Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS
THE ORGANIZATION
The Company is an electric utility that conducts a retail electric utility business through Pacific Power and Utah Power, and engages in power production and sales on a wholesale basis under the name PacifiCorp. The Company formed Holdings in 1984 to hold the stock of the Company's principal subsidiaries and to facilitate the conduct of businesses not regulated as electric utilities. The Company's strategic business plan is to strengthen the scope and competitive position of its electric utility and telecommunications operations, to develop and expand its independent power production and cogeneration business, and to reduce the size and narrow the scope of its other diversified activities.
Through Holdings, the Company indirectly owns approximately 87% of Pacific Telecom, a telecommunications company that provides local telephone service and access to the long distance network in Alaska, seven other western states and three midwestern states, intrastate and interstate long distance communication services in Alaska, and cellular mobile telephone services. Pacific Telecom is also involved in the operation and maintenance of and sale of capacity in a submarine fiber optic cable between the United States and Japan. Holdings has entered into an agreement and plan of merger with Pacific Telecom under which Holdings would acquire the 13% publicly held minority interest in Pacific Telecom for $30 per share. The merger requires approval by the holders of a majority of the outstanding shares of Pacific Telecom not owned by Holdings (5.3 million shares), and is subject to regulatory approvals and other conditions customary to such transactions.
Holdings owns 100% of PGC, which is engaged in the independent power production and cogeneration business. Holdings also owns 100% of PFS. Consistent with PacifiCorp's strategic plan, PFS has sold substantial portions of its loan, leasing, manufacturing and real estate investments and expects to continue its disposition activities over the next several years. PFS presently expects to retain only its tax-advantaged investments in leveraged lease assets (primarily aircraft) and low-income housing projects.
Note 16 to the Company's Consolidated Financial Statements, incorporated herein by reference under Item 8, contains information with respect to the revenue and income from operations contributed by each of the Company's industry segments for the past three years and the identifiable assets attributable to each segment at the end of each of those years; this information is incorporated herein by this reference. For the year ended December 31, 1994, 76% of PacifiCorp's revenues from operations were derived from Electric Operations, while Pacific Telecom contributed 20%.
The Company's common stock (symbol PPW) is traded on the New York Stock Exchange and the common stock of Pacific Telecom, Inc. (symbol PTCM) is traded on the national over-the-counter market. The Company's $1.98 No Par Serial Preferred Stock, Series 1992, is traded on the New York Stock Exchange.
ELECTRIC UTILITY OPERATIONS
PacifiCorp conducts its retail electric utility operations as Pacific Power and Utah Power, and engages in wholesale electric transactions under the name PacifiCorp. Pacific Power and Utah Power provide electric service within their respective service territories. Power production, wholesale sales, fuel supply and administrative functions are managed on a coordinated basis.
SERVICE AREA
The Company serves 1.3 million retail customers in service territories aggregating about 153,000 square miles in portions of seven Western states: Utah, Oregon, Wyoming, Washington, Idaho, California and Montana. The service area contains diversified industrial and agricultural economies.
Principal industries include oil and gas extraction, lumber and wood products, paper and allied products, chemicals and primary metals and mining. Agricultural products include potatoes, hay, grain and livestock.
The Company's distribution assets in northern Idaho were sold on December 31, 1994 following approval of the sale by the Idaho Public Utilities Commission. The decision to sell these assets was based on a number of competitive factors, including the likelihood of significant future price increases. The sale affects 9,800 residential, commercial and industrial customers.
The geographical distribution of retail electric operating revenues for the year ended December 31, 1994 was Utah, 36%; Oregon, 31%; Wyoming, 15%; Washington, 8%; Idaho, 5%; California, 3%; and Montana, 2%.
CUSTOMERS
Electric utility revenues and energy sales, by class of customer, for the three years ended December 31, 1994 were as follows:
The Company's seven-state service territory has complementary seasonal load patterns. In the western sector, customer demand peaks in the winter months due to space heating requirements. In the eastern sector, customer demand peaks in the summer when irrigation and cooling systems are heavily used. Many factors affect per customer consumption of electricity. For residential customers, within a given year, weather conditions are the dominant cause of usage variations from normal seasonal patterns. However, the price of electricity is also considered a significant factor.
