Portland General Electric Company - Q3 2024
October 25, 2024
Transcript
Operator (participant)
Good morning, everyone, and welcome to Portland General Electric Company's Third Quarter 2024 Earnings Results Conference Call. Today is Friday, October 25, 2024. 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 this time, simply press star, then the numbers one one on your telephone keypad. If you would like to withdraw your question, please press star one one again. If you do intend to ask a question, please avoid the use of speakerphones. For opening remarks, I will turn the conference call over to Portland General Electric's Manager of Investor Relations, Nick White. Please go ahead, sir.
Nick White (Manager of Investor Relations)
Thank you, Gigi. Good morning, everyone. Thank you for joining 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 2, 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.
Turning to Slide 3, leading our discussion today are Maria Pope, President and CEO, and Joe Trpik, 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.
Maria Pope (CEO)
Thank you, Nick, and good morning. I'm happy you can all join us today. Our third quarter reflects PGE's focus on operational excellence and delivering consistent results. Starting with Slide 4. For the quarter, we reported GAAP net income of $94 million or $0.90 per diluted share. This compares with third quarter 2023 GAAP net income of $47 million or $0.46 per diluted share. Three key drivers underpin our results. First, improved power cost performance, driven by PGE's acquisition of renewable resources and regional power market stability. This is despite experiencing very low hydro conditions and summer heat. Certainly, a significant improvement from tough third quarters of the last several years. Second, execution of thoughtful cost and risk management work, as well as overall strong performance across our operations. And third, continued robust demand growth led by semiconductors and data center manufacturers and customers.
Due to our solid third quarter results and outlook for the full year, we expensed a portion of the cost related to the January 2024 storm and damage deferral. Given the application of an earnings test, this resulted in a charge to third-quarter earnings of $0.11 per share. Joe will cover this more in detail in his remarks. For the full year, we expect to deliver results in the upper half of our original guidance range. We are narrowing our 2024 adjusted earnings guidance to $3.08-$3.18 per diluted share. Turning to Slide 5. We entered 2024 focused on solidifying our energy portfolio by adding 500 MW of new renewable hydro capacity, integrating additional wind, and optimizing our generation assets. Our results this quarter reflect the importance of these investments and work.
Similar energy capacity and additions across the West have helped steady energy markets, even with significantly below hydro conditions and the record-setting Westwide hot summer temperatures, particularly in July. We strategically deployed our generation fleet and procured energy across Western markets to offset the impacts during the most challenging periods. Our power operations and generation teams did an outstanding job. We also saw strong performance from the Clearwater Wind Project, officially commissioned in September, which operates at a high capacity factor and provides important diversity to our generation mix. Notably, there have already been 25 days this year where, with the addition of Clearwater, PGE generated more than a gigawatt of wind power. This is equivalent to serving nearly all of our residential customers with wind-generated energy.
We are excited to complement Clearwater's success with the incoming Constable and Seaside battery storage projects, providing even more flexibility and reliability to our system. Clean energy remains a customer focus and a priority from high tech and data centers to hospitals and municipalities and individual residential customers. For the fifteenth year in a row, PGE's voluntary renewable program was ranked number one by NREL. More than 25% of our residential and business customers chose to enroll in our Green Future program. We also made important progress in securing the next generation of reliable, clean, and cost-effective resources. In September, in coordination with the independent evaluator, we submitted the 2023 RFP final shortlist for acknowledgement by the OPUC. Included on the shortlist are a mix of solar and battery projects that provide critical resource diversity and capacity options.
All of these projects help advance our clean energy goals, while also balancing reliability and affordability. We've structured this list into two groups at the request of stakeholders. We've prioritized and begun negotiations with the top-performing bids, Group A. As negotiations continue and we advance through the regulatory process, we'll determine if engagement with the remaining shortlist projects, Group B, is necessary. OPUC acknowledgement of the shortlist is expected by late November, and contracts are expected to be completed throughout 2025. We received numerous other bids that, with continued refinement, could be important portfolio additions in the future. Given our significant need for clean energy and capacity, we expect to file an integrated resource plan update and to conduct a follow-on RFP in 2025. Turning to the 2025 rate review.
Since our last call, PGE and parties have exchanged additional testimony in participating in hearings earlier this month. We appreciate the productive dialogue held across multiple settlement discussions during the year. PGE remains laser-focused on keeping our customers' prices as low as possible by driving operational efficiencies. Our third quarter results, which Joe will cover shortly, reflect this focused approach as we prioritize work that impacts power costs, O&M, capital, as well as reduces overall risk. This includes vegetation management that addresses both wildfire and winter storms, power plant and gas storage optimization, and progress on our capital plan to replace aging infrastructure, particularly across our T&D systems, and to enhance grid reliability. We also continue to aggressively pursue and successfully capture billions of dollars of federal grants, production tax credits, and investment tax credits, both ourselves and with partners.
Most recently, the North Plains Connector, a project led by Grid United, received a $700 million federal grant from the U.S. Department of Energy through the Grid Resilience and Innovation Partnership, which includes upgrades for the existing Colstrip transmission line. These grants, as well as investment and production tax credits from our clean energy projects, benefit all parts of our business. This includes generation assets, long lead transmission, distribution enhancement, transportation electrification, workforce development, and more. This powerful, game-changing federal support is helping us keep customer prices as low as possible while advancing the energy transformation and accelerating technology and innovation. While these advancements are critical, let me now turn to the safety of our coworkers, customers, and communities, our top priority. Extreme weather, natural disasters, and in particular across the West, wildfires. These are not just a utility issue, but a societal one.
