Q1 2022 Portland General Electric Co Earnings Call

April 28, 2022

Good morning, everyone and welcome to Portland General Electric company's first quarter 2022 earnings results Conference call.

Today's Thursday April 28 2022.

This call is being recorded and as such all lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer period.

If you would like to ask a question during this time.

Simply press Star then the number one on your telephone keypad.

I would like to withdraw your question press the pound key.

If you do intend to ask a question. Please avoid the use of your speakerphone for opening remarks, I will turn the conference over to Portland General Electric's Senior director of Investor Relations Finance and risk Mr. Jordan <unk>. Please go ahead Sir.

Thank you Raul and good morning, everyone I'm happy you can join US today before we begin this morning, I would 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 stop Portland General Dotcom.

Referring to slide two 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 at 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 is my pleasure to turn the call over to Maria.

Good morning, and thank you Jonathan and thank you everyone for joining us today, turning to slide four for.

For the first quarter, we reported net income of $60 million or <unk> 67 per share compared with net income of $96 million or $1 seven per share in the first quarter of last year.

To start I would like to address the 2022 general rate case order issued earlier, this week, which finalizes customer prices and resolves all remaining regulatory issues.

Including power costs customer prices will increase an average of three 2%.

The order also establishes an earnings test for the treatment of certain deferrals arising in 2020 and 2021.

The application of these tests resulted in the reduction of 2020 wildfire and Covid deferral expenses.

As such we are reducing earnings by $17 million or <unk> 14 per share.

While we were surprised by the establishment of an earnings test for these items within the JRC rather than via a separate deferral dockets.

The rate case and its entirety is positive with key elements that include our previously discussed 50 50 capital structure.

Unchanged nine 5% return on equity and average rate base that is now $5 6 billion.

And as you will recall, we filed this case last July with the revenue requirement request of $59 million.

Which was reduced this settlement proceedings.

Key aspects of this include the removal of the <unk> facility is now expected to be complete around the end of the year.

Lower cost of debt to reflect our very attractive $400 million long term debt issuance.

Increased load forecasts.

And keeping the collection for level three outages.

All but about $5 million of these settlements were constructive.

Presenting operational improvements and the delayed timing of the hair day Repowering.

Ultimately, we achieved a $10 million revenue requirement increase.

Reflecting our shared interests with the OTC and keeping customer prices low, while providing clarity and certainty as we continue to invest in advancing the reliability and resiliency of our system.

Unfortunately, as a result of the establishment of the earnings test for major deferrals and the subsequent reversal as well as wildfire and vegetation management.

And other operating costs, which Jim will cover later in the call. We've revised our guidance from $2 75 to $2 90.

Down to $2 50 to $2 65 per share.

Overall, we are reaffirming our long term earnings growth of 4% to 6% off of the 2019 base here.

And dividend growth of 5% to 7% annually.

Turning to operational highlights and the Rfps.

We continue to experience strong growth in energy deliveries, which increased four 4% whether its acid.

Led by high Tech and digital customers.

Our regional economy continues to trend very strong with in migration.

Recovery from the pandemic and new cloud computing and semiconductor operations.

All driving rising demand.

Today, our unemployment rate is three 5%.

Our investments in transmission and distribution infrastructure improve reliability and support this growth.

We're also seeing operational improvements and significant efficiency gains, resulting in getting more work done.

Especially in our reliability and in particular compliance work.

Through advanced analytics, and smart grid technologies, we are increasing the reliability of our system and even under uncertain and extreme weather conditions.

Over the last couple of years, we've also made increasing investments in technology that enables the integration of greater amounts of renewable energy increasing system flexibility and resiliency.

We are pleased to announce that the shortlist for the RFP that we initiated in 2021.

Final bids were submitted in January and the shortlist is included in today's press release.

As expected the RFP process was extremely competitive with over 8000 megawatts of energy and over 3000 megawatts of capacity.

These bids include a variety of technologies, including wind solar and batteries and pumped storage.

Throughout this competitive process, we remained focus on keeping costs low as possible, while selecting bids that improve the best possible mix of reliability and zero emissions power.

The short list will be submitted to the PUC on may six and the process will turn to finalizing the bids with the selection of the winning bids later this year.

This RFP represents the first of several stages of resource acquisition as we seek to reduce our greenhouse gas emissions to meet the 2030 admissions targets and beyond.

Following the completion of this RFP, we expect to issue an updated integrated resource plan in spring of 2023.

Finally last month, we released our 2021, environmental social and governance report our ESG report.

Which demonstrates our progress towards a more equitable sustainable future.

For customers employees and the communities we serve.

As we look to the future we anticipate a more focused.

And.

Elements of on their cost structure to get them in line with the realities of our commissions expectations.

<unk>.

We're also looking at ongoing focus on digital solutions to help drive improvements and mitigate cost pressures.

We have this continuation of strong economic growth.

And long term growth expectations of one 5%.

We're also developing resource plans to move to Decarbonize future and meet our commitments under the state's rules and our own de carbonization goals.

And continuing to serve customers with reliable affordable clean energy and.

Now I'll turn it over to Jim Thank you.

Thank you Maria and good morning, everyone turning to slide five earlier this week as Maria mentioned, we received the <unk> final order adopting all stipulations resolving outstanding issues regarding our 2022 general rate case.

The order authorizes a price increase of approximately three 2% overall.

For us our previously disclosed capital structure return on equity and average rate base results Saturday Repowering project, which is not yet in service.

And we will be covered by a separate rate proceeding and we are now evaluating when and how we will pursue the recovery of this project was an update to our level III outage mechanism, which now allows PGE to establish a balancing account.

Subject to a cap of two times the annual accrual amount.

Further.

It included the elimination of our existing decoupling mechanism.

And the application of an earnings test to certain major deferrals, specifically the order authorize the application of an annual earnings tests for the 2020, Covid 2020, wildfire emergency and the 2021 ice storm deferrals, allowing collection of costs incurred related to these.

Matters until Pge's regulated ROE reached a certain thresholds at or below our allowed Roe.

Based on the regulatory calculation for these amounts.

Recasting the deferrals with the application of the annual earnings test resulted in a reduction of $15 million of previously deferred wildfire, a restoration expenses and $2 million of previously deferred COVID-19 expenses, which we have now recognized in Q1 2022 earnings.

While the order was constructive and its tone, we were surprised that the commission disallowed portion of costs related to this unique and unprecedented circumstances of 2020.

The final recovery of these deferrals will be adjudicated in the existing dockets and we will continue to work with stakeholders through prudency reviews to address recovery of these costs Holistically.

Holistically the JRC resolution represents a step forward in our regulatory journey and provides clarity as we move forward under a new rate structure.

Moving on to slide six our first quarter results reflect the opportunities of our region. The challenges of the current economic landscape as well as the development stemming from the recent finalization of the 2022 rate case.

We continue to witness strong growth fundamentals in our service territory.

Highlighted by high growth in the commercial and industrial sectors. Overall, Q1, 2022 loads increased by four 4% weather adjusted compared to Q1 2021 residential loads increased one 8% adjusted usage.

Pains elevated when compared to pre pandemic levels, but we are beginning to see usage patterns normalize.

Residential customer count remains steady at one 1% quarter over quarter commercial loans increased three 2% weather adjusted as we continue to see recovery from the impact of the pandemic the high Tech and digital services sectors are continuing to grow at a rapid pace as we saw over 10.

4% higher industrial loads weather adjusted.

Wilder weather had a one 4% impact on the overall load growth rate of 3% in Q1 2022.

Looking beyond the growth in our service territory inflation pressures on the macroeconomic front are impacting our year over year costs, driven by elevated raw material prices and supply chain constraints.

Which have been significant across all major commodity care categories, including material and labor as well as service costs.

I'll now cover our financial performance quarter over quarter as previously discussed we experienced a 14% decreasing to EPS as a result of the application of the earnings test a major 2020 deferrals established and the final JRC order.

We experienced a <unk> <unk> increase in total revenues, while load was up 3% quarter over quarter. The significant increases in industrial load growth were partially offset by a 1% decrease in residential load non weather adjusted resulting in some offsetting effects due to the composition of customer prices and mix.

On a weather adjusted basis revenue contributed poor weather.

