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

Financial Performance:

• Reported Q3 2026 GAAP net income of $119M ($1.00/share) and non-GAAP net income of $125M ($1.06/share).
• Full-year 2026 adjusted EPS guidance lowered to $1.18–$2.28 (from $1.20–$1.32 midpoint), primarily due to historically mild weather reducing residential/commercial load.
• Total retail energy deliveries dropped 3% YoY nominally but rose 1% on a weather-adjusted basis.
• Industrial demand surged 9% YoY and 5% QoQ, driven by high-tech and data center sectors; residential deliveries fell 8.9% nominally (-0.6% weather-adjusted), while commercial deliveries dropped 5.5% nominally (-2.8% weather-adjusted).
• O&M costs showed an 11-cent per share benefit due to efficiency improvements; power costs provided a 4-cent benefit despite the reversal of favorable 2025 conditions.
• Q3 adjusted EPS of $1.06 beat the midpoint of $1.26 guidance primarily due to weather impacts on load and cost recognition timing.

Guidance and Future Outlook:

• Reaffirmed long-term earnings and dividend growth guidance of 5–7% annually.
• Updated 2026 weather-adjusted load growth guidance to 1–2% (down from 1.5–2.5%) due to timing of industrial load ramp-ups; revenue impact expected to be minimal due to contractual minimums.
• Revised annual capacity growth forecast for large load customers to 12% through 2030 (up from 10%), supported by contracted facilities.
• 2027 capital expenditure forecast stands at $2.5B, including new Bigelow and Salmonfly projects; total 5-year capex forecast includes 2023 RST projects but excludes new BTA projects for now.
• Q4 earnings trajectory expected to improve significantly driven by weather normalization, full-year recovery of Distribution System Planning (DSP) and Seaside battery assets, and favorable net variable power cost timing.

Business Segments and Product Lines:

• Large Load/Tariff: New Large Load Tariff (effective July) generated ~$4M incremental margin in Q3; includes take-or-pay provisions and direct cost allocation for infrastructure.
• Data Centers & High-Tech: Secured 420MW agreement with Veris (energization 2028, full ramp 2033) including integrated battery storage; other data centers also contributing storage to reduce peak demand.
• Clean Energy: Executed Build-Transfer Agreements (BTA) for two major projects: Bigelow (200MW solar + 250MW storage, $900M investment) and Salmonfly (199MW solar + 199MW storage, $850M investment), with Salmonfly developed alongside Confederated Tribes of Warm Springs.
• Market Expansion: Successfully launched participation in the Extended Day Ahead Market (EDAM); anticipated to deliver $14M in customer value in 2027.
• Acquisitions: Washington utility acquisition proceeding with regulatory review; target closing mid-2027.

Market and Competitive Landscape:

• Strong industrial demand growth (9% YoY) highlights PGE's competitive positioning as a power source for semiconductor and data center hubs.
• EDAM participation enhances Western energy market efficiency, lowers costs, and improves regional reliability.
• Large Load Tariff positions PGE ahead of many regional utilities by lowering residential rates while increasing rates for high-volume data centers.
• System now approaching >1,000MW of battery storage against a 4,500MW peak load, providing significant flexibility compared to peers.

Risks and Challenges:

• Holding Company Structure: Pending regulatory clarification; current Commission order includes non-workable conditions regarding retain earnings caps and dividend restrictions (potential "one-notch" rating downgrade trigger), which management considers red lines.
• Weather Volatility: Historically mild summer significantly reduced Q3 results and full-year guidance; future weather patterns remain a key variable.
  Project Execution: Inflation and supply chain risks noted for RFP projects, though execution remains strong with cost per kW tracking previous 2023 RFP levels.
• Wildfire Season: Challenging regional conditions required system hardening and proactive load management; fire season declared ended Oct 26, but long-term risk mitigation remains a priority.
• Regulatory Uncertainty: Washington acquisition faces hurdles regarding Clean Energy Transformation Act (CETA) compliance, non-included hydro facilities, and rate credits.

Management Commentary and Tone:

• Tone was disciplined and resilient, emphasizing strong fundamentals despite weather headwinds.
• Management stressed that current growth strategy and guidance are independent of the holding company structure implementation, though the structure would provide financial flexibility.
• Executives expressed confidence in the team's ability to manage costs and execute complex regulatory filings, citing the successful EDAM launch and new clean energy contracts as proof of operational strength.
• Leadership acknowledged the "chilly" summer but noted industrial demand is a powerful offset, framing the current quarter as an anomaly rather than a trend.

Analyst Questions and Answers:

• Holding Company Constraints: Management clarified that without a holding company, the Washington acquisition would aim for break-even to slight accretion in the first full year, using tax credits ($350–$400M) and debt to finance, with minimal new equity needed.
• RFP Delays: Explained that risk disclosures reflect exploration of multiple procurement paths (BTAs vs. RFPs) to optimize investment, not necessarily project delays.
• Washington Acquisition Stakes: Identified CETA compliance, Lewis River hydro facility inclusion, and customer rate credits as the three primary negotiation points with Washington stakeholders.
• Equity Financing: Confirmed $550M equity issuance under forward sale with $398M deferred to 2027; 2027 equity needs include $350–$400M tax credit modernization and $150–$200M equity issuance.
• Battery Storage Strategy: Confirmed expectation for continued battery integration on new projects to manage peak loads and leverage transmission, though noted diminishing returns and rising battery costs as factors to monitor.
• Coal Strip: Stated no current plan to exit ownership, though retail power sales are restricted by Oregon law; open to regulatory dialogue regarding future structure.

Other Key Points:

• Quarterly common stock dividend increased 5% to $0.55125/share, aligning with the 60–70% payout target.
• Investment-grade credit ratings remain unchanged despite holding company uncertainties.
• 2026 Clean Energy Plan and Integrated Resource Plan filed with the Commission.
• Veris facility agreement includes specific provisions for minimum payment obligations and direct infrastructure cost allocation to ensure reliability.