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Portland General Electric Co  (NYSE:POR)
Q2 2019 Earnings Call
Aug. 02, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, everyone and welcome to Portland General Electric Company Second Quarter 2019 Earnings Results Conference Call. Today is Friday, August 2nd, 2019. This call is being recorded and as such all lines have been placed on mute to prevent any background noise. [Operator Instructions]

For opening remarks, I will turn the conference over to Portland General Electric Director of Investor Relations and Treasury, Chris Liddle. Please go ahead, sir.

Chris Liddle -- Director-Investor Relations and Treasury

Thank you, Michelle. Good morning, everyone. I'm pleased that you're able to join us today. Before we begin this morning, I'd like to remind you that we have prepared a presentation to supplement our discussion, which we'll be referencing throughout the call. The slides are available on our website at investors.portlandgeneral.com. Referring to slide two, I'd like to remind everyone that some of our remarks this morning will constitute forward-looking statements. We caution you that such statements involve inherent risks and uncertainties and actual results may differ materially from our expectations. For a description of some of the factors that could cause actual results to differ materially please refer to our earnings press release and our most recent periodic reports on Form 10-K and Form 10-Q which are also available on our website. Leading our discussions today are Maria Pope, President and CEO; and Jim Lobdell, Senior Vice President of Finance, CFO and Treasurer. Following our prepared remarks, we will open the line for your questions.

Now, it's my pleasure to turn the call over to Maria.

Maria Pope -- President and Chief Executive Officer

Thanks, Chris and good morning, everyone. Welcome to Portland General Electric's second quarter 2019 earnings call. Today we will share our financial results, updates on our recently filed integrated research plan and an overview of our plan to build a new integrated operations center. Turning to slide four, for the second quarter we've reported net income of $25 million or $0.28 per share, a decrease of $0.23 per share compared to 2018. Given our expectations for the balance of the year, we are reaffirming our 2019 earnings guidance of $2.35 to $2.50 per diluted share.

I'll provide a summary of the factors impacting second quarter results and Jim will go into greater detail. First, net variable power costs were challenging due impart to significantly lower than average hydro production in the Pacific Northwest. As such, our thermal plants increased generation 22% in the second quarter -- over the second quarter of 2018. Concurrently, California experienced very strong hydro conditions driving down regional power prices and decreasing wholesale revenues. Second, transmission and distribution operating expenses increased due to enhanced focused on strengthening the resiliency and reliability of our system.

Turning to slide five. The economy in our service area is strong, although immigration has slowed the labor market remains tight with a 3.5% unemployment rate. Forbes recently reported that Portland jumped in ranking among the top cities protect talent reflecting our more cost competitive market for start-ups when compared with Silicon Valley or CL. This quarter we continued to see new construction and expansion projects under way across our service area, as well as growth in energy leverage to industrial customers. I'd like to briefly touch on 2019 Oregon legislative session.

We worked with a broad group of stakeholders in support of regulating greenhouse gas emissions through a state cap and trade program that ultimately did not pass. In future sessions, we will keep working with stakeholders toward cost-effective energy and climate policies. In addition to cap and trade, we successfully supported the bill to reduce greenhouse gas emissions in the state's transportation sector and boost the adoption of electric vehicle. We also supported several successful bills targeting energy efficiency and low income customer assistance.

Turning to slide six, we filed our 2019 integrated resource plan with Oregon Public Utility commission last month. Our filing with the product is a collaborative process that reflects transformation within our industry and our goal of reducing greenhouse gas emissions. Our plan calls for additional cost effective energy efficiency, expanding reliance on demand response, a 150-average megawatts of renewable resources by 2023 and approximately 595 megawatts capacity needed by 2025, driven by the exploration of contracts and seizing a coal-fire operations at our Boardman coal plant, offset by the capacity associated with 150-average megawatts of renewable.

