Q4 2019 Earnings Call
Good morning, everyone and welcome to the Portland General Electric companies fourth quarter 2019 earnings results Conference call. Today. It's Friday February 14, 2020. This call is being recorded and and such all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be question and answer pure.
But if you would like to ask a question during that time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press the pound key on your telephone keypad.
If you do not if you do intend to ask a question. Please avoid the use of speaker phones for opening remarks, I would like to turn the conference call over to Portland General Electric's Director of Investor Relations and Treasury, Chris Little Please go ahead Sir.
Thank you Jonathan Good morning, everyone I'm pleased you're able to join US today before we get begin this morning I'd like to remind you that we have prepared a presentation to supplement our discussion which will be referencing throughout the call. The slides are available on our website said investors stuff Portland General dotcom, referring to fly to I would like to remind everyone that some of our remarks. This morning, we'll constantly.
Looking statements, we caution you that such statements involve inherent risks and uncertainties and actual results may differ materially from our expectation.
For a description of some other factors that could cause actual results could differ materially. Please refer to our earnings press release and our most recent periodic reports on form 10-K, and thank you Charlotte are available on our website, leading our discussion today are Maria Pope President and CEO and Jim Lobdell Senior Vice 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 its Maria thank.
Thank you, Chris and good morning, everyone welcome to Portland General Electric 2019 earnings call today last year, an overview our financial results.
Earnings growth expectation, a regulatory update on our integrated resource plan and a summary of what we're seeing in the Oregon Legislative session.
Jim will provide more detail on our financial results our outlook on 2020, and then we will address your question.
Turning to slide four.
In 2019, we recorded net income 249 or $10.39 per diluted share.
Compared with net income of 212 month or two or three seven.
HM.
We finished the fourth quarter. Thanks.
Per diluted share compared with 55 ahead in the fourth quarter 2018.
Increasing earnings per share was driven by improved gross margin you just strong industrial demand and higher earnings from ongoing in Boston.
The higher gross margin, partially offset by higher operating.
Including vegetation management, a wildcard mitigation.
Well Jim will later.
Looking ahead, we are initiating 2020 full year earnings time to dollar.
Sure the Austin 65 cents per diluted share.
More clarity on future growth are moving the top three associates, how long term earnings.
We are now guiding 46% earnings growth on average in some here as we experienced in 2019 [noise].
Our growth maybe below this range or as indicated by our 2025.
You may have growth above the range.
On slide.
A few significant all this year include.
The ongoing reduction a carbon emissions and our power supply portfolio, but the construction of the we raise renewable energy facility.
The preparation of Boardman coal plants are closer.
Oh are on track and expect it to be completed by the fourth quarter of this year.
Additionally, in response to customers overwhelming support renewable energy, we lost our green future impacts program.
17, large municipal and corporate customers will receive energy from this facility.
The largest solar project to be built in Oregon.
This program complements our IR team.
For additional renewals coming up to 150 average megawatts.
We value the opportunity to partner with Alan.
And expect to facilitate the operational in 2021.
In 2019.
We also continued investment in our system and focused on advancing communication network through our service territory.
Progress on our previously announced integrated operations Center.
Laying the groundwork for our smart grid initiatives.
And finally, just yesterday, we received approval from the open you see our transportation electrification plant, which will enable further investments in electrification throughout our service territory.
Turning to slide six.
The economic conditions and our service area remains strong in 2019, Oregon right.
For the rate of in migration.
This oh excuse me when it comes to customer delivery.
6.7% increase in industrial deliveries was a major driver in 2019.
Offsetting downward pressure on energy efficiency on a residential and commercial deliveries.
For 20, Twond, we anticipate deliveries to our current high Tech customer go again lead the way and our overall growth.
No I'd like to briefly touch on legislators.
The toy line Legislative session again this month.
With renewed focus on regulating greenhouse gas emissions.
We're supportive of legislation that accelerate our customers' interest to reduce carbon emissions, while not paying twice for the current renewal and clean energy project that we're on.
Additionally, we are supporting a few proposals to accelerate infrastructure investment, enabling a clean and modeled transportation system.
Turning to slide seven the regulatory process for an integrated resource plan continues to progress and we expect a final decision from the commission in mid March or later.
Regarding our renewable actions, we're focused on adding renewable resources of up 250 average megawatts prior to the end of 2024.
This reflects the recent extension of the federal production tax credits.
In addition, we're targeting up to 600 megawatts dispassionate capacity.
