T will pay $290 million in cash for the Alascom stock and for settlement of all past cost study issues. AT&T has also agreed to allow Pacific Telecom to retain the $75 million transition payment made by AT&T to Alascom in July 1994, which was used to reduce telecommunications plant, pursuant to a Federal Communications Commission ("FCC") order. AT&T made a down payment of $30 million to Pacific Telecom, which would be applied to the final $75 million transition payment required in the FCC order if the transaction failed to close. The remaining $260 million is to be paid when the transaction closes, which is subject to certain conditions, including receipt of state and federal regulatory approvals that are expected to be received during the first half of 1995. The Company anticipates recognizing a material gain from the sale of Alascom, relative to its ownership percentage in Pacific Telecom. Condensed financial information for Alascom is as follows:
MILLIONS OF DOLLARS/FOR THE YEAR 1994 1993 1992 ____ ____ ____ Revenues $343.5 $337.8 $346.8 Income from operations 80.7 59.5 60.1 MILLIONS OF DOLLARS/DECEMBER 31 1994 1993 ____ ____ Property, plant and equipment $185.5 $274.7 Current assets 82.7 101.3 Other assets 7.5 8.4 _____ _____ TOTAL ASSETS $275.7 $384.4 _____ _____ _____ _____ Common equity $196.4 $244.8 Current liabilities 69.9 49.5 Deferred credits 9.4 90.1 _____ _____ TOTAL CAPITALIZATION AND LIABILITIES $275.7 $384.4 _____ _____ _____ _____
53 NOTE 16. BUSINESS SEGMENTS
MILLIONS OF DOLLARS ELECTRIC TELECOM- DISCONTINUED CONSOLIDATED OPERATIONS MUNICATIONS OTHER(a) OPERATIONS ____________ __________ ___________ ______ ____________ Year ended December 31, 1994 Revenues $ 3,507 $2,648 $ 705 $ 154 $ - Income from operations 987 819 165 3 - Depreciation and amortization 424 302 104 18 - Capital spending 798 638 153 7 - Identifiable assets 11,846 9,372 1,378 1,096 - ______ _____ _____ _____ ___ ______ _____ _____ _____ ___ Year ended December 31, 1993 Revenues $ 3,405 $2,507 $ 702 $ 196 $ - Income from operations 916 784 141 (9) - Depreciation and amortization 405 281 110 14 - Capital spending 805 637 126 42 - Identifiable assets 11,957 9,055 1,413 1,489 - ______ _____ _____ _____ ___ ______ _____ _____ _____ ___ Year ended December 31, 1992 Revenues $ 3,236 $2,362 $ 698 $ 176 $ - Income from operations 633 678 138 (183) - Depreciation and amortization 453 287 114 52 - Capital spending 1,001 864(b) 140 (3) - Identifiable assets 11,257 8,192 1,540 1,299 226(c) ______ _____ _____ _____ ___ ______ _____ _____ _____ ___ (a) Includes the operations of finance, real estate, manufacturing and agriculture activities of Financial Services and independent power production, as well as the activities of Holdings. (b) Includes noncash acquisition costs of $255 million relating to the Colorado-Ute properties acquired in April 1992. (c) The net assets of the discontinued operations of TRT are included in Telecommunications.
NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
MILLIONS OF DOLLARS/QUARTER ENDED March June September December 31 30 30 31 _______________________________________________________________________________ 1994 Revenues $865.3 $836.1 $915.0 $890.1 Income from operations 250.1 202.6 265.4 268.5 Net income 120.5 89.3 131.8 126.4 Earnings on common stock 110.8 79.3 121.8 116.4 Earnings per common share .39 .28 .43 .41 Common dividends paid per share .27 .27 .27 .27 Common dividends declared per share .27 .27 .27 .27 Common stock price per share (NYSE) High 19 1/2 18 3/8 18 3/8 19 1/8 Low 17 1/4 16 15 7/8 16 1/2 1993 Revenues $861.0 $807.0 $860.1 $877.3 Income from operations 245.9 199.2 238.4 232.0 Income from continuing operations 112.5 91.9 105.2 113.1 Discontinued operations - - 52.4 - Cumulative effect of change in accounting principle 4.0 - - - Net income 116.5 91.9 157.6 113.1 Earnings on common stock 106.5 82.2 147.8 103.3 Earnings per common share from continuing operations .38 .30 .35 .37 Earnings per common share .39 .30 .54 .37 Common dividends paid per share .385 .27 .27 .27 Common dividends declared per share .27 .27 .27 .27 Common stock price per share (NYSE) High 20 5/8 19 1/8 20 5/8 20 1/8 Low 16 7/8 17 1/2 18 3/8 18 1/4
A significant portion of the operations are of a seasonal nature. Previously reported quarterly information has been revised to reflect certain reclassifications. These reclassifications had no effect on previously reported consolidated net income. See Discontinued Operations on page 51 and Note 13 for information regarding discontinued operations. Appendix A - PacifiCorp 1994 Annual Report Graphic __________________________________________________ 1. The following is a description of graphic material omitted from the current filing: Graph Title: Cash Flows from Continuing Operations by Segment Graph Page Number: Page 22 Type of Graph: Stacked Bar Graph X-Axis Information: Years from left to right 91, 92, 93, and 94 Y-Axis Information: Millions of Dollars from bottom to top 0, 200, 400, 600, 800, 1000, and 1200 Legend Description: Bottom of Stacked Bar, Electric Operations; Middle of Stacked Bar, Telecommunications; Top of Stacked Bar, Other Y-Axis Data Points: Electric Operations Telecommunications Other 1991 740 850 1,020 1992 642 819 942 1993 764 944 1,037 1994 747 888 962 Footnote to Graph: None 2. The following is a description of graphic material omitted from the current filing: Graph Title: Capital Spending Mix by Segment Graph Page Number: Page 23 Type of Graph: Stacked Bar Graph X-Axis Information: Years from left to right 92, 93, and 94 Y-Axis Information: Percent from bottom to top 0, 20, 40, 60, 80, and 100 Legend Description: Bottom of Stacked Bar, Electric Operations; Middle of Stacked Bar, Telecommunications; Top of Stacked Bar, Other Y-Axis Data Points: Electric Operations Telecommunications Other 1992 86 100 100 1993 79 95 100 1994 80 99 100 Footnote to Graph: None 3. The following is a description of graphic material omitted from the current filing: Graph Title: Common Equity Graph Page Number: Page 26 Type of Graph: Line Graph X-Axis Information: Years from left to right 89, 90, 91, 92, 93, and 94 Y-Axis Information: Millions of Dollars from bottom to top 0, 500, 1000, 1500, 2000, 2500, 3000, 3500 and 4000 Legend Description: None Y-Axis Data Points: PacifiCorp 1989 3,007 1990 3,208 1991 3,512 1992 2,908 1993 3,263 1994 3,460 Footnote to Graph: None 4. The following is a description of graphic material omitted from the current filing: Graph Title: Electric Operations Graph Page Number: Page 28 Type of Graph: Line Graph X-Axis Information: Years from left to right 89, 90, 91, 92, 93, and 94 Y-Axis Information: Millions of Dollars from bottom to top 0, 500, 1000, 1500, 2000, 2500 and 3000 Legend Description: Bottom Horizontal Line, Earnings Contribution; Middle Horizontal Line, Income from Operations; Top Horizontal Line, Revenues Y-Axis Data Points: Revenues Income from Operations Earnings Contribution 1989 2,176 755 330 1990 2,185 745 334 1991 2,252 783 347 1992 2,362 678 203 1993 2,507 784 322 1994 2,648 819 340 Footnote to Graph: None 5. The following is a description of graphic material omitted from the current filing: Graph Title: Wholesale Graph Page Number: Page 28 Type of Graph: Line Graph X-Axis Information: Years from left to right 89, 90, 91, 92, 93, and 94 Y-Axis Information: Millions of Dollars from bottom to top 0, 100, 200, 300, 400, 500, and 600 Legend Description: None Y-Axis Data Points: PacifiCorp 1989 269 1990 288 1991 325 1992 428 1993 500 1994 533 Footnote to Graph: None 6. The following is a description of graphic material omitted from the current filing: Graph Title: Kilowatt-Hour Sales by Customer Segment Graph Page Number: Page 29 Type of Graph: Stacked Bar Graph X-Axis Information: Years from left to right 89, 90, 91, 92, 93, and 94 Y-Axis Information: Billions of Kilowatt-Hours from bottom to top 0, 10, 20, 30, 40, 50, and 60 Legend Description: Bottom of Stacked Bar, Residential; Second of Stacked Bar, Commercial; Third of Stacked Bar, Industrial; Top of Stacked Bar, Wholesale Y-Axis Data Points: Residential Commercial Industrial Wholesale 1989 10,765 19,568 39,196 47,755 1990 10,990 20,091 40,288 49,758 1991 11,354 20,770 40,784 51,079 1992 11,230 20,963 41,511 54,931 1993 12,055 22,140 42,413 57,362 1994 12,127 22,772 43,701 59,326 Footnote to Graph: None 7. The following is a description of graphic material omitted from the current filing: Graph Title: Energy Source Graph Page Number: Page 30 Type of Graph: Stacked Bar Graph X-Axis Information: Years from left to right 89, 90, 91, 92, 93, and 94 Y-Axis Information: Percent from bottom to top 0, 20, 40, 60, 80, and 100 Legend Description: Bottom of Stacked Bar, Coal; Middle of Stacked Bar, Hydroelectric Top of Stacked Bar, Purchases & Exchange Contracts Y-Axis Data Points: Hydro- Purchases & Coal electric Exchange Contracts 1989 78 86 100 1990 78 85 100 1991 78 84 100 1992 81 85 100 1993 77 83 100 1994 79 84 100 Footnote to Graph: None 8. The following is a description of graphic material omitted from the current filing: Graph Title: Kilowatt-Hour Sales by Customer Segment Graph Page Number: Page 31 Type of Graph: Pie Chart X-Axis Information: Year 1994 Y-Axis Information: None Legend Description: Bottom of Legend, Residential; Second in Legend, Commercial; Third in Legend, Industrial; Top of Legend, Wholesale Data Points: Residential Commercial Industrial Wholesale 1994 21 18 34 27 Footnote to Graph: None 9. The following is a description of graphic material omitted from the current filing: Graph Title: Telecommunications Graph Page Number: Page 32 Type of Graph: Line Graph X-Axis Information: Years from left to right 89, 90, 91, 92, 93, and 94 Y-Axis Information: Millions of Dollars from bottom to top 0, 100, 200, 300, 400, 500, 600, 700 and 800 Legend Description: Bottom Horizontal Line, Earnings Contribution from Continuing Operations; Middle Horizonal Line, Income from Operations; Top Horizontal Line, Revenues Y-Axis Data Points: Earnings Contribution Revenues Income from Operations from Continuing Operations 1989 578 134 64 1990 683 154 77 1991 720 160 77 1992 698 139 57 1993 702 141 51 1994 705 165 71 Footnote to Graph: None 10. The following is a description of graphic material omitted from the current filing: Graph Title: Access Lines by Region Graph Page Number: Page 33 Type of Graph: Stacked Bar Graph X-Axis Information: Years from left to right 89, 90, 91, 92, 93, and 94 Y-Axis Information: Thousands from bottom to top 0, 50, 100, 150, 200, 250, 300, 350, 400 and 450 Legend Description: Bottom of Stacked Bar, Western; Middle of Stacked Bar, Midwest Top of Stacked Bar, Alaska Y-Axis Data Points: Western Midwest Alaska 1989 175 197 253 1990 185 280 340 1991 194 292 357 1992 206 310 379 1993 217 328 399 1994 230 345 418 Footnote to Graph: None 11. The following is a description of graphic material omitted from the current filing: Graph Title: Disposition of Income from Operations Graph Page Number: Page 37 Type of Graph: Stacked Bar Graph X-Axis Information: Years from left to right 89, 90, 91, 92, 93, and 94 Y-Axis Information: Millions of Dollars from bottom to top -200, 0, 200, 400, 600, 800, and 1000 Legend Description: Bottom of Stacked Bar, Retained Earnings; Second of Stacked Bar, Dividends Accrued; Third of Stacked Bar, Income Taxes; Top of Stacked Bar, Interest Expense & Other Interest Retained Dividends Income Expense Y-Axis Data Points: Earnings Accrued Taxes & Other 1989 38 403 610 900 1990 42 413 592 923 1991 34 446 623 941 1992 (167) 283 428 725 1993 85 423 611 916 1994 123 468 718 987 Footnote to Graph: 1992 is calculated using earnings from continuing operations, excluding special charges. See note 14. 