Paul Fremont - Ladenburg Thalmann & Co. :

Good morning, everyone, and welcome to Portland General Electric Company's Fourth Quarter and Full Year 2024 Earnings Results Conference Call. Today is Friday, February 14th, 2025. This call is being recorded, and as such, all lines have been placed on mute to prevent any background noise. After the speaker's 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 Manager of Investor Relations, Nick White. Please go ahead, sir.

Thank you, Martin. Good morning, everyone. We're happy you could join us today. Before we begin this morning, I would like to remind you that we have prepared a presentation to supplement our discussion, which we will be referencing throughout the call. The slides are available on our website at investors.portlandgeneral.com. Referring to Slide 2, some of our remarks this morning will constitute forward-looking statements. We caution you that such statements involve inherent risks and uncertainties, and actual results may differ materially from our expectations. For a description of some of the factors that could cause actual results to differ materially, please refer to our earnings press release and our most recent periodic reports on Forms 10-K and 10-Q, which are available on our website. Turning to Slide 3, leading our discussion today are Maria Pope, President and CEO, and Joe Tripik, Senior Vice President of Finance and CFO. Following their prepared remarks, we will open the line for your questions. Now it is my pleasure to turn the call over to Maria.

Good morning, and thank you all for joining us today. In 2024, we experienced solid growth from new and returning customers, enhanced our operational reliability and resilience, achieved strong safety performance, and made significant investments in clean energy resources and battery storage. We delivered four quarters of strong financial results, and overall a solid 2024. I'll start by summarizing our results, which you can find on Slide 4. For the full year, we reported GAAP net income of $313 million or $3.01 per diluted share and non-GAAP net income of $327 million or $3.14 per share. This compares with 2023 GAAP net income of $228 million or $2.33 per share. Non-GAAP net income of -- excuse me, $233 million or $2.38 per share. For the fourth quarter, we reported GAAP net income of $39 million or $0.36 per share compared to the fourth quarter of 2023 of $68 million or $0.67 per share. These results reflect our sustained growth on -- and focus on operational excellence and top quartile customer demand. 2024 weather-adjusted energy usage increased 3% compared with 2023, again, led by semiconductor manufacturing and data center customers, driving industrial growth of 11% year-over-year. With high tech and digital customers continuing to invest and grow, we are increasing our long-term customer usage growth expectations from 2% up to 3%, weather-adjusted through 2029. Given these solid fundamentals and our focus on operating cost reductions, we're issuing 2025 earnings guidance of $3.13 to $3.33 per diluted share and reiterating our long-term dividend and EPS growth guidance of 5% to 7%, using a base of $3.08 per share, the midpoint of our original 2024 guidance. Turning to Slide 5. Execution was our imperative as we began 2024. While January last year started with historic winter ice storms that brought nearly 0.5 million…

Thank you, Maria, and good morning, everyone. Turning to Slide 6. Our solid result reflects continued demand growth, improved power cost conditions and strong operational performance throughout the year. Overall, our region experienced milder weather compared to 2023 with heating degree days and cooling degree days declining 5% and 16%, respectively. 2024 loads increased by 1.3% overall and 3.1% weather adjusted compared to 2023, exceeding our 2% to 3% expectations. Residential load decreased 2.8% year-over-year but increased 0.5% weather-adjusted. Residential customer count increased by 1.7%, partially offset by energy efficiency and distribution energy resources, driving lower usage per customer. Commercial load decreased 2.2% year-over-year or 0.9% weather adjusted, driven largely by continued energy efficiency and the industrial class continued to experience significant growth in 2024, notably from our data center and semiconductor customers, industrial load growth increased 10.3% or 10.7% weather-adjusted from 2023. I'll now cover our financial performance year-over-year. We observed a $0.14 increase in revenues, primarily driven by the 1.3% increase in demand year-over-year, an increase in power cost to $0.68, driven by $0.04 increase due to power cost performance in 2023 that reverses per comparison and a 64% increase from favorable power cost conditions in our region and derisking actions taken by our team, which drove lower power costs than anticipated in our annual update tariff. Increased renewable and battery integration and hydro availability drove market stability and lower market prices through Q3. This was partially offset by less favorable market conditions than anticipated in the fourth quarter. A $0.04 decrease from higher O&M, depreciation and interest expenses, net of improved recovery and deferral related items, driven primarily by increased maintenance costs and wages and higher asset and debt balances to support the ongoing capital investment, a $0.02 decrease from other items, including higher property taxes, partially…

