From time-to-time,time to time, we make forward-looking statements such as statements regarding projected or future:
• | financial performance; |
• | cash flows; |
• | capital expenditures; |
• | dividends; |
• | capital structure; |
• | other financial items; |
• | strategic goals and objectives; |
• | business environment; and |
• | plans for operations. |
These statements are based upon underlying assumptions (many of which are based, in turn, upon further assumptions). Such statements are made both in our reports filed under the Securities Exchange Act of 1934, as amended (including this Annual Report on Form 10-K), and elsewhere. Forward-looking statements are all statements except those of historical fact including, without limitation, those that are identified by the use of words that include “will,” “may,” “could,” “should,” “intends,” “plans,” “seeks,” “anticipates,” “estimates,” “expects,” “forecasts,” “projects,” “predicts,” and similar expressions.
Forward-looking statements (including those made in this Annual Report on Form 10-K) are subject to a variety of risks, uncertainties and other factors. Most of these factors are beyond our control and may have a significant effect on our operations, results of operations, financial condition or cash flows, which could cause actual results to differ materially from those anticipated in our statements. Such risks, uncertainties and other factors include, among others:
Utility Regulatory Risk
• | state and federal regulatory decisions or related judicial decisions that affect our ability to recover costs and earn a reasonable return including, but not limited to, disallowance or delay in the recovery of capital investments, operating costs, commodity costs, interest rate swap derivatives, the ordering of refunds to customers and discretion over allowed return on investment; |
• | the loss of regulatory accounting treatment, which could require the write-off of regulatory assets and the loss of regulatory deferral and recovery mechanisms; |
Operational Risk
• | pandemics (including the current COVID-19 pandemic), which could disrupt our business, as well as the global, national and local economy, resulting in a decline in customer demand, deterioration in the creditworthiness of our customers, increases in operating and capital costs, workforce shortages, delays in capital projects, disruption in supply chains, and disruption, weakness and volatility in capital markets. In addition, any of these factors could negatively impact our liquidity and limit our access to capital, among other implications; |
• | wildfires ignited, or allegedly ignited, by Avista Corp. equipment or facilities could cause significant loss of life and property, thereby causing serious operational and financial harm to Avista Corp. and our customers; |
• | severe weather or natural disasters, including, but not limited to, avalanches, wind storms, wildfires, earthquakes, snow and ice storms, that can disrupt energy generation, transmission and distribution, as well as the availability and costs of fuel, materials, equipment, supplies and support services; |
• | explosions, fires, accidents, mechanical breakdowns or other incidents that could impair assets and may disrupt operations of any of our generation facilities, transmission, and electric and natural gas distribution systems or other operations and may require us to purchase replacement power or incur costs to repair our facilities. These incidents could also potentially cause injuries to the public or property damage; |
• | blackouts or disruptions of interconnected transmission systems (the regional power grid); |
• | terrorist attacks, cyberattacks or other malicious acts that could disrupt or cause damage to our utility assets or to the national or regional economy in general, including any effects of terrorism, cyberattacks, ransomware, or vandalism that damage or disrupt information technology systems; |
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• | work-force issues, including changes in collective bargaining unit agreements, strikes, work stoppages, the loss of key executives, availability of workers in a variety of skill areas, and our ability to recruit and retain employees; |
• | changes in the availability and price of purchased power, fuel and natural gas, as well as transmission capacity; |
• | increasing costs of insurance, more restrictive coverage terms and our ability to obtain insurance; |
• | delays or changes in construction costs, and/or our ability to obtain required permits and materials for present or prospective facilities; |
• | increasing health care costs and cost of health insurance provided to our employees and retirees; |
• | third party construction of buildings, billboard signs, towers or other structures within our rights of way, or placement of fuel containers within close proximity to our transformers or other equipment, including overbuild atop natural gas distribution lines; |
• | the loss of key suppliers for materials or services or other disruptions to the supply chain; |
• | adverse impacts to our Alaska electric utility (AEL&P) that could result from an extended outage of its hydroelectric generating resources or their inability to deliver energy, due to their lack of interconnectivity to any other electrical grids and the availability or cost of replacement power (diesel); |
• | changing river regulation or operations at hydroelectric facilities not owned by us, which could impact our hydroelectric facilities downstream; |
• | change in the use, availability or abundancy of water resources and/or rights needed for operation of our hydroelectric facilities; |
Cyber and natural gas will not be acknowledged by the state commissions, which could result in future resource acquisitions based on the integrated resource plans that are later deemed imprudent;Technology Risk
• | cyberattacks on the operating systems that are used in the operation of our electric generation, transmission and distribution facilities and our natural gas distribution facilities, and cyberattacks on such systems of other energy companies with which we are interconnected, which could damage or destroy facilities or systems or disrupt operations for extended periods of time and result in the incurrence of liabilities and costs; |
• | cyberattacks on the administrative systems that are used in the administration of our business, including customer billing and customer service, accounting, communications, compliance and other administrative functions, and cyberattacks on such systems of our vendors and other companies with which we do business, which could result in the disruption of business operations, the release of private information and the incurrence of liabilities and costs; |
• | changes in costs that impede our ability to effectively implement new information technology systems or to operate and maintain current production technology; |
• | changes in technologies, possibly making some of the current technology we utilize obsolete or introducing new cyber security risks; |
• | insufficient technology skills, which could lead to the inability to develop, modify or maintain our information systems; |
Strategic Risk
• | growth or decline of our customer base due to new uses for our services or decline in existing services, including, but not limited to, the effect of the trend toward distributed generation at customer sites; |
• | the potential effects of negative publicity regarding our business practices, whether true or not, which could hurt our reputation and result in litigation or a decline in our common stock price; |
• | changes in our strategic business plans, which could be affected by any or all of the foregoing, including the entry into new businesses and/or the exit from existing businesses and the extent of our business development efforts where potential future business is uncertain; |
• | wholesale and retail competition including alternative energy sources, growth in customer-owned power resource technologies that displace utility-supplied energy or that may be sold back to the utility, and alternative energy suppliers and delivery arrangements; |
• | entering into or growth of non-regulated activities may increase earnings volatility; |
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• | the risk of municipalization or other forms of service territory reduction; |
External Mandates Risk
• | changes in environmental laws, regulations, decisions and policies, including present and potential environmental remediation costs and our compliance with these matters; |
• | the potential effects of initiatives, legislation or administrative rulemaking at the federal, state or local levels, including possible effects on our generating resources, prohibitions or restrictions on new or existing services, or restrictions on greenhouse gas emissions to mitigate concerns over global climate changes; |
• | political pressures or regulatory practices that could constrain or place additional cost burdens on our distribution systems through accelerated adoption of distributed generation or electric-powered transportation or on our energy supply sources, such as campaigns to halt fossil fuel fired power generation and opposition to other thermal generation, wind turbines or hydroelectric facilities; |
• | failure to identify changes in legislation, taxation and regulatory issues that could be detrimental or beneficial to our overall business; |
• | policy and/or legislative changes in various regulated areas, including, but not limited to, environmental regulation, healthcare regulations and import/export regulations; |
Financial Risk
• | weather conditions, which affect both energy demand and electric generating capability, including the impact of precipitation and temperature on hydroelectric resources, the impact of wind patterns on wind-generated power, weather-sensitive customer demand, and similar impacts on supply and demand in the wholesale energy markets; |
• | our ability to obtain financing through the issuance of debt and/or equity securities, which could be affected by various factors including our credit ratings, interest rates, other capital market conditions and global economic conditions; |
• | changes in interest rates that affect borrowing costs, our ability to effectively hedge interest rates for anticipated debt issuances, variable interest rate borrowing and the extent to which we recover interest costs through retail rates collected from customers; |
• | changes in actuarial assumptions, interest rates and the actual return on plan assets for our pension and other postretirement benefit plans, which could affect future funding obligations, pension and other postretirement benefit expense and the related liabilities; |
• | the outcome of legal proceedings and other contingencies; |
• | economic conditions in our service areas, including the economy's effects on customer demand for utility services; |
• | economic conditions nationally may affect the valuation of our unregulated portfolio companies; |
• | declining energy demand related to customer energy efficiency, conservation measures and/or increased distributed generation; |
• | changes in the long-term climate and weather could materially affect, among other things, customer demand, the volume and timing of streamflows required for hydroelectric generation, costs of generation, transmission and distribution. Increased or new risks may arise from severe weather or natural disasters, including wildfires; |
• | industry and geographic concentrations which could increase our exposure to credit risks due to counterparties, suppliers and customers being similarly affected by changing conditions; |
• | deterioration in the creditworthiness of our customers; |
Energy Commodity Risk
• | volatility and illiquidity in wholesale energy markets, including exchanges, the availability of willing buyers and sellers, changes in wholesale energy prices that could affect operating income, cash requirements to purchase electricity and natural gas, value received for wholesale sales, collateral required of us by individual |
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counterparties and/or exchanges in wholesale energy transactions and credit risk to us from such transactions, and the market value of derivative assets and liabilities; |
• |
default or nonperformance on the part of any parties from whom we purchase and/or sell capacity or energy; |
• | potential environmental regulations or lawsuits affecting our ability to utilize or resulting in the obsolescence of our power supply resources; |
• | explosions, fires, accidents, pipeline ruptures or other incidents that could limit energy supply to our facilities or our surrounding territory, which could result in a shortage of commodities in the market that could increase the cost of replacement commodities from other sources; |
Compliance Risk
• | changes in laws, regulations, decisions and policies at the federal, state or local levels, which could materially impact both our electric and gas operations and costs of operations; and |
• | the ability to comply with the terms of the licenses and permits for our hydroelectric or thermal generating facilities at cost-effective levels. |
Our expectations, beliefs and projections are expressed in good faith. We believe they are reasonable based on, without limitation, an examination of historical operating trends, our records and other information available from third parties. There
Available Information
We file annual, quarterly and current reports and proxy statements with the SEC. The SEC maintains a website address is www.avistacorp.com.that contains these documents at www.sec.gov. We make annual, quarterly and current reports and proxy statements available on our website, www.avistacorp.com, as soon as practicable after electronically filing these reportsdocuments with the U.S. Securities and Exchange Commission (SEC). InformationSEC. Except for SEC filings or portions thereof that are specifically referred to in this report, the information contained on our websitethese websites is not part of this report.
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PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
Avista Corp., incorporated in the territory of Washington in 1889, is primarily an electric and natural gas utility with certain other business ventures. As of
As of
December 31,• | Avista Utilities – an operating division of Avista Corp., comprising the regulated utility operations in Washington, Idaho, Oregon and Montana. Avista Utilities provides electric distribution and transmission, and natural gas distribution services in parts of eastern Washington and northern Idaho. Avista Utilities also provides natural gas distribution service in parts of northeastern and southwestern Oregon. Avista Utilities has electric generating facilities in Washington, Idaho, Oregon and Montana. Avista Utilities also supplies electricity to a small number of customers in Montana, most of whom are employees who operate Avista Utilities' Noxon Rapids generating facility. Avista Utilities also engages in wholesale purchases and sales of electricity and natural gas as an integral part of energy resource management and its load-serving obligation. |
• | AEL&P – a regulated utility providing electric services in Juneau, Alaska that is a wholly-owned subsidiary and the primary operating subsidiary of AERC. |
We have other businesses, including sheet metal fabrication, venture fund investments, real estate investments, as well as certain other investments ofmade by Avista Capital, which is a direct, wholly owned subsidiary of Avista Corp. These activities do not represent a reportable business segment and are conducted by various direct and indirect subsidiaries of Avista Corp.
Total Avista Corp. shareholders’ equity was $1,729.8 million$2.0 billion as of December 31, 2017, of2020, which $52.6includes a $100.8 million represented our investment in Avista Capital and $108.6a $106.6 million represented our investment in AERC.
See “Item 6. Selected Financial Data” and “Note 2124 of the Notes to Consolidated Financial Statements” for information with respect to the operating performance of each business segment (and other subsidiaries).
Human Capital
Our approach to people is a critical strategy and the priorities for this strategy include, among other things:
• | developing, retaining and attracting a diverse and skilled workforce; |
• | providing opportunities for continuous learning, development, career growth, and movement within the Company; |
• | supporting and rewarding our employees through competitive pay and benefits; |
• | encouraging and supporting a community-minded Company culture; |
• | investing in the physical, emotional, and financial health and safety of our employees. |
The following is an overview of some of our key human capital initiatives intended to ensure the overall well-being of our employees and other stakeholders.
People Development, Retention and Attraction
We strive to hire and retain talented people who are innovative and skilled so that we can continue to provide safe, reliable and affordable service to our customers and advance our Company at the same time. We have continuous learning programs and development opportunities, including periodic job rotations, that are designed to prepare our employees for critical roles and leadership positions for the future. These programs encompass such topics as leadership development, diversity, equity and
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inclusion, communication skills, cross-functional learning and local community involvement. We also offer tuition assistance programs for continuing education.
Critical to retaining our people and being attractive to new employees is the employee experience, and we regularly conduct employee engagement surveys to gauge employee satisfaction and to understand the effectiveness of our systems and culture. We use the information from the surveys to improve our ability to develop, retain and attract talented employees. We reward our employees by providing market competitive compensation and benefits, including health benefits, incentives and recognition plans that extend to all levels in our organization.
Diversity, Equity and Inclusion
We strive to create a workplace culture that values trust and respect and helps guide our overall commitment to doing what is right. With a strong workplace culture as a foundation, we actively engage and listen to our employees, customers and communities in order to help measure and inform our diversity, equity and inclusion and racial and social justice practices. Our diversity, equity and inclusion initiatives are focused on employee recruitment, employee training and development, and employee engagement, including participation in employee resource groups. Employee resource groups are voluntary, employee led groups that foster a diverse and inclusive workplace aligned with our organizational mission, values and goals and business practices.
Avista Utilities employee profile as of December 31, 2020:
|
| Women |
|
| Under Represented Groups (a) |
|
Bargaining Unit |
| 3% |
|
| 5% |
|
Non-bargaining Unit |
| 45% |
|
| 9% |
|
Executives (b) |
| 16% |
|
| 8% |
|
Overall |
| 29% |
|
| 8% |
|
(a) | As defined by our Affirmative Action Plan and through employee self-identification. |
(b) | Executive is defined as vice president or higher. |
Bargaining Unit employees comprise 37 percent of Avista Utilities’ employees.
Workplace Safety
Safety is an essential part of our mission. We have a variety of programs and initiatives in place that are intended to help employees complete their work with minimal accidents, injuries or incidents through heightened vigilance, hazard recognition, defensive strategies, continuous learning, human process improvement, lessons learned, and other tools intended to ensure resilience in varying and unpredictable conditions. We work with our employees to build personal responsibility regarding safety and health, and to implement measures to create and maintain a safe work environment.
Throughout the COVID-19 pandemic, the Company has focused, and continues to focus, on the well-being and safety of its employees, customers and communities. Among other things, the Company developed a pandemic response plan, through which it facilitated more than 1,200 of its employees to work remotely in order to protect employees and limit the spread of the virus, while still delivering electric and natural gas service to customers. Essential employees, necessary to work on site maintaining electricity and natural gas for our customers, are continuing to work under guidelines for social distancing, face-coverings and staggered shifts. The Company also created contact-tracing, testing and vaccination efforts, giving employees quick access to necessary resources and information as soon as they are available in order to stay safe.
Additional Information
Additional information highlighting Avista’s commitments to corporate responsibility and ethical governance is available on the Company’s website at www.avistacorp.com. Material on the Company’s website is not part of this report.
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AVISTA UTILITIES
General
At the end of
Electric Operations
General
Avista Utilities generates, transmits and distributes electricity, serving electric customers in eastern Washington and northern Idaho and a small number of customers inAvista Utilities generates electricity from facilities that we own and purchases capacity, energy and fuel for generation under long-term and short-term contracts to meet customer load obligations. We also sell electric capacity and energy, as well as surplus fuel in the wholesale market in connection with our resource optimization activities as described below.
As part of Avista Utilities' resource procurement and management operations in the electric business, we engage in an ongoing process of resource optimization, which involves the economic selection offrom available energy resources from those available to serve our load obligations and the captureuse of additionalthese resources to capture economic value through wholesale market transactions. These transactions include sales and purchases of electric capacity and energy, fuel for electric generation, and derivative instrumentscontracts related to capacity, energy, fuel and fuel transportation. Such transactions are part of the process of matching available resources with load obligations and hedging a portion of the related financial risks. In order to implement this process, we make continuing projections of:
• | electric loads at various points in time (ranging from intra-hour to multiple years) based on, among other things, estimates of customer usage and weather, historical data and contract terms, and |
• | resource availability at these points in time based on, among other things, fuel choices and fuel markets, estimates of streamflows, availability of generating units, historic and forward market information, contract terms and experience. |
On the basis of these projections, we make purchases and sales of electric capacity and energy, fuel for electric generation, and related derivative instrumentscontracts to match expected resources to expected electric load requirements and reduce our exposure to electricity (or fuel) market price changes. The process of resource optimization involves scheduling and dispatching available resources as well as the following:
• | purchasing fuel for generation, |
• | when economical, selling fuel and substituting wholesale electric purchases, and |
• | other wholesale transactions to capture the value of generating resources, transmission contract rights and fuel delivery (transport) capacity contracts. |
This optimization process includes entering into hedging transactions to manage risks. Transactions include both physical energy contracts and related derivative instruments, and the terms range from intra-hour up to multiple years.
Avista Utilities' generation assets are interconnected through the regional transmission system and are operated on a coordinated basis to enhance load-serving capability and reliability. We acquire both long-term and short-term transmission capacity to facilitate all of our energy and capacity transactions. We provide transmission and ancillary services in eastern Washington, northern Idaho and western Montana.
Electric Requirements
Avista Utilities' peak electric native load requirement for
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Electric Resources
Avista Utilities has a diverse electric resource mix of Company-owned and contracted hydroelectric, thermal and wind generation facilities, and other contracts for power purchases and exchanges.
Hydroelectric Resources
Avista Utilities owns and operates Noxon Rapids and Cabinet Gorge on the Clark Fork River and six smaller hydroelectric projects on the SpokaneThe following graph shows Avista Utilities' hydroelectric generation (in thousands of MWhs) during the year ended December 31:
(1) | |
"Normal" hydroelectric generation is determined by reference to the effect of upstream dam regulation on median natural water flow. Natural water flow is the flow of the rivers without the influence of dams, whereas regulated water flow takes into account any water flow changes from upstream dams due to releasing or holding back water. The calculation of |
Thermal Resources Avista Utilities owns the following thermal generating resources:
• | the combined cycle natural gas-fired CT, known as Coyote Springs 2, located near Boardman, Oregon, |
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• | a 15 percent interest in Units 3 & 4 of Colstrip, a coal-fired boiler generating facility located in southeastern Montana, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Colstrip” for discussion on Colstrip, |
• | a wood waste-fired boiler generating facility known as the Kettle Falls GS in northeastern Washington, |
• | a two-unit natural gas-fired CT generating facility, located in northeastern Spokane (Northeast CT), |
• | a two-unit natural gas-fired CT generating facility in northern Idaho (Rathdrum CT), and |
• | two small natural gas-fired generating facilities (Boulder Park GS and Kettle Falls CT). |
Coyote Springs 2, which is operated by Portland General Electric Company, is supplied with natural gas under a combination of term contracts and spot market purchases, including transportation agreements with bilateral renewal rights.
Colstrip, which is operated by Talen Montana, is supplied with fuel from adjacent coal reserves under coal supply and transportation agreements in effectagreements. Several of the co-owners of Colstrip, including us, have negotiated an extension to the coal contract that runs through 2029. In addition, seeDecember 31, 2025. See “Item 7. Management's Discussion and Analysis Environmental Issues and Contingencies"– Colstrip " for further discussion regarding environmental and other issues surrounding Colstrip.
The primary fuel for the Kettle Falls GS is wood waste generated as a by-product and delivered by trucks from forest industry operations within 100 miles of the plant. A combination of long-term contracts and spot purchases has provided, and is expected to meet, fuel requirements for the Kettle Falls GS.
The Northeast CT, Rathdrum CT, Boulder Park GS and Kettle Falls CT generating units are primarily used to meet peaking electric requirements. We also operate these facilities when marginal costs are below prevailing wholesale electric prices. These generating facilities have access to natural gas supplies that are adequate to meet their respective operating needs.
See "Item 2. Properties - Avista Utilities - Generation Properties" for the nameplate rating and present generating capabilities of the above thermal resources.
We have the exclusive rights to all the capacity of the Lancaster Plant, a 270 MW natural gas-fired combined cycle combustion turbine plant located in northern Idaho, owned by an unrelated third-party. All of the output from the Lancaster Plant is contracted to us through 2026 under a PPA. Under the terms of the PPA, we make the dispatch decisions, provide all natural gas fuel and receive all of the electric energy output from the Lancaster Plant; therefore, we consider this plant in our baseload resources. See "Note 36 of the Notes to Consolidated Financial Statements" for further discussion of this PPA.
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The following graph shows Avista Utilities' thermal generation (in thousands of MWhs) during the year ended December 31:
Wind Resources
We have exclusive rights to all the capacity of Palouse Wind, a wind generation project developed, owned and managed by an unrelated third-party and located in Whitman County, Washington.We have exclusive rights to all of the capacity of Rattlesnake Flat Wind project developed, owned and managed by an unrelated third party and located in Adams County, Washington. The facility has a nameplate capacity of 144 MW and is expected to generate approximately 50 aMW annually. The PPA is a 20-year agreement that began in December 2020 and requires us to acquire all of the power and renewable attributes produced by the project at a fixed price per MWh with a fixed escalation of the price over the term of the agreement. Under the terms of the PPA, we do not have any input into the day-to-day operation of the project, including maintenance decisions. All such rights are held by the owner.
Solar ResourcesWe have exclusive rights to all the capacity of the Lind Solar Farm, a solar generation project developed, owned and managed by an unrelated third-party and located in Lind, Washington. The PPA expires in 2038 and requires us to acquire all the power and renewable attributes produced by the project at a fixed price per MWh. The project has a nameplate capacity of 28 MW. The facility generated 45,281 MWhs in 2020, 42,346 MWhs in 2019, and 584 MWhs in 2018. Under the terms of the PPA, we do not have any input into the day-to-day operation of the project, including maintenance decisions. All such rights are held by the owner. In addition to the Lind Solar Farm, we also own a community solar project located in Spokane Valley, Washington with a nameplate capacity of 0.4 MW. The community solar project generated 534 MWhs in 2020, 561 MWhs in 2019, and 538 MWhs in 2018.
Other Purchases, Exchanges and Sales
In addition to the resources described above, we purchase and sell power under various long-term contracts, and we also enter into short-term purchases and sales. Further, pursuant to10
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among other resources, hydroelectric projects, cogeneration projects and wind generation projects at rates approved by the WUTC and the IPUC.
See “Avista Utilities Electric Operating Statistics – Electric Operations” below for annual quantities of purchased power, wholesale power sales and power from exchanges in
Avista Corp. understands that there are many coal-fired electric generating stations throughout the western United States that are scheduled for retirement in the next several years. Depending upon a variety of factors, these retirements could have an impact upon the availability and price of purchased power in, and the dynamics of, the market in which we conduct our wholesale purchases and sales. At the same time, the retirement of Colstrip Units 3 & 4, if it were effected, could increase the volume of energy that we are required to purchase in this marketplace. However, after December 31, 2025, we will be effectively prohibited by Clean Energy Transformation Act (CETA) from using energy produced by coal-fired plants to serve our retail customers in Washington, and, to the extent necessary for that purpose, we will have to obtain energy produced by other resources. See “Item 7. Management's Discussion and Analysis – Environmental Matters and Contingencies – Climate Change – Washington Legislation and Regulatory Actions – Clean Energy Transformation Act” and “Colstrip."
Hydroelectric Licenses
Avista Corp. is a licensee under the Federal Power Act (FPA) as administered by the FERC, which includes regulation of hydroelectric generation resources. Excluding the Little Falls Hydroelectric Generating Project (Little Falls), our other seven hydroelectric plants are regulated by the FERC through two project licenses. The licensed projects are subject to the provisions of Part I of the FPA. These provisions include payment for headwater benefits, condemnation of licensed projects upon payment of just compensation, and take-over by the federal government of such projects after the expiration of the license upon payment of the lesser of “net investment” or “fair value” of the project, in either case, plus severance damages. In the unlikely event that a take-over occurs, it could lead to either the decommissioning of the hydroelectric project or offering the project to another party (likely through sale and transfer of the license).
Cabinet Gorge and Noxon Rapids are under one 45-year FERC license issued in 2001. See “Cabinet Gorge Total Dissolved Gas Abatement Plan” in “Note 19 of the Notes to Consolidated Financial Statements”“Item 7. Management's Discussion and Analysis – Environmental Issues and Contingencies" for discussion of dissolved atmospheric gas levels that exceed the state of Idaho and federal numeric water quality standards downstream of Cabinet Gorge during periods when we must divert excess river flows over the spillway, as well as our mitigation plans and efforts.
Five of our six hydroelectric projects on the Spokane River (Long Lake, Nine Mile, Upper Falls, Monroe Street and Post Falls) are under one 50-year FERC license issued in 2009 and are referred to collectively as the Spokane River Project. The sixth, Little Falls, is operated under separate Congressional authority and is not licensed by the FERC.
Future Resource Needs
Avista Utilities has operational strategies to provide sufficient resources to meet our energy requirements under a range of operating conditions. These operational strategies consider the amount of energy needed, which varies widely because of the factors that influence demand over intra-hour, hourly, daily, monthly and annual durations. Our average hourly load was
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The following graph shows our forecast of our average annual energy requirements and our available resources for
(1) | |
The contracts for power sales decrease due to certain contracts expiring in each of these years. We are evaluating the future plan for the additional resources made available due to the expiration of these contracts. |
(2) | The combined maximum capacity of Boulder Park GS, Kettle Falls CT, Northeast CT and Rathdrum CT is 278 MW, with estimated available energy production as indicated for each year. |
(3) | Other contracts for power purchases includes power purchase agreements for solar and wind energy. |
(4) | The forecast assumes near normal hydroelectric generation. |
(5) | |
Includes the Lancaster Plant PPA. Excludes Boulder Park GS, Kettle Falls CT, Northeast CT and Rathdrum CT, as these are considered peaking facilities and are generally not used to meet our base load requirements. |
We are required to file an IRP with the WUTC and the IPUC.IPUC every two years. The WUTC and IPUC review the IRPsIRP and give the public the opportunity to comment. The WUTC and IPUC do not approve or disapprove of the content in the IRPs;IRP; rather, they acknowledge that the IRPs wereIRP was prepared in accordance with applicable standards if that is the case. The IRP details projected growth in demand for energy and the new resources needed to serve customers over the next 20 years. We regard the IRP as a tool for resource evaluation, rather than an acquisition plan for a particular project.
We filed petitions with the WUTC and IPUC in January 2019 to extend the current electric IRP from August 31, 2019 to February 28, 2020 because of the uncertainty created by new clean energy laws in Washington. The WUTC and IPUC approved our petitions. Subsequent to these approvals, the WUTC issued an order extending the deadline to file the IRP until April 2021. We filed an IRP in Idaho in February 2020. Our resource strategy includes additional clean energy resources and potential for existing resource retirements. This plan, embodied in the 2020 IRP, is subject to change in the 2021 IRP to be filed in Washington due to rulemaking in Washington State to implement the CETA.
Highlights of the 20172020 IRP filed in Idaho include the following expectations and/or assumptions:
• | Models the clean energy requirements of CETA in Washington State. |
• | Optimizes a resource portfolio for 25 years instead of |
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• | Assumes Colstrip no longer included in the portfolio in 2025. |
• | The resource strategy reduces greenhouse gas emissions between 80-90 percent from present levels. |
• | A combination of new wind, storage, and demand response will meet the capacity losses from coal and natural gas-fired generation by 2026. |
• | A larger portfolio of new resources than in previous IRPs to meet expected resource retirements and new renewable energy goals. |
• | As much as 300 MW of new renewable generation by 2023 and a further 200 MW by 2027. |
• | Includes cost of upstream greenhouse gas emissions from the natural gas-fired projects at the social cost of carbon for Washington share of resources. |
• | Modeled wind, solar, pumped hydro storage, nuclear, and geothermal as purchase power agreements; whereas previous IRPs assumed these resources would be modeled as an owned resource. |
• | Modeled several energy storage options whereas the previous IRP modeled storage generically. |
We are subject to the Washington stateState Energy Independence Act, which requires us to obtain a portion of our electricity from qualifying renewable resources or through purchase of RECs and acquiring all cost effective conservation measures. Future generation resource decisions will be affected by legislation for restrictions on greenhouse gas emissions and renewable energy requirements.
See “Item 7. Management’s Discussion and Analysis of Financial Condition – Environmental Issues and Contingencies” and “Colstrip” for information related to existing and proposed laws and regulations, and issues relating to Colstrip.
Additional generating resources that we will require will either be owned by us or be owned by other parties who will sell the capacity and energy to us under PPAs. The decision as wellto ownership will be made as to each project at the appropriate time and will depend on, among other things, the type of project and the related economics, including tax and ratemaking treatment.
Request for Proposals for Renewable Energy
We sought proposals from renewable energy project developers who are capable of constructing, owning, and operating up to 120 aMWs whether through one or multiple proposals with a minimum net annual output of 20 aMW. We did not consider a self-build option for this facility or facilities.
Our intent is to secure the output from renewable generation resources, including electricity, capacity and associated environmental attributes. Our interest in acquiring new renewable energy resources is to offset market purchases and fossil-fuel thermal generation. This is consistent with our 2020 IRP which identifies that we will consider acquiring additional resources if such resources have lower long-term cost than electric market alternatives. Final bidders were selected for review in October 2020 and the Company is engaged in negotiating contracts with the successful bidders.
Wildfire Resiliency Plan
We are implementing additional measures to enhance our ability to mitigate the potential legislationfor, and impact of, wildfires within our service territories. Building on prevention and response strategies that could influence our have been in place for many years, we created a new comprehensive 10-year Wildfire Resiliency Plan that includes improved defense strategies and operating practices for a more resilient system.
We have developed the Wildfire Resiliency Plan through a series of internal workshops, industry research and engagement with state and local fire agencies. Improvements to infrastructure and operational practices were identified as key components to the plan. These key components are categorized into the following categories: grid hardening, vegetation management, situational awareness, operations and emergency response, and worker and public safety.
We expect to spend approximately $330 million implementing the plan components over the life of the 10-year plan. We filed deferred accounting requests in Washington and Idaho to defer the cost of the wildfire resiliency plan and seek recovery in
13
AVISTA CORPORATION
future electric resource mix.
See “Note 22 of the Notes to Consolidated Financial Statements” for further discussion on wildfires.
Natural Gas Operations
General
Avista Utilities provides natural gas distribution services to retail customers in parts of eastern Washington, northern Idaho, and northeastern and southwestern Oregon.Market prices for natural gas, like other commodities, can be volatile. Our natural gas procurement strategy is to provide a reliable supply to our customers with some level of price certainty. We procure natural gas from various supply basins and over varying time periods. The resulting portfolio is a diversified mix of forward fixed price purchases, index and spot market purchases, and utilizing physical and financial derivative instruments. We also use natural gas storage to support high demand periods and to procure natural gas when prices may be lower. Securing prices throughout the year and even into subsequent years provides a level of price certainty and can mitigate price volatility to customers between years.
Weather is a key component of our natural gas customer load. This load is highly variable and daily natural gas loads can differ significantly from the monthly forecasted load projections. We make continuing projections of our natural gas loads and assess available natural gas resources. On the basis of these projections, we plan and execute a series of transactions to hedge a portion of our customers' projected natural gas requirements through forward market transactions and derivative instruments. These transactions may extend for multiple years into the future. We also leave a portion of our natural gas supply requirements unhedged for purchase in the short-term spot markets.
Our purchase of natural gas supply is governed by our procurement plan and is reviewed and approved annually by the Risk Management Committee (RMC), which is comprised of certain officers and other management personnel. Once approval is received, the plan is implemented and monitored by our gas supply and risk management groups.
The plan’s progress is also presented to the WUTC and IPUC staff in semi-annual meetings, and updates are given to the OPUC staff quarterly. Other stakeholders, such as the Public Counsel Unit of the Office of the Attorney General or the Citizen Utility Board, are invited to participate. The RMC is provided with an update on plan results and changes in their monthly meetings. These activities provide transparency for the natural gas supply procurement plan. Any material changes to the plan are documented and communicated to RMC members.
As part of the process of balancing natural gas retail load requirements with resources, we engage in the wholesale purchase and sale of natural gas. We plan for sufficient natural gas delivery capacity to serve our retail customers for a theoretical peak day event. As such, weWe generally have more pipeline and storage capacity than what is needed during periods other than a peak day. We optimize our natural gas resources by using market opportunities to generate economic value that helps mitigate fixed costs. Wholesale sales are delivered through wholesale market facilities outside of our natural gas distribution system. Natural gas resource optimization activities include, but are not limited to:
• | wholesale market sales of surplus natural gas supplies, |
• | purchases and sales of natural gas to optimize use of pipeline and storage capacity, and |
• | participation in the transportation capacity release market. |
We also provide distribution transportation service to qualified, large commercial and industrial natural gas customers who purchase natural gas through third-party marketers. For these customers, we receive their purchased natural gas from such third-party marketers into our distribution system and deliver it to the customers’ premise.
Optimization transactions that we engage in throughout the year are included in our annual purchased gas cost adjustment filings with the various commissions and are subject to review for prudence during this process.
Natural Gas Supply
Avista Utilities purchases all of its natural gas in wholesale markets. We are connected to multiple supply basins in the western United States and Canada through firm capacity transportation rights on six different pipeline networks.14
AVISTA CORPORATION
Access to this diverse portfolio of natural gas resources allows us to make natural gas procurement decisions that benefit our natural gas customers. These interstate pipeline transportation rights provide the capacity to serve approximately 25 percent of peak natural gas customer demands from domestic sources and 75 percent from Canadian sourced supply. Natural gas prices in the Pacific Northwest are affected by global energy markets, as well as supply and demand factors in other regions of the United States and Canada. Future prices and delivery constraints may cause our resource mix to vary.
Natural Gas Storage
Avista Utilities owns a one-third interest in Jackson Prairie, an underground aquifer natural gas storage field located near Chehalis, Washington. Jackson Prairie has a total peak day deliverability of 12 million therms, with a total working natural gas capacity of 256 million therms. As an owner, our share is one-third of the peak day deliverability and total working capacity. We also contract for additional storage capacity and delivery at Jackson Prairie from Northwest Pipeline for a portion of their one-third share of the storage project.We optimize our natural gas storage capacity throughout the year by executing transactions that capture favorable market price spreads. Natural gas buyers identify opportunities to purchase lower cost natural gas in the immediate term to inject into storage, and then sell the gas in a forward market to be withdrawn at a later time. The reverse of this type of transaction also occurs. These transactions lock in incremental value for customers. Jackson Prairie is also used as a variable peaking resource, and to protect from extreme daily price volatility during cold weather or other events affecting the market.
Future Resource Needs
In AugustHighlights of the 20162018 natural gas IRP include the following expectations and/or assumptions:
• | We will need no additional natural gas transportation resources during the 20-year planning horizon in Washington, Idaho, or Oregon. |
• | Due to expected carbon legislation at the state levels through a cap and trade mechanism (Oregon) or a fee mechanism (Washington), we expect our retail natural gas rates to include a carbon price adder in Oregon and Washington, but not in Idaho. |
• | North American supplies of natural gas will continue to be abundant led by shale gas development. |
• | Customer growth in our service territory will increase slightly compared to the 2016 IRP. There will be increasing interest from customers to utilize natural gas for heating due to its abundant supply and consequent low cost. |
• | We anticipate that any increased demand for natural gas regionally will primarily come from power generation as natural gas is increasingly being used to back up solar and wind technology, and also to replace retired coal plants. There is also potential for increased usage in other markets, such as LNG exports or exports to Mexico. |
• | Slightly higher customer growth will continue to be offset by lower use per customer and an increased amount of demand side management (DSM). The combination of low-priced natural gas in addition to carbon fees or other programs has led to a higher potential for DSM measures as compared to the previous three IRPs. |
• | The availability of natural gas in North America will continue to change global LNG dynamics. Existing and new LNG facilities will look to export low cost North American natural gas to the higher-priced foreign markets. This could alter the price of natural gas and/or transportation in U.S. markets, constrain existing pipeline networks, stimulate development of new pipeline resources and change flows of natural gas across North America. |
We will have sufficient natural gas transportation resources well into the future withmonitor these assumptions on an on-going basis and adjust our resource needs not occurring during the 20-year planning horizon in Washington, Idaho, or Oregon.
We are required to file a natural gas IRP every two years with theand we anticipate our next IRP expected to be filed duringin 2021. We filed petitions with the third quarterWUTC, IPUC and the OPUC in January 2020 to extend the current natural gas IRP from August 31, 2020 to April 1, 2021 because of 2018. Our resource strategythe uncertainty created by new clean energy laws in Washington and Oregon. Each commission has approved the request. The most notable change in the 2021 IRP compared to the 2018 IRP is that we expect customer growth to decrease slightly from our 2018 IRP may change from the 2016 IRP based on market, legislative and regulatory developments.
15
AVISTA CORPORATION
Utility Regulation
General
As a public utility, Avista Corp. is subject to regulation by state utility commissions forSince Avista Corp. is a “holding company” (in addition to being itself an operating utility), we are also subject to the jurisdiction of the FERC under the Public Utility Holding Company Act of 2005, which imposes certain reporting and other requirements.record-keeping requirements on Avista Corp. and its subsidiaries. We and all of our subsidiaries (whether or not engaged in any energy related business), are required to maintainmake books accounts and other records in accordance with the FERC regulations and to make them available to the FERC and the state utility commissions. In addition, upon the request of any jurisdictional state utility commission, the FERC would have the authority to review assignment of costs of non-power goods and administrative services among us and our subsidiaries. The FERC has the authority generally to require that rates subject to its jurisdiction be just and reasonable and in this context would continue to be able to, among other things, review transactions of any affiliated company.
Our rates for retail electric and natural gas services (other than specially negotiated retail rates for industrial or large commercial customers, which are subject to regulatory review and approval) are generally determined on a “cost of service” basis.
Retail rates are designed to provide an opportunity for us to recover allowable operating expenses and earn a return of and a reasonable return on “rate base.” Rate base is generally determined by reference to the original cost (net of accumulated depreciation) of utility plant in service, subject to various adjustments for deferred income taxes and other items. Over time, rate base is increased by additions to utility plant in service and reduced by depreciation and retirement of utility plant and write-offs as authorized by the utility commissions. Our operating expenses and rate base are allocated or directly assigned to five regulatory jurisdictions: electric in Washington and Idaho, and natural gas in Washington, Idaho and Oregon. In general, requests for new retail rates are made on the basis of revenues, operating expenses and net investment for a test year that ended prior to the date of the request, subject to possible adjustments, which differ among the various jurisdictions, designed to reflect the expected revenues, operating expenses and net investment during the period new retail rates will be in effect. The retail rates approved by the state commissions in a rate proceeding may not provide sufficient revenues to provide recovery of costs and a reasonable return on investment for a number of reasons, including, but not limited to, ongoing capital expenditures and unexpected changes in revenues expenses and investmentexpenses following the time new retail rates are requested in the rate proceeding (known as “regulatory lag”), the denial by the commission of recovery, or timely recovery, of certain expenses or investment and the limitation by the commission of the authorized return on investment.
Our rates for wholesale electric sales and electric transmission services, as well as certain natural gas transmissiontransportation services, are based on either “cost of service” principles or market-based rates as set forth by the FERC. See “Notes 1, 12 and 2023 of the Notes to Consolidated Financial Statements” for additional information about regulation, depreciation and deferred income taxes.
General Rate Cases
Avista Utilities regularly reviews the need for electric and natural gas rate changes in each state in which we provide service. See “Item 7. Management’s Discussion and Analysis – Regulatory Matters – General Rate Cases” for information on general rate case activity.Power Cost Deferrals
Avista Utilities defers the recognition in the income statement of certain power supply costs that vary from the level currently recovered from our retail customers as authorized by the WUTC and the IPUC. See “Item 7. Management’s Discussion and Analysis – Regulatory Matters – Power Cost Deferrals and Recovery Mechanisms” and “NotePurchased Gas AdjustmentAdjustments (PGA)
16
AVISTA CORPORATION
– Purchased Gas Adjustments” and “Note 2023 of the Notes to Consolidated Financial Statements” for information on natural gas cost deferrals and recovery mechanisms in Washington, Idaho and Oregon.
Decoupling and Earnings Sharing Mechanisms
Federal Laws Related to Wholesale Competition
Federal law promotes practices that foster competition in the electric wholesale energy market. The FERC requires electric utilities to transmit power and energy to or for wholesale purchasers and sellers, and requires electric utilities to enhance or construct transmission facilities to create additional transmission capacity for the purpose of providing these services. Public utilities (through subsidiaries or affiliates) and other entities may participate in the development of independent electric generating plants for sales to wholesale customers.
Public utilities operating under the FPA are required to provide open and non-discriminatory access to their transmission systems to third parties and establish an Open Access Same-Time Information System to provide an electronic means by which transmission customers can obtain information about available transmission capacity and purchase transmission access. The FERC also requires each public utility subject to the rules to operate its transmission and wholesale power merchant operating functions separately and to comply with standards of conduct designed to ensure that all wholesale users, including the public utility’s power merchant operations, have equal access to the public utility’s transmission system. Our compliance with these standards has not had any substantive impact on the operation, maintenance and marketing of our transmission system or our ability to provide service to customers.
See “Item 7. Management’s Discussion and Analysis – Competition” for further information.
Regional Transmission Planning
Beginning with FERC Order No. 888 and continuing with subsequent rulemakings and policies, the FERC has encouraged better coordination and operational consistency aimed to capture efficiencies that might otherwise be gained through the formation of a Regional Transmission Organization or an independent system operator (ISO).
The Company currently meets its FERC requirements to coordinate transmission planning activities with other regional entities through ColumbiaGrid. ColumbiaGridNorthernGrid. Launched January 1, 2020, NorthernGrid is a Washington nonprofit membership corporation with an independent board formed to improve the operational efficiency, reliability, and planned expansionassociation of theall major transmission grid inproviders throughout the Pacific Northwest. We became a member of ColumbiaGridNorthwest and Intermountain West, with facilities in 2006 duringCalifornia, Idaho, Montana, Oregon, Utah, Washington and Wyoming. Through its formation. ColumbiaGridparticipation in NorthernGrid, the Company is not an ISO, but fills the role of facilitatingable to meet the regional transmission planning requirements of FERC Order No.Nos. 890 and 1000, and other clarifying FERC Orders, for its members. ColumbiaGridtheir follow-on orders. NorthernGrid and its members also work with other western organizations, to address transmission planning, including WestConnect and the Northern Tier Transmission Group (NTTG). In 2011, we became a registered Planning Participant of the NTTG. We will continue to assess the benefits of entering into other functional agreements with ColumbiaGrid and/or participating in other forums to attain operational efficiencies and to meet FERC policy objectives.
Regional Energy Markets
The CAISO operates the Western Energy Imbalance Market (EIM) in the western United States. Most investor-owned utilities in the Pacific Northwest are either participants in the CAISOWestern EIM or plan to integrate into the market in the near future. The Company has announced its decision to participate in the Western EIM and is slated to commence EIM operations by April 2022. The decision to join the CAISOWestern EIM is based on a number of factors, including the amount of expected variable generating resources the Company will need to integrate within its balancing authority area in the utilities’ systems, the ability to manage the variable generating resources within the utilities’ systems, the costs associated with joining the CAISO EIM,foreseeable future, and the economicexpected costs and benefits associated with joining the CAISOWestern EIM. We have conducted analyses with respectThe EIM, among other things, facilitates regional load balancing by allowing certain generating plants to joiningreceive automated dispatch signals from the CAISO EIM, and we currently do not believe there is a compelling case to do so. As additional utilities join the CAISO EIM, there could be a reduction in bilateral market liquidity and opportunities for wholesale transactions in the Pacific Northwest. We will continue to monitor the CAISO EIM expansion and the associated impacts. As market fundamentals and our business needs evolve, we will weigh the advantages and disadvantages of joining the CAISO EIM or other organized energy markets in the future.
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AVISTA CORPORATION
Reliability Standards
Among its other provisions, the U.S. Energy Policy Act provides for the implementation of mandatory reliability standards and authorizes the FERC to assess penalties for non-compliance with these standards and other FERC regulations.
