Earnings Call Transcript
PORTLAND GENERAL ELECTRIC CO /OR/ (POR)
Earnings Call Transcript - POR Q3 2022
Operator, Operator
Good day, and thank you for standing by. Welcome to Portland General Electric Company's Third Quarter 2022 Earnings Results Conference Call. Today is Tuesday, October 25, 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 session. For opening remarks, I would turn the conference call over to Portland General Electric's Senior Director of Finance, Investor Relations and Risk Management, Jardon Jaramillo.
Jardon Jaramillo, Senior Director of Finance, Investor Relations and Risk Management
Thank you, Dillon. Good morning, everyone. I'm happy you can join us today. Before we begin this morning, I would like to remind you that we've 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 two, 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 Jim Ajello, Senior Vice President of Finance, CFO, Treasurer and CCO. 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, Jardon. Good morning, everyone, and thank you for joining us today. Beginning with slide four, I'll start by discussing our third quarter results before moving on to long-term growth. This morning, we've reported GAAP net income of $58 million or $0.65 per share, compared with $50 million or $0.56 per share in the third quarter of last year. Our solid results this quarter were driven by strong operating performance and revenue growth. First, load growth, which came primarily from technology and digital customers, continues to be robust. Industrial load was up 10% this quarter versus the same period a year ago. Given The CHIPS and Science Act, as well as the focus on semiconductor investments in the State of Oregon, we anticipate several significant semiconductor expansions in our service territory. We're also continuing to see steady business growth in other sectors, as well as continued residential immigration. Overall, we're moving our load growth expectations to 2%, up from 1.5% over the next five years. From an operating perspective, we are pleased to see that the hard work we're doing across the company to reduce operating expenses is having an impact. Overall O&M expenses were largely flat with last year's third quarter as savings in several areas offset wildfire mitigation and grid resilience costs. Third quarter power markets were remarkably volatile as many states in the West set all-time temperature records. In Oregon, at least 12 cities, including Portland, saw the hottest July and hottest temperatures on record. 2022 also ranked as the warmest August on record in Washington and Idaho, and California faced extreme temperatures, as well as record drought conditions. Our generation plants could not have performed better, and we're well integrated with power operations contracted and purchased energy supply. Overall, purchased power and fuel expenses increased due to market conditions and to meet significantly higher energy usage. We are pleased to share that we have resolved a number of open deferral dockets, which have been ongoing for many months and now provide greater certainty. Overall, we have achieved settlements totaling $130 million, including the 2020 wildfire, the 2021 ice storm, and the 2021 power cost adjustment mechanism dockets. These agreements are subject to final approval by the OPSC, with an order expected in November. We also anticipate filing an amortization request for the $34 million COVID deferral later this year or in early 2023. Jim will walk through the expected financial impacts of these updates in more detail, but I'd like to add my appreciation to our PGE leaders and to all other parties for the constructive spirit they brought to these discussions. Moving to slide five, after a robust and highly competitive process, identifying options that increased renewable energy at the best combination of price and risk for customers, we announced the Clearwater Wind project, one of our benchmark generation bids. Clearwater is part of a broader wind development in Eastern Montana that will generate approximately 311 megawatts of nameplate capacity. We signed a build-transfer agreement with NextEra Energy Resources for Portland General Electric's two-thirds or 208-megawatt ownership share. PGE will secure the remaining third or 103 megawatts under a 30-year PPA. This is a significant step forward in our clean energy transition, as the renewable energy generated at Clearwater complements our long-term plan to remove the remaining coal generation from our portfolio. PGE's capital investments in Clearwater are projected to be $415 million, and the facility is planned to come online by the end of 2023. The Clearwater investment opportunity will have an impact on the capital needed to fuel our growth and rebalance our capital structure, which Jim will touch on shortly. PGE has been at the forefront of the energy transition for years. We could not be more excited about the great opportunities that we see ahead. In the spring of 2023, we expect to file both our clean energy plan and our next Integrated Resource Plan. These plans will incorporate enhanced analysis and actions to meet evolving energy needs with a focus on reliability and affordability. In the second half of 2023, we expect to launch additional RFPs for renewable generation and non-emitting capacity. Now, let me turn to operating performance and risk management. As I mentioned earlier, this is a very tough summer as we navigated record heat and heightened risk of wildfires. We're focused on making strategic investments and much of the work we're doing to enhance resiliency in the summer also helps us prepare for winter storms. This includes proactively replacing aging equipment, reducing outages, accommodating growth, and better integrating renewable resources. We're also making use of the latest technologies. At our Integrated Operation Center, we're using analytics to better track planned performance and predict potential issues before they arise. We're