Portland General Electric Company (POR) Q2 2014 Earnings Report, Transcript and Summary

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 over to Portland General Electric’s Director of Investor Relations, Mr. Bill Valach. Please go ahead, sir.

Well thank you, Chenille, 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 statements so, Lucia please?

Thank you, Bill, and good morning everyone. I’m pleased that you’re able to join us today. Before we begin our discussion this morning, I’d 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 two, 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 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-Q. Portland General Electric’s second quarter earnings were released via our earnings press release, and 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. These Safe Harbor statements should be incorporated as part of any transcript on this call. As shown on slide three, 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 around the 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 four, 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 five. The first half of this year, our generating plants operated as planned, with PGE’s generation availability at 89%. We continued 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 renewal book program in 2013 enrolled more customers, and sold more green power than any of the utility program in the nation. We’re 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 to 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 six. Our operating area continues to show signs of economic growth and new development. In particular, our customer count is up 1%, new connects are 25% year-over-year and we continue to see expansion in multi-family 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’s 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 projected programmatic efficiency savings for 2014. Now let me update you on our construction of our new generating resources. Through June 30th, we have invested $755 million, excluding AFDC in these resources, and I’m pleased to report that all three projects continue to be on time and on budget. Slide seven provides a detail on Port Westward Unit 2, a 220 megawatt natural gas fuel 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 to be $300million excluding AFDC. Turn to slide eight, we have provided detail on Tucannon River Wind Farm, a 267 megawatt wind farm located in Southeastern Washington. Now entering their peak construction period, the turbine foundations are complete, and turbine installation has begun. As of last week, components for 38 turbines are now on sight and nine are fully erected. We expect Tucannon River to be online between December of this year and the end of first quarter 2015. Upcoming work includes continued delivery of turbine components to the site, and erection of the wind turbines, followed by turbine testing. Estimated total capital costs continue to be about $500 million, excluding AFDC. Lastly, slide nine summarizes the Carty Generating Station, 440 megawatt base-load natural gas fuel plant that is being constructed our existing Boardman plant. Point of the foundations gas and steam and turbines is progressing smoothly, and the installation of the heat recovery steam generator will begin shortly. The plan is expected to be operational in mid-2016, with a total capital cost estimate of $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 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 2015 test year, requesting an overall revenue increase of $81million, based on a 10% ROE capital structure of 50%, debt and 50% equity, and 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 schedule, with several rounds of settlement discussions over the last two months. We expect a final order from the commission by the end of the year for a prize increase effective in the 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, 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 holding $0.49 per diluted share. They were the Cascade Crossing Transmission Project write-off, and then an industrial customer refund. Excluding these two items second quarter 2013, non-GAAP adjusted operating earnings per share would have been $0.20 per diluted share. In comparison, earnings per diluted share in the second quarter of 2014 was $0.23 higher than the adjusted non-GAAP earnings in 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 2014 increased 23 million to 396 million, driven primarily by a price increase on January 1, and 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 earlier 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 cost decreased as a result of an increase in economic displacement of thermo generation quarter-over-quarter, which was replaced by lower costs, purchase power and higher wind generation. Net variable power cost were 11 million below the annual power costs update tariff baseline for this quarter compared to 13 million below the baseline for the second quarter of last year. Moving to slide 13, production, 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 expenses 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 expenses 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 schedule 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 are 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 expenses, 9 million related to various updates including power costs and loads, 6 million due to changes in timing of capital and other 5 million for moving from prepaid pension asset to the pension docket and 11 million from other agreement 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’ll continue to keep you updated on our progress as we resolve the remaining items. On this slide 15, we continue to maintain a solid balance sheet included adequate liquidity and investment grade credit ratings. As of June 30, 2014, we had 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 delayed draws expected August, October and November. This plan will allow to finance our new generating resources in a cost effective way, and eliminate 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 initiative 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’re ready for questions.

Thank you. [Operator Instructions]. We will take our first question from Brian Russo with Ladenburg Thalmann.

Good morning, Brian.

Good morning, Brian. Brian Russo – Ladenburg Thalmann: Could you quantify the income tax benefit in the quarter related to AFUDC? It was noted in the press release.

Pardon Brian? Brian Russo – Ladenburg Thalmann: No it was noted in the press release.

