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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____________________ to ____________________

Commission File Number: 001-5532-99

PORTLAND GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)

Oregon
     93-0256820          
(State or other jurisdiction of
incorporation or organization)
     (I.R.S. Employer          
     Identification No.)          
121 SW Salmon Street
Portland, Oregon 97204
(503) 464-8000
(Address of principal executive offices, including zip code,
and registrant’s telephone number, including area code) 

Securities registered pursuant to Section 12(b) of the Act:
(Title of class)
(Trading Symbol)
(Name of exchange on which registered)
Common Stock, no par value
POR
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [x] Yes [ ] No
  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
[x] Yes x [ ] No
  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


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Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. [ ]

 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [x] No
 
Number of shares of common stock outstanding as of July 26, 2019 is 89,371,751 shares.
 


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PORTLAND GENERAL ELECTRIC COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019

TABLE OF CONTENTS

 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 6.
 
 
 


2

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DEFINITIONS

The following abbreviations and acronyms are used throughout this document:

Abbreviation or Acronym
 
Definition
AFDC
 
Allowance for funds used during construction
AUT
 
Annual Power Cost Update Tariff
Boardman
 
Boardman coal-fired generating plant
Carty
 
Carty natural gas-fired generating plant
Colstrip
 
Colstrip Units 3 and 4 coal-fired generating plant
CWIP
 
Construction work-in-progress
EPA
 
United States Environmental Protection Agency
FERC
 
Federal Energy Regulatory Commission
FMBs
 
First Mortgage Bonds
GAAP
 
Accounting principles generally accepted in the United States of America
GRC
 
General Rate Case
IRP
 
Integrated Resource Plan
Moody’s
 
Moody’s Investors Service
MW
 
Megawatts
MWa
 
Average megawatts
MWh
 
Megawatt hours
NASDAQ
 
National Association of Securities Dealers Automated Quotations
NVPC
 
Net Variable Power Costs
NYSE
 
New York Stock Exchange
OPUC
 
Public Utility Commission of Oregon
PCAM
 
Power Cost Adjustment Mechanism
RPS
 
Renewable Portfolio Standard
S&P
 
S&P Global Ratings
SEC
 
United States Securities and Exchange Commission
TCJA
 
United States Tax Cuts and Jobs Act of 2017
Trojan
 
Trojan nuclear power plant


3

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PART I FINANCIAL INFORMATION

Item 1.
Financial Statements.
 
PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Dollars in millions, except per share amounts)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Revenues, net
$
462

 
$
449

 
$
1,032

 
$
944

Alternative revenue programs, net of amortization
(2
)
 

 
1

 
(2
)
Total revenues
460

 
449

 
1,033

 
942

Operating expenses:
 
 
 
 
 
 
 
Purchased power and fuel
105

 
104

 
284

 
234

Generation, transmission and distribution
86

 
71

 
163

 
140

Administrative and other
78

 
70

 
149

 
139

Depreciation and amortization
101

 
93

 
202

 
185

Taxes other than income taxes
33

 
31

 
67

 
64

Total operating expenses
403

 
369

 
865

 
762

Income from operations
57

 
80

 
168

 
180

Interest expense, net
31

 
31

 
63

 
62

Other income:
 
 
 
 
 
 
 
Allowance for equity funds used during construction
2

 
2

 
5

 
6

Miscellaneous income, net

 
1

 
2

 

Other income, net
2

 
3

 
7

 
6

Income before income tax expense
28

 
52

 
112

 
124

Income tax expense
3

 
6

 
14

 
14

Net income
25

 
46

 
98

 
110

Other comprehensive income
1

 

 
2

 

Comprehensive income
$
26

 
$
46

 
$
100

 
$
110

 
 
 
 
 
 
 
 
Weighted-average common shares outstanding (in thousands):







Basic
89,357


89,215


89,333


89,188

Diluted
89,561


89,215


89,537


89,188













Earnings per share:











Basic
$
0.28


$
0.51


$
1.10


$
1.23

Diluted
$
0.28


$
0.51


$
1.09


$
1.23

 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.

