On behalf of the Board of Directors, we are pleased to invite you to Portland General Electric Company’s 20072008 Annual Meeting of Shareholders. The meeting will be held at 1:10:00 p.m.a.m. Pacific Time on Wednesday, May 2, 2007,7, 2008, at the Conference Center Auditorium located at Two World Trade Center, 12125 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 16, 200714, 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. If you

This year, we are pleased to be among the holderfirst group of recordcompanies to take advantage of your shares, younew Securities and Exchange Commission rules that allow companies to furnish proxy materials to their shareholders on the Internet. We believe the new rules will find enclosed a proxy cardallow us to provide our shareholders with the information they need, while lowering the costs of delivery and an envelope in which to returnreducing the card. Please mark, date and sign the proxy card and return it using the enclosed, postage-paid envelope. Returning your proxy card will ensure that your shares will be voted at theenvironmental impact of our annual meeting according to your instructions, but it does not deprive you of your right to attend the meeting and vote in person.meeting.

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

The 20072008 Annual Meeting of Shareholders of Portland General Electric Company will be held at the Conference Center Auditorium located at Two World Trade Center, 12125 SW Salmon Street, Portland, Oregon, 97204 at 1:10:00 p.m.a.m. Pacific Time on Wednesday, May 2, 2007.7, 2008.

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

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 16, 200714, 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 the instructions on the enclosed proxy card 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 possiblepossible. You can vote by signing, dating and mailingproxy over the enclosed proxy cardInternet, by mail or by telephone by following the instructions provided in the enclosed postage-paid envelope.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.

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 20072008 Annual Meeting of Shareholders. The meeting will be held at the Conference Center Auditorium located at Two World Trade Center, 12125 SW Salmon Street, Portland, Oregon at 1:10:00 p.m.a.m. Pacific Time on Wednesday, May 2, 2007.7, 2008. This proxy statement and the enclosed proxy card and 20062007 Annual Report are being mailed to shareholders, or made available electronically, on or about April 2, 2007.March 24, 2008.

Holders of PGE common stock as of the close of business on the record date, March 16, 2007,14, 2008, may vote at the 20072008 annual meeting, either in person or by proxy. As of the close of business on March 16, 2007,14, 2008, there were 62,504,76762,529,784 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.

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

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

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. This proxy statement and the enclosed proxy card and 2006 Annual Report have been sent directly to you.

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. The proxy statement, 2006 Annual Report and other materialsAs the beneficial owner of those shares, you have been forwardedthe right to you bydirect your broker, banktrustee or other nominee who is the

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.

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:

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 employee stock purchase plan.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 this proposal,these proposals, your shares will not be voted on this proposal.these proposals.

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.

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 thestreet name, of your broker, bank or other nominee, 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.

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

On March 16, 200714, 2008 there were 62,504,76762,529,784 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.officers and persons who beneficially own more than 10% of our common stock. To the best of our knowledge, all of the filings required filingsby 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 2006.2008.

Also on April 3, 2006, the new PGE common stock wasis listed on the New York Stock Exchange. In connection with that listing, our board has implemented a new corporate governance program, including the adoption of charters

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. A copy and summary description of the plan and a form of grant agreement were included in ourForm 8-K filed with the Securities and Exchange Commission on February 22, 2006.

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 boardBoard of directorsDirectors 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 andnot-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 attached to this proxy statement as Appendix A and is published as an addendum to our Corporate Governance Guidelines, which are available under the “Investors — Corporate Governance” section of our website atwww.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

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 thatsuch 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 these committeesthe 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 atwww.portlandgeneral.com.

The table below provides 2006 membership and meeting information for each of the committees.

The Audit Committee met fiveeight times in 2006.2007. 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 each member of the Audit Committee is anMr. Dietzler and Ms. Pope are “audit committee financial expert”experts” as that term is defined under SEC rules.rules of the Securities and Exchange Commission.

The Nominating and Corporate Governance Committee met twofive times in 2006.2007. 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.

The Compensation and Human Resources Committee met eight times in 2006.2007. Under its charter, the committee must meet at least two times annually. The committee’s responsibilities include:

The committee is supported in its work by members of our Compensation and Benefits Department. Senior management’sThe 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 senior managementour 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.

