Portland, Ore., — Portland General Electric Company (NYSE: POR) ("PGE" or the "Company") today announced the Special Committee of the Board of Directors concluded its independent review of the energy trading activity that led to the losses incurred in the third quarter.
The Special Committee concluded that the trades were ill-conceived and revealed opportunities for improving the Company’s energy trading policies and practices. Additionally, the Board of Directors concluded that the actions the Company began taking in August to enhance oversight of energy trading and associated risk management reporting, policies and practices are consistent with the Special Committee’s recommendations and will be monitored by the Board of Directors through enhanced reporting. These actions will strengthen the Company and include:
Added expertise: PGE brought in additional experienced risk management personnel and replaced the Power Operations general manager with a new interim leader.
Strengthened trading policies: Power Operations personnel are operating under revised policies designed to prevent positions of the type that led to the losses. The improved policies place controls on the ability of personnel to enter into wholesale energy transactions to the extent that PGE does not have physical or financial delivery capability.
Enhanced risk reporting: Energy trading activity reporting has been improved to ensure greater visibility into portfolio risk.
Changed reporting structures: Energy Trading Risk Management now reports through a Risk and Compliance team that reports to the Chief Executive Officer. Effective January 1, 2021, Power Operations will report to the Vice President of Strategy, Regulation and Energy Supply.
Changed personnel: The individuals who previously were placed on leave are no longer with the Company.
The Compensation and Human Resources Committee of the Board of Directors, in consultation with the other independent directors of the Board, has determined, in light of the third quarter losses, it would be inconsistent with PGE's pay-for-performance philosophy for certain senior leaders to receive annual incentive compensation. Accordingly, the CEO, the CFO and one additional executive officer will not receive any annual incentive compensation for 2020.
“The Special Committee, with the assistance of independent legal advisors, conducted a thorough, top-to-bottom review of the energy trading activity that led to the losses and we are pleased to put this matter behind us,” said Jack Davis, Chair of the PGE Board. “The Board is confident that the actions the management team implemented and continues to take will make PGE an even stronger company, better positioned to carry out our mission of powering the communities we serve.”
As previously announced, there will be no impact to customer prices, as the Company will not pursue regulatory recovery. Additionally, the losses do not impact PGE’s ability to serve customers.
The energy trading positions resulting in these losses were short in the desert Southwest and California power markets and long in the Pacific Northwest power markets. In August 2020, wholesale electricity prices increased substantially in the desert Southwest and California power markets due to extreme weather conditions, constraints to regional transmission facilities, and changes in power supply in the West. As a result of these market disruptions and the Company’s exposure to these positions, the Company’s energy portfolio realized significant losses.