Portland General Electric Company (POR) Q4 2014 Earnings Report, Transcript and Summary

Good morning, everyone and welcome to Portland General Electric Company’s Fourth Quarter and Full Year 2014 Earnings Results Conference Call. Today is Friday, February 13, 2015. This call is being recorded. And as such, all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] For opening remarks, I would like to turn the conference call over to Portland General Electric’s Director of Investor Relations, Mr. Bill Valach. Please go ahead, sir.

Thank you, Eric, and good morning everyone. We are pleased that you are able to join us today. And before we begin our discussion this morning, I’d like to remind you that we have prepared a presentation to supplement our discussion and we’ll be referring to those slides in the presentation throughout the call. The slides are available on our website at portlandgeneral.com. Referring to Slide 2, I would 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-Qs. Portland General Electric’s fourth quarter and full year earnings were released via our earnings press release and the 2014 annual Form 10-K before the market opened today and the release and the 10-K are 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. And these Safe Harbor statements should be incorporated as part of any transcript on 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 operating performance, our service area economy and strategic initiatives. Then he will turn the call over to Jim Lobdell who will provide more detail around the fourth quarter and the full year financial results, discuss financing and liquidity, and discuss our outlook for 2015. And following these prepared remarks, as always we will open the lines up for your questions. And now, I would like to turn the call over. It’s my pleasure to turn it over to Jim Piro.

