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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, 2021

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

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 25, 2021 is 89,409,613 shares.
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PORTLAND GENERAL ELECTRIC COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS

Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
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
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,
2021202020212020
Revenues:
Revenues, net$654 $556 $1,811 $1,589 
Alternative revenue programs, net of amortization(12)(9)(23) 
Total revenues642 547 1,788 1,589 
Operating expenses:
Purchased power and fuel259 292 613 554 
Generation, transmission and distribution80 65 236 215 
Administrative and other82 63 247 208 
Depreciation and amortization101 108 305 320 
Taxes other than income taxes37 35 110 104 
Total operating expenses559 563 1,511 1,401 
Income (loss) from operations83 (16)277 188 
Interest expense, net33 35 100 102 
Other income:
Allowance for equity funds used during construction4 4 13 11 
Miscellaneous income (expense), net1 3 6 2 
Other income, net5 7 19 13 
Income (loss) before income tax expense55 (44)196 99 
Income tax expense (benefit)5 (27)18 (4)
Net income (loss)50 (17)178 103 
Other comprehensive income1  1 1 
Comprehensive income (loss)$51 $(17)$179 $104 
Weighted-average common shares outstanding (in thousands):
Basic89,407 89,509 89,505 89,476 
Diluted89,566 89,509 89,646 89,629 
Earnings (loss) per share:
    Basic$0.56 $(0.19)$1.99 $1.16 
Diluted$0.56 $(0.19)$1.98 $1.15 
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)



September 30, 2021December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$294 $257 
Accounts receivable, net273 271 
Inventories75 72 
Regulatory assets—current14 23 
Other current assets243 98 
Total current assets899 721 
Electric utility plant, net7,773 7,539 
Regulatory assets—noncurrent567 569 
Nuclear decommissioning trust43 45 
Non-qualified benefit plan trust44 42 
Other noncurrent assets216 153 
Total assets$9,542 $9,069 
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, 2021December 31, 2020
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$201 $153 
Liabilities from price risk management activities—current39 14 
Short-term debt 150 
Current portion of long-term debt 160 
Current portion of finance lease obligation16 16 
Accrued expenses and other current liabilities611 322 
Total current liabilities867 815 
Long-term debt, net of current portion3,285 2,886 
Regulatory liabilities—noncurrent1,370 1,369 
Deferred income taxes419 374 
Unfunded status of pension and postretirement plans299 299 
Liabilities from price risk management activities—noncurrent89 136 
Asset retirement obligations241 270 
Non-qualified benefit plan liabilities97 101 
Finance lease obligations, net of current portion125 129 
Other noncurrent liabilities75 77 
Total liabilities6,867 6,456 
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, 2021 and December 31, 2020
  
Common stock, no par value, 160,000,000 shares authorized; 89,409,012 and 89,537,331 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
1,237 1,231 
Accumulated other comprehensive loss(10)(11)
Retained earnings1,448 1,393 
Total shareholders’ equity2,675 2,613 
Total liabilities and shareholders’ equity$9,542 $9,069 
See accompanying notes to condensed consolidated financial statements.

