Portland General Electric Company — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. PGE is a regulated, vertically integrated electric utility serving Oregon; it reported as one operating segment. The audited financial statements received an unqualified audit opinion, including on internal control over financial reporting.
Financial and operating performance
| Metric | 2015 | 2014 |
|---|---|---|
| Net revenue | $1.898 billion | $1.900 billion |
| Gross margin | $1.237 billion; 65% | $1.187 billion; 62% |
| Operating income | $309 million; 16% of revenue | $293 million; 15% of revenue |
| Net income attributable to PGE | $172 million | $175 million |
| Diluted earnings per share | $2.04 | $2.18 |
| Cash from operating activities | $517 million | $518 million |
| Capital expenditures | $598 million | $1.007 billion |
| Long-term debt at year-end | $2.204 billion | $2.501 billion |
| Cash at year-end | $4 million | $127 million |
| Common equity ratio | 50.5% | 43.3% |
Fourth-quarter 2015 net revenue was $499 million, operating income $84 million, net income $51 million, and diluted EPS $0.57. Fourth-quarter 2014 comparatives were $500 million, $72 million, $43 million, and $0.55, respectively.
Retail deliveries increased 0.6% to 19.382 million MWh, while the average customer count rose to 848,524. Cash used in investing activities was $522 million; cash used in financing was $118 million. PGE paid $97 million in dividends and raised $271 million from issuing shares under its equity forward sale agreement. At year-end it had $6 million of commercial paper outstanding, $494 million of unused capacity under its $500 million revolving credit facility, and $108 million of letters of credit outstanding under separate facilities.
Changes versus 2014
- Revenue was nearly flat, while net income attributable to PGE fell $3 million and diluted EPS declined $0.14. Management attributed the earnings decrease primarily to unusually warm winter weather and lower-than-planned energy deliveries.
- Gross margin rose by $50 million and operating income by $16 million. Purchased power and fuel expense declined $52 million, mainly as average variable power cost per MWh fell 8% to $30.91. Lower power costs were partly offset by higher operating expenses, interest expense, and reduced allowance for funds used during construction.
- Company generation supplied about 65% of retail load, versus 58% in 2014, and purchased power reliance declined 11%. New PW2 and Tucannon River facilities contributed; below-normal hydro and wind output remained a cost pressure.
- Capital expenditures decreased from $1.007 billion, chiefly because PW2 and Tucannon River construction was completed. Debt fell, while the 2015 equity issuance contributed to the increase in the common equity ratio.
Outlook, significant items, and risks
- Carty project: PGE terminated its construction agreement after declaring the contractor in default in December 2015. The company estimated total project cost of $620–$655 million, including AFDC, versus up to $514 million authorized for customer-price recovery. A $145.6 million performance bond may contribute to completion costs, but recovery is uncertain. PGE targeted service in July 2016; delay beyond July 31 could affect rate recovery. The contractor’s parent filed for arbitration, which PGE intends to contest.
- 2016 outlook: PGE projected capital requirements of approximately $623 million and operating cash flow of $490–$530 million, expecting to use operating cash and short- and long-term debt. It forecast retail deliveries about 1% above 2015 weather-adjusted levels, after energy efficiency and the loss of a large paper customer.
- Rates: The 2016 rate case authorized a net annual revenue requirement increase of $12 million. Rates included a $44 million annualized decrease effective January 1, 2016 and a $57 million annualized increase when Carty entered service, subject to the stated timing and recovery conditions.
- Environmental and legal exposure: Portland Harbor cleanup alternatives carried estimated site-wide costs of $800 million–$2.4 billion; PGE could not estimate its share. Colstrip owners faced Clean Air Act litigation, with trial scheduled for May 2016; PGE said a loss was reasonably possible but could not estimate a range. Trojan-related class actions sought $260 million plus interest; management likewise could not estimate a possible loss. Direct claims in the Pacific Northwest wholesale refund proceeding had been settled for an immaterial amount, subject to appeals and remaining uncertainties.
- Other risks: Cost recovery depends on regulatory approval; power and fuel prices, weather, hydro and wind conditions, outages, construction, financing and collateral needs, cyber incidents, and environmental requirements may affect results and liquidity. The Clean Power Plan was stayed by the Supreme Court in February 2016 pending legal challenges; its ultimate effect was uncertain.
Important facts for investors to verify
- Progress, final cost, in-service timing, performance-bond recovery, and regulatory recovery for Carty.
- 2016 cash generation, planned capital spending, debt issuance, and liquidity after the low year-end cash balance.
- Resolution and any financial exposure from Portland Harbor, Colstrip litigation, and the Trojan class actions.
- Actual customer demand, power costs, hydro and wind generation, and the outcome of regulatory deferrals and rate proceedings.