Thank you, Bill. Good morning and thank you for joining us. Welcome to Portland General Electric’s fourth quarter and full year 2014 earnings call. 2014 was a milestone year for PGE marking 125 years since we provided the nation’s first long-distance transmission of electricity. In 2014, we achieved several key objectives towards meeting our customers’ energy needs and I am pleased to share our results with you this morning. On today’s call, I will provide an overview of our financial performance in 2014 and initiate 2015 earnings guidance, give you an update on our operating performance and the economic conditions in our operating area and discuss our project on the strategic initiatives, including progress on the Carty Generating Station, our 2016 general rate case and the 2016 integrated resource plan. Following my remarks, Jim Lobdell will provide details in the fourth quarter and annual results, discuss financing and liquidity, and end with the key assumptions supporting our guidance for 2015. So, let’s begin. As presented on Slide 4, we recorded net income of $175 million or $2.18 per diluted share in 2014 compared with net income of $105 million or $1.35 per diluted share in 2013. This increase in earnings per share was largely the result of the $52 million expense taken in 2013 for the Cascade Crossing Transmission project and an industrial customer refund of $9 million, increased AFDC related to the construction of our three new generating projects and improved generating plant performance. Now, looking ahead for 2015, we are initiating full year earnings guidance of $2.20 to $2.35 per diluted share. Jim will provide more detail later in the call. Now, for an operational update on Slide 5, I am very proud of our employees’ accomplishments in delivering outstanding customer service along with strong operating and financial performance in 2014. In addition to achieving excellent performance at our generating plants, we delivered on the significant objective of bringing two new generating resources into service ahead of schedule and under budget. PGE’s customer satisfaction ratings remain strong. We are in the top quartile in terms of satisfaction with our residential customers and top decile with our business customers according to the 2014 survey results reported by Market Strategies. PGE also ranked third nationally out of 48 companies for a large customer satisfaction according to the 2014 survey results reported by TQS Research. We continue to focus our efforts to be more efficient and effective in delivering energy to our customers. We made good progress in 2014, but still have significant opportunities ahead as we improve technology, streamline processes and improve the skills of our employees in all areas of the company. Now, let me provide you an update on our capital expenditures and rate base. Slide 6 provides the summary of the company’s capital expenditure forecast through 2016. Altogether, PGE’s three new generating projects and base capital spending results in a rate base increase of $1.4 billion for an approximate rate base of $4.5 billion in 2016. PGE’s second fully owned and operating large-scale wind project, the 267 megawatt Tucannon River Wind Farm went into service on December 15, ahead of schedule. We estimate that the final completion of the project will require approximately $25 million of capital expenditures in 2015 with the total construction cost estimated to be approximately $530 million, including AFDC. Overall the project when completed will be less than the original RFP bid. Second Port Westward Unit 2, a 220 megawatt natural gas-fired flexible capacity project went into service on December 30, ahead of schedule. We estimate that the final completion of the plant will require approximately $20 million of capital expenditures in 2015 and the total construction costs are estimated to be approximately $350 million, including AFDC. Similarly the project, when complete will be less than the original RFP bid. And third, the Carty Generating Station, a 440 megawatt natural gas-fired combined cycle power plant at our Boardman site is being constructed by Abengoa and will be owned and operated by PGE is expected to be in service in the second quarter of 2016 at an estimated cost of $450 million excluding AFDC. The project is currently on time and on budget. Now for an update on the economy and our customers on Slide 7, Oregon’s economy was strong in 2014, with several business expansions and investment projects announced in the second half of the year. The Portland region is experiencing strong demand for multi-family housing and office space, which is driven largely by new and expanding software companies and creative firms and Oregon once again ranked number one for in migration in 2014, according to the annual study completed by United Van Lines. Year-over-year the number of