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

Nine Months Ended September 30,
20212020
Cash flows from operating activities:
Net income$178 $103 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization305 320 
Deferred income taxes17 (14)
Pension and other postretirement benefits19 17 
Allowance for equity funds used during construction(13)(11)
Decoupling mechanism deferrals, net of amortization23  
Amortization of net benefits due to Tax Reform (17)
Deferral of incremental storm costs(58) 
Other non-cash income and expenses, net(1)38 
Changes in working capital:
(Increase)/decrease in accounts receivable, net(8)(3)
(Increase)/decrease in inventories(3)10 
(Increase)/decrease in margin deposits3 (6)
Increase/(decrease) in accounts payable and accrued liabilities61 24 
Increase in margin deposits from wholesale counterparties102  
Other working capital items, net22 27 
Other, net(65)(46)
Net cash provided by operating activities582 442 
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,
20212020
Cash flows from investing activities:
Capital expenditures(486)(549)
Sales of Nuclear decommissioning trust securities8 6 
Purchases of Nuclear decommissioning trust securities(6)(5)
Other, net(18)(3)
Net cash used in investing activities(502)(551)
Cash flows from financing activities:
Proceeds from issuance of long-term debt400 319 
Payments on long-term debt(160)(98)
Borrowings on short-term debt200 275 
Repayments of short-term debt(350)(50)
Dividends paid(112)(103)
Repurchase of common stock(12) 
Other(9)(11)
Net cash provided by (used in) financing activities(43)332 
Increase (Decrease) in cash and cash equivalents37 223 
Cash and cash equivalents, beginning of period257 30 
Cash and cash equivalents, end of period$294 $253 
Supplemental cash flow information is as follows:
Cash paid for interest, net of amounts capitalized$75 $70 
Cash paid for income taxes16 9 
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, 2021, PGE served 914,000 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, 2021 and 2020 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, 2020 is derived from the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2020, included in Item 8 of PGE’s Annual Report on Form 10-K, filed with the SEC on February 19, 2021, 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, 2021 and 2020.

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 electricity 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)

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,
2021202020212020
Retail:
Residential$265 $245 $824 $747 
Commercial186 164 518 463 
Industrial65 58 187 162 
Direct access customers11 12 35 35 
Subtotal527 479 1,564 1,407 
Alternative revenue programs, net of amortization(12)(9)(23) 
Other accrued revenues, net1 7 12 13 
Total retail revenues516 477 1,553 1,420 
Wholesale revenues*
112 56 186 130 
Other operating revenues14 14 49 39 
Total revenues$642 $547 $1,788 $1,589 
* Wholesale revenues include $37 million and $31 million related to electricity commodity contract derivative settlements for the three months ended September 30, 2021 and 2020, respectively, and $46 million and $55 million for the nine months ended September 30, 2021 and 2020, 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.
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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. The Company 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, the Company 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 the Company’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. The Company 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, PGE assesses whether inventories are recorded at the lower of average cost or net realizable value.

Accounts Receivable, Net

Accounts receivable, net includes $80 million and $97 million of unbilled revenues as of September 30, 2021 and December 31, 2020, respectively. Accounts receivable, net is net of an allowance for credit losses of $27 million and $16 million as of September 30, 2021 and December 31, 2020, respectively. The following summarizes activity in the allowance for credit losses (in millions):
 Three Months Ended September 30,Nine Months Ended
September 30,
 20212021
Balance as of beginning of period$22 $16 
Increase in provision11 26 
Amounts written off(7)(19)
Recoveries1 4 
Balance as of end of period$27 $27 

Other Current Assets

Other current assets consist of the following (in millions):
September 30, 2021December 31, 2020
Prepaid expenses$44 $57 
Assets from price risk management activities194 33 
Margin deposits5 8 
Other current assets$243 $98 

Electric Utility Plant, Net

Electric utility plant, net consists of the following (in millions):             
September 30, 2021December 31, 2020
Electric utility plant$11,334 $10,974 
Construction work-in-progress503 429 
Total cost11,837 11,403 
Less: accumulated depreciation and amortization(4,064)(3,864)
Electric utility plant, net$7,773 $7,539 

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(Unaudited)
Accumulated depreciation and amortization in the table above includes accumulated amortization related to intangible assets of $432 million and $388 million as of September 30, 2021 and December 31, 2020, respectively. Amortization expense related to intangible assets was $44 million and $47 million for the nine months ended September 30, 2021 and 2020, respectively and $14 million and $16 million for the three months ended September 30, 2021 and 2020, respectively. The Company’s intangible assets primarily consist of computer software development and hydro licensing costs.

