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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 September 30, 2020

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)

Oregon93-0256820
(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 valuePORNew York Stock Exchange
9.31% Medium-Term Notes due 2021POR 21New 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.
Large accelerated filer Accelerated filer
Non-accelerated filerSmaller 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 October 26, 2020 is 89,510,606 shares.


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PORTLAND GENERAL ELECTRIC COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS

Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 5.
Item 6.
2

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DEFINITIONS

The following abbreviations and acronyms are used throughout this document:

Abbreviation or AcronymDefinition
AFDCAllowance for funds used during construction
AUTAnnual Power Cost Update Tariff
ColstripColstrip Units 3 and 4 coal-fired generating plant
EPAUnited States Environmental Protection Agency
FERCFederal Energy Regulatory Commission
FMBsFirst Mortgage Bonds
GAAPAccounting principles generally accepted in the United States of America
GRCGeneral Rate Case
IRPIntegrated Resource Plan
Moody’sMoody’s Investors Service
MWMegawatts
MWaAverage megawatts
MWhMegawatt hour
NasdaqNational Association of Securities Dealers Automated Quotations
NVPCNet Variable Power Costs
NYSENew York Stock Exchange
OPUCPublic Utility Commission of Oregon
PCAMPower Cost Adjustment Mechanism
RPSRenewable Portfolio Standard
S&PS&P Global Ratings
SECUnited States Securities and Exchange Commission
TrojanTrojan nuclear power plant
WheatridgeWheatridge Renewable Energy Facility
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 September 30, Nine Months Ended September 30,
2020201920202019
Revenues:
Revenues, net$556 $538 $1,589 $1,570 
Alternative revenue programs, net of amortization(9)4  5 
Total revenues547 542 1,589 1,575 
Operating expenses:
Purchased power and fuel292 165 554 449 
Generation, transmission and distribution65 78 215 241 
Administrative and other63 74 208 223 
Depreciation and amortization108 103 320 305 
Taxes other than income taxes35 34 104 101 
Total operating expenses563 454 1,401 1,319 
Income (loss) from operations(16)88 188 256 
Interest expense, net35 32 102 95 
Other income:
Allowance for equity funds used during construction4 2 11 7 
Miscellaneous income, net3 3 2 5 
Other income, net7 5 13 12 
Income (loss) before income tax expense(44)61 99 173 
Income tax expense (benefit)(27)6 (4)20 
Net income (loss)(17)55 103 153 
Other comprehensive income (loss)  1 2 
Comprehensive income (loss)$(17)$55 $104 $155 
Weighted-average common shares outstanding (in thousands):
Basic89,509 89,372 89,476 89,346 
Diluted89,509 89,594 89,629 89,555 
Earnings per share:
Basic$(0.19)$0.61 $1.16 $1.71 
Diluted$(0.19)$0.61 $1.15 $1.70 
See accompanying notes to condensed consolidated financial statements.
4

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



September 30, 2020December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents$253 $30 
Accounts receivable, net250 253 
Inventories86 96 
Regulatory assets—current8 17 
Other current assets123 104 
Total current assets720 500 
Electric utility plant, net7,371 7,161 
Regulatory assets—noncurrent527 483 
Nuclear decommissioning trust47 46 
Non-qualified benefit plan trust39 38 
Other noncurrent assets165 166 
Total assets$8,869 $8,394 
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)


September 30, 2020December 31, 2019
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$139 $165 
Liabilities from price risk management activities—current16 23 
Short-term debt225  
Current portion of long-term debt160  
Current portion of finance lease obligation16 16 
Accrued expenses and other current liabilities368 315 
Total current liabilities924 519 
Long-term debt, net of current portion2,657 2,597 
Regulatory liabilities—noncurrent1,375 1,377 
Deferred income taxes378 378 
Unfunded status of pension and postretirement plans250 247 
Liabilities from price risk management activities—noncurrent138 108 
Asset retirement obligations251 263 
Non-qualified benefit plan liabilities99 103 
Finance lease obligations, net of current portion131 135 
Other noncurrent liabilities71 76 
Total liabilities6,274 5,803 
Commitments and contingencies (see notes)
Shareholders’ Equity:
Preferred stock, no par value, 30,000,000 shares authorized; none issued and outstanding as of September 30, 2020 and December 31, 2019
  
