-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EaZeuivWNyfW+LuP7b9zj3xKLaM8C/0DmQoYenKyArtOD2lxvAh6m77nP27oieSB j+vll9Bfe3+bNxNN4Pr/4Q== 0000912057-97-009691.txt : 19970324 0000912057-97-009691.hdr.sgml : 19970324 ACCESSION NUMBER: 0000912057-97-009691 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 24 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970321 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACIFICORP /OR/ CENTRAL INDEX KEY: 0000075594 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 930246090 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05152 FILM NUMBER: 97560339 BUSINESS ADDRESS: STREET 1: 700 NE MULTNOMAH STE 1600 CITY: PORTLAND STATE: OR ZIP: 97232 BUSINESS PHONE: 5037312000 FORMER COMPANY: FORMER CONFORMED NAME: PACIFICORP /ME/ DATE OF NAME CHANGE: 19890628 FORMER COMPANY: FORMER CONFORMED NAME: PC/UP&L MERGING CORP DATE OF NAME CHANGE: 19890628 10-K 1 FORM 10-K 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, 1996 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 (I.R.S. Employer Identification No.) of incorporation or organization) 700 N.E. Multnomah, Portland, Oregon 97232-4116 (Address of principal executive 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 Title of each Class on which 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 8 3/8% Quarterly Income Debt Securities New York Stock Exchange (Junior Subordinated Deferrable Interest Debentures, Series A) 8.55% Quarterly Income Debt Securities New York Stock Exchange (Junior Subordinated Deferrable Interest Debentures, Series B) 8 1/4% Cumulative Quarterly Income New York Stock Exchange Preferred Securities, Series A, of PacifiCorp Capital I 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. [ ] On March 1, 1997, the aggregate market value of the shares of voting stock of the Registrant held by nonaffiliates was approximately $6.4 billion. As of March 1, 1997, there were 295,614,180 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, 1996 are incorporated by reference in Parts I and II. Portions of the Annual Report on Form 10-K of Pacific Telecom, Inc. for the year ended December 31, 1996 are incorporated by reference in Part I. Portions of the proxy statement of the Registrant for the 1997 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 Domestic Electric Operations........................... 2 Australian Electric Operations......................... 13 Telecommunications..................................... 19 Other.................................................. 19 Employees.............................................. 21 Item 2. Properties............................................... 21 Item 3. Legal Proceedings........................................ 24 Item 4. Submission of Matters to a Vote of Security Holders...... 25 Item 4A. Executive Officers of the Registrant..................... 26 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................................... 28 Item 6. Selected Financial Data.................................. 29 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 29 Item 8. Financial Statements and Supplementary Data.............. 29 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................... 29 Part III Item 10. Directors and Executive Officers of the Registrant....... 29 Item 11. Executive Compensation................................... 29 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................. 29 Item 13. Certain Relationships and Related Transactions........... 30 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................................ 30 Signatures............................................................ 34 Appendices 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 Report on Form 10-K of Pacific Telecom, Inc. for the year ended December 31, 1996 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 Hazelwood......................... Hazelwood Power Corporation, a 19.9% indirectly owned investment of Holdings 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 PTI................................ Pacific Telecom, Inc., a wholly owned subsidiary of Holdings, and its subsidiaries Powercor.......................... Powercor Australia Limited, a wholly owned subsidiary of Holdings, and its immediate parent companies, PacifiCorp Australia Holdings Pty Ltd and PacifiCorp Australia LLC 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 a domestic 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 domestic electric utilities. The Company's strategic business plan is to strengthen the domestic and international scope and competitive position of its electric utility and telecommunications operations and to develop and expand its nonregulated, energy-related activities, including its independent power production, cogeneration, and power marketing and trading businesses. The Company's goal is to become a dominant supplier of energy on a global basis. Through Holdings, the Company indirectly owns 100% of PTI, 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; provides cellular mobile telephone services in six states; and is engaged in sales of capacity in and operation and maintenance of a submarine fiber optic cable between the United States and Japan. PTI has agreements in place that should lead to acquisitions of 27,100 access lines in Minnesota, 11,300 access lines in Michigan and 32,000 access lines and 6,800 cellular customers in Fairbanks, Alaska. These acquisitions are subject to a number of conditions, including regulatory approval, and are expected to close in 1997. On December 12, 1995, Holdings purchased 100% of Powercor, an electricity distributor and marketer in Australia. Powercor serves approximately 547,000 customers in suburban Melbourne and the western and central regions of the State of Victoria in southeast Australia. In September 1996, Holdings acquired a 19.9% interest in the 1,600 megawatt ("MW") Hazelwood coal-fired generating station and adjacent mine located in Victoria, Australia. The Company continues to explore growth opportunities in countries with similar competitive environments. Holdings also has interests in the independent power production and cogeneration businesses through PGC, and continues to liquidate portions of the loan, leasing and real estate investment portfolio of PFS. PFS presently expects to retain only its tax-advantaged investments in leveraged lease assets (primarily aircraft) and affordable housing, and is limiting its pursuit of tax-advantaged investment opportunities to affordable housing and alternative fuels. On March 11, 1997, Holdings entered into an agreement to acquire TPC Corporation, a natural gas gathering, processing, storage and marketing company. The acquisition is expected to cost approximately $288 million in cash plus assumed debt of approximately $149 million. For the year ended December 31, 1996, 69% of PacifiCorp's revenues from operations were derived from Domestic Electric Operations, Australian Electric 1 Operations contributed 15%, and Telecommunications contributed 12%. 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. From time to time, the Company may issue forward-looking statements that involve a number of risks and uncertainties. The following factors are among the factors that could cause actual results to differ materially from the forward-looking statements: utility commission practices; regional economic conditions; weather variations affecting customer usage, competition in bulk power markets and hydroelectric production; wholesale power marketing results; environmental, regulatory and tax legislation, including industry restructuring and deregulation initiatives; technological developments in the electricity and telecommunications industries; and the cost of debt and equity capital. Any forward-looking statements issued by the Company should be considered in light of these factors. The Company's common stock (symbol PPW) is traded on the New York and Pacific Stock Exchanges. The Company's $1.98 No Par Serial Preferred Stock, Series 1992, 8 3/8% Quarterly Income Debt Securities (Junior Subordinated Deferrable Interest Debentures, Series A) and 8.55% Quarterly Income Debt Securities (Junior Subordinated Deferrable Interest Debentures, Series B) are traded on the New York Stock Exchange. The 8 1/4% Cumulative Quarterly Income Preferred Securities (Series A Preferred Securities) of PacifiCorp Capital I, the Company's wholly owned subsidiary trust, are also traded on the New York Stock Exchange. DOMESTIC ELECTRIC 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 1.4 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. Principal industrial customers include oil and gas extraction, lumber and wood products, paper and allied products, chemicals, primary metals, mining companies and agribusiness. Agricultural products include potatoes, hay, grain and livestock. The geographical distribution of retail electric operating revenues for the year ended December 31, 1996 was Utah, 37%; Oregon, 32%; Wyoming, 13%; Washington, 9%; Idaho, 4%; California, 3%; and Montana, 2%. 2 Customers Electric utility revenues and energy sales, by class of customer, for the three years ended December 31, 1996 were as follows:
1996 1995 1994 --------------- --------------- --------------- Operating Revenues (Dollars in millions): Residential............................ $ 785.6 27% $ 721.9 28% $ 724.9 28% Commercial............................. 622.4 22 575.9 23 570.4 22 Industrial............................. 705.0 24 697.6 28 726.3 28 Government, Municipal and Other........ 32.5 1 29.7 1 30.7 1 -------- ---- ------- ---- ------- ---- Total Retail Sales 2,145.5 74 2,025.1 80 2,052.3 79 Wholesale Sales-Firm................... 635.4 22 487.7 19 456.2 18 Wholesale Sales-Nonfirm................ 103.4 4 32.3 1 76.5 3 -------- ---- ------- ---- ------- --- Total Energy Sales................. 2,884.3 100% 2,545.1 100% 2,585.0 100% ==== ==== ==== Other Revenues(1)...................... 76.5 71.0 62.8 -------- -------- -------- Total Operating Revenues........... $2,960.8 $2,616.1 $2,647.8 ======== ======== ======== Kilowatt-hours Sold (kWh in millions): Residential............................ 12,819 17% 12,030 20% 12,127 21% Commercial............................. 11,497 15 10,797 18 10,645 18 Industrial............................. 20,332 27 19,748 33 20,306 34 Government, Municipal and Other........ 640 1 592 1 623 1 ------ ---- ------ ---- ------ ---- Total Retail Sales 45,288 60 43,167 72 43,701 74 Wholesale Sales-Firm................... 23,189 31 13,946 24 12,418 21 Wholesale Sales-Nonfirm................ 6,476 9 2,430 4 3,207 5 ------ ---- ------ ---- ------ ---- Total kWh Sold..................... 74,953 100% 59,543 100% 59,326 100% ====== ==== ====== ==== ====== ====
- ----------- (1) Includes miscellaneous 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 1996, no single retail customer accounted for more than 1.3% of the Company's retail utility revenues and the 20 largest retail customers accounted for 10.6% of total retail electric revenues. 3 Competition Domestic Electric Operations continues to operate as a regulated monopoly within its seven-state franchise service territories. Competition in these areas varies in form and intensity, but is expected to increase over time, principally as a result of industry restructuring and deregulation, and increased marketing by alternative energy suppliers. In addition, many large industrial customers have the option to build their own generation or cogeneration facilities or to use alternative energy sources, such as natural gas. These competitive pressures enable these customers to negotiate lower prices through special tariffs. Competition has already transformed the electric utility industry at the wholesale level. The Energy Policy Act, passed in 1992, led to opening wholesale competition to energy brokers, independent power producers and power marketers. In 1996, the FERC ordered all investor-owned utilities to allow others access to their transmission systems for wholesale power sales. This access must be provided at the same price and terms the utilities would charge their own wholesale customers. As a result of increased competition and excess capacity, wholesale prices have dropped significantly over the past two years. In addition to these changes in the wholesale market, numerous states have initiated studies of retail competition or are considering retail competition as part of industry restructuring. See "Regulation." The Company is advocating federal legislation that would require states to give all consumers choice in their energy provider by January 1, 2001. The Company believes that federal legislation is necessary to address barriers to entry and issues of jurisdiction, to preserve the proper role for the states in implementing customer choice and to bring benefits to consumers as quickly as possible. The Company is also seeking alternate forms of regulation in its state jurisdictions that would include performance indices to provide appropriate incentive for those portions of its operations that remain regulated. The Company has also formulated strategies to meet these new challenges. The Company is marketing 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 January 1997, the Company and KN Energy, Inc. announced the formation of a joint venture called "en-able." En-able intends to offer utilities a single package of energy, communications and "infotainment" home-oriented options under the name "Simple Choice". These services will be available in one convenient package on one bill served through one customer service number. The Company is also expanding its nonregulated businesses that are engaged in wholesale marketing and aggregating of electricity, plant and fuels management, utilities services and retail energy services. A wholly owned subsidiary of Holdings, PacifiCorp Power Marketing, Inc. ("PPM"), has obtained authorization from the FERC to sell power at market prices outside of the western United States. In addition, Holdings and Big Rivers Electric Corporation ("Big Rivers"), a generation and transmission cooperative based in Henderson, Kentucky, signed an agreement during 1996 providing for PacifiCorp Kentucky Energy Company, a wholly owned subsidiary of Holdings, to 4 operate and manage Big Rivers' power plants under a 25-year operating agreement for annual payments of $30 million. Big Rivers filed for bankruptcy in September 1996. In February 1997, the bankruptcy judge opened the Big Rivers facilities to auction. Holdings asked the U.S. District Court to take jurisdiction over the Big Rivers reorganization away from the U.S. Bankruptcy Court. In addition, Holdings filed a motion in bankruptcy court requesting that the bankruptcy judge remove himself and the bankruptcy examiner from the case and impose sanctions on the examiner. The examiner responded and requested that sanctions be imposed on the Company and its counsel. On March 18, 1997, the district court declined to take jurisdiction of the bankruptcy case, ruling that the bankruptcy judge must first decide the disqualification and removal motion. On March 19, 1997, the bankruptcy court accepted a bid from LG&E Energy Corp. for Big Rivers' facilities. The outcome of these proceedings is uncertain. PPM intends to expand its power marketing activities in the East, working initially from its offices in White Plains, New York, and Henderson, Kentucky. A consortium of utilities, including the Company, have signed a memorandum of understanding to create an independent grid operator ("IndeGO") for the high-voltage transmission of electricity in Washington, Oregon, Idaho, Montana, Nevada, Utah and Wyoming. The group intends to facilitate the operation of an evolving competitive electric power market. Through IndeGO, the members expect to increase the efficiency of their transmission systems and provide access for all users of the regional transmission grid. IndeGO would be independent and not be controlled by any individual market participant or class of participants involved in marketing electricity. IndeGO participants plan to file a proposal with the FERC in 1997. For a discussion of accounting for the effects of regulation, see Note 2 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 that 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." In July 1996, the Company purchased a 50% ownership interest in the 474 MW Hermiston Plant, a natural gas-fired, combined-cycle generating plant that began operation in 1996. The Company takes all of the energy produced by the Hermiston Plant under a long-term contract. This commitment is expected 5 to reduce income from operations in 1997 by approximately $15 million as compared to 1996. The Company owns or has interests in generating plants with an aggregate nameplate rating of 8,699 MW and plant net capability of 8,282 MW. See "Item 2. Properties." With its present generating facilities, under average water conditions, the Company expects that approximately 5% of its energy requirements for 1997 will be supplied by its hydroelectric plants and 61% by its thermal plants. The balance of 34% is expected to be obtained under long-term purchase contracts, interchange and other purchase arrangements. Note 10 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 currently purchases 1,100 MW of firm capacity annually from BPA pursuant to a long-term agreement. The purchase amount declines to 925 MW annually beginning in 2000 and continuing through 2011. The Company's current annual payment under this agreement is $74 million. The agreement provides for this amount to change at the rate of change of BPA's average system cost. See "Regulation" for information concerning an increase in BPA's rates. In January 1993, the Operating Committee for the Trojan Plant formally approved the permanent cessation of nuclear operations at the plant. A decommissioning plan has been approved by the Nuclear Regulatory Commission and the State of Oregon. Portland General Electric Company is the operator of the Trojan Plant and owns a 67.5% share. The Company owns a 2.5% interest. Recovery of the Company's remaining investment in the Trojan Plant ($11.2 million at December 31, 1996) and estimated share of plant closure and decommissioning costs ($15.6 million at December 31, 1996) 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 1996, the Company purchased an average of 110 MW from qualifying facilities, compared to an average of 108 MW in 1995. 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 10,775 MW occurred on December 18, 1996, and its historical on-system firm peak load of 7,665 MW occurred on January 14, 1997. 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 1996, wholesale sales accounted for 40% of total energy sales and 26% 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 6 utilities when prices are favorable. Firm power purchases supplied 21% of the Company's total energy requirements in 1996. Nonfirm purchases supplied 11% of total energy requirements in 1996. 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. The Company plans to participate in a wind generation project in Wyoming. In May 1996, Kenetech Windpower, the original contractor, filed for bankruptcy. Its rights were assigned to SeaWest Energy in December 1996 and the completion date is expected to be in 1998 or 1999. The Company plans to own about 38 MW of the 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 paid a $20 million fee in January 1997 for rights and services provided by APS. Commercial operation dates for the turbines have not been established, but construction is not expected to commence in 1997. Projected Demand Annual increases in retail kilowatt-hour sales for the Company have averaged 2.1% since 1991. Although the sale of the Sandpoint, Idaho properties and the closure of oil and gas wells in Wyoming have negatively impacted retail sales, the Company has benefited from improved economic conditions in portions of its service territory and the Company's commitment to price stability. Price reductions in many of the Company's service territories have helped sustain sales volume growth. For the period 1997 to 2000, the average annual growth in retail kilowatt-hour sales is estimated to be about 2%. Actual results will be determined by a variety of factors, including 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 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." 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 7 of energy efficiency measures are expected to pay most of the related costs. The Company expended an aggregate of $17 million for demand-side resources in 1996, while acquiring 24.1 average MW of energy efficiency. Environment Federal, state and local authorities regulate many of the Company's activities pursuant to laws designed to restore, protect and enhance the quality of the environment. These laws have increased the cost of providing electric service. The Company is unable to predict what impact, if any, changes in environmental laws and regulations may have on the Company's future operations and capital expenditure requirements. AIR QUALITY. The Company's operations, principally its fossil fuel fired electric generating plants, are subject to regulation under the federal Clean Air Act, individual state clean air requirements and in some cases local air authority requirements. The primary air pollutants of concern are sulfur dioxide (SO2), nitrogen oxides (NOx), particulate matter (currently PM10) and opacity. In addition, regional visibility requirements impact the coal-burning plants. Also, although not presently regulated, emissions of carbon dioxide (CO2) and mercury from coal-burning facilities generally are of increasing public concern. All of the Company's coal-burning plants burn low sulfur coal. In addition, the majority of the Company's coal-burning plants representing the majority of its installed capacity have been equipped with controls which limit the amount of SO2 emissions. The SO2 emission allowances awarded to the Company under the federal Clean Air Act, and those allowances expected to be awarded annually in the future, are sufficient to enable the Company to meet its current requirements and expansion plans. In addition, the Company has taken advantage of opportunities to sell surplus allowances to other entities. The Company recorded sales of surplus SO2 allowances of $6 million in 1996 and 1995. In 1996, the Company sold surplus NOx emissions credits for $.4 million. The Company may have approximately 20,000 to 25,000 tons of surplus SO2 emission allowances available for sale each year until 2024. The Company has more than 800 tons of surplus NOx emissions credits that originated from the retirement of the Hale generating station and emission reductions at the Gadsby thermal generating plant in the state of Utah. Various federal and state agencies, as well as private groups, have raised concerns about perceived visibility degradation in some areas which are in proximity to some of the Company's coal-burning plants. Numerous visibility studies have been completed or are in the process of completion near Company plants in Colorado, Utah, Washington and Wyoming. In addition, the Grand Canyon Visibility Transport Commission study, which includes an analysis of areas impacted by the Company's coal-burning plants, recently was completed. To date, no additional emission control requirements have resulted directly from these studies, although the potential exists for significant additional control requirements if visibility degradation in the study areas is reasonably attributed to any one of the Company's coal-burning plants. CO2 emissions are the subject of growing world-wide discussion in the context of global warming, but such emissions are not currently regulated. All of the Company's coal-burning plants emit CO2. The Company voluntarily joined with a group of 44 other investor-owned utilities to sign an agreement 8 with the U.S. Department of Energy addressing CO2 emissions. Under the agreement, the Company committed to reduce its overall CO2 emission rate by 10% between 1990 and 2000 and also agreed to spend $1 million on CO2 offset projects. In addition to general regulation, the Company is subject to ongoing enforcement action by regulatory agencies and private groups regarding compliance with air quality requirements. A lawsuit filed in 1993 by the Sierra Club against the owners of the Hayden Generating Station, including the Company, alleged violations of opacity requirements. In response to that lawsuit, the Company and others entered into a court-approved agreement with the Sierra Club, the Environmental Protection Agency ("EPA") and the state of Colorado under which the owners agree to abide by applicable opacity and other requirements and also agree to install pollution control equipment related to opacity, SO2 and NOx. The owners estimate this control equipment will cost approximately $130 million, of which the Company's share is about $24 million. In October 1996, the Sierra Club also filed suit against the owners of units 1 and 2 of the Craig Generating Station. The lawsuit alleges, among other things, violations of opacity requirements and seeks civil monetary penalties and an injunction. The Company acquired a 19.28% ownership of units 1 and 2 in 1992. See "Item 3. Legal Proceedings." The Company-operated Centralia plant, in which the Company owns a 47.5% interest, is the subject of lawsuits and agency activity regarding SO2 emissions and visibility issues. In 1995, the Southwest Air Pollution Control Authority ("SWAPCA") ordered SO2 emission limitations through the application of Reasonably Available Control Technology ("RACT") as mandated by Washington state air quality requirements. Also, in 1996, the Northwest Environmental Advocates, an environmental citizen group, filed suit in federal court against SWAPCA, the state of Washington and EPA alleging failure to enforce visibility requirements relating to the Centralia plant. Although SWAPCA withdrew its original RACT order relating to SO2 emissions following a challenge by a private citizen, the Company reached a tentative agreement with a group of state and federal environmental authorities, including SWAPCA, under which the plant would reduce SO2 emissions by 90% by 2002. This reduction would require the installation of new pollution control equipment expected to cost approximately $260 million over five years beginning in 1998. The Company's share would be approximately $125 million. In the meantime, the private citizen who challenged the original RACT order has now filed suit in state court arguing that SWAPCA did not have authority to withdraw the original order. The Company is uncertain as to whether an economically viable solution will be reached with respect to the Centralia plant. The Wyoming Department of Environmental Quality ("WDEQ") has issued two separate Notices of Violation ("NOV") concerning unit 4 of the Jim Bridger plant. The first NOV, issued in December 1995, alleged excess opacity emissions during 1994 and 1995 and ordered the plant to perform additional testing. As a result of that testing, now completed, WDEQ has indicated its intent to withdraw the NOV. The second NOV, issued in January 1997, alleges violations of SO2 emission limits during 1994 and indicates WDEQ's intent to seek recovery of a penalty for noncompliance. The Company currently is evaluating the NOV and is working with WDEQ towards a resolution that may include the payment of a penalty. The resolution is not expected to require installation of additional pollution control equipment. See "Item 3. Legal Proceedings." 9 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 in California, none of the state agencies with jurisdiction over the Company's operations 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 continue to make it 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. ENDANGERED SPECIES. Protection of the habitat of endangered and threatened species makes it difficult and more costly to perform some of the core activities of the Company, including the siting, construction and operation of new transmission and distribution facilities, as well as generating plants. In addition, endangered species issues impact the relicensing of existing hydroelectric generating projects and generally raise the price the Company must pay to purchase wholesale power from hydroelectric facilities owned by others and increase the costs of operating the Company's own hydroelectric resources. ENVIRONMENTAL CLEANUPS. Under the federal Comprehensive Environmental Response, Compensation and Liability Act and comparable state statutes, entities that disposed of or arranged for the disposal of hazardous substances may be liable for cleanup of the contaminated property. In addition, the current or former owners or operators of affected sites also may be liable. The Company has been identified as a potentially responsible party in connection with a number of cleanup sites because of current or past ownership or operation of the property or because the Company sent hazardous waste, PCBs or other hazardous substances to the property in the past. The Company has completed several cleanup actions and is actively participating in investigations and remedial actions at other sites. The costs associated with those actions are not expected to be material to the Company's consolidated financial statements. WATER QUALITY. The federal Clean Water Act and individual state clean water regulations require a permit for the discharge of pollutants, including storm water runoff from the power plants and coal storage areas, into surface waters. Also, permits may be required in some cases for discharges into ground waters. The Company believes that it currently has all required permits and management systems in place to assure compliance with permit requirements. 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 10 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. 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. On July 10, 1996, the Company received an order from the Oregon Public Utility Commission ("PUC") authorizing the Company to increase prices in Oregon by an average of 4%. The price increase, which was effective July 15, 1996, is expected to result in annual revenues of $27 million. This was the Company's first general price increase in Oregon since 1987. The Company's price increase filing also included a proposed alternate form of regulation. The Company's proposal is designed to encourage increased efficiencies and innovation. The Oregon PUC's order did not address issues relating to the alternate form of regulation. Hearings on these issues have been held and a draft PUC decision on the Company's proposal is expected in late March 1997. The Company also received an order from the Wyoming Public Service Commission authorizing the Company to raise Wyoming prices by an average of 3.9%. This price increase was effective July 1, 1996, and is expected to result in annual revenues of $10 million. This was the Company's first price increase in Wyoming since 1987. The Company has agreed not to seek another price increase in Wyoming prior to July 1, 1998 and to conduct workshops with interested parties on possible alternate forms of regulation. On February 12, 1997, the Division of Public Utilities and Committee of Consumer Services in Utah filed a joint petition with the Utah Public Service Commission ("PSC") requesting the PSC to commence proceedings to establish new rates for Utah customers. The petitioners have requested an immediate hearing on a $12 million interim rate reduction and a subsequent general rate case, which the petitioners allege could result in rates being reduced by as much as $54 million annually. On March 4, 1997, the Utah Legislature passed a bill which creates a legislative task force to study stranded cost issues and the timing of customer choice. The bill freezes rates at January 31, 1997 levels until 60 days following the conclusion of the 1998 legislative general session. The PSC is precluded from holding any hearings on rate changes during the freeze period. The Company has committed to reduce prices to Utah customers by $12 million annually on approximately May 1, 1997. In September 1996, California enacted legislation requiring direct access for a portion of the state's retail customers beginning January 1, 1998. The Company serves approximately 40,000 customers in its California service territory, representing 3% of the Company's retail electric revenues in 1996. The Company intends to make a filing with the California Public Utility Commission in early 1997 addressing the requirements of the new legislation and implementation issues associated with direct access. 11 A number of industry restructuring bills are also being considered in the other states in which the Company provides retail service. The bills range from those that require study of direct retail access to those that would result in implementation of direct access for retail customers. The Company expects any legislation passed to specifically provide a reasonable opportunity to recover costs which have been placed at risk due to the introduction of competition. 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 12 of the Company's hydroelectric projects expire within the next 10 years. These projects represent 664 MW, or 62%, of the Company's hydroelectric generating capacity, or 8% of total 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. BPA completed its 1996 rate hearing process and implemented new five-year rates effective October 1, 1996. The new rates reduce the Company's annual capacity and wheeling expenses by $3 million. In addition, while the new rates would have reduced the annual exchange benefits directly received by the Company's residential and small farm customers by approximately $17 million, President Clinton signed into law the Energy and Water Development Appropriation Act of 1995 (the "Act") which, among other things, provides for a set amount of exchange benefits for the first twelve months of the rate period, largely mitigating the reduction of exchange benefits. The Company has received approval for price increases in Idaho that will allow it to recover the reduction of exchange benefits relating to Idaho. The Act replaced lost benefits in Oregon and Washington for 1996, resulting in no price increases for those jurisdictions. Construction Program The following table shows actual construction costs for 1996 and the Company's estimated construction costs for 1997 through 1999, including costs of acquiring demand-side resources. The estimates of construction costs for 1997 through 1999 are subject to continuing review and appropriate revision by the Company. These estimates do not include expected expenditures for purchases of generating assets. See "Proposed Asset Additions" for information concerning proposed additions to the Company's generating assets. 12 Type of Facility Estimated ---------------- Actual ---------------- 1996 1997 1998 1999 ------ ---- ---- ---- (Dollars in millions) Production.................. $ 89 $115 $120 $125 Transmission................ 27 45 45 50 Distribution................ 220 185 195 205 Mining...................... 27 25 25 25 Other....................... 79 110 115 120 ---- ---- ---- ---- Total................... $442 $480 $500 $525 ---- ---- ---- ---- ---- ---- ---- ---- AUSTRALIAN ELECTRIC OPERATIONS Powercor General On December 12, 1995, Holdings completed the acquisition of Powercor, an Australian electric distribution and marketing company, from the State of Victoria for approximately $1.6 billion in cash. The acquisition was structured through a series of wholly owned United States and Australian companies. Powercor's business is organized into three strategic divisions, Network, Retail and Powercor Services. The key functions of Powercor's divisions are briefly described below. Network Powercor is one of the five electric distribution businesses ("DBs") which came into existence as a result of the restructuring and subsequent privatization of the Victorian electric industry. The five DBs have each been granted an exclusive license to sell electricity to franchise customers whose facilities are in its distribution area, and a non-exclusive state-wide license to sell to contestable customers. Customers who are able to choose between retailers are referred to as contestable or non-franchise customers, while customers who cannot choose between retailers are referred to as franchise customers. Franchise customers will progressively become contestable over the period to January 1, 2001. All customers with loads in excess of 750 MWh per year are now contestable. Other customers will become contestable over the next four years depending on their energy demand level, with substantially all residential customers remaining as franchise customers until January 1, 2001. If a Powercor customer chooses a different retailer, Powercor would continue to receive the Network revenues associated with that customer. 13 The following table sets forth information regarding the estimated contestability profile of Powercor's customer base as of December 31, 1996.
Estimated Date for Approximate Estimated % Revenue Introduction of Customer Load Number of Total (Australian dollars in Competition Demand Level Customers(1) Consumption(2) millions)(2) - --------------------------------------------------------------------------------------------------------- December 1994 Loads in excess of 5 MW 17 17 $ 78 July 1995 Loads in excess of 1 MW 132 13 81 and less than 5 MW July 1996 Energy demand in excess 934 12 86 of 750 MWh/yr and loads less than 1 MW July 1998 Energy demand in excess 1,290 6 52 of 160 MWh/yr and less than 750 MWh/yr January 2001 All remaining customers 544,441 52 505 ------- --- --- Total 546,814 100 $802 ------- --- --- ------- --- ---
- ----------- (1) As of December 31, 1996. (2) For the year ended December 31, 1996. Regulation of the Victorian electricity supply industry is the responsibility of the Office of the Regulator General (the "ORG"), an independent regulatory body established under the Victoria's Office of the Regulator General Act of 1994 (the "ORG Act"). The ORG is required to facilitate efficiency in the industry and ensure that users and consumers benefit from competition. The structure of prices within the Victorian electricity industry reflects the establishment of maximum uniform tariffs that apply to franchise customers and some limited categories of non-franchise customers until January 1, 2001. Under applicable regulations, the DBs are required to supply electricity to franchise customers at no greater than the prices specified in the applicable tariff. The prices specified in the tariffs are an all inclusive price, including grid charges and energy costs. In general, annual movements in tariffs for franchise customers are based upon the Consumer Price Index, a measure of price inflation. Network tariffs include recovery of distribution use of system costs, use of transmission system fees and connection charges. Network tariffs are intended to cover the costs of providing, operating or maintaining the distribution network, except to the extent the relevant costs are recoverable through connection charges or other excluded services, and the charges levied for connection to and use of the transmission systems. Network tariffs are paid by retailers supplying electricity through a DB's distribution network, or by large customers dealing directly with the Victoria Power Exchange 14 ("VPX") pool (the "Pool") or are reflected in such DB's charges to its franchise customers. Through December 31, 2000, the DBs have the ability to vary network tariffs subject to the approval of the ORG. After the year 2000, network tariffs will still be subject to regulation by the ORG. The first major review of the regulatory arrangements and respective transmission and distribution network charges will be carried out by the ORG, with any changes to apply from January 1, 2001. Any subsequent price control arrangements for Network are required to apply for not less than five years. Network must provide open access to large customers who purchase energy directly from the wholesale market; embedded generators, including co-generation; other licensed distributors; and licensed retailers, such as the Retail division of Powercor. Almost all customers within the Powercor franchise area are connected to Powercor's distribution system and have no effective choice in the system over which electricity is supplied to them. Customers may establish or increase their capacity for own generation, become directly connected to the Victorian grid or relocate operations outside Powercor's franchise area. There are currently 11 independent systems operating within Powercor's distribution area that supply (one intermittently) electricity to Powercor's network, and in 1996 accounted for 2% of Powercor's energy purchases. On site generation may be an attractive alternative for some classes of customers under the Victorian Electricity industry model. Powercor's distribution area covers approximately 150,000 square kilometers in central and western Victoria. This region is the largest franchise area in Victoria, representing approximately 64% of the total area of the state. Powercor's region has borders with South Australia, New South Wales, Solaris Power Ltd. and Eastern Energy Ltd. The Powercor distribution area accounts for more than 1,450,000 people and incorporates several of Victoria's major industrial areas including Altona and Geelong; the western corridor growth areas of Werribee and Melton, and seven of Victoria's eight largest provincial centers of Ballarat, Bendigo, Geelong, Melton, Mildura, Shepparton and Warrnambool; and the South Australian and New South Wales borders. The distribution area includes approximately 34% of Victoria's manufacturing industry output, 32% of Victoria's population, accounts for approximately 25% of Victoria's employment and contributes approximately 26% of Victoria's Gross State Product. Retail Retail conducts the commercial functions of purchasing, marketing and selling of electricity and collecting sales revenue. Retail is responsible for the management of the price, purchasing and volume risks associated with energy sales and end-use demand management. 15 The customer metered sites, energy demand and revenue percentages of Powercor for the year ended December 31, 1996 are set forth below. Customer Sites(1) Energy Demand(2) Revenue(2) Customer Segment No. % GWh % % - ---------------- ------- ----- ----- --- --- Residential . . . . . . . 453,978 83 2,608 31 38 Commercial . . . . . . . 48,598 9 1,926 23 26 Industrial . . . . . . . 8,422 2 3,282 40 28 Farm . . . . . . . . . . 34,311 6 342 4 5 Public lighting and traction . . . . . . . 1,501 - 77 1 2 Other . . . . . . . . . . 4 - 75 1 1 ------- ----- ----- --- --- Total . . . . . . . . . 546,814 100 8,310 100 100 ------- --- ----- --- --- ------- --- ----- --- --- - ----------- (1) Connections as of December 31, 1996. (2) For the year ended December 31, 1996. Powercor's distribution area has a significant proportion of industrial energy demand. As of December 31, 1996, industrial customers accounted for only 2% of customer sites, but, for the year ended December 31, 1996, such customers demanded approximately 3,300 GWh of electricity and accounted for 28% of total electricity revenue. This compares to Powercor's residential customers, who accounted for 83% of the total customer sites at December 31, 1996 and 38% of total electricity revenue for the year ended December 31, 1996. See "Network" for information concerning the contestable profile of Powercor's customer base. Retail's electricity revenue and load for the year ended December 31, 1996 were approximately A$802 million and 8,310 GWh, respectively. Electricity revenue is derived from major industries such as chemicals, petroleum, food and beverage, wholesale and retail, metal processing and transport equipment. Powercor's largest customers include Smorgon Steel, Shell Refinery, Ford Motor Company, Kemcor and Petroleum Refineries Australia. No single customer accounted for more than 2% of Powercor's total revenue in 1996. In October 1996, Powercor was granted a license to sell power in New South Wales ("NSW") and established an office in North Sydney. Powercor was the first company outside of NSW to be granted a retail license to sell power in NSW. The NSW electricity market will progressively open for competition. Customers in the 40 GWh market became contestable as of October 1, 1996 and Powercor commenced supply to its first NSW customer in January 1997. The 4 GWh market will open April 1, 1997, the 750 MWh market to follow on July 1, 1997, and the 160 MWh market on July 1, 1998. Powercor purchases all of its power, other than co-generation output, through the VPX Pool for franchise customers. There are two major components of the wholesale electricity market: (i) the competitive energy market, centered around the Pool, which covers the sale of electricity by generators; and (ii) the contract trade, involving bilateral financial contracts between electricity buyers and sellers outside the Pool. The principal function of the Pool is to allow market forces rather than monopolized central planning to 16 determine the amount, mix and cost characteristics of generating plants, and the level and shape of demand. A spot price is determined for each half hour period during the day, based on the market clearing price. The Pool operations are governed by the Pool Rules developed by the industry and issued by the ORG, created by the ORG Act. Pool trading is currently conducted through a system known as VicPool III. Each licensed generator is required to sell its entire energy output through the Pool, except if the electricity output from the generating unit, or a group of generating units connected to the transmission or distribution network at a common point of connection, is rated at less than 30 MW, in which case the generator is not eligible to join the Pool. Each retailer is required to purchase its entire demand for electricity through the Pool unless the electricity is purchased either from a generator too small to trade through the Pool or through another retailer who has purchased that electricity from the Pool. A contestable customer may also apply to VPX to become a participant in the Pool. New participants will be admitted to the Pool if they satisfy VPX that they are of sufficient financial standing to meet their financial obligations under the Pool Rules, including any requirements established by VPX, and will be able to maintain compliance with certain system codes and wholesale metering codes. Powercor is a party to a series of bilateral financial contracts that have been structured to hedge the price for the forecast franchise energy requirements from July 1, 1995 to December 31, 2000. These contracts take the form of "two-way" and "one-way" contracts. Two-way contracts are structured such that generators and DBs compensate each other for the difference between the System Marginal Price ("SMP"), which is the price payable to generators in the wholesale market, and the exercise price up to A$300/MWh. One-way contracts provide for amounts to be paid by generators to DBs for differences when SMP is above A$300. Powercor has negotiated additional hedging contracts with the generators for contestable customer loads. These contracts are designed to cover the contestable load and entered into with a number of generators in order to maintain a balance among supply sources. Powercor Services Powercor Services was established as a result of separating the original Network division into two separate business units responsible for Asset Management (Network) and Service Delivery (Powercor Services). The service functions undertaken by Powercor Services includes electrical design, survey, drafting, material procurement, overhead and underground construction and maintenance for the distribution and subtransmission networks, fault response, electrical installations inspections and meter reading. These service functions are currently provided from 20 centers located throughout Powercor's franchised area. 17 Properties Powercor's electrical distribution network comprises: (i) 66 kV and 22 kV subtransmission lines and underground subtransmission cables that transport wholesale energy from 11 terminal stations owned by Power Net Victoria and controlled, under lease, by the Victorian Power Exchange, a corporate body established under Victoria's Electricity Industry Act 1993; (ii) 51 zone substations that transform electricity to lower voltages (22 kV and below) and then distribute the energy through the distribution network; and (iii) 22 kV, 11 kV and 6.6 kV distribution lines, including distribution substations that transform electricity to low voltages (415 V and below) suitable for connection to the majority of the customers. In addition, Powercor leases its principal executive offices at Level 3, 177 Southbank Boulevard Southbank in Victoria under a five-year lease with an option to renew for another five years. Substantially all of the assets and stock of Powercor are pledged to secure the obligations of PacifiCorp Australia LLC, an indirect subsidiary of the Company and an indirect parent company of Powercor, under a credit facility used to finance the acquisition of Powercor. Hazelwood In September 1996, a consortium, known as the Hazelwood Power Partnership, purchased a 1,600 MW, brown coal-fired thermal power station ("Hazelwood Plant"), and the adjacent brown coal mine ("Hazelwood Mine") in Victoria, Australia. The consortium is composed of a subsidiary of National Power Corporation PLC (51.94%), a subsidiary of Holdings (19.9%, the maximum allowable under current law), a subsidiary of Destec Energy, Inc. (20%) and the Commonwealth Bank group of Australia (8.16%). National Power is overseeing Hazelwood Plant operations and the Company is overseeing operations at the Hazelwood Mine. The consortium financed the acquisition with approximately $858 million in equity contributions from the partners and $1 billion of nonrecourse borrowings at the partnership level. Holdings financed its $145 million portion of the equity investment and the associated $12 million advance with long-term borrowings in the United States. Hazelwood Power Partnership sells its power through a statewide generation pool and enters into bilateral financial contracts with Australian distribution companies, such as Powercor. Prices vary with weather, economic growth and other factors affecting the supply of and demand for power. Power prices are lowest during Australia's summer months (the fourth and first calendar quarters). The Company expects the Hazelwood investment to be slightly dilutive to 1997 earnings. The Hazelwood Plant has four stages, each with two 200 MW boiler and turbo generator units, and was constructed progressively between November 1964 and August 1971. Six of the Hazelwood Plant's eight generating units underwent major refurbishment or plant life extension projects between 1983 and 1993. Six units currently operate in a base load and intermediate capacity. Unit 8 has been recommissioned as a low-reliability standby unit and Unit 7 is currently not operational. Unit 7 is expected to become operational during 1998 following completion of certain capital improvements. The Hazelwood Mine has between 400 million and 450 million recoverable tons of brown coal, which is expected to provide the Hazelwood Plant with sufficient quantities of coal for the 40 years of anticipated plant operation. 