SEC Filing | Portland General Electric Company

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por-20230331

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 March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________________ to ____________________

Commission File Number: 001-5532-99

PORTLAND GENERAL ELECTRIC COMPANY

(Exact name of registrant as specified in its charter)


Oregon			93-0256820
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

121 SW Salmon Street

Portland, Oregon 97204

(503) 464-8000

(Address of principal executive offices, including zip code,

and registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


(Title of class)	(Trading Symbol)	(Name of exchange on which registered)
Common Stock, no par value	POR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [x] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

[x] Yes x [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


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 April 20, 2023 is 96,621,298 shares.

Table of Contents

PORTLAND GENERAL ELECTRIC COMPANY

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

TABLE OF CONTENTS


Definitions		3

PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	4

	Condensed Consolidated Statements of Income and Comprehensive Income	4

	Condensed Consolidated Balance Sheets	5

	Condensed Consolidated Statements of Cash Flows	7

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59

Item 4.	Controls and Procedures	59

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	59

Item 1A.	Risk Factors	60





Item 6.	Exhibits	60

SIGNATURE		61

Table of Contents

DEFINITIONS

The following abbreviations and acronyms are used throughout this document:


Abbreviation or Acronym						Definition
AFUDC						Allowance for funds used during construction
AUT						Annual Power Cost Update Tariff



Colstrip						Colstrip Units 3 and 4 coal-fired generating plant

EPA						United States Environmental Protection Agency

FERC						Federal Energy Regulatory Commission
FMBs						First Mortgage Bonds
GAAP						Accounting principles generally accepted in the United States of America
GRC						General Rate Case
IRP						Integrated Resource Plan
Moody’s						Moody’s Investors Service
MW						Megawatts
MWa						Average megawatts
MWh						Megawatt hour
Nasdaq						National Association of Securities Dealers Automated Quotations
NVPC						Net Variable Power Costs
NYSE						New York Stock Exchange

OPUC						Public Utility Commission of Oregon
PCAM						Power Cost Adjustment Mechanism


RPS						Renewable Portfolio Standard
S&P						S&P Global Ratings
SEC						United States Securities and Exchange Commission



Wheatridge						Wheatridge Renewable Energy Facility

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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 March 31,
		2023		2022
Revenues:
Revenues, net		$	745	$	625
Alternative revenue programs, net of amortization		3		1
Total revenues		748		626
Operating expenses:
Purchased power and fuel		304		202
Generation, transmission and distribution		93		90
Administrative and other		80		89
Depreciation and amortization		111		99
Taxes other than income taxes		43		40
Total operating expenses		631		520
Income from operations		117		106
Interest expense, net		44		38
Other income:
Allowance for equity funds used during construction		3		3
Miscellaneous income, net		12		—
Other income, net		15		3
Income before income tax expense		88		71
Income tax expense		14		11


Net income and Comprehensive income		$	74	$	60

Weighted-average common shares outstanding (in thousands):
Basic		91,840		89,396
Diluted		92,571		89,527

Earnings per share:
Basic		$	0.81	$	0.67
Diluted		$	0.80	$	0.67

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)


	March 31, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	12	$	165
Accounts receivable, net	362		398

Inventories	95		95

Regulatory assets—current	65		54
Other current assets	232		498
Total current assets	766		1,210
Electric utility plant, net	8,611		8,465
Regulatory assets—noncurrent	481		473
Nuclear decommissioning trust	38		39
Non-qualified benefit plan trust	38		38
Other noncurrent assets	217		234
Total assets	$	10,151	$	10,459

See accompanying notes to condensed consolidated financial statements.

