Portland General Electric Company — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited. PGE is a vertically integrated electric utility serving Oregon. It reported 829,898 retail customers at quarter-end. Interim results are seasonal and are not necessarily indicative of full-year results.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Revenue | $473 million | $479 million; down 1% |
| Gross margin | $281 million; 59% of revenue | $284 million; 59% |
| Operating income | $87 million; 18% of revenue | $88 million; 18% |
| Net income attributable to PGE | $49 million; $0.65 per diluted share | $49 million; $0.65 per diluted share |
| Operating cash flow | $165 million | $110 million |
| Capital expenditures | $108 million | $69 million |
| Cash and cash equivalents | $33 million at March 31 | $12 million at December 31, 2012 |
Revenue declined primarily because of lower average prices and lower retail deliveries; higher wholesale revenue and decoupling/PCAM items partly offset the decline. Retail energy deliveries fell 1.3%, mainly reflecting one fewer calendar day than in leap-year 2012 and warmer comparative weather. Purchased power and fuel expense decreased 2% to $192 million, with average variable power cost down to $34.79/MWh from $35.49/MWh. Lower coal-fired generation costs helped offset reduced hydro supply and higher average purchased-power costs. Lower interest expense ($25 million versus $28 million) was offset by a higher effective tax rate (26.2% versus 23.4%).
At March 31, total assets were $5.661 billion and total liabilities were $3.903 billion. Long-term debt was $1.636 billion, including $100 million current maturities; no short-term debt or commercial paper was outstanding. PGE had $648 million of unused revolving credit capacity, after $52 million of letters of credit. Its credit-agreement debt ratio was 48.2%, below the 65% limit; common equity was 51.8% of capitalization. Operating cash flow was higher year over year, principally due to lower margin-deposit requirements. Financing cash outflow was $37 million, including $20 million of dividends.
Material changes and operating developments
- Operating cash flow increased $55 million year over year, while investing cash use increased $49 million, primarily reflecting higher construction spending and the prior-year solar-facility sale proceeds.
- Retail deliveries decreased 1.3%; average customers increased by about 4,900 year over year. Industrial deliveries rose 1.8%, while residential and commercial deliveries declined.
- PGE generation supplied 62% of retail load, compared with 59% a year earlier. Hydro energy receipts fell 12%; first-quarter hydro output was about 3% below the 2013 Annual Power Cost Update Tariff projection. Biglow Canyon wind output was 11% below projection.
- Electric utility plant, net rose to $4.449 billion from $4.392 billion at year-end. Construction work in progress was $201 million, including approximately $50 million for Cascade Crossing.
- The quarterly dividend declared increased to $0.270 per share from $0.265. The company had 75,678,110 common shares outstanding on April 25, 2013.
Outlook, risks, and contingencies
- 2013 outlook: Management expected weather-adjusted retail deliveries to increase toward the lower end of a 0.5%–1.0% range. Forecast 2013 operating cash flow was $425–$435 million, and capital expenditures approximately $520 million. PGE expected to issue $50–$100 million of First Mortgage Bonds in Q2 and had $100 million of long-term debt maturities in 2013.
- Rates and power costs: PGE filed a 2014 general rate case seeking $105 million of additional annual revenue, about a 6% overall price increase. An OPUC decision was expected in mid-December 2013, with proposed new prices effective January 1, 2014. For 2013, forecast net variable power costs were below baseline but within the PCAM deadband, so no customer refund was then expected. The 2013 tariff had reduced customer prices by an estimated 2%, or about $36 million in annual revenue versus 2012 prices.
- Capital projects: Port Westward Unit 2, a 220 MW natural-gas plant, was selected as the capacity resource; estimated total cost was $300–$310 million, excluding allowance for funds used during construction, with operation expected in Q1 2015. PGE also reported $258 million in construction agreements and scheduled progress payments. The proposed Cascade Crossing project’s revised scope and cost were uncertain; the full scope described in discussions with BPA was expected to cost at least $800 million, and construction was not assured.
- Legal and environmental exposures: The Trojan refund order was upheld by the Oregon Court of Appeals in February, but plaintiffs sought reconsideration in April. Management said additional loss was reasonably possible but could not estimate a range. Other matters with unquantified potential losses included Pacific Northwest energy-market refund proceedings and Portland Harbor, Downtown Reach, and Harbor Oil environmental investigations. PGE was sued over alleged Clean Air Act and other violations at Colstrip, where it owns 20% of Units 3 and 4; plaintiffs seek injunctive relief and daily civil penalties. A separate Colstrip wastewater agreement challenge also remained pending.
- Other contingent items: An Oregon tax case, if upheld and applied to PGE, could increase tax liability by as much as $12 million; outcome and regulatory recovery were uncertain. A federal court judgment on spent nuclear fuel awarded damages to Trojan’s co-owners; PGE estimated the total award at $65–$75 million, with proceeds benefiting customers. PGE could not estimate the final amount or timing.
- Market and funding risks: Commodity-price movements, weather and hydro/wind conditions, plant availability, regulatory decisions, capital-market access, and environmental requirements could affect costs, liquidity, or results. A downgrade below investment grade could prompt collateral demands; estimated additional collateral exposure at March 31 was about $68 million for a single-agency downgrade or $198 million for a dual-agency downgrade. PGE reported investment-grade ratings and positive Moody’s/stable S&P outlooks. Management stated liquidity was expected to be sufficient for anticipated needs. No material changes to reported risk factors or market risks were noted; disclosure controls were effective.
Important facts for investors to verify
- Progress and final outcome of the 2014 rate case, including the requested $105 million increase and proposed ROE/capital structure.
- Actual 2013 retail load, hydro and wind generation, power costs, and any resulting PCAM or decoupling adjustments.
- PW2 construction costs, schedule, funding, and the outcome of remaining energy and renewable resource procurements.
- Scope, cost, timing, and regulatory approvals for Cascade Crossing and related BPA discussions.
- Developments in Trojan, energy-refund, tax, Colstrip, and environmental matters, for which several potential losses remain unestimable.
- Operating cash generation, capital spending, debt issuance, and collateral requirements, particularly if credit ratings or commodity prices change.