Weather was milder quarter over quarter with one warmer weather, resulting in a <unk> <unk> decrease to revenue.

Offsetting this increase was <unk> <unk> of unfavorable power costs, due primarily for serving higher customer demand compared to the previous quarter.

It was a six decreased EPS from higher operating and maintenance expense as a reminder, in 2021 O&M included $11 million of storm restoration costs that were offset in the storm collection balance and our normalized from this comparison.

Q1, 2022, O&M drivers include <unk> <unk> of additional vegetation management, reflecting incremental work performed in 2022 <unk>.

<unk> <unk> of additional outside service and labor costs for grid reliability and resiliency and.

<unk> decrease from higher administrative expense, primarily driven by wage and benefit increases quarter over quarter.

There was a <unk> <unk> decrease due to higher DNA due to larger plant balances in 2022, and then a <unk> <unk> decrease from the impact of higher interest expenses due to larger long term debt balances from the Q3 2021 debt issuance of $400 million.

It was a <unk> <unk> decrease due to lower returns on the nonqualified benefit trust compared to Q1 2021, 9% decrease driven by a local flow through tax adjustment recognized in 2021, which did not recur in 2022 finally.

We achieved a two <unk> increase in EPS due to <unk> increase for capital cost deferrals for Wildlife and storm restoration and then it <unk> decrease from other miscellaneous items.

Turning to slide seven which shows our capital forecast through 2026, we increased our capital expenditure forecast for 2022 by $25 million. This reflects additional opportunity for us.

System resiliency investment.

While our current investment plans calls for $3 3 billion investment over the next five years, primarily related to grid resiliency and transportation of electrification.

This number does not include any expenditures related to possible RFP ownership options.

Turning to slide eight we continue to maintain a solid balance sheet, including strong liquidity and investment grade ratings.

<unk> by a stable credit outlook total available liquidity at March 31 is $905 million and we remain one of the least levered companies in the sector.

<unk> planned to fund investments with cash from operations and the issuance of up to $250 million of debt in the second half of 2022.

This debt is expected to be issued under our green financing framework as we continue to seek out opportunities to tie our long term debt to our sustainability strategy cap.

Capital investments.

On to slide nine we published the shortlist of bids for the 2021 RFP within our earnings release today. The competitive process included specific evaluation criteria that resulted in the shortlist containing experienced project sponsors with good track records deploying proven technologies.

We believe this diverse array of bids will lead to a cost effective resources to serve our customers and contribute to our de carbonization targets.

While we are pleased that some PGE investment opportunities are included in the shortlist. It's very early in the process and the final outcome remains subject to commercial and regulatory processes that will unfold during the balance of 2022.

Company owned opportunities for individual renewable resource projects range from 120 megawatts to 350 megawatts and from 50 megawatts to 125 megawatts for individual non emitting dispatcher bulk capacity research projects all projects with company owned components.

Anticipate a build transfer approach due to the confidential nature of the bids we are unable to share additional specific details on the shortlist of bids for clarity as you examine the list of projects and those identified as company owned there are many permutations and there are overlapping capacity capacities.

Between certain proposals.

Next steps in the process include <unk> acknowledgment of the shortlist targeted for July at the same time, we plan to begin negotiations with Shortlisted bidders, we expect to finalize contracts with the winning bidders in Q4 all projects other than long lead time pumped hydro are expected to be in service by the end of <unk>.

For 2024.

As we move through the process, we are paying special attention to supply chain and inflation challenges facing renewable development, particularly the challenges in the solar industry. The combination of diverse technologies and project sponsors will allow us to balance potential development issues as we look to achieve low cost and low risk in these projects.

<unk>.

We expect to release, our next higher peak in the spring of 2023, which will generate additional de carbonization options.

Our first quarter performance reflected strong load growth balanced against operating cost challenges.

As well as deferral reverses as we look ahead to the balance of 2022, we are revising our full year guidance from $2 75 to $2 90 per.

Per share to $2 50 to $2 65 per share.

This reflects a reduction to the full year guidance for the adjustment of the 2020 deferral amounts.

And a revision to full year O&M guidance from $590 million to $610 million to $620 million to $640 million, which includes the $17 million impact from the change in regulatory deferrals with the remaining increase attributed to higher wildfire mitigation expenses.

<unk>, resulting for more work.

As a result of cost pressures for the full year.

We expect continued growth in our economy with a strong pipeline of high Tech and digital growth and continued in migration driving weather adjusted load growth.

Two to two 5%.

While commodity prices have increased significantly in the first quarter, our power cost framework establishes a strong hedging strategy that limits the impact of the run up.

Commodity prices for the current year.

Cost pressure challenges are likely to continue we are taking the following steps to manage O&M for the remainder of 2022.

We have placed orders for the entirety of forecasted 2022, and 2023 demand for Transformers wire and cables, we're going to continue to focus our O&M efforts on high return risk mitigation activities.

We're going to continue deployment of distribution automation technology, and we're going to optimize our supply chain processes to balance customer needs with cost challenges.

We have to continue to identify and implement efficiencies in 2022, which coupled with continued low growth will allow us to achieve our long term earnings guidance of 4% to 6%.

Finally, with respect to dividends earlier this week the board approved a dividend increase of <unk> <unk> per share annualized basis, which represents a five 2% increase.

This increase is consistent with our long term dividend growth guidance of 5% to 7%, while observing a dividend payout ratio of 60% to 70%.

We also completed our limited share buyback program in Q1 to offset any dilutive effects of shares issued under our compensation programs.

Looking ahead, we anticipate customer growth ambitious decarbonization efforts and increasing opportunities to invest in our customers electrification needs. These.

These themes lay the foundation to deliver value by providing clean affordable safe reliable on equitable energy.

Execute long term financial targets for customers and investors alike.

Now operator, we're ready for questions.

Thank you Sir and once again as a reminder, if you wish to ask a question simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key.

First question is from the line of <unk> Kim from Goldman Sachs. Your line is now open.

Yes.

Thank you.

Hi, Good morning, My first question.

On inflation I think.

Impacting the whole industry the whole world right now just as you think about whether it's labor or materials and whatnot.

Beyond 'twenty two at any.

I guess insight right now as to how sustain those pressures could be in.

Depending on your view of that.

Initial look into weather.

The next rate case time, it could be sooner rather than later.

Yes, that's a great question and the adjustments that we've made to this year as well as to this year's guidance as Jim noted in his comments are really quality.

We see a work related versus inflationary and Theyre focused in primarily wildfire and vegetation management areas.

As we look farther out inflation, particularly because much of it is related to hard goods and construction.

It's going to impact our capital costs.

More than it will actually even impact our O&M costs, obviously, both would be affected but we're looking more at 2023 and 2024 and I think this is going to be with us for actually quite a while we have been talking about this is that we got after our last February ice storm where are we.

We're confronted in March and April with particularly tight supply chain.

And I think at every turn it's gotten a little worse than we expected I would add to that.

<unk> will focus on our Rfps are clearly coming in at higher cost than we would have thought and clearly higher than our last projects that we brought it to customer prices and then finally gas prices.

Have a muted impact on our customer prices because of our hedging that we do.

But longer term, you'll continue to see that much higher gas prices.

Roll forward as we both as we continue.

Understood that's helpful.

You've alluded to it on that RFP shortlist.

The schedule out there on the slides.

What will happen for the remaining portion of the year just given the diverse the circumvention investigation, that's going on and a lot of fees for this project, including solar and.

And most of them do.

You see the potential for this process.

Pushed out a little bit I know the actual in service date is not until 2024, but I guess just in terms of getting more certainty around which projects are the ultimate winners just timing wise.

Sure.

Jeff So I think Thats a very good question that's entirely up to.

<unk> see.

<unk>.

The question now arises.

What extent are you can delay the process still hold these bids firm.

Get underway with them you'll note that in the schedule you will see a series of other types of projects not only solar wind.

And battery capacity, there or some hybrid projects as well as there exists an opportunity for the reconfiguration of some projects to eliminate solar and just due to the wind part to the battery parts, there's a lot of permutations and but supply chain is affecting every single one of them. There is no question about that.

So it really depends on what the PUC and its independent evaluate or surmise about these projects.

It also depends on weather.

