Q1 2020 Earnings Call
Good morning, everyone and welcome to Portland General Electric's Company's first quarter 2020 earnings results Conference call. Today is Friday April 24th 2020. This call is being recorded and that such all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be question and answer.
Period, if you would like to ask a question. During this time simply press Star then one and you touched on telephone if you'd like to withdraw your question. Please keep your telephone keypad.
If you do you intend.
Please avoid the use of speaker phones for opening remarks, I will turn the conference call over to Portland General Electric's director of Investor Relations and Treasury.
Sure.
Jonathan Good morning, everyone I'm pleased that you're able to join US today before we 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 that investors Dot Portland General Dotcom.
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 actual results may differ materially from our expectations 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 period.
Arctic reports on forms 10-K, and 10-Q, which are available on our website, leading our discussion today, our Maria Pope President and CEO and Jim Lobdell Senior Vice President of Finance CFO and Treasurer. Following their prepared remarks, we'll open the wine for your questions now it's my pleasure to turn the call the roots Maria Thank.
Thank you Chris Good morning, everyone welcome to Portland General Electric's first quarter 2020.
Dale share an update on the impact of the Cobiz 19, pandemic and how P.G.E. is responding.
Also copper our first quarter financial results.
Revised earnings I.
The economy, and our service territory, including expected electricity usage.
Yeah, the integrated resource plan, which was acknowledged by the Oregon Public utility Commission in March.
Jim will provide more detail on the quarter's results.
Thinking behind her earnings guidance.
Dividends announcement, our financial position in strong balance sheet.
You will also cover the Companys I want to in capital reduction.
As well as our regulatory environment.
Turning to slide four.
For the first quarter 2020, we reported net income of 81 million or 91 cents per share an increase of nine cents per share compared to 2019 Russell.
The strong first quarter was driven by an increase in high Tech and digital services demand.
As well as lower power costs and operating expenses.
Well, we had a good core a reality today very.
And as such we are revising our died down to $2 in 20.
$2.50 per share or $2 to 50 cents to $2 and 65 per share reflecting the significant uncertainty.
Downward economic pressure caused by coupled with my team.
Despite this revision.
We are reaffirming our long term earnings growth guidance.
For the 6%.
Moving to slide Uh Huh.
All sectors of the economy.
Our customers and the communities we serve are facing unprecedented challenges.
As an essential service provider, we're focused on continuity of service.
Seamlessly generating transmitting and delivering.
Hi, reliable and affordable electricity.
At the same time, we have a great respect and appreciation for our leadership role.
Both as a vital service provider and as a partner Oregon communities.
Given the economic impact we are facing.
Taken steps to provide support and assistance.
Included.
The spending service Disconnections in late fees.
And providing flexible payment plans.
To support our community partners P.G. and the P.D. Foundation.
I've committed over $1 million to local food banks educational programs and other immediate community needs.
As a business we are also not immune.
In response to the recessionary impacts we have taken steps to ensure a strong balance sheet and liquidity by raising capital holding or dividends flat and reducing oh, what in capital spending.
Our entire management team is taking aggressive actions to reduce operating costs in 2020 and 2021.
Which will allow us to operate efficiently despite uncertain economic conditions.
As well as help mitigate further customer price increases.
And achieve our 2020 revised earnings Guy.
In terms of Energy Olympics.
In the first quarter industrial demand driven by Hi Tech and digital services grew 9.5%.
Residential and commercial deliveries also increased resulting in net growth of 3.5% weather adjusted.
Given mild temperatures.
Actual deliveries decreased half a percent in the first quarter.
Most recently since our stay at home Stacey order.
We estimate a drop in energy consumption of approximately 10% from the closures of small businesses and the commercial sector.
And when combined with increases in residential energy usage of about 5%.
Modest decreases from the industrial sector overall energy delivery is down approximately 4%.
Overall for 20 Twond.
We are expecting energy deliveries for the year to decline, 1% to 2% relative to 2019.
Whereas prior to covert 19, we had expected an increase of half a percent one in Uh huh.
Jim will spend more time on the details of our energy delivery scenario.
And our revised guidance.
As we have previously discussed we're fortunate to operate in a service territory with strong customer growth.
Driven by high Tech and digital services.
We're continuing correct substation builder.
And there is an ongoing interest in new facilities throughout our service area.
This growth along with expected returns just long regional in migration after the pandemic passive.
The primary drivers of our long term energy delivery growth expectation of 1% annually.
Turning to slide six.
