Earnings Call: Q2 2018

Jul 27, 2018

Morning, everyone, and welcome to the Portland General Electric Company Second Quarter 2018 Earnings Results Conference Call. Today is Friday, July 27, 2018. 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. Opening remarks, I will turn the conference call over to Portland General Electric's Director of Investor Relations and Treasurer, Chris Little. Please go ahead, sir. Good morning, everyone. I'm pleased that you're able to join us today. Before we begin our discussion this morning, I'd like to remind you that we have prepared some details to supplement our discussion, which we'll be referencing throughout the call. Slides are available on our website at investors. Portlandgeneral.com. Referring to Slide 2, I'd 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 fact 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 the 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 ks and Form 10 Q. Portland General Electric's 2nd 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. 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 Maria Pope, 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 Maria Pope. Thanks, Chris, and good morning, everyone. I'd like to start with how pleased we are that we've settled the Carty generating station litigation. We anticipate offset the incremental construction costs and partially offset other damages. From the onset, protecting customers' interest drove our thinking, starting with the decision to require significant financial assurances from the general contractor to taking decisive action in 2015 to the unrelenting dedication of our employees in bringing the plant into service safely and on time. Since going into service in 2016, Kearny has provided customers with safe, reliable and cost effective energy and is operating at rates that are exceeding expectations. With the settlement reached, we intend to withdraw our deferral application at the Oregon Public Utility Commission. We are increasing our full year earnings guidance by $0.15 to $2.25 to $2.40 $0.12 of which is associated with the Cardi settlement and the balance of which is attributable to improved gross margin due to temperatures that are better than expected this past winter when we initiated guidance. Now, I'd like to provide an update on our financial and operating performance and the status of our renewable request for proposal. We will then turn the call over to Jim, who'll provide more details on our financial performance and guidance. Turning to Slide 4. We reported net income of $46,000,000 or $0.51 per share compared with net income of $32,000,000 or $0.36 per share in the Q2 of 2017. Results were driven by lower natural gas prices, lower plant and distribution O and M and higher production tax credit generation. These were partially offset by warmer than normal temperatures and increased administrative expenses. Overall, our operating performance from generation to transmission and distribution was very strong this past quarter. We are moving forward with offering customers more renewable and lower carbon options, including our renewable power option for large businesses and municipal customers, our transportation electrification plan and our energy storage pilots. Thanks to customers' preference for green energy, PG is once again number 1 in the nation for our voluntary renewable power program. I'm also pleased to report that PGE continues to be ranked in the top quartile for customer satisfaction for residential, business and key customers according to TQS Research and Market Strategies International. Now turning to Slide 5. The bids are in for our renewable request for proposal regarding our need for 300 megawatt nameplate capacity. The process is expected to be highly competitive. We are evaluating proposals alongside an independent evaluator. We plan to submit a short list of proposals to the OPUC in October with final negotiations expected by the end of the year. And now, I'm pleased to turn the call over to Jim. Thank you. As Maria mentioned and as shown on Slide 6, we're increasing full year 2018 guidance to 2.25 dollars to $2.40 per diluted share. The increase is based on weather that was better than expected when we initiated established guidance in February of this year. Strong customer growth of 1.3%, which is helping increase our weather adjusted forecast to relatively flat loads for the year and the settlement of the Carty litigation. The settlement contributes $0.12 per share to 2018 EPS. In addition, $120,000,000 of the $130,000,000 settlement offset the undepreciated investment on our balance sheet in excess of what was included in customer prices. The residual $10,000,000 or $0.07 per share will flow to A and G along with another $0.05 now that we no longer are incurring further depreciation, interest and litigation costs associated with the excess cost to complete the Cardi facility. The proceeds from the settlement will also partially offset our need to issue long and short term debt. Turning to Slide 7, which shows earnings drivers for the quarter. First, gross margin increased earnings by 0 point 0 $1 due to the following: a 0 point 0 $6 increase as a result of lower natural gas prices, which contributed to improved economic dispatch of our generating plants and a $0.05 decrease due to warmer than prior year spring temperatures second, a $0.05 decrease in generation maintenance costs and 3 at 3 of PGE's thermal plants The 3rd driver is a $0.04 decrease related to distribution costs as no major storms occurred in the Q2 of 2018 as compared with the major storms we experienced in 2017. The next driver is a $0.03 increase due to production tax credits as a result of higher wind generation. And finally, a $0.02 increase in other miscellaneous items, including outside