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Fair Value of FInancial Instruments

12 Months Ended

Dec. 31, 2022

Fair Value of Financial Instruments Note [Abstract]

FAIR VALUE OF FINANCIAL INSTRUMENTSPGE determines the fair value of financial instruments, both assets and liabilities recognized and not recognized in the Company’s consolidated balance sheets, for which it is practicable to estimate fair value for each reporting period. The Company then classifies these financial assets and liabilities based on a fair value hierarchy applied to prioritize the inputs to the valuation techniques used to measure fair value. The three levels of the fair value hierarchy and application to the Company are discussed below.

Level 1 Quoted prices are available in active markets for identical assets or liabilities as of the measurement date.

Level 2 Pricing inputs include those that are directly or indirectly observable in the marketplace as of the measurement date.

Level 3 Pricing inputs include significant inputs that are unobservable for the asset or liability.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy. Assets measured at fair value using net asset value (NAV) as a practical expedient are not categorized in the fair value hierarchy. These assets are listed in the totals of the fair value hierarchy to permit the reconciliation to amounts presented in the financial statements.

PGE recognizes transfers between levels in the fair value hierarchy as of the end of the reporting period for all of its financial instruments. Changes to market liquidity conditions, the availability of observable inputs, or changes in the economic structure of a security marketplace may require transfer of the securities between levels. There were no significant transfers between levels during the years ended December 31, 2022 and 2021, except those presented in this note.

The Company’s financial assets and liabilities whose values were recognized at fair value are as follows by level within the fair value hierarchy (in millions):


	December 31, 2022
	Level 1		Level 2		Level 3		Other(2)		Total
Assets:
Cash equivalents	$	150	$	—	$	—	$	—	$	150
Nuclear decommissioning trust: (1)
Debt securities:
Domestic government	9		10		—		—		19
Corporate credit	—		9		—		—		9
Money market funds measured at NAV (2)	—		—		—		11		11
Non-qualified benefit plan trust: (3)
Money market funds	1		—		—		—		1
Equity securities—domestic	3		—		—		—		3
Debt securities—domestic government	3		—		—		—		3



Price risk management activities: (1) (4)
Electricity	—		93		63		—		156
Natural gas	—		225		6		—		231
	$	166	$	337	$	69	$	11	$	583
Liabilities:

Price risk management activities: (1) (4)
Electricity	$	—	$	53	$	93	$	—	$	146
Natural gas	—		39		8		—		47
	$	—	$	92	$	101	$	—	$	193

(1)Activities are subject to regulation, with certain gains and losses deferred pursuant to regulatory accounting and included in regulatory assets or regulatory liabilities as appropriate.

(2)Assets are measured at NAV as a practical expedient and not subject to hierarchy level classification disclosure.

(3)Excludes insurance policies of $31 million, which are recorded at cash surrender value.

(4)For further information regarding price risk management derivatives, see Note 6, Risk Management.


	December 31, 2021
	Level 1		Level 2		Level 3		Other(2)		Total
Assets:
Cash equivalents	$	44	$	—	$	—	$	—	$	44
Nuclear decommissioning trust: (1)
Debt securities:
Domestic government	9		10		—		—		19
Corporate credit	—		14		—		—		14
Money market funds measured at NAV (2)	—		—		—		14		14
Non-qualified benefit plan trust: (3)
Money market funds	1		—		—		—		1
Equity securities—domestic	4		—		—		—		4

Debt securities—domestic government	4		—		—		—		4



Price risk management activities: (1) (4)
Electricity	—		16		1		—		17
Natural gas	—		115		5		—		120
	$	62	$	155	$	6	$	14	$	237
Liabilities:
Price risk management activities: (1) (4)
Electricity	$	—	$	33	$	90	$	—	$	123
Natural gas	—		13		1		—		14
	$	—	$	46	$	91	$	—	$	137

(1)Activities are subject to regulation, with certain gains and losses deferred pursuant to regulatory accounting and included in regulatory assets or regulatory liabilities as appropriate.

