Portland General Electric Co (POR) 2014 Q2 法說會逐字稿

Good morning, everyone, and welcome to the Portland General Electric Company's second-quarter 2014 earnings results conference call. Today is Tuesday, July 29, 2014. 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 session. (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.

Well, thank you, Chanel. And good morning to everyone. Before we start, I'd like to first announce that Lucia Dempsey, our Investor Relations analyst, that this is her last earnings call. This fall, she is heading to work on her MBA program at the University of Virginia. She's done really a great job for us in the Investor Relations area, and we just want to thank her for her work over the last three years, wish her well.

And to kick off, Lucia is going to read and provide our Safe Harbor statement. So, Lucia? Please.

Thank you, Bill. And good morning, everyone. I'm pleased that you are able to join us today. Before we begin our discussion this morning, I would like to remind you that we have prepared a presentation to supplement our discussion, which we'll be referencing throughout the call. The slides are also available on our website at investors.portlandgeneral.com.

Referring to slide 2, I'd also 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 fact 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 may occur that could cause such differences, the Company requests that you read our most recent Form 10-K and Form 10-Q.

Portland General Electric's second-quarter earnings were released via our earnings press release on the Form 10-Q before the market opened today. And the release is available at portlandgeneral.com. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. This Safe Harbor statement should be incorporated as part of any transcript of this call.

As shown on slide 3, leading our discussion today are Jim Piro, President and CEO; and Jim Lobdell, Senior Vice President of Finance, CFO, and Treasurer. Jim Piro will begin today's presentation by providing an update on our operational performance, outlook for 2014, service area economy, and strategic initiatives. Then, Jim Lobdell will provide more detail on the second-quarter results, and discuss our 2015 general rate case. Following these prepared remarks, we will open the lines for your questions.

Now it's my pleasure to turn the call over to Jim Piro.

Thank you, Lucia. Good morning, and thank you for joining us. Welcome to Portland General Electric's second-quarter earnings call. As presented on slide 4, we recorded net income of $35 million or $0.43 per diluted share in the second quarter of 2014, compared with a net loss of $22 million or $0.29 per diluted share in the second quarter of 2013. PGE continues to demonstrate strong operational performance across the Company in 2014. Construction of our three new generating resources is proceeding on time and on budget. Our 2015 general rate case is progressing on schedule, and we are affirming our full-year 2014 earnings guidance of $2.05 to $2.20 per diluted share.

Now for an operational update on slide 5. In the first half of this year, our generating plants operated as planned, with PGE's generation availability at 89%. We continue to maintain top quartile system reliability metrics, and our national rankings for customer satisfaction are top quartile for residential customers, along with top decile for general business and key customers.

Last week, we announced that we have begun exchanging 70,000 residential meters in our service area that do not meet PGE's safety standards. Work is to be completed by the end of October, and we currently expect to capitalize the majority of the replacement cost. As recently reported by the Department of Energy's National Renewable Energy Laboratory, PGE's renewable program in 2013 enrolled more customers and sold more green power than any other utility program in the nation. We are proud of our commitment to generating renewable energy and providing our customers with sustainable power options.

In 2014, we continue to focus on safe and efficient operations through leveraging new technology and refining our business processes. We are preparing for the implementation phase of our transmission and distribution transformation project, which includes deployment of the Maximo Work Management System across our distribution line operations.

Now for an update on the economy and our customers. Turning to slide 6. Our operating area continues to show signs of economic growth and new development. In particular, our customer count is up 1%, new connects are up 25% year-over-year, and we continue to see expansion in multifamily construction and high-tech.

Employment indicators also continue to be positive. Oregon's unemployment rate was 6.8% in June, unchanged since February, and below the unemployment rate of 7.8% a year ago. Unemployment in Oregon has remained below the 7% mark for five consecutive months and is the lowest since August 2008. As recently reported by the Bureau of Economic Analysis, Oregon's real GDP grew 2.7% in 2013, driven by the high-tech sector's contribution to the state output. The unemployment rate in our service area has dropped to 6% from 6.7% a year ago. And employment in our service area grew at an annualized rate of 2.4% this past quarter when compared to a year ago.

