PORTLAND GENERAL ELECTRIC CO annual report, FY2022

Portland General Electric Company (NYSE: POR) — 2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022. PGE is a regulated, vertically integrated electric utility serving Oregon; it reported one business segment and approximately 926,000 retail customers at year-end. This is an annual filing, not a standalone fourth-quarter report.

Financial and operating performance

Metric	2022	2021	Change
Total revenues	$2.647 billion	$2.396 billion	+10%
Operating income	$397 million	$378 million	+5%
Net income	$233 million	$244 million	-5%
Diluted EPS	$2.60	$2.72	Down $0.12
Operating margin	15.0%	15.8%	Lower
Net margin	8.8%	10.2%	Lower
Operating cash flow	$674 million	$532 million	+$142 million
Capital expenditures	$766 million	$636 million	+$130 million

Retail revenue rose 7% to $2.223 billion; wholesale revenue increased 42% to $363 million, mainly on higher market prices. Retail electricity deliveries increased 3.4%, led by 10.9% growth in industrial deliveries. Purchased power and fuel expense rose 20% to $988 million; actual net variable power costs increased $59 million. Higher power costs and interest expense, along with a higher income tax provision, contributed to lower net income despite revenue growth.

At year-end, total assets were $10.459 billion, total liabilities $7.680 billion, and shareholders’ equity $2.779 billion. Long-term debt, net of unamortized costs, was $3.646 billion, including $260 million due in 2023. The common equity ratio was 43.3%, down from 45.2%. The debt-to-total-capital ratio under credit agreements was 56.9%, below the 65% covenant limit.

Year-end cash was $165 million. PGE reported $938 million of total liquidity, including cash and available credit capacity. Its $650 million revolving credit facility had no borrowings outstanding; commercial paper was also zero. The company posted $149 million of collateral with counterparties. Cash dividends paid were $158 million; the company repurchased $18 million of stock.

Material changes and notable items

• The OPUC’s 2022 rate case increased the annual revenue requirement by $74 million; new prices took effect May 9, 2022. The authorized capital structure was 50% debt and 50% equity, with a 9.5% authorized return on equity.
• Actual 2022 net variable power costs were $23 million above baseline, within the PCAM deadband; no customer recovery was recorded for that variance. The 2023 power-cost tariff includes a $186 million increase, effective January 1, 2023.
• Generation mix and costs shifted: purchased power increased, while natural-gas generation fell, partly because higher gas prices made some gas generation less economic. Hydro energy received increased 25%; wind energy received fell 22%, mainly due to unplanned outages.
• PGE sold an additional 16.66% interest in Pelton/Round Butte to the Confederated Tribes of the Warm Springs Reservation, effective January 1, 2022, reducing its ownership to 50.01%. The arrangement is accounted for as financing rather than a sale-leaseback.
• A retiree medical plan buyout generated an $11 million settlement gain. Regulatory earnings-test adjustments produced a $17 million pretax, non-cash charge, including a $15 million charge related to the 2020 wildfire deferral.
• The 2022 dividend declared was $1.7875 per share, versus $1.6975 in 2021. An equity forward sale agreement could result in issuance of 11.615 million shares for approximately $483 million when physically settled; it remained unsettled at year-end.

Outlook, risks and contingencies

• Management’s stated strategic objective is annual EPS growth of 5% to 7%; this is a goal, not a quantified 2023 earnings forecast. PGE projected 2023 retail deliveries 2.5% to 3.0% above 2022 weather-adjusted levels, with industrial growth a key driver.
• PGE forecast approximately $1.2 billion of 2023 capital expenditures, including $415 million for its planned 208 MW share of the Clearwater wind project. It expected 2023 operating cash flow of $700 million to $750 million and anticipated using debt, equity-forward proceeds and, as needed, short-term borrowing to fund investment.
• In February 2023, PGE requested an approximately 14% overall customer price increase for 2024, including an estimated 4.5% increase for higher power costs. The request is subject to OPUC review; management sought a 9.8% return on equity and a $6.3 billion rate base. An OPUC decision was expected in December 2023.
• Oregon’s HB 2021 requires greenhouse-gas reductions of 80% by 2030, 90% by 2035 and 100% by 2040, against the prescribed baseline. PGE estimated a 3,000–4,000 MW resource need by 2030 and was preparing a combined Integrated Resource Plan and Clean Energy Plan. A new resource solicitation was planned for 2023.
• Key operating and financial risks include extreme weather, wildfire and storm damage, power and natural-gas price volatility, generation or transmission outages, supply-chain and construction-cost pressures, cybersecurity threats, and regulatory decisions that may limit recovery of costs. The decoupling mechanism was eliminated effective May 2022, with prior deferrals continuing to be collected or refunded as applicable.
• Portland Harbor Superfund liability is probable, but PGE stated it could not reasonably estimate its share. The EPA’s 2017 cleanup estimate was $1.7 billion; PGE cited a $1.9–$3.5 billion range for total site remediation, not PGE’s portion. Recovery is subject to the OPUC-approved PHERA mechanism and prudency reviews.
• Other unresolved matters include CFTC, SEC and FERC investigations into previously disclosed energy-trading losses; Colstrip co-owner disputes and arbitration; and a coal-dust lawsuit naming PGE, with trial scheduled for September 2023. PGE could not predict outcomes or estimate reasonably possible losses for certain proceedings.
• Auditors issued an unqualified opinion on the financial statements and internal control over financial reporting. Regulatory accounting was identified as a critical audit matter because recovery of deferred costs depends on future regulatory decisions.

Important facts for investors to verify

• Whether the OPUC approves the requested 2024 rate increase, Faraday project recovery, and recovery of deferred storm, wildfire and COVID-19 costs; review potential earnings-test disallowances.
• How 2023 power costs, wholesale prices, hydro and wind output, and the PCAM affect earnings and cash flow.
• Whether the 2023 capital program and Clearwater project remain on schedule and within budget, and how PGE funds investment while its common equity ratio is below its approximate 50% objective.
• Potential share dilution and proceeds from settlement of the 11.615 million-share equity forward agreement by October 2024.
• Developments in the Portland Harbor allocation and remediation process, energy-trading investigations, and Colstrip-related litigation and arbitration.
• Progress toward Oregon’s emissions targets and whether planned resources can be obtained affordably while maintaining reliability and adequate capacity.