[Sierra Pacific Logo] [PGE Logo]
BEFORE THE PUBLIC UTILITY COMMISSION
OF OREGON
UM-_______
Application of Sierra Pacific Resources
to Acquire
Portland General Electric Company
January 18, 2000
TABLE OF CONTENTS
APPLICATION TO ACQUIRE PORTLAND GENERAL ELECTRIC COMPANY
Appendix - Stock Purchase Agreement
PREPARED DIRECT TESTIMONY
Exhibit 1 - Direct Testimony of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Exhibit 2 - Direct Testimony of Mayln ▇. ▇▇▇▇▇▇▇▇
Attachment MKM-1 - Qualifications of Witness
Attachment MKM-2 - 1999 Operations Report
Attachment MKM-3 - PUHCA Summary
Exhibit 3 - Direct Testimony of ▇▇▇▇ ▇. ▇▇▇▇▇▇
Attachment MAR-1 - Qualifications of Witness
Exhibit 4 - Direct Testimony of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Attachment SCO-1 - Qualifications of Witness
Exhibit 5 - Supplemental Direct Testimony of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
MOTION FOR PROTECTIVE ORDER
BEFORE THE PUBLIC UTILITY COMMISSION
OF OREGON
UM-_________
APPLICATION OF SIERRA PACIFIC RESOURCES
TO ACQUIRE
PORTLAND GENERAL ELECTRIC COMPANY
JANUARY 18, 2000
SIERRA PACIFIC RESOURCES, INC.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
P.O. BOX 10100
RENO, NV 89520-0024
BEFORE THE PUBLIC UTILITY COMMISSION
OF OREGON
UM-_________
In the Matter of the Application of ) APPLICATION OF SIERRA PACIFIC
Sierra Pacific Resources to Acquire ) RESOURCES TO ACQUIRE
Portland General Electric Company ) PORTLAND GENERAL ELECTRIC
) COMPANY
Sierra Pacific Resources ("Sierra") applies for an order of the
Commission approving Sierra's acquisition of all of the common stock of Portland
General Electric Company ("PGE"). Upon such acquisition, ▇▇▇▇▇▇ will acquire the
power to exercise substantial influence over the policies and actions of PGE.
Commission approval is required by ORS 757.511.
A. IN SUPPORT OF ITS APPLICATION, SIERRA STATES AS FOLLOWS:
SIERRA BACKGROUND. Sierra is an experienced operator of regulated
utilities, providing electricity, gas and water services through its
subsidiaries, Sierra Pacific Power Company ("SPPC") and Nevada Power Company
("NPC"). Sierra serves about one million retail customers in the two most
rapidly growing metropolitan areas in the United States. Sierra also provides
reliable electric service to more than 50,000 square miles of largely rural
areas in Nevada and Northern California.
Sierra and its operating utilities are regulated by state utility
commissions in Nevada and California, as well as by the Securities and Exchange
Commission and Federal Energy Regulatory Commission. ▇▇▇▇▇▇'s common stock is
publicly traded on the New York Stock Exchange. Sierra and its operating
subsidiaries maintain investment grade credit ratings from ▇▇▇▇▇'▇ and Standard
& Poor's.
/ / / / /
/ / / / /
PAGE 1 - APPLICATION OF SIERRA PACIFIC RESOURCES TO ACQUIRE
PORTLAND GENERAL ELECTRIC COMPANY
Sierra's corporate objective is to be a premier transmission,
distribution and energy service company in the western United States, delivering
essential services which enhance the quality of its customers' lives and the
vitality of the communities it serves.
To implement this corporate vision, Sierra's operating subsidiaries
focus on providing the highest quality of customer service. ▇▇▇▇▇▇ participates
in the communities it serves as a good corporate citizen through contributions
of time and money to civic and charitable organizations and by being a ▇▇▇▇▇▇▇
of the environment.
Sierra is a company with strong commitments to the environment and to
the development of alternative generation resources. As an example, SPPC has
under contract more geothermal power than any utility in the mainland United
States.
▇▇▇▇▇▇'S PLAN FOR PGE. Sierra's plan for operating PGE includes no
material change in the way PGE serves its customers. In offering to purchase
PGE, Sierra recognizes the similarities of the three electric utilities,
including mutual focus on providing high quality customer service to rapidly
growing metropolitan populations, as well as to rural areas. Sierra will bring
to PGE's customers additional operating expertise and the benefits of
participating in an integrated electric system. Best practices of the three
utilities will be consolidated as part of Sierra's ongoing program to take
customer service to a higher level. Customers of the three utilities will
benefit from the diverse experience and long history of these utilities. The
most forward-looking programs of each utility will be spread to the others.
SIERRA'S COMMITMENTS. To reflect ▇▇▇▇▇▇'s focus on customers and the
public interest, this application proposes a continuation and expansion of the
economic benefits contained in the Commission's approval of the acquisition of
PGE by Enron. These benefits are summarized as follows:
First a commitment to provide PGE customers $9 million per year in
----- savings and/or rate credit until July 2002, as promised by
▇▇▇▇▇, and, in addition, to extend this benefit through
PAGE 2 - APPLICATION OF SIERRA PACIFIC RESOURCES TO ACQUIRE
PORTLAND GENERAL ELECTRIC COMPANY
December 31, 2003, producing an additional $13.5 million
benefit to PGE customers; and
Second A commitment to pay the remaining balance (approximately $80
------ million as of closing the acquisition of PGE by ▇▇▇▇▇▇) of
the sum of $105 million originally promised by Enron.
After payment of acquisition costs, Sierra proposes that PGE customers
receive 100 percent of the allocable net savings resulting from the integration
of utility operations.
▇▇▇▇▇▇ makes the following commitments to the Commission and to PGE's
customers. Sierra will:
1. Operate PGE as a separate operating entity, headquartered in
Portland, Oregon with strong local management, customer service
and operations personnel.
2. Maintain PGE's current high standards of utility operation and
customer service, which are consistent with the performance
standards of SPPC and NPC. PGE will continue to meet the Service
Quality Measures agreed to by PGE in Commission Order 97-196 in
Docket UM 814.
3. Continue PGE's high standards of environmental stewardship and
commitment to developing alternative energy sources.
4. Participate with PGE in its robust involvement in and support of
the communities it serves as a good corporate citizen.
5. Take a leadership role with the Commission to achieve timely
implementation of electricity restructuring SB 1149.
6. Keep generating assets now supporting PGE's regulated utility
business, except for transactions already pending and
transactions that may result from implementing SB 1149.
/ / / / /
PAGE 3 - APPLICATION OF SIERRA PACIFIC RESOURCES TO ACQUIRE
PORTLAND GENERAL ELECTRIC COMPANY
▇▇▇▇▇▇ also proposes to accept other conditions imposed by the
Commission in the ScottishPower and Enron orders. Although these conditions were
formulated to address issues raised in cases where the acquiring entity was not
subject to domestic regulation, ▇▇▇▇▇▇ nevertheless finds these conditions to be
generally acceptable.
EMPLOYEE RELATIONS. Sierra Pacific Resources completed the merger of
SPPC and NPC in July 1999 and, by November 1999, had reached its targeted
workforce without involuntary departures. The two companies recently reached new
contract agreements and have long-standing relationships with the International
Brotherhood of Electrical Workers. All existing labor agreements at PGE will be
honored after completion of the transaction.
SAFETY. Sierra shares with PGE a commitment to providing a safe
electric product for its customers and employees. The companies place a high
priority on educating their customers and training their employees on safety
issues.
B. WITH RESPECT TO THE SPECIFIC REQUIREMENTS OF ORS 757.511, SIERRA
STATES AS FOLLOWS:
▇▇▇▇▇▇'S IDENTITY AND FINANCIAL ABILITY
(ORS 757.511(2)(a))
Sierra incorporated under Nevada law on December 12, 1983, originally
as a holding company for SPPC. Today, Sierra has five direct subsidiaries: SPPC,
NPC, Tuscarora Gas Pipeline Company ("TGPC"), Sierra Pacific Energy Company
("SPEC"), and Lands of Sierra, Inc. ("LOS"). SPEC provides a variety of energy
services to residential, commercial and industrial energy consumers. TGPC
provides gas transportation services, with its primary customers being electric
generating plants in Northern Nevada. LOS owns land not used in the utility
businesses.
SPPC and its predecessors have engaged in the electric, gas and water
utility business in and around the city of Reno, Nevada, for over 140 years.
SPPC provides electric service to northern Nevada and northeastern California,
and natural gas and water service in the Reno/Sparks area of Nevada. SPPC
PAGE 4 - APPLICATION OF SIERRA PACIFIC RESOURCES TO ACQUIRE
PORTLAND GENERAL ELECTRIC COMPANY
provides electricity to approximately 294,000 customers, natural gas to
approximately 105,000 customers, and water service to about 67,000 customers.
Sierra acquired NPC in a merger transaction consummated on July 29,
1999, approved by all appropriate state and federal agencies.
NPC has engaged in the electric utility business in and around the
city of Las Vegas since 1906. Most of NPC's operations are conducted in ▇▇▇▇▇
County, Nevada, with an estimated service area population of 1,361,700. NPC has
approximately 550,000 retail electric customers.
▇▇▇▇▇▇'s stock is publicly traded on the New York Stock Exchange.
Sierra's financial condition is a matter of public record in its annual and
quarterly reports filed with the Securities and Exchange Commission ("SEC").
Such financial information, and other relevant information about Sierra, may be
reviewed on Sierra's web site. The web site address is
http.//▇▇▇.▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇.
THE BACKGROUND OF THE KEY PERSONNEL ASSOCIATED
WITH THE APPLICANT
(ORS 757.511(2)(b))
▇▇▇▇▇▇'s key personnel include the following:
▇▇▇▇ ▇▇▇▇▇▇▇ Vice President, Generation
▇▇▇▇▇ ▇▇▇▇ President, Sierra Pacific Energy Company
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ Vice President, Distribution Services, New Business
▇▇▇▇ ▇. ▇▇▇▇▇ Vice President, Distribution Services,
Operations & Maintenance
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ President and Chief Operating Officer
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Chairman and Chief Executive Officer
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Vice President, Corporate Development and
Strategic Planning
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Senior Vice President, General Counsel and Secretary
▇▇▇▇▇▇▇ ▇. ▇▇▇▇ Vice President, Governmental and Regulatory Affairs
▇▇▇▇▇ ▇▇▇▇▇▇▇ Senior Vice President, Energy Delivery
▇▇▇▇ ▇. ▇▇▇▇▇▇ Senior Vice President and Chief Financial Officer
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Controller
▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Vice President, Corporate Services
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ Vice President, Human Resources
Messrs. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ and ▇▇▇▇▇▇ have submitted prefiled
direct testimony in this proceeding which sets forth their background
information. All of Sierra's senior management personnel are seasoned utility
PAGE 5 - APPLICATION OF SIERRA PACIFIC RESOURCES TO ACQUIRE
PORTLAND GENERAL ELECTRIC COMPANY
executives. Biographies of all Sierra executives are available on Sierra's web
site.
Sierra intends that PGE will be operated as a subsidiary of Sierra,
with headquarters and key management personnel in Portland, Oregon. ▇▇▇▇▇▇ has
invited ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ to continue as President of PGE.
THE SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION
TO BE USED IN THE ACQUISITION
(ORS 757.511(2)(c))
Effective November 5, 1999, Enron Corp. ("Enron") and ▇▇▇▇▇▇ executed
a Stock Purchase Agreement ("the Agreement"), a copy of which is attached as the
Appendix hereto, pursuant to which Sierra agreed to purchase, and Enron agreed
to sell, all of the issued and outstanding common stock of PGE for the purchase
price of $2.1 billion, which includes $14 million for a small subsidiary of PGE,
PGH II, Inc. As a result of this transaction, PGE will become a wholly-owned
subsidiary of Sierra, and Sierra will acquire the power to exercise influence
over the policies and actions of PGE. Sierra, SPPC and NPC will also become
affiliates of PGE and PGH II, as defined in ORS 757.015. Sierra has financial
resources sufficient to acquire the common stock of PGE. ▇▇▇▇▇▇ has a commitment
from a major bank for the necessary funding, the terms of which are subject to a
confidentiality agreement and may be disclosed only subject to a protective
order.
THE APPLICANT'S COMPLIANCE WITH FEDERAL LAW
IN CARRYING OUT THE ACQUISITION
(ORS 757.511(2)(d))
Sierra will file applications with the SEC, the Federal Energy
Regulatory Commission and the Nuclear Regulatory Commission for the approvals
necessary to consummate the acquisition of PGE. The closing of the transaction
will occur only after all requisite federal approvals have been obtained.
Sierra's acquisition of PGE complies with all requirements of federal law.
/ / / / /
PAGE 6 - APPLICATION OF SIERRA PACIFIC RESOURCES TO ACQUIRE
PORTLAND GENERAL ELECTRIC COMPANY
WHETHER THE APPLICANT OR THE KEY PERSONNEL ASSOCIATED
WITH THE APPLICANT HAS VIOLATED ANY STATE OR
FEDERAL STATUTES REGULATING THE ACTIVITIES OF PUBLIC UTILITIES
(ORS 757.511(2)(e))
Neither Sierra nor any of its key personnel has violated any state or
federal law regarding the regulation of public utilities.
ALL DOCUMENTS RELATING TO THE TRANSACTION
GIVING RISE TO THE APPLICATION
(ORS 757.511(2)(f))
The Agreement between Enron and Sierra is attached at the Appendix to
this Application. In order to facilitate review of this Application by the
Commission and other interested parties, Sierra, PGE and Enron will provide all
documents related to the transaction in document rooms to be open effective
January 24, 2000, and to remain open for the pendency of this Application. The
document rooms will be open to "qualified persons," as that term is defined in a
protective order which Sierra requests in connection with this application.
▇▇▇▇▇▇'s document room will be at the law offices of ▇▇▇▇ ▇▇▇▇▇ LLP, ▇▇▇ ▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇. Appointments to use the
Sierra document rooms may be arranged by calling ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ at (503)
226-1191. PGE and Enron's document room will be located at the World Trade
Center, ▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇. Appointments to use the
PGE and Enron document room may be arranged by calling ▇▇▇ ▇▇▇▇▇▇ at (503)
464-8932. On or about January 24, 2000, Sierra will file with the Commission an
index to the contents of the document rooms.
THE APPLICANT'S EXPERIENCE IN OPERATING PUBLIC
UTILITIES PROVIDING HEAT, LIGHT OR POWER
(ORS 757.511(2)(g)) AND
PLAN FOR OPERATING THE PUBLIC UTILITY
(ORS 757.511(2)(h))
Part A of this Application responds to these criteria.
▇▇▇▇▇▇ will bring to PGE the knowledge it has gained in the
restructuring of SPPC and NPC now underway in the State of Nevada. With this
knowledge, and with the knowledge that PGE has gained from its participation in
PAGE 7 - APPLICATION OF SIERRA PACIFIC RESOURCES TO ACQUIRE
PORTLAND GENERAL ELECTRIC COMPANY
Commission Docket UE 102, PGE will provide leadership in adopting the
administrative rules necessary to implement SB 1149. ▇▇▇▇▇▇ and PGE will use
this knowledge to promptly and efficiently implement the restructuring of PGE in
accordance with SB 1149 and the rules adopted by the Commission.
THE SALE AND SIERRA'S PLAN FOR OPERATING PGE
ARE IN THE PUBLIC INTEREST
(ORS 757.511(2)(i))
Based on the foregoing, ▇▇▇▇▇▇ believes that its plan for acquiring
and operating PGE is in the public interest and should be approved by the
Commission.
C. WITH RESPECT TO THE SPECIFIC REQUIREMENTS OF OAR 860-02--0200, SIERRA
STATES AS FOLLOWS:
CORPORATE INFORMATION REGARDING SIERRA
(OAR 860-027-0200(1) - 0030(1)(a)-(d))
Sierra is a Nevada corporation with its principal business office at
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇.
Other states in which Sierra is authorized to transact utility
business: Sierra is not authorized to transact utility business, but its
subsidiaries SPPC and NPC are so authorized in Nevada and California.
Name and address of person authorized to receive notices and
communications on behalf of ▇▇▇▇▇▇ in respect to the application:
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ LLP
▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇
Names, titles and addresses of Sierra's principal officers: The names
of Sierra's principal officers are provided elsewhere in this application. The
business addresses of each of these individuals is ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇.
PAGE 8 - APPLICATION OF SIERRA PACIFIC RESOURCES TO ACQUIRE
PORTLAND GENERAL ELECTRIC COMPANY
EXISTING AND PRO FORMA CAPITAL STRUCTURE
(OAR 860-027-0200 (2))
As shown in ▇▇. ▇▇▇▇▇▇'▇ testimony, the capital structure of PGE will
not change as a result of the proposed acquisition.
EFFECT ON BOND RATINGS AND CAPITAL COSTS
(OAR 860-027-0200(3))
Sierra anticipates that Sierra and PGE will retain investment grade
credit ratings. This subject is discussed in the testimony of ▇▇. ▇▇▇▇▇▇.
AFFILIATED INTERESTS AND ORGANIZATIONAL STRUCTURE
(OAR 860-027-0200(4))
The testimonies of Messrs. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ describe the
organizational structure under which Sierra intends to operate its businesses.
ALLOCATION OF MANAGEMENT, PERSONNEL, ETC. BETWEEN
SIERRA'S UTILITY AND NONUTILITY OPERATIONS
(OAR 860-027-0200(5))
The testimonies of Messrs. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ describe the
method by which the management, personnel, property, income, losses, costs and
expenses will be allocated by Sierra among its utility operations. Sierra's
non-utility operations have line management which is independent of Sierra's
utility subsidiaries.
CHANGES IN POLICY, MANAGEMENT, OPERATIONS OR RATES
(OAR 860-027-0200(6))
Sierra does not plan any material changes in the way PGE provides
electric service to its customers.
/ / / / /
/ / / / /
/ / / / /
/ / / / /
PAGE 9 - APPLICATION OF SIERRA PACIFIC RESOURCES TO ACQUIRE
PORTLAND GENERAL ELECTRIC COMPANY
PLANS TO CAUSE THE UTILITY TO SELL, EXCHANGE,
PLEDGE OR OTHERWISE TRANSFER ASSETS
(OAR 860-027-0200(7))
Sierra has no plans to cause PGE to sell, exchange, pledge or
otherwise transfer its assets, except with respect to transactions which have
already been announced by PGE or as may later occur in implementing SB 1149.
AGREEMENTS BETWEEN THE UTILITY AND ANY AFFILIATED INTERESTS
(OAR 860-027-0200(8))
There are no existing agreements meeting this description. Any
affiliated interest agreement will be subject to review by appropriate
regulatory commissions.
D. SIERRA REQUESTS PROMPT CONSIDERATION AND APPROVAL OF THIS APPLICATION.
Sierra waives the 19-day review requirement established in ORS
757.311(3). However, ▇▇▇▇▇▇ requests that the Commission consider and approve
this application at the earliest practical time and in any event prior to July
1, 2000, for the following reasons:
1. ▇▇▇▇▇▇ is prepared to assume the operating and corporate
governance responsibilities for PGE at the earliest possible
time.
2. ▇▇▇▇▇▇ and PGE will require at least one year's lead time to
prepare for the implementation of SB 1149 in Oregon. This
includes preparing and filing a rate case with the Commission,
participating in rulemaking and regulatory proceedings, and
implementation of new computer systems necessary for the
effective administration of unbundled electric service.
3. The Commission's prompt approval of this transaction will
facilitate the prompt and favorable approval by other state and
federal regulatory bodies having jurisdiction. ▇▇▇▇▇▇ is informed
and believes that Commission approval is a condition precedent to
approval by the SEC.
/ / / / /
PAGE 10 - APPLICATION OF SIERRA PACIFIC RESOURCES TO ACQUIRE
PORTLAND GENERAL ELECTRIC COMPANY
▇▇▇▇▇▇ requests that the Commission convene a prehearing conference at
the earliest possible date for the purpose of establishing a schedule for this
proceeding, clarifying issues, and exchanging information.
THEREFORE, ▇▇▇▇▇▇ RESPECTFULLY REQUESTS THE COMMISSION'S PROMPT
APPROVAL OF THIS APPLICATION.
Dated: January 18, 2000.
Respectfully submitted,
▇▇▇▇ ▇▇▇▇▇ LLP
▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: 503 / ▇▇▇-▇▇▇▇
Fax: 503 / 226-0079
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
----------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ OSB No. 66007
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ OSB No. 79376
▇▇▇▇ ▇. ▇▇▇▇▇▇ OSB No. 85122
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ OSB No. 87161
Of Attorneys for Sierra Pacific Resources, Inc.
PAGE 11 - APPLICATION OF SIERRA PACIFIC RESOURCES TO ACQUIRE
PORTLAND GENERAL ELECTRIC COMPANY
APPENDIX
Stock Purchase Agreement
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
ENRON CORP.
AND
SIERRA PACIFIC RESOURCES
NOVEMBER 5, 1999
TABLE OF CONTENTS
ARTICLE I
SALE AND PURCHASE OF THE SHARES
Section 1.1 Sale and Purchase of the PGE Shares.................1
Section 1.2 Sale and Purchase of the PGH II Shares..............1
Section 1.3 PGE Purchase Price..................................2
Section 1.4 PGH II Purchase Price...............................2
Section 1.5 Assumption of Enron Merger Payment..................2
ARTICLE II
CLOSING
Section 2.1 Closing.............................................2
Section 2.2 Closing Transactions. .............................2
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 3.1 Organization and Qualification......................3
Section 3.2 Subsidiaries........................................3
Section 3.3 Capitalization......................................4
Section 3.4 Authority; Non-Contravention; Statutory Approvals;
Compliance..........................................4
Section 3.5 Reports and Financial Statements....................6
Section 3.6 Absence of Certain Changes or Events................7
Section 3.7 Litigation..........................................7
Section 3.8 Tax Matters.........................................7
Section 3.9 Employee Benefit Plans and Labor Agreement..........8
Section 3.10 Environmental Protection...........................10
Section 3.11 Regulation as a Utility............................12
Section 3.12 Insurance..........................................12
Section 3.13 Status of PGE Nuclear Facility.....................12
Section 3.14 Year 2000 Compliance...............................13
Section 3.15 Contracts with Enron...............................13
Section 3.16 Limitation of Representations and Warranties.......13
i
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 4.1 Organization and Qualification.....................14
Section 4.2 Authority, Non-Contravention.......................14
Section 4.3 Availability of Funds..............................15
Section 4.4 Purchase for Investment............................15
Section 4.5 Due Diligence......................................15
Section 4.6 No Knowledge of Breach.............................15
Section 4.7 Regulation as a Utility............................15
ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING
Section 5.1 Ordinary Course of Business........................16
Section 5.2 Dividends and Repurchases..........................16
Section 5.3 Issuance of Securities.............................18
Section 5.4 Charter Documents..................................19
Section 5.5 Acquisitions.......................................19
Section 5.6 No Dispositions....................................19
Section 5.7 Indebtedness.......................................19
Section 5.8 Capital Expenditures...............................19
Section 5.9 Compensation, Benefits.............................19
Section 5.10 Cooperation, Notification..........................20
Section 5.11 Insurance..........................................20
Section 5.12 Permits............................................20
Section 5.13 Nuclear Operations.................................20
Section 5.14 Discharge of Liabilities...........................21
Section 5.15 Contracts..........................................21
Section 5.16 Certain Actions....................................21
Section 5.17 Non-Solicitation...................................22
Section 5.18 Accounting Matters.................................22
ARTICLE VI
ADDITIONAL ARRANGEMENTS
Section 6.1 Access to Information..............................22
Section 6.2 Regulatory Matter..................................23
Section 6.3 Cooperation........................................23
Section 6.4 Public Announcements...............................24
Section 6.5 Employee Benefit Plans.............................24
ii
Section 6.6 Expenses...........................................26
Section 6.7 No Breach, Etc.....................................27
Section 6.8 Directors' and Officers' Indemnification...........27
Section 6.9 Insurance..........................................27
Section 6.10 Corporate Name.....................................27
Section 6.11 Related Party Contracts............................28
Section 6.12 PUHCA..............................................28
Section 6.13 Tax Matters........................................28
Section 6.14 Evidence of Financing Availability.................31
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Obligations of Purchaser.............31
Section 7.2 Conditions to Obligations of Seller................32
ARTICLE VIII
TERMINATION
Section 8.1 Termination........................................33
Section 8.2 Procedure and Effect of Termination................34
ARTICLE IX
MISCELLANEOUS
Section 9.1 Non-Survival of Representations, Warranties,
Covenants and Agreements...........................35
Section 9.2 Brokers............................................35
Section 9.3 Notices............................................35
Section 9.4 Miscellaneous......................................36
Section 9.5 Interpretation.....................................36
Section 9.6 Counterparts; Effect...............................37
Section 9.7 Parties in Interest................................37
Section 9.8 Specific Performance...............................37
Section 9.9 Governing Law......................................37
Section 9.10 Disclosure Schedules...............................37
iii
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated November 5,
1999 is by and between ENRON CORP., an Oregon corporation ("Seller"), and SIERRA
PACIFIC RESOURCES, a Nevada corporation ("Purchase"). Capitalized terms used
herein shall have the meanings ascribed to them in Annex A hereto, unless
otherwise provided. Seller and Purchaser are referred to individually as a
"Party," and collectively as the "Parties."
W I T N E S S E T H :
WHEREAS, Seller owns all of the issued and outstanding common stock,
par value $3.75 per share (the "PGE Shares") of Portland General Electric
Company, an Oregon corporation ("PGE");
WHEREAS, Portland General Holdings, Inc., an Oregon corporation and a
wholly owed subsidiary of Seller ("PGH"), owns all of the issued and outstanding
common stock, par value $ 1.00 per share (the "PGH II Shares") of PGH II, Inc.,
an Oregon corporation ("PGH II");
WHEREAS, Purchaser desires to purchase, and Seller desires to sell,
the PGE Shares, subject in all respects to the provisions of this Agreement; and
WHEREAS, Purchaser desires to purchase, and Seller desires to cause
PGH to sell, the PGH II Shares, subject in all respects to the provisions of
this Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF THE SHARES
Section 1.1 Sale and Purchase of the PGE Shares. Upon the terms and
subject to the satisfaction of the conditions contained in this Agreement, at
the Closing, Seller shall sell, transfer and deliver to Purchaser, and Purchaser
shall purchase and accept delivery from Seller of, the PGE Shares.
Section 1.2 Sale and Purchase of the PGH II Shares. Upon the terms and
subject to the satisfaction of the conditions contained in this Agreement, at
the Closing, Seller shall cause PGH to sell, transfer and deliver to Purchaser,
and Purchaser shall purchase and accept delivery from PGH of, the PGH II Shares.
Section 1.3 PGE Purchase Price. The purchase price for the PGE Shares
shall be $2,086,000,000 in cash, which shall be reduced as provided in Section
1.5 and shall be paid as -- provided in Section 2.2(b) (the "PGE Purchase
Price").
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Section 1.4 PGH II Purchase Price. The purchase price for the PGH II
Shares shall be $14,000,000 in cash, which shall be paid as provided in Section
2.2(d) (the "PGH II Purchase Price").
