Portland General Electric Company (POR) Q2 2021 Earnings Call Transcript

Portland General Electric Company (POR 0.76%)
Q2 2021 Earnings Call
Jul 30, 2021, 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 Second Quarter 2021 Earnings Results Conference Call. Today is Friday, July 30, 2021. [Operator Instructions] For opening remarks I will turn the conference call over to Portland General Electric's Senior Director of Investor Relations. Treasury and Risk Management, Jardon Jaramillo. Please go ahead, sir.

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

Thank you. Chelsea. Good morning, everyone. I'm pleased that you're 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 we'll 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 Forms 10-K and 10-Q which are available on our website.

Leading our discussion today are Maria Pope, President and CEO, and Jim Ajello, Senior Vice President of Finance, CFO and Treasurer. Following their prepared remarks we will open the line for your questions. Now it's my pleasure to turn the call over to Maria.

Maria M. Pope -- President and Chief Executive Officer

Good morning and thank you all for joining us. The June heatwave and a rebounding economy tell the story for the quarter. Turning to Slide 4, we reported net income of $32 million or $0.36 per diluted share for the second quarter of 2021, this compares with net income of $39 million or $0.43 for the second quarter of 2020. In light of economic growth and the accelerated recovery, we are revising our earnings guidance to $2.70 in $2.85 per diluted share, up from $2.55 to $2.70 and are reaffirming our 4% to 6% long-term earnings growth guidance.

Total revenues increased 14% as a result of higher retail energy deliveries, as well as higher energy usage during the recent heat wave. To meet this greater demand, we purchased additional power at high prices compounded by low hydro and wind conditions across the region. Operating expenses increased driven by investment in resiliency in advance of the wildfire season as well as higher administrator and other expenses.

Later in the call, Jim will review second quarter results in more detail. He will also provide regulatory and capital updates as well as discuss the outlook for the rest of the year. For the third time within the last 12 months we have experienced unprecedented weather events. In late June a historic heat wave cost temperatures to soar to 116 degrees, record heat was not only unique in its intensity but also duration. On the hottest day we served a record load of 4,441MW compared to the previous record of just over 4,000MW, more than two decades ago. Through it all and thanks to the dedication of our co-workers and ongoing investments in generation, great infrastructure, improved work management processes, as well as disaster preparation and training, we maintained strong reliability.

In these times the full impact in importance of what we do is most evident. I want to acknowledge that the heat event was not just a challenge for our business and our system. It was also a human challenge for the people who live in our communities. Looking out for the safety of customers and serving our communities is and always will be our focus and priority. This June, as well as other extraordinary weather events our team delivered, I cannot overstate my gratitude to everyone at PGE first responders and our community partners. While temperature is spiking to this extreme in the Pacific Northwest is unprecedented, particularly so early in the year we were prepared. We have prioritized assisted hardening and resiliency and we continue to see payoffs from building a smarter and more resilient grid. Our focus on preparedness is not isolated to our distribution system. We've also improved generation reliability, especially under the stress of extreme weather.

Our regional partnerships and supply agreements also enabled us to leverage surplus renewable energy across these extraordinary times. Partnerships with our customers to standby generation and demand response also played a critical role in ensuring reliability. Together these programs shave 63MW of our peak needs. Partnerships like these exemplify the spirit of Oregonians and will significantly expand as we work together to meet the growing reliability and flexibility needs.

Turning to Slide 5, top of mind for everyone, following the extreme heat wave is wildfire, the bootleg wildfires currently burning in Southern Oregon near the California Border is a stark example. The vast majority of people in our service area live highly developed urban areas, including 5 of Oregon’s 6 largest cities. Our region is also geographically different from California and Southern Oregon and historically, we do not have the same climate vegetation, forest or terrain. As Oregon's climate gets hotter and drier PGE is doing more than ever to reduce risks and keep customers and Oregon safe. Prevention, detection and response are central to our approach, including comprehensive risk analysis infrastructure investments, as well as strong partnerships with local, state and federal agencies.

Wildfire is a top priority. We are increasing vegetation management and deploying technologies such LIDAR and hyperspatial imaging to prioritize high-risk areas. We are expanding our use of automation, remote monitoring and early alert systems, such as line sensors, reclosers and others. We are installing fire resistant ductile iron transmission and distribution poles in priority wildfire areas modifying miles of transmission lines with tree wire, better clearances and undergrounding in certain areas.

To enhanced monitoring and collaboration, we've improved detection and situational awareness. And while our focus is on prevention and investing in our grid. We are also expanding public safety power shut-offs or PSPS zones. As we work continuously to improve our number one priority is protecting the lives and property of our coworkers. Our customers and the communities we serve. While the actions we're taking to provide safe, reliable power is essential, there is an urgent need to address the underlying conditions driving climate change. To that end, Oregon lawmakers recently passed significant clean energy legislation, enabling us to advance our shared goals of 80% reduction in greenhouse gas emissions by 2030 and 100% by 2040.

