STOCK-BASED COMPENSATION EXPENSE

Pursuant to the Portland General Electric Company 2006 Stock Incentive Plan (the Plan), the Company may grant a variety of equity-based awards, including restricted stock units with time-based vesting conditions and performance-based vesting conditions to non-employee directors, officers and certain key employees. Service requirements generally must be met for stock units to vest. For each grant, the number of restricted stock units is determined by dividing the specified award amount for each grantee by the closing stock price on the date of grant. A total of 4,687,500 shares of common stock were registered for future issuance under the Plan, of which 3,701,833 shares remain available for future issuance as of December 31, 2013.

Time-based restricted stock units vest in either equal installments over a one-year period on the last day of each calendar quarter, over a three-year period on each anniversary of the grant date, or at the end of a three-year period following the grant date.

Performance-based restricted stock units vest if performance goals are met at the end of a three-year performance period. For grants prior to March 5, 2013, such goals include return on equity relative to allowed return on equity, and regulated asset base growth. Grants on and after March 5, 2013 are based on three equally-weighted metrics: return on equity relative to allowed return on equity; regulated asset growth; and a total shareholder return (TSR) relative to the Edison Electric Institute Regulated Index (EEI Index). Vesting of performance-based restricted stock units is calculated by multiplying the number of units granted by a performance percentage determined by the Compensation and Human Resources Committee of PGE’s Board of Directors. The performance percentage is calculated based on the extent to which the performance goals are met. In accordance with the Plan, however, the committee may disregard or offset the effect of extraordinary, unusual or non-recurring items in determining results relative to these goals. Based on the attainment of the performance goals, the awards can range from zero to 150% of the grant.

Outstanding restricted stock units provide for the payment of one Dividend Equivalent Right (DER) for each stock unit. DERs represent an amount equal to dividends paid to shareholders on a share of PGE’s common stock and vest on the same schedule as the stock units. The DERs are settled in cash (for grants to non-employee directors) or shares of PGE common stock valued either at the closing stock price on the vesting date (for performance-based restricted stock unit grants) or dividend payment date (for all other grants). The cash from the settlement of the DERs for non-employee directors may be deferred under the terms of the Portland General Electric Company 2006 Outside Directors’ Deferred Compensation Plan.

Restricted stock unit activity is summarized in the following table:



	Units		Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2010	465,428		$	17.88
Granted	152,657		23.84
Forfeited	(106,979	)	22.35
Vested	(19,702	)	23.34
Outstanding as of December 31, 2011	491,404		18.54
Granted	186,495		24.72
Forfeited	(22,947	)	18.95
Vested	(214,390	)	15.67
Outstanding as of December 31, 2012	440,562		22.54
Granted	183,071		29.25
Forfeited	(7,007	)	27.15
Vested	(185,536	)	20.20
Outstanding as of December 31, 2013	431,090		26.31

The Company withholds a portion of the vested shares for the payment of income taxes on behalf of the employees. The total value of time- and performance-based stock units vested during the years ended December 31, 2013, 2012, and 2011 was $4 million, $3 million and $1 million, respectively. The weighted average fair value of the return on equity and regulated asset base growth portions of the grants is measured based on the closing price of PGE common stock on the date of grant. The fair value of these awards is charged to compensation expense over the requisite service period based on the number of shares expected to vest. Stock-based compensation expense was calculated assuming the attainment of performance goals that would allow the weighted average vesting of 110.7%, 109.2%, and 107.8% of awarded performance-based restricted stock units for 2013, 2012, and 2011, respectively, with an estimated 5% forfeiture rate. The weighted average fair value of the TSR portion is determined using a Monte Carlo simulation model utilizing actual information for the common shares of PGE and its peer group for the period from the beginning of the performance period to the grant date and estimated future stock volatility over the remaining performance period. The estimated TSR grant date fair value is 99.7% of the grant price. The fair value of these awards is charged to compensation expense over the requisite service period, regardless of the level of TSR metric actually attained. The assumptions used in the Monte Carlo model are summarized as follows:



	2013
Stock price at March 5, 2013				$	30.29
Risk-free rate				0.34		%
Expected term (in years)				3
Expected volatility				16.77		%
Range of expected volatility for EEI Index	12.06	%	-	25.13		%
Dividend yield				0		%

For the years ended December 31, 2013, 2012, and 2011, PGE recorded stock-based compensation expense of $4 million, which is included in Administrative and other expense in the consolidated statements of income. Such amounts differ from those reported in the consolidated statements of equity for Stock-based compensation due primarily to the impact from the income tax payments made on behalf of employees. The net impact to equity from the income tax payments, partially offset by the issuance of DERs, resulted in a charge to equity of $2 million in 2013, $1 million in 2012, and less than $1 million in 2011, which is not included in Administrative and other expenses in the consolidated statements of income.

As of December 31, 2013, unrecognized stock-based compensation expense was $4 million, of which approximately $3 million and $1 million is expected to be expensed in 2014 and 2015, respectively. No stock-based compensation costs have been capitalized and the Plan had no material impact on cash flows for the years ended December 31, 2013, 2012, or 2011.