Portland General Electric Company — Q3 2021 Form 10-Q
Business context and period. PGE is a vertically integrated electric utility serving Oregon. This unaudited filing covers the three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods unless noted. Financial amounts are in millions of dollars except per-share data.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenues | $642 | $547 | $1,788 | $1,589 |
| Operating income (loss) | $83 | $(16) | $277 | $188 |
| Net income (loss) | $50 | $(17) | $178 | $103 |
| Diluted EPS | $0.56 | $(0.19) | $1.98 | $1.15 |
- Margins: The filing does not state operating-margin percentages. Calculated as operating income divided by total revenues, operating margin was approximately 12.9% in Q3 2021 versus (2.9%) in Q3 2020, and 15.5% versus 11.8% for the nine-month periods.
- Cash flow: Nine-month operating cash flow was $582, up from $442. Investing cash outflow was $502, versus $551; financing cash outflow was $43, versus $332 inflow. Cash ended the period at $294, compared with $257 at year-end 2020.
- Debt and liquidity: Long-term debt, net of unamortized debt expense, was $3,285. PGE had no short-term debt or commercial paper outstanding at September 30. Cash plus available revolving and letter-of-credit capacity totaled $1,086, including a $650 revolving facility. The credit-agreement debt-to-total-capital ratio was 56.4%, below its 65% limit; the common equity ratio was 44.9%.
- Capital spending: Nine-month capital expenditures were $486. PGE estimated 2021 capital expenditures of $700 (excluding allowance for funds used during construction) and expected 2021 cash from operations of $575–$625.
Changes and operating drivers
- Q3 net income improved by $67, primarily because 2020 included $127 of previously reported energy-trading losses in purchased power and fuel. For the nine-month comparison, higher earnings likewise reflect the absence of those 2020 trading losses.
- Retail revenues rose $39 in Q3 and $133 year to date, supported by increased deliveries, customer growth, rate/tariff changes, and weather. Nine-month retail deliveries increased 6%; wholesale revenues rose $56 in both comparison periods, mainly reflecting higher market prices.
- Purchased power and fuel expense fell $33 in Q3 but rose $59 year to date. Year-to-date costs reflected higher average variable power costs and load; a $27 PCAM deferral reduced reported expense.
- Operating costs increased year to date, notably administrative and other expense (up $39) and generation, transmission and distribution expense (up $21). Drivers included compensation, legal and professional costs, wildfire mitigation, vegetation management, and storm restoration.
Outlook, risks and significant items
- Strategy and guidance: PGE’s stated strategy targets average diluted EPS growth of 4%–6%, alongside decarbonization, electrification, reliability and affordability goals. Oregon’s HB 2021 established clean-electricity emissions-reduction targets of 80% by 2030, 90% by 2035 and 100% by 2040. PGE is pursuing approximately 1,000 MW of renewable and non-emitting resources through its 2021 All-Source RFP and has said it is working to exit Colstrip by the end of 2025.
- Rates: PGE’s pending 2022 general rate case requested an overall average customer-price increase of approximately 3.9%, including a 2.0% increase related to higher power costs. A cost-of-capital stipulation proposed a 50% debt/50% equity structure, 9.5% ROE and 6.83% cost of capital; it remained subject to OPUC approval. A final rate-case order was expected by April 2022.
- Regulatory recovery exposure: PGE had deferred $27 for expected 2021 PCAM collection and $60, including interest, for February storm operating costs. The filing also reports $36 of cumulative wildfire deferrals and $27 of COVID-19 deferrals. Recovery of these amounts is subject to OPUC review; disallowance could reduce earnings. PGE estimated $107 of incremental February-storm costs through September, including $36 capitalized.
- Legal and investigation matters: The CFTC, SEC and FERC opened investigations into the previously reported energy-trading losses; PGE said it was cooperating and could not predict outcomes. Putative shareholder derivative suits related to those losses were pending, with potential losses not estimable. A securities class-action settlement of $6.75 was preliminarily approved and was to be paid by the insurer, subject to final court approval.
- Environmental and commodity risks: PGE expects to share Portland Harbor remediation costs, but could not reasonably estimate its share; the liability could be material to financial position. Commodity prices and derivative positions can affect cash collateral needs; a downgrade below investment grade could prompt additional collateral requests. The filing also identifies wildfire, extreme weather, power-market, regulatory, capital-market and operational risks.
- Other notable items: PGE issued $400 of first-mortgage bonds on September 30, with maturities from 2028 to 2051 and coupons of 1.82%–2.97%. A hydro PPA effective October 19 was expected to add approximately $140 to lease assets and liabilities in Q4. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Investor verification points
- Track the final 2021 PCAM determination and OPUC decisions on storm, wildfire and COVID-19 cost recovery.
- Review the 2022 rate-case outcome, including the proposed price increase, capital structure and allowed return.
- Monitor the CFTC, SEC and FERC trading-loss investigations and the status and potential exposure of derivative lawsuits.
- Seek updates on Portland Harbor allocation and remediation estimates, and on Colstrip ownership, exit plans and litigation.
- Compare actual capital spending, operating cash flow, debt and collateral needs with management’s 2021 estimates.