During 1994, no single retail customer accounted for more than 1.5% of the Company's retail utility revenues and the 20 largest retail customers accounted for 12% of total retail electric revenues.
COMPETITION
Although the Company operates as a regulated monopoly within its service territories, the Company encounters significant competition from both traditional and nontraditional energy suppliers. Competition varies in form and intensity and includes competition from both utility and nonutility energy suppliers for industrial customers, as well as for wholesale power sales to other utilities; self generation and cogeneration by industrial customers; and substitute energy forms for residential and commercial space heating, cooling and water heating.
The Energy Policy Act of 1992 eased restrictions on independent power production and gave the FERC authority to mandate wholesale wheeling. The FERC is moving quickly to set the stage for competition. In a series of recently released orders and notices of proposed rulemaking, the FERC has heightened the level of industry discussion regarding topics such as transmission access and pricing, stranded investment, unbundling of services and comparability of service standards. In addition, several states have taken actions that may increase competition at the retail level. For example, the California Public Utilities Commission is conducting a rulemaking that would allow competition for all retail electric customers in California. The Michigan Public Service Commission has also ordered an experimental five-year program to evaluate competition for large retail customers in that state.
The Company is formulating strategies to meet these new challenges and maintain its competitive position. The Company has restructured its electric operations into three internal business units -- generation, wholesale transactions and transmission, and retail sales. The Company is also seeking alternate forms of regulation that will include performance indices to give shareholders an appropriate opportunity to share in the rewards and risks of competition. The Company plans to focus on the development of new products and services, as well as the use of existing technologies in new ways. The Company has begun to offer power supply services to other utilities, including dispatch assistance, daily system load monitoring, backup power, power storage and power marketing, and services to retail customers that encourage efficient use of energy. In addition, the Company has recently opened a wholesale power marketing office in Nevada. Depending upon the success of these strategies, the Company will continue to adjust its competitive direction.
For a discussion of accounting for the effects of regulation, see Note 1 to the Company's Consolidated Financial Statements incorporated herein by reference under Item 8.
CURRENT POWER AND FUEL SUPPLY
The Company's generating facilities are interconnected through its own transmission lines or by contract through the lines of others. Substantially all generating facilities and reservoirs located within the Pacific Northwest are managed on a coordinated basis to obtain maximum load carrying capability and efficiency.
The Company's transmission system connects with other utilities in the Northwest having low-cost hydroelectric generation and with utilities in California and the Southwest having higher-cost, fossil-fuel generation. In periods of favorable hydro conditions, the Company utilizes lower-cost hydroelectric power to supply a greater portion of its load and attempts to sell its displaced higher-cost thermal generation to other utilities. In periods of less favorable hydro conditions, the Company seeks to sell excess thermal generation to utilities which are more dependent on hydroelectric generation than the Company. During the winter, the Company is able to purchase power from Southwest utilities, either for its own peak requirements or for resale to other Northwest utilities. During the summer, the Company is able to sell excess power to Southwest utilities to assist them in meeting their peak requirements. See "Wholesale Sales and Purchased Power."
The Company owns or has interests in generating plants with an aggregate nameplate rating of 8,413.5 megawatts ("MW") and plant net capability of 7,983.1 MW. See "Item 2.



ITEM 2. PROPERTIES
The Company owns 52 hydroelectric generating plants and has an interest in one additional plant, with an aggregate nameplate rating of 1,079.2 MW and plant net capability of 1,124.5 MW. It also owns or has interests in 15 thermal-electric generating plants with an aggregate nameplate rating of 7,334.3 MW and plant capability of 6,858.6 MW. The following table summarizes the Company's existing generating facilities:
The Company's generating facilities are interconnected through its own transmission lines or by contract through the lines of others. Substantially all generating facilities and reservoirs located within the Pacific Northwest region are managed on a coordinated basis to obtain maximum load carrying capability and efficiency. Portions of the Company's transmission and distribution systems are located, by franchise or permit, upon public lands, roads and streets and, by easement or license, upon the lands of others.