[Operator Instructions] And our first question comes from the line of Julien Dumoulin-Smith of Jefferies. Your line is now open.

Good morning, team. Thank you guys very much for the time. I appreciate it. Nice to chat with you guys. Nicely done here. Top of the morning to you guys. Maybe just focusing first on the bigger priorities here. Obviously, you've got this wildfire effort here in front of you this coming year. And obviously, you've been building into this for some time. Can you speak maybe one, how the nature of what's happening in California has maybe shifted or evolved any of the dialogues in the state? And then secondly, if you could frame how you envision this coming together and kind of a belt and suspenders approach, you obviously talk about creating sort of a wildfire backstop to our fund. How would that work as far as you're concerned in an effort to try to draw analogs from California in a similar scope of what you would imagine coming out of this year looks like? Just what are the conversations looking like at this time? Obviously, you've been spending your -- spending quite some time building this together. What is that starting to look like in a more tangible set if you can?

Great. So thank you, Julien. First of all, I want to just remind us that the wildfire work that we're doing in the legislature at both the state and the federal level, really builds upon the work that we've been doing, as you noted, over multiple years at Portland General. We have a very advanced wildfire mitigation program. We filed our plans with the Oregon Public Utility Commission, our 2025 plan was filed at the end of December this year and really focuses on the hardening of our system, the prevention, the detection and the overall risk mitigation through power safety shutoffs as well as other programs. We are also working with the state legislation in three main areas. The first one is a standard of care based on the plans that I just talked about and the approval of those plans. We work extensively with first responders and folks across the state as well as across the entire West who are experts in wildfire prevention in developing those. Second, the creation of a backstop fund to support the timely resolution and recovery for wildfire victims. But to do this, Julien, as we've learned in California, we have to have limitations on liabilities. That's a really important aspect of any fund. And you can see that in the legislation that has already been passed in Utah and is being discussed in many other states. At the federal level, what's happening in California has also catalyzed and focused on the need for further work. And there, we're working to address and expedite permit authorizations to do work on federal lands. And just to remind you, more than half of the state of Oregon is owned and managed by either the U.S. Forest Service or the Bureau of Land Management. Second, we're enabling invest around utility electric customers to have access to FEMA assistance in any time of disaster. Third, that federal liability reforms and then for the creating a voluntary federal backstop, so there's a lot of work going on, increased momentum and focus as we see some of the tragedies not only in Southern California, but in other parts of the country.

Got it. Excellent. And then maybe just to pivot more to the more tangible here on cost structure. Obviously, you've laid out some degree of detail here on your initiatives. And in some response, I imagine recognizing some of the feedback in the last quarter here. Can you elaborate a little bit on what you're seeing out there in terms of relative rate lag? I mean how would you frame that this year in light of fee side and then more prospectively, given the higher sales growth in O&M, can you speak a little bit to kind of maybe more structural lag, if there's any shifts in that as well as if there's anything else that we should know about given some of the commentary around the case in O&M specifically in last quarter?