We anticipate an order acknowledging our action plan in early 2020. Similar to our last IRP, we expect to conduct RFPs for renewable resources and will seek opportunities for capacity through bilateral negotiations with existing generators in the region. Given the depth of the market, if we're not able to acquire adequate capacity through these negotiations, we will conduct -- consult, excuse me, with OPSC and may conduct a second RFP also focused on non-emitting resources.

Finally, turning to slide seven, I'm excited to announce that this week our Board of Directors approved the construction of the new integrated operation center. This center advance our integrated grid strategy and design for enhanced resilient against seismic, cyber and physical security threat. The capital cost for the new facility is estimated to be $200 million, and will be in service by 2021.

And now, I'll turn the call over to Jim. Thank you.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Thank you, Maria. Good morning, everyone. To start, I'd like to provide more detail on the specific drivers Maria mentioned and as summarized on slide eight. First, gross margin decreased to total of $0.12 per diluted share, several factors contributed to this result. Water power supply portfolio performed well, it did not perform as favorable as in 2018. As such this contributed to an increase in net variable power costs. This was primarily due to the variation in market prices during the first quarter resulting from the Enbridge pipeline outage, in addition to lower hydro production, in particular PGE-owned hydro resources in the Mid-Columbia projects resulted in a 13% decrease in production when compared to the second quarter of 2018.

Additionally, we experienced lower wholesale revenues due to a 25% decrease in the average wholesale sales price and 26% lower wholesale sales volume. An increase of $0.03 per share is attributable to an increase in our earnings power from our 2019 general rate case, and whether decreased earnings per share by $0.02 due to a decreased demand from fewer heating and cooling degree day.

Next, a decrease of $0.07 is attributable to an increased focus on preventative maintenance to enhance great resiliency which drove higher distribution expense in the second quarter. There was particular emphasis on vegetation and wildfire management, overhead and underground system inspections and maintenance, along with cyber security. The next item is a decrease of $0.05 from lower production tax credits and finally our net increase of $0.01 for miscellaneous items.

Despite some challenges and higher spending, we are confident that we can achieve our earnings objectives. We are revising our O&M guidance upwards to a range of $600 million to $620 million and we are reaffirming our EPS guidance of $2.35 to $2.50 per diluted share, as we expect to see continued improvements in revenue through the balance of the year. We also expect improvements in our net variable power cost as we work toward our forecast of being below the PCAM baseline. Despite this quarter's increase in operating expenses, mitigating cost increases will be our focus as we plan for the next several years. As such we're reaffirming our 4% to 6% annual earnings growth guidance that we provided earlier this year.

On slide nine, we've provided a summary of the company's current capital expenditure forecast from 2019 through 2023. This includes the cost associated with our integrated operation centers that Maria discussed earlier. On slide 10, we continue to maintain a solid balance sheet including strong liquidity and investment grade credit ratings. For the remainder of 2019, we expect to find estimated capital requirements with cash from operations and the issuance of debt securities upto an additional $230 million.

And now operator, we're ready for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Julien Dumoulin-Smith with Bank of America. Your line is open. Please go ahead.

Julien Dumoulin -- Smith with Bank of America -- Analyst

Hey, good morning.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Good morning, Julien.

Maria Pope -- President and Chief Executive Officer

Good morning, Julien.

Julien Dumoulin -- Smith with Bank of America -- Analyst

Hey, thank you. Just wanted to follow-up on the IRP process here. I know we're very, very early, but I wanted to kind of get as sense, how you're thinking about the ownership angle here in the opportunity before you just sort of thinking about structurally in. And what might be different from the last go around the IRP in which there was to be some amount of award for ownership. And I mean that both of the firm capacity in the renewable piece?

