2. SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are described in Note 2 of the 2014 Form 10-K. There were no material changes to those accounting policies during the three months ended March 31, 2015. The following are current updates to certain critical accounting policy estimates and new accounting standards.

Regulatory Accounting

In applying regulatory accounting in accordance with generally accepted accounting principles in the United States of America (GAAP), we capitalize or defer certain costs and revenues as regulatory assets and liabilities. These deferrals were as follows:



	Regulatory Assets
	March 31,				December 31,
In thousands	2015		2014		2014
Current:
Unrealized loss on derivatives⁽¹⁾	$	23,242	$	1,191	$	29,889
Gas costs	19,653		14,168		21,794
Other⁽²⁾	24,807		12,475		16,879
Total current	$	67,702	$	27,834	$	68,562
Non-current:
Unrealized loss on derivatives⁽¹⁾	$	1,117	$	96	$	3,515
Pension balancing⁽³⁾	35,374		27,328		32,541
Deferred income taxes	44,767		49,007		47,427
Pension and other postretirement benefit liabilities	197,601		123,399		201,845
Environmental costs⁽⁴⁾	50,175		63,517		58,859
Gas costs	4,334		6,541		5,971
Other⁽²⁾	15,053		15,158		18,750
Total non-current	$	348,421	$	285,046	$	368,908



	Regulatory Liabilities
	March 31,				December 31,
In thousands	2015		2014		2014
Current:
Gas costs	$	12,774	$	9,137	$	5,700
Unrealized gain on derivatives⁽¹⁾	436		15,788		240
Other⁽²⁾	11,053		12,761		13,165
Total current	$	24,263	$	37,686	$	19,105
Non-current:
Gas costs	$	4,729	$	2,602	$	2,507
Unrealized gain on derivatives⁽¹⁾	117		1,078		—
Accrued asset removal costs⁽⁵⁾	315,946		299,026		311,238
Other⁽²⁾	5,632		6,152		3,460
Total non-current	$	326,424	$	308,858	$	317,205


⁽¹⁾	Unrealized gains or losses on derivatives are non-cash items and, therefore, do not earn a rate of return or a carrying charge. These amounts are recoverable through utility rates as part of the annual Purchased Gas Adjustment (PGA) mechanism when realized at settlement.


⁽²⁾	These balances primarily consist of deferrals and amortizations under approved regulatory mechanisms. The accounts being amortized typically earn a rate of return or carrying charge.

⁽³⁾

The deferral of certain pension expenses above or below the amount set in rates was approved by the Public Utility Commission of Oregon (OPUC), with recovery of these deferred amounts through the implementation of a balancing account, which includes the expectation of lower net periodic benefit costs in future years. Deferred pension expense balances include accrued interest at the utility’s authorized rate of return, with the equity portion of interest income being unrecognized until amounts are collected in rates.

⁽⁴⁾

Environmental costs relate to specific sites approved for regulatory deferral by the OPUC and Washington Utilities and Transportation Commission (WUTC). In Oregon, we earn a carrying charge on cash amounts paid, whereas amounts accrued but not yet paid do not earn a carrying charge until expended. We also accrue a carrying charge on insurance proceeds for amounts owed to customers. In Washington, a carrying charge related to deferred amounts will be determined in a future proceeding. See Note 13.


⁽⁵⁾	Estimated costs of removal on certain regulated properties are collected through rates. See Note 2 of the 2014 Form 10-K.

Environmental Regulatory Accounting

On February 20, 2015 the OPUC issued an Order addressing outstanding implementation items related to the Site Remediation and Recovery Mechanism (SRRM). Under the Order, $15 million of $95 million in total environmental remediation expenses deferred through 2012 were disallowed. The OPUC found the $95 million to be prudently incurred but disallowed this amount from rate recovery based on its determination of how an earnings test should apply to years between 2003 and 2012, with adjustments for factors the OPUC deemed relevant. The Company recognized the $15 million pre-tax disallowance, or $9.1 million after-tax charge, during the first quarter of 2015. The charge was recorded in operations and maintenance expense. As a result of the order, we recognized $5.3 million of interest income related to the equity component on our deferred environmental expenses. See Note 13.

New Accounting Standards

Recent Accounting Pronouncements

DEBT ISSUANCE COSTS. On April 7, 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires the presentation of debt issuance costs in the balance sheet as a direct deduction from the associated debt liability. The new requirements are effective for the Company beginning January 1, 2016. Early adoption is permitted, and the new guidance will be applied on a retrospective basis. NW Natural does not plan to adopt the standard early and does not expect the ASU to materially effect its financial statements and disclosures.

REVENUE RECOGNITION. On May 28, 2014, the FASB issued ASU 2014-09 Revenue From Contracts with Customers. The underlying principle of the guidance requires entities to recognize revenue depicting the transfer of goods or services to customers at amounts expected to be entitled to in exchange for those goods or services. The model provides a five-step approach to revenue recognition: (1) identify the contract(s) with the customer; (2) identify the separate performance obligations in the contract(s); (3) determine the transaction price; (4) allocate the transaction price to separate performance obligations; and (5) recognize revenue when, or as, each performance obligation is satisfied. The new requirements are effective for the Company beginning January 1, 2017, and either a full retrospective or simplified transition adoption method is allowed; early adoption is not permitted. On April 1, 2015, the FASB proposed deferring the effective date by one year to January 1, 2018 for annual reporting periods beginning after December 15, 2017. The FASB also proposed permitting early adoption of the standard, but not before the original effective date of December 15, 2016. The proposal is expected to be finalized in the second quarter of 2015. The Company is currently assessing the effect of this standard on our financial statements and disclosures.

Subsequent Event

See Note 14 for information regarding the amendment of our Gill Ranch debt agreement.