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Portland General Electric Co (POR) Q1 2020 Earnings Call Transcript

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Portland General Electric Co (NYSE: POR)
Q1 2020 Earnings Call
Apr 24, 2020, 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 First Quarter 2020 Earnings Results Conference Call. Today is Friday, April 24th, 2020. [Operator Instructions]

For opening remarks, I will turn the conference call over to Portland General Electric's Director of Investor Relations and Treasury, Chris Liddle. Please go ahead, sir.

Chris Liddle -- Director, Investor Relations and Treasury

Thank you, Jonathan. 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 we'll be referencing throughout the call. The slides are available on our website at investors.portlandgeneral.com.

Referring to Slide 2, I would like to remind everyone that 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 Lobdell, 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 Pope -- President and Chief Executive Officer

Thank you, Chris and good morning everyone. Welcome to Portland General Electric's first quarter 2020 earnings call. Today I'll share an update on the impact of the COVID-19 pandemic and how PGE is responding. I will also cover our first quarter financial results, revised earnings guidance, the economy in our service territory, including expected electricity usage and the integrated resource plan, which was acknowledged by the Oregon Public Utility Commission in March. Jim will provide more detail on the quarter's results, the thinking behind our earnings guidance and dividend announcement, our financial position and strong balance sheet. He will also cover the Company's O&M and capital reductions as well as our regulatory environment.

Turning to Slide 4. For the first quarter of 2020, we reported net income of $81 million, or $0.91 per share, an increase of $0.09 per share compared to 2019 results. The strong first quarter was driven by an increase in high-tech and digital services demand as well as lower power costs and operating expenses. While we had a good quarter, our reality today is very different and as such we are revising our guidance down to $2.20 to $2.50 per share from $2.50 to $2.65 per share reflecting the significant uncertainty and downward economic pressure caused by COVID-19. Despite this revision, we are reaffirming our long-term earnings growth guidance of 4% to 6%.

Moving to Slide 5. All sectors of the economy, our customers and the communities we serve are facing unprecedented challenges. As an essential service provider, we are focused on continuity of service, seamlessly generating, transmitting and delivering safe, reliable and affordable electricity. At the same time, we have great respect and appreciation for our leadership role both as a vital service provider and as a partner to Oregon communities.

Given the economic impact we are facing, we've taken steps to provide support and assistance including suspending service disconnections and late fees and providing flexible payment plans. To support our community partners, PGE and the PGE Foundation have committed over $1 million to local food banks, educational programs and other immediate community needs.

As a business, we are also not immune. In response to the recessionary impacts, we have taken steps to ensure a strong balance sheet and liquidity by raising capital, holding our dividend flat and reducing O&M and capital spending. Our entire management team is taking aggressive actions to reduce operating costs in 2020 and 2021, which will allow us to operate efficiently despite uncertain economic conditions as well as help mitigate further customer price increases and achieve our 2020 revised earnings guidance.

In terms of energy deliveries, in the first quarter industrial demand driven by high-tech and digital services, grew 9.5%. Residential and commercial deliveries also increased, resulting in net growth of 3.5% weather-adjusted. Given mild temperatures, actual deliveries decreased 0.5% in the first quarter. Most recently, since our stay at home, stay safe order, we estimate a drop in energy consumption of approximately 10% from the closures of small businesses and the commercial sector. And when combined with increases in residential energy usage of about 5% and modest decreases from the industrial sector overall, energy delivery is down approximately 4%.

Overall for 2020 we are expecting energy deliveries for the year to decline 1% to 2% relative to 2019 whereas prior to COVID-19, we had expected an increase of 0.5% to 1.55%. Jim will spend more time on the details of our energy delivery scenarios and our revised guidance.

As we have previously discussed, we are fortunate to operate in a service territory with strong customer growth driven by high-tech and digital services. We're continuing current substation build-outs and there is an ongoing interest in new facilities throughout our service area. This growth along with expected return to strong regional in-migration after the pandemic passes are the primary drivers of our long-term energy delivery growth expectations of 1% annually.

Turning to Slide 6. We continue to execute on our long-term strategy. The Wheatridge renewable energy facility continues to progress. The wind portion of the facility is on track to be completed by the end of this year. Our integrated operations center which will centralize key operations in one secure facility is also on track. Civil work is well under way, footings are complete and the shield [Phonetic] structures are being constructed.

In March, our 2019 integrated resource plan was acknowledged by regulators and includes additional renewable resources, energy efficiency, flexible load program and clean energy technologies that will enhance grid reliability and stability. We anticipate procurement activities for renewables and new capacity to begin later this year and into 2021. We are also engaged in productive discussions with regional operators of existing resources to enter into capacity contracts.

With that, I'll turn the call over to Jim. Thank you.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Thank you, Maria, and good morning everyone. I'll echo Maria's comments that the safety and the health of our customers and our employees will continue to be the top priority as we move forward through the rest of this year. At the same time, we are taking measures to ensure that we're able to keep our service affordable for our customers and I'll provide more specifics in a moment.