(2)Assets are measured at NAV as a practical expedient and not subject to hierarchy level classification disclosure.

(3)Excludes insurance policies of $36 million, which are recorded at cash surrender value.

(4)For further information regarding price risk management derivatives, see Note 6, Risk Management.

Cash equivalents are highly liquid investments with maturities of three months or less at the date of acquisition and primarily consist of money market funds. Such funds seek to maintain a stable net asset value and are comprised of short-term, government funds. Policies of such funds require that the weighted-average maturity of securities held by the funds do not exceed 90 days and investors have the ability to redeem shares daily at the net asset value of the respective fund. Cash equivalents are classified as Level 1 in the fair value hierarchy due to the availability of quoted prices for identical assets in an active market as of the measurement date. Principal markets for money market fund prices include published exchanges such as the National Association of Securities Dealers Automated Quotations (NASDAQ) and the New York Stock Exchange (NYSE).

Assets held in the NDT and NQBP trusts are recorded at fair value in PGE’s consolidated balance sheets and invested in securities that are exposed to interest rate, credit, and market volatility risks. These assets are classified within Level 1, 2, or 3 based on the following factors:

Debt securities—PGE invests in highly-liquid United States Treasury securities to support the investment objectives of the trusts. These domestic government securities are classified as Level 1 in the fair value hierarchy due to the availability of quoted prices for identical assets in an active market as of the measurement date.

Assets classified as Level 2 in the fair value hierarchy include domestic government debt securities, such as municipal debt, and corporate credit securities. Prices are determined by evaluating pricing data such as broker quotes for similar securities and adjusted for observable differences. Significant inputs used in valuation models generally include benchmark yield and issuer spreads. The external credit rating, coupon rate, and maturity of each security are considered in the valuation, as applicable.

Equity securities—Equity mutual fund and common stock securities are classified as Level 1 in the fair value hierarchy due to the availability of quoted prices for identical assets in an active market as of the measurement date. Principal markets for equity prices include published exchanges such as NASDAQ and the NYSE.

Money market funds—PGE invests in money market funds that seek to maintain a stable net asset value. These funds invest in high-quality, short-term, diversified money market instruments, short-term treasury bills, federal agency securities, certificates of deposits, and commercial paper. The Company believes the redemption value of these funds is likely to be the fair value, which is represented by the net asset value. Redemption is permitted daily without written notice.

The NQBP trust is invested in exchange traded government money market funds and is classified as Level 1 in the fair value hierarchy due to the availability of quoted prices in published exchanges such as NASDAQ and the NYSE. The money market fund in the NDT is valued at NAV as a practical expedient and is not included in the fair value hierarchy.

Assets and liabilities from price risk management activities, recorded at fair value in PGE’s consolidated balance sheets, consist of derivative instruments entered into by the Company to manage its risk exposure to commodity price and foreign currency exchange rates and reduce volatility in NVPC. For additional information regarding these assets and liabilities, see Note 6, Risk Management.

For those assets and liabilities from price risk management activities classified as Level 2, fair value is derived using present value formulas that utilize inputs such as forward commodity prices and interest rates. Substantially all of these inputs are observable in the marketplace throughout the full term of the instrument, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include commodity forwards, futures, and swaps.

Assets and liabilities from price risk management activities classified as Level 3 consist of instruments for which fair value is derived using one or more significant inputs that are not observable for the entire term of the instrument. These instruments consist of longer-term commodity forwards, futures, and swaps.

