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The interim financial statements have been prepared by PGE and, in the opinion of management, reflect all material adjustments which are necessary for a fair statement of results for the interim periods presented. Such statements, which are unaudited, are presented in accordance with the SEC's interim reporting requirements, which do not include all the disclosures required by accounting principles generally accepted in the United States of America for annual financial statements. Certain information and footnote disclosures made in the last annual report on Form 10-K have been condensed or omitted for the interim statements. Certain costs are estimated for the full year and allocated to interim periods based on estimates of operating time expired, benefit received, or activity associated with the interim period; accordingly, such costs are subject to year-end adjustment. It is management's opinion that, when the interim statements are read in conjunction with the 2003 Annual Re port on Form 10-K and the other reports filed with the SEC since its 2003 Form 10-K was filed, the disclosures are adequate to make the information presented not misleading.

PGE sponsors a non-contributory defined benefit pension plan in which Portland General Holdings, Inc. (PGH) and its subsidiaries have participated. Substantially all pension plan members are current or former PGE employees. The pension plan assets are held in a trust.

The Non-Qualified Benefit Plans in the accompanying table primarily represent obligations for a Supplemental Executive Retirement Plan. Investments in a non-qualified benefit plan trust (i.e. rabbi trust), consisting of trust owned life insurance policies and, beginning in 2003, marketable securities, are intended to be the primary source for financing these plans.

PGE further participates in non-contributory post-retirement health and life insurance plans ("Other Benefits" in the table). Employees are covered under a Defined Dollar Medical Benefit Plan which limits PGE's obligation by establishing a maximum contribution per employee. Contributions made to a voluntary employees' beneficiary association trust are used to fund these plans. Costs of these plans, based upon an actuarial study, are included in rates charged to customers.

The measurement date for these plans is December 31. PGE has not made contributions to the plans during 2004.

The following tables indicate components of net periodic benefit cost for the periods indicated (in millions):

PGE utilizes derivative instruments, including electricity forward, swap, and option contracts, natural gas forward, swap, option, and futures contracts, and crude oil futures contracts in its retail (non-trading) electric utility activities to manage its exposure to commodity price risk and endeavor to minimize net power costs for its retail customers, and in its trading activities to participate in electricity, natural gas, and crude oil markets. Under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (as amended), derivative instruments are recorded on the Balance Sheet as an asset or liability measured at estimated fair value, with changes in fair value recognized currently in earnings, unless specific hedge accounting criteria are met.

For retail (non-trading) activities, changes in fair value of derivative instruments prior to settlement are recorded on a net basis in Purchased Power and Fuel expense. As these derivative instruments are settled, physical electricity activities are recorded on a gross basis, with sales recorded in Operating Revenues and purchases, natural gas swaps and futures recorded in Purchased Power and Fuel expense. In accordance with Emerging Issues Task Force Issue No. 03-11 (EITF 03-11), Reporting Gains and Losses on Derivative Instruments That are Subject to FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and Not Held for Trading Purposes, on October 1, 2003, PGE began recording, on a prospective basis, the non-physical settlements (i.e. book outs) of non-trading electricity derivative activities on a net basis in Purchased Power and Fuel expense. Prior period amounts for non-physical settlements that were recorded on a gross basis in both Operating Re venues and Purchased Power and Fuel expense have not been reclassified.

Special accounting for qualifying hedges allows gains and losses on a derivative instrument to be recorded in Other Comprehensive Income (OCI) until they can offset the related results on the hedged item in the income statement. As discussed below, the effects of changes in fair value of certain derivative instruments entered into to hedge the company's future non-trading retail resource requirements are subject to regulation and therefore are deferred pursuant to SFAS No. 71, Accounting for the Effects of Certain Types of Regulation.

For energy trading activities, PGE reports all unrealized and realized gains and losses on a net basis, in accordance with EITF 02-3, Accounting for Contracts Involved in Energy Trading and Risk Management Activities, with such activities recorded as a component of Operating Revenues.

As PGE's primary business is to serve its retail customers, it uses derivative instruments, including electricity forward and option, and natural gas forward, swap, option and futures contracts to manage its exposure to commodity price risk and endeavor to minimize net power costs for customers. Most of the Company's non-trading wholesale sales have been to utilities and power marketers and have been predominantly short-term. PGE participates in the wholesale marketplace in order to balance its supply of power to meet the needs of its retail customers, manage risk, and administer its current long-term wholesale contracts. Such participation includes power purchases and sales resulting from daily economic dispatch decisions for its own generation, which allows PGE to secure reasonably priced power for its customers. In this process, PGE may net purchases and sales with the same counterparty rather than simultaneously receiving and delivering physical power. These net transactions ar e also referred to as "book outs." Only the net amount of those purchases or sales required to fulfill retail and wholesale obligations are physically settled.

SFAS No. 133 requires unrealized gains and losses on derivative instruments that do not qualify for either the normal purchase and normal sale exception or hedge accounting to be recorded in earnings in the current period. Rates approved by the OPUC for 2004 were based on a valuation of all the Company's energy resources, including derivative instruments existing on October 30, 2003 that would settle during the 12-month period from January 1, 2004 to December 31, 2004. Such valuation was based on forward price curves in effect on November 11, 2003 for electricity and natural gas. The timing difference between the recognition of gains and losses on certain derivative instruments and their realization and subsequent collection in rates is recorded as a regulatory asset or regulatory liability to reflect the effects of regulation under SFAS No. 71. As these contracts are settled, the regulatory asset or regulatory liability is reversed. However, as there is currently no power cost adjustment mechanism in effect for 2004, unrealized gains and losses on new derivatives that will settle in 2004 are not included in rates, and changes in fair value of derivatives used to set rates, are not deferred as regulatory assets or regulatory liabilities.

In the first nine months of 2004, PGE recorded $23 million in net unrealized gains in earnings in its retail portfolio, including $3 million in net unrealized gains in the third quarter. The net unrealized gain in the first nine months of 2004 was more than offset by recording a $27 million SFAS No. 71 regulatory liability, calculated on the basis indicated above. In the first nine months of 2003, PGE recorded $14 million in net unrealized gains in earnings in its retail portfolio, including $9 million in net unrealized losses in the third quarter. The net unrealized gain in the first nine months of 2003 was partially offset by recording a $9 million SFAS No. 71 regulatory liability.

