Earnings Call Transcript - POR Q3 2023

Operator, Operator

Good morning, everyone. Welcome to Portland General Electric Company’s Third Quarter 2023 Earnings Results Conference Call. Today is Friday, October 27, 2023. This call is being recorded, and all lines have been muted to prevent background noise. After the speaker’s remarks, there will be a question-and-answer session. For the opening remarks, I will turn the call over to Portland General Electric's Manager of Investor Relations, Nick White. Please proceed, sir.

Nick White, Manager of Investor Relations

Thank you, Latif. Good morning, everyone. I'm happy you can 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 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. 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, President and CEO

Thank you, Nick, and good morning. Thank you all for joining us today. Beginning with slide 4, I'll start by discussing our results for the quarter and speak to the key drivers, as well as our outlook for the balance of the year. For the third quarter, we reported GAAP net income of $47 million or $0.46 per diluted share. This compares with third quarter 2022 results of $58 million or $0.65 per diluted share. Clearly, it was a tough quarter. The key drivers include; first, continued load growth from industrial customers offset by reductions in residential and commercial usage, partially driven by cooler weather overall. And second, volatile power costs from a major heat event in mid-August, which resulted in transmission congestion issues and a significant spike in energy costs. I will touch on each in turn. Turning to slide 5. We continue to see solid growth from industrial customers, particularly data centers. However, this growth is chunky, and we saw modest growth in the third quarter. Overall, through the first nine months of the year, industrial load has grown over 6.5% compared to 2022. We foresee continued growth in the fourth quarter and potentially even higher industrial growth in the coming years. With strong legislative tailwinds at both the state and federal level, there is significant government support through grants and other incentives focused on the semiconductor sector. Fifteen percent of US semiconductor manufacturing occurs in our state, largely within PGE service territory. The sector will benefit not only from the federal chipset, but from the $240 million that the Oregon legislature has allocated to fifteen semiconductor companies. As a result of these investments, state officials are projecting over $40 billion in new Oregon projects and over 6,000 new jobs. Recent expansion announcements have been made by Intel, Microchip, and Analog Devices. In the third quarter, we also saw modest reductions in residential and commercial energy use compared to last year, driven by cooler weather in the late summer as well as energy efficiency, rooftop solar, and overall distributed energy adoption. Given lower-than-planned third quarter loads, we have revised our full-year 2023 growth guidance to 2% weather adjusted, consistent with our long-term expectations. The second driver of third quarter results was higher power costs stemming from the record-breaking heat event. PGE set a new peak load that surpassed our previous summer peak by 6%. During this time, we also had Mid-Columbia peak pricing of nearly $1,000 per megawatt hour, given significant transmission issues and constraints. Our generation plants performed very well and we're well integrated with our contracted energy supply. We also saw meaningful customer demand response reductions. Even still, our overall purchase power and fuel expense increased significantly. I want to thank and recognize our PGE colleagues who helped to ensure that customers continue to receive safe, reliable power throughout the heat wave. Given the impact of power costs on our third quarter results, we are narrowing our guidance range for the year. We now expect 2023 results to be in the range of $2.60 to $2.65 per share as compared to the previous range of $2.60 to $2.75 per share. We anticipate fourth quarter results to improve as a result of normalized power cost conditions. Just as a reminder, fourth quarter 2022 regional gas prices peaked to over $55 per MMBtu and average mid-sea power prices rose to $265 per megawatt hour. Additionally, while year-to-date power cost performance has been challenging relative to the annual update tariff or AUT, we anticipate a more favorable resource mix and market conditions through the fourth quarter. And finally, we expect continued effective O&M cost management and to hit our 2023 targets. Joe will walk through our trajectory for the fourth quarter in more detail. Overall, our capital programs are on track, with Clearwater Wind expected to come online later this year and continued progress on our previously announced battery storage projects. These are in addition to our base capital work that supports customer growth as well as grid improvements, focused on greater safety, reliability, and extreme weather resilience. Two other significant highlights from the third quarter include our 2024 rate case negotiations and the announcement of several federal grants, which will enable the acceleration of new technologies and transmission construction. I'll start with our GRC, which we are very pleased to conclude with parties and a way to commission order expected in the coming weeks. Overall, we settled recovery of ongoing capital investments operating and maintenance costs and, notably, wildfire litigation management expenses, and importantly, risk reduction in our power cost recovery framework, an important first step in addressing our PCAM mechanism which Joe will touch on in his remarks. We also maintained a 50-50 capital structure and a 9.5% ROE. Additionally, we received approval to amortize $27 million in wildfire deferrals and collect forecasted wildfire mitigation costs under the automatic adjustment case. Lastly, federal grants. We are pleased and excited with the three Department of Energy announcements that build upon the work we're doing to advance the clean energy transition and in collaboration with our regional partners. First, DOE announced a $250 million grant to support upgrading the Bethel-Round view transmission line from 230 to 500 kV in partnership with the Confederated Tribes of the Warm Springs. The tribes have been our partner and co-owner of the 500-megawatt Pelton Round Butte Hydro projects along the Deschutes River for decades. Second, PGE, Utilidata, and NVIDIA have a consortium that was awarded a $50 million grant for a smart chip grid project to improve visibility, reliability, and overall grid management. And lastly, the Pacific Northwest Hydrogen Association's Hub is one of seven projects nationwide to move forward to the next step and negotiations with DOE. PGE is contributing our former Boardman coal plant site and water rights for the green hydrogen production facility. We also look forward to an off-take agreement and working on green hydrogen power generation. These award selections represent just the start. Near-term capital will be determined in 2024 as negotiations proceed. We are still pursuing additional projects and opportunities and have submitted over $65 million in incremental grants to support another $125 million in additional projects as well as have other projects in the pipeline. These projects represent growing momentum in the region that will create meaningful benefits for customers and communities for years to come. In summary, despite challenging operating conditions in the third quarter, we made important progress towards strengthening key cost recovery mechanisms as part of the constructive GRC settlement. Our entire team is laser-focused on execution for the remainder of the year. Our long-term growth plan is increasingly well established, underpinned by investments to meet growing customer needs, ensuring grid resilience, and leading the clean energy transition. Our recent regulatory progress and ongoing capital investment reinforce our confidence in our long-term earnings growth rate of 5% to 7% in 2024 and beyond. With that, I'll turn it over to Joe, who will walk you through our financial results. Thank you.