Addressing wildfire risk requires maximizing the investments in our capabilities and continued sharpening of our mature, year-round wildfire mitigation program. It also requires collaboration with federal, state, and local agencies, and actively supporting potential regulatory and legislative solutions at the state and national level. We are working with partners and policymakers on potential legislation to ensure that utilities in Oregon and across the country can continue providing safe, reliable, and affordable electricity service. Addressing this risk in a holistic fashion is critical for customers, communities, employees, and shareholders, all stakeholders. Finally, turning to demand growth. Year to date, industrial demand has grown more than 9% compared to 2023, extending the trajectory we've observed for the last five years. This further highlights the attractiveness of our service territory to a diverse customer base, including data centers and an ecosystem of semiconductor research and manufacturing customers.
By working closely with our customers, communities, and policymakers, we've had a long-running visibility to these trends. This has informed much of our strategy. Meeting these growing energy needs reinforces our decision to join the energy Day-Ahead Market. This will help lower power costs, increase resilience, and improve access to diverse resources and clean energy across the West. We are also focused on enhancing our transmission capabilities in multiple phases and areas. First, maximizing performance and alleviating bottlenecks in our existing rights of way. Second, working closely with partners on lines adjacent to our service territory, like the collaboration with the North Plains Connector, to execute a reliable and affordable clean energy transition and extend the reach of the Western network. This work is critical as we continue to support customer growth and advance our shared decarbonization goals.
Looking ahead, this quarter's strong operations focus on execution and robust demand growth drove our performance. We integrated a significant amount of renewable resources, experienced stable power markets, and served our growing customer base. We remain focused on providing safe, reliable, and affordable clean energy. With that, I'll turn it over to Joe. Thank you.
Joe Trpik (SVP of Finance and CFO)
Thank you, Maria, and good morning, everyone. Turning to Slide 6, our Q3 results reflect improved regional power cost conditions and continued robust demand growth from our industrial class customers. Our region again experienced warmer conditions than normal throughout the quarter, but conditions were slightly cooler than last summer. Q3 2024 loads increased by 3.9% overall and 5.3% weather adjusted as compared to Q3 2023. Q3 2024 residential load decreased 1.2% year-over-year, but increased 0.9% weather adjusted. Residential customer count increased by 2.1%, however, this was partially offset by energy efficiency, driving lower usage per customer. Commercial loads remained relatively flat, with a slight decrease of 1% or 0.1% weather adjusted, driven largely by energy efficiency.
The industrial class continues to experience chunky growth this quarter compared to the modest growth seen in Q3 last year. Industrial load increased 15.7% or 16.4% weather adjusted. This increase is driven by demand from digital infrastructure and semiconductor customers, emphasizing growing load opportunities within our area. These results, as well as continued visibility to a pipeline of further expansion, reinforce our expectations for near and long-term growth across our service territory. As such, we are reiterating our 2024 weather adjusted load growth guidance of 2%-3%. We are also reiterating our long-term load growth guidance of 2% through 2027. We will continue to evaluate this for potential revision in conjunction with our next IRP, which we plan to file in Q1 of 2025. I'll now cover our financial performance quarter-over-quarter.
We observed a $0.10 increase in revenues, primarily due to increased deliveries to our industrial customers. An EPS increase from power costs of $0.45, driven by a $0.07 EPS increase due to power cost detriments in Q3 of 2023 that reversed for this comparison, and a $0.38 EPS increase from favorable power cost conditions seen throughout our territory and the region. Compared to a very challenging Q3 2023, we saw far less market volatility and operated in a lower price environment. Overall, average Mid-C day-ahead peak prices were more than 40% lower throughout the quarter than last year.
Improved market stability and market prices were driven by a handful of factors, including higher than expected gas and hydro storage levels due to the mild winter earlier in the year, higher penetration from 4,000 MW of new battery storage and 1,500 MW of new solar throughout the desert Southwest and California, and significant heat events occurring in early July when hydro runoff remained prevalent, which helped avoid pronounced price spikes. We also saw the benefits of renewables that we added to our portfolio, including new hydro capacity and contributions from Clearwater Wind, which performed consistently throughout the summer. The combination of favorable conditions and actions taken by our team drove lower power costs than anticipated in the Annual Update Tariff.
A $0.05 decrease from operating maintenance expense, net of improved recovery and deferral related items driven primarily by service restoration during the heat events during the quarter. A $0.05 increase from other items, including higher returns on non-qualified benefit trust assets and lower income tax expense, generally from tax credit impacts. Lastly, as Maria mentioned earlier, we had an $0.11 decrease from a deferral release related to the January 2024 storm and damage deferral. As of the end of Q3, we have forecasted that our full year 2024 regulated ROE would be above the 9.5% threshold used for the emergency storm deferral earnings test. As a result, we have decreased that deferral from $45 million - $28 million and taken a corresponding charge in the third quarter.
This means that due to our expectations of improved 2024 results, storm costs that would have been collected from customers will likely decrease. We will reassess this earnings test and the related impact to the deferred amounts related to the January storm, based on the actual regulated return on equity for the end of the year. This test is unique to 2024 and became applicable when we had a major storm deferral earlier this year. It became relevant to our results when we had such a favorable third quarter performance, and we've exceeded our original outlook. On to Slide 7 for our capital forecast. We've made meaningful headway in our 2024 plan, but we have modestly revised our 2024 and 2025 CapEx forecast based on year-to-date progress.
We've elevated our capital program to support customer growth, reliability, and decarbonization, and we're proceeding thoughtfully to build the rigor to execute at this level in the long run. Our latest battery projects, Constable and Seaside, remain on schedule and are expected to come online at the end of 2024 and in the middle of 2025, respectively. We are pleased with the nearly one point seven gigawatts of solar and battery projects on the 2023 RFP shortlist. As a reminder, our current forecast does not include any potential build-transfer RFP projects. Updates to our capital forecast from the potential RFP project ownership would occur upon bid selection and contract execution. We expect to execute final contracts over the course of 2025, with build-transfer agreements expect to be finalized in the second half of 2025.