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PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS, continued

(Dollars in millions)

(Unaudited)


	March 31, 2023		December 31, 2022
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	242	$	457
Liabilities from price risk management activities—current	100		118
Short-term debt	68		—
Current portion of long-term debt	—		260

Current portion of finance lease obligation	20		20
Accrued expenses and other current liabilities	321		641
Total current liabilities	751		1,496
Long-term debt, net of current portion	3,485		3,386
Regulatory liabilities—noncurrent	1,398		1,389
Deferred income taxes	447		439
Unfunded status of pension and postretirement plans	170		170
Liabilities from price risk management activities—noncurrent	70		75
Asset retirement obligations	250		257
Non-qualified benefit plan liabilities	81		83
Finance lease obligations, net of current portion	293		294
Other noncurrent liabilities	94		91
Total liabilities	7,039		7,680
Commitments and contingencies (see notes)
Shareholders’ Equity:
Preferred stock, no par value, 30,000,000 shares authorized; none issued and outstanding as of March 31, 2023 and December 31, 2022	—		—
Common stock, no par value, 160,000,000 shares authorized; 96,620,972 and 89,283,353 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	1,548		1,249
Accumulated other comprehensive loss	(4)		(4)
Retained earnings	1,568		1,534


Total shareholders’ equity	3,112		2,779
Total liabilities and shareholders’ equity	$	10,151	$	10,459

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)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net income	$	74	$	60
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	111		99



Deferred income taxes	4		4
Pension and other postretirement benefits	1		3

Allowance for equity funds used during construction	(3)		(3)

Decoupling mechanism deferrals, net of amortization	(3)		(1)


Regulatory assets	(6)		(15)
Regulatory liabilities	8		5


2020 Labor Day wildfire earnings test reserve	—		15
Other non-cash income and expenses, net	10		15
Changes in working capital:
Decrease in accounts receivable, net	34		21
Decrease in inventories	—		6
Decrease in margin deposits	86		23
(Decrease) in accounts payable and accrued liabilities	(174)		(44)
(Decrease)/increase in margin deposits from wholesale counterparties	(140)		99
Other working capital items, net	(27)		(27)



Other, net	(14)		(11)
Net cash (used in) provided by operating activities	(39)		249

See accompanying notes to condensed consolidated financial statements.

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PORTLAND GENERAL ELECTRIC COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

(In millions)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Cash flows from investing activities:
Capital expenditures	(274)		(167)


Sales of Nuclear decommissioning trust securities	—		2
Purchases of Nuclear decommissioning trust securities	—		(2)



Proceeds from sale of properties	2		12
Other, net	(4)		1
Net cash used in investing activities	(276)		(154)




Cash flows from financing activities:
Proceeds from issuance of common stock	$	300	$	—
Proceeds from issuance of long-term debt	100		—
Payments on long-term debt	(260)		—


Issuance of commercial paper, net	68		—
Proceeds from Pelton/Round Butte financing arrangement	—		25
Dividends paid	(40)		(38)


Repurchase of common stock	—		(18)
Other	(6)		(6)
Net cash provided by (used in) financing activities	162		(37)
(Decrease) Increase in cash and cash equivalents	(153)		58
Cash and cash equivalents, beginning of period	165		52
Cash and cash equivalents, end of period	$	12	$	110

Supplemental cash flow information is as follows:
Cash paid for interest, net of amounts capitalized	$	22	$	18
Cash paid for income taxes	2		2
Non-cash investing and financing activities:



Assets obtained under leasing arrangements	—		29


See accompanying notes to condensed consolidated financial statements.

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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 (State). 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 , 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 approximately 4,000 square mile, State-approved service area, entirely within the State, encompasses 51 incorporated cities. As of March 31, 2023, PGE served 928,000 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 months ended March 31, 2023 and 2022 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, 2022 is derived from the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2022, included in Item 8 of PGE’s Annual Report on Form 10-K, filed with the SEC on February 16, 2023, 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 months ended March 31, 2023 and 2022.