The FERC has certified the NERC as the single Electric Reliability Organization authorized to establish and enforce reliability standards and delegate authority to regional entities for the purpose of establishing and enforcing reliability standards.standards, including but not limited to cybersecurity measures. The FERC approves NERC Reliability Standards, including western region standards that make up the set of legally enforceable standards for the United States bulk electric system. The first of these reliability standards became effective in 2007. From time to time new standards are developed or existing standards are updated, revised, consolidated or eliminated pursuant to an industry-involved process. We are required to self-certify our compliance with these standards on an annual basis and undergo regularly scheduled periodic reviews by the NERC and its regional entity, the Western Electricity Coordinating Council (WECC). Failure to comply with NERC reliability standards could result in substantial financial penalties of up to $1 million per day per violation.penalties. We have a robust internal compliance program in place to manage compliance activities and mitigate the risk of potential noncompliance with these standards. We do not expect the costs associated with compliance with these standards to have a material impact on our financial results.
As both a balancing authority and transmission operator, the Company must operate under the oversight of a reliability coordinator per NERC reliability standards. RC West is the reliability coordinator of record for 41 balancing authorities and transmission operators in the Western Interconnection, that performs reliability coordinator functions for its funding parties, including Avista Corp. The CAISO,RC West oversees grid compliance with federal and regional grid standards, and can determine measures to prevent or mitigate system emergencies in day-ahead or real-time operations.
Executive Order re Securing the United States Bulk Power System
In May 2020, then-President Donald Trump signed an Executive Order titled “Securing the United States Bulk-Power System,” which ispurports to limit the acquisition, importation, transfer or installation of bulk power system equipment sourced from foreign adversaries. On January 20, 2021, newly-elected President Joe Biden suspended the Executive Order for 90 days and directed the Secretary of Energy and the Director of the Office of Management and Budget to recommend whether a significant Peak Reliability funding party recently submitted its noticereplacement order should be issued. Pending the outcome of withdrawal from Peak Reliability, effective on September 2, 2019.that review, as well as future rulemaking that may occur in relation to the same, we cannot predict the potential impacts of the order. We are evaluatingwill seek recovery of any associated costs through the impact of CAISO’s
Vulnerability to Cyber Attack
The energy sector, particularly electric and natural gas utility companies in the United States and abroad, have become the subject of cyber-attackscyberattacks and ransomware attacks with increased frequency. The Company’s administrative and operating networks are targeted by hackers on a regular basis.
A successful attack on the Company’s administrative networks could compromise the security and privacy of data, including operating, financial and personal information. A successful attack on the Company’s operating networks could impair the operation of the Company’s electric and/or natural gas utility facilities, possibly resulting in the inability to provide electric and/or natural gas service for extended periods of time.
The Company continually reinforces and updates its defensive systems and is in compliance with NERC’s reliability standards. See “Reliability Standards," "Item 1A. Risk Factors – Cyber and Technology Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Enterprise Risk Management – Cyber and Technology Risks” for further information.
18
AVISTA CORPORATION
AVISTA UTILITIES ELECTRIC OPERATING STATISTICS
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
ELECTRIC OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING REVENUES (Dollars in Thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
| $ | 377,785 |
|
| $ | 369,102 |
|
| $ | 368,753 |
|
Commercial |
|
| 303,972 |
|
|
| 317,589 |
|
|
| 314,532 |
|
Industrial |
|
| 103,103 |
|
|
| 105,802 |
|
|
| 109,846 |
|
Public street and highway lighting |
|
| 7,303 |
|
|
| 7,448 |
|
|
| 7,539 |
|
Total retail |
|
| 792,163 |
|
|
| 799,941 |
|
|
| 800,670 |
|
Wholesale |
|
| 77,277 |
|
|
| 73,232 |
|
|
| 84,956 |
|
Sales of fuel |
|
| 28,773 |
|
|
| 48,040 |
|
|
| 62,219 |
|
Other |
|
| 30,149 |
|
|
| 28,995 |
|
|
| 29,301 |
|
Alternative revenue programs |
|
| (4,361 | ) |
|
| 8,699 |
|
|
| 4,870 |
|
Deferrals and amortizations for rate refunds to customers |
|
| 3,539 |
|
|
| 3,141 |
|
|
| (11,477 | ) |
Total electric operating revenues |
| $ | 927,540 |
|
| $ | 962,048 |
|
| $ | 970,539 |
|
ENERGY SALES (Thousands of MWhs): |
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
| 3,807 |
|
|
| 3,766 |
|
|
| 3,627 |
|
Commercial |
|
| 2,995 |
|
|
| 3,170 |
|
|
| 3,156 |
|
Industrial |
|
| 1,615 |
|
|
| 1,691 |
|
|
| 1,772 |
|
Public street and highway lighting |
|
| 18 |
|
|
| 18 |
|
|
| 18 |
|
Total retail |
|
| 8,435 |
|
|
| 8,645 |
|
|
| 8,573 |
|
Wholesale |
|
| 2,680 |
|
|
| 2,787 |
|
|
| 3,632 |
|
Total electric energy sales |
|
| 11,115 |
|
|
| 11,432 |
|
|
| 12,205 |
|
ENERGY RESOURCES (Thousands of MWhs): |
|
|
|
|
|
|
|
|
|
|
|
|
Hydro generation (from Company facilities) |
|
| 3,651 |
|
|
| 3,520 |
|
|
| 4,029 |
|
Thermal generation (from Company facilities) |
|
| 3,474 |
|
|
| 4,054 |
|
|
| 3,424 |
|
Purchased power |
|
| 4,922 |
|
|
| 4,833 |
|
|
| 5,349 |
|
Power exchanges |
|
| (446 | ) |
|
| (504 | ) |
|
| (109 | ) |
Total power resources |
|
| 11,601 |
|
|
| 11,903 |
|
|
| 12,693 |
|
Energy losses and Company use |
|
| (486 | ) |
|
| (471 | ) |
|
| (488 | ) |
Total energy resources (net of losses) |
|
| 11,115 |
|
|
| 11,432 |
|
|
| 12,205 |
|
NUMBER OF RETAIL CUSTOMERS (Average for Period): |
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
| 350,669 |
|
|
| 345,064 |
|
|
| 340,308 |
|
Commercial |
|
| 43,497 |
|
|
| 42,930 |
|
|
| 42,618 |
|
Industrial |
|
| 1,277 |
|
|
| 1,305 |
|
|
| 1,318 |
|
Public street and highway lighting |
|
| 639 |
|
|
| 612 |
|
|
| 594 |
|
Total electric retail customers |
|
| 396,082 |
|
|
| 389,911 |
|
|
| 384,838 |
|
RESIDENTIAL SERVICE AVERAGES: |
|
|
|
|
|
|
|
|
|
|
|
|
Annual use per customer (KWh) |
|
| 10,857 |
|
|
| 10,914 |
|
|
| 10,658 |
|
Revenue per KWh (in cents) |
|
| 9.92 |
|
|
| 9.80 |
|
|
| 10.17 |
|
Annual revenue per customer |
| $ | 1,077.33 |
|
| $ | 1,069.66 |
|
| $ | 1,083.58 |
|
AVERAGE HOURLY LOAD (aMW) |
|
| 1,064 |
|
|
| 1,081 |
|
|
| 1,034 |
|
| Years Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| ELECTRIC OPERATIONS | |||||||||||
| OPERATING REVENUES (Dollars in Thousands): | |||||||||||
| Residential | $ | 381,682 | $ | 339,210 | $ | 335,552 | |||||
| Commercial | 311,593 | 305,613 | 308,210 | ||||||||
| Industrial | 110,982 | 107,296 | 111,770 | ||||||||
| Public street and highway lighting | 7,484 | 7,662 | 7,277 | ||||||||
| Total retail | 811,741 | 759,781 | 762,809 | ||||||||
| Wholesale | 81,512 | 112,071 | 127,253 | ||||||||
| Sales of fuel | 64,925 | 78,334 | 82,853 | ||||||||
| Other | 31,614 | 28,492 | 25,839 | ||||||||
| Decoupling | (8,220 | ) | 17,349 | 4,740 | |||||||
| Provision for earnings sharing | (1,182 | ) | 932 | (5,621 | ) | ||||||
| Total electric operating revenues | $ | 980,390 | $ | 996,959 | $ | 997,873 | |||||
| ENERGY SALES (Thousands of MWhs): | |||||||||||
| Residential | 3,840 | 3,528 | 3,571 | ||||||||
| Commercial | 3,222 | 3,183 | 3,197 | ||||||||
| Industrial | 1,815 | 1,763 | 1,812 | ||||||||
| Public street and highway lighting | 20 | 23 | 23 | ||||||||
| Total retail | 8,897 | 8,497 | 8,603 | ||||||||
| Wholesale | 2,881 | 2,998 | 3,145 | ||||||||
| Total electric energy sales | 11,778 | 11,495 | 11,748 | ||||||||
| ENERGY RESOURCES (Thousands of MWhs): | |||||||||||
| Hydro generation (from Company facilities) | 3,978 | 3,836 | 3,434 | ||||||||
| Thermal generation (from Company facilities) | 3,476 | 3,626 | 3,983 | ||||||||
| Purchased power | 4,809 | 4,597 | 4,899 | ||||||||
| Power exchanges | (6 | ) | (6 | ) | (2 | ) | |||||
| Total power resources | 12,257 | 12,053 | 12,314 | ||||||||
| Energy losses and Company use | (479 | ) | (558 | ) | (566 | ) | |||||
| Total energy resources (net of losses) | 11,778 | 11,495 | 11,748 | ||||||||
| NUMBER OF RETAIL CUSTOMERS (Average for Period): | |||||||||||
| Residential | 334,848 | 330,699 | 327,057 | ||||||||
| Commercial | 42,154 | 41,785 | 41,296 | ||||||||
| Industrial | 1,328 | 1,342 | 1,353 | ||||||||
| Public street and highway lighting | 569 | 558 | 529 | ||||||||
| Total electric retail customers | 378,899 | 374,384 | 370,235 | ||||||||
| RESIDENTIAL SERVICE AVERAGES: | |||||||||||
| Annual use per customer (KWh) | 11,469 | 10,667 | 10,827 | ||||||||
| Revenue per KWh (in cents) | 9.94 | 9.62 | 9.40 | ||||||||
| Annual revenue per customer | $ | 1,139.87 | $ | 1,025.74 | $ | 1,017.21 | |||||
| AVERAGE HOURLY LOAD (aMW) | 1,070 | 1,033 | 1,047 | ||||||||
19
AVISTA CORPORATION
AVISTA UTILITIES ELECTRIC OPERATING STATISTICS
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
RETAIL NATIVE LOAD at time of system peak (MW): |
|
|
|
|
|
|
|
|
|
|
|
|
Winter |
|
| 1,613 |
|
|
| 1,577 |
|
|
| 1,555 |
|
Summer |
|
| 1,721 |
|
|
| 1,656 |
|
|
| 1,716 |
|
COOLING DEGREE DAYS: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Spokane, WA |
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
| 546 |
|
|
| 488 |
|
|
| 517 |
|
Historical average |
|
| 537 |
|
|
| 531 |
|
|
| 544 |
|
% of average |
|
| 102 | % |
|
| 92 | % |
|
| 95 | % |
HEATING DEGREE DAYS: (2) |
|
|
|
|
|
|
|
|
|
|
|
|
Spokane, WA |
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
| 6,187 |
|
|
| 6,817 |
|
|
| 6,159 |
|
Historical average |
|
| 6,651 |
|
|
| 6,613 |
|
|
| 6,593 |
|
% of average |
|
| 93 | % |
|
| 103 | % |
|
| 93 | % |
| Years Ended December 31, | ||||||||
| 2017 | 2016 | 2015 | ||||||
| RETAIL NATIVE LOAD at time of system peak (MW): | ||||||||
| Winter | 1,681 | 1,655 | 1,529 | |||||
| Summer | 1,596 | 1,587 | 1,638 | |||||
| COOLING DEGREE DAYS: (1) | ||||||||
| Spokane, WA | ||||||||
| Actual | 743 | 474 | 805 | |||||
| Historical average | 529 | 545 | 545 | |||||
| % of average | 140 | % | 87 | % | 148 | % | ||
| HEATING DEGREE DAYS: (2) | ||||||||
| Spokane, WA | ||||||||
| Actual | 6,783 | 5,790 | 5,614 | |||||
| Historical average | 6,578 | 6,680 | 6,726 | |||||
| % of average | 103 | % | 87 | % | 83 | % | ||
(1) | |
Cooling degree days are the measure of the warmness of weather experienced, based on the extent to which the average of high and low temperatures for a day exceeds 65 degrees Fahrenheit (annual degree days above |
(2) | Heating degree days are the |
20
AVISTA CORPORATION
AVISTA UTILITIES NATURAL GAS OPERATING STATISTICS
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
NATURAL GAS OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING REVENUES (Dollars in Thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
| $ | 213,612 |
|
| $ | 196,430 |
|
| $ | 194,340 |
|
Commercial |
|
| 94,937 |
|
|
| 92,168 |
|
|
| 89,341 |
|
Interruptible |
|
| 4,285 |
|
|
| 2,257 |
|
|
| 1,886 |
|
Industrial |
|
| 2,843 |
|
|
| 3,006 |
|
|
| 2,867 |
|
Total retail |
|
| 315,677 |
|
|
| 293,861 |
|
|
| 288,434 |
|
Wholesale |
|
| 104,910 |
|
|
| 135,039 |
|
|
| 137,070 |
|
Transportation |
|
| 7,917 |
|
|
| 8,674 |
|
|
| 9,103 |
|
Other |
|
| 5,034 |
|
|
| 7,375 |
|
|
| 6,824 |
|
Alternative revenue programs |
|
| 547 |
|
|
| 915 |
|
|
| (3,962 | ) |
Deferrals and amortizations for rate refunds to customers |
|
| 1,797 |
|
|
| 1,368 |
|
|
| (6,764 | ) |
Total natural gas operating revenues |
| $ | 435,882 |
|
| $ | 447,232 |
|
| $ | 430,705 |
|
THERMS DELIVERED (Thousands of Therms): |
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
| 219,988 |
|
|
| 231,238 |
|
|
| 208,344 |
|
Commercial |
|
| 127,659 |
|
|
| 140,578 |
|
|
| 124,670 |
|
Interruptible |
|
| 14,854 |
|
|
| 9,138 |
|
|
| 5,750 |
|
Industrial |
|
| 5,424 |
|
|
| 6,212 |
|
|
| 5,801 |
|
Total retail |
|
| 367,925 |
|
|
| 387,166 |
|
|
| 344,565 |
|
Wholesale |
|
| 542,372 |
|
|
| 590,802 |
|
|
| 503,913 |
|
Transportation |
|
| 180,361 |
|
|
| 187,514 |
|
|
| 176,439 |
|
Interdepartmental and Company use |
|
| 369 |
|
|
| 421 |
|
|
| 412 |
|
Total therms delivered |
|
| 1,091,027 |
|
|
| 1,165,903 |
|
|
| 1,025,329 |
|
NUMBER OF RETAIL CUSTOMERS (Average for Period): |
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
| 327,125 |
|
|
| 321,343 |
|
|
| 314,800 |
|
Commercial |
|
| 36,164 |
|
|
| 35,804 |
|
|
| 35,488 |
|
Interruptible |
|
| 40 |
|
|
| 45 |
|
|
| 39 |
|
Industrial |
|
| 225 |
|
|
| 241 |
|
|
| 246 |
|
Total natural gas retail customers |
|
| 363,554 |
|
|
| 357,433 |
|
|
| 350,573 |
|
RESIDENTIAL SERVICE AVERAGES: |
|
|
|
|
|
|
|
|
|
|
|
|
Annual use per customer (therms) |
|
| 672 |
|
|
| 720 |
|
|
| 662 |
|
Revenue per therm (in dollars) |
| $ | 0.97 |
|
| $ | 0.85 |
|
| $ | 0.93 |
|
Annual revenue per customer |
| $ | 653.00 |
|
| $ | 611.28 |
|
| $ | 617.35 |
|
HEATING DEGREE DAYS: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Spokane, WA |
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
| 6,187 |
|
|
| 6,817 |
|
|
| 6,159 |
|
Historical average |
|
| 6,651 |
|
|
| 6,613 |
|
|
| 6,593 |
|
% of average |
|
| 93 | % |
|
| 103 | % |
|
| 93 | % |
Medford, OR |
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
| 4,181 |
|
|
| 4,439 |
|
|
| 4,155 |
|
Historical average |
|
| 4,281 |
|
|
| 4,291 |
|
|
| 4,297 |
|
% of average |
|
| 98 | % |
|
| 103 | % |
|
| 97 | % |
(1) | |
Heating degree days are the measure of the coldness of weather experienced, based on the extent to which the average of high and low temperatures for a day falls below 65 degrees Fahrenheit (annual degree days below historic indicate warmer than average temperatures). |
| Years Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| NATURAL GAS OPERATIONS | |||||||||||
| OPERATING REVENUES (Dollars in Thousands): | |||||||||||
| Residential | $ | 220,176 | $ | 195,275 | $ | 193,825 | |||||
| Commercial | 104,240 | 92,978 | 96,751 | ||||||||
| Interruptible | 1,901 | 2,179 | 2,782 | ||||||||
| Industrial | 3,756 | 3,348 | 3,792 | ||||||||
| Total retail | 330,073 | 293,780 | 297,150 | ||||||||
| Wholesale | 142,722 | 153,446 | 204,289 | ||||||||
| Transportation | 9,208 | 8,339 | 7,988 | ||||||||
| Other | 6,412 | 5,787 | 5,578 | ||||||||
| Decoupling | (11,374 | ) | 12,309 | 6,004 | |||||||
| Provision for earnings sharing | (2,392 | ) | (2,767 | ) | — | ||||||
| Total natural gas operating revenues | $ | 474,649 | $ | 470,894 | $ | 521,009 | |||||
| THERMS DELIVERED (Thousands of Therms): | |||||||||||
| Residential | 221,982 | 186,565 | 176,613 | ||||||||
| Commercial | 133,343 | 112,686 | 107,894 | ||||||||
| Interruptible | 5,465 | 5,700 | 4,708 | ||||||||
| Industrial | 6,340 | 5,234 | 5,070 | ||||||||
| Total retail | 367,130 | 310,185 | 294,285 | ||||||||
| Wholesale | 545,348 | 684,317 | 809,132 | ||||||||
| Transportation | 186,222 | 178,377 | 164,679 | ||||||||
| Interdepartmental and Company use | 441 | 378 | 335 | ||||||||
| Total therms delivered | 1,099,141 | 1,173,257 | 1,268,431 | ||||||||
| NUMBER OF RETAIL CUSTOMERS (Average for Period): | |||||||||||
| Residential | 307,375 | 300,883 | 296,005 | ||||||||
| Commercial | 35,192 | 34,868 | 34,229 | ||||||||
| Interruptible | 37 | 37 | 35 | ||||||||
| Industrial | 251 | 255 | 261 | ||||||||
| Total natural gas retail customers | 342,855 | 336,043 | 330,530 | ||||||||
| RESIDENTIAL SERVICE AVERAGES: | |||||||||||
| Annual use per customer (therms) | 722 | 620 | 593 | ||||||||
| Revenue per therm (in dollars) | $ | 0.99 | $ | 1.05 | $ | 1.10 | |||||
| Annual revenue per customer | $ | 716.31 | $ | 649.01 | $ | 650.83 | |||||
| HEATING DEGREE DAYS: (1) | |||||||||||
| Spokane, WA | |||||||||||
| Actual | 6,783 | 5,790 | 5,614 | ||||||||
| Historical average | 6,578 | 6,680 | 6,726 | ||||||||
| % of average | 103 | % | 87 | % | 83 | % | |||||
| Medford, OR | |||||||||||
| Actual | 4,254 | 3,637 | 3,534 | ||||||||
| Historical average | 4,305 | 4,325 | 4,461 | ||||||||
| % of average | 99 | % | 84 | % | 79 | % | |||||
ALASKA ELECTRIC LIGHT AND POWER COMPANY
AEL&P is the primary operating subsidiary of AERC. AEL&P is the sole utility providing electrical energy in Juneau, Alaska. Juneau is a geographically isolated community with no electric interconnections with the transmission facilities of other utilities
21
AVISTA CORPORATION
and no pipeline access to natural gas or other fuels. Juneau’s economy is primarily driven by government activities, tourism, commercial fishing, and mining, as well as activities as the commercial hub of southeast Alaska.
AEL&P owns and operates electric generation, transmission and distribution facilities located in Juneau. AEL&P operates five hydroelectric generation facilities with 102.7 MW of hydroelectric generation capacity as of December 31, 2017.2020. AEL&P owns four of these generation facilities (totaling 24.5 MW of capacity) and has a PPA for the entire output of the Snettisham hydroelectric project (totaling 78.2 MW of capacity).
The Snettisham hydroelectric project is owned by the Alaska Industrial Development and Export Authority (AIDEA), a public corporation of the State of Alaska. AIDEA issued revenue bonds in 1998 (which were refinanced in 2015) to finance its acquisition of the project. These bonds were outstanding in the amount of $59.7$51.8 million at December 31, 20172020 and mature in January 2034. AEL&P has a PPA and operating and maintenance agreement with the AIDEA to operate and maintain the facility. This PPA is a take-or-pay obligation, expiring in December 2038, to purchase all of the output of the project. AIDEA's bonds are payable solely out of the revenues received under the PPA.
This PPA is treated as a capitalfinance lease and, as of December 31, 2017,2020, the capitalfinance lease obligation was $59.7$51.8 million. Snettisham Electric Company, a non-operating subsidiary of AERC, has the option to purchase the Snettisham project at any time for a price equal to the principal amount of the bonds outstanding at that time. See "Note 145 of the Notes to Consolidated Financial Statements" for further discussion of the Snettisham capitalfinance lease obligation.
As of December 31, 2017,2020, AEL&P also had 107.5 MW of diesel generating capacity from four facilities to provide back-up service to firm customers when necessary.
The following graph shows AEL&P's hydroelectric generation (in thousands of MWhs) during the time periods indicated below:
(1) | |
Normal hydroelectric generation is defined as the energy output of the plant during a year with average inflows to the reservoir. |
As of December 31, 2017,2020, AEL&P served approximately 17,000 customers. Its primary customers include city, state and federal governmental entities located in Juneau, as well as a mine located in the Juneau area. Most of AEL&P’s customers are
22
AVISTA CORPORATION
served on a firm basis while certain of its customers, including its largest customer, are served on an interruptible sales basis. AEL&P maintains separate rate tariffs for each of its customer classes, as well as seasonal rates.
AEL&P’s operations are subject to regulation by the RCA with respect to rates, standard of service, facilities, accounting and certain other matters, but not with respect to the issuance of securities. Rate adjustments for AEL&P’s customers require approval by the RCA pursuant to RCA regulations. See "Item 7. Management's Discussion and Analysis – Regulatory Matters" for further discussion of AEL&P's latest general rate case filing, including its capital structure.
AEL&P is also subject to the jurisdiction of the FERC concerning thewith respect to permits and licenses necessary to operate certain of its hydroelectric facilities. One of these licenses (for the Salmon Creek and Annex Creek hydroelectric projects) expires in August 2018, but AEL&P is in the process of renewing and expects thewas renewed license to befor 40 years, effective in September 1, 2018. Since AEL&P has no electric interconnection with other utilities and makes no wholesale sales, it is not subject to general FERC jurisdiction, other than the reporting and other requirements of the Public Utility Holding Company Act of 2005 as an Avista Corp. subsidiary.
The Snettisham hydroelectric project is subject to regulation by the State of Alaska with respect to dam safety and certain aspects of its operations. In addition, AEL&P is subject to regulation with respect to air and water quality, land use and other environmental matters under both federal and state laws.
AEL&P ELECTRIC OPERATING STATISTICS
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
ELECTRIC OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING REVENUES (Dollars in Thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
| $ | 18,618 |
|
| $ | 17,134 |
|
| $ | 18,506 |
|
Commercial and government |
|
| 23,754 |
|
|
| 19,391 |
|
|
| 25,989 |
|
Public street and highway lighting |
|
| 251 |
|
|
| 254 |
|
|
| 263 |
|
Total retail |
|
| 42,623 |
|
|
| 36,779 |
|
|
| 44,758 |
|
Other |
|
| 186 |
|
|
| 486 |
|
|
| (1,159 | ) |
Total electric operating revenues |
| $ | 42,809 |
|
| $ | 37,265 |
|
| $ | 43,599 |
|
ENERGY SALES (Thousands of MWhs): |
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
| 157 |
|
|
| 143 |
|
|
| 149 |
|
Commercial and government |
|
| 227 |
|
|
| 193 |
|
|
| 241 |
|
Public street and highway lighting |
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
Total electric energy sales |
|
| 385 |
|
|
| 337 |
|
|
| 391 |
|
NUMBER OF RETAIL CUSTOMERS (Average for Period): |
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
| 14,840 |
|
|
| 14,755 |
|
|
| 14,677 |
|
Commercial and government |
|
| 2,271 |
|
|
| 2,280 |
|
|
| 2,234 |
|
Public street and highway lighting |
|
| 228 |
|
|
| 228 |
|
|
| 224 |
|
Total electric retail customers |
|
| 17,339 |
|
|
| 17,263 |
|
|
| 17,135 |
|
RESIDENTIAL SERVICE AVERAGES: |
|
|
|
|
|
|
|
|
|
|
|
|
Annual use per customer (KWh) |
|
| 10,581 |
|
|
| 9,692 |
|
|
| 10,152 |
|
Revenue per KWh (in cents) |
|
| 11.86 |
|
|
| 11.98 |
|
|
| 12.42 |
|
Annual revenue per customer |
| $ | 1,254.58 |
|
| $ | 1,161.23 |
|
| $ | 1,260.88 |
|
HEATING DEGREE DAYS: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Juneau, AK |
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
| 8,119 |
|
|
| 7,476 |
|
|
| 7,973 |
|
Historical average |
|
| 8,351 |
|
|
| 8,041 |
|
|
| 8,351 |
|
% of average |
|
| 97 | % |
|
| 93 | % |
|
| 95 | % |
| Years Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| ELECTRIC OPERATIONS | |||||||||||
| OPERATING REVENUES (Dollars in Thousands): | |||||||||||
| Residential | $ | 20,504 | $ | 18,207 | $ | 18,017 | |||||
| Commercial and government | 31,726 | 27,322 | 26,049 | ||||||||
| Public street and highway lighting | 279 | 266 | 215 | ||||||||
| Total retail | 52,509 | 45,795 | 44,281 | ||||||||
| Other | 518 | 481 | 497 | ||||||||
| Total electric operating revenues | $ | 53,027 | $ | 46,276 | $ | 44,778 | |||||
| ENERGY SALES (Thousands of MWhs): | |||||||||||
| Residential | 151 | 139 | 139 | ||||||||
| Commercial and government | 262 | 253 | 258 | ||||||||
| Public street and highway lighting | 1 | 1 | 1 | ||||||||
| Total electric energy sales | 414 | 393 | 398 | ||||||||
| NUMBER OF RETAIL CUSTOMERS (Average for Period): | |||||||||||
| Residential | 14,575 | 14,448 | 14,285 | ||||||||
| Commercial and government | 2,210 | 2,181 | 2,179 | ||||||||
| Public street and highway lighting | 217 | 211 | 210 | ||||||||
| Total electric retail customers | 17,002 | 16,840 | 16,674 | ||||||||
| RESIDENTIAL SERVICE AVERAGES: | |||||||||||
| Annual use per customer (KWh) | 10,360 | 9,621 | 9,730 | ||||||||
| Revenue per KWh (in cents) | 13.58 | 13.10 | 12.96 | ||||||||
| Annual revenue per customer | $ | 1,406.79 | $ | 1,260.17 | $ | 1,261.25 | |||||
| HEATING DEGREE DAYS: (1) | |||||||||||
| Juneau, AK | |||||||||||
| Actual | 8,515 | 7,301 | 7,395 | ||||||||
| Historical average | 8,351 | 8,351 | 8,351 | ||||||||
| % of average | 102 | % | 87 | % | 89 | % | |||||
(1) | |
Heating degree days are the measure of the coldness of weather experienced, based on the extent to which the average of high and low temperatures for a day falls below 65 degrees Fahrenheit (annual heating degree days below historical average indicate warmer than average temperatures). |
23
AVISTA CORPORATION
OTHER BUSINESSES
The following table shows our assets related to our other businesses, including intercompany amounts as of
December 31,Entity and Asset Type |
| 2020 |
|
| 2019 |
| ||
Avista Capital |
|
|
|
|
|
|
|
|
Unconsolidated equity investments |
| $ | 59,318 |
|
| $ | 51,259 |
|
Note receivable - parent |
|
| 8,743 |
|
|
| 14,722 |
|
Real estate investments |
|
| 11,252 |
|
|
| 16,374 |
|
Notes receivable - third parties |
|
| 18,065 |
|
|
| 17,591 |
|
Other assets |
|
| 2,477 |
|
|
| 3,919 |
|
Alaska companies (AERC and AJT Mining) |
|
| 9,803 |
|
|
| 9,525 |
|
Total |
|
| 109,658 |
|
|
| 113,390 |
|
| Entity and Asset Type | 2017 | 2016 | ||||||
| Avista Capital | ||||||||
| Salix - wholly-owned subsidiary | $ | 4,392 | $ | 3,842 | ||||
| Equity investments | 2,561 | 3,000 | ||||||
| Other assets | 2,826 | 123 | ||||||
| Avista Development | ||||||||
| Equity investments | 19,573 | 11,530 | ||||||
| Real estate | 17,102 | 11,359 | ||||||
| Notes receivable and other assets | 6,385 | 5,444 | ||||||
| METALfx - wholly-owned subsidiary | 11,599 | 11,568 | ||||||
| Alaska companies (AERC and AJT Mining) | 8,803 | 8,390 | ||||||
| Total | $ | 73,241 | $ | 55,256 | ||||
Avista Capital
• | Unconsolidated equity investments are primarily in emerging technology venture capital funds and companies, including an investment in a joint venture focused on local real estate development and economic growth. |
• | Real estate consists of mixed use commercial, retail office space, and land. |
• | Other assets that consist of income tax receivables, cash and other deferred charges. |
Alaska companies
• | Includes AERC and AJT Mining, which is a wholly-owned subsidiary of AERC and is an inactive mining company holding certain real estate. |
24
AVISTA CORPORATION
ITEM 1A. RISK FACTORS
RISK FACTORS
The following factors could have a significant impact on our operations, results of operations, financial condition or cash flows. These factors could cause future results or outcomes to differ materially from those discussed in our reports filed with the SEC (including this Annual Report on Form 10-K), and elsewhere. Please also see “Forward-Looking Statements” for additional factors which could have a significant impact on our operations, results of operations, financial condition or cash flows and could cause actual results to differ materially from those anticipated in such statements.
Avista Utilities' annual operating expenses and the costs associated with incremental investments in utility assets continue to grow at a faster rate than revenue. Our ability to recover these expenses and capital costs depends on the adequacy and timeliness of retail rate increases allowed by regulatory agencies. We expect to periodically file for rate increases with regulatory agencies to recover our expenses and capital costs and provide an opportunity to earn a reasonable rate of return for shareholders. If regulators do not grant rate increases or grant substantially lower rate increases than our requests in the future or if recovery of deferred expenses is disallowed, it could have a negative effect on our financial condition, results of operations or cash flows. See further discussion of regulatory matters in "Item 7. Management's Discussion and Analysis – Regulatory Matters."
In the future, we may no longer meet the criteria for continued application of regulatory accounting principles for all or a portion of our regulated operations.
If we could no longer apply regulatory accounting principles, we could be:
• | required to write off our regulatory assets, and be |
• | precluded from the future deferral of costs or decoupled revenues not recovered through rates at the time such amounts are incurred, even if we are expected to recover these amounts from customers in the future. | |
See further discussion at "Note 1 of the Notes to Consolidated Financial Statements – Regulatory Deferred Charges and Credits."
Operational Risk Factors
Wildfires ignited, or allegedly ignited, by Avista Corp. equipment or facilities, could cause significant loss of life and property, thereby causing serious operational and financial harm to Avista Corp. and our customers.
Our equipment may be the ignition, or alleged cause of ignition, source for wildfires and in the event of a fire caused by our equipment, we could potentially be held liable for resulting damages to life and property, as well as fire suppression costs. Also, wildfires could lead to extended operational outages of our equipment while we wait for the wildfire to be extinguished before restoring power, and the cost to implement rapid response or any repair to such facilities could be significant. Any wildfires caused by our equipment could cause significant damage to our reputation, which could erode shareholder, customer and community satisfaction with our Company. In addition, wildfires caused by our equipment could lead to increased insurance costs, loss of insurance coverage, the need to be self-insured or the need to consider non-traditional insurance coverage or other risk mitigation procedures.
The COVID 19 pandemic is disrupting our business and could have a negative effect on our results of operations, financial condition and cash flows.
The COVID-19 pandemic is currently impacting our business, as well as the global, national and local economy. We cannot predict the full extent to which COVID-19 will impact our operations, results of operations, cash flows, financial condition or capital resources. It is possible that the continued spread of COVID-19 and efforts to contain the virus will continue to cause an economic slowdown, resulting in significant disruptions in various public, commercial or industrial activities and causing
25
AVISTA CORPORATION
employee absences which could interfere with operation and maintenance of the Company’s facilities. Any of these circumstances could adversely affect our operations, results of operations, financial condition and cash flows in many ways, including, but not limited to:
• | a decrease in customer demand and revenues due to a reduction in economic activity, |
• | an increase in operating expenses, including bad debt expense due to our customers’ inability to pay amounts due to us, |
• | a decrease in net operating cash inflows, which could negatively impact our liquidity and limit our ability to fund capital expenditures, dividends, and other contractual commitments, |
• | a negative impact on the ability of suppliers, vendors or contractors to perform, which could increase costs and delay capital projects, |
• | possible reluctance on the part of regulatory commissions to approve our requests to defer and recover increased expenses, |
• | delays in regulatory filings and the regulatory approval process, which could impact our ability to timely recover our operating expenses and costs associated with investments in utility assets, |
• | an increase in cyber and technology risks, including the impact on internal controls, due to a significant number of employees working remotely, |
• | disruption, weakness and volatility in the financial markets, which could increase our costs to fund capital requirements, and |
• | possible limited access to the capital markets, that could require us to seek alternative sources of funding for operations and for working capital, any of which could increase our cost of capital. |
We cannot predict the duration and severity of the COVID-19 pandemic. The longer and more severe the economic restrictions and business disruptions are, the greater the impact on our operations, results of operations, financial condition and cash flows will be.
We are subject to various operational and event risks.
Our operations are subject to operational and event risks that include:
• | severe weather or natural disasters, including, but not limited to, avalanches, wind storms, wildfires, earthquakes, snow and ice storms, which could disrupt energy generation, transmission and distribution, as well as the availability and costs of materials, equipment, supplies, support services and general business operations, |
• | blackouts or disruptions of interconnected transmission systems (the regional power grid), |
• | unplanned outages at generating plants, |
• | changes in the availability and cost of purchased power, fuel and natural gas, including delivery constraints, |
• | explosions, fires, accidents, or mechanical breakdowns that could occur while operating and maintaining our generation, transmission and distribution systems, |
• | property damage or injuries to third parties caused by our generation, transmission and distribution systems, |
• | natural disasters that can disrupt energy generation, transmission and distribution, and general business operations, |
• | terrorist attacks or other malicious acts that may disrupt or cause damage to our utility assets or the vendors we utilize, and |
• | work-force issues, including changes in collective bargaining unit agreements, strikes, work stoppages, the loss of key executives, availability of workers in a variety of skill areas, and our ability to recruit and retain employees. |
26
AVISTA CORPORATION
Disasters could affect the general economy, financial and capital markets, specific industries, or our ability to conduct business. As protection against operational and event risks, we maintain business continuity and disaster recovery plans, maintain insurance coverage against some, but not all, potential losses and we seek to negotiate indemnification arrangements with contractors for certain event risks. However, insurance or indemnification agreements may not be adequate to protect us against liability, extra expenses and operating disruptions from all of the operational and event risks described above. In addition, we are subject to the risk that insurers and/or other parties will dispute or be unable to perform on their obligations to us. If insurance or indemnification agreements are unable to adequately protect us or reimburse us for out-of-pocket costs, it could have a material adverse effect on our results of operations, financial condition and cash flows.
Damage to facilities could be caused by severe weather or natural disasters, such as snow, ice, wind storms, wildfires, earthquakes or avalanches. The cost to implement rapid response or any repair to such facilities can be significant. Overhead electric lines are most susceptible to damage caused by severe weather and are not covered by insurance.
Adverse impacts to AEL&P could result from an extended outage of its hydroelectric generating resources or its inability to deliver energy, due to its lack of interconnectivity to any other electrical grids and the cost of replacement power (diesel).
AEL&P operates several hydroelectric power generation facilities and has diesel generating capacity from multiple facilities to provide backup service to firm customers when necessary; however, a single hydroelectric power generation facility, the Snettisham hydroelectric project, provides approximately two-thirds of AEL&P’s hydroelectric power generation. Any issues that negatively affect AEL&P's ability to generate or transmit power or any decrease in the demand for the power generated by AEL&P could negatively affect our results of operations, financial condition and cash flows.
Cyber and Technology Risk Factors
Cyberattacks, ransomware, terrorism or other malicious acts could disrupt our businesses and have a negative impact on our results of operations and cash flows.
In the course of our operations, we rely on interconnected technology systems for operation of our generating plants, electric transmission and distribution systems, natural gas distribution systems, customer billing and customer service, accounting and other administrative processes and compliance with various regulations. In addition, in the ordinary course of business, we collect and retain sensitive information including personal information about our customers and employees.
Cyberattacks, ransomware, terrorism or other malicious acts could damage, destroy or disrupt these systems for an extended period of time. The energy sector, particularly electric and natural gas utility companies have become the subject of cyberattacks with increased frequency. Our administrative and operating networks are targeted by hackers on a regular basis. Additionally, the facilities and systems of clients, suppliers and third party service providers could be vulnerable to the same cyber or terrorism risks as our facilities and systems and such third party systems may be interconnected to our systems both physically and technologically. Therefore, an event caused by cyberattacks, ransomware or other malicious act at an interconnected third party could impact our business and facilities similarly. Any failure, unexpected, or unauthorized use of technology systems could result in the unavailability of such systems, and could result in a loss of operating revenues, an increase in operating expenses and costs to repair or replace damaged assets. Any of the above could also result in the loss or release of confidential customer and/or employee information or other proprietary data that could adversely affect our reputation and competitiveness, could result in costly litigation and negatively impact our results of operations. These cyberattacks have become more common and sophisticated and, as such, we could be required to incur costs to strengthen our systems and respond to emerging concerns.
Terrorist attacks could also be directed at our physical electric and natural gas facilities, as well as technology systems or at an interconnected third party, which could result in disruption to our systems.
There are various risks associated with technology systems such as hardware or software failure, communications failure, data distortion or destruction, unauthorized access to data, misuse of proprietary or confidential data, unauthorized control through electronic means, programming mistakes and other deliberate or inadvertent human errors.
27
AVISTA CORPORATION
Our technology may become obsolete or we may not have sufficient resources to manage our technology.
Our technology may become obsolete before the end of its useful life. In addition, custom technology that is heavily relied upon by us may not be maintained and updated appropriately due to resource restraints, or other factors, which could cause technology failures or give rise to additional operational or security risks. Technology failures could result in significant adverse effects on our physical operations, results of operations, financial condition and cash flows.
We may be adversely affected by our inability to successfully implement certain technology projects.
There are inherent risks associated with replacing and changing systems, which could have a material adverse effect on our results of operations, financial condition and cash flows. Finally, there is the risk that we ultimately do not complete a project and will incur contract cancellation or other costs, which could be significant.
Strategic Risk Factors
Our strategic business plans, which may be affected by any or all of the foregoing, may change, including the entry into new businesses and/or the exit from existing businesses and/or the curtailment of our business development efforts where potential future business is uncertain.
Our strategic business plans could be affected by or result in any of the following:
• | disruptive innovations in the marketplace may outpace our ability to compete or manage our risk, |
• | customers may have a choice in the future over the sources from which to receive their energy and we may not be able to compete, |
• | potential difficulties in integrating acquired operations and in realizing expected opportunities, diversions of management resources and losses of key employees, challenges with respect to operating new businesses and other unanticipated risks and liabilities, |
• | non-regulated investments may increase earnings volatility, |
• | market or other conditions that could adversely affect our operations or require changes to our business strategy and could result in a non-cash goodwill impairment charge that would reduce assets and net income, |
• | potential reputational risk arising from repeated general rate case filings, degradation in the quality of service, or from failed strategic investments and opportunities, which could erode shareholder, customer and community satisfaction with the Company, and |
• | the risk of municipalization or other form of service territory reduction. |
External Mandates Risk Factors
External mandate risk involves forces outside the Company, which may include significant changes in customer expectations, disruptive technologies that result in obsolescence of our business model and government action that could impact the Company.
Actions or limitations to address concerns over long-term climate change, both globally and within our utilities' service areas, may affect our operations and financial performance.
Legislative, regulatory and advocacy efforts at the state, national and international levels concerning climate change and other environmental issues could have significant impacts on our operations. The electric and natural gas utility industries are frequently affected by proposals to curb greenhouse gas and other air emissions. Various regulatory and legislative proposals have been made to limit or further restrict byproducts of combustion, including that resulting from the use of natural gas by our customers. In addition, regionally, there are a number of regulatory and legislative initiatives that have been passed which are designed to limit greenhouse gas emissions and increase the use of renewable sources of energy. Such legislation could restrict the operation and raise the costs of our power generation resources as well as the distribution of natural gas to our customers.
28
AVISTA CORPORATION
We expect continuing activity in the future and we are evaluating the extent to which potential changes to environmental laws and regulations may:
• | increase the operating costs of generating plants, |
• | increase the lead time and capital costs for the construction of new generating plants, |
• | require modification of our existing generating plants, |
• | require existing generating plant operations to be curtailed or shut down, |
• | reduce the amount of energy available from our generating plants, |
• | restrict the types of generating plants that can be built or contracted with, |
• | require construction of specific types of generation plants at higher cost, and |
• | increase the cost or limit our ability to distribute natural gas to customers. |
See “Item 7. Management's Discussion and Analysis – Environmental Issues and Contingencies" for discussion regarding environmental and other issues which may affect our operations, including the CETA that was recently passed in Washington State.
We have contingent liabilities, including certain matters related to potential environmental liabilities, and cannot predict the outcome of these matters.
In the normal course of our business, we have matters that are the subject of ongoing litigation, mediation, investigation and/or negotiation. We cannot predict the ultimate outcome or potential impact of any particular issue, including the extent, if any, of insurance coverage or that amounts payable by us may be recoverable through the ratemaking process. We are subject to environmental regulation by federal, state and local authorities related to our past, present and future operations. See “Note 22 of the Notes to Consolidated Financial Statements” for further details of these matters.
Import tariffs could lead to increased prices on raw materials that are critical to our business.
Tariffs and other restrictions on trade with foreign countries could significantly increase the prices of raw materials that are critical to our business, such as steel poles or wires. In addition, tariffs and trade restrictions could have a similar impact on our suppliers and certain customers, which could have a negative impact on our financial condition, results of operations and cash flows.
See "Item 7. Management's Discussion and Analysis – Environmental Issues and Contingencies" and "Forward-Looking Statements" for discussion of or reference to additional external mandates which could have a material adverse effect on our results of operations, financial condition and cash flows.
Financial Risk Factors
Weather (temperatures, precipitation levels, wind patterns and storms) has a significant effect on our results of operations, financial condition and cash flows.
Weather impacts are described in the following subtopics:
• | certain retail electricity and natural gas sales, |
• | the cost of natural gas supply, and |
• | the cost of power supply. |
Certain retail electricity and natural gas
sales volumes vary directly with changes in temperatures. We normally have our highest retail (electric and natural gas) energy sales during the winter heating season in the first and fourth quarters of the year. We also have high electricity demand for air conditioning during the summer (third quarter)29
AVISTA CORPORATION
however, we could experience liquidity constraints during the period between when decoupling revenue is earned and when it is subsequently collected from customers through retail rates.
