Q3 2022 Portland General Electric Co Earnings Call

October 25, 2022

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Okay.

Good day, and thank you for standing by and welcome to Portland General Electric Company's third quarter 2022, earning results conference call. Today is Tuesday October 25 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'll be a question and answer session to ask a question. During this session you will need to press star one on your telephone you will then hear an automated message advisory in your hand as race.

If you do intend to ask a question. Please avoid the use of speaker phones for opening remarks, I will turn the conference call over to Portland General Electric's Senior director of Finance Investor Relations and risk management Jargon Armijo. Please go ahead Sir.

Thank you Dylan.

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 will be referencing throughout the call. The slides are available on our website at investors talk more than general Dot com.

Turning 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.

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, 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 Treasurer and CCL.

Following their prepared remarks, we will open the line for your questions.

Now it is my pleasure to turn the call over to Maria.

Thank you Sharon good morning, everyone and thank you for joining us today.

Beginning with slide four.

By discussing our third quarter results before moving on to long term growth.

This morning, we reported GAAP net income of 58 million or <unk> 65 per share compared with $50 million or <unk> 56 per share in the third quarter of last year.

Our solid results this quarter were driven by strong operating performance and revenue growth.

First load growth.

This came primarily from technology and digital customers continues to be robust.

Industrial load was up 10% this quarter versus the same period a year ago.

Given the chips and in fact as well as a focus of semiconductor investments and the state of Oregon, We anticipate several significant semiconductor expansions in our service territory.

We're also continuing to see steady business growth in other sectors as well as continued residential in migration.

Overall, we are moving our load growth expectations to 2% up from one 5% over the next five years.

From an operating perspective, we are pleased to see that the hard work, we're doing across the company to reduce operating expenses.

Having an impact overall O&M expenses were largely flat with last year's third quarter.

In several areas offset wildfire mitigation and grid resiliency costs.

Third quarter power markets, where a markedly volatile as many states in the west set all time temperature records.

In Oregon at least 12 cities, including Portland, So the hottest July and hottest temperatures on record.

2022 also ranked as the warmest August on record in Washington, and Idaho, and California, So hot temperatures as well as record drought conditions.

Our generations plants could not have performed better.

And we are well integrated with power operations contracted and purchased energy supply.

Overall purchase power and fuel expenses increased due to market conditions and to meet significantly higher energy usage.

We are pleased to share that we have resolved a number of open deferral dockets.

Have been ongoing for many months.

And now provide greater certainty.

Overall, we have achieved settlements totaling $130 million, including the 2020 wildfire the 2021 ice storm.

The 2021 power cost adjustment mechanism dockets.

These agreements are subject to final approval by the op UC.

With an order expected in November .

We also anticipate filing an amortization request for the $34 million Covid deferral later this year.

In early 2023.

Jim will walk through the expected financial impacts of these updates in more detail.

But I'd like to add my appreciation to our PGE leaders and to all other parties for the constructive spirit. They brought to these discussions.

Moving to slide five.

After a robust and highly competitive process identifying options that increase renewable energy at the best combination of price and risk for customers, We announced the Clearwater wind project one of our benchmark generation bids.

Clearwater Clearwater is part of a broader wind development in eastern Montana that will generate approximately 311 megawatts of nameplate capacity.

We signed to build transfer agreement with Nextera energy resources for Portland General to service, our 208 megawatt ownership share.

PGE will secure the remaining third or 103 megawatts under a 30 year PPA.

This is significant this is a significant step forward in our clean energy transition as a renewable energy generated at Clearwater complements our long term plan to remove the remaining coal generation from our portfolio.

Pge's capital investment in Clearwater is projected to be $415 million and the facility is planned to come online by the end of 2023.

The Clearwater investment opportunity will have an impact on the capital needed to fuel our growth and rebalance our capital structure, which Jim will touch on shortly.

PGE has been on the forefront of the energy transition for years.

We could not be more excited about the great opportunities that we see ahead.

In the spring of 2023, we expect to file both our clean energy plan and our next integrated resource plan. These.

These plans will incorporate enhanced analysis and actions to meet evolving energy needs with a focus on reliability and affordability.

In the second half of 2023, we expense, we expect to launch additional rfps.

For renewable generation and non admitting capacity.

Now, let me turn to operating performance and risk management.

As I mentioned earlier this was a very tough summer as we navigated record heat and heightened risk of wildfires.

We're focused on making strategic investments and much of the work we're doing to enhance resiliency in the summer also helps us prepare for winter storms.

This includes proactively replacing aging equipment, reducing outages accommodating growth and better integrating renewable resources.

We're also making use of the latest technologies.

At our integrated operations Center, we're using analytics to better track plant performance or predict potential issues before they arise.