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

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PORTLAND GENERAL ELECTRIC COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued

(Unaudited)

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 March 31,
		2023		2022
Retail:
Residential		$	362	$	308
Commercial		197		178
Industrial		82		69
Direct access customers		6		8
Subtotal		647		563
Alternative revenue programs, net of amortization		3		1
Other accrued revenues, net		1		—
Total retail revenues		651		564
Wholesale revenues*		88		56
Other operating revenues		9		6
Total revenues		$	748	$	626

* Wholesale revenues include $34 million and $19 million related to electricity commodity contract derivative settlements for the three months ended March 31, 2023 and 2022, 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 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 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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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 $115 million and $131 million of unbilled revenues as of March 31, 2023 and December 31, 2022, respectively. Accounts receivable, net includes an allowance for credit losses of $13 million and $12 million as of March 31, 2023 and December 31, 2022, respectively. The following summarizes activity in the allowance for credit losses (in millions):


	Three Months Ended March 31,
	2023
Balance as of beginning of period	$	12
Increase in provision	3
Amounts written off	(3)
Recoveries	1
Balance as of end of period	$	13

Other Current Assets

Other current assets consist of the following (in millions):


	March 31, 2023		December 31, 2022
Prepaid expenses	$	89	$	69

Assets from price risk management activities	113		313
Margin deposits	30		116


Other current assets	$	232	$	498

Assets from price risk management activities and related unrealized gains as well as Margin deposits decreased during the three months ended March 31, 2023 due to decreases in wholesale natural gas and electricity prices. For further information, see Note 5, Risk Management.

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PORTLAND GENERAL ELECTRIC COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued

(Unaudited)

Electric Utility Plant, Net

Electric utility plant, net consists of the following (in millions):


	March 31, 2023		December 31, 2022
Electric utility plant in-service	$	12,704	$	12,421
Construction work-in-progress	411		467
Total cost	13,115		12,888
Less: accumulated depreciation and amortization	(4,504)		(4,423)
Electric utility plant, net	$	8,611	$	8,465

Accumulated depreciation and amortization in the table above includes accumulated amortization related to intangible assets of $513 million and $499 million as of March 31, 2023 and December 31, 2022, respectively. Amortization expense related to intangible assets was $14 million and $15 million for the three months ended March 31, 2023 and 2022, respectively. The Company’s intangible assets primarily consist of computer software development and hydro licensing costs.

Battery storage agreement—On April 26, 2023, PGE entered into a battery storage purchased power agreement (PPA) that will be accounted for as a lease upon commencement. The lease is expected to commence in December 2024 and has a term of 20 years. The expected total fixed contract consideration will approximate $737 million over the lease term.

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PORTLAND GENERAL ELECTRIC COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued

(Unaudited)

Regulatory Assets and Liabilities

Regulatory assets and liabilities consist of the following (in millions):


	March 31, 2023					December 31, 2022
	Current			Noncurrent		Current			Noncurrent
Regulatory assets:
Price risk management	$	—		$	22	$	—		$	1
Pension and other postretirement plans	—			95		—			95

Debt issuance costs	—			21		—			21
Trojan decommissioning activities	—			133		—			133
February 2021 ice storm and damage	12			61		10			64
Power cost adjustment mechanism	16			10		14			14
2020 Labor Day wildfire	5			26		4			27
COVID-19	12			10		—			22
Wildfire mitigation	—			31		—			28
Other	20			72		26			68
Total regulatory assets	$	65		$	481	$	54		$	473
Regulatory liabilities:
Asset retirement removal costs	$	—		$	1,145	$	—		$	1,136
Deferred income taxes	—			190		—			194

Asset retirement obligations	—			9		—			7

Price risk management	12			—		195			—
Other	34			54		39			52
Total regulatory liabilities	$	46	*	$	1,398	$	234	*	$	1,389

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

Wildfire Mitigation represents incremental costs and investments made by PGE under 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 March 31, 2023 and December 31, 2022, PGE’s deferred balance related to wildfire mitigation was $31 million and $28 million, respectively. 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, or application of a potential 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 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 UM 2114, Investigation into the Effects of the COVID-19 Pandemic on Utility Customers. The result of those discussions was an Energy Term Sheet (Term Sheet), which

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PORTLAND GENERAL ELECTRIC COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued

(Unaudited)

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 both March 31, 2023 and December 31, 2022, PGE’s deferred balance was $22 million, 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 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. PGE filed a request for amortization of deferred amounts on December 16, 2022, which reflected a $12 million adjustment primarily related to bad debt write-offs being lower than estimated. During the March 14, 2023 public meeting, Staff recommended the Commission approve PGE's filing of Advice No. 22-45 associated with the recovery of the COVID-19 deferral. On March 21, 2023, Advice No. 22-45 was approved by the Commission, allowing for amortization of deferred amounts over a two-year period, which began April 1, 2023.