On June 30, 2021, PGE entered into a hydroelectric power purchase agreement (PPA) that later went into effect on October 19, 2021, after certain conditions precedent were met. The PPA will modify an existing operating lease by effectively extending the term of the lease from 2024 to 2040 and increasing the capacity payments in the extension period. In the fourth quarter, PGE will reclassify the lease from operating to finance, and the Company will record an additional lease liability and right-of-use (ROU) asset of approximately $140 million on PGE’s condensed consolidated balance sheets. The energy portion of the PPA is considered variable and will not be included in the calculation of the lease liability and right-of-use asset. Any material differences between expense recognition and timing of payments will be deferred as a regulatory asset or liability in order to match what is anticipated to be recovered in customer prices for ratemaking purposes.

Regulatory Assets and Liabilities

Regulatory assets and liabilities consist of the following (in millions):
September 30, 2021December 31, 2020
CurrentNoncurrentCurrentNoncurrent
Regulatory assets:
Price risk management$ $11 $ $124 
Pension and other postretirement plans 223  240 
Debt issuance costs 24  25 
Trojan decommissioning activities 99  95 
Incremental storm costs— 58 — — 
Power cost adjustment mechanism— 27 —  
Wildfire— 36 — 15 
COVID-19— 27 — 10 
Other14 62 23 60 
Total regulatory assets$14 $567 $23 $569 
Regulatory liabilities:
Asset retirement removal costs$ $1,035 $ $1,016 
Deferred income taxes 213  239 
Asset retirement obligations 54  37 
Price risk management155  18  
Other32 68 5 77 
Total regulatory liabilities$187 
*
$1,370 $23 
*
$1,369 

* Included in Accrued expenses and other current liabilities in the condensed consolidated balance sheets.

Incremental storm costs represent the costs not previously included for recovery in customer prices related to major storm damage incurred during the nine months ended September 30, 2021. Such costs were incurred to repair damage to PGE’s transmission and distribution systems and restore power to customers as a result of the historic
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(Unaudited)
storms that ultimately led Oregon’s Governor to declare a state of emergency on February 13, 2021. On February 15, 2021, the Company filed an application for authorization to defer emergency restoration costs for the February storms (Docket UM 2156). PGE does not expect an OPUC decision on the February storm deferral until 2022. While the Company believes the full amount of the deferral is probable of recovery as PGE’s prudently incurred costs were in response to the unique and unprecedented nature of the storms, the OPUC has significant discretion in making the final determination of recovery and their conclusions of overall prudence, including an earnings review, and could result in a portion, or all, of PGE’s deferral being disallowed for recovery.

Power Cost Adjustment Mechanism—PGE is subject to a Power Cost Adjustment Mechanism (PCAM), as approved by the OPUC. Pursuant to the PCAM, future customer prices can be adjusted to reflect a portion of the difference between: i) NVPC forecast each year and included in customer prices (baseline NVPC); and ii) actual NVPC for the year. NVPC consists of the cost of power purchased and fuel used to generate electricity to meet PGE’s retail load requirements, as well as the cost of settled electric and natural gas financial contracts, all of which is classified as Purchased power and fuel in the Company’s condensed consolidated statements of income, and is net of wholesale sales, which are classified as Revenues, net in the condensed consolidated statements of income. The Company is subject to a portion of the business risk or benefit associated with the difference between actual and baseline NVPC by application of an asymmetrical deadband, which ranges from $15 million below to $30 million above baseline NVPC. To the extent actual NVPC, subject to certain adjustments, is outside the deadband range, the PCAM provides for 90% of the excess variance to be collected from, or refunded to, customers. Pursuant to a regulated earnings test, a refund will occur only to the extent that it results in PGE’s actual regulated return on equity (ROE) for the given year being no less than 1% above the Company’s latest authorized ROE, while a collection will occur only to the extent that it results in PGE’s actual regulated ROE for that year being no greater than 1% below the Company’s authorized ROE. Any estimated refund to customers pursuant to the PCAM is recorded as a reduction in Revenues, net in PGE’s condensed consolidated statements of income, while any estimated collection from customers is recorded as a reduction in Purchased power and fuel expense. For the nine months ended September 30, 2021, actual NVPC was $60 million above baseline NVPC. Based on forecast data, NVPC for the year ending December 31, 2021 is currently estimated to be above the baseline, and outside the established deadband range. Pursuant to the PCAM and related earnings test, as of September 30, 2021, PGE has deferred $27 million which represents 90% of the excess variance expected to be collected from customers. A final determination regarding the 2021 PCAM results will be made by the OPUC through a public filing and review in 2022. The OPUC has significant discretion in making the final determination of recovery and their conclusion of overall prudence, including an earnings review, and could result in a portion, or all, of PGE’s deferral being disallowed for recovery. Such disallowance would be recognized as a charge to earnings.

