Portland General Electric Company — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012. PGE is a vertically integrated electric utility serving Oregon; it reported 829,280 retail customers at period-end. Interim results are unaudited and subject to seasonal effects.
Key financial results
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $450 million | $439 million | $1,342 million | $1,334 million |
| Operating income | $82 million | $68 million | $231 million | $240 million |
| Net income attributable to PGE | $38 million | $27 million | $113 million | $118 million |
| Diluted earnings per share | $0.50 | $0.36 | $1.49 | $1.57 |
| Gross margin | 60% | 59% | 60% | 59% |
- Q3 attributable net income rose 41%; management cited higher residential deliveries, improved non-qualified benefit-plan trust results, and a reduction in the estimated 2011 PCAM customer refund. Nine-month attributable net income fell 4%, mainly due to lower residential deliveries, reduced hydro output, and higher pension and employee benefit costs.
- Nine-month operating cash flow was $450 million, versus $399 million in 2011. Investing cash outflow was $209 million; financing cash outflow was $91 million. Cash ended at $156 million, compared with $6 million at year-end 2011.
- At September 30, current assets were $784 million and current liabilities were $648 million. Long-term debt was $1.536 billion, with $200 million classified as current debt. Total liabilities were $4.038 billion and total equity $1.719 billion.
- Capital expenditures were $218 million through September; the 2012 plan was approximately $328 million. Dividends declared were $0.270 per share for Q3.
Changes and operating drivers
- Nine-month revenue increased less than 1%, while retail energy deliveries declined 0.5%. Weather-adjusted retail deliveries increased approximately 0.5%; warmer early-2012 weather reduced residential demand.
- Q3 retail revenue rose 4%, aided by PCAM adjustments and the end of customer credits related to the Trojan spent-fuel facility. Nine-month retail revenue rose 2%, but wholesale revenue declined 22%, primarily because average wholesale sales prices fell with lower natural-gas prices.
- Nine-month purchased power and fuel expense decreased 2% to $533 million. Hydro energy received fell 30% year over year and supplied 20% of retail load, versus 28% in 2011; PGE-owned wind output also declined. These changes affected the generation and purchased-power mix.
- Nine-month depreciation and amortization increased 11% to $188 million, reflecting capital additions and the shortened operating life approved for Boardman. Administrative and other expense rose 1%, including higher pension and medical costs.
Outlook, financing, and risks
- Management expected 2012 capital expenditures of approximately $328 million and operating cash flow of approximately $474 million, and did not expect to issue long-term debt or equity in 2012. It expected to fund near-term requirements primarily from operations.
- Based on the latest forecast, 2013 power costs were expected to be lower than 2012, with customer prices projected to decline 1% to 2% from January 1, 2013, reducing annual revenue requirements by approximately $27 million. The OPUC approved a separate approximately $6 million refund associated with 2011 PCAM results, also effective in customer prices in 2013.
- PGE had no credit-facility borrowings or commercial paper outstanding at quarter-end; $599 million of facility capacity remained available after letters of credit. Its debt-to-total-capital ratio under credit agreements was 50.3%, below the 65% covenant limit. Debt was rated investment grade; Moody’s outlook was positive and S&P’s stable.
- A downgrade below investment grade could prompt additional collateral demands. PGE estimated potential additional collateral of approximately $85 million for a single-agency downgrade or $260 million for a dual-agency downgrade at September 30, subject to market conditions and portfolio positions. PGE had $53 million in cash margin deposits and $40 million in letters of credit posted.
- After quarter-end, PGE repaid $100 million of 5.6675% first-mortgage bonds on October 22, 2012.
- Material uncertainties include Trojan investment-recovery appeals and customer claims seeking $260 million plus interest; possible Pacific Northwest power-market refunds; environmental matters involving Portland Harbor, the Downtown Reach, and Colstrip; and a state tax ruling that could increase tax liability by as much as $17 million. Management could not estimate potential losses for several proceedings and said some could materially affect future-period earnings or cash flows, while not expecting a material impact on financial condition.
- Major plans include resource solicitations for generation and renewable supply and the proposed Cascade Crossing transmission project, estimated at $800 million to $1.0 billion in total. The project was not expected to enter service before 2017 and remained subject to approvals. PGE cited regulatory, weather, generation availability, power and fuel prices, capital-market access, environmental rules, project execution, and cyber and natural-disaster events among forward-looking risks.
Most important facts for investors to verify
- Whether 2013 power-cost and customer-price forecasts, including the PCAM refund, were finalized and implemented as expected.
- Actual full-year operating cash flow, capital spending, and funding needs, including the October debt repayment and upcoming maturities.
- Developments in the Trojan, wholesale-refund, environmental, Colstrip, and Oregon tax matters, including any measurable exposure or regulatory recovery.
- Resource-procurement decisions, Cascade Crossing approvals and costs, and any resulting capital or financing commitments.
- Whether hydro, wind, weather, retail demand, and collateral requirements materially diverged from management’s assumptions.