Price Risk Management (Notes)

9 Months Ended

Sep. 30, 2013

Price Risk Management Note [Abstract]

Price Risk Management

PRICE RISK MANAGEMENT

PGE participates in the wholesale marketplace in order to balance its supply of power, which consists of its own generation combined with wholesale market transactions, to meet the needs of its retail customers, manage risk, and administer its existing long-term wholesale contracts. Such activities include fuel and power purchases and sales resulting from economic dispatch decisions for Company-owned generation. As a result, PGE is exposed to commodity price risk and foreign currency exchange rate risk, from which changes in prices and/or rates may affect the Company’s financial position, results of operations, or cash flows.

PGE utilizes derivative instruments to manage its exposure to commodity price risk and foreign currency exchange rate risk in order to reduce volatility in net power costs for its retail customers. These derivative instruments may include forwards, futures, swaps, and option contracts for electricity, natural gas, oil, and foreign currency, which are recorded at fair value on the condensed consolidated balance sheets, with changes in fair value recorded in the condensed consolidated statements of income. In accordance with the ratemaking and cost recovery process authorized by the OPUC, PGE recognizes a regulatory asset or liability to defer the gains and losses from derivative instruments until realized. This accounting treatment defers the fair value gains and losses on derivative instruments until settlement of the associated derivative instrument. PGE may designate certain derivative instruments as cash flow hedges or may use derivative instruments as purely economic hedges. The Company does not engage in trading activities for non-retail purposes.

PGE’s Assets and Liabilities from price risk management activities consist of the following (in millions):

	September 30, 2013			December 31, 2012
Current assets:
Commodity contracts:
Electricity	$	—		$	1
Natural gas	1			3
Total current derivative assets	1		(1)	4		(1)
Noncurrent assets:
Commodity contracts—Natural gas	—		(2)	2		(2)
Total derivative assets not designated as hedging instruments	$	1		$	6
Total derivative assets	$	1		$	6
Current liabilities:
Commodity contracts:
Electricity	$	42		$	44
Natural gas	47			83
Total current derivative liabilities	89			127
Noncurrent liabilities:
Commodity contracts:
Electricity	36			38
Natural gas	35			35
Total noncurrent derivative liabilities	71			73
Total derivative liabilities not designated as hedging instruments	$	160		$	200
Total derivative liabilities	$	160		$	200

(1) Included in Other current assets on the condensed consolidated balance sheets.

(2) Included in Other noncurrent assets on the condensed consolidated balance sheets.

PGE’s net volumes related to its Assets and Liabilities from price risk management activities resulting from its derivative transactions, which are expected to deliver or settle through 2017, were as follows (in millions):

	September 30, 2013				December 31, 2012
Commodity contracts:
Electricity	12			MWh	11		MWh
Natural gas	104			Decatherms	86		Decatherms
Oil	(1		)	Gallons	—		Gallons
Foreign currency	$	7		Canadian	$	7	Canadian

PGE has elected to report gross on the balance sheet the positive and negative exposures resulting from derivative instruments with counterparties under agreements that meet the definition of a master netting arrangement. In the case of default on, or termination of, any contract under the master netting arrangements, these agreements provide for the net settlement of all related contractual obligations with a counterparty through a single payment. These types of transactions may include non-derivative instruments, derivatives qualifying for scope exceptions, receivables and payables arising from settled positions, and other forms of non-cash collateral, such as letters of credit, which are excluded from the offsetting table presented below.

Information related to Price risk management liabilities subject to master netting agreements is as follows (in millions):

							Gross Amounts Not Offset in
	Gross		Gross		Net		Condensed Consolidated
	Amounts		Amounts		Amounts		Balance Sheets
	Recognized		Offset		Presented		Derivatives			Cash Collateral(1)		Net Amount
As of September 30, 2013:
Liabilities:
Commodity contracts:
Electricity(2)	$	14	$	—	$	14	$	(14	)	$	—	$	—
Natural gas(2)	3		—		3		(3		)	—		—
	$	17	$	—	$	17	$	(17	)	$	—	$	—
As of December 31, 2012:
Liabilities:
Commodity contracts:
Electricity(2)	$	20	$	—	$	20	$	(20	)	$	—	$	—
Natural gas(2)	7		—		7		(7		)	—		—
	$	27	$	—	$	27	$	(27	)	$	—	$	—

(1) As of September 30, 2013 and December 31, 2012, the Company had collateral posted of $6 million and $18 million, respectively, which consists entirely of letters of credit.

(2) Included in Liabilities from price risk management activities—current and Liabilities from price risk management activities—noncurrent.

Net realized and unrealized (gains) losses on derivative transactions not designated as hedging instruments are recorded in Purchased power and fuel in the condensed consolidated statements of income and were as follows (in millions):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013		2012
Commodity contracts:
Electricity	$	(1	)	$	(3	)	$	17	$	40
Natural Gas	10			(19		)	30		6

Net unrealized and certain net realized (gains) losses presented in the table above are offset within the condensed consolidated statements of income by the effects of regulatory accounting. Of the net (gains) losses recognized in Net income for the three months ended September 30, 2013 and 2012, net losses of $7 million and net gains of $30 million, respectively, have been offset, with net losses of $66 million and $14 million offset for the nine months ended September 30, 2013 and 2012, respectively.

Assuming no changes in market prices and interest rates, the following table indicates the year in which the net unrealized loss recorded as of September 30, 2013 related to PGE’s derivative activities would become realized as a result of the settlement of the underlying derivative instrument (in millions):

	2013		2014		2015		2016		2017		Total
Commodity contracts:
Electricity	$	8	$	40	$	23	$	7	$	—	$	78
Natural gas	21		34		11		11		4		81
Net unrealized loss	$	29	$	74	$	34	$	18	$	4	$	159

PGE’s secured and unsecured debt is currently rated at investment grade by Moody’s Investors Service (Moody’s) and Standard and Poor’s Ratings Services (S&P). Should Moody’s and/or S&P reduce their rating on PGE’s unsecured debt to below investment grade, the Company could be subject to requests by certain wholesale counterparties to post additional performance assurance collateral, in the form of cash or letters of credit, based on total portfolio positions with each of those counterparties. Certain other counterparties would have the right to terminate their agreements with the Company.

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position as of September 30, 2013 was $138 million, for which PGE has posted $26 million in collateral, consisting entirely of letters of credit. If the credit-risk-related contingent features underlying these agreements were triggered at September 30, 2013, the cash requirement to either post as collateral or settle the instruments immediately would have been $138 million. As of September 30, 2013, PGE has posted an additional $36 million in cash collateral which is classified as Margin deposits on the Company’s condensed consolidated balance sheet, for derivative instruments with no credit-risk related contingent features.

Counterparties representing 10% or more of Assets and Liabilities from price risk management activities as of September 30, 2013 or December 31, 2012 were as follows:

	September 30, 2013		December 31, 2012
Assets from price risk management activities:
Counterparty A	21	%	—	%
Counterparty B	14		—
Counterparty C	11		—
Counterparty D	9		21
Counterparty E	4		11
Counterparty F	1		13
Counterparty G	—		10
	60	%	55	%
Liabilities from price risk management activities:
Counterparty H	16	%	—	%
Counterparty I	14		24
Counterparty A	10		14
Counterparty E	10		8
Counterparty J	9		10
	59	%	56	%

See Note 3 for additional information concerning the determination of fair value for the Company’s Assets and Liabilities from price risk management activities.