Good morning, everyone and welcome to Portland General Electric Company’s Fourth Quarter 2020 Earnings Results Conference Call. Today is Friday, February 19, 2021. This call is being recorded. For opening remarks, I will turn the conference call over to Portland General Electric’s Senior Director of Investor Relations, Jardon Jaramillo. You please go ahead, sir.

Thank you, Schalon. Good morning, everyone. I am pleased that you are able to join 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.

Thanks, Jardon and thank you all for joining us today. I would like to take a moment to formally introduce Jim Ajello, our new CFO, who many of you already know. Please join me in extending a warm welcome to Jim. As many of you know and many of you may also be experiencing firsthand, millions of Americans have been impacted by severe winter storms this past week. In Oregon, we have had a historic storm system move through over a 4.5-day period. It brought punishing wind, ice and snow through three separate storm systems and left hundreds of thousands of PGE customers, over a third of our customer base, without power. The significant ice late in the storm system was particularly punishing to trees and power lines. In less than a week, we have restored over 600,000 customers and we still have about 68,000 customers to go. Many customers have experienced multiple outages. As restoration continues, we appreciate the fatigue and deep frustration of customers who have been without power for extended periods. Our deepest gratitude to everyone who was working 24/7 to restore power. In addition to our PGE coworkers, hundreds of line workers from neighboring utilities and contractors are working tirelessly alongside our crews in very challenging conditions. As we look back over 2020 and into the new year, we are proud of how we have responded to significant challenges that tested us like never before. From the pandemic, civil unrest, trading losses and historic wildfires to these recent winter storms, our team has remained focused on delivering for customers, supporting the communities we serve. We take very seriously our role as an essential service provider. Given the trading losses, our financial results were disappointing, but we delivered solid operational performance and improved throughout the past year and through the pandemic. We also have consistent momentum that is in line with our long-term growth strategy. We took actions beginning early in the pandemic to control customer prices with an appreciation for the economic hardships of many of our customers.

Thank you, Maria and nice to speak with all of you today. I want to start by echoing Maria’s comments. The number of customer power outages and widespread damage to our electric system is unprecedented, and we recognize the hardship these events have created for our customers. Our entire company is focused on restoring power to our communities and repairing our system. And I’m so impressed with my new teammates at PGE. Although PGE faced a number of challenging circumstances in 2020, it’s clear that this team’s hard work and focus on advancing our strategy is paying off. PGE is in a strong position to build on the momentum we’ve established and deliver long-term sustainable growth. I am excited for the opportunities ahead to further reduce carbon emissions, invest across our service territory and continue to reduce cost company-wide to keep customer prices low. Now I will briefly comment on the economy in our service territory. While recovery is continuing in the hardest-hit segments of the economy such as lodging and restaurants, other segments of our economy have been less impacted by COVID-19 and performed well from a load growth standpoint, like residential, high-tech manufacturing and digital services. In the long run, our 1% average load growth anchors on the strength of these sectors as well as continued in-migration. Our load growth this year remained consistent with long-term trends, despite the change in composition due to the economy’s response to COVID-19. And our customer base continues to grow. Despite the COVID-19 pandemic, Oregon continued to rank high among the states, ranking third for inbound moves. Construction spending on both residential developments and commercial projects throughout our service territory is strong in several major infrastructure projects around the horizon. Let’s cover our financial results on Slide 5. In 2020, we recorded GAAP net income of $155 million or $1.72 per diluted share compared to GAAP net income of $214 million or $2.39 per diluted share in 2019. We finished the fourth quarter earning GAAP-based earnings per diluted share of $0.57 compared with GAAP-based earnings per diluted share of $0.68 in the fourth quarter of 2019. Our 2020 non-GAAP net income was $247 million or $2.75 per diluted share. This amount is adjusted to reflect the previously disclosed onetime energy trading losses of $1.03 per diluted share. Looking ahead, we are initiating 2021 full year earnings guidance of $2.55 to $2.70 per diluted share. We are also affirming our long-term earnings guidance of 4% to 6% growth off 2019 earnings per share of $2.39.

