Portland General Electric Co (POR)

Liquidity

PGE has revolving credit facilities providing an aggregate borrowing capacity of $525 million. As of September 30, 2009, the aggregate borrowing capacity available under the credit facilities was $335 million.

PGE posts or receives collateral (in the form of cash or letters of credit) pursuant to its power and natural gas purchase contracts. As of September 30, 2009, PGE had posted collateral of $256 million. Provided market prices do not change from September 30, 2009, the Company expects approximately 35% of the margin deposits to roll-off in the fourth quarter of 2009, and approximately 47% to roll-off in 2010.

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Liquidity

During the quarter PGE secured an additional $30 million in revolver capacity to bring total borrowing capacity under revolving credit facilities to $525 million. As of June 30, 2009, the company had an aggregate remaining borrowing capacity of $324 million available under the credit facilities. As of July 31, 2009, the aggregate borrowing capacity was $296 million. PGE posts or receives margin deposits related to power and natural gas contracts. These contracts are used to meet load requirements and are reflected in customer prices. As of June 30, 2009, PGE had posted margin deposits of $309 million, consisting of $127 million in cash and $182 million in letters of credit. Provided market prices remain unchanged from June 30, 2009, the Company anticipates that approximately 32% of collateral deposits at the end of the second quarter would roll-off by the end of 2009 and approximately 52% is expected to roll off by the end of 2010. As of July 31, 2009, margin deposits were $331 million.

Liquidity

PGE’s access to short-term debt markets provides necessary liquidity to support the Company’s current operating activities, including power and fuel purchases. Long-term capital requirements are driven largely by capital expenditures for distribution, transmission, and generation facilities to support both new and existing customers, as well as debt refinancing activities. PGE’s liquidity and capital requirements can also be significantly affected by other working capital needs, including margin deposits related to wholesale market activities, which can vary depending upon the Company’s forward positions and the corresponding price curves.

PGE’s cash flows were as follows (in millions):

Net cash provided by operating activities - The $77 million decrease in cash provided by operating activities in the first quarter of 2009 compared to the first quarter of 2008 was primarily attributable to the following:

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A significant portion of cash provided by operations consists of the recovery in customer prices of non-cash charges for depreciation and amortization. PGE estimates recovery of such charges will approximate $218 million in 2009. Combined with all other sources, cash provided by operations is estimated to be approximately $410 million in 2009, including the reduction of approximately 34% of those margin deposits held by certain wholesale customers and brokers as of March 31, 2009. The estimated reduction of such margin deposits is based on both the timing of contract settlements and projected future energy prices.

Net cash used in investing activities - The $23 million increase in cash used in investing activities in the first quarter of 2009 compared to the first quarter of 2008 was primarily attributable to a $21 million increase in construction costs related to Biglow Canyon Phases II and III and a $3 million increase in expenditures for the smart metering project. See “Capital Requirements” section above for further information.

Net cash provided by financing activities - Financing activities provide supplemental cash for both day-to-day operations and capital requirements as needed. Net cash provided by such activities was $88 million in the first quarter of 2009 compared to net cash used of $71 million in the first quarter of 2008. PGE relies on cash from operations, the issuance of commercial paper, borrowings under its revolving credit facility, and long-term financing activities to support such requirements. During the first quarter of 2009, net cash provided by financing activities primarily consisted of the issuance of common stock for net proceeds of $170 million, proceeds from the issuance of long-term debt of $130 million, partially offset by the repayment of short-term borrowings of $203 million and the payment of dividends of $15 million. Financing activities in the first quarter of 2009 also included the receipt of $7 million in cash contributions from noncontrolling interests in the solar projects. During the first quarter of 2008, net cash used in financing activities consisted of the repayment of long-term debt of $56 million and the payment of dividends of $15 million.

Liquidity

PGE has two unsecured revolving credit facilities with two separate groups of banks and an aggregate borrowing capacity of $495 million. As of March 31, 2009, the company had an aggregate remaining borrowing capacity of $272 million available under the two credit facilities and a cash balance of $47 million. As of April 30, 2009, the aggregate borrowing capacity was $279 million. PGE posts or receives margin deposits related to power and natural gas contracts. These contracts are used to meet load requirements and are reflected in customer prices. As of March 31, 2009, PGE had posted margin deposits of $409 million, consisting of $205 million in cash and $204 million in letters of credit.

Liquidity

PGE’s access to short-term debt markets, including revolving credit from banks, provides necessary liquidity to support the Company’s current operating activities, including the purchase of electricity and fuel for the generation of electricity. Long-term capital requirements are driven largely by capital expenditures for distribution, transmission, and generation facilities to support both new and existing customers and maturities of long-term debt. PGE’s liquidity and capital requirements can also be significantly affected by other working capital needs, including margin deposits related to wholesale market activities, which can vary depending upon the Company’s forward positions and the corresponding price curves.