Section 1.5 Assumption of Enron Merger Payment. Effective as of the
Closing Date, Purchaser shall assume from Seller, and shall indemnify Seller
for, all obligations in respect of the Enron Merger Payment for the period from
and after the Closing Date. Seller shall continue to be responsible for the
Enron Merger Payment obligations for periods prior to the Closing Date and shall
indemnify Purchaser for all such obligations. The purchase price for the PGE
Shares as set forth in Section 1.3 shall be reduced by an amount equal to the
book value of Seller's obligations remaining under the Enron Merger Payment as
of the Closing Date, which shall be calculated in accordance with the Enron/PGE
Order.
ARTICLE II
CLOSING
Section 2.1 Closing. The closing of the purchase and sale of the
Shares (the "Closing") will take place at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.P.,
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇, as soon as reasonably
practicable, not to exceed 10 business days or such lesser number of days as
remain in the then current calendar year, following the date on which the
conditions specified in Article VII (other than the conditions specified in
Sections 7.1 (e) and 7.2(e) which shall be satisfied on the Closing Date) have
been satisfied or waived, unless another time, date and place is agreed to in
writing by the Parties. The date of the Closing is referred to in this Agreement
as the "Closing Date."
Section 2.2 Closing Transactions. At the Closing the following events
shall occur, each event being deemed to have occurred simultaneously with the
other events:
(a) Seller will deliver to Purchaser the PGE Shares by
delivering the certificates representing the PGE Shares duly endorsed
for transfer or accompanied by appropriate stock powers, in favor of
Purchaser;
(b) Purchaser will pay the PGE Purchase Price by wire
transferring such amount, in lawful money of the United States of
America in immediately available funds, to such account as Seller
shall have designated by written notice to Purchaser;
(c) Seller will cause PGH to deliver to Purchaser the PGH II
Shares by delivering the certificates representing the PGH II Shares
duly endorsed for transfer or accompanied by appropriate stock powers,
in favor of Purchaser; and
(d) Purchaser will pay the PGH II Purchase Price by wire
transferring such amount, in lawful money of the United States of
America in immediately available funds, to such account as Seller
shall have designated, on behalf of PGH, by written notice to
Purchaser.
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(e) Purchaser will deliver to Seller documentation regarding
the assumption of the obligations in respect of the Enron Merger
Payment for the period from and after the Closing Date pursuant to
Section 1.5 of this Agreement in form reasonably satisfactory to
Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser that:
Section 3.1 Organization and Qualification.
(a) Seller and PGH are each corporations duly organized,
validly existing, and in good standing under the laws of the State of
Oregon.
(b) Each of PGE, PGH II and their respective subsidiaries
(i) is a corporation or limited liability company duly organized,
validly existing and in good standing under the laws of its
jurisdiction of organization, (ii) has all requisite power and
authority to own, lease and operate its assets and properties and to
carry on its business as it is now being conducted, and (iii) is duly
qualified, licensed or admitted to do business and is in good standing
to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its assets and properties
makes such qualification necessary.
Section 3.2 Subsidiaries. Section 3.2 of the Seller Disclosure
Schedule contains a description as of the date hereof of all subsidiaries and
joint ventures of PGE and PGH II, including the name of each such entity, the
state or jurisdiction of its incorporation or organization and PGE's or PGH II's
interest therein, as the case may be. Except as disclosed in Section 3.2 of the
Seller Disclosure Schedule, all of the issued and outstanding shares of capital
stock or membership interests, as the case may be, of each subsidiary of PGE and
PGH II are validly issued, fully paid, nonassessable and free of preemptive
rights and are owned directly or indirectly by PGE or PGH II, as the case may
be, free and clear of any liens, claims, encumbrances, security interests,
equities, charges and options of any nature whatsoever, and there are no
outstanding subscriptions, options, calls, contracts, voting trusts, proxies or
other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating any such subsidiary to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of its capital stock or membership interests, as the case may be, or
obligating it to grant, extend or enter into any such agreement or commitment.
Section 3.3 Capitalization.
(a) The authorized capital stock of PGE consists of
100,000,000 shares of PGE Common Stock and 30,000,000 shares of PGE
Preferred Stock. The authorized capital stock of PGH II consists of
10,000 shares of PGH II Common Stock. There are 42,758,877 shares of
3
PGE Common Stock issued and outstanding, all of which are owned by
Seller, and 300,000 shares of the 7.75% series of PGE Preferred Stock
issued and outstanding. There are 1,000 shares of PGH II Common Stock
issued and outstanding, all of which are owned by PGH. There are no
shares of capital stock held in the treasury of PGE or PGH II. All of
the outstanding shares of capital stock of PGE and PGH II are duly
authorized, validly issued, fully paid, nonassessable and free of
preemptive rights and are owned free and clear of any liens, claims,
mortgages, encumbrances, pledges, security interests, equities and
charges of any kind. There are no outstanding subscriptions, options,
calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating Seller, PGE, PGH
or PGH II to issue, deliver or sell, or cause to be issued, delivered
or sold, shares of the capital stock or other voting securities of PGE
or PGH Il or their subsidiaries or obligating Seller, PGE, PGH or PGH
II to grant, extend or enter into any such agreement or commitment.
(b) As of the date of this Agreement, no bonds, debentures,
notes or other indebtedness of PGE, PGH II or any of their
subsidiaries having the right to vote (or which are convertible into
or exercisable for securities having the right to vote) (together,
"PGE Voting Debt") on any matters on which shareholders may vote are
issued or outstanding nor are there any outstanding options obligating
PGE, PGH II or any of their subsidiaries to issue or sell any PGE
Voting Debt or to grant, extend or enter into any option with respect
thereto.
Section 3.4 Authority; Non-Contravention; Statutory Approvals;
Compliance.
(a) Authority. Seller has all requisite power and authority
to enter into this Agreement and, subject to the Seller Required
Statutory Approvals, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation by Seller of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of
Seller and will be duly authorized prior to the Closing by all
necessary corporate action on the part of PGH. This Agreement has been
duly and validly executed and delivered by ▇▇▇▇▇▇ and, assuming the
due authorization, execution and delivery of this Agreement by
Purchaser, constitutes the legal, valid and binding obligation of
Seller enforceable against Seller, in accordance with its terms.
(b) Non-Contravention. Except as disclosed in Section 3.4(b)
of the Seller Disclosure Schedule, the execution and delivery by
Seller of this Agreement do not, and the consummation of the
transactions contemplated hereby will not, violate, conflict with or
result in a breach of any provision of, or constitute a default (with
or without notice or lapse of time or both) under, or result in the
termination of, or accelerate the performance required by, or result
in a right of payment, termination, cancellation, modification or
acceleration of any obligation under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the
properties or assets of PGE or PGH II or any of their respective
subsidiaries, or, to the knowledge of any of Seller, PGE, PGH II or
any subsidiary of PGE or PGH II, any of PGE's or PGH II's joint
ventures (any such violation, conflict, breach, default, right of
termination, cancellation or acceleration, loss or creation, a "PGE
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Violation") under, any provisions of (i) the articles of
incorporation, bylaws or similar governing documents of Seller, PGE or
PGH II or any of their respective subsidiaries or joint ventures, (ii)
subject to obtaining the Seller Required Statutory Approvals, any
statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any Governmental Authority
applicable to Seller, PGE, PGH II or any of their respective
subsidiaries or, to the knowledge of any of Seller, PGE, PGH II or any
subsidiary of PGE or PGH II, any of their respective joint ventures or
any of their respective properties or assets, or (iii) subject to
obtaining the third-party consents or other approvals disclosed in
Section 3.4(b) of the Seller Disclosure Schedule (the "PGE Required
Consents"), any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Seller, PGE,
PGH II or any of their respective subsidiaries or, to the knowledge of
any of Seller, PGE, PGH II or any subsidiary of PGE or PGH II, any of
their respective joint ventures, is now a party or by which any of
them or any of their respective properties or assets may be bound or
affected, excluding from the foregoing clauses (ii) and (iii) such PGE
Violations as would not have, in the aggregate, a PGE Material Adverse
Effect.
(c) Statutory Approvals. Except as disclosed in Section
3.4(c) of the Seller Disclosure Schedule, no declaration, filing or
registration with, or notice to or authorization, consent, finding by
or approval of, any Governmental Authority is necessary for the
execution and delivery of this Agreement by Seller or the consummation
by Seller of the transactions contemplated hereby, the failure to
obtain, make or give which would have, in the aggregate, a PGE
Material Adverse Effect (the "PGE Required Statutory Approvals"), it
being understood that references in this Agreement to "obtaining" such
PGE Required Statutory Approvals shall mean making such declarations,
filings or registrations; giving such notice; obtaining such consents
or approvals; and having such waiting periods expire as are necessary
to avoid a violation of law.
(d) Compliance. Except as disclosed in Section 3.4(d) of the
Seller Disclosure Schedule or as disclosed in the PGE SEC Reports
filed prior to the date hereof, neither PGE nor PGH II nor any of
their respective subsidiaries nor, to the knowledge of any of Seller,
PGE, PGH II or any subsidiary of PGE or PGH II, any of PGE's or PGH
II's joint ventures, is in violation of, or has been given notice or
been charged with, or, to the knowledge of any of Seller, PGE, PGH II
or any subsidiary of PGE or PGH II, under investigation with respect
to, any violation of, any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitation, any applicable
Environmental Laws) of any Governmental Authority, except for
violations that, in the aggregate, do not have a PGE Material Adverse
Effect. Except as disclosed in Section 3.4(d) of the Seller Disclosure
Schedule, PGE, PGH II, their respective subsidiaries and, to the
knowledge of any of Seller, PGE, PGH II or any subsidiary of PGE or
PGH II, PGE's and PGH II's respective joint ventures have all Permits
necessary to conduct their respective businesses as currently
conducted, except those which the failure to obtain would not, in the
aggregate, have a PGE Material Adverse Effect.
5
Section 3.5 Reports and Financial Statements.
(a) PGE SEC Reports and Financial Statements. The filings
required to be made by PGE since January 1, 1997 under the Securities
Act, PUHCA, the Atomic Energy Act, the Exchange Act, applicable Oregon
laws and regulations and the Power Act have been filed with the SEC,
the OPUC, the FERC, or the NRC, as the case may be, and such filings
complied in all material respects with all applicable requirements of
the appropriate act and the rules and regulations thereunder. The PGE
SEC Reports, including without limitation any financial statements or
schedules included therein, at the time filed did not, and any forms,
reports or other documents filed by PGE with the SEC after the date
hereof will not, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The PGE
Financial Statements have been prepared in accordance with GAAP
(except as may be indicated therein and except with respect to
unaudited statements as permitted by Form 10-Q of the Exchange Act)
and fairly present the consolidated financial position of PGE as of
the respective dates thereof and the consolidated results of
operations and cash flows for the respective periods then ended, as
the case may be, subject, in the case of the interim financial
statements, to normal, recurring audit adjustments.
(b) PGH II Pro Forma Financial Statements. The pro forma
consolidated financial statements of PGH II set forth in Schedule
3.5(b) of the Seller Disclosure Schedule (the "PGH II Pro Form") have
been properly presented to reflect the PGH Contribution and (for 1999
pro forma financial statements) the matters contemplated in Section
6.5(i) of this Agreement. The PGH II Pro Formas fairly present the
information contained therein and reflect all adjustments consisting
of normal recurring entries, which are in the opinion of management
necessary for a fair statement of results. The assumptions used in the
preparation of the PGH II Pro Formas are reasonable, and the
adjustments used therein are appropriate, to give effect to the
transactions referred to therein. The PGH II Pro Formas have been
prepared on the basis of the historical financial statements of the
subsidiaries of PGH II which have been prepared in accordance with
GAAP (except that such subsidiary financial statements do not include
footnote disclosure and are subject, in the case of interim periods,
to normal recurring adjustments) and fairly present the financial
position and results of operations of such entities as of and for the
periods presented.
Section 3.6 Absence of Certain Changes or Events. Except as disclosed
in the PGE SEC Reports filed prior to the date hereof or as disclosed in Section
3.6 or 3.7 of the Seller Disclosure Schedule, since June 30, 1999 with respect
to PGE and its subsidiaries and September 30, 1999 with respect to PGH II and
its subsidiaries (i) PGE, PGH II and their respective subsidiaries have
conducted their business only in the ordinary course of business consistent with
past practice and no event has occurred that has had, and no fact or condition
exists that would have or, to the knowledge of any of Seller, PGE, PGH II or any
subsidiary of PGE or PGH II, is reasonably likely to have, a PGE Material
Adverse Effect, and (ii) none of PGE, PGH II nor any of their respective
subsidiaries has taken any action that would have been prohibited by Article V
hereof had this Agreement been in effect at the time of such action.
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Section 3.7 Litigation. Except as disclosed in the PGE SEC Reports
filed prior to the date hereof or as disclosed in Sections 3.7, 3.8, 3.10 or
3.13 of the Seller Disclosure Schedule, (i) there are no claims, suits, actions
or proceedings pending or, to the knowledge of any of Seller, PGE, PGH II or any
subsidiary of PGE or PGH II, threatened, nor, to the knowledge of any of Seller,
PGE, PGH II or any subsidiary of PGE or PGH II, are there any investigations
pending or threatened against, relating to or affecting PGE, PGH II or any of
their respective subsidiaries, and (ii) there are no judgments, decrees,
injunctions, rules or orders of any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator applicable to PGE, PGH II
or any of their respective subsidiaries, except for any of the foregoing under
clauses (i) and (ii) that individually or in the aggregate would not have a PGE
Material Adverse Effect.
Section 3.8 Tax Matters. Except as disclosed in Section 3.8 of the
Seller Disclosure Schedule and except for such matters as would not have a PGE
Material Adverse Effect: (i) all Tax Returns that are required to be filed on or
before the Closing Date by or with respect to PGE, PGH II or any of their
respective subsidiaries have been or will be duly and timely filed and all such
Tax Returns were (or if such returns have not been filed, will be) true, correct
and complete; (ii) all Taxes that are shown to be due on such Tax Returns have
been or will be timely paid in full; (iii) all Tax withholding requirements
imposed on or with respect to PGE, PGH II or any of their respective
subsidiaries have been satisfied in full in all respects; (iv) there are no Tax
liens upon the assets of PGE, PGH II or any of their respective subsidiaries,
except for liens for Taxes not yet due; (v) no assessment, deficiency or
adjustment has been asserted in writing with respect to any such Tax Return;
(vi) there is not in force any extension of time with respect to the due date
for the filing of any such Tax Return or any waiver or agreement for any
extension of time for the assessment or payment of any Tax due with respect to
the period covered by any such Tax Return; and (vii) none of PGE, PGH II or any
of their respective subsidiaries is a party to any agreement that could obligate
it to make any payments that would not be deductible under Section 280G of the
Code.
Section 3.9 Employee Benefit Plans and Labor Agreement.
(a) Each Benefit Plan is listed in Section 3.9(a) of the
Seller Disclosure Schedule. Seller has made available to Purchaser
true and correct copies of each of the following, to the extent
applicable, with respect to each Benefit Plan: the most recent annual
report (Form 5500) filed with the IRS, the plan document, the trust
agreement, if any, the most recent summary plan description, the most
recent actuarial report, and the most recent determination letter, if
any, issued by the IRS.
(b) Each Benefit Plan has been administered in accordance
with its terms and provisions and in compliance with ERISA, the Code
and any other applicable laws except for such noncompliance as would
not, in the aggregate, have a PGE Material Adverse Effect. Since
September 1, 1999, there has been no material change to any Benefit
Plan.
(c) Each Benefit Plan intended to be qualified under Code
Section 401 satisfies in form the requirements of such section except
to the extent of amendments which are not required by law to be made
until a date after the date hereof.
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(d) There are no actions, suits, or claims pending (other
than routine claims for benefits) or, to the knowledge of any of
Seller, PGE, PGH II or any subsidiary of PGE or with respect to, any
Benefit Plan or its assets that could PGH II, threatened against, or
wit reasonably be expected, in the aggregate, to have a PGE Material
Adverse Effect.
(e) To the knowledge of any of Seller, PGE, PGH II or any
subsidiary of PGE or PGH II, there is no matter pending (other than
routine qualification determination filings) with respect to any
Benefit Plan before the IRS, the Department of Labor, the PBGC or any
other Governmental Authority.
(f) As to each Benefit Plan subject to Title IV of ERISA,
(i) no notice of intent to terminate such Benefit Plan has been given
under Section 4041 of ERISA, (ii) no proceeding has been instituted
under Section 4042 of ERISA to terminate such Benefit Plan, (iii) no
liability to the PBGC has been incurred (other than with respect to
required premium payments), and (iv) the assets of the Benefit Plan
equal or exceed the actuarial present value of the benefit
liabilities, within the meaning of Section 4041 of ERISA, under the
Benefit Plan, based upon reasonable actuarial assumptions and the
asset valuation principles established by the PBGC.
(g) With respect to any employee benefit plan, within the
meaning of Section 3(3) of ERISA, that is not listed in Section 3.9(a)
of the Seller Disclosure Schedule but that is sponsored, maintained,
or contributed to, or has been sponsored, maintained, or contributed
to within six years prior to the date hereof, by Seller or any
Commonly Controlled Entity, (i) no withdrawal liability, within the
meaning of Section 4201 of ERISA, has been incurred, which withdrawal
liability has not been satisfied, and (ii) no liability to the PBGC
has been incurred by any Commonly Controlled Entity, which liability
has not been satisfied.
(h) Except as set forth in Section 3.9(h) of the Seller
Disclosure Schedule, no Benefit Plan provides retiree medical or
retiree life insurance benefits to any Person upon retirement or
termination of employment, other than as required by the provisions of
Sections 601 through 608 of ERISA and Section 4980B of the Code.
(i) None of PGE, PGH II or any of their respective
subsidiaries contributes to or has an obligation to contribute to, and
has not within six years prior to the date of this Agreement
contributed or had an obligation to contribute to, a multiemployer
plan within the meaning of Section 3(37) of ERISA.
(j) The vacation policies of PGE and PGH II provide for
carryover of vacation from one calendar year to the next as described
in Section 3.9(j) of the Seller Disclosure Schedule.
(k) Other than as set forth in or disclosed in Section
3.9(k) of the Seller Disclosure Schedule, the consummation or
announcement of any transaction contemplated by this Agreement will
not (either alone or upon the occurrence of any additional or further
acts or events) result in any (i) payment (whether of severance pay or
otherwise) becoming due from PGE, PGH II or any of their respective
8
subsidiaries under any applicable Benefit Plans to any officer,
employee, former employee or director thereof or to the trustee under
any "rabbi trust" or similar arrangement, or (ii) benefit under any
Benefit Plan being established or becoming accelerated, vested or
payable, except for a payment or benefit that would have been payable
under the same terms and conditions without regard to the transactions
contemplated by this Agreement.
(l) To the knowledge of any of Seller, PGE, PGH II or any
subsidiary of PGE or PGH, as of the date hereof, there is no current
labor union representation issue involving employees of PGE or PGH II
or any of their respective subsidiaries, nor does Seller know of any
activity or proceeding of any labor organization (or representative
thereof) or employee group (or representative thereof) to organize any
such employees. Except as disclosed in the PGE SEC Reports or as
disclosed in Section 3.9(l) of the Seller Disclosure Schedule: (i)
neither PGE, PGH II nor any of their respective subsidiaries is a
party to any collective bargaining agreement or other labor agreement
with any union or labor organization; (ii) there is no unfair labor
practice charge or grievance arising out of a collective bargaining
agreement or other grievance procedure against PGE, PGH II or any of
their respective subsidiaries pending, or to the knowledge of any of
Seller, PGE, PGH II or any subsidiary of PGE or PGH II, threatened,
that has, or reasonably may be expected to have, a PGE Material
Adverse Effect; and (iii) there is no strike, dispute, slowdown, work
stoppage or lockout pending, or to the knowledge of any of Seller,
PGE, PGH II or any subsidiary of PGE or PGH II, threatened, against or
involving PGE, PGH II or any of their respective subsidiaries that has
or, reasonably may be expected to have, a PGE Material Adverse Effect.
(m) There is no act, omission or condition that could result
in liability for PGE, PGH II or Purchaser, or any of their respective
subsidiaries, with respect to any plan sponsored, maintained,
contributed to or required to be contributed to by Seller or by any
entity (other than PGE, PGH II or their respective subsidiaries) under
common control with Seller within the meaning of Section 414(b)(c) or
(in) of the Code or Section 4001 of ERISA that would be a Benefit Plan
if it was sponsored, maintained or contributed to or required to be
contributed to by PGE, PGH 11 or any of their respective subsidiaries.
Section 3.10 Environmental Protection.
(a) Compliance. Except as disclosed in Section 3.10 of the
Seller Disclosure Schedule or as disclosed in the PGE SEC Reports,
PGE, PGH II and each of their respective subsidiaries has been and is
in compliance with all applicable Environmental Laws, except where the
failure to be so in compliance would not have a PGE Material Adverse
Effect. Except as disclosed in Section 3.10 of the Seller Disclosure
Schedule or as disclosed in the PGE SEC Reports, neither PGE, PGH II
nor any of their respective subsidiaries has received any written
notice from any Person or Governmental Authority that alleges that
PGE, PGH II or any of their respective subsidiaries is not in
compliance with applicable Environmental Laws, except where the
failure to be so in compliance would not have a PGE Material Adverse
Effect.
9
(b) Environmental Permits. Except as disclosed in Section
1.10 of the Seller Disclosure Schedule or as disclosed in the PGE SEC
Reports, each of PGE, PGH II and their respective subsidiaries has
obtained or has applied for all Environmental Permits necessary for
the construction of their facilities and the conduct of their
operations, and all such required Environmental Permits are in good
standing or, where applicable, a renewal application has been timely
filed and is pending agency approval, and PGE, PGH II and their
respective subsidiaries are in compliance with all terms and
conditions of all such Environmental Permit, except where the failure
to obtain or be in such compliance would not have a PGE Material
Adverse Effect. Except as disclosed in Section 3.10 of the Seller
Disclosure Schedule or as disclosed in the PGE SEC Reports, to the
knowledge of any of Seller, PGE, PGH II or any subsidiary of PGE or
PGH II, there are no pending Environmental Permit proceedings or
Environmental Permit renew proceedings that are reasonably likely to
result in the imposition of more stringent terms or conditions in said
Environmental Permits that would have a PGE Material Adverse Effect.
(c) Environmental Claims. Except as disclosed in Section
3.10 of the Seller Disclosure Schedule or as disclosed in the PGE SEC
Reports, there is. no Environmental Claim pending, or to the knowledge
of any of Seller, PGE, PGH II or any subsidiary of PGE or PGH II,
threatened against PGE, PGH II or any of their respective subsidiaries
that, if adversely determined, would have a PGE Material Adverse
Effect.
(d) Orders. Except as disclosed in Section 3.10 of the
Seller Disclosure Schedule or as disclosed in the PGE SEC Reports,
neither PGE, PGH II or any of their respective subsidiaries is subject
to any judicial or administrative orders or decrees pursuant to any
Environmental Law that would have a PGE Material Adverse Effect.
(e) Releases. Except as disclosed in Section 3.10 of the
Seller Disclosure Schedule or as disclosed in the PGE SEC Reports,
there has been no Release of any Hazardous Material that would be
reasonably likely to form the basis of any Environmental Claim against
PGE, PGH II or any subsidiary of PGE or PGH II, except for Releases of
Hazardous Materials the liability for which would not have a PGE
Material Adverse Effect.
(f) Predecessors. Except as disclosed in Section 3.10 of the
Seller Disclosure Schedule or as disclosed in the PGE SEC Reports,
there are no Environmental Claims pending or threatened, or any
Releases of Hazardous Materials that would be reasonably likely to
form the basis of any Environmental Claims with respect to any
predecessor of PGE, PGH II or any subsidiary of PGE or PGH II, that
would have a PGE Material Adverse Effect.
Section 3.11 Regulation as a Utility. PGE is subject to regulation as
a "public utility" by the OPUC pursuant to the law of the State of Oregon and is
subject to regulation as a "public utility" by the FERC pursuant to Part II of
the Power Act. PGE is not subject to regulation as a public utility, public
utility holding company or public service company (or similar designation) by
any other state in the United States or by any foreign country. PGE is a
subsidiary of Seller, which is exempt, pursuant to Section 3 (a)(1) of PUHCA,
and SEC Rule 2, from regulation under PUHCA and the SEC's rules thereunder,
10
except Section 9(a)(2) of PUHCA. Neither PGH II or any subsidiary thereof is
subject to regulation as a public utility, public utility holding company or
public service company (or similar designation) by the federal government of the
U.S. or any state or political subdivision thereof or any foreign country.
Section 3.12 Insurance. Each of PGE, PGH II and each of their
respective subsidiaries is, and has been continuously since the later of January
1, 1997 and the date of its formation, insured in such amounts and against such
risks and losses as are customary for companies conducting the respective
businesses conducted by PGE, PGH II and their respective subsidiaries during
such time period. Neither PGE, PGH II nor any of their respective subsidiaries
has received any notice of cancellation or termination with respect to any
material insurance policy. All material insurance policies covering the
respective businesses conducted by PGE, PGH II and their respective subsidiaries
are valid and enforceable policies.
Section 3.13 Status of PGE Nuclear Facility. Except as set forth in
Section 3.13(2) of the Seller Disclosure Schedule, the operation of the PGE
Nuclear Facility and the operations related to decommissioning of the PGE
Nuclear Facility have at all times been conducted in compliance with applicable
health, safety, regulatory and other legal requirements, except where the
failure to be so in compliance would not have a PGE Material Adverse Effect.
Such legal requirements include, but are not limited to, the NRC license for the
Trojan Nuclear Plant pursuant to 10 C.F.R. Part 50, the NRC license for the
Trojan Independent Storage of Spent Nuclear Fuel and High-Level Radioactive
Waste (ISFSI) pursuant to 10 C.F.R. Part 72 and Siting Statutes of the State of
Oregon at ORS 469.320 (formerly Section 4 of Chapter 609, Oregon Laws of 1971)
(the term "PGE Nuclear Facility" includes both the Trojan Nuclear Plant and the
Trojan ISFSI Facility). Except as set forth in Section 3.13(2) of the Seller
Disclosure Schedule, neither the operations of the PGE Nuclear Facility nor the
operations related to decommissioning of the PGE Nuclear Facility are the
subject of any outstanding notices of violation or requests for information from
the NRC or any other agency with jurisdiction over such facility. PGE maintains,
and is in compliance with, emergency plans designed to protect the health and
safety of the public in the event of an unplanned release of radioactive
materials from the PGE Nuclear Facility, and the NRC has determined that such
plans are in compliance with its requirements. Liability insurance to the full
extent required by law for non-operating nuclear facilities and consistent with
Seller's view of the risks inherent in the decommissioning of the PGE Nuclear
Facility remains in full force and effect regarding such facility, and the
amount of such liability insurance has been approved by the NRC. Plans for the
decommissioning of the PGE Nuclear Facility, and for the storage of spent
nuclear fuel, conform with the requirements of applicable law, and PGE has
funded such plans to the extent required by law. The Decommissioning Plan is a
true and correct copy of the decommissioning plan approved by the NRC, which
plan has been amended through Revision 6 as permitted by NRC regulations. The
Trojan co-owners, PGE, the City of ▇▇▇▇▇▇ (acting by and through the ▇▇▇▇▇▇
Water & Electric Board) and PacifiCorp (collectively, the "Trojan Co-Owners"),
have severally agreed to fund their shares of all decommissioning costs relating
to Trojan, and neither Seller nor PGE, PGH II or their respective subsidiaries
has any reason to believe that the Trojan Co-Owners will not fund such
decommissioning costs in the future. The Trojan ISFSI final Safety Analysis
Report is a true and correct copy of the safety plan submitted to the NRC in
accordance with NRC requirements. Except as disclosed in Section 3.13 of the
Seller Disclosure Schedule, Seller has no intention of varying PGE's operations
11
from those described in the Decommissioning Plan and the Trojan ISFSI SAR and
neither Seller nor PGE has any other material commitments (whether written or
oral) to Governmental Authorities with respect to the PGE Nuclear Facility.