All projects are expected to be in service by the end of 2027. On to Slide 8 for a summary of liquidity and financing. Total available liquidity as of September 30 is just over $1 billion. Our investment-grade credit rating, strong balance sheet, and outlook remain unchanged from our last disclosures. In the third quarter, we drew $100 million previously priced under our legacy $300 million ATM program. The residual amount priced under the facility was unissued at the end of September, but we expect to draw the remainder in Q4 to support our base capital plan. I'll reiterate that we've satisfied our equity needs to support our 2024 base capital plan and capital structure management, and any further action in 2024 would focus on maintaining strong credit metrics for de-risking our long-term financing plan.
We expect debt issuances in the last quarter of the year of up to $300 million, focused on the funding of capital expenditures. As we highlighted on our last call, for 2024 through 2026, we anticipate that the annual equity need of approximately $300 million to support our base capital investments and continue to strengthen our balance sheet over the next few years. We anticipate our annual base needs to taper after 2026 as our capital structure improves. We're carefully assessing equity needs from the potential RFP investments as contract negotiations proceed. We continue to expect financing RFP ownership opportunities in line with our authorized capital structure. Consistent with our long-standing practice, we'll continue to pursue financing options that maximize accretion and customer value, minimize dilution, maintain our strong credit ratings, and manage our capital structure.
Turning briefly to the 2025 rate case, which is proceeding through its final stages. As Maria noted, settlement discussions continued throughout the quarter, and a hearing was held in early October. Briefs filings are scheduled for the end of October and early November, ahead of oral arguments scheduled for mid-November. For the 2025 AUT, we have reached agreement in principle with the parties to resolve all remaining issues and anticipate filing a stipulation in the coming weeks. We remain committed to being engaged with all stakeholders and appreciate the collaboration and discussions that have occurred to date. As we reflect on the quarter and turn to Q4, the results display the continued manifestation of our long-term strategy. Through September, our team has been laser-focused on executing our plan, creating certainty in our 2024 results, and setting the stage for 2025.
This includes our efforts to maximize the benefits from favorable power market conditions we've seen through Q3. Our power cost processes operating on an annual basis, resetting each year as part of the Annual Update Tariff or AUT. While less extreme weather and improved market conditions help reduce the volatility in 2024, we recognize the AUT will reset in 2025, and our performance may be closer to an established baseline based on market dynamics next year. As such, we have deployed high-impact actions to lock in the value of favorable positions and reduce risk ahead of the winter storm and heating season to provide both strong customer service and deliver on expectations for the year. This has caused some positive elements of our 2024 plan to shift from Q4 to Q3. We also have less favorable power cost expectations in Q4 2024 than last year.
In Q4 2023, the market conditions enabled outperformance relative to AUT assumptions. Our outlook for Q4 2024 indicates market conditions that are moderately unfavorable relative to the AUT. With this line of sight to Q4, and given our year-to-date progress, we remain confident in our ability to strongly deliver for the full year. As such, we're narrowing our 2024 adjusted earnings guidance from $2.98-$3.18 per share to the upper half of the range, or $3.08-$3.18 per share. Based on our current projections, we are forecasting that the earnings at the top of our current range would result in us reaching authorized regulatory ROE levels. To the extent that we see results favorable to our expectations, such favorability could be impacted by a deferral of the earnings test I mentioned earlier.
We are also reaffirming our long-term earnings and dividend growth guidance of 5%-7%, supported by the strength of our service territory, robust capital opportunities, and our improving operational execution. As we turn to the closing months of 2024, our ongoing focus of providing clean and reliable energy while keeping customer costs as low as possible remain unchanged. We are continuing to prioritize operational excellence and execution, allowing us to deliver maximum value to our customers, shareholders, and the communities we serve. And now, operator, we are ready for questions.
Operator (participant)
Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Richard Sunderland from JPMorgan.
Maria Pope (CEO)
Good morning, Richard.
Richard Sunderland (Equity Research)
Hi, good morning. Good morning, thanks for the time today. A couple different topics to hit on, is it the storm deferral release? Just wanted to understand if that's just NVPC favorability driving you to earn above that 9.5% ROE test, or are there other factors? And it sounds like this is the case, but could a market improvement this quarter relative to today's expectations, drive the release of the remaining deferral?
Joe Trpik (SVP of Finance and CFO)
To your first part, yes, it's mainly driven by favorable NVPC performance, and to the extent that we were to continue to outperform our expectations, there would be a commensurate reduction in that deferral.
Richard Sunderland (Equity Research)
Understood. Very clear there. Then separately, Maria, you mentioned in the script cost work that you have been executing on. I'm curious how you see O&M trending going forward. Do you expect continued increases? Are there areas to offset some of the inflation elsewhere?
Maria Pope (CEO)
Sure. It's a great question. We have been investing significantly in our wildfire resilience, and ensuring that our system is safe, particularly in our high fire risk zones. We have also done quite a bit of work to drive efficiencies across our operations, and with the additional growth that we're seeing, we're able to spread those fixed costs over more customers. And so we are absolutely seeing efficiencies across our operations. That includes also our deployment of capital as well. We've had very good success with some of the opportunities we've seen in the IT area, as we're keeping headcount largely flat, while we're growing our base of work and serving more customers.
Richard Sunderland (Equity Research)
Got it. Thank you for the color there. And just to squeeze in one last one, you talked about fifty-fifty equity funding on the RFP CapEx. I know that's been out there for a while. Curious if you see ITCs potentially helping with the funding, meaning lower equity needs because of those ITCs?
Maria Pope (CEO)
Absolutely. And, you should know that, and we put it in the queue, there's quite a bit of ITCs and PTCs associated with the Clearwater Wind Farm, as well as with the battery storage that we're bringing online. But it's an important part of our financing going forward, in addition to all of the federal grants that we've received. It's really a way that we can bring those federal dollars to the state of Oregon and keep customer prices as low as possible as we lead in a clean energy transition.
