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Portland General Electric Company (NYSE:POR)

Q1 2014 Results Earnings Conference Call

April 29, 2014 11:00 AM ET

Executives

Bill Valach - Director, Investor Relations

Jim Piro - President and CEO

Jim Lobdell - SVP of Finance, CFO and Treasurer

Analysts

Lauren Duke - Deutsche Bank

Neil Mehta - Goldman Sachs

Paul Ridzon - KeyBanc

Brian Russo - Ladenburg Thalmann

Brian Chin - Bank of America Merrill Lynch

Andrew Weisel - Macquarie Capital

Andy Levi - Avon Capital Advisors

Operator

Good morning, everyone, and welcome to Portland General Electric Company First Quarter 2014 Earning Results Conference Call. Today is Tuesday, April 29, 2014. This call is being recorded and, as such, all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. (Operator Instructions).

For opening remarks, I would like to turn the conference over to Portland General Electric's Director of Investor Relations, Mr. Bill Valach. Please go ahead, sir.

Bill Valach

Thank you, Jessica and good morning to everyone. We're very pleased that you are able to join us today. And before we begin our discussion this morning, I would like to remind you that we have prepared a presentation to supplement our discussion, which we will be referencing throughout the call. And the slides we posted on our website this morning at portlandgeneral.com.

Referring to slide 2, I’d also like to make our customary statements regarding Portland General Electric’s written and oral disclosure and commentary that there will be statements in this call that are not based on historical facts and as such constitute forward-looking statements under current laws. These statements are subject to factors that may cause actual results to differ materially from the forward-looking statements made today. For a description of some of the factors that may occur that could cause such differences, the Company, we request that you read our most recent Form 10-K and Form 10-Q.

Portland General Electric’s first quarter earnings were released via our earnings press release and our Form 10-Q for the first quarter of 2014 before the market opened today and our release is available at our website portlandgeneral.com.

The company undertakes no obligations to update publicly any forward-looking statements whether as a result of new information, future events or otherwise and this Safe Harbor statement should be incorporated as part with any transcript of this call.

Moving to slide 3, leading our discussion today are Jim Piro, President and CEO; and Jim Lobdell, Senior Vice President of Finance, CFO and Treasurer. Jim Piro will begin today’s presentation by providing an update on our operational performance, our service area economy, our growth initiatives and finally our regulatory strategy. Then he will turn the call over to Jim Lobdell, who will provide more detail around our first quarter’s results and discuss our outlook for the full year of 2014. Following these prepared remarks, we will then open our lines up and welcome your questions.

Now, it’s my pleasure to turn the call over to Jim Piro. Jim?

Jim Piro

Thanks Bill. Good morning and thank you for joining us. Welcome to Portland General Electric’s first quarter earnings call. As presented on slide 4, we recorded net income of $58 million or $0.73 per diluted share in the first quarter of 2014 compared with a net income of $49 million or $0.65 per diluted share in the first quarter of 2013.

We are seeing strong performance across the company this year. Construction of our three new generating resources is proceeding on time and on budget. We have a clear regulatory strategy in place to recover our capital investment. And our continued focus on operational performance is delivering benefits for our customers and our shareholders.

Now for an operational update on slide 5. For the first quarter, our generating plants operated efficiently, with PGE generation availability at 95%. We continue to maintain top quartile system reliability metrics and our national rankings for customer satisfaction in our top quartile for residential and top decile for general business and key customers.

In 2014 we continued to focus on safe and efficient operations through leveraging new technology and refining business processes. We are making progress with our transmission and distribution transformation project, which includes replacing our work and asset management systems and preparing for the replacement of our mapping and outage management system as well. These upgrades will allow us to operate more efficiently and improve how we meet our customers’ needs.

Now for an update on the economy and our customers. Turning to slide 6, our operating area continues to show positive signs of economic growth and new development. In particular we are seeing higher levels of new connects, strong multifamily construction, continued expansion of high tech and a new Oregon Health and Science University building, which is slated to open this fall. Also, Portland continues to attract software companies that have created additional demand for office space in an already tight commercial real estate market.

Employment indicators also continued to be positive. Oregon created 7,500 new jobs in March, the highest single month since November 2005. The unemployment rate in our core operating area was 6.2% in March, well below the national average and down from 7.2% a year ago.

