Portland General Electric Co (POR) 2009 Q3 法說會逐字稿

Good morning, everyone, and welcome to Portland General Electric Company's Third Quarter 2009 Earnings Results Conference Call. Today is Thursday, October 29, 2009. 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.

Thank you, Enisa, and good morning, everyone. I'm Bill Valach, Director of Investor Relations at Portland General Electric, And we're very pleased that you're 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 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 could cause such differences, the Company requests that you read our most recent Form 10-K and Form 10-Qs. The Form 10-Q for the third quarter of 2009 was available this morning at 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 if Safe Harbor statements should be incorporated as part of any transcript of this call. Portland General Electric's third quarter 2009 earnings were released before the market opened today and the release is available at portlandgeneral.com.

And with me today are Jim Piro, President and CEO, and Maria Pope, Senior Vice President of Finance, CFO and Treasurer. Jim will begin this call with an overview, Maria will then discuss in more detail our third quarter results, and then we will open up the call to questions. And now it's my pleasure to turn the call over to Jim.

Thank you, Bill. Good morning, everyone, and thank you for joining us. Welcome to Portland General Electric's 2009 third quarter earnings call. We continued to feel the impacts of this challenging economy during the third quarter. In response, we've been actively managing our expenses, putting special emphasis on continuous improvement and cost efficiencies. This includes implementing a Company-wide program focused on identifying and capturing cost saving opportunities. As we've continued our focus on operational excellence, we've also made progress executing our strategic initiatives, which includes long-term capital investments that create value for our customers and our shareholders.

On today's call, we'll provide more clarity around the key drivers of our third quarter financial results and reaffirm guidance for 2009. I will discuss our earnings guidance for 2010 and the key drivers, I'll update you on Oregon's economy and the outlook for our operating area, and finally I'll discuss the progress we're making on our strategic initiatives. Later, Maria will provide details on third quarter results and continued cost control efforts, financing and liquidity, and current regulatory proceedings. So let's begin.

PGE's net income for the third quarter 2009 was $32 million or $0.43 per diluted share, compared to net income of zero for the third quarter 2008. Earnings were primarily driven by the refund to customers related to the Trojan proceedings recorded last year; the continued impact of the economic recession resulting in a decline in retail energy deliveries, specifically in a large industrial sector; increased revenues from the 2009 general rate case and annual update tariff; an increase in purchased power and fuel expense due to the extended outages at Unit 4 of Colstrip and the Boardman coal-fired generating plants, along with lower hydro production from our hydro plants and the Mid-Columbia projects; an increase in the fair market value of our non-qualified benefit plan trust assets; and lower administrative costs.

Now on to earnings guidance. For 2009, we are reaffirming our full-year earnings guidance of $1.35 to $1.45 per diluted share. For 2010, PGE is providing full-year earnings guidance of $1.50 to $1.65 per diluted share. 2010 earnings guidance assumes normal hydro conditions and plant operations; load growth ranging from zero to 2% in 2010 over weather adjusted 2009, reflecting the continued uncertainty in the industrial sector and slow economic recovery; escalating operations and maintenance costs due to higher healthcare costs, salary escalations, and higher compliance and other administrative costs; and temporary reductions in operating costs to partially offset escalating expenses and economic pressures on load growth. This results in a projected ROE of between 7% to 8%, which is below our allowed ROE of 10%.

In spite of our efforts to control our operating costs, I am disappointed with the projected earnings for 2010, and as a result we are taking actions to address the lower ROE by aligning customer prices to cover our operating costs and provide our shareholders a reasonable rate of return. To accomplish this, we are planning to file a general rate case in early 2010 based on a 2011 texture, with new prices to be effective beginning in January 2011. The 2011 general rate case will reflect the O&M and capital-related expenses essential to operating our business and delivering the high customer satisfaction, safety and reliability that our customers expect.

