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Portland General Electric Company (NYSE:POR)

Q4 2010 Earnings Conference Call

February 25, 2011, 11:00 am ET

Executives

Bill Valach – Director, IR

Jim Piro – President and CEO

Maria Pope – SVP-Finance, CFO and Treasurer

Analysts

Brian Russo – Ladenburg Thalmann

Jennifer Sireklove – McAdams Wright Ragen

Ashar Khan – Visium Asset Management

Sarah Akers – Wells Fargo

Jim Bellessa – D.A. Davidson & Company

Paul Patterson – Glenrock Associates

Operator

Good morning, everyone, and welcome to the Portland General Electric Company fourth quarter and fiscal year 2010 earnings results conference call. Today is Friday, February 25, 2011. 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, Nancy. And good morning, everyone. We are 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 disclosures and commentary. There will be statements in this call that are not based on 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 discussion 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-Qs.

The Form 10-K for 2010 is 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. This Safe Harbor statement should be incorporated as part of any transcript of this call. Portland General Electric's fourth quarter and year-end earnings were released before the market opened today, and the release is 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 presentation by providing a general overview of the year’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’d like to turn the call over to Jim.

Jim Piro

Thank you, Bill. Good morning and thank you for joining us. Welcome to Portland General Electric’s 2010 year-end and fourth quarter earnings call. I’m very proud of our strong operating performance during 2010. Our generating facilities and T&D system performed very well, and we maintained high levels of customer satisfaction.

We also achieved constructive outcomes in three regulatory processes. First, our 2011 general rate case reserves were fair and reasonable, and provided us with the opportunity to earn a competitive return in 2011. Second, the Oregon Public Utility Commission acknowledged our 2009 integrated resource plan, allowing us to move forward with three separate competitive bidding processes and implementation of other items outlined in the action plans. And third, our Boardman 2020 plan was approved by the Oregon Environmental Quality Commission and is now before the Environmental Protection Agency for approval.

On today’s call, we will provide details around the key drivers of our financial performance, we will initiate earnings guidance for 2011, I’ll update you on Oregon’s economy, and finally, I’ll discuss the progress we are making on our strategic initiatives. Later, Maria will provide details on fourth quarter and annual results, provide a regulatory update, as well as discuss financing and liquidity. So let’s begin.

PGE’s net income for 2010 was $125 million or $1.66 per diluted share compared to $95 million or $1.31 per diluted share for 2009. For 2011, PGE is initiating full year earnings guidance of $1.80 to $1.95 per diluted share. 2011 guidance assumes normal hydro and plant operations, with operating costs aligned with the company’s 2011 general rate case. Also embedded in guidance is modest load growth for 2011 over weather-adjusted 2010, which is expected to be offset by our customers’ energy efficiency efforts.

Now let’s move on to the economic outlook in our operating area. In 2010, we added approximately 5,000 new customers, representing growth of 0.5% over 2009. Oregon continued to attract new residence, ranking second in the nation for in migration in both 2009 and 2010. I’m pleased that Oregon continues to be a place where people want to live and work. This growth provides an attractive workforce for existing companies, taking to expand and for new businesses locating here.

This in-state migration does impact Oregon’s seasonally adjusted unemployment rate, which was 10.2% in December compared to the US average of 9.4% for the same time period. Even with modest customer growth, total retail energy deliveries on a weather-adjusted basis decreased approximately 1.4% compared to 2009. We experience decreases in deliveries to residential and commercial customers, which was partially offset by an increase in deliveries to our industrial customers.

The weather-adjusted decrease in load was impacted by the continued effects of the slow economy and energy efficiency initiatives. We estimate that approximately one-half percent of the decline in load was attributable to the economy and the other half to energy efficiency. Employers in Oregon, particularly private employers, began to add jobs in the second quarter. I am encouraged to see that the growth of high-tech and solar manufacturing companies continues.