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PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(Unaudited)




 
June 30,
2019
 
December 31,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
11

 
$
119

Accounts receivable, net
150

 
193

Unbilled revenues
72

 
96

Inventories
101

 
84

Regulatory assets—current
37

 
61

Other current assets
69

 
90

Total current assets
440

 
643

Electric utility plant, net
6,952

 
6,887

Regulatory assets—noncurrent
380

 
401

Nuclear decommissioning trust
46

 
42

Non-qualified benefit plan trust
37

 
36

Other noncurrent assets
142

 
101

Total assets
$
7,997

 
$
8,110

 
 
 
 
See accompanying notes to condensed consolidated financial statements.





5

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PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, continued
(Dollars in millions)
(Unaudited)



 
June 30,
2019
 
December 31,
2018
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
119

 
$
168

Liabilities from price risk management activities—current
40

 
55

Short-term debt
17

 

Current portion of long-term debt

 
300

Current portion of finance lease obligation
17

 

Accrued expenses and other current liabilities
247

 
268

Total current liabilities
440

 
791

Long-term debt, net of current portion
2,377

 
2,178

Regulatory liabilities—noncurrent
1,365

 
1,355

Deferred income taxes
379

 
369

Unfunded status of pension and postretirement plans
312

 
307

Liabilities from price risk management activities—noncurrent
76

 
101

Asset retirement obligations
199

 
197

Non-qualified benefit plan liabilities
101

 
103

Finance lease obligations, net of current portion
137

 

Other noncurrent liabilities
69

 
203

Total liabilities
5,455

 
5,604

Commitments and contingencies (see notes)

 

Shareholders’ Equity:
 
 
 
Preferred stock, no par value, 30,000,000 shares authorized; none issued and outstanding as of June 30, 2019 and December 31, 2018

 

Common stock, no par value, 160,000,000 shares authorized; 89,371,560 and 89,267,959 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
1,215

 
1,212

Accumulated other comprehensive loss
(7
)
 
(7
)
Retained earnings
1,334

 
1,301

Total shareholders’ equity
2,542

 
2,506

Total liabilities and shareholders’ equity
$
7,997

 
$
8,110

 
See accompanying notes to condensed consolidated financial statements.



6

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PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
                                        

 
Six Months Ended June 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
98

 
$
110

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
202

 
185

Deferred income taxes
6

 
6

Pension and other postretirement benefits
12

 
13

Allowance for equity funds used during construction
(5
)
 
(6
)
Decoupling mechanism deferrals, net of amortization
(1
)
 
2

(Amortization) Deferral of net benefits due to Tax Reform
(11
)
 
25

Other non-cash income and expenses, net
21

 
4

Changes in working capital:
 
 
 
Decrease in accounts receivable and unbilled revenues
63

 
26

(Increase) in inventories
(17
)
 
(7
)
Decrease in margin deposits, net
11

 
4

(Decrease) in accounts payable and accrued liabilities
(65
)
 
(20
)
Other working capital items, net
16

 
13

Other, net
(16
)
 
(17
)
Net cash provided by operating activities
314

 
338

 
 
 
 
Cash flows from investing activities:
 
 
 
Capital expenditures
(271
)
 
(266
)
Sales of Nuclear decommissioning trust securities
7

 
6

Purchases of Nuclear decommissioning trust securities
(5
)
 
(5
)
Other, net
(2
)
 

Net cash used in investing activities
(271
)
 
(265
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from issuance of long-term debt
200

 

Payments on long-term debt
(300
)
 

Issuance of commercial paper, net
17

 

Dividends paid
(65
)
 
(61
)
Other
(3
)
 
(3
)
Net cash used in financing activities
(151
)
 
(64
)
(Decrease) increase in cash and cash equivalents
(108
)
 
9

Cash and cash equivalents, beginning of period
119

 
39

Cash and cash equivalents, end of period
$
11

 
$
48

 
 
 
 
Supplemental cash flow information is as follows:
 
 
 
Cash paid for interest, net of amounts capitalized
$
60

 
$
58

Cash paid for income taxes
20

 
10

 
See accompanying notes to condensed consolidated financial statements.

7

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PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(In millions)
(Unaudited)



NOTE 1: BASIS OF PRESENTATION

Nature of Business

Portland General Electric Company (PGE or the Company) is a single, vertically integrated electric utility engaged in the generation, purchase, transmission, distribution, and retail sale of electricity in the State of Oregon. The Company also participates in the wholesale market by purchasing and selling electricity and natural gas in an effort to obtain reasonably-priced power for its retail customers. PGE operates as a single segment, with revenues and costs related to its business activities maintained and analyzed on a total electric operations basis. The Company’s corporate headquarters is located in Portland, Oregon and its four thousand square mile, state-approved service area allocation, located entirely within the State of Oregon, encompasses 51 incorporated cities. As of June 30, 2019, PGE served 888 thousand retail customers within a service area of 1.9 million residents, comprising 46% of the state’s population.

