Q2 2021 Portland General Electric Co Earnings Call
[music].
Yeah.
Good morning, everyone and welcome to Portland General Electric company's second quarter 2021, earning results conference call. Today is Friday July 30th 2021. This call is being recorded and as such all lines have been placed on.
On mute to prevent any background noise. After the Speakers' remarks, there'll be a question and answer period. If you would like to ask a question. During this time. The press Star then the number 1 on your telephone keypad, if you'd like to withdraw your question press the pound key on your telephone keypad.
If you do intend to ask a question. Please avoid.
Use of speaker phones.
For opening remarks, I will turn the conference call of her to Portland General Electric's Senior director of Investor Relations Treasury and risk Management chart on how to me Oh. Please go ahead Sir.
Thank you Chelsea and good morning, everyone I am pleased that youre able to join.
As of today before we begin this morning I'd like to remind you that we have prepared a presentation to supplement our discussion, which we'll be referencing throughout the call. The slides are available on our website at investors the Portland General Dotcom.
Referring to slide 2 some of our remarks. This morning will constitute forward looking statements we.
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 periodic reports on forms 10-K, and 10-Q, which are available on our website.
Leading our discussion today are Maria Pope President and CEO, and Jim Ajello 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 to Maria.
Good morning, and thank you all for joining us the June heat wave.
Rebounding economy tell the story for the quarter.
Turning to slide for.
We reported net income of 32 million of our 36 per diluted share for the second quarter of 2021. This.
This compares with net income of $39 million or <unk> 43 for the second quarter of 2020.
And of in light of economic growth and the accelerated recovery, we're revising our earnings guidance to $2.72.85 per diluted share up from $2.55 to $2.70.
And are reaffirming our 4% to 6% long term earnings growth guidance.
Total revenues.
Increased 14% as a result of higher retail energy deliveries as well as higher energy usage during the recent heat wave.
To meet this greater demand, we purchased additional power at high prices compounded by low hydro and wind conditions across the region.
Operating expenses increased driven by investment.
The resiliency in advance of the wildfire season, as well as higher administrator and other expenses.
Later on the call Jim will review second quarter results in more detail I will also provide regulatory capital updates as well as discuss the outlook for the rest of the year.
For the third time within.
And last 12 months, we have experienced unprecedented weather events.
In late June of historic heat wave caused temperatures to sort of 116 degrees rec.
The record heat with not only unique in its intensity, but also ensign duration on the hottest day, we serve the record load of.
Within the 1441 megawatts compared to the previous record of just over 4000 megawatts more than 2 decades ago.
Through it all and thanks for the dedication of our co workers and ongoing investments in generation grid infrastructure improved work management processes as well as disaster preparation.
For vision and training, we maintained strong reliability.
In these times, the full impact and importance of what we do is most evident.
I want to acknowledge that the heat event was not just of challenge for our business and our system. It was also of human challenge for the.
People, who live in our communities.
Looking out for the safety of customers and serving our communities is and always will be our focus and priority.
This June as well as other extraordinary weather events, our team delivered I cannot overstate my gratitude to everyone. The PGA.
Hey, first responders and our community partners.
While temperatures spiking to this extreme.
In the Pacific Northwest is unprecedented, particularly so early in the year we were prepared.
We have prioritized system hardening and resiliency and we continue to see payoffs.
Building of smarter and more resilient grid.
Our focus on preparedness is not isolated to our distribution system. We have also improved generation reliability, especially under the stress of extreme weather.
Our regional partnerships and supply agreements also enabled us to leverage the surplus renewable energy.
From these extraordinary times.
Partnerships with our customers the standby generation of demand response also played a critical role in ensuring reliability.
Together these programs shaved 63 megawatts of our peak needs.
The partnerships like these exemplify the spirit of Oregonians and.
<unk> expand as we work together to meet the growing reliability and flexibility needs.
Turning to slide 5.
Top of mind for everyone. Following the extreme heat wave is wildfire the bootleg wildfire currently burning in southern Oregon near of the California.
We will for the is historic example.
The vast majority of people in our service area live in highly developed urban areas, including 5 of Oregon, 6 largest cities.
Our region is also geographically different from California, and southern Oregon.
And historically, we do.
Do not have the same climate vegetation force or terrain.
As Oregon's climate gets hotter and dryer PGE is doing more than ever to reduce the risks and keep customers in Oregon safe <unk>.
Prevention detection and response are central to our approach.
The <unk> comprehensive risk analysis infrastructure investments as well as strong partnerships with local state and federal agencies.
Wildfire is a top priority.
We are increasing vegetation management and deploying technologies, such as Lidar type of spatial imaging to prioritize high risk areas.
We are expanding our use of automation remote monitoring an early alert system, such as line sensors re closers and others.