The cost of natural gas supply
The cost of power supply
can be significantly affected by weather. Precipitation (consisting of snowpack, its water content and melting pattern plus rainfall) and other streamflow conditions (such as regional water storage operations) significantly affect hydroelectric generation capability. Variations in hydroelectric generation inversely affect our reliance on market purchases and thermal generation. To the extent that hydroelectric generation is less than normal, significantly more costly power supply resources must be acquired and the ability to realize net benefits from surplus hydroelectric wholesale sales is reduced. Wholesale prices also vary based on wind patterns as wind generation capacity is material in the Pacific Northwest but its contribution to supply is inconsistent.The price of power in the wholesale energy markets tends to be higher during periods of high regional demand, such as occurs with temperature extremes. We may need to purchase power in the wholesale market during peak price periods. The price of natural gas as fuel for natural gas-fired electric generation also tends to increase during periods of high demand which are often related to temperature extremes. We may need to purchase natural gas fuel in these periods of high prices to meet electric demands. The cost of power supply during peak usage periods may be higher than the retail sales price or the amount allowed in retail rates by our regulators. To the extent that power supply costs are above the amount allowed currently in retail rates, the difference is partially absorbed by the Company in current expense and it is partially deferred or shared with customers through regulatory mechanisms.
The price of power tends to be lower during periods with excess supply, such as the spring when hydroelectric conditions are usually at their maximum and various facilities are required to operate to meet environmental mandates. Oversupply can be exacerbated when intermittent resources such as wind generation are producing output that may be supported by price subsidies. In extreme situations, we may be required to sell excess energy at negative prices.
As a result of these combined factors, our net cost of power supply – the difference between our costs of generation and market purchases, reduced by our revenue from wholesale sales – varies significantly because of weather.
We rely on regular access to financial markets but we cannot assure favorable or reasonable financing terms will be available when we need them.
Access to capital markets is critical to our operations and our capital structure.
We have significant capital requirements that we expect to fund, in part, by accessing capital markets. As such, the state of financial markets and credit availability in the global, United States and regional economies impacts our financial condition. We could experience increased borrowing costs or limited access to capital on reasonable terms.We access long-term capital markets to finance capital expenditures, repay maturing long-term debt and obtain additional working capital from time-to-time. Our ability to access capital on reasonable terms is subject to numerous factors and market
30
AVISTA CORPORATION
Performance of the financial markets could also result in significant declines in the market values of assets held by our pension plan and/or a significant increase in the pension liability (which impacts the funded status of the plan) and could increase future funding obligations and pension expense.
We rely on credit from financial institutions for short-term borrowings.
We need adequate levels of credit with financial institutions for short-term liquidity.Any default on the lines of credit or other financing arrangements of Avista Corp. or any of our “significant subsidiaries,” if any, could result in cross-defaults to other agreements of such entity, and/or to the line of credit or other financing arrangements of any other of such entities. Any defaults could also induce vendors and other counterparties to demand collateral. In the event of any such default, it would be difficult for us to obtain financing on reasonable terms to pay creditors or fund operations. We would also likely be prohibited from paying dividends on our common stock.
We hedge a portion of our interest rate risk with financial derivative instruments, which may include interest rate swap derivatives and U.S. Treasury lock agreements.
Downgrades in our credit ratings could impede our ability to obtain financing, adversely affect the terms of financing and impact our ability to transact for or hedge energy resources.
If we do not maintain our investment grade credit rating with the major credit rating agencies, we could expect increased debt service costs, limitations on our ability to access capital markets or obtain other financing on reasonable terms, and requirements to provide collateral (in the form of cash or letters of credit) to lenders and counterparties. In addition, credit rating downgrades could reduce the number of counterparties willing to do business with us or result in the termination of outstanding regulatory authorizations for certain financing activities.Credit risk may be affected by industry concentration and geographic concentration.
We have concentrations of suppliers and customers in the electric and natural gas industries including:
• | electric and natural gas utilities, |
• | electric generators and transmission providers, |
• | oil and natural gas producers and pipelines, |
• | financial institutions including commodity clearing exchanges and related parties, and |
• | energy marketing and trading companies. |
We have concentrations of credit risk related to our geographic location in the western United States and western Canada energy markets. These concentrations of counterparties and concentrations of geographic location may affect our overall exposure to credit risk because the counterparties may be similarly affected by changes in conditions.
Energy Commodity Risk Factors
Energy commodity price changes affect our cash flows and results of operations.
Energy commodity prices
can be volatile. We rely on energy markets and other counterparties for energy supply, surplus and optimization transactions and commodity price hedging. A combination of factors exposes our operations to commodity price risks, including:• | our obligation to serve our retail customers at rates set through the regulatory process - we cannot decline to serve our customers and we cannot change retail rates to reflect current energy prices unless and until we receive regulatory approval, |
31
AVISTA CORPORATION
• | customer demand, which is beyond our control because of weather, customer choices, prevailing economic conditions and other factors, |
• | some of our energy supply cost is fixed by the nature of the energy-producing assets or through contractual arrangements (however, a significant portion of our energy resource costs are not fixed), and |
• | the potential non-performance by commodity counterparties, which could lead to replacement of the scheduled energy or natural gas at higher prices. |
Because we must supply the amount of energy demanded by our customers and we must sell it at fixed rates and only a portion of our energy supply costs are fixed, we are subject to the risk of buying energy at higher prices in wholesale energy markets (and the risk of selling energy at lower prices if we are in a surplus position). Electricity and natural gas in wholesale markets are commodities with historically high price volatility. Changes in wholesale energy prices affect, among other things, the cash requirements to purchase electricity and natural gas for retail customers or wholesale obligations and the market value of derivative assets and liabilities.
When we enter into fixed price energy commodity transactions for future delivery, we are subject to credit terms that may require us to provide collateral to wholesale counterparties related to the difference between current prices and the agreed upon fixed prices. These collateral requirements can place significant demands on our cash flows or borrowing arrangements. Price volatility can cause collateral requirements to change quickly and significantly.
Cash flow deferrals related to energy commodities can be significant.
We are permitted to collect from customers only amounts approved by regulatory commissions. However, our costs to provide energy service can be much higher or lower than the amounts currently billed to customers. We are permitted to defer income statement recognition and recovery from customers for some of these differences, which are recorded as deferred charges with the opportunity for future recoveryPower and natural gas costs higher than those recovered in retail rates reduce cash flows. Amounts that are not allowed for deferral or which are not approved to become part of customer rates affect our results of operations.
Even if our regulators ultimately allow us to recover deferred power and natural gas costs, our operating cash flows can be negatively affected until these costs are recovered from customers.
Fluctuating energy commodity prices and volumes in relation to our energy risk management process can cause volatility in our cash flows and results of operations.
We engage in active hedging and resource optimization practices to reduce energy cost volatility and economic exposure related to commodity price fluctuations. We routinely enter into contracts to hedge a portion of our purchase and sale commitments for electricity and natural gas, as well as forecasted excess or deficit energy positions and inventories of natural gas. We use physical energy contracts and derivative instruments, such as forwards, futures, swaps and options traded in the over-the-counter markets or on exchanges. If market prices decrease compared to the prices we have locked in with our energy commodity derivatives, this will result in a liability related to these derivatives, which can be significant. As a result of price fluctuations, we may be required to post significant amounts of cash or letters of credit as collateral depending on fluctuations in the fair value of the derivative instruments.We do not attempt to fully hedge our energy resource assets or our forecasted net positions for various time horizons. To the extent we have positions that are not hedged, or if hedging positions do not fully match the corresponding purchase or sale, fluctuating commodity prices could have a material effect on our operating revenues, resource costs, derivative assets and liabilities, and operating cash flows. In addition, actual loads and resources typically vary from forecasts, sometimes to a significant degree, which require additional transactions or dispatch decisions that impact cash flows.
The hedges we enter into are reviewed for prudence by our various regulators and any deferred costs (including those as a result of our hedging transactions) are subject to review for prudence and potential disallowance by regulators.
32
AVISTA CORPORATION
Generation plants may become obsolete.
We rely on a variety of generation and energy commodity market sources to fulfill our obligation to serve customers and meet the demands of our counterparty agreements. There is the potential that some of our generation sources, such as coal, may become obsolete or be prematurely retired through regulatoryCompliance Risk Factors
There have been numerous changes in legislation, related administrative rulemakings, and Executive Orders, including periodic audits of compliance with such rules, which may adversely affect our operational and financial performance.
We expect to continue to be affected by legislation at the national, state and local level, as well as by administrative rules and requirements published by government agencies, including but not limited to the FERC, the EPA and state regulators. We are also subject to NERC and WECC reliability standards. The FERC, the NERC and the WECC perform periodic audits of the Company. Failure to comply with the FERC, the NERC, or the WECC requirements can result in financial penalties of up to $1 million per day per violation.
Future legislation, or administrative rules or Executive Orders could have a material adverse effect on our operations, results of operations, financial condition and cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS
As of the filing date of this Annual Report on Form 10-K, we have no unresolved comments from the staff of the SEC.
33
AVISTA CORPORATION
ITEM 2. PROPERTIES
AVISTA UTILITIES
Substantially all of Avista Utilities' properties are subject to the lien of Avista Corp.'s mortgage indenture.
Avista Utilities' electric properties, located in the states of Washington, Idaho, Montana and Oregon, include the following:
Generation Properties
|
| No. of Units |
|
| Nameplate Rating (MW) (1) |
|
| Present Capability (MW) (2) |
| |||
Hydroelectric Generating Stations (River) |
|
|
|
|
|
|
|
|
|
|
|
|
Washington: |
|
|
|
|
|
|
|
|
|
|
|
|
Long Lake (Spokane) |
|
| 4 |
|
|
| 71.1 |
|
|
| 88.0 |
|
Little Falls (Spokane) |
|
| 4 |
|
|
| 43.2 |
|
|
| 48.0 |
|
Nine Mile (Spokane) |
|
| 4 |
|
|
| 37.6 |
|
|
| 40.6 |
|
Upper Falls (Spokane) |
|
| 1 |
|
|
| 10.0 |
|
|
| 10.2 |
|
Monroe Street (Spokane) |
|
| 1 |
|
|
| 14.8 |
|
|
| 15.0 |
|
Idaho: |
|
|
|
|
|
|
|
|
|
|
|
|
Cabinet Gorge (Clark Fork) (3) |
|
| 4 |
|
|
| 265.0 |
|
|
| 273.0 |
|
Post Falls (Spokane) |
|
| 6 |
|
|
| 14.8 |
|
|
| 11.9 |
|
Montana: |
|
|
|
|
|
|
|
|
|
|
|
|
Noxon Rapids (Clark Fork) |
|
| 5 |
|
|
| 487.8 |
|
|
| 562.4 |
|
Total Hydroelectric |
|
|
|
|
|
| 944.3 |
|
|
| 1,049.1 |
|
Thermal Generating Stations (cycle, fuel source) |
|
|
|
|
|
|
|
|
|
|
|
|
Washington: |
|
|
|
|
|
|
|
|
|
|
|
|
Kettle Falls GS (combined-cycle, wood waste) (4) |
|
| 1 |
|
|
| 50.7 |
|
|
| 53.5 |
|
Kettle Falls CT (combined-cycle, natural gas) (4) |
|
| 1 |
|
|
| 7.2 |
|
|
| 6.9 |
|
Northeast CT (simple-cycle, natural gas) |
|
| 2 |
|
|
| 61.8 |
|
|
| 64.8 |
|
Boulder Park GS (simple-cycle, natural gas) |
|
| 6 |
|
|
| 24.6 |
|
|
| 24.6 |
|
Idaho: |
|
|
|
|
|
|
|
|
|
|
|
|
Rathdrum CT (simple-cycle, natural gas) |
|
| 2 |
|
|
| 166.5 |
|
|
| 166.5 |
|
Montana: |
|
|
|
|
|
|
|
|
|
|
|
|
Colstrip Units 3 & 4 (simple-cycle, coal) (5) |
|
| 2 |
|
|
| 233.4 |
|
|
| 222.0 |
|
Oregon: |
|
|
|
|
|
|
|
|
|
|
|
|
Coyote Springs 2 (combined-cycle, natural gas) |
|
| 1 |
|
|
| 295.0 |
|
|
| 295.0 |
|
Total Thermal |
|
|
|
|
|
| 839.2 |
|
|
| 833.3 |
|
Total Generation Properties |
|
|
|
|
|
| 1,783.5 |
|
|
| 1,882.4 |
|
No. of Units | Nameplate Rating (MW) (1) | Present Capability (MW) (2) | |||||
| Hydroelectric Generating Stations (River) | |||||||
| Washington: | |||||||
| Long Lake (Spokane) | 4 | 70.0 | 88.0 | ||||
| Little Falls (Spokane) | 4 | 40.4 | 40.4 | ||||
| Nine Mile (Spokane) | 4 | 37.6 | 37.6 | ||||
| Upper Falls (Spokane) | 1 | 10.0 | 10.2 | ||||
| Monroe Street (Spokane) | 1 | 14.8 | 15.0 | ||||
| Idaho: | |||||||
| Cabinet Gorge (Clark Fork) (3) | 4 | 265.0 | 273.0 | ||||
| Post Falls (Spokane) | 6 | 14.8 | 15.4 | ||||
| Montana: | |||||||
| Noxon Rapids (Clark Fork) | 5 | 487.8 | 562.4 | ||||
| Total Hydroelectric | 940.4 | 1,042.0 | |||||
| Thermal Generating Stations (cycle, fuel source) | |||||||
| Washington: | |||||||
| Kettle Falls GS (combined-cycle, wood waste) (4) | 1 | 50.7 | 53.5 | ||||
| Kettle Falls CT (combined-cycle, natural gas) (4) | 1 | 7.2 | 6.9 | ||||
| Northeast CT (simple-cycle, natural gas) | 2 | 61.8 | 64.8 | ||||
| Boulder Park GS (simple-cycle, natural gas) | 6 | 24.6 | 24.6 | ||||
| Idaho: | |||||||
| Rathdrum CT (simple-cycle, natural gas) | 2 | 166.5 | 166.5 | ||||
| Montana: | |||||||
| Colstrip Units 3 & 4 (simple-cycle, coal) (5) | 2 | 233.4 | 222.0 | ||||
| Oregon: | |||||||
| Coyote Springs 2 (combined-cycle, natural gas) | 1 | 295.0 | 295.0 | ||||
| Total Thermal | 839.2 | 833.3 | |||||
| Total Generation Properties | 1,779.6 | 1,875.3 | |||||
(1) | |
Nameplate rating, also referred to as “installed capacity,” is the manufacturer’s assigned power capability under specified conditions. |
(2) | |
Present capability is the maximum capacity of the plant under standard test conditions without exceeding specified limits of temperature, stress and environmental conditions. Information is provided as of December 31, |
(3) | |
For Cabinet Gorge, we have water rights permitting generation up to 265 MW. However, if natural stream flows will allow for generation above our water rights, we are able to generate above our water rights. If natural stream flows only allow for generation at or below 265 MW, we are limited to generation of 265 MW. The present capability disclosed above represents the capability based on maximum stream flow conditions when we are allowed to generate above our water rights. |
(4) | |
These generating stations can operate as separate single-cycle plants or combined-cycle with the natural gas plant providing exhaust heat to the wood boiler to increase efficiency. |
(5) | |
Jointly owned; data refers to our 15 percent interest. |
34
AVISTA CORPORATION
Electric Distribution and Transmission Plant
Avista Utilities owns and operates approximately
The 230 kV lines are the backbone of our transmission grid and are used to transmit power from generation resources, including Noxon Rapids, Cabinet Gorge and the Mid-Columbia hydroelectric projects, to the major load centers in our service area, as well as to transfer power between points of interconnection with adjoining electric transmission systems. These lines interconnect at various locations with the BPA, Grant County PUD, PacifiCorp, NorthWestern Energy and Idaho Power Company and serve as points of delivery for power from generating facilities outside of our service area, including Colstrip, Coyote Springs 2 and the Lancaster Plant.
These lines also provide a means for us to optimize resources by entering into short-term purchases and sales of power with entities within and outside of the Pacific Northwest.
The 115 kV lines provide for transmission of energy and the integration of smaller generation facilities with our service-area load centers, including the Spokane River hydroelectric projects, the Kettle Falls projects, Rathdrum CT, Boulder Park GS and the Northeast CT. These lines interconnect with the BPA, Chelan County PUD, the Grand Coulee Project Hydroelectric Authority, Grant County PUD, NorthWestern Energy, PacifiCorp and Pend Oreille County PUD. Both the 115 kV and 230 kV interconnections with the BPA are used to transfer energy to facilitate service to each other’s customers that are connected through the other’s transmission system. We hold a long-term transmission agreement with the BPA that allows us to serve our native load customers that are connected through the BPA’s transmission system.
Natural Gas Plant
Avista Utilities has natural gas distribution mains of approximately
We own a one-third interest in Jackson Prairie, an underground natural gas storage field located near Chehalis, Washington. See "Part 1 – Item 1. Business – Avista Utilities – Natural Gas Operations" for further discussion of Jackson Prairie.
ALASKA ELECTRIC LIGHT AND POWER COMPANY
Substantially all of AEL&P's utility properties are subject to the lien of the AEL&P mortgage indenture.
AEL&P's utility electric properties, located in Alaska include the following:
35
AVISTA CORPORATION
Generation Properties and Transmission and Distribution Lines
|
| No. of Units |
|
| Nameplate Rating (MW) (1) |
|
| Present Capability (MW) (2) |
| |||
Hydroelectric Generating Stations |
|
|
|
|
|
|
|
|
|
|
|
|
Snettisham (3) |
|
| 3 |
|
|
| 78.2 |
|
|
| 78.2 |
|
Lake Dorothy |
|
| 1 |
|
|
| 14.3 |
|
|
| 14.3 |
|
Salmon Creek |
|
| 1 |
|
|
| 8.4 |
|
|
| 5.0 |
|
Annex Creek |
|
| 2 |
|
|
| 4.1 |
|
|
| 3.6 |
|
Gold Creek |
|
| 3 |
|
|
| 1.6 |
|
|
| 1.6 |
|
Total Hydroelectric |
|
|
|
|
|
| 106.6 |
|
|
| 102.7 |
|
Diesel Generating Stations |
|
|
|
|
|
|
|
|
|
|
|
|
Lemon Creek |
|
| 11 |
|
|
| 61.4 |
|
|
| 51.8 |
|
Auke Bay |
|
| 3 |
|
|
| 28.4 |
|
|
| 25.2 |
|
Gold Creek |
|
| 5 |
|
|
| 8.2 |
|
|
| 7.0 |
|
Industrial Blvd. Plant |
|
| 1 |
|
|
| 23.5 |
|
|
| 23.5 |
|
Total Diesel |
|
|
|
|
|
| 121.5 |
|
|
| 107.5 |
|
Total Generation Properties |
|
|
|
|
|
| 228.1 |
|
|
| 210.2 |
|
No. of Units | Nameplate Rating (MW) (1) | Present Capability (MW) (2) | |||||
| Hydroelectric Generating Stations | |||||||
| Snettisham (3) | 3 | 78.2 | 78.2 | ||||
| Lake Dorothy | 1 | 14.3 | 14.3 | ||||
| Salmon Creek | 1 | 8.4 | 5.0 | ||||
| Annex Creek | 2 | 4.1 | 3.6 | ||||
| Gold Creek | 3 | 1.6 | 1.6 | ||||
| Total Hydroelectric | 106.6 | 102.7 | |||||
| Diesel Generating Stations | |||||||
| Lemon Creek | 11 | 61.4 | 51.8 | ||||
| Auke Bay | 3 | 28.4 | 25.2 | ||||
| Gold Creek | 5 | 8.2 | 7 | ||||
| Industrial Blvd. Plant | 1 | 23.5 | 23.5 | ||||
| Total Diesel | 121.5 | 107.5 | |||||
| Total Generation Properties | 228.1 | 210.2 | |||||
(1) | |
Nameplate rating, also referred to as “installed capacity,” is the manufacturer’s assigned power capability under specified conditions. |
(2) | |
Present capability is the maximum capacity of the plant under standard test conditions without exceeding specified limits of temperature, stress and environmental conditions. Information is provided as of December 31, |
(3) | |
AEL&P does not own this generating facility but has a PPA under which it has the right to purchase, and the obligation to pay for (whether or not energy is received), all of the capacity and energy of this facility. See further information at "Part 1. Item 1. Business – Alaska Electric Light and Power Company." |
In addition to the generation properties above, AEL&P owns approximately 61 miles of transmission lines, which are primarily comprised of 69 kV line, and approximately 184 miles of distribution lines.
ITEM 3. LEGAL PROCEEDINGS
See “Note 1922 of Notes to Consolidated Financial Statements” for information with respect to legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
36
AVISTA CORPORATION
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Avista Corp. Market Information and Dividend Policy
Avista Corp.'s common stock is listed on the New York Stock Exchange under the ticker symbol “AVA.” As of
January 31,Avista Corp.'s Board of Directors considers the level of dividends on our common stock on a recurring basis, taking into account numerous factors including, without limitation:
• | our results of operations, cash flows and financial condition, |
• |
the success of our business strategies, and |
• | general economic and competitive conditions. |
Avista Corp.'s net income available for dividends is generally derived from our regulated utility operations (Avista Utilities and AEL&P).
The payment of dividends on common stock could be limited by:
• | certain covenants applicable to preferred stock (when outstanding) contained in the Company’s Restated Articles of Incorporation, as amended (currently there are no preferred shares outstanding), |
• | certain covenants applicable to the Company's outstanding long-term debt and committed line of credit agreements (see "Item 7. Management's Discussion and Analysis - Capital Resources" for compliance with these covenants), |
• | the hydroelectric licensing requirements of section 10(d) of the FPA (see “Note 1 of Notes to Consolidated Financial Statements”), and |
• | certain requirements under |
For additional information, see “Notes 1 17 and 1819 of Notes to Consolidated Financial Statements.”
| Three Months Ended | |||||||||||||||
March 31 | June 30 | September 30 | December 31 | ||||||||||||
| 2017 | |||||||||||||||
| Dividends paid per common share | $ | 0.3575 | $ | 0.3575 | $ | 0.3575 | $ | 0.3575 | |||||||
| Trading price range per common share: | |||||||||||||||
| High | $ | 40.14 | $ | 44.40 | $ | 52.74 | $ | 52.35 | |||||||
| Low | $ | 37.94 | $ | 38.62 | $ | 41.35 | $ | 51.25 | |||||||
| 2016 | |||||||||||||||
| Dividends paid per common share | $ | 0.3425 | $ | 0.3425 | $ | 0.3425 | $ | 0.3425 | |||||||
| Trading price range per common share: | |||||||||||||||
| High | $ | 41.12 | $ | 44.80 | $ | 44.97 | $ | 42.63 | |||||||
| Low | $ | 34.67 | $ | 38.70 | $ | 40.43 | $ | 39.11 | |||||||
For information with respect to securities authorized for issuance under equity compensation plans, see “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
ITEM 6. SELECTED FINANCIAL DATA
| (in thousands, except per share data and ratios) | Years Ended December 31, | ||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Operating Revenues: | |||||||||||||||||||
| Avista Utilities | $ | 1,370,359 | $ | 1,372,638 | $ | 1,411,863 | $ | 1,413,499 | $ | 1,403,995 | |||||||||
| AEL&P | 53,027 | 46,276 | 44,778 | 21,644 | — | ||||||||||||||
| Other | 22,543 | 23,569 | 28,685 | 39,219 | 39,549 | ||||||||||||||
| Intersegment eliminations | — | — | (550 | ) | (1,800 | ) | (1,800 | ) | |||||||||||
| Total | $ | 1,445,929 | $ | 1,442,483 | $ | 1,484,776 | $ | 1,472,562 | $ | 1,441,744 | |||||||||
| Income (Loss) from Operations (pre-tax): | |||||||||||||||||||
| Avista Utilities | $ | 270,409 | $ | 277,070 | $ | 241,228 | $ | 239,976 | $ | 232,572 | |||||||||
| AEL&P | 17,947 | 15,434 | 14,072 | 6,221 | — | ||||||||||||||
| Other | (3,847 | ) | (2,701 | ) | (2,086 | ) | 6,391 | (1,483 | ) | ||||||||||
| Total | $ | 284,509 | $ | 289,803 | $ | 253,214 | $ | 252,588 | $ | 231,089 | |||||||||
| Net income from continuing operations | $ | 115,932 | $ | 137,316 | $ | 118,170 | $ | 119,866 | $ | 104,333 | |||||||||
| Net income from discontinued operations | — | — | 5,147 | 72,411 | 7,961 | ||||||||||||||
| Net income | $ | 115,932 | $ | 137,316 | $ | 123,317 | $ | 192,277 | $ | 112,294 | |||||||||
| Net income attributable to noncontrolling interests | $ | (16 | ) | $ | (88 | ) | $ | (90 | ) | $ | (236 | ) | $ | (1,217 | ) | ||||
| Net Income (Loss) attributable to Avista Corporation shareholders: | |||||||||||||||||||
| Avista Utilities | $ | 114,716 | $ | 132,490 | $ | 113,360 | $ | 113,263 | $ | 108,598 | |||||||||
| AEL&P | 9,054 | 7,968 | 6,641 | 3,152 | — | ||||||||||||||
| Ecova - Discontinued operations | — | — | 5,147 | 72,390 | 7,129 | ||||||||||||||
| Other | (7,854 | ) | (3,230 | ) | (1,921 | ) | 3,236 | (4,650 | ) | ||||||||||
| Net income attributable to Avista Corp. shareholders | $ | 115,916 | $ | 137,228 | $ | 123,227 | $ | 192,041 | $ | 111,077 | |||||||||
| Average common shares outstanding, basic | 64,496 | 63,508 | 62,301 | 61,632 | 59,960 | ||||||||||||||
| Average common shares outstanding, diluted | 64,806 | 63,920 | 62,708 | 61,887 | 59,997 | ||||||||||||||
| Common shares outstanding at year-end | 65,494 | 64,188 | 62,313 | 62,243 | 60,077 | ||||||||||||||
| Earnings per common share attributable to Avista Corp. shareholders, basic: | |||||||||||||||||||
| Earnings per common share from continuing operations | $ | 1.80 | $ | 2.16 | $ | 1.90 | $ | 1.94 | $ | 1.74 | |||||||||
| Earnings per common share from discontinued operations | — | — | 0.08 | 1.18 | 0.11 | ||||||||||||||
| Total earnings per common share attributable to Avista Corp. shareholders, basic | $ | 1.80 | $ | 2.16 | $ | 1.98 | $ | 3.12 | $ | 1.85 | |||||||||
| Earnings per common share attributable to Avista Corp. shareholders, diluted: | |||||||||||||||||||
| Earnings per common share from continuing operations | $ | 1.79 | $ | 2.15 | $ | 1.89 | $ | 1.93 | $ | 1.74 | |||||||||
| Earnings per common share from discontinued operations | — | — | 0.08 | 1.17 | 0.11 | ||||||||||||||
| Total earnings per common share attributable to Avista Corp. shareholders, diluted | $ | 1.79 | $ | 2.15 | $ | 1.97 | $ | 3.10 | $ | 1.85 | |||||||||
37
| (in thousands, except per share data and ratios) | Years Ended December 31, | ||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Dividends declared per common share | $ | 1.43 | $ | 1.37 | $ | 1.32 | $ | 1.27 | $ | 1.22 | |||||||||
| Book value per common share | $ | 26.41 | $ | 25.69 | $ | 24.53 | $ | 23.84 | $ | 21.61 | |||||||||
| Total Assets at Year-End: | |||||||||||||||||||
| Avista Utilities | $ | 5,177,878 | $ | 4,975,555 | $ | 4,601,708 | $ | 4,357,760 | $ | 3,930,251 | |||||||||
| AEL&P | 278,688 | 273,770 | 265,735 | 263,070 | — | ||||||||||||||
| Other | 73,241 | 60,430 | 39,206 | 80,141 | 81,282 | ||||||||||||||
| Total (1) | $ | 5,529,807 | $ | 5,309,755 | $ | 4,906,649 | $ | 4,700,971 | $ | 4,011,533 | |||||||||
| Long-Term Debt and Capital Leases (including current portion) | $ | 1,769,237 | $ | 1,682,004 | $ | 1,573,278 | $ | 1,487,126 | $ | 1,262,036 | |||||||||
| Nonrecourse Long-Term Debt of Spokane Energy (including current portion) | $ | — | $ | — | $ | — | $ | 1,431 | $ | 17,838 | |||||||||
| Long-Term Debt to Affiliated Trusts | $ | 51,547 | $ | 51,547 | $ | 51,547 | $ | 51,547 | $ | 51,547 | |||||||||
| Total Avista Corp. Shareholders’ Equity | $ | 1,729,828 | $ | 1,648,727 | $ | 1,528,626 | $ | 1,483,671 | $ | 1,298,266 | |||||||||
| Ratio of Earnings to Fixed Charges (2) | 2.95 | 3.32 | 3.13 | 3.39 | 3.02 | ||||||||||||||
AVISTA CORPORATION
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of this Annual Report on Form 10-K generally discusses 2020 and 2019 financial statement items and year-to-year comparisons between 2020 and 2019. Discussion of 2018 financial statement items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Conditions and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
Business Segments
As of December 31, 2017,2020, we have two reportable business segments, Avista Utilities and AEL&P. We also have other businesses which do not represent a reportable business segment and are conducted by various direct and indirect subsidiaries of Avista Corp. See "Part I, Item 1. Business – Company Overview" for further discussion of our business segments.
The following table presents net income (loss) attributable to Avista Corp. shareholders for each of our business segments (and the other businesses) for the
year ended December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Avista Utilities |
| $ | 124,810 |
|
| $ | 183,977 |
|
| $ | 134,874 |
|
AEL&P |
|
| 8,095 |
|
|
| 7,458 |
|
|
| 8,292 |
|
Other |
|
| (3,417 | ) |
|
| 5,544 |
|
|
| (6,737 | ) |
Net income attributable to Avista Corporation shareholders |
| $ | 129,488 |
|
| $ | 196,979 |
|
| $ | 136,429 |
|
| 2017 | 2016 | 2015 | |||||||||
| Avista Utilities | $ | 114,716 | $ | 132,490 | $ | 113,360 | |||||
| AEL&P | 9,054 | 7,968 | 6,641 | ||||||||
| Ecova - Discontinued operations | — | — | 5,147 | ||||||||
| Other | (7,854 | ) | (3,230 | ) | (1,921 | ) | |||||
| Net income attributable to Avista Corporation shareholders | $ | 115,916 | $ | 137,228 | $ | 123,227 | |||||
Executive Level Summary
Overall Results
Net income attributable to Avista Corp. shareholders was $115.9$129.5 million for 2017,2020, a decrease from $137.2$197.0 million for 2016.
Avista Utilities' earningsnet income decreased for 2017 primarily due to costs related to the pending acquisition byreceipt, in the first quarter of 2019, of a $103 million termination fee from Hydro One (see further discussion at "Pending Acquisition by Hydro One" below)"Note 25 of the Notes to Consolidated Financial Statements"), which are not being passed through to customers. Further, since a significant portion of these acquisition costs are not deductible for income tax purposes, earnings reflect the full amount of such costs. Excluding acquisition costs, there was a slight increase in other operating expenses, primarily due to an increase in generation and distribution maintenance costs and transmission operating costs. In addition, there were increases in depreciation and amortization and interest expense. Our 2016 requests for general rate increases in Washington were denied. See further discussion at "2016 Washington General Rate Cases" below and "Regulatory Matters" for additional discussion surrounding these requests and all of our other general rate cases.
AEL&P net income increased slightly, primarily due to higher sales volumes to residential and commercial customers in 2020 as a result of general rate
The decrease in AFUDC and capitalized interest due to the construction of an additional back-up generation plant completed in 2016.
More detailed explanations of the fluctuations are provided in the results of operations and business segment discussions (Avista Utilities, AEL&P, and the other businesses).
COVID-19 Pandemic
The COVID-19 pandemic is impacting our business, as well as the WUTC issuedglobal, national and local economies. It is likely that the continued spread of COVID-19 and efforts to contain the virus will continue to cause an order relatedeconomic slowdown, resulting in significant disruptions in various public, commercial or industrial activities and causing employee absences which could interfere with operation and maintenance of the Company’s facilities. These circumstances have affected and will likely continue to adversely affect our operations, results of operations, financial condition and cash flows in the following ways:
38
AVISTA CORPORATION
Operations
We provide critical services to our Washingtoncustomers. Accordingly, it is paramount that we keep our employees who operate our business safe so that we continue to provide reliable service. We implemented business continuity plans in the context of this pandemic. We believe that we will continue to be able to conduct our utility operations effectively and provide safe and reliable service to our customers.
We have taken precautions concerning employee and facility hygiene, imposed travel limitations on employees and directed our employees to work remotely whenever possible. Protocols have been established and implemented to protect employees and the public when work requires public interaction.
During 2020, we experienced supply chain delays due to the effects of the COVID-19 pandemic that have impacted the delivery times of some of our materials and equipment, with delays ranging from a couple weeks up to eight weeks in some cases. At this time, the delays are being managed with minimal impact. The issues that could potentially result from future delays are being proactively mitigated through several planning and review activities, but could have an impact on our planned projects going forward.
Although we have not experienced any significant issues to date, it is possible that COVID-19 could have a negative impact on the ability of vendors or contractors to perform, which could increase operating costs and delay and/or increase the costs of capital projects.
Results of Operations
In the year ended December 31, 2020, when compared to normal, there was a decrease of approximately 3 percent on overall electric load, consisting of approximately a 6 percent decrease in commercial and natural gas general rate casesa 9 percent decrease in industrial loads, which was partially offset by an increase of 3 percent in residential load. We expect a gradual economic recovery and prolonged high unemployment that were originally filed in February 2016. The WUTC order denied the Company's proposed electricwill depress load and natural gas rate increase requests totaling $43.0 million. Accordingly, our electriccustomer growth into 2021. We have decoupling and natural gas retail rates remained unchangedother regulatory mechanisms in Washington, StateIdaho and Oregon, which mitigate the impact of changes in loads and revenues for 2017.
We have suspended customer disconnections and late fees for non-payment in our jurisdictions except in Idaho, as the IPUC approved resuming disconnections and late fees. In Washington, there is a moratorium on disconnections until April 30, 2021 and a moratorium on late fees until October 27, 2021. In Oregon, there is a moratorium on disconnections and late fees for non-payment until at least October 1, 2021.
We are offsetting some of the above WUTC decision, for 2017 we expected to earn below our authorized return on equity (ROE)negative impacts of COVID-19 at Avista Utilities with cost savings and we expected to experience earnings contraction of $0.20 to $0.30 per diluted share as compared to 2016 actual results. However, our actual 2017 earnings were not as negatively affected as we anticipated primarily due to lower resource costs, which resulted from higher than normal hydroelectric generation and lower than forecasted natural gas prices. Our resource optimization activities also contributed to lower resource costs. Our original expectation for the Energy Recovery Mechanism (ERM) in Washington was to be in an expense position within the 90 percent customers/10 percent shareholders sharing band, whereas actual results were a benefit position within the 75 percent customers/25 percent shareholders sharing band. This represented a change of approximately $12 million for our portion of the ERM.
CARES Act
In March 2020, the TCJACARES Act, an economic stimulus package in response to COVID-19, was signed into law. The legislation includes substantialCARES Act contains corporate income tax provisions, including providing temporary changes regarding the prior and future utilization of net operating losses, temporary suspension of certain payment requirements for the employer portion of social security taxes, and the creation of certain refundable employee retention credits.
Financial Condition, Liquidity and Cash Flows
For 2021, we expect our net cash flows from operations to decrease compared to the taxationprior year, primarily due to lower revenues from retail sales of individuals as well as U.S. businesses, multi-national enterprises,electricity and other typesnatural gas and lower payments from customers.
We do not expect the impact of taxpayers. HighlightsCOVID-19 to change our estimate of provisions most relevant to Avista Corp. include:
39
AVISTA CORPORATION
As of December 31, 2017 and based on our evaluation, the reduction2020, we had $270.4 million of the U.S. corporate income tax rate required a revaluation of our deferred income tax assets and liabilities (including the value of our net operating loss carryforwards) during the fourth quarter of 2017, the period in which the tax legislation was enacted. Because we are predominantly a rate-regulated entity, the net effect of the legislation was recorded as a regulatory liability on the Consolidated Balance Sheets and it will be returned to customers through the ratemaking process in future periods. The total net amount of the regulatory liability associated with the TCJA was $442.3 million as of December 31, 2017, which is made up of $339.9 million in excess deferred taxes and $102.4 million for the income tax gross-up of those excess deferred taxes (which, together with the excess deferred tax amount, reflects the revenue amounts to be refunded to customers through the regulatory process). We expectavailable liquidity under the Avista Utilities plant related amounts will be returned to customers over a periodCorp. $400.0 million committed line of approximately 36 years using the ARAM. We expectcredit and $24.0 million under the AEL&P plant related amounts to be returned to customers over a periodcommitted line of approximately 40 years. We do not currently have an estimate for the amortization period for the regulatory liability attributable to non-plant excess deferred taxes items as we are waiting for additional implementation guidance from various regulatory agencies. We estimate that customers could see a benefit going forward of approximately $50 to $60 million annually, excluding amounts that are currently being deferred for 2018 which will be returned to customers at a later date, due to the return of the excess deferred taxes along with lower federal income tax rates which will be reflected in future rates.
After considering the impacts of COVID-19, including expected lower net operating cash flows compared to 2020, and the TCJA by March 30, 2018.issuances of long-term debt and equity during 2021, we expect net cash flows from operations, together with cash available under our committed lines of credit, to provide adequate resources to fund capital expenditures, dividends, and other contractual commitments.
We cannot predict the duration and severity of the COVID-19 pandemic. The WUTC has issued a bench requestlonger and more severe the economic restrictions and business disruption is, the greater the impact on our operations, results of operations, financial condition and cash flows will be.
General Rate Cases and Regulatory Lag
We experienced regulatory lag during 2020 and we expect this to continue through the end of 2022 due to our continued investment in utility infrastructure and because we delayed filings in our 2017 electricWashington and Idaho jurisdictions. In October 2020, we filed general rates cases in Washington and we also filed a natural gas general rate case in Oregon in March (with new rates effective on January 16, 2021). In addition, we filed general rate cases requesting such informationin Idaho on January 29, 2021 (see "Regulatory Matters"). We expect these cases to provide rate relief in 2021 and start reducing regulatory lag. Going forward, we will continue to strive to reduce the regulatory timing lag and more closely align our earned returns with those authorized by February 28, 2018.
Regulatory Matters
General Rate Cases
We regularly review the need for electric and natural gas rate changes in each state in which we provide service. We will continue to file for rate adjustments to:
• | seek recovery of operating costs and capital investments, and |
• | seek the opportunity to earn reasonable returns as allowed by regulators. |
With regards to the timing and plans for future filings, the assessment of our need for rate relief and the development of rate case plans takes into consideration short-term and long-term needs, as well as specific factors that can affect the timing of rate filings. Such factors include, but are not limited to, in-service dates of major capital investments and the timing of changes in major revenue and expense items.
Avista Utilities
Washington General Rate Cases
2015 General Rate Cases
In January 2016, we received an order (Order 05) that concluded our electric and natural gas general rate cases that were originally filed with the WUTC in February 2015. New electric and natural gas rates were effective on January 11, 2016.
PC Petition for Judicial Review
In March 18, 2016, PC filed in Thurston County Superior Court a Petition for Judicial Review of the WUTC's Order 05 and Order 06 described above that concluded our 2015 electric and natural gas general rate cases.Orders. In its Petition for Judicial Review, PC seeks judicial review of five aspects of Order 05 and Order 06, alleging, among other things, that (1) the WUTC exceeded its statutory authority by setting rates for our natural gas and electric services based on amounts for utility plant and facilities that are not "used and useful" in providing utility service to customers; (2) the WUTC acted arbitrarily and capriciously in granting an attrition adjustment for our electric operations after finding that the we did not meet the newly articulated standard regarding attrition adjustments; (3) the WUTC erred in applying the "end results test" to set rates for our electric operations that are not supported by the record; (4) the WUTC did not correct its calculation of our electric rates after significant errors were brought to its attention; and (5) the WUTC's calculation of our electric rates lacks substantial evidence.
40
AVISTA CORPORATION
In August 2018, the Court of Appeals on July 29, 2016. On July 7, 2017, ICNU filedissued a brief"Published Opinion" (Opinion) which concluded that the WUTC's use of an attrition allowance to calculate Avista Corp.'s rate base violated Washington law. In the Opinion, the Court stated that because the projected additions to rate base in support of PCthe future were not "used and useful" for service at the time the request for the rate increase was made, they may not lawfully be included in our rate base to justify a rate increase. Accordingly, the Court concluded that the WUTC erred in including an attrition allowance in the calculation of our electric and Avista Corp. responded. Oral argumentnatural gas rate base. The Court noted, however, that the law does not prohibit an attrition allowance in the calculation, for ratemaking purposes, of recoverable operating and maintenance expense. Since the WUTC order provided one lump sum attrition allowance without distinguishing what portion was held on October 24, 2017 before the court. A decision fromfor rate base and which was for operating and maintenance expenses or other considerations, the Court is expected sometime in 2018.
In March 2020, we received an order from the WUTC that requires us to refund $8.5 million to electric and natural gas customers. We are refunding $4.9 million to electric customers and $3.6 million to natural gas customers, which is being refunded over a twelve-month period that began on April 1, 2020. We previously recorded a customer refund liability of $3.6 million in 2019.
2019 General Rate Cases
In March 2020, we received an order from the WUTC that approved a partial multi-party settlement agreement that contemplated rates designed to increase annual base electric revenues by $28.5 million, or 5.7 percent, and annual natural gas base revenues by $8.0 million, or 8.5 percent, effective April 1, 2020. The designed revenue increases were based on a 9.4 percent return on equity (ROE) with a common equity ratio of 48.5 percent and a rate of return (ROR) on rate base of 7.21 percent.
As part of the 2015 general rate case, doing soWUTC order, we are returning approximately $40 million from the ERM rebate to customers over a two-year period. The ERM rebate includes approximately $3 million that was disallowed by meansthe WUTC for the cost of replacement power during an unplanned outage at the Colstrip generating facility in 2018. The WUTC directed us to return a supplemental evidentiary hearing.larger portion of the ERM rebate during the first year to achieve a net-zero billed impact to electric customers.
Included in the WUTC order is the acceleration of depreciation of Colstrip Units 3 & 4 to reflect a remaining useful life through December 31, 2025. The power cost update at issue represents approximately $12.0order utilizes certain electric tax benefits associated with the 2018 tax reform to partially offset these increased costs. The order also sets aside $3 million for community transition efforts to mitigate the impacts of costs.
Lastly, the order included the extension of electric and natural gas decoupling mechanisms through March 31, 2025, with one modification in that new rates established by Order 05 will continuecustomers added after any test period would not be decoupled until included in effect while the Petition for Judicial Review is being considered. We believe the WUTC's Order 05 and Order 06 finalizing thea future test period.
2020 General Rate Cases
In October 2020, we filed electric and natural gas general rate cases provide a reasonable end result for all parties. If the outcome of the judicial review were to result in an electric rate reduction greater than the decrease ordered by the WUTC, it may result in a refund liability to customers of up to $9.5 million, which is net of a refund for Washington electric customers of approximately $2.5 million related to the 2016 provision for earnings sharing that we have already accrued. The potential refund liability amount is limited to 2016 revenues and would not impact 2017 revenues collected from customers.
| Electric | Natural Gas | |||||||||||||
| Effective Date | Proposed Revenue Increase | Proposed Base Rate Increase | Proposed Revenue Increase | Proposed Base Rate Increase | ||||||||||
| May 1, 2018 (1) | $ | 54.4 | 11.1 | % | $ | 6.6 | 7.5 | % | ||||||
| May 1, 2019 (1) (2) | $ | 13.5 | 2.5 | % | $ | 3.7 | 3.9 | % | ||||||
| May 1, 2020 (1) (2) | $ | 13.9 | 2.5 | % | $ | 3.8 | 3.9 | % | ||||||
Included in our 2012 electric and natural gas general rate cases, and
Idaho General Rate Cases and a 9.5 percent ROE.
2017 General Rate Cases
In December 28, 2017, the IPUC approved a settlement agreement between us and other parties to our electric and natural gas general rate cases. New rates were effective on January 1, 2018 and additional rate changes will take effect on January 1, 2019.