Wildfire—In 2020, Oregon experienced one of the most destructive wildfire seasons on record, with over one million acres of land burned that ultimately led Oregon’s Governor to declare a state of emergency on August 20, 2020. As a result, PGE has incurred costs to replace and rebuild PGE facilities damaged by the fires, as well as addressing fire-damaged vegetation and other resulting debris and hazards both in and outside of PGE’s property and right-of-way. Ongoing costs include replacing equipment, enhanced tree and brush clearing, and making emergency plans in close partnership with local, state, and federal land and emergency management agencies to further expand the use of a public safety power shutoff (PSPS), if the need should arise. On October 20, 2020, the OPUC formally approved PGE’s request for deferral of such costs (Docket UM 2115). As of September 30, 2021 and December 31, 2020, PGE’s cumulative deferred costs related to the wildfire response was $36 million and $15 million, respectively. PGE continues to assess the damage to its infrastructure and expects regulatory recovery of prudently incurred restoration costs. PGE believes the full amount of the 2020 and 2021 deferrals is probable of recovery as the Company’s prudently incurred costs were in response to the unique and unprecedented nature of the wildfire events leading to the deferral. The OPUC has significant discretion in making the final determination of recovery and their conclusion of overall prudence, including an earnings review, could result in a portion, or all, of PGE’s deferrals being disallowed for recovery. Such disallowance would be recognized as a charge to earnings.

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(Unaudited)
COVID-19 Impacts—The COVID-19 pandemic led Oregon’s Governor to declare a state of emergency on March 8, 2020 and is still in effect. Due to the adverse impacts of COVID-19 on economic activity, PGE has experienced an increase in bad debt expense, lost revenue, and other incremental costs. On March 20, 2020, PGE filed an application with the OPUC for deferral of lost revenue and certain incremental costs, such as bad debt expense, related to COVID-19. PGE, other utilities under the OPUC’s jurisdiction, intervenors, and OPUC staff held discussions regarding the scope of costs incurred by utilities which may qualify for deferral under Docket UM2114, Investigation into the Effects of the COVID-19 Pandemic on Utility Customers. The result of such discussions was an Energy Term Sheet (Term Sheet), which dictates costs in scope for deferral but is silent to the timing of recovery of such costs. On September 24, 2020, the Commission adopted a proposed OPUC Staff motion for Staff to execute stipulations incorporating the terms of the Term Sheet. PGE’s deferral application was approved by the Commission on October 20, 2020 with final stipulations for the Term Sheet approved on November 3, 2020. As of September 30, 2021 and December 31, 2020, PGE’s deferred balance was $27 million and $10 million, respectively, comprised primarily of bad debt expense in excess of what is currently considered and collected in customer prices. All other incremental expenses will be recognized in the results of operations, until a determination is made that cost recovery is probable. Amortization of any deferred costs will remain subject to OPUC review prior to amortization in customer prices and would be subject to an earnings test. PGE believes the full amount of the 2020 and 2021 deferrals is probable of recovery as the Company’s prudently incurred costs were in response to the unique nature of the COVID-19 pandemic health emergency. The OPUC has significant discretion in making the final determination of recovery and their conclusion of overall prudence, including an earnings review, could result in a portion, or all, of PGE’s deferrals being disallowed for recovery. Such disallowance would be recognized as a charge to earnings.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in millions):
September 30, 2021December 31, 2020
Accrued employee compensation and benefits$65 $67 
Accrued taxes payable58 36 
Accrued interest payable42 29 
Accrued dividends payable40 38 
Regulatory liabilities—current187 23 
Margin deposits from wholesale counterparties102  
Other117 129 
Total accrued expenses and other current liabilities$611 $322 