We are installing fire resistant ductile iron transmission and distribution poles and priority wildfire areas modifying miles of transmission lines with the tree wire that or clearances.
And under grounding in certain areas.
<unk> enhanced monitoring of collaboration we've improved detection and situational awareness.
And while our focus is on prevention and investing in our grid. We are also expanding public safety power shutoff of <unk> zones.
As we work continue.
To improve our number 1 priority.
Is protecting the lives on property of our co workers, our customers and the communities we serve.
While the actions, we're taking to provide safe reliable power of essential there is an urgent need to address the underlying conditions driving.
Page 2.
To that end, Oregon lawmakers recently passed significant clean energy legislation, enabling us to advance our share goals of 80% reduction of greenhouse gas emissions by 2030.
And 100% by 2040.
While we continue to work through the IRB process.
Processes this still affords us the opportunity to extend our green community tariff programs and the transportation electrification Bill and enables us to further support EV adoption, the key infrastructures up too and behind the meter.
Additional important aspects of the legislation focus this.
Past session is on low income customers social duffus in those areas traditionally the left behind energy efficiency and the public purchase chart as well as important modifications to outdated energy law of dating back more than 2 decades.
Overall this collaboration amongst stakeholders from across industries.
Industry, the public sector, the business community and environmental organizations, Social Justice community and equity groups resulted in the most significant clean energy standard in the country.
We look forward to continuing these partnerships.
Working together.
<unk> a.
Our renewable energy portfolio integrating distributed energy resources, and continuing to invest in a reliable and resilient grid.
While this quarter once again presented challenges years of investment and planning prepared us well.
As we look forward we are encouraged.
Growth of our region, expanding high Tech and digital sectors and continued in migration I'll now turn it over to Jim for more detail.
Thanks Maria this has certainly been a year of unprecedented weather events, which further underscores the impacts of climate change on our business, but also highlights.
By the the investments, we're making position us to tackle the challenges ahead I'll begin this morning with commentary on the economy and load growth for Oregon's economy continues to recover as we emerge from the pandemic and of showing signs of the vitality once again.
As of July of 'twenty, 7 approximately 68%.
Eligible oregonians have had at least 1 vaccine chart and at the end of June Oregon's fully reopened and safety protocols are lifted the.
The Oregon economic and revenue forecast in May of 2021 stated and I quote the outlook for the near term economic growth is the strongest of decades, if not generations.
Through June unemployment in the Tri County, Portland area was 5.6% an improvement from just over 6% in the first quarter. We continue to see growth in the high Tech and digital services with commercial recovery, taking place at a brisk pace the recovery of the commercial segment was a contributor.
For a strong year over year of load growth.
Turning to slide 6 as Maria said, we reported <unk> 36 per share compared to <unk> 43 per share in the second quarter of 2020.
Year to date June earnings per diluted share is $1.43, which compares to $1.30.
2 of <unk> in the comparable period of 2020, I will cover our financial performance quarter over quarter on slide 7.
First we saw a <unk> the decrease in gross margin off of strong second quarter in 2020, where we experienced very low power costs.
Revenues increased 14% both due to the acceleration of COVID-19 recovery with our commercial and industrial customers and higher usage due to weather.
Offsetting these increases were higher power cost to serve these higher loads purchase power and fuel costs increased 70% for the quarter.
30 from early due to higher regional demand during the extreme weather we experienced in preparation for the June high heat event, we procured more expensive power in the market to ensure we had extra resources at the ready for reliability.
Our fixed plant O&M expenses were lower and increased earnings by <unk>.
As we reduced maintenance expenses at our thermal generation facility.
Facilities. This was partially offset by higher distribution expense related to restoration activities. During the June heat wave and work that was delayed from the February storms to prepare the system in advance of the wildfires system, we did not spare.
FERC or resources to respond to these events.
Administrative expenses decreased earnings of <unk> as a result of higher legal and benefits expenses and finally, there was the <unk> decrease in tax expense from fewer PTC as production tax credits due to less wind generation.
Turning to slide 8 earlier this month, we filed the general rate case with the Oregon Public Utility Commission to review, our cost providing service and approved new prices to take effect in 2022, we.
We have not filed a rate case since 2018 and our decision to delay.
Pardon me.
Filing of the into the middle of this year was in consideration of the timing of customer bill impacts as well as the impact of COVID-19 on the community.
The overall price increase of 3.9% reflects nearly $1 billion of investment.
To upgrade our system to deliver safe reliable and clean electricity to customers specifically our proposed cost for recovery of include protections to keep our system wildfires say from resilient from weather and disaster related crises.
Technology to upgrade the grid, including our integrated operations.
<unk> Center set to open by the end of this year the Repowering of our fair day Hydro facility and most importantly, we have made investments in hundreds of individual projects large and small to modernize strengthen and upgrade our T&D system for customer growth enhanced reliability and resilience.