Joe Trpik, Senior Vice President of Finance and CFO

Thank you, Maria, and good morning, everyone. I'll cover our Q3 results before providing updates on our rate case, capital investments, and liquidity and financing. Our third quarter results reflect dynamic changes in customer load and composition, challenging weather and power market conditions, and our commitment to resiliency and effective capital plan execution. The economy in our service area remains strong, with regional economists predicting significant investments, especially in semiconductor manufacturing. Major high-tech companies in our region are indicating potential growth projects that could lead to substantial economic benefits. As of September, unemployment in our area was 3.4%, below the national average of 3.8%. While industrial load growth continued, it was at a more moderate pace than in the first two quarters, which we consider a temporary deviation from the long-term growth trend. Total loads for Q3 2023 increased by 0.2% on a weather-adjusted basis compared to Q3 2022. However, on a non-weather-adjusted basis, total load decreased by 0.9% year-over-year due to less severe weather, despite a hotter August. The average temperatures for Q3 2022 were the highest on record for the area. Although we experienced significant heat this summer, September brought milder weather with 35% fewer cooling degree days compared to 2022. Residential load decreased by 2.5% or 0.5% when adjusted for weather compared to Q3 2022. This decrease can be attributed to fewer cooling days and increased energy efficiency and adoption of distributed energy resources. Residential customer growth increased by 0.7%. Commercial load also decreased by 2.1% or 1.2% when adjusted for weather, with similar trends observed in energy efficiency and distributed energy resources among commercial customers. Industrial load growth persisted in Q3 2023, increasing by 2.5% or 2.7% when adjusted for weather. We view the observed moderation compared to earlier quarters as temporary, expecting the growth cycle to continue. Third quarter power market conditions in 2023 remained challenging, particularly due to resource scarcity during the peak August heat event. Now, regarding our financial performance from quarter to quarter, we experienced an $0.18 decrease in total revenues, driven by a 0.9% decrease in total deliveries and unfavorable changes in average delivery prices due to lower residential and commercial loads. The power cost conditions in Q3 2022 were also difficult, with $0.27 of the earnings change attributable to those power cost challenges, which we account for in our comparisons. Current year power costs also remained high, leading to a $0.07 EPS decline in the quarter, reflecting costs exceeding our annual tariff update expectations. Additionally, there was a $0.02 EPS decrease due to higher operating expenses, particularly from generation and grid maintenance costs. We also recognized a $0.06 impact from depreciation and amortization due to higher plant balances year-over-year. Other factors included a $0.03 decrease from higher interest expenses linked to increased long-term and short-term debt and a $0.07 reduction due to the dilutive effect of equity forward sale draws. Finally, we recognized a $0.03 decrease from various other items, including an $0.08 decline in other income due to the absence of a prior year's medical plan buyout gain, partially offset by increases from higher AFUDC from clean energy and capital projects, as well as returns on nonqualified benefit trust and miscellaneous items. Regarding our 2024 general rate case update, which is still pending OPUC approval, we have reached a constructive settlement on key items, including the recovery of recent capital investments and operating costs to ensure system reliability and resiliency. The reliability contingency event provision reflects the impacts of climate change and dynamic regional markets we've historically faced. We will continue to pursue steps in the docket over the coming weeks, including annual power cost updates in November, with a commission decision anticipated by December for rates effective January 1, 