Price Risk Management (Notes)

9 Months Ended

Sep. 30, 2016

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 generation combined with wholesale market transactions, to meet the needs of its retail customers and manage risk. Such activities include purchases and sales of both power and fuel 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 NVPC for its retail customers. These derivative instruments may include forwards, futures, swaps, and option contracts, which are recorded at fair value on the condensed consolidated balance sheets, for electricity, natural gas, oil, and foreign currency, with changes in fair value recorded in the condensed consolidated statements of income. In accordance with the ratemaking and cost recovery processes authorized by the Public Utility Commission of Oregon (OPUC), PGE recognizes a regulatory asset or liability to defer the gains and losses from 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 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, 2016			December 31, 2015
Current assets:
Commodity contracts:
Electricity	$	2		$	7
Natural gas	3			3
Total current derivative assets	5		(1)	10		(1)
Noncurrent assets:
Commodity contracts:
Electricity	—			—
Natural gas	2			—
Total noncurrent derivative assets	2		(2)	—		(2)
Total derivative assets not designated as hedging instruments	$	7		$	10
Total derivative assets	$	7		$	10
Current liabilities:
Commodity contracts:
Electricity	$	11		$	36
Natural gas	55			94
Total current derivative liabilities	66			130
Noncurrent liabilities:
Commodity contracts:
Electricity	132			97
Natural gas	31			64
Total noncurrent derivative liabilities	163			161
Total derivative liabilities not designated as hedging instruments	$	229		$	291
Total derivative liabilities	$	229		$	291

(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 2035, were as follows (in millions):

	September 30, 2016			December 31, 2015
Commodity contracts:
Electricity	8		MWh	12		MWh
Natural gas	123		Decatherms	124		Decatherms
Foreign currency	$	21	Canadian	$	7	Canadian

PGE has elected to report gross on the condensed 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 given 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 September 30, 2016 and December 31, 2015, gross amounts included as Price risk management liabilities subject to master netting agreements were $143 million and $111 million, respectively, for which PGE posted collateral of $15 million as of September 30, 2016, which consisted of $14 million of letters of credit and $1 million of cash, and $14 million as of December 31, 2015, which consisted entirely of letters of credit. As of September 30, 2016, of the gross amounts recognized, $139 million was for electricity and $4 million was for natural gas compared to $104 million for electricity and $7 million for natural gas recognized as of December 31, 2015.

Net realized and unrealized losses (gains) 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,
	2016		2015		2016			2015
Commodity contracts:
Electricity	$	8	$	7	$	60		$	77
Natural Gas	10		35		(14		)	79
Foreign currency exchange	—		—		(1		)	—

Net unrealized and certain net realized losses (gains) presented in the preceding table are offset within the condensed consolidated statements of income by the effects of regulatory accounting. Of the net losses (gains) recognized in Net income for the three month periods ended September 30, 2016 and 2015, net losses of $20 million and net losses of $34 million have been offset, respectively. Net losses of $36 million and $150 million have been offset for the nine month periods ended September 30, 2016 and 2015, 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, 2016 related to PGE’s derivative activities would become realized as a result of the settlement of the underlying derivative instrument (in millions):

	2016		2017		2018		2019		2020		Thereafter		Total
Commodity contracts:
Electricity	$	3	$	6	$	8	$	8	$	7	$	109	$	141
Natural gas	20		41		13		5		2		—		81
Net unrealized loss	$	23	$	47	$	21	$	13	$	9	$	109	$	222

PGE’s secured and unsecured debt is currently rated at investment grade by Moody’s Investors Service (Moody’s) and S&P Global Ratings (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 derivative instruments with credit-risk-related contingent features that were in a liability position as of September 30, 2016 was $227 million, for which PGE has posted $36 million in collateral, consisting of $31 million in letters of credit and $5 million in cash. If the credit-risk-related contingent features underlying these agreements were triggered at September 30, 2016, the cash requirement to either post as collateral or settle the instruments immediately would have been $219 million. Cash collateral for derivative instruments is classified as Margin deposits included in Other current assets on the Company’s condensed consolidated balance sheet.

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

	September 30, 2016		December 31, 2015
Assets from price risk management activities:
Counterparty A	34	%	5	%
Counterparty B	12		8
Counterparty C	10		8
Counterparty D	7		10	%
Counterparty E	2		59	%
	65	%	90	%
Liabilities from price risk management activities:
Counterparty F	61	%	36	%
Counterparty C	8		10
Counterparty B	7		10
	76	%	56	%

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