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Table of Contents






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, 2022

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

 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes [x] No
 
Number of shares of common stock outstanding as of October 20, 2022 is 89,272,904 shares.
1
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PORTLAND GENERAL ELECTRIC COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

TABLE OF CONTENTS

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

The following abbreviations and acronyms are used throughout this document:

Abbreviation or AcronymDefinition
AFUDCAllowance 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,
2022202120222021
Revenues:
Revenues, net$742 $654 $1,955 $1,811 
Alternative revenue programs, net of amortization1 (12)5 (23)
Total revenues743 642 1,960 1,788 
Operating expenses:
Purchased power and fuel337 259 707 613 
Generation, transmission and distribution83 80 258 236 
Administrative and other84 82 257 247 
Depreciation and amortization108 101 310 305 
Taxes other than income taxes39 37 118 110 
Total operating expenses651 559 1,650 1,511 
Income from operations92 83 310 277 
Interest expense, net39 33 115 100 
Other income:
Allowance for equity funds used during construction4 4 10 13 
Miscellaneous income, net13 1 13 6 
Other income, net17 5 23 19 
Income before income tax expense70 55 218 196 
Income tax expense 12 5 36 18 
Net income 58 50 182 178 
Other comprehensive income— 1 1 1 
Net income and Comprehensive income$58 $51 $183 $179 
Weighted-average common shares outstanding (in thousands):
Basic89,263 89,407 89,294 89,505 
Diluted89,447 89,566 89,448 89,646 
Earnings per share:
Basic
$0.65 $0.56 $2.04 $1.99 
Diluted$0.65 $0.56 $2.04 $1.98 
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, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$18 $52 
Accounts receivable, net345 329 
Inventories91 78 
Regulatory assets—current13 24 
Other current assets283 205 
Total current assets750 688 
Electric utility plant, net8,292 8,005 
Regulatory assets—noncurrent506 533 
Nuclear decommissioning trust39 47 
Non-qualified benefit plan trust37 45 
Other noncurrent assets225 176 
Total assets$9,849 $9,494 
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, 2022December 31, 2021
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$287 $244 
Liabilities from price risk management activities—current68 47 
Short-term debt40 — 
Current portion of finance lease obligation21 20 
Accrued expenses and other current liabilities574 457 
Total current liabilities990 768 
Long-term debt, net of current portion3,286 3,285 
Regulatory liabilities—noncurrent1,402 1,360 
Deferred income taxes435 413 
Unfunded status of pension and postretirement plans204 206 
Liabilities from price risk management activities—noncurrent62 90 
Asset retirement obligations234 238 
Non-qualified benefit plan liabilities91 95 
Finance lease obligations, net of current portion296 273 
Other noncurrent liabilities89 59 
Total liabilities7,089 6,787 
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, 2022 and December 31, 2021
— — 
Common stock, no par value, 160,000,000 shares authorized; 89,270,661 and 89,410,612 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
1,245 1,241 
Accumulated other comprehensive loss(9)(10)
Retained earnings1,524 1,476 
Total shareholders’ equity2,760 2,707 
Total liabilities and shareholders’ equity$9,849 $9,494 
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,
20222021
Cash flows from operating activities:
Net income$182 $178 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization310 305 
Deferred income taxes9 17 
Pension and other postretirement benefits7 19 
Other post retirement benefits settlement gain(11)— 
Allowance for equity funds used during construction(10)(13)
Decoupling mechanism deferrals, net of amortization(5)23 
Deferral of incremental storm costs(4)(58)
2020 Labor Day wildfire earnings test reserve15 — 
Other non-cash income and expenses, net64 (1)
Changes in working capital:
Increase in accounts receivable, net(21)(8)
Increase in inventories(14)(3)
(Increase)/decrease in margin deposits(8)3 
Increase in accounts payable and accrued liabilities80 61 
Increase in margin deposits from wholesale counterparties44 102 
Other working capital items, net24 22 
Other, net(88)(65)
Net cash provided by operating activities574 582 
See accompanying notes to condensed consolidated financial statements.
7
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PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(In millions)
(Unaudited)        
Nine Months Ended September 30,
20222021
Cash flows from investing activities:
Capital expenditures(541)(486)
Sales of Nuclear decommissioning trust securities3 8 
Purchases of Nuclear decommissioning trust securities(3)(6)
Proceeds from sale of properties13 — 
Other, net— (18)
Net cash used in investing activities(528)(502)
Cash flows from financing activities:
Proceeds from issuance of long-term debt— 400 
Payments on long-term debt— (160)
Borrowings on short-term debt— 200 
Repayments of short-term debt— (350)
Issuance of commercial paper, net40 — 
Proceeds from Pelton/Round Butte financing arrangement25 — 
Dividends paid(117)(112)
Repurchase of common stock(18)(12)
Other(10)(9)
Net cash used in financing activities(80)(43)
(Decrease) Increase in cash and cash equivalents(34)37 
Cash and cash equivalents, beginning of period52 257 
Cash and cash equivalents, end of period$18 $294 
Supplemental cash flow information is as follows:
Cash paid for interest, net of amounts capitalized$81 $75 
Cash paid for income taxes18 16 
Non-cash investing and financing activities:
Assets obtained under leasing arrangements29 — 
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, as well as buying and selling transmission products and services, in an effort to provide reasonably-priced power for its retail customers. In addition, PGE offers wholesale electricity transmission service pursuant to its Open Access Transmission Tariff (OATT), which contains rates, terms, and conditions of service, as filed with, and approved by, the Federal Energy Regulatory Commission (FERC). 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, entirely within the State of Oregon, encompasses 51 incorporated cities. As of September 30, 2022, PGE served 923,000 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, 2022 and 2021 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 a normal recurring nature, unless otherwise noted. The financial information as of December 31, 2021 is derived from the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2021, included in Item 8 of PGE’s Annual Report on Form 10-K, filed with the SEC on February 17, 2022, 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, 2022 and 2021.

