Good morning, everyone and welcome to Portland General Electric Company’s Fourth Quarter 2021 Earnings Results Conference Call. Today is Thursday, February 17, 2022. This call is being recorded and as such, all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. For opening remarks, I'd now turn the conference call over to Portland General Electric’s Senior Director of Investor Relations, Treasurer and Risk Management, Jardon Jaramillo. Please go ahead, sir.

Thank you, Valerie. Good morning, everyone. I'm pleased that you're able to join us today. Before we begin this morning, I'd like to remind you that we have prepared a presentation to supplement our discussion which we'll 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. Leading our discussion are Maria Pope, President and CEO, and Jim Ajello, Senior Vice President of Finance, CFO and Treasurer. Following their prepared remarks, we will open the line for your questions. Now it's my pleasure to turn the call over to Maria.

Good morning, and thank you, Jardon and thank you all for joining us today. 2021 was a year of strong growth and execution, against the backdrop of the ongoing pandemic, the historic ice storm, and record heat. We focused on grid hardening and new technologies to improve reliability and resiliency. Turning to Slide 4. For the full year 2021, we reported net income of $244 million or $2.72 per share. This compares with $155 million or $1.72 per share for the full year of 2020. For the fourth quarter, net income was $66 million or $0.73 per share. This compares with $52 million or $0.57 per share for the fourth quarter of 2020. Our region is growing, particularly the tech and digital sectors, driving overall revenue growth. Net variable power costs were also higher, reflecting regional power market volatility, particularly in the third quarter. Operating and administrative expenses increased due to higher wildfire and vegetation management expenses and the cost of several storms outside of the large major storm deferral. Finally, employee wages and benefit expenses were higher, reflecting inflation pressures and improved performance over 2020. Given our region's attractive environment for high-tech and digital companies and ongoing in-migration, we expect growth to remain very strong. Power market challenges will also likely continue. We've taken several steps to reduce our exposure: through first, forward pricing updates to the annual update tariff mechanism; second, new forecasting methodologies that better reflect wind and other volatility reflected through our rate case; and third, plants operating improvements; and finally, fourth, procurement of additional forward capacity. Operating efficiency is the focus and as we address rising customer expectations as well as inflationary pressures, it will be increasingly important. All of this combines to inform our 2022 earnings guidance of $2.75 to $2.90 per share. Later in the call, Jim will go into much more detail on both 2021 results and our 2022 outlook. I would like to now talk to a couple of highlights that were significant from an operational, legislative, and regulatory standpoint. First, opening the new Integrated Operation center and launching the advanced distribution management system were key milestones. These investments establish the foundation for an intelligent energy network that enables the integration of greater amounts of renewable energy, distributed energy resources, and increase system flexibility and resiliency. Second, we advanced our digital capabilities across the enterprise to improve performance and deliver exceptional customer experiences. We simplified our work and reduced costs by equipping field crews with new digital tools, upgrading supply chain systems, and increasing call center performance. Together, these advances allow us to get more work done and drive operational efficiency. Through advanced data analytics and smart grid technologies, we're increasing the reliability of our system even under uncertain and extreme weather conditions. Third, our path to decarbonization was further catalyzed by the passage of Oregon's clean energy legislation. Working with a broad coalition of stakeholders, aggressive carbon reduction goal targets were established that are consistent with our goals and aligned to the International Panel on Climate Changes or IPCC’s Sixth Report. PGE was also the first utility in the country to sign the climate pledge, committing to achieving net zero emissions across our company operations by 2040. And for the 13th consecutive year, our voluntary renewable energy program was ranked number one in the U.S. by the National Renewable Energy Laboratory. Fourth, we initiated an RFP in April for up to 500 megawatts of renewable energy and 375 megawatts of non-emitting capacity. Initial bids were submitted in January with a shortlist expected to be issued in the second quarter and a final decision by the end of the year. While many of you have lots of questions on the bids, we are in the very early stages of evaluation and all bids are subject to NDAs. Also, in collaboration with customers and stakeholders, we issued our inaugural distributed system plan focused on modernizing our grid to accelerate distributed energy resources and maximize grid benefits for all customers and community members. Fifth, as part of our 2022 General Rate Case, we recently reached an agreement that's subject to OPC final approval that will resolve the annual revenue requirement, average rate base, capital ratios, and corresponding increases in customer prices. And finally, this year, we've relaunched our guiding behaviors, first established more than 25 years ago, and our ongoing and long-standing commitment to diversity, equity, and inclusion. We are increasing the representation of Black, Indigenous, and people of color, as well as women in leadership across our company. We're also continuing our long-standing focus on environmental stewardship and during the past year, PGE employees completed over 15,000 hours of community service, and employees and retirees of PG Foundation and our company donated $4.8 million to support our communities. As we look to the future, we anticipate continued economic growth and load increasing 2% to 2.5% in 2022, with longer-term growth of approximately 1.5%, ongoing focus on digital and other technologies, operational improvements, and efficiencies, which could help mitigate inflationary cost pressures. Overall, we're well prepared with improved reliability, resiliency, and operating performance as we rapidly transform to address urgent climate change challenges and lead a clean energy future across our region. I'll now turn the call over to Jim. Thank you.

