Price Risk Management (Notes)

12 Months Ended

Dec. 31, 2015

Price Risk Management [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 generating resources 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 its own generation. As a result of this ongoing business activity, PGE is exposed to commodity price risk and foreign currency exchange rate risk, where adverse changes in prices and/or rates may affect the Company’s financial position, performance, or cash flow.

PGE utilizes derivative instruments in its wholesale electric utility activities to manage its exposure to commodity price risk and foreign exchange rate risk in order to manage volatility in net power costs for its retail customers. These derivative instruments may include forward, futures, swap, and option contracts for electricity, natural gas, oil and foreign currency, which are recorded at fair value on the consolidated balance sheet, with changes in fair value recorded in the statement of income. In accordance with ratemaking and cost recovery processes authorized by the OPUC, PGE recognizes a regulatory asset or liability to defer the gains and losses from derivative activity until settlement of the associated derivative instrument. PGE may designate certain derivative instruments as cash flow hedges or may use derivative instruments as economic hedges. PGE 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): 

	As of December 31,
	2015			2014
Current assets:
Commodity contracts:
Electricity	$	7		$	4
Natural gas	3			2
Total current derivative assets	10		(1)	6		(1)
Noncurrent assets:
Commodity contracts:
Electricity	—			1
Total noncurrent derivative assets	—		(2)	1		(2)
Total derivative assets not designated as hedging instruments	$	10		$	7
Total derivative assets	$	10		$	7
Current liabilities:
Commodity contracts:
Electricity	$	36		$	54
Natural gas	94			52
Total current derivative liabilities	130			106
Noncurrent liabilities:
Commodity contracts:
Electricity	97			58
Natural gas	64			64
Total noncurrent derivative liabilities	161			122
Total derivative liabilities not designated as hedging instruments	$	291		$	228
Total derivative liabilities	$	291		$	228

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

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

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 at various dates through 2035, were as follows (in millions): 

	As of December 31,
	2015			2014
Commodity contracts:
Electricity	12		MWh	16		MWh
Natural gas	124		Dth	127		Dth
Foreign currency exchange	$	7	Canadian	$	7	Canadian

PGE has elected to report gross on the consolidated balance sheets the positive and negative exposures resulting from derivative instruments pursuant to 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. As of December 31, 2015 and 2014, gross amounts included as Price risk management liabilities subject to master netting agreements were $111 million and $72 million, respectively, for which PGE posted collateral of $14 million and $11 million, which consisted entirely of letters of credit. As of December 31, 2015, of the gross amounts included, $104 million was for electricity and $7 million was for natural gas compared to $55 million for electricity and $17 million for natural gas recognized as of December 31, 2014.

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

	Years Ended December 31,
	2015		2014		2013
Commodity contracts:
Electricity	$	72	$	13	$	78
Natural Gas	103		72		28
Foreign currency exchange	1		—		1

Net unrealized losses and certain net realized losses presented in the table above are offset within the consolidated statement of income by the effects of regulatory accounting. Of the net loss recognized in Net income for the years ended December 31, 2015, 2014, and 2013, $160 million, $83 million, and $120 million, respectively, have been offset.

Assuming no changes in market prices and interest rates, the following table presents the year in which the net unrealized loss recorded as of December 31, 2015 related to PGE’s derivative activities would be realized as a result of the settlement of the underlying derivative instrument (in millions):

	2016		2017		2018		2019		2020		Thereafter		Total
Commodity contracts:
Electricity	$	29	$	8	$	7	$	7	$	6	$	69	$	126
Natural gas	91		50		12		2		—		—		155
Net unrealized loss	$	120	$	58	$	19	$	9	$	6	$	69	$	281

PGE’s secured and unsecured debt is currently rated at investment grade by Moody’s Investors Service (Moody’s) and Standard & Poor’s Ratings Services (S&P). Should Moody’s and/or S&P reduce their rating on the Company’s unsecured debt to below investment grade, PGE 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 December 31, 2015 was $278 million, for which the Company had posted $80 million in collateral, consisting of $61 million in letters of credit and $19 million in cash. If the credit-risk-related contingent features underlying these agreements were triggered at December 31, 2015, the cash requirement to either post as collateral or settle the instruments immediately would have been $255 million. As of December 31, 2015, PGE had posted an additional $14 million in cash collateral for derivative instruments with no credit-risk-related contingent features. Cash collateral for derivatives is classified as Margin deposits included in Other current assets on the Company’s consolidated balance sheet.

Counterparties representing 10% or more of Assets and Liabilities from price risk management activities were as follows:

	As of December 31,
	2015		2014
Assets from price risk management activities:
Counterparty A	59	%	63	%
Counterparty B	10		14
	69	%	77	%
Liabilities from price risk management activities:
Counterparty C	36	%	22	%
Counterparty D	10		7
Counterparty E	10		9
Counterparty F	5		12
	61	%	50	%

For additional information concerning the determination of fair value for the Company’s Assets and Liabilities from price risk management activities, see Note 4, Fair Value of Financial Instruments.