We'll work with stakeholders in this regulatory process, which should take approximately 10 months to complete with new price is expected to be effective in may of 2022, the procedural schedule for the stock. It is expected to be established in the coming weeks.
Our RFP process for new renewables is in progress.
Gress with independent of evaluated selection moving forward as scheduled.
We are still planning on issuing the RFP this upcoming November.
And bidding 1 or more benchmark resources into the process.
Regarding our deferrals related to the February storms, we continue to expected.
The decision from the <unk> on the approval of these expenses in 2022.
Through June 30, we of deferred $52 million related to the February storms, we're confident in the recovery of these costs as they were prudently incurred in response to the unique and unprecedented nature of these storms.
Cost recovery and approval of the wildfires on COVID-19 expenses remain in their respective dockets.
Turning to slide 9 which shows our capital forecast through 2025, our capital plan remains on track and the investments we have made in grid maintenance and reliability of demonstrated their value to customers.
During the June heat wave and I'm reaffirming that we will not need to issue equity in 2021.
On slide 10, we continue to maintain a solid balance sheet, including strong liquidity and investment grade ratings accompanied by a stable outlook.
We expect to fund in 2020.
<unk> 1 capital expenditures on long term debt maturities with cash from operations during 2021, which is expected to range from $575 million to $625 million we are.
Our revising this range downward from 600 million to $650 million to represent the cash timing.
<unk>.
Of regulatory deferrals.
We have more than adequate capital and access to additional capital in order to support our system and our planned investments we're still planning on the long term debt issuance later this year up to $400 million.
Which will finance the short term note issued earlier this year and set.
Different of our 2022 requirements.
Turning to slide 11, our first half of 'twenty 'twenty..1 performance has been strong and we are well on track to achieve long term earnings growth guidance of 4% to 6% from the 2019 base year.
We are raising our year over.
<unk> annual energy deliveries guidance from 2 to 2.5% to 3% from 1% to 1.5%. This reflects robust economic growth on our service territory and an accelerated recovery from 2019 pandemic 2019 at a quicker pace than anticipated.
Over year, we anticipate recovery to continue into the third and fourth quarter with slight declines in residential usage is individuals spend less time at home.
Looking ahead, the seasonal conditions in the region, we anticipate above average heat and wildfire of potential this season due to the drought and the hot and dry extended forecast.
We expect this to peak and the Pacific Northwest during August and September.
In anticipation of these conditions, we are increasing our operating and maintenance expense forecast for wildlife.
Fire mitigation and vegetation management and a series of other items, which is increasing O&M by $10 million for the full year.
Invest in the reliability and resiliency of our system.
Given this performance on our expectations for the second half of the year, we are raising our earnings guidance from $2.55 to $2.70.
2 of new Guy.
Guidance level of $2.70 to 2 the $2.85 per day.
<unk> 2 of share in summary, I am optimistic on our outlook for the second half of the year and I'm confident in the long term prospects of the business and.
And now operator, we're ready for questions.
Yeah.
As a reminder to ask a question you will need to press star 1 on your telephone please standby will be.
The compile the Q&A roster.
Your first question comes from of into Kim with Goldman Sachs.
Great.
Hey, Hey, Maria Hey.
The guys My first question.
For Jim just on the financial side just wanted.
I understand the the raising of the guidance here is it just the combination of I know you've had from tax benefit from first quarter from the timing of of regulatory.
Items as well as the higher demand that youre talking about the use of experience which for.
I'm, assuming above what you had forecasted I know.
Of that demand is decoupled, but given the robust industrial demand or is this all.
Taking into like what gives you the conference of the high range.
Yeah, Thanks, and so I think I think you've got the right trend here. So we did have the benefit in the first quarter of <unk>.
Is it worse, so that was off the midpoint of about.
The $2.63 to 64 of the.
What I'll call the prior guidance plus we looked at this additional demand and we took that into account obviously.
Offsetting that there are some headwinds with whether some additional O&M expense that we just talked about.
So net net we've done a lot of sensitive.
Part of it on this so there are some puts and takes but were comfortable on this in this new range I think you've got got it pretty well covered.
Got it and related to that when we think about 'twenty 2 obviously theres. Some theres a lot of moving parts of Thursday on the win rate case, which will play out sometime in 'twenty 2.
And just given some of the increased O&M that you youre doing this year to increase the reliability.
I'm just wondering on your thoughts on that 22 of earnings power with that.
For the sixth growth off of the 19 EPS do you still feel like that's the right way to think about it.
When.
Given the.
Types of outcomes that could come out of the vacation of different operating expense items.
Yes, I think we need to see a little more.
Line of sight into 'twenty, 2 before we discuss that guidance range, which will do in February of that year. So youre quite right O&M as a factor of <unk> hit another important point.
