COMMITMENTS AND GUARANTEES

Purchase Commitments

As of December 31, 2016, PGE’s estimated future minimum payments pursuant to purchase obligations for the following five years and thereafter are as follows (in millions):



	Payments Due
	2017		2018		2019		2020		2021		Thereafter		Total
Capital and other purchase commitments	$	176	$	8	$	2	$	9	$	1	$	60	$	256
Purchased power and fuel:
Electricity purchases	221		157		181		256		239		1,750		2,804
Capacity contracts	7		6		5		4		4		12		38
Public utility districts	4		4		1		—		1		11		21
Natural gas	53		39		32		27		24		158		333
Coal and transportation	17		9		5		—		—		—		31
Total	$	478	$	223	$	226	$	296	$	269	$	1,991	$	3,483

Capital and other purchase commitments—Certain commitments have been made for 2017 and beyond that include those related to hydro licenses, upgrades to generation, distribution, and transmission facilities, information systems, and system maintenance work. Termination of these agreements could result in cancellation charges.

Electricity purchases and Capacity contracts—PGE has power purchase agreements with counterparties, which expire at varying dates through 2049, and power capacity contracts through 2024.

Public utility districts—PGE has long-term power purchase agreements with certain public utility districts in the state of Washington and with the City of Portland, Oregon. Under the agreements, the Company is required to pay its proportionate share of the operating and debt service costs of the hydroelectric projects whether or not they are operable. The future minimum payments for the public utility districts in the preceding table reflect the principal payment only and do not include interest, operation, or maintenance expenses.

Selected information regarding these projects is summarized as follows (dollars in millions):



	Revenue Bonds as of December 31, 2016		PGE’s Share as of December 31, 2016			Contract Expiration	PGE Cost, including Debt Service
	Revenue Bonds as of December 31, 2016		Output		Capacity	Contract Expiration	2016		2015		2014
					(in MW)
Priest Rapids and Wanapum	$	1,190	8.6	%	163	2052	$	16	$	18	$	14
Wells	177		19.4		150	2018	10		10		10
Portland Hydro	—		100.0		36	2017	1		2		4

The agreements for Priest Rapids, Wanapum, and Wells provide that, should any other purchaser of output default on payments as a result of bankruptcy or insolvency, PGE would be allocated a pro rata share of the output and operating and debt service costs of the defaulting purchaser. For Wells, PGE would be allocated up to a cumulative maximum of 25% of the defaulting purchaser’s percentage. For Priest Rapids and Wanapum, PGE would be allocated up to a cumulative maximum that would not adversely affect the tax exempt status of any of the public utility district’s outstanding debt for the portion of the project that benefits tax exempt purchasers.

Natural gas—PGE has contracts for the purchase and transportation of natural gas from domestic and Canadian sources for its natural gas-fired generating facilities. The Company also has a natural gas storage agreement for the purpose of fueling the Company’s Port Westward Unit 1 (PW1), PW2, and Beaver natural gas-fired generating plants.

Coal and transportation—PGE has coal and related rail transportation agreements with take-or-pay provisions related to Boardman that expire at various dates through 2020.

Lease Obligations

As of December 31, 2016, PGE’s estimated future minimum lease payments pursuant to capital, build-to-suit, and operating leases for the following five years and thereafter are as follows (in millions):



	Future Minimum Lease Payments
	Capital Leases		Build-to-Suit		Operating Leases
2017	$	7	$	—	$	10
2018	7		4		9
2019	6		14		6
2020	6		13		6
2021	6		13		7
Thereafter	77		237		177
Total minimum lease payments	$	109	$	281	$	215
Less imputed interest	55
Present value of net minimum lease payments	$	54
Less current portion	3
Non-current portion	$	51

Capital Leases—PGE has entered into agreements to purchase natural gas transportation capacity to serve Carty via a 24-mile natural gas pipeline, Carty Lateral, that was constructed to serve the Carty facility. The Company has entered into a 30-year agreement to purchase the entire capacity of Carty Lateral, which is approximately 175,000 decatherms per day. At the end of the initial contract term, the Company has the option to renew the agreement in continuous three-year increments with at least 24-months prior written notice.

As of December 31, 2016, a capital lease asset of $57 million was reflected within Electric utility plant and accumulated amortization of such assets of $3 million was reflected within Accumulated depreciation and amortization in the table above. The present value of the future minimum lease payments due under the agreement included $3 million within Accrued expenses and other current liabilities and $51 million in Other noncurrent liabilities on the consolidated balance sheets. For ratemaking purposes capital leases are treated as operating leases; therefore, in accordance with the accounting rules for regulated operations, the amortization of the leased asset is based on the rental payments recovered from customers. Also for ratemaking purposes, such rental payments were capitalized to the Carty project prior to its in service date of July 29, 2016 and, as a result, amortization of the leased asset of $2 million and interest expense of $3 million was capitalized to CWIP. Beginning August 1, 2016, amortization of the leased asset of $1 million and interest expense of $2 million has been recorded to Purchased power and fuel expense in the consolidated statements of income through December 31, 2016.

Build-to-suit—PGE has entered into a 30-year lease agreement with a local natural gas company, NW Natural, to expand their current natural gas storage facilities, including the development of an underground storage reservoir and construction of a new compressor station and 13-mile pipeline, which will be designed to provide no-notice storage and transportation services to PGE’s PW1, PW2, and Beaver natural gas-fired generating plants. Pursuant to the agreement, on September 30, 2016, PGE issued NW Natural a Notice To Proceed with construction of the expansion project, which the gas company estimates will be completed during the winter of 2018-2019, at a cost of approximately $128 million. Due to the level of PGE’s involvement during the construction period, the Company is deemed to be the owner of the assets for accounting purposes during the construction period. As a result, PGE has recorded $21 million to CWIP and a corresponding liability for the same amount to Other noncurrent liabilities in the consolidated balance sheets as of December 31, 2016. Upon completion of the facility, PGE will assess whether the assets and liabilities qualify as a successful sale-leaseback transaction in which the asset and liability are removed and accounted for as either a capital or operating lease. The table above reflects PGE’s estimated future minimum lease payments pursuant to the agreement based on estimated costs and assumes three 10-year renewable options are exercised.

Operating leases—PGE has various operating leases associated with its headquarters and certain of its production, transmission, and support facilities that expire in various years, including the Port of St. Helens land lease, which expires in 2096 and covers the location of PW1, PW2, and Beaver. Rent expense was $10 million in 2016 and 2015, and $11 million in 2014.

The future minimum operating lease payments presented is net of sublease income of $4 million in each of 2017, 2018, 2019, and 2020; and $3 million in 2021. Sublease income was $4 million in 2016, and $3 million in 2015 and 2014.

Guarantees

PGE enters into financial agreements and power and natural gas purchase and sale agreements that include indemnification provisions relating to certain claims or liabilities that may arise relating to the transactions contemplated by these agreements. Generally, a maximum obligation is not explicitly stated in the indemnification provisions and, therefore, the overall maximum amount of the obligation under such indemnifications cannot be reasonably estimated. PGE periodically evaluates the likelihood of incurring costs under such indemnities based on the Company’s historical experience and the evaluation of the specific indemnities. As of December 31, 2016, management believes the likelihood is remote that PGE would be required to perform under such indemnification provisions or otherwise incur any significant losses with respect to such indemnities. The Company has not recorded any liability on the consolidated balance sheets with respect to these indemnities.