This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Good day and thank you for standing by. Welcome to Portland General Electric Company's third quarter 2022 earning results conference call. Today is Tuesday, October 25th, 2022. This call is being recorded and as such, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. 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 Senior Director of Finance, Investor Relations, and Risk Management, Jardon Jarmillo. Please go ahead, sir.
spk08: Thank you, Dulem. 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.portlandgeneral.com. 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 and our most recent periodic reports on forms 10-K and 10-Q, which are available on our website. Leading our discussion today are Maria Pope, President and CEO, and Jim Agello, Senior Vice President of Finance, CFO, Treasurer, and CCO. Following their prepared remarks, we will open the line for your questions. Now, it is my pleasure to turn the call over to Maria.
spk01: Thank you, Jordan. Good morning, everyone, and thank you for joining us today. Beginning with slide four, I'll start by discussing our third quarter results before moving on to long-term growth. This morning, we reported gap net income of $58 million or $0.65 per share compared with $50 million or $0.56 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. which 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 Science Act, as well as the focus on semiconductor investments in 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're moving our load growth expectations to 2%, up from 1.5% over the next five years. From an operating perspective, we're pleased to see that the hard work we're doing across the company to reduce operating expenses is having an impact. Overall, O&M expenses were largely flat with last year's third quarter. as savings in several areas offset wildfire mitigation and grid resilience costs. Third quarter power markets were remarkably volatile, as many states in the West set all-time temperature records. In Oregon, at least 12 cities, including Portland, saw the hottest July and hottest temperatures on record. 2022 also ranked as the warmest August on record in Washington and Idaho, and California saw hot temperatures as well as record drought conditions. Our generation's plants could not have performed better and were well integrated with power operations, contracted, and purchased energy supply. Overall, purchased 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, which 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 OPUC with an order expected in November. We also anticipate filing an amortization request for the $34 million COVID deferral later this year or 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've 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 is part of a broader wind development in eastern Montana that will generate approximately 311 megawatts of nameplate capacity. We signed a build transfer agreement with NextEra Energy Resources for Portland General's two-thirds or 208 megawatt ownership share. PGE will secure the remaining third or 103 megawatts under a 30-year PPA. This is a significant step forward in our clean energy transition, as the 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 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 expect to launch additional RFPs for renewable generation and non-emitting 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 and 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 digitization 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 improve productivity and workflow for our line crews. 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 day ahead peak prices of $1,000 per megawatt hour on multiple occasions. Our risk management strategies and strong balance sheet were critical as we navigated these headwinds. Our vertically integrated utility model and 16 generation facilities helped to 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 planned operations. We know that our customers, ranging from 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 region's clean energy future. Again this year, Portland General's Clean Future Program was recognized as the number one green energy program in the country by the National Renewable Energy Lab, or NREL. 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 will position us for significant growth in 2024 and beyond. As such, we're raising our long-term EPS growth guidance from 4 to 6 percent to 5 to 7 percent, 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.
spk07: 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 and demand, and effective risk management in volatile power markets. Our regional economy remains solid. As unemployment in our service territory improved to 3.2%, relative to 4.3% in 2021 and has remained stable throughout 2022. Industrial development and customer growth continue to drive strong demand. Overall, Q3 2022 loads increased by 1.2% weather-adjusted compared to Q3 2021. On a non-weather-adjusted basis, total load increased 4.2% year-over-year as average temperatures for the third quarter the warmest on record in our region. Residential load increased by 3.6% year over year, but decreased 2.5% weather adjusted as we continue to see moderation in COVID-19 related usage trends. Residential customer count increased 1.1% compared to Q3 2021. Commercial load increased 0.5% year over year, but decreased 1.3% 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 9.2% weather adjusted. These high temperatures increased deliveries but they also created 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. We remain acutely focused on managing energy price risks and optimizing operations to limit the customer price impacts of these cost pressures. I'll now cover our financial performance quarter over quarter. We experienced a 22 cent increase in total revenues driven by the 4.2% increase in