Credit Facilities

On September 10, 2021, PGE amended and restated its existing revolving credit facility. As of September 30, 2021, PGE had a $650 million revolving credit facility scheduled to expire in September 2026. The Company has the ability to expand the revolving credit facility to $750 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, 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 the Companys 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, 2021, PGE was in compliance with this covenant with a 56.4% debt-to-total capital ratio and the aggregate unused available credit capacity under the revolving credit facility was $650 million. In addition, the credit facility offers the potential for adjustments to interest rate margins and fees based on
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PGE’s achievement of certain annual sustainability-linked metrics related to its non-emitting generation capacity and the percentage of management comprised of women and employees who identify as black, indigenous, and people of color. The Company believes these potential adjustments will have an immaterial impact on PGE’s results of operations.

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, 2021, PGE had no 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 $78 million were outstanding as of September 30, 2021. 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 bore interest for the relevant interest period at LIBOR plus 1.25%. The interest rate was subject to adjustment pursuant to the terms of the loan. On March 31, 2021, this term loan was repaid in full with proceeds from the subsequent term loan described below.

On March 31, 2021, PGE obtained an unsecured 364-day term loan in the aggregate principal amount of $200 million. The term loan bore interest for the relevant interest period at LIBOR plus 0.70%, with the interest rate subject to adjustment pursuant to terms of the loan. The credit agreement was set to expire on March 30, 2022, with any outstanding balance due and payable on such date. The term loan was paid off early on September 30, 2021 with proceeds from a first mortgage bond issuance.

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 6, 2022.

Long-term Debt

On January 6, 2021, the Company made a scheduled $140 million repayment of a 2.51% Series of First Mortgage Bonds with available cash.

On August 11, 2021, the Company made a scheduled $20 million repayment of a 9.31% Series of First Mortgage Bonds with available cash.

On September 30, 2021, PGE issued $400 million in First Mortgage Bonds (FMBs). The Bonds consist of:
a series, due in 2028 (the "2028 Bonds"), in the amount of $100 million that will bear an interest from its issuance date at an annual rate of 1.82%;
a series, due in 2031 (the “2031 Bonds"), in the amount of $50 million that will bear an interest from its issuance date at an annual rate of 2.10%;
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(Unaudited)
a series, due in 2034 (the "2034 Bonds" and collectively with the 2028 Bonds and the 2031 Bonds, the "Other Bonds"), in the amount of $100 million that will bear an interest from its issuance date at an annual rate of 2.20%; and
a series, due in 2051, (the "2051 Bonds") in the amount of $150 million that will bear an interest from its issuance date at an annual rate of 2.97%.

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,
2021202020212020
Service cost$5 $4 $15 $12 
Interest cost*6 8 20 24 
Expected return on plan assets*(12)(11)(34)(33)
Amortization of net actuarial loss*6 4 16 12 
Net periodic benefit cost$5 $5 $17 $15 
* The net expense portion of non-service cost components are included in Miscellaneous income (expense), net within Other income on the Company’s condensed consolidated statements of income and comprehensive income.

NOTE 4: FAIR VALUE OF FINANCIAL INSTRUMENTS

PGE estimated the fair value of financial asset and liability instruments as of September 30, 2021 and December 31, 2020, and classified these financial instruments 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.

