Our gas reserves are stated at cost, net of volumetric regulatory amortization, with the associated deferred tax benefits recorded as liabilities on the balance sheet. Other investments include financial investments in life insurance policies, which are accounted for at fair value, and equity investments in certain partnerships and limited liability companies, which are accounted for under the equity or cost methods. See Note 12 in the 2011 Form 10-K for more detail on our investments.

We entered into agreements with Encana Oil & Gas (USA) Inc. (Encana) to develop and produce physical gas reserves that are expected to supply a portion of NW Natural's utility customers' requirements over 30 years. Encana began drilling in 2011 under these agreements, and we are currently receiving gas from our interests in a section of the gas field. Our cost of gas and the carrying cost of the investment are included in our annual Oregon Purchased Gas Adjustment (PGA) filing and recovered through rates in a manner previously approved by the OPUC. This transaction accounted for approximately 2% of our gas supplies for the three month period ending March 31, 2012. The following table outlines our net investment at March 31, 2012 and 2011 and December 31, 2011:

		March 31,				December 31,
Thousands		2012		2011		2011
Gas reserves, current		$	6,732	$	-	$	4,463
Gas reserves, non-current			63,546		-		48,597
Less: Accumulated amortization			2,440		-		1,146
	Total gas reserves		67,838		-		51,914

Less: Deferred taxes on gas reserves			22,047		-		15,630

Net investment in gas reserves		$	45,791	$	-	$	36,284

Variable Interest Entity (VIE) Analysis. We concluded that the arrangements with Encana qualify as a VIE, but that we are not the primary beneficiary of these activities as defined by the authoritative guidance related to consolidations. We account for our investment in the VIE on the cost basis and it is included under gas reserves on our balance sheet. Our maximum loss exposure related to the VIE is limited to our investment balance.

PGH is a development stage variable interest entity. Palomar, a wholly-owned subsidiary of PGH, is pursuing the development of a new gas transmission pipeline that would provide an interconnection with our utility distribution system. PGH is owned 50 percent by NWN Energy and 50 percent by TransCanada American Investments Ltd., an indirect wholly-owned subsidiary of TransCanada Corporation.

Variable Interest Entity Analysis. As of March 31, 2012, we updated our VIE analysis and reconfirmed that we are not the primary beneficiary of PGH's activities as defined by the authoritative guidance related to consolidations due to the fact that we have a 50 percent share and there are no stipulations that allow disproportionate influence over the entity. Therefore, we account for our investment in PGH and the Palomar project under the equity method, which is included in other investments on our balance sheet. Our maximum loss exposure related to PGH is limited to our equity investment balance, less our share of any cash or other assets available to us as a 50 percent owner.

Impairment Analysis. Our investments in nonconsolidated entities accounted for under the equity method, including Palomar, are reviewed for impairment at each reporting period, and following updates to our corporate planning assumptions. When it is determined that a loss in value is other than temporary, a charge is recognized for the difference between the investment's carrying value and its estimated fair value. Fair value is based on quoted market prices when available, or on the present value of expected future cash flows. Differing assumptions could affect the timing and amount of a charge recorded in any period. There have been no significant changes in carrying value or estimated fair value since year end.

Our investment balance in Palomar was $13.5 million at March 31, 2012, which consists of costs related to the east segment. We are continuing to work on development of commercial support and Palomar expects to file a new Federal Energy Regulatory Commission (FERC) certification application to reflect a revised scope based on regional needs for the eastern segment of the proposed Palomar pipeline project. However, if we learn later that the project is not viable or will not go forward, we could be required to recognize a maximum charge of up to approximately $13.2 million based on the current amount of our equity investment net of cash and working capital at Palomar. We will continue to monitor and update our impairment analysis as required. See Note 12 in our 2011 Form 10-K for more detail on Palomar and our annual impairment analysis.