Price Risk Management (Notes)

9 Months Ended

Sep. 30, 2012

Price Risk Management Note [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 fuel and power purchases and sales resulting from economic dispatch decisions for Company-owned generation. As a result, 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 currency exchange rate risk in order to reduce volatility in net power costs for its retail customers. These derivative instruments may include forward, swap, and option contracts for electricity, natural gas, oil, and foreign currency, which are recorded at fair value on the condensed consolidated balance sheets, with changes in fair value recorded in the condensed consolidated statements of income. In accordance with the ratemaking and cost recovery process authorized by the OPUC, PGE recognizes a regulatory asset or liability to defer the gains and losses from derivative instruments until realized. This accounting treatment defers the fair value gains and losses on derivative instruments until settlement of the associated derivative instrument. PGE may designate certain derivative instruments as cash flow hedges or may use derivative instruments as purely economic hedges. The Company does not engage in trading activities for non-retail purposes.

PGE has elected to report gross on the balance sheet the positive and negative exposures resulting from derivative instruments. As of September 30, 2012 and December 31, 2011, the Company had $15 million and $26 million, respectively, in collateral posted with counterparties under an agreement that meets the definition of a master netting arrangement. This collateral consists entirely of letters of credit.

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 through 2015, were as follows (in millions):

	September 30, 2012			December 31, 2011
Commodity contracts:
Electricity	10		MWh	13		MWh
Natural gas	85		Decatherms	79		Decatherms
Foreign currency	$	8	Canadian	$	6	Canadian

The fair value of PGE’s Assets and Liabilities from price risk management activities consists of the following (in millions):

	September 30, 2012			December 31, 2011
Current assets:
Commodity contracts:
Electricity	$	2		$	2
Natural gas	3			17
Total current derivative assets	5		(1)	19		(1)
Noncurrent assets:
Commodity contracts—Natural gas	5		(2)	—
Total derivative assets not designated as hedging instruments	$	10		$	19
Total derivative assets	$	10		$	19
Current liabilities:
Commodity contracts:
Electricity	$	54		$	66
Natural gas	93			150
Total current derivative liabilities	147			216
Noncurrent liabilities:
Commodity contracts:
Electricity	42			71
Natural gas	48			101
Total noncurrent derivative liabilities	90			172
Total derivative liabilities not designated as hedging instruments	$	237		$	388
Total derivative liabilities	$	237		$	388

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

(2) Included in Other noncurrent assets on the condensed consolidated balance sheet.

Net realized and unrealized (gains) losses on derivative transactions not designated as hedging instruments are classified in Purchased power and fuel in the condensed consolidated statements of income and were as follows (in millions):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012		2011
Commodity contracts:
Electricity	$	(3	)	$	44	$	40	$	75
Natural Gas	(19		)	30		6		41

Net unrealized and certain net realized (gains) losses presented in the table above are offset within the consolidated statements of income by the effects of regulatory accounting. Of the net (gains) losses recognized in Net income for the three months ended September 30, 2012 and 2011, net gains of $30 million and net losses of $72 million, respectively, have been offset, with net losses of $14 million and $107 million offset for the nine months ended September 30, 2012 and 2011, respectively.

Assuming no changes in market prices and interest rates, the following table indicates the year in which the net unrealized loss (gain) recorded as of September 30, 2012 related to PGE’s derivative activities would become realized as a result of the settlement of the underlying derivative instrument (in millions):

	2012		2013		2014		2015		2016			Total
Commodity contracts:
Electricity	$	13	$	46	$	24	$	11	$	—		$	94
Natural gas	35		72		24		4		(2		)	133
Net unrealized loss (gain)	$	48	$	118	$	48	$	15	$	(2	)	$	227

PGE’s secured and unsecured debt is currently rated at investment grade by Moody’s Investors Service (Moody’s) and Standard and Poor’s Ratings Services (S&P). Should Moody’s and/or S&P reduce their rating on PGE’s unsecured debt to below investment grade, the Company 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 September 30, 2012 was $190 million, for which PGE has posted $40 million in collateral, consisting entirely of letters of credit. If the credit-risk-related contingent features underlying these agreements were triggered at September 30, 2012, the cash requirement to either post as collateral or settle the instruments immediately would have been $183 million.

Counterparties representing 10% or more of Assets and Liabilities from price risk management activities as of September 30, 2012 or December 31, 2011 were as follows:

	September 30, 2012		December 31, 2011
Assets from price risk management activities:
Counterparty A	15	%	19	%
Counterparty B	12		2
Counterparty C	11		16
Counterparty D	6		13
	44	%	50	%
Liabilities from price risk management activities:
Counterparty E	22	%	23	%
Counterparty F	13		10
	35	%	33	%

See Note 3 for additional information concerning the determination of fair value for the Company’s Assets and Liabilities from price risk management activities.