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Oregon NatGas Facility Facing Hurdles Before Ramp Up, Says PGE Chief

Plans to get a stalled natural gas-fired power plant in Oregon operating on schedule, as well as selling state regulators on the value of purchasing gas reserves, continue to face hurdles, but not insurmountable ones, Portland General Electric (PGE) CEO Jim Piro told analysts last Friday.

PGE's 440 MW Carty gas-fired generation plant in Boardman, OR, will have to overcome a number of hurdles, he said, to startup by a ratemaking deadline of July 31 (see Daily GPIFeb. 17). Piro addressed the concerns during a conference call to discuss first quarter results.

At the end of 2015 PGE fired the Carty project contractor, a unit of Spain’s Abengoa SA, resulting in challenges now being addressed by an in-house team to complete the $624-670 million facility (see Daily GPIDec. 22, 2015).

"Construction and commissioning are continuing, and we are making solid progress on the logistics required by the first-fire [test] scheduled for early June," said Piro. He also noted that PGE is seeking arbitration after insurance companies denied claims covering the construction phase

"But due to problems left by the contractor and the work left to be done to correct defects and complete construction, the cost and completion date could vary from our initial projections."

Piro acknowledged that everything will have to go right, with no hiccups, to meet the July 31 deadline for plant startup to receive authorization by the Oregon Public Utility Commission (PUC) for retail utility rates. PGE's latest general rate case decision authorized up to $514 million added to rates for Carty, assuming the July 31 start-up deadline was met.

PGE will seek an amendment to the PUC's order to revise the deadline if needed. "It would not change the dollar amount [in rates], but only the in-service date," Piro said. If costs exceed the authorized funds, PGE may seek more rate coverage, but Piro said there are no guarantees the PUC would allowed the added funds.

As it works to get utility ratepayer support for buying gas reserves, PGE is in separate talks with potential producers, consumer groups, and state regulatory staff.

Regarding buying gas reserves, Piro said PGE continues to go after about $100 million worth of supplies, or roughly 10% of its projected future average annual gas burn for power generation. There is a pending application as a "placeholder" at the PUC, pending a reserves deal that meets the electric utility's requirements.

Eventually the program may cover as much as 30% of the utility's gas needs, "depending on where prices are and the PUC's comfort level," said Piro, noting ultimately the utility would like to increase the 10% level.

"First, we want to demonstrate to our customer groups and our regulators that this is a sensible approach to hedging natural gas prices," said Piro, noting he expects to have an initial reaction from the PUC by October.

"A key factor here is that the deal will have to meet or beat the long-term projected price of natural gas. We are in active negotiations, working on a term sheet arrangement, but we haven't gotten the final contract yet. I'm cautiously optimistic that we can get there."

For 1Q2016, PGE reported net income of $61 million (68 cents/share), compared with $50 million (62 cents) for the same period last year.

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