Fair Value of FInancial Instruments

12 Months Ended

Dec. 31, 2011

Fair Value of Financial Instruments Note [Abstract]

Fair Value of FInancial Instruments

FAIR VALUE OF FINANCIAL INSTRUMENTS

PGE determines the fair value of financial instruments, both assets and liabilities recognized and not recognized in the Company’s consolidated balance sheets, for which it is practicable to estimate fair value as of December 31, 2011 and 2010, and then classified based on a fair value hierarchy. The fair value hierarchy is used to prioritize the inputs to the valuation techniques used to measure fair value. These three broad levels and application to the Company are discussed below.

Level 1—Quoted prices are available in active markets for identical assets or liabilities as of the reporting date.

Level 2—Pricing inputs include those that are directly or indirectly observable in the marketplace as of the reporting date.

Level 3—Pricing inputs include significant inputs which are unobservable for the asset or liability.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy.

PGE recognizes any transfers between levels in the fair value hierarchy as of the end of the reporting period. Changes to market liquidity conditions, the availability of observable inputs, or changes in the economic structure of a security marketplace may require transfer of the securities between levels. There were no significant transfers between levels, except those net transfers out of Level 3 to Level 2 presented in this note, for the years ended December 31, 2011 and 2010.

The Company’s financial assets and liabilities whose values were recognized at fair value are as follows by level within the fair value hierarchy (in millions): 

	As of December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets:
Nuclear decommissioning trust (1):
Money market funds	$	—	$	14	$	—	$	14
Debt securities:
Domestic government	3		9		—		12
Corporate credit	—		11		—		11
Non-qualified benefit plan trust (2):
Equity securities:
Domestic	7		2		—		9
International	1		—		—		1
Debt securities - domestic government	3		—		—		3
Assets from price risk management activities (1) (3):
Electricity	—		2		—		2
Natural gas	—		17		—		17
	$	14	$	55	$	—	$	69
Liabilities - Liabilities from price risk management activities(1) (3):
Electricity	$	—	$	108	$	29	$	137
Natural gas	—		201		50		251
	$	—	$	309	$	79	$	388

(1) Activities are subject to regulation, with certain gains and losses deferred pursuant to regulatory accounting and included in regulatory assets or regulatory liabilities as appropriate.

(2) Excludes insurance policies of $23 million, which are recorded at cash surrender value.

(3) For further information, see Note 5, Price Risk Management.

	As of December 31, 2010
	Level 1		Level 2		Level 3		Total
Assets:
Nuclear decommissioning trust (1):
Money market funds	$	—	$	13	$	—	$	13
Debt securities:
Domestic government	3		9		—		12
Corporate credit	—		9		—		9
Non-qualified benefit plan trust (2):
Equity securities:
Domestic	16		—		—		16
International	2		1		—		3
Debt securities - domestic government	2		—		—		2
Assets from price risk management activities (1) (3):
Electricity	—		4		1		5
Natural gas	—		11		—		11
	$	23	$	47	$	1	$	71
Liabilities - Liabilities from price risk management activities (1) (3):
Electricity	$	—	$	102	$	17	$	119
Natural gas	—		153		104		257
	$	—	$	255	$	121	$	376

(1) Activities are subject to regulation, with certain gains and losses deferred pursuant to regulatory accounting and included in regulatory assets or regulatory liabilities as appropriate.

(2) Excludes insurance policies of $23 million, which are recorded at cash surrender value.

(3) For further information, see Note 5, Price Risk Management.

Trust assets held in the Nuclear decommissioning and Non-qualified benefit plan trusts are recorded at fair value in PGE’s consolidated balance sheets and allocated to securities that are exposed to interest rate, credit and market volatility risks. These assets are classified within Level 1, 2 or 3 based on the following factors:

Money market funds—PGE invests in money market funds that seek to maintain a stable net asset value. These funds invest in high-quality, short-term, diversified money market instruments, short-term treasury bills, federal agency securities, certificates of deposits, and commercial paper. Money market funds held in the Nuclear decommissioning trust are classified as Level 2 in the fair value hierarchy as the securities are traded in active markets of similar securities but are not directly valued using quoted market prices.