I will note debt, even though we have just raised the guidance on O&M for very good reasons. If you look back at it.
Where we were in 2019 I expect this year's O&M to come in at that same level of 2 to 3 years. Later, so I think we've got strong performance on O&M.
Different kind of we've got different challenges, obviously in the grid and with weather, but we're holding our own in terms of keeping O&M at reasonable levels and its almost spot on to where it would be if I'm right about this year.
In terms of 2019, so I feel pretty good about that actually.
Got it and.
On M Barclaycard Marina it seems like over the past few quarters on every time, we thought this call of there's been another unprecedented the actuals that that's happened and hopefully it's not a normal type of event, but if this proves to be a bit more frequent or if that's maybe the growth expectations.
Are there are you having conversations with the stakeholders.
Holders on what type of the maybe lower hanging fruit type of investments that you are the utilities could make even more then above and beyond what you're already doing for reliability, you've mentioned some underground day and whatnot, but just curious on your general Buck there.
Sure.
We work with stakeholders.
<unk>.
Just 1 really firefighter professionals people, who are first responders.
Disaster recovery specialist and all of that as we look at a variety of risks and even those that we havent experience, which seems hard to believe given the last 12 months that we've had.
With each 1 of our crises that we've had we've.
Emerge stronger we've taken the learnings and reflected them immediately in our planning and how we do our work we still have much work to do and.
And we will continue to assess the risks as we go for it and work collaboratively as well as with regulators.
Thank you so much.
Thank you.
Your next question comes the line of Julien Dumoulin Smith with Bank of America.
Hey, good morning of MMA.
Yes.
Excellent and congratulations on the outcomes here truly.
The exceptional.
In fact.
And I'm using the word exceptional on purpose I'm trying to understand what's your level of confidence here do you think about the load growth Brian not just through the back half of this year clearly your guidance range insinuate that provider of more structurally I mean, obviously your service territory.
For.
It really special place outside of California et cetera.
And certainly we've seen some of your neighbors.
The very exceptional loan growth trends in sales.
Just yesterday, so I'm just curious how do you think about this on a sort of a multi year basis on how does that sort of a crude of the business from a capex from a rate of affordability perspective et cetera.
Part of the bigger picture.
Consequences.
So Julien first of all thank you.
And second.
We've been talking for a couple of years about.
The robust nature of our service territory, we are very fortunate to operate in to serve.
Big area, where people want to be where they are expanding their businesses, particularly in digital and high tech on where we see people are interested in moving to so.
So we are very fortunate to have the opportunity to serve the additional growth as well as invest in enhance the reliability.
<unk> and <unk>.
And I would also note that oregonians are very clear on wanting of clean energy future and that was center to some of the legislation that was just passed this.
<unk>, which in many instances is not too different than our own goals as the company, but further demonstrates the interest in the clean energy future.
Nancy on within the state and the region.
Got it excellent and then I mean can we speak a little bit to the.
The backdrop on the rate case, and the ability of you.
Resolve any issues then the more settlement type fashion I'm just curious I know we're early this is inevitable question.
But obviously, especially considering the loan growth.
And your cost management efforts.
In fact that the third certainly eases some of the sharper considerations around any case.
So as you know we.
The tradition or the history of.
The collaboration.
And selling our rate cases.
We work.
<unk> hand in glove with our with intervenors and with stakeholders not just in the rate case processes, but in many other dockets.
We felt very strongly going into this rate case.
That we still.
Half of all things feel very robust much of our economy is still fragile and there are still many other impacted by COVID-19.
And are still struggling so we worked very hard to keep our price increases as affordable and as low as possible and also to keep.
Keep the number of issues down we have a lot of issues that.
Of strategic importance in front of our commission and so we really focused on a couple of mechanisms decoupling in our outage restoration mechanism and then really on planning for the few share with regards to.
Colstrip and exiting any generation of coal that were associated with let me, let Jim spend a little bit more time on that because that's an important component here. So.
So yesterday.
We entered into.
Nearly unanimous settlement agreement regarding.
Regarding our depreciation study, which was filed earlier in the year with the exception of 1 party, we filed with the PUC.
The new depreciation study agreement, which will come into rates of course in this 2022 case.
1 of the important features.
Tolerated depreciation.
2 of the Colstrip expense to 2025. So we are already I think demonstrated in an important way related to this case and of course of the future and our desire to get to exit.
Any of the coal investments here that we have on colstrip.
<unk>.
Much earlier date, so I think thats.
It's an important development, it's really the first development. We can we can talk about vis vis this case Julian if you caught that 1.
Got it and I'm sorry of the squeeze in another 1 of it you've got a lot going on here it really comes back to.
1 could we be in a position to review of this growth rate.
On the more comprehensive basis, I mean, you've clearly seen your peers across the west coast really ramp their spending and mitigation efforts on wildfires at the same time resource adequacy, if perhaps as acute as concerning as we've seen in several decades.