Thank you, Maria, and good morning, everyone. Our 2021 results reflect the continued economic growth in our service territories and the opportunities and challenges of our path to decarbonization. We experienced strong load growth from higher residential and industrial demand while also navigating challenging power markets and inflationary cost pressures. Turning to Slide 5, the continued recovery from the initial economic downturn due to COVID-19 is reflected in our strong year-over-year load growth of 4%, weather adjusted. In 2021, we experienced growth across all customer classes, with residential demand increasing 1% weather adjusted, which reflects ongoing economic growth. Commercial load increased 4.2% weather adjusted as the sector rebounds from the decreased activity in 2020. Industrial deliveries increased 8.5% weather adjusted as our service territory continues to attract growth, high-tech and digital customers, including data centers. Customer expansion and new site development activity all point to strong growth in this sector. The favorable weather we experienced contributed an additional 1.1% to the overall growth rate of 5.1% in 2021. Based on recent trends in our service territory, primarily driven by industrial growth and anticipated distributed energy resources growth including transportation electrification adoption, we are raising our long-term growth guidance from 1% to 1.5%. Our quarterly EPS increased from $0.57 per share in 2020 to $0.73 per share in the fourth quarter of 2021. The increase was primarily due to a $0.17 adjustment to a non-utility Asset Retirement Obligation liability in the fourth quarter of 2020. Including fourth quarter results, full year GAAP EPS was $2.72 for 2021, compared to GAAP EPS of $1.72 for 2020. Non-GAAP EPS for 2020 was $2.75, after removing the negative impact of the energy trading losses. I'll cover our financial performance year-over-year on Slide 6. Beginning with a GAAP net income of $1.72 per share in 2020 to which we add back the $1.03 per share impact of the energy trading losses. We experienced a $0.78 increase in total revenues, primarily due to strong economy driving growth in our service territory, with the balance due to more favorable weather. Offsetting this was $0.58 of unfavorable power cost. 2021 saw significantly higher power prices, particularly in the summer due to warmer weather and increased regional demand for capacity. We have deferred $29 million of incremental power cost under our PCAM mechanism, which represents 90% of the variance above the threshold. We anticipate the regulatory process related to this deferral will begin late in quarter two of 2022 and continue through the year. There was an $0.18 decrease to EPS from costs associated with our transmission and distribution expenses, including $0.05 for enhanced wildfire mitigation, $0.05 of additional vegetation management, and $0.08 of service restoration costs related to storms in 2021. There was a $0.41 decrease to EPS from administrative expenses, including $0.12 in adjustments to incentive programs, including $0.06 for 2020 decreases in incentives, following the trading losses. $0.07 from increases in wage and salary expenses and $0.16 for outside services to strengthen risk management, improve customer-facing technology, and improve our supply chain management systems. $0.03 from higher insurance expenses partially due to higher wildfire insurance premiums, and then $0.03 from miscellaneous other expenses. Going to D&A, a $0.32 increase due to lower D&A expenses in 2021, including $0.22 increase due to the impact of a non-utility Assets Retirement Obligation revision in 2020; an $0.18 increase due to the impact of plant retirements in 2020, and these increases were partially offset by an $0.08 decrease due to higher plant balances in 2021. A $0.05 decrease from the impact of higher property taxes, and then finally, there was a $0.09 increase, primarily driven by the recognition of a benefit from a local flow-through tax adjustment in Q1 of 2021. Turning to Slide 7, last month, we reached an agreement with stakeholders that resolve several significant aspects of our 2022 General Rate Case. In addition to the previously agreed upon 50-50 capital structure and 9.5% allowed ROE, we agreed to a final annual revenue requirement, average rate base, and a corresponding increase in customer prices. Our final rate base of $5.6 billion, an increase of $814 million or 17%, which represents a constructive outcome for investments made on behalf of customers, while the $10 million increase in the annual revenue requirement net of power cost represents a modest 0.5% increase in customer prices. We also agreed to end our decoupling mechanism. The operation of the existing decoupling mechanism is misaligned with the current policy framework in Oregon, especially as it relates to supporting decarbonization, so the parties agreed to eliminate it. Parties agreed to accelerate Colstrip depreciation to fully depreciate our interest in that plant by 2025. While certain policy elements remain outstanding and all settlements remain subject to final PUC approval, we are pleased with the potential outcome for our customers and stakeholders. A final