Condensed Consolidated Financial Statements

These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such regulations, although PGE believes that the disclosures provided are adequate to make the interim information presented not misleading.

The financial information included herein as of and for the three and six months ended June 30, 2019 and 2018 is unaudited; however, in the opinion of management, such information reflects all adjustments necessary to fairly present the condensed consolidated financial position, condensed consolidated income and comprehensive income, and condensed consolidated cash flows of the Company for these interim periods. All such adjustments are of normal recurring nature, unless otherwise noted. The financial information as of December 31, 2018 is derived from the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2018, included in Item 8 of PGE’s Annual Report on Form 10-K, filed with the SEC on February 15, 2019, which should be read in conjunction with such condensed consolidated financial statements.

Comprehensive Income

No material change occurred in Other comprehensive income in the three and six months ended June 30, 2019 and 2018.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of gain or loss contingencies, as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results experienced by the Company could differ materially from those estimates.

Certain costs are estimated for the full year and allocated to interim periods based on estimates of operating time expired, benefit received, or activity associated with the interim period; accordingly, such costs may not be

8

Table of Contents

PORTLAND GENERAL ELECTRIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)

reflective of amounts to be recognized for a full year. Due to seasonal fluctuations in electricity sales, as well as the price of wholesale energy and natural gas, interim financial results do not necessarily represent those to be expected for the year.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 amends Topic 820 to add, remove, and clarify disclosure requirements related to fair value measurement disclosures. For calendar year-end entities, the update will be effective for annual periods beginning January 1, 2020, and interim periods within those fiscal years. Early adoption of the amendments is permitted, including adoption in any interim period. As the standard relates only to disclosures, PGE does not expect the adoption to have a material impact on the condensed consolidated financial statements and is still evaluating whether it will early adopt.

In August 2018, the FASB issued ASU 2018-15 Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, to provide guidance on implementation costs incurred in a cloud computing arrangement that is a service contract. ASU 2018-15 aligns the accounting for such costs with the guidance on capitalizing costs associated with developing or obtaining internal-use software. For calendar year-end entities, the update will be effective for annual periods beginning on January 1, 2020. Early adoption is permitted, including adoption in an interim period. The amendments in this update may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. PGE is in the process of evaluating potential impacts of these amendments and does not plan to early adopt.

In August 2018, the FASB issued ASU 2018-14 Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 amends Topic 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. For calendar year-end entities, the update will be effective for annual periods beginning on January 1, 2021. Early adoption is permitted. As the standard relates only to disclosures, PGE does not expect the adoption to have a material impact on the condensed consolidated financial statements and is still evaluating whether it will early adopt.

Recently Adopted Accounting Pronouncements

On January 1, 2019, PGE adopted ASU 2016-02, Leases (Topic 842), which supersedes the current lease accounting requirements for lessees and lessors within Topic 840, Leases. The Company elected the practical expedient provided under ASU 2018-11, Leases (Topic 842) Targeted Improvements, which amended ASU 2016-02 to provide entities an optional transition practical expedient to adopt the new standard with a cumulative effect adjustment as of the beginning of the year of adoption with prior year comparative financial information and disclosures remaining as previously reported. As a result, no adjustments were made to the balance sheet prior to January 1, 2019 and amounts are reported in accordance with historical accounting under Topic 840, while the balance sheet as of June 30, 2019 is presented under Topic 842. The Company also elected the practical expedient provided under ASU 2018-01, Leases (Topic 842) Land Easement Practical Expedient for Transition to Topic 842, which amended ASU 2016-02 to provide entities an optional transition practical expedient to not evaluate under Topic 842, existing or expired land easements that were not previously accounted for as leases under the current leases guidance in Topic 840. Effective January 1, 2019, PGE evaluates new or modified land easements under Topic 842.