Deferral of Boardman revenue requirement—In October 2020, intervenors filed a deferral application with the OPUC that would require PGE to defer and refund the revenue requirement associated with the Company’s Boardman coal-fired generating plant (Boardman) then included in customer prices as established in the Company’s 2019 GRC. The application stated a deferral was required for customers to adequately capture the reduction in revenue requirement beginning on October 15, 2020, the date Boardman ceased operations. PGE estimated the revenue requirement for Boardman to be $14 million for the year ended December 31, 2020, an additional $66 million for the year ended December 31, 2021, and $23 million for the year ended December 31, 2022. In the 2022 GRC Order, the OPUC found that the deferral was warranted with amortization subject to an earnings test. On July 27, 2022, the Company filed an application, which, subject to OPUC approval, showed that the Company did not exceed the earnings test threshold for 2020 or 2021 and consequently, no refund would be required for those years. Customer prices resulting from the 2022 GRC Order no longer include any revenue requirement related to Boardman after new customer prices took effect on May 9, 2022. Although still subject to OPUC review, PGE does not believe it exceeded its regulated return on equity under the earnings test for 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 states that no refund remains necessary for that year. The stipulation remains subject to OPUC approval. Review and determination of potential refund for the periods related to 2020 and 2022 remain outstanding.

In November 2022, the OPUC granted a motion by PGE to suspend the procedural schedule and directed the Company to file a status update no later than February 16, 2023. In granting the ruling the OPUC noted that it expects to resolve this matter, addressing both the 2020 and 2022 deferrals, within the first half of 2023. The status update on February 16, 2023 stated that a settlement conference had been scheduled and parties anticipated filing with the OPUC another status update, settlement agreement, or proposed procedural schedule by March 14, 2023. On March 13, 2023, PGE notified the OPUC that settlement discussions had been productive and the parties are progressing toward resolution of the matter before the end of the first half of 2023. Based on the application of an earnings test, PGE has not recorded a refund related to Boardman for 2020, 2021, or 2022. PGE believes the range of reasonably possible refund is limited to the Boardman revenue requirement for the year 2020. The OPUC has significant discretion in making the final determination of the application of the earnings test for 2020, 2021, and 2022 and could require additional refunds that would be recognized as a charge to earnings, which could be material.

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PORTLAND GENERAL ELECTRIC COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued

(Unaudited)

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in millions):


	March 31, 2023		December 31, 2022
Accrued employee compensation and benefits	$	52	$	66
Accrued taxes payable	30		29
Accrued interest payable	46		31
Accrued dividends payable	42		42
Regulatory liabilities—current	46		234
Margin deposits from wholesale counterparties	—		140
Other	105		99
Total accrued expenses and other current liabilities	$	321	$	641

The current portion of Regulatory liabilities and Margin deposits from wholesale counterparties decreased during the three months ended March 31, 2023 due to decreases in wholesale natural gas and electricity prices. For further information, see Note 5, Risk Management.

Credit Facilities

As of March 31, 2023, 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 March 31, 2023, PGE was in compliance with this covenant with a 54.2% debt-to-total capital ratio and the aggregate unused available credit capacity under the revolving credit facility was $582 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 March 31, 2023, PGE had $68 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 $135 million were outstanding as of March 31, 2023. Letters of credit issued are not reflected on the Company’s condensed consolidated balance sheets.

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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 bore 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 was subject to adjustment pursuant to the terms of the loan. On March 1, 2023, this term loan was repaid in full with proceeds from the Equity Forward Sale Agreement described in Note 7, Shareholders’ Equity.

On November 30, 2022, PGE entered into a Bond Purchase Agreement related to the sale of $200 million in First Mortgage Bonds (FMBs), $100 million of which were funded in full on January 13, 2023.