Substantially all of the Company's electric utility plants are subject to the liens of the Company's Mortgages and Deeds of Trust.
The following table describes the Company's recoverable coal reserves as of December 31, 1994. All coal reserves are dedicated to nearby Company operated generating plants. Recoverability by surface mining methods typically ranges between 90% and 95%. Recoverability by underground mining techniques ranges from 50% to 70%. The Company considers that the respective reserves assigned to the Centralia, Craig, Dave Johnston, Huntington, Hunter and Jim Bridger plants, together with coal available under both long-term and short-term contracts with external suppliers, will be sufficient to provide these plants with fuel that meets the Clean Air Act standards effective in 1995, for their current economically useful lives. The sulfur content of the reserves ranges from 0.43% to 0.84% and the BTU value per pound of the reserves ranges from 7,600 to 11,400. Reserve estimates are subject to adjustment as a result of the development of additional data, new mining technology and changes in regulation and economic factors affecting the utilization of such reserves.
Most of the Company's coal reserves are held pursuant to leases from the federal government through the BLM and from certain states and private parties. The leases generally have multi-year terms that may be renewed or extended and require payment of rentals and royalties. In addition, federal and state regulations require that comprehensive environmental protection and reclamation standards be met during the course of mining operations and upon completion of mining activities. In 1994, the Company expended $3.6 million of reclamation costs and accrued $5.7 million of estimated final mining reclamation costs. Final mine reclamation funds have been established with respect to certain of the Company's mining properties. At December 31, 1994, the Company's pro rata portion of these reclamation funds totaled $26 million and the Company had an accrued reclamation liability of $104 million at December 31, 1994.
For a description of the properties of Pacific Telecom and PFS, see "Item 1. Business" and "Item 2. Properties" of the Annual Reports on Form 10-K of Pacific Telecom, Inc. and PacifiCorp Financial Services, Inc. for the year ended December 31, 1994; such information is incorporated herein by this reference.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various legal claims, actions and complaints, certain of which are described below. Although it is impossible to predict with certainty whether or not the Company and its subsidiaries will ultimately be successful in its legal proceedings or, if not, what the impact might be, management believes that disposition of these matters will not have a material adverse effect on the Company's consolidated results of operations.
In November 1991, former shareholders of American Network, Inc. ("AmNet") filed a third amended complaint against Pacific Telecom and others, suing individually and also derivatively on behalf of AmNet for damages allegedly arising out of the acquisition of AmNet by United States Transmission Systems, Inc. ("USTS"), a subsidiary of ITT Corporation, in 1988 and various alleged actions in connection with certain transactions that occurred in 1984 and 1986 between AmNet or its subsidiaries and Pacific Telecom or between AmNet and other parties. (LOEWEN, ET AL. V. GALLIGAN, ET AL., Circuit Court for the State of Oregon, County of Multnomah; United States District Court, District of Oregon.) At the time of the acquisition by USTS, Pacific Telecom owned 36.4% of the common shares of AmNet. On September 14, 1994, the Oregon Court of Appeals affirmed the trial court's grant of summary judgment to defendants. Plaintiffs' petition for review of that decision by the Oregon Supreme Court was denied on December 27, 1994.
A class action complaint was filed against Equitec Financial Group, Inc. ("Equitec"), certain of its subsidiaries and former directors and officers, as well as the Company, PacifiCorp Holdings and PacifiCorp Financial Services. (DUVAL, ET AL. V. GLEASON, ET AL., Alameda County Superior Court, filed August 16, 1989). PacifiCorp Holdings acquired an interest in Equitec in December 1987 and owns approximately 49% of Equitec's stock. The complaint, as amended, was filed on behalf of the limited partners in twelve real estate limited partnerships sponsored by Equitec during the 1980-1988 period, and alleges fraud and breach of fiduciary duty by the defendants in connection with the public offering
and management of the real estate partnerships. Plaintiffs seek an unspecified amount of compensatory and punitive damages, an accounting of transactions entered into by the partnerships and rescission of the purchase of their partnership interests. The PacifiCorp defendants filed a demurrer to the amended complaint, which was allowed with prejudice and without further leave to amend.
