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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