Portland General Electric (POR) Q4 2021 Earnings Call Transcript

Portland General Electric (POR 1.33%)
Q4 2021 Earnings Call
Feb 17, 2022, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, everyone, and welcome to Portland General Electric Company's fourth quarter 2021 earnings results conference call. Today is Thursday, February 17, 2022. [Operator instructions] For opening remarks, I would now turn the call over to Portland General Electric's Senior Director of Investor Relations and Risk Management, Jardon Jaramillo. Please go ahead, sir.

Jardon Jaramillo -- Senior Director of Investor Relations and Risk Management

Thank you, Valerie. Good morning, everyone. I'm pleased that you are able to join us today. Before we begin this morning, I'd like to remind you that we have prepared a presentation to supplement our discussion, which will be referencing throughout the call.

The slides are available on our website at investors.portlandgeneral.com. Referring to Slide 2. Some of our remarks this morning will constitute forward-looking statements. We caution you that such statements involve inherent risks and uncertainties, and actual results may differ materially from our expectations for a description of some of the factors that could cause actual results to differ materially.

Please refer to our earnings press release and our most recent periodic reports on Form 10-K and 10-Q, which are available on our website. Leading our discussion are Maria Pope, president and CEO; and Jim Ajello, senior vice president of finance, CFO and Treasurer. Following the prepared remarks, we will open the line for your questions. Now, it's my pleasure to turn the call over to Maria.

Maria Pope -- President and Chief Executive Officer

Good morning, and thank you, Jardon, and thank you all for joining us today. 2021 was a year of strong growth and execution. Against the backdrop of the ongoing pandemic, the historic ice storm and record heat. We focused on grid hardening and new technologies to improve reliability and resiliency.

Turning to Slide 4. For the full year 2021, we reported net income of $244 million, or $2.72 per share. This compares with $155 million, or $1.72 per share for the full year 2020. For the fourth quarter, net income was $66 million, or $0.73 per share.

This compares with $52 million or $0.57 per share for the fourth quarter of 2020. Our region is growing, particularly the tech and digital sectors driving overall revenue growth. Net variable power costs were also higher, reflecting regional power market volatility, particularly in the third quarter. Operating administrative expenses increased due to higher wildfire and vegetation management expenses, and the cost of several storms outside of the large major storm deferral.

Finally, employee wages and benefit expenses were higher, reflecting inflation pressures, and improved performance over 2020. Given our region's attractive environment for high tech and digital companies, and ongoing in migration, we expect growth to remain very strong. Power market challenges will also likely continue. We've taken several steps to reduce our exposure.

Through first, forward pricing updates to the annual update tariff mechanism. Second, new forecasting methodologies that better reflect wind and other volatility reflected through our rate case. And third, plant operating improvements. And finally, fourth, procurement of additional forward capacity.

Operating efficiency is the focus. And as we address rising customer expectations as well as inflationary pressures will be increasingly important. All of this combines to inform our 2022 earnings guidance of $2.75 to $2.90 per share. Later in the call, Jim will go into much more detail on both 2021 results, and our 2022 outlook.

I would like to now talk to a couple of highlights that were significant from an operational, legislative and regulatory standpoint. First, opening the new Integrated Operations Center, and launching the advanced distribution management system were key milestones. These investments establish the foundation for Intelligent Energy Network that enables the integration of greater amounts of renewable energy, distributed energy resources, and increases system flexibility, and resiliency. Second, we advanced our digital capabilities across the enterprise to improve performance and deliver exceptional customer experiences.

We simplified our work and reduce costs by equipping field crews with new digital tools, upgrading supply chain systems, and increasing call center performance. Together, these advances allow us to get more work done and drive operational efficiency. Through advanced data analytics and smart grid technologies, we're increasing the reliability of our system, even under uncertain, and extreme weather conditions. First, a path to decarbonization was further catalyzed by the passage of Oregon's clean energy legislation, working with a broad coalition of stakeholders.

Aggressive carbon reduction goal targets were established that are consistent with our goals and aligned to the International Panel on Climate Change or IPCC's sixth report. PGE was also the first utility in the country to sign the climate pledge, committing to achieving net zero emissions across our company operations by 2040. And for the 13th consecutive year, our Voluntary Renewable Energy Program was ranked number one in the U.S by the National Renewable Energy Laboratory. Forth, we initiated an RFP in April for up to 500 megawatts of renewable energy and 375 megawatts of non-emitting capacity.

Initial bids were submitted in January, with a short list expected to be issued in the second quarter and a final decision by the end of the year. While many of you have lots of questions on the bids, we are in the very early stages of evaluation, and all this are subject to NDAs. Also, in collaboration with customers and stakeholders, we issued our inaugural Distributed System Plan focused on modernizing our grid to accelerate distributed energy resources, and maximize grid benefits for all customers and community members. Fifth, as part of our 2022 general rate case, we recently reached an agreement that subject to OPC final approval will resolve the annual revenue requirement, average rate based, capital ratios, and a corresponding increase in customer prices.