2024. Moving to our capital forecast through 2027, we are assessing emerging transmission projects and expect to provide a detailed capital forecast update during our Q4 call in February. The projects receiving grant funds are not yet included in our figures, as we are still in the scoping and negotiation phase. The 2023 RFP has progressed through early administrative steps and is set to officially launch in the coming weeks, with submissions expected in early 2024 and a project shortlist anticipated in the first half of next year. Project selection will follow in mid-2024. In terms of liquidity and financing, our robust balance sheet, investment-grade credit ratings, and stable credit outlook remain unchanged. As of September 30, 2023, we had total available liquidity of $925 million. We amended our existing revolving credit facility in mid-August to extend maturity and increase the capacity from $650 million to $750 million for added flexibility. We executed a $500 million first mortgage bond purchase agreement in late August, with $300 million issued as of September 30, and $200 million to be issued under a delayed draw feature in Q4. We also issued the remaining $92 million under the equity forward facility in July, and we maintain equity market availability under our ATM program. PGE has entered into forward sales agreements for $58 million of our $300 million ATM total as of Q3. We are confident in our balance sheet and our ability to access capital markets, supported by strong demand from debt and equity investors. We remain focused on careful dilution management as we aim to reach our authorized 50-50 capital structure over time while keeping financing options flexible. Our Q3 results demonstrate our commitment to establishing a solid growth foundation for PGE despite ongoing challenges that we are diligently managing toward year-end. Some of the headwinds faced during Q3 are expected to ease in the last three months of the year, particularly regarding power costs. Looking ahead to Q4, indicators suggest improved power market conditions compared to Q4 2022, where cold weather, pipeline disruptions, and regional gas storage issues pushed prices to extreme levels. We expect ongoing impacts from load growth, depreciation, interest expense, and dilution as seen year-to-date. Executing operating cost management is crucial to our plan, and we anticipate our fourth quarter O&M will come in below our current full-year run rate. We also expect a better resource mix compared to our AUT expectations, which will positively influence our annual power cost position. This includes improved availability of generating resources, better expectations for plant outages, and portfolio optimization for strategic deployment of our generation fleet. Due to Q3 load results falling short of expectations, we are adjusting our 2023 full-year weather-adjusted load growth guidance from 2.5% to 2%, aligning with our long-term expectations. We maintain strong visibility of incoming projects, particularly among digital and high-tech customers who are continuing to grow. Thus, we reaffirm our long-term load growth guidance of 2% through 2027. Additionally, we are narrowing our full-year earnings guidance to between $2.60 and $2.65 per diluted share to reflect the power cost challenges we faced in Q3. We have refined our load expectations for Q4 and believe that power costs and O&M execution will drive the necessary outcomes to hit this range. 2023 is positioned as a pivotal year for sustained growth and value for both our customers and shareholders. The combination of constructive regulatory clarity, a solid capital investment pipeline, and strong service territory fundamentals reinforces our confidence in achieving our earnings growth guidance of 5% to 7% in 2024 and beyond. As we approach the end of 2023, our commitment to providing clean, reliable, and affordable energy remains unchanged. We look forward to advancing this mission to deliver lasting value for our customers, communities, and shareholders. Now, operator, we are ready for questions.

Operator, Operator

Thank you. Our first question comes from Shahriar Pourreza of Guggenheim Partners.

