Portland General Electric Company — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; the filing also reports unaudited fourth-quarter results. Amounts are in U.S. dollars; financial amounts are in millions unless noted.
Business context
PGE is a vertically integrated, cost-of-service regulated electric utility operating exclusively in Oregon. It served 836,070 retail customers at year-end and meets customer demand with its own generation and purchased power. The OPUC regulates retail prices; FERC regulates specified wholesale, transmission, and other activities.
Financial performance and position
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $1,810 | $1,805 |
| Gross margin | $1,053; 58% | $1,079; 60% |
| Operating income | $206 | $302 |
| Net income attributable to PGE | $105 | $141 |
| Diluted EPS | $1.35 | $1.87 |
| Cash from operating activities | $544 | $494 |
| Capital expenditures | $656 | $303 |
| Cash and cash equivalents at year-end | $107 | $12 |
| Long-term debt at year-end | $1,916 | $1,636 |
| Common equity ratio | 48.7% | 51.1% |
Fourth-quarter 2013 revenue was $499 million, operating income $77 million, net income attributable to PGE $47 million, and basic and diluted EPS $0.59. In fourth-quarter 2012, the corresponding figures were $463 million, $71 million, $28 million, and $0.38.
Year-end current assets were $591 million and current liabilities $393 million. PGE had $663 million of unused capacity under its revolving credit facilities and no commercial paper or revolving-credit borrowings outstanding. Operating cash flow less reported capital expenditures was negative $112 million, reflecting the elevated construction program.
Changes versus prior year
- Annual revenue was nearly flat, while attributable net income fell 26% and diluted EPS declined from $1.87 to $1.35. Gross margin decreased from 60% to 58%.
- Income was pressured by a $52 million charge for previously capitalized Cascade Crossing transmission-project costs, $17 million of incremental replacement-power costs from plant outages, and a $9 million refund to an industrial customer for past overbillings. Higher plant and delivery-system costs, pension expense, and variable power costs also contributed.
- Retail energy deliveries rose 1.2% to 19.419 million MWh; weather-adjusted deliveries were comparable to 2012. Average retail customers increased to 833,129 from 827,467.
- Operating cash flow increased $50 million, including a $44 million receipt from a spent-fuel legal settlement that was transferred to the nuclear decommissioning trust. Capital expenditures increased substantially as construction began on new generation resources.
- Long-term debt increased by $280 million net, and the common equity ratio declined. PGE issued $380 million of first mortgage bonds and received $67 million of equity proceeds, while repaying $100 million of long-term debt.
Outlook, risks, and unusual items
- Management projected 2014 weather-adjusted retail deliveries to grow about 1%. Estimated 2014 operating cash flow was $500–$520 million and capital expenditures approximately $1 billion, including about $675 million for three generating projects. Planned funding included $350–$400 million of debt and approximately $285 million under an equity forward sale agreement.
- The OPUC authorized a $61 million annual revenue increase, approximately 4%, in the 2014 rate case, effective January 1, 2014. PGE’s pending 2015 rate-case request sought an $81 million net annual increase, approximately 4.6%; the request was subject to regulatory review, with a final order expected in December 2014.
- Port Westward Unit 2 and the Tucannon River wind farm were expected online in the first half of 2015; Carty Generating Station was expected online in 2016. Boardman coal operations are scheduled to cease by the end of 2020, creating longer-term replacement-resource needs.
- Generation availability declined in 2013 following outages at three plants. PGE reported $17 million in replacement-power costs; Colstrip Unit 4 returned to service in late January 2014. Management also expected below-normal hydro energy in 2014.
- Key exposures include regulatory cost recovery, wholesale power and fuel price volatility, weather and hydro/wind variability, project cost and schedule risks, credit and collateral requirements, environmental regulation, cyber security, and pension funding. A single downgrade below investment grade could trigger estimated additional collateral of about $80 million; a dual-agency downgrade could trigger about $190 million, based on year-end positions.
- Material contingencies include Trojan investment-recovery appeals and class-action claims, Pacific Northwest wholesale refund proceedings, Portland Harbor Superfund liability, and Colstrip environmental litigation. Management said potential losses for several matters could not be reasonably estimated. The Portland Harbor cleanup alternatives in a draft study ranged from $169 million to $1.8 billion, but PGE’s potential share was unclear. PGE recorded a $3 million reserve and matching regulatory asset for the separate Downtown Reach matter.
- The filing reports an unqualified audit opinion on the financial statements and effective internal control over financial reporting. The $9 million customer billing correction was recorded as an out-of-period adjustment; management stated it was not material to any prior annual period.
Important facts for investors to verify
- Whether the OPUC approves the pending 2015 rate-case request and the timing and recovery of new-plant costs.
- Construction budgets, schedules, and financing needs for PW2, Carty, and Tucannon River, especially against the projected 2014 capital program.
- Actual power costs, generation availability, hydro conditions, and the final regulatory treatment of 2013 PCAM results.
- Developments and any estimable exposure in the Trojan, Portland Harbor, Colstrip, and Pacific Northwest refund proceedings.
- Equity forward sale agreement settlement terms, debt issuance, liquidity, and potential collateral needs under adverse market or rating scenarios.