Portland General Electric Co (POR) 2010 Q1 法說會逐字稿

Good morning, everyone, and welcome to the Portland General Electric Company's first-quarter 2010 earnings results conference call. Today is Tuesday, May 4th, 2010. 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 call over to Portland General Electric's Director of Investor Relations, Mr. Bill Valach. Please go ahead, sir.

Thank you, Regina, and good morning, everyone. 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, that there will be statements in this call that are not based on historical fact 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-Qs. The Form 10-Q for the first quarter 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 first-quarter 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 quarter's results and our strategic capital projects. Then Maria will provide more detail around the quarter's results and key, regulatory proceedings. Following those prepared remarks, we will open the lines up for your questions.

Now it's a 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 first-quarter 2010 earnings call.

PGE's net income for first quarter 2010 was $27 million or $0.36 per diluted share compared to $31 million or $0.47 per diluted share for the first quarter of 2009. We are reaffirming our full-year 2010 earnings guidance of $1.30 to $1.45 per diluted share.

As we discussed on our last call, we continue to face challenges due to weather-related events and the effects of a weak economy. During the first quarter, the Portland metropolitan area experienced the third warmest average temperature on record. This warmer weather led to a decline in residential energy deliveries. The continued effects of the economic downturn also led to a decline in commercial and industrial energy deliveries.

Hydro conditions continue to be below normal quarter over quarter, and the current hydro forecast indicates that we are about 75% of normal. However, better-than-expected thermal plant operations helped to partially offset this impact. Maria will go into more details later on the call.

In Oregon, the unemployment rate came in at 10.6% in March, down from the recession high of 11.6% in mid-2009. This compares to the national unemployment rate of 9.7% for the same period. The drop in Oregon's recent jobless rate results from a stabilization of Oregon's labor force and improving job market. Oregon continued to attract in-migration, ranking second after Washington, DC.

Despite continued customer growth of approximately 0.5%, total retail energy deliveries decreased by 9% or 3.3% on a weather-adjusted basis quarter over quarter. For 2010, we project that weather-adjusted retail energy deliveries will remain essentially flat relative to 2009. We expect energy deliveries to paper product manufacturers to be lower than 2009. However, this decline will be offset by a moderate increase in deliveries to other existing industrial customers, including those in the high-tech sector.

Looking ahead, we are seeing some positive signs. The high-tech sector, our largest industrial sector, is expected to benefit from strong demand. Locally, Sanyo and Genentech are expected to ramp up to full capacity by mid-2010.

Now an update on our strategic initiatives.

Overall satisfaction with both residential and general business customers remains high, and we continue to receive positive feedback that tells us we are meeting our customers' needs. The National Renewable Energy Laboratory just released its annual rankings yesterday, and I'm pleased to announce that PGE is first in the nation for the number of renewable power customers. And for the fifth year in a row, PGE sold more renewable power to residential customers than any other utility in the United States. These rankings reflect our customers' commitment to green power and our commitment to delivering them renewable resource options.

Also key to customer satisfaction is power quality and reliability. During the first quarter, our system operated well, our distribution metrics remained strong, and through our Generation Excellence Program, we've made continuous improvement at our generation facilities by focusing on safety, plant reliability, and process improvement.

Now an update on our key capital projects.

Our efforts to install smart meters throughout our operating area is currently ahead of schedule with approximately 670,000 new meters installed as of the end of April. We expect our smart meter project to be completed by year end and within its capital budget.

Construction of Phase III of our Biglow Canyon Wind Farm is on schedule. We expect to bring the first turbines of Phase III on line in the second quarter and to complete this entire project by the third quarter of this year. Phase III has an estimated total cost of $390 million, including $20 million of AFDC and installed, name-plate capacity of 175 megawatts. With the completion of Phase III, renewable energy will meet approximately 11% of our load, ahead of Oregon's renewable-energy standard first benchmark of 5% by 2011. The next benchmark is 15% by 2015 with the final benchmark of 25% by 2025.

Renewable resources like Biglow Canyon are an important part of our overall resource strategy, which is detailed in our 2009 Integrated Resource Plan filed in November with the Oregon Public Utility Commission. The proposed 2015 action plan includes meeting approximately 50% of our load growth over the next decade through energy efficiency measures as well as the following generation and transmission actions -- a natural gas facility to meet additional baseload requirements estimated at 300 to 500 megawatts; a natural gas facility for additional peak load requirements estimated at up to 200 megawatts; an additional 122 average megawatts of renewable resources to meet Oregon's RES requirements of 15% by 2015; and a new transmission project called Cascade Crossing.