Common stock, no par value, 160,000,000 shares authorized; 89,509,783 and 89,387,124 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
1,226 1,220 
Accumulated other comprehensive loss(9)(10)
Retained earnings1,378 1,381 
Total shareholders’ equity2,595 2,591 
Total liabilities and shareholders’ equity$8,869 $8,394 
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)
                                        
Nine Months Ended September 30,
20202019
Cash flows from operating activities:
Net income$103 $153 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization320 305 
Deferred income taxes(14)3 
Pension and other postretirement benefits17 16 
Allowance for equity funds used during construction(11)(7)
Decoupling mechanism deferrals, net of amortization (6)
Amortization of net benefits due to Tax Reform(17)(16)
Other non-cash income and expenses, net38 38 
Changes in working capital:
(Increase)/decrease in accounts receivable, net(3)50 
Decrease/(increase) in inventories10 (7)
(Increase)/decrease in margin deposits(6)4 
Increase/(decrease) in accounts payable and accrued liabilities24 (25)
Other working capital items, net27 25 
Other, net(46)(31)
Net cash provided by operating activities442 502 
Cash flows from investing activities:
Capital expenditures(549)(407)
Sales of Nuclear decommissioning trust securities6 11 
Purchases of Nuclear decommissioning trust securities(5)(8)
Other, net(3)(2)
Net cash used in investing activities(551)(406)
7

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

Nine Months Ended September 30,
20202019
Cash flows from financing activities:
Proceeds from issuance of long-term debt319 200 
Payments on long-term debt(98)(300)
Borrowings on short-term debt275  
Repayments of short-term debt(50) 
Dividends paid(103)(99)
Other(11)(5)
Net cash provided by (used in) financing activities332 (204)
Increase (Decrease) in cash and cash equivalents223 (108)
Cash and cash equivalents, beginning of period30 119 
Cash and cash equivalents, end of period$253 $11 
Supplemental cash flow information is as follows:
Cash paid for interest, net of amounts capitalized$70 $73 
Cash paid for income taxes9 21 
See accompanying notes to condensed consolidated financial statements.
8

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

NOTE 1: BASIS OF PRESENTATION

Nature of Business

Portland General Electric Company (PGE or the Company) is a vertically-integrated electric utility engaged in the generation, purchase, transmission, distribution, and retail sale of electricity in the State of Oregon. The Company participates in the wholesale market by purchasing and selling electricity and natural gas in an effort to provide reasonably-priced power for its retail customers. PGE operates as a single segment, with revenues and costs related to its business activities recorded and analyzed on a total electric operations basis. The Company’s corporate headquarters is located in Portland, Oregon and its 4,000 square mile, state-approved service area encompasses 51 incorporated cities entirely within the State of Oregon. As of September 30, 2020, PGE served 904,000 retail customers within a service area of 1.9 million residents.

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 nine months ended September 30, 2020 and 2019 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, 2019 is derived from the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2019, included in Item 8 of PGE’s Annual Report on Form 10-K, filed with the SEC on February 14, 2020, which should be read in conjunction with the interim unaudited Financial Statements.

Comprehensive Income

No material change occurred in Other comprehensive income in the three and nine months ended September 30, 2020 and 2019.

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 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.
9

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

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (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. This update will be effective for fiscal years ending after December 15, 2020. As the standard relates only to disclosures, PGE does not expect the adoption to have a material impact on the condensed consolidated financial statements.

Recently Adopted Accounting Pronouncements

On January 1, 2020, PGE adopted 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 requirements related to fair value measurement disclosures. As the standard relates only to disclosures, the implementation did not result in an impact to the results of operation, financial position, or cash flows.

On January 1, 2020, PGE adopted 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. ASU 2018-15 provides guidance on implementation costs incurred in a cloud computing arrangement that is a service contract and aligns the accounting for such costs with the guidance on capitalizing costs associated with developing or obtaining internal-use software. PGE applied the amendments of this ASU prospectively, and the implementation did not have a material impact on PGE’s results of operation, financial position, or cash flows.