Now, I'll provide you an update on Oregon's economy and specifically our operating area. The economic slowdown continues to impact our business, Oregon's unemployment rate eased to 11.5% in September from 12% in August. The unemployment rate in our operating area continues to average approximately 0.5% lower than the state's overall rate. This net rate compares to the national unemployment rate of 9% for September. Oregon's unemployment continued to be affected by in-migration. On a percentage basis, Oregon's labor force through September 2009 grew 1.7% year-to-date over the same period in 2008.

Our customer base continues to grow. We served more than 818,000 customers at the end of the third quarter of 2009, an increase of approximately 0.5% year-over-year. Despite this customer growth and the record heat wave in July, total retail energy deliveries decreased 2% in the third quarter of 2009 compared to the third quarter of 2008, driven primarily by an 11% decline in demand by industrial customers, offset by a 5% increase in demand by residential customers.

For the full year 2009, we project annualized weather adjusted energy deliveries will be approximately 2.5% below 2008 levels. Looking ahead, we continue to see ongoing investment opportunities in rate-based assets. The potential generation and transmission projects outlined in our Integrated Resource Plan give PGE solid prospects for growth. We also see growth opportunities through new technologies. We are focused on the development of a smart grid through our efforts with the smart meter deployment, electric vehicle charging stations and exploring new partnerships on solar projects.

Now I'll update you on the main focus area of our strategic direction, both what we've accomplished and where we're headed. The three areas we used to continuously measure our performance are operational excellence, corporate responsibility and business growth. First, in the area of operational excellence, I'm pleased that we are in the top decile for overall customer satisfaction, both in the residential and general business customer area. And yesterday, the Solar Electric Power Association announced PGE has earned the 2009 Solar Business Achievement Award in the category of Partnering For Success. PGE and our partners are being recognized for developing the nation's first solar highway, as well as the Northwest's largest rooftop solar installation.

Now an update on our generating facilities. The availability of our plants through September 30, excluding Colstrip, was approximately 86%, including thermal, wind and hydro. Thermal was at 81%, wind at 97%, and PGE-owned hydro at 99%. All of PGE's thermal and hydro plants are currently available except Colstrip Unit 4, which is currently in start-up mode. In April, the Colstrip operator, PPL Montana, informed us that the scheduled 2009 maintenance outage of Unit 4 was going to be extended. The operator is currently bringing that unit back online as we speak.

In the area of corporate responsibility, we continue our leadership role in public policy. On carbon-related legislation, we continue to believe a federal legislative policy is the right direction to take, preempting any state or potential administrative action by the EPA. We are working with others in our industry, including EEI, to help Congress and federal policymakers understand the importance of this issue and the implications to our industry and our customers.

Now I'll move on to our growth opportunities. I'll start with an update on some of our major capital projects. First, our smart metering project. Our metering installation efforts remain on schedule. By late October, approximately 320,000 new meters have been installed within our service area. We anticipate that the smart meters will be installed in half of our service area by the end of 2009, with the remainder to be installed in 2010.

Next, our selective water withdrawal project at the Pelton Round Butte hydro facility. Repairs to the damaged sections are completed and we are in the process of tower construction and the project is expected to be completed in late 2009 or in the first quarter of 2010. We have filed for cost recovery and testimony by interveners is expected to be filed in December, and hope you see decisions expected by March with rates effective in April of 2010.

Next, Biglow Canyon Wind Farm. In August, we completed construction of Biglow Canyon Phase II. All 65 wind turbines are now available to supply power to our service area. Net costs for Biglow Canyon Phase II are currently being deferred through year-end and will be fully included in prices on January 1, 2010, through the Renewable Adjustment Clause mechanism. Construction of Phase III is on schedule and on budget with completion expected in the third quarter of 2010. The estimated total cost of Phase III is $426 million, including $23 million of AFDC, and this project is anticipated to be included in prices on January 1, 2011. With the completion of all three phases, we will serve approximately 11% of our load with new renewable energy.