order is expected by the end of April. On the resource front, we made several regulatory filings in which we shared our plans to advance the strategy to meet our targets, reducing greenhouse gas emissions in the power we serve to customers. Maria discussed our resource plans earlier in the call and we look forward to working through the RFP process and expect to share an update in the second quarter. Turning to Slide 8, which shows our updated capital forecast through 2026. We increased our capital expenditure forecast for 2023 through 2026 from $550 million to $650 million per year to more clearly reflect our fundamental plans to invest in the system. For reference, in 2021, we exceeded our target guidance of 655, with total capital expenditures of $680 million. Over the next five years, we expect to invest roughly $3 billion on top of the recently settled $5.6 billion in the instant rate case. To be clear about this increase, I want to point you to the distribution service plan that Maria referred to. This plan anticipates significant growth in load, new connects, and new projects for customers, system expansion, substations, and grid modernization, which primarily explains the increase in the CapEx. The increase is primarily represented by grid resiliency in transportation and electrification investments planned for future years, but do not include expenditures related to the possible RFP ownership options. With the recent settlement in the GRC, subject to approval by the OPUC, this affirms that we will not need to issue equity to meet our capital requirements in 2022, unless there is a significant renewable addition stemming from the RFP. On to Slide 9, the RFP process for energy and capacity resources. With bids submitted in January and a shortlist targeted in the second quarter, final selection of winning bids is expected by the end of 2022. The RFP will be a competitive process and we'll share more details as we move through the procedural calendar. We continue to maintain a solid balance sheet. As you can see on Slide 10, including strong liquidity, investment-grade credit ratings, and accompanied by a stable credit outlook. Total available liquidity as of December 31, 2021, was $843 million, and we remain one of the least levered companies in the sector. We plan to fund investments with cash from operations and issuance of up to $250 million of debt in the second half of 2022. As we did in 2021, we will apply our green financing framework and continue to seek out opportunities to tie our long-term debt to our sustainability strategy through capital investments. Turning to Slide 11, we are initiating full-year 2022 earnings guidance of $2.72 to $2.90 per diluted share. As a reminder, we established our base year and growth rate in 2019 with EPS of $2.39 per diluted share. The midpoint of this guidance range represents a 5.8% compounded annual growth rate from the $2.39 base. I'd like to walk through a few key drivers that will prove that we're confident will grow to this 4% to 6% range in 2022. The drivers of our long-term guidance remain strong load growth from in-migration and industrial expansion, operational efficiencies, and potential investment opportunities in our system with renewable resources. We expect continued strength in energy deliveries with 2% to 2.5% weather adjusted retail load growth. I would like to address our 2022 O&M guidance midpoint of $600 million, which represents a 7% decrease from 2021 levels. 2021 O&M included significant work to accelerate our digital and customer strategies. We expect these efforts to create sustainable efficiencies in our operations in 2022 and beyond. In 2021, we also accelerated our vegetation management efforts and implemented a new customer interface system to automate many aspects of customer service. We continue the deployment of distribution automation technology, and we made significant investments to build risk awareness and mitigation into our operations. Looking forward to 2022, we will increase efficiencies by accelerating the adoption of digital technologies and investments made in 2021. We'll leverage our recent grid investments to strengthen our operations. I am confident that as we continue to identify and implement efficiencies in 2022, we can continue to grow, and we are reaffirming our long-term earnings growth guidance of 4% to 6% off our 2019 base year. With respect to dividends, our Board recently declared a dividend of $0.43 per share. Our 2021 full year dividend was $1.68 per share. With this dividend, we completed our 15th consecutive year of dividend growth over the last five years, growing at a 6.1% compounded annual growth rate. We also plan to continue our limited share buyback program to offset any dilutive effects of shares issued under our compensation programs. The combination of strong growth trends, clear decarbonization targets, and significant opportunities to invest in our customers' electrification needs create a compelling case for delivering value by serving clean, affordable, safe, reliable, and equitable energy to execute our long-term financial targets for customers and investors alike. Now, before we open the line for questions, I'd like to hand it back to Maria.