Your first question comes from the line of Julien Dumoulin-Smith from Bank of America.

Hey, good morning team. Thanks for the time. So, well done all around. Perhaps if we can just kick it off here, after adding in the additional CapEx, can you talk about where that puts you in this 4% to 6% long-term range that we have talked about so much in the past? And then maybe what your thoughts are about equity financing given the higher CapEx and obviously, considering the impact last year as well? Just curious on how you would frame that?

Yes. Hi, Julie. It’s Jim. So I would say to you that the CapEx here that we have laid out for you, which is an increase of a couple of hundred million dollars over the out years and as I mentioned, $2.9 billion altogether over this period of time, puts us really squarely in that range. I feel that, that actually ensures that we actually stay in that range. With respect to equity, no equity is required for that this year. There is pretty good and strong cash flow production. And I don’t see equity for a bit of time here, but let’s take it 1 year at a time in terms of our forecast.

Got it. And when you say squarely, you mean midpoint or you mean squarely as in above the low end? Sorry, not to mention, but you kind of said it a couple of times in different ways?

Yes. I would say we are comfortably in that range. How about that?

Excellent. I like the punchiness. A quick follow-up there if you don’t mind and obviously, this could be – drive some of the considerations here. How do you think about the timing of a rate case? You alluded to a ‘22 test year in the commentary just now, but what does that mean in terms of timing of filing? And then related, is this driven by the outcome of the storm deferral? If you get that or not, would that dictate the precise timing here potentially?

I would, no pun intended, decouple the storm restoration expenses and any deferral that might arise from it with the timing of the rate case. Secondly, we file our annual AUT in April, that’s a fairly prescribed event. And so, that’s the first chunk of the filing right there. In terms of the General Rate Case, we are evaluating the timing right now, looking at our expenses, making sure we are efficient and actually taking stock of the local economy, customer bills and the like. This company is becoming a lot more efficient as we go. So, we have a lot of flexibility here. It will be this year, but the actual timing hasn’t been set yet.

Got it. Okay, excellent. Thank you, guys. Best of luck. Congrats again.

Sure.

Thank you, Julien.

Thank you. Your next question comes from the line of Insoo Kim, Goldman Sachs.

Good morning, Insoo.

Good morning, Maria. Congrats, Jim, again. My first question is on the storms, I know you asked for the deferral, but just educate me a little bit. Currently, there is no automatic deferral mechanism or is there any threshold amount where you would book certain expenses before deferring anything like that?

So thank you, Insoo. We have a – we accrue for storms on a regular basis. This storm that we are seeing is a 1-in-40-year type of storm. The Governor on Saturday declared a state of emergency. And we are currently restoring customers at a rate that we have never seen in the history of our utility. We have had extensive damage throughout the entire system, not unlike what we saw with the devastating wildfires and high winds events in early September. This is what we have thought of as an unprecedented event, but clearly, these are unprecedented times and we will be working collaboratively with the Commission we filed earlier this week and we will work through how we handle all the expenses.

And Insoo, I’ll just tell you that coming into 2021 we have a storm deferral of $8 million built at that point in time, so starting the new year.

Understood. And I guess going back to potentially the timing of the rate case, depending on how you see efficiencies this year that you could achieve maybe beyond what you see right now. As of this point, if you were to file more late in the year instead of towards the first half of the year and most of that rates won’t go into – impact – won’t go into effect until 2022, do you still see that 4% to 6% range as likely even without a full year of a rate increase in ‘22?

I do. I wouldn’t necessarily pick a time for filing. As I mentioned to Julien, we’re still working on that. But I am extremely impressed with our achievement last year in reducing expenses by 6%. I called it a catalyst for other things. And so I’d like to sit back here with the team and figure out how we could manage through that. Given the difficult economy, given the storms that we’ve had, we’ve got to take that into account, and given the pace of COVID recovery, right? So I look at it as a balancing act, and I want to be very judicious, and I also want to be very – have our customers squarely in mind here, but we are managing well. I think last year demonstrates that.

