The increase in net income and the revision to 2010 guidance were driven by the effects of the Oregon Senate Bill 408 (SB 408) calculation. During the third quarter of 2010, a new federal tax law was enacted that includes the extension of bonus depreciation, which resulted in a significant increase in the amount to be collected from customers pursuant to SB 408. The earnings impact related to SB 408, including the effect of the new tax law, was approximately $0.16 per diluted share for the third quarter of 2010.
Retail revenues increased $25 million, or 6%, from the third quarter of 2009 primarily due to a $20 million increase related to SB 408. Also contributing to the revenue increase was a change in the mix of customers that purchase their energy requirements from PGE. Partially offsetting these increases was the impact of a 5% decrease in average retail prices in the third quarter of 2010 compared to the third quarter of 2009.
Retail energy deliveries were down 2.7%, with decreases in residential and commercial deliveries partially offset by an increase in industrial deliveries. Decreases of 5.4% and 3.8% in residential and commercial deliveries, respectively, were driven primarily by cooler than normal weather in the third quarter of 2010, compared with warmer than normal weather in 2009, and by the continued impact of the weak economy. Partially offsetting these decreases was a 4.2% increase in industrial energy deliveries.
On a weather adjusted basis, retail energy deliveries approximated those of the third quarter of 2009. Weather adjusted retail energy deliveries for 2010 are expected to be approximately 1.5% below 2009 due to the combination of energy efficiency initiatives and the continued effects of the economy. Such declines are expected to be partially offset by a moderate increase in deliveries to existing industrial customers, including those in the high technology sector.
The average variable power cost in the third quarter of 2010 decreased 8% compared to the third quarter of 2009. The decrease was driven primarily by an increase in lower-cost generation, resulting from both lower fuel costs and higher plant availability. Availability of the plants that PGE operates was 94% in the first nine months of 2010 compared to 86% in 2009.
Net income for the nine months ended September 30, 2010 was $100 million, or $1.32 per diluted share, compared to $87 million, or $1.21 per diluted share, for the comparable period of 2009. The $13 million increase was primarily due to the effects of SB 408 and a 7% decrease in the average variable power cost. A 3.9% decrease in retail energy deliveries was driven by the continuing effects of the economy and mild weather.
"PGE is proud to have completed Biglow Canyon Wind Farm – one of the largest wind power projects in the Pacific Northwest – on time and under budget," said Jim Piro, President and Chief Executive Officer. "I am also pleased that our generation and power delivery teams performed very well during this period. We have also reached agreement on all items related to revenue requirements in the current general rate case, which we believe provides a fair and reasonable outcome for customers and shareholders."
Completed Phase III of the Biglow Canyon Wind Farm project at a total cost of $383 million. The completed wind energy project has a total of 217 wind turbines in service, with a total installed capacity of approximately 450 MW. Energy from wind power provided 7% of PGE’s retail load requirement in the third quarter of 2010 compared to 4% in the third quarter of 2009.
Third Quarter Operating Results
▪ Retail revenues increased $25 million, or 6%, in the third quarter of 2010 compared to the third quarter of 2009 primarily due to:
◦ A $20 million increase related to SB 408, resulting primarily from the effect of a new federal tax law that provides for the extension of bonus depreciation, which resulted in a significant increase in the amount to be collected from customers;
◦ A $12 million increase in energy sales, consisting of the net effect of:
* A 4.2% increase in deliveries to industrial customers, primarily due to improvement in the high technology sector, the 2010 return of a large customer from another electricity supplier to PGE for its energy requirements, and increased production by another large industrial customer; and
* Decreases of 5.4% and 3.8% in residential and commercial deliveries, respectively, driven primarily by both cooler summer weather and the continued impact of the weak economy. Partially offsetting the effects of the weather and the economy was the impact of a 4,700 increase in the average number of customers served;
◦ A $5 million increase related to the reversal of a deferral for customer refunds under the 2005 Oregon Corporate Tax Kicker, pursuant to an OPUC order;
◦ A $4 million increase related to the accrual of revenue requirements for Biglow Canyon;
◦ A $2 million increase related to the decoupling mechanism, due to a $2 million customer refund recorded in 2009; partially offset by
◦ A $19 million decrease related to a 5% decrease in average retail price. A decrease in net variable power costs, pursuant to the Company’s Annual Power Cost Update Tariff, was partially offset by increases related to the Biglow Canyon Phase II and Selective Water Withdrawal capital projects.
▪ Purchased power and fuel expense decreased $22 million, or 10%, in the third quarter of 2010 compared to the third quarter of 2009, with $20 million related to an 8% decrease in average variable power cost and $2 million related to a 1% decrease in total system load. The average variable power cost decreased to $38.12 per MWh in the third quarter of 2010 from $41.54 per MWh in the third quarter of 2009, primarily due to a shift in the mix of energy sources. Thermal generation was higher in the third quarter of 2010 compared to 2009. Energy from hydro resources was approximately 9% and 10% below normal in the third quarter and first nine months of 2010, respectively, and is expected to be below normal for the year.
▪ Depreciation and amortization expense increased $6 million, or 11%, in the third quarter of 2010 compared to the third quarter of 2009 largely due to increased capital additions related to Biglow Canyon Phase III and the smart meter project.
▪ Other income, net decreased $3 million primarily due to a decrease in income from non-qualified benefit plan trust assets. In the third quarter of 2010, PGE recorded a $3 million gain, compared to a $5 million gain recorded in the third quarter of 2009.
2010 Earnings Guidance
PGE is revising earnings guidance from the previously reported range of $1.40 to $1.55 per diluted share to $1.65 to $1.80 per diluted share. The guidance change reflects the effect of a change in federal law regarding 2010 bonus depreciation on SB 408, representing approximately $0.20 per diluted share. The aggregate net effect of several other items represents an additional positive impact of approximately $0.05 per diluted share
2011 Earnings Guidance
2011 earnings guidance will be initiated on PGE’s fourth quarter earnings call in February 2011.
Third Quarter 2010 Earnings Call and Web cast — October 28, 2010
PGE will host a conference call with financial analysts and investors on Thursday, October 28, 2010, at 11 a.m. EDT. The conference call will be web cast live on the PGE website at www.PortlandGeneral.com. A replay of the call will be available beginning at 2 p.m. EDT on Thursday, October 28, 2010 through Thursday, November 4, 2010.
Jim Piro, President and CEO; Maria Pope, Senior Vice President, Finance, CFO, and Treasurer; and Bill Valach, Director, Investor Relations, will participate in the call. Management will respond to questions following formal comments.
The attached condensed consolidated statements of income, condensed consolidated balance sheets, and condensed consolidated statements of cash flows, as well as the supplemental operating statistics, are an integral part of this earnings release.
Portland General Electric Company is a vertically integrated electric utility that serves approximately 822,000 residential, commercial and industrial customers in the Portland/Salem metropolitan area of Oregon. The Company’s headquarters are located at 121 SW Salmon Street, Portland, Oregon 97204.