Folks are able to hold their bids and pricing and timing when we go about the process of negotiating with them in the second half of the year. So some of it is on the actual proponents themselves.

The projects as I mentioned in the remarks these are larger sophisticated.

Project sponsors good track records proven technologies, but nonetheless, there are some forces that are now in.

Packaging everyone's ability to execute.

We've decided to take.

Build transfer approach in terms of our risk management strategy here really to answer.

The question that you're raising so it all depends on all depends on what the PUC wants to do it.

The project sponsors show up.

I think there is enough time.

Towards the end of 2004 to get these projects in service in terms of the PTC and the ITC folks are going after to make the economics work.

But bottom line.

It's too hard to call right now.

We're just early on in the process, we don't know what the department of Commerce investigation will will yield in August at the first checkpoint. So theres a lot of uncertainty I really want to stress that there is a lot of uncertainty on how we go forward here.

But at the same time I'll conclude by saying. This is just one of a series of processes that will be heading towards.

At the end of this decade.

Series of procurement efforts that will have to compete.

Complete so in a way we're dollar cost averaging these D card goals towards 2030, and there is an opportunity here to redo, perhaps two maybe three more rfps as we can.

Get to the end of the decade.

That's the color I would give you and so hope that helps.

Yes, no that definitely does I'll pass it on thank you.

Thank you Tim.

Your next question is from the line of Peter <unk> from Mizuho. Your line is now open.

Hi, Thanks for taking my question just trying to understand the deferral situation a little bit better is the 17 million that is being released this quarter is that related to a disallowance or an actual earnings taxed.

And then going forward, how will the discretion with the commissioning work is that going to be on a quarterly basis or an annual basis.

So the disallowance that took place relates to 2020 activity. It is the entirety of our wildfire.

<unk> expenses that we incurred in that year and it was about $2 million of the Covid expenses that we incurred that year. It's based on an earnings test of the regulated our ROE, which is sort of a formulaic.

Regulated.

Capital set of calculations.

And as you'll remember, we had our energy trading issues that year, and we reduced our equity meaning that our regulated equity are popped up and so.

Well it was a terrible year for the company.

The mathematical calculation.

The result in the write off of those at that $17 million.

As we move forward.

The test will be applied on an annual basis.

For the wildfire and the ice storm deferral amounts.

Okay. Thank you and maybe just to confirm that the.

The remaining amounts I guess of deferrals as they corrected $71 million for the ice storm and then $23 million for the wildfires.

Yes that schedule is in the materials.

Okay and this is Peter.

Peter It's Jim I, just want to make sure that we clearly answer your question is no.

Allowance per se as a result of what you may be thinking of as a prudency test. This is really about the operation of the formula around the.

Our regulated ROE is that clear.

Yes. Thank you.

And then just to confirm this is a noncash issue right. It's really just impacting the balance sheet.

That's correct, it's a non cash right.

It's a 2020 adjustment that we have to take now of course, because we're reporting now.

Okay.

And then maybe just one other last one just on the PJM.

It looks like you guys are showing in the benefit position of $10 million.

Is that the amount that is baked into the updated guidance for the rest of the year.

Yes, yes.

Okay. Thank you.

Your next question is from the lineup Ryan Greenwald from Bank of America. Your line is now open.

Hey, good morning, everyone.

Good morning backing.

Good morning, maybe just piggybacking off the deferral question here. How are you guys kind of thinking about treatment of any additional wildfire costs going forward given the decision by the commission.

So.

The wildfire costs going forward are not subject to the earnings test.

But we do have additional wildfire and vegetation management costs and those are reflected in our revised guidance for the year.

Got it so it's really all just historical in terms of the look at the earnings.

Yes.

One of the reasons why Youll see we did not make an adjustment for 2021.

And we don't expect to have an adjustment for 2022.

Yes.

However, let me just.

One note of caution Kim did note that this was not related to any Prudence review, we haven't gone through that step yet which is one of the reasons why we were surprised that this became a two step process.

Got it.

And then with rate case resolution how are you guys kind of thinking about when you may revisit the longer term growth trajectory and this ultimately contingent on generation wins or is this something that you think you have enough clarity now you can maybe look at again later this year.

Brian I think that we need to see more progress on the.

Company owned assets and the RFP, that's going to be the main driver here. We now have the rate case in front of us. So we're obviously able to model that but the other important variable is how we come out on the RFP. If you look at the schedule. There is a lot of variability here.

Yes.

As Peter was asking about earlier a lot of uncertainty around the timing.

On the resolution of the RFP, so, but thats really going to be our next catalyst I would say.

Got it and then maybe just lastly, any reason in particular for including the deferral in operating guidance, given it's more onetime in nature and noncash.

While we had a long discussion on that.

We could have gone either way and there are there are pluses and minuses to either and we ended up selling it this way.

Largely because of the.

Of the size and term semi he is around sort of in our accounting treatment and keeping instead of all within the same at.

It all gets adjusted out anyway.

Got you and sorry, maybe just one more follow up to that would you guys have reduced guidance.

Deferral.

Excluded in adjusted numbers.

That's a good question as we it all relates to how we interpret it and look through the order as well as the work that we're doing.

<unk> also to the wildfire plan that was recently approved.

It's hard to separate at all as you look at it all coming from one condition.

I will lead to.

Flipping here Ryan to Murray's comment if you take the additional part of the guidance that has reduced other than the deferral amounts right and you accumulate those call it midpoint to midpoint about a 25% reduction.

The Roes for us how much can we absorb overall and keep the prior guidance.

If we're just one of those things or the other.

We would say we could manage that but when you have the accumulation of those additional cost pressures, mostly additional volume in wildfire mitigation and delight plus.

The deferral that got to be too much for us to absorb an offset.

So it was really the accumulation Ryan that caused us to move in that direction.

Good point.

Got it. Thank you very much for the time I'll leave it there.

Thank you. Thank you.

Your next question is from the line up Shar <unk> from Guggenheim. Your line is now open.

Good morning, guys, it's actually a chance for sure thanks for taking our questions.

Sure.

So I just don't fair day is there an option to pursue a limited issue rider or just has to be the next <unk>.

That's what we asked for.

And we have done that previously in the past with a very complicated.

System connected to our pelton round at facilities.

But that was not the decision that was ultimately made.

Okay. So we will need to either file a single issue rate case or a regular rate case.

Okay.

The acute mentioned the subpoena from the department of Forestry can you provide any color on what they are looking at there.

No I think that goes way back to when we had the wildfires and just some information that they were seeking theres nothing active at all on that.

It goes back to September of 2020.

Yes.

Okay. Thank you.

Sure. Thank you.

Your next question is from the lineup Sophie Karp from Keybanc. Your line is now open.

Hi, Good morning, Thank you for taking my question.

I'd like to go back.

Quick to the deferral issue.

So if I'm hearing correctly, what you guys are saying is that.

Uh huh.

This was applied.

One time in the case of the.

The way the Formula works for them lately.

Particularly high at our East. So this is why you got.

Okay.

You had effectively.

So there is no proactive application.

Effective application of an earnings test.

Can you give us a little bit more background on.

Legal basis for test in the first place.

We'll stop the commission from deciding to apply again next time you come for a rate case for example, it seems a little arbitrary.

It's always been a part of their thinking process really that they co longtime issue for some reason like what is that broken that foundation of all of it.

That's a really good question and obviously there is the standards with regards to prudency reviews in destin reasonable rates.

Periodically.

But not in every circumstance.

Our commission has.

Disgusting and has applied an earnings test, we have and in some other areas that are pretty minor.

<unk> seen something like this as broad as this one was particularly on events that have been.

Then disaster related.

And in the testimony there was a discussion by the commission with regards to <unk>.

Sherri on this which is why they also put the earnings test not at a nine 5%, which is where our allowed us but at nine 3%.

So technically they could potentially do it again in the next rate case.

Yes, they could.

Okay Fair.

Fair enough.

Rfps a couple of questions I had there so I guess the world has changed significantly between January .

The bids were may be processed and ste.

Given all of the evolution of supply chain and solar regulatory landscape and all of that is.

Is there a scenario where some of those rfps would need to be repaid.

Can you repeat Sophie the last part of the question is there a scenario where some of those would need to be revised.