Got it. It seems like clearly 2020 seems to be extending through the first part of this year.

Thank you.

Your next question comes from the line of Sophie Karp from KeyBanc.

Good morning.

Hi, good morning. Thank you for taking my question. So I have two questions, first on the storm response cost, right? So what did you assume in the guidance range with respect to the outcome of the deferral here? Is that basically – does it basically assume the full deferral? And could we see a guidance revision if that does not materialize and kind of what is the timing of that?

Hi, Sophie, it’s Jim. We haven’t built in any specific expense for the storm deferral in the guidance that you see. As I mentioned to Insoo, we do have a storm deferral account already existing. And we just simply don’t have an estimate of what the storm deferral accounts are. But right now, we’re – our guidance is independent of that.

One of the things I think is really important to appreciate is the level of destruction from the ice that coated trees and power lines has resulted in damage that is truly unprecedented. And we have thousands of people working in the field today. They will continue working 24/7 until we get customers restored. But we are still learning more about the damage as we get into some of the more remote areas and see a tremendous amount of trees out, power lines out. And many of the customers that we are now putting online are increasingly hard to reach, either because of the amount of debris or because of their location. So we will – we have still more to learn here. But right now, getting power back on to all of our customers is our highest priority.

Great, thank you. And following with the storm questions, I get it that this is a once-in-a-40-year event and maybe it doesn’t make sense to harden the grid for events that come once every 40 years. But would there be an opportunity maybe at some point to do a postmortem of this and see if there’s an opportunity for capital investments to mitigate potential impacts of similar events in the future?

Yes. That’s a great question, and it’s something that community members, our customers and many other leaders across the state are asking ourselves. Please note that after every significant event, we do after-action reports and root cause analysis and figure out how we could do better. After the significant wildfires and windstorms we had in September, we made a number of adjustments not only in our processes and procedures, our incident command response, our partnerships with first responders throughout our area, but also in terms of equipment standards and other tools and technologies, and quite frankly, just the kinds of repair and restoration we do. Over the last number of years, we have been increasing our investments in our distribution system quite significantly. And we have seen the results of those investments, which is part of the contributor to our lower O&M cost this year. Because we have had significantly less outages on average throughout the year, we have had less over time, less truck rolls on Saturdays and Sundays and overall better outcomes for customers.

Sophie, if I can add, if you look at our CapEx projections, really, I want to leave you with a point that these projections are really all about making us more reliable and efficient. So invest capital to make us more efficient down the line. Secondly, I’ve been through a lot of storm recovery efforts, and I know you’ve observed them over the years with utilities, there is always some capital that comes back into the system in the restoration process. We don’t know what the restoration expense will be. And therefore, I can’t provide any more clarity on what the capital versus O&M would be. But there is always a mixture, as you would appreciate.

Right, thank you. That’s helpful. And lastly, I guess, you mentioned that your capital plan does not include potential upsides from renewable RFPs. Is there a way to frame kind of the range of outcomes of these RFPs and the potential impact on your CapEx plans at this point or is it just too early to say?

Impossible to handicap at this point, I mean these will be competitive efforts. We will bid a benchmark resource. I think we’ve been successful in the past with some of our efforts. I was very pleased to see the way we prosecuted Wheatridge. So, while there has been – as they say in the investment community, past success is no guarantee of future results. So we don’t exactly know how that will come out. So we will just have to wait and see.

Okay, thank you. Super helpful. I appreciate your answers.

Sure.

Your next question comes from the line of Brian Russo from Sidoti.

Good morning, Brian.

Hi, good morning. Most of my questions have been asked and answered. But I’m just curious, with the recent storms and where water supply levels or snow pack is, as we approach the upcoming hydro season, maybe at the Clackamas or to chutes, etcetera?