18 TELECOMMUNICATIONS PTI provides local telephone service and access to the long distance network in Alaska, seven other western states and three midwestern states. PTI's sale of its long distance business, Alascom, Inc., to AT&T Corp. was completed in August 1995. PTI has acquired and is developing, operating and managing cellular mobile telephone services in six states. PTI 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 PTI, see "Item 1. Business" of the Annual Report on Form 10-K of Pacific Telecom, Inc. for the year ended December 31, 1996; such information is incorporated herein by this reference. OTHER PacifiCorp Financial Services PFS is a holding company with two principal business segments, Financial Services and Tax-Advantaged Investments. PFS presently expects to retain only its tax-advantaged investments in leveraged lease assets (primarily aircraft) and affordable housing, and is limiting its pursuit of tax-advantaged investment opportunities to affordable housing and alternative fuels. For the six-year period ended December 31, 1996, PFS's total assets have declined by $978 million to $708 million and the disposition of assets has generated $802 million in proceeds, which have been used to reduce outstanding debt and to invest in affordable housing projects. Financial Services PFS has made only limited new investments in aircraft or loans relating to aircraft since 1991, and the last such investment was made in 1992. At December 31, 1996, approximately 94% of aircraft in PFS's portfolio investment were Stage III noise compliant. At December 31, 1996, PFS's Aviation Finance portfolio had total leveraged lease and other financial assets of $345 million (32 aircraft), representing approximately 49% of PFS's consolidated assets. Other financial services activities include centralized credit administration and asset management for PFS. Although no longer originating new business, PFS continues to manage its remaining lending portfolio and other assets. At December 31, 1996, these assets totaled $140 million, or approximately 20% of PFS's consolidated assets. Tax-Advantaged Investments Enacted as part of the Tax Reform Act of 1986, the Low Income Housing Tax Credit provides a tax credit of approximately 9% of the eligible basis of qualifying newly constructed low income housing projects each year for 10 years. The actual credit percentage applicable to a new project is set at the outset of the project based on the then current percentage announced by the Internal Revenue Service. At December 31, 1996, PFS had investments in 24 completed projects, consisting of 4,064 rental units, which were approximately 96% occupied. Eleven other projects were under construction, consisting of 1,047 rental units. These projects are expected to be completed in 1997 and 1998. These 19 projects, which are generally suburban, garden style apartment complexes, are located throughout the United States. Third parties participate as equity investors of up to an 80% interest in seven of the 24 completed projects, representing 1,312 units. At December 31, 1996, affordable housing assets totaled $223 million, representing approximately 31% of PFS's consolidated assets. PFS has entered into a letter of intent with Covol Technologies, Inc. ("Covol") for construction of a plant in the Birmingham, Alabama area that will produce a synthetic coal fuel qualifying for tax credits under Section 29 of the Internal Revenue Code ("IRC"). PFS will fund the construction costs and a subsidiary of PFS will purchase the plant upon completion. Another PFS subsidiary, PacifiCorp Syn Fuel ("Syn Fuel"), has entered into a licensing agreement with Covol for up to six additional plants. Syn Fuel is pursuing development of these plants and has entered into construction contracts for these facilities. Competition PFS continues to actively participate in the affordable housing industry. Within this market, PFS competes for tax credits with owners and developers of residential rental properties, with investors who are seeking acquisition transactions and with syndicators who are selling tax credits to institutional investors. PFS's established projects have historically had occupancy levels in excess of 95%. These projects are competitive as compared to market rent projects because PFS's restricted rents are below market rates due to the economic subsidy provided by the tax credit and PFS's adherence to a strong project maintenance and oversight program. The market for developing and acquiring projects having allocations of these tax credits has become increasingly competitive. Many of the newer entrants are willing to accept lower yields than PFS. As a result, PFS has increased its focus on the development side of the business. By seeking its own allocation of tax credits from the states and acting as its own developer, PFS seeks to maintain acceptable yields. Regulation The affordable housing projects of PFS can only rent to eligible tenants in order to maintain their qualification for, and avoid recapture of, the relevant tax credit. PFS monitors its compliance with tax requirements through various controls, including site visits, central review of all tenant applications for eligibility requirements and independent audits of certain projects. PFS's management believes that these controls are effective in monitoring and maintaining its compliance with the eligibility and qualification requirements. PFS's participation in the alternative fuels tax credit market is limited by the IRC requirement that qualified facilities must be built in accordance with binding construction contracts entered into on or before December 31, 1996, and in service by June 30, 1998. President Clinton's recent budget proposal includes a provision to roll back the in-service date to June 30, 1997. If enacted, this proposal would terminate Syn Fuels' development efforts and result in an approximate $1.6 million after-tax charge. In addition, the 20 Birmingham plant would be subject to substantial completion risk relating to the roll back date. Pacific Generation Company PGC is engaged in the acquisition, development and operation of independent power production and cogeneration facilities, principally in the United States. PGC has interests in 12 power generation facilities representing an aggregate of 808 MW of generation capacity. At December 31, 1996, PGC also had limited partnership interest of less than 5% and a $2 million investment in two Energy Investor Funds that have investments in a number of independent power projects aggregating approximately 1,270 MW of generation capacity in various locations in the United States and abroad. PGC plans to continue to pursue opportunities in the U.S. market and is investigating opportunities in the international markets. In May 1996, PGC's 248 MW Crockett cogeneration facility in California was declared operational. The facility is operated by PGC and PGC owns approximately 46% of the project. During 1996, PGC purchased a 25% interest in the 100 MW Kingston cogeneration project in Ontario, Canada. The project will supply electricity to the Ontario Hydro power grid and process heat to Celanese Canada Inc.'s Millhaven polyester plant. The plant became operational in early 1997. In early 1997, PGC purchased a one-third interest in a proposed 70 MW hydro project in the Philippines. PGC's total investment is expected to be approximately $15 million. The project is scheduled to be completed in 2000. EMPLOYEES PacifiCorp and its subsidiaries had 12,305 employees on December 31, 1996. Of these employees, 8,688 were employed by PacifiCorp and its mining affiliates, 2,187 were employed by PTI, 1,202 were employed by Powercor and 228 were employed by PFS, PGC and other subsidiaries. Approximately 63% 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. Approximately 77% of Powercor's employees are represented by various unions in Australia, including the Australia Services Union and the Electrical Trades Union. For information with respect to the employees of PTI, see "Item 1. Business" of the Annual Report on Form 10-K of Pacific Telecom, Inc. for the year ended December 31, 1996; 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 1,078.1 MW and plant net capability of 1,138.6 MW. It also owns or has interests in 17 21 thermal-electric generating plants with an aggregate nameplate rating of 7,620.5 MW and plant capability of 7,143.6 MW. The following table summarizes the Company's existing generating facilities:
Installation Nameplate Plant Net Location Energy Source Dates Rating Capability (MW) (MW) -------- ------------- ------------- ----------- -------------- HYDROELECTRIC PLANTS Swift............................. Cougar, Washington Lewis River 1958 240.0 265.6 Merwin............................ Ariel, Washington Lewis River 1931-1958 136.0 144.0 Yale.............................. Amboy, Washington Lewis River 1953 134.0 134.0 Five North Umpqua Plants.......... Toketee Falls, Oregon N. Umpqua River 1950-1956 133.5 138.5 John C. Boyle..................... Keno, Oregon Klamath River 1958 80.0 90.0 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 34.0 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 98.6* 100.9* ------- ------- Subtotal (53 Hydroelectric Plants) 1,078.1 1,138.6 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 251.6 235.0 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 Hermiston......................... Hermiston, Oregon Combined Cycle 1996 234.0* 234.0* James River....................... Camas, Washington Black Liquor 1996 52.2 53.0 ------- ------- Subtotal (17 Thermal Electric Plants) 7,620.5 7,143.6 ------- ------- Total Hydro and Thermal Generating Facilities (70) 8,698.6 8,282.2 ------- ------- ------- -------
- ----------- * 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 lien of the Company's Mortgage and Deed of Trust. 22 The following table describes the Company's recoverable coal reserves as of December 31, 1996. 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 1996, 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 50(1) Craig, Colorado.............. Craig 71(2) Glenrock, Wyoming............ Dave Johnston 50(1) Emery County, Utah........... Huntington and Hunter 103(1)(3) Rock Springs, Wyoming........ Jim Bridger 129(4) - ------------ (1) These reserves are mined by subsidiaries of the Company. (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 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 1996, the Company expended $4 million of reclamation costs and accrued $6 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, 1996, the Company's pro rata portion of these reclamation funds totaled $36 million and the Company had an accrued reclamation liability of $118 million at December 31, 1996. For a description of the properties of PTI, see "Item 1. Business" and "Item 2. Properties" of the Annual Report on Form 10-K of Pacific Telecom, Inc. for the year ended December 31, 1996; such information is incorporated 23 herein by this reference. For a description of Powercor's properties, see "Item 1. Business--Australian Electric Operations--Properties" above. 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 financial statements. In December 1995, the Company received a Notice of Violation and Order ("NOV") from the Wyoming Department of Environmental Quality ("DEQ") alleging that the Company has failed to maintain pollution control equipment at Unit 4 of its Jim Bridger Power Plant in a manner consistent with good air pollution control practices and alleging violations of the 30 percent opacity limitation in the air quality permit issued for that Unit. The Company performed certain stack tests to verify compliance with particulate emission limitations. As a result, DEQ has indicated that the NOV will be withdrawn and no penalties will be assessed against the Company. On January 28, 1997, the Air Quality Division ("AQD") of the Wyoming DEQ issued a NOV alleging that Jim Bridger Unit 4 violated permit limits for SO2 emissions during 1994. Specifically, the NOV asserts that Unit 4 emitted 153.5 tons more SO2 during 1994 than allowed under the plant's permit. The NOV also indicates the AQD's intention to refer the matter to the Wyoming Attorney General's office for the filing of a complaint in state court to collect appropriate civil penalties, although a complaint has not yet been filed. The Company is working with the AQD toward a resolution which is not expected to involve any significant capital expenditures at the plant. On March 1, 1996, a purported class action was filed against PacifiCorp alleging negligence, nuisance and trespass by PacifiCorp as a result of the operation of three dams on the Lewis River in the State of Washington during the floods of February 1996 (LARRY AND BARBARA RAINEY, ET AL. V. PACIFICORP, Case No. 96-2-00977-0, Superior Court of Washington for Clark County). Plaintiffs request an unspecified amount of damages on behalf of the alleged class, estimated by plaintiffs to have over 500 members, for injury to their property, diminution of value of the related real estate and improvements, and consequential damages in the form of lost income to businesses operating in the flooded areas. The complaint also seeks injunctive relief compelling PacifiCorp to establish additional warning systems downstream from the dams. PacifiCorp believes that it operated the dams in an appropriate manner. On March 15, 1996, Utah Associated Municipal Power Systems ("UAMPS") filed an action against PacifiCorp asserting 10 different causes of action, all relating to the ownership interest of UAMPS in the Hunter Steam Electric Generating Unit No. II ("Hunter II") in Emery County, Utah, which is operated by PacifiCorp. (UTAH ASSOCIATED MUNICIPAL POWER SYSTEMS V. PACIFICORP, Civil No. 2:96CV 0240B, U.S. District Court for the District of Utah, Central Division). The complaint alleges, among other things, an illegal tying arrangement in the supply of coal by PacifiCorp to Hunter II, violations of various federal and state antitrust laws, breach of contract and breach of a 24 duty of good faith and fair dealing. The complaint seeks damages in excess of $1,000,000 with respect to each of several of the causes of action and certain declaratory rulings. On April 2, 1996, the Utah Municipal Power Agency and Provo City, Utah served an action against PacifiCorp asserting 13 different causes of action, all relating to the plaintiffs' ownership interest in the Hunter Steam Electric Generating Unit I ("Hunter I") in Emery County, Utah, which is operated by PacifiCorp. (UTAH MUNICIPAL POWER AGENCY AND PROVO CITY, UTAH V. PACIFICORP, Civil No. 2:96CV 0290C, US District Court for the District of Utah, Central Division). The complaint alleges, among other things, an illegal tying arrangement in the supply of coal by PacifiCorp to Hunter I, violations of various federal and state antitrust laws, breach of contract, breach of fiduciary duties and breach of a duty of good faith and fair dealing. The complaint seeks damages in amounts to be proven at trial, trebled in the case of the antitrust claims, and certain declaratory rulings. On October 9, 1996, the Sierra Club filed an action against the Company and the other joint owners of the Craig Electric Generating Station (the "Station") under the citizen's suit provisions of the federal Clean Air Act alleging, based upon reports from emissions monitors at the Station, that over 14,000 violations of state and federal opacity standards have occurred over a five-year period at Units 1 and 2 of the Station. (SIERRA CLUB V. TRI-STATE GENERATION AND TRANSMISSION ASSOCIATION, INC., PUBLIC SERVICE COMPANY OF COLORADO, INC., SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT, PACIFICORP AND PLATTE RIVER POWER AUTHORITY, Civil Action No. 96-B2368, US District Court for the District of Colorado). The Company has a 19.28 percent interest in Units 1 and 2 of the Station, which is operated by Tri-State Generation and Transmission Association and located in Craig, Colorado. The action seeks injunctive relief requiring the defendants to operate the Station in compliance with applicable statutes and regulations, the imposition of civil penalties, litigation costs, attorneys' fees and mitigation. The federal Clean Air Act provides for penalties of up to $25,000 per day for each violation, but the level of penalties imposed in any particular instance is discretionary. The complaint alleges that the Company and Public Service Company of Colorado are responsible for the alleged violations beginning with the second quarter of 1992, when they acquired their interests in the Station, and that the other owners are responsible for the alleged violations during the entire period. The complaint alleges that there were approximately 10,000 violations since the second quarter of 1992. The Company is unable to predict the level of penalties or other remedies that may be imposed upon the joint owners of the Station or what portion of such liability may ultimately be borne by the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No information is required to be reported pursuant to this item. 25 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. Charles E. Robinson, born December 3, 1933, Chairman, President and Chief Executive Officer of Pacific Telecom, 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. William C. Brauer, born January 11, 1939, Senior Vice President of the Company Mr. Brauer was elected Senior Vice President of the Company in May 1996. He served as Vice President from 1992 to 1996 and as Senior Vice President of Electric Operations from 1991 to 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. 26 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. Richard T. O'Brien, born March 20, 1954, Senior Vice President and Chief Financial Officer of the Company and Senior Vice President and Chief Financial Officer of PacifiCorp Holdings, Inc. Mr. O'Brien was elected Senior Vice President and Chief Financial Officer of the Company in August 1995, and of PacifiCorp Holdings in February 1996. He served as Vice President of the Company from August 1993 to August 1995. 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. Daniel L. Spalding, born December 23, 1953, Chairman and Chief Executive Officer of Powercor, Senior Vice President of the Company Mr. Spalding was elected Chairman and Chief Executive Officer of Powercor in December 1995 and 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. 27 William E. Peressini, born May 23, 1956, Vice President and Treasurer of the Company and Treasurer of PacifiCorp Holdings, Inc. and Pacific Telecom, Inc. Mr. Peressini was elected Vice President and Treasurer of the Company in May 1996. He had served as Treasurer since January 1994. He has been Treasurer of PacifiCorp Holdings, Inc. since February 1994 and of Pacific Telecom, Inc. since August 1996. 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. Michael C. Henderson, born October 24, 1946, Vice President of the Company Mr. Henderson was elected Vice President of the Company in November 1995. He has served as Director, President and Chief Executive Officer of PacifiCorp Holdings, Inc. and as Chairman, President and Chief Executive Officer of PacifiCorp Financial Services, Inc. since March 1995. He joined PacifiCorp in 1991 as Senior Vice President of PacifiCorp Financial Services, Inc. and served as its President from April 1993 to March 1995. 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. Michael J. Pittman, born March 25, 1953, Vice President of the Company Mr. Pittman was elected Vice President of the Company in May 1993. He served as Assistant Vice President from 1990 to 1993. Donald A. Bloodworth, born May 9, 1956, Controller of the Company Mr. Bloodworth was elected Controller of the Company in August 1996. He formerly served as Vice President of Revenue Requirements and Controller for Pacific Telecom, Inc. from May 1993 until August 1996. He was Vice President and Treasurer for PacifiCorp Holdings, Inc. and PacifiCorp Financial Services during 1992 and 1993. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is included under "Quarterly Financial Data" on page 59 of the Company's Annual Report to Shareholders and is incorporated herein by this reference. 28 ITEM 6. SELECTED FINANCIAL DATA The information required by this item is included under Note 16 "Selected Financial and Segment Information" on page 54 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 "Earnings Overview," "Domestic Electric Operations," "Australian Electric Operations," "Telecommunications," "Other Operations" and "Liquidity and Capital Resources" on pages 24 through 36 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 1997 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 1997 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 1997 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 1997 Annual Meeting of Shareholders. 29 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 1997 Annual Meeting of Shareholders. 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............................... 37 Statements of consolidated income and retained earnings for each of the three years ended December 31, 1996........................................ 38 Statements of consolidated cash flows for each of the three years ended December 31, 1996............... 39 Consolidated balance sheets at December 31, 1996 and 1995................................................. 40 Notes to consolidated financial statements................. 42 2. Schedules:** - ---------- * Page references are to the incorporated portion of the Annual Report to Shareholders of the Registrant for the year ended December 31, 1996. ** All 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: (3)a -- Third Restated Articles of Incorporation of the Company. *(3)b -- Bylaws of the Company (as restated and amended May 10, 1995) (Exhibit (3)b, Form 10-K for the fiscal year ended December 31, 1995, 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 (The Chase Manhattan Bank, successor), Trustee, as supplemented and modified by twelve 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 30 10-Q for the quarter ended September 30, 1993, File No. 1-5152); Exhibit 4(a), Form 10-Q for the quarter ended June 30, 1994, File No. 1-5152; Exhibit (4)b, Form 10-K for the fiscal year ended December 31, 1994, File No. 1-5152; and Exhibit (4)b, Form 10-K for the fiscal year ended December 31, 1995, File No. 1-5152). (4)b -- Twelfth Supplemental Indenture dated as of September 1, 1996 to the Mortgage and Deed of Trust dated as of January 9, 1989 between the Company and Morgan Guaranty Trust Company of New York (The Chase Manhattan Bank, successor), Trustee. *(4)c -- Third Restated Articles of Incorporation 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% 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) (Exhibit (10)b, Form 10-K for fiscal year ended December 31, 1994, File No. 1-5152). *+(10)b -- PacifiCorp Compensation Reduction Plan dated December 1, 1994, as amended (Exhibit (10)b, Form 10-K for fiscal year ended December 31, 1994, File No. 1-5152). *+(10)c -- Pacific Telecom, Inc. 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 Executive Incentive Program. *+(10)e -- PacifiCorp Non-Employee Directors' Stock Compensation Plan dated August 1, 1985, as amended. (Exhibit (10)f, Form 10-K for fiscal year ended December 31, 1994, File No. 1-5152). *+(10)f -- PacifiCorp Long Term Incentive Plan, 1993 Restatement (Exhibit 10G, Form 10-K for the year ended December 31, 1993, File No. 0-873). *+(10)g -- 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)h -- PacifiCorp Supplemental Executive Retirement Plan, as amended. 31 *+(10)i -- Pacific Telecom, Inc. 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)j -- Pacific Telecom, Inc. Executive Officer Severance Plan (Exhibit 10N, Form 10-K for the year ended December 31, 1994, File No. 0-873). *+(10)k -- 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)l -- 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)m -- Amendment No. 1 to Compensation Agreement between PacifiCorp and Keith R. McKennon dated as of February 9, 1995. (Exhibit (10)r, Form 10-K for the fiscal year ended December 31, 1994, File No. 1-5152). +(10)n -- PacifiCorp Stock Incentive Plan dated August 14, 1996, as amended. +(10)o -- Form of Restricted Stock Agreement under PacifiCorp Stock Incentive Plan. +(10)p -- PacifiCorp Executive Severance Plan. *(10)q -- 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)r -- 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. (Exhibit (10)t, Form 10-K for the fiscal year ended December 31, 1994, File No. 1-5152). (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, 1996 incorporated by reference herein. (21) -- Subsidiaries. (See pages S-3 and S-4.) 32 (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 Report on Form 10-K of Pacific Telecom, Inc. for the year ended December 31, 1996. - ----------- *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 February 12, 1997, under "Item 5. Other Events," the Company filed a press release reporting the Utah Division of Public Utilities and Committee of Consumer Services filed a joint petition with the Utah Public Services Commission ("PSC") requesting the PSC to commence proceedings to establish new rates for the Company's Utah customers. The Company also filed a press release reporting financial results for the three and twelve months ended December 31, 1996. On Form 8-K dated March 12, 1997, under "Item 5. Other Events," the Company filed a press release reporting the proposed acquisition of a natural gas gathering, processing, storage and marketing company based in Houston, Texas. (c) See (a) 3. above. (d) See (a) 2. above. 33 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 /s/FREDERICK W. BUCKMAN By_________________________________ Frederick W. Buckman (PRESIDENT) Date: March 20, 1997 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 March 20, 1997 - ----------------------------------- Executive Officer Frederick W. Buckman and Director (President) /s/RICHARD T. O'BRIEN Senior Vice President March 20, 1997 - ----------------------------------- (Chief Financial Richard T. O'Brien Officer and Principal (Senior Vice President) Accounting Officer) *W. CHARLES ARMSTRONG ) - ----------------------------------- ) W. Charles Armstrong ) ) ) *KATHRYN A. BRAUN ) - ----------------------------------- ) Kathryn A. Braun ) ) ) Director March 20, 1997 *C. TODD CONOVER ) - ----------------------------------- ) C. Todd Conover ) ) ) *NOLAN E. KARRAS ) - ----------------------------------- ) Nolan E. Karras ) 34 TITLE DATE ----- ---- *KEITH R. MCKENNON ) - ----------------------------------- ) Keith R. McKennon ) (Chairman) ) ) ) *ROBERT G. MILLER ) - ----------------------------------- ) Robert G. Miller ) ) ) *ALAN K. SIMPSON ) - ----------------------------------- ) Alan K. Simpson ) ) ) *VERL R. TOPHAM ) - ----------------------------------- ) Director March 20, 1997 Verl R. Topham ) ) ) *DON M. WHEELER ) - ----------------------------------- ) Don M. Wheeler ) ) ) *NANCY WILGENBUSCH ) - ----------------------------------- ) Nancy Wilgenbusch ) ) ) *PETER I. WOLD ) - ----------------------------------- ) Peter I. Wold ) *By/s/NANCY WILGENBUSCH - ----------------------------------- Nancy Wilgenbusch (Attorney-in-Fact) 35 EX-3.(A) 2 EXHIBIT 3(A) THIRD RESTATED ARTICLES OF INCORPORATION of PACIFICORP ARTICLE I The name of the Company is PacifiCorp. ARTICLE II The purposes for which the Company is organized are the manufacture, production, generation, storage, utilization, purchase, sale, supply, transmission, distribution, or disposition of electric energy, natural or artificial gas, water or steam, or power produced thereby; and the transaction of any and all other lawful businesses for which corporations may be organized under the Oregon Business Corporation Act. ARTICLE III (1) The total amount of the authorized capital stock of the Company is 769,626,533 shares, divided into 126,533 shares of 5% Preferred Stock of the stated value of $100 per share, 3,500,000 shares of Serial Preferred Stock of the stated value of $100 per share, 16,000,000 shares of No Par Serial Preferred Stock (the 5% Preferred Stock, the Serial Preferred Stock and the No Par Serial Preferred Stock collectively referred to herein as the "Senior Securities"), and 750,000,000 shares of Common Stock. (2) The 5% Preferred Stock, pari passu with the other Senior Securities, shall be entitled, but only when and as declared by the Board of Directors, out of funds legally available for the payment of dividends, in preference to the Common Stock, to dividends at the rate of 5 per centum (5%) per annum of the stated value thereof, and no more, payable quarterly on February 15, May 15, August 15 and November 15 of each year or otherwise as the Board of Directors may determine (such dates, including any changes thereof, being hereinafter referred to as the "Payment Dates"), to shareholders of record as of a date to be fixed by the Board of Directors, not exceeding thirty (30) days and not less than ten (10) days preceding the Payment Dates, such dividends to be cumulative from the day immediately following the last period for which dividends on the 5% Preferred Stock of PacifiCorp, a Maine corporation, have been declared (such date being hereinafter referred to as the "Accrual Date"). The Serial Preferred Stock, pari passu with the other Senior Securities, shall be entitled, but only when and as declared by the Board of Directors, out of funds legally available for the payment of dividends, in preference to the Common Stock, to dividends at the rate or rates, which may be subject to adjustment, as to each series thereof, fixed and determined pursuant to Section (5) or (6) of this Article at the time of the creation of such series, and no more, payable as the Board of Directors may from time to time determine, such dividends to be cumulative from the date of issue of such stock or as otherwise provided in Section (6) of this Article. The No Par Serial Preferred Stock, pari passu with the other Senior Securities, shall be entitled, but only when and as declared by the Board of Directors, out of funds legally available for the payment of dividends, in preference to the Common Stock, to dividends at the rate or rates, which may be subject to adjustment, as to each series thereof, fixed and determined pursuant to Section (5) or (7) of this Article at the time of the creation of such series, and no more, payable as the Board of Directors may from time to time determine, such dividends to be cumulative from the date of issue of such stock or as otherwise provided in Section (7) of this Article. 2 (3) In the event of any voluntary liquidation, dissolution or winding up of the Company, the 5% Preferred Stock, pari passu with the other Senior Securities, shall also have a preference over the Common Stock until $110 per share and five per centum (5%) per annum on the stated value thereof from and after the date on which dividends on such stock became cumulative, shall have been paid by dividends or distribution; the Serial Preferred Stock, pari passu with the other Senior Securities, shall also have a preference over the Common Stock, until there shall have been paid, by dividends or distribution on each share of the Serial Preferred Stock, the amount as to each series thereof fixed and determined by resolution of the Board of Directors or pursuant to Section (6) of this Article at the time of the creation of each such series, plus the amount, if any, by which dividends at the rate or rates fixed and determined for such stock pursuant to Section (5) or (6) of this Article, from and after the respective dates on which dividends on such stock became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon; and the No Par Serial Preferred Stock, pari passu with the other Senior Securities, shall also have a preference over the Common Stock, until there shall have been paid, by dividends or distribution on each share of the No Par Serial Preferred Stock, the amount as to each series thereof fixed and determined by resolution of the Board of Directors or pursuant to Section (7) of this Article at the time of the creation of each such series, plus the amount, if any, by which dividends at the rate or rates fixed and determined for such stock pursuant to Section (5) or (7) of this Article, from and after the respective dates on which dividends on such stock became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. 3 (4) In the event of any involuntary liquidation, dissolution or winding up of the Company, which shall include any such liquidation, dissolution or winding up which may arise out of or result from the condemnation or purchase of all or a major portion of the properties of the Company by (i) the United States Government or any authority, agency or instrumentality thereof, (ii) a state of the United States or any authority, agency or instrumentality thereof, or (iii) a district, cooperative or other association or entity not organized for profit, the 5% Preferred Stock, pari passu with the other Senior Securities, shall also have a preference over the Common Stock until the full stated value thereof and five per centum (5%) per annum thereon from and after the date on which dividends on such stock became cumulative, shall have been paid by dividends or distribution; the Serial Preferred Stock, pari passu with the other Senior Securities, shall also have a preference over the Common Stock until there shall have been paid, by dividends or distribution on each share of the Serial Preferred Stock, the full stated value thereof, plus the amount, if any, by which dividends at the rate or rates fixed and determined for such stock pursuant to Section (5) or (6) of this Article, from and after the respective dates on which dividends on such stock became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon; and the No Par Serial Preferred Stock, pari passu with the other Senior Securities, shall also have a preference over the Common Stock until there shall have been paid, by dividends or distribution on each share of the No Par Serial Preferred Stock, the amount as to each series thereof fixed and determined by resolution of the Board of Directors as the consideration therefor or pursuant to Section (7) of this Article at the time of creation of each such series, plus the amount, if any, by which dividends at the rate or rates fixed and determined for such stock 4 pursuant to Section (5) or (7) of this Article, from and after the respective dates on which dividends on such stock became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. (5) The Board of Directors shall have authority by resolution to divide the Serial Preferred Stock into series designated " % Serial Preferred Stock" or the " Serial Preferred Stock," as applicable, and to divide the No Par Serial Preferred Stock into series designated "$ No Par Serial Preferred Stock" or the " No Par Serial Preferred Stock," as applicable (inserting, in each case, the annual dividend rate, as fixed and determined by the Board of Directors for each series or, if the rate of dividends is subject to adjustment, so indicating by appropriate language). All shares of Serial Preferred Stock, irrespective of series, shall constitute one and the same class of stock, and all shares of No Par Serial Preferred Stock, irrespective of series, shall constitute one and the same class of stock. Within each such class of stock, all shares shall be of equal rank and shall be identical in all respects except as to designation thereof and except that in establishing a series within either of said classes, the Board of Directors may fix and determine the relative rights and preferences of such series as to any of the following: (a) The dividend rate or rates, which may be subject to adjustment in accordance with a method adopted by resolution of the Board of Directors at the time of the creation of such series; (b) The date or dates from which dividends on shares of each series shall be cumulative; (c) The dividend payment dates; 5 (d) The amount to be paid upon redemption, if redeemable, or in the event of voluntary liquidation, dissolution or winding up of the Company; (e) The rights of conversion, if any, into shares of Common Stock and the terms and conditions on which shares may be so converted, if the shares of any series are issued with the privilege of conversion; and (f) Provisions, if any, for the redemption or purchase of shares, which may be at the option of the Company or upon the happening of a specified event or events, for cash, at such time or times, price or prices, or rate or rates, and with such adjustments as shall be fixed and determined by resolution of the Board of Directors or from time to time in accordance with a method adopted by resolution of the Board of Directors at the time of the creation of such series; and except further that in establishing a series of the No Par Serial Preferred Stock, the Board of Directors may also fix and determine the voting rights of such series. All shares of the same series shall be identical in all respects except as to the date or dates from which dividends upon shares of such series may be cumulative. Each certificate for Serial Preferred Stock or No Par Serial Preferred Stock shall state the designation of the series in which the shares represented by such certificate are issued. Whenever an affirmative vote of the Serial Preferred Stock or the No Par Serial Preferred Stock may be required for any purpose, the shares voting shall be counted irrespective of series and not by different series. (6) Without limitation of the foregoing authority conferred upon the Board of Directors, there follows a statement of the rights and preferences of the respective series of Serial Preferred Stock created on the effective date of the merger of PacifiCorp, a Maine 6 corporation, and Utah Power & Light Company, a Utah corporation, into the Company, being the initial series and the fourth through thirteenth series, inclusive, thereof. (a) There is hereby created an initial series of the Company's Serial Preferred Stock which shall be designated as 4.52% Serial Preferred Stock and which shall consist of 2,065 shares. The annual dividend rate of said initial series of the Company's Serial Preferred Stock shall be four and fifty-two one-hundredths per centum (4.52%) of the stated value thereof. The date or dates from which dividends on shares of said initial series of the Company's Serial Preferred Stock shall be cumulative shall be the Accrual Date. The dividend payment dates for the payment of dividends on shares of said initial series of the Company's Serial Preferred Stock shall be the Payment Dates. The amount to be paid upon redemption of shares of said initial series of the Company's Serial Preferred Stock shall be $103.50 per share, plus unpaid accumulated dividends, if any, to the date of redemption. The amounts to be paid in respect of shares of said initial series of the Company's Serial Preferred Stock in the event of voluntary liquidation, dissolution or winding up of the Company shall be as follows: In the event of any voluntary liquidation, dissolution or winding up of the Company, said initial series of the Company's Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock, until there shall have been paid, by dividends or distribution on each share of said initial series of the Company's Serial Preferred Stock, an amount equal to the redemption price applicable to shares of said initial series of the Company's Serial Preferred Stock, plus the amount, if any, by which 7 dividends at the rate of 4.52% per annum on the stated value thereof, from and after the date on which dividends on such shares became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. (The second and third series of the Serial Preferred Stock of PacifiCorp, a Maine corporation, were redeemed on September 6, 1963 and March 5, 1965, respectively.) (b) There is hereby created a fourth series of the Company's Serial Preferred Stock which shall be designated as 7.00% Serial Preferred Stock and which shall consist of 18,060 shares. The annual dividend rate of said fourth series of the Company's Serial Preferred Stock shall be seven per centum (7.00%) of the stated value thereof. The date from which dividends on shares of said fourth series of the Company's Serial Preferred Stock shall be cumulative shall be the Accrual Date. The dividend payment dates for the payment of dividends on shares of said fourth series of the Company's Serial Preferred Stock shall be the Payment Dates. The amounts to be paid in respect of said fourth series of the Company's Serial Preferred Stock in the event of voluntary liquidation, dissolution or winding up of the Company shall be as follows: In the event of any voluntary liquidation, dissolution or winding up of the Company, said fourth series of the Company's Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock, until there shall have been paid, by dividends or distribution on each share of said fourth series of the Company's Serial Preferred Stock, an amount equal to the full stated value thereof, plus the amount, if any, by which dividends at the rate of 7.00% per annum on the stated value thereof, from and after the 8 date on which dividends on such shares became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. (c) There is hereby created a fifth series of the Company's Serial Preferred Stock which shall be designated as 6.00% Serial Preferred Stock and which shall consist of 5,932 shares. The annual dividend rate of said fifth series of the Company's Serial Preferred Stock shall be six per centum (6.00%) of the stated value thereof. The date from which dividends on shares of said fifth series of the Company's Serial Preferred Stock shall be cumulative shall be the Accrual Date. The dividend payment dates for the payment of dividends on shares of said fifth series of the Company's Serial Preferred Stock shall be the Payment Dates. The amounts to be paid in respect of said fifth series of the Company's Serial Preferred Stock in the event of voluntary liquidation, dissolution or winding up of the Company shall be as follows: In the event of any voluntary liquidation, dissolution or winding up of the Company, said fifth series of the Company's Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock until there shall have been paid, by dividends or distribution on each share of said fifth series of the Company's Serial Preferred Stock, an amount equal to the full stated value thereof, plus the amount, if any, by which dividends at the rate of 6.00% per annum on the stated value thereof, from and after the date on which dividends on such shares became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. 9 (d) There is hereby created a sixth series of the Company's Serial Preferred Stock which shall be designated as 5.00% Serial Preferred Stock and which shall consist of 42,000 shares. The annual dividend rate of said sixth series of the Company's Serial Preferred Stock shall be five per centum (5.00%) of the stated value thereof. The date from which dividends on shares of said sixth series of the Company's Serial Preferred Stock shall be cumulative shall be the Accrual Date. The dividend payment dates for the payment of dividends on shares of said sixth series of the Company's Serial Preferred Stock shall be the Payment Dates. The amount to be paid upon redemption of shares of said sixth series of the Company's Serial Preferred Stock shall be $100 per share, plus unpaid accumulated dividends, if any, to the date of redemption. The amounts to be paid in respect of shares of said sixth series of the Company's Serial Preferred Stock in the event of voluntary liquidation, dissolution or winding up of the Company shall be as follows: In the event of any voluntary liquidation, dissolution or winding up of the Company, said sixth series of the Company's Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock, until there shall have been paid, by dividends or distribution on each share of said sixth series of the Company's Serial Preferred Stock, an amount equal to the full stated value thereof, plus the amount, if any, by which dividends at the rate of 5.00% per annum on the stated value thereof, from and after the date on which dividends on such shares became cumulative to the date of such distribution, exceeds the dividends actually paid thereon or declared and set apart for payment thereon. 10 (e) There is hereby created a seventh series of the Company's Serial Preferred Stock which shall be designated as 5.40% Serial Preferred Stock and which shall consist of 65,960 shares. The annual dividend rate of said seventh series of the Company's Serial Preferred Stock shall be five and forty one-hundredths per centum (5.40%) of the stated value thereof. The date from which dividends on shares of said seventh series of the Company's Serial Preferred Stock shall be cumulative shall be the Accrual Date. The dividend payment dates for the payment of dividends on shares of said seventh series of the Company's Serial Preferred Stock shall be the Payment Dates. The amount to be paid upon redemption of shares of said seventh series of the Company's Serial Preferred Stock shall be $101.00 per share, plus unpaid accumulated dividends, if any, to the date of redemption. The amounts to be paid in respect of shares of said seventh series of the Company's Serial Preferred Stock in the event of voluntary liquidation, dissolution or winding up of the Company shall be as follows: In the event of any voluntary liquidation, dissolution or winding up of the Company, said seventh series of the Company's Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock, until there shall have been paid, by dividends or distribution on each share of said seventh series of the Company's Serial Preferred Stock, an amount equal to the full stated value thereof, plus the amount, if any, by which dividends at the rate of 5.40% per annum on the stated value thereof, from and after the date on which dividends on such shares became cumulative to the 11 date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. (f) There is hereby created an eighth series of the Company's Serial Preferred Stock which shall be designated as 4.72% Serial Preferred Stock and which shall consist of 69,890 shares. The annual dividend rate of said eighth series of the Company's Serial Preferred Stock shall be four and seventy-two one-hundredths per centum (4.72%) of the stated value thereof. The date from which dividends on shares of said eighth series of the Company's Serial Preferred Stock shall be cumulative shall be the Accrual Date. The dividend payment dates for the payment of dividends on shares of said eighth series of the Company's Serial Preferred Stock shall be the Payment Dates. The amount to be paid upon redemption of shares of said eighth series of the Company's Serial Preferred Stock shall be $103.50 per share, plus unpaid accumulated dividends, if any, to the date of redemption. The amounts to be paid in respect of shares of said eighth series of the Company's Serial Preferred Stock in the event of voluntary liquidation, dissolution or winding up of the Company shall be as follows: In the event of any voluntary liquidation, dissolution or winding up of the Company, said eighth series of the Company's Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock, until there shall have been paid, by dividends or distribution on each share of said eighth series of the Company's Serial Preferred Stock, an amount equal to the redemption price applicable to shares of said eighth series of the Company's Serial Preferred Stock, plus the amount, if any, by which 12 dividends at the rate of 4.72% per annum on the stated value thereof, from and after the date on which dividends on such shares became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. (g) There is hereby created a ninth series of the Company's Serial Preferred Stock which shall be designated as 4.56% Serial Preferred Stock and which shall consist of 84,592 shares. The annual dividend rate of said ninth series of the Company's Serial Preferred Stock shall be four and fifty-six one-hundredths per centum (4.56%) of the stated value thereof. The date from which dividends on shares of said ninth series of the Company's Serial Preferred Stock shall be cumulative shall be the Accrual Date. The dividend payment dates for the payment of dividends on shares of said ninth series of the Company's Serial Preferred Stock shall be the Payment Dates. The amount to be paid upon redemption of shares of said ninth series of the Company's Serial Preferred Stock shall be $102.34 per share, plus unpaid accumulated dividends, if any, to the date of redemption. The amounts to be paid in respect of shares of said ninth series of the Company's Serial Preferred Stock in the event of voluntary liquidation, dissolution or winding up of the Company shall be as follows: In the event of any voluntary liquidation, dissolution or winding up of the Company, said ninth series of the Company's Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock, until there shall have been paid, by dividends or distribution on each share of said ninth series of the Company's Serial Preferred Stock, an amount equal to the redemption price applicable to shares of said 13 ninth series of the Company's Serial Preferred Stock, plus the amount, if any, by which dividends at the rate of 4.56% per annum on the stated value thereof, from and after the date on which dividends on such shares became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. (The tenth, eleventh and twelfth series of the Serial Preferred Stock of PacifiCorp, an Oregon corporation, were redeemed on July 12, 1996. The thirteenth series of Serial Preferred Stock of PacifiCorp, an Oregon corporation, was redeemed on October 10, 1989. The fourteenth series of the Serial Preferred Stock of PacifiCorp, a Maine corporation, was redeemed on January 11, 1987.) (7) Without limitation of the foregoing authority conferred upon the Board of Directors, there follows a statement of the rights and preferences of the respective series of No Par Serial Preferred Stock created on the effective date of the merger of PacifiCorp, a Maine corporation, and Utah Power & Light Company, a Utah corporation, into the Company, being the second series and the sixth through thirteenth series, inclusive, thereof, and the respective series of No Par Serial Preferred Stock created thereafter and prior to the date of this restatement, being the fourteenth through twentieth series, inclusive, thereof. (The initial series of the No Par Serial Preferred Stock of PacifiCorp, a Maine corporation, was redeemed on May 15, 1987. The second series of the No Par Serial Preferred Stock of PacifiCorp, an Oregon corporation, was redeemed on July 12, 1996. The third, fourth and fifth series of No Par Serial Preferred Stock of PacifiCorp, a Maine corporation, were redeemed on May 15, 1987, October 3, 1984 and June 15, 1986, respectively. The sixth series 14 and seventh series of No Par Serial Preferred Stock of PacifiCorp, an Oregon corporation, were exchanged and retired on June 29, 1992). (a) There is hereby created an eighth series of the Company's No Par Serial Preferred Stock, which shall be designated as $7.12 No Par Serial Preferred Stock. Said eighth series of No Par Serial Preferred Stock shall consist of 500,000 shares, shall have a stated value of $100 per share and shall have the relative rights and preferences as follows: The annual dividend on said eighth series of the Company's No Par Serial Preferred Stock shall be $7.12 per share. The date from which dividends on shares of said eighth series of the Company's No Par Serial Preferred Stock shall be cumulative shall be the Accrual Date. The dates for the payment of dividends on shares of said eighth series of the Company's No Par Serial Preferred Stock shall be the Payment Dates. The amounts to be paid upon optional redemption of the shares of said eighth series of the Company's No Par Serial Preferred Stock shall be, for the period from the date upon which dividends on said eighth series became cumulative to and including March 31, 1992, $107.12 per share; thereafter to and including March 31, 1997, $104.75 per share; thereafter to and including March 31, 2002, $102.38 per share; and thereafter $100 per share; plus, in each case, unpaid accumulated dividends, if any, to the date of redemption; provided, however, that shares of said eighth series of the Company's No Par Serial Preferred Stock shall not be redeemable prior to April 1, 1992, directly or indirectly, as part of, or in anticipation of, any refunding operation involving the incurring of indebtedness or the issuance of shares of preferred stock ranking equally with or prior to shares of said eighth series of the Company's No Par 15 Serial Preferred Stock as to dividends or on liquidation, if the interest on such indebtedness or the dividends on shares of any such preferred stock would result in an effective cost to the Company (computed in accordance with generally accepted financial practice) of less than 7.18% per annum. As a sinking fund for said eighth series of No Par Serial Preferred Stock, the Company shall redeem, out of funds legally available therefor, on March 31 of each year, beginning with March 31, 1993, not less than 15,000 shares nor more than 30,000 shares of said eighth series of the Company's No Par Serial Preferred Stock at a redemption price equal to $100 per share plus unpaid accumulated dividends, if any, to the date of redemption; the option to redeem in excess of 15,000 shares of said eighth series of No Par Serial Preferred Stock on any March 31 shall not be cumulative; shares of said eighth series of No Par Serial Preferred Stock acquired or redeemed by the Company otherwise than through operation of the sinking fund may, at the option of the Company, be credited against subsequent minimum sinking fund requirements; if the Company shall be prevented, because of restriction or for any other reason, from acquiring or redeeming on any March 31 the number of shares of said eighth series of No Par Serial Preferred Stock that in the absence of such restriction or other reason it would be required to acquire or redeem on such date, the deficit shall be made good on the first succeeding March 31 on which the Company shall not be prevented by such restriction or other reason from acquiring or redeeming shares of said eighth series of No Par Serial Preferred Stock. If the Company shall be in arrears in the redemption of shares of said eighth series of No Par Serial Preferred Stock, no dividends (other than dividends payable in Common Stock) shall be paid or any other distribution of assets made, by purchase of shares or otherwise, on 16 Common Stock or on any other stock of the Company over which the No Par Serial Preferred Stock has preference as to the payment of dividends or as to assets. In the event of any involuntary liquidation, dissolution or winding up of the Company, said eighth series of the Company's No Par Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock until there shall have been paid, by dividends or distribution on each share of said eighth series of the Company's No Par Serial Preferred Stock, an amount equal to $100, plus the amount, if any, by which dividends of $7.12 per annum, from and after the date on which dividends on such shares became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. In the event of any voluntary liquidation, dissolution or winding up of the Company, said eighth series of the Company's No Par Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock, until there shall have been paid, by dividends or distribution on each share of said eighth series of the Company's No Par Serial Preferred Stock, an amount equal to the then current redemption price applicable to shares of said eighth series of the Company's No Par Serial Preferred Stock, plus the amount, if any, by which dividends of $7.12 per annum, from and after the date on which dividends on such shares became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. Every holder of record of said eighth series of the Company's No Par Serial Preferred Stock, or his legal representative, at the record date for the determination of persons 17 entitled to vote at a meeting of shareholders, shall be entitled to one vote for each share of such stock standing in his name on the books of the Company. (b) There is hereby created a ninth series of the Company's No Par Serial Preferred Stock which shall be designated as $1.28 No Par Serial Preferred Stock. Said ninth series of No Par Serial Preferred Stock shall consist of 400,000 shares, shall have a stated value of $25 per share and shall have the relative rights and preferences as follows: The annual dividend on said ninth series of the Company's No Par Serial Preferred Stock shall be $1.28 per share. The date from which dividends on shares of said ninth series of the Company's No Par Serial Preferred Stock shall be cumulative shall be the day immediately following the last period for which dividends on the Cumulative Preferred Stock, $25 par value, of Utah Power & Light Company, a Utah corporation, have been declared (such date being hereinafter referred to as the "UP&L Accrual Date"). The dates for the payment of dividends on shares of said ninth series of the Company's No Par Serial Preferred Stock shall be the Payment Dates. The amount to be paid upon redemption of the shares of said ninth series of the Company's No Par Serial Preferred Stock shall be $26.35 per share, plus unpaid accumulated dividends, if any, to the date of redemption. In the event of any involuntary liquidation, dissolution or winding up of the Company, said ninth series of the Company's No Par Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock until there shall have been paid, by dividends or distribution on each share of said ninth series of the Company's No Par Serial Preferred Stock, an amount equal to $25, plus the amount, if any, by which dividends 18 of $1.28 per annum, from and after the date on which dividends on such shares became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. In the event of any voluntary liquidation, dissolution or winding up of the Company, said ninth series of the Company's No Par Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock, until there shall have been paid, by dividends or distribution on each share of said ninth series of the Company's No Par Serial Preferred Stock, an amount equal to the redemption price applicable to shares of said ninth series of the Company's No Par Serial Preferred Stock, plus the amount, if any, by which dividends of $1.28 per annum, from and after the date on which dividends on such shares became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. The holders of shares of said ninth series of the Company's No Par Serial Preferred Stock shall have no voting rights except as provided in these Restated Articles of Incorporation and except as otherwise required by law. Whenever holders of shares of said ninth series of the Company's No Par Serial Preferred Stock shall be entitled to vote, every holder, or his legal representative, at the record date for the determination of persons entitled to vote at a meeting of shareholders, shall be entitled to one-quarter (1/4) of a vote for each share of such stock standing in his name on the books of the Company. The shares of said ninth series of the Company's No Par Serial Preferred Stock, by their terms, shall not be entitled to a sinking fund or purchase fund and shall not be convertible into or exchangeable for shares of any other class or series. 