UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

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o      Soliciting Material Pursuant to Section 240.14a-12

Portland General Electric Company

 

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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March 24, 2008

 

To our shareholders:

 

On behalf of the Board of Directors, we are pleased to invite you to Portland General Electric Company’s 2008 Annual Meeting of Shareholders. The meeting will be held at 10:00 a.m. Pacific Time on Wednesday, May 7, 2008, at the Conference Center Auditorium located at Two World Trade Center, 25 SW Salmon Street, Portland, Oregon.

 

Details of the business we plan to conduct at the meeting are included in the attached Notice of Annual Meeting of Shareholders and proxy statement. Only holders of record of PGE common stock at the close of business on March 14, 2008 are entitled to vote at the meeting.

 

Your vote is very important. Regardless of the number of shares you own, we encourage you to participate in the affairs of the company by voting your shares at this year’s annual meeting. Even if you plan to attend the meeting, it is a good idea to vote your shares before the meeting.

 

This year, we are pleased to be among the first group of companies to take advantage of new Securities and Exchange Commission rules that allow companies to furnish proxy materials to their shareholders on the Internet. We believe the new rules will allow us to provide our shareholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of our annual meeting.

 

We hope you will find it possible to attend this year’s annual meeting, and thank you for your interest in PGE and your participation in this important annual process.

 

Cordially,

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On MAY 7, 2008

 

To our shareholders:

 

The 2008 Annual Meeting of Shareholders of Portland General Electric Company will be held at the Conference Center Auditorium located at Two World Trade Center, 25 SW Salmon Street, Portland, Oregon, 97204 at 10:00 a.m. Pacific Time on Wednesday, May 7, 2008.

 

The meeting is being held for the following purposes, which are more fully described in the proxy statement that accompanies this notice:

 

1. To elect directors for the coming year;

 

2. To ratify the appointment of Deloitte & Touche LLP as the company’s independent registered public accounting firm for fiscal year 2008;

 

3. To approve the amended and restated Portland General Electric Company 2006 Stock Incentive Plan;

 

4. To approve the Portland General Electric Company 2008 Annual Cash Incentive Master Plan for Executive Officers; and

 

5. To transact any other business that may properly come before the meeting and any adjournment or postponement of the meeting.

 

As of the date of this notice, the company has received no notice of any matters, other than those set forth above, that may properly be presented at the annual meeting. If any other matters are properly presented for consideration at the meeting, the persons named as proxies on the enclosed proxy card, or their duly constituted substitutes, will be deemed authorized to vote the shares represented by proxy or otherwise act on those matters in accordance with their judgment.

 

The close of business on March 14, 2008 has been fixed as the record date for determining shareholders entitled to vote at the annual meeting. Accordingly, only shareholders of record as of the close of business on that date are entitled to vote at the annual meeting or any adjournments or postponements of the annual meeting.

 

Your vote is very important.  Please read the proxy statement and then, whether or not you expect to attend the annual meeting, and no matter how many shares you own, please vote your shares as promptly as possible. You can vote by proxy over the Internet, by mail or by telephone by following the instructions provided in the proxy statement. Submitting a proxy now will help ensure a quorum and avoid added proxy solicitation costs. If you attend the meeting you may vote in person, even if you have previously submitted a proxy.

You may revoke your proxy at any time before the vote is taken by delivering to the Corporate Secretary of PGE a written revocation or a proxy with a later date or by voting your shares in person at the meeting, in which case your prior proxy will be disregarded.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

Marc S. Bocci

Corporate Secretary

 

March 24, 2008

Portland, Oregon

Table of Contents

 

Portland General Electric Company
121 SW Salmon Street
Portland, Oregon 97204

 

 

 

 

PROXY STATEMENT

 

 

 

 

FOR THE ANNUAL MEETING OF SHAREHOLDERS
To Be Held On MAY 7, 2008

 

This proxy statement is being furnished to you by the Board of Directors of Portland General Electric Company (“PGE” or the “company”) to solicit your proxy to vote your shares at our 2008 Annual Meeting of Shareholders. The meeting will be held at the Conference Center Auditorium located at Two World Trade Center, 25 SW Salmon Street, Portland, Oregon at 10:00 a.m. Pacific Time on Wednesday, May 7, 2008. This proxy statement and the enclosed proxy card and 2007 Annual Report are being mailed to shareholders, or made available electronically, on or about March 24, 2008.

 

 

 

 

Why did I receive a notice in the mail regarding the Internet availability of proxy materials this year instead of a full set of proxy materials?

 

Pursuant to new rules recently adopted by the Securities and Exchange Commission, we have elected to provide access to our proxy materials over the Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials (the “Notice of Internet Availability”) to our shareholders of record and beneficial owners. All shareholders will have the ability to access the proxy materials on a website referred to in the Notice of Internet Availability or request to receive a printed set of the proxy materials, at no charge. Instructions on how to access the proxy materials over the Internet or to request a printed copy may be found on the Notice of Internet Availability. In addition, shareholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis by following the instructions on the website referred to in the Notice of Internet Availability.

 

Why am I receiving these materials?

 

Our Board of Directors has made these materials available to you on the Internet, or, upon your request, will deliver printed versions of these materials to you by mail, in connection with the board’s solicitation of proxies for use at our 2008 Annual Meeting of Shareholders. You are invited to attend the annual meeting and are requested to vote on the proposals described in this proxy statement.

 

What is included in these materials?

 

These materials include:

 

 

If you request printed versions of these materials by mail, these materials will also include the proxy card for the 2008 annual meeting.

 

How can I get electronic access to the proxy materials?

 

The Notice of Internet Availability provides you with instructions regarding how to:

 

 

Who is entitled to vote at the annual meeting?

 

Holders of PGE common stock as of the close of business on the record date, March 14, 2008, may vote at the 2008 annual meeting, either in person or by proxy. As of the close of business on March 14, 2008, there were 62,529,784 shares of PGE common stock outstanding and entitled to vote. The common stock is the only authorized voting security of the company, and each share of common stock is entitled to one vote on each matter properly brought before the 2008 annual meeting.

 

What matters will be voted on at the annual meeting?

 

There are four matters scheduled for a vote at the annual meeting:

 

1. The election of directors;

 

2. The ratification of the appointment of Deloitte & Touche LLP as the company’s independent registered public accounting firm for fiscal year 2008;

 

3. The approval of the amended and restated Portland General Electric Company 2006 Stock Incentive Plan; and

 

4. The approval of the Portland General Electric Company 2008 Annual Cash Incentive Master Plan for Executive Officers

 

What are the board’s voting recommendations?

 

The board recommends that you vote your shares in the following manner:

 

 

What is the difference between holding shares as a shareholder of record and as a beneficial owner?

 

If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, or AST, you are considered the “shareholder of record” with respect to those shares.

 

If your shares are held in a stock brokerage account or by a bank or other nominee, those shares are held in “street name” and you are considered the “beneficial owner” of the shares. As the beneficial owner of those shares, you have the right to direct your broker, trustee or nominee how to vote your shares, and you will receive separate instructions from your broker, bank or other holder of record describing how to vote your shares. You also are invited to attend the annual meeting. However, because a beneficial owner is not the shareholder of record, you may not vote these shares in person at the meeting unless you obtain a “legal proxy” from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the meeting.

 

How can I vote my shares before the annual meeting?

 

If you hold shares in your own name as a shareholder of record, you may vote before the annual meeting by Internet by following the instructions contained in the Notice of Internet Availability. If you request printed copies of the proxy materials by mail, you may also cast your vote by authorizing the individuals named on the enclosed proxy card to serve as your proxy to vote your shares at the annual meeting in the manner you indicate. You may do so by completing, signing and dating the enclosed proxy card and returning it in the enclosed postage-paid envelope.

If you are a beneficial owner of shares held in street name, your broker, bank or other nominee will provide you with materials and instructions for voting your shares. Please check with your bank or broker and follow the voting procedures your bank or broker provides to vote your shares.

 

Even if you plan to attend the annual meeting, we recommend that you vote before the meeting as described above so that your vote will be counted if you later decide not to attend the meeting. Submitting a proxy or voting through the telephone or the Internet will not affect your right to attend the annual meeting and vote in person.

 

How will my shares be voted if I give my proxy but do not specify how my shares should be voted?

 

If your shares are held in your own name as a shareholder of record and you return your signed proxy card but do not indicate your voting preferences, or you indicate when voting on the Internet or by telephone that you wish to vote as recommended by our Board of Directors, your shares will be voted as follows:

 

 

If I am the beneficial owner of shares held in street name by my broker, will my broker automatically vote my shares for me?

 

New York Stock Exchange rules applicable to broker-dealers grant your broker discretionary authority to vote your shares without receiving your instructions on certain matters, which include the election of directors and the ratification of the appointment of the independent registered public accounting firm. However, your broker does not have discretionary authority to vote your shares for certain other types of matters, including the approval of the amended and restated 2006 Stock Incentive Plan and approval of the 2008 Annual Cash Incentive Master Plan for Executive Officers. If your broker does not receive voting instructions from you regarding these proposals, your shares will not be voted on these proposals.

 

Could other matters be decided at the annual meeting?

 

As of the date of this proxy statement, we are unaware of any matters other than those set forth in the Notice of Annual Meeting of Shareholders that may properly be presented at the annual meeting. If any other matters are properly presented for consideration at the meeting, including, among other things, consideration of a motion to adjourn the meeting to another time or place, the persons named as proxies on the enclosed proxy card, or their duly constituted substitutes, will be deemed authorized to vote those shares for which proxies have been given or otherwise act on such matters in accordance with their judgment.

 

Can I vote in person at the annual meeting?

 

Yes. If you hold shares in your own name as a shareholder of record, you may come to the annual meeting and cast your vote at the meeting by properly completing and submitting a ballot. If you are the beneficial owner of shares held in street name, you must first obtain a legal proxy from your broker, bank or other nominee giving you the right to vote those shares and submit that proxy along with a properly completed ballot at the meeting.

 

What do I need to bring to be admitted to the annual meeting?

 

All shareholders must present a form of personal photo identification in order to be admitted to the meeting. In addition, if your shares are held in the name of your broker, bank or other nominee and you wish to attend the annual meeting, you must bring an account statement or letter from the broker, bank or other nominee indicating that you were the owner of the shares on March 14, 2008.

How can I change or revoke my vote?

 

If you hold shares in your own name as a shareholder of record, you may change your vote or revoke your proxy at any time before voting begins by:

 

 

Any written notice of revocation, or later dated proxy, should be delivered to:

 

Portland General Electric Company
121 SW Salmon Street, 1WTC1301
Portland, Oregon 97204
Attention: Marc S. Bocci, Corporate Secretary

 

Alternatively, you may hand deliver a written revocation notice, or a later dated proxy, to the Corporate Secretary at the annual meeting before the voting begins.

 

If you are the beneficial owner of shares held in street name, please check with your bank or broker and follow the procedures your bank or broker provides if you wish to change your vote with respect to those shares.

 

What are the voting requirements to elect directors and approve the proposals described in the proxy statement?

 

The vote required to approve each of the matters scheduled for a vote at the annual meeting is set forth below:

 

 

The election of directors by a “plurality” of the votes cast at the meeting means that the nominees receiving the largest number of votes cast will be elected as directors up to the maximum number of directors to be elected at the meeting.

 

What is the “quorum” for the annual meeting and what happens if a quorum is not present?

 

The presence at the annual meeting, in person or by proxy, of a majority of the shares issued and outstanding and entitled to vote as of March 14, 2008 is required to constitute a “quorum.” The existence of a quorum is necessary in order to take action on the matters scheduled for a vote at the annual meeting. If you vote by Internet or telephone, or submit a properly executed proxy card, your shares will be included for purposes of determining the existence of a quorum. Proxies marked “abstain” and broker “non-votes” (each of which are explained below) also will be counted in determining the presence of a quorum. If the shares present in person or represented by proxy at the annual meeting are not sufficient to constitute a quorum, the chairman of the meeting or the shareholders by a vote of the holders of a majority of votes present in person or represented by proxy, may, without further notice to any shareholder (unless a new record date is set), adjourn the meeting to a different time and place to permit further solicitations of proxies sufficient to constitute a quorum.

What is an “abstention” and how would it affect the vote?

 

An “abstention” occurs when a shareholder sends in a proxy with explicit instructions to decline to vote regarding a particular matter. Abstentions are counted as present for purposes of determining a quorum. However, an abstention with respect to a matter submitted to a vote of shareholders will not be counted for or against the matter. Consequently, an abstention with respect to any of the matters scheduled for a vote at the annual meeting will not affect the outcome of the vote.