We're using advanced modeling and improved tools to better monitor dynamic weather.

Through AI and data analytics, we're proactively addressing issues in the distribution system, reducing costs and increasing reliability.

In short, we're advancing the digitalization and simplification work that we have scaled over the last couple of years.

This quarter for example, we have focused our work on improvements to our field crew scheduling systems that will in productivity and workflow for align Chris.

We're also upgrading our digital platforms for more seamless customer service and interaction.

Given the current environment one area of particular concern is power cost management and challenging wholesale markets, especially during critical peak periods.

This quarter, we experienced significant volatility driven by intense summer heat.

Western power market conditions were very challenging with they had peak prices of $1000 per megawatt hour on multiple occasions.

Our risk management strategies and strong balance sheet are critical as we navigate these headwinds are.

Our vertically integrated utility model and 16 generation facilities helped insulate customers from the full impact of the volatility that we saw in the energy markets.

In the current environment, we are frequently generating power to serve our customers at significantly lower energy costs that can be purchased in the open market.

I want to recognize the outstanding work of our generation leaders and plant operations.

We know that our customers ranging for some of the largest global companies to our neighbors down the block are facing significant financial pressures.

As we look ahead, we're intently focused on making full use of the tools available to us to help manage power costs.

We're committed to providing our customers with the ability to take an active role in enabling the clean the region's clean energy future.

Again, this year, Portland General clean future program.

Was recognized as the number one green energy program in the country by the National renewable energy lab are en route.

Before I turn the call over to Jim I'd like to discuss our financials.

I'd like to touch on the coming quarter and our growth outlook.

In the fourth quarter, we expect continued load growth power cost performance and disciplined O&M management to keep us on track to meet our guidance for the year.

Looking ahead the progress we've made this year has laid a foundation for substantial investments in 2023 that.

That will position us for significant growth in 2024 and beyond.

As such we're raising our long term EPS growth guidance of 4% to 6% to 5% to 7%.

Reflecting investment opportunities ahead.

In sum.

We're pleased with our strong performance this quarter.

Demonstrating that providing safe reliable affordable and clean energy is the right formula for steady and consistent results with that I'll turn it over to Jim. Thank.

Thank you Maria and good morning, everyone I'll cover our third quarter results before providing additional details on our outlook.

Moving to slide six our third quarter results reflect the execution of our long term strategy continued growth of demand and effective risk management and volatile power markets.

Our regional economy remains solid as unemployment in our service territory improved to three 2% relative to four 3% in 2021 and has remained stable throughout 2022 industrial development and customer growth continue to drive strong demand overall Q3 'twenty.

22 loads increased by one 2% weather adjusted compared to Q3 2021 on a non weather adjusted basis total load increased four 2% year over year as average temperatures for the third quarter the warmest on record in our region.

Residential load increased by three 6% year over year, but decreased two 5% weather adjusted as we continue to see moderation.

COVID-19 related usage trends.

Residential customer count increased one 1% compared to Q3 2021.

Commercial load increased 5% year over year, but decreased one 3% weather adjusted as the commercial segment continues its post pandemic recovery.

Steady growth among high Tech and digital services sectors continued in Q3, driving higher industrial loads, which grew over 10% year over year or nine 2% weather adjusted.

High temperatures increased deliveries, but they also create a challenging power market conditions throughout the west.

While power costs exhibited significant volatility, we managed operational and market risk effectively as the region continues to address resource challenges.

Made acutely focused on managing energy price risks optimizing operations to limit customer price impacts.

These cost pressures.

I will now cover our financial performance quarter over quarter, we experienced a 20 <unk> increase in total revenues driven by the four 2% increase in deliveries.

By growing demand for our high Tech industrial customers, while load was up four 2% quarter over quarter industrial load growth outweighed residential and commercial load with the change in customer price competition, creating a <unk> <unk> decrease in total revenues compared to 2021.

Q3, 2021 power costs were high.

And 21 of the quarter over quarter earnings changed is attributed to headwinds in 'twenty, one that we normalize for this comparison.

As a reminder, Q3 2021 saw conditions that pushed our costs above the $30 million power cost adjustment mechanism upper threshold, resulting in a deferral, which I will discuss again shortly.

This quarter higher market prices due to resource scarcity and peak periods drove a 25 cent decrease these impacts were largely related to the impact of serving load during the region's demand peaks in a historically hot summer.

Higher purchase volumes to serve load drove a 7% decrease.

<unk> increased EPS was due to lower operating expenses net of storm restoration and regulatory program costs that are offset in revenue primarily because of lower professional services costs. You saw once that impact from depreciation and amortization expense due to increased intangible asset balance.