And finally, this year we relaunched our guiding behaviors. First established more than 25 years ago, and our ongoing and long standing commitment to diversity, equity inclusion. We are increasing the representation of black, indigenous, and people of color, as well as women in leadership across our company. We're also continuing our long-standing focus on environmental stewardship, and during the past year, PG employees completed over 15,000 hours of community service, and employees retirees, the PG Foundation, and our company donated $4.8 million to support our communities.

As we look to the future, we anticipate continued economic growth and load increasing 2% to 2.5% in 2022. With longer term growth of approximately 1.5%. Ongoing focus on digital and other technologies, operational improvements, and efficiencies which could help mitigate inflationary cost pressures. Overall, we're well prepared with improved reliability, resiliency, and operating performance as we rapidly transform to address urgent climate change challenges and lead a clean energy future across our region.

I'll now turn the call over to Jim. Thank you.

Jim Ajello -- Chief Financial Officer, Senior Vice President of Finance, and Treasurer

Thank you, Maria, and good morning, everyone. Our 2021 results reflect the continued economic growth in our service territories and the opportunities, and challenges of our path to decarbonization. We experienced strong load growth from higher residential and industrial demand, while also navigating challenging power markets, and inflationary cost pressures. Turning to Slide 5.

The continued recovery from the initial economic downturn due to COVID-19 is reflected in our strong year-over-year load growth of 4% weather adjusted. In 2021, we experienced growth across all customer classes, with residential demand increasing 1% weather adjusted, which reflects ongoing economic growth. Commercial load increased 4.2% weather adjusted as the sector rebounds from the decreased activity in 2020. Industrial deliveries increased 8.5% weather adjusted as our service territory continues to attract growth from high tech and digital customers, including data centers, customer expansion, and new site development activity, all point to strong growth in the sector.

The favorable weather we experienced contributed an additional 1.1% to the overall growth rate of 5.1% in 2021. Based on recent trends in our service territory, primarily driven by industrial growth, and anticipated distributed energy resources growth, including transportation, electrification adoption, we are raising our long-term growth guidance from 1% to 1.5%. Our quarterly EPS increased from $0.57 per share in 2020 to $0.73 per share in the fourth quarter of 2021. The increase was primarily due to a $0.17 adjustment to a non-utility asset retirement obligation liability in the fourth quarter of 2020, including fourth quarter results full year GAAP EPS was $2.72 for 2021, compared to GAAP EPS of $1.72 for 2020.

Non-GAAP EPS for 2020 was $2.75 after removing the negative impact of the energy trading losses. I'll cover our financial performance year-over-year on Slide 6. Beginning with a GAAP net income of $1.72 per share in 2020, which we add back the $1.03 per share impact of the energy trading losses. We experienced a $0.78 increase in total revenues, primarily due to the strong economy driving growth in our service territory, with the balance due to more favorable weather.

Offsetting this was $0.58 of unfavorable power cost. 2021 saw a significantly higher power prices, particularly in the summer, due to warmer weather and increased regional demand for capacity. We have deferred $29 million of incremental power cost under our [Inaudible] mechanism, which represents 90% of the variance above the threshold. We anticipate the regulatory process related to this deferral will begin late in the Quarter 2 of 2022, and continue through the year.

There was an $0.18 decrease to EPS from cost associated with our transmission and distribution expenses, including $0.05 for enhanced wildfire mitigation, $0.05 of additional vegetation management, and $0.08 of service restoration costs related to storms in 2021. There was a $0.41 decrease to EPS from administrative expense, including $0.12 in adjustments to incentive programs, including $0.06 for 2020 decreases and incentives following the trading losses. $0.07 from increases in wage and salary expenses and $0.16 for outside services to strengthen risk management, improved customer facing technology, and improve our supply chain management systems. $0.03 from higher insurance expenses, partially due to higher wildfire insurance premiums and then, $0.03 from miscellaneous other expenses.

Going to DNA, a $0.32 increase due to lower DNA expenses in 2021, including $0.22 increase due to the impact of a non-utility asset, our retirement obligation revision to 2020, an $0.18 increase due to the impact of plant retirements in 2020. And these increases were partially offset by an $0.08 decrease due to higher plant balances in 2021. A $0.05 decrease from the impact of higher property taxes. And then finally, there was a $0.09 increase primarily driven by the recognition of a benefit from a local flow through tax adjustment in Q1 of 2021.

Turning to Slide 7. Last month, we reached an agreement with stakeholders that resolved several significant aspects of our 2022 general rate case. In addition to the previously agreed upon 50:50 capital structure and 9.5% allowed ROE, we agreed to a final annual revenue requirement, average rate base, and a corresponding increase in customer prices. A final rate base of $5.6 billion, an increase of $814 million, or 17%, which represents a constructive outcome for investments made on behalf of customers.

While the $10 million increase in the annual revenue requirement net of power cost represents a modest 0.5% increase in customer prices. We also agreed to end our decoupling mechanism. The operation of the existing decoupling mechanism is misaligned to the current policy framework in Oregon, especially as it relates to supporting decarbonization. So the parties agreed to eliminate it.