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 March 31,
		2023		2022
Service cost		$	3	$	4
Interest cost*		9		7
Expected return on plan assets*		(11)		(12)
Amortization of net actuarial loss*		—		4
Net periodic benefit cost		$	1	$	3

* 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 March 31, 2023 and December 31, 2022, 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

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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 March 31, 2023
	Level 1		Level 2		Level 3		Other (2)		Total
Assets:
Cash equivalents	$	—	$	—	$	—	$	—	$	—
Nuclear decommissioning trust: (1)
Debt securities:
Domestic government	10		10		—		—		20
Corporate credit	—		11		—		—		11
Money market funds	—		—		—		7		7
Non-qualified benefit plan trust: (3)
Debt securities—domestic government	3		—		—		—		3
Money market funds	3		—		—		—		3
Equity securities	3		—		—		—		3




Price risk management activities: (1) (4)
Electricity	—		39		45		—		84
Natural gas	—		71		6		—		77
	$	19	$	131	$	51	$	7	$	208
Liabilities:

Price risk management activities: (1) (4)
Electricity	$	—	$	41	$	72	$	—	$	113
Natural gas	—		50		7		—		57
	$	—	$	91	$	79	$	—	$	170

(1)Activities are subject to regulation, with certain gains and losses deferred pursuant to regulatory accounting and included in Regulatory assets or Regulatory liabilities as appropriate.

(2)Assets are measured at NAV as a practical expedient and not subject to hierarchy level classification disclosure.

(3)Excludes insurance policies of $29 million, which are recorded at cash surrender value.

(4)For further information, see Note 5, Risk Management.

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	As of December 31, 2022
	Level 1		Level 2		Level 3		Other (2)		Total
Assets:
Cash equivalents	$	150	$	—	$	—	$	—	$	150
Nuclear decommissioning trust: (1)

Debt securities:
Domestic government	9		10		—		—		19
Corporate credit	—		9		—		—		9
Money market funds	—		—		—		11		11
Non-qualified benefit plan trust: (3)
Debt securities—domestic government	3		—		—		—		3
Money market funds	1		—		—		—		1
Equity securities	3		—		—		—		3



Price risk management activities: (1) (4)
Electricity	—		93		63		—		156
Natural gas	—		225		6		—		231
	$	166	$	337	$	69	$	11	$	583
Liabilities:

Price risk management activities: (1) (4)
Electricity	$	—	$	53	$	93	$	—	$	146
Natural gas	—		39		8		—		47
	$	—	$	92	$	101	$	—	$	193

(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 $31 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 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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Quantitative information regarding the significant, unobservable inputs used in the measurement of Level 3 assets and liabilities from price risk management activities is presented below:


	Fair Value				Valuation Technique	Significant Unobservable Input	Price per Unit
Commodity Contracts	Assets		Liabilities				Low		High		Weighted Average
	(in millions)
As of March 31, 2023
Electricity physical forwards	$	44	$	69	Discounted cash flow	Electricity forward price (per MWh)	$	39.21	$	245.00	$	96.46
Natural gas financial swaps	6		8		Discounted cash flow	Natural gas forward price (per Decatherm)	2.81		9.36		4.02
Electricity financial futures	1		2		Discounted cash flow	Electricity forward price (per MWh)	40.00		209.00		108.12
	$	51	$	79
As of December 31, 2022
Electricity physical forwards	$	52	$	93	Discounted cash flow	Electricity forward price (per MWh)	$	35.00	$	270.00	$	101.27
Natural gas financial swaps	6		8		Discounted cash flow	Natural gas forward price (per Decatherm)	2.71		24.71		4.42
Electricity financial futures	11		—		Discounted cash flow	Electricity forward price (per MWh)	54.17		143.70		104.21
	$	69	$	101

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 Input

Position

Change to Input

Impact on Fair Value

Market price

Buy

Increase (decrease)

Gain (loss)

Market price

Sell

Increase (decrease)

Loss (gain)

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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 March 31,
		2023		2022
Balance as of the beginning of the period		$	32	$	85
Net realized and unrealized (gains)*		(11)		(37)



Transfers from Level 3 to Level 2		7		4
Balance as of the end of the period		$	28	$	52

* 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 $5 million in net realized losses for the three months ended March 31, 2023 and $1 million in net realized gains for the three months ended March 31, 2022.