The Company’s financial assets and liabilities whose values were recognized at fair value in the Company’s condensed consolidated balance sheets are as follows by level within the fair value hierarchy (in millions):
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(Unaudited)
As of September 30, 2021
Level 1Level 2Level 3
Other(2)
Total
Assets:
Cash equivalents$42 $ $ $— $42 
Nuclear decommissioning trust: (1)
Debt securities:
Domestic government10 8  — 18 
Corporate credit 13  — 13 
Money market funds measured at NAV (2)
— — — 12 12 
Non-qualified benefit plan trust: (3)
Debt securities—domestic government   —  
Money market funds2   — 2 
Equity securities7   — 7 
Price risk management activities: (1) (4)
Electricity 31 12 — 43 
Natural gas 205 24 — 229 
$61 $257 $36 $12 $366 
Liabilities:
Price risk management activities: (1) (4)
Electricity$ $36 $90 $— $126 
Natural gas 2  — 2 
$ $38 $90 $— $128 
 
(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 $35 million, which are recorded at cash surrender value.
(4)For further information, see Note 5, Risk Management.
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(Unaudited)
As of December 31, 2020
Level 1Level 2Level 3
Other (2)
Total
Assets:
Cash equivalents$255 $ $ $— $255 
Nuclear decommissioning trust: (1)
Debt securities:
Domestic government9 11  — 20 
Corporate credit 13  — 13 
Money market funds measured at NAV (2)
— — — 12 12 
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 4 4 — 8 
Natural gas 36 1 — 37 
$273 $64 $5 $12 $354 
Liabilities:
Price risk management activities: (1) (4)
Electricity$ $5 $141 $— $146 
Natural gas 4 1 — 5 
$ $9 $142 $— $151 
 
(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 $33 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, 2021
Electricity physical forwards$4 $90 Discounted cash flowElectricity forward price (per MWh)$15.00 $127.00 $47.86 
Natural gas financial swaps24  Discounted cash flowNatural gas forward price (per Decatherm)2.21 8.12 3.23 
Electricity financial futures8  Discounted cash flowElectricity forward price (per MWh)26.50 71.00 56.45 
$36 $90 
As of December 31, 2020
Electricity physical forwards$ $141 Discounted cash flowElectricity forward price (per MWh)$11.17 $51.18 $29.74 
Natural gas financial swaps1 1 Discounted cash flowNatural gas forward price (per Decatherm)1.52 4.33 2.29 
Electricity financial futures4  Discounted cash flowElectricity forward price (per MWh)8.78 58.42 43.71 
$5 $142 

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):
Three Months Ended September 30, Nine Months Ended September 30,
2021202020212020
Balance as of the beginning of the period$58 $151 $137 $97 
Net realized and unrealized losses/(gains)*
11 (17)(72)39 
Transfers from Level 3 to Level 2(15) (11)(2)
Balance as of the end of the period$54 $134 $54 $134 
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* 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 Revenues, net or Purchased power and fuel expense in the condensed consolidated statements of income and comprehensive income. Includes $2 million in net realized losses and $5 million in net realized gains for the three-month periods ended September 30, 2021 and September 30, 2020, respectively. For the nine-month periods ended September 30, 2021 and September 30, 2020, includes $4 million in net realized losses and $8 million in net realized gains, respectively.

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 Pollution Control Revenue Bonds is classified as a Level 2 fair value measurement.

As of September 30, 2021, the carrying amount of PGE’s long-term debt was $3,285 million, net of $14 million of unamortized debt expense, and its estimated aggregate fair value was $3,854 million. As of December 31, 2020, the carrying amount of PGE’s long-term debt was $3,046 million, net of $13 million of unamortized debt expense, and its estimated aggregate fair value was $3,808 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.


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(Unaudited)
PGE’s Assets and Liabilities from price risk management activities consist of the following (in millions):
September 30, 2021December 31, 2020
Current assets:
Commodity contracts:
Electricity$34 $4 
Natural gas160 29 
Total current derivative assets(1)
194 33 
Noncurrent assets:
Commodity contracts:
Electricity9 4 
Natural gas69 8 
Total noncurrent derivative assets(1)
78 12 
Total derivative assets(2)
$272 $45 
Current liabilities:
Commodity contracts:
Electricity$37 $13 
Natural gas2 2 
Total current derivative liabilities39 15 
Noncurrent liabilities:
Commodity contracts:
Electricity89 133 
Natural gas 3 
Total noncurrent derivative liabilities89 136