Hydro is no no exception of that you all have of resource.
Thank you Ron underway as it stands already there.
They are married factors here on considerations, although the timing is important ultra.
Ultimately if I were to summarize that how and when do we get sort of.
On integrated and comprehensive view on spending and earnings growth.
Yes, I think you're hitting on a very important.
Topic, we will look at this.
Of course rate of growth towards the end of the year as we prepare for 2022 I think you've already identified 1 of the important variables, which is growth for me. We've got to watch this transition out of Covid 1919 into a regular economy. The residential load is probably going to dip a little bit the commercial load.
Increased.
Increasing as a transitional matter of that was the sector of the economy that was hit the hardest and then I think you and sue probably referred to something of that I think is really important which is the structural and sustaining.
The value and growth of our industrial load I mean, I think that is here to stay and its.
This up very rapidly this composite should allow us to look at the future of little differently, perhaps think about growth a little differently.
Perhaps think about Capex, a little differently, which is equals growth on this business. So that's on the table not today, because we're watching of transition out of the pandemic.
Right and we're watching very volatile load numbers very volatile weather conditions, and so we're going to take all of that into account towards the end of the year and talk more fully about that in February but on track.
We are very pleased with with the growth.
That we've got we've just got to manage the grid and these.
It's growing of weather condition. So there are puts and takes there is some tailwind and headwinds.
Against the against your question here. So if you can be patient, we'll sort this out.
Excellent I wish you the best of luck.
Thank you Julien.
Your next.
Volume from the line of Peter Borden with Mizuho Securities.
Hi, Thanks for taking my question.
Thank you for sure so just to follow up on that.
With regard to the rate case that was filed is that reflective of the updated kind of growth viewers.
The question more of the 1% long term deal.
Thank you for reflects the best information that we have.
I would say that debt.
Jim noted was a tremendous amount of volatility.
And probably in an unprecedented nature 1 of the other things thats coming out of his.
Or is that the higher inflation.
Clearly both on the wage side as well as the material side.
We are managing through a complex supply chain with no implications to our operations.
But clearly there are a number of other issues in front of us that we were all.
All dealing with Athene.
Right.
Let me add Peter of what so just without getting too detailed so the case was filed based on our load forecast.
As Maria said the best we've had in hand in the March timeframe.
What is normal in these cases on what will happen.
For us we will update debt load forecast in the September timeframe as the discussions proceed with the regulator of intervenors. So there's a bit of a catch up there and so that is infused into the case.
Is it sort of picks up momentum for discussions.
Okay. Thank you that's certainly helps and then just to clarify of Jim.
The first quarter of <unk> tax benefit that you had mentioned debt is inclusive of are included in the updated guidance that's correct.
That is correct.
Okay. Thank you.
Sure.
<unk> Here's the next question comes 1 of the.
Sophie Karp with Keybanc.
Hi, good morning, Congrats on a good quarter I. Thank you for taking my question.
I was curious guys. If you could give us a little more color on the volume growth here.
So clearly it's been a very.
For but do you have a sense of how much of that is coming from kind of.
The accounts growth.
The people and the business is moving in as opposed to just the cyclical rebound off of Covid.
The disruption of last year.
Yes, so sophie thank you and good morning so.
From this.
This is a little bit hard to parse right now right because what we cite numbers and the growth and of course weather adjusted fashion. So.
With that we've got we've got the weather adjusted retail deliveries increased 8% I've not seen that in this.
Jurisdiction of course, I'm fairly new to it.
But historically speaking net that's quite high we've got I would say a lot of industrial growth. That's come in I think we're also the third largest region in terms of in migration of residential for.
Folks and our commercial as I said.
A moment ago to Peter is is rebounding rapidly, but in terms of net growth.
It's hard to pin that right now.
Got it.
Do you expect that at some point of view, we'll be able to kind of do we need the data and the maybe update.
The long term forecast like you know of.
Of growth.
2 to reflect that so we can extrapolate something or how do you have of it absolutely.
Absolutely.
And 1 of the important is we put a few more quarters under us we will be able to see true trend when you get into extreme tail events.
On like we have been experiencing you don't have a lot of data to rely upon.
And so how.
For to put a few more quarters behind us in terms of what we're seeing in terms of digital high Tech growth.
In migration, Tim noted what is really going to happen with our commercial versus residential.
I think it's still to be determined.
So far the trends are looking good but it's too early to call. Yes. So if you just maybe highlight 1 of the point, it's a pretty volatile situation at the moment given the transition in the economy.
I saw this at the end of June April and May were steaming along quite well.
In terms of earnings expectation and we hit June.
<unk> had to enter into the market as I said earlier to purchase.
Purchase additional power resources, and we had some distribution work in the field, which caused June to be a very different month than we even expected. So im just referring back 1 month and sort.