Our draft IRP was issued in September and the period of public reviewing comment has closed. Our final IRP will be submitted in November 2009. Our proposed 2015 action plan in the draft IRP includes the following; the continuation of the acquisition of all cost-effective energy efficiency, which will reduce consumption by approximately 214 average megawatts; the acquisition of 122 average megawatts of renewable resources to meet Oregon's renewable energy standard of 15% by 2015; acquisition of base load energy and load following capacity resources; the installation of emission controls on the Boardman plant; and construction of a new transmission project called Cascade Crossing.

PGE is pursuing the following self-build options; our natural gas facility at Boardman to meet additional base load energy requirements estimated at 300 to 500 megawatts. The capital expenditure for this project is expected to be between 2014 and 2017. Our natural gas facility at Port Westward for additional peak load requirements estimated at up to 200 megawatts. The capital expenditure for this project is expected to be between 2012 and 2014. Renewable resources to meet Oregon's RES requirements by 2015. The capital expenditures for this project is expected to be between 2014 and 2015. Each of these potential self-build options would be included in separate formal RFP biding processes, which will be conducted following the OPUC acknowledgement of our IRP expected in mid-2010. Included in our IRP is the evaluation of the economics associated with the installation of new emission controls on the Boardman plant.

Based on the expected cost related to carbon replacement generation, coal and natural gas and emission controls required to meet the Oregon Environmental Quality Commission's rule, we are recommending that PGE's installation of all emission control measures that support the long-term continued operation of Boardman are in the best economic interest of our customers.

And finally on transmission, we're continuing to study a 200-mile 500-kV transmission line called the Cascade Crossing. The project is being designed to meet growing demand, provide enhanced system reliability and help bring new renewable generation to our operating area. The estimated cost of the project is currently between $610 million for a single-circuit 500-kV line to $825 million for a double-circuit 500-kV line. This is 100% of the total current cost, excluding AFDC. This month we initiated the public outreach effort to update key stakeholders and property owners about the proposed transmission project.

And finally, as part of our earnings release, we are discontinuing providing guidance on long-term annual earnings per share growth. Our decision is a result of the timing and uncertainty of the completion of our major capital projects associated with our Integrated Resource Plan and the fluctuation in earnings caused by this timing and associated future equity issuances. None of our peer utilities offer this information, and I believe that providing updated detail on our major capital projects and the key drivers that lead to earnings growth will deliver more clarity and less confusion to investors. We continue to pursue these capital projects to meet our IRP action plan while providing reliable and cost-effective power to our customers, as well as significant growth opportunities for our investors.

With that, I'd like to turn the call over to Maria Pope, our Chief Financial Officer, to discuss our financial results in more detail.

Good morning. As Jim mentioned, net income was $32 million or $0.43 per diluted share for the three months ended September 30, 2009. This compares to zero for the third quarter of 2008. For the third quarter of 2009, revenues increased by $45 million, primarily due to a $33 million increase resulting from the Trojan refund recorded in the third quarter of 2008; a $29 million increase resulting from the impacts from the 2009 general rate case; a $6 million increase related to taxes under SB 408 due to minimal customer refunds recorded in the third quarter of 2009, compared to a $6 million customer refund recorded in the third quarter of 2008; a $4 million increase driven by retail sales, which are up 1%. This was the result of an increase in the average number of customers and extremely warm weather in July, but was offset by a 6% decrease in industrial energy sales. When combined with direct access customers, total energy delivered to industrial customers decreased by 11%. These increases in revenues were offset by a $25 million decrease in wholesale revenues and a $4 million decrease in other operating revenue, primarily from lower fuel oil sales in the third quarter of 2009, compared to the third quarter of 2008.

Purchased power and fuel expense increased by $8 million in the third quarter of 2009, compared to the third quarter of 2008. This reflects the impacts of the following; increased costs of thermal production due to the extended maintenance outages at Colstrip and Boardman; a $6 million reversal in the third quarter of 2008 of a previously booked refund to customers associated with our Power Cost Adjustment Mechanism or PCAM, no amount was recorded in the third quarter of 2009 related to the PCAM; decreased cost due to lower market price purchased power and lower wholesale sales, as well as lower hydro generation.