deliveries, led by growing demand from our high-tech industrial customers. While load was up 4.2% quarter over quarter, industrial load growth outweighed residential and commercial load, with the change in customer price composition creating a 4 cent decrease in total revenues compared to 2021. In Q3 2021, power costs were high, and 21 cents of the quarter-over-quarter earnings change is attributed to headwinds in 21 that we normalized for this comparison. As a reminder, Q3 2021 saw conditions that pushed power cost 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 in 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-cent decrease. A one cent increase to 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. We saw a one cent impact from depreciation and amortization expense due to increased intangible asset balances compared to 2021, reflecting our continued investment in software and technology to increase efficiency across the organization. Lastly, we had a net $0.02 increase reflecting offsetting impacts from a few items. It was a $0.09 increase to other income due to a settlement gain from a buyout of a portion of PGE's post-retirement medical plan, which was partially offset by a $0.03 decrease from the impact of higher interest expense from the Q3 2021 debt issuance of $400 million. and a $0.03 decrease due to higher income taxes and $0.01 decrease due to other miscellaneous items. Turning to slide seven, as Maria mentioned, yesterday PGE and parties submitted a stipulation to the OPUC reflecting an agreement that resolved all matters relating to 2021 under the 2020 Labor Day wildfire and 2021 February ice storm deferrals. This agreement would allow PGE full recovery of the deferred amounts relating to 2021 of $30 million and $72 million, respectively, with amortization over seven years. PGE and parties also submitted a stipulation to the OPUC reflecting an agreement that resolved all matters relating to the 2021 PCAM deferral, which would allow PGE recovery of deferred cost of $28 million. with amortization over two years beginning January 1st, 2023. Combined, these stipulations resolve $130 million of outstanding major deferrals. All stipulations are subject to OPUC approval. We plan to file an amortization request for the COVID-19 deferral, which has a $34 million balance as of September 30th, 2022. Later this year, or early in 2023. On slide 8, Maria highlighted earlier, we are very pleased to have clarity on a portion of the ongoing RFP with our execution of the 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 high-quality renewable generation investment opportunities that will benefit customers and stakeholders as we move toward our 2030 decarbonization target. This project will be executed using a bill transfer approach, which will allow us some flexibility when considering the timing and approach to future financing. We are continuing to negotiate with other RFP shortlist bidders for both additional renewable generation projects and non-emitting dispatchable capacity resources. We are optimistic that we will conclude these negotiations by the end of 2022 or early in 2023. We are 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 maintain our strong credit ratings. A strong balance sheet creates important benefits for both shareholders and customers. We will look forward to finances growth consistent to and leading up to our capital structure Of 5050 over time and on average. Turning to slide 9, which shows our updated capital forecast through 2027, we have increased the 2023 forecast by 550Million dollars to reflect. the renewable generation investment presented by Clearwater, as well as incremental base CapEx. We have also increased capital forecasts for 2024 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 23 through 27 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 30th is $797 million. We plan to fund investments with cash from operation and the issuance of up to $460 million of long-term debt in the fourth quarter, a portion of which has already closed. We expect to issue this debt under our green financing framework as we continue to seek out opportunities to tie our 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, and our continued emphasis on controlling O&M expenses. The continued 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 share on a non-GAAP adjusted basis. Additionally, We are also increasing long-term load growth guidance from 1.5 to 2%. As Maria described, this increase is 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 4% to 6% from a 2019 base year to 5% to 7% from a 2022 adjusted earnings base year. We're very excited about the growth prospects supported by both renewable development as well as resiliency investments. We are confident the catalysts discussed today create a clear path forward as we strengthen our core mission of providing clean, reliable, affordable energy for all. enabling consistent execution of our long-term financial goals that provide value for our customers, our community, and our shareholders. And now, operator, we're ready for questions.
spk00: Thank you, sir. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. Please stand by while we compile the Q&A roster. And I'm sure our first question comes from the line of Insoo Kim from Goldman Sachs. Please proceed with your question.
spk11: Hey, thank you. First question, thanks for the updates. On the 5% to 7% EPS growth off of that adjusted E22 guidance base, should we assume that, you know, by 24 you should be in that 6% midpoint range, or is it more in, you know, beyond that in 25 or another time period?
spk07: Hi, it's Jim. Good morning. I will tell you that, you know, this is a long-term earnings guidance projection. 2023 represents a significant year of 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'd leave the answer right now.
spk11: 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 rate inclusion of that by early 2024?