While we continue to work through the IRP processes this still affords us the opportunity to extend our green community tariff programs and the Transportation Electrification bill that enable us to further support EV adoption, the key infrastructures up to and behind the meter. Additional important aspects of the legislation focus this past session is on low-income customers', social justice in those areas traditional left behind, energy efficiency and the public purchase chart as well as important modifications to outdated energy laws dating back more than 2 decades.

Overall, this collaboration among stakeholders from across industry, the public sector, the business community and environmental organizations, social justice community and equity groups resulted in the most significant clean energy standards in the country. We look forward to continuing these partnerships working together expanding our renewable energy portfolio, integrating distributed energy resources and continuing to invest in a reliable and resilient grid. While this quarter once again presented challenges years of investment and planning prepared us well. As we look forward, we are encouraged by the growth of our region expanding high tech and digital sectors and continued in migration. I'll now turn it over to Jim for more detail.

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

Thanks, Maria. This has certainly been a year of unprecedented weather events, which further underscores the impacts of climate change on our business, but also highlights how the investments we are making position us to tackle the challenges ahead. I'll begin this morning with commentary on the economy and load growth. Oregon's economy continues to recover as we emerge from the pandemic and is showing signs of vitality once again. As of July 27, approximately 68% of eligible Oregonians have had at least one vaccine shot and at the end of June Oregon is fully reopened and safety protocols are lifted. The Oregon Economic and revenue forecast in May of 2021 stated, and I quote, “The outlook for the near-term economic growth is the strongest in decades, if not generations.”

Through June, unemployment in the Tri-County Portland area was 5.6%, an improvement from just over 6% in the first quarter. We continue to see growth in the high-tech and digital services with commercial recovery taking place at a brisk pace, the recovery of the commercial segment was a contributor to our strong year-over-year load growth.

Turning to Slide 6, as Maria said, we reported $0.36 per share compared to $0.43 per share in the second quarter of 2020. Year-to-date June, earnings per diluted share is $1.43, which compares to $1.34 in the comparable period of 2020. I'll cover our financial performance quarter-over-quarter on slide 7. First, we saw $0.04, a decrease in gross margin off a strong second quarter in 2020 where we experienced very low-power costs. Revenues increased 14% both due to the acceleration of COVID 19 recovery with our commercial and industrial customers and higher usage due to weather. Offsetting these increases were higher power costs to serve these higher loads, purchase power and fuel costs increased 70% for the quarter, primarily due to higher regional demand during the extreme weather we experienced. In preparation for the June high heat event, we procured more expensive power in the market to ensure we had extra resources at the ready for reliability.

Our fixed plan to O&M expenses were lower and increased earnings by $0.03 as we reduced maintenance expenses at our thermal generation facility -- facilities. This was partially offset by higher distribution expense related to restoration activities during the June heat wave and work that was delayed from the February storms to prepare system in advance the wildfire system. We did not spare effort or resources to respond to these events. Administrative expenses decreased earnings $0.04 as a result of higher legal and benefits expenses. And finally, there was a $0.02 decrease in tax expense from fewer PTCs production tax credits due to less wind generation.

Turning to Slide 8. Earlier this month, we filed a general rate case with the Oregon Public Utilities Commission to review our cost providing service and approve new prices to take effect in 2022. We have not filed a rate case since 2018 and our decision to delay -- pardon me filing into the middle of this year was in consideration of the timing of customer bill impacts as well as the impact of COVID-19 on the community, the overall price increase of 3.9% reflects nearly $1 billion of investment to upgrade our system to deliver safe, reliable and clean electricity to customers, specifically our proposed costs for recovery include projections to keep our system wildfires safe and resilient from weather and disaster related crisis.

Technology to upgrade the grid, including our integrated operation centers set to open by the end of this year. The repowering of our Faraday hydro facility, and most importantly, we have made investments in hundreds of individual projects, large and small to modernize strengthen and upgrade our T&D system for customer growth enhanced reliability and resilience. We work with stakeholders in this regulatory process, which should take approximately 10 months to complete with new prices expected to be effective in May of 2022. The procedural schedule for this docket is expected to be established in the coming weeks.

Our RFP process for new renewables is in progress, with independent evaluator selection moving forward as scheduled. We are still planning on issuing the RFP this upcoming November and bidding one or more benchmark resources into the process, regarding our deferrals related to the February storms, we continue to expect a decision from the OPUC on the approval of these expenses in 2022. Through June 30, we have deferred $52 million related to the February storms, we're confident in the recovery of these costs as they were prudently incurred in response to the unique and unprecedented nature of these storms. Cost recovery and approval of wildfires and COVID 19 expenses remain in their respective dockets.

Turning to Slide 9, which shows our capital forecast through 2025. Our capital plan remains on track and the investments we have made in grid maintenance and reliability have demonstrated their value to customers during the June heatwave. And I am reaffirming that we will not need to issue equity in 2021.