We're currently engaged and bilateral contract negotiations with existing generators in the region to fill a portion of this need.
As with past processing, we plan to initiate RFP design and independent evaluator selection discussions with parties.
With that RFP to follow.
With that thank you I'll hand, it over to Jeff.
Thank you Maria.
Turning to slide eight I'll start by walking you through the earnings drivers for 2019.
First gross margin increased earnings by 26 cents due to a 12 cents increase associated with additional investments to better serve our customers.
11 cents increase attributable to the net impact of decoupling as we experienced a decline in the average use per customer.
From our residential and commercial.
Higher revenues due to increased industrial demand.
Hey, Teresa net increase attributable to weather, which consisted of a seven cents increase due to unfavorable weather in 2018, and a four cents decreased due to unfavorable weather in 2019.
Second and nine cents decrease in earnings attributable to higher operating expenses, consisting of a 13 said decreased primarily attributable to cost associated with vegetation management and wildlife mitigation efforts, a five cent decrease associated with I.T. and administrative and general expense.
It was primarily attributable to higher labor and employee benefits.
Got a nine cents increase due to the a change in year over year bad debt reserves in 2018, we had recognized a onetime increase in bad debt reserves as a result of the customer information system implementation.
In force has decreased associated with card party.
Which consists of the net effect of a 10 cents tailwind from the cash settlement of the third quarter of 2018.
Which we did not reach which did not reoccur than the six to benefit from avoided carrying litigation costs recognized in the first half of 2019.
The two so decrease from higher depreciation and amortization expense, resulting from capital additions.
Hey, seven cent decrease associated with lower Ptcs is when underperformed for the year.
And a two cent decrease some other miscellaneous expenses.
As we look ahead each year, we evaluate our cost structure to ensure that we're providing safe and reliable service to our customers and to determine whether or not we will file for additional cost recovery.
For a second consecutive year, we've seen opportunities to reduce costs and as a result have decided that we will not be filing a general rate case with the Oregon Public utility Commission for a 2021 test year, we'll continue to reevaluate the need to file on an annual basis.
Moving to slide nine as Maria mentioned, we're providing long term earnings guidance of 4% to 6%. In addition, we were initiating full year 2020 earnings guidance of $2 and 50 to $2 and 65 per diluted share which assumes the following.
An increase in retail deliveries between a half to one of the half percent weather. Adjusted this forecast reflects an increase in nonresidential energy deliveries driven primarily by high tech manufacturing sector as well as increases in residential deliveries from a growth in customer count.
Average hydro conditions for the year.
Wind generation for the year based on five years of historical levels or forecasted studies when historical data is not available.
Normal thermal plant operations.
Operating and maintenance cost between 590 and 610 million.
During the year will begin to process begin the process of re purposing operating costs at our board on plant offset inflationary increases elsewhere in the business, including costs associated with incremental vegetation management and wildfire mitigation, which we elevated during the second quarter of last year.
This re Purposing is in addition to other cost savings, we have been able to achieve the near is a field productivity.
Lower generating plant maintenance.
Oh, Gee and financing costs.
Next on guidance assumptions, we expect depreciation and amortization expense between 415 and 435 million.
We're also forecasting for the year and effective tax rate between 15% to 20% and an average see what balance of 340 million, which includes Weve ridge and the integrated operating center.
Finally, we expect cash from operations of 625 to 675 million.
On to slide 10.
As we look forward to 2020, we continued to maintain a solid balance sheet, including strong liquidity an investment grade credit ratings, we expect to fund the estimated capital requirements with cash from operations and the issuance of debt securities up to 400 million.
And now operator, we're ready for questions.
Certainly ladies and gentlemen, once again, if you have a question at this time. Please press Star then one our first question comes on line of Julien Dumont from.
Think of America. Your question please.
Good morning, guys is actually Ryan Greenwald on for Julien Thanks for taking your questions.
Morning, Ryan learning.
So just to clarify did you're gonna say that you guys are moving the base here for the 46% EPS growth.
We are keeping the base year for the 2018 through 2021, but we're signaling does that on a forward going basis, we are trying to achieve a 4% to 6% on average.
Got you are helpful and then on cost cuts and how you're kind of thinking about that could you just provide a little more color into 2020 here given the lack of the rate case.
Well as I mentioned, we're looking across the organization, we've made great strides in the ITC department in the field as far as our effectiveness our ability to how full schedules associated with our crews. We are re purpose thing as I'd mentioned, the Boardman, Oh and Im dollars that will.