Moving on to Slide 7, I'll walk you through our quarter-over-quarter results. As Maria had mentioned earlier, our earnings per share of $0.91 is up $0.09 from the comparable quarter in 2019. First gross margin increased earnings a total of $0.17 per diluted share and was driven by lower purchase power and fuel expense and as total revenues showed no change quarter-over-quarter. Residential energy deliveries decreased 5% due to milder temperatures, which decreased earnings $0.02 per share. Industrial deliveries increased $0.09 led by strong growth in high-tech as Maria had mentioned, which represented 15% of our commercial and industrial revenues in 2019.

Lower quarter-over-quarter net variable power costs increased earning $0.17 per share. This was primarily attributable to a more mild winter in the region and strong wind production throughout the quarter. In the first quarter of 2019, we experienced effects stemming from the Enbridge gas pipeline explosion constraints and a winter with high energy demand that drove up prices to some of the highest levels since the California energy crisis. The remaining gross margin drivers are, a $0.04 per share increase from the decoupling mechanism and a $0.02 per share decrease from halted late fees and other items as a result of COVID-19, next a $0.05 increase attributable to lower plant expense, primarily driven by reduced maintenance at our Boardman plant as we move toward ceasing coal operations in 2020, a $0.04 decrease is attributable to higher distribution expense as part of our ongoing efforts to increase resiliency throughout our system, a $0.01 decrease attributable to higher depreciation and amortization from an increase in capital expenditures in 2020, a $0.06 decrease attributable to a non-qualified benefit trust loss due to unfavorable market conditions and finally a decrease of $0.02 for miscellaneous items.

On to Slide 8. In the first quarter, we took several actions to ensure that we have the liquidity available to meet our needs as we continue to serve customers during this unique time. Earlier this week, our Board reviewed and held our dividend steady at $0.385 consistent with past quarters. The decision to not increase the dividend reflects the uncertainty that we faced associated with the COVID-19 pandemic and current economic climate. Unlike prior years, our Board will reevaluate the dividend on a quarterly basis to determine if adjustments can be made to ensure alignment with our targeted dividend growth rate of 5% to 7% over the long term.

Earlier this month, we closed on a 364-day term loan of $150 million. We secured favorable pricing with a tight spread indicating investors' interest in our Company and as an investment -- as an investment opportunity because of our strongly rated debt. We continue to have access of $480 million in borrowing capacity under our revolving credit facility and have another $220 million letter of credit facility, of which just $51 million is being used to support our power operations and certain decommissioning obligations.

For 2020, we expect to fund estimated capital requirements with cash from operations which is expected to range from $550 million to $600 million, issuance of long-term debt securities up to $535 million and the issuance of commercial paper as needed. During the last quarter, we also had favorable access to overnight markets. We did not -- when we did need to access commercial paper markets, we were able to issue at favorable rates. Going forward, we have ample liquidity to position the Company well for the fluctuations in revenues and we have no plans to issue equity at this time.

Additionally, though pension asset performance has suffered we do not project needing to make any contributions in 2020 and 2021. Our balance sheet remains strong and we plan to use this and our strong credit ratings for the benefit of our customers to drive the economy forward.

Moving on to our regulatory update. As Maria had mentioned, we are leaning in supporting our customers during this challenging time by suspending all service disconnections and late fees. This is the right thing to do for our customers, but will increase results in bad debt expense and lost revenue and the magnitude of the nature of these costs will depend on the duration and severity of the pandemic and related health policy orders.

In March, we filed with the Oregon Public Utility Commission to defer for potential later recovery the expenses associated with COVID-19 impacts. In the meantime, the Commission continues to move proceedings forward without delay such as our IRP and our annual power cost filing. Earlier this month, we also issued a notice to -- earlier this month they also issued a notice to rescind an earlier order that concluded they did not have the authority to allow deferrals of costs related to capital investments. A schedule has been established for the parties to submit exceptions to the proposed order by the commission stating that it does have the authority to defer capital cost. We expect the order in June.

Moving to Slide 9 which shows our updated capital forecast for 2020 through 2024. We remain focused on delivering safe, reliable and affordable power to our customers. As we adjust to a new normal, the patterns of how we deliver energy have changed, challenging our electric grid in new ways. In the last several years we have undertaken considerable investment in our system. If not for these investments, we would not be able to provide the reliability that our customers expect during these challenging times. Our safety number this quarter is strong at 0.14 reflecting ongoing reliable service for our customers.

Given the economic climate -- the economic environment, we are reducing our capital expenditures in 2020 and 2021 to support liquidity and reduce pressure to customer prices while continuing to invest in the resiliency of our system. In doing so, we are delaying projects, which have the least impact on reliability while also anticipating reduced demand for connections, street lights and road widenings in recognition of the slowing economy. Major projects like Wheatridge and the integrated operating center remain on track. Additionally, we have not yet experienced any significant supply chain disruption due to COVID-19.