On slide 10. We continue to maintain a solid balance sheet, including strong liquidity and investment grade ratings accompanied by a stable outlook. We expect to fund 2021, capital expenditures and long-term debt maturities with cash from operations during 2021, which is expected to range from $575 million to $625 million. We are revising this range downward from $600 million to $650 million to represent the cash timing difference of regulatory deferrals. We have more than adequate capital and access to additional capital in order to support our system and our planned investments. We are still planning on a long-term debt issuance later this year, up to $400 million, which will refinance the short-term note issued earlier this year and satisfy our 2022 requirements.

Turning to slide 11, our first half 2021 performance has been strong and we are well on track to achieve long-term earnings growth guidance of 4% to 6% from the 2019 base year. We are raising our year-over-year annual energy deliveries guidance from -- to 2.5% to 3% from 1% to 1.5%. This reflects robust economic growth in our service territory and an accelerated recovery from 2019 -- pandemic 2019 at a quicker pace than anticipated. We anticipate recovery to continue into the third and fourth quarter, with slight declines in residential usage, as individual spend less time at home.

Looking ahead, seasonal conditions in the region, we anticipate above-average heat and wildfire potential this season due to the drought and the hot and dry extended forecast. We expect this to peak in the Pacific Northwest during August and September. In anticipation of these conditions, we are increasing our operating and maintenance expense forecast for Wildlife fire mitigation and vegetation management and a series of other items, which is increasing O&M by $10 million for the full year to invest in the reliability and resiliency of our system. Given this performance and our expectations for the second half of the year, we are raising our earnings guidance from $2.55 to $2.70 to a new guidance level of $2.70 to $2.85 per diluted share. In summary, I am optimistic on our outlook for the second half of the year, and I'm confident in the long-term prospects of the business. And now, operator, we're ready for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Insoo Kim with Goldman Sachs.

Maria M. Pope -- President and Chief Executive Officer

Hello, Insoo.

Insoo Kim -- Goldman Sachs. -- Analyst

Hi, hi, Maria. Hi, guys. My first question is for Jim, just on the financial side. I just want to understand the -- the raising of the guidance here. Is it just a combination of, I know you've had some tax benefits in the first quarter from the timing of regulatory items, as well as the higher demand, that you're talking about the user experience, which were I'm assuming above what you had forecasted, I know part of that demand is decoupled. But given the robust industrial demand is this all taking into like what gives you the confidence of the high range?

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

Yeah, thanks, Insoo. I think, I think you've got the right trend here. So we did have the benefit in the first quarter of $0.09 as it were. So that was off the midpoint of about $2.63, $2.64 of the, what I'll call the prior guidance. Plus, we looked at this additional demand and we took that into account, obviously offsetting that there is some headwinds with weather some additional O&M expense that we just talked about. So net-net, we've done a lot of sensitivities around this. So there is some puts and takes, but we're comfortable on this in this new range. I think you've got it pretty well covered.

Insoo Kim -- Goldman Sachs. -- Analyst

Got it. And related to that when we think about '22 obviously there is some, there's a lot of moving parts there is the ongoing rate case with we'll play out sometime in '22 and just given some of the increased O&M that you’re doing this year to increase the reliability. I'm just wondering on your thoughts on that ‘22 earnings power, with that four to six growth off of the ‘19 EPS, do you still feel like that's the right way to think about it, when given the different types of outcomes that could come out of the rate case and different operating expense items?

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

Yes I think we need to see a little more line of sight into '22 before we discuss that guidance range which we'll do in February of that year. So you're quite right, O&M is a factor, you've hit another important point. I will note that even though we have just raised the guidance on O&M, for very good reasons. If you look back at where we were in 2019, I expect this year's O&M to come in at that same level. 2 to 3 years later. So I think we've got strong performance in O&M we've got different challenges, obviously in the grid and with weather, but we're holding our own in terms of keeping O&M at reasonable levels and it's almost spot on to where it would be, if I'm right, about this year in terms of 2019. So I feel pretty good about that, actually.

Insoo Kim -- Goldman Sachs. -- Analyst

Got it. And just one more if I could. Maria, it seems like over the past few quarters. And every time we’ve had this call, there has been another unprecedented natural event that's happened. And hopefully, it's not a normal type of event, but if this proves to be a bit more frequent or if that's maybe the growth expectations, are there -- are you having conversations with the stakeholders on what type of maybe lower hanging fruit-type of investments that you as the utilities could make even more than above and beyond what you're already doing for reliability, you've mentioned some undergrounding and whatnot, but just curious on your general thoughts there.

Maria M. Pope -- President and Chief Executive Officer

Sure. As we work with stakeholders and really firefighter professionals, people who are first responders, disaster recovery specialists and others, we look at a variety of risks. And even though we haven't experienced which seems hard to believe given the last 12 months that we've had and with each one of our crisis that we've had, we've emerged stronger. We've taken the learnings and reflected them immediately in our planning and how we do our work. We still have much work to do and we will continue to assess the risks as we go forward and work collaboratively, as well as with regulators.