Thank you, Jim. I'd like to note that today we announced that Lisa Kaner, our VP, General Counsel, and Chief Compliance Officer, plans to retire in early July and will transition to the role of Chief Compliance Officer effective mid-March. We are grateful for Lisa’s insights, expertise, and wise counsel as we navigated the challenges of the last five years. Recently, Lisa was instrumental in resolving all of the litigation associated with the 2020 energy trading matter. Lisa sets high standards for leadership and integrity and we wish her well in retirement. At the same time, I'm pleased to announce that Angelica Espinosa, who has served as Deputy General Counsel and Corporate Secretary, has been appointed as VP, General Counsel effective mid-March. Prior to joining PGE, Angelica held multiple roles at Sempra Energy including Vice President of Gas Acquisition, Vice President and Chief Risk Officer of SoCalGas, Chief Counsel for the Sempra International businesses. She joined Sempra in 2014 from GE where she held multiple legal leadership positions in the oil and gas division. Congratulations to Lisa and Angelica. Lisa, we wish you well and are grateful for all you've done for PGE. And Angelica, we're excited about the broad expertise and experience that you bring to our executive team and the company. And now operator, we're ready for questions.

Thank you. Our first question comes from Insoo Kim of Goldman Sachs. Your line is open.

Thank you. My first question is for Insoo Kim of Goldman Sachs. Your line is open.

Hi, Insoo.

Hey, Maria. How are you? My first question is about the plan, specifically regarding the capital plan and the rate case that may be concluding in the next few months. What earned ROE should we assume is currently integrated? If you reverse-engineer the rate base approved for the future test year and consider the guidance range for '22, it appears to be in the 9% range. I understand there's been a structural lag we've discussed before. However, as earnings and rate base expand, that drag on a percentage basis seems to diminish. I would like to hear your initial thoughts on how you're approaching that level moving forward.

Great. Well, thank you. It's a good question. I think your initial thoughts are spot on. As you know, we've settled our regulated ROE, our capital structure. As Jim noted, we're really focused on operational efficiency as well as our transformation. As we grow our rate base, our structural lag does decrease. It's made up of normal course items in the utility sector. But as we grow the rate base, just the numerator/denominator math is encouraging and will shrink that over time. We also continue to focus on cost reductions in the structural lag area, but across our entire company.

Insoo, I'll add that you could look towards a roughly 9.2% ROE at the midpoint for 2022, consistent with the guidance, as we roll up that math. The other thing I would add to Maria's comments is that we intend a not insignificant management of expenses this particular year. And while I'm on that topic, I mentioned in my remarks that that would be a 7% decrease from where we came in at 2021. However, when I normalize the O&M spending in 2021, I come to more of a 4% decrease. There was a series of accelerated expenses and one-timers in 2021. So it's a 4%, roughly a $25 million reduction in O&M this year, which also contributes to an improved ROE outlook.

Okay. Yeah. That's definitely good color. And second question, kind of related to that. And obviously, we've talked about your longer-term growth rate of that 4% to 6%. If you think about the base level increases in CapEx and even excluding the potential upside from any of the ownership options at the RFP, how do you think about what is the cost management of that growth rate going forward? And on top of that, if this settlement agreement is adopted as proposed, especially with that decoupling mechanism going away, how does that potentially impact or benefit your growth rate at all?

Okay. Well, let me take the last question you referenced first. I think that it does impact the growth rate. First of all, a lot of our CapEx, as you can look in the guidance here, about two-thirds of our CapEx through 2026 is really in our transmission distribution system. There's also a lot of capital in the general business and technology area that supports T&D. So this is very basic work. I think you should look also for guidance in the distribution service plan that was filed. We posted a slide in the larger investor deck this morning that will give you color about the kinds of investments that we see in that area as well. In terms of decoupling itself, as you may be aware, we've been posting some refunds here in recent years because of the nature of the mechanism. It's asymmetrical and has the cap on it as well. As we grow, we found it to be not supportive of our goals to reinvest in the business to support the decarbonization and to build out this CapEx that we've increased. So I think it's a combination of things that will all promote growth, all promote decarbonization, good customer service, and the like. Does that get to your question?

