COMMITMENTS AND GUARANTEES

Purchase Commitments

As of December 31, 2018, PGE’s estimated future minimum payments pursuant to purchase obligations for the following five years and thereafter are as follows (in millions):



	Payments Due
	2019		2020		2021		2022		2023		Thereafter		Total
Capital and other purchase commitments	$	143	$	9	$	1	$	1	$	1	$	58	$	213
Purchased power and fuel:
Electricity purchases	167		190		186		194		193		1,853		2,783
Capacity contracts	1		—		9		9		9		18		46
Public utility districts	12		11		9		8		8		35		83
Natural gas	54		42		31		31		30		208		396
Coal and transportation	6		—		—		—		—		—		6
Total	$	383	$	252	$	236	$	243	$	241	$	2,172	$	3,527

Capital and other purchase commitments—Certain commitments have been made for 2019 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 2041, and power capacity contracts through 2028.

Public utility districts—PGE has long-term power purchase agreements with certain public utility districts (PUDs) in the state of Washington:


•	Grant County PUD for the Priest Rapids and Wanapum projects, and


•	Douglas County PUD for the Wells project.

Under the agreements, the Company is required to pay its proportionate share of the operating and debt service costs of the hydroelectric projects whether they are operable or not. In addition, although PGE’s old agreement with Douglas County ended on August 31, 2018, a new contract became effective on September 1, 2018 that does not require contributions to Douglas County debt obligation or other costs, including the operation and maintenance costs of the projects. The new contract requires monthly payments for capacity that will not vary with annual project generation provided to PGE. The Company has estimated the capacity payments, which are subject to annual adjustments based on Douglas’ loads, and included the estimated amounts in the table above. The future minimum payments for the PUDs in the preceding table reflect the principal and capacity payments only and do not include interest, operation, or maintenance expenses.

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



	Capacity Charges and Revenue Bonds as of December 31, 2018		PGE’s Share as of December 31, 2018			Contract Expiration	PGE Capacity Charges and Debt Service Costs
	Capacity Charges and Revenue Bonds as of December 31, 2018		Output		Capacity	Contract Expiration	2018		2017		2016
					(in MW)
Priest Rapids and Wanapum	$	1,236	8.6	%	163	2052	$	17	$	16	$	16
Wells	757		9.0		135	2028	11		11		10

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 responsible for a pro rata portion of the defaulting purchaser’s share with no limitation, regardless of the reason for any default. 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, 2018, 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
2019	$	6	$	11	$	4
2020	6		14		5
2021	6		13		5
2022	6		13		6
2023	5		13		7
Thereafter	67		225		97
Total minimum lease payments	96		$	289	$	124
Less imputed interest	47
Present value of net minimum lease payments	49
Less current portion	2
Non-current portion	$	47

Capital Leases—PGE has entered into agreements to purchase natural gas transportation capacity 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, 2018, a capital lease asset of $57 million was reflected within Electric utility plant and accumulated amortization of such assets of $8 million was reflected within Accumulated depreciation and amortization in the consolidated balance sheets. The present value of the future minimum lease payments due under the agreement included $2 million within Accrued expenses and other current liabilities and $47 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. Amortization of the leased asset of $3 million and interest expense of $4 million was recorded to Purchased power and fuel expense in the consolidated statements of income through December 31, 2018 and 2017.

Build-to-suit—PGE 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-miles of pipeline, which are collectively 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, in September 2016, PGE issued NW Natural a Notice To Proceed with construction of the expansion project, which the gas company estimates construction will be completed during the spring of 2019, at a cost of approximately $144 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 $131 million and $108 million to CWIP and a corresponding liability for the same amount to Other noncurrent liabilities in the consolidated balance sheets as of December 31, 2018 and 2017, respectively. Pursuant to the adoption of the new lease accounting standard, Topic 842, PGE plans to derecognize the existing build-to-suit assets and liabilities as they are no longer considered to meet the build-to-suit criteria under the new standard. As a result, a ROU asset and lease liability will not be recognized on the Company’s balance sheet until the lease commences, which is expected in the spring of 2019. For additional information regarding the new lease accounting standard, see Note 2, Summary of Significant Accounting Policies.

The table above reflects PGE’s estimated future minimum lease payments pursuant to the agreement based on estimated costs.

Operating leases—PGE has various operating leases associated with leases of land, support facilities, and power purchase agreements that rely on identified plant that expire in various years, extending through 2096. Rent expense was $7 million in 2018, $9 million in 2017, and $10 million in 2016. Contingent rents related to power purchase agreements was $14 million in 2018.

Sublease income was $4 million in 2018, 2017, and 2016.

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, 2018, 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.