On January 1, 2020, PGE adopted ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the incurred loss impairment methodology in previous GAAP with a methodology that reflects expected credit losses, and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. PGE applied this ASU using a modified-retrospective approach, and as a result, amounts recorded prior to January 1, 2020 have not been retrospectively restated. Under the new standard, PGE estimates current expected credit losses for retail sales based on an assessment of the current and forecasted probability of collection, aging of accounts receivable, bad debt write-offs experience, actual customer billings, economic conditions, and other significant events that may impact the collectability of accounts receivable and unbilled revenues. Provisions for current expected credit losses related to retail sales, and changes to the amount of expected credit losses for existing receivables, are charged to Administrative and other expense and are recorded in the same period as the related revenues, with an offsetting credit to the allowance for credit losses. The implementation did not have a material impact on PGE’s results of operation, financial position, or cash flows. To conform with 2020 presentation, PGE reclassified $86 million of Unbilled revenues to Accounts receivable, net on the condensed consolidated balance sheets as of December 31, 2019.

On April 1, 2020, PGE adopted ASU 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. PGE applied the amendments of this ASU prospectively, and the implementation did not have a material impact on PGE’s results of operation, financial position, or cash flows.

10

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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 September 30, Nine Months Ended September 30,
2020201920202019
Retail:
Residential$245 $218 $747 $713 
Commercial164 167 463 479 
Industrial58 50 162 144 
Direct access customers12 13 35 34 
Subtotal479 448 1,407 1,370 
Alternative revenue programs, net of amortization(9)4  5 
Other accrued revenues, net7 4 13 17 
Total retail revenues477 456 1,420 1,392 
Wholesale revenues*
56 72 130 125 
Other operating revenues14 14 39 58 
Total revenues$547 $542 $1,589 $1,575 
* Wholesale revenues include $31 million and $25 million related to electricity commodity contract derivative settlements for the three months ended September 30, 2020 and 2019, respectively, and $55 million and $38 million for the nine months ended September 30, 2020 and 2019, respectively. Price risk management derivative activities are included within total revenues but do not represent revenues from contracts with customers as defined by GAAP. 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 accept energy deliveries at voltages equivalent to those delivered to residential customers and are also sensitive to the effects of weather, although to a lesser extent than 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 determined through general rate case proceedings and various tariff filings with the Public Utility Commission 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.
11

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PORTLAND GENERAL ELECTRIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
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 have not yet been billed to customers. This amount, classified as Unbilled revenues, which is included in Accounts receivable, net 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 for programs that benefit 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 that are 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, utility pole attachment revenues, and other 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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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 whether inventories are recorded at the lower of average cost or net realizable value.

Accounts Receivable, Net

Accounts receivable, net includes $79 million and $86 million of unbilled revenues as of September 30, 2020 and December 31, 2019, respectively. Accounts receivable, net is net of an allowance for credit losses of $14 million as of September 30, 2020. The following summarizes activity in the allowance for credit losses (in millions):
 Three Months Ended September 30, 2020Nine Months Ended September 30, 2020
Balance as of beginning of period$12 $5 
Increase in provision4 13 
Amounts written off(3)(9)
Recoveries1 5 
Balance as of end of period$14 $14 
In connection with the adoption of ASU 2016-13 and to conform with 2020 presentation, PGE reclassified $86 million of Unbilled revenues to Accounts receivable, net on the condensed consolidated balance sheets as of December 31, 2019.

Other Current Assets

Other current assets consist of the following (in millions):
September 30, 2020December 31, 2019
Prepaid expenses$44 $63 
Assets from price risk management activities57 25 
Margin deposits22 16 
Other current assets$123 $104 

Electric Utility Plant, Net

Electric utility plant, net consists of the following (in millions):
September 30, 2020December 31, 2019
Electric utility plant$11,202 $10,928 
Construction work-in-progress473 328 
Total cost11,675 11,256 
Less: accumulated depreciation and amortization(4,304)(4,095)
Electric utility plant, net$7,371 $7,161 
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Accumulated depreciation and amortization in the table above includes accumulated amortization related to intangible assets of $403 million and $366 million as of September 30, 2020 and December 31, 2019, respectively. Amortization expense related to intangible assets was $47 million and $49 million for the nine months ended September 30, 2020 and 2019, respectively, and $16 million and $16 million for the three months ended September 30, 2020 and 2019, respectively. The Company’s intangible assets primarily consist of computer software development and hydro licensing costs.