Insoo Kim -- Goldman Sachs. -- Analyst

Understood. Thank you so much.

Maria M. Pope -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Julien Dumoulin Smith with Bank of America.

Julien Dumoulin Smith -- Bank of America. -- Analyst

Hi, good morning. Can you hear me?

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

Hi. Yes.

Julien Dumoulin Smith -- Bank of America. -- Analyst

Excellent and congratulations on the outcomes here. Truly exceptional. And in fact to that end, and I'm using the word exceptional on purpose. I'm trying to understand what’s level of confidence here as you think about this load growth trend, not just through the back half of this year, because clearly your guidance range insinuates that, but rather more structurally. I mean it's obviously your service territory sits in a special place outside of California etc. And certainly, we've seen some of your neighbors point you very exceptional load growth trends themselves just yesterday. So I'm just curious how do you think about this on a sort of a multi-year basis and how does that sort of accrued of the business from a capex, from a rate affordability perspective, etc., just thinking about sort of the bigger picture consequences.

Maria M. Pope -- President and Chief Executive Officer

So Julien, first of all, thank you. And second, we've been talking for a couple of years about the robust nature of our service territory. We are very fortunate to operate and to serve in area where people want to be, where they are expanding their businesses, particularly in digital and high-tech and where we see people are interested in moving to. So we are very fortunate to have the opportunity to serve the additional growth, as well as invest in enhanced reliability resiliency. And I would also note that Oregonians are very clear on wanting a clean energy future and that was center to some of the legislation that was just passed this session, which in many instances is not too different than our own goals as a company, but further demonstrates the interest in a clean energy future within the state in the region.

Julien Dumoulin Smith -- Bank of America. -- Analyst

Got it. Excellent. And then, I mean, can we speak a little bit to the backdrop on this rate case and the ability to do this resolve any of these issues in a more settlement type fashion. I was just curious -- I know we're early. This is an evident question. But obviously, especially considering the load growth and your cost management efforts, I suspect that certainly easily some of the sharper considerations around any case.

Maria M. Pope -- President and Chief Executive Officer

So, as you know we -- we have a tradition or a history of collaboration in selling our rate cases. We work hand in glove with our -- with interveners and with stakeholders, not just in rate case processes, but in many other dockets. We felt very strongly going into this rate case, that we still have while things feel very robust, much of our economy is still fragile and there are still many that are impacted by COVID and are still struggling. So we worked very hard to keep our price increases as affordable and as low as possible and also to keep the number of issues down. We have a lot of issues that are of strategic importance in front of our commission, and so we really focused on a couple of mechanisms decoupling in our outage restoration mechanism and then really on planning for the future with regards to coal strip and exiting any generation of coal that we’re associated with. Let me let Jim spend a little bit more time on that because that's an important component here.

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

So, yesterday, we entered into a nearly unanimous settlement agreement regarding our depreciation study, which was filed earlier in the year, with the exception of one party, we filed with the PUC, our new depreciation study agreement, which will come into rates of course in this 2022 case. One of the important features is the accelerated depreciation of the coal strip expense to 2025. So we have already I think demonstrated, in an important way related to this case, and of course the future and our desire to get to exit any of the coal investment here that we have in Colstrip at a much earlier date. So I think that's a, that's an important development. It's really the first development we can talk about, vis-a-vis this case. Julien, if you caught that one.

Julien Dumoulin Smith -- Bank of America. -- Analyst

Got it. And I'm sorry to squeeze in another one. But you've got a lot going on here. And it really comes back to -- when could we be in a position to review this growth rate on the more comprehensive base, I mean you’ve clearly seen your peers across West Coast really ramp their spending and litigation efforts on wildfires. At the same time resource adequacy perhaps as acute and as concerning as we've seen in several decades and hydro is no exception to this. You all have a resource procurement underway as it stands already. I mean there are myriad factors if you are in considerations, although the timing is important. You know ultimately if I were to summarize that, how and when do we get sort of an integrated and comprehensive view on spending in earnings growth?

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

Yeah, I think you're hitting on a very important topic. We will look at this rate of growth towards the end of the year as we prepare for 2022. I think you've already identified one of the important variables which is growth. For me, we've got to watch this transition out of COVID-19 into a regular economy. The residential load is probably going to dip a little bit, commercial load is increasing as a transitional matter that was the sector of the economy that was hit the hardest, and then I think you and Insoo probably referred to something that I think is really important, which is the structural and sustaining of value and growth of our industrial loads. I mean I think that is here to stay and it's growing very rapidly. This composite should allow us to look at the future a little differently. Perhaps, think about growth a little differently. Perhaps, think about capex a little differently, which is equals growth in this business. So that's on the table, not today because we're watching a transition out of the pandemic right and we're watching very volatile load numbers, very volatile weather conditions. And so we're going to take all that into account, towards the end of the year and talk more fully about that in February, but I am frankly very pleased with the growth in that we've got, we've just got to manage the grid in these volatile weather conditions. So there are puts and takes, there is some tailwinds and headwinds against your question here. So if you could be patient we'll sort this out.

