2. SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are described in Note 2 of the 2015 Form 10-K. There were no material changes to those accounting policies during the six months ended June 30, 2016. The following are current updates to certain critical accounting policy estimates and new accounting standards.

Industry Regulation

In applying regulatory accounting principles, we capitalize or defer certain costs and revenues as regulatory assets and liabilities pursuant to orders of the Public Utility Commission of Oregon (OPUC) or Washington Utilities and Transportation Committee (WUTC), which provide for the recovery of revenues or expenses from, or refunds to, utility customers in future periods, including a rate of return or a carrying charge in certain cases.

Amounts deferred as regulatory assets and liabilities were as follows:



	Regulatory Assets
	June 30,				December 31,
In thousands	2016		2015		2015
Current:
Unrealized loss on derivatives⁽¹⁾	$	3,439	$	15,017	$	22,092
Gas costs	9,571		19,070		8,717
Environmental costs⁽²⁾	9,610		—		9,270
Decoupling⁽³⁾	14,170		17,736		18,775
Other⁽⁴⁾	12,214		11,193		10,324
Total current	$	49,004	$	63,016	$	69,178
Non-current:
Unrealized loss on derivatives⁽¹⁾	$	474	$	1,077	$	3,447
Pension balancing⁽⁵⁾	48,761		38,255		43,748
Income taxes	40,106		44,767		43,049
Pension and other postretirement benefit liabilities	177,596		193,356		184,223
Environmental costs⁽²⁾	65,983		49,917		76,584
Gas costs	1,487		2,472		1,949
Decoupling⁽³⁾	1,776		3,186		6,349
Other⁽⁴⁾	8,786		9,776		11,362
Total non-current	$	344,969	$	342,806	$	370,711



	Regulatory Liabilities
	June 30,				December 31,
In thousands	2016		2015		2015
Current:
Gas costs	$	12,501	$	20,087	$	14,157
Unrealized gain on derivatives⁽¹⁾	7,428		1,015		2,659
Other⁽⁴⁾	7,371		5,610		13,111
Total current	$	27,300	$	26,712	$	29,927
Non-current:
Gas costs	$	1,622	$	3,615	$	8,869
Unrealized gain on derivatives⁽¹⁾	3,541		1,369		27
Accrued asset removal costs⁽⁶⁾	332,627		320,206		327,047
Other⁽⁴⁾	3,469		3,456		3,344
Total non-current	$	341,259	$	328,646	$	339,287


⁽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⁾

Environmental costs relate to specific sites approved for regulatory deferral by the OPUC and 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, recovery of deferred amounts will be determined in a future proceeding. Current environmental costs represent remediation costs management expects to collect from Oregon customers in the next 12 months. Amounts included in this estimate are still subject to a prudence and earnings test review by the OPUC and do not include the $5 million tariff rider. The amounts allocable to Oregon are recoverable through utility rates, subject to an earnings test. See Note 13.


⁽³⁾	This deferral represents the margin adjustment resulting from differences between actual and expected volumes.


⁽⁴⁾	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.

⁽⁵⁾

The deferral of certain pension expenses above or below the amount set in rates was approved by the 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 recognized when amounts are collected in rates.


⁽⁶⁾	Estimated costs of removal on certain regulated properties are collected through rates.

We believe all costs incurred and deferred at June 30, 2016 are prudent. We annually review all regulatory assets and liabilities for recoverability and more often if circumstances warrant. If we should determine that all or a portion of these regulatory assets or liabilities no longer meet the criteria for continued application of regulatory accounting, then we would be required to write-off the net unrecoverable balances in the period such determination is made.

New Accounting Standards

We consider the applicability and impact of all accounting standards updates (ASUs) issued by the Financial

Accounting Standards Board (FASB). Accounting standards updates not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.

Recently Adopted Accounting Pronouncements

BENEFIT PLAN ACCOUNTING. On July 31, 2015, the FASB issued ASU 2015-12, "Plan Accounting: Defined Benefit Pension Plans, Defined Contribution Pension Plans, and Health and Welfare Benefit Plans." The ASU outlines a three part update. Only part two of the update is applicable for us, which simplifies the investment disclosure requirements for employee benefit plans by allowing certain disclosures at an aggregated level, reducing the number of ways assets must be grouped and analyzed, and no longer requiring investment strategy disclosures for certain investments. The new requirements were effective for us beginning January 1, 2016 and will be applied retrospectively in the 2016 Form 10-K, for all periods presented. This ASU will not materially affect our financial statements and disclosures, but will change certain presentation and disclosures within our pension and other postretirement benefit plan footnote in our 2016 Form 10-K, for all periods presented.

FAIR VALUE MEASUREMENT. On May 1, 2015, the FASB issued ASU 2015-07, "Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent)." The ASU removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient and also removes certain disclosure requirements. The new requirements were effective for us beginning January 1, 2016 and will be applied retrospectively to all periods presented, in our 2016 Form 10-K. This ASU will not materially affect our financial statements and disclosures, but will change certain presentation and disclosure of the fair value of certain plan assets in our pension and other postretirement benefit plan disclosures in our 2016 Form 10-K, for all periods presented.

INTANGIBLES - GOODWILL AND OTHER INTERNAL-USE SOFTWARE. On April 15, 2015 the FASB issued ASU 2015-05, "Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement." The ASU provides customers guidance on how to determine whether a cloud computing arrangement includes a software license. The new requirements were effective for us beginning January 1, 2016. We will apply the guidance prospectively as contracts arise and do not expect the ASU to materially affect our financial statements and disclosures.

DEBT ISSUANCE COSTS. On April 7, 2015, the FASB issued 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 were effective for us beginning January 1, 2016. The new guidance has been applied on a retrospective basis and is reflected in our consolidated balance sheets and Note 6.

Recently Issued Accounting Pronouncements

STOCK BASED COMPENSATION. On March 30, 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting." The ASU changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The amendments in this standard are effective for us beginning January 1, 2017. Early adoption is permitted in any interim or annual period. We are currently assessing the effect of this standard and do not expect this standard to materially affect our financial statements and disclosures.

LEASES. On February 25, 2016, the FASB issued ASU 2016-02, "Leases," which revises the existing lease accounting guidance. Pursuant to the new standard, lessees will be required to recognize all leases, including operating leases that are greater than 12 months at lease commencement, on the balance sheet and record corresponding right-of-use assets and lease liabilities. Lessor accounting will remain substantially the same under the new standard. Quantitative and qualitative disclosures are also required for users of the financial statements to have a clear understanding of the nature of our leasing activities. The standard is effective for us beginning January 1, 2019, and early adoption is permitted. The new standard must be adopted using a modified retrospective transition and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented. We are currently assessing the effect of this standard on our financial statements and disclosures.

FINANCIAL INSTRUMENTS. On January 5, 2016, the FASB issued ASU 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities." The ASU enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation, and disclosure. The new standard is effective for us beginning January 1, 2018. Upon adoption, we will be required to make a cumulative-effect adjustment to the consolidated balance sheet in the first quarter of 2018. Early adoption is permitted, and we are currently assessing the effect of this standard on our 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 the entity is expected to be entitled to in exchange for those goods or services. The ASU also prescribes 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 prescribe either a full retrospective or simplified transition adoption method. On August 12, 2015, the FASB deferred the effective date by one year to January 1, 2018 for annual reporting periods beginning after December 15, 2017. The FASB also permitted early adoption of the standard, but not before the original effective date of January 1, 2017. We plan to adopt the new standard effective January 1, 2018 and are assessing the effect this standard will have on our financial statements and disclosures.