00:04 Good morning, everyone and welcome to Portland General Electric Company’s First Quarter 2022 Earnings Results Conference Call. Today is Thursday, April 28, 2022. This call is being recorded and as such, all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. 00:47 For opening remarks, I'll turn the conference over to Portland General Electric’s Senior Director of Investor Relations, Finance and Risk, Mr. Jardon Jaramillo. Please go ahead, sir.

00:55 Thank you. 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'll be referencing throughout the call. The slides are available on our website at investors.portlandgeneral.com. 01:15 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. 01:41 Leading our discussion are Maria Pope, President and CEO, and Jim Ajello, Senior Vice President of Finance, CFO and Treasurer. Following their prepared remarks, we will open the line for your questions. 01:52 Now it's my pleasure to turn the call over to Maria.

01:56 Good morning and thank you, Jardon and thank you everyone for joining us today. Turning to Slide 4. For the first quarter, we reported net income of $60 million or $0.67 per share compared with net income of $96 million or $1.07 per share in the first quarter of last year. 02:14 To start, I would like to address the 2022 General Rate Case order issued earlier this week, which finalizes customer prices and resolves all remaining regulatory issues. Including power costs, customer prices will increase in average of 3.2%. The order also establishes an earnings test for the treatment of certain deferrals arising in 2020 and 2021. The application of these test resulted in the reduction of 2020 Wildfire and COVID deferral expenses. As such, we are reducing earnings by $17 million or $0.14 per share. 02:57 While we were surprised by the establishment of an earnings test for these items within the GRC rather than via separate deferral dockets. We -- the rate case and its entirety is positive with key elements that include our previously discussed 50-50 capital structure, unchanged 9.5% return on equity, and average rate base that is now $5.6 billion. And as you will recall, we filed this case last July with the revenue requirement request of $59 million, which was reduced the settlement proceedings. 03:37 Key aspects of this include the removal of the Faraday facility, as is now expected to be complete around the end of the year. Lower cost of debt to reflect our very attractive $400 million long-term debt issuance, increased load forecast and keeping the collection for Level III outages. All but about 5 million of these settlements were constructive, representing operational improvements and the delayed timing of the Faraday repowering. Ultimately, we achieved a $10 million revenue…

08:56 Thank you, Maria and good morning, everyone. Turning to Slide 5. Earlier this week as Maria mentioned, we received the OPUCs final order adopting all stipulations resolving outstanding issues regarding our 2022 General Rate Case. The order authorizes a price increase of approximately 3.2% overall. It authorized our previously disclosed capital structure return on equity in average rate base results. 09:23 The Faraday repowering project, which is not yet in service and will be covered by a separate rate proceeding. And we are now evaluating when and how we will pursue the recovery of this project. It was an update to our Level III outage mechanism, which now allows PGE to establish a balancing account, subject to a cap of 2 times the annual accrual amount. Further, it's included the elimination of our existing decoupling mechanism and the application of an earnings test to certain major deferrals, specifically the order authorize the application of an annual earnings test for the 2020 COVID, 2020 Wildfire emergency in the 2021 I storm deferrals, allowing collection of costs incurred related to these matters until PGE's regulated ROE reaches certain thresholds at or below our allowed ROE based on the regulatory calculation for these amounts. 10:26 Recasting the deferrals with the application of the annual earnings test resulted in the reduction of $15 million of previously deferred wildfire restoration expenses and $2 million of previously deferred COVID-19 expenses, which we have now recognized in Q1 of 2022 earnings. While the order was constructive in its tone, we were surprised that the commission disallowed a portion of costs related to this unique and unprecedented circumstances of 2020. 10:58 The final recovery of these deferrals will be adjudicated in the existing dockets and we will continue to work with stakeholders through prudency reviews to address…

22:19 Thank you, sir. Your first question is from the line of Insoo Kim from Goldman Sachs. Your line is now open.

22:38 Thank you, sir.

22:39 Good morning, Insoo.

22:40 Good morning, Maria. First question on inflation, I think it's just impacting the whole industry, the world right now, just as you think about whether it's labor or materials and whatnot? Beyond ‘22 any I guess insight right now as to how sustain those pressures could be, and depending on your view of that any initial look into whether the next rate case timing could be sooner rather than later?