As compared to 2021, reflecting our continued investment in software and technology to increase efficiency across the organization lastly.

Lastly, we had a net <unk> <unk> increase reflecting offsetting impacts from a few items. There was a 9% increase to other income due to a settlement gain from a buyout of a portion of the <unk> post retirement medical plan.

Was partially offset by a <unk> <unk> decrease from the impact of higher interest expense from the Q3 2021 debt issuance of 400 billion.

<unk> decreased due to higher income taxes, and one decrease due to other miscellaneous items.

Turning to slide seven as Maria mentioned yesterday, PGE and parties submitted a stipulation to the op.

Reflecting an agreement that resolved all matters relating to 2021 under the 2020 Labor day wildfire in 2021 February ice storm deferrals. This agreement would allow PGE full recovery of the deferred amounts related to 2021 of $30 million and $72 million respectively.

<unk> with amortization over seven years.

PGE and party has also submitted a stipulation to the OTC.

<unk> and agreement that resolved all matters relating to the 2021 <unk> deferral.

Which would allow PGE recovery of deferred cost of $28 million with amortization over two years, beginning beginning January one 2023.

Combined these stipulations resolved $130 million of outstanding major deferrals.

All stipulations are subject to PUC approval.

We plan to file an amortization request for the COVID-19, deferral, which has a $34 million balance as of September 32022 later this year or early in 2023.

On slide eight Maria highlighted earlier, we are very pleased to have clarity on a portion of the ongoing RFP with our execution of our Clearwater wind project contracts with Nextera energy resources Clearwater, Our first project to be announced represents a critical step in our clean energy roadmap and provides.

Our high quality renewable generation investment opportunities that will benefit customers and stakeholders as we move toward our 2030 de carbonization target.

This project will be executed using a build transfer approach, which will allow us some flexibility when considering the timing of the <unk> approach to future financing.

We are continuing to negotiate with other RFP shortlist bidders for both additional renewable generation projects and non emitting dispatch for capacity resources. We are optimistic that we will conclude these negotiations by the end of 2022 or early in 2023 were.

We're continuing to assess the debt and equity needs related to the Clearwater project and other potential RFP project investments as well as long term equity needs to rebalance our capital structure for regulatory purposes, and maintained our strong credit ratings and strong balance sheet creates important benefits for both shareholders and custom.

We will look forward to finance this growth consistent two and leading up to our capital structure of $50 50 overtime and on average.

Turning to slide nine which shows our updated capital forecast through 2027, we have increased the 2023 forecast by $550 million to reflect the renewable generation investment presented by Clearwater as well as incremental base Capex. We have also increased capital forecast for 2020.

Four through 2026 by $75 million $100 million and $125 million, respectively, and are providing a 2027 capital forecast of $800 million.

This forecast represents planned investments for technology and software system, resiliency transportation electrification and grid optimization.

Figures for 2003 through 2017 do not include any potential expenditures related to possible ownership from the remainder of the current RFP or future RFP cycles.

Turning to slide 10, we continue to maintain a solid balance sheet, including strong liquidity and investment grade ratings accompanied by a stable credit outlook total availability of liquidity at September 30 is seven.

$797 million.

We plan to fund investments with cash from operations and the issuance of up to six $460 million of long term debt in the fourth quarter, a portion of which is already closed.

We expect to issue this debt under our green financing framework as we continue to seek out opportunities to tire debt financings to our sustainability strategy through capital investments.

The third quarter reflected the strength of our region, our ability to navigate difficult power cost conditions, our continued emphasis on controlling O&M expenses.

<unk> growth trajectory of our service territory is strong and we remain focused on controlling costs and prioritizing spend on the highest return activities like technology deployments that drive efficiency.

We are reaffirming our full year GAAP earnings guidance of $2 60.

$2 75 per diluted share or $2 74.

To $2 89 per diluted diluted share on a non-GAAP adjusted basis. Additionally, we are also increasing long term load growth guidance from one 5% to 2% as Maria described this increases enabled by continued growth in high tech industrial sectors and residential electrification.

Patterns.

Given the renewable investment opportunities presented by Clearwater as well as a strong prospect of additional RFP opportunities yet to be awarded clarity on major deferral dockets and anticipated load growth, we are raising our long term earnings guidance from 46% over.

2019 base here.

Five 7% from a 2022 adjusted earnings this year.

Very excited about the growth prospects supported by both renewable development as well as resiliency investments. We are confident the catalyst discussed today create a clear path forward as we strengthened our core mission of providing clean reliable affordable energy for all enabling consistent execution of our long term financial goals.

<unk>.

Provide value for our customers our community and our shareholders.

And now operator, we're ready for questions.

Thank you Sir.