Derivative activities recorded in OCI for the three- and nine-month periods ended September 30, 2004 from cash flow hedges consist of unrealized gains of $6 million and $25 million, respectively, from new contracts and changes in fair value, partially offset by $4 million and $10 million, respectively, in net gains reclassified in earnings for contracts that settled during the three- and nine-month periods. SFAS No. 71 regulatory liabilities of $8 million and $15 million, respectively, were recorded during the three- and nine-month periods ended September 30, 2004.

Derivative activities recorded in OCI for the three- and nine-month periods ended September 30, 2003 from cash flow hedges consisted of unrealized losses of $4 million and unrealized gains of $6 million, respectively, from new contracts and changes in fair value. Also recorded in OCI for the three- and nine-month periods ended September 30, 2003 were $1 million and $4 million, respectively, in net gains reclassified in earnings for contracts that settled during the period. For the nine-month period of 2003, $6 million in net gains were reclassified for the discontinuance of cash flow hedges due to the probability that the original forecasted transaction will not occur. A $5 million SFAS No. 71 regulatory asset was recorded for the three-month period ended September 30, 2003.

Hedge ineffectiveness from cash flow hedges was not material in the first nine months of 2004 and 2003. As of September 30, 2004, the maximum length of time over which PGE is hedging its exposure is approximately 27 months. The Company estimates that of the $19 million of net unrealized gains included in accumulated OCI at September 30, 2004, $13 million will be reclassified into earnings within the next twelve months.

PGE utilizes electricity forward, swap, and option contracts, natural gas forward, swap, option, and futures contracts, and crude oil futures contracts to participate in electricity, natural gas, and crude oil markets. Such activities are not reflected in PGE's retail prices. As indicated above, all unrealized and realized gains and losses associated with "energy trading activities" are reported on a net basis for all periods presented.

The following tables indicate unrealized and realized gains and losses on electricity and fuel trading activities and transaction volumes for electricity trading contracts that settled in the three- and nine-month periods ended September 30, 2004 and 2003:

Trojan Investment Recovery - In 1993, following the closure of Trojan, PGE sought full recovery of and a rate of return on its Trojan plant costs, including decommissioning, in a general rate case filing with the OPUC. The filing was a result of PGE's decision earlier in the year to cease commercial operation of Trojan as a part of its least cost planning process. In 1995, the OPUC issued a general rate order (1995 Order) which granted the Company recovery of, and a rate of return on, 87% of its remaining investment in Trojan plant costs, and full recovery of its estimated decommissioning costs through 2011.

Numerous challenges, appeals and requested reviews were subsequently filed in the Marion County, Oregon Circuit Court, the Oregon Court of Appeals, and the Oregon Supreme Court on the issue of the OPUC's authority under Oregon law to grant recovery of and a return on the Trojan investment. The primary plaintiffs in the litigation were the CUB and the URP. The Court of Appeals issued an opinion in 1998, stating that the OPUC does not have the authority to allow PGE to recover a return on the Trojan investment, but upholding the OPUC's authorization of PGE's recovery of the Trojan investment and ordering remand of the case to the OPUC. PGE and the OPUC requested the Oregon Supreme Court to conduct a review of the Court of Appeals decision on the return on investment issue. In addition, URP requested the Oregon Supreme Court to review the Court of Appeals decision on the return of investment issue. PGE requested the Oregon Supreme Court to suspend its review of the 1998 Court of Appeals opini on pending resolution of URP's complaint with the OPUC challenging the accounting and ratemaking elements of the settlement agreements approved by the OPUC in September 2000 (discussed below). On November 19, 2002, the Oregon Supreme Court dismissed PGE's and URP's petitions for review of the 1998 Oregon Court of Appeals decision. As a result, the 1998 Oregon Court of Appeals opinion stands and the case has been remanded to the OPUC.

While the petitions for review of the 1998 Court of Appeals decision were pending at the Oregon Supreme Court, in 2000, PGE, CUB, and the staff of the OPUC entered into agreements to settle the litigation related to PGE's recovery of, and return on, its investment in the Trojan plant. URP did not participate in the settlement. The settlement, which was approved by the OPUC in September 2000, allowed PGE to remove from its balance sheet the remaining before-tax investment in Trojan of approximately $180 million at September 30, 2000, along with several largely offsetting regulatory liabilities. The largest of such amounts consisted of before-tax credits of approximately $79 million in customer benefits related to the previous settlement of power contracts with two other utilities and the approximately $80 million remaining credit due customers under terms of PGC's 1997 merger with Enron. The settlement also allows PGE recovery of approximately $47 million in income tax benefits related to the Trojan investment which had been flowed through to customers in prior years; such amount is being recovered from PGE customers, with no return on the unamortized balance, over an approximate five-year period, beginning in October 2000. After offsetting the investment in Trojan with these credits and prior tax benefits, the remaining Trojan regulatory asset balance of approximately $5 million (after tax) was expensed. As a result of the settlement, PGE's investment in Trojan is no longer included in rates charged to customers, either through a return of or a return on that investment. Authorized collection of decommissioning costs of Trojan is unaffected by the settlement agreements or the OPUC orders.

The URP filed a complaint challenging the settlement agreements and the OPUC's September 2000 order. In March 2002, after a full contested case hearing, the OPUC issued an order (2002 Order) denying all of URP's challenges, and approving the accounting and ratemaking elements of the 2000 settlement. URP appealed the 2002 Order to the Marion County, Oregon Circuit Court. On November 7, 2003, the Marion County Circuit Court issued an opinion remanding the case to the OPUC for action to reduce rates or order refunds. The opinion does not specify the amount or timeframe of any reductions or refunds. PGE and the OPUC have filed appeals to the Oregon Court of Appeals.

In a separate legal proceeding, two class action suits were filed in Marion County Circuit Court against PGE on January 17, 2003 on behalf of two classes of electric service customers. One case seeks to represent current PGE customers that were customers during the period from April 1, 1995 to October 1, 2001 (Current Class) and the other case seeks to represent PGE customers that were customers during the period from April 1, 1995 to October 1, 2001, but who are no longer customers (Former Class). The suits seek damages of $190 million for the Current Class and $70 million for the Former Class, as a result of the inclusion of a return on investment of Trojan in the rates PGE charges its customers. On April 28, 2004, the plaintiffs filed a Motion for Partial Summary Judgment and on July 30, 2004, PGE also moved for Summary Judgment in its favor on all of Plaintiff's claims. Hearings on both the motion for Summary Judgment and class certification are pending.