19 (c) There is hereby created a tenth series of the Company's No Par Serial Preferred Stock which shall be designated as $1.18 No Par Serial Preferred Stock. Said tenth series of No Par Serial Preferred Stock shall consist of 480,000 shares, shall have a stated value of $25 per share and shall have the relative rights and preferences as follows: The annual dividend on said tenth series of the Company's No Par Serial Preferred Stock shall be $1.18 per share. The date from which dividends on shares of said tenth series of the Company's No Par Serial Preferred Stock shall be cumulative shall be the UP&L Accrual Date. The dates for the payment of dividends on shares of said tenth series of the Company's No Par Serial Preferred Stock shall be the Payment Dates. The amount to be paid upon redemption of the shares of said tenth series of the Company's No Par Serial Preferred Stock shall be $26.15 per share, plus unpaid accumulated dividends, if any, to the date of redemption. In the event of any involuntary liquidation, dissolution or winding up of the Company, said tenth series of the Company's No Par Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock until there shall have been paid, by dividends or distribution on each share of said tenth series of the Company's No Par Serial Preferred Stock, an amount equal to $25, plus the amount, if any, by which dividends of $1.18 per annum, from and after the date on which dividends on such shares became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. 20 In the event of any voluntary liquidation, dissolution or winding up of the Company, said tenth series of the Company's No Par Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock, until there shall have been paid, by dividends or distribution on each share of said tenth series of the Company's No Par Serial Preferred Stock, an amount equal to the redemption price applicable to shares of said tenth series of the Company's No Par Serial Preferred Stock, plus the amount, if any, by which dividends of $1.18 per annum, from and after the date on which dividends on such shares became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. The holders of shares of said tenth series of the Company's No Par Serial Preferred Stock shall have no voting rights except as provided in these Restated Articles of Incorporation and except as otherwise required by law. Whenever holders of shares of said tenth series of the Company's No Par Serial Preferred Stock shall be entitled to vote, every holder, or his legal representative, at the record date for the determination of persons entitled to vote at a meeting of shareholders, shall be entitled to one-quarter (1/4) of a vote for each share of such stock standing in his name on the books of the Company. The shares of said tenth series of the Company's No Par Serial Preferred Stock, by their terms, shall not be entitled to a sinking fund or purchase fund and shall not be convertible into or exchangeable for shares of any other class or series. (d) There is hereby created an eleventh series of the Company's No Par Serial Preferred Stock which shall be designated as $1.16 No Par Serial Preferred Stock. Said eleventh 21 series of No Par Serial Preferred Stock shall consist of 200,000 shares, shall have a stated value of $25 per share and shall have the relative rights and preferences as follows: The annual dividend on said eleventh series of the Company's No Par Serial Preferred Stock shall be $1.16 per share. The date from which dividends on shares of said eleventh series of the Company's No Par Serial Preferred Stock shall be cumulative shall be the UP&L Accrual Date. The dates for the payment of dividends on shares of said eleventh series of the Company's No Par Serial Preferred Stock shall be the Payment Dates. The amount to be paid upon redemption of the shares of said eleventh series of the Company's No Par Serial Preferred Stock shall be $26.11 per share, plus unpaid accumulated dividends, if any, to the date of redemption. In the event of any involuntary liquidation, dissolution or winding up of the Company, said eleventh series of the Company's No Par Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock until there shall have been paid, by dividends or distribution on each share of said eleventh series of the Company's No Par Serial Preferred Stock, an amount equal to $25, plus the amount, if any, by which dividends of $1.16 per annum, from and after the date on which dividends on such shares became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. In the event of any voluntary liquidation, dissolution or winding up of the Company, said eleventh series of the Company's No Par Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock, until there shall 22 have been paid, by dividends or distribution on each share of said eleventh series of the Company's No Par Serial Preferred Stock, an amount equal to the redemption price applicable to shares of said eleventh series of the Company's No Par Serial Preferred Stock, plus the amount, if any, by which dividends of $1.16 per annum, from and after the date on which dividends on such shares became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. The holders of shares of said eleventh series of the Company's No Par Serial Preferred Stock shall have no voting rights except as provided in these Restated Articles of Incorporation and except as otherwise required by law. Whenever holders of shares of said eleventh series of the Company's No Par Serial Preferred Stock shall be entitled to vote, every holder, or his legal representative, at the record date for the determination of persons entitled to vote at a meeting of shareholders, shall be entitled to one-quarter (1/4) of a vote for each share of such stock standing in his name on the books of the Company. The shares of said eleventh series of the Company's No Par Serial Preferred Stock, by their terms, shall not be entitled to a sinking fund or purchase fund and shall not be convertible into or exchangeable for shares of any other class or series. (The twelfth, thirteenth, fourteenth and fifteenth series of the No Par Serial Preferred Stock of PacifiCorp, an Oregon corporation, were redeemed on July 12, 1996, July 12, 1996, July 29, 1996 and December 29, 1992, respectively). (e) There is hereby created a sixteenth series of the Company's No Par Serial Preferred Stock which shall be designated as $7.70 No Par Serial Preferred Stock. The amount of the consideration received by the Company fixed as a preference over the Common Stock in 23 the assets of the Company upon involuntary liquidation and that constitutes the stated value of said sixteenth series of the Company's No Par Serial Preferred Stock is $100 per share. Said sixteenth series of the Company's No Par Serial Preferred Stock shall consist of 1,000,000 shares and shall have the relative rights and preferences as follows: The annual dividend on said sixteenth series of the Company's No Par Serial Preferred Stock shall be $7.70 per share. The date from which dividends on shares of said sixteenth series of the Company's No Par Serial Preferred Stock shall be cumulative shall be the date of issue of such shares. The dates for the payment of dividends on shares of said sixteenth series of the Company's No Par Serial Preferred Stock shall be the Payment Dates. The shares of said sixteenth series of the Company's No Par Serial Preferred Stock shall not be subject to redemption at the option of the Company and shall not be subject to any sinking fund. On August 15, 2001, the Company shall redeem all shares of said sixteenth series of No Par Serial Preferred Stock then outstanding, out of funds legally available therefor, at a redemption price equal to $100 per share plus unpaid accumulated dividends, if any, to the date of redemption. In the event of any voluntary liquidation, dissolution or winding up of the Company, said sixteenth series of the Company's No Par Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock, until there shall have been paid, by dividends or distribution on each share of said sixteenth series of the Company's No Par Serial Preferred Stock, an amount equal to $100, plus the amount, if any, 24 by which dividends of $7.70 per annum, from and after the date on which dividends on such shares became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. Every holder of record of shares of said sixteenth series of the Company's No Par Serial Preferred Stock, or his legal representative, at the record date for the determination of persons entitled to vote at a meeting of shareholders, shall be entitled to one vote for each share of such stock standing in his name on the books of the Company. (f) There is hereby created a seventeenth series of the Company's No Par Serial Preferred Stock, which shall be designated as $1.98 No Par Serial Preferred Stock, Series 1992. Said seventeenth series of No Par Serial Preferred Stock shall consist of 5,000,000 shares. The amount of the consideration received by the Company fixed as a preference over the Common Stock in the assets of the Company upon involuntary liquidation, dissolution or winding up of the Company and that constitutes the stated value of said seventeenth series of the Company's No Par Serial Preferred Stock is $25 per share. The annual dividend on said seventeenth series of the Company's No Par Serial Preferred Stock shall be $1.98 per share. The date from which dividends on shares of said seventeenth series of the Company's No Par Serial Preferred Stock shall be cumulative shall be the date of issue of such shares. The dates for the payment of dividends on shares of said seventeenth series of the Company's No Par Serial Preferred Stock shall be the Payment Dates. The shares of said seventeenth series of the Company's No Par Serial Preferred Stock shall not be redeemable by the Company on or before May 31, 1997. After May 31, 25 1997, the outstanding shares of said seventeenth series of the Company's No Par Serial Preferred Stock shall be redeemable at the option of the Company, in whole or in part, out of funds legally available therefor, at a redemption price equal to $25 per share plus unpaid accumulated dividends, if any, to the date of redemption. The shares of said seventeenth series of the Company's No Par Serial Preferred Stock shall not be subject to any sinking fund. In the event of any voluntary liquidation, dissolution or winding up of the Company, said seventeenth series of the Company's No Par Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock, until there shall have been paid, by dividends or distribution on each share of said seventeenth series of the Company's No Par Serial Preferred Stock, an amount equal to $25, plus the amount, if any, by which dividends of $1.98 per annum, from and after the date on which dividends on such shares became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. Every holder of record of shares of said seventeenth series of the Company's No Par Serial Preferred Stock, or his legal representative, at the record date for the determination of persons entitled to vote at a meeting of shareholders, shall be entitled to one-quarter vote for each share of such stock standing in his name on the books of the Company. (g) There is hereby created an eighteenth series of the Company's No Par Serial Preferred Stock, which shall be designated as $7.48 No Par Serial Preferred Stock. Said eighteenth series of No Par Serial Preferred Stock shall consist of 750,000 shares. The amount of the consideration received by the Company fixed as a preference over the Common Stock in the assets of the Company upon involuntary liquidation, dissolution or winding up of the 26 Company and that constitutes the stated value of said seventeenth series of the Company's No Par Serial Preferred Stock is $100 per share. The annual dividend on said eighteenth series of the Company's No Par Serial Preferred Stock shall be $7.48 per share. The date from which dividends on shares of said eighteenth series of the Company's No Par Serial Preferred Stock shall be cumulative shall be the date of issue of such shares. The dates for the payment of dividends on shares of said eighteenth series of the Company's No Par Serial Preferred Stock shall be the Payment Dates. The shares of said eighteenth series of the Company's No Par Serial Preferred Stock shall not be subject to redemption at the option of the Company, other than as described below. On June 15, 2007, the Company shall redeem all shares of said eighteenth series of No Par Serial Preferred Stock then outstanding, out of funds legally available therefor, at a redemption price equal to $100 per share plus unpaid accumulated dividends, if any, to the date of redemption. As a sinking fund for said eighteenth series of No Par Serial Preferred Stock, the Company shall redeem, out of funds legally available therefor, on June 15 of each year, beginning with June 15, 2002 and ending with June 15, 2006, not less than 37,500 shares nor more than 75,000 shares of said eighteenth series of No Par Serial Preferred Stock, in each case at a redemption price equal to $100 per share plus unpaid accumulated dividends, if any, to the date of redemption; the option to redeem in excess of 37,500 shares of said eighteenth series of No Par Serial Preferred Stock on any June 15 from 2002 through 2006 shall not be cumulative; shares of said eighteenth series of No Par Serial Preferred Stock acquired by the Company otherwise than through operation of the sinking fund may, at the option of the Company, be 27 credited against subsequent minimum sinking fund requirements; if the Company shall be prevented, because of restriction or for any other reason, from acquiring or redeeming on any June 15 from 2002 through 2006 the number of shares of said eighteenth series of No Par Serial Preferred Stock that in the absence of such restriction or other reason it would be required to acquire or redeem on such date, the deficit shall be made good on the first succeeding June 15 on which the Company shall not be prevented by such restriction or other reason from acquiring or redeeming shares of said eighteenth series of No Par Serial Preferred Stock. If the Company shall be in arrears in the redemption of shares of said eighteenth series of No Par Serial Preferred Stock, no dividends (other than dividends payable in Common Stock) shall be paid or any other distribution of assets made, by purchase of shares or otherwise, on Common Stock or on any other stock of the Company over which the No Par Serial Preferred Stock has preference as to the payment of dividends or as to assets. In the event of any voluntary liquidation, dissolution or winding up of the Company, said eighteenth series of the Company's No Par Serial Preferred Stock, pari passu with the other Senior Securities, shall have a preference over the Common Stock, until there shall have been paid, by dividends or distribution on each share of said eighteenth series of the Company's No Par Serial Preferred Stock, an amount equal to $100, plus the amount, if any, by which dividends of $7.48 per annum, from and after the date on which dividends on such shares became cumulative to the date of such distribution, exceed the dividends actually paid thereon or declared and set apart for payment thereon. Every holder of record of shares of said eighteenth series of the Company's No Par Serial Preferred Stock, or his legal representative, at the record date for the determination 28 of persons entitled to vote at a meeting of shareholders, shall be entitled to one vote for each share of such stock standing in his name on the books of the Company. (The nineteenth and twentieth series of the No Par Serial Preferred Stock of PacifiCorp, an Oregon corporation, were redeemed on August 9, 1996 and January 25, 1993, respectively). (8) Subject to the rights of the holders of the Senior Securities, and subordinate thereto (and subject and subordinate to the rights of any class of stock hereafter authorized), the Common Stock alone shall receive all dividends and shares in liquidation, dissolution, winding up or distribution other than those to be paid on shares of Senior Securities as provided in Sections (2) through (7) of this Article. (9) The Company, by a majority vote of its Board of Directors, may at any time redeem all of said 5% Preferred Stock or may from time to time redeem any part thereof, by paying in cash a redemption price of $110 per share, plus unpaid accumulated dividends, if any, to the date of redemption; may at any time redeem all or any part of any one or more series of Serial Preferred Stock, other than the 7.00% Serial Preferred Stock and the 6.00% Serial Preferred Stock created at the time of merger of PacifiCorp, a Maine corporation, and Utah Power & Light Company, a Utah corporation, into the Company, by paying in cash a redemption price fixed and determined by resolution of the Board of Directors or pursuant to Section (6) of this Article at the time of creation of each such series, plus unpaid accumulated dividends, if any, to the date of redemption; and may at any time redeem all or any part of any one or more series of No Par Serial Preferred Stock by paying in cash a redemption price fixed and determined by resolution of the Board of Directors or pursuant to Section (7) of this Article at the time of creation of each such series plus unpaid accumulated dividends, if any, to the date of redemption. Notice of the intention of the Company to redeem all or any part of the 5% 29 Preferred Stock, Serial Preferred Stock or No Par Serial Preferred Stock shall be mailed not less than thirty (30) days nor more than sixty (60) days before the date of redemption to each holder of record of 5% Preferred Stock, Serial Preferred Stock or No Par Serial Preferred Stock to be redeemed, at his post office address as shown by the Company's records or, in lieu of such mailing, not less than thirty (30) days nor more than sixty (60) days' notice of such redemption may be published in such manner as may be prescribed by resolution of the Board of Directors of the Company; and, in the event of such publication, no failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of 5% Preferred Stock, Serial Preferred Stock or No Par Serial Preferred Stock so to be redeemed. Contemporaneously with the mailing or the publication of such notice as aforesaid or at any time thereafter prior to the date of redemption, the Company may deposit the aggregate redemption price (or the portion thereof not already paid in the redemption of such 5% Preferred Stock, Serial Preferred Stock or No Par Serial Preferred Stock) with any bank or trust company in the City of New York, New York, or in the City of Portland, Oregon, named in such notice, payable to the order of the record holders of the 5% Preferred Stock, Serial Preferred Stock or No Par Serial Preferred Stock so to be redeemed, on the endorsement and surrender of their certificates, and thereupon said holders shall cease to be shareholders with respect to such shares; and from and after the making of such deposit such holders shall have no interest in or claim against the Company with respect to said shares, but shall be entitled only to receive such moneys from said bank or trust company, with interest, if any, allowed by such bank or trust company, on such moneys deposited as in this Section provided, on endorsement and surrender of their certificates, as aforesaid. Any moneys so deposited, plus interest thereon, if any, and remaining unclaimed at the end of six years from 30 the date fixed for redemption, if thereafter requested by resolution of the Board of Directors, shall be repaid to the Company, and in the event of such repayment to the Company such holders of record of the shares so redeemed as shall not have made claim against such moneys prior to such repayment to the Company, shall be deemed to be unsecured creditors of the Company for an amount, without interest, equivalent to the amount deposited, plus interest thereon, if any, allowed by such bank or trust company, as above stated, for the redemption of such shares and so paid to the Company. If less than all of the shares of the 5% Preferred Stock or of any series of Serial Preferred Stock or No Par Serial Preferred Stock are to be redeemed, the shares to be redeemed shall be selected by lot, in such manner as the Board of Directors of the Company shall determine, by an independent bank or trust company selected for that purpose by the Board of Directors of the Company. Nothing in this Section contained shall limit any right of the Company to purchase or otherwise acquire any shares of 5% Preferred Stock, Serial Preferred Stock or No Par Serial Preferred Stock. (10) Except as hereinafter otherwise provided, every holder of record of 5% Preferred Stock, of Serial Preferred Stock or of Common Stock, or his legal representative, at the record date for the determination of persons entitled to vote at a meeting of shareholders, shall be entitled at such meeting to one vote for each share of such stock standing in his name on the books of the Company, and every holder of record of No Par Serial Preferred Stock, or his legal representative, at the record date for the determination of persons entitled to vote at a meeting of shareholders, shall be entitled to such voting rights as shall be fixed and determined for the series of which his share or shares are a part by Section (7) of this Article or the resolution establishing such series. 31 (11) If and when dividends payable on the Senior Securities shall be in default in an amount equal to four full quarterly payments or more per share, and thereafter until all dividends on the Senior Securities in default shall have been paid, the holders of the Senior Securities, voting separately from the Common Stock as one class, shall be entitled to elect the smallest number of directors necessary to constitute a majority of the full Board of Directors, and the holders of the Common Stock, voting separately from the Senior Securities as a class, shall be entitled to elect the remaining directors of the Company, anything herein and in the Bylaws of the Company to the contrary notwithstanding. The terms of office, as directors, of all persons who may be directors of the Company at the time shall terminate upon the election of a majority of the Board of Directors by the holders of the Senior Securities, except that if the holders of the Common Stock shall not have elected the remaining directors of the Company, then, and only in that event, the directors of the Company in office just prior to the election of a majority of the Board of Directors by the holders of the Senior Securities shall elect the remaining directors of the Company. Thereafter, while such default continues and the majority of the Board is being elected by the holders of Senior Securities, the remaining directors, whether elected by directors, as aforesaid, or whether originally or later elected by holders of the Common Stock, shall continue in office until their successors are elected by holders of the Common Stock and shall qualify. (12) If and when all dividends then in default on the Senior Securities then outstanding shall be paid (such dividends to be declared and paid out of any funds legally available therefor as soon as reasonably practicable), the holders of the Senior Securities shall be divested of any special right with respect to the election of directors, and the voting power of the holders of Senior Securities and the holders of the Common Stock shall revert to the status existing before the 32 first dividend payment date on which dividends on the Senior Securities were not paid in full, but always subject to the same provisions for vesting such special rights in the holders of the Senior Securities in the event of further like default or defaults in the payment of dividends thereon. Upon termination of any such special voting right upon payment of all accumulated and defaulted dividends on the Senior Securities, the terms of office of all persons who may have been elected directors of the Company by vote of the holders of Senior Securities as one class, pursuant to such special voting right, shall forthwith terminate, and the resulting vacancies shall be filled by the vote of a majority of the remaining directors, and directors so elected shall hold office until their successors are elected and shall qualify. (13) In the case of any vacancy in the office of a director occurring among the directors elected by the holders of the Senior Securities, voting separately from the Common Stock as one class, the remaining directors elected by the holders of the Senior Securities, by affirmative vote of a majority thereof, or the remaining director so elected if there be but one, may elect a successor or successors to hold office for the unexpired term or terms of the director or directors whose place or places shall be vacant. Likewise, in case of any vacancy in the office of a director occurring among the directors not elected by the holders of the Senior Securities, the remaining directors not elected by the holders of the Senior Securities by affirmative vote of a majority thereof, or the remaining director so elected if there be but one, may elect a successor or successors to hold office for the unexpired term or terms of the director or directors whose place or places shall be vacant. (14) Whenever the right shall have accrued to the holders of the Senior Securities to elect directors, voting separately from the Common Stock as one class, it shall be the duty of the President, a Vice-President or the Secretary of the Company forthwith to cause notice to be 33 given to the shareholders entitled to vote at a meeting to be held at such time as the Company's officers may fix, not less than ten (10) nor more than sixty (60) days after the accrual of such right, for the purpose of electing directors. At all meetings of shareholders held for the purpose of electing directors during such time as the holders of the Senior Securities shall have the special right, voting separately from the Common Stock as one class, to elect directors, the presence in person or by proxy of the holders of a majority of the outstanding Common Stock shall be required to constitute a quorum of such class for the election of directors, and the presence in person or by proxy of the holders of a majority in voting rights, of the outstanding Senior Securities shall be required to constitute a quorum of such class for the election of directors; provided, however, that the absence of a quorum of the holders of stock of either such class shall not prevent the election at any such meeting or adjournment thereof of directors by the other class, if the necessary quorum of the holders of stock of such other class is present in person or by proxy at such meeting or any adjournment thereof; and provided further, that in the event a quorum of the holders of the Common Stock is present but a quorum of the holders of the Senior Securities is not present, then the election of the directors elected by the holders of the Common Stock shall not become effective and the directors so elected by the holders of Common Stock shall not assume their offices and duties until the holders of the Senior Securities, with a quorum present, shall have elected the directors they shall be entitled to elect; and provided further, however, that in the absence of a quorum of holders of stock of either class, a majority of the holders of the stock of such class who are present in person or by proxy shall have power to adjourn the election of the directors to be elected by such class from time to time without notice other than announcement at the meeting, until the requisite quorum of holders of such class shall be made present in person or by proxy, but such adjournment shall 34 not be to a date beyond the date for the mailing of the notice of the next annual meeting of the Company or special meeting in lieu thereof. (15) So long as any shares of the 5% Preferred Stock are outstanding, the Company shall not, without the consent (given by a vote at a meeting called for that purpose) of the holders of at least two-thirds of the total number of votes entitled to be cast by the shares of the 5% Preferred Stock then outstanding: (a) create or authorize any new stock ranking prior to the 5% Preferred Stock as to dividends, in liquidation, dissolution, winding up or distribution, or create or authorize any security convertible into shares of any such stock; or (b) amend, alter, change or repeal any of the express terms of the 5% Preferred Stock then outstanding in a manner substantially prejudicial to the holders thereof. (16) So long as any shares of Serial Preferred Stock are outstanding, the Company shall not, without the consent (given by a vote at a meeting called for that purpose) of the holders of at least two-thirds of the total number of votes entitled to be cast by the shares of Serial Preferred Stock then outstanding: (a) create or authorize any new stock ranking prior to such Serial Preferred Stock as to dividends, in liquidation, dissolution, winding up or distribution, or create or authorize any security convertible into shares of any such stock; or (b) amend, alter, change or repeal any of the express terms of such Serial Preferred Stock then outstanding in a manner substantially prejudicial to the holders thereof. (17) So long as any shares of No Par Serial Preferred Stock are outstanding, the Company shall not, without consent (given by a vote at a meeting called for that purpose) of the 35 holders of at least two-thirds of the total number of votes entitled to be cast by the shares of No Par Serial Preferred Stock then outstanding: (a) create or authorize any new stock ranking prior to such No Par Serial Preferred Stock as to dividends, in liquidation, dissolution, winding up or distribution, or create or authorize any security convertible into shares of any such stock; or (b) amend, alter, change or repeal any of the express terms of such No Par Serial Preferred Stock then outstanding in a manner substantially prejudicial to the holders thereof. (18) So long as any shares of the Senior Securities are outstanding, the Company shall not, without the consent (given by vote at a meeting called for that purpose) of the holders of a majority of the total voting power of the Senior Securities then outstanding, voting separately from the Common Stock, as one class: (a) merge or consolidate with or into any other corporation or corporations; provided, that the provisions of this subparagraph (a) shall not apply to a purchase or other acquisition by the Company of franchises or assets of another corporation in any manner which does not involve a merger or consolidation; or (b) issue any unsecured notes, debentures or other securities representing unsecured indebtedness, or assume any such unsecured indebtedness, for purposes other than (i) the refunding of outstanding unsecured indebtedness theretofore issued or assumed by the Company, or (ii) the reacquisition, redemption or other retirement of all outstanding shares of the Senior Securities, if immediately after such issue or assumption the total principal amount of all unsecured notes, debentures or other securities representing unsecured indebtedness issued or assumed by the Company, including unsecured indebtedness then to be issued or assumed, 36 would exceed thirty per centum (30%) of the aggregate of (1) the total principal amount of all bonds or other securities representing secured indebtedness issued or assumed by the Company and then to be outstanding, and (2) the capital and surplus of the Company as then to be stated on the books of account of the Company; or (c) issue, sell or otherwise dispose of any shares of the Senior Securities or of any other class of stock ranking prior to, or on a parity with, the Senior Securities as to dividends or distributions, unless the net income of the Company determined, after provision for depreciation and all taxes and in accordance with generally accepted accounting practices, to be available for the payment of dividends for a period of twelve (12) consecutive calendar months within the fifteen (15) calendar months immediately preceding the issuance, sale or disposition of such stock, is at least equal to twice the annual dividend requirements on all outstanding shares of the Senior Securities and all other classes of stock ranking prior to, or on a parity with, the Senior Securities as to dividends or distributions, including the shares proposed to be issued, computed, in the case of any such shares on which the dividend rate is subject to adjustment, at the dividend rate then in effect or, if such shares are the shares proposed to be issued, at the dividend rate initially established for such shares, and unless the gross income of the Company for such period, determined in accordance with generally accepted accounting practices (but in any event after deducting the amount for said period charged by the Company on its books to depreciation expense and all taxes) to be available for the payment of interest, shall have been at least one and one-half times the sum of (i) the annual interest charges on all interest bearing indebtedness of the Company and (ii) the annual dividend requirements on all outstanding shares of the Senior Securities and all other classes of stock ranking prior to, or on a parity with, the Senior Securities as to dividends or distributions, including the shares proposed 37 to be issued, computed, in the case of any such indebtedness or shares on which the interest or dividend rate is subject to adjustment, at the interest or dividend rate then in effect or, if such shares are the shares proposed to be issued, at the dividend rate initially established for such shares; provided, that there shall be excluded from the foregoing computation interest charges on all indebtedness and dividends on all shares of stock which are to be retired in connection with the issue of such additional shares of Senior Securities or other class of stock ranking prior to, or on a parity with, the Senior Securities as to dividends or distributions; and provided further, that in any case where such additional shares of Senior Securities or other class of stock ranking prior to, or on a parity with, the Senior Securities as to dividends or distributions, are to be issued in connection with the acquisition of new property, the net earnings of the property to be so acquired may be included on a pro forma basis in the foregoing computation, computed on the same basis as the net earnings of the Company; or (d) issue, sell or otherwise dispose of any shares of the Senior Securities, or of any other class of stock ranking prior to, or on a parity with, the Senior Securities as to dividends or distributions, unless the aggregate of the capital of the Company applicable to the Common Stock and the surplus of the Company shall be not less than the aggregate amount payable on the involuntary dissolution, liquidation or winding up of the Company, in respect of all shares of the Senior Securities and all shares of stock, if any, ranking prior thereto, or on a parity therewith, as to dividends or distributions, which will be outstanding after the issue of the shares proposed to be issued; provided, that if, for the purposes of meeting the requirements of this subparagraph (d), it becomes necessary to take into consideration any earned surplus of the Company, the Company shall not thereafter pay any dividends on shares of the Common Stock which would result in reducing the Company's Common Stock equity to an amount less 38 than the aggregate amount payable, on dissolution, winding up or involuntary liquidation of the Company, on all shares of the Senior Securities and of any stock ranking prior to, or on a parity with, the Senior Securities as to dividends or other distributions, at the time outstanding. (19) The Company from time to time may, subject to the limitations or requirements provided above in this Article III, purchase any of its stock outstanding at such price as may be fixed by its Board of Directors or Executive Committee and accepted by the holders of the stock purchased, and may resell any stock so purchased at such price as may be fixed by its Board of Directors or Executive Committee, but in the case the stock so purchased is subject to redemption, the price paid therefor shall not exceed the price at which it is redeemable. (20) The Company from time to time may, subject to the limitations or requirements provided above in this Article III, issue and sell Common Stock or Preferred Stock of any class then authorized but unissued, bonds, notes or other evidences of indebtedness convertible or not into Common Stock or stock of any other class then authorized but unissued. (21) No holder of any stock or other securities of the Company now or hereafter authorized shall have any preemptive or other right to subscribe for, purchase or receive any unissued shares, treasury shares, or other shares of any class, whether now or hereafter authorized, or any notes, bonds, debentures, or other securities convertible into, or carrying options or warrants to purchase, shares of any class. The Company may issue and dispose of any of its authorized shares for such consideration as may be fixed by the Board of Directors subject to the laws then applicable. 39 ARTICLE IV Meetings of shareholders of the Company may be held at such place, either within or outside the State of Oregon, as shall be designated from time to time by the Board of Directors. ARTICLE V (1) The number of directors of the Company shall be not less than nine (9) nor more than twenty-one (21), and within such limits the exact number shall be fixed and increased or decreased from time to time by resolution of the Board of Directors. The directors shall be divided into three classes, as nearly equal in number as possible, with the term of office of the first class ("Class I") to expire at the 1991 annual meeting of shareholders, the term of office of the second class ("Class II") to expire at the 1989 annual meeting of shareholders and the term of office of the third class ("Class III") to expire at the 1990 annual meeting of shareholders. At each annual meeting of shareholders following such initial classification and election, directors elected to succeed those directors whose terms expire shall be elected to serve three-year terms and until their successors are elected and qualified, so that the term of one class of directors will expire each year. When the number of directors is changed within the limits provided herein, any newly created directorships, or any decrease in directorships, shall be so apportioned among the classes as to make all classes as nearly equal as possible, provided that no decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (2) All or any number of the directors of the Company may be removed without cause only at a meeting of shareholders called expressly for that purpose, by the vote of 80 percent of the votes then entitled to be cast for the election of directors. The shareholders may remove 40 all or any number of directors for cause at a meeting of shareholders called expressly for that purpose by the vote of two-thirds of the votes then entitled to be cast for the election of directors. At any meeting of shareholders at which one or more directors are removed, a majority of the votes then entitled to be cast for the election of directors may fill any vacancy created by such removal. If any vacancy created by removal of a director is not filled by the shareholders at the meeting at which the removal is effected, such vacancy may be filled by a majority vote of the remaining directors. (3) The provisions of this Article V may not be amended, altered, changed or repealed in any respect unless such action is approved by the affirmative vote of not less than 80 percent of the votes then entitled to be cast for the election of directors. ARTICLE VI The Company's Bylaws may be amended or repealed or new bylaws may be made: (a) by the affirmative vote of the holders of record of a majority of the outstanding capital stock of the Company entitled to vote thereon, irrespective of class, given at any annual or special meeting of the shareholders; provided that notice of the proposed amendment, repeal or new bylaw or bylaws be included in the notice of such meeting or waiver thereof; or (b) by the affirmative vote of a majority of the entire Board of Directors given at any regular meeting of the Board, or any special meeting thereof; provided that notice of the proposed amendment, repeal or new bylaw or bylaws be included in the notice of such meeting or waiver thereof or all of the directors at the time in office be present at such meeting. ARTICLE VII (1) Whether or not a vote of shareholders is otherwise required, the affirmative vote of the holders of not less than 80 percent of the outstanding shares of "Voting Stock" (as 41 hereinafter defined) of the Company shall be required for the approval or authorization of any "Business Transaction" (as hereinafter defined) with any "Related Person" (as hereinafter defined) or any Business Transaction in which a Related Person has an interest (except proportionately as a shareholder of the Company); provided, however, that the 80 percent voting requirement shall not be applicable if either: (a) The "Continuing Directors" (as hereinafter defined) of the Company by at least a two-thirds vote (i) have expressly approved in advance the acquisition of the outstanding shares of Voting Stock that caused such Related Person to become a Related Person, or (ii) have expressly approved such Business Transaction; or (b) The cash or fair market value (as determined by at least a majority of the Continuing Directors) of the property, securities or other consideration to be received per share by holders of Voting Stock of the Company (other than the Related Person) in the Business Transaction is not less than the "Highest Purchase Price" or the "Highest Equivalent Price" (as those terms are hereinafter defined) paid by the Related Person involved in the Business Transaction in acquiring any of its holdings of the Company's Voting Stock. (2) For purposes of this Article VII: (a) The term "Business Transaction" shall include, without limitation, (i) any merger, consolidation or plan of exchange of the Company, or any entity controlled by or under common control with the Company, with or into any Related Person, or any entity controlled by or under common control with such Related Person, (ii) any merger, consolidation or plan of exchange of a Related Person, or any entity controlled by or under 42 common control with such Related Person, with or into the Company or any entity controlled by or under common control with the Company, (iii) any sale, lease, exchange, transfer or other disposition (in one transaction or a series of transactions), including without limitation a mortgage or any other security device, of all or any "Substantial Part" (as hereinafter defined) of the property and assets of the Company, or any entity controlled by or under common control with the Company, to a Related Person, or any entity controlled by or under common control with such Related Person, (iv) any purchase, lease, exchange, transfer or other acquisition (in one transaction or a series of transactions), including without limitation a mortgage or any other security device, of all or any Substantial Part of the property and assets of a Related Person or any entity controlled by or under common control with such Related Person, by the Company or any entity controlled by or under common control with the Company, (v) any recapitalization of the Company that would have the effect of increasing the voting power of a Related Person, (vi) the issuance, sale, exchange or other disposition of any securities of the Company, or of any entity controlled by or under common control with the Company, by the Company or by any entity controlled by or under common control with the Company, (vii) any liquidation, spin-off, split-off, split-up or dissolution of the Company, and 43 (viii) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Business Transaction. (b) The term "Related Person" shall mean and include (i) any individual, corporation, association, trust, partnership or other person or entity (a "Person") which, together with its "Affiliates" (as hereinafter defined) and "Associates" (as hereinafter defined), "Beneficially Owns" (as defined in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect at June 13, 1984) in the aggregate 20 percent or more of the outstanding Voting Stock of the Company, and (ii) any Affiliate or Associate (other than the Company or a subsidiary of the Company of which the Company owns, directly or indirectly, more than 80 percent of the voting stock) of any such Person. Two or more Persons acting in concert for the purpose of acquiring, holding or disposing of Voting Stock of the Company shall be deemed a "Person." (c) Without limitation, any share of Voting Stock of the Company that any Related Person has the right to acquire at any time (notwithstanding that Rule 13d-3 deems such shares to be beneficially owned only if such right may be exercised within 60 days) pursuant to any agreement, contract, arrangement or understanding, or upon exercise of conversion rights, warrants or 44 options, or otherwise, shall be deemed to be Beneficially Owned by such Related Person and to be outstanding for purposes of subsection (b) above. (d) For the purposes of subsection (b) of Section 1 of Article VII, the term "other consideration to be received" shall include, without limitation, Common Stock or other capital stock of the Company retained by its existing shareholders, other than any Related Person or other Person who is a party to such Business Transaction, in the event of a Business Transaction in which the Company is the survivor. (e) The term "Voting Stock" shall mean all of the outstanding shares of capital stock of the Company entitled to vote generally in the election of directors, considered as one class, and each reference to a proportion of shares of Voting Stock shall refer to such proportion of the votes entitled to be cast by such shares. (f) The term "Continuing Director" shall mean a director of the Company who became a director on the effective date of the merger of PacifiCorp, a Maine corporation, and Utah Power & Light Company, a Utah corporation, into the Company, provided that any person becoming a director subsequent to such date whose election, or nomination for election, by the Company's 45 shareholders was approved by a vote of at least a majority of the Continuing Directors shall be considered a Continuing Director. (g) A Related Person shall be deemed to have acquired a share of the Voting Stock of the Company at the time when such Related Person became the Beneficial Owner thereof. With respect to the shares owned by Affiliates, Associates or other Persons whose ownership is attributed to a Related Person under the foregoing definition of Related Person, if the price paid by such Related Person for such shares is not determinable by a majority of the Continuing Directors, the price so paid shall be deemed to be the higher of (i) the price paid upon the acquisition thereof by the Affiliate, Associate or other Person or (ii) the market price of the shares in question at the time when such Related Person became the Beneficial Owner thereof. (h) The terms "Highest Purchase Price" and "Highest Equivalent Price" as used in this Article VII shall mean the following: If there is only one class of capital stock of the Company issued and outstanding, the Highest Purchase Price shall mean the highest price that can be determined to have been paid at any time by the Related Person involved in the Business Transaction for any share or shares of that class of capital stock. If there is more than one class of capital stock of the Company issued and outstanding, the Highest Equivalent Price shall mean, 46 with respect to each class and series of capital stock of the Company, the amount determined by a majority of the Continuing Directors, on whatever basis they believe is appropriate, to be the highest per share price equivalent to the highest price that can be determined to have been paid at any time by the Related Person for any share or shares of any class or series of capital stock of the Company. The Highest Purchase Price and the Highest Equivalent Price shall include any brokerage commissions, transfer taxes and soliciting dealers' fees paid by a Related Person with respect to the shares of capital stock of the Company acquired by such Related Person. In the case of any Business Transaction with a Related Person, the Continuing Directors shall determine the Highest Purchase Price or the Highest Equivalent Price for each class and series of the capital stock of the Company. The Highest Purchase Price and Highest Equivalent Price shall be appropriately adjusted to reflect the occurrence of any reclassification, recapitalization, stock split, reverse stock split or other readjustment in the number of outstanding shares of capital stock of the Company, or the declaration of a stock dividend thereon, between the last date upon which the Related Party paid the Highest Purchase Price or Highest Equivalent Price and the effective date of the merger or consolidation or the date of distribution to shareholders of the 47 Company of the proceeds from the sale of all or substantially all of the assets of the Company. (i) The term "Substantial Part" shall mean 10 percent or more of the fair market value of the total assets of the Person in question, as reflected on the most recent balance sheet of such Person existing at the time the shareholders of the Company would be required to approve or authorize the Business Transaction involving the assets constituting any such Substantial Part. (j) The term "Affiliate," used to indicate a relationship with a specified Person, shall mean a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified. (k) The term "Associate," used to indicate a relationship with a specified Person, shall mean (i) any entity of which such specified Person is an officer or partner or is, directly or indirectly, the beneficial owner of 10 percent or more of any class of equity securities, (ii) any trust or other estate in which such specified Person has a substantial beneficial interest or as to which such specified Person serves as trustee or in a similar fiduciary capacity, (iii) any relative or spouse of such specified Person, or any relative of such spouse, who has the same home as 48 such specified Person or who is a director or officer of the Company or any of its subsidiaries, and (iv) any Person who is a director or officer of such specified Person or any of its parents or subsidiaries (other than the Company or an entity controlled by or under common control with the Company). (l) The term "Subsidiary," when used to indicate a relationship with a specified Person, shall mean an Affiliate controlled by such Person directly, or indirectly through one or more intermediaries. (3) For the purposes of this Article VII, a majority of the Continuing Directors shall have the power to make a good faith determination, on the basis of information known to them, of: (a) the number of shares of Voting Stock that any Person Beneficially Owns, (b) whether a Person is an Affiliate or Associate of another, (c) whether a Person has an agreement, contract, arrangement or understanding with another as to the matters referred to in subsection (2)(a)(viii) or (2)(c) hereof, (d) whether the assets subject to any Business Transaction constitute a Substantial Part, (e) whether any Business Transaction is one in which a Related Person has an interest (except proportionately as a shareholder of the Company), and (f) such other matters with respect to which a determination is required under this Article VII. (4) The provisions set forth in this Article VII may not be amended, altered, changed or repealed in any respect unless such action is approved by the affirmative vote of the holders of not less than 80 percent of the outstanding shares of Voting Stock of the Company. 