PORTLAND GENERAL ELECTRIC CO /OR/ (POR) stock intrinsic value fair value estimate & owner earnings analysis

Portland General Electric is the regulated electric utility for about 960,000 customers in a 4,000 square mile territory in Oregon that includes 51 cities. The Oregon Public Utility Commission sets its prices and an authorized return on shareholder capital (9.34% for 2025, down from 9.5% the year before). The company earned about 7.7% on average shareholder equity in 2025 ($306 million of net income on average equity of about $3.96 billion), so rate-setting lag is a standing cost to owners. How we measured the cash owners can take out. We started from operating cash flow, removed the swings in working capital, subtracted stock compensation, and subtracted the spending needed to keep existing assets running. For a utility we set that replacement spending equal to depreciation ($578 million in 2025), because the company's capital program is driven by multi-year rate-base projects, not revenue growth. Total 2025 capital spending was $1,189 million; the company's own capital table shows $642 million of ongoing replacement and customer-connection spending, plus $174 million of transmission and $327 million of battery and other projects ($1,143 million before capitalized financing costs). On this basis owner earnings per share were $1.41 in 2019, $0.84 in 2020, $1.91 in 2022, $2.77 in 2023, $3.09 in 2024 and $4.34 in 2025. Because lenders are paid out of the business, we then add back the cash interest paid ($136 million in 2023, $174 million in 2024, $198 million in 2025) to get the cash the whole business produces: $407 million, $496 million and $679 million. Debt is then subtracted separately. Two things distort the recent rise. First, 2025 operating cash flow includes $179 million from selling federal tax credits (2024: $112 million, 2023: $24 million), but the company earned only $48 million of energy tax credits in 2025 ($58 million in 2024, $27 million in 2023) and has only $69 million of credit carryforwards left, so most of the 2025 sale proceeds were a one-time clearing of older credits. The Tucannon wind farm stopped generating production credits in 2024. Second, a regulatory-asset line swung from a $126 million outflow in 2024 to a $24 million inflow in 2025. We therefore set the level at the median of the 2023 to 2025 figures after limiting tax credit sales to the credits earned in each year ($410 million, $442 million, $548 million): $442 million a year. We use 2023 onward because capital spending and the share count stepped up in 2023 and the earlier years describe a smaller business. Owner earnings grew 49% in total dollars in 2025 ($481 million versus $322 million); our first-year assumption in the base case is no growth, because the jump is mostly the tax credit clearing and the cost-deferral reversal described above. First-half 2026 earnings were $0.97 a share versus $1.47 (second quarter $0.59 versus $0.56) and first-half operating cash flow was $488 million versus $567 million, which does not support lifting the level. What we credit and what we leave out. We credit no growth in any case. The company plans to spend $1.66 billion in 2026 and $1.74 billion in 2027 and to fund it with debt and new shares (diluted shares rose from about 90 million in 2022 to about 116 million in mid-2026). Those new assets earn a regulated return only if the commission allows it, and the company has earned well under its allowed return, so we do not count the benefit. The signed February 2026 agreement to buy PacifiCorp's Washington utility operations for $1.9 billion (about 140,000 customers) requires regulatory approval, with a $35 million termination fee payable by the company in specified circumstances; we include neither its earnings nor its cost. What persists is the state-approved service territory and the rate base already built, which keeps earning as long as replacement spending is made, so each case runs as a continuing stream rather than ending after ten years. Debt. Long-term debt was $4.93 billion at June 30, 2026 (average interest rate of 4.60% at the end of 2025) and finance leases were $290 million at the end of 2025; there was no commercial paper or revolver borrowing at the end of 2025. Scheduled maturities are $160 million in 2027, $100 million in 2028, $200 million in 2029 and $325 million in 2030. Because most of the debt carries coupons below current rates (its fair value was $4.31 billion against $4.68 billion of long-term debt at the end of 2025), we reduce what the company owes by $400 million in the base and bull cases and by $250 million in the bear case, where refinancing is assumed to be less favorable. Base case: $21.90 a share. The business produces $442 million a year, flat, worth about $7.37 billion. It owes about $4.82 billion after the adjustment above. The $2.55 billion difference over 116.4 million diluted shares is $21.90. Bear case: $12.43 a share. We use the stretch from 2019 to 2021, when cash produced by the business ran at $242 million, $188 million and $229 million, about 38% below the $355 million and $354 million of 2017 and 2018 (2019 also carried a $65 million pension contribution). We apply that 38% drop to the three years after the first (to $274 million, still above cash interest of roughly $200 million a year) and then assume the commission cuts the allowed return by a full percentage point, an effect of about $40 million a year on about $4 billion of equity, leaving $402 million a year. The business is worth about $6.41 billion, it owes about $4.97 billion, and the difference of $1.45 billion is $12.43 a share. Not included: a wildfire. The company's risk disclosures state that there is no legislation limiting wildfire liability or providing a relief fund, that insurance may not cover it, and that PacifiCorp's 2020 Oregon fires have produced jury awards that news reports put past $1 billion. A loss of that size would be about $8.60 a share and is outside every case. Bull case: $30.43 a share. The company closes the gap to its allowed return, about $65 million a year more, reached over two years. Industrial deliveries rose 14.1% in 2025 as data centers came online, but the company also warns that large customers may not materialize or may leave and strand its costs, so we credit nothing for load growth. The business is worth about $8.36 billion, it owes about $4.82 billion, and the difference of $3.54 billion is $30.43 a share. What could make this wrong. If true replacement spending runs near the company's planned ongoing capital of $865 million to $925 million a year for 2026 to 2030 rather than near depreciation, without a matching regulated return, each extra $100 million a year costs roughly $14 a share, since debt is about two-thirds of the business value. If the commission lets the company earn its allowed return sooner, or tax credit sales hold near 2025 levels, value is higher. Our figures for earlier periods are not comparable with the earlier estimates for this company, which were prepared on a different basis. Margin-of-safety price: $15. We are fairly sure of the cash level inside a range of about $50 million a year, which is worth about $7 a share because so much of the business is financed with debt. The worst plausible event is a wildfire for which the company is held responsible; the company operates in a state-approved territory, but in the bear case the equity is worth only about $1.45 billion, so a loss of that size would consume most of it, and no case includes it. If we are wrong about replacement spending or the tax credit run rate, the shares are worth materially less than the base case. The price assumes a holding period of about three years. Over that period the dividend ($0.5513 a quarter, about $2.21 a year) is roughly 15% a year on $15. If the base case plays out and the shares are worth $21.90 after three years, the base case implies about 24% a year including dividends; if the bear case arrives and the dividend is cut in half, the bear case implies roughly breaking even. At a higher price a bad outcome in any of the three areas above would cost more than the dividend can repay.