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
9
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PORTLAND GENERAL ELECTRIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
reflective of amounts to be recognized for a full year. Due to seasonal fluctuations in electricity sales, as well as the price of wholesale electricity and natural gas, interim financial results do not necessarily represent those to be expected for the year.

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,
2022202120222021
Retail:
Residential$283 $265 $841 $824 
Commercial194 186 540 518 
Industrial74 65 216 187 
Direct access customers9 11 26 35 
Subtotal560 527 1,623 1,564 
Alternative revenue programs, net of amortization1 (12)5 (23)
Other accrued revenues, net6 1 6 12 
Total retail revenues567 516 1,634 1,553 
Wholesale revenues*
160 112 281 186 
Other operating revenues16 14 45 49 
Total revenues$743 $642 $1,960 $1,788 

* Wholesale revenues include $67 million and $37 million related to electricity commodity contract derivative settlements for the three months ended September 30, 2022 and 2021, respectively, and $100 million and $46 million for the nine months ended September 30, 2022 and 2021, 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 (GRC) proceedings and various tariff filings with the Public Utility
10
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PORTLAND GENERAL ELECTRIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
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.
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 within Revenues, net on the condensed consolidated statements of 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, among other things, 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 and other energy providers.

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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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 $98 million and $117 million of unbilled revenues as of September 30, 2022 and December 31, 2021, respectively. Accounts receivable, net is net of an allowance for credit losses of $22 million and $26 million as of September 30, 2022 and December 31, 2021, respectively. The following summarizes activity in the allowance for credit losses (in millions):
Three Months Ended September 30, Nine Months Ended September 30,
 20222022
Balance as of beginning of period$23 $26 
Increase in provision2 6 
Amounts written off(4)(14)
Recoveries1 4 
Balance as of end of period$22 $22 

Other Current Assets

Other current assets consist of the following (in millions):
September 30, 2022December 31, 2021
Prepaid expenses$38 $66 
Assets from price risk management activities200 102 
Margin deposits45 37 
Other current assets$283 $205 

Assets from price risk management activities and related unrealized gains increased during the nine months ended September 30, 2022 due to increases in wholesale natural gas and electricity prices. For further information, see Note 5, Risk Management.