Upon receipt of a Commission acknowledgment of our IRP Action Plan, we plan to conduct three separate RFP bidding processes -- the first for new, renewable resources; the second for baseload generation; and the third for peaking generation. In each of the RFPs, we plan to include our own self-build options to compete with the market bids.

In April, we filed an addendum to our IRP originally filed with the OPUC in November of 2009. The addendum recommends ceasing coal-fired operations at the Boardman plant by 2020. This is contingent upon receiving the Oregon Environmental Quality Commission's approval for our proposed revision to the current Regional Haze rule for Boardman, along with other events.

In April, we submitted a petition to the Department of Environmental Quality requesting a revision to the existing Regional Haze rule for Boardman. The revision calls for the installation of certain limited emission controls using lower sulfur coal and then ceasing coal-fired operations by the end of 2020 to meet the best available control technology standard.

We believe the 2020 plan is best for our customers and for Oregon. In addition to the environmental and cost benefits, this option will give PGE an adequate amount of time to find cost-effective, reliable, and environmentally sound replacement resources. In the event our proposed revision to the existing Regional Haze rule is not approved by the EQC, PGE has requested OPUC acknowledgment of the plan as presented in the original IRP, which calls for the installation of extensive emission controls to comply with the existing Regional Haze rule, and continued operation of the plant through at least 2040.

Now 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.

First-quarter 2010 net income was $27 million or $0.36 per diluted share. This compares to $31 million or $0.47 per diluted share for the first quarter of 2009.

Operating results for the first quarter were impacted by warmer weather, the continued effects of a weak economy, and unfavorable hydro conditions relative to the first quarter of 2009.

While we saw customer growth of about half a percent compared to first quarter 2009, retail revenues were impacted by weather, the economy, and lower retail prices. Residential energy sales decreased 13%. Warmer-than-normal weather in the first quarter of 2010 compared to colder-than-normal in the first quarter of 2009 and resulted in an 11% impact, while the weak economy resulted in a 2% impact.

The effects of a weak economy contributed to a 5% decrease in energy deliveries to commercial and industrial customers quarter over quarter.

On a weather-adjusted basis, total retail energy deliveries decreased a combined 3.3% quarter over quarter -- 2.2% for residential customers; 3.3% for commercial customers; and 6% for industrial customers.

In the first quarter, overall customer prices decreased approximately 1.2%. This consisted of a 4.1% decrease as a result of our annual update of the net variable power costs offset by a 2.5% increase primarily from Biglow Canyon Phase II coming into prices, as well as a 0.6% increase related to the Selective Water Withdrawal Project.

Average variable power costs decreased 6% in the first quarter of 2010 compared to the first quarter of 2009 due to an increase in the power provided by PGE-owned generating resources and a decrease in the cost of fuel used in natural gas-fired production.

For the first quarter of 2010, we saw an approximate 11% decrease in the average cost of natural gas-fired production as well as good performance from PGE's thermal operations. For the first quarter, thermal plant availability was 92% and thermal generation was approximately 3% higher than the first quarter of 2009.

For all PGE-owned and operated generating facilities, the combined average availability of our thermal, wind, and hydro plants was approximately 95%.

Offsetting this decrease in the average, variable power costs was a 17% decrease in energy received from hydro generation. Regional hydro conditions were below normal in the first quarter of 2010. PGE-owned hydro production and energy received from contracts from the Mid-Columbia Hydro Projects were down 5% and 26% respectively compared to the first quarter of 2009. Poor hydro conditions in the first quarter of 2010 had a negative $6 million pre-tax impact over the first quarter of 2009 and were approximately $11 million pre-tax below normal.

While we saw an increase in wind generation primarily as a result of Biglow Canyon Phase II becoming operational in 2009, wind production for the first quarter of 2010 was lower than expected. Since wind is a relatively new resource for the company, we will continue to study and refine our wind forecasts throughout the year.