Maria also mentioned management actions to further reduce our operating expenses. Our customers will be facing challenging times ahead and we will work to limit the cost pressures they will face. We have already started taking cost reduction actions and we plan to achieve these savings through implementing a hiring freeze and voluntary furloughs, cutting discretionary expenses, reducing outside services and contract labor and continuing our focus on process improvements and automation through the implementation of robotics, the sharing of internal resources and efficient management of field resources. Both capital expenditure and O&M reductions will help us achieve our desired earnings guidance for 2020 as well as position us to meet our long-term growth expectations of 4% to 6%. For the balance of the year, we are forecasting a range of scenarios that will inform management decisions and allow us to adjust to changing conditions. These scenarios reflect the timing of certain events such as the duration of the stay at home order and the phased reopening of Oregon's economy to understand the impact on gross margin, operating expenses and determine the appropriate earnings guidance range for 2020.

The specific assumptions behind our revised guidance are, a decrease in retail deliveries of 1% to 2% weather-adjusted with decreases concentrated in the commercial sector, particularly offset by increased residential load and flat industrial loads, we expect that we will exceed the decoupling cap of 2% per customer class, which will result in lost opportunity for the recovery of the decline in commercial use per customer, average hydro conditions for the year, wind generation based on five years of historical levels or forecast studies when historical data was not available, normal thermal plant operations, operating and maintenance costs between $570 million and $590 million versus our previous forecast of $590 million to $610 million, which includes an increase in our full year forecasted bad debt expense from $9 million to a total of $15 million due to the moratoriums on collection activities and customer disconnects, as well as increased unemployment among our customers. This is being more than offset by actions management is taking to reduce operating expenses and revise depreciation and amortization expense between $415 million and $435 million to between $410 million and $430 million.

At the top end of the guidance range we assume phased lifting of the social distancing beginning in June with the continued recession in Q3 and slow recovery beginning in Q4 and carrying into 2021. We also assume a lower increase in bad debt expense and most importantly, a decline of just 1% in overall loads. At the bottom end of the guidance range, we assume a more prolonged social distancing which brings with it a lower gross margin due to a 2% decline in overall loads, as well as higher O&M inclusive of greater bad debt expense. Should the depth of duration of these events worsen, we will continue to help our customers, care for our employees and protect the health of our Company.

And now, operator, we're ready for questions.

Questions and Answers:

Operator

Certainly. [Operator Instructions] I would now like to introduce our first questioner. Our first question comes from the line of Julien Dumoulin-Smith from Bank of America. Your question please.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Good morning, Julien.

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

Thank you, operator. Hey. Top of the morning to you guys. Thank you very much. Appreciate all the disclosures. Got a handful of follow-ups here if you can bear with me, real quickly. Perhaps, Maria, coming back to what you started with, how do you think about your long-term growth rate in terms of a base year and at the same time, how are you thinking about your rate case timing? I suspect it's not necessarily changing given your comments, but I'd love to hear how you think about your earned ROE trajectory, how that fits in with your 4% to 6%? And then I've got a follow-up.

Maria Pope -- President and Chief Executive Officer

Sure. So Julien, first of all, thank you very much. With regards to our 4% to 6% timing, as you know on a prior call we got all tied up on which year was our base year, how long will we continuing the 4% to 6% guidance. And what we have been clear on is that it's an ongoing 4% to 6% long-term guidance. Previously with a slightly higher capital expenditures, we were at the higher end of that range. And we remain confident that we are still within the range.

With regard to rate case timing, we are of course assessing the inflationary cost increases that we have, other cost increases that are coming from different areas of our Company, combined with our ability to proactively manage our O&M and capital costs down and with a very cautious eye toward customer prices, given this very difficult environment and expectations of continued economic pain. And we will talk more about that as we progress through the year in terms of rate case timing.

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

Got it. And then as a follow-up here. You all are admittedly the first to talk about capex, so apologies if this is more of an industry question. But how do you think about reducing capex? At the same time -- you all have one of the best balance sheets in the sector at the same time. So presumably, this is in light of either some combination of lower load and/or ensuring costs and ROE trajectory etc. So I'm sure a lot of factors went into it. Can you frame up your decision as to the cadence of capex reductions and why now and why the amount?

Maria Pope -- President and Chief Executive Officer

Sure. So let me just give you a little bit of perspective of how we've looked at this. Jim and -- the organization has prepared a number of scenarios under his direction. He gave you sort of a couple of bookends in his prepared remarks. But we really have looked at this from a scenario forecast standpoint. And I think consistent with our values to make sure that we're doing the right thing for customers, employees and the communities that we serve, we have -- we are dealing with an unknown that I think is really unprecedented, it's just one of the reasons we have such wide guidance.