Richard Sunderland (Equity Research)
Great. Thanks for the time today.
Maria Pope (CEO)
Thank you.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Shar Pourreza from Guggenheim Partners.
Shar Pourreza (Senior Managing Director)
Hey, guys.
Operator (participant)
Morning, Shar.
Shar Pourreza (Senior Managing Director)
Good morning, good morning. Maria, I think the pre-filing deadline for the upcoming long session in the state legislature is in a few weeks, I think sometime around December thirteenth. Can you speak to any preliminary discussions around wildfire legislation and at this point, be it a fund like we've seen in other states or some legal protections? So maybe just a bit more color from your prepared remarks.
Maria Pope (CEO)
Sure. Shar, as you know, we have long been focused on wildfire work, not only for all the work that we do in our service territory and across our operations, operationally, to reduce the risk of fire, but we have also been advocating, both in the federal and the state level, for appropriate legislation, for changing some of the rules with regards to working in the rights of way, as well as how liabilities are handled. We'll continue to focus that work, and we are working extensively with parties at the national level and in particular at the state level. I think you'll see multiple bills with regards to wildfire at the coming session.
And that's really important because we have a lot of forest companies in this state, as well as other land management agencies, and there is wide societal concern over the threat of wildfire, and we saw significant fires this past summer in the eastern part of our state. None of significance in our service territory.
Shar Pourreza (Senior Managing Director)
Got it, perfect. And I know, Maria, you touched a little bit on sort of, you know, the industrial growth, but just in light of some of the issues Intel's having, can you maybe speak to the durability of industrial growth? You're seeing 50% of that mix is semiconductors. I guess, what percentage of that is Intel?
Maria Pope (CEO)
Sure. Broadly speaking, 15% of semiconductor manufacturing takes place in our service territory, not just in the state of Oregon, which has additional manufacturing capacity. There are five key companies that operate in our area, onsemi, Analog Devices, Lam Research. You have Microchip, as well as Intel. About more than half of Intel's patents were created here, and other engineers and scientists that led to those that research and advancement in their science has really resulted in an ecosystem of semiconductor manufacturing in this region that the state has supported significantly. And we do not expect any changes in that and the strength of the manufacturing that we see out of the Intel campus.
We also are seeing growing areas that are adjacent to semiconductor manufacturing. So whether that's air separation companies to EDA research and development companies like Cadence Design Systems, Synopsys and Mentor Graphics, as well as many others. We also are seeing quite a bit of growth in data centers, as you know. So it's a balanced growth portfolio. About half of our load today in this high tech space is semiconductors. 20% in the fastest growing is data centers, and 30% is sort of general manufacturing, but very much with a high tech focus.
Shar Pourreza (Senior Managing Director)
Got it. And then just one last one for me. Just on, just some commentary in the RFP docket around transmission congestion, just impacting kind of your ability to interconnect sufficient resources to hit that 20-30 target. Does the transmission CapEx you have in plan through 2028 relieve that, or is there more work to be due in 2029 and beyond, as we're thinking about that potential spend increase?
Maria Pope (CEO)
Yeah, absolutely. There's no question, and that's one of the reasons that we separated out our CapEx spending, because we need to do more to relieve that congestion, and we have a focused group of leaders within the company, who are getting that work done. We're also partnering with entities across the state. One of the grants that we've received is $250 million in conjunction with the Confederated Tribes of Warm Springs, to expand a line that we own between here and the reservation, where we co-own hydro facilities for significant additional renewable development. I mentioned on my prepared remarks, the North Plains Connector, but I think you'll see transmission projects that we will continue to do, continue to bring online, as well as partner with others across the region.
It's important that we're able to access renewables that, in many parts of the country, are being curtailed, because there is not enough transmission to bring those to customer usages. So in many instances, there's no incremental generation cost associated with the construction and building out of that transmission network.
Shar Pourreza (Senior Managing Director)
Got it. Perfect. Thanks, guys. That answers it. Congrats on the results, and see you in a couple weeks.
Maria Pope (CEO)
Thank you. Nice to see you, talk to you.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Nicholas Campanella from Barclays.
Nicholas Campanella (Director)
Good morning. Hi. I like how they said Campanella there. Hey, so, just wanted to ask, on the rate case, you said, you settled the AU-- you're going to settle the AUT. Just what's the ability to kind of settle cap structure, ROE, and other components at this point? Are you kind of willing to kind of take that to a fully litigated route? And then just thinking forward, you know, as we go forward in the state, do you see settlements as still something that you can continue to get done, in the next rate cases? Or just how should we kind of think about that? Because in my time covering the company, it's one of the few times that you haven't settled. Thank you.
Joe Trpik (SVP of Finance and CFO)
Good morning, Nick, this is Joe. You know, as it relates to the case, we continue to have open dialogue and, you know, the settlement window is open, but, you know, in reality, we haven't been far apart, but we haven't been able to settle. So, you know, at this point, we're comfortable riding either a settlement or working this through to litigation. You know, we have built this, we have gone through this, you know, a well-structured case of the evidence in that.
So we continue to be hopeful that we'll find a way here to settle some of these items, but we are also, at the same time, prepared for and have planned for, you know, the possibility of taking this case to the commission.
Nicholas Campanella (Director)
Okay, that's super helpful. And then I guess just, you know, you talked a little bit about managing affordability in your prepared remarks. And, you know, I, it's super exciting to see kind of the rate base growth continue to inflect higher, especially as you kind of add in these new CapEx opportunities. How are you kind of thinking about balancing all that as the, you know, the CapEx just continues to scale higher here? Is it, you know, as you wrap in these RFP awards and these build-transfer, is that purely one for one incremental to the CapEx plan? Is there any kind of offsets in the CapEx plan to manage affordability? How should we think about that?