Billing that the quarter could have even been considerably better but for the volatility of weather and the power procurement and the distribution work we had to do in the field, which is all necessary. It's all job won all higher priority, but it shows you how volatile this could be so.
Net of Syria said, we'll want to see a little more time.
And some more results before we can look to the longer trends, but we'll update you.
Got you got you. Thank you and then maybe on guidance and sort of view you're raising guidance.
That's great.
With that said, we kind of go into.
As Nick wildfire season in August and September as you also noted.
I guess as it relates to the this particular situation would be something awesome items to watch is the choice to the ice clear guidance.
Well I mean, I would only answer it this way when we calculate the guidance.
We obviously take into account some of the recent learnings we have so I can I can tell you that we build insensitivities for additional cost power cost other cost on the O&M side and the like in terms of anticipating this we can accurately calculate what will happen with the weather but.
I will tell you that the new guidance reflects sensitivities we have for.
Events net of our control, let's put it that way. So there is embedded in our guidance. This notion of the weather volatility of the additional power costs and O&M expense.
But that could occur as a result.
Alright, so let's say if we had for a fairly quiet wildfire season than the potential further upside to your numbers because you baked in from Washington State for that.
I would say to you that the top of our range contemplates that.
Got you. Thanks, so much.
Your next question comes from the David Peters with Wolfe Research.
Hey, good morning, guys.
Hey, Dave.
I was just wondering if you could maybe provide some additional color on the the recent clean energy legislation that was signed.
<unk> in line with your goals as the company, but are there areas that you think could lead to incremental kind of investment opportunities versus the plan that you currently have outlining just what processes would you need to work through before you maybe see some of that come to fruition.
Sure. So it wasn't the extensive of legislative.
I know the Swiss on clean energy on the grid on the <unk>.
Reliability and resiliency overall.
And as you look at really the headline is the 80% reduction in greenhouse gases by 2030 on.
90% by 2035 of 100% by 2040, obviously that latter part.
If more aspirational on dependent upon.
Technological innovation, but I.
I think it's important that this.
The acknowledges and alignment.
With Portland General strategy for some time.
We will be working collectively.
With regulators.
The folks stakeholders.
As we accelerate our clean energy future.
Addition, it cleaned up some language of the dates back to our restructuring loss from $19.99, and some other things like that.
It also includes the strong focus on environmental Justice and <unk>.
And with the support provisions we also saw an expansion of the.
Community Green tariffs, we've had plenty of green tariffs in place for a while and this allows us to expand our programs to our customers who are interested in going further and faster, but the 100% clean energy sooner.
Community dates I just gave you.
Worked collaboratively with many cities and others to get this done and then I would also note true.
<unk> on electrification as you know, Oregon as a leader in transportation electrification. It was 1 of the Centerpieces of Governor Kate Brown.
Then youre, leading the western governors this past year.
And we will be we now enabled through the legislation to do more in terms of infrastructure up to and behind the meter so really enabling a faster transition to a clean transportation sector.
And then finally, there's issues around the public purchase charge, which is really it traditionally supported the.
The number 1 energy efficiency program in the country.
Through the energy Trust of Oregon, and the good work that they do on making some adjustments, but most importantly, extending that to 20%.
The 35 versus its prior expiration of 2025, so I would say that it's inclusive of comprehensive it.
It makes sure that we are focused on all parts of our community in particular, those who have traditionally been left behind as we move to of clean energy.
Yes.
We are of.
Very pleased with how things turned out and more importantly, the relationships and partnerships built on the ongoing dialogue, where we probably just in the beginning of that and have much to learn.
Just the kept it off so the sets the table I think very well for the ex.
Execution of our strategy for for US now to step back and figure out how we want to cost out provide new products and implemented.
We're really pleased.
By the shape of it the comprehensive nature of it but now we're at the point, where we can say how.
How do we execute.
The cute and what sort of investments do we want to make against that we're just at the beginning stage.
Great. Thank you.
And then maybe I know you testified on behalf of the Senator Wyden Bill. Initially just curious has there been any movement on that front recently or anything you can share.
I think there is terrific conversations.
On.
I think theres lots of movement I'm, not going to forecast at all but key to that legislation.
Our normalization for revisions and effects that will level, the playing field between regulated utilities and others to be able to adequately recognized investment tax credit.
For the benefit of customers and accelerate of clean energy future, bringing additional participants to the table and I think really kind of change.
Changing the face of how we think of energy going forward.
And I think it's probably obvious to say, but I'll say it anyway.
This could be meaningful.
Because of the way that we.
Implement the R or respond to the RFP that were anticipating in November. So we're really hoping that this moves forward in his leadership of this center.
And other than the industry are hopeful.
Great. Thank you guys.
Thank you. Thank you.
