Portland General Electric Company — FY 2019 Form 10-K
Reporting period: Year ended December 31, 2019; filed February 14, 2020. This is an annual report, not a standalone fourth-quarter filing. PGE is a regulated, vertically integrated electric utility serving Oregon, with approximately 895,000 retail customers.
Financial performance and condition
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $2.123 billion | $1.991 billion | Up 6.6% |
| Gross margin (revenue less purchased power and fuel; non-GAAP) | $1.509 billion | $1.420 billion | Up $89 million |
| Operating income | $353 million | $346 million | Up $7 million |
| Net income | $214 million | $212 million | Up $2 million |
| Diluted EPS | $2.39 | $2.37 | Up $0.02 |
| Operating cash flow | $546 million | $630 million | Down $84 million |
| Capital expenditures | $606 million | $595 million | Up $11 million |
| Long-term debt, net | $2.597 billion | $2.478 billion | Up $119 million |
Retail revenue rose 5.6% to $1.881 billion; retail electricity deliveries increased 1.2%. Revenue growth reflected rate and tariff changes and higher deliveries, while purchased power and fuel expense increased $43 million. Operating expenses rose $82 million, including higher depreciation, vegetation management and wildfire mitigation, labor and benefits, and the nonrecurrence of a 2018 Carty litigation settlement benefit. Income tax expense increased $10 million, mainly because of fewer production tax credits and higher pretax income.
Cash and cash equivalents were $30 million at year-end, down from $119 million. Investing activities used $604 million; financing activities used $31 million. PGE declared dividends of $1.5175 per share for 2019, versus $1.4275 in 2018. The common equity ratio was 48.1%, down from 49.8%. The company reported $500 million of unused capacity under its revolving credit facility and no year-end borrowings or commercial paper outstanding.
Material changes and operating developments
- Net income increased only modestly despite stronger revenue and gross margin, as operating costs and income taxes also rose.
- Thermal generation increased, while hydro generation fell 20% and wind generation fell 8% amid less favorable resource conditions. Purchased power costs per MWh were higher.
- Electric utility plant, net, increased to $7.161 billion from $6.887 billion. Long-term debt issuances totaled $470 million; $350 million of debt was repaid.
- Adoption of the new lease standard resulted in recognition of finance and operating lease obligations; reported year-end obligations totaled $202 million.
- Trojan decommissioning ARO increased following renewal of the spent-fuel storage license through 2059; total AROs were $279 million at year-end, compared with $197 million in 2018.
Outlook, management commentary and risks
- 2020 outlook: Management projected retail deliveries 0.5%–1.5% above 2019 weather-adjusted levels. The 2020 capital expenditure plan was $890 million, including the Integrated Operations Center and Wheatridge renewable project. Expected operating cash flow was $625–$675 million; PGE planned to use operating cash, issue up to $400 million of debt, and use commercial paper as needed.
- Earnings objective: Management described an average diluted EPS growth guidance of 4%–6%. Its long-term decarbonization goal is to reduce power-supply emissions by more than 80% from 1990 levels by 2050.
- Power costs and rates: PGE’s 2020 annual power cost update indicated a $27 million increase in expected power costs. The power cost adjustment mechanism provides only partial protection; 2019 actual net variable power costs were $5 million above baseline, within the mechanism’s deadband, so no customer collection was recorded.
- Energy transition: Boardman was scheduled to cease coal operations at the end of 2020. Oregon law requires coal to be eliminated from customer supply by 2030, with a potential extension to 2035 for PGE’s Colstrip output. PGE was evaluating its Colstrip investment. Wheatridge’s wind component was expected online in December 2020; PGE planned to own 100 MW of the 300 MW wind facility.
- Major risks: OPUC cost recovery and rate decisions; wholesale power and fuel price volatility; weather, hydro and wind variability and plant outages; wildfire and other natural disasters; capital-market access and credit ratings; environmental regulation and decarbonization costs; cyber and operational security; and regional economic and customer demand conditions.
- Contingencies: PGE is a potentially responsible party at Portland Harbor. The EPA’s estimated $1.7 billion is the total site remediation estimate, not PGE’s assessed share. PGE said its share was probable but could not be reasonably estimated and recorded no liability; the PHERA mechanism may permit recovery of eligible costs. A City of Portland audit asserted approximately $7 million in franchise taxes, interest and penalties; PGE disputed the claim and recorded no liability. Trojan customer class actions sought $260 million plus interest; appellate rulings favored PGE, but further review remained possible and any potential loss was not estimable. The Deschutes River Alliance litigation remained unresolved, with appellate proceedings paused during party discussions.
Most important facts for investors to verify
- Whether the planned $890 million 2020 capital program and expected $625–$675 million of operating cash flow were achieved, and how much additional borrowing was required.
- Whether the 4%–6% average EPS growth objective remains applicable and how subsequent earnings compare with that objective.
- OPUC decisions affecting rates, power-cost recovery, deferred capital costs, and the 2020 power-cost increase.
- Developments in Portland Harbor allocation and cleanup costs, the City of Portland tax dispute, and the Trojan and Deschutes proceedings.
- Progress on Boardman closure, Colstrip plans, Wheatridge, and the emissions-reduction strategy, including resulting costs and regulatory recovery.
- Liquidity, debt and collateral exposure under adverse commodity-price movements or a credit-rating downgrade.
The filing states that the financial statements received an unqualified audit opinion and that internal control over financial reporting was effective as of December 31, 2019.