12. The following is a description of graphic material omitted from the current filing: Graph Title: Property, Plant and Equipment/Construction Work in Progress Graph Page Number: Page 38 Type of Graph: Stacked Bar Graph X-Axis Information: Years from left to right 89, 90, 91, 92, 93, and 94 Y-Axis Information: Millions of Dollars from bottom to top 0, 1500, 3000, 4500, 6000, 7500 and 9000 Legend Description: Bottom of Stacked Bar, Electric Operations; Middle of Stacked Bar, Telecommunications Top of Stacked Bar, CWIP Y-Axis Data Points: Electric Telecommunications CWIP 1989 5,370 6,202 6,509 1990 5,600 6,426 6,805 1991 6,124 7,114 7,438 1992 6,638 7,553 7,858 1993 6,944 7,853 8,210 1994 7,305 8,078 8,446 Footnote to Graph: None 13. The following is a description of graphic material omitted from the current filing: Graph Title: Capitalization Graph Page Number: Page 39 Type of Graph: Stacked Bar Graph X-Axis Information: Years from left to right 89, 90, 91, 92, 93, and 94 Y-Axis Information: Percent from bottom to top 0, 20, 40, 60, 80, and 100 Legend Description: Bottom of Stacked Bar, Long-Term Debt & Capital Lease Obligations; Second of Stacked Bar, Common Equity; Third of Stacked Bar, Short-term & Currently Maturing Debt; Top of Stacked Bar, Preferred Stock Long-Term Short-Term Debt & & Currently Capital Lease Common Maturing Preferred Y-Axis Data Points: Obligations Equity Debt Stock 1989 44 79 96 100 1990 46 83 95 100 1991 47 85 95 100 1992 48 82 93 100 1993 46 85 93 100 1994 45 86 93 100 Footnote to Graph: None 14. The following is a description of graphic material omitted from the current filing: Graph Title: Preferred Dividend Requirement Graph Page Number: Page 44 Type of Graph: Line Graph X-Axis Information: Years from left to right 89, 90, 91, 92, 93, and 94 Y-Axis Information: Millions of Dollars from bottom to top 20, 25, 30, 35, and 40 Legend Description: None Y-Axis Data Points PacifiCorp 1989 21 1990 22 1991 27 1992 37 1993 39 1994 40 Footnote to Graph: None 15. The following is a description of graphic material omitted from the current filing: Graph Title: Embedded Cost of Mortgage Bond Debt Graph Page Number: Page 45 Type of Graph: Line Graph X-Axis Information: Years from left to right 89, 90, 91, 92, 93, and 94 Y-Axis Information: Percent from bottom to top 7.0, 7.5, 8.0, 8.5, and 9.0 Legend Description: None Y-Axis Data Points: PacifiCorp 1989 8.8 1990 8.9 1991 8.4 1992 8.1 1993 7.7 1994 7.5 Footnote to Graph: None 16. The following is a description of graphic material omitted from the current filing: Graph Title: Effective Income Tax Rate Graph Page Number: Page 48 Type of Graph: Line Graph X-Axis Information: Years from left to right 89, 90, 91, 92, 93, and 94 Y-Axis Information: Percent from bottom to top 20, 25, 30, 35, 40, 45, and 50 Legend Description: None Y-Axis Data Points: PacifiCorp 1989 33 1990 31 1991 29 1992 38 1993 31 1994 35 Footnote to Graph: Calculated using earnings from continuing operations. 17. The following is a description of graphic material omitted from the current filing: Graph Title: Common Stock Market Price Graph Page Number: Page 53 Type of Graph: Line Graph X-Axis Information: Months from left to right depicted by tick marks with only the quarters marked with longer tick marks and a description of Q1, Q2, Q3, and Q4 for 93 and 94 respectively. Y-Axis Information: Month-End in Dollars from bottom to top 0, 5, 10, 15, 20, and 25 Legend Description: None Y-Axis Data Points: 1993 1994 January 19.750 18.750 February 18.125 18.000 March 18.125 17.625 April 17.875 17.750 May 17.750 17.625 June 19.000 16.875 July 18.750 17.750 August 20.000 17.000 September 19.625 16.875 October 19.625 17.625 November 19.125 18.500 December 19.250 18.125 Footnote to Graph: None EX-21 15 EXHIBIT 21 EXHIBIT (21) SUBSIDIARIES OF THE COMPANY PacifiCorp Holdings, Inc., a wholly-owned subsidiary of the Company and a Delaware corporation, has the following subsidiaries:
APPROXIMATE PERCENTAGE OF STATE OR VOTING JURISDICTION OF SECURITIES INCORPORATION OR NAME OF SUBSIDIARY OWNED ORGANIZATION --------------------------------------------------------------------------------- --------------- ---------------- PACE Group, Inc. ................................................................ 100% Oregon PacifiCorp Financial Services, Inc. ............................................. 100% Oregon Color Spot, Inc. .............................................................. 100% Oregon Pacific Development, Inc. ..................................................... 100% Oregon Pacific Harbor Capital, Inc. .................................................. 100% Delaware Pacific Relocation Service Company............................................. 100% Oregon PacifiCorp Capital, Inc. ...................................................... 100% Virginia PacifiCorp Credit, Inc. ....................................................... 100% Oregon Pacific Generation Company....................................................... 100% Oregon Energy National, Inc. ......................................................... 100% Utah ONSITE Energy, Inc. ........................................................... 100% Oregon Pacific Telecom, Inc. ........................................................... 87% Washington PacifiCorp Trans, Inc. .......................................................... 100% Oregon
Pacific Telecom, Inc., an 87% owned subsidiary of PacifiCorp Holdings, Inc., and a Washington corporation, has the following subsidiaries:
APPROXIMATE PERCENTAGE OF STATE OR VOTING JURISDICTION OF SECURITIES INCORPORATION OR NAME OF SUBSIDIARY OWNED ORGANIZATION --------------------------------------------------------------------------------- --------------- ---------------- Alascom, Inc. ................................................................... 100% Alaska Cascade Autovon Company.......................................................... 100% Washington Eagle Telecommunications, Inc./Colorado.......................................... 100% Colorado Eagle Valley Communications Corporation.......................................... 100% Colorado Gem State Utilities Corporation.................................................. 92% Idaho Indianhead Communications Corporation............................................ 100% Wisconsin Inter Island Telephone Company, Inc. ............................................ 100% Washington International Communications Holdings, Inc. ..................................... 85% Delaware North-West Cellular, Inc. ....................................................... 100% Nevada Northland Telephone Company...................................................... 100% Minnesota North-West Telephone Company..................................................... 100% Wisconsin Northwestern Telephone Systems, Inc. ............................................ 99% Oregon Pacific Telecom Cable, Inc. ..................................................... 80% Delaware
S-3
APPROXIMATE PERCENTAGE OF STATE OR VOTING JURISDICTION OF SECURITIES INCORPORATION OR NAME OF SUBSIDIARY OWNED ORGANIZATION --------------------------------------------------------------------------------- --------------- ---------------- Pacific Telecom Cellular, Inc. .................................................. 100% Delaware Pacific Telecom Cellular of Alaska, Inc. ...................................... 100% Alaska Pacific Telecom Cellular of I-5, Inc. ......................................... 100% Washington Pacific Telecom Cellular of Michigan, Inc. .................................... 100% Michigan Pacific Telecom Cellular of Minnesota, Inc. ................................... 100% Minnesota Pacific Telecom Cellular of Oregon, Inc. ...................................... 100% Oregon Pacific Telecom Cellular of South Dakota, Inc. ................................ 100% South Dakota Pacific Telecom Cellular of Washington, Inc. .................................. 100% Washington Pacific Telecom Cellular of Wisconsin, Inc. ................................... 100% Wisconsin Pacific Telecom Service Company.................................................. 100% Washington Pacific Telecom Transmission Services, Inc. ..................................... 100% Oregon Postville Telephone Company...................................................... 100% Wisconsin Price County Telephone Cellular, Inc. ........................................... 100% Wisconsin PTI Broadcasting, Inc. .......................................................... 100% Oregon Rib Lake Cellular for Wisconsin RSA #2, Inc. .................................... 100% Wisconsin Telephone Utilities, Inc. ....................................................... 100% Washington Telephone Utilities of Alaska, Inc. ............................................. 100% Alaska Telephone Utilities of Eastern Oregon, Inc. ..................................... 100% Oregon Telephone Utilities of Northland, Inc. .......................................... 100% Alaska Telephone Utilities of Oregon, Inc. ............................................. 100% Oregon Telephone Utilities of Washington, Inc. ......................................... 100% Washington Telephone Utilities of Wyoming, Inc. ............................................ 100% Wyoming Wayside Cellular, Inc. .......................................................... 100% Wisconsin Wayside Telecom, Inc. ........................................................... 100% Wisconsin The Wayside Telephone Company.................................................... 100% Wisconsin
The Company also has the following subsidiaries:
APPROXIMATE PERCENTAGE OF STATE OR VOTING JURISDICTION OF SECURITIES INCORPORATION OR NAME OF SUBSIDIARY OWNED ORGANIZATION --------------------------------------------------------------------------------- --------------- ---------------- Centralia Mining Company......................................................... 100% Washington Energy West Mining Company....................................................... 100% Utah Glenrock Coal Company............................................................ 100% Wyoming Interwest Mining Company......................................................... 100% Oregon Pacific Minerals, Inc. .......................................................... 100% Wyoming Bridger Coal Company, a joint venture............................................ 66.67% Wyoming