PGE's transition to the new lease standard did not result in a material adjustment to beginning retained earnings and the Company expects the adoption of the new standard to have an immaterial impact to its results of operations on

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)

an ongoing basis. Upon transition, PGE elected to reassess all arrangements that may contain a lease and their resulting lease classification which resulted in the following balance sheet adjustments as of January 1, 2019: i) the recognition of right-of-use assets and liabilities from operating and finance leases of $44 million pursuant to the new standard; ii) the derecognition of existing build-to-suit assets and liabilities of $131 million that were no longer considered to meet build-to-suit criteria under Topic 842 and were not recognized on the Company’s balance sheet until commencement, which occurred in the second quarter of 2019; and iii) the derecognition of $49 million in lease assets and liabilities related to an existing gas pipeline lateral capital lease that no longer met the definition of a lease under the new standard. The following table illustrates the adjustments made upon adoption of Topic 842 and the corresponding line items affected on the Company’s condensed consolidated balance sheets (in millions):

 
January 1, 2019 Topic 842 Adoption Adjustments
 
Increase due to existing operating and finance leases
 
Decrease due to build-to-suit reassessment
 
Decrease due to capital lease reassessment
 
Total
Increase/(Decrease)
Assets
 
 
 
 
 
 
 
Electric utility plant, net
$
2

 
$
(131
)
 
$
(49
)
 
$
(178
)
Other noncurrent assets
42

 

 

 
42

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Accrued expenses and other current liabilities
5

 

 
(2
)
 
3

Other noncurrent liabilities
39

 
(131
)
 
(47
)
 
(139
)


For new required disclosures and further information see Note 11, Leases. The transition to the new standard did not have a material impact on the Company's financial position.

On January 1, 2019 PGE adopted ASU 2018-02 Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). ASU 2018-02 allows for a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects resulting from the United States Tax Cuts and Jobs Act of 2017 (TCJA). The amendments only relate to the reclassification of the income tax effects of the TCJA, and therefore the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. As a result, PGE reclassified $2 million from Accumulated other compressive loss to Retained earnings during the period of adoption rather than applying the standard retrospectively. The implementation did not result in a material impact to the results of operation, financial position or statements of cash flows.


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PORTLAND GENERAL ELECTRIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)

NOTE 2: REVENUE RECOGNITION

Disaggregated Revenue

The following table presents PGE’s revenue, disaggregated by customer type (in millions):

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
2018
 
2019
2018
Retail:
 
 
 
 
 
Residential
$
205

$
207

 
$
495

$
475

Commercial
158

162

 
312

313

Industrial
50

39

 
94

83

Direct access customers
10

13

 
21

23

Subtotal
423

421

 
922

894

Alternative revenue programs, net of amortization
(2
)

 
1

(2
)
Other accrued (deferred) revenues, net(1)
6

(10
)
 
13

(27
)
Total retail revenues
427

411

 
936

865

Wholesale revenues(2)
16

24

 
53

52

Other operating revenues
17

14

 
44

25

Total revenues
$
460

$
449

 
$
1,033

$
942


(1) Amounts for the three months ended June 30, 2019 and 2018 primarily comprised of $5 million of amortization and $10 million of deferral, respectively, related to the 2018 net tax benefits due to the change in corporate tax rate under the TCJA. Amounts for the six months ended June 30, 2019 and 2018 primarily comprised of $11 million of amortization and $25 million of deferral, respectively, related to the 2018 net tax benefits due to the change in corporate tax rate under the TCJA.
(2) Wholesale revenues include $2 million and $4 million related to electricity commodity contract derivative settlements for the three months ended June 30, 2019 and 2018, respectively, and $13 million and $6 million, respectively, for the six months ended June 30, 2019 and 2018. Price risk management derivative activities are included within total revenues but do not represent revenues from contracts with customers. For further information, see Note 5, Risk Management.

Retail Revenues

The Company’s primary revenue source is the sale of electricity to customers at regulated tariff-based prices. Retail customers are classified as residential, commercial, or industrial. Residential customers include single-family housing, multiple-family housing (such as apartments, duplexes, and town homes), manufactured homes, and small farms. Residential demand is sensitive to the effects of weather, with demand highest during the winter heating and summer cooling seasons. Commercial customers consist of non-residential customers who accept energy deliveries at voltages equivalent to those delivered to residential customers. Commercial customers include most businesses, small industrial companies, and public street and highway lighting accounts. Industrial customers consist of non-residential customers who accept delivery at higher voltages than commercial customers. Demand from industrial customers is primarily driven by economic conditions, with weather having little impact on energy use by this customer class.
In accordance with state regulations, PGE’s retail customer prices are based on the Company’s cost of service and are determined through general rate case proceedings and various tariff filings with the Public Utility Commission