Shahriar Pourreza, Analyst

Good morning, Maria. Good morning, Joe.

Joe Trpik, Senior Vice President of Finance and CFO

Good morning, Shah.

Shahriar Pourreza, Analyst

Joe, you discussed getting, I guess, a little bit more in the weeds on the CapEx profile on longer-term run rate, right, regardless of the RFPs. I know, obviously, we're going to get an update in 4Q, but you've been in the seat for a few months now, and we're still kind of looking at that declining CapEx profile on the slides. Can you just maybe elaborate on what you mean by robust? I mean, is it fair to assume that $800 million run rate will step up materially? Just directionally, how we should think about it as we head into the fourth quarter? Thanks.

Joe Trpik, Senior Vice President of Finance and CFO

Thank you, Shar. In my view, when we talk about providing more robustness, we aim to increase transparency as we navigate through 2024 and beyond regarding our core business, particularly the transmission aspect that Maria mentioned, as well as potential opportunities such as the RFPs and grants we've discussed. It would not be unreasonable to expect some upward pressure there. What we are waiting for is clarity on the rate case outcome and the transmission plan, which will allow us to offer a more transparent long-term perspective on the possibilities instead of the relatively flat plan we currently have. Additionally, this will also depend on how the latest Integrated Resource Plan impacts our base capital in supporting renewables.

Shahriar Pourreza, Analyst

Got it. And then just on the financing side, Joe, just obviously, I guess how should we think about the forward equity findings and for any sort of wins under the next RFP round, I think it's awarded next year, right? So you have an ATM now. Is that kind of the avenue you're going to look at this point?

Joe Trpik, Senior Vice President of Finance and CFO

We are continually assessing our strategies based on the expectations and outcomes from the RFP. Starting with an ATM to support us is important, and we currently have approximately $250 million available for issuance. We have not yet generated any cash flow from the ATM, but we will keep evaluating its role in supporting our business, particularly in base transmission and other areas. Additionally, we will assess it periodically in relation to any significant projects that may arise from an RFP.

Shahriar Pourreza, Analyst

Okay. Got it. And then lastly, just for me is maybe just tied a little bit deeper into the power cost aspect of the settlement. I guess how do you see the mechanism you got for, let's just say, extreme events is actually insulating the EPS volatility? For example, like how would have impacted this quarter if you had it in place that past August? Thanks.

Joe Trpik, Senior Vice President of Finance and CFO

All right. And then so the mechanism itself is not finalized as of yet. But based on our understanding, the definition of an event, there would be three items that would come into play in evaluating if there was an event, which would be the day-ahead Mid-Columbia index price, BG's eligibility to request resource adequacy assistance, and then a neighboring balancing authority that's publicly declared an event. So those are sort of what we believe the definition would be. So if we applied those, we do believe the heat event that occurred in August would have triggered that definition. We would also believe that if we were to look to the prior years, there was a significant collection of events that not just the heat, but if we were looking to 2022 and 2021, there were several events that would meet that. So we do believe that a portion of our costs incurred in this current year would have been defined to pull into that. We're not – because the commission hasn't issued an order, and we haven't finalized, we're not at the point of declaring what that value or average would be. But once the orders come out, we have that clarity. We'll consider discussing what that average impact would have been over the last number of years here, potentially as we get to year-end. But is there something there? Yes. Are these events something that occur at least annually or so? Yes.

Shahriar Pourreza, Analyst

Okay. Perfect. Thank you, guys. We'll see you in a couple of weeks. Appreciate it.

Joe Trpik, Senior Vice President of Finance and CFO

Well. Thank you.

Maria Pope, President and CEO

Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Richard Sunderland of JPMorgan.

Maria Pope, President and CEO

Good morning.

Joe Trpik, Senior Vice President of Finance and CFO

Good morning.

Richard Sunderland, Analyst

Can you hear me?

Maria Pope, President and CEO

Yeah.

Joe Trpik, Senior Vice President of Finance and CFO

Yes.

Richard Sunderland, Analyst

Great. Thanks for the time today. A lot of helpful color on the quarter and looking at the 4Q here as well, maybe starting on the O&M, I just wanted to make sure it's parsing this correctly. It sounds like you were standing up some savings specifically to help this year. Is that the case? And how does that flow through versus, I guess, effectively, your planning at the start of the year? And then just to be more precise on kind of 2023 versus beyond. Are any of these savings kind of structural into 2024 and more long-term?