Joe Trpik (SVP of Finance and CFO)
You know, I'll start on this, and Maria may add in. As it relates to the RFP, you know, generally speaking, those are incremental to our plan. But of course, a lot of these resources that are coming online also do drive benefits. You know, for example, the Clearwater assets that came online were a reduction to the customer bill for the energy that we're replacing. And that's key to as we work through these RFP processes, when we're selecting the project, we are evaluating them based on cost and risk, and risk being, of course, risk to be able to execute and deliver.
And then also as a reminder on affordability, a lot of these projects have the ITCs or PTCs with them that are turning back to the customers, which help drive affordability as well. So affordability is key as we're working towards the Clean Energy Plan and working towards the policies for 2030 and beyond. But you know, we never stop thinking about affordability and ensuring that we're aligning that with the customers as well.
Nicholas Campanella (Director)
And then my last one is just on the RFP, that it sounds like you'll be filing a new one in 2025. Just in terms of the process and when you eventually get to the awards, what's the timeline for capital around that? Is it late 2020s, is it end of decade, or is it early 2030s, or, you know, could any of this kind of make it into the 2027, 2028 window? Just trying to understand that.
Joe Trpik (SVP of Finance and CFO)
Our current so we talked to the potential new RFP. So the new RFP that we're talking about, the potential that we would file at some time in the beginning of next year, either done concurrently with an IRP or in a linear fashion. We have an expectation that those assets would be requested to come on service by 2028. So 2028, I guess, we could see they could go to 2029. But considering our needs on the system, both from a renewable energy as well as capacity, we would expect whatever the next RFP is to have assets delivered in that 2028 or so period.
Nicholas Campanella (Director)
That's really helpful. Appreciate the time today, and have a great Friday.
Maria Pope (CEO)
Thanks, Nick.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Julien Dumoulin-Smith from Jefferies.
Brian Russo (Managing Director and Senior Equity Research Analyst)
Hi, good morning.
Joe Trpik (SVP of Finance and CFO)
Hi, Julien.
Brian Russo (Managing Director and Senior Equity Research Analyst)
This is Brian Russo. Hi, it's Brian Russo-
Joe Trpik (SVP of Finance and CFO)
Oh, hello, Brian.
Brian Russo (Managing Director and Senior Equity Research Analyst)
... off Julien. Hey, just to the upcoming RFP, how much capacity is actually remaining after, you know, you complete the 2023 RFP?
Joe Trpik (SVP of Finance and CFO)
Yeah, so I'll pull that up as we're talking here. But just as a reminder, when we kicked off the 2023 RFP, the needs of that IRP at a midpoint were 3,200 MW. So we will update the IRP, which has, you know, the expectation of potential growth, which will redefine that item. So if you take that we had 3,200 MW of need, the nameplate of both groups A and group B is 1,700 MW total. Again, just as an understanding, we will be acting and we're in discussions with group A, and then we will evaluate the needs for those group B items.
But so there, you know, you have 3,200 MW is what our need was before this RFP. We have 1,700 MW of nameplate here, and then we will update that with the IRP in the first quarter of next year.
Brian Russo (Managing Director and Senior Equity Research Analyst)
Okay, great. And any milestones we should look for with the North Plains Connector, are you still, you know, the ability for 20% is still intact? And then also remind us of the Confederated Tribes Warm Springs' CapEx profile, you know, in the five years. Is it all within the five years, or does that project extend past 2028?
Joe Trpik (SVP of Finance and CFO)
Sure. I'll start with, on the North Plains Connector, we continue to proceed with our 20% stake. There aren't, at this point in time, specific dates of milestone. We will be adding partners. We will make disclosures when our commitments continue to expand. Right now, we have a memorandum of understanding that it is not binding, so but there will be updates that proceed as new partners and that project proceeds. As it relates to the Confederated Tribes of the Warm Springs, this is a reminder we have placed in the plan that you currently see, the first year of that project is in 2028.
We would expect that to be a multi-year project, going out beyond our current forecast period that we show, you know, you would expect as a normal transmission project, that you'll get a few years out of that. Just as a reminder, tying this back to the grants, that is the project where the Confederated Tribes are participating in one of the grants with the federal government.
Brian Russo (Managing Director and Senior Equity Research Analyst)
Okay, and then just lastly, you mentioned the tax credits as a means to offset some of the equity financing. Could you just talk more specifically on the strategy with Constable and Seaside? I think as part of the rate case, you know, the refund to customers over 5 years or 10 years or 20 years is being evaluated. Just wanted to get your thoughts.
Joe Trpik (SVP of Finance and CFO)
So sure. Specific to Constable and Seaside, which are eligible for ITCs, if you value the two of them combined, you'd get somewhere around approximately $150 million over time. You know, our policy is to refund them to customers over a period that we align with the regulator, right? And as you mentioned, the refund period for these are not set. It'll be somewhere between 5 years - 15 years. But on the financing side to that, we also have had agreement with the OPUC as it relates to being able to monetize these tax credits on the front end, as long as we... And be able to do it, I should say, within a discount of 10%.
So we've generally taken an approach where these tax credits are earned, we will monetize these tax credits, thereby reducing our equity needs, and that equity need reduction will be, you know, tied to how long that amortization period is.
Brian Russo (Managing Director and Senior Equity Research Analyst)
... Okay, great. Thank you very much.
Joe Trpik (SVP of Finance and CFO)
I was going to say, just this year, we have monetized $31 million in credits this year, and we do have certain agreements for future monetization as well.
Brian Russo (Managing Director and Senior Equity Research Analyst)
Understood. Thank you.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Michael Lonegan from Evercore.
Maria Pope (CEO)
Morning.
Michael Lonegan (Director of Equity Research)
Hi, thanks for my questions. So on the RFP, you know, you previously laid out 25% ownership that you assumed in your illustrative rate-based growth example. So the final shortlist here, you know, could be towards 50% ownership, it looks like. Just wondering how you are thinking about where this positions you to land in the range of your 5%-7% EPS growth forecast. Obviously, you know, the additional CapEx could come with incremental equity that you've spoken to.