On March 3, 2004, the OPUC re-opened three dockets in which it had addressed the issue of a return on PGE's investment in Trojan, including the 1995 Order and 2002 Order related to the settlement of 2000, and issued a notice of a consolidated procedural conference before an administrative law judge to determine what proceedings are necessary to comply with the court orders remanding this matter to the OPUC.

On August 31, 2004, the administrative law judge issued an Order defining the scope of the proceedings necessary to comply with the Marion County Circuit Court orders remanding this matter to the OPUC. On October 18, 2004, the OPUC affirmed the August 31, 2004 Order.

Management cannot predict the ultimate outcome of the above matters. However, it believes these matters will not have a material adverse impact on the financial condition of the Company, but may have a material impact on the results of operations for a future reporting period.

Union Grievances - In November 2001, grievances were filed by several members of the International Brotherhood of Electrical Workers (IBEW) Local 125, the bargaining unit representing PGE's union workers, alleging that losses in their pension/savings plan were caused by Enron's manipulation of its stock. The grievances, which do not specify an amount of claim, seek binding arbitration. PGE filed for relief in Multnomah County, Oregon Circuit Court seeking a ruling that the grievances are not subject to arbitration. On August 14, 2003, the Court granted PGE's motion for summary judgment, finding that the grievances are not subject to arbitration. A final judgment was entered on October 6, 2003. On October 22, 2003, the IBEW appealed the decision. Management cannot predict the ultimate outcome of this matter or estimate any potential loss.

Harborton - A 1997 investigation by the Environmental Protection Agency (EPA) of a 5.5 mile segment of the Willamette River known as the Portland Harbor revealed significant contamination of sediments within the harbor. Based upon analytical results of the investigation, the EPA included the Portland Harbor on the federal National Priority List pursuant to the federal Comprehensive Environmental Response, Compensation, and Liability Act (Superfund). In December 2000, PGE received a "Notice of Potential Liability" regarding its Harborton Substation facility and was included, along with sixty-eight other companies, on a list of Potentially Responsible Parties with respect to the Portland Harbor Superfund Site.

Also in 2000, PGE agreed with the Oregon Department of Environmental Quality (DEQ) to perform a voluntary remedial investigation of its Harborton Substation site to confirm whether any hazardous substances had been released from the substation property into the Portland Harbor sediments. In February 2002, PGE submitted its final investigative report to the DEQ, indicating that the voluntary investigation demonstrated that there is no likely present or past source or pathway for release of hazardous substances to surface water or sediments in the Portland Harbor Superfund Site at or from the Harborton Substation site. Further, the voluntary investigation demonstrated that the site does not present a high priority threat to present and future public health, safety, welfare, or the environment. DEQ submitted the final investigative report to EPA and in a May 18, 2004 letter EPA stated "Based on the summary information provided by DEQ and the limited data EPA has at this stage in its process, EPA agrees at this time, that this site does not appear to be a current source of contamination to the river." Management believes that the Company's contribution to the sediment contamination, if any, from the Harborton Substation site would qualify it as a de minimis Potentially Responsible Party.

The EPA is coordinating activities of natural resource agencies and the DEQ and in early 2002 requested and received signed "administrative orders of consent" from several Potentially Responsible Parties, voluntarily committing themselves to further remedial investigations; PGE was not requested to sign, nor has it signed, such an order.

Sufficient information is currently not available to determine either the total cost of investigation and remediation of the Portland Harbor or the liability of Potentially Responsible Parties, including PGE. Management cannot predict the ultimate outcome of this matter. However, it believes this matter will not have a material adverse impact on its financial statements.

Other - In October 2003, PGE agreed with the DEQ to provide cost recovery for oversight of a voluntary investigation and/or potential cleanup of petroleum products at another Company site that is upland from the Portland Harbor Superfund Site. Management cannot predict the ultimate outcome of this matter. However, PGE believes this matter will not have a material adverse impact on its financial statements.

The tables below detail the Company's related party balances and transactions (in millions):

Merger Receivable - In 1997, Enron acquired PGE through a merger between Enron and PGC, the former parent corporation of PGE. Under terms of the 1997 merger agreement, Enron and PGE agreed to provide $105 million of benefits to PGE's customers through price reductions payable over an eight-year period. Although the remaining liability to customers was reduced to zero under terms of a 2000 settlement agreement related to PGE's recovery of its investment in Trojan, Enron remained obligated to PGE for the approximate $80 million remaining balance and continued to make monthly payments, as provided under the merger agreement.

Enron suspended its monthly payments to PGE in September 2001, pursuant to its Stock Purchase Agreement with NW Natural, under which NW Natural was to have assumed Enron's merger payment obligation upon its purchase of PGE. The Stock Purchase Agreement was terminated in May 2002. PGE accrued interest on the Merger Receivable and recorded an offsetting reserve from the December 2001 Enron bankruptcy filing until December 2003. Both the interest and the related reserve accrued in Enron's post-petition bankruptcy period were reversed in December 2003 to reflect PGE's proofs of claim filing. At September 30, 2004, Enron owed PGE approximately $73 million, including interest accrued prior to Enron's bankruptcy filing. The realization of the Merger Receivable from Enron is uncertain at this time due to Enron's bankruptcy. Based on this uncertainty, PGE established a reserve for the full amount of this receivable in December 2001. On October 15, 2002, PGE submitted proofs of claim to th e Bankruptcy Court for amounts owed PGE by Enron and other bankrupt Enron subsidiaries, including approximately $73 million (including accrued interest) for the Merger Receivable balance as of December 2, 2001, the date of Enron's bankruptcy filing. For further information, see Note 7, Enron Bankruptcy.

Income Taxes Receivable and Payable - As a member of Enron's consolidated income tax return, PGE made income tax payments to Enron for PGE's income tax liabilities. PGE and its subsidiaries ceased to be a member of Enron's consolidated tax group on May 7, 2001. On December 24, 2002, PGE and its subsidiaries again became a member of Enron's consolidated tax group. The $18 million income taxes payable to Enron at September 30, 2004 represents a net current income taxes payable of $11 million for the third quarter of 2004 and $7 million for income taxes owed up to May 7, 2001 (pre-petition liability included as an offset in PGE's proofs of claim filing). During the first nine months of 2004, PGE paid $66 million to Enron for income taxes payable, of which $21 million was for the period from December 24, 2002 to December 31, 2003, primarily for the third and fourth quarters of 2003. Income tax payments for those periods were withheld u ntil PGE's December 24, 2002 reconsolidation with Enron was agreed to by the IRS on February 2, 2004. The remaining $45 million tax payment to Enron was for the first half of 2004. For further information, see Note 7, Enron Bankruptcy.