using advanced modeling and improved tools to better monitor dynamic weather. Through AI and data analytics, we are proactively addressing issues in the distribution system, reducing costs, and increasing reliability. In short, we're advancing the digitalization and simplification work that we have scaled over the last couple of years. This quarter, for example, we have focused our work on improvements to our field crew scheduling systems that will enhance productivity and workflow for our line crews. We're also upgrading our digital platforms for more seamless customer service and interaction. Given the current environment, one area of particular concern is power cost management in challenging wholesale markets, especially during critical peak periods. This quarter, we experienced significant volatility driven by intense summer heat. Western power market conditions are very challenging, with peak prices reaching $1,000 per megawatt hour on multiple occasions. Our risk management strategies and strong balance sheet were critical as we navigated these headwinds. Our vertically integrated utility model and 16-generation facilities helped insulate customers from the full impact of the volatility that we saw in the energy markets. In the current environment, we are frequently generating power to serve our customers at significantly lower energy costs than can be purchased in the open market. I want to recognize the outstanding work of our generation leaders and plant operations. We know that our customers, ranging from some of the largest global companies to our neighbors down the block, are facing significant financial pressures. As we look ahead, we're intently focused on making full use of the tools available to us to help manage power costs. We're committed to providing our customers with the ability to take an active role in enabling the region's clean energy future. Again this year, Portland General's Clean Future program was recognized as the number one green energy program in the country by the National Renewable Energy Lab. Before I turn the call over to Jim, I'd like to discuss our financials and touch on the coming quarter and our growth outlook. In the fourth quarter, we expect continued load growth, power cost performance, and disciplined O&M management to keep us on track to meet our guidance for the year. Looking ahead, the progress we've made this year has laid the foundation for substantial investments in 2023 that will position us for significant growth in 2024 and beyond. As such, we're raising our long-term EPS growth guidance from 4% to 6% to 5% to 7%, reflecting investment opportunities ahead. In sum, we're pleased with our strong performance this quarter, demonstrating that providing safe, reliable, affordable, and clean energy is the right formula for steady and consistent results. With that, I'll turn it over to Jim.
Jim Ajello, CFO
Thank you, Maria, and good morning everyone. I'll cover our third quarter results before providing additional details on our outlook. Moving to slide five, our third quarter results reflect the execution of our long-term strategy, continued growth in demand, and effective risk management in volatile power markets. Our regional economy remains solid, as unemployment in our service territory improved to 3.2% relative to 4.3% in 2021 and has remained stable throughout 2022. Industrial development and customer growth continue to drive strong demand. Overall, Q3 2022 loads increased by 1.2% weather-adjusted compared to Q3 2021. On a non-weather-adjusted basis, total load increased by 4.2% year-over-year, as average temperatures for the third quarter were the warmest on record in our region. Residential load increased by 3.6% year-over-year, but decreased by 2.5% weather-adjusted as we continue to see moderation in COVID-19-related usage trends. Residential customer count increased by 1.1% compared to Q3 2021. Commercial load increased 0.5% year-over-year but decreased 1.3% weather-adjusted, as the commercial segment continues its post-pandemic recovery. Steady growth among high-tech and digital services sectors continued in Q3, driving higher industrial loads which grew over 10% year-over-year, or 9.2% weather-adjusted. These high temperatures increased deliveries but also created challenging power market conditions throughout the West. Our power costs exhibited significant volatility, but we managed operational and market risk effectively as the region continues to address resource challenges. We remain acutely focused on managing energy price risks and optimizing operations to limit the customer price impacts of these cost pressures. I'll now cover our financial performance quarter-over-quarter. We experienced a $0.22 increase in total revenues driven by the 4.2% increase in deliveries led by growing demand from our high-tech industrial customers. While load was up 4.2% quarter-over-quarter, industrial load growth outweighed residential and commercial load, creating a $0.04 decrease in total revenues compared to 2021. In Q3 2021, power costs were high, and $0.21 of the quarter-over-quarter earnings change is attributed to headwinds in ‘21 that we normalized for this comparison. This quarter, higher market prices due to resource scarcity in peak periods drove a $0.25 decrease. These impacts were largely related to the effect of serving load during the region's demand peaks in a historically hot summer. Higher purchase volumes to serve load drove a $0.07 decrease. A $0.01 increase to EPS was due to lower operating expenses net of storm restoration and regulatory program costs that are offset in revenue, primarily because of lower professional services costs. We saw a $0.01 impact from depreciation and amortization expense due to increased intangible asset balances compared to 2021, reflecting our continued investment in software and technology to increase efficiency across the organization. Lastly, we had a net $0.02 increase reflecting offsetting impacts from a few items. It was a $0.09 increase to other income, due to a settlement gain from a buyout of a portion of PGE's post-retirement medical plan, which was partially offset by a $0.03 decrease from the impact of higher interest expense from the Q3 2021 debt issuance of $400 million, a $0.03 decrease due to higher income taxes, and a $0.01 decrease due to other miscellaneous items. Turning to slide seven, as Maria mentioned yesterday, PGE and parties submitted a stipulation to the OPUC reflecting an agreement that resolves all matters relating to 2021, under the 2020 Labor Day Wildfire and 2021 February Ice Storm deferrals. This agreement will allow PGE full recovery of the deferred amounts related to 2021 of $30 million and $72 million respectively, with amortization over seven years. PGE and parties also submitted a stipulation to the OPUC reflecting an agreement that resolves all matters relating to the 2021 PCAM deferral, which would allow PGE recovery of deferred costs of $28 million with amortization over two years beginning January 1, 2023. Combined, these stipulations resolved $130 million of outstanding major deferrals; all stipulations are subject to OPUC approval. We plan to file an amortization request for the COVID-19 deferral, which has a $34 million balance as of September 30, 2022, later this year or early in 2023. On slide eight, Maria highlighted earlier that we are very pleased to have clarity on a portion of the ongoing RFP with our execution of the Clearwater Wind project contracts with NextEra Energy Resources. Clearwater, our first project to be announced, represents a critical step in our clean energy roadmap and provides high-quality renewable generation investment opportunities that will benefit customers and stakeholders as we move toward our 2030 decarbonization target. This project will be executed using a build-transfer approach, which will allow us some flexibility when considering the timing and approach to future financing. We are continuing to negotiate with other RFP shareholders bidders for both additional renewable generation projects and non-emitting dispatchable capacity resources. We are optimistic that we will conclude these negotiations by the end of 2022 or early in 2023. We are continuing to assess the debt and equity needs related to the Clearwater project and other potential RFP project investments, as well as long-term equity needs to rebalance our capital structure for regulatory purposes and maintain our strong credit ratings. A strong balance sheet creates important benefits for both shareholders and customers. We will look forward to finance this growth consistent with and leading up to our capital structure of 50-50 over time and on average. Turning to slide nine, which shows our updated capital forecast through 2027, we have increased the 2023 forecast by $550 million to reflect the renewable generation investment presented by Clearwater, as well as incremental base CapEx. We have also increased the capital forecast for 2024 through 2026 by $75 million, $100 million, and $125 million respectively, and are providing a 2027 capital forecast of $800 million. This forecast represents planned investments for technology and software, system resiliency, transportation electrification, and grid optimization. Figures for ‘23 through ‘27 do not include any potential expenditures related to possible ownership from the remainder of the current RFP or future RFP cycles. Turning to slide 10, we continue to maintain a solid balance sheet including strong liquidity and investment-grade ratings accompanied by a stable credit outlook. Total availability of liquidity at September 30 is $797 million. We plan to fund investments with cash from operations and the issuance of up to $460 million of long-term debt in the fourth quarter, a portion of which has already closed. We expect to issue this debt under our Green Financing Framework as we continue to seek opportunities to tie our debt financings to our sustainability strategy through capital investments. The third quarter reflected the strength of our region, our ability to navigate difficult power cost conditions, and our continued emphasis on controlling O&M expenses. The continued growth trajectory of our service territory is strong and we remain focused on controlling costs and prioritizing spending on the highest return activities like technology deployments that drive efficiency. We are reaffirming our full-year GAAP earnings guidance of $2.60 to $2.75 per diluted share or $2.74 to $2.89 per diluted share on a non-GAAP adjusted basis. Additionally, we are also increasing long-term load growth guidance from 1.5% to 2%. As Maria described, this increase is enabled by continued growth in high-tech industrial sectors and residential electrification patterns. Given the renewable investment opportunities presented by Clearwater, as well as the strong prospect of additional RFP opportunities yet to be awarded, clarity on major deferral dockets, and anticipated load growth, we are raising our long-term earnings guidance from 4% to 6% to 5% to 7% from a 2022 adjusted earnings basis. We're very excited about the growth prospects supported by renewable development as well as resiliency investments. We are confident in the catalysts discussed today and have a clear path forward as we strengthen our core mission of providing clean, reliable, and affordable energy for all, enabling consistent execution of our long-term financial goals and providing value for our customers, our community, and our shareholders. And now operator, we're ready for questions.
Operator, Operator
Thank you, sir. Our first question comes from Insoo Kim from Goldman Sachs. Please proceed with your question.
Insoo Kim, Analyst
Hey, thank you. First question, thanks for the updates on the 5% to 7% EPS growth off of that adjusted ‘22 guidance space. Should we assume that by ‘24, you should be in that 6% mid-point range or is it more and beyond that in ‘25 or another time period?
Jim Ajello, CFO
Hi, Insoo, it's Jim. Good morning. I will tell you that this is a long-term earnings guidance projection. 2023 represents a significant year of investment as you saw the CapEx rise to about $1.1 billion or more. And of course, we're not done with the RFP yet. So it's really hard to be precise with an answer on that, so I do think ‘23, however, is a year of investment. And as you know, in this business, you invest that way in order to seek a longer-term growth profile. So that's probably where I believe the answer right now.
Insoo Kim, Analyst
Okay. And I guess associated with that, given at least that Clearwater is expected to come online at the year-end 2023, are you expecting from a rate case perspective to try to time the conclusion or the rate inclusion of that by early 2024?
Jim Ajello, CFO
Well, let me correct perhaps an assumption in your question. So, yes. Clearwater is planned to be in service by the end of ‘23. There is no rate case required to bring Clearwater into rates. We'll use the Renewable adjustment clause. So upon in service, that project will go into rates absent any rate case requirement.
Insoo Kim, Analyst
That's right. That makes sense. And then just one more if I could. On the OPUC prudency review for the Clearwater wind, what's the timing on that? And is that like a separate docket that needs to be created? Just some clarity there.
Maria Pope, President and CEO
Thank you, Insoo. Yes, there is the prudency review that takes place in normal course after the project has been brought online. But we are able to proceed with the automatic adjustment clause mechanism and move the wind energy and the asset into customer prices.
Insoo Kim, Analyst
Okay, I understand. So you don't need to wait for any approval before moving forward with the capital expenditures?
Maria Pope, President and CEO
No.
Insoo Kim, Analyst
Got it. Thank you so much.
Maria Pope, President and CEO
Do you might remember, we've gone through a fairly rigorous RFP process and also have had bids refreshed, all of which has been reviewed by different stakeholders, by the commission, and no question that in Oregon, we have an extensive process.
Insoo Kim, Analyst
Makes sense. Thank you.
Operator, Operator
Thank you. And I show our next question comes from the line of Shahriar Pourreza from Guggenheim Partners. Please go ahead.
Shahriar Pourreza, Analyst
Hey, good morning, guys.
Maria Pope, President and CEO
Good morning.
Shahriar Pourreza, Analyst
I guess a couple of things to unpack here. First, how should we think about, I guess, the prospects for what you could own with the balance of the current RFPs you kind of laid out in slide eight? Could we see more wind procured or is it leaning towards solar which you wouldn't necessarily own? I guess net-net, you got $415 million so far. So are you still thinking an incremental $600 million to get us to the $1 billion ownership as previously discussed? And I guess how does the company's storage fit into that? Thanks.
Maria Pope, President and CEO
So, first of all, the processes are still in motion. And we wouldn't want to front-run any conclusion as we continue with negotiations with multiple parties and work with an independent evaluator. So it's just too early to tell, but there clearly are more opportunities, and we also are filing our next IRP along with the new clean energy plan that the State of Oregon put in place a couple of years ago that I think will make a difference as we move forward through the decade.
Shahriar Pourreza, Analyst
Got it. I guess maybe just another way to ask that is, to hit the 5% to 7%, I guess, what do you need an incremental above what you just raised today from a capital standpoint?
Maria Pope, President and CEO
So as we look at the best available projects for both these risks and lease cost, we're mindful of the deliverability of the energy. Clearly, we're looking at some storage projects that will help with capacity, but there's a lot of complexity in some of the bids, so I just think it's too early to tell.
Shahriar Pourreza, Analyst
Okay, got it. And then just on the timing and disclosures around sort of the equity, I mean, with this process potentially not being finalized until the first quarter, but Jim says early first quarter of '23. Does this kind of mean you won't be able to update us at maybe EI as far financing this plan, as well as maybe the health equity portion of it?
Jim Ajello, CFO
Yes, sure. That's a very good question. We're working on that now. We may or may not be able to update you regarding that; it just depends on how we look at the markets and how we see the opportunity to raise capital both debt and equity. I wouldn't want to speculate on the timing of any financing right now, so I'm not sure we'll be able to pin that timing down. I would say stay tuned.
Shahriar Pourreza, Analyst
Got it. And then, Jim, just last one for me, just we're sort of thinking about some of the moving pieces for 2023. You have some natural drag from Faraday and other items. Any updated thoughts on how should we be thinking about other line items like O&M and what they could look like relative to ‘22 especially if you're dealing with potentially equity dilution? I guess, should we assume '23 in particular won't be quite linear as we're thinking about the updated 5% to 7% or do you think you've got enough assets in the plan to offset some of those items to maintain within that range even if we're considering it from a year-over-year perspective? Thanks.
Jim Ajello, CFO
Yes, that's a very relevant question. I would advise you to wait until February when we provide guidance for 2023. By that time, we should have a clearer understanding of the upcoming RFP activities, how we will finance them, and what the investment opportunities will be. Aside from the guidance shared today regarding long-term load growth and deferrals, we have a strong new CapEx schedule as we move into 2023 without offering specific EPS guidance at this moment. You have pointed out some of the challenges we face, but we will revisit this in February with the actual 2023 EPS guidance.
Shahriar Pourreza, Analyst
Okay, got it. We'll see you guys in a couple of weeks. Thanks.
Maria Pope, President and CEO
Thanks, Shah.
Operator, Operator
Thank you. And I show our next question comes from the line of Angelica from Bank of America. Please go ahead.
Julien Dumoulin-Smith, Analyst
Hey, it's actually Julien. Hey, good morning. Thanks for the time and the opportunity.
Jim Ajello, CFO
Thanks, Julien.
Julien Dumoulin-Smith, Analyst
Hi. And congrats again on the rise here. So I wanted to follow up on Shahriar's question. First off, how do you think just about ‘24 here, I know that ‘23 might have some moving pieces as you say, large spend, equity, et cetera. But ‘24, I mean, I know you launched and raised this 5% to 7% here off of ‘22 base very specifically. Are you there and confident in being within that range for ‘24 here as you kick off on this?
Maria Pope, President and CEO
Julien, as we look at our guidance, it's really first and foremost based upon our customers' energy usage that we're seeing, the infrastructure that we have built and they have built. And so continued growth from that aspect. As I think you know, we have a number of high-tech companies, particularly semiconductor manufacturers in our service territory, and they have been growing and will continue to probably accelerate that growth over the next couple of years. Clearwater is clearly a great addition as we make the energy transition and add more renewables, but we also would expect to see more battery storage and more demand response. We see the transition really accelerating along clean energy, and that's what makes us feel very confident in the 5% to 7% longer-term growth trajectory.
Julien Dumoulin-Smith, Analyst
Yes, I've been asked this. Looking ahead, I believe you all have set a target of 3 to 4 gigawatts of procurement by the end of the decade, which includes a gigawatt of non-emitting capacity. This suggests a significant pace of procurement in the latter half of the decade alongside the 5% to 7% growth. Can you provide more specific insights on your expectations regarding the timing of these RFPs and your ownership prospects? Furthermore, how do these align with the 5% to 7% growth, and what assumptions are you making about those future RFPs in relation to this growth range?
Maria Pope, President and CEO
So there's a lot of questions in there, Julien. I think the first and foremost is our long-term procurement of renewable energy and then obviously the capacity that's going to need to be associated with that to keep the system reliable. As I mentioned later this winter or early spring, we will be filing the clean energy plan, which was the result of legislation that went in place just a little while ago in Oregon really targeting for us an 80% reduction in our emissions off of 2010, 2012 time period. And so we have quite a bit to procure that will also be associated with our Integrated Resource Plan, which we have used as a planning tool for decades and as well as many of the other kinds of planning that we're doing around the grid and distributed energy resources, as well as electric transportation and others that we're working to combine all of these. I think it would be too soon to handicap which will be company-owned or which will be third-party owned, this most likely going to be a mix. And I think you'll also see needed transmission built within our service territory but also adjacent to our service territory across the West. It clearly is a period of time of investments, and we're also mindful of our customer prices. It's really important that as our load growth continues, that we're able to take those fixed-cost investments and spread them over a growing customer base because affordability in Oregon is extremely important not just to our residential customers and just small businesses, but to many of those larger multinational companies that are challenged today. So we're balancing all of those things as we move forward. And again, feel confident in the 5% to 7% growth.
Julien Dumoulin-Smith, Analyst
Yes, okay. So the bottom line is it's not pedicure and that's still any outcome on the RFPs itself or customer growth?
Jardon Jaramillo, Senior Director of Finance, Investor Relations and Risk Management
Let's give you confidence in that number.
Jim Ajello, CFO
So Julien, let me add to that. If you run a classified rate-based model based on the CapEx that we presented today without any other RFPs, I think you'll arrive at the same conclusion.
Julien Dumoulin-Smith, Analyst
Thank you for clarifying that. I have one quick question regarding the medical buyout. Was that included in the guidance for the year? I understand there are many variables involved.
Jim Ajello, CFO
Yes, it was, Julien.
Julien Dumoulin-Smith, Analyst
Okay. Excellent, guys. I'll leave it there. Congrats again. Cheers.
Jim Ajello, CFO
Thank you.
Operator, Operator
Thank you. And I show our next question comes from the line of Sophie Karp from KeyBanc. Please go ahead.
Sophie Karp, Analyst
Hi, good morning, and thank you for taking my question. Congratulations on the recent raise and the updated long-term guidance. I wanted to ask about the O&M; there are many factors affecting it and our guidance for the year has been revised. Could you clarify how much of this change is due to inflationary pressures you've encountered, and what are your expectations for 2023?
Jim Ajello, CFO
Thank you, Sophie, for your question. Inflation has been a challenge for all companies in our sector, and we are making every effort to manage it. Let’s clarify our O&M guidance: starting with the upper limit of $660 million, I excluded the storm deferral amounts returning to revenue, which is about $10 million or $11 million, and the disallowance from the first quarter, totaling approximately $27 million. This brings our adjusted O&M figure to around $633 million. Considering this baseline, numerous factors are influencing O&M, and it's evident that wages, salaries, and purchased services have significantly increased in the past year. While I may not pinpoint the exact causes, we are actively working to mitigate these effects. In the third quarter, if you examine the data, you’ll notice a trend of moderation, indicating improvements from our strategies and enhanced operational efficiency through technology. Our focus extends beyond merely cutting costs; it's about maximizing productivity with existing funds and optimizing capital expenditures to enhance O&M and similar efforts.
Sophie Karp, Analyst
Thank you. This is very helpful. I have another question regarding the benefits of the IRA rates and the new tax credits mentioned. Should we view the price tag on Clearwater as the final figure that already considers all potential benefits for that type of project, or could that figure fluctuate similarly to the treasury guidance? How integrated are the new fiscal policies into your RFPs at this stage?
Maria Pope, President and CEO
Sophie, thank you. So with regards to more specifically Clearwater, there will be tax credits associated with that facility, which will reduce the overall impact on customer prices, and we would expect to use those in the normal course. With regards to the overall IRA, IIJA, and other federal funding, we currently have a couple of projects from the Department of Energy around their distributed energy test beds, the Oregon Department of Energy around their smart grid same project that we have in our service territory. And we would expect to have significantly more in the future. Clearly, it's important as we look at some of the above-market costs of newer technologies to bring in those kinds of funds, and we hope to be well-positioned to do that both for reliability and resiliency projects, but also as we continue to invest in the clean energy transition.
Sophie Karp, Analyst
I don’t think that has been considered yet. But is there a way through tax equity arrangements to lower the upfront capital requirement? I’m not necessarily surprised by the need for equity, but is that something that isn’t feasible within the regulated contract?
Maria Pope, President and CEO
Certainly. So first of all, many of the rules have still not yet been written with regards to the inflation reduction after IRA. So we'll need to see how those are. And we'll also need to see if you're talking about monetizing any of those credits, what the market looks like at that time. But certainly, funds from the federal government or from the federal government that moves through state agencies here in Oregon would reduce our overall need for equity or debt financing as we move forward, and it's going to be an important component to our clean energy plans.
Jim Ajello, CFO
Sophie, without belaboring the point, I would say that recall that when the bids came in initially in the summertime, we asked for a refresh, and that's because there were, I'd say, pretty significant inflationary pressures around all these RFP projects, but we also asked bidders to make sure that they included their best estimates for the benefit of the IRA for our customers, because that's where these benefits go at the end of the day. And so I think we have some benefit in projects like Clearwater, but clearly this redundant term, I don't think we're all the way there yet; it's early on, and we'll do the same for the other RFP projects as we go. And what's really great about the IRA for a company like this without a holding company, without an affiliate, and all of these projects that we are competitively awarded in a very simple structure, ownership structure, and we'll be able to normalize or opt-out of that tax normalization structure and monetize tax credits. So I think this is a significant opportunity for us if you will, probably in the next round of projects as the IRA gets more defined and as the market for tax credits gets modified; it's just not there yet, frankly.
Sophie Karp, Analyst
Got it. Super helpful. Thank you. That's all from me.
Jim Ajello, CFO
Sure.
Operator, Operator
Thank you. And I show our next question comes from the line of Anthony Crowdell from Mizuho Group. Please go ahead.
Anthony Crowdell, Analyst
Good morning, Maria. Good morning, Jim.
Maria Pope, President and CEO
Good morning.
Anthony Crowdell, Analyst
Maria, if I could just start off, I wanted to just follow up on, I think to Julien's question. I know there were many maybe with this first one, it was related to, I think, '24 year earnings CAGR your update. But I actually want to go from the start. Is it fair to assume that we should be using the midpoint of the revised ‘22 guidance of like $281 million as our anchor of growing the 5% to 7%?
Maria Pope, President and CEO
Yes.
Anthony Crowdell, Analyst
Great. Thank you. Moving on, I believe the company was experiencing a lag of approximately 50 to 70 basis points. With your updated load forecast at 2%, does that impact the regulatory lag that the company has faced?
Maria Pope, President and CEO
Sure. So first of all, our lag is a little bit larger than that, just under 1%. And continually, we work to reduce that lag over time. Certainly, the footprint of the company helps with reducing that as we get larger; those items, and hopefully, they get smaller or don't change become a smaller part of the total on a percentage basis, but it's our goal to continue to strengthen that.
Anthony Crowdell, Analyst
Okay. And just lastly, I guess, Faraday comes in some cost pressures, and I apologize if you answered this earlier. Just what is your assumption for rate case timing in your long-term growth rate? I think the company historically has filed in February, make your filing in February for new rates the following January, just what is baked into your assumption of the long-term plan.
Maria Pope, President and CEO
Sure. As you may recall, our last rate case was filed after about 2.5 years. We were in the middle of COVID and we were very concerned with customer prices, and we kept our increases very modest through that period of time. Actually, it was just this last May that customer prices were increased to reflect that rate case. So as we move forward, we will take a look at where we are and in particular, some of the additional costs that we're seeing come onto the system both for resiliency and grid hardening, and most importantly for wildfires costs. So we're going to be looking at all of these things as we analyze what we do next.
Jim Ajello, CFO
And Anthony, I’ll add to that. I would not assume any changes in the annual utility tariff filing, the fuel tariff filing that we have here. So I think that's something that's fixed by our concept.
Anthony Crowdell, Analyst
Great. Thanks so much for taking my questions and congratulations.
Jim Ajello, CFO
Thank you.
Maria Pope, President and CEO
Thank you.
Operator, Operator
Thank you. And I show our next question comes from the line of Aditya Gandhi from Wolfe Research. Please go ahead.
Aditya Gandhi, Analyst
Good morning, Maria and Jim.
Jim Ajello, CFO
Good morning.
Maria Pope, President and CEO
Good morning.
Aditya Gandhi, Analyst
Could you please clarify regarding the rate case and its relation to your equity ratio? Specifically, when you enter a rate case and considering the forward test year, will you need to draw on your equity forward before you file, at the time of filing, or can you file later in the year due to the forward test year?
Maria Pope, President and CEO
Sure. For perspective, we aim for a long-term average capital structure of around 50-50. As mentioned by Jim earlier, we do not have any holding company debt, which keeps our structure straightforward. In our last rate case, we were below that 50-50 target, but after a nine to ten-month process, we achieved a 50-50 capital structure. We have a solid understanding with both parties and the commission regarding our target of 50% on average over time. I believe this will be just one factor to consider as we look at the next rate case.
Aditya Gandhi, Analyst
Got it. That's helpful. And then just going to your 5% to 7% growth rate, so you have a higher capital plan, and you're pointing to more sales growth in the RTOs. But you have some equity nature base business, which is at present under equitized, and also some equity needs related to your RFP, and then you've also pointed to a higher capital plan. So maybe there's some equity needs related to that increased CapEx maybe not, but just because we don't have sort of like a full picture of what your financing refresh looks like, how should we think about the shape of your 5% to 7% especially sort of beyond 2023?
Jim Ajello, CFO
Yes, Aditya, I'll address that. I believe the CapEx guidance we've provided today is the best estimate at this moment. We're still in the midst of the current RFP cycle, and as I've mentioned, we're hoping to see more favorable outcomes by the end of this year or the beginning of next year. Therefore, I'm not going to raise the guidance we’ve just shared. However, I want to highlight that there is potential within that CapEx plan. It's somewhat challenging to determine the scale of the capital plan, but we recognize the ongoing necessity to return over time. As Maria mentioned, we must align with the company's capital structure according to regulations, and I expect that once we manage those aspects, we'll incrementally increase capital investments like Clearwater, funded on a 50-50 basis to maintain balance. We'll prepare and size our approach as opportunities arise. That said, these markets are very volatile and hard to predict due to the Fed's aggressive stance and current equity market performance. Your question is one we consistently evaluate.
Aditya Gandhi, Analyst
Okay. That's helpful. Just one more if I can squeeze out and so. As far as your deferrals are concerned, I noticed that for the PCAM before didn't get the full amount. Please correct me if I'm wrong, but do you essentially have to take a charge to earnings for the $2 million that you won't be able to recover for PCAM? And if so when would that charge be? Thank you.
Jim Ajello, CFO
You can see the difference between the 2021 balance at the end of this quarter and the $28 million recovery on page seven. That $2 million would be reflected in the fourth quarter.
Aditya Gandhi, Analyst
Got it. Okay, that's helpful. Thanks, Maria. Thanks, Jim.
Jim Ajello, CFO
Sure.
Maria Pope, President and CEO
Thank you.
Operator, Operator
Thank you. And I show our last question comes from the line of Nicholas Campanella from Credit Suisse. Your question, please.
Nicholas Campanella, Analyst
Hey, good morning. Thanks for getting me in here.
Jim Ajello, CFO
Hi, Nick.
Nicholas Campanella, Analyst
Are you going to need to wait for the RFP results before determining your total equity needs, or how should we approach this given the many variables involved?