services and administrative expenses. Moving on to Slide 8. As we discussed on our Q1 call, our 2019 general rate case has been filed and we are currently in the testimony phase. Several settlement discussions have been held with parties and we have reached agreement on all power cost related matters as well as some non power cost items such as cost of capital. Stipulations regarding these agreements are in progress and will become available in the coming weeks. We filed our reply testimony on the remaining items on July 13 and held additional settlement discussions on July 23 24. We expect a final order from the commission by the end of the year with a price change effective January 1, 2019. On Slide 9, we have provided a summary of the company's current capital expenditure forecast for 2018 to 2022. These expenditures are related to investments we are making to support our continued customer growth and build a more efficient, reliable and secure system. As stated in our previous calls, we have not included any capital expenditures in our forecast related to the potential projects pursuant to our renewable RFP or energy storage proposal. Based upon cost projections and the regulatory process, we now expect storage expenditures to be approximately $45,000,000 Onto Slide 10, we continue to maintain a solid balance sheet, including strong liquidity and investment grade credit ratings. I'm pleased to say that on July 18, S and P Global upgraded PGE's issuer credit rating 1 notch from BBB to BBB plus and Portland General will be kept on positive outlook. As of June 30, we had cash available short term credit and letter of credit capacity totaling $704,000,000 1st mortgage bond issuance capacity of 1,100,000,000 dollars and a common equity ratio of 49.9 percent. In 2018, we expect to fund estimated capital requirements with cash from operations, debt issuances up to $75,000,000 and commercial paper as needed. And now, operator, we're ready for questions. Our first question comes from Paul Ridzon with KeyBanc. Good morning. How are you? Good. Thanks. Jim, I'm sorry, I was distracted when you gave the breakout of the $0.12 related to the Cardi litigation settlement. Can you what's the $0.07 The $0.07 associated with Carty. When you look at Carty, we have avoided costs. Actually, I didn't go completely through it in the script. But when you look at the Cardi settlement, we originally, when we said guidance for the year, we assumed that we had about $0.05 we had $0.12 worth of costs associated with it. So it was the drag. Now that we have a settlement, we're going to avoid some of those costs for the balance of the year. So I put that about $0.05 And then if you look at the settlement itself, the $10,000,000 that's going to drop to the bottom line, that $10,000,000 really represents about $0.07 And we're going to push that towards the AMG line, so if you're looking for it in the income statement. But if you were I thought you got less than you expected, so I thought there would be a net negative. We you mean less than if you looked at the overall cost associated with the above construction costs and the cost to settle, yes, we didn't cover 100%. What we did cover with the $130,000,000 is we were able to cover the undepreciated amount of that overage that was currently on our books that we're not recovering from customers. So the amounts above the $514,000,000 that are in customer prices. We're very pleased with the settlement, and as such, reflecting an improved outlook and guidance. Yes. Congratulations on the settlement. You did quite well. Thank you. Thanks, Paul. Our next question comes from Julien Dumoulin Smith of Bank of America. [SPEAKER JULIEN DUMOULIN SMITH:] Hey, good morning. [SPEAKER JULIEN DUMOULIN SMITH:] Good morning, Julien. Hey. So wanted to follow-up on a couple of comments. Maybe Maria, turning to you first. Can you elaborate a little bit on, if you can, of those bids that have come in for the renewable opportunity, what proportion are rate baseable ownership build and transfer type opportunities relative to straight and more linear PPA opportunities, at least as the list of projects that have come in today? So Julien, thank you for your question. We have a very competitive process and received a number of bids. And I'm sorry, but unfortunately, we're not able to talk about any of them in any detail and are currently in the beginnings of the evaluation process with an independent evaluator. We will be presenting in October to the OPUC the results of those evaluations along with the independent evaluator. We hope to be finished with the process by the end of the year as we're targeting capturing the production tax credits for the benefit of customers with this project. Got it. Fair enough. Turning to some more detailed questions. As you look at the issues in the docket and the rate case, how do you think about addressing some of the questions around the ask for the rate base number? Just high level. It seems like a number of the issues in the docket seem to be pending around that. This is not going to be a good day for you, Julian, as far as giving you some additional information. As I mentioned in my remarks, we've settled cost of capital. We have settled our net variable power costs and we've had settlement discussions associated with a great deal of other items in the case. Those settlements will come out in testimony here very, very shortly. So we're going to hold until we see that testimony filed with the commission, those stipulations. Got it. When is that filing? We're it should be any week now. We're just waiting for the parties to finish and put their pens down. Great. All right. I think I got one that you can answer. Can you speak about how you're thinking about load improving given 0% load forecast you gave for 2019 in the