Good morning, everyone, and welcome to Portland General Electric Company's Third Quarter 2019 Earnings Results Conference Call. Today is Friday, November 1, 2019. This call is being recorded and as such all lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer period. [Operator Instructions]. For opening remarks, I will turn the conference call over to Portland General Electric’s Director of Investor Relations and Treasury, Chris Liddle. Please go ahead, sir.

Thank you, Liz. Good morning, everyone. I'm pleased that you're able to join us today. Before we begin this morning, I'd like to remind you that we have prepared a presentation to supplement our discussion which we'll be referencing throughout the call. The slides are available on our website in investors.portlandgeneral.com. Referring to Slide 2, I'd like to remind everyone that 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 also available on our website. Leading our discussion today are Maria Pope, President and CEO; and Jim Lobdell, Senior Vice President of Finance, CFO, and Treasurer. Following their prepared remarks, we will open the line for your questions. Now, it's my pleasure to turn the call over to Maria.

Thank you, Chris, and good morning, everyone. Welcome to Portland General Electric's third quarter 2019 earnings call. Today, I will share an overview of our financial results, earnings growth expectations, and an update on our 2019 integrated resource plan. Jim will provide more detail on our financial results, and we will address questions. Despite a mild summer in the Pacific Northwest, we delivered solid third quarter results and are reaffirming our 2019 earnings guidance of $2.35 to $2.50 per diluted share, expecting to be in the lower half of the range. Turning to Slide 4. For the third quarter, we reported net income of $55 million or $0.61 per share, an increase of $0.02 per share compared to 2018 and an increase of $0.12 per share excluding last year's gain associated with the Carty cash settlement. Power costs were key driver for the quarter. In 2018, we experienced higher costs due to high temperatures, pull wind, and hydro conditions, and plant outages. In 2019, we saw improvements in most areas, good wind production, good thermal plant performance, and low regional power prices. The exception was hydro generation, which was 14% lower than last year. We also had a one-time charge of $3.9 million related to the Western Energy crisis almost 20 years ago. Additionally, we saw higher O&M costs largely from increased spending on wildfire mitigation, vegetation management, fitness, and other related areas targeted at overall reliability and system resiliency. Shifting to earnings guidance. Last quarter, we talked about lower power costs and higher revenues from industrial customers supporting our full-year forecast. So we've made some headway on power costs. We’re now expecting to be at or slightly above the PCAM baseline for the full-year versus the year-to-date results of $5 million above the baseline. Industrial customer revenue driven by…

Thank you, Maria, and good morning, everyone. As Maria mentioned earlier, our earnings per share of $0.61 is up $0.02 from the comparable period in 2018 and up $0.12 when excluding the Carty cash settlement in 2018. Moving on to Slide 7, I will walk through our waterfall comparing the favorable results from the third quarter 2019 to the third quarter of 2018. First, gross margin increased a total of $0.26 per diluted share. Several factors contributed to this result. High power costs in Q3 of 2018 was the main driver and were due to a combination of factors that Maria mentioned including higher market prices, increased demand, the coal strip outage, lower than expected wind output, and below normal hydro production. In contrast, in Q3 2019, our power cost benefited from increased wind and thermal production, which helped offset the impact of lower hydro. Market prices were also lower than in Q3 of 2018. All of which contributed to an improvement towards the PCAM baseline. In addition, a decrease of $0.04 is attributable to favorable weather that we experienced in 2018. There was minimal weather impact in 2019 due to a 5% decrease in cooling degree days when compared to normal. Add to this an increase of $0.03 per share, attributable to increased earnings power from our 2019 general rate case and the decoupling mechanism also contributed an increase of $0.03 per share. Next, higher distribution expense was driven primarily by the continued focus on preventative maintenance associated with wildcard mitigation, as well as changing our vegetation management practices by conducting our trimming biannually. We are also conducting a pole inspection and replacement program through our service territory. These efforts are being undertaken to enhance the safety and resiliency of our system, which will help reduce costs in the…

[Operator instructions]. Our first question comes from Julien Dumoulin-Smith with Bank of America. Your line is now open.

Good morning guys. This is actually Ryan Greenwald on for Julien. Thanks for taking our questions.

Good morning Ryan.

Good morning.

So after guiding to the lower end of your range for 2019, how should we be thinking about and how are you guys kind of framing growth into 2020, especially kind of given that you threw out this 4% to 6% long-term growth target now?

So the changes that we're expecting that were driving us to the lower part of our range should have no impact on 2020. And, as you know, we will be providing 2020 guidance on our February call after we close the books for the year.

Got it. And then in terms of the IRP process, and the RFPs, any color you can kind of provide there in terms of your early expectations?

