Portland General Electric Company (NYSE: POR) — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. PGE is a regulated, vertically integrated electric utility serving Oregon; it reported one business segment and approximately 917,000 retail customers at year-end.
Financial and operating performance
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $2.396 billion | $2.145 billion | +12% |
| Operating income | $378 million | $269 million | +41% |
| Net income | $244 million | $155 million | +57% |
| Diluted EPS | $2.72 | $1.72 | +$1.00 |
| Net cash from operations | $532 million | $567 million | −6% |
| Capital expenditures | $636 million | $784 million | −19% |
- Operating margin was approximately 15.8%, versus 12.5% in 2020; net margin was approximately 10.2%, versus 7.2%.
- Retail revenue rose 8% to $2.078 billion. Retail energy deliveries increased 5.1% to 20.532 million MWh, reflecting customer growth, economic recovery and weather-related demand. Wholesale revenue increased 57% to $255 million, largely as average selling prices rose.
- Purchased power and fuel expense increased 16% to $822 million. Average variable power cost rose from $29.14 to $33.63 per MWh; unusually high market prices during summer demand contributed.
- Year-end cash and cash equivalents were $52 million, down from $257 million. The liquidity schedule separately reports $76 million of cash and total liquidity of $867 million, including $650 million of unused revolving credit; the difference in reported cash figures should be checked.
- Long-term debt, net, was $3.285 billion; no short-term debt or current long-term debt maturities were reported at year-end. Debt-to-total-capitalization under credit agreements was 55.9%, below the 65% covenant limit. Common equity ratio was 45.2%.
Material changes and unusual items
- Net income increased partly because 2020 included $127 million of realized energy-trading losses; PGE did not seek customer recovery and says it no longer has the market exposure that caused those losses.
- 2021 included a historic February ice storm. PGE reported $105 million of incremental costs through year-end, including $69 million of operating expense and $36 million capitalized. It deferred $67 million of storm operating costs pending regulatory review.
- Deferred regulatory balances included $45 million for 2020 wildfire response, $36 million for COVID-19 impacts and $29 million under the 2021 power-cost adjustment mechanism (PCAM). Recovery of these balances remains subject to OPUC review and could be partially or fully disallowed.
- Administrative and other expense rose 19%, including higher contracted services, wages and benefits. Management cited labor and operating-cost inflation and said the trend could continue in 2022. Depreciation and amortization fell 11%, primarily due to asset-retirement-obligation revisions and retirements.
- Retail customer prices included higher 2021 power-cost recovery. The 2022 annual power-cost update provides for a $64 million increase in net variable power costs in customer prices beginning January 1, 2022.
Outlook, management commentary and key risks
- Growth and capital: PGE stated a long-term target of average diluted EPS growth of 4%–6%. It projected 2022 retail deliveries 2.0%–2.5% above 2021 weather-adjusted levels. Estimated 2022 capital expenditures were $660 million, with operating cash flow estimated at $575 million–$625 million.
- Rates: A 2022 general rate case settlement filed in January 2022 proposes a $74 million annual revenue-requirement increase, based on average rate base of $5.6 billion. New base prices were proposed for May 9, 2022; OPUC approval and resolution of remaining issues were pending when the filing was made. The proposed settlement would end the decoupling mechanism when new prices take effect.
- Clean-energy transition: Oregon HB 2021 sets greenhouse-gas reductions of 80% by 2030, 90% by 2035 and 100% by 2040 against a statutory baseline. PGE estimated it would need 1,500–2,000 MW of clean and renewable resources and about 800 MW of non-emitting dispatchable capacity by 2030. It was seeking approximately 1,000 MW through an all-source request for proposals and planned to exit its 20% Colstrip interest by the end of 2025.
- Contingencies and proceedings: PGE is a potentially responsible party at the Portland Harbor Superfund site. The company cannot reasonably estimate its share of remediation costs; it says the liability could be material to financial position. Its recovery mechanism may mitigate earnings effects but is subject to regulatory review. The Boardman revenue-requirement deferral proceeding could result in a customer refund; PGE estimated a potential deferral of $14 million for 2020 plus $66 million for 2021 and had not recorded a liability.
- Investigations and litigation: SEC, CFTC and FERC enforcement divisions were investigating the 2020 trading losses; management could not predict scope or outcome. A securities class action had a proposed $6.75 million settlement payable by insurance, subject to final court approval. Derivative actions also had a proposed non-monetary settlement subject to court approval.
- Principal operating risks: Extreme weather, wildfire exposure and potential liability, outages, power and fuel price volatility, lower hydro or wind output, supply-chain and cost inflation, cybersecurity threats, customer credit losses, and regulatory limits on cost recovery. PGE reported that the state forestry department was investigating wildfire causes in Clackamas County; PGE said it was cooperating and was not aware of fires caused by its equipment.
Important facts for investors to verify
- OPUC decisions on the 2022 rate case, the 2021 PCAM deferral, ice-storm and wildfire recovery, COVID-19 deferrals, and the potential Boardman refund.
- Developments and potential financial exposure from the Portland Harbor matter and the SEC, CFTC and FERC investigations related to trading losses.
- Actual 2022 capital spending, operating cash flow, financing needs and the reported cash-versus-liquidity-schedule difference.
- Execution, cost and timing of clean-energy procurement and grid investments, including whether PGE can meet statutory emissions targets while maintaining reliability and affordability.
- Colstrip exit and related ownership disputes, liabilities and recovery of accelerated depreciation or other costs.