And recently, SoloPower announced they will build a new solar manufacturing plant in our operating area. Looking ahead, we will continue to demonstrate our commitment to economic growth. Working with the state, listing to our customers and constituents, and leading the way to help create economic vitality in the regions.

Now an update on our strategic initiatives starting with operational excellence. We continue to deliver excellent operating performance companywide. Our overall customer satisfaction ratings were very strong for 2010. We ranked in the top decile for general business customers and in the top quartile for residential and large industrial customers.

In addition, our system operated extremely well. Our distribution reliability metrics remain strong and generating plant availability was high. Moving forward, we are focusing our efforts throughout the company on continuous improvements and sustainable cost efficiencies.

Now an update on our key capital projects. In 2010, we successfully completed the installation of all 825,000 smart meters in our operating area. We expect to achieve our targeted savings through operational efficiencies and improved services for our customers. Last year, we also successfully completed the final phase of our Biglow Canyon Wind Farm on time and under budget. Now all three phases of this 450 megawatt wind farm are fully operational and included in customer prices.

Total capital expenditures for all three phases of the project were $960 million. With all phases of Biglow Canyon up and running, we expect approximately 11% of our retail load to come from renewable energy in 2011 as defined by Oregon’s renewable energy standards. This is ahead of the RES’ first benchmark of 5% by 2011. We outline our plan for meeting the next renewable energy benchmark of 15% by 2015 in our 2009 integrated resource plan, which was acknowledged by the OPUC in November.

Now let me provide you an update on our future plans for our Boardman coal-fired plant. In December 2010, the Oregon Environmental Quality Commission approved new rules as part of the state’s implementation plan for Regional Haze for Boardman. The rules require installation of a suite of new emission controls allowing continued operations of Boardman through 2020, at which time we would cease coal-fired operations at the plant.

On a separate set of rules, PGE is required to install controls to eliminate 90% of mercury emissions. The total cost of all the emissions controls is estimated at approximately $60 million, excluding AFDC. We believe the rules strike a good balance of cost, risk and environmental benefits for our state and our customers while providing sufficient time to find cost-effective replacement resources.

The Environmental Protection Agency is expected to make a decision on the state’s implementation plan for Boardman by mid-2011. In a separate rule-making process, the EPA is addressing national emission standards for a variety of hazardous air pollutants. Draft maximum achievable control technology or MACT standards for these emissions are expected in March 2011, with approval scheduled for November. PGE will strongly advocate within the EPA rule-making process to allow for innovative solutions like the Boardman 2020 plant under the MACT standard.

Now I’ll move on to our plans to acquire the resources outlined in the IRP action plan that was acknowledged by the OPUC. The plan to serve our retail load at the lowest cost, least risk way, includes meeting approximately 50% of our future load growth through energy efficiency measures and with the addition of new generation and transmission projects.

To achieve the generation portion of the action plan, we will conduct three separate competitive bidding processes to acquire the following resources. First, approximately 200 megawatts of year-around flexible peaking resources. We plan to bring these resources online in late 2013 or early 2014.

Second, approximately 120 average megawatt of new renewable resources to help meet Oregon’s renewable energy standard. We plan to bring these resources online as needed to meet Oregon’s 2015 RES requirements. And third, approximately 300 to 500 megawatts of base load, high efficiency natural gas generation. We plan to bring this resource online in the 2015 timeframe.

In each of the three competitive bidding processes, we currently plan to include our own self-build options to compete with the market bids. The IRP action plan also includes our Cascade Crossing Transmission Project. We continue to refine the route and work through the federal, state and tribal permitting processes.

In addition to MOUs signed with PacifiCorp, Idaho Power and the Confederated Tribes of Warm Springs, we recently entered into an MOU with the Bonneville Power Administration. I’m pleased with our progress on this significant project, which will improve reliability and help integrate new renewable resources into the region.