Okay.

Peter would have to come.

They didn't do it all over again.

Yes.

Quite clearly.

Cause.

When we're negotiating with bidders, including relative to our own bids across the Chinese wall. So to speak all bidders will be treated the same it will be asked to confirm their pricing and their schedule and so we want to make absolutely sure in this scenario given the.

The headwinds that you've talked about is everybody is firm and as committed before we signed contracts and so technically speaking.

The terms of the RFP where to submit binding bid.

Bids.

It's fairly clear from both the instructions from the company, but also the independent Valuator and it would.

It would be common practice for firm bids to be submitted but that does not mean that you have had all of the contractual terms negotiated.

One is the process there.

Let's say.

Data from the triplet is unable to live up to the commitment of the binding bid Greg.

So the commission they do go back to square one is going to go through the process again to recompose, its first lease et cetera or is that going to.

Different process there.

It may be the case that some bidders are not able to perform and they drop out.

And that's going to be up to them. So.

But as your first question imply we will have to make sure that they are confirmed Maria said those are the bidding rules, but considering the environment that we're in there's a lot of fluidity here right. Both in terms of price and schedule. So that's why we're going to make sure that.

Folks Ken.

At the end of this process, while we're negotiating contracts live to their commitments some of them may not be.

You'll notice the schedule in the earnings release.

There's 8000 megawatts.

That unique megawatts I want to stress that with 8000 megawatts proposed and 3000 megawatts of.

Capacity.

And the goals as you may recall of about 500, and 375, respectively. So theres a great deal of Oversubscription here and a great deal of permutations. So I think we go into this process in the second half of the year.

With some opportunity for both folks to come forward, but there also may be some.

Scenarios, where some drop out we'll find out and Thats. What this next phase is all about first of all the PUC with help of its independent evaluated has to confirm the shortlist right. That's job number one. So there is still a funnel here that we have to go through and then we'll get to the phase of dealing with the issues that.

You just talked about I would say in the summertime starting in July .

Got it and just to be clear are you one of the bidders here on the list.

From like 8% to H.

Yes, so I can't I can't tell you about the specific ones that we represent and what they are but youll notice in the schedule there is a.

A list of company owned megawatts on that right hand column of the appendix eight and Thats for the resources. The generation resources and then there are company owned resources for the capacity side on the bottom of the page.

So the answer is yes, but.

You have to look at the calendar or the schedule to determine which.

Okay. Thank you.

Sure. Thank you.

Once again, if you wish to ask a question simply press Star then the number one and then go to telephone keypad. Your next question is from the lineup Travis Miller from Morningstar. Your line is now open.

Good morning, Thank you.

Sure.

Not to.

Pete on this deferral thing so if I could go back real quick.

You said that it wasn't a disallowance.

Rule potentially prudent is there a prudency review.

Going on and would that impact.

The future collection of these 2020.

Yes, Travis there are dockets set for our prudence reviews of each of these it would be our hope that we can move through that this year.

That absolutely will continue to take place so yes.

It's why we were concerned and surprised that there's sort of two passes at this so Travis I'll just I'll just give you the numbers just to make sure. It's clear. So we began with the balance at the end of March before this order as it were at about $190 million.

This change in the deferral balance given the earnings tests.

It puts us at about $173 million thats to $17 million difference and so there'll be a.

A prudence review as we go forward on those on that balance.

Okay on the 173 in the seventh Data's gone, okay, regardless of property okay.

One of the things you should know that we're working collaboratively and pretty much on positive signs on all fronts.

With stakeholders, the PUC and others for securitization.

And.

So it would be our hope that.

The costs, you've just talked about wood, while they represented extraordinary circumstances.

Significant natural disasters that they would not have thought too great of a burden on customers in any one period, but represents really the.

One in <unk> 140 kind of time kind of events that these were.

Sure sure. Okay, and then just most of that time.

Sure Yes.

And then on 2021 did I hear the number $71 million for the ice storm 23 for the wildfires.

Okay.

For those.

Yeah.

Now let me let me just the balance at the end of March but after adjustment went from $53 million on wildfire to 37, 8% to be particular.

<unk>.

That $15 million numbers, and then the Covid pandemic one.

It began at just under 38 and is now at call. It 35.

Okay and for so for 2021.

Knowing what you earned.

Alright.

Are those still available I guess to recover.

Alright, because you already you know what you earned in 2021 correct.

We applied all the same math to 2020 , one as we get to 2020, Okay and I think we have to also remember in 2020, we had the.

Unique and very challenging experience with our energy trading losses, which we took accountability for and expense through the P&L into the equity section of our balance sheet just to put a fine point on this we did the earnings test.

That his.

Addressed in the order for 2020.

2021 and of course, the forecast for 2022, so that we did a thorough year by year look as is required here and the result is what we've talked about that $17 billion and so there were no.

Regulated earnings that were sufficiently triggering the earnings test in 2021 that was your question 2020.

Yes got it okay.

Great all the technical stuff here, one higher level.

The wildfire mitigation plan that you've got approved is there any capex that might be added to your plan from that to your Capex plan.

For the.

<unk> 2023 and beyond.

Indeed, there is there is a fair amount of Capex, but also O&M as well as the planned speaks to both elements of expenditure I don't have that right before me, but it's been filed and.

Shall I say blessed.

Accepted.

By the PUC.

We're obviously implementing it we're sort of on the heavier end of that right now without <unk>.

Putting too fine a point on it.

Get ready for the season as it were in the first half of the year right through May and June because thats when the risk.

<unk> of course in the summer. So we're so expenditures are more skewed.

As we speak right now.

Okay.

It would be upside to that $6 50.

Average number or is this wildfire regulation, Brian just for this year in terms of the Capex.

No. It will go into next year as well and all go into the year after that as well and onward.

This is this is a permanent part of our business right. It's important it's an important part of it.

Risk mitigation I would say so we've incorporated this as a as an ongoing.

Program of risk mitigation.

Okay, Great I appreciate you taking all the questions.

Thanks, Jeff.

Your next question is from the line of DTA Gunby from Wolfe Research. Your line is now open.

Good morning, Thanks for taking my question.

Could you quickly clarify so on the 2021 deferrals the $71 million for the ice storm in the $73 million for the wildfire.

Jan already.

Same onyx desk to 2021, and then your forecast for 2002.

There should be no hit to.

<unk>.

What I'm trying to get to is there should be no hit to 'twenty three now most from.

Any deferrals reductions right could you could you please clarify that.

I'm not sure you went from 'twenty one to 'twenty three in between 'twenty. Two so could maybe you can help me understand where you're focused.

I'll just offer what I said previously we have done extensive work around the <unk>.

The earnings test for 'twenty one.

There is no exposure there in our view.

That that set of deferrals are probable of collection based on the tests that we have to perform.

Does that help you.

Okay. It does that's.

That's helpful. Thank you and then just.

Just how should we be.

Given these deferrals and given the elevated inflation.

It's looking like it's going to persist.

Well into the year, how should we how should we think about 4% to 6%.

Long term EPS growth rate.

Jeff.

Yes, so as we think about it we recognize where it is in the context of the industry and where it is in the context of our overall growth and Kim noted.

We are we look at it regularly but we are waiting to see the ultimate outcome with regard to the RFP projects, that's an important component.

Of our company in terms of Decarbonizing, our LNG supply.

And we there's a lot of uncertainty here and.

And we need to go through the process, which will take months of the year.

Jim anything you want to add no I, just actually I am thinking about your prior question DTI and <unk>.

There's no 2023 impact.

Due to the earnings test I just want to make sure you are aware that I think you would try to get me there but.

<unk>.

I would probably skipped over your question. So just to be clear no 23 impacted the earnings test.

Right, that's exactly what I was getting to the high side.

That should have been more clear. Thank you that's very helpful. Thanks.

Thanks, Jim Thanks Maria.

Youre welcome.

Your next question is from the line of Nikola Africom vanilla from credits.

Credit Suisse. Your line is now open.

Good morning.

Hey, good morning, everyone. Good morning, Thanks for thanks for getting me on here.

I know I came on late so im sorry, if someone already asked but I'm just curious.

Clearly a lot of renewable opportunities in your service territory, driving some outsized capital needs.