Julien Dumoulin Smith -- Bank of America. -- Analyst

Excellent. I wish you the best of luck. Thank you.

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

Thank you.

Maria M. Pope -- President and Chief Executive Officer

Thanks, Julien.

Operator

Your next question comes from the line of Peter Bourdon with Mizuho Securities.

Peter Bourdon -- Mizuho Securities -- Analyst

Hi, thanks for taking my question.

Maria M. Pope -- President and Chief Executive Officer

Thank you.

Peter Bourdon -- Mizuho Securities -- Analyst

Sure. So just a follow-up on that. In regard to the rate case that was filed is that reflective of the updated kind of growth viewe or is that more of the 1% long-term view?

Maria M. Pope -- President and Chief Executive Officer

It reflects the best information that we have. I would say that what Jim noted was a tremendous amount of volatility and probably at an unprecedented nature. One of the other things that's coming at us is higher inflation clearly both on the wage side as well as the material side. We are managing through a complex supply chain with no implications to our operations. But clearly, there are a number of other issues in front of us that we, we are all dealing with as we move forward.

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

Let me add, Peter what -- so just without getting too detailed, so the case was filed based on a load forecast as Maria said the best we had in hand in the March timeframe. What is normal in these cases and what will happen here as we will update that load forecast in the September time frame as discussions proceed with the regulator intervener. So there's a bit of a catch up there, and so that is infused into the case as it sort of picks up momentum for discussions.

Peter Bourdon -- Mizuho Securities -- Analyst

Okay, thank you. That -- that certainly helps. And then just to clarify, Jim, the first quarter $0.09 tax benefit that you had mentioned that is inclusive – or are included in the updated guidance. That's correct?

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

That is correct.

Peter Bourdon -- Mizuho Securities -- Analyst

Okay, thank you.

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

Sure.

Operator

Your next question comes from of Sophie Karp with KeyBanc.

Sophie Karp -- KeyBanc -- Analyst

Hi, good morning. Congrats on a good quarter. And thank you for taking my question. I was curious, guys if you could give us more color on the volume growth here. So clearly it has been a very strong quarter but, do you have a sense of how much of that is coming from accounts growth, people and or businesses moving in as opposed to just a cyclical rebound off of COVID disruption last year?

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

Yeah so, Sophie. Thank you and good morning. So, yeah, this is a little bit hard to parse right now, right, because what we cite numbers in our growth and of course weather-adjusted fashion. So that -- we've got, we've got weather-adjusted retail deliveries increased 8%. I've not seen that in this jurisdiction, of course, I'm fairly new to it but historically speaking, that's quite high. We've got, I would say a lot of industrial growth that's come in, I think we're also the third largest region in terms of in-migration of residential folks. And our commercial, as I said a moment ago to Peter is rebounding rapidly, but in terms of net growth, it's hard to pin that right now.

Sophie Karp -- KeyBanc -- Analyst

Got it. Do you expect that at some point you will be able to kind of do we need the data and maybe update the long-term forecast like of growth to reflect that, so we can extrapolate something or how do you -- how do you think about that?

Maria M. Pope -- President and Chief Executive Officer

Absolutely, Sophie. And what will be important is we put a few more quarters under us. We will be able to see through trends. When you get into extreme tail events, like we have been experiencing, you don't have a lot of data to rely upon. And so it's helpful to put a few more quarters behind us in terms of what we're seeing in terms of digital high-tech growth in migration. Jim noted, what is really going to happen with a commercial versus residential, I think is still to be determined. So far, the trends are looking good, but it's too early to call.

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

Yeah, Sophie just maybe highlight one other point, it's a pretty volatile situation at the moment given the transition in the economy, I saw this at the end of June, April and May were steaming along quite well, in terms of earnings expectations and we hit June, we had to enter into the market. As I said earlier to purchase additional power resources and we had some distribution work in the field, which caused June to be a very different month than we even expected. So I'm just referring that one month and sort of signaling that the quarter could have even been considerably better but for the volatility of weather in the power procurement and the distribution work we had to do in the field, which is all necessary. It's all job one all higher priority. But it shows you how volatile this could be. So well, as Maria said we want to see a little more time and some more results before we can look to the longer trends but we'll update you.

Sophie Karp -- KeyBanc -- Analyst

Got you, got you. Thank you. And then maybe on guidance and sort of view you're raising guidance and that's great. But with that said, we kind of go into the peak wildfire season in August and September. As you also noted. I guess as it relates to this particular situation what would be something -- some items to watch as it relates to your guidance?

