Chris Liddle - Manager of Corporate Finance & Investor Relations Jim Piro - President, Chief Executive Officer, Director Jim Lobdell - Chief Financial Officer, Senior Vice President of Finance, Treasurer.

Paul Ridzon - KeyBanc Brian Russo - Ladenburg Thalmann Travis Miller - Morningstar Gregg Orrill - Barclays Andy Levi - Avon Capital Ashar Khan - Verition.

Good morning everyone and welcome to Portland General Electric Company's second quarter 2017 earnings results conference call. Today is Friday, June 28, 2017. 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 will turn the conference call over to Portland General Electric's Manager of Investor Relations and Corporate Finance, Chris Liddle. Please go ahead, sir..

Thank you Candace. Good morning everyone. I am pleased that you are able to join us today. Before we begin our discussion this morning, I would like to remind you that we have prepared a presentation to supplement our discussion, which we will be referencing throughout the call. The slides are available on our website at investors.portlandgeneral.com.

Referring to slide two, I would like to make our customary statements regarding Portland General Electric's written and oral disclosures. 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 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-Q.

Portland General Electric's second quarter earnings were released via our earnings press release and the Form 10-Q before the market opened today, both of which are available at our website at investors.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. This Safe Harbor statement should be incorporated as part of any transcript of this call.

Leading our discussion today are Jim Piro, President and CEO and Jim Lobdell, Senior Vice President of Finance, CFO and Treasurer. Following their prepared remarks, we will open the lines for your questions. Now, it's my pleasure to turn the call over to Jim Piro..

Thanks Chris. Good morning everyone and thank you for joining us. Welcome to Portland General Electric's second quarter earnings results.

On today's call, I will provide an update on our financial and operating performance, the economy in our operating area, an update on our Carty Generating Station litigation, our 2016 integrated resource plan and finally the status of our 2018 general rate case.

I will then turn the call over to Jim Lobdell who will provide more details on our financial performance and guidance. Before we get started, I would like to share with you that I am retiring from Portland General Electric at the end of the year.

It's been my great honor and pleasure to serve as President and CEO for Portland General Electric for the past eight years. My 37 years with the company has been incredibly rewarding and I want to express my appreciation to all of the employees at PGE who make this a great place to work.

We have continued to raise the bar on providing value to our customers, community and to you, our shareholders. We have also continued to invest in our coworkers and our system to ensure we are providing safe, reliable and affordable energy to our customers.

I am pleased share with you that Maria Pope has been selected by PGE Board of Directors to serve as PGE's new President and CEO. She will become President on October 1 and then will assume the additional role of CEO and join the PGE Board of Directors beginning January 1.

Over the next few months, Maria and I will focus on making this a smooth transition for the company. Now let's move into the quarter's results.

As presented on slide four, we reported net income of $32 million or $0.36 per diluted share in the second quarter of 2017, compared with net income of $37 million or $0.42 per diluted share in the second quarter of 2016.

We saw an increase in energy deliveries to our residential and industrial customers related to a favorable weather condition and strength in our high-tech sector. However, unfavorable wind production, restoration costs from the severe April wind storm, higher cost at our thermal plants and increased legal expenses related to Carty offset those gains.

We are pleased with the strength of our local economy and the growth of our customer base and we are reaffirming our full year 2017 earnings guidance of $2.20 to $2.35 per diluted share. Now on to slide five for an operational update.

In addition to generating plant availability of 87% at our plants, our customers helped us achieve several key milestones. We continue to be ranked in the top quartile of customer satisfaction for residential, business and key customers according to Market Strategies International and TQS Research.

Once again, with the help of our customers, we ranked number one in the nation for our voluntary Green Future renewable power program. According to rankings form the National Renewable Energy Laboratory released in July, we came in first in all four categories by some of our widest margins yet.

We were first from the number of customers enrolled for the eighth year in a row, first for program sales of megawatt hours for the fifth year in a row, first for our program participation rate for the third year in a row and first for our rate of sales for the second year in a row.