49 ARTICLE VIII The Company shall indemnify to the fullest extent not prohibited by law any person who is made, or threatened to be made, a party to an action, suit or proceeding, whether civil, criminal, administrative, investigative, or otherwise (including an action, suit or proceeding by or in the right of the Company) by reason of the fact that the person is or was a director, officer, employee or agent of the Company or a fiduciary within the meaning of the Employee Retirement Income Security Act of 1974 with respect to any employee benefit plan of the Company, or serves or served at the request of the Company as a director, officer, employee or agent, or as a fiduciary of an employee benefit plan, of another corporation, partnership, joint venture, trust or other enterprise. The Company shall pay for or reimburse the reasonable expenses incurred by any such person in any such proceeding in advance of the final disposition of the proceeding to the fullest extent not prohibited by law. This Article shall not be deemed exclusive of any other provisions for indemnification or advancement of expenses of directors, officers, employees, agents and fiduciaries that may be included in any statute, bylaw, agreement, general or specific action of the Board of Directors, vote of shareholders or otherwise. ARTICLE IX No director of the Company shall be personally liable to the Company or its shareholders for monetary damages for conduct as a director; provided that this Article IX shall not eliminate the liability of a director for any act or omission for which such elimination of liability is not permitted under the Oregon Business Corporation Act. No amendment to the Oregon Business Corporation Act that further limits the acts or omissions for which elimination 50 of liability is permitted shall affect the liability of a director for any act or omission which occurs prior to the effective date of such amendment. 51 EX-4.(B) 3 EXHIBIT 4(B) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PACIFICORP (AN OREGON CORPORATION) TO THE CHASE MANHATTAN BANK (A NEW YORK CORPORATION) (FORMERLY KNOWN AS CHEMICAL BANK) AS TRUSTEE UNDER PACIFICORP'S MORTGAGE AND DEED OF TRUST, DATED AS OF JANUARY 9, 1989 --------------------- Twelfth Supplemental Indenture DATED AS OF SEPTEMBER 1, 1996 SUPPLEMENTAL TO PACIFICORP'S MORTGAGE AND DEED OF TRUST DATED AS OF JANUARY 9, 1989 --------------------- THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A TRANSMITTING UTILITY THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TWELFTH SUPPLEMENTAL INDENTURE THIS INDENTURE, dated as of the 1st day of September, 1996, made and entered into by and between PACIFICORP, a corporation of the State of Oregon, whose address is 700 NE Multnomah, Portland, Oregon 97232 (hereinafter sometimes called the "Company"), and THE CHASE MANHATTAN BANK (formerly known as Chemical Bank), a New York corporation whose address is 450 West 33rd Street, New York, New York 10001 (the "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 "Twelfth 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 Twelfth 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 WHEREAS, the Company has executed, delivered, recorded and filed Supplemental Indentures as follows:
DATED AS OF DATED AS OF -------------------------- -------------------------- First March 31, 1989 Seventh March 15, 1993 Second December 29, 1989 Eighth November 1, 1993 Third March 31, 1991 Ninth June 1, 1994 Fourth December 31, 1991 Tenth August 1, 1994, and Fifth March 15, 1992 Eleventh December 1, 1995; Sixth July 31, 1992
and 2 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, Series A various 250,000,000 $ 240,000,000 Third --Medium-Term Notes, Series B various 200,000,000 138,500,000 Fourth --Medium-Term Notes, Series C various 300,000,000 253,705,118 Fifth --Medium-Term Notes, Series D various 250,000,000 250,000,000 Sixth --C-U various 250,432,000 185,288,000 Seventh --Medium-Term Notes, Series E various 500,000,000 500,000,000 Eighth --6 3/4% 4/1/2005 150,000,000 150,000,000 Ninth --Medium-Term Notes, Series F various 500,000,000 500,000,000 Tenth --E-L various 71,200,000 71,200,000 Eleventh --Medium-Term Notes, Series G various 500,000,000 300,000,000 Twelfth --1994-1 various 216,470,000 216,470,000 Thirteenth --Adjustable Rate Replacement 2002 13,234,000 13,234,000 Series Fourteenth --9 3/8% Replacement Series 1997 50,000,000 50,000,000 Fifteenth --Bond Credit Series various 498,589,753 0;
and 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 3 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, no Class "A" Bonds are Outstanding under either the Pacific Mortgage or the Utah Mortgage, and said Pacific Mortgage and said Utah Mortgage have been cancelled and discharged; and WHEREAS, said Pacific Mortgage and said Utah Mortgage no longer constitute liens upon the properties of the Company described therein; and the Lien hereof is now a lien on all of the properties of the Company intended to be subject to the Lien hereof which were previously subject to the liens of said Pacific Mortgage and said Utah Mortgage, free of any lien prior or equal to the Lien hereof except Qualified Liens and Excepted Encumbrances; and WHEREAS, the properties of the Company that were previously subject to the liens of said Pacific Mortgage and said Utah Mortgage were more specifically described in the Pacific Mortgage and the Utah Mortgage, and in indentures supplemental thereto, which such descriptions are incorporated herein by reference to the dates and places at which such instruments were recorded and filed, as listed in Exhibit A and/or Exhibit 1 attached hereto and by this reference made a part hereof; 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 4 WHEREAS, the execution and delivery by the Company of this Twelfth Supplemental Indenture, and the terms of the bonds of the Sixteenth 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 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 The Chase Manhattan 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 Article V hereof and the properties described in the documents to which reference is made in Exhibits A and/or 1 hereto (except such of such properties as had previously been released from the liens of the Pacific Mortgage or the Utah Mortgage and except such of such properties as are excluded by name or nature from the Lien hereof), and further 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 5 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 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, 6 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 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, 7 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 property relating thereto; and (9) 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 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 The Chase Manhattan 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 Twelfth 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 8 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 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 SIXTEENTH SERIES OF BONDS SECTION 1.01. There shall be a series of bonds designated "Secured Medium-Term Notes, Series H" (herein sometimes referred to as the Sixteenth Series), each of which shall also bear the descriptive title "First Mortgage 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 Sixteenth Series shall mature on such date or dates nine months or more 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 One Thousand Dollars and, at the option of the Company, of any multiple or multiples of One Thousand Dollars (the exercise of such option to be evidenced by the execution and delivery thereof). The Company reserves the right to establish, at any time, by or pursuant to a Resolution filed with the Trustee, a form of coupon bond, and or appurtenant coupons, for the Sixteenth Series and to provide for exchangeability of such coupon bonds with the bonds of the Sixteenth Series issued hereunder in fully registered form and to make all appropriate provisions for such purpose. 9 (II) Bonds of the Sixteenth 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 Sixteenth Series shall be dated and shall accrue interest as provided in Section 2.06 of the Mortgage. Interest payable on any bond of the Sixteenth Series and punctually paid or duly provided for on any interest payment date for such bond will be paid to the person in whose name the bond is registered at the close of business on the Record Date (as hereinafter specified) for such bond next preceding such interest payment date; provided, however, that the first payment of interest on any bond with an Issue Date (as hereinafter specified) between a Record Date and an interest payment date will be made on the interest payment date following the next succeeding Record Date to the registered owner on such next Record Date (unless the Company elects, in its sole discretion, to pay such interest on the first interest payment date after the Issue Date, in which case such interest will be paid to the person in whose name the bond is originally issued), provided, further, that interest payable at maturity or upon earlier redemption will be payable to the person to whom principal shall be payable. The "Record Date" with respect to bonds of the Sixteenth Series of a designated interest rate and maturity shall be determined by or in accordance with the Resolution filed with the Trustee. "Issue Date" with respect to bonds of the Sixteenth Series of a designated interest rate and maturity shall mean the date of first authentication of bonds of such designated interest rate and maturity. Any interest on any bond of the Sixteenth Series which is payable but is not punctually paid or duly provided for, on any interest payment date for such bond (herein called "Defaulted Interest"), shall forthwith cease to be payable to the registered owner on the relevant Record Date for the payment of such interest solely by virtue of such owner having been such owner; and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in subsection (i) or (ii) below: (i) The Company may elect to make payment of any Defaulted Interest on the bonds of the Sixteenth Series to the persons in whose names such bonds are registered at the close of business on 10 a Special Record Date (as hereinafter defined) for the payment of such Defaulted Interest, which shall be fixed in the following manner: The Company shall, at least 30 days prior to the proposed date of payment, notify the Trustee in writing (signed by an Authorized Financial Officer of the Company) of the amount of Defaulted Interest proposed to be paid on each bond of the Sixteenth Series and the date of the proposed payment (which date shall be such as will enable the Trustee to comply with the next sentence hereof), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the persons entitled to such Defaulted Interest as in this subsection provided and not to be deemed part of the Mortgaged and Pledged Property. Thereupon, the Trustee shall fix a record date (herein referred to as a "Special Record Date") for the payment of such Defaulted Interest which date shall be not more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each registered owner of a bond of the Sixteenth Series at his, her or its address as it appears in the bond register not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the persons in whose names the bonds of the Sixteenth Series are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following subsection (ii). (ii) The Company may make payment of any Defaulted Interest on the bonds of the Sixteenth Series in any other lawful manner not inconsistent with the requirements of any securities exchange on 11 which such bonds may be listed and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this subsection, such payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each bond of the Sixteenth Series delivered under the Mortgage upon transfer of or in exchange for or in lieu of any other bond shall carry all rights to interest accrued and unpaid, and to accrue, which were carried by such other bond and each such bond shall bear interest from such date, that neither gain nor loss in interest shall result from such transfer exchange or substitution. (III) The principal of and interest on each bond of the Sixteenth 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 the Resolution filed with the Trustee. (IV) Each bond of the Sixteenth 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. (V) Each bond of the Sixteenth 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 Sixteenth 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 Sixteenth 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 and same terms of other authorized denominations. 12 (VIII) Bonds of the Sixteenth Series shall be transferable, subject to any restrictions thereon set forth in any such bond of the Sixteenth 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 Sixteenth 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 Sixteenth Series. (IX) After the execution and delivery of this Twelfth Supplemental Indenture and upon compliance with the applicable provisions of the Mortgage and this Twelfth Supplemental Indenture, it is contemplated that there shall be issued from time to time bonds of the Sixteenth Series in an aggregate principal amount not to exceed Five Hundred Million Dollars (U.S. $500,000,000). ARTICLE II AMENDMENT OF ARTICLE II OF THE MORTGAGE SECTION 2.01. Article II of the Mortgage is hereby amended to add a Section 2.16 which shall read as follows: "Section 2.16. Notwithstanding anything herein to the contrary, if the Company shall establish in accordance with Section 2.03 that bonds of a particular series are to be issued as a Global Security, then the Company shall execute and the Trustee shall, in accordance with Articles IV, V, VI, and VII, as applicable, authenticate and deliver a Global Security that (i) shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, all or a portion of the Outstanding bonds of that series, (ii) shall be registered in the name of the Depository or its nominee, (iii) shall be delivered by the Trustee to the Depository or pursuant to the Depository's instruction and (iv) shall bear a legend substantially to the following effect: "Except as otherwise provided in Section 2.16 of 13 the Mortgage, this bond may be transferred, in whole but not in part, only to the Depository, another nominee of the Depository or to a successor Depository or to a nominee of such successor Depository." The term "Global Security" means, with respect to any series of bonds, a bond executed and delivered by the Company and delivered by the Trustee to the Depository or pursuant to the Depository's instruction, all in accordance with the Mortgage, which shall be registered in the name of the Depository or its nominee. The term "Depository" means, with respect to any series of bonds for which the Company shall determine that such bonds will be issued as a Global Security, The Depository Trust Company, New York, New York, another clearing agency or any successor registered as a clearing agency under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation, which in each case shall be designated by the Company pursuant to Section 2.03 or this Section 2.16. Except as set forth below in Section 2.16(a) or (b), the Global Security of a series may be transferred, in whole but not in part and in the manner provided in Section 2.09, only to the Depository, another nominee of the Depository for that series, a successor Depository for that series selected or approved by the Company or a nominee of that successor Depository. (a) (i) If so provided with respect to a particular series of bonds, an interest in any Global Security of such series shall be exchangeable at the option of the beneficial owner of such interest in such Global Security for a definitive bond or bonds registered in the name of any holder other than the Depository or its nominee at any time following issuance of such Global Security. (ii) A beneficial owner of an interest in any Global Security of such series desiring to exchange such beneficial interest for a definitive bond or bonds shall instruct the Depository, through the Depository's direct or indirect participants or otherwise, to request such exchange on such beneficial owner's behalf and to provide a written order containing registration instructions to the Trustee. Upon receipt by the 14 Trustee of electronic or written instructions from the Depository on behalf of such beneficial owner, the Trustee shall cause, in accordance with the standing instructions and procedures existing between the Trustee and the Depository, the aggregate principal amount of such Global Security to be reduced by the principal amount of such beneficial interest so exchanged and shall appropriately reflect such reduction of the aggregate principal amount of this Global Security as described in paragraph (iii) of this Section 2.16(a). Following such reduction, the Trustee shall authenticate and deliver to such beneficial owner or the transferee, as the case may be, a definitive bond or bonds previously executed by the Company as described in Section 2.10 and registered in such names and authorized denominations as the Depository, pursuant to such instructions of the beneficial owner, shall instruct the Trustee. (iii) Upon any exchange of a portion of any Global Security for a bond or bonds, the Company shall reflect the reduction of the principal amount of such Global Security by the principal amount of such beneficial interest so exchanged on the books for registration and transfer of the bonds maintained pursuant to Section 2.09. Until exchanged in full for definitive bonds, such Global Security shall in all respects be entitled to the same benefits under the Indenture as the definitive bonds authenticated and delivered hereunder. (b) (i) If and so long as the bonds of any series are issued as a Global Security, any definitive bond or bonds of such series shall be exchangeable at the option of the registered holder thereof for a beneficial interest in such Global Security at any time following the exchange of such Global Security for such definitive bond or bonds pursuant to Section 2.16(a). (ii) A registered holder of a definitive bond or bonds desiring to exchange such definitive bond or bonds for a beneficial interest in such Global Security shall instruct the 15 Depository, through the Depository's direct or indirect participants or otherwise, to request such exchange on such bondholder's behalf and to provide a written order containing registration instructions to the Trustee. Upon receipt by the Trustee of electronic or written instructions from the Depository, and upon presentation to the Trustee of such definitive bond or bonds, the Trustee shall cause, in accordance with the standing instructions and procedures existing between the Trustee and the Depository, the aggregate principal amount of such Global Security to be increased by the principal amount of such definitive bond or bonds so exchanged and shall appropriately reflect such increase of the aggregate principal amount of the Global Security as described in paragraph (iii) of this Section 2.16(b). (iii) Upon any exchange of a definitive bond or bonds for a beneficial interest in such Global Security, the Company shall reflect the increase of the principal amount of such Global Security by the principal amount of such definitive bond or bonds so exchanged on the registration books maintained pursuant to Section 2.09. (c) If at any time (i) the Depository for a series of bonds notifies the Company that it is unwilling or unable to continue as Depository for that series or if at any time the Depository for that series shall no longer be registered or in good standing under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation and a successor Depository for that series is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, as the case may be, or (ii) if a Default has occurred and is continuing with respect to the bonds of a series and payment of principal thereof and interest thereon has been accelerated, this Section 2.16 shall no longer apply to the bonds of that series and the Company will execute and, subject to Section 2.08, the Trustee will authenticate and deliver bonds of that series in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Security of that series in exchange for such Global Security. In addition, the Company 16 may at any time in its sole discretion determine that the bonds of any series shall no longer be represented by a Global Security and that the provisions of this Section 2.16 shall no longer apply to the bonds of that series. In that event the Company will execute and, subject to Section 2.08, the Trustee, upon receipt of an Officers' Certificate evidencing such determination by the Company, will authenticate and deliver bonds of that series in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Security of such series in exchange for such Global Security. Upon the exchange of the Global Security for such bonds in definitive registered form without coupons, in authorized denominations, the Global Security shall be canceled by the Trustee. Such bonds in definitive registered form issued in exchange for the Global Security pursuant to this Section 2.16(c) shall be registered in such names and in such authorized denominations as the Depository, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such bonds to the Depository for delivery to the persons in whose names such bonds are so registered. 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 Sixteenth 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: "(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." 17 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 Sixteenth 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 Twelfth 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 Twelfth 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 Twelfth 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 Twelfth Supplemental Indenture. SECTION 4.04. Whenever in this Twelfth 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 covenants and agreements in this Twelfth 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 Twelfth 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 18 holders of the bonds and coupons outstanding under the Mortgage, any right, remedy or claim under or by reason of this Twelfth Supplemental Indenture or any covenant, condition, stipulation, promise or agreement hereof, and all the covenants, conditions, stipulations, promises and agreements in this Twelfth 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 Twelfth 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 The properties of the Company, owned as of the date hereof, and used (or held for future development and use) in connection with the Company's electric utility systems, or for other purposes, as more particularly described in Exhibit B attached hereto. 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 The Chase Manhattan Bank has caused its corporate name to be hereunto 19 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 ------------------------------- Senior Vice President and Chief Financial Officer Attest: LENORE M. MARTIN ---------------------------------- Assistant Secretary THE CHASE MANHATTAN BANK [SEAL] as Trustee By F.J. GRIPPO ------------------------------- Vice President Attest: GLENN G. MCKEEVER ---------------------------------- Senior Trust Officer 20 STATE OF OREGON COUNTY OF MULTNOMAH SS.: On this 28th day of August, 1996, before me, SHERYL L. STRATTON, a Notary Public in and for the State of Oregon, personally appeared RICHARD T. O'BRIEN AND LENORE M. MARTIN, known to me to be a Senior 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. [SEAL] SHERYL L. STRATTON ---------------------------------- My commission expires: May 25, 2000 Residing at: Portland, Oregon Commission No. 053955 STATE OF NEW YORK COUNTY OF NEW YORK SS.: On this 29th day of August, 1996, before me, ROBERT J. STANISLARO, a Notary Public in and for the State of New York, personally appeared F.J. GRIPPO AND GLENN G. MCKEEVER, known to me to be a Vice President and a Senior Trust Officer, respectively, of THE CHASE MANHATTAN 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. [SEAL] ROBERT J. STANISLARO ---------------------------------- Notary Public, State of New York No. 43-4968897 Qualified in Richmond County Certificate Filed in New York County Commission expires: July 2, 1998 EX-10.(D) 4 EXHIBIT 10(D) PACIFICORP EXECUTIVE INCENTIVE PROGRAM PACIFICORP EXECUTIVE INCENTIVE PROGRAM AS AMENDED AMENDED NOVEMBER 13, 1996 PURPOSE The purpose of the Executive Incentive Program is to provide a means for rewarding officers for their success in increasing shareholder value. ELIGIBILITY All PacifiCorp executive officers are eligible participants. A participant must be employed in an incentive-eligible position for at least three months and must be actively employed on December 25 of the plan year to be eligible to receive an award. Individuals with at least three months of service but less than twelve months will receive prorated awards. Employment of less than one plan year due to retirement, termination following displacement, disability or death of a participant may result in a prorated award regardless of the three-month requirement. Participants who change incentive target percentages during the year will receive prorated awards based on the appropriate target percentage. Participants in this program are not eligible to participate in any other Annual Incentive Program. PLAN TERM This program will begin on January 1, 1996 and continue from year to year thereafter unless otherwise amended or terminated. Each calendar year is a new plan year for the purpose of this program and Exhibits A, B and C, which describe weighting factors and performance measures, will be revised for approval by the Personnel Committee of the Board of Directors. TARGET INCENTIVE Each participant in the Program has a target incentive opportunity which is assigned by the Personnel Committee. Each participant's target incentive opportunity is calculated as a percentage of year-end annual salary, including any merit and promotional lump sums. 1 PERFORMANCE GOALS Participants will have all or part of their incentive award determined based upon PacifiCorp's Earnings Per Share (EPS) performance. Some participants may have their incentive award partially determined based upon Business Unit performance against profitability goals. The proportion, if any, which will be determined based upon Business Unit performance will be approved by the Personnel Committee for each new plan year as displayed in Exhibit A. EPS COMPONENT The EPS Component will be calculated using the formula displayed in Exhibit B for the plan year as approved by the Personnel Committee. BUSINESS UNIT COMPONENT The Business Unit Component will be determined based upon business unit profitability or another objective measure as approved for each business unit by the CEO and the Personnel Committee. Exhibit C for the plan year describes the approved Business Unit goals and measures for the current plan year. INDIVIDUAL PERFORMANCE MODIFIER Individual performance is determined by measuring year-end performance against specific goals as established and approved by the participant's superior or, in the case of the Chief Executive Officer, the Personnel Committee of the Board of Directors. The participant's superior must assign the participant an individual performance modifier between 0% and 120% depending upon performance against goals. A rating between 0-80% represents less than satisfactory performance. A rating around 100% indicates the participant met or exceeded goals and a rating around 120% indicates the participant greatly exceeded goals. 2 AWARD FORMULA The award formula is provided below: GUIDELINE EPS EPS BUSINESS BU INDIVIDUAL FINAL AWARD(1) X [ ( COMPONENT X WEIGHTING ) + ( UNIT X WEIGHTING ) ] X PERFORMANCE = AWARD FACTOR COMPONENT FACTOR MODIFIER
Participants are limited to a maximum final award equal to 150% of the guideline. (1)Guideline Award is Participant's Annualized Year-End Salary multiplied by the Target Incentive Percentage assigned by the Personnel Committee. AWARD EXAMPLES EXAMPLE 1 Participant Position: Business Unit Head EPS Component: 115% EPS Weighting Factor: 75% Business Unit Component: 125% Business Unit Weighting Factor: 25% Individual Performance Modifier: 100% Annualized Salary: $200,000 Incentive Target: 40% Guideline Award: $80,000 EXAMPLE 1 - CALCULATION GUIDELINE EPS EPS BUSINESS BU INDIVIDUAL FINAL AWARD X [ ( COMPONENT X WEIGHTING ) + ( UNIT X WEIGHTING ) ] X PERFORMANCE = AWARD FACTOR COMPONENT FACTOR MODIFIER $80,000 X [ ( 1.15 X 0.75 ) + ( 1.25 X 0.25 ) ] X 1.00 = $94,000
3 EXAMPLE 2 Participant Position: Business Unit Participant EPS Component: 115% EPS Weighting Factor: 50% Business Unit Component: 100% Business Unit Weighting Factor: 50% Individual Performance Modifier: 110% Annualized Salary: $140,000 Incentive Target: 30% Guideline Award: $42,000 EXAMPLE 2 - CALCULATION GUIDELINE EPS EPS BUSINESS BU INDIVIDUAL FINAL AWARD X [ ( COMPONENT X WEIGHTING ) + ( UNIT X WEIGHTING ) ] X PERFORMANCE = AWARD FACTOR COMPONENT FACTOR MODIFIER $42,000 X [ ( 1.15 X 0.50 ) + ( 1.00 X 0.50 ) ] X 1.10 = $49,665
AUDIT AND APPROVAL OF AWARDS The financial calculations necessary to determine the Earnings Per Share Component and Business Unit Component, 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. PAYMENT Awards will be paid as soon as practicable following the completion of the plan year and approval by the Personnel Committee. Awards will be paid in cash unless the participant has elected to defer part or all of the payment consistent with the provisions of the PacifiCorp Compensation Reduction Plan. 4 ADMINISTRATIVE GUIDELINES Administrative issues not specifically included in the program document will be included in the administrative guidelines to the program. The CEO will approve these guidelines and has authority to amend them. 5 EX-10.(H) 5 EXHIBIT 10(H) CONFORMED COPY PACIFICORP SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 1996 RESTATEMENT January 1, 1996 (As Amended by Amendment No. 1) PacifiCorp an Oregon corporation 700 NE Multnomah Portland, Oregon 97232 Company TABLE OF CONTENTS PAGE INDEX OF TERMS iii 1. PURPOSE; EMPLOYERS; ADMINISTRATION 1 1.1 Purpose 1 1.2 Employers 2 1.3 Administration 2 2. PARTICIPATION; SERVICE; FORFEITURE 2 2.1 Eligibility; Participants 2 2.2 Service 3 2.3 Vesting 3 2.4 Misconduct Forfeiture 3 2.5 Change in Control 4 2.6 Removal from Active Participation 4 3. PARTICIPANTS' RETIREMENT BENEFITS 5 3.1 Entitlement; Retirement Dates 5 3.2 Normal Retirement Benefit 5 3.3 Actuarial Equivalents 9 3.4 Early Retirement Benefit 9 3.5 Termination Benefit 10 3.6 Time and Manner of Payment 10 3.7 Basic Plan Make-Up 11 4. PRERETIREMENT DEATH BENEFITS 11 4.1 Spouse's Benefit 11 4.2 Dependent Child's Benefit 12 5. DISABILITY 12 5.1 Service Continuation 12 5.2 Benefits 12 6. CLAIMS PROCEDURE 13 i 6.1 Original Claim 13 6.2 Denial 13 6.3 Request for Review 13 6.4 Final Decision 13 7. AMENDMENT; TERMINATION 14 7.1 Amendment 14 7.2 Termination 14 8. GENERAL PROVISIONS 15 8.1 Nonassignability 15 8.2 Funding 15 8.3 Trust 15 8.4 Notices 15 8.5 Attorneys' Fees 15 8.6 Indemnity 16 8.7 Applicable Law 16 8.8 Company Obligation 16 8.9 Transfer to or from Parallel SERP 16 8.10 Payment for Individual's Benefit 17 8.11 Not Contract of Employment 17 9. EFFECTIVE DATE 17 ii INDEX OF TERMS SECTION PAGE Accrued Benefit 3.6 10 Actuarial Equivalent 3.3 9 Basic Plan Preamble 1 Benefit Starting Date 3.7 11 Benefit Year 2.2 3 Board 1.3 2 Career Ratio 3.4(b) 9 Change in Control 2.5 4 Chief Executive Officer 2.1 2 Committee 1.3 2 Earliest Normal Retirement Date 3.5 10 Early Retirement Date 3.1(b) 5 Early Retirement Factor 3.4(c) 10 Final Average Pay 3.2(a) 5 Normal Retirement Benefit 3.2 5 Normal Retirement Date 3.1(a) 5 Other Plan Offset 3.2(d) 7, 8 PacifiCorp Primary Insurance Amount 3.2(c) 7 Participant 2.1 2 Performance Benefit 3.2(b) 6 Projected Short Service Factor 3.4(a) 9 Short Service Factor 3.2(b) 6 Year of Participation 2.2 3 Years of Service 2.2 3 iii PACIFICORP SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 1996 RESTATEMENT JANUARY 1, 1988 (AS AMENDED BY AMENDMENT NO. 1) The Company adopted this plan effective January 1, 1988 to providing retirement benefits for its executive employees and those of Company affiliates that adopt the plan with the approval of the Company. The plan is the successor to several nonqualified supplemental retirement plans maintained by the Company and its affiliates. The benefits provided by the plan 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 base eligibility for participation on annual salary rate, replace a portion of the benefit formula with a Performance Benefit, provide for earlier vesting and an earlier Early Retirement Date, and eliminate the increase in benefits commencing after earliest normal retirement date, the Company adopts this 1996 Restatement. 1. PURPOSE; EMPLOYERS; ADMINISTRATION 1.1 PURPOSE The purpose of this plan is to provide eligible executive officers of the Company and its affiliates with additional retirement benefits that will help to attract and retain individuals of very high quality. 1 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 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 ELIGIBILITY; PARTICIPANTS An executive officer of Employer shall be eligible to accrue benefits under the plan commencing with the first of any month as of which the officer's annual base salary rate exceeds $125,000. If an executive officer receives a lump sum payment in lieu of an increase in annual base salary rate, the executive officer shall be treated as having received such increase during the 12-month period to which the lump sum payment applies for purposes of determining eligibility for the plan. As of July 1 of each year, commencing with July 1, 1996, the $125,000 shall be increased by the percentage increase in salary provided by the Company's nonunion employee merit pool applicable to salary adjustments taking effect in such year. An individual who has benefits accrued under this plan prior to the 1996 Restatement and does not satisfy the eligibility requirement of this 2.1 shall participate in the plan for the limited purpose of receiving prior accrued 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(s) covering the participant, except as follows. Any limitation of the Basic Plan(s) on the length of service counted for 2 periods in which no services are performed shall be disregarded. A participant shall be credited with a Year of Participation under this plan for each calendar year during which the participant satisfied the eligibility requirement of 2.1 and was not removed from active participation under 2.6. A partial Year of Participation shall be credited based on the number of completed calendar months. 2.3 VESTING A participant's right to receive benefits under this plan shall become vested upon either of the following: (a) When the participant has attained age 50 and has completed five or more Years of Participation. (b) When the participant has completed five or more Years of Service and terminates, either voluntarily or involuntarily, from all employment with the Company and its affiliates within 24 months after a Change in Control. 2.4 MISCONDUCT FORFEITURE Unless a Change in Control has occurred, 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 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. 2.5 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 3 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. 2.6 REMOVAL FROM ACTIVE PARTICIPATION An individual who previously has qualified for participation under 2.1 shall be removed from active participation as of the first day of any month at which the individual ceases to so qualify. Upon removal the participant shall have an Accrued Benefit determined under 3.5 on the basis of the participant's Final Average Pay, Projected Short Service Factor, Performance Benefit, and Career Ratio, calculated as of the effective date of removal, and on the participant's PacifiCorp Primary Insurance Amount and Other Plan Offset calculated as of the date of benefit commencement. 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 the benefit precedes age 60. 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 - age 65. (b) Early retirement - 5 Years of Participation plus either of the following: (1) Age 55; or (2) Age 50 and 15 Years of Service. 4 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 50 percent of Final Average Pay (FAP) times the Short Service Factor (SSF) plus the Performance Benefit (PB) minus the PacifiCorp Primary Insurance Amount (PPIA) and the Other Plan Offset (OPO) as follows: Benefit = [(50% x FAP x SSF) + PB] - PPIA - OPO 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 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) Performance Benefit (PB) means an additional amount for each 5 calendar year of participation, commencing with 1996, for which the Company meets a performance goal set by the Committee for that year and announced to participants. The additional amount shall be 1 percent of the participant's projected Final Average Pay at Normal Retirement Date, such projection to be based on increases in pay to that date under an assumption made by the actuary valuing the liabilities created by the plan. If the participant is employed by Employer for less than a full year, including a partial initial or final year of employment, the 1 percent amount shall be prorated based on the portion of the year worked. The 1 percent amount shall be converted to an actuarial equivalent lump sum as of the end of the year the Performance Benefit is earned, increased each year thereafter by a percentage equal to the average interest rate of the Moody's Aa Utility Bond Index, and converted back to an actuarial equivalent life annuity when payment to the participant commences. Actuarial equivalency for purposes of this paragraph (b) shall be determined under the factors provided in the PacifiCorp Retirement Plan, regardless of whether the participant is covered by that plan or a different Basic Plan. The total amount of Performance Benefit payable to a participant shall not exceed 15 percent of the participant's Final Average Pay, minus the number of percentage points, if any, provided to the participant by 9.2(c). (c) Short Service Factor (SSF) means a percentage, not to exceed 100 percent, determined by dividing the participant's Benefit Years by 15. (d) PacifiCorp Primary Insurance Amount (PPIA) means the portion earned while working at PacifiCorp of the participant's primary insurance amount 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. (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. 6 (4) The portion earned at PacifiCorp shall be determined by multiplying the participant's full primary insurance amount by a ratio of the participant's Years of Service divided by 35. (e) Other Plan Offset (OPO) 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, including any benefits assumed from the Utah Power & Light Company Deferred Compensation Plan and excess benefits provided by the Utah Power & Light Company Retirement and Death Benefit 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 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. 7 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 50 percent of Final Average Pay (FAP) times the Projected Short Service Factor (PSSF) times the Career Ratio (CR) minus the PacifiCorp Primary Insurance Amount (PPIA) times the Early Retirement Factor (ERF) plus the Performance Benefit (PB) minus the Other Plan Offset (OPO) as follows: Benefit = ([(50% x FAP x PSSF x CR) - PPIA] x ERF) + PB - OPO The terms Final Average Pay (FAP), Performance Benefit (PB), and PacifiCorp Primary Insurance Amount (PPIA) are defined in 3.2. The term Other Plan Offset (OPO) shall be as defined in 3.2, except the offset for a participant whose Benefit Starting Date is earlier than age 55 shall not apply until the first of the month after age 55. As a result, such a participant shall receive a larger monthly benefit until attainment of age 55 and then a monthly benefit reduced by the amount of the Other Plan Offset. 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 age 60 if Benefit Years 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 age 60 , 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 minus .25 percent for each month by which the commencement of benefits precedes the end of the month in which the participant will attain age 60. 3.5 TERMINATION BENEFIT A participant who terminates employment before early or normal retirement date and after becoming vested shall receive the participant's Accrued Benefit as provided below. The Accrued Benefit is a single life annuity for the life of the participant equal to 50 percent of Final 8 Average Pay (FAP) times the Projected Short Service Factor (PSSF) times the Career Ratio (CR) minus the PacifiCorp Primary Insurance Amount (PPIA) times the Early Retirement Factor (ERF) plus the Performance Benefit (PB) minus the Other Plan Offset (OPO) as follows: Benefit = ([(50% x FAP x PSSF x CR) - PPPIA] x ERF) + PB - OPO The terms used in this formula are defined in 3.2 and 3.4. 3.6 TIME AND MANNER OF PAYMENT Retirement benefits under 3.2 or 3.4 shall commence as of the first day of the month beginning after a termination of employment that constitutes a retirement under 3.1. Termination benefits under 3.5 shall commence as of the first day of the month after the participant's early retirement date. The date of commencement 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 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). 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. 3.7 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 9 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. 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, 10 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. 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 11 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 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 become participants 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, Years of Service, and Years of Participation shall be determined as though the effective date of plan termination were a termination of employment. (2) The PacifiCorp Primary Insurance Amount shall be estimated on the basis of the pay level and the Social Security Act as in existence at the time of plan termination. 12 (3) The Other 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. 13 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 TRANSFER TO OR FROM PARALLEL SERP If an individual transfers directly from active participation in a supplemental executive retirement plan maintained by an affiliate of the Company that is substantially similar to this plan (a Parallel SERP) to active participation in this plan, this plan shall provide to such individual all benefits accrued under the Parallel SERP up to the date of such transfer if the Parallel SERP includes an offset provisions parallel to the following sentence. If an individual transfers directly from active participation in this plan to active participation in a Parallel SERP, 14 the benefits payable from this plan shall be offset by the benefits payable by the Parallel SERP if the Parallel SERP includes a provision for payment of the benefits accrued under this plan up to the date of transfer parallel to the preceding sentence. This 8.9 and the parallel provision in a Parallel SERP shall be administered so that the supplemental retirement benefit of an individual who accrues benefits under both this plan and the Parallel SERP shall be paid entirely from the plan in which the individual is last an active participant and not from the other plan. 8.10 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: (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. 8.11 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 9.1 This Restatement shall be effective January 1, 1996. 