Portland General Electric Co

Good morning, everyone, and welcome to Portland General Electric Company's second quarter 2023 earnings and results conference call. Today is Friday, July 28, 2023. 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 will be a question and answer period. If you would like to ask a question during the period, simply press star, then the numbers 11 on your telephone keypad. If you would like to withdraw your question, please press star 11 again. If you do intend to ask a question, please avoid the use of the speaker phones. For opening remarks, I will turn the conference call over to Portland's General Electric Senior Director of Finance, Jardin Hadame. Please go ahead, sir. Thank you, Justin.

Good morning, everyone. I'm happy you can join us today. Before we begin this morning, I'd 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. or 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 Joe Terpich, Senior Vice President of Finance and CFO. 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, Jordan, and good morning. Before I jump into our results, I would like to introduce and welcome Joe Terpich, who joined the company in June as our new CFO. Joe brings a wealth of financial, risk management, and capital markets experience, built over 20 years in senior finance roles at Exfarm. Joe, welcome. Beginning with slide four, I'll discuss our results for the quarter and speak to key drivers. For the second quarter, we reported GAAP net income of $39 million or $0.39 per diluted share. After adjusting for the impact of Boardman, non-GAAP net income was $44 million or $0.44 per share. This compares with second quarter results of $64 million or $0.72 per share. The drivers this quarter include regional hydro conditions, which have adversely impacted unusually high and impacted power markets with extreme volatility. Load growth and higher energy usage, particularly by the semiconductor and digital sectors. Investments in long-term capital projects, including the 2021 RFP projects, such as Clearwater Wind in eastern Montana. And the prioritization of system maintenance and expenses to address ongoing reliability and resiliency. I will touch on each in turn. First, quarter over quarter, changes to our power costs were significant. I commend our team for how well they have managed the market volatility. Last year, hydro conditions in the Columbia River Basin were about 110% of normal. This year, conditions at 80% are significantly below normal. The year-to-date impact of our Power Cost Adjustment Mechanism, or PCAM, was 51 million compared to this time last year, including 23 million in the first quarter and 28 million this past quarter. As we head into the third quarter, these large variances are expected to moderate given the seasonally low hydro generation of July, August, and September. Second, we saw solid load growth. We're seeing continued growth in high-tech sectors with increasing demand from semiconductor manufacturing, data centers, and cloud computing. We're pleased to see that during this past session of the Oregon Legislature, they passed historic investments to support the semiconductor sector. These include $200 million for grant and loan programs, $255 million for R&D tax credits, and $73 million for an innovation complex program. at Oregon State University. Among other incentives, they also are supporting streamlined environmental land use and permitting to support the construction of new high-tech manufacturing. We recently, in addition to Intel's expansion, we have seen significant investments from microchip, land research, and just this last week, Analog Devices announced a billion-dollar investment in their operations in Beaverton, Oregon. Turning to slide five. At the end of May, we announced an agreement to procure the Evergreen Battery Energy Storage System, a new 75-megawatt facility located in Hillsborough, Oregon. Between Clearwater Wind, the Seaside Battery Project, and now Evergreen, the company is investing approximately $925 million and renewable and dispatchable capacity resources as part of the 2021 RFP. In addition to these investments, we're also looking at a number of transmission projects within our service territory and existing rights of way to help meet strong customer growth and the new manufacturing that I just noted. In addition to cash from operations, debt and equity financing, and the monetization of production and investment tax credits, We're leveraging federal IRA and IIJA funding in partnership with local communities, technology companies, tribal partners, and other stakeholders. As of today, we're pursuing over $450 million in grants to support approximately $1.1 billion in total projects for grid resiliency, cybersecurity, hydro project improvements, transportation electrification, transmission upgrades, among many other projects. As we look to the future, the 2024 general rate case is squarely in focus. Settlement discussions have been productive, and we are pleased with constructive and collaborative progress that we've made to date. PGE and parties have arrived at several agreements in principle that settle a number of items in the rate case, including a portion of PGE's transmission and distribution capital requests, a capital structure of 50% debt and 50% equity, several business issues, such as the transfer and sale of PTCs and ITCs, and a portion of 2024 net variable power costs. We expect to file stipulations covering these items with the OPUC in the coming weeks. And our next settlement conference is next week. and we are optimistic for continued progress. As we look to the balance of the year, I'm grateful to our PTE colleagues who are working very hard every day to control costs as we appreciate the impact we have on customer prices. We continue to expect largely flat O&M for the full year, excluding the impact of wildfire mitigation work and major deferrals. While we have much more work to do, it's worth noting that we have front-loaded certain costs in order to reduce operating risks. Joe will touch on this more in detail in his remarks. We're also executing on our wildfire mitigation program, which includes long-term investments and vegetation management. We're pleased to see the introduction of new federal legislation that would allow the U.S. Forest Service to approve the removal of hazardous trees near power lines on federal forest lands. The progress that we're making to mitigate the risk of wildfire in our service territory underscores the importance of the OPUC's recent approval of an automatic adjustment clause for wildfire mitigation costs, enabling faster recovery. Looking ahead, execution is our watchword in 2023 and beyond, as we position the company for a period of accelerated growth. we remain confident in our 2023 guidance range of $2.60 to $2.75 per share, as well as our long-term earnings growth rate of 5% to 7%. With that, I'll turn it over to Joe, who will walk you through our financial results. Thank you.