Over the last year, employment growth has been centered in the construction, leisure and hospitality and manufacturing, which includes food, transpiration and computers and electronics. Our forecast for weather normalized road growth is approximately 1% over 2013 weather-adjusted results when excluding one large paper customer.

This forecast is net of approximately 1.5% of energy efficiency, which we continue to see throughout our service area. When including the large paper company, which is reducing projection this year to implement a more efficient more manufacturing process, our load forecast is approximately flat. However, this reduction has negligible margin impact since the customer is primarily on daily pricing.

Now let me update you on the construction of our new generating resources, which were selected in 2013 through a competitive RFP process based on lease costs, lease risk standards. Slide 7 provides detail on Port Westward Unit 2, our 220 megawatt natural gas capacity plant being built next to our existing Port Westward plant in Clatskanie, Oregon. The project is progressing smoothly with recent work on the central core building, the exhaust systems and the erection of the cooling tower.

With the recent delivery of the 12th engine, all major equipment is now on site and we expect the plant to be operational in the first quarter of 2015. Total capital costs are estimated at $300 million excluding AFDC.

Slide 8, includes details on Tucannon River Wind Farm, a 267 megawatt wind farm located on 20,000 acres in South Eastern Washington. Progress is continuing at the site including road design and construction, pouring concrete foundations for towers and construction of the O&M building and the substation. As we disclosed on March 31, we now expect Tucannon River Wind Farm to be on line between December of this year and the end of the first quarter of 2015. Total capital costs are estimated at $500 million excluding AFDC.

Lastly slide 9 summarizes the Carty Generation Station, a 440 megawatt baseload natural gas plant that is being constructed next to our existing Broadman plant. Land has been leveled at the site and we have started foundation work for the gas turbine. We will continue with other foundations over the next few months as we prepare to receive the heat recovery steam generator in the third quarter and the gas in steam turbines early next year. The plant is expected to be operational in mid 2016 with the total capital cost estimated at $450 million excluding AFDC.

Slide 10 provides the summary of the company’s five year capital expenditure forecast. The new generation projects are expected to result in an average rate base increase of $1.2 billion. This growth along with the base business capital expenditures should meet to a rate base of approximately $4.5 billion in 2017.

Now for a regulatory update on slide 11. In February, we filed a new general rate case, with the 2015 test year, requesting an overall revenue increase of $81 million based on the 10% ROE, a capital structure of 50% debt and 50% equity, and rate base of $3.9 billion. The request includes a small increase in base business cost which would be more than offset by several customer credits that we proposed to begin amortizing in 2015.

The primary focus of this general rate case is cost recovery of Port Westward Unit 2 and Tucannon River Wind Farm. We are requesting customer price changes at the time these resources go on line. Together these projects represent a net incremental revenue requirement increase of $98 million expected to be effective in the first quarter of 2015.

The general rate case is currently in the discovery stage, as we respond to data request from OPUC and other interveners. In late May, we will participate in settlement conferences with intervener testimony following in June. We anticipate that the Commission will issue a final order in mid-December. If the request is approved, the average overall price increase for all components, net of customer credits would be 4.6%.

In addition, on March 31st, we filed a renewable adjustment clause or RAC to defer the next incremental revenue requirements for Tucannon River Wind Farm in the event that the project comes on line in December 14.

This mechanism allows us to mitigate regulatory lag between the project on line date and the date of customer price changes.

Now, I would like to turn the call over to Jim Lobdell who will discuss our financial results for the first quarter and update our forecast for the remainder of 2014. Jim?

Jim Lobdell

Thank you Jim. Turning to slide 12, as Jim mentioned, for the first quarter of 2014, we recorded net income of $58 million or $0.73 per diluted share compared to net income of $49 million or $0.65 per diluted share in the first quarter of 2013. The increase in net income was closer alignment of revenues in operating expenses as authorized in the 2014 general rate case and an increase in the allowance for funds used during construction for the three new generating resources. In addition, the increase in earnings per share was slightly offset by an increase in the average shares outstanding quarter-over-quarter, as a result of a total issuance of 2.4 million shares in June and August in connection with our public offering in 2013.

Moving slide 13, total revenues for the first quarter of 2014, increased $20 million to $493 million driven by the price increase on January 1. This impact was partially offset by a $7 million decrease related lower energy deliveries, a 2.5% decline in residential energy deliveries accounts for the majority of the revenue decrease.