Quantitative information regarding the significant, unobservable inputs used in the measurement of Level 3 assets and liabilities from price risk management activities is presented below:


						Significant	Price per Unit
	Fair Value				Valuation	Unobservable					Weighted
Commodity Contracts	Assets		Liabilities		Technique	Input	Low		High		Average
	(in millions)
As of December 31, 2022:
Electricity physical forwards	$	52	$	93	Discounted cash flow	Electricity forward price (per MWh)	$	35.00	$	270.00	$	101.27
Natural gas financial swaps	6		8		Discounted cash flow	Natural gas forward price (per Dth)	2.71		24.71		4.42
Electricity financial futures	11		—		Discounted cash flow	Electricity forward price (per MWh)	54.17		143.70		104.21
	$	69	$	101
As of December 31, 2021:
Electricity physical forwards	$	—	$	90	Discounted cash flow	Electricity forward price (per MWh)	$	16.66	$	129.75	$	43.73
Natural gas financial swaps	5		1		Discounted cash flow	Natural gas forward price (per Dth)	2.02		8.02		2.81
Electricity financial futures	1		—		Discounted cash flow	Electricity forward price (per MWh)	26.76		68.43		52.46
	$	6	$	91

The significant unobservable inputs used in the Company’s fair value measurement of price risk management assets and liabilities are long-term forward prices for commodity derivatives. For shorter-term contracts, PGE employs the mid-point of the bid-ask spread of the market and these inputs are derived using observed transactions in active markets, as well as historical experience as a participant in those markets. These price inputs are validated against independent market data from multiple sources. For certain long-term contracts, observable, liquid market transactions are not available for the duration of the delivery period. In such instances, the Company uses internally-developed price curves, which derive longer-term prices and utilize observable data when available. When not available, regression techniques are used to estimate unobservable future prices. In addition, changes in the fair value measurement of price risk management assets and liabilities are analyzed and reviewed on a quarterly basis by the Company.

The Company’s Level 3 assets and liabilities from price risk management activities are sensitive to market price changes in the respective underlying commodities. The significance of the impact is dependent upon the magnitude of the price change and the Company’s position as either the buyer or seller of the contract. Sensitivity of the fair value measurements to changes in the significant unobservable inputs is as follows:

Significant Unobservable Input

Position

Change to Input

Impact on Fair Value Measurement

Market price

Buy

Increase (decrease)

Gain (loss)

Market price

Sell

Increase (decrease)

Loss (gain)

Changes in the fair value of net liabilities from price risk management activities (net of assets from price risk management activities) classified as Level 3 in the fair value hierarchy were as follows (in millions):


	Years Ended December 31,
	2022		2021
Net liabilities from price risk management activities as of beginning of year	$	85	$	137
Net realized and unrealized losses/(gains) *	(84)		(50)




Net transfers from Level 3 to Level 2	31		(2)
Net liabilities from price risk management activities as of end of year	$	32	$	85
Level 3 net unrealized losses/(gains) that have been fully offset by the effect of regulatory accounting	$	(82)	$	(55)

* Includes $2 million in net realized gains in 2022 and $5 million in 2021.

Transfers into Level 3 occur when significant inputs used to value the Company’s derivative instruments become less observable, such as a delivery location becoming significantly less liquid. During the years ended December 31, 2022 and 2021, there were no transfers into Level 3 from Level 2. Transfers out of Level 3 occur when the significant inputs become more observable, such as when the time between the valuation date and the delivery term of a transaction becomes shorter. PGE records transfers into and from Level 3 at the end of the reporting period for all of its derivative instruments.

Transfers from Level 2 to Level 1 for the Company’s price risk management assets and liabilities do not occur as quoted prices are not available for identical instruments. As such, the Company’s assets and liabilities from price risk management activities mature and settle as Level 2 fair value measurements.

Long-term debt is recorded at amortized cost in PGE’s consolidated balance sheets. The fair value of the Company’s First Mortgage Bonds (FMBs) and Pollution Control Revenue Bonds (PCRBs) is classified as a Level 2 fair value measurement.

As of December 31, 2022, the carrying amount of PGE’s long-term debt was $3,646 million, net of $13 million of unamortized debt expense, and its estimated aggregate fair value was $2,984 million. As of December 31, 2021, the carrying amount of PGE’s long-term debt was $3,285 million, net of $14 million of unamortized debt expense, with an estimated aggregate fair value of $3,831 million.

For fair value information concerning the Company’s pension plan assets, see Note 11, Employee Benefits.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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