As of December 31, 2008, PGE had negative working capital of $279 million compared to working capital of $147 million as of December 31, 2007. This decrease in working capital is primarily driven by an increase in the net liabilities from price risk management activities of $350 million during 2008, which are classified as current in PGE’s consolidated balance sheets. The regulatory asset related to price risk management is classified as noncurrent in PGE’s consolidated balance sheets, impacting the Company’s working capital. These derivative instruments are recorded at their estimated fair value (“mark-to-market”), as discussed in Note 4, Fair Value of Financial Instruments, in the Notes to Consolidated Financial Statements. During 2008, the commodities market experienced significant volatility which resulted in, among other things, decreased market prices for purchased power and natural gas in the second half of the year. Pursuant to regulatory accounting under SFAS 71, the mark-to-market of PGE’s derivative instruments is deferred and, accordingly, the Company’s net regulatory asset related to price risk management increased $350 million, with no impact to the statement of income.

PGE has an unsecured $370 million revolving credit facility (Credit Facility) with a group of banks that supplements operating cash flow and provides a primary source of liquidity. The Credit Facility is for general corporate purposes and the issuance of standby letters of credit, as well as for supporting the Company’s commercial paper program, under which it may issue commercial paper for terms of up to 270 days. The commercial paper program requires the Company to maintain unused revolving credit capacity at least equal to the amount of commercial paper issued. In July 2012, $10 million of the Credit Facility matures, with the remaining $360 million maturing in July 2013.

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In December 2008, PGE entered into an unsecured $125 million revolving credit facility (Short-term Credit Facility) with a separate group of banks on substantially the same terms as the Credit Facility discussed above, although no letters of credit may be issued under the Short-term Credit Facility. The Short-term Credit Facility, which matures in December 2009, is for general corporate purposes, including back-up for the issuance of commercial paper.

As of December 31, 2008, PGE had $65 million of commercial paper outstanding and borrowings of $131 million under the Credit Facility, the total of which is classified as Short-term debt on the consolidated balance sheet. The Company also had issued $133 million in letters of credit. As of February 20, 2009, PGE had $53 million of commercial paper outstanding and borrowings of $61 million under the Credit Facility and had issued $153 million in Letters of Credit. As of February 20, 2009, PGE had an aggregate of $228 million unused available credit under its credit facilities.

The following summarizes PGE’s cash flows for the periods presented (in millions):

Liquidity

Liquidity

In December 2008, PGE obtained an unsecured $125 million revolving credit facility (credit facility) with a group of banks. The credit facility, which matures in December 2009, is for general corporate purposes, including back-up for the issuance of commercial paper, potential refinancing of certain existing indebtedness and support for collateral requirements under energy purchase and sale agreements. This supplements the company’s existing $370 million revolving credit facility with a separate group of banks. $360 million of this facility matures in July 2013, with the remaining $10 million maturing in July 2012.

As of February 20, 2009, PGE had $53 million of commercial paper outstanding and borrowings of $61 million under the credit facility. The company also had issued $153 million in letters of credit. As of February 20, 2009, the company had an aggregate remaining borrowing capacity of $228 million available under the two credit facilities and a cash balance of $1 million. Higher levels of short-term borrowings and outstanding letters of credit are the result of additional margin deposit requirements related to power and natural gas contracts. As of February 20, 2009, PGE had posted margin deposits of $363 million. Margin deposits create a cash flow timing difference but have minimal impact on earnings.

Liquidity

PGE’s access to short-term debt markets provides necessary liquidity to support the Company’s current operating activities, including the purchase of electricity and fuel for the generation of electricity. Long-term capital requirements are driven largely by capital expenditures for distribution, transmission, and generation facilities to support both new and existing customers, as well as debt refinancing activities. PGE’s liquidity and capital requirements can also be significantly affected by other working capital needs, including margin deposits related to wholesale market activities, which can vary depending upon the Company’s forward positions and the corresponding price curves.

As of June 30, 2008, the Company has financial assets of $181 million and financial liabilities of $11 million included in the Level 3 category pursuant to SFAS 157. See Note 3, Financial Instruments, in the Notes to Condensed Consolidated Financial Statements. These financial instruments are recorded at fair value and may consist of forward, swap and option contracts for electricity and natural gas and futures contracts for natural gas. Fair value of forward, swap and futures contracts is calculated using forward price curves, which are not currently validated against independent publications for contracts that deliver beyond 24 months from the balance sheet date. For option contracts, fair value is calculated using standard financial models that utilize interest rate and price curves, time to expiration, and internally developed price volatility and correlation curves. Any change in the assumptions used to determine fair value of these financial instruments, including market conditions which vary significantly depending on the weather and the economy, would not have an impact on the financial condition or results of operations of the Company as changes in the fair value of these financial instruments are fully offset by the effects of regulatory accounting pursuant to SFAS 71.