As a result of these positive signs, we are maintaining our forecast for weather-adjusted load growth of approximately 1% over 2013 weather-adjusted results, which excludes our one large paper customer. This forecast is net of approximately 1.5% of energy efficiency, based on the Energy Trust of Oregon's projection -- projected programmatic energy efficiency savings for 2014.

Now let me update you on the construction of our new generating resources. Through June 30, we have invested $755 million, excluding AFDC, in these resources. And I'm pleased to report that all three project continue to be on time and on budget.

Slide 7 provides detail on Port Westward Unit 2, a 220 megawatt natural gas-fueled capacity plant under construction next to our existing Port Westward plant in Clatskanie, Oregon. With all 12 engines installed and the cooling tower completed, initial testing will begin later this summer. We expect the full plant to be operational in the first quarter of 2015, with total capital costs estimated at $300 million, excluding AFDC.

Turn to slide 8. We have provided details on the Tucannon River Wind Farm, a 267 megawatt wind farm located in southeastern Washington. Now entering the peak construction period, the turbine foundations are complete and turbine installation has begun. As of last week, components for 38 turbines are now in sight, and nine are fully erected. We expect Tucannon River to be online between December of this year and the end of the first-quarter 2015.

Upcoming work includes continued delivery of turbine components to the site and direction of the wind turbines, followed by turbine testing. Estimated total capital costs continue to be about $500 million, excluding AFDC.

Lastly, slide 9 summarizes the Carty Generating Station, a 440 megawatt baseload natural gas-fueled plant that is being constructed next to our existing Boardman plant. Pouring of the foundations for the gas and steam turbines is progressing smoothly, and the installation of the heat recovery steam generator will begin shortly. The plant is expected to be operational in mid-2016 with a total capital cost estimate at $450 million, excluding AFDC.

Slide 10 provides a summary of the Company's five-year capital expenditure forecast. The new generating projects are expected to result in an average rate base increase of $1.2 billion. We expect this growth, along with the base business capital expenditures, to lead to an average rate base of approximately $4.5 billion in 2017.

Now, for a regulatory update. In February, we filed a new general rate case for the 2015 test year, requesting an overall revenue increase of $81 million based on a 10% ROE, a capital structure of 50% debt and 50% equity, and a rate base of $3.9 billion. The primary focus of this general rate case is cost recovery of Port Westward Unit 2 and Tucannon River Wind Farm that are both expected to go into service by the first quarter of 2015. The case is progressing as scheduled, with several rounds of settlement discussions completed over the last two months. We expect a final order from the Commission by the end of the year for a price increase effective in early 2015.

Now I'd like to turn the call over to Jim Lobdell, who will discuss our financial results for the second quarter and provide more detail on the 2015 general rate case.

Thank you, Jim. Turning to slide 11, as Jim mentioned, in the second quarter of 2014, we recorded net income of $35 million or $0.43 per diluted share compared with a net loss of $22 million or $0.29 per diluted share in the second quarter of 2013. The increase in earnings primarily reflects the impact of two expenses in the second quarter of 2013, totaling $0.49 per diluted share. They were the Cascade Crossing Transmission Project write-off and an industrial customer refund.

Excluding these two items, second-quarter 2013 non-GAAP adjusted operating earnings per share would've been $0.20 per diluted share. In comparison, earnings per diluted share for the second quarter of 2014 was $0.23 higher than the adjusted non-GAAP earnings for the second quarter of 2013, primarily due to the alignment of revenues and operating expenses as authorized in the 2014 general rate case, and increased allowance for equity funds used during construction of the Company's three new generating resources.

