Portland General Electric Company — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. This is an annual report, not a quarterly filing; fourth-quarter results are included below. PGE is a regulated, vertically integrated electric utility serving Oregon, with 842,273 retail customers at year-end.
Key financial and operating metrics
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $1.900 billion | $1.810 billion |
| Gross margin | $1.187 billion; 62% | $1.053 billion; 58% |
| Operating income | $293 million | $206 million |
| Net income attributable to PGE | $175 million | $105 million |
| Diluted earnings per share | $2.18 | $1.35 |
| Operating cash flow | $518 million | $544 million |
| Cash capital expenditures | $1.007 billion | $656 million |
| Long-term debt | $2.501 billion | $1.916 billion |
| Common equity ratio | 43.3% | 48.7% |
Year-end cash was $127 million, and unused capacity under revolving credit facilities was $680 million; no revolving-credit or commercial-paper borrowings were outstanding. The company’s debt-to-total-capital ratio under its credit agreements was 56.7%, below the 65% covenant limit. Dividends declared were $1.115 per share, versus $1.095 in 2013.
Fourth quarter: Revenue was $500 million, operating income $72 million, net income attributable to PGE $43 million, and diluted EPS $0.55. In fourth-quarter 2013, the corresponding figures were $499 million, $77 million, $47 million, and $0.59.
Changes versus the prior year
- Annual revenue rose 5%, while net income attributable to PGE increased 67%. Higher authorized retail prices, lower net variable power costs, increased allowance for funds used during construction, and the absence of 2013’s $52 million Cascade Crossing charge were key drivers.
- Retail energy deliveries fell 0.8%, mainly because warmer winter weather reduced residential use. The average number of retail customers increased to 840,993 from 833,129.
- Purchased power and fuel expense fell 6% to $713 million; average variable power cost declined 6% to $33.54 per MWh. Operating cash flow decreased $26 million, while cash capital spending rose substantially with construction of new generation resources.
- Debt increased by $585 million of 2014 issuances, including $280 million of first mortgage bonds and $305 million of term loans. The common equity ratio declined 5.4 percentage points.
- New resources placed in service in December were Port Westward Unit 2, a 220 MW natural-gas capacity resource, and the 267 MW Tucannon River wind farm. PGE also increased its Boardman ownership to 90% at year-end.
Outlook, management commentary, and key risks
- Management projected 2015 retail deliveries about 1% above 2014 weather-adjusted levels. It expected regional hydro generation below normal in 2015; wind output, river flows, weather, fuel prices, and plant availability can materially affect power costs.
- 2015 capital expenditures were forecast at approximately $629 million, including $172 million for Carty, a 440 MW natural-gas plant expected online in the second quarter of 2016. Forecast 2015 operating cash flow was $460–$500 million, with $375 million of long-term debt maturities. PGE expected to use operating cash, debt issuance of up to $300 million, and approximately $270 million from its equity forward sale agreement to fund needs.
- The OPUC’s 2015 rate order authorized a $15 million annual revenue increase, approximately 1%, effective January 1, 2015. PGE’s 2016 rate-case request sought a net $66 million annual revenue increase, approximately 3.7%; the filing described the request as pending, with a final order expected in December 2015. PGE proposed a 9.9% return on equity.
- Boardman is scheduled to cease coal-fired operations by the end of 2020. Potential greenhouse-gas rules, coal-combustion-residual requirements, and other environmental obligations could raise costs; the company stated it could not yet determine some effects and generally would seek recovery through customer rates.
- Material contingencies include the Portland Harbor Superfund matter, for which PGE’s potential share is undetermined; the company said a loss was reasonably possible but could not estimate a range. A separate Downtown Reach matter had a $3 million reserve, with an equal regulatory asset recorded for expected customer recovery.
- Trojan-related class actions seek $260 million plus interest. The Oregon Supreme Court upheld the OPUC refund order in October 2014 and denied reconsideration in January 2015, reducing management’s assessed risk; the class actions remained pending and potential loss could not be estimated. Pacific Northwest wholesale-market refund claims and a Colstrip Clean Air Act case also remained unresolved; the Colstrip trial was scheduled for November 2015.
- Other principal exposures include regulatory cost-recovery decisions, wholesale energy and natural-gas price volatility, severe weather and storms, generation outages, credit-rating downgrades that could require additional collateral, pension funding sensitivity, cyber incidents, and capital-project cost or schedule overruns.
Most important facts for investors to verify
- Whether the 2016 rate-case request and associated Carty recovery were approved as proposed, and the timing and amount of resulting customer-price changes.
- Actual completion cost and operating performance of Carty, PW2, and Tucannon River, compared with stated budgets and schedules.
- Whether lower-than-normal hydro generation or other power-cost changes affected 2015 results and customer adjustments under the AUT and PCAM.
- Developments, potential liability, and any rate recovery in the Portland Harbor, Trojan, Pacific Northwest refund, and Colstrip proceedings.
- Debt refinancing and equity-forward settlement: $375 million of debt maturities were due in 2015, and the filing anticipated settling the EFSA by June 11, 2015.
- Whether operating cash flow, liquidity, and credit metrics remained adequate alongside the elevated capital program and lower year-end common equity ratio.
The financial statements received an unqualified audit opinion, and the auditor and management concluded that internal control over financial reporting was effective as of December 31, 2014.