Maria Pope -- President and Chief Executive Officer

Sure. Thank you. So on both we'll be looking at the option for ownership. At this point in time, we expect IRP process to be concluded in the first quarter of 2020. There's some public hearings that are already scheduled in January. And then we will move very quickly into RFP's for the renewals in particular we're hoping to be able to capture some of the production tax credits before they expire and if such speed will be important. We don't expect any significant differences from how we approach things in the past. On the capacity side, we're going to start-off looking really out what we can find in the existing market with regards to bilateral negotiations or piece for existing resources all of which you're not admitting. Should we not find the depth in the market then we will go back and work with the commission on putting together further procurement processes.

Julien Dumoulin -- Smith with Bank of America -- Analyst

Got it excellent. And then if I can follow up here just on two more nuance questions on this process. Historically, there's been push back on load and demand forecast. Can you speak a little bit to the forecast that you put that's contemplated your level of confidence there and perhaps what made change around that from the last IRP process, again just to firm that up in your view. And then separately and related I suppose historically there's been some degree of pushback on accelerated renewal required based on your existing wreck balance if you will. How do you think about that now and I suppose there is the obvious counterpoint of the timeline for credit -- for tax credit expiration. So any help either.

Maria Pope -- President and Chief Executive Officer

Sure. Thanks, Julien. So with regards to your first question -- with regards to growth, this is a backdrop, we've talked about this in previous calls and then also in my remarks. Our service territory has solid ground and we see that going out into the future, driven largely by in migration, but most importantly in terms of load by the tech sector. And we have had extensive modeling in discussions with stakeholders including the commission and feel as if we have good consensus around the 1% number that's used in our long term forecast.

In with regards to production tax credit and racks and timeliness to move forward faster with regards to procuring renewable resources is very much consistent with what our customers want us to do. It's also given the production tax credit it makes sense for us to move forward to capture those. We do not see any of our wrecks expiring or if our PTC is expiring and we continue to have cost effective renewables. The cost in the region are coming down quite significantly we remain impressed with the competitiveness of the market.

Julien Dumoulin -- Smith with Bank of America -- Analyst

I'll leave it there and get back in the queue. Thank you.

Maria Pope -- President and Chief Executive Officer

Thanks, Julien.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Thanks, Julien.

Operator

Thank you. And our next question comes from the line of Insoo Kim of Goldman Sachs. Your line is open. Please go ahead.

Insoo Kim -- Goldman Sachs -- Analyst

Hi, thank you. My first question is on the I think your comment on the second quarter O&M progressing on preventative measures on maintenance, is that stuff items that you would have spent more in the 2020 time period, that's a pull forward or could you just elaborate a little bit more there?

Maria Pope -- President and Chief Executive Officer

Absolutely, you're correct and let me let Jim to give you some of the details on that.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Yeah, I do -- we're, as we mentioned we're focused on vegetation management, wildfires and then the inspection of the system. So we're trying to make sure that we are making investments now that will help us lower our operating costs in the future and that's another reason why we are reaffirming our 4% to 6% long term growth rate.

Insoo Kim -- Goldman Sachs -- Analyst

Understood. And then separately the couple of hundred million of the operation center that you have in the capital plan, I assume little earned AC DC during the construction period, have you had discussions, I know its recent but with the regulators at all or what's the process around trying to get recovery of that and timing of that in relation to the timing of the next rate case that you had contemplated prior previously.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

You are correct that AFUDC is being calculated during the construction period associated with and we have had preliminary conversations with stakeholders associated with that facility. The importance of having that facility if we're going to be able to respond from a resiliency perspective. So we will make a determination as we move through time as to the regulatory timing of the recovery of the costs associated with that, so it's to be seen.

Insoo Kim -- Goldman Sachs -- Analyst

Understood. Thank you very much.

Operator

Thank you. And our next question comes from the line of Gregg Orrill with UBS. Your line is open. Please go ahead.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Good morning, Gregg.

Gregg Orrill -- UBS -- Analyst

Hi.

Chris Liddle -- Director-Investor Relations and Treasury

Good morning.

Gregg Orrill -- UBS -- Analyst

With regard to the change in the O&M guidance, how much of that have you already spent versus is coming up in the year in your view?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

A good part of it has already been spent.

Gregg Orrill -- UBS -- Analyst

Okay. Thank you.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Thanks, Gregg.

Operator

Thank you. And our next question comes from the line of Travis Miller with Morningstar. Your line is open. Please go ahead.

Travis Miller -- MorningStar -- Analyst

Good morning. Thank you.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Good morning, Travis.

Maria Pope -- President and Chief Executive Officer

Good morning.

Travis Miller -- MorningStar -- Analyst

I wonder back on IRP, in your initial conversations and planning for the filing, could you give us a sense of that 2022 and 2023 capex number I think that $500 million, how much of that is dependent on the IRT, how much is the range is all upside if you were to get certain parts of the IRP, just wonder if you could characterize the early parts of the IRP conversation relative to that $500 million kind of run rate capex number?

Maria Pope -- President and Chief Executive Officer

Yeah, now thank you for the question. None of the IRP or any subscribed RFP capital is reflected in that $500 million run rate, that $500 million run rate reflects a number of things, it reflects investment in ongoing resiliency and maintenance of our system, upgrade. It also reflects the fact that our service territory is growing quite significantly. And so we have new capital investment to meet customer needs. Anything that might come from an ownership or otherwise option out of the IRP, your subsequent RFPs would be an addition.

Travis Miller -- MorningStar -- Analyst

Okay. Do you have any idea that it gives in terms of range of that or would it be cost of single large projects?

Maria Pope -- President and Chief Executive Officer

You could look at single large projects. We've included some 2018 card numbers in the actual IRP filing for a wide variety of resources which range from solar wind to geothermal, pump storage, it's all included in the document in terms of what were market minutes in 2018.

Travis Miller -- MorningStar -- Analyst

Sure. Okay. And then higher level what is your view in your service territory with respect to corporate renewable energy purchases, may be characterize that? And then kind of risks, opportunities challenges that you have as corporate renewable energy buyers come on to your system.

Maria Pope -- President and Chief Executive Officer

You bet, that's an excellent question. We certainly are seeing an increase in interest not only from large corporations particularly hightech and digital companies, but also from our municipalities for 100% green energy products. And we've been working with them for over a year and have structured some we call green futures program that has been hugely well received actually in selling out in a matter of minutes. Let me have Jim go over the phases of that we've done and it's really been a very successful program for us.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Yeah, Travis, as Maria had pointed out we had a very robust response to phase one of what we call our green tariff. And we're now working with stakeholders on phase two associated with that. So looking at expanding the program, what about ownership by the company of resources, what about the ability to earn on any PPA's that come in. So we're getting testimony from the parties and then we're looking for a decision associated with that by year end. But as we point out, it's been a very robust response, people or corporations or customers are willing to step up to green up their portfolios.

Travis Miller -- MorningStar -- Analyst

Is the rate base opportunity there any kind of capital earnings growth like investment that's available there?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

It's to be seen, we have more process that we need to go through.

Travis Miller -- MorningStar -- Analyst

Okay. Great. Thanks so much. Appreciate all the comments.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Thanks, Travis.

Maria Pope -- President and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Andrew Levi with ExodusPoint. Your line is open. Please go ahead.

Andrew Levi -- ExodusPoint -- Analyst

Hey, how are you doing?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Hey, Andy.

Andrew Levi -- ExodusPoint -- Analyst

What's going on?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Good. Yeah, it's raining here though.

Andrew Levi -- ExodusPoint -- Analyst

Okay. That's all right. Okay, so I just want to with the slide that you had where you show the first two quarters and then you have the third and fourth quarter combined, I think it was like about $1.25 to a $1.40. Could you kind of just go over that in detail, explain what the drivers for the third and fourth quarter are because I guess what you're trying to suggest is that you will kind of be in the values to mid-point will be like $2.42 in $1.25 to $1.40 range.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Well you're referring to slide number four in the presentation, so let me just give you...