testimony? Sure. We are still seeing the implications of traditional industries in the Pacific Northwest using less energy, While we are seeing new industries, particularly data centers, even a synthetic diamond manufacturing company come into our area, We do have a gap in terms of timing as many of those industries coming in need to finish the procurement of property of construction and begin operations. Long term, we're very optimistic around our growth rate of about 1%, and that is a result of strong growth in the region. As I mentioned in the last call, we have more cranes per capita than any reporting city in the country, and you can feel it in terms of the construction in Portland in particular. We also have growth in apparel, footwear manufacturing as Nike, Columbia and Adidas all have construction under process. But near term, we expect to see flat load growth as we are forecasting for the balance of the year. Yes. I'd actually add to Maria's comments there. You got to keep in mind that in 2017, we had a large paper company and we had a solar manufacturer that was also operating at that point in time. And so for us to come out and say that we're going to flat loads and we're absorbing that decrease is just underlines the comment around the growth that we're seeing. That's a good point. All right, excellent. Can I just go back real quickly to clarify on the settlement too? Are all the issues up for settlement here right now? Just to make sure I understand your last comment just in terms of expectations once something is filed here? Or is the expectation basically to be able to arrange a settlement around at least a number of issues? I don't want to put any words in your mouth. We are settling a number of issues. As I mentioned, we settled cost of capital and we settled net variable power costs and that testimony is pretty much complete, expecting it to be filed here very shortly. On July 23 24, we had additional settlement discussions and we were able to come to agreement on several other items. It's going to take a little bit longer to get that testimony together and get it filed. But we're making good progress. There are some still some big differences between the company and the parties regarding what we do with full weather decoupling and what we do with our storm balancing account. So a lot more work to be done on those particular issues. All right. Excellent. Well, thank you very much. Thanks, Julien. Our next question comes from Paul Fremont with Mizuho. Thank you very much and congratulations on a good quarter. Thank you. Thank you. My question is, would there be alternatives for additional spending, if you were not successful in winning the RFP successful in winning the RFP later this year? And if so, what types of alternatives would you potentially see? Well, we're focused irregardless of the RFP results, we're focusing on the aging on transformers that have PCBs that are greater than levels that we think are necessary. We're continuing to deal with the customer growth that we had been mentioning a little bit earlier. We're seeing it across all classes and that's causing us to rebuild substations and add substations and so on and so forth. And then on top of that, we've got the reliability upgrades associated with seismic. And then we're also we haven't included anything in our CapEx numbers regarding storage. And then we're looking at the integration of our operations and further visibility into our distribution network as well. So we've got a lot on our plate ahead of us and we're moving as fast as we can. We will have further guidance with regards to capital expenditures for 2019 beyond on our October earnings call, which is traditionally when we update our capital forecast for the Street. Great. And then I guess my other question is, you guys historically have had some fairly significant below the line expenses. Is there any action that you can take to potentially mitigate some of that expense? We're always looking at that, Paul. What we call it is the structural drag. It's about 80 basis points. And with the change in the tax law became, it actually moved up because we lost some of the tax shield associated with that. The expenses didn't move up, but the tax shield decreased. So we're continuing to focus on it and trying to see what progress we can make. And over the years, we have a really good track record of reducing that amount. I think most importantly is reducing the risk that we see from different weather, whether it is storm restoration costs, whether it is hydro, wind and other expenses. And you'll see that in our current rate case filing, we've tried to address a number of those to be more similar to other utilities across the country. Great. Thank you very much. Thanks, Paul. Our next question comes from Michael Lapides with Goldman Sachs. Hey, guys. Maria, you all talked a little bit and I know you always give guidance on CapEx in the Q3 call. But just curious, a few quarters or so ago, you talked about kind of the aging of substations. And it's been a little bit quiet on that front. Can you give an update or give some color or insight on are you talking about just transmission or are you talking about both transmission and distribution substations? If so, how many are we talking about? Like is this just a one off 1 or 2? How many do you actually have? And is there a way I know you'll quantify and update the plan, but if I wanted to just kind of do a back of the envelope, a way to start thinking about sometime, maybe not in the next 1 or 2 years, but a much, much longer horizon, how much incremental work needs to be done to upgrade or replace those? Sure. Jim has commented on this for a number of quarters. And what we're seeing is the compounding issues of technological change and a need to be able to accommodate distributed