 

What is a “broker non-vote” and how would it affect the vote?

 

A broker non-vote occurs when a broker or other nominee who holds shares for another person does not vote on a particular proposal because that holder does not have discretionary voting power for the proposal and has not received voting instructions from the beneficial owner of the shares. Brokers will have discretionary voting power to vote shares for which no voting instructions have been provided by the beneficial owner with respect to the election of directors and the ratification of the appointment of the independent registered public accounting firm. However, brokers will not have discretionary authority to vote such shares for the approval of the amended and restated 2006 Stock Incentive Plan or the approval of the 2008 Annual Cash Incentive Master Plan for Executive Officers. Shares that are the subject of a broker non-vote are included for quorum purposes but will not affect the outcome of the vote on any of the matters scheduled for a vote at the annual meeting. A broker non-vote with respect to a proposal will not be counted as a vote “cast” for or against the proposal. Consequently, a broker non-vote will not affect the outcome of the vote.

 

Who will conduct the proxy solicitation and how much will it cost?

 

The company is soliciting your proxy for the annual meeting and will pay all the costs of the proxy solicitation process. We have engaged Broadridge Financial Solutions, Inc. to assist in the distribution of proxy materials, and we will pay their reasonable out-of-pocket expenses for these services. Our directors, officers and employees may communicate with shareholders by telephone, facsimile, email or personal contact to solicit proxies. These individuals will not be specifically compensated for doing so. We will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding solicitation materials to the beneficial owners of PGE common stock.

 

Who will count the votes?

 

Broadridge Financial Solutions, Inc. will tabulate the votes cast by mail, Internet, or telephone. Nora E. Arkonovich, our Assistant Secretary will tabulate any votes cast at the annual meeting and will act as inspector of election to certify the results.

 

If you have any questions about voting your shares or attending the annual meeting, please call our Investor Relations Department at (503) 464-7395.

 

 

On March 14, 2008 there were 62,529,784 shares of PGE common stock outstanding. The following table sets forth, as of that date unless otherwise specified, the beneficial ownership of PGE common stock of (1) known beneficial owners of more than 5% of PGE’s common stock, (2) each director or nominee for director, (3) each of our “named executive officers” listed in the Summary Compensation Table, and (4) our executive officers and directors as a group. Each of the persons named below has sole voting power and sole investment power with respect to the shares set forth opposite his, her or its name, except as otherwise noted.

 

 

 

 

 

The rules of the Securities and Exchange Commission require that we disclose late filings of reports of stock ownership (and changes in stock ownership) by our directors and executive officers and persons who beneficially own more than 10% of our common stock. To the best of our knowledge, all of the filings required by Section 16(a) of the Securities Exchange Act of 1934 for our directors and executive officers and persons who beneficially own more than 10% of our common stock were made on a timely basis in 2008.

 

 

 

 

 

 

 

 

PGE common stock is listed on the New York Stock Exchange. In connection with that listing, our board has implemented a corporate governance program, including the adoption of charters for our Audit Committee, Compensation and Human Resources Committee and Nominating and Corporate Governance Committee; Corporate Governance Guidelines (including Categorical Standards for Determination of Director Independence); a Process for Handling Communications to the Board of Directors and Board Committees; a Code of Business Ethics and Conduct; and a Code of Ethics for the Chief Executive and Senior Financial Officers. These documents are published under the “Investors — Corporate Governance” section of our website at www.portlandgeneral.com and are available in print to shareholders, without charge, upon request to Portland General Electric Company at its principal executive offices at 121 SW Salmon Street, Portland, Oregon 97204, Attention: Corporate Secretary.

 

Our business, property and affairs are managed under the direction of our Board of Directors. Members of the board are kept informed of our business by consulting with our Chief Executive Officer and other officers and senior management, by reviewing and approving capital and operating plans and budgets and other materials provided to them, by visiting our offices and plants and by participating in meetings of the board and its committees.

 

During 2007, the Board of Directors met seven times. Under our Corporate Governance Guidelines, the non-management directors must meet in executive session without management at least quarterly. The Chairman of the board (or if the Chairman is not an independent director, the lead independent director) presides over these executive sessions. The non-management directors met in executive session five times in 2007 generally at the end of each board meeting. In the event that the non-management directors include directors who are not independent under the New York Stock Exchange listing standards, our Corporate Governance Guidelines require the independent directors to meet separately in executive session at least once a year. Each director attended at least 75% of the aggregate of the meetings of the Board of Directors and meetings held by all committees on which the director served, during the period for which the director served.

 

It is our policy that directors are expected to attend the annual meeting of shareholders. A director who is unable to attend the annual meeting of shareholders (which it is understood may occur on occasion) is expected to notify the Chairman of the board. All directors attended our 2007 annual meeting of shareholders.

 

Selection of Candidates for Board Membership

 

The Nominating and Corporate Governance Committee is responsible for identifying, screening and recommending candidates to the board for election as directors. The committee seeks candidates with the qualifications and areas of expertise that will enhance the composition of the board. The committee also seeks to have the board represent a diversity of backgrounds, experience, gender and race. The committee considers a number of criteria in selecting nominees, including:

 

 

 

 

The Nominating and Corporate Governance Committee will consider director candidates recommended by shareholders. In considering candidates submitted by shareholders, the committee will take into consideration the needs of the board and the qualifications of the candidate. To have a candidate considered by the Nominating and

Corporate Governance Committee, a shareholder must submit the recommendation in writing and must include the following information:

 

 

The shareholder recommendation and information described above must be sent to our Corporate Secretary at Portland General Electric Company, 121 SW Salmon Street, 1WTC1301, Portland, Oregon 97204 and must be received by our Corporate Secretary not less than 120 days prior to the anniversary date of our most recent annual meeting of shareholders.

 

The Nominating and Corporate Governance Committee retains a third party search firm to assist the committee members in identifying and evaluating potential nominees for the board. The committee also identifies potential nominees by asking current directors and executive officers to notify the committee if they become aware of persons meeting the criteria described above who might be available to serve on the board, especially business and civic leaders in the communities in our service area. As described above, the committee will also consider candidates recommended by shareholders.

 

Once a person has been identified by the Nominating and Corporate Governance Committee as a potential candidate, the committee may collect and review publicly available information to assess whether the person should be considered further. If the committee determines that the person warrants further consideration, the committee chair or another member of the committee contacts the person. Generally, if the person expresses a willingness to be a candidate and to serve on the board, the Nominating and Corporate Governance Committee requests information from the candidate, reviews the candidate’s accomplishments and qualifications, including in light of any other candidates that the committee might be considering, and conducts one or more interviews with the candidate. In certain instances, committee members may contact references provided by the candidate or may contact other members of the business community or other persons who may have greater first-hand knowledge of the candidate’s accomplishments. The committee’s evaluation process does not vary based on whether a candidate is recommended by a shareholder.

 

The following table describes the compensation earned by persons who served as non-employee directors during any part of 2007.

 

2007 Director Compensation

 

 

 

 

 

Current Compensation Arrangements for Non-Employee Directors

 

On July 13, 2006, the Board of Directors, acting upon recommendations of an outside compensation consultant retained by the board, approved changes to the compensation arrangements for the company’s non-employee directors. The changes in compensation were designed to bring the compensation of our directors in line with that of comparable publicly traded electric utilities. The following table describes the current compensation arrangements with our non-employee directors:

 

 

The annual cash retainers and board and committee meeting fees are paid quarterly in arrears. We will also reimburse certain expenses related to the directors’ service on the board, including expenses in connection with attendance at board and committee meetings.

 

Our non-employee directors are required to hold at least 3,300 shares of PGE common stock while serving as a director. They have three years from appointment or election to meet this requirement.

 

Restricted Stock Unit Grants

 

Each non-employee director received a grant of restricted stock units on June 13, 2007. The number of restricted stock units each director received was determined by dividing $30,000 by the closing price of PGE common stock on the date of grant. We intend to make additional grants of $30,000 worth of restricted stock units to each director each year on or about the date of our annual meeting of shareholders. Each restricted stock unit represents the right to receive one share of common stock at a future date. Provided that the director remains a non-employee member of the board, the restricted stock units will vest over a one-year vesting period in equal installments on the last day of each calendar quarter and will be settled exclusively in shares of common stock. Restricted stock units do not have voting rights with respect to the underlying common stock until the units vest and the common stock is issued.

 

Each director also was granted one dividend equivalent right with respect to each restricted stock unit. Each dividend equivalent right represents the right to receive an amount equal to dividends paid on one share of common

stock, having a record date between the grant date and vesting date of the related restricted stock unit. The dividend equivalent rights will be settled exclusively in cash on the date that the related dividends are paid to holders of common stock.

 

The grants of restricted stock units and dividend equivalent rights were made pursuant to the terms of the Portland General Electric Company 2006 Stock Incentive Plan. The grants are subject to the terms and conditions of the plan and agreements between PGE and each director.

 

Outside Directors’ Deferred Compensation Plan

 

The company maintains the Portland General Electric Company 2006 Outside Directors’ Deferred Compensation Plan to provide directors with the opportunity to defer payment of compensation for their board service. Directors may defer fees and retainers, as well as any other form of cash remuneration included on a deferral election form approved by the Compensation and Human Resources Committee. Deferral elections must be made no later than December 15 of the taxable year preceding the year in which the compensation is earned. Deferrals accumulate in an account that earns interest at a rate that is one-half percentage point higher than the Moody’s Average Corporate Bond rate. Benefit payments under the plan may be made in a lump sum or in monthly installments over a maximum of 180 months.

 

For a director to be considered independent under the New York Stock Exchange (“NYSE”) corporate governance listing standards, the Board of Directors must affirmatively determine that the director does not have any direct or indirect material relationship with the company, including any of the relationships specifically proscribed by the NYSE independence standards. The board considers all relevant facts and circumstances in making its independence determinations. Only independent directors may serve on our Audit Committee, Compensation and Human Resources Committee and Nominating and Corporate Governance Committee.

 

In addition to complying with NYSE independence standards, our Board of Directors has adopted a formal set of categorical standards with respect to the determination of director independence. Under our Categorical Standards for Determination of Director Independence, a director must be determined to have no material relationship with the company other than as a director. These standards specify the criteria by which the independence of our directors will be determined, including guidelines for directors and their immediate families with respect to past employment or affiliation with the company, its customers or its independent registered public accounting firm. The standards also restrict commercial and not-for-profit relationships with the company, and prohibit Audit Committee members from having any accounting, consulting, legal, investment banking or financial advisory relationships with the company. Directors may not be given personal loans or extensions of credit by the company, and all directors are required to deal at arm’s length with the company and its subsidiaries, and to disclose any circumstance that may result in the director no longer being considered independent. The full text of our Categorical Standards for Determination of Director Independence is published as an addendum to our Corporate Governance Guidelines, which are available under the “Investors — Corporate Governance” section of our website at www.portlandgeneral.com.

 

During its review of director independence, the board considered whether there were any transactions or relationships between the company and any director or any member of his or her immediate family (or any entity of which a director or an immediate family member is an executive officer, general partner or significant equity holder). The board also considered our charitable contributions to not-for-profit organizations of which a director or an immediate family member of a director is an executive officer.

 

As a result of this review, the board affirmatively determined that the following directors nominated for election at the annual meeting are independent under the NYSE listing standards and our independence standards: John W. Ballantine, Rodney L. Brown, Jr., David A. Dietzler, Corbin A. McNeill, Jr., Neil J. Nelson, M. Lee Pelton, Maria M. Pope and Robert T. F. Reid. In confirming each nominee’s status as an independent director, the board

considered all relationships such directors have with us, including charitable contributions we make to organizations where our directors serve as board members. In addition, the board considered that in the ordinary course of our business we provide electricity to some directors and entities with which they are affiliated on the same terms and conditions as provided to other customers of the company.

 

The board determined that Peggy Y. Fowler and Mark B. Ganz are not independent. Ms. Fowler is not independent because of her employment as our Chief Executive Officer and President. Mr. Ganz is not independent because he is an executive officer of a company at which Ms. Fowler has within the past three years served on the compensation committee while Mr. Ganz held such executive officer position.

