Portland General Electric: Rate Case Settlement Supports Growth Outlook

We are reaffirming our $50 per share fair value estimate for Portland General Electric POR, or PGE, after incorporating the general rate case settlement the company recently announced. We are reaffirming our narrow moat rating.

The settlement terms are in line with our forecast, supporting annual earnings growth in line with management’s 5%-7% target. We expect Oregon regulators to approve the settlement, resulting in a $208 million net revenue increase, excluding net variable power costs.

PGE agreed to maintain its 9.5% allowed return on equity and 50% allowed equity capital structure, as we expected. Although this is lower than PGE’s 9.8% request, we think it is a key positive that PGE was able to incorporate a higher allowed cost of debt to reflect rising interest rates since its filing in early 2023. This resulted in a 6.99% allowed cost of capital and reduced net revenue only $8 million relative to PGE’s cost of capital request.

This is PGE’s third consecutive rate case settlement, a sign that PGE is doing a good job working with many stakeholders. We think this should support PGE’s $5 billion capital investment plan in 2023-27, particularly its renewable energy and grid upgrade investments.

Growth could trend toward 7% annually if it wins at least some of the new renewable energy projects to be offered in 2024 and beyond. We will consider raising our capital investment forecast if it appears PGE might win some of these renewable energy project bids, pending regulatory approval of its amended long-term integrated resource plan. This could add $2-$3 per share to our fair value estimate, but it is very early in the process. We expect management to reaffirm 2023 EPS guidance of $2.60-$2.75 when it announces third-quarter earnings on Oct. 27.