Portland General Electric Company — Q2 2010 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2010. PGE is a regulated, vertically integrated Oregon electric utility; it served 821,638 retail customers at period-end. Financial amounts below are in millions of dollars unless stated otherwise.
Financial performance and liquidity
| Metric | Q2 2010 | Q2 2009 | Six months 2010 | Six months 2009 |
|---|---|---|---|---|
| Revenue | $415 | $389 | $864 | $874 |
| Operating income | $57 | $45 | $118 | $108 |
| Net income attributable to PGE | $24 | $24 | $51 | $55 |
| Diluted EPS | $0.32 | $0.31 | $0.68 | $0.77 |
| Operating margin (operating income / revenue) | 13.7% | 11.6% | 13.7% | 12.4% |
- Q2 revenue increased 7%, while six-month revenue decreased 1%. Six-month retail energy deliveries fell about 5% (weather-adjusted: 3.4%), reflecting mild first-quarter weather and a weak economy.
- Six-month purchased power and fuel expense fell $29 (7%) to $410; average variable power cost declined to $38.68/MWh from $41.55/MWh. Increased company generation partly offset lower purchase costs.
- Operating cash flow was $246 versus $220. Capital expenditures were $264 versus $395, making operating cash flow less capital expenditures approximately negative $18, compared with negative $175. A $53 income-tax refund materially supported 2010 operating cash flow.
- Cash was $63 at June 30, compared with $31 at year-end 2009. Total debt was approximately $1,808, versus $1,744 at year-end. Equity was $1,557; the company reported a 53.7% debt ratio under its credit agreements, below the 65% covenant limit.
- PGE had no revolving-credit borrowings or commercial paper outstanding, $387 of aggregate unused credit availability, and $213 of letters of credit outstanding. It reported $270 of collateral posted with counterparties, including cash and letters of credit.
- Dividends declared were $0.260 per share for Q2, up from $0.255 a year earlier. The common equity ratio was 46.3% at June 30.
Changes, outlook, and management commentary
- Quarterly attributable earnings were unchanged year over year; six-month earnings and diluted EPS declined. Higher operating income was offset in part by higher depreciation and taxes, lower other income, and higher interest expense for the half-year.
- Management projected 2010 weather-adjusted retail deliveries 1%–1.5% below 2009 and expected 2010 operating cash flow of approximately $470 and capital expenditures of $495. The filing gives no specific full-year earnings or EPS guidance.
- The 2011 general rate case remained subject to OPUC approval. PGE and other parties stipulated to a revised annual revenue requirement increase of about $52, implying roughly a 3% customer-price increase; new prices were expected January 1, 2011, with a final order anticipated by mid-December 2010. Forecast updates could change the amount.
- Biglow Canyon Phase III was under construction; 11 of 76 turbines were operating, with completion expected in Q3 2010. PGE estimated total Phase III cost at $390, including allowance for funds used during construction.
- Boardman emissions requirements and the plant’s future are uncertain. PGE’s proposal to cease coal operation in 2020 was rejected by the state environmental commission; alternative options under consideration could require substantial controls or earlier closure. Management said it would continue seeking an approach balancing customer cost, environmental requirements, and reliability.
- Hydro resources were expected to be below normal for 2010. Generation availability improved versus 2009, and company-operated plants supplied about 60% of retail load in the first half, versus 48% a year earlier.
Risks, contingencies, and unusual items
- Key exposures include regulatory decisions, wholesale power and fuel prices, weather and hydro conditions, plant outages, economic weakness, environmental rules, capital-market access, and collateral requirements. A downgrade below investment grade could prompt additional collateral demands; estimated additional collateral under a dual-agency downgrade was $166 at June 30.
- Major unresolved matters include Trojan-related litigation (class claims seek $260 plus interest; a separate $33.1 customer refund was paid in Q1 2010), the Pacific Northwest wholesale-market refund proceeding, and environmental investigations at Portland Harbor and Harbor Oil. Management said outcomes could adversely affect future results or cash flows, though it did not expect a material adverse effect on financial condition.
- A Turlock/Power Resources claim over a Boardman outage seeks damages exceeding $15; trial was scheduled for February 2011. The City of Glendale matter settled in April 2010, reducing future payments by approximately $2 over the remaining contract term.
- PGE paid a $375,000 civil penalty in June 2010 to resolve a FERC investigation and agreed to submit compliance reports for at least one year.
- Commodity derivative liabilities were $355 at June 30, versus $255 at year-end; derivative assets were $18. PGE stated that regulatory accounting defers qualifying derivative gains and losses until settlement. A $53 tax refund and a $19 transfer from the nuclear decommissioning trust were notable first-half cash-flow items.
Investor verification priorities
- Track OPUC approval and final rate-case revenue requirements, including the effect of subsequent power-cost and load-forecast updates.
- Verify actual 2010 capital spending, operating cash flow, Biglow Canyon Phase III completion, and funding needs.
- Follow Boardman emissions rulemaking, potential retirement timing, replacement-resource costs, and customer-rate implications.
- Monitor outcomes and potential exposure in the Trojan, Pacific Northwest refund, Turlock, and environmental matters.
- Assess collateral needs and liquidity under commodity-price changes or credit-rating downgrades; distinguish operating cash generation from the tax-refund benefit.