The Finance Committee met oncesix times in 2006.2007. 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 Business 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 Business 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

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 five of theall six members of the Board of Trustees are PGE employees, one of whom, Joe A. McArthur, Vice President Distribution,Transmission and Customer Service, is an executive officer. Three of the five PGE employees were appointed by PGE and two were appointed by the union. 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 Business 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 Business 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.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 committee has met and held discussions with management and Deloitte regarding the fair and complete presentation of ourthe company’s financial results and the assessmenteffectiveness of ourthe company’s internal control over financial reporting. The committee has discussed with Deloitte significant accounting policies we applythat the company applies in ourits financial statements, as well as alternative treatments. The committee also discussed with ourthe company’s internal auditor and Deloitte the overall scope and plans for their respective audits.

Management represented to the committee that ourthe 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 the independent registered public accounting firm. The committee reviewed and discussed our policies with respect to risk assessment and risk management.Deloitte.

The committee has reviewed and discussed with Deloitte all communications required by generally accepted auditing standards, including those described in Statement on Auditing Standards No. 61, as amended (“Communication with Audit Committees”) as adopted by the Public Company Accounting Oversight Board in Rule 3200T.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 committee’sreview, discussions with management and Deloitte and its review of the representations of management and Deloitte’s communications to the Audit Committee,referenced above, the committee recommended to the Board of Directors that the audited consolidated financial statements be included in ourthe company’s Annual Report onForm 10-K for the fiscal year ended December 31, 20062007 for filing with the Securities and Exchange Commission.

Mr. Brownis 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. Brownis a member of the Nominating and Corporate Governance Committee.

David A. Dietzler, age 63,64, director since January 2006

Mr. Dietzlerhas been a certified public accountant for nearly 3738 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. Dietzleris Chairman of the Audit Committee and a member of the Nominating and Corporate Governance Committee.

The benefits to be received by our employees under the ESPP, or whichBenefits that would have been distributable during 2006received 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 the ESPP been in effect for the last fiscal year are not determinable becauseand would depend upon both the benefits dependCompensation 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.

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.

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 basedand/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 future purchasesany 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 participantsthe committee.

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.

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 pricesvalue equal to the amount that would have been received upon the exercise or payment of ourthe 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.

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.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

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.”

The following table provides information as of December 31, 2006,2007, for the Portland General Electric Company 2006 Stock Incentive Plan which isand the only compensation plan currently maintained by the company under which equity securities may be issued.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 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 withprepared by the company’s management and, based on that review and discussion, the committeeCompensation and Human Resources Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

The Compensation and Human Resources Committee began(“Compensation Committee”) is responsible for overseeing the processcompensation of setting 2006all 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 by reviewingplans and adjustingprograms and makes any changes to the designplans 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 compensation policies. Basedmanagement team provided advice with respect to the development of performance goals for the executive incentive awards, and the company’s CEO provided input on market researchfinancial and advice provided byoperating results and the committee’sindividual 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 as well as input from senior management,(“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 philosophyconsultants 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 elements:principles:

The surveys that Watson Wyatt relied on in a way that advances the interests of shareholders while ensuring that we are able to attract and retain highly qualified executives. We attempt to advance these objectives by designing a program that:developing its market comparisons were:

Our standard2007 executive compensation program includespay packages included the following components:

Each of these components is intended to formforms part of a pay package that is competitive, thereby enabling usthe company to attract and retain qualified executives. Annual cash incentiveIncentive awards and long-term incentive awards also provide incentives thatare structured to further align executives’ interests with shareholderimportant stakeholder interests and to advance the company’s goals.

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 long-termannual company performance in key financial, strategic and operational areas. Annual cash incentive awards should generally be atare 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 nearcorporate goals. Each year, the 50th percentileCompensation Committee establishes performance goals and a formula for calculating awards based on the extent to which the goals are achieved. Following the end of relevant market reference points. Actual compensation may vary, however, dependingthe 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 our financial performance, an executive’stwo factors: the company’s net income relative to budgeted net income and individual performance and considerationsratings for each of internal pay equity.

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

i. Target Bonuses.The committee identifiedtarget 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 peer group usingCEO and our CFO were higher as a percentage of base salary — 75% and 50%, respectively, compared with 45% for the following criteria: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.