Section 3.14 Year 2000 Compliance. Each of PGE and PGH II has (i)
initiated a review and assessment of all material areas within its and each of
its subsidiaries' business and operations (including those affected by major
suppliers, vendors and customers) that could be adversely affected by the risk
that computer applications used by PGE, PGH II or any of their respective
subsidiaries (or any of their respective major suppliers, vendors and customers)
may be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December 31, 1999 (the "Year
2000 Problem"), (ii) developed a plan and timeline for addressing the Year 2000
Problem on a timely basis each as described in the Form 10-Q filed by PGE for
the quarter ended June 30, 1999, and (iii) to date, implemented that plan in
accordance with that timetable. PGE reasonably believes that its
mission-critical internal systems (meaning internal systems that are necessary
for PGE to reliably and safely deliver electric service, which includes embedded
systems) are capable of providing or being adapted to provide uninterrupted
millennium functionality to record, store, process and present calendar dates
falling on or after January 1, 2000 in substantially the same manner and with
the same functionality as such systems record, store, process and present such
calendar dates falling on or before December 31, 1999, other than such
interruptions in millennium functionality that could not, individually or in the
aggregate, reasonably be expected to result in a PGE Material Adverse Effect.
Seller and PGE reasonably believe as of the date hereof that the remaining cost
of adaptations referred to in the foregoing sentence will not exceed the amounts
reflected in the Form 10-Q filed by PGE for the quarter ended June 30, 1999.
Section 3.15 Contracts with Enron. Section 3.15 of the Seller
Disclosure Schedule sets forth, as of the date hereof, a correct and complete
list of all material contracts between PGE, PGH II or any of their respective
subsidiaries and Seller and its subsidiaries (other than any subsidiary of
Seller that is a subsidiary of Seller only by virtue of being a subsidiary of
PGE or PGH II) (the "Related Party Contracts").
Section 3.16 Limitation of Representations and Warranties. EXCEPT FOR
THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE III, SELLER IS NOT
MAKING ANY OTHER REPRESENTATIONS OR WARRANTIES, WRITTEN OR ORAL, STATUTORY,
EXPRESS OR IMPLIED, CONCERNING THE SHARES OR THE BUSINESS, ASSETS, OR
LIABILITIES OF PGE AND PGH II.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller that:
Section 4.1 Organization and Qualification. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of Nevada.
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Section 4.2 Authority, Non-Contravention; Statutory Approvals.
(a) Authority. Purchaser has all requisite power and
authority to enter into this Agreement and, subject to the Purchaser
Required Statutory Approvals, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and
the consummation by Purchaser of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the
part of Purchaser. This Agreement has been duly and validly executed
and delivered by ▇▇▇▇▇▇▇▇▇ and, assuming the due authorization,
execution and delivery of this Agreement by Seller, constitutes the
legal, valid and binding obligation of Purchaser, enforceable against
Purchaser in accordance with its terms.
(b) Non-Contravention. Except as disclosed in Section 4.2(b)
of the Purchaser Disclosure Schedule, the execution and delivery by
Purchaser of this Agreement do not, and the consummation of the
transactions contemplated hereby will not, violate, conflict with or
result in a breach of any provision of, or constitute a default (with
or without notice or lapse of time or both) under, or result in the
termination of, or accelerate the performance required by, or result
in a right of payment, termination, cancellation, modification or
acceleration of any obligation under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the
properties or assets of Purchaser or any of its subsidiaries or, to
Purchaser's knowledge, any of its joint ventures (any such violation,
conflict, breach, default, right of termination, cancellation or
acceleration, loss or creation, a "Purchaser Violation"), under, any
provisions of (i) the articles of incorporation, bylaws or similar
governing documents of Purchaser or any of its subsidiaries or joint
ventures, (ii) subject to obtaining the Purchaser Required Statutory
Approvals, any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any Governmental
Authority, applicable to Purchaser or any of its subsidiaries or, to
Purchaser's knowledge, any of its joint ventures, or any of their
respective properties or assets or (iii) subject to obtaining the
third-party consents or other approvals disclosed in Section 4.2(b) of
the Purchaser Disclosure Schedule (the "Purchaser Required Consents
"), any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which Purchaser or any of its
subsidiaries or, to Purchaser's knowledge, any of its joint ventures,
is now a party or by which any of them or any of their respective
properties or assets may be bound or affected, excluding from the
foregoing clauses (ii) and (iii) such Purchaser Violations that would
not have, in the aggregate, a material adverse effect on the ability
of Purchaser to perform its obligations under this Agreement or
reasonably be expected to delay or otherwise interfere with the
obtaining of the Purchaser Required Statutory Approvals or the Seller
Required Statutory Approvals.
(c) Statutory Approval. Except as disclosed in Section
4.2(c) of the Purchaser Disclosure Schedule, no material declaration,
filing or registration with, or notice to or authorization, consent,
finding by or approval of, any Governmental Authority is necessary for
the execution and delivery of this Agreement by Purchaser or the
consummation by Purchaser of the transactions contemplated hereby (the
"Purchaser Required Statutory Approvals"), it being understood that
13
references in this Agreement to "obtaining" such Purchaser Required
Statutory Approvals shall mean making such declarations, filings or
registrations; giving such notice; obtaining such consents or
approvals; and having such waiting periods expire as are necessary to
avoid a violation of law.
Section 4.3 Availability of Funds. Purchaser will have sufficient
funds available to it to pay the Purchase Price on the Closing Date and to
enable Purchaser to timely perform all of its obligations under this Agreement.
Purchaser has delivered to Seller evidence of the availability of such funds,
including copies of binding commitments in form and substance acceptable to
Seller.
Section 4.4 Purchase for Investment. Purchaser is acquiring the Shares
for its own account, for investment only, without a view to distribution, as
that phrase has meaning under the Securities Act and rules and regulations of
the SEC. Purchaser understands that the effect of the representation and
warranty made herein is that the Shares must be held by it indefinitely unless
subsequently registered under the Securities Act or unless an exemption from
registration is available at the time of any proposed sale or other transfer
thereof.
Section 4.5 Due Diligence. Purchaser is experienced in the evaluation
and purchase of companies such as PGE and PGH II. In making the decision to
enter into this Agreement and consummate the transactions contemplated hereby,
Purchaser has relied solely on its own independent investigation of PGE and PGH
II and upon the representations and warranties and covenants in this Agreement.
Section 4.6 No Knowledge of Breach. Purchaser does not know of any
breach of warranty or any misrepresentation by Seller hereunder.
Section 4.7 Regulation as a Utility. As of the date hereof, Purchaser
is exempt from the registration and all other regulations and requirements of
PUHCA and the rules and regulations promulgated thereunder, other than from
Section 9(a)(2) thereof, pursuant to the rules of the SEC under Section 3(a)(1)
of PUHCA. Sierra Pacific Power Company, a wholly-owned subsidiary of Purchaser,
is regulated as a public utility in the States of Nevada and California and in
no other state. Nevada Power Company, a wholly-owned subsidiary of Purchaser, is
regulated as a public utility in the State of Nevada and in no other state.
Except as set forth in this Section 4.7, neither Purchaser nor any "subsidiary
company" or "affiliate" (as each such term is defined in PUHCA) of Purchaser is
subject to regulation as a public utility or public service company (or similar
designation) by any other state in the United States or any foreign country.
Tuscarora Gas Pipeline Company, a wholly-owned subsidiary of Purchaser, is a
general partner in Tuscarora Gas Transmission Company, which is a general
partnership that owns and operates a FERC-regulated interstate natural gas
pipeline.
14
ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING
After the date hereof and prior to the Closing or earlier termination
of this Agreement, Seller agrees, except as expressly contemplated or permitted
in this Agreement, or to the extent Purchaser shall otherwise consent in
writing, which consent shall not be unreasonably withheld, as follows:
Section 5.1 Ordinary Course of Business. Seller shall cause PGE, PGH
II and each of PGE's and PGH II's respective subsidiaries to, carry on their
respective businesses in all material respects in the usual, regular and
ordinary course, consistent with past practice, and shall cause PGE, PGH II and
each of their respective subsidiaries to, use all reasonable efforts to (i)
preserve intact their present business organizations and goodwill, preserve the
goodwill and relationships with customers, suppliers and others having business
dealings with them, (ii) subject to prudent management of workforce needs, keep
available the services of their present officers and employees as a group, (iii)
maintain and keep their material properties and assets in as good repair and
condition as at present, subject to ordinary wear and tear, and maintain
supplies and inventories in quantities consistent with past practice, (iv) with
respect to wholesale power and energy trading and transactions, comply with
prudent policies, practices and procedures with respect to risk management and
trading limitations, all to the end that their goodwill and ongoing businesses
shall not be impaired in any material respect at the Closing, and (v) comply
with all applicable laws and orders of Governmental Authorities except for
violations that, in the aggregate, would not have a PGE Material Adverse Effect.
Section 5.2 Dividends and Repurchases.
(a) Restrictions on Dividends and Repurchases. Seller shall
not permit PGE, PGH II or any of PGE's and PGH II's respective
subsidiaries to: (i) declare or pay any dividends on or make other
distributions in respect of any of their capital stock other than (A)
dividends by a direct or indirect wholly-owned subsidiary of PGE or
PGH II to PGE or PGH II, as the case may be, or another direct or
indirect wholly-owned subsidiary of PGE or PGH II, (B) dividends by a
less than a wholly-owned subsidiary of PGE or PGH II consistent with
past practice, (C) dividends on the PGE Preferred Stock outstanding on
the date hereof, (D) dividends on the PGE Common Stock in an amount
equal to the lesser of (x) the aggregate amount of consolidated net
income after income taxes (for this purpose income taxes shall mean
any book provision for income taxes consistent with the manner
reported in the PGE SEC Reports) available to common stock of PGE and
its subsidiaries (for purposes of this Section 5.2, "net income") for
the period from January 1, 1999 through the Closing Date or (y) an
amount equal to the aggregate of $129.1 million for 1999, $142.6
million for 2000 and, if applicable, $143.8 million for 2001
(irrespective of when such dividends are actually declared or paid and
prorated for the year in which the Closing in occurs based upon the
number of days in such year before and after the Closing Date) less,
in the case of (x) or (y), any dividends on the PGE Common Stock
declared and paid by PGE during the period from January 1, 1999 to the
date hereof, and (E) the transactions contemplated by Section 6.5(i) ;
provided, however, that the provisions of this Section 5.2(a)(i) shall
15
not limit or restrict payments by any of PGE, PGH II or their
respective subsidiaries to Seller in respect of intercompany payables
or accounts or their liability to Seller on account of PGE or PGH II
and their respective subsidiaries being a member or members of
Seller's affiliated group for federal income tax purposes and, if
applicable, any similar combined or unitary group for state income tax
purposes other than any liability arising by virtue of Treasury
Regulations ss. 1. 1502-6 or any similar state provision (the "Tax
Sharing Payment"); and provided, further, that PGE will not pay
dividends (not including payments in respect of intercompany payables
or accounts or Tax Sharing Payments) in 1999 in an amount in excess of
$129.1 million; (ii) split, combine or reclassify any of PGE's or PGH
II's capital stock or the capital stock of any subsidiary of PGE or
PGH II or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of, or in substitution for, shares
of PGE's or PGH II's capital stock or the capital stock of any
subsidiary of PGE or PGH II; or (iii) redeem, repurchase or otherwise
acquire any shares of A PGE's or PGH II's capital stock or the capital
stock of any subsidiary of PGE or PGH II A other than intercompany
acquisitions of capital stock. For purposes of this Section 5.2(a),
any gain on the sale of the assets referred to in Sections 5.6(6) and
5.6(12) of the Seller Disclosure Schedule shall be excluded from net
income of PGE.
Notwithstanding anything herein to the contrary, any Tax
Sharing Payment to be made by PGE or PGH II with respect to any
taxable period shall not exceed an amount equal to the hypothetical
Tax liability of each such entity with respect to such taxable period
calculated on a separate company basis as if PGE and PGH II were not
members of Seller's A consolidated group or, if applicable, any
combined or unitary state group. If PGE or PGH II makes any Tax
Sharing Payment in respect of Taxes that are calculated on an
estimated basis (an "Estimated Tax Payment") and the aggregate of such
Estimated Tax Payment with respect to a taxable period exceeds the
actual Tax Sharing Payment that would have been payable with respect
to such taxable period, Seller shall pay to Purchaser an amount equal
to such excess; if the amount of the aggregate of such Estimated Tax
Payment with respect to a taxable period is less than the actual Tax
Sharing Payment that would have been payable with respect to such
taxable period, Purchaser shall pay to Seller an amount equal to such
difference.
(b) Stub Period Dividend. At least five business days before
the anticipated Closing Date, Seller will provide Purchaser with
Seller's calculation of the net income of PGE for the period
commencing on the date after the date of the most recent historical
financial statements filed by PGE with the SEC and ending on the
Closing Date (as estimated by Seller with respect to the operations
through the Closing Date and any other portion of such period for
which historical financial information is unavailable) (the "Stub
Period"). In addition to any amount of dividends that may otherwise be
paid to Seller in accordance with the terms of Section 5.2(a) for
periods on or prior to the date of the most recent historical
financial statements filed by PGE with the SEC, Seller may, subject to
the limitations set forth in Section 5.2(a)(i)(D))(y) above, cause PGE
to pay a dividend to it prior to Closing in an amount equal to the
amount of net income reflected in such calculation. If Purchaser
disagrees with Seller's calculation of net income for the Stub Period,
its sole remedy in respect thereof shall be to refer the matter to
PGE's auditors who shall, upon Purchaser's request, provided that such
16
request is made to Seller within 15 business days after the Closing
Date, calculate PGE's net income for the Stub Period. The auditor's
sole inquiry under such circumstances will be with respect to the net
income of PGE for the Stub Period. The calculation of PGE's net income
for the Stub Period by its auditors shall be made within 45 days of
such request and shall be final and binding on the Parties. If such
auditors determine that PGE's net income for the Stub Period is more
than 1 % less than the amount calculated by Seller, Seller will pay
the amount of such difference to Purchaser (provided that the amount
of such difference was included in a dividend paid by PGE to Seller
prior to Closing). If such auditors determine that PGE's net income is
more than 1% greater than the amount calculated by Seller, Purchaser
will, subject to the limitations set forth in Section 5.2(a)(i)(D)
above, pay the amount of the difference to Seller. Payments required
pursuant to this Section 5.2(b) will be made within two business days
of the delivery of the auditors report. Purchaser will be responsible
for all out of pocket costs and expenses relating to the accounting
review process unless Seller is determined to have overstated net
income for the Stub Period by an amount equal to or greater than 5% of
the net income reported by Seller for the Stub Period in which case
Seller shall be responsible for such costs and expenses.
Section 5.3 Issuance of Securities. Except as disclosed in Section 5.3
of the Seller Disclosure Schedule, Seller shall not permit PGE, PGH II or any of
PGE's or PGH II's respective subsidiaries to, issue, deliver or sell, or
authorize or propose the issuance, delivery or sale of, any shares of PGE's or
PGH II's capital stock or the capital stock of any subsidiary of PGE or PGH II
or any class or any securities convertible into or exchangeable for, or any
rights, warrants or options to acquire, any such shares of capital stock, other
than issuances by direct or indirect wholly-owned subsidiaries of PGE or PGH II
of securities to PGE or PGH II or to other direct or indirect wholly owned
subsidiaries of PGE or PGH II.
Section 5.4 Charter Documents. Neither PGE nor PGH II shall amend or
propose to amend its certificate or articles of incorporation or by-laws in any
way that would adversely affect the consummation of the transactions
contemplated by this Agreement.
Section 5.5 Acquisitions. Except as disclosed in Section 5.5 of the
Seller Disclosure Schedule, Seller shall not permit PGE, PGH II or any of PGE's
or PGH II's subsidiaries to, acquire or agree to acquire, by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets material
to such companies taken as a whole, other than in the ordinary course of
business consistent with past practice, not to exceed $20 million in the
aggregate.
Section 5.6 No Dispositions. Except as disclosed in Section 5.6 of the
Seller Disclosure Schedule, Seller shall not permit PGE, PGH II or any of PGE's
or PGH II's subsidiaries to, sell, lease, license, encumber or otherwise dispose
of, any assets material to such companies taken as a whole, other than in the
ordinary course of business consistent with past practice, not to exceed $20
million in the aggregate.
17
Section 5.7 Indebtedness. Except as disclosed in Section 5.7 of the
Seller Disclosure Schedule, Seller shall not permit PGE or PGH II or any of
PGE's or PGH II's subsidiaries to, incur or guarantee any indebtedness
(including any debt borrowed or guaranteed or otherwise assumed, including,
without limitation, the issuance of debt securities or warrants or rights to
acquire debt) other than (a) short-term indebtedness in an amount not to exceed
the amount of indebtedness provided for in PGE's current short term credit
facilities (b) long-term indebtedness incurred in connection with the
refinancing of existing indebtedness either at its stated maturity or at a lower
cost of funds and (c) up to $200 million in additional indebtedness, including
not more than $100 million in additional indebtedness, having maturities of five
years or less from its date of incurrence.
Section 5.8 Capital Expenditures. Except as disclosed in Section 5.8
of the Seller Disclosure Schedule or as required by law, Seller shall not permit
PGE, PGH II or any of PGE's or PGH II's subsidiaries to, make any capital
expenditures, other than (i) capital expenditures previously budgeted for the
remainder of 1999, and (ii) capital expenditures to repair or replace facilities
destroyed or damaged due to casualty or accident (whether or not covered by
insurance to the equivalent state prior to such casualty or accident).
Section 5.9 Compensation, Benefits. Except as disclosed in Section 5.9
of the Seller Disclosure Schedule, Seller shall not permit PGE or PGH II or any
of PGE's or PGH II's subsidiaries to, (a) enter into, adopt, amend or renew
(except as may be required by applicable law), accept assignment of or increase
the amount or accelerate the payment or vesting of any benefit or amount it plan
or other contract, agreement, commitment, arrangement, payable under, any
employee benefit plan or policy maintained by, contributed to or entered into by
PGE, PGH II or any of their respective subsidiaries, or increase, or enter into
any contract, agreement, commitment or arrangement to increase in any manner,
the compensation or fringe benefits, or otherwise to extend, expand or enhance
the engagement, employment or any related rights, of any director, officer or
other employee of PGE or PGH II or any of their respective subsidiaries, except
(i) pursuant to binding legal commitments and (ii) other than with respect to
executive officers of PGE or PGH II (including without limitation ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇) for whom this clause (ii)
shall not apply, for normal (including incentive) increases, extensions,
expansions, enhancements, amendments or adoptions, renewals or assignments in
the ordinary course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits or compensation
expense to PGE, PGH II and their respective subsidiaries taken as a whole or (b)
enter into, amend, accept assignment of or renew any employment, severance,
special pay arrangement with respect to termination of employment or other
similar contract, agreement or arrangement with any director or officer of PGE
or PGH II or any of their respective subsidiaries except, other than with
respect to executive officers of PGE or PGH II (including without limitation
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇) for whom this
exception shall not apply, in the ordinary course of business consistent with
past practice.
Section 5.10 Cooperation, Notification. Seller shall: (a) confer on a
regular and frequent basis with one or more representatives of Purchaser to
discuss the general status of PGE's and PGH II's ongoing operations; (b)
promptly notify Purchaser of any significant changes in PGE's or PGH II's
business, properties, financial condition or results of operations; and (c)
18
advise Purchaser of any change or event that has had or, insofar as reasonably
can be foreseen, is reasonably likely to result in, a PGE Material Adverse
Effect.
Section 5.11 Insurance. Seller shall cause PGE, PGH II and each of
PGE's and PGH II's subsidiaries to, maintain with financially responsible
insurance companies insurance in such amounts and against such risks and losses
as are customary for companies engaged in their respective businesses.
Section 5.12 Permits. Seller shall cause PGE, PGH II and each of PGE's
and PGH II's subsidiaries to use commercially reasonable efforts to maintain in
effect all existing Permits pursuant to which PGE, PGH II or any of their
respective subsidiaries operate.
Section 5.13 Nuclear Operations. Seller shall not permit PGE or any of
its subsidiaries to (i) breach any existing contract or arrangement for the
disposal or storage of spent nuclear fuel or components of the PGE Nuclear
Facility; or (ii) obligate itself to the payment of decommissioning expenses for
the PGE Nuclear Facility, or propose or adopt a budget for such decommissioning
expenses, which exceeds the decommissioning forecast set forth in Section 5.13
of the Seller Disclosure Schedule, by an amount sufficient to produce a PGE
Material Adverse Effect when measured over the life of the payment obligation or
budget for such expenses. Seller shall not permit PGE to engage in, or enter
into the business of undertaking to engage in, the transportation, treatment or
disposal of radioactive waste generated by third parties. To the extent not
prohibited by applicable laws, regulations, facility licenses, permits and
agreements with third parties existing as of the date of this Agreement, at all
times prior to the Closing, Seller shall make available to Purchaser, upon its
request, any existing information relevant to the operation or decommissioning
of the PGE Nuclear Facility, and shall inform Purchaser promptly of any proposed
material changes to the Decommissioning Plan. If Seller is prohibited by
agreement with a third party from providing information to Purchaser, Seller
shall use reasonable efforts (including taking into account Purchaser's
willingness to execute appropriate confidentiality agreements) to obtain the
consent of such third party to the release of such information. In addition,
upon reasonable notice, Seller shall allow access by two individuals designated
by Purchaser, to all portions of the PGE Nuclear Facility, affording those
Persons the same degree of access to facilities and information to the same
extent afforded the Vice President of Nuclear and Thermal Operations. Access by
the individuals selected by Purchaser shall be pursuant to existing procedures
for access to the PGE Nuclear Facility, including any security clearance and
training normally required of PGE nuclear personnel.
Section 5.14 Discharge of Liabilities. Seller shall not permit PGE,
PGH II and each of PGE's and PGH II's subsidiaries to pay, discharge or satisfy
any material claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past practice
(which includes the payment of final and unappealable judgments) or in
accordance with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the notes
thereto) of such party included in PGE SEC Reports or the September 30, 1999
balance sheet included in the PGE II Pro Formas, as the case may be, or incurred
in the ordinary course of business consistent with past practice.
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Section 5.15 Contracts. Seller shall not permit PGE, PGH II and each
of PGE's and PGH II's subsidiaries to, except in the ordinary course of business
consistent with past practice, (i) to modify, amend, terminate or fail to use
commercially reasonable efforts to renew any material contract to which PGE, PGH
II or any of PGE's or PGH II's subsidiaries is a party or waive, release or
assign any material rights or claims or (ii) to enter into any new material
contracts except as otherwise expressly permitted by this Agreement. For
purposes of the restrictions in this Section 5.15 on modifications, amendments
or terminations of contracts, a contract will be deemed to be a material
contract if the modification, amendment or termination of such contract shall
result in an incremental payment or payments during the 12 month period
immediately following such modification, amendment or termination to any of PGE,
PGH II or their respective subsidiaries of $1.0 million or more, or, in the case
of contracts with a term extending beyond the Closing Date, $5.0 million or more
in the aggregate.
Section 5.16 Certain Actions. Seller will not permit PGE, PGH II or
any of their respective an subsidiaries to adopt a plan of complete or partial
liquidation or resolutions providing for or authorizing such liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization.
Section 5.17 Non-Solicitation. Seller agrees that, during the period
beginning on the date hereof and ending one year after the Closing Date, neither
it nor any of its subsidiaries (excluding PGE, PGH II and their respective
subsidiaries) will, directly or indirectly, solicit for employment or attempt to
hire or hire for employment any Person who is employed by PGE, PGH II or any of
their respective subsidiaries on the date of this Agreement or at any time prior
to the Closing Date; provided, however, that the restrictions in this Section
5.17 shall not be applicable to any Person that is terminated without cause by
PGE, PGH II or any of their respective subsidiaries after the Closing Date; and,
provided, further, that general advertising of employment opportunities and
posting of employment opportunities on Seller's internal employee bulletin board
shall be permitted hereunder and such activities shall be deemed not to violate
the non-solicitation or attempt to hire provisions of this Section 5.17.
Section 5.18 Accounting Matters. Seller shall not permit PGE, PGH II
or any of their respective subsidiaries to make any material changes in any of
their accounting methods, policies or procedures, including without limitation,
in calculating net income, except as required by law, rule, regulation or GAAP.
In addition, neither Seller, PGE, PGH II or any of their respective subsidiaries
will seek any regulations or rulings from any Governmental Authority regarding
accounting methods, policies or procedures of PGE or its subsidiaries without
the prior written consent of Purchaser.
ARTICLE VI
ADDITIONAL ARRANGEMENTS
Section 6.1 Access to Information. Upon reasonable notice and during
normal business hours, Seller shall cause PGE, PGH II and each of PGE's and PGH
II's respective subsidiaries to, afford to the Purchaser Representatives
reasonable access, during normal business hours throughout the period prior to
20
the Closing Date, to all of their properties, books, contracts, personnel,
commitments and records; provided, however, that (A) any such access shall not
interfere unreasonably with the operation of the business of PGE, PGH II or any
of their respective subsidiaries, (B) neither PGE, PGH II nor any of their
respective subsidiaries shall be required to take any action which would
constitute a waiver of the attorney-client privilege and (C) neither PGE, PGH II
nor any of their respective subsidiaries shall be required to supply Purchaser
with any information which PGE, PGH II or any of their respective subsidiaries
is under a legal obligation not to supply. During such period, Seller and
Purchaser shall furnish promptly to the other Party (i) a copy of each report,
schedule and other document filed or received by it or any of its subsidiaries
pursuant to the requirements of the FERC, the NRC, the Department of Justice,
the Federal Trade Commission or any other federal or state regulatory agency or
commission with respect to the transactions contemplated hereby and (ii) all
information concerning themselves, their subsidiaries, directors and officers
and such matters as may be reasonably requested by the other Party in connection
with any filings, applications or approvals required or contemplated by this
Agreement. All documents and information furnished pursuant to this Section 6.1
shall be subject to the Confidentiality Agreement. The Party requesting copies
of any documents from the other Party shall be responsible for all out-of-pocket
expenses incurred by the Party to whom such request is made in complying with
such request, including any cost of reproducing and delivering any required
information.
