Q3 2019 Earnings Call
This conference call.
Today's Friday November 1st 2019. This call is being recorded and as such all lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer period.
If you would like to ask the question. During this time simply press Star then one on your telephone keypad.
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<unk> press the pound key on your telephone keypad.
If you do intend to ask a question. Please avoid the use of speakerphone.
For opening remarks, I will turn the conference call over to Portland General Electric's Director of Investor Relations and Treasury, Chris Little Please go ahead Sir.
Thank you. It's good morning, everyone I'm pleased that you're able to join us today.
Where we began this morning I'd like to remind you that we are.
Prepared a presentation to supplement our discussion which will be referencing throughout the call. The slides are available on our website investors start Portland General Dot com.
Turning to slide two I would like to remind everyone that some of our remarks. This morning will constitute forward looking statements. We caution you that such statements involve inherent risks and uncertainties and.
Holds may differ materially from our expectation.
For a description of some of the factors that could cause actual results to differ materially. Please refer to our earnings press release and our most recent periodic reports on forms 10-K, and 10-Q, which are also available on our website.
Leading our discussion today are Maria <unk>, President and CEO and Jim Lobdell Senior Vice.
As president of Finance CFO and treasurer following their prepared remarks, we will open the line for your questions now, it's my pleasure to turn the call over to Maria.
Thank you Chris Good morning, everyone welcome to Portland General Electric's third quarter 2019 earnings call today, I'll share an overview of our financial results.
Earnings growth.
So Jason and an update on our 2019 integrated resource plan.
Jim will provide more detail on our financial results and we will address question.
Despite a mild summer in the Pacific Northwest, we delivered solid third quarter results and are reaffirming our 2019 earnings guidance.
She doesn't 35 cents she's in less than 50 cents per diluted share.
Expecting to be in the lower half of the range.
Turning to slide four.
For the third quarter, we reported net income of 55 million or 61 cents per share an increase of two cents per share.
Compared to 2018, and an increase of 12 cents per share excluding last years gain associated with the carty cash settlement.
Power costs were key driver for the quarter in 2018, we experienced higher costs due to high temperatures poor wind and hydro.
Addition, unplanned outages.
In 2019, we saw improvement in most areas good when production good thermal plant performed well performance.
And low regional power prices.
The exception was hydro generation, which was 14% low.
Lower than last year.
We also had a onetime charge of 3.9 million related to the western energy crisis, almost 20 years ago.
Additionally, we saw higher on costs largely from increased spending on walheim mitigation vegetation management fitness and other related areas.
Good overall reliability and system resiliency.
Shifting to earnings guidance.
Last quarter, we talked about lower power costs and higher revenues from industrial cost are supporting our full year forecast.
The we've made some headway on power cost, we're now expecting to be.
At or slightly above the P chem baseline for the full year.
Versus the year to date result, a 5 million above the baseline.
Industrial customer revenue driven by high Tech manufacturing a data center has remained strong year to date.
However, we're revising our load forecast guy.
From half a percentage growth.
Flat year over year as commercial and residential demand has declined.
Most of this close it decouple and as such it does not impact earnings.
Slide five.
Provides an update on the economic condition of our service territory.
Sorry.
Despite revisions in the load forecast the economy in our service area continues to grow at a healthy pace.
In migration and growth in high Tech manufacturing and data center expansion is driving long term load growth expectation of 1%.
This past.
Do you worry we introduced a three year earnings growth rate of 4% to 6%.
We're working hard to drive efficiency.
And to improve performance.
We're focused on investments that creates a safer smarter more resilient grid that supports our customers reliability.
And de Carbonization goal.
Overall, we're managing costs with the goal of keeping customer price increases at approximately inflation.
[noise] key actions include.
Preparing for the closure and site remediation of the Boardman coal plant.
Being more efficient as we improve our work flow Curtis.
Patch efficiency and leverage advanced metering and other technologies.
Moving to the cloud to improve data analytical capabilities.
