
7.	Cost and Fair Value of Debt

Cost and Fair Value of Short-Term Debt

Our short-term debt at September 30, 2012 consisted of commercial paper notes payable with a maximum maturity of 254 days, an average maturity of 88 days and an outstanding balance of $175.8 million. The carrying cost of our commercial paper approximates a fair value, using Level 2 inputs, due to the short-term nature of the notes. See description of fair value hierarchy in Note 2 in our 2011 Form 10-K.

Cost and Fair Value of Long-Term Debt

Our utility’s long-term debt consists of $601.7 million of first mortgage bonds with maturity dates ranging from 2014 through 2035, interest rates ranging from 3.176 percent to 9.05 percent, and a weighted-average coupon rate of 5.85 percent. In March of 2012, we redeemed $40 million of first mortgage bonds. In July of 2012, we entered into a bond purchase agreement to sell $50 million of first mortgage bonds with a coupon rate of 4.00 percent and a 30-year maturity, which closed on October 30, 2012 (see Note 14). The proceeds of the issuance will be used to reduce short-term debt and for other general corporate purposes.

Our gas storage segment’s long-term debt consists of $40 million of senior secured notes with a maturity date of November 30, 2016. These senior secured notes consist of $20 million fixed rate notes, which have an interest rate of 7.75 percent and of $20 million variable rate notes, which currently have an interest rate of 7.00 percent. The notes are secured by our membership interests in Gill Ranch Storage, LLC and are nonrecourse to NW Natural. See Note 7 in our 2011 Form 10-K for more detail on our long-term debt.

As our outstanding debt does not trade in active markets, we estimated the the fair value of our outstanding long-term debt using interest rates of other companies’ outstanding debt issuances that actively trade in public markets and have similar credit ratings, terms and remaining maturities to our debt. These valuations are based on Level 2 inputs as defined in the fair value hierarchy (see description of fair value hierarchy in Note 2 in our 2011 Form 10-K).

The following table provides an estimate of the fair value of our long-term debt, including current maturities of long-term debt, using market prices in effect on the valuation date:



	September 30,				December 31,
Thousands	2012		2011		2011
Carrying amount	$	641,700	$	641,700	$	681,700
Estimated fair value	$	786,496	$	774,186	$	808,724