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PORTLAND GENERAL ELECTRIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)

of Oregon (OPUC). Additionally, the Company offers pricing options that include a daily market price option, various time-of-use options, and several renewable energy options.
Retail revenue is billed based on monthly meter readings taken at various cycle dates throughout the month. At the end of each month, PGE estimates the revenue earned from energy deliveries that has not yet been billed to customers. This amount, which is classified as Unbilled revenues in the Company’s condensed consolidated balance sheets, is calculated based on actual net retail system load each month, the number of days from the last meter read date through the last day of the month, and current customer prices.
PGE’s obligation to sell electricity to retail customers generally represents a single performance obligation representing a series of distinct services that are substantially the same and have the same pattern of transfer to the customer that is satisfied over time as customers simultaneously receive and consume the benefits provided. PGE applies the invoice method to measure its progress towards satisfactorily completing its performance obligations.
Pursuant to regulation by the OPUC, PGE is mandated to maintain several tariff schedules to collect funds from customers associated with activities for the benefit of the general public, such as conservation, low-income housing, energy efficiency, renewable energy programs, and privilege taxes. For such programs, PGE generally collects the funds and remits the amounts to third party agencies that administer the programs. In these arrangements, PGE is considered to be an agent, as PGE’s performance obligation is to facilitate a transaction between customers and the administrators of these programs. Therefore, such amounts are presented on a net basis and are not reflected in Revenues, net within the condensed consolidated statements of income and comprehensive income.
Wholesale Revenues
PGE participates in the wholesale electricity marketplace in order to balance its supply of power to meet the needs of its retail customers. Interconnected transmission systems in the western United States serve utilities with diverse load requirements and allow the Company to purchase and sell electricity within the region depending upon the relative price and availability of power, hydro, solar and wind conditions, and daily and seasonal retail demand.
PGE’s Wholesale revenues are primarily short-term electricity sales to utilities and power marketers that consist of single performance obligations satisfied as energy is transferred to the counterparty. The Company may choose to net certain purchase and sale transactions in which it would simultaneously receive and deliver physical power with the same counterparty; in such cases, only the net amount of those purchases or sales required to meet retail and wholesale obligations will be physically settled and recorded in Wholesale revenues.
Other Operating Revenues
Other operating revenues consist primarily of gains and losses on the sale of natural gas volumes purchased that exceeded what was needed to fuel the Company’s generating facilities, as well as revenues from transmission services, excess transmission capacity resales, excess fuel sales, utility pole attachment revenues, and other electric services provided to customers.

Arrangements with Multiple Performance Obligations

Certain contracts with customers, primarily wholesale, may include multiple performance obligations. For such arrangements, PGE allocates revenue to each performance obligation based on its relative standalone selling price. PGE generally determines standalone selling prices based on the prices charged to customers.


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PORTLAND GENERAL ELECTRIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)

NOTE 3: BALANCE SHEET COMPONENTS

Inventories

PGE’s inventories, which are recorded at average cost, consist primarily of materials and supplies for use in operations, maintenance, and capital activities, as well as fuel, which includes natural gas, coal, and oil for use in the Company’s generating plants. Periodically, the Company assesses inventory for purposes of determining that inventories are recorded at the lower of average cost or net realizable value.

Other Current Assets

Other current assets consist of the following (in millions):
 
June 30, 2019
 
December 31, 2018
Prepaid expenses
$
35

 
$
54

Assets from price risk management activities
20

 
20

Margin deposits
5

 
16

Other
9

 

Other current assets
$
69

 
$
90



Electric Utility Plant, Net

Electric utility plant, net consists of the following (in millions):
 
June 30, 2019
 
December 31, 2018
Electric utility plant
$
10,684

 
$
10,344

Construction work-in-progress
219

 
346

Total cost
10,903

 
10,690

Less: accumulated depreciation and amortization
(3,951
)
 
(3,803
)
Electric utility plant, net
$
6,952

 
$
6,887


Accumulated depreciation and amortization in the table above includes accumulated amortization related to intangible assets of $334 million and $302 million as of June 30, 2019 and December 31, 2018, respectively. Amortization expense related to intangible assets was $17 million and $33 million for the three and six months ended June 30, 2019, respectively, and $14 million and $27 million for the three and six months ended June 30, 2018, respectively. The Company’s intangible assets primarily consist of computer software development and hydro licensing costs.

