Business context and reporting period
Portland General Electric Company (PGE) is a vertically integrated electric utility serving approximately 928,000 retail customers in Oregon. This unaudited Form 10-Q covers the three months ended March 31, 2023; comparisons are with the first quarter of 2022 unless stated otherwise. PGE notes that seasonal demand and energy-market fluctuations mean quarterly results may not indicate full-year performance.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Total revenue | $748 million | $626 million; up 19% |
| Operating expenses | $631 million | $520 million; up 21% |
| Operating income | $117 million | $106 million; up 10% |
| Net income | $74 million | $60 million; up 23% |
| Diluted EPS | $0.80 | $0.67 |
| Operating margin | 15.6% (calculated) | 16.9% (calculated) |
| Net margin | 9.9% (calculated) | 9.6% (calculated) |
| Cash flow from operations | $(39) million | $249 million |
| Capital expenditures | $274 million | $167 million |
Revenue growth reflected higher retail prices and a 5% increase in retail energy deliveries, as well as higher wholesale revenue. Purchased power and fuel expense rose 50% to $304 million, largely due to higher natural gas and purchased-power costs. Average variable power cost per MWh increased to $44.25 from $30.34. Interest expense increased to $44 million from $38 million. The prior-year quarter included a $17 million charge for previously deferred items disallowed in the 2022 rate case.
At March 31, 2023, cash was $12 million, total assets were $10.151 billion, total liabilities were $7.039 billion, and shareholders’ equity was $3.112 billion. Long-term debt was $3.485 billion and commercial paper outstanding was $68 million. PGE reported a 46.7% common-equity ratio and a 54.2% debt-to-total-capital ratio under its credit agreement. Available liquidity, including cash, was $679 million; unused revolving-credit capacity was $582 million.
Operating cash flow fell substantially year over year, primarily reflecting working-capital movements, including payments for power and fuel and margin-deposit activity. Cash used in investing was $276 million. Financing cash flow was $162 million, including $300 million of net proceeds from equity-forward share issuance, $100 million of funded bonds, and repayment of a $260 million term loan.
Material changes versus the prior comparable period
- Retail revenues increased to $651 million from $564 million, with higher customer prices and load growth contributing. Wholesale revenues rose to $88 million from $56 million, principally due to higher average sales prices, despite lower wholesale sales volumes.
- Retail deliveries increased 5%; weather-adjusted retail deliveries increased 1.9%. Industrial deliveries showed the strongest growth. Colder-than-normal weather also supported demand.
- Higher energy costs significantly increased purchased power and fuel expense. Net variable power costs were $216 million, up $70 million from the prior-year quarter.
- Depreciation and amortization increased to $111 million from $99 million, partly due to accelerated Colstrip depreciation. Other income rose to $15 million from $3 million, including favorable trust-asset changes and previously deferred interest income.
- Shares outstanding increased following issuance of 7.18 million shares under the equity forward sale agreement; PGE received $300 million in net proceeds.
Outlook, management commentary, and risks
- PGE estimates 2023 capital expenditures of approximately $1.3 billion, excluding AFUDC, and expects cash from operations of $550 million to $600 million. It expects to fund capital needs using operating cash flow, up to $400 million of long-term debt, and additional equity and short-term borrowing as needed.
- PGE’s 2024 rate-case filing requests an overall average customer-price increase of approximately 14%, including an estimated 4.5% associated with higher power costs. The requested return on equity is 9.8%, and the requested rate base is $6.3 billion. These are proposals under review, not approved rates.
- Management’s strategy includes reducing emissions associated with retail electricity by at least 80% by 2030 and 100% by 2040, and targeting annual EPS growth of 5% to 7%. PGE filed its combined 2023 Integrated Resource Plan and Clean Energy Plan on March 31, 2023; it estimates that 3,000–4,000 MW of resources may be needed to meet its 2030 emissions target.
- Key risks include volatile wholesale power and gas prices, weather and wildfire exposure, power-supply and project execution risks, inflation and interest rates, and regulatory approval or recovery of costs. PGE’s 2023 resource forecast showed hydro runoff below normal at several major river locations.
- Potentially material unresolved matters include Portland Harbor environmental remediation, for which PGE cannot yet estimate its share of costs; possible disallowance of wildfire-mitigation deferrals (balance of $31 million); and possible Boardman customer refunds, with the company identifying 2020 as the remaining reasonably possible refund period. PGE also reported CFTC, SEC, and FERC investigations relating to previously announced 2020 energy-trading losses, with outcomes not predictable.
- Colstrip ownership and operating disputes and related litigation remain unresolved. PGE reports that it cannot predict outcomes or estimate a range of reasonably possible losses in certain proceedings.
- After quarter-end, on April 26, 2023, PGE entered a battery-storage agreement expected to be accounted for as a lease, with a 20-year term beginning in December 2024 and approximately $737 million of fixed consideration over the term.
Important facts for investors to verify
- Whether higher revenues and earnings can be sustained as wholesale energy prices, purchased-power costs, and customer demand change.
- Cash conversion and working-capital volatility, including collateral and margin requirements tied to commodity positions.
- Final OPUC decisions on the 2024 rate case, wildfire cost recovery, Boardman deferrals, and other regulatory recovery mechanisms.
- Funding and execution of the substantial capital plan, including planned equity and debt issuance and clean-energy projects.
- Developments in Portland Harbor, Colstrip, and the energy-trading investigations, including any change in the company’s ability to estimate potential exposure.
- Potential dilution and proceeds from the remaining equity forward settlement, and the terms and impact of any planned at-the-market offering.