I am also pleased to report, our customers and the Energy Trust of Oregon helped make PGE one of the top 10 utilities in the nation for energy efficiency. According to rankings from the American Council for an Energy Efficient Economy, we were ranked the ninth most energy efficient utility among the 51 largest utilities.

The ACEEE's 2017 Utility Energy Efficiency Scorecard ranks the utility's 2015 energy efficiency performance in three categories, quantitative savings and spending performance, program diversity and emerging areas and efficiency–related regulatory issues. Now let's move on to slide six for an update on the economy and our customers.

Overall, the economic fundamentals in our service area remained very strong. Unemployment rate since June for our service area and Oregon were both at historic lows of 3.2% and 3.7%, respectively and lower than the U.S. rate of 4.4%. The Oregon Office of Economic Analysis finds this to be an indication that Oregon is at or near full employment.

As a result, Oregon's employment rates will slow while maintaining a slight growth advantage relative to the entire U.S. Additionally, Oregon posted one of the nation's biggest gains in gross domestic product for the second straight year.

According to annual GDP data released in May, Oregon's growth rate of 3.3% in 2016, largely attributable to durable goods manufacturing related to the high-tech sector, ranks second nation after Washington at 3.7%, according to the U.S. Bureau of Economic Analysis.

The continued strength of Oregon's economy contributed to an increase in our total customer count of approximately 1.3% compared to the second quarter of 2016. We continue to expect weather adjusted energy deliveries in 2017 to decrease between zero and 1%.

This is based on an expected decrease in deliveries to metal manufacturing customers, ongoing energy-efficiency efforts which are lowering the residential and commercial load growth rate and 2016's leap year, which is equivalent to 0.3% decline in growth this year on a full year basis.

During the next few years, we expect to transition back to long term positive annual energy delivery growth of approximately 1% which reflects to reduction in deliveries due to energy efficiency. In particular, we are forecasting growth in the high-tech sector and a continuation of strong in-migration.

Moving to slide seven, we will provide an update on the Carty Generating Station, our 440 megawatt gas baseload resource near Boardman, Oregon that went into service in July of 2016. As of June, we had $635 million including AFDC of capital cost for the project.

As previously reported, we are pursuing legal actions against Liberty Mutual and Zürich North America, the two sureties who provided a performance bond in connection with the Carty construction agreement. On July 10, the Ninth Circuit Court of Appeals overturned the federal judge's decision that banned arbitration of our claims against the surety.

On July 24, we filed a petition with the Ninth Circuit Court requesting a rehearing en banc. This means the decision may be reviewed by all of the sitting Ninth Circuit judges which, if granted, could delay the ICC arbitration.

If the initial decision by the Ninth Circuit is not overturned, the International Chamber of Commerce tribunal will decide whether the lawsuit is arbitrable in the International Court of Arbitration. A jurisdictional evidentiary hearing before the ICC is scheduled for October 31. For more details, you can refer to our 10-Q.

Slide eight provides an overview of the timeline and action plan for 2016 integrated resource plan that we filed with the OPUC in November 2016. The action plan calls for a minimum of 135 average megawatts of cost-effective energy efficiency and 77 megawatt of demand response across the four-year planning period.

Additionally, it calls for taking actions to acquire approximately 175 average megawatts of qualified renewable resources and 560 megawatts of dispatchable capacity. We expect the OPUC to issue a decision on our IRP on or before August 31.

Currently we are engaged in productive bilateral negotiations with owners of existing regional resources to fill our remaining capacity needs. And we are completing detailed term sheets with potential sellers.

By mid-August, we plan to request a waiver from the OPUC of the guidelines that call for a competitive bidding process for resources greater than 100 megawatt and a term of more than five years.

Following the acknowledgement of the IRP and the outcomes of the bilateral negotiations in waiver process, we may request approval from the OPUC to issue a request for proposal for any remaining capacity needs.

We have also proposed conducting an RFP for renewable resources as soon as possible if the commission issues an acknowledgement order that includes the needs for renewable resources.

The RFP processes will include review and input by our stakeholders, oversight by an independent evaluator who reports to the OPUC staff and overall review by the OPUC itself.

