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PGE Starts Push for New
Power Plants, Huge Investments

by Ted Sickinger
The Oregonian, January 6, 2010

Portland General Electric has kicked off environmental permitting for a new gas-fired power plant in north central Oregon, one of a slew of investments the company hopes to make in the next five years to address an energy supply shortfall, regulatory requirements and transmission bottlenecks.

Oregon's largest utility hopes to build a combined cycle gas plant capable of generating some 400 megawatts of electricity next to its coal-fired power plant in Boardman east of Mount Hood. That's enough electricity to serve about 300,000 customers.

The Boardman gas plant comes on top of a less efficient, 100 to 200 megawatt single-cycle turbine to fill in peak needs that the company hopes to build adjacent to its existing Port Westward gas plant in Clatskanie west of Portland.

The company hasn't developed cost estimates for either plant, which would come on line between 2012 and 2015. But the region's largest utility is playing catch up in terms of energy supply, and has a $2 billion slate of investments it is discussing with regulators to meet demand growth and regulatory mandates on pollution control and renewable energy.

PGE has built only two power plants -- and only one of significant size -- since its Trojan nuclear plant was shuttered in 1993. Meanwhile, it faces pressure to shut, or heavily modify, its backbone plant near Boardman. Also looming is the expiration of long-term contracts for some 300 megawatts of low-cost power it has been buying from municipally owned hydroelectric dams on the mid-Columbia River.

The utility could renegotiate some of those contracts, but it is competing with other utilities and with energy hungry computer-server operations that companies such as Google have built in the area expressly to take advantage of the region's cheap power.

Overall, PGE forecasts that it will need an additional 1,700 megawatts of generation capacity to meet its customers peak demand by 2015.

The company has put together a resource plan that it believes will be the low cost way to meet customers needs while maintaining system reliability of its system. The plan relies on energy efficiency first, but includes the most ambitious slate of investments the company has undertaken since Trojan.

"Not doing anything is not an option," said PGE spokesman Steve Corson. "You can add up the price tag and its a lot money, but it's still aiming to be the most cost effective combination of resources. The growth in demand has to be met."

PGE is currently spending $750 million to expand its Biglow Canyon Wind Farm in Central Oregon and another $180 million to install advanced meters for its 800,000 customers.

In addition to the new gas fired power plants, the company's plans call for spending up to $650 million on mandated pollution controls at its Boardman coal plant, and between $600 to $800 million on a new transmission line to ship power from the Boardman area to the Willamette Valley.

To meet state renewable-energy mandates, the company will also need to build or buy more renewable power, such as from wind. If the choice is to build, that could easily add more than a half billion dollars to its capital expense tab by 2015.

The investment plans are both an opportunity and a quandary.

Regulators and customers, while essentially forcing the utility to invest, are wary of the rate shock that could result. PGE, already the region's high cost utility, experienced pushback in its last rate case from both regulatory staff and ratepayer advocates who were looking for the company to demonstrate tighter controls of operating costs such as headcount and administrative expenses. That tension is likely to heighten as the company looks to roll new power plants into rates.

The investment plans "are significant, and that's why we have a real concern with PGE being able to demonstrate that it can manage its costs effectively," said Bob Jenks, executive director of the Citizen's Utility Board of Oregon.

PGE Chief Executive Jim Piro, meanwhile, says the company isn't getting fair shake from regulators. Piro says the company's 2010 earnings forecast translates to a shareholder return of 7 to 8 percent -- well below its allowed return on equity of 10 percent. The company intends to file for a rate increase to address that shortfall in coming months.

The consequence isn't academic. PGE will need to raise a significant amount of both debt and equity to fund its plan, and the cost of that capital is dependent on the strength of its earnings. PGE's inability to earn its allowed return has left its stock price trading at a discount to both competitors and its own book value.

Last year the company sold 12.5 million new shares of stock to help pay for its wind farm expansion. It was forced to do so at prices at prices well below the company's book value, diluting current shareholders ownership position.

Related Pages:
New Power Plan is Good Start, But Needs to Attack Coal Plants by Beres & Patton, Seattle Times, 9/27/9
NW Power Panel: Save Juice, Build Fewer Plants by Associated Press, Seattle Post-Intelligencer, 9/3/9

Ted Sickinger
PGE Starts Push for New Power Plants, Huge Investments
The Oregonian, January 6, 2010

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