S-4 EX-23 16 EXHIBIT 23 Deloitte & Touche LLP _____________________ _____________________________________________________ 3900 US Bancorp Tower Telephone:(503)222-1341 111 SW Fifth Avenue Facsimile:(503)224-2172 Portland, Oregon 97204-3698 EXHIBIT (23) INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-36452, 33-51163, and 33-55309, all on Form S-3; in Registration Statement No. 33-49479 and Post-Effective Amendment No. 1 to Registration Statement No. 33- 17970, all on Form S-8; and in Registration Statement No. 33-36239 on Form S-4 of our reports, dated February 17, 1995, March 9, 1995 as to the agreement to acquire the minority interest in Pacific Telecom, Inc. described in Note 1, (which expresses an unqualified opinion and includes an explanatory paragraph relating to the change in the Company's method of accounting for income taxes and other postretirement benefits), appearing in and incorporated by reference in your Annual Report on Form 10-K of PacifiCorp for the year ended December 31, 1994. DELOITTE & TOUCHE LLP Portland, Oregon March 30, 1995 EX-24 17 EXHIBIT 24 EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Richard C. Edgley, Nolan E. Karras, Don M. Wheeler and Nancy Wilgenbusch, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 8, 1995. KATHRYN A. BRAUN _____________________________________ Kathryn A. Braun EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Richard C. Edgley, Nolan E. Karras, Don M. Wheeler and Nancy Wilgenbusch, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 8, 1995. FREDERICK W. BUCKMAN _____________________________________ Frederick W. Buckman EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Richard C. Edgley, Nolan E. Karras, Don M. Wheeler and Nancy Wilgenbusch, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 8, 1995. C. TODD CONOVER _____________________________________ C. Todd Conover EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Richard C. Edgley, Nolan E. Karras, Don M. Wheeler and Nancy Wilgenbusch, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 8, 1995. RICHARD C. EDGLEY _____________________________________ Richard C. Edgley EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Richard C. Edgley, Nolan E. Karras, Don M. Wheeler and Nancy Wilgenbusch, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 8, 1995. A. M. GLEASON _____________________________________ A. M. Gleason EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Richard C. Edgley, Nolan E. Karras, Don M. Wheeler and Nancy Wilgenbusch, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 8, 1995. JOHN C. HAMPTON _____________________________________ John C. Hampton EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Richard C. Edgley, Nolan E. Karras, Don M. Wheeler and Nancy Wilgenbusch, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 8, 1995. NOLAN E. KARRAS _____________________________________ Nolan E. Karras EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Richard C. Edgley, Nolan E. Karras, Don M. Wheeler and Nancy Wilgenbusch, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 8, 1995. KEITH R. MCKENNON _____________________________________ Keith R. McKennon EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Richard C. Edgley, Nolan E. Karras, Don M. Wheeler and Nancy Wilgenbusch, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 8, 1995. ROBERT G. MILLER _____________________________________ Robert G. Miller EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Richard C. Edgley, Nolan E. Karras, Don M. Wheeler and Nancy Wilgenbusch, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 8, 1995. VERL R. TOPHAM _____________________________________ Verl R. Topham EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Richard C. Edgley, Nolan E. Karras, Don M. Wheeler and Nancy Wilgenbusch, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 8, 1995. DON M. WHEELER _____________________________________ Don M. Wheeler EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Richard C. Edgley, Nolan E. Karras, Don M. Wheeler and Nancy Wilgenbusch, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 8, 1995. NANCY WILGENBUSCH _____________________________________ Nancy Wilgenbusch EX-27 18 EXHIBIT 27
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PACIFICORP'S DECEMBER 31, 1994 ANNUAL REPORT FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000075594 PACIFICORP 1,000 12-MOS DEC-31-1994 DEC-31-1994 PER-BOOK 8282300 591000 815400 206600 1950300 11845600 2985500 0 474300 3459800 367400 219000 3742700 21700 0 433000 93900 0 25500 1900 3480700 11845600 3506500 249800 2519900 2769700 736800 30000 766800 298800 468000 39700 428300 305200 214000 962100 1.51 1.51
EX-99 19 EXHIBIT 99 EXHIBIT 99 PACIFIC TELECOM, INC. ITEM 1. BUSINESS AND ITEM 2. PROPERTIES 1994 ANNUAL REPORT ON FORM 10-K PART I ------------------------------------------------------------------------------- ITEM 1. BUSINESS INTRODUCTION PTI was organized in 1955 to provide telephone service to suburban and rural communities principally in the Pacific Northwest. Since that time, the Company has grown significantly through acquisitions and expansion of its service offerings in several areas within the telecommunications industry. This expansion included the provision of long distance services in the State of Alaska, investments in cellular telephone operations and international communications, including the construction of a trans-Pacific fiber optic cable. Over the past few years, the Company's strategy has been to focus on its core business of providing local exchange service to suburban and rural markets and to divest its diversified portfolio of noncore businesses. This strategy is being implemented through the acquisition of LECs, the sale of certain international operations, the consolidation and sale of certain cellular holdings, and ongoing efforts to complete the sale of the Alaska long distance operations to AT&T. Upon completion of the pending sale of Alascom to AT&T, the Company will have resolved its uncertainties related to the Alaska long distance market. The sale of two noncore operations in 1993 successfully completed the Company's exit from its material noncore businesses. PTI has been a majority-owned subsidiary of PacifiCorp since 1973. At December 31, 1994, PacifiCorp, through a wholly-owned subsidiary, PacifiCorp Holdings, Inc. (Holdings), beneficially owned approximately 87 percent of PTI's common stock. On March 9, 1995, PacifiCorp and PTI announced a definitive merger agreement pursuant to which a newly-formed, wholly-owned subsidiary of Holdings will merge with and into PTI. Under the agreement, the holders of the approximately 5.3 million shares of common stock of PTI not held by Holdings will receive $30 in cash in exchange for each share of PTI common stock. As a result of the merger, PTI would become an indirect, wholly-owned subsidiary of PacifiCorp. The merger is conditioned upon, among other things, affirmative approval of the merger by holders of a majority of the shares held by the unaffiliated public shareholders. On November 1, 1994, Holdings originally proposed to acquire the shares not owned by it for $28 per share in cash. Promptly thereafter, PTI's Board of Directors formed a Special Committee of independent directors to receive, study, negotiate and make recommendations to the PTI Board regarding that proposal. The merger agreement was unanimously approved by the Board of Directors of PTI as fair to, and in the best interests of, PTI's public minority shareholders upon the unanimous recommendation of the Special Committee. In connection with its recommendation of the transaction, the Special Committee received the written opinions of Smith Barney Inc. and CS First Boston Corporation, to the effect that the consideration to be received by the minority shareholders in the merger is fair, from a financial point of view, to such holders. TELECOMMUNICATIONS OPERATIONS Local Exchange Companies The Company's LECs operate under a common business name and logo, PTI Communications. This marketing concept was established in 1991 to create a unified identity for the local operations, improve communication with customers and assist in the marketing of new products and services. As one of the major independent telephone companies in the U.S., the Company's LECs provide both local telephone service and access to the long distance network for customers in their respective service areas. At February 28, 1995, the Company operated 15 LECs within eleven states comprised of approximately 471,000 access lines in 297 exchanges. The average number of access lines per exchange is approximately 1,586, reflecting the lower population density generally found in the Company's service areas which are rural in nature. The Company's largest exchange in terms of access lines is in Kalispell, Montana, which had 23,390 access lines at December 31, 1994. Of the Company's 252 exchanges at December 31, 1994, 143 serve less than 1,000 access lines. Service areas are located primarily in the states of Alaska, Colorado, Montana, Oregon, Washington and Wisconsin. States also served, but to a lesser extent, include Idaho, Iowa, Minnesota, Nevada and Wyoming. (See "Regulation -- General.") The Company provides centralized administrative services to field operations from its corporate offices in Vancouver, Washington. 4 During the five years ended December 31, 1994, the number of access lines served by the Company increased from 252,700 to 418,000. As a result of the acquisitions of several LECs located in the Midwest, the Company added approximately 69,000 access lines in 1990, 3,200 in 1992 and 1,100 in 1993. Approximately 50,000 access lines in Colorado were added in February 1995 upon completion of the purchase of rural telephone exchange assets from USWC. (See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Acquisitions" for more information concerning the Colorado acquisition.) The LECs have also experienced strong internal access line growth in certain service areas, as evidenced by a 4.8 percent increase in access lines served during 1994. The Company anticipates that access line growth in the future will come from acquisitions and population growth in current service areas. Excluding the Colorado properties recently acquired from USWC, the Company has completed the conversion of all multi-party lines to single-party lines. Approximately 60 percent of the multi-party lines in these newly acquired Colorado exchanges were converted to single-party service by the end of 1994, and the Company expects that these exchanges will be fully converted to single-party service by December 31, 1995. The LECs have contracts with interexchange carriers under which the Company provides billing and collection services. The Company has an agreement to provide these services for AT&T and an agreement with Independent NECA Services (INS), a clearinghouse service bureau, to provide these services for other carriers for varying periods of time, some with automatic renewals and some terminating in 1995 and 1996. In Alaska, the Company's LECs have similar agreements with Alascom. Effective March 6, 1995, AT&T started billing and collection for most of its toll messages in the western areas served by the Company, and will do so in the midwest areas served by the Company beginning in April 1995. This change is expected to reduce the Company's billing and collection revenues by approximately $1 million in 1995 compared to 1994. It is