The plaintiffs in the DUVAL case have also filed two actions in the federal district court for the Northern District of California alleging fraud under the federal securities laws in connection with the sale of interests in the same partnerships. (SPENCER, ET AL. V. GLEASON, ET AL. and DUVAL, ET AL. V. GLEASON, ET AL., United States District Court for the Northern District of California.) The PacifiCorp defendants filed a motion to dismiss the federal actions, which has been held in abeyance pending settlement discussions. The parties have reached a tentative settlement of the federal and state actions subject to court approval.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No information is required to be reported pursuant to this item.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of all executive officers of the Company. There are no family relationships among the executive officers. Officers are normally elected annually.
Frederick W. Buckman, born March 9, 1946, President and Chief Executive Officer of the Company
Mr. Buckman was elected President and Chief Executive Officer of the Company effective February 1, 1994 and became a director of the Company and PacifiCorp Holdings, Inc. in February 1994. He formerly served as President and Chief Executive Officer of Consumers Power Company, Jackson, Michigan, from 1992 to 1994 and as President and Chief Operating Officer of Consumers Power Company from 1988 to 1991.
Charles E. Robinson, born December 3, 1933, Chairman, President and Chief Executive Officer of Pacific Telecom, Inc. and Chairman, President and Director of Alascom, Inc.
Mr. Robinson was elected Chairman of Pacific Telecom, Inc. in February 1989. He has been serving as Chief Executive Officer since April 1985 and served as President from April 1985 to October 1990. He resumed the role of President on December 31, 1992.
John A. Bohling, born June 23, 1943, Senior Vice President of the Company
Mr. Bohling was elected Senior Vice President of the Company in February 1993. He served as Executive Vice President of Pacific Power from September 1991 to February 1993 and as Senior Vice President of Utah Power from February 1990 to September 1991.
Shelley R. Faigle, born June 8, 1951, Senior Vice President of the Company
Ms. Faigle was elected Senior Vice President of the Company in November 1993. She served as Vice President from February 1992 to November 1993 and as Vice President of Pacific Power from 1989 to February 1992.
Paul G. Lorenzini, born April 16, 1942, Senior Vice President of the Company
Mr. Lorenzini was elected Senior Vice President of the Company in May 1994. He served as President of Pacific Power from January 1992 to May 1994 and as Executive Vice President from January 1989 to January 1992.
John E. Mooney, born March 9, 1937, Senior Vice President of the Company
Mr. Mooney was elected Senior Vice President of the Company in November 1994. He served as Executive Vice President of Utah Power from September 1991 to November 1994 and as Vice President of Pacific Power from August 1990 to September 1991.
Daniel L. Spalding, born December 23, 1953, Senior Vice President of the Company and Senior Vice President of PacifiCorp Holdings, Inc.
Mr. Spalding was elected Senior Vice President of the Company in February 1992. He served as Vice President from October 1987 to February 1992.
Dennis P. Steinberg, born December 5, 1946, Senior Vice President of the Company
Mr. Steinberg was elected Senior Vice President of the Company in August 1994. He served as Vice President of the Company from February 1992 to August 1994 and as Vice President of Electric Operations from August 1990 to February 1992.
Verl R. Topham, born August 25, 1934, Senior Vice President and General Counsel of the Company
Mr. Topham was elected Senior Vice President and General Counsel and a director of the Company in May 1994. He had served as President of Utah Power from February 1990 to May 1994.
Sally A. Nofziger, born July 5, 1936, Vice President and Corporate Secretary of the Company, Secretary of PacifiCorp Holdings, Inc. and PacifiCorp Financial Services, Inc.
Mrs. Nofziger was elected Vice President of the Company in 1989 and has been Corporate Secretary since 1983.
Thomas J. Imeson, born March 20, 1950, Vice President of the Company
Mr. Imeson was elected Vice President of the Company in February 1992. He had served as Vice President of Electric Operations from 1990 to February 1992.
Robert F. Lanz, born October 30, 1942, Vice President of the Company
Mr. Lanz was elected Vice President of the Company in 1980. He served as Treasurer of the Company from June 1984 to December 1993.