41
AVISTA CORPORATION
The settlement agreement iswas a two-year rate plan and hashad the following electric and natural gas base rate changes each year, which arewere designed to result in the following increases in annual revenues (dollars in millions):
|
| Electric |
|
| Natural Gas |
| ||||||||||
Effective Date |
| Revenue Increase |
|
| Base Rate Increase |
|
| Revenue Increase |
|
| Base Rate Increase |
| ||||
January 1, 2018 |
| $ | 12.9 |
|
|
| 5.2 | % |
| $ | 1.2 |
|
|
| 2.9 | % |
January 1, 2019 |
| $ | 4.5 |
|
|
| 1.8 | % |
| $ | 1.1 |
|
|
| 2.7 | % |
The settlement agreement iswas based on a ROR of 7.61 percent with a common equity ratio of 50.0 percent and a 9.5 percent ROE.
2019 General Rate Case
In October 2019, Avista Corp. and all parties to our electric general rate case forreached a new rate plan to be effective prior to January 1, 2020.
The finalrates that went into effect are designed to decrease annual base electric revenues by $7.2 million (or 2.8 percent), effective December 1, 2019. The settlement revenue decreases are based on a 9.5 percent ROE with a common equity ratio of 50 percent and a ROR on rate base of 7.35 percent, which is a continuation of current levels. This outcome is in line with our expectations.
The primary element of the difference in the agreed upon base revenues in the settlement agreement from our original request is that the settlement includes the continued recovery of costs for our wind generation power purchase agreements, which will include Palouse Wind and Rattlesnake Flat, through the PCA mechanism rather than through base rates.
2021 General Rate Cases
In January 2021, we filed electric and natural gas general rate cases with the IPUC. The proposal is a two-year rate plan, with new rates taking effect September 1, 2021 and September 1, 2022. The electric and natural gas requests are based on a proposed ROR on rate base of 7.30 percent with a common equity ratio of 50 percent and a 9.9 percent ROE.
Avista’s request, if approved, is designed to increase annual electric base revenues by $24.8 million or 10.1 percent effective September 1, 2021 and $8.7 million or 3.2 percent effective September 1, 2022. We are, however, proposing to apply a tax credit to customers that would fully offset the increase for September 1, 2021, resulting in no bill change for customers for a period of time. For natural gas, the rate request is designed to increase annual base revenues by $0.05 million or 0.1 percent effective September 1, 2021 and $1.0 million, or 2.2 percent effective September 1, 2022. The tax credit to customers for natural gas would more than fully offset the September 1, 2021 increase, resulting in a rate reduction for all customers, and would continue for a ten-year period. We are proposing to offset the majority of the increase for the September 1, 2022 rate change with other deferred customer credits.
Oregon General Rate Cases and Other Proceedings
2019 General Rate Case
In October 2019, the OPUC order incorporated two partialapproved the all-party settlement agreements whichfiled in the third quarter of 2019. New rates were entered into during November 2015 andeffective on January 2016.
OPUC approved rates that are designed to increase annual natural gas billed revenues by $3.6 million, or 4.2 percent.
The OPUC order provided an authorizedOPUC’s decision reflects a ROR on rate base of 7.467.24 percent, with a common equity ratio of 50 percent and a 9.4 percent ROE.
In addition, the approved settlement agreements included agreement approved byamong the OPUC, includedparties to an independent review of our interest rate hedging practices, with any recommendations based on the results and findings in the final report to be applicable only on a provision for the implementationprospective basis and do not apply to any prior interest rate hedging activity. In 2020, an independent review of a decoupling mechanism, similarour interest rate hedging practices was completed with no material recommended changes to the Washington and Idaho mechanisms described below. See further description and a summary of the balances recorded under this mechanism below.
2020 General Rate Case
In September 2017, the OPUC approvedMarch 2020, we filed a settlement agreement between us and other parties to our natural gas general rate case that was filed with the OPUC in November 2016, whichOPUC.
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AVISTA CORPORATION
Through several settlement stipulations the parties resolved all issues in the case.
These stipulations approved by the OPUC increased annual base revenuesrevenue by 5.9$3.9 million, or 5.7 percent or $3.5 million. A rate adjustment of $2.6 million became effective October 1, 2017, and a second adjustment of $0.9 million became effective on November 1, 2017 to cover specific capital projects identified in the settlement agreement, which were completed in October.
2021 General Rate Case
We expect to file a natural gas general rate case with the OPUC in the second half of 2021.
AMI Project
In March 2016, the WUTC granted our Petition for an Accounting Order to defer and include in a regulatory asset the undepreciated value of our existing Washington electric meters for the opportunity for later recovery. This accounting treatment is related to our plansongoing project to replace approximately 253,000 of our existing electric meters with new two-way digital meters and the
In September 2017, the WUTC approved a Petition to defer the depreciation expense associated with the AMI project, and both the IPUC and the OPUC approved the depreciable life. In addition,along with a carrying charge. We have included a request to seek recovery of our AMI costs in connection with the recently completed Idaho electricour 2020 Washington general rate case (discussed above), the settling parties agreed to cost recovery of Idaho's share of the MDM system, effective January 1, 2019. In connection with the approval of the Oregon general rate case settlement (discussed above), the OPUC approved cost recovery of Oregon's share of the MDM system, effective November 1, 2017.
Alaska Electric Light and Power Company
AEL&P is required to AEL&P's electricfile its’ next general rate case which was originally filed in September 2016. The settlement agreement is designed to increase base electric revenue by 3.86 percent or $1.3 million, making permanent the interim rate increase approved by the RCA in 2016.
Avista Utilities
Purchased Gas Adjustments
PGAs are designed to pass through changes in natural gas costs to Avista Utilities' customers with no change in grossutility margin (operating revenues less resource costs) or net income. In Oregon, we absorb (cost or benefit) 10 percent of the difference between actual and projected natural gas costs included in base retail rates for supply that is not hedged. Total net deferred natural gas costs among all jurisdictions were a liabilitynet asset of $37.5$1.4 million as of December 31, 20172020 and a liability of $30.8$3.2 million as of December 31, 2016.2019. These deferred natural gas costscost balances represent amounts due to customers.
The following PGAs went into effect in our various jurisdictions during 20152018 through 2018:
Jurisdiction | ||||||
PGA Effective Date | Percentage Increase / (Decrease) in Billed Rates | |||||
Washington | ||||||
January 26, 2018 (1) | (7.1 | )% | ||||
November 1, | (0.1 | )% | ||||
November 1, | 10.4 | % | ||||
November 1, | (0.1 | )% | ||||
Idaho | January 26, 2018 (1) | (7.4 | )% | |||
November 1, | (1.0 | )% | ||||
November 1, | 5.6 | % | ||||
November 1, | 0.7 | % | ||||
Oregon | January 26, 2018 (1) | (3.5 | )% | |||
November 1, 2018 | (2.9 | )% | ||||
November 1, 2019 | 4.7 | % | ||||
November 1, 2020 | 2.8 | % | ||||
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AVISTA CORPORATION
(1) | |
Due to declining wholesale natural gas prices that |
Power Cost Deferrals and Recovery Mechanisms
Deferred power supply costs are recorded as a deferred charge or liability on the Consolidated Balance Sheets for future prudence review and recovery or rebate through retail rates. The power supply costs deferred include certain differences between actual net power supply costs incurred by Avista Utilities and the costs included in base retail rates. This difference in net power supply costsThese differences primarily resultsresult from changes in:
• | short-term wholesale market prices and sales and purchase volumes, |
• | the level, availability and optimization of hydroelectric generation, |
• | the level and availability of thermal generation (including changes in fuel prices), |
• | retail loads, and |
• | sales of surplus transmission capacity. |
For our Washington customers, the ERM is an accounting method used to track certain differences between Avista Utilities' actual power supply costs, net of wholesale sales and sales of fuel, and the amount included in base retail rates for our Washington customers.rates. Total net deferred power costs under the ERM were a liability of $23.7$37.9 million as of December 31, 20172020 and a liability $21.3$37.0 million as of December 31, 2016.2019. These deferred power cost balances represent amounts due to customers.
Under the ERM, Avista Utilities absorbs the cost or receives the benefit from the initial amount of power supply costs in excess of or below the level in retail rates, which is referred to as the deadband. The annual (calendar year) deadband amount is $4.0 million.
The following is a summary of the ERM:
Annual Power Supply Cost Variability |
| Deferred for Future Surcharge or Rebate to Customers |
|
| Expense or Benefit to the Company |
|
within +/- $0 to $4 million (deadband) |
| 0% |
|
| 100% |
|
higher by $4 million to $10 million |
| 50% |
|
| 50% |
|
lower by $4 million to $10 million |
| 75% |
|
| 25% |
|
higher or lower by over $10 million |
| 90% |
|
| 10% |
|
| Annual Power Supply Cost Variability | Deferred for Future Surcharge or Rebate to Customers | Expense or Benefit to the Company | ||
| within +/- $0 to $4 million (deadband) | 0% | 100% | ||
| higher by $4 million to $10 million | 50% | 50% | ||
| lower by $4 million to $10 million | 75% | 25% | ||
| higher or lower by over $10 million | 90% | 10% | ||
Under the ERM, Avista Utilities makes an annual filing on or before April 1 of each year to provide the opportunity for the WUTC staff and other interested parties to review the prudence of and audit the ERM deferred power cost transactions for the prior calendar year.
Pursuant to WUTC requirements, should the cumulative deferral balance exceed $30 million (in either direction), we must make a filing with the WUTC to adjust customer rates to either return the balance to customers or recover the balance from customers. The cumulative rebate balance exceeded $30 million and as a result, our 2019 filing contained a proposed rate refund. The ERM proceeding was considered with our 2019 general rate case proceeding and a refund was approved and is being returned to customers over a two-year period that began on April 1, 2020. See further discussion in the section "Washington General Rate Cases" above.
Avista Utilities has a PCA mechanism in Idaho that allows us to modify electric rates on October 1 of each year with IPUC approval. Under the PCA mechanism, we defer 90 percent of the difference between certain actual net power supply expenses and the amount included in base retail rates for our Idaho customers. The October 1 rate adjustments recover or rebate power supply costs deferred during the preceding July-June twelve-month period. Total net power supply costs deferred under the PCA mechanism were a liabilityan asset of
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AVISTA CORPORATION
Decoupling and Earnings Sharing Mechanisms
Decoupling (also known as a FCA in Idaho) is a mechanism designed to sever the link between a utility's revenues and consumers' energy usage. In each of our jurisdictions, Avista Utilities' electric and natural gas revenues are adjusted so as to be based on the number of customers in certain customer rate classes and assumed "normal" kilowatt hour and therm sales, rather than being based on actual kilowatt hour and therm sales. The difference between revenues based on the number of customers and "normal" sales and revenues based on actual usage is deferred and either surcharged or rebated to customers beginning in the following year. Only residential and certain commercial customer classes are included in our decoupling mechanisms.
Washington Decoupling and Earnings Sharing
In our 2019 Washington general rate cases order the WUTC approved our decouplingan extension of the mechanisms for electric and natural gas for aan additional five-year term through March 31, 2025, with one modification in that new customers added after any test period beginning January 1, 2015. Electric and natural gas decoupling surcharge rate adjustments to customers are limited to a 3 percent increase on an annual basis, with any remaining surcharge balance carried forward for recoverywould not be decoupled until included in a future test period. There is no limit on the level of rebate rate adjustments.
The decoupling mechanisms each include an after-the-fact earnings test. At the end of each calendar year, separate electric and natural gas earnings calculations are made for the calendar year just ended. These earnings tests reflect actual decoupled revenues, normalized power supply costs and other normalizing adjustments. If we earn more than our authorized ROR in Washington, 50 percent of excess earnings are rebated to customers through adjustments to existing decoupling surcharge or rebate balances.
Idaho FCA and Earnings Sharing Mechanisms
In Idaho, the IPUC approved the implementationextensions of FCAs for electric and natural gas (similar in operation and effect to the Washington decoupling mechanisms) for an initial term of three years, beginning January 1, 2016.
Oregon Decoupling Mechanism
In February 2016, the OPUC approved the implementation of a decoupling mechanism for natural gas, similar to the Washington and Idaho mechanisms described above. The decoupling mechanism became effective on March 1, 2016. There will bewas an opportunity for interested parties to review the mechanism and recommend changes, if any, by September 2019. Changes related to deferral interest rates were recommended by the parties in our 2019 general rate case and were implemented effective January 15, 2020. In Oregon, an earnings review is conducted on an annual basis. In the annual earnings review, if we earn more than 100 basis points above our allowed return on equity, one-third of the earnings above the 100 basis points would be deferred and later rebated to customers. See below for a summary of cumulative balances under the decoupling and earnings sharing mechanisms.
Cumulative Decoupling and Earnings Sharing Mechanism Balances
Total net cumulative decoupling deferrals among all jurisdictions were regulatory assets of $21.3 million as of December 31, 20172020 and $24.3 million as of December 31, 2019. These decoupling assets represent amounts due from customers. Total net earnings sharing balances among all jurisdictions were regulatory liabilities of $0.7 million as of December 31, 2020 and December 31, 2016, we had the following cumulative balances outstanding related to decoupling and2019. These earnings sharing mechanisms in our various jurisdictions (dollars in thousands):
| December 31, | December 31, | ||||||
| 2017 | 2016 | ||||||
| Washington | |||||||
| Decoupling surcharge | $ | 14,240 | $ | 30,408 | |||
| Provision for earnings sharing rebate | (3,420 | ) | (5,113 | ) | |||
| Idaho | |||||||
| Decoupling surcharge | $ | 3,471 | $ | 8,292 | |||
| Provision for earnings sharing rebate | (2,350 | ) | (5,184 | ) | |||
| Oregon | |||||||
| Decoupling surcharge/(rebate) | $ | (1,168 | ) | $ | 2,021 | ||
| Provision for earnings sharing rebate | — | — | |||||
See "Results of Operations - Avista Utilities" for further discussion of the amounts recorded to operating revenues in 2015 through 20172019 and 2020 related to the decoupling and earnings sharing mechanisms.
COVID-19 Deferrals
See “Note 1 of the state regulatory approvals that are requiredNotes to Consolidated Financial Statements” for the proposed acquisition of the Company by Hydro One.
Results of Operations - Overall
The following provides an overview of changes in our Consolidated Statements of Income. More detailed explanations are provided, particularly for operating revenues and operating expenses, in the business segment discussions (Avista Utilities, AEL&P Ecova - Discontinued Operations and the other businesses) that follow this section.
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AVISTA CORPORATION
2020 compared to
The following graph shows the total change in net income from continuing operationsattributable to Avista Corp. shareholders for 20162020 to 2017,2019, as well as the various factors that caused such change (dollars in millions):
Utility revenues increaseddecreased at Avista Utilities primarily due to an increase at AEL&P,overall decrease in electric load of 2 percent when compared to the year ended December 31, 2019, which consisted of a 6 percent and a 5 percent decrease in commercial and industrial load, respectively. The decreases in commercial and industrial were partially offset by a decrease at Avista Utilities.1 percent increase in residential electric load when compared to the year ended December 31, 2019. The above decreases were partially offset by an increase from electric and natural gas decoupling rates, higher PGA rates and customer growth. AEL&P's revenues increased primarily due to a general ratefrom an increase and higher retail heating loadsin sales volumes due to weather that was cooler than the prior year.
Non-utility revenues decreased due to the sale of METALfx, which occurred in April 2019. See "Note 26 of the Notes to Consolidated Financial Statements" for further discussion.
Utility resource costs decreased at Avista Utilities due to lower fuel for generation and other fuel costs, as well as lower natural gas purchases. There was also a slight increase in the number of customers at AEL&P. Avista Utilities' revenues decreased primarily due to a decrease in electric and natural gas wholesale revenues and revenues from sales of fuel, mostly offset by an increase in electric and natural gas retail revenues. Retail revenues increasedat AEL&P due to an increase in volumes and an electric general ratedeferred power supply expenses.
The increase in Idaho and a natural gas general rate increase in Oregon. The higher retail sales volumes resulted from increased heating loads during the heating season, increased electric cooling loads during the summer and due to customer growth. The increased utility revenues were partially offset by decoupling rebates during 2017 due to weather that fluctuated from normal. This compares to decoupling surcharges during 2016.
The acquisitionmerger transaction costs are related to the pendingproposed (now terminated) acquisition by Hydro One and consist primarily of consulting, banking fees, legal fees and employee time and are not being passed throughOne. There were no additional costs in 2020 relating to customers.
Utility depreciation and amortization increased due to additions to utility plant.
The merger termination fee was related to the termination of the Notesproposed Hydro One acquisition. There were no additional amounts received in 2020 relating to Consolidated Financial Statements" for a reconciliation of our effective income tax rate.
Income taxes other than income taxes primarily due to revenue-related taxes, which resulted from an increase in electric and natural gas retail revenue. Lastly, there were impairments recorded during 2017 on two of our equity investments.
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AVISTA CORPORATION
2019 Washington general rate electric capacity contract thatcase settlement, which was previously held by Spokane Energy being transferred to Avista Corp. duringrecorded in the second quarter of 2015. The capacity revenue from this contract was included2020. This amounted to $8.4 million in non-utility revenues when it was held by Spokane Energy during the first quarter of 2015. After the transfer, the revenue is included2020 as compared to $5.1 million in Avista Utilities' revenues. The contract expired during December 2016.
Non-GAAP Financial Measures
The following discussion for Avista Utilities includes two financial measures that are considered “non-GAAP financial measures,” electric grossutility margin and natural gas grossutility margin. In the AEL&P section, we include a discussion of electric grossutility margin, which is also a non-GAAP financial measure.
Generally, a non-GAAP financial measure is a numerical measure of a company's financial performance, financial position or cash flows that excludes (or includes) amounts that are included (excluded) in the most directly comparable measure calculated and presented in accordance with GAAP. Electric utility margin is electric operating revenues less electric resource costs, while natural gas utility margin is natural gas operating revenues less natural gas resource costs. The most directly comparable GAAP financial measure to electric and natural gas utility margin is utility operating revenues as presented in "Note 24 of the Notes to Consolidated Financial Statements."
The presentation of electric grossutility margin and natural gas grossutility margin is intended to supplement anenhance understanding of our operating performance. We use these measures internally and believe they provide useful information to determine whether the appropriate amountinvestors in their analysis of revenue is being collected from our customers to allow for the recovery of energy resource costs and operating costs, as well as to analyze how changes in loads (due to weather, economic or other conditions), rates, supply costs and other factors impact our results of operations. In addition, weChanges in loads, as well as power and natural gas supply costs, are generally deferred and recovered from customers through regulatory accounting mechanisms. Accordingly, the analysis of utility margin generally excludes most of the change in revenue resulting from these regulatory mechanisms. We present electric and natural gas grossutility margin separately below for Avista Utilities since each business has different cost sources, cost recovery mechanisms and jurisdictions, suchso we believe that separate analysis is beneficial. These measures are not intended to replace income from operationsutility operating revenues as determined in accordance with GAAP as an indicator of operating performance. The calculationsReconciliations of electric and natural gas gross marginsoperating revenues to utility margin are presentedset forth below.
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AVISTA CORPORATION
Results of Operations - Avista Utilities
2020 compared to 2016
Utility Operating Revenues
The following graphs present Avista Utilities' electric operating revenues and megawatt-hour (MWh) sales for the years ended December 31 (dollars in millions and MWhs in thousands):
(1) | This balance includes public street and highway lighting, which is considered part of retail electric revenues, and deferrals/amortizations to customers related to federal income tax law changes. |
Total electric operating revenues in the graph above include intracompany sales of $36.4 million and $48.0 million for 2020 and 2019, respectively.
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AVISTA CORPORATION
The following table presents the current year deferrals and the amortization of prior year decoupling balances that are reflected in utility electric operating revenues for the years ended December 31 (dollars in thousands):
|
| Electric Operating Revenues |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Current year decoupling deferrals (a) |
| $ | 11,449 |
|
| $ | 9,744 |
|
Amortization of prior year decoupling deferrals (b) |
|
| (15,810 | ) |
|
| (1,045 | ) |
Total electric decoupling revenue |
| $ | (4,361 | ) |
| $ | 8,699 |
|
(a) | Positive amounts are increases in decoupling revenue in the current year and will be surcharged to customers in future years. Negative amounts are decreases in decoupling revenue in the current year and will be rebated to customers in future years. |
(b) | Negative amounts are decreases in decoupling revenue in the current year and are related to the amortization of surcharge balances that resulted in prior years and are being surcharged to customers (causing a corresponding increase in retail revenue from customers) in the current year. Positive amounts are increases in decoupling revenue in the current year and are related to the amortization of rebate balances that resulted in prior years and are being refunded to customers (causing a corresponding decrease in retail revenue from customers) in the current year. |
Total electric revenues decreased $34.5 million for 2020 as compared to 2019. The primary fluctuations that occurred during the period were as follows:
• | a $7.8 million decrease in retail electric revenues due to a decrease in total MWhs sold (decreased revenues $19.8 million), partially offset by an increase in revenue per MWh (increased revenues $12.0 million). |
• | The decrease in total retail MWhs sold was primarily the result of a decrease in sales volumes to commercial customers and Washington industrial customers due to a combination of impacts associated with COVID-19 and weather that was milder than normal and the prior year. These were partially offset by residential and commercial customer growth. Compared to 2019, residential electric use per customer was flat, commercial use per customer decreased 7 percent and industrial use per customer increased 2 percent. The industrial increase was all related to Idaho as Washington had a 7 percent decrease in industrial use per customer. Heating degree days in Spokane were 7 percent below normal and 9 percent below 2019. Cooling degree days were 2 percent above normal, and 12 percent above 2019. |
• | The increase in revenue per MWh was primarily due to an increase in decoupling rates (as there was a decoupling surcharge in 2020 compared to a decoupling rebate in 2019) and a general rate increase in Washington, effective April 1, 2020. This was partially offset by a general rate decrease in Idaho, effective December 1, 2019. |
• | a $4.1 million increase in wholesale electric revenues due to an increase in sales prices (increased revenues $7.1 million), partially offset by a decrease in sales volumes (decreased revenues $3.0 million). The fluctuation in volumes was primarily the result of how much we were able to optimize our generation assets as compared to the prior year. |
• | a $19.2 million decrease in sales of fuel due to a decrease in sales of natural gas fuel as part of thermal generation resource optimization activities. |
• | a $13.1 million decrease in electric decoupling revenue primarily related to the amortization of decoupling surcharges from prior years. This was partially offset by decoupling surcharges for non-residential customers as commercial usage was down compared to normal due to COVID-19 impacts. In addition, weather was milder than normal in 2020, which also resulted in decoupling surcharges. |
• | a $1.4 million accrual for customer refunds recorded in 2020 related to our 2015 Washington general rate case that was remanded back to the WUTC in 2019. See "Regulatory Matters" for further discussion. |
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AVISTA CORPORATION
The following graphs present Avista Utilities' natural gas operating revenues and therms delivered for the years ended December 31 (dollars in millions and therms in thousands):
(1) | This balance includes interruptible and industrial revenues, which are considered part of retail natural gas revenues, and deferrals/amortizations to customers related to federal income tax law changes. |
Total natural gas operating revenues in the graph above include intracompany sales of $49.6 million and $65.4 million for 2020 and 2019, respectively.
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AVISTA CORPORATION
The following table presents the current year deferrals and the amortization of prior year decoupling balances that are reflected in natural gas operating revenues for the years ended December 31 (dollars in thousands):
|
| Natural Gas Operating Revenues |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Current year decoupling deferrals (a) |
| $ | 1,797 |
|
| $ | (3,270 | ) |
Amortization of prior year decoupling deferrals (b) |
|
| (1,250 | ) |
|
| 4,184 |
|
Total natural gas decoupling revenue |
| $ | 547 |
|
| $ | 914 |
|
(a) | Positive amounts are increases in decoupling revenue in the current year and will be surcharged to customers in future years. Negative amounts are decreases in decoupling revenue in the current year and will be rebated to customers in future years. |
(b) | Positive amounts are increases in decoupling revenue in the current year and are related to the amortization of rebate balances that resulted in prior years and are being refunded to customers (causing a corresponding decrease in retail revenue from customers) in the current year. Negative amounts are decreases in decoupling revenue in the current year and are related to the amortization of surcharge balances that resulted in prior years and are being surcharged to customers (causing a corresponding increase in retail revenue from customers) in the current year. |
Total natural gas revenues decreased $11.4 million for 2020 as compared to 2019. The primary fluctuations that occurred during the period were as follows:
• | a $21.8 million increase in retail natural gas revenues due to a higher retail rates (increased revenues $38.3 million), partially offset by a decrease in volumes (decreased revenues $16.5 million). |
• | Retail rates increased from higher PGA rates, decoupling rate increases and general rate increases in Oregon, effective January 15, 2020 and Washington, effective April 1, 2020. |
• | Retail natural gas sales decreased in 2020 as compared to 2019 primarily due to lower residential, commercial and industrial usage, partially offset by customer growth. Compared to 2019, residential use per customer decreased 7 percent, commercial use per customer decreased 10 percent and industrial use per customer decreased 7 percent. Heating degree days in Spokane were 7 percent below normal, and 9 percent below 2019. Heating degree days in Medford were 2 percent below normal, and 6 percent below 2019. |
• | a $30.1 million decrease in wholesale natural gas revenues due to a decrease in prices (decreased revenues $20.8 million) and a decrease in volumes (decreased revenues $9.3 million). Differences between revenues and costs from sales of resources in excess of retail load requirements and from resource optimization are accounted for through the PGA mechanisms. |
• | net decoupling was consistent between 2020 and 2019, however there were customer rebates in 2019 due to colder than normal weather compared to customer surcharges in 2020 due to lower commercial loads from COVID-19. |
• | a $3.5 million decrease recorded in 2020 for customer refunds related to our 2015 Washington general rate case that was remanded back to the WUTC during 2019. See "Regulatory Matters" for further discussion. |
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AVISTA CORPORATION
Utility Resource Costs
The following graphs present Avista Utilities' resource costs for the years ended December 31 (dollars in millions):
Total electric resource costs in the graph above include intracompany resource costs of $49.6 million and $65.4 million for 2020 and 2019, respectively.
Total electric resource costs decreased $52.6 million for 2020 as compared to 2019. The primary fluctuations that occurred during the period were as follows:
• | a $6.4 million decrease in power purchased due to a decrease in wholesale prices (decreased costs $10.2 million), partially offset by an increase in the volume of power purchases (increased costs $3.8 million). The fluctuation in volumes was primarily the result of changes in how we were able to optimize our generation assets as compared to the prior year. |
• | an $18.3 million decrease in fuel for generation primarily due to a decrease in thermal generation resulting from higher hydroelectric generation. There was also a decrease in total MWhs sold (which required less fuel for electric generation). |
• | a $12.0 million decrease in other fuel costs. |
• | a $15.9 million decrease in other electric resource costs, primarily related to increased amortizations associated with the Washington ERM, a residential exchange credit and demand side management programs. |
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AVISTA CORPORATION
Total natural gas resource costs in the graph above include intracompany resource costs of $36.4 million and $48.0 million for 2020 and 2019, respectively.
Total natural gas resource costs decreased $20.7 million for 2020 as compared to 2019. The primary fluctuations that occurred during the period were as follows:
• | a $55.3 million decrease in natural gas purchased due to decrease in the price of natural gas (decreased costs $39.9 million) and a decrease in total therms purchased (decreased costs $15.4 million). |
• | a $34.6 million increase from net amortizations and deferrals of natural gas costs, primarily due to a spike in natural gas prices during the first quarter of 2019 from a natural gas supply disruption in Canada, which resulted in a significant amount of PGA deferrals during that period. |
Utility Margin
The following table reconciles Avista Utilities' operating revenues, resource costs and resulting grossas presented in "Note 24 of the Notes to Consolidated Financial Statements" to the Non-GAAP financial measure utility margin for the years ended December 31 (dollars in millions)thousands):
|
| Electric |
|
| Natural Gas |
|
| Intracompany |
|
| Total |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Operating revenues |
| $ | 927,540 |
|
| $ | 962,048 |
|
| $ | 435,882 |
|
| $ | 447,232 |
|
| $ | (85,954 | ) |
| $ | (113,407 | ) |
| $ | 1,277,468 |
|
| $ | 1,295,873 |
|
Resource costs |
|
| 264,595 |
|
|
| 317,229 |
|
|
| 217,902 |
|
|
| 238,649 |
|
|
| (85,954 | ) |
|
| (113,407 | ) |
|
| 396,543 |
|
|
| 442,471 |
|
Utility margin |
| $ | 662,945 |
|
| $ | 644,819 |
|
| $ | 217,980 |
|
| $ | 208,583 |
|
| $ | — |
|
| $ | — |
|
| $ | 880,925 |
|
| $ | 853,402 |
|
| Electric | Natural Gas | Intracompany | Total | ||||||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||
| Operating revenues | $ | 980,390 | $ | 996,959 | $ | 474,649 | $ | 470,894 | $ | (84,680 | ) | $ | (95,215 | ) | $ | 1,370,359 | $ | 1,372,638 | |||||||||||||
| Resource costs | 331,254 | 360,591 | 264,589 | 273,976 | (84,680 | ) | (95,215 | ) | 511,163 | 539,352 | |||||||||||||||||||||
| Gross margin | $ | 649,136 | $ | 636,368 | $ | 210,060 | $ | 196,918 | $ | — | $ | — | $ | 859,196 | $ | 833,286 | |||||||||||||||
Electric utility margin on electric sales increased $12.8$18.1 million and the gross margin on natural gas salesutility margin increased $13.1$9.4 million. The increase in electric gross margin was primarily due to
For 2020, we had a general rate increase in Idaho, customer growth, increases in loads not subject to decoupling and lower resource costs. For 2017, we recognized a$6.2 million pre-tax benefit of $4.6 million under the ERM in Washington, compared to a $4.4 million benefit of $5.1 million for 2016.
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AVISTA CORPORATION
Natural gas utility margin increased primarily due to general rate increases in loads not subjectOregon, effective January 15, 2020 and Washington, effective April 1, 2020 and customer growth. These increases were partially offset by an accrual for customer refunds of $3.5 million related to decoupling.
Intracompany revenues and resource costs represent purchases and sales of natural gas between our natural gas distribution operations and our electric generation operations (as fuel for our generation plants). These transactions are eliminated in the presentation of total results for Avista Utilities and in the consolidated financial statements but are included in the separate results for electric and natural gas presented below.
| Electric Operating Revenues | |||||||
| 2017 | 2016 | ||||||
| Washington | |||||||
| Decoupling surcharge (rebate) | $ | (4,982 | ) | $ | 11,324 | ||
| Provision for earnings sharing (1) | (1,182 | ) | 221 | ||||
| Idaho | |||||||
| Decoupling surcharge (rebate) | $ | (3,238 | ) | $ | 6,025 | ||
| Provision for earnings sharing (2) | n/a | 711 | |||||
Natural Gas Operating Revenues | |||||||
| 2017 | 2016 | ||||||
| Washington | |||||||
| Decoupling surcharge (rebate) | $ | (6,551 | ) | $ | 8,191 | ||
| Provision for earnings sharing | (2,392 | ) | (2,767 | ) | |||
| Idaho | |||||||
| Decoupling surcharge (rebate) | $ | (1,641 | ) | $ | 2,206 | ||
| Oregon | |||||||
| Decoupling surcharge (rebate) | $ | (3,182 | ) | $ | 1,912 | ||
Electric Customers | Natural Gas Customers | ||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||
| Residential | 334,848 | 330,699 | 307,375 | 300,883 | |||||||
| Commercial | 42,154 | 41,785 | 35,192 | 34,868 | |||||||
| Interruptible | — | — | 37 | 37 | |||||||
| Industrial | 1,328 | 1,342 | 251 | 255 | |||||||
| Public street and highway lighting | 569 | 558 | — | — | |||||||
| Total retail customers | 378,899 | 374,384 | 342,855 | 336,043 | |||||||
| Electric | Natural Gas | Intracompany | Total | ||||||||||||||||||||||||||||
| 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||||
| Operating revenues | $ | 996,959 | $ | 997,873 | $ | 470,894 | $ | 521,010 | $ | (95,215 | ) | $ | (107,020 | ) | $ | 1,372,638 | $ | 1,411,863 | |||||||||||||
| Resource costs | 360,591 | 400,910 | 273,976 | 351,101 | (95,215 | ) | (107,020 | ) | 539,352 | 644,991 | |||||||||||||||||||||
| Gross margin | $ | 636,368 | $ | 596,963 | $ | 196,918 | $ | 169,909 | $ | — | $ | — | $ | 833,286 | $ | 766,872 | |||||||||||||||
| Electric Operating Revenues | |||||||
| 2016 | 2015 | ||||||
| Washington | |||||||
| Decoupling surcharge | $ | 11,324 | $ | 4,740 | |||
| Provision for earnings sharing (1) | 221 | (3,423 | ) | ||||
| Idaho | |||||||
| Decoupling surcharge | $ | 6,025 | n/a | ||||
| Provision for earnings sharing (2) | 711 | (2,198 | ) | ||||
Natural Gas Operating Revenues | |||||||
| 2016 | 2015 | ||||||
| Washington | |||||||
| Decoupling surcharge | $ | 8,191 | $ | 6,004 | |||
| Provision for earnings sharing | (2,767 | ) | — | ||||
| Idaho | |||||||
| Decoupling surcharge | $ | 2,206 | n/a | ||||
| Oregon | |||||||
| Decoupling surcharge | $ | 1,912 | n/a | ||||
Electric Customers | Natural Gas Customers | ||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||
| Residential | 330,699 | 327,057 | 300,883 | 296,005 | |||||||
| Commercial | 41,785 | 41,296 | 34,868 | 34,229 | |||||||
| Interruptible | — | — | 37 | 35 | |||||||
| Industrial | 1,342 | 1,353 | 255 | 261 | |||||||
| Public street and highway lighting | 558 | 529 | — | — | |||||||
| Total retail customers | 374,384 | 370,235 | 336,043 | 330,530 | |||||||
Results of Operations - Alaska Electric Light and Power Company
2020 compared to 2016
Net income for AEL&P was $9.1$8.1 million for the year ended December 31, 2017,2020, compared to $8.0$7.5 million for 2016.
The following table presents AEL&P's operating revenues, resource costs and resulting grossutility margin for the years ended December 31 (dollars in millions)thousands):
|
| Electric |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Operating revenues |
| $ | 42,809 |
|
| $ | 37,265 |
|
Resource costs (benefits) |
|
| 1,966 |
|
|
| (2,654 | ) |
Utility margin |
| $ | 40,843 |
|
| $ | 39,919 |
|
| Electric | |||||||
| 2017 | 2016 | ||||||
| Operating revenues | $ | 53,027 | $ | 46,276 | |||
| Resource costs | 13,403 | 12,014 | |||||
| Gross margin | $ | 39,624 | $ | 34,262 | |||
Electric revenues increased for 2020 primarily relateddue to a general rate increase, effective in November 2016,higher sales volumes to residential and increases in electric heating loads duecommercial customers for 2020 as compared to 2019. This resulted from weather that was cooler than the prior year. There were also slight increases in residential and commercial customers. This was partially offset by an increase in resource costs primarily due to purchased power and the general rate case settlement.
AEL&P revenueshad low hydroelectric generation during 2017, AEL&P has a relatively stable load profile as it does not have a large population of customers in its service territory with electric heating and cooling requirements; therefore, its revenues are not as sensitive to weather fluctuations as Avista Utilities. However, AEL&P does have higher winter rates for its customers during the peak period of November through May of each year, which drives higher revenues during those periods.
| Electric | |||||||
| 2016 | 2015 | ||||||
| Operating revenues | $ | 46,276 | $ | 44,778 | |||
| Resource costs | 12,014 | 11,973 | |||||
| Gross margin | $ | 34,262 | $ | 32,805 | |||
Results of Operations - Other Businesses
2020 compared to
The net loss from these operations was
Accounting Standards to be Adopted in
At this time, we are not expecting the adoption of accounting standards to have a material impact on our financial condition, results of operations and cash flows in
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in the consolidated financial statements. Changes in these estimates and assumptions are considered reasonably possible and may have a material effect on our consolidated financial statements and thus actual results could differ from the amounts reported and disclosed herein. The following accounting policies represent those that our
54
AVISTA CORPORATION
management believes are particularly important to the consolidated financial statements and require the use of estimates and assumptions:
• | Regulatory accounting, in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 980, Regulated Operations, among other things, requires that costs and/or obligations that are probable of recovery through rates charged to our customers, but are not yet reflected in rates, not be reflected in our Consolidated Statements of Income until the period in which they are reflected in rates and matching revenues are recognized. Meanwhile, these costs and/or obligations are deferred and reflected on our Consolidated Balance Sheets as regulatory assets or liabilities. We generally receive regulatory orders before deferring costs as regulatory assets and liabilities; however, in certain instances in which we have regulatory precedents, we may not request an order before deferring the costs. If we were no longer allowed to apply regulatory accounting or no longer allowed recovery of these costs, we could be required to recognize significant write-offs of regulatory assets and liabilities in the Consolidated Statements of Income. See "Notes 1, 4 and 23 of the Notes to Consolidated Financial Statements" for further discussion of our regulatory accounting policy and mechanisms. |
• |
Pension Plans and Other Postretirement Benefit Plans, discussed in further detail below. |
• |
Contingencies, related to unresolved regulatory, legal and tax issues as to which there is inherent uncertainty for the ultimate outcome of the respective matter. We accrue a loss contingency if it is probable that an asset is impaired or a liability has been incurred and the amount of the loss or impairment can be reasonably estimated. We also disclose losses that do not meet these conditions for accrual, if there is a reasonable possibility that a potential loss may be incurred. For all material contingencies, we have made a judgment as to the probability of a loss occurring and as to whether or not the amount of the loss can be reasonably estimated. However, no assurance can be given as to the ultimate outcome of any particular contingency. See "Notes 1 and 22 of the Notes to Consolidated Financial Statements" for further discussion of our commitments and contingencies. |
Pension Plans and Other Postretirement Benefit Plans - Avista Utilities
We have a defined benefit pension plan covering substantially all regular full-time employees at Avista Utilities that were hired prior to January 1, 2014. For substantially all regular non-union full-time employees at Avista Utilities who were hired on or after January 1, 2014, a defined contribution 401(k) plan replaced the defined benefit pension plan.
The Finance Committee of the Board of Directors approves investment policies, objectives and strategies that seek an appropriate return for the pension plan and it reviews and approves changes to the investment and funding policies.
We have contracted with an independent investment consultant who is responsible for monitoring the individual investment managers. The investment managers’ performance and related individual fund performance is reviewed at least quarterly by an internal benefits committee and by the Finance Committee to monitor compliance with our established investment policy objectives and strategies.
Our pension plan assets are invested in debt securities and mutual funds, trusts and partnerships that hold marketable debt and equity securities, real estate and absolute return funds. In seeking to obtain a return that aligns with the funded status of the pension plan, the investment consultant recommends allocation percentages by asset classes. These recommendations are reviewed by the internal benefits committee, which then recommends their adoption by the Finance Committee. The Finance Committee has established target investment allocation percentages by asset classes and also investment ranges for each asset class. The target investment allocation percentages are typically the midpoint of the established range. See “Note 1011 of the Notes to Consolidated Financial Statements” for the target investment allocation percentages.
We also have a Supplemental Executive Retirement Plan (SERP) that provides additional pension benefits to certain executive officers and others whose benefits under the pension plan are reduced due to the application of Section 415 of the Internal Revenue Code of 1986 and the deferral of salary under deferred compensation plans.
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AVISTA CORPORATION
Pension costs (including the SERP) were
Pension costs are affected by among other things:
• | employee demographics (including age, compensation and length of service by employees), |
• | the amount of cash contributions we make to the pension plan, |
• | the actual return on pension plan assets, |
• | expected return on pension plan assets, |
• | discount rate used in determining the projected benefit obligation and pension costs, |
• | assumed rate of increase in employee compensation, |
• | life expectancy of participants and other beneficiaries, and |
• | expected method of payment (lump sum or annuity) of pension benefits. |
In accordance with accounting standards, changes in pension plan obligations associated with these factors may not be immediately recognized as pension costs in our Consolidated StatementStatements of Income, but we generally recognize the change in future years over the remaining average service period of pension plan participants. As such, our costs recorded in any period may not reflect the actual level of cash benefits provided to pension plan participants.
We revise the key assumption of the discount rate each year. In selecting a discount rate, we consider yield rates at the end of the year for highly rated corporate bond portfolios with cash flows from interest and maturities similar to that of the expected payout of pension benefits.
The expected long-term rate of return on plan assets is reset or confirmed annually based on past performance and economic forecasts for the types of investments held by our plan.
The following chart reflects the assumptions used each year for the pension discount rate (exclusive of the SERP), the expected long-term return on plan assets and the actual return on plan assets and their impacts to the pension plan associated with the change in assumption (dollars in millions):
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Discount rate (exclusive of SERP) |
|
|
|
|
|
|
|
|
|
|
|
|
Pension discount rate |
|
| 3.25 | % |
|
| 3.85 | % |
|
| 4.31 | % |
Increase/(decrease) to projected benefit obligation |
| $ | 62.6 |
|
| $ | 41.7 |
|
| $ | (54.7 | ) |
Return on plan assets (a) |
|
|
|
|
|
|
|
|
|
|
|
|
Expected long-term return on plan assets |
|
| 5.50 | % |
|
| 5.90 | % |
|
| 5.50 | % |
Increase/(decrease) to pension costs |
| $ | 2.5 |
|
| $ | (2.2 | ) |
| $ | 2.2 |
|
Actual return on plan assets, net of fees |
|
| 15.20 | % |
|
| 20.40 | % |
|
| (7.00 | )% |
Actual gain/(loss) on plan assets |
| $ | 96.6 |
|
| $ | 109.9 |
|
| $ | (41.0 | ) |
(a) | The SERP has no plan assets. The plan assets in this disclosure are for the pension plan only. |
| 2017 | 2016 | 2015 | |||||||||
| Discount rate | |||||||||||
| Pension discount rate (exclusive of SERP) | 3.71 | % | 4.26 | % | 4.58 | % | |||||
| Increase/(decrease) to projected benefit obligation (exclusive of SERP) | $ | 49.2 | $ | 27.7 | $ | (31.0 | ) | ||||
| Return on plan assets | |||||||||||
| Expected long-term return on plan assets | 5.87 | % | 5.40 | % | 5.30 | % | |||||
| Increase/(decrease) to pension costs | $ | (2.5 | ) | $ | (0.5 | ) | $ | 6.9 | |||
| Actual return on plan assets, net of fees | 15.60 | % | 8.10 | % | (0.80 | )% | |||||
| Actual gain/(loss) on plan assets | $ | 82.5 | $ | 43.2 | $ | (4.3 | ) | ||||
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AVISTA CORPORATION
The following chart reflects the sensitivities associated with a change in certain actuarial assumptions by the indicated percentage (dollars in millions):
Actuarial Assumption |
| Change in Assumption |
|
| Effect on Projected Benefit Obligation |
|
| Effect on Pension Cost |
| |||
Expected long-term return on plan assets |
|
| (0.5 | )% |
| $ | — |
| * | $ | 3.2 |
|
Expected long-term return on plan assets |
|
| 0.5 | % |
|
| — |
| * |
| (3.2 | ) |
Discount rate |
|
| (0.5 | )% |
|
| 59.6 |
|
|
| 4.6 |
|
Discount rate |
|
| 0.5 | % |
|
| (52.8 | ) |
|
| (4.1 | ) |
| Actuarial Assumption | Change in Assumption | Effect on Projected Benefit Obligation | Effect on Pension Cost | |||||||
| Expected long-term return on plan assets | (0.5 | )% | $ | — | * | $ | 2.7 | |||
| Expected long-term return on plan assets | 0.5 | % | — | * | (2.7 | ) | ||||
| Discount rate | (0.5 | )% | 50.6 | 4.4 | ||||||
| Discount rate | 0.5 | % | (44.9 | ) | (3.9 | ) | ||||
*Changes in the expected return on plan assets would not affect our projected benefit obligation.
We provide certain health care and life insurance benefits for substantially all of our retired employees. We accrue the estimated cost of postretirement benefit obligations during the years that employees provide service. Assumed health care cost trend rates have a significant effect on the amounts reported for our postretirement plans. A one-percentage-point increase in the assumed health care cost trend rate for each year would increase our accumulated postretirement benefit obligation as of
Liquidity and Capital Resources
Overall Liquidity
Avista Corp.'s consolidated operating cash flows are primarily derived from the operations of Avista Utilities. The primary source of operating cash flows for Avista Utilities is revenues from sales of electricity and natural gas. Significant uses of cash flows from Avista Utilities include the purchase of power, fuel and natural gas, and payment of other operating expenses, taxes and interest, with any excess being available for other corporate uses such as capital expenditures and dividends.