Intercompany Receivables and Payable - As part of its continuing operations, PGE bills affiliates for various services provided by the Company. These include those provided by PGE employees, as well as other corporate services. In addition, Enron passes through PGE's share of costs related to employee benefits and certain insurance coverage. Transactions with affiliates are subject either to approval of, or confirmation filing requirements with, the OPUC and, as long as PGE is a subsidiary of a registered holding company under PUHCA, the SEC. Under OPUC regulations, services provided to affiliates by PGE are charged at the higher of cost or market, while affiliated services received by PGE are charged at the lower of cost or market. Under SEC regulations, both services provided to, and received from, affiliates are charged at cost. Services will be provided at cost unless there is a conflict between OPUC and SEC regulations, in which case PGE and Enron have agreed not to provide the services until the matter can be resolved.

Enron - Beginning in 2004, Enron no longer bills PGE for corporate overhead costs. In the first nine months of 2004, Enron passed through to PGE approximately $17 million for medical/dental benefits and retirement savings plan matching and $2 million for insurance coverage. For the same period in 2003, Enron passed through to PGE approximately $15 million for medical/dental benefits and retirement savings plan matching and insurance coverage and billed $10 million for corporate overhead costs.

Intercompany payables to Enron were paid by PGE until Enron filed for bankruptcy in early December 2001, except for payments for employee benefit plans. In reaching an agreement with Enron regarding the allocation of corporate overheads in the post-bankruptcy period, PGE resumed payments for corporate overhead costs from March 2003 through December 2003. During the first nine months of 2004, PGE paid $19 million to Enron, consisting of $17 million for employee benefits and $2 million for insurance premiums. At September 30, 2004, PGE had a $6 million payable to Enron, consisting of $2 million for employee benefit costs and $4 million for pre-petition period corporate overheads and restricted stock costs (included as an offset in PGE's proofs of claim).

At September 30, 2004, Enron owed PGE $1 million related to taxes on employee benefits (pre-petition), which has been fully reserved and is included in PGE's proofs of claim filing.

Other Enron Subsidiaries in Bankruptcy - PGE purchased electricity from, and sold electricity to, Enron Power Marketing, Inc. (EPMI) during 2001. PGE also provided transmission services to EPMI under a transmission contract that was guaranteed by Enron. PGE has not purchased electricity from, or sold electricity to, EPMI since December 2001, and EPMI has not paid for transmission services since September 2002.

At December 31, 2003, PGE was owed a net $2 million by EPMI for power sales and transmission services, which remained outstanding at September 30, 2004. EPMI is part of Enron's bankruptcy proceedings. Due to uncertainties associated with the realization of this receivable from EPMI, a $2 million reserve has been established. PGE included amounts owed by EPMI for power sales and transmission services in the proofs of claim filed with the Bankruptcy Court.

In April 2003, PGE entered into a settlement agreement with EPMI and Enron to terminate the transmission contract. The settlement agreement was approved by the Bankruptcy Court and accepted by the FERC. Under the settlement, PGE retained a $200,000 deposit from EPMI related to the transmission contract and Enron's guaranty was terminated. PGE amended its proofs of claim in the Enron bankruptcy to include a pre-petition unsecured claim against EPMI and a pre-petition guaranty claim against Enron for $1 million owed PGE for transmission services. For further information, see Note 7, Enron Bankruptcy.

Portland General Holdings, Inc. - in Bankruptcy - On June 27, 2003, PGH, a wholly owned subsidiary of Enron located in Portland, filed to initiate bankruptcy proceedings under the federal Bankruptcy Code. The PGH filing has been procedurally consolidated with the Enron bankruptcy proceeding. No PGH subsidiaries are included in the bankruptcy filing. At September 30, 2004, PGE had outstanding accounts receivable from PGH of $5 million, comprised of $4 million related to employee benefit plans and $1 million for employee and other corporate governance services. During 2003, PGE submitted proofs of claim to the Bankruptcy Court for approximately $5 million for employee benefit and corporate governance services. Based on management's assessment of the realizability of the receivable from PGH, a reserve of $2 million was established in December 2002. In June 2004, PGE reduced the reserve by $1 million based on management's current assessment. PGE will continue to assess the collectibility of this receivable.

PGH II, Inc. and its Subsidiaries - not in Bankruptcy - PGH II, Inc. (PGH II), a wholly owned subsidiary of PGH, is the parent company of various subsidiaries that receive services from PGE. PGH II and its subsidiaries are not part of Enron's or PGH's bankruptcy proceedings. PGH II subsidiaries include Portland General Distribution, LLC (PGDC), a telecommunications company, Microclimates, Inc., a project management company, and Portland Energy Solutions Company, LLC (PES), which provided cooling services to buildings in downtown Portland, Oregon. In April 2004, PES sold substantially all of its assets to an unrelated third party. The proceeds from the sale were used to repay all amounts PES owed to PGE. For the first nine months of 2004, PGE billed PGH II and its subsidiaries $1 million for employee and other corporate governance services.

As of September 30, 2004, PGE had outstanding accounts receivable from PGDC of $1.2 million for employee and other corporate governance services, offset by an approximate $0.9 million uncollectible reserve. In September 2004, PGDC sold substantially all of its assets to an unrelated third party. The proceeds from the sale are expected to repay the unreserved amounts that PGDC owes to PGE.

Other Subsidiaries - PGE also provides services to its consolidated subsidiaries, including cash management and the sublease of office space in the Company's headquarter complex. Intercompany balances and transactions have been eliminated in consolidation.

PGE maintains no compensating balances and provides no guarantees for related parties.

Interest Income and Expense - Interest on the Enron Merger Receivable balance and the related reserve accrued in Enron's post-petition bankruptcy period were reversed in December 2003, as previously discussed. Accounts receivable balances from PGH II and its subsidiaries accrue interest at 9.5%. Receivable balances from PGH also accrued interest at 9.5% until PGH filed bankruptcy and the interest accrual on pre-bankruptcy receivables was discontinued. Prior to 2001, interest was accrued at 9.5% on other outstanding receivable and payable balances with Enron and its other subsidiaries.

As of September 30, 2004, PGE has net accounts receivable balances totaling approximately $63 million from the California Independent System Operator (ISO) and the California Power Exchange (PX) for wholesale electricity sales made from November 2000 through February 2001. (As the result of a reconciliation process, completed in the third quarter of 2004, the balance was increased by $3 million). The Company estimates that the majority of this amount was for sales by the ISO and PX to Southern California Edison Company and Pacific Gas & Electric Company (PG&E).