The competitive bidding processes for the peaking resources will likely be completed in late 2011, and the competitive bidding process for the new renewable and base load resources will likely be completed by early to mid 2012. Completion of this work will provide better clarity on our future capital expenditures. The amount and timing of future equity requirements is dependent on the outcome and timing of the competitive bidding processes and our Cascade permitting process, PGE's financial performance, and capital market conditions.

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

Maria Pope

Good morning. Today I’ll cover our financial results for both the quarter and the year, review the performance of our plants, provide an update on key regulatory items, and conclude with liquidity and financing plans. Fourth quarter 2010 net income was $25 million or $0.34 per diluted share compared to $8 million or $0.11 per diluted share for the fourth quarter of 2009. Net income for the full year was $125 million or $1.66 per diluted share compared to $95 million or $1.31 per diluted share for 2009.

Operating results for both the quarter and the year were driven primarily by strong power supply operations and increased demand from industrial customers, which were offset by lower loads in our residential and commercial sectors due to the continued effects of a weak economy. In addition, the fourth quarter was partially impacted by Oregon’s utility tax law, SB 408.

Fourth quarter 2010 retail revenues decreased 2.7% from the fourth quarter of 2009. However, year-over-year retail revenues were essentially flat. The decrease for the quarter was primarily due to the impact of SB 408 and a decline in average retail prices of 5%, partially offset by the return of a large direct access industrial customer to PGE for its energy supply.

For both the quarter and the year, we saw customer growth and increased demand from certain high-tech solar, now they are industrial customers, which partially offset a decrease in deliveries to residential and commercial customers. Now we’ll move on to reach our energy deliveries. On a weather-adjusted basis, fourth quarter 2010 total retail energy deliveries were up 1.7% from the fourth quarter of 2009. This increase was driven primarily by a 10% increase from industrial customers, partially offset by 1% decrease from our residential customers while deliveries to our commercial customers were flat.

For the full year 2010, weather-adjusted, total retail energy deliveries were down 1.4% from 2009. This decrease was the result of lower residential and commercial deliveries of 2.5 and 2.2% respectively, partially offset by a 2.3% increase in the industrial area.

For the fourth quarter of 2010, the effect of weather on retail loads was not material. For the full year 2010 however, weather negatively impacted results, approximately $0.03 per share compared to a positive impact of $0.09 per share for the full year of 2009.

For the fourth quarter 2010, purchased power and fuel expense decreased 23% compared to the fourth quarter of last year. For the full year, decreased 12% compared to 2009. Decreased costs were primarily due to a combination of strong thermal plan operations and a decrease in the amount in price of purchase power.

Full year and fourth quarter 2009 were also negatively impacted on an $18 million write-off related to the Boardman replacement power cost of last year. Throughout 2010, PGE's generating plants performed well. The plants that PGE operates were at 95% availability compared to 89% availability for 2009.

Now onto hydro. During the fourth quarter 2010, hydro resources were 1% below normal compared to 9% below normal for the fourth quarter of 2009. It’s had a negative impact of about $0.5 million pretax in the fourth quarter of 2010 compared to a negative $5 million pretax in the fourth quarter of 2009.

For the 2010 calendar year, regional hydro conditions were again below normal. Energy received from hydro resources was approximately 8% below normal for both 2010 and 2009, which resulted in a pretax impact of approximately $15 million for each year. The initial outlook for hydro generation in 2011 indicates an improvement over 2010 and an overall approximately normal for PGE's resources. With the completion of Biglow Canyon Phase 3, wind generation provided of PGE's retail load compared to 4% in 2009.

Now I’ll update you on a few regulatory items starting with our power cost adjustment mechanism. For the full year 2010, net variable power costs were $12 million below the baseline as a result of efficient thermal plant and power supply operations, which were partially offset by lower hydro and wind generation. Net variable power costs for the year were well within the PCAM deadband ranges.

For 2009, net variable power costs were $22 million above the baseline due to replacement power costs for the Boardman and Cole Strip extended maintenance averages along with below normal hydro and wind generation. Decoupling is working as expected, as we see customers implement energy efficiency and conservation actions to manage their electric consumption. As a result, we are adequately recovering our fixed cost to serve our residential and small commercial customers. The weather-adjusted use per customer is below levels approved in the general rate case.