We design operating and capital budgets to control operating costs and to direct capital expenditures to choices that support immediate and long-term strategies, particularly for our regulated utility operations. In addition to operating expenses, we have continuing commitments for capital expenditures for construction and improvement of utility facilities.
Our annual net cash flows from operating activities usually do not fully support the amount required for annual utility capital expenditures. As such, from time-to-time, we need to access long-term capital markets in order to fund these needs as well as fund maturing debt. See further discussion at “Capital Resources.”
We periodically file for rate adjustments for recovery of operating costs and capital investments and to seek the opportunity to earn reasonable returns as allowed by regulators.
Avista Utilities has regulatory mechanisms in place that provide for the deferral and recovery of the majority of power and natural gas supply costs. However, when power and natural gas costs exceed the levels currently recovered from retail customers, net cash flows are negatively affected. Factors that could cause purchased power and natural gas costs to exceed the levels currently recovered from our customers include, but are not limited to, higher prices in wholesale markets when we buy energy or an increased need to purchase power in the wholesale markets, and a lack of regulatory approval for higher authorized net power supply costs through general rate case decisions. Factors beyond our control that could result in an increased need to purchase power in the wholesale markets include, but are not limited to:
• | increases in demand (due to either weather or customer growth), |
• | lower streamflows for hydroelectric generation, |
• | unplanned outages at generating facilities, and |
• | failure of third parties to deliver on energy or capacity contracts. |
In addition to the above, Avista Utilities enters into derivative instruments to hedge our exposure to certain risks, including fluctuations in commodity market prices, foreign exchange rates and interest rates (for purposes of issuing long-term debt in the future). These derivative instruments often require collateral (in the form of cash or letters of credit) or other credit enhancements, or reductions or terminations of a portion of the contract through cash settlement, in the event of a downgrade in the Company's credit ratings or changes in market prices. In periods of price volatility, the level of exposure can change
57
AVISTA CORPORATION
significantly. As a result, sudden and significant demands may be made against the Company's credit facilities and cash. See “Enterprise Risk Management – Demands for Collateral”Credit Risk Liquidity Considerations” below.
We monitor the potential liquidity impacts of changes to energy commodity prices and other increased operating costs for our utility operations. We believe that we have adequate liquidity to meet such potential needs through our committed lines of credit.
As of
December 31,Review of Consolidated Cash Flow Statement
2020 compared to
Consolidated Operating Activities
Net cash provided by operating activities was
The decreases above, were partially offset by power and natural gas deferrals which decreased during 2020 due to lower natural gas prices during the fair valueyear (which decreased cash flows by $9.9 million as compared to a decrease to operating cash flows of outstanding energy commodity derivatives, which required less collateral)$45.9 million in 2019). In addition, provision for deferred income taxes increased during 2020 (increased cash flows by $44.9 million as compared to an increase in collateral posted during 2015.
Consolidated Investing Activities
Net cash used in investing activities was $432.5$410.7 million for 2016, an increase2020, a decrease compared to $387.8$445.5 million for 2015.2019. During 2016,2020, we paid $406.6$404.3 million for utility capital expenditures, compared to $393.4$442.5 million for 2015.2019. In addition, during 2016, our subsidiaries disbursed $10.1 million for notes receivable to third parties and received $5.0 million in repayments on these notes receivable. Our subsidiaries also made $7.8 million in investments and purchased buildings and other property as investments for $5.3 million.
Consolidated Financing Activities
Net cash provided by financing activities was $72.2$84.0 million for 20162020 compared to net cash provided of $0.5$42.5 million for 2015.2019. The increase in financing cash flows was primarily the result of changes in short-term borrowings of $21.4 million compared to 2019. In 2016 we hadaddition, there was a decrease in maturing long-term debt and finance leases of $37.9 million compared to 2019. The above increases were partially offset by a decrease in proceeds from the following significant transactions:
58
AVISTA CORPORATION
Capital Resources
Capital Structure
Our consolidated capital structure, including the current portion of long-term debt and short-term borrowings, and excluding noncontrolling interests, consisted of the following as of
December 31,
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||||||||||
|
| Amount |
|
| Percent of total |
|
| Amount |
|
| Percent of total |
| ||||
Current portion of long-term debt and leases |
| $ | 7,184 |
|
|
| 0.2 | % |
| $ | 58,928 |
|
|
| 1.4 | % |
Short-term borrowings |
|
| 203,000 |
|
|
| 4.6 | % |
|
| 185,800 |
|
|
| 4.5 | % |
Long-term debt to affiliated trusts |
|
| 51,547 |
|
|
| 1.2 | % |
|
| 51,547 |
|
|
| 1.2 | % |
Long-term debt and leases |
|
| 2,125,065 |
|
|
| 48.0 | % |
|
| 1,961,083 |
|
|
| 46.7 | % |
Total debt |
|
| 2,386,796 |
|
|
| 54.0 | % |
|
| 2,257,358 |
|
|
| 53.8 | % |
Total Avista Corporation shareholders’ equity |
|
| 2,029,726 |
|
|
| 46.0 | % |
|
| 1,939,284 |
|
|
| 46.2 | % |
Total |
| $ | 4,416,522 |
|
|
| 100.0 | % |
| $ | 4,196,642 |
|
|
| 100.0 | % |
| December 31, 2017 | December 31, 2016 | ||||||||||||
| Amount | Percent of total | Amount | Percent of total | ||||||||||
| Current portion of long-term debt and capital leases | $ | 277,438 | 7.6 | % | $ | 3,287 | 0.1 | % | |||||
| Short-term borrowings | 105,398 | 2.9 | % | 120,000 | 3.4 | % | |||||||
| Long-term debt to affiliated trusts | 51,547 | 1.4 | % | 51,547 | 1.5 | % | |||||||
| Long-term debt and capital leases | 1,491,799 | 40.8 | % | 1,678,717 | 47.9 | % | |||||||
| Total debt | 1,926,182 | 52.7 | % | 1,853,551 | 52.9 | % | |||||||
| Total Avista Corporation shareholders’ equity | 1,729,828 | 47.3 | % | 1,648,727 | 47.1 | % | |||||||
| Total | $ | 3,656,010 | 100.0 | % | $ | 3,502,278 | 100.0 | % | |||||
Our shareholders’ equity increased
We need to finance capital expenditures and acquire additional funds for operations from time to time. The cash requirements needed to service our indebtedness, both short-term and long-term, reduce the amount of cash flow available to fund capital expenditures, purchased power, fuel and natural gas costs, dividends and other requirements.
Committed Lines of Credit
Avista Corp. has a committed line of credit with various financial institutions in the total amount of $400.0 million that expires in April 2021.2022. As of December 31, 2017, we had $260.62020, there was $270.4 million of available liquidity under this line of credit.
The Avista Corp. credit facility contains customary covenants and default provisions, including a covenant which does not permit our ratio of “consolidated total debt” to “consolidated total capitalization” to be greater than 65 percent at any time. As of December 31, 2017,2020, we were in compliance with this covenant with a ratio of 52.754.0 percent.
Balances outstanding and interest rates on borrowings (excluding letters of credit) under Avista Corp.'s committed line of credit were as follows as of and for the year ended December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
| ||
Balance outstanding at end of year |
| $ | 102,000 |
|
| $ | 182,300 |
|
Letters of credit outstanding at end of year |
| $ | 27,618 |
|
| $ | 21,473 |
|
Maximum balance outstanding during the year |
| $ | 310,000 |
|
| $ | 221,000 |
|
Average balance outstanding during the year |
| $ | 138,890 |
|
| $ | 148,616 |
|
Average interest rate during the year |
|
| 1.59 | % |
|
| 3.05 | % |
Average interest rate at end of year |
|
| 1.22 | % |
|
| 2.64 | % |
In November of 2019, AEL&P has arenewed its $25.0 million committed line of credit that expireswith a new expiration date in November 2019.2024. As of December 31, 2017,2020, there were no borrowings or letterswas $24.0 million of credit outstandingavailable liquidity under this credit facility.
The AEL&P credit facility contains customary covenants and default provisions including a covenant which does not permit the ratio of “consolidated total debt at AEL&P” to “consolidated total capitalization at AEL&P,” (including the impact of the
| 2017 | 2016 | 2015 | |||||||||
| Balance outstanding at end of year | $ | 105,000 | $ | 120,000 | $ | 105,000 | |||||
| Letters of credit outstanding at end of year | $ | 34,420 | $ | 34,353 | $ | 44,595 | |||||
| Maximum balance outstanding during the year | $ | 254,500 | $ | 280,000 | $ | 180,000 | |||||
| Average balance outstanding during the year | $ | 133,027 | $ | 171,090 | $ | 95,573 | |||||
| Average interest rate during the year | 1.88 | % | 1.26 | % | 0.98 | % | |||||
| Average interest rate at end of year | 2.26 | % | 1.50 | % | 1.18 | % | |||||
As of December 31, 2017,2020, Avista Corp. and its subsidiaries were in compliance with all of the covenants of their financing agreements, and none of Avista Corp.'s subsidiaries constituted a “significant subsidiary” as defined in Avista Corp.'s committed line of credit.
59
AVISTA CORPORATION
In April 2020, we entered into a $100.0 million credit agreement with an expiration date of April 2021. We borrowed the entire $100.0 million available under this agreement. In April 2021, we intend to pay the full amount outstanding with a draw on our committed line of credit. See "Note 15 of the Notes to Consolidated Financial Statements."
Long-Term Debt Borrowings
In December 2017,September 2020, we issued and sold $90.0$165.0 million of 3.913.07 percent first mortgage bonds due in 20472050 pursuant to a bond purchase agreement with institutional investors in the private placement market. The total net proceeds from the sale of the bonds were used to repay maturing long-term debt of $52.0 million and repay a portion of the outstanding balance under our $400.0 million committed line of credit. In connection with the pricing of the first mortgage bonds the Companyin June 2020, we cash-settled fiveseven interest rate swap derivatives (notional aggregate amount of $60.0$70.0 million) and paid a net amount of $8.8 million, which will be amortized as a component of interest expense over the life of the debt.$33.5 million. The effective interest rate of the first mortgage bonds is 4.554.32 percent, including the effects of the settled interest rate swap derivatives and issuance costs. We used the proceeds, less issuance costs, to repay a portion of the borrowings outstanding under our $400.0 million committed line of credit.
Equity Issuances
We issued equity in 2020 for total net proceeds of $72.2 million. Most of these issuances came through our sales agency agreements under which Avista Corp.’sthe sales agents may offer and sell up to 3.8 million new shares of Avista Corp.'sour common stock no par value, from time to time. The sales agency agreements expire on February 29, 2020. ThroughWe have board and regulatory authority to issue a maximum of 3.2 million shares, of which 1.3 million remain unissued as of December 31, 2017, 2.72020. In 2020, 1.9 million shares were issued under these agreements resulting in total net proceeds of $120.0 million, leaving 1.1 million shares remaining to be issued.
2021 Liquidity Expectations
During 2018,2021, we expect to issue approximately $375.0$120.0 million of long-term debt and up to $85.0$75.0 million of equity in order to refinance maturing long-term debt and fund planned capital expenditures, fund the impacts of the federal income tax law changes and maintain an appropriate capital structure. The $85.0 million of equity in 2018 may come through the sale of shares through our sales agency agreements or from an equity contribution from Hydro One upon consummation of the acquisition or from a combination of those sources.
After considering the expected issuances of long-term debt and equity during 2018,2021, we expect net cash flows from operating activities, together with cash available under our committed line of credit agreements, to provide adequate resources to fund capital expenditures, dividends, and other contractual commitments.
Limitations on Issuances of Preferred Stock and First Mortgage Bonds
We are restricted under our Restated Articles of Incorporation, as amended, as to the additional preferred stock we can issue. As of
December 31,Under the Avista Corp. and the AEL&P Mortgages and Deeds of Trust securing Avista Corp.'s and AEL&P's first mortgage bonds (including Secured Medium-Term Notes), respectively, each entity may issue additional first mortgage bonds in an aggregate principal amount equal to the sum of:
• | 66-2/3 percent of the cost or fair value (whichever is lower) of property additions of that entity which have not previously been made the basis of any application under that entity's Mortgage, or |
• | an equal principal amount of retired first mortgage bonds of that entity which have not previously been made the basis of any application under that entity's Mortgage, or |
• | deposit of cash. |
However, Avista Corp. and AEL&P may not individually issue any additional first mortgage bonds (with certain exceptions in the case of bonds issued on the basis of retired bonds) unless the particular entity issuing the bonds has “net earnings” (as defined in the respective Mortgages) for any period of 12 consecutive calendar months out of the preceding 18 calendar months that were at least twice the annual interest requirements on that entity's mortgage securities at the time outstanding, including the first mortgage bonds to be issued, and on all indebtedness of prior rank. As of
December 31,60
AVISTA CORPORATION
Utility Capital Expenditures
We are making capital investments in generation, transmissionat our utilities to enhance service and distribution systems to preserve and enhance servicesystem reliability for our customers and replace aging infrastructure. The following table summarizes our actual and expected capital expenditures as of and for the year ended December 31, 20172020 (in thousands):
|
| Avista Utilities |
|
| AEL&P |
| ||
2020 Actual capital expenditures |
|
|
|
|
|
|
|
|
Capital expenditures (per the Consolidated Statement of Cash Flows) |
| $ | 397,292 |
|
| $ | 7,014 |
|
|
|
|
|
|
|
|
|
|
Expected total annual capital expenditures (by year) |
|
|
|
|
|
|
|
|
2021 |
| $ | 415,000 |
|
| $ | 7,000 |
|
2022 |
|
| 405,000 |
|
|
| 20,000 |
|
2023 |
|
| 405,000 |
|
|
| 8,000 |
|
| Avista Utilities | AEL&P | ||||||
| 2017 Actual capital expenditures | |||||||
| Capital expenditures (per the Consolidated Statement of Cash Flows) (1) | $ | 405,938 | $ | 6,401 | |||
| Expected total annual capital expenditures (by year) | |||||||
| 2018 | $ | 405,000 | $ | 7,000 | |||
| 2019 | 405,000 | 8,000 | |||||
| 2020 | 405,000 | 7,000 | |||||
The following graph shows Avista Utilities' expected capital budgetexpenditures for 2018:
These estimates of capital expenditures are subject to continuing review and adjustment. Actual capital expenditures may vary from our estimates due to factors such as changes in business conditions, construction schedules and environmental requirements.
Non-Regulated Investments and Capital Expenditures
We are making investments and capital expenditures at our other businesses including those related to economic development projects in our service territory that demonstrate the latest energy and environmental building innovations and house several local college degree programs. In addition, we are making investments in emerging technology companies and venture capital
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AVISTA CORPORATION
funds. The following table summarizes our actual and expected investments and capital expenditures at our other businesses as of and for the year ended December 31, 2020 (in thousands):
|
| Other |
| |
2020 Actual investments and capital expenditures |
|
|
|
|
Investments and capital expenditures (per the Consolidated Statement of Cash Flows) |
| $ | 11,635 |
|
|
|
|
|
|
Expected total annual investments and capital expenditures (by year) |
|
|
|
|
2021 |
| $ | 15,000 |
|
2022 |
|
| 12,000 |
|
2023 |
|
| 12,000 |
|
These estimates of investments and capital expenditures are subject to continuing review and adjustment. Actual expenditures may vary from our estimates due to factors such as changes in business conditions or strategic plans.
See “Contractual Obligations” for information regarding other material cash requirements for 2021 and thereafter.
Off-Balance Sheet Arrangements
As of
December 31,Pension Plan
We contributed
The final determination of pension plan contributions for future periods is subject to multiple variables, most of which are beyond our control, including changes to the fair value of pension plan assets, changes in actuarial assumptions (in particular the discount rate used in determining the benefit obligation), or changes in federal legislation. We may change our pension plan contributions in the future depending on changes to any variables, including those listed above.
See "Note 1011 of the Notes to Consolidated Financial Statements" for additional information regarding the pension plan.
Credit Ratings
Our access to capital markets and our cost of capital are directly affected by our credit ratings. In addition, many of our contracts for the purchase and sale of energy commodities contain terms dependent upon our credit ratings. See “Enterprise Risk Management – Credit Risk Liquidity Considerations” and “Note 67 of the Notes to Consolidated Financial Statements.”
The following table summarizes our credit ratings as of
FebruaryStandard & Poor’s (1) | Moody’s (2) | ||
Corporate/Issuer rating | BBB | Baa2 | |
Senior secured debt | A- | A3 | |
Senior unsecured debt | BBB | Baa2 | |
(1) | |
Standard & Poor’s lowest “investment grade” credit rating is BBB-. |
(2) | |
Moody’s lowest “investment grade” credit rating is Baa3. |
A security rating is not a recommendation to buy, sell or hold securities. Each security rating is subject to revision or withdrawal at any time by the assigning rating organization. Each security rating agency has its own methodology for assigning ratings, and, accordingly, each rating should be considered in the context of the applicable methodology, independent of all other ratings. The rating agencies provide ratings at the request of Avista Corp. and charge fees for their services.
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AVISTA CORPORATION
Dividends
See "Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" for a detailed discussion of our dividend policy and the factors which could limit the payment of dividends.
Contractual Obligations
The following table provides a summary of our future contractual obligations as of
| 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | ||||||||||||||||||
| Avista Utilities: | |||||||||||||||||||||||
| Long-term debt maturities | $ | 273 | $ | 90 | $ | 52 | $ | — | $ | 250 | $ | 964 | |||||||||||
| Long-term debt to affiliated trusts | — | — | — | — | — | 52 | |||||||||||||||||
| Interest payments on long-term debt (1) | 74 | 66 | 62 | 60 | 50 | 880 | |||||||||||||||||
| Short-term borrowings | 105 | — | — | — | — | — | |||||||||||||||||
| Energy purchase contracts (2) | 267 | 247 | 210 | 181 | 179 | 1,243 | |||||||||||||||||
| Operating lease obligations (3) | 1 | — | — | — | — | 2 | |||||||||||||||||
| Other obligations (4) | 32 | 35 | 34 | 29 | 34 | 194 | |||||||||||||||||
| Information technology contracts (5) | 1 | 1 | 1 | — | — | — | |||||||||||||||||
| Pension plan funding (6) | 22 | 22 | 22 | 22 | 22 | — | |||||||||||||||||
| Unsettled interest rate swap derivatives (7) | 61 | (1 | ) | (1 | ) | 7 | — | — | |||||||||||||||
| AEL&P total contractual obligations (8) | 15 | 15 | 15 | 16 | 16 | 283 | |||||||||||||||||
| Other businesses (consolidated) total contractual obligations (9) | 8 | 22 | 4 | 1 | — | 4 | |||||||||||||||||
| Total contractual obligations | $ | 859 | $ | 497 | $ | 399 | $ | 316 | $ | 551 | $ | 3,622 | |||||||||||
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| Thereafter |
| ||||||
Avista Utilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt maturities (including affiliated trusts) | $ | — |
|
| $ | 250 |
|
| $ | 14 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,722 |
|
Interest payments on long-term debt (1) |
| 87 |
|
|
| 77 |
|
|
| 74 |
|
|
| 73 |
|
|
| 73 |
|
|
| 1,374 |
|
Short-term borrowings |
| 202 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Energy purchase contracts (2) |
| 250 |
|
|
| 230 |
|
|
| 216 |
|
|
| 193 |
|
|
| 190 |
|
|
| 1,091 |
|
Lease obligations (3) |
| 5 |
|
|
| 5 |
|
|
| 5 |
|
|
| 5 |
|
|
| 5 |
|
|
| 97 |
|
Other operating and maintenance obligations (4) |
| 34 |
|
|
| 31 |
|
|
| 32 |
|
|
| 36 |
|
|
| 34 |
|
|
| 209 |
|
Other obligations (5) |
| 71 |
|
|
| 83 |
|
|
| 30 |
|
|
| 31 |
|
|
| 31 |
|
|
| 158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AEL&P total contractual obligations (6) |
| 16 |
|
|
| 16 |
|
|
| 16 |
|
|
| 16 |
|
|
| 16 |
|
|
| 242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other businesses (consolidated) total contractual obligations (7) |
| 15 |
|
|
| 6 |
|
|
| 6 |
|
|
| 20 |
|
|
| 2 |
|
|
| — |
|
Total contractual obligations | $ | 679 |
|
| $ | 698 |
|
| $ | 392 |
|
| $ | 373 |
|
| $ | 351 |
|
| $ | 4,891 |
|
(1) | |
Represents our estimate of interest payments on long-term debt, which is calculated based on the assumption that all debt is outstanding until maturity. Interest on variable rate debt is calculated using the rate in effect at December 31, |
(2) | |
Energy purchase contracts were entered into as part of the obligation to serve our retail electric and natural gas customers’ energy requirements. As a result, costs are generally recovered either through base retail rates or adjustments to retail rates as part of the power and natural gas cost deferral and recovery mechanisms. |
(3) | Primarily relates to an operating lease with the State of Montana that expires in 2046. See "Note 5 of the Notes to Consolidated Financial Statements" for further discussion of this and our other leases. |
(4) | Represents |
(5) | |
Our other obligations are |
The remainder of our other obligations are related to the net mark-to-market fair value of outstanding unsettled interest rate swap derivatives as of December 31, 2020. The values will change each period depending on fluctuations in market interest rates and could become either assets or liabilities until the period of settlement. Also, the amounts in the table above are not reflective of cash collateral of $8.1 million that is already posted with counterparties against the outstanding interest rate swap derivatives. See “Note 7 of the Notes to Consolidated Financial Statements” for further discussion of our interest rate swaps.
(6) | |
Primarily relates to long-term debt and |
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AVISTA CORPORATION
(7) | |
Primarily relates to |
The above contractual obligations do not include income tax payments. Also, asset retirement obligations (ARO) are not included above and payments associated with these have historically been less than $1$2 million per year. There are approximately $17.5$17.2 million remaining asset retirement obligations as of December 31, 2017.
In addition to the contractual obligationscontractually obligated cash outflows disclosed above, we will incur additional operating costs and capital expenditures in future periods for which we are not contractually obligated as part of our normal business operations.
Competition
Our utility electric and natural gas distribution business has historically been recognized as a natural monopoly. In each regulatory jurisdiction, our rates for retail electric and natural gas services (other than specially negotiated retail rates for industrial or large commercial customers, which are subject to regulatory review and approval) are generally determined on a “cost of service” basis. Rates are designed to provide, after recovery of allowable operating expenses and capital investments, an opportunity for us to earn a reasonable return on investment as allowed by our regulators.
In retail markets, we compete with various rural electric cooperatives and public utility districts in and adjacent to our service territories in the provision of service to new electric customers. Alternative energy technologies, including customer-sited solar, wind or geothermal generation, or energy storage may also compete with us for sales to existing customers. While the risk is currently small in our service territory given the small numbers of customers utilizing these technologies, advancesAdvances in power generation, energy efficiency, energy storage and other alternative energy technologies could lead to more wide-spread usage of these technologies, thereby reducing customer demand for the energy supplied by us. This reduction in usage and demand would reduce our revenue and negatively impact our financial condition including possibly leading to our inability to fully recover our investments in generation, transmission and distribution assets. Similarly, our natural gas distribution operations compete with other energy sources including heating oil, propane and other fuels.
Certain natural gas customers could bypass our natural gas system, reducing both revenues and recovery of fixed costs. To reduce the potential for such bypass, we price natural gas services, including transportation contracts, competitively and have varying degrees of flexibility to price transportation and delivery rates by means of individual contracts. These individual contracts are subject to state regulatory review and approval. We have long-term transportation contracts with several of our largest industrial customers under which the customer acquires its own commodity while using our infrastructure for delivery. Such contracts reduce the risk of these customers bypassing our system in the foreseeable future and minimizes the impact on our earnings.
Also, non-utility businesses are developing new technologies and services to help energy consumers manage energy in new ways that may improve productivity and could alter demand for the energy we sell.
In wholesale markets, competition for available electric supply is influenced by the:
• | localized and system-wide demand for energy, |
• | type, capacity, location and availability of generation resources, and |
• | variety and circumstances of market participants. |
These wholesale markets are regulated by the FERC, which requires electric utilities to:
• | transmit power and energy to or for wholesale purchasers and sellers, |
• | enlarge or construct additional transmission capacity for the purpose of providing these services, and |
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AVISTA CORPORATION
• | transparently price and offer transmission services without favor to any party, including the merchant functions of the utility. |
Participants in the wholesale energy markets include:
• | other utilities, |
• | federal power marketing agencies, |
• | energy marketing and trading companies, |
• | independent power producers, |
• | financial institutions, and |
• | commodity brokers. |
Economic Conditions and Utility Load Growth
The general economic data, on both national and local levels, contained in this section is based, in part, on independent government and industry publications, reports by market research firms or other independent sources. While we believe that these publications and other sources are reliable, we have not independently verified such data and can make no representation as to its accuracy.
Avista Utilities
We track multiple economic indicators affecting the three largest metropolitan statistical areas in our Avista Utilities service area: Spokane, Washington, Coeur d'Alene, Idaho, and Medford, Oregon.TheOregon. The key indicators are employment change and unemployment rates. On an annual basis, 20172020 showed positivenegative job growth and lowerwith higher unemployment rates in all three metropolitan areas. This reflects the impact of the COVID-19 induced recession that started in the first quarter of 2020. However, the unemployment rates in Spokane and Medford are still slightly above the national average. KeyOther leading indicators, such as initial unemployment claims and residential building permits, signal continueda return to growth over the next 12 months. Therefore, in 2018,Considering all relevant indicators, we expect economic growth in our service area in 2021 to be slightly stronger thanin-line with the U.S. as a whole.
Due to the COVID-19 recession, nonfarm employment (seasonally adjusted) in our eastern Washington, northern Idaho, and southwestern Oregon metropolitan service areas exhibited moderate growth between 2016 and 2017.declined in 2020. In Spokane, Washington employment growth was 2.1declined 4.2 percent with gainslosses in all major sectors except professional and business services. Employment declined 3.8 percent in Coeur d'Alene, Idaho, reflecting losses all major sectors except manufacturing; trade, transportation, and utilities; information; financial services; and education and health. In Medford, Oregon, employment declined 4 percent, with losses in all major sectors except financial services. Employment increased by 1.7 percent in Coeur d'Alene, Idaho, reflecting gains in all major sectors except trade, transportation,activities and utilities; information; leisureeducation and hospitality; and otherhealth services. In Medford, Oregon, employment growth was 2.3 percent, with gains in all major sectors except mining and logging; other services; and government. U.S. nonfarm sector jobs grew by 1.5declined 5.7 percent over the same period.
Changes in the unemployment rates went downrate in 2017 from2020 reflect the year earlier in Spokane, Coeur d'Alene, and Medford.impact of the COVID-19 recession. In Spokane the averageunemployment rate was 6.65.4 percent in 20162019 and declinedincreased to 5.59.2 percent in 2017;2020; in Coeur d'Alene the average rate wentincreased from 4.83.6 percent in 2019 to 3.9 percent;7.3 percent in 2020; and in Medford the average rate declinedincreased from 5.84.3 percent in 2019 to 8.4 percent in 2020. The U.S. unemployment rate increased from 3.7 in 2019 percent to 4.6 percent. The U.S. rate declined from 4.98.1 percent to 4.3 percent over the same period.
Alaska Electric Light and Power Company
Our AEL&P service area is centered in Juneau. Although Juneau is Alaska’s state capital, it is not a metropolitan statistical area. This means breadth and frequency of economic data is more limited. Therefore, the dates of Juneau's economic data may significantly lag the period of this filing.
The Quarterly Census of Employment and Wages for Juneau shows employment declined 1.810.5 percent between the first half of 20162019 and secondfirst half of 2017. The2020. There were employment decline was centeredlosses in government; construction; trade, transportation, and utilities; financial activities; and professional and business services; leisure and hospitality; and education and health services.all major sectors, except construction. Government (including active duty military personnel) accountsemployment declined 3.1 percent during this period; this sector accounted for approximately 37 percent of total employment.employment in 2019. Between 20162019 and 2017,2020, the non-seasonally adjusted unemployment rate increased from 4.4 percent to 4.66.9 percent.
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AVISTA CORPORATION
Forecasted Customer and Load Growth
Based on our forecast for 20182021 through 20212024 for Avista Utilities' service area, we expect annual electric customer growth to average 1.11.0 percent, within a forecast range of 0.70.6 percent to 1.51.4 percent. We expect annual natural gas customer growth to average 1.51.2 percent, within a forecast range of 10.6 percent to 21.8 percent. We anticipate retail electric load growth to average 0.5 percent, within a forecast range of 0.2 percent and 0.8 percent. We expect natural gas load growth to average 1.31.1 percent, within a forecast range of 0.80.6 percent and 1.81.6 percent. The forecast ranges reflect (1) the inherent uncertainty associated with the economic assumptions on which forecasts are based and (2) the historic variability of natural gas customer and load growth.
In AEL&P's service area, we expect residential customer growth near 0 percent (no residential customer growth) for 2018 through 2021. We also expect no significant growth in residential, commercial and government customers overfor the same period.period 2021 through 2024. We anticipate average annual total load growth will be in a narrow range around 0.3 percent, with residential load growth averaging 0.6 percent and commercial growth near 0 percent (no load growth); and government growth near 0 percent.
The forward-looking statements set forth above regarding retail load growth are based, in part, upon purchased economic forecasts and publicly available population and demographic studies. The expectations regarding retail load growth are also based upon various assumptions, including:
• | assumptions relating to weather and economic and competitive conditions, |
• | internal analysis of company-specific data, such as energy consumption patterns, |
• | internal business plans, |
• | an assumption that we will incur no material loss of retail customers due to self-generation or retail wheeling, and |
• | an assumption that demand for electricity and natural gas as a fuel for mobility will for now be immaterial. |
Changes in actual experience can vary significantly from our projections.
See also "Competition" above for a discussion of competitive factors that could affect our results of operations in the future.
Environmental Issues and Contingencies
We are subject to environmental regulation by federal, state and local authorities. The generation, transmission, distribution, service and storage facilities in which we have ownership interests are designedsubject to environmental laws relating to site conditions, air emissions, wastewater and operated in compliance with applicable environmental laws. Furthermore, westormwater discharges, waste handling, and other similar activities. We conduct periodic reviews and audits of pertinent facilities and operations to ensureenhance compliance and to respond to or anticipate emerging environmental issues. The Company's Board of Directors has established a committee to oversee environmental issues.
We monitor legislative and regulatory developments at alldifferent levels of government for environmental issues, particularly those with the potential to impact the operation and productivity of our generating plants and other assets.
Environmental laws and regulations may:
• | increase the operating costs of generating plants; |
• |
increase the lead time and capital costs for the construction of new generating plants; |
• | require modification of our existing generating plants; |
• | require existing generating plant operations to be curtailed or shut down; |
• | reduce the amount of energy available from our generating plants; |
• | restrict the types of generating plants that can be built or contracted with; |
• | require construction of specific types of generation plants at higher cost; and |
• | increase costs of distributing, or limit our ability to distribute, electricity and/or natural gas. |
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AVISTA CORPORATION
Compliance with environmental laws and regulations could result in increases to capital expenditures and operating expenses. We intend to seek recovery of any such costs through the ratemaking process.
Clean Air Act (CAA)
In April 2019, we announced a numbergoal to serve our customers with 100 percent clean electricity by 2045 and to have a carbon-neutral supply of requirementselectricity by the end of 2027. To help achieve our goals and add to our clean electricity portfolio, in the last three years, we have implemented three renewable energy projects on behalf of our customers: the Community Solar project (0.4 MW) in Spokane Valley, Washington (owned by Avista Corp.), the Solar Select project (28 MW) in Lind, Washington (PPA), and the Rattlesnake Flat Wind project (144 MW) in Adams County, Washington (PPA). These resources are in addition to our existing clean hydroelectric generation, biomass generation, and additional wind and solar projects.
To achieve our clean energy goals, we expect that energy storage and other technologies, which are either not currently available or are not cost-effective under a lowest reasonable cost regulatory standard, will advance such that it will allow us to meet our goals while also maintaining reliability and affordability for our thermal generating plants. The Colstrip Generating Station, Kettle Falls Generating Station and Rathdrum Combustion Turbine all require CAA Title V operating permits. The Boulder Park Generating Station, Northeast Combustion Turbine and a number of other operations require minor source permitscustomers. If the required technology is not available or simple source registration permits. We have secured these permits and operate to meet their requirements. These requirements can change over time as the CAA or applicable implementing regulations are amended and new permits are issued. We actively monitor legislative, regulatory and other program developments of the CAA that may impact our facilities.
Climate Change
Legal and cover certain impoundments. We will coordinate with the plant operators and continuepolicy changes responding to gather additional data in future periods to make decisions about compliance strategies and the timing of closure activities. As additional information becomes available, we will update the ARO and future nonretirement compliance costs for these changes in estimates, which could be material. We expect to seek recovery of increased costs related to complying with the CCR rule through customer rates.
Avista has created four councils that are centered around its primary focus areas: our customers, our people, perform and invent. The Perform Council (anis an interdisciplinary team of management and other employees):employees of the Company which regularly meets to discuss, assess and manage current issues associated with the Company’s performance. A key area of focus for the Perform Council, is potential risks and opportunities associated with long-term global climate change. Among other things, the Perform Council:
• | facilitates internal and external communications regarding climate change and related issues, |
• | analyzes policy effects, anticipates opportunities and evaluates strategies for the Company, |
• | develops recommendations on climate-related policy positions and action plans, and |
• | provides direction and oversight with respect to the Company’s clean energy goals. |
In addition to the Perform Council, issues concerning climate-related risk and the Company’s clean energy goals are reviewed and regularly discussed by the Board of Directors. The Board’s Environmental, Technology and Operations Committee regularly reviews and discusses environmental and climate related policy positionsrisks, and action plans.
Federal Regulatory Actions
In June 2019, the EPA released the final rulesversion of the Affordable Clean Energy (ACE) rule, the replacement for the Clean Power Plan (Final CPP) and(CPP). The final ACE rule combined three distinct EPA actions:
First, EPA finalized the Carbon Pollution Standards (Final CPS) in August 2015.repeal of the CPP. The Final CPP and the Final CPS are both intended to reduce the carbon dioxide (CO2) emissions from certain coal-fired and natural gas electric generating units (EGUs). These rules were published in the Federal Register in October 2015 and were immediately challenged via lawsuits by other parties.
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AVISTA CORPORATION
1. | Reducing CO2 emissions by undertaking efficiency projects at affected coal-fired power plants (i.e., heat-rate improvements); |
2. | Reducing CO2 emissions by shifting electricity generation from affected power plants to lower-emitting power plants (e.g., natural gas plants); and |
3. | Reducing CO2 emissions by shifting electricity generation from affected power plants to new renewable energy generation. |
Notably, the second and third building blocks, responsible for the majority of projected emission reduction goals based uponreductions, were premised on “beyond the assumed potential for (1) heat rate improvements at coal-fired units, (2) increased utilization of natural gas-fired combined cycle plants, and (3) increased utilization of low or zero carbon emitting generation resources. As expressed in the final rule, states had until September 2016 to submit state compliance plans, with a potential for two-year extensions. A stay granted by the U.S. Supreme Court, and described below, pushed this date out pending the results of the case. Avista Corp. owns two EGUs that are subject to the Final CPP: its portion (15 percent of Units 3 & 4) of Colstrip in Montana and Coyote Springs 2 in Oregon. States may adopt rate-based or mass-based plans, and may choose to focus compliance on specific EGUs or adopt broaderfence” measures to reduce carbon emissions from this sector. The states in which Avista Utilities generates or delivers electricity, Washington, Idaho, Montana and Oregon, are at differing stages of evaluating options for developing state plans, which will define compliance approaches and obligations. Alaska was exempted in the Final CPP. The EPA may consider rulemaking in the future for Alaska and Hawaii, both states which lack regional grid connections.
Second, the EPA finalized CO2 new source performance standards (NSPS) for new, modified and reconstructed fossil fuel-fired EGUs under the CAA section 111(b). These EGUs fall intoACE rule, which comprised the same two categories of sources regulated by the Final CPP: steam generating units (also known as “utility boilers and IGCC units”), which primarily burn coal, and stationary combustion turbines, which primarily burn natural gas.
Lastly, the ACE rule included implementing regulations for State plans.
In January 2021, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) requestingvacated the ACE Rule and remanded the record back to the EPA for further consideration consistent with its opinion, finding that the Court hold the cases challenging the Final CPP in abeyance while the EPA reviews the final rules applicable to existing, as well as to new, modified, and reconstructed electric generating units pursuant to an Executive Order issued by President Trump. The Executive Order also instructed the EPA to review the Final CPP rule. On April 28, 2017 the D.C. Circuit issued orders to hold the litigation regardingmisinterpreted the Clean Air Act §111(d) Clean Power Planwhen it determined that the language of Section 111 barred consideration of emissions reduction options that were not applied at the source. The Court also vacated the repeal of the CPP. The EPA will now act on remand, and it is unclear what next steps the EPA will take. Given the complex and uncertain legal record with respect to the CPP, and the §111(b) New Source Performance Standardsconfirmation testimony of the incoming EPA Administrator that the Court’s ruling was an opportunity for power plants in abeyance for a period of 60 days with status reports due from the EPA every 30 days. On October 16, 2017,to “take a clean slate” in this area, we expect new rulemaking in the EPA gave noticefuture.
Given the status of proposed rule-making to repeal the Final CPP. On December 28, 2017, the EPA published an Advanced Notice of Proposed Rulemaking seeking comments on the potential for a Final CPP replacement rule. Comment periods on both notices remain open. Given these ongoing developments,EPA’s rulemaking, we cannot fullyreasonably predict the timing, outcome or estimate the extentapplicability of these issues with respect to which our facilities may be impacted by these
Washington Legislation and State Regulatory Activities
Energy Independence Act (EIA)
The EIA in Washington requires electric utilities with over 25,000 customers to acquire qualified renewable energy resources and/or renewable energy credits equal to 15 percent of the utility's total retail load in Washington in 2020. I-937The EIA also requires these utilities to meet biennial energy conservation targets beginning in 2012. The renewable energy standard increased from three percent in 2012 to nine percent in 2016 and will increase to 15 percent in 2020.targets. Failure to comply with renewable energy and efficiency standards could result in penalties of $50 per MWh or greater assessed against a utility for each MWh it is deficient in meeting a standard. We have met, and will continue to meet the requirements of the EIA through a variety of renewable energy generating means, including, but not limited to, some combination of hydroqualifying hydroelectric upgrades, wind, biomass and renewable energy credits. In 2012, the EIA was amended in such a way that our Kettle Falls GS and certain other biomass energy facilities, which commenced operation before March 31, 1999, are considered resources that may be used to meet the renewable energy standards.
Clean Air Rule
In September 2016, the Washington State Department of Ecology (Ecology) adopted the Clean Air Rule (CAR) to cap and reduce GHGgreenhouse gas (GHG) emissions across the State of Washington in pursuit of the State’s GHG goals, which were enacted in 2008 by the Washington State Legislature. The CAR applies to sources of annual GHG emissions in excess of 100,000 tons for the first compliance period of 2017 through 2019; this threshold incrementally decreases to 70,000 metric tons beginning in 2035. The rule affects stationary sources and transportation fuel suppliers, as well as natural gas distribution companies. Ecology hasoriginally identified approximately 30 entities that would be regulated under the CAR. Parties covered by the regulation mustwill be required to reduce emissions by 1.7 percent annually until 2035. Compliance can be demonstrated by achieving emission reductions and/or surrendering Emission Reduction Units (ERU), which are generated by parties that achieve reductions greater than required by the rule. Allowable ERUs can also take the form of renewable energy credits from renewable resources located in Washington, carbon emission offsets, and allowances acquired from an organized cap and trade market, such as thatthe one operating in California. In addition to the CAR's applicability to our burning of fuel as an electric utility, the CAR applieswould apply to us as a natural gas distribution
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company, for the emissions associated with the use of the natural gas we provide our customers who are not already covered under the regulation.
In September 2016, Avista Corp., Cascade Natural Gas Corp., NW Natural and Puget Sound Energy (PSE) (collectively, Petitioners) jointly filed an action in the U.S. District Court for the Eastern District of Washington challenging Ecology’s promulgated CAR. The four companies also filed litigation in Thurston County Superior Court.
The case in the U.S. District Court has been tolledstayed while the state court case proceeds.proceeded. On December 15, 2017, the Thurston County Superior Court issued a ruling invalidating the CAR. MotionsEcology subsequently appealed the ruling, and the Washington State Supreme Court accepted review. On January 16, 2020, the Washington State Supreme Court issued a decision holding that the CAR was invalid as to non-emitters, such as natural gas distributors, but could be enforced against direct emitters, such as natural gas generation plants. The Court has remanded the matter to Thurston County Superior Court, where claims previously raised before, but not addressed by, that court may be revised with respect to, among other issues, alleged procedural infirmities. At this time, we are pending in frontevaluating the potential impact of the Courtsurviving portion of the rule, if any, to our generation facilities, should their emissions exceed the rule’s compliance threshold. The rule is not intended to apply to the Kettle Falls Generating Station. We plan to seek recovery of any costs related to compliance with the surviving portion of the CAR through the ratemaking process.
Clean Energy Transformation Act
In 2019, the Washington State Legislature passed the CETA, which requires Washington utilities to eliminate the costs and benefits associated with coal-fired resources from their retail electric sales by December 31, 2025. This requirement would effectively prohibit sales of energy produced by coal-fired generation to Washington retail customers after December 31, 2025. In addition, CETA establishes the policy of Washington State that all retail sales of electricity to Washington customers must be carbon-neutral by January 1, 2030 and requires that each electric utility demonstrate compliance with this standard by using electricity from renewable and other non-emitting resources for 100 percent of the utility’s retail electric load over consecutive multi-year compliance periods; provided, however, that through December 31, 2044 the utility may satisfy up to 20 percent of this requirement with specified payments, credits and/or investments in qualifying energy transformation projects. The law has direct, specific impacts on Colstrip, which are unique to those owners of Colstrip who serve Washington customers. See “Colstrip” section for further details on the impacts of CETA on Colstrip. Our hydroelectric and biomass generation facilities can be used to comply with the CETA’s clean energy standards. CETA also effectuated changes to laws governing the WUTC. Several Washington agencies have established regulations under the CETA to guide implementation, and further rulemaking is ongoing. We intend to seek recovery of any costs associated with the clean energy legislation and regulations through the regulatory process.
Washington Policy Statement
In conjunction with the CETA, on January 31, 2020, the WUTC issued a policy statement concerning the treatment of used and useful plant in the context of rate filings, including in multi-year rate plans. The policy statement intends to achieve four goals:
•ensure general consistency with longstanding ratemaking practices, principles, and standards;
•maintain flexibility in ratemaking;
•avoid overly prescriptive guidance; and
•support streamlined processes.
Emissions Performance Standard
Washington also applies a GHG emissions performance standard to electric generation facilities used to serve retail loads in their jurisdictions, whether the facilities are located within its state or elsewhere. The emissions performance standard prevents utilities from constructing or purchasing generation facilities, or entering into power purchase agreements of five years or longer duration to purchase energy produced by plants that, in any case, have emission
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levels higher than 1,100 pounds of GHG per MWh. The Washington State Department of Commerce reviews the standard every five years. In September 2018, it is unknown if the Court’s ruling will be appealed.adopted a new standard of 925 pounds of GHG per MWh. We cannot fully predict the outcome of these matters at this time, but planintend to seek recovery of costs related to compliance with survivingongoing and new requirements through the ratemaking process.