23:10 So that's a great question and the adjustments that we made to this year as well as to this year's guidance, as Jim noted in his comments are really quantity of work related versus inflationary and they're focused in primarily wildfire and vegetation management areas. As we look farther out inflation, particularly because much of it is related to hard goods and construction is going to impact our capital costs more than will actually even impact our O&M cost obviously both will be affected, but we're looking more 2023 and ’24. And I think this is going to be with us for actually quite a while. We have been talking about this since that we got after our last February Ice Storm where we were confronted in March and April. I would particularly tight supply chains. And I think at every turn, it has gotten a little worse than we expected. 24:09 I would add to that a real focus on our RFPs that clearly coming in at higher cost than we would have thought, and clearly higher than our last projects we brought it to customer prices. And then finally, gas prices, we have a muted impact on our customer prices because of our hedging that we do, but longer term, you'll continue to see that much higher gas prices go forward as we move -- as we continue.

24:40 Understood. That's helpful. You've alluded to it, but on that RFP shortlist, let's see the schedule out there and your slides of -- will happen for the remaining portion of the year, just given the circumvention investigation that's going on and a lot of these this projects including solar in most of them. Do you see the potential for this process being pushed out a little bit. I know the actual in-service date is not until 2024 but gets us just in terms of getting more certainty around which projects are the ultimate winners just timing wise?

25:16 Sure. Hi, Insoo. It's Jim. So I think that's a very good question. That's entirely up to the PUC. The question now arises to what extent, or you can delay the process still hold these bids from get underway with them. You will note that in the schedule, you'll see a series of other types of projects not only solar, but wind and the battery capacity. There are some hybrid projects as well, they exists an opportunity for the reconfiguration of some projects to eliminate solar and just do the wind parts of the battery parts is a lot of permutations. And -- but supply chain is affecting every single one of them. There is no question about that. 26:03 So it really depends on what the PUC and its independent evaluator surmise about these projects. It also depends on whether folks are able to hold their bids and pricing and timing when we go about the process of negotiating with them in the second half of the year. So some of it is on the actual components themselves of the projects. As I mentioned in the remarks, these are larger sophisticated project sponsors, good track record has proven technologies. But nonetheless, there are some forces that are now impacting everyone's ability to execute. We've decided to take a build transfer approach in terms of a risk management strategy here, really to answer the kind of question that you're raising. So it all depends on -- all depends on what the PUC wants to do and how the project sponsors show up. I think there is enough time towards the end of 24 to get these projects and service in terms of the PTCs and the ITCs folks are going after to make the economics work. 27:19 But bottom line, it's too hard to call right now. We're just early on in the process. We don't know what the Department of Commerce investigation will yield in August at the first checkpoint. So there's a lot of uncertainty. I really want to stress that. There is a lot of uncertainty on how we go forward here. But at the same time, I'll conclude by saying this is just one of a series of processes that will be heading towards at the end of this decade, a series of procurement efforts that will have to complete. So in a way, we’re dollar cost averaging these goals towards 2030 and there is an opportunity here to redo perhaps two maybe three more RFPs as we get to the end of the of the decade. So that's the color I would give you Insoo hope that helps.

28:16 Yeah. No, that definitely does, I'll pass it on. Thank you.

28:20 Thank you, Insoo.

28:24 Your next question is from the line of Peter Bourdon from Mizuho. Your line is now open.

28:29 Hi. Thanks for taking my question. Just trying to understand the deferral situation a little bit better. Is the $17 million that is being released this quarter, is that related to a disallowance or an actual earnings test? And then going forward, how will the discretion with the commission work is that going to be on a quarterly basis or an annual basis?

28:53 So the disallowance that took place relates to 2020 activity. It is the entirety of our wildfire expenses that we incurred in that year. And it is about $2 million of the COVID expenses that we incurred that year. It's based on an earnings test of the regulated ROE, which is sort of a formulaic regulated, it's set of calculations and if you'll remember, we had our energy trading issues that year and we reduced our equity meaning that our regulated equity are popped up and so the -- well, it was a terrible year for the company. The mathematical calculations result in the write-off of those -- of that $17 million. As we move forward, the test will be applied on an annual basis, and it's for the wildfire and the Ice Storm deferral amounts.