Section 6.2 Regulatory Matter.
(a) As promptly as practicable but in any event not later
than 120 days after the date of this Agreement, Seller and Purchaser
shall each file with the Federal Trade Commission and the Department
of Justice any notifications required to be filed under the HSR Act
and the rules and regulations promulgated thereunder with respect to
the transactions contemplated hereby. The Parties shall consult with
each other as to the appropriate time of filing such notifications and
shall use their best efforts to make such filings at the agreed upon
time, to respond promptly to any requests for additional information
made by either of such agencies and to cause the waiting periods under
the HSR Act to terminate or expire at the earliest possible date after
the date of filing.
(b) Seller and Purchaser shall cooperate with each other to
(i) promptly (but in any event not later than 75 days after the date
of this Agreement with respect to filings with the OPUC and the Public
Utility Commission of Nevada, 90 days after the date of this Agreement
with respect to filings with the SEC and 120 days after the date of
this Agreement with respect to filings with FERC) prepare and file all
necessary documentation, (ii) effect all necessary applications,
notices, petitions and filings and execute all agreements and
documents, (iii) use their respective best efforts to obtain all
necessary permits, consents, approvals and authorizations of all
Governmental Authorities and (iv) use their respective best efforts to
obtain all necessary permits, consents, approvals and authorizations
of all other parties, in the case of each of the foregoing clauses
(i), (ii), (iii) and (iv), necessary or advisable to consummate the
transactions contemplated by this Agreement (including, without
limitation, the Seller Required Statutory Approvals and the Purchaser
Required Statutory Approvals) or required by the terms of any note,
bond, mortgage, indenture deed of trust, license, franchise, permit,
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concession, contract, lease or other instrument to which PGE, PGH II
or Purchaser or any of their respective subsidiaries is a party or by
which any of them is bound. Each of Seller and Purchaser shall have
the right to review in advance all filings to be made by the other
Party with any Governmental Authority in connection with the
transactions contemplated hereby.
Section 6.3 Cooperation. Subject to the terms and conditions of this
Agreement, each of the Parties hereto will use its respective best efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the sale of the Shares pursuant to this Agreement,
including without limitation, using best efforts to ensure satisfaction of the
conditions precedent to each Party's obligations hereunder. Neither of the
Parties hereto will, without the prior written consent of the other Party, take
or fail to take any action, which would reasonably be expected to prevent or
materially impede, interfere with or delay the transactions contemplated by this
Agreement. Purchaser further agrees that it shall not, and shall not permit any
of its subsidiaries to, and ▇▇▇▇▇▇ further agrees to cause PGE, PGH II and each.
subsidiary of PGE or PGH II not to, enter into any transaction, including any
merger, acquisition, joint venture, disposition, lease, contract or financing,
if the entering into of a definitive agreement relating to or the consummation
of such transaction could reasonably be expected to delay the obtaining of, or
significantly increase the risk of not obtaining, any authorizations, consents,
orders, declarations or approvals of any Governmental Authority necessary to
consummate the transactions contemplated hereby or the expiration or termination
of any applicable waiting period, significantly increase the risk of any
Governmental Authority entering an order prohibiting the consummation of the
transactions contemplated hereby or significantly increase the risk of not being
able to remove any such order on appeal or otherwise.
Section 6.4 Public Announcements. Seller and Purchaser shall cooperate
with each other in the development and distribution of all news releases and
other public information disclosures with respect to this Agreement or any of
the transactions contemplated hereby and, subject to each Party's disclosure
obligations imposed by law or any applicable national securities exchange, (a)
shall consult with each other with respect to any public announcements or
statements and (b) shall not issue any public announcement or statement with
respect to the transactions contemplated by this Agreement that is inconsistent
with any public announcement or statement previously made by either Party
without the consent of the other Party.
Section 6.5 Employee Benefit Plans.
(a) Prior to Closing, Seller shall have caused sponsorship
of the Portland General Holdings, Inc. Pension Plan and Portland
General Holdings, Inc. Voluntary Employees' Beneficiary Association
and any related trusts or other funding vehicles to be transferred to
and assumed by PGH II and PGE and PGH shall thereupon cease to be a
sponsor of such plans. From and after Closing, Seller and Seller's
affiliates and subsidiaries (including PGH) shall have no rights,
duties, responsibilities or liabilities with respect to the Portland
General Holdings, Inc. Pension Plan and Portland General Holdings,
Inc. Voluntary Employees' Beneficiary Association or any related
trusts or other funding vehicles and Purchaser agrees that, pursuant
to their assumption of sponsorship of such plans, PGH II and PGE shall
22
assume all rights, duties, responsibilities and liabilities with
respect to such plans, and any related trusts or other funding
vehicles.
(b) The account balances (both vested and unvested) under
the Enron Corp. Savings Plan of the PGE Employees and of any other
individuals whose accounts were transferred into the Enron Corp.
Savings Plan pursuant to the merger into such plan of the Portland
General Holdings, Inc. Retirement Savings Plan shall be transferred to
a qualified defined contribution plan of the Purchaser as soon as
practicable after Closing following receipt from the IRS of
confirmation that such transfer will not adversely affect the
qualified status under applicable provisions of the Code of the Enron
Corp. Savings Plan. Such transfer shall be in cash except that any
outstanding participant loans shall be transferred in kind.
(c) The account balances under the Enron Corp. Employee
Stock Ownership Plan of the PGE Employees shall be distributed to them
in lump sum payments in cash or in kind as soon as practicable after
Closing after receipt by Seller from the IRS of confirmation that
effecting such distributions will not adversely affect the qualified
status of such plan under applicable provisions of the Code.
(d) After Closing, the Enron Corp. Medical Plan for Active
Employees, the Enron Corp. Medical Plan for Inactive Participants, the
Enron Corp. Dental Plan for Active Employees and the Enron Corp.
Dental Plan for Inactive Participants shall thereafter be liable for
and only for the payment of claims incurred prior to Closing by the
PGE Employees and the PGE Former Employees who were covered by such
plans prior to Closing.
(e) From and after Closing, the PGE Employees shall no
longer be permitted to make pre-tax contributions under the Enron
Corp. Flexible Benefit Plan but they shall be permitted to submit
claims against their medical reimbursement and dependent care flexible
spending accounts under such plan through the remainder of the
calendar year including Closing but not for any amounts in excess of
the Closing date balances of such accounts.
(f) For a period of not less than two years following the
Closing Date, Purchaser shall provide or shall cause PGH II and PGE
and their subsidiaries to provide the PGE Employees and the PGE Former
Employees with employee benefits that are not materially less
favorable in the aggregate than those provided (a) immediately prior
to Closing to such individuals under the Benefit Plans disclosed on
Seller's Disclosure Schedule at Section 3.9(a) or (b) to similarly
situated United States employees of Purchaser and its subsidiaries;
provided, however, that the foregoing shall not require the continued
maintenance of or prevent the amendment or termination of any
particular benefit plan except that during such two year period
Purchaser shall provide or cause PGH II and PGE to provide severance
benefits for the PGE Employees in amounts and upon terms and
conditions that are no less favorable than those that were in effect
under the Portland General Holdings, Inc. Involuntary Severance Plan
as in effect on September 5, 1997 and the Portland General Holdings,
23
Inc. Outplacement Assistance Plan as in effect on September 5, 1997,
and provided, further, that Purchaser's right to negotiate successor
collective bargaining agreements shall not be limited by this Section
6.5(f).
(g) Each PGE Employee and PGE Former Employee shall be given
credit for all purposes under the Replacement Plans for all service
prior to the Closing with Seller and its affiliates and subsidiaries
(including, specifically, service with PGH, PGH II, PGE and their
affiliates and subsidiaries prior to their acquisition by Seller), to
the extent such credit was given under the Benefit Plans disclosed on
Seller's Disclosure Schedule at Section 3.9(a).
(h) No preexisting condition exclusion or limitation that
was inapplicable under the applicable Benefit Plan immediately prior
to closing shall be applicable with respect to the participation of
any PGE Employee or PGE Former Employee in any Replacement Plan that
is a medical benefit plan, but (i) the medical expenses incurred by a
PGE Employee or PGE Former Employee (or their spouses and dependents)
during the portion of the year prior to Closing shall be counted for
purposes of the annual deductible of any such medical benefit plan to
the extent such expenses were similarly counted under the applicable
Benefit Plan prior to the closing and (ii) the medical expenses paid
by a Benefit Plan of Seller and its affiliates and subsidiaries that
is a medical plan during the year in which Closing occurs for any PGE
Employee or PGE Former Employee (and their spouses or dependents)
shall. be counted for purposes of any annual limits of such medical
benefit plan.
(i) Prior to Closing, Seller shall have caused PGH or Seller
to assume any and all obligations (including benefit liability
obligations and allocated assets) of PGE with respect to and under
each of the Portland General Holdings, Inc. Umbrella Trust for Outside
Directors, the Portland General Holdings, Inc. Umbrella Trust for
Management (jointly, the "Trusts"), the Portland General Holdings,
Inc. Outside Directors' Life Insurance Benefit Plan, the Portland
General Holdings, Inc. Senior Officers' Life Insurance Benefit Plan,
the Portland General Holdings, Inc. Management Deferred Compensation
Plan, the Portland General Holdings, Inc. Outside Directors' Deferred
Compensation Plan, the Portland General Holdings, Inc. Supplemental
Executive Retirement Plan and the Portland General Holdings Inc.
Retirement Plan for Outside Directors (jointly, the "Executive and
Director Plans") and shall have caused the subtrusts in the Trusts to
be adjusted to reflect the transfer from PGE to PGH of liabilities
under the Executive and Director Plans as described above. In
connection with the assumption by PGH or Seller of such obligations,
at or prior to Closing, PGH shall transfer to PGH II and PGH II shall
assume from PGH the $20,607,214 payable to PGE incurred by PGH on July
31, 1999 and all accrued interest thereon and PGE shall release PGH in
respect thereof Section 6.5 of the Seller Disclosure Schedule provides
certain information regarding the regulatory status of the Executive
and Director Plans.
Section 6.6 Expenses. Subject to Section 5.2, Section 6.1, Section
6.15 and Section 8.2, (a) all costs and expenses incurred by Seller, PGE or PGH
II in connection with this Agreement and the transactions contemplated hereby
shall be paid by Seller, and (b) all costs and expenses incurred by Purchaser in
connection with this Agreement and the transactions contemplated hereby shall be
paid by Purchaser.
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Section 6.7 No Breach, Etc. No Party shall, nor shall any Party permit
any of its subsidiaries to, take any action that would or is reasonably likely
to result in a material breach of any provision of this Agreement or in any of
its representations and warranties set forth in this Agreement being untrue on
and as of the Closing Date.
Section 6.8 Directors' and Officers' Indemnification.
(a) Survival of Indemnification. To the fullest extent not
prohibited by law, from and after the Closing Date, all rights to
indemnification now existing in favor of the employees, agents,
directors or officers of PGE, PGH II and their respective subsidiaries
with respect to their activities as such prior to or on the Closing
Date, as provided in their respective articles of incorporation,
bylaws, other organizational documents or indemnification agreements
in effect on the date of such activities or otherwise in effect on the
date hereof, shall survive the Closing and shall continue in full
force and effect for a period of not less than six years from the
Closing Date, provided that, in the event any claim or claims are
asserted or made within such six year period, all such rights to
indemnification in respect of any claim or claims shall continue until
final disposition of such claim or claims.
(b) Successors. In the event Purchaser, PGE, PGH II or any
of their respective successors or assigns (i) consolidates with or
merges into any other Person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets
to any Person, then and in either such case, proper provision shall be
made so that the successors and assigns of Purchaser, PGE or PGH II,
as the case may be, shall assume the obligations set forth in this
Section 6.8.
Section 6.9 Insurance. Purchaser shall cause to be put in place as of
the Closing Date insurance policies covering PGE and PGH II and their respective
subsidiaries to the extent such entities are included in Seller's policies as of
such date. Purchaser shall cause all surety bonds and letters of credit that
Seller or its affiliates (other than PGE, PGH II and their respective
subsidiaries) have entered into or provided on behalf of PGE, PGH II or their
respective subsidiaries and that remain outstanding on the Closing Date to be
replaced as of the Closing Date with no further obligation to Seller or such
affiliates. A list of the types of insurance coverage provided by Seller for PGE
and PGH II and their respective subsidiaries and the surety bonds and letters of
credit entered into or provided on their behalf, in each case as of the date
hereof, is set forth on Schedule 6.9 of the Seller Disclosure Schedule.
Section 6.10 Corporate Name. Purchaser shall not acquire, nor shall
PGE, PGH II or any of PGE's or PGH II's subsidiaries retain, any rights to the
name "Enron" (and all derivations therefrom) and any trademarks, trade names or
symbols related thereto. As soon as reasonably practicable after the Closing
(and in any event, within 60 days after the Closing Date) Purchaser will cause
PGE, PGH II and each of their respective subsidiaries to remove the "Enron" name
(and all derivations therefrom), and all trademarks, trade names and symbols
related thereto from the properties and assets of PGE, PGH II and each of their
respective subsidiaries (including changing all signage relating thereto). In
addition, within 10 business days of the Closing Date, Purchaser will change all
25
of the legal names of the subsidiaries of PGE and PGH II to delete from the name
thereof the word "Enron".
Section 6.11 Related Party Contracts. Except as set forth on Schedule
6.11 of the Seller Disclosure Schedule, Seller shall cause all of the Related
Party Contracts, including those entered into after the date of this Agreement,
to be terminated prior to the Closing.
Section 6.12 PUHCA. Purchaser shall comply with any and all
requirements of PUHCA. If Purchaser is required to register under Section 5 of
PUHCA in connection with the transactions contemplated by this Agreement,
Purchaser shall comply with the notification and registration requirements of
Section 5 of PUHCA and the SEC's regulations thereunder. Purchaser shall take
any and all actions necessary to comply with Sections 10 and 11 of PUHCA as such
provisions relate to the integration of the utility assets of Purchaser, its
subsidiaries and PGE.
Section 6.13 Tax Matters.
(a) Consolidated Returns. Seller shall cause to be included
in the consolidated federal income Tax Returns (and in the state
income Tax Returns of any state in which consolidated, combined or
unitary income Tax Returns are filed) of the affiliated group of
corporations of which Seller is the common parent (the "Seller Group")
for any period beginning on or after the date on which PGE was first
included in the consolidated federal income Tax Return of the Seller
Group (the "Beginning Tax Date") and ending on or before the Closing
Date, all items of income, gain, loss, deduction and credit and other
tax items ("Tax Items") of PGE, PGH II and their respective
subsidiaries which are required to be included therein (taking into
account the provisions of Treas. Reg. ss. 1.1502-76(b)(1)(ii)(B)), and
shall cause such Tax Returns to be timely filed with the appropriate
taxing authorities, and shall be responsible for the timely payment
(and entitled to any refund) of all Taxes (except for Taxes resulting
from any transaction not in the ordinary course of business occurring
on the Closing Date after the Closing) due with respect to the periods
covered by such Tax Returns.
(b) Separate Returns. With respect to any Tax Return
covering a taxable period beginning on or after the Beginning Tax Date
and ending on or before the Closing Date that is required to be filed
after the Closing Date with respect to any of PGE, PGH II and their
respective subsidiaries and that is not described in paragraph (a)
above, Purchaser shall cause such Tax Return to be prepared, shall
cause to be included in such Tax Return all Tax Items required to be
included therein, and shall cause such Tax Return to be filed timely
with the appropriate taxing authority. Seller shall provide Purchaser
with the information necessary to prepare all such Tax Returns.
Purchaser shall deliver a copy of each such Tax Return to Seller at
least 30 days prior to the due date for the filing of each such Tax
Return to permit Seller to review and comment on each such Tax Return
prior to filing and shall make such revisions as are reasonably
requested by Seller. Seller shall pay to Purchaser, at least five days
prior to the due date for any such Tax Return, all amounts (except for
Taxes resulting from any transaction not in the ordinary course of
business occurring on the Closing Date after the Closing) which are
shown as due on such Tax Return, and Purchaser shall pay the amount
26
shown as due on such Tax Return and remit such amounts to the
appropriate taxing authorities. Seller shall be entitled to any refund
for Taxes for any period covered by any such Tax Return.
(c) Straddle Returns. With respect to any Tax Return
covering a taxable period beginning on or before the Closing Date and
ending after the Closing Date that is required to be filed after the
Closing Date (a "Straddle Period Return") with respect to any of PGE,
PGH II and their respective subsidiaries, Purchaser shall cause such
Tax Return to be prepared, shall cause to be included in such Tax
Return all Tax Items required to be included therein and shall furnish
a copy of such Tax Return to Seller. Seller shall pay to Purchaser at
least five days prior to the due date for the filing of any Straddle
Period Return an amount equal to the portion of the Taxes shown on
such return which relates to the portion of such taxable period ending
on the Closing Date (a"Pre-Closing Straddle Period"). For purposes of
this Section 6.13 (c), in the case of any Taxes that are imposed on a
periodic basis and are payable with respect to a taxable period that
includes (but does not end on) the Closing Date, the portion of such
Tax which relates to the portion of such taxable period ending on the
Closing Date shall (1) in the case of any Taxes other than Taxes based
upon or related to income, receipts, sales or payroll, be deemed to be
the amount of such Tax for the entire taxable period multiplied by a
fraction the numerator of which is the number of days in the taxable
period ending on the Closing Date and the denominator of which is the
number of days in the entire taxable period, and (2) in the case of
any Tax based upon or related to income, receipts, sales or payroll,
be deemed equal to the amount which would be payable if the relevant
taxable period ended on the Closing Date.
(d) Consistency. Any Tax Return to be prepared pursuant to
the provisions of Section 6.13(b) or (c) shall be prepared in a manner
consistent with practices followed in prior years with respect to
similar Tax Returns, except for changes required by changes in law or
fact.
(e) Access to Tax Records. Seller shall grant to Purchaser
(or its designees) access at all reasonable times to all of the
information, books and records relating to PGE, PGH II and their
respective subsidiaries within the possession of Seller or any member
of the Seller Group (including workpapers and correspondence with
taxing authorities), and shall afford Purchaser (or its designees) the
right (at Purchaser's expense) to take extracts therefrom and to make
copies thereof, to the extent reasonably necessary to permit Purchaser
(or its designees) to prepare Tax Returns and to conduct negotiations
with taxing authorities. Purchaser shall grant or cause PGE, PGH II
and their respective subsidiaries to grant to Seller (or its
designees) access at all reasonable times to all of the information,
books and records relating to PGE, PGH II and their respective
subsidiaries within the possession of Purchaser, PGE, PGH II or their
respective subsidiaries (including workpapers and correspondence with
taxing authorities), and shall afford Seller (or its designees) the
right (at Seller's expense) to take extracts therefrom and to make
copies thereof, to the extent reasonably necessary to permit Seller
(or its designees) to prepare Tax Returns and to conduct negotiations
with taxing authorities.
27
(f) Transfer Taxes. Purchaser shall be responsible for the
payment of all state and local transfer, sales, use or other similar
Taxes resulting from the transactions contemplated by this Agreement.
(g) No Section 338 Election. No election shall be made under
section 338 of the Code or the corresponding provisions of any state
Tax law with respect to the purchase of the PGE Shares or the PGH II
Shares.
(h) Indemnification for Taxes. From and after the Closing
Date Seller shall protect, defend, indemnify and hold harmless
Purchaser, PGE, PGH II and their respective subsidiaries from any and
all Taxes imposed on PGE, PGH II or any of their respective
subsidiaries (i) for any taxable period beginning on or after the
Beginning Tax Date and ending on or before the Closing Date (except
for Taxes resulting from any transaction not in the ordinary course of
business occurring on the Closing Date after the Closing), (ii) with
respect to any Pre-Closing Straddle Period; or (iii) resulting by
reason of the several liability of PGE, PGH II or any of their
respective subsidiaries for Taxes pursuant to Treas. Reg. ss. 1.1502-6
or any analogous state, local or foreign law or regulation for periods
beginning on or after the Beginning Tax Date and ending on or before
the Closing Date; provided, however, that Seller's liability under
this paragraph shall be reduced with respect to any item to the extent
of the amount for which such item was specifically identified and
reserved in the financial statements referred to in Section 3.5 and
not taken into account in computing any Tax Sharing Payment. Purchaser
shall protect, defend, indemnify and hold harmless Seller and each
member of the Seller Group from any and all other Taxes imposed on
PGE, PGH II or any of their respective subsidiaries.
(i) Tax Proceedings. In the case of any audit, examination
or other proceeding ("Proceeding") with respect to Taxes for which
Seller would be liable pursuant to this Agreement, Purchaser shall
promptly inform Seller, and shall afford Seller, at its expense, the
opportunity to control the conduct of such Proceedings. Seller shall
have the right to initiate any claim for refund, file any amended Tax
Return or take any other action which it deems appropriate with
respect to such Taxes; provided that such action does not adversely
affect Purchaser or PGE, PGH II or the respective subsidiaries of PGE
and PGH II for any taxable year beginning after the Closing Date. Any
Proceeding with respect to Taxes for a period which includes but does
not end on the Closing Date shall be controlled jointly by Seller and
Purchaser.
(j) Tax Sharing Agreements. All tax sharing agreements with
respect to or involving PGE, PGH II and their respective subsidiaries
shall be terminated as of the Closing Date and, after the Closing
Date, PGE, PGH Il and their subsidiaries shall not be bound thereby or
have any liability thereunder.
Section 6.14 Evidence of Financing Availability. If the Closing has
not occurred on or before November 3, 2000, Purchaser will obtain, and will
provide Seller with a copy of, either (i) an extension of the commitment letter
received by Purchaser on the date hereof, a copy of which has been provided to
Seller, providing for a commitment of at least the same amount of financing and
28
including funding conditions and other terms and conditions no less favorable
than the terms of the original commitment letter, or (ii) a new commitment
letter or letters that provides for an amount of financing and including funding
conditions and other terms and conditions no less favorable than the terms of
the original commitment letter from a bona fide lender, in the case of each of
(i) and (ii) including a termination date not before May 5, 2001.
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Obligations of Purchaser. The obligations of
Purchaser to purchase the Shares and to consummate the other transactions
contemplated by this Agreement shall be subject to the fulfillment on or prior
to the Closing Date (or the waiver by Purchaser) of the following conditions:
(a) No Injunction. No preliminary or permanent injunction or
other order, judgment or decree by any federal or state court of
competent jurisdiction that prevents the consummation of the sale of
the Shares contemplated herein shall have been issued and remain in
effect (each Party agreeing to use its best efforts to have any such
injunction, order, judgment or decree lifted), and the sale of the
Shares shall not have been prohibited under any applicable federal or
state law or regulation.
(b) Statutory Approvals. All Seller Required Statutory
Approvals and all Purchaser Required Statutory Approvals shall have
been made or obtained and become Final Orders, and such Final Orders
shall not, in the aggregate, impose terms or conditions that would
have a PGE Material Adverse Effect or a materially adverse effect or
change on the business, condition (financial or otherwise) or results
of operations of the Purchaser, PGE and their respective subsidiaries
taken as a whole.
(c) Performance of Obligations of Seller. Seller shall have
performed and complied with, in all material respects, the covenants
and agreements contained in this Agreement that are required to be
performed and complied with by Seller on or prior to the Closing Date.
(d) Representations and Warranties. The representations and
warranties of Seller set forth in this Agreement shall be true and
correct (i) on and as of the date hereof and (ii) on and as of the
Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except for
representations and warranties that expressly speak only as of a
specific date or time other than the date hereof or the Closing Date,
which need only be true and correct as of such date or time) except in
each of clauses (i) and (ii) above for such failures of
representations and warranties to be true and correct (without regard
to any materiality qualifications contained therein) that,
individually or in the aggregate, would not result in a PGE Material
Adverse Effect.
29
(e) Closing Certificate. Purchaser shall have received a
certificate from an authorized officer of the Seller, dated the
Closing Date, to the effect that, to such office's, knowledge, the
conditions set forth in Section 7. 1 (c), and Section 7. 1 (d) have
been satisfied.
(f) No PGE Material Adverse Effect. Since the date of this
Agreement, no PGE Material Adverse Effect shall have occurred and be
continuing.
Section 7.2 Conditions to Obligations of Seller. The obligations of
Seller to sell the Shares and to consummate the other transactions contemplated
by this Agreement shall be subject to the fulfillment on or prior to the Closing
Date (or the waiver by Seller) of the following conditions:
(a) No Injunction. No preliminary or permanent injunction or
other order, judgment or decree by any federal or state court of
competent jurisdiction that prevents the consummation of the sale of
the Shares contemplated herein shall have been issued and remain in
effect (each Party agreeing to use its best efforts to have any such
injunction, order, judgment or decree lifted), and the sale of the
Shares shall not have been prohibited under any applicable federal or
state law or regulation.
(b) Statutory Approvals. All Purchaser Required Statutory
Approvals and all Seller Required Statutory Approvals shall have been
made or obtained and become Final Orders, and such Final Orders shall
not impose any liability, loss, cost, expense, restriction,
encumbrance or obligation on Seller or any of its subsidiaries or
affiliates.
(c) Performance of Obligations of Purchaser. Purchaser shall
have performed and complied with, in all material respects, the
covenants and agreements contained in this Agreement that are required
to be performed and complied with by Purchaser on or prior to the
Closing Date.
(d) Representations and Warranties. The representations and
warranties of Purchaser set forth in this Agreement shall be true and
correct (without regard to any materiality qualifications contained
therein) in all material respects on and as of the date hereof and on
and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing
Date.
(e) Closing Certificate. Seller shall have received a
certificate from an authorized officer of Purchaser dated the Closing
Date, to the effect that, to such officer's knowledge, the conditions
set forth in Section 7.2(c), and Section 7.2(d) have been satisfied.
30
ARTICLE VIII
TERMINATION
Section 8.1 Termination.
(a) Mutual Consent. This Agreement may be terminated at any
time prior to the Closing Date by the mutual consent of Seller and
Purchaser.
(b) Permanent Injunction. This Agreement may be terminated
by Seller or Purchaser, if any federal or state court of competent
jurisdiction shall have issued an order, judgment or decree
permanently restraining, enjoining or otherwise prohibiting the
Closing, and such order, judgment or decree shall have become final
and nonappealable.
(c) Termination Date. This Agreement may be terminated by
Seller or Purchaser if the Closing contemplated hereby shall have not
occurred on or before the day that is 12 months from the date of this
Agreement (the "Initial Termination Date"); provided that the right to
terminate this Agreement under this Section 8. 1 (c) shall not be
available to any Party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted directly or
indirectly in, the failure of the Closing to occur on or before such
date; and provided, further, that if on the Initial Termination Date
the conditions to the Closing set forth in Sections 7.1(b) or 7.2(b)
shall not have been fulfilled, but all other conditions to the Closing
have been fulfilled or are capable of being fulfilled, then the
Initial Termination Date shall be extended to the day that is 18
months from the date of this Agreement.