Administrative and other expenses, primarily compensation, decreased by $5 million or 10%, reflecting lower-than-expected financial performance. Other income increased by $11 million, primarily due to an increase in the fair market value of non-qualified benefit plan trust assets and higher AFDC equity. Interest expense increased $4 million due to higher average long-term debt balances in the third quarter 2009. Finally, income taxes increased by $17 million as a result of higher net income.

As our Company and our customers continue to face a challenging economy, we are responding by reducing cost. In 2009, cost control measures have included the following reductions in O&M; significant reduction in contract workers, no salary increases for professional staff, reductions and targeted programs ranging from fuel cost to healthcare benefits, and voluntary furloughs. Going forward, we are planning to implement additional cost saving measures, including delayed filling of new or open positions, continued reduction of contract crews and other O&M activity due to slow economic environment conditions, reducing non-recovered costs. We have engaged management and are working hard on implementing a Company-wide program to streamline operations through process improvements and capture further O&M cost saving opportunities.

Now an update on generation. Due to the scheduled maintenance outage at the Colstrip plant, PGE's share of repair cost is currently estimated at approximately $2 million, with $1 million incurred through September 30 and $1 million expected in the fourth quarter. Replacement power costs are estimated to be approximately $8 million through September 30, with an additional $4 million expected in the fourth quarter. At the Boardman plant, repair costs due to the maintenance outage were minimal and network placement power costs were approximately $4 million in the third quarter.

Now on to hydro. Although generation from PGE's hydro plants provided approximately 10% of our retail load requirement during the first nine months of 2009, hydro generation was approximately 4% below our 2009 forecast and historic averages, which includes 92% on the Deschutes River, 122% on the Clackamas River, and 80% on the Columbia River at Grand Coulee.

Now a brief update on the Power Cost Adjustment Mechanism or PCAM. For 2009, the deadband ranges were approximately $15 million below and $30 million above the baseline for net variable power costs. Although we expect that actual power costs for 2009 will be above the baseline, the difference between actual and the baseline power cost is expected to be within the deadband. As a result, no customer refund or collection has been recorded as of September 30. The decoupling mechanism -- which went into effect on February 1, 2009 for an additional period of two years. This allows for the recovery of fixed cost and lost revenues that are the results of customer's energy efficiency and conservation efforts. On our decoupling, the sales normalization mechanism, which is applicable to residential and small commercial customers, represent approximately 60% of PGE's revenues. As a result of increased energy usage in the residential sector on a weather adjusted basis, and the return on equity production component, we have booked a regulatory liability of approximately $2 million in the third quarter, bringing the reduction in revenues to $4 million year-to-date.

Now moving on to financing and liquidity. In September, we were able to take advantage of attractive interest rates. We reached an agreement to sell $150 million of 30-year first mortgage bonds in the private placement market at an interest rate of 5.43%. The bonds are expected to be issued in early November.

PGE has $525 million in revolving lines of credit as of September 30. Total availability was $335 million, which compares to $324 million at the end of the second quarter. PGE is currently working on renewing our $125 million 364-day credit facility due in December. We expect to increase the size up to $175 million to $200 million, and extend the term up to three years. The revolving credit facilities provide working capital as well as liquidity for our power supply operations and price risk management activities. We have entered into forward contracts for power and natural gas to meet our retail load. And as a result of decreased power and natural gas prices, we have posted collateral to meet these margin requirements under these contracts.

As of September 30, we posted $256 million in collateral with wholesale counterparties, consisting of $86 million in cash and $170 million in letters of credit. If market prices remain unchanged from September 30 levels, we anticipate that 35% of current collateral deposits will roll off in 2009 and another 47% would roll off in 2010. The posting of collateral for margin requirements affects cash flow, but it's important to note that the costs associated with gas and power contracts are either currently in or are anticipated to be in customer prices.

