Portland General Electric Company — FY 2012 Form 10-K
Business context and reporting period. This annual report covers the year ended December 31, 2012; it is not a standalone fourth-quarter filing. PGE is a regulated, vertically integrated electric utility serving Oregon, with 828,354 retail customers at year-end. Retail rates are principally set by the Oregon Public Utility Commission (OPUC). The company’s audited financial statements received an unqualified opinion, and the auditor found internal control over financial reporting effective.
Financial and operating highlights
| Metric | 2012 | 2011 |
|---|---|---|
| Net revenue | $1.805 billion | $1.813 billion |
| Gross margin | $1.079 billion; 60% of revenue | $1.053 billion; 58% |
| Operating income | $302 million | $309 million |
| Net income attributable to PGE | $141 million | $147 million |
| Diluted EPS | $1.87 | $1.95 |
| Cash from operating activities | $494 million | $453 million |
| Capital expenditures | $303 million | $300 million |
| Long-term debt | $1.636 billion | $1.735 billion |
| Common equity ratio | 51.1% | 48.6% |
Gross margin is a non-GAAP measure. Year-end cash was $12 million; short-term debt was $17 million. PGE had $616 million of unused capacity under $700 million in revolving credit facilities. Total debt including short-term debt was approximately $1.653 billion. Dividends declared were $1.075 per share for 2012, versus $1.055 in 2011.
Fourth-quarter data: Revenue was $463 million, operating income $71 million, net income attributable to PGE $28 million and diluted EPS $0.38. The comparable 2011 quarter reported $479 million, $69 million, $29 million and $0.38, respectively.
Material changes versus 2011
- Attributable net income declined $6 million (4%) and diluted EPS fell from $1.95 to $1.87. Management cited lower residential deliveries in warmer winter weather, higher pension expense and a higher effective tax rate; lower variable power costs partly offset these effects.
- Total retail deliveries declined 0.8% to 19.190 million MWh, although weather-adjusted deliveries increased 0.6%. Residential deliveries fell 2.9%; industrial deliveries rose 2.1%.
- Purchased power and fuel expense decreased $34 million to $726 million. Average variable power cost declined 3% to $34.25/MWh. Gross margin increased mainly because 2011 included customer tax-credit refunds and a PCAM refund that did not recur at the same level.
- Operating cash flow increased $41 million. PGE redeemed $100 million of long-term debt and paid $81 million in dividends during 2012.
- The pension plan’s underfunded status worsened to $191 million from $147 million, driven chiefly by a lower discount rate and actuarial losses.
Outlook, management commentary and risks
- PGE forecast 2013 weather-adjusted retail delivery growth of 0.5%–1.0%, after energy-efficiency and conservation effects. Management expected 2013 operating cash flow of approximately $468 million and capital expenditures of approximately $514 million.
- The 2013 AUT rate adjustment was expected to reduce annual revenue by approximately $36 million. PGE filed a 2014 general rate case seeking a $105 million annual revenue increase, approximately 6%; the requested capital structure was 50% debt and 50% equity, with a 10% return on equity. These were company proposals, not approved rates.
- PGE selected its proposed 220-MW Port Westward Unit 2 gas-fired resource in January 2013; estimated total cost was $300–$310 million, excluding AFDC, with service expected in 2015. Resource solicitations for additional baseload and renewable supply were ongoing.
- The proposed Cascade Crossing transmission project was modified with BPA; the full modified project was expected to cost at least $800 million, but scope, schedule and terms remained under negotiation. Construction could begin as early as 2017.
- Key exposures include OPUC recovery of costs and pending rate decisions; wholesale power and gas prices, weather, hydro and wind availability, and plant outages; capital-market access and collateral requirements; environmental rules affecting fossil generation; and pension funding needs.
- Material uncertainties include the Portland Harbor Superfund investigation (potential cleanup alternatives estimated at $169 million–$1.8 billion, with PGE’s share undetermined), Trojan-related proceedings and class actions seeking $260 million plus interest, and the Pacific Northwest wholesale-refund proceeding. Management stated it could not estimate potential loss ranges for these matters. A tax apportionment case could increase PGE’s tax liability by as much as $12 million if the ruling is upheld and applies to the company.
- Other notable items: the court estimated a $65–$75 million Trojan spent-fuel judgment for the utility plaintiffs collectively; any recovery allocated to PGE would benefit customers, and the U.S. government was expected to appeal. A Colstrip Clean Air Act notice and challenges concerning wastewater remediation were unresolved.
Most important facts for investors to verify
- Whether the OPUC approves the requested 2014 rate increase and the proposed return and capital structure.
- Final resource selections, costs and financing needs for Port Westward Unit 2, other resource solicitations and the modified Cascade Crossing project.
- Actual 2013 delivery growth, hydro conditions, power costs and any PCAM customer refund or collection.
- Developments and any estimable liabilities in the Trojan, Portland Harbor, wholesale-refund, Colstrip and Oregon tax matters.
- Changes in pension underfunding, collateral needs, credit ratings and available liquidity as capital spending proceeds.