In March 2001, the PX filed for bankruptcy and in April 2001, PG&E filed a voluntary petition for relief under the provisions of Chapter 11 of the federal Bankruptcy Code. PGE filed a proof of claim in each of the proceedings for all past due amounts. Although both entities have emerged from their bankruptcy proceedings as reorganized debtors, not all claims filed in the proceedings, including those filed by PGE, have been resolved. PGE is continuing to pursue collection of these claims.

Management continues to assess PGE's exposure relative to these receivables. Based upon FERC orders regarding the methodology to be used to calculate refunds and the FERC's indication that potential refunds related to California wholesale sales (see "Refunds on Wholesale Transactions" below) can be offset with accounts receivable related to such sales, PGE has established reserves totaling $40 million related to this receivable amount. The Company is examining numerous options, including legal, regulatory, and other means, to pursue collection of any amounts ultimately not received through the bankruptcy process.

In a June 2001 order adopting a price mitigation program for 11 states within the WECC area, the FERC referred to a settlement judge the issue of refunds for non federally-mandated transactions made between October 2, 2000 and June 20, 2001 in the spot markets operated by the ISO and the PX.

On July 25, 2001, the FERC issued another order establishing the scope of and methodology for calculating the refunds and ordering evidentiary hearings to develop a factual record to provide the basis for the refund calculation. Several additional orders clarifying and further defining the methodology have since been issued by the FERC. Appeals of the FERC orders were filed and in August 2002 the U.S. Ninth Circuit Court of Appeals issued an order requiring the FERC to reopen the record to allow the parties to present additional evidence of market manipulation.

Also in August 2002, the FERC Staff issued a report that included a recommendation that natural gas prices used in the methodology to calculate potential refunds be reduced significantly, which could result in a material increase in PGE's potential refund obligation.

In December 2002, a FERC administrative law judge issued a certification of facts to the FERC regarding the refunds, based on the methodology established in the 2001 FERC order rather than the August 2002 FERC Staff recommendation. On March 26, 2003, the FERC issued an order in the California refund case (Docket No. EL00-95) adopting in large part the certification of facts of the FERC administrative law judge but adopting the August 2002 FERC Staff recommendation on the methodology for the pricing of natural gas in calculating the amount of potential refunds. PGE estimates its potential liability under the modified methodology at between $40 million and $50 million, of which $40 million has been established as a reserve, as discussed above.

Numerous parties, including PGE, filed requests for rehearing of various aspects of the March 26, 2003 order, including the methodology for the pricing of natural gas. On October 16, 2003, the FERC issued an order reaffirming, in large part, the modified methodology adopted in its March 26, 2003 order. PGE does not agree with the FERC's methodology for determining potential refunds, and on December 20, 2003, the Company appealed the FERC's October 16, 2003 order to the U.S. Ninth Circuit Court of Appeals; several other parties have also appealed the October 16, 2003 order. On May 12, 2004, the FERC issued an order that denied further requests for rehearing of the October 16, 2003 order. On the same day, the FERC issued a separate order that provided clarification regarding certain aspects of the methodology for California generators to recover fuel costs incurred to generate power that were in excess of the gas cost component used to establish the refund liabi lity. On September 24, 2004, the FERC issued an order that denied requests for rehearing of its May 12, 2004 fuel cost order and also adopted a new methodology to allocate the excess amounts of fuel costs that California generators are permitted to recover. Under the new allocation methodology, PGE could be required to pay additional amounts in those hours when it was a net buyer in California spot markets, thus increasing its net refund liability. PGE does not expect that this order will materially increase the Company's potential refund exposure.

The FERC has indicated that any refunds PGE may be required to pay related to California wholesale sales (plus interest from collection date) can be offset by accounts receivable (plus interest from due date) related to sales in California (see "Receivables - California Wholesale Market" above). Interest has not yet been recorded by the Company. In addition, any refunds paid or received by PGE applicable to spot market electricity transactions on and after January 1, 2001 in California may be eligible for inclusion in the calculation of net variable power costs under the Company's power cost adjustment mechanism in effect at that time. This could further mitigate the financial effect of any refunds made or received by the Company.

On March 20, 2002, the California Attorney General filed a complaint with the FERC against various sellers in the wholesale power market, alleging that the FERC's authorization of market-based rates violated the Federal Power Act (FPA), and, even if market-based rates were valid under the FPA, that the quarterly transaction reports required to be filed by sellers, including PGE, did not contain the transaction-specific information mandated by the FPA and the FERC. The complaint argued that refunds for amounts charged between market-based rates and cost-based rates during the period October 2, 2000 - June 4, 2002 should be ordered. The FERC denied the challenge to market-based rates and refused to order refunds, but did require sellers, including PGE, to re-file their quarterly reports to include transaction-specific data. The California Attorney General appealed the FERC's decision to the Ninth Circuit Court of Appeals. On September 8, 2004, the Court issued an opinion upholding the FERC's authority to approve market-based tariffs, but also holding that the FERC had the authority to order refunds, if quarterly filing of market-based sales transactions had not been properly made. The Court required the FERC, upon remand, to reconsider whether refunds should be ordered. On October 25, 2004, certain parties filed a petition for rehearing with the Court. In the refund case and in related dockets, the California Attorney General and other California parties have argued that refunds should be ordered retroactively to at least May 1, 2000. PGE cannot predict the outcome of these proceedings or whether the FERC will order refunds retroactively to May 1, 2000, and if so, how such refunds would be calculated.

In the July 25, 2001 order, the FERC also called for a preliminary evidentiary hearing to explore whether there may have been unjust and unreasonable charges for spot market sales of electricity in the Pacific Northwest from December 25, 2000 through June 20, 2001. During that period, PGE both sold and purchased electricity in the Pacific Northwest. In September 2001, upon completion of hearings, the appointed administrative law judge issued a recommended order that the claims for refunds be dismissed. In December 2002, the FERC re-opened the case to allow parties to conduct further discovery. In June 2003, the FERC issued an order terminating the proceeding and denying the claims for refunds. In July 2003, numerous parties filed requests for rehearing of the June 2003 FERC order. In November 2003 and February 2004, the FERC issued orders that denied all pending requests for rehearing. Parties have appealed various aspects of these FERC orders.