generation throughout our service territory, the aging infrastructure that we have and then the very substantial growth. And in particular, the very substantial growth puts pressure not only on our substations and our distribution system, but also on our transmission system. So you'll see opportunities for investment in both areas. In terms of the total number of substations, we have just under 200 substations throughout our system and we'll be focusing on those that are the oldest, those that are in areas where you'll see more distributed generation soonest and then also areas of significant growth, which tends to be either in the inner core of the Portland Downtown area or in some of our very fast growing regions that are driven by a lot of technological companies coming in. Got it. Thank you, Maria. And then one question on battery or storage. Can you remind me what was it the legislator legislation said about A, how much of that has to be or could be utility owned versus has to be contracted or PPA ed? And B, what's the timeframe for when you have to have it implemented by? Sure. They didn't specify ownership in the legislation. What they specified was to really move on and better understand batteries implications into our system and to start with some pilots. We've announced projects totaling about 39 megawatts and have settled on 4 or 5 points with all of the parties. And as Jim mentioned in his opening remarks, we're looking at capital expenditures of about $45,000,000 which is not reflected in our guidance. And then when is that? Is that a 2018 number or is that something further out in the No, it would be 2019 at the earliest. Got it. Thank you very much. And that actually is something that we need to begin to address. Technology and the cost of best storage is moving faster than our regulatory processes in some instances. Would that not be covered by the tracker? Like you have a wind tracker, when you do new wind plants, you could get incremental revenue relatively quickly. And by the way, my apologies, Jim, I didn't mean to cut you off there. But the storage not fall under that? It is an open issue that we have amongst the parties right now, Michael. That is one issue. And another issue is ownership of storage technology on utility property. So the thought of somebody else putting storage technology inside one of our substations and being able to control it is something that we're not amenable to. You can imagine the cybersecurity and other security concerns that we end up Safety and reliability concerns, yes. Understood. Understood. Thank you guys. Much appreciated. You all have a good weekend. Appreciate the help. Thank you. Our next question comes from Agustina Colusa with Mizuho. Hi, everyone. Good morning. I'm just curious about what are your assumptions in the updated guidance in terms of the NVPC, given that in the 10 Q, we can see that you're already at like $27,000,000 below the baseline? That has been factored into that guidance as we are looking forward. Perfect. And that has that changed from previous guidance? It has helped manage the guidance, some of the other costs that we're seeing. So it's balancing some other costs in there. So it is fully baked into the guidance. Okay, great. Thank you. That was my only question. Okay. Thank you. Our next question comes from Travis Miller with Morningstar. Good morning. Thank you. Good morning, Travis. You answered most of my questions. I was going ask on the CapEx, but I'll throw one more in there. Electric vehicles, when you look out to 2021, 2022, any kind of update in the last kind of 3, 6 months that would give you any more clarity in terms of whether there's material upside on the EV side apart from the distribution? Sure. No, absolutely. And we are really bullish with regards to electric vehicles. We are in the process of working through agreements on 6 electric avenues and have announced some. I will tell you we have much more interest than we have capability through the results of our docket at the PUC. We're also working very closely with our transit authority, who is looking on an all electric bus route and then further electrification of the TriNet bus system. I think most of our enthusiasm comes from what we're hearing from consumers and from municipalities as well as from car manufacturers in terms of their focus on improving electric vehicles and speed to delivery of those. I think we'll see a significant change, maybe not in the next year or 2, but certainly within 5, it should be very dramatic and in particular in areas like Portland and the Metropolitan region. Okay. And would that be incremental to that $450,000,000 type run rate that you're looking at? Yes, much of that would be incremental. Okay. And then real quick on the cash flow timing for the settlement. What are the next steps in terms of cash flow? Well, Travis, we are anticipating that we will receive the settlement dollars here very shortly. And as I mentioned, it will help offset some of the financing that we otherwise would have had to have done this year. So we've got $75,000,000 or up to $75,000,000 that we do in the 4th quarter. Now that is actually it was higher, but now it's $75,000,000 given the settlement. Okay. The 75,000,000 would be left to do? Exactly. Okay. Got it. Thank you very much. Thanks, Travis. Our next question is a follow-up from Paul Ridzon with KeyBanc. Welcome back, Paul. Thank you. Your capital forecast, this has nothing no placeholders for any RFP wins? Exactly right. There's nothing in there for wind nor storage. So if you're successful, does would it be 100% additive? Or would there be a reshuffling of the deck and maybe pushing some capital out? That was yet to be determined. Okay. And then unrelated, I've been reading a lot about Northwest and crypto mining I'm wondering