Joe Trpik (SVP of Finance and CFO)
You know, currently, this RFP and, you know, obviously, you measure how we do in either group A or group B, but no matter how you look at it, all of this continues to align us within the earnings band, as we had mentioned. So, you know, the success of these RFPs, assuming we continue to execute, would be consistent with our earnings expectations within the growth band.
Michael Lonegan (Director of Equity Research)
Got it. Thank you. And then secondly, from me, in the pending rate case, you conceded some items, you revised your ask with some, you know, like you withdrew the request for the investment recovery mechanism and a related storage policy. Just wondering if you see an opportunity to ask for these in the next rate case. I think you've alluded to annual filings going forward.
Joe Trpik (SVP of Finance and CFO)
Yeah, I mean, I think, you know, each case, as you know, stands by itself, and what we've been trying to do in these cases is be responsive to the stakeholders on things of obviously managing affordability, but also managing the timing of cases and that. So, yes, I believe we'll continue to have dialogue over items like an item as it relates to trackers for storage, solely to continue to align to their goals. So yeah, for this case, we've pulled some of them out, but I think, you know, we'll work through potentially, you know, there's been discussions of a multi-year framework going forward. But I would think that these type of proposals will come forward in the future. And so I think there's possibility for those.
I think tools like this will be needed to consistently meet the clean energy goals and meet the expectations of, you know, the timing of rate cases and other matters.
Michael Lonegan (Director of Equity Research)
Great. Thanks for the time.
Maria Pope (CEO)
Thank you.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Travis Miller from Morningstar Inc.
Travis Miller (Senior Equity Analyst)
Morning. Thank you.
Maria Pope (CEO)
Morning, Travis.
Travis Miller (Senior Equity Analyst)
Hi. Sticking on that rate case, and you answered a lot of questions around the settlement and what's going on there. But what do you see high level as the difference between perhaps this rate case and the settlement negotiations and the past several, where you've been able to settle? Are there certain issues or certain things that have come up that are making it less possible, if that's the right way to put it, to settle?
Maria Pope (CEO)
Sure. That's a really good question, and I'd say that the biggest distinction in the discussions and overall dialogue in this rate case is that some parties have focused a lot on the pressure and sort of the broader inflationary environment.
Travis Miller (Senior Equity Analyst)
Okay, so more public animosity, again, if it's the right word, than past settlements. Is that the way to-
Maria Pope (CEO)
I think those are the tools that they've decided that are helpful to where they want to go and what they want to accomplish.
Travis Miller (Senior Equity Analyst)
Okay. The statutory, is there a settlement period end, or can you continue to try to settle throughout the oral arguments?
Joe Trpik (SVP of Finance and CFO)
Yeah, I believe, and I won't be precise here, but I believe it remains open, not until we get. Once we get to the hearing, that's when the period, I believe, would stop.
Maria Pope (CEO)
Yeah.
Travis Miller (Senior Equity Analyst)
Okay.
Maria Pope (CEO)
And I want to reiterate that we have had extensive discussions. Overall, they have been very constructive, and that we're not far apart with most parties. But so far, you know, we know we've not been able to reach a settlement, and I think that likely could be where we end up.
Travis Miller (Senior Equity Analyst)
Okay, perfect. And then one different subject. When these industrial customers are coming to you, the new ones, and asking to get on the system, what are they saying is the reason for choosing your system, right? Apart from the fact that there are a lot of semiconductors, et cetera, in that area. Is it access to the grid is really easy, low cost of power? What are some of the things they're telling you they like about-
Maria Pope (CEO)
Sure
Travis Miller (Senior Equity Analyst)
- locating there?
Maria Pope (CEO)
So for the significant manufacturers, and particularly those for whom power quality and power factors are very important, that absolutely is a consideration. I would also say that there's an ecosystem of talent, whether it starts from our community colleges to our universities, and to the overall environment that has been built over several decades of really significant talent in this region. There's no question that the subsea communications cables from the Pacific, which terminate in Oregon, just as the Atlantic cables terminate in Virginia, have an impact on data centers as well as other companies.
And I think there's also much of our customer base is really focused on clean energy, and we have been a leader when it comes to delivering clean energy and options for those customers, particularly those that want to go faster, further toward 100% clean energy.
Travis Miller (Senior Equity Analyst)
Sure. Okay, that's great. Thanks so much.
Maria Pope (CEO)
Thank you.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Anthony Crowdell from Mizuho.
Anthony Crowdell (Managing Director)
Hey, hey, good morning, team. Just a couple quick questions. Appreciate all the detail. I know we've talked a lot about the tax credits. When the company gives forward-year guidance, will the company start giving us how much they're assuming in ITCs for each year?
Maria Pope (CEO)
Oh, that's a good question. You know, it will dovetail with the renewable projects that we're bringing online or the storage projects that we're bringing online. And so as we give you more color with regards to those projects, we'd be happy to give you the associated tax savings or investment tax savings that will come with each of those projects. In general, rule of thumb, it's 30% or north of the capital amount of the project. It's a very significant ability to reduce customer prices with these tax credits.
Anthony Crowdell (Managing Director)
Great. And then I think you spoke about earlier, I hope I have the numbers right, the load growth for this year. I believe it's like two to two and a half percent, but long term, it's two percent, and you're going to revisit that when you file the 2025 IRP. So does that just understanding the cadence, right, if that's correct, do we potentially get an update on the long-term load growth on the fourth quarter call?
Maria Pope (CEO)
Yeah, you know, I don't know if we will have all of the analysis complete by that time. We have been doing updates on our load growth as we have seen significant changes. I probably think you'll see it closer to March for the IRP update. But suffice it to say we have really good, diverse, solid load growth.