Management cannot predict the ultimate outcome of the above matters related to wholesale transactions in California and the Pacific Northwest. However, it believes that the outcome will not have a material adverse impact on the financial condition of the Company, but may have a material impact on the results of operations for future reporting periods.

Commencing on December 2, 2001, Enron, along with certain of its subsidiaries, filed to initiate bankruptcy proceedings under Chapter 11 of the federal Bankruptcy Code. PGE is not included in the bankruptcy, but the common stock of PGE held by Enron is part of the bankruptcy estate.

Enron and its debtor-in-possession subsidiaries (collectively the Debtors) filed their proposed joint Chapter 11 plan (the Chapter 11 Plan) and related disclosure statement (the Disclosure Statement) with the Bankruptcy Court. The Chapter 11 Plan and Disclosure Statement, as amended, provide information about the assets that are in the bankruptcy estate, including the common stock of PGE, and how those assets will be distributed to the creditors. The Chapter 11 Plan was confirmed by the Bankruptcy Court on July 15, 2004.

Although Enron is continuing the sale process for PGE, under the Chapter 11 Plan, if PGE is not sold, the shares of PGE's common stock will be distributed over time to the Debtors' creditors. It is anticipated that once a sufficient amount of the common stock is distributed to creditors, the shares would be publicly traded.

Management cannot predict with certainty what impact Enron's bankruptcy, including the Chapter 11 Plan, may have on PGE. However, it does believe that the assets and liabilities of PGE will not become part of the Enron estate in bankruptcy. Although Enron owns all of PGE's common stock, PGE as a separate corporation owns or leases the assets used in its business and PGE's management, separate from Enron, is responsible for PGE's day-to-day operations. Regulatory and contractual protections restrict Enron access to PGE assets. Under Oregon law and specific conditions imposed on Enron and PGE by the OPUC in connection with Enron's acquisition of PGE in the merger of Enron and PGC in 1997 (Merger Conditions), Enron's access to PGE cash or assets (through dividends or otherwise) is limited. Under the Merger Conditions, PGE cannot make any distribution to Enron that would cause PGE's common equity capital to fall below 48% of total PGE capitalization (excluding short-term borrowings) without OP UC approval. The Merger Conditions also include notification requirements regarding dividends and retained earnings transfers to Enron. PGE is required to maintain its own accounting system as well as separate debt and preferred stock ratings. PGE maintains its own cash management system and finances its operations separately from Enron, on both a short-term and long-term basis. On September 30, 2002, the Company issued to an independent shareholder a single share of a new $1.00 par value class of Limited Voting Junior Preferred Stock which limits, subject to certain exceptions, PGE's right to commence any voluntary bankruptcy, liquidation, receivership, or similar proceedings without the consent of the shareholder.

Notwithstanding the above, PGE may have potential exposure to certain liabilities and asset impairments as a result of Enron's bankruptcy. These are:

Enron Debtor in Possession Financing - PGE has been informed by Enron management that shortly after the filing of its bankruptcy petition in December 2001, Enron entered into a debtor in possession credit agreement with Citicorp USA, Inc. and JPMorgan Chase Bank. The agreement was amended and restated in July 2002 and in May 2003 and extended in May 2004. PGE management had been advised by Enron management and its legal advisors that, under the amended and restated credit agreement and related security agreement, all of which were approved by the Bankruptcy Court, Enron had pledged its stock in a number of subsidiaries, including PGE, to secure the repayment of any amounts due under the debtor in possession financing. PGE management has been advised by Enron management that the debtor in possession credit agreement was replaced by separate letters of credit issued by Wachovia Bank National Association and that the liens and pledge of the PGE stock in favor of the debtor in possessio n lenders were released on or about August 24, 2004. The replacement letters of credit issued by Wachovia Bank National Association are secured by cash collateral and do not involve a pledge of the stock of PGE or any other assets.

On November 18, 2003, Enron and Oregon Electric, a newly-formed Oregon limited liability company financially backed by investment funds managed by Texas Pacific Group, entered into a definitive agreement under which Enron will sell all of the issued and outstanding common stock of PGE to Oregon Electric. The transaction is valued at approximately $2.35 billion, including the assumption of debt. The final amount of consideration will be determined on the basis of PGE's financial performance between January 1, 2003 and closing. The transaction, previously approved by the Enron Board of Directors and supported by the Official Unsecured Creditors' Committee, was approved by the Bankruptcy Court on February 5, 2004. The transaction also requires approval of the OPUC, the SEC, the FERC, and certain other regulatory agencies. Applications for approval of the acquisition of PGE by Oregon Electric have been filed with the OPUC (on March 8, 2004), the FERC (on April 6, 2004), the Nucle ar Regulatory Commission (on June 14, 2004), and the SEC (on July 29, 2004). On July 30, 2004, a petition was filed with Oregon's Energy Facility Siting Council for a declaratory ruling that the proposed acquisition is not a transfer of ownership that would require a transfer of certain generating plant site certificates held by PGE.

As part of the OPUC process to consider the proposed sale, testimony, settlement conferences, and hearings are continuing, with final oral arguments scheduled for December. A decision by the Commission is expected in early 2005.

If PGE is not sold, under the Chapter 11 Plan the shares of PGE's common stock will be distributed over time to the Debtors' creditors. Until shares are distributed to creditors, Enron will retain the right to sell PGE if it is determined that a sale would be in the best interest of the creditors. Until either the sale to Oregon Electric is approved, the Chapter 11 Plan becomes effective and PGE's common stock is distributed to the Debtors' creditors, or another filing related to the sale of PGE is approved, management cannot assess the impact on PGE's business and operations of a sale or the distribution of PGE's stock to the Debtors' creditors.

On January 12, 2004, the Financial Accounting Standards Board (FASB) released FASB Staff Position No. FAS 106-1 (FSP 106-1), Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Act) was signed into law on December 8, 2003 and introduces a prescription drug benefit under Medicare and provides a federal subsidy to sponsors of certain retiree health care benefit plans. Under FSP 106-1, plan sponsors were allowed to elect a one-time deferral of the accounting for the Medicare Act until the FASB issued specific authoritative accounting guidance regarding the federal subsidy. PGE elected this one-time deferral.

On May 19, 2004, the FASB issued Staff Position No. FAS 106-2 (FSP 106-2), Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which was effective for the first interim period beginning after June 15, 2004 and superseded FSP 106-1. FSP 106-2 provides authoritative guidance on the accounting for the federal subsidy and specifies the disclosure requirements for employers who have adopted FSP 106-2. PGE has determined that its retiree health care plans are not actuarially equivalent to the benefits provided under Medicare Part D and, therefore, is not eligible for the subsidy. The adoption of FSP 106-2 did not have a material effect on the financial statements of the Company.