For 2010, the Power Cost Adjustment Mechanism, or PCAM, has deadband ranges from approximately $17 million below to $35 million above the baseline for net variable power costs. As of March 31st, the difference between actual and baseline net variable power costs was approximately $7 million above the baseline. Accordingly, no amount was recorded for collection from retail customers during the first quarter of 2010.

For decoupling, we recorded a collection from customers of $5 million in the first quarter of 2010. This is primarily due to lower weather-adjusted use for residential customers than that approved in the 2009 general rate case.

Now an update on regulatory items.

On February 16th, PGE filed a general rate case with the OPUC based on a 2011 test year. We proposed $125 million increase in revenue requirements representing an approximate 7.4% overall increase in prices. We are requesting a capital structure of 50% debt to equity, and a return on equity of 10.5% for a total cost of capital of approximately 8.3%.

We are also proposing several key policy objectives, including regulatory mechanisms that better compare other utilities across the country and balance customer and shareholder interests consistent with our return on equity.

Regulatory review is underway and data discovery is going on. Settlement discussions begin in May and staff and interviewer testimony is due in early June. A final order is expected to be issued by mid-December and new prices are expected to become effective January 1st, 2011.

Now the renewable adjustment cost mechanism. On April 1st, we submitted a renewable adjustment cost filing primarily for Biglow Canyon Phase III. As these assets come on line during 2010, we will defer the net revenue requirement currently estimated at $17 million, which will be amortized over a period of one year. The impact of Biglow Canyon Phase III on the 2011 net revenue requirement is included in our general rate case filing.

As we look at the full year 2010, I'd like to discuss SB 408. Senate Bill 408 is a complex tax law. As we've discussed in the past, when differences exist between taxes paid and taxes collected, and customer prices, a surcharge or refund to customers is created. A key element in SB 408 is the protection of federal tax normalization rules. As a result, in 2010, due to production tax credits and significant, accelerated tax depreciation, the protection of normalization will come into effect, which impacts the calculations. Management currently expects that any amounts refunded to customers or collected from customers related to 2010 results will not be material.

Financing and liquidity. We had $600 million in revolving lines of credit of which $367 million was unused as of March 31st. In addition, at quarter end, we had no commercial paper outstanding or direct draws on our revolvers. We are active in the wholesale marketplace entering into forward contracts for natural gas and power.

Based on March 31st energy prices in relationship to our portfolio, we required to post $302 million in collateral with wholesale counterparties, which consisted of $89 million in cash and $213 million in letters of credit. If market prices remain unchanged and if contracts settle, we would anticipate that 42% or approximately $109 million in letters of credit and $18 million in cash to no longer be required at year end 2010, and another 38% to roll off in 2011.

During the first quarter of 2010, we issued long-term debt of $191 million. This included issuing $70 million of first-mortgage bonds at 3.4% due in 2015, and $121 million of pollution-control bonds at 5% due 2033. In addition, we repaid $149 million of maturing unsecured notes. This summer, we expect to issue the remaining $59 million of anticipated $250 million in long-term debt for the year. While we are periodically higher or lower over the long term, we target a capital structure of 50% debt and 50% equity. At quarter end, our equity ratio was 46.5%.

Our 2010 capital expenditures are estimated at $495 million and include Biglow Canyon Phase III at $175 million, smart meter project at $40 million, and upgrades to and replacement generation, transmission, and distribution infrastructure estimated at $255 million. During the quarter, we completed $92 million of the $495 million in capital expenditures expected for the year.

I would now like to transition to the topic of health care reform and the bill passed in March.

A significant issue facing corporations relates to how the bill negatively affects the tax and accounting treatments of employers receiving Medicare Part D retiree drug subsidies. Due to the way we fund our retirees' plans, we will not be impacted by the elimination of this tax deduction. For 2010, the new legislation will have no material impact on our health care plan for our active or retiree employees.

In closing, we continue to focus on financial objectives that support our core utility business, including adequate liquidity to maintain our investment-grade credit ratings, readily-available access to capital markets to support our growth initiatives, and fair and reasonable regulatory outcomes while earning a competitive rate of return on our invested capital.

Jim?

Thank you, Maria.

During the first quarter, we continued to make progress on executing strategic investments, such as Biglow Canyon Wind Farm and smart meters project. Through a constructive regulatory process, we are working towards positive outcomes for both our 2011 general rate case and our 2009 integrated resource plan.