And taking advantage of low interest rate environment to refinance higher cost debt.
These efficiencies help offset annual cost inflation.
Higher depreciation and targeted investments.
Our 2020 capital forecast of 865 million is $140 million increase compared to the forecasts show last quarter.
The increase in 2020 reflux spending for infrastructure resiliency initiatives.
In support.
When a customer growth as well as replacing aging infrastructure.
In December we plan to filed the renewable adjustment cost tariff for the week rich renewable energy facility, which is expected to come online in late 2020.
The facility is anticipated to have an eight.
<unk> cents per share impact on 2021 right.
Turning to slide six I'd like to discuss the 2019 IR team.
The regulatory process is well underway.
<unk> stakeholders and the staff with the Oregon Public Utility Commission filed their common in response.
<unk> initial Holly.
To summarize our plan, we're calling for additional renewable.
Resources by 2023, approximately 595 megawatts of capacity needed by 2025, as well as additional energy efficiency and demand response.
Continued to work with parties and recommendations as we move toward a final acknowledgement border expected in late January .
Following this decision we anticipate launching an energy RFP process.
With the outcome to be determined before year end 20 twond.
We're currently.
Working through parties comments regarding the timing and structure of this RFP.
As mentioned during our last quarterly call. We continue to discuss can capacity contract terms with existing renewable generators as we aim to produce the lead a lease cost leased risk portfolio.
Yeah.
I'll now turn the discussion over to Jim to provide more detail and discuss our financial results.
Thank you Maria and good morning, everyone.
As Maria mentioned earlier earnings per share of 61 cents is up two cents from the comparable periods in 2018.
And up 12 cents when excluding.
The Carty cash settlement in 2018.
Moving on to slide seven.
I'll walk through our waterfall comparing the favorable results from the third quarter 2019 to the third quarter of 2018.
First gross margin increased a total of 26 cents per diluted share.
Several factors contributed to this result.
Hi power costs in Q3 of 2018 were the main driver and were due to a combination of factors the Maria mentioned, including higher market prices increased demand coal strip outage lower than expected win.
Output and below normal hydro production.
In contrast in Q3 2019, our power costs benefited from increased win and thermal production.
Which helped offset the impact of lower hydro market prices were also low lower than in Q3 2000.
18, all of which contributed to an improvement towards the P. Chem baseline.
In addition, a decrease of four cents is attributable to favorable weather that we expressed in 2018, there was minimal weather impact in 2019.
Due to a 5% decrease in it.
Cooling degree days when compared to normal.
Add to this an increase of three cents per share attributable to increased earnings power from our 2019 General rate case, and then decoupling mechanism also contributed to an increase of three cents per share.
Next our distribution expense was driven primarily by.
The continued focus on preventative maintenance associated with wildcard mitigation as well as changing or vegetation management practices by conducting arch trimming by annually.
We're also conducting a pull inspection or replacement program throughout or service territory. These efforts are being undertaken.
To enhance the safety and resiliency of our system, which will help reduce costs in the long term.
The decrease of 10 cents is attributable to the benefit we experienced in 2018 somebody carty cash settlement.
Decrease of six cents is attributable to customer service that administrative expenses. These costs are.
Primarily associated with three areas first we're continuing to make investments on new billing system associated with stabilization and enhance configuration.
Second we're incurring higher expenses attributable to upward cost pressures on medical benefits and third transitioning to our new too.
Who are new cloud based systems has required us to make small write offs related to old systems.
Finally.
But in the final item is one cent decrease attributable to other miscellaneous items.
Switching gears to regulatory matters Governor Kate Brown nominated Mark Thompson.
And to join the Oregon Public utility Commission.
This appointment would replace commissioner Stephen Bloom confirmation by the Oregon Senate is not expected until the short legislative session scheduled for February of next year.
Moving on to slide eight we provide a summary of the company's Curt capital forecast.