Obviously I didn’t bring that here with me this morning. I can get back to you. Brian Russo – Ladenburg Thalmann: Sure. Okay. You mentioned earlier 70,000 meter exchanges for safety and reliability and you’re going to capitalize the costs. Can you quantify those costs?

We have a range of costs discipline. We’re still working on the detailed deployment strategy but somewhere between $6 million to $8 million. Brian Russo – Ladenburg Thalmann: Okay, great. And where’s the normalized sales growth in the second quarter?

Lower than 1%. Brian Russo – Ladenburg Thalmann: Okay, great. Thank you very much.

And that excludes the large papercuts which is on a variable price options. Thanks, Brian.

We will take our next question from Sarah Akers with Wells Fargo. Sarah Akers – Wells Fargo: Hey, good morning.

Good morning, Sarah.

Good morning, Sarah. Sarah Akers – Wells Fargo: For the drawdown of equity next year, do you expect that will be closer to midyear or should we think of it as a Q1 event?

It would be closer to mid-year, Sarah. Sarah Akers – Wells Fargo: Got it. And then, given the 14 million PKM benefit as of June 30th, 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. Sarah Akers – Wells Fargo: Got it. And then one more, on slide four, you showed the second half results in ‘13 of $0.99 and then in the midpoint of the second half in ‘14 is $0.97. Can you remind us if there are any non-recurring benefits last year or if there is any headwinds in the second half of this year that would offset the base rate increase in the AFUDC benefits?

Not that I recall at this point. No there shouldn’t be. Sarah Akers – Wells Fargo: Okay so is there…

Well there was the plant outages that we had last year but that would be, that was Q3 so that’s not in the first half, yeah. Sarah Akers – Wells Fargo: Okay. So is there any reason then that we’re not seeing growth in the second half of ‘14?

Earnings growth, growth in loads, growth in? Sarah Akers – Wells Fargo: I’m sorry, on an EPS basis, I’m just looking at the implied guidance for the second half of ‘14 versus the second half of ‘13?

No, there is no reason we wouldn’t see it. Sarah Akers – Wells Fargo: Okay. Thank you.

We’ll take our next question from Michael Lapides with Goldman Sachs.

Good morning, Michael. Michael Lapides – Goldman Sachs: Hey guys. Good morning. 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?

Well typically the rate increase is spread equally over the year about half in the first half and half in the second half, that’s the way it would typically be distributed. Our loads are higher in the winter and in the summer, say you have to kind of spread that out, but kind of half year, half year it’s about the same. Obviously, just in terms of O&M and in terms of spread of O&M, but generally revenues come in about equally over the year in terms of half year – first half versus second half let’s split it equally. Michael Lapides – Goldman Sachs: Okay, you made some comments both in your press release and in the beginning of your 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 understand what those comments meant. I have one or two following questions regarding the rate case. So you gave the itemized lists 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? I mean 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 do these items not drop at all really to the bottom line?

Well there is always a mixture of things in there. There is projects that are being pushed out into the 2015, there are projects are pushed into ‘14. 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 it will have that are not normally things that we wouldn’t get cost recovery for. Those items will adjust our budgets accordingly to try and manage to. Michael Lapides – Goldman Sachs: Got it. And therefore, the revision of the 3.8 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 little bit, or does this cause for us a slight revision of longer term rate base fees?

Yeah we’re expecting it to be the same. It’s just more of the timing issue at this point. Michael Lapides – Goldman Sachs: Got it. And finally when I look at slide 10, in your CapEx forecast, everything holds true. You’re 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 about that in terms of balancing growth, versus balancing kind of a free cash flow profile?

So we get that question a lot Michael, and we think this is the next step in the process which we’ll start in another integrated planting process later this year, and it will culminate in a filed IRP probably at the end of ‘15. But it will address the replacement of Boardman which will shutdown in 2020, additional new renewables that we need to add to meet our renewable portfolio standard 25% by 2025. We may need to address the need for additional capacity in that IRP. So it will 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 placing the billings system which is a pretty significant investment. Our billings 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 businesses in things that we need to do in terms of smart grid and other things. So, there might be a little bit of low as we finish the Carty 1 project as we did before, there will be – may be 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’ll obviously have to go through the process to 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. Michael Lapides – Goldman Sachs: Got it. Thank you, guys. Much appreciate it.

We will take our next question from Nick Yuelys with Gabelli & Company.

Good morning, Nick.

Good morning, Nick. Is he there? Nick?