Be no longer necessary as we move towards decommissioning that plant that will help us cover some of the other costs associated with inflationary challenges that we'll have as we move through the year.
That's just a small sample of and things that were working across the entire organization to better prove our efficiency.
Got it and then lastly, you guys aren't thinking about any equity issuances right.
No no an equity issuance would be tied to a major asset purchase our build otherwise we don't see that necessary.
Got it thanks guys.
Thanks Ryan.
Thank you. Our next question comes from the line of Brian <unk> focus on.
Hey, good question. Please.
Hi, good morning.
Hey, Mark Brian.
Could you just elaborate on.
Your comment on repurchasing aboard admin costs.
It is important plant, especially towards the end of 2020, so those cost savings.
Beginning in 2021 argue accelerating those savings into into the 20 to manage one m. just a little more insight there.
No we have another troubling you, but a hearing your Brian but I got your question onboard men gordmans going to be going out towards the end of 2020, we've already started down the road of some decommissioning activities associated with it will stop taking coal towards the fourth quarter of the year.
Sure and because of these activities that will allow us to a re purpose some of the on m. dollars associated with facility.
We haven't got it for Boardman ceasing coal fire operations for some time and time, having really thoughtful glide path that will be in pursuing for the balance of the year into next.
Okay understood and what was the.
You can balance.
Yearend 2019.
We were above the baseline by 5 million.
We just have water and ER and when we're in the challenge this year.
Okay and I know, it's early on in the 2020 hydro season, but any early look on what you're seeing.
With your hydro facilities.
The mid Columbia's up this year, it's almost like a flip from last year last year, we saw that the Interstate hydro resources were higher than in the mid Colombia.
Right now it's the opposite the mid Colombia is up over closer to 100% and the in states down. So we still have a lot more whether to go we're only in the first part of February and as we know in Oregon anything can happen between now and the end of March.
Yeah emphasize that James caution, we're having very modest temperatures right now for winter period of time low precipitation in how well the numbers appear to be good we're very cautious for the balance as a year and particularly for hydro and also for Winton and furloughed.
Okay. Thank you very much.
Thanks, Brian.
Thank you. Our next question comes in the line of Augustine Okaloosa from Mizuho. Your question. Please.
Hi, guys. Good morning to no. Good morning, how are you Grace I would just [laughter] great. So just wanted to know or we get a better sense about what would be the main drivers of just like they are all close in terms of you guys being up to 4% or 6% growth rate.
Well the the ranges the 4% to 6% and I think as Maria was talking about earlier, we have a strong economy here in Oregon, and that's really a driving factor along with a wheat ridge is on track.
As we mentioned Boardman gives us an opportunity to re purpose some of the expenses there to help cover others and then we've got other cost reductions along with the fact that we're seeing a strong growth in the high Tech and digital services and our service territory.
Perfect typically are great that's it.
All right. Thanks legacy then.
Right.
Thank you and as a reminder, ladies and gentlemen, do you have a question. Please press Star then one our next question comes in line of Travis Miller from Morningstar. Your question. Please.
Good morning. Thank you. Good morning Trust Funny I was wondering on the IR Peep timing would that have any interim suspecting no, but timing of anything to do with 2020 earnings or gross and then when would any kind of impact from that high or P. <unk> potentially impact that 4% to 6% growth.
Sure. So the ione process first of all we are hoping to get acknowledgement mid March it could be leaner and then we will pursue all RF teas, and how selection of independent evaluator in all of the processes with stakeholders that go along with that I'll also.
I don't want side, we indicated that we could see procurement as late as 2024 or in services was 2024, given the extension of the production tax credit. However that window is between now and then and we will hopefully be able to move out faster our customers as indicated by our green.
Feature impact products as well as others are very interested in seeing us move faster with regards to non carbon resource.
That does that suggest then more investment opportunities for you or more just a power purchase agreements and and such so Oh, we take the lease cough lease risk proposals that come our way we work with an independent evaluator in determining that and we'll have a fully transparent and okay.
And processes, we will go through all this next year and into 2021.
Yeah, right now Travis it's impossible to tell because it we're going to look at everything that comes through the door.
Okay. Okay, and then it's kind of a lot wrapped into this question just wonder if you could talk a little more about that avangrid deal and you.
I don't know how that how that's going into the <unk> green future impact program. The growth there what does that mean for <unk>.
You guys on a financial side and then also.
The whole idea of getting to more renewable energy in the state has a lot in there, but that avangrid deal and the green future impact them be interested to hear more about.