However, since the decline was not weather related our decoupling mechanism enabled us to recover most of the lost margin. Purchase power and fuel expense decreased $8 million quarter-over-quarter driven by a decline in total system load, a slight decrease in the average variable power costs per megawatt hour.

Below normal hydro conditions early in this year turned around a late and we're forecasted to be at or slightly above normal. For the first quarter of 2014 net variable power costs were $3 million below the annual power cost update [to our] baseline, compared to $1 million below the baseline for the first quarter of last year.

PGE’s sources of generation were comparable quarter-over-quarter. Energy received from PGE’s owned and contracted hydro resources increased 4% while energy received by PGE’s owned wind resources decreased 11%. Coal generation was slightly down as Colstrip Unit 4 was still offline during most of January 2014.

Moving on to slide 14, production, distribution and administrative costs totaled $108 million for the first quarter of 2014, $3 million higher than a year ago. This increase was largely due to increased storm and service restoration costs and higher operations expense due to an increase in our ownership of the Boardman coal plant of 65% to 80% as of December 31, 2013. Overall we are on track to be within our full year operations and maintenance forecast of $480 million to $500 million.

Depreciation and amortization expense increased $13 million quarter-over-quarter driven primarily by two factors; $5 million related to overall increase in capital additions and $8 million related to the timing of the deferral amortization of costs of four capital projects. Interest expense was comparable quarter-over-quarter a $3 million increase from a higher average balance of long-term debt outstanding was entirely offset by an increase in AFDC from borrowed funds.

Other income net increased $2 million quarter-over-quarter. The $4 million AFDC from equity funds was partially offset by a decrease in earnings on our non-qualified benefit plan trust assets. Lastly, income taxes increased $3 million quarter-over-quarter. In addition to higher expected taxable income in 2014, this increase was driven by a decrease in production tax credit.

Turing to slide 15. We continue to maintain a solid balance sheet, including adequate liquidity in investment grade credit ratings. As of March 31, 2014, we had $764 million in cash and available credit and a common equity ratio of 49.2%. Total capital expenditures for the first quarter of 2014 were $185 million including $110 million for the three new generating resources.

On our fourth quarter earnings call in February, we disclosed that while our guidance was based on issuing the remaining 10.4 million shares under the equity forward sale agreement in the first half of 2014, we're also exploring alternative financing opportunities.

As a results, we're now pursuing a financing plan under which we delay equity issuances, under the equity forward sale agreement until the first half of 2015. In May, we expect to entering to an 18 months unsecured loan agreement to borrow approximately $305 million. We also anticipate executing a bond purchase agreement to issue approximately $280 million of First Mortgage Bonds with draws delayed to the second half of 2014.

In financings or subject to receiving OPUC approvals increased our authority to issue long-term debt by $300 million to a total of up to $700 million. This revise financing plan allows us to finance our new generating resources in a more cost effective way.

Moving to slide 16. We are increasing our full year 2014 earnings guidance by $0.05 to $2.05 to $2.20 diluted shares driven by the delay of issuing equity under the forward sale agreement. Our other guidance assumption remains largely unchanged is detailed on the slide. Back to you Jim.

Jim Piro

Thanks. In 2014, we are focused on our initiatives that deliver value to our customers and our shareholders including completion construction of our three new generating resources on time and on budget, achieving fair and reasonable results in our 2015 general rate case and continually operating our systems efficiently rate and effectively.

Now operator, we are ready for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question will come from Lauren Duke with Deutsche Bank.

Lauren Duke - Deutsche Bank

Hi, good morning.

Jim Piro

Good morning, Lauren.

Jim Lobdell

Good morning Lauren.

Lauren Duke - Deutsche Bank

Can you talk a little bit about what happened with residential sales, you mentioned the pay per customer kind of hurting your industrial sales but not hurting the margin, but what was what did you see on the residential side in the quarter and what makes you feel more comfortable about the rest of the year?

Jim Lobdell

Yes. Lauren, as we look at the residential customers, it is cyclical, it is weather adjusted. You find that the building cycles that are going on out there are delaying, so we are seeing little bit less because of that. Energy efficiency continues to been influenced on seeing those load. But we are continuing to see an increase in the new connect especially as we look at multi family. I was actually really surprised that the number of new connection multifamily perspective. So, you got to keep in mind that we are decoupled associated with residential load and we're still seeing some relative growth associated with it. But as we've always pointed out in our earnings guidance, overall from a load perspective, we're not expecting much to come out of residential, but the majority is going to come out of the commercial and the industrial sectors.

Lauren Duke - Deutsche Bank

Okay, thanks. And then, lastly, can you just update us on some of the more generic proceedings at the Oregon PUC on pension and then the PCAM mechanism that you guys and PacifiCorp have been supporting?

Jim Lobdell

Yes, I can do that. On the pension docket not a lot has happened right now regarding that we've got some pre-hearing briefs that are due later this month and then some cross examination. So there is still a bit to be seen. We've got to keep in mind there is multiple utilities that are involved in that docket. I have to say, we don't always see everything in the same way.

And regarding the PCAM, we had asked the Commission about opening up a docket, at some earned investigations regarding PCAM. And when we first approach that, we did it from the perspective of looking at the entire mechanism.

And talking to the stakeholders and the process we have subsequently asked to narrow that discussion at this particular point in time to just looking at compliance associated with the RPS standards in the state and stick to our ability to [required process] of meeting that standard. So, more to come as far as what's going on there. [We have just done a] workshop last month in regard to it as well. But right now there is no schedule set.

Lauren Duke - Deutsche Bank

Do you think we could see resolution in either of those cases in 2014 or should we be thinking of that more of a 2015 issue?

Jim Piro

I would, to be honest with [Lauren], I’d say that’s more at a 2015 at this particular point in time given the fact that there is no schedule set for it.

Lauren Duke - Deutsche Bank

Okay, great. Thanks guys.

Jim Piro

Thanks Lauren.

Operator

And our next question will come from Neil Mehta from Goldman Sachs.

Jim Piro

Good morning Neil.

Jim Lobdell

Hey Neil.

Neil Mehta - Goldman Sachs

Hey this might be early here, but can you talk through the way you’re thinking about capital allocation. You are going to start throwing off significant free cash flow in 2015 and that’s going to accelerate in 2016. So, what are the different options you have in terms of allocating that excess cash?

Jim Lobdell

Good question, Neil. As we look through this cycle, we’ll finish Carty in the 2016 timeframe, we will be starting the next another IRP, integrated resource planning process probably starting late this year and going into next year that really deal with a couple of issues one is the replacement of Broadman, which retires in 2020. We have the next 5% renewal portfolio standard requirement that hits us around 2020 to 2021.

We are also looking at having to replace our billing system and we’re working very closely with the commission on getting kind of alignment around that replacement of that billing system which is getting over 12 years old. So, there is a number of projects still ahead of us to look at. Capacity is becoming more gearing the regions, so we may need to add additional capacity resources.

So, those are all things that are on our radar screen at this point. Obviously we have to go through the process, go through the integrated resource plan like we did before, develop an action plan, like we have to do in RFP. But I think we have good options to potentially compete in those RFPs and we’ll just have to play it out.

So I think we're still committed to meeting our customers’ energy needs with firm long-term resources that control the cost and reduce volatility. We will have to go through the process; there will be a fair amount of conversation on how we replace Boardman that’s over 400 megawatts for us on our share event. So, it’s a big slog of energy that we are going have to look at replacing.

So, those are the options ahead of us so those would probably happen in the 2018 to 2021 timeframe. So, I think as we look ahead, there is places where we can deploy capital that will add value for both our customers and our shareholders.

Neil Mehta - Goldman Sachs

Got it. And in the guidance, you're still assuming normal hydro conditions. So, can you talk about where you are versus normal in terms of the hydro at the rivers and sites that matter to you and what that could mean relative to the PCAM?

Jim Piro

Yes Neil, on the (inaudible) as you know the river forecast center it is 110 everybody was pointing out to us earlier in the year how that number was way down especially down at the lower end of the system where we started out in January at 80% and right now we are at about 104% because of miracle March.

But again the mid-Columbia River is looking very healthy for the year. Clackamas is around 91%, it’s looking pretty good and then the Deschutes is almost up to 100%, it’s a 97%. We as far as our generation our capability to take energy out of those river systems everything looks good, we do have a bit of a reduction coming out of the mid-Columbia because of the – facility. So, we are down a little bit there, but otherwise everything else looks pretty healthy.

Jim Lobdell

And one thing you have to watch now is that we got a pretty snow pack; the question is how does that snow pack come off? We were actually seeing snow yesterday. So, what we like to see is a very slow warming so that that shows up in July and August, but if you get a very heavy heat way over something it’s brings about quicker that obviously affects energy prices and the value that we get on these systems. So now, we’re just watching to see how to run off comes up which can affect the value of that.

Neil Mehta - Goldman Sachs

Makes sense and last question is on AFDC. Embedded in guidance, how much AFDC is in there this year? And can you talk about the trajectory post 2014 as assets come into service?

Jim Piro

Yes Neil, we typically don't provide any guidance around AFDC, but if you could just think about the amount of capital that we've got to add, if you look at the CapEx structure or the CapEx table that we have provided that kind of gives you some guidance. And if you have to look inside AFDC then it’s pretty much one-thirds, two-thirds equity. So that's all we can provide you at this bigger point in time. The key is that these payments move around all over the place and we've seen a bit of that. So that's why we particularly don't provide any type guidance.

Neil Mehta - Goldman Sachs

All right, thanks guys.

Jim Piro

Yes, thanks Neil.

Operator

(Operator Instructions). We'll now go to Paul Ridzon from KeyBanc.

Paul Ridzon - KeyBanc

Good morning.

Jim Piro

Good morning, Paul.

Paul Ridzon - KeyBanc

Can you just review what type of assumption is evolved around the drawdown of the equity, originally first half of ‘14, correct?

Jim Piro

Yes. Go ahead.

Paul Ridzon - KeyBanc

At the year-end call you said that you might be able to delay that for the second half of '14?

Jim Piro

Yes. What we've got going on there is if you recall back to 2013, we had the write-off of the Cascade Crossing investment, which reduced our bonding capability. And so, as a result of that, we decided that we were going to pull down the equity forward in the first half of 2014 and then go to the first mortgage bond market in the second half of 2014.

Based on the factor that question Neil was asking, movement of cash flows or CapEx expenditures, we’ve now been able to look at it and say there is a more cost effective way to finance these resources and mitigate some of our interest rate risk at the same time by going out and doing a unsecured bank loan in the first half of 2014. It looks like now is instead of doing the equity -- we are actually going to push that out to the first half of ‘15 in order to be able to provide the financing associated with the capital expenditures for ‘14, we’ll do the bank loan in the first half of the year, first mortgage bonds in the second half. And then once we pull down on net equity forward in ‘15, we’ll use that to pay off the bank loan. Hopefully that gives you the detail you’re looking for?

Paul Ridzon - KeyBanc

You said there will be no new equity issue in ‘14?

Jim Lobdell

No, we’ve got all the equity that we need under that equity forward agreement.

Paul Ridzon - KeyBanc

I just have to be a little more accretive than a nickel particularly with the depreciation drop that you outlined, are there other offsets?

Jim Piro

Not that I’m aware of, not in my math. There would be lower AFDC because of the fact that the interest cost associated with the bank line are going to be lower than what we would otherwise if incurred, but that’s not a nickel.

Paul Ridzon - KeyBanc

And then when this quarter normal or was it particularly strong last year, what were the dynamics?

Jim Lobdell

Well, overall last year wind turned out to be pretty much on target as far as the volume. But the issue was the same thing that we're seeing this year is the wind is just really not blowing at the right time. So, we ended up getting power out of the wind farms at the lower cost hours versus the higher priced hours that we expected.

Jim Piro

Most have lower the rents…

Jim Lobdell

Some were lower than that; we're not that much down.

Jim Piro

We're 11% lower this year on the wind.

Jim Lobdell

That's right.

Jim Piro

So, we're down on wind a little bit in the first quarter and obviously it turns out the rest of the year.

Paul Ridzon - KeyBanc

And then just after you filed your rate case, was there any notable public reaction or anything in the press?

Jim Lobdell

No, not really. I think when we went out and talked to customers and we did some of the survey work before we filed it, I think given that this was around adding new resources to meet our customers’ need. And having two significant resources, one the renewable resource plus the capacity resource to really support the wind resources. I think customers understand that new resources are going to cost a little bit more and 4.6% increase was not very large considering we're adding two new large resources to our portfolio.

So, I think overall the reaction has been very almost minimal in terms of customers’ reaction; obviously we don't like to raise prices. It was nice having the credit to offset that price increase to minimize the impact. So no, we haven't had much reaction at all.

Paul Ridzon - KeyBanc

Great, thank you very much.

Operator

We'll now to go Brian Russo from Ladenburg Thalmann.

Brian Russo - Ladenburg Thalmann

Hi, good morning.

Jim Lobdell

Good morning Brian.

Brian Russo - Ladenburg Thalmann

Could you just remind us what the effective tax is in the 2014 guidance?

Jim Lobdell

The effective tax rate in the guidance is about 25%. I'm giving a range of around 25% to 30% is what’s in there.

Brian Russo - Ladenburg Thalmann

Okay, great. And in terms of PCAM and how the capacity factors and timing of dispatch per wind, was there any negative impact on the PCAM due to the variability of wind in the first quarter?

Jim Piro

Yes, because we were below our AUT filings in terms of what we expected. So, it goes to the calculation in terms of where we are, but we're still within the deadband I think is where we still are.

Jim Lobdell

We are still in the deadband.

Jim Piro

Yes. So, we're still in the deadband, but we do -- that does affect the calculation and as we are below our AUT filing now they would have a negative effect on the results.

Brian Russo - Ladenburg Thalmann

Is there any way to isolate kind of the impact on that, I’m just trying to get a sense of the request for investigation into the PCAM on the wind cost and what type of financial impact a favorable decision could actually have?

Jim Piro

Well, a couple of things there, Brian. First of all in last rate case, we did adjust the forecast for wind and went to an updated forecast using some historic average, as well as the forecast from what we are seeing from the project. We would hopefully continue doing that showing that forecast up overtime. So there might be a lag effect of that.

And what we are asking for in the rate case and the PCAM related to the wind resources to track it directly. Now I think that would be on a forward basis, it probably wouldn’t change this year’s results. This year would probably go through the PCAM, but it would affect 2015 if we were to get this mechanism. And so, it would be a better match, I think argument is it’s kind of go through the results here in the AUT filing or the actual setting of prices.

But to do it on an actual basis in the year would be a better matching of both good results. So, I don’t think anything this year, but it might affect 2015 in terms of getting better alignment around our generation and our cost.

Jim Lobdell

Yes. The other thing I will add to that Brian is that last year the lost value of energy because of [bullet] wrong time was about $4 million if I remember correctly. So, we would hope in the future if this mechanism was in place, we would be able to recapture that and then getting the adjustments in the production tax credit as Jim pointed out.

Brian Russo - Ladenburg Thalmann

Okay, great. And then lastly, it just seems with the delay and the settlement of the forward shares in addition to $5 million of lower D&A, that there would be a little more upside sensitivity to the midpoint of your guidance. I’m just wondering, are you guys just being conservative because you’re only one quarter into the year, or are there any offsets that weren’t noticeable by us?

Jim Lobdell

There is the D&A has nothing to do with actually operations, it’s actually just kind of a geographical change inside the financial statements. And no, I don’t know of any other offsets other than what we have mentioned already.

Brian Russo - Ladenburg Thalmann

Okay, thank you very much.

Jim Piro

Thanks Brian.

Operator

Our next question comes from Brian Chin from Bank of America Merrill Lynch.

Jim Piro

Good morning Brian.

Jim Lobdell

Good morning Brian.

Brian Chin - Bank of America Merrill Lynch

Good morning, thanks for taking my question. Just a general question on the IRP. If I understand the 2013 IRP, you’ll likely get the acknowledgment from the OPUC sometime around September, maybe a little after September of this year. In your slide deck comments, you've stated while usually the Commission gives considerable weight to actions that are consistent with the acknowledged IRP, is there sort of like a hard line there where the Commission will likely give considerable weight to the IRP before it even acknowledges it, or is there some sort of defining event, this September 2014 acknowledgement, is that a defining event where we might get a lot more commission towards formal approvals or better waiting of the outlook for different projects following the acknowledgement of this IRP?

Jim Piro

So this new IRP doesn't really relates to the last IRP in the sense that the last IRP addressed the need for the new resources, which we went forward and did an RFP on and we're now under construction. So that whole cycle is part of that action plan which really goes back to 2009, when we filed that integrated resource plan. So that's all been completed, it will be a topic of the rate case that we currently before the Commission on prudency. But we believe that Commission’s order and acknowledgment represents a high standard for that prudency review. And the fact that we did an RFP and the fact that we had independent evaluator watching know over the process, we feel pretty good about that entire process.

This latest IRP that we filed, does not have many resource actions, continues our commitment to energy efficiency, to demand response program, to more distributed generation and a commitment to do a lot of studies in preparation for the next IRP that is beyond this one. So, the commission will hopefully reach decision later this year September, we hope on acknowledging the action plan that’s in that IRP, but it's pretty minimal in terms of financial impacts or opportunities for the company, it's really continuing our commitment to energy efficiency and the things I mentioned and doing the studies. And so we will take that acknowledgement as guidance as we prepare for the next IRP, which we will start working on later this year and file probably in the 2015 timeframe.

That IRP will have a lot of potential resource actions related to both new renewable resources and addressing the shutdown of Boardman which will occur at the end of 2020. So that’s kind of where we are in the cycle. So this is -- we don’t expect a lot of as Commission orders, we do expect them to acknowledge the action plan and comment on the studies we are doing but I don’t think it has any -- there is no major resource procedures in this IRP that is currently default at Commission, is that helpful?

Brian Chin - Bank of America Merrill Lynch

Okay. Yes, it is and that makes a lot of sense. I guess as we look forward to the next draft IRP that you will be filing, any sort of lessons learned from the last RFP process? I mean obviously there is a little bit of hiccup there on different stakeholders are doing different things in terms of the outcome and you guys defended your position very well. Does that give us any lessons in terms of how the company should conduct future RFP processes to make the process more [stable]?

Jim Piro

No, we actually feel really good about the RFP process that we conducted. I think it was an open and transparent process. If you read the independent evaluator’s report, I think he showed that the company was very fair in its evaluation and it was a very balanced approach. So I feel like we did everything right, and the results prove themselves out to the process. There is always going to be disappointed bidders but our job is to make sure that we run a process that’s open and transparent and that we have someone independently observing.

So, I think that’s what we learned through the entire process that we shift all the process because it is -- gives us creditability of what we are trying to do and make sure that we deliver the least cost, lowest risk project for our customers. So we probably follow the same process again.

Brian Chin - Bank of America Merrill Lynch

Very good, thank you very much.

Jim Piro

Thank you.

Operator

(Operator Instructions). We will now go to Andrew Weisel from Macquarie Capital.

Andrew Weisel - Macquarie Capital

Thanks, good morning guys.

Jim Piro

Good morning, Andrew.

Andrew Weisel - Macquarie Capital

I want to go back to the financing real quickly. In terms of the interest expense from the bank loan in the First Mortgage, what sort of ballpark rates that you are assuming?

Jim Lobdell

We're expecting kind of short term rates as you look at the bank loans. So, it's probably around 1%. In the First Mortgage bonds, you're probably looking at probably around the 4.5% range.

Andrew Weisel - Macquarie Capital

Okay. And you said the bank loan, you plan to repay about a year from now, when you settle the equity, is that right?

Jim Lobdell

Exactly.

Andrew Weisel - Macquarie Capital

Okay, great. My next question is the change to the CapEx plan for Carty. What was the reason for reducing or postponing, I guess, a lot of the spend from this year to next year?

Jim Lobdell

Yes Andrew, I have to get back to you. I mean we have slight shift in payments, the things are transpiring at the project, but nothing material or nothing outside of our projected plan.

Jim Piro

Yes. We're still pretty much on budget and on schedule.

Andrew Weisel - Macquarie Capital

There was a shift of about $40 million or $50 million from year to year, nothing specific you can call out now?

Jim Lobdell

No. Well let’s take a look at it and get back.

Andrew Weisel - Macquarie Capital

Okay, great. And then just my last question, after you increased your ownership of Boardman, I'm a little bit surprised that the generation mix was basically flat year-over-year. Any high-level thing you can call out, why coal wasn't a bigger share of the sources of power?

Jim Piro

Well in the first quarter, we done a coal strip, unit 4 was down for the first month in January. So that might have offset the increase in Boardman. So, that's probably, why I seen about the same.

Andrew Weisel - Macquarie Capital

That make sense. Thank you very much.

Jim Lobdell

Thanks Andrew.

Operator

And we'll now go to Andy Levi from Avon Capital Advisors.

Jim Lobdell

Good morning Andy.

Jim Piro

Good morning Andy.

Andy Levi - Avon Capital Advisors

Good morning guys. How are you doing?

Jim Lobdell

Great. Thanks.

Andy Levi - Avon Capital Advisors

It seems you might echo here. Just on the financing that you did, what are the benefits to customers, I believe there is some?

Jim Piro

So we haven’t done it yet, we are still getting approval just to be clear, but the bottom-line as we reduce our AFDC on the projects which minimizes the cost, the overall rate base additions to our customers. So to be slightly lower, it’s a benefit, basically I have lower interest expense that run through AFDC.

Andy Levi - Avon Capital Advisors

Okay. So there should be some type of rate benefit.

Jim Piro

The benefit there keeps our cost low and keeps our rate base impactful and shows that we are being prudent and trying to take actions to keep cost down for customers, which is why we’ve always been a real supporter of owning these projects, because we make our estimates in the projects and then things turnout that -- turnout to be even better than what we expected. One of our analyses assumes average cost, a long term cost of capital and things like that. We’ve had a low interest rate environment, we’ve been able to take advantage of that. For example on Tucannon River Wind Farm, there was a huge tax reduction for sales tax, what you been able to take advantage and deliver to customers, and so there is things that come on our way on these projects that were able to take advantage of and pass that benefit on the customers and keep their prices lower.

So those of things we all try to do, do improve the impacts or reduce the impacts for our customers.

Andy Levi - Avon Capital Advisors

Great. And then just two more questions. What was the earnings impact if there was anything significant on just the one month’s additional average to coal strip?

Jim Lobdell

It was 1.5 million of replacement power cost.

Andy Levi - Avon Capital Advisors

And that’s pre-tax, right?

Jim Lobdell

Yes.

Andy Levi - Avon Capital Advisors

All right.

Jim Lobdell

Yes.

Andy Levi - Avon Capital Advisors4

And then finally just when do you think the board should kind of take a look at the dividend relative to your construction program?

Jim Piro

So what we do in the company is each May, in our May annual meeting, we do a dividend review and look at our dividends and relative to our earnings, the Board is committed to being competitive with the dividend. There is restriction in the equity forward agreement right now that doesn’t allow us to change it more than what we have changed it historically. I would say the Board is committed to growing the dividend and as we deliver earnings growth, we want to grow that dividend to reward our shareholders for being part of this opportunity. So, we will do that. This year I would not expect anything out of the ordinary other than what we have been historic but we are -- I would tell you the Board is very interested in rewarding our shareholders and having that dividend grow as we grow our earnings and add value to both our customers and our shareholders.

Andy Levi - Avon Capital Advisors

So, the dividend -- I’m sorry, the equity forward has to be completely drawn down before the policy can change? Is that…

Jim Piro

Yes. We can make historic increases based on our historic actions but nothing outside of that.

Andy Levi - Avon Capital Advisors

Okay. And then when will -- in your forecast, or what you’ve articulated, when will the forward be completely drawn down, is that at the beginning of next year?

Jim Lobdell

It will be completely drawn down by June of next of year, we had a two year window on it.

Andy Levi - Avon Capital Advisors

Okay. So, Jim, so you say typically in May but you may not be drawn down until the end of June. Is it possible or should we not think this way that as your two plants, your peaker comes online and your wind plant comes online that we may see a deviation to the May timeframe on dividend consideration, considering that your June timeframe on drawing down the forward or we have to wait till May of 2016?

Jim Piro

No, I will look at next year, my guess is we’ll probably fully draw that by the time we make a dividend decision. As we said by June that’s the requirement under the agreement, given our capital needs and our spend, it’s going to be close, but I think we'll take that all in the consideration as we make that decision.

Andy Levi - Avon Capital Advisors

Okay. So…

Jim Piro

So I can't handicap it for you, but I think we'll generally try to address that and be in a place where we can address the dividend in May of next year.

Andy Levi - Avon Capital Advisors

Okay. So it's possible that you could have drawdown everything by the time the dividend decision comes up?

Jim Piro

Yes.

Andy Levi - Avon Capital Advisors

Okay, cool. Thank you.

Jim Piro

Thank you. Have a nice day.

Operator

And it appears there are no further questions. I'll turn the conference back over to Jim Piro for any additional or closing remarks.

Jim Piro

Thank you, again. We appreciate your interest in Portland General Electric and invite you to join us when we report our second quarter 2014 results in late July. Thanks a lot and have a great day.

Operator

This does conclude our presentation for today. Thank you for your participation.

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