
11.	Gas Reserves and Other Investments

Our gas reserves are stated at cost, net of 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 cash surrender 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.

Gas Reserves

We entered into agreements with Encana Oil & Gas (USA) Inc. (Encana) to develop and produce physical gas reserves. These agreements are intended to provide long-term gas price protection for our utility customers. Encana began drilling in 2011 under these agreements, and we are currently producing gas from our interests in these gas fields. Our cost of gas, including a carrying cost for the net rate base investment, are part of our annual Oregon Purchased Gas Adjustment (PGA) filing, which allows us to recover our costs through customer rates in a manner previously approved by the OPUC. This transaction accounted for approximately 4% of our gas supplies for the nine months ended September 30, 2012. The following table outlines our net investment at September 30, 2012 and 2011 and December 31, 2011:



	September 30,				December 31,
Thousands	2012		2011		2011
Gas reserves, current	$	13,140	$	2,366	$	4,463
Gas reserves, non-current	81,692		28,551		48,597
Less: Accumulated amortization	5,767		426		1,146
Total gas reserves	89,065		30,491		51,914
Less: Deferred taxes on gas reserves	23,940		10,090		15,630
Net investment in gas reserves	$	65,125	$	20,401	$	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 the asset is included as gas reserves on our balance sheet. Our maximum loss exposure related to the VIE is limited to our investment balance.

Equity Method Investments

PGH is a development stage VIE. 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 (VIE) Analysis. As of September 30, 2012, there were no changes to our VIE analysis and, as such, we continue to report Palomar under equity method accounting based on the determination 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. Our investment in PGH and Palomar are 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 yearend.

Our investment balance in Palomar was $13.4 million at September 30, 2012. Palomar is continuing to work on development of commercial support for the project and expects to file a new Federal Energy Regulatory Commission (FERC) certification application to reflect a revised scope based on regional needs for the proposed pipeline. 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 as of September 30, 2012 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.