So first of all, we are very fortunate to be in a part of the world that has tremendous growth. We've just increased, as Joe and I noted in our prepared comments, our long-term growth rate from 2% to 3%. This is really driven by semiconductor manufacturers' data centers and the reshoring of regular manufacturing into our service area. We just had growth year-on-year of 11% of that sector, and that remains a key driver as we move forward. But equally as important is realigning our cost structure. Looking at all of the cost of how we do our work, ensuring that we are meeting our customers' needs as efficiently and effectively as we can and also ensuring that our programs are all aligned with those outcomes. Let me let Joe talk with you a little bit about the extensive work that we're going to be doing in 2025 around our cost structure.

Good morning, Julien. To your comment, part of what we're doing in 2025 is to try to reduce that structural lag. As we realign to the rate case outcome, we've taken a really hard look honestly starting in 2020 -- mid-2024 forward at how we work within our distribution ops, our IT functions, our digital tools, our support and really looking at realigning our cost structure here to continue to put what we'll call downward pressure on that structural lag. I mean there are certain items when you deal with the short term within the rate case that create structural -- some structural lag, but we're really focused on this long-term compression of our performance against the regulatory recovery. So I mean that's why you'll see if you look to 2025, our earnings guidance range, you'll see is lower than -- the midpoint of that range is lower than our actual performance last year. When adjusting for regulatory and other type of items, you see a pretty small relative increase that we're expecting from our cost structure as we manage forward.

So we made are committed to making up for the 16 basis points that we've seen in reduction and ensuring that we continue to deliver on our growth prospects.

Excellent. And that's a lot. Kudos on the cost and good luck the session, speak soon.

Our next question comes from the line of Richard Sunderland of JPMorgan Securities. Your line is open.

Good morning. Thank you for the time today. Picking up on the O&M dialogue from the last question. Just thinking about the durable long-term outcomes you referenced in the script, is there any way to sensitize this potential on a, say, three to five-year basis?

Sure. I mean, I think, Richard, to that, I mean, the way to sensitize understanding for us, you have to peel out some -- there's some regulatory spend like wildfire in that. I mean I would sensitize it that using our cost structure going forward, some relatively low single-digit growth rates off of what is the adjusted our 2025 range. I mean that is -- our goal is to challenge our cost against inflation. But it's important is what you laid out, this is about being methodical, it's about durable. This isn't about chasing any individual thing. It is about structurally changing how we do our work while continuing to safely effectively, reliably serve our customers and continue to improve on that. So I mean this is a -- is a programmatic move as opposed to what I'll call it, reactionary what we're trying to do.

Got it. That's very clear. And then touching on overall regulatory strategy after the last rate case. How are you weighing the timing of another rate case, the Seaside options? And then I guess, against these O&M efforts as well. I know you said you were evaluating what to do with Seaside, but could you speak a little bit more to how you're balancing those different considerations and when you might have an update across all of that?

Sure. And Richard, we're working through these issues of whether we focus on sea side is a single regulatory item or whether we take a more comprehensive approach to recover the battery storage project as well as other capital.

Got it. Thank you.

Our next question comes from the line of Shar Pourreza of Guggenheim Partners. Your line is now open.

Good morning. Just a real quick follow-up on Julien's question. If there was some sort of a fund established would you be open at this point to structures that require equity contributions from the company? I couldn't give a strong sense there?

Good morning, Shar. Joe Trpik. So I think the answer is yes. I think what's critical to your openness comment is addressing standards of conduct framing the liability side of the equation. But I mean, we've taken in a bundle there, that -- there's value to that risk reduction, both for the customers and for others, and we think that would be a worthwhile investment. I think also it's important you would expect something like that as an overtime kind of item.

Got it. And then I just want to piece some of the data points that you guys were kind of touching on, but I'd like to just -- I guess as you guys talk a little more on the plan, the different facets. I guess, where do you see yourself, I guess, trending within that 5% to 7% through the planning period? And any kind of considerations we should be thinking about from a year-over-year variability, what does the guidance that from a rate case timing? And then Joe, just specifically, I want to make sure I'm crystal clear. On the '25 guide, do you assume you get the tracker for Seaside after the June completion? Thanks.

