7. DEBT

Short-Term Debt

Our primary source of short-term funds is from the sale of commercial paper and bank loans. In addition to issuing commercial paper or bank loans to meet seasonal working capital requirements, short-term debt is used temporarily to fund capital requirements. Commercial paper and bank loans are periodically refinanced through the sale of long-term debt or equity securities. Our commercial paper program is supported by one or more committed credit

facilities. At December 31, 2014 and 2013, the amounts of commercial paper debt outstanding were $234.7 million and $188.2 million, respectively, and the average interest rate at December 31, 2014 and 2013 was 0.4% and 0.3%, respectively. The carrying cost of our commercial paper approximates fair value using Level 2 inputs, due to the short-term nature of the notes. See Note 2 for a description of the fair value hierarchy. At December 31, 2014, our commercial paper had a maximum maturity of 209 days and an average maturity of 98 days.

On December 20, 2012, NW Natural entered into a five-year $300 million credit agreement, with a feature that allows the Company to request increases in the total commitment amount up to a maximum amount of $450 million. The credit agreement also permitted NW Natural to extend commitments for two additional one-year periods, subject to lender approval. The Company exercised the first of these extensions in December 2013, and the second in December 2014 with a final maturity date of December 20, 2019. Also in December 2014, NW Natural amended the credit agreement to reduce the permitted letter of credit from $200 million to $100 million. Any principal and unpaid interest owed on borrowings under the agreement is due and payable on or before the expiration date. There were no outstanding balances under the agreement and no letters of credit issued or outstanding at December 31, 2014 and 2013.

The credit agreement requires that we maintain credit ratings with Standard & Poor’s (S&P) and Moody’s Investors Service, Inc. (Moody’s) and notify the lenders of any change in our senior unsecured debt ratings or senior secured debt ratings, as applicable, by such rating agencies. A change in our debt ratings is not an event of default, nor is the maintenance of a specific minimum level of debt rating a condition of drawing upon the credit facility. However, interest rates on any loans outstanding under the credit facility are tied to debt ratings, which would increase or decrease the cost of any loans under the credit facility when ratings are changed.

The credit agreement also requires us to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. We were in compliance with this covenant at December 31, 2014 and 2013.

Long-Term Debt

The issuance of first mortgage bonds (FMBs), which includes our medium-term notes, under the Mortgage and Deed of Trust (Mortgage) is limited by eligible property, adjusted net earnings and other provisions of the Mortgage. The Mortgage constitutes a first mortgage lien on substantially all of our utility property. In addition, our Gill Ranch subsidiary senior secured debt is secured by all of the membership interests in Gill Ranch as well as Gill Ranch’s debt service reserve account, which is recorded as restricted cash on the balance sheet.

Maturities and Outstanding Long-Term Debt

Retirement of long-term debt for each of the 12-month periods through December 31, 2019 and thereafter are as follows:



In thousands
Year
2015	$	40,000
2016	45,000
2017	40,000
2018	22,000
2019	30,000
Thereafter	484,700

The following table presents our debt outstanding as of December 31:



In thousands	2014		2013
First Mortgage Bonds
8.26 % Series B due 2014	$	—	$	10,000
3.95 % Series B due 2014	—		50,000
4.70 % Series B due 2015	40,000		40,000
5.15 % Series B due 2016	25,000		25,000
7.00 % Series B due 2017	40,000		40,000
6.60 % Series B due 2018	22,000		22,000
8.31 % Series B due 2019	10,000		10,000
7.63 % Series B due 2019	20,000		20,000
5.37 % Series B due 2020	75,000		75,000
9.05 % Series A due 2021	10,000		10,000
3.176 % Series B due 2021	50,000		50,000
3.542% Series B due 2023	50,000		50,000
5.62 % Series B due 2023	40,000		40,000
7.72 % Series B due 2025	20,000		20,000
6.52 % Series B due 2025	10,000		10,000
7.05 % Series B due 2026	20,000		20,000
7.00 % Series B due 2027	20,000		20,000
6.65 % Series B due 2027	19,700		19,700
6.65 % Series B due 2028	10,000		10,000
7.74 % Series B due 2030	20,000		20,000
7.85 % Series B due 2030	10,000		10,000
5.82 % Series B due 2032	30,000		30,000
5.66 % Series B due 2033	40,000		40,000
5.25 % Series B due 2035	10,000		10,000
4.00 % due 2042	50,000		50,000
	641,700		701,700
Subsidiary Senior Secured Debt
Gill Ranch debt due 2016	20,000		40,000
	661,700		741,700
Less: Current maturities	40,000		60,000
Total long-term debt	$	621,700	$	681,700

First Mortgage Bonds

NW Natural issued $50 million of FMBs on August 19, 2013 with a coupon rate of 3.542% and a 10-year maturity.

Subsidiary Senior Secured Debt

Gill Ranch has $20 million of fixed-rate senior secured debt outstanding, which was issued in 2011 with a maturity date of November 30, 2016 and an interest rate of 7.75%.

Under the debt agreements, Gill Ranch is subject to certain covenants and restrictions including, but not limited to, a financial covenant that requires Gill Ranch to maintain minimum adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) at various levels over the term of the debt. As part of an amended agreement, the EBITDA covenant requirement is suspended through March 31, 2015 with lower EBITDA hurdles thereafter. The debt service reserve requirement was fixed at $3 million.

Retirements of Long-Term Debt

The utility redeemed $50 million of FMBs with a coupon rate of 3.95% in July 2014 and $10 million in September 2014 with a coupon rate of 8.26%. In June 2014, under the amended agreement Gill Ranch retired $20 million of variable interest rate debt with a coupon rate of 7.00%.

Fair Value of Long-Term Debt

Our outstanding debt does not trade in active markets. We estimate the fair value of our debt using utility companies with similar credit ratings, terms, and remaining maturities to our debt that actively trade in public markets. These valuations are based on Level 2 inputs as defined in the fair value hierarchy. See Note 2.

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:



	December 31,
In thousands	2014		2013
Carrying amount	$	661,700	$	741,700
Estimated fair value	756,808		806,359