 

The Board of Directors has four standing committees: the Audit Committee, the Nominating and Corporate Governance Committee, the Compensation and Human Resources Committee and the Finance Committee. The Board of Directors has determined that each of the Audit Committee, the Nominating and Corporate Governance Committee and the Compensation and Human Resources Committee is comprised solely of independent directors in accordance with the NYSE listing standards. Copies of the charters for each of these committees are available under the “Investors — Corporate Governance” section of our website at www.portlandgeneral.com.

 

The table below provides membership information for each of the committees as of March 20, 2008.

 

 

Audit Committee

 

The Audit Committee met eight times in 2007. Under the terms of its charter, the Audit Committee meets at least once each quarter. The committee regularly meets separately with management, our internal auditor and our independent registered public accounting firm. The responsibilities of the Audit Committee include:

 

 

 

The committee has the authority to secure independent expert advice to the extent the committee determines it to be appropriate, including retaining independent counsel, accountants, consultants or others, to assist the committee in fulfilling its duties and responsibilities.

 

The Board of Directors has determined that Mr. Dietzler and Ms. Pope are “audit committee financial experts” as that term is defined under rules of the Securities and Exchange Commission.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee met five times in 2007. Under the terms of its charter, the committee is responsible for:

 

 

The committee may retain or terminate search firms to identify director candidates, and has the sole authority to approve the search firm’s fees and other retention terms. The committee also may retain independent counsel or other consultants or advisers as it deems necessary to assist in its duties to the company.

 

Compensation and Human Resources Committee

 

The Compensation and Human Resources Committee met eight times in 2007. Under its charter, the committee must meet at least two times annually. The committee’s responsibilities include:

 

 

Under its charter, the committee has authority to retain and terminate compensation consultants to assist the committee in carrying out its responsibilities, including sole authority to approve the consultants’ fees and other retention terms. In late 2005, the committee engaged Watson Wyatt Worldwide to advise it on matters related to

executive compensation. The committee has adopted a policy that executive compensation consultants should not be retained to perform other services for the company without the express permission of the committee.

 

The committee is supported in its work by members of our Compensation and Benefits Department. The formal role of our executive officers in determining executive compensation is limited to the responsibility of the Chief Executive Officer to provide the committee with a self-evaluation, as well as an evaluation of the performance of the other executive officers. The committee may also seek input from our executive officers in developing overall compensation philosophy and decisions about specific pay components.

 

The committee has authority to conduct or authorize investigations or studies of matters within the committee’s scope of responsibilities, and to retain independent counsel or other consultants or advisers as it deems necessary to assist it in those matters. To the extent permitted by applicable law, regulation or the NYSE listing standards, the committee may form subcommittees and delegate to the subcommittees, or to the committee chairperson individually, the power and authority the committee deems appropriate.

 

Finance Committee

 

The Finance Committee met six times in 2007. Under its charter, the committee is to meet as often as it determines necessary to carry out its duties and responsibilities, but no less frequently than annually. The committee is responsible for:

 

 

All of our directors, officers and employees are required to abide by our Code of Business Ethics and Conduct. This code of ethics covers all areas of professional conduct, including conflicts of interest, unfair or unethical use of corporate opportunities, protection of confidential information, compliance with all applicable laws and regulations, and oversight and compliance. Our Chief Executive Officer, Chief Financial Officer and Controller are also required to abide by the Code of Ethics for Chief Executive and Senior Financial Officers. These ethics codes form the foundation of a comprehensive program of compliance with our Guiding Behaviors — Be Accountable, Earn Trust, Dignify People, Make the Right Thing Happen, Positive Attitude and Team Behavior — and all corporate policies and procedures to ensure that our business is conducted ethically and in strict adherence to all laws and regulations applicable to us. Our directors, officers and employees are not to tolerate violations of the standards set out in our ethics codes. Employees are responsible for reporting any violation, including situations or matters that may be considered to be unethical or a conflict of interest under the ethics codes.

 

The full texts of both the Code of Business Ethics and Conduct and the Code of Ethics for Chief Executive and Senior Financial Officers are available under the “Investors — Corporate Governance” section of our website at www.portlandgeneral.com or in print to shareholders, without charge, upon request to Portland General Electric Company, 121 SW Salmon Street, Portland, Oregon 97204, Attention: Corporate Secretary. Any future amendments to either of these codes, and any waiver of the Code of Ethics for Chief Executive and Senior Financial Officers and of certain provisions of the Code of Business Ethics and Conduct for directors, executive officers or our Controller will be disclosed on our website promptly following the amendment or waiver.

 

NYSE rules require listed company audit committees to have procedures in place regarding the receipt, retention and treatment of complaints received regarding accounting, internal accounting controls or auditing

matters and allowing for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. We have such procedures in place. In addition, we have a Policy Regarding Compliance with Securities and Exchange Commission Attorney Conduct Rules that requires all of our lawyers to report to the appropriate persons at the company evidence of any actual, potential or suspected material violation of state or federal law or breach of fiduciary duty by the company or any of our directors, officers, employees or agents.

 

 

PGE and Local Union No. 125 of the International Brotherhood of Electrical Workers have established a trust that is partly funded by PGE to provide health and welfare benefits to employees and retirees and their dependents and beneficiaries who are covered by the collective bargaining agreement between PGE and the union. The trust is administered by a Board of Trustees composed of six members, three of whom are appointed by PGE and three of whom are appointed by the union. Currently all six members of the Board of Trustees are PGE employees, one of whom, Joe A. McArthur, Vice President Transmission and Customer Service, is an executive officer. All decisions of the Board of Trustees must be by majority vote, with the members appointed by each party jointly having one vote. By action of the Board of Trustees, the trust engaged Regence BlueCross BlueShield of Oregon, a subsidiary of The Regence Group, to provide health products and services. Pursuant to the agreement between PGE and Local Union No. 125 of the International Brotherhood of Electrical Workers, PGE pays approximately $800,000 per month, less than 2% of The Regence Group’s consolidated gross revenues, to the trust toward the cost of these services. Mark B. Ganz, a member of our Board of Directors, is President and Chief Executive Officer and a director of The Regence Group.

 

We do not have a separate written policy or procedures for the review, approval or ratification of transactions with related persons. However, our Corporate Governance Guidelines and our Code of Business Ethics and Conduct address conflicts of interest and relationships with PGE. In its consideration of nominees for the Board of Directors, the Nominating and Corporate Governance Committee examines possible related persons transactions as part of its review. The Board of Directors annually reviews the relationship that each director has with PGE, which includes relationships with our officers and employees, our auditors and our customers. Our Code of Business Ethics and Conduct requires any person, including our directors, to report any violation of the code or any situation or matters that may be considered to be unethical or a conflict of interest. Any potential conflict of interest under the code involving a director, an executive officer or our Controller is reviewed by the Audit Committee. Only the Audit Committee may waive a conflict of interest involving a director, an executive officer or our Controller, which will be promptly disclosed to our shareholders to the extent required by law. In its review of director independence, the Board of Directors considered the related person transaction described above.

 

 

The members of the Compensation and Human Resources Committee during 2007 were John W. Ballantine, Robert T.F. Reid, Neil J. Nelson and M. Lee Pelton. All members of the committee during 2007 were independent directors and no member was an employee or former employee. During 2007, no member of the committee had any relationship requiring disclosure above under “Certain Relationships and Related Person Transactions.” During 2007, none of our executive officers served on the compensation committee (or its equivalent) or board of directors of another entity whose executive officer served on our Compensation and Human Resources Committee.

 

 

The Audit Committee provides assistance to the Board of Directors in fulfilling its obligations with respect to matters involving the accounting, auditing, financial reporting, internal control and legal compliance functions of the company and its subsidiaries. Management is responsible for the company’s internal controls and the financial reporting process, including the integrity and objectivity of the company’s financial statements. The company’s independent registered public accounting firm, Deloitte & Touche LLP (“Deloitte”), is responsible for performing an independent audit of the company’s financial statements, expressing an opinion as to the conformity of the annual financial statements with generally accepted accounting principles, expressing an opinion as to the

effectiveness of the company’s internal control over financial reporting and reviewing the company’s quarterly financial statements.

 

The committee has met and held discussions with management and Deloitte regarding the fair and complete presentation of the company’s financial results and the effectiveness of the company’s internal control over financial reporting. The committee has discussed with Deloitte significant accounting policies that the company applies in its financial statements, as well as alternative treatments. The committee also discussed with the company’s internal auditor and Deloitte the overall scope and plans for their respective audits.

 

Management represented to the committee that the company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and the committee has reviewed and discussed the consolidated financial statements with management and Deloitte.

 

The committee has reviewed and discussed with Deloitte all communications required by generally accepted auditing standards. In addition, the Audit Committee has received the written disclosures and the letter regarding independence from Deloitte, as required by Independence Standards Board Standard No. 1 (“Independence Discussions with Audit Committees”) as adopted by the Public Company Accounting Oversight Board in Rule 3600T, and has discussed such information with Deloitte.

 

Based upon the review, discussions and representations referenced above, the committee recommended to the Board of Directors that the audited consolidated financial statements be included in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 for filing with the Securities and Exchange Commission.

 

The committee has appointed Deloitte as the company’s independent registered public accounting firm for fiscal year 2008.

 

Audit Committee

David A. Dietzler, Chair

Neil J. Nelson

Maria M. Pope

 

 

The aggregate fees billed by Deloitte & Touche LLP for 2007 and 2006 were as follows:

 

 

 

 

 

 

The Audit Committee must separately pre-approve the engagement of the independent registered public accounting firm to audit our consolidated financial statements. Prior to the engagement, the Audit Committee reviews and approves a list of services, including estimated fees, expected to be rendered during that year by the independent registered public accounting firm.

 

In addition, the Audit Committee requires pre-approval of all audit and permissible non-audit services provided by the company’s independent auditors, pursuant to a pre-approval policy adopted by the committee. The term of pre-approval is 12 months, unless the Audit Committee specifically provides for a different period. A detailed written description of the specific audit, audit-related, tax and other services that have been pre-approved, including specific monetary limits, is required. The Audit Committee may also pre-approve particular services and fees on a case-by-case basis. Management and the independent auditors are required to report at least quarterly to the Audit Committee regarding the actual services, and fees paid for such services, compared to the services and fees that were pre-approved in accordance with this policy.

 

All audit and permissible non-audit services provided by the independent auditors during 2007 and 2006 were pre-approved by the Audit Committee.

 

 

 

All of our directors are elected annually by shareholders. Directors hold office until their successors are elected and qualified, or until their earlier death, resignation or removal. Our Amended and Restated Bylaws provide that the Board of Directors may determine the size of the board, which the board has currently set at 10 directors.

 

The board has nominated all of the current directors for re-election as directors. They are: John W. Ballantine, Rodney L. Brown, Jr., David A. Dietzler, Peggy Y. Fowler, Mark B. Ganz, Corbin A. McNeill, Jr., Neil J. Nelson, M. Lee Pelton, Maria M. Pope, and Robert T. F. Reid. This slate of nominees satisfies the NYSE listing standards for board composition and majority director independence. See the section above entitled “Corporate Governance — Director Independence” for further details regarding director independence.

 

All of the nominees have agreed to serve if elected. If any director is unable to stand for election, the board may reduce the number of directors or designate a substitute. In that case, shares represented by proxies will be voted for a substitute director. We do not expect that any nominee will be unavailable or unwilling to serve.

 

John W. Ballantine, age 62, director since February 2004

 

Mr. Ballantine has been an active, self-employed private investor since 1998, when he retired from First Chicago NBD Corporation where he had most recently served as Executive Vice President and Chief Risk Management Officer. During his 28-year career with First Chicago, Mr. Ballantine was responsible for International Banking operations, New York operations, Latin American Banking, Corporate Planning, US Financial Institutions business and a variety of trust operations. Mr. Ballantine also serves on the boards of directors of DWS Funds, Healthways, Inc., and Stockwell Capital Investments.

 

Mr. Ballantine is Chairman of the Finance Committee and a member of the Compensation and Human Resources Committee.

 

Rodney L. Brown, Jr., age 51, director since February 2007

Mr. Brown is Managing Partner with Cascadia Law Group PLLC, a Seattle, Washington law firm he founded in 1996, which specializes in environmental law in the Pacific Northwest. From 1992 to 1996, Mr. Brown was a Managing Partner at the Seattle office of Morrison & Foerster, LLP, a large international law firm.

 

Mr. Brown is a member of the Nominating and Corporate Governance Committee.