30:00 Okay. Thank you. And maybe just to confirm, so the remaining amount I guess of deferrals is it created $71 million for the Ice Storm and then $23 million for the Wildfires?

30:11 Yes. That's schedules in that materials. Yeah.

30:14 Okay. And this is…

30:18 Peter I just -- Peter, it's Jim. I just want to make sure that we clearly answer your question, there is no disallowance per se, as a result of what you, may be thinking it was a prudency test. This is really about the, the operation of the formula around the regulated ROE, is that clear?

30:37 Yes. Thank you. And then just to confirm, this is a non-cash issue, right? It's really just impacting the balance sheet.

30:46 Correct.

30:45 It's a non-cash, right. Okay. It's a 2020 adjustment that we have to take now of course because we're reporting now.

30:56 Okay. And then maybe just one other last one, just on the PCAM, looks like you guys are showing in the benefit position of $10 million is yet, is that the amount that is baked into the updated guidance for the rest of the year?

31:11 Yes.

31:12 Yes.

31:14 Okay. Thank you.

31:19 Your next question is from the line of Ryan Greenwald from Bank of America. Your line is now open.

31:25 Hey. Good morning.

31:29 Good morning.

31:30 Good morning. Maybe just piggybacking off the deferral question here. How are you guys kind of thinking about treatment of any additional wildfire costs going forward given the decision by the Commission?

31:44 So the wildfire costs going forward are not subject to the earnings test. But we do have additional wildfire and vegetation management costs and those are reflected in our revised guidance for the year.

31:59 Got it. So it's really all just historical in terms of == the look at the earnings test.

32:06 Yes, which is one of the reasons why, you'll see we did not make an adjustment for 2021 and we don't expect to have an adjustment for ’22. However, let me just one note of caution, Jim did note that this was not related to any prudence review. We haven't gone through that step yet, which is one of the reasons why we were surprised that just became a two-step process.

32:31 Got it. And then, with rate case resolution, how are you guys kind of thinking about when you may revisit the longer-term growth trajectory. And this ultimately contingent on generation wins or is it something that you think you have enough clarity now you can maybe pivot to look at again later this year?

32:49 Ryan, I think that we need to see more progress on the company-owned assets in the RFP that's going to be the main driver here. We now have the rate case in front of us. So obviously able to model that in, but the other important variable is how we come out on the RFP. If you look at the schedule, there is a lot of variability here and as Peter was asking about earlier a lot of uncertainty around the timing on the resolution of the RFP. So, but that's really going to be our mix catalyst, I would say.

33:25 Got it. And then maybe just lastly, any reason in particular for including the deferral and operating guidance given it's more one-time in nature or non-cash?

33:35 We had a long discussion on that. And we could have gone either way, and there are pluses and minuses to either and we ended up showing it this way, largely because of the size and some issues around sort of accounting treatment and keeping it sort of all within, it all gets adjusted out anyway.

34:01 Got you. I'm sorry maybe just one more follow-up to that. Would you guys have reduced guidance if this deferral was excluded in adjusted numbers?

34:13 That's a good question. As we -- it all relates to how we interpret it and look through the order as well as the work that we're doing, as it relates also to the wildfire plan that was recently approved. So it's hard to separate it all of you as you look at it all coming from one Commission.

34:35 I'll add to something here Ryan to Maria's comment. If you take the additional part of the guidance that is reduced, other than the deferral amounts, right and you accumulate those, call it mid-point to mid-point about a 25% reduction. The question arose for us, how much can we absorb overall and keep the prior guidance. If we’re just one of those things or the other, we would say, we could manage that. But when you have the accumulation of those additional cost pressure is mostly additional volume and wildfire mitigation and the like plus, the deferral that got to be too much for us to absorb an offset. So it's really the accumulation Ryan that caused us to move in that direction.

35:23 Good point.

35:24 Got it. Thank you very much for the time. I'll leave it there.

35:28 Thank you.

35:29 Thank you.

35:31 Your next question is from the line of Shar Pourreza from Guggenheim. Your line is now open.

35:37 Good morning, guys, it's actually a Chan (ph) for Shar. Thanks for taking our questions.