anticipated that this reduction will be partially offset by the effects of increased message volumes billed due to acquisitions and billing for additional carriers through the agreement with INS. In addition to its basic telephone service, the Company offers enhanced services, such as caller name and number identification, automatic call back, auto recall and call trace, to certain of its service areas under the Custom Local Area Signaling Service (CLASS). CLASS services were offered to certain of the Company's customers in Washington, Montana and Wisconsin in 1994. The Company is evaluating the offering of CLASS services in 1995 to certain Alaska, Colorado and Oregon markets and additional markets in Washington and Wisconsin. The Company's existing switching equipment provides these services with minimal software and hardware enhancements. Some of the Company's switching equipment has other enhanced service capabilities, such as voice messaging, that are being offered to its customers where available. The Company also offers certain customers custom calling features like call forwarding, call waiting and speed dial. The LECs also sell and lease, on a nonregulated basis, customer premise (i.e., telephone) equipment for use by residential and business customers. As part of this program, residential and business customers are offered maintenance services on a monthly fee basis. In 1994, revenues from these services totalled $1.4 million. The Company continues to seek expansion of its local exchange operations through acquisition. In February 1995, the Company acquired certain rural telephone exchange assets in Colorado from USWC. The assets represent 45 exchanges that serve approximately 50,000 access lines. The Company paid approximately $200 million for these assets at closing. The Company funded the Colorado acquisition through short-term bank borrowings and anticipates repaying these borrowings with proceeds from the sale of Alascom. In an attempt to satisfy certain regulatory concerns in Colorado, the Company also entered into a construction contract with USWC in July 1993 that required the Company to construct and upgrade plant related to the acquired assets. Under the contract, the Company acted as general contractor on behalf of USWC. The construction and upgrade program accelerated single-party service and digital switching required by the CPUC. During 1993 and 1994, the Company spent an aggregate of $30.1 million under this contract. The Company has added the amounts expended under the contract to its construction work in progress or plant in service accounts for these exchanges. The Company has received an order from the FCC granting the waivers to reclassify the exchanges from USWC's regulatory study area in Colorado to the Company's regulatory study area in Colorado and to permit rate of return regulation on the exchanges served by the acquired assets. Included in the study area waivers was permission for these exchanges to be eligible to receive support from the USF, as the cost to provide service in these exchanges exceeds the national average. The FCC waivers will allow the 5 Company to replace the incentive regulation adopted for these exchanges by USWC with cost based rate of return regulation, which is consistent with the Company's other LEC operations. (See "Regulation -- Local Exchange Companies" for additional information concerning new USF limitations.) In May 1994, the Company signed definitive purchase agreements to acquire certain rural telephone exchange assets in Oregon and Washington from USWC. The assets to be acquired by the Company represent 49 exchanges that serve approximately 35,000 access lines. Many of these exchanges are contiguous to or located near other rural exchanges that the Company owns and operates in these states. The combined price for these assets of approximately $180 million in cash is subject to certain adjustments, including adjustments for actual book value of the assets at closing. The Company will not assume any financial liabilities from USWC in the transactions. Applications seeking Washington Utilities and Transportation Commission and Oregon Public Utilities Commission approvals and FCC study area and price cap waivers were filed in the second quarter of 1994. The FCC order approving the Colorado transaction grandfathered the FCC waiver requests for the Oregon and Washington assets, permitting them to be evaluated without application of a newly imposed restriction limiting the redistribution of USF funding. (See "Regulation -- Local Exchange Companies" for additional information about changes in the USF.) Completion of the transactions with USWC is also dependent on other regulatory and governmental approvals, receipt of which is expected to occur prior to the end of 1995. The Company expects to fund the acquisition of these assets through proceeds from the sale of Alascom to AT&T, the issuance of external debt and the use of internally generated funds. Long Lines Through Alascom, the Company provides intrastate and interstate MTS, WATS, private line, leased channel and other communications services within Alaska and between Alaska and the rest of the world. Alascom's facilities interconnect with 22 LECs and the military bases within Alaska and with the interstate and international long distance network. Virtually all services are provided in accordance with tariffs filed with the appropriate regulatory agencies. (See "Regulation -- Long Lines -- Interstate Revenues" for information concerning Alascom's settlements arrangement with AT&T for interstate services.) Alascom uses both satellite and terrestrial facilities in providing service. All interstate MTS and certain interstate private line services are provided via the Alaska Spur. (See "Telecommunications Operations -- Pacific Telecom Cable.") Satellite facilities provide intrastate MTS, WATS and private line services, link remote areas of Alaska to the long distance network (both interstate and intrastate) and serve as alternate routing for vital customer services. Alascom operates 18 satellite transponders on a communication satellite that replaced Alascom's original satellite in 1991. Alascom purchased two transponders, one in 1994 and one in 1993, and leases 16 transponders under an operating lease that expires in mid-1998. At the end of the lease, the Company has the option of either repurchasing the satellite or guaranteeing a minimum sales price to a non-affiliated party. Telemetry, tracking, control and in-orbit protection services are provided under contract by GE American Communications, Inc. for the projected remaining service life of the satellite estimated at 8 years. Alascom owns 173 satellite transmit and receive earth stations (including 12 transportable earth stations), a 50 percent interest in 46 earth stations used generally for service throughout Alaska and 7 additional earth stations located in the lower 48 states, Panama, Russia and Saudi Arabia. Alascom routinely upgrades earth stations with digital technology to provide enhanced communication services. Approximately 70 percent of the earth station circuits are digital. Alascom has digital switching equipment located at its toll centers in Anchorage, Fairbanks and Juneau. It also owns and operates major terrestrial microwave systems (primarily digital) that provide communications between Anchorage and Fairbanks and Anchorage and the cities on the Kenai Peninsula. The microwave system also interconnects Anchorage with leased Canadian facilities at the Canadian border and with Haines, Juneau and Ketchikan in the rugged terrain of southeastern Alaska. Alascom owns and operates the communications system along the Trans-Alaska Pipeline that is used to monitor and control the flow of oil through the pipeline. Alaska's geographic location makes the state strategically important for the military. Alascom has numerous private line facilities serving the government, including several transportable earth stations used to support military communication needs. Alascom continues to operate one transportable earth station in Saudi Arabia, which provides telecommunication services under an agreement with the U.S. Department of Defense. Alascom is participating in a joint venture providing international MTS and private line service to several locations in the eastern part of Russia. 6 Alaska Market Restructuring In October 1994, the Company signed an agreement to sell the stock of Alascom to AT&T in a transaction providing $365 million in proceeds. Under the terms of the agreement, AT&T will pay $290 million in cash for the Alascom stock and for settlement of all past cost study issues. AT&T has also agreed to allow PTI to retain a $75 million transition payment made by AT&T to Alascom in July 1994 pursuant to an FCC order. AT&T made a down payment of $30 million to the Company upon signing the stock purchase agreement, which would be applied to the final $75 million transition payment required in the FCC order if the sale failed to close. The remaining $260 million is to be paid when the transaction closes. Closing of the sale of Alascom is subject to certain conditions, including receipt of state and federal regulatory approvals that are expected to be received during the first half of 1995. The Company has agreed to provide accounting, data processing and human resource service support for up to 15 months following the sale to allow for a smooth transition in exchange for certain equipment that the Company intends to incorporate in its LEC operations. The Company anticipates recognizing a material gain from the sale of Alascom. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Forecast" for information about this gain. The JSA and the entire telecommunications market in Alaska have been under review by a Joint Board of the FCC and state regulators over the past ten years. In May 1994, the FCC, based on recommendations of the Joint Board, ordered a restructuring of the Alaska telecommunications market. Among other matters, the FCC order would have required termination of the JSA between Alascom and AT&T, effective January 1, 1996; the payment by AT&T to Alascom of $150 million for transition payments in two equal installments of $75 million each; AT&T to continue utilizing Alascom's facilities for the origination and termination of interstate traffic on a declining scale for a period of two and one-half years following termination of the JSA; and the creation by Alascom of an interstate tariff for carrier services based upon an allocation of costs between rural and nonrural locations. Although the FCC order remains in effect, the agreement to sell Alascom to AT&T was reached as a solution to issues that remained unresolved by the order. Alascom filed a petition for review of the FCC order with the United States Court of Appeals for the District of Columbia in June 1994. This petition has been stayed pending completion of the proposed transaction with AT&T. Cellular Operations The Company's wholly-owned subsidiary, PT Cellular, is a holding company with subsidiaries in Alaska, Michigan, Minnesota, Oregon, South Dakota, Washington and Wisconsin. The Company has ownership interests with respect to 29 MSAs and RSAs and manages 10 of these interests in Alaska, Michigan and Wisconsin. The Company also manages five other RSAs in Minnesota. Revenues from cellular operations represented approximately three percent of total Company revenues in 1994. Cellular mobile telephone service is being provided or developed in areas designated as RSAs or MSAs within boundaries defined by the FCC. Cellular systems provide local and long distance telephone services through mobile radio telephones (cellular phones) that are either hand-held or mounted in vehicles. These cellular phones transmit and receive radio signals to and from transmitter, receiver and signaling equipment (cell sites). Cell sites in an RSA or MSA are located in a manner that will allow for the most complete coverage of an area. Each cell site is connected to a switching facility that controls the cellular system of the specific RSA or MSA and connects the cellular customer to the conventional wireline local and long distance telephone networks or to other cellular phone users in the area. The Company believes that the creation of a large regional automatic call delivery area is important to the continued success of its cellular operations. During 1994, the Company's cellular properties in Wisconsin and Michigan were networked with the major MSA markets in Wisconsin and with all of the markets in rural Minnesota. This provided the Company's Wisconsin and Michigan customers with one of the largest regional automatic call delivery areas available in the U.S. The Company plans to continue its efforts to expand its presence in the Midwest and to network with additional major MSA markets in Minnesota, Michigan and Illinois in early 1995. The provision of automatic call delivery services within the region simplifies the process by which customers receive cellular calls in the areas that they travel most often, thus increasing the convenience and value of their cellular service. 7 The Company continues to test and evaluate digital cellular technology and is preparing to provide digital cellular service when market forces warrant its deployment. The Company does not anticipate that in the near future it will be required to deploy digital cellular technology solely to increase the capacity of its cellular systems. The following table sets forth the Company's POP ownership by state as of December 31, 1994.
Non- State Controlled(1) Controlled Total ------------------------------------------------------------------------------- Alaska 201,000 -- 201,000 Michigan 315,000 -- 315,000 Minnesota -- 23,567 23,567 Oregon -- 107,035 107,035 South Dakota -- 16,147 16,147 Washington -- 41,152 41,152 Wisconsin 688,646 627,407 1,316,053 ------------------------------------------------------------------------------- Total 1,204,646 815,308 2,019,954 ------------------------------------------------------------------------------- (1) Represents interests with respect to RSAs and MSAs where the Company has an ownership position and manages the operations.
The Company plans to increase its ownership interests in certain cellular properties in order to achieve ownership control and to consolidate the Company's cellular service areas into larger contiguous units for operating efficiencies. This plan may be accomplished through the exchange of existing cellular interests and/or future acquisitions. On January 18, 1995, the Company signed a letter of intent to sell 20 percent of its interest in the Alaska RSA #1 market (Fairbanks) for cash and notes receivable. The letter of intent also provides options for the buyer to increase its ownership of the market to a maximum level of 49 percent over a two-year period. Consummation of the transaction is subject to negotiation of definitive agreements and certain corporate approvals. This sale is not anticipated to have a significant impact on the financial results of the Company. The Company has budgeted $20.6 million for the development of cellular operations over the next three years. Customers served by the cellular operations controlled by the Company increased 61 percent in 1994, 65 percent in 1993 and 70 percent in 1992. Pacific Telecom Cable PTC, which is owned 80 percent by PTI and 20 percent by Cable & Wireless plc (C&W), a United Kingdom corporation, is involved in the operation, maintenance and sale of capacity of a submarine fiber optic cable between the U.S. and Japan, known as the North Pacific Cable. The eastern end of the cable is operated by PTC. The western end is operated by International Digital Communications, Inc. (IDC), a Japanese corporation. Major IDC shareholders include C. Itoh & Co., Ltd, Toyota Motor Corporation, Pacific Telesis International and C&W. The North Pacific Cable was the first submarine fiber optic cable to provide direct service between the U.S. and Japan. In addition, through the Alaska Spur, it provides the first digital fiber optic link between Alaska and the lower 48 states. Service between the U.S. and Japan is carried on three, 420 Mbit/s digital fiber optic pairs, providing a total capacity of 1,260 Mbit/s. Service between Alaska and the lower 48 states is carried on one, 420 Mbit/s digital fiber optic pair. On the eastern end, the cable lands at Pacific City, Oregon and Seward, Alaska. From the landing stations, traffic is transmitted to carrier access centers near Portland, Oregon and Anchorage, Alaska for interconnection with digital communications facilities serving the lower 48 states and Alaska and with facilities transmitting traffic to foreign countries. On the western end, the cable lands at Miura, Japan, and traffic is transmitted to IDC's carrier access centers in Tokyo, Yokohama and Osaka for interconnection with Japanese domestic service providers. For service to points beyond Japan, IDC has constructed a 75-mile submarine cable from Miura to Chikura where it interconnects with other international cables. IDC also participates in the Asia Pacific Cable system that links Miura with Hong Kong, Singapore, Taiwan and Malaysia. Construction and laying of the North Pacific Cable were completed in December 1990, the system was made available for commercial traffic in May 1991 and final system acceptance occurred in November 8 1991. Forty-three private and government-owned telecommunications firms representing 26 countries have purchased approximately 53 percent of the cable's 17,010 circuit capacity. PTC recognized revenues of $4.6 million in 1994, $4.9 million in 1993 and $10.8 million in 1992 related to cable and backhaul capacity sales. PTC continues to market the remaining unsold capacity. Marketing efforts have included the completion of tests demonstrating the feasibility of transmitting international high-quality television signals via fiber optics using the North Pacific Cable. Based on the Company's estimates of growth in trans-Pacific demand for communications capacity, interconnectivity between existing and planned cable systems and the North Pacific Cable, the availability of other sources of capacity over the next five years and the possible development of alternative business uses of the cable, the Company believes that the inventory value of the cable system at December 31, 1994 can be recovered. The original three-year warranty on the North Pacific Cable system's submersible plant and terminal equipment ended on November 11, 1994. This warranty covered the repeaters, electronics, cable and branching unit. Testing to verify the status of the system was completed prior to warranty expiration. Results of the completed tests indicated that the North Pacific Cable system was operating at or above contracted levels before an outage in February 1995. This outage is under investigation. Extended warranties for certain components of the North Pacific Cable system will continue in effect until November 2001. These extended warranties apply to the majority of the cable supplied by the manufacturers. PTC, IDC and C&W (Founders) are responsible for procuring maintenance for the North Pacific Cable and have renewed the existing maintenance arrangements with Cable & Wireless (Marine) Limited for an additional five-year period beginning in April 1994. Thereafter, the contract has annual renewal options for up to five years. The Founders continue to seek arrangements for a maintenance vessel to be available for service on the western end of the cable. The majority of maintenance service costs are passed on to owners of capacity on the cable. PT Transmission provides restoration services for the eastern end of the North Pacific Cable under the terms of its tariff. In the event of a cable failure, restoration services are provided via a PT Transmission satellite earth station located at Moores Valley, Oregon. Other Communications Subsidiaries and Partnerships On April 29, 1994, the Company completed the sale of two wholly-owned noncore subsidiaries, PTI Harbor Bay, Inc. and Upsouth Corporation, to IntelCom Group, Inc. (IntelCom) (AMEX:ITR) for 1,183,147 shares of IntelCom common stock and $.2 million in cash. On October 17, 1994, the Company sold its IntelCom stock in an underwritten public offering. Cash proceeds of $15.9 million and a gain of $1.0 million, net of tax and selling expenses, were recognized in 1994. PTI Harbor Bay, Inc. provides transmission services principally in the greater San Francisco Bay Area. Upsouth Corporation owns an earth station complex near Atlanta, Georgia and another near Carteret, New Jersey. The net assets of PTI Harbor Bay, Inc. and Upsouth Corporation prior to the sale were classified in "other current assets." In 1989, the Company acquired three AM/FM combination radio stations in Oregon, Nevada and Idaho in an effort to protect an investment made when the Company was investing in non-telecommunications businesses. In 1992, the AM radio station in Idaho was contributed to an institution of higher education and the Company recognized a tax benefit. The Company sold the FM station in Idaho in July 1994 and recognized a pre-tax loss of $.3 million. On February 28, 1995, the Company completed the sale of the Oregon stations and recognized no gain or loss on the transaction. The Company also has agreements to sell the remaining stations in Nevada and is waiting for regulatory approval of the sales, which are expected to close in the first half of 1995. Due to their pending sale, the net assets of the radio stations were classified as "other current assets" at December 31, 1994. The Company expects to recover its investment in these entities as the result of these transactions. 