Recognizing just kind of the balance sheet being where it is because of the.

Because of the legacy trading loss, how do we kind of just think about growth equity versus balance sheet fixing equity if there is.

If at all if you do need it and any timing around that thank you.

Okay, we'll take it yes, thanks Nick.

Quite clearly.

I would say this is a growth equity story.

We will in the process of sizing.

The future growth opportunity take into effect, what you've identified here as a balance sheet matter, but I will tell you that it's as I look at the opportunities in front of US it's mostly most of the growth equity story.

And we will be efficient.

And very thoughtful in our execution around to that as we as we eventually get into the market, so, but I want to find out what the real opportunity is as you can see in the schedule today, there is a fair amount.

Opportunity listed however, it comes with a great deal of uncertainty just because of the macro environment that we're in with supply chain inflation.

Partners equipment vendors and the like so I wanted to nail that first.

And then look at the balance sheet.

And come to the market efficiently.

Yes, Okay, that's definitely respect that.

It has been some time since you kind of just update us on the actual kind of growth rate and rolling it forward for another year or so when can investors expect to see that.

Well I think it will depend on the on the RFP results right that as I mentioned earlier on the call that that would be the catalyst for doing that.

Sorry, I missed that thanks for the time today.

Youre welcome take care.

Yes.

There are no further questions presenters. Please continue.

Okay. Thank you very much for joining us today. We appreciate your interest in Portland General Electric and we look forward to connecting with you one on one in the future as well as the conferences and then our net on our next quarterly conference call. Thank you.

Sure.

And with that this concludes today's conference call. Thank you for attending you may now disconnect.

Thank you.

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Good morning, everyone and welcome to Portland General Electric company's first quarter 2022 earnings results Conference call.

Thursday April 28 2022.

This call is being recorded and as such all lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer period.

If you would like to ask a question during this time.

Simply press Star then the number one on your telephone keypad.

I would like to withdraw your question press the pound key.

If you do intend to ask a question. Please avoid the use of yours speaker phones for opening remarks, I will turn the conference over to Portland General Electric's Senior director of Investor Relations Finance and risk Mr. Jordan.

<unk>. Please go ahead Sir.

Thank you Rob Good morning, everyone. I am happy you can join US today before we begin this morning, I would 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 that Portland General Dot com, referring to slide two some of our remarks this morning will comps.

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 at our most recent periodic reports on forms 10-K, and 10-Q, which are available.

<unk> 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 is my pleasure to turn the call over to Maria.

Good morning, and thank you Jordan and thank you everyone for joining us today turning to slide four.

For the first quarter, we reported net income of 60 million or <unk> 67 per share compared with net income of $96 million or $1 seven per share in the first quarter of last year.

To start I would like to address the 2022 general rate case order issued earlier, this week, which finalizes customer prices and resolves all remaining regulatory issues.

Including power costs customer prices will increase an average of three 2%.

The order also establishes an earnings test for the treatment of certain deferrals arising in 2020 and 2021.

Application of these tests resulted in a reduction of 2020 wildfire and covered deferral expenses.

As such we are reducing earnings by $17 million or <unk> 14 per share.

While we were surprised by the establishment of an earnings test for these items within the JRC rather than via a separate deferral dockets.

The rate case and its entirety is positive with key elements that include our previously discussed 50 50 capital structure.

James nine 5% return on equity and average rate base that is now $5 6 billion.

And as you will recall, we filed this case last July with a revenue requirement request of <unk>.

$59 million.

Which was reduced the settlement proceedings.

Key aspects of this include the removal of the <unk> facility is now expected to be complete around the end of the year.

Lower cost of debt to reflect our very attractive $400 million long term debt issuance.

Increased load forecasts.

And keeping the collection for level three outages.

All but about $5 million of these settlements were constructive.

Presenting operational improvements and the delayed timing of the Saturday Repowering.

Ultimately, we achieved a $10 million revenue requirement increase.

Reflecting our shared interest with the OTC and keeping customer prices low, while providing clarity and certainty as we continue to invest in advancing the reliability and resiliency of our system.

Unfortunately, as a result of the establishment of the earnings test from major deferrals and the subsequent reversal as well as wildfire and vegetation management.

And other operating costs, which Jim will cover later in the call. We've revised our guidance from $2 75 to $2 90.

Down to $2 50 to $2 65 per share.

Overall, we are reaffirming our long term earnings growth of 4% to 6% off of the 2019 base here and.

<unk> growth of 5% to 7% annually.

Turning to operational highlights and the Rfps.

We continue to experience strong growth in energy deliveries, which increased four 4% whether it's asset.

Led by high Tech and digital customers.

Our regional economy continues to trend very strong with in migration commercial recovery from the pandemic and new cloud computing and semiconductor operations.

All driving rising demand.

Today, our unemployment rate is three 5%.

Our investments in transmission and distribution infrastructure improve reliability and support this growth.

We are also seeing operational improvements and significant efficiency gains, resulting in getting more work done.

Especially in our reliability and in particular compliance work.

Through advanced analytics, and smart grid technology, we're increasing the reliability of our system and even under uncertain and extreme weather conditions.

Over the last couple of years, we've also made increasing investments in technology that enables the integration of greater amounts of renewable energy increasing system flexibility and resiliency.

We are pleased to announce that the shortlist for the RFP that we initiated in 2021.

Final bids were submitted in January and the short list is included in today's press release.

As expected the RFP process was extremely competitive.

With over 8000 megawatts of energy and over 3000 megawatts of capacity.

These bids include a variety of technologies, including wind solar and batteries and pumped storage.

Throughout this competitive process, we remained focus on keeping costs low as possible, while selecting does that improve the best possible mix of reliability and zero emissions power.

The short list will be submitted to the PUC on may six.

And the process will turn to finalizing the deaths with a selection of the winning bids later this year.

This RFP represents the first of several stages of resource acquisition as we seek to reduce our greenhouse gas emissions to meet the 2030 admissions targets and beyond.

Following the completion of this RFP, we expect to issue an updated integrated resource plan in spring of 2023.

Finally last month, we released our 2021, environmental social and governance report our ESG report.

Which demonstrates our progress towards a more accurate poll sustainable future.

For our customers employees and the communities we serve.

As we look to the future we anticipate a more focused.

And.

Elements of and our cost structure to get them in line with the realities of our clinicians expectations.

We're also looking at ongoing focus on digital solutions to help drive improvements.

And mitigate cost pressures.

We have the continuation of strong economic growth.

And long term growth expectations of one 5%.

We're also developing resource plans to move to Decarbonize future and meet our commitments under the state's rules and our own de carbonization goals.

And continuing to serve customers with reliable affordable clean energy.

Now I will turn it over to Tim Thank you.

Maria and good morning, everyone turning to slide five earlier this week as Maria mentioned, we received the <unk> final order adopting all stipulations of resolving outstanding issues regarding our 2022 general rate case.

The order authorizes a price increase of approximately three 2% overall.

It authorizes our previously disclosed capital structure return on equity and average rate base results.

Saturday Repowering project, which is not yet in service.

And we will be covered by a separate rate proceeding and we are now evaluating when and how we will pursue the recovery of this project.

As an update to our level III outage mechanism, which now allows PGE to establish a balancing account subject to a cap of two times the annual accrual amount.

Further.

It included the elimination of our existing decoupling mechanism.

And the application of an earnings test to certain major deferrals, specifically the order authorize the application of an annual earnings test for the 2020, Covid 2020, wildfire emergency and the 2021 ice storm deferrals, allowing collection of costs incurred related to the.

Matters until Pge's regulated ROE reached a certain thresholds at or below our allowed Roe.

Based on the regulatory calculation for these amounts.

Recasting the deferrals with the application of the annual earnings test resulted in a reduction of $15 million of previously deferred wildfire restoration expenses and $2 million of previously deferred COVID-19 expenses, which we have now recognized in Q1 2022 earnings.

While the order was constructive and its tone, we were surprised that the commission disallowed portion of costs related to this unique and unprecedented circumstances of 2020. The final recovery of these deferrals will be adjudicated in the existing dockets and we will continue to work with stakeholders through prudency reviews to address recovery of these.

Costs Holistically.

Holistically.