Since issuing the IRP, we have identified a potential benchmark wind resource that could have a nameplate capacity of up to approximately 500 megawatt that would qualify for production tax credit. We are continuing to explore this option.

The submission of this resource into an RFP for renewable resource as a benchmark bid is subject to our additional due diligence, negotiations and the execution of definitive agreements. Our IRP is a flexible, balanced plan that reflects our commitment to a low-carbon future and provides the best balance of cost and risk for our customers.

It puts us ahead of schedule for Oregon's renewable power goals and enables us to serve approximately 50% of our customer's energy needs from carbon-free resources by 2020. Now let's move to slide nine for an update on our 2018 general rate case filed at the end of February of this year.

For your reference, key drivers are included on the slide and additional details can be found in our 10-Q. The case is progressing as scheduled with several rounds of settlement discussions completed in the last few months.

We have already come to agreement on some key items including depreciation expense, net variable power costs and a partial settlement on other items. The case will now focus on items such as our load forecasts, budget for additional employees, our cost of capital and the year-end estimate of completed capital additions.

We have filed our reply testimony on the remaining items on July 18, 2017 and the settlement conference is scheduled for August 3 and 4. We expect the final order from the commission by the end of the year for a price change effective January 1, 2018.

Now I would like to turn the call over to Jim Lobdell who will go into more depth on our financial performance and guidance. Following his remarks, we will open the lines for your questions.

Jim?.

Thank you Jim. Turning to slide 10, as Jim mentioned, for the second quarter of 2017, we recorded net income of $32 million or $0.36 per diluted share, compared with net income of $37 million or $0.42 per diluted share for 2016. This slide represents a walk-through of the income statement changes year-over-year.

A few things to note on this slide are, first, revenues increased $13 million for the quarter. This was largely the result of increased retail deliveries due to favorable weather and was partially offset by a reduction in prices from our 2017 annual update tariffs.

Second, a $5 million decrease in power costs as a result of a decline in the average price of purchase power driven in part by favorable hydro conditions which was partially offset by an increase in total system loads and a 20% reduction in wind generation.

Third, generation, transmission and distribution costs increased by $10 million due to restoration efforts related to the severe April wind storm as well as maintenance cost at our Carty, Beaver, Port Westford and Boardman generating stations.

Fourth, administrative and general expense increased by $3 million due to approximately $1 million of Carty litigation expense and $2 million in other A&G expenses.

And finally, an increase in other miscellaneous expenses such as depreciation and amortization expense due to Carty being placed in service in July 2016 as well as a decrease in AFDC equity due to a lower balance. On to slide 11, which shows earnings drivers for the quarter.

First, gross margin increased earnings by $0.11 due to the following, an $0.08 increase due to more favorable weather and a $0.03 increase in the estimated collection under the decoupling mechanism.

The next driver is a $0.05 decrease due to plant maintenance costs comprised of $0.02 due maintenance of miscellaneous Carty plant equipment including communication and control equipment, monitoring, water treatment and safety systems.

In addition, approximately $0.02 is due to the timing of the planned maintenance work at the Beaver, Port Westford and Boardman plants when compared to the same period of 2016. And $0.01 due to maintenance of three generating units at the Beaver plant.

Third, a $0.04 decrease due to storm restoration costs caused by a severe April wind storm that brought gusts of up to 70 miles an hour. Response efforts involved more than 1,000 employees as the storm affected more than 255,000 of our customers and knocked down approximately 1,300 wires across our service territory.

The fourth driver is a $0.04 decrease in production tax credits resulting from lower wind generation at the Tucannon River and Biglow Canyon Wind Farm.

The next driver is a $0.02 decrease related to Carty, 1% for the depreciation and incremental carrying cost of Carty's capital spending greater than the $514 million in customer prices and $0.1 for our litigation costs. Finally, $0.02 due to higher A&G costs.

On to slide 12, we provide a summary of the company's current capital expenditure forecasts from 2017 through 2021. These expenditures related to investments we are making in our system to keep it safe and reliable and new technologies to meet our customers' changing energy needs and service expectations.

