ORDER NO. 96-263

ENTERED OCT 10 1996

This is an electronic copy.

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UF 4146

DISPOSITION: APPLICATION APPROVED WITH CONDITIONS

Portland General Electric Company (PGE or Company) filed an application on September 18, 1996, pursuant to ORS 757.415, ORS 757.455, ORS 757.460 and OAR 860-027-0030, requesting authority to issue and sell not more than $80,730,501 of conservation bonds.

At its public meeting on October 8, 1996, the Commission adopted Staff’s recommendation to approve the application subject to reporting requirements.

Based on the application and the Commission records, the Commission makes its:

FINDINGS OF FACT

PGE is an Oregon corporation whose utility function in Oregon is providing electric service to the public.

The application requests authority to issue not more than $80,730,501 of conservation bonds, pursuant to ORS 757.415, ORS 757.455, and ORS 757.460. These statutes authorize the Commission to designate certain assets as "bondable conservation investments" and grant authority to issue "conservation bonds" (bonds). These bonds are collateralized by "conservation investment assets," consisting of the revenue stream produced by "bondable conservation investments." Once the Commission has made such designations of assets and grants of authority, it may not revalue or affect the timing of the revenue requirement stream or recovery of the bondable conservation assets. The Commission effectively cedes its rate-making authority.

PGE states these bonds will have a fixed rate, with an effective spread no greater than 67 basis points over a five-year US Treasury security. Authorizing a spread, rather than an interest rate cap, is consistent with previous Commission authorizations for other debt securities. PGE asserts that this proposed spread is not inconsistent with the current medium-term notes (MTN) spreads it would otherwise achieve.

The Company represents the conservation bonds merit a bond rating of AA to AAA. PGE’s traditional secured debt is rated A/A2.

PGE states these bonds will have a fixed maturity, not exceeding ten years. Although the bonds will remain on the Company’s accounting books until final maturity, PGE asserts that the debt will be ignored for financial reporting purposes, because of the bonds’ collateralization properties. PGE represents that it is essentially a pass through agency between the conservation bond purchaser, Asset Securities Cooperative Corporation (ASCC), and ratepayers.

PGE will use the proceeds to refinance designated "bondable conservation investments," which are assumed to be currently financed through the Company’s overall capital structure. Such refinancing is permitted by ORS 757.415. The Commission’s designation occurred in docket UM 800.

PGE estimates fees and expenses from the transaction will not exceed $170,000. Such fees and expenses are reasonable.

There is no indication that the proposed offering will impair the Company’s ability to provide its public utility service.

OPINION

Jurisdiction

ORS 757.005 defines a "public utility" as anyone providing heat, light, water or power service to the public in Oregon. The Company is a public utility subject to the Commission's jurisdiction.

Applicable Law

ORS 757.415(1) provides that:

A public utility may issue [bonds, notes and other forms of indebtedness] for the following purposes and no others . . . :

(a) The acquisition of property, or the construction, completion, extension or improvement of its facilities.

(b) The improvement or maintenance of its service.

(c) The discharge or lawful refunding of its obligations.

(d) The reimbursement of money actually expended from income or from any other money in the treasury of the public utility not secured by or obtained from the issue of stocks or bonds, notes or other evidences of indebtedness, or securities of such public utility, for any of the purposes listed in paragraphs (a) to (c) of this subsection except the maintenance of service and replacements, in cases where the applicant has kept its accounts and vouchers for such expenditures in such manner as to enable the commission to ascertain the amount of money so expended and the purposes for which such expenditures were made.

(e) ****

When an application involves refunding of obligations, the applicant also must show that the original borrowings were made for a permissible purpose. Avion Water Company, Inc., UF 3903, Order No. 83-244; Pacific Power & Light Co., UF 3749, Order No. 81-745 at 5.