PGE’s cash flows were as follows (in millions):

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Net cash provided by operating activities increased $167 million in the first half of 2008 compared to the first half of 2007. This increase is primarily due to the following offsetting factors:

During the six months ended June 30, 2008, PGE’s net assets from price risk management activities increased $412 million. These derivative instruments are recorded at their estimated fair value (“mark-to-market”), as discussed in Note 3, Financial Instruments, in the Notes to the Condensed Consolidated Financial Statements. During the first half of 2008, the commodities market experienced significant volatility which resulted in, among other things, increased market prices for purchased power and natural gas. Pursuant to regulatory accounting under SFAS 71, the mark-to-market of PGE’s derivative instruments is deferred, and, accordingly, the Company’s net regulatory liability related to price risk management increased $412 million, with no impact to the statement of operations. The mark-to-market of PGE’s derivative instruments does not have any impact on the Company’s liquidity or cash flows.

A significant portion of cash provided by operations consists of depreciation and amortization of electric utility plant, which is recovered in prices with no current direct cash outlay as it represents the recovery of prior investments. PGE estimates recovery of such charges to approximate $208 million in 2008. Combined with all other sources, cash provided by operations is estimated to approximate $403 million in 2008.

Net cash used in investing activities increased $39 million in the first half of 2008 compared to the first half of 2007. This increase is primarily due to the net effect of the following factors:

See “Capital Requirements” section above for further information.

Net cash used in financing activities increased $29 million in the first half of 2008 compared to the first half of 2007. Financing activities provide supplemental cash for both day-to-day operations and capital requirements as needed. PGE relies on cash from operations, the issuance of commercial paper, borrowings under its revolving credit facility, and long-term financing activities to support such requirements. During the first half of 2008, net cash used in financing activities consisted of the repayment of long-term debt of $56 million and the payment of dividends of $29 million. PGE also issued $50 million of long-term debt in the first half of 2008. During the same period of 2007, net cash used in financing activities primarily consisted of the net repayment of short-term debt of $81 million, the repayment of long-term debt of $71 million and the payment of dividends of $28 million, partially offset by the issuance of long-term debt of $176 million.

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Liquidity

PGE’s access to short-term debt markets provides necessary liquidity to support the Company’s current operating activities, including the purchase of electricity and fuel for the generation of electricity. Long-term capital requirements are driven largely by capital expenditures for distribution, transmission, and generation facilities to support both new and existing customers, as well as debt refinancing activities. PGE’s liquidity and capital requirements can also be significantly affected by other working capital needs, including margin deposits related to wholesale market activities, which can vary depending upon the Company’s forward positions and the corresponding price curves.

As of March 31, 2008, the Company has financial assets of $60 million and financial liabilities of $21 million included in the Level 3 category pursuant to SFAS 157. See Note 3, Financial Instruments, in the Notes to Condensed Consolidated Financial Statements. These financial instruments are recorded at fair value and may consist of forward, swap and option contracts for electricity and natural gas and futures contracts for natural gas. Fair value of forward, swap and futures contracts is calculated using forward price curves, which are not currently validated against independent publications for contracts that deliver beyond 24 months from the balance sheet date. For option contracts, fair value is calculated using standard financial models that utilize interest rate and price curves, time to expiration, and internally developed price volatility and correlation curves. Any change in the assumptions used to determine fair value of these financial instruments, including market conditions which vary significantly depending on the weather and the economy, would not have an impact on the financial condition or results of operations of the Company as changes in the fair value of these financial instruments are fully offset by the effects of regulatory accounting pursuant to SFAS 71.

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PGE’s cash flows were as follows (in millions):

Net cash provided by operating activities decreased $5 million in the first quarter of 2008 compared to the first quarter of 2007. This decrease is primarily due to the following offsetting factors:

A significant portion of cash provided by operations consists of depreciation and amortization of electric utility plant, which is recovered in prices with no current direct cash outlay as it represents the recovery of prior investments. PGE estimates recovery of such charges to approximate $210 million in 2008. Combined with all other sources, cash provided by operations is estimated to approximate $404 million in 2008.

Net cash used in investing activities decreased $1 million in the first quarter of 2008 compared to the first quarter of 2007. This decrease is primarily due to the net effect of the following factors:

See “Capital Requirements” section above for further information.

Net cash used in financing activities increased $11 million in the first quarter of 2008 compared to the first quarter of 2007. Financing activities provide supplemental cash for both day-to-day operations and capital requirements as needed. PGE relies on cash from operations, the issuance of commercial paper, borrowings under its revolving credit facility, and long-term financing activities to support such requirements. During the first quarter of 2008, net cash used in financing activities consisted of the repayment of long-term debt of $56 million and the payment of dividends of $15 million. During the first quarter of 2007, net cash used in financing activities consisted of the net repayment of short-term debt of $52 million and the payment of dividends of $14 million, partially offset by the issuance of long-term debt of $6 million.

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