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PORTLAND GENERAL ELECTRIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)

Regulatory Assets and Liabilities

Regulatory assets and liabilities consist of the following (in millions):
 
June 30, 2019
 
December 31, 2018
 
Current
 
Noncurrent
 
Current
 
Noncurrent
Regulatory assets:
 
 
 
 
 
 
 
Price risk management
$
20

 
$
73

 
$
32

 
$
99

Pension and other postretirement plans

 
217

 

 
222

Debt issuance costs

 
19

 

 
16

Trojan decommissioning activities

 
25

 

 
26

Other
17

 
46

 
29

 
38

Total regulatory assets
$
37

 
$
380

 
$
61

 
$
401

Regulatory liabilities:
 
 
 
 
 
 
 
Asset retirement removal costs
$

 
$
1,001

 
$

 
$
979

Deferred income taxes

 
265

 

 
267

Trojan decommissioning activities
2

 

 
1

 

Asset retirement obligations

 
54

 

 
53

Tax Reform Deferral(1)
22

 
12

 
23

 
22

Other
13

 
33

 
12

 
34

Total regulatory liabilities
$
37

(2) 
$
1,365

 
$
36

(2) 
$
1,355


(1) Related to the deferral of the 2018 net tax benefits due to the change in corporate tax rate under TCJA, including interest.
(2) Included in Accrued expenses and other current liabilities in the condensed consolidated balance sheets.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in millions):
 
June 30, 2019
 
December 31, 2018
Accrued employee compensation and benefits
$
58

 
$
66

Accrued taxes payable
29

 
34

Accrued interest payable
25

 
27

Accrued dividends payable
35

 
34

Regulatory liabilities—current
37

 
36

Other
63

 
71

Total accrued expenses and other current liabilities
$
247

 
$
268



Credit Facilities

As of December 31, 2018, PGE had a $500 million revolving credit facility scheduled to terminate in November 2021. On January 16, 2019, PGE executed an amendment to the credit facility extending the termination date to November 14, 2022 and allowing for unlimited extensions, provided that lenders with a pro-rata share of more than 50% approve the extension request. Pursuant to the terms of the agreement, the revolving credit facility may be used for general corporate purposes, as backup for commercial paper borrowings, and to permit the issuance of standby letters of credit. PGE may borrow for one, two, three, or six months at a fixed interest rate established at the time of

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PORTLAND GENERAL ELECTRIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)

the borrowing, or at a variable interest rate for any period up to the then remaining term of the applicable credit facility. The revolving credit facility contains a provision that requires annual fees based on PGEs unsecured credit ratings, and contains customary covenants and default provisions, including a requirement that limits consolidated indebtedness, as defined in the agreement, to 65% of total capitalization. As of June 30, 2019, PGE was in compliance with this covenant with a 50.3% debt-to-total capital ratio.

The Company has a commercial paper program under which it may issue commercial paper for terms of up to 270 days, limited to the unused amount of credit under the revolving credit facility.

PGE classifies any borrowings under the revolving credit facility and outstanding commercial paper as Short-term debt on the condensed consolidated balance sheets.

Under the revolving credit facility, as of June 30, 2019, PGE had no borrowings outstanding and $17 million of commercial paper issued. As a result, the aggregate unused available credit capacity under the revolving credit facility was $483 million.

In addition, PGE has four letter of credit facilities that provide a total capacity of $220 million under which the Company can request letters of credit for original terms not to exceed one year. The issuance of such letters of credit is subject to the approval of the issuing institution. Under these facilities, letters of credit for a total of $60 million were outstanding as of June 30, 2019. Letters of credit issued are not reflected on the Company’s condensed consolidated balance sheets.

Pursuant to an order issued by the FERC, the Company is authorized to issue short-term debt in an aggregate amount of up to $900 million through February 6, 2020.

Long-term Debt

On April 12, 2019, PGE issued $200 million of 4.30% Series First Mortgage Bonds (FMBs) due in 2049. Proceeds from the transaction were used to repay the $300 million current portion of long-term debt on April 15, 2019.

