Portland General Electric Co (POR)

FACE="Times New Roman" SIZE="2">Commodity Price Risk

PGE’s primary business is to provide electricity to its retail customers. The Company
participates in the wholesale marketplace in order to balance its supply of power to meet the needs of its retail customers, manage risk, and administer its current long-term wholesale contracts. The Company uses power purchase contracts to
supplement its thermal, hydroelectric, and wind generation and to respond to fluctuations in the demand for electricity and variability in generating plant operations. The Company also enters into contracts for the purchase of fuel for the
Company’s natural gas and coal fired generating units. These contracts for the purchase of power and fuel expose the Company to market risk. The Company uses instruments such as forward contracts, which may involve physical delivery of an
energy commodity; swap agreements, which may require payments to, or receipt of payments from, counterparties based on the differential between a fixed and variable price for the commodity; and options and futures contracts to mitigate risk that
arises from market fluctuations of commodity prices. PGE does not engage in trading activities.

Gains and losses from instruments that reduce commodity
price risks are recognized when settled in purchased power and fuel expense, or in wholesale revenue. Valuation of these financial instruments reflects management’s best estimates of market prices, including closing NYMEX and over-the-counter
quotations, time value of money, and volatility factors underlying the commitments.

PGE actively manages its risk to ensure compliance with its risk
management policies. The Company monitors open commodity positions in its energy portfolio that extend over the next 24 months using a value at risk methodology, which measures the potential impact of market movements over a one-day holding period
using a variance/covariance approach at a 95% confidence interval. The portfolio is modeled using net open power and natural gas positions, with power averaged over peak and off-peak periods by month, and includes all financial and physical
positions for the next 24 months, including estimates of retail load and plant generation. The risk factors include commodity prices for power and natural gas at various locations and do not include volumetric variability. Based on this
methodology,

68

Table of Contents

the average, high, and low value at risk on the Company’s energy portfolio in 2008 were $4.8 million, $7.0 million, and $2.2 million,
respectively, and in 2007 were $4.7 million, $7.6 million, and $1.6 million, respectively.

PGE’s energy portfolio activities are
subject to regulation, with related costs covered in retail prices approved by the OPUC. The timing differences between the recognition of gains and losses on certain derivative instruments and their realization and subsequent recovery in prices are
deferred as regulatory assets and regulatory liabilities to reflect the effects of regulation under SFAS 71. As contracts are settled, these deferrals reverse. In PGE’s value at risk methodology, no amounts are included for potential deferrals
under SFAS 71.