VARIABLE INTEREST ENTITIES

PGE has determined that it is the primary beneficiary of three VIEs and, therefore, consolidates the VIEs within the Company’s consolidated financial statements. All three arrangements were formed for the sole purpose of designing, developing, constructing, owning, maintaining, operating and financing photovoltaic solar power facilities located on real property owned by third parties and selling the energy generated by the facilities. The Company is the Managing Member and a financial institution is the Investor Member in each of the Limited Liability Companies (LLCs), holding equity interests of less than 1% and more than 99%, respectively, in each entity. PGE has determined that its interests in these VIEs contain the obligation to absorb the variability of the entities that could potentially be significant to the VIEs, and the Company has the power to direct the activities that most significantly affect the entities’ economic performance.

Determining whether PGE is the primary beneficiary of a VIE is complex, subjective and requires the use of judgments and assumptions. Significant judgments and assumptions made by PGE in determining it is the primary beneficiary of these LLCs include the following: (i) PGE has the experience to own and operate electric generating facilities and is authorized to operate the LLCs pursuant to the operating agreements, and, therefore, PGE has control over the most significant activities of the LLCs; (ii) PGE expects to own 100% of the LLCs shortly after five years have elapsed, at which time the facilities will have approximately 75% of their estimated useful life remaining; and (iii) based on projections prepared in accordance with the operating agreements, PGE expects to absorb a majority of the expected losses of the LLCs.

During 2010 and 2009, impairment losses of $4 million and $5 million, respectively, were recognized on the photovoltaic solar power facilities held by the LLCs and classified in Depreciation and amortization expense in PGE’s consolidated statements of income. Based on PGE’s intent to ultimately acquire 100% of the LLCs and the fact that the capitalized cost of the photovoltaic solar power facilities exceeded the undiscounted cash flows of the respective facility over its estimated useful life, impairment analyses were performed. The impairment losses were equal to the excess of the carrying amounts over the estimated fair values of the photovoltaic solar power facilities. Estimated fair values were determined using the discounted cash flow method, assuming a discount rate (after taxes) of approximately 7%, which is PGE’s allowed rate of return, and estimated useful lives ranging from 20 to 25 years. The new cost basis of the photovoltaic solar power facilities are amortized over their remaining estimated useful lives. The valuation technique used to measure fair value of the photovoltaic solar power facilities at the impairment date is considered Level 3 in the fair value hierarchy, as described in Note 4, Fair Value of Financial Instruments.

As noted above, PGE has consolidated the VIEs even though it has less than a 1% ownership interest in the LLCs. The participating members are allocated their proportionate share of the LLCs net losses based on the respective members’ ownership percent. Accordingly, the majority of the impairment losses are attributable to the noncontrolling interests through the Net losses attributable to noncontrolling interests in PGE’s consolidated statements of income for the years ended December 31, 2010 and 2009.

Included in PGE’s consolidated balance sheets are LLC net assets as follows (in millions):



	As of December 31,
	2011		2010
Cash and cash equivalents	$	1	$	1
Accounts receivable	—		4
Electric utility plant, net	5		5

These assets can only be used to settle the obligations of the consolidated VIEs.