Yes. So overall, to your kind, where we sit in the range in that 5% to 7% range, and I think I've mentioned this before that in a year where we do not have meaningful investment in RFP. So take for example, right now, 2025 would really would spell that out. We would expect to be on the lower end of that range. To the extent that we have a period where we are modestly performing within the RFP, we would expect that we would push ourselves towards the higher end of that band. I think you can see that a little bit in the last couple of year cycles that we have. To your -- specifically to your Seaside question, because the offer from the commission is somewhat unique at this expedited process for this battery, we had even though we have not decided what we're going to do, we have designed a plan that does not include a recovery of Seaside because of its uncertainty. So our cost management program, the structure that we are working through our guidance here assumes that we -- a 0 for right now on Seaside, not because we're not -- to seek recovery, but just the uncertainty of it. And by the time you would have clarity on it, certainty would be relatively late. So planning with it in would might be probably too optimistic of what we're doing. So we want to make sure that we have numbers we can execute on with or without it.

Perfect. And then just real quick, lastly. With wildfire that process working itself through, any sense on timing, Joe, as far as the holding company structure, is it still -- let's get through the wildfire process and then we can look at the hold co. Is that this year kind of catalyst? Is it a next year catalyst, where are we in that process? Thanks.

So we continue to evaluate here, and we're reading as the legislation starts to evolve, I mean, I think we're taking a serious hard look on the time when we'll address the whole call here. We think the having that action out there is important to drive financing flexibility for us to manage our costs for our customers. But I fully, we're going to take some form of action this year. I think we're down to just measuring months here. And we'd like to have a few more facts in front of us before we're tight, but we think it is an important item to take a run at this year.

Okay, perfect. Lot of good moving pieces. I appreciated guys. Thanks.

Our next question comes from the line of Mike Lonegan of Evercore ISI. Your line is open.

Hi, good morning. Thanks for taking my question. So going back to the Seaside tractor, you said you're still evaluating a potential filing. In the written order in the GRC, the commission mentioned that in order to grant you a tracker, they may want a commitment from you not to file a GRC for a certain period of time. I was just wondering your thoughts on committing to this and what kind of timeline you would commit to before the next rate case, if you were to make this tracker filing?

So we have -- that's obviously out there as is the request by PUC staff to engage in discussions on multiyear regulatory solutions. And so we're taking all of these things into consideration to hopefully end up with a more durable place for the company as well as for staff in PUC.

Got it. Thank you. And then on the equity issuance plan, you reiterated $300 million in '25 and '26 and continue to mention tapering off in '27 and beyond, consistent with your prior outlook. I know you've talked about monetization of renewable tax credits to mitigate needs. Just wondering, what are your latest thoughts on equity needs beyond '26 and the FFO to debt metric you are targeting?

Yes. So as it relates to beyond '26 exclusive of the RFP or some of the other equity items that we discussed here. We continue to have a focus to maintain our cap structure at about 50-50. If you take this capital plan for a few years after '26, you get to -- you have an equity plan that is relatively low to mid-hundreds understanding it rounds by year. But your initial focus here is to continue to maintain the strength of the balance sheet and then allow that strengthen the balance sheet to drive our credit ratings going forward. I mean we have commitments on budget size between just how one we want to operate the business, how we are involved in our rate structure and then just how the strength on the credit metric side. So we'll focus on just constantly, re-upping that to just really maintain it within that range. So I mean really, we've had no change here just because I mean we're trying to be clear and consistent over time on what our equity needs are. And that -- I'll stop there.

Great. Thanks for taking my questions.

Our next question comes from the line of Nicholas Campanella of Barclays. Your line is now open.

Good morning. Thanks for taking the time. I just wanted to clarify on the comments around being at the high end of the 5% to 7%. I think you kind of said that if you have like a meaningful RFP addition kind of put you there and in the prior update, you kind of gave like base rate base growth of 8%. And then I think for the upside opportunities, it was roughly 10% CAGR. What's kind of like the new refreshed RAB metrics with this new outlook you're presenting today that kind of ties you to that high end. Thanks.