Anthony Crowdell (Managing Director)
Got it.
Maria Pope (CEO)
That's important as we look at our cost structure overall and our ability to deliver cost effectively for customers.
Anthony Crowdell (Managing Director)
Great. I guess just my last question: I believe politically, Washington State and Oregon are somewhat aligned. It appears that Washington State is getting less green. I think on this year's ballot in Washington State, there's some, like, I don't know if I'd characterize, like, anti-green bills, but there's a bill where they're going to ban any restriction on, like, gas going to new buildings, maybe revoke some RPS standards. I'm just curious if Oregon is seeing any of that. Are you seeing the state get less green?
Maria Pope (CEO)
Sure. You know, I think, first of all, we have different policies when it comes to clean energy and carbon reductions. And first and foremost, for us as a utility, we are really guided by our customers and their interests. 25% of our customers voluntarily pay a little bit more on their bill for 100% clean energy. And many of our largest high tech customers, as well as municipal customers, hospitals, and others, participate in our Green Future programs, having 100% clean energy for them as well. One of the key reasons for this is that we have been able to bring on new, clean resources very economically.
As Joe was mentioning, the Clearwater Wind Project actually has reduced customer prices this year to date, and is a significant part of how we build out our portfolio, as has additional hydro contracts, and we look forward to the battery storage we're bringing online.
Anthony Crowdell (Managing Director)
So just to recap, you're not seeing any ballot initiatives on changing any of the state's policies on, you know, renewables or green?
Maria Pope (CEO)
There could be discussions out there that we're not aware of, but we don't see any ballot initiatives.
Anthony Crowdell (Managing Director)
Great. Thanks so much for taking my questions, and congrats on a good quarter.
Maria Pope (CEO)
Thank you.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Chris Ellinghaus from Siebert Williams Shank.
Chris Ellinghaus (Managing Director and Senior Electric & Natural Gas Utilities and Alternative Energy Equity Analyst)
Hey, everybody.
Operator (participant)
Morning, Chris.
Chris Ellinghaus (Managing Director and Senior Electric & Natural Gas Utilities and Alternative Energy Equity Analyst)
Maria, sort of customer growth has been accelerating in the last few quarters. Can you sort of talk about where that's coming from, and is that sort of, you know, some of your new data centers, semi customers, you know, increasing employment?
Maria Pope (CEO)
Sure. So, first of all, as Joe mentioned in his remarks, he noted that this customer growth could be chunky. And we have seen it go up and down at different levels between quarters because some of it is significant. 50% of our industrial customer base is semiconductor manufacturing, 20% is data centers, and then 30% is other manufacturing. It is overall that industrial segment that is growing the fastest and the 9% that I mentioned before. We also continue to see in-migration in most of our counties and continued new connections. So all of that is very positive. Overall, most of the growth, short term, is coming from data centers, but most of the growth expectations long term comes from semiconductor manufacturing.
Chris Ellinghaus (Managing Director and Senior Electric & Natural Gas Utilities and Alternative Energy Equity Analyst)
Okay, great. You know, you've had a really great effort on net variable power cost this year. Your-- can you sort of provide us a little color? You know, your de-risking of supply effort, while the AUT gets reset every year, is sort of your lengthening strategy. Should we think about you being able to be more in line with the AUT going forward? Or was this year, you know, more market-related, you know, sort of factors?
Maria Pope (CEO)
Sure, so first of all, it starts with our own generation facilities and the folks that run those operations and the exceptionally good work that they have done. Next, it is the integration of our generation with resources that we procure, either in long-term contracts and partnerships or, in shorter-term partnerships. One of the goals we have also had is to build out what comes from the distribution system. We call it in a sort of a wonky terms, our virtual power plant, as 25% of our system's energy capacity by 2030 will come from that area, and that provides an important stabilizing ability for us, and we have put a lot of time and effort into that work.
We also procure power from across the entire region and are entering into the California Independent System Operator Day-Ahead Market. We've had terrific success in the Energy Imbalance Market. And this past year, we have seen power flows really begin to change quite significantly as excess solar out of California, combined with their battery storage, has flattened overall market conditions and allowed for much more significant inflows of power into the Pacific Northwest from other regions that are higher in generating solar power and others. We also see overall that many of our peer utilities have done many of the same actions that we have, and that's provided more capacity throughout the entire system.
We're collectively working together through the Western Power Pool on resource adequacy to ensure that the trends that we saw in the third quarter, which could significantly reverse the prior couple of years, very volatile and negative results on the power cost side, continue into the future.
Chris Ellinghaus (Managing Director and Senior Electric & Natural Gas Utilities and Alternative Energy Equity Analyst)
Okay, great. And lastly, you know, somebody asked about balancing costs in the RFPs, but, you know, theoretically, the sort of data is expanding almost exponentially, and you also have electrification ahead. So when you're thinking about RFP resources and costs, do you also think about, you know, there is, you know, potentially huge load growth that continues for a pretty extended period? So do you think about the, you know, the opportunity cost of, you know, getting short in that kind of environment and just wanting to add resources to prevent, you know, getting behind the curve?
Maria Pope (CEO)
Sure. It's a really good question. And as we look at the RFP results, we're balancing reliability, affordability, and the pace of our transition to ever-increasing amounts of clean energy. We also have brought on existing resources, hydro contracts from the Columbia River, and some of the PUDs that operate in those regions, through our partnerships with them and with others. We look at this as a broad set of strategies, you know, knowing that one of the key factors for clean energy transition is that it is affordable for all of our customers. We serve everyone in our service territory, and affordability and keeping prices low as possible is also very important in this transition.
Chris Ellinghaus (Managing Director and Senior Electric & Natural Gas Utilities and Alternative Energy Equity Analyst)
Okay, thanks, everybody. Appreciate it.