Richard T. O'Brien, born March 20, 1954, Vice President of the Company and Senior Vice President of PacifiCorp Holdings, Inc.
Mr. O'Brien was elected Vice President of the Company in August 1993. He served as Senior Vice President, Treasurer and Chief Financial Officer of NERCO, Inc., a former subsidiary of the Company, during 1992 and 1993 and Vice President and Treasurer of NERCO from 1989 to 1992.
Jacqueline S. Bell, born November 17, 1941, Controller of the Company and PacifiCorp Holdings, Inc.
Ms. Bell became Controller of the Company and of PacifiCorp Holdings, Inc. in June 1989 and served as Controller of PacifiCorp Financial Services, Inc. from October 1993 to December 1994.
William E. Peressini, born May 23, 1956, Treasurer of the Company
Mr. Peressini was elected Treasurer of the Company in January 1994. He served as Executive Vice President of PacifiCorp Financial Services, Inc. from January 1992 to January 1994 and as Senior Vice President and Chief Financial Officer of that company from 1989 to January 1992.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is included under "Summary Information" and "Quarterly Financial Data" on pages 20 and 53 of the Company's Annual Report to Shareholders and is incorporated herein by this reference.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included under "Summary Information" and "Capitalization" on pages 20 and 26 of the Company's Annual Report to Shareholders and is incorporated herein by this reference.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this item is included under "Summary Information," "Liquidity and Capital Resources," "Electric Operations," "Telecommunications," "Other" and "Discontinued Operations" on pages 20 through 35 of the Company's Annual Report to Shareholders and is incorporated herein by this reference.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by this reference from the Company's Annual Report to Shareholders or filed with this Report as listed in Item 14 hereof.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No information is required to be reported pursuant to this item.
PART III
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to the Company's directors is incorporated herein by this reference to "Election of Directors" in the Proxy Statement for the 1995 Annual Meeting of Shareholders. The information required by this item with respect to the Company's executive officers is set forth in Part I of this report under Item 4A. The information required by this item with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by this reference to "Compliance within Section 16(a) of the Securities Exchange Act of 1934" in the Proxy Statement for the 1995 Annual Meeting of Shareholders.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by this reference to "Executive Compensation" in the Proxy Statement for the 1995 Annual Meeting of Shareholders.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by this reference to "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement for the 1995 Annual Meeting of Shareholders.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by this reference to "Director Compensation and Certain Transactions" in the Proxy Statement for the 1995 Annual Meeting of Shareholders.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
------------------------ * Page references are to the incorporated portion of the Annual Report to Shareholders of the Registrant for the year ended December 31, 1994. ** All other schedules have been omitted because of the absence of the conditions under which they are required or because the required information is included elsewhere in the financial statements incorporated by reference herein.
3. Exhibits:
(b) Reports on Form 8-K.
On Form 8-K dated March 9, 1995, under "Item 5. Other Events," the Company filed a press release reporting a proposed merger under which the minority interest in Pacific Telecom, Inc. would be acquired by PacifiCorp Holdings. In addition, the Company reported certain summary financial information.
(c) See (a) 3. above.
(d) See (a) 2. above.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
PACIFICORP
By /s/ FREDERICK W. BUCKMAN
----------------------------------- Frederick W. Buckman (PRESIDENT)
Date: March 30, 1995
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
INDEPENDENT AUDITORS' REPORT
PacifiCorp:
We have audited the consolidated financial statements of PacifiCorp and subsidiaries as of December 31, 1994 and 1993, and for each of the three years in the period ended December 31, 1994, and have issued our report thereon dated February 17, 1995, March 9, 1995 as to the agreement to acquire the minority interest in Pacific Telecom, Inc. described in Note 1, (which expresses an unqualified opinion and includes an explanatory paragraph relating to the change in the Company's method of accounting for income taxes and other postretirement benefits); such consolidated financial statements and report are included in your 1994 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedules of PacifiCorp and subsidiaries, listed in Item 14. These consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Portland, Oregon February 17, 1995 (March 9, 1995 as to the agreement to acquire the minority interest in Pacific Telecom, Inc. described in Note 1)
PACIFICORP SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 1994 (MILLIONS OF DOLLARS)