Portland General Electric Co (POR) 2012 Q1 法說會逐字稿

Good morning, everyone, and welcome to the Portland General Electric Company's first quarter 2012 earnings results conference call. Today is Thursday, May 3, 2012. 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 and introductions, 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, Rochelle, and good morning, everyone, 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 on 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 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 2012 is now available on our website 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 on our website at portlandgeneral.com.

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

And it's my pleasure now to turn the call over to Jim.

Thanks, Bill. Good morning, everyone, and thank you for joining us. Welcome to Portland General Electric's first quarter 2012 earnings call. PGE's first quarter earnings were $49 million, or $0.65 per diluted share, compared with $69 million, or $0.92 per diluted share, in the first quarter of 2011. These results reflect strong operating and financial performance, and I am pleased to report that we are reaffirming our 2012 earnings guidance of $1.85 to $2.00 per diluted share.

On today's call, I'll give you an update on Oregon's economy and the progress we're making on our strategic initiatives. Then Maria will discuss PGE's first quarter results, liquidity, and our outlook for the remainder of 2012.

Now, let's move on to the economic outlook in our operating area. Oregon continues to experience in-migration, and the state's unemployment rate has dropped a full percentage point from last year to 8.6%, with the unemployment rate in our core operating area averaging 7.8%.

Quarter-over-quarter, we've added 3,500 customers, and our weather adjusted retail energy deliveries are up. We expect to see growth in our industrial sector as a result of Intel's large D1X facility and new data centers coming online as scheduled.

Now I'll give you an update on our strategic initiatives, starting with operational excellence. We continue to deliver excellent operating performance Companywide. Our system operated extremely well, our distribution reliability metrics remain strong, and generating plan availability was high. Overall satisfaction from residential, commercial and general business customers remains high, and we continue to receive positive feedback that tells us we are meeting our customers' needs.

We are continuing our benchmarking and best practices work to identify and implement system and technology improvements that result in cost efficiencies throughout the Company. We've already achieved significant savings with the installation of smart meters and are pleased with the performance of our new financial and supply chain systems. We expect to see similar results as we deploy new technology and make process changes in our transmission and distribution areas.

Now I'll give you an update on our progress executing our integrated resource plan action plan. Oregon Public Utility Commission is currently reviewing a draft of our Combined Capacity and Energy RFP. This RFP allows self-build benchmark proposals and bids from independent power developers or producers who also have the option to build on PGE's benchmark sites so long as the plants are built to our specifications and would be owned and operated by us.

We are finalizing our benchmark proposals for the Combined RFP and expect to receive the OPUC's decision early next month. We anticipate the final decisions on what resources we select in the latter part of 2012 or early in 2013. We are continuing negotiations on a benchmark resource for the Renewable RFP and expect to file a draft of the Renewable RFP with the commission next month, with final resource decisions in late 2012 or early 2013.

The RFP process takes time, and we're focused on being thorough and doing it right. I am confident we will accomplish the IRP action plan goal, which is to acquire resources to meet our customers' needs that achieve the least cost-least risk criteria.

We are also making progress on our Cascade Crossing transmission project. In February, we filed the application for site certificate with the Oregon Department of Energy. We are currently working with the U.S. Forest Service on the environment impact statement and with the Confederated Tribes of the Warm Springs on easement and an environmental analysis.

We are also continuing our discussions with BPA on agreements that will enable the integration of the project into the northwest power grid, and with PacifiCorp on their potential participation in the project as a co-owner. Although the project remains in the feasibility and permitting stage, we still expect to receive the necessary permits in 2014 and are targeting an in-service date of late 2016 or early 2017.

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.

Thank you. As Jim noted, net income for the first quarter of 2012 was $49 million, or $0.65 per diluted share, compared with $69 million, or $0.92 per diluted share, for the first quarter of 2011. Our financial performance this quarter is in line with our expectations and reflects strong power supply operations, slightly above average hydro conditions, and a focus on cost management.

It is important to note that our results in the first quarter of last year reflect significant power cost benefit from very strong regional hydro conditions and economic displacement of the Company's thermal generation.