PGE has entered into contracts related to the construction of Port Westward, a 400-megawatt natural gas-fired combined cycle combustion turbine plant. It is anticipated that Port Westward will be operational by mid-2007 and require payments of approximately $250 million to $270 million (excluding Allowance for Funds Used During Construction). PGE has also entered into a contract for gas transportation capacity for Port Westward for payments of approximately $1 million in both 2005 and 2006 and approximately $2 million in 2007.

Operations - PGE continues to serve its customers effectively and operate well, with earnings for the first nine months of 2004 more typical of historical levels than in the same period of 2003. Although poor regional hydro conditions continue to impact PGE's financial performance, it is expected that the effects of a suppressed economy and recent years' financial reserves related to Enron's bankruptcy and the 2000-2001 West Coast energy crisis will have a reduced impact on the Company's future earnings. PGE continues to maintain investment-grade ratings on its secured debt, has adequate liquidity, and stable operating cash flow. Plans are moving forward to return control of employee benefit and retirement savings plans from Enron to PGE by the end of this year.

Retail loads during the first nine months of 2004 continue to run somewhat below both current year projections and last year's first nine months due to both the loss of two large industrial customers since the first half of 2003 and to warmer-than-normal weather early in 2004. On a weather-adjusted basis, however, retail energy sales have increased from last year's first nine months. Growth in both average energy usage and in the number of customers within PGE's service territory continues to partially offset the loss of industrial load.

PGE continues to oppose recent efforts by public power proponents to acquire Company service territory and is pleased with the continued support of its communities demonstrated by the rejection of PUD initiatives in Multnomah, Yamhill, Clackamas, and Washington Counties in the last twelve months.

Economy - Oregon's economy has continued to improve over the last year, adding about 46,000 seasonally-adjusted non-farm jobs (including 6,000 in manufacturing) between June 2003 and August 2004, an approximate 3% increase. Amid a national economy slowed by rising interest rates and oil prices, the state ranked second in July, and ninth in August, in year-over-year job growth. Although Oregon's unemployment rate remains among the highest in the nation, it dropped from a high of 8.7% in July 2003 to 7.3% in September 2004. PGE continues to experience customer growth, adding nearly 12,000 retail customers in the first nine months of this year.

PGE continues to work proactively to promote economic growth and business development in the region. Recently, the Company has been working closely with a public/private partnership, led by Oregon's governor, the state's two Senators, and key business leaders. Termed the "Oregon Plan", this partnership is intended to serve as the foundation of the state's economic development initiatives, with recent focus on identification of new project-ready industrial sites. These efforts have resulted in an increase in the number of businesses planning to expand or locate operations within PGE's service territory.

Power Supply - Despite heavy snowfall early in the year, regional hydro conditions have deteriorated significantly from initial forecasts due to reduced precipitation and generally dry conditions since February. Regional conditions are expected to remain significantly below normal for 2004, with both the Clackamas and Deschutes river systems, where PGE's hydro generation facilities are located, also below previously projected levels. To the extent that hydro conditions utilized in power cost projections for setting customer rates are not realized, power costs will increase, as greater output from PGE's thermal generating plants, as well as higher purchased power costs, will be necessary to meet the Company's load requirements. During the first nine months of 2004, PGE effectively utilized its generating assets and position in the wholesale marketplace to meet load requirements and partially offset the adverse financial effects of poor regional hydro conditions.

PGE's hydro plants continue to serve as a reliable low-cost resource, providing economical power for customers. In conjunction with a 50-year relicensing application for the Pelton Round Butte hydro project, a settlement agreement, providing for fish passage over the project's dams, was completed and signed by all participants in July and submitted to the FERC for approval. Recently completed efficiency upgrades to the Boardman coal plant, accomplished during an extended maintenance outage, increased PGE's share of the plant's generation by 21 MW, enough electricity to serve about 13,000 homes with no additional fuel requirements.

Under the Resource Valuation Mechanism (RVM) process, by which retail rates are adjusted annually with changes in projected power costs, PGE has submitted preliminary and updated RVM filings to the OPUC containing estimates of 2005 power costs. Recent updates to such estimates indicate an approximate rate increase of less than 1% for residential customers, with an approximate 5% increase for large non-residential customers. Rates for small non-residential customers are expected to decrease by less than 1%. Such rates, which will be finalized later in November, will become effective on January 1, 2005.

PGE has withdrawn its two hydro cost deferral applications covering the current year, previously filed with the OPUC, and has asked that the Commission instead consider a proposed Hydro Generation Adjustment mechanism and tariff that would allow rate adjustments reflecting changes in power costs caused by variations in hydro conditions. A procedural schedule has been adopted by the OPUC, with a decision expected in the first half of 2005. Any deferral of costs, for future recovery or refund, would begin only upon approval of the proposed tariff.

PGE's Integrated Resource Final Action Plan received formal acknowledgement of the OPUC in July 2004. The plan contains specific resource actions to meet the future electricity needs of customers, including construction of a natural gas-fired plant at Port Westward in Columbia County, Oregon and increased use of renewable energy resources. As part of the plan, PGE has entered into a ten-year power purchase agreement for 85 average MW, beginning in late 2006, and also into two five-year agreements, for 14 average MW and 25 average MW, beginning in early 2005 and late 2006, respectively. Agreements providing for 400 MW of peaking capacity, beginning in early 2005 and extending into 2011, were entered into in October 2004. These agreements, the first results from last year's request for proposals issued as part of the Integrated Resource Plan, provide competitive and reliable sources of supply for PGE customers.

Proposed Sale of PGE - The proposed sale of PGE by Enron to Oregon Electric continues to move through the formal legal and regulatory hearing and approval process. In September, the staff of the OPUC recommended approval of the sale subject to certain conditions, including customer rate credits and limitations on distributions from PGE to Oregon Electric. PGE management believes the proposed transaction represents the best possible outcome for the Company and is working to support its full regulatory approval. A decision is currently expected in early 2005.

The following review of PGE's results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. Due to seasonal fluctuations in electricity sales, as well as the price of wholesale energy and natural gas costs, quarterly operating earnings are not necessarily indicative of results to be expected for calendar year 2004.