Sure, sure. So our -- back in the materials that got published this morning, we did update that rate base growth slide. The rate base slide will now show that range of 7% to 9%. It showed 8% to 10% last time, but that isn't -- there isn't really a change in the trajectory of what we're doing. It's just regulatory. First of all, when we rebased the earnings, we rebased that chart and honestly just cutting '22 and '23 off slightly changed the trajectory because there was a fair amount of movement between using that '22 pillar. And then secondarily, some small items regarding the treatment in this last case regarding the ITCs, being against rate base has shrunk those numbers a little bit. The fundamentals are there, right? The earnings trajectory holds. It's just a slightly smaller rate base growth due to those mechanics.

I think it's important to recognize that the additions to our rate base projections are almost exclusively in the transmission area. We've utilized all of the excess transmission across the region, and it's really important that we invest not only in our existing rights of way and in our service territory, but in adjacent areas to our service territory with regards to transmission as well as broader across the Pacific Northwest. We should recognize that on the rate base growth laws and the capital forecast, the RFPs, the competitive bidding processes as we go out further years are not reflected in those numbers.

That's reflected in the base numbers. Obviously in the base numbers.

In the base numbers.

Sorry if we missed that. I appreciate that. And then just common equity ratio. I think in the K is 45.6%. And I know you're working to get back to the plan, but just how are you framing the cadence of improvement through the plan at this point? Is it 50 to 100 basis points a year? Or just how should we think about that?

I mean, I think we should -- by '27, so between '25, '26 to '27, we expect that move upwards to be in the range. Understanding there's a couple of different calculations the way you see it there on the financials and the way the OPUC does it. But it should be relatively methodical to our brings trajectory in our equity needs here. But I mean it should be a consistent move chunk wise between now and '27.

Okay. Thank you so much.

Our next question comes from the line of Anthony Crowdell of Mizuho. Your line is now open.

Good morning, Maria, good morning, Joe. Just a cleanup from Julien's question. I was wondering on the structural lag, and I may have missed the number, so apologies. Are you able to tell us what structural lag the amount and maybe basis points that you experienced in 2024? And then where do you think that lag could potentially be at the end of your plan?

So I believe if we take 2024's performance from an accounting basis, we had about a 70 basis point structural issue between earned and allowed and what we plan to do, and we haven't assigned Anthony, to that, a dollar amount, but we plan to throughout cost management and just our structure to squeeze that 70 basis points lower as we work forward. And we'll -- honestly, it's going to take us a bit of time, but that is -- we're hoping to use that as we're a high watermark for where we are on that lag and readjust from there.

Got it. But you didn't -- you haven't quantified where you think you could end with that of the plan. Is that correct?

Not at this point, what we've quantified so far is really that earnings guidance on where we'll get O&M range-wise, and then we'll build from that.

Great. And then just if I could follow up on some of the wildfire question. I think one of the issues or long term. I mentioned about the limitation on liabilities. Do you think this could be achieved in this legislative session in 2025? And if you wouldn't mind, I don't know the Oregon legislative session. What's the time -- like when did it start, when it ends?

Sure. Well, we have three areas of focus, as I mentioned, in the Oregon legislature and we are very optimistic and working diligently with parties. Bill will be submitted probably in the next two weeks, so you'll be able to see them publicly in this session ends in June. But we remain optimistic we're going to work hard, but I would not underappreciate. This is tough and it may take two sessions.

Great. Session starts in two weeks -- or the bills may be submitted in two weeks and this session ends in June.

Session has already started. Bills will be submitted within the next two weeks by representatives who we are working diligently with on wildfire and session ends in June.

And last, just does the session happen every year? Or it's one of those where every other year they meet? Every year?