spk07: Well, let me correct perhaps an assumption in your question. So, yes, Clearwater is planned to be in service by the end of 2023. There is no rate case required to bring Clearwater into rates. We'll use the Renewable Adjustment Clause. So, upon in-service, that project will go into rates absent any rate case requirements.
spk11: That's right. That makes sense. And then just one more, if I could. On the OPSP pregnancy 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.
spk01: Thank you, Insu. 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.
spk11: Okay, got it. So that's after. Okay, so you don't have to wait for any approval before proceeding with the CapEx?
spk01: No. Okay.
spk11: Got it.
spk01: Thank you so much. If you remember, we've gone through a fairly rigorous RFP process and also have had bids refreshed, all of which has been reviewed by different stakeholders, by the commission. And there's no question that in Oregon, we have extensive process.
spk11: Makes sense. Thank you.
spk00: Thank you. And I see our next question. comes from the line of Sharia Parisa from Guggenheim Partners. Please go ahead.
spk06: Hey, good morning, guys. Good morning. I guess a couple things to unpack here. First, how should we think about, I guess, the prospects for what you could own 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 got 415 so far. So are you still thinking in incremental 600 to get us to the 1 billion ownership as previously discussed? And I guess how does company storage fit into that? Thanks.
spk01: So, you know, 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 evaluator. So it's just too early to tell, but there clearly are more opportunities, and we also are filing our next IRP 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.
spk06: 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?
spk01: So as we look at the best available projects for both these risks, and these costs, we're mindful of all the deliverability of the energy. Clearly, we're looking at some storage projects that will help with capacity, but there's a lot of complexity in some of the bids, so I just think it's too early to tell.
spk06: Okay, got it. And then just on the timing and disclosures around sort of the equity, I mean, kind of with this process potentially not being finalized until the first quarter, that Jim says early first quarter of 2023, Does this kind of mean you won't be able to update us at maybe EEI as far as financing this plan as well as maybe the health equity portion of it?
spk07: Yes, Char. That's a very good question. We're working on that now. We may or may not be able to update you at EEI regarding that. It just depends on, you know, how we look at the markets, you know, how 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.
spk06: Got it. And, Jim, just last one for me. You know, we're sort of thinking about some of the moving pieces for 23. You'll have some natural drag from Faraday and other items. Any updated thoughts on how should we be thinking about, you know, other line items like O&M? and what they could look like relative to 22, especially if you're dealing with potentially equity dilution. I guess, should we assume 23 in particular won't be quite linear as we're thinking about the updated 5% to 7%, or do you think you've 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.
spk07: Yeah, it's a very – Good and popular question right now. Yeah, I would say to you, hold tight until February when we give that 23 guidance. I mean, by the time that rolls around, we should have a better perspective on those further RFP activities, how we're going 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, you know, we've cleared up the deferrals. You have... you know, robust new CAPEX schedule. So we're trying to, you know, peer into 23 without, you know, providing specific EPS guidance there. I think you've identified some of the clear headwinds that we've got, but we'll be back to you in February on the call with respect to the actual 23 EPS guidance.
spk06: Okay, got it. We'll see you guys in a couple of weeks. Thanks. Thanks, John.
spk00: Thank you. And I show our next question comes from the line of Angelique Aiello from Bank of America. Please go ahead.
spk10: Hey, it's actually Julian. Hey, good morning, team. Thanks for the time and the opportunity.
spk07: Thanks, Julian.
spk10: Hey, and congrats again on the raise here. So I wanted to follow up on Cheryl's 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 24, I mean, I know you launched and raised this 5 to 7 here off a 22 base very specifically. Are you there and confident in being within that range for 24 here as you kick off on this?
spk01: Julian, as we look at our guidance, it's really first and foremost based upon our customer's energy usage that we're seeing the infrastructure that we have built and that they have built. And so continued growth from that aspect. As I think you know, we have a number of high-tech companies, particularly semiconductor manufacturers, in our service territory. And 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 more battery storage, more demand response. We see the transition really accelerating along with clean energy, and that's what makes us feel very confident in the 5% to 7% longer-term growth trajectory.