From 2019 to 2023 these updates represent projects that prioritize the safety and resiliency of our infrastructure.
The increase is primarily attributable to both in large customers substation upgrades reliability upgrades that are generating facilities and projects that further developed and.
Integrated grid these projects will improve reliability for customers and reduce operating costs in the long run as we aim to keep the impact of our cost and customer prices near inflation.
On the slide nine in October we demonstrated our ability to access low cost sources.
Capital with the issuance of 270 million, a first mortgage bonds at a rate of 3.34%.
Hi demand for this offering was indicative of our strong cash flows in credit worthiness, a portion of the proceeds which used to redeem our 6.75% Sears first mortgage bonds and we'll.
Reduced interest expense by about 1 million per year.
Operator, we're now ready for questions.
Ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.
To withdraw your question press the pound Keith.
Please standby will be compiled acuity roster.
[noise].
Our first question comes from Julian do them loved Smith with Bank of America. Your line is now open.
Morning, guys is actually Ryan Greenwald on Julian Thanks for taking my question.
Morning, Ryan warning.
So after guiding to the lower end of year range for 2019, how should we be thinking about how are you guys kind of framing.
Growth into 2020.
Actually kind of given that you throughout this 46% long term growth target now.
So the changes that we're expecting that well driving us to the lower part of our range should have no impact on 2020, and as you know, we'll be providing 2020 guidance on our February .
The call after we close the books for the year.
Got it.
And then in terms of the IR p. process and the RF piece.
Any color you can kind of provide bear in terms of your early expectations.
Yeah, I think we're working through the process the.
I R. P is focused on meeting the needs of for renewable energy and the desire across the state for all accelerating the de carbonization of our energy supply. A this is in line with Senate Bill 15, 47 at me and meeting or exceeding.
Our portion of the state's de carbonization goals through 2050, so we're going through the normal process of discussion and debate on the IR P.. There's a lot of analysis that has been provided to staff and Interveners and were welcoming People's comments and just working through the process. We would expect to have an outcome.
In the first quarter, probably by the end of January .
Got it but too early right now to TALF to handicap anything in terms of your ability to wind generation.
Too early to tell the other issue is is that the IR Pete will just determine what resources, we need after that we will follow up with.
Our piece of the first is an RFP on renewable energy and that will launch in 2020, and then we're in discussions right now with capacity providers, who are largely existing generators in the region.
Fair enough and then just lastly in terms of the upcoming.
Capex roll forward.
How should we think about the drivers and the puts and takes of upside opportunities relative to your current plan with the latest update.
And absent any generation opportunities.
So we provided an update in our capital forecast includes about additional hundred $40 million.
There's a in 2020 and then minor adjustments after that that's really the forecast that we're providing at this point in time, we're really pleased that we're getting after some of the investments that we need to in our region for resiliency and reliability and also as we see customer growth long term.
We have some additional infrastructure.
Structure particular sub stations for new and growing customers in the high Tech manufacturing and digital area.
Great. Thanks for the time.
Thank you.
Our next question comes from Insoo, Kim with Goldman Sachs. Your line is now open.
Morning incentive Monday morning, good morning.
Maybe starting with low growth I definitely appreciate the fact that a lot of the changes in that load on the.
The residential commercial doesn't really have an impact given but the coupling when you look at the amounts that.
The customers that do impact that are you you're not really seeing any change.
Turn to the momentum towards the upside on on growth.
And your area [noise].
The primary drivers of the Love Girl change this really ongoing energy efficiency.
Right, we don't see any change and all the key drivers around our industrial and commercial customers in particular, a large data centers hi Tech manufacturing continued to be very.
Wrong and on pace with expectations.
We're also continuing to see strong customer count growth up 1%. In addition to we're seeing a bit more energy efficiency occurring in the commercial space same tone.
Understood and my second question, maybe more longer term I know the.
The culture retirement currently slated for 20 is slated for 2030 at which point or what kind of considerations and timing.