 

David A. Dietzler, age 64, director since January 2006

 

Mr. Dietzler has been a certified public accountant for nearly 38 years and retired as a partner of KPMG LLP, a public accounting firm, in 2005. During his last 10 years with KPMG LLP he served in both administrative and client service roles, which included serving on the firm’s Board of Directors, including Governance, Nominating and Board Process and Evaluation committees, and was the Pacific Northwest partner in charge of the Audit Practice for KPMG’s offices in Anchorage, Boise, Billings, Portland, Salt Lake City, and Seattle, as well as the Managing Partner of the Portland office.

 

Mr. Dietzler is Chairman of the Audit Committee and a member of the Nominating and Corporate Governance Committee.

 

Peggy Y. Fowler, age 56, director since August 1998

 

Ms. Fowler has served as Chief Executive Officer and President of the company since April 2000, and was Chair of the board from May 2001 until January 2004. She served as President of the company from 1998 until 2000. She served as Chief Operating Officer of PGE Distribution Operations from 1996 until 1998. Previously, she served in various positions with the company, including Senior Vice President Customer Service and Delivery and Vice President Power Production and Supply. She also serves on the board of directors of The Regence Group and the Portland Branch board of the Federal Reserve Bank of San Francisco.

 

From March 1999 until June 2003, Ms. Fowler served as President of Portland General Holdings, Inc. (an Enron affiliate) which filed for bankruptcy protection in June 2003. The bankruptcy case was dismissed by the bankruptcy court in October 2005.

 

Mark B. Ganz, age 47, director since January 2006

 

Mr. Ganz has served as President and Chief Executive Officer of The Regence Group, a parent corporation of various companies offering health, life and disability products and services under the BlueCross and BlueShield trademarks, since April 2004. Prior to holding his current position, Mr. Ganz served as President and Chief Operating Officer of The Regence Group from 2003 to 2004 and President of Regence BlueCross BlueShield of Oregon from 2001 to 2003. He was Senior Vice President, Chief Legal & Compliance Officer and Corporate Secretary of The Regence Group from 1996 to 2001. Mr. Ganz also serves on the board of directors of The Regence Group.

 

Mr. Ganz is a member of the Finance Committee.

 

Corbin A. McNeill, Jr., age 68, director since February 2004

 

Mr. McNeill served as Chairman and co-Chief Executive Officer of Exelon Corporation, which was formed in October 2000 by the merger of PECO Energy Company and Unicom Corporation until his retirement in 2002. Prior to the merger, he was Chairman, President and Chief Executive Officer of PECO Energy. He serves on the boards of directors of Ontario Power Generation Inc., Associated Electric & Gas Insurance Services Limited, Owens-Illinois, Inc., and Silver Spring Networks.

 

Mr. McNeill is Chairman of our Board of Directors and Chairman of the Nominating and Corporate Governance Committee.

 

Neil J. Nelson, age 49, director since October 2006

 

Mr. Nelson has served as President and Chief Executive Officer of Siltronic Corporation since July 2003. He previously served as Vice President of Operations of Siltronic from 2000 to 2003. From 1987 to 2000, he served in various positions with Mitsubishi Silicon America. Mr. Nelson also serves on the board of directors of Siltronic Corporation.

Mr. Nelson is a member of the Audit Committee and the Compensation and Human Resources Committee.

 

M. Lee Pelton, age 57, director since January 2006

 

Dr. Pelton has served as President of Willamette University since July 1999. From 1991 until 1998, he was Dean of Dartmouth College. Prior to 1991, he held faculty and administrative posts at Colgate University and Harvard University. Dr. Pelton also serves on the board of directors of PLATO Learning, Inc.

 

Dr. Pelton is a member of the Compensation and Human Resources Committee and the Nominating and Corporate Governance Committee.

 

Maria M. Pope, age 43, director since January 2006

 

Ms. Pope has served as Vice President and Chief Financial Officer of Mentor Graphics Corporation, a software company based in Wilsonville, Oregon, since July 2007. Prior to joining Mentor Graphics, Ms. Pope was Vice President and General Manager, Wood Products Division of Pope & Talbot, Inc., a pulp and wood products company, from December 2003 to April 2007. Pope & Talbot, Inc. filed a voluntary petition under Chapter 11 of the federal bankruptcy laws on November 19, 2007. She served as Vice President, Chief Financial Officer and Secretary from 1999 to 2003. Ms. Pope previously worked for Levi Strauss & Co. and Morgan Stanley & Co., Inc. Ms. Pope currently serves on the board of directors of Premera Blue Cross.

 

Ms. Pope is a member of the Audit Committee and the Finance Committee.

 

Robert T. F. Reid, age 59, director since January 2006

 

Mr. Reid has served as Corporate Director and Chair of British Columbia Transmission Corporation since 2003. Mr. Reid also served as president of Duke Energy Corporation’s Canadian operations from 2002 to 2003. He served as Executive Vice President and Chief Operating Officer of Westcoast Energy Inc. from 2001 until its acquisition of Duke Energy in 2002. Prior to his appointment as Westcoast’s Chief Operating Officer in 2001, Mr. Reid held senior executive positions in both the natural gas industry and in government service, including Union Gas Ltd., Westcoast Energy Inc., Pan-Alberta Gas, Foothills Pipe Lines, and the Independent Petroleum Association of Canada. He also serves as a director of Fort Chicago Energy Partners L.P. and Greystone Capital Management, Inc.

 

Mr. Reid is Chairman of the Compensation and Human Resources Committee.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” EACH NOMINEE FOR ELECTION TO THE BOARD OF DIRECTORS.

The Audit Committee has appointed Deloitte & Touche LLP (“Deloitte”) as the independent registered public accounting firm to audit the consolidated financial statements of PGE and its subsidiaries for the fiscal year ending December 31, 2008, and to audit the effectiveness of internal control over financial reporting as of December 31, 2008.

 

The Audit Committee carefully considered the firm’s qualifications as an independent registered public accounting firm. This included a review of the qualifications of the engagement team, the quality control procedures the firm has established, the issues raised by the most recent quality control review, the coordination of the firm’s efforts with our internal audit department and its reputation for integrity and competence in the fields of accounting and auditing. The Audit Committee’s review also included matters required to be considered under the Securities and Exchange Commission’s rules on auditor independence, including the nature and extent of non-audit services, to ensure that the provision of those services will not impair the independence of the auditors. The Audit Committee expressed its satisfaction with Deloitte in all of these respects.

Under current law, rules, regulations, and its charter, the Audit Committee is directly responsible for the selection, appointment, compensation, and oversight of the company’s independent registered public accounting firm and is not required to submit this appointment to a vote of the shareholders. The Board of Directors, however, considers the appointment of the independent registered public accounting firm to be an important matter of shareholder concern and is submitting the appointment of Deloitte for ratification by the shareholders as a matter of good corporate practice. One or more representatives of Deloitte are expected to be present at the annual meeting and will have an opportunity to make a statement and respond to appropriate questions from shareholders. In the event that our shareholders fail to ratify the appointment, it will be considered as a direction to the Audit Committee to consider the appointment of a different firm. Even if the appointment is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the company and its shareholders.

 

Ratification of the appointment of Deloitte & Touche LLP as the company’s independent registered public accounting firm will require that a majority of the outstanding shares of common stock be present in person or represented by proxy at the annual meeting and that the number of votes cast in favor of this proposal exceeds the number of votes cast against this proposal.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

The 2006 Stock Incentive Plan was adopted by the Board of Directors and approved by the sole shareholder effective March 31, 2006. The Compensation and Human Resources Committee amended and restated the 2006 Stock Incentive Plan effective as of October 24, 2007 (the “Plan”). We are submitting the Plan for shareholder approval in order to satisfy the shareholder approval requirement of Section 162(m) of the Internal Revenue Code (the “Code”), with respect to performance-based compensation paid to certain executive officers of the company. Section 162(m) generally places a limit of $1 million on the compensation that a publicly held corporation may deduct with respect to its CEO and its three next most highly paid executive officers other than the CFO. There is an exception to this limitation for awards to executives that qualify under Section 162(m) as “performance-based” compensation. One of the requirements for qualifying awards as “performance-based” is that the material terms of a performance goal under which the compensation is paid must be approved by the company’s shareholders. The material features of the Plan and the performance goals under which compensation may be paid under the Plan are summarized below. The following summary does not purport to be complete, and is subject to and qualified in its entirety by reference to the complete text of the Plan, which is attached as Appendix A to this proxy statement.

 

The purpose of the Plan is to provide incentives which will attract, retain and motivate highly competent persons as officers, directors and key employees of the company and its subsidiaries and affiliates, by providing them with incentives and rewards in the form of rights to earn shares of the common stock of the company and cash equivalents. The Plan authorizes the grant of incentive stock options (options that qualify under Section 422 of the Code), nonstatutory stock options, stock appreciation rights (“SARs”), restricted stock awards and restricted stock units (“RSUs”) (each an “Award”).

 

The maximum aggregate number of shares of common stock of the company reserved and available for issuance pursuant to Awards under the Plan is 4,687,500, subject to adjustment under certain circumstances as specified in the Plan. The maximum number of shares of common stock that may be the subject of an Award with respect to any individual participant during the term of the Plan cannot exceed 2,000,000. The maximum number of

shares of common stock that may be covered by Awards issued under the Plan during a year is limited to 1,250,000 during the first calendar year of the Plan, and during any year thereafter is limited to 1% of the company’s outstanding common stock at the beginning of such year. The maximum number of shares of common stock that may be issued pursuant to incentive stock options awarded under the Plan cannot exceed 1,000,000.

 

If shares subject to restricted stock awards or stock units are forfeited, then such shares of common stock again become available for future Awards under the Plan. If a stock option or SAR is forfeited or terminated before being exercised, then the corresponding shares of common stock again become available for future Awards under the Plan. Notwithstanding the above, the aggregate number of shares of common stock that may be issued under the Plan upon exercise of incentive stock options will not be increased when restricted shares or other shares of common stock are forfeited. The closing price of the common stock on February 29, 2008 was $23.33 per share.

 

Benefits that would have been received by named executive officers, current executive officers as a group, current directors who are not executive officers as a group and employees, including officers who are not executive officers, as a group, if the Plan had been in effect for the last fiscal year are not determinable and would depend upon both the Compensation and Human Resources Committee’s actions and the fair market value of the company’s common stock at various future dates. No stock options have been granted under the Plan.

 

The Plan is administered by the Compensation and Human Resources Committee, which consists of two or more directors appointed by the board. All of the members of the committee are “non-employee directors” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934 (the “Exchange Act”) and “outside directors” within the meaning of Treasury Regulation 1.162-27(e)(3) under Section 162(m) of the Code.

 

Subject to the provisions of the Plan, the committee has the authority to determine: (i) which officers, directors, and key employees will receive Awards, (ii) the time or times when Awards will be granted, (iii) the types of Awards to be granted, (iv) the number of shares of common stock that may be issued under each Award, and (v) the terms, restrictions and provisions of each Award. The committee has the authority to construe the Plan and Award agreements, to prescribe rules and regulations relating to the Plan and to make all other determinations necessary or advisable for administering the Plan, subject to the provisions of the Plan. The determinations made by the committee will be binding and conclusive.

 

Officers, directors and key employees of the company or its affiliates are generally eligible for Awards, but only employees may be granted incentive stock options. In addition, an employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of the company or any of its parents or subsidiaries may not be granted an incentive stock option unless the requirements of Section 422(c)(5) of the Code are satisfied.

 

Each Award is evidenced by a grant agreement that contains terms and conditions as determined by the committee, consistent with the Plan. The grant agreement will determine the effect on an Award of the participant’s disability, death, retirement, involuntary termination, termination for cause or other termination of employment or service, and the extent to which and period during which Awards may be exercised. If a grant agreement does not provide otherwise, vested options and SARs may be exercised for a period of 90 days following the date the participant ceases to be an employee or director of the company, its subsidiaries or affiliates; and unvested options, SARs, restricted stock awards and RSUs are forfeited on the date the participant ceases to be an employee or director of the company, its subsidiaries or affiliates.

 

Each stock option agreement will identify whether an option is an incentive stock option or nonstatutory option and will specify, among other terms, when the option becomes exercisable, the exercise price of the options (which may not be less than fair market value on the grant date) and the term of the option (not to exceed 10 years from date of grant).

 

A SAR means a right to receive payment in cash or shares of common stock of an amount equal to the excess of the fair market value of a share of common stock on the date the right is granted, all as determined by the committee. SARs may be awarded alone or in combination with options.