35:42 Sure.

35:43 Thank you.

35:43 So just on Faraday, is there an option to pursue limited issue guide or just have to be the next GRC?

35:51 That's what we asked for. And we have done that previously in the past with a very complicated system connected to our Pelton/Round Butte facilities, but that was not the decision that was ultimately made. So we will be either file a single issue rate case or a regular rate case.

36:13 Okay. Then if you mentioned a subpoena from the Department of Forestry, can you provide any color on what they’re looking at there?

36:21 No, I think that goes way back to when we had the wildfires and just some information that they were seeking. There is nothing active at all on that. I think it goes back to September of 2020.

36:35 Okay. Thank you.

36:37 Thank you.

36:39 Your next question is from the line of Sophie Karp from KeyBanc. Your line is now open.

36:46 Hi. Good morning. Thank you for taking my question. I'd like to go -- drawback real quick to the deferral issue, right. So if I'm hearing correctly what you guys are saying, is that the earnings test, the early test was applied this one-time and because of the way the formula rewards from very clear, it was an optically higher ROE. So this is why you've got this, you have to effectively removed deferral, right. So there is no proactive application of this prospective application of this or instead? Can you give us a little bit more background on legal basis for the early test in the first place. Like, what would stop the commission from decide into applied again next time you come for rate case for example, it seems little arbitrary is that like because it's always been a part of their thinking process or is it the one-time issue for some reason, like what is the legal kind of foundation of all this?

37:47 That's a really good question. And obviously their standard with regards to prudency reviews and just in reasonable rates, periodically, but not in every circumstance. There commission has discussed and has applied an earnings test. We have it in some other areas that are pretty minor. We've not seen something like this as broad as this one was, particularly on events that have been disaster related. And in the testimony, there was a discussion by the Commission, with regards to sharing on this, which is why they also put the earnings test, not at the 9.5%, which is where allowed is, but at 9.3%.

38:39 So, technically, they could potentially do it again in the next rate case?

38:43 Yes, they could.

38:45 Okay. Fair enough. And now on the RFPs, a couple of questions I have there. So I guess, the word driven has changed significantly between January 21 when the bids were maybe processed and today, given the all of the evolution of supply chain and solar regulatory landscape and all of that. Is there a scenario where some of those RFPs would need to be rebid?

39:13 Can you repeat, Sophie, the last part of the question.

39:15 Is there a scenario where some of those bids would need to be revised like the bidder would have to come with a revised bid and do it a low again?

39:25 Yes. Quite clearly, because when we're negotiating with the bidders, including relative to our own bids across the Chinese wall, so to speak, all bidders will be treated the same. It will be asked to confirm their pricing and their schedule and so we want to make absolutely sure in this scenario, given the headwinds that you talked about, everybody is firm and is committed before we signed contracts.

39:57 Sophie, technically speaking, the terms of the RFP were to submit binding bids and that is fairly clear from both the instructions from the company, but also the independent evaluator and it's -- it would be common practice for firm bids to be submitted. But that does not mean that you've had all of the contractual terms negotiated.

40:23 So what is the process then if, I would say a, a bidder from a shortlist is unable to live up to the commitment of the , like what's the process with the commission like, do you go back to square one or kind of go through the process again to recompose the short list et cetera., or is that going to a different process there?

40:43 It may be the case that some bidders are not able to perform and they drop out and that's going to be up to them. So, but as your first question implied, we will have to make sure that they are confirmed. Maria said those are the bidding rules, but considering the environment that we're in, there is a lot of fluidity here, right, both and in terms of pricing schedule. So that's why we're going to make sure that our folks can, at the end of this process, while we're negotiating contracts look to their commitments. Some of them may not be. And you noticed the schedule in the earnings release there, there is 8,000 megawatts not unique megawatts, I want to stress that, but 8,000 megawatts of proposed and 3000 megawatts of capacity and the goals, as you may recall, are about 500 and 375 respectively. So there's a great deal of oversubscription here and a great deal of permutations. 41:50 So I think we go into this process in the second half of the year with, with some opportunity for both folks to come forward but there are also maybe some scenarios where some drop out. We'll find out and that's what this next phase is all about. First of all, the PUC with the help of its independent evaluator has to confirm the shortlist, right. That's job number one. So there's still a funnel here that we have to go through, and then we'll get to the phase of dealing with the issues that you just talked about. I would say in the summer time starting in July.

