Business Context and Reporting Period
Company: Portland General Electric Company (PGE)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: PGE is a vertically integrated electric utility operating exclusively in Oregon. It generates, purchases, transmits, distributes, and sells electricity to approximately 815,739 retail customers. The company is regulated by the Public Utility Commission of Oregon (OPUC) and the Federal Energy Regulatory Commission (FERC). PGE meets approximately 50% of its energy requirements with company-owned generation (thermal, hydro, and wind) and purchases the remainder in the wholesale market.
Key Financial Metrics
| Metric | 2009 | 2008 | 2007 |
|---|---|---|---|
| Revenues, Net | $1,804 million | $1,745 million | $1,743 million |
| Income from Operations | $208 million | $217 million | $269 million |
| Net Income | $89 million | $87 million | $145 million |
| Net Income Attributable to PGE | $95 million | $87 million | $145 million |
| Earnings Per Share (Diluted) | $1.31 | $1.39 | $2.33 |
| Capital Expenditures | $696 million | $383 million | $455 million |
| Total Assets | $5,172 million | $4,889 million | $4,108 million |
| Total Long-Term Debt | $1,744 million | $1,306 million | $1,313 million |
| Common Equity Ratio | 46.9% | 47.3% | 50.0% |
| Cash Flow from Operating Activities | $386 million | $183 million | $344 million |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 3% to $1,804 million in 2009, driven by a 10% increase in retail revenues due to OPUC-approved price increases (effective Jan 1, 2009). This offset a 3.3% decline in retail energy deliveries caused by the economic downturn and a 43% drop in wholesale revenues due to lower market prices and volumes.
- Profitability: Net income attributable to PGE increased 9% to $95 million. This increase was partially offset by an $18 million write-off of deferred replacement power costs related to the Boardman plant outage and increased power costs due to plant outages at Colstrip and Boardman.
- Capital Spending: Capital expenditures surged 82% to $696 million, primarily due to construction of Biglow Canyon Phase II and III wind farms and the smart meter project.
- Debt Levels: Total long-term debt increased 34% to $1,744 million following the issuance of $580 million in first mortgage bonds to fund capital projects.
- Customer Base: The company added 5,542 customers, serving a total of 815,739 retail customers as of year-end.
Guidance, Outlook, and Risks
Outlook and Guidance
- 2010 Capital Requirements: PGE projects capital expenditures of approximately $540 million in 2010, focused on Biglow Canyon Phase III, the smart meter project, and infrastructure upgrades.
- Rate Case: PGE filed a 2011 General Rate Case in February 2010 seeking a 7.4% overall price increase. New rates are expected to become effective January 1, 2011.
- Resource Strategy: The company projects a need for 873 MWa of new resources by 2015. It is evaluating an alternative operating plan for its Boardman coal plant, potentially ceasing coal operations by 2020.
Management Commentary
Management highlighted the impact of the economic recession, which led to reduced demand and higher uncollectible accounts. However, cash flow from operations improved significantly due to reduced margin deposit requirements. The company completed the Biglow Canyon Phase II wind project in August 2009.
Risks and Contingencies
- Regulatory Risk: Recovery of costs is subject to OPUC approval. A $33.1 million refund to customers regarding the Trojan nuclear plant investment was completed in 2009. PGE is also facing potential refunds related to the Pacific Northwest wholesale market refund proceeding.
- Environmental Compliance: Significant capital expenditures ($520-$560 million) may be required for emissions controls at the Boardman plant to meet regional haze and mercury rules. PGE is exploring alternatives to full compliance, including early closure.
- Legal Proceedings: Pending class action lawsuits regarding Trojan investment recovery and environmental litigation (Sierra Club v. PGE) regarding Boardman plant permits.
- Market Risk: Volatility in wholesale power and natural gas prices affects costs. A downgrade in credit ratings could require additional collateral postings.
Key Facts for Investor Verification
- Boardman Plant Future: Verify the final decision on the Boardman coal plant (operation through 2040 with controls vs. closure by 2020) and the associated capital cost implications.
- Trojan Refund Status: Confirm the final resolution of the Trojan investment recovery litigation and any remaining liability for customer refunds.
- 2011 Rate Case Outcome: Monitor the OPUC's final order on the 2011 General Rate Case to determine if the requested 7.4% rate increase is approved.
- Environmental Costs: Track the EPA's decision on the Oregon Regional Haze State Implementation Plan and the final cost estimate for Boardman emissions controls.
- Capital Expenditure Execution: Verify the timeline and cost management for the Biglow Canyon Phase III and smart meter projects.