Regulatory Assets and Liabilities

Regulatory assets and liabilities consist of the following (in millions):
September 30, 2020December 31, 2019
CurrentNoncurrentCurrentNoncurrent
Regulatory assets:
Price risk management (1)
$ $114 $ $95 
Pension and other postretirement plans 200  213 
Debt issuance costs 26  26 
Trojan decommissioning activities 95  94 
Other8 92 17 55 
Total regulatory assets$8 $527 $17 $483 
Regulatory liabilities:
Asset retirement removal costs$ $1,005 $ $1,021 
Deferred income taxes 246  260 
Asset retirement obligations 55  54 
Tax Reform deferral6  23  
Price risk management (1)
39  2  
Other20 69 19 42 
Total regulatory liabilities$65 
(2)
$1,375 $44 
(2)
$1,377 
(1)For the nine months ended September 30, 2020, PGE’s actual net variable power costs (NVPC) were $70 million above the prescribed “deadband” limit of $30 million pursuant to the Company’s power cost adjustment mechanism (PCAM). PGE will not be pursuing regulatory recovery for amounts related to trading positions that resulted in realized losses of $127 million during the third quarter of 2020. The Company no longer has net market exposure from these energy trading positions. As of September 30, 2020, all other outstanding positions and related regulatory accounting deferrals have been recorded in accordance with accounting for rate-regulated enterprises.
(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):
September 30, 2020December 31, 2019
Accrued employee compensation and benefits$63 $74 
Accrued taxes payable57 33 
Accrued interest payable43 25 
Accrued dividends payable37 36 
Regulatory liabilities—current65 44 
Other103 103 
Total accrued expenses and other current liabilities$368 $315 
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Credit Facilities

As of September 30, 2020, PGE had a $500 million revolving credit facility scheduled to expire in November 2023. The Company has the ability to expand the revolving credit facility to $600 million, if needed. Pursuant to the terms of the agreement, the revolving credit facility may be used for general corporate purposes, including 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 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 September 30, 2020, PGE was in compliance with this covenant with a 55.5% debt-to-total capital ratio. The aggregate unused available credit capacity under the revolving credit facility was $500 million.

The Company has a commercial paper program under which it may issue commercial paper for terms of up to 270 days. The Company has elected to limit its borrowings under the revolving credit facility to cover any potential need to repay any commercial paper that may be outstanding at the time. As of September 30, 2020, PGE had $75 million of commercial paper outstanding.

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

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 $55 million were outstanding as of September 30, 2020. Letters of credit issued are not reflected on the Company’s condensed consolidated balance sheets.

On April 9, 2020, PGE obtained a 364-day term loan from lenders in the aggregate principal of $150 million. The term loan bears interest for the relevant interest period at LIBOR plus 1.25%. The interest rate is subject to adjustment pursuant to the terms of the loan. The credit agreement is classified as Short-term debt on the Company’s condensed consolidated balance sheets and expires on April 8, 2021, with any outstanding balance due and payable on such date.

Pursuant to an order issued by the Federal Energy Regulatory Commission (FERC), the Company is authorized to issue short-term debt in an aggregate amount of up to $900 million through February 7, 2022.

Long-term Debt

On March 11, 2020, PGE completed the remarketing of an aggregate principal amount of $119 million of Pollution Control Revenue Refunding Bonds (PCRBs), which consist of $98 million aggregate principal of PCRBs that bear an interest rate of 2.125%, and $21 million aggregate principal of PCRBs that bear an interest rate of 2.375%, both due in 2033.