We continue to execute our long term strategy.
So we really renewable energy facility continues to progress.
The wind portion of the facility is on track to be completed by the end of this year.
Our integrated offering center.
Which will centralize key operations in one secure facility is also on track.
Civil work is well underway holdings are complete and the steel structure.
Our being constructed.
In March.
2019 integrated resource plan was acknowledged by regulators and includes additional renewable resources.
Energy efficiency flexible load program.
And clean energy technologies that will enhance grid reliability and stability.
We anticipate procurement activities for renewables and new capacity to begin later this year.
And into 2021.
There are also engaged and productive discussions with regional operators of existing resources to enter into capacity contracts.
With that I'll turn the call over to Jim. Thank you.
Thank you Maria good morning, everyone.
Ill Echo Maria's comments that the safety in the health of our customers their employees will continue to be the top priority as we move forward through the rest of this year.
At the same time, we're taking measures to ensure that we're able to keep our service affordable for our customers.
I'll provide more specifics in a moment.
Moving onto slide seven I'll walk you through our quarter over quarter results as Maria mentioned earlier our.
Our earnings per share of 91 cents is up nine cents from a comparable quarter.
In 2019.
First gross margin increased earnings a total of 17 cents per diluted share and was driven by lower purchase power and fuel expense.
As total revenues showed no change quarter over quarter residential energy deliveries decreased 5% due to milder temperatures, which decreased earnings two cents per share.
Industrial deliveries increased nine cents led by strong growth in high Tech as Maria had mentioned, which represented 15% of our commercial and industrial revenues in 2019.
Lower quarter over quarter net variable power costs increased earnings 17 cents per share.
This was primarily attributable to a more mild winter in the region and strong wind production throughout the quarter in the first quarter of 2019, we experienced effects stemming from the Enbridge gas pipeline explosion.
Constraints and a winter with high energy demand that drove up prices to some of the highest levels since the California energy crisis.
The remaining gross margin drivers are a four cents per share increased from the decoupling mechanism and a two cents per share decrease from halted late fees and other items as a result of cobot 19.
Next a five cents increase attributable to lower plant expense, primarily driven by reduced maintenance at our Boardman plant as we move toward ceasing coal operations in 2020.
A poor cent decrease is attributable to higher distribution expense as part of our ongoing efforts to increase resiliency through our system.
Hey, one cent decrease attributable to higher depreciation and amortization from an increase in capital expenditures in 2020.
The six cent decrease attributable to a nonqualified benefit trust loss due to unfavorable market conditions and finally.
A decrease of two cents for miscellaneous items.
On the slide eight in the first quarter, we took several actions to ensure the we have the liquidity available to meet our needs as we continue to serve customers. During this unique time.
Earlier this week, our board reviewed and held or dividend, Paul our dividends study at 38, and a half cent consistent with past quarters. The decision to not increased the dividend reflects the uncertainty that we faced associated with the cobot 19 pandemic incurred economic climate.
Unlike prior years, our board will reevaluate the dividend on a quarterly basis to determine if adjustments can be made to ensure alignment with our targeted dividend growth rate of 5% to 7% over the long term.
Earlier this month, we closed on a 364 day term loan of 150 million.
We secured favorable pricing with the tight spread indicating investors' interest in our company and as an investment as an investment opportunity because of our strong Lee rated debt.
We continue to have access to 480 million and borrowing capacity under our revolving credit facility I have another 220 million letter of credit facility, which just 51 million is being used to support our power operations and certain decommissioning obligations.
For 2020, we expect a fun estimated capital requirements with cash from operations, which is expected to range from 552 600 million issuance of long term debt securities Upto 535 million and the issuance of commercial paper as needed.
During the last quarter, we also had favorable access to overnight markets, we did not.
When we did need to access commercial paper markets, we were able to issue at favorable rates.
Going forward, we have ample liquidity to position the company well through the fluctuations in revenues and we have no plans to issue equity at this time.
Additionally.
No pension asset performance has suffered we do not project needing to make any contributions in 2020 and 2021.
Our balance sheet remains strong and we plan to use this and our strong credit ratings for the benefit of our customers to drive the economy forward.
Moving onto a regulatory update as Maria mentioned, we're leaning in supporting our customers. During this challenging time by suspending all service Disconnections in late fees.
This is the right thing to do for our customers, but will increase results in bad debt expense and lost revenue and the magnitude of the nature of these costs will depend on the duration and severity of the pandemic and related health policy orders in March we filed with the Oregon public utility coming.