42:28 Got it. Just to be clear. Are you one of the bidders here in the list from A to H? Are you one of them?

42:36 Yes. So I can't tell you about the specific ones that we represented what they are, but you'll notice in the schedule there is a list of company-owned megawatts on that right hand column of Appendix A, and that's for the resources, the generation resources. And then, there are company-owned resources for the capacity side on the bottom of the page. So the answer is yes, but you have to look at the calendar for the schedule to determine which.

43:08 All right. Thank you.

43:11 Sure.

43:11 Thank you.

43:13 Your next question is from the line of Travis Miller from Morningstar. Your line is now open.

43:24 Good morning. Thank you. Not to beat on this deferral thing, so if I could go back real quick here, you said that there, it wasn't a disallowance and real potentially prudent. Is there a prudency review going on and would that impact the future collection of these, the 2020?

43:47 Yes. Travis, there are dockets set for a prudence reviews of each of these. It would be our hope that we could move through that this year, but that absolutely will continue to take place. So, yes, that that's why we were concerned and surprised that there is sort of two passes at this.

44:08 So, Travis. I'll just give you the numbers, just to make sure it's clear. So we began with the balance at the end of March before this order as it were at about $190 million. This change in the deferral balance given the earnings tests puts us at about $173 million that's to $17 million difference. And so there'll be a prudence review as we go forward on those on that balance.

44:38 Okay. On the 173, then the 17 has gone. Okay. Regardless of processing (ph). Okay. Got it.

44:43 Then Travis, one of the things you should know that we're working collaboratively and pretty much on positive signs on all fronts with stakeholders, the PUC and others for securitization. And so it would be our hope that the costs, you've just talked about would -- while they represented extraordinary circumstances and significant natural disasters that they would not have too great of a burden on customers in any one period, but represents really the 150, 140 kind of time kind of events that these were.

45:24 Sure. Okay. And then…

45:25 There's first of their kind.

45:27 Sure. Yeah. And then on 2021, did I hear the number $71 million for the Ice Storm 23 for the wildfires. Was that -- for those look like now?

45:39 Let me just, the balance at the end of March, but after adjustment went from $53 million on wildfire to 37.8 to be particular that's $15 million numbers and then the COVID pandemic one begin at just under 38 and is now at, call it 35.

46:02 Okay. And so for 2021, but knowing what you earned right would -- are those still of a helpful, I guess the recover right because you already, what you earned in 2021, correct?

46:18 Yes. We applied all the same math to 2021 as we did to 2020.

46:22 Okay.

46:25 And I think we have to also remember in 2020, we had the unique and very challenging experience with our energy trading losses, which we took accountability for and expense through the P&L and through the equity section of our balance sheet.

46:39 Just to put a fine point on this. We did the earnings test that is addressed in the order for 2020, 2021 and of course, the forecast for 2022. So that we did a thorough year-by-year look as is required here and the result is what we've talked about that $17 million. And so there were no regulated earnings that we're sufficiently triggering the earnings test in 2021. That was your question, 2021.

47:13 Yeah. Got it. Okay. And I appreciate all the technical stuff here. One higher level, the wildfire mitigation plan that you got approved. Is there any CapEx that might be added to your plan from that to your CapEx plan for the 20 23 and beyond?

47:32 Indeed, there is. There is a fair amount of CapEx but also O&M as well in the plan, speaks to growth elements of expenditure. I don't have that right before me. But it's been filed and shall I say blessed accepted by the PUC and we're obviously implementing it. We're sort of on the heavier and of that right now without putting too fine a point on it. You get ready for the season as it were in the first half of the year, right through May and June, because that's when the risk develops, of course, in the summer. So we're -- so expenditures are more skewed as we speak right now.

48:15 Okay. Would there be upside to that 650 average number or is this wildfire mitigation by not just for this year in terms of the CapEx?

48:25 No, it will go into next year as well and we'll go into the year after that as well and onwards. This is a permanent part of our business.

