April 5, 2008
Oregon

Portland General Electric's Biglow Canyon wind farm getting expensive

Portland General Electric Co.’s Biglow Canyon wind farm has turned out to be a pricey proposition, but one analyst said it is a necessary one given Oregon’s renewable portfolio standard.

An April 3 research note from D.A. Davidson & Co. analyst James Bellessa Jr. noted that Portland General’s announcement that it had signed an agreement to purchase 141 turbines for the second and third phases of the Biglow Canyon project brought reaffirmation that the combined cost of those phases will be $700 million to $800 million.

Using a midpoint of $750 million, Bellessa said phases two and three will cost $5.3 million per wind turbine and a little more than $2.3 million per megawatt. Phase one was completed in December 2007 for $255 million, including allowance for funds used during construction, or about $3.4 million per turbine and a little more than $2.0 million per megawatt, Bellessa said.

Assuming a capacity factor of 37% on the fully completed, 450-MW Biglow Canyon wind farm, Bellessa said it would provide about 166 average MW on an annual basis.

“Also assuming a total project cost of a little over $1.0 billion, the approximate cost per average kW is a lofty $6,000, but it must be remembered there are no future fuel costs, and there is a production tax credit of $0.02/kwh, assuming the PTC is extended beyond the current December 31, 2008 expiration date,” Bellessa said. “Besides, this wind project helps PGE attain the renewable energy standards mandated by Oregon.”

Bellessa said the final two phases of the Biglow Canyon project “will represent a significant step toward” Portland General’s meeting Oregon’s RPS of 15% of retail load from renewable resources by 2015.

With a large majority of the project’s expenses still in front of it, Bellessa said Portland General plans to use a mix of retained earnings and will issue debt and common stock, while maintaining a 50% equity ratio. The utility has said it plans to issue about $200 million of common stock in late 2008 or 2009 to fund the expansion of the Biglow project, the analyst added.

Bellessa expects that after construction is completed, Portland General will make timely rate increase applications to include the final two phases of Biglow into rate base.

“For example, PGE commissioned Phase I in December 2007 with the Public Utility Commission of Oregon allowing the company to raise rates 0.6% on January 1, 2008 to recover its costs,” Bellessa said.

Bellessa said D.A. Davidson currently has Portland General rated as Buy with an 18-month price target of $30 and a five-year target of $37.

By Mark Lindsay