Mr. Yuelys, your line is open. Please check your mute button. Nicholas Yuelys – Gabelli & Company: Sorry about that. You guys just answered the question I had, but I guess one quick one. Did you just say what the rate increase on a percentage basis would be to the customers for the ‘15 test year?

Yeah, it’s about 1.8% is what it looks like at this trigger point in time. We’ve still got to cover all items, there are still outstanding to settle, but at this point that’s what it looks like.

And recall we filed for about 4.6% increase in – and as we talked about earlier some of the changes will not affect the bottom-line. There are timing issues, so this is actually a good result for our customers in terms of minimizing the price impacts for them, but still allowing us full recovery of our new projects that would go into service. Nicholas Yuelys – Gabelli & Company: Okay, great. Thank you.

We will take our next question from Mark Barnett with Morningstar.

Good morning, Mark. Mark Barnett – Morningstar: Good morning, everyone. 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. Mark Barnett – Morningstar: Nothing that’s going to impact kind of your rate base projections there on the…

No, no. Mark Barnett – Morningstar: Okay. Can you – I heard it earlier in the call, the depreciation order fairly straightforward, could you give a little bit of detail again I just missed the exact items that were the updates that brought the rate request on about 30 million?

Yeah I can go back what was in the – So effectively we’ve got some update whether it would be load updates or power costs updates. It’s a little over 9 million associated with that, and project timings it’s around 6 million just things moving in and out. An error correction that’s probably about 4 million, some other items that we have stipulated 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 were the major components outside of the (inaudible).

For clarity, the pension they are allowing the FAS 87 expense, the docket they were trying to address is dealing with the prepaid portion of our pension and that’s still in question in a separate docket. Mark Barnett – Morningstar: Okay, okay. So 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. Mark Barnett – Morningstar: That makes sense. Thanks. Appreciate it.

[Operator Instructions]. We will take our next question from Maurice May with Wellington Shields & Company.

Good morning, Maury. Maurice May – Wellington Shields: Good morning, folks. How you’re doing? Just a question on the rate case and on the settlement process, just curious, are there any other issues that can be settled or the whole settling process done at this point?

Yeah we had additional settlement discussions yesterday, and we’re now trying to formulize those settlement agreements that those will be public once the stipulations are filed. So we continue to work on and 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 recent settlements that we reached yesterday, but we’re making good progress on most of the issues. Maurice May – Wellington Shields: So you say you reached the settlements yesterday that you haven’t announced yet?

Yeah, we haven’t announced yet we still have to put all the paperwork together and get the parties to sign off to make sure we all agree to what we agreed to. Maurice May – Wellington Shields: Is ROE one of them?

We have to wait and let you know when we file that stipulation. Maurice May – Wellington Shields: Okay. But ROE is still on the table and you’re requesting 10.0 and I think staff says 9.2 so there is a pretty wide range there?

The last approved was 9.75 that we agreed to last year. Maurice May – Wellington Shields: Right, okay. Okay. And then, couple more questions on the PKM, you ended June at 30 million positive, and I know Jim Lobdell was saying that it’s too early to make 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 here today we’re about 13 million below the baseline, not 30. Maurice May – Wellington Shields: No I thought you said 11 positive or in my mind 11 million below the baseline is 11 million positive. So…

So there is the quarter and then there is the year-to-date so… Maurice May – Wellington Shields: Right. Okay.

So we’re 13.6 year-to-date and 11 for the quarter. Maurice May – Wellington Shields: And how much for year-to-date?

13.6. Maurice May – Wellington Shields: 13.6, okay. Okay, but you’re still not going 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. Maurice May – Wellington Shields: Okay. Can you give us some color on what’s behind it? First of all, what is the baseline this year for 2014, on a megawatt hour basis? Is it someplace in the high 30s or the low 40s where is it I forget?

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

And some of the drivers as we’re getting every year, the change is from the baseline typically are in three basic areas number one, it’s hydro conditions at least hydro is slightly positive this year. And then wind is the second variable, and I think we’re down this year on the wind forecast; and third issue is just overall economic displacement of our resources where we try to optimize or generating plans against the market and take opportunities there. And obviously the four items I said three but there’s probably a fourth which is how well the plants operate themselves. And so far year-to-date plants are meeting their operating objectives. So those are the things that can cause variability in the baseline, and it’s still too early to call for the full year. I think we’re below the baseline now. I think we’ll continue to be below the baseline, how much really depends 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.

Yeah. Maury a rough estimate on a per megawatt hour basis is around $35. Maurice May – Wellington Shields: Okay, 35. Okay. And hydro conditions, are they continuing to – is there enough river flow to continue the generation well under the third quarter or is still kind of ramping up?

Hydro is still looking good. We’re about 102% right now, overall. Maurice May – Wellington Shields: Overall 102 okay. So the rivers are still flowing, okay. On AFUDC, can you give us an estimate of AFUDC contribution to earnings say, in the second quarter or the first half or may be even as a part of guidance for the full year?

Well about 7 million for the second quarter. Maurice May – Wellington Shields: 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?

Yeah, essentially we take the capital structure out of the last approved rate case and we use the equity rate, and then the embedded debt rate. So there is debt AFDC and then there is equity AFDC that we book and the combined rate is about 7.5%. Maurice May – Wellington Shields: I’m sorry Jim, can you say that again I missed that.

The combined equity – the combined AFDC rate is about 7.5% rate. So it’s between equity and debt and the equity rate is based on the last approved ROE of 9.75 and then the actual capital structure when they actually calculate the split. Maurice May – Wellington Shields: Right. Got it. Got it. Can you – you’re estimating that Port Westward 2 will be $300 million excluding AFUDC. Do you have an estimate (inaudible) date because the thing is you’re in completion, do you have an estimate on 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 I guess – Bill will get you those numbers because I think we’ve filed them in the rate case and they’re available through that process. I don’t want to misquote the numbers. Maurice May – Wellington Shields: Alrighty. Good enough. Thank you, folks.

Thanks, Maury.

And we’ll take our next question from Andy Levy with Avon Capital.

Good morning, Andy.

Hey, good morning guys. 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 in the second quarter 2014, it’s about 9 million.

That’s the equity portion of it or is that right – is that correct?

That’s equity portion of it.

Right, okay. And then just on the back of the PKM, in your guidance, did you have a PKM assumption?

No, we assumed baseline power costs.

Okay so you assumed it would be just 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.

[Operator Instructions]. We’ll take our next question from John (inaudible) with KeyBanc.

Hey guys. Thanks for taking my call. Just a question, what was the capacity (inaudible) to attract wind in the quarter?

I have to look that up. We’ll get back to you on that.

All right. Thank you.

We’ll take a follow up question from Michael Lapides with Goldman Sachs. Michael Lapides – Goldman Sachs: Hey guys, 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 being ongoing kind of rebasing the level for D&A for 2014? And then, is the second quarter number kind of a good run rate to kind of start with and then we kind of add to it in the backend of the year? And then, if the full settlement gets or the term to the settlement get approved you’d then see a little bit of drop off the following years of due to a lower D&A rate?

Yeah, 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 they got pushed out that are now included in our D&A. So, the new D&A levels are a good run rate.

Excluding the new generating plant.

Right.

Run rate for the year right?

Run rate for the year. Michael Lapides – Goldman Sachs: And do you expect the rate increase for the rate case that’s underway now, to go in effect Jan 01, 2015 and to capture a full year worth of the revenue requirements from 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 look at AFDC on the projects until they become operational. At which point, we provide a certificate to the commission that they are deemed to use long rate to provide service at which point, the rate increases are for those individual projects would become effective. We would like to try so we don’t have multiple rate changes and we think – we’ll have to see how the time. It happened sometime in the first quarter so we’ll have to play that out. So, you see there are going to be in revenues or it’s going to be in AFDC in terms of the return on the capital. Michael Lapides – Goldman Sachs: Got it. Okay. Thanks guys.

Thank you.

We’ll take another follow up question from Andy Levy from Avon Capital.

Sorry about that. Just on the PKM so ‘13, I noted from your K are you under-collected by 11 million which included – does that include 17 million hit with plants being down was that kind of like the net number? There were some pluses and minuses, but the bottom-line was 11 million hit is that correct?

Right. That’s right. Yeah.

Okay. So we credit you in ‘14 with 11 and then the 14 million this year that includes which is a benefit thus far that includes 1.5 million of incremental cost that you envisioned at the beginning of the year from plant being down in January?

Yeah, that includes the costs about in January.

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

You’re welcome.

Okay. I don’t think we have any other calls online. So I want to thank you and 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.