As of September 30, we had no commercial paper outstanding, no direct draws on the revolvers, and $190 million in total outstanding letters of credit. Our debt to total capital ratio was 50.6%. PGE anticipates issuing a total $250 million of additional debt through 2010, with part of the proceeds used to redeem $186 million in maturities, and the balance to support the completion of Biglow III and other capital projects, as outlined in our 10-Q.

We continue to focus on our investment grade credit ratings. Our senior unsecured ratings are Baa2 at Moody's and BBB+ at Standard and Poor's.

Now I'll provide an update on our pension funding status. At year-end 2008, our funded status was 74% assets to projected benefit plan obligation. Based on 2009 funding requirements under the Pension Protection Act, we do not anticipate having any required contributions in 2009 or 2010, but expect to begin funding in 2011 with a $40 million contribution. Our pension expense for 2009 is estimated to be $350,000. In 2010, the expense is estimated to be approximately $3 million to $4 million. It is our intention to seek a regulatory deferral and include pension expenses as part of our 2011 rate case.

I will now give you an update on regulatory proceedings. This year PGE made the following regulatory filings. On April 1, we submitted our first filing under the Renewable Adjustment Clause mechanism. This mechanism allows for the cost of renewable resources that are expected to be placed under service in the current year to be recovered in customer prices without filing a general rate case. Our initial filing included Biglow Canyon Phase II and PGE's share of two solar projects. The filing requests a 2.4% increase in prices which would go into effect January 1, 2010, following a final update in December.

As part of our annual update tariff, the forecast of 2010 power cost includes lower natural gas prices and power cost savings from Biglow Canyon Phase II estimated at approximately $17 million. In total, we anticipate residential customer prices to be relatively flat and large industrial customer prices to decrease by 3% to 4%. The forecast will be updated and finalized in November. Power costs will be included in customer prices effective January 1, 2010.

Finally, an update on the Trojan order. On March 19, the OPUC issued an order that reset and restarted the Trojan refund, as outlined in the September 30, 2008 order. The application process closed on September 19. We have begun the refund process and expect the entire $33 million plus interest will be refunded to customers by the end of 2009.

In closing, we continue our focus on financial objectives that support our core utility business, namely a solid balance sheet and adequate liquidity to maintain our investment grade credit ratings. Although currently below, we target a long-term capital structure of 50% debt and 50% equity, efficient access to capital markets to support investments in new and existing generation assets and our transmission and distribution system, fair and reasonable regulatory outcome, while earning a competitive rate of return on our invested capital.

I would now like to turn it back over to Jim.

Thanks, Maria. We remain on track with major capital projects. Our final IRP will be submitted to the OPUC in November and construction of Biglow Canyon Phase III is on schedule. Customer satisfaction and system reliability levels remain strong. We are taking the necessary operating and regulatory actions to continue to ensure that we are running our business in an efficient and cost-effective manner while earning a fair return for our shareholders.

Looking ahead, we remain focused on our business strategy to strengthen our position as a leading regional energy provider through an emphasis on operational excellence, corporate responsibility and investment opportunities that support our core utility business, enhance service to our customers and deliver value to our shareholders.

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

Thank you so much. (Operator Instructions). Our first question will come from Steven Gambuzza with Longbow Capital.

Good morning.

Hi, Steve.

I had a few questions. Could you repeat the amount of the fuel and purchased power increase you're expecting for 2010, I believe you provided that number?

Well, Steve, are you speaking of what we're expecting to go into customer prices?

Yes, in the summary of rate cases, I thought you provided some estimate for what the 2010 forecasted fuel and purchased power rider is going to be?

I think what she talked about -- she talked about a $17 million reduction in power cost, but that was primarily related to including Biglow Canyon Phase II into power cost. The combination of both, I think we can get you that number. I don't have it -- I don't think we have it here directly.

We do not. The net effect on customers of all of our filings and power purchases will be 3% to 4% decrease.

Decrease?

Yes, for large commercial and industrial customers, and then a slight decrease for residential customers.