 

Restricted stock awards may be subject to time based vesting and/or performance based vesting and such other terms and conditions as the committee determines appropriate. Restricted stock awards may or may not require payment of the purchase price of any shares of common stock subject to the award, and will specify whether the participant will have all of the rights of a holder of shares of common stock of the company, including the right to receive dividends and to vote the shares.

 

An RSU provides for payment in shares of common stock at such time as is specified in the RSU agreement. Each RSU agreement will contain terms and conditions of the RSUs that are not inconsistent with the Plan including, but not limited to, the number of shares of common stock underlying the RSU and time based and/or performance based vesting terms. The committee will determine whether a participant granted an RSU will be entitled to a dividend equivalent right, which entitles the holder to receive the amount of any dividend paid on the share of common stock underlying an RSU, and which may be paid in cash or in the form of additional RSUs, as determined by the committee.

 

Any Award granted under the Plan may be granted in a manner such that the Award qualifies for the performance-based compensation exemption of Section 162(m) of the Code (“Performance-Based Awards”), as determined by the committee in its sole discretion. Performance-Based Awards may vest and/or be payable upon the achievement of targets established by the committee relative to one or more of the following business criteria that apply to the individual participant, one or more business units, or the company as a whole: (1) net earnings; (2) earnings per share; (3) net sales growth; (4) market share; (5) operating profit; (6) earnings before interest and taxes (EBIT); (7) earnings before interest, taxes, depreciation and amortization (EBITDA); (8) gross margin; (9) expense targets; (10) working capital targets relating to inventory and/or accounts receivable; (11) operating margin; (12) return on equity; (13) return on assets; (14) planning accuracy (as measured by comparing planned results to actual results); (15) market price per share; (16) total return to stockholders; (17) cash flow and/or cash flow return on equity; (18) recurring after-tax net income; (19) gross revenues; (20) return on invested capital; (21) safety; (22) cost management; (23) productivity ratios; (24) operating efficiency; (25) accomplishment of mergers, acquisitions, dispositions or similar extraordinary business transactions; (26) bond ratings; (27) economic value added; (28) book value per share; (29) strategic initiatives; (30) employee satisfaction; (31) cash management or asset management metrics; (32) regulatory performance; (33) dividend yield; (34) dividend payout ratio; (35) pre-tax interest coverage; (36) P/E ratio; (37) capitalization targets; (38) customer value/satisfaction; (39) inventory; (40) inventory turns; (41) availability and/or reliability of generation; (42) outage duration; (43) outage frequency; (44) trading floor earnings; (45) budget-to-actual performance; (46) customer growth; (47) funds from operations; (48) interest coverage; (49) funds from operations/average total debt; (50) funds from operations/capital expenditures; (51) total debt/total capital; (52) electric service power quality and reliability, (53) resolution and/or settlement of litigation and other legal proceedings and (54) total equity/ total capital. In addition, Performance-

Based Awards may include comparisons to the performance of other companies, such performance to be measured by one or more of the foregoing business criteria.

 

With respect to Performance-Based Awards, the committee will establish in writing, no later than ninety (90) days after the commencement of the applicable performance period (but in no event after twenty-five percent (25%) of such performance period has elapsed), the performance goals applicable to the given period and the method for computing the portion of an Award that vests or the number of shares to be delivered to a participant under an Award if such performance goals are achieved, in terms of an objective formula or standard.

 

No Performance-Based Awards will be payable to, or vest with respect to, any participant for a given period until the committee certifies in writing that the objective performance goals (and any other material terms) applicable to such period have been satisfied.

 

With respect to any Awards intended to qualify as Performance-Based Awards, after establishment of a performance goal, the committee will not revise the performance goal or increase the amount of compensation payable upon the attainment of the performance goal. Notwithstanding the preceding sentence, (i) the committee may reduce or eliminate the number of shares of common stock or cash granted or the number of shares of common stock vested upon the attainment of such performance goal, and (ii) the committee will disregard or offset the effect of extraordinary, unusual or non-recurring items in determining the attainment of performance goals. Examples of extraordinary, unusual or non-recurring items include, but are not limited to, (i) regulatory disallowances or other adjustments, (ii) restructuring or restructuring-related charges, (iii) gains or losses on the disposition of a business or major asset, (iv) changes in regulatory, tax or accounting regulations or laws, (v) resolution and/or settlement of litigation and other legal proceedings or (vi) the effect of a merger or acquisition.

 

In the event of any change in the common stock of the company through a merger, consolidation, reorganization, recapitalization, stock dividend, stock split, reverse stock split, spin-off, combination of shares, exchange of shares, dividends or other changes in capital structure, the committee will make such adjustments as it, in its sole discretion, deems appropriate, including, but not limited to, adjustments to (i) the number of options, SARs, restricted shares and stock units available for future Awards, (ii) the number of shares of common stock covered by each outstanding option and SAR, (iii) the exercise price under each outstanding option and SAR; and (iv) the number of stock units included in any prior Award that has not yet been settled.

 

In the event of a change in control of the company, as defined in the Plan, or in the event of a fundamental change in the business condition or strategy of the company, the committee, in its sole discretion, may, at the time an Award is made or at any time thereafter, take one or more of the following actions: (i) provide for the acceleration of any time period relating to the exercise or payment of the Award, (ii) provide for payment to the participant of cash or other property with a fair market value equal to the amount that would have been received upon the exercise or payment of the Award had the Award been exercised or paid upon such event, (iii) adjust the terms of the Award in a manner determined by the committee to reflect such event, (iv) cause the Award to be assumed, or new rights substituted therefor, by another entity, or (v) make such other adjustments in the Award as the committee may consider equitable to the participant and in the best interests of the company. Further, any Award will be subject to such conditions as necessary to comply with federal and state securities laws, the performance based exception of Section 162(m) of the Code, or understandings or conditions as to the participant’s employment in addition to those specifically provided for under the Plan.

 

The effective date of the Plan is March 31, 2006. The Plan was amended and restated by the committee on October 24, 2007. The Plan remains in effect until terminated by the board, except that Awards may not be granted more than 10 years after the effective date of the Plan.

The committee may, at any time and for any reason, amend or terminate the Plan. An amendment of the Plan will be subject to the approval of the company’s stockholders only to the extent required by applicable laws, regulations or rules or requirements of any applicable stock exchange. The termination or amendment of the Plan will not affect any Award previously granted under the Plan.

 

The Committee may amend the terms of any Award previously granted (and the related Award agreement), prospectively or retroactively, but generally, no such amendment may impair the rights of any participant without his or her consent and no such amendment may effect a repricing of any Award without approval of the company’s shareholders. No amendment of any stock options or SARs may be made in a manner that will be treated as the grant of a new stock option or SAR under Section 409A of the Code.

 

The following is a brief summary of the federal income tax consequences of certain transactions under the Plan based on federal income tax laws in effect as of the date of this Proxy Statement. This summary is not intended to be exhaustive and does not describe state or local tax consequences. Additional or different federal income tax consequences to the Plan participant or the company may result depending upon other considerations not described below. The Plan has been amended such that awards under the Plan either will not be “deferred compensation” within the meaning of Section 409A of the Code, or will comply with the requirements of Section 409A.

 

Incentive Stock Options

 

A participant will not recognize regular income upon grant or exercise of an incentive stock option. (The spread on exercise of an incentive stock option is taken into account for purposes of calculating the alternative minimum tax.) If a participant exercises an incentive stock option and disposes of the shares acquired more than two years of the date of grant and more than one year following the date of exercise, the sale of the shares will qualify for capital gains treatment. If a participant disposes of shares acquired upon exercise of an incentive stock option before either the one-year or the two-year holding period (a “disqualifying disposition”), the participant will recognize ordinary income in an amount equal to the lesser of (i) the excess of the fair market value of the shares on the date of exercise over the option price or (ii) the excess of the fair market value of the shares on the date of disposition over the option price. Any additional gain realized upon the disqualifying disposition will be eligible for capital gains treatment. The company generally will not be allowed any deduction for federal income tax purposes at either the time of grant or the time of exercise of an incentive stock option. However, upon any disqualifying disposition by an employee, the company will be entitled to a deduction to the extent the employee recognized compensation income.

 

Nonstatutory Stock Options and Stock Appreciation Rights

 

No income is recognized by a participant at the time a nonstatutory stock option or SAR is granted. At the time of exercise of a nonstatutory stock option or SAR, the participant will recognize ordinary income, and the company will be entitled to a deduction, in the amount by which the fair market value of the shares acquired exceeds the exercise price at the time of exercise. Upon the sale of shares acquired upon exercise of a nonstatutory stock option or SAR, the participant will receive capital gains treatment on the difference between the amount realized from the sale and the fair market value of the shares on the date of exercise. Such capital gains treatment will be short-term or long-term, depending on the length of time the shares were held.

 

Restricted Stock

 

In general, a participant who receives a restricted stock award will recognize ordinary compensation income on the difference between the fair market value of the shares of common stock on the date when the shares are no longer subject to a substantial risk of forfeiture and any amount paid for the shares, and the company will be entitled to a deduction for tax purposes in the same amount. Any gain or loss on the participant’s subsequent sale of shares will receive short-term or long-term capital gains treatment, depending on the length of time the shares were held. If a participant receiving a restricted stock award makes a timely election under Section 83(b) of the Code to have the tax liability determined at the date of grant rather than when the restrictions lapse, the participant will recognize ordinary compensation income on the difference between the fair market value of the shares of common stock on the date the stock is issued and any amount paid for the shares, and the company will be entitled to a deduction at the same time. If such an election is made, the participant recognizes no further amounts of compensation income when

the restrictions lapse, and any gain or loss on the participant’s subsequent sale of the shares will receive short-term or long-term capital gains treatment, depending on the length of time the shares were held.

 

Restricted Stock Units

 

A participant who receives RSUs will recognize ordinary compensation income when the RSUs vest and are paid in shares of common stock, in the amount of the fair market value of the shares of common stock on the date the shares are paid to the participant. Any gain or loss on the participant’s subsequent sale of the shares will receive short-term or long-term capital gains treatment, depending on the length of time the shares were held.

 

The affirmative vote of a majority of the votes cast by the shareholders present in person or represented by proxy (provided that the total votes cast on the proposal represents over 50% of the total number shares entitled to vote on the proposal) is required for approval of the amended and restated 2006 Stock Incentive Plan.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE AMENDED AND RESTATED PORTLAND GENERAL ELECTRIC COMPANY 2006 STOCK INCENTIVE PLAN.

The Board of Directors has adopted the 2008 Annual Cash Incentive Master Plan for Executive Officers (the “ACI Executive Plan”), and submits the ACI Executive Plan for stockholder approval in order to satisfy stockholder approval requirements of Section 162(m) of the Internal Revenue Code (the “Code”), with respect to performance-based compensation paid to certain executive officers of the company.

 

Prior to adoption of the ACI Executive Plan, the company made annual cash incentive awards under the 2006 Annual Cash Incentive Master Plan (the “2006 Plan”), which applied to executive officers, as well as non-executive key employees. On October 25, 2007, the Compensation and Human Resources Committee determined that it would be preferable to create two separate plans — one for executive officers and one for other officers and key employees — and adopted the ACI Executive Plan, along with the 2008 Annual Cash Incentive Master Plan for Non-Executive Employees (the “ACI Non-Executive Plan”). The creation of two separate plans enables the company to ensure that the ACI Executive Plan is structured to enable awards granted under the plan to qualify as “performance-based” compensation for purposes of Section 162(m), while providing flexibility with respect to the administration of the ACI Non-Executive Plan, which is not subject to Section 162(m).

 

The material features of the ACI Executive Plan are summarized below. The following summary does not purport to be complete, and is subject to and qualified in its entirety by reference to the complete text of the Plan, which is attached as Appendix B to this proxy statement.

 

The purpose of the ACI Executive Plan is to provide incentives which will attract, retain and motivate highly competent persons as executive officers of the company by providing them with incentives and rewards in the form of annual cash incentive bonuses, based upon the achievement of individual, department or corporate goals and objectives established annually by the Compensation and Human Resources Committee.

 

The ACI Executive Plan is designed to enable awards under the plan to qualify as “performance-based” compensation under Section 162(m) of the Code. As noted under Proposal 3 above, under Section 162(m), we may not deduct for federal income tax purposes compensation paid to certain “covered employees” (generally the CEO and the three next most highly paid executive officers other than the CFO) in any taxable year to the extent that any of these persons receives more than $1 million in compensation in any one year. However, if we pay compensation that is “performance-based” under Section 162(m), we can claim a federal income tax deduction for such

compensation even if the executive officer’s compensation exceeds $1 million in a single year. In order for compensation to qualify as “performance-based” for this purpose, it must meet certain conditions, one of which is that the material terms of the performance goals under which the compensation is to be paid must be disclosed to, and approved by, our shareholders.