Parties agreed to accelerate colstrip depreciation to fully depreciate our interest in that plant by 2025. While certain policy elements remain outstanding in all settlements remain subject to final PUC approval, we are pleased with the potential outcome for our customers and stakeholders. A final order is expected by the end of April. On the resource plans, we made several regulatory filings in which we shared our plans to advance the strategy to meet our targets, reducing greenhouse gas emissions in the power we served customers.

Maria discussed our resource plans earlier in the call and we look forward to working through the RFP process, and expect to share an update in Quarter 2 . Turning to Slide 8, which shows our updated capital forecast through 2026. We increased our capital expenditure forecast for 2023 to 2026 from $550 million to $650 million per year to more clearly reflect our fundamental plans to invest in the system. For reference, in 2021, we exceeded our target guidance of $655 million with the total capital expenditures of $680 million.

Over the next five years, we expect to invest roughly $3 billion on top of the recently settled $5.6 billion in the incident rate case. To be clear about this increase, I want to point you to the distribution service plan that Maria referred to. This plan anticipates significant growth in load, new connects, new projects for customers, system expansion, substations, and grid modernization, which primarily explain the increase in the capex. The increases primarily represent group grid resiliency and transportation and electrification investments plan for future years, but do not include expenditures related to the possible RFP ownership options.

With the recent settlement in the GRC, subject to approval by the OPUC, this affirms that we will not need to issue equity to meet our capital requirements in 2022, unless there is a significant renewable addition stemming from the RFP. Onto Slide 9. The RFP process for energy and capacity resources, with bids submitted in January and a shortlist targeted in Quarter 2 final selection of winning bids is expected by the end of 2022. The RFP will be a competitive process, and we'll share more details as we move through the procedural calendar.

We continue to maintain a solid balance sheet, as you can see on Slide 10, including strong liquidity investment grade credit ratings accompanied by a stable credit outlook. Total available liquidity at December 31, 2021, $843 million and we remain one of the least levered [Audio gap] sector. Plan to fund investments with cash from operations, and issuance of up to $250 million of debt in the second half of 2022. As we did in 2021, we will apply our green financing framework, continue to seek out opportunities to take our long-term debt to our sustainability strategy through capital investments.

Turning to Slide 11. We are initiating full year 2022 earnings guidance of $2.72 to $2.90 per diluted share. As a reminder, we established our base year and growth rate in 2019 with EPS of $2.39 per diluted share. The midpoint of this guidance range represents a 5.8% compounded annual growth rate from the $2.39 base.

I'd like to walk through a few key drivers that will prove that we're confident we'll grow to this 46% range in 2022. The drivers of our long-term guidance remain strong load growth from in-migration and industrial expansion, operational efficiencies, and potential investment opportunities in our system with renewable resources. We expect continued strength and energy deliveries with 2% to 2.5% weather adjusted retail load growth. I would like to address our 2022 O&M guidance midpoint of $600 million, which represents a 7% decrease from 2021 levels.

2021 O&M included significant work to accelerate our digital and customer strategies, we expect these efforts to create sustainable efficiencies in our operations in 2022 and beyond. In 2021, we also accelerated our vegetation management efforts, implemented new customer interface system, automate many aspects of customer service. We continue to deployment of distribution, automation technology, and we made significant investments to build risk awareness, and mitigation into our operations. Looking forward to 2022, we will increase efficiencies by accelerating adoption of digital technologies, and investments made in 2021.

[Inaudible] leverage increased recent grid investments to strengthen our operations. I am confident as we continue to identify and implement efficiencies in 2022, we can't continue to grow. We are reaffirming our long-term earnings growth guidance of 46% of 2019 this year. With respect to dividends, our board recently declared a dividend of $0.43 per share.

Our 2021 full year dividend was $1.68 per share, this dividend, we completed our 15th consecutive year of dividend growth in the last five years, growing at 6.1% compounded annual growth rate. We also plan to continue our limited share buyback program to offset any dilutive effects of shares issued under our compensation programs. The combination of strong growth trends, clear decarbonization targets, and significant opportunities to invest in our customers electrification needs create a compelling case for delivering value by serving clean, affordable, safe, reliable, and equitable energy. To execute our long term financial targets for customers and investors alike.

Now, before we open the line for questions, I'd like to hand it back to Maria.

Maria Pope -- President and Chief Executive Officer

Thank you, Jim. I'd like to note that today we announced that Lisa Kaner, our VP general counsel chief compliance officer, plans to retire in early July, and we'll transition to the role of chief compliance officer effective mid-March. We're grateful for Lisa's insights, expertise wise counsel, as we navigated the challenges of the last five years. Recently, Lisa was instrumental in resolving all of the litigation associated with the 2020 energy trading matter.

Lisa sets high standards for leadership and integrity, and we wish her well in retirement. At the same time, I'm pleased to announce that Angelica Espinosa, who has served as deputy general counsel and corporate secretary, has been appointed as VP general counsel effective mid-March. Prior to joining PGE, Angelica held multiple roles at Sempra Energy, including vice president of gas acquisition, vice president and chief risk officer of SoCal gas, chief counsel for the Sempra International businesses, she joined Sempra in 2014 from GE, where she had multiple legal leadership positions in their oil and gas division. Congratulations, Lisa and Angelica.