As a reminder to ask a question you will need to press star one one on your telephone.

These standby, while we compile the Q&A roster.

And I show. Our first question comes from the line of <unk> Kim from Goldman Sachs. Please proceed with your question.

Okay. Thank you.

First question. Thanks for the updates on the 5% to 7% EPS growth off of that adjusted 'twenty two guidance space should we assume that.

By 2004, you should be in that 6% mid point range or is it more beyond that in 'twenty fiber or another time period.

Hi, Andrew it's Jim Good morning.

I will tell you that.

This is a long term earnings guidance projection.

<unk> 2023 represents a significant Europe investment as you saw the Capex rise to about $1.1 billion or more and of course, we're not done with the RFP yet so it's really hard to be precise with an answer on that.

So I do think 23, however is a year of investment.

And as you know in this business you invest that way in order to seek a longer term growth profile. So that's probably where I believe the answer right now.

Okay, and I guess associated with that given at least the Clearwater is expected to come online in the year end 2023.

Are you expecting from a rate case perspective to try to time, the conclusion or the <unk>.

Inclusion of that by early 2024.

Well, let me, let me correct, perhaps an assumption in your question so.

Yes, Clearwater is planned to be in service by the end of 'twenty three.

There is no rate case required to bring clearwater into rates will use the renewable adjustment clause. So upon in service.

That project will go into rates absent any rate case requirement.

That's right.

That makes sense and then just one more if I could on the LTC Prudency review for the Clearwater wind, what's the timing on that and is that.

Like a separate docket that needs to be created.

Just some clarity there.

Thank you Anne.

Yes, there is a prudency review that takes place in normal course after the project has been brought online.

But we are able to proceed with the automatic adjustment clause mechanism and move the wind energy and the asset into customer prices.

Okay got it so thats after okay.

You don't have to wait for an approval before proceeding with the Capex.

No.

Got it. Thank you so much remember we've gone through a fairly rigorous RFP process.

And also have.

<unk> bids refreshed.

All of which has been reviewed by different stakeholders by the commission.

Sure.

There's no question that in Oregon, we have extensive process.

Makes sense. Thank you.

Thank you.

And our next question comes from the line of Sharia Perrigo from Guggenheim Partners. Please go ahead.

Hey, good morning, guys.

Good morning.

I guess couple of things to unpack here.

How should we think about I guess the prospects for what you could one with the balance of the current Rfps you kind of laid out in slide eight could we see more wind procured or is it leaning towards solar which you wouldn't necessarily own I guess net net you've got $4 15. So far so are you still thinking in incremental <unk>.

<unk> hundred to get us to the one going ownership as previously discussed and I guess, how does the company storage fit into that.

So.

First of all the processes are still in process.

And we wouldn't want to front run any conclusion as we continue with negotiations with multiple parties and work with an independent value. Later, so it's just too early to tell but there clearly are more opportunities.

And we also are filing our next IR, Pete along with the new clean energy plan that the state of Oregon put in place a couple of years ago that I think will make a difference as we move forward through the decade.

Got it I guess, maybe just another way to ask that is to hit the five to seven I guess, what do you need incremental above what you just raised today.

From a capital standpoint was weak.

So as we look at the best available projects for both.

These risks.

And lease cost.

<unk> full of the deliverability of the energy clearly, we're looking at some storage projects that will help with capacity.

But theres a lot of complexity in some of the bids. So I just think it's too early to tell okay got it and then just on the timing and disclosures around sort of the equity I mean kind of what this process potentially not being finalized until the first quarter. Jim says early first quarter of 'twenty. Three does this kind of mean you wont be able.

To update us maybe as far as financing this plan as well as maybe the health equity portion of it.

Yes sure.

That's a very good question, we're working on that now.

We may or may not be able to update you at EI regarding that it just depends on.

How we look at the markets.

We see the opportunity to raise capital both debt and equity.

I wouldn't want to speculate on the timing of any financing right now so.

I'm not sure we'll be able to pin that timing down.

I would say stay tuned.

And then Jim just last one for me.

As we're sort of thinking about some of the moving pieces for 'twenty three you'll.

Youll have some natural drag from Faraday and other items.

Any updated thoughts and how should we be thinking about other line items like O&M and what they could look like relative to 'twenty, two, especially if youre dealing with potentially equity dilution I guess should we assume 23 in particular, we'll be quite linear as we're thinking about the updated 5% to 7%.

Or do you think you have got enough facets in the plan to sort of offset some of those items to maintain within that range. Even if we're thinking about it from a year over year perspective. Thanks.

It's a very.

Good and popular question right now, yes, I would say to you hold hold tight until February when we give that 'twenty three guidance I mean by the time that rolls around we should have a better perspective on those further RFP activities.

