Morningstar | PGE Regulatory Decisions Will Set Course for Growth in 2019 and Beyond
We are reaffirming our $37 fair value estimate, narrow moat, and stable moat trend ratings for Portland General Electric after the company reported earning $0.59 per share in the third quarter of 2018, up from $0.44 in 2017.We expect earnings have reached a more normal run rate now that the company has factored in a full quarter of lower expenses related to the midyear Carty Generating Station litigation settlement. Management reaffirmed its $2.25-$2.40 guidance for 2018, in line with our estimate.
Management also announced a $212 million, or 16%, increase in its 2019-21 capital spending plan. We already anticipated higher spending than the plan management updated in June. The new spending budget now matches our forecast. Management's $500 million spending budget for 2022 also matches our estimate.
PGE could add $150 million-$200 million in 2019-20 if regulators approve its bid for new wind generation among three proposed options. We do not include this in our forecast, given the uncertainty, but it would have a small positive impact on our valuation if regulators select PGE's project.
PGE also reached what we consider a constructive base-rate settlement during the quarter that was in line with our projections. Most importantly, the settlement keeps PGE's allowed cost of capital the same, including a 9.5% allowed return on equity. We think this level should support continued value-accretive investment in its system and supports PGE's investment plan. We thought there was risk that a less-favorable rate case outcome could have led management to pull back on investment, resulting in slower earnings growth.
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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