So with that let me turn it over to Jim on how he has looked at it and what I think is very robust thinking that we will continue to monitor as we go through the course of the year.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Yeah. Julien, as we were looking at the capex for the Company, as I mentioned earlier, we've been investing very heavily in the Company on improving the reliability of the system and getting aging infrastructure out and getting more of an integrated grid, when I look forward, we're going to continue to do exactly that. So we do see a lot of opportunity to continue to improve the reliability and functionality of the grid.

However, because I don't have a very good sense as to how long this pandemic is going to play out, we took a conservative perspective in order to align with what we believe to be a slowing economy. And if the economy picks up, if we end up in a V recession versus a U versus a square root, we will look at our capital expenditures and try and get back on track in making sure that we are doing everything that we can to improve the capability of the grid. In the meantime, I have to say, we're taking a conservative position.

Maria Pope -- President and Chief Executive Officer

Yeah. I would say prepare for the worst and hope for the best and take swift and prudent action have been guiding principles.

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

Yeah. And then the last swift one, if I can, just related to that confidence on just the total amount of megawatts procurement for the renewable side.

Maria Pope -- President and Chief Executive Officer

We're still looking at the same amount of renewable procurement. But we have pushed out the process with regards to that procurement. We are also tying it closely with a capacity procurement in the IRP and we will have more news on that as we continue through the year. Jim may have more he wants to touch on.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Yeah. Keep in mind that with the extension of the production tax credits, we had a movement out from 2023 to 2024 and I think we've reflected that previously. In addition, the Commission processes are moving along and we are confirming the actions out of the IRP and we believe that we're still on the same path that we were on before. It just might take a little bit longer, given the fact that we're all working from home. So it's a little bit more difficult.

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

Understood. Take care you all.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

All right. Thanks. Julien.

Operator

Thank you. Our next question comes from the line of Insoo Kim from Goldman Sachs. Your question please.

Insoo Kim -- Goldman Sachs -- Analyst

Thank you. My first question is related to the cost deferral filing that you guys filed last month. If that were to be approved, would it -- from the reading of it, it seems like whether it's bad debt or other costs or the lost revenues associated with COVID-19 would it provide, at least from an income statement perspective, a lot of the -- provide an offset to what you're kind of embedding in your revised guidance?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Insoo, the Commission agreed with all of the costs that we are tracking that these are recoverable. These expenses are being run to the income statement right now as you noted. And they would be an increase in revenues over a future period of time that we'd be able to recover if they agree.

Insoo Kim -- Goldman Sachs -- Analyst

So it wouldn't be necessarily a reversal of what you are embedding into your income statement on a retroactive basis?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

No, it depends on the decision by the Commission. I mean, they could come out and say recover it in a single year, they could come out and say recover it over a longer period of time. It's to be seen.

Insoo Kim -- Goldman Sachs -- Analyst

Understood. And then just a little bit more technical question on the 2% decoupling cap that you have on residential and commercial is, I assume that your revised guidance embeds the level of decoupling that you are able to apply on both, but on the residential side, does that also mean that if residential is a positive number above and beyond the baseline, then you do have to take a 2% decoupling impact on the negative side? Is that the right way to think about it?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

That is the right way to think about it if there is a greater than 2% move in that customer class. And right now we are not anticipating that we will hit the upside on the residential. What we are anticipating is, as you noted, we would be hitting it on the downside for the commercial customer class.

Insoo Kim -- Goldman Sachs -- Analyst

Understood. Thank you. And I hope you and your family stay safe.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Likewise. Thank you, Insoo.

Operator

Thank you. Our next question comes from the line of Brian Russo from Sidoti. Your question please.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Good morning, Brian.

Brian Russo -- Sidoti & Company -- Analyst

Hi. Good morning. Hey, just a follow-up on the deferral mechanism. When are written comments due and/or has any of the historical traditional intervene groups like filed anything yet for or against your proposal?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

No, the schedule hasn't been set yet for it. So we don't know at this particular point in time.

Brian Russo -- Sidoti & Company -- Analyst

Okay, got it. And then it looks like capex in the next two years is down a couple of hundred million. But it looks like base -- relative to your prior debt issuance disclosures you're raising debt by a couple of hundred million. And correct me if I'm wrong, but it seems like your cash balance is going to increase quite noticeably. Am I missing something or maybe you could just add some more color on that?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

No, Brian, you're completely right and very good at math.

Brian Russo -- Sidoti & Company -- Analyst

Okay.

Maria Pope -- President and Chief Executive Officer

We found that in a difficult time that it was a prudent step to have additional liquidity to meet our customers' needs. As you know, utilities across the country are neither disconnecting customers during this time or charging late fees. So we wanted to make sure that we had a solid balance sheet and liquidity to be able to operate as a healthy utility through this period no matter what came our way.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Yeah, because we are seeing an uptick in requests for time payment agreements. We've always had that on the residential side and now we're seeing it start to be requested on the commercial side. We had a difficult economy, just like every state in the US.