I will now provide further detail on key drivers for the quarter, discussing financing and liquidity, and conclude by reaffirming our full-year earnings guidance.

Total revenues for the first quarter of 2012 were $479 million, $5 million less than the first quarter of last year primarily due to a decrease in both price and volume of energy sales. Actual retail energy deliveries decreased 1% quarter-over-quarter. However, excluding two large paper manufacturers, which have little impact on margin, retail energy deliveries were relatively flat.

Adjusting for these paper manufacturers as well as weather, energy deliveries were up 1.2% quarter-over-quarter, which is in line with our full-year load growth expectations of 1% to 1.5%.

We are particularly encouraged by the solid performance in our commercial and especially in our industrial sectors, including high technology and manufacturing.

Purchase power and fuel expense was $195 million for the quarter, compared with $194 million a year ago. A 5% increase in average variable power costs was offset by a 3% decrease in total system load. Net variable power costs for the quarter were $5 million below the baseline and within the lower deadband of the Power Cost Adjustment Mechanism, or PCAM, as hydro generation, while lower than last year, was above the long-term average.

In the first quarter of 2011, power costs were $19 million below the baseline due to an abundance of hydro generation and low wholesale power prices. At this point, we expect net variable power costs for the full year to be within the lower deadband of the PCAM.

Hydro generation for PGE owned and Mid Columbia projects was down 27% quarter-over-quarter, reflecting generation at 6% above normal, compared with 16% above normal a year ago.

In addition, generation at our Biglow Canyon Wind Farm increased 13% due to improved wind conditions. However, wind generation for the quarter was slightly below levels forecast in the 2012 annual power cost update tariffs. Generation at our thermal plants represented 40% of our total system load for the first quarter, compared with only 24% a year ago.

Production, distribution and administrative costs totaled $107 million for the first quarter of 2012, an increase of $13 million from the first quarter of last year. Key drivers of the increase include higher production expense related to increased thermal plant operations, higher delivery system costs, and increased pension expense.

Importantly, O&M expense for the quarter was in line with our expectations and approximates the quarterly run rates for the full year. Relative to 2011, we expect O&M for 2012 to increase. But after adjusting for an insurance recovery in 2011 and several other expenses that are offset in revenues and in other areas, we expect O&M to be relatively flat year-over-year.

Lastly, depreciation and amortization expense for the quarter was $62 million, up $6 million from a year ago, driven by the shortened operating life of the Boardman plant and the amortization of tax credits that were completed in 2011. This increase was partially offset by a $4 million decrease related to the deferral of costs associated with four capital projects. For the full year, PGE expects to defer a total of $17 million, assuming a regulated ROE of 10% or below.

Capital expenditures this quarter were $69 million, and we expect total capital expenditures for the full year to be approximately $330 million. We are focused on maintaining our strong balance sheet, adequate liquidity and investment-grade credit ratings.

As of March 31st, we had strong liquidity, with $533 million in available credit. We do not expect to issue debt or equity in 2012. We target a capital structure of 50% debt and 50% equity. At the end of the first quarter, our common equity ratio was 49%.

We are reaffirming our full-year earnings guidance of $1.85 to $2.00 per diluted share based on our expectations of load growth, strong power supply operations and effective cost management.

In closing, we continue to focus on financial objectives that support our core utility business, including improving our earnings performance and maintaining our balance sheet strength to support future growth initiatives. Jim?

Thank you, Maria. We're pleased to see solid load growth in our operating area. Our performance during the first quarter reflects our continued focus on operational excellence, including generating plant availability, system reliability and customer satisfaction.

Moving forward, we will continue to focus on our core business strategy and positioning the Company for future investment opportunities that deliver value to our customers and shareholders.

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

Thank you. The question-and-answer session will be conducted electronically. (Operator Instructions). And we'll pause for just a moment. And we'll take our first question from Neil Mehta with Goldman Sachs.

Good morning, Neil.

Morning, Jim. Morning, Maria. So first question relates to hydro. I was reading through your 10-K and 10-Q this morning. Looks like hydro forecasts are tracking slightly above normal for the April to September timeframe. How does that impact the way you think about the PCAM mechanism and fuel costs?

