Suspension of Cascade Crossing project leads to 2Q13 loss for Portland General Electric

Portland General Electric (NYSE:POR) on Aug. 2 reported a net loss of $22m for 2Q13, compared to net income of $26m for 2Q12, driven primarily by a $52m charge in capitalized costs related to the suspension of the Cascade Crossing transmission project, a customer billing refund, and an increase in operating and maintenance expense, company officials said.

“Excluding these factors, earnings this quarter would have been comparable to earnings in the second quarter of 2012,” Jim Piro, president and CEO, said during the company’s 2Q13 earnings call.

PGE suspended permitting and development of the Cascade Crossing project after entering into a memorandum of understanding (MOU) with the Bonneville Power Administration (BPA), which was announced June 3.

Under that MOU, the parties will explore a transmission capacity option through which BPA could provide PGE with ownership of approximately 1,500 MW in transmission capacity, in exchange for certain PGE assets. As a result of those changed circumstances, PGE charged $52m in capitalized costs related to the project to expenses in 2Q13.

Plant outages contribute to down quarter

Two coal-fired generating plants in which PGE owns interests went offline at the beginning of July, incurring both repair costs and replacement power costs.

The Boardman plant tripped offline July 1 when it experienced a temperature shock in the cold reheat pipe, causing structural damage, Piro said. The pipe was repaired and the plant returned to service July 31. Repairs are estimated to cost approximately $10m. In addition, officials estimate replacement power purchased to replace the plant’s output cost between $3m and $4m.

Colstrip Unit 4, which is operated by PPL’s (NYSE:PPL) PPL Montana, also tripped offline July 1 shortly after being returned to service following regularly scheduled maintenance. The cause was identified as a ground fault of a critical part of the unit known as a stator rotor.

PGE is working with PPL Montana to assess the damage and necessary repairs, but the plant is expected to be offline for the remainder of 2013. Repair to that plant are expected to range from $30m to $40m. Replacement power costs for the Colstrip plant are estimated at $7m to $8m.

Although PGE anticipates insurance recoveries for the repairs, the recovery of repair costs is subject to a $2.5m deductible per occurrence. At a minimum, PGE expects to incur its ownership share cost of the $2.5m deductible at both sites, Piro said. PGE owns 65% of the Boardman plant and 20% of the Colstrip unit.

The company also cited increased operating and maintenance (O&M) expense related to its other generation plants and its distribution system. The increase in O&M expense is in line with full-year expectations of $440m to $460m for the full year of 2013, Piro said.

New generation may add 13% or more to customer bills

PGE has entered into agreements that will add three new generating facilities to its portfolio.

PGE broke ground in May on Port Westward Unit 2, a 220 MW natural gas-fired capacity resource announced earlier this year. The plant is expected to cost $300m, excluding allowance for funds used during construction (AFUDC), and is scheduled to be operational in 1Q15. The utility expects to file a general rate case to recover the cost of the plant, and expects it to result in a customer rate increase of between 3% and 4%, Piro said.

The utility entered into an agreement for the construction of a new 440 MW natural gas-fired baseload plant called the Carty generation station, to be built next to the existing Boardman coal plant. Officials expect the project to come online in mid-2016 at a cost of approximately $450m, excluding AFUDC. The company anticipates filing a general rate case to recover the cost which, by itself, may result in a customer price increase of between 6% and 7%, Piro said.

Most recently, on August 1, PGE closed the asset purchase agreement with Puget Sound Energy to acquire development rights to develop Phase 2 of the Lower Snake River Wind Farm in southeast Washington.

The new 267 MW wind farm will now be called the Tucannon River Wind Farm, after the Tucannon River, which runs north of the project, and will use 116 Siemens turbines on approximately 20,000 acres. The project will cost approximately $500m excluding AFUDC, and will come online in the first half of 2015. The company may use either a general rate case or the renewable energy adjustment mechanism to recover the cost which, by itself, may result in a customer price increase of between 4% and 5%.

“We are working hard to deliver operational efficiencies throughout the company, and investigating other strategies to offset these customer price changes,” Piro said.

Rates and credit

PGE announced it has reached settlement with Oregon Public Utilities Commission (OPUC) staff and interveners on all items in the general rate case it filed in February, except pension expense. The parties settled on an allowed return on equity (ROE) of 9.75%, a capital structure of 50% debt and 50% equity, and an average rate base of $3.1bn. These items, along with recently filed updates of power costs and the load forecast, result in a revised increase of $79m in annual revenue requirement.

PGE also noted that, on June 28, Moody’s Investor Service upgraded the long-term ratings of the company, changing the issuer rating from Baa2 to Baa1 and the first mortgage bonds from A3 to A2.

Second quarter operating results

Total revenues decreased $10m, or 2%, to $403m in 2Q13 from $413m in 2Q12 primarily due to the net effect of a $10m decrease in average retail price, a $9m decrease related to an industrial customer refund for a billing error covering a period of several years and a $2m decrease related to lower volume of retail energy sold and delivered.

These decreases were partially offset by a $12m increase in wholesale revenues consisting of a 101% increase in the average price of wholesale power and a 10% increase in the volume sold, and a $2m increase in other net income, primarily attributable to higher earnings from non-qualified benefit plan trust assets, according to the company.