EUR 850.00 For Business Accounts Only

Morningstar | Portland General's settlement relieves the Carty project overhang.

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 we think can top $500 million annually on average for at least the next four years. 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 with 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. However, PGE's 9.5% allowed return on equity starting in 2018--down from 9.6% previously--is one of the lowest in the sector. Regulators are reviewing that in the current 2019 rate case, but we think it's likely to remain near 9.5%.We expect PGE will continue to be in front of regulators at least every two years asking for rate increases to keep earned returns climbing toward allowed returns. A settlement in its 2018 rate case was mostly constructive after challenging results from 2015 and 2016. With the Carty project's cost overruns 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.