15. SUBSEQUENT EVENTS

In July 2013, NW Natural filed stipulated settlement agreements for our working gas inventory and environmental dockets that resulted from certain decisions deferred by the OPUC from our 2012 general rate case. The working gas inventory settlement was approved by the OPUC on September 30, 2013 and resulted in an additional $0.5 million of revenues recognized in the third quarter of 2013. Regarding the environmental docket, in October 2013, all parties supported moving the prudence review of the Gasco water treatment station to a separate docket out of the overall environmental settlement. See "Gasco Water Treatment Station" below for additional detail on this docket. The environmental docket remains open and subject to Commission review and approval. The Company anticipates a decision on the proposed settlement in the first half of 2014. See "Environmental Cost (SRRM) Settlement" below.

Gasco Water Treatment Station

On September 6, 2013, we filed testimony with the OPUC addressing the prudence of the capital costs associated with constructing a water treatment station at our Gasco site. This was done with the intent that the costs of the project be recovered in rates beginning November 1, 2013, in accordance with the all-parties stipulation that was submitted in our SRRM docket. On October 28, 2013, the Commission approved placing these costs into rates effective November 1, 2013 even though the Commission has not yet approved the SRRM stipulation. These amounts are subject to refund, with interest, in the event the Commission determines, through this separate docket, that any of these costs were incurred imprudently. Under this approach, $19.0 million of costs were included in Oregon rates effective November 1. These costs were included in regulatory assets on the balance sheet at September 30, 2013 and were subsequently moved to property, plant, and equipment when approval was received on October 28, 2013. The prudency review for this project is expected to be completed early in 2014.

Environmental Cost (SRRM) Settlement

The environmental settlement addresses implementation issues related to the new environmental recovery mechanism (SRRM). The environmental settlement is still subject to the Commission's review and approval. The Company anticipates a decision on this matter in the first half of 2014.

If the Commission approves the settlement as filed, it would resolve SRRM implementation issues including a review of the prudence of past deferred expenses, as well as the creation and application of an earnings test to determine the amount of environmental costs that would be collected from customers based on the Company's past and future earnings.

Under the settlement agreement, if approved, approximately $97.6 million of environmental remediation expenses and associated carrying costs incurred by NW Natural through December 31, 2012 would be deemed prudently incurred while $33 thousand would be disallowed. It would also be agreed that insurance settlements finalized through 2012 (approximately $40.7 million) were prudently executed, with these recoveries applied against deferred expenses to reduce amounts amortized under the SRRM. As part of the settlement, NW Natural would agree not to seek recovery of $7.0 million of its $97.6 million in deferred expenses and associated carrying costs incurred through December 31, 2012. If the OPUC approves the settlement, this disallowance and other related adjustments would result in a one-time, net after-tax charge of $3.4 million.

The settlement also would provide that environmental remediation expenditures deferred after January 1, 2013 be reviewed annually for prudency, and an earnings test will be applied annually as follows:


•	If NW Natural's Oregon utility results of operations (ROO) for a given year show that NW Natural's earnings were more than 75 basis points below its authorized return on equity in that year (Authorized ROE), NW Natural would be allowed to collect all of the prudently incurred environmental remediation expenses deferred in that year.

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If NW Natural's ROO for a given year shows that its earnings are between 75 basis points below Authorized ROE and Authorized ROE (or at Authorized ROE), NW Natural would reduce the balance of the SRRM account up to the net amount deferred for the current year, including offsetting insurance proceeds and other third-party recoveries allocated to that year (Net Amount Deferred), by 10% of its earnings between 75 basis points below Authorized ROE and Authorized ROE.

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If NW Natural's ROO for a given year shows that its earnings are above Authorized ROE but less than or equal to 50 basis points above Authorized ROE, NW Natural will reduce the balance of the SRRM account, up to the Net Amount Deferred for the current year, including offsetting insurance proceeds and other third-party recoveries allocated to that year, by: (1) 80% of NW Natural's earnings between Authorized ROE and 50 basis points above Authorized ROE; and (2) 10% of its earnings between 75 basis points below Authorized ROE and Authorized ROE.

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If NW Natural's ROO for a given year shows that its earnings are more than 50 basis points above Authorized ROE, NW Natural would reduce the balance of the SRRM account, up to the Net Amount Deferred for the current year, including offsetting insurance proceeds and other third-party recoveries allocated to that year, by: (1) 95% of its earnings above 50 basis points above Authorized ROE; (2) 80% of its earnings between Authorized ROE and 50 basis points above Authorized ROE; and (3) 10% of its earnings between 75 basis points below Authorized ROE and Authorized ROE.

Any insurance proceeds recovered after December 31, 2012 would be applied against expenses approved for amortization in the SRRM in equal amounts over the 10-year period following receipt of the funds.