Portland General Electric Company — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. PGE is a regulated, vertically integrated electric utility serving Oregon, with approximately 899,000 retail customers. Unless stated otherwise, amounts are in millions of dollars.
Financial and operating highlights
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Total revenue | $573 | $573 |
| Gross margin (revenue less purchased power and fuel; company-defined non-GAAP measure) | $420; 73% of revenue | $394; 69% |
| Operating income | $133; 23% of revenue | $111; 19% |
| Net income | $81 | $73 |
| Diluted EPS | $0.91 | $0.82 |
| Operating cash flow | $155 | $156 |
| Capital expenditures | $162 | $150 |
| Cash and cash equivalents | $30 at March 31 | $30 at December 31, 2019 |
| Debt | $20 short-term debt; $2,618 long-term debt including current maturities | $2,597 long-term debt at December 31, 2019 |
| Available liquidity | $679 at March 31, including cash, revolver and letter-of-credit capacity | Not provided as a comparable figure |
Gross margin improved as purchased power and fuel expense fell $26 to $153, largely reflecting lower average variable power costs. Revenue was flat: higher retail and wholesale revenue was offset by lower other operating revenue. Weather-adjusted retail deliveries increased 3.5%, but actual retail deliveries declined 0.5%; first-quarter heating degree-days were 12% below Q1 2019. The effective tax rate rose to 18.2% from 13.1%.
Material changes and financing
- Purchased power and fuel expense declined $26, while wholesale revenue rose $10 on sharply higher sales volumes; other operating revenue fell $15, chiefly due to lower natural-gas resale revenue.
- Operating income increased $22 and net income increased $8 year over year. Depreciation and amortization rose $7 to $108, mainly from capital additions and regulatory-program amortization.
- Operating cash flow was nearly unchanged. Investing used $157; financing provided $2, and cash remained $30. Capital expenditures exceeded operating cash flow by $7.
- PGE completed a $119 remarketing of pollution-control bonds, with stated rates of 2.125% and 2.375%, due 2033. A $150 364-day term loan was obtained on April 9, 2020, after quarter-end.
- At March 31, PGE had $480 of unused capacity under its $500 revolving facility and $169 of available letter-of-credit capacity. Debt-to-total-capital was 50.4%, below the 65% covenant limit; common equity ratio was 48.6%.
Outlook, management commentary and risks
- COVID-19: PGE projected full-year 2020 retail deliveries could decline 1%–2% versus 2019 weather-adjusted levels, and forecast 2020 bad-debt expense of $15 versus an original $6 forecast. Management said the pandemic’s full financial effect could not yet be reasonably estimated; it considered liquidity adequate but noted potential for materially higher capital costs.
- PGE filed with the Oregon Public Utility Commission (OPUC) to defer certain COVID-19-related incremental costs and lost revenue. Recovery and subsequent customer-price treatment remain subject to regulatory review.
- Capital spending estimates were reduced from $890 to $745 for 2020 and from $595 to $565 for 2021. Management estimated 2020 operating cash generation of $550–$600 and expected to fund planned requirements with operating cash, debt issuance of up to $535, and commercial paper as needed.
- Management stated a long-term target of 4%–6% average annual diluted EPS growth and a goal of reducing power-supply carbon emissions more than 80% from 1990 levels by 2050. These are objectives, not quarterly earnings guidance.
- Key execution and regulatory matters include renewable procurement, the Wheatridge project (wind facility expected in service by December 2020), the Integrated Operations Center (targeted for Q4 2021), coal-exit requirements, and pending cost-recovery proceedings.
- Contingencies: PGE expects to bear some Portland Harbor Superfund costs, but cannot estimate its share; potential costs could be material to financial position. The OPUC-approved recovery mechanism is subject to prudency and earnings tests. Plaintiffs seek $260 plus interest in the Trojan-related class actions; PGE cites favorable prior rulings, but a petition for Oregon Supreme Court review was filed in April 2020 and potential loss cannot be estimated. The City of Portland has asserted a preliminary $7 franchise-fee claim; PGE has recorded no liability and disputes the claim.
- Other risks include commodity-price and collateral requirements, weather and generation availability, customer collections and demand, capital-market access, environmental regulation, and legal and regulatory outcomes. PGE reported investment-grade ratings and stable/positive outlooks from Moody’s/S&P, respectively.
Important facts for investors to verify
- Whether COVID-19 demand declines, customer arrears and the $15 bad-debt forecast develop as expected, and whether regulatory deferrals are approved for recovery.
- Actual capital spending, financing needs and liquidity after the April $150 term loan, including borrowing costs and any collateral calls.
- Progress on the reduced capital plan, Wheatridge and the Integrated Operations Center, and the resulting rate-base, depreciation and customer-price effects.
- Developments in Portland Harbor cost allocation and Trojan litigation, including whether potential exposure becomes estimable or material.
- Whether regulatory decisions on renewable procurement, environmental obligations and cost recovery support the stated earnings-growth and decarbonization objectives.