Moody’s downgrades long-term ratings of Portland General Electric Company

New York, November 28, 2001 – In light of Enron’s fall in value to junk bond status and the cancellation of their merger with Dynegy, Moody’s has downgraded Enron’s subsidiary Portland General Electric for fear that the utility won’t be able to shield itself from its parent company’s financial troubles.

Moody’s Investors Service downgraded the long-term credit ratings of Portland General Electric (Sr. Sec. To A3) and also lowered the company’s short-term debt rating for commercial paper to Prime-2 from Prime-1.

Moody’s had expected to downgrade Portland General’s ratings to these levels once Northwest Natural Gas Company completed its planned acquisition of Portland General from Enron Corp. Following news of the cancellation of the Dynegy/Enron merger, Northwest Natural Gas stepped up its efforts to acquire PGE by filing with the Oregon Public Utility Commission.

Northwest Natural Gas agreed to acquire PGE Oct. 8 for $1.8 billion plus about $1.1 billion in assumed debt and preferred stock.

However, today’s rating action is being taken in advance of the expected closing of that transaction to reflect Moody’s concerns surrounding Portland General’s ability to remain fully insulated from the many financial challenges currently being faced by its parent, Enron Corp., due in large part to lost investor confidence in Enron.

Another major ratings agency, Standard & Poor’s, would not yet downgrade PGE saying it had adequate protective restrictions to keep it from suffering from its parent company’s financial woes.

Indeed, because Enron’s challenges could lead to higher than anticipated demand on Portland General’s cash flow in the near-term, Moody’s is continuing to review Portland General’s long-term and short-term ratings for possible further downgrade.

Moody’s initially placed Portland General’s credit ratings on review for possible downgrade on October 8, 2001, following the announcement that Northwest Natural Gas Company had reached an agreement to acquire Portland General from Enron for $1.8 billion plus $1.1 billion of assumed debt.

Clarification of the degree to which Portland General would be legally insulated from Enron’s troubles would help stabilize the utility company’s credit ratings.

Furthermore, Moody’s will continue to monitor the ability of Northwest Natural Gas Company to acquire Portland General Electric Company from Enron. Assuming the transaction is completed in substantially the same form as originally presented, Moody’s believes that a confirmation of Portland General’s ratings at the new levels would be likely.

Ratings downgraded and continuing under review for possible further downgrade include Portland General Electric Company’s senior secured debt to A3 from A2; its issuer rating and unsecured debt to Baa1 from A3; its junior subordinated debt to Baa2 from Baa1; its preferred stock to Baa3 from Baa2; its shelf registration for senior secured debt/ senior unsecured debt/ junior subordinated debt to (P)A3/(P)Baa1/(P)Baa2 from (P)A2/(P)A3/(P)Baa1; and its short-term debt rating for commercial paper to Prime-2 from Prime-1.

Notwithstanding the current uncertainty, Moody’s notes that Portland General remains a fundamentally sound utility. The Oregon Public Utility Commission regulatory requirement that Portland General maintain a minimum 48% common equity ratio remains in place, as does the required 30-day advance notice to state regulators of any special dividends that Portland General might make to the parent company.

In addition, the purchase and sale agreement between Enron and Northwest Natural Gas contains a covenant which precludes any excessive distributions by Portland General to Enron while the sale of the company is pending.

Meanwhile, deregulation of the electric utility industry in Oregon is progressing slowly under Senate Bill 1149 and recent regulatory support for a 35% rate increase and a stipulated power cost adjustment mechanism covering October 1, 2001 through December 31, 2002 helped resolve uncertainties about recovery of volatile power supply costs.

Moody’s also notes that Portland General has successfully increased its liquidity, including increasing available bank credit, allowing the company to comfortably meet higher cash demands linked to more volatile power supply markets and increases in posted collateral for energy trades.

Portland General Electric Company, a wholly-owned subsidiary of Enron Corp., is an electric utility company with headquarters in Portland, Oregon.

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