That’s a great question. We have had great snowpack levels in comparison to prior years. They are significantly above normal. The big issue that we have in addition to snowpack levels driving hydro conditions is the runoff rate. And what we’ve seen is runoff has tended to be earlier than it has been in the past, and that has changed some of our profile. Also know that as we get these really cold periods, we tend to have much less wind generation. And so we are seeing less wind than we saw last year on our system so far in 2021.

I see. So the forecast is for above-normal temperatures, which would create earlier-than-normal runoff?

Excuse me, the forecast is for above-normal snowpack levels.

Okay.

Then the question is when does it run off, because that will determine the impact on the company.

Understood. Great. And then in terms of the dividend policy, it looks like the announcement you just made, dividend has remained flat. I think historically, it was the April timeframe where the Board considers increases, although you delayed it last year due to the COVID pandemic. Should we expect the April time period for an increase in the dividend evaluation by the Board?

Yes. Brian thanks. It’s Jim. So you’re right. So just to make it crystal clear, this was the final capper dividend of 2020, and the Board traditionally does look at that in the April timeframe. And I would expect them to do that then, yes.

Okay, great. Thank you very much.

Sure.

Your next question comes from the line of Travis Miller from Morningstar.

Good morning.

Good morning, Travis.

Alright, thank you. You just answered my question on the dividend, so I’ll skip that one. But the other one was, just generically speaking, with the storms that you have experienced, and obviously, the storms are making the headlines in Texas and other places in the U.S., what do you think and what have you seen impact on renewables? Are they performing well? Do you think there’d be any policy changes coming out of discussion across the entire U.S. in terms of cold weather? What are your thoughts along those lines?

Sure. This is something that, obviously, people are talking about. Renewable generation remains very strong in the Pacific Northwest. I think you see across the west, as a result of the wildfires, there was not a reduction in interest in expanding renewable generation across the west. Even with the significant wildfires, there actually was an interest in accelerating the pace of renewable transformation in the energy sector. My sense is that this may accelerate where we were going. We are clearly investing a lot in technologies, bidirectional grid capabilities. Much of the equipment that we’re putting in place handling some of these additional renewables also adds to more resiliency and reliability of the underlying system and allows us to restore faster during regular storms and catastrophic storms like we have now.

Okay. Have you had any of the cold weather issues or the icing such that we are seeing in Texas or are the – I guess the other way of thinking about that, are your renewables and the renewables up there designed differently, and they get particularly winds, such that you wouldn’t have those issues that they are having in Texas?

Yes. So most of our wind generation takes place in the eastern part of our state, Eastern Washington and then even farther east than that. They have regular and ongoing cold winters. And we design our system to be able to withstand a fair amount of ice on the wind side. On the – in our service territory, we have seen unprecedented levels of ice that have caused significant damage to the distribution system. But yes, because the normal cold weather is normal for our wind facilities, we have built them differently than they have in Texas.

Okay, great. That’s really helpful. Thank you very much.

Thank you.

Your next question comes from the line of Andrew Levi from HITE Hedge.

Hey, guys. How are you?

Good, Andy.

I guess the first question I have is just on this Green Future Impact program that you guys are doing. Is that the same program that you’ve talked about in the past, Maria, that you’ve been kind of growing?

Yes. Andy, it is. This is an opportunity for us to deliver 100% green energy to those customers that want to move further faster than regular RPS standards. They tend to be municipalities, large tech and digital companies. And it’s been a very successful program.

And where are you at as far as like your run rate? Because it seems like you just signed a deal as well. But like earnings-wise, I know you do – there is a margin that you capture. Is there a run-rate that you could kind of give us on this unique runway?