Okay.

But that includes both the power cost, as well as the increase for the Biglow Canyon Phase II. So that's a net price change.

Okay. And then on the pension discussion, you had mentioned that you're going to seek a regulatory deferral for the increase in pension costs in 2010 and recover those in your 2011 rate case? Is that right?

Yes, that's correct.

Does that mean that you would -- are you seeking an order from the commission to allow you to defer those expenses, such that they wouldn't hit the P&L in 2010?

Yes, correct.

Is that assumption then better than your 2010 guidance?

Yes, it is.

Okay. And if you talk about the process for receiving that deferral order?

Sure. So we will be filing that with the commission largely to recover our income statement or FAS 87 expenses, as well as some of the interest costs in the future between the difference between cash contributions and that. And that is about $3 million to $4 million in 2010, and then in 2011 it is approximately $6 million to $7 million.

Is there -- in terms of timeline of getting a deferral order from the commission, when will the commission decide on that, whether or not to grant you that authority?

We expect to be filing that in the fourth quarter or potentially the first quarter of next year.

And so if they don't decide until the first -- the second quarter of next year, how do you treat that in the first part of the year?

We would have that as an expense until we would have a resolution with the OPUC.

And is there a regulatory precedent in Oregon for that type of treatment for pension expenses?

Yes, there is. And in fact we're unusual in not receiving our FAS 87 expense in terms of recovery, and that's because we largely haven't had any. Our plans have traditionally been fully funded, and it's only with the downturn in the market that they have fallen to the 74% funding level at the end of last year.

Could you discuss what OPEB expenses are? I assume the numbers you gave are just for pension, correct?

Yes. Right now we're actually seeing an income in that area from our non-qualified benefit plan assets, and that's in contrast to where we were from last year, where we had an expense.

Well, just the guidance, it cites increasing benefit cost, I believe, as one of the drivers, but it sounds like you're deferring the pension cost. So can I get a sense for what the --

[You're right]. When we mentioned the increase in benefit cost, of those -- the big increase there is in healthcare costs --

Okay.

For our employees and that is part of our guidance for 2010.

So I guess what's the increase there?

It's approximately about $5 million, $6 million.

$5 million to $6 million of increase in healthcare cost between $9 million and $10 million?

Yes.

Okay. So if -- I know that like the impact of that increase is exaggerated by the SB 408 impact of having a lower tax shield. Could you just give a sense for what the aggregate amount of -- when you think about reduced load and higher expenses, kind of what the total amount of drag on pre-tax dollars are that we should be thinking about from all these factors that are weighing down your returns in 2010?

Sure. So as we look at 2010 on the load side, and we compare it to 2009, we're roughly forecasting about flat to slightly up, and that is down from 2008 by about 2.5%. In our rate case for 2009, we had expected to be up by 1.7%. So the total of all of that combined versus what we had in rates is about $20 million before factoring in decoupling, and then we have an offset for decoupling of a couple of million dollars, and that is on a pre-tax basis. In terms of increased expenses, we're looking at roughly about $12 million to $18 million of increased expenses that are inflationary factors, and that is the benefits increases we spoke about, some wage increases and then material costs are continuing to go up and we're seeing that as well.

Thanks. That's very helpful.

Your next question will come from [Sarah Akers] with Wells Fargo.

Those numbers that you just gave, do those include the impact of SB 408, or is the SB 408 impact a separate negative driver?

Sarah, that's a good question. It's a separate negative driver. And for 2009, we are estimating about $12 million for this year, and then for 2010 it's roughly the same also at $12 million, one of which would be a refund to customers.

Okay. And then earlier you gave the 7% to 8% implied ROE in your 2010 guidance, correct?

Yes.

Yes.

Do you have that number ex- the SB 408 impact?

The SB 408 is roughly a third, and I can get that calculation for you.

Okay.

After the call.

And then one last question, on the last call you guys talked about potentially working with the commission to tighten the deadbands on the PCAM. I'm wondering if those discussions are ongoing, and if they are, how they're going and when we might hear something?