Maria Pope, President and CEO

So, Joe, do you want to take this one?

Joe Trpik, Senior Vice President of Finance and CFO

Sure. Good morning, Richard. Regarding O&M, we believe that some of the work we have been doing this year, particularly from April onwards, will provide us with financial benefits that will lower our run rate for the full year. In the third quarter, we noticed a decrease in our overspending relative to our expectations, although we were still over budget. However, we anticipate savings in O&M for the fourth quarter. These savings are intended to create a structural change in how we manage costs moving forward, rather than being one-time solutions for this year. We expect to maintain this structure as we change the way we manage our costs and operate our business in the future. We believe this approach will continue.

Maria Pope, President and CEO

Richard, as you review our external statements, it's crucial to recognize that several factors are in play. First, you can observe that the amortization of deferrals from the ice storm, wildfire events, prior PCAM years, and other issues is contributing to an increase in the O&M line. Additionally, our ongoing wildfire prevention efforts, all the mitigation activities, and our collaboration with the US Forest Service and local entities around vegetation management are also significant. This rate case introduced some vital mechanisms, which, along with Joe's discussion about aligning and reducing our costs and enhancing efficiencies through better technology use, are noteworthy. Recently, our plant availability reached the 96th percentile, and our first data rate was just 1.7%, which greatly contributed to our performance in the third quarter. In our distribution system, we've seen a 12% year-over-year improvement in work order output. We're achieving better crew alignment and scheduling for restoration priorities for our customers. We also improved the duration of impacting events by 13%, resulting in 1.3 million customer outage minutes saved compared to 2022. This progress not only affects our cost structure and operations but also enhances our ability to serve our customers more reliably amidst the increasing extreme events in our area.

Richard Sunderland, Analyst

Understood. That was very helpful color. Maybe zooming out to a high level, and Maria, you brought this up in terms of the wildfire work. But could you speak a little bit to sort of what you're focused on and what your work with the industry is focused on in terms of wildfires overall? It's an industry issue. It's been obviously hugely topical this summer and for prior years. Just curious if there's anything you can share in terms of where you and EI are focused on this front currently?

Maria Pope, President and CEO

Sure, that's a great question. Let me start by discussing our internal improvements. We have significantly enhanced our practices and are utilizing advanced technology, allowing us to collaborate with other organizations, including forest agencies and various government entities, on vegetation management. The agricultural bill progressing through Congress serves as a notable example, as it includes expedited processes for timber and debris removal. Additionally, we have seen permit reforms, especially with the U.S. Forest Service, which have decreased permit timelines from several years to just months, thereby enhancing our collaboration and overall practices. Looking ahead, both state and federal levels recognize that more needs to be done. This is a top priority for the industry and regulators alike. As a result, you can expect to see more initiatives that will support the essential reliability and services that utilities provide.

Richard Sunderland, Analyst

Got it. Thank you. And maybe one last one for me. The state and federal work excited around the semiconductor industry. And then your latest IRP update is that all harmonized? Or is there even some elements of this that have emerged that are additive to that outlook as you recently refreshed it?

Maria Pope, President and CEO

So I think the use of the word harmonized is a really interesting term. We are seeing the pace of change. And clearly, the programs that we've seen come out of the federal government, Department of Energy that supports transmission, better use of a smart grid and our partnerships between tribes, all the way to NVIDIA are really making a difference. But you take a look at the CHIPS Act and then what the State of Oregon has done through the semiconductor task force and the legislature’s appropriation of $240 million of matching funds. You can find on the state website the fifteen companies that will receive funds ranging from just a couple of million dollars to $115 million. Those projects, some of which are included in our forecast, but the majority are not. And if you look at that list, about 85% of those projects are actually in the Portland General Electric service territory. So for the next decade, it is a tremendous opportunity for the company, for the region, and is also combined with a pretty extensive workforce support and investments in our universities really focusing in on an important reshoring of our technical strength as a country. And just as a reminder, 15% semiconductor manufacturing is in this region. So it's a real strength for our state and for the company.

Richard Sunderland, Analyst

Great. Thank you very much for the time today.

Maria Pope, President and CEO

Thank you.

Joe Trpik, Senior Vice President of Finance and CFO

Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Julien Dumoulin-Smith of Bank of America.

Julien Dumoulin-Smith, Analyst

Hey, good morning, team.

Maria Pope, President and CEO

Hey, Julien.

Julien Dumoulin-Smith, Analyst

Hey, thank you guys. Appreciate it. Perhaps let's pick up on that last question there quickly. How do you think about tying the sort of the timeline between having a more normalized 2% here in the current year to getting up to some of the higher level that you talked about earlier, just a moment ago with some of the benefits from the CHIPS Act and at the same time still having that 2% long-term. I mean, sort of how do you see the profile of that sales growth and the confidence for I think previously when we connected some really strong commentary around customer growth, sustaining itself in addition to sales whether just sales growth, sustaining itself here in the medium term? I don't want to put words in your mouth.

Maria Pope, President and CEO

Yeah. No, no, it's interesting. We look at it as building blocks, and I think there's rarely been a period of time of so much change and opportunity. So first of all, we're a state and a region that has benefited from immigration, and while that has paused most recently, we continue to see really strong blocking and tackling economic growth across our service territory. What we also are seeing is increased data centers and the continued digital expansion. One of the things that's important about that is that many of those facilities are built but not yet built out. And so the infrastructure is there, and you'll see the capacity built out over the coming months and quarters. And then finally, the longer-term and really significant opportunities come in the manufacturing side of things. And this is everyone from silicon manufacturers all the way down to semiconductor manufacturers to those who are really helping with the tools and cutting-edge development like Lam Research or metro graphics or others. And there's quite a bit of opportunity that some of which we can see today and are already serving, and much of which will come out over the number of quarters, years, and actually even through the decade. It's truly game-changing for the state as well as for us as a utility to be able to serve such growth.

Julien Dumoulin-Smith, Analyst

Yeah. Maybe just to clarify that. You're not pulling back on any of your earlier confidence in light of the 2023?

Maria Pope, President and CEO

No. We aligned our 2023 number with our long-term guidance of 2%. We feel very confident in the 2% number, and I believe my comments suggest optimism for even higher growth than that.

Julien Dumoulin-Smith, Analyst

Okay. All right. Fair enough. I'm just trying to tease the near term from the long-term here. And then if you can, I mean speaking about kind of reconciling 2023 against the longer-term, how about 2023 in the levers that you've pulled here to keep it at the lower end despite the litany of more weather-related pressures here, as you alluded to earlier? Is there a read into 2024 that we should be aware of? I know you provided some commentary in the remarks, but is there any kind of direct read-through whether it's O&M or otherwise in terms of pull forward that's a 2024 we should just be ready for?

Maria Pope, President and CEO

Yeah. No, I think as Joe outlined, we have really focused cost management efforts on how we manage the business, stay very constant to customer prices, and drive efficiencies across our organization. But we remain confident in the long-term growth rate of 5% to 7%. And as we've always said, 2023 was an investment year.

Julien Dumoulin-Smith, Analyst

Got it. But no hesitation on 2024 in turn from what I can tell?

Maria Pope, President and CEO

No, not at all.

Julien Dumoulin-Smith, Analyst

Okay. Wonderful. Thank you so much. You guys take care.

Maria Pope, President and CEO

Thank you. You too.

Operator, Operator

Thank you. Our next question comes from the line of Nicholas Campanella of Barclays.

Maria Pope, President and CEO

Good morning.

Nicholas Campanella, Analyst

Hey, thanks for taking my questions. Good morning. I guess, just on the revenue increase to $391 million. I know that there's a lot of moving pieces with power costs, and you called out the $183 for power costs. But is the net of those two numbers what's falling to the bottom line? Or is that too simplistic?

Joe Trpik, Senior Vice President of Finance and CFO

I think I'm unsure about calculating the net power cost specifically for 2024. However, our load recovery and the return on our assets as we approach 2024 will impact the bottom line. Overall, we're pleased with the rate case and the constructive dialogue we've had. This case aligns with our long-term growth strategy that Maria mentioned.

Nicholas Campanella, Analyst

Great, great. And then could you just expand a little on why load and demand mix was an issue for the third quarter, but what's just driving your confidence level for the fourth quarter? I'm sorry if I missed that.

Joe Trpik, Senior Vice President of Finance and CFO

In the third quarter, we saw a shift in the mix away from residential towards larger commercial installations, influenced by two main factors. One factor, which tends to happen more in summer, is the increased energy efficiency at both commercial and residential levels. The other factor is the growing penetration of rooftop solar at both levels, which has reduced overall load. Customer growth has been in line with our expectations, showing a 0.7% increase. However, the pressures from energy efficiency and distributed energy resources are contributing to the changes we’re observing.

Nicholas Campanella, Analyst

Okay, great. And then just one more, Joe, just on the equity. I thought that you said that you would pull the full ATM down by the end of the year. If I'm wrong, please correct me. But just as an aside, how do you think about on this current CapEx plan with the equity announced to date, your ability to get to the 50%? Or is there more that is needed to be thinking about? Thank you.

Joe Trpik, Senior Vice President of Finance and CFO

Thank you for your question. Regarding the ATM, we have not drawn from it this fall. We have disclosed agreements for approximately $58 million, but none of these have been finalized yet. From a cash flow perspective, the full ATM remains available with about $240 million still to be utilized in the market. Could you please repeat the second part of your question to ensure I address it properly with respect to capital?

Nicholas Campanella, Analyst

I just wanted to be sure, are you leaving it open to whether or not you would pull that down by the end of the year? Or could that be further feathered into 2024 and beyond?

Joe Trpik, Senior Vice President of Finance and CFO

I would say that the ATM that we have in our equity needs are complete for this year, and the ATM would be open for next year. We don't have any, at least current needs. And we obviously would always be opportunistic with our equity, but we do not have any current needs for the ATM.

Nicholas Campanella, Analyst

Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Gregg Orrill of UBS.

Gregg Orrill, Analyst

Thank you. I have two questions. First, regarding the $0.27 to $0.32 range for the current year's variable power costs, how do you approach establishing that range? What factors contribute to it? Secondly, what is your perspective on the level of ownership in renewables in your RFP? I'm curious about your appetite for ownership, not necessarily a specific number.

Maria Pope, President and CEO

Okay. So let me take your first question and then your second, and if I don't do an adequate job, Joe can fill in. So with regards to power costs, the $0.27 to $0.32, roughly about half of that, I would call sort of structural. And you can see that in the AUT numbers; we can see it in what we sort of have already in place for the quarter. The other part is really the work that we do every day. And it would not be unusual for those kinds of activities to yield those kinds of results for what is a pretty challenging fourth quarter, with a lot of work that we have to do, we feel confident that we'll get there. With regards to the RFP, we feel be issued shortly. We will put in a short list of opportunities that the company would hope to be able to participate in. Those have a little bit of a different timing just to make sure that there is full transparency, but we're looking for the final RFP to be out by the end of this year. The first half, probably the shortlist will be submitted by that time. And we would hope that by the end of 2024, we would have finished some negotiations, obviously overseen by an independent evaluator to make sure that we are driving the lowest-cost, least-risk projects for our customers. And we've been pretty fortunate so far with regards to the company’s ownership projects, and that has really been being able to drive competitive costs, be able to manage risks, and quite frankly, have very good partners as we move forward. So we would hope to have the same circumstances as we enter into 2024 and beyond. Clearly, there's a lot of opportunities. Thank you.

Operator, Operator

Our next question comes from Andrew Levi of HITE Hedge Asset Management.

Andrew Levi, Analyst

Hi, guys. Can you hear me?

Maria Pope, President and CEO

Good morning, Andy.

Andrew Levi, Analyst

Hey, how are you?

Maria Pope, President and CEO

We can.

Andrew Levi, Analyst

That's good to hear. I have a few questions, if that's okay. Regarding the events in August that negatively impacted the quarter, if the settlement for the PCAM had been in place just for that specific event, how would that have affected the outcome? What are your thoughts on the numbers? I understand this is more of an estimate, but I'm just curious.

Joe Trpik, Senior Vice President of Finance and CFO

Good morning, Andy. As I mentioned earlier, we believe the obvious event would align with the definition, although that is still being finalized by the commission. Each event is distinct. Regarding your comment, while we aren't assigning specific numbers yet, there could be some impact on our results this year if it is viewed positively. This event is not unique; from 2020 to 2022, there were approximately 15 events that we think qualify as an RCE over about 40 days. For now, I would suggest that we believe there could have been a positive impact on the quarterly results, if this meets the definition. However, we want to ensure we are in agreement on that definition and calculation with the commission's order before we state what the outcome might have been.