9 REGULATION General The Company's LECs and Alascom operate in an industry that is subject to extensive regulation by the FCC and state regulatory agencies. Virtually all services, both local and long distance, are provided in accordance with tariffs filed with the appropriate regulatory agencies. The telecommunications industry continues to undergo change as a result of a series of regulatory and judicial proceedings regarding the deregulation of certain aspects of the industry. The FCC, Congress and some state regulatory agencies are pursuing alternative forms of regulation that depart from traditional rate of return regulation for telecommunications companies such as the Company. These alternatives include the possible opening of local exchange franchises to competition. The effects of any such alternative forms of regulation on the Company's LECs is uncertain. The Company's LECs are governed by tariffs filed with the FCC for interstate access services provided to interexchange carriers. Interstate and certain international services provided by Alascom are governed by tariffs filed with the FCC. The FCC also licenses other aspects of the Company's telecommunications operations, including the construction and operation of its microwave, cable and radio facilities and its satellite and earth stations. As part of its regulation, the FCC prescribes a Uniform System of Accounts (USOA) that dictates the account structure and accounting policies used by both the LECs and Alascom. The FCC also establishes the principles and procedures (separations procedures) that allocate telephone investment, operating expenses and taxes between interstate and intrastate jurisdictions for the Company's LEC operations and Alascom. Generally, the state regulatory agencies have adopted the USOA and the principles and procedures prescribed by the FCC. To discourage carriers from subsidizing the cost of nonregulated business activities and to protect customers from unjust and unreasonable rates, the FCC and certain state regulatory commissions have adopted accounting and cost allocation rules for segregating the costs of regulated services and nonregulated services. The rules are based on fully distributed costing principles. In addition to segregating costs, the accounting policies prescribe guidelines for recording transactions between affiliates, require monitoring of jurisdictional earnings of various services and set forth a process for auditing the allocation procedures. The Company's cellular interests are regulated by the FCC with respect to the construction, operation and technical standards of cellular systems and the licensing and designation of geographic boundaries of service areas. Certain states also require operators of cellular systems to satisfy a state certification process to serve as cellular operators. Local Exchange Companies The facilities of the Company's LECs are used principally to provide local telephone service and customer access to the long distance network. The costs of providing services are allocated between the interstate and intrastate jurisdictions. Interstate service costs (both traffic sensitive and nontraffic sensitive) are recovered through an access charge plan under which LEC or NECA tariffs filed with the FCC allow for charges to interexchange carriers for access to customers. The traffic sensitive costs are recovered either directly through access charges or through cost based settlements with NECA. The nontraffic sensitive portion (subscriber loop) of these interstate-related costs is recovered through a settlement process with NECA. The subscriber loop represents investment in plant from the central office to the customer's premise. The nontraffic sensitive revenue pool administered by NECA is funded by a subscriber line charge to individual customers, interexchange carrier access charges and long-term support payments by nonpooling LECs. Since January 1, 1991, the interstate rate of return authorized by the FCC for LECs' interstate access services has been 11.25 percent. The USF administered by NECA compensates companies whose nontraffic sensitive loop costs per subscriber are greater than an established threshold over the national average. Due to the suburban and rural nature of its operations, most of the Company's LECs receive this compensation, as the cost of providing local service in rural areas generally exceeds the national average. Based on a concern over recent growth in the size of the USF, a Federal-State Joint Board proposed interim USF rules that were adopted by the FCC in 1993. These interim rules place an indexed cap on USF growth to allow the USF to grow at a rate no greater than the rate of growth in the nation's total work- 10 ing local loops. The interim rules are intended to allow moderate growth in the total level of the USF while the FCC and the Federal-State Joint Board undertake a re-evaluation of the USF assistance mechanism. The Federal-State Joint Board proposed that the interim rules remain in effect for 1994 and 1995. As most of the Company's LEC operations receive USF compensation, significant changes to the USF assistance mechanism could affect the Company's future results. The Company believes that placing the indexed cap on USF growth may have a negative impact on the Company's revenues, but the impact is not expected to be material. In addition, a reduction in USF revenues will shift revenue requirement to the intrastate jurisdiction where the Company may request a revenue increase at the state level to offset some or all of the lost assistance where USF proceeds are used to maintain lower rates. In 1994, Congress considered legislation (S. 1822) that would rewrite the 1934 Communications Act. Efforts to pass comprehensive telecommunications legislation are expected to continue in 1995. Based upon statements of Congressional leaders, it is expected that the 1995 effort, much like the 1994 effort, will address universal service concepts and the support mechanisms necessary to sustain them. On January 5, 1995, the FCC issued its order granting the Company a study area waiver and price cap waiver associated with the Company's purchase of USWC assets in Colorado. The order clears the way for the purchased assets to fully participate in the USF and allows them to be operated on a rate of return as opposed to price cap basis. The order also implemented new standards on transactions having an impact on the USF. any future transaction that would cause a shift of USF payments exceeding one percent of the total fund will be held to a higher standard of review by the FCC. However, the Company's pending waiver requests associated with the Company's purchase of USWC Washington and Oregon assets were grandfathered and will be evaluated without application of the one percent cap. As an alternative for rate of return regulation, the FCC adopted optional incentive regulation for LECs beginning in 1991. Due to specific constraints, including the requirement that all LECs under common ownership must adopt incentive regulation when it is adopted by any LEC in the group, it is unlikely that the Company will adopt this form of regulation for interstate purposes in the near future. NECA has recently filed its own recommendation for an incentive regulation plan with the FCC. The Company will monitor the progress of NECA's efforts and evaluate its options if an alternative regulation plan is implemented. In early 1995, the Company's largest Wisconsin LEC filed proposed local exchange and intrastate access rate changes with the Wisconsin Public Service Commission, which would become effective June 1, 1995. The proposed rate design would be revenue neutral with lower revenues from interexchange access and services offset by increased local exchange revenues of approximately $.6 million. Extended Area Service (EAS), which extends local calling areas, would not be part of the basic rates and would be measured on a minute of use basis or a flat rate optional service. Management does not believe that these changes will significantly impact the Company's financial results. In Washington, a process was started in 1990 to restructure rates to allow the conversion of all multi-party to single-party lines, to eliminate touchtone charges and to offer certain customers EAS. In August 1993, the Company proposed additional revisions to rates for further extension of EAS to substantially all of its Washington customers. By the end of 1994, all lines in Washington were single-party, with approximately 98 percent having EAS capabilities. In December 1994, the Company received an order from the APUC to implement revised depreciation rates retroactive to January 1, 1994. This adjustment decreased the depreciation rate, which resulted in an annual increase in operating income of $3.6 million. The income was recognized in the last quarter of 1994. There are no other LEC depreciation rate adjustments currently pending with any of the Company's regulatory commissions. Long Lines Long Lines -- Interstate Revenues Through September 1994, Alascom's interstate MTS and WATS revenues were derived through the JSA with AT&T. Based on a May 1994 FCC order, the JSA is scheduled to be terminated on January 1, 1996. Since that order was received, the Company has agreed to sell the stock of Alascom to AT&T. Long lines interstate revenues from October 1994 until the sale closes are recognized based on the interim cash settlement amounts outlined in the stock sale agreement. These monthly payments are fixed at historically projected settlement amounts. Prior to signing the agreement in October 1994, long lines recognized revenue under the JSA based on the current computation of the revenue requirements. (See "Telecommunications Operations -- Alaska Market Restructuring.") 11 Long Lines -- Access Charges Alascom purchases access to the local network under an access tariff and billing and collection services under a separate contract. These charges for interstate access services are determined using access charge procedures used by LECs in the contiguous 48 states. (See "Regulation -- Local Exchange Companies.") Interstate access charges and billing and collection charges are included under the JSA with AT&T. Alascom makes payments for intrastate access charges through a state access tariff. The access charge system was implemented in 1991 to accommodate intrastate competitive entry. (See "Competition -- Long Lines -- Intrastate.") The Alaska Exchange Carriers Association coordinates the filing of access tariffs and the pooling of costs. The adoption of intrastate access charges has had no material adverse effect on the Company's results of operations. Alascom purchases intrastate billing and collection services under a separate contract. Long Lines -- Alaska Spur Alascom purchased and operates the Alaska Spur under a temporary authorization from the FCC which expires on August 8, 1995. In December 1992, Alascom sold 11 percent of the Alaska Spur's capacity to GCI. COMPETITION Local Exchange Companies The Company's LECs have experienced little competition in providing basic services, primarily due to the suburban and rural nature of their service territories. Competition from the development of alternative networks by other carriers and of private networks (bypass) by government agencies and large corporate customers has resulted in minor diversions of traffic from the Company's LECs. To date, the Company has also experienced little competition from cable TV providers and wireless technologies. Competition from these sources may increase if regulators open basic telephone service to cable TV operators and as wireless technologies advance. However, investment by others in facilities will be required to provide competitive service, and the Company believes that these investments will be made only if appropriate economic opportunities and demand for such services