Mission to differ for potential later recovery expenses associated with coven 19 impacts.
In the meantime, the commission continues to move prudent proceedings forward without delay such as our IR, Pete and our annual power cost filing earlier. This month, we also issued a notice to receive a note.
Earlier this month as they also issued a notice to rescinded earlier order that concluded. They did not have the authority to allow deferrals of costs related to capital investments a schedule has been established for the parties to submit exceptions to the proposed order by the commission, stating that it does have.
Yes already to defer capital cost, we expect the order in June.
Moving to slide nine which shows our updated capital forecast for 2020 through 2024, we remain focused on delivering safe reliable and affordable power to our customers.
As we adjust to a new normal patterns of how we deliver energy have changed challenging our electric grid in new ways.
The last several years, we've undertaken considerable investment in our system if not for these investments we would not be able to provide the reliability that our customers expect during these challenging times our safety number this quarter is strong as 0.14, reflecting ongoing reliable service.
For our customers.
Given the economic climate.
The economic environment, we are reducing our capital expenditures in 2020, and 2021 to support liquidity and reduced pressure to customer prices, while continuing to invest in the resiliency of our system.
And doing so we are delaying projects, which have the least impact on reliability. While also anticipating reduced demand for connections Street lights and road widening in recognition of the slowing economy.
Major projects like we ridge and the integrated operating center remain on track. Additionally, we have not yet experienced any significant supply chain disruptions due to cobot 19.
We also mentioned management actions to further reduce our operating expenses our customers will be facing challenging times ahead, and we will work to limit the cost pressures. They will space. We have already started taking cost reduction actions and we plan to achieve these savings through implementing a hiring freeze involved.
Terry Furloughs cutting discretionary expenses, reducing outside services and contract labor and continuing our focus on process improvements and automation through the implementation of robotics, the sharing of internal resources and efficient management of field resources.
Both capital expenditure, knowing them reductions will help us achieve our desired earnings guidance for 2020, as well as position us to meet our long term growth expectations of 4% to 6%.
For the balance of the year, we're forecasting a range of scenarios that will inform management decisions and allow us to adjust to changing conditions. These scenarios reflect the timing of certain events such as the duration of the stay at home order and the phased reopening of Oregon's economy to understand the impact.
Gross margin operating expenses and determine the appropriate earnings guidance range for 2020.
The specific assumptions behind our revised guidance are a decrease in retail deliveries of 1% to 2% weather adjusted with decrease is concentrated in the commercial sector, particularly offset by increased residential load and slot industrial loads a week.
We expect that we will exceed the decoupling cap of 2% per customer class.
Which will result in lost opportunity for the recovery of the decline in commercial use per customer.
Average hydro conditions for the year wind generation based on five years of historical levels or forecast studies when historical data is not available.
Normal thermal plant operations.
Operating and maintenance cost between 570 and $590 million versus our prudent previous forecast of 590 to 610, which includes an increase in our full year forecasted bad debt expense from 9 million to a total of 15 million due to the more toward.
James on collection activities and customer disconnects.
As well as increased unemployment among our customers.
This is being more than offset by actions management is taking to reduce operating expenses.
And revised depreciation and amortization expense between 415, and 435 million to between 410 and 430 million.
At the top end of the guidance range, we assume phased lifting of the social distancing beginning in June with the continued recession in Q3 and slow recovery beginning in Q4 in carrying into 2021.
We also assume a lower increase in bad debt expense and most importantly, a decline of just 1% and overall loads.
At the bottom end of the guidance range, we assume a more prolonged social distancing, which brings with it a lower gross margin due to a 2% decline in overall loads as well as higher oil in EM inclusive of greater bad debt expense.
Should the depth and duration of these events worsen we will continue to help our customers care for our employees and protect the health of our company.
Thanks.
And now operator, we're ready for questions.
Certainly ladies and gentlemen, once again, if you have a question. Please press Star then one if you would like to remove yourself from the Q. Please press the pound key I would now like to introduce our first question or our first question comes on line of Julien Dumoulin Smith from Bank of America. Your question. Please.
Good morning. Thank you operator, hey, good morning, guys. Thank you very much appreciate all the disclosures.
Got a handful of the follow ups here, if you can bear with me real quickly.
Perhaps.
We are coming back to what you started with how do you think about your long term growth rate in terms of a base year and at the same time, how are you thinking about.
Your rate case timing.
That does not necessarily changing given your comments, but I'd love to hear how you think about your earned our we trajectory how that fits in with your four to six.
