Morningstar | PGE Regulatory Decisions Will Set Course for Growth in 2019 and Beyond
We are reaffirming our $36 fair value estimate, narrow moat, and stable moat trend ratings for Portland General Electric after the company reported earnings per share of $0.51 in the second quarter of 2018, up from $0.36 in 2017, on an adjusted basis.A settlement in the long-running Carty Generating Station litigation late in the quarter will lift earnings and cash flow and remove an overhang that appeared set to linger. The settlement offers a slight lift in shareholder value, but not enough for us to change our fair value estimate.
We plan to raise our 2018 earnings estimate slightly, but our 2019-beyond forecasts remain the same. Management raised its EPS guidance range to $2.24-$2.40 from $2.10-$2.25. We were already at the high end of the range and unfavorable weather through the first half of the year will offset some of the upside from the Carty settlement in our new estimate. The $130 million cash payment also reduces financing needs this year.
PGE has several near-term opportunities for investment beyond management's $450 million run-rate plan through 2022. We think investments in new renewable energy projects, battery storage, or electric vehicle infrastructure could lead management to increase its capital investment forecast this fall when it provides an annual update. We already assume PGE finds an additional $50 million per year of investment beyond 2019. There could be upside in 2019 if PGE receives approval to build 100 megawatts of new wind. We expect a decision by the end of 2018 so the project can qualify for the full production tax credit.
We also expect a decision later this year in PGE's general rate case, which will be important when considering the value of new capital investments. A disappointing outcome could cause PGE to push off significant new investment, creating a slight growth headwind.
Portland General Electric is an electric utility engaged in the generation, purchase, transmission, distribution, and retail sale of electricity in the state of Oregon. The company also participates in the wholesale market by purchasing and selling electricity and natural gas. The company's generating facilities consist of thermal plants (natural gas- and coal-fired), wind farms, and hydroelectric. The company owns or has contractual rights associated with transmission lines that deliver electricity from its generation facilities to its distribution system in its service territory and also to the Western Interconnection.
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