if you're seeing any of that load. No, we're not. Not like what Mid Columbia's are seeing or even Idaho is seeing. What we're seeing in distinct contrast is, well capitalized, digital companies wanting to place data centers here as well as others wanting to place fulfillment centers and other pretty stable operations. Seems like a little more preferable to kind of a volatile crypto market. Thank you. Thanks, Paul. Our next question comes from Paul Patterson with Glenrock. Good morning. Good morning. Good morning, Paul. So just really quickly, the SB-nine seventy eight, there's been a proceeding going on and I've been reading your comments, which are actually interesting. And I wanted to sort of just get A, sort of your sense as to where that proceeding was going. And then B, you guys make comments about sort of support for a PBR mechanism, sort of you guys seem supportive of it. So I was wondering what you guys might be seeing there and kind of opportunities maybe you guys see with respect to this proceeding? Sure. That's a great question. First of all, 978 is the Senate bill that requested the Oregon Public Utility Commission to look into industry trends, new technologies and policy drivers that would be impacting the existing regulatory framework that we have in Oregon. And we've had a number of meetings centered around different areas of concern with a pretty extensive group of interveners and parties and commission staff and commissioners. The report is due to the legislature in mid September and there may or may not be drafts that are publicly available between now and then. We have thought that the process has gone very well and has been very inclusive and constructive. And with regards to performance based rates, we did mention that in our testimony and we actually are already in front of the commission with an example of the sort of thing we're talking about, which is a green tariff to be able to sell 100% green energy to large corporations or other customers, in particular, municipalities that want to move 100% green faster, it would essentially be a cost based program with a margin adder. And you can see that morphing off into other performance based alternatives as we move forward. Okay. So it sounds like it's kind of, I guess, somewhat modest in terms of what you're looking at in terms of performance. You're not thinking of anything really substantially changing the regulatory construct that you currently have. Is that the right way to think of it? And do you see it more potentially evolutionary as opposed to anything really significant? Yes, absolutely. The current construct that we have serves parties really well. And in particular, in Oregon, we're facing increasing concerns around equity and we are addressing that very carefully. And I think that you'll see that traditionally in Oregon, we have an evolutionary process rather than a revolutionary process with regards to rate making. Tim, anything you want to add? No. There's a lot of time to run-in that process and a lot more discovery to occur. So I would say there's not a lot at this particular point in time that we can point to, but more to come. And just to clarify, when you talk about equity, you're talking about in a social context, you're not talking about equity in terms of financial context. Yes, exactly. In terms of a social context, in serving all customers. Right. Okay. Thanks so much and have a great weekend. Thank you. Our next question comes from Andy Lip with ExodusPoint. Hey, guys. Good morning, Andy. Good morning. Congrats on the settlement. That was really good. Thank you. I think I'm all set because people seem to ask really good questions. I think the only thing just on the regulatory process on the rate case, there's actually what 3 items that we're still waiting for as far as while the 5 more settlement wise, the 3 major items, which was the decoupling, right, that's number 1. The smoothing of the wind. The normal balancing account. Right. And then the smoothing of the wind. Isn't that also as well as you don't No, it's the smoothing of the wind. It's the weather decoupling. It's the storm balancing account. And then we've got some we've got what we call the hinge fit model, which has to do with load forecasting. And that's just looking at more recent trends that we have been seeing. I thought there was something or maybe that's in the weather, but where there that on the wind side where you wouldn't have as much volatility as far as wind resource or am I mistaken? No. What we've been operating under what we used to do is we had a profile associated with a wind farm and that profile would be used throughout time. We changed the regulatory construct around that. So we're now using a 5 year rolling average. So now it's tracking a little bit closer. It's moving closer towards that the average that we're seeing. And then the other thing that happened out there was the production tax credits used to only be set in a general rate case. And now the production tax credits are reset and the annual update tariff filing every year. Right, right, right. And that was actually really important actually because as the contracts rolled off, right, or okay, our PTCs rolled off, I should say. So just on the two items that I guess I have the focus on, can you give any type of characterization as far as how the negotiations are going? I mean, are you optimistic that you and the staff and the interveners can work out a settlement on this or whatever you want to say? If the 2 that you're referring to, Andy, is the decoupling and the storm balancing account, I'd say that the parties have a long ways to go at this point. Okay. Thank you very much and have a great weekend. You too. Good to hear from you, Andy. Our next question comes from Asher Khan with Versum. Good morning. Hi. Good morning. Good morning. Can I just I wanted to kind of normalize the earnings, if I understand them correctly, if you can just as we build for next year? So you had started off the year in your guidance, the old guidance, there were going to be $0.12 of CAR T litigate stuff that was going to hurt you. So you are reversing that, say, those $0.12 but starting for next year, those $0.12 would not have hurt you if the litigation had been settled January 1, right? So in theory, the earnings power of the business is up $0.12 because of this settlement permanently as we look at the guidance. And if I'm correct, you also said, if you could remind me, the negative weather from normal impact was like $0.07 Is that correct for the year when you came up with the original guidance at the end of the year end of February call? Yes. If you look at the guidance that we provided back in February, embedded in that guidance was the implications of the 2nd warmest January we ever experienced. And so we had about $0.11 in there for weather. In addition to that, we had $0.12 associated with continuing to pursue the litigation in Cardi and trying to recover the excess costs of construction. And so as we look at 2018 full year guidance, now that we have seen better weather coming out of the Q1, We have looked at the weather component, that $0.11 and we've said we really only experienced $0.03 So we're going to put $0.07 back associated with weather. Then we turn to the Carty. And as we looked at Carty, as I mentioned, we had $0.12 in there associated with that. Well, now that we've settled Carty, we believe that we've got avoided costs for the balance of the year and then the repercussions of the actual settlement. And so the combination of those 2 add $0.12 back into earnings as well. So what is the negative $0.04 right? So that 12 plus $0.07 would make it $0.19 right? So there came a negative $0.04 somewhere. Could you just elaborate where the negative $0.04 came in from? We've got a lot of the year still to go. And so we are just making sure that we are got some safety in meeting our numbers. One of the things that you should note by looking at last year's Q3 and even the beginning of Q4 is that peak power prices tend to be quite volatile during the heat of the summer in the Pacific Northwest and in the entire West. And I would not consider that $0.04 just to be sandbaggy per se, but to be really reflective of the environment of the Q3 and beyond. Okay. Okay. Okay. Fair point. And then can I just as this higher O and M, is that something which is permanent? Or is it just being utilized this year for certain reasons? And then it kind of like tracks back as I look into next year as I built my kind of models. Could you elaborate a little bit on that? Can you clarify that a little bit? You increased your O and M guidance by $10,000,000 right, from what you provided in the February, right, if I'm correct? You increased your O and M guidance by $10,000,000 so I'm trying to understand whether that is kind of onetime in nature items this year or is it kind of something you projected not properly and you are now it's kind of a permanent increase? That's what I'm trying to get at. No, that O and M is reflective of increased activity throughout our service territory. As I mentioned, we are in an area that's growing quite rapidly. And while near term, our load growth may not be growing, we're seeing in migration in terms of about 1.3% and new connects that are higher than we've had in any previous recent years and are doing a lot of work along those areas. And Jim also mentioned the repair work that we're doing to our system. So those costs are aligned with our most recent general rate case and are important meeting customer needs. Okay. Okay. And the last question, if I may ask, what is the impact of, say, right, you improved your sales forecast by about 50 bps for the year. What is the earnings impact of that 50 bps increase? Could you give us some kind of thought process on that? Any changes that we have in our revenue forecast is all baked into the guidance that we provided. Okay. But you don't have some kind of a rule factor of full of thumb what 1% equals in terms of earnings? No, we don't. No, we don't. Thank you. Thanks. Our next question comes from Kevin Fowen with Citadel. Good morning. Good morning, Kevin. Hi. Just a quick clarification on the battery storage CapEx, the 45,000,000 dollars Have you guys already won that? Is that already been determined that that's going to be company owned? No, it is not determined. And as Jim mentioned, that there's current debate over that in particular in one of the projects. And when should we have clarity on that? I would expect sometime in the later Q3, maybe Q4. Okay. And just the last thing on the deferral of the billing system, where does that stand? And has that been flowed through the 2nd quarter numbers? It is the deferral is in the numbers and we've got to wait until 2019 till the year is closed out before the commission can really address it. And what's the capital associated with the billing system? It is we actually Kevin, we changed out our complete billing system, our customer billing and collection system and the metering system. And so it's associated with that. It went into service in May of this year. And so it's effectively the DNA associated with it from the point in time that it went into place or went into commercial operations until the year end. Okay. That's great. Listen, thank you. All right. Thanks, Kevin. And I'm not showing any further questions at this time. Great. We very much appreciate your interest in Portland General Electric and we invite you to join us when we report our 3rd quarter earnings in late October. Thanks and have a great weekend. Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.