9.2 The following transition rules shall apply at the effective date provided in 9.1: (a) The benefit payable to a participant who was covered by the plan before January 1, 1996, or to the surviving spouse or dependent children of such a participant, shall be no less than the participant's Accrued Benefit determined under 3.6 of the plan, as in effect on December 31, 1995, on the basis of the participant's Final Average Pay, Projected Short Service Factor, and Career Ratio calculated as of December 31, 1995 and on a Primary Social Security Benefit and Qualified Plan Offset equal to the participant's PacifiCorp Primary Insurance Amount and Other Plan Offset, respectively, calculated as of the date of benefit commencement. If the participant had attained age 55 on or before December 31, 1995, the participant shall have an Earliest Retirement Date upon attaining age 62 and completing 30 Years of Service. The portion of the normal retirement benefit of such a participant equal to the Accrued 15 Benefit described above shall be increased by one-third of one percent for each month by which the participant's Earliest Retirement Date precedes the participant's actual benefit commencement date. No increase shall be made for a month beginning after the participant's 65th birthday. (b) An individual becoming a participant in the plan as a result of the new eligibility standards in 2.1 of this Restatement shall be credited with Years of Participation for years before 1996 during which the individual was an executive officer of an Employer and had an annual base salary rate of over $125,000. (c) For an individual who was a participant over age 50 on January 1, 1996 the 50 percent amount in the benefit formulas in 3.2, 3.4 and 3.6 shall be increased by one percent for each year of age at nearest birthday above age 50 at January 1, 1996. Adopted: November 8, 1995. 1996 RESTATEMENT EXECUTED AS FOLLOWS EFFECTIVE AS PROVIDED IN ARTICLE 9: - -------------------------------------------------------------------------------- PACIFICORP By FREDERICK W. BUCKMAN ----------------------- President Executed: February 23, 1996 AMENDMENT NO. 1 EXECUTED AS FOLLOWS EFFECTIVE AS IF INCLUDED IN THE 1996 RESTATEMENT: - -------------------------------------------------------------------------------- PACIFICORP By FREDERICK W. BUCKMAN ---------------------- President Executed: July 9, 1996 16 EX-10.(N) 6 EXHIBIT 10(N) PACIFICORP STOCK INCENTIVE PLAN PacifiCorp, an Oregon corporation (the "Company"), amends and restates its 1996 Stock Retention Plan, as adopted effective August 14, 1996, to provide in its entirety as set forth herein. The 1996 Stock Retention Plan, as amended and restated (the "Plan"), shall be renamed the PacifiCorp Stock Incentive Plan and shall govern awards made on or after the date the Plan is approved by the Company's board of directors (the "Board of Directors"). The amendment and restatement of the Plan will not affect the terms of any outstanding awards. 1. PURPOSE. The purpose of this Plan is to enable the Company to attract and retain the services of and provide performance incentives to (1) selected employees, officers and directors of the Company or of any subsidiary of the Company ("Employees") and (2) selected nonemployee agents, consultants, advisors and independent contractors of the Company or any subsidiary. 2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided below and in paragraph 14, the shares to be offered under the Plan shall consist of Common Stock of the Company, and the total number of shares of Common Stock that may be issued under the Plan shall not exceed 14,500,000 shares, all of which may be issued pursuant to the exercise of options granted pursuant to the Plan. The shares issued under the Plan may be authorized and unissued shares or reacquired shares or shares acquired in the market; provided, however, that the Company will not directly issue any shares pursuant to the Plan or take any action pursuant to the Plan that would require approval of the public utility regulatory authorities having jurisdiction over issuances of securities by the Company until it has received all such required approvals. Prior to receipt of such approvals, any shares of Common Stock to be issued pursuant to the Plan will be acquired in the market. Subject to the foregoing limitations, (a) if any award granted under the Plan expires, terminates or is cancelled, the unissued shares subject to such award shall again be available under the Plan and (b) if shares sold or awarded under the Plan are forfeited to the Company or repurchased by the Company, that number of shares shall again be available under the Plan. 3. EFFECTIVE DATE AND DURATION OF PLAN. (a) EFFECTIVE DATE. The Plan (as amended and restated) shall become effective on the date adopted by the Board of Directors. Awards may be granted and shares may be awarded or sold under the Plan at any time after the effective date and before termination of the Plan. (b) DURATION. The Plan shall continue in effect for a period of ten years from the date adopted by the Board of Directors, subject to earlier termination by the Board of Directors. The Board of Directors may suspend or terminate the Plan at any time, except with respect to awards then outstanding under the Plan. Termination shall not affect the terms of any outstanding awards. 4. ADMINISTRATION. (a) BOARD OF DIRECTORS. The Plan shall be administered by the Board of Directors of the Company, which shall determine and designate from time to time the individuals to whom awards shall be made, the amount of the awards and the other terms and conditions of the awards. Subject to the provisions of the Plan, the Board of Directors may from time to time adopt and amend rules and regulations relating to administration of the Plan, advance the lapse of any waiting period, accelerate any exercise date, waive or modify any restriction applicable to shares (except those restrictions imposed by law) and make all other determinations in the judgment of the Board of Directors necessary or desirable for the administration of the Plan. The interpretation and construction of the provisions of the Plan and related agreements by the Board of Directors shall be final and conclusive. The Board of Directors may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any related agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency. (b) COMMITTEE. The Board of Directors may delegate to a committee of the Board of Directors (the "Committee") any or all authority for administration of the Plan. If authority is delegated to a Committee, all references to the Board of Directors in the Plan shall mean and relate to the Committee except (i) as otherwise provided by the Board of Directors and (ii) that only the Board of Directors may amend or terminate the Plan as provided in paragraphs 3 and 15. (c) OFFICER. The Board of Directors or the Committee, as applicable, may delegate to an executive officer of the Company authority to administer those aspects of the Plan that do not involve the designation of individuals to receive awards or decisions concerning the timing, amounts or other terms of awards. No officer to whom administrative authority has been delegated pursuant to this provision may waive or modify any restriction applicable to an award to such officer under the Plan. 5. TYPES OF AWARDS; ELIGIBILITY. The Board of Directors may, from time to time, take the following actions, separately or in combination, under the Plan: (i) grant Incentive Stock Options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as provided in paragraph 6; (ii) grant options other than Incentive Stock Options ("Non-Statutory Stock Options") as provided in paragraph 6; (iii) award stock as provided in paragraph 7; (iv) sell shares subject to restrictions as provided in paragraph 8; (v) grant stock appreciation rights as provided in paragraph 9; (vi) grant cash bonus rights as provided in paragraph 10; (vii) grant dividend equivalent rights as provided in paragraph 11; (viii) grant Performance-based Rights as provided in paragraph 12 and (ix) grant foreign qualified awards as provided in paragraph 13. Any such awards may be made to Employees, including Employees who are officers or 2 directors, and to other individuals described in paragraph 1 whom the Board of Directors believes have made or will make an important contribution to the Company or any subsidiary of the Company; provided, however, that only Employees shall be eligible to receive Incentive Stock Options under the Plan. The Board of Directors shall select the individuals to whom awards shall be made and shall specify the action taken with respect to each individual to whom an award is made. Unless otherwise determined by the Board of Directors with respect to an award, each option, stock appreciation right, cash bonus right, dividend equivalent right or performance-based right granted pursuant to the Plan by its terms shall be nonassignable and nontransferable by the recipient, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the recipient's domicile at the time of death. No fractional shares shall be issued in connection with any award. In lieu of any fractional shares, cash may be paid in an amount equal to the value of the fraction or, if the Board of Directors shall determine, the number of shares may be rounded downward to the next whole share. No Employee may be granted options or stock appreciation rights under the Plan for more than an aggregate of 3,000,000 shares of Common Stock in any consecutive three-year period. 6. OPTION GRANTS. With respect to each option grant, the Board of Directors shall determine the number of shares subject to the option, the option price, the period of the option, the time or times at which the option may be exercised and whether the option is an Incentive Stock Option or a Non-Statutory Stock Option and any other terms of the grant, all of which shall be set forth in an option agreement between the Company and the optionee. In the case of Incentive Stock Options, all terms shall be consistent with the requirements of the Code and applicable regulations. Upon the exercise of an option, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued upon exercise of the option less the number of shares surrendered or withheld in connection with the exercise of the option and the number of shares surrendered or withheld to satisfy withholding obligations in accordance with paragraph 18. 7. STOCK AWARDS. The Board of Directors may award shares under the Plan as stock bonuses or otherwise. The aggregate number of shares that may be awarded pursuant to this provision shall not exceed 1,500,000 shares. Shares awarded pursuant to this paragraph shall be subject to the terms, conditions, and restrictions determined by the Board of Directors. The Board of Directors may require the recipient to sign an agreement as a condition of the award, but may not require the recipient to pay any monetary consideration other than amounts necessary to satisfy tax withholding requirements. The agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares awarded shall bear any legends required by the Board of Directors. Upon the issuance of a stock award, the number of shares available for issuance under the Plan shall be reduced by the number of shares issued less the number of any shares surrendered to satisfy withholding obligations in accordance with paragraph 18. 3 8. PURCHASED STOCK. The Board of Directors may issue shares under the Plan for such consideration (including promissory notes and services) as determined by the Board of Directors. Shares issued under the Plan shall be subject to the terms, conditions and restrictions determined by the Board of Directors. All Common Stock issued pursuant to this paragraph 8 shall be subject to a purchase agreement, which shall be executed by the Company and the prospective recipient of the shares prior to the delivery of certificates representing such shares to the recipient. The purchase agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares shall bear any legends required by the Board of Directors. Upon the issuance of purchased stock, the number of shares available for issuance under the Plan shall be reduced by the number of shares issued less the number of any shares surrendered to satisfy withholding obligations in accordance with paragraph 18. 9. STOCK APPRECIATION RIGHTS. (a) GRANT. Stock appreciation rights may be granted under the Plan by the Board of Directors, subject to such rules, terms, and conditions as the Board of Directors prescribes. (b) EXERCISE. Each stock appreciation right shall entitle the holder, upon exercise, to receive from the Company in exchange therefor an amount equal in value to the excess of the fair market value on the date of exercise of one share of Common Stock of the Company over its fair market value on the date of grant (or, in the case of a stock appreciation right granted in connection with an option, the excess of the fair market value of one share of Common Stock of the Company over the option price per share under the option to which the stock appreciation right relates), multiplied by the number of shares covered by the stock appreciation right or the option, or portion thereof, that is surrendered. Payment by the Company upon exercise of a stock appreciation right may be made in Common Stock valued at fair market value, in cash, or partly in Common Stock and partly in cash, all as determined by the Board of Directors. The Board of Directors may withdraw any stock appreciation right granted under the Plan at any time and may impose any conditions upon the exercise of a stock appreciation right or adopt rules and regulations from time to time affecting the rights of holders of stock appreciation rights. Such rules and regulations may govern the right to exercise stock appreciation rights granted prior to adoption or amendment of such rules and regulations as well as stock appreciation rights granted thereafter. Upon the exercise of a stock appreciation right for shares, the number of shares available for issuance under the Plan shall be reduced by the number of shares issued less the number of any shares surrendered or withheld to satisfy withholding obligations in accordance with paragraph 18. Cash payments of stock appreciation rights shall not reduce the number of shares of Common Stock available for issuance under the Plan. 4 10. CASH BONUS RIGHTS. The Board of Directors may grant cash bonus rights under the Plan in connection with (i) options granted or previously granted, (ii) stock appreciation rights granted or previously granted, (iii) stock awarded or previously awarded and (iv) shares sold or previously sold under the Plan. Cash bonus rights will be subject to rules, terms and conditions as the Board of Directors may prescribe. The payment of a cash bonus shall not reduce the number of shares of Common Stock available for issuance under the Plan. A cash bonus right granted in connection with an option will entitle an optionee to a cash bonus when the related option is exercised (or terminates in connection with the exercise of a stock appreciation right related to the option) in whole or in part if, in the sole discretion of the Board of Directors, the bonus right will result in a tax deduction that the Company has sufficient taxable income to use. A cash bonus right granted in connection with a stock award pursuant to paragraph 7 or purchase of stock pursuant to paragraph 8 will entitle the recipient to a cash bonus payable when the stock award is awarded or the shares are purchased or restrictions, if any, to which the stock is subject lapse. If the stock awarded or the shares purchased are subject to restrictions and are repurchased by the Company or forfeited by the holder, the cash bonus right granted in connection with the stock awarded or shares purchased shall terminate and may not be exercised. 11. DIVIDEND EQUIVALENT RIGHTS. The Board of Directors may grant dividend equivalent rights under the Plan in connection with (i) options granted or previously granted, (ii) stock appreciation rights granted or previously granted, (iii) stock awarded or previously awarded, (iv) shares sold or previously sold under the Plan or (v) as a freestanding award. The terms and conditions of a dividend equivalent right shall be specified by the Board of Directors at the time of grant. Each dividend equivalent right shall entitle the recipient to receive an amount based on cash dividends that would be payable with respect to the number of shares specified in connection with the grant of the dividend equivalent right (or other award to which it relates) if such shares had been held by the recipient during the period specified in connection with such grant. Payment with respect to a dividend equivalent right shall be made, subject to the limitations set forth in paragraph 2, at the discretion of the Board of Directors, in cash or in shares or in any combination thereof. Upon the exercise of a dividend equivalent right for shares, the number of shares available for issuance under the Plan shall be reduced by the number of shares issued less the number of any shares surrendered to satisfy withholding obligations in accordance with paragraph 18. Cash payments of dividend equivalent rights shall not reduce the number of shares of Common Stock available for issuance under the Plan. 12. PERFORMANCE-BASED AWARDS. The Board of Directors may grant awards intended to qualify as performance-based compensation under Section 162(m) of the Code and the regulations thereunder ("Performance-based Awards"). Performance-based Awards shall be denominated at the time of grant either in shares of Common Stock ("Stock Performance Awards") or in dollar amounts ("Dollar Performance Awards"). Payment under a Stock Performance Award or a Dollar Performance Award shall be made, at the discretion of the Board of Directors, subject to the limitations set forth in paragraph 2, in shares of Common Stock ("Performance Shares"), or in cash or in any 5 combination thereof. Performance-based Awards shall be subject to the following terms and conditions: (a) AWARD PERIOD. The Board of Directors shall determine the period of time for which a Performance-based Award is made (the "Award Period"). (b) PERFORMANCE GOALS AND PAYMENT. The Board of Directors shall establish in writing objectives ("Performance Goals") that must be met by the Company or any subsidiary, division or other unit of the Company ("Business Unit") during the Award Period as a condition to payment being made under the Performance-based Award. The Performance Goals for each award shall be one or more targeted levels of performance with respect to one or more of the following objective measures with respect to the Company or any Business Unit: earnings, earnings per share, stock price increase, total shareholder return (stock price increase plus dividends), return on equity, return on assets, return on capital, economic value added, revenues, operating income, cash flows or any of the foregoing (determined according to criteria established by the Board of Directors). The Board of Directors shall also establish the number of Performance Shares or the amount of cash payment to be made under a Performance-based Award if the Performance Goals are met or exceeded, including the fixing of a maximum payment (subject to paragraph 12(d)). The Board of Directors may establish other restrictions to payment under a Performance-based Award, such as a continued employment requirement, in addition to satisfaction of the Performance Goals. Some or all of the Performance Shares may be issued at the time of the award as restricted shares subject to forfeiture in whole or in part if Performance Goals or, if applicable, other restrictions are not satisfied. (c) COMPUTATION OF PAYMENT. During or after an Award Period, the performance of the Company or Business Unit, as applicable, during the period shall be measured against the Performance Goals. If the Performance Goals are not met, no payment shall be made under a Performance-based Award. If the Performance Goals are met or exceeded, the Board of Directors shall certify that fact in writing and certify the number of Performance Shares earned or the amount of cash payment to be made under the terms of the Performance-based Award. (d) MAXIMUM AWARDS. No participant may receive Stock Performance Awards in any fiscal year under which the maximum number of shares issuable under the award, when aggregated with the shares issuable under any awards made in the immediately preceding two fiscal years, exceeds 500,000 shares or Dollar Performance Awards in any fiscal year under which the maximum amount of cash payable under the award, when aggregated with the amount of cash payable under awards made in the immediately preceding two fiscal years, exceeds an aggregate of $3,000,000. (e) EFFECT ON SHARES AVAILABLE. The payment of a Performance-based Award in cash shall not reduce the number of shares of Common Stock available for issuance under the Plan. The number of shares of Common Stock available for issuance under the Plan shall be reduced by the number of shares issued upon payment of an 6 award, less the number of shares surrendered or withheld to satisfy withholding obligations. 13. FOREIGN QUALIFIED GRANTS. Awards under the Plan may be granted to such Employees and such other persons described in paragraph 1 residing in foreign jurisdictions as the Board of Directors may determine from time to time. The Board of Directors may adopt such supplements to the Plan as may be necessary to comply with the applicable laws of such foreign jurisdictions and to afford participants favorable treatment under such laws; provided, however, that no award shall be granted under any such supplement with terms that are more beneficial to the participants than the terms permitted by the Plan. 14. CHANGES IN CAPITAL STRUCTURE. (a) STOCK SPLITS; STOCK DIVIDENDS. If the outstanding Common Stock of the Company is hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any stock split, combination of shares or dividend payable in shares, recapitalization or reclassification, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares available for grants under the Plan. In addition, the Board of Directors shall make appropriate adjustment in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable, so that the optionee's proportionate interest before and after the occurrence of the event is maintained. Notwithstanding the foregoing, the Board of Directors shall have no obligation to effect any adjustment that would or might result in the issuance of fractional shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the Board of Directors. Any such adjustments made by the Board of Directors shall be conclusive. (b) MERGERS, REORGANIZATIONS, ETC. The Board of Directors may include such terms and conditions, including without limitation, provisions relating to acceleration in the event of a change in control, as it deems appropriate in connection with any award under the Plan with respect to a merger, consolidation, plan of exchange, acquisition of property or stock, separation, reorganization or liquidation to which the Company or a subsidiary is a party or a sale of all or substantially all of the Company's assets (each, a "Transaction"). Notwithstanding the foregoing, in the event of a Transaction, the Board of Directors shall, in its sole discretion and to the extent possible under the structure of the Transaction, select one of the following alternatives for treating outstanding Incentive Stock Options or Non-Statutory Stock Options under the Plan: (i) Outstanding options shall remain in effect in accordance with their terms. (ii) Outstanding options shall be converted into options to purchase stock in the corporation that is the surviving or acquiring corporation in the 7 Transaction. The amount, type of securities subject thereto and exercise price of the converted options shall be determined by the Board of Directors of the Company, taking into account the relative values of the companies involved in the Transaction and the exchange rate, if any, used in determining shares of the surviving corporation to be issued to holders of shares of the Company. Unless otherwise determined by the Board of Directors, the converted options shall be vested only to the extent that the vesting requirements relating to options granted hereunder have been satisfied. (iii) The Board of Directors shall provide a 30-day period prior to the consummation of the Transaction during which outstanding options may be exercised to the extent then exercisable, and upon the expiration of such 30-day period, all unexercised options shall immediately terminate. The Board of Directors may, in its sole discretion, accelerate the exercisability of options so that they are exercisable in full during such 30-day period. (c) DISSOLUTION OF THE COMPANY. In the event of the dissolution of the Company, options shall be treated in accordance with paragraph 14(b)(iii). (d) RIGHTS ISSUED BY ANOTHER CORPORATION. The Board of Directors may also grant options, stock appreciation rights, performance units, stock bonuses and cash bonuses and issue restricted stock under the Plan having terms, conditions and provisions that vary from those specified in this Plan provided that any such awards are granted in substitution for, or in connection with the assumption of, existing options, stock appreciation rights, stock bonuses, cash bonuses, restricted stock and performance units granted, awarded or issued by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a Transaction. 15. AMENDMENT OF PLAN. The Board of Directors may at any time, and from time to time, modify or amend the Plan in such respects as it shall deem advisable because of changes in the law while the Plan is in effect or for any other reason. Except as provided in paragraphs 9, 10 and 14, however, no change in an award already granted shall be made without the written consent of the holder of such award. 16. APPROVALS. The obligations of the Company under the Plan are subject to the approval of state and federal authorities or agencies with jurisdiction in the matter, including without limitation, public utility regulatory authorities. The Company will use its best efforts to take steps required by state or federal law or applicable regulations, including rules and regulations of the Securities and Exchange Commission and any stock exchange on which the Company's shares may then be listed, in connection with the grants under the Plan. The foregoing notwithstanding, the Company shall not be obligated to issue or deliver Common Stock under the Plan if such issuance or delivery would violate applicable state or federal securities laws or any applicable law relating to the issuance of securities by a public utility. 8 17. EMPLOYMENT AND SERVICE RIGHTS. Nothing in the Plan or any award pursuant to the Plan shall (i) confer upon any employee any right to be continued in the employment of the Company or any subsidiary or interfere in any way with the right of the Company or any subsidiary by whom such employee is employed to terminate such employee's employment at any time, for any reason, with or without cause, or to decrease such employee's compensation or benefits, or (ii) confer upon any person engaged by the Company any right to be retained or employed by the Company or to the continuation, extension, renewal, or modification of any compensation, contract, or arrangement with or by the Company. 18. TAXES. Each participant who has received an award under the Plan shall, upon notification of the amount due, pay to the Company in cash amounts necessary to satisfy any applicable federal, state and local withholding requirements. If the participant fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the participant including salary, subject to applicable law. With the consent of the Board of Directors, a participant may satisfy this withholding obligation, in whole or in part, by having the Company withhold from any shares to be issued that number of shares that would satisfy the amount due or by delivering Common Stock to the Company to satisfy the withholding amount. 19. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan shall have no rights as a shareholder with respect to any Common Stock until the date of issue to the recipient of a stock certificate for such shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date occurs prior to the date such stock certificate is issued. Approved by the Board of Directors: February 12, 1997 9 EX-10.(O) 7 EXHIBIT 10(O) PACIFICORP 1996 STOCK RETENTION PLAN RESTRICTED STOCK AWARD AGREEMENT This Restricted Stock Award Agreement ("Agreement") is entered into as of September 1, 1996, between PacifiCorp, an Oregon corporation (the "Company) and _____________ (the "Executive") and is made pursuant to the Company's 1996 Stock Retention Plan. The Company and the Executive agree as follows: 1. AWARD OF COMMON STOCK; VESTING. (a) Pursuant to the terms and conditions of this Agreement and the Company's 1996 Stock Retention Plan, the Company hereby awards to the Executive ______ shares (the "Shares") of the Company's Common Stock ("Common Stock") as of the effective date of this Agreement. The Shares shall become vested if the Executive continues in employment with the Company until specified dates as follows: DATES PERCENT VESTED Before February 15, 2001 0% February 15, 2001 33.33% February 15, 2002 66.66% February 15, 2003 100% (b) Subject to Section 1(c) below, if a termination of the Executive's employment with the Company occurs before February 15, 2003, the Executive shall forfeit the portion of the Shares that is not vested on the termination date. A termination of the Executive's employment shall be deemed to occur on the date on which the Executive ceases to be employed on a continuous full-time basis by the Company or a subsidiary of the Company for any reason or no reason, with or without cause. The Executive shall not be treated as having a termination of employment during the time the Executive is receiving long-term disability benefits provided by the Company or a subsidiary of the Company, unless the Executive has received formal written notice of termination. (c) Any unvested Shares shall become fully vested upon the occurrence of any of the following: (i) Termination of the Executive's employment (within the meaning of Section 1(b) of this Agreement) within two years after one of the events described in Sections 8.1, 8.2 or 8.3 of the Company's Long-Term Incentive Plan, 1993 Restatement (the "LTIP"), as in effect on the date hereof. 1 (ii) January 31 following the death of the Executive; (iii) January 31 following the retirement of the Executive after age 55 and completion of at least 5 "years of service" within the meaning of the Company's defined benefit plan; or (iv) Receipt by the Executive of formal written notice of termination following the permanent and total disability of the Executive, which shall mean any medically determinable physical or mental impairment that renders the Executive unable to engage in any substantial gainful activity and can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. 2. PURCHASE OF COMMON STOCK AND PLACEMENT IN ESCROW 2.1 As soon as is practicable following execution of this Agreement by the Company and the Executive, the Company shall pay to a securities broker or other third party cash in an amount equal to the purchase price of the Shares with instructions to purchase the Shares in the market in the Executive's name and to deliver the Shares to the escrow holder under Section 2.2 hereof. 2.2 For purposes of facilitating the enforcement of the provisions of Section 1 of the Agreement, the Shares shall be issued in the Executive's name and the certificate or certificate(s) representing the Shares shall be delivered, together with a stock power or stock powers executed by the Executive, in blank, to an individual designated by the Company to hold said certificate(s) and stock power(s) in escrow and to take all such actions as are in accordance with the terms of this Agreement. The Executive hereby acknowledges that such individual is so appointed as the escrow holder (the "Escrow Holder") with the foregoing authorities as a material inducement to make this Agreement and that said appointment is coupled with an interest and is irrevocable. 2.3 The certificates and associated stock powers delivered to the Escrow Holder pursuant to Section 2.2 shall be held in escrow until (i) receipt by the Escrow Holder of a certificate of the Company certifying that some or all of the Shares have vested; or (ii) receipt by the Escrow Holder of a certificate of the Company certifying that some or all of the Shares have been forfeited to the Company. Upon receipt by the Escrow Holder of one of the foregoing certificates, the Escrow Holder shall deliver to the Executive (or in the event of the Executive's death, to the Executive's successor) or the Company, as appropriate, certificates representing all of the Shares to which the Executive or the Company, as applicable, is entitled. 2 2.4 The Executive agrees that the Escrow Holder shall not be liable to any party to this Agreement (or to any other party) for any actions or omissions of the Escrow Holder unless the Escrow Holder is grossly negligent with respect thereto. 3. RIGHTS AS A SHAREHOLDER. Subject to the provisions of this Agreement, the Executive shall be entitled to all of the rights of a shareholder with respect to the Shares, including the right to vote the Shares and to receive ordinary dividends payable with respect to the Shares from the date of the grant. 4. TRANSFER RESTRICTIONS. None of the Shares may be sold, assigned, pledged or otherwise transferred, voluntarily or involuntarily, by the Executive prior to the date such Shares become vested under the provisions of Section 1. 5. MERGERS, CONSOLIDATIONS OR CHANGES IN CAPITAL STRUCTURE. If, after the date of this Agreement, the outstanding Common Stock of the Company is increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation by reason of any reorganization, merger, consolidation, plan of exchange, recapitalization, reclassification, stock split-up, combination of shares or dividend payable in shares, or in the event of any consolidation, merger or plan of exchange involving the Company pursuant to which Common Stock is converted into cash, any Common Stock, other securities or other consideration issued or distributed with respect to the Shares in any such transaction shall be subject to the restrictions and conditions set forth herein, including the escrow requirements of Section 2. 6. WITHHOLDING TAXES. The Company shall have the right to require the Executive to remit to the Company, or to withhold from other amounts payable to the Executive, as compensation or otherwise, an amount sufficient to satisfy all federal, state and local withholding tax requirements with respect to the Shares or the vesting thereof. 7. MISCELLANEOUS (a) This Agreement shall be governed by and construed under the laws of the State of Oregon, exclusive of choice of law rules. If any provision or provisions of this Agreement are found to be unenforceable, the remaining provisions shall nevertheless be enforceable and shall be construed as if the unenforceable provisions were deleted. (b) This is the entire agreement between the parties with respect to the grant of the Shares as described in this Agreement and supersedes any and all prior oral or written agreements between the Company and the Executive relating to such subject matter. (c) This Agreement may be amended or modified only by written consent of the Company and the Executive. 3 (d) This Agreement shall inure to the benefit of and be binding upon the Company and its successors. Company: PACIFICORP, an Oregon corporation By:_________________________________________ Its:_____________________________________ Executive: _____________________________________________ 4 EX-10.(P) 8 EXHIBIT 10(P) PACIFICORP EXECUTIVE SEVERANCE PLAN DECEMBER 1, 1996 PACIFICORP AN OREGON CORPORATION 700 NE MULTNOMAH PORTLAND, OR 97232 COMPANY PACIFICORP EXECUTIVE SEVERANCE PLAN DECEMBER 1, 1996 PACIFICORP AN OREGON CORPORATION 700 NE MULTNOMAH PORTLAND, OR 97232 COMPANY The Company adopts the PacifiCorp Executive Severance Plan (the Plan) as a new executive severance program to supersede and replace the prior PacifiCorp Executive Severance Plan that terminated by its terms December 31, 1995. The Plan also supersedes and replaces any prior executive severance pay policy or other policy, plan or practice under which severance benefits have been provided to executives of the Company and adopting affiliates except benefits provided pursuant to any individual separation agreement entered into in writing between any executive and the Company. ARTICLE I EFFECTIVE DATE; PLAN YEAR; ERISA 1.01 EFFECTIVE DATE The effective date of the Plan is December 1, 1996. 1.02 PLAN YEAR The plan year shall be a calendar year. 1.03 ERISA The Plan is intended to be and shall be administered and maintained primarily for the purpose of providing benefits for a select group of management or highly compensated employees. Severance pay and benefits under the Plan shall be paid as needed solely from the general assets of Employer, in accordance with Department of Labor regulation Section 2520.104-24. The Plan is intended to qualify for the alternative method of compliance in Department of Labor Regulation Section 2520.104-23. ARTICLE II APPLICATION TO COMPANY AND AFFILIATES 2.01 EMPLOYERS 2.01-1 The Company maintains the Plan, and any affiliate approved by the Company may adopt and maintain the Plan for its employees. "Affiliate" means a corporation, person or other entity that is designated as an affiliate by the Company. 2.01-2 "Employer" means the Company, with respect to its employees, and any adopting affiliate, with respect to its employees. The Plan is a single plan maintained by the Company and any adopting affiliate. 2.02 ADOPTION PROCEDURE An affiliate may adopt the Plan by a written statement signed by the affiliate, subject to approval and revocation by the Company. The statement shall include the effective date of adoption and any special provisions that are to be applicable only to employees of the affiliate. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.01 ELIGIBLE EMPLOYEES Eligible employees are key employees of any Employer selected by the Personnel Committee of the Company's Board of Directors (Committee) and designated as Level 1 eligible employees or Level 2 eligible employees. 3.02 PARTICIPANT An eligible employee must satisfy the requirements of 3.03 to be entitled to severance benefits under the Plan and upon satisfying those requirements shall be a participant in the Plan. 2 3.03 REQUIREMENTS OF PARTICIPATION AND BENEFITS 3.03-1 Subject to 3.04, an eligible employee will participate and be entitled to severance benefits upon satisfaction of the following conditions: (a) The eligible employee's employment terminates under either of the following circumstances: (i) The eligible employee has resigned within six months after a material alteration in the eligible employee's position (as determined according to 3.03-2) that has a detrimental impact on the eligible employee(as determined according to 3.03-3). (ii) There has been an Employer-initiated termination. (b) The eligible employee has agreed in writing to forego any severance rights or benefits under any other severance plan maintained by or agreement with Employer or any affiliate. 3.03-2 A material alteration in position occurs in any of the following events: (a) The eligible employee's reporting level in the Company has been changed and is lower after the change than it was before. (b) There is a material reduction in the scope of the eligible employee's duties and responsibilities. (c) There is a material reduction in the eligible employee's authority. 3.03-3 All questions concerning whether a material alteration in position has had a detrimental impact on the eligible employee shall be determined by the Company exercising full discretion when acting under 5.04-1 through 5.04-3 and, in the case of the review of a denied claim, by the Committee exercising full discretion when acting under 5.04-4 and 5.04-5. 3 3.03-4 A material alteration in position shall not be deemed to have a detrimental impact on the eligible employee where there is no change of control and: (a) The number of levels in the reporting line between an eligible employee and the Chairman of the Board is increased by one but the eligible employee's scope of responsibility is substantially the same and any changes in authority are reasonably related to the restructured reporting relationship; or (b) An eligible employee is given a comparable new assignment with materially different duties and responsibilities. A new assignment is comparable if the title of any Company elected office (for example, Vice President, Senior Vice President), annualized base salary and bonus opportunity remain the same or higher and any changes in authority are reasonably related to the nature of the new assignment. With respect to an eligible employee who is not an elected officer of the Company, whether the level of position is comparable will be based on the level of job title within the Company and not the title of any assigned or elected position with a Company subsidiary. With respect to an eligible employee who is employed by an Employer other than the Company, a new assignment is comparable if title of any elected office, annualized base salary and bonus opportunity remain the same or higher and any changes in authority are reasonably related to the nature of the new assignment. (c) An eligible employee is required to relocate by the Company to a new geographic area and that employee has not been relocated by the Company within the past three years. For purposes of this provision, relocation shall mean reassignment to a position in an office located more than 100 miles from the eligible employee's then- current office or 60 miles from the eligible employee's residence whichever is greater. 3.03-5 During the 18-month period following a change in control of the Company, a material alteration in position shall be deemed to have a detrimental impact on the eligible employee. A "change in control" of the Company occurs in any of the following cases: 4 (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 Company's Board of Directors (Board). (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 shareholders of the Company was approved by a vote of at least two-thirds 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 of the Board. 3.03-6 An Employer-initiated termination is any termination of the eligible employee's employment by Employer (including a request for resignation that is agreed to by the eligible employee for any reason other than cause under 3.04). 3.04 DISQUALIFICATION FROM PARTICIPATION AND BENEFITS 3.04-1 An eligible employee will be disqualified from participation and entitlement to severance benefits if termination of employment is for cause under 3.04-2 or under circumstances described in 3.04-3. 3.04-2 Termination of employment for cause means: (a) Except during the 24-month period following a change in control, termination of employment for cause determined according to 3.04-3. (b) During the 24-month period following a change in control, termination of employment for either of the following reasons determined according to 3.04-3: (1) The eligible employee's gross misconduct; or 5 (2) The eligible employee's gross negligence or conduct which indicates a reckless disregard for the consequences and has a material adverse effect on the Company or its affiliates. 3.04-3 All questions concerning whether a termination was for cause under 3.04-2(a) or for a reason stated in 3.04-2(b) shall be determined by the Company exercising full discretion when acting under 5.04-1 through 5.04-3 and, in the case of the review of a denied claim, by the Committee exercising full discretion when acting under 5.04-4 and 5.04-5. 3.04-4 An eligible employee shall be disqualified from participation and entitlement to severance benefits if the eligible employee fails to execute and deliver to Employer within the Designated Acceptance Period under 4.05-1, or revokes or breaches, any of the following: (a) A waiver and release of claims against the Company and affiliates in the form provided by Employer. (b) Any agreement to repay severance benefits under circumstances required by 4.06. (c) The agreement required under 3.03-1(b) and any other agreement required by Employer, including but not limited to, confidentiality, noncompetition, nonsolicitation, nondisparagement, assistance to Employer and assistance in defense of litigation agreements. ARTICLE IV SEVERANCE BENEFITS 4.01 SEVERANCE PAY 4.01-1 Subject to 4.01-2 and 4.01-3, a participant entitled to severance benefits shall receive severance pay as provided in Exhibit A. 4.01-2 Severance pay in the event of a change in control shall not exceed three times the average annual compensation payable by the Company or Employer to the participant 6 and includable in the participant's gross income for the most recent five taxable years ending before the change in control. 4.02 GROUP HEALTH CONTINUATION BENEFITS 4.02-1 Participants who are awarded severance benefits under 4.02, and their covered dependents, shall receive continued coverage under one of the following group health plans: (a) The group health plans in which they were enrolled at the time of termination. (b) If the plans in (a) are not available to active employees, the similar group health plans provided to active employees, as determined by Employer. 4.02-2 The coverage provided under 4.02-1 shall continue until the earlier of the following: (a) Three months after coverage would otherwise end due to the participant's termination of employment. (b) The date of eligibility for group health coverage obtained through other employment of the participant after the participant's termination date with Employer. (c) The last day of the month for which the participant fails to make any contribution toward the cost of such coverage that is required by Employer of similarly situated active employees. 4.02-3 Employer shall continue its contributions for the continuation coverage provided under 4.02-1. The amount of such contribution with respect to each participant shall be Employer's cost to provide such coverage to similarly situated active employees. 4.02-4 After termination of coverage under 4.02-1, participants and covered dependents may elect to continue their group health coverage on a self- pay basis as allowed by law. The group health plan continuation benefits provided under 4.03-1 shall reduce a participant's, and any other affected person's, maximum continuation period for any continuation coverage required by law. For the purposes of 4.03, "group health plans" include the 7 Employer-sponsored medical, dental and vision plans but exclude any health care spending account under any cafeteria plan maintained by Employer pursuant to section 125 of the Internal Revenue Code of 1986 and related regulations. 4.03 OUTPLACEMENT BENEFITS Employer shall provide outplacement benefits to participants entitled to severance benefits following termination of employment in accordance with Employer's policy on outplacement benefits as in effect from time to time. 4.04 TIME AND MANNER OF PAYMENT 4.04-1 Employer shall determine, in its sole discretion, the time and manner of payment of any severance pay. Subject to the exercise of such discretion to pay in installments, severance pay shall be paid in a lump sum cash payment within a reasonable time on or after the later of the following: (a) The date of the participant's termination. (b) If applicable, the date the participant may no longer revoke a waiver and release of claims required under 3.04-3. 4.04-2 Employer shall withhold from any amounts paid under this Plan any income tax or other amounts as allowed or required by law. 4.04-3 Severance pay shall not be included as compensation under any retirement plan maintained by Employer or any affiliate. 4.05 NOTICE OF ACCEPTANCE PERIOD 4.05-1 Employer shall give eligible employees written notice of the time period within which they must meet any conditions required in order to receive the benefits offered under this Plan (the Designated Acceptance Period). If an eligible employee fails to meet the conditions within the Designated Acceptance Period, the eligible employee shall not be entitled to participation and severance benefits under this Plan. 4.05-2 All eligible employees over the age of 40 shall be notified of the right to consult with an attorney before accepting benefits under this Plan and before executing any required waiver and release of claims forms. 8 4.06 REPAYMENT OF SEVERANCE UPON REHIRE 4.06-1 Employer shall require a participant to repay severance benefits if the participant is rehired by Employer or an affiliate or in the event of a disqualification under 3.04-3. 4.06-2 If repayment is required under 4.06-1, the Company shall determine the amount, timing and manner of repayment on a discretionary basis with respect to each individual participant, subject to the following: (a) If repayment is made in a lump sum, the lump sum shall be repaid before the participant begins work with Employer or an affiliate. (b) If repayment is made in periodic installments, the repayment shall be made in accordance with both of the following requirements: (1) The participant shall sign and execute a promissory note furnished by Employer before the participant begins work with Employer or an affiliate. (2) The terms of the promissory note shall be commercially reasonable as determined by Employer. ARTICLE V ADMINISTRATION 5.01 ADMINISTRATOR The Plan shall be administered by the Committee. 5.02 COMMITTEE'S POWERS AND DUTIES 5.02-1 The Committee shall interpret the Plan, decide any questions about the rights of participants and in general administer the Plan. Any decision by the Committee shall be final and bind all parties. The Committee shall have absolute discretion to carry out its responsibilities. 9 5.02-2 The Committee may delegate all or part of the administrative duties except in connection with review under 5.04-4 and 5.04-5 to one or more agents and may retain advisors for assistance. The Committee may consult with and rely upon the advice of counsel who may be counsel for the Company or any affiliate. 5.02-3 The Committee shall be the plan administrator under federal laws and regulations applicable to plan administration and shall comply with such laws and regulations. The Committee shall be the agent for service of process on the Plan at the Company's address. 5.03 COMPANY AND EMPLOYER FUNCTIONS 5.03-1 All authority of the Company or an Employer shall be exercised by the chief executive officer of the Company or the Employer, who may delegate some or all of the authority to any officer or manager of the Company or the Employer. 5.03-2 The power to amend or terminate this Plan may be exercised only by the Company's chief executive officer, who may delegate some or all of the authority to any officer of the Company. 5.03-3 The Board of Directors of the Company or any Employer shall have no administrative authority or function with respect to the Plan. Being a member of the Board shall not, in and of itself, make a person a plan fiduciary. 5.04 CLAIMS AND REVIEW PROCEDURES 5.04-1 Any person claiming a benefit or requesting information, an interpretation or a ruling under the Plan shall present the request in writing to the person designated by the Company. 5.04-2 The decision on a claim shall be made by the Company and shall normally be made within 90 days. If special circumstances require an extension of time for processing the claim, the claimant shall be so notified and the time limit shall be 180 days. If the claimant has not been notified of a decision on a claim within the time limit, the claim shall be deemed denied. 5.04-3 If the claim or request is denied, the written notice of denial shall state: (a) The reasons for denial, with specific reference to the terms of the Plan on which denial is based. 10 (b) A description of any additional material or information required for review of the claim and an explanation of why it is necessary. (c) An explanation of the Plan's claims review procedure. 5.04-4 Any person whose claim or request is denied, or who has not received a response within 90 days, or within 180 days if special circumstances require an extension of time, may request review by notice in writing to the Committee. The original decision will be reviewed by the Committee or the Committee's delegate, who 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. 5.04-5 The decision on review shall normally 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 binding on all parties concerned. If the participant does not receive a decision within the time limit, the claim shall be considered wholly denied on review. 5.04-5 The Company, when acting on a claim under 5.04-2 and 5.04-3, and the Committee, when acting on a review of a claim under 5.04-4 and 5.04-5, shall have full and absolute discretion to determine all questions concerning eligibility and participation and whether or not the conditions for payment of severance benefits have been made, including questions of interpretation of the Plan. 5.04-6 Decisions by the Company on claims shall have no binding effect on the Committee and no precedential value when the Committee is acting on a review of a claim. 5.05 INDEMNITY AND BONDING 5.05-1 Subject to the indemnification provisions in the Articles and Bylaws of the Company and any provisions and procedures in the corporate resolutions of the Company, the Company shall indemnify and defend any Plan fiduciary who is an officer, director or employee of the Company against 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 interest of the Plan. 11 (b) Negligence by the fiduciary shall be covered to the fullest extent permitted by law. (c) Coverage shall be reduced to the extent of any insurance coverage. 5.05-2 Plan fiduciaries shall be bonded to the extent required by applicable law. 5.06 EXPENSES 5.06-1 A Committee member who is employed full-time by an Employer shall not be separately compensated for services as Administrator. The Committee shall be reimbursed by the Company for all expenses incurred while acting as Committee. 5.06-2 The Company may elect to pay any administrative fees or expenses and may allocate the cost among the Employers. Otherwise, the expenses and fees shall be paid from Company assets. ARTICLE VI GENERAL PROVISIONS 6.01 ENFORCEABILITY AND EXCLUSIVE BENEFIT The Company and Employers intend the terms of this Plan, including those relating to the coverage and benefits, to be legally enforceable. The Company and Employers further intend that the Plan be maintained for the exclusive benefit of eligible employees of Employers. 6.02 AMENDMENT The Company may amend this Plan at any time only by written instrument. No purported oral amendment shall have any effect. 6.03 TERMINATION The Company may terminate this Plan at any time. 6.04 GOVERNING LAW This Severance Plan shall be construed according to the laws of Oregon, except as preempted by federal law. 12 6.05 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. 6.06 ATTORNEYS' FEES In any suit or action arising out of or in any way pertaining to this Plan, the prevailing party may recover from the other party reasonable attorneys' fees at trial and on any appeal. 6.07 UNFUNDED All benefits payable under this Plan shall be unfunded and shall be payable only from the general assets of Employer. The participants shall have no interest in any assets of Employer and shall have no rights greater than the rights of any unsecured general creditor of Employer. 6.08 NONASSIGNMENT The rights of a participant under this Plan are personal. No interest of a participant under this Plan may be assigned, transferred, seized by legal process or subjected to the claims of creditors in any way. A participant's rights under this Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge or encumbrance. 6.09 CONDITIONS The waiver of a condition of benefits on any occasion shall not constitute a waiver of any other condition on the same occasion or a waiver of the same or any other condition on any other occasion. 6.10 OBLIGATIONS OF EMPLOYERS The obligations of the Employers under this Plan are obligations to their own employees alone and the Company assumes no obligations to employees of any other Employer. 6.11 ARBITRATION After exhaustion of the claims and review procedure under 5.04, any dispute arising out of or in any way pertaining to the interpretation or administration of this Plan shall be submitted to binding arbitration. Except as specifically provided herein, the arbitration shall be governed under Federal Arbitration Act. The parties shall select a mutually agreeable arbitrator. 13 If the parties are unable to agree on the selection of an arbitrator within thirty days, the Presiding Judge of the Federal District of Oregon shall be asked to designate an arbitrator. The arbitration shall be conducted with no attorneys' fees or costs to be awarded to either side. Effective Date: December 1, 1996 Adopted: November 13, 1996 COMPANY PACIFICORP By /s/ Frederick W. Buckman, President ----------------------------------- Date: March 19, 1997 ----------------------------------- 14 EXHIBIT A SEVERANCE PAY 1. Participants entitled to severance benefits shall receive severance pay as follows: Level 1 Two times annual cash compensation Level 2 One times annual cash compensation 2. "Annual cash compensation" shall mean the sum of the following: (a) The eligible employee's annualized base salary rate in effect at the time of material alteration in the position or termination, whichever is earlier. (b) The eligible employee's guideline incentive award in effect at the time of material alteration in the position or termination, whichever is earlier, as determined by Employer in accordance with the applicable incentive program. (c) The eligible employee's annualized vehicle allowance in effect at the time of material alteration in the position or termination, whichever is earlier. EX-12.(A) 9 EXHIBIT 12(A) EXHIBIT (12)a PACIFICORP STATEMENTS OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN MILLIONS OF DOLLARS)