Jim Ajello, CFO
Thank you for your understanding. That’s exactly what I was trying to explain earlier. I don’t think we need to wait. We can monitor our progress in the negotiations and assess market conditions. So, it’s not essential for me to hold off. However, I need to be quite confident, as I want to avoid over-equitizing and unnecessary dilution. We aim to align our financing, both debt and equity, with our capital requirements. Therefore, I want to proceed carefully and avoid creating dilution unless it's necessary.
Nicholas Campanella, Analyst
Okay. No, that’s helpful, Jim. And then, last quarter you kind of talked about being at 46% versus the 50% authorized. Could you just give us a quick update there and understand the comments as well that this is an overtime situation, but is 200 basis points improvement or the right way to think about it still? Thanks.
Jim Ajello, CFO
Yes. Now that I hear people repeating what we say, I think we're in the right ballpark now. By the end of the year, I estimate that we'll be approximately 46% plus. The idea of achieving this over time leads me to reflect on our history, where we've often operated at 48% to 49% and even reached 51% to 52% over extended periods. So, I believe this estimate is reasonable. As we said, just to repeat, over time and on average, right, because it's the way we look at it, the way the commission looks at it; we look back and we look forward on the projections. So repeat after me: over time and on average.
Nicholas Campanella, Analyst
Thanks a lot. We’ll see at EI; I appreciate it.
Jim Ajello, CFO
See you then, bye-bye.
Operator, Operator
Thank you. And I show our last question comes from the line of Chris Ellinghaus from Siebert Williams Shank and Co. Please go ahead.
Chris Ellinghaus, Analyst
Hey everybody. How are you?
Maria Pope, President and CEO
Hey, Chris.
Jim Ajello, CFO
Good.
Chris Ellinghaus, Analyst
Maria, you mentioned two things that are interesting. One, you sort of talked about tech expansion in your service area. I was just kind of curious, are those sort of bolton expansions and you're talking about new fabs and where do you see that in sort of your investment horizon here?
Maria Pope, President and CEO
Sure. So as we speak, there are bolton investments taking place. And I would also expect that we would see some new fabs as well. We are very fortunate to have the talent base that has created a number of really strong semiconductor manufacturers of the software companies that support their tools, as well as many fabulous companies as well. And so this is a period of a lot of growth in that area, and we're fortunate to have a fair amount of it.
Chris Ellinghaus, Analyst
Okay. The other thing you talked about was transmission needs. Are you talking new lines or merely expansions?
Maria Pope, President and CEO
I think it'll be a little bit of both, with an emphasis on expansion whether that is existing lines or existing corridors. As you know, transmission is a real challenge. And we'd like to be able to reduce all of the permitting, citing, and variety of issues that take place with transmission and move as quickly as possible to ensure reliability of our service territory and the entire grid. So that's where our main focus will be, but it will be a little bit of both.
Chris Ellinghaus, Analyst
Okay. So back to the base rate question, you've tended to try to avoid rate increases in years where you have new assets coming into customer rates. Should we expect you'd be trying to avoid any new base rates for 2024?
Maria Pope, President and CEO
So first and foremost, we're very confident in keeping pressure on customers and making things affordable, particularly during a period of time where you see a lot of volatile commodity prices. And so energy affordability and accessibility is really important to how we think of all of our planning. So we don't have any one conclusion one way or the other, but I will tell you that as we look forward through this energy transition and the change in natural gas prices, as well as other factors, affordability, as well as reliability, is our first priority as we make this clean energy transition.
Chris Ellinghaus, Analyst
Okay. Have you got any updates on your Faraday strategy?
Maria Pope, President and CEO
The project is moving along. We expect that it will be online a little bit after the first of the year. Generating power may be been a little bit sooner than that was one of the units, and it's getting completed and has certainly been a project challenged by wind and ice storms, as well as the wildfires that went through there and the early COVID experiences. It's been a challenging project, but we're getting to the conclusion.
Chris Ellinghaus, Analyst
Through cost recovery thoughts?
Maria Pope, President and CEO
Yes. This was part of our last rate case. We have requested a separate rider, which worked well for us when we implemented the selective water withdrawal system and some of our fish handling systems. We were unable to secure that, so incorporating it into customer prices would necessitate a rate case.
Chris Ellinghaus, Analyst
Okay. Thank you so much.
Maria Pope, President and CEO
Thank you, Chris. Nice to talk to you.
Operator, Operator
Thank you. This concludes our Q&A session. At this time, I'd like to turn the conference back over to Maria Pope for closing remarks.
Maria Pope, President and CEO
Well, thank you all for joining us this morning. We appreciate your interest in Portland General Electric and we look forward to connecting with you soon. Thank you very much.
Operator, Operator
Thank you all for joining us this morning. We appreciate your interest in Portland General Electric and we look forward to connecting with you soon. Thank you very much. You may now disconnect.