EQUITY

The activity in equity during the three months ended March 31, 2014 and 2013 is as follows (dollars in millions):



	Portland General Electric Company Shareholders’ Equity
	Common Stock			Accumulated Other Comprehensive Loss			Retained Earnings			Noncontrolling Interests’ Equity
	Common Stock
	Shares	Amount
Balances as of December 31, 2013	78,085,559	$	911	$	(5	)	$	913		$	1
Issuances of shares pursuant to equity-based plans	96,497	—		—			—			—
Stock-based compensation	—	1		—			—			—
Dividends declared	—	—		—			(22		)	—
Net income	—	—		—			58			—
Balances as of March 31, 2014	78,182,056	$	912	$	(5	)	$	949		$	1

Balances as of December 31, 2012	75,556,272	$	841	$	(6	)	$	893		$	2
Issuances of shares pursuant to equity-based plans	120,909	—		—			—			—
Dividends declared	—	—		—			(20		)	—
Net income (loss)	—	—		—			49			(1		)
Balances as of March 31, 2013	75,677,181	$	841	$	(6	)	$	922		$	1

In connection with a public offering of shares of its common stock in 2013, PGE entered into an EFSA. Pursuant to the terms of the EFSA, a forward counterparty borrowed 11,100,000 shares of PGE’s common stock from third parties in the open market and sold the shares to a group of underwriters for $29.50 per share, less an underwriting discount equal to $0.96 per share. The underwriters then sold the shares in a public offering. PGE receives proceeds from the sale of common stock when the EFSA is physically settled (described below), and at that time PGE records the proceeds in equity.

Under the terms of the EFSA, PGE may elect to settle the equity forward transactions by means of: i) physical; ii) cash; or iii) net share settlement, in whole or in part, at any time on or prior to June 11, 2015, except in specified circumstances or events that would require physical settlement. To the extent that the transactions are physically settled, PGE is required to issue and deliver shares of PGE common stock to the forward counterparty at the then applicable forward sale price. The forward sale price was initially determined to be $29.50 per share at the time the EFSA was entered into, and the amount of cash to be received by PGE upon physical settlement of the EFSA is subject to certain adjustments in accordance with the terms of the EFSA.

The use of the EFSA substantially eliminates future equity market price risk by fixing the common stock offering sales price under the then existing market conditions, while mitigating immediate share dilution resulting from the offering by postponing the actual issuance of common stock until such funds are needed in accordance with the Company’s capital requirements. The EFSA had no initial fair value since it was entered into at the then market price of the common stock. PGE concluded that the EFSA was an equity instrument and that it does not qualify as a derivative because the EFSA was indexed to the Company’s stock. PGE anticipates settling the EFSA through physical settlement on or before June 11, 2015.

At March 31, 2014, the Company could have physically settled the EFSA by delivering 10,400,000 shares to the forward counterparty in exchange for cash of $284 million. In addition, at March 31, 2014, the Company could have elected to make a cash settlement by paying approximately $52 million, or a net share settlement by delivering approximately 1,603,711 shares of common stock. To the extent that PGE makes a cash or net share settlement, the Company would receive no additional proceeds from the public offering.

Prior to settlement, the potentially issuable shares pursuant to the EFSA are reflected in PGE’s diluted earnings per share calculations using the treasury stock method. Under this method, the number of shares of PGE’s common stock used in calculating diluted earnings per share for a reporting period are increased by the number of shares, if any, that would be issued upon physical settlement of the EFSA less the number of shares that could be purchased by PGE in the market with the proceeds received from issuance (based on the average market price during that reporting period).