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Portland General Electric Announces Third Quarter Results

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Portland General Electric Company (NYSE:POR) today reported net income of $39 million, or 47 cents per diluted share, for the third quarter of 2014. This compares with net income of $31 million, or 40 cents per diluted share, for the third quarter of 2013. The increase in earnings was driven by an increase in the volume and price of energy deliveries, lower net variable power costs, and an increased allowance for equity funds used during construction for the company’s three new generating resources. Increased energy deliveries were driven by warmer weather and increased demand from new construction and high tech industry expansion. Also, the Company is narrowing its full-year earnings guidance range from $2.05 – $2.20 to $2.10 – $2.20 per share.

“PGE’s strong third quarter results can be attributed to the continued strong operational performance across the company and positive economic trends in our service area,” said Jim Piro, president and chief executive officer. “Construction of our three new generating resources is proceeding on time and on budget, we have reached settlement on all issues in our 2015 general rate case, and we are on track to meet our financial and operating objectives for the year.”

Company updates

  • Generation projects: Port Westward 2 and Tucannon River Wind Farm are in their final phases of construction and Carty Generating Station continues to progress on schedule.
    • Tucannon River Wind Farm is a 267 megawatt wind farm in southeastern Washington. Construction continues to progress on schedule and our current expectation is for the resource to be online in December 2014 or early Q1 2015, at an estimated cost of $500 million, excluding allowance for funds used during construction (AFDC). Turbine delivery and erection has been completed and testing is underway.
    • Port Westward Unit 2, a 220 megawatt natural gas-fired capacity resource, is expected to be placed in service during Q1 of 2015. The project is in the final phase of construction and initial testing has begun. The estimated cost of the project is $300 million, excluding AFDC.
    • Carty Generating Station, a 440 megawatt natural gas-fired baseload power plant, is expected to be placed in service in mid-2016 at an estimated cost of $450 million, excluding AFDC. Foundation work continues for the gas and steam turbines and the cooling tower and heat recovery steam generating equipment is being delivered and installed.
  • 2015 General rate case filing: During the third quarter of 2014, PGE, Oregon Public Utility Commission (OPUC) Staff and interveners reached an agreement that resolved all remaining matters in the general rate case. Parties have agreed to:
    • Return on equity of 9.68%;
    • Capital structure of 50 percent debt and 50 percent equity;
    • Cost of capital of 7.56%;
    • A rate base of $3.8 billion – (which is based on a stipulated in-service amount of $323 million for Port Westward 2 and $525 million for Tucannon River Wind Farm)

The estimated net increase in annual revenues is $17 million which approximates a 1 percent overall increase in customer prices. PGE expects the OPUC to issue a final order with approved price changes before the end of 2014. New customer prices are expected to become effective in 2015, with a price decrease related to base business and customer credits effective January 1 and two price increases to be effective as the two new generating plants become operational.

Third quarter operating results

Retail revenues increased $31 million, or 8 percent, to $434 million for the third quarter of 2014 from $403 million for the third quarter of 2013. The increase consisted of:

  • $17 million increase related to an overall 4.1 percent higher volume of energy delivered in the third quarter of 2014 compared with the third quarter of 2013 with residential, commercial and industrial energy deliveries increasing 5.2 percent, 3.5 percent, and 3.6 percent respectively;
  • $16 million increase resulting from the January 1, 2014 price increase authorized by the OPUC in the company’s 2014 general rate case; and
  • $5 million increase related to the 2014 collection of costs deferred in 2012 related to four capital projects; partially offset by
  • $6 million decrease related to the decoupling mechanism, with a $7 million potential refund to customers recorded in the third quarter of 2014 compared with a $1 million potential refund recorded for the third quarter of 2013.

Net variable power cost, which consists of purchased power and fuel expense net of wholesale revenues, decreased approximately $5 million for the third quarter of 2014 compared with the third quarter of 2013. The decrease was due to the following:

  • $17 million increase in wholesale revenue due to a 72 percent increase in wholesale sales volume and an average price increase of 4 percent; offset by,
  • $12 million increase in power costs driven by a $21 million increase from an 11 percent increase in total system load, offset by a $9 million decrease due to a 4 percent decline in the average variable power cost per MWh.

