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 (RSUs) with time-based vesting conditions (time-based RSUs) and performance-based vesting conditions (performance-based RSUs), to non-employee directors, officers, and certain key employees. Service requirements generally must be met for RSUs to vest. For each grant, the number of RSUs is determined by dividing the specified award amount for each grantee by the closing stock price on the date of grant. RSU activity is summarized in the following table:



	Units		Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2013	431,090		$	26.31
Granted	203,410		31.49
Forfeited	(12,278	)	29.90
Vested	(158,329	)	24.95
Outstanding as of December 31, 2014	463,893		28.96
Granted	181,797		34.77
Forfeited	(14,988	)	34.10
Vested	(187,709	)	25.82
Outstanding as of December 31, 2015	442,993		32.84
Granted	193,734		35.89
Forfeited	(3,044	)	28.62
Vested	(174,891	)	31.47
Outstanding as of December 31, 2016	458,792		34.68

A total of 4,687,500 shares of common stock were registered for issuance under the Plan, of which 3,305,920 shares remain available for future issuance as of December 31, 2016.

Outstanding RSUs 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 RSUs. 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 RSUs) 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.

Time-based RSUs 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. The fair value of time-based RSUs is measured based on the closing price of PGE common stock on the date of grant and charged to compensation expense on a straight-line basis over the requisite service period for the entire award. The total value of time-based RSUs vested was less than $1 million for the years ended December 31, 2016, 2015, and 2014.

Performance-based RSUs vest if performance goals are met at the end of a three-year performance period. Grants are based on three equally-weighted metrics: i) return on equity relative to allowed return on equity; ii) regulated asset base growth; and iii) a relative total shareholder return (TSR) of PGE’s common stock as compared to the Edison Electric Institute Regulated Index (EEI Index) during the performance period. Vesting of performance-based RSUs 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.

For the return on equity and regulated asset base growth portions of the performance-based RSUs, fair value is measured based on the closing price of PGE common stock on the date of grant. For the TSR portion of the performance-based RSUs, fair value 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 fair value of stock-based compensation related to the TSR component of performance-based RSUs was determined using the Monte Carlo model and the following weighted average assumptions:



	2016					2015
Risk-free interest rate				0.9	%				1.0	%
Expected dividend yield				—	%				—	%
Expected term (in years)				3.0					3.0
Volatility	14.5	%	-	25.9	%	13.2	%	-	19.2	%

The fair value of performance-based RSUs is charged to compensation expense on a straight-line basis over the requisite service period for the entire award 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 121.2%, 117.3%, and 111.2% of awarded performance-based RSUs for the respective 2016, 2015, and 2014 grants, with an estimated 5% forfeiture rate.

The total value of performance-based RSUs vested was $5 million for the year ended December 31, 2016, $4 million for 2015, and $3 million for 2014.

Stock-based compensation, included in Administrative and other expense in the consolidated statements of income, was $6 million for the years ended December 31, 2016, 2015, and 2014. 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 Company withholds a portion of the vested shares for the payment of income taxes on behalf of the employees. Not included in Administrative and other expenses in the consolidated statements of income, is the net impact from these income tax payments, partially offset by the issuance of DERs, resulting in a charge to equity of $2 million in 2016 and 2015, and $1 million in 2014.

As of December 31, 2016, unrecognized stock-based compensation expense was $6 million, of which approximately $4 million and $2 million is expected to be expensed in 2017 and 2018, 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, 2016, 2015, or 2014.