Brian Russo -- Sidoti & Company -- Analyst

Do you have any debt --

Maria Pope -- President and Chief Executive Officer

So [Speech Overlap] your projection is correct and we do have excess cash.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Yes.

Brian Russo -- Sidoti & Company -- Analyst

Great. Do you have any debt maturities in the next two years that you can use that cash to pay it off or no?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Yeah. We have about $160 million that's due in 2021. And so if we -- if everything plays out well and we're sitting on a lot of excess cash, then we're going to use that to take that debt down.

Brian Russo -- Sidoti & Company -- Analyst

Okay, great. And then on the dividend policy, what's the payout target?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Right now the dividend on an annual basis is $1.54 and have a 60% to 70% payout ratio for the Company.

Brian Russo -- Sidoti & Company -- Analyst

Okay. And you left the dividend constant as you noted earlier in your comments. Is this the time of the year that the Board would have increased the dividend or is this status quo to maintain the dividend at this point?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

No, Brian, you're right. Typically in the April meeting of the Board we would look at it and make a determination as to whether we're going to make a change in the dividend. We looked at it this time and we decided that given the economic climate we are facing in the state of Oregon, that it would not be the right time to be -- actually it would be kind of tone-deaf to turn around and increase the dividend now. So we are going to look at it on a quarterly basis going forward as we have a better understanding as to what the economic climate is going to look like.

Brian Russo -- Sidoti & Company -- Analyst

Okay. So essentially we should assume a flat dividend implied for 2020 unless the economy changes and then various scenarios within your financial guidance change?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

That's reasonable, but as I mentioned, we will look at it on a quarterly basis and make a determination. I mean we do have our long-term dividend guidance out there of 5% to 7%.

Brian Russo -- Sidoti & Company -- Analyst

Okay, great. And I know you mentioned the rest of the year is normal hydro, and the first quarter was normal hydro, can you just add some insight as to kind of what you're seeing at your facilities right now as the hydro season really begins in earnest?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

We're seeing normal hydro conditions as you see. We're probably anticipating, and I've got to double-check this, don't hold me to it, that we'll see a little bit delay in the runoff for this season. When we look at our actual facilities across our generating fleet because of the COVID-19 and the implications associated with it, we have a no-touch policy.

So, effectively we're saying we don't want to go out and make any major maintenance on any of our facilities because we want to make sure that everything is there from a reliability perspective, because mother nature is still out there from a weather sense.

One other change that we've made and we've factored this into our guidance is that the owners of Colstrip have decided to delay the annual maintenance associated with that facility, and so that's being delayed out to the fall instead of being taken right now.

As you can imagine, having a lot of craft coming into a very small town at the same time the nation is facing a pandemic wouldn't be well received. So very appropriately the management of the facility has decided to delay that outage.

Brian Russo -- Sidoti & Company -- Analyst

Okay, and one last clarification, the new mid-point of the revised guidance that assumes a PCAM [Phonetic] balance of zero?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Sorry, could you say that again, Brian?

Brian Russo -- Sidoti & Company -- Analyst

The mid-point of the revised guidance, is that still assuming kind of the flat over or under recovery of power core causes embedded in the net variable power cost assumption in the baseline?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

You will note in the Q that we are significantly below the baseline right now, and we're anticipating at year-end that we will also be below.

Brian Russo -- Sidoti & Company -- Analyst

Okay. Thank you very much.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Thanks, Brian. Stay safe.

Maria Pope -- President and Chief Executive Officer

Thank you, Brian.

Operator

Thank you. Our next question comes in the line of Shahriar Pourreza from Guggenheim Partners. Your question please.

Shahriar Pourreza -- Guggenheim Partners -- Analyst

Hey, good morning, guys.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Good morning, Shahriar.

Shahriar Pourreza -- Guggenheim Partners -- Analyst

Just on -- just a follow-up on the capex question, I'm just trying to get a sense of the $175 million reduction between 2020 and 2021. How much of that sort of capital program was deferred versus outright canceled? Because obviously when you look at your run rate, it hasn't been adjusted despite sort of the timing comments you made in your prepared remarks. And then as we are sort of thinking about that $500 million run rate, is there more opportunities to flex there or is that really based -- is that really reliability related? So, I'm just kind of curious if there is more of a protracted downturn. Is there more downside to the $500 million or is that sort of safe?

Maria Pope -- President and Chief Executive Officer

Thank you, Shah. In terms of the types of projects that we have not -- are not going to be doing in 2020 and 2021, many of those are important projects that we will do later. Depending upon the economies that we have and the outlook for customers for growth in the region, we will determine the timing of that. We are making sure that we are operating a safe and reliable system, but bringing back on new capital expenditures will be dependent upon our economic outlook.

