SEC Charges Oregon-Based Utility Company with Internal Accounting and Disclosure Controls Violations That Existed Before $127 Million Trading Losses

ADMINISTRATIVE PROCEEDING
File No. 3-22065

September 4, 2024 - The Securities and Exchange Commission today announced settled charges against Portland General Electric Company, a publicly-traded regulated utility company in Oregon, for having deficient internal accounting controls and books and records prior to booking $127 million in derivatives trading losses in August 2020. The company was also charged for having deficient disclosure controls surrounding the market-risk disclosures called for by Item 305 of Regulation S-K.

According to the SEC's order, Portland General Electric trades in derivative instruments as one way to manage the electricity costs of its customers. The order finds that, beginning in early 2020, Portland General Electric made a significant shift in its derivatives trading strategy that involved accumulating large short positions in financial futures in power markets outside of the company's operational footprint. The value of those short futures dropped significantly in August 2020 and, as a result, Portland General Electric incurred $127 million in losses on its derivatives positions.

According to the SEC, from at least 2018 through the August 2020 losses, Portland General Electric's system of internal controls failed to sufficiently document and convey information about the company's derivatives trading to its management and accounting personnel. As a consequence, the company's internal accounting controls were not sufficient to reasonably assure that its derivatives transactions were recorded as necessary to permit preparation of its financial statements in conformity with U.S. Generally Accepted Accounting Principles. In addition, the order finds that Portland General Electric's disclosure controls and procedures were not sufficient to ensure compliance with disclosure requirements about the market risks of its derivative instruments under Item 305 of Regulation S-K. Furthermore, the order finds that Portland General Electric failed to maintain accurate books and records with respect to its regulatory assets.

The SEC's order finds that Portland General Electric violated the books and records, internal accounting controls, and disclosure controls and procedures provisions of the federal securities laws under Section 13(b)(2)(A), Section 13(b)(2)(B), and Rule 13a-15(a) of the Securities Exchange Act of 1934 ("Exchange Act"). Without admitting or denying the SEC's findings, Portland General Electric agreed to cease and desist from committing or causing any violations and any future violations of Section 13(b)(2)(A), Section 13(b)(2)(B), and Rule 13a-15(a) of the Exchange Act. The SEC determined not to impose civil penalties against Portland General Electric because the company provided substantial cooperation to the staff's investigation and undertook extensive remedial measures.

The SEC's investigation was conducted by Silvana A. Quintanilla of the San Francisco Regional Office and Crystal Boodoo of the Philadelphia Regional Office, and was supervised by David Zhou and Jason H. Lee, both of the San Francisco Regional Office.