Portland General Electric Company — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; financial statements are unaudited. PGE is a regulated, vertically integrated electric utility serving Oregon, with approximately 928,000 retail customers.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $648 million | $591 million | $1,396 million | $1,217 million |
| Operating income | $81 million | $112 million | $198 million | $218 million |
| Net income | $39 million | $64 million | $113 million | $124 million |
| Diluted EPS | $0.39 | $0.72 | $1.19 | $1.39 |
| Operating margin, approximate | 12.5% | 18.9% | 14.2% | 17.9% |
| Net margin, approximate | 6.0% | 10.8% | 8.1% | 10.2% |
Q2 revenue increased 10%, but operating income fell 28% and net income fell 39%. For the six-month period, revenue rose 15%, while operating income declined 9% and net income declined 9%. Revenue gains reflected higher customer prices and increased retail deliveries; higher power and fuel costs were the primary offset. Retail deliveries increased 4% in Q2 and 4% year to date. Industrial deliveries were notably stronger, up 14% in Q2 and 12% year to date.
Purchased power and fuel expense rose 31% in Q2 to $220 million and 42% year to date to $524 million. Average variable power cost per MWh increased to $35.19 in Q2 from $28.40, and to $40.01 year to date from $29.43. Higher commodity costs, including natural gas, and price-risk-management activity contributed to the increase. Net interest expense increased 8% in Q2 and 12% year to date.
Cash flow, balance sheet and liquidity
- Six-month operating cash flow was $143 million, down from $451 million in 2022; capital expenditures were $573 million, versus $345 million. Cash used in investing activities was $574 million.
- Cash and cash equivalents were $13 million at June 30, 2023, down from $165 million at year-end 2022. PGE attributed the year-to-date operating cash flow decline mainly to working-capital movements, including accounts payable and margin deposits tied to prior-period wholesale commodity prices.
- Total assets were $10.37 billion; total liabilities were $7.17 billion. Long-term debt, net, was $3.49 billion, with $140 million of commercial paper outstanding. Total current liabilities were $761 million.
- Available liquidity was reported at $651 million, comprising $510 million of unused revolving credit capacity and $13 million of cash, plus $128 million of unused letter-of-credit capacity. The $650 million revolving facility had no direct borrowings outstanding and expires in September 2027.
- The debt-to-total-capital ratio under the credit agreement was 54.0%, below its 65% covenant limit. The common equity ratio was 46.9%. Debt ratings remained investment grade with stable outlooks.
- Financing included $392 million of common-stock proceeds under the equity forward sale agreement, $100 million of bond proceeds and $140 million of net commercial-paper issuance. PGE paid $84 million in dividends and repaid a $260 million term loan. It issued additional shares after quarter-end, receiving $92 million on July 12.
Outlook, material developments and risks
- PGE estimated 2023 operating cash flow of $525–$575 million, depreciation and amortization of $445–$465 million, and capital expenditures of approximately $1.5 billion excluding AFUDC. It expected to fund capital needs with operating cash, up to $600 million of long-term debt issuance, and potentially equity or short-term debt.
- The 2024 general rate case requests an overall average customer-price increase of approximately 14%, including about 4.5% for higher projected power costs. PGE requested a 9.8% return on equity and $6.3 billion rate base. Some settlement discussions had produced agreements in principle; unresolved matters included cost of capital, power-cost mechanisms and certain projects. An OPUC order was expected in December 2023 for rates effective January 1, 2024.
- Management’s stated strategy targets annual EPS growth of 5%–7% and emissions reductions of at least 80% by 2030 and 100% by 2040. PGE’s 2023 resource plan estimates a need for approximately 3,500–4,500 MW of renewable and non-emitting capacity to meet its 2030 target; procurement, approvals, financing and project execution remain significant dependencies.
- PGE estimated 2023 net variable power costs below baseline and outside the PCAM deadband, but expected no customer refund under the mechanism because projected regulatory return on equity was below the applicable earnings-test threshold.
- Wildfire mitigation costs and recovery remain subject to regulatory prudence review; disallowances could reduce earnings. A new wildfire-cost tariff was proposed to take effect September 1, 2023. A $6.5 million Boardman-related customer refund, plus interest, is to be amortized over two years beginning July 2023.
- Portland Harbor remediation is a potentially material contingency. PGE believes it will bear a share, but cannot yet reasonably estimate its liability; the company cited estimated total site remediation costs of $1.9–$3.5 billion and a regulatory recovery mechanism, subject to review and limitations.
- Other uncertainties include regulatory challenges to recovery of $188 million of Faraday hydro repowering costs, SEC/CFTC/FERC investigations related to 2020 energy-trading losses, and Colstrip ownership disputes and litigation. The filing says outcomes or potential losses cannot be predicted or estimated for certain matters.
- Commodity-price movements can affect power costs, derivative valuations and collateral needs. At June 30, derivative liabilities were $257 million and derivative assets were $98 million; regulatory accounting offsets many unrealized effects. A downgrade below investment grade could prompt additional collateral demands.
- PGE entered a 20-year battery-storage agreement expected to commence in December 2024, with fixed consideration of $737 million over its term. The agreement will be accounted for as a lease upon commencement.
Most important facts for investors to verify
- Whether the 2024 rate case is approved substantially as requested, particularly the 14% average increase, cost of capital and Faraday cost recovery.
- Whether cash generation and financing plans cover the approximately $1.5 billion 2023 capital program and ongoing clean-energy investments.
- Whether power costs, wholesale prices, hydro conditions and PCAM outcomes differ from management’s current estimates.
- Developments in Portland Harbor remediation allocation, wildfire-cost prudence review, energy-trading investigations and Colstrip proceedings.
- The pace and cost of emissions-reduction resource procurement, and the effects of equity issuance and share dilution on per-share results.