Andrew Levi -- ExodusPoint -- Analyst

Yeah, yeah because I think the concern you know kind of looking at the stock action today you know stock is down like 2% and the the group is kind of you know there's a lot of like we're -- not we're some stuff happening today, but now your stock. So I think it would be important for you to explain in detail how you kind of make your number, let's just use the midpoint the $2.42 of that dollar $1.25 to $1.40 for the rest of the year if you could explain that to us so we can have comfort in that?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Yeah, so and I'm just going to focus on a going forward, we know that the history is in first half of the year and the question is what about achieving the earnings guidance that we put out at the beginning of the year, as it's mentioned previously and as Maria had mentioned, we've got a lot of strong growth, that's occurring in the service territory, especially in the hightech sector around manufacturing and around data centers and continue to see growth and a lot of other commercial activities. I mean it's hard to get around Portland because the amount of construction is going on in our service territory. So we're seeing a lot there where we had the coupling that is going to cover any offsets to search it with use per customer. We've got continued strong growth and customer account, so that's a contributing to it. We pointed out we are operating our power costs in line with trying to get below the PCAM baseline. And we are working on costs now that will help us reduce costs in the future. Again, we we're taking a long-term view as far as our overall cost structure.

And then in addition to that, there's some geography that's going on inside the income statement from top line to O&M expenses such as we had terminated some long term service agreements associated with one of our normal facilities. So we ended up putting that, in a balancing account. In addition to that we had a storm in the first quarter they also present some geography.

So while overall expenses are up, they're not up as much as you would otherwise read into it by just looking at the wrong number. So, as we pointed out we are focused on reaching our earnings guidance that we provided for the year and for the long-term.

Maria Pope -- President and Chief Executive Officer

And let me just reiterate Jim's point in that in the Pacific Northwest we can see weather fluctuations particularly hydro wind, customer usage kind of affect quarter to quarter results, but long-term we expect that the investments that we're making in our system will lower our overall cost and bear fruit and are confident in our guidance range.

Andrew Levi -- ExodusPoint -- Analyst

Just the mention of this balancing account relative to I guess the power plant, was that in the first or the second quarter?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Always in the second quarter.

Andrew Levi -- ExodusPoint -- Analyst

Okay. And how much was that?

Maria Pope -- President and Chief Executive Officer

So, in on -- there's of guidance moving back and forth that you know are so puts and takes into the entire quarter. And as we look forward, we've given guidance on what our full O&M ranges will be and we're expecting to be...

Andrew Levi -- ExodusPoint -- Analyst

So let me ask you in another way because the way that you guys tend to do things sometimes you're very -- you don't really have adjusted earnings, you kind of throw everything in. So in the second quarter, whether it's the balancing account, can you tell us how many things were kind of one time in nature that won't reoccur next year and I'm not talking about hydro conditions or anything like that, but whether it is balancing account or anything else that you kind of threw in there that affected the quarter in a negative way?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Andy, there's a lot of moving pieces in that and it take a long time to go through to provide an adequate explanation associated with all those items. If you'd like to spend some time with Christian, Peter on that, they'd be more than willing to provide you that clarity.

Maria Pope -- President and Chief Executive Officer

We look at the balance of all of our cost incurred and as we are managing them going forward.

Andrew Levi -- ExodusPoint -- Analyst

Right, but I guess what I'm trying to ask is where there's some onetime cost and nature in the second quarter, so we don't know how much they are, what to do that with Chris but just in general, were there some one-time negative costs beyond having to run your plant because of hydro conditions?

Maria Pope -- President and Chief Executive Officer

Yes, there were and we have factored those into our forecast going forward.

Andrew Levi -- ExodusPoint -- Analyst

Okay. And then just on the second half, can you just categorize, are you -- just overall, are you trending toward the low-end of the range, the midpoint of the range, high-end of the range for the year?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

I can't provide that guidance.

Maria Pope -- President and Chief Executive Officer

We appreciate the question now. Thank you.

Andrew Levi -- ExodusPoint -- Analyst

Yep, OK, thanks.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Thanks again.

Operator

And our next question comes from the line of Greg Reiss with Centenus. Your line is open. Please go ahead.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Hey, Greg.

Gregory Reiss -- Centenus -- Analyst

Hello?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Greg?

Gregory Reiss -- Centenus -- Analyst

Oh, yes, can you guys hear me?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Yeah.

Gregory Reiss -- Centenus -- Analyst

Okay. Great, sorry. I'm going to just just try on what Andy was just getting out right here. Looking at just kind of where you came in for the first half of the year and then the implied step up to kind of get to the midpoint of the range, it's about $0.19 in the second half of the year. And just looking at how the rate case is coming in, it's about $0.03, so actually that you told about $0.06. So just want to get a little more color on that kind of incremental $0.13 and where that really comes from, is it bearable power costs, is it some other items that maybe we're not aware of that are expected to occur in the second half?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Yeah, no, I appreciate the question, Greg. Yes we were mentioning to Andy and as we've stated in the -- our prepared remarks, it really gets to -- we're expecting increased revenues especially the high tech sector. We're expecting continued strong customer growth across. We are very diligently working on our power costs and getting them down below the baseline. And as pointed out we've got efforts around O&M expenses for the balance of the year and we did have some onetime items in the first quarter of the year. So a combination of all those items plus bunch of cats and dogs will get us to where we've got confidence in our full year guidance.

Gregory Reiss -- Centenus -- Analyst

Got you. And then also sounded like you guys pulled forward some 2020 expenses into 2019, is it safe to say that you would have had to have some pretty good I guess insight into how the balance of the year would shake out in order to be able to kind of pull forward some expenses and still away from the guidance range?

Maria Pope -- President and Chief Executive Officer

Yes, that's correct.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

I'd say, it's a fair assessment.

Gregory Reiss -- Centenus -- Analyst

Okay, great. Thank you very much.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Thanks, Greg.

Operator

Thank you. And our next question comes from the line of Anthony Crowdell with Mizuho. Your line is open. Please go ahead.

Anthony Crowdell -- Mizuho -- Analyst

Hey, good morning. Most of my questions are answered, just if I could jump on Greg and Andy's question, is there a estimate you guys have provided for the benefit of growth on a year-over-year basis?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

No we haven't provided that, Anthony sorry.

Anthony Crowdell -- Mizuho -- Analyst

Okay. Good, thanks so much.

Maria Pope -- President and Chief Executive Officer

Long-term, we're still expecting 1% growth and in our near term forecast just about 0.5%. Today we see a...

Anthony Crowdell -- Mizuho -- Analyst

You haven't quantified the [Speech Overlap] nickel a year or did I?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

No, we haven't Anthony.

Anthony Crowdell -- Mizuho -- Analyst

Okay. Thanks so much for taking my question.

Maria Pope -- President and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Kevin Wallen with Citadel. Your line is open. Please go ahead.

Kevin Wallen -- Citadel -- Analyst

Yeah, hi. I just wanted to ask on the potential savings in the second half on the net variable power costs, you guys are 6 million above the baseline to the first half, is there any way to quantify where you think that could be in the second half? I think you've said you are targeting below -- it's a benefit, so you're getting at least 6 million back?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Kevin, all I'll say is that we're anticipating below the baseline for the full year.

Kevin Wallen -- Citadel -- Analyst

Just a follow-up on that then, is it something that you have to see how the market conditions play out or is do you have a fairly high degree of confidence with where your head is right now that that it's far more or far less variable then just seeing what occurs over the next six months?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Yeah, we're -- we're just looking at where the power markets are today, what we're anticipating will happen to rest of the year, given the current conditions and we're forecasting that we think that we'll see improvements in our power costs.

Kevin Wallen -- Citadel -- Analyst

Okay. Just in general in terms of the guidance overall, is there anything in the first half results or with the O&M increase that moves you in terms of your assumption where you thought you were going to be in the range coming into the year, are these things that are adjustments of where you thought you were going to be in the year wherever that was going to be?

Maria Pope -- President and Chief Executive Officer

So -- some of these are timing adjustment [Indecipherable] on through, some of these are investments that we pull forward, some of them are onetime items, but we're looking at the balance of the year and remain reiterate our guidance, but we're not providing any additional insight is where we are within that guidance.

Kevin Wallen -- Citadel -- Analyst

Okay. And just the last thing for you, on the green tariff on the phase two, what's the time line for some clarity on whether you guys will be able to invest there or not?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

I believe Kevin that we should have an answer on phase two by the end of the year.

Kevin Wallen -- Citadel -- Analyst

That's terrific. Thank you very much.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

All right. Thanks, Kevin.

Maria Pope -- President and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] We do have a follow-up question from the line of Julien Dumoulin Smith with Bank of America. Your line is open. Please go ahead.

Julien Dumoulin -- Smith with Bank of America -- Analyst

Hey, guys. just not to pile on too much, but curious again about the acceleration of cost and obviously the IOC with respect to confidence on earning ROEs in subsequent years. I know in the past you've talked about perhaps a little bit more of a distance between rate cases and present. I mean is there's going to be read between the lines with respect to the ability to earn your ROE's and I understand that you're accruing AFUDC through the construction period, as well as the higher O&M in '20, again I don't want to get too far ahead, I know this is onetime items and different weather variability, consistently here but perhaps just a find a little bit more on a go forward basis on confidence level to hold the line on a record?

Maria Pope -- President and Chief Executive Officer

So, Julien, our confidence level isn't any different this quarter than it was before, underlying our businesses is very strong. As Jim has mentioned and we've discussed quite a bit, we had a number of one-time items and pulled forward some important expenses to address in the second quarter. We feel confident in our guidance and no changes in our ability to earnout ROE or our plans with regards to rate case timing. The IOC or the operations center is an important project that we've been working on for over a year and a half and have spent a lot of time talking with stake holders. It will be located into Walasin just south of your -- in an area of seismic stability. And it will include a number of are really important 24/7 operations, our balancing authority, power marketing trading, distributor resource management, all of our cyber and physical security, it will really be a modern center that will allow us also to be able to manage our distribution system in a more integrated fashion, which is heavily supported by stake holders and the commission as we move forward. So we look forward to being able to continue to talk with parties to integrate round this quarter.

Julien Dumoulin -- Smith with Bank of America -- Analyst

All right, I'll leave it there. Thank you.

Maria Pope -- President and Chief Executive Officer

Thank you.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Thanks, Julien.

Operator

Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Ms. Maria Pope for any further remarks.

Maria Pope -- President and Chief Executive Officer

Great, thank you all for joining us today. And please join us in October when we report our third quarter 2019 results. And for those of you attending the Goldman Sachs Conference in August or the Barclays Conference in September, we look forward to seeing you at both of those conferences. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 54 minutes

Call participants:

Chris Liddle -- Director-Investor Relations and Treasury

Maria Pope -- President and Chief Executive Officer

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer

Julien Dumoulin -- Smith with Bank of America -- Analyst

Insoo Kim -- Goldman Sachs -- Analyst

Gregg Orrill -- UBS -- Analyst

Travis Miller -- MorningStar -- Analyst

Andrew Levi -- ExodusPoint -- Analyst

Gregory Reiss -- Centenus -- Analyst

Anthony Crowdell -- Mizuho -- Analyst

Kevin Wallen -- Citadel -- Analyst

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