GHG Reduction Targets
The State of Washington andhas adopted non-binding targets to reduce GHG emissions. The State enacted its targets with an expectation of reaching the Washington Administrative Code. The letter does not constitute approval of any aspect of the plan. In its letter, however, the WUTC expressed concern regarding the continued operation of the Colstrip plant as a resource to serve retail customers. Although the WUTC recognized that the results of the analyses presented by PSE “differed significantly between [Colstrip] Units 1 & 2 and Units 3 & 4,” the WUTC did not limit its concerns solely to Colstrip Units 1 & 2. The WUTC recommended that PSE “consult with WUTC staff to consider a Colstrip Proceeding to determine the prudency of new investment in Colstrip before it is made or, alternatively, a closure or partial-closure plan.” As part of the Sierra Club litigation that was settled in 2016, Units 1 & 2 are scheduled to close by July 2022. In 2017, the WUTC issued an Order in PSE’s general rate case accelerating PSE’s depreciation of Units 3 & 4 to 2027 from 2044 and 2045, respectively, directing PSE to contribute $10 million fromtargets through a combination of sourcesrenewable energy standards, eventual carbon pricing mechanisms, such as cap and trade regulation or a carbon tax, and assorted “complementary policies.” However, no specific reductions are mandated as yet. The State’s targets, originally enacted in 2008, have been evaluated by state institutions against the aims of the Paris Climate Accord of 2016, which include limiting the increase in the global average temperatures to at least below 2 degrees Celsius above pre-industrial levels and pursuing efforts to restrict the temperature increase to 1.5 degrees Celsius above pre-industrial levels. The ultimate targets would achieve greenhouse gas emissions reductions of 95% below 1990 levels by 2050, with the remaining 5% being offset for the state to achieve net-zero emissions. These targets will be used to inform future climate change legislation. We cannot reasonably predict how the state legislature may propose to meet the State's targets in the future. We intend to seek recovery of any new costs associated with these reduction targets, or any new reduction targets, through the regulatory process.
Oregon Legislation and Regulatory Actions
GHG Reduction Targets
The State of Oregon has adopted non-binding targets to reduce GHG emissions. The State enacted its targets with an expectation of reaching the targets through a community transition fundcombination of renewable energy standards, eventual carbon pricing mechanisms, such as cap and trade regulation or a carbon tax, and assorted “complementary policies.” However, no specific reductions are mandated as yet. The State’s targets have been evaluated by state institutions against the aims of the Paris Climate Accord of 2016, which include limiting the increase in global average temperatures to mitigate socialat least below 2 degrees Celsius above pre-industrial levels and economic impactspursuing efforts to restrict the temperature increase to 1.5 degrees Celsius above pre-industrial levels. In March 2020, Oregon Governor Kate Brown issued Executive Order No. 20-04, “Directing State Agencies to Take Actions to Reduce and Regulate Greenhouse Gas Emissions.” The Executive Order launched rulemaking proceedings for every Oregon agency with jurisdiction over greenhouse gas-related matters, with the aim of reducing Oregon’s overall GHG emissions to 80% below 1990 levels by 2050. Oregon agencies, including the Department of Environmental Quality (DEQ) and the Public Utility Commission, issued reports discussing general intent to carry out the Executive Order. DEQ is tasked with developing rules for a cap and reduce program that would apply to our natural gas distribution business in Oregon. The agency initiated informal and broad stakeholder consultation in June 2020, and, along with other agencies, is now moving into formal rulemaking. We cannot reasonably predict the impact of regulatory proceedings arising from the closureExecutive Order, nor how the state legislature may undertake additional requirements or revise the State's targets in the future. We intend to seek recovery of Colstrip,any new costs associated with these reduction targets, or any new reduction targets, through the regulatory process.
Emissions Performance Standard
Like Washington, Oregon applies a GHG emissions performance standard to electric generation facilities, requiring that any new baseload natural gas plant, non-base load natural gas plant, and encouraging PSEnon-generating facility reduce its net carbon dioxide emissions 17% below the most efficient combustion-turbine plant in the United States. The Oregon Energy Facility Siting Council issues rules periodically to engage stakeholdersupdate the standard, as more efficient power plants are built in a dialogue about utilizing surplus capacity onother states. The standard can be met by any combination of efficiency, cogeneration, and offsets from carbon dioxide mitigation measures. We intend to seek recovery of costs related to ongoing and new requirements through the Colstrip transmission system. As a 15 percent owner of Colstrip Units 3 & 4, we cannot estimate the effect of such proceeding, should it occur, on the future ownership, operationratemaking process.
Clean Electricity and operating costs of our share of Colstrip Units 3 & 4. Our remaining investment in Colstrip Units 3 & 4 as of December 31, 2017 was $124.4 million.
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In Oregon, legislation was enacted in 2016 which requires Portland General Electric and PacifiCorp to remove coal-fired generation from their Oregon rate base by 2030. This legislation does not directly relate to Avista Corp. because Avista Corp. is not an electric utility in Oregon. However, because these two utilities, along with Avista Corp., hold minority interests in Colstrip, the legislation could indirectly impact Avista Corp., though specific impacts cannot be identifiedreasonably predicted at this time. While the legislation requires Portland General Electric and PacifiCorp to eliminate Colstrip from their rates, they would be permitted to sell the output of their shares of Colstrip into the wholesale market or, as is the case with PacifiCorp, reallocate the plantgeneration from Colstrip to other states. We cannot predict the eventual outcome of actions arising from this legislation at this time or estimate the effect thereof on Avista Corp.; however, we willintend to continue to seek recovery, through the ratemaking process, of all operating and capitalized costs related to our generation assets.
Clean Air Act (CAA)
The CAA creates numerous requirements for our thermal generating plants. Colstrip, Kettle Falls GS, Coyote Springs and Rathdrum CT all require CAA Title V operating permits. The Boulder Park GS, Northeast CT and a number of other operations require minor source permits or simple source registration permits. We have secured these permits and certify our compliance with Title V permits on an annual basis. These requirements can change over time as the CAA or applicable implementing regulations are amended and new permits are issued. We actively monitor legislative, regulatory and other program developments of the CAA that may impact our facilities.
Threatened and Endangered Species and Wildlife
A number of species of fish in the Northwest are listed as threatened or endangered under the Federal Endangered Species Act (ESA).Act. Efforts to protect these and other species have not significantly impacted generation levels at our hydroelectric facilities, nor operations of our thermal plants or electrical distribution and transmission system. We are implementing fish protection measures at our hydroelectric project on the Clark Fork River under a 45-year FERC operating license for Cabinet Gorge and Noxon Rapids (issued Marchin 2001) that incorporates a comprehensive settlement agreement. The restoration of native salmonid fish, including bull trout, is a key part of the agreement. The result is a collaborative native salmonid restoration program with the U.S. Fish and Wildlife Service, Native American tribes and the states of Idaho and Montana on the lower Clark Fork River, consistent with requirements of the FERC license. The U.S. Fish & Wildlife Service issued an updated Critical Habitat Designation for bull trout in 2010 that includes the lower Clark Fork River, as well as portions of the Coeur d'Alene basin within our Spokane River Project area, and issued a final Bull Trout Recovery Plan under the ESA. Issues related to these activities are expected to be resolved through the ongoing collaborative effort of our Clark Fork and Spokane River FERC licenses. See “Fish Passage at Cabinet Gorge and Noxon Rapids” in “Note 19 of the Notes to Consolidated Financial Statements” for further information.
Various statutory authorities, including the Migratory Bird Treaty Act, have established penalties for the unauthorized take of migratory birds. Because we operate facilities that can pose risks to a variety of such birds, we have developed and follow an avian protection plan.
We are also aware of other threatened and endangered species and issues related to them that could be impacted by our operations and we make every effort to comply with all laws and regulations relating to these threatened and endangered species. We expect costs associated with these compliance efforts to be recovered through the ratemaking process.
Cabinet Gorge Total Dissolved Gas Abatement Plan
Dissolved atmospheric gas levels (referred to as "Total Dissolved Gas" or "TDG") in the Clark Fork River exceed state of Idaho and federal water quality numeric standards downstream of Cabinet Gorge particularly during periods when excess river flows must be diverted over the spillway. Under the terms of the Clark Fork Settlement Agreement as incorporated in Avista Corp.’s FERC license for the Clark Fork Project, Avista Corp. works in consultation with agencies, tribes and other stakeholders to address this issue through structural modifications to the spillgates, monitoring and analysis. After extensive testing, Clark Fork Settlement Agreement stakeholders have agreed that no further spillway modifications are justified. For the remainder of the FERC License term, Avista Corp. will continue to mitigate remaining impacts of TDG while considering the potential for new approaches to further reduce TDG. The Company continues to work with stakeholders to determine the degree to which TDG
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abatement reduces future mitigation obligations. The Company has sought, and intends to continue to seek recovery, through the ratemaking process, of all operating and capitalized costs related to this issue.
Other
For other environmental issues and other contingencies see “Note 1922 of the Notes to Consolidated Financial Statements.”
Colstrip
Colstrip is a coal-fired generating plant in southeastern Montana that includes four units and which is owned by six separate entities. We have a 15 percent ownership interest in Units 3 & 4 and provide financing for our ownership interest in the project. The other owners are Puget Sound Energy, Portland General Electric, NorthWestern Energy, Pacificorp and Talen Montana (which is also the operator of the plant). In January 2020, the owners of Units 1 & 2, in which we have no ownership, closed those two units. The owners of Units 3 & 4 currently share operating and capital costs pursuant to the terms of an operating agreement among them (the Ownership and Operation Agreement).
CETA imposes deadlines by which coal-fired resources, such as Colstrip, must be excluded from the rate base of Washington utilities and by which electricity from such resources may no longer be delivered to Washington retail customers. See “Environmental Issues and Contingencies – Climate Change – Washington Legislation and Regulatory Actions – Clean Energy Transformation Act”. These deadlines are reflected in our IRPs and those of other Washington utilities. Not all of the co-owners of Colstrip Units 3 & 4 are Washington utilities subject to CETA, and the co-owners have differing needs for the generating capacity of these units. Accordingly, business disagreements have arisen among the co-owners, including, but not limited to, disagreements as to the shut-down date or dates of these units. These business disagreements, in turn, have led to disagreements as to the interpretation of various provisions of the Ownership and Operating Agreement, including, but not limited to, provisions relating to the termination by a co-owner of its interests in Unit 3 and/or Unit 4. Meanwhile, while the units are still being operated, related disagreements have arisen over the 2021 operating budget that could extend to future budgets. If these disagreements cannot be resolved to the satisfaction of all owners, it is possible that one or more issues will be arbitrated in accordance with the terms of the Ownership and Operation Agreement. In that case, the outcome of any such proceeding could have financial implications for any future decisions we may make with respect to our ownership interest in Colstrip Units 3 & 4. Other impacts of the CETA and its implementing regulations are discussed in the Environmental Issues and Contingencies section.
Depreciation of Colstrip Assets
We have received orders from the IPUC and WUTC allowing us to accelerate the depreciation of our 15 percent ownership interest in Colstrip Units 3 & 4 to 2027 for Idaho and 2025 for Washington. Our remaining investment in Colstrip Units 3 & 4 as of December 31, 2020 was $107.6 million.
Coal Ash Management/Disposal
In 2015, the EPA issued a final rule regarding coal combustion residuals (CCRs), also termed coal combustion byproducts or coal ash (Colstrip produces this byproduct). The CCR rule has been the subject of ongoing litigation. In August 2018, the D.C. Circuit struck down provisions of the rule. In December 2019, a proposed revision to the rule was published in the Federal Register to address the D.C. Circuit's decision. The rule includes technical requirements for CCR landfills and surface impoundments under Subtitle D of the Resource Conservation and Recovery Act, the nation's primary law for regulating solid waste. The Colstrip owners developed a multi-year compliance plan to address the CCR requirements along with existing state obligations expressed through the 2012 Administrative Order on Consent (AOC) with Montana Department of Environmental Quality (MDEQ). These requirements continue despite the 2018 federal court ruling.
The AOC requires MDEQ to review Remedy and Closure plans for all parts of the Colstrip plant through an ongoing public process. The AOC also requires the Colstrip owners to provide financial assurance, primarily in the form of surety bonds, to secure each owner’s pro rata share of various anticipated closure and remediation obligations. We are responsible for our share of two major areas: the Plant Site Area and the Effluent Holding Pond Area. Generally, the plans include the removal of Boron, Chloride, and Sulfate from the groundwater, closure of the existing ash storage ponds, and installation of a new water treatment system to convert the facility to a dry ash storage. We recently adjusted our share of the posted surety bonds to approximately
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$20 million. This amount will be updated annually, with expected obligations decreasing over time as remediation activities are completed.
Colstrip Coal Contract
Colstrip is supplied with fuel from adjacent coal reserves under coal supply and transportation agreements. Several of the co-owners of Colstrip, including us, have negotiated an extension to the coal contract that runs through December 31, 2025.
Other Colstrip Matters
We continue to assess the best options for Colstrip in conjunction with our co-owners. We intend to seek recovery of any costs associated with Colstrip regulatory matters.
Enterprise Risk Management
The material risks to our businesses are discussed in "Item 1A. Risk Factors," "Forward-Looking Statements," as well as "Environmental Issues and Contingencies." The following discussion focuses on our mitigation processes and procedures to address these risks.
We consider the management of these risks an integral part of managing our core businesses and a key element of our approach to corporate governance.
Risk management includes identifying and measuring various forms of risk that may affect the Company. We have an enterprise risk management process for managing risks throughout our organization. Our Board of Directors and its Committees take an active role in the oversight of risk affecting the Company. Our risk management department facilitates the collection of risk information across the Company, providing senior management with a consolidated view of the Company’s major risks and risk mitigation measures. Each area identifies risks and implements the related mitigation measures. The enterprise risk process supports management in identifying, assessing, quantifying, managing and mitigating the risks. Despite all risk mitigation measures, however, risks are not eliminated.
Our primary identified categories of risk exposure are:
• Utility regulatory | • | |
• Operational | • Financial | |
• Cyber and Technology | • Energy commodity | |
• | • | |
Our primary categories of the Company. Broadly, financial risks involve variation of earnings and liquidity. Underlying risks include, but are not limited to, those described in "Item 1A. Risk Factors."
Utility Regulatory Risk
Regulatory risk is mitigated through a separate regulatory group which communicates with commission regulators and staff regarding the Company’s business plans and concerns. The regulatory group also considers the regulator’s priorities and rate policies and makes recommendations to senior management on regulatory strategy for the Company. Oversight of our regulatory strategies and policies is performed by senior management and our Board of Directors. See “Regulatory Matters” for further discussion of regulatory matters affecting our Company.
Operational Risk
To manage operational and event risks, we maintain emergency operating plans, business continuity and disaster recovery plans, maintain insurance coverage against some, but not all, potential losses and seek to negotiate indemnification arrangements with contractors for certain event risks. In addition, we design and follow detailed vegetation management and asset management inspection plans, which help mitigate wildfire and storm event risks, as well as identify utility assets which may be failing and in need of repair or replacement. We mitigate financialalso have an Emergency Operating Center, which is a team of employees that plan for and train to deal with potential emergencies or unplanned outages at our facilities, resulting from natural disasters or other events. To prevent unauthorized access to our facilities, we have both physical and cyber security in place.
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To address the risk in a varietyrelated to fuel cost, availability and delivery restraints, we have an energy resources risk policy, which includes our wholesale energy markets credit policy and control procedures to manage energy commodity price and credit risks. Development of ways including through oversight from the Financeenergy resources risk policy includes planning for sufficient capacity to meet our customer and wholesale energy delivery obligations. See further discussion of the energy resources risk policy below.
Oversight of the operational risk management process is performed by the Environmental, Technology and Operations Committee of our Board of Directors and from senior management with input from each operating department.
Cyber and Technology Risk
We mitigate cyber and technology risk through trainings and exercises at all levels of the Company. The Environmental, Technology and Operations Committee of our Board of Directors along with senior management are regularly briefed on security policy, programs and incidents. Annual cyber and physical training and testing of employees are included in our enterprise security program. Our enterprise business continuity program facilitates business impact analysis of core functions for development of emergency operating plans, and coordinates annual testing and training exercises.
Technology governance is led by senior management, which includes new technology strategy, risk planning and major project planning and approval. The technology project management office and enterprise capital planning group provide project cost, timeline and schedule oversight. In addition, there are independent third party audits of our critical infrastructure security program and our business risk security controls.
We have a Technology department dedicated to securing, maintaining, evaluating and developing our information technology systems. There are regular training sessions for the technology and security team. This group also evaluates the Company's technology for obsolescence and makes recommendations for upgrading or replacing systems as necessary. Additionally, this group monitors for intrusion and security events that may include a data breach or attack on our operations.
Strategic Risk
Oversight of our strategic risk is performed by the Board of Directors and senior management. We have a Chief Strategy Officer who leads strategic initiatives, to search for and evaluate opportunities for the Company and makes recommendations to senior management. We not only focus on whether opportunities are financially viable, but also consider whether these opportunities fall within our core policies and our core business strategies. We mitigate our reputational risk primarily through a focus on adherence to our core policies, including our Code of Conduct, maintaining an appropriate Company culture and tone at the top, and through communication and engagement of our external stakeholders.
External Mandates Risk
Oversight of our external mandate risk mitigation strategies is performed by the Environmental, Technology and Operations Committee of our Board of Directors and senior management. We have a Perform Council which meets internally to assess the potential impacts of climate policy to our business and to identify strategies to plan for change. Our ESG program creates a framework that is intended to attract investment, enhancement of our brand, and promotion of sustainable long-term growth. We also have employees dedicated to actively engage and monitor federal, state and local government positions and legislative actions that may affect us or our customers.
To prevent the threat of municipalization, we work to build strong relationships with the communities we serve through, among other things:
• | communication and involvement with local business leaders and community organizations, |
• | providing customers with a multitude of limited income initiatives, including energy fairs, senior outreach, low income workshops, mobile outreach strategy and a Low Income Rate Assistance Plan, |
• | tailoring our internal company initiatives to focus on choices for our customers, to increase their overall satisfaction with the Company, and |
• | engaging in the legislative process in a manner that fosters the interests of our customers and the communities we serve. |
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Financial Risk
Our financial risk is impacted by many factors. Several of these risks include regulation and rates, weather, access to capital markets, interest rate risk, credit risk, and foreign exchange risk.We have a Treasury department that monitors our daily cash position and future cash flow needs, as well as monitoring market conditions to determine the appropriate course of action for capital financing and/or hedging strategies.Oversight of our financial risk mitigation strategies is performed by senior management and the Finance Committee of our Board of Directors.
Regulation and Rates
Our Regulatory department is also critical in mitigation of financial risk mitigation as they have regular communications with state commission regulators and staff and they monitor and develop rate strategies for the Company. Rate strategies, such as decoupling, help mitigate the impacts of revenue fluctuations due to weather, conservation or the economy. We also have a Treasury department that monitors our daily cash position and future cash flow needs, as well as monitoring market conditions to determine the appropriate course of action for capital financing and/or hedging strategies.
Weather Risk
To partially mitigate the risk of financial underperformanceunder-performance due to weather-related factors, we developed decoupling rate mechanisms that were approved by the Washington, Idaho and Oregon commissions. Decoupling mechanisms are designed to break the link between a utility's revenues and consumers' energy usage and instead provide revenue based on the number of customers, thus mitigating a large portion of the risk associated with lower customer loads. See "Regulatory Matters" for further discussion of our decoupling mechanisms.
Access to Capital Markets
Our capital requirements rely to a significant degree on regular access to capital markets. We actively engage with rating agencies, banks, investors and state public utility commissions to understand and address the factors that support access to capital markets on reasonable terms. We manage our capital structure to maintain a financial risk profile that we believe these parties will deem prudent. We forecast cash requirements to determine liquidity needs, including sources and variability of cash flows that may arise from our spending plans or from external forces, such as changes in energy prices or interest rates. Our financial and operating forecasts consider various metrics that affect credit ratings. Our regulatory strategies include working with state public utility commissions and filing for rate changes as appropriate to meet financial performance expectations.
Interest Rate Risk
Uncertainty about future interest rates causes risk related to a portion of our existing debt, our future borrowing requirements, and our pension and other post-retirement benefit obligations. We manage debt interest rate exposure by limiting our variable rate debt to a percentage of total capitalization of the Company. We hedge a portion of our interest rate risk on forecasted debt issuances with financial derivative instruments, which may include interest rate swaps and U.S. Treasury lock agreements.instruments. The Finance Committee of our Board of Directors periodically reviews and discusses interest rate risk management processes and the steps management has undertaken to control interest rate risk. Our RMCRisk Management Committee (RMC) also reviews our interest rate risk management plan. Additionally, interest rate risk is managed by monitoring market conditions when timing the issuance of long-term debt and optional debt redemptions and establishing fixed rate long-term debt with varying maturities.
Our interest rate swap derivatives are considered economic hedges against the future forecasted interest rate payments of our long-term debt. Interest rates on our long-term debt are generally set based on underlying U.S. Treasury rates plus credit
Even though we work to manage our exposure to interest rate risk by locking in certain long-term interest rates through interest rate swap derivatives, if market interest rates decrease below the interest rates we have locked in, this will result in a liability related to our interest rate swap derivatives, which can be significant. However, through our regulatory accounting practices similar to our energy commodity derivatives, any interim mark-to-market gains or losses are offset by regulatory assets and liabilities. Upon settlement of interest rate swap derivatives, the cash payments made or received are recorded as a regulatory asset or liability isand are subsequently amortized as a component of interest expense over the termlife of the associated debt.
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The following table summarizes our interest rate swap derivatives outstanding as of December 31, 20172020 and December 31, 20162019 (dollars in thousands):
|
| December 31, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Number of agreements |
|
| 16 |
|
|
| 20 |
|
Notional amount |
| $ | 175,000 |
|
| $ | 215,000 |
|
Mandatory cash settlement dates |
| 2021 to 2023 |
|
| 2020 to 2022 |
| ||
Short-term derivative assets (1) |
| $ | — |
|
| $ | 589 |
|
Short-term derivative liability (1) (2) |
|
| (11,525 | ) |
|
| (7,825 | ) |
Long-term derivative liability (1) (2) |
|
| (31,238 | ) |
|
| (18,498 | ) |
| December 31, | December 31, | ||||||
| 2017 | 2016 | ||||||
| Number of agreements | 29 | 33 | |||||
| Notional amount | $ | 450,000 | $ | 500,000 | |||
| Mandatory cash settlement dates | 2018 to 2022 | 2017 to 2022 | |||||
| Short-term derivative assets (1) | $ | 2,327 | $ | 3,393 | |||
| Long-term derivative assets (1) | 2,576 | 5,357 | |||||
| Short-term derivative liability (1) (2) | (34,447 | ) | (6,025 | ) | |||
| Long-term derivative liability (1) (2) | (1,522 | ) | (28,705 | ) | |||
(1) | |
There are offsetting regulatory assets and liabilities for these items on the Consolidated Balance Sheets in accordance with regulatory accounting practices. |
(2) | |
The balance as of December 31, |
We estimate that a 10-basis-point10 basis point increase in forward LIBOR interest rates as of December 31, 20172020 would increase the interest rate swap derivative net liability by $5.9 million, while a 10 basis point decrease would decrease the interest rate swap derivative net liability by $9.7 million, while a 10-basis-point decrease would increase the interest rate swap derivative net liability by $10.0$6.1 million.
We estimated that a 10-basis-point10 basis point increase in forward LIBOR interest rates as of December 31, 20162019 would have decreasedincreased the interest rate swap derivative net liability by $10.4$5.1 million, while a 10-basis-point10 basis point decrease would increasedecrease the interest rate swap derivative net liability by $10.7$5.4 million.
The interest rate on $51.5 million of long-term debt to affiliated trusts is adjusted quarterly, reflecting current market rates. Amounts borrowed under our committed line of credit agreements have variable interest rates.
The following table shows our long-term debt (including current portion) and related weighted-average interest rates, by expected maturity dates as of December 31, 20172020 (dollars in thousands):
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| Thereafter |
|
| Total |
|
| Fair Value |
| ||||||||
Fixed rate long-term debt (1) |
| $ | — |
|
| $ | 250,000 |
|
| $ | 13,500 |
|
| $ | 15,000 |
|
| $ | — |
|
| $ | 1,745,000 |
|
| $ | 2,023,500 |
|
| $ | 2,425,072 |
|
Weighted-average interest rate |
|
| — |
|
|
| 5.13 | % |
|
| 7.35 | % |
|
| 3.44 | % |
|
| — |
|
|
| 4.36 | % |
|
| 4.47 | % |
|
|
|
|
Variable rate long-term debt to affiliated trusts |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| $ | 51,547 |
|
| $ | 51,547 |
|
| $ | 43,815 |
|
Weighted-average interest rate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.10 | % |
|
| 1.10 | % |
|
|
|
|
| 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | Fair Value | ||||||||||||||||||||||||
| Fixed rate long-term debt (1) | $ | 272,500 | $ | 105,000 | $ | 52,000 | $ | — | $ | 250,000 | $ | 1,038,500 | $ | 1,718,000 | $ | 1,878,381 | |||||||||||||||
| Weighted-average interest rate | 6.07 | % | 5.22 | % | 3.89 | % | — | 5.13 | % | 4.77 | % | 5.03 | % | ||||||||||||||||||
| Variable rate long-term debt to affiliated trusts | — | — | — | — | — | $ | 51,547 | $ | 51,547 | $ | 41,882 | ||||||||||||||||||||
| Weighted-average interest rate | — | — | — | — | — | 2.36 | % | 2.36 | % | ||||||||||||||||||||||
(1) | |
These balances include the fixed rate long-term debt of Avista Corp., AEL&P and AERC. |
Our pension plan is exposed to interest rate risk because the value of pension obligations and other post-retirement obligations varyvaries directly with changes in the discount rates, which are derived from end-of-year market interest rates. In addition, the value of pension investments and potential income on pension investments is partially affected by interest rates because a portion of pension investments are in fixed income securities. TheOversight of our pension plan investment strategies is performed by the Finance Committee of the Board of Directors, which approves investment and funding policies, objectives and strategies that seek an appropriate return for the pension plan and it reviews and approves changes to the investment and funding policies.plan. We manage interest rate risk associated with our pension and other post-retirement benefit plans by investing a targeted amount of pension plan assets in fixed income investments that have maturities with similar profiles to future projected benefit obligations. See "Note 1011 of the Notes to Consolidated Financial Statements" for further discussion of our investment policy associated with the pension assets.
Credit Risk
Counterparty Non-Performance Risk
Counterparty non-performance risk relates to potential losses that we would incur as a result of non-performance of contractual obligations by counterparties to deliver energy or make financial settlements.
76
AVISTA CORPORATION
Changes in market prices may dramatically alter the size of credit risk with counterparties, even when we establish conservative credit limits. Should a counterparty fail to perform, we may be required to honor the underlying commitment or to replace existing contracts with contracts at then-current market prices.
We enter into bilateral transactions with various counterparties. We also trade energy and related derivative instruments through clearinghouse exchanges.
We seek to mitigate credit risk by:
• | transacting through clearinghouse exchanges, |
• | entering into bilateral contracts that specify credit terms and protections against default, |
• | applying credit limits and duration criteria to existing and prospective counterparties, |
• | actively monitoring current credit exposures, |
• | asserting our collateral rights with counterparties, and |
• | carrying out transaction settlements timely and effectively. |
The extent of transactions conducted through exchanges has increased, as many market participants have shown a preference toward exchange trading and have reduced bilateral transactions. We actively monitor the collateral required by such exchanges to effectively manage our capital requirements.
Counterparties’ credit exposure to us is dynamic in normal markets and may change significantly in more volatile markets. The amount of potential default risk to us from each counterparty depends on the extent of forward contracts, unsettled transactions, interest rates and market prices. There is a risk that we do not obtain sufficient additional collateral from counterparties that are unable or unwilling to provide it.
Credit Risk Liquidity Considerations
To address the impact on our operations of energy market price volatility, our hedging practices for electricity (including fuel for generation) and natural gas extend beyond the current operating year. Executing this extended hedging program may increase credit risk and demands for collateral. Our credit risk management process is designed to mitigate such credit risks through limit setting, contract protections and counterparty diversification, among other practices.
Credit risk affects demands on our capital. We are subject to limits and credit terms that counterparties may assert to allow us to enter into transactions with them and maintain acceptable credit exposures. Many of our counterparties allow unsecured credit at limits prescribed by agreements or their discretion. Capital requirements for certain transaction types involve a combination of initial margin and market value margins without any unsecured credit threshold. Counterparties may seek assurances of performance from us in the form of letters of credit, prepayment or cash deposits.
Credit exposure can change significantly in periods of commodity price and interest rate volatility. As a result, sudden and significant demands may be made against our credit facilities and cash. We actively monitor the exposure to possible collateral calls and take steps to minimize capital requirements.
As of December 31, 2017,2020, we had cash deposited as collateral of $39.5$5.0 million and letters of credit of $23.0$23.5 million outstanding related to our energy derivative contracts. Price movements and/or a downgrade in our credit ratings could impact further the amount of collateral required. See “Credit Ratings” for further information. For example, in addition to limiting our ability to conduct transactions, if our credit ratings were lowered to below “investment grade” based on our positions outstanding at December 31, 2017,2020 (including contracts that are considered derivatives and those that are considered non-derivatives), we would potentially be required to post the following additional collateral of up to $2.6 million. This amount is different from the amount disclosed in “Note 6 of the Notes to Consolidated Financial Statements” because, while this analysis includes contracts that are not considered derivatives in addition to the contracts considered in Note 6, this analysis also takes into account contractual threshold limits that are not considered in Note 6. Without contractual threshold limits, we would potentially be required to post additional collateral of $4.6 million.(in thousands):
|
| December 31, 2020 |
| |
Additional collateral taking into account contractual thresholds |
| $ | 11,772 |
|
Additional collateral without contractual thresholds |
|
| 14,575 |
|
77
AVISTA CORPORATION
Under the terms of interest rate swap derivatives that we enter into periodically, we may be required to post cash or letters of credit as collateral depending on fluctuations in the fair value of the instrument. As of December 31, 2017,2020, we had interest rate swap agreements outstanding with a notional amount totaling $450.0$175.0 million and we had deposited cash in the amount of $35.0 million and letters of credit of $5.0$8.1 million as collateral for these interest rate swap derivatives. If our credit ratings were lowered to below “investment grade” based on our interest rate swap derivatives outstanding at December 31, 2017,2020, we would havepotentially be required to post $18.8 million ofthe following additional collateral.collateral (in thousands):
|
| December 31, 2020 |
| |
Additional collateral taking into account contractual thresholds (1) |
| $ | 11,540 |
|
Additional collateral without contractual thresholds |
|
| 42,763 |
|
(1) | This amount is different from the amount disclosed in “Note 7 of the Notes to Consolidated Financial Statements” because, while this analysis includes contracts that are not considered derivatives in addition to the contracts considered in Note 7, this analysis also takes into account contractual threshold limits that are not considered in Note 7. |
Foreign Currency Risk
A significant portion of our utility natural gas supply (including fuel for electric generation) is obtained from Canadian sources. Most of those transactions are executed in U.S. dollars, which avoids foreign currency risk. A portion of our short-term natural gas transactions and long-term Canadian transportation contracts are committed based on Canadian currency prices. The short-term natural gas transactions are typically settled within sixty days with U.S. dollars. We economically hedge a portion of the foreign currency risk by purchasing Canadian currency exchange contractsderivatives when such commodity transactions are initiated. This risk has not had a material effect on our financial condition, results of operations or cash flows and these differences in cost related to currency fluctuations are included with natural gas supply costs for ratemaking.
Further information for derivatives and fair values is disclosed at “Note 67 of the Notes to Consolidated Financial Statements” and “Note 1618 of the Notes to Consolidated Financial Statements.”
Energy Commodity Risk
We mitigate energy commodity risk primarily through our energy resources risk policy, which includes oversight from the RMC and oversight from the Audit Committee and the Environmental, Technology and Operations Committee of our Board of Directors. In conjunction with the oversight committees, our management team develops hedging strategies, detailed resource procurement plans, resource optimization strategies and long-term integrated resource planning to mitigate some of the risk associated with energy commodities. The various plans and strategies are monitored daily and developed with quantitative methods.
Our energy resources risk policy includes our wholesale energy markets credit policy and control procedures to manage energy commodity price and credit risks. Nonetheless, adverse changes in commodity prices, generating capacity, customer loads, regulation and other factors may result in losses of earnings, cash flows and/or fair values.
We measure the volume of monthly, quarterly and annual energy imbalances between projected power loads and resources. The measurement process is based on expected loads at fixed prices (including those subject to retail rates) and expected resources to the extent that costs are essentially fixed by virtue of known fuel supply costs or projected hydroelectric conditions. To the extent that expected costs are not fixed, either because of volume mismatches between loads and resources or because fuel cost
78
AVISTA CORPORATION
To address the impact on our operations of energy market price volatility, our hedging practices for electricity (including fuel for generation) and natural gas extend beyond the current operating year. Executing this extended hedging program may increase our credit risks. Our credit risk management process is designed to mitigate such credit risks through limit setting, contract protections and counterparty diversification, among other practices.
Our projected retail natural gas loads and resources are regularly reviewed by operating management and the RMC. To manage the impacts of volatile natural gas prices, we seek to procure natural gas through a diversified mix of spot market purchases and forward fixed price purchases from various supply basins and time periods. We have an active hedging program that extends into future years with the goal of reducing price volatility in our natural gas supply costs. We use natural gas storage capacity to support high demand periods and to procure natural gas when price spreads are favorable. Securing prices throughout the year and even into subsequent years mitigates potential adverse impacts of significant purchase requirements in a volatile price environment.
The following table presents energy commodity derivative fair values as a net asset or (liability) as of December 31, 20172020 that are expected to settle in each respective year (dollars in thousands):. There are no expected deliveries of energy commodity derivatives after 2025:
|
| Purchases |
|
| Sales |
| ||||||||||||||||||||||||||
|
| Electric Derivatives |
|
| Gas Derivatives |
|
| Electric Derivatives |
|
| Gas Derivatives |
| ||||||||||||||||||||
Year |
| Physical (1) |
|
| Financial (1) |
|
| Physical (1) |
|
| Financial (1) |
|
| Physical (1) |
|
| Financial (1) |
|
| Physical (1) |
|
| Financial (1) |
| ||||||||
2021 |
| $ | 2 |
|
| $ | (414 | ) |
| $ | (87 | ) |
| $ | 10,549 |
|
| $ | (15 | ) |
| $ | 716 |
|
| $ | (2,152 | ) |
| $ | (10,672 | ) |
2022 |
|
| — |
|
|
| — |
|
|
| 247 |
|
|
| 1,920 |
|
|
| — |
|
|
| — |
|
|
| (1,697 | ) |
|
| (1,536 | ) |
2023 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (122 | ) |
|
| — |
|
|
| — |
|
|
| (1,599 | ) |
|
| (42 | ) |
2024 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,673 | ) |
|
| — |
|
2025 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,219 | ) |
|
| — |
|
| Purchases | Sales | ||||||||||||||||||||||||||||||
| Electric Derivatives | Gas Derivatives | Electric Derivatives | Gas Derivatives | ||||||||||||||||||||||||||||
| Year | Physical (1) | Financial (1) | Physical (1) | Financial (1) | Physical (1) | Financial (1) | Physical (1) | Financial (1) | |||||||||||||||||||||||
| 2018 | $ | (8,267 | ) | $ | (501 | ) | $ | 1,022 | $ | (36,834 | ) | $ | 35 | $ | 4,100 | $ | (374 | ) | $ | 15,829 | |||||||||||
| 2019 | (4,950 | ) | (1,159 | ) | (570 | ) | (17,814 | ) | (13 | ) | 4,621 | (932 | ) | 6,395 | |||||||||||||||||
| 2020 | — | — | (766 | ) | (1,882 | ) | — | (194 | ) | (1,050 | ) | — | |||||||||||||||||||
| 2021 | — | — | — | — | — | — | (655 | ) | — | ||||||||||||||||||||||
| 2022 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
| Thereafter | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
The following table presents energy commodity derivative fair values as a net asset or (liability) as of December 31, 20162019 that were expected to settle in each respective year (dollars in thousands):. There were no expected deliveries of energy commodity derivatives after 2022:
|
| Purchases |
|
| Sales |
| ||||||||||||||||||||||||||
|
| Electric Derivatives |
|
| Gas Derivatives |
|
| Electric Derivatives |
|
| Gas Derivatives |
| ||||||||||||||||||||
Year |
| Physical (1) |
|
| Financial (1) |
|
| Physical (1) |
|
| Financial (1) |
|
| Physical (1) |
|
| Financial (1) |
|
| Physical (1) |
|
| Financial (1) |
| ||||||||
2020 |
| $ | 19 |
|
| $ | 2,063 |
|
| $ | (895 | ) |
| $ | 10,929 |
|
| $ | (422 | ) |
| $ | (7,448 | ) |
| $ | (1,634 | ) |
| $ | (8,922 | ) |
2021 |
|
| — |
|
|
| — |
|
|
| 15 |
|
|
| 2,666 |
|
|
| — |
|
|
| (26 | ) |
|
| (1,187 | ) |
|
| (1,941 | ) |
2022 |
|
| — |
|
|
| — |
|
|
| 35 |
|
| 180 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) | |
| Purchases | Sales | ||||||||||||||||||||||||||||||
| Electric Derivatives | Gas Derivatives | Electric Derivatives | Gas Derivatives | ||||||||||||||||||||||||||||
| Year | Physical (1) | Financial (1) | Physical (1) | Financial (1) | Physical (1) | Financial (1) | Physical (1) | Financial (1) | |||||||||||||||||||||||
| 2017 | $ | (4,274 | ) | $ | 1,939 | $ | 97 | $ | (4,005 | ) | $ | (225 | ) | $ | 576 | $ | (2,036 | ) | $ | (3,440 | ) | ||||||||||
| 2018 | (5,598 | ) | — | — | (2,170 | ) | (33 | ) | 854 | (910 | ) | 709 | |||||||||||||||||||
| 2019 | (3,123 | ) | — | (235 | ) | (3,732 | ) | (40 | ) | 975 | (927 | ) | 103 | ||||||||||||||||||
| 2020 | — | — | (266 | ) | (370 | ) | — | — | (1,288 | ) | — | ||||||||||||||||||||
| 2021 | — | — | — | — | — | — | (869 | ) | — | ||||||||||||||||||||||
| Thereafter | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
(1) | |
Physical transactions represent commodity transactions where we will take or make delivery of either electricity or natural gas; financial transactions represent derivative instruments with delivery of cash in the amount of the benefit or cost but with no physical delivery of the commodity, such as futures, swap derivatives, options, or forward contracts. |
The above electric and natural gas derivative contracts will be included in either power supply costs or natural gas supply costs during the period they are delivered and will be included in the various deferral and recovery mechanisms (ERM, PCA, and PGAs), or in the general rate case process, and are expected to eventually be collected through retail rates from customers.
See "Item 1. Business – Electric Operations,"Operations" and "Item 1. Business – Natural Gas Operations," and "Item 1A. Risk Factors" for additional discussion of the risks associated with Energy Commodities.
Compliance Risk
Compliance risk is the potential consequences of legal or regulatory sanctions or penalties arising from the failure of the Company to comply with requirements of applicable laws, rules and regulations. We have extensive compliance obligations. Our primary compliance risks and obligations include, among others, those described in "Item 1A. Risk Factors."
79
AVISTA CORPORATION
our Chief Compliance Officer, and the Environmental, Technology and Operations Committee and the Audit Committee of our Board of Directors.
See "Item 1. Business, Regulatory Issues" through "Item 1. Business, Reliability Standards" and “Environmental Issues and Contingencies” for further discussion of compliance issues that impact our Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is set forth in the Enterprise Risk Management section of "Item 7. Management’s Discussion and Analysis" and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Registered Public Accounting Firm and Financial Statements begin on the next page.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Avista Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Avista Corporation and subsidiaries (the "Company") as of December 31, 20172020 and 2016,2019, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2017,2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2020, based on criteria established in
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters - Refer to Notes 1, 22, and 23 to the financial statements
Critical Audit Matter Description
The Company accounts for its regulated operations in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 980, Regulated Operations (“ASC 980”). The provisions of this accounting guidance require, among other things, that financial statements of a rate-regulated enterprise reflect the actions of regulators, where appropriate. These actions may result in the recognition of revenues and expenses in time periods that are different than non-rate-regulated enterprises. When this occurs, costs are deferred as assets in the balance sheet (regulatory assets) and recorded as expenses when those amounts are reflected in rates. Also, regulators can impose liabilities upon a regulated company for amounts previously collected from customers and for recovery of costs that are expected to be incurred in the future (regulatory liabilities).
The Company is subject to regulation by the Washington Utilities and Transportation Commission (the “WUTC”), the Idaho Public Utility Commission (the “IPUC”), the Public Utility Commission of Oregon (the “OPUC”), the Public Service Commission of the State of Montana (the “MPSC”) and the Regulatory Commission of Alaska (the “RCA”) (collectively, the “Commissions”), which have jurisdiction with respect to, among other things, the rates of electric and natural gas distribution companies in Washington, Idaho, Oregon, Montana, and Alaska, respectively. Accounting for the economics of rate regulation
has an impact on multiple financial statement line items and disclosures, such as property, plant, and equipment, regulatory assets and liabilities, operating revenues, operation and maintenance expense, and depreciation expense.
The Company’s rates are subject to the rate-setting processes of the Commissions and, in certain jurisdictions, annual earnings oversight. Rates are determined and approved in regulatory proceedings based on analyses of the Company’s costs to provide utility service and are designed to recover the Company’s prudently incurred investments in the utility business and provide a return thereon. Decisions to be made by the Commissions in the future will impact the accounting for regulated operations under ASC 980 as described above. While the Company has indicated that it expects to recover costs from customers through regulated rates, there is a risk that the Commissions will not approve (1) full recovery of the costs of providing utility service or (2) full recovery of all amounts invested in the utility business and a reasonable return on that investment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about affected account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing the likelihood of (1) recovery in future rates of incurred costs, (2) a disallowance of part of the cost of recently completed plant or plant under construction and (3) refunds to customers. Given that management’s accounting judgements are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the rate setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the uncertainty of future decisions by the Commissions included the following procedures, among others:
• | We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We also tested the effectiveness of management’s controls over the initial recognition of amounts as property, plant and equipment; regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates. |
• | We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments. |
• | We read relevant regulatory orders issued by the Commissions for the Company and other public utilities in the Company’s jurisdictions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on the precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset and liability balances for completeness. |
• | We inspected the Company’s filings with the Commissions and the filings with the Commissions by intervenors that may impact the Company’s future rates, evaluating the evidence in relation to management’s assertions, as applicable. |
• | We inquired of management about property, plant, and equipment that may be abandoned. We inspected the capital-projects budget and construction-work-in-process listings and inquired of management to identify projects that are designed to replace assets that may be retired prior to the end of their useful life. We inspected minutes of the Board of Directors and regulatory orders and other filings with the Commissions, evaluating the evidence in relation to management’s assertions, as applicable, regarding probability of an abandonment. |
• | We obtained an analysis from management regarding probability of recovery for regulatory assets or probability of either refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order in order to assess management’s assertion that amounts are probable of recovery and/or that a future refund or reduction in rates is not probable. |
/s/ Deloitte & Touche LLP
Portland, Oregon
February 20, 2018
We have served as the Company's auditor since 1933.