 

The Compensation and Human Resources Committee is responsible for the administration of the ACI Executive Plan. The committee is comprised of two or more “outside directors” within the meaning of Section 162(m).

 

The structure of the annual incentive program under the ACI Executive Plan is determined each year at the discretion of the Compensation and Human Resources Committee. On February 20, 2008, the committee approved the structure of the company’s annual incentive program for 2008 under the ACI Executive Plan. The table below sets forth the 2008 target awards (expressed as a percentage of base salary paid in 2008) for the named executive officers specified in “Compensation Discussion and Analysis” below. The amounts actually payable under the 2008 program, if any, will vary based on the extent of achievement of certain performance goals and are therefore not determinable. Because the structure of the annual incentive program under the ACI Executive Plan for subsequent years will be determined at the discretion of the committee, the benefits to be paid for subsequent years under the ACI Executive Plan, if any, are likewise not determinable.

 

 

The maximum award opportunities under the 2008 program, expressed as a percentage of base salary paid in 2008, are 160% for Ms. Fowler, 110% for Mr. Piro, 100% for Mr. Quennoz, 100% for Ms. Barnett and 100% for Mr. Hawke. The estimated base salaries to be paid in 2008 for the named executive officers are $664,074 for Ms. Fowler, $361,265 for Mr. Piro, and $237,909 for each of Mr. Quennoz, Ms. Barnett and Mr. Hawke. As explained below, neither directors nor non-executive employees of the Company are eligible for benefits under the ACI Executive Plan. The target award percentages for our other executive officers under the 2008 program range from 40% to 50% and the maximum award percentages range from 80% to 100%.

 

At the beginning of each award year, the committee will designate which employees are eligible to participate in the ACI Executive Plan for that award year. Only “covered executives” (as defined in the ACI Executive Plan) who have a direct, significant and measurable impact on the attainment of the company’s goals and objectives are eligible to participate in the ACI Executive Plan. “Covered Executive” is defined as an employee who (i) would be treated as a “covered employee” under Section 162(m), (ii) holds a position with the company at the level of vice president or above, or (iii) would be treated as an executive officer of the company under applicable Securities and Exchange Commission reporting rules. As of March 15, 2008, approximately 12 employees of the company met the definition of “Covered Executive.”

 

At the beginning of each award year, the committee will establish the material terms and conditions applicable to the annual incentive program under the ACI Executive Plan, including the relevant performance goals, award amounts payable based on the extent to which the performance goals are met, and the potential effect of individual participant contributions during the award year. Following the end of each award year, the committee shall

determine the extent to which performance goals were met for each participant. In making such determination, the committee may include or exclude the impact of any nonrecurring, unusual events that occur during the award year.

 

The committee will calculate the award amounts payable based on the extent to which the relevant performance goals were achieved. The committee, in its discretion, may further adjust an award to reflect individual participant contributions during the award year. If minimum performance goals are not achieved, no payment will be made, provided that the Board of Directors, in its sole discretion, may establish a separate discretionary amount distributable as awards to participants which amount will be allocated at the discretion of the committee. Such discretionary awards will not qualify for the performance- based compensation exception under Section 162(m) and will be subject to the deduction limitation under Section 162 (m).

 

Awards earned will be paid in cash as soon as administratively possible following the date on which the award amounts are determined.

 

The committee may determine that an award will be granted in a manner such that the award qualifies for the performance-based compensation exemption of Section 162(m). Such performance-based awards will be based on achievement of hurdle rates and/or growth rates in one or more business criteria that apply to the individual participant, one or more business units, or the company as a whole. Performance-based awards may also include comparisons to the performance of other companies with respect to one or more business criteria. No performance-based award to a participant for an award year will result in a payment in excess of $2 million.

 

The business criteria to be used for performance-based awards, either individually or in combination, are as follows: (1) net earnings; (2) earnings per share; (3) net sales growth; (4) market share; (5) operating profit; (6) earnings before interest and taxes; (7) earnings before interest, taxes, depreciation and amortization; (8) gross margin; (9) expense targets; (10) working capital targets relating to inventory and/or accounts receivable; (11) operating margin; (12) return on equity; (13) return on assets; (14) planning accuracy (as measured by comparing planned results to actual results); (15) market price per share; (16) total return to stockholders; (17) cash flow and/or cash flow return on equity; (18) recurring after-tax net income; (19) gross revenues; (20) return on invested capital; (21) safety; (22) cost management; (23) productivity ratios; (24) operating efficiency; (25) accomplishment of mergers, acquisitions, dispositions or similar extraordinary business transactions; (26) bond ratings; (27) economic value added; (28) book value per share; (29) strategic initiatives; (30) employee satisfaction; (31) cash management or asset management metrics; (32) regulatory performance; (33) dividend yield; (34) dividend payout ratio; (35) pre-tax interest coverage; (36) P/E ratio; (37) capitalization targets; (38) customer value/satisfaction; (39) inventory; (40) inventory turns; (41) availability and/or reliability of generation; (42) outage duration; (43) outage frequency; (44) trading floor earnings; (45) budget-to-actual performance; (46) customer growth; (47) funds from operations; (48) interest coverage; (49) funds from operations/average total debt; (50) funds from operations/capital expenditures; (51) total debt/total capital; (52) electric service power quality and reliability, (53) resolution and/or settlement of litigation and other legal proceedings, (54) corporate responsibility, (55) power supply, (56) total equity/ total capital, and (57) economic strength.

 

Within 90 days after the commencement of each award year, the committee will (i) establish the applicable performance goals, as well as an objective formula or standard for computing the amount of an award if the performance goals are achieved and (ii) determine the individual employees to whom such performance goals will apply.

 

The committee will not revise performance goals for performance-based awards or increase the amount payable upon attainment of such performance goals. However, the committee may adjust downward, but not upward, the amount payable pursuant to a performance-based award. The committee may also waive the achievement of performance goals in the case of the death or disability of the participant, or under other conditions where such waiver will not jeopardize the treatment of other awards as performance-based under Section 162(m). In determining the attainment of performance goals, the committee will disregard or offset the effect of any extraordinary, unusual or non-recurring items, such as regulatory disallowances or adjustments, restructuring charges, gains or losses on the disposition of a business or major asset, changes in regulatory, tax or accounting regulations or laws, resolution and/or settlement of litigation, or the effect of a merger or acquisition.

 

In the event of a reorganization, merger or consolidation of which the company is not the surviving corporation, or upon the sale of substantially all the assets of the company to another entity, or upon the dissolution or liquidation of the company, the award year will terminate on the effective date of such transaction and the company or its successor will determine the amount, if any, payable with respect to such award year, unless the documents effecting such transaction provide for the continuance of the ACI Executive Plan and the assumption of such awards or the substitution of such awards for awards of equivalent value under a program of the successor.

 

 

Neither a participant, nor any other person, may assign or transfer any benefits or payments under the ACI Executive Plan.

 

 

The Board of Directors may amend, suspend or terminate the ACI Executive Plan, or any unpaid awards under the plan, at any time upon a finding of current or threatened financial hardship to the company.

 

 

If a participant’s employment is terminated, prior to payment of an award, due to the participant’s death, disability or retirement, the company will pay an award to the participant, or the participant’s estate, at such time as awards are payable generally to other participants. The award paid to such participant, or his or her estate, will be pro-rated to reflect the number of full and partial months for which the participant was employed by the company during the award year.

 

If a participant’s employment is terminated for any reason other than the participant’s death, disability or retirement, the participant will forfeit all rights to any unpaid awards.

 

 

Approval of the 2008 ACI Executive Plan will require that a majority of the outstanding shares of common stock be present in person or represented by proxy at the annual meeting and that the number of votes cast in favor of this proposal exceeds the number of votes cast against this proposal.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE PORTLAND GENERAL ELECTRIC COMPANY 2008 ANNUAL CASH INCENTIVE MASTER PLAN FOR EXECUTIVE OFFICERS.

The following table provides information as of December 31, 2007, for the Portland General Electric Company 2006 Stock Incentive Plan and the Portland General Electric Company 2007 Employee Stock Purchase Plan. The 2006 Stock Incentive Plan was approved by Enron Corp., the company’s sole shareholder at the time it was adopted.

The 2007 Employee Stock Purchase Plan was approved by the shareholders on May 2, 2007 at the company’s 2007 annual meeting of shareholders.

 

 

 

The Compensation and Human Resources Committee of the Board of Directors has reviewed and discussed with the company’s management the following Compensation Discussion and Analysis prepared by the company’s management and, based on that review and discussion, the Compensation and Human Resources Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

Compensation and Human Resources Committee

 

Robert T. F. Reid, Chair

John W. Ballantine

Neil J. Nelson

M. Lee Pelton

This section is designed to provide our shareholders with an understanding of our 2007 executive compensation program, particularly as it relates to the following “named executive officers”:

 

 

 

The Compensation and Human Resources Committee (“Compensation Committee”) is responsible for overseeing the compensation of all our executive officers. Each year the Compensation Committee reviews the performance of the executive officers and establishes base salaries and incentive awards, including the objectives and target performance levels for the incentive awards. The committee also regularly reviews the company’s executive compensation plans and programs and makes any changes to the plans that the committee considers appropriate, or recommends such changes to the full Board of Directors. The report of the Compensation Committee relating to this Compensation Discussion and Analysis is set forth on page 30 under the heading “Compensation and Human Resources Committee Report.” Certain additional information concerning the Compensation Committee is set forth on pages 14 to 15 under the subheading “Compensation and Human Resources Committee” and on page 16 under the subheading “Compensation Committee Interlocks and Insider Participation.”

 

The company’s management does not determine the amount of any executive compensation. However, on many compensation matters, members of the management team provide information and recommendations to the Compensation Committee, particularly in areas requiring detailed knowledge of company operations and the utility industry. For example, several members of our management team provided advice with respect to the development of performance goals for the executive incentive awards, and the company’s CEO provided input on financial and operating results and the individual performance of the other executive officers. Our CEO does not provide any recommendation to the committee regarding her own compensation.

 

The Compensation Committee has selected and retained an outside compensation consultant, Watson Wyatt Worldwide (“Watson Wyatt”), to assist the committee in its work on the company’s executive compensation program. The committee has adopted a policy that the executive compensation consultants may not be retained to perform other services for the company without the express permission of the committee. In 2007, Watson Wyatt provided input to the committee on compensation trends, appropriate comparison companies and market survey data. They also assisted management in preparing recommendations to the committee regarding salaries, performance goals for the incentive award programs and other aspects of executive compensation. With the Compensation Committee’s approval, Watson Wyatt also assisted our human resources department with its search for an administrator of our employee stock purchase plan.

 

 

The objectives of the company’s executive compensation program are to attract and retain highly qualified and motivated executives and to provide them with incentives to advance the interests of our key constituents: our shareholders, customers, employees and the communities we serve. In its efforts to accomplish these objectives, the Compensation Committee is guided by the following principles:

 

 

 

 

 

 

 

 

 

To ensure the competitiveness of our executive pay packages, the Compensation Committee considers market comparisons provided by Watson Wyatt to establish base salary ranges and the level of incentive awards. The data are generally derived from utility industry compensation surveys and studies of the compensation practices of a peer group of utility companies.

 

The surveys that Watson Wyatt relied on in developing its market comparisons were:

 

 

For its 2007 compensation decisions, the Compensation Committee selected the following 14 companies as our peer group:

 

 

The 2007 peer group is the same as the 2006 peer group, with the exception of PacifiCorp. PacifiCorp was removed from the peer group following its acquisition by MidAmerican Energy Holdings Company. We selected this peer group because we believe it represents the best overall match with PGE based on the following criteria:

 

 

 

In addition to the surveys referenced above, Watson Wyatt utilized this peer group in developing its market comparisons.

 

 

Our 2007 executive pay packages included the following components:

 

 

Each of these components forms part of a pay package that is competitive, enabling the company to attract and retain qualified executives. Incentive awards are structured to further align executives’ interests with important stakeholder interests and to advance the company’s goals.

 

The company does not have employment agreements with any of its executives. Base salaries, incentive awards and certain perquisites are established annually, while other elements of compensation are generally paid pursuant to written plans.

 

Each of the various components of our 2007 executive pay program is described in greater detail below.