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

Well, I mean I would only answer it this way, when we calculate the guidance we obviously take into account some of the recent learnings we have. So I can -- I can tell you that we built sensitivities for additional cost, power cost other cost on the O&M side and the like in terms of anticipating this we can't accurately calculate what will happen with weather, but I will -- I will tell you that new guidance reflects sensitivities we have for events out of our control. Let's put it that way. So there is – it’s embedded in our guidance this notion of the weather volatility, the additional power costs and O&M expense that could occur as a result.

Sophie Karp -- KeyBanc -- Analyst

All right. So let's say if we had fairly, fairly quiet wildfire season, then it would be potential further upside to your numbers, because you baked in some contingency for that?

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

What I would say to you that the top of our range contemplates that.

Sophie Karp -- KeyBanc -- Analyst

Got you. Thanks so much.

Operator

Your next question comes from David Peters with Wolfe Research.

David Peters -- Wolfe Research -- Analyst

Yeah, hi, good morning, guys.

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

Hi, Dave.

David Peters -- Wolfe Research -- Analyst

I was just wondering if you could maybe provide some additional color on the recent clean energy legislation that was signed. I know this was in line with your goals as the company, but are there areas that you think could be to incremental and of investment opportunities versus the plan that you currently have outlined. And just what processes would you need to work through before you maybe see some of that come to fruition.

Maria M. Pope -- President and Chief Executive Officer

Sure. So it was an extensive a legislative focus on clean energy on the grid on the reliability and resiliency overall. And as you look at really the headline is 80% reduction in greenhouse gases by 2030, 90% by 2035 and 100% by 2040. Obviously that latter part is more aspirational dependent upon technological innovation. But it's, it's, I think it's important that this acknowledges alignment with Portland General’s strategy for some time. So we'll be working collectively with regulators and with stakeholders as we accelerate our clean energy future. In addition it cleaned up some language that dates back to restructuring laws from 1999 and some other things like that. It also includes with a strong focus on environmental justice and community support provisions. We also saw an expansion of the community green tariffs. We've had community green tariffs in place for a while and this allows us to expand our programs to our customers who are interested in going further and faster with 100% clean energy sooner than the dates I just gave you. We worked collaboratively with many cities and others to get this done. And then I would also note transportation electrification. As you know, Oregon is a leader in transportation electrification. It was one of the center pieces of Governor Kate Brown's tenure leading the Western Governors this past year. And we will be, we now enable through this legislation to do more in terms of infrastructure, up to and behind the meter. So really enabling a faster transition to a clean transportation sector.

And then finally there is issues around the public purchase charge which is really traditionally supported what the number one energy efficiency program in the country, through the Energy Trust of Oregon and the good work that they do, making some adjustments, but most importantly, extending that to 2035 versus its prior expiration of 2025. So I would say that it's inclusive it's comprehensive, it make sure that we are focused on all parts of our community in particular, those who have traditionally been left behind, as we move to a clean energy future. We are very pleased with how things turned out, and more importantly the relationships and partnerships built in the ongoing dialog where we're probably just in the beginning of that and have much to learn.

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

David, just to cap that off. So this sets the table. I think, very well for the execution of our strategy for us now to step back and figure out how we want to cost out provide new products and implement -- so we're really pleased by the shape of it, the comprehensive nature of it. But now we're at the point where we can say, how do we execute and what sort of investments do we want to make against that, we're just at that beginning stage.

David Peters -- Wolfe Research -- Analyst

Great, thank you and then Maria. I know you testified on behalf of the Senator Wyden bill initially. Just curious, has there been any movement on that front recently or anything new that you could share?

Maria M. Pope -- President and Chief Executive Officer

I think there is terrific conversations on, I think there's lots of movement. I'm not going to forecast at all, but key to that legislation is our normalization provisions and a fix that will level the playing field between regulated utilities and others to be able to adequately recognize investment tax credits for the benefit of customers and accelerate a clean energy future, bringing additional participants to the table. And I think really changing the face of how we think of energy going forward.

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

And I think it's probably obvious to say, but I'll say it anyway. This could be meaningful in terms of the way that we implement the or respond to the RFP that we're anticipating in November. So we're really hoping that this moves forward in Maria leadership in this with the senator and others in the industry are hopeful.

David Peters -- Wolfe Research -- Analyst

Great, thank you, guys.

Maria M. Pope -- President and Chief Executive Officer

Thank you.

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

Thank you.

Operator

Your next question comes from Brian Russo with Sidoti.

Brian Russo -- Sidoti -- Analyst

Yeah, hi, good morning.

Maria M. Pope -- President and Chief Executive Officer

Hi, Brian.

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

Hi.

Brian Russo -- Sidoti -- Analyst

I think most of my questions have been asked and answered, but on the transport electrification bill and strategy that you're pursuing in front and behind the meter, can you give us some examples are you -- you're referring to EV charging stations within your service territory or are you just talking the need for new substations to deliver more electricity to various areas to support EV?