I think that's enough color. I'll leave it there. Thank you.

Okay.

Thank you. Our next question comes from Julien Smith of Bank of America. Your line is open.

Good morning, Julien.

Good morning. Can you hear me? Thank you. I appreciate it. To follow up on the previous question, what is the timing for updating your position within the 4% to 6% range? As you consider this, you've made progress on several incremental areas, including load growth, cost management, and capital expenditures. Is it primarily about finalizing the regulatory process and obtaining the last OPUC approval? How do you view this?

I would say that's a good part of it, Julien. The rate case process is very important to us. There will be some time to continue to invest at higher levels in the business. And then also, I think what is an important event is our standing in this RFP process. So I think that's what is giving me pause in terms of growing outside that range at the moment. So I want to see very consistent earnings, I want to invest more capital in the business, and I want to see the results of the RFP process. That's kind of a short summary.

Excellent. All right. Perfect. And then can you talk a little bit about the short list potential here? I mean, I know there's not much you can say, you already acknowledged the NDA dynamic. But if you can't specifically here, can you speak to your eligibility and the dynamics there? Because obviously, BBB didn't happen, and I think the OPUC moved perhaps against you with regards to creating an affiliate. How do you think about your ability to participate here given what we know thus far, if you will? I'll leave it as open-ended.

We have a wide range of bids submitted, encompassing various technologies and different ownership options. There's a lot of variation in the choices available. We are currently evaluating these bids based on objective criteria like minimizing risk and costs, as well as enhancing our decarbonization efforts as quickly as possible. Capacity is a significant concern throughout the entire West, and Portland General is no exception. We'll have to see how everything unfolds. We have a solid track record with ownership options, but we have an even better history when it comes to securing the least-cost, least-risk solutions for our customers, which will be our focus moving forward.

Julien, I'll add about that affiliate interest filing. And so that was rejected without prejudice by the OPUC in December, and we're going to continue to look at that and may repropose that again. It also could depend on the way that BBB, as you call it, continues. If it continues to separate out some of the tax benefits and normalization that we would hope for, there may not be a need for an affiliate. If our involvement in the RFP is modest, if you want to call it that, I'm not going to use any dollars, but there's really no trouble for us in financing any of the RFP projects that we might be awarded. As I mentioned, we're in pretty good financial shape. So we could finance those inside the embedded utility, just like we finance anything else. It's not going to be a limiting factor, let me just conclude by saying that.

Indeed. Actually, do you mind, Jim, just real quick on that, clarifying on financing, I know you said on the call remarks, I think '22, there was no equity. How are you thinking about equity considerations given the elevated CapEx, again excluding any potential further awards through the forecast period?

Well, for 2022, I'm clear about no equity. At this point, I wouldn't go any further because I do want to see the RFP arrangements. But we're in pretty good shape considering this level of CapEx going forward. And as you know, in the recent settlement, we redeemed at a 50-50 ratio. So as long as that continues to operate, we'll be in good shape without equity.

Excellent. I'll leave it there. Thank you, guys. I'll see you soon.

Sure.

Thank you.

Thank you. Our next question comes from David Peters of Wolfe Research. Your line is open.

Yeah. Hey. Good morning, guys.

Good morning.

One question for Jim, just to kind of piggyback on that last one. I notice you ended '21 with an equity ratio of like 500 basis points below the level in your settlement agreement. Just taking that into consideration with the elevated CapEx, I'm just wondering, are you setting up for a need in '23? Or are you maybe just waiting to sync that up with any RFP capital and you might just kind of over equitize that to get the balance sheet back closer to a 50-50 level?

Yeah. David, that's a very good insight, and I would agree with that. On an accounting basis, about 45%, closer to 47%, the way the regulatory ratio works. And as I said, we have the benefit of settling out at 50-50. And I would look at where we come out in the RFP and look to do some possible equity for that purpose and some additional equity to make sure that our ratios are stout. But I think you've got the right logic in the way of thinking about it.