 

A. Base Salaries.

 

1. Overview.  We pay base salaries to provide management with a fixed amount of compensation at the levels needed to attract and retain qualified executives. We base our salary decisions on appropriate competitive reference points as well as a consideration of the executive’s experience, qualifications, performance and ability to contribute to the company’s financial and operational success.

 

2. 2007 Increases in Base Salary.  In 2007 the Compensation Committee approved a 3% increase over the 2006 base salaries for each of the named executive officers. The committee approved the increase to be consistent with market changes. As shown in the table below, 2006 salaries for the named executive officers were generally slightly below the market median, based on data provided by Watson Wyatt. The 2007 base salaries were somewhat below the median at the time they were set.

 

 

 

 

We set the base salary and other pay elements for Ms. Barnett and Messrs. Hawke and Quennoz at the same levels, because the functions served by these three officers are generally of equal significance to the overall success of the company. This results in some deviations from market levels, as reflected in the table above.

 

1. Overview.  We regard annual cash incentive awards as a highly effective means of encouraging executives to advance stakeholder interests because they create a direct link between executive pay and annual company performance in key financial, strategic and operational areas. Annual cash incentive awards are also consistent with market practices and therefore contribute to the competitiveness of our executive pay packages.

 

We granted 2007 annual cash incentive awards under our 2006 Annual Cash Incentive Master Plan. The plan authorizes the Compensation Committee to make cash incentive awards to executive officers for the achievement of individual, department or corporate goals. Each year, the Compensation Committee establishes performance goals and a formula for calculating awards based on the extent to which the goals are achieved. Following the end of the year, the committee determines the amount of the awards by comparing actual performance against the performance goals. Under the plan, the committee is permitted to exclude the impact of nonrecurring, unusual events in determining awards.

 

2. Changes to Annual Cash Incentive Program for Executives.  In 2007, the Compensation Committee devoted considerable time to overseeing the restructuring of our executive cash incentive award program. In the past, awards were based on two factors: the company’s net income relative to budgeted net income and individual performance ratings for each of the executives. These performance ratings were typically based on the achievement of company-wide goals as well as numerous individual performance goals. Some of the individual performance goals were not quantifiable, and the committee generally had to exercise considerable discretion to arrive at performance ratings for the executives. In 2007, the committee determined that significant changes to the program should be made in order to achieve greater transparency and accountability to stakeholders. Accordingly, the committee directed management to work with Watson Wyatt to develop and recommend a program based on the following principles:

 

 

After a series of meetings and discussions with management and Watson Wyatt, the Compensation Committee approved the annual cash incentive program described below.

 

3. 2007 Annual Cash Incentive Program.  Under the program approved by the committee, each officer’s award for 2007 was calculated by multiplying a “target bonus” by a “funding modifier” and a “performance modifier”:

 

Award = Target Bonus x Funding Modifier (from 0 to 1.5) x Performance Modifier (from 0 to 1.33)

 

Potential payouts under this formula were 0 to 200% of an officer’s target bonus.

 

i. Target Bonuses.  The target bonuses of the named executive officers ranged from 45% to 75% of their 2007 base salaries. The target amounts are in line with the market based on data provided by Watson Wyatt. The target bonuses of our CEO and our CFO were higher as a percentage of base salary — 75% and 50%, respectively, compared with 45% for the other named executive officers — in keeping with our belief that greater responsibility should be accompanied by a greater share of the risks and rewards of company performance.

ii. Funding Modifier.  Under the 2007 award formula, the funding modifier is a number ranging from 0 to 1.5. It is a function of actual net income relative to budgeted net income ($102.7 million for 2007), as shown below:

 

 

Budgeted net income is established annually by the Board of Directors.

 

In keeping with the committee’s goal of achieving greater alignment with shareholder interests, the 2007 award formula gives greater weight to net income than in previous years — in the past, the funding modifier ranged from 0 to 1.33, while the performance modifier was a value from 0 to 1.5.

 

iii. Performance Modifier.  The performance modifier is a number from 0 to 1.33 that is determined by the performance rating (from 1 to 5) assigned to each executive officer. Under the 2007 program, performance ratings were based entirely on quantifiable results relative to five company performance goals: high customer value; electric service power quality and reliability; reliable, reasonably priced power supply; engaged valued workforce; and active corporate responsibility.

 

These goals were selected because they represent the principal interests of our key stakeholders: our customers, shareholders, employees, and the community. They also represent the business objectives that are fundamental to a well-run utility. The measures used to calculate the company’s performance relative to these goals, and the primary rationale for selecting them, are described below.

 

 

For each of these goals, we set threshold, target and maximum performance levels, each corresponding to a performance rating (from 2 to 5), as shown below:

 

 

To arrive at an overall performance rating for the executives, results with respect to each goal were translated to performance ratings, and the performance ratings were weighted equally at 20% and added together. The measures established for each of these goals are objective, although under the terms of the 2006 Annual Cash Incentive Master

Plan, the committee may adjust for extraordinary, unusual, or non-recurring events in determining performance results. Examples of such items are: (i) regulatory disallowances, (ii) corporate restructuring, (iii) gains or losses on the disposition of a major asset, (iv) changes in regulatory, tax or accounting regulations or laws, (v) resolution or settlement of litigation and (vi) the effect of a merger. The committee did not adjust for any such events for 2007.

 

In establishing threshold, target and maximum levels — both for our annual cash award program and for our long-term incentive award program discussed below — we were guided by the following principles:

 

 

For details regarding the threshold, target and maximum performance levels and the calculation of annual cash incentive awards, see “Executive Compensation — 2007 Grants of Plan-Based Awards” below.

 

4. Calculation of 2007 Annual Cash Awards.  Applying the formula described above, the Compensation Committee approved cash awards for the executive officers that were 196% of their target bonuses. The funding modifier was 1.5, resulting from actual net income of $145 million, or 142% of budgeted net income. The performance modifier was 1.3066, resulting from an overall performance rating of 4.84 for each of the executive officers. This rating was derived from company performance results that were either at or very close to the maximum levels established by the committee. The committee did not exercise its discretion to eliminate the effect of nonrecurring items in calculating the performance results. For additional details regarding the calculation of the 2007 awards, see “Executive Compensation — 2007 Grants of Plan-Based Awards.”

 

 

1. Overview.  We believe that the interests of executives and key employees should be aligned with those of shareholders through the risks and rewards of company stock ownership. Grants under the 2006 Stock Incentive Plan are the primary vehicle by which we seek to accomplish this goal. The Compensation Committee is authorized under the plan to grant stock-based awards to directors, officers and other employees. The Compensation Committee may determine the amount and type of awards, up to certain maximum amounts described in the plan.

 

In 2007, the committee made grants of performance-based restricted stock units, or RSUs, to each of the executive officers and certain key employees. These RSUs give the grantee the right to receive shares of company common stock at no cost, provided that certain performance goals are met and the grantee remains employed by the company throughout the vesting period. Grantees whose employment is terminated due to retirement, death or disability are eligible to receive a portion of their award, prorated according to the percentage of the vesting period that the grantee was employed. The vesting period for the 2007 awards is three years. The number of shares that the holder of the RSUs receives depends on how well the company performs relative to the performance goals in each of the three years.

 

We chose to award performance-based RSUs, rather than other forms of stock-based compensation, because we believe that on the whole, they are the best means of advancing several of the objectives of our compensation program:

 

 

 

 

2. 2007 Long-Term Incentive Awards.

 

i. Award Formula.  To determine each officer’s award at the end of the three-year vesting period, the Compensation Committee will use the following formula:

 

Number of Shares Received = Number of RSUs Granted x Performance Percentage

 

The Performance Percentage is a percentage between 0 and 150%, which will be based on results over the three-year vesting period in the following four areas: generation plant availability; net income relative to budgeted net income; electric service quality and reliability; and customer satisfaction. In each of these areas, the committee has established certain threshold, target and maximum levels of performance. (See “Executive Compensation — 2007 Grants of Plan-Based Awards” below, for details.) At the end of the vesting period, results in each of the four areas will be averaged. These results will then be interpolated between the threshold, target and maximum levels established in those areas to arrive at modifier — from 0 to 150% — according to the table below:

 

 

Once the modifiers in each of the four areas are determined, they will be weighted and added together to arrive at the overall Performance Percentage. Generation plant availability and net income relative to budgeted net income will each be weighted 30% and customer satisfaction and electric service power quality and reliability will each be weighted 20%. We assigned greater weight to the first two goals (generation plant availability and net income) because of their more direct relation to our financial success. In addition, net income over the three-year period must be least 70% of budgeted net income for that period in order for any of the awards to vest.

 

ii. Number of RSUs Granted.  Each executive was granted a number of RSUs calculated by multiplying his or her 2007 base salary by a specified percentage, and dividing the result by the closing price of the company’s common stock on the grant date:

 

# of RSUs Granted = (2007 Base Salary) (Percentage of Base Salary)
                    Grant Date Common Stock Price

 

The table below shows the percentages used to calculate the awards to the named executive officers. It also shows the estimated value of the awards on the grant date (assuming that the company will perform at target levels over the entire vesting period, and using the closing price of the company’s common stock on the grant date):

 

 

The Compensation Committee believes that the awards are slightly below the median of the utility market, based on survey data provided by Watson Wyatt. The committee set the CEO’s award, as a percentage of salary, more significantly below the median, in part in the interest of internal pay equity, in light of the fact that she is the only officer who participates in our supplemental executive retirement plan, as discussed below.

 

iii. Performance Percentage.  In choosing performance goals for the 2007 awards, we sought to identify the measures that would provide both immediate and long-term benefits for customers and align with our shareholders’

interest in operating the business to their expectations. The performance goals, the measures used to calculate the company’s performance relative to these goals, and the primary rationale for selecting them, are described below.

 

 

The measures established for each of these goals are objective, although under the terms of the grants, the committee may adjust for extraordinary, unusual, or non-recurring events in determining performance results. Examples of such items are: (i) regulatory disallowances, (ii) corporate restructuring, (iii) gains or losses on the disposition of a major asset, (iv) changes in regulatory, tax or accounting regulations or laws, (v) resolution or settlement of litigation and (vi) the effect of a merger. These adjustments, if applicable, would be considered by the committee at the end of the relevant performance period.

 

For details regarding the threshold, target and maximum performance levels assigned for the long-term performance goals, see “Executive Compensation — 2007 Grants of Plan-Based Awards” below.

 

 

1. Overview.  PGE provides retirement benefits, health and welfare benefits, and other standard benefits to all of our executives. Our primary reason for providing these benefits is that they enable us to be competitive in attracting and retaining highly qualified executives. In the sections below we provide a brief description of these benefits as well as further explanation of our reasons for providing them.

 

2. Pension Plan.  All eligible PGE employees, including all of the named executive officers, participate in the company’s pension plan. Benefits for both executive and non-executive employees are based upon the employee’s years of service and the employee’s Final Average Earnings (defined as the highest 60 consecutive monthly earnings during the last 120 months of employment). See the section below entitled “Executive Compensation — Pension Benefits” for additional details regarding benefits available under the pension plan.

 

3. 401(k) Plan.  All named executive officers participate in the company’s 401(k) Plan, which is a broad-based retirement plan to which eligible employees may contribute. Matching contributions for eligible non-union employees equal the lesser of 100% of employee elective contributions or 6% of base pay, subject to limitations under Section 401(a)(17) of the Internal Revenue Code (which caps annual compensation for purposes of calculating company matching contributions at $225,000 for 2007). Information regarding 401(k) matching contributions paid to the named executive officers in 2007 appears in the 2007 Summary Compensation Table under “All Other Compensation.”

 

4. SERP.  The company’s Supplemental Executive Retirement Plan (“SERP”) is a benefit plan that was designed to provide retirement income for executive officers in addition to the income provided under the company’s pension plan. The company originally adopted the SERP in 1983, at a time when plans of this kind were standard elements of executive pay packages. Our reasons for adopting the SERP were to provide key executives with competitive retirement benefits and to protect against reductions in retirement benefits due to tax law limitations on qualified plans. By action of the Board of Directors, the SERP was closed to new participants in 1997. Currently, only Ms. Fowler participates in the plan, as she was the only one of our current executives who was serving as an officer in 1997 when the SERP was closed to new participants. Additional information regarding the

terms of the SERP and the compensation payable under the SERP appears below in the section entitled “Executive Compensation — Termination and Change in Control Benefits.”