That’s a good question. I would probably not want to give you a runway. It’s been chunky. For example, our last announcement with Intel was significantly higher volume than we had announced previously, but we do earn a margin on this. It reflects the risk and the integration and other costs for these programs as well as give recognition to the company’s role. So that’s – we will continue. It’s been very beneficial and I would expect to do more.

Is it like ongoing earnings, because you said chunky or is it like a onetime type of chunk?

No. It would be ongoing. It would be ongoing, Andy.

Okay, okay. And so this is a line of business that clearly is going to grow, obviously, as part of your forecast. Is it significant enough where at some point that it kind of goes in the direction that you anticipate it to go that it could end up being broken out or is it more kind of proprietary reasons and things like that, that you don’t feel comfortable sharing it?

So I think we’re going to keep the information as part of our regular disclosure. It’s not big enough that it would be broken out by any SEC standards of any sort. I’m not so sure I’d call it proprietary. Really it’s about meeting customer needs with the green energy that they want.

Yes. Andy, I’ll add a couple of quick points. Number one, I think it has a lot of growth opportunities as customers such as Intel and others increasingly require renewable energy for their own ESG goals, number one. Number two, I would say that these are negotiated transactions, right? You have an IPP in this case, Avangrid, and you have a consumer, an anchor tenant, on the other side with Intel plus 16 or 17 other commercial customers. So these are prices, rates and development costs that are confidential, frankly. So I don’t think you’re going to see that transparency, because they are negotiated transactions. Oftentimes, there’ll be competitive bidding associated with this too to make sure that we deliver to those customers, like Intel, the best available price we can from the market.

Okay. And then my second question is kind of more of like a bigger picture question. So looking at whether it’s this opportunity, which is big, but we’re not sure what the earnings are, so how big it turns into as far as earnings per share. The potential IRP or IRPs you are going to have out there, you just raised, okay. You have $665 million of CapEx this year, if I’m not mistaken, and the potential to raise in the outer years, and a very good balance sheet despite what happened last summer. And also, I’ll throw in one more thing, a tremendous number of T&D opportunities, absent the storm. And then you have this 4% to 6% growth rate. Again, I’m not pushing you for this year, of course, because obviously, we want to see major numbers this year because of what happened last year. But longer term, what are kind of the aspirations? Obviously, you have to weigh customer rates. Your rates are not high, but you obviously have to weigh those. But do you guys see a regularly longer term where – and again, I’ll say one more thing that you just kind of implemented a growth rate, which was a big thing for you off the base. But do you see opportunities longer term? Or are there aspirations longer term which would be beneficial to both the shareholders and the state and the customers where the growth rate, because of the way the – god, this is getting long, service territory is transforming that the growth rate is still higher?

Andy, I think I got all of that. But...

Yes. Sorry, there is a lot of good stuff. What can I say?

Okay, yes – no, no. There is a lot of opportunity here at this company to become more efficient, to afford more CapEx and resiliency to benefit customers in the market. As you know, we have one of the most unlevered balance sheets pound-for-pound in the industry. We have one of the best cash flow producers in the industry pound-for-pound. This sets us up with a tool to be able to move in the direction that you’re talking about if we could manage our O&M expenses to offset the additional capital. We have plenty of capital to deploy in the future years, especially in the grid and even putting aside anything that we might competitively win in the RFP. Those investments are off the chart here on Page 8, right? These are sustainability investments that will make us more reliable and efficient. I am personally convinced that these kinds of investments are going to improve our operating costs. So, one follows the other. They are not detached from each other. So that’s the goal, right. But we have got to do the balancing that you saw, I think, well articulated. And so I think there is opportunity here down the line.

Okay, thank you guys and good luck on cleaning up after the storm.

Thanks, Andy.

Thank you.

Operator, it looks like we maybe finished with the questions.

Thank you very much for joining us today. We look forward to further following up with questions as well as virtual investor conferences coming up in the first quarter. We’ll be announcing our first quarter results at the end of April. And thank you very much for your time today and interest in the company. Thank you.

This concludes today’s conference. You may now disconnect.