Defined Benefit Pension Plan Costs

Components of net periodic benefit cost under the defined benefit pension plan are as follows (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Service cost
$
4

 
$
5

 
$
8

 
$
10

Interest cost*
9

 
8

 
17

 
16

Expected return on plan assets*
(10
)
 
(11
)
 
(20
)
 
(21
)
Amortization of net actuarial loss*
2

 
4

 
5

 
8

Net periodic benefit cost
$
5

 
$
6

 
$
10

 
$
13



* The expense portion of non-service cost components are included in Miscellaneous income, net within Other income on the Company’s condensed consolidated statements of income and comprehensive income.


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PORTLAND GENERAL ELECTRIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)

NOTE 4: FAIR VALUE OF FINANCIAL INSTRUMENTS

PGE determines the fair value of financial instruments, both assets and liabilities recognized and not recognized in the Company’s condensed consolidated balance sheets, for which it is practicable to estimate fair value as of June 30, 2019 and December 31, 2018. PGE then classifies these financial assets and liabilities based on a fair value hierarchy that is 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:

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; and

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 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 three and six months ended June 30, 2019 and 2018, except those presented in this note.


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PORTLAND GENERAL ELECTRIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)

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):
 
As of June 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Other(2)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Cash equivalents
$
11

 
$

 
$

 
$

 
$
11

Nuclear decommissioning trust: (1)
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
Domestic government
10

 
13

 

 

 
23

Corporate credit

 
12

 

 

 
12

Money market funds measured at NAV (2)

 

 

 
11

 
11

Non-qualified benefit plan trust: (3)
 
 
 
 
 
 
 
 
 
Money market funds
1

 

 

 

 
1

Equity securities
6

 

 

 

 
6

Debt securities—domestic government
1

 

 

 

 
1

Price risk management activities: (1) (4)
 
 
 
 
 
 
 
 
 
Electricity

 
14

 
1

 

 
15

Natural gas

 
7

 
1

 

 
8

 
$
29

 
$
46

 
$
2

 
$
11

 
$
88

Liabilities:
 
 
 
 
 
 
 
 
 
Price risk management activities: (1) (4)
 
 
 
 
 
 
 
 
 
Electricity
$

 
$
8

 
$
69

 
$

 
$
77

Natural gas

 
34

 
5

 

 
39

 
$

 
$
42

 
$
74

 
$

 
$
116

 
(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 $29 million, which are recorded at cash surrender value.
(4)
For further information, see Note 5, Risk Management.


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PORTLAND GENERAL ELECTRIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)

 
As of December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Other (2)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Cash equivalents
$
112

 
$

 
$

 
$

 
$
112

Nuclear decommissioning trust: (1)
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
Domestic government
7

 
18

 

 

 
25

Corporate credit

 
10

 

 

 
10

Money market funds measured at NAV (2)

 

 

 
7

 
7

Non-qualified benefit plan trust: (3)
 
 
 
 
 
 
 
 
 
Money market funds
2

 

 

 

 
2

Equity securities
6

 

 

 

 
6

Debt securities—domestic government
1

 

 

 

 
1

Price risk management activities: (1) (4)
 
 
 
 
 
 
 
 
 
Electricity

 
9

 
3

 

 
12

Natural gas

 
8

 

 

 
8

 
$
128

 
$
45

 
$
3

 
$
7

 
$
183

Liabilities:
 
 
 
 
 
 
 
 
 
    Interest rate swap derivatives
$

 
$
4

 
$

 
$

 
$
4

Price risk management activities: (1) (4)
 
 
 
 
 
 
 
 
 
Electricity

 
10

 
84

 

 
94

Natural gas

 
51

 
7

 

 
58

 
$

 
$
65

 
$
91

 
$

 
$
156

 
(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 $27 million, which are recorded at cash surrender value.
(4)
For further information, see Note 5, 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 holdings of such funds do not exceed 90 days and provide investors with the ability to redeem shares of the funds daily at their respective net asset value. These 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 Nuclear decommissioning trust (NDT) and Non-qualified benefit plan (NQBP) trusts are recorded at fair value in PGE’s condensed 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

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PORTLAND GENERAL ELECTRIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)

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 yields 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.

Liabilities from interest rate swap derivatives are recorded at fair value in PGE’s condensed consolidated balance sheets and consist of forward starting interest rate swap lock agreements to hedge a portion of the interest rate risk associated with anticipated issuances of fixed-rate, long-term debt securities. To establish fair values for interest rate swap derivatives, the Company uses forward market curves for interest rates for the term of the swaps and discounts the cash flows back to present value using an appropriate discount rate. The discount rate is calculated by third party brokers according to the terms of the swap derivatives and evaluated by the Company for reasonableness. Future cash flows of the interest rate swap derivatives are equal to the fixed interest rate in the swap compared to the floating market interest rate multiplied by the notional amount for each period.

