Portland General Electric Company Third Quarter 2026 Conference Call - PORTLAND GENERAL ELECTRIC CO

Financial Performance:

• Third quarter GAAP net income was $119 million ($1.00 per diluted share); non-GAAP net income was $125 million ($1.06 per diluted share).
• Total retail energy deliveries decreased 3% year-over-year (nominal) but increased 1% on a weather-adjusted basis.
• Industrial demand grew 9% year-over-year, with 5% quarter-over-quarter growth, driven by high-tech and data center customers.
• Residential deliveries fell 8.9% (nominal) and 0.6% (weather-adjusted); commercial deliveries dropped 5.5% (nominal) and 2.8% (weather-adjusted) due to the coolest summer in a decade.
• Actual third quarter adjusted EPS was $1.06, exceeding the guidance midpoint of $1.26, with variance primarily attributed to mild weather reducing load despite strong margin capture.
• Power costs provided a 4-cent benefit year-over-year, while additional cost recovery contributed 14 cents due to the inclusion of the Seaside battery asset.
• O&M costs showed an 11-cent benefit driven by productivity improvements and cost management.

Guidance and Future Outlook:

• Revised full-year 2026 adjusted earnings guidance to $1.18–$2.28 per diluted share (down from $3.33–$3.53) due to historically mild weather headwinds in the second half of the year.
• Reaffirmed long-term earnings and dividend growth guidance of 5% to 7% and long-term load growth guidance of 1% to 3% through 2033.
• Increased annual capacity growth expectations for large load customers to 12% through 2030 (up from 10%), driven by contracted data center projects.
• Updated 2026 weather-adjusted load growth guidance to 1–2% (down from 1.5–2.5%) reflecting timing changes in industrial load ramp-ups, though no significant impact on 2026 revenue is expected.
• Washington acquisition is anticipated to close mid-2027, expected to be accretive in the first full year with the holding company, or break-even to slightly accretive without it.
• 2027 total forecasted capital expenditures are estimated at $2.5 billion, excluding the recently signed Bigelow and Salmonfly projects which sit outside the primary plan.

Business Segments and Product Lines:

• Large Load Tariff: New tariff effective July 1 increased rates for data centers and large loads while lowering rates for residential/small commercial; contributed approximately $4 million in incremental margin in Q3. Includes minimum payment obligations and direct cost allocation to mitigate risk.
• Data Center Growth: Secured a 420 MW agreement with Veris (energization expected 2028, full capacity by 2033) featuring integrated battery storage and direct cost allocation.
• Clean Energy Resources: Executed Build-Transfer Agreements (BTA) for Bigelow (200 MW solar + 250 MW storage, $900M investment) and Salmonfly (199 MW solar + 199 MW storage, $850M investment, developed with Confederated Tribes of Warm Springs).
• Market Participation: Successfully launched Extended Day-Ahead Market (EDAM) participation, projected to deliver $14 million in customer savings in 2027.
• Washington Acquisition: Proceeding with regulatory review for the acquisition of a Washington utility; key focus areas include CETA compliance, Lewis River hydro facilities, and customer rate credits.

Market and Competitive Landscape:

• Strong demand from technology, semiconductor, and data center sectors continues to drive industrial growth, positioning PGE ahead of many peers in terms of large customer capacity growth.
• EDAM participation is expected to lower costs, reduce volatility, and improve reliability in Western energy markets.
• The company maintains a leading position in integrating battery storage, with projected system storage exceeding 1,000 MW against a ~4,500 MW peak load.
• Inflation and supply chain concerns remain, though recent project costs (Bigelow/Salmonfly) are competitive with national statistics.

Risks and Challenges:

• Holding Company Structure: A September 25 Commission order approved parts of the holding company proposal but included unworkable conditions (e.g., dividend restrictions, one-notch credit downgrade thresholds). PGE has filed for clarification, citing that the current terms do not allow for effective financing or dividend protection.
• Weather Variability: Historically mild summer weather significantly impacted Q3 and H2 load, necessitating the full-year guidance cut.
• Wildfire Risk: Executed risk management plans during a challenging regional wildfire season; declared end of fire season on October 26. Ongoing commitment to system hardening and technology investments.
• Regulatory Timing: Uncertainty regarding the final resolution of the holding company order (deadline for Commission decision is December 7) and Washington acquisition approvals.
• Coal Strip Plant: Regulatory restrictions in Oregon prevent retail load service for Coal Strip power; future ownership strategy is under review but no disposition plan currently exists.

Management Commentary and Tone:

• Management maintained a disciplined and confident tone, emphasizing strong fundamentals despite weather headwinds.
• CEO Maria Pope highlighted that the growth strategy and capital plan do not depend on the immediate implementation of the holding company, though it provides significant financial flexibility.
• CFO Joe Terpich emphasized the strength of the balance sheet, investment-grade credit ratings, and successful execution of cost management initiatives.
• Management expressed satisfaction with the large load tariff design ("growth pays for growth") and the strategic value of EDAM.

Analyst Questions and Answers:

• Holding Company Red Lines: Management confirmed that the one-notch credit downgrade threshold and dividend restrictions are "red lines"; they would not proceed with the structure as currently ordered.
• Financing without Holding Co: The company can finance the Washington acquisition and RFP projects using tax credits, forward equity sales, and debt, maintaining the 5-7% growth trajectory without the holding company structure.
• Veris Project Details: The 420 MW Veris facility includes integrated battery storage to manage peak demand and has been filed ahead of moratoriums; energization begins in 2028.
• Large Load Tariff Impact: The tariff is expected to generate similar or slightly higher margins in H2 2026 and 2027, with benefits also passed to residential customers via rate credits.
• Capital Plan Adjustments: The Bigelow and Salmonfly projects ($1.75B total) are outside the current $7.4B 5-year CapEx plan due to effective dates but are expected to support the midpoint of the 5-7% growth rate.
• Washington Rate Case: Timing for the first Washington rate case is under evaluation and may be part of the transaction settlement; projected to occur after mid-2027 close.
• Coal Strip Ownership: Management is open to various scenarios regarding the plant's future but acknowledges current Oregon law limits its retail use.

Other Key Points:

• Dividend declared: $0.5125 per share quarterly, a 5% increase, targeting a 60–70% payout ratio.
• Financing activity: Completed $550 million equity issuance (forward sale), with $152 million drawn as of Sept 30; $398 million of planned equity draw shifted to 2027 due to holding company uncertainty.
• 2026 Clean Energy Plan and Integrated Resource Plan filed with the Commission.
• PGE actively participates in designing Western energy markets (e.g., EDAM) to lower costs and improve reliability.