Lisa, we wish you well, and are grateful for all you've done for PGE, and Angelica, we're excited about the broad expertise and experience that you bring to our executive team and the company. And now, operator, we're ready for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Insoo Kim of Goldman Sachs. Your line is open.

Insoo Kim -- Goldman Sachs -- Analyst

Thank you -- Hey, Maria, how are you? My first question is the, when you think about the plan, whether it's capital plan and then again, with a rate case potentially finishing up in the next few months, what earned are we should we assume that's currently embedded? I guess a few kind of reverse engineer the rate base that was approved for the future, testier, and whatnot and the guidance range at least for '22. It seems like something in that nine ish percent range. I know there's been that structural lag that we've always talked about the past, but from a nominal basis as earnings and rate base gets bigger, I think that backtrack on a percentage basis gets smaller. So just initial thoughts on how you're thinking about the level going forward.

Maria Pope -- President and Chief Executive Officer

Great. Well, I think it's a good question, and I think your initial thoughts are spot on. As you know, we've settled a regulated ROE, our capital structure. As Jim noted, we're really focused on operational efficiency as well as our transformation.

As we grow our rate base, our structural lag does decrease is made up of normal course items in the utility sector. But we, as we grow the rate base, just the numerator denominator math is encouraging is and will shrink that over time. We also continue to focus on cost reductions in the structural lag area, but across our entire company. 

Jim Ajello -- Chief Financial Officer, Senior Vice President of Finance, and Treasurer

And so I'll add that you can look toward a roughly 9.2% growth at the midpoint for 2022, consistent with the guidance as we roll up that map. The other thing I would add to Maria's comments is that we intend a not insignificant management of expenses this particular year. And while I'm on that topic, I mentioned in my remarks that that would be a 7% decrease from where we came in at 2021. However, when I normalized the O&M spending in 2021, I come to more of a 4% decrease.

There was a series of accelerated expenses of one timers in 2021, so it's 4%, roughly a $25 million reduction on O&M this year, also contributes to an improved ROE outlook.

Insoo Kim -- Goldman Sachs -- Analyst

OK. Yeah, that's definitely a good color. Second question, related to that. And obviously, we've talked about your long-term growth rate of the 46% .

Just think about the base level increases and capex even excluding the potential upside from any of the ownership options that the RFP, how do you think about with the cost management of that growth rate going forward? And on top of that, if this settlement agreement that's adopted as proposed, especially with that decoupling mechanism going away, how does that potentially impact or benefit your growth rate at all?

Jim Ajello -- Chief Financial Officer, Senior Vice President of Finance, and Treasurer

OK. Well, let me take the first one. The last question you referenced first. I think that it does impact the growth rate.

First of all, a lot of our capex, as you can look in the guidance here, about 2/3 of our capex through 2026 is really in our transmission distribution system. There's also a lot of capital in the general business and technology area that supports TND. So this is very basic work. I think you should look also for guidance in the distribution service plan that was filed.

We've posted a slide in the the larger investor deck this morning that will give you color about the kinds of investments that we see in that area as well. In terms of decoupling itself, as you may be aware, we've been posting some refunds here in recent years because of the nature of the mechanism, but asymmetrical has the cap on it as well as we grow, we found it to be not supportive of our goals, to reinvest in the business, to support decarbonization, and to build out this capex that we've increased. So I think it's a combination of things that will all promote growth or promote decarbonization, good customer service and the like. Does that gets to your question? 

Insoo Kim -- Goldman Sachs -- Analyst

I think that, yeah, that's enough color. I'll leave it there. Thank you.

Jim Ajello -- Chief Financial Officer, Senior Vice President of Finance, and Treasurer

 OK.

Operator

Thank you. Our next question comes from Julien Smith of Bank of America. Your line is now open. 

Maria Pope -- President and Chief Executive Officer

Morning, Julien --

Julien Smith -- Bank of America Merrill Lynch -- Analyst

Hey, good morning. Can you hear me? -- Thank you, guys. Appreciate it. So maybe just to follow up on that last question, just to close it out.

What's the timing potentially to update where you sit within this 46%? And just as you think about, have you've checked the boxes on a lot of things that seem incremental, whether it's incremental load growth, cost management efforts, capex, is this really just about closing out the regulatory process and getting that final OPUC approval here? Or how do you think about that just first off? 

Jim Ajello -- Chief Financial Officer, Senior Vice President of Finance, and Treasurer

I would say that's a good part of it, Julien, that the rate case process is very important to us. There will be some time to continue to invest at higher levels in the business. And then also, I think what is an important event is our standing in this RFP process. So I think that is that's what is giving me pause in terms of growing outside that range at the moment.

So I want to see very consistent earnings. I want to invest more capital in the business, and I want to see the results of the RFP process. That's a short summary. 