Let me just give you a general view on hydro, and it has improved and continues to improve with the wet March and April we've had, and you've seen the forecast in our K, and there's even been a more recent forecast out there. The interesting thing is we didn't see much hydro in the first quarter because it was so cold, and so the snow melt -- snow pack is still up in the mountains. It hasn't come down. The good news is it's likely to be delayed. So we didn't see much of a hydro effect in the first quarter. We expect to see more in the second and third quarter. It really will depend on the weather conditions on how fast the snow comes down.

The kind of down side of that is that gas prices -- natural gas prices are low, so the value of that hydro will be somewhat diminished from what we saw maybe last year. So really it's going to depend on how the hydro comes off the mountains and how it plays out in our forecasts.

Maria, you want to talk a little bit about the PCAM and how that plays into that?

Sure. Currently, Neil, we are at about $5 million below the baseline and within the PCAM ranges. We expect to most likely end up within the ranges, but we do have some upside potential here.

Got it. And then on O&M, Maria and Jim, there was obviously an increase in the first quarter. The goal is to keep O&M flat year-over-year. Does that imply 2Q to 4Q you're expecting O&M to trend down?

Maria will explain. There are some adjustments to O&M between last year and this year to get to that flat comment, and Maria will take you through that. The plants did run a lot more in the first quarter this year because hydro was down compared to last year, and so that's why you're seeing a slight increase in O&M quarter-over-quarter.

Maria, you want to talk about how the full-year forecast shapes up?

Sure. What we're looking at was about $107 million of total O&M, up just a slight bit in the A&G area, but predominantly in the production and distribution area. If you look back on the sequential quarters, we're tracking pretty much in line with what we saw for each quarter of 2011, with the exception of the first quarter, when production and distribution O&M were quite low.

We did have some adjustments that were carryovers from 2010 in that 2011 first quarter. And then also, we have some items that are offset in either revenue or in depreciation. So in general, we're taking -- when we look at O&M, we're expecting to be relatively flat, absent those adjustments, on a year-on-year basis.

Got it. And then, finally, the question I ask every quarter is how we should be thinking about the timing of the next rate case. Is the expectation still that you file in '13 for '14 implementation, more of an O&M type of case as opposed to a capital case?

That's our current thinking right now. We will continue looking at the forecast. A lot of it will depend on load growth. We do have a couple capital projects that we do see coming online in 2014. There's actually three. There's a new readiness center for backup for our system. We're also looking at a new service center out at -- we call Avery. And then we're also implementing the Boardman dry sorbent injection system in 2014. So there are three capital projects, and we're still evaluating -- we won't make a final decision until next year whether we file that case for 2014, but right now that's our current thinking. We will continue to evaluate the load forecast and how the capital projects are going and make that determination closer to the end of this year.

Thanks, Jim. Thanks, Maria.

Next, we'll move on to Maurey May with Power Insights.

Good morning, Maurey.

Yes, good morning, folks. How are you doing?

Good.

Good.

I have a question for Maria, and it's one more question about the PCAM. You said you're $5 million below the baseline in the first quarter, but I think you said in your presentation that you thought you'd be towards the low end of the baseline, which -- towards the deadband, I'm sorry, which implies that the PCAM may be positive to the tune of $13 million or $14 million this year. Is that what you're implying here?

I think a lot of it depends on what we continue to see in terms of the run off of all of the snow pack that we have in the mountains, as well as gas prices. But we do have some room for upside within our PCAM mechanism, to our benefit, and we'll see how that plays itself out as we go forward.

We do spend a lot of time forecasting hydro conditions and Mother Nature, but we --given where we are right now and the fact it's pouring outside, we have positive expectations.

Okay, but you did say your expectations were toward the low end of the deadband, right?

No. We were --.

You did not say that?

We are within the deadband.

Okay, within the deadband, but not any deeper than the $5 million.

In terms of between $5 million and $15 million. We didn't give an exact forecast, Maurey.

Okay. Sorry, I thought I heard one.

No. Sorry.

Okay.

And next we'll move on to Brian Russo with Ladenburg Thalmann.

Hi. Good morning.

Morning, Brian. Morning, Brian.

Good morning. Just curious on the RFP process for the capacity and the peaking resource. When would you expect -- if you were to self-build, when would you start to spend that capital, and when would that become commercially available?

So on the capacity project, I think our plans right now, assuming we get through the RFP by the end of this year and that is the winning bid, we expect the capacity resource to come on in early 2015. The exact timing and schedule of that will depend on equipment availability and kind of how the process plays out, but that'd be that period. And the energy resource, if, again, we were successful and that was the winning bid, probably mid-2016.

Okay. So for the capacity, if it came online in early '15, if you had a two-year construction cycle, we should see spend begin in 2013?

Yes, '13, '14. I mean, I think that's the plan, is we have to order the equipment. There will be some time to gear up and get mobilization. So I think it'll be more towards the end of '13 and towards the beginning of '14 will be the major spend in terms of the construction costs, but that's probably a reasonable assumption.

Okay. And would you have to seek recovery of this in the context of a general rate case, or could you do something kind of one-off?

No, I think the plan would be we would need to file a general rate case for cost recovery. I mean, we could talk about a potential tracker for that, but the commission tends to like to do a general rate case when we bring a large resource in.

Gotcha. In terms of your tax rate, I know you've got a fairly low tax rate due to the production tax credits. I'm just wondering with the increased capacity factor on Biglow, does that change your tax rate assumption for the year? And then also, what is that tax rate assumption?

Sure. Our tax rate is fairly favorable for the first quarter as a result of the production tax credits. We're expecting, though, that for a full year, we probably would have somewhere in the range that we've had over the last couple of years, which is 28% to 30% would be our full-year tax rate. We have seen very positive signs at the wind farm in terms of the (inaudible) of that facility and the wind versus last year, so there could be some upside, but I think using the last three-year history would be a good number to go with.

Yes, I think -- Brian, I think the better way to deal with it is use the statutory rate on the base business and then add in the production tax credit based on an expected wind generation is probably be -- because the number will fluctuate based on the PTCs and income, but it's better to separate the two pieces, I think.

Okay.

You get to about the same result Maria is talking about, but things will move around based on income and expense.

Gotcha. And then just on the guidance, I would imagine with the guidance was originally issued, it was based on normal hydro. Now we're seeing slightly better hydro, and you're already $5 million below the deadband and you're -- we're likely to see a continuation of favorable hydro conditions, like you said, with the snow pack yet to melt and the wet May and April. Is there a bias towards the upper end of your current guidance? And if you're still in the middle of the range, are there any negative offsets to what looks to be a favorable PCAM?

Brian, you have to -- and Maria will explain this after I give you some comments. You have to understand there is a relationship between the ROE and the deferral that we have for the four capital projects, and so that's really based on a 10% ROE. So there is an interplay between the PCAM and the deferred capital -- the deferred revenues for the capital.

So maybe, Maria, you can explain that relationship.

Sure. As we mentioned, we have about $17 million of revenue opportunity associated with about $100 million of capital that's been completed since the last rate case, and we can pull that in when we are at 10% or below on a regulated ROE. In fact, in the first quarter, we made an adjustment in this area representing about $4 million.

To your question on guidance, we did -- we have looked at our first quarter and the results there, which, as we noted, were fairly (inaudible) with the additional hydro. But we have only forecasted slightly above normal for hydro, as we don't spend a lot of time on forward-looking hydro conditions, as we don't know exactly what the runoff will be or the benefit given gas prices. So that's where we leave it, and we tend not to adjust at this point in time on a forecast basis.

Okay, understood. Thank you.

Thanks, Brian.

And next we'll move on to Sarah Akers with Wells Fargo.

Hey, good morning.

Morning, Sarah.

Good morning. You mentioned some of the ongoing activities related to Cascade Crossing, but can you give us a better sense of kind of what are the important milestones with that project, and more so kind of when you expect to hit those, so when we might get a more firm sense of the CapEx timing on that project?

There are really a couple really key milestones. The first milestone is getting agreement with Bonneville and integrating the project into the Pacific Northwest grid, and those agreements relate to easements and line rating, and we're working -- in fact, there's a meeting going on in the other room just having that conversation today in terms of how we work on those agreements. It's critical because it has to be integrated in the whole grid how the rating of that line is and how we connect to the various substations to get the maximum value for the region.

So that's a critical agreement, and we continue working on that. I think the conversations have been positive. Bonneville's been very supportive. So that's a key thing. We hope to have that wrapped up by the end of the year. And we'll have a good sense of that by the end of the third quarter of whether we're going to reach the finish line, but everything seems to be positive and moving in the right direction. But we have to get the agreements reached.

So that's one critical piece. The second agreement that's critical, and this is really related to whether it's a single circuit line or a double circuit line, is PacifiCorp's participation in the project, and we're in good conversations with them. They obviously need to get to the terminus of our project, which is Boardman, and the way they get there is they're proposing to build a project called Gateway West, and then Idaho Power and Bonneville and PacifiCorp are proposing to build a line from Hemingway to Boardman, which is the terminus of Gateway West. And once they get to Boardman, then they would like a piece of our -- about 600 megawatts of our Cascade Crossing to get to southern Oregon, where they have a load center.

So there are a few things that have to connect there, but that discussion is really around whether we build a single circuit line or a double circuit line, and we'd love to build a double circuit line. Everything seems to indicate that's the right strategy. PacifiCorp is very interested and everything is going well on those two projects that connect.

So that's a second important piece, but that's really relative to whether we build single or double circuit, and that would obviously be more cost effective to build a double circuit line just given the challenge of building these lines and optimizing and maximizing the value of the right-of-way.

The third challenging part of this is getting the permits, and I will tell you we're doing all the surveys. And as you know, the project was selected by the rapid response team to accelerate and facilitate better licensing and permitting for these projects. Everything is going well in those projects. We're doing the surveys and all the work, and we're now starting to talk about what mitigation might be required for habitat and wildlife.

And so that's going well, and, again, I think the visibility we're getting at the federal government -- the other good news is both the Gateway West project and Boardman -- Hemingway to Boardman have also been selected by the rapid response team, so a lot of good coordination.

And so those are the three key things, and obviously the Bonneville agreements are the most important in terms of ensuring that we have this project integrated into the Northwest grid.

And then do you have to have the BPA agreement in place before the PacifiCorp agreement can happen because that will be the determinant of the single or the double?

Clearly that agreement is critical, because without that agreement, we don't have a project. I mean, that agreement with Bonneville enables that line to get built in terms of integrating into substations and the line rating and trying to make it all work within the context of the Northwest grid. So it's like if we can't get the project built, PacifiCorp doesn't have an interest, so we have to get that agreement with Bonneville, so that's almost a precursor. But we are -- but we really need to get PacifiCorp onboard because we have to get a lot of design work done, and it will determine whether we build single or double.

So we are in active conversations with PacifiCorp as we speak in terms of trying to figure out how that agreement would shake out with them, but clearly the Bonneville agreement is a precursor to building the line.

Great. Thanks a lot.

Thank you, Sarah.

And we'll move on to James Bellessa with D. A. Davidson.

Morning, Jim. Morning, Jim.

Good morning. Can you hear me?

Yes, we gotcha.

Good. The production and distribution expenses in the first quarter were $53 million, so annualizing that's $212 million, but I think I heard that O&M expenses might be flat with last year's figure, which was $201 million with certain adjustments. Did I hear correctly, and is that -- what are those adjustments?

Maria --.

Yes, and you did hear correctly, and those are adjustments. The first one relates to an assurance recovery related to activity in 2010 that was a positive adjustment to 2011 of $2 million. We also have items that are reflected elsewhere -- Trojan refund expenses, some other items that are offset in depreciation and amortization, and other deferrals.

And would the adjustment also be that $2.3 million charge in the second quarter tied to the settlement with the Sierra Club?

That was a one-time item in the second quarter of last year. I haven't included that in here, but certainly that was -- that increased our expense in 2011 versus -- we won't have that expense in 2012.

Okay. So this run rate of $212 million is not likely to be reached for the whole year. Is that fair?

I think when we look at $212 million, there are -- in terms of -- it will continue to flow through the production and distribution O&M area, but there are offsets in other areas, so it's not falling to the bottom line and affecting EPS. The amount that's falling to the bottom line and affecting EPS, Jim, is much more representative to what we had last year, which, as you noted, was about $201 million.

And the depreciation and amortization line of expense for the quarter was $62 million. Is that a fair run rate for the rest of the year?

Yes, that's about a fair run rate. Again, some of these (inaudible) in '11 make the quarter-to-quarter comparison more difficult.

Yes, you just have to remember some of those things in D&A are covered in revenues. For example, the Boardman -- we accelerated the Boardman depreciation last year mid-year, and so now we have a full year of that, so some of that is covered in revenue. So there are offsets to some of the changes in D&A.

And in the cash flow statement, there was the item of a sale of a solar facility. Did you get out of that business? Why did you get out of that business?

Maria, you want to take that?

We're not out of that business. It's part of our utilization of tax credits to do sell leaseback transactions on some of our solar facilities, and so it's very similar to the structures we've had with other small solar projects.

So essentially, Jim, we developed the solar project and we sell to a sell leaseback vehicle, and then we basically buy the power back into our system to take advantage of the state tax credits.

We operate (inaudible).

Yes, and the cost is covered in our regulated rates.

There was also a jump in direct access customers, like 439 now versus 233 a year ago. What explains that big jump? Is that a worrisome item?

No, I don't think it's terribly worrisome. There were a number of fairly small customers that in November moved to one-year opt outs. You'll see that on a kilowatt hours basis, the jump was not very meaningful.

And again, remember, Jim, that potentially we're a short utility, so when we have a customer who decides to get open access, we still get our T&D charges as part of the cost recovery, and then we just don't purchase power to meet that obligation, so -- and there's a calculation of the stranded cost or benefits from our existing resource base, so (inaudible) relatively neutral.

Also, you should note that none of our larger customers moved.

Thank you very much.

Thanks, Jim.

And we'll move on to Andrew Weisel with Macquarie Capital.

Good morning, Andrew.

Hi, good morning, guys. I'd like to dig a little bit deeper on the load growth trends. If I heard correctly, I think you said weather normalized loads were up 1.2%. My question is, does that include the benefit of the leap day, and what does that number look like for the industrial cost customers that are not covered by your decoupling mechanism?

Maria, you want to cover that?

Sure. It does include the benefit of the leap day, and we -- it also excludes two fairly volatile and high consuming paper customers that do not affect margin -- or largely affect margin. And then on decoupling, we had a slight carryover negative hit of 1.3 somewhat from the fourth quarter of last year, $1.3 million.

Okay. I guess let me ask the same thing differently, then. For your industrial customers, I see from the press release that it looks like the actual volumes were down about 4%. What would that look like excluding weather?

For -- it would look about flat, and if you take a look at -- just a second. On the industrial customers, excuse me, it looks up 1%. If you -- and then if we exclude the other more volatile customers, it's up a little bit more.

Okay, great. Then as far as -- there were two statements I was a little bit confused about in the press release. You say for 2012, PGE projects deliveries will be comparable to weather-adjusted 2011 levels, yet on the guidance section, you say you expect 1% to 1.5% higher. How should I reconcile those two?

Well, I think that was confusing on our part, and it -- what it -- on the first page, it's not reflective of the paper customers that we've excluded that do not affect margin. And so when we look at what's really moving our bottom line and earnings per share, we are maintaining that 1% to 1.5% forecast.

Got it. Okay, thank you very much for clarifying.

Thank you.

And we'll move on to Naaz Khumawala with Bank of America Merrill Lynch.

Morning, Naaz.

Hi, this is actually David Paz in for Naaz.

Oh, okay. Hi, David.

Hi, David.

Hi. Just one question on pension expense. What is embedded in your guidance for the pension expense?

Sure. We have about $13 million of pension expense for the year. We estimate about a 5% discount rate and about 8.25% return rate.

Great. Thank you so much.

Thank you.

And next we'll hear from Mark Barnett with Morningstar.

Hey, good morning.

Morning, Mark.

Just one small thing. I know you had had some oral arguments in February from the queue on the court of appeals around your Trojan refund from 2010. I didn't see anything in the subsequent events, but I'm wondering what kind of a timeline or what might be baked into your guidance for that ruling.

There's nothing in our guidance for that ruling, and we really don't have a timeline when they'll make a decision. It's related to their time to work through the process and come up with a decision. The likely outcome of that could be one of two things. One is they reaffirm the PUC's decision, in which case there's nothing to do and we're done with that case, unless they try to appeal that to the Supreme Court, or they remand it again back to the commission and ask the commission to rework the prices again one more time. So in either case, there would likely be no impact on our guidance for this year because we'd have to go back through another process. So we have two outcomes, and we're just waiting for the court of appeals to rule.

Okay. And can you remind me, has a chairman been selected yet for the PUC?

No, not at this point. We do have a full commission now, but the chairman has not been selected.

Okay. Do you really expect any impact either way from a selection, or is that just kind of a cosmetic thing?

It's just really to create a leadership at the commission. I would not expect -- either Susan or John Savage will be the likely candidate for that commission. Both are experienced and know the business pretty well, and we have a good relationship with both.

Okay. Thanks a lot.

Thank you.

And next we'll hear from [Eric Parthey] with [Presidus Capital].

Hi. My questions were answered. Thank you.

Thanks, Eric.

Thanks, Eric.

We'll move on to John Ali with Decade Capital.

Morning, guys. Just a little --.

Morning, John.

--clarification. You mentioned three capital projects that would come on in '14, and I was hoping for a little more clarity on timing and cost.

Do we provide the cost of these projects?

Sure.

Okay.

We haven't been specific on the costs. Two of those that Jim mentioned were buildings, which are generally in our normal forecast of capital. You can see in the 10-Q, there's a capital estimation of roughly $330 million for 2012, and then just under $300 million for 2013. And those -- all three of those projects, including the two buildings that Jim mentioned, are in those numbers, as well as the Boardman project.

Gotcha. And how much was the Boardman?

It's in those numbers. We haven't broken it out specifically.

Gotcha. And I'm just trying to figure out roughly the 2014 versus 2011 rate base difference. It looks to me about $100 million. Is that --

That's about it, yes. We have about $250 million of depreciation.

Okay. So you would go in with only $100 million difference in rate base? Is that -- so a little bit of capital and less of O&M?

A little bit of capital. The O&M is largely driven by additional chemical costs at the Boardman facility, which would be used mid-2014, after the capital projects are completed. And as Jim mentioned, we are still assessing what we do depending on where we end up with load growth.

Okay. And then lastly, it looks like there was a weather adjustment, but it also looked like heating degree days were flat year-over-year. What was the adjustment due to, or is it just kind of timing and when --?

Really, it's timing. We had a very interesting weather period in terms of averages versus lack of severely cold days, and it was just timing and sort of anomalous between the periods.

All right. Thank you very much.

Thanks, John.

(Operator instructions). And next we'll take a follow-up from Neil Mehta with Goldman Sachs.

Hi. Yes, thank you. Real quick, can you help frame the drivers of 2013 versus 2012? Given the absence of rate increases, how do you get sequential earnings growth next year?

You got it.

Sure. The first and foremost, we're looking at continued load growth in our area. As we've mentioned before, Neil, we're very fortunate to have one of the largest high tech fabs in the world being built in our service territory, as well as the subsidiary businesses that support that operation. Particularly, gas companies and others are fairly high users of energy. As we look at other industrial customers as well as commercial customers, on the industrial front of our 20 to 25 largest customers, we're seeing and expect to continue to see about three-quarters of those with some pretty nice load growth. We continue to see a migration in our area, and so that's where we start, is continued growth there.

We also are very focused on maintaining effective cost structure on the O&M side, and then we do have the capital deferrals that we will be able to bring in again in 2013 -- as I mentioned, the total of $17 million additional revenue requirements.

Got it. Okay, thank you very much, Maria.

Thank you.

And there are no further questions. I would like to turn the call back over to Mr. Piro for any additional or closing remarks.

Thank you. We appreciate your interest in Portland General Electric and invite you to join us when we report on our second quarter 2012 results. Thanks again for joining us.

And that will conclude today's call. We thank you for your participation.