And then I've got to follow up.
Sure.
So Julien first of all thank you very much.
With regard to our 4% to 6% timing as you know I want to prior call. We've got all tied up on what here outlets our base year, how long are we continuing the 46% guidance.
And what we have been clear on that it's an ongoing 4% to 6%.
Long term guidance previously with the slightly higher capital expenditures, we with the higher end of that range and we remain confident that we are still within the range.
Got to rate case timing, where.
Of course assessing.
The inflationary cost increases that we have.
Other cost increases that are are coming from different areas of our company combined with our ability to proactively manage our own am and capital cost down.
And with a with a very cautious.
On towards customer prices, given this very difficult environment, an expectation of continued economic pain until we will talk more about that as we progressed through the year in terms of rate case timing.
Got it and then as a follow up here.
You all are admittedly the first to talk about Capex. So apologies. If this is more of an industry question, but how do you think about reducing capex is the same time.
You all had one of the best balance sheets.
In the sector. The same time, so presumably this is in light of either some combination of lower load and or you know ensuring costs and or are we trajectory et cetera. So I'm sure a lot of factors went into it can you frame up your decision as to the cadence of Capex reductions and why now and why.
The amount.
Sure. So I wanted just give you a little bit of perspective of how we looked at this.
Jim and the organization is prepared a number of scenarios under his direction. He gave you said a couple of bookends and his.
Per haired remarks, but we really have looked at this from a scenario forecast standpoint.
And I think consistent with our values to make sure that we're doing the right thing for customers employees.
And communities that we serve.
We have we are dealing with it an unknown that I think is really unprecedented just wondering if we have such wide guidance. So with that let me turn it over to Jim on how he is looked at it and what I think is very robust.
Thinking that we will continue to monitor as we go through the course of the year.
Julien.
As we were looking at the Capex for the company as I mentioned earlier, we've been investing very heavily in the company.
On improving the reliability of the system and getting aging infrastructure out and getting more of an integrated grid went up when I look forward, we're going to continue to do exactly that so we do see a lot of opportunity to continue to improve the reliability in functionality of the grid. However.
Because I don't have a very good sense as to how long. This pandemic is going to play out we took a conservative perspective in order to align with what we believed to be a slowing economy and if the economy picks up if we end up in a V recession verse.
As a you versus a square root.
We will look at our capital expenditures and try and get back on track and making sure that we are doing everything that we can to improve the capability of the grid in the meantime, I have to say, we're taking a conservative position, yes, I would say prepare for the worst and hope for the back.
Yes.
Intake Swift and prudent action have been guiding principle.
Last one if I can just related to that.
Confidence on just the total amount of.
Megawatt procurement for the renewable side.
We're still looking at the same amount of renewable procurement, but we have pushed out the process with regard to that procurement. We're also tying it closely I would that capacity procurement in the IR PD and we will have more news on that as we continue to the year can make good morning.
Wants to touch on yeah keep in mind, what the extension of production tax credits, we had a movement out from 2023 to 2024 and I think we've reflected that previously in addition, things the commission processes are moving along and we're confirming the actions.
Out of the ERP and we believe that we're still on the same path that we were on before it just might take a little bit longer given the fact that we're all working from home so it's a little bit more difficult.
Understood take care you all talked to thanks Joanne.
Thank you aren't next question comes from a line of Insoo Kim from Goldman Sachs. Your question. Please.
Thank you. My first question is related to the other cost deferral filing that you guys fall last month.
That work to be approved.
Got it.
From the reading of it it seems like whether it's back down to other costs, where the where the lost revenues associated with Cowen 19 would it ox provide at least from an income statement perspective, a lot of the offs provide an offset to what you're kind of embedding in your revised guidance.
Into if the commission agreed with all of the costs that we are tracking that these are recoverable.
These expenses are being run through the income statement right now as you noted.
And they would be an increase in revenues over a future period of time that we'd be able to recover if they agree.
So it wouldn't be necessarily a reversal of what you're embedding into your income statement on a retroactive bases.
No it depends on the decision by the commission I mean, they could come out and say.
Recover it in a single year, they could come out and say recovered over a longer period of time, it's to be seeing.
Understood.
And then just a little bit more technical question on the a 2% decoupling cap or you have on residential and commercial is I assume that your revised guidance embeds the level of decoupling that youre able to apply both but on the residential side does that also mean, but if residential is a positive number above.
Beyond.
