PRICE RISK MANAGEMENT

PGE participates in the wholesale marketplace in order to balance its supply of power, which consists of its own generation combined with wholesale market transactions, to meet the needs of its retail customers, manage risk, and administer its existing long-term wholesale contracts. Such activities include purchases and sales of both power and fuel resulting from economic dispatch decisions for Company-owned generation resources. As a result of this ongoing business activity, PGE is exposed to commodity price risk and foreign currency exchange rate risk, from which changes in prices and/or rates may affect the Company’s financial position, results of operations, or cash flows.

PGE utilizes derivative instruments to manage its exposure to commodity price risk and foreign exchange rate risk in order to reduce volatility in NVPC for its retail customers. Such derivative instruments may include forward, futures, swaps, and option contracts, which are recorded at fair value on the condensed consolidated balance sheets, for electricity, natural gas, and foreign currency, with changes in fair value recorded in the condensed consolidated statements of income. In accordance with the ratemaking and cost recovery processes authorized by the OPUC, the Company recognizes a regulatory asset or liability to defer the gains and losses from derivative activity until settlement of the associated derivative instrument. PGE may designate certain derivative instruments as cash flow hedges or may use derivative instruments as economic hedges. The Company does not engage in trading activities for non-retail purposes.

PGE’s Assets and Liabilities from price risk management activities consist of the following (in millions):



	March 31, 2018		December 31, 2017
Current assets:
Commodity contracts:
Electricity	$	2	$	3
Natural gas	2		3
Total current derivative assets*	4		6
Total derivative assets not designated as hedging instruments	$	4	$	6
Total derivative assets	$	4	$	6
Current liabilities:
Commodity contracts:
Electricity	$	20	$	13
Natural gas	47		46
Total current derivative liabilities	67		59
Noncurrent liabilities:
Commodity contracts:
Electricity	114		122
Natural gas	30		29
Total noncurrent derivative liabilities	144		151
Total derivative liabilities not designated as hedging instruments	$	211	$	210
Total derivative liabilities	$	211	$	210

* Included in Other current assets on the condensed consolidated balance sheets.

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



	March 31, 2018			December 31, 2017
Commodity contracts:
Electricity	7		MWh	7		MWh
Natural gas	110		Decatherms	114		Decatherms
Foreign currency exchange	$	22	Canadian	$	21	Canadian

PGE has elected to report gross on the condensed consolidated balance sheets the positive and negative exposures resulting from derivative instruments pursuant to agreements that meet the definition of a master netting arrangement. 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, 2018 and December 31, 2017, gross amounts included as Price risk management liabilities subject to master netting agreements were $130 million and $136 million, respectively, for which PGE posted collateral of $11 million, which consisted entirely of letters of credit. As of March 31, 2018, of the gross amounts recognized, $122 million was for electricity and $8 million was for natural gas compared to $130 million for electricity and $6 million for natural gas recognized as of December 31, 2017.

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



	Three Months Ended March 31,
	2018		2017
Commodity contracts:
Electricity	$	1	$	33
Natural Gas	14		34

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. Net losses of $15 million and $61 million have been offset for the three month periods ended March 31, 2018 and 2017, respectively.

Assuming no changes in market prices and interest rates, the following table indicates the year in which the net unrealized loss recorded as of March 31, 2018 related to PGE’s derivative activities would become realized as a result of the settlement of the underlying derivative instrument (in millions):



	2018		2019		2020		2021		2022		Thereafter		Total
Commodity contracts:
Electricity	$	16	$	10	$	8	$	7	$	7	$	84	$	132
Natural gas	38		26		9		2		—		—		75
Net unrealized loss	$	54	$	36	$	17	$	9	$	7	$	84	$	207

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, 2018 was $201 million, for which PGE has posted $35 million in collateral, consisting entirely of letters of credit. If the credit-risk-related contingent features underlying these agreements were triggered at March 31, 2018, the cash requirement to either post as collateral or settle the instruments immediately would have been $198 million. As of March 31, 2018, PGE had $16 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 sheet.

Counterparties representing 10% or more of Assets and Liabilities from price risk management activities were as follows:



	March 31, 2018		December 31, 2017
Assets from price risk management activities:
Counterparty A	15	%	39	%
Counterparty B	18		12
Counterparty C	10		1
Counterparty D	17		7
Counterparty E	10		6
	70	%	65	%
Liabilities from price risk management activities:
Counterparty F	58	%	62	%
	58	%	62	%

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.