EUR 850.00 For Business Accounts Only

Morningstar | Progressive Public Policy Supports Portland General's Growth Opportunities

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. Management raised its spending outlook in October 2018 and is adding another $160 million investment with the Wheatridge wind-solar-battery project in 2020-21.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. Potential Oregon legislation implementing a carbon emissions cap and the need for backup capacity to supplement variable wind energy could spur more investment in clean energy technologies.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. Management plans to file an updated integrated resource plan this summer.PGE's 2019 rate-case settlement keeps 2018 rate structures mostly in place, including a 9.5% allowed return on equity and rate decoupling through 2022. Although this is among the lower allowed ROE in the sector, the consistent rate-making is a positive, especially after challenging results in 2015 and 2016.PGE can take a break from regulatory proceedings for now, especially with decoupling in place and customer demand growing. 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 beyond 2019, in line with peers, given the growing economy in its service territory, investment opportunities, and cash flow to support up to a 70% payout ratio. However, investors should wait for its lofty valuation to come in before investing.