Maria M. Pope -- President and Chief Executive Officer

All of the above. So it will be expanding and making our system more robust. It will be additional cabling and infrastructure to get to charging stations and it will be charging stations in and of themselves. So it is a broad piece of legislation that really will enable us to help in the transition to the transportation sector, which we know is the largest emitter of greenhouse gases in our economy to more rapidly expanding into the electric sector and being more efficient and cleaner.

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

Hey, Brian, even before this legislation was implemented recently, we've been in discussions. We have a dedicated team, a very good team, but in discussions with various fleet owners looking at larger rollouts on their behalf. I think as you would probably know as well that the C&I sector moves very quickly on these opportunities and we are very active in that space right now, we have nothing to announce, but I think that this is going to be an interesting opportunity. This will be a place also, where in the future years we'll allocate increasing amounts of capital to this kind of segment. I think it could be a very important strategy for us and really a game changer over the longer term.

Brian Russo -- Sidoti -- Analyst

Great. My follow-up is going to be. I suppose there is very little capex involved in EV right now and I was just curious to know what type of dollar opportunity of investment this could be especially with the Governor's support? And then any time of time frame in which that might occur?

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

Yeah, we're sizing that right now and it's not something that will roll out today, but increasingly we'll talk more about that as we -- as we do more make ready work at the backbone of the system ready as we do fleet transactions. You'll hear more and more from us on that.

Maria M. Pope -- President and Chief Executive Officer

There is some really nice synergies as we do this work and invest in the system for transportation because it makes our regular business, serving customers, homes, businesses, industry that much more reliable and updating equipment and infrastructure. Also as we move to being able to use battery storage to support the stability of the grid with bidirectional charging that will be very, very helpful to overall reliability of the system as we bring on increasing amounts of renewables.

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

And not to belabor the point, but I would also add that while 63 megawatt showed up of demand resources here in the most recent heat event. I think that connecting the dots as we, as we roll out more TE and use the battery systems out there, increasingly we want to dramatically increase our DERs, and transportation of electrification is going to be one of those strategies that will, that will be symbiotic with that.

Brian Russo -- Sidoti -- Analyst

Okay and then just clarification, when we look at the second half of the year just for disclosures in the 10-Q as of June. In terms of net variable power costs and the PCAM you’re 6 million above, but I think the forward look through the end of the year is that you're going to be below the dead man, but within the sharing, so that implies some meaningful swing in favor of power costs in the second half of the year, is that the way to look at it?

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

I think directionally you're correct. I see it the same way. So there is a benefit there. I get the same 6 million above the baseline. So I think -- I think you've sized it correctly.

Brian Russo -- Sidoti -- Analyst

So it was a midpoint of your guidance, does it assume zero balance, neither a benefit nor on power costs?

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

Yes. I would say that's about right within certain minor degrees of difference. Yeah.

Maria M. Pope -- President and Chief Executive Officer

And I would say what we're really looking at is a change in margin. So you may have higher power costs, but we may also have higher revenue. We may have lower power costs but we may have lower revenue. So I think we're beginning to look at this differently given the volatility of the weather events that we've seen and likely we'll continue to see. As Julian noted resource adequacy issues remain significant for the Pacific Northwest and the entire West and we're just in a period of transition and a lot more volatility.

Brian Russo -- Sidoti -- Analyst

Got it. Understood. Thank you very much.

Maria M. Pope -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes live Andrew Levi with HITE Edge.

Andrew Levi -- HITE Edge -- Analyst

Hey, guys, can you hear me?

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

Yes, Andy.

Andrew Levi -- HITE Edge -- Analyst

Good. Okay. I was going to make sure that. Couple of questions. I mean a lot of it's kind of been touched on. But I guess my first question is really around the service territory and more stuff that you've touched on, as far as the economy is concerned. So it seems that you're in a very unique situation within our industry and probably maybe the best service territory within the continental 48. So can you maybe touch on what the opportunities are around kind of looking at that, that the fact that you have a lot of purchase power. You also have needs for -- for growth on top of that and you have a Colstrip as well. So I know you're going to file this -- this plan later in the year. But can you kind of give us an idea if this growth continues. How your plans may -- may change for the, -- on the upside?

Maria M. Pope -- President and Chief Executive Officer

So, Andy, given in the year that we've. Yeah, no, I think I got it. I think given the year that we went through, we, we've learned a whole new appreciation for the word agility and I would say, if we look at our RFP it’s for 150 average megawatts on the capacity need of 287, as we look going forward clearly, we're in a period of transition and we will work collaboratively with all the stakeholders to make sure that we continue to support and have energy for a stable and reliable grid and that will take a variety of different kinds of investments. When I think of what it's going to take for a clean energy future a stable affordable grid, it's going to really take an all of above set of solutions. And our ability to integrate renewables, our ability to integrate -- integrate distributed energy resources to work collaboratively with our customers, particularly those who have flexible load options and to be able to deliver value in unique ways at each of our customer want and need for their businesses for their residences, it's a tremendous opportunity and we're fortunate we've been talking a long time about the growth that's coming and it's nice to see it arrive.

