Price Risk Management (Notes)

12 Months Ended

Dec. 31, 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, manage risk, and administer its existing long-term wholesale contracts. Such activities include purchases and sales of both power and fuel resulting from economic dispatch decisions for Company-owned generating resources. As a result of this ongoing business activity, 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 flow.

PGE utilizes derivative instruments to manage its exposure to commodity price risk and foreign exchange rate risk in order to manage volatility in net variable power costs for its retail customers. Such derivative instruments may include forward, futures, swap, and option contracts, which are recorded at fair value on the consolidated balance sheet, for electricity, natural gas, oil, and foreign currency, with changes in fair value recorded in the consolidated statements of income. In accordance with ratemaking and cost recovery processes authorized by the OPUC, the Company 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. 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): 

	As of December 31,
	2016			2015
Current assets:
Commodity contracts:
Electricity	$	6		$	7
Natural gas	12			3
Total current derivative assets	18		(1)	10		(1)
Noncurrent assets:
Commodity contracts:
Electricity	1			—
Natural gas	4			—
Total noncurrent derivative assets	5		(2)	—		(2)
Total derivative assets not designated as hedging instruments	$	23		$	10
Total derivative assets	$	23		$	10
Current liabilities:
Commodity contracts:
Electricity	$	12		$	36
Natural gas	32			94
Total current derivative liabilities	44			130
Noncurrent liabilities:
Commodity contracts:
Electricity	106			97
Natural gas	19			64
Total noncurrent derivative liabilities	125			161
Total derivative liabilities not designated as hedging instruments	$	169		$	291
Total derivative liabilities	$	169		$	291

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

(2) Included in Other noncurrent assets on the 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 at various dates through 2035, were as follows (in millions): 

	As of December 31,
	2016			2015
Commodity contracts:
Electricity	8		MWh	12		MWh
Natural gas	107		Dth	124		Dth
Foreign currency exchange	$	22	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, such 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 December 31, 2016 and 2015, gross amounts included as Price risk management liabilities subject to master netting agreements were $115 million and $111 million, respectively, for which PGE posted collateral of $11 million and $14 million, which consisted entirely of letters of credit. As of December 31, 2016, of the gross amounts included, $112 million was for electricity and $3 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 classified in Purchased power and fuel in the consolidated statements of income and were as follows (in millions):

	Years Ended December 31,
	2016			2015		2014
Commodity contracts:
Electricity	$	34		$	72	$	13
Natural Gas	(56		)	103		72
Foreign currency exchange	—			1		—

Net unrealized and certain net realized losses (gains) presented in the table above are offset within the consolidated statements of income by the effects of regulatory accounting. Net (gains) of $13 million and net losses of $160 million and $83 million for the years ended December 31, 2016, 2015, and 2014, respectively, have been offset in Net income.

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, 2016 related to PGE’s derivative activities would be realized as a result of the settlement of the underlying derivative instrument (in millions):

	2017		2018		2019		2020		2021		Thereafter		Total
Commodity contracts:
Electricity	$	6	$	7	$	7	$	7	$	7	$	77	$	111
Natural gas	20		7		6		2		—		—		35
Net unrealized loss	$	26	$	14	$	13	$	9	$	7	$	77	$	146

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 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, 2016 was $164 million, for which the Company had posted $14 million in collateral, consisting entirely of letters of credit. If the credit-risk-related contingent features underlying these agreements were triggered at December 31, 2016, the cash requirement to either post as collateral or settle the instruments immediately would have been $149 million. As of December 31, 2016, PGE had posted a nominal amount of cash collateral for derivative instruments with no credit-risk-related contingent features. Cash collateral for derivative instruments 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,
	2016		2015
Assets from price risk management activities:
Counterparty A	22	%	5	%
Counterparty B	17		8
Counterparty C	12		8
Counterparty D	8		10
Counterparty E	1		59
	60	%	90	%
Liabilities from price risk management activities:
Counterparty F	66	%	36	%
Counterparty C	7	%	10	%
Counterparty B	5	%	10	%
	78	%	56	%

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.