To finance all of that and just what the opportunity is for the investment so other than all of the guidance that we gave today around the long term load growth.

The deferrals you have.

Robust new Capex schedule, so we're trying to.

Peer into 'twenty, three without providing specific EPS guidance. There I think you've identified some of the clear headwinds that we've got and but we'll be back to you in February on the call with respect to the actual 23 EPS guidance.

Okay got it we will see you guys in a couple of a couple of weeks.

Thanks Sarah.

Thank you.

And I show. Our next question comes from the line of Angelica Yellow from Bank of America. Please go ahead.

It's actually Julien.

Hey, good good morning, tea bags at the time and the opportunity.

Thanks Julien.

Hey.

Congrats again on the on the raise here. So I wanted to follow up on Charles' question first off how do you think just about 24 here I know that 23 might have some moving pieces as you say large spend equity et cetera, but by 'twenty four I mean, I know you launched and raises the five to seven year off of 'twenty two base very specifically are you there and confident in.

Being within that range for 'twenty four here.

As you kick off on this.

Julian.

As we look at our guidance, it's really first and foremost and based upon our customers energy usage.

We are seeing.

The infrastructure that we have built in that they have built.

And so continued growth from that aspect.

I think you know we have a number of high tech companies, particularly semiconductor manufacturers in our service territory.

They have been growing and will continue to probably accelerate that growth over the next couple of years.

Clearwater is clearly a great addition, as we make the energy transition and add more renewables, but we also would expect to see our battery storage more demand response.

See the transition really accelerating clean energy.

And that's what makes us feel very confident in the 5% to 7% longer term growth trajectory.

Yes.

What are your board necessarily.

If I may just speaking of the longer term I mean, I think you all.

Put out a target by the end of the decade of three to four gigawatts of procurement with a gigawatt of non emitting.

Capacity as well.

That would imply a pretty hefty pace of procurement here through the back half of the decade in tandem with this 5% to seven can you talk a bit more specifically about your expectation on the cadence of these rfps.

Prospects for your ownership again and basically if you can how does that reconcile within the 5% to seven nanometer what kind of assumptions are you, making about those future rfps.

As it pertains to the 5% to seven itself.

So theres a lot of questions in there Julien I think the first and foremost is.

Our long term procurement of renewable energy and then obviously the capacity that's going to need to be associated with that to keep the system reliable.

As I mentioned.

This later this winter early spring, we will be filing the clean energy plan, which was the result of legislation that went in place just a little while ago in Oregon.

Targeting for US an 80% reduction in our admissions. After 2010, 2012 time period, and so we have quite a bit too.

I need to procure that will also be associated with our integrated resource plan, which we have used as a planning tool for decades.

As well as many of the other kinds of planning that we're doing.

Around the grid and distributed energy resources as well as electric transportation and others, where we're currently working to combine all of these I think it would be too soon to tell handicap, which would be company owned or which would be third party owned.

Most likely going to be a mix and I think youll also see needed transmission built within our service territory, but also adjacent to our service territory and across the last it clearly is a period of time.

Of investment and we're also mindful of our customer prices, it's really important that as our load growth continues that we're able to take those fixed cost investments.

And spread them over a growing customer base because of affordability in Oregon is extremely important.

Just to our residential customers.

And to small businesses.

Too many of those larger multinational companies that are challenged today. So we're balancing all of those things as they move forward and again feel confident in the 5% to 7% growth.

Okay, but bottom line, it's not predicated on necessarily any outcome on the rfps itself customer growth gives you the confidence that number.

Yes.

So Julien let me just right.

Alright, let me just add to that if you if you run the classical rate based model based on the Capex that we presented today without any other rfps I think you'll come to the same conclusion.

Got it excellent. Thank you guys to clarify that.

One quick clarification, just on the medical buyout here.

Can you just clarify was that assumed in guidance for the year I know that they are constantly moving pieces here, but.

Yes, it was Julien.

Okay.

Guys I'll leave it there congrats again.

Thank you.

And our next question comes from the line of Sophie Karp from Keybanc. Please go ahead.

Hi, Good morning, and thank you for taking my question and congratulations on the.

Even raising.

Great and the refresh.

I wanted to ask you about the O&M.

It's a bunch of moving pieces in the O&M guidance revised for the year could you maybe.

Help us characterize how much of the change.

Through the inflationary pressures that you may be seen in <unk>.

What do you see.

How do you see that development into turning briefly.

Yes.

Thanks, Sophie Thanks, Thanks for the question so yes so.

Inflation has been a thorn in our side really all companies in this space.

Doing our best to fight against it but let me just level set on O&M, let's take the top of the range at 660, which you see here in the in the form of the way I look at the 660 is eliminate.