ORS 757.415 (2) provides that:

[The applicant] shall secure from the commission . . . an order . . . stating:

(a) The amount of the issue and the purposes to which the issue or the proceeds thereof are to be applied; and

(b) In the opinion of the commission, the [proceeds] reasonably are required for the purposes specified in the order and compatible with the public interest, which is necessary or appropriate for or consistent with the proper performance by the applicant of service as a public utility, and will not impair its ability to perform that service; and

(c) Except as otherwise permitted in the order in the case of bonds, notes, or other evidences of indebtedness, such purposes are not, in whole or in part, reasonably chargeable to operating expenses or to income.

ORS 757.455 provides as follows:

(1) It is the policy of the Public Utility Commission of Oregon to encourage financing investments at the lowest possible cost to utility customers, including but not limited to conservation program expenditures.

(2) If the Commission decides that a public utility should defer and amortize certain conservation program expenditures, the public utility may apply to the Commission for an order designating all or part of the conservation program expenditures as bondable conservation investment, for the purpose of financing or refinancing the designated expenditures under ORS 757.415(1)(f). After notice and an opportunity for a hearing, the Commission may approve the application if it finds that the conservation program expenditures included in the application are used, useful and prudent and that financing or refinancing is likely to be more favorable to customers than other reasonably available alternatives. Upon approval, the Commission shall issue an order stating the amount of the conservation program expenditures that qualify as bondable conservation investment.

(3) The Commission shall set rates to include in revenue requirement recovery of a public utility's bondable conservation investment, as well as the costs of equity and debt capital associated with it, including, without limitation, the payment of principal, premium, if any, and interest on conservation bonds. Revenues collectable or collected under this subsection shall be known as "conservation investment assets." The Commission shall not revalue bondable conservation investment for rate-making purposes, determine that revenues required to recover bondable conservation investment and associated equity and debt capital costs are unjust or unreasonable, impair or reduce in any way the value of conservation investment assets, or impair the timing or the amount of revenues arising with respect to conservation investment assets that have been used to secure financing or refinancing under ORS 757.415 (1)(f).

(4) Subsections (2) and (3) of this section shall apply to any amounts presently deferred by a utility regardless of whether expended prior to September 9, 1995.

(5) As used in this section, "conservation program expenditures" includes, without limitation, loans and cash payments made to customers, the costs of conservation measures installed at the expense of the public utility, specific acquisition program development, promotion and labor costs and associated general supervision, rents, leases and overheads.

Utility facilities are long-term assets which should be financed with long-term capital. The proposed expenditures are not reasonably chargeable to operating expenses or to income.

The Commission believes that the proposed issuance is reasonably required for the purposes stated. The proposed issuance is compatible with the public interest and consistent with the proper performance of the Company's public utility service. The proposed transaction will not impair the Company's ability to perform that service.

For rate-making purposes, the Commission reserves judgment on the reasonableness of the Company's capital costs and capital structure. In its next rate proceeding, the Company will be required to show that its capital costs and structure are just and reasonable.

See ORS 757.210.

CONCLUSIONS

1. The Company is a public utility subject to the Commission's jurisdiction.

2. The application meets the requirements of ORS 757.415, ORS 757.455 and ORS 757.460.

3. The application should be granted.

ORDER

IT IS ORDERED that the application of Portland General Electric to issue and sell up to $80,730,501 of conservation bonds is granted, subject to the following conditions:

PGE shall file, as soon as available:

a. The final terms and conditions of the bonds,

b. "Report of Securities" required by OAR 860-27-030, and

c. Disposition of Net Proceeds statements.

Made, entered, and effective __________________________.

A party may request rehearing or reconsideration of this order pursuant to ORS 756.561. A request for rehearing or reconsideration must be filed with the Commission within 60 days of the date of service of this order. The request must comply with the requirements of OAR 860-014-0095. A copy of any such request must also be served on each party to the proceeding as provided by OAR 860-013-0070. A party may appeal this order to a court pursuant to ORS 756.580.