For the fourth quarter of 2010, we recorded the minimum collection compared to a $3 million refund recorded in the fourth quarter of 2009. For the full year 2010, the collection is $8 million for customers compared to a 2009 refund of $7 million. Now I will move on to the impact of SB 408, Oregon’s unique and complex utility tax law.

As we have discussed, when differences exist between taxes paid and taxes collected and customer prices, a collection or a refund to customers is required for 2010. The financial impact from SB 408 is a $5 million benefit, which has two parts. First, for 2009, PGE estimated customer refunds of $13 million. In 2010, we were worst, $5 million of this amount. This reversal was based on a stipulation reached with the OPUC staff in December. PGE expects the final order for the 2009 SB 408 reports to be issued in April.

Second, for 2010, PGE has not recorded a refund or collection for SB 408. In the third quarter of 2010, CGE recorded a $24 million collection, which we reversed in the fourth quarter. This reversal was due to the recently issued temporary rules by the OPUC to change the application of the normalization floor calculation. It is anticipated that the rule – the final rules with be adopted by the Commission later this year. In our efforts to deal with the unintended consequences of SB 408 legislation, we are actively involved in a working group convened by the OPUC at the request of members of the Oregon Legislature.

The group includes investor-earned utilities, customer groups, and other key stakeholders in an effort to recommend a set of reforms to address concerns with uncertainty, complexity and volatility graded by SB 408. With regards to the 2011 general rate case, in December the OPUC approved 3.9% increase in customer prices. For 65% in annual revenues. Together, with all adjustments of the January 1st increase in customer prices was 4.2%.

The order provided for new prices to cover increased O&M and other inflationary cost increases align our 2011 retail load forecast as well as reflect rate base of $3.1 billion, an authorized ROE of 10%, and a 50/50 capital structure. Overall, the outcome provides us with the opportunity to earn a competitive rate of return.

Now on to financing and liquidity. We continue to be active in the wholesale marketplace, entering into forward contracts for natural gas and power, mitigate commodity price volatility for our customers. As of December 31, we posted approximately $263 million in collateral with wholesale counterparties, which consisted of $83 million in cash and $180 million in letters of credit. As contracts settle and prices remain unchanged, we would anticipate the 70% of the collateral will roll off by the end of 2011, which consisted approximately $137 million in lines of credit and $44 million of cash.

We have $600 million in revolving lines of credit, of which $372 million was available as of December 31. At year-end we had $19 million of commercial paper outstanding and no direct draws on the revolvers. Our equity ratio was 47%. In 2010, capital expenditures totaled $450 million. As we forecast the next two years, we estimate capital expenditures will be approximately $300 million in 2011 and $240 million in 2012. These projected amounts do not include capital spending associated with Cascade Crossing or the RFP generation projects outlined in our IRP action plan, which Jim described earlier.

The IRP competitive bidding process will take approximately one year to complete, with potential construction of new generation. Capital spending will begin mid-2012 at the earliest. From 2008 through 2010, Congress passed a number of measures to help stimulate the economy, one of which was temporary bonus depreciation.

For most investor-owned utility, bonus depreciation reduces current taxes payable and increases deferred taxes, which in turn positively affect near-term cash flow and reduces rate base. However, for tax purposes, PGE had net operating losses and production tax credit carry-forward, which will delay any cash taxes payable until 2013 at the earliest.

Additionally, the impact to PGE's rate base is minimal. In closing, we continue to focus on financial objectives that support our core utility business and growth initiatives, including improved ROE and earnings performance, maintaining adequate liquidity and a strong balance sheet to support our investment grade credit ratings. Jim?

