Portland General Electric Company (NYSE:POR) today reported a net loss of $22 million, or 29 cents per diluted share, for the second quarter of 2013. This compares with net income of $26 million, or 34 cents per diluted share, for the second quarter of 2012. Results for the quarter were driven by several factors, including the suspension of the Cascade Crossing Transmission Project and increased operating and maintenance expense related to the company’s generation plants and distribution system. The increase in operating and maintenance expense is in-line with full-year expectations of $440 million to $460 million for 2013.
“Although several factors impacted our operating and financial performance this quarter, our outlook for 2014 and beyond is positive,” said Jim Piro, president and chief executive officer. “We are moving forward on our three new generation projects, have reached substantial settlement on our 2014 General Rate Case and have successfully completed debt and equity financings, positioning the company for strong operations and growth over the next few years.”
- General Rate Case—PGE filed a 2014 General Rate Case in mid-February and has reached settlement with OPUC staff and interveners on all items except pension expense. Stipulating parties have settled on an allowed ROE of 9.75 percent, a capital structure of 50 percent debt and 50 percent equity, and an average rate base of $3.1 billion. The stipulated items, along with recently filed updates of power costs and the load forecast, result in a revised increase of $79 million in annual revenue requirement.
- Generating Projects—On June 3, PGE announced the completion of the competitive bidding process for baseload and renewable generation plants. PGE has entered into an agreement for the construction of a new 440 MW natural gas-fired baseload plant called Carty, to be built by a third party next to the Boardman coal plant. On August 1, PGE closed on an agreement to acquire development rights for the construction of a new 267 MW wind farm, which the company will now call Tucannon River Wind Farm. In addition, PGE has begun construction on Port Westward Unit 2, the 220 MW natural gas-fired capacity resource announced earlier this year. Together, these three projects represent an investment of approximately $1.3 billion (excluding AFDC) and are scheduled to come online in 2015 and 2016.
- Cascade Crossing—On June 3, PGE announced a new non-binding memorandum of understanding with Bonneville Power Administration. Under this MOU, the parties will explore a transmission capacity option whereby BPA could provide PGE with ownership of approximately 1,500 MW in transmission capacity, in exchange for certain PGE assets, investments and/or PGE transfer capabilities to BPA. Timing and costs of potential options under the MOU will need to be clarified through further discussions and are contingent upon reaching a definitive agreement with BPA. As a result of the changed conditions reflected in the MOU, PGE suspended permitting and development of Cascade Crossing and charged $52 million of capitalized costs related to Cascade Crossing to expense in the second quarter of 2013.
- Equity Financing—On June 11, PGE completed a public offering of 12,765,000 shares of common stock at an offering price per share of $29.50. 11,100,000 shares were offered pursuant to a forward sale transaction and are expected to be issued over a two-year period ending June 11, 2015. The remaining 1,665,000 shares were issued in June. Proceeds from the offering will be used for capital expenditures, debt repayment and general corporate purposes.
- Debt Financing—On June 27, PGE agreed to issue $225 million of 4.47% series First Mortgage Bonds in the private placement market. The bonds consist of $150 million due in 2044, which were issued in June, and $75 million due in 2043, which are expected to be issued in August. This financing will support capital expenditures, debt repayment and general corporate purposes.
- Credit Ratings Upgrade—On June 28, Moody’s Investor Service upgraded the long-term ratings of the company. The issuer rating improved from ‘Baa2.’ to ‘Baa1’ and the First Mortgage Bonds improved from ‘A3’ to ‘A2.’ The credit rating upgrades reflect a constructive regulatory environment with the timely recovery of prudently incurred costs, and a strong and stable financial profile with adequate liquidity to support a significant construction cycle.
- Generating Plant Outages—As disclosed on July 15, the Boardman and Colstrip Unit 4 coal plants went offline at the beginning of July due to specific equipment failures.
- Boardman, of which PGE owns 65%, experienced a thermal hammer event in the cold reheat line causing structural damage, and came back online July 31, 2013.
- Colstrip Unit 4, of which PGE owns 20%, experienced vibration and rotor issues. PGE is working closely with PPL Montana, the operator of the facility, to assess the damage and necessary repairs. Colstrip is expected to be offline for the remainder of 2013.
The company estimates 2013 replacement power costs for the two plants combined to be between $10 and $12 million. The estimated repair costs are expected to be approximately $10 million for Boardman and $30 to $40 million for Colstrip Unit 4. Insurance recovery of repair costs is subject to a $2.5 million deductible at each plant; insurance carriers have been notified of potential claims.
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