The decrease in the average variable power cost was driven largely by an increase in energy received from thermal generation, which was partially offset by declines in energy received from hydro resources and wind generating resources. During the third quarter of 2013, the Company experienced unplanned outages at its Colstrip, Boardman, and Coyote Springs plants. These outages drove an increase in the average cost per MWh as a result of the replacement of such energy with higher-cost purchased power during that period. For the third quarters of 2014 and 2013, actual net variable power costs were $5 million and $9 million, respectively above the annual power cost update tariff baseline. Year to date net variable power costs are within the deadband of the Power Cost Adjustment Mechanism (PCAM); accordingly, no estimated collection from, or refund to customers has been recorded.

Production and distribution expense increased $6 million, or 11 percent, in the third quarter of 2014 compared with the third quarter of 2013. The increase is largely due to $4 million higher maintenance expenses at PGE’s generation facilities, $1 million higher substation and line maintenance expenses, and $1 million additional operating costs as a result of the Company’s ownership interest in Boardman increasing to 80% from 65% on December 31, 2013.

Administrative and other expense in the third quarter of 2014 increased $5 million, or 10%, compared with the third quarter of 2013, driven by $4 million more incentive compensation expense in 2014 largely resulting from the higher expected net income in 2014. In the third quarter 2014, pension expense decreased by $1 million, which was offset by increases in other expenses.

Depreciation and amortization expense increased $14 million, or 23 percent, in the third quarter of 2014 compared with the third quarter of 2013, with $9 million related to timing of the deferral and amortization of costs of four capital projects as authorized in the company’s 2011 General Rate Case. In the third quarter of 2013, PGE deferred $5 million of costs related to these four projects and in the third quarter of 2014, the company recorded $4 million of amortization expense related to the recovery of these costs (offset in retail revenues). Capital additions also increased depreciation and amortization expense by $3 million.

Interest expense decreased $2 million, or 8 percent, in the third quarter of 2014 compared with the third quarter of 2013, as a $5 million decrease related to higher AFDC from the construction of three new generation projects was partially offset by an increase related to a higher average balance of debt outstanding.

Other income, net, increased $5 million in the third quarter of 2014 compared with the third quarter of 2013 due to a $7 million increase in AFDC from the construction of three new generation projects, partially offset by lower earnings on the non-qualified benefit plan trust assets.

Income tax expense was $16 million in the third quarter of 2014 compared with $4 million in the third quarter of 2013. The increase is largely due to higher pre-tax income for 2014 compared to 2013, combined with an increase related to the timing of the recognition of production tax credits.

2014 earnings guidance

PGE is narrowing its full-year 2014 earnings guidance from $2.05 – $2.20 per share to $2.10 – $2.20 per share. Earnings guidance is based on the following assumptions:

  • Normal levels of hydro, wind and thermal generation for the remainder of the year;
  • Operating and maintenance costs between $475 and $495 million, a reduction of $5 million from prior guidance;
  • Depreciation and amortization expense between $295 and $305 million; and
  • Capital expenditures of approximately $980 million.

Third quarter 2014 earnings call and web cast – Oct. 28

PGE will host a conference call with financial analysts and investors on Tue., Oct. 28, at 11 a.m. ET. The conference call will be webcast live on the PGE website at portlandgeneral.com. A replay of the call will be available beginning at 2 p.m. ET on Tue., Oct. 28 through Tue., Nov. 4.

Jim Piro, president and CEO; Jim Lobdell, senior vice president of finance, CFO, and treasurer; and Bill Valach, director, investor relations, will participate in the call. Management will respond to questions following formal comments.

The attached unaudited condensed consolidated statements of operations, condensed consolidated balance sheets, and condensed consolidated statements of cash flows, as well as the supplemental operating statistics, are an integral part of this earnings release.

About Portland General Electric Company

Portland General Electric Company is a vertically integrated electric utility that serves approximately 843,000 residential, commercial and industrial customers in the Portland/Salem metropolitan area of Oregon. The company’s headquarters are located at 121 S.W. Salmon Street, Portland, Oregon 97204. Visit PGE’s website at portlandgeneral.com.