We have not included any capital expenditures related to potential projects pursuant to our 2016 integrated resource plan. Slide 13, we continue to maintain a solid balance sheet including strong liquidity and investment grade credit ratings.

As of June 30, 2017, we had $697 million in cash available short-term credit and letter of credit capacity, $1.2 billion of first mortgage bonds issuance capacity and a common equity ratio of 50.4%.

The company has a $500 million revolving credit facility to meet the company's liquidity needs, which has a maturity date of November 2020 and additional letter of credit facilities totaling $220 million. We will be issuing $225 million of first mortgage bonds at an interest rate of 3.98%, $75 million will be funded in August maturing in 2048.

The remaining $150 million will be funded in November maturing in 2047. And we will use the proceeds to repay our bank loan due in November 2017. We expect to issue up to an additional and incremental $75 million of first mortgage bonds later this year.

As shown on slide 14, we are reaffirming full year 2017 earnings guidance of $2.20 to $2.35 per diluted share. The guidance is based on the following assumptions.

A decline in retail deliveries between zero and 1% weather adjusted, normal hydro conditions for the remainder of the year based on the current hydro forecast, wind generation for the remainder of the year based on five years of historic levels or forecast studies when historical data is not available, normal thermal plant operations for the remainder of the year, depreciation and amortization expense between $340 million and $350 million and revised operating and maintenance costs between $555 million and $575 million driven by increased distribution costs.

Back to you Jim..

Thanks Jim. In summary on slide 15, we continue to focus on successful execution of initiatives that drive value for our customers and our shareholders. First, maintain a high level of operational excellence with a continued focus on employee and public safety and meeting our operational and financial goals.

Secondly, working collaboratively with all our stakeholders to obtain acknowledgment of our 2016 integrated resource plan and its associated action plan to meet our customers' future energy needs. And third, achieve a fair and reasonable result on our 2018 general rate case. And now operator, we are ready for questions..

[Operator Instructions]. Our first question comes from Paul Ridzon of KeyBanc. Your line is now open..

Good morning guys. Congratulations Jim..

Thanks Paul..

The bilateral discussions, are you talking about contracts? Are you talking about actually buying capacity from these owners?.

Yes to both. We are looking at all options. We are investigating all options and we are talking to both people who would provide us capacity on our contracts and potentially assets that we could potentially purchase. So we are working through that right now and in detailed negotiations with a number of parties..

How much liquidity are you seeing in that market for assets?.

I would say, we are well aware of all of the generation that exists in the marketplace because we are a very nimble player out there and as such, we recognize that there is some available capacity. It is somewhat limited, but there is enough that we think that we could accomplish most of what we need to do..

Okay.

And what was the capacity factor on wind in the quarter? And is that down 20% versus the benchmark? Or is that versus last year?.

That's quarter-over-quarter, Paul. And I think the capacity factor was in the 30% range for wind for the quarter. I will need to confirm that because that's off the top of my head..

And do you know what the wind was versus what's in the benchmark?.

It's in the 2018 filing..

I have to go back..

Paul, I will get back to you that..

It is like 20% down..

Okay..

A little over 20% against the 2018..

Okay. And then lastly, a little bit of noise on the line. I do want to make sure I understand what the Ninth Circuit did.

Did they threw out a ban? And if that action stands, you will have to international arbitration? Is that correct?.

Right. If the Ninth Circuit Court stands, then we would go to ICC arbitration to determine the arbitrableness of the claim and then we would go through the actual merits of the case.

So the ICC has to determine the jurisdiction issues first and then we have to, if they decide they have jurisdiction, then we would work through them on the merits of the case..

Would you call that an incremental negative?.

No. I just think it's the nature of the court system that they tend look at arbitration as a ore favorable way to solve these issues. We still think we have a good argument that it should be resolved in the Ninth Circuit. The merits of our case are still very strong..

Do you think this will affect the timeline if the Ninth Circuit stands?.

Hard to tell at this point. Those are fairly lengthy process..

We still think it is going to take two to four years to resolve the clients that are out there..

Okay. Thank you very much..

Thanks Paul..

Thanks Paul..

Thank you. Our next question comes from Brian Russo of Ladenburg Thalmann. Your line is now open..

Hi. Good morning..

Good morning Brian..

Good morning Brian..

Could you just tell us what the PCAM or how far below the benchmark you are with the dead band in 2Q?.

We are about $5 million below..

Okay.

And the renewable benchmark you referenced for, can you elaborate at all? Is that a self build? Or is that an existing asset? Or build on transfer?.

It's subject of confidential negotiations. So we really can't talk much about it..

Okay..

But we still want to do what we did with Tucannon River Wind Farm in terms of the opportunity..

Got it. Okay.

And do you have a storm cost recovery mechanism? Or do you have to absorb those costs from April? And why aren't you deferred?.

Brian, we do have a mechanism. We get $2 million a year that goes into a balancing account to cover Level III storms. We have exhausted that balance in last year and we have the $2 million this year. So the fund is now empty and there is nothing else to offset future storm. We have filed for a deferral for the excess storm cost this year.

That would be subject to a review by the commission probably next year. In the current rate case, we are working on a settlement, I don't know if that's public yet, but the settlement on potentially increasing the amount of the storm reserve costs and once that becomes public, we can share that.

But we have been having dialogues with the commission staff on this issue and other parties..

Okay..

But right now, the fund is empty and we have filed a deferral for the excess cost this year. But have not reflected that in our earnings..

Got it. And so it likes the two big headwinds in the second quarter was the lower wind output and the storm costs yet you reaffirmed your guidance.

So are there some positive offsets that kind of allow you to reaffirm your guidance? Or are you biased towards the lower end? Just some granularity on that?.

So Brian, a couple of good things happened. We obviously had good load growth due to favorable weather this year. So the loads have been higher than we expected in terms of due to weather. That's one good thing. And we had very good hydro conditions that have kept prices low in the region.

And so those low prices allowed us to take advantage of lower prices and offset our thermal operations. So those are the two positives that have kind of worked in our favor..

Okay. Got it. Thank you..

Thank you. Our next question comes from Travis Miller of Morningstar. Your line is now open..

Good morning. Thank you. Congratulations as well, Jim..

Thanks Travis..

A quick question. I wanted to make sure I caught you correctly.

Is there 500 megawatts of new win that you have identified outside of the IRP?.

No. It's 500 megawatts nameplate. So that would be around 170 megawatt average, more or less. So that's where we have identified the benchmark resource that would hopefully compete well in an RFP, if we go to an RFP..

Okay.

And is that still within the IRP?.

Yes. We would have to get acknowledgement from the Oregon Public Utility Commission on an action plan that included acquiring new renewable resources and that's what we are waiting from the commission. Hopefully we will get that decision on or before August 31 of this year..

Yes. Okay.

And would you then, you say bid competitively as a self build as well as an RFP?.

Yes. If they agree that we should add more renewal to take advantage of the production, the value of the production tax credit, we would work on an RFP with the stakeholders. We would issue that RFP. We would hope to include a benchmark resource in that RFP.

But again, that's subject to completing negotiations with third party on that benchmark resource..

Sure. Okay.

And is any of that in your CapEx plan in terms of the self build?.

No..

Okay. Very good. Thanks so much..

Thank you..

Thanks Travis..

Thank you. Your next question comes from Gregg Orrill of Barclays. Your line is now open..

Good morning Gregg..

Good morning Gregg..

Hi. Good morning. Thank you.

Regarding the general rate case, can you talk about what you are seeing in settlement discussions and where do you see that headed?.

Jim, you want to cover this?.

We have got additional settlement discussions, Gregg, going on in August 3 and 4 and we will be talking about the issues that we haven't currently settled. As Jim mentioned, we settled net variable power costs, myself depreciation and a few other items. So we still have quite a ways to go and we will see how those discussions turn out next week..

Thank you..

Thank you Gregg..

Thanks Gregg..

Thank you. Our next question comes from Andy Levi of Avon Capital. Your line is now open..

Hi guys.

How are you?.

Hi Andy.

Good morning Andy..

Sorry to see you leave, Jim..

It was a great career..

It was good career. I should be so lucky..

After you put 44 years in it, it's early, you can do that..

Yes. I am working on it. But yes, you did a great job. So again, sorry to see you go, but I remember Maria. So I think she will do a great job.

Just to be clear, just on this whole regional resource thing, for no better way to put it, so basically just off the wind, I mean I you are negotiating on either buying or buying capacity or buying a power plant, a gas-fired power plant or buying power from a gas-fired power plant.

Is that kind of what you are trying to say?.

Or from other regional players who have excess capacity. So both from existing thermal resources as well as potentially from existing hydro resources. So we are examining both..

And then -- go ahead, I am sorry..

In terms of the contracts, those would tend to be shorter duration and obviously you buy the thermal resource, that would be longer duration..

Okay.

And the part about the waiver, does that go for the entire, any type of scenario or only if you were to purchase a plant?.

It would only come into place if the agreement that we entered into had greater than 100 megawatts capacity and longer than five year term. So its under those two conditions we require to get a waiver under the competitive bidding guideline..

Okay.

So it has nothing to do with either purchasing power or purchasing a plant itself?.

It's really related to the nameplate of the capacity..

Right. I understand. Okay.

And can you categorize in any way where you are leaning towards or where the negotiations on the various different opportunities you have? Are you leaning more towards buying a plant or just buying power doing a PPA?.

No. It uses the same criteria we would do in an RFP. So we look for RFP process. We are looking at lowest cost, least risk and that's our stand and we want to ensure that we can deliver value to our customers and we want ensure that the actions we take provide the best balance of cost and risk..

Okay.

And then separately, just to understand you are also in negotiations, as you said, on a renewable resource, which is separate, right?.

Yes..

Okay.

And we should hear something? If I am reading this correctly, we should hear something from you guys sometime in August on both? Is that what you are saying?.

We would hope to get a commission decision on our IRP on or before August 31..

Okay..

And that action plan, if they approve, will give you an indication whether we are going to move forward on an RFP for renewable energy..

But on the gas-fired capacity?.

The capacity will be more related to whether they have proved that we get a waiver on the ability to find a short duration capacity contract or potentially thermal resources that might be already in existence. So watch the waiver process, the waiver process we hope to file in mid-August.

That would give you an indication of what actions were taken on the capacity side and on the renewable side, I would look toward the end of August to see what the commission action is on our IRP..

So will you only file the waiver once you have a resource in mind?.

We want to get --.

Or is it based on the IRP outcome?.

No. It's really based -- we know what the need is. I think we feel fairly comfortable that we need 500 megawatts of flexible capacity. So that's the first piece. And so we think the need is there. The waiver really is necessary to obviate the need for an RFP in terms of duration and quantity on the actual agreement..

Okay. I understand it now. Okay. Thank you very much..

Thanks Andy..

Thank you. [Operator Instructions]. Our next question comes from Ashar Khan of Verition. Your line is now open..

Hi Ashar..

Good morning. How are you guys doing? Jim, congratulations, a long career. But I wanted to a question strategically. If I am right, on Bloomberg I have your date right.

It said, you started on January 1, 2009 and over these, I guess, nine years coming up, I guess, by the time you retire, the sector has changed and especially small-cap companies like yours have been sold. The only area that is left in the U.S. is the Northwest and we just saw a neighbor of yours just go out about two or three weeks.

So as the Board went through the succession planning process and you know, the utility multiples are at the highest, you couldn't get better multiples now than ever in the history, has the board strategically looked at putting the company up for sale? And if not, why not, in this environment and just with your size left in terms of the competition as we go through this succession?.

Well, Ashar, we don't really comment on mergers and acquisition conversations. That's just our standard policy. I will assure you that the Board is always having conversations around all regional issues and we are aware of what's going on in the region. And that's really well in the conversation.

I think, we believe in our strategy, we believe in the direction we are going. We have opportunity to grow value for our customers and our shareholders and we will continue to pursue that path..

Okay.

So you can't share whether this is being, have you considered this or not considered it at all?.

We can't comment on that..

Okay. Thanks..

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back over 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 third quarter 2017 results in late October. Thanks a lot. Have a great day..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day..