Portland General Electric Co

Good morning, everyone, and welcome to Portland General Electric Company's fourth quarter 2022 earnings results conference call. Today is Thursday, February 16, 2023. This call has been recorded and such as all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star 11 on your telephone keypad. If you would like to withdraw your question, please press star 11 again. If you do intend to ask the 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 Jardomio. Please go ahead, sir.

Thank you, Tawanda. 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's my pleasure to turn the call over to Maria.

Great. Thank you, Jordan. Good morning. Thank you all for joining us today. Beginning with slide four, I'll start by discussing our 2022 full year and fourth quarter results, as well as touch on a few key drivers. Overall, we delivered solid results for the year despite significant challenges. we reported GAAP net income of $233 million or $2.60 per share for the full year of 2022. After adjusting for the first quarter 14-cent impact of the 2020 wildfire and COVID earnings test write-off, non-GAAP net income was $245 million or $2.74 per diluted share. This compares with $244 million or $2.72 per share in 2021. For the fourth quarter, GAAP net income was $50 million or $0.56 per share. This compares with $66 million or $0.73 per share in the fourth quarter of 2021. As we were specifically impacted by severe late December storms, and extraordinary natural gas and energy market volatility. In December, natural gas prices at regional hubs peaked at over $55 per mm BTU, and average mid-seat power prices rose to $265 per megawatt hour, over five times what we experienced in 2021. The risks and impacts of market volatility are squarely in our focus. We've made improvements to procurement, modeling, and have entered into additional hedges. We're also more actively using natural gas storage at the North Mist facility to mitigate market volatility. Over the last year, our hedging program was effective and is also being improved upon. While 2022 prices at the Mid-Sea increased by nearly 60% the price for our customers paid for power only increased by 14%. As hedges roll off, further energy market-related price increases include 7.7% in 2023 and a forecast of 4.5% in 2024. Load growth continues at a rapid pace, increasing 2% over last year. High-tech and digital customers are driving this increase, with industrialized growing at 10.6%. Offsetting this impact is a customer mix shift with a return to lower residential pre-COVID usage. From an operating perspective, I could not be prouder of the hard work and dedication of our team this year in driving operational efficiencies and navigating extraordinary weather conditions. Including the impacts of increased wildfire mitigation expenses and deferral items, year-over-year generation, transmission, and distribution O&M was up less than 1%, and administrative and other O&M was up 1.2%, as we are laser-focused on cost management to offset the impacts of inflation and other costs. Moving to slide five. Our commitment to affordability remains steadfast and will continue to manage costs aggressively. We are streamlining our work processes, simplifying, leveraging technology, and improving productivity. We have upped our game with regards to aging infrastructure and compliance, replacing and installing critical assets to strengthen our reliability. On the technology front, we've deployed digital tools to enable operational efficiencies and visibility, better resource deployment, and improved customer service. We've decreased the average duration of business impacting events by over 13% and saved thousands of person hours through automation of repeatable tasks. We're also using machine learning to improve restoration forecasting giving our customers greater clarity while we reduce 1.3 million outage minutes in 2022. We are cognizant as well of our broader social impact and responsibility. Our spending with diverse suppliers increased significantly, helping to sustain and strengthen our communities. Jim will go into more detail on our O&M as we are again planning to be largely flat in 2023, excluding the impacts of increased wildfire mitigation expenses and deferral items. Today, we filed our 2024 rate case, or I should actually say yesterday, we filed our 2024 rate case with the OPUC, which includes a 14% price increase. 40% of our request is related to reliability, resiliency, and customer-acquired capital investment. 30% is driven by higher natural gas and purchase energy prices, with the last 30% reflective of higher compliance costs and inflation, as well as operating and financing costs. In addition, we're seeking an authorization for important work to protect and mitigate against climate and significant event risks, such as wildfires. An important aspect of our general rate case is addressing our power cost adjustment mechanism, or PCAM. We have proposed modifications to the power cost regulatory framework to facilitate Oregon's decarbonization goals and better reflect current and future operating conditions. This is not a risk transfer. Rather, our proposal will create a more durable framework that supports customers by fairly balancing benefits and costs and improving the overall mechanism. As in the past, we look forward to collaborative discussions with the OPUC and stakeholders, especially during this period of enormous transformation and significant capital investments. Last quarter, as you know, we announced the Clearwater Wind Project, one of our benchmark generation bids. We are optimistic about the potential ownership opportunities as we continue to negotiate the remaining non-admitting dispatchable capacity RFP. We expect to procure 375 megawatts in needs that was identified in the 2021 RFP. This includes PGE benchmark projects, at potential PPAs that will be critical tools in supporting reliability and helping us manage power cost volatility given the additional wind and solar variable resources coming onto our system. We expect these negotiations to conclude in the first half of this year. In March, we will file our Combined Clean Energy Plan and Integrated Resource Plan. As we've shared previously, these plans will incorporate Oregon's overall decarbonization goals and PGE's associated actions. In the second half of the year, we expect to launch additional RFPs for renewable generation and non-emitting capacity in alignment with those plans. As we continue to lead the way to a clean energy future, reliability and affordability have been and will always be key to this transformation. With the passage of the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, we look forward to working in partnership with local communities, tribal entities, technology companies, and others to secure federal funding for climate and infrastructure investments, helping to reduce customer bill impacts. In 2022, we submitted 180 million in federal grant applications and concept papers. And in just the first six weeks of 2023, we have submitted an additional 300 million of concept papers. This nearly 480 million in grant applications and concept papers are in support of projects, totaling approximately 945 million, targeted towards projects which will range from new technologies that integrate ever-increasing amounts of renewable energy to large-scale transmission. For the full year 2023, we expect earnings to be in the range of $2.60 to $2.75 per share. 2023 represents an investment year. The equity issuance to reset our balance sheet and regulatory lag are temporary headwinds. and our 2024 GRC and RFP investment opportunities establish a clear path to strong performance. Looking beyond 2023, we are confident in our long-term earnings growth of 5% to 7%, driven by strong load and customer growth, an attractive capital investment profile, and improved operational performance that enables exceptional customer service. In summary, Our performance in 2022 laid a strong foundation for long-term growth. We advanced critical decarbonization projects, navigated historic power market volatility, and executed well in face of severe weather. As we look ahead, we are confident that by remaining focused on providing safe, reliable, affordable, and clean energy to all customers, we will deliver strong financial results. With that, I'll turn it over to Jim.