Portland General Electric Company (PGE) — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. PGE is a vertically integrated electric utility serving approximately 909,000 retail customers in Oregon.
Financial results
Dollars in millions, except per-share amounts.
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $609 | $573 | +6% |
| Gross margin (revenue less purchased power and fuel; company-defined non-GAAP measure) | $440 | $420 | +5% |
| Operating income | $133 | $133 | Flat |
| Net income | $96 | $81 | +19% |
| Diluted EPS | $1.07 | $0.91 | +$0.16 |
| Cash from operating activities | $168 | $155 | +$13 |
| Capital expenditures | $153 | $162 | -$9 |
Income before tax was $105 million versus $99 million. The effective tax rate fell to 8.6% from 18.2%, primarily reflecting a $9 million tax benefit from recognizing a regulatory asset for prior local deferred-tax expense. Management also cited $7 million of additional revenue from excess natural gas resales, $4 million of Wheatridge revenue, and $4 million of non-qualified benefit trust gains as contributors to higher net income.
Balance sheet, debt and liquidity
- At March 31, 2021, cash was $135 million, down from $257 million at year-end 2020. Total assets were $9.069 billion and shareholders’ equity was $2.675 billion.
- Long-term debt, net of unamortized debt expense, was $2.906 billion; short-term debt was $200 million. PGE repaid $140 million of bonds and obtained a new $200 million, 364-day term loan during the quarter.
- Reported available liquidity was $780 million: $135 million cash, $500 million unused revolving credit, and $145 million unused letter-of-credit capacity. No commercial paper was outstanding.
- The company’s debt-to-total-capital ratio under its credit agreement was 55.2%, within the 65% covenant limit. Its common equity ratio was 46.3%, compared with 45.0% at year-end.
- Operating cash flow exceeded capital expenditures by $15 million in the quarter. Financing activities used $128 million, and cash declined by $122 million.
Changes and operating drivers
- Retail revenue rose $39 million, reflecting tariff changes, storm-cost recovery, higher residential and industrial deliveries, and Wheatridge-related tariffs. Retail deliveries increased 2.3%; weather-adjusted retail deliveries rose 1.2%.
- Wholesale revenue fell $14 million as sales volume declined 27%, largely due to lower generation and increased retail load. Purchased power and fuel expense increased $16 million; average variable power cost rose to $27.14/MWh from $23.31/MWh.
- Administrative and other expense increased $15 million, including higher legal and professional fees, wages and benefits, and bad-debt expense. Operating income remained flat despite revenue growth.
- Cash operating flows included a $41 million deferral of incremental February storm costs. Capital expenditures were lower year over year, but storm restoration and the Integrated Operations Center contributed to investment needs.
Outlook, management commentary and risks
- PGE stated a long-term average diluted EPS growth objective of 4%–6%. For 2021, it estimated operating cash flow of $600 million–$650 million, depreciation and amortization of $410 million–$430 million, and capital expenditures of $700 million excluding allowance for funds used during construction. It expected to fund capital needs with operating cash, up to $350 million of long-term debt issuance, and short-term borrowing as needed.
- PGE’s 2021 power-cost forecast was below baseline and outside the PCAM deadband, but management did not expect a customer refund under the mechanism for 2021. The 2021 annual power-cost tariff increased power costs and corresponding revenue requirements by $66 million from 2020 levels.
- February ice storms caused more than 750,000 outages. Through March 31, PGE had incurred an estimated $87 million in incremental costs: $33 million capitalized and $54 million in operating costs. After existing storm mechanisms, $45 million of operating costs remained; $41 million had been deferred pending regulatory review. The OPUC could disallow some or all recovery.
- COVID-19 deferred costs were $10 million at quarter-end; PGE forecast incremental bad-debt expense of $6 million–$8 million for 2021. Recovery remains subject to OPUC review and an earnings test. Wildfire-response deferred costs were $22 million.
- PGE said its share of Portland Harbor remediation costs is probable, but it cannot estimate its potential liability; the EPA’s site-wide estimate is $1.7 billion. The company expects to seek recovery under its regulatory mechanism, subject to prudency and earnings reviews.
- Litigation and investigations continue in connection with previously announced energy-trading losses. The SEC and CFTC informed PGE in March and April 2021 that they were investigating; the company is cooperating. Securities and shareholder derivative cases are also pending, and PGE said it cannot predict outcomes or estimate reasonably possible losses.
- Other matters include a Clean Water Act appeal, with oral argument scheduled for May 2021, and an OPUC proceeding seeking a Boardman-related customer refund. PGE estimated the latter could be up to $66 million for 2021 but had recorded no liability.
- Strategically, PGE targets an 80% reduction in emissions associated with power served by 2030 against a 2010 baseline and an aspirational net-zero goal for 2040. It joined The Climate Pledge in April 2021. These goals, renewable procurement, resource adequacy, capital execution, weather, commodity prices, regulation and credit-market access are relevant risks.
Investor verification priorities
- Track OPUC decisions on the $41 million storm deferral and any additional storm costs, including the extent and timing of recovery.
- Monitor SEC and CFTC investigations and related securities and derivative litigation for developments, potential costs, and control implications.
- Verify the drivers and sustainability of earnings growth, particularly the lower effective tax rate, trust gains, gas resale revenue, and changes in purchased-power costs.
- Assess funding of the $700 million 2021 capital program, debt issuance and maturities, liquidity, and progress toward the company’s equity and leverage objectives.
- Follow regulatory exposure from Portland Harbor and the Boardman refund proceeding; PGE has not quantified its potential Portland Harbor liability.