Turning to slide 12, total retail revenues for the second quarter of 2014 increased $23 million to $396 million, driven primarily by a price increase on January 1 in the industrial customer refund in the second quarter of 2013. This increase was partially offset by $2 million decrease related to lower residential energy deliveries quarter-over-quarter, which was driven by warmer weather early in the quarter.

For the second quarter of 2014, net variable power costs decreased $10 million, driven primarily by a decline in total system load. In addition, the average variable power costs decreased as a result of an increase in economic displacement of thermal generation quarter-over-quarter, which was replaced with lower-cost purchase power and higher wind generation. Net variable power costs were $11 million below the annual power cost update tariff baseline this quarter compared with $13 million below the baseline for the second quarter of last year.

Moving to slide 13. Reduction, distribution and administrative costs totaled $123 million for the second quarter of 2014 -- $4 million higher than a year ago. This increase was largely due to higher operations expense from an increase in our ownership of the Boardman coal plant from 65% to 80% as of December 31, 2013. Overall, we continue to be on track with our full-year operations and maintenance forecast of $480 million to $500 million.

Depreciation and amortization expense increased $11 million quarter-over-quarter, driven by primarily two factors: $4 million related to an overall increase in capital additions, and $8 million related to timing of the deferral and amortization of costs of four capital projects. Total interest expense decreased $2 million quarter-over-quarter, as a $4 million decrease from higher AFDC from borrowed funds, due to the construction of our three new generating resources, was partially offset by higher interest expense from an increase in the average debt outstanding. Other income net increased $7 million quarter-over-quarter, driven by an increased AFDC from equity funds.

On slide 14, as Jim had just mentioned, our 2015 general rate case is progressing as scheduled, with several rounds of settlement discussions completed over the last two months. Based on these discussions, our overall requested revenue requirement has been reduced from $81 million to $31 million, and our expected customer price change has fallen from 4.6% to 1.8%.

The key drivers of the decrease are as follows: $19 million related to an updated depreciation study, which equally decreases revenues and depreciation expense; $9 million related to various updates, including power costs and loads; $6 million due to changes in the timing of capital and other projects; $5 million from moving the prepaid pension asset to the pension docket; and $11 million from other agreements and changes to our original filings. These updates reflect a decrease in our filed 2015 average rate base of $100 million to approximately $3.8 billion. There are several items yet to be settled, including ROE, and we will continue to keep you updated on our progress, as we resolve the remaining items.

On to slide 15. We continue to maintain a solid balance sheet, including adequate liquidity and investment grade credit ratings. As of June 30, 2014, we have $794 million in cash and available short-term credit, $846 million of first mortgage bond issuance capacity, and a common equity ratio of 46.6%.

We continue to implement a financing plan under which we delay equity issuances under the equity forward sale agreement until the first half of 2015. As part of this delay, we entered into an 18-month unsecured loan agreement to borrow $305 million. We also executed a bond purchase agreement to issue $280 million of first mortgage bonds, with delay draws expected in August, October, and November. This plan will allow us to finance our new generating resources in a cost-effective way, and eliminates our need for further equity or debt in 2014.

Back to you, Jim.

Thanks, Jim. In summary, our work this year is focused on successful execution of initiatives that drive value for our customers and our shareholders, including constructing our three new generating resources on time and on budget; achieving fair and reasonable results on our 2015 general rate case; and ensuring high-quality operations across our system.

And now, operator, we are ready for questions.

(Operator Instructions) Brian Russo, Ladenburg Thalmann.

Could you quantify the income tax benefit in the quarter related to AFDC? It was noted in the press release.

Pardon, Brian?

No, it was noted in the press release.

Yes. To be honest with you, I didn't bring that here with me this morning. I can get that to you -- get back to you.

Sure. Okay. You mentioned earlier 70,000 meter exchanges due for safety and reliability, and you're going to capitalize the costs. Can you quantify those costs?

We have a range of costs at this point. We are still working on the detailed deployment strategy but it's somewhere between $6 million and $8 million.

Okay, great. And what were the normalized sales growth in the second quarter?

It was a little over 1%.

Okay, great. Thank you very much.

Without -- and that excludes the large paper customer, which has done a variable price option. Thanks, Brian.

Sarah Akers, Wells Fargo.

For the drawdown of equity next year, do you expect that will be closer to mid-year? Or should we think of it as a Q1 event?

It would be closer to mid-year, Sarah.

Got it. And then, given the $14 million PCAM benefit as of June 30, assuming that doesn't reverse in the second half, would you expect to be in the upper end of the guidance range? Or is there any offsetting factors there?

There's still a lot of runway to go between now and the end of the year. So, it's -- I still think it's a little premature to make a conclusion on that.

Got it. And then one more. On slide 4, you show the second-half results in 2013 of $0.99, and in the midpoint of the second-half in 2014 as $0.97. Can you remind us if there are any nonrecurring benefits last year, or if there is any headwinds in the second-half of this year that would offset the base rate increase and the AFUDC benefits?

Not that I recall at this particular point, no. There shouldn't be.

Okay. So is there (multiple speakers) --

Well, there was the planned outages we had last year. But that would be --

That was third quarter.

That was Q3, yes. So that's not in the first half. Yes.

Okay. So is there any reason then that we are not seeing growth in the second-half of 2014?

Earnings growth? Growth in loads? Growth in --?

I'm sorry. On an EPS basis. I'm just looking at the implied guidance for the second-half of 2014 versus the second-half of 2013.

No. There is no reason we wouldn't see any.

Okay. Thank you.

Michael Lapides, Goldman Sachs.

A couple of things. The rate increase granted for this year, how much have you taken year-to-date? And what's left to take in the second-half of the year?

Typically, the rate increase is spread equally over the year, about half in the first-half and half in the second-half. So that's the way it would typically be distributed. Our loads are higher in the winter and in the summer, so you have to kind of spread that out. But kind of half-year/half-year, it's about the same. (multiple speakers) Obviously, it depends on O&M, in terms of the spread of O&M. But generally, revenues come in about equally over the year in terms of half-year -- first-half or second-half. I'd split it equally.

Okay. Just that you made some comments both in your press release and at the beginning of the call regarding just the timing of certain line items, given what happened in the rate case last year. I'm trying to make sure I just understand what those comments meant.

I have one or two follow-on questions regarding the rate case. So, you gave the itemized list. And if I think about it, the $19 million updated D&A study, and the $9 million of net variable power costs and other adjustments, those two items don't impact the bottom line at all. How about the other items? The $6 million in the timing of capital and other projects, the $5 million prepaid and the $11 million of other items.

Do those drop to the bottom line? Meaning the fact that they aren't in the rate increase for this coming year, they therefore could actually have an impact on earnings in 2015? Or did these items not drop at all really to the bottom line?

Well, there's a -- Michael, there's a mix of things in there. There's projects that are being pushed out into the 2015; there's projects that are being pushed into 2014. There is an error correction in the numbers as well. So there's a lot of moving pieces. So, for the items that we stipulate that will have a -- that are not normally things that we wouldn't get cost recovery for. Those items, we'll adjust our budgets accordingly to try and manage to.

Got it. And therefore, the revision of the $3.8 billion -- down of $3.8 billion in rate base, how does that impact longer-term rate base? Does this mean that you still expect longer-term rate base to kind of be the same, but just the timing of some of it to be a little different? Or does this cause for a slight revision of longer-term rate base use?

Yes, we're expecting it to be the same. It's just more of a timing issue at this point.

Got it. And finally, when I look at slide 10 and your CapEx forecast, I mean, everything holds true. You are likely to have pretty significant change, meaning once you finish the gas plants and the wind plants, pretty significant change in capital spending in the out-years, to the point where your CapEx would be less than your depreciation, potentially. How do you think that -- about that in terms of balancing growth versus balancing kind of free cash flow profile?

So we -- we get that question a lot, Michael. And I think that this is the next step in the process, is which we will start another integrated resource planning process later this year. And it will culminate in a filed IRP probably at the end of 2015. But it will address the replacement of Boardman, which will shut down in 2020; additional new renewables that we need to meet -- to add to meet our renewable portfolio standard of 25% by 2025. We may need to address the need for additional capacity in that IRP.

So it'd be a number of generating resource decisions that will come through the process. In addition to that, we are doing a number of things on the business side, replacing the billing system, which is a pretty significant investment. Our billing system is over 15 years old, and we've got support from the regulators to move forward and replace that system. We also have additional capital expenditures in the base business on things that we need to do in terms of Smart Grid and other things.

So, there might be a little bit of a lull as we finish the Carty 1 project. As we did before, there will be maybe a year or so where we have to kind of get to these processes. But we feel like we have good opportunities to invest the capital. We obviously have to go through the process. Once we get an action plan approved by the Commission, we'll have to do RFPs like we've done before. But the Company is committed. And I think we've been able to demonstrate that internal resources can provide greater long-term value for our customers than just purchase power agreements. But again, we'll have to go through that process.

Got it. Thank you, guys. Much appreciated.

Nick Ulees, Gabelli & Company.

(multiple speakers) Are you there Nick?

Mr. Ulees, your line is open. Please check your mute button.

Oh, sorry about that. You guys just answered the question I had. But I guess one quick one. Can you just say what the rate increase on a percentage basis would be to the customers for the 2015 test year case?

Yes, I'd say about 1.8% is what it looks like at this particular point in time. We still got several items that are still outstanding to be settled. But at this point, that's what it looks like.

And recall, we filed for about a 4.6% increase. And so some -- as we talked about earlier, some of the changes will not affect the bottom line. They are timing issues. And so this is actually a good result for our customers in terms of minimizing the price impact for them, but still allowing us full recovery of our new projects that are going into service.

Okay, great. Thank you.

Mark Barnett, Morningstar.

Just a couple of small questions. The base CapEx number over the forecast is a little bit higher in your 2Q materials than over 1Q. Is there anything particular that's driving that?

No, nothing in particular.

Nothing that's going to impact kind of your rate base projections there on the following slide?

No, no.

Okay. And can you -- I heard it earlier on the call -- I know the depreciation order is fairly straightforward, but can you give a little bit of detail again? I just missed the exact items that were the other updates that brought the rate request down about $30 million.

Yes, I can go back. What was in the -- so, effectively, we've got some updates; whether it be load updates or power cost updates, it's approximately a little over $9 million associated with that. And project timing is around $6 million, just things moving in and out. And error correction we had in there is probably about $4 million. Some other items that we stipulated that we'll probably do budget adjustments associated with it, that's around $7 million. And then we also moved the pension request out to the pension docket. And that was around $5 million. Those are the major components outside of the depreciation study.

Okay, so (multiple speakers) --

(multiple speakers) On clarity, the pension -- they are allowing the FAS 87 expense. The docket that we are trying to address is dealing with the prepaid portion of our pension, and that's still in question in a separate docket.

Okay, okay. So the thing that you kind of have the budget exposure on is roughly $7 million out of that $30 million in terms of hitting a new target?

Pretty close.

That makes sense. Thanks. Appreciate it.

(Operator Instructions) Maury May, Wellington Shields & Company.

Just a question on the rate case and on the settlement process. Just curious, are there any further issues that can be settled? Or is the whole settlement process done at this point?

We had additional settlement discussions yesterday. We are now trying to formalize those settlement agreements, and those will be public once the stipulations are filed. So we continue to work on them. We still have a couple of issues we have not settled. And we'll just have to see if the parties can agree or we'll take those to the Commission for a decision. So, I think in the next few weeks, you'll see a little more clarity on the recent settlements that we reached yesterday. But we're making good progress on most of the issues.

So you say you reached some settlements yesterday that you haven't announced yet?

Yes, we haven't announced yet. We still have to put all the paperwork together and get the parties to sign off on them, and make sure we all agree to what we agreed to.

Is ROE one of them?

We'll have to wait and let you know when we file that stipulation.

Okay. But ROE is still on the table. And you're requesting 10.0% and I think staff is at 9.2%, so there's a pretty wide range there.

And the last approved was 9.75% that we agreed to last year, so.

Right. Okay, okay. And then, a couple more questions. On the PCAM, you ended June at $30 million positive. And I know Jim Lobdell was saying that it's too early to make a further projection. But I think earlier in the year, you were saying that you projected it would be positive for the year, at least not negative or something like that. Is that correct?

No, Maury. What I said was that we're -- year-to-date, we're about $13 million below the baseline, not $30 million.

Yes -- no, I thought you said $11 million -- $11 million positive -- or, in my mind, $11 million below the baseline is $11 million positive.

Well, there's the quarter and then there is the year-to-date.

Right. Okay.

So, we're at $13.6 million year-to-date, $11 million for the quarter.

Oh, and how much for the year-to-date?

$13.6 million.

$13.6 million. Okay. Okay, but you're still not willing to make a projection for the full-year. You're still not willing to project that it would be below the baseline for the full-year?

Correct.

Okay. Can you give us some color on what's behind it? You know, first of all, what is the baseline this year for 2014? On a megawatt hour basis? Is it some place in the, like, the high 30s or the low 40s? Or where is it? I forget.

On a megawatt hour -- the total is about $593 million. On a megawatt hour basis, you've got to give me a minute and I can come up with it.

And some of the drivers -- as we get into every year, the changes from the baseline typically are in three basic areas. Number one, it's hydro conditions. And at least hydro is slightly positive this year. And then wind is the second variable. And I think we are down this year on the wind forecast. And the third issue is just overall economic displacement of our resources, where we try to optimize our generating plants against our -- against the market and take opportunities there.

And obviously, the fourth -- I didn't say -- I said three, but there is probably a fourth, which is how well the plants operate themselves. And so far, year-to-date, the plants are meeting their operating objectives.

So those are the things that can cause variability in the baseline. And you know, it's still too early to call for the whole year. I think we are below the baseline now. I think we'll continue to be below the baseline. How much will really depend on kind of how things move for the second half of the year, especially in the area of wind as well as the plant operations.

Yes. Maury, a rough estimate on a per megawatt hour basis is around $35.

Okay, $35. Okay. Okay. And hydro conditions, are they continuing to -- is there enough river flow to continue the generation well into the third quarter? (multiple speakers) Or is the season kind of wrapping up?

No, hydro is still looking good. We are at about 102% right now -- overall (multiple speakers) --.

(multiple speakers) Okay, sound like just overall 102%. Okay. So the rivers are still flowing, okay. On AFUDC, can you give us an estimate of AFUDC's contribution to earnings, say, in the second quarter or the first-half or maybe even as a part of guidance for the full-year?

Well, about $7 million for the second quarter.

Okay. Okay. And right now you have about $755 million invested in these three plants. So, we can work on that number. But your AFUDC rate is your last authorized ROE of $975 million?

Yes, essentially, we take the capital structure out of the last approved rate case, and we use the equity rates and then the embedded debt rate. So there's debt AFDC and then there's equity AFDC that we book. And the combined rate is about 7.5%.

Okay. I'm sorry Jim, can you say that again? I missed that.

The combined equity -- the combined AFDC rate is about 7.5%. (multiple speakers) It's obviously split between equity and debt. And the equity rate is based on the last approved ROE of 9.75%. And then we use the actual capital structure when they actually calculate the split.

Right. Got it, got it. Okay. And then can you -- you are estimating that Port Westward 2 will be $300 million excluding AFUDC. Do you have an estimate at this relatively late date -- because the thing is nearing completion -- do you have an estimate of what number might actually go into rate base from Port Westward 2?

I'm trying to recall whether we provided that number publicly or not. We haven't done it in our disclosures typically, but we have in the rate case. So the question is -- Bill will get you those numbers, because I think we filed them in the rate case and they are available through that process. I don't want to misquote the numbers.

Okay. All righty. Good enough. Thank you, folks.

Thanks, Maury.

Andy Levi, Avon Capital.

I think most of my questions were asked by Maury, but just to clarify -- you said $7 million of AFUDC in the second quarter, that's equity, right?

Actually, I'm going to correct that. I think in the second quarter of 2014, it was about $9 million. (multiple speakers)

That's the equity portion of it? Or that's -- or is that right? Is that correct?

That's the equity portion of it.

Right. Okay. And then just on the -- back on the PCAM, in your guidance, did you have a PCAM assumption?

No. We assume no baseline power costs.

Okay, so you assumed that it would just be flat?

Yes.

Got it, okay. And settlement questions were asked, which I was going to ask. So that's really it. Thank you very much.

Thanks.

(Operator Instructions)

I think we have some calls on the line. Can you connect them?

Jon Badeaux, KeyBanc.

Hey guys, thanks for taking my call. Just a question. What was the capacity factor on the wind in the quarter?

In the quarter. I'll have to look that up. I mean --

Yes, we'll get back to you on that.

All right. Thank you.

Michael Lapides, Goldman Sachs.

A real quick kind of model-oriented one. D&A was up a lot in the quarter, and you kind of separated out the $8 million from the total D&A increase. What was that -- should we think of that as kind of being ongoing, kind of rebasing the level of D&A for 2014?

And then like is the second-quarter number kind of a good run rate to start with, and then we kind of add to it in the back end of the year? And then if the full settlement gets -- or the terms of the settlement get approved, you'd then see a little bit of a drop-off the following year, simply just due to a lower D&A rate?

Yes, using the second quarter would be a good run rate, because what we've got in there is about $4 million associated with the four capital projects that got pushed out, that are now included in our D&A. So, the new D&A level is a good run rate.

Excluding the new generating plants.

Excluding (multiple speakers) --

New generating plant.

Right.

Run rate for the year.

Run rate for the year.

Right.

And do you expect the rate increase for the rate case that's underway now to go into effect January 1, 2015 and to capture a full-year worth of the revenue requirements for the new generating units?

Well, it really depends on when the plants become commercially operational. And so what we'll do is we'll continue to book AFDC on the projects until they become operational, at which point we provide a certificate to the Commission that they are deemed used and useful and ready to provide service, at which point the rate increases for those individual projects would go -- become effective.

We'd like to try to time those together, so we don't have multiple rate changes. And we think -- we'll just have to see how the timing -- it will happen sometime in the first quarter, so we'll have to play that out. So, it's either going to be in revenues or it's going to be in AFDC in terms of the return on the capital.

Got it. Okay. Thanks, guys.

Thank you.

We'll take another follow-up question from Andy Levi with Avon Capital.

Sorry about that. Just on the PCAM, so 2013, if I remember from your K, you over -- or you under-collected by $11 million, which included -- does that include like the $17 million hit for the plants being down? Was that kind of like the net number?

Yes, that would (multiple speakers) --

There were some pluses and minuses but the bottom line was $11 million hit. Is that correct or --?

Right, that's right. (multiple speakers) Yes.

Okay, so that's kind of -- okay. So we credit you in 2014 with 2011. And then the $14 million for this year, that includes -- which is a benefit thus far -- that includes the $1.5 million of incremental costs that you envisioned at the beginning of the year from the plant being down in January?

Yes. That includes the coal strip outage in January.

Got it. Okay. That's great. Thank you.

You're welcome.

Okay. I don't think we have any other calls on the line, so I want to thank you and I appreciate your interest in Portland General Electric. And we invite you to join us when we report our third-quarter 2014 results in late October. Thanks again. Have a great day.

That does conclude today's conference. Thank you for your participation.