Looking ahead, we continue to position ourselves for upcoming growth opportunities, including significant investments in generation, transmission, distribution, and new technology.

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

(Operator instructions.)

Our first question comes from the line of Brian Russo with Ladenburg Thalmann.

Hi. Good morning.

Good morning, Brian. How are you?

Good. Thank you.

Could you just remind us the sales force -- forecast embedded in the 2011 rate case? And given the -- after the first quarter of this year, are you still comfortable with it?

As you know, we put the load forecast together early -- late last year and that's put into the rate case. And then during the year, we update that forecast as we get more information from the Oregon Economic Development Commission in terms of what the growth looks like in Oregon. So that's what's going on there. And so we do get a chance to update it.

Maria, do you have the specifics on that?

Sure. Just for background, our loads are obviously off in 2009, the base year that we used for our 2011 rate-case filing. We have projected largely flat for 2010 as well as for 2009. And as we look at the split between residential, commercial, and industrial, we had expected residential to continue to be slightly down while commercial and industrial to be slightly up as we expect to be coming out of the recession off of the lows in 2009.

So essentially flat in--

Flat in 2011.

--2011. Yes.

Okay. Thank you. And any updated thoughts on the timing and the size of the expected 2011 equity offerings to get you back to 50% equity ratio?

Maria, why don't you take that?

Sure. As you know, in our rate case, we have noted that we would be looking to issue equity in the tail end of 2011. At this point, we don't have any updates. Obviously, depending on capital markets, our performance, and the outcome, most importantly, of the IRP and RFP processes, we will be evaluating what we do.

Okay. And then lastly, just could you just talk a little bit more about kind of the rate case cycles that you expect going forward in Oregon once this 2011 rate case is finalized? Looks like you've got some decent IRP-related projects. And I'm wondering how the approval process of that might maybe dictate if and when you need to file for another general rate case.

Good question, Brian.

There's a couple factors that go into when we might file a subsequent rate case. First of all, as you know, any new renewables that we would add, would go through the renewable adjustment clause mechanism. So those will be able to be tracked in directly.

New thermal resources or a new transmission line would have to go through a general rate case process. The current expectations, those projects wouldn't be complete until 2013 to the 2015 timeframe. So we would probably be looking at a rate case to track in those costs.

And then the other factor, obviously, is the growth in sales in the overall economy. To the extent we have reasonable growth, we can offset some of our increases in cost through that additional margin.

So those are the factors we'll look at as we determine whether we'd have to file a rate case for 2012 or '13 and beyond. So that's kind of the way we're thinking about it right now.

Maria, do you have anything to add to that?

No. I would say we're probably looking at more frequent rate cases than we have in the past and very much focused on achieving some of our policy objectives in addition to recovering our cost to meet reliable service in 2011.

Okay. Thank you.

Our next question comes from the line of [Eric McCarthy] with Praesidis Asset Management.

Hey, good morning.

Hi, Eric.

Just to clarify, the $17 million for Biglow, is that additive to the $125 million? Or is that included in the $125 million?

The $17 million is for the deferred net revenue requirements during 2010. Under the Renewable Energy Adjustment Clause, which is a mechanism that allows us to track in 100% of the net cost, we're able to do that through deferred accounting during the year that the plant goes into service. And then in 2011, it is in there for a full year in our overall revenue requirements included in the general, rate case. So the $17 million's only for a partial year based on the projection of when we think those units will be coming on line.

Okay. And then it looks like you've lowered CapEx for Biglow Canyon III by about $35 million this year. What's the primary driver behind that? And sorry if I missed it in the--

No, it's okay. Maria, do you want to cover that one?

Sure. We're doing really well on executing our capital expenditure projects. And in particular, Biglow Canyon Phase III is coming in right on budget. And as a result, any contingencies as well as additional savings that we've been able to realize, we are achieving and we've reduced our estimates by about $35 million at this time.

Okay. So it's just coming in under budget then?

Yes.

Yes. We had assumed some contingencies given that project. And as the schedule was going forward and we're being able to capture those contingencies based on the delivery of the turbines and the good work the contractors have done to get that project completed.

Okay. And then to follow up on Brian's question, I think you said total, megawatt hour volumes were going to be flat in '10 and '11 with '09 is what is in rates?

Yes, that's approximately that. That is what we've expected in the 2011 rate case.