Your next question comes from Brian Russo with Sidoti.
Yes, hi, good morning, Brian.
Hi.
Most of my questions have been.
<unk> been asked and answered but on.
On the transport electrification bill.
Strategy that you're pursuing in front and behind the.
Can you give us some examples of where you thought you are referring to.
EV charging stations within your service territory or you're just talking the need for new substations to deliver.
More of electricity to various areas to support.
EV.
Yes, all of the above.
So it will be expanding in making our system more robust it will be additional cabling and infrastructure to get to charging stations and it will be charging stations in and of themselves. So it is the broad piece of legislation that really will enable us.
To help in the transition.
<unk> to the transportation sector, which we know is the largest submit or of greenhouse gases and our economy.
To more rapidly expanding into the electric sector.
And.
Being more efficient and cleaner.
Hey, Brian the even before this legislation.
It was implemented recently we've been.
Cash as we are of a dedicated team of very good team.
<unk> been in discussions with various fleet owners.
Looking at larger Rollouts on their behalf I think as you probably know as well that the C&I sector moves very quickly on on these opportunities.
Interest.
We are very active in that space right now we have nothing to announce but I think that.
This is going to be an interesting opportunity. This will be of play. It's also where in the future years, we will allocate increasing amounts of capital.
To this kind of segment I think it could be a very important strategy for us.
And really a game changer over the longer term.
Great and then my.
On my follow up is going to be I, suppose theres very little Capex.
Yeah.
Volume.
EV right now of just.
Curious to know what type of.
The dollar opportunity of investment could.
Could be especially with the governors.
The support and then anytime of timeframe in which that might occur.
Yes, we're sizing that right now and it's not something that will rollout today, but increasingly we will talk more about that as we as we do more make ready work.
Get the backbone of the system ready as we do fleet transactions.
Youll hear more and more from us on that.
Some really nice synergies as we do this work and.
<unk> invested in the system for transportation because it makes on.
Our regular business serving customers homes businesses.
Industry that.
That much more reliable and updating of equipment and infrastructure also as we move to being able to use battery storage to support the stability of the grid of bidirectional.
Charging that will be very very helpful to overall reliability of the system as we bring on increasing amounts.
The of renewables and not to belabor the point, but I would also add debt, while 63 megawatts showed up with demand resources here in the most recent heat event.
I think that connecting the dots as we as we rollout more use the for battery systems out there increasingly we.
We want to dramatically increase our <unk> and transportation of electrification is going to be 1 of those strategies that will that will be symbiotic with that.
Okay, Great and then just a clarification when we looked at the second half of the year just for disclosures in the 10-Q.
Q.
As of June in terms of net variable power costs in the pecan $6 million of bumps.
But I think the forward look through to the end of the year is that youre going to be.
Below the dead men, but was in the sharing so that implies from.
Meaningful swing.
And.
In favor of power costs in the second half of the year because of the way to look at it.
I think Directionally you are correct I see it the same way so there's a benefit there.
At the same.
The 6 million of above the baseline so I think I think you've sized it correctly.
So it.
The midpoint of your guidance.
Does it assume.
Zero balance.
Neither of benefit nordmann on power for costs.
Yes I.
I would say.
That's about right within certain minor degrees of difference.
I would say what we're really looking at is the change in margin. So you may have higher power cost, but we may also has higher revenue. We may have lower power costs that we may have lower revenue.
<unk>, we are beginning to look at this differently given the volatility of the weather events that we've seen and likely will can you just see as.
Julian noted resource adequacy issues.
Remain significant for the Pacific northwest and the entire west.
We're just in the period of transition on a lot more volatility.
Got it understood. Thank you very much.
Yes.
Your next question comes from Andrew Levi with Hite edge.
Hey, guys can you hear me.
Yes, Andy.
Okay.
To make sure of that.
Couple of questions I mean, a lot of it has kind of been touched on but.
I guess my first question is really around the service territory.
And more stuff that you've touched.
On as far as the economy is concerned.
So it seems like you're in a very unique situation.
Within our industry and probably.
Maybe the best service territory within the Continental 48.
So can you maybe touch on.
<unk>.
What the opportunities are.
Around.
Looking at debt. The fact that you have a lot of purchase power.
You will also have needs for for.
For growth on top of that.
And do you have a you know.
The coal strip as well.
So I know you're going to file. This you know this plan later in the year.
But can you kind of give us an idea if this growth continues.
It's how you plan on May may change.
For the for the on the upside.
So Andy bars on the euro debt yes.
I think I got it and I think given the year that we've kind of through.
Are.
We've we've we've learned a whole new appreciation for the word agility.
And I would say if we look at our RFP is for a 150 average megawatts on the capacity need of 287.
As we look going forward clearly we're in a period of transition and we will work collaboratively with all the stakeholders to.