Resolution represents a step forward in our regulatory journey and provides clarity as we move forward under a new rate structure.

We continue to witness strong growth fundamentals in our service territory highlighted by high growth in the commercial and industrial sectors. Overall Q1, 2022 loads increased by four 4% weather adjusted compared to Q1 2021 residential loads increased one 8%.

Adjusted usage remains elevated when compared to pre pandemic levels, but we are beginning to see usage patterns normalize.

Residential customer count remains steady at one 1% quarter over quarter commercial loans increased three 2% weather adjusted as we continue to see recovery from the impact of the pandemic.

Hi Tech and digital services sectors are continuing to grow at a rapid pace as we saw over 10, 4% higher industrial loads weather adjusted.

<unk> weather had a one 4% impact on the overall load growth rate of 3% in Q1 2022.

Which have been significant across all major commodity care categories, including material and labor as well as service costs.

I'll now cover our financial performance quarter over quarter as previously discussed we experienced a 14% decreasing to EPS as a result of the application of the earnings test on major 2020 deferrals established and the final JRC order.

We experienced a <unk> increase in total revenues, while load was up 3% quarter over quarter with significant increases in industrial load growth were partially offset by a 1% decrease in residential load non weather adjusted resulting in some offsetting effects due to the composition of customer prices and mix.

On a weather adjusted basis revenue contributed <unk>.

Weather was milder quarter over quarter with warm warmer weather, resulting in a <unk> <unk> decrease to revenue.

Offsetting this increase was a <unk> <unk> of unfavorable power costs, due primarily for serving higher customer demand compared to the previous quarter.

It was a <unk> decreased EPS from higher operating and maintenance expense as a reminder, in 2021 O&M included $11 million of storm restoration costs that were offset in the storm collection balance and our normalized from this comparison.

Q1, 2022, O&M drivers include <unk> <unk> of additional vegetation management, reflecting incremental work performed in 2022.

<unk> <unk> of additional outside service and labor costs for grid reliability and resiliency and.

<unk> decrease from higher administrative expense, primarily driven by wage and benefit increases quarter over quarter.

There was a <unk> <unk> decrease due to higher DNA due to a larger plant balances in 2022, and then a <unk> <unk> decrease from the impact of higher interest expenses due to larger long term debt balances from the Q3 2021 debt issuance of $400 million.

It was a <unk> <unk> decrease due to lower returns on the nonqualified benefit trust compared to Q1 2021, the <unk> decrease driven by a local flow through tax adjustment recognized in 2021, which did not recur in 2022 finally, we achieve.

A <unk> <unk> increase in EPS due to <unk> increased for capital cost deferrals for Wildlife and storm restoration and then it <unk> decrease from other miscellaneous items.

Turning to slide seven which shows our capital forecast through 2026, we increased our capital expenditure forecast for 2022 by $25 million. This reflects additional opportunity for system resiliency investments.

While our current investment plans calls for $3 3 billion investment over the next five years, primarily related to grid resiliency and transportation of electrification. This number does not include any expenditures related to possible RFP ownership options.

Turning to slide eight we continue to maintain a solid balance sheet, including strong liquidity and investment grade ratings accompanied by a stable credit outlook total available liquidity at March 31 is $905 million and we remain one of the least levered companies in the sector.

We plan to fund investments with cash from operations and the issuance of up to $250 million of debt in the second half of 2022.

This debt is expected to be issued under our green financing framework as we continue to seek out opportunities to tie our long term debt to our sustainability strategy through capital investments.

On to slide nine we published the shortlist of bids for the 2021 RFP within our earnings release today. The competitive process included specific evaluation criteria that resulted in a short list containing experienced project sponsors with good track records deploying proven technologies.

We believe this diverse array of bids will lead to a cost effective resources to serve our customers and contribute to our de carbonization targets.

While we are pleased that some TGE investment opportunities are included in the shortlist. It's very early in the process and the final outcome remains subject to commercial and regulatory processes that will unfold during the balance of 2022.

Company owned opportunities for individual renewable resource projects range from 120 megawatts to 350 megawatts and from 50 megawatts to 125 megawatts for individual non emitting dispatcher book capacity research projects all projects with company owned components.

Between certain proposals.

For 2024.

We expect to release, our next RFP in the spring of 2023, which will generate additional de carbonization options.

Our first quarter performance reflected strong load growth balanced against operating cost challenges.

As well as deferral reverses as we look ahead to the balance of 2022, we are revising our full year guidance from $2 75 to $2 90 per.

Per share to.

$2 50 to $2 65 per share.

This reflects a reduction to the full year guidance for the adjustment of the 2020 deferral amounts and a revision to full year O&M guidance from $590 million to $610 million to $620 million to $640 million, which includes the $17 million impact from the change.

Regulatory deferrals with the remaining increase attributed to higher wildfire mitigation expenses, resulting for more work.

As a result of cost pressures for the full year.

We expect continued growth in our economy with a strong pipeline of high Tech and digital growth and continued in migration driving weather adjusted load growth.

Two to two 5%.

While commodity prices have increased significantly in the first quarter, our power cost framework establishes a strong hedging strategy that limits the impact of the run up of commodity prices in the current year.

Cost pressure challenges are likely to continue and we are taking the following steps to manage O&M for the remainder of 2022.

We're going to continue deployment of distribution automation technology, and we're going to optimize our supply chain processes to balance customer needs with cost challenges.

We have to continue to identify and implement efficiencies in 2022, which coupled with continued low growth will allow us to achieve our long term earnings guidance of 4% to 6%.

Finally, with respect to dividends earlier this week the board approved a dividend increase of <unk> <unk> per share annualized basis, which represents a five 2% increase.

This increase is consistent with our long term dividend growth guidance of 5% to 7%, while observing a dividend payout ratio of 60% to 70%.

We also completed our limited share buyback program in Q1 to offset any dilutive effects shares issued under our compensation programs.

Looking ahead, we anticipate customer growth ambitious decarbonization efforts and increasing opportunities to invest in our customers electrification needs. These.

These themes lay the foundation to deliver value by providing clean affordable safe reliable and equitable energy.

Execute long term financial targets for customers and investors alike.

Now operator, we're ready for questions.

First question is from the line of <unk> Kim from Goldman Sachs. Your line is now open.

Yes.

Thank you.

Hi, Good morning, My first question.

On inflation I think it's just impacting the whole industry. The whole world right now just as you think about whether it's labor or materials and whatnot.

Beyond 'twenty two or any.

I guess insight right now as to how sustain those pressures could be in.

Depending on your view of that.

Initial look into weather.

Our next rate case timing could be sooner rather than later.

Sure. That's a great question and the adjustments that we've made to this year as well as to this year's guidance as Jim noted in his comments are really on a work related versus inflationary and they're focused in primarily wildfire and vegetation management areas.

As we look farther out inflation, particularly because much of it is related to hard goods and construction.

Going to impact our capital costs.

More than it will actually even impact our O&M costs, obviously, both will be affected but we're looking more 2023 and 2024 and I think this is going to be with us for actually quite a while.

We have been talking about this since after we got after our last February ice storm.

We.

We're confronted in March and April with particularly tight supply chain and I think at every turn it's gotten a little worse than we expected I would add to that.

A real focus on our Rfps.

Coming in at higher costs.

We would have thought and clearly higher than our last projects that we brought it to customer prices and then finally gas prices.

We have a muted impact on our customer prices because of our hedging that we do.

But longer term, you'll continue to see that much higher gas prices.

Roll forward as we continue.

Understood that's helpful.

You've alluded to it but on that RFP shortlist.

The schedule out there on the slides.

What will happen for the remaining portion of the year just given the diverse the circumvention investigation, that's going on and a lot of these fortalice projects, including solar and.

And most of them do.

You see the potential for this process.

Pushed out a little bit I know the actual in service date is not until 2024, but I guess just in terms of getting more certainty around which projects are the ultimate I'm wondering just timing wise.

Sure Hi, Andrew.

So it's Jeff So I think thats a very good question.

Direly up too.

You see.

And.

The question now arises.

To what extent you can delay the process still hold these bids firmed.

Get underway with them, you'll note that in the schedule Youll see a series of other types of projects not only solar but wind in and battery capacity.