------------------------------------------------------ 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Fixed Charges, as defined:* Interest expense . . . . . . . . . . . . . $ 409.7 $ 377.8 $ 336.8 $ 378.7 $ 465.7 Estimated interest portion of rentals charged to expense . . . . . . . 17.1 20.1 19.5 16.7 9.8 ------------------------------------------------------ Total fixed charges. . . . . . . . . . $ 426.8 $ 397.9 $ 356.3 $ 395.4 $ 475.5 ------------------------------------------------------ ------------------------------------------------------ Earnings, as defined:* Income from continuing operations . . . . . . . . . . . . . . . $ 150.2 $ 422.7 $ 468.0 $ 505.0 $ 504.9 Add (deduct): Provision for income taxes . . . . . . . 90.8 187.4 249.8 238.8 283.9 Minority interest. . . . . . . . . . . . 8.4 11.3 13.3 18.9 4.2 Undistributed income of less than 50% owned affiliates . . . . . . . . . (5.7) (16.2) (14.7) (15.0) (18.1) Fixed charges as above . . . . . . . . . 426.8 397.9 356.3 395.4 475.5 ------------------------------------------------------ Total earnings . . . . . . . . . . . . $ 670.5 $1,003.1 $1,072.7 $1,143.1 $1,250.4 ------------------------------------------------------ ------------------------------------------------------ Ratio of Earnings to Fixed Charges . . . . . 1.6x 2.5x 3.0x 2.9x 2.6x ------------------------------------------------------ ------------------------------------------------------
* "Fixed charges" represent consolidated interest charges and an estimated amount representing the interest factor in rents. "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) 10 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)
----------------------------------------------------- 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Fixed Charges, as defined:* Interest expense . . . . . . . . . . . . . $ 409.7 $ 377.8 $ 336.8 $ 378.7 $ 465.7 Estimated interest portion of rentals charged to expense . . . . . . . 17.1 20.1 19.5 16.7 9.8 ----------------------------------------------------- Total fixed charges. . . . . . . . . . $ 426.8 $ 397.9 $ 356.3 $ 395.4 $ 475.5 Preferred Stock Dividends, as defined:*. . 59.9 56.8 60.8 57.0 46.6 ----------------------------------------------------- Total fixed charges and preferred dividends. . . . . . . . . $ 486.7 $ 454.7 $ 417.1 $ 452.4 $ 522.1 ----------------------------------------------------- ----------------------------------------------------- Earnings, as defined:* Income from continuing operations . . . . . . . . . . . . . . . $ 150.2 $ 422.7 $ 468.0 $ 505.0 $ 504.9 Add (deduct): Provision for income taxes . . . . . . . 90.8 187.4 249.8 238.8 283.9 Minority interest. . . . . . . . . . . . 8.4 11.3 13.3 18.9 4.2 Undistributed income of less than 50% owned affiliates . . . . . . . . . (5.7) (16.2) (14.7) (15.0) (18.1) Fixed charges as above . . . . . . . . . 426.8 397.9 356.3 395.4 475.5 ----------------------------------------------------- Total earnings . . . . . . . . . . . . $ 670.5 $1,003.1 $1,072.7 $1,143.1 $1,250.4 ----------------------------------------------------- ----------------------------------------------------- Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. . . 1.4x 2.2x 2.6x 2.5x 2.4x ----------------------------------------------------- -----------------------------------------------------
* "Fixed charges" represent consolidated interest charges and an estimated amount representing the interest factor in rents. "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 11 EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS EARNINGS OVERVIEW Millions of dollars, except per share information 1996 1995 1994 - -------------------------------------------------------------------------------- Earnings contribution on common stock Domestic Electric Operations $ 341.5 $ 276.4 $ 339.8 Australian Electric Operations 30.1 .7 -- Telecommunications 74.7 103.0 70.5 Other Operations 28.8 86.2 18.0 ---------------------------- $ 475.1 $ 466.3 $ 428.3 ---------------------------- Earnings per common share $ 1.62 $ 1.64 $ 1.51 ---------------------------- PacifiCorp and its subsidiaries (the "Company") increased earnings on common stock 11%, or $.11 per share, compared to 1995, after deducting from 1995 results a gain of $37 million ($.13 per share) relating to the sale of the Company's Alaskan long-distance operations. Each of the Company's major businesses contributed to the earnings increase: Domestic Electric Operations, Australian Electric Operations and Telecommunications. The Company achieved these positive results while continuing to prepare itself to become a dominant player in an increasingly global energy marketplace. Domestically, this preparation included finding new ways to manage costs, improve customer service and expand the Company's presence in eastern U.S. markets. Powercor Australia Ltd. ("Powercor"), the Company's first major international endeavor, exceeded expectations during its first full year of operations as a PacifiCorp company. The Company's telecommunications business continues to focus on its successful strategy of growth through acquisitions of rural telephone exchange operations. Domestic Electric Operations' contribution to earnings on common stock increased $33 million, or 11%, after adding back to 1995 earnings $32 million resulting from a tax settlement with the Internal Revenue Service (the "tax settlement") for the years 1983-1988. This tax settlement was offset in Other Operations discussed below. The higher earnings were a result of several factors: an increased focus on the wholesale power marketplace, where the Company established itself as a leading bulk power trader in the West; price increases in Oregon and Wyoming; and increased demand for electricity from all customer segments. Purchased power played a more prominent role as increased demand in the wholesale and retail markets drove the need to acquire power from external sources. Australian Electric Operations contributed earnings of $30 million, before allocation of corporate interest costs. In July 1996, customers in the State of Victoria who use 750 or more megawatt hours per year became "contestable," meaning they could choose their supplier. Powercor, the Company's marketing and distributing entity in Australia, has established itself as a leader in the contestable market, and currently serves 46% of Victoria's contestable customers. New South Wales' contestable market opened in October 1996. Powercor was the first company outside the state to receive a retail license to sell power in that market, and currently serves 5% of New South Wales' contestable customers. The Company expanded its Australian business in 1996 with the acquisition of a 19.9% interest in the Hazelwood Power Partnership ("Hazelwood"). Hazelwood's 1,600 megawatt ("MW") coal-fired generating station and coal mine provides the Company with an opportunity to employ its mining skills in a new, deregulated marketplace. Telecommunications continued its steady growth in the rural and suburban telecommunications market, increasing its contribution to earnings by $2 million, after deducting from 1995 results a gain of $37 million relating to the sale of Alascom, Inc. ("Alascom") and adjusting for minority interest. This improvement was the direct result of local exchange operations acquired in 1995, taken together with growth in existing operations. Telecommunications expects this growth to continue due to customer access line growth within existing service areas and acquisitions outside of those areas. Other Operations' earnings contributions totaled $29 million in 1996 compared to $54 million in 1995, after deducting from 1995 results the $32 million tax settlement referred to above. The 1996 results were impacted by interest expense associated with the investment in Powercor and costs associated with new, unregulated energy businesses. 24 DOMESTIC ELECTRIC OPERATIONS REVENUES Millions of dollars 1996 1995 1994 - --------------------------------------------------------- Residential $ 785.6 $ 721.9 $ 724.9 Wholesale 738.8 520.0 532.7 Industrial 705.0 697.6 726.3 Commercial 622.4 575.9 570.4 Other 109.0 100.7 93.5 --------------------------------- $ 2,960.8 $ 2,616.1 $ 2,647.8 --------------------------------- ENERGY SALES Millions of kWh 1996 1995 1994 - --------------------------------------------------------- Residential 12,819 12,030 12,127 Wholesale 29,665 16,376 15,625 Industrial 20,332 19,748 20,306 Commercial 11,497 10,797 10,645 Other 640 592 623 --------------------------------- 74,953 59,543 59,326 --------------------------------- REVENUES Domestic Electric Operations' revenues rose 13% during 1996, driven primarily by an 81% increase in kilowatt hours ("kWh") sold in the wholesale market. Wholesale revenues increased to a record $739 million in 1996 primarily due to an increased focus in this very competitive market. Despite the 81% increase in wholesale kWh sold, the Company saw only a 42% increase in revenues due to the impact of competition on market prices. Average revenue per kWh declined from $.0318 to $.0249 as a result. Residential and commercial revenues grew a combined 8% in 1996 as a result of both increased prices and volumes. Price increases of approximately 4% were approved in both the Oregon and Wyoming customer jurisdictions in July 1996. These price increases should contribute approximately $37 million of additional revenue annually. In the last half of 1996, these increases contributed an additional $16 million of revenue. Weather conditions that increased energy requirements, 2% residential and 3% commercial customer growth and increased customer usage led to an additional 1.5 billion kWh of residential and commercial energy sales and contributed $36 million, $29 million and $21 million of revenue, respectively. On February 12, 1997, the Division of Public Utilities and Committee of Consumer Service in Utah filed a joint petition with the Utah Public Service Commission (the "PSC") requesting the Commission to commence proceedings to establish new rates for Utah customers. The petitioners requested an immediate hearing on a $12 million interim rate reduction and a subsequent general rate case, which the petitioners allege could result in rates being reduced as much as $54 million. On March 4, 1997 the Utah Legislature passed a bill which creates a legislative task force to study stranded cost issues and the timing of customer choice. The bill freezes rates at January 31, 1997 levels until 60 days following the conclusion of the 1998 legislative general session. The PSC is precluded from holding any hearings on rate changes during the freeze period. The Company has committed to reduce prices to Utah customers by $12 million annually on approximately May 1, 1997. Industrial revenues grew at a slower pace than residential and commercial revenues during 1996, increasing 1%. Revenues from irrigation customers increased $7 million due to drier weather compared to 1995. While sales to oil and gas customers declined $10 million due to permanent well closures, volumes increased overall as a result of higher volumes sold to new nonagricultural customers at competitive prices. In 1995, revenues declined in all areas except commercial and other sales when compared to 1994. In general, retail revenues decreased due to the $15 million effect of the December 1994 sale of the Sandpoint, Idaho distribution facilities and warmer winter weather. However, both residential and commercial revenues increased due to a 2% increase in the number of customers. Industrial usage declined $29 million primarily due to a $21 million decrease in sales to oil and gas customers in Wyoming as a result of permanent well closures and a $15 million decrease in sales to irrigation customers due to increased rainfall and mild temperatures in 1995. Wholesale revenues declined $13 million while kWh volume increased 5%. A $22 million increase in revenue from new long-term contracts partially offset decreases in spot market and short-term contract prices totaling $34 million. NUMBER OF RETAIL CUSTOMERS Thousands, at year-end 1996 1995 1994 - ----------------------------------------------------- Residential 1,194 1,176 1,155 Commercial 167 162 159 Industrial 20 20 19 Other 4 3 4 -------------------------- 1,385 1,361 1,337 -------------------------- OPERATING EXPENSES Many of the Company's efforts to control operating costs proved effective in 1996, keeping the growth in fuel, operations and maintenance and other costs well below the growth in revenues. However, purchased power costs increased $231 million since the Company met the higher demand for electricity in 1996 largely by purchasing additional power in the market. Additional power was also purchased from the Hermiston Plant which began operation in July 1996 (see Investing Activities). 25 OPERATING EXPENSES Millions of dollars 1996 1995 1994 - -------------------------------------------------------------------------------- Fuel $ 443.0 $ 431.6 $ 483.0 Purchased power 586.9 356.4 356.7 Other operations and maintenance 445.0 442.4 437.7 Depreciation and amortization 343.4 320.4 301.6 Other 272.7 264.4 249.5 ------------------------------- $ 2,091.0 $ 1,815.2 $ 1,828.5 ------------------------------- Operating Expenses as a Percent of Revenue 71% 69% 69% PURCHASED POWER Millions of MWh 1996 1995 1994 - -------------------------------------------------- Short-term or spot market 16.9 5.0 3.3 Long-term contracts 8.5 6.0 5.9 Short-term firm and spot market purchases in 1996 were more than three times the 1995 level. These purchases averaged $13 per megawatt hour ("MWh") in 1996 compared to $10 per MWh in 1995. Increased volumes purchased under new long-term firm power contracts, net of expiring contracts, added $29 million to purchased power costs in 1996. As a result of these additional costs and other factors, net power costs (the net cost to serve the Company's retail customers on a MWh basis, measured as the sum of fuel, purchased power and wheeling expense, less wholesale power and wheeling revenues) were $7.20 per MWh in 1996 compared to $6.83 per MWh in 1995, a 5% increase. Given the Company's commitment to take all of the output of the Hermiston Plant, net power cost is expected to increase in 1997. The Company continually evaluates the cost of alternative sources of power and attempts to minimize its cost to meet the demands of consumers by balancing its utilization of hydro and thermal generation with purchased power. Depreciation and amortization expense increased 7% in 1996 primarily due to a $410 million increase in average depreciable plant. This included the Hermiston Plant and a new customer service system which were placed in service in 1996 and added $6 million of depreciation during the year. In 1995, the Company's fuel cost decreased 11% compared to 1994 primarily due to the use of lower cost hydroelectric power generation and lower cost purchased power. Total purchased power costs remained flat, as higher firm contract volumes were offset by a $27 million decrease resulting from lower spot market prices. OTHER INCOME AND EXPENSE Interest expense declined $8 million, or 2%, to $304 million in 1996. Excluding $28 million of interest cost associated with the tax settlement in 1995, interest expense increased $20 million, or 7%, due to higher debt levels during 1996. The settlement had no effect on consolidated net income, although it had the effect of reducing Domestic Electric Operations' earnings by $32 million and increasing Other Operations' earnings by $32 million in 1995. Other expenses increased $18 million in 1996 as a result of lower levels of capitalized interest, reduced asset sale gains and increased product and business development expense. COMPETITION AND REGULATION Domestic Electric Operations continues to operate as a regulated monopoly within its seven-state franchise service territories, with relatively low cost and efficient power sources. Competition in these areas varies in form and intensity, but is expected to increase over time, principally as a result of industry deregulation and consequent increases in advertising and marketing by alternative energy suppliers. Large industrial customers are actively seeking choice of suppliers, and have options to build their own generation or cogeneration, or to use alternative energy sources, such as natural gas. Other consumers also, in many cases, have the option to switch energy sources for heating and air conditioning, and to consider alternatives such as municipalization. The U.S. power industry is undergoing a dramatic transformation, via deregulation and restructuring, that will substantially increase competition. Developments in this transformation have been largely dependent on state legislative and regulatory initiatives and vary considerably from state to state. Industry restructuring bills range from those which require study of direct retail access to those which would result in implementation of direct access for retail customers. The Company expects any legislation passed to specifically provide a reasonable opportunity to recover costs which have been placed at risk due to the introduction of competition. Legislation has been enacted in California, AB1890, which requires direct access for a portion of the state's retail customers by January 1, 1998. California provides approximately 3% of the Company's retail revenues. 26 Competition has already transformed the electric utility industry at the wholesale level. In 1996, the Federal Energy Regulatory Commission ("FERC") ordered all investor-owned utilities to allow others access to their transmission systems for wholesale power sales. As a result of increased competition and excess capacity, wholesale prices have dropped significantly over the past two years. To meet these competitive challenges, Domestic Electric Operations is participating in restructuring processes that will determine the shape of future markets, and is pursuing strategies that capitalize on its competitive position, including the development and delivery of innovative products and services. Domestic Electric Operations continues to develop its competitive strategy as legislation, regulation and market opportunities evolve. The Company is advocating federal legislation that would require states to give all consumers choice in their energy provider by January 1, 2001. The Company believes that federal legislation is necessary to address barriers to entry and issues of jurisdiction, to preserve the proper role for the states in implementing customer choice and to bring benefits to consumers as quickly as possible. ENVIRONMENTAL ISSUES The Company's generating plants burn low-sulfur coal. Major construction expenditures have already been made at many plants to reduce sulfur dioxide ("SO(2)") emissions, but additional expenditures are expected to be required at the Centralia Plant in Washington in which the Company has a 47.5% ownership interest. Studies are underway to evaluate the Centralia Plant and determine a cost-effective manner of bringing emissions into compliance with limitations ordered by the environmental authorities in the state of Washington. It may not be possible to reach an economically viable solution. The Company has also been engaged in discussions with the environmental authorities in Wyoming with respect to alleged violations of the opacity and SO(2) standards applicable to the Jim Bridger Plant. Resolution of these alleged violations is not expected to require significant additional capital expenditures. In addition, the Company and the other joint owners of the Craig Generating Station ("Station") in Colorado are parties to a lawsuit brought by the Sierra Club alleging violations of the Federal Clean Air Act at the Station, which is operated by the Tri-State Generation and Transmission Association. The Company has an interest of approximately 20% in the Station. A settlement conference has been scheduled for March 1997. 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 electricity sales to Domestic Electric Operations' customers in the wood products industry. Domestic Electric Operations 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 12 of Domestic Electric Operations' hydroelectric projects expire within the next 10 years. These projects represent 664 MW, or 62%, of Domestic Electric Operations' hydroelectric generating capacity, or 8% of total 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. Domestic Electric Operations 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 Domestic Electric Operations has been or may be designated as a potentially responsible party. In such cases, Domestic Electric Operations 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. All of the Company's mining operations are subject to reclamation and closure requirements. The Company monitors these requirements and periodically revises its cost estimates to meet existing legal and regulatory requirements of the various jurisdictions in which it operates. Compliance with these requirements could result in higher expenditures for both capital improvements and operating costs. Future costs associated with the disposition of these matters are not expected to be material to the Company's consolidated financial statements. 27 AUSTRALIAN ELECTRIC OPERATIONS
For the year 1996, expressed in millions, except per kWh Revenues Energy Sales Cents per kWh - ---------------------------------------------------------------------------------------------------------- Residential $ 239.4 $ 2,608 $ 9.2 Industrial 179.3 3,282 5.5 Commercial 165.5 1,926 8.6 Other 74.6 494 -- ------------------------------- $ 658.8 $ 8,310 $ -- -------------------------------
POWERCOR The operations of the Company's first significant international venture, Powercor, exceeded management's expectations for 1996, its first full year of operations as a PacifiCorp company. Powercor contributed earnings of $33 million, before allocation of corporate interest costs. Allocation of interest expense on U.S. borrowings associated with the December 1995 acquisition of Powercor would have reduced Powercor's earnings contribution by approximately $28 million in 1996. Powercor, based in Melbourne, Australia, was acquired in December 1995 after the Victorian state government decided to disaggregate and sell parts of the state-owned electricity industry. Accordingly, the State Electricity Commission separated the electricity industry into three components--generation, transmission and distribution. Five companies were formed to manage the network of poles and wires that deliver power to customers. Powercor is one of those companies, responsible for the largest network system and geo-graphical area in the state. In addition to being a distributor, Powercor is also a retailer of electricity with about 547,000 customers--the majority of which are located in its network area. Under Victorian state government reforms, Powercor is able to sell electricity to large customers outside its network area. On July 1, 1996, approximately 2,000 customers using 750 or more MWh per year of power became "contestable," meaning they could choose their electricity provider. Powercor has emerged as the leader in the new market, not only obtaining new customers but also retaining most of its existing customer base. Powercor now holds the largest share of customers in this market. New customers include two of Australia's largest banks, Australia's second-largest retailer and several large industrials. POWERCOR OPERATING RESULTS Powercor achieved total revenues of $659 million in 1996. Higher than expected revenues were achieved primarily through retaining customers in its network area and through obtaining additional contestable customers. These additional customers provided $40 million of revenue in 1996 and are expected to add approximately $130 million to revenues in 1997, albeit at lower margins than the noncontestable market. As of December 31, 1996, Powercor held about 46% of the State of Victoria's contestable market and 5% of the market in neighboring New South Wales. Powercor's operating expenses aggregated $531 million in 1996, with purchased power costs of $305 million representing 57% of operating expenses. See Note 16 to the Consolidated Financial Statements. Powercor's operating expenses totaled 81% of its revenue compared to Domestic Electric Operations where operating expenses totaled 71% of its revenue in 1996. As Powercor's operations do not include power generation, this relationship is consistent with management's expectations and is expected to continue into the near future. Although Powercor was successful in 1996, its ability to continue to meet or exceed the Company's expectations is not without risks. Powercor buys all of the electricity it sells and can, therefore, be impacted by fluctuating energy prices. To minimize this risk, Powercor has established a risk management system to manage its pool price expense. See Notes 1, 7 and 8 to the Consolidated Financial Statements. The Company's investment in Hazelwood is strategically important because, among other things, it provides a natural hedge to a portion of Powercor's exposure to fluctuating energy prices. HAZELWOOD As discussed under Investing Activities, the Company acquired a 19.9% interest (the maximum allowable under current law) in Hazelwood in September 1996 with a consortium including subsidiaries of National Power Corporation PLC, Destec Energy and Commonwealth Bank Group of Australia. The coal-fired generating station and the associ-ated coal mine are located in the coal-rich Latrobe Valley, about 90 miles east of Melbourne, Australia, where several other large, coal-fired power stations are located. The plant is fueled by brown coal from the mine that contains approximately 450 million tons of reserves, enough fuel to operate the station for at least 40 years. Among the partners in Hazelwood there are considerable skills in managing and operating coal-fired plants. National Power, which owns 51.9% of Hazelwood, oversees plant operations and the Company oversees the operation of the adjacent coal mine. Since the Company is one of the largest coal producers in the U.S., management believes there will be significant opportunities to share best practices between its mining operations. 28 HAZELWOOD OPERATING RESULTS Hazelwood sells its power through a statewide generation pool and enters into hedging arrangements with Australian distribution companies, such as Powercor. Energy prices vary with weather, economic growth and other factors affecting the supply of and demand for power. Power prices are lowest during Australia's summer months (the fourth and first calendar quarters). Since its acquisition in September 1996, the Company's share of Hazelwood's net loss totaled $3 million, including approximately $2 million of interest associated with the transaction. As demand is lowest during Australia's summer months (the winter months in the U.S.), the Company does not expect to see its share of losses accumulate at the rate they did since its acquisition in September 1996. Moreover, the Company expects to see Hazelwood's operating results improve as the Company's expertise leads to more efficient mining operations and as the power plant becomes a more efficient generator. Nonetheless, as these changes will take time, the Company expects Hazelwood to be slightly dilutive to 1997 earnings. COMPETITION Powercor is the largest of the five distribution businesses ("DBs") formed when the Victorian state government decided to privatize, and eventually deregulate, its electricity industry. As the Victorian market becomes more open to competition and customers can increasingly choose their energy supplier, Powercor and the other DBs will continue to maintain a monopoly on their individual network areas. These businesses derive much of their revenue from the network fee that is paid for the use of the distribution system. As mentioned above, Hazelwood operates in an area where several large, coal-fired generating facilities are located. It will continue to compete against these plants, as well as others outside the geographic area. REGULATION Except for power generation and certain contestable accounts, the Australian power industry continues to be a regulated business, albeit a structure that is rapidly changing toward customer choice. Powercor, like each of the other four DBs in the State of Victoria, has been granted an exclusive license to sell electricity to franchise customers whose facilities are in its distribution area and a non-exclusive state-wide license to sell to contestable customers. All customers with loads in excess of 750 MWh per year are now contestable and other customers will become contestable over the next four years depending on their energy demand level, with substantially all residential customers remaining franchise customers until 2001. If a Powercor customer chooses a different retailer, Powercor will continue to receive network revenue associated with the customer. Regulation of the Victorian electricity industry is the responsibility of the Office of the Regulator General (the "ORG"), an independent regulatory body. The structure of prices with the Victorian electricity industry reflects the establishment of maximum uniform tariffs that apply to noncontestable customers and some contestable customers. Under applicable regulations, Powercor is required to supply electricity to noncontestable customers at prices that are no greater than the prices specified under the applicable tariffs. The prices specified in the tariffs are all inclusive prices, including grid charges and energy costs. In general, annual movements in the tariffs for noncontestable customers are based on the Consumer Price Index, a measure of price inflation. Network tariffs include recovery of distribution use of system costs, use of transmission system fees and connection charges. Network tariffs are intended to cover the cost of providing, operating or maintaining the distribution network, except to the extent relevant costs are recoverable through connection charges or other excluded services, and the charges levied for connection to and use of the transmission systems. The first major review of the regulatory arrangements and respective transmission and distribution network charges will be carried out by the ORG, with any changes to apply from January 1, 2001. Any subsequent price control arrangements are required to apply for not less than five years. The Company does not expect regulation to adversely impact its existing operations in Australia. 29 TELECOMMUNICATIONS REVENUES Millions of dollars 1996 1995 1994 - -------------------------------------------------------------- Network access service $ 259.1 $ 223.7 $ 168.5 Local network service 140.9 120.5 96.9 Cellular 44.0 33.9 23.6 Other 77.1 68.9 64.0 Alascom -- 193.1 343.5 ------------------------------ $ 521.1 $ 640.1 $ 696.5 ------------------------------ EXPENSES Millions of dollars 1996 1995 1994 - -------------------------------------------------------------- Operations $ 81.5 $ 78.2 $ 66.7 Maintenance 91.2 86.0 74.4 Other operations expense 83.2 68.2 61.7 Depreciation and amortization 106.5 86.2 66.2 Alascom -- 156.2 262.8 ------------------------------ $ 362.4 $ 474.8 $ 531.8 ------------------------------ OVERVIEW Pacific Telecom, Inc. ("PTI") contributed earnings of $75 million in 1996 compared to earnings of $103 million in 1995. The results for 1995 included a gain of $37 million relating to the sale of Alascom. In addition, the Company acquired the 13% publicly held minority interest in PTI in September 1995. After adjusting for the Alascom gain and normalizing for the minority interest acquired, PTI's earnings contributions in 1995 would have been $73 million. See Note 14 to the Consolidated Financial Statements. Earnings from local exchange operations ("LEC") acquired in 1995, internal customer access line growth of 5%, growth in cellular operations and cable capacity sales offset the $19 million earnings contribution associated with Alascom operations included in the 1995 results of $73 million. REVENUES Revenues decreased 19% from $640 million in 1995 to $521 million in 1996. The decrease was the result of the sale of Alascom, which accounted for $193 million of revenue in 1995 prior to its sale, offset by revenue growth from LEC assets acquired, LEC access lines, cellular operations and cable capacity sales. Local network service and network access service revenues increased $20 million and $35 million, respectively, in 1996 primarily as a result of LEC assets acquired, which contributed revenues of $40 million, and a 5% increase in the number of customer access lines. Cellular revenues increased $10 million in 1996 primarily as a result of a 37% increase in the number of cellular customers. PTI expects local network service revenues to increase in 1997 as a result of continued internal growth and pending acquisitions (see Planned Expansion). Revenues in 1995 were below 1994 levels primarily due to a $150 million decrease in revenue associated with the operations of Alascom prior to its sale. This decrease was offset by $63 million of growth from acquisitions, $10 million of growth from an increase in cellular customers and $21 million from increases in internal access lines, enhanced services, revised LEC revenue estimates, increased Universal Service Fund ("USF") support, and other factors. OPERATING EXPENSES PTI's expenses decreased 24% from $475 million in 1995 to $362 million in 1996. As with revenues, the decrease resulted primarily from the sale of Alascom, which incurred $156 million of expenses prior to its sale in 1995. This decrease was offset by additional expenses of $24 million stemming from operating the LEC properties acquired in 1995 for a full year in 1996 and also by additional expenses needed to support the internal access line and cellular growth. Excluding the $107 million impact of the Alascom sale, operating expenses increased approximately $50 million in 1995 compared to 1994 due to acquisitions and internal growth. Costs associated with operations acquired in 1995 (operating costs, maintenance and depreciation) generated additional expenses of approximately $38 million in 1995. At the same time, cellular growth and other internal growth increased operating expenses by approximately $12 million. COMPETITION On February 8, 1996, President Clinton signed into law the Telecommunications Act of 1996 (the "1996 Act"). The 1996 Act has a general goal of promoting the development of competitive service in all telecommunications markets over time, including local exchange services. The issues addressed by the 1996 Act are those affecting removal of barriers to entry for various geographic and services markets, universal service standards and mechanisms, eligibility for and access to universal service support funding, interconnection and unbundling of telecommunications networks, large carrier entry into interstate interexchange communications markets and infra-structure sharing. The 1996 Act, which applies generally to PTI, also contains provisions with specific importance to PTI's operations. Definitional provisions of the 1996 Act classify PTI as a "rural telephone company" for certain purposes of the 1996 Act. Various of the inter-connection and unbundling requirements applicable generally to incumbent LECs are subject to exemption provisions available to rural telephone companies or to waiver provisions for LECs with less than 2% of the total nationwide access lines, which qualification PTI also meets. 30 TELECOMMUNICATIONS CUSTOMER ACCESS LINES Thousands, at year-end Projected 1997 1996 1995 1994 - -------------------------------------------------------------------- Lines 660 559 530 418 The 1996 Act authorized the establishment of a universal service fund to provide support for eligible telecommunications carriers, for which designation PTI believes it will qualify in the future. PTI's management believes these and other provisions will prove consistent with PTI's current and planned operations. PTI recognized USF revenues of $55 million in 1996 and anticipates recognition of approximately that amount in 1997. With respect to a number of matters, the 1996 Act permits or requires further proceedings by the Federal Communications Commission (the "FCC") or state regulatory commissions, or both. Following the effective date of the 1996 Act, the FCC initiated more than one hundred separate dockets to address various aspects of the 1996 Act's implementation. A Federal-State Joint Board was also convened to examine and to make recommendations concerning issues pertaining to future universal service definitions and the establishment of mechanisms for support funding. Independently, a number of state regulatory commissions overseeing PTI's LECs commenced proceedings relating to both the 1996 Act and specific state statutory initiatives and requirements. PTI has actively participated in all major proceedings that are likely to have an impact upon its future operations and financial performance. Additionally, PTI has helped to organize or has participated, or both, in industry organizations in an effort to communicate its views effectively on these various issues. PTI believes that the 1996 Act, and the regulatory proceedings deriving therefrom, continue to prove consistent with its long-term strategic plan. Based in part upon the rural nature of PTI's operations and the recognition currently being accorded to rural serving requirements in the 1996 Act and derivative regulatory proceedings, the Company does not believe that the 1996 Act and its associated regulatory interpretations will have a material adverse impact on the Company's consolidated financial statements. OTHER OPERATIONS EARNINGS CONTRIBUTION Millions of dollars 1996 1995 1994 - -------------------------------------------------------- PFS $ 34.1 $ 30.4 $ 3.0 PGC 7.8 5.6 8.5 Tax settlement -- 32.2 -- Holdings and other (13.1) 18.0 6.5 ------------------------------- $ 28.8 $ 86.2 $ 18.0 ------------------------------- OTHER OPERATIONS Other Operations includes two main businesses and several start-up- phase energy ventures as well as the activities of PacifiCorp Holdings, Inc. ("Holdings"). PacifiCorp Financial Services ("PFS") has tax-advantaged investments in affordable housing and leasing operations that consist principally of aircraft leases. Pacific Generation Company ("PGC") has ownership interests in numerous independent power production and cogeneration businesses. Holdings also has ownership interests in several start-up-phase energy ventures. RESULTS OF OPERATIONS The earnings contribution from Other Operations decreased from 1995 to 1996 primarily as a result of the 1995 tax settlement which had the effect of reducing Domestic Electric Operations' earnings by $32 million and increasing Other Operations' earnings by $32 million in 1995. The earnings of PFS and PGC increased in 1996, but were offset by Holdings and other expense increases. The $31 million decrease in earnings of Holdings and other in 1996 was attributable to approximately $14 million of increased interest expense, as well as expenses incurred by several start-up-phase investments in which investments in personnel and other resources are being made, offset by the tax benefits thereof. The increased interest expense was attributable in part to Holdings' investment in Powercor. Other Operations' earnings contribution increased from $18 million in 1994 to $86 million in 1995 as a result of the impact of the $32 million tax settlement in 1995 and approximately $19 million of impairment charges taken by PFS in 1994, as well as certain other factors. 31 LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS Millions of dollars 1996 1995 1994 - ---------------------------------------------------------------------------- Operating activities Domestic Electric Operations $ 718 $ 700 $ 747 Australian Electric Operations 95 10 -- Telecommunications 197 152 141 Other Operations 67 50 74 -------------------------------- Cash provided by operating activities 1,077 912 962 Investing activities (903) (2,333) (340) Financing activities (178) 1,420 (630) -------------------------------- Change in cash during the year $ (4) $ (1) $ (8) -------------------------------- Cash dividends paid $ 346 $ 346 $ 345 -------------------------------- OPERATING ACTIVITIES Operating cash flows increased by $165 million from 1995 to 1996 despite net income remaining flat. Powercor's operations contributed $95 million of operating cash flow in its first full year, while increased operating income in other businesses provided $70 million of increased cash flow. Increases in accounts receivable at Domestic Electric Operations were only partially offset by increases in accounts payable. These changes were due to increased wholesale and retail activity and changes in retail billing processes. INVESTING ACTIVITIES While investing activities in 1995 were dominated by the $1.6 billion purchase of Powercor, no single transaction had such a pervasive influence on 1996. Rather, investing activities in 1996 focused on continued capital spending to improve and expand existing operations and a couple of smaller but strategically important investments--Hazelwood and the Hermiston Plant. The Company expanded its presence in Australia when it invested approximately $157 million, including an associated $12 million advance, for a 19.9% ownership interest in Hazelwood which, in turn, purchased a 1,600 megawatt, coal-fired generating station and associated coal mine in Victoria, Australia for approximately $1.9 billion. The consortium financed the acquisition of the Hazelwood plant and mine with approximately $858 million in equity contributions from the partners and $1 billion of nonrecourse borrowings at the partnership level. Holdings financed its investment with long-term borrowings in the U.S. under a five-year credit facility. On July 30, 1996, Domestic Electric Operations paid $154 million for a 50% ownership interest in the Hermiston Plant located near Hermiston, Oregon. This 474 MW natural gas cogeneration plant began commercial operation on July 1, 1996. The payment was initially funded with short-term debt. The Company takes all of the energy produced by the Hermiston Plant under a long-term contract. Such commitment is expected to reduce income from operations in 1997 by approximately $15 million as compared to 1996. Construction spending for production, transmission, distribution and other purposes at Domestic Electric Operations remained relatively constant, decreasing from $455 million in 1995 to $442 million in 1996. Powercor's construction expenditures totaled $80 million in 1996. Capital expenditures for PTI declined $371 million from 1996 to 1995 as spending returned to recurring levels, considering 1995 expenditures included $376 million for LEC assets acquired. Construction spending remained constant at $122 million. Capital expenditures in Other Operations declined by $119 million primarily due to the Company's 1995 purchase of the minority interest in PTI for $131 million. During 1996, the Company continued to invest in new, energy-related ventures and will continue to do so during 1997. The Company believes that its existing and available capital resources are sufficient to meet working capital, dividend and construction needs in 1997. 32 LIQUIDITY AND CAPITAL RESOURCES CAPITAL SPENDING Millions of dollars Forecasted 1997 1996 1995 1994 - ----------------------------------------------------------------------------- Construction Domestic Electric Operations $ 480 $ 442 $ 455 $ 638 Australian Electric Operations 75 80 2 -- Telecommunications 140 122 122 148 Other Operations 10 7 -- 3 --------------------------------------- 705 651 579 789 Acquisitions and Investments Domestic Electric Operations -- 154 -- -- Australian Electric Operations -- 145 1,589 -- Telecommunications 230 5 376 5 Other Operations 75 49 175 10 --------------------------------------- 305 353 2,140 15 --------------------------------------- $ 1,010 $ 1,004 $ 2,719 $ 804 --------------------------------------- PLANNED EXPANSION The Company continuously explores opportunities for growth in unregulated energy and telecommunications markets. In addition to the identified expansion opportunities highlighted below, the Company will also seek to increase its presence throughout the world. Because the Company believes that the U.S. will move from the existing regulated marketplace to a market driven by customer choice, it will focus on expansion of its unregulated businesses and other energy-related businesses, such as natural gas. The Company believes that the experience gained by focusing on the unregulated marketplace will facilitate the conversion to a market driven by customer choice. Holdings and Big Rivers Electric Corporation ("Big Rivers"), a generation and transmission cooperative based in Henderson, Kentucky, signed an agreement during 1996 providing for a subsidiary of Holdings to operate and manage Big Rivers' power plants under a 25-year operating agreement for annual payments of approximately $30 million. Big Rivers filed for bankruptcy in September 1996. In February 1997, the bankruptcy judge opened the Big Rivers facilities to auction. Holdings asked the U.S. District Court to take jurisdiction over the Big Rivers reorganization away from the U.S. Bankruptcy Court. In addition, Holdings filed a motion in bankruptcy court requesting that the bankruptcy judge remove himself and the bankruptcy examiner from the case and impose sanctions on the examiner. The examiner responded and requested that sanctions be imposed on the Company and its counsel. On March 18, 1997, the district court declined to take jurisdiction of the bankruptcy case, ruling that the bankruptcy judge must first decide the disqualification and removal motion. On March 19, 1997, the bankruptcy court accepted a bid from LG&E Energy Corp. for Big Rivers' facilities. The outcome of these proceedings is uncertain. PTI has signed definitive agreements with US WEST Communi-cations, Inc. to purchase local exchange telephone properties in Minnesota with 27,100 access lines and with GTE North Incorporated to purchase properties in Michigan with 11,300 access lines. PTI has also signed a definitive agreement with the City of Fairbanks to acquire its telephone and cellular operations that have 32,000 access lines and 6,800 cellular customers. PTI anticipates that the three acquisitions, if approved by regulators, will require $248 million in cash, net of approximately $20 million of cash to be acquired in the acquisitions. PTI expects to fund these acquisitions through the issuance of external debt and internally generated funds. All three acquisitions are expected to close in 1997. 