And what is that total megawatt hour volume? Is that 17.5?

Maria will look it up, but just as a general course, we will continue to update the load forecast based on new, economic information as we go through this year. And I think the latest forecast we'll include in the general rate case will be in the September timeframe. So we'll continue to update it based on economic activity, watching closely how the economy affects both our industrial and commercial customers, and then how residential use per customer changes over the year. So that's kind of the plan.

And have you been able to find the number, Maria?

It looks like that's approximately the number, but I'll confirm with you after the call.

Okay. Thank you.

And last question. What are the taxes? The SB 408 issue is, obviously, one that's tough to follow. What are the taxes that are in rates for 2010, the nominal, tax-dollar value?

So while Maria is doing that, as you know, SB 408 is a complex rule. And we've been working on trying to better understand and simplify that process. We've been working with the other utilities to potentially address that in the next 2011 legislative session. We think that the law just really isn't -- is very complex for investors to understand. And we are trying to try to resolve some of those issues around 408. So with that, Maria, do you want to get into this and tell--

Sure. So we're expecting to have neither a material surcharge or refund for customers in 2010. In 2009, we had a surcharge of -- excuse me -- a refund of about $13 million.

The specific question you asked around what taxes are in rates, the way you do that is you go back to the 2009 general rate case and you determine the -- essentially the taxes that were included in the approved revenue requirements. And then you have to adjust that going forward for the addition of the Biglow Canyon Wind Farms and any other changes in our overall cost structure. That's how it's determined. Then we use that as the baseline going forward.

Okay. And just -- last question. Sorry for so many. It looks like in the first quarter, we were kind of -- we were helped by mild weather in that hydro was weak at the same time. If we see a less mild summer and temperatures are still up but hydro continues to be weak, how is that going to impact us on the PCAM?

So let's see, two questions, I guess. The weather hurt us in the first quarter because we had warmer weather and we tend to have our winter peak, which we expect cold weather. So the warmer weather actually hurt us from a consumption standpoint because residentials didn't use as much energy as they would typically use under normal weather. Added to that, the reduction in hydro because of a low snow pack, those two things kind of were additive.

As we think about the rest of the year, we've assumed normal weather going through the rest of the year. And you have to just kind of play it out. If we get a warm summer like we did last year, then that would improve margins and help us on the revenue line. On the cost side, it really depends on how generation plants operate. We expect hydro to be below normal for the rest of the year as we mentioned earlier. And so that would tend to hurt us on that side.

So warmer summers help us. Colder summers would hurt us from a revenue standpoint. And then hydro, at least our current forecast is will continue to be below normal through the rest of the year.

Okay.

Is that helpful?

Yes. Very. Thank you.

Our next question comes from the line of James Bellessa with D.A. Davidson & Company.

Morning, Jim. Oops. We lost him. Jim, you there?

You may have your phone--

Excuse me. Jim Bellessa here. I'm sorry. Good morning.

Morning, Jim.

You expected -- you indicated that there was lower-than-expected wind generation during the first quarter. What was the capacity utilization rate? And can you blame it on the El Nino effect as another large developer is using as an excuse?

Boy, I wish I had -- there is some projections that say the El Nino can affect the weather patterns and the wind. We do not have enough experience yet to reach that conclusion. But we are looking at it. We're trying to understand it because wind was down in the first quarter, though I will tell you the last month, it looks like it's been up.

Maria, do you have the specific numbers?

Sure. In the first quarter, we were at about 14% capacity factor and that compares to about 30% last year. And what we really anticipate is a little bit more than that.

Last year, it's interesting that it was only towards the tail-end of the year that we began to see our capacity factors really drop. So we're watching it pretty closely. And I've also seen the commentary on the El Nino effect.

We're trying to do some work in the area of wind to get a better forecast. We've been using meteorological data that was tracked when these projects were developed. We're trying to get better information to do a better job forecasting wind not only for operations, but also for regulatory purposes. And a lot of work's been gone -- is going into that effort.

Did I hear that correctly that your utilization of the wind farm was 14%, less than half of what it was a year ago?

Yes. Yes, Jim. And that had an impact of being about $3 million less than Q1 last year.

Is that $3 million of revenues or pre-tax?

That would have been pre-tax.

Replacement cost, basically, for the -- based on expected.

Thank you very much.

Thanks, Jim.

Our next question comes from the line of Steve Gambuzza with Longbow Capital.

Good morning.

Hi, Steve.

The gain on the non-qualified pension plan in the quarter, is the amount that you indicated in the press release, is that a pre-tax or a net-income number?

That's the pre-tax number.

Okay. And is that -- like do you exclude those gains from kind of adjusted EPS? Or are they included?

We don't do an adjusted EPS or report that way. So we just include it.

So you're not assuming anything in your guidance for that going forward?

No, we have not. We just call that within the range.

And I think you may have commented on this, but if you wouldn't mind repeating, with respect to the collateral postings, if we think about kind of where the balance sheet is right now and assumed no real changes in commodity prices going forward, how much cash -- forget about LC postings -- but how much actual cash would come back to you between now and the end of 2011?

End of 2000 -- [difference] -- about $18 million this year, Steve. And then for next year, it is about $46 million.

$46 million. That's the cash. And then--

Yes.

So there's nothing -- if I'm just trying to think about kind of the impact on your debt to capital of this issue, there's nothing else other than that that's kind of reflected in debt right now.

No, there is not.

Okay. All right. Thanks a lot.

(Operator instructions.) Our next question comes from the line of John Ali with Decade Capital.

Morning, John.

How are you?

Good.

Just -- there are some other calls going on this morning so I apologize if you've already gone over this. I just wanted to go over load growth from 2009 to 2010. I think you said it was flat overall. But I was kind of looking for a -- I guess a customer split, residential versus commercial and industrial.

Sure. We're expecting load to be roughly flat in total, down for residential, pretty much flat for commercial but down a little bit, and then for industrial, up off of what was a very low base in 2009. In the first quarter, we were down in all segments by 2.2% for residential; commercial, 3.3%; and industrial, 6% for a total of 3.3%.

(Inaudible - multiple speakers.)

(Inaudible - multiple speakers.)

I'm sorry.

I said that forecast is based on weather-adjusted information.

Yes, all of that is weather-adjusted.

Adjusted.

All that's weather adjusted. So does the decoupling protect you on the residential side of that down?

Yes, it did. And we did have a decoupling adjustment in the first quarter of about $5 million. We also had a decoupling adjustment in the first quarter of last year, but not quite as significant.

Right. And you expect--

Just recall, though, decoupling only deals with use per customer. It does not adjust for weather. So we weather-adjust the data. So what we actually saw in the first quarter was a decline in use per customer on the residential -- at the residential level, and that's what we adjusted for, for the use per customer.

And for 2011? You said flat overall again. But what would you expect the, I guess, the split to be?

Flat overall. Continued slight decrease in residential as people are conserving more. And then with the slight return in the economy, up slightly for commercial and a little bit more for industrial.

Okay, and are you seeing any residential customer growth at all?

We are. We saw half a percent of new customers in our service territory in the first quarter over last year.

And what you see in Oregon is, actually, we do see customer growth. But that's offset by efficiency. And we are promoting efficiency in Oregon through the Energy Trust of Oregon and our programs to reduce consumption. And so we're seeing reductions in use per customer which offsets the growth in number of customers.

All right. Thanks, guys.

Our next question comes from the line of Eric McCarthy with Praesidis Asset Management.

Hey, just a quick follow up on the decoupling. What's the base that that is set on?

The basis from the last general rate case. So when we set rates, in this case, 2009, we take that use-per-residential customer as the baseline. And then when we complete the 2011 rate case to the extent decoupling is a continued program, we'll use that use per customer that comes out of that case as the baseline.

And then on the commercial side, we don't use use per customer. We do programmatic changes. So the extent the commercial customers implement energy efficiency programs, we would identify those lost revenues and then be able to recapture those lost revenues.

Okay. I think I have -- the data here that I have is about 11,000 kilowatts per residential customer per year?

That sounds about right from the last rate case. So that's the use per customer that we use as a baseline.

Okay. All right. Thank you.

Sure. You're welcome.

And at this time, there are no further questions. I will turn the conference over to Mr. Jim Piro.

Thank you very much. We appreciate your interest in Portland General Electric and invite you to join us when we report on our second-quarter results for 2010. If you have any additional questions, please contact Bill Valach, who will be available after this call. Thank you again for joining us.

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation. You may now disconnect.