exist. The Company also believes it is well positioned to meet this type of competition and that price and service are the significant competitive factors in dealing with alternative networks, bypass and other forms of competition. With respect to access service, the Company's LECs may face competition from several sources in the future. Alternative or competitive access providers (CAPs) have, in various parts of the country, constructed facilities which bypass those of the local exchange carrier to provide access between customers and interexchange carriers. The location and extent of such activity is determined by a number of factors, including applicable state and federal regulatory policies, and economic and market conditions in the area. This activity is most prominent in the business districts of large urban areas. A number of interexchange carriers have also announced or implemented programs to construct facilities which bypass those of local exchange companies. This competitive activity pressures LECs to lower access rates. There are also political pressures supporting lower access rates. The Company believes that the activities of CAPs and the major interexchange carriers, at present, do not pose a direct, material threat to the Company's revenues due to the rural nature of its operations. The ratio of residential to business access lines for the Regional Bell Operating Companies averages two to one, while the Company's LECs average three to one. The Company anticipates that competition in services and facilities will evolve over time in its LEC service areas. The Company is reviewing the potential effect such competitive activity may have on its operations and seeking to find ways to benefit from changes which may occur as competition increases. 12 Long Lines -- Interstate In 1982, the FCC authorized a variety of carriers to provide interstate services in Alaska in competition with Alascom. GCI, a carrier providing private line, MTS and WATS equivalent services to and from Alaska, attracted a significant number of customers as LECs converted to equal access in Anchorage, Fairbanks, Juneau and other areas. Although rates were a significant competitive issue during the introduction of equal access, the rate advantage enjoyed by GCI prior to rate integration was reduced with the integration of toll rates in January 1987 and subsequent nationwide annual rate reductions through 1990. As a result of these rate reductions and other factors, Alascom has experienced growth in interstate billed minutes of 2.7 percent in 1994, 6.2 percent in 1993 and 11.9 percent in 1992. The Company believes that with minimal rate differences, service is currently the predominant competitive factor in the Alaska interstate market. In January 1990, GCI filed a petition for rulemaking with the FCC seeking to abolish the present prohibition against construction of duplicate earth station facilities in rural Alaska. GCI stated that it desired to extend its services to rural Alaska over a five-year period. Alascom opposed GCI's petition, as being contrary to the public interest. The FCC has taken no action with regard to the GCI petition. Long Lines -- Intrastate In 1990, the Alaska legislature enacted legislation that authorized intrastate competition, and the APUC established specific regulations for competition that allowed facilities-based competition in some areas, but prohibited construction of duplicative facilities in most remote locations. The APUC also designed a competitive framework under which high costs of providing service in rural locations are shared by Alascom and its competitors through the LEC access charge pooling mechanism. Intrastate competition in Alaska commenced in May 1991. Competition has been introduced in approximately 90 percent of the Company's intrastate market. The Company's intrastate long distance service revenues, net of related access charges, accounted for approximately five percent of the Company's total revenues in 1994 and in 1993 and six percent in 1992. The Company has mounted a marketing campaign in response to this competition and believes that price and service are the significant competitive factors in this market. Intrastate minute volumes increased 5.0 percent in 1994 and 1.7 percent in 1993 but decreased 7.3 percent in 1992. Cellular Operations Under FCC guidelines, two licenses to provide cellular service were granted in each MSA and RSA. The Company believes that price and service are significant competitive factors in the cellular market. A competitive threat to cellular operations from other wireless communications technologies also exists. This threat may increase as these technologies are developed in the future. In June 1994, the FCC modified the rules issued in September 1993 governing broadband Personal Communications Services (PCS). The FCC defined the PCS license areas based on 51 major and 493 basic trading areas (MTA and BTA, respectively). Under the PCS rules as modified, the FCC created six licensed frequency blocks representing 120 MHz of spectrum and identified 20 MHz of spectrum for unlicensed PCS. The licensed spectrum was divided into two 30 MHz MTA blocks, one 30 MHz BTA block and three 10 MHz BTA blocks. The FCC began the broadband PCS auction process in December 1994 by auctioning the MTA licenses. The auctions for the BTA licenses are expected to be initiated by the second quarter of 1995. The Company's cellular operations are eligible to participate in the PCS auctions subject to certain limitations established by the FCC. The PCS license term is set at 10 years with 30 MHz licensees required to cover one-third of the POPs within five years and two-thirds of the POPs within ten years; 10 MHz licensees are required to cover one-quarter of the POPs within five years. Although the Company is not planning on bidding for PCS licences, it continues to monitor PCS developments and evaluate its opportunities in the PCS market. 13 Cable Operations The North Pacific Cable is currently the only operating cable between the U.S. and the western Pacific that has available capacity for sale. AT&T placed a cable into service between the U.S. and Japan in late 1992. This cable competed directly with the North Pacific Cable for subscribers. AT&T has stated that all capacity on its cable has been subscribed. AT&T has announced plans for an additional cable system between the eastern and western Pacific for completion over the next three years. The North Pacific Cable also competes with available capacity on international communication satellites. ENVIRONMENT Compliance with federal, state and local provisions relating to protection of the environment has had no significant effect on the capital expenditures or earnings of the Company. Future effects of compliance with environmental laws are not expected to be material, but environmental laws could become more stringent over time. EMPLOYEES At December 31, 1994, the Company had 2,762 employees, approximately 39 percent of whom were members of six different bargaining units. These units are represented by the International Brotherhood of Teamsters, the International Brotherhood of Electrical Workers, Communication Workers of America or the NTS Employee Committee. During 1994, negotiations were completed on three collective bargaining agreements governing 392 employees. Negotiations on three contracts covering 692 employees commenced in 1994 and continued into 1995. Relations with represented and non-represented employees continue to be generally good. As a result of the pending sale of Alascom, the Company's workforce would no longer include the 632 full-time employees of Alascom. PTI would retain all liabilities related to Alascom's retired employees in accordance with the Company's retirement plans while AT&T would make available its plans to existing Alascom employees at closing under terms of the stock purchase agreement. CONSTRUCTION PROGRAM The Company financed its 1994 construction program primarily through internally generated funds. Construction expenditures for 1994 and estimated expenditures for 1995 through 1997, including expenditures relating to assets acquired or to be acquired from USWC of $24.4 million, $34.9 million, $19.9 million and $15.8 million for 1994, 1995, 1996 and 1997, respectively, are as follows (in millions):
Plan ------------------------------ 1994 1995 1996 1997 ----------------------------------------------------------------------------- LECs $110.9 $108.7 $109.5 $99.0 Long Lines 22.2 7.1 -- -- PT Cellular 9.8 8.5 5.0 7.1 Other 5.3 3.2 2.6 2.6 ----------------------------------------------------------------------------- Total $148.2 $127.5 $117.1 $108.7
The estimates of construction costs set forth above are subject to continuing review and adjustment. The Company anticipates that it will be able to finance substantially all of its construction programs for 1995 from internally generated funds. 14 ACQUISITION PROGRAM The Company continues to seek expansion of its local exchange operations and cellular interests through the acquisition of additional local exchange companies and assets and cellular properties that complement its existing properties and operations. The Company seeks to realize economies of scale through these acquisitions, particularly where the properties are near the Company's current operations or are of sufficient size to support moving into a new geographic area. (See "Telecommunications Operations -- Local Exchange Companies" and Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Pro Forma Financial Information" and "Financial Forecast" for information regarding pending acquisitions of USWC assets in Oregon and Washington.) ITEM 2. PROPERTIES The telephone properties of the Company's LECs include central office equipment, microwave and radio equipment, poles, cables, rights of way, land and buildings, customer premise equipment, vehicles and other work equipment. Most of the Company's division headquarters buildings, telephone exchange buildings, business offices, warehouses and storage areas are owned by the Company's LECs and are pledged to secure long-term debt. In addition, certain of the LECs' microwave facilities, central office equipment and warehouses are located on leased land. Such leases are not considered material, and their termination would not substantially interfere with the operation of the Company's business. (See "Item 1. Business -- Telecommunications Operations -- Local Exchange Companies" for information regarding the states in which the Company has LEC operations.) The properties of Alascom include toll centers with toll switching facilities, microwave and radio equipment, satellite transmit and receive earth stations, submarine cables (including the Alaska Spur), land, warehouse and administrative buildings, as well as transportation and other work equipment. Although Alascom owns most of its buildings, much of its telecommunications equipment is located on leased property. In addition, Alascom leases certain microwave and satellite circuits to carry both interstate and intrastate communications. The Company leases 16 transponders on a satellite through an operating lease with a term of 69 months. The Company also purchased and placed in service two additional transponders on this satellite, one in 1993 and one in 1994. (See "Item 1. Business -- Telecommunications Operations -- Long Lines" for information concerning other properties of Alascom.) PT Cellular's subsidiaries are partners in partnerships that own or lease switching facilities, cell site towers, cell site radio equipment and other equipment required to furnish cellular service to the areas they serve. (See "Item 1. Business -- Telecommunications Operations -- Cellular Operations" for information regarding the states in which the Company has cellular operations.) The properties of PTC and PT Transmission include a satellite transmit and receive earth station, located at Moores Valley, Oregon, fiber optic cables, land, buildings, operating facilities and business offices, all of which are owned. In addition, PTC leases a duplicate cable for backup between Pacific City, Oregon and Portland, Oregon and business office space. PTC also holds in inventory its portion of the unsold capacity in the North Pacific Cable and backhaul facilities. The Company's executive, administrative, purchasing and certain engineering functions are headquartered in Vancouver, Washington. The Company has a 50 percent ownership interest in its headquarters building and, through a long-term lease, occupies approximately 73 percent of the 225,000 square-foot building. The Company owns its mainframe computer and leases most of the other equipment used in conjunction with providing data processing services. 