Jim Piro

Thank you, Maria. Our fourth quarter and full year 2010 performance reflects our continued focus on operational excellence, achieving constructive regulatory outcomes, and delivering a competitive return for our shareholders. As we move forward with the implementation of our IRP action plan, we will continue to position the company for future investment opportunities that deliver value to our customers and our shareholders.

Operator, we’d now like to open the call for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator instructions) We’ll go first to Brian Russo from Ladenburg Thalmann.

Jim Piro

Good morning, Brian.

Brian Russo – Ladenburg Thalmann

Is it kind of safe to assume, with the CapEx profile laid out over the next several years excluding the IRP-related projects, that your external equity needs would be minimal with the improved cash flow starting in '11 with the new rate structure?

Jim Piro

Yes, that’s a good assumption, I think, given where we are on ongoing capital expenditures. There is a page in the 10-K that kind of lays out our capital expenditures going forward. You can see the numbers there. They are fairly minimal in the $200 million range just for ongoing capital requirements for the business. So the equity needs are really going to be driven by the competitive bidding processes as well as the Cascade Crossing Transmission Project.

Brian Russo – Ladenburg Thalmann

And it looks like – even with a 53% total debt-to-capital ratio at year-end '10, it looks like with the improved cash flows that that could actually trend down closer to the 50/50 level, say, by '13 without any IRP projects?

Jim Piro

That’s a safe assumption in terms of where things are going, given the update on the guidance for 2011.

Brian Russo – Ladenburg Thalmann

Okay. And how should we look at your operating cost trends relative to the load growth that you are seeing while you are in between the rate case cycles?

Jim Piro

Let me give you kind of a high-level view on this. We had a fairly good outcome in the rate case in terms of getting bear recovery of our O&M costs. And our job right now is to manage those costs, given that we’re going to have limited load growth going forward. So we’re spending a lot of time in the company working on continuous improvement efforts, trying to find efficiencies, to try to manage through the next year or so without having to go in for filing of the rate cases. So that’s what we’re trying to focus on right now. And really looking at efficiencies, the lower load growth has – it helps a little bit in the sense that we’re not having as much work to be done in the field. We’d rather have the load growth obviously, but we’re managing that very carefully and trying to work through that over the next year or so.

Brian Russo – Ladenburg Thalmann

Can we expect you guys to file a 2013 general rate case?

Jim Piro

We have not made any decisions on a general rate case filing at this point. Some of it might – the timing of a rate case might be kind of coincidental with any type of generation resource we might add to the system. So we’re going to have to look at that and we’ll just have to see where load growth goes over time. And we manage this very carefully. If we are to file a 2013 rate case, we wouldn’t do that till February of 2012. So we’ve got plenty of time to continue to watch the economy, see how we are doing on controlling our cost and capturing those sustainable cost efficiencies.

Brian Russo – Ladenburg Thalmann

Okay. And then lastly, just the hydro conditions in the first quarter of 2011, it seemed that the Northwest had some good runoff towards the end of January with more mild temperatures. But I’m wondering how that dynamic works for you in terms of your fuel costs, maybe better hydro, but you could have been impacted from mild sales. Is that the way to look at it?

Jim Piro

We had some mild weather in January. With the really warm weather we had a lot of rainfall. Maria gets you the exact numbers but – in terms of the overall hydro conditions for the year. But it’s still too early to tell whether we have normal hydro. We get these early pushes of hydro and then it will slow down. Right now in a cold snap, and we went through a period of very little precipitation, but on the last week or so, we’ve seen some better precipitation. So this is one of those things we continue to talk about. It’s still too early to forecast where hydro is going to come out overall for the year. Maria, do you want to add anything to that?

Maria Pope

Sure. What we look at in terms of the posted hydro forecast is probably the same as you all. We – just a perspective, about half of our generation comes off of the Columbia River. And they are forecasting between 98% and 103%. And then our next largest source is the Deschutes and they are right at about 92%. So in comparison to the last two years where both years were down, off of normal, about 8%, we’re looking at a year that potential could be just about normal hydro.