Every year, they meet. This is a long session. Next year would be a short session.

Great. Thanks so much for taking my questions. I appreciated.

Our next question comes from the line of Paul Fremont of Ladenburg Thalmann and Co. Your line is now open.

Thank you. Congratulations on a good quarter. My question, I guess, following up on Anthony's question in terms of wildfire legislation. Are you looking to essentially replicate what's in AB 1054 or are you looking for something that's different than that?

So we're looking for a combination of what you can see in Utah and in California as well as talking with other states about the active work that they're doing, many -- almost every state in the West currently has wildfire legislation discussions ongoing. And so we're looking at what is best practices and what is doable within this data of Oregon and will reflect the continued investments that are needed by the utility into the system and the risk reduction of something catastrophic.

And then as has the state or have the parties sort of come up with a number potentially for the backstop fund that you're talking about?

No, we have not. And there's a lot -- we clearly need to have an established set of prudent utility practices based on the wildfire plans that we have been submitting and most recently submitted for 2025 to Oregon Public Utility Commission. We'll also need to make sure that we have some balance around limitations on liabilities. We already have some precedent of that Oregon state law. So we'll need to make sure that we are able to have a fund that is actually investable and durable.

Okay. And then the limits of liability would they apply to just regular negligence, gross negligence. How -- would they just be absolute limits on liability? How should we think about sort of?

Give do have a negligence standard within state law, and we're working through all of those details right now.

Okay, great. Thank you.

[Operator Instructions] Our next question comes from the line of Travis Miller of Morningstar. Your line is now open.

Thank you. Good morning. I'm interested in a little more on the federal initiatives. With the new administration, what are you either hearing or anticipate hearing in terms of changes in tone relative to any kind of wildfire mitigation. It seemed like the last administration wasn't too interested in doing a whole lot to help at the federal level. Wondering if that's changing at all that you hear or anticipate hearing?

Sure. Well, first of all, there's a lot of discussion on the Hill with regards to concern over wildfire, and we're working with a variety of parties, many of whom have extensive personal experience either in the forest products industry or its firefighters themselves. So we're really encouraged. With regards to the administration, it is just too early to tell. We're clearly all hearing a lot of things out of the administration, and we look forward to working with them. I do believe that there is recognition that we need to proactively manage our federal for us to reduce the risk of wildfire across all states, but particularly in the West.

Okay. And is there -- would you anticipate any kind of conflict, either legislative or political conflict between what you're doing at the state or what might develop say within in Utah or within California and what you're trying to initiate at the federal level?

So we see these efforts and as do other utilities doing similar work within their states as very complementary to what would take place at the federal government. I also want to make sure that we recognize that energy security and the integrity of the electric system is also national security. So I think we're highly aligned at the federal level and the actions that we are taking in Oregon as well as other utilities are taking in other states are aligned with all of these objectives.

Okay. That makes sense. We're good. And then one other real quick one. How do you think about power costs with your now updated demand forecast and then thinking about wrapping in the projects in the RFPs which have very low variable costs in there? How do you think about total power cost development over the last next few years?

So, Joe mentioned this, and you can see in our forecast that we're actually seeing a near-term moderation in power costs. I think the battery storage that we've seen implemented by ourselves as well as other utilities across the West, particularly in California and Arizona is having an impact. We're seeing continued growth in renewable energy projects and being able to leverage the hydro system to balance all of these things that's been long been a part of the Pacific Northwest and a unique characteristic of our renewable energy that we're building upon. But we have also seen with the continuation of production tax credits and investment tax credits that renewable energy is some of the lowest cost energy that we can bring on to the system. And clearly, that remains the preference of our customers in the regions.

Sure. Okay. Well, I really appreciate all the thoughts.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Maria Pope for closing remarks.

Thank you for joining us today. We appreciate your interest in Portland General Electric. We look forward to connecting with you soon. And thank you very much for your time this morning.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.