(d) Required Statutory Approvals. This Agreement may be
terminated by Purchaser or Seller if any of the Purchaser Required
Statutory Approvals or Seller Required Statutory Approvals, the
receipt of which are conditions to the obligations of Purchaser and
Seller to consummate the Closing as set forth in Sections 7. 1 (b) and
7.2(b), shall have been denied by a final and nonappealable order,
judgment or decree.
(e) Breach by Seller. This Agreement may be terminated by
Purchaser if there has been a violation or breach by Seller of any
covenant, representation or warranty contained in this Agreement which
has resulted in a PGE Material Adverse Effect and such violation or
breach is not cured by the earlier of the Closing Date or the date
sixty (60) days after receipt by Seller of written notice specifying
particularly such violation or breach, and such violation or breach
has not been waived by Purchaser.
(f) Breach by Purchaser. This Agreement may be terminated by
Seller if there has been a material violation or breach by Purchaser
of any covenant, representation or warranty contained in this
Agreement and such violation or breach is not cured by the earlier of
the Closing Date or the date sixty (60) days after receipt by
Purchaser of written notice specifying particularly such violation or
breach, and such violation or breach has not been waived by Seller.
31
(g) Financing. This Agreement may be terminated by Seller if
Purchaser has violated or breached its covenant in Section 6.14, and
such violation or breach has not been waived by Seller.
Section 8.2 Procedure and Effect of Termination. In the event of
termination of this Agreement by either or both of the Parties pursuant to this
Article VIII, written notice thereof shall forthwith be given by the terminating
Party to the other Party, whereupon, if this Agreement is terminated pursuant to
any of Sections 8.1(a) through (d), the liabilities of the Parties hereunder
will terminate, except as otherwise expressly provided in this Agreement, and
thereafter neither Party shall have any recourse against the other by reason of
this Agreement. In the event of a termination of this Agreement pursuant to
Section 8.1 (e), Section 8.1 (f) or Section 8.1 (g), the breaching Party shall
promptly (but no later than five business days after receipt of notice from the
non-breaching Party) pay to the non-breaching Party an amount in cash equal to
all documented out-of-pocket expenses and fees incurred by the non-breaching
Party (including without limitation, fees and expenses payable to all legal,
accounting, financial, public relations and other professional advisors arising
out of, in connection with or related to, the transactions contemplated by this
Agreement). The reimbursement of expenses provided in the immediately preceding
sentence shall be in addition to any rights that any Party may have at common
law or otherwise.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Non-Survival of Representations, Warranties, Covenants and
Agreements. No representation, warranty, covenant or agreement in this Agreement
shall survive the Closing or termination of the Agreement, except the covenants
and agreements contained in Section 1.5 (Enron Merger Payment), Section 5.2(b)
(Stub Period Dividend), Section 5.17 (Non- Solicitation) Section 6.5 (Employee
Benefit Plans), Section 6.6 (Expenses), Section 6.8 (Directors' and Officers'
Indemnification), Section 6.10 (Corporate Name), Section 6.13 (Tax Matters),
Section 8.2 (Procedure and Effect of Termination), and this Article IX, each of
which shall survive in accordance with its terms.
Section 9.2 Brokers. Seller represents and warrants that, except for
Credit Suisse First Boston Corporation and ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Seller, PGE or PGH II. Purchaser
represents and warrants that, except for ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, no broker, finder
or investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Purchaser.
Section 9.3 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given (a) if delivered personally, or
(b) if sent by overnight courier service (receipt confirmed in writing), or (c)
32
if delivered by facsimile transmission (with receipt confirmed), to the Parties,
in each case to the following addresses (or at such other address for a Party as
shall be specified by like notice):
(i) If to Purchaser, to:
Sierra Pacific Resources
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn.: General Counsel
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Skadden, ▇▇▇▇, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ L.L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) If to Seller, to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Executive Vice President and General Counsel
Enron Corp.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
Corporate Secretary ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Enron Corp. ▇▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.P.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ 1001 ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Houston, Texas 77002
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Section 9.4 Miscellaneous. This Agreement (including the documents and
instruments referred to herein): (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the Parties, or any of them, with respect to the subject matter hereof
other than the Confidentiality Agreement; (b) shall not be assigned by operation
of law or otherwise by any Party without the prior written consent of the other
Party; and (c) may be modified, amended or supplemented in any manner and at any
time only by a written instrument executed by the Purchaser and Seller. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect. The Parties hereto shall negotiate
34
in good faith to replace any provision of this Agreement so held invalid or
unenforceable with a valid provision that is as similar as possible in substance
to the invalid or unenforceable provision.
Section 9.5 Interpretation. When reference is made in this Agreement
to Articles or Sections, such reference shall be to an Article or Section of
this Agreement, as the case may be, unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include", "includes", or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." Whenever reference is made to the "knowledge" of any Person or
entity in this Agreement or to information "known" to any Person or entity in
this Agreement, such terms shall refer to information actually known to the
Person, in a case of an individual, or in the case of a corporation or other
entity, information actually known to an executive officer of such corporation
or entity.
Section 9.6 Counterparts; Effect. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
Section 9.7 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each Party hereto and, except for rights of
Indemnified Parties as set forth in Section 6.8 (Directors' and Officers'
Indemnification) nothing in this Agreement, express or implied, is intended to
confer upon any other Person any rights or remedies of any nature whatsoever
under or by reason of this Agreement.
Section 9.8 Specific Performance. The Parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the Parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
Section 9.9 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, other than any
conflict of laws rules thereof that would direct the application of the laws of
another jurisdiction to this Agreement.
Section 9.10 Disclosure Schedules. The Seller Disclosure Schedule and
the Purchaser Disclosure Schedule are collectively referred to herein as the
"Disclosure Schedules". The Disclosure Schedules constitute an integral part of
this Agreement and modify the respective representations, warranties, covenants
or agreements of the Parties contained herein to the extent that such
representations, warranties, covenants or agreements expressly refer
specifically to the applicable section of the Disclosure Schedules. Any and all
statements, representations, warranties or disclosures set forth in the
Disclosure Schedules shall be deemed to have been made on and as of the date of
this Agreement.
35
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed as of the date first above written.
ENRON CORP.
By /s/ ▇. ▇▇▇▇ ▇▇▇▇▇
-----------------------------------
▇. ▇▇▇▇ ▇▇▇▇▇
Executive Vice President,
Corporate Development
SIERRA PACIFIC RESOURCES
By
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman and Chief Executive Officer
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed as of the date first above written.
ENRON CORP.
By
-----------------------------------
▇. ▇▇▇▇ ▇▇▇▇▇
Executive Vice President,
Corporate Development
SIERRA PACIFIC RESOURCES
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman and Chief Executive Officer
ANNEX A
DEFINITIONS
As used herein, the following terms have the following meanings:
Atomic Energy Act: The Atomic Energy Act of 1954, as amended.
Benefit Plan: Any employee pension benefit plan (whether or not
insured), as defined in Section 3(2) of ERISA, any employee welfare benefit plan
(whether or not insured) as defined in Section 3(l) of ERISA, any plan that
would be employee pension benefit plans or employee welfare benefit plans if
they were subject to ERISA, such as foreign plans and plans for directors, any
stock bonus, stock ownership, stock option, stock purchase, stock appreciation
rights, phantom stock, or other stock plan (whether qualified or nonqualified),
and any bonus or incentive compensation plan sponsored, maintained, contributed
to or required to be contributed to by PGE, PGH II or any of their subsidiaries
for the benefit of any of the present or former directors, officers, employees,
agents, consultants, or other similar representatives; provided, however, that
such term shall not include (a) routine employment policies and procedures
developed and applied in the ordinary course of business and consistent with
past practice, including wage, vacation, holiday, and sick or other leave
policies, (b) workers compensation insurance, and (c) directors and officers
liability insurance.
Code: The Internal Revenue Code of 1986, as amended, or any successor
thereto.
Commonly Controlled Entity: Any corporation, trade, business or entity
under common control with Seller, within the meaning of Section 414(b), (c) or
(m) of the Code or Section 4001 of ERISA.
Confidentiality Agreement: Confidentiality Agreement, dated as of
August 3, 1999, between Seller and Purchaser.
Decommissioning Plan: The PGE Decommissioning Plan relating to PGE
Nuclear Facility as approved by the NRC on April 15, 1996, and revisions
thereto, all of which have been delivered by Seller to Purchaser.
Enron Merger Payment: Seller's obligations set forth in Condition 20
to the Stipulation dated April 29, 1997 adopted by the OPUC and incorporated by
reference into the Enron/PGE Order.
Enron/PGE Order: OPUC's Order dated June 4, 1997 approving Seller's
application to acquire the power to exercise influence over PGE.
Environmental Claim: Any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, directives, claims, liens,
investigations, proceedings or notices of noncompliance or violation by any
Person or entity (including, without limitation, any Governmental Authority)
alleging potential liability (including, without limitation, potential liability
for enforcement costs, investigatory costs, cleanup costs, response costs,
A-1
removal costs, remedial costs, natural resources damages, property damages,
personal injuries, fines or penalties) arising out of, based on or resulting
from (A) the presence, or Release or threatened Release of any Hazardous
Materials at any location, whether or not owned, operated, leased or managed by
PGE, PGH II or any of their respective subsidiaries or joint ventures, (B)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Law or (C) any and all claims by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive relief
resulting from the presence or Release of any Hazardous Materials.
Environmental Laws: All foreign, federal, state and local laws, rules,
regulations, ordinances, orders, judgments, decrees and common law rules
relating to Hazardous Materials relating to pollution or protection of human
health or the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata) as in effect on the date
hereof including, without limitation, laws and regulations relating to Releases
or threatened Releases of Hazardous Materials or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.
Environmental Permits: Permits required under or pursuant to
Environmental Laws.
ERISA: The Employee Retirement Income Security Act of 1974, as amended
from time to time, or any successor thereto.
Exchange Act: The Securities Exchange Act of 1934, as amended.
FERC: The Federal Energy Regulatory Commission.
Final Orders: A judgment, order or decree of the relevant regulatory
authority that has not been reversed, stayed, enjoined, set aside, annulled or
suspended, with respect to which any waiting period prescribed by law before the
transactions contemplated hereby may be consummated has expired (but without the
requirement for expiration of any applicable rehearing or approval period), and
as to which all conditions to the consummation of such transactions prescribed
by law, regulation or order have been satisfied.
GAAP: Generally accepted accounting principles applied on a consistent
basis.
Governmental Authority: A court, governmental or regulatory body
(including a stock exchange or other self regulatory body) or authority,
domestic or foreign.
Hazardous Materials: Any (A) petroleum or petroleum products or
petroleum wastes (including crude oil or any fraction thereof), radioactive
materials, friable asbestos or friable asbestos-containing material, urea
formaldehyde foam insulation, and transformers or other equipment that contain
dielectric fluid containing polychlorinated biphenyls, (B) chemicals, materials
or substances which are now defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials", "extremely
hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic
pollutants", or words of similar import, under any Environmental Law and (C)
A-2
other chemicals, materials, substances or wastes, exposure to which is now
prohibited, limited or regulated under any applicable Environmental Law.
HSR Act: The ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended.
IRS: The United States Internal Revenue Service.
Joint venture: Other than with respect to Section 3.2, references to a
"joint venture" of a Person means any corporation or other entity (including
partnerships and other business associations and joint ventures) in which such
Person or one or more of its subsidiaries owns an equity interest that is less
than a majority of any class of the outstanding voting securities but at least
10% of such voting securities.
NRC: The Nuclear Regulatory Commission.
OPUC: The Oregon Public Utilities Commission, and any successor
commission or agency.
Oregon Restructuring Legislation: Senate Bill 1149 that was signed
into law by the Governor of Oregon on July 23, 1999 and regulations or orders
promulgated thereunder.
PBGC: Pension Benefit Guaranty Corporation.
Permits: Any permits, licenses, franchises and other governmental
authorizations, consents and approvals.
Person: An individual, corporation, limited liability company,
partnership, joint venture, bank, trust, unincorporated organization and/or a
government or any department or agency thereof.
PGE Common Stock: Common stock, par value $3.75 per share, of PGE.
PGE Employee: Any individual who is actively employed by any of PGE,
PGH II or any of their subsidiaries as of and after Closing.
PGE Financial Statements: The audited consolidated financial
statements and unaudited interim consolidated financial statements of PGE that
are included in the PGE SEC Reports.
PGE Former Employee: Any individual who is not actively employed by
any of PGE, PGH II, Seller or any of their subsidiaries as of Closing but who
was at some time prior to Closing employed by PGH or PGE or any subsidiary of
PGH or PGE or of any predecessor of any of them and who is as a result of such
prior employment eligible for coverage under one or more Benefit Plans disclosed
on Seller's Disclosure Schedule 3.9(a) and/or one or more of the Replacement
Plans.
PGE Material Adverse Effect: Any change or effect that is materially
adverse to the business, condition (financial or otherwise) or results of
operations of PGE, PGH II and their respective subsidiaries, taken as a whole;
provided, however, that a PGE Material Adverse Effect shall not be deemed to
A-3
have occurred as a result of changes or effects resulting from (i) general
economic, financial or electric utility conditions in the Pacific Northwest or
nationally, (ii) the announcement or consummation of the transactions
contemplated by this Agreement, (iii) adverse hydro conditions in the Pacific
Northwest or (iv) the Oregon Restructuring Legislation.
PGE Preferred Stock: Cumulative preferred stock, no par value, of PGE.
PGE SEC Reports: Each report schedule, registration statement and
definitive proxy statement, if any, filed by PGE with the SEC since January 1,
1997 and through the date hereof (as such documents have since the time of the
filing been amended).
PGH II Common Stock: Common stock, par value $ 1.00 per share, of PGH
II.
PGH Contribution: The contribution by PGH to PGH II and the assumption
by PGH II from PGH of certain assets and liabilities pursuant to that certain
Contribution and Assumption Agreement between PGH and PGH II dated as of August
31, 1999.
Power Act: The Federal Power Act of 1935, as amended.
PUHCA: The Public Utility Holding Company Act of 1935, as amended.
Purchase Price: The PGE Purchase Price and the PGH II Purchase Price,
taken together.
Purchaser Representatives: The officers, directors, employees,
accountants, counsel, investment bankers, financial advisers and other
representatives of Purchaser chosen by Purchaser to represent Purchaser with
respect to the transactions contemplated by this Agreement.
Release: Any release, spill, emission, leaking, injection, deposit,
disposal, discharge, dispersal, leaching or migration into the atmosphere, soil,
surface water, groundwater or property (indoors or outdoors).
Replacement Plans: The plans maintained by Purchaser and/or PGE or PGH
II and their subsidiaries in accordance with Section 6.5(f) of this Agreement.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended.
Shares: The PGE Shares and the PGH II Shares, taken together.
Subsidiary: Other than with respect to Section 3.2, references to a
"subsidiary" of a Person means any corporation or other entity (including
limited liability companies, partnerships and other business associations) in
which such Person, directly or indirectly owns outstanding capital stock or
other voting securities having the power, under ordinary circumstances, to elect
A-4
a majority of the directors or similar members of the governing body of such
corporation or other entity, or otherwise to direct the management and policies
of such corporation or other entity.
Taxes: Any federal, state, county, local or foreign taxes, charges,
fees, levies, or other assessments, including all net income, gross income,
sales and use, ad valorem, transfer, gains, profits, excise, franchise, real and
personal property, gross receipts, capital stock, production, business and
occupation, disability, employment, payroll, license, estimated, stamp, custom
duties, severance or withholding taxes or charges imposed by any governmental
entity, and includes any interest and penalties (civil or criminal) on or
additions to any such taxes.
Tax Return: A report, return or other information required to be
supplied to a governmental Ad entity with respect to Taxes including, where
permitted or required, combined or consolidated returns for any group of
entities that includes PGE, PGH II or any of their respective subsidiaries.
A-5
SIERRA/Exhibit 1
Niggli/i
BEFORE THE PUBLIC UTILITY COMMISSION
OF OREGON
UM -__________
IN THE MATTER OF THE APPLICATION OF )
SIERRA PACIFIC RESOURCES TO ACQUIRE )
PORTLAND GENERAL ELECTRIC COMPANY )
DIRECT TESTIMONY
OF
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
FOR
SIERRA PACIFIC RESOURCES
JANUARY 18, 2000
SIERRA/Exhibit 1
Niggli/1
I. INTRODUCTION AND SUMMARY
Q. PLEASE STATE YOUR NAME AND TITLE.
A. My name is ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇. I am Chairman of the Board and Chief
Executive Officer of Sierra Pacific Resources ("Sierra").
Q. WOULD YOU BRIEFLY DESCRIBE YOUR BACKGROUND AND EXPERIENCE IN THE UTILITY
INDUSTRY?
A. I have nearly 29 years of experience in the utility industry. I joined
Nevada Power Company ("NPC") as President and Chief Operating Officer on
February 2, 1998. Subsequently, I became Chief Executive officer and
Chairman of NPC's Board. On July 28, 1999, when the merger between NPC and
Sierra closed, I became Chairman of the Board of Directors of Sierra, as
well as its Chief Executive Officer.
During my career, I have provided expert testimony on electric and gas
utility matters before numerous regulatory commissions, governmental bodies
and legislative committees at the federal, state and local levels,
including the regulatory commissions of California, Arizona, Louisiana,
Arkansas, Mississippi and the City of New Orleans, the U.S. Department of
the Interior, a subcommittee of the U.S. Senate, the California Energy
Commission, and legislative committees in the state of Wyoming. I have
published several articles on issues pertinent to the electric, gas and
telecommunications industries and have chaired or served on many national
utility industry committees with the Electric Power Research Institute
("EPRI"), Edison Electric Institute ("EEI") and the National Coal Council.
I currently serve on the Board of Directors of EPRI and EEI.
Among my civic activities, I am a member of the board of directors of
the United Way of Southern Nevada, the UNLV Foundation, the Great Basin
National Park Foundation, the Nevada Test Site Foundation, and the Nevada
Development Foundation. I am the chair of United Way's Campaign 2000.
SIERRA/Exhibit 1
Niggli/2
Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY?
A. My testimony provides an overview of Sierra Pacific Resources and its
operating utilities, NPC and Sierra Pacific Power Company ("SPPC"). I
describe ▇▇▇▇▇▇'s strategic direction and discuss the role proposed for
Portland General Electric ("PGE") in our overall corporate strategy. I also
introduce key members of Sierra's management team, who provide testimony in
support of this application.
II. SIERRA, SPPC AND NPC
Q. PLEASE DESCRIBE THE HOLDING COMPANY, SIERRA PACIFIC RESOURCES, AND ITS
UTILITY SUBSIDIARIES, SIERRA PACIFIC POWER COMPANY AND NEVADA POWER
COMPANY.
A. Sierra Pacific Resources is an exempt utility holding company organized
under the laws of the State of Nevada, publicly traded on the New York
Stock Exchange under the symbol "SRP." With utility headquarters in Reno
and Las Vegas, virtually all of Sierra's assets are dedicated to electric,
gas, and water utility service. In addition to our two operating utility
subsidiaries, NPC and SPPC, Sierra owns an interstate natural gas pipeline,
Tuscarora Gas Pipeline Company, a retail energy marketing business, Sierra
Pacific Energy Company, and a company which holds title to some of our
non-utility properties, Lands of Sierra, Inc.
Sierra's principal subsidiaries, SPPC and NPC, provide electric, gas
and water service to approximately one million retail customers in northern
and southern Nevada and northeastern California. We are committed to
growing our business and to providing outstanding customer service.
Q. PLEASE DESCRIBE SIERRA'S APPROACH TO CUSTOMERS.
A. We pride ourselves on our customer focus and on providing the best service
to our customers. SPPC and NPC have long-standing histories of excellent
customer service even though - or perhaps because - our service areas cover
SIERRA/Exhibit 1
Niggli/3
over 54,000 mostly rural square miles which, at the same time, include the
fastest growing metropolitan areas in the United States.
Q. PLEASE DESCRIBE ▇▇▇▇▇▇'S CORPORATE CITIZENSHIP.
A. We recognize that our business success is closely linked with the
performance of our companies and of our employees as corporate citizens,
and the health, vitality and quality of life of the communities we serve.
Sierra Pacific actively encourages employee volunteer activities and
community involvement in activities such as "adopt-a-park" and river
cleanup programs. A combination of employee advocacy and corporate
charitable support builds and maintains strong communities. In addition,
through the Sierra Pacific Foundation, ▇▇▇▇▇▇ administers grants that
integrate community needs, employee interests and corporate business
purposes. The Sierra Pacific Foundation supports education, youth programs,
civic improvement projects, the arts and culture, and environmental
programs and organizations. Among other things, the foundation has
inaugurated scholarship programs at the University of Nevada and community
colleges which today support nearly 40 students each year. ▇▇▇▇▇▇ and its
employees are collectively the largest supporters of United Way in Nevada.
Q. PLEASE IDENTIFY ▇▇▇▇▇▇'S KEY PERSONNEL WHO WILL BE ASSOCIATED WITH PGE
FOLLOWING APPROVAL OF THIS APPLICATION.
A. We expect that PGE will be managed and operated by a Portland-based
management team, and we have asked ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ to lead that team.
▇▇▇▇▇▇ has an outstanding group of senior executives who will remain
involved in the holding company and provide overall corporate leadership. I
refer the Commission to Sierra's Form 10-K for a description of our senior
management and other corporate matters. I also refer the Commission to our
web site, ▇▇▇▇://▇▇▇.▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, for biographies of our senior
management and other information about our company.
SIERRA/Exhibit 1
Niggli/4
Three of Sierra's senior executives are providing testimony in this
application. They are ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President and Chief Operating Officer
of Sierra, ▇▇▇▇ ▇▇▇▇▇▇, Senior Vice President and Chief Financial Officer,
and ▇▇▇▇▇ ▇▇▇▇▇▇, Vice President for Corporate Planning and Strategic
Direction. The testimony of each individual includes relevant background
information.
III. STRATEGIC DIRECTION
Q. HOW DOES SIERRA VIEW ITSELF IN THE POST-RESTRUCTURING WORLD?
A. We're bullish on the business of delivering energy and energy services to
our customers. Our corporate purpose is to deliver essential services which
enhance the quality of our customers' lives and the vitality of the
communities we serve. At Sierra, we are demonstrating that a utility can
consistently and reliably meet the challenges of extraordinary growth while
maintaining its financial strength. Put bluntly, we understand the utility
business, we're good at it, and we're in it for the long term.
Q. WHAT LED TO ▇▇▇▇▇▇'S DECISION TO PURCHASE PGE?
A. Our strategic goal is to provide best practices utility service to our
customers while growing as a company. The transaction with PGE makes sound
business sense because, with the acquisition, Sierra will own operating
utilities in three of the major expanding metropolitan areas in the West.
PGE is a well-managed utility with technical and management expertise that
fits with the existing Sierra organization and our operating utilities in
Reno and Las Vegas. Further, as discussed by ▇▇. ▇▇▇▇▇▇, this acquisition
allows Sierra to redeploy capital which has previously been invested in
Nevada generation resources, which we are selling.
/ / / / /
/ / / / /
SIERRA/Exhibit 1
Niggli/5
Q. HOW WILL THE COMPANY BE ORGANIZED AND MANAGED?
A. PGE will join NPC and SPPC as utility subsidiaries of the holding company,
Sierra Pacific Resources. Sierra will become a registered (rather than
exempt) holding company under the Public Utility Holding Company Act of
1935. We will maintain PGE as a separate operating company. The
headquarters for PGE's utility operations will remain in Portland, just as
SPPC is headquartered in Reno and NPC in Las Vegas.
As ▇▇. ▇▇▇▇▇▇▇▇ explains, we intend to form a service company to
comply with expectations of the Securities and Exchange Commission
Q. WHAT IS ▇▇▇▇▇▇'S PLAN FOR OPERATING PGE AFTER THE CLOSE OF THIS
TRANSACTION?
A. ▇▇. ▇▇▇▇▇▇▇▇ addresses this question in his testimony. I want to make
clear, however, that we intend to build on PGE's current strengths and to
provide the highest possible level of customer service to PGE's customers.
As ▇▇. ▇▇▇▇▇▇▇▇ explains, both SPPC and NPC provide high-quality, reliable,
low-cost distribution service to our customers in Nevada. Our strategic
focus is on the utility business, and we are committed to doing it well.
Q. PLEASE DESCRIBE THE FINANCIAL DETAILS OF THE PROPOSED TRANSACTION,
INCLUDING THE PURCHASE AGREEMENT AND ▇▇▇▇▇▇'S PLANS FOR FINANCING THE
TRANSACTION.
A. ▇▇. ▇▇▇▇▇▇ addresses these issues in his testimony. However, I can say
without hesitation that Sierra has the financial ability to complete this
transaction and to provide for the long-term continued operation of PGE as
an outstanding electric service provider to its customers.
Q. WHAT ARE ▇▇▇▇▇▇'S PROPOSALS FOR ACHIEVING REGULATORY APPROVAL OF THIS
TRANSACTION?
▇. ▇ will summarize what ▇▇. ▇▇▇▇▇▇ discusses in great detail in his
testimony. Essentially, we propose to provide PGE's customers with positive
financial and policy benefits on top of the base of benefits they already
SIERRA/Exhibit 1
Niggli/6
are receiving as a result of Portland General's merger with Enron. In the
near-term, we are guaranteeing PGE's customers an additional $13.5 million
by extending the Enron cost-of-service savings rate benefit for 18 months,
through the end of 2003. Savings could well exceed this in the years after
2003, and we are asking that the Commission adopt a matching principle
under which we will include in our rates the necessary costs we incur to
achieve savings, but hold PGE customers harmless if savings are less than
related costs, a result we do not anticipate. We also bring to PGE's
customers, and to the Commission, our experience in the practical details
of implementing restructuring in two other states, and our commitment to
implement Oregon's restructuring policy, expressed in SB 1149, in a timely
and effective manner.
Q. DOES THIS CONCLUDE YOUR TESTIMONY?
A. Yes, it does.
SIERRA/Exhibit 2
▇▇▇▇▇▇▇▇/i
BEFORE THE PUBLIC UTILITY COMMISSION
OF OREGON
UM -__________
IN THE MATTER OF THE APPLICATION OF )
SIERRA PACIFIC RESOURCES TO ACQUIRE )
PORTLAND GENERAL ELECTRIC COMPANY )
DIRECT TESTIMONY
OF
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
FOR
SIERRA PACIFIC RESOURCES
JANUARY 18, 2000
SIERRA/Exhibit 2
▇▇▇▇▇▇▇▇/1
Q. PLEASE STATE YOUR NAME AND TITLE.
A. I am ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇. I am President and Chief Operating Officer of
Sierra Pacific Resources ("Sierra"). I am responsible for all operations at
both Sierra Pacific Power Company ("SPPC") and Nevada Power Company ("NPC")
Q. WHAT IS YOUR BACKGROUND?
▇. ▇ was elected President and Chief Executive Officer of SPPC on January 14,
1998, and was elected Chairman of the Board of SPPC and Sierra on February
24, 1998. I assumed my current position upon consummation of the merger of
SPPC and NPC on July 28, 1999. My background in the utility industry is
described in more detail in Attachment MKM-1.
Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY?
A. I explain how Sierra plans to operate PGE as a separate operating utility
with strong local management, operations personnel and customer service. I
also describe ▇▇▇▇▇▇'s existing successful utility operations, as the best
evidence of our capabilities to operate PGE and of our commitment to
safety, reliability, customer service and satisfaction, environmental
responsibility and excellent labor relations.
Q. WHAT IS YOUR PLAN FOR OPERATING PGE?
A. We plan to operate PGE as an independent operating entity, but to take full
advantage of operating efficiencies, integration of functions and expertise
among our three utilities. We recognize that PGE is a well-run utility, and
our plans do not entail significant changes in PGE's management or
operations. We expect that PGE will continue to meet all of the Service
Quality Standards agreed to by PGE in Commission Order 97-196.
In addition, ▇▇▇▇▇▇ brings the knowledge we have gained in industry
restructuring initiatives now underway in Nevada and California. With this
knowledge, together with PGE's experience from its own Customer Choice
pilot program, we expect to take a leading role in implementing SB 1149
restructuring in Oregon.
SIERRA/Exhibit 2
▇▇▇▇▇▇▇▇/2
Q. COMMUNITY AND EMPLOYEE SAFETY IS A CRITICAL ISSUE IN OREGON. PLEASE
DESCRIBE SPPC'S AND NPC'S SAFETY RECORD IN NEVADA.
A. We have outstanding safety records and strong accident prevention programs
in both of our Nevada operations. We also provide our customers and the
general public with information they need to live safely with electricity.
Every employee has safety as a priority. I report to Sierra's Board of
Directors regularly regarding safety issues.
Attachment MKM-2 includes charts from the 1999 Operations Report,
which I presented to the Board in November 1999. The report shows a marked
decrease in recordable accidents over the past several years, even as new
customer connections increased. We intend to bring this emphasis on safety
to PGE, in support of PGE's already excellent safety performance and
culture.
Q. PLEASE DISCUSS THE RELIABILITY OF SIERRA'S DISTRIBUTION AND TRANSMISSION
SYSTEMS.
A. We recognize that reliable electric service is essential for all of our
customers: industrial, commercial and residential. We invest heavily in the
planning, design, operation and maintenance of our transmission and
distribution systems. Attachment MKM-2 shows the number and duration of
forced outages in the SPPC and NPC systems during the period 1996 to 1999.
We intend to use our expertise to reinforce PGE's excellent reliability
performance.
Q. PLEASE DISCUSS YOUR APPROACH TO CUSTOMER SERVICE.
A. Even as we strive to become a larger, integrated utility company, we
recognize that the delivery of utility service is fundamentally a local
enterprise. We believe that our employees must be present in the
communities we serve and that they must be readily available to our
customers. If one of our customers experiences an outage, has a question
about a bill, or wants to increase electric service to support a business
expansion, we are committed to having the personnel in that community to
provide a prompt, complete and courteous response.
SIERRA/Exhibit 2
▇▇▇▇▇▇▇▇/3
This philosophy has become so internalized at Sierra that every
employee's compensation, whether management or bargaining unit, is tied to
customer service performance. We measure and report customer satisfaction
quarterly and base annual incentive pay in large part on whether we have
met our customer satisfaction goals.
Q. DOES SIERRA HAVE A CORPORATE PHILOSOPHY WITH RESPECT TO ENERGY EFFICIENCY
AND RENEWABLE RESOURCE DEVELOPMENT?
A. Absolutely. At SPPC, geothermal power plays a significant role in our
day-to-day operations. SPPC has under contract more geothermal power than
any utility in the mainland United States. We have also recently made a
substantial donation of equipment and intellectual property to the Desert
Research Institute to support continued investigation into the technical
and economic efficiencies of photovoltaic generation of electricity. With
respect to energy conservation activities, we have worked hard to
mainstream our demand-side programs into our regular customer service and
assistance programs. In operating PGE, we expect that we will work within
the system benefit charge framework of SB 1149 to promote energy efficiency
and alternative resource development. We fully support PGE's early
initiatives to offer green power options to its customers.
Q. WHAT ARE ▇▇▇▇▇▇'S COMMITMENTS WITH RESPECT TO PRESERVING AND RESTORING THE
ENVIRONMENT?
A. We recognize that utility operations can affect the environment and that we
have a responsibility to minimize any adverse impacts and to mitigate those
which we cannot avoid. ▇▇▇▇▇▇ has an outstanding environmental record with
state and federal environmental agencies. Sierra's Board of Directors has
adopted principles of environmental management which set a very high
standard for all of us to achieve.
Besides complying with the many local, state and federal environmental
regulations which affect our operations, we actively seek new, innovative
ways to protect and enhance the environment. Examples of Sierra's
SIERRA/Exhibit 2
▇▇▇▇▇▇▇▇/4
environmental commitment include our support of compressed natural gas as a
clean burning alternative to gasoline and diesel and projects to restore
vital wetlands.
In addition to our electric and natural gas operations, SPPC provides
water service to some 65,000 customers in the ▇▇▇▇-▇▇▇▇▇▇ area. As a
result, we are sensitive to the stringent environmental requirements
relating to drinking water and protective of our primary water resource,
natural flows from the Truckee River system (including Lake Tahoe). We have
invested heavily in both state-of-the-art treatment facilities and a
federally approved settlement to manage the environmental health of the
Truckee River, so that our customers may enjoy a reliable and safe water
supply.
Q. TO YOUR KNOWLEDGE, HAS SIERRA, ITS AFFILIATES OR ANY OF ITS KEY PERSONNEL
VIOLATED ANY STATE OR FEDERAL STATUTES RELATING TO THE ENVIRONMENT OR
REGULATING THE ACTIVITIES OF PUBLIC UTILITIES (ORS 757.511(2)(e))?
A. No. To the contrary, as shown in my testimony and elsewhere in the
materials submitted to the Commission, ▇▇▇▇▇▇ has a strong record as good
corporate citizens.
Q. ARE ANY SIERRA EMPLOYEES REPRESENTED BY UNIONS?
A. Yes. Our bargaining unit employees include field operators, technicians,
electricians, servicemen, meter readers, and machinists, as well as office
personnel, including clerks and customer service representatives.
Q. PLEASE SHARE WITH US YOUR VIEWS ON UNION AND NON-UNION EMPLOYEES.
A. In my view, the provision of utility services - electricity, gas or water -
is part of the life support system of our society. We must invest in our
employees and their working environment to assure delivery of the highest
quality service possible. To achieve this, we must recruit capable people,
provide them with appropriate and continuing training, create a safe and
happy place to work, communicate openly and regularly, and pay a
competitive and decent wage. These are the principles by which we have
SIERRA/Exhibit 2
▇▇▇▇▇▇▇▇/5
achieved success at Sierra. We know these are important cultural values at
PGE and in Oregon. We intend to support and maintain those values as we
take on the stewardship of PGE
Q. DO YOU EXPECT TO COMBINE ANY CUSTOMER SERVICE OR OTHER CORPORATE FUNCTIONS?
A. Yes. We expect to form a service company to provide a variety of financial
and customer accounting functions for the three operating utilities. The
details of this proposal are still being worked out and will be part of our
filing with the Securities and Exchange Commission ("SEC"), which is to be
made in early February 2000. We will provide a copy of that filing to the
Commission and also provide a copy in the document room which we are
establishing in Portland. The formation of a service company does not
contemplate a major transfer of PGE employees to Reno or Las Vegas. Service
company personnel may reside at each operating company and report to the
operating management. We intend to build on the strengths of each of our
operating companies and to provide strong local management and services in
all of our service areas.
Q. WHY ARE YOU FILING A SERVICE COMPANY PROPOSAL WITH THE SEC?
A. With the acquisition of PGE, Sierra will become a registered holding
company, as that term is defined in the Public Utilities Holding Company
Act of 1935 ("PUHCA"). This means that, among other things, the SEC will
regulate Sierra's acquisition of any securities, utility assets, or any
interest in any business. One of the SEC's expectations is that certain
common functions be provided through a service company, with the costs
allocated among operating utilities in accordance with approved allocation
methods. ▇▇▇▇▇▇ must obtain SEC approval of the formation of its proposed
service company The provisions of the PUHCA are described in more detail in
the attached briefing paper (Attachment MKM-3) issued by the federal
Congressional Research Service and printed from the web site of the
Committee for the National Institute for the Environment.
/ / / / /
/ / / / /
SIERRA/Exhibit 2
▇▇▇▇▇▇▇▇/6
Q. ARE YOU FAMILIAR WITH THE SAFETY, RELIABILITY AND CUSTOMER SERVICE
CONDITION UNDER WHICH PGE ALREADY OPERATES AS A RESULT OF ITS MERGER WITH
ENRON?
A. Yes, I am.
Q. WOULD SIERRA ACCEPT A SIMILAR CONDITION?
A. Yes. We would accept the same condition. PGE's program is complete and
assures PGE's customers a high quality distribution service. We see no need
to revisit this condition in connection with this application, and we fully
expect that PGE will continue to meet those conditions under ▇▇▇▇▇▇'s
ownership.
Q. DOES THIS CONCLUDE YOUR TESTIMONY?
A. Yes.
SIERRA/EXHIBIT 2
▇▇▇▇▇▇▇▇/MKM-1
QUALIFICATIONS OF WITNESS
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
My name is ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇. I am the President and Chief Operating
Officer of Sierra Pacific Resources, and President and Chief Executive Officer
of both Sierra Pacific Power Company and Sierra Pacific Resources.
I received a Bachelor of Arts Degree in 1976 from ▇▇▇▇▇▇▇ ▇▇▇▇▇
University. In 1978, I received a Master of Business Administration Degree, also
from ▇▇▇▇▇▇▇ ▇▇▇▇▇ University.
I joined San Diego Gas and Electric Company ("SDG&E") in 1978 as a
financial planner. I held numerous positions a SDG&E, including Assistant to the
Group Vice President of Finance, Supervisor of Financial Planning, Supervisor of
Cash Management and Banking Relations, Manager of Financial Services, Director
of Information Services and Director of Finance and Assistant Treasurer. I was
promoted to Treasurer in January 1990, and was made a Vice President of SDG&E in
January 1993.
In March 1994, I accepted the position of Senior Vice President and
Chief Financial Officer of Sierra Pacific Resources and Sierra Pacific Power
Company. In August, 1996, I was named Senior Vice President, Distribution
Services Business Group, for Sierra Pacific Power Company. I was named Chairman,
President, and Chief Executive Officer of Sierra Pacific Resources and Sierra
Pacific Power Company in 1998. I was appointed to my current positions with the
close of the merger with Nevada Power in July, 1999.
In addition to my professional affiliations, I sit on the Board of
Directors and serve as vice president for finance for the Nevada Area Council of
Boy Scouts of America; Board of Directors for the Forum for a Common Agenda;
Board of Directors for the United Way, and trustee for the University of Nevada
foundation.
SIERRA/EXHIBIT 2
▇▇▇▇▇▇▇▇/MKM-2
[Nevada Power Company Logo] [Sierra Pacific Logo]
1999 Operations Report
Sierra Pacific Resources
Board of Directors Meeting
November 15 and 16, 1999
SIERRA/Exhibit 2
▇▇▇▇▇▇▇▇/MKM-2
New Customer
Connections - Electric
[chart showing number of hookups for SPPC and PGE per year from 1994 to 1999]
SIERRA/Exhibit 2
▇▇▇▇▇▇▇▇/MKM-2
Safety Measurement
OSHA Recordable Accidents
[chart showing number of OSHA recordable accidents for SPPC and PGE per year
from 1993 to 1999]
SIERRA/Exhibit 2
▇▇▇▇▇▇▇▇/MKM-2
Annual Forced Outages
[chart showing the number of outages for SPPC and PGE per year from 1996 to
1999]
SIERRA/Exhibit 2
▇▇▇▇▇▇▇▇/MKM-2
Average Outage
Duration - Sustained
[chart showing the number of minutes for outages for SPPC and PGE per year from
1996 to 1999]
SIERRA/Exhibit 2
▇▇▇▇▇▇▇▇/MKM-2
Eastern District Fires
o 1.41 Million Acres Burned (Aug. - Sept.)
o 11 Crews (51 Employees)
o 179 Poles
o Estimated at $850,000
o 54 Pieces of Equipment Utilized
o Major Customers Affected
- Newmont Gold
- Diamond Plastics
- Tonkin Springs Mine
- Coastal Chemical
- ▇▇▇▇▇▇▇ Mine
o 10 Separate Circuits Affected (10 fires)
SIERRA/Exhibit 2
▇▇▇▇▇▇▇▇/MKM-2
Las Vegas' "100 Year Storm"
July 8, 1999
o Rain
- Average annual rainfall is 4.1 inches; approximately 3.2 inches
recorded in 24 hour period
o Damage
- County officials estimate damage at $20.5 million
- Estimated Nevada Power cost: $300,000
o Outages
- Minor impact to T&D system: momentary outages - 81, sustained outages
- 38
- Only 8 distribution lockouts occurred
- Approximately 15,600 customers affected; last customer restored outage
time: 106 minutes
SIERRA/Exhibit 2
▇▇▇▇▇▇▇▇/MKM-2
Northwest Reno Natural Gas Outage
September 1, 1999
o Sierra Pacific experienced a loss of pressure in a portion of the Reno gas
distribution system on 9/1/99, beginning at about 7:30 a.m.
o The loss of pressure was caused by a closed valve in the distribution
system, which restricted gas flow on an unusually cold morning
o 5,500 customers were affected, primarily residential
o Day 1: the affected area was shut down and isolated from the rest of the
distribution system
Day 2: 30% of the customers were back in service as restoration work began.
Day 3: 60% of the customers were back in service. The remaining 40% were
contacted with restoration information via door hangar
Day 9: 90% of the customers were back in service
o The restoration effort required the assistance of 12 local contractors and
Southwest Gas
o At peak there were 50 to 60 people in the field performing safety checks on
appliances and re-lighting pilot lights. The restoration effort continued
around the clock, and was supported by dozens of other Sierra Pacific
employees.
o There were no safety-related incidents as a result of the outage
o Estimated cost: $300,000
ATTACHMENT MKM-3
[NIE Logo] [CRS Logo]
Electric Utility Restructuring
Briefing Book
Major Provisions of the
Public Utility Holding Company Act
REGISTRATION. All holding companies must either register under section 5 of the
Act or seek an exemption from the Act's provisions.
DEFINITION. A "holding company" is generally a company that owns ten percent or
more of the voting stock of a "public-utility company." A "public-utility
company" is an electric or gas utility company. An "electric utility company" is
generally a company that owns or operates facilities used to generate, transmit,
or distribute electric energy for sale. A "gas utility company" is generally a
company that owns or operates facilities used to distribute gas at retail.
EXEMPTIONS. The Securities and Exchange Commission (SEC) must exempt holding
companies that meet any of five defined categories, unless it finds the
exemption "detrimental to the public interest or the interest of investors or
consumers." These categories encompass any holding company that (1) operates
predominantly within a single state; (2) is predominantly an operating
public-utility company and operates in a single state and contiguous states; (3)
is primarily not in the public-utility business; (4) is only temporarily a
holding company; or (5) is not principally a public utility business within the
United States. Other sections of the Act provide more limited exemptive relief.
INTEGRATION AND SIMPLIFICATION. Section 11 requires the integration and
simplification of holding company systems. Section 11(b)(1) requires that each
registered holding company be limited to a single "integrated public-utility
system," i.e., a group of related operating properties within a confined
geographic region susceptible to local management. Nonutility businesses can be
acquired and retained only if they are "reasonably incidental, or economically
necessary or appropriate" to the operations of the integrated public-utility
system. Section 11(b)(2) requires the elimination of unnecessary corporate
complexities and inequitable voting power among security holders.
ISSUANCE AND ACQUISITION OF SECURITIES AND ASSETS. Section 7 of the Act
prescribes standards for the type and amount of securities for the registered
holding company and its subsidiaries. In particular, section 7(d) requires that
a security be reasonably adapted to the earning power of the issuing company and
to the capital structure of the company and the holding-company system.
Registered holding companies and their subsidiaries must also obtain SEC
approval before acquiring any securities, utility assets, or any other interest
in any business.
1 of 2
UTILITY ACQUISITIONS. Any person (including an exempt holding company) who is an
affiliate of a holding company or of a public-utility company, must obtain SEC
approval before it becomes an affiliate of another public-utility company.
SERVICE COMPANY REGULATION. Service, sale and construction contracts between
system service companies and associate companies in the same holding company
system must be performed "economically and efficiently for the benefit of such
associate companies at cost, fairly and equitably allocated among such
companies."
OTHER AFFILIATE TRANSACTIONS. Registered holding companies may not borrow or
receive any extension of credit or indemnity from any system public utility
company (i.e., "upstream loans"). The SEC also has rulemaking authority over
other types of affiliate transactions such as intra-system loads; declaration
and payment of dividends; acquisition, retirement or redemption of a company's
own securities; disposal of assets and securities; solicitation of proxies in
connection with holding company and subsidiary company securities; and books,
records, disclosures of interest, duration of contracts, and similar matters
concerning affiliate transactions.
COORDINATION WITH STATE REGULATORY AUTHORITIES. A major purpose of the Holding
Company Act was to facilitate state regulation. Section 6(b), for example,
exempts the issuance of certain securities by subsidiary companies if approved
by a state commission, subject to the SEC's authority to impose additional terms
and conditions. Section 9(b) also exempts certain security and utility asset
acquisitions from the provisions of section 10 where approved by a state
commissions. In addition, the SEC may not authorize the issuance of securities
or the acquisition of assets unless the applicant has complied with state laws.
SECURITIES AND EXCHANGE COMMISSION. The Regulation of Public-Utility Holding
Companies. June, 1995. Pp. 16-19.
For information on Federal Energy Regulatory Commission (FERC) jurisdiction, see
the Federal Power Act (FPA).
THIS BRIEFING BOOK WAS COMPILED BY THE CONGRESSIONAL RESEARCH SERVICE. THE CNIE
HAS MADE THESE REPORTS AVAILABLE TO THE PUBLIC AT LARGE, BUT THE CRS IS NOT
AFFILIATED WITH THE CNIE OR THE NATIONAL LIBRARY FOR THE ENVIRONMENT.
RETURN TO CRS ELECTRIC UTILITY RESTRUCTURING BRIEFING BOOK
THIS PAGE WAS LAST UPDATED ON MAY 11, 1998
2 of 2
SIERRA/Exhibit ▇
▇▇▇▇▇▇/▇
BEFORE THE PUBLIC UTILITY COMMISSION
OF OREGON
UM -__________
IN THE MATTER OF THE APPLICATION OF )
SIERRA PACIFIC RESOURCES TO ACQUIRE )
PORTLAND GENERAL ELECTRIC COMPANY )
DIRECT TESTIMONY
OF
▇▇▇▇ ▇. ▇▇▇▇▇▇
FOR
SIERRA PACIFIC RESOURCES
JANUARY 18, 2000
SIERRA/Exhibit ▇
▇▇▇▇▇▇/▇
Q. Please state your name and title.
A. I am ▇▇▇▇ ▇. ▇▇▇▇▇▇. I am Senior Vice President, Chief Financial Officer
and Treasurer of Sierra Pacific Resources ("Sierra"). I hold the same
positions with Sierra Pacific Power Company ("SPPC") and Nevada Power
Company ("NPC"), the two operating utility subsidiaries of Sierra.
Q. WHAT ARE YOUR PRINCIPAL RESPONSIBILITIES WITH SIERRA PACIFIC RESOURCES?
A. I have overall responsibility for all financial matters of Sierra and its
subsidiaries.
Q. PLEASE DESCRIBE YOUR BACKGROUND AND EXPERIENCE IN THE ENERGY INDUSTRY.
A. I have held my current positions since March 1, 1997. I was with Western
Resources, and its subsidiary, Westar Energy, in various executive
capacities between 1987 and 1997. I was president of Westar Energy at the
time I assumed my responsibilities at Sierra. Attachment MAR-1 provides
additional background information.
Q. HAVE YOU TESTIFIED BEFORE OTHER UTILITY REGULATORY BODIES?
A. Yes. I have testified on many occasions in regulatory proceedings.
Q. PLEASE OUTLINE THE ORGANIZATION OF YOUR TESTIMONY.
A. My testimony is organized in three parts: First, I describe the structure
and terms of the transaction between Sierra and Enron Corp. ("Enron") for
the purchase and sale of Portland General Electric Company ("PGE"). Second,
I discuss ▇▇▇▇▇▇'s financial capacity for the transaction. Third, I discuss
certain financial accounting matters related to the transaction.
STRUCTURE AND TERMS OF THE TRANSACTION
Q. WHAT IS THE LEGAL STRUCTURE OF THE TRANSACTION?
▇. ▇▇▇▇▇▇ is acquiring from Enron 100 percent of the common stock of PGE. In
simple terms, ▇▇▇▇▇▇ is stepping into Enron's shoes.
/ / / / /
/ / / / /
SIERRA/Exhibit ▇
▇▇▇▇▇▇/▇
Q. WHAT WILL BE THE RESULTING FORM OF THE COMBINED ORGANIZATION?
A. Sierra will have three utility operating subsidiaries: PGE, SPPC and NPC.
▇▇▇▇▇▇ also has several other subsidiaries, identified in ▇▇. ▇▇▇▇▇▇'▇
testimony.
Q. IS SIERRA A PUBLICLY-TRADED COMPANY?
A. Yes. ▇▇▇▇▇▇'s common shares are traded on the New York Stock Exchange.
Q. WHAT CONSIDERATION DID ▇▇▇▇▇▇ AGREE TO PAY ENRON?
▇. ▇▇▇▇▇▇ agreed to pay Enron a total of $2.1 billion, of which a small
fraction - $14 million - was allocated for the purchase of a company called
PGH II. As part of the purchase price, ▇▇▇▇▇▇ has agreed to assume, and
relieve Enron from, the remaining financial obligations to PGE's ratepayers
arising under Order 97-196 of this Commission.
Q. WHY WAS THE TRANSACTION IN CASH, INSTEAD OF SECURITIES?
▇. ▇▇▇▇▇ indicated to us that it was only interested in an all-cash
transaction.
Q. PLEASE DESCRIBE HOW THE TRANSACTION WITH ▇▇▇▇▇ WAS CONDUCTED?
▇. ▇▇▇▇▇▇ was contacted by ▇▇▇▇▇'s investment banker, who inquired whether we
would be interested in acquiring PGE. We reviewed preliminary information
about PGE, conducted due diligence, and made an offer which Enron accepted.
We signed a Stock Purchase Agreement on November 5, 1999.
Q. HOW DID SIERRA DETERMINE THE PURCHASE PRICE TO OFFER ENRON?
▇. ▇▇▇▇▇▇ considered three primary determinants of value: (1) the strategic
fit that PGE brings to Sierra; (2) the fundamental value of PGE, based on
its current and projected financial performance; and (3) a price that Enron
would accept. Combining those three factors, we arrived at the agreed-upon
price.
Q. PLEASE DISCUSS THE STRATEGIC FIT THAT PGE BRINGS TO ▇▇▇▇▇▇.
A. The strategic fit of PGE and ▇▇▇▇▇▇ is also discussed by the other Sierra
witnesses, but I will point out the following:
/ / / / /
SIERRA/Exhibit ▇
▇▇▇▇▇▇/▇
1. Sierra's focus is on the regulated utility business. This is a
business we know well, do a good job with, and believe has a strong
long-term future.
2. Our business focus is the western United States.
3. Both SPPC and NPC are utilities with solid operating histories, good
customer satisfaction, constructive regulatory relations and good
management. PGE is similarly endowed. The combination of these
companies will allow us to build on our mutual strengths.
4. There will be opportunities to develop long-term efficiencies through
economies of scale and elimination of redundancies.
5. With PGE, we share a strong commitment to preservation of the
environment and the use of alternative generation.
6. The timing of this opportunity coincides with ▇▇▇▇▇▇'s intended sale
of its Nevada generation plants and provides us a prudent way to
re-deploy the proceeds from the sale of those plants.
7. The transaction lets us grow our business, which has been one of our
strategic objectives.
Q. HOW DID SIERRA ESTIMATE THE FUNDAMENTAL VALUE OF PGE?
A. During our due diligence, we examined PGE's asset base and financial
performance in considerable detail. We reviewed PGE's forecasts of expected
financial performance, and we prepared our own independent forecasts. We
determined, based on our due diligence and analysis, that PGE had
fundamental value to us at the purchase price we agreed to.
Q. DOES SIERRA REQUIRE SHAREHOLDER APPROVAL FOR THE TRANSACTION?
A. No.
/ / / / /
/ / / / /
SIERRA/Exhibit ▇
▇▇▇▇▇▇/▇
FINANCIAL CAPACITY OF SIERRA
Q. DOES SIERRA HAVE THE FINANCIAL ABILITY TO COMPLETE THIS TRANSACTION?
A. Yes, without question. In fact, we have in hand a firm financing commitment
for the entire amount of the transaction from a leading commercial bank.
This commitment has a confidentiality provision, such that I can identify
the bank or the terms of the financing only subject to a protective order.
But I can say that the terms are indicative of ▇▇▇▇▇▇'s position as a
financially strong company with the capability of completing this purchase.
▇▇▇▇▇▇'s lending commitment reflects not only our ability to close the
transaction, but that we are perceived by the financial community as having
the long-term financial stability necessary to achieve our objectives.
Q. DOES SIERRA INTEND THAT BANK DEBT WILL BE THE LONG-TERM SOURCE OF FUNDS FOR
THIS TRANSACTION?
A. No. The bank commitment assures Enron, PGE and this Commission that we will
close the transaction upon receiving final regulatory approval. Over time,
however, the bank debt will be reduced by a combination of redeployment of
cash proceeds from the sale of Nevada generating plants and the issuance of
debt and equity securities at the holding company level.
Q. DOES SIERRA HAVE, AND WILL IT HAVE, SUFFICIENT EARNINGS AND CASH FLOW TO
ENJOY ACCESS TO THE CAPITAL MARKETS?
A. Yes, unquestionably.
Q. WHAT ARE SIERRA'S CURRENT CREDIT RATINGS?
A. Sierra and its operating subsidiaries hold investment grade ratings from
both ▇▇▇▇▇'▇ and Standard and Poor's.
Q. HOW WILL THIS TRANSACTION LIKELY AFFECT PGE'S CREDIT RATINGS?
A. We fully expect PGE's credit ratings to remain at strong investment levels.
/ / / / /
SIERRA/Exhibit ▇
▇▇▇▇▇▇/▇
Q. PLEASE COMMENT ON THE ANNOUNCEMENTS IN NOVEMBER 1999 THAT ▇▇▇▇▇'▇ AND
STANDARD & POOR'S WERE REVIEWING CREDIT RATINGS FOR SIERRA, ITS
SUBSIDIARIES, AND PGE.