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Electric Utility Plant, Net

Electric utility plant, net consists of the following (in millions):             
September 30, 2022December 31, 2021
Electric utility plant$12,273 $11,838 
Construction work-in-progress376 313 
Total cost12,649 12,151 
Less: accumulated depreciation and amortization(4,357)(4,146)
Electric utility plant, net$8,292 $8,005 

Accumulated depreciation and amortization in the table above includes accumulated amortization related to intangible assets of $485 million and $446 million as of September 30, 2022 and December 31, 2021, respectively. Amortization expense related to intangible assets was $15 million and $14 million for the three months ended September 30, 2022 and 2021, respectively and $44 million for the nine months ended September 30, 2022 and 2021. The Company’s intangible assets primarily consist of computer software development and hydro licensing costs.
Pelton/Round Butte—Under terms of an agreement (the “Agreement”) approved by the OPUC in 2000, PGE had a 66.67% ownership interest in the 455 Megawatt (MW) Pelton/Round Butte hydroelectric project on the Deschutes River (Pelton/Round Butte), with the remaining interest held by the Confederated Tribes of the Warm Springs Reservation of Oregon (CTWS). In the Agreement, the CTWS had an option to purchase an additional undivided 16.66% ownership interest in Pelton/Round Butte in 2021. On June 30, 2021, the CTWS notified PGE of their intent to exercise this purchase option. Under the terms of the purchase option, on January 1, 2022, PGE completed the sale of the additional undivided interest in the project at a net book value of $37 million, with no gain or loss recognized on the sale. Under terms of the Agreement, the CTWS has a second option in 2036 to purchase an undivided 0.02% interest in Pelton/Round Butte. If the second option is exercised, the CTWS’ ownership percentage would exceed 50%. PGE remains the operator of the project.

PGE has agreed to purchase 100% of the CTWS’ share of the project’s output under a Power Purchase Agreement (PPA) through 2040. The exercise of the purchase option on January 1, 2022 was evaluated as a sale-leaseback arrangement, and PGE determined that the transaction did not qualify for sale-leaseback accounting. As a result, the transaction is accounted for as a financing arrangement. PGE will continue to record the tangible utility asset within Electric utility plant, net on the condensed consolidated balance sheets as if it were the legal owner and will continue to recognize depreciation expense over the estimated useful life. A financing obligation of $25 million was recorded in Other noncurrent liabilities in the first quarter of 2022. Proceeds related to the financing obligation of $25 million were recorded as a financing activity while proceeds from the sale of intangible property of $11 million and from the sale of construction work-in-progress of $1 million were recorded as an investing activity on the condensed consolidated statements of cash flow. The monthly PPA payments are split between interest expense and a reduction of the principal portion of the financing obligation. Any material differences between expense recognition and timing of payments is deferred as a regulatory asset or liability in order to match what is being recovered in customer prices for ratemaking purposes.

Battery storage agreement—In the first quarter of 2022, PGE commenced a finance lease for an energy storage agreement with a 20-year term, related to the Wheatridge Renewable Energy Facility. The Company recorded a lease liability and a corresponding right-of-use asset of $29 million in PGE’s condensed consolidated balance sheets.


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Regulatory Assets and Liabilities

Regulatory assets and liabilities consist of the following (in millions):
September 30, 2022December 31, 2021
CurrentNoncurrentCurrentNoncurrent
Regulatory assets:
Price risk management$— $— $— $55 
Pension and other postretirement plans— 121 — 131 
Debt issuance costs— 22 — 23 
Trojan decommissioning activities— 101 — 90 
February 2021 ice storm and damage— 73 — 67 
Power cost adjustment mechanism— 30 — 29 
2020 Labor Day wildfire— 31 — 45 
COVID-19— 34 — 36 
Wildfire mitigation— 25 — — 
Other13 69 24 57 
Total regulatory assets$13 $506 $24 $533 
Regulatory liabilities:
Asset retirement removal costs$— $1,130 $— $1,047 
Deferred income taxes— 198 — 208 
Asset retirement obligations— 6 — 43 
Price risk management132 12 55 — 
Other28 56 51 62 
Total regulatory liabilities$160 
*
$1,402 $106 
*
$1,360 