spk10: Yeah, but not specifically on 24 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. I mean, that would imply a pretty hefty pace of procurement here through the back half of the decade in tandem with this five to seven. Can you talk a little bit more specifically about your expectations on the cadence of these RFPs and prospects for your ownership? Sure. Again, and basically, if you can, how does that reconcile within the five to seven? I mean, what kind of assumptions are you making about those future RFPs as it pertains to the five to seven itself?
spk01: So there's a lot of questions in there, Julian. I think the first and foremost is, you know, 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, 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, really targeting for us an 80% reduction in our emissions off of 2010-2012 time period. And so we have quite a bit to do. 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. We're working to combine all of these. I think it would be too soon to tell Handicap which would be owned or which would be third-party owned, there's most likely going to be a mix. And I think you'll also see needed transmission built within our service territory, but also adjacent to our service territory and across the West. It clearly is a period of time of 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 affordability in Oregon is extremely important, not just to our residential customers and to small businesses, but to many of those larger multinational companies that are challenged today. So we're balancing all of those things as we move forward and, again, feel confident in the 5% to 7% growth.
spk10: Okay. The bottom line, it's not predicated on necessarily any outcome on the RFPs itself. Customer growth gives you the confidence in that number.
spk07: Got it. So, Julian, let me just – Right. Let me just add to that. If you run a 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.
spk10: Got it. Excellent. Thank you, guys, for clarifying that. One quick clarification just on the medical buyout here. Can you just clarify, was that assumed in guidance of the year? I know that they're constantly moving pieces here, but... Yes, it was, Julian. Okay. All right, excellent, guys. I'll leave it there. Congrats again. Cheers. Thank you.
spk08: Thank you.
spk00: Thank you. And I show our next question. It comes from the line of Sophie Karp from KeyBank. Please go ahead.
spk03: Hi. Good morning. Thank you for taking my question, and congratulations on the given raise and the long-term guidance refresh. I wanted to ask you about the O&M issue. It's a bunch of moving pieces in the O&M guidance revised for the year. Could you maybe help us crystallize how much of the change relates to the inflationary pressures that you may be seeing and whether you see – how do you see the development into 2023? Thank you.
spk07: Thanks, Sophie. Thanks for the question. So, yeah, so inflation has been a thorn in our side, really all companies in this space, and we're 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 form of – the way I look at the 660 is I eliminate the storm deferral amounts, which are coming back in revenue. So that's, you know, it's about 10%. $10 million, $11 million. And then you've got the disallowance that came in the first quarter. So altogether, that's about $27 million. So the way I levelize our O&M now is I deduce it to about $633 million, right? So once you start with that sort of baseline, I think it's fair to say, you know, you start thinking about all the factors that are impacting O&M. And it's clear O&M in the form of wages, outside salaries, services that we purchase have 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 as how much can we cut in 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.
spk03: Thank you. Thank you. This is very helpful. Another question I had is on, I guess, the benefits of the IRA rate and new tax credits outlined there, et cetera. Should we think about the price tag on Clearwater as like the final number that already contemplates all possible benefits that you can get for that type of project or would that number kind of move around as you did for Treasury guidance and more of a potential benefits from the bill. And the same, I guess, is for other projects. How incorporated is the new fiscal regime into your RFPs at this point?
spk01: Sophie, thank you. So, with regards to most specifically Clearwater, there will be tax credits associated with that facility. which will reduce the overall impact into customer prices. And we would expect to use those in the normal course. With regards to the overall IRA, IIJA, and other federal funding, We currently have a couple of projects from the Department of Energy around our distributed energy testbeds, as well as the Oregon Department of Energy around their Smart Grid Salem project that we have. our service territory, and we would expect to have significantly more in the future. Clearly, it's important as we look at some of the above-market costs 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 projects, but also as we continue to invest in clean energy transitions.
spk03: Yeah, I guess maybe – I don't think I've contemplated this yet, but is there a way through a tax equity arrangement to reduce the upfront capital need? Not necessarily, I guess, the price, but the need for equity maybe. Or is that something that is not doable within the regulated construct?
spk01: Certainly. So first of all, many of the rules have still not yet been written with regards to the Inflation Reduction Act or IRA. So we'll need to see how those are. We'll also need to see if you're 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 would reduce our overall need for equity or debt financing as we move forward. And it's going to be an important component to our clean energy plans. It's too soon to tell.