I would say that there are a number of digital and other companies, who continue to find this region attractive. And should they move forward with their plan that we would need to construct new substations for them, and those submissions are not in our forecast. So, we will need to see, we are in unprecedented times, and we look forward to being able to adjust both upwards and downwards should we need to be responsive to the conditions that are there.

Shahriar Pourreza -- Guggenheim Partners -- Analyst

That's helpful, and Maria, just the cadence of the updates, I know we've changed it, it used to be annual, like how do we sort of think about the cadence of when you could update investors around sort of the capital program and the economic backdrop and how those are kind of intertwined?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Sure. As you noted, or as we have told you before and other investors, we've changed our capital program the way that we address it throughout the year. Previously, we would make the change in the October time frame, as we were figuring out our budgets for the pump year. And now we have moved to where we are looking at it on a quarterly basis as we get greater certainty regarding projects, because we wanted greater diligence and our project management across the company.

So as we looked at this particular quarter, we've made the appropriate changes. And as we look at the future quarters, we will again look at it to see the economy improving, are there more things that we can pull forward and be able to get done to maintain the resiliency and interoperability of our system.

Shahriar Pourreza -- Guggenheim Partners -- Analyst

Terrific. Thank you, guys.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Thanks, Shahriar.

Maria Pope -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Steve Fleishman from Wolfe Research. Your question please.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Good morning, Steve.

Steven Fleishman -- Wolfe Research, LLC -- Analyst

Hi, good morning. So just -- I might have missed this, but how should I interpret the 4% to 6% growth rate reaffirmation? Is that off of the new earnings guidance base including the benefits of recovering from the pandemic or is that off the old base, so that it wouldn't like include that recovery phase? How should I think about that?

Maria Pope -- President and Chief Executive Officer

Yeah, I think you want to think about 4% to 6% is over time. We got all tied up a couple of quarters ago on exactly which year it started or stopped or whatnot, and so we're really looking at that as long-term fights.

Previously, we had been at the higher end of that 4% to 6%, and so we were able to maintain the range even though we took some of our near term capital expenditures down. Our service territory remains very strong. We expect to continue to see 1% load growth over time, and as I mentioned, some customers, who are interested in moving here would need additional construction to support their investment in the region.

Steven Fleishman -- Wolfe Research, LLC -- Analyst

Okay. So it's kind of -- it's not exactly clear what the basis. Is that -- is that --?

Maria Pope -- President and Chief Executive Officer

4% to 6% over time. And when we look at it on multiple years, on three-year averages in the future and into the past on an average of our compounded growth rate basis, we feel comfortable in the estimates.

Steven Fleishman -- Wolfe Research, LLC -- Analyst

Okay. Another question just to understand better, so when you talk to a lot of utilities about the impact of the virus and sales, typically there is obviously a negative impact due to weaker sales and the weaker economy, but generally seeing kind of residential go up and then commercial industrial go down and then two offsets. So residential going up is normally a good offset, but is it fair to say because of your decoupling, you have limited benefit of that as an offset? And maybe that's one difference of your situation versus others? Is that my misunderstanding [Phonetic]?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

I look at it from this perspective. We're seeing an uptick in residential. I think Maria mentioned in her remarks about 5%, and we don't anticipate that we are going to be running into the decoupling cap on the residential side right now. When we look at the commercial side and just the commercial side, we're seeing a downtick of about 10%. And if you think about it, lodging, nobody is staying in hotels, restaurants are closed, you've got transportation equipment, government education facilities they're all closed at this particular point in time. So there are sectors that are taking deeper dives than others. When you look at grocery stores, grocery stores are doing great. When you look at some of the healthcare, those are still being very, very good loads. So we anticipate that on that commercial side, we will hit that cap. And when we look at our industrial loads, we're not seeing that much of a change and so we're not anticipating an impact there. Does that help answer your question?

Steven Fleishman -- Wolfe Research, LLC -- Analyst

Yes, no, I think so. I think the other thing we hear from companies is demand charges for industrial helping out, but it sounds like your industrial is not the issue. It's more on the larger -- it's more in the commercial, that's the pressure.

Maria Pope -- President and Chief Executive Officer

Yeah, let me give you a little bit of perspective. Half of our load is roughly residential, a little bit over a third is sort of in the other manufacturing office, real estate, insurance and government sectors and about 15% is in the high-tech and digital services area, and it's really that high-tech and digital services area where we're seeing the most long-term growth.

We also continue to see strong in migration into the first quarter, we outpaced the rest of the country. In general once the pandemic period passes, and probably your guess is as good as ours, and when people are comfortable returning to thinking about where they live, we continue to expect to see in-migration outpaces the rest of the country at about 1.3%.