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

On April 25, 2022, the OPUC issued Order 22-129, which adopted all stipulations agreed to by the parties to the proceeding in PGE’s 2022 GRC, including the annual revenue requirement, cost of capital, capitalization ratio, and the elimination of the decoupling mechanism, although deferral related to the decoupling mechanism will continue on a prorated basis through the end of 2022. In 2023 and forward, deferral related to the decoupling mechanism will cease. Key elements of the OPUC’s Order also included:
•establishment of a balancing account for the Company’s major storm damage recovery mechanism;
•denial of PGE’s proposal for a secondary phase of the 2022 GRC regarding the Faraday capital improvement project under construction. PGE can pursue recovery in the Company’s next GRC;
•approval of an intervenor request that would require PGE to defer and refund, subject to an earnings test, the revenue requirement associated with the Company’s Boardman coal-fired generating plant included in customer prices following plant closure in 2020; and
•creation of an earnings test for the deferrals for the 2020 Labor Day wildfire and the February 2021 ice storm and damage that is to be applied on a year-by-year basis.

As a result of the earnings tests outlined in the OPUC’s Order, the Company has released deferrals associated with the year ended 2020, resulting in a pre-tax, non-cash charge to earnings in the first quarter of 2022 in the amount of $17 million. The amount recorded represents the Company’s estimate based on its interpretation of the OPUC’s
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earnings test. PGE does not expect to exceed its regulated return on equity under the earnings test methodology approved by the OPUC and as a result, no release of deferrals or earnings test reserve is expected for 2021 and 2022. The OPUC has significant discretion in making the final determination of the application of the earnings test for 2020, 2021, and 2022 that could result in additional disallowances or refunds compared to the amount reserved by the Company as of September 30, 2022, which could be material.

Wildfire Mitigation represents incremental costs and investments made by PGE under Oregon Senate Bill 762 (SB 762), which was passed in the 2021 legislative session with an effective date of July 19, 2021. SB 762 instructs public utilities to develop, implement, and execute a wildfire protection plan, in which reasonable costs can be recovered through the prices to all customers. The outcome of PGE’s 2022 GRC provided an annual amount of $24 million to be collected in base rates in regards to wildfire mitigation efforts. On July 1, 2022, PGE filed an application for reauthorization of OPUC Docket UM 2019 to defer incremental wildfire mitigation costs which exceed the amount granted in base rates. As of September 30, 2022, PGE’s deferred balance related to wildfire mitigation was $25 million. While the Company believes the full amount of the deferral is probable of recovery, the OPUC has significant discretion in making the final determination of recovery. The OPUC’s conclusions of overall prudence 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.

February 2021 ice storm and damage represents the costs incurred to repair damage to PGE’s transmission and distribution systems and restore power to customers as a result of the historic storms that ultimately led Oregon’s Governor to declare a state of emergency in February 2021. The Company filed an application for authorization to defer emergency restoration costs for the February storms (OPUC Docket UM 2156). PGE received OPUC Order No. 22-020 approving the February storms deferral in the first quarter of 2022. On July 27, 2022, PGE made a request for amortization with the OPUC that would allow the company to collect the deferred costs in customer prices over a seven year amortization period beginning November 1, 2022. On October 24, 2022, PGE and parties submitted a stipulation with the OPUC reflecting an agreement that resolved all matters related to 2021 under this deferral and would allow PGE full recovery of the deferred amounts with amortization over a seven-year period,to begin as soon as practicable and allowed by the OPUC. The stipulation is subject to OPUC approval. The OPUC has significant discretion in making the final determination of recovery. The OPUC’s conclusion of overall prudence and application of the earnings test 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.