Baseline then you do you have to take a 2% decoupling impact on the negative side, we've got the right way to think about it.
That is the right way to think about it if there is a greater than 2% move in that customer class and right now we're not anticipating that will hit the upside on the residential but we are anticipating as you noted we would be hitting it on the downside for the commercial customer class.
Understood. Thank you and I hope you on your family stay safe.
Likewise, thank you and so.
Thank you. Our next question comes from the line no Brian Russo from Sidoti Your question. Please.
Good morning, Brian Hi, Good morning, good morning.
Just a follow up on the deferral mechanism.
The winner written comments too and or have any of the.
Historical traditional interview grew slightly coke.
Filed anything yet poor against your your proposal.
No the schedule hasn't been set yet for it. So we don't know at the speaker point in time.
Okay got it and then.
It's like Capex in the next two years is down.
A couple hundred million.
But it looks like piece relative to your prior.
Got it.
Issuance.
Disclosures, you raising debt on a couple hundred million.
Correct me, if I'm wrong, but it seems like your cash balance is going to its going to increase crate noticeably am I missing something where maybe you could just ed.
Some.
More color on that.
No Brian your completely right and very good at math.
Okay.
Upon that it was a prudent steps that have additional liquidity.
To meet our customers' needs is as you know utilities across the country.
Our neither disconnecting customers during this time.
Or tracking late season.
So we wanted to make sure that we had a solid balance sheet and liquidity.
To be able to operates at a healthy utility.
Through this period no matter what came online yes, because we are seeing an uptick in request for time payment agreements. We've always had on the residential side and now we're seeing it sorry start to not be requested on the commercial side, we had a difficult economy just like every state in the U.S.
You have any action is correct and we do have excess cash yes, great to have any debt maturities in the next two years that you can use that cash to pay it off or or no.
Yeah, we have about 160 million that's due in 2021 and so if we if everything plays out well and we're sitting on a lot excess cash than we're going to use that to take that debt.
Okay, Great and then on the dividend policy, what's what's the payout target.
Right now the the dividend on an annual basis, as $1.54 and where have a 60% to 70% payout ratio for the company.
Okay and you remain.
The dividend constant as you noted earlier in your comments is this the time of year that the board would have increased the dividend or is this.
You know status quo, maintaining the dividend at this point.
Yes, Brian you right typically in the April meeting of the board, we would look at it and make a determination as to whether we're going to make a change in the dividend.
We looked at at this time, and we decided that given the economic climate, we are facing in the state of Oregon.
That it would not be the right time would be actually it'd be kind of tone deaf to turn around and increase the dividend now. So we are going to look at it on a quarterly basis going forward as we have a better understanding as to what the economic climate is going to look like.
Okay. So essentially we should assume a flat dividend implied for 2020 unless.
The economy changes and then you get the various scenarios within your financial guidance change.
That's reasonable, but as I mentioned, we will look at it on a quarterly basis and make a determination.
Well, we do have our long term dividend guidance out there of 5% to 7%.
Okay, Great and I know you mentioned the rest of the years normal hydro first quarter was normal hydro to just add some insight as to kind of what you see.
At your facilities right now as the hydro CZ really begins in earnest.
We're seeing.
You know normal hydro conditions as you see.
We're probably anticipating and I've got a double check this it don't hold me to it that we'll see a little bit delay in the run off for this this season.
When we look at our actual facilities across our generating fleet because of the cobot 19, and the implications associated with it. We have helped we have no touch policy. So effectively we're saying we don't want to go out make any major.
Maintenance on any of our facilities, because we want to make sure that everything is there from reliability perspective, because mother nature is still out there from a weather.
Sense.
The other chains that we've made and Weve factored this into our guidance.
Is that the the owners of Colstrip have decided to delay the.
Annual maintenance associated with that facility and so thats being delayed out two of the fall instead of being taken right now as you can imagine having a lot of.
A lot of craft coming into a very small town at the same time. The nation is facing a pandemic wouldn't be well received so very appropriately.
The management of the facility has decided to delay that outage.
Okay, one last clarification.
The new mid point of the revised guidance that assumes a P chem balance with zero.
Oh, sorry could you say that again Brian.
The midpoint of the revised guidance is that still assuming kind of the flat over or under recovery of Powercore causes.
Embedded in the net net variable power cost assumption in the based on.
You will note in the queue that we're significantly below the baseline right now and we're anticipating at year end that we will also be below.
Okay. Thank you very much.
Thanks, Brian stay safe.