Perfect. Switching gears to, I guess, regulatory items. Just on the Faraday project, the one that was excluded from the rate case, can you maybe just talk about regulatory strategy there with how you're going to address that lag once that project goes into service, which I assume is at some point later this year?

Sure. So we're in the process of working through with parties on how to address that from a regulatory and timing standpoint. We have history in the past of having brought items like that sort of through a separate but narrow rate case attached to this rate case. We would prefer not to file another rate case, another full rate case to bring that into service, but of course that's always an option. The project overall sort of represents a good portion of what the state of Oregon has been through in the last couple of years. Tremendous impacts of COVID on the project. It was right in the heart of the wildfires. In fact, the transmission lines to and from there almost melted a year ago, September. And then this time last year, it was again in the heart of the ice storms. And so we've evacuated the site on multiple occasions. And we look forward to concluding the project as quickly as possible, as safely as possible and bringing it into customer prices at the appropriate time and as we work things out.

Great. And then last one, if I can. Just can you give an update on where you stand with addressing the various deferrals, whether it be wildfire or ice storms? And then I guess you have this PCAM deferral as well. And just how much of that is factored into your cash flow guidance that you gave for '22?

Sure. Let me have Jim provide you with more details on that. Several of our deferrals are typical for our operations. Our power cost adjustment mechanism has been in place for over a decade. We have the COVID deferral, which has been widely discussed among stakeholders. Then there are extraordinary events, such as those caused by climate change. The ice storm, for instance, was a rare event, occurring once in 40 years, and it resulted in the most destruction we have experienced in our service area. We are evaluating the prudence of these costs and determining the appropriate timeframe for recovering them. As a legislative measure, we are pursuing securitization, which we haven't had the benefits of in Oregon, unlike many other regions in the country. We are engaged in productive discussions regarding all these matters. Regarding wildfires, we have strong legislative support, and that was formalized in legislation this past year. Overall, we feel positive about these situations, but we acknowledge that we are in unprecedented times concerning their scale. Jim, would you like to go over some of the specifics?

Sure. I'll confirm the figures for you, David. The power cost adjustment mechanism is approximately $30 million, and the COVID pandemic deferral is around $36 million. Our plan is to amortize both the PCAM and COVID deferrals around the middle of this year. Later in the year, likely in the third or fourth quarter, we intend to address the wildfire and storm deferrals. We are actively working on these matters in the near term, and simultaneously, we want to see some securitization put in place. In total, these items amount to about $180 million, which includes $68 million for the ice storm and $46 million for the wildfire. We will prioritize addressing the power cost and COVID pandemic issues before tackling the larger amounts.

Perfect. Thank you, guys.

Thank you. Our next question comes from Sophie Karp of KeyBanc. Your line is open.

Good morning.

Good morning. Thank you for taking my question. A lot has been discussed already. I just wanted to maybe ask you about the hydro conditions. So your guidance is obviously predicated on normal hydro, but it looks like we are unfortunately seeing another below-average year in the West. And it is actually looking like maybe it's a kind of generational drought, right. So how do you guys think about that? At what point do you normalize to maybe a lower level of hydro on a more permanent basis? And how do you handle this type of connect environment?

Thank you. It's an excellent question. And there's a chart in our 10-K which shows the Columbia River runoff estimations as well as our own Clackamas and Deschutes River Basins. Right now, the forecasts for 2022 are for the Mid-Columbia, about 105% to 108%, and then just under 100% for the river systems upon which we operate. That is in distinct contrast to last year where we were in the 80's and even for one of our river systems in the 70's. So it's looking a little bit more like 2020 actuals versus 2021 actuals. The part that will really move the needle on power costs and overall availability for the region is the Columbia River. I would also note that as we look at weather patterns across the West, we began a very wet winter, lots of snow, good snowpack continuing up through British Columbia and other areas. That's in distinct contrast to California. And I think it's important that we recognize that. I would say that most recently, it's been pretty mild in the Pacific Northwest, which, given that this time last year we were dealing with a really traumatic ice storm with over 760,000 different customer outages, we're pleased to have the nicer weather for the time being. And I would point you also to the NOAA websites for those who want to take a look at the hydro conditions, because they really do have an impact on overall power availability and cost in the Northwest.

Thank you. Very helpful. And maybe along the same lines, is there any commentary you could offer on the latest developments maybe in the Western Energy Imbalance Market or multiple initiatives that are going on at the FERC on a regional basis to kind of integrate the entire system in the West a little better and, like, what are you seeing? Are you seeing any progress there, I guess? Is there anything that we should be tracking or looking forward to in the near term?