On April 27, 2020, PGE issued $200 million of 3.15% Series First Mortgage Bonds (FMBs) due in 2030.
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Defined Benefit Retirement Plan Costs

Components of net periodic benefit cost under the defined benefit pension plan are as follows (in millions):
Three Months Ended September 30, Nine Months Ended September 30,
2020201920202019
Service cost$4 $4 $12 $12 
Interest cost*8 8 24 25 
Expected return on plan assets*(11)(10)(33)(30)
Amortization of net actuarial loss*4 3 12 8 
Net periodic benefit cost$5 $5 $15 $15 
* The expense portion of non-service cost components are included in Miscellaneous income (loss), net within Other income on the Company’s condensed consolidated statements of income and comprehensive income.

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 September 30, 2020 and December 31, 2019. 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 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.

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.

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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 September 30, 2020
Level 1Level 2Level 3
Other(2)
Total
Assets:
Cash equivalents$228 $ $ $— $228 
Nuclear decommissioning trust: (1)
Debt securities:
Domestic government8 12  — 20 
Corporate credit 14  — 14 
Money market funds measured at NAV (2)
— — — 13 13 
Non-qualified benefit plan trust: (3)
Money market funds1   — 1 
Equity securities7   — 7 
Debt securities—domestic government1   — 1 
Price risk management activities: (1) (4)
Electricity 9 2 — 11 
Natural gas 60 10 — 70 
$245 $95 $12 $13 $365 
Liabilities:
Price risk management activities: (1) (4)
Electricity$ $3 $146 $— $149 
Natural gas 5  — 5 
$ $8 $146 $— $154 
 
(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 $30 million, which are recorded at cash surrender value.
(4)For further information, see Note 5, Risk Management.
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As of December 31, 2019
Level 1Level 2Level 3
Other (2)
Total
Assets:
Cash equivalents$26 $ $ $— $26 
Nuclear decommissioning trust: (1)
Debt securities:
Domestic government8 16  — 24 
Corporate credit 9  — 9 
Money market funds measured at NAV (2)
— — — 13 13 
Non-qualified benefit plan trust: (3)
Debt securities—domestic government1   — 1 
Money market funds1   — 1 
Equity securities7   — 7 
Price risk management activities: (1) (4)
Electricity 9 7 — 16 
Natural gas 21 1 — 22 
$43 $55 $8 $13 $119 
Liabilities:
Price risk management activities: (1) (4)
Electricity 14 105 — 119 
Natural gas 12  — 12 
$ $26 $105 $— $131 
 
(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.

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 not exceed 90 days and provide investors with the ability to redeem shares of the funds daily at their respective net asset value. 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 hierarchy due to the availability of quoted prices for identical assets in an active market as of the measurement date.
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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.

Assets and liabilities from price risk management activities, recorded at fair value in PGE’s condensed 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 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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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 ValueValuation TechniqueSignificant Unobservable InputPrice per Unit
Commodity ContractsAssetsLiabilitiesLowHighWeighted Average
(in millions)
As of September 30, 2020
Electricity physical forwards$ $144 Discounted cash flowElectricity forward price (per MWh)$12.66 $43.21 $29.49 
Natural gas financial swaps10  Discounted cash flowNatural gas forward price (per Decatherm)1.64 4.77 2.39 
Electricity financial futures2 2 Discounted cash flowElectricity forward price (per MWh)16.50 56.00 38.63 
$12 $146 
As of December 31, 2019
Electricity physical forwards$ $104 Discounted cash flowElectricity forward price (per MWh)$12.53 $59.00 $36.92 
Natural gas financial swaps1  Discounted cash flowNatural gas forward price (per Decatherm)1.39 3.73 1.90 
Electricity financial futures7 1 Discounted cash flowElectricity forward price (per MWh)10.57 66.32 45.11 
$8 $105 

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 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 long-term price curves that utilize observable data when available. When not available, regression techniques are used to estimate unobservable future prices.