Thank you. Our next question comes from the line no sharp price from Guggenheim Partners. Your question. Please.
Hey, good morning, guys.
Good morning sure.
I'm just on just a follow up on the Capex question.
I'm, just trying to get a sense of the.
175 million dollar reduction between 2020 2021, how much of that sort of.
Capital program was deferred versus outright cancelled because obviously when you look at your run rate it hasn't been adjusted.
Despite sort of the timing comments you made on in your prepared remarks, and then as was sort of thinking about that 500 million dollar run rate is there more opportunities to flex there or is that really based is that really reliability related. So I'm just kind of curious if there is more of a protracted downturn.
Is there more downside to the 500 million or is that sort of sage.
Thank you sure in terms of the types of projects.
We.
No I'm not going to be doing in 2020 in 2021.
Many of those are important projects that we will do later, depending upon the economy that we have.
And the outlook.
For our customers for growth in the region, we will determine the timing of that we are making sure that we are operating a safe and reliable system.
But bringing back on new capital expenditures will be dependent upon our economic outlook I would say that there are a number of digital and other companies who continue to find this region attractive.
And should they move forward with their plans that we would need to construct.
New sub stations for them and those operations are not in our forecast. So we will need to see we are on unprecedented on time.
We look forward to being able to adjust upwards and downwards should we need to be responsive to the conditions that are there.
That's helpful and we're just the cadence of the updates I know we've changed the did used to be annual like how do we sort of think about the cadence of when you could update investors around sort of the capital program and and the economic backdrop and how those it's kind of intertwined.
Sure as you noted or as we've told you before and other investors we've changed our capital program the way that we address it throughout the year previously we would make the change in the October timeframe, as we're figuring out or budgets for the pump year.
And now we have moved to where we're looking at it on a quarterly basis as we get greater certainty regarding projects, because we wanted greater diligence and our project management across the company. So as we looked at this particular quarter, we've made the appropriate changes and as we look.
The future quarters, we will again look at it to see.
Yeah economy, improving are there more things that we can pull forward and be able to get done to maintain the resiliency and interoperability of our system.
Terrific. Thank you guys.
Thanks, Chuck Thank you.
Thank you. Our next question comes from a line of Steve Fleishman from Wolfe Research. Your question. Please.
Good morning, Steve Hi, good morning.
So just I might've missed this but.
How should I interpret the 4% to 6% growth rate reaffirmation is that.
Off of the new earnings guidance base, including the benefits of recovering from the pad pandemic or is that off the old.
Base, so that it wouldn't like include that.
That recovery phase.
So how should I think about that yeah. I think you want to think about four to six percentage overtime.
We got all tied up a couple of quarters is now on exactly with year, it started or stopped or whatnot and we're really looking at that as long term by previously we had been at the higher end of that 4% to 6% until we were able to maintain the rate.
Range, even though we took some of our near term capital expenditures now.
Our service territory remains a very strong we expect to continue to see 1% load growth overtime.
And as I mentioned, some customers who are interested in moving here.
Would need additional construction to support their investment in the region.
Okay. So it's kind of.
It's not exactly clear what the basis is that.
It is that 46% overtime and we when we look at it on multiple years on three year averages.
The future and into the path on average our compounded growth rate basis, we feel comfortable in there.
Okay.
Another question just to understand better so when you talked a lot of utilities about.
The impact of the virus and sales.
Typically there is obviously negative impact due to weaker.
Sales.
And the weaker economy.
But generally seen kind of residential go up.
And then commercial industrial go down.
And then to offset so residential going up.
Is normally it could offset but is it fair to say because of your decoupling.
You have limited benefit of that as an offset and maybe that's one difference.
Of your situation versus others.
Got it stayed my this under.
I looked at it from this perspective, where we're seeing an uptick in residential.
Maria mentioned in her remarks about 5%.
And we don't anticipate that we're going to be running into the decoupling cap on the residential side right now when we look at the commercial side.
And just the commercial side, we're seeing a downtick of about 10% and if you think about it lodging nobody staying in hotels restaurants are closed.
Got transportation equipment government education facilities, they're all closed at this bigger point in time. So there are sectors that are taking deeper dive than others. When you look at grocery stores grocery stores are doing great. When you look at some of the the healthcare and those are still being very very good.
Loads. So we anticipate that on that commercial side, we will hit that cap and when we look at our industrial loads were not seeing that much of a change and so we're not anticipating an impact there.
Help answer your question.
Yeah, No I think so I think the other thing we hear from companies is demand charges for industrial helping out but it sounds like you're industrials not.