A. These announcements were made on November 8 and 9, immediately following
the public announcement of ▇▇▇▇▇▇'s proposed acquisition of PGE. In a
transaction of this size, we think it is commonplace for the ratings
agencies to signal their intention to review the transaction and its
implications. To date, neither rating agency has made any change to the
ratings of either Sierra or PGE. While we cannot predict what the ratings
agencies may do in the future, we are confident that the combination of
Sierra and PGE will result in a financially strong company, and we believe
that the financial community will come to appreciate this.
Q. DOES SIERRA PROPOSE TO ISSUE ANY NEW SECURITIES OF PGE TO FINANCE THIS
TRANSACTION?
A. No. All of the proposed financing will be at the holding company level.
Q. WHAT WILL HAPPEN TO PGE'S OUTSTANDING DEBT?
A. Nothing. PGE's debt obligations will remain in place, as this transaction
protects the existing corporate structure of PGE.
Q. WILL SIERRA MAINTAIN A SEPARATE CREDIT RATING FOR PGE?
A. Yes. We propose to maintain at least ▇▇▇▇▇'▇ and Standard & Poor's ratings
for PGE's debt, and for its preferred stock if more than $50 million is
outstanding.
Q. WILL SIERRA MAINTAIN PGE'S EQUITY CAPITAL?
A. Yes. ▇▇▇▇▇▇ proposes to maintain PGE's equity capital at 48 percent or
more, subject to Commission approval.
Q. WILL THERE BE ANY CHANGE IN PGE'S CAPITAL STRUCTURE IN CONNECTION WITH THE
ACQUISITION?
A. No. The Commission may rely on PGE's most recent filings for evidence of
PGE's capital structure.
SIERRA/Exhibit ▇
▇▇▇▇▇▇/▇
Q. WILL PGE ISSUE DEBT IN THE FUTURE?
▇. ▇▇▇▇▇▇▇, as necessary to support PGE's own capital structure and investment
activities. However, any future debt obligations of PGE will be subject to
regulatory approval.
Q. WILL SIERRA'S FINANCING ACTIVITIES BE SUBJECT TO REGULATION?
A. Yes. In connection with its acquisition of PGE, Sierra will become a
registered holding company under the Public Utility Holding Company Act,
and its financing activities will be subject to regulation by the
Securities and Exchange Commission ("SEC"). In addition, state regulatory
commissions, including the Oregon Commission , will continue to have
authority to regulate PGE's rates, tariffs, and conditions of service. As
▇▇. ▇▇▇▇▇▇ explains in his testimony, ▇▇▇▇▇▇ is prepared to agree to
conditions which assure the Commission that we will not argue that federal
jurisdiction preempts Oregon's review of PGE regulatory matters.
FINANCIAL ACCOUNTING FOR THE TRANSACTION
Q. HOW WILL SIERRA ACCOUNT FOR THE TRANSACTION?
A. In accordance with GAAP and APB 16, Sierra will account for the acquisition
using the purchase method of accounting, which is the only permissible
method.
Q. WILL THIS ACCOUNTING TREATMENT PRODUCE GOODWILL, AND IF SO, HOW MUCH?
A. Under purchase accounting, the difference between the purchase price and
"fair value" becomes goodwill. In a transaction of this kind, fair value
for accounting purposes is closely tied to the book value of PGE's assets.
While the precise amount cannot be determined until closing, it appears
that the goodwill in this transaction will be about $1.1 billion. Of
course, in real terms, ▇▇▇▇▇▇ has paid a fair value for PGE based on arm's
length negotiations between a willing buyer and a willing seller. The
concept of goodwill is an accounting convention.
/ / / / /
/ / / / /
SIERRA/Exhibit ▇
▇▇▇▇▇▇/▇
Q. WHERE ▇▇▇▇ ▇▇▇▇▇▇▇▇ BE RECORDED AND HOW WILL IT BE AMORTIZED?
A. The goodwill will be recorded in ▇▇▇▇▇▇'s books. We propose to amortize it
over 40 years, consistent with other transactions of this nature. We will
allocate and charge the annual amortization of the goodwill to the
operating utilities based on approved allocation standards and
methodologies.
Q. WILL THIS GOODWILL CAUSE PGE'S RATES TO INCREASE?
A. No. As described by ▇▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ proposes to protect PGE's customers
from any adverse effects of this transaction.
Q. HOW WILL SIERRA RECOVER THE GOODWILL?
A. Assuming cost of service regulation sets prices to our customers that
include all of the efficiencies and savings that we are able to achieve
with this acquisition, the transaction makes sense for Sierra and its
shareholders only if the cost of service also includes the costs we have
incurred and will incur in the future to achieve those savings. On a test
year basis, the costs to achieve savings are the annual amortization of
goodwill, severance costs and other acquisition-related expenditures
(collectively "acquisition costs"). This term is also used in ▇▇. ▇▇▇▇▇▇'▇
testimony, where he explains our rate proposals. Our proposals provide for
us to recover our investment over time in a way that protects PGE's
customers.
Q. HOW DO YOU PROPOSE TO PROTECT PGE'S CUSTOMERS?
▇. ▇▇▇▇▇▇ is proposing a "hold harmless" provision, such that if net savings
are not sufficient to cover acquisition costs, then Sierra will absorb
those costs and protect PGE's customers from having to incur any of them.
We are only able to recover our acquisition costs to the extent of achieved
savings.
▇. ▇▇▇▇ ▇▇▇▇▇▇ MAINTAIN PGE'S ACCOUNTING RECORDS AT PGE'S HOME OFFICE IN
PORTLAND?
A. Yes. We will maintain PGE's corporate and financial records separately,
given that PGE is a stand-alone corporate entity. ▇▇▇▇▇▇ maintains all of
its financial records in a computerized financial system. We propose to
SIERRA/Exhibit ▇
▇▇▇▇▇▇/▇
integrate PGE's financial system with Sierra's, and to maintain all of our
financial records such that they can be accessed by company personnel and
regulatory officials at each of our utility headquarters. We can assure the
Commission that PGE's records will always be readily available in Portland.
Q. HOW WILL SIERRA ACCOUNT FOR INTERCOMPANY TRANSACTIONS?
A. ▇▇. ▇▇▇▇▇▇ discusses ▇▇▇▇▇▇'s proposals for various conditions to be
attached to the Commission's order in this proceeding. Those conditions
explain how we will deal with intercompany transactions.
Q. DOES THIS CONCLUDE YOUR TESTIMONY?
A. Yes.
SIERRA/EXHIBIT ▇
▇▇▇▇▇▇/▇▇▇-▇
QUALIFICATIONS OF WITNESS
▇▇▇▇ ▇. ▇▇▇▇▇▇
My name is ▇▇▇▇ ▇. ▇▇▇▇▇▇. I am Senior Vice President, Chief Financial
Officer, and Treasurer for Sierra Pacific Resources and Sierra Pacific Power
Company. My business address is ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇.
I hold a B.A. in economics and an M.A. in public utility economics and
regulation from the University of North Dakota. In addition, I taught
undergraduate economics courses at the University of North Dakota and at
▇▇▇▇▇▇▇▇ University in Topeka, Kansas.
I am responsible for the finance, treasury, investor relations and
accounting areas, including the direction of financial strategy.
I have worked in the utility industry for about 12 years. Prior to
joining Sierra Pacific, I worked for Western Resources, Inc., the company doing
business as Kansas Gas & Electric Company; the Kansas Power and Light Company;
Westar; and formerly, the Gas Service Company.
During my tenure at Western and its affiliates, I worked as a rate
economist; manager of financial analysis; director of corporate finance; vice
president of corporate development and strategic planning; and as president of
the unregulated energy operations, Westar Energy and Westar Gas Marketing. I
also worked briefly at MDU Resources Group while in graduate school. During my
time at Western Resources, I worked in nearly all aspects of mergers and
acquisitions, in and outside of the utility industry.
SIERRA/Exhibit 4
Oldham/i
BEFORE THE PUBLIC UTILITY COMMISSION
OF OREGON
UM -__________
IN THE MATTER OF THE APPLICATION OF )
SIERRA PACIFIC RESOURCES TO ACQUIRE )
PORTLAND GENERAL ELECTRIC COMPANY )
DIRECT TESTIMONY
OF
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
FOR
SIERRA PACIFIC RESOURCES
JANUARY 18, 2000
SIERRA/Exhibit 4
Oldham/1
Q. PLEASE STATE YOUR NAME AND TITLE.
A. My name is ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇. I am Vice President of Corporate Planning and
Strategic Development for Sierra Pacific Resources ("Sierra").
Q. WOULD YOU BRIEFLY DESCRIBE YOUR BACKGROUND AND EXPERIENCE IN THE UTILITY
INDUSTRY?
A. I have worked in the utility industry for over 23 years, holding numerous
positions in the accounting, finance, transmission, corporate planning and
regulatory arenas. I assumed my current position upon Sierra's merger with
Nevada Power Company ("NPC").
I have testified in numerous proceedings before the Public Utilities
Commission of Nevada ("PUCN"), the California Public Utilities Commission
("CPUC"), and the Federal Energy Regulatory Commission ("FERC").
Attachment SCO-1 is a statement of my credentials.
Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY?
A. The purpose of my testimony is to explain the commitments ▇▇▇▇▇▇ makes and
the conditions we will support to ensure that our acquisition of PGE not
only presents no harm to PGE customers, but provides a positive monetary
benefit of at least $13.5 million and a policy benefit of our firm support
of SB 1149.
Sierra's acquisition of PGE does not present the risks or
uncertainties that the Commission has faced in other recent acquisition
proccedings. Sierra is a long- established, multi-service utility company
with many years of operating and regulatory experience in multiple
jurisdictions. As reflected in the testimony of other Sierra witnesses,
▇▇▇▇▇▇ is a domestically regulated, financially strong company with a good
record of utility operations and customer service.
/ / / / /
/ / / / /
SIERRA/Exhibit 4
Oldham/2
Q. PLEASE DESCRIBE ▇▇▇▇▇▇'S PROPOSALS WITH RESPECT TO PGE'S RATES.
▇. ▇▇▇▇▇▇ recognizes that PGE's customers are the beneficiaries of substantial
rate credits made available in connection with the Commission's approval of
the PGE/Enron transaction. We are committed to honor and propose to extend
those benefits. ▇▇▇▇▇▇ makes the following commitments with respect to PGE
rates:
1. ENRON BENEFITS PRESERVED. PGE and ▇▇▇▇▇▇ will honor the economic
benefits to PGE customers created as a result of the PGE/Enron merger,
as described in paragraphs 19 and 20 of the Stipulation attached to
OPUC Order 97-196. These benefits are summarized as follows:
(a) A commitment to provide PGE customers $9 million per year in
savings and/or a rate credit until July 2002.
(b) The remaining balance (approximately $80 million as of closing
the acquisition of PGE by ▇▇▇▇▇▇) of the sum of $105 million, to
be paid in accordance with paragraph 20 of the Stipulation until
the entire amount is paid.
2. ADDITIONAL RATE BENEFIT TO PGE CUSTOMERS. Sierra will extend the $9
million annual rate benefit through December 31, 2003, thus producing
an additional $13.5 million in assured benefits for PGE customers.
3. TIMELY IMPLEMENTATION OF SB 1149. ▇▇▇▇▇▇ is committed to the prompt
and effective implementation of SB 1149 and will support all
reasonable efforts of the Commission and other interested parties to
achieve implementation of SB 1149 on or before October 1, 2001. We
anticipate that SB 1149 rates will be based on a 2002 test year.
/ / / / /
SIERRA/Exhibit 4
Oldham/3
4. SB 1149 RATE PRINCIPLES. At an appropriate time in advance of the
implementation of SB 1149, ▇▇▇▇▇▇ will propose SB 1149 rates for PGE
that carry out the following principles:
(a) In PGE's rate filings after approval of this transaction (as
described in paragraphs (c) and (d) below), PGE and the
Commission will apply the principle that costs expended to
achieve savings should be matched with the saving themselves. For
purposes of this transaction, the costs to achieve
acquisition-related savings will include the annual amortization
of the goodwill associated with the acquisition and any
transition costs, such as severance or new systems, appropriately
included in the particular test period (collectively "acquisition
costs").
(b) In PGE's rate filing to implement SB 1149, the Commission will
establish a base line revenue requirement for use in applying the
matching principle.
(c) If PGE's rate filing to implement SB 1149 includes more than $9
million in cumulative savings from the base line revenue
requirement for the 2002 test year, the Commission will include
test year acquisition costs if matched by savings.
(d) In the first PGE rate filing with a test period subsequent to
2003, the matching principle shall be applied without regard to
the $9 million guarantee. To the extent that Sierra can show that
ongoing annual savings exceed ongoing acquisition costs, such
ongoing acquisition costs will be recognized for ratemaking
purposes, except that in no event shall acquisition costs
SIERRA/Exhibit 4
Oldham/4
included for the test year exceed savings. PGE's customers will
realize 100 percent of the allocable net savings in excess of
acquisition costs.
Q. DOES SIERRA ANTICIPATE THAT THERE WILL BE SAVINGS IN EXCESS OF ACQUISITION
COSTS?
A. Yes. In considering the purchase of PGE, ▇▇▇▇▇▇ estimated that, by 2003, it
could achieve over $42 million in annual savings across the three operating
utilities. This is well in excess of estimated ongoing acquisition costs,
about $30 million per year system-wide. After public announcement of the
transaction, ▇▇▇▇▇▇ asked Deloitte Consulting ("Deloitte") to review our
estimates. Deloitte has advised us that ▇▇▇▇▇▇'s estimates of savings are
reasonably attainable, in light of industry experience and our intended
approach to integration.
Q. PLEASE EXPLAIN HOW SIERRA EXPECTS TO ACHIEVE THESE SAVINGS.
A. Our estimates are just that, which is to say that we do not yet have
specific operating or integration plans. However, in developing our
estimates, ▇▇▇▇▇▇ looked at opportunities (a) to reduce duplication of
functions in various corporate support areas (for example, corporate
planning and information services), (b) to forego investments which would
be duplicative (for example, customer information systems), and (c) to
achieve operating efficiencies by the application of best practices among
our operating units. To date, we have not assigned any specific dollar
amounts for operating efficiencies. We will be working with PGE to
determine how to integrate our various utility operations.
Q. PLEASE DESCRIBE PGE'S SHARE OF ACQUISITION COSTS.
A. These costs will include a portion of the annual amortization of goodwill,
allocated to PGE as explained by ▇▇. ▇▇▇▇▇▇. They also may include costs
incurred directly by PGE such as severance pay or early retirement of
technology, if properly included in the test year under consideration. For
rate purposes, however, acquisition costs will not include the initial
SIERRA/Exhibit 4
Oldham/5
transaction-related costs, such as expenditures for bankers, attorneys, and
the regulatory process. Such transaction-related costs will have been
expensed as incurred before PGE's next contemplated test period - 2002.
Q. HOW WILL YOU MEASURE AND VERIFY ANNUAL ACQUISITION COSTS?
A. Costs incurred at the utility level are reflected on the books and records
of the utility. Costs incurred at the holding company level are reflected
on the holding company's books and records, then allocated and charged to
the utility, based on accepted allocation standards and methodologies,
subject to audit.
Q. HOW WILL YOU IDENTIFY AND VERIFY ANNUAL COST OF SERVICE SAVINGS?
A. We will use the baseline established by the Commission in PGE's 2002 test
year rate case for purposes of measuring savings. Verification will follow
the normal procedures of a general rate proceeding. We are following a
similar procedure in Nevada to measure and verify savings, and we will be
working with the regulatory commission to establish agreed-upon
measurements and reporting.
Q. PLEASE DESCRIBE ▇▇▇▇▇▇'S PROPOSALS FOR OTHER CONDITIONS OF APPROVAL OF
SIERRA'S APPLICATION.
A. Because Sierra and its utility subsidiaries are domestically regulated,
with a long history, little about Sierra is unknown. The Commission can
comfortably rely on Sierra's history and regulatory environment.
Nevertheless, we are proposing that the Commission adopt for ▇▇▇▇▇▇ a set
of conditions similar to those imposed on Enron and Scottish Power.
In the following questions and answers, I will describe the various
conditions to which we are prepared to agree. While these proposed
conditions are substantively equivalent to those imposed by the Commission
in the Enron and Scottish Power orders, we have rephrased some to
correspond more closely to our operating and financial practices, to
clarify the intent of the provision, or to reflect SB 1149.
SIERRA/Exhibit 4
Oldham/6
Q. WHAT CONDITIONS DOES SIERRA PROPOSE IN THE AREAS OF FINANCE AND ACCOUNTING?
▇. ▇▇▇▇▇▇ proposes the following financial and accounting conditions:
o PGE shall maintain separate ratings for its debt and for its preferred
stock, if more than $50 million is outstanding.
o PGE shall not make any distribution to Sierra that will reduce PGE's
common equity capital below 48 percent of PGE's total capital without
Commission approval. PGE's total capital is defined as common equity,
preferred equity and long-term debt. The Commission Staff, PGE and
Sierra may re-examine this minimum common equity percentage as
financial conditions change and may request that it be adjusted.
o Sierra and PGE agree that the allowed return on common equity and
other costs of capital will not rise as a result of the acquisition
transaction. These capital costs refer to the costs of capital used
for purposes of rate setting, avoided cost calculations, affiliated
interest transactions, least cost planning, and other regulatory
purposes.
o Sierra and PGE shall provide the Commission, upon request, access to
books and records of ▇▇▇▇▇▇ and PGE that are reasonably calculated to
lead to information regarding PGE, including, without limitation,
Board of Director's Minutes, and information provided to common stock,
bond, or bond rating analysts. Nothing in this condition shall be
deemed to be a waiver of Sierra's or PGE's right to seek protection of
the information under a protective order issued by the Commission or a
waiver of Sierra's or PGE's right to object to production of
information on the grounds that the request is overly broad, unduly
SIERRA/Exhibit 4
Oldham/7
burdensome or outside the scope of the Commission's regulatory
jurisdiction.
o Unless such a disclosure is unlawful, Sierra shall notify the
Commission of:
(a) Its intention to transfer more than 5 percent of PGE's retained
earnings to Sierra over a six-month period, at least 60 days
before such a transfer begins.
(b) Its intention to declare a special cash dividend from Sierra, at
least 30 days before declaring each such dividend.
(c) Its most recent quarterly common stock cash dividend payment from
PGE within 30 days after declaring each such dividend.
o PGE's accounting records shall be maintained (a) separate or separable
from those of Sierra and other Sierra affiliates and (b) readily
available to the Commission in Portland, Oregon.
o Sierra and PGE (a) agree not to assert in any future proceedings that
the provisions of the Public Utility Holding Company Act of 1935
("PUHCA") and/or Ohio v. FERC shall preempt the Commission's
jurisdiction over affiliated interest transactions, and (b) explicitly
waive any such defense in any proceeding.
Q. WHAT CONDITIONS DOES SIERRA PROPOSE IN THE AREA OF INTER-JURISDICTIONAL
ALLOCATIONS?
▇. ▇▇▇▇▇▇'▇ multi-service, multi-jurisdictional operations have necessitated
the development of a comprehensive system for both direct charges and
allocations of administrative and general expenses. Thus, ▇▇▇▇▇▇ proposes:
o Unless otherwise agreed in a particular case, or modified by the
Commission in a future order, ▇▇▇▇▇▇ will allocate expenses among its
SIERRA/Exhibit 4
Oldham/8
affiliates using the allocation methods contained in NARUC's standard
cost allocation manual, for interstate expenses, and the modified
Massachusetts method (as adopted by the PUCN) for other purposes.
o To determine the reasonableness of allocation factors used by Sierra
or its affiliates to assign costs to PGE and amounts subject to
allocation, the Commission or its agents may audit the accounts of
Sierra and any of its subsidiaries which are the bases for allocations
to PGE. ▇▇▇▇▇▇ agrees to cooperate fully with such Commission audits.
Q. WHAT CONDITIONS DOES SIERRA PROPOSE IN THE AREA OF AFFILIATE TRANSACTIONS?
▇. ▇▇▇▇▇▇ proposes the following conditions for affiliate transactions:
o PGE and ▇▇▇▇▇▇ agree to comply with all Commission requirements
regarding affiliated interest transactions, including the timely
filing of applications and reports.
o PGE and Sierra shall provide the Commission access to books of
account, as well as all documents, data, and records of their
affiliated interests, which pertain to direct charges paid by PGE to
such affiliates and transactions between PGE and all of its
affiliates.
o Within 45 days of the end of each calendar six-month period for the
three full years after approval, beginning with the first full six
months after closing the Sale, PGE shall file detailed semi-annual
reports with the Commission regarding:
(a) employee transfers, permanent and temporary (temporary is defined
as more than three months but less than one year for purposes of
this condition, and less than 50 percent of time in the aggregate
SIERRA/Exhibit 4
Oldham/9
over any two-year period), between PGE and Sierra or any Sierra
affiliates;
(b) consulting and training activities conducted by both PGE and
Sierra personnel for the other entity; and
(c) gas commodity sales, pipeline capacity releases, electric power
exchanges and sales, and competitive ancillary electric service
sales between PGE and any other Sierra company.
Q. WHAT CONDITIONS DOES SIERRA PROPOSE RELATED TO A FORMAL CODE OF CONDUCT FOR
TRANSACTIONS AND RELATIONSHIPS BETWEEN PGE AND ITS AFFILIATES?
A. We understand that as part of implementing SB 1149, the Commission will be
adopting a code of conduct for Oregon's investor-owned utilities.
Accordingly, it is unclear to us that the conditions implemented in the
past two transactions should apply. However, to facilitate timely
Commission review and approval of this application, ▇▇▇▇▇▇ proposes that
the order in this proceeding include the code of conduct provision to which
Scottish Power agreed, as follows:
If Sierra, either directly or through an affiliate, intends to
market generation services or ancillary services to retail customers
within PGE's Oregon service territory in competition with other
providers, PGE shall notify the Commission prior to marketing such
services for the purpose of establishing conditions to preclude anti-
competitive behavior. Such conditions shall be similar to those set
forth in Order No. 97-196, except as modified by the Commission.
Q. WHAT CONDITIONS DOES SIERRA PROPOSE RELATED TO QUALITY OF SERVICE
COMMITMENTS, INCLUDING RELIABILITY AND CUSTOMER SERVICE MEASURES?
A. As ▇▇. ▇▇▇▇▇▇▇▇ explains, PGE's current service quality is excellent. Post-
transaction, PGE shall continue to perform under the service quality
SIERRA/Exhibit 4
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measures described in UM 814, "Proposed Stipulation for Service Quality
Measures," and adopted in Order No. 97-196. The measures for 2000 shall be
those adopted in December 1999.
Q. THE PUCN DEALT WITH SIMILAR ISSUES IN APPROVING THE SIERRA/NPC MERGER. WHAT
REGULATORY STANDARD GOVERNS THE ADJUDICATION OF MERGERS IN NEVADA?
A. The statutory standard in Nevada, broadly stated, requires that PUCN find
that a proposed transaction is in the public interest. Once filed, an
application for approval of a merger or other change in control must be
acted upon within 180 days. Otherwise, the transaction is deemed approved
as filed.
The PUCN has issued a regulation defining the term "public interest"
as it applies to electric utilities. Loosely following the FERC's merger
standard, the PUCN has declared that a proposed merger transaction must not
adversely impact either competition, customers or regulation.
Q. WHAT DID SIERRA AND NPC PROPOSE IN THEIR MERGER APPLICATION TO MEET THE "NO
ADVERSE IMPACT" STANDARD?
A. The companies prepared an application showing that the transaction would
not have an adverse impact on competition, customers or ratepayers. That
being done, the companies established for themselves and designed a plan to
satisfy a more stringent test: that the transaction actually encourage the
development of effective competition, that customers receive a net benefit
from the transaction, and that the regulatory process - especially industry
restructuring - be advanced with the transaction. We are confident that, as
proposed in Sierra's application, our acquisition of PGE will produce net
benefits for PGE customers.
Q. WHAT PROPOSALS DID THE COMPANIES OFFER IN NEVADA TO ENHANCE THE DEVELOPMENT
OF EFFECTIVE COMPETITION?
/ / / / /
SIERRA/Exhibit 4
Oldham/11
A. The companies proposed that, upon completion of their merger, they would
divest substantially all of their Nevada generation assets. Divestiture
would be accomplished via a two-staged auction process, with units bundled
and sold to multiple owners. The companies proposed to reinvest divestiture
proceeds in additional transmission and distribution infrastructure. The
companies proposed to work with the Commission and interested parties to
develop an acceptable transmission proposal.
Q. WHAT PROPOSALS DID THE COMPANIES OFFER TO BENEFIT NEVADA CUSTOMERS?
A. The companies proposed that as a general matter, all merger-related costs
should be recovered from merger-related savings. As filed, the companies'
rate plan included a freeze in general rates through January 1, 2000, a
revenue-neutral unbundling docket, with rates from that case frozen for an
additional two years. The companies proposed that, two years following the
commencement of retail open access, they would file a rate case and adjust
revenue requirements based on cost of service and experienced costs. The
companies would receive above-the- line treatment for merger-related costs
(including goodwill), in exchange for an annual earnings report and sharing
equally with customers of earnings above 12 percent return on equity.
Q. HOW DID THE PUCN RESPOND TO THE COMPANIES' PROPOSALS?
A. The PUCN accepted many components of the proposal, but modified some
aspects, especially the rate plan.
The PUCN conditioned merger approval on a commitment from Sierra that
it would divest its Nevada generation assets. The use of divestiture
proceeds, up to book value, was at the discretion of Sierra. Sierra was
required to, and now has filed, a divestiture plan with PUCN (and with
FERC), which included an ISA proposal and a proposed generation service
tariff.
/ / / / /
/ / / / /
SIERRA/Exhibit 4
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The PUCN adopted the following modified rate plan:
o A general rate case for SPPC and NPC to establish the total revenue
requirement for each bundled electric utility. All merger-related
costs and savings were to be removed from the test period and results
of operations.
o Unbundle costs into service components, and allocate the total revenue
requirement to each service component using the PUCN's approved
unbundling study.
o Use the unbundled revenue requirement to design and implement rates
for noncompetitive services - i.e., distribution-only and "provider of
last resort" service.
o Implement rates on commencement of retail open access and freeze such
rates until January 1, 2003.
o Transaction, transition and goodwill costs to be deferred and assigned
or allocated to specific service components (e.g., generation,
transmission, distribution, common).
o At the end of the rate freeze, the companies must make a showing that
these costs were prudently incurred and that merger-related savings
exceeded merger-related costs. If successful in making this showing,
the companies may include annual recovery of such deferrals allocable
to noncompetitive (provider of last resort and distribution) services
in the regulated revenue requirement.
o Any after-tax gain realized from generation divestiture must first go
to stranded cost recovery. Any unused gain may then be used to offset
that portion of goodwill allocable to generation.
/ / / / /
SIERRA/Exhibit 4
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o The PUCN also imposed some accounting and reporting requirements,
including the development and use of a single accounting system
capable of performing automated jurisdictional allocations, and
reflecting the PUCN's rules for affiliate service. The accounting
system was to be developed after consultation with the PUCN's Staff.