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 costs. To date, management does not believe that inflation has had a significant impact on any of the Company's other businesses. 33 LIQUIDITY AND CAPITAL RESOURCES CAPITALIZATION Millions of dollars, except percentages 1996 1995 - -------------------------------------------------------------------------------- Long-term debt $ 5,148 47% $ 4,792 46% Common equity 4,032 37 3,633 35 Short-term debt 937 9 1,227 12 Preferred stock 314 3 531 5 Preferred securities of Trust 210 2 -- -- Quarterly income debt securities 176 2 176 2 --------------------------------------- Total capitalization $ 10,817 100% $ 10,359 100% --------------------------------------- The Company manages its capitalization and liquidity position in a consolidated manner through policies established by senior management. These policies have resulted from a review of historical and projected practices for businesses and industries that have financial and operating characteristics similar to PacifiCorp and its principal business operations. The Company's policies attempt to balance the interests of its shareholders, ratepayers and creditors. In addition, given the changes that are occurring within the industry and market segments in which the Company operates, these policies must remain sufficiently flexible to allow the Company to respond to these developments. On a consolidated basis, the Company attempts to maintain total debt at 48% to 54% of capitalization. However, as a result of the $1.6 billion acquisition of Powercor in December 1995, debt comprised 60% of total capitalization at December 31, 1995. Through the common stock offerings described below, and strong earnings, common equity increased $399 million. As a result, the debt to capitalization ratio improved to 58% at December 31, 1996. The Company continually evaluates the advantages of common stock issuances in the context of its current capital structure, financing needs and market price. Depending on this evaluation, the Company may offer additional shares of common stock to the public in 1997. As described below, the Company also completed a preferred stock refunding during 1996 that significantly lowered the after-tax cost of the preferred stock component of its capitalization. EQUITY TRANSACTIONS The Company issued 8.8 million shares of common stock to the public in March and April 1996 for net proceeds of $178 million, after deducting offering costs of $6 million. The proceeds of such offerings were used to repay short-term debt. During the year, the Company also issued 2.1 million shares of its common stock under the dividend reinvestment and stock purchase plan (the "Plan"), raising $43 million. Due to the public sales of shares in March and April 1996 and issuances under the Plan, the average number of common shares outstanding increased 3%, from 284 million shares during 1995 to 292 million shares during 1996. In June 1996, a wholly owned subsidiary trust (the "Trust") issued, in a public offering, 8.7 million of its 8G% Cumulative Quarterly Income Preferred Securities, Series A, for net proceeds of $210 million, after deducting issuance costs of approximately $7 million. The sole asset of the Trust is $224 million of Series C Junior Subordinated Deferred Interest Debentures issued by the Company to the Trust. See Note 5 to the Consolidated Financial Statements. In July and August 1996, the Company redeemed preferred stock with an aggregate carrying value of $214 million for $222 million. The present value of the cost savings as a result of the redemption more than justified the $8 million premium over carrying value. DEBT TRANSACTIONS In January 1996, the Company issued $200 million of secured medium-term notes in the form of First Mortgage and Collateral Trust Bonds with interest rates of 6.1% and 6.7% and maturities from 2006 to 2026. Net proceeds of $198 million were used to repay short-term debt that had been classified as long-term debt at December 31, 1995. In September 1996, the Company established a $500 million Secured Medium-Term Note Program and a $250 million Unsecured Medium-Term Note Program. No issuances occurred under either program during 1996. In April 1996, Holdings issued $150 million of 6.75% senior notes due 2001 and $100 million of 7.2% senior notes due 2006 for net proceeds of $247 million. The proceeds were used to repay short-term debt incurred in the Powercor acquisition. 34 LIQUIDITY AND CAPITAL RESOURCES REVOLVING CREDIT AGREEMENTS Millions of dollars committed 1996 - -------------------------------------------------------------------- Domestic Electric Operations $ 700 Australian Electric Operations 1,250 Telecommunications 300 Holdings and other 500 -------- $ 2,750 -------- AVAILABLE CREDIT FACILITIES At December 31, 1996, PacifiCorp had $700 million of committed bank revolving credit agreements. Regulatory authorities limited PacifiCorp to $1 billion of short-term debt, of which $675 million was outstanding at December 31, 1996. At December 31, 1996, subsidiaries of PacifiCorp had $2.1 billion of committed bank revolving credit agreements. The Company had $1.2 billion of short-term debt classified as long-term debt at December 31, 1996, as it had the intent and ability to support short-term borrowings through the various revolving credit facilities on a long-term basis. See Notes 3 and 4 to the Consolidated Financial Statements for additional information. LIMITATIONS In addition to the Company's capital structure policies, its debt capacity is also governed by its credit agreements. Based on the Company's current capital structure, management believes PacifiCorp and its subsidiaries could have borrowed an additional $3.4 billion of debt at December 31, 1996. PacifiCorp's principal debt limitation is a 60% debt to capitalization test contained in its principal credit agreements. Considering such limitation, an additional $1.7 billion of debt was available to PacifiCorp at December 31, 1996. Holdings' adjusted consolidated debt is limited to 70% of its consolidated capitalization. Under this test, an additional $1.7 billion of debt was available at December 31, 1996. Under the Company's principal credit agreement, 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. VARIABLE RATE LIABILITIES Millions of dollars 1996 1995 - -------------------------------------------------------------------- Domestic Electric Operations $ 1,090 $ 1,240 Australian Electric Operations 511 896 Telecommunications 43 165 Holdings and other 202 542 ------------------- $ 1,846 $ 2,843 ------------------- Percentage of total capitalization 17% 27% RISK MANAGEMENT The risk management process established by the Company is designed to measure both quantitative and qualitative risks in its businesses. A senior risk management committee has been established to review these risks on a regular basis. The principal quantitative risks that are measured are the risks and volatility of cash flows for the Company's energy trading activities. Similar processes for interest rate risk and foreign currency exchange risk will be established in 1997. As part of the Company's overall approach to risk management, the Company utilizes derivative instruments. The use of such instruments is governed by a policy that was established in 1994 and is reviewed on a regular basis by senior management. The Company uses interest rate swap agreements, collars, futures and forwards to manage its exposure to interest rate fluctuations and to increase the predictability of its cash flows by effectively converting its variable rate debt to fixed rate debt. At December 31, 1996, the Company had entered into derivatives with notional principal amounts totaling $958 million to manage its interest rate exposure. The Company uses foreign currency exchange agreements to reduce a portion of its exposure to fluctuations in the Australian dollar stemming from its net investments in Powercor and to hedge obligations denominated in foreign currencies. At December 31, 1996, the notional amount of such contracts totaled $341 million. The Company uses electricity futures and similar instruments to hedge its cost of electricity and has recently started to actively trade electricity and electricity-related financial products. The trading of electricity-related financial products is currently done in a limited number of markets, and the Company plans to continue to develop its commodity trading expertise and expand its activities as these markets develop. See Notes 1, 7 and 8 to the Consolidated Financial Statements for additional information about the Company's use of derivatives. 35 LIQUIDITY AND CAPITAL RESOURCES CASH FLOW SUMMARY
Forecasted Actual Millions of dollars/For the year 1999 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------- ----------------------------- Net Cash Flow from Operating Activities Domestic Electric Operations $ 718 $ 700 $ 747 Australian Electric Operations 95 10 -- Telecommunications 197 152 141 Other Operations 67 50 74 ----------------------------- Total 1,077 912 962 Cash Dividends Paid 346 346 345 ----------------------------- Net $ 850-900 $ 825-875 $ 775-825 $ 731 $ 566 $ 617 - --------------------------------------------------------------------------------- ----------------------------- Construction Domestic Electric Operations $ 525 $ 500 $ 480 $ 442 $ 455 $ 638 Australian Electric Operations 60 60 75 80 2 -- Telecommunications 120 145 140 122 122 148 Other Operations 10 10 10 7 -- 3 - --------------------------------------------------------------------------------- ----------------------------- Total 715 715 705 651 579 789 Acquisitions and Investments Domestic Electric Operations 45 -- -- 154 -- -- Australian Electric Operations -- -- -- 145 1,589 -- Telecommunications 270 200 230 5 376 5 Other Operations 50 50 75 49 175 10 ------------------------------------- ----------------------------- Total 365 250 305 353 2,140 15 ------------------------------------- ----------------------------- Total Capital Spending $ 1,080 $ 965 $ 1,010 $ 1,004 $ 2,719 $ 804 - --------------------------------------------------------------------------------- ----------------------------- Maturities of Long-Term Debt Domestic Electric Operations $ 299 $ 197 $ 209 $ 182 $ 51 $ 76 Australian Electric Operations -- -- -- 42 -- -- Telecommunications 48 29 16 56 15 17 Other Operations 6 15 11 19 29 61 ------------------------------------- ----------------------------- Total $ 353 $ 241 $ 236 $ 299 $ 95 $ 154 ------------------------------------- ----------------------------- Other Refinancings $ 42 $ 191 $ 295 - --------------------------------------------------------------------------------- -----------------------------
FORWARD-LOOKING STATEMENTS The information in the tables and text in this document include certain forward- looking statements that involve a number of risks and uncertainties that may influence the financial performance and earnings of the Company and its subsidiaries. When used in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," the words "estimates", "expects", "anticipates", "forecasts", "plans", "intends" and variations of such words and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties. There can be no assurance the results predicted will be realized. Actual results will vary from those represented by the forecasts, and those variations may be material. The following factors are among the factors that could cause actual results to differ materially from the forward-looking statements: utility commission practices; regional economic conditions; weather variations affecting customer usage; competition in bulk power markets and hydroelectric production; wholesale power marketing results; environmental, regulatory and tax legislation, including industry restructure and deregulation initiatives; technological developments in the electricity and telecommunications industries; and the cost of debt and equity capital. Any forward-looking statements issued by the Company should be considered in light of these factors. 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 were audited by Deloitte & Touche LLP, independent public accountants. Management 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 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 their 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 distributed to employees throughout the Company to provide a basis for ethical standards and conduct. The guide addresses, among other things, potential conflicts of interests and 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 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. /s/ Richard T. O'Brien Richard T. O'Brien SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Portland, Oregon January 31, 1997 (March 11, 1997 as to Note 15) 37 STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS
Millions of dollars, except per share amounts/For the year 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------- Revenues $ 4,293.8 $ 3,416.9 $ 3,498.0 ---------------------------------------- Expenses Operations 1,782.4 1,259.4 1,391.8 Maintenance 308.5 281.0 292.3 Administrative and general 308.5 254.9 244.6 Depreciation and amortization 530.4 445.6 424.3 Taxes, other than income taxes 118.9 120.1 122.7 ---------------------------------------- Total 3,048.7 2,361.0 2,475.7 ---------------------------------------- Income from Operations 1,245.1 1,055.9 1,022.3 ---------------------------------------- Interest Expense and Other Interest expense 465.7 378.7 334.5 Interest capitalized (11.9) (15.1) (14.5) Minority interest and other 2.5 (51.5) (15.5) ---------------------------------------- Total 456.3 312.1 304.5 ---------------------------------------- Income before income taxes 788.8 743.8 717.8 Income taxes 283.9 238.8 249.8 ---------------------------------------- Net Income 504.9 505.0 468.0 Retained Earnings, January 1 632.4 474.3 351.3 Cash dividends declared Preferred stock (29.1) (38.4) (39.6) Common stock per share of $1.08 (317.9) (306.6) (305.4) Preferred stock retired (7.5) (1.9) -- ---------------------------------------- Retained Earnings, December 31 $ 782.8 $ 632.4 $ 474.3 ---------------------------------------- Earnings on Common Stock (Net income less preferred dividend requirement) $ 475.1 $ 466.3 $ 428.3 Average number of common shares outstanding (Thousands) 292,424 284,272 282,912 Earnings per Common Share $ 1.62 $ 1.64 $ 1.51
(See accompanying Notes to Consolidated Financial Statements) 38 STATEMENTS OF CONSOLIDATED CASH FLOWS
Millions of dollars/For the year 1996 1995 1994 - ---------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities Net income $ 504.9 $ 505.0 $ 468.0 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 552.0 466.2 472.5 Deferred income taxes and investment tax credits--net 48.4 62.5 (7.5) Minority interest and other (33.3) (28.6) 23.6 Accounts receivable and prepayments (171.2) (71.5) 5.4 Materials, supplies, fuel stock and inventory 31.9 (8.6) 11.8 Accounts payable and accrued liabilities 144.6 (13.0) (11.7) ------------------------------------ Net Cash Provided by Operating Activities 1,077.3 912.0 962.1 ------------------------------------ Cash Flows from Investing Activities Construction (650.8) (578.6) (788.7) Operating companies and assets acquired (199.4) (2,002.1) (5.9) Investments in and advances to affiliated companies--net (153.5) (138.4) (9.5) Proceeds from sales of assets 55.1 377.0 381.6 Proceeds from sales of finance assets and principal payments 55.8 36.6 109.1 Other (10.5) (27.4) (26.7) ------------------------------------ Net Cash Used in Investing Activities (903.3) (2,332.9) (340.1) ------------------------------------ Cash Flows from Financing Activities Changes in short-term debt (319.6) 581.5 (98.7) Proceeds from long-term debt 669.4 1,530.8 246.6 Proceeds from issuance of common stock 221.3 .4 57.2 Proceeds from issuance of preferred securities of Trust holding solely PacifiCorp debentures 209.6 -- -- Dividends paid (346.4) (346.5) (344.8) Repayments of long-term debt (341.1) (285.8) (448.5) Redemptions of capital stock (221.6) (2.6) -- Other (50.0) (58.0) (41.7) ------------------------------------ Net Cash Provided by (Used in) Financing Activities (178.4) 1,419.8 (629.9) ------------------------------------ Decrease in Cash and Cash Equivalents (4.4) (1.1) (7.9) Cash and Cash Equivalents at Beginning of Year 22.2 23.3 31.2 ------------------------------------ Cash and Cash Equivalents at End of Year $ 17.8 $ 22.2 $ 23.3 ------------------------------------ Supplemental Disclosure of Cash Flow Information Cash paid during the year for Interest (net of amount capitalized) $ 505.7 $ 407.7 $ 399.4 Income taxes 207.9 185.5 225.6 Noncash financing activities 8.55% Junior subordinated debentures exchanged for 2,233,037 shares of $1.98 No Par Serial Preferred Stock -- 55.9 --
(See accompanying Notes to Consolidated Financial Statements) 39 CONSOLIDATED BALANCE SHEETS ASSETS Millions of dollars/December 31 1996 1995 - -------------------------------------------------------------------------------- Current Assets Cash and cash equivalents $ 17.8 $ 22.2 Accounts receivable less allowance for doubtful accounts: 1996/$8.6 and 1995/$7.4 718.6 545.0 Materials, supplies and fuel stock at average cost 188.7 212.1 Inventory 55.2 62.8 Other 78.2 70.1 ---------------------- Total Current Assets 1,058.5 912.2 Property, Plant and Equipment Domestic Electric Operations Production 4,659.2 4,420.0 Transmission 2,069.2 2,042.5 Distribution 3,029.7 2,829.9 Other 1,687.9 1,655.7 Construction work in progress 252.8 310.0 ---------------------- Total Domestic Electric Operations 11,698.8 11,258.1 Australian Electric Operations 1,361.9 1,302.8 Telecommunications 1,670.0 1,606.9 Other Operations 68.8 65.0 Accumulated depreciation and amortization (4,583.8) (4,280.5) ---------------------- Total Property, Plant and Equipment--Net 10,215.7 9,952.3 Other Assets Investments in and advances to affiliated companies 358.9 187.9 Intangible assets--net 870.5 743.2 Regulatory assets--net 1,017.4 1,060.3 Finance note receivable 214.6 217.5 Finance assets--net 425.6 453.7 Real estate investments 217.0 179.8 Deferred charges and other 256.3 308.3 ---------------------- Total Other Assets 3,360.3 3,150.7 ---------------------- Total Assets $ 14,634.5 $ 14,015.2 ---------------------- (See accompanying Notes to Consolidated Financial Statements) 40 LIABILITIES AND SHAREHOLDERS' EQUITY Millions of dollars/December 31 1996 1995 - ------------------------------------------------------------------------------ Current Liabilities Long-term debt currently maturing $ 235.6 $ 206.1 Notes payable and commercial paper 701.5 1,021.1 Accounts payable 469.7 345.3 Taxes, interest and dividends payable 303.5 256.4 Customer deposits and other 152.6 176.0 ------------------------ Total Current Liabilities 1,862.9 2,004.9 Deferred Credits Income taxes 1,953.1 1,910.1 Investment tax credits 148.4 159.2 Other 758.9 786.2 ------------------------ Total Deferred Credits 2,860.4 2,855.5 Minority Interest 31.9 23.0 Long-Term Debt 5,323.8 4,968.2 Guaranteed Preferred Beneficial Interests in Company's Junior Subordinated Debentures 209.7 -- Preferred Stock Subject to Mandatory Redemption 178.0 219.0 Preferred Stock 135.5 311.5 Common Equity Common shareholders' capital shares authorized 750,000,000; shares outstanding: 1996/295,139,753 and 1995/284,276,709 3,236.8 3,012.9 Retained earnings 782.8 632.4 Cumulative currency translation adjustment 12.7 -- Guarantees of Employee Stock Ownership Plan borrowings -- (12.2) ------------------------ Total Common Equity 4,032.3 3,633.1 ------------------------ Commitments and Contingencies (See Notes 9 and 10) Total Liabilities and Shareholders Equity $ 14,634.5 $ 14,015.2 ------------------------ (See accompanying Notes to Consolidated Financial Statements) 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31, 1996, 1995 and 1994 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements of PacifiCorp (the "Company") include its integrated domestic electric utility operating divisions of Pacific Power and Utah Power and its wholly owned and majority owned subsidiaries. Major subsidiaries, all of which are wholly owned, are: PacifiCorp Holdings, Inc. ("Holdings"), which holds all of the Company's nonintegrated electric utility investments, including Powercor Australia Limited ("Powercor"), an Australian electricity distributor purchased December 12, 1995; Pacific Telecom, Inc. ("PTI"), a telecommunications operation (formerly 87% owned, see Note 14); and PacifiCorp Financial Services, Inc., a financial services business. Together these businesses are referred to herein as the Companies. Significant intercompany transactions and balances have been eliminated. 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. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. REGULATION Accounting for the domestic utility businesses conforms with gener-ally accepted accounting principles as applied to regulated public utilities and as prescribed by agencies and the commissions of the various locations in which the utility businesses operate. The Company prepares its financial statements as they relate to Domestic Electric Operations and Telecommunications in accordance with Statement of Financial Accounting Standards ("SFAS") 71, "Accounting for the Effects of Certain Types of Regulation." See Note 2. ASSET IMPAIRMENTS Effective January 1, 1996, the Company adopted SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This Statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluated all its assets based upon SFAS 121 and within the context of SFAS 71 for its regulated operations and concluded that no material adjustments were required. See Note 2. CASH AND CASH EQUIVALENTS 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. FOREIGN CURRENCY TRANSLATION Financial statements for foreign subsidiaries are translated into United States dollars at end of period exchange rates as to assets and liabilities and weighted average exchange rates as to revenues and expenses. The resulting exchange gains or losses are accumulated in the "cumulative currency translation adjustment" account, a component of common equity. All significant gains and losses resulting from foreign currency transactions are included in income. 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, 1996, the average depreciable life of property, plant and equipment by category was: Domestic Electric Operations--Production, 41 years; Transmission, 42 years; Distribution, 30 years; Other, 18 years; Australian Electric Operations, 21 years; and Telecommunications, 16 years. Depreciation and amortization is generally computed by the straight-line method over the estimated economic useful lives of the related assets after giving effect to requirements as prescribed by the Company's various regulatory jurisdictions. Provisions for depreciation (excluding amortization of capital leases) in the domestic electric, Australian electric, and telecommunications businesses were 3.6%, 3.5% and 3.4% of average depreciable assets in 1996, 1995 and 1994, respectively. 42 MINE RECLAMATION AND CLOSURE COSTS The Company expenses current mine reclamation costs and accrues for estimated final mine reclamation and closure costs using the units-of-production method. INVENTORY VALUATION Inventories are generally valued at the lower of average cost or market. INTANGIBLE ASSETS Intangible assets consist of: license and other intangible costs relating to Australian Electric Operations ($460 million and $32 million, respectively, in 1996 and $312 million and $30 million, respectively, in 1995); franchises of local exchange and cellular companies ($397 million in 1996 and $398 million in 1995); and excess cost over net assets of businesses acquired ($43 million in 1996 and 1995). These costs are offset by accumulated amortization ($62 million in 1996 and $40 million in 1995). Intangible assets are generally being amortized over 40 years. FINANCE ASSETS Finance assets consist of finance receivables, leveraged leases and operating leases and are not significant to the Company in terms of revenue, net income or assets. The Company's leasing operations consist principally of leveraged aircraft leases. Investments in finance assets are net of allowances for credit losses and accumulated impairment charges of $63 million and $71 million at December 31, 1996 and 1995, respectively. DERIVATIVES Gains and losses on hedges of existing assets and liabilities are included in the carrying amounts of those assets or liabilities and are recognized in income as part of those carrying amounts. Gains and losses related to hedges of anticipated transactions and firm commitments are deferred on the balance sheet and recognized in income when the transaction occurs. INTEREST CAPITALIZED Costs of debt applicable to domestic utility properties are capitalized during construction. Generally, the composite capitalization rates were 5.7% for 1996, 6.2% for 1995 and 4.7% for 1994. INCOME TAXES The Company uses 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. Investment tax credits for regulated operations in the United States are deferred and amortized to income over the average estimated lives of the properties. All other investment tax credits are recognized when utilized. Provision is made for U.S. income taxes on the undistributed earnings of the Company's international businesses. REVENUE RECOGNITION The Company accrues estimated unbilled revenues for electric services provided after cycle billing to month-end. PTI participates with other telephone companies in access revenue pools for certain interstate and intrastate revenues, which are initially recorded based on estimates. PREFERRED STOCK RETIRED Amounts paid in excess of the net carrying value of preferred stock retired are amortized in accordance with regulatory orders. RECLASSIFICATION Certain amounts from prior years have been reclassified to conform with the 1996 method of presentation. These reclassifications had no effect on previously reported consolidated net income. 43 NOTE 2 ACCOUNTING FOR THE EFFECTS OF REGULATION Regulated utilities have historically applied the provisions of SFAS 71 which is based on the premise that regulators will set rates that allow for the recovery of a utility's costs, including cost of capital. 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 are set at levels that will recover costs and can be 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 domestic utility operations capitalize certain costs, regulatory assets, in accordance with regulatory authority whereby those costs will be expensed and recovered in future periods. Regulatory assets--net at December 31, 1996 and 1995 included the following: Millions of dollars/December 31 1996 1995 - -------------------------------------------------------------------------------- Deferred taxes--net $ 670.6 $ 687.1 Deferred pension costs 102.9 116.8 Demand-side resource costs 118.8 110.0 Unamortized net loss on reacquired debt 68.4 71.8 Unrecovered Trojan Plant and regulatory study costs 26.8 28.4 Various other costs 29.9 46.2 ------------------------ Total $ 1,017.4 $ 1,060.3 ------------------------ If the Company, at some point in the future, determines that all or a portion of the domestic utility operations no longer meet 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 relating to those operations not meeting SFAS 71 requirements. The utility industry will also be impacted by the application of SFAS 121 as a result of deregulation. This accounting statement requires the recognition of impairment on long-lived assets when book values exceed expected future cash flows. Integral parts of future cash flow estimates include estimated future prices to be received, the expected future cash cost of operations, sales and load growth forecasts and the nature of any legislative cost recovery mechanisms. Restructuring bills are being considered in all states in which the Company provides retail service. The Company expects any legislation passed to provide an opportunity to recover costs which have been placed at risk. NOTE 3 SHORT-TERM DEBT AND BORROWING ARRANGEMENTS The Companies' short-term debt and borrowing arrangements were as follows: December 31 For the year ----------------------- ---------------------- Average Average Interest Average Interest Millions of dollars Balance Rate(a) Outstanding Rate(b) - ------------------------------------------------------------------------------- 1996 PacifiCorp $ 549.3 5.6% $ 424.4 5.4% Subsidiaries 152.2 5.6 287.2 5.6 1995 PacifiCorp $ 479.9 5.9% $ 407.2 5.9% Subsidiaries 541.2 6.1 180.0 6.2 1994 PacifiCorp $ 433.0 6.0% $ 372.8 4.5% Subsidiaries 21.7 7.5 95.0 4.6 (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 interest expense for the period by the average daily principal amount outstanding for the period. At December 31, 1996, PacifiCorp's commercial paper and bank line borrowings were supported by revolving credit agreements totaling $700 million. At December 31, 1996, subsidiaries had committed bank revolving credit agreements totaling $2.1 billion. 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, 1996, PacifiCorp had $123 million and subsidiaries had $1.1 billion of short-term debt classified as long-term. Consolidated commitment fees were approximately $2 million in 1996 and 1995 and $3 million in 1994. 44 NOTE 4 LONG-TERM DEBT The Company's long-term debt was as follows: Millions of dollars/December 31 1996 1995 - ------------------------------------------------------------------------------- PacifiCorp First mortgage and collateral trust bonds Maturing 1997 through 2001/5.9%-9.5%(a) $ 946.5 $ 1,112.1 Maturing 2002 through 2006/6.1%-9% 601.0 519.8 Maturing 2007 through 2011/6.6%-9.2% 235.8 237.5 Maturing 2012 through 2016/7.3%-8.8% 172.9 175.6 Maturing 2017 through 2021/8.4%-8.5% 38.1 38.4 Maturing 2022 through 2026/6.7%-8.6% 441.5 341.5 Guaranty of pollution control revenue bonds 5.6%-5.7% due 2021 through 2023(b) 71.2 71.2 Variable rate due 2013 through 2024(b)(c) 216.5 216.5 Variable rate due 2005 through 2030(c) 450.7 456.6 Funds held by trustees (12.1) (12.4) 8.4%-8.6% Junior subordinated debentures due 2025 through 2035 175.8 175.8 Commercial paper(c)(e) 123.4 200.0 Other 28.1 31.3 ---------------------- Total 3,489.4 3,563.9 Less current maturities 203.8 176.8 ---------------------- Total 3,285.6 3,387.1 ---------------------- Subsidiaries 2%-11.8% First mortgage notes and bonds maturing through 2028 139.3 143.2 6.8%-10.2% Notes due through 2020 291.2 59.8 Australian bank bill borrowings(d)(e) 922.3 896.2 Commercial paper and committed bank lines(c)(e) 185.0 75.0 Variable rate notes due through 2007(c) 35.8 42.0 6.6%-9.4% Medium-term notes due through 2008 323.5 223.5 4.5%-11% Nonrecourse debt due through 2031 170.8 155.9 Other 2.1 14.8 ---------------------- Total 2,070.0 1,610.4 Less current maturities 31.8 29.3 ---------------------- Total 2,038.2 1,581.1 ---------------------- Total $ 5,323.8 $ 4,968.2 ---------------------- (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 5.9% at December 31, 1996). (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, prime rates or other short- term market rates. (d) Interest rates fluctuate based on Australian Bank Bill Acceptance Rates. The loan agreement requires that at least 50% of the borrowings must be hedged against variations in interest rates. Approximately $630 million was hedged at December 31, 1996 at an average rate of 7.6% and for an average life of 4.4 years. (e) 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 $1.2 billion 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 Domestic Electric Operations' property, earnings and other provisions of the mortgage indenture. The junior subordinated debentures are unsecured obligations of the Company and are subordinated to the Company's first mortgage bonds, pollution control revenue bonds, commercial paper, bank debt, capital lease obligations and any future senior indebtedness. 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. The annual maturities of long-term debt and redeemable preferred stock outstanding are $236 million, $241 million, $353 million, $1.1 billion and $622 million in 1997 through 2001, respectively. 45 NOTE 5 GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S JUNIOR SUBORDINATED DEBENTURES On June 11, 1996, PacifiCorp Capital I, a wholly owned subsidiary trust of the Company (the "Trust"), issued, in a public offering, 8,680,000 of its 8G% Company Obligated Mandatorily Redeemable Preferred Securities (the "Preferred Securities"), representing preferred undivided beneficial interests in the assets of the Trust, with a liquidation preference of $25 per Preferred Security. The sole assets of the Trust are $224 million, in aggregate principal amount, of the Company's 8G% Junior Subordinated Deferrable Interest Debentures, Series C, due June 30, 2036 and certain rights under a related guarantee by the Company. The Company's guarantee of the Preferred Securities, considered together with the other obligations of the Company with respect to Preferred Securities, constitutes a full and unconditional guarantee by the Company of the Trust's obligations with respect to the Preferred Securities. NOTE 6 COMMON AND PREFERRED STOCK Common Shares Shares Share- Thousands of shares/ Common Preferred holders Millions of dollars Stock Stock Capital - ----------------------------------------------------------------------------- At January 1, 1994 281,021 10,532 $2,953.4 Sales through Dividend Reinvestment and Stock Purchase Plan 2,194 -- 38.0 Sales through Employees Stock Plans 1,036 -- 19.2 ---------------------------------------- At December 31, 1994 284,251 10,532 3,010.6 Sales through Employees' Stock Plans 26 -- .4 Junior subordinated debentures exchanged for preferred stock -- (2,233) 1.9 ---------------------------------------- At December 31, 1995 284,277 8,299 3,012.9 Sales to public 8,790 -- 177.8 Sales through Dividend Reinvestment and Stock Purchase Plan 2,073 -- 43.2 Redemptions and repurchases -- (2,342) 2.9 ---------------------------------------- At December 31, 1996 295,140 5,957 $3,236.8 ---------------------------------------- At December 31, 1996, there were 28,905,056 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. 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 1996 1996 1995 1995 Series Shares Amount Shares Amount - ------------------------------------------------------------------------------- Subject to Mandatory Redemption No Par Serial Preferred, ($100 stated value) 16,000 Shares Authorized $ 7.12 30 $ 3.0 440 $ 44.0 7.70 1,000 100.0 1,000 100.0 7.48 750 75.0 750 75.0 ---------------------------------------------- Total $ 178.0 $ 219.0 ---------------------------------------------- Not Subject to Mandatory Redemption No Par Serial Preferred ($25 stated value) $ 1.16 193 $ 4.8 193 $ 4.8 1.18 420 10.5 420 10.5 1.28 381 9.5 381 9.5 1.76 -- -- 394 9.8 1.98 -- -- 502 12.6 2.13 -- -- 666 16.7 1.98, Series 1992 2,767 69.1 2,767 69.1 Auction Rate ($100,000 stated value) -- -- 1 100.0 Serial Preferred $100 Stated Value Per Share, 3,500 Shares Authorized 4.52% 2 .2 2 .2 4.56 85 8.5 85 8.5 4.72 70 7.0 70 7.0 5.00 42 4.2 42 4.2 5.40 66 6.6 66 6.6 6.00 6 .6 6 .6 7.00 18 1.8 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 12.7 127 12.7 ---------------------------------------------- Total $ 135.5 $ 311.5 ---------------------------------------------- 46 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. 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. NOTE 7 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The Company seeks to reduce net income and cash flow exposure to changing interest and currency exchange rates and commodity price risks through the use of derivative financial instruments. The Company's participation in derivative transactions involves instruments that have a close correlation with its portfolio of liabilities, thereby managing its risk. Derivatives have been designed for hedging purposes and are not held or issued for speculative purposes. NOTIONAL AMOUNTS AND CREDIT EXPOSURE OF DERIVATIVES--The notional amounts of derivatives summarized below do not represent amounts exchanged and, therefore, are not a measure of the exposure of the Company through its use of derivatives. The amounts exchanged are calculated on the basis of the notional amounts and other terms of the derivatives, which relate to interest rates, exchange rates or other indexes. The Company is exposed to credit-related losses in the event of nonperformance by counterparties to financial instruments, but it does not expect any counterparties to fail to meet their obligations given their high credit ratings. The Company's credit policy provides that counterparties satisfy minimum credit ratings. The credit exposure of interest rate, foreign exchange and forward contracts is represented by the fair value of contracts with a positive fair value at the reporting date. INTEREST RATE RISK MANAGEMENT--The Company enters into various types of interest rate contracts in managing its interest rate risk, as indicated in the following table: Notional Amount Millions of dollars/December 31 1996 1995 - -------------------------------------------------------------------------------- Interest rate swaps $ 846.4 $ 219.9 Interest rate collars purchased 52.0 -- Interest rate futures and forwards 60.0 -- The Company uses interest rate swaps, collars, futures and forwards to adjust the characteristics of its liability portfolio from variable to fixed interest rates, allowing the Company to establish a mix of fixed or variable interest rates on its outstanding debt. Additionally, under terms of the variable rate Australian bank bill borrowings, Australian Electric Operations is required to obtain a fixed interest rate, via financial derivatives, on at least 50% of the principal outstanding. Under the various swap agreements, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional principal amount. The following table indicates the weighted-average interest rates of the swaps. Average variable rates are based on rates implied in the yield curve at December 31; these may change significantly, affecting future cash flows. Swap contracts are principally between one and fifteen years in duration. Millions of dollars/December 31 1996 1995 - ------------------------------------------------------------------------------- Pay-fixed swaps Average pay rate 7.7% 7.7% Average receive rate 5.6 4.4 Interest rate futures and forward contracts are generally used by Australian Electric Operations to mitigate variable interest rate exposure on Australian bank bill borrowings and are usually settled in cash. The futures and forwards are accounted for as hedges of the Australian bank bill borrowings. Additionally, Australian Electric Operations purchases interest rate collar agreements. The collar agreements entitle the Company to receive from the counterparties the amounts, if any, by which the Australian bank bill borrowings interest payments exceed 8.75% and the Company would pay the counterparties if interest payments fall below 6.5%-6.8%. FOREIGN EXCHANGE RISK MANAGEMENT--At December 31, 1996, the Company held a foreign currency exchange agreement, which provides for the exchange of $50 million for 7.4 billion yen to meet a 1997 yen-denominated obligation of an equivalent amount. In addition, at December 31, 1996, Holdings held three combined interest rate and currency swaps that terminate in 2002, with an aggregate notional amount of $291 million to hedge a portion of the exposure to fluctuations in the Australian dollar relating to its investment in Powercor. The interest rate portions of the three swaps, which also were designated as a hedge of Holdings' investment in Powercor, were effectively offset in 1997 by the purchase of a swap transaction with approximately the same terms. The net amount of the swaps should not have a significant impact on future net income. 47 COMMODITY RISK MANAGEMENT--The Company has utilized electricity forward contracts (referred to as "contract for differences") to hedge exposure to electricity price risk on anticipated transactions or firm commitments in its Australian Electric Operations. Under these forward contracts, the Company receives or makes payment based on a differential between a contracted price and the actual spot market of electricity. Additionally, electricity futures contracts are utilized to hedge Domestic Electric Operations' excess or shortage of net electricity for future months. At December 31, 1996, Australian Electric Operations had 23 forward contracts with electricity generation companies on notional quantities amounting to approximately 26.8 million MWh through December 31, 2000. The average fixed price to be paid by Australian Electric Operations was $28.75 per MWh compared to the average price of similar contracts at December 31, 1996 of $27.46. At December 31, 1996, Domestic Electric Operations had 67 NYMEX futures contracts to sell electricity with notional quantities amounting to approximately 49,300 MWh all expiring in 1997. The average fixed price to be received by Domestic Electric Operations was $19.33 per MWh compared to the NYMEX average spot market price of $15.78 per MWh. TRADING ACTIVITIES--During 1996 a subsidiary of Holdings began to trade electricity related products. Such transactions involved the physical delivery of electricity and are accounted for as revenue or purchased power upon delivery and, at December 31, 1996, amounted to a net purchase position of 1,200 MWh. As additional markets for electricity-related products develop, including derivative products, the Company anticipates that this activity will expand. NOTE 8 FAIR VALUE OF FINANCIAL INSTRUMENTS December 31, 1996 December 31, 1995 --------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value - ---------------------------------------------------------------------------- Long-term debt $ 5,536.6 $ 5,621.5 $ 5,134.4 $ 5,370.5 Preferred securities of Trust holding solely PacifiCorp debentures 209.7 210.9 -- -- Preferred stock subject to mandatory redemption 178.0 195.8 219.0 240.3 Derivatives relating to Currency (21.5) (21.5) -- (1.4) Interest (10.8) (52.5) -- (35.4) Electricity futures -- .2 -- -- 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, 1996. The fair value of the Company's 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 capital lease obligations were excluded. The fair value of the Preferred Securities was based on closing market prices and the fair value of redeemable preferred stock was based on bid prices from an investment bank. The fair value of interest rate derivatives, currency swaps and electricity futures is the estimated amount the Company would have to pay to terminate the agreements, taking into account current interest and currency exchange rates, electricity market prices and the current credit-worthiness of the agreement counterparties. It is not practicable to determine the fair value of the forward contracts held by Australian Electric Operations because of the limited number of transactions entered into for the long-term forward contracts and the inactive trading in the electricity spot market. NOTE 9 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, 1996, 1995 and 1994 was $29 million, $50 million and $59 million, respectively. Future minimum lease payments under noncancellable operating leases are $20 million, $14 million, $7 million, $5 million and $4 million for 1997 through 2001, respectively. NOTE 10 COMMITMENTS AND CONTINGENCIES CONSTRUCTION AND OTHER Construction and acquisitions are estimated at $1 billion for 1997. As a part of these programs, substantial commitments have been made. The Company is subject to numerous environmental laws including: the Federal Clean Air Act, as enforced by the Environmental Protection Agency and various state agencies; the 1990 Clean Air Act Amendments; the Endangered Species Act as it relates to certain potentially endangered species of salmon; the Comprehensive Environmental Response, Compensation and Liability Act, relating to environmental cleanups; along with the Federal Resource Conservation and Recovery Act and the Clean Water Act relating to water quality. These laws could potentially impact future operations. For those contingencies identified at December 31, 1996, principally the Superfund sites where the Company has been or may be designated as a potentially responsible party and violations under the Clean Air Act, future costs 48 associated with the disposition of these matters are not expected to be material to the Company's consolidated financial statements. The Company's mining operations are subject to reclamation and closure requirements. The Company monitors these requirements and periodically revises its costs estimates to meet existing legal and regulatory requirements of the various jurisdictions in which it operates. Costs for reclamation are accrued using the units-of-production method such that estimated final mine reclamation and closure costs are fully accrued at completion of mining activities. This is consistent with industry practices, and the Company believes its reclamation obligations are adequately provided for. 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 currently believes that disposition of these matters will not have a materially adverse effect on the Company's consolidated financial statements. JOINTLY OWNED PLANTS At December 31, 1996, Domestic Electric Operations' participation in jointly owned plants was as follows: Electric Plant Construction Operations' in Accumulated Work in Millions of dollars Share Service Depreciation Progress - -------------------------------------------------------------------------------- Centralia 47.5% $ 178.1 $ 108.0 $ 4.2 Jim Bridger Units 1, 2, 3 and 4 66.7 789.7 308.1 2.2 Trojan(a) 2.5 -- -- -- Colstrip Units 3 and 4 10.0 203.4 63.2 1.1 Hunter Unit 1 93.8 260.2 100.9 .8 Hunter Unit 2 60.3 187.6 66.4 1.3 Wyodak 80.0 303.9 96.6 1.8 Craig Station Units 1 and 2 19.3 150.0(b) 56.9 1.1 Hayden Station Unit 1 24.5 17.1(b) 10.6 1.1 Hayden Station Unit 2 12.6 17.0(b) 9.9 .8 Hermiston(c) 50.0 164.9 3.4 -- (a) Plant, inventory, fuel and decommissioning costs totaling $27 million relating to the Trojan Plant, were included in regulatory assets--net at December 31, 1996. (b) Excludes unallocated acquisition adjustments of $119 million. (c) Additionally, the Company has contracted to purchase the remaining 50% of the output of the plant. Under the joint agreements, each participating utility is responsible for financing its share of construction, operating and leasing costs. Domestic Electric Operations' portion is recorded in its applicable operations, maintenance and tax accounts. PURCHASED POWER Domestic Electric Operations manages its energy resource requirements by integrating long-term firm, short-term and spot market purchases with its own generating resources to economically dispatch the system and meet commitments for wholesale sales, including sales contracts with minimum payment requirements, and retail load growth. As part of its energy resource portfolio, Domestic Electric Operations acquires power through long-term purchases and/or exchange agreements which require minimum fixed payments of $298 million in 1997, $294 million in 1998 and 1999, $291 million in 2000 and $252 million in 2001. These contracts include agreements with the Bonneville Power Administration, the Hermiston Plant and a number of cogenerating facilities. Excluded from the minimum fixed annual payments above, are commitments to purchase power 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 expense. Domestic 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 the majority also provide for additional power, withdrawable by the districts upon one to five years' notice. For 1996, such purchases approximated 3.5% of energy requirements. At December 31, 1996, Domestic 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% $ 5.0 Priest Rapids 2005 109,602 13.9 3.7 Rocky Reach 2011 64,297 5.3 2.4 Wells 2018 59,617 7.7 1.9 ------------------------------------------------------ Total 388,960 $ 13.0 ------------------------------------------------------ (a) Annual costs, in millions of dollars, include debt service of $6 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. 49 NOTE 11 INCOME TAXES The Company's combined federal and state effective income tax rate was 36% in 1996, 32% in 1995 and 35% in 1994. The difference between taxes calculated as if the statutory federal tax rate of 35% was applied to income before income taxes and the recorded tax expense is reconciled as follows: Millions of dollars/For the year 1996 1995 1994 - ------------------------------------------------------------------------------- Computed Federal Income Taxes $ 276.1 $ 260.3 $ 251.2 -------------------------------- Increase (Reduction) in Tax Resulting from Depreciation differences 12.8 9.7 8.4 Investment tax credits (11.0) (12.3) (15.5) Excess of tax over book stock basis (1.0) (24.4) (1.4) Audit settlement .5 (16.8) -- Affordable housing credits (10.6) (8.4) (8.2) Other items capitalized and miscellaneous differences (5.3) 4.8 .7 -------------------------------- Total (14.6) (47.4) (16.0) -------------------------------- Federal Income Tax 261.5 212.9 235.2 State Income Tax, Net of Federal Income Tax Benefit 22.4 25.9 14.6 -------------------------------- Total Income Tax Expense $ 283.9 $ 238.8 $ 249.8 -------------------------------- The provision for income taxes is summarized as follows: Millions of dollars/For the year 1996 1995 1994 - ------------------------------------------------------------------------------- Current Federal $ 207.5 $ 152.2 $ 222.7 State 28.0 23.1 34.6 Foreign -- 1.0 -- -------------------------------- Total 235.5 176.3 257.3 -------------------------------- Deferred Federal 43.7 56.5 17.8 State 7.6 17.3 (9.8) Foreign 8.1 1.0 -- -------------------------------- Total 59.4 74.8 8.0 -------------------------------- Investment Tax Credits (11.0) (12.3) (15.5) -------------------------------- Total Income Tax Expense $ 283.9 $ 238.8 $ 249.8 -------------------------------- 50 The tax effects of significant items comprising the Company's net deferred tax liability were as follows: Millions of dollars/December 31 1996 1995 - ---------------------------------------------------------------------------- Deferred Tax Liabilities Property, plant and equipment $ 1,306.8 $ 1,213.1 Regulatory assets 733.6 756.8 Other deferred liabilities 30.7 52.5 Deferred Tax Assets Regulatory liabilities (63.0) (69.7) Book reserves not deductible for tax (55.0) (42.6) -------------------------- Net Deferred Tax Liability $ 1,953.1 $ 1,910.1 -------------------------- -------------------------- During 1995, the Company and the Internal Revenue Service (the "IRS") agreed on a settlement of all issues related to the IRS examination of the Company's federal income tax returns for the years 1983 through 1988, including matters relating to the Company's abandonment of its 10% interest in Washington Public Power Supply System Unit No. 3. During 1996, the Company received an examination report for 1989 and 1990 proposing adjustments that would increase income tax by $11 million. The Company filed a protest of certain proposed adjustments on July 30, 1996. The Company's 1991, 1992 and 1993 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 $13 million, $12 million, $11 million, $7 million and $6 million for 1997 through 2001, respectively. NOTE 12 RETIREMENT PLANS The Companies have pension plans covering substantially all of their employees. Benefits under plans in the United States 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, 1996, plan assets were primarily invested in common stocks, bonds and U.S. government obligations. All permanent employees of Powercor engaged prior to October 4, 1994 are members of Divisions B or C of the Superannuation Fund ("Fund") which provides defined benefits in the form of pensions (Division B) or lump sums (Division C). Both defined benefit Funds are closed to new members. Division B members contribute at 6% of superannuation salary, and Division C members can contribute at 0, 3, or 6%. During 1996, contributions were made to the Fund at the rate of 9.25% for the defined benefit. Net pension cost is summarized as follows: Millions of dollars/For the year 1996 1995 1994 - ------------------------------------------------------------------------------ Service cost--benefits earned $ 35.5 $ 24.4 $ 26.4 Interest cost on projected benefit obligation 89.0 80.1 74.1 Actual (gain) loss on plan assets (79.9) (153.5) 4.9 Net amortization and deferral 9.3 100.5 (59.7) Regulatory deferral(a) 14.2 29.4 .7 --------------------------------- Net Pension Cost $ 68.1 $ 80.9 $ 46.4 --------------------------------- --------------------------------- (a) Domestic 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 Note 2. 