Debt securities—PGE invests in highly-liquid United States treasury securities to support the investment objectives of the trusts. These securities are classified as Level 1 in the fair value hierarchy due to the highly observable nature of the pricing in an active market.

Fair values for municipal debt and corporate credit securities are classified as Level 2 as prices are determined by evaluating pricing data such as broker quotes for similar securities and adjusted for observable differences. Significant inputs used in valuation models generally include benchmark yield and issuer spreads. The external credit rating, coupon rate, and maturity of each security are considered in the valuation as applicable.

Equity securities—Equity mutual fund and common stock securities are primarily classified as Level 1 in the fair value hierarchy as pricing inputs are based on unadjusted prices in an active market. Principal markets for equity prices include published exchanges such as NASDAQ and the New York Stock Exchange (NYSE), both American stock exchanges. Certain mutual fund assets included in commingled trusts or separately managed accounts are classified as Level 2 in the fair value hierarchy as pricing inputs may not be directly observable in the marketplace.

Assets and liabilities from price risk management activities are recorded at fair value in PGE’s consolidated balance sheets and consist of derivative instruments entered into by the Company to manage its exposure to commodity price risk and foreign exchange rate risk, mitigate the effects of market fluctuations, and manage volatility in net power costs for the Company’s retail customers. For additional information regarding these assets and liabilities, see Note 5, Price Risk Management.

For those assets and liabilities from price risk management activities classified as Level 2, fair value is derived using present value formulas that utilize inputs such as quoted forward prices for commodities and interest rates. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include over-the-counter forwards and swaps.

Assets and liabilities from price risk management activities classified as Level 3 consist of instruments for which fair value is derived using one or more significant inputs that are not observable for the entire term of the instrument. These instruments consist of longer term over-the-counter forward and swap derivatives. Commodity option contracts whose fair value is derived using standardized valuation techniques, such as Black-Scholes, are also classified as Level 3. Inputs into the valuation of commodity option contracts include forward commodity pricing, forward interest rates, and historic volatilities and correlations.

Changes in the fair value of net liabilities from price risk management activities (net of assets from price risk management activities) classified as Level 3 in the fair value hierarchy were as follows for the year ended December 31, 2011 (in millions):

Net liabilities from price risk management activities as of December 31, 2010	$	120
Net realized and unrealized losses (1)	86
Purchases	3
Settlements	(1		)
Net transfers out of Level 3 to Level 2	(129		)
Net liabilities from price risk management activities as of December 31, 2011	$	79
Level 3 net unrealized losses that have been fully offset by the effect of regulatory accounting	$	88

(1) Contains nominal amounts of realized losses, net.

The comparable information contained in the preceding table was as follows for the years ended December 31 (in millions): 

	2010			2009
Net liabilities from price risk management activities as of beginning of year	$	154		$	123
Net realized and unrealized losses (1)	65			47
Purchases, issuances, and settlements, net	27			—
Net transfers out of Level 3 to Level 2	(126		)	(16		)
Net liabilities from price risk management activities as of end of year	$	120		$	154
Level 3 net unrealized losses that have been fully offset by the effect of regulatory accounting	$	95		$	49

(1) Contains nominal amounts of realized losses, net.

Transfers into Level 3 occur when significant inputs used to value the Company’s derivative instruments become less observable, such as a delivery location becoming significantly less liquid. Transfers out of Level 3 occur when the significant inputs become more observable, such as the time between the valuation date and the delivery term of a transaction becomes shorter. PGE records transfers in and transfers out of Level 3 at the end of the reporting period for all of its financial instruments.

Long-term debt is recorded at amortized cost in PGE’s consolidated balance sheets. The fair value of long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to PGE for debt of similar remaining maturities. As of December 31, 2011, the estimated aggregate fair value of PGE’s long-term debt was $2,091 million, compared to its $1,735 million carrying amount. As of December 31, 2010, the estimated aggregate fair value of PGE’s long-term debt was $1,968 million, compared to its $1,808 million carrying amount.

For fair value information concerning the Company’s pension plan assets, see Note 10, Employee Benefits.