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) net variable power costs (NVPC) forecast each year and included in customer prices via the Company’s Annual Power Cost Update Tariff (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, while any estimated collection from customers is recorded as a reduction in Purchased power and fuel expense in PGE’s condensed consolidated statements of income. For the year ended December 31, 2021, actual
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NVPC was $62 million above baseline NVPC, and therefore PGE deferred $30 million, which represents 90% of the excess variance, expected to be collected from customers for the year ended December 31. 2021. In conjunction with the OPUC’s annual review of the Company’s PCAM filing, parties reached a settlement and on October 24, 2022, PGE and parties submitted a stipulation with the OPUC reflecting an agreement that resolved all matters related to this deferral and would allow PGE full recovery except for $2 million, which will be recorded as a charge to earnings. Amortization would occur over a two-year period beginning January 1, 2023. The stipulation is subject to OPUC approval. The OPUC’s conclusion of overall prudence and application of the earnings test 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.

2020 Labor Day Wildfire—In 2020, the state of Oregon experienced the most destructive wildfire season on record, with over one million acres of land burned that ultimately led Oregon’s Governor to declare a state of emergency. PGE has incurred costs to replace and rebuild PGE facilities damaged by the fires, as well as address fire-damaged vegetation and other resulting debris and hazards both in and outside of PGE’s property and right-of-way. On October 20, 2020, the OPUC formally approved PGE’s request for deferral of such costs (Docket UM 2115). As of September 30, 2022 and December 31, 2021, PGE’s cumulative deferred costs related to the wildfire response was $31 million and $45 million, respectively. Among the provisions of Order 22-129, the OPUC established an earnings test for the 2020 Labor Day wildfire deferral. Pursuant to the earnings test outlined in the OPUC’s Order, the Company has released deferrals associated with the year ended 2020, resulting in a pre-tax charge to earnings for the three months ended March 31, 2022 in the amount of $15 million. The amount recorded represents the Company’s estimate based on its interpretation of the OPUC’s earnings test. The charge was recorded to Generation, transmission and distribution expenses in the condensed consolidated statements of income. On July 27, 2022, PGE made a request for amortization with the OPUC that would allow collection in customer prices over a seven year amortization period beginning November 1, 2022. On October 24, 2022, PGE and parties submitted a stipulation with the OPUC reflecting an agreement that resolved all matters related to 2021 under this deferral and would allow PGE full recovery of the amounts deferred as of September 30, 2022, with amortization over a seven-year period to begin as soon as practicable and allowed by the OPUC. The stipulation is subject to OPUC approval. The OPUC has significant discretion in making the final determination of recovery. The OPUC’s conclusion of overall prudence and application of the earnings test 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.

COVID-19—The COVID-19 pandemic led Oregon’s Governor to declare a state of emergency on March 8, 2020. 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 that may qualify for deferral under Docket UM 2114, 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 was silent on 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, 2022 and December 31, 2021, PGE’s deferred balance was $34 million and $36 million, respectively, comprised primarily of bad debt expense in excess of what is currently considered and collected in customer prices. The Company has released deferrals associated with the year ended 2020, resulting in a pre-tax charge to earnings for the first quarter of 2022 in the amount of $2 million. The amount recorded represents the Company’s estimate based on its understanding of the OPUC’s intent to apply an earnings test to certain elements of utility COVID deferrals. 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 amounts deferred are 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. The OPUC’s conclusion of overall prudence
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and the application of 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. PGE plans to file an amortization request for the COVID-19 deferral in late 2022 or early 2023.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in millions):
September 30, 2022December 31, 2021
Accrued employee compensation and benefits$66 $67 
Accrued taxes payable65 46 
Accrued interest payable43 29 
Accrued dividends payable42 40 
Regulatory liabilities—current160 106 
Margin deposits from wholesale counterparties102 58 
Other96 111 
Total accrued expenses and other current liabilities$574 $457 