Maria Pope, President and CEO

Andy, this is a solid first step as we work to have a power cost mechanism that is comparable to other utilities across the country.

Andrew Levi, Analyst

Okay. And I guess that's something for the next rate filing as well to try to improve once again? And then my second question is around transmission CapEx. And obviously, we have to wait for the fourth quarter. You talked about a robust update on the CapEx in general. But can you just talk about your transmission strategy and how that may ultimately play into the RFPs and how much capital you kind of want to deploy from one to the other with transmission CapEx being a little bit more predictable because obviously, there are no RFPs involved?

Maria Pope, President and CEO

Thank you. Like other utilities nationwide, we are experiencing increased electricity demand, expanding our service area, and focusing on renewable development, with transmission being a key element. Our transmission strategy primarily involves projects located in or near our service area, many of which are reconductoring projects that utilize existing rights of way. This makes them relatively low risk and easier to execute. As we proceed with these projects and gain a better understanding of the substantial growth in customer demand, we will provide more updates moving forward. We are also optimistic about discussions at the federal level aimed at speeding up transmission siting and simplifying the permitting process. It is crucial that we enhance our transmission capabilities, whether through the Pelton Round Butte project in collaboration with the Confederated Tribes of the Warm Springs or through reconductoring and work within our service area. We see significant opportunities as we advance, and we have a decade's worth of projects planned that will improve our overall reliability.

Andrew Levi, Analyst

I wanted to revisit the PCAM topic because I've been receiving inquiries about it. I want to clarify there's no misunderstanding. The $0.07 decrease in net variable power costs quarter-over-quarter is not solely a result of the modified PCAM mechanism; it’s more complex than that. The situation isn’t a straightforward comparison, and I believe some people are interpreting it as such.

Joe Trpik, Senior Vice President of Finance and CFO

Andy, so as you know, each year, the PCAM, we set our baseline and that $0.07 year-over-year is just really our relative performance in the quarter to the baseline. So it is potentially any impact of the heat up inside of that performance, but that is in no way meant to identify that. It is just the overall design by quarter of how the AUT identified net variable power cost to our performance. So yeah, there is no direct linkage.

Andrew Levi, Analyst

Right. And then as you get into the fourth quarter, that's part of the reason why there's such a large benefit because there was such a large hit last year, and now you're getting a recovery of that this year.

Joe Trpik, Senior Vice President of Finance and CFO

Right. As a reminder, so as it relates to year-to-date, as we disclosed in the 10-Q, we are $28 million above the baseline, part of what drives the fourth quarter through that resource availability mix is an expectation that we will move from being above the baseline to some amount below the baseline by the end of the year.

Andrew Levi, Analyst

Okay. And then, I guess, part of it is also fuel as well, right? From the fourth quarter, right? Lower.

Joe Trpik, Senior Vice President of Finance and CFO

The key to the fourth quarter is the expectations regarding resource mix, what we consider typical win, typical weather, and standard market pricing. All of this will enable us to optimize our portfolio and help us operate within the PCAM band between above and below.

Andrew Levi, Analyst

And it seems like you guys are in great shape heading into 2024. I mean, beyond this rate case settlement that hopefully gets approved, you've had modifications. You've got top-line growth, robust CapEx opportunities, and a commission that's been very supportive and you guys working well with them. I mean, I don't see anything on the negative side. I don't know if you guys can do it any differently, but …

Joe Trpik, Senior Vice President of Finance and CFO

We continue to assess the rate case outcome, which we find very constructive. The growth opportunities we have previously discussed are still being supported. When I mention growth on the investment side, it encompasses both the IRP update and some recent grants that clearly indicate opportunities. Our longer-term growth plan, supported by the developments during the quarter, continues to reinforce this perspective.

Andrew Levi, Analyst

Okay. People are getting tired of hearing me ask questions. So I want to move, but have a great weekend, guys.

Joe Trpik, Senior Vice President of Finance and CFO

Thank you, Andy.

Maria Pope, President and CEO

Thanks, Andy.

Operator, Operator

Thank you. I would now like to turn the call back over to Maria Pope for closing remarks. Madam?

Maria Pope, President and CEO

Thank you very much. We appreciate your interest in Portland General Electric. We look forward to connecting with everyone soon, in particular, those who will be at the EEI conference in a couple of weeks. Thank you for joining us this morning. Have a good weekend. Good day.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.