Julien Smith -- Bank of America Merrill Lynch -- Analyst

Excellent. All right, perfect. And then can you talk a little bit about this, this short shortlist potential here? I know there's not much you can say. You already acknowledge the NDA dynamic, but if you can't specifically hear it, can you speak to your eligibility and the dynamics here? Because obviously, triple B didn't happen.

And I think the OPUC moved, perhaps against you with regards to creating affiliate. How do you think about your ability to participate here, given what we know thus far, if you will? I'll leave it open ended. 

Maria Pope -- President and Chief Executive Officer

Julian, great. So we have there's a wide variety of bids that have been submitted, every kind of technology that's out there, as well as every kind of PPA or ownership option. So lots of variation, lots of different options. We are in the process of evaluating them against, really objective standards around least risk, these costs ability to decarbonize as fast as possible.

Obviously, capacity is a big issue across the entire west, and Portland General is no different. So we'll just need to see where things shake out. We have a pretty good history with regards to ownership options, but we have a better history when it comes to really achieving the least cost, at least risk options for customers. And that's where we will be focused.

Jim Ajello -- Chief Financial Officer, Senior Vice President of Finance, and Treasurer

Julien, I'll add about that affiliates interest filing. So that was rejected without prejudice by the OPUC in December. And we're going to continue to look at that and may we propose that again. It also could depend on the way that triple B, as you call it, if it continues to separate out some of the tax benefits and normalization that we would hope for, that may not be a need for affiliate if our involvement in the RFP is modest, if you want to call it that.

I'm not going to use any dollars, but there's really no trouble for us in financing any of the RFP projects that we might be awarded. As I mentioned, we're in pretty good financial shape so we could finance those inside the ambit of the utility just like we finance anything else. It's not going to be a limiting factor. Let me just conclude by saying that. 

Julien Smith -- Bank of America Merrill Lynch -- Analyst

Indeed, actually. Do you mind just to click on that clarifying on financing? I know you said on the call remarks, I think '22, there would be no equity. How are you thinking about equity considerations given the elevated capex, again, excluding any potential for further awards through the forecast period? 

Jim Ajello -- Chief Financial Officer, Senior Vice President of Finance, and Treasurer

Yeah. Well, for 2022, I'm clear about no equity at this point, I wouldn't go any further because what I do want to see the RFP arrangements, but we're in pretty good shape considering this level of capex going forward. As you know, in the recent settlement, we're deemed at a 50:50 ratio. So as long as that continues to operate, we'll be in good shape without equity. 

Julien Smith -- Bank of America Merrill Lynch -- Analyst

Excellent. I'll leave it there. Thank you, guys. I'll see you soon. 

Jim Ajello -- Chief Financial Officer, Senior Vice President of Finance, and Treasurer

Sure. 

Maria Pope -- President and Chief Executive Officer

Thank you. 

Operator

Thank you. Our next question comes from David Peters of Wolfe Research. Your line is open. 

David Peters -- Wolfe Research -- Analyst

Yeah. Hey, good morning, guys. One question for Jim, just to piggyback on that last one, I noticed you ended '21 with an equity ratio like 500 basis points below the level in your settlement agreement. Just taking that into consideration with the elevated capex.

I'm just wondering, are you setting up for a need in '23? Or you may be just waiting to sync that up with any RFP capital and you might just over equities to get the the balance sheet back closer to a 50:50 level?

Jim Ajello -- Chief Financial Officer, Senior Vice President of Finance, and Treasurer

Yeah. David, that's a very good insight, I would agree with that on an accounting basis, about 45% closer to 47%. The way the regulatory ratio works, and as I said, we have the benefit of settling out of 50:50. And I would look at where we come out in the in the RFP and look to do some possible equity for that purpose and some additional equity to make sure that our ratios are stout.

But I think I think you've got the right logic in the way of thinking about it.

David Peters -- Wolfe Research -- Analyst

Perfect. Switching gears to, I guess, regulatory items just on the Faraday project, the one that was excluded from the rate case. Can you maybe just talk about regulatory strategy there? How you're going to address that lag once that project goes into service? which I assume is at some point later this year.

Maria Pope -- President and Chief Executive Officer

Sure. So we're in the process of working through with parties on how to address that from a regulatory and timing standpoint. We have history in the past of having brought items like that into a self through a separate but narrow rate case attached to this rate case. We would prefer not to file another rate case, not a full rate case, to bring that into service.

But of course, that's always an option. The process overall represents a good portion of what the state of Oregon has been through in the last couple of years, tremendous impact of COVID on the project. Tremendous. It was right in the heart of the wildfires.

In fact, the transmission lines to and from there almost melted a year ago September. And then this time last year, it was again in the heart of the ice storms. And so we've evacuated the site on multiple occasions, and we look forward to concluding the project as quickly as possible, as safely as possible and bringing it into customer prices at the appropriate time and as we work things out.

David Peters -- Wolfe Research -- Analyst

Great. And then last one if I can just. Can you give an update on where you stand with addressing the various deferrals, whether it be wildfire or ice storms? And then I guess you have this Pchems deferral as well. And just how much of that is factored into kind of your cash flow guidance that you gave for '22?