Credit Facilities

As of September 30, 2022, PGE had a $650 million revolving credit facility scheduled to expire in September 2027. The Company has the ability to expand the revolving credit facility to $750 million, if needed, subject to the requirements of the agreement. 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 Company’s 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, 2022, PGE was in compliance with this covenant with a 54.8% 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 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 in order to allow for coverage of any potential need to repay any commercial paper that may be outstanding at the time. As of September 30, 2022, PGE had $40 million 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 three 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 $91 million were outstanding as of September 30, 2022. Letters of credit issued are not reflected on the Company’s condensed consolidated balance sheets.
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(Unaudited)

Pursuant to an order issued by the FERC, the Company is authorized to issue short-term debt in an aggregate amount of up to $900 million through February 6, 2024.

Long-term Debt

On October 21, 2022, PGE obtained a 366-day term loan from lenders in the aggregate principal of $260 million under a 366-Day Bridge Credit Agreement. The term loan bears interest for the relevant interest period at the Term Secured Overnight Financing Rate (SOFR) plus Term SOFR Adjustment Rate of 10 basis points and applicable margin of 87.5 basis points. The interest rate is subject to adjustment pursuant to the terms of the loan. The loan is prepayable, in whole or in part, without penalty, at any time. The credit agreement expires on October 22, 2023, with any outstanding balance due and payable on such date. The term loan will be classified as long-term debt on PGE’s condensed consolidated balance sheet.

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,
2022202120222021
Service cost$4 $5 $12 $15 
Interest cost*7 6 21 20 
Expected return on plan assets*(12)(12)(36)(34)
Amortization of net actuarial loss*4 6 12 16 
Net periodic benefit cost$3 $5 $9 $17 

* 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.

PGE sponsors a health and welfare plan, under which it offers medical and life insurance benefits, as well as health reimbursement arrangements. Retirees who participate in the Company’s postretirement health insurance plans are eligible for a Defined Dollar Medical Benefit, which limits PGE’s obligation pursuant to the postretirement health plan by establishing a maximum benefit per employee with employees responsible for the additional cost. In the third quarter of 2022, PGE executed a buyout of the Non-represented Retiree Medical Plan, resulting in a $11 million settlement gain, which has been recorded in Miscellaneous income, net on the condensed consolidated statement 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, 2022 and December 31, 2021, 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:

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(Unaudited)
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):

As of September 30, 2022
Level 1Level 2Level 3
Other (2)
Total
Assets:
Cash equivalents$— $— $— $— $— 
Nuclear decommissioning trust: (1)
Debt securities:
Domestic government9 8 — — 17 
Corporate credit— 11 — — 11 
Money market funds— — — 11 11 
Non-qualified benefit plan trust: (3)
Debt securities—domestic government3 — — — 3 
Money market funds1 — — — 1 
Equity securities3 — — — 3 
Price risk management activities: (1) (4)
Electricity— 25 16 — 41 
Natural gas— 205 28 — 233 
$16 $249 $44 $11 $320 
Liabilities:
Price risk management activities: (1) (4)
Electricity$— $44 $69 $— $113 
Natural gas— 12 5 — 17 
$— $56 $74 $— $130 
 
(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.
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(Unaudited)
(3)Excludes insurance policies of $30 million, which are recorded at cash surrender value.
(4)For further information, see Note 5, Risk Management.
As of December 31, 2021
Level 1Level 2Level 3
Other (2)
Total
Assets:
Cash equivalents$44 $— $— $— $44 
Nuclear decommissioning trust: (1)
Debt securities:
Domestic government9 10 — — 19 
Corporate credit— 14 — — 14 
Money market funds— — — 14 14 
Non-qualified benefit plan trust: (3)
Debt securities—domestic government4 — — — 4 
Money market funds1 — — — 1 
Equity securities4 — — — 4 
Price risk management activities: (1) (4)
Electricity— 16 1 — 17 
Natural gas— 115 5 — 120 
$62 $155 $6 $14 $237 
Liabilities:
Price risk management activities: (1) (4)
Electricity$— $33 $90 $— $123 
Natural gas— 13 1 — 14 
$— $46 $91 $— $137 
 
(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 $36 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
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hierarchy due to the availability of quoted prices for identical assets in an active market as of the measurement date.
 
