PORTLAND GENERAL ELECTRIC CO quarterly report, Q2 FY2022

Business context and reporting period

Portland General Electric Company (PGE) is a vertically integrated electric utility serving Oregon. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods unless otherwise noted. PGE served approximately 922,000 retail customers at quarter-end.

Financial performance and position

Metric	Q2 2022	Q2 2021	Six months 2022	Six months 2021
Total revenue	$591 million	$537 million	$1,217 million	$1,146 million
Operating income	$112 million	$61 million	$218 million	$194 million
Net income	$64 million	$32 million	$124 million	$128 million
Diluted EPS	$0.72	$0.36	$1.39	$1.43

Revenue and earnings: Q2 revenue increased 10% and net income doubled. For the first half, revenue rose 6%, while net income declined 3%. Q2 results benefited from higher customer prices, increased wholesale revenue, and lower purchased power and fuel expense. First-half earnings were affected by higher operating costs and a $17 million pre-tax, non-cash charge related to regulatory earnings tests.
Cash flow: First-half operating cash flow was $451 million, up from $276 million. Investing cash outflow was $334 million, including $345 million of capital expenditures. Financing cash outflow was $78 million. Cash and cash equivalents ended the period at $91 million, compared with $52 million at year-end 2021.
Debt and liquidity: Long-term debt, net of unamortized expense and current portion, was $3.286 billion. PGE had $650 million available under its revolving credit facility, no commercial paper outstanding, and $91 million cash; reported total liquidity was $870 million. Its common equity ratio was 45.5%; its debt-to-total-capital ratio under the credit agreement was 55.6%, below the 65% covenant limit.
Capital and dividends: 2022 capital expenditures are estimated at $755 million, excluding AFUDC. PGE expects to fund capital needs with operating cash flow, short- and long-term debt, and other financing. First-half dividends paid were $77 million.

Material changes versus the prior period

Q2 wholesale revenue rose $24 million to $65 million, reflecting higher average sales prices and volumes. First-half wholesale revenue rose $47 million to $121 million.
Q2 purchased power and fuel expense fell $17 million, as lower average variable power costs more than offset higher system load. First-half expense increased $16 million, as higher load offset lower average costs.
First-half retail energy deliveries increased 2%, led by industrial demand; weather-adjusted retail deliveries increased 2.7%. Residential and commercial deliveries were affected by weather and usage patterns.
Operating expenses increased 1% in Q2 and 5% for the first half. Higher labor, materials, storm response, vegetation management, and regulatory-test-related expenses contributed to the first-half increase.
The OPUC approved PGE’s 2022 rate case, with new customer prices effective May 9. The order approved a 9.5% authorized return on equity and a 6.83% cost of capital; it also eliminated the decoupling mechanism, with prorated deferrals continuing through 2022 and ceasing in 2023.

Outlook, management commentary, and risks

PGE estimates 2022 cash provided by operations of $600 million to $650 million and depreciation and amortization of $410 million to $430 million. It expects to issue up to $220 million of long-term debt in 2022. The filing cites a long-term average diluted-EPS growth objective of 4% to 6%; it does not provide a specific 2022 EPS forecast.
PGE is pursuing Oregon’s clean-energy requirements: 80% greenhouse-gas emissions reduction by 2030, 90% by 2035, and 100% by 2040. It expects to file its first Clean Energy Plan in spring 2023 and is working toward exiting its 20% interest in Colstrip by the end of 2025. Final negotiations for shortlisted renewable and dispatchable capacity projects were expected before year-end 2022.
Regulatory recovery is uncertain for wildfire mitigation costs ($20 million deferred at June 30), February 2021 ice-storm costs ($72 million), and other deferred balances. The OPUC’s prudence reviews and earnings tests could result in disallowances and additional charges. The company estimated a $17 million first-quarter charge from 2020 deferral earnings tests, including $15 million for wildfire costs and $2 million for COVID-related deferrals.
Portland Harbor remediation liability is probable, but PGE cannot reasonably estimate its share; total site remediation costs are estimated by PGE at $1.9 billion to $3.5 billion. Its share could be material to financial position, though the company expects the OPUC-approved recovery mechanism to mitigate operating impacts.
Federal CFTC, SEC, and FERC investigations into previously disclosed 2020 energy trading losses remain ongoing; management cannot predict their scope or outcome. Colstrip-related ownership litigation is stayed following the bankruptcy filing by Talen Energy Supply’s parent. PGE also faces coal-dust litigation, with trial scheduled for September 2023; losses cannot currently be estimated.
Key risks include extreme weather and wildfire exposure, wholesale power and natural-gas price volatility, collateral demands, interest rates and inflation, project cost and supply-chain pressures, regulatory decisions, and operational or counterparty failures. PGE reported investment-grade ratings with stable outlooks and effective disclosure controls at June 30, 2022.

Investor facts to verify

Whether earnings and cash flow remain on track given the first-half net income decline and the stated 2022 operating-cash-flow and capital-spending estimates.
OPUC decisions on recovery of wildfire, ice-storm, COVID-19, and other regulatory deferrals, including application of earnings tests.
Potential financial consequences of Portland Harbor remediation and the CFTC, SEC, and FERC investigations related to 2020 trading losses.
Financing needs and collateral exposure under commodity-price or credit-rating stress, including the estimated additional collateral requirements following a downgrade.
Progress, cost, and regulatory outcomes for clean-energy procurement and the planned Colstrip exit.