Steven Fleishman -- Wolfe Research, LLC -- Analyst

Okay. And so I have another question which is just the -- this amount that you're seeking deferral treatment before, excuse me that you're seeking deferral treatment for, how much of that is in the guidance as a pressure that if you've got deferral treatment, I guess in theory could be -- could go away?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Right now we are assuming all of it is in there and it's embedded in the ranges. Now, that means that --

Steven Fleishman -- Wolfe Research, LLC -- Analyst

And how much is there -- what's the amount though, how much?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

We haven't given out the exact amount and it really is going to depend on how long this is going to last. And so we're looking at bad debt expense, we're looking at incremental interest expense, we're looking at increased operating expenses, whether it be cleaning facilities following CVC rules, whether it is changing outages associated facilities because we couldn't get it done during the time periods that were low cost for power markets, and so on and so forth. So we're just collecting all of those particular costs. We've made that filings everything that theoretically from March 20th forward is what we're going to be talking to the commission about.

Steven Fleishman -- Wolfe Research, LLC -- Analyst

Okay, great. Thank you. Appreciate it.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Thanks, Steve.

Operator

Thank you. Our next question comes from the line of Paul Patterson from Glenrock Associates. Your question please.

Paul Patterson -- Glenrock Associates -- Analyst

Hey, good morning.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Good morning, Paul. Good morning.

Paul Patterson -- Glenrock Associates -- Analyst

So I want to follow up with just a few quick things. First of all, the capex that is going away or that's no longer in the forecast, and I apologize if I missed this, but what kind of capex -- what kind of projects are we talking about? What's the nature of that capex that's going away?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

It is -- if you look at our entire portfolio, we're reprioritizing work that we were doing out in the field, and it's basically anything that doesn't impact reliability or customer service. If you think about the fact that if the economy is slowing, you're going to get fewer requests from municipalities and other agencies for street widenings, moving poles, things of that nature.

You're going to see a little bit of decrease in the commercial sector. We still have industrials that are -- that have demands that we're trying to meet. So we're really pulling back in that, you might say, governmental requests and commercial requests.

Paul Patterson -- Glenrock Associates -- Analyst

Okay. And then the 4% to 6% growth, that long range growth, I guess sort of following on Steve's question on the -- I guess what I'm sort of trying to wrestle here is how do we think about that -- the economic forecast that's associated with that 4% to 6% growth? And I guess you guys would be thinking about that happening. You say long term, but that would be beginning 2021 or how should think about that?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Now we -- as Maria had mentioned earlier, we originally started this conversation around 2018 and then we just decided, based on what we're seeing on a forward basis that the 4% to 6% really represents what we think the earnings potential of the Company is. You got to keep in mind, we've got an integrated operating center that is around $215 million that will be going in.

We've got the Wheatridge Facility, our part of that that will be going in. We've got -- as Maria said, we're still a good state for in-migration. And so the underlying economics of the region are still going to continue to support growth for the Company.

Maria Pope -- President and Chief Executive Officer

Yeah. I would also add that our long-term strategy has not changed. In fact, early discussions and times that we see is that our customers in the State of Oregon are as focused on decarbonizing our energy supply today as they were before the pandemic.

We continue to see interest in electrification of sectors and an overall focus on continuing to build out a smart and integrated grid. The IOC that Jim referred to was a terrific platform as is the technology inside of that building. So we really see through this period of time, the ability to in many ways accelerate the transformation from a technological standpoint and to emerge stronger and lower costs after the pandemic.

Paul Patterson -- Glenrock Associates -- Analyst

No question, you guys have a strong economic environment and everything and I think most would agree with that. I guess what I'm sort of wondering though is with the global pandemic, and just -- and it's early days obviously here, but with the potential for some significant economic disruption longer term, do you see any potential slowdown in some of that activity that could come about because the economy might not -- just globally speaking, I mean granted you guys might be relatively better off but it is a pretty widespread concern out there. I just am wondering, do you see any potential regulatory or legislative work here that could change things?

Maria Pope -- President and Chief Executive Officer

I think we're in an unprecedented period of change, and so to say that we would not expect more change would be naive. Jim has run a number of scenarios from modest impact to deep and extended impacts and we're preparing for those. We remain focused on electrifying, decarbonizing and performing.

I also would note that we're fortunate to have a service territory that is attractive to high-tech and the digital companies, and those companies seem to be doing better through this period than others. I think we have been realistic with regards to manufacturing small business and others and we continue to be very concerned with the economic impact of those customers as well as the impact to people who are unemployed in our service area.

We're truly in unprecedented times and I think we have taken prudent steps to follow a wide variety of scenarios and different outcomes and we will be assessing them as we live through this period.

Paul Patterson -- Glenrock Associates -- Analyst

Okay. Thanks so much, guys.

Maria Pope -- President and Chief Executive Officer

Thank you.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Thanks, Paul.

Operator

Thank you. Our next question comes from the line of Travis Miller from Morningstar. Your question please.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Good morning, Travis.