We'll include a proposal to tighten the bands on the deadband for the PCAM as part of our general rate case for 2011. So we'll file that in February of next year, and you get a sense of what we're looking at there then.

Great. Thanks a lot.

It will be an ongoing discussion with the commission and the other parties.

Thank you.

Your next question comes from James Bellessa with D.A. Davidson & Co.

Good morning.

Good morning, Jim.

I believe it was in the second quarter report that you revised lower your guidance for the year to $1.35 to $1.45, and you reaffirmed that this time around. When you set that $1.35 to $1.45 goal, did you have in that number the $0.07 write-up of non-qualified benefit plan assets that you just reported?

No, we did not.

So in effect, your guidance is really going down because the $0.07 is now embedded into the $1.35 to $1.45, is that right?

In terms of our forecast for non-qualified benefit plan assets, we're not forecasting the same kind of results certainly that we saw in the first quarter. We have begun to see some of those when we reported to you in August, but we're concerned about going the other direction in the fourth quarter.

In the fourth quarter -- your current guidance suggests that the fourth quarter will be somewhere in the range of $0.14 to $0.24, that would be comparable to the $0.32 that you reported last year. What are the major decreases in earnings that are [resulting] this year?

So as you mentioned, there is a significant change that we're expecting from our performance in Q3 to Q4 in the non-qualified plan performance. Also, we had some plant O&M cost that we had expected to see in Q3 and that the timing difference -- we will be seeing some of those in Q4. We have higher financing costs. We have significant administrative cost savings in Q3, while we expect some of those to continue not nearly the magnitude that we saw in Q4. And then we can expect to see continued pressure on write-offs. We're actually pleased with our performance, but it is a difficult economic period and we are seeing higher write-offs than we had in the past.

Write-offs meaning accounts receivable?

Yes, we are currently right at about 0.5%.

And then in your Q, you talked about your Oregon corporate tax rate having been increased and retroactively back to January 1, and that [being] your most recent quarter by $3 million, but you had some offsets of federal and state credits. Will those federal and state credits continue to be there to help offset the higher corporate tax rate at the Oregon level, or will you be weighed down by higher tax rate going forward?

No. We have ample enough amount of credits going forward.

And Jim, just so you recall with Senate Bill 408 any increase in taxes gets passed on, too. So we're insulated to some extent on increases in tax rates, but that all gets factored into the 408 calculation.

Thank you very much.

Your next question comes from Maurice May with Power Insights.

Yes, good morning, folks.

Hi, Maury.

Sort of a longer-term regulatory question. Despite the forecast test year and despite having partial decoupling, you're way underearning your authorized ROE this year. And I was just wondering what kind of encouragement you could give investors looking forward that the 2010 rate case might fix this for 2011?

Well, I think the key driver here, Maury, is that we've seen no load growth in the economy. And if we would've seen just reasonable kind of what we've seen historically, the 2% load growth that we've historically seen, we'd have been pretty much in line with where we needed to be for 2010. So it's hard to forecast these load changes and decoupling in retrospect hasn't helped us much this year because residential use per customer has actually been up, which is kind of a surprise to us, but it did project us to the extent we would have seen decline in residential use per customer. We're coming out of this recession -- Oregon kind of lags the US economy, but I think 2011 rate case will get us reset and if we're back on a kind of a historic growth pattern that we've seen historically, we ought to be just fine and so --

But Jim, can you bake like a 0% load growth into 2011?

Well, we'll put our best shot at what the numbers are, as we put the forecast together for the rate case and we have to (multiple speakers)

I think you mentioned once, you mentioned the deadband, shrinking the deadband.

Yes.

That's something that actually could help achieve higher results, right?