The issue it's more on the larger it's more in the commercial that's the pressure.
Let me give you a little bit of perspective.
Half of our load.
Flick residential.
A little bit over a third.
It's sort of any other manufacturing office real estate insurance and government sectors.
And about 15%.
As in the high Tech and digital services area and it's it's really that high Tech and digital services area, where we are seeing the most long term growth.
We also continue to.
To see strong and migration into first quarter, we outpaced the rest of the country.
In general once the pandemic period path.
And probably your guess is as good as ours on when people are comfortable returning.
To thinking about where they live.
We continue to expect to see in migration or outpaces, the rest of the country at about 1.3%.
Okay.
And sorry, I have another question, which is just the this amount that you are seeking deferral treatment for excuse me that you're seeking deferral treatment for how much of that is in the.
Guidance as a pressure that if you've got deferral treatment.
I guess in theory could be.
Could go away.
Right now we are assuming all of it is in there and heads embedded in the ranges now that means that and how much is that what's the what's the amount, though how much we haven't given out exact amount and it really is going to depend on how long this is going to laugh.
And so we're looking at bad debt expense were looking at incremental interest expense were looking at increased operating expenses.
Whether it be cleaning facilities falling CVC rules, whether it is changing outages associated facilities, because we couldn't get it done during that time periods, the or low cost for power markets and so on and so forth. So we're just collecting all of those particular costs we've.
Made that filings everything that theoretically from March 20 of floor is what we're going to be talking to the commission about.
Okay, great. Thank you appreciate it.
Thanks.
Thank you. Our next question comes from Paul Patterson Glenrock Associates. Your question. Please.
Hey, good morning.
Hi, good morning.
So.
Oh, yes, wonderful, but just a few quick things first of all the capex that is going away.
Or that's that's the longer in the the forecast.
Paul just if I Miss this but what kind of capital what kind of projects are we talking about what's the nature of that Capex is going.
It is when you look at our entire portfolio, where reprioritizing work that we were doing out in the field.
And it's basically.
Anything that doesn't impact reliability, our customer service. If you think about the fact that if the economy is slowing youre going to get fewer requests from municipalities and other agencies for street widening.
Moving polls thing things of that nature, you're going to see a little bit of decrease in the commercial sector. We still have industrials that are the have demands. There. There are we are trying to me. So we're really pulling back in that you might say governmental request and commercial requests.
Okay.
And then the.
The.
The 4% to 6% growth.
Long range growth I guess.
Following steves question on the.
I guess what.
I'm trying to wrestle here is how do we think about.
That economic forecast that's associated with.
That 46% growth and I guess you guys are you guys would be picky about that happening you see long term, but that would be beginning in 2021 or how should we.
How should we think about that.
No.
Maria had mentioned earlier, we originally started this conversation around 2018, and then we just decided based on what we're seeing on a forward basis.
That the 4% to 6% really represents what we think the earnings potential. The company is you got to keep in mind, we've got and integrated operating center that is around $250 million it'll be going and we've got the wheat ridge facility are part of that that will be going and we've got as.
Maria said, we're still a good stay for in migration and so the underlying economics of the region are still going to continue to support growth for the company.
I would also add that our long term strategy has not changed in fact early discussions and signs that we see is that our customers in the state of Oregon.
It's focused on Decarbonizing, our energy supply today, they were before the 10 Ghana.
We continue to see interest.
In electrification of sectors and an overall focused on continuing to build out a smart and integrated Greg.
I see that Jim referred to was a terrific platform.
As is the technology inside of that building. So we really see to this period of time the ability to in many ways.
Accelerate that transformation and the technological standpoint, and kill emerge stronger and lower cost after that.
Oh.
No question goes up a strong and.
Economic environment, and everything and I think.
Most would agree with that I guess, what I'm sort of wondering though is the global pandemic.
And just.
Early days, obviously here, but with the potential for some significant economic disruption longer term you see any.
Potential slowdown and in some of that activity.
Good that could come about because.
Because the economy might not.
You know just globally speaking I mean.
Did you guys would be relatively better off but it is.
Pretty widespread concern out there I just I'm wondering do you see any potential regulatory.
Or legislative Oh look you that could change things.
You know I think we're in an unprecedented period of change and so to say that we would not expect more change I would be naive.
Kim has run a number of scenarios oh from modest impact too deep an extended impact.
And we're preparing for those out we went main focused on a electrifying decarbonizing and performing.