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

Andy. I would say that Maria is really referring to the next tranche. Right. The 150 to 287 but to fulfill our goals in terms of decarbonization and the like, we're going to see a lot more growth of renewables in this region. So I think beyond the 2024, 2025 delivery I look beyond this to new IRPs that will add many, many hundreds more megawatts of renewable power as we go. We do see an exit from Coalstrip. All right. As I mentioned earlier, the 2025 depreciation is it has been filed and I'm hopeful about that. So I I see a strong transition here and I see a lot more renewables coming on to accommodate this growth. So, I'm looking -- I'm looking towards the end of the decade, not just this next tranche of opportunities and I'm seeing sustained growth, as you and Julien have pointed out and that sustained growth will require that we add more resources to the system. We have many more distributed energy resources transportation of electrification is only going to increase the growth opportunities that we now have. So it's a very I think positive outlook for resources and growth, as I look down the, down the line.

Andrew Levi -- HITE Edge -- Analyst

And then, I mean, I have a follow-up, but also Jim, Maria that the beauty of it is that, that topline growth and that growth within the service territory also helps offset the need for rate increases, not rate increases period, but obviously softens, softens that and then well...

Maria M. Pope -- President and Chief Executive Officer

You're absolutely right. Andy, just on that point. I think it's really important that, that we recognize that our ability to continue to serve customers and either energy provider does have a synergistic impact on all customers and our ability to invest in reliability and resiliency of the system.

Andrew Levi -- HITE Edge -- Analyst

And then the other opportunity I've seen, people kind of tend to look at the wildfires down in Southern Oregon as a risk, but I guess I kind of you pointed out, obviously your service territory is different and people should take a close look at that and that's very important. But also I view what's happening in Southern Oregon and more importantly what's happening in California as a large opportunity for you as a company and for your customers to get a more reliable system. So as -- as Oregon grows and as the Portland area grows, the reliability around your grid is going, it's always important, but obviously to keep that growth going, that grid needs to be reliable and to depend on power that's being imported from California and in other parts of the state. Have you guys kind of talked about with whether it's with the regulators or just internally and with other people power brokers in a better way to put it, no pun intended within the state of Oregon that some of this, whether it's renewable generation or whatever you end up installing that a lot of that has to be done around the load centers and in a sense to take away that fire risk, as far as supply as we saw in the June in the June event?

Maria M. Pope -- President and Chief Executive Officer

So, Andy, what you just articulated is core to our strategy around our integrated operation center, which is to be able to manage that more of distributed generation resources. As technology develops, we will basically include battery storage, as well as others to make this more reliable, more resilient. So you're absolutely correct. And overall at the company, we have an expression that we never let a good crisis go to waste, never would we have thought that when we came up with that term, going into the pandemic that we would see so many prices over the past 12 months. But I can tell you we have become -- we've emerged stronger out of every event that we've dealt with. We've come together as a company and as a team and worked collaboratively with our partners, our community leaders, our customers, first responders and people who really care about this region, Oregon and its future.

Andrew Levi -- HITE Edge -- Analyst

Got it. And then my last question is just really around dividend policy. When do we get a kind of an update on that. And I guess maybe that kind of goes lockstep and any update we may get whether it's after the rate case, or fourth quarter call or whenever it may be when we get the capex refresh, the growth rate refresh. I assume, there'll be some type of look assuming things are positive to look at the dividend policy as well.

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

Yeah, I would add to your question that what's pending here is, is to look at our growth rate and to look at our dividend. I think we provide a very competitive dividend today. We've been at a CAGAR of 5.5% over multiple years now. You saw the dividend from yesterday's announcement. I see that rate. We are -- at the quarter, we had a dividend payout ratio of call it, 60%, 61%. So we're clearly in a pretty strong position there. It does in part depend on the rate case and a few other factors, but growing the dividend here as I see it is absolutely going to be a steady affair for us, I think for the future, but exactly how much it will be around that 5.5% average CAGR that we've been experiencing is yet to be determined. So I think the dividend is a important part of our total return to shareholders and we expect to carry on that way.

Andrew Levi -- HITE Edge -- Analyst

Okay, thank you guys very much. And go trailblazers right, for next year.

Maria M. Pope -- President and Chief Executive Officer

Yeah.

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

Okay.

Maria M. Pope -- President and Chief Executive Officer

Thank you and thank you all for joining us today. We appreciate your interest in our company and we hope to connect with you in the near future and very least we'll see you next quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

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

Maria M. Pope -- President and Chief Executive Officer

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

Insoo Kim -- Goldman Sachs. -- Analyst

Julien Dumoulin Smith -- Bank of America. -- Analyst

Peter Bourdon -- Mizuho Securities -- Analyst

Sophie Karp -- KeyBanc -- Analyst

David Peters -- Wolfe Research -- Analyst

Brian Russo -- Sidoti -- Analyst

Andrew Levi -- HITE Edge -- Analyst

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