Yes. That would clearly help the volatility of our earnings. I think the load growth is obviously the key driver. We'll continue to want to have decoupling out there to protect us for a reduction in use per customer. The industrial sector becomes a tough sector to forecast, but again if we're seeing recovery in economy, we believe that that will continue from its historic trends. And there are some good signs in Oregon, the companies coming to Oregon, the solar companies are still committed, they're growing their business. We have other bright spots in the economy, Sanyo down in Salem is completing their factory and getting them going. So we hope that in late 2010 we'll start seeing the recovery of our customer base and the lowering of unemployment, which I think is the key factor here in terms of supporting our earnings growth.

So you plan to bake optimistic growth forecast into your 2011 --

No, I think we're going to bake in realistic forecast based on -- we use the economic drivers from the State of Oregon. The way we do the forecast in the general rate case is very systematic in terms of the data we use. It ties to the economic forecast both in the state and the US economy. So we're not optimistic, we're not pessimistic, we try to hit right in the middle, that's our objective with that forecast. And then to the extent decoupling's there, that will kind of insulate us on the residential and small commercial side.

Okay. And then just moving on to 2010 financing, your press release mentions some debt, but doesn't mention any equity. Is that what you're signaling here, no equity in 2010?

That is correct.

Okay, great. Thanks, Jim.

(Operator Instructions). Your next question will come from [John Alli with Decade Capital].

Good morning.

Good morning, John.

Couple of quick questions, I apologize if I've missed this, but there are some other calls going on simultaneously. If you could just take me through the pension again, how much are pension, healthcare and OPEB? What's the impact year-over-year from '09 to '10?

Sure. On the pension side, we have expense this year, 2009, of roughly $350,000. In 2010 we have -- expecting roughly $3 million to $4 million, and then in '11 roughly $6 million to $7 million. On the OPEB side, we are seeing increases in terms of our healthcare benefit side, as well as inflationary increases for salaries, as well as materials and whatnot, and that is roughly $12 million to $18 million. In terms of our non-qualified benefit -- excuse me, I'm sorry?

$12 million to $18 million in 2010?

Yes.

Incremental?

Yes, over 2009.

Got it. Okay, and the pension tracker that you guys hope to get? Does that cover all of those expenses?

No, it will cover just the pension side.

So only the $3 million to $4 million?

Yes.

And why haven't you guys filed for that yet? Because I remember you -- I recall you mentioning on the second quarter call.

With the volatility in interest rates and growth rate expectations, the numbers have been jumping around, and we needed to make sure that they were nailed down and we would have a firm filing when we went to the commission.

And the commission is okay with you asking for that, as well as coming in for a rate case at the same time?

It would be our expectation.

(multiple speakers) separate periods, but --

Yes, there'll be -- it's two different time periods. Also, our request is not unusual. What is unusual is that we do not currently have it in rates, because it has been our recent experience that we have not had expense as we have largely been fully funded.

So basically your 2010 guidance just excludes that pension impact?

Yes, sir.

Okay, great. And one other question about the 2010 guidance, how much of it is AFUDC? I know it's a big driver with Biglow's II coming on.

Yes. It's part of it, it's not that much different than in 2009. So it's roughly about the same between 2009. Both 2009 and 2010 are big capital growth periods for us.

And then 2011, would you expect that to tail off?

I would expect it to tail off.

Okay. Roughly how much?

So essentially it transfers to assets and rate base.

Yes.

So essentially --

You'll get the impact then from the rate increase, but your AFUDC should drop off accordingly?

Yes, it would.

AFUDC would drop off and cash earnings would come until the assets go through the rate base.

Understood. Okay. Thank you, guys. I appreciate your time.

Thank you very much.

At this time, there appear to be no further questions. So I would like to turn it back over to management for closing remarks.

Thank you. We appreciate your interest in Portland General Electric and for those of you who plan to be at EEI next week, we hope to have some time to catch up with you. We also invite you to join us when we report on fourth quarter 2009 results next year. If you have any additional questions, please contact Bill Valach who will be available after this call. Thank you again for joining us today.

With that we'll conclude today's Portland General Electric Company's third quarter 2009 earning results conference call. You may now disconnect.