Portland General Electric Company — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited results; comparisons are with Q1 2021 unless stated otherwise. PGE is a vertically integrated Oregon electric utility serving approximately 921,000 retail customers.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $626 million | $609 million | 3% |
| Operating expenses | $520 million | $476 million | 9% |
| Operating income | $106 million | $133 million | (20%) |
| Net income | $60 million | $96 million | (38%) |
| Diluted EPS | $0.67 | $1.07 | (37%) |
| Operating margin | 16.9% | 21.8% | Down 4.9 percentage points |
| Cash from operating activities | $249 million | $168 million | Up $81 million |
| Capital expenditures | $167 million | $153 million | Up $14 million |
Revenue growth reflected higher retail deliveries and approved tariff changes, alongside increased wholesale revenue. Retail energy deliveries rose 3%; total energy deliveries increased 7%. Industrial demand was particularly strong. Higher purchased power and fuel costs, operating expenses, and interest expense more than offset revenue growth. Purchased power and fuel expense increased $33 million to $202 million, driven mainly by higher system load and commodity costs.
Financial position and liquidity
- At March 31, 2022, cash and cash equivalents were $110 million, total assets $9.723 billion, and total shareholders’ equity $2.709 billion.
- Long-term debt was $3.286 billion, net of unamortized debt expense. The company reported a 45.2% common equity ratio and a 56.0% debt-to-total-capital ratio under its credit agreement; the covenant limit is 65%.
- Available liquidity was reported at $905 million, comprising $110 million cash, $650 million of undrawn revolving credit, and $145 million of unused letter-of-credit capacity. No commercial paper was outstanding.
- Operating cash flow improved to $249 million, partly due to a $99 million increase in cash margin deposits received from wholesale counterparties. Investing cash outflow was $154 million; financing cash outflow was $37 million. Cash increased $58 million during the quarter.
Material changes and unusual items
- Q1 earnings included an estimated $17 million pre-tax, non-cash charge from release of prior-year regulatory deferrals under the 2022 rate-case earnings tests: approximately $15 million related to wildfire deferrals and $2 million to COVID-19 deferrals.
- Wholesale revenue increased $23 million, reflecting higher market prices and sales volumes. Other operating revenue fell $17 million, including a shift from a $10 million gain on excess natural gas sales in Q1 2021 to a $6 million loss in Q1 2022.
- Derivative assets rose substantially as wholesale natural gas and electricity prices increased. Derivative fair-value effects are generally deferred through regulatory accounting until settlement; the filing says $198 million of net gains recognized in Q1 2022 were offset.
- PGE repurchased 350,000 shares for $18.1 million, at an average $51.61 per share. It declared dividends of $0.43 per share.
- A 20-year battery-storage finance lease commenced, with a $29 million right-of-use asset and lease liability recorded. The Pelton/Round Butte ownership transaction was accounted for as a failed sale-leaseback financing arrangement, with $25 million of financing obligation recorded.
Outlook, management commentary, and risks
- Management estimated 2022 operating cash generation of $575 million to $625 million, depreciation and amortization of $420 million to $440 million, and capital expenditures of $685 million. It expected to fund capital needs with operating cash flow and, as needed, debt issuance, including up to $250 million of long-term debt.
- PGE’s long-term diluted EPS growth objective is 4% to 6% on average. The filing does not provide a specific 2022 EPS forecast.
- The OPUC’s April 25, 2022 order adopted the 2022 rate-case stipulations. New customer prices were scheduled to take effect May 9, 2022; the order included an $83 million increase to base-rate revenue requirement, eliminated decoupling, and established earnings tests for certain deferrals. The order denied recovery for the Faraday project in this case, which PGE may pursue in its next rate case.
- PGE expects no 2022 PCAM refund based on its forecast of power costs below baseline and within the established deadband. The company also said it did not expect to exceed its regulated return on equity under the new earnings-test methodology for 2021 and 2022.
- Strategic priorities include reducing greenhouse gas emissions associated with customer power by 80% by 2030, 90% by 2035, and 100% by 2040. PGE was pursuing an all-source request for proposals for renewable and non-emitting capacity resources and expected to file its first Clean Energy Plan in spring 2023.
- Key risks include extreme weather, wildfires and storm damage; commodity-price and collateral volatility; regulatory recovery and earnings-test outcomes; supply-chain, labor, and project-cost pressures; and legal and regulatory proceedings. Portland Harbor remediation costs could be material, but PGE said it could not yet reasonably estimate its share. The company is cooperating with CFTC, SEC, and FERC investigations relating to previously disclosed energy-trading losses.
- The securities class action relating to those trading losses was settled and dismissed with prejudice in March 2022; the $6.75 million settlement was paid by insurance. A related derivative-action settlement remained subject to final court approval.
Important facts for investors to verify
- Whether the OPUC permits recovery of storm, wildfire, COVID-19, and other deferred costs, and how earnings tests affect future results.
- Actual 2022 power costs, wholesale market exposures, derivative settlements, and associated collateral requirements.
- Execution and funding of the $685 million 2022 capital program, including project timing, cost inflation, and the Faraday recovery path.
- Progress and costs of decarbonization plans, resource procurement, and any planned exit from Colstrip by the end of 2025.
- Developments in Portland Harbor allocation and remediation, the energy-trading investigations, derivative litigation settlement approval, and Colstrip disputes.