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 three and six months ended June 30, 2014; comparisons are with the corresponding 2013 periods. Interim results are seasonal and are not necessarily indicative of full-year results.
Financial performance and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $423 million, up 5% from $403 million | $916 million, up 5% from $876 million |
| Net income attributable to PGE | $35 million, versus a $22 million loss | $93 million, versus $27 million |
| Diluted EPS | $0.43, versus a $0.29 loss | $1.16, versus $0.36 |
| Gross margin | $281 million; 66% of revenue, versus $247 million; 61% | $590 million; 64% of revenue, versus $528 million; 60% |
| Operating income (loss) | $58 million, versus an $11 million loss | $156 million, versus $76 million |
For the six months, operating cash flow was $302 million (up from $279 million); capital expenditures were $501 million (up from $260 million), and investing cash flow was $(494) million. Financing provided $182 million, including $225 million of term-loan proceeds, partly offset by $43 million of dividends paid. Cash ended the period at $97 million, down from $107 million at year-end 2013.
At June 30, 2014, total assets were $6.399 billion, total liabilities $4.527 billion, and equity $1.872 billion. Long-term debt was $2.141 billion, including $70 million classified as current. PGE had $691 million of available revolving-credit capacity and no revolving-credit or commercial-paper borrowings. Its credit-agreement debt ratio was 53.4% against a 65% limit; its common-equity ratio was 46.6%. Debt ratings were investment grade with stable outlooks.
Material changes versus the prior comparable period
- Revenue and earnings improved, chiefly from the 2014 rate increase, lower net variable power costs, and higher allowance for funds used during construction as construction work-in-progress increased. The comparison also benefited from 2013’s $52 million Cascade Crossing project write-off and $9 million customer billing refund.
- Six-month retail energy deliveries fell 1.1%, reflecting lower residential demand amid warmer weather and reduced industrial demand; customer numbers increased about 1%.
- Purchased power and fuel expense fell $22 million in the first half, while depreciation and amortization rose $24 million, partly due to capital additions and amortization of previously deferred project costs.
- Capital spending accelerated with three generation projects under construction; electric utility plant, net, increased to $5.324 billion from $4.880 billion at year-end.
Outlook, management commentary, and risks
- PGE estimated 2014 capital expenditures of approximately $1 billion and operating cash flow of $540–$560 million. Management expected to fund capital needs with operating cash flow and debt financing; no common-stock issuance under the equity forward sale agreement was expected in 2014.
- Projects then on budget: Port Westward Unit 2, estimated at $300 million and expected online in Q1 2015; Tucannon River wind farm, $500 million and expected online between December 2014 and March 31, 2015; and Carty Generating Station, $450 million and expected online in mid-2016. Estimates exclude AFDC.
- The OPUC’s 2014 rate order increased annual revenue by $61 million, about 4%, effective January 1, 2014. PGE revised its pending 2015 rate-case request to a $31 million annual increase, about 1.8%, from the original $81 million request; the filing expected an OPUC order by mid-December 2014. Key issues remained unresolved and the request was subject to approval.
- For 2014, actual net variable power costs were below baseline but within the PCAM deadband; management expected no PCAM collection from or refund to customers.
- Material uncertainties include Trojan investment recovery and customer claims, potential Pacific Northwest electricity-market refunds, Portland Harbor environmental remediation, and litigation alleging Clean Air Act violations at Colstrip. The filing says potential losses for several matters cannot be estimated; it records a $3 million reserve and matching regulatory asset for the Downtown Reach cleanup.
- The proposed EPA Clean Power Plan could increase operating costs if adopted. Other stated risks include weather and generation outages, wholesale power and fuel prices, capital-market access, project execution, environmental regulation, and collateral requirements. A below-investment-grade downgrade could prompt additional collateral; estimated exposure was about $53 million for a single-agency downgrade or $125 million for a dual-agency downgrade at June 30.
Important facts for investors to verify
- Progress, final cost, and regulatory cost recovery for the three major generation projects, particularly their schedules and 2015 rate treatment.
- Final outcome of the 2015 general rate case, including return on equity, PCAM changes, and recovery of PW2 and Tucannon River costs.
- Funding needs and refinancing of the $225 million term loans due October 2015, alongside planned $280 million of First Mortgage Bonds and the $375 million of 2015 debt maturities.
- Developments and any estimable exposure in the Trojan, Pacific Northwest refund, Portland Harbor, and Colstrip matters.
- Whether actual power costs, customer demand, weather, and operating performance remain consistent with management’s expectations; no full-year earnings-per-share guidance is stated in the filing.