To make sure that we continue to support and have energy for a stable and reliable grid and that will take a variety of different kinds of investments when I think of what it's going.
Take for a clean energy future of stable affordable grid, it's going to really take on all of above set of solutions.
And our ability to integrate renewables are in a bit of integrate integrate distributed energy resources to work collaboratively with our customers, particularly those who have the flexible load.
The options.
And to be able to deliver value in the unique ways of each of our customer want.
And need for their businesses for their residences, the tremendous opportunity and we're fortunate we've been talking a long time about the growth that's coming and it's nice to see it arrived.
Load, Andy I would say the.
He is really referring to the next tranche right. The 150 to $2.87, but to fulfill our goals in terms of de carbonization and the like we're going to see a lot more growth of renewables in this region. So I think beyond the 2020 for 2025.
Delivery I look beyond this 2 new <unk> that will add many many hundreds more megawatts of renewable power as we go we do see an exit from coal strip right as I mentioned earlier, the 2025 depreciation is theres been trial.
Hopeful about that so.
I see.
The strong transition here and I see a lot more renewables coming on too.
To accommodate this growth so I'm looking I'm looking towards the end of the decade not just this next tranche of opportunities and I am seeing sustained growth.
As you and Julian of pointed out and that sustained growth for.
After that we add more resources for the system. We have many more distributed energy resources of transportation of electrification is only going to increase the.
The growth opportunities that we now have so it's a very I think positive outlook for resources and growth as I look down the Balboa.
We'll reclaim.
And then I have a follow up but also.
Jim Murray of the beauty of it is.
That top line growth.
And that growth within the service territory also helps offset the.
Need for rate increases not.
But obviously the period, but obviously softened softens debt and then.
The only right.
Andy just on that point I think it's really important net net.
We recognize that our ability to continue to serve customers and be their energy provider does have a synergistic impact.
On all customers and our ability to invest in reliability and resiliency of the system.
And then the other opportunity I see people kind.
Kind of tend to look at the <unk>.
<unk>.
Southern Oregon that is the risk.
But I guess I kind of pointed out obviously your service territory.
Tories different and people should take a close look at that.
That's very important but also I view whats happening in southern Oregon, and more importantly, what's happening in California.
As a large opportunity for you as a company and for your customers to get a more reliable system. So as.
As Oregon Grooms.
The Portland area of grows the reliability around your grid is gearing is always important but obviously the keep that growth growing that grid needs to be reliable and to depend on power.
Being imported from California and in other parts of the.
The state have you guys kind of talked about with whether its with the regulators or just internally.
And with other people power brokers for no better way to put it no pun intended.
Within the state of Oregon that some of this whether it's renewable generation of whatever you end up.
Installing.
A lot of that has to be done around the load centers and in the sense to take away that fire risk as far as supply as we saw in.
In the June.
From the June event.
So Andy what you've just articulated is the core to our strategy around our.
Our integrated operations center, which is to be able to manage that.
Of that more of a distributed generation resources as technology develops so increasingly include battery storage as well as others to next more reliable more resilient. So youre absolutely correct in overall at the company we.
We have an expression that we never let a good crisis go to waste.
Never would have thought that when we came up with that term and going into the pandemic that we would see 70 prices of the past 12 months, but I can tell you. We have become we've emerged stronger out of every event that we've dealt with.
Come together as the company as the team.
<unk> and work collaboratively with our partners of community leaders, our customers first responders and people, who really care about this region of Oregon and its future.
Got it and then my last question is just really.
Around the dividend policy.
When do we give a kind.
Of an update on that and I guess, maybe the kind of growth lockstep in the update we may get.
Whether it's after the rate case or the.
Fourth quarter call or whenever it may be when we get because of the capex refresh.
The growth rate refresh I assume there'll be some type of look assuming.
Our positive the look at the dividend policy as well.
Yeah.
I would add to your question that whats pending here is a look at our growth rate and to look at our dividend I think we provide a very competitive.
Dividend today, we've been at a CAGR of 5.5% over multiple years now.
You saw the dividend.
From yesterday's announcement I see that debt.
Debt rate, we're at the quarter, we were at a dividend payout ratio of call it 60%, 61%. So.
So we're clearly.
On a pretty strong position there it does in part depend on the rate case and a few other factors but.
Growing the dividend here as I see it is absolutely.
It's going to be a steady of fair for us.
I think for the future, but exactly how much it will be around that.
That 5.5% of.
Average CAGR that we've been experiencing is yet to be determined. So I think the dividend is the important part of our total return to shareholders and we expect to carry on that way.
Okay. Thank you guys very much and.
Co Trailblazers right for next year, yeah, Okay. Thank you.
Alright, and thank you all for joining US today, we appreciate your interest in our company.
And we hope to connect with you in the near future.
The least we'll see you next quarter. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Uh huh.