48:33 Right. And it's important part of risk mitigation, I would say. So we've incorporated this as an ongoing program of risk mitigation.

48:45 Okay. Great. Appreciate you taking all the questions in time details.

48:51 Thank you.

48:51 Thanks, Travis.

48:54 Your next question is from the line of Aditya Gandhi from Wolfe Research. Your line is now open.

49:00 Good morning. Thanks for taking my question. I just -- could you quickly clarify, so on the 2021 deferrals, the $71 million for the Ice Storm and the $73 million for the Wildfire. You already applied the same earnings test to 2021 and then your forecast for ’22. And there should be no hit to what I'm trying to get to is, there should be no hit ‘23 numbers from any deferral reductions, right? Could you please clarify that?

49:39 I'm not sure you went from ‘21 to ‘23 in between ‘22 so can, maybe you can help me understand where you're focused, but I'll just offer of what I said previously, we've done extensive work around the earnings test for ‘21 and there is no exposure there in our view and that sort of deferrals are probable with collection based on the test that we had to perform. Does that help you the detail.

50:08 Okay. It does. That's helpful. Thank you. And then, just how should we -- given these deferrals and given the elevated inflation that is looking like it's going to persist well into the year. How should we think about the 4% to 6% long-term EPS growth rate that you have?

50:37 Yeah. So as we think about it, we recognize where it is in the context of the industry and where it is in the context of our overall growth. As Jim noted, we are -- we look at it regularly. But we are waiting to see the ultimate outcome with regards to the RFP projects. That's an important component of our company in terms of decarbonizing our energy supply and we -- there is a lot of uncertainty here and we need to go through the process, which will take much of the year. Jim, anything you want to add?

51:11 No, I just actually I'm thinking about your prior question Aditya. And there is no 2023 impact due to the earnings test. I just want to make sure you're aware of that I think you were trying to get me there, but I'll probably skipped over your question. So just to be clear, no 23 impact in the earnings test.

51:33 All right. That's exactly what I was getting to. Sorry, I should have been more clear. Thank you. That's very helpful. Thanks, Jim. Thanks, Maria.

51:41 Thank you.

51:42 You're welcome.

51:45 Your next question is from the line of Nicholas Campanella from Credit Suisse. Your line is now open.

51:51 Good morning.

51:52 Hey. Good morning, everyone. Good morning, thanks for getting me on here. And I know I came on late, so I'm sorry if someone already asked, but I'm just curious, there is clearly a lot of renewable opportunities in your service territory driving some outsized capital needs recognizing just kind of the balance sheet being where it is because of the legacy trading loss. How do we kind of just think about growth equity versus balance sheet fixing equity if, if at all, that if you do need it and any timing around that? Thank you.

52:27 Yeah. Jim will take it.

52:28 Yeah. Thanks, Nick. So quite clearly, I would say, this is a growth equity story. We will and the process of sizing the future growth opportunity take into effect what you've identified here as a balance sheet matter, but I will tell you that it's, as I look at the opportunities in front of us, it's most of growth equity story. And we'll be efficient and very thoughtful in our execution around that as we, as we eventually get into the market. So, but I want to find out what the real opportunity is, as you can see in the schedule today. There is a fair amount of opportunity listed. However, it comes with a great deal of uncertainty, just because of the macro environment that we're in, but supply chain inflation partners equipment vendors and the like. So I want to nail that first, and then look at the balance sheet and come to the market efficiently.

53:34 Yeah. Okay. Definitely respect that. And it has been some time since you kind of just updated us on the actual kind of growth rate and rolling it forward for just another year. So when can investors expect to see that?

53:50 Well, I think it will depend on the RFP results, right that is I mentioned earlier on the call that, that would be the catalyst for doing that.

54:00 Sorry to miss that. Thanks for the time today.

54:02 You're welcome, Nick. Take here.

54:04 Thank you.

54:06 There are no further questions. Presenters please continue.

54:11 Okay. Thank you very much for joining us today. We appreciate your interest in Portland General Electric and we look forward to connecting with you one-on-one in the future, as well as the conferences and then our next quarterly conference call. Thank you.

54:31 And with that, this concludes today's conference call. Thank you for attending. You may now disconnect.