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 InputPositionChange to InputImpact on Fair Value
Market priceBuyIncrease (decrease)Gain (loss)
Market priceSellIncrease (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):
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Three Months Ended September 30, Nine Months Ended September 30,
2020201920202019
Balance as of the beginning of the period$151 $72 $97 $88 
Net realized and unrealized losses/(gains)*
(17)30 39 14 
Transfers from Level 3 to Level 2 (1)(2)(1)
Balance as of the end of the period$134 $101 $134 $101 
* Both realized and unrealized losses/(gains), of which unrealized portion are 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 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.

Long-term debt is recorded at amortized cost in PGE’s condensed consolidated balance sheets. The value of the Company’s FMBs and PCRBs is classified as a Level 2 fair value measurement.

As of September 30, 2020, the carrying amount of PGE’s long-term debt was $2,817 million, net of $12 million of unamortized debt expense, and its estimated aggregate fair value was $3,531 million. As of December 31, 2019, the carrying amount of PGE’s long-term debt was $2,597 million, net of $11 million of unamortized debt expense, and its estimated aggregate fair value was $3,039 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 forwards, futures, swaps, and options contracts for electricity, 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 intend to engage in trading activities for non-retail purposes.

For the nine months ended September 30, 2020, PGE’s actual net variable power costs (NVPC) were $70 million above the prescribed “deadband” limit of $30 million pursuant to the Company’s power cost adjustment mechanism (PCAM). PGE will not be pursuing regulatory recovery for amounts related to trading positions that resulted in realized losses of $127 million during the third quarter of 2020. These losses were the result of a convergence of increased wholesale electricity prices at various market hubs due to extreme weather conditions, constraints to
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regional transmission facilities and changes in power supply in the West that occurred in August 2020. The Company no longer has net market exposure from these trading positions. As of September 30, 2020, all other outstanding positions and related regulatory accounting deferrals have been recorded in accordance with accounting for rate-regulated enterprises.

PGE’s Assets and Liabilities from price risk management activities consist of the following (in millions):
September 30, 2020December 31, 2019
Current assets:
Commodity contracts:
Electricity$9 $9 
Natural gas48 16 
Total current derivative assets(1)
57 25 
Noncurrent assets:
Commodity contracts:
Electricity2 7 
Natural gas22 6 
Total noncurrent derivative assets(1)
24 13 
Total derivative assets(2)
$81 $38 
Current liabilities:
Commodity contracts:
Electricity$11 $14 
Natural gas5 9 
Total current derivative liabilities16 23 
Noncurrent liabilities:
Commodity contracts:
Electricity138 105 
Natural gas 3 
Total noncurrent derivative liabilities138 108 
Total derivative liabilities(2)
$154 $131 
(1) Total current derivative assets are included in Other current assets, and Total noncurrent derivative assets are included in Other noncurrent assets on the condensed consolidated balance sheets.
(2) As of September 30, 2020 and December 31, 2019, no derivative assets or liabilities were designated as hedging instruments.

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 at various dates through 2035, were as follows (in millions):
September 30, 2020December 31, 2019
Commodity contracts:
Electricity8 MWhs6 MWhs
Natural gas133 Decatherms145 Decatherms
Foreign currency$21 Canadian$23 Canadian
PGE has elected to report positive and negative exposures resulting from derivative instruments pursuant to agreements that meet the definition of a master netting arrangement gross on the condensed consolidated balance
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sheets. In the case of default on, or termination of, any contract under the master netting arrangements, such agreements provide for the net settlement of all related contractual obligations with a given counterparty through a single payment. These types of transactions may include non-derivative instruments, derivatives qualifying for scope exceptions, receivables and payables arising from settled positions, and other forms of non-cash collateral, such as letters of credit. As of September 30, 2020, gross amounts included as Price risk management liabilities subject to master netting agreements was $2 million, comprised solely of natural gas contracts for which PGE posted no collateral. As of December 31, 2019, PGE had no material master netting arrangements.

Net realized and unrealized losses (gains) on derivative transactions not designated as hedging instruments are classified in Purchased power and fuel in the condensed consolidated statements of income and comprehensive income and were as follows (in millions):
Three Months Ended September 30, Nine Months Ended September 30,
2020201920202019
Commodity contracts:
Electricity$113 $36 $160 $18 
Natural Gas(47)(9)(51)(13)
Foreign currency exchange(1)