I also would know.
We are fortunate to have a service territory that is attractive to high tech and to digital companies.
And those companies seem to be doing better through this period than others. I think we have been realistic with regard to.
Manufacturing and small business and others and we continue to be very concerned with the economic impact other customers.
Okay as well as the impact that people, who are unemployed and our service area.
We are we're truly an unprecedented times and.
I think we've taken steps to follow a wide variety of scenarios and different outcomes.
And we will be a staffing them out as we lived through this period.
Okay. Thanks, so much guys.
Thank you next fall.
Thank you. Our next question comes from the line of Travis Miller from Morningstar. Your question. Please.
Good morning, Thank you hi.
It come back to the dividends here for a second.
Obviously, when you keep the dividend flat the annual rate on the revised guidance is right in 60, 70% range.
Is it fair to say then when we're thinking about how the board is thinking that any prospective dividend increase before say next April before you do your next annual planning.
You'd have to be looking toward the high end.
That guidance range to get any kind of.
During the year type of increase is that a good way to think about it just give a new stuck to that 60% to 70%.
Pretty tightly.
I don't think this award is looking at any one metric or formula. During this period of time I think they're taking the balance of the information that we're seeing as I mentioned, Jim has done extensive scenario planning and we will reassess it at each quarter.
Okay.
And then huh.
Oh, a flip here I know that lot of discussion around the 4% to 6% on the earnings growth.
I wondered if you could.
Good to have the conversation around the dividend growth at 5% to 7%.
Type of long term growth rate <unk>.
What what the base is what's the thought is in terms of length of time and <unk> and so forth.
Like the earnings growth that we don't have a set period of time the start or finished one of the things.
They are obviously correlated and you should note that.
Most recently, we have been growing at the higher end of that range and we continue to believe that the 5% to 7% is that accurate range going forward and again no matter, how we slice and dice. It on a three year averages compounded average is and what three at the time, we get within that Harry and this is a long term that's right yeah.
Sure, Okay, and then just real quick.
Technical thing that.
Six cents decline from the benefit trust is that something that is a one time in the quarter or is that something that.
Would continue on that at some level.
For the rest of your.
It really just depends on how the market performs meds investments in assets associated with nonqualified benefit plans.
Okay, and fairly correlated with the stock market versus anything other kind of marketer financial.
Yes, that's the right way to think about a Charles.
Very good thank you very much.
Thanks Travis.
Thank you. Our next question is a follow up from its who came from.
Oldman Saks your question please.
Thank you just Walmart I cut 'em Maria would when you just broadly when you're.
Looking at the current environment, and especially new jurisdictions I think what you guys are doing it's trying to take a pretty conservative stance on where things could.
Economically not just in the next few months, but into next year, our you know.
Your area are you seeing evidence that the economic activity slowing maybe even more than from the other states in the country or is it just more of your general conservatism on that playing out here.
No I am I can't comment on other jurisdictions out one of the things that I think has been impressive about the pandemic is the different impacts to different state.
One of the thinks it's very heartening about the state of Oregon is that we've continued construction and manufacturing activity unless the manufacturing activity has been halted by our companies themselves. Our governor has I think listen across the state recognizing.
Different types of regions, we haven't the different work that we all do it has taken out very prudent approach we've looked at our business segment by segment and.
And I think now we are very much.
Preparing.
For the worst and hoping for the Bath.
The seeing a 9%.
Or 9.5% growth.
In the industrial sector, driven by high Tech NGL demand in the first quarter was was really heartening and we've been talking about that with you for a long time in terms of our strong.
In my migration at high Tech growth.
And we're seeing it in the numbers and that obviously is a second it's not overly impacted by what we're seeing if anything benefit.
We also were very heartened by the fact that the commission acknowledged our integrated resource plan and our strategy while sensitive to the economic realities of our time has not changed yeah into I'd say that.
We are being conservative and we look at this is we're going into this pandemic.
We want to go in strong and we want to come out stronger we want to come out fast.
Makes sense. Thank you so much.
Thanks.
Thank you. This does conclude the question answer session of today's program I'd like to hand, the program back to Maria Pope President and CEO for any further remarks.
Thank you very much for joining us today. We appreciate your time on your interest in Portland General electric, especially during the unprecedented times of uncertainty.
We remain focused on serving customers.
With safe reliable and affordable electricity.
Following through on our strategic objective.
And we hope that all of you stay safe and healthy during these challenging time, we look forward to connecting with you virtually after the second quarter. Thank you.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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