Assets and liabilities from price risk management activities are recorded at fair value in PGE’s condensed consolidated balance sheets and consist of derivative instruments entered into by the Company to manage its risk exposure to commodity price and foreign currency exchange rate and to reduce volatility in net variable power costs (NVPC) for the Company’s retail customers. For additional information regarding these assets and liabilities, see Note 5, 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.


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PORTLAND GENERAL ELECTRIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)

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:
 
 
Fair Value
 
Valuation Technique
 
Significant Unobservable Input
 
Price per Unit
Commodity Contracts
 
Assets
 
Liabilities
 
 
 
Low
 
High
 
Weighted Average
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
As of June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electricity physical forwards
 
$
1

 
$
68

 
Discounted cash flow
 
Electricity forward price (per MWh)
 
$
13.63

 
$
78.80

 
$
51.43

Natural gas financial swaps
 
1

 
5

 
Discounted cash flow
 
Natural gas forward price (per Decatherm)
 
1.03

 
3.67

 
1.67

Electricity financial futures
 

 
1

 
Discounted cash flow
 
Electricity forward price (per MWh)
 
24.79

 
60.25

 
37.17

 
 
$
2

 
$
74

 
 
 
 
 
 
 
 
 
 
As of December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electricity physical forwards
 
$
3

 
$
84

 
Discounted cash flow
 
Electricity forward price (per MWh)
 
$
14.60

 
$
69.00

 
$
45.00

Natural gas financial swaps
 

 
7

 
Discounted cash flow
 
Natural gas forward price (per Decatherm)
 
0.95

 
4.64

 
1.82

 
 
$
3

 
$
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 PGE’s position as either the buyer or seller under 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)
 
 
 
 
 
 
 


20

Table of Contents

PORTLAND GENERAL ELECTRIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)

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):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019

2018
 
2019
 
2018
Balance as of the beginning of the period
$
70

 
$
134

 
$
88

 
$
139

Net realized and unrealized (gains)/losses*
3

 
(4
)
 
(16
)
 
(8
)
Transfers out of Level 3 to Level 2
(1
)
 
(1
)
 

 
(2
)
Balance as of the end of the period
$
72

 
$
129

 
$
72

 
$
129

 

* Both realized and unrealized (gains)/losses, of which the unrealized portion is fully offset by the effects of regulatory accounting until settlement of the underlying transactions, are recorded in Purchased power and fuel expense in the condensed consolidated statements of income and comprehensive income.

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 three and six months ended June 30, 2019 and 2018, 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 in and out of 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 condensed consolidated balance sheets. The fair value of the Company’s FMBs and Pollution Control Revenue Bonds is classified as a Level 2 fair value measurement.

As of June 30, 2019, the carrying amount of PGE’s long-term debt was $2,377 million, net of $10 million of unamortized debt expense, and its estimated aggregate fair value was $2,651 million. As of December 31, 2018, the carrying amount of PGE’s long-term debt was $2,478 million, net of $10 million of unamortized debt expense, and its estimated aggregate fair value was $2,760 million.

NOTE 5: 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 its existing long-term wholesale contracts. Wholesale market transactions include purchases and sales of both power and fuel resulting from economic dispatch decisions for Company-owned generation 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 to reduce volatility in NVPC for its retail customers. Such derivative instruments, recorded at fair value on the condensed consolidated balance sheets, may include forward, futures, swaps, and option contracts for electricity,

21

Table of Contents

PORTLAND GENERAL ELECTRIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)

natural gas, and foreign currency, with changes in fair value recorded in the condensed consolidated statements of income and comprehensive income. In accordance with the 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 engage in trading activities for non-retail purposes.

PGE’s Assets and Liabilities from price risk management activities consist of the following (in millions):
 
June 30, 2019
 
December 31, 2018
Current assets:
 
 
 
Commodity contracts:
 
 
 
Electricity
$
15

 
$
11

Natural gas
5

 
7

Total current derivative assets*
20

 
18

Noncurrent assets:
 
 
 
Commodity contracts:
 
 
 
Electricity

 
1

Natural gas
3

 
1

Total noncurrent derivative assets
3

 
2

Total derivative assets not designated as hedging instruments
$
23

 
$