Price Risk Management (Notes)

12 Months Ended

Dec. 31, 2020

RISK MANAGEMENT

Price Risk Management

PGE participates in the wholesale marketplace 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 the Company’s long-term wholesale contracts. Wholesale market transactions include purchases and sales of both power and fuel resulting from economic dispatch decisions with respect to 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 flows.

PGE utilizes derivative instruments to manage its exposure to commodity price risk and foreign exchange rate risk in order to reduce volatility in NVPC for its retail customers. Such derivative instruments, recorded at fair value on the consolidated balance sheets, may include forward, future, swap, and option contracts for electricity, natural gas,

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 intend to 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,
	2020		2019
Current assets:
Commodity contracts:
Electricity	$	4	$	9
Natural gas	29		16
Total current derivative assets(1)	33		25
Noncurrent assets:
Commodity contracts:
Electricity	4		7
Natural gas	8		6
Total noncurrent derivative assets(1)	12		13

Total derivative assets(2)	$	45	$	38
Current liabilities:
Commodity contracts:
Electricity	$	13	$	14
Natural gas	2		9
Total current derivative liabilities	15		23
Noncurrent liabilities:
Commodity contracts:
Electricity	133		105
Natural gas	3		3
Total noncurrent derivative liabilities	136		108

Total derivative liabilities(2)	$	151	$	131

(1)Total current derivative assets is included in Other current assets, and Total noncurrent derivative assets is included in Other noncurrent assets on the consolidated balance sheets.

(2)As of December 31, 2020 and 2019, no commodity derivative assets or liabilities were designated as hedging instruments.

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,
	2020			2019
Commodity contracts:
Electricity	6		MWh	6		MWh
Natural gas	137		Dth	145		Dth
Foreign currency contracts	$	19	Canadian	$	23	Canadian

PGE has elected to report positive and negative exposures resulting from derivative instruments pursuant to agreements that meet the definition of a master netting arrangement at gross values on the consolidated balance sheet. 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, 2020, gross amounts included as Price risk management liabilities subject to master netting agreements were $2 million, for which PGE has posted no collateral. Of the gross amounts recognized as of December 31, 2020, $1 million was for electricity and $1 million was for natural gas. As of December 31, 2019, PGE had no material gross master netting arrangements.

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,
	2020		2019		2018
Commodity contracts:
Electricity	$	160	$	20	$	(34)
Natural Gas	(34)		(32)		21
Foreign currency contracts	(1)		(1)		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. Of the net amounts recognized in Net income, net losses of $12 million, net gains of $2 million, and net gains of $18 million for the years ended December 31, 2020, 2019 and 2018, respectively, have been offset.

Assuming no changes in market prices and interest rates, the following table presents the years in which the net unrealized (gains)/losses recorded as of December 31, 2020 related to PGE’s derivative activities would become realized as a result of the settlement of the underlying derivative instrument (in millions):


	2021		2022		2023		2024		2025		Thereafter		Total
Commodity contracts:
Electricity	$	9	$	4	$	8	$	8	$	9	$	100	$	138
Natural gas	(27)		(5)		—		—		—		—		(32)
Net unrealized (gain)/loss	$	(18)	$	(1)	$	8	$	8	$	9	$	100	$	106

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 derivative instruments with credit-risk-related contingent features that were in a liability position as of December 31, 2020 was $148 million, for which the Company has posted $13 million in collateral, consisting of $12 million of letters of credit and $1 million of cash. If the credit-risk-related contingent features underlying these agreements were triggered as of December 31, 2020, the cash requirement to either post as collateral or settle the instruments immediately would have been $142 million. As of December 31, 2020, PGE had $6 million posted 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,
	2020		2019
Assets from price risk management activities:
Counterparty A	12	%	35	%
Counterparty B	17		13
Counterparty C	21		11
Counterparty D	16		11

	66	%	70	%
Liabilities from price risk management activities:



Counterparty E	93	%	79	%

For additional information concerning the determination of fair value for the Company’s Assets and Liabilities from price risk management activities, see Note 5, Fair Value of Financial Instruments.