15 PACIFICORP FINANCIAL SERVICES, INC. ITEM 1. BUSINESS AND ITEM 2. PROPERTIES 1994 ANNUAL REPORT ON FORM 10-K PART I ITEM 1. BUSINESS GENERAL PacifiCorp Financial Services, Inc. (the "Company") is a holding company with three principal business segments - Financial Services, Real Estate, and, as a result of the resolution of a problem loan situation, Agriculture. A formal plan for disposal of the Company's investment in its Agriculture operations was adopted late in the fourth quarter of 1994 and Agriculture is now classified as part of discontinued operations (see Note 10 to the Consolidated Financial Statements). A fourth business segment, Manufacturing, was disposed of in the third quarter of 1994. The Financial Services and Real Estate business segments conform to the definitions provided by Statement of Financial Accounting Standards No. 14 - "Financial Reporting of Segments of a Business Enterprise." The net assets and results of operations of the Agriculture and Manufacturing segments have been classified as discontinued operations. Financial information concerning Financial Services, Real Estate and discontinued operations can be found in the Company's Consolidated Financial Statements and Notes thereto. The Company is a wholly-owned subsidiary of PacifiCorp Holdings, Inc. ("Holdings"), which is, in turn, a wholly-owned subsidiary of PacifiCorp. PacifiCorp is a Portland, Oregon-based electric utility, conducting retail electric utility operations under the names of Pacific Power & Light Company and Utah Power & Light Company. The common stock of PacifiCorp (PPW) is traded on the New York Stock Exchange and the Pacific Stock Exchange. Holdings was incorporated in Delaware in 1984 for the purpose of holding the non-electric subsidiaries of PacifiCorp. In addition to owning 100% of the Company's common stock, Holdings owns approximately 87% of the common stock of Pacific Telecom, Inc. ("Pacific Telecom"). The common stock of Pacific Telecom (PTCM) is traded on the national over-the-counter market. Pacific Telecom provides local telephone and access services in Alaska, seven other western states and three midwestern states; long- distance voice and data services in Alaska; cellular mobile telephone services; and is also involved in the sale of capacity in and operation of a submarine fiber optic cable between the United States and Japan. The Company was incorporated in the State of Oregon in 1949 and was acquired by Holdings in September 1985. The Company's principal executive offices are located at 825 N.E. Multnomah, Suite 775, Portland, Oregon 97232, and its telephone number is (503) 797-7200. STRATEGY To achieve PacifiCorp's strategic objective of significantly reducing the Company's financial services assets, the Company has sold substantial portions of its assets. The Company presently expects to continue this selling effort over the next several years and retain only its tax advantaged investments in leveraged lease assets (primarily aircraft) and affordable housing projects. For further discussion of the impact of the Company's strategic direction, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." 3 BUSINESS SEGMENTS FINANCIAL SERVICES AVIATION FINANCE As a result of the desire of PacifiCorp to reduce financial services assets, the Company has made only limited new investments in aircraft or loans relating to aircraft since 1991. The Company's portfolio consists primarily of Stage III noise compliant aircraft, both narrow and widebody. At December 31, 1994, approximately 91% of aircraft in the Company's portfolio investment was Stage III noise compliant. At December 31, 1994, the Company's Aviation Finance portfolio had total assets of $391 million (44 aircraft, of which two C-130's aggregating $1 million were held as Assets Held for Sale at December 31, 1994), representing approximately 53% of the Company's consolidated assets. COMPUTER LEASING In late 1992, the Company began conducting its computer leasing activity through a 50% owned corporation, Pacific Atlantic Systems Leasing, Inc. ("PASLI"). PASLI was owned by PacifiCorp Capital, Inc., a wholly-owned subsidiary of the Company, and Bell Atlantic Systems Leasing, Inc. In addition to conducting its own computer leasing business activities, PASLI managed both shareholders' preexisting computer leasing portfolios. In November 1994, the Company sold its computer leasing assets and its 50% interest in PASLI. OTHER FINANCIAL SERVICES Other Financial Services include centralized credit administration and asset management for the Company. Although no longer originating new business, the Company continues to manage its remaining asset-based lending portfolio and other assets. At December 31, 1994, Other Financial Services had a portfolio of $126 million, or approximately 17% of the Company's consolidated assets. REAL ESTATE AFFORDABLE HOUSING GROUP The Company has historically focused on investing in apartment housing projects that are eligible for the federal low income housing tax credit and anticipates that in the future it will increase its involvement in the development phase of new projects. At December 31, 1994, the Company had investments in 15 projects, consisting of 3,037 rental units, which were approximately 95% occupied. These projects, which are generally suburban, garden style apartment complexes, are located throughout the United States. In February 1993 and April 1994, the Company successfully completed syndications of approximate 80% interests in certain of its projects for $11.6 million and $3.5 million in cash, respectively. The Company expects to complete similar transactions in the future. Further information relating to these tax credits can be found in Note 12 to the Company's Consolidated Financial Statements. At December 31, 1994, Affordable Housing assets totaled $135 million, representing approximately 18% of the Company's consolidated assets. 4 PACIFIC DEVELOPMENT, INC. ("PDI") PDI owns or manages several office buildings (in aggregate, approximately 1,178,000 square feet), in which the Company and PacifiCorp are significant tenants. At December 31, 1994, these buildings were approximately 98% occupied. PDI also owns other developed and undeveloped property in the east side business district of Portland, Oregon, known as the Lloyd District. During the past few years, PDI has sold several of its Lloyd District properties and will continue efforts to sell additional properties. In March 1994, PDI sold one of its office buildings and certain other assets to PacifiCorp for a gross sales price of $47.7 million and net cash proceeds of $30.3 million after repayment of related non- recourse debt. At December 31, 1994, PDI had assets of $34 million, representing approximately 5% of the Company's consolidated assets. These assets are classified as "Held for Sale" in the Company's consolidated balance sheet. PDI agreed to sell the majority of these properties on March 7, 1995. The sale is contingent on financing and is expected to close in the third quarter of 1995. OTHER REAL ESTATE At December 31, 1994, the Company had other real estate holdings in Bartow, Florida and Columbus, Ohio totaling $2 million. The Company sold its Springfield, Illinois properties in 1994. DISCONTINUED OPERATIONS MANUFACTURING VERMONT CASTINGS, INC. ("VCI") VCI was acquired in May 1990 as the result of a loan default. The Company sold its interest in VCI in August 1994. The net assets of VCI at December 31, 1993, and the results of operations for the periods ended December 31, 1994 and 1993 are reported as discontinued operations. AGRICULTURE COLOR SPOT, INC. ("COLOR SPOT") Effective March 1, 1993, in response to a loan default by Color Spot, Inc., the Company acquired certain assets and assumed certain liabilities of Color Spot, Inc., a large West Coast wholesale nursery headquartered near Richmond, California, in exchange for forgiveness of a portion of the loan. The Company is operating this business under the name "Color Spot." The Company oversees the management of Color Spot with the objective of increasing value in a manner that would facilitate the disposition of its interest in Color Spot. Color Spot's primary business is the sale of bedding plants to large retail customers. Color Spot's six largest customers account for approximately 80% of its sales. Color Spot's business is seasonal, with the highest level of activity occurring during the spring and early summer. A formal plan for disposal of the Company's investment in its agriculture operations was adopted late in the fourth quarter of 1994. As a result, the net assets and results of operations of Color Spot are reported as discontinued operations. 5 ITEM 2. PROPERTIES FINANCIAL SERVICES - The principal executive offices of the Company are leased from PacifiCorp. The Company's financial services operations also maintain other leased office premises, generally under noncancellable leases. For additional information concerning the Company's lease obligations, see Note 15 to the Company's Consolidated Financial Statements. REAL ESTATE - The Company's Affordable Housing group owns interests in 15 projects consisting of 3,037 rental units located throughout the United States. As of December 31, 1994, PDI owns several office buildings (approximate aggregate square footage of 369,771) and other developed and undeveloped property in the Lloyd District of Portland, Oregon. AGRICULTURE - Color Spot owns and/or leases 456 acres of land, located at six sites in California. Color Spot owns 3,225,290 square feet of greenhouses at these locations. Color Spot also owns an office building in San Pablo, California that houses its administrative personnel. 6