The storm deferral.

<unk>, which are coming back in revenue so thats.

About 10 $10 million $11 million and then you've got the.

You've got the disallowance that came in the first quarter, so altogether thats about $27 million for the way I localize our O&M now.

I deduce it to about $633 million right.

So.

Once once you start with that sort of baseline I think.

It's fair to say.

You start thinking about all the.

Factors that are impacting O&M, it's clear O&M in the form of wages outside salaries services that we that we purchase of all increased dramatically.

In the last year or so so what's that factor I'm not exactly sure.

But we are certainly doing everything we can to offset that and I think.

The third quarter, if you dig into the numbers with us you'll find that there's been a moderation here that we're starting to see.

An improvement over the strategies that we've got plus using technology to be more efficient. So we're not just looking at this.

How much can we cut the way of costs, it's about making sure we get more done with the same dollar making sure we're more efficient optimizing capex that will improve O&M and the like those kinds of strategies.

Okay.

Thank you.

Very helpful.

Another question I have is on them I guess the benefits of the IRA Nathan.

New tax credits outlined there et cetera.

Should we think about the price tag on Clearwater as I think your final number that already contemplates all possible benefits that you can.

<unk>.

For that type of project or would not would that number move around.

As you discover treasury guidance and.

And then more of a.

Potential benefits from the Bill.

They may get this for other projects how incorporated.

As the new fiscal regime into your Rfps at this point.

It's sofie. Thank you so with regards to most specifically Clearwater there will be.

Production tax credits associated with that facility.

Each will reduce the overall impact into customer prices.

And we would expect to use those in the normal course.

With regards to the overall IRR II J a.

Other federal funding, we currently have a couple of projects.

The department of energy around our distributed energy test beds as well as the Oregon Department of energy.

Around our smart grid failing project that we have in our service territory and.

And we would expect to have.

Significantly more in the future.

Clearly it's important as we look at some of the above market cost of newer technologies.

To bring in those kinds of funds.

And we hope to be well positioned to do that both for reliability and resiliency.

<unk>, but also as we continue to invest in clean energy transition.

Yes, I guess maybe.

I don't think Thats contemplated this yet but is there a way through with tax equity arrangements to reduce the upfront capital needs.

Darryl I guess surprised but the need for equity may be or is that something that is not doable within the regulated construct.

Certainly so first of all many of the rules has still not yet in Britain with regard to the inflation reduction after Iran, and so we will need to see how those iron will also need to see.

If youre talking about.

Monetizing any of those credits what the market looks like at that time, but certainly funds from the federal government or from the federal government that move through state agencies here in Oregon.

Reduce our overall need for equity or debt financing as we move forward and it's going to be an important component.

<unk>, our clean energy plants.

So too soon to tell without belaboring, the point I would say that recall that when the bids came in initially in the summertime, we asked for a refresh and that's because there were I would say pretty significant inflationary pressures around all of these RFP projects, but we also asked bidders to make sure that they include their best estimates of the benefit.

Of the IRA.

For our customers because that's where this benefit goes at the end of the day.

And so I think we have some benefit.

Projects like Clearwater, but clearly to use redundant term I don't think we're all the way there yet it's early on and we will do the same for the other ISP RFP projects as we go.

And what's really great about the IRR for a company like this without a holding company.

Without an affiliate.

All of these projects that we are headed.

<unk>.

Boarded.

Yes.

Very simple structure ownership structure, and we will be able to.

Normalize or opt out of that tax normalization structure and monetize the tax credits. So I think this is a significant opportunity for us.

You will probably in the next round of projects as the IRA It gets more defined and as the market for <unk>.

Tax credits gets more defined it is just not there yet frankly.

Got it Super helpful. Thank you.

Sure.

Thank you.

One moment, while we compile our next questions.

And our next question comes from the line of.

<unk> <unk> from Mizuho group. Please go ahead.

Good morning, Maria Good morning, Jim.

Good morning.

Marie if I could just start off I wanted to follow up on I think wanted to Julians question I know there were many maybe with this first one.

So I think not.

In 2000 and for your earnings CAGR your update but I actually wanted to start is it fair to assume that we should be using the midpoint of the revised <unk> guidance of $2 81, as our anchor of growing to five to seven.

Yes.

Great. Thank you and then just if I can.

From there I think and I hope I don't these numbers wrong I think the company was seeing lag roughly maybe 50 to 70 basis points, you've updated your load forecast of 2%.

That changed the regulatory lag that.

Company has experience.

Sure. So first of all our lag is a little bit larger than that just under a percent.

And continually we work to reduce that lag over time.

<unk>.