Brian Russo – Ladenburg Thalmann

Okay, great. Thank you very much.

Jim Piro

Thanks, Brian.

Operator

We’ll move next to Jennifer Sireklove from McAdams Wright Ragen.

Jennifer Sireklove – McAdams Wright Ragen

Good morning.

Jim Piro

Good morning, Jennifer.

Jennifer Sireklove – McAdams Wright Ragen

I’m just curious if you are able to share any updates on the EPA notice of violation proceedings.

Jim Piro

Where we stand on that is we’ve been working on this Sierra Club lawsuit and filing various expert testimonies in that case. And what we committed to the EPA was we wanted them to see those filings before we met with them. And so right now, we’ve got a meeting scheduled in mid-March, I think, is when it’s scheduled to sit down and talk with them. But we really wanted to provide them our expert testimony on the issues that are in question. And they were fine with that, and so we are scheduled to meet with them in March to go over the data and the reasons why we believe we did not have – we don’t have a notice of violation here. So we’ll have that conversation in March and we’ll give them the data and we’ll see where we go from there.

Jennifer Sireklove – McAdams Wright Ragen

So maybe a decision would be reached then, or just continue for a while after that?

Jim Piro

Well, it’s a difficult process. As you meet with the EPA, you show them your arguments of why you think you did not have a violation. They will look at all the data. They have a number of things they could do. They could decide to continue to move forward on some actions or they could decide that they are satisfied with our information and then they would drop the notice. So they have many different avenues, and we’ll see after we have that conversation with them where they want to go after that.

Jennifer Sireklove – McAdams Wright Ragen

Got you. Then I’m curious in SB 408 where you see the biggest resistance to the repeal of that.

Jim Piro

Maria, you want to take that one?

Maria Pope

Sure. The discussions that we are having in Salem, which are led by two senators, Senator Atkinson and Senator Burdick, as well as by Commissioner Ackerman are going very, very well. It’s a very complex set of issues with a lot of opinions. But what we have been able to achieve is having everyone working together in a work group. And so while it is a legislative process that is very complex, we are hopeful – cautiously hopeful, I should say.

Jennifer Sireklove – McAdams Wright Ragen

But there is no sort of one sort of particular party or customer group or stakeholder that’s especially opposed to the repeal that –?

Maria Pope

I think with an effort and with SB 408 that as complex as this one is, there are number of parties who have specific issues with different portions of it. But we are all trying to work constructively together.

Jennifer Sireklove – McAdams Wright Ragen

Okay. And then just –

Jim Piro

The good news is that everyone is in the room talking about it and trying to find a solution, and I think that’s a positive sign.

Jennifer Sireklove – McAdams Wright Ragen

Got you. And then just sort of a more minor housekeeping question. It looks like you’ve changed maybe the way that you’ve laid out the segment revenues by customer group to include the deliveries to commercial industrial customers that purchase energy from alternative suppliers. I’m curious why that presentation has been changed and why it would impact revenues at the residential sector since I thought that would just be a C&I impact.

Jim Piro

Maria is going to look at the data. It should not attract the residential. Residential customers don’t have – do not have access to the energy supplier. So their deliveries are as delivered. The small commercial is kind of the same story. So it really only applies to our larger commercial and industrial customers. And I think – Maria, are you going to answer to that?

Maria Pope

Yes, I’m looking at the sheet here and I’m not exactly sure where your question is coming from. Why don’t we do this – why don’t I take it offline so we can go over the sheet with you? But I think that this is consistent with how we’ve shown things in the past.

Jennifer Sireklove – McAdams Wright Ragen

Great. Sounds good. We’ll talk later.

Maria Pope

Yes, thank you.

Jim Piro

Thanks, Jennifer.

Operator

The next question comes from Ashar Khan from Visium Asset Management.

Ashar Khan – Visium Asset Management

Hi, good morning.

Jim Piro

Good morning, Ashar.