Safe Harbor Statement

Statements in this news release that relate to future plans, objectives, expectations, performance, events and the like may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding earnings guidance; statements regarding future load, hydro conditions and operating and maintenance costs; statements concerning implementation of the company’s integrated resource plan; statements concerning future compliance with regulations limiting emissions from generation facilities and the costs to achieve such compliance; as well as other statements containing words such as “anticipates,” “believes,” “intends,” “estimates,” “promises,” “expects,” “should,” “conditioned upon,” and similar expressions. Investors are cautioned that any such forward-looking statements are subject to risks and uncertainties, including reductions in demand for electricity; the sale of excess energy during periods of low demand or low wholesale market prices; operational risks relating to the company’s generation facilities, including hydro conditions, wind conditions, disruption of fuel supply, and unscheduled plant outages, which may result in unanticipated operating, maintenance and repair costs, as well as replacement power costs; failure to complete capital projects on schedule or within budget, or the abandonment of capital projects, which could result in the company’s inability to recover project costs; the costs of compliance with environmental laws and regulations, including those that govern emissions from thermal power plants; changes in weather, hydroelectric and energy markets conditions, which could affect the availability and cost of purchased power and fuel; changes in capital market conditions, which could affect the availability and cost of capital and result in delay or cancellation of capital projects; the outcome of various legal and regulatory proceedings; and general economic and financial market conditions. As a result, actual results may differ materially from those projected in the forward-looking statements. All forward-looking statements included in this news release are based on information available to the company on the date hereof and such statements speak only as of the date hereof. The company assumes no obligation to update any such forward-looking statement. Prospective investors should also review the risks and uncertainties listed in the company’s most recent annual report on form 10-K and the company’s reports on forms 8-K and 10-Q filed with the United States Securities and Exchange Commission, including management’s discussion and analysis of financial condition and results of operations and the risks described therein from time to time.

POR-F
Source: Portland General Electric Company

PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Revenues, net $ 484 $ 435 $ 1,400 $ 1,311
Operating expenses:
Purchased power and fuel 202 190 528 538
Production and distribution 60 54 181 169
Cascade Crossing transmission project 52
Administrative and other 54 49 164 158
Depreciation and amortization 76 62 224 186
Taxes other than income taxes 27 27 82 79
Total operating expenses 419 382 1,179 1,182
Income from operations 65 53 221 129
Interest expense (1) 23 25 71 75
Other income:
Allowance for equity funds used during construction 11 4 26 8
Miscellaneous income, net 1 3 1 5
Other income, net 12 7 27 13
Income before income tax expense 54 35 177 67
Income tax expense 16 4 46 10
Net income 38 31 131 57
Less: net loss attributable to noncontrolling interests (1 ) (1 ) (1 )
Net income attributable to Portland General Electric Company $ 39 $ 31 $ 132 $ 58
Weighted-average shares outstanding (in thousands):
Basic 78,203 77,637 78,170 76,401
Diluted 80,225 78,330 79,977 76,703
Earnings per share:
Basic $ 0.48 $ 0.40 $ 1.67 $ 0.76
Diluted $ 0.47 $ 0.40 $ 1.63 $ 0.76
Dividends declared per common share $ 0.280 $ 0.275 $ 0.835 $ 0.820
(1) Includes an allowance for borrowed funds used during construction of $ 7 $ 2 $ 15 $ 4
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

September 30, December 31,
2014 2013

ASSETS

Current assets:
Cash and cash equivalents $ 97 $ 107
Accounts receivable, net 156 146
Unbilled revenues 73 104
Inventories 84 65
Regulatory assets-current 56 66
Other current assets 76 103
Total current assets 542 591
Electric utility plant, net 5,553 4,880
Regulatory assets-noncurrent 396 464
Nuclear decommissioning trust 89 82
Non-qualified benefit plan trust 33 35
Other noncurrent assets 44 49
Total assets $ 6,657 $ 6,101

LIABILITIES AND EQUITY

Current liabilities:
Accounts payable $ 157 $ 173
Liabilities from price risk management activities – current 44 49
Current portion of long-term debt 70
Accrued expenses and other current liabilities 211 171
Total current liabilities 482 393
Long-term debt, net of current portion 2,251 1,916
Regulatory liabilities-noncurrent 940 865
Deferred income taxes 626 586
Unfunded status of pension and postretirement plans 163 154
Asset retirement obligations 107 100
Non-qualified benefit plan liabilities 101 101
Liabilities from price risk management activities-noncurrent 78 141
Other noncurrent liabilities 20 25
Total liabilities 4,768 4,281
Total equity 1,889 1,820
Total liabilities and equity $ 6,657 $ 6,101
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Nine Months Ended September 30,
2014 2013
Cash flows from operating activities:
Net income $ 131 $ 57
Depreciation and amortization 224 186
Capitalized costs expensed related to Cascade Crossing 52
Other non-cash income and expenses, net included in Net income 61 40
Changes in working capital 65 94
Proceeds received from legal settlement 6 44
Other, net (14 ) (14 )
Net cash provided by operating activities 473 459
Cash flows from investing activities:
Capital expenditures (824 ) (453 )
Contribution to Nuclear decommissioning trust (6 ) (44 )
Other, net 9 6
Net cash used in investing activities (821 ) (491 )
Cash flows from financing activities:
Net issuance of long-term debt 404 123
Proceeds from issuance of common stock, net of issuance costs 67
Maturities of commercial paper, net (17 )
Dividends paid (66 ) (62 )
Net cash provided by financing activities 338 111
Change in cash and cash equivalents (10 ) 79
Cash and cash equivalents, beginning of period 107 12
Cash and cash equivalents, end of period $ 97 $ 91
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
SUPPLEMENTAL OPERATING STATISTICS

(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Revenues (dollars in millions):
Retail:
Residential $ 208 $ 186 $ 653 $ 611
Commercial 176 162 493 461
Industrial 59 55 164 160
Subtotal 443 403 1,310 1,232
Other retail revenues, net (9 ) (11 ) (6 )
Total retail revenues 434 403 1,299 1,226
Wholesale revenues 39 22 73 59
Other operating revenues 11 10 28 26
Total revenues $ 484 $ 435 $ 1,400 $ 1,311
Energy sold and delivered (MWh in thousands):
Retail energy sales:
Residential 1,746 1,660 5,472 5,469
Commercial 1,872 1,811 5,198 5,132
Industrial 848 823 2,373 2,378
Total retail energy sales 4,466 4,294 13,043 12,979
Retail energy deliveries:
Commercial 154 146 423 408
Industrial 290 275 823 808
Total retail energy deliveries 444 421 1,246 1,216
Total retail energy sales and deliveries 4,910 4,715 14,289 14,195
Wholesale energy deliveries 999 581 1,892 1,892
Total energy sold and delivered 5,909 5,296 16,181 16,087
Number of retail customers at end of period:
Residential 736,289 729,512
Commercial 106,188 105,315
Industrial 203 202
Direct access 430 511
Total retail customers 843,110 835,540
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
SUPPLEMENTAL OPERATING STATISTICS, continued

(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Sources of energy (MWh in thousands):
Generation:
Thermal:
Coal 1,479 830 3,079 2,985
Natural gas 1,282 1,096 2,273 2,300
Total thermal 2,761 1,926 5,352 5,285
Hydro 311 314 1,292 1,231
Wind 332 372 953 1,001
Total generation 3,404 2,612 7,597 7,517
Purchased power:
Term 916 940 4,698 4,821
Hydro 352 385 1,219 1,286
Wind 102 92 267 269
Spot 977 1,147 2,018 1,850
Total purchased power 2,347 2,564 8,202 8,226
Total system load 5,751 5,176 15,799 15,743
Less: wholesale sales (999 ) (581 ) (1,892 ) (1,892 )
Retail load requirement 4,752 4,595 13,907 13,851
Heating Degree-days Cooling Degree-days
2014 2013 2014 2013
First quarter 1,891 1,902
Average 1,864 1,850 - -
Second quarter 530 593 57 82
Average 713 721 70 68
Third quarter 18 90 579 457
Average 85 82 382 385
Year-to-date 2,439 2,585 636 539
Year-to-date average * 2,662 2,653 452 453

* – “Average” amounts represent the 15-year rolling averages provided by the National Weather Service (Portland Airport).

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