Maria Pope (CEO)
Thank you.
Operator (participant)
Thank you. Thank you. One moment for our next question. Our next question comes from the line of Paul Fremont from Ladenburg Thalmann & Co. Inc.
Maria Pope (CEO)
Hello, Paul. Thank you.
Paul Fremont (Managing Director)
Hey, good morning.
Maria Pope (CEO)
Good morning.
Paul Fremont (Managing Director)
It looks like there's a $55 million reduction in generation spending this year. Some of that looks like a delay, and some of that seems to be offset with higher distribution and general technology spending. Can you sort of document what happened there?
Joe Trpik (SVP of Finance and CFO)
So if you're talking, Paul, are you-- and Paul, if you're talking to a full year, we just have a lot of-- we've had some timing movements as we've executed. Some of that generation is things like land purchases for items, things like that. So I mean, what we really are, you know, that we continue to pretty effectively execute our plan. We saw some items as we worked through the year that were gonna be a little delayed, so we've shifted. If you look between the update between the two years of the capital plan, we pretty much net to zero. There's a little bit of some as projects get their money colored differently, but there's no real substantive change to our plan other than just the timing of execution.
Paul Fremont (Managing Director)
Great. With the OPUC expected to certify the results of the RFP in November, how long is it gonna take for you to actually execute the contract so that we see it showing up in your capital spending forecast?
Joe Trpik (SVP of Finance and CFO)
You know, so, as specifically as it relates to the build-transfer items, we currently anticipate it'll be the second half of 2025. You know, as we've started into the discussions with the party and applying our experience for some similar agreements in the past, that seems to be what the timeframe will end up being here. But we will update parties, obviously, to the extent that changes, but that is our current expectation.
Paul Fremont (Managing Director)
I guess I can see sort of the second bucket B, but with respect to A, wouldn't you have sort of enough information to update after you get OPUC acknowledgment?
Joe Trpik (SVP of Finance and CFO)
I think if it relates to having a date, once we have the acknowledgment, we'll be able to... I agree, we'll have more precision. I mean, if your question is, will we be able to generate a little bit more certainty to say, "Hey, it's, you know, very likely to be, say, the second half of those?" Yes, I would think. But as we get not only the approval, 'cause we're already dialoguing with the parties, but as we continue to dialogue here and lock down certain provisions which are critical for us to have a contract, yes, we hopefully will have updates here and tighten some of these down. But again-
Paul Fremont (Managing Director)
And then-
Joe Trpik (SVP of Finance and CFO)
Even as we're moving on this delay, nothing in our dialogue with the parties, even as we're talking at times, the contract is changing our expectation that the assets will be delivered by the end of 2027.
Paul Fremont (Managing Director)
Aside from ITCs or tax credits, I mean, have you thought of other ways to potentially reduce the equity need of the company?
Joe Trpik (SVP of Finance and CFO)
So, yes, we continue to evaluate other approaches to the company. I know there's been discussion at times of different, differing financing structures and differing products, and we do continue to evaluate them. Some of them take some more detailed actions. And the way I like to look at this is, we are resolute in being focused on the wildfire and addressing what is the broadest issue to the company. And as we start to get alignment on that, evaluating and taking action on potentially other designs and processes will come more into light.
But we think it is critical as we continue to evaluate, but to act first and be aligned on wildfire, and then we'll subsequently address some of these differing potential approaches we can take to financing our growth.
Paul Fremont (Managing Director)
And then, I mean, if you were to potentially establish a holding company, would you consider selling down a minority stake in the utility?
Joe Trpik (SVP of Finance and CFO)
So, you know, I don't wanna, you know, give guidance on any transactions, but I would just tell you that, as an op, we are evaluating all options here, Paul, that would come from that. So there's nothing that isn't on the table to ensure that we can serve our customers safely and reliably and manage our growth.
Paul Fremont (Managing Director)
And are settlements in Oregon, do they need to be unanimous, or could you do a partial settlement in Oregon?
Maria Pope (CEO)
We can do partial settlements in Oregon. It's not common, and it is common-
Paul Fremont (Managing Director)
Right.
Maria Pope (CEO)
-that we do end up settling, but we're not necessarily in common times.
Paul Fremont (Managing Director)
Well, I understand that, but I think what you said is that with a number of the more significant parties, you think you're close. Why not go with a partial settlement? And wouldn't that put you in better standing going into a final OPUC decision?
Maria Pope (CEO)
If we could get to that resolution, then that probably would be a good idea. I'm not sure we could get to that resolution. But we have had thorough discussions, and we have a solid record, even if we do get to an Oregon Public Utility Commission decision.
Paul Fremont (Managing Director)
And then last question for me. I mean, I think the base of your EPS growth is still sort of 2022. Are there any thoughts to potentially updating that at some point in time, the base year?
Joe Trpik (SVP of Finance and CFO)
So the answer is yes, at some point in time. In all honesty, right, we would like to get some time under our belt, right? We have said as a company that we want to deliver and you know, meet our expectations and goals here. You know, we are in the sort of the middle of doing that right now. So that is something we continually evaluate, but I think, you know, showing we can execute first under the plan we have would be the first item before we decide that it's time to look to an update or a rebase on.
Paul Fremont (Managing Director)
Thank you. Thank you very much.
Maria Pope (CEO)
Thank you.
Joe Trpik (SVP of Finance and CFO)
Thank you, Paul.
Maria Pope (CEO)
Great questions.
Operator (participant)
Thank you. At this time, I would now like to turn the conference back over to Maria Pope for closing remarks.
Maria Pope (CEO)
Thank you all for joining us this morning. We appreciate your interest in Portland General Electric, and we look forward to connecting with you soon. In particular, we'll probably see many of you at the upcoming EEI Financial Conference next month. Thank you and have a great day.
Operator (participant)
This concludes today's conference call. Thank you for participating. You may now disconnect.