Maria Pope -- President and Chief Executive Officer

Sure. Let me have Jim to really give you a lot of the details on that. Several of our deferrals are what I would call normal course deferrals. So our power cost adjustment mechanism is a long standing process that we've handled for several for more than a decade.

You've got the COVID deferral that's been well, well discussed across stakeholders. And then what we really have is extraordinary events, whether they're the results of climate change. But certainly, the ice storm was a one in 40-year event for us and the most destruction we've seen in our service territory in our history. So we're looking not only at the prudency of all of those costs, but really what is the length of time that we should be recovering them over.

And so as a legislative matter, we're pursuing securitization, which up until now we've not had the advantages of an Oregon like so many other jurisdictions across the country. But we're in good discussions over all of these aspects, I would say, with regards to wildfire in general. We have excellent legislative support, and that was all put into a statute this past year. So we feel pretty good overall about this, but it is we are in new times in terms of the magnitude.

Jim, do you want to go with some of the detail.

Jim Ajello -- Chief Financial Officer, Senior Vice President of Finance, and Treasurer

Sure, sure. I'll just confirm and I'll give you round numbers, David. The power cost adjustment mechanism is rough justice $30 million in the COVID pandemic deferral, it is about $36 million. So what we'll do is take those two items, and in the midyear time frame this year will seek to amortize those both Pchem and COVID deferrals straight away later in the year.

Probably, in the third and maybe fourth quarter, will seek to amortize and settle in on the wildfire and storm deferrals, right. So they are items that we're working on near-term at the same time. We'd like to see some securitization being put in place, but these all together total. I should add that the ice storm is that $68 million right now at the end of the year anyway, and the wildfire is about $46 million.

Altogether, these are $180 billion dollars, but there are no mechanisms or power cost, and COVID pandemic will try to knock those down first and then proceed with the two larger ones as we go here.

David Peters -- Wolfe Research -- Analyst

Perfect. Thank you, guys.

Operator

Thank you. [Operator instructions] Our next question comes from Sophie Karp from KeyBanc. Your line is open. 

Sophie Karp -- KeyBanc Capital Markets -- Analyst

Good morning -- and thank you for taking my question. A lot has been discussed already. I just wanted to maybe ask you about the hydro conditions. So your guidance is obviously predicated on normal hydro, but it looks like we are fortunate to see in another below average here in the West, and it is actually looking like or maybe it's a kind of generational drought, right? So how do you guys think about that? At what point do you normalize to maybe a lower level of growth? Or a more permanent basis? And how do you how would you handle this type of environment?

Maria Pope -- President and Chief Executive Officer

Thank you. It's an excellent question. And there's a chart in our 10-K which shows the Columbia River runoff estimations, as well as the our own Clackamas and Deschutes River basins. Right now, the forecast for 2022 are for the Mid-Columbia, about 105% and 108%.

And then just under a 100% for the river systems upon which we operate. That is in distinct contrast to last year, where we were in the 80% and even for one of our river systems in the 70%. So it's looking a little bit more like 2020 actuals versus 2021 actuals. The part that will really move the needle on power cost and overall availability for the region is the Columbia River.

I would also note that as we look at weather patterns across the West, we began a very wet winter lots of snow, good snowpack that continues up through British Columbia and other areas. That's a distinct contrast to California, and I think it's important that we recognize that. I would say that most recently, it's been pretty mild in the Pacific Northwest, which given that this time last year, we were dealing with a really traumatic ice storm with over 760,000 different customer outages. We're pleased to have the nicer weather for the time being, but I I would point you also to the NOAA websites for those who want to take a look at the hydro conditions because they really do have an impact on an overall power availability and cost in the northwest.

Sophie Karp -- KeyBanc Capital Markets -- Analyst

Thank you. It's very helpful. And maybe along the same lines, is there any commentary you could offer on the latest developments, maybe in the Western imbalanced market? Or multiple initiatives that are going on the FERC and the regional bases to integrate the entire system in the West a little better? And like, are you seeing any progress there? I guess, is there anything that we should be tracking or looking for work even better?

Maria Pope -- President and Chief Executive Officer

Sophie, that's a great question and a big question. Let me try and hit all of the different initiatives and work that's taking place. And first of all, let me acknowledge that the Western energy and balance market has been tremendously successful. Saving lots of money for PGE customers, but customers across the West and allowing us to more seamlessly integrate renewables with less wear and tear on our assets and system given the diversity that we're able to accomplish.

There's quite a bit of, so with regards to West as energy and balance market, this springtime Bionicle Power Administration will join and that will be pretty significant event, and it will sync up operationally on a number of issues between our balancing authorities and others. We also will be working very closely with the CAISO, as well as many other parties across the West on the day ahead market. The acronym is the [Inaudible] work that's taking place. There's quite a bit of work in California going on with regards to broader governance issues to create more west wide governance for the CAISO, and along with that goes dealing with will through issues as many other issues in the California marketplace.