CONSOLIDATED STATEMENTS OF INCOME
Avista Corporation
For the Years Ended December 31
Dollars in thousands, except per share amounts
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Utility revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Utility revenues, exclusive of alternative revenue programs |
| $ | 1,324,091 |
|
| $ | 1,323,524 |
|
| $ | 1,368,657 |
|
Alternative revenue programs |
|
| (3,814 | ) |
|
| 9,614 |
|
|
| 908 |
|
Total utility revenues |
|
| 1,320,277 |
|
|
| 1,333,138 |
|
|
| 1,369,565 |
|
Non-utility revenues |
|
| 1,614 |
|
|
| 12,484 |
|
|
| 27,328 |
|
Total operating revenues |
|
| 1,321,891 |
|
|
| 1,345,622 |
|
|
| 1,396,893 |
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Utility operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Resource costs |
|
| 398,509 |
|
|
| 439,817 |
|
|
| 494,736 |
|
Other operating expenses |
|
| 354,614 |
|
|
| 345,212 |
|
|
| 318,274 |
|
Merger transaction costs |
|
| — |
|
|
| 19,675 |
|
|
| 3,718 |
|
Depreciation and amortization |
|
| 223,507 |
|
|
| 205,365 |
|
|
| 182,877 |
|
Taxes other than income taxes |
|
| 106,501 |
|
|
| 105,652 |
|
|
| 107,295 |
|
Non-utility operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses |
|
| 5,344 |
|
|
| 18,883 |
|
|
| 28,081 |
|
Depreciation and amortization |
|
| 716 |
|
|
| 629 |
|
|
| 799 |
|
Total operating expenses |
|
| 1,089,191 |
|
|
| 1,135,233 |
|
|
| 1,135,780 |
|
Income from operations |
|
| 232,700 |
|
|
| 210,389 |
|
|
| 261,113 |
|
Interest expense |
|
| 104,348 |
|
|
| 103,012 |
|
|
| 99,715 |
|
Interest expense to affiliated trusts |
|
| 713 |
|
|
| 1,342 |
|
|
| 1,221 |
|
Capitalized interest |
|
| (4,083 | ) |
|
| (4,174 | ) |
|
| (3,939 | ) |
Merger termination fee |
|
| — |
|
|
| (103,000 | ) |
|
| — |
|
Other expense (income)-net |
|
| (4,817 | ) |
|
| (14,928 | ) |
|
| 1,458 |
|
Income before income taxes |
|
| 136,539 |
|
|
| 228,137 |
|
|
| 162,658 |
|
Income tax expense |
|
| 7,051 |
|
|
| 31,374 |
|
|
| 26,060 |
|
Net income |
|
| 129,488 |
|
|
| 196,763 |
|
|
| 136,598 |
|
Net loss (income) attributable to noncontrolling interests |
|
| — |
|
|
| 216 |
|
|
| (169 | ) |
Net income attributable to Avista Corp. shareholders |
| $ | 129,488 |
|
| $ | 196,979 |
|
| $ | 136,429 |
|
Weighted-average common shares outstanding (thousands), basic |
|
| 67,962 |
|
|
| 66,205 |
|
|
| 65,673 |
|
Weighted-average common shares outstanding (thousands), diluted |
|
| 68,102 |
|
|
| 66,329 |
|
|
| 65,946 |
|
Earnings per common share attributable to Avista Corp. shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 1.91 |
|
| $ | 2.98 |
|
| $ | 2.08 |
|
Diluted |
| $ | 1.90 |
|
| $ | 2.97 |
|
| $ | 2.07 |
|
| 2017 | 2016 | 2015 | |||||||||
| Operating Revenues: | |||||||||||
| Utility revenues | $ | 1,423,386 | $ | 1,418,914 | $ | 1,456,091 | |||||
| Non-utility revenues | 22,543 | 23,569 | 28,685 | ||||||||
| Total operating revenues | 1,445,929 | 1,442,483 | 1,484,776 | ||||||||
| Operating Expenses: | |||||||||||
| Utility operating expenses: | |||||||||||
| Resource costs | 524,566 | 551,366 | 656,964 | ||||||||
| Other operating expenses | 317,813 | 315,795 | 303,221 | ||||||||
| Acquisition costs | 14,618 | — | — | ||||||||
| Depreciation and amortization | 171,281 | 160,514 | 143,499 | ||||||||
| Taxes other than income taxes | 106,752 | 98,735 | 97,657 | ||||||||
| Non-utility operating expenses: | |||||||||||
| Other operating expenses | 25,650 | 25,501 | 29,526 | ||||||||
| Depreciation and amortization | 740 | 769 | 695 | ||||||||
| Total operating expenses | 1,161,420 | 1,152,680 | 1,231,562 | ||||||||
| Income from operations | 284,509 | 289,803 | 253,214 | ||||||||
| Interest expense | 95,361 | 86,496 | 79,968 | ||||||||
| Interest expense to affiliated trusts | 831 | 634 | 473 | ||||||||
| Capitalized interest | (3,310 | ) | (2,651 | ) | (3,546 | ) | |||||
| Other income-net | (7,063 | ) | (10,078 | ) | (9,300 | ) | |||||
| Income from continuing operations before income taxes | 198,690 | 215,402 | 185,619 | ||||||||
| Income tax expense | 82,758 | 78,086 | 67,449 | ||||||||
| Net income from continuing operations | 115,932 | 137,316 | 118,170 | ||||||||
| Net income from discontinued operations (Note 5) | — | — | 5,147 | ||||||||
| Net income | 115,932 | 137,316 | 123,317 | ||||||||
| Net income attributable to noncontrolling interests | (16 | ) | (88 | ) | (90 | ) | |||||
| Net income attributable to Avista Corp. shareholders | $ | 115,916 | $ | 137,228 | $ | 123,227 | |||||
The Accompanying Notes are an Integral Part of These Statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (continued)
Avista Corporation
For the Years Ended December 31
Dollars in thousands except per share amounts
|
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||
Net income |
| $ | 129,488 |
|
| $ | 196,763 |
|
| $ | 136,598 |
| |
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
| |
Change in unfunded benefit obligation for pension and other postretirement benefit plans - net of taxes of $(1,095), $(636) and $523, respectively |
|
| (4,119 | ) |
|
| (2,393 | ) |
|
| 1,966 |
| |
Total other comprehensive income (loss) |
|
| (4,119 | ) |
|
| (2,393 | ) |
|
| 1,966 |
| |
Comprehensive income |
|
| 125,369 |
|
|
| 194,370 |
|
|
| 138,564 |
| |
Comprehensive loss (income) attributable to noncontrolling interests |
|
| - |
|
|
| 216 |
|
|
| (169 | ) | |
Comprehensive income attributable to Avista Corporation shareholders |
| $ | 125,369 |
|
| $ | 194,586 |
|
| $ | 138,395 |
| |
| 2017 | 2016 | 2015 | |||||||||
| Amounts attributable to Avista Corp. shareholders: | |||||||||||
| Net income from continuing operations | $ | 115,916 | $ | 137,228 | $ | 118,080 | |||||
| Net income from discontinued operations | — | — | 5,147 | ||||||||
| Net income attributable to Avista Corp. shareholders | $ | 115,916 | $ | 137,228 | $ | 123,227 | |||||
| Weighted-average common shares outstanding (thousands), basic | 64,496 | 63,508 | 62,301 | ||||||||
| Weighted-average common shares outstanding (thousands), diluted | 64,806 | 63,920 | 62,708 | ||||||||
| Earnings per common share attributable to Avista Corp. shareholders, basic: | |||||||||||
| Earnings per common share from continuing operations | $ | 1.80 | $ | 2.16 | $ | 1.90 | |||||
| Earnings per common share from discontinued operations | — | — | 0.08 | ||||||||
| Total earnings per common share attributable to Avista Corp. shareholders, basic | $ | 1.80 | $ | 2.16 | $ | 1.98 | |||||
| Earnings per common share attributable to Avista Corp. shareholders, diluted: | |||||||||||
| Earnings per common share from continuing operations | $ | 1.79 | $ | 2.15 | $ | 1.89 | |||||
| Earnings per common share from discontinued operations | — | — | 0.08 | ||||||||
| Total earnings per common share attributable to Avista Corp. shareholders, diluted | $ | 1.79 | $ | 2.15 | $ | 1.97 | |||||
| Dividends declared per common share | $ | 1.43 | $ | 1.37 | $ | 1.32 | |||||
The Accompanying Notes are an Integral Part of These Statements.
Dollars in thousands
|
| 2020 |
|
| 2019 |
| ||
Assets: |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 14,196 |
|
| $ | 9,896 |
|
Accounts and notes receivable, net |
|
| 163,772 |
|
|
| 166,657 |
|
Materials and supplies, fuel stock and stored natural gas |
|
| 67,451 |
|
|
| 66,583 |
|
Regulatory assets |
|
| 13,673 |
|
|
| 21,851 |
|
Other current assets |
|
| 84,885 |
|
|
| 40,142 |
|
Total current assets |
|
| 343,977 |
|
|
| 305,129 |
|
Net utility property |
|
| 4,991,612 |
|
|
| 4,797,007 |
|
Goodwill |
|
| 52,426 |
|
|
| 52,426 |
|
Non-current regulatory assets |
|
| 750,443 |
|
|
| 670,802 |
|
Other property and investments-net and other non-current assets |
|
| 263,639 |
|
|
| 257,092 |
|
Total assets |
| $ | 6,402,097 |
|
| $ | 6,082,456 |
|
Liabilities and Equity: |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 106,613 |
|
| $ | 110,219 |
|
Current portion of long-term debt |
|
| — |
|
|
| 52,000 |
|
Short-term borrowings |
|
| 203,000 |
|
|
| 185,800 |
|
Regulatory liabilities |
|
| 46,435 |
|
|
| 51,715 |
|
Other current liabilities |
|
| 149,831 |
|
|
| 130,979 |
|
Total current liabilities |
|
| 505,879 |
|
|
| 530,713 |
|
Long-term debt |
|
| 2,008,534 |
|
|
| 1,843,768 |
|
Long-term debt to affiliated trusts |
|
| 51,547 |
|
|
| 51,547 |
|
Pensions and other postretirement benefits |
|
| 211,880 |
|
|
| 212,006 |
|
Deferred income taxes |
|
| 594,712 |
|
|
| 528,513 |
|
Non-current regulatory liabilities |
|
| 784,820 |
|
|
| 775,436 |
|
Other non-current liabilities and deferred credits |
|
| 214,999 |
|
|
| 201,189 |
|
Total liabilities |
|
| 4,372,371 |
|
|
| 4,143,172 |
|
Commitments and Contingencies (See Notes to Consolidated Financial Statements) |
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
Avista Corporation Shareholders’ Equity: |
|
|
|
|
|
|
|
|
Common stock, no par value; 200,000,000 shares authorized; 69,238,901 and 67,176,996 shares issued and outstanding, respectively |
|
| 1,286,068 |
|
|
| 1,210,741 |
|
Accumulated other comprehensive loss |
|
| (14,378 | ) |
|
| (10,259 | ) |
Retained earnings |
|
| 758,036 |
|
|
| 738,802 |
|
Total equity |
|
| 2,029,726 |
|
|
| 1,939,284 |
|
Total liabilities and equity |
| $ | 6,402,097 |
|
| $ | 6,082,456 |
|
| 2017 | 2016 | 2015 | |||||||||
| Net income | $ | 115,932 | $ | 137,316 | $ | 123,317 | |||||
| Other Comprehensive Income (Loss): | |||||||||||
| Change in unfunded benefit obligation for pension and other postretirement benefit plans - net of taxes of $(281), $(495) and $667, respectively | (522 | ) | (918 | ) | 1,238 | ||||||
| Total other comprehensive income (loss) | (522 | ) | (918 | ) | 1,238 | ||||||
| Comprehensive income | 115,410 | 136,398 | 124,555 | ||||||||
| Comprehensive income attributable to noncontrolling interests | (16 | ) | (88 | ) | (90 | ) | |||||
| Comprehensive income attributable to Avista Corporation shareholders | $ | 115,394 | $ | 136,310 | $ | 124,465 | |||||
The Accompanying Notes are an Integral Part of These Statements.
CONSOLIDATED BALANCE SHEETS
Avista Corporation
For the Years Ended December 31
Dollars in thousands
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 129,488 |
|
| $ | 196,763 |
|
| $ | 136,598 |
|
Non-cash items included in net income: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 224,223 |
|
|
| 205,994 |
|
|
| 187,318 |
|
Provision for deferred income taxes |
|
| 44,964 |
|
|
| 15,098 |
|
|
| 8,570 |
|
Power and natural gas cost amortizations (deferrals), net |
|
| (9,923 | ) |
|
| (45,917 | ) |
|
| 10,263 |
|
Amortization of debt expense |
|
| 3,237 |
|
|
| 2,680 |
|
|
| 2,967 |
|
Amortization of investment in exchange power |
|
| — |
|
|
| 1,633 |
|
|
| 2,450 |
|
Stock-based compensation expense |
|
| 5,846 |
|
|
| 11,353 |
|
|
| 5,367 |
|
Equity-related AFUDC |
|
| (6,970 | ) |
|
| (6,585 | ) |
|
| (6,554 | ) |
Pension and other postretirement benefit expense |
|
| 33,812 |
|
|
| 36,417 |
|
|
| 32,017 |
|
Other regulatory assets and liabilities and deferred debits and credits |
|
| 10,287 |
|
|
| 65 |
|
|
| 27,512 |
|
Change in decoupling regulatory deferral |
|
| 2,971 |
|
|
| (10,327 | ) |
|
| (1,288 | ) |
Gain on sale of investments |
|
| (4,795 | ) |
|
| (7,450 | ) |
|
| — |
|
Other |
|
| 1,998 |
|
|
| (13,526 | ) |
|
| 1,114 |
|
Contributions to defined benefit pension plan |
|
| (22,000 | ) |
|
| (22,000 | ) |
|
| (22,000 | ) |
Cash paid on settlement of interest rate swap agreements |
|
| (33,499 | ) |
|
| (13,325 | ) |
|
| (32,174 | ) |
Cash received on settlement of interest rate swap agreements |
|
| — |
|
|
| — |
|
|
| 5,594 |
|
Changes in certain current assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable |
|
| (10,960 | ) |
|
| (4,366 | ) |
|
| 15,474 |
|
Materials and supplies, fuel stock and stored natural gas |
|
| (868 | ) |
|
| (6,148 | ) |
|
| (5,807 | ) |
Collateral posted for derivative instruments |
|
| 1,579 |
|
|
| 63,974 |
|
|
| (4,128 | ) |
Income taxes receivable |
|
| (41,363 | ) |
|
| (8,736 | ) |
|
| 2,021 |
|
Other current assets |
|
| (2,401 | ) |
|
| (3,657 | ) |
|
| (2,589 | ) |
Accounts payable |
|
| (10,152 | ) |
|
| 7,471 |
|
|
| (470 | ) |
Other current liabilities |
|
| 15,530 |
|
|
| (1,199 | ) |
|
| (370 | ) |
Net cash provided by operating activities |
|
| 331,004 |
|
|
| 398,212 |
|
|
| 361,885 |
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Utility property capital expenditures (excluding equity-related AFUDC) |
|
| (404,306 | ) |
|
| (442,510 | ) |
|
| (424,350 | ) |
Issuance of notes receivable by subsidiaries |
|
| (4,393 | ) |
|
| (7,303 | ) |
|
| (3,555 | ) |
Equity and property investments made by subsidiaries |
|
| (5,925 | ) |
|
| (13,508 | ) |
|
| (13,283 | ) |
Proceeds from sale of investments |
|
| 6,786 |
|
|
| 16,407 |
|
|
| — |
|
Other |
|
| (2,905 | ) |
|
| 1,403 |
|
|
| 756 |
|
Net cash used in investing activities |
| $ | (410,743 | ) |
| $ | (445,511 | ) |
| $ | (440,432 | ) |
| 2017 | 2016 | ||||||
| Assets: | |||||||
| Current Assets: | |||||||
| Cash and cash equivalents | $ | 16,172 | $ | 8,507 | |||
| Accounts and notes receivable-less allowances of $5,132 and $5,026, respectively | 185,664 | 180,265 | |||||
| Regulatory asset for energy commodity derivatives | 24,991 | 11,365 | |||||
| Materials and supplies, fuel stock and stored natural gas | 58,075 | 53,314 | |||||
| Income taxes receivable | 314 | 48,265 | |||||
| Other current assets | 52,318 | 49,625 | |||||
| Total current assets | 337,534 | 351,341 | |||||
| Net Utility Property: | |||||||
| Utility plant in service | 5,853,308 | 5,506,499 | |||||
| Construction work in progress | 157,839 | 150,474 | |||||
| Total | 6,011,147 | 5,656,973 | |||||
| Less: Accumulated depreciation and amortization | 1,612,337 | 1,509,473 | |||||
| Total net utility property | 4,398,810 | 4,147,500 | |||||
| Other Non-current Assets: | |||||||
| Investment in affiliated trusts | 11,547 | 11,547 | |||||
| Goodwill | 57,672 | 57,672 | |||||
| Other property and investments-net and other non-current assets | 83,912 | 72,224 | |||||
| Total other non-current assets | 153,131 | 141,443 | |||||
| Deferred Charges: | |||||||
| Regulatory assets for deferred income tax | 90,315 | 109,853 | |||||
| Regulatory assets for pensions and other postretirement benefits | 209,115 | 240,114 | |||||
| Other regulatory assets | 127,328 | 135,751 | |||||
| Regulatory asset for interest rate swaps | 169,704 | 161,508 | |||||
| Non-current regulatory asset for energy commodity derivatives | 18,967 | 16,919 | |||||
| Other deferred charges | 9,828 | 5,326 | |||||
| Total deferred charges | 625,257 | 669,471 | |||||
| Total assets | $ | 5,514,732 | $ | 5,309,755 | |||
The Accompanying Notes are an Integral Part of These Statements.
CONSOLIDATED BALANCE SHEETSSTATEMENTS OF CASH FLOWS (continued)
Avista Corporation
For the Years Ended December 31
Dollars in thousands
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in short-term borrowings |
| $ | 17,200 |
|
| $ | (4,200 | ) |
| $ | 84,603 |
|
Proceeds from issuance of long-term debt |
|
| 165,000 |
|
|
| 180,000 |
|
|
| 374,621 |
|
Maturity of long-term debt and finance leases |
|
| (54,800 | ) |
|
| (92,660 | ) |
|
| (277,438 | ) |
Issuance of common stock, net of issuance costs |
|
| 72,200 |
|
|
| 64,573 |
|
|
| 1,207 |
|
Cash dividends paid |
|
| (110,254 | ) |
|
| (102,772 | ) |
|
| (98,046 | ) |
Other |
|
| (5,307 | ) |
|
| (2,402 | ) |
|
| (7,916 | ) |
Net cash provided by financing activities |
|
| 84,039 |
|
|
| 42,539 |
|
|
| 77,031 |
|
Net increase (decrease) in cash and cash equivalents |
|
| 4,300 |
|
|
| (4,760 | ) |
|
| (1,516 | ) |
Cash and cash equivalents at beginning of year |
|
| 9,896 |
|
|
| 14,656 |
|
|
| 16,172 |
|
Cash and cash equivalents at end of year |
| $ | 14,196 |
|
| $ | 9,896 |
|
| $ | 14,656 |
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (received) during the year: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 97,717 |
|
| $ | 99,060 |
|
| $ | 97,437 |
|
Income taxes paid |
|
| 1,901 |
|
|
| 26,764 |
|
|
| 17,801 |
|
Income tax refunds |
|
| (918 | ) |
|
| (979 | ) |
|
| (3,025 | ) |
Non-cash financing and investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable for capital expenditures |
|
| 32,039 |
|
|
| 25,644 |
|
|
| 31,868 |
|
| 2017 | 2016 | ||||||
| Liabilities and Equity: | |||||||
| Current Liabilities: | |||||||
| Accounts payable | $ | 107,289 | $ | 115,545 | |||
| Current portion of long-term debt and capital leases | 277,438 | 3,287 | |||||
| Short-term borrowings | 105,398 | 120,000 | |||||
| Current energy commodity derivative liabilities | 8,848 | 7,035 | |||||
| Accrued interest | 16,351 | 15,869 | |||||
| Accrued taxes other than income taxes | 33,802 | 33,374 | |||||
| Deferred natural gas costs | 37,474 | 30,820 | |||||
| Current portion of pensions and other postretirement benefits | 11,544 | 10,994 | |||||
| Current unsettled interest rate swap derivative liabilities | 34,447 | 6,025 | |||||
| Other current liabilities | 64,911 | 64,579 | |||||
| Total current liabilities | 697,502 | 407,528 | |||||
| Long-term debt and capital leases | 1,491,799 | 1,678,717 | |||||
| Long-term debt to affiliated trusts | 51,547 | 51,547 | |||||
| Regulatory liability for utility plant retirement costs | 285,786 | 273,983 | |||||
| Pensions and other postretirement benefits | 203,566 | 226,552 | |||||
| Deferred income taxes | 466,630 | 840,928 | |||||
| Regulatory liability for excess deferred income taxes | 442,319 | — | |||||
| Non-current interest rate swap derivative liabilities | 1,522 | 28,705 | |||||
| Other non-current liabilities, regulatory liabilities and deferred credits | 143,577 | 153,319 | |||||
| Total liabilities | 3,784,248 | 3,661,279 | |||||
| Commitments and Contingencies (See Notes to Consolidated Financial Statements) | |||||||
| Equity: | |||||||
| Avista Corporation Shareholders’ Equity: | |||||||
| Common stock, no par value; 200,000,000 shares authorized; 65,494,333 and 64,187,934 shares issued and outstanding as of December 31, 2017 and December 31, 2016, respectively | 1,133,448 | 1,075,281 | |||||
| Accumulated other comprehensive loss | (8,090 | ) | (7,568 | ) | |||
| Retained earnings | 604,470 | 581,014 | |||||
| Total Avista Corporation shareholders’ equity | 1,729,828 | 1,648,727 | |||||
| Noncontrolling Interests | 656 | (251 | ) | ||||
| Total equity | 1,730,484 | 1,648,476 | |||||
| Total liabilities and equity | $ | 5,514,732 | $ | 5,309,755 | |||
The Accompanying Notes are an Integral Part of These Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Avista Corporation
For the Years Ended December 31
Dollars in thousands, except per share amounts
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Common Stock, Shares: |
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at beginning of year |
|
| 67,176,996 |
|
|
| 65,688,356 |
|
|
| 65,494,333 |
|
Shares issued through equity compensation plans |
|
| 139,726 |
|
|
| 75,399 |
|
|
| 185,794 |
|
Shares issued through Employee Investment Plan (401-K) |
|
| 17,179 |
|
|
| 3,653 |
|
|
| 8,229 |
|
Shares issued through sales agency agreements |
|
| 1,905,000 |
|
|
| 1,409,588 |
|
|
| — |
|
Shares outstanding at end of year |
|
| 69,238,901 |
|
|
| 67,176,996 |
|
|
| 65,688,356 |
|
Common Stock, Amount: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
| $ | 1,210,741 |
|
| $ | 1,136,491 |
|
| $ | 1,133,448 |
|
Equity compensation expense |
|
| 5,535 |
|
|
| 10,568 |
|
|
| 5,765 |
|
Issuance of common stock through equity compensation plans |
|
| 965 |
|
|
| 827 |
|
|
| 791 |
|
Issuance of common stock through Employee Investment Plan (401-K) |
|
| 674 |
|
|
| 175 |
|
|
| 416 |
|
Issuance of common stock through sales agency agreements, net of issuance costs |
|
| 70,561 |
|
|
| 63,571 |
|
|
| — |
|
Payment of minimum tax withholdings for share-based payment awards |
|
| (2,408 | ) |
|
| (891 | ) |
|
| (3,929 | ) |
Balance at end of year |
|
| 1,286,068 |
|
|
| 1,210,741 |
|
|
| 1,136,491 |
|
Accumulated Other Comprehensive Loss: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
| (10,259 | ) |
|
| (7,866 | ) |
|
| (8,090 | ) |
Other comprehensive income (loss) |
|
| (4,119 | ) |
|
| (2,393 | ) |
|
| 1,966 |
|
Reclassification of excess income tax benefits |
|
| — |
|
|
| — |
|
|
| (1,742 | ) |
Balance at end of year |
|
| (14,378 | ) |
|
| (10,259 | ) |
|
| (7,866 | ) |
Retained Earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
| 738,802 |
|
|
| 644,595 |
|
|
| 604,470 |
|
Net income attributable to Avista Corporation shareholders |
|
| 129,488 |
|
|
| 196,979 |
|
|
| 136,429 |
|
Cash dividends paid (common stock) |
|
| (110,254 | ) |
|
| (102,772 | ) |
|
| (98,046 | ) |
Reclassification of excess income tax benefits |
|
| — |
|
|
| — |
|
|
| 1,742 |
|
Balance at end of year |
|
| 758,036 |
|
|
| 738,802 |
|
|
| 644,595 |
|
Total Avista Corporation shareholders’ equity |
| $ | 2,029,726 |
|
| $ | 1,939,284 |
|
| $ | 1,773,220 |
|
Noncontrolling Interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
| $ | — |
|
| $ | 825 |
|
| $ | 656 |
|
Net income attributable to noncontrolling interests |
|
| — |
|
|
| (216 | ) |
|
| 169 |
|
Deconsolidation of noncontrolling interests related to sale of METALfx |
|
| — |
|
|
| (609 | ) |
|
| — |
|
Balance at end of year |
|
| — |
|
|
| — |
|
|
| 825 |
|
Total equity |
| $ | 2,029,726 |
|
| $ | 1,939,284 |
|
| $ | 1,774,045 |
|
Dividends declared per common share |
| $ | 1.62 |
|
| $ | 1.55 |
|
| $ | 1.49 |
|
| 2017 | 2016 | 2015 | |||||||||
| Operating Activities: | |||||||||||
| Net income | $ | 115,932 | $ | 137,316 | $ | 123,317 | |||||
| Non-cash items included in net income: | |||||||||||
| Depreciation and amortization | 175,655 | 164,925 | 147,835 | ||||||||
| Provision for deferred income taxes | 69,657 | 124,543 | 51,801 | ||||||||
| Power and natural gas cost amortizations (deferrals), net | 11,741 | 16,835 | 21,358 | ||||||||
| Amortization of debt expense | 3,254 | 3,477 | 3,526 | ||||||||
| Amortization of investment in exchange power | 2,450 | 2,450 | 2,450 | ||||||||
| Stock-based compensation expense | 7,359 | 7,891 | 6,914 | ||||||||
| Equity-related AFUDC | (6,669 | ) | (8,475 | ) | (8,331 | ) | |||||
| Pension and other postretirement benefit expense | 37,074 | 38,786 | 37,050 | ||||||||
| Amortization of Spokane Energy contract | — | 14,694 | 13,508 | ||||||||
| Gain on sale of Ecova | — | — | (777 | ) | |||||||
| Other regulatory assets and liabilities and deferred debits and credits | (9,144 | ) | (26,245 | ) | 4,569 | ||||||
| Change in decoupling regulatory deferral | 24,179 | (29,789 | ) | (10,933 | ) | ||||||
| Other | 1,860 | 5,557 | (517 | ) | |||||||
| Contributions to defined benefit pension plan | (22,000 | ) | (12,000 | ) | (12,000 | ) | |||||
| Cash paid on settlement of interest rate swap derivatives | (11,302 | ) | (53,966 | ) | — | ||||||
| Cash received on settlement of interest rate swap derivatives | 2,479 | — | — | ||||||||
| Changes in certain current assets and liabilities: | |||||||||||
| Accounts and notes receivable | (9,270 | ) | (17,170 | ) | (10,538 | ) | |||||
| Materials and supplies, fuel stock and stored natural gas | (4,767 | ) | 834 | 12,208 | |||||||
| Collateral posted for derivative instruments | (22,394 | ) | 10,712 | (13,301 | ) | ||||||
| Income taxes receivable | 53,414 | (33,923 | ) | 19,772 | |||||||
| Other current assets | (2,106 | ) | (3,907 | ) | 2,338 | ||||||
| Accounts payable | (8,162 | ) | 5,176 | (8,138 | ) | ||||||
| Other current liabilities | 1,058 | 10,546 | (6,471 | ) | |||||||
| Net cash provided by operating activities | 410,298 | 358,267 | 375,640 | ||||||||
| Investing Activities: | |||||||||||
| Utility property capital expenditures (excluding equity-related AFUDC) | (412,339 | ) | (406,644 | ) | (393,425 | ) | |||||
| Issuance of notes receivable at subsidiaries | (3,700 | ) | (10,094 | ) | (2,307 | ) | |||||
| Repayments from notes receivable at subsidiaries | — | 5,000 | — | ||||||||
| Equity and property investments made by subsidiaries | (13,680 | ) | (13,097 | ) | (1,944 | ) | |||||
| Distributions received from investments | 1,915 | — | — | ||||||||
| Proceeds from sale of Ecova, net of cash sold | — | — | 13,856 | ||||||||
| Other | (6,299 | ) | (7,631 | ) | (4,007 | ) | |||||
| Net cash used in investing activities | $ | (434,103 | ) | $ | (432,466 | ) | $ | (387,827 | ) | ||
The Accompanying Notes are an Integral Part of These Statements.
88
AVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS (continued)
| 2017 | 2016 | 2015 | |||||||||
| Financing Activities: | |||||||||||
Net increase (decrease) in short-term borrowings | $ | (15,000 | ) | $ | 15,000 | $ | — | ||||
| Proceeds from issuance of long-term debt | 90,000 | 245,000 | 100,000 | ||||||||
| Redemption and maturity of long-term debt and capital leases | (3,287 | ) | (163,167 | ) | (2,905 | ) | |||||
| Maturity of nonrecourse long-term debt of Spokane Energy | — | — | (1,431 | ) | |||||||
| Issuance of common stock, net of issuance costs | 56,380 | 66,953 | 1,560 | ||||||||
| Repurchase of common stock | — | — | (2,920 | ) | |||||||
| Cash dividends paid | (92,460 | ) | (87,154 | ) | (82,397 | ) | |||||
| Other | (4,163 | ) | (4,410 | ) | (11,379 | ) | |||||
| Net cash provided by financing activities | 31,470 | 72,222 | 528 | ||||||||
| Net increase (decrease) in cash and cash equivalents | 7,665 | (1,977 | ) | (11,659 | ) | ||||||
| Cash and cash equivalents at beginning of year | 8,507 | 10,484 | 22,143 | ||||||||
| Cash and cash equivalents at end of year | $ | 16,172 | $ | 8,507 | $ | 10,484 | |||||
| Supplemental Cash Flow Information: | |||||||||||
| Cash paid (received) during the year: | |||||||||||
| Interest | $ | 95,499 | $ | 86,319 | $ | 79,673 | |||||
| Income taxes paid | 5,579 | 5,403 | 27,239 | ||||||||
| Income tax refunds | (47,086 | ) | (18,861 | ) | (37,200 | ) | |||||
| Non-cash financing and investing activities: | |||||||||||
| Accounts payable for capital expenditures | 31,157 | 30,252 | 35,248 | ||||||||
| 2017 | 2016 | 2015 | |||||||||
| Common Stock, Shares: | |||||||||||
| Shares outstanding at beginning of year | 64,187,934 | 62,312,651 | 62,243,374 | ||||||||
| Shares issued through equity compensation plans | 214,925 | 203,727 | 125,620 | ||||||||
| Shares issued through Employee Investment Plan (401-K) | 21,474 | 26,556 | 33,057 | ||||||||
| Shares issued through sales agency agreements | 1,070,000 | 1,645,000 | — | ||||||||
| Shares repurchased | — | — | (89,400 | ) | |||||||
| Shares outstanding at end of year | 65,494,333 | 64,187,934 | 62,312,651 | ||||||||
| Common Stock, Amount: | |||||||||||
| Balance at beginning of year | $ | 1,075,281 | $ | 1,004,336 | $ | 999,960 | |||||
| Equity compensation expense | 6,530 | 7,065 | 6,035 | ||||||||
| Issuance of common stock through equity compensation plans | 720 | 624 | 462 | ||||||||
| Issuance of common stock through Employee Investment Plan (401-K) | 939 | 1,061 | 1,099 | ||||||||
| Issuance of common stock through sales agency agreements, net of issuance costs | 54,721 | 65,267 | — | ||||||||
| Payment of minimum tax withholdings for share-based payment awards | (3,552 | ) | (3,072 | ) | (1,832 | ) | |||||
| Repurchase of common stock | — | — | (1,431 | ) | |||||||
| Purchase of subsidiary noncontrolling interests | (1,191 | ) | — | — | |||||||
| Excess tax benefits | — | — | 43 | ||||||||
| Balance at end of year | 1,133,448 | 1,075,281 | 1,004,336 | ||||||||
| Accumulated Other Comprehensive Loss: | |||||||||||
| Balance at beginning of year | (7,568 | ) | (6,650 | ) | (7,888 | ) | |||||
| Other comprehensive income (loss) | (522 | ) | (918 | ) | 1,238 | ||||||
| Balance at end of year | (8,090 | ) | (7,568 | ) | (6,650 | ) | |||||
| Retained Earnings: | |||||||||||
| Balance at beginning of year | 581,014 | 530,940 | 491,599 | ||||||||
| Net income attributable to Avista Corporation shareholders | 115,916 | 137,228 | 123,227 | ||||||||
| Cash dividends paid (common stock) | (92,460 | ) | (87,154 | ) | (82,397 | ) | |||||
| Repurchase of common stock | — | — | (1,489 | ) | |||||||
| Balance at end of year | 604,470 | 581,014 | 530,940 | ||||||||
| Total Avista Corporation shareholders’ equity | $ | 1,729,828 | $ | 1,648,727 | $ | 1,528,626 | |||||
| Noncontrolling Interests: | |||||||||||
| Balance at beginning of year | $ | (251 | ) | $ | (339 | ) | $ | (429 | ) | ||
| Net income attributable to noncontrolling interests | 16 | 88 | 90 | ||||||||
| Purchase of subsidiary noncontrolling interests | 891 | — | — | ||||||||
| Balance at end of year | 656 | (251 | ) | (339 | ) | ||||||
| Total equity | $ | 1,730,484 | $ | 1,648,476 | $ | 1,528,287 | |||||
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Avista Corp. is primarily an electric and natural gas utility with certain other business ventures. Avista Utilities is an operating division of Avista Corp., comprising theits regulated utility operations in the Pacific Northwest. Avista Utilities provides electric distribution and transmission, and natural gas distribution services in parts of eastern Washington and northern Idaho. Avista Utilities also provides natural gas distribution service in parts of northeastern and southwestern Oregon. Avista Utilities has electric generating facilities in Washington, Idaho, Oregon and Montana. Avista Utilities also supplies electricity to a small number of customers in Montana, most of whom are employees who operate Avista Utilities'the Company's Noxon Rapids generating facility.
AERC is a wholly-owned subsidiary of Avista Corp. The primary subsidiary of AERC is AEL&P, which comprises Avista Corp.'s regulated utility operations in Alaska.
Avista Capital, a wholly owned non-regulated subsidiary of Avista Corp., is the parent company of all of the subsidiary companies in the non-utility businesses, with the exception of AJT Mining Properties, Inc., which is a subsidiary of AERC. See Note 2124 for business segment information.
Basis of Reporting
The consolidated financial statements include the assets, liabilities, revenues and expenses of the Company and its subsidiaries and other majority owned subsidiaries and variable interest entities for which the Company or its subsidiaries are the primary beneficiaries. The amounts included in discontinued operations in the Consolidated Statements of Income for 2015 relate to the disposition of Ecova on June 30, 2014. See Note 5 for further information regarding the disposition of Ecova. Intercompany balances were eliminated in consolidation. The accompanying consolidated financial statements include the Company’s proportionate share of utility plant and related operations resulting from its interests in jointly owned plants (see Note 7)8).
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include:
• | determining the market value of energy commodity derivative assets and liabilities, |
• | pension and other postretirement benefit plan obligations, |
• | contingent liabilities, |
• | goodwill impairment testing, |
• | recoverability of regulatory assets, and |
• | unbilled revenues. |
Changes in these estimates and assumptions are considered reasonably possible and may have a material effect on the consolidated financial statements and thus actual results could differ from the amounts reported and disclosed herein.
Regulation
The Company is subject to state regulation in Washington, Idaho, Montana, Oregon and Alaska. The Company is also subject to federal regulation primarily by the FERC, as well as various other federal agencies with regulatory oversight of particular aspects of its operations.
| 2017 | 2016 | ||||||
| Unbilled accounts receivable | $ | 68,641 | $ | 72,377 | |||
Depreciation
For utility operations, depreciation expense is estimated by a method of depreciation accounting utilizing composite rates for utility plant. Such rates are designed to provide for retirements of properties at the expiration of their service lives. For utility operations, the ratio of depreciation provisions to average depreciable property was as follows for the years ended December 31:
89
AVISTA CORPORATION
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Avista Utilities |
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of depreciation to average depreciable property |
|
| 3.43 | % |
|
| 3.28 | % |
|
| 3.17 | % |
Alaska Electric Light and Power Company |
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of depreciation to average depreciable property |
|
| 2.77 | % |
|
| 2.48 | % |
|
| 2.46 | % |
| 2017 | 2016 | 2015 | ||||||
| Avista Utilities | ||||||||
| Ratio of depreciation to average depreciable property | 3.12 | % | 3.11 | % | 3.09 | % | ||
| Alaska Electric Light and Power Company | ||||||||
| Ratio of depreciation to average depreciable property | 2.43 | % | 2.39 | % | 2.42 | % | ||
The average service lives for the following broad categories of utility plant in service are (in years):
|
| Avista Utilities |
|
| Alaska Electric Light and Power Company |
| ||
Electric thermal/other production |
|
| 27 |
|
|
| 42 |
|
Hydroelectric production |
|
| 81 |
|
|
| 42 |
|
Electric transmission |
|
| 49 |
|
|
| 43 |
|
Electric distribution |
|
| 39 |
|
|
| 40 |
|
Natural gas distribution property |
|
| 44 |
|
| N/A |
| |
Other shorter-lived general plant |
|
| 8 |
|
|
| 18 |
|
| Avista Utilities | Alaska Electric Light and Power Company | ||
| Electric thermal/other production | 41 | 41 | |
| Hydroelectric production | 78 | 42 | |
| Electric transmission | 57 | 41 | |
| Electric distribution | 35 | 40 | |
| Natural gas distribution property | 42 | N/A | |
| Other shorter-lived general plant | 10 | 16 | |
| 2017 | 2016 | 2015 | |||||||||
| Utility-related taxes | $ | 64,012 | $ | 57,745 | $ | 59,173 | |||||
| Property taxes | 40,074 | 38,505 | 35,948 | ||||||||
| Other taxes | 2,666 | 2,485 | 2,536 | ||||||||
| Total | $ | 106,752 | $ | 98,735 | $ | 97,657 | |||||
Allowance for Funds Used During Construction
AFUDC represents the cost of both the debt and equity funds used to finance utility plant additions during the construction period. As prescribed by regulatory authorities, AFUDC is capitalized as a part of the cost of utility plant. The debt component of AFUDC is credited against total interest expense in the Consolidated Statements of Income in the line item “capitalized interest.” The equity component of AFUDC is included in the Consolidated StatementStatements of Income in the line item “other income-net.expense (income)-net.” The Company is permitted, under established regulatory rate practices, to recover the capitalized AFUDC, and a reasonable return thereon, through its inclusion in rate base and the provision for depreciation after the related utility plant is placed in service. Cash inflow related to AFUDC does not occur until the related utility plant is placed in service and included in rate base.
The WUTC and IPUC have authorized Avista Utilities to calculate AFUDC using its allowed rate of return. To the extent amounts calculated using this rate exceed the AFUDC amounts calculated using the FERC formula, Avista Utilities capitalizes the excess as a regulatory asset. The regulatory asset associated with plant in service is amortized over the average useful life of Avista Utilities' utility plant which is approximately 30 years. The regulatory asset associated with construction work in progress is not amortized until the plant is placed in service.
The effective AFUDC rate was the following for the years ended
December
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Avista Utilities |
|
|
|
|
|
|
|
|
|
|
|
|
Effective state AFUDC rate |
|
| 7.25 | % |
|
| 7.39 | % |
|
| 7.43 | % |
Alaska Electric Light and Power Company |
|
|
|
|
|
|
|
|
|
|
|
|
Effective AFUDC rate |
|
| 8.04 | % |
|
| 8.96 | % |
|
| 9.04 | % |
| 2017 | 2016 | 2015 | ||||||
| Avista Utilities | ||||||||
| Effective AFUDC rate | 7.29 | % | 7.29 | % | 7.32 | % | ||
| Alaska Electric Light and Power Company | ||||||||
| Effective AFUDC rate | 9.48 | % | 9.40 | % | 9.31 | % | ||
Income Taxes
Deferred income tax assets represent future income tax deductions the Company expects to utilize in future tax returns to reduce taxable income. Deferred income tax liabilities represent future taxable income the Company expects to recognize in future tax returns. Deferred tax assets and liabilities arise when there are temporary differences resulting from differing treatment of items for tax and accounting purposes. A deferred income tax asset or liability is determined based on the enacted tax rates that will be in effect when the temporary differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the Company’s consolidated income tax returns. The deferred income tax expense for the period is equal to the net change in the deferred income tax asset and liability accounts from the beginning to the end of the period. The effect on deferred income taxes from a change in tax rates is recognized in income in
90
AVISTA CORPORATION
the period that includes the enactment date unless a regulatory order specifies deferral of the effect of the change in tax rates over a longer period of time. The Company establishes a valuation allowance when it is more likely than not that all, or a portion, of a deferred tax asset will not be realized. Deferred income tax liabilities and regulatory assets are established for income tax benefits flowed through to customers.
The Company's largest deferred income tax item is the difference between the book and tax basis of utility plant. This item results from the temporary difference on depreciation expense. In early tax years, this item is recorded as a deferred income tax liability that will eventually reverse and become subject to income tax in later tax years.
The Company did not0t incur any penalties on income tax positions in 2017, 20162020, 2019 or 2015.2018. The Company would recognize interest accrued related to income tax positions as interest expense and any penalties incurred as other operating expense.
Stock-Based Compensation
The Company currently issues three types of stock-based compensation awards - restricted shares, market-based awards and performance-based awards. Historically, these stock compensation awards have not been material to the Company's overall
The Company recorded stock-based compensation expense (included in other operating expenses) and income tax benefits in the Consolidated Statements of Income of the following amounts for the years ended December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Stock-based compensation expense |
| $ | 5,846 |
|
| $ | 11,353 |
|
| $ | 5,367 |
|
Income tax benefits |
|
| 1,228 |
|
|
| 2,384 |
|
|
| 1,127 |
|
Excess tax benefits (expenses) on settled share-based employee payments |
|
| (165 | ) |
|
| (612 | ) |
|
| 990 |
|
| 2017 | 2016 | 2015 | |||||||||
| Stock-based compensation expense | $ | 7,359 | $ | 7,891 | $ | 6,914 | |||||
| Income tax benefits (1) | 2,576 | 2,762 | 2,420 | ||||||||
| Excess tax benefits on settled share-based employee payments (2) | 2,348 | 1,597 | — | ||||||||
Restricted share awards vest in equal thirds each year over a three-year period3 years and are payable in Avista Corp. common stock at the end of each year if the service condition is met. In addition to the service condition, for restricted shares granted in 2017, the Company must meet a return on equity target in order for the Chief Executive Officer's restricted shares to vest. Restricted stock is valued at the close of market of the Company’s common stock on the grant date.
Total Shareholder Return (TSR) awards are market-based awards and Cumulative Earnings Per Share (CEPS) awards are performance awards. CEPS awards were first granted in 2014. Both types of awards vest after a period of three3 years and are payable in cash or Avista Corp. common stock at the end of the three-year period. The method of settlement is at the discretion of the Company and historically the Company has settled these awards through issuance of Avista Corp. common stock and intends to continue this practice. Both types of awards entitle the recipients to dividend equivalent rights, are subject to forfeiture under certain circumstances, and are subject to meeting specific market or performance conditions. Based on the level of attainment of the market or performance conditions, the amount of cash paid or common stock issued will range from 0 to 200 percent of the initial awards granted. Dividend equivalent rights are accumulated and paid out only on shares that eventually vest and have met the market and performance conditions.
For both the TSR awards and the CEPS awards, the Company accounts for them as equity awards and compensation cost for these awards is recognized over the requisite service period, provided that the requisite service period is rendered. For TSR awards, if the market condition is not met at the end of the three-year service period, there will be no change in the cumulative amount of compensation cost recognized, since the awards are still considered vested even though the market metric was not met. For CEPS awards, at the end of the three-year service period, if the internal performance metric of cumulative earnings per share is not met, all compensation cost for these awards is reversed as these awards are not considered vested.
The fair value of each TSR award is estimated on the date of grant using a statistical model that incorporates the probability of meeting the market targets based on historical returns relative to a peer group. The estimated fair value of the equity component of CEPS awards was estimated on the date of grant as the share price of Avista Corp. common stock on the date of grant, less the net present value of the estimated dividends over the three-year period.
