For context, the regulated utility over the last year generated total net income of about $240 million. Shares closed 8% lower on the news.
As a result of this surprise loss, management lowered full-year 2020 EPS guidance by about 40% at the midpoint. Earnings are no longer expected to cover the dividend in the year ahead.
Despite this temporary setback, PGE does not expect any impact to its dividend guidance or long-term EPS growth rate of 4% to 6% per year.
PGE's investment grade balance sheet and healthy liquidity position support its operating and capital plans for 2020 and 2021, which management said remain unaffected.
From a regulatory perspective, PGE (and its shareholders) will absorb these losses rather than attempt to pass them on to customers in the form of higher prices.
In other words, PGE's confidence in its dividend guidance does not hinge on approval from regulators to recoup any costs.
That said, utilities are not supposed to engage in speculative trading, so PGE should have never taken on so much risk.
PGE's board formed a special committee to review the energy trading that led to the losses and the company's procedures and controls related to the trading.
The utility's regulator, the Oregon Public Utility Commission, issued a statement saying it would monitor PGE's response but expects the results of the firm's investigation to establish appropriate preventative procedures.
Assuming losses do not balloon beyond management's estimate and PGE's relationship with regulators remains stable, we expect PGE's dividend and long-term outlook to remain intact.
Therefore, we are reaffirming PGE's Safe Dividend Safety Score and will continue monitoring the situation.