The footprint of the company helps us reducing that as we get larger.

Those items and hopefully they get smaller our DAU change become a smaller part of the total on a percentage basis.

But it is our goal to continually to shrink that gap.

I have had.

Is delayed.

Maybe my numbers are 70 to 90 or.

Appropriate.

Sure, it's a little closer to 90 basis points right now.

Okay.

And just lastly, I guess.

Sarah day comes in some cost pressures and I apologize if you answered this earlier.

What is your assumption for rate case timing in your long term growth rate I think the company historically has filed in February .

Thank you filing in February for new rates. The following January just what is baked into your assumption of a long term plan.

Sure. So as you may recall, our last rate case was filed after about two and a half years, we were in the middle of Covid and we were very concerned with regards to customer prices and we kept our increases.

Very modest through that period of time and actually it was just this last may that customer prices were increased to reflect that rate case associated move forward. We will take a look at where we are.

And in particular some of the additional costs that we're seeing come onto this system both for resiliency in grid hardening and most importantly from wildfire costs. So we're going to be looking at all of these things as we analyze what we do next.

And Anthony I'll add that I would not assume any changes in the annual utility tariff filing the fuel tariff filing that we have here. So I think thats something thats fixed bye bye bye.

Yeah.

Great. Thanks, so much for taking my questions and congratulations.

Thank you.

And I show. Our next question comes from the line of <unk> Gandhi from Wolfe Research. Please go ahead.

Good morning, Good morning, Mario and Jim.

Good morning.

So just on the rate case.

Okay.

Could you could you please clarify.

You go in for rate case.

As it relates to your equity ratio.

Just given the forward test year would you essentially.

Again. This is assuming that you do an equity forward and you'll have to draw on it would you have to draw on your forward sort of before you file or at the time you file or just given your forward desktop can you.

File later in New York.

Could you could you please clarify that.

Sure. So just for perspective and background, we target over the long term and sort of on average about a 50 50 capital structure.

And just also for perspective, Jim mentioned it earlier, but we have no holding company data or anything else is a very simple structure.

And.

We our last rate case, we were below that 50 50, and we filed went through the entire 910 month process and ended up with a 50 50 capital structure. So I think we have good understanding with parties as well as at the commission that we target 50% on average.

Overtime.

So that.

And how that would impact the rate case or not.

I just think it is one factor among many as we take a look at what we might follow next rate case.

Got it that's helpful.

And then just go into your 5% to 7% growth rate. So you'll have a higher capital plan now.

And you're pointing to more sales growth in the autos.

But you have some equity needs for our base business, which is at present under <unk>.

Also some equity needs related to your RFP and then you have also pointed to Ohio capital plans. So maybe there's some equity needs related to that increased capex, maybe not but just the.

Because we don't have sort of like a full picture of what your financing refresh looks like how should we think about the shape of your 5% to 7%.

Especially sort of beyond 2023.

Yes, I'll take that one.

No.

I do think the Capex.

<unk> that we disclosed today is best.

First as we could see it right now.

We're not even finished with the current RFP.

RFP cycle and as I said, we are.

We're hopeful that by the end of the year or into the first quarter. We will see more results that are beneficial so I have not.

Upward the guidance that we just gave you, but I would say to you that there is opportunity in that.

Capex plan as well so it's a little hard therefore the size.

What that capital plan will be we know and we've discussed many times the.

The need to return overtime and on average as Maria just said literally.

The cap structure for the company.

Per regulation.

And I would assume also that once that is if you will taken care of what Youll see is incremental capital investments like Clearwater out of the box funded on a 50 50 basis in order to maintain the overall so.

We will will will size this and be ready for the opportunity as it comes.

Just tell you that.

These markets are extremely volatile and difficult to project.

Given the pockets hawkish nature of the fed and the way the equity markets are performing so it's a question that.

Your question is what we wrestle with all the time.

Okay.

Okay. That's helpful.

Just one more if I can squeeze so at Enzo.

As far as our deferrals are concerned I noticed that for the <unk>.

Kevin.

And get the full amount.

Please correct me if I'm wrong, but do you essentially have to take a charge to earnings for the $2 million.

We won't be able to recover for <unk> and if so when would that when would that charge fees.

Thank you.

So there is there.

As a.

But once you have obviously noticed noticed on page seven you see the delta between the 21.

Balance at the end of this quarter and the $28 million recovery right. So so.

So that that would be in the fourth quarter that $2 million.

Got it okay. That's helpful. Thanks, Maria Thanks, Jim.

Sure.

Thank you.

And I show. Our next question comes from the line of Nicholas Campanella from Credit Suisse. Your question. Please.

Hey, good morning, Thanks for getting me in here.