Some hybrid projects as well there is there exists an opportunity for the reconfiguration of some projects to eliminate solar and just do the wind parts of the battery parts, there's a lot of permutations and but supply chain is affecting every single one of them. There is no question about that so it really depends on what the PUC and its independent.

Evaluated.

Surmise about these projects.

It also depends on weather.

Folks are able to hold their bids and pricing and timing when we go about the process of negotiating with them in the second half of the year. So some of it is on the actual proponents themselves.

The projects as I mentioned in the remarks these are larger sophisticated.

Project sponsors good track records proven technologies, but nonetheless, there are some forces that are now in.

Packaging everyone's ability to execute.

We've decided to take a build transfer approach in terms of our risk management strategy here really to answer the question that you're raising so it all depends on all depends on what the PUC wants to do it and how the project sponsors show up.

There is enough time.

Towards the end of 2004 to get these projects in service in terms of the PTC and the ITC folks are going after to make the economics work, but bottom line, it's too hard to call right now.

We're just early on in the process, we don't know what the department of Commerce investigation will will yield in August at the first checkpoint.

There's a lot of uncertainty I really want to stress that there is a lot of uncertainty on how we go forward here.

But at the same time I'll conclude by saying. This is just one of a series of processes that will be heading towards.

At the end of this decade, a series of procurement efforts that will have to.

Fleet, so in a way.

Dollar cost averaging these D card goals towards 2030, and there is an opportunity here to redo, perhaps two maybe three more rfps as we get to the end of the of the decade.

That's the color I would give you and sue hope that helps.

Yes, no that definitely does I'll pass it on thank you.

Thank you Tim.

Your next question is from the line of Peter <unk> from Mizuho. Your line is now open.

Will the discretion with the commissioning work is that going to be on a quarterly basis or an annual basis.

So the disallowance that took place relates to 2020 activity. It is the entirety of our wildfire.

Expenses that we incurred in that year and it is about $2 million of the COVID-19 expenses that we incurred that year.

Based on an earnings test of the regulated our ROE, which is sort of a formulaic.

Regulated.

Capital set of calculations.

And as you'll remember, we had our energy trading issues that year, and we reduced our equity meaning that our regulated equity are popped up and so the.

Well it was a terrible year for the company.

The mathematical calculation.

The result in the write off of those at that $17 million.

As we move forward.

The test will be applied on an annual basis.

For the wildfire and the ice storm deferral amounts.

Okay. Thank you and maybe just to confirm that the.

The remaining amounts I guess of deferrals as they corrected $71 million for the ice storm and then $23 million for the wildfires.

Yes that schedule is in the materials.

Okay and this is Peter.

Peter It's Jim I, just want to make sure that we clearly answer your question is no.

Allowance per se as a result of what you may be thinking of as a prudency test. This is really about the operation of the formula around the.

The regulated ROE is that clear.

Yes. Thank you.

And then just to confirm this is a noncash issue right. It's really just impacting the balance sheet.

That correct is that non cash right.

Great.

2020 adjustment that we have to take now of course, because we're reporting now.

Okay.

And then maybe just one other last one just on the PJM.

It looks like you guys are showing in the benefit position of $10 million is yet is that the amount that is baked into the updated guidance for the rest of the year.

Yes, yes.

Okay. Thank you.

Your next question is from the lineup Ryan Greenwald from Bank of America. Your line is now open.

Hey, good morning, everyone.

Good morning backing.

So.

The wildfire costs going forward are not subject to the earnings test but.

But we do have additional wildfire and vegetation management costs and those are reflected in our revised guidance for the year.

Got it so it's really all just historical in terms of when look at the earnings.

Yes.

One of the reasons why Youll see we did not make an adjustment for 2021 and.

And we don't expect to have an adjustment for 2022.

Yes.

However, let me just.

Got it.

Brian I think that we need to see more progress on the.

Company owned assets and the RFP, that's going to be the main driver here. We now have the rate case in front of us. So, we're obviously able to model that and but the other important variable is how we come out on the RFP. If you look at the schedule. There is a lot of variability here.

As is.

As Peter was asking about earlier a lot of uncertainty around the timing.

On the resolution of the RFP, so, but thats really going to be our next catalyst I would say.

Got it and then maybe just lastly, any reason in particular for including the deferral in operating guidance, given it's more onetime in nature and noncash.

Paul we had a long discussion on that.

And we could have gone either way and there are there are pluses and minuses to either and we ended up selling it this way.

Largely because of the.

Of the size and term semi his around sort of in our accounting treatment and keeping instead of all within the same at.

It all gets adjusted out anyway.

Got you and sorry, maybe just one more follow up to that would you guys have reduced guidance. If this deferral.

Excluded in adjusted numbers.

That's a good question as we it all relates to how we interpret it and look through the order as well as the work that we're doing as it relates also to the wildfire plan that was recently approved so.

It's hard to separate at all as you look at it all coming from one condition.

Ill add too.

Something here Ryan to Murray's comment if you take the additional part of the guidance that has reduced other than the deferral amounts right and you accumulate those call it midpoint to midpoint about a 25% reduction.

<unk> arose for us how much can we absorb overall and keep the prior guidance.

If we're just one of those things or the other.

We would say we could manage that but when you have the accumulation of those additional cost pressures, mostly additional volume in.

Wildfire mitigation and the like plus.

The deferral that got to be too much for us to absorb an offset so it was really the accumulation Ryan that caused us to move in that direction.

Good point.

Got it. Thank you very much for the time I'll leave it there.

Thank you. Thank you.

Your next question is from the lineup Shar <unk> from Guggenheim. Your line is now open.

Good morning, guys, it's actually a chance for sure thanks for taking our questions.

Sure.

So I just don't fair day is there an option to pursue a limited issue rider or will it just has to be the next trc.

That's what we asked for.

And we have done that previously in the past with a very complicated.

System connected to our patent rounded facilities, but that was not the decision that was ultimately made.

Okay. So we will need to either file a single issue rate case at a regular rate case.

Okay.

Keith mentioned, a subpoena from the department of Forestry can you provide any color on what they are looking at there.

No I think that goes way back to when we had the wildfires and just some information that they were seeking theres nothing active at all on that.

It goes back to September 2020.

Yes.

Okay. Thank you.

Sure. Thank you.

Your next question is from the lineup Sophie Karp from Keybanc. Your line is now open.

Hi, Good morning, Thank you for taking my question.

I'd like to go back.

Two the deferral issue.

If I'm hearing correctly, what you guys are saying is that.

We're already past was applied.

This one time and because of.

The way the Formula works from lately.

Particularly higher E. So this is why you got it okay.

Great.

You had effectively multi before right.

Right.

So there is no proactive application of prospective application of its earnings.

Can you give us a little bit more background on <unk>.

Legal basis for test in the first place.

What would stop the commission from decided to apply again next time you come for a rate case for example, it seems a little arbitrary as it has always been a part of their thinking process related Nicole onetime issue for some reason that what is that broken that foundation of all of it.

That's a really good question.

Obviously, there is the standards with regards to prudency reviews in destin reasonable rate.

Periodically, but not in every circumstance that our commission has.

Disgusting and has applied an earnings test, we have and in some other areas that are pretty minor.

Not seeing something like this as broad as this one was particularly on events that have.

Ben disaster related.

And in the testimony there was a discussion by the commission with regards to.

Sharing on this which is why they also put the earnings test not at a nine 5%, which is why our allowed us but at nine 3%.

So technically they could potentially do it again in the next rate case.

Yes, they could.

Hey.

Fair enough.

The RFP is a couple of questions I have there. So I guess the world has changed significantly between January the.

The bids were maybe process and stay.

Given all of the evolution of supply chain and solar regulatory landscape and all of that is there a scenario where some of those rfps would need to be rebid.

Can you repeat the last part of the question is there a scenario where some of those would need to be revised.

Okay.

Peter would have to come up with.

Right.

Robert again.

Yes.

Quite clearly.

Cause.

When we're negotiating with bidders, including relative to our own bids across the Chinese wall. So to speak all bidders will be treated the same there will be asked to confirm their pricing and their schedule and so we want to make absolutely sure in this scenario given the.

The headwinds that you've talked about is everybody is firm and this committed before we signed contracts and Sophie technically speaking.