Ashar Khan – Visium Asset Management

Can I just ask you what kind of ROE is the midpoint of the range for 2011?

Maria Pope

If you just take a look at our $3.1 billion in rate base and you apply our guidance, you will see it’s roughly about 9%.

Ashar Khan – Visium Asset Management

It’s about 9%. And then could you just remind us, as we look at these decisions, are there any dates as we look through the rest of the year in terms of when you will have a good idea? Is it like November, December, or when will you have a good idea of what you are buying and what the equity needs are?

Jim Piro

The first competitive bidding process will be for the peaking resources. And this process is kind of have their own life as you go through, but our expectation is be able to reach a decision on the peaking resource by the end of this year, in November, December timeframe. We have it – we are just now getting the independent evaluator on board that will oversee the process and make sure it’s being run independently. And then we go through the process. And our hope is to make decision on that first resource by the end of this year. The renewable resource and the base load generation will take longer probably early to mid of next year. So that’s the timeframe. And until we get through those processes, we won’t have real clarity on what our capital requirements are as well as how that ultimately affects our equity requirement. The first resource, our peaking resource, if we were to be successful and our resource was selected, it’s a relatively small investment relative to either the base load resource that were the renewable resources.

Ashar Khan – Visium Asset Management

Okay. So equity is really a 2012 phenomena then based on what you win or you don’t win?

Jim Piro

Most likely that’s the timeframe we’d be looking, mid-to-late 2012. But again, it will all be based on what happens with the competitive bidding processes.

Ashar Khan – Visium Asset Management

Okay. Thank you.

Operator

(Operator instructions) We’ll go next to Sarah Akers from Wells Fargo.

Sarah Akers – Wells Fargo

Hey, good morning. I'm wondering if you could share any thoughts on the departure of Chairman Baum from the Commission and what’s the process and timing for appointing a new commissioner and just any expectations that you have there?

Jim Piro

As you know, Chairman Baum retired from the Commission to take a job in Washington DC. He was very excited about the opportunity to work in Greg Walden’s office on some – both telecommunication issues, which he has had a lot of interest in as a member of the Commission, as well as on energy issues. So I think it was a great opportunity for him to go to Washington and get that exposure. And I will tell you, in talking with him after he let me know about it, he was pretty excited about it. The process going forward from here is the governor recommends an appointment to the Commission and the legislature approves that appointment. The governor is obviously working hard on the budget issues right now and hasn’t really teed up this issue in terms of who he would expect to replace Chairman Baum.

As you know, in Oregon, there are three commissioners that are appointed by the governor and approved by the legislature. They have to be two of one party and one of the other. So they can’t be all the same party. The current sitting commissioners, John Savage and Susan Ackerman, are both Democrats. So the new appointment would be a Republican. We would hope that the Governor would conduct a process similar to what he has in the past, which is talk to many of the consumer groups, including the utilities, to talk about who we would see as a good candidate to fill that position.

And then from all that information, he would make a recommendation. At this point, he has not appointed a chairman. Susan and John are sharing that job kind of right now. So the Commission is functioning to make decisions. It does have a quorum. But we do not yet have visibility on exactly when the Governor is going to tee up the replacement. He has – the session will run through July. And so we have some time to make that appointment and get it confirmed by the legislature.

Sarah Akers – Wells Fargo

Okay, great. And then a follow-up on the SB 408 issue. Are you guys advocating for a complete repeal, or is that kind of too much to ask for at this point? If that’s the case, are there specific reforms that you are targeting that you could share with us?

Maria Pope

Sure. We believe that the best place for the discussion of taxes, or for that matter, any cost for PGE or the other utilities in the state, is through the general rate-making process that we have with the rate cases. And so that’s what we’re advocating for.

Sarah Akers – Wells Fargo

Okay. Thank you.

Jim Piro

Thanks, Sarah.

Operator

And we will go next to Jim Bellessa from D.A. Davidson & Company.

Jim Bellessa – D.A. Davidson & Company

Good morning.