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 March 31, 2023, the carrying amount of PGE’s long-term debt was $3,485 million, net of $13 million of unamortized debt expense, and its estimated aggregate fair value was $3,110 million. As of December 31, 2022, the carrying amount of PGE’s long-term debt was $3,646 million, net of $13 million of unamortized debt expense, and its estimated aggregate fair value was $2,984 million.

NOTE 5: 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 the Company’s long-term wholesale contracts. Wholesale market transactions include purchases and sales of both power and fuel resulting from economic dispatch decisions with respect to Company-owned generation resources. The Company also performs portfolio management and wholesale market sales services for third parties in the region. 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 in order 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, future, swap, 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. PGE also enters into non-exchange-traded weather contract options, which are accounted for using the intrinsic value method. In accordance with 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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PGE’s Assets and Liabilities from price risk management activities consist of the following (in millions):


	March 31, 2023		December 31, 2022
Current assets:
Commodity contracts:
Electricity	$	52	$	112
Natural gas	61		201
Total current derivative assets (1)	113		313
Noncurrent assets:
Commodity contracts:
Electricity	32		44
Natural gas	16		30
Total noncurrent derivative assets (1)	48		74

Total derivative assets (2)	$	161	$	387
Current liabilities:
Commodity contracts:
Electricity	$	69	$	93
Natural gas	31		25
Total current derivative liabilities	100		118
Noncurrent liabilities:
Commodity contracts:
Electricity	44		53
Natural gas	26		22
Total noncurrent derivative liabilities	70		75

Total derivative liabilities (2)	$	170	$	193

(1) Total current derivative assets are included in Other current assets, and Total noncurrent derivative assets are included in Other noncurrent assets on the condensed consolidated balance sheets.

(2) As of March 31, 2023 and December 31, 2022, no derivative assets or liabilities were designated as hedging instruments.

PGE’s net volumes related to its Assets and Liabilities from price risk management activities resulting from its derivative transactions, which are expected to deliver or settle at various dates through 2035, were as follows (in millions):


	March 31, 2023			December 31, 2022
Commodity contracts:
Electricity	4		MWhs	6		MWhs
Natural gas	208		Decatherms	211		Decatherms

Foreign currency	$	8	Canadian	$	10	Canadian

PGE has elected to report positive and negative exposures resulting from derivative instruments pursuant to agreements that meet the definition of a master netting arrangement gross on the condensed consolidated balance sheets. In the case of default on, or termination of, any contract under the master netting arrangements, such agreements provide for the net settlement of all related contractual obligations with a given counterparty through a single payment. These types of transactions may include non-derivative instruments, derivatives qualifying for scope exceptions, receivables and payables arising from settled positions, and other forms of non-cash collateral, such as letters of credit. As of March 31, 2023, gross amounts included as Price risk management liabilities subject to master netting agreements were $7 million, entirely for natural gas, for which PGE has posted no collateral. As of

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December 31, 2022, gross amounts included as Price risk management liabilities subject to master netting agreements were $5 million, entirely for natural gas, for which PGE posted no collateral.

Net realized and unrealized losses (gains) on derivative transactions not designated as hedging instruments are classified in Revenues, net or Purchased power and fuel, as applicable, in the condensed consolidated statements of income and comprehensive income and were as follows (in millions):


	Three Months Ended March 31,
		2023		2022
Commodity contracts:
Electricity		$	(35)	$	(40)
Natural Gas		132		(211)
Foreign currency exchange		—		—

Net unrealized and certain net realized losses/(gains) presented in the table above are offset within the condensed consolidated statements of income and comprehensive income by the effects of regulatory accounting. Of the net amounts recognized in Net income for the three-month periods ended March 31, 2023 and 2022, net losses of $206 million and net gains of $198 million, respectively, have been offset.