51 The funded status, net pension liability and significant assumptions are as follows: Millions of dollars/December 31 1996 1995 - ----------------------------------------------------------------------------- Actuarial present value of benefit obligations Vested benefit obligation $ 1,045.5 $ 1,033.9 ---------------------------- Accumulated benefit obligation 1,120.8 1,090.1 ---------------------------- Projected benefit obligation 1,270.7 1,262.1 Plan assets at fair value 1,042.5 895.6 ---------------------------- Projected benefit obligation in excess of plan assets 228.2 366.5 Unrecognized prior service cost (11.9) (9.8) Unrecognized net loss (65.5) (104.0) Unrecognized net obligation (7.5) (89.5) Minimum liability adjustment 2.9 65.2 ---------------------------- Net Pension Liability $ 146.2 $ 228.4 ---------------------------- Discount rate 7.25%-7.5% 7.25% Expected long-term rate of return on assets 8.5%-9% 8.5%-9% Rate of increase in compensation levels 4.5%-6% 5%-6% Domestic 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 $58 million. Domestic Electric Operations received regulatory accounting orders to defer early retirement costs as a regulatory asset to be amortized through the year 2020. See Note 2. NOTE 13 OTHER POSTRETIREMENT BENEFITS Domestic Electric Operations and Telecommunications provide health care and life insurance benefits through various plans for their eligible retirees on a basis substantially similar to those who are active employees. The cost of postretirement benefits is accrued over the active service period of employees. The transition obligation represents the unrecognized prior service cost and is being amortized over a period of 20 years. For those employees retired at January 1, 1993, the Company funds postretirement benefit expense on a pay-as- you-go basis. For those employees retiring after January 1, 1993, the Company funds postretirement benefit expense through a combination of funding vehicles. The Company funded $38 million and $40 million of postretirement benefit expense during 1996 and 1995, respectively. These funds are invested in common stocks, bonds and U.S. government obligations. The net periodic postretirement benefit cost is summarized as follows: Millions of dollars/For the year 1996 1995 1994 - ----------------------------------------------------------------------------- Service cost--benefits earned $ 9.6 $ 8.3 $ 9.5 Interest cost on accumulated postretirement benefit obligation 27.8 32.6 30.7 Amortization of transition obligation 14.3 15.7 16.3 Regulatory deferral 3.4 (4.5) (5.2) Net asset gain (loss) during the period deferred for future recognition 3.7 3.7 (4.4) Actual return on plan assets (14.5) (10.7) .3 ----------------------------------- Net Periodic Postretirement Benefit Cost $ 44.3 $ 45.1 $ 47.2 ----------------------------------- ----------------------------------- 52 The accumulated postretirement benefit obligation ("APBO") was as follows: Millions of dollars/December 31 1996 1995 - ------------------------------------------------------------------------------ Retirees and dependents $ 209.5 $ 267.7 Fully eligible active plan participants 22.2 23.5 Other active plan participants 160.8 174.5 -------------------------- APBO 392.5 465.7 Plan assets at fair value 166.2 117.4 -------------------------- APBO in excess of plan assets 226.3 348.3 Unrecognized prior service cost .5 .6 Unrecognized transition obligation (251.0) (266.7) Unrecognized net gain (loss) 48.2 (50.1) -------------------------- Accrued Postretirement Benefit Obligation $ 24.0 $ 32.1 -------------------------- -------------------------- Discount rate 7.5% 7.25% Estimated long-term rate of return on assets 9% 8.8%-9% Initial health care cost trend rate--under 65 8.8%-11% 11% Initial health care cost trend rate--over 65 8.4%-10.5% 10% Ultimate health care cost trend rate 4.5% 4.5% The assumed health care cost trend rates gradually decrease over eight 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, 1996 by $29 million, and the annual net periodic postretirement benefit costs by $3 million. NOTE 14 ACQUISITIONS AND DISPOSITIONS In September 1996, a consortium, known as the Hazelwood Power Partnership, purchased a 1,600 megawatt, coal-fired generating station and associated coal mine in Victoria, Australia for approximately $1.9 billion. The consortium financed the acquisition of the Hazelwood plant and mine with approximately $858 million in equity contributions from the partners and $1 billion of nonrecourse borrowings at the partnership level. Holdings, which has a 19.9% interest in the partnership, financed its $145 million portion of the equity investment and the associated $12 million advance with long-term borrowings in the United States. The other partners in the partnership are subsidiaries of National Power PLC (51.9%), Destec Energy (20%) and Commonwealth Bank Group of Australia (8.2%). On December 12, 1995, Holdings purchased Powercor, an elec- tricity distributor in Australia, for approximately $1.6 billion in cash. Powercor's service territory includes a portion of suburban Melbourne and the western and central regions of the State of Victoria. Powercor currently has approximately 547,000 customers. The acquisition was accounted for as a purchase and the results of operations of Powercor have been included in the consolidated financial statements since December 12, 1995. On September 27, 1995, holders of a majority of the 5.3 million shares of outstanding common stock held by minority shareholders of PTI voted in favor of the merger of a wholly owned subsidiary of Holdings into PTI. Shareholders tendering shares pursuant to the merger were paid a total of $131 million, or $30 per share, and an accrued liability of $28 million was established to cover estimated amounts payable to dissenters. During 1995, PTI purchased certain rural telephone exchange assets in Colorado, Washington and Oregon for approximately $376 million. On August 7, 1995, PTI closed the sale of the stock of Alascom, Inc. ("Alascom") to AT&T Corp. ("AT&T"), in a transaction providing $366 million in proceeds. Under terms of the agreement, AT&T paid $291 million in cash for the Alascom stock and for settlement of all past cost study issues. AT&T agreed to allow PTI to retain a $75 million transition payment made by AT&T to Alascom in July 1994. AT&T made a down payment of $30 million to PTI upon signing the stock purchase agreement in October 1994. The remaining $261 million was paid when the transaction closed. The Company recognized an after-tax gain of $37 million from the sale of Alascom. Summarized income statement data for Alascom are as follows: 7 months ended For the July 31, year Millions of dollars (unaudited) 1995 1994 - -------------------------------------------------------------------------------- Revenues $ 193.1 $ 343.5 Income from operations 36.9 80.7 NOTE 15 SUBSEQUENT EVENTS On March 4, 1997 the Utah Legislature passed a bill which creates a legislative task force to study stranded cost issues and the timing of customer choice. The bill freezes rates at January 31, 1997 levels until 60 days following the conclusion of the 1998 legislative general session. The PSC is precluded from holding any hearings on rate changes during the freeze period. The Company has committed to reduce prices to Utah customers by $12 million annually on approximately May 1, 1997. On March 11, 1997, Holdings entered into an agreement to acquire TPC Corporation, a natural gas gathering, processing, storage and marketing company. The acquisition is expected to cost approximately $288 million in cash plus assumed debt of approximately $149 million. 53 NOTE 16 SELECTED FINANCIAL AND SEGMENT INFORMATION
Millions of dollars, except per share information/For the year 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------------- Revenues Domestic Electric Operations $ 2,960.8 $ 2,616.1 $ 2,647.8 $2,506.9 $ 2,362.4 Australian Electric Operations 658.8 25.9 -- -- -- Telecommunications 521.1 640.1 696.5 693.8 690.6 Other Operations(a) 153.1 134.8 153.7 196.4 175.1 ------------------------------------------------------------- Total $ 4,293.8 $ 3,416.9 $ 3,498.0 $3,397.1 $ 3,228.1 - -------------------------------------------------------------------------------------------------------------------------------- Income from Operations Domestic Electric Operations $ 869.8 $ 800.9 $ 819.3 $ 784.3 $ 677.7 Australian Electric Operations 127.4 5.5 -- -- -- Telecommunications 158.7 165.3 164.7 140.8 138.6 Other Operations(a) 89.2 84.2 38.3 44.1 (112.8) ------------------------------------------------------------- Total $ 1,245.1 $ 1,055.9 $ 1,022.3 $ 969.2 $ 703.5 - -------------------------------------------------------------------------------------------------------------------------------- Net Income (Loss) $ 504.9 $ 505.0 $ 468.0 $ 479.1 $ (340.4) - -------------------------------------------------------------------------------------------------------------------------------- Earnings Contribution (Loss) on Common Stock Continuing operations Domestic Electric Operations $ 341.5 $ 276.4 $ 339.8 $ 322.3 $ 202.9 Australian Electric Operations 30.1 .7 -- -- -- Telecommunications 74.7 103.0 70.5 50.9 57.3 Other Operations(a) 28.8 86.2 18.0 10.2 (147.3) ------------------------------------------------------------- Total 475.1 466.3 428.3 383.4 112.9 Discontinued operations(b) -- -- -- 52.4 (490.6) Cumulative effect of change in accounting for income taxes -- -- -- 4.0 -- ------------------------------------------------------------- Total $ 475.1 $ 466.3 $ 428.3 $ 439.8 $ (377.7) - -------------------------------------------------------------------------------------------------------------------------------- Earnings (Loss) per Share Continuing operations Domestic Electric Operations $ 1.17 $ .97 $ 1.20 $ 1.17 $ .76 Australian Electric Operations .10 -- -- -- -- Telecommunications .25 .36 .25 .19 .21 Other Operations(a) .10 .31 .06 .04 (.55) ------------------------------------------------------------- Total 1.62 1.64 1.51 1.40 .42 Discontinued operations(b) -- -- -- .19 (1.84) Cumulative effect of change in accounting for income taxes -- -- -- .01 -- ------------------------------------------------------------- Total $ 1.62 $ 1.64 $ 1.51 $ 1.60 $ (1.42) - -------------------------------------------------------------------------------------------------------------------------------- Cash Dividends Declared per Common Share $ 1.08 $ 1.08 $ 1.08 $ 1.08 $ 1.53 - -------------------------------------------------------------------------------------------------------------------------------- Market Price per Common Share(c) 20 1/2 21 1/8 18 1/8 19 1/4 19 3/4 - -------------------------------------------------------------------------------------------------------------------------------- Capitalization Short-term debt $ 937 $ 1,227 $ 551 $ 709 $ 973 Long-term debt 5,324 4,968 3,768 3,924 4,181 Preferred securities of Trust 210 -- -- -- -- Redeemable preferred stock 178 219 219 219 219 Preferred stock 136 312 367 367 417 Common equity 4,032 3,633 3,460 3,263 2,908 ------------------------------------------------------------- Total $ 10,817 $ 10,359 $ 8,365 $ 8,482 $ 8,698 - -------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 14,635 $ 14,015 $ 11,846 $ 11,957 $ 11,257 - --------------------------------------------------------------------------------------------------------------------------------
(a) Other Operations includes the operations of PacifiCorp Financial Services, Inc., Pacific Generation Company, and several start-up-phase ventures, as well as the activities of PacifiCorp Holdings, Inc. including financing costs. (b) Discontinued operations includes the Company's interest in NERCO, Inc. and TRT Communications, Inc. (c) Unaudited. 54
DOMESTIC ELECTRIC OPERATIONS 3-Year 1996 to 1995 Compound Percentage Annual Millions of dollars, except as noted/For the year 1996 1995 1994 Comparison Growth - --------------------------------------------------------------------------------------------------------------------------------- Revenues Residential $ 785.6 $ 721.9 $ 724.9 9% 4% Commercial 622.4 575.9 570.4 8 5 Industrial 705.0 697.6 726.3 1 -- Other 32.5 29.7 30.7 9 3 --------------------------------------------------------------- Retail Sales 2,145.5 2,025.1 2,052.3 6 3 --------------------------------------------------------------- Wholesale--firm 635.4 487.7 456.2 30 15 Wholesale--nonfirm 103.4 32.3 76.5 * 10 --------------------------------------------------------------- Wholesale Sales 738.8 520.0 532.7 42 14 --------------------------------------------------------------- Other 76.5 71.0 62.8 8 26 --------------------------------------------------------------- Total 2,960.8 2,616.1 2,647.8 13 6 --------------------------------------------------------------- Expenses Fuel 443.0 431.6 483.0 3 -- Purchased power 586.9 356.4 356.7 65 23 Other operations 277.7 274.0 263.2 1 2 Maintenance 167.3 168.4 174.5 (1) (1) Administrative and general 176.3 160.5 142.7 10 8 Depreciation and amortization 343.4 320.4 301.6 7 7 Taxes, other than income taxes 96.4 103.9 106.8 (7) (3) --------------------------------------------------------------- Total 2,091.0 1,815.2 1,828.5 15 7 --------------------------------------------------------------- Income from Operations 869.8 800.9 819.3 9 4 Interest expense 304.2 311.9 264.3 (2) 4 Interest capitalized (11.4) (14.9) (14.5) 23 6 Other income--net (11.2) (25.3) (30.2) 56 5 Income tax expense 216.9 214.1 220.2 1 7 --------------------------------------------------------------- Net Income 371.3 315.1 379.5 18 1 Preferred Dividend Requirement 29.8 38.7 39.7 (23) (9) --------------------------------------------------------------- Earnings Contribution(a) $ 341.5 $ 276.4 $ 339.8 24 2 --------------------------------------------------------------- --------------------------------------------------------------- Identifiable assets $ 9,864 $ 9,599 $ 9,372 3 3 Capital spending $ 595 $ 455 $ 638 31 (2)
* Not a meaningful number. (a) Does not reflect elimination of interest on intercompany borrowing arrangements and includes income taxes on a separate-company basis. 55
DOMESTIC ELECTRIC OPERATIONS STATISTICS(a) 3-Year 1996 to 1995 Compound Millions of dollars, except as Percentage Annual noted/For the year 1996 1995 1994 Comparison Growth - ----------------------------------------------------------------------------------------------------- Energy Sales (Millions of kWh) Residential 12,819 12,030 12,127 7% 2% Commercial 11,497 10,797 10,645 6 4 Industrial 20,332 19,748 20,306 3 1 Other 640 592 623 8 2 ---------------------------------------------------------- Retail sales 45,288 43,167 43,701 5 2 ---------------------------------------------------------- Wholesale--firm 23,189 13,946 12,418 66 25 Wholesale--nonfirm 6,476 2,430 3,207 * 29 ---------------------------------------------------------- Wholesale sales 29,665 16,376 15,625 81 26 ---------------------------------------------------------- Total 74,953 59,543 59,326 26 9 ---------------------------------------------------------- Number of Retail Customers (Thousands) Residential 1,194 1,176 1,155 2 2 Commercial 167 162 159 3 3 Industrial 20 20 19 -- 4 Other 4 3 4 33 10 ---------------------------------------------------------- Total 1,385 1,361 1,337 2 2 ---------------------------------------------------------- Residential Customers Average annual usage (kWh) 10,815 10,321 10,568 5 -- Average annual revenue per customer (Dollars) 663 619 631 7 2 Revenue per kWh (Cents) 6.1 6.0 6.0 2 2 Miles of Line Transmission 14,900 14,900 14,900 -- -- Distribution --Overhead 45,000 44,900 44,800 -- -- --Underground 9,600 9,100 8,800 5 32 System Peak Demand (Megawatts) Net system load(b) --summer 7,257 6,855 7,151 6 3 --winter 7,615 7,030 7,174 8 2 Total firm load --summer(c) 10,572 8,899 8,830 19 8 --winter 10,775 8,904 8,903 21 7 System Capability (Megawatts)(d) --summer 12,115 10,224 10,020 18 7 --winter 12,160 10,994 10,391 11 7
* Not a meaningful number. (a) Unaudited. (b) Excludes off-system sales. (c) Includes off-system wholesale sales. (d) Generating capability and firm purchases at time of firm peak. 56 AUSTRALIAN ELECTRIC OPERATIONS Millions of dollars, except as noted/For the year 1996 1995 - ------------------------------------------------------------------------------- Powercor Earnings Contribution(a) Revenues Residential $ 239.4 $ 10.5 Commercial 165.5 5.9 Industrial 179.3 6.4 Other 44.4 2.6 -------------------- Retail Sales 628.6 25.4 Other 30.2 .5 -------------------- Total 658.8 25.9 -------------------- Operating Expenses Purchased power 305.1 11.0 Other operations 62.3 2.5 Maintenance 50.0 .3 Administrative and general 40.7 3.4 Depreciation and amortization 71.6 3.1 Taxes other than income taxes 1.7 .1 -------------------- Total 531.4 20.4 -------------------- Income from Operations 127.4 5.5 Interest expense 75.2 3.8 Other expense .4 .5 Income tax expense 19.1 .5 -------------------- Powercor Earnings Contribution(b) $ 32.7 $ .7 -------------------- Hazelwood Earnings Contribution(a) $ (2.6) $ -- -------------------- Identifiable assets $ 2,065 $ 1,751 Capital spending $ 226 $ 1,591 Energy Sales (Millions of kWh)(c) Residential 2,608 112 Commercial 1,926 66 Industrial 3,282 152 Other 494 32 -------------------- Total 8,310 362 -------------------- (a) Results of operations are included since dates of acquisition, December 12, 1995 for Powercor and September 13, 1996 for Hazelwood. (b) Allocation of interest expense on incremental corporate debt incurred in the United States as part of the December 1995 acquisition would have reduced Powercor's earnings contribution by approximately $28 million after tax in 1996. (c) Unaudited. 57 TELECOMMUNICATIONS
3-Year 1996 to 1995 Compound Percentage Annual Millions of dollars, except as noted/For the year 1996 1995 1994 Comparison Growth - --------------------------------------------------------------------------------------------------------------------------- Revenues Local network service $ 140.9 $ 120.5 $ 96.9 17% 20% Network access service 259.1 223.7 168.5 16 12 Cellular 44.0 33.9 23.6 30 40 Other 77.1 68.9 64.0 12 1 Alascom -- 193.1 343.5 * * ------------------------------------------------------------------------- Total 521.1 640.1 696.5 (19) (9) ------------------------------------------------------------------------- Expenses Operations 81.5 78.2 66.7 4 9 Maintenance 91.2 86.0 74.4 6 8 Administrative and general 63.6 53.5 48.0 19 5 Depreciation and amortization 106.5 86.2 66.2 24 15 Taxes other than income taxes 19.6 14.7 13.7 33 15 Alascom -- 156.2 262.8 * * ------------------------------------------------------------------------- Total 362.4 474.8 531.8 (24) (13) ------------------------------------------------------------------------- Income from Operations 158.7 165.3 164.7 (4) 4 Interest expense 40.8 42.3 34.8 (4) (3) Other (income) expense--net (4.9) (63.6) 7.7 92 * Income tax expense 47.5 47.0 40.8 1 26 ------------------------------------------------------------------------- Net Income(a) 75.3 139.6 81.4 (46) (9) Minority interest and other .6 36.6 10.9 (98) (57) ------------------------------------------------------------------------- Earnings Contribution(a) $ 74.7 $ 103.0 $ 70.5 (27) 14 ------------------------------------------------------------------------- Identifiable assets $ 1,592 $ 1,599 $ 1,378 -- 4 Capital spending $ 127 $ 498 $ 153 (75) -- Telephone access lines (Thousands)(b) 559 530 418 5 12
* Not a meaningful number. (a) Does not reflect the elimination of interest on intercompany borrowing arrangements. (b) Unaudited. 58 OTHER OPERATIONS Other Operations includes the operations of PacifiCorp Financial Services, Inc. ("PFS"), Pacific Generation Company ("PGC") and several start-up-phase ventures, as well as the activities of Holdings, including financing costs.
3-Year 1996 to 1995 Compound Percentage Annual Millions of dollars/For the year 1996 1995 1994 Comparison Growth - -------------------------------------------------------------------------------------------------------------------------- Revenues $ 153.1 $ 134.8 $ 153.7 14% (8)% Income from operations 89.2 84.2 38.3 6 27 Depreciation and amortization 8.9 10.2 18.2 (13) (14) Earnings Contribution PFS 34.1 30.4 3.0 12 * PGC 7.8 5.6 8.5 39 6 Tax settlement -- 32.2 -- * * Holdings and other (13.1) 18.0 6.5 * * ----------------------------------------------------------------------- Total $ 28.8 $ 86.2 $ 18.0 (67)% 41% ----------------------------------------------------------------------- Identifiable Assets PFS $ 708 $ 697 $ 731 2% (14)% PGC 123 116 113 6 -- Holdings and other 283 253 252 12 4 ----------------------------------------------------------------------- Total $ 1,114 $ 1,066 $ 1,096 5 (9) ----------------------------------------------------------------------- Capital spending $ 56 $ 175 $ 13 (68)% 8% ----------------------------------------------------------------------
* Not a meaningful number. (a) Does not reflect elimination of interest on intercompany borrowing arrangements and includes income taxes on a separate-company basis. SUPPLEMENTAL INFORMATION QUARTERLY FINANCIAL DATA (UNAUDITED)
Millions of dollars, except per share amounts/Quarter ended March 31 June 30 September 30 December 31 - --------------------------------------------------------------------------------------------------------------------------- 1996 Revenues $ 1,002.6 $ 976.4 $ 1,134.5 $ 1,180.3 Income from operations 312.3 256.3 338.9 337.6 Net income 129.9 99.2 142.9 132.9 Earnings on common stock 120.9 90.2 136.6 127.4 Earnings per common share .42 .31 .46 .43 Common dividends paid and declared per share .27 .27 .27 .27 Common stock price per share (NYSE) High 22 22 1/2 22 3/8 22 Low 20 1/8 19 1/2 19 5/8 19 7/8 1995 Revenues $ 856.5 $ 811.4 $ 854.2 $ 894.8 Income from operations 266.2 219.9 287.2 282.6 Net income 114.8 93.5 169.0(a) 127.7 Earnings on common stock 104.7 83.3 158.9(a) 119.4 Earnings per common share .37 .29 .56(a) .42 Common dividends paid and declared per share .27 .27 .27 .27 Common stock price per share (NYSE) High 19 3/4 19 7/8 19 1/2 21 5/8 Low 18 18 1/2 17 1/2 18 3/4
(a) The third quarter results of operations for 1995 included a gain of $37 million or $.13 per share relating to the sale of Alascom. 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. On March 1, 1997, there were 127,412 common shareholders of record. 59 EX-21 12 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 State or of Voting Jurisdiction of Securities Incorporation or Name of Subsidiary Owned Organization - ------------------ ----------- ---------------- PACE GROUP, Inc. . . . . . . . . . . . . . . . . 100% Oregon PacifiCorp Energy, Inc.. . . . . . . . . . . . . 100% Oregon PacifiCorp Financial Services, 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 PacifiCorp Kentucky Energy Company . . . . . . . 100% Oregon PacifiCorp Power Marketing, Inc. . . . . . . . . 100% Oregon Pacific Telecom, Inc.. . . . . . . . . . . . . . 100% Washington PacifiCorp Trans, Inc. . . . . . . . . . . . . . 100% Oregon Pan Pacific Global Corporation . . . . . . . . . 100% Oregon PacifiCorp Australia LLC. . . . . . . . . . . . 80%* Oregon PacifiCorp Australia Pty. Ltd. . . . . . . . 100% Australia Powercor Australia Limited . . . . . . . . 100% Australia Hazelwood Australia, Inc. . . . . . . . . . . . 100%** Oregon
__________ *Remaining 20% owned by another wholly owned subsidiary of PacifiCorp Holdings, Inc. **Owns 19.9% interest in Hazelwood Power Partnership indirectly through two wholly owned subsidiaries. Pacific Telecom, Inc., a 100% owned subsidiary of PacifiCorp Holdings, Inc., and a Washington corporation, has the following subsidiaries:
Approximate Percentage State or of Voting Jurisdiction of Securities Incorporation or Name of Subsidiary Owned Organization - ------------------ ----------- ---------------- Cascade Autovon Company. . . . . . . . . . . . . 100% Washington Eagle Telecommunications, Inc./Colorado. . . . . 100% Colorado Eagle Valley Communications Corporation. . . . . 100% Colorado Gem State Utilities Corporation. . . . . . . . . 96% Idaho
S-3
Approximate Percentage State or of Voting Jurisdiction of Securities Incorporation or Name of Subsidiary Owned Organization - ------------------ ----------- ---------------- Inter Island Telephone Company, Inc. . . . . . . 100% Washington International Communications Holdings, Inc.. . . 100% Delaware MUI Corp.. . . . . . . . . . . . . . . . . . . . 100% Oregon Northland Telephone Company. . . . . . . . . . . 100% Minnesota North-West Telephone Company . . . . . . . . . . 100% Wisconsin Northwestern Telephone Systems, Inc. . . . . . . 99% Oregon Pacific Telecom Cable, Inc.. . . . . . . . . . . 80% Delaware Pacific Telecom Cellular, Inc. . . . . . . . . . 100% Delaware Pacific Telecom Cellular of Alaska, Inc.. . . . 100% Alaska Pacific Telecom Cellular of Michigan, Inc.. . . 100% Michigan 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 PTI Entertainment, Inc.. . . . . . . . . . . . . 100% Washington PTI Televideo, Inc.. . . . . . . . . . . . . . . 100% Wisconsin Postville Telephone Company. . . . . . . . . . . 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 WORLDVOX CORPORATION . . . . . . . . . . . . . . 100% Oregon
The Company also has the following subsidiaries:
Approximate Percentage State or of 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 13 EXHIBIT 23 EXHIBIT (23) INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-62095, 333-09115, 333-23027, and 333-03357, all on Form S-3; in Registration Statement Nos. 33-58461, 33-51277, 33-54169, 33-57043, and 333-10885, all on Form S-8; and in Registration Statement No. 33-36239 on Form S-4 of our report, dated January 31, 1997 (March 11, 1997 as to Note 15), incorporated by reference in your Annual Report on Form 10-K of PacifiCorp for the year ended December 31, 1996. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Portland, Oregon March 20, 1997 EX-24 14 EXHIBIT 24 EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Kathryn A. Braun, Nolan E. Karras, Alan K. Simpson, Don M. Wheeler, and Nancy Wilgenbusch, and each of them, his or her true and lawful attorneys and agents, with full power of substitution and resubstitution for him or her and in his or her 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, 1996 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 or she might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 12, 1997. /s/ W. Charles Armstrong ----------------------------- W. Charles Armstrong EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Kathryn A. Braun, Nolan E. Karras, Alan K. Simpson, Don M. Wheeler, and Nancy Wilgenbusch, and each of them, his or her true and lawful attorneys and agents, with full power of substitution and resubstitution for him or her and in his or her 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, 1996 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 or she might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 12, 1997. /s/ Kathryn R. Braun ----------------------------- Kathryn R. Braun EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Kathryn A. Braun, Nolan E. Karras, Alan K. Simpson, Don M. Wheeler, and Nancy Wilgenbusch, and each of them, his or her true and lawful attorneys and agents, with full power of substitution and resubstitution for him or her and in his or her 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, 1996 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 or she might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 12, 1997. /s/ Frederick W. Buckman ----------------------------- Frederick W. Buckman EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Kathryn A. Braun, Nolan E. Karras, Alan K. Simpson, Don M. Wheeler, and Nancy Wilgenbusch, and each of them, his or her true and lawful attorneys and agents, with full power of substitution and resubstitution for him or her and in his or her 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, 1996 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 or she might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 12, 1997. /s/ C. Todd Conover ----------------------------- C. Todd Conover EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Kathryn A. Braun, Nolan E. Karras, Alan K. Simpson, Don M. Wheeler, and Nancy Wilgenbusch, and each of them, his or her true and lawful attorneys and agents, with full power of substitution and resubstitution for him or her and in his or her 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, 1996 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 or she might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 12, 1997. /s/ Nolan E. Karras ----------------------------- Nolan E. Karras EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Kathryn A. Braun, Nolan E. Karras, Alan K. Simpson, Don M. Wheeler, and Nancy Wilgenbusch, and each of them, his or her true and lawful attorneys and agents, with full power of substitution and resubstitution for him or her and in his or her 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, 1996 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 or she might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 12, 1997. /s/ Robert G. Miller ----------------------------- Robert G. Miller EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Kathryn A. Braun, Nolan E. Karras, Alan K. Simpson, Don M. Wheeler, and Nancy Wilgenbusch, and each of them, his or her true and lawful attorneys and agents, with full power of substitution and resubstitution for him or her and in his or her 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, 1996 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 or she might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 27, 1997. /s/ Alan K. Simpson ----------------------------- Alan K. Simpson EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Kathryn A. Braun, Nolan E. Karras, Alan K. Simpson, Don M. Wheeler, and Nancy Wilgenbusch, and each of them, his or her true and lawful attorneys and agents, with full power of substitution and resubstitution for him or her and in his or her 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, 1996 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 or she might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 12, 1997. /s/ Verl R. Topham ----------------------------- Verl R. Topham EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Kathryn A. Braun, Nolan E. Karras, Alan K. Simpson, Don M. Wheeler, and Nancy Wilgenbusch, and each of them, his or her true and lawful attorneys and agents, with full power of substitution and resubstitution for him or her and in his or her 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, 1996 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 or she might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 12, 1997. /s/ Keith R. McKennon ----------------------------- Keith R. McKennon EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Kathryn A. Braun, Nolan E. Karras, Alan K. Simpson, Don M. Wheeler, and Nancy Wilgenbusch, and each of them, his or her true and lawful attorneys and agents, with full power of substitution and resubstitution for him or her and in his or her 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, 1996 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 or she might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 11, 1997. /s/ Don M. Wheeler ----------------------------- Don M. Wheeler EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Kathryn A. Braun, Nolan E. Karras, Alan K. Simpson, Don M. Wheeler, and Nancy Wilgenbusch, and each of them, his or her true and lawful attorneys and agents, with full power of substitution and resubstitution for him or her and in his or her 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, 1996 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 or she might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 20, 1997. /s/ Nancy Wilgenbusch ----------------------------- Nancy Wilgenbusch EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Kathryn A. Braun, Nolan E. Karras, Alan K. Simpson, Don M. Wheeler, and Nancy Wilgenbusch, and each of them, his or her true and lawful attorneys and agents, with full power of substitution and resubstitution for him or her and in his or her 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, 1996 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 or she might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 12, 1997. /s/ Peter I. Wold ----------------------------- Peter I. Wold EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Kathryn A. Braun, Nolan E. Karras, Alan K. Simpson, Don M. Wheeler, and Nancy Wilgenbusch, and each of them, his or her true and lawful attorneys and agents, with full power of substitution and resubstitution for him or her and in his or her 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, 1996 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 or she might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 12, 1997. /s/ Richard T. O' Brien ----------------------------- Richard T. O'Brien EX-27.(A) 15 EXHIBIT 27(A)
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PACIFICORPS FORM 10-K ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000075594 PACIFICORP 1,000 12-MOS DEC-31-1996 DEC-31-1996 PER-BOOK 8756500 2688500 1058500 256300 1874700 14634500 3249500 0 782800 4032300 178000 135500 5299100 107200 0 594300 234700 0 24700 900 4027800 14634500 4293800 283900 3048700 3332600 961200 9400 970600 465700 504900 29800 475100 315000 218000 1077300 1.62 1.62
EX-27.(B) 16 EXHIBIT 27(B)
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PACIFICORP'S FORM 10-Q DATED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000075594 PACIFICORP 1,000 9-MOS DEC-31-1996 SEP-30-1996 PER-BOOK 8704200 2674500 1007400 340900 1920500 14647500 3223400 0 735200 3958600 178000 135500 5171500 176900 0 637600 212100 0 24900 1300 4151100 14647500 3113500 208800 2206000 2414800 698700 18300 717000 345000 372000 24300 347700 235500 218100 848800 1.19 1.19
EX-27.(C) 17 EXHIBIT 27(C)
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PACIFICORP'S FORM 10-Q DATED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000075594 PACIFICORP 1,000 6-MOS DEC-31-1996 JUN-30-1996 PER-BOOK 8513800 2479800 1006800 298900 1921500 14220800 3207000 0 685000 3892000 311500 219000 5052000 103900 0 375800 272400 0 25300 700 3968200 14220800 1979000 125400 1410400 1535800 443200 13400 456600 227500 229100 18000 211100 156000 216700 564300 .73 .73
EX-27.(D) 18 EXHIBIT 27(D)
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PACIFICORP'S MARCH 31, 1996 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000075594 PACIFICORP 1,000 3-MOS DEC-31-1996 MAR-31-1996 PER-BOOK 8485300 2480500 913700 304100 1911000 14094600 3186600 0 674200 3860800 311500 219000 4845600 181900 0 632200 234400 0 25400 1400 3782400 14094600 1002600 74900 690300 765200 237400 10100 247500 117600 129900 9000 120900 76700 214800 366300 .42 .42
EX-27.(E) 19 EXHIBIT 27(E)
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PACIFICORP'S DECEMBER 31, 1995 ANNUAL REPORT FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000075594 PACIFICORP 1,000 12-MOS DEC-31-1995 DEC-31-1995 PER-BOOK 8491100 2392300 912200 308300 1911300 14015200 3000700 0 632400 3633100 311500 219000 4892400 367000 0 704100 204600 0 25800 1500 3656200 14015200 3416900 238800 2361100 2599900 817000 66700 883700 378700 505000 38700 466300 307100 212800 912000 1.64 1.64
EX-27.(F) 20 EXHIBIT 27(F)
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PACIFICORP'S SEPTEMBER 30, 1995 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000075594 PACIFICORP 1,000 9-MOS DEC-31-1995 SEP-30-1995 PER-BOOK 8377300 716300 734000 214700 1912700 11955000 2995700 0 591100 3586800 367400 219000 3680300 91900 0 349200 239600 0 26900 1700 3392200 11955000 2522100 175100 1748800 1923900 598200 61300 659500 282200 377300 30400 346900 230300 213100 704100 1.22 1.22
EX-27.(G) 21 EXHIBIT 27(G)
UT This schedule contains summary financial information extracted from PacifiCorp's Form 10-Q dated June 30, 1995 and is qualified in its entirety by reference to such financial statements. 0000075594 PACIFICORP 1,000 6-MOS DEC-31-1995 JUN-30-1995 PER-BOOK 8464300 670500 814100 205100 1922000 12076000 2991700 0 509100 3500800 367400 219000 3827700 214300 0 343100 140600 0 27300 1700 3434100 12076000 1667900 93000 1181800 1274800 393100 14200 407300 199000 208300 20300 188000 152300 213500 429000 .66 .66
EX-27.(H) 22 EXHIBIT 27(H)
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PACIFICORP'S FORM 10Q FOR THE PERIOD ENDING MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000075594 PACIFICORP 1,000 3-MOS DEC-31-1995 MAR-31-1995 PER-BOOK 8425000 668300 809300 188800 1932700 12024100 2988700 0 502200 3490900 367400 219000 3675700 178700 0 467200 84000 0 27500 1700 3512000 12024100 856500 67400 590400 657800 198700 (600) 198100 83300 114800 10100 104700 75600 213300 319800 .37 .37
EX-27.(I) 23 EXHIBIT 27(I)
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 3498000 249800 2475700 2725500 772500 30000 802500 334500 468000 39700 428300 305200 214000 962100 1.51 1.51
EX-99 24 EX 99 EXHIBIT (99) Pacific Telecom, Inc. Item 1. Business and Item 2. Properties 1996 Annual Report on Form 10-K DEFINITIONS When the following terms are used in the text, they will have the meanings indicated: TERM MEANING Alaska Spur A portion of the North Pacific Cable that links Alaska and the lower 48 states AT&T AT&T Corp. Alascom Alascom, Inc., a wholly-owned subsidiary of PTI until its sale to AT&T in August 1995 Company PTI and its subsidiaries FCC Federal Communications Commission FMUS Fairbanks Municipal Utility System GTE GTE North Incorporated Holdings PacifiCorp Holdings, Inc., a wholly-owned subsidiary of PacifiCorp LEC Local exchange company MSA Metropolitan statistical area NPC North Pacific Cable, a submarine fiber optic cable between the U.S. and Japan PCS Personal communication services PTC Pacific Telecom Cable, Inc., an 80 percent owned subsidiary of PTI PT Cellular Pacific Telecom Cellular, Inc., a wholly-owned subsidiary of PTI PT Transmission Pacific Telecom Transmission Services, Inc., a wholly-owned subsidiary of PTI PTI Pacific Telecom, Inc., a Washington corporation RSA Rural service area U.S. United States of America USF Universal Service Fund USWC US WEST Communications, Inc. -3- 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 investments in cellular telephone operations, international communications, including the construction of a trans-Pacific fiber optic cable and, until August 1995, the provision of long distance services in the State of Alaska through Alascom. 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 has been implemented through the acquisition of LECs, the sale of certain international operations, the consolidation and sale of cellular holdings, and the sale of Alascom to AT&T. The Company is a wholly-owned subsidiary of Holdings, which is a wholly-owned subsidiary of PacifiCorp. On September 27, 1995, holders of a majority of the approximately 5.3 million shares of outstanding common stock held by minority shareholders voted in favor of the merger of a wholly-owned subsidiary of Holdings into the Company. As a result of the merger, the Company has a liability at December 31, 1996 of $29.5 million to be paid to dissenters in the merger based on $30.00 per share fair value for their shares, including interest on the liability accrued at a rate equal to 5.97 percent per annum. The Company also has a receivable from Holdings in the amount of the accrued liability to dissenters. PTI had been a majority-owned subsidiary of PacifiCorp since 1973. TELECOMMUNICATIONS OPERATIONS LOCAL EXCHANGE COMPANIES The Company's LECs operate under a common business and brand name, PTI Communications. This marketing concept creates a unified identity for the local operations, improves communication with customers and assists 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. The LECs also provide directory advertising and, through contracts with interexchange carriers, billing and collection services. At December 31, 1996, the Company operated 13 LECs within eleven states comprised of 559,500 access lines in 344 exchanges. The average number of access lines per exchange is approximately 1,626, reflecting the lower population density generally found in the Company's service areas. The Company's largest exchange in terms of access lines is in Kalispell, Montana, which had 26,594 access lines at December 31, 1996. 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.") The Company provides centralized administrative and support services to field operations from its corporate offices in Vancouver, Washington. The LECs experienced strong internal access line growth in certain service areas, as evidenced by a 5.5 percent increase in access lines served during 1996. As a result of acquisitions in Colorado, Washington and Oregon, the Company added 90,000 access lines in 1995, an increase of 22 percent. The Company has definitive agreements with USWC and GTE to purchase local exchange telephone properties in Minnesota and Michigan, respectively. The Minnesota properties represent 32 exchanges serving 27,100 access lines and the Michigan properties represent eight exchanges serving 11,300 access lines. The Company has a definitive agreement with the City of Fairbanks to acquire its telephone and cellular operations, FMUS, that have approximately 32,000 access lines and 6,800 cellular customers. These acquisitions are subject to regulatory approval and are expected to close in 1997. The Company has letters of intent to acquire operations representing eight exchanges serving approximately 4,300 access lines. These acquisitions are subject to completion of due diligence investigations, negotiations of definitive purchase agreements and regulatory approval. -4- CELLULAR OPERATIONS The Company's wholly-owned subsidiary, PT Cellular, is a holding company with subsidiaries in Alaska, Michigan, Oregon, South Dakota, Washington and Wisconsin. The Company has ownership interests with respect to 24 MSAs and RSAs and manages 10 of these interests in Alaska, Michigan and Wisconsin. The Company also manages one other RSA in Wisconsin in which it has no ownership interest. Revenues from cellular operations represented approximately eight percent of total Company revenues in 1996. The Company may increase its ownership interests in certain cellular properties in order to achieve ownership control or to consolidate the Company's cellular service areas into larger contiguous units for operating and network efficiencies. This plan may be accomplished through the exchange of existing cellular interests and/or future acquisitions. Due to the purchase of cellular properties with the pending FMUS acquisition, the Company would own a portion of both the wireline and non wireline channel blocks in Alaska RSA #1. The FCC rules generally prohibit direct or indirect ownership interest in licensees for both blocks in the same cellular geographic service areas. Therefore, the Company will be required to sell one of the channel blocks located in Alaska RSA #1. On January 14, 1997, the FCC completed its auction of 1,479 licenses to provide broadband PCS on the D, E and F blocks in the two GHz frequency band. Each license authorizes service on 10 MHz of spectrum in one of 493 Basic Trading Areas, with three licenses awarded in each area. The Company, through its wholly-owned subsidiary MVI, Corp., was high bidder on eleven licenses in Wisconsin, eight licenses in Michigan, three licenses each in Minnesota and Alaska and one license each in Montana, Iowa and Colorado. The Company's average bid per POP for these licenses was $2.17. These licenses overlap the Company's existing cellular and local exchange properties. The Company continues to evaluate the potential services to be offered within each license area, but anticipates initial deployment of services in some areas to commence in late 1997. The FCC requires that an adequate signal be provided to at least one-quarter of the population of the licensed area within five years of the license grant. Funds to be used to purchase the PCS licences will be provided from the sale of cellular interests in two properties in Wisconsin. 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 NPC. 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 NPC 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 and only 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. (See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for information about cable outages during 1995.) At December 31, 1996, approximately 59 percent of the cable's 17,010 circuit capacity had been sold. PT Transmission provides restoration services for the eastern end of the NPC 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. -5- REGULATION The Company's LECs operate in an industry that is subject to extensive regulation by the FCC and state regulatory agencies. Virtually all services 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, judicial and Congressional proceedings regarding the deregulation of certain aspects of the industry. The FCC and certain state regulatory agencies are also pursuing alternative forms of regulation that depart from traditional rate of return regulation for telecommunications companies such as the Company. These alternatives include opening local exchange franchises to encourage greater competition. In 1993, the Wisconsin legislature enacted a new model to manage the transition to a competitive telecommunications marketplace. Telecommunication utilities are permitted to file alternatives to traditional rate-of-return regulation, and the Company's Wisconsin LEC operations received approval of an alternative regulation plan effective July 1, 1996. The plan covers a five-year period and includes a provision that allows the Company to adjust rates within specified parameters if certain quality-of-service and infrastructure-development commitments are met. The alternative regulation plan also included proposed open market initiatives designed to facilitate the introduction of local exchange competition in the Company's Wisconsin service territory. On February 8, 1996, President Clinton signed into law the Telecommunications Act of 1996 (the 1996 Act). The 1996 Act addresses a substantial number of telecommunications matters, with a general goal of promoting the development of competitive service provisioning in all telecommunications markets over time, including local exchange services. Among the many issues comprehended by the 1996 Act are those affecting removal of barriers to entry for various geographic and service markets, universal service standards and mechanisms, eligibility for and access to universal service support funding, interconnection and unbundling of telecommunications networks (including exemption, suspensions, and modifications of requirements pertaining thereto for certain classes of carriers), large carrier (Bell Operating Companies) entry into interstate interexchange communications markets, and infrastructure sharing. The 1996 Act, which applies generally to the Company, also contains provisions with specific import for the Company's operations. Definitional provisons classify the Company as a "rural telephone company" for certain purposes of the Act. Various of the interconnection and unbundling requirements applicable generally to incumbent local exchange carriers are subject to exemption provisions available to rural telephone companies, which the Company is under the above definition, or to waiver provisions for local exchange companies with less than two percent of the total nationwide access lines, which qualification the Company also meets. The 1996 Act authorizes the establishment of USF to provide support for eligible telecommunications carriers, for which designation the Company believes it will qualify in the future. Management believes these and other provisions will prove consistent with the Company's current and planned operations. The Company recognized USF revenues of $55.1 million in 1996 and anticipates recognition of approximately $56.0 million in 1997. With respect to a number of matters, the 1996 Act permits or requires further proceedings by the FCC, or state regulatory commissions, or both. Following the effective date of the 1996 Act, the FCC initiated more than one hundred separate dockets to address various aspects of the 1996 Act's implementation. Also, a Federal-State Joint Board was convened to examine and to make recommendations concerning issues pertaining to future universal service definitions and the establishment of mechanisms for support funding. Independently, a number of state regulatory commissions overseeing the Company's local exchange operations within the states commenced proceedings relating to both the 1996 Act and specific state statutory initiatives and requirements. The Company has participated actively in all major proceedings which are likely to have an impact upon its future operations and financial performance. Additionally, the Company has helped to organize or has participated, or both, in industry organizations in an effort to communicate its views effectively on these various issues. The Company believes that the 1996 Act, and the regulatory proceedings deriving therefrom, continue to prove consistent with the long-term strategic plan of the Company. Based in part upon the rural nature of the Company's operations and the recognition currently being accorded to rural serving requirements in the 1996 Act and derivative regulatory proceedings, the Company does not believe that the Act and its associated regulatory interpretations will have a material advese impact on the Company's financial results of operations. 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. -6- EMPLOYEES At December 31, 1996, the Company had 2,187 employees, approximately 32 percent of whom were members of five 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. Relations with represented and non-represented employees continue to be generally good. 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. Approximately 39 percent of plant assets 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.) 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 NPC 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 63 percent of the 225,000 square-foot building. The Company owns two mainframe computers and leases most of the other equipment used in conjunction with providing data processing services. -7- -----END PRIVACY-ENHANCED MESSAGE-----