 

5. Deferred Compensation Plans.  We maintain the 2005 Management Deferred Compensation Plan (“2005 MDCP”), under which executives and other highly paid employees can defer a portion of their compensation on a pre-tax basis, receive a company matching contribution and earn a guaranteed rate of interest on their account balances until the date of distribution. A number of our executives and other highly paid employees also have account balances under a prior deferred compensation plan (the “1986 MDCP”). Under the 2005 MDCP, participants may elect to defer to later years the payment of up to 80% of their base salary, 100% of their cash incentive compensation and the value of up to 120 hours of cancelled paid time off. Participants also receive a match from the company of 3% of base pay deferred. See the section below entitled “Executive Compensation — Nonqualified Deferred Compensation” for additional information regarding the 2005 MDCP and 1986 MDCP. Above-market earnings on the named executive officers’ balances under both plans are included in amounts under “Change in Pension Value and Nonqualified Deferred Compensation Earnings” in the Summary Compensation Table.

 

6. Severance Benefits.  We sponsor severance benefit plans for both executives and non-executive employees. Under the plans, benefits are paid to eligible employees whose employment is terminated as a result of corporate, departmental, or work group reorganization or similar business circumstances. Under both the executive and non-executive pay plans, employees are eligible to receive up to 52 weeks of base pay, depending on length of service. The purpose of the plans is to provide reasonable severance benefits to employees in light of the fact that employees may have difficulty finding comparable employment quickly following termination of their employment.

 

7. Outplacement Assistance.  We maintain a broad-based plan to cover the cost of outplacement assistance for employees who lose their jobs as a result of corporate, departmental or work group reorganization, including the elimination of a position, or similar business circumstances. See the section below entitled “Executive Compensation — Termination and Change in Control Benefits” for further details.

 

8. Active Employee Health and Welfare Benefits.  Active employee health and welfare benefits such as medical, dental, life insurance and disability coverage are available to the named executive officers and their eligible dependants through the Portland General Electric Company Health and Welfare Plan for Active Employees. Under the plan, eligible employees (generally all non-temporary non-union employees who are regularly scheduled to work at least 20 hours per week), can participate in a variety of company-sponsored programs, including medical, dental and vision coverage; life insurance; accident insurance; long-term disability insurance; a health flexible spending arrangement; an employee assistance program; a pre-paid legal services program; and (as described above) severance programs. The cost of these programs (not including the employee assistance program and severance programs) is shared by participating employees and the company. Employees are allocated a number of “flexdollars” based on their medical coverage selections and employment status (full-time, reduced-hour or part-time), which they may apply to eligible programs, with other costs being covered through before-tax or after-tax employee contributions. Coverage levels under the various programs are comparable to benefits provided by other large companies and are made available on a company-wide basis to all eligible employees regardless of pay levels.

 

9. Post-Retirement Health and Welfare Benefits.  Health and welfare benefits are available to eligible retirees, including the named executive officers, under the Portland General Electric Company Health and Welfare Plan for Inactive Employees. Under the plan, retirees and surviving spouses of active and retired employees can participate in company-sponsored medical and dental plans. Participating employees and the company share the cost of this coverage, with the monthly company contributions ranging from $80 to $200 for an employee and his or her spouse, depending on the age and years of service of the employee and spouse. Company contributions for employee-only coverage ranges from $40 to $100 per month. The company also maintains a Health Reimbursement Arrangement, or HRA, for both union and non-union employees. Under the non-union HRA, PGE credits company contributions and earnings to eligible employees’ HRA accounts in amounts determined each year by the Board of Directors. Upon retirement, amounts in the employee’s HRA account may be used to pay for eligible medical expenses that are not covered by a medical plan or reimbursed through a Health Savings Account. In the event of the employee’s death, the employee’s surviving spouse and eligible dependents may continue drawing on the HRA

account until it is depleted. For 2007, $339.50 was credited to each named executive officer’s account, and 4.91% in earnings was credited to their outstanding balances. Non-union employees, including the named executive officers, are also eligible to receive life insurance coverage equal to the greater of 10% of base pay or $5,000 at no cost, and are eligible to purchase additional life insurance coverage through a company-sponsored group life insurance plan.

 

10. Paid Time Off Benefits.  We provide vacation and other paid holidays to all employees, including the named executive officers. These benefits are comparable to those provided at other large public companies. Executive officers receive two weeks’ annual vacation allowance in addition to amounts normally provided to salaried employees. We believe that this policy helps further executives’ health, productivity and effectiveness. The benefit may also be surrendered in exchange for a cash payment or deferred under our deferred compensation plan for management. Any amounts received by the named executive officers in lieu of paid time off are included in the Summary Compensation Table under “Salary.”

 

11. Perquisites.  In 2007 some of our executive officers received certain common perquisites, including reimbursement for vehicle expenses, parking, financial counseling, and country club dues. Except in the case of payments for country club dues, which are approved by the Compensation Committee on a case-by-case basis, these payments were made pursuant to plans adopted in previous years. We believe that these benefits were generally consistent with the practices of comparable utility companies. Nevertheless, in late 2007 the Compensation Committee terminated all of the company’s executive perquisite plans, other than club dues payments, effective January 1, 2008. These plans provided for reimbursement of certain vehicle expenses, and financial planning and health expenses. The committee’s aim in terminating these plans was to increase the cost-effectiveness of the company’s executive compensation program by eliminating an unnecessary administrative burden. In lieu of amounts previously paid under the terminated plans, the committee approved a one-time salary increase from $11,500 to $15,900 for each of the executive officers. This increase did not increase base salaries above the market median. The committee believes that club memberships can serve a legitimate business need of the company and expects to continue to approve the reimbursement of club dues for certain members of our management team. Executives will also continue to receive parking free of charge at our company headquarters.

 

 

Under the terms of our 2006 Stock Incentive Plan, the Compensation Committee is responsible for all grants of equity awards. Although it has the ability to delegate its authority to make equity grants under the plan, the committee has not done so and is therefore solely responsible for determining the size and frequency of all equity awards.

 

We expect that we will continue to grant performance-based restricted stock units to executive officers and other key employees each year. In addition, discretionary equity awards may be made from time to time to select employees for retention purposes. The company’s average annual “burn rate” (the total number of all equity award shares granted during the fiscal year divided by the total shares outstanding at the end of the fiscal year) was 0.16% from fiscal 2006 through fiscal 2007.

 

The committee has not adopted a formal policy governing the timing of equity awards. However, we have generally made awards to officers and directors at Compensation Committee meetings scheduled to occur shortly after the issuance of a quarterly earnings release, and we expect to continue this practice. We intend to make director awards on or around the date of the company’s annual meeting of shareholders and to make officer awards during the first quarter of the year.

 

 

Section 162(m) of the Internal Revenue Code generally places a limit of $1 million on the compensation that a publicly held corporation may deduct with respect to its CEO and its three next most highly paid executive officers other than the CFO. There are, however, certain exceptions to this limitation. Under one exception, compensation that is paid under a plan that was in place at the time a company becomes publicly held is not subject to the limit for a specified period. Since we became a public company in 2006, all of our incentive awards have qualified for this exemption. Beginning with our 2008 incentive awards, we intend to structure our awards to executives so that they qualify for an exemption under 162(m) for certain “performance-based” compensation, although the committee

reserves the right to make awards that do not qualify for this exemption. One of the requirements for qualifying performance-based awards is that the material terms of a performance goal under which the compensation is paid must be approved by the company’s shareholders. For that reason, we are seeking approval of our amended and restated 2006 Stock Incentive Plan and our 2008 Annual Cash Incentive Master Plan for Executive Officers at the 2008 Annual Meeting of Shareholders. For additional details, see “Proposal 3: Approval of the Portland General Electric Company Amended and Restated 2006 Stock Incentive Plan” and “Proposal 4: Approval of the Portland General Electric Company 2008 Annual Cash Incentive Master Plan for Executive Officers.”

 

 

 

The table below shows the compensation that the company’s named executive officers (the CEO, CFO and three most highly compensated officers other than the CEO and CFO) earned during the year ended December 31, 2007. Information on director compensation is included under the heading “Non-Employee Director Compensation” on pages 10 to 12.

 

 

 

 

The amounts recognized with respect to performance shares were as follows:

 

 

The amounts recognized with respect to performance shares assume the achievement of performance goals that would allow the vesting of 131% and 128% of awarded performance shares for 2007 and 2006, respectively. Amounts recognized with respect to performance shares also assume that that the named executive officers will continue in the employment of the company throughout the performance period. See “Note 5 — Stock Based Compensation” in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2007 for a discussion of certain assumptions underlying our determination of these amounts.

 

The amounts recognized with respect to time restricted shares in 2006 and 2007 were as follows:

 

 

The 2007 awards are discussed in greater detail below in the section entitled “— 2007 Grants of Plan-Based Awards.”

 

 

 

A. Change in Pension Value and Nonqualified Deferred Compensation Earnings.

 

Amounts shown in the “Change in Pension Value and Nonqualified Deferred Compensation” column include the increase in the actuarial present value of the named executive officers’ accumulated benefits under the company’s pension plan and, in the case of Ms. Fowler, the company’s SERP, in 2006 and 2007. Also included are increases or decreases in deferred compensation account balances arising from the pension plan benefit restoration feature of the 1986 MDCP and 2005 MDCP. This feature is explained below in the section entitled “— Pension Benefits — Restoration of Pension Plan Benefits under Management Deferred Compensation Plans.” These amounts are shown below:

 

 

Values for the pension plan assume a retirement age of 65. The 2006 and 2007 increases in value for Ms. Fowler’s SERP account assume a retirement age of 55.4 and 56.4, her age on December 31, 2006 and 2007, respectively. See “Note 2 — Employee Benefits” in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the years ended December 31, 2006 and December 31, 2007 for an explanation of additional assumptions made in calculating the increase in the value of benefits under the pension plan and the SERP.

 

Amounts shown in the “Change in Pension Value and Nonqualified Deferred Compensation” column for 2006 include above-market interest (defined as above 120% of the long-term Applicable Federal Rate) on balances under the 2005 MDCP in the following amounts:

 

 

B. Perquisites and Other Compensation.

 

The figures in the “All Other Compensation” column include amounts paid for the following perquisites and personal benefits: vehicle allowances, business and golf club memberships, financial planning services reimbursements, and small gifts of appreciation, plus tax gross-ups on the value of the gifts. None of the amounts paid for

any perquisite or personal benefit to a named executive officer for 2007 exceeded the greater of $25,000 or 10% of the total amount of perquisites or personal benefits for that officer.

 

The figures in the “All Other Compensation” column also include the value of dividend equivalent rights earned with respect to the named executive officers’ time restricted shares, company contributions under the 2005 MDCP and the following company contributions to the 401(k) Plan:

 

 

 

The following table shows information regarding plan-based awards made to the named executive officers in 2007.

 

 

 

 

A. Non-Equity Incentive Plan Awards.

 

The figures in the columns under “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards” show the range of potential payouts for awards made for 2007 under the 2006 Annual Cash Incentive Master Plan. Actual payouts were determined by the Compensation and Human Resources Committee in February of 2008, and are disclosed in the 2007 Summary Compensation Table in the “Non-Equity Incentive Plan Compensation” column.

 

Each award is calculated by multiplying the officer’s target bonus by:

 

 

The figures shown in the “Threshold” column of the “2007 Grants of Plan-Based Awards” table assume that adjusted net income was 80% of budgeted net income and each named executive officer received a performance rating of “2.” The figures in the “Target” column assume that adjusted net income was 100% of budgeted net income and each named executive officer received a performance rating of “3.” The figures in the “Maximum” column assume that adjusted net income was 120% or more of budgeted net income and each named executive officer received a performance rating of “5.”

 

Details regarding the named executive officers’ target bonuses and the calculation of the funding modifier and performance modifier are set forth below.

 

1. Target Bonuses.  Target bonuses (shown in the table above) are established by multiplying base salary paid in 2007 by the applicable percentage shown below.

 

 

2. Performance Modifier.  The performance modifier is a number from 0 to 1.33 and is based on performance ratings (from 1 to 5) assigned to each of the named executive officers, as shown in the table below:

 

 

The performance ratings are based entirely on quantifiable results relative to five company performance goals. These five goals are: high customer value; electric service power quality and reliability; reliable, reasonably priced power supply; engaged valued workforce; and active corporate responsibility. The table below shows the measures used for each of these goals, the threshold, target and maximum levels for each measure, and the actual results with respect to each measure. As shown on the table, each level of performance (threshold, target and maximum) corresponds to a performance ranking from 2 to 5.