customers PGE serves has increased by approximately 1%. In 2014 Oregon employment grew at an average rate of 2.8% adding more than 50,000 additional jobs by year end. The unemployment rate in Oregon is the lowest it has been in 6 years and the unemployment rate in our service area was 5.9% in December, down from 6.1% a year ago. Notably, these downward trends in unemployment continued in Oregon despite more people coming into the state and existing as residents reentering the workforce. For the full year 2014 weather adjusted energy deliveries were up approximately 1% over 2013 when adjusting out the usage of one large paper customer. This increase in delivery – deliveries was driven primarily by strong growth in the industrial sector due to expansion in the high-tech industry. This increase along with the moderate growth in the commercial sector more than offset the decline in residential user per customer. In 2015 we expect weather adjusted energy deliveries to grow by approximately 1%. This growth is net of approximately 1.5% of energy efficiency and is driven by the high-tech industry as Intel, its suppliers and new data centers continue to grow and expand their businesses. The Oregon State economic forecast released in November shows the economic outlook for 2015 to be positive and projects a 2.6% increase in employment in 2015. And now on to Slide 8, I would like to provide you an update with our four key objectives for 2015: first, deliver operational excellence by meeting our 2015 performance targets; second, continue the construction of Carty Generating Station on budget with expected completion in Q2 of 2016; three, achieve a fair and reasonable outcome in our 2016 general rate case filed yesterday; and four, work collaboratively with all our stakeholders to prepare our 2016 integrated resource plan and it’s associated action plan to meet our customers’ future energy needs that provides the best long-term balance of cost and risk. So, first in the operational excellence area, we are focused on being steadfast in our commitment to ensuring the safety of our employees and the public, delivering exceptional service to our customers, meeting or exceeding our top quartile transmission and reliability performance metrics, ensuring that our generating plants meet or exceed their availability targets, and meeting our financial performance targets. Second, Slide 9 provides a status on the Carty Generating Station. Construction is progressing as planned. Major foundation work and the cooling tower are now complete. The heat recovery steam generator modules and casings are installed and welding of piping components has commenced. The gas turbine has arrived in Oregon and installation will start later this month. Slide 10 covers our third objective. Yesterday, we filed our 2016 general rate case with the Oregon Public Utility Commission, the filing, which is available on our website request an overall customer price of 3.7% effective in 2016. The request is based on a return on equity of 9.9%, a capital structure of 50% debt and 50% equity, and a rate base of $4.5 billion. The $66 million annualized revenue increase, includes $39 million for the base business needs partially offset by $56 million from the amortization of customer credits and updates to supplemental tariffs and an $83 million increase for Carty on an annualized basis. We expect the commission to issue a final order before the end of 2015 with new customer prices expected to be affected in two stages. Initially, a price reduction of approximately 1% would become effective on January 1, 2016 for base business cost, including customer credits and other tariff updates and a price increase of 4.7% for Carty that would become effective once the plant begins providing service to customers, which again is expected to occur in the second quarter of 2016. The fourth objective is the 2016 integrated resource plan on Slide 11. We anticipate filing the plan with the Oregon Public Utility Commission in mid 2016 with an order expected in 2017. This year we are focused on the development of the plan, analysis and conducting public meetings. The IRP assumes a 20 year planning horizon with the action plan for the period 2017 through 2020. The IRP will address multiple issues, including replacement of our Boardman plan, which will cease operation on coal at the end of 2020, meeting the renewable portfolio standard milestone that requires PGE to supply 20% of electricity our customers use from qualified renewable resources by 2020, additional energy efficiency and demand side actions, the potential capacity needs to serve our customers and several other topics. Now, I would like to turn the call over to Jim Lobdell who will go into more depth on our financial and operating results, liquidity and financing and providing the assumptions for our 2015 earnings guidance.

Thank you, Jim. Turning to Slide 12, for the fourth quarter of 2014, we reported net income of $43 million or $0.55 per diluted share compared to net income of $47 million or $0.59 per diluted share for the fourth quarter of 2013. This decrease was primarily driven by lower energy deliveries due to warmer weather, higher operating and maintenance expenses, and an increase in our effective tax rate in the fourth quarter of 2014. This was partially offset by a price increase from the 2014 general rate case related to recovery of operating costs, improved generating plant performance, and an increase in allowance for funds used during construction due to the higher construction work-in-progress balances for our three new generating projects. As shown on Slide 13, for the full year of 2014, we recorded net income of $175 million or $2.18 per diluted share and an ROE of 9.4% versus our allowed ROE of 9.75% compared to $105 million or $1.35 per diluted share and an ROE of 5.9% versus an allowed ROE of 10% for 2013. This increase in net income was primarily driven by the Cascade Crossing write-off and an industrial customer refund in 2013, higher AFDC, improved generating plant performance with no major unplanned outages in 2014, and a price increase received through the 2014 general rate case to align our revenues and costs. These increases were partially offset by higher effective tax rate in 2014 due to higher pre-tax income compared to 2013. Moving on to Slide 14, total revenue for the fourth quarter of 2014 was $500 million, a $1 million increase over revenues for the fourth quarter of 2013. Weather in the fourth quarter of 2014 was much warmer than the previous year with heating degree days decreasing 25% quarter-over-quarter. For the full year, total revenues increased 5% or $90 million. The increase in revenue was due primarily to increases in customer prices from the 2014 general rate case to align our revenues and our costs, collection of deferred costs related to four capital projects, and a customer refund recorded in 2013 partially offset by lower energy deliveries and a decrease related to the decoupling mechanism. Purchase power and fuel expense decreased $44 million year-over-year driven by a 6% decline in the average variable cost per megawatt hour. This decrease was driven by a decline in the company’s cost of natural gas to fuel its generating plants in 2014 compared to 2013 and higher cost replacement power in 2013 related to thermal plant outages. In total, net variable power costs in 2014 was $7 million below the baseline of the power cost adjustment mechanism for the full year compared to $11 million above in 2013. Moving to Slide 15, operating and maintenance costs totaled $484 million in 2014 $40 million higher than in 2013 and at the midpoint of our forecast range of $475 million to $495 million. The higher costs in 2014 were driven primarily by the following increases: $10 million related to storm and restoration, of which $5 million was related to three major windstorms in the fourth quarter and offset through our storm recovery mechanism; $7 million as a result of the company’s ownership interest in Boardman, increasing from 65% to 80% on December 31, 2013; $17 million for numerous items, including maintenance and generation and transmission and distributions partially offset by the $3 million expense for the 2013 renewable benchmark bid; and $8 million due to a number of items, including higher incentives related to improved performance, increases in medical and technology costs offset by lower pension, injury and damages expense. The Cascade Crossing Transmission Project reflects $52 million of cost expense in the second quarter of 2013, which were previously recorded as construction work in progress. Depreciation and amortization expense was at the midpoint of our guidance range and increased $53 million from $248 million in 2013 to $301 million in 2014. The increase was driven primarily by two factors: $33 million due to the timing of the deferral and amortization of the costs related to four capital projects and $16 million related to an overall increase in capital assets. Interest expense decreased $5 million in 2014 compared to 2013. This was driven by a $16 million reduction resulting from a higher allowance for foreign funds used during construction. That was partially offset by an increase in interest expense due to higher debt outstanding in 2014. The increased debt balance was related to the construction of our three new generating plants. Other income, net, increased $18 million year-over-year primarily due to a $24 million increase in the allowance for equity funds used during construction on the higher average CWIP balance partially offset by a decrease in earnings from our non-qualified benefit plan trust assets. Lastly, income taxes increased $40 million year-over-year primarily due to an increase in pre-tax income in 2014 over 2013. The company’s effective tax rate increased to 26% from 17% in 2013. On Slide 16, we continue to maintain a solid balance sheet, including strong liquidity and investment grade credit ratings. As of December 31, 2014, we had $811 million in cash and available credit, $685 million of first mortgage bond issuing capacity and a common equity ratio of 44.3%. Total capital expenditures for 2014 were $948 million, including $606 million for the three new generating resources. To fund these projects in our base business capital expenditures, we completed a $305 million, 18-month unsecured bank loan and issued $280 million of first mortgage bonds at favorable interest rates. In January of 2015, we issued $75 million of first mortgage bonds and we used the proceeds to repay $70 million of maturing debt. This financing plan has allowed us to finance the construction of our new generating resources in a cost effective way. In regards to our equity forward sale agreement, it can provide approximately $270 million to $275 million in funding. We anticipate physical settlement of the equity forward sale agreement by delivering newly issued shares on or before the agreement’s expiration of June 11, 2015. Moving on to Slide 17, on December 4, 2014, the Oregon Public Utility Commission issued an order that when combined with customer credits resulted in an overall increase in customer prices of approximately 1%. These prices became effective January 1, 2015 and reflected return on equity of 9.68%, a capital structure of 50% debt and 50% equity, a cost of capital of 7.56%, a rate base of $3.8 billion, and an annual revenue increase of $15 million. Embedded in the price change was a price decrease related to PGE’s base business, customer credits, and price increases related to the addition of the Tucannon River Wind Farm and Port Westward Unit 2. As shown on Slide 18, we are initiating full year 2015 earnings guidance of $2.20 to $2.35 per diluted share. This guidance is based on the following assumptions: retail delivery growth of approximately 1%, average hydro conditions, wind generation based on 5 years of historic levels or forecast studies when historical data is not available, normal thermal plant operations, operating and maintenance costs between $510 million and $530 million, depreciation and amortization expense between $300 million and $310 million, and capital expenditures of approximately $629 million. To finance these expenditures and to retire the current portion of our long-term debt we will continue to use the combination of cash flow from operations, issuance of new debt and draws on our equity forward sale agreement. Back to you, Jim.

Thanks. In 2014, we celebrated our 125th anniversary and our performance during the year reflects our employees’ hard work and dedication to our customers. I am very proud of the work accomplished by the teams across the company in 2014 to achieve many important objectives and we built a strong foundation to start the next 125 years of exceptional service to our customers. And now operator, we are ready for questions.

[Operator Instructions] And our first question comes from Brian Russo of Ladenburg Thalmann. Please go ahead.

Hi. Good morning.

Good morning, Brian.

Good morning, Brian.

If I read the 10-K correctly, it looks like you drew down 700,000 common shares at year end 2014, any insight as to what you have done in year-to-date ’15. And then how we should look at the average share count you are using to compute your EPS guidance?

Brian, I think we drew down that 700,000 shares in 2013.

Okay.

And we didn’t do anything in 2014, but we are going to drawing down the balance of the equity for in the – before the end of the first half as we had mentioned. And it’s probably more towards the back half of that as well.

Okay. So, you want to stop short of saying whether you have drawn down anything year-to-date?

No, we have not drawn down anything year-to-date.

Okay, great. And any thoughts on the average share count?

Yes, it would be about 84 million shares.

Okay. And can you just talk a little bit more detail on the 2016 IRP and more specifically, your 2020 capital – capacity needs with Boardman replacement power and the increase in the RPS?

So, Brian, this is Jim Piro. We will – we will go through exact same process, we went through at the last IRP. We will go through a complete vetting of our strategy going forward the difference between our loads and our resources. Obviously, with Boardman dropping out, we will have a significant hold that we will have to replace and we will identify what’s the least cost, lowest risk way of replacing that resource. Once we get that vetted and approved by the – or knowledge by the commission in an action plan, we would go forward with an RFP. And similarly like we did before, we would include benchmark resources for both potential energy capacity and renewable resources. The mix of resources will be a very interesting discussion with all our stakeholders, as we try to figure out what is that right balance of cost and risk to meet the energy needs of our customers. To the extent it is the base load resource, it would likely be gas, but we will try to look at the mixture between a natural gas-fired resources and renewable resources.

Can you quantify the number of megawatts for the three components of energy capacity in renewables?

Well, if you think of Boardman itself, it’s about – our share is about 560 megawatts. And so that presents a fairly significant hold in our energy needs. Without prejudging the decision, if we replaced it with a natural gas resource, it would look like a second unit at Carty of 440 megawatt base load gas-fired resource and at an approximate cost of what Carty is costing us today. Obviously, that would be one of our potential self-build options that we would consider and that would have to be measured against other bids in an RFP. As for capacity, we will have to continue to looking at that to see what the market needs for capacity and our own needs for capacity are. And that will depend a lot on what we see between now and the later part of this period in terms of customer needs. On the renewable side, we are talking probably a similar type project comparable to Tucannon River Wind Farm about 300 megawatts. And then again we would do an RFP for that resource. And again we would try to identify a benchmark resource to include in that bid. And it would be about the same, more or less same cost as Tucannon River if you adjust for inflation.

And then on the dividend policy, you somewhat restricted from raising the dividend until forward sale settles in June of this year, but it looks like you are kind of at the low end of your 50% to 70% target and I am just wondering what your thoughts are on the dividend?

So, on the dividend in May we will with the Board revisit our dividend. At that point we can’t take action because that dividend would be paid after the forward sale agreement ends. And so we would have the full latitude to adjust the dividend. We are at the low end of the range. The Board is very committed to the dividend and it will be a good topic of discussion. We understand the value of the dividend to our shareholders and you would expect a decision on that after the May Board meeting.

So no insight as to where your target payout is over the next 12 months as your CapEx steps down in ’16?

Well, as I said we are at the low end. And we will have to factor all the factors in terms of needs for capital, the balance sheet. All those things go into the analysis and then we will present that to our Board in terms of recommendations. So I can’t really give you what our thinking is right now, but I can tell you that dividend is very important and we will – we understand the importance to our shareholders.

Okay. And then lastly has there been any proposed modification to the PCAM in the general rate case that you filed yesterday?

No, it’s – Brian it’s actually in a separate docket, that docket is going to start around the March timeframe, so we will know more as we go through the summer months. But that docket is also being narrowly scoped not to look at the asymmetric nature of the dead end. But it’s being narrowly scoped to look at the recovery of costs associated with meeting the RPS standard.

Got it, okay. Thank you.

Thanks Brian.

Thanks Brian.

Our next question comes from Michael Lapides from Goldman Sachs. Please go ahead.

Hey guys. Thanks for all the disclosure in detail that you provided in today’s update, have one or two questions just about 2015 guidance. First of all, can you give us a little bit of an update of what you expect year-over-year ‘14 to ‘15 in AFUDC and what GAAP tax rate do you assume in your 2015 guidance?

For AFUDC about 7.5% will be about the right number to use. And Michael for the tax rate I guide you more towards an effective tax rate of about 20%.

20% in terms of the impact on the income statement or in terms of cash taxes?

As far as the income statement.

Okay. In AFUDC keep you put that in the dollar millions for us please?

No, I can’t do that.

Okay. Directionally down a lot, down a little, down not at all?

I can’t do that I mean right now AFUDC as you know is dependent on the CWIP balances. So it’s the timing of our investments as we go out over time. So it just dispends on how the plants play out and how we make other capital expenditures across the year.

Okay, great.

It’s also dependent upon – go ahead.

I am sorry. I guess my other question is O&M related, your ‘14 to ‘15 I mean in 2014 and 2015 O&M implies an increase of about – year-over-year increase using the midpoint of about 7% that’s a little bit of an outlier when I think about your peer group and kind of what a lot of the other companies are saying about O&M and O&M management, can you talk a little bit about what the drivers of that year-over-year increase are?

A couple of things as Jim gets the detail, obviously we are adding two new generating resources into our – into service and that’s having a big impact. We have also increased Boardman – our size of Boardman and so that has part of the impact. So there are a couple things going on there that are kind of one-time step ups. And those were all recovered in the rate case. And I believe Jim correct me if I am wrong, but the O&M is pretty consistent with what we had in the rate case filing for 2014 – 2015.

Yes, those are the exact drivers.

Yes.

Got it. And then finally and I want to piggyback off of an earlier question. When you get pass 2015 your CapEx declines a decent bit and just trying to think about as you have a couple of year period in between, spending on Carty and spending on the wind plant and then potentially incremental CapEx down the road, how are you think about kind of the use of your free cash flow CapEx comes down, D&A comes up and kind of which side of the balance sheet you would potentially use it on post-2015 or is it possible that CapEx gets accelerated earlier into the ‘16 ‘17 timeframe?

So, a couple of things going on there, we still haven’t got good visibility to ‘17 and ‘18 for capital expenditures. We are looking at where we can do reinforcements to the system. We are looking at some smart grid investments. We also are looking at potential investments in natural gas to hedge our long-term position. So, there is a couple of things moving out there. That’s all getting factored into what our future CapEx expenditure is, what the impact on customer prices might be, and also what our dividend might be also. So, all those things are being factored in and we really haven’t come to a complete conclusion, but we are looking at a number of items. This gives us the opportunity to catch up on some of the work we like to do on our transmission and distribution system as well some of our power plants to put them in good stead. So, there is a couple of things going on there as we take this kind of hiatus between this construction program and looking forward to the next IRP action plan. And so those are the things we will be looking at. Hopefully as we go through this year, we will be able to give a little more visibility to those out-years, but we are trying to make sure that we provide ourselves enough room in our balance sheet, in our equity, so that if we do decide to construct additional plants, we will have that equity capacity without having to issue stock to finance that next set of projects if we were fortunate to win those RFP bids.

Got it. Thank you, guys. Much appreciate it and appreciate all the insight today.

Thanks, Michael.

[Operator Instructions] And our next question comes from Andy Levi of Avon Capital. Please go ahead.

Hey, good morning guys.

Good morning, Andy.

How are you doing?

Good.

Great, thanks.

Couple of questions I guess most of them asked though, but just on the rate base, the $4.5 billion for ‘16, I guess in this slide that you had in December that was going to be a ‘17 number? So, is it higher than it was going to be?

Yes, the issue there is just timing of Carty. Carty is coming in, in ‘16 and I think we just sliced it to ‘17 before we thought we give better visibility. That $4.5 billion occurs when Carty goes into service in the second quarter of 2016. So, we just thought it was more accurate to reflect that in ‘16 versus kind of in ‘17 which was also true, but it was accelerated with Carty going into service in Q2 ‘16.

Got it. And then also back to that December packet, you have given CapEx out to ‘18, but I don’t see it in this packet, I guess went up to – maybe that’s in the 10-K I haven’t looked at the 10-K yet?

It’s in the 10-K and we were just trying to give a closer year end picture.

Okay.

And again I wouldn’t – as we mentioned earlier, we are still looking at ‘17 and ‘18 in terms of where there are opportunities to invest in the system that would provide value to our customers and provide better reliability. So, we continue working on ‘17 and ‘18. We have provided you in the 10-K our base capital forecast, but there maybe other things that we have not yet got approval for and we are still working on.

Got it. And then on the dividend, is there a date for that board meeting that you can share with us or is it just May?

It’s right around the annual meeting whenever we have our annual meeting.

Yes, it’s May 6.

May 6.

May 6, thank you. I’ll put that in my calendar. We look forward to that. And then just back on Boardman and the expansion of or – just the 300 megawatts of potential new wind. I think I missed it, what would be the timing of those two?

Well, Boardman ceases coal operation at the end of 2020 and that puts a pretty significant hole in our energy supply. And so if it’s determined at a natural gas-fired resource as the least cost, lowest risk, which I would say it tends to look that way today, then obviously can change, but that tends to be the way it would look. We would like to get that project up mid-2020, mid to late 2020. So, it will be available for 2021. On the wind resource, we have some flexibility, because we do bank credits and we have some ability to delay the actual construction of the wind farm and it could be anywhere in the 2020 to 2022 timeframe.

Okay. And so construction on Boardman would begin in 2019 or?

Yes, Boardman replacement, those typically are 2-year projects, so sometime in the 2019 if we were to win the RFP and our benchmark resource was chosen as the lowest cost, least cost resourced, least risk resourced, we would then start construction probably in the ‘19 timeframe.

Okay. And then the same, I guess for the wind, it’s about a 2-year lag?

Yes, probably not, maybe a little shorter than that, but approximately there. And as you know, Carty was – is being designed and cited as two unit plants, so that we have adequate space there to build the second unit if that was selected.

Okay. And then back to Michael Lapides’ question on just free cash flow and I understand that you may end up filling in some CapEx to deal with – that you haven’t identified yet, because I think the cash flow, the free cash flow is several hundred million dollars by the time you get to kind of the ‘16/17 after paying the dividend and your current CapEx forecast. So, I guess the three different options are – I mean, I guess you have some small debt issues that come due. Let me just see here. Here they are. You have like a 6.8% due in 2016, a small item, $67 million and then you have some debt due in ‘17, also around $60 million. So, I guess you have the option of paying those down versus refinancing, especially the 6.8%. You have the option to buyback stock, which is out there and then you have more CapEx. Is there some type of priority and if I am leaving out something, please let me know of the three choices, but is there some type of priority and then the dividend, of course, but as far as what you are thinking there on what to do with the cash?

Well, I guess in terms of priority, I think we would like to continue to invest in the system where it makes sense and it provides reliability to our customers. We have put off some investments that we could have done in the near-term just because of the big construction project in our three plants. So, we will look at that first in where there are opportunities there, but we have to ensure those kinds of projects make sense for our customers. So, that’s our first priority. And then from that, we have some flexibility on letting the equity ratio rise a little bit. If we think that we are moving forward towards another construction plant, we would like to let the equity rise a little bit, maybe above the 50% to give us some room to be able to finance the next set of construction, so that’s probably our second option. Probably our last option just from my perspective would be buyback stock.

Okay.

And we can work with the dividend too, to help size that, but that’s in the mix.

Got it. And how about debt pay down?

Well, obviously, if we decide to let the equity ratio go, that’s what we would do. We wouldn’t want to keep cash on the balance sheet. That’s pretty dilutive.

Right, right. Okay, so that cash will be put toward to work. It’s just a matter of where I guess?

Right. We will look at all three of the things you talk about, but our focus really would be on CapEx and sizing the balance sheet to prepare for the next construction program if we are successful.

Okay. Unless interest rates actually go back up and you can actually earn 4% or 5% in the bank that would have even been, I remember that.

I am not sure I like that right now, yes.

I was just looking at my past taxes I used to like make money that way as we get in the tax season. Okay, thank you. Thank you very much. You guys had a great year and very happy with everything.

Appreciate it.

Well, thanks, Andy.

Our next question comes from Chip Richardson of Wedbush. Please go ahead.

Good morning, Chip.

Congratulations on a good year and 125 years of supplying Portland with power. And I think it’s particularly encouraging that your plants are coming in on time and under bid. Has any thought been given to adding to your very, very small geothermal renewable energy deal? It seems that that’s the one potential baseload renewable and the plant that you own a small bit of apparently has had 97% availability in recent quarters?

I didn’t actually know we had a geothermal, I don’t think we do.

Yes.

I saw you own 1% of a plant at Raft River, Idaho, or 1% of the output?

No, if we get close to anything like that, it’s probably coming through a QF. So, it will be a power purchase agreement.

And I don’t think we have any geothermal. Bill can check into that for you, but I don’t think we do. Geothermal is an interesting resource. It is base load. It has capacity. We like those kinds of things and there are some areas in Oregon that you could build geothermal. The challenge has always been that those kinds of projects tend to be a national forest or areas where it’s really tough to get transmission into. We have one geothermal site that we have with just potential to develop, but it’s really, really difficult to develop those. And a fair amount of risk when you drill holes into the ground to make sure that you get a – you don’t get a dry hole. So we continue looking at those, really haven’t found anything that’s cost effective, but as we go through an RFP for new renewable resources, clearly geothermal will be things that could be bid into the marketplace if they were cost effective. They would have to compete with wind resources and but obviously you have to understand geothermal would come with capacity value.

Thank you very much.

Thank you.

Our next question comes from Paul Ridzon from KeyBanc. Please go ahead.

Good morning, congratulations on a solid year.

Thanks Paul.

Good morning. Thanks Paul

Can you – what’s your assumed effective tax rate in your guidance?

We are assuming an effective tax rate of 20%.

20%, okay. And then in the fourth quarter how was the capacity factor at the wind assets compared to kind of long-term average fourth quarter?

Jim is looking at the data for you.

In the fourth quarter we were looking at on an average of about 19%, which was about 29%. So we didn’t have as much wind as we otherwise would have liked in the fourth quarter.

For the year though it is pretty close to budgeted?

For the full year we were looking at about 29%, little over 29%.

And what we end up with. So we are pretty much on budget. With some of the challenges we are having on wind is the timing of the wind and that’s really can make any impact on our cost structure and actually wind cost us some money last year relative with what was filed to the AUT. Now we true that up over time with the 5-year historical average, but in the year you can’t have differences. And we are still challenged, it’s kind of like hydro a little bit when the wind blows a lot energy prices are lower and when the wind doesn’t blow the prices are higher. And that’s not necessary symmetrical something we are trying to deal within that while we continue to pursue this, a mechanism to try to true up the wind and because we have so much wind in the Northwest that exacerbates the problem.

They will blow more at night than it will blow during the day.

I’m sorry if you answered this already but when do you file your next IRP?

We will file it – we will work on it this year. We will file draft for consideration. But the final IRP will be filed with the commission in mid-2016.

Thank you very much.

Thank you.

Thanks Paul.

There are no more questions at this time. I will now turn it to Jim Piro for closing remarks.

Thank you. We appreciate your interest in Portland General Electric and invite you to join us when we report our first quarter 2015 results in late-April. Thanks and have a great day.