Travis Miller -- Morningstar -- Analyst

God morning. Thank you. Hi. I want to come back to the dividends here for a second. Obviously, when you keep that dividend flat, the annual rate on the revised guidance is right in that 60% to 70% range.

Is it fair to say that when we're thinking about how the Board is thinking that any prospective dividend increase before say next April, before you do your next annual planning, you'd have to be looking toward the high end of that guidance range to get any kind of during the year type of increase? is that a good way to think about it just because then you've stuck to that 60% to 70% pretty tightly?

Maria Pope -- President and Chief Executive Officer

Yeah. I don't think that the Board is looking at any one metric or formula during this period of time. I think they're taking the balance of the information that we're seeing. As I mentioned, Jim has done extensive scenario planning and we will reassess it in each quarter.

Travis Miller -- Morningstar -- Analyst

Okay. And then I'll flip here, I know that a lot of discussion around the 4% to 6% on the earnings growth, wonder if you could have that conversation around the dividend growth at 5% to 7% type of long-term growth rate. What the base is, what the thought is in terms of length of time and so forth?

Maria Pope -- President and Chief Executive Officer

Like the earnings growth, we don't have a set period of time of start or finish. One of the things -- they're obviously correlated, and you should note that most recently, we have been growing at the higher end of that range, and we continue to believe that the 5% to 7% is that accurate range going forward. And again, no matter how we slice it and dice it on three-year averages or compounded averages and what periods of time, we get within that period.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

And this is our long-term metric.

Maria Pope -- President and Chief Executive Officer

Yeah.

Travis Miller -- Morningstar -- Analyst

Sure. Okay. Then just real quick, technical thing that $0.06 decline from the benefit trust, is that something that is a one-time in the quarter or is that something that would continue on at some level for the rest of the year?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

It really just depends on how the market performs, and it's investment in assets associated with non-qualified benefit plans.

Travis Miller -- Morningstar -- Analyst

Okay. And fairly correlated with the stock market versus anything other kind of market or financial?

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Yes. That's the right way to think about it, Travis.

Travis Miller -- Morningstar -- Analyst

Okay. Very good. Thank you very much.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Thanks, Travis.

Operator

Thank you. Our next question is a follow-up from Insoo Kim from Goldman Sachs. Your question please.

Insoo Kim -- Goldman Sachs -- Analyst

Thank you. Just one more if I could. Maria, just broadly, when you're looking at the current environment and especially in your jurisdictions, I think what you guys are doing is trying to take a pretty conservative stance on where things could be economically not just in the next few months, but into next year.

Are you -- in your area are you seeing any evidence that the economic activity is slowing maybe even more than some of the other states in the country, or is it just more of your general conservatism that's playing out here?

Maria Pope -- President and Chief Executive Officer

No. I can't comment on other jurisdictions. One of the things that I think has been impressive about the pandemic is the different impacts to different states. One of the things that's very heartening about the state of Oregon is that we have continued construction and manufacturing activity, unless the manufacturing activity has been halted by companies themselves.

Our Governor has, I think, listened across the state recognizing the different types of regions we have and the different work that we all do, and has taken very prudent approach. We've looked at our business segment-by-segment, and I think we're very much preparing for the worst and hoping for the best. We're seeing a 9% or 9.5% growth in the industrial sector, driven by high-tech and digital demand in the first quarter was really heartening.

We've been talking about that with you for a long time in terms of our strong in-migration and high-tech growth, and we're seeing it in the numbers, and that obviously is a sector that's not overly impacted by what we're seeing if anything benefits. We also were very heartened by the fact that the commission acknowledged our integrated resource plan and our strategy, while sensitive to the economic realities of our time has not changed.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Yeah. Insoo, I'd say that we're being conservative, and we look at this is as we're going into this pandemic we want to go in strong and we want to come out strong and we want to come out fast.

Insoo Kim -- Goldman Sachs -- Analyst

Makes sense. Thank you so much.

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

Thanks.

Operator

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Maria Pope, President and CEO, for any further remarks.

Maria Pope -- President and Chief Executive Officer

Thank you very much for joining us today. We appreciate your time, your interest in Portland General Electric, especially during these unprecedented times of uncertainty. We remain focused on serving customers with safe, reliable, and affordable electricity, following through on our strategic objectives, and please hope that all of you stay safe and healthy during these challenging times. We look forward to connecting with you virtually after the second quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Chris Liddle -- Director, Investor Relations and Treasury

Maria Pope -- President and Chief Executive Officer

James Lobdell -- Senior Vice President of Finance, Chief Financial Officer and Treasurer

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

Insoo Kim -- Goldman Sachs -- Analyst

Brian Russo -- Sidoti & Company -- Analyst

Shahriar Pourreza -- Guggenheim Partners -- Analyst

Steven Fleishman -- Wolfe Research, LLC -- Analyst

Paul Patterson -- Glenrock Associates -- Analyst

Travis Miller -- Morningstar -- Analyst

More POR analysis

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