POR

Business Context and Reporting Period

Company: Portland General Electric Company (PGE)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: PGE is a vertically integrated electric utility serving approximately 817,000 retail customers in Oregon. The company generates, purchases, transmits, distributes, and sells electricity. It operates as a single segment with headquarters in Portland, Oregon.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Revenues decreased 8.5% ($36 million) in Q2 2009 compared to Q2 2008, and 2.5% ($22 million) for the six-month period. This was driven by a 5.2% decrease in retail energy deliveries due to the economic slowdown and milder weather, as well as a 52% drop in wholesale revenues caused by depressed market prices.
• Profitability Decrease: Net income attributable to PGE fell 38% in Q2 2009 ($24 million vs. $39 million) and 18% for the six-month period ($55 million vs. $67 million). Key factors included lower energy sales volumes, customer refunds related to Oregon Senate Bill 408 (SB 408), and the absence of a one-time gain from fuel oil sales recorded in 2008.
• Expense Fluctuations: Purchased power and fuel expenses remained relatively flat in Q2 but increased slightly for the six-month period due to higher costs for settled financial contracts, partially offset by lower natural gas prices and reduced thermal generation.
• Capital Activity: Capital expenditures increased significantly to $395 million for the first half of 2009 (vs. $206 million in 2008), primarily driven by the Biglow Canyon wind farm projects and the smart meter initiative.

Guidance, Outlook, and Risks

• Outlook: Management expects retail energy deliveries to remain approximately 2.5% below 2008 levels for the remainder of 2009. Cash provided by operations is estimated at $376 million for the full year 2009.
• Capital Requirements: PGE anticipates spending $720 million on capital projects in 2009 and $521 million in 2010. Major projects include Biglow Canyon Phases II and III, the smart meter project, and emission controls for the Boardman coal plant.
• Regulatory Risks:
  • Trojan Nuclear Plant: PGE is required to refund $33.1 million plus interest to customers following an OPUC order. Refunds are expected to begin in October 2009.
  • SB 408 (Income Taxes): Ongoing proceedings regarding the rate treatment of income taxes have resulted in estimated refunds to customers, impacting current revenues.
  • Boardman Emissions: New rules require significant emission control investments ($520-$560 million) at the Boardman coal plant, with completion phases extending to 2017.
• Market Risks: The company faces exposure to commodity price volatility and credit risk. A downgrade in credit ratings could trigger additional collateral requirements of approximately $214 million (dual agency downgrade scenario).
• Unusual Items: The company recognized $5 million in impairment losses on photovoltaic solar power facilities, largely allocated to noncontrolling interests.

Investor Verification Checklist

• Refund Obligations: Verify the timing and cash impact of the $33.1 million Trojan plant refund and ongoing SB 408 customer refunds.
• Capital Project Costs: Monitor the budget and schedule for the Biglow Canyon wind farm and the Boardman emission controls, as cost overruns could impact future rates or liquidity.
• Wholesale Market Exposure: Assess the impact of continued low wholesale energy prices on revenue and the associated collateral requirements for price risk management activities.
• Regulatory Decisions: Track the outcome of the Pacific Northwest Refund proceeding and the FERC investigation into Open Access Transmission Tariff compliance.
• Debt Maturities: Confirm refinancing plans for $186 million of long-term debt maturing in 2010.