PGE's net income in the third quarter of 2004 was $10 million, compared to a net loss of $4 million in the third quarter of 2003. Results for last year's third quarter included after tax provisions totaling approximately $12 million related to investigations into wholesale power market activities during 2000 and 2001, consisting of $7 million related to amounts due the Company for wholesale electricity sales made in California and $5 million related to a settlement agreement between PGE, the FERC, and other parties. The effect of lower interest charges and administrative expenses in this year's third quarter was partially offset by reduced margins on lower energy sales.

The following table summarizes Operating Revenues and Energy Sales for the third quarter of 2004 and 2003:

1. Retail revenues for 2004 includes $2 million for distribution services related to delivery of 206 thousand MWhs (not included in Energy Sales) to customers of Energy Service Suppliers (ESS). Under Oregon's electricity restructuring law, certain commercial and industrial customers have chosen to be served by an ESS for their energy needs, beginning in 2004. Although the energy is purchased from an ESS, PGE delivers the energy to these customers and bills them a distribution service charge.
2. Wholesale (Non-Trading) revenues and energy sales for 2004 exclude $101 million and 2,207 thousand MWhs of sales, respectively, reflecting the net basis presentation required by EITF 03-11, which became effective on October 1, 2003. Prior period amounts have not been reclassified.

Retail revenues decreased by approximately 1% from the third quarter of last year due primarily to lower energy sales. Retail energy sales decreased about 3.2% due largely to a 15% decline in industrial sales, most of which was attributable to a single large customer which in 2004 began purchasing its energy requirements from an ESS, resulting in an approximate $5 million revenue decrease. An additional $3 million decrease in retail revenues resulted from the loss of other non-residential customers now served by ESS's. Total residential and commercial energy sales increased slightly from last year's third quarter, with a 3% increase in residential sales largely offset by a 1% decrease in commercial sales. An approximate 0.4% average rate increase for 2004 also partially offset the decrease in industrial energy sales and revenues during the quarter. (See "Retail Rate Changes" in the Financial and Operating Outlook section for further information).

Wholesale revenues and energy sales for the third quarter of 2004 exclude $101 million and 2,207 thousand MWhs of sales due to the adoption of EITF 03-11 in the fourth quarter of 2003. Beginning October 1, 2003, revenues and expenses related to non-trading energy activities that are not physically settled, formerly included on a "gross" basis within both Operating Revenues and Purchased Power and Fuel expense, are recorded on a "net" basis in Purchased Power and Fuel expense. This change results in a decrease in reported non-trading wholesale energy sales and purchases and related amounts in comparative financial statements. Although determination of the effect of the change on prior year reported revenues and expenses is not practicable, the change has no impact on reported net income. The remaining $44 million decrease in wholesale revenues was attributable to a 30% reduction in energy sales. The decrease was partially offset by a 5% increase in average prices, due primarily to high er natural gas prices and a reduction in regional hydro availability.

Other Operating Revenues approximated that of last year's third quarter, with increased revenues from the sale of transmission capacity partially offset by decreased gains on the sale of natural gas in excess of generating plant requirements.

Purchased Power and Fuel expense for the third quarter of 2004 exclude $101 million related to the adoption of EITF 03-11 (described above). In addition, third quarter 2003 expense included an $11 million provision for uncollectible accounts receivable for wholesale electricity sales in the California market during 2000 and 2001. The remaining $45 million decrease from last year's third quarter is attributable to a reduction in power purchased to meet a lower total system load requirement. Partially offsetting the effect of a decrease in system load was an approximate 1% increase in PGE's average variable power cost for the quarter, with a higher average cost of Company generation partially offset by a lower average cost of purchased power. The average price of purchased power decreased approximately 1%, with a 5% decrease in the average price of term power purchases partially offset by higher spot market prices. Company generation decreased 4% from that of last year's third quar ter, as a 24% decrease in coal-fired generation (due primarily to the Boardman plant's extended maintenance outage) was largely offset by an increase in combustion turbine generation. PGE hydro production approximated that of last year's third quarter. Total generation met approximately 44% of PGE's retail load during the third quarter of 2004, compared to 45% last year.

The following table indicates PGE's total system load (including both retail and wholesale but excluding energy trading contracts) for the third quarter of 2004 and 2003. Average variable power costs exclude the effect of provisions for uncollectible wholesale accounts receivable.

(*includes wheeling costs)

Production, distribution, administrative and other expenses increased $1 million (2%) from the third quarter of 2003 primarily due to increased costs related to a major maintenance outage at the Boardman coal plant that extended into this year's third quarter and to higher distribution expenses, including increased tree trimming requirements. These increases were partially offset by reduced corporate overhead charges from Enron.

Depreciation and Amortization expense increased $6 million (12%) due partially to a $3 million increase in amortization of regulatory assets (including costs related to implementation of Oregon's electricity restructuring law), the effects of which are fully offset within Operating Revenues. The remaining increase resulted from a reduction from last year's third quarter deferral of certain regulatory assets and an increase in depreciation and amortization of utility plant due to normal property additions.

Income taxes increased $3 million primarily due to higher taxable income.

Other Income (Miscellaneous) increased $9 million due primarily to an $8.5 million charge recorded in last year's third quarter related to a September 2003 settlement agreement between PGE, the FERC, and other parties related to investigations into prior years' wholesale power market activities.

Interest Charges decreased $3 million (15%) due to both a lower level of outstanding long-term debt in this year's third quarter and to the replacement of higher rate debt in the second half of 2003.

PGE's net income in the first nine months of 2004 was $64 million, compared to $30 million in the first nine months of 2003. Results for the first nine months of 2003 include after tax provisions totaling approximately $19 million related to investigations into wholesale power market activities during 2000 and 2001, consisting of $14 million related to amounts due the Company for wholesale electricity sales made in California and $5 million related to a settlement agreement between PGE, the FERC, and other parties. Results for the first nine months of 2003 also include a $2 million gain from a cumulative effect of a change in accounting principle related to the adoption of SFAS No. 143, Accounting for Asset Retirement Obligations.

The remaining increase in net income in this year's first nine months was due primarily to improved margins on energy sales resulting from economic decisions related to the utilization of the Company's thermal generating assets and activities in the wholesale marketplace. In addition, last year's margin for the first nine months reflects a disallowance by the OPUC of certain power purchase contracts in rates charged customers. These factors, along with lower interest charges and administrative expenses, more than offset the impact of a reduction in retail energy sales during the first nine months of this year.

The following table summarizes Operating Revenues and Energy Sales for the nine-month periods ending September 30, 2004 and 2003: