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Portland General Electric Company (NYSE:POR)

Q3 2010 Earnings Call

October 28, 2010 11:00 a.m. ET

Executives

Bill Valach - Director of IR

Jim Piro - President & CEO

Maria Pope - SVP of Finance, CFO & Treasurer

Analysts

Brian Russo - Ladenburg Thalmann

Jennifer Sokoloff – McAdams, Wright, Ragen

James Bellessa – DA Davidson & Co.

Sarah Pegors – Wells Fargo

Operator

Good morning, everyone and welcome to Portland General Electric Company third quarter 2010 earnings results conference call. Today is Thursday, October 28, 2010.

This call is being recorded and as such all lines has 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 call over to Portland General Electric's Director of Investor Relations, Mr. Bill Valach. Please go ahead, sir.

Bill Valach

Thank you, Catina, and good morning everyone. We are very pleased that you are able to join us today.

Before we begin our discussion this morning I'd like to make our customary statements regarding Portland General Electric's written and oral and disclosures and commentary. That there will be statements in this call that are not based on the historical facts and as such constitute forward-looking statements under current law.

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 requests that you read our most recent Form 10-K and Form 10-Q's.

The Form 10-Q for the third quarter of 2010 was available this morning at portlandgeneral.com. The company undertakes no obligation 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 of any transcript of this call.

Portland General Electric's second quarter earnings were released before the market opened today and the release is also available at portlandgeneral.com.

Leading our discussion today are Jim Piro, President and CEO; and Maria Pope, Senior Vice President of Finance, CFO and Treasurer. Jim will begin today's discussion by providing an overview of the quarter's results and our strategic capital projects. Then Maria will provide more detail around the quarterly results and key regulatory proceedings. Following prepared remarks, we will open the lines up for your questions.

And I’m pleased to turn the call over to Jim, this morning.

Jim Piro

Thank you, Bill. Good morning and thank you for joining us. Welcome to Portland General Electric’s third quarter 2010 earnings call. PGE’s net income for third quarter 2010 was $49 million or $0.65 per diluted share, compared to $32 million or $0.43 per diluted share for the third quarter of 2009.

We are increasing our full-year 2010 earnings guidance by $0.25, from the prior guidance of $1.40 to $1.55 per share, to $1.65 to $1.80 per diluted share. The key driver to the increase in quarterly earnings and the revised guidance is the effects of the newly passed Federal Legislation regarding 2010 bonus depreciation on the Senate Bill 408 tax calculation. Senate Bill 408 accounts for approximately $0.20 per share increase in the 2010 guidance and approximately $0.16 per share increase in the third quarter results. Maria will provide more details later in the call.

We will initiate 2011 earnings guidance on the fourth quarter earnings call in late February next year. By waiting until the next quarter we will have more information to base our earnings forecast on, including initial Hydro conditions and customer retail demand. This timeframe also puts us more in line with our peers for initiating guidance.

I am very pleased with our strong operational performance during the third quarter as well as the productive regulatory process for the 2011 general rate case. Let me give you a few highlights on both.

We continue to deliver excellent operating performance company wide. Our system operated well, our distribution metrics remain strong, and plant availability was high at our generating facilities.

The 2011 general rate case process has been constructive. If the settlements we have reached with all parties are proved by the commission, it will result in an outcome that is fair and reasonable for customers and shareholders. We have aligned our customer prices with our cost structure and have updated our load forecast. We have agreed upon several mechanisms that reduce volatility, including modification to the power cost adjustment mechanisms, continuation of decoupling, and a tariff for recovery of our remaining investments in Boardman.

These mechanisms are in lined with the stipulated ROE of 10%, and will provide the company with an opportunity to earn a fair return in 2011. Now, let’s move on to the economic outlook in our operating area.

While we experienced customer growth of a half of a percent quarter-on-quarter, total retail energy deliveries on a weather adjusted basis were essentially flat. The continued effect of the slow economy and energy efficiency initiatives resulted in a decrease in energy deliveries to residential and commercial customers.

We did however, see an increase in energy deliveries to our large industrial customers. Oregon’s unemployment rates remain 10.6% in September, essentially unchanged since December 2009. Through September the rate at which Oregon added new jobs, was slower than the overall U.S. economy. There are some positive economic signs in our service area including Intel’s recent announcement last week that it plans to invest multi billion dollars in new facilities at their Hillsboro, Oregon site.

For the year, we project that weather adjusted retail energy deliveries will be approximately 1.4% below 2009 levels, due to a combination of energy efficiency initiative as well as the effects of the slow economy on the residential and commercial sectors. We expect a moderate increase in deliveries to existing industrial customers including those in the high tech sector.

Now an update on our strategic initiatives, starting with operational excellence.

Our overall customer satisfaction ratings were very strong in the third quarter. We ranked in the top decile for both residential and general business customers and in the top quartile for large industrial customers.

Recently, e-Source rated PGE’s second in their top utilities and large business customer satisfaction study. These positive results demonstrate our commitment to providing outstanding customer service. And last week, the Department of Energy, presented PGE with the Utility Green Power Program of the Year award, a testament to our customers ongoing commitment to renewable energy.

Now, an update on our key capital projects.

At the end of September we successfully completed the insulation of all 820,000 new smart meters in our service area. The next step for the project includes completing the planned enhancements and developments related to business process automation which will provide improved service and operational efficiencies.

We recently announced the successful completion of Phase 3 of our Biglow Canyon Wind Farm. The final phase completed in August 2010, added approximately – added an additional 76 wind turbines with an installed name plate capacity of 175 megawatts. The total cost of Phase 3 was $383 million including $22 million of AFDC. The costs for this entire project are fully included in customer prices. Now all 217 turbines are available to generate renewable power for customers with a total installed name plate capacity of 450 megawatts. We are proud to have completed one of the largest wind farm projects in the Pacific Northwest, constructed on time, and under budget.

With all phases of Biglow Canyon up and running, we expect to meet approximately 11% of our load with renewable energy in 2011. This is well ahead of Oregon’s renewable energy standards first benchmark of 5% by 2011. The next benchmark is 15% by 2015, and the final target set at 25% by 2025. We’ve outlined how we plan to meet the 2015 renewable energy benchmark in our 2009 integrative resource plan.

The 2009 IRP also addresses the various options being considered for new admission controls on the Boardman Plant. We have submitted a letter to the DEQ, asking to reopen the rule making period, to consider additional information that would reduce admissions further, and would allow us to continue operate on coal through 2020.

The DEQ is expected to release its final rule making recommendation to the Oregon Environmental Quality Commission in November with a final rule decision by the OEQC anticipated by the end of 2010.

As the operating life of the Boardman Plant continues to be evaluated, it’s reassuring through our general rate case process, we agreed on a mechanism that will allow recovery of our remaining investment in the plant, if a decision is made on an early closure.

Now, I’d like to comment on another matter related to the Boardman Plant. In September we received a notice of violation from the EPA, asserting that PGE has operated the boiler at the Boardman Plant in violation of the new Source Performance Standards, under the Clean Air Act. We disagree with their findings and we are planning to meet with the EPA in the first quarter of next year to present the analysis supporting our position.

Let me move on to our integrated resource plan which was filed with OPUC in November of 2009. The proposed 2015 IRP action plan includes meeting approximately 50% of our load growth through energy efficiency measures as well as the following generation and transmission projects; 122 average megawatts of renewable resources to meet Oregon’s RES requirements of 15% by 2015, a natural gas facility to meet additional base load requirements estimated at 300 to 500 megawatts, a natural gas facility for additional peak load requirements estimated at 200 megawatts, and a new transmission project called Cascade Crossing.

On October 15, the PUC staff submitted their recommendations for acknowledgement of our 2015 action plan, largely as filed. We expect a final OPUC decision on the 2015 action plan in November, which will allow us to move forward on the RFPs for new resources. We plan to conduct three separate RFP bidding processes in early 2011. The first for new renewable resources, the second for base load generation, and the third for peaking generation.

In each of the RFPs, we currently plan to include our own self-build option to compete with the market bids. The RFP bidding process will likely be completed in the second half of 2011 which will then provide us with a clear picture on our future capital expenditures. The amount and timing of future equity requirements is dependent on the outcome of the RFP bidding process, project timing, PGs financial performance, and the capital market conditions.

Now, I’d like to turn this call over to Maria Pope, our Chief Financial Officer, to discuss our financial results in greater detail.

Maria Pope

Thank you, Jim. Good morning. Today we’ll cover the quarter’s financial results, review the agreements on our general rate case, discuss financing and liquidity, and conclude with details on the increase in our 2010 earnings guidance.

Third quarter 2010 net income was 49 million or $0.65 per diluted share. This compares to 32 million or $0.43 per diluted share for the third quarter of 2009.

Operating results for the quarter were positively impacted by Senate Bill 408 and strong power supply operations which were partially offset by cooler than normal temperatures and the continued effects of a weak economy.

Retail revenues increased 6% in the third quarter of 2010 compared to the third quarter of 2009. And a majority of this increase is related to the positive impacts of federal tax law changes regarding the extension of bonus depreciation and its effects on Senate Bill 408.

PGE recorded a collection from customers of 20 million or approximately $0.16 per diluted share for the third quarter, of which 15 million was related to bonus depreciation. Also, contributing to the increase in retail revenue is the return of a large direct access industrial customer to PGE for its energy supply in 2010.

We continued to see customer growth with the addition of approximately 4,000 retail customers since the third quarter of 2009.

As we’ve discussed in prior quarters, when differences exist between taxes paid and taxes collected in customer prices, a surcharge or a refund to customers is required.

A key element in SB408 is the protection of Federal Tax Normalization Rule. For the year, PGE estimates that it has additional accelerated tax depreciation of approximately 75 million due to the recent federal tax law change allowing for 50% bonus depreciation in 2010. Due to the increase in tax depreciation, tax normalization rules come into effect. As such, PGE recorded an estimated collection from customers of 20 million this quarter compared to an estimate refund of less than a million in the third quarter of 2009.

Now, I’ll move on to discuss retail energy deliveries, on the weather adjusted basis, total retail energy deliveries were essentially flat quarter over quarter. This is an improvement compared to first and second quarters of 2010 when total weather adjusted retail energy deliveries decreased approximately 3% in these quarters.

For the third quarter, weather adjusted residential and commercial energy deliveries decreased 2.4 and 1.4% respectively, reflecting increased energy efficiency initiatives coupled with these sustained effects of a weak economy.

Energy deliveries to our industrial customers increased 4.9 as a large pulp and paper customer increased its operating rates and at solar and high tech customers continued their upward trend.

For 2011, we continue to forecast loads to be flat compared to the weather adjusted loads in 2010. This was also the basis for the 2011 rate case with the customer prices going in to effect January 1, 2011.

In the third quarter, overall customer prices decreased approximately 5%, reflecting a decrease in net variable power cost, partially offset by increases from Biglow Canyon Phase II and the Selective Water Withdrawal project, which are now in customer prices.

Average variable power cost decreased 8% in the third quarter 2010 compared to the third quarter of 2011, primarily due to the increase in low cost generation resources, coupled with higher thermal plant availability. Year to date through September 30, total company’s thermal plant availability was 93%, and for PGE operated plants, availability was at 94%.

Now on to Hydro.

In the third quarter of 2010, regional Hydro conditions declined from second quarter expectations. Energy received from Hydro resources during the third quarter of 2010 was 9% below normal levels compared to 16% below normal levels in the third quarter of 2009.

Hydro negatively impacted our financial performance by approximately 3 million pretax in the third quarter of 2010, compared to a negative impact of approximately 5.8 million pretax in the third quarter of 2009.

On the wind side, we continue to see an increase in generation as we added resources and with the completion of Biglow Canyon Phase III. Wind production provided 7% of PGE's retail load requirements in the third quarter of 2010 compared to 4% in the third quarter of 2009.

Now, I’ll update you on a few regulatory items, starting with our power cost adjustment mechanisms or PCAM.

For 2010, the PCAM dead-band ranges are 17 million below to 35 million above the baseline for net variable power cost. Year to date through September 30, net variable power cost were approximately 11 million below the base line, as a result of efficient thermal plant operations, partially offset by lower Hydro and wind generation.

Net variable power cost for the full-year 2010 are expected to be below the baseline, but within the established dead-band. Accordingly, no amount was recorded for a refund to customers as of September 30.

Decoupling did not impact the third quarter as residential and small commercial weather adjusted use customers was consistent with that approved in the 2009 general rate case. Year to date, we have recorded an estimated 8 million collection from customers compared to a 4 million refund by this time last year.

I’ll now move on to the 2011 rate case.

We have reached agreement with the parties on all revenue requirement items, resulting in an increase of approximately 59 million in annual revenue or an approximately 3.4% overall increase in customer prices. The 2011 price increase is subject to net variable power cost updates, which will be final in November. The increase in customer prices will cover O&M, and other inflationary cost increases; updated, 2011 load forecast, new rate base investments and will provide PGE with the opportunity to earn a fair rate of return.

The other key items that parties have agreed to include, progress on the PCAM resulting in a fixed dead-band range of 15 million below the 30 million above baseline net variable power cost, avoiding the otherwise growth in the range as we add rate base.

A return on equity of 10%, a capital structure of 50% debt and 50% equity, for an overall cost to capital of approximately 8%; extension of our decoupling mechanisms for another three years, and a tariff related to the future recovery of our remaining investments in the Boardman Plant. These agreements with staff and all parties, remain subject to commission approval. A final order is expected by mid-December with new prices becoming effective January 1.

Now, onto liquidity and financing.

We are active in the wholesale marketplace, entering into forward contracts for natural gas and power, to mitigate commodity price risk for our customers. As of September 30, we posted approximately $354 million in collateral with wholesale counter parties, which consisted of 117 million in cash, and 237 million in letters of credit. As contracts settle and as market prices remain unchanged, we would anticipate that 13% or approximately 40 million in letters of credit, and 6 million in cash will roll off by yearend, and another 52% will roll off of 2011 with the balance of approximately 35% in 2012 through 2015.

We have 600 million in revolving lines of credit of which 334 million was unused as of September 30. At quarter end we had 9 million in commercial paper outstanding, with no direct [inaudible] on the revolver. Additionally, to take average of tax carryback opportunities, we made an early pension contribution of 30 million in the third quarter, offsetting 2011 and part of 2012 contribution.

While we targeted capital structure of 50% and 50% equity, periodically we are higher or lower. As of September 30, our equity ratio was 47%. Our 2010 capital expenditures have been reduced and are estimated at approximately 473 million, which the company has completed a majority in the first 9 months of 2010.

Now, on to earnings guidance. As Jim, discussed, we are increasing our 2010 earnings guidance by $0.25 to $1.65 to $1.80 per diluted share. The key driver or $0.20 per share of the guidance increase is the result of Federal Tax Law changes which had a positive effect on Senate Bill 408 calculations.

The additional $0.05 increase, is the result of net effect of strong Thermal plant operation, a continued focus on cost management, and a reversal of the tax deferral, partially offset by the continued effects of a slowed economy and below normal Hydro and wind conditions.

In closing, we continue to focus on financial objectives that support our core utility business and growth initiatives, including improved [inaudible] and earnings performance to achieve competitive rate of return on our invested capital. Adequate liquidity and a strong balance sheet to maintain our investment grade credit ratings, thank you, Jim.

Jim Piro

Thank you, Maria. Our third quarter results reflect our continued progress on key initiatives. Customer satisfaction, system reliability, and generation plan availability remain high. We completed our Biglow Canyon Wind Farm on time and under budget, and we continue a constructive regulatory process on our 2009 integrative resources plan, including Boardman, and our 2011 general rate case.

The outcome of the rate case, if approved by the OPUC is fair and reasonable, aligning our customer prices with our cost structure and providing mechanisms that reduce volatility and are in line with the stipulated ROE.

Looking ahead, we will continue to position the company for future growth opportunities that deliver value to our customers and shareholders. Operator, we’d now like to open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions)

Jim Piro

Operator?

Maria Pope

Operator, are you there?

Operator

Yes, can you hear me now? Hello, can you hear me now? Hello?

Jim Piro

It appears that we’ve lost the operator. We’re trying to connect to the operator. Give us a moment.

Operator

Hello. Can you hear me now?

Jim Piro

Is the operator there?

Operator

Yes. I have been having technical issues. Can you hear me know?

Jim Piro

We’re just in the process of trying to contact the operator. They must have just stepped away.

Operator

Hello, can you hear me know? Hello, can you hear me know? Hello, can you hear me know?

Jim Piro

It appears that have lost contact with the operator, we’re trying to get her back online. Interesting. Hang on for a minute, folks. We do have people on the call list, so hang on. We’re not going to leave until we get the operator back online.

It appears that they’re having technical difficulties, so they’re working on it right now, so it should just be a few moments hopefully.

Operator

Hello, can you hear me now?

Jim Piro

We’re working on a technical difficulty. Give us a few more moments. If not, I know we’ll be at EEI next week and we can probably answer many of your questions, but just hang on for a second and we’ll see if we can get this thing resolved.

Operator

Hello, can you hear me now? Hello? Hello?

Jim Piro

It appears there must be a connect problem between here and the line. I think we’re connected. Yeah, there are people up on the queue.

We’ll give it a few more minutes here, it not, as I mentioned, we’ll be at EEI – Maria and I will both be back at EEI next week and if necessary we can catch up with you on your calls.

Maria Pope

And we also can see who’s in the queue for asking questions and we’ll call everyone back.

Jim Piro

Yeah, that’s a good point. Give us a few more moments here and we’ll see where it goes. You guys can hear us out there.

Okay, let’s start with Brian Russo. Why don’t you open up the question for Brian.

Brian Russo – Ladenburg Thalmann

Yes, hello. Can everybody hear me?

Jim Piro

It works. For some reason we just can’t hear the operator, but maybe we can get the questions coming through.

Brian Russo – Ladenburg Thalmann

Okay. I’m just curious, what’s the – it looks like you’ve recorded –

Jim Piro

Brian, are you there?

Brian Russo – Ladenburg Thalmann

Yes. I’m here. Can you hear me?

Jim Piro

It doesn’t appear to be coming through.

Brian Russo – Ladenburg Thalmann

Hello? Hello?

Jim Piro

Brian is talking but we can’t hear you. Brian it looks –

Brian Russo – Ladenburg Thalmann

Yes, I’m trying.

Jim Piro

I wonder if we should call back in? Call back into the number? You know, I don’t want to lose everything.

So it appears that we can’t get the questions coming, so we’re just going to take a pause, try to call back in. If you could just be patient for a second, we’ll call back into the number to see if we can connect.

If we miss the connection, then we will catch up with you today, Bill will call you all back who have questions and then we’ll also be at EEI next week. So you want to try and recall this thing?

Okay. So we’ll hang up.

Operator

Hello, Sir, are you in the conference now?

Jim Piro

Yes, we are.

Operator

Okay. And you can hear me now?

Jim Piro

Yes, I can.

Operator

Okay, wonderful. Okay, we do have the next question from Jennifer Sokoloff from McAdams Wright, Ragen.

Jim Piro

Thank you all for your patience. It sounds like we’re back on line. Jennifer, go ahead. Thank you.

Jennifer Sokoloff – McAdams, Wright, Ragen

I think I kind of cut in front of Brian Russo there.

Jim Piro

That’s okay. I hope he’ll come back on.

Jennifer Sokoloff – McAdams, Wright, Ragen

All right. Very good. I just wanted to ask some questions just for clarity because I want to make sure that I understand it. You mentioned the federal tax normalization in your last transcript, but I don’t think I was paying attention because you know, in my mind, if you have depreciation on your tax bill, actually you would need to give a refund to customers. So could you just explain this normalization rules that you’re talking about?

Jim Piro

Maria will do that.

Maria Pope

Hi, Jennifer. So one of the principles behind the normalization rule created by the federal government a number of decades ago was that the funds that were directed towards utilities through tax incentives or production tax credits or whatnot, were to be for the construction of plant equipment or employment of individuals. And particularly directed towards the expansion of renewables throughout the country. And a primary aspect when 408 was created was to ensure that those normalization rules are not violated under any 408 issues in the State of Oregon.

And so what we’re essentially doing as we increase our deferred taxes is that we take the – either taxes collected in rates versus the deferred tax amount and we make some adjustments, and essentially we use the greater-of calculation to make sure that we don’t violate that amount.

So that’s how you get to the collection within customer prices.

Jennifer Sokoloff – McAdams, Wright, Ragen

And then how do customers see that in their bills; it smooths out over time? It may be the magnitude of your average bills aren’t very much. I’m just curious if there’s any risk of backlash, is this a large amount for customers?

Maria Pope

Sure. You know, in the overall history of 408 for Portland General Electric, if you include the full amount that we are now estimating for 2010, we’re right about even. Actually, a refund to customers of about a million dollars if you go back to the beginning of 2007.

So we have had two years with surcharges since this began and we’ve had three years with collections. So it’s – it will take a while for us to work this out through the OPUC. We have submitted our filings for 2009; 2010 tax pure filings would be submitted next October and then customer prices are affected, you know, thereafter. It takes through April of each year to resolve this with the Commission. So we sort of have an ongoing balancing account with customers.

Jennifer Sokoloff – McAdams, Wright, Ragen

Okay, very good. And then just one little question. I saw Portland Tribune had an article about community, individual and group support for your 2020 plans. A letter was written. Is this an iteration of existing support, or is there any new news there?

Jim Piro

Well, it’s actually a new support. We’ve never had the letter from the – some of the key stakeholders to the DEQ that reinforces our plan for a 2020 phaseout on coal. So the major parties was Angus Duncan with the Bonneville Environmental Foundation, the head of the Global Warming Commission in Oregon, Andrea Durbin from Oregon Environmental Council and Renewable Energy Group also supported that. So it is kind of a major step in the process to get them to support our 2020 plan.

The change in the plan was just additional efforts to put additional controls on the plant to get lower sulfur reductions between 2018 and 2020, and a commitment by us at that plant, if approved, we would take the 2040 kind of ongoing plan off the table.

So it is a milestone agreement. It represents – I would also mention that Census Utility Board singed on that letter also we’ve got broad-based support for our 2020 plan and that’s something new that we haven’t had that visible support from all those parties at this point.

Jennifer Sokoloff – McAdams, Wright, Ragen

Very good. Thanks so much. See you in a few days.

Jim Piro

Thanks.

Operator

Your next question comes from Brian Russo with Ladenburg Thalmann.

Jim Piro

Hi, Brian.

Brian Russo – Ladenburg Thalmann

How are you?

Jim Piro

Thanks for sticking with us.

Brian Russo – Ladenburg Thalmann

No problem. I’m just curious. I’m sorry if you may have discussed this earlier, I got on the call a little bit late. But the – the industrial sales pick up year over year, what’s driving that, and you know, is that kind of considered, you know, sustainable over the next couple of quarters?

Jim Piro

Maria, you want to –

Maria Pope

Sure. There’s a couple key issues that are taking place. The first, which is actual revenues, but not necessarily our bottom line, is the return of a large industrial customer to our cost disturbance. They’ve previously been purchasing their energy elsewhere.

The biggest impact to our bottom line is the pickup in one of our local paper manufacturer’s operating rates. And then secondarily, we are continuing to see continued upward trends in our high-tech and solar sector as they work through the economic downturn.

Brian Russo – Ladenburg Thalmann

Okay. And was this kind of captured in the recently-concluded rate case with the 2011 test year?

Maria Pope

Yes, it was. We update our estimates, which for this year are approximately 1.5 percent below last year for total load. Those are updated in September when we had all of this information. And for 2011, we are expecting that year to be fairly slacked with where we are in 2010.

Brian Russo – Ladenburg Thalmann

Okay. And then just on this bonus depreciation, and the SB408, that hasn’t been – has it technically hit the cash flow statement, and is that kind of the impact of bonus depreciation – is that kind of discounted in that 46% equity ratio you quoted for the September ’10 period?

Maria Pope

Sure. There’s two aspects of bonus depreciation, which we’ve had for a couple of years as well as accelerated depreciation product tax credits. The first is that we are building our deferred tax liability on our balance sheet and have received a tax refund, which we carry back tax losses to prior years. We’ve noted that on the last couple of calls, and consistent with many other utilities.

What’s different for us is the effects of SB408 and what we’re seeing with the continuation of both depreciation 2010 is that we’re hitting a higher level, prompting the impact of the normalization floor.

SB408 in the current year is a non-cash item and it’s not until after we file with the OPUC next October, finish the process in April of 2012 for 2010 and then prices go into – or the impact for customer prices take effect. So there’s quite a bit of lag on the cash side.

Brian Russo – Ladenburg Thalmann

Okay. And is there any opportunity to identify other assets that I guess, you know, are currently under construction or would fit in with the bonus depreciation tax laws? And then what are your thoughts on the equity issues instead, you know, that you’re considering in late 2011? Does this bonus depreciation have any impact on that?

Maria Pope

Sure. With regards to our analysis, I think we’re fairly – this is fairly straightforward from a [inaudible] depreciation standpoint. That is not complicated in – our capital expenditures for 2010 are well known. The complexity really comes in with SB408 and I think that there’s a lot of issues to continue to resolve there, and continuation of bonus depreciation looking forward, will continue to have the same effect that we have seen in this quarter on SB408.

In terms of its impact on our equity offerings, we have been factoring in increased in deferred taxes in our estimates for some time. The biggest impact for us in terms of equity will really be the timing of our capital expenditures.

As Jim noted, we are getting towards the tail end of the IRP processes, but we have not yet begun the RSP processes. And due to the amount of time it takes, we are delayed in that and we will need to wait until we see more resolution with regards to those projects before we can be more certain in regards to timing.

Additionally, our stock price capital market earnings will all have a factor.

Brian Russo – Ladenburg Thalmann

All right Thank you very much.

Jim Piro

Thanks.

Operator

Your next question comes from James Bellessa with DA Davidson and Company.

James Bellessa – DA Davidson & Co.

Good morning.

Jim Piro

Good morning, James. About this large customer that came back onto your system, why did they leave in the first place and what incented them to come back?

Maria Pope

The large customer, all or our large customers have the ability to go directly to the market. The market availability for power for these customers has shrunk in the number of companies that they can purchase from, and they frequently will depend – see what they can get in the marketplace, and – versus what they can get from us and take the best economic deal, and we offered the best economic deal.

Jim Piro

And even though they do go to the market, they still pay their transmission and whatever distribution component of that rate to us. So the only thing that’s different is we will purchase less power in the future, or more power, depending on whether we’re serving them or not. That’s part of the Open Access Tariff that we have, or the competitive rates that we have.

James Bellessa – DA Davidson & Co.

You were numerating the change in the guidance, and one of the factors, I think, was a reversal of a tax deferral. I think that’s what I heard. What might that have been?

Maria Pope

Sure. We have a, you know, periodically have a number of one-time items and that was one of them. We had been expecting it for some time, although we weren’t exactly certain what quarter it would fall in. It is a tax [inaudible] that goes back a number of years and at that time we [inaudible] whether we would have a refund to customers for it, but we were not at the ROE amount so we’ve been able to reflect that on our – the decision was made by the OPUC about a month and a half ago.

James Bellessa – DA Davidson & Co.

And what quarter did that hit the – did that hit the most recent quarter?

Maria Pope

Yes, it was in the third quarter.

James Bellessa – DA Davidson & Co.

And how much was that in dollar amount, or per-share basis?

Maria Pope

It was about 5 ½ million.

Jim Piro

The tax kicker occurred in 2005, that’s where we got it back and as part of the regulations when you do a referral, you do an earnings test to determine whether you have to refund or return those dollars, or surcharge customers for those dollars under deferrals. And the earnings at that time are low, therefore they decided that we did not need to refund that kicker.

James Bellessa – DA Davidson & Co.

So did that help you third quarter earnings by $0.15 a share? Is that what – I mean –

Maria Pope

No, Jim, it helped us by $0.04 a share. The other number that you’re looking at relates to the SB408 impact from bonus depreciation, which is the much more significant number.

When bonus depreciation was extended for 2010, we picked up another $75 million of deferred taxes and roughly about a third of that has an impact on the year and we reflected about $0.16 in the quarter.

James Bellessa – DA Davidson & Co.

Yeah. I can see where I did my arithmetic wrong. But it came out – I took the 5 ½ million divided by your shares and I came up with the $0.06 or $0.07 cents. Is there a tax effect to the reversal of a tax deferral?

Maria Pope

Yes, there is.

James Bellessa – DA Davidson & Co.

Is that what happened?

Maria Pope

Yes, exactly.

James Bellessa – DA Davidson & Co.

Okay. And then I see where the Public Utility Commission filed with the legislature by annual reports saying that they think that you can get your greenhouse gases down by the year 2020 and that to do so, to meet certain guidelines, you’d have to close both Boardman and Cole Strip and increase your rates somewhere between 10 and 38% by 2020.

Do you have any comments on that? I guess it’s a report recommendation or something like that from the public utility commission to the legislature.

Jim Piro

We have that report here. I’ll have to look at it. Oregon did set some aspirational goals. They’re trying to limit greenhouse gasses from 1990 level. Those are aspirational goals and I think what you’re referring to is if we tried to reach those aspirational goals, this is what it would mean. There’s no current requirement to meet those goals, they’re just aspirational. Again, we use integrated resource plan to plan our future resource needs and we do take into account the risks and uncertainty of the external abnormalities, things like carbon. But there’s no mandate or requirements to reach those levels and as you know, there’s no federal legislation in that area.

So my guess is this is just – if you had to reach those aspirational goals, this is what it would look like.

James Bellessa – DA Davidson & Co.

So no requirements? Your IRP calls for the closure of Boardman may be by 2020, but you’re not talking about Coal Strip?

Jim Piro

No, that’s not on our radar screen at this point. That plan has been fully scrubbed and in compliance with our greenhouse gases. I think was, you know, as we see what happens with federal legislation in the future, you know, you’re going to have to evaluate all your options and determine what the cost of carbon is in terms of what your resource strategy is going forward.

So again, there’s no plans at this point to close Coal Strip. As you know, we’re just a part owner of that plant.

James Bellessa – DA Davidson & Co.

Thank you very much.

Jim Piro

You’re welcome.

Operator

(Operator Instructions)

Jim Piro

It looks like there’s no further questions. We appreciate your interest in Portland General Electric and look forward to seeing many of you at EEI in a couple of – oh wait. We got another call that just popped up. Hang on. Can I get Sarah on the line?

Operator

Your next question comes from Sarah Pegors with Wells Fargo.

Sarah Pegors – Wells Fargo

First I just want to make sure I heard a couple dates correctly. Regarding the Board [Inaudible] Emissions Controls, I think I heard you say that you’re expecting a recommendation in November and then a final decision by the OED – I’m sorry, the OEQC by the end of 2010, is that correct?

Jim Piro

That is correct. That’s the current plan. I think we’ll have to watch how this process unfolds over the next month or so, but that’s currently what we know to date.

Sarah Pegors – Wells Fargo

And so in terms of the IRP acknowledgement, I think I heard you say that that would be in November. So is it – does that work correctly where they can acknowledge the IRP in November but not have the final decision until the end of 2010?

Jim Piro

It’s kind of two separate issues. What the IRP decision was – and this is staff recommendations at this point, is they would acknowledge – the staff recommends acknowledge our 2020 plan as the least-cost lowest-risk option for customers. But it is subject to having a set of regulations that allows us to implement that 2020 plan. The staff suggested that if we do not get a workable 2020 plan, we would have to go back to the Commission and refresh our analysis and look at what other options are available to the company as we go forward.

Assuming that the Environmental Quality Commission approved the 2020 plan, it would be aligned with our commission acknowledgement if the Commission acknowledges that staff recommendation, then we’d be fine. If it’s different, or we have a plan from the Environmental Quality Commission that’s different, then we will have to evaluate what those differences are and then go back to the Commission to kind of brief them on the situation.

Sarah Pegors – Wells Fargo

Got it. And then one other question. Can you remind us when you originally filed the IRP looking at those two gas needs, the peaking and the base load, when those were originally thought to have been needed in service. And then with the knowledge that you have now, a better picture of the growth outlook in the economy, has that changed at all?

Jim Piro

On the peak, we’re looking in the 2013 timeframe because that’s where we can get up pretty quickly. The gas generation would be in the probably 2015, 2016 timeframe, just depending on when we get transmission bills. [Inaudible], we have other transmission paths, but the likelihood of not getting transmissions constructed until that timeframe is what would time that resource out.

In terms of the effects of a slower economy on those decisions, as you know, we are – we do have enough resources to meet our retail load. And even if loads stayed flat, we would still need additional resources as we depend on the market for about 25% of our retail needs.

So we would still continue to move forward with those resource decisions and I think the commission acknowledgment of that would represent their support for that direction.

Sarah Pegors – Wells Fargo

Great. Thanks a lot.

Jim Piro

Thank you.

Okay. It looks like we don’t have any further questions, so again, we appreciate your interest in Portland General Electric and for those of you who have scheduled times next week at EEI, we look forward to seeing you there. And if you have any further questions, feel free to contact Bill Valach after this call.

So thanks a lot and have a great day.

Operator

Thank you for participating in today’s conference. You may now disconnect.

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