Simultaneously, there's efforts looking at alternatives to the CAISO, so should we not be able to solve some of the governance issues? And then also what you see in the Northwest, but really now west wide, was the Northwest power pole is now the Western power pole renamed itself, and its membership goes all the way down to Arizona with SRP and Arizona Public Service, as well as many other Western states. And we're working on resource adequacy or issues there, which I think will make a big difference not only for visibility of resource adequacy, but for our common understanding of how everything is measured and handled. I would also say that we're looking at additional transmission planning. There was great paper that just came out from the CAISO, where they extended their transmission planning discussion and timeline quite significantly.

So please know that there is no lack of effort and amount of work taking place across the entire West on these issues.

Sophie Karp -- KeyBanc Capital Markets -- Analyst

Thank you, appreciate the color.

Operator

Thank you. Next question comes from Travis Miller of Morningstar. Your line is open.

Travis Miller -- Morningstar Research -- Analyst

Hello, everyone. Thank you. -- Thinking high level about inflation and the various impacts that you guys would face in a higher inflationary environment for the rest of the year. What are some of the options that you have, either on a regulatory side or an operating side to manage some higher cost? If this were to last through the summer into the fall. 

Maria Pope -- President and Chief Executive Officer

So, thank you very much. And first of all, in terms of our planning assumptions and thinking, we are expecting higher inflation not only throughout the summer and fall, but probably on a multi-year basis. One of the things that we have done is address the wage inflation, and we began doing that in 2021, ensuring that the great people that we have working here are adequately compensated, and doing the best work that we possibly can do. We have been focused on digitalization of many of our processes and workflows throughout our company, how our customers interact with us, and we've made really substantial improvements and changes, many of which are foundational, but many of which are already seeing changes from our frontline coworkers, and their tools that they're using all the way to how customers are paying their bills.

And we're seeing tremendous efficiencies from that, and we hope to continue to not only see the same, but to accelerate that transformation. But as we know, inflation is not a utility's friend, and we deploy a tremendous amount of goods and services on behalf of customers. And what is that [Inaudible] capital and O&M, so we're watching things very, very carefully. Jim, do you have anything you want to add? 

Jim Ajello -- Chief Financial Officer, Senior Vice President of Finance, and Treasurer

A couple of things, Travis. Thanks for the question. It isn't directly related to inflation, but I'll call it indirectly. We had the traumatic ice storm last year that Maria referred to.

We took stock and literally increased our spares and inventories very essential. So I actually think the events of last year caused us to purchase equipment a lot sooner than we would have in the ordinary course of things, have we not had that kind of storm. So we're well supplied right now. EPC services in many cases and field services have signed up on a long-term basis.

We tried to use contracting as a hedge to do that. The other thing I would add, Travis, is that we're very well-financed right now. The financing that we did last year turned out to be all transactions are judged, in hindsight, extraordinarily attractive. And so we have very little to do this year at higher rates that's not exactly inflation either.

But I think the inflation complex, of course, impacts rates. So I think we're reasonably well positioned overall. 

Travis Miller -- Morningstar Research -- Analyst

OK. That's great. So just on the 2022, as we assume that operating cost number, we can assume that it has inflation in there, but you've got enough cost offsets that you can keep it roughly flat to slightly down. 

Jim Ajello -- Chief Financial Officer, Senior Vice President of Finance, and Treasurer

Yeah. I would say about 4% down to normalized the O&M in 2021, and with the efficiency programs that Maria mentioned are baked into that guidance. That's correct. 

Travis Miller -- Morningstar Research -- Analyst

OK. Real quick supply chain issues. Anything where you're putting together RFP bids? Or you're seeing anything on that side or even just general comment any supply chain issues you're seeing these days? 

Maria Pope -- President and Chief Executive Officer

So, first of all, for our coworkers working through the issues on capital projects and O&M projects and in our supply chain area, they're working very hard on this issue. But overall, from an investor standpoint, from a bottom line standpoint, we're able to manage through. And I'm really proud of the hard work that we've been doing for months on this. And we were, as Jim mentioned, we began to focus on this coming after the storms of last year and really doubling down on the second quarter, and we'll continue to keep an eye toward that.

I would say for our procurement, whether it be on the renewable side and solar, or on a wind side, we are seeing the implications of some supply chain issues, and we're working through that with the suppliers of those projects.

Jim Ajello -- Chief Financial Officer, Senior Vice President of Finance, and Treasurer

Maybe last without beating [Inaudible] too much, Travis, is that we've had a chat about this issue with the board, our board of directors and they're very supportive of us increasing our authorities to buy long lead equipment as soon as we get it at attractive prices. And so we're we're using all the authorities and increased authorities to manage the problem as we go. It's a very important issue for us and we're very focused on it right now, especially as we increase capex. 

Travis Miller -- Morningstar Research -- Analyst

That's great. I really appreciate the thoughts. 

Operator

Thank you. Our next question comes from Angie [Inaudible] of HITE. Your line is open. 

Andy Levi -- HITE Hedge Asset Management -- Analyst

I think they got my name butchered. It's Andy Levi. How are you guys doing?

Maria Pope -- President and Chief Executive Officer

Good. Nice to see you or talk to you. 