Perfect I'll, just I'll just try to asking.

I guess, a more direct way like do you need to wait for the RFP results before sizing.

Your total equity needs here or just how should we kind of think about that because I know theres a lot of moving pieces.

Yes. Thank you. Thank you for understanding that that's really what I was trying to get across to a detailed there in a moment.

Go.

I don't think it's necessary to wait.

Absolutely we could we could.

Track, where we are and the pace of negotiations.

And try to figure it out and consider market conditions. So it's not it's not necessarily the case that I have to wait but it'd have to be pretty confident right because I don't want to over equity and dilute more then we have to we want to size the financing both debt and equity against our capital.

Needs right. So I don't want to get out over our skis and create dilution that's not necessary.

Okay, No that's helpful. Jim and then.

Last quarter, you kind of talked about being at 46% versus the 50 authorized could you just give us like a quick update there and understand the comments as well that this is an overtime.

Situation, but yes.

Is 200 basis points improvement the right way to think about it still.

Yes.

Now that I hear people repeating what we say I think I think we are in the right ballpark now so.

So yes, so I think by the end of the year.

Estimate that will be approximately 46 plus percent.

The notion of making it happen over time suggests to me that.

And as I look back at the history. We've operated in many cases at 48 plus 49%. We've also operated at $51 52 over a long period of time so.

But I don't think thats.

That's a.

A bad estimate right I think thats fine.

Yes right.

As we said just to repeat.

Overtime and all.

On average right because.

The way, we look at it the way the commission looks at it we look back and we look forward on the projections. So.

Repeat after me overtime.

Average.

Alright, Thanks, a lot I'll, we'll see Eddie I appreciate it.

Via that buybacks.

Thank you.

And our last question.

Comes from the line of Chris Allen House from Cyber at Williams Shank and co. Please go ahead.

Hey, everybody how are you Chris.

Good.

You mentioned two things that are interesting one you sort of talked about tech expansion in your service area.

I was just kind of curious is are those sort of bolt on expansions that you're talking about new fabs and where do you see that in sort of your investment horizon here.

Sure. So as we speak there are bolt on investments taking place.

And I would also expect that we would see some new fabs as well.

Okay.

We're very fortunate to have the talent base that is created.

A number of really strong semiconductor manufacturers the software companies that.

Support their tools.

As well as many fabless companies as well and so this is a period of a lot of growth in that area and we're fortunate to have a fair amount of it.

Okay.

Other thing you talked about was transmission needs.

Are you talking new lines are merely expansions.

I think it'll be a little bit of both what's an emphasis on expansion of whether that is existing lines or existing corridors.

As you know transmission is a real challenge.

And we'd like to be able to.

Reduce.

All of the permitting citing.

A variety of issues that takes place with transmission.

<unk> as quickly as possible to ensure reliability.

All of our service territory and the entire grid, So that's where our that's where our main focus will be but it will be a little bit of both.

Okay.

Sort of back to the base rate question.

<unk> tended to try to avoid.

Rate increases base rate increases in years, where you have new assets coming into customer rates should we expect it would be.

Trying to avoid any new base rates for 2024.

So first and foremost, we're very cognizant of bill pressure for customers and keeping things affordable, particularly.

Particularly during a period of time, where you see a lot of volatile commodity prices.

And so energy affordability and accessibility is really important in how we think of all of our planning. So we don't have any one conclusion, one way or not but.

I will tell you that as we look forward to this energy transition and the change in natural gas prices as well as other things.

Affordability as well as reliability are first and foremost as we make this clean energy transition.

Okay have you got any updates on your first day strategy.

The project is moving along we expect that it will be online a little bit after the first of the year generating power, maybe even a little bit sooner than that with one of the units.

And it's getting completed and has certainly been a project challenged by.

Wind and ice storms as well as the wildfires that went through there in the early COVID-19 experiences.

It's been a challenging project, but we're getting to the conclusion.

And sort of cost recovery thoughts.

Yes. So it is was part of our last rate case.

And we have requested a separate rider, which is something that we were worked well for us when we brought on the selective water withdrawal system and some of our fish handling systems on that issue.

We were not able to obtain that so bringing that into customer prices would require a rate case.

Okay. Thank you so much.

Thank you, Chris nice to talk to you.

Thank you.

This concludes our Q&A session at this time I would like to turn the conference back over to Maria Pope for closing remarks.

Well. Thank you all for joining us this morning, we.

We appreciate your interest in Portland General Electric and we look forward to connecting with you soon.

Thank you very metric.

Today's conference call. Thank you for participating you may now disconnect.

The conference will begin shortly to raise Johan during Q&A you can dial one one.

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Q3 2022 Portland General Electric Co Earnings Call

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