Assuming no changes in market prices and interest rates, the following table indicates the year in which the net unrealized loss/(gain) recorded as of March 31, 2023 related to PGE’s derivative activities would become realized as a result of the settlement of the underlying derivative instrument (in millions):


	2023		2024		2025		2026		2027		Thereafter		Total
Commodity contracts:
Electricity	$	19	$	12	$	19	$	(4)	$	(2)	$	(15)	$	29
Natural gas	(18)		(2)		(4)		4		—		—		(20)
Net unrealized loss/(gain)	$	1	$	10	$	15	$	—	$	(2)	$	(15)	$	9

PGE’s secured and unsecured debt is currently rated at investment grade by Moody’s Investors Service (Moody’s) and S&P Global Ratings (S&P). Should Moody’s or S&P reduce their rating on the Company’s unsecured debt to below investment grade, PGE could be subject to requests by certain wholesale counterparties to post additional performance assurance collateral, in the form of cash or letters of credit, based on total portfolio positions with each of those counterparties. Certain other counterparties would have the right to terminate their agreements with the Company.

The aggregate fair value of derivative instruments with credit-risk-related contingent features that were in a liability position as of March 31, 2023 was $153 million, for which PGE has posted $16 million in collateral, consisting entirely of letters of credit. If the credit-risk-related contingent features underlying these agreements were triggered at March 31, 2023, the cash requirement to either post as collateral or settle the instruments immediately would have been $106 million. As of March 31, 2023, PGE had $14 million cash collateral posted for derivative instruments with no credit-risk-related contingent features. Cash collateral for derivative instruments is classified as Margin deposits included in Other current assets on the Company’s condensed consolidated balance sheets.

As of March 31, 2023, PGE received from counterparties $8 million in collateral, consisting entirely of letters of credit. Increases in margin deposits received from wholesale counterparties is primarily due to the increase in PGE’s natural gas derivative asset positions. The obligation to return cash collateral held for derivative instruments is included in Accrued expenses and other current liabilities on the Company’s condensed consolidated balance sheets.

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PGE is exposed to credit risk in its commodity price risk management activities related to potential nonperformance by counterparties. Credit risk may be concentrated to the extent PGE’s counterparties have similar economic, industry or other characteristics and due to direct or indirect relationships among the counterparties. The Company manages the risk of counterparty default according to its credit policies by performing financial credit reviews, setting limits and monitoring exposures, and requiring collateral (in the form of cash, letters of credit, and guarantees) when needed. PGE also uses standardized enabling agreements and, in certain cases, master netting agreements, which allow for the netting of positive and negative exposures under multiple agreements with counterparties.

See Note 4, Fair Value of Financial Instruments, for additional information concerning the determination of fair value for the Company’s Assets and Liabilities from price risk management activities.

NOTE 6: EARNINGS PER SHARE

Basic earnings per share are computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed using the weighted average number of common shares outstanding and the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Potential common shares consist of: i) employee stock purchase plan shares; ii) contingently issuable time-based and performance-based restricted stock units, along with associated dividend equivalent rights; and iii) shares issuable pursuant to the Equity Forward Sale Agreement (EFSA). See Note 7, Shareholders’ Equity, for additional information on the EFSA and its impact on earnings per share. Unvested performance-based restricted stock units and associated dividend equivalent rights are included in dilutive potential common shares only after the performance criteria have been met.

For the three months ended March 31, 2023, unvested performance-based restricted stock units and related dividend equivalent rights of 413 thousand shares were excluded from the dilutive calculation because the performance goals had not been met, with 385 thousand shares excluded for the three months ended March 31, 2022.

Net income is the same for both the basic and diluted earnings per share computations. The denominators of the basic and diluted earnings per share computations are as follows (in thousands):


	Three Months Ended March 31,
		2023	2022
Weighted-average common shares outstanding—basic		91,840	89,396
Dilutive effect of potential common shares		731	131
Weighted-average common shares outstanding—diluted		92,571	89,527

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NOTE 7: SHAREHOLDERS’ EQUITY

The activity in equity during the three-month periods ended March 31, 2023 and 2022 was as follows (dollars in millions, except per share amounts):

Common Stock

Accumulated
Other
Comprehensive
Loss

Retained
Earnings

Amount

Total

Balances as of December 31, 2022

89,283,353

1,249