Yes. I think we're working through the process. The IRP is focused on meeting the needs of -- for renewable energy and the desire across the state for accelerating the decarbonization of our energy supply. This is in line with Senate Bill 1547, and meeting or exceeding our proportion of the state's decarbonization goals through 2050. So we're going through the normal process of discussion and debate on the IRP. There's a lot of analysis that has been provided to staff and interveners and we're welcoming people's comments and just working through the process. We would expect to have an outcome in the first quarter, probably by the end of January.

Got it. But too early right now to tell us to handicap anything in terms of your ability to win generation?

Too early to tell. The other issue is, is that the IRP will just determine what resources we need. After that, we will follow-up with RFPs. The first is an RFP on renewable energy and that will launch in 2020 and then we're in discussions right now with capacity providers who are largely existing generators in the region.

Fair enough. And then, just lastly, in terms of the upcoming CapEx roll-forward, how should we think about the drivers and the puts and takes of upside opportunities relative to your current plan with the latest update and absent any generation opportunities?

So we provided an update in our capital forecast that includes about an additional $140 million in 2020 and then minor adjustments after that. That's really the forecast that we're providing at this point in time. We're really pleased that we're getting after some of the investments that we need to in our region for resiliency and reliability. And also as we see customer growth long-term, we have some additional infrastructure particular substations for new and growing customers in the high-tech manufacturing and digital areas.

Our next question comes from Insoo Kim with Goldman Sachs. Your line is now open.

Good morning, Insoo.

Good morning.

Good morning. Maybe starting with load growth, I definitely appreciate the fact that a lot of the changes in net load on the residential/commercial doesn't really have an impact given that the decoupling when you look at the amounts that the customers that do impact that, you're not really seeing any change in terms of the momentum towards the upside on growth in your area?

No, the primary drivers of the load growth change was really ongoing energy efficiency. We don't see any change in the key drivers around our industrial and commercial customers, in particular, large data centers, high-tech manufacturing continue to be very strong and on pace with expectations.

Yes. And we're also continuing to see strong customer count growth of up 1% in addition to we're seeing a bit more energy efficiency occurring in the commercial space same time.

Understood. And my second question, maybe more longer-term I know the Colstrip retirement currently slated for 2020 -- is slated for 2030. At which point or what kind of considerations and timing would you be thinking of in trying to decide whether that timing would be accelerated for potential retirement?

So as you can imagine in the Pacific Northwest, there's lots of discussions going on between Montana, Washington, Oregon, all related to the Colstrip plant. We currently are depreciating the plant through 2030 and continuing to have ongoing discussions around coal in our portfolio.

Our next question comes from Travis Miller with Morningstar. Your line is now open.

Just some more detail on that $140 million of CapEx. Can you break that down into not specific projects but maybe specific buckets of projects that you found more spending in?

Travis, the areas that we’re focused on where we've basically called them out in the script and it is -- we're seeing as Maria said more growth in large customers that's putting a significant increase there. We're seeing increase in resiliency work that we're doing inside our service territory as far as substations. And then we're seeing additional work just in the overall maintenance of the system itself. Those are the primary drivers in addition to the ones that we've identified previously, regarding the integrated operating center, the Wheatridge facility, and then the automated distribution management system.

Okay. Was anything related to any changes in your IRP or then the related RFP generation assumptions at all?

No.

No.

No. We have always taken the approach that until we know the outcome of an RFP; we wouldn't put any additional capital for those potential generating items that is.

Okay. Then a different subject you mentioned highlighted the debt refinancing, how much more capacity is there to refinance and what would be general estimate of interest cost benefit that you could get there in the next year or two?

Well, it really depends on how far interest rates are going to continue to go down because that created the opportunity for us to take that 6.75% out and to look at other tranches that we have. So all I can say is stay tuned and we'll watch it and let you know as things transpire. But we are looking throughout the company is turning every rock that we can find over in order to find opportunities to save money for our customers.

In general, our existing interest rate and debt portfolio is pretty good. We've enjoyed low rates for a long period of time.

Sure. Okay. And then just real quick on the Wheatridge, I wonder if you could give any kind of updates, in terms of where the project is right now?

So the project is currently, they're just about to break ground and start the civil work. There is a lot of engineering and procurement has taken place and we're on track for wind to go, be finished on the next year or so. And then, we will see solar and the battery storage come online.

Our next question comes from David Peters with Wolfe Research. Your line is open.

Just on the increased CapEx this quarter and what you did last quarter with the integrated operations center, how are you guys thinking about financing needs next year? Do you maybe foresee the need for any equity? And then just kind of related to that, how are you thinking about timing of an ex-rate case potentially?

