11. GAS RESERVES

Our gas reserves are stated at cost, net of regulatory amortization, with the associated deferred tax benefits recorded as liabilities on the balance sheet.

We entered into agreements with Encana to develop and produce physical gas reserves. These agreements are intended to provide long-term gas price protection for our utility customers rather than serving as a source of gas supply. Encana began drilling in 2011 under these agreements, and gas which is currently being produced from our working interests in these gas fields is sold by Encana at then prevailing market prices, with revenues from such sales, net of associated production costs, credited to our cost of gas. The cost of gas, including a carrying cost for the net rate base investment, is part of our annual Oregon PGA filing, which allows us to recover our costs through customer rates in a manner previously approved by the OPUC. This transaction acted to hedge the cost of gas for approximately 4% of our gas supplies for the year ended December 31, 2012. The following table outlines our net gas reserves investment at December 31:



In thousands	2012		2011
Gas reserves, current	$	14,966	$	4,463
Gas reserves, non-current	92,179		48,597
Less: Accumulated amortization	7,486		1,146
Total gas reserves	99,659		51,914
Less: Deferred taxes on gas reserves	28,329		15,630
Net investment in gas reserves	$	71,330	$	36,284

Variable Interest Entity Analysis

We concluded that the arrangement with Encana qualifies as a variable interest entity (VIE), but that we are not the primary beneficiary of these activities as defined by the authoritative guidance related to consolidations due to the fact that our interest represents a minor portion of total extraction activities. We account for our investment in this VIE on the cost basis, and it is included under gas reserves on our balance sheet. Our maximum loss exposure related to this VIE is limited to our current investment balance.