Assets classified as Level 2 in the fair value hierarchy include domestic government debt securities, such as municipal debt, and corporate credit securities. Prices are determined by evaluating pricing data such as broker quotes for similar securities and adjusted for observable differences. Significant inputs used in valuation models generally include benchmark yields and issuer spreads. The external credit rating, coupon rate, and maturity of each security are considered in the valuation, as applicable.

Equity securities—Equity mutual fund and common stock securities are classified as Level 1 in the fair value hierarchy due to the availability of quoted prices for identical assets in an active market as of the measurement date. Principal markets for equity prices include published exchanges such as Nasdaq and the NYSE.

Money market funds—PGE invests in money market funds that seek to maintain a stable net asset value. These funds invest in high-quality, short-term, diversified money market instruments, short-term treasury bills, federal agency securities, certificates of deposits, and commercial paper. The Company believes the redemption value of these funds is likely to be the fair value, which is represented by the net asset value. Redemption is permitted daily without written notice.

The NQBP trust is invested in exchange-traded government money market funds and is classified as Level 1 in the fair value hierarchy due to the availability of quoted prices in published exchanges such as Nasdaq and the NYSE. The money market fund in the NDT is valued at NAV as a practical expedient and is not included in the fair value hierarchy.

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 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 longer-term commodity forwards, futures, swaps, and options for which fair value is derived using one or more significant inputs that are not observable for the entire term of the instrument.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
Quantitative information regarding the significant, unobservable inputs used in the measurement of Level 3 assets and liabilities from price risk management activities is presented below:
Fair ValueValuation TechniqueSignificant Unobservable InputPrice per Unit
Commodity ContractsAssetsLiabilitiesLowHighWeighted Average
(in millions)
As of September 30, 2022
Electricity physical forwards$5 $69 Discounted cash flowElectricity forward price (per MWh)$26.74 $176.00 $71.44 
Natural gas financial swaps28 5 Discounted cash flowNatural gas forward price (per Decatherm)2.86 6.94 3.52 
Electricity financial futures11 — Discounted cash flowElectricity forward price (per MWh)37.94 103.00 81.94 
$44 $74 
As of December 31, 2021
Electricity physical forwards$— $90 Discounted cash flowElectricity forward price (per MWh)$16.66 $129.75 $43.73 
Natural gas financial swaps5 1 Discounted cash flowNatural gas forward price (per Decatherm)2.02 8.02 2.81 
Electricity financial futures1 — Discounted cash flowElectricity forward price (per MWh)26.76 68.43 52.46 
$6 $91 

The significant unobservable inputs used in the Company’s fair value measurement of price risk management assets and liabilities are long-term forward prices for commodity derivatives. For 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)


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PORTLAND GENERAL ELECTRIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
Changes in the fair value of net liabilities from price risk management activities (net of assets from price risk management activities) classified as Level 3 in the fair value hierarchy were as follows (in millions):

Three Months Ended September 30, Nine Months Ended September 30,
2022202120222021
Balance as of the beginning of the period$35 $58 $85 $137 
Net realized and unrealized losses/(gains)*
— 11 (56)(72)
Transfers from Level 3 to Level 2(5)(15)1 (11)
Balance as of the end of the period$30 $54 $30 $54 
* Both realized and unrealized losses/(gains), of which the unrealized portions 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 for the three-month periods ended September 30, 2022 and 2021. For the nine-month periods ended September 30, 2022 and 2021, includes $1 million in net realized gains and $4 million in net realized losses, 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 First Mortgage Bonds (FMBs) and Pollution Control Revenue Bonds is classified as a Level 2 fair value measurement.

As of September 30, 2022, the carrying amount of PGE’s long-term debt was $3,286 million, net of $13 million of unamortized debt expense, and its estimated aggregate fair value was $2,831 million. As of December 31, 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 $3,831 million.

NOTE 5: