Wholesale energy trading losses of upward of $128 million pushed Portland General Electric (PGE) into reporting a loss for 3Q2020, but CEO Maria Pope indicated on an earnings conference call that the damage from the losses has been contained to the quarter and there will be no more impact in the months and quarters ahead.
For the quarter, PGE reported a net loss based on generally accepted accounting principles (GAAP) of $17 million (minus 19 cents/ share), compared with net income of $55 million (61 cents) for the same period in 2019.
When word of the trading losses broke in late August, the PGE board of directors formed a special investigative committee, and its review of the situation is still ongoing, said Pope, who also noted that the utility is the target of some litigation tied to the matter. In the same time frame, “we experienced one of the most destructive wildfire seasons in our history,” she said.
“We continue to deliver strong operating performance, notwithstanding the financial impact of the isolated trading losses and wildfires this quarter,” Pope said. “I’m proud that our team acted decisively and demonstrated resilience and unwavering dedication to our customers. Looking ahead, we remain committed to making the right investments to meet the needs of Oregonians and drive value for shareholders.”
In a Securities and Exchange Commission filing in late August PGE reported trading losses of $104 million and another $23 million in mark-to-market losses, estimating that for the full quarter the red ink could hit $155 million. PGE placed two trading employees on administrative leave pending the completion of the board investigation.
The SEC filing indicated that late in 2Q2020 utility traders entered a number of wholesale energy trades resulting in “significant exposure” for PGE in August and big losses as wholesale power prices increased substantially at various market hubs due to extreme weather constraints to regional transmission facilities and changes to western power supplies. California also declared a stage 3 emergency and ordered rolling blackouts at that time.
A week later, the electric-only utility announced that it no longer had net market exposure from the energy trading positions that led to the earlier announced losses, and that total third quarter 2020 losses on these positions were $128 million.
While reiterating that the trading problems were limited to the 3Q2020, Pope said continuing industrial growth in the greater Portland metropolitan area that reached 9% in the most recent quarter makes it imperative that PGE continue to invest in enhancing its system with about $3 billion in capital expenditures through 2024.
Small commercial demand has been stifled by the pandemic, but Pope said in more recent months there has been improvement after significant erosion earlier in the virus lockdowns. “Clearly now there is a rise in cases across the nation, and Oregon is no different, but what we are really pleased with is the continued growth in the industrial sector,” she said.
“Overall, we continue to be very optimistic about the growth in our service territory, both as a result of in-migration and more importantly around industrial, high-tech data centers.”
In the 3Q2020, aside from the major losses in trading, retiring CFO Jim Lobdell estimated wildfire costs may turn out to be more than $10 million and the bad debt totals tied to Covid-19 could turn out to be about $8 million. Longer term, both state regulators and PGE are assessing what needs to be done to provide more financial mitigation against wildfire impacts.
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