So Sophie, that's a great question. Let me address the various initiatives and work currently underway. First, I want to highlight the significant success of the Western Energy Imbalance Market, which has saved money for PGE customers and others in the West, while facilitating a smoother integration of renewables with reduced strain on our systems. This spring, Bonneville Power Administration will be joining the market, which is an important development that will synchronize various operational aspects among our balancing authorities. We are collaborating closely with the CISO and other stakeholders in the West on the day-ahead market, known as EDAM. There are also ongoing discussions in California regarding governance issues to establish a more comprehensive framework for the CISO, including addressing wheel-through concerns and other matters. At the same time, alternatives to the CISO are being explored in case we cannot resolve some governance challenges. Additionally, the Northwest Power Pool has rebranded itself as the Western Power Pool, extending its membership to Arizona and including SRP and Arizona Public Service, as well as other Western states. We are focusing on resource adequacy issues there, which should enhance visibility and understanding of how resources are measured and managed. Furthermore, we are considering additional transmission planning, as highlighted in a recent paper from the CISO that extends their transmission planning discussions significantly. Rest assured, there is a substantial amount of work occurring across the West on these issues.

Thank you. Appreciate the color.

Thank you.

Thank you. Our next question comes from Travis Miller of Morningstar. Your line is open.

Hello, everyone. Thank you.

Good morning.

Just thinking high level about inflation and the various impacts that you guys would face in a higher inflationary environment for the rest of the year, what are some of the options that you have either on a regulatory side or an operating side to manage some higher costs if this were to last through the summer into the fall?

So thank you very much. And first of all, in terms of our planning assumptions and thinking, we are expecting higher inflation not only throughout the summer and fall but probably on a multi-year basis. One of the things that we have done is address the wage inflation, and we began doing that in 2021, ensuring that the great people that we have working here are adequately compensated and doing the best work that we possibly can do. We have been focused on digitalization of many of our processes and workflows throughout our company, and how our customers interact with us. And we've made really substantial improvements and changes, many of which are foundational, but many of which are already seeing changes from our front-line co-workers and their tools that they're using all the way to how customers are paying their bills. And we are seeing tremendous efficiencies from that, and we hope to continue to not only see the same but to accelerate that transformation. But as we know, inflation is not a utility's friend, and we deploy a tremendous amount of goods and services on behalf of customers, and whether that's through capital and O&M. And so we're watching things very, very carefully. Jim, do you have anything you want to add?

A couple of things, Travis. Thanks for the question. It isn't directly related to inflation, but I'll call it indirectly. When we had the traumatic ice storm last year that Maria referred to, we took stock and literally increased our spares and inventories of very essential equipment. So I actually think the event of last year caused us to purchase equipment a lot sooner than we would have in the ordinary course of things had we not had that kind of storm. And so we're well supplied right now. EPC services, in many cases, and field services have been signed up on a long-term basis, and we try to use contracting as a hedge to do that. The other thing I would add, Travis, is that we're very well financed right now. The financing that we did last year turned out to be, and all transactions are judged in hindsight, extraordinarily attractive. And so we have very little to do this year at higher rates. That's not exactly inflation either, but I think the inflation complex, of course, impacts rates. So I think we're reasonably well positioned overall.

Sure. That's great. Regarding 2022, while we factor in operating costs that include inflation, we have sufficient cost offsets to keep those costs approximately stable or even slightly reduced.

Yeah. I would say about 4% down to normalized O&M in 2021 and with the efficiency programs that Maria mentioned baked into that guidance. That's correct.

Okay. And then real quick, supply chain issues anything the way you're putting together RFP bids or bids that you're seeing? Anything on that side or even just general equipment? Any supply chain issues you're seeing these days?

Firstly, I want to acknowledge the efforts of our colleagues who are addressing challenges related to capital projects, operational and maintenance projects, and our supply chain. They are putting in a lot of effort to tackle these issues. From the perspective of our investors and our bottom line, we are managing well, and I am very proud of the dedication we've shown over the past months. As Jim highlighted, we began concentrating on this after last year's storms and increased our focus in the second quarter, and we will keep doing that. In terms of procurement, whether it's for renewable energy projects like solar or wind, we are experiencing some supply chain challenges, and we are collaborating with the suppliers for these projects to navigate them.

