Morningstar | Portland General Continues to Find More Places to Invest
With a growing customer base and a service territory with rich renewable energy resources, Portland General Electric continues to find ways to grow. After completing the $600 million Carty gas plant in 2016, management has now embarked on a diversified investment plan that is set to top $500 million annually on average for at least the next four years. Even after raising its spending outlook in October 2018, we wouldn't be surprised if PGE continues to find incremental growth projects as the region's renewable energy base expands and customers demand next-generation electric grids.Regulatory support for this growth plan will be critical. Oregon regulation is mostly constructive with forward-looking rates and timely decisions. The state's 20-year integrated resource plan and related four-year action plan proceedings give PGE and regulators clarity on potential growth investments.PGE's 2019 rate-case settlement keeps 2018 rate structures mostly in place, including a 9.5% allowed return on equity. Although this is among the lower ROE in the sector, the consistent rate-making is a positive, especially after challenging results in 2015 and 2016. With the Carty Generating Station cost overruns and litigation behind it, PGE has a clear pathway ahead to focus on public policy-related investments.We think PGE can grow the dividend 5% annually, in line with peers, given its healthy service territory economy and the cash flow to support up to a 70% payout ratio. However, investors should wait for its lofty valuation to come in before investing.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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