Jim Piro

Good morning, Jim.

Jim Bellessa – D.A. Davidson & Company

The depreciation line item in the fourth quarter had a bump-up sequentially from the third quarter. I know that you brought in Phase 3 of the Biglow Canyon in July, but I wouldn't have expected that much of a bump in DD&A. Was there something unusual about that? And is this $65 million a quarter level now more the standard for going forward?

Maria Pope

So the fourth quarter does reflect the addition of Biglow Canyon Phase 3, also smart meters. There is an adjustment for one of our solar projects. And then in addition, there was also some other just one-time adjustments. So we would expect the depreciation number to come down in 2011 from that $65 million.

Jim Bellessa – D.A. Davidson & Company

What would cause the reduction – quarterly run rate to come down?

Maria Pope

We had some adjustments between what was in revenues, Jim, and then what was in depreciation associated with our Coyote Springs long-term service agreement.

Jim Bellessa – D.A. Davidson & Company

Would you expect the full-year depreciation line item to be up for the year?

Maria Pope

Yes. It will probably still be up over the 2009 $211 million, but slightly below where we were in 2010.

Jim Bellessa – D.A. Davidson & Company

So 2011 will be slightly below the $238 million that was posted for 2010?

Maria Pope

Yes, exactly.

Jim Bellessa – D.A. Davidson & Company

Thank you very much.

Operator

And we’ll move next to Paul Patterson from Glenrock Associates.

Jim Piro

Good morning, Paul.

Paul Patterson – Glenrock Associates

Good morning. Just back on SB 408, I’m sorry if I missed this. I might have missed it. I’ve read something about some legislative changes potentially happening to that, and the last question that came up there, it seemed to me that was – it sounded like you guys are looking more for a regulatory fix. I’m sorry, if you could just elaborate on that again?

Maria Pope

Sure, Paul. SB 408 and the true-up mechanisms that we have as well as the rules came out of the legislature a number of years ago. And however, it asks that the OPUC administer the (inaudible). And what we are hoping to be able to do is to have the OPUC not be bound by all the legislative rules that were created, but be able to treat taxes as they do in a forward test year like they do with other costs. And so we’re currently in the discussions of what that would look like and how that would go.

Paul Patterson – Glenrock Associates

Okay. So there is no legislative – there is nothing pending in the state legislature at all on this?

Maria Pope

There is one proposed bill in the House, and then the group – to make any changes to SB 408, you have to first go through a legislative process. And this group that has been convened at the request of some of the legislators and shared by Susan Ackerman will recommend legislation to address the issues.

Paul Patterson – Glenrock Associates

Okay. So we need that to actually have the PUC, if I understand this correctly, to actually make the changes to sort of simplify it and clarify the changes that you want to have made. Is that right?

Maria Pope

Yes, that’s correct.

Paul Patterson – Glenrock Associates

Okay. And so you do support that, I would assume?

Maria Pope

Yes, that’s absolutely where we’re actively involved.

Paul Patterson – Glenrock Associates

Okay. But changing it or getting it completely removed is sort of off the table is what it sounds like.

Maria Pope

I think that what we’ve – through the years of all of this process we’ve learned a lot collectively between the utilities, the commission, intervener groups, and we will apply all of that collective learning to a process that will be much less cumbersome, resulting less volatility and the transparency that the intervener groups continue to want to have going forward.

Paul Patterson – Glenrock Associates

Okay, great. Thanks so much for the clarification.

Maria Pope

Thank you.

Jim Piro

Thanks, Paul.

Operator

There are no further questions at this time. I’d like to turn the conference back over to Mr. Jim Piro for any additional or closing remarks.

Jim Piro

Thank you. We appreciate your interest in Portland General Electric and invite you to join us when we report on first quarter 2011 results. If you have any additional questions, please contact Bill Valach, who will be available after this call. Thank you again for joining us today.

Operator

That concludes today’s presentation. Thank you for your participation.

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