Sure well first of all this was like announcement, we made yesterday, it's 162 megawatt project on a name plate basis are located in Gilliam County, Oregon, which is just east of the down the expected output is about 47 average megawatts.
It's a traditional P.A., but well.
Meet the needs through ourselves from some of our largest municipal and corporate customers, who wanted to go 100% green faster than our renewable portfolio standards. So anyway I sort of think of this is a top up program that will give them an opportunity to buy it.
Additional solar in addition to the 40% or wherever they want to be in that purchase program and it's very customer by customer two and enable them to be 100% growing faster than our current trajectory.
So we are very much.
Much looking forward to working with all we've read on it.
It's something we've been working with customers for some time off and there is also a second phase to the project as well that we will continue having discussions with orange and public utility Commission and with others.
Jim you went over any other detailed out the only other thing I'd add Travis as you think about this particular project in context of our IR Pete.
Got it does not change what we're asking for in her I RP interaction plant.
I would say, it's very important to stakeholders.
That this the anything we do for specific customer I, suppose above and beyond our Rps standards and what we're achieving through I Rps incremental.
Okay. Okay, and then do you have the percent of load I guess served green future impacts many kind of.
Thoughts on where that might be going is that an appropriate way to measure that green future impact.
Yes, it's not going to have a material impact on on our overall, though.
Okay.
It's not a material shifts 47 average megawatts out of an average of about 20 320000, when I was talking about the whole the whole program right now in terms of numbers Oh.
Oh, sorry trend that we that we currently how all those contracts and negotiated whereas in discussions with regards to next phases and I think it would be too premature to speculate on that we are seeing interest from some large digital and high tech companies, which could make that that larger, but we will have to take that on a.
Sort of project by project to customer by customer base.
Okay, great. Thanks, so much.
Thanks, guys.
Thank you aren't next question comes from the line of Sophie Karp from Keybanc. Your question. Please.
Good morning, sorry.
Good morning, how are you.
Yes.
I was wondering if we get 'em capital, but more about the comments on the IR p. into two thank you guys have a decent a young bite contemporary standards a loan growth in the state in the <unk> against that are we seeing coaster delayed some of the acquisitions of renewable assets.
And granted this is longer term, maybe it's too early to talk about that but how should we think about the cadence of fuel and you will procurement and that puts and takes them not only or economics.
Earnings going forward.
So our integrated resource plan calls for up to an addition of about 150 average megawatts.
On renewables and 600 megawatts of capacity.
You know we will go through the process as we have in the past it'll be fairly public. The first is to get the acknowledgement of the IR team and then we'll begin talking with stakeholders about how is doing that procurement looking at RFP is looking at an independent evaluator and will be too.
Doing that work through to 2020 and hope to move expeditiously. In addition, we're already having some discussion with existing.
Capacity providers all of the capacity, we're looking for a non emitting capacity at this point in time, and we will update you on future calls us as we have information that it will be material.
Sophie one other thing you need to keep in mind is that we're going to be follow a stair steps associated with renewable portfolio standard, which says and 2025, it's 27% of our retail load needs to be served by 2030 30, 545 in and 2035 and eventually 50% by two.
Thousand 40.
Got it.
No I'm not a question that they had if there are some trend that we should be watching there with respect to legislative session in Oregon. This year.
How's that shaping up so far.
So we have had a fairly contentious legislative session that.
What is a follow up from last year, essentially all the issues really around a cap and trade out. It's complex is changing all the time is a short session and so the session will be finished in early March.
We as I noted in my remarks are supportive of cap and trade legislation that supports our customers interested in moving to a low carbon energy future, but also ensuring that our customers do not pay twice since we're already bringing on.
Current renewable projects as we discussed in the call as well as the trajectory that gives you the talent.
Do you think we didn't notice you something done this session, where we are hopeful but I would say that it's too early to call and anything can happen.
So we are we remain very hopeful.
Got it. Thank you so for me.
Thank you Sophie.
Thank you. Our next question is a follow up from the line of Julien Dumoulin Smith from Bank of America.
So as you again, right Hey got no. It's purely in this I'm sorry, I just wanted to clarify the earlier response.
What is the reasoning behind the pivoting and the growth rate is what I understand you know I understand that the the capex can be bulky at times, and so therefore lumpy rather and so therefore, it might not necessary enable let's move to trajectory I understand certain years, you may or may not be probably rate case, but I want to hear it for you guys exactly what the reasoning is behind this slight dip.