The companies were ordered to maintain a clear separation between
regulated and non-regulated companies, present recorded results of
operations by FERC account showing adjustments and allocations, and to
file an agreement for services for common or shared services.
The companies' hold-harmless commitment to quality of service, which
included both reliability and customer service, was accepted. The PUCN
promised to establish techniques for monitoring safety and reliability as
part of its restructuring efforts, but encouraged the companies to assist
in the development of appropriate reliability benchmarks based upon
historical data. The companies are also to provide regularly to the PUCN's
Consumer Division the results of its customer satisfaction surveys.
Q. WHAT IS THE STATUS OF SPPC AND NPC'S COMPLIANCE WITH THE PUCN'S ORDER
APPROVING THE SIERRA/NPC MERGER?
A. The transaction required the regulatory approval of PUCN, SEC and FERC. All
approvals for the merger have been obtained, and the merger was consummated
on July 29, 1999. The companies filed a divestiture plan on April 15, 1999,
setting forth drafts of such key documents as the Offering Memorandum, Sale
Agreements, buy-back agreements, a generation tariff and transmission
proposals. The final Offering Memorandum and accompanying documents were
filed in a revised divestiture plan on October 15, 1999. In a stipulation
resolving issues related to the divestiture plan, ▇▇▇▇▇▇ reaffirmed its
commitment to participate in FERC's rulemaking regarding regional
SIERRA/Exhibit 4
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transmission organizations ("RTOs"), in which proceeding FERC has now
issued a final order, commonly referred to as Order 2000. ▇▇▇▇▇▇ is
actively investigating participating in one or more RTOs.
Sierra and NPC filed their restructuring compliance plans on April 1,
1999, and their unbundling studies on April 30th. The PUCN conducted
hearings on the revenue requirement phase of both SPPC's and NPC's plans in
November, resulting in Interim Orders setting the revenue requirement for
distribution-only service for SPPC and NPC. SPPC's rate design case was
heard in late November, 1999, and NPC's is being heard in January. We
expect final orders for all phases of both proceedings prior to March 1.
Q. YOUR OREGON RATE PROPOSAL DIFFERS IN SOME DETAIL FROM THAT WHICH YOU
OFFERED IN NEVADA OR THAT WHICH WAS APPROVED BY THE PUCN. PLEASE EXPLAIN.
A. There is no single right approach for a post-acquisition rate proposal. In
this case, we are committed to honoring and extending the rate benefits now
enjoyed by PGE customers from the Enron transaction, which are structured
differently than in Nevada. Common to our proposals in both jurisdictions
is that:
o we are committed to providing immediate, measurable short-term
benefits for customers,
o we are committed to implement restructuring,
o if we achieve measurable savings for our customers, we are entitled to
recover our transaction-related costs, and
o stockholders have an opportunity for a reasonable return on their
investment.
Q. DO YOU CONTEMPLATE DIVESTING PGE'S GENERATION ASSETS?
A. No, except for transactions already announced by PGE and transactions which
may occur as part of the implementation of SB 1149.
SIERRA/Exhibit 4
Oldham/15
Q. WILL PGE'S GENERATION RESOURCES BE COMBINED WITH OR USED TO SERVE CUSTOMERS
IN SPPC'S AND NPC'S SERVICE TERRITORIES?
A. We do not intend to integrate power supply divisions or jointly dispatch
generation. Under FERC and SEC requirements, any power sales transactions
among Sierra affiliates must be at market prices or other approved charging
methodology. Our intent is that PGE be operated and regulated as a
stand-alone company, with its revenue requirement based on its own
distribution, transmission and generation costs, plus PGE's allocable share
of corporate and service company costs, with such allocations being made
pursuant to SEC approval and based on industry and NARUC standard
methodologies. We recognize that implementation of SB 1149 will require the
unbundling of costs into various categories and that rates for unbundled
services will reflect the costs associated with the particular service.
Q. ARE YOU FAMILIAR WITH OREGON'S RECENTLY ENACTED RESTRUCTURING LEGISLATION?
A. Yes, I am. As part of our due diligence review for this transaction, we
spent considerable time reviewing and evaluating SB 1149. I understand that
its major provisions require:
o direct access for PGE's and PacifiCorp's commercial and industrial
customers no later than October 1, 2001;
o choice for residential customers of PGE and PacifiCorp among a
cost-of-service option, a market-based rate option, and a green power
option no later than October 1, 2001;
o choice for small commercial customers (as well as other classes as the
Commission determines) of a cost-of-service option;
o clear communication to all customers as to the price and content of
their energy options;
/ / / / /
SIERRA/Exhibit 4
Oldham/16
o a systems benefit charge to ensure continued investment in new energy
efficiency measures, new renewable resources, and new low-income
weatherization programs;
o a charge to fund a low-income bill payment assistance fund;
o unbundling of major categories of cost for utilities;
o comparability and nondiscrimination with respect to distribution
services;
o continued consumer-protection regulation of energy service suppliers;
o the adoption of Commission policies and decisions to frame the future
structure of the electric market in Oregon; and
o the promulgation by the Commission of rules for implementing various
aspects of direct access and the other provisions of the bill.
Q. BASED ON YOUR EXPERIENCES IN NEVADA AND CALIFORNIA, DO ANY ASPECTS OF
OREGON'S RESTRUCTURING PROCESS TROUBLE OR CONCERN SIERRA?
A. No. ▇▇▇▇▇▇ supports the Commission's restructuring efforts and views
Oregon's approach as consistent with our objectives. We also recognize that
restructuring efforts may differ in detail, as each jurisdiction strives
for an appropriate balance of interests among its various constituents. We
are prepared to be creative and flexible as we approach the SB 1149
discussions.
Q. CAN YOU PROVIDE US A SUMMARY OF SIERRA'S REGULATORY EXPERIENCE IN NEVADA
AND CALIFORNIA?
A. Yes. Exhibit 5 is my supplemental direct testimony which discusses general
regulatory issues in Nevada and California.
Q. ARE YOU FAMILIAR WITH THOSE PROVISIONS OF SB 1149 THAT RELATE TO THE
BONNEVILLE POWER ADMINISTRATION ("BPA")?
/ / / / /
SIERRA/Exhibit 4
Oldham/17
A. Generally, yes. I understand that the bill provides the Commission with the
authority to:
o require PGE to enter into a contract to purchase power from the BPA
under its subscription process, with recovery by PGE of any costs
relating to this purchase, including potentially stranded costs; and
o suspend implementation of the provisions of the bill if proceeding
with implementation could impair the ability of Oregon utilities to
qualify to purchase power from the BPA on behalf of their residential
and small farm customers.
Q. IS SIERRA COMMITTED TO THE RESIDENTIAL EXCHANGE PROGRAM OR THE PURCHASE OF
BPA POWER TO BRING THE BENEFITS OF BPA POWER TO PGE'S RESIDENTIAL AND SMALL
FARM CUSTOMERS?
A. Absolutely. Not only is this the law, but we are committed to support the
efforts PGE has made over the years to retain benefits of the BPA power
system for its residential and small farm customers.
Q. DOES THIS COMPLETE YOUR TESTIMONY?
A. Yes, it does.
SIERRA/EXHIBIT 4
OLDHAM/SCO-1
QUALIFICATIONS OF WITNESS
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
My name is ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇. I am Vice President of Corporate
Development and Strategic Planning for Sierra Pacific Power Company. My business
address is ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇.
I am a graduate of the University of Utah, with a Bachelor of Science
Degree in Accounting. From October 1976 through 1984, I was employed by Sierra
in various accounting and regulatory positions, including the development of
marginal and embedded cost of service studies, jurisdictional cost allocation
studies, rules regulating the interconnection of alternative generation
companies to the electric system, compliance filings under PURPA, and the
implementation of FERC transmission wheeling rates for both firm and non-firm
customers.
In 1984, I was promoted to Manager of Construction Management Systems.
This position directed the continued development, operation, and administration
of the Company's construction cost management system, and the administration and
presentation of the annual construction budget.
In 1986, I was promoted to Manager of Corporate Planning. In addition
to the management of the construction budget, I was given responsibility for the
administration of the annual O&M budget. Additional responsibilities include the
presentation and implementation of the corporate goals and objectives, the
continued development and presentation of the Company's five-year financial
forecast, the issuance of securities related to the Company's financing
requirements, the continued development and maintenance of the Company's
financial software systems and, finally, the development of all economic
analyses used in support of management decision making.
In February 1990, I was promoted to Manager of Economic and Financial
Services, managing all of the Company's financial requirements, including cash
management, corporate taxes, and financial forecasting.
In October 1990, I was promoted to Acting Treasurer and Director of
Finance and in May 1991, I was elected Treasurer and Director of Finance. In
that position, I was responsible for accounting, regulatory, and financial
management activities for Sierra Pacific Power Company.
In July 1994, I was elected to the position of Vice President,
Regulation and Treasurer by the Board of Directors. In this position, I was
responsible for regulatory affairs, financial management activities and
merger-related items for Sierra. In December 1995, I was elected Vice President
for Information Service, Telecommunications and Redesign. In November 1996, I
was elected by the Board of Directors to my current position as Vice President
of the Transmission Services Business Group and Strategic Development. I have
responsibility for the strategic plans of the company, as well as the operation,
regulatory compliance and overall management of the transmission line of
business.
SIERRA/EXHIBIT 5
OLDHAM/I
BEFORE THE PUBLIC UTILITY COMMISSION
OF OREGON
UM-__________
IN THE MATTER OF THE APPLICATION OF )
SIERRA PACIFIC RESOURCES TO ACQUIRE )
PORTLAND GENERAL ELECTRIC COMPANY )
SUPPLEMENTAL DIRECT TESTIMONY
OF
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
FOR
SIERRA PACIFIC RESOURCES
JANUARY 18, 2000
SIERRA/EXHIBIT 5
OLDHAM/1
Q. PLEASE STATE YOUR NAME AND TITLE.
A. My name is ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇. I am Vice President of Corporate Planning and
Strategic Development for Sierra Pacific Resources ("Sierra").
Q. WHAT IS THE PURPOSE OF THIS SUPPLEMENTAL TESTIMONY?
A. This testimony is to provide the Oregon Public Utilities Commission
("Commission") with background regarding the ratemaking environment in
which Sierra currently operates in California and Nevada. I provide a brief
regulatory history for both of Sierra's regulated utilities, Sierra Pacific
Power Company ("SPPC") and Nevada Power Company ("NPC"), as well as an
overview of the major ratemaking policies applicable to both our Nevada
(electric, gas and water) and California (electric only) service
territories.
Q. PLEASE DESCRIBE THE MAJOR RATEMAKING PRINCIPLES HISTORICALLY APPLICABLE TO
YOUR RETAIL ELECTRIC OPERATIONS IN NEVADA.
A. Three ratemaking elements are key to the historical setting of rates for
retail electric service in Nevada: general rates, energy rates, and rate
design. Each is addressed in order below. I discuss the significant impacts
of industry restructuring on these historical ratemaking practices later in
my testimony.
General Rates: As established by statute and regulation, general
(non-energy) rates for retail electric service are based on twelve months
historical results of operations. The 12-month historic test period may be
updated by up to 90 days to reflect certified expenditures and revenues.
Any request to change general rates must be decided within 180 days of
application (30 days for notice, plus a suspension of the effective date
for the requested change of up to 150 days).
Energy Rates: Energy rates for retail electric service are established
separately from general rates. Historically, energy rates for retail
electric service have been set using a deferred energy accounting. As
applied in Nevada, deferred accounting revolves around a mandatory annual
SIERRA/EXHIBIT 5
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(with an optional semi-annual) filing to update fuel and purchased power
costs. In each update proceeding, the base tariff energy rate ("BTER") is
adjusted to reflect the most recent annual energy costs. Any difference
between the revenues collected using the previously established BTER and
the prior period's actual energy costs are amortized and collected over the
subsequent 12 months. Deferred energy accounting is elective, although once
authorized to use deferred accounting, a utility cannot opt out of the
process without prior Commission approval.
Rate Design: By regulation, retail electric rates in Nevada must be
set using a marginal cost methodology applied by customer class. As a
result, changes in sales mix (e.g., consumption by customer class) can
result in increases or decreases in revenues, irrespective of changes in
total consumption.
Q. PLEASE DESCRIBE SPPC'S CURRENT RETAIL ELECTRIC RATE STRUCTURE IN NEVADA.
A. In 1994, SPPC agreed as part of a settlement in a three-service (water, gas
and electric) general rate case and electric deferred energy case to
increase its base electric rates by $6.5 million and decrease deferred
energy rates by approximately $17.6 million. Those rates remained in effect
through July, 1995, when, as part of a stipulation resolving Sierra's
unconsummated merger with Washington Water Power ("WWP"), SPPC refunded an
additional $9 million to electric customers, discontinued deferred energy
accounting, and moved to a stipulated incentive rate plan. After the
collapse of the WWP merger, the incentive rate plan was renegotiated. Thus
in 1997, an additional electric refund of $13 million was issued, along
with a reduction in general rates of $7.1 million. The stipulated incentive
mechanism, which survives through today, is based on a freeze of both
general and energy rates at least through January 1, 2000, with an annual
SIERRA/EXHIBIT 5
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earnings review and annual sharing of earnings above a target (not
authorized) return on equity of 12 percent.
Q. HAS NPC OPERATED UNDER A SIMILAR INCENTIVE RATEMAKING MECHANISM?
A. No. NPC's retail electric rates are based on traditional rate of return
regulation, coupled with deferred energy accounting.
Q. HOW WILL RETAIL ELECTRIC RATES IN NEVADA BE ESTABLISHED GOING FORWARD?
A. As I describe in more detail below, an essential element of the state's
most recent restructuring legislation ("S.B. 438") is a three-year cap on
bundled (i.e., distribution, transmission, customer service and generation
service) retail electric rates. The protections of the rate cap apply only
to customers of the so-called Provider of Last Resort ("PLR"). Through the
transition period to full retail open access (March 1, 2000 through March
1, 2003), SPPC and NPC are required to provide bundled service to PLR
customers, either through their distribution utility or through a separate
PLR-only affiliate. With the exception of the processing of NPC's final
deferred energy cases (described more fully below), the cap was established
at present rate revenues as of June 1, 1999.
A nuance in the legislation designates SPPC and NPC as the exclusive
providers of PLR service through July 1, 2001. After that date, it is hoped
that the retail market will be sufficiently developed that other entities
may wish to seek authority to provide PLR service. The legislative rate cap
would apply to all providers of PLR service through March 1, 2003.
In addition to establishing a three-year cap on bundled retail
electric rates, S.B. 438 abolished the use of deferred energy accounting
after October 1, 1999. As mentioned above, SPPC has not used deferred
energy accounting since 1995 and so was not itself impacted by this
provision. NPC was impacted, however, and filed its annual deferred
accounting case on July 15, 1999, and its final deferred energy filing on
SIERRA/EXHIBIT 5
OLDHAM/4
September 30, 1999. S.B. 438 explicitly provides for an adjustment of the
rate cap to recognize the implementation of rates resulting from these
final deferred energy dockets.
Q. PLEASE DESCRIBE THE MAJOR RATEMAKING PRINCIPLES APPLICABLE TO YOUR RETAIL
ELECTRIC OPERATIONS IN CALIFORNIA.
A. SPPC's electric service territory extends into portions of eastern
California, predominantly around the Tahoe Basin. This territory is subject
to the jurisdiction of the CPUC with respect to rates, standards of
service, siting of and necessity for local generation and transmission
facilities, as well as utility accounting, issuance of securities and
related matters. Historically, the CPUC has utilized three types of rate
adjustment mechanisms in overseeing jurisdictional electric operations: the
General Rate Case ("GRC), an incentive ratemaking process called Electric
Rate Adjustment Mechanism ("ERAM"), and an Energy Cost Adjustment Clause
("ECAC") proceeding.
Q. WHAT PROCESSES AND PRINCIPLES GOVERNED THE SETTING OF YOUR CURRENT RETAIL
ELECTRIC RATES IN CALIFORNIA?
A. As part of a settlement approved by the CPUC in the WWP merger case, SPPC
agreed to freeze its general and energy rates, and to discontinue ERAM and
ECAC ratemaking. Later, pursuant to California's restructuring legislation,
SPPC was required to reduce its residential rates by 10 percent, timed to
coincide with retail open access. SPPC also filed its Direct Access
Implementation Plan, which ultimately included recovery of the 10 percent
mandated rate reduction through the State's Rate Reduction Bond mechanism.
/ / / / /
/ / / / /
/ / / / /
SIERRA/EXHIBIT 5
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RESTRUCTURING: CALIFORNIA
Q. CAN YOU BRIEFLY DESCRIBE THE PROCESS FOLLOWED IN CALIFORNIA FOR
RESTRUCTURING THE RETAIL ELECTRICITY MARKET?
A. With an emphasis on brevity, yes. On December 20, 1995, the CPUC issued an
order announcing the majority proposal for restructuring the electric
industry beginning January 1, 1998. The proposal was subject to the
approval of the Governor, the Legislature, and the FERC. The CPUC plan
required the creation of an Independent System Operator ("ISO") to
efficiently operate the state's transmission system and ensure comparable
access for power suppliers. It also required the establishment of a Power
Exchange ("PX") for direct customer access to alternate suppliers, phased
in over time. In addition, performance-based ratemaking was to be applied
to remaining monopoly services (e.g., distribution), while stranded costs
were to be recovered through a separate competitive transition charge on
customers' bills.
On September 24, 1996, the Governor of California signed into law a
bill that incorporated these basic tenents. It provided for the
restructuring of the electric industry beginning January 1, 1998, included
creation of the ISO and PX, established performance-based ratemaking for
regulated distribution services, and allowed for the recovery of stranded
costs through a separate transition charge. On May 6, 1997, the CPUC issued
an order implementing the restructuring bill, but extending the date for
direct access to March 31, 1998.
Beginning on that date, SPPC has offered all its California customers
direct retail access. Customers may choose to continue to take service from
SPPC at its tariffed rates, or elect to purchase energy from marketers or
to buy directly from generators.
/ / / / /
/ / / / /
SIERRA/EXHIBIT 5
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RESTRUCTURING: NEVADA
Q. CAN YOU BRIEFLY DESCRIBE THE STATUS OF THE NEVADA ELECTRIC INDUSTRY
RESTRUCTURING PROCESS?
A. Nevada's electric restructuring process began in ▇▇▇▇▇▇▇ in 1997 with the
passage of A.B. 366. Thereafter the PUCN instituted an all-encompassing
investigatory docket aimed at generating the rules for implementing
restructuring. Two years later, some significant issues were as yet
unresolved, and some remained largely unaddressed. Therefore, in 1997 the
Legislature revisited the restructuring process in S.B. 438. Many
provisions of the original statute were streamlined or clarified, and some
processes were legislatively resolved.
Q. WHAT WAS THE ORIGINAL DESIGN OF NEVADA'S ELECTRIC RESTRUCTURING PROCESS?
A. A.B. 366 continues to provide the framework for retail competition in the
electric and gas markets in Nevada. As passed in 1997, A.B. 366 mandated
full retail open access to all customer classes as of December 31, 1999.
Under A.B. 366, traditional bundled electric service was broken into two
broad categories of service: non-competitive ("NCS") and potentially
competitive services ("PCS"). The statute designated distribution service
and Provider of Last Resort service as NCS, and generation and aggregation
of energy supply as PCS. All other components of service (e.g., metering,
billing customer service) remained subject to classification by the PUCN.
A.B. 366 provided that Nevada's vertically integrated electric
utilities could provide only NCS, pursuant to rates, terms and conditions
regulated by the PUCN. PCS services could only be provided by licensed
non-utility Alternative Sellers. The rates, terms and conditions for PCS
might still be subjected to some form of regulatory oversight, however,
depending on the extent to which the market for any particular PCS service
is effective. The statute also provided that all potentially competitive
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services were deemed fully competitive, and thus not subject to continued
regulatory oversight, no later than October 1, 2001.
On October 21, 1997, the PUCN issued an order stating its intended
process for addressing and implementing the various aspects of A.B. 366.
The PUCN conducted workshops on unbundling, designating components of
service as either NCS or PCS, determining the non-price terms and
conditions for NCS and PCS, establishing licensing requirements for
alternative sellers, defining affiliate requirements, and setting standards
for consumer protection. The recovery of stranded costs and suggested means
of providing PLR service were also briefly addressed in the early
workshops.
Q. HOW DID THE 1999 LEGISLATURE COME TO REVIEW AGAIN THE ELECTRIC
RESTRUCTURING PROCESS?
A. In early February 1999, the PUCN recommended to the state legislature that
the start date for competition be delayed to allow more time for
consideration of issues as a result of restructuring. The revised start
date was also intended to recognize complications that might arise due to
Year 2000 systems modifications. Thus first and foremost, S.B. 438 delayed
the start date for retail open access to March 2000, as requested by the
PUCN.
Thematically, S.B. 438 focuses on the transition to retail open
access, providing interim solutions and protections for customers. S.B. 438
requires that SPPC and NPC assume the provider of last resort function
through at least March 1, 2003, but allows SPPC and NPC to provide PLR
service through the distribution utility (rather than a special-purpose
affiliate), at least through July, 2001. S.B. 438 establishes the revenue
requirement to be used in setting rates non-competitive services, and
imposes a three- year cap on bundled retail rates for all PLR customers.
S.B. 438 makes clear that long- term contracts with qualifying facilities
SIERRA/EXHIBIT 5
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must be honored to the extent that they cannot be mitigated. Finally, S.B.
438 provides for the calculation and recovery of revenue shortfalls created
by the elimination of interclass rate subsidies.
Q. WHAT IS THE CURRENT STATUS OF RESTRUCTURING IN NEVADA?
A. Both SPPC and NPC have completed the unbundling process, using the PUCN's
26 components of traditional electric service. In addition to generation
and aggregation service, customer services, metering and billing have been
deemed potentially competitive services. All non-price terms and conditions
for distribution-only service have been established. The PUCN has issued an
Interim Order regarding the revenue requirement to be used in setting
distribution-only rates. A final order that encompasses the results of
recent hearings on rate design for distribution-only service is expected in
late January or February 2000.
Q. WHAT MAJOR ISSUES HAVE YET TO BE RESOLVED?
A. Several significant issues still remain unresolved at the PUCN level, most
notably rules for recovering past (stranded) costs, whether and to what
extent the distribution company can self-provide PCS services, whether and
how SPPC and NPC can recover the costs of funding the proposed Mountain
West ISA, and adjudication of the divestiture plan. The FERC has yet to
decide some important pending issues as well, including the proper pricing
of generation within SPPC and NPC's load pockets as well as the structure,
price and non-price terms and conditions of transmission service through
the proposed Mountain West ISA.
Q. DOES THIS COMPLETE YOUR SUPPLEMENTAL TESTIMONY?
A. Yes.
BEFORE THE PUBLIC UTILITY COMMISSION
OF OREGON
UM-__________
IN THE MATTER OF THE APPLICATION OF )
SIERRA PACIFIC RESOURCES TO ACQUIRE )
PORTLAND GENERAL ELECTRIC COMPANY )
MOTION FOR PROTECTIVE ORDER
JANUARY 18, 2000
BEFORE THE PUBLIC UTILITY COMMISSION
OF OREGON
UM-__________
In the Matter of the Application of )
Sierra Pacific Resources to Acquire ) MOTION FOR PROTECTIVE ORDER
Portland General Electric Company )
Sierra Pacific Resources ("Sierra") moves for a protective order in
connection with its application to acquire Portland General Electric. OAR
860-012-0035(1)(k) provides that the Administrative Law Judge may, for good
cause shown, issue the standard protective order approved by the Commission.
Sierra requests an addition to the standard protective order (1) for protection
of computerized data and (2) to allow Sierra to organize a document room in
which all of the documents related to the transaction will be made available.
▇▇▇▇▇▇ anticipates that parties may intervene in this docket and
engage in discovery seeking sensitive and proprietary information, such as
Sierra's financial records and projections, strategic plans, and information
relating to employees. Sierra Pacific will be exposed to competitive injury if
it is forced to make unrestricted disclosure of its confidential business
information.
OAR 860-011-000(3) provides that the Oregon Rules of Civil Procedure
("ORCP") govern these proceedings. ORCP 37C(7) provides that an order may be
entered limiting discovery of "trade secret or other confidential research,
development, or commercial information." Sierra requests the entry of the
standard protective order to protect such information by limiting disclosure to
specified persons, and requiring those persons to use the information only for
purposes of this proceeding.
/ / / / /
/ / / / /
PAGE 1 - MOTION FOR PROTECTIVE ORDER
PROTECTION OF COMPUTERIZED RECORDS
▇▇▇▇▇▇ requests that the following provision relating to computerized
data be added to the standard protective order:
"Any physical media containing computer software which are
delivered to a party and which are designated confidential
shall be returned to the party designating it confidential
at the conclusion of the proceeding. The party returning the
media shall sign a certificate affirming that the
programming on the media has been erased from any storage
facility internal to that party's own computer facilities."
This provision will specifically protect against unauthorized copying
of computerized data.
SIERRA DOCUMENT ROOM
▇▇▇▇▇▇ requests that the protective order be amended to permit ▇▇▇▇▇▇
to organize a document room containing all of the documents relating to the
transaction. The document room will include documents designated "confidential"
under the standard protective order, as well as non-confidential documents. The
document room will be accessible to all "qualified persons," as that term is
defined in paragraph 3 of the standard protective order.
The creation of the document room supersedes paragraph 6 of the
standard protective order, which provides that, when feasible, confidential
information should be "delivered to counsel." Paragraph 6 contemplates that the
presiding officer may order that confidential information be made available at a
designated time and place. ▇▇▇▇▇▇ hereby requests that the presiding officer
authorize ▇▇▇▇▇▇ to make confidential information available in its document
room, rather than deliver it to counsel. Because the document room will contain
all materials relevant to the transaction, it will facilitate prompt review by
any qualified person. A central repository for documents is desirable and
efficient because ▇▇▇▇▇▇ has gathered a large volume of documents relevant to
the transaction.
As Sierra states in its Application to Acquire Portland General
Electric, the document room will be open on January 24, 2000 and will remain
open during the pendency of the Application. The document room will be located
PAGE 2 - MOTION FOR PROTECTIVE ORDER
at the law offices of ▇▇▇▇ ▇▇▇▇▇ LLP, ▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇. Appointments to access the document room may be made by
contacting ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ at (▇▇▇) ▇▇▇-▇▇▇▇.
For the foregoing reasons, ▇▇▇▇▇▇ requests the entry of a standard
protective order with the addition of the provisions relating to computer data
and relating to a document room.
Dated: January 18, 2000.
Respectfully submitted,
▇▇▇▇ ▇▇▇▇▇ LLP
▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Of Attorneys for Sierra Pacific Resources
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
----------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ OSB No. 66007
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ OSB No. 79376
▇▇▇▇ ▇. ▇▇▇▇▇▇ OSB No. 85122
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ OSB No. 87161
PAGE 3 - MOTION FOR PROTECTIVE ORDER