FW: PGG Q3 Forecast - Confidential

FYI

-----Original Message-----
From: Stevens, Kirk
Sent: Monday, October 01, 2001 2:45 PM
To: Butts, Bob; Hayslett, Rod
Cc: Piro, Jim
Subject: PGG Q3 Forecast - Confidential

Quick update on our Q3 earnings (still very prelim).

3rd Current Estimate:
IBIT = (2.7)
NI = (1.3)

Latest Forecast:
IBIT = (9.1)
NI = 1.7

Major variance - TOLI loss for the month is expected to be $9.5m, or $6.5m
worse than our 3rd Current Estimate. The recent sharp decline in the stock
market is the driver (post Sept 11 market impact).
Without the additional TOLI loss, we'd be right on our 3rd Current Estimate.

Major Risks - AA&Co. Issues
The following issues are currently being reviewed and challenged (to different
degrees) by AA&Co Portland (note- Houston AA&Co - Duncan -has been updated on
these items by Tim McCann - AA&Co Portland). Our forecast numbers above
assume positive outcome on all these issues. We will continue to hold our
ground, feeling our positions are appropriate. But since several of these
have no direct impact on PGE stand-alone reporting, Houston (you) have better
leverage getting these through the AA&Co staff in Houston that may question
our treatment.

TOLI Deferred Tax Reserve - $9m
PGE proposes to reverse this reserve established Q4 1999 (at the date of the
Sierra Sale announcement) since the deal with Sierra was terminated, and since
we now feel recording this type of reserve is more appropriate at the time of
an actual transfer of the TOLI assets to Enron under any future sale of PGE.
AA&Co is fighting this one hard, Greek Rice has been made aware of this.

Pension Credit Capitalization - $5m (YTD 9/30 true-up)
PGE proposes that we no longer capitalize our FAS 87 pension credit since our
rates assume zero pension costs for ratemaking purposes. AA&Co. is using a
FAS 87 implementation issue to say we still need to capitalize the credit, and
possibly set up a FAS 71 reg asset (although they're still somewhat pushing no
change to our current accounting, ie just keep capitalizing the pension
credit).

Merger MOU Obligation - PVC - $5.7m
Since our new ratecase allows recovery of the remaining costs for this
committment made as part of the Enron purchase of PGE, we believe the
remaining liability set up in purchase accounting on PVC's books can be
reversed. AA&Co. feels we still have an obligation to perform the MOU
committments (which we do), but we feel that our original estimate of this
cost at the time of the PGE/Enron merger has now been reduced as a result of
the ratemaking treatment, so it should be reduced to zero. AA&Co. prefers
that we bring the liability down over time as we fullfill the committment,
letting earnings effect come in over time.

Severance Reserves - PGH1 ($2.7m) and PVC ($3.5m)
At the time of the Enron purchase of PGE, severance reserves were set up for
an anticipate number of involuntary terminations expected to occur within the
first few years of the merger. Over time, actual severance payments made to
PGH or PGE employees have been reversed out of these reserves. At this point,
no future terminations are contemplated which relate to the initial merger
conditions/environment. Accordingly we plan to reverse these balances to
income Q3.

At this point, AA&Co. thinks we should consider taking these back against
goodwill (which we feel goes against Purchase Accounting guidance).

Litigation Reserve - PGH1 ($2.1m)
PGC and it's subsidiaries had numerous legal issues outstanding at the merger
date (eg. Columbia Steel, Trojan Recovery, City of Burbank Contract,
Bonneville Pacific). A reserve of $5 million was established in purchase
accounting for any legal/litigation and settlement costs incurred by PGC and
subsidiaries to defend itself in these types of claims/proceedings. The
reserve also was to cover any litigation filed post merger directly related to
the merger.

Since the merger date, we have reversed actual costs incurred for these types
of activities in the amount of $2.9 million, leaving a remaining reserve
balance at 9/30/01 of $2.1 million.

At this time, all legal claims outstanding at the merger date have been
settled satisfactorily where no material contingency exists. Accordingly,
we will reverse the remaining balance in Q3 2001.

Again, AA&Co has indicated that we had over estimated the original cost of
these activities in purchase accounting, and that we should now reverse the
difference back through goodwill (again, we think this is a misapplication of
purchase accounting since we are well outside the orginal 1-2 year window for
adjusting goodwill).

There are a few other items we're debating with AA&Co (in the range of $4m to
6m), and I'll let you know if any of these start to look at risk.
Let me know if you have any questions on these items (503) 464-7121.