It here and if there's anything specific that you might be otherwise alluding to.
So let me let him address this but Oh force. Please know that we are being responsive to investors' interest for a more visibility and a we've we've heard your request for that Jim Yeah, Julian what we've taken that limit or off of 2008.
Teen through 2021, and just saying on long term basis. This is our objective again as I had mentioned previously we're looking at a strong economy in already good. We continued to have a lot of immigration into the state continually.
Excuse me continuing to have a lot of.
The load growth in a high tech sector out there, we actually had a paper company come back online in the service territory.
We've got a lot of cost saving efforts that we've got going on inside the company, they're really showing a a lot of promise.
And when you start adding all these things up I think we're really turning into right direction and I gave us a lot more confidence in putting out that type of guidance.
Got it says is more about opposed 21 outlook than it is saying anything specific to any given year right.
Absolutely, sometimes will be higher and sometimes will be lower but is this is where we're looking towards the long term future.
Got it and citrus so talking about 21 and the outlook through 21.
I know, we're talking about cost cuts in 20, and then 21 on that sounds good question I suspect that why you're not giving guidance for say that you still feel confident and being able to achieve that compound growth rate offy team into 21, given what you know today given your cost trajectory your rate case decisions et cetera, right yeah.
And and please know that were working across our company to be more efficient and effective and serve customers need as those it accelerate not only for green energy, but for responsiveness and services that are commensurate with the industries outside of the utility business.
Excellent alright. Thank you all very much appreciate the clarification. Thanks Julie.
Thank you. Our next question comes from a line of third do the Missouri from Avon Capital. Your question. Please.
Good morning.
Good morning to deal good morning.
Okay.
Not to beat a dead horse here, just so I understand kind of a Bluetooth what we were just discussing with Julie.
It's basically the idea that you know having said that you know parameters for 18 to 21 that the <unk> that the 46% type of compound growth rate is now kind of being you know a targeted like post a 21 as well going forward.
Yes.
Okay.
[noise] secondarily, you mentioned one of your slides here about the one Q a approval the transportation electrification plant can you give us a sense as to the potential capital dollars that would be.
That could be associated with that over over say, a reasonable planning period and whether the night. It doesn't I'm not sure that there's a whole lot associated with that that would be in the Capex plan currently.
That's a great question and this was something that was just approved yesterday.
And we're very pleased that it really focuses on physical infrastructure customer service supply energy management.
Our distribution operation and the man reliability management as you know a this is an area that a it's very new and it's hard to forecast, we could see a need a over the long term for upwards of 5000, new charge imports as well as other infrastructure, but in the near term.
Her were probably looking at fairly modest growth. Maybe you know you know ballpark $100 million over about a five year timeframe. So it is really around supporting the transformation of the sector in Oregon transportation is a larger emitter agree.
In house gases, and we already are working very closely with a number of partners in particular, I try not which is how long a larger transit authorities in the country is working very closely with us there's some existing bus routes as well as good grades over some of their office depot than we have a number of other partnerships outwith munis.
The poly and others are advancing fresh infrastructure and working closely with huh.
Okay, and Oh, with the I repeat and going to the RFP when a wouldn't request for proposals go out no <unk>. My recollection passes that you have you know self build a own options that you propose along with a obviously third parties that the independent evaluator.
Well then OSAT.
Ah it in past I think you've indicated that there are structural disadvantages for you being the common utility guard too.
Tax contributions and things of that nature that usually tend to favor.
You know to third parties with the cards to be ultimate inflection at the end of the RFP is there anything that's a net that might be a.
Ah different this time or that could you know or anything can be kept might be more advantageous to you. This time.
So it's just too early to tell I think when in your comment there's a lot of speculation there Oh, we'll go through a open and transparent process.
He you see orphan an independent evaluator and if we put it up a then we will help that it will be competitive Oh, we have a good track record, but it's important that we as the lowest cost leaves risk a project into our customers portfolio.
And just to get into this earlier, but when when we'll be out its final outcome of the RFP and the actual a selection of see announces around the ended the year.
Again, it's just too early to speculate on that.
Thank you for your question.
Thank you.
Thank you. This does conclude be question and answer session of today's program I'd like to hand, the program back to Maria Pope for any further remarks.
Thank you. We appreciate your question isn't interested in joining us for today's call. We employed Q to join US in April Portland General Electric's first quarter 2020 resolved. Thank you.
Thank you ladies and gentlemen few participation in today's conference. This does conclude the program you may now disconnect good day.
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