spk07: 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'd say, pretty significant inflationary pressures around all these RFP projects. But we also asked bidders to make sure that they included 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. in projects like Clearwater, but clearly, to use a redundant term, I don't think we're all the way there yet. It's early on. And we'll do the same for the other RFP projects as we go. And what's really great about the IRA for a company like this, without a holding company, without an affiliate, we'll own all these projects that we are competitively awarded in a very simple structure, ownership structure, and we'll 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, if you will, probably in the next round of projects as the IRA gets more defined and as the market for tax credits gets more defined. It's just not there yet, frankly.
spk03: Got it. Super helpful. Thank you. It's so funny.
spk00: Sure. Thank you. One moment while we compile our next question. And our next question comes from the line of Anthony Cordell from Mizuho Group. Please go ahead.
spk12: Good morning, Maria.
spk00: Good morning, Jim.
spk12: Morning. Good morning. Marie, if I could just start off, I wanted to follow up on, I think, one of Julian's questions. I know there were many, maybe it was his first one. It was related to, I think, not in 24, your earnings CAGR, your update, but I actually want to go from the start. Is it fair to assume that we should be using the midpoint of the revised 22 guidance of like 281 as our anchor of growing the five to seven?
spk01: Yes.
spk12: Great. Thank you. And then just if I move from there, I think that, and I hope I don't have these numbers wrong, I think the company was seeing lag roughly maybe 50 to 70 basis points. You've updated your load forecast to 2%. Does that change the regulatory lag that the company has experienced?
spk01: 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. Certainly, the footprints of the company helps with reducing that as we get larger. Those items, and hopefully they get smaller or don't change, become a smaller part of the total on a percentage basis. But it's our goal to continually just shrink that gap.
spk12: I apologize. What is the lag? I may have my numbers wrong. 70 to 90? Or what's the appropriate?
spk01: Sure. It's a little closer to 90 basis points right now.
spk12: Okay. And just lastly, I guess, Saturday comes in some cost pressures. And I apologize if you answered this earlier. Just what is your assumption for rate case timing in your long-term growth rate? I think the company historically is filed in February. I think you're filing in February for new rates the following January. Just what is baked into your assumption of a long-term plan?
spk01: 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. So as we 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 the system, both for resiliency and grid hardening, and most importantly, for wildfire costs. So we're going to be looking at all of these things as we analyze what we do next.
spk07: 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 that's something that's fixed by report.
spk12: Great. Thanks so much for taking my questions, and congratulations. Thank you.
spk01: Thank you.
spk00: Thank you. And I show our next question comes from the line of Aditya Gandhi from Wolf Research. Please go ahead.
spk02: Good morning, Maria and Jim. Good morning. So just on the rate case, could you please clarify, so when you go in for a rate case and as it relates to your equity ratio, Just given the forward test here, would you essentially – again, this is assuming that you do an equity forward and you 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 test here, can you sort of file later in the year? Could you please clarify that?
spk01: 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 debt or anything else. It's a very simple structure. And We, our last rate case, we were below that 50-50 and we filed, went through the entire nine, 10-month process and ended up with a 50-50 capital structure. So, you know, I think we have good understanding with parties as well as with the commission that we target 50%, you know, on average over time. So that, you know, in how that would impact a rate case or not, You know, I just think is one factor among many as we take a look at what we might follow next week.
spk02: Got it. That's helpful. And then just going to your 5% to 7% growth rate. So you have a higher capital plan now, and you're pointing to more sales growth in the outdoors. But, you know, you have some equity needs for your base business, which is at present under-equitized and also some equity needs related to your RFP. And then you've also pointed to a higher capital plan. So maybe there's some equity needs related to that increased capex, maybe not. But just 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% or 7%, you know, especially sort of beyond 2023?
spk07: Yeah, I'll take that one. So I do think the CapEx guidance that we disclosed today is as best as we could see it right now. We're not even finished with the current RFP cycle. And as I said, we're hopeful that by the end of the year or into the first quarter, we'll see more results that are beneficial. So I'm not revise upward the guidance that we just gave you, but I would say to you that there's opportunity in that CapEx plan as well. So it's a little hard, therefore, to size what that capital plan will be. We know and we've discussed many times the need to return over time 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 you'll 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'll size this and be ready for the opportunity as it comes. I'll just tell you that these markets are extremely volatile and difficult to project, you know, given the hawkish nature of the Fed and the way the equity markets are performing. So it's a question that we, your question is one we wrestle with all the time.
spk02: Okay, that's helpful. Just one more if I can squeeze that in. So As far as your deferrals are concerned, I noticed that for the PCAM deferral, you all didn't 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 that you all won't be able to recover for PCAM? And if so, when would that charge be? Thank you.
spk07: So there's a – What you've obviously 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 that would be in the fourth quarter, that $2 million.
spk02: Got it. Okay. That's helpful. Thanks, Maria. Thanks, Jim. Sure.
spk00: Thank you. Thank you. And I show our next question. comes from the line of Nicholas Campanella from Credit Suisse. Your question, please.
spk09: Hey, good morning. Thanks for getting me in here. I'll just try to ask in, I guess, a more direct way. 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 there's a lot of moving pieces.
spk07: Yeah, thank you for understanding that. That's really what I was trying to get across to Aditya there a moment ago. I don't think it's necessary to wait absolutely. You know, we could track where we are in 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'd have to wait, but I'd have to be pretty confident, right? Because I don't want to over-equitize and dilute more than 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.
spk09: Okay. No, that's helpful, Jim. And then You know, 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, you know, understand the comments as well that this is an overtime situation, but is 200 basis points improvement the right way to think about it still? Thanks.
spk07: Yeah, now that I hear people repeating what we say, I think we're in the right ballpark now. So, yeah, so I think by the end of the year, I estimate that will be approximately 46 plus percent. And the notion of making it happen over time suggests to me that, you know, and I look back at the history, we've operated in many cases at 48 plus 49 percent. We've also operated at 51, 52 over a long period of time. So yeah, but I don't think that's That's a bad estimate, right? I think that's fine. Yeah. All right. But, you know, as we said, just to repeat, over time and on average, right, because it's 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, over time and on average.
spk09: Thanks a lot. We'll see, Eddie. I appreciate it. See you then. Bye-bye.
spk00: Thank you. And I show our last question comes from the line of Chris Ellenhouse from Cybert Williams Shank & Co. Please go ahead.
spk05: Hey, everybody. How are you? Hey, Chris. Good. Maria, 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, are those – sort of bolt-on expansions? Are you talking about new fabs? And, you know, where do you see that in sort of your investment horizon here?
spk01: 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.
spk04: Okay.
spk01: You know, we're very fortunate to have the talent base that has created a number of really strong semiconductor manufacturers, the software companies that support their tools, as well as many fabulous 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.
spk05: Okay. The other thing you talked about was transmission needs. Are you talking new lines or merely expansions?
spk01: I think it'll be a little bit of both with 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, siting, variety of issues that takes place with transmission and move as quickly as possible to ensure reliability of our service territory and the entire grid. So that's where our main focus will be, but it will be a little bit of both.
spk05: Okay. You know, sort of back to the base rate question, you've tended to try to avoid rate increases, base rate increases in years where you have new assets coming into customer rates. Should we expect you'd be trying to avoid any new base rates for 2024?
spk01: So, first and foremost, we're very cognizant of bill pressure for customers and keeping things affordable, 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 through 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.
spk05: Okay. Have you got any updates on your Faraday strategy?
spk01: You know, 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 and the early COVID experiences. It's been a challenging project. but we're getting to the conclusion.
spk05: And sort of cost recovery thoughts?
spk01: Yes, so it was part of our last rate case, and we have requested a separate rider, which is something that worked well for us when we brought on the selective water withdrawal system and some of our fish handling systems on the deschutes. We were not able to obtain that, so bringing that into customer prices would require a rate case.
spk05: Okay. Thank you so much.
spk01: Thank you, Chris. Nice to talk to you.
spk00: Thank you. This concludes our Q&A session. At this time, I'd like to turn the conference back over to Maria Pope for closing remarks.
spk01: Well, thank you all for joining us this morning. We appreciate your interest in Portland General Electric, and we look forward to connecting with you soon. Thank you very much.
spk00: This is today's conference call. Thank you for participating. You may now disconnect.
Disclaimer