Portland General Electric Company — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; unaudited. PGE is a regulated, vertically integrated electric utility serving approximately 929,000 retail customers in Oregon.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $802 million | $743 million | $2,198 million | $1,960 million |
| Operating income | $85 million | $92 million | $283 million | $310 million |
| Net income | $47 million | $58 million | $160 million | $182 million |
| Diluted EPS | $0.46 | $0.65 | $1.65 | $2.04 |
| Operating margin | 10.6% | 12.4% | 12.9% | 15.8% |
| Net margin | 5.9% | 7.8% | 7.3% | 9.3% |
Margins are calculated from reported revenue and income. Revenue growth was more than offset by higher operating costs, particularly purchased power and fuel, depreciation, and interest expense.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $331 million, down from $574 million; capital expenditures were $931 million, versus $541 million. Cash and cash equivalents declined to $47 million from $165 million at year-end 2022.
- Financing activities provided $483 million, including $485 million of common-stock proceeds and $400 million of long-term debt proceeds, partly offset by $260 million of term-loan repayment and $131 million of dividends.
- Long-term debt, net of unamortized issuance costs, was $3.786 billion. PGE had no commercial paper or revolving-credit borrowings outstanding. Its $750 million revolving facility expires in September 2028; total reported liquidity, including cash and available credit after outstanding letters of credit, was $925 million.
- The credit-agreement debt-to-total-capital ratio was 54.3%, below the 65% covenant limit. The common-equity ratio was 46.5%, compared with 43.3% at December 31, 2022.
Material changes versus prior period
- Nine-month revenue increased 12%, but operating income fell 9%, net income fell 12%, and diluted EPS declined from $2.04 to $1.65. Q3 net income declined 19% year over year.
- Nine-month purchased power and fuel expense rose 29% to $910 million. PGE cited higher natural-gas and electricity costs; record August 2023 demand also required purchases of wholesale energy at very high prices.
- Retail deliveries increased 3% for the nine months, with industrial deliveries up 10%; weather-adjusted retail deliveries rose 1.6%. Wholesale revenue increased 15% for the period.
- Share count increased: 101.1 million shares were outstanding at September 30, 2023, versus 89.3 million at December 31, 2022, following settlement of equity forward sales. Higher share count contributed to lower per-share results.
- Operating cash flow was lower largely because of working-capital movements, including payments for power and fuel and changes in margin deposits. A prior-year $11 million retiree medical plan settlement gain also made Q3 2022 other income higher.
Outlook, management commentary and key risks
- Management estimated 2023 operating cash flow of $500–$550 million, depreciation and amortization of $445–$465 million, and capital expenditures of approximately $1.475 billion, excluding allowance for funds used during construction. Planned funding includes operating cash flow, debt issuance and, if needed, equity and short-term borrowing.
- The 2024 general rate case settlement, submitted for OPUC approval, provides for an adjusted annual revenue-requirement increase of $391 million. Proposed terms include a 9.5% return on equity, 6.993% cost of capital and $6.2 billion rate base. Final customer impacts and recovery remain subject to the OPUC’s decision; new prices were expected to take effect January 1, 2024.
- PGE’s stated strategic objective is annual EPS growth of 5%–7%. Its clean-energy plan estimates a need for 3,500–4,500 MW of renewable energy and non-emitting capacity to meet its 2030 emissions target; approximately 2,700–3,700 MW remained to be procured after identified resources.
- Major investment plans include the Clearwater wind project and battery-storage projects. A 20-year battery-storage power purchase agreement signed in April 2023 has expected fixed consideration of $737 million over its term, beginning upon expected lease commencement in December 2024.
- Key exposures include severe weather and wildfire risk, wholesale power and gas price volatility, supply-chain and construction cost pressures, regulatory cost recovery, and potential collateral calls. A downgrade below investment grade could increase collateral requirements; estimated additional collateral needs were up to $130 million for a dual-agency downgrade at September 30, 2023.
- PGE’s potential Portland Harbor Superfund remediation share cannot currently be reasonably estimated and could be material to financial position; a regulatory recovery mechanism may mitigate earnings effects, subject to review. The company also reported ongoing CFTC, SEC and FERC investigations related to 2020 energy-trading losses, and Colstrip-related disputes and litigation. Outcomes are uncertain.
- Derivative positions and market-value changes can be significant, although regulatory accounting defers certain gains and losses until settlement. The filing also notes that interim results are affected by seasonal electricity demand and are not necessarily indicative of full-year results.
Most important facts for investors to verify
- Final OPUC order and customer-rate impacts from the 2024 general rate case, including the settled revenue increase and recovery of capital and power costs.
- Whether 2023 operating cash flow and capital-spending estimates are achieved, and the resulting need for additional debt or equity financing.
- Actual power-cost trends, PCAM treatment and any customer refunds or collections; management estimated no 2023 PCAM refund based on its then-current forecast.
- Construction progress, cost and timing for Clearwater and battery-storage projects, and the remaining resource procurement needed for clean-energy targets.
- Developments in Portland Harbor remediation allocation, the energy-trading investigations and Colstrip litigation, including any estimate of potential financial exposure.
- Credit ratings, collateral requirements and liquidity under volatile commodity markets, as well as the effects of higher debt and the expanded share count on earnings per share.