Ian Clark of Dichotomy Capital presented his investment thesis on Portland General Electric (US: POR) at Best Ideas 2025, held from January 9-24.
Thesis Summary
Portland General Electric is a vertically integrated electric utility serving over 900,000 customers in the Portland metropolitan area, with a peak load capacity of 4,500 MW. Historically, the company has achieved 5-7% EPS growth and expects load growth of approximately 2% annually through the end of the decade. Recent shifts in industrial demand, driven by semiconductor and AI-related energy consumption, present a significant growth opportunity that POR has been slow to fully acknowledge. However, its upcoming Integrated Resource Plan (IRP) in Q1 2025 is expected to reflect this increased demand, supporting further investment in capacity and infrastructure expansion.
Regulatory developments are also working in POR’s favor. While Oregon’s Public Utility Commission (PUC) has been cautious about allowing higher returns on equity (ROEs), recent reforms have improved the company’s ability to recover energy cost volatility, reducing earnings unpredictability. Additionally, POR’s planned entry into California’s Extended Day Ahead Market (EDAM) in 2026 will enhance regional resource optimization and dampen price volatility, creating a more stable earnings environment. These factors, along with a substantial capital expenditure program, position POR as a growth-oriented utility with improving fundamentals.
Despite these positive tailwinds, POR faces key challenges, including the need to raise $300 million in the near term to fund its expansion plans. Oregon’s regulatory environment, while not as restrictive as some states, remains a potential headwind, particularly as affordability concerns limit the PUC’s willingness to approve aggressive rate increases. Additionally, while industrial load growth has accelerated, there is some uncertainty about the long-term sustainability of AI and semiconductor-driven electricity demand. Energy price volatility also remains a risk, though recent regulatory adjustments provide a degree of mitigation.
From a valuation perspective, POR recently traded near book value, with upside as it benefits from load growth and declining earnings volatility. Applying an EV/EBITDA framework that accounts for these factors, a fair value estimate ranges from $45 to $70 per share, with a base case of $65. If the company successfully executes on its growth initiatives, particularly in industrial demand and market participation through EDAM, it could see a significant re-rating, presenting investors with an attractive risk-reward.
Slides
Let’s listen to the full session and look over the transcript.