Would you be thinking of and trying to decide whether that timing would be accelerated a fourth potential retirement.
So as you can imagine in the Pacific Northwest.
Yes, there's lots of discussions going on between Montana, Washington, Oregon, All related to the coal strip plant Oh. We currently are depreciating the plants all through 2030 and continue to have ongoing discussions around coal in our portfolio.
Understood Alright, thank you very much.
Thanks into.
Our next question comes from Travis Miller with Morningstar. Your line is now.
Good morning, Thank you.
Morning drugs.
Just some more detail on the 140 million of Capex can you break that down.
And to not specific projects, but maybe specific buckets of projects in felt more spending.
Travis areas that we're focused on where we are basically called them out in the script.
And it is we're seeing as Maria said more growth and large customers that's putting.
A significant increase there we're seeing increase and the resiliency work that we're doing inside our service territory as far as Substations.
And then we're seeing additional work just in the overall maintenance of the system itself those.
Those are the primary drivers in additions to the ones that we've identified previously regarding the integrated operating center, the we rich facility and and leave the automated distribution management system.
Okay was anything related to.
Any changes in your ERP or or than the related our generation assumptions at all.
No we've always taken the approach that until we know the outcome of an RFP, we wouldn't put any additional capital for those protect generating items that is.
No no different subject you had mentioned highlighted the debt refinancing.
How much more capacity is there to refinance and what would be.
General estimate of interest cost benefit.
You can get there in the next year or two.
Well it really depends on how far.
First rate you're going to continue to go down because that's just that created the opportunity for us to take that 6.75 out add to look at other charges that we have so oh I can say is stay tune and we'll watch it and let you know as other things transpire, but we are looking throughout the company of turning every.
Rock that we can find over in order to find opportunities to save money for our customers.
In general our existing interest rate and debt portfolio was is pretty good we've enjoyed low rates for a long period of time.
Sure Okay.
Okay, and then just real quick on though we rejoinder if you could.
Give any kind of updates in terms of where the project is right now.
So the project is currently they're just about to break ground and could start the civil work Theres a lot of engineering and procurement is taking place and I were up you know on track for wind.
To go be finished on the next year. So and then we will see solar and the battery storage come online.
Okay, great. Thanks, a lot.
Our next question comes.
Our next question comes from David Peters with Wolfe Research Your line is open.
Hey, good morning, guys.
Well, David just only increased Capex this quarter and you know what you did last quarter with the integrated operations Center.
How are you guys thinking about financing needs next year.
Do you maybe foresee the need for for any equity and then just kind of related to that how are you thinking about timing of over next rate case potentially.
On the if the financing of the Capex right now, we're assuming that we do not need immediate additional equity to be able to do that.
We'll do it with a cash from operations add from additional financings that we will take on next year.
Regarding the question.
The next rate case.
We will let you know as we go through when we start providing guidance for 2020 and 2021, it and so on and so forth. Our goal is to try and stay out of a rate case as long as possible.
We're focused really on cost reductions in our operations and being.
More efficient.
And being married mindful of customer prices.
Great. Thanks, guys.
Yes, you welcome David.
Our next question comes from one of Greg Crisis Internists. Your line is open.
Morning, guys, Hey, how are you.
Good thanks.
I'm just I'm looking into 2020 or do you guys vision being able to earn your authorized or are we on not just the averaged 2020 rate base do you guys will have a next year.
Well, Greg as you always know we've got that structural lag out there associated with cost said, we're not only cover.
That's always headwinds for us, yes, but outside of the structural lag, which is kind of always been there.
You into that just be being able to earn the gallery.
Yeah, we're anticipating that <unk>, taking into account that structural lag that we will be able to.
Okay, great. Thank you very much.
Thanks, Greg.
Our next question comes from Gregg Orrill, but yes. Your line is now open.
Hey, good morning.
What guidance updates do you expect to provide on the fourth quarter call.
We will provide up.
Guidance for 2020 earnings.
So it'll be EPA us hydro wind.
On M. costs, thanks to the nature of the typical that we do and any changes to the capex that we might have at a point in time.
Okay. Thank you.
Thank you.
As a reminder, ladies and gentlemen that is star then one to ask a question.
Our next question comes from Atlanta video Liberty with Avon Capital. Your line is that woman.
Good morning.
Morning, Brazil warning.
Oh.
The and the Oh <unk> Oh.
Foreign Union Pacific Northwest, we've been seeing.
You know environmental.
Wow efforts being made to curtail natural gas.
Some sees in California.
City, Seattle is considering an option considering the proposal.
And I'm just wondering I.
Rather a few things about such activities being potentially initiated a in Oregon, specifically in Portland, and I'm wondering if you put your comment about that too.
Kind of the opportunities that would over some time that present itself to you.
Should such.
Curtailment of.
Oh Gosh development.
Materialize.
Certainly oh good morning, there are a number of discussions going on.
At the county level, a variety of different cities in our area around climate and around emitting resources as we know.
Now, let's just use the cleanest form of energy and we're engaged in all of these discussions. So some are relating to manufacturing summer relating to a heating and in particular buildings and in our core of Portland, but I think more importantly for reducing carbon there's a lot of focus around.
Electric vehicles and our region.
We're engaged in a number of those conversations and have a terrific partnership with trying that our transit authority as they transition how much of their fleet to electric they've announced their intention to convert to have their boss depots opt to all electric Oh they.
But 90 electric buses targeted for their fleet right now and how I think there about nine or 11 buses that are all electric today. Just this past weekend, we opened up our fourth electric Avenue in the region and we continue to partner out with a number of others. In particular dollar talks who is building a electric.
Manufacturing in our service territory. So there's a lot going on with regards to this topic and we see opportunity for not only additional electricity.
But also.
Additional resiliency in the combination of how we use electricity through batteries another.
As well I think you should also notice is that a next June Oh, Portland, we'll be hosting the electric vehicle symposium the international.
Yes, 33 symposium will be here in mid June next next year. So a lot going on in this area. Thank you.
[noise].
Thank you.
Our next question comes from Kevin Fallon with Citadel. Your line is open.
Martin either Hey, how are you I'm, sorry, if I missed it or not but on the IR Pee on the capacity need it said in the release that you guys are are considering putting in a benchmark research it would that be a rebase opportunity or is that like Pete.
<unk>, how would that that work.
It is to be determined at this point in time.
Okay. So it's not it's not necessarily rate base, but it's also not necessarily rate base.
Degree correct, Okay, and just some some clarity on the on M. costs on the second quarter call I think you've raised the range by about.
10 million I think you highlighted that that pull forward of vegetation management for 20 was part of it is should we be looking at roughly that $15 million Delta as as kind of goes away in and 20 versus 19.
No I think we're going to see an elevated level no vegetation involved far.
Matt I mean, we are paying close attention to what's happening in California, and there's a lot of lessons to be learned.
As to the challenges that they're facing so we are paying particular attention to our system to make sure that we will not find ourselves and any type of the situation that they're in and so.
A lot more due diligence I think every utilities, probably doing exactly the same thing we were pleased to see in the third quarter Aro in M. cost come down a little bit more in line our expectations for says that the higher levels, we had in second quarter.
Can you give some color where you're trending in the 600 to 620 million range with one quarter.
Left here.
No not at this point Kevin.
Right, Okay arrangement.
Thank you very much.
Thank you. Thank you.
I'm not showing any further questions.
[noise] I'm not sure sale has.
All right.
It looks like we don't have any further questions.
Thank you for joining us today, we appreciate your interest in Portland General Electric and we look forward to seeing those of you who will be in Florida at E. <unk> as well as those of you who will join US in February at our fourth quarter results and guides. Thank you very much.
Ladies and gentlemen this.
Today's conference call. Thank you for participating you may now disconnect.