Terms of the RFP where to submit binding bid.

Bids.

It's fairly clear from both the instructions from the company, but also the independent Valuator and it would.

It would be common practice for firm bids to be submitted but that does not mean that you had all of the contractual terms negotiated.

One is the process there.

Let's say.

Data from the shortlist is unable to live up to the commitment of the binding bid right.

So the commission they do go back to square, one and kind of go through the process again to decompose. This firstly et cetera or is that going to.

A different process there.

It may be the case that some bidders are not able to perform and they drop out.

And that's going to be up to them.

No.

Folks Ken.

At the end of this process, while we're negotiating contracts live to their commitments some of them may not be.

Noticed the schedule in the earnings release, there, there's 8000 megawatts.

Not unique megawatts I want to stress that but 8000 megawatts proposed and 3000 megawatts of.

Of capacity and the goals as you may recall of about 500, and 375, respectively. So theres a great deal of Oversubscription here and a great deal of permutations. So I think we go into this process in the second half of the year with with some of.

<unk>.

For both folks to come forward, but there also may be some.

Just talked about I would say in the summertime starting in July .

Got it and just to be clear are you one of the bidders here from like 8% to H.

Yes, so I can't I can't tell you about the specific.

One's that we represent and what they are but youll notice in the schedule there is.

So the answer is yes, but.

You have to look at the calendar or the schedule to determine which.

Okay. Thank you.

Sure. Thank you.

Once again, if you wish to ask a question simply press Star then the number one on your telephone keypad. Your next question is from the lineup Travis Miller from Morningstar. Your line is now open.

Good morning, Thank you.

Sure.

Not to.

Beat on those deferral thing if I could go back real quick.

You said that it wasn't a disallowance.

Rule potentially prudent is there a prudency review.

Going on and would that impact.

The future collection of these 2020.

Yes, Travis there are dockets set for our prudence reviews of each of these it would be our hope that we can move through that this year.

That absolutely will continue to take place so yes.

This change in the deferral balance given the earnings test.

It puts us at about $173 million thats to $17 million difference and so there'll be a.

A prudence review as we go forward on those on that balance.

On the 173.

Seven.

Okay, regardless of pregnancy okay.

One of the things you should know that we're working collaboratively and pretty much all positive signs on all fronts.

With stakeholders, the PUC and others for securitization.

And.

So it would be our hope that.

The costs, you've just talked about wood, while they represented extraordinary circumstances.

Significant natural disasters that they would not have thought too great of a burden on customers in any one period, but represents really the.

$151 40 kind of time kind of events that these were.

Sure sure. Okay, and then just first of the five.

Sure Yes.

And then on 2021 did I hear the number $71 million for the ice storm 23 for the wildfires.

For those.

Yeah.

Now let me let me just the balance at the end of March but after adjustment went from $53 million on wildfire to 37 eight to be particular.

<unk>.

That $15 million numbers, and then the Covid pandemic one.

To begin at just under 38 and is now at call. It 35.

Okay and for so for 2021.

But knowing what you earned.

Alright.

Are those still available I guess to recover.

Alright, because you already you know what you earned in 2021 correct.

We applied all the same math to 2020 , one as we get to 2020, Okay and I think we have to also remember in 2020, we had the.

That is.

Addressed in the order for 2000 22021 and of course the forecast for 2022, so that we did a thorough year by year look as is required here and the result is what we've talked about that $17 million and so there were no.

Regulated earnings that were sufficiently triggering the earnings test in 2021 that was your question 2020.

Got it okay. No I appreciate all the technical stuff here, one higher level. The wildfire mitigation plan that you've got approved is there any capex that might be added to your plan from that to your Capex plan.

For the 2020, 'twenty three and beyond.

Indeed, there is there is a fair amount of Capex, but also O&M as well as the planned speaks to both elements of expenditure I don't have that right before me, but it's been filed.

Shall I say blessed.

Accepted.

By the PUC.

We're obviously implementing it we're sort of on the heavier and of that right now without.

Putting too fine a point on it you get ready for the season as it were in the first half of the year right through May and June because that's when the risk develops of course in the summer. So we're so expenditures are more skewed.

As we speak right now.

Okay.

It would be upside to that $6 50.

Average number or is this wildfire mitigation, Brian just for this year in terms of the Capex.

No. It will go into next year, as well and I'll go into the year after that as well and onwards.

This is this is a permanent part of our business right. It's important it's an important part of it.

Risk mitigation I would say so we've incorporated this as a as an ongoing.

Program of risk mitigation.

Okay, Great I appreciate you, taking all the questions and details.

Thanks <unk>.

Your next question is from the line of <unk> Gandhi from Wolfe Research. Your line is now open.

Okay.

Good morning, Thanks for taking my question.

Just could you quickly clarify so on the 2021 deferrals the $71 million for the ice storm in the $73 million for the wildfire.

Jan already.

The same earnings to 2021, and then your forecast for 2002.

Sure.

There should be no hit too.

Sure.

What I'm trying to get to us.

There should be no hit to 'twenty three numbers from.

Any deferrals reductions right could you could you please clarify that.

I'm not sure you went from 'twenty one to 'twenty three in between 'twenty. Two so maybe you can help me understand where youre focused but I'll just offer of what I said previously we have done extensive work around the earnings.

Our next test for 'twenty one.

There is no exposure there in our view.

That that set of deferrals are probable of collection based on the tests that we have to perform.

Does that help you.

Okay.

It does that's helpful. Thank you and then just.

Just how should we be.

Given these deferrals and given the elevated inflation.

It's looking like it's going to persist.

Well into the euro harsh.

How should we think about the 4% to 6%.

Long term EPS growth rate that you will have.

Yes, so as we think about it we recognize where it is in the context of the industry and where it is in the context of our overall growth and Kim noted.

We are we look at it regularly but we are waiting to see the ultimate outcome with regard to the RFP projects, that's an important component of.

Our company in terms of Decarbonising, our LNG supply.

And we there's a lot of uncertainty here and.

And we need to go through the process, which will take months of the year.

Jim anything you want to add no I, just actually I am thinking about your prior question DTI.

There's no 2023 impact.

Due to the earnings test I just want to make sure you are aware that I think you were trying to get me there but.

Yes.

I'll probably skipped over your question. So just to be clear no 23 in fact is the earnings test.

Alright, Thats exactly what I was getting to.

That should have been more clear. Thank you that's very helpful. Thanks.

Thanks, Jim Thanks Maria.

Youre welcome.

Your next question is from the line of Nicholas Campanella from credits.

Credit Suisse. Your line is now open.

Good morning.

Hey, good morning, everyone. Good morning, Thanks for thanks for getting me on here.

I know I came on late so im sorry, if someone already asked but I'm just curious.

Clearly a lot of renewable opportunities in your service territory, driving some outsized capital needs.

Recognizing just kind of the balance sheet being where it is because of the.

Because of the legacy trading loss, how do we kind of just think about growth equity versus balance sheet fixing equity if there if at all that if you do need it and any timing around that thank you.

Okay, we'll take it yes, thanks Nick.

So quite clearly.

I would say this is a growth equity story.

We will in the process of sizing.

The future growth opportunity take into effect, what you've identified here as a balance sheet matter, but I will tell you that it's as I look at the opportunities in front of us, it's mostly a growth equity story.

And we'll be efficient.

And very thoughtful in our execution around that as we as we eventually get into the market, so, but I want to find out what the real opportunity is as you can see in the schedule today, there is a fair amount of.

Opportunity listed however, it comes with a great deal of uncertainty just because of the macro environment that we're in with supply chain inflation.

Partners equipment vendors and the like so I want to nail that first.

And then look at the balance sheet and come to the market efficiently.

Okay, that's definitely respect that.

It has been some time since you kind of just update us on the actual kind of growth rate and rolling it forward for just another year. So when can investors expect to see that.

Well I think it will depends on the on the RFP results right that as I mentioned earlier on the call that that would be the catalyst for doing that.

Sorry, I missed that thanks for the time today.

Youre welcome take care. Thank you.

There are no further questions presenters. Please continue.

And with that this concludes today's conference call. Thank you for attending you may now disconnect.

Q1 2022 Portland General Electric Co Earnings Call

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