Maybe last, without beating this horse too much, Travis, is that we've had a chat about this issue with the board, our board of directors. And they're very supportive of us increasing our authorities to buy long-lead equipment as soon as we can get it at attractive prices. And so we're using all the authorities and increased authorities to manage the problem as we go. It's a very important issue for us, and we're very focused on it right now, especially as we increase CapEx.

Sure. That's great. I really appreciate the thoughts.

Thank you. Our next question comes from Andy Levi of HITE. Your line is open.

It's Andy Levi. How are you guys doing?

Good. It's nice to see you and talk to you.

I want to clarify the statements or questions regarding the growth rate. I'm a bit confused because it seems you're indicating a growth rate of 4% to 6%. You have top line growth between 2% and 2.5%, which I assume will continue through 2022. You've also spent over $650 million on CapEx and are managing your costs, with regulatory lag expected to lessen as the rate base increases. I'm aware you need to wait for the rate case, but I'm trying to understand what I'm missing. How does that only add up to a 4% to 6% growth rate? It appears to me that the numbers suggest a significantly higher figure.

Yeah. So Andy, thank you for the question, and I appreciate the issues that you're looking at. One of the things we're also looking at is more volatility in our operating environment. As you remember, we've come off a period of tremendous ice, wildfires, record temperatures that we've never seen in the Pacific Northwest, energy markets that have been highly volatile and a challenging overall work environment. And we talked about supply chain and inflation issues. While we're confident, we are going to make sure that we're able to put points on the board before we make other changes. So I think there is a recognition of the overall operating environment that we and many other utilities are facing. Jim, anything you want to add to that?

Yeah. I would say, Andy, I look at it two ways: the incremental growth earnings year to earnings year, which is a plus 4% from 2021's actual results at the midpoint of the new guidance range; and then I also look at it as growth off the base year at 2019, which is $2.39, and that's the 5.5% CAGR I mentioned, assuming we get to the guidance midpoint in 2022. And then I look at, obviously, what I'll call kind of an earnings power estimate, given our rate base. I look at the rate base itself, which is presently at $5.6 billion, just to trade some math with you, and it will increase when Faraday is in there closer to a $5.7 billion number. So pro forma, even though the settlement is at $5.6 billion, Faraday is hanging out, as it were. So add another $100 million. Then I look at the CWIP and our cap structure and the allowed ROE. And I can arrive exactly at the midpoint of this year's guidance, in fact, a little lower. I think the $2.83 is the midpoint of this year's guidance.

Jim, I understand that. That's this year, right? So I'm, like, looking longer term. You gave a multiple-year CapEx forecast. And then the top line growth alone, especially if decoupling is eliminated or most of it. I mean, it's just plus, minus, multiply, divide. You come up with a much higher growth rate. So is this just something that we're kind of waiting on the rate case for? And then obviously, you have the RFP, but that would be upside to what I'm talking about and also would be chunky. But I'm just completely confused. Is this just kind of waiting out, getting the rate case decided on, and then we get a refresh from you guys?

So Andy, as I mentioned in my broader comments about the challenges ahead, we're considering various factors to improve our decarbonization efforts and reliability. There are many long-term elements we're looking into, beyond just the straightforward calculations you're doing. To gain a clearer understanding of the future, it might be best to wait for additional quarters and our upcoming guidance for 2023 and 2024. For now, we're keeping our current numbers unchanged.

No, I understand your point, but it doesn't quite make sense. Wildfires and other unforeseen events are part of the normal course of business and haven't significantly impacted your long-term outlook, with most of it recovering. It feels like you need to get through this rate case, but you'll have to think carefully and communicate better. A growth rate of 4% to 6% seems to be among the lowest in the sector. While I see you’re targeting 5.5%, it doesn’t fully reflect your profile and the potential within your service territory. I don't believe you're fully capitalizing on that opportunity. Nonetheless, this is something you'll need to address in the upcoming quarters, but thank you.

Sounds good and appreciate your insights.

And confidence.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Maria Pope for any closing remarks.

Great. Thank you all for joining us today. We appreciate your interest and advice with regards to Portland General, and we hope to connect with you in the near future. Thank you very much.

Thank you. Ladies and gentlemen, this does conclude today’s conference. Thank you all for participating. You may now disconnect. Have a great day.