On the financing of the CapEx right now, we're assuming that we do not need any additional equity to be able to do that, that we'll do it with cash from operations and from additional financing. So we will take on next year. Regarding the question of the next rate case we will let you know as we go through, when we start providing guidance for 2020 and 2021 and so on and so forth. Our goal is to try and stay out of a rate case as long as possible.

We're focused really on cost reductions in our operations and being more efficient, and being very mindful of customer prices.

Our next question comes from the line of Greg Reiss with Centenus. Your line is now open.

Good morning Greg.

Hey guys. Hey, how are you?

Good, thanks.

Just kind of looking into 2020, do you guys envision being able to earn your authorized ROE on just the average 2020 rate base that you guys will have next year?

Well, Greg, as you always know we've got that structural lag out there associated with costs that we're not recovering.

Yes. Thanks.

That's always headwinds for us.

Yes. But outside of the structural lag, which has kind of always been there, do you anticipate being able to earn the ROE?

Yes, we are anticipating that taking into account that structural lag that we will be able to.

Our next question comes from Gregg Orrill with UBS. Your line is now open.

Good morning.

Hey, good morning. What guidance updates do you expect to provide on the fourth quarter call?

We'll provide guidance for 2020 earnings.

So it will EPS, hydro wind, O&M costs, things of that nature, the typical that we do. And then any changes to the CapEx that we might have at that point in time.

[Operator instructions]. Our next question comes from the line of Vedula Murti with Avon Capital. Your line is now open.

In the California and in Pacific Northwest, we've been seeing environmental efforts being made to curtail natural gas. We’ve seen some states in California, city Seattle is considering an option -- considering a proposal. And, I'm just wondering, I've read a few things about such activities being potentially initiated in Oregon and specifically in Portland. And I'm wondering if you can comment about that? And two, kind of the opportunities that would over some time that would present itself to you should such curtailment of gas development materialize?

Certainly, Vedula. Good morning. There are a number of discussions going on at the county level, a variety of different cities in our area around climate and around admitting resources. As we know, electricity is the cleanest form of energy and we're engaged in all of these discussions. Some of them are relating to manufacturing, some are relating to heating, in particular buildings in our core of Portland. But I think more importantly for reducing carbon, there's a lot of focus around electric vehicles in our region. And we're engaged in a number of those conversations and have a terrific partnership with TriMet, our transit authority, as they transition much of their fleet to electric. They've announced their intention to convert two of their bus depots to all electric. They have got 90 electric buses targeted for their fleet right now and have; I think there are about 9 or 11 buses that are all electric today. Just this past weekend, we opened up our fourth electric avenue in the region and we continue to partner with a number of others in particular Daimler Trucks, who is building electric truck manufacturing in our service territory. So there's a lot going on with regards to this topic and we see opportunity for not only additional electricity, but also additional resiliency and the combination of how we use electricity through batteries and other storage. One thing you should also notice is that next June, Portland will be hosting the Electric Vehicle Symposium, the international, EVS 33 symposium will be here in mid-June, next year, so a lot going on in this area. Thank you.

Our next question comes from Kevin Fallon with Citadel. Your line is now open.

Good morning Kevin.

Good morning, hey how are you? I'm sorry if I missed it or not, but on the IRP, on the capacity need, it says in the release that you guys are considering putting in a benchmark resource, would that be a rate base opportunity or is that like PPAs how would that work?

It is to be determined at this point in time.

Okay. So it's not necessarily rate base, but it's also not necessarily rate base.

Agreed.

Correct.

Okay. And just some clarity on the O&M costs on the second quarter call I think you've raised the range by about $15 million and I think you highlighted that pull-forward of vegetation management for 2020 was part of it. Is it -- should we be looking at roughly that $15 million delta as kind of goes away in 2020 versus 2019.

No, I think we're going to see an elevated level of vegetation and wildfire management. And we are paying close attention to what's happening in California and there's a lot of lessons to be learned as to the challenges that they're facing. And so we are paying particular attention to our system to make sure that we will not find ourselves in any type of a situation that they're in and so a lot more due diligence. I think every utility is probably doing exactly the same thing.

We were pleased to see in the third quarter our O&M costs come down a little bit more in line with our expectations versus the higher levels we had in second quarter.

Can you give some color on where you're trending in the $600 million to $620 million range with one quarter left here?

No, not at this point, Kevin.

Well, right in that range. Operator I’m not showing any further questions.

Thank you. Looks like we don’t have any -- sorry, I did -- looks like we don't have any further questions. Thank you for joining us today. We appreciate your interest in Portland General Electric, and we look forward to seeing those of you who will be in Florida at EEI as well as those of you who will join us in February at our fourth quarter results and guidance. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.