Andy Levi -- HITE Hedge Asset Management -- Analyst

[Audio gap]. So I wasn't sure. So I just wanted to clarify kind of statements or statements or questions around the growth rate. So I'm just a little confused because I guess, you're saying there's a 46% growth rate 2% or 2.5% top line growth, which I assume is going to extend through 2022.

You have $650 million plus of capex so far, control of your costs, regulatory lag going away as the rate base goes up. So what am, I understand you've got to wait through the rate case, but what am I missing here? how does that only add up to 46%? It seems like it adds up if I do the math quite a bit higher.

Maria Pope -- President and Chief Executive Officer

So, Andy, thank you for the question, and I appreciate the issues that you're looking at. One of the things we're also looking at is more volatility in our operating environment. As you remember, we've come off of a period of tremendous ice, wildfires, record temperatures that we've never seen in the Pacific Northwest, energy markets that have been highly volatile, and a challenging overall work environment. We talked about supply chain inflation issues, and while we're confident we are going to make sure that we're able to put points on the board before we make other changes.

So I think there's a there is a recognition of the overall operating environment that we and many other utilities are facing. Jim, anything you want to add to that?

Jim Ajello -- Chief Financial Officer, Senior Vice President of Finance, and Treasurer

Yeah. I would say, Andy, I look at it two ways. The incremental growth earnings year to earnings year, which is a plus 4% from 2021's actual result at the midpoint of the new guidance range. And then I also look at it as growth of the base year 2019, which is$2.39, and that's the 5.5% kicker I mentioned, assuming we get to the guidance midpoint in 2022.

And then I look at obviously, what I'll call kind of an earnings power estimate given, our rate base. I look at the rate base itself, which is presently at $5.6 billion, just to trade some math with you, and it will increase when faraday is in there closer to a five seven numbers. So proforma, even though the settlements at five six faraday's hanging out as it were. So that adds another $100 million that I look at to [Inaudible] and our cap structure in the allowed ROE and I can arrive exactly at the midpoint of this year's guidance.

In fact, a little lower. I think the 283 is the midpoint of this year's guidance for -- 

Andy Levi -- HITE Hedge Asset Management -- Analyst

Jim, I understand that. That's this year, right? -- So I'm like looking longer term, you gave a multiple year capex forecast, and then the top line growth alone, especially if the decoupling or is eliminated or most of it, it's just plus minus multiply divide. You come up with a much higher growth rate. So is this just something that we're kind of state, waiting on the case for? And then obviously you have the RFP, but that would be upside to what I'm talking about and also would be chunky.

But I'm just completely confused, as is just waiting out getting the rate case decided on and then we get a refresh from you guys.

Maria Pope -- President and Chief Executive Officer

So Andy, as I noted in the in the bigger picture comments with regards to the events that we face as we look out into the future as to how we look at our improving not only our decarbonization profile, but our reliability resiliency. There are many factors that we're looking at longer term that we also add in, in addition to just the simplified math that you're doing. So it's, I think, to get more visibility in the future. We probably should wait for more quarters and our follow up guidance for 2023 and then 2024 and thereafter.

But right now -- we're leaving our numbers where they are.

Andy Levi -- HITE Hedge Asset Management -- Analyst

No, no, no. I get that and I understand that, but that doesn't really make any sense. Wildfire is whatever, some other extenuating events, but that's like the normal course of business and really has an effect on your longer term outlook and you get recovery of most of it. So really doesn't, I don't know.

I think you guys are going to have to maybe get through this rate case, but you're going to have to think long and hard, I think, and maybe communicate a little bit better because I think now 46% I guess, probably one of the lowest growth rates in the sector. So and I understand you're pointing to five and a half, but it's still based on what your profile is and the opportunity in your service territory. I don't really think kind of living up to the opportunity there, but I guess it's something you'll deal with as you get through the next couple of quarters. But thank you. 

Maria Pope -- President and Chief Executive Officer

Sounds good and appreciate your insights.

Jim Ajello -- Chief Financial Officer, Senior Vice President of Finance, and Treasurer

And confidence.

Operator

Thank you. I'm sorry. No further questions at this time to turn the call back over to Maria Pope for any closing remarks.

Maria Pope -- President and Chief Executive Officer

Great. Thank you all for joining us today. We appreciate your interest and advice with regards to Portland General, and we hope to connect with you in the near future. Thank you very much.

Operator

[Operator signoff]

Duration: 58 minutes

Call participants:

Jardon Jaramillo -- Senior Director of Investor Relations and Risk Management

Maria Pope -- President and Chief Executive Officer

Jim Ajello -- Chief Financial Officer, Senior Vice President of Finance, and Treasurer

Insoo Kim -- Goldman Sachs -- Analyst

Julien Smith -- Bank of America Merrill Lynch -- Analyst

David Peters -- Wolfe Research -- Analyst

Sophie Karp -- KeyBanc Capital Markets -- Analyst

Travis Miller -- Morningstar Research -- Analyst

Andy Levi -- HITE Hedge Asset Management -- Analyst

More POR analysis

All earnings call transcripts