91
AVISTA CORPORATION
The following table summarizes the number of grants, vested and unvested shares, earned shares (based on market metrics), and other pertinent information related to the Company's stock compensation awards for the years ended December 31:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Restricted Shares |
|
|
|
|
|
|
|
|
|
|
|
|
Shares granted during the year |
|
| 45,540 |
|
|
| 50,061 |
|
|
| 40,661 |
|
Shares vested during the year |
|
| 56,203 |
|
|
| 48,228 |
|
|
| 53,352 |
|
Unvested shares at end of year |
|
| 71,706 |
|
|
| 93,351 |
|
|
| 91,998 |
|
Unrecognized compensation expense at end of year (in thousands) |
| $ | 2,003 |
|
| $ | 2,054 |
|
| $ | 1,964 |
|
TSR Awards |
|
|
|
|
|
|
|
|
|
|
|
|
TSR shares granted during the year |
|
| 47,848 |
|
|
| 99,214 |
|
|
| 80,724 |
|
TSR shares vested during the year (1) |
|
| 71,299 |
|
|
| 106,858 |
|
|
| 107,342 |
|
Unvested TSR shares at end of year |
|
| 122,133 |
|
|
| 178,035 |
|
|
| 187,172 |
|
Unrecognized compensation expense (in thousands) |
| $ | 2,296 |
|
| $ | 3,377 |
|
| $ | 3,706 |
|
CEPS Awards |
|
|
|
|
|
|
|
|
|
|
|
|
CEPS shares granted during the year |
|
| 47,848 |
|
|
| 49,609 |
|
|
| 40,329 |
|
CEPS shares vested during the year |
|
| 35,622 |
|
|
| 53,454 |
|
|
| 53,699 |
|
CEPS shares earned based on market metrics |
|
| 63,763 |
|
|
| 106,908 |
|
|
| 30,102 |
|
Unvested CEPS shares at end of year |
|
| 83,464 |
|
|
| 88,990 |
|
|
| 93,579 |
|
Unrecognized compensation expense (in thousands) |
| $ | 1,090 |
|
| $ | 2,401 |
|
| $ | 1,260 |
|
(1) | The market metrics were not met during 2020, 2019 and 2018 and 0 TRS shares were earned during these periods. |
| 2017 | 2016 | 2015 | |||||||||
| Restricted Shares | |||||||||||
| Shares granted during the year | 57,746 | 58,610 | 58,302 | ||||||||
| Shares vested during the year | (57,473 | ) | (52,385 | ) | (60,379 | ) | |||||
| Unvested shares at end of year | 106,053 | 109,806 | 106,091 | ||||||||
| Unrecognized compensation expense at end of year (in thousands) | $ | 1,853 | $ | 1,853 | $ | 1,705 | |||||
| TSR Awards | |||||||||||
| TSR shares granted during the year | 114,390 | 116,435 | 116,435 | ||||||||
| TSR shares vested during the year | (107,649 | ) | (111,665 | ) | (171,334 | ) | |||||
| TSR shares earned based on market metrics | 158,262 | 132,887 | 222,734 | ||||||||
| Unvested TSR shares at end of year | 218,507 | 222,228 | 223,697 | ||||||||
| Unrecognized compensation expense (in thousands) | $ | 2,849 | $ | 3,409 | $ | 3,219 | |||||
| CEPS Awards | |||||||||||
| CEPS shares granted during the year | 57,223 | 57,521 | 58,259 | ||||||||
| CEPS shares vested during the year | (53,862 | ) | (55,835 | ) | — | ||||||
| CEPS shares earned based on market metrics | 41,502 | 90,460 | — | ||||||||
| Unvested CEPS shares at end of year | 108,581 | 110,452 | 111,887 | ||||||||
| Unrecognized compensation expense (in thousands) | $ | 1,856 | $ | 1,671 | $ | 1,840 | |||||
Outstanding TSR and CEPS share awards include a dividend component that is paid in cash. This component of the share grants is accounted for as a liability award. These liability awards are revalued on a quarterly basis taking into account the number of awards outstanding, historical dividend rate, the change in the value of the Company’s common stock relative to an external benchmark (TSR awards only) and the amount of CEPS earned to date compared to estimated CEPS over the performance period (CEPS awards only). Over the life of these awards, the cumulative amount of compensation expense recognized will match the actual cash paid. As of December 31, 20172020 and 2016,2019, the Company had recognized cumulative compensation expense and a liability of $1.5$0.8 million and $0.9 million, respectively, related to the dividend component on the outstanding and unvested share grants.
Other IncomeExpense (Income) - Net
Other IncomeExpense (Income) - net consisted of the following items for the years ended December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Interest income |
| $ | (1,952 | ) |
| $ | (2,587 | ) |
| $ | (2,710 | ) |
Interest on regulatory deferrals |
|
| (1,222 | ) |
|
| (1,460 | ) |
|
| (990 | ) |
Equity-related AFUDC |
|
| (6,970 | ) |
|
| (6,585 | ) |
|
| (6,554 | ) |
Non-service portion of pension and other postretirement benefit expenses |
|
| 6,433 |
|
|
| 8,899 |
|
|
| 5,156 |
|
Net (income) loss on investments |
|
| (905 | ) |
|
| (14,299 | ) |
|
| 5,369 |
|
Other expense (income) |
|
| (201 | ) |
|
| 1,104 |
|
|
| 1,187 |
|
Total |
| $ | (4,817 | ) |
| $ | (14,928 | ) |
| $ | 1,458 |
|
| 2017 | 2016 | 2015 | |||||||||
| Interest income | $ | 2,162 | $ | 1,823 | $ | 653 | |||||
| Interest on regulatory deferrals | 1,288 | 1,308 | 48 | ||||||||
| Equity-related AFUDC | 6,669 | 8,475 | 8,331 | ||||||||
| Net loss on investments | (4,160 | ) | (2,152 | ) | (637 | ) | |||||
| Other income | 1,104 | 624 | 905 | ||||||||
| Total | $ | 7,063 | $ | 10,078 | $ | 9,300 | |||||
Earnings per Common Share Attributable to Avista Corporation Shareholders
Basic earnings per common share attributable to Avista Corp. shareholders is computed by dividing net income attributable to Avista Corp. shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share attributable to Avista Corp. shareholders is calculated by dividing net income attributable to Avista Corp. shareholders (adjusted for the effect of potentially dilutive securities issued to noncontrolling interests by the Company's subsidiaries) by diluted weighted-average common shares outstanding during the period, including common stock equivalent shares outstanding using the treasury stock method, unless such shares are anti-dilutive. Common stock equivalent shares include shares issuable upon exercise of stock options andunder contingent stock awards. See Note 1821 for earnings per common share calculations.
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AVISTA CORPORATION
Cash and Cash Equivalents
For the purposes of the Consolidated Statements of Cash Flows, the Company considers all temporary investments with a maturity of three months or less when purchased to be cash equivalents.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts to provide for estimated and potential losses on accounts receivable. The Company determines the allowance for utility and other customer accounts receivable based on historical write-offs as compared to accounts receivable and operating revenues. Additionally, the Company establishes specific allowances for certain individual accounts. The following table presents the activity in the allowance for doubtful accounts during the years ended
December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Allowance as of the beginning of the year |
| $ | 2,419 |
|
| $ | 5,233 |
|
| $ | 5,132 |
|
Additions expensed during the year (1) |
|
| 11,280 |
|
|
| 460 |
|
|
| 3,917 |
|
Net deductions |
|
| (2,312 | ) |
|
| (3,274 | ) |
|
| (3,816 | ) |
Allowance as of the end of the year |
| $ | 11,387 |
|
| $ | 2,419 |
|
| $ | 5,233 |
|
(1) | Increase in 2020 related to COVID-19, bad debt expense in excess of the amount recovered through rates of $7.1 million, was deferred as a regulatory asset. |
| 2017 | 2016 | 2015 | |||||||||
| Allowance as of the beginning of the year | $ | 5,026 | $ | 4,530 | $ | 4,888 | |||||
| Additions expensed during the year | 5,317 | 6,053 | 5,802 | ||||||||
| Net deductions | (5,211 | ) | (5,557 | ) | (6,160 | ) | |||||
| Allowance as of the end of the year | $ | 5,132 | $ | 5,026 | $ | 4,530 | |||||
| 2017 | 2016 | ||||||
| Materials and supplies | $ | 41,493 | $ | 40,700 | |||
| Fuel stock | 4,843 | 4,585 | |||||
| Stored natural gas | 11,739 | 8,029 | |||||
| Total | $ | 58,075 | $ | 53,314 | |||
Utility Plant in Service
The cost of additions to utility plant in service, including an allowance for funds used during construction and replacements of units of property and improvements, is capitalized. The cost of depreciable units of property retired plus the cost of removal less salvage is charged to accumulated depreciation.
Asset Retirement Obligations
The Company records the fair value of a liability for an ARO in the period in which it is incurred. When the liability is initially recorded, the associated costs of the ARO are capitalized as part of the carrying amount of the related long-lived asset. The liability is accreted to its present value each period and the related capitalized costs are depreciated over the useful life of the related asset. In addition, if there are changes in the estimated timing or estimated costs of the AROs, adjustments are recorded during the period new information becomes available as an increase or decrease to the liability, with the offset recorded to the related long-lived asset. Upon retirement of the asset, the Company either settles the ARO for its recorded amount or recognizes a regulatory asset or liability for the difference, which will be surcharged/refunded to customers through the ratemaking process. The Company records regulatory assets and liabilities for the difference between asset retirement costs currently recovered in rates and AROs recorded since asset retirement costs are recovered through rates charged to customers (see Note 910 for further discussion of the Company's AROs).
The Company recovers certain asset retirement costs through rates charged to customers as a portion of its depreciation expense for which the Company has not recorded asset retirement obligations. The Company has recorded the amount of estimated retirement costs collected from customers (that do not represent legal or contractual obligations) and included them as a non-current regulatory liability on the Consolidated Balance Sheets in the following amounts as of
December 31 (dollars in thousands):| 2017 | 2016 | ||||||
| Regulatory liability for utility plant retirement costs | $ | 285,786 | $ | 273,983 | |||
Goodwill
Goodwill arising from acquisitions represents the future economic benefit arising from other assets acquired in a business combination that are not individually identified and separately recognized. The Company evaluates goodwill for impairment
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AVISTA CORPORATION
The changes in the carrying amount of goodwill during 20162019 and 20172020 and the balance was as follows (dollars in thousands):
|
| AEL&P |
|
| Other |
|
| Accumulated Impairment Losses |
|
| Total |
| ||||
Balance as of January 1, 2019 |
| $ | 52,426 |
|
| $ | 12,979 |
|
| $ | (7,733 | ) |
| $ | 57,672 |
|
Goodwill sold during the year |
|
| 0 |
|
|
| (12,979 | ) |
|
| 7,733 |
|
|
| (5,246 | ) |
Balance as of December 2019 |
| $ | 52,426 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 52,426 |
|
Balance as of December 31, 2020 |
| $ | 52,426 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 52,426 |
|
| AEL&P | Other | Accumulated Impairment Losses | Total | ||||||||||||
| Balance as of the December 31, 2016 | $ | 52,426 | $ | 12,979 | $ | (7,733 | ) | $ | 57,672 | ||||||
| Balance as of the December 31, 2017 | 52,426 | 12,979 | (7,733 | ) | 57,672 | ||||||||||
During the year ended December 31, 2020, there were 0 changes in the carrying amount of goodwill. During the year ended December 31, 2019, goodwill sold related to the sale of METALfx in April 2019. See Note 26 for further discussion. Accumulated impairment losses arewere attributable to METALfx, which was a part of the other businesses.
Derivative Assets and Liabilities
Derivatives are recorded as either assets or liabilities on the Consolidated Balance Sheets measured at estimated fair value.
The WUTC and the IPUC issued accounting orders authorizing Avista Corp. to offset energy commodity derivative assets or liabilities with a regulatory asset or liability. This accounting treatment is intended to defer the recognition of mark-to-market gains and losses on energy commodity transactions until the period of delivery. Realized benefits and costs result in adjustments to retail rates through PGAs, the ERM in Washington, the PCA mechanism in Idaho, and periodic general rates cases. The resulting regulatory assets associated with energy commodity derivative instruments have been concluded to be probable of recovery through future rates.
Substantially all forward contracts to purchase or sell power and natural gas are recorded as derivative assets or liabilities at estimated fair value with an offsetting regulatory asset or liability. Contracts that are not considered derivatives are accounted for on the accrual basis until they are settled or realized unless there is a decline in the fair value of the contract that is determined to be other-than-temporary.
For interest rate swap derivatives, Avista Corp. records all mark-to-market gains and losses in each accounting period as assets and liabilities, as well as offsetting regulatory assets and liabilities, such that there is no income statement impact. The interest rate swap derivatives are risk management tools similar to energy commodity derivatives. Upon settlement of interest rate swap derivatives, the regulatory asset or liability is amortized as a component of interest expense over the term of the associated debt. The Company records an offset of interest rate swap derivative assets and liabilities with regulatory assets and liabilities, based on the prior practice of the commissions to provide recovery through the ratemaking process. See Note 19 for additional discussion regarding interest rate swaps in the Company's 2017 Washington general rate cases.
The Company has multiple master netting agreements with a variety of entities that allow for cross-commodity netting of derivative agreements with the same counterparty (i.e. power derivatives can be netted with natural gas derivatives). In addition, some master netting agreements allow for the netting of commodity derivatives and interest rate swap derivatives for the same counterparty. The Company does not have any agreements which allow for cross-affiliate netting among multiple affiliated legal entities. The Company nets all derivative instruments when allowed by the agreement for presentation in the Consolidated Balance Sheets.
Fair Value Measurements
Fair value represents the price that would be received when selling an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. Energy commodity derivative assets and liabilities, deferred compensation assets, as well as derivatives related to interest rate swap derivatives and foreign currency exchange derivatives, are reported at estimated fair value on the Consolidated Balance Sheets. See Note 1618 for the Company’s fair value disclosures.
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AVISTA CORPORATION
Regulatory Deferred Charges and Credits
The Company prepares its consolidated financial statements in accordance with regulatory accounting practices because:
• | rates for regulated services are established by or subject to approval by independent third-party regulators, |
• |
the regulated rates are designed to recover the cost of providing the regulated services, and |
• | in view of demand for the regulated services and the level of competition, it is reasonable to assume that rates can be charged to and collected from customers at levels that will recover costs. |
Regulatory accounting practices require that certain costs and/or obligations (such as incurred power and natural gas costs not currently includedreflected in rates, but expected to be recovered or refunded in the future), are reflected as deferred charges or credits on the Consolidated Balance Sheets. These costs and/or obligations are not reflected in the Consolidated Statements of Income until the period during which matching revenues are recognized. The Company also has decoupling revenue deferrals. Decoupling revenue deferrals are recognized in the Consolidated Statements of Income during the period they occur (i.e. during the period of revenue shortfall or excess due to fluctuations in customer usage), subject to certain limitations, and a regulatory asset/liability is established which will be surcharged or rebated to customers in future periods. GAAP requires thatSee Note 4 for any alternative regulatory revenue program, like decoupling, the revenue must be expected to be collected from customers within 24 months of the deferral to qualify for recognition in the current period Consolidated Statement of Income. Any amounts included in the Company's decoupling program that are not expected to be collected from customers within 24 months are not recorded in the financial statements until the period in which revenue recognition criteria are met. This could ultimately result indiscussion on decoupling revenue that arose during the current year being recognized in a future period.
If at some point in the future the Company determines that it no longer meets the criteria for continued application of regulatory accounting practices for all or a portion of its regulated operations, the Company could be:
• | required to write off its regulatory assets, and |
• | precluded from the future deferral of costs or decoupled revenues not recovered through rates at the time such amounts are incurred, even if the Company expected to recover these amounts from customers in the future. |
See Note 2023 for further details of regulatory assets and liabilities.
Unamortized Debt Expense
Unamortized debt expense includes debt issuance costs that are amortized over the life of the related debt. These costs are recorded as an offset to Long-Term Debt and Capital Leases on the Consolidated Balance Sheets.
Unamortized Debt Repurchase Costs
Premiums paid or discounts received to repurchase debt are amortized over the remaining life of the original debt that was repurchased or, if new debt is issued in connection with the repurchase, these costs are amortized over the life of the new debt. In the Company’s other regulatory jurisdictions, premiums paid to repurchase debt prior to 2007 are being amortized over the average remaining maturity of outstanding debt when no new debt was issued in connection with the debt repurchase. These costs are recovered through retail rates as a component of interest expense.
| 2017 | 2016 | ||||||
| Unfunded benefit obligation for pensions and other postretirement benefit plans - net of taxes of $4,356 and $4,075, respectively | $ | 8,090 | $ | 7,568 | |||
| Amounts Reclassified from Accumulated Other Comprehensive Loss | ||||||||||||||
| Details about Accumulated Other Comprehensive Loss Components | 2017 | 2016 | 2015 | Affected Line Item in Statement of Income | ||||||||||
| Amortization of defined benefit pension items | ||||||||||||||
| Amortization of net prior service cost | $ | (4,381 | ) | $ | (1,171 | ) | $ | 31 | (a) | |||||
| Amortization of net loss | 36,833 | (7,602 | ) | 2,623 | (a) | |||||||||
| Adjustment due to effects of regulation (b) | (33,255 | ) | 7,360 | (749 | ) | (a) | ||||||||
| (803 | ) | (1,413 | ) | 1,905 | Total before tax | |||||||||
| 281 | 495 | (667 | ) | Tax benefit (expense) | ||||||||||
| $ | (522 | ) | $ | (918 | ) | $ | 1,238 | Net of tax | ||||||
Appropriated Retained Earnings
In accordance with the hydroelectric licensing requirements of section 10(d) of the Federal Power Act (FPA), the Company maintains an appropriated retained earnings account for any earnings in excess of the specified rate of return on the Company's investment in the licenses for its various hydroelectric projects. Per section 10(d) of the FPA, the Company must maintain these excess earnings in an appropriated retained earnings account until the termination of the licensing agreements or apply them to reduce the net investment in the licenses of the hydroelectric projects at the discretion of the FERC. The Company calculates the earnings in excess of the specified rate of return on an annual basis, usually during the second quarter.
The appropriated retained earnings amounts included in retained earnings were as follows as of December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
| ||
Appropriated retained earnings |
| $ | 47,473 |
|
| $ | 43,151 |
|
| 2017 | 2016 | ||||||
| Appropriated retained earnings | $ | 33,917 | $ | 25,564 | |||
Contingencies
The Company has unresolved regulatory, legal and tax issues which have inherently uncertain outcomes. The Company accrues a loss contingency if it is probable that a liability has been incurred and the amount of the loss or impairment can be reasonably
95
AVISTA CORPORATION
amounts related to unresolved contingencies. See Note 1922 for further discussion of the Company's commitments and contingencies.
COVID-19
In 2020, the WUTC, IPUC, and OPUC approved accounting orders that allow the Company to defer certain net COVID-19 related costs and benefits. As such, as of December 31, 2020, the Company has deferred a net benefit to customers of $2.8 million for all jurisdictions.
In Alaska, a Senate Bill was signed into law that provides for deferral and recovery of incremental COVID-19 related costs subject to approval by the RCA.
The respective regulatory authorities will determine the appropriateness and prudency of any deferred expenses when the Company seeks recovery. See “Regulatory Deferred Charges and Credits”.
NOTE 2. NEW ACCOUNTING STANDARDS
ASU No. 2014-09, “Revenue from Contracts with Customers2016-02, "Leases (Topic 606)”
ASU No. 2014-09,2018-01, "Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842"
ASU No. 2018-11, "Leases (Topic 842): Targeted Improvements"
On January 1, 2019, the Company adopted ASU No. 2016-02, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customersleases and supersedes mostprevious lease accounting guidance, as well as several practical expedients in ASU Nos. 2018-01 and 2018-11.
The Company adopted ASU No. 2016-02 utilizing a modified retrospective adoption method with the "package of three" and hindsight practical expedients offered by the standard. The "package of three" provides for an entity to not reassess at adoption whether any expired or existing contracts are deemed, for accounting purposes, to be or contain leases, the classification of any expired or existing leases, and any initial direct costs for any existing leases. As a result, the Company did not reassess existing or expired contracts under the new lease guidance, and it did not reassess the classification of any existing leases. The Company used the benefit of hindsight in determining both term and impairments associated with any existing leases. Use of this practical expedient has resulted in lease terms that best represent management's expectations with respect to use of the underlying asset but did not result in recognition of any impairment.
The Company elected to adopt ASU No. 2018-01, which allows an entity to exclude from application of Topic 842 all easements executed prior to January 1, 2019. In addition, the Company elected to adopt the "comparatives under 840" practical expedient offered in ASU No. 2018-11, which allows an entity to apply the new lease standard at the adoption date, recognizing any necessary cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption and presenting comparative periods in the financial statements under ASC 840 (previous lease accounting guidance). Adoption of the standard did not result in a cumulative effect adjustment within the Company's financial statements.
As allowed by ASU No. 2016-02, the Company elected not to apply the requirements of the standard to short-term leases, those leases with an initial term of 12 months or less. These leases are not recorded on the balance sheet and are not material to the financial statements.
Adoption of the standard impacted the Company's Consolidated Balance Sheets through recognition of right-of-use (ROU) assets and lease liabilities for the Company's operating leases. Accounting for finance leases (formerly capital leases) remained substantially unchanged. See Note 5 for further information on the Company's leases.
ASU 2018-13 "Fair Value Measurement (Topic 820)"
In August 2018, the FASB issued ASU No. 2018-13, which amends the fair value measurement disclosure requirements of ASC 820. The requirements of this ASU include additional disclosure regarding the range and weighted average used to develop significant unobservable inputs for Level 3 fair value estimates and the elimination of certain other previously required disclosures, such as the narrative description of the valuation process for Level 3 fair value measurements. This ASU became effective on January 1, 2020 and the requirements of this ASU did not have a material impact on the Company's fair value disclosures. See Note 18 for the Company's fair value disclosures.
96
AVISTA CORPORATION
ASU No. 2018-14 "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)"
In August 2018, the FASB issued ASU No. 2018-14, which amends ASC 715 to add, remove and/or clarify certain disclosure requirements related to defined benefit pension and other postretirement plans. The additional disclosure requirements are primarily narrative discussion of significant changes in the benefit obligations and plan assets. The removed disclosures are primarily information about accumulated other comprehensive income expected to be recognized over the next year and the effects of changes associated with assumed health care costs. This ASU became effective for periods ending after December 15, 2020 and the requirements of this ASU did not have a material impact on the Company’s disclosures upon adoption.
NOTE 3. BALANCE SHEET COMPONENTS
Materials and Supplies, Fuel Stock and Stored Natural Gas
Inventories of materials and supplies, fuel stock and stored natural gas are recorded at average cost for our regulated operations and the lower of cost or market for our non-regulated operations and consisted of the following as of December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
| ||
Materials and supplies |
| $ | 53,258 |
|
| $ | 47,402 |
|
Fuel stock |
|
| 4,658 |
|
|
| 4,875 |
|
Stored natural gas |
|
| 9,535 |
|
|
| 14,306 |
|
Total |
| $ | 67,451 |
|
| $ | 66,583 |
|
Other Current Assets
Other current revenue recognition guidance, including industry-specific guidance. assets consisted of the following as of December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
| ||
Collateral posted for derivative instruments after netting with outstanding derivative liabilities |
| $ | 4,336 |
|
| $ | 4,434 |
|
Prepayments |
|
| 24,411 |
|
|
| 19,652 |
|
Income taxes receivable |
|
| 49,814 |
|
|
| 11,047 |
|
Other |
|
| 6,324 |
|
|
| 5,009 |
|
Total |
| $ | 84,885 |
|
| $ | 40,142 |
|
Other Property and Investments-Net and Other Non-Current Assets
Other property and investments-net and other non-current assets consisted of the following as of December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
| ||
Operating lease ROU assets |
| $ | 71,891 |
|
| $ | 69,746 |
|
Finance lease ROU assets |
|
| 47,338 |
|
|
| 50,980 |
|
Non-utility property |
|
| 19,508 |
|
|
| 27,159 |
|
Equity investments |
|
| 59,318 |
|
|
| 51,258 |
|
Investment in affiliated trust |
|
| 11,547 |
|
|
| 11,547 |
|
Notes receivable |
|
| 14,454 |
|
|
| 14,060 |
|
Deferred compensation assets |
|
| 9,174 |
|
|
| 8,948 |
|
Assets held for sale (1) |
|
| 3,462 |
|
|
| — |
|
Other |
|
| 26,947 |
|
|
| 23,394 |
|
Total |
| $ | 263,639 |
|
| $ | 257,092 |
|
(1) | The Company is in the process of selling certain subsidiary assets associated with Steam Plant Square and Brew Pub. |
97
AVISTA CORPORATION
Other Current Liabilities
Other current liabilities consisted of the following as of December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
| ||
Accrued taxes other than income taxes |
| $ | 45,099 |
|
| $ | 36,965 |
|
Derivative liabilities |
|
| 14,008 |
|
|
| 10,928 |
|
Employee paid time off accruals |
|
| 26,495 |
|
|
| 22,343 |
|
Accrued interest |
|
| 17,083 |
|
|
| 16,486 |
|
Pensions and other postretirement benefits |
|
| 11,987 |
|
|
| 8,826 |
|
Other |
|
| 35,159 |
|
|
| 35,431 |
|
Total |
| $ | 149,831 |
|
| $ | 130,979 |
|
Other Non-Current Liabilities and Deferred Credits
Other non-current liabilities and deferred credits consisted of the following as of December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
| ||
Operating lease liabilities |
| $ | 67,716 |
|
| $ | 65,565 |
|
Finance lease liabilities |
|
| 48,815 |
|
|
| 51,750 |
|
Deferred investment tax credits |
|
| 29,866 |
|
|
| 30,444 |
|
Asset retirement obligations |
|
| 17,194 |
|
|
| 20,338 |
|
Derivative liabilities |
|
| 37,427 |
|
|
| 19,685 |
|
Other |
|
| 13,981 |
|
|
| 13,407 |
|
Total |
| $ | 214,999 |
|
| $ | 201,189 |
|
NOTE 4. REVENUE
ASC 606 defines the core principle of the revenue recognition model is that an entity should identify the various performance obligations in a contract, allocate the transaction price among the performance obligations and recognize revenue when (or as) the entity satisfies each performance obligation. This ASU is effective for periods beginning after December 15, 2017.
Utility Revenues
Revenue from Contracts with Customers
General
The Company will adopt this standard on January 1, 2018 using a modified retrospective method, which requires a cumulative adjustment to opening retained earnings, as opposed to a full retrospective application. The Company has not identified any cumulative adjustments.
In addition, the sale of electricity and natural gas is governed by the various state utility commissions, which set rates, charges, terms and conditions of service, and prices. Collectively, these rates, charges, terms and conditions are included in a “tariff,” which governs all aspects of the provision of regulated services. Tariffs are only permitted to be changed through a rate-setting process involving an independent, third-party regulator empowered by statute to establish rates that bind customers. Thus, all regulated sales by the Company are conducted subject to the regulator-approved tariff.
Tariff sales involve the current provision of commodity service (electricity and/or natural gas) to customers for a price that generally has a basic charge and a usage-based component. Tariff rates also include certain pass-through costs to customers such as natural gas costs, retail revenue credits and other miscellaneous regulatory items that do not impact net income, but can cause total revenue to fluctuate significantly up or down compared to previous periods. The commodity is sold and/or delivered to and consumed by the customer simultaneously, and the provisions of the relevant tariff determine the charges the Company may bill the customer, payment due date, and other pertinent rights and obligations of both parties. Generally, tariff sales do not
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AVISTA CORPORATION
involve a written contract. Given that all revenue recognition criteria are met upon the delivery of energy to customers, revenue is recognized immediately at that time.
Revenues from contracts with customers are presented in the Consolidated Statements of Income in the line item "Utility revenues, exclusive of alternative revenue programs."
Unbilled Revenue from Contracts with Customers
The determination of the volume of energy sales to individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month (once per month for each individual customer). At the end of each calendar month, the amount of energy delivered to customers since the date of the last meter reading is estimated and the corresponding unbilled revenue is estimated and recorded. The Company's estimate of unbilled revenue is based on:
• | the number of customers, |
• | current rates, |
• | meter reading dates, |
• | actual native load for electricity, |
• | actual throughput for natural gas, and |
• | electric line losses and natural gas system losses. |
Any difference between actual and estimated revenue is automatically corrected in the following month when the actual meter reading and customer billing occurs.
Accounts receivable includes unbilled energy revenues of the following amounts as of December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
| ||
Unbilled accounts receivable |
| $ | 71,258 |
|
| $ | 63,259 |
|
Non-Derivative Wholesale Contracts
The Company has certain wholesale contracts which are not accounted for as derivatives that are within the scope of ASC 606 and considered revenue from contracts with customers. Revenue is recognized as energy is delivered to these customers, the Company willcustomer or the service is available for specified period of time, consistent with the discussion of tariff sales above.
Alternative Revenue Programs (Decoupling)
ASC 606 specifies that alternative revenue programs are contracts between an entity and a regulator of utilities, not have a significant change in operatingcontract between an entity and a customer. GAAP requires that an entity present revenue arising from alternative revenue programs separately from revenues or net income due to the application of this standard. The Company reviewed and analyzed certainarising from contracts with customers (moston the face of the Consolidated Statements of Income. The Company's decoupling mechanisms (also known as a FCA in Idaho) qualify as alternative revenue programs. Decoupling revenue deferrals are recognized in the Consolidated Statements of Income during the period they occur (i.e. during the period of revenue shortfall or excess due to fluctuations in customer usage), subject to certain limitations, and a regulatory asset or liability is established which will be surcharged or rebated to customers in future periods. GAAP requires that for any alternative revenue program, like decoupling, the revenue must be expected to be collected from customers within 24 months of the deferral to qualify for recognition in the current period Consolidated Statements of Income. Any amounts included in the Company's decoupling program that are not expected to be collected from customers within 24 months are not recorded in the financial statements until the period in which revenue recognition criteria are met. The amounts expected to be collected from customers within 24 months represents an estimate which must be made by the Company on an ongoing basis due to it being based on the volumes of electric and natural gas sold to customers on a go-forward basis.
The Company records alternative program revenues under the gross method, which is to amortize the decoupling regulatory asset/liability to the alternative revenue program line item on the Consolidated Statements of Income as it is collected from or refunded to customers. The cash passing between the Company and the customers is presented in revenue from contracts with
99
AVISTA CORPORATION
customers since it is a portion of the overall tariff paid by customers. This method results in a gross-up to both revenue from contracts with customers and revenue from alternative revenue programs, but has a net zero impact on total revenue. Depending on whether the previous deferral balance being amortized was a regulatory asset or regulatory liability, and depending on the size and direction of the current year deferral of surcharges and/or rebates to customers, it could result in negative alternative revenue program revenue during the year.
Derivative Revenue
Most wholesale electric and natural gas transactions (including both physical and financial transactions), and the sale of fuel are considered derivatives, which are related to wholesalescoped out of ASC 606. As such, these revenues are disclosed separately from revenue from contracts with customers. Revenue is recognized for these items upon the settlement/expiration of the derivative contract. Derivative revenue includes those transactions which are entered into and settled within the same month.
Other Utility Revenue
Other utility revenue includes rent, revenues from the lineman training school, sales of powermaterials, late fees and natural gas)other charges that do not represent contracts with customers.Other utility revenue also includes the provision for earnings sharing and didthe deferral and amortization of refunds to customers associated with the TCJA, enacted in December 2017. This revenue is scoped out of ASC 606, as this revenue does not identify any significant differencesrepresent items where a customer is a party that has contracted with the Company to obtain goods or services that are an output of the Company’s ordinary activities in exchange for consideration. As such, these revenues are presented separately from revenue from contracts with customers.
Other Considerations for Utility Revenues
Contracts with Multiple Performance Obligations
In addition to the tariff sales described above, which are stand-alone energy sales, the Company has bundled arrangements which contain multiple performance obligations including some combination of energy, capacity, energy reserves and RECs. Under these arrangements, the total contract price is allocated to the various performance obligations and revenue is recognized as the obligations are satisfied. Depending on the source of the revenue, it could either be included in revenue recognition between current GAAPfrom contracts with customers or derivative revenue.
Gross Versus Net Presentation
Revenues and ASU No. 2014-09.
Utility-related taxes collected from customers (primarily state excise taxes and city utility taxes) are taxes that are imposed on a gross basis. Under GAAP,Avista Utilities as opposed to being imposed on its customers; therefore, Avista Utilities is the Company has been allowed to recordtaxpayer and records these utility-related taxestransactions on a gross basis in revenue when billed tofrom contracts with customers with an offset included in taxesand operating expense (taxes other than income taxes in operating expenses.taxes). The Company evaluated whether this gross presentation is appropriate under ASU 2014-09 and determined that for AEL&P, the presentation will change from its current gross presentation to a net presentation with utility revenues and for Avista Utilities, the current presentation will not change. Currently, there are approximately $2.0 million annually in utility-related taxes collected from customers at AEL&P are imposed on the customers rather than AEL&P; therefore, the customers are the taxpayers and AEL&P is acting as their agent. As such, these transactions at AEL&P are presented on a net basis within revenue from contracts with customers.
Utility-related taxes that were included in revenue from contracts with customers were as follows for AEL&P.
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Utility-related taxes |
| $ | 59,319 |
|
| $ | 59,528 |
|
| $ | 58,730 |
|
Non-Utility Revenues
Revenue from Contracts with Customers
Non-utility revenue from contracts with customers is derived from contracts with one performance obligation. Prior to its sale in April 2019 (See Note 26 for further discussion on the sale of METALfx), METALfx had one performance obligation, the delivery of a product, and revenues were recognized when the risk of loss transferred to the customer, which occurred when products were shipped.
100
AVISTA CORPORATION
Other Revenue
Other non-utility revenue primarily relates to rent revenue, which is scoped out of ASC 606; therefore, this revenue is presented separately from revenue from contracts with customers.
Significant Judgments and Unsatisfied Performance Obligations
The vast majority of the Company's revenues are derived from the rate-regulated sale of electricity and natural gas that have two performance obligations that are satisfied throughout the period and as energy is delivered to customers. In addition, the customers do not pay for energy in advance of receiving it. As such, the Company does not have any significant unsatisfied performance obligations or deferred revenues as of period-end associated with these revenues. Also, the only significant judgments involving revenue recognition are estimates surrounding unbilled revenue and receivables from contracts with customers (discussed in detail above) and estimates surrounding the amount of decoupling revenues which will be collected from customers within 24 months.
The Company has certain capacity arrangements, where the Company has a contractual obligation to provide either electric or natural gas capacity to its customers for a fixed fee. Most of these arrangements are paid for in arrears by the customers and do not result in deferred revenue and only result in receivables from the customers. The Company does have one capacity agreement where the customer makes payments throughout the year, and depending on the timing of the customer payments, it can result in an immaterial amount of deferred revenue or a receivable from the customer. As of December 31, 2020, the Company estimates it had unsatisfied capacity performance obligations of $23.8 million, which will be recognized as revenue in future periods as the capacity is provided to the customers. These performance obligations are not reflected in the financial statements, as the Company has not received payment for these services.
Disaggregation of Total Operating Revenue
The following table disaggregates total operating revenue by segment and source for the years ended December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Avista Utilities |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from contracts with customers |
| $ | 1,157,746 |
|
| $ | 1,152,125 |
|
| $ | 1,147,935 |
|
Derivative revenues |
|
| 110,313 |
|
|
| 118,741 |
|
|
| 186,459 |
|
Alternative revenue programs |
|
| (3,814 | ) |
|
| 9,614 |
|
|
| 908 |
|
Deferrals and amortizations for rate refunds to customers |
|
| 5,335 |
|
|
| 4,509 |
|
|
| (18,241 | ) |
Other utility revenues |
|
| 7,888 |
|
|
| 10,884 |
|
|
| 8,905 |
|
Total Avista Utilities |
|
| 1,277,468 |
|
|
| 1,295,873 |
|
|
| 1,325,966 |
|
AEL&P |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from contracts with customers |
|
| 42,624 |
|
|
| 36,779 |
|
|
| 44,758 |
|
Deferrals and amortizations for rate refunds to customers |
|
| (190 | ) |
|
| (190 | ) |
|
| (1,753 | ) |
Other utility revenues |
|
| 375 |
|
|
| 676 |
|
|
| 594 |
|
Total AEL&P |
|
| 42,809 |
|
|
| 37,265 |
|
|
| 43,599 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from contracts with customers |
|
| 564 |
|
|
| 11,286 |
|
|
| 26,154 |
|
Other revenues |
|
| 1,050 |
|
|
| 1,198 |
|
|
| 1,174 |
|
Total Other |
|
| 1,614 |
|
|
| 12,484 |
|
|
| 27,328 |
|
Total operating revenues |
| $ | 1,321,891 |
|
| $ | 1,345,622 |
|
| $ | 1,396,893 |
|
101
AVISTA CORPORATION
Utility industry implementation guidance indicates thatRevenue from Contracts with Customers by Type and Service
The following table disaggregates revenue from contracts with customers associated with the saleCompany's electric operations for the years ended December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||||||||||||||
|
| Avista Utilities |
|
| AEL&P |
|
| Total Utility |
|
| Avista Utilities |
|
| AEL&P |
|
| Total Utility |
|
| Avista Utilities |
|
| AEL&P |
|
| Total Utility |
| |||||||||
ELECTRIC OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from contracts with customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
| $ | 377,785 |
|
| $ | 18,618 |
|
| $ | 396,403 |
|
| $ | 369,102 |
|
| $ | 17,134 |
|
| $ | 386,236 |
|
| $ | 368,753 |
|
| $ | 18,506 |
|
| $ | 387,259 |
|
Commercial and governmental |
|
| 303,972 |
|
|
| 23,754 |
|
|
| 327,726 |
|
|
| 317,589 |
|
|
| 19,391 |
|
|
| 336,980 |
|
|
| 314,532 |
|
|
| 25,989 |
|
|
| 340,521 |
|
Industrial |
|
| 103,103 |
|
|
| 0 |
|
|
| 103,103 |
|
|
| 105,802 |
|
|
| 0 |
|
|
| 105,802 |
|
|
| 109,846 |
|
|
| 0 |
|
|
| 109,846 |
|
Public street and highway lighting |
|
| 7,303 |
|
|
| 252 |
|
|
| 7,555 |
|
|
| 7,448 |
|
|
| 254 |
|
|
| 7,702 |
|
|
| 7,539 |
|
|
| 263 |
|
|
| 7,802 |
|
Total retail revenue |
|
| 792,163 |
|
|
| 42,624 |
|
|
| 834,787 |
|
|
| 799,941 |
|
|
| 36,779 |
|
|
| 836,720 |
|
|
| 800,670 |
|
|
| 44,758 |
|
|
| 845,428 |
|
Transmission |
|
| 18,236 |
|
|
| 0 |
|
|
| 18,236 |
|
|
| 18,180 |
|
|
| 0 |
|
|
| 18,180 |
|
|
| 17,864 |
|
|
| 0 |
|
|
| 17,864 |
|
Other revenue from contracts with customers |
|
| 19,252 |
|
|
| 0 |
|
|
| 19,252 |
|
|
| 26,969 |
|
|
| 0 |
|
|
| 26,969 |
|
|
| 27,364 |
|
|
| 0 |
|
|
| 27,364 |
|
Total revenue from contracts with customers |
| $ | 829,651 |
|
| $ | 42,624 |
|
| $ | 872,275 |
|
| $ | 845,090 |
|
| $ | 36,779 |
|
| $ | 881,869 |
|
| $ | 845,898 |
|
| $ | 44,758 |
|
| $ | 890,656 |
|
The following table disaggregates revenue from contracts with customers associated with the Company's natural gas operations for the years ended December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
| Avista Utilities |
|
| Avista Utilities |
|
| Avista Utilities |
| |||
NATURAL GAS OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from contracts with customers |
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
| $ | 213,612 |
|
| $ | 196,430 |
|
| $ | 194,340 |
|
Commercial |
|
| 94,937 |
|
|
| 92,168 |
|
|
| 89,341 |
|
Industrial and interruptible |
|
| 7,128 |
|
|
| 5,263 |
|
|
| 4,753 |
|
Total retail revenue |
|
| 315,677 |
|
|
| 293,861 |
|
|
| 288,434 |
|
Transportation |
|
| 7,917 |
|
|
| 8,674 |
|
|
| 9,103 |
|
Other revenue from contracts with customers |
|
| 4,501 |
|
|
| 4,500 |
|
|
| 4,500 |
|
Total revenue from contracts with customers |
| $ | 328,095 |
|
| $ | 307,035 |
|
| $ | 302,037 |
|
NOTE 5. LEASES
ASC 842, which outlines a model for entities to use in accounting for leases and supersedes previous lease accounting guidance, became effective on January 1, 2019. The core principle of self-generated RECs will bethe model is that an entity should recognize the ROU assets and liabilities that arise from leases on the balance sheet and depreciate or amortize the asset and liability over the term of the lease, as well as provide disclosure to enable users of the consolidated financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
Significant Judgments and Assumptions
The Company determines if an arrangement is a lease, as well as its classification, at its inception.
ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and lease liabilities are recognized at the time of generation and salecommencement date of the credits as opposed to whenagreement based on the RECs are certified inpresent value of lease payments over the Western Renewable Energy Generation Information System, which generally occurs during a period subsequent to the sale. This represents a change from the Company's prior practice, which has been to defer revenue recognition until the time of certification. Revenue associated with the sale of RECs is not material to the financial statements and almost alllease term. As most of the Company's REC revenueleases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of lease payments. The implicit
102
AVISTA CORPORATION
rate is deferredused when it is readily determinable. The operating and finance lease ROU assets also include any lease payments made and exclude lease incentives, if any, that accrue to the benefit of the lessee.
Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for future rebatelease payments is recognized on a straight-line basis over the lease term. Any difference between lease expense and cash paid for leased assets is recognized as a regulatory asset or regulatory liability.
Description of Leases
Operating Leases
The Company's most significant operating lease is with the State of Montana associated with submerged land around the Company's hydroelectric facilities in the Clark Fork River basin, which expires in 2046. The terms of this lease are subject to retail customers.renegotiation, depending on the outcome of ongoing litigation between Montana and NorthWestern Energy. In addition, the State of Montana and Avista Corp. are engaged in litigation regarding lease terms, including how much money, if any, the State of Montana will return to Avista Corp. The Company is currently paying all lease payments to the State of Montana into an escrow account until the litigation is resolved. As such, theamounts recorded for this lease are uncertain and amounts may change in the timingfuture depending on the outcome of revenue recognition will have an insignificant impactthe ongoing litigation. Any reduction in future lease payments or the return of previously paid amounts to revenue and net income.
In addition to the issues described above,lease with the State of Montana, the Company will also has other operating leases for land associated with its utility operations, as well as communication sites which support network and radio communications within its service territory. The Company's leases have significant changesremaining terms of 1 to its revenue-related footnote disclosures, including the bifurcation of wholesale revenue into derivative and non-derivative sales. The Company continues to evaluate what information would be most useful for users73 years. Most of the financial statements, including information already provided elsewhereCompany's leases include options to extend the lease term for periods of 5 to 50 years. Options are exercised at the Company's discretion.
Certain of the Company's lease agreements include rental payments which are periodically adjusted over the term of the agreement based on the consumer price index. The Company's lease agreements do not include any material residual value guarantees or material restrictive covenants.
Avista Corp. does not record leases with a term of 12 months or less in the document outsideConsolidated Balance Sheets. Total short-term lease costs for the footnote disclosures. These additional disclosures will most likely include the disaggregation of revenues by type of service, source of revenue or customer class. Also, the Company will have enhanced disclosures regarding its revenue recognition policies and elections. The Company does not expect any material presentation changesyear ended December 31, 2020 are immaterial.
Finance Lease
AEL&P has a PPA which is treated as a finance lease for accounting purposes related to the base financial statements,Snettisham Hydroelectric Project, which expires in 2034. For ratemaking purposes, this lease is treated as an operating lease with a constant level of annual rental expense (straight line rent expense). Because of this regulatory treatment, any difference between the operating lease expense for ratemaking purposes and only expects changes to its footnote disclosures.
The Company early adopted this standard during the second quarter of 2016, with a retrospective effective date of January 1, 2016. The adoption of this standard resulted in a recognized income tax benefit of $1.6 million in 2016 associated with excess tax benefits on settled share-based employee payments.
|
| 2020 |
|
| 2019 |
| ||
Operating lease cost: |
|
|
|
|
|
|
|
|
Fixed lease cost (Other operating expenses) |
| $ | 4,746 |
|
| $ | 4,425 |
|
Variable lease cost (Other operating expenses) |
|
| 1,099 |
|
|
| 988 |
|
Total operating lease cost |
| $ | 5,845 |
|
| $ | 5,413 |
|
|
|
|
|
|
|
|
|
|
Finance lease cost: |
|
|
|
|
|
|
|
|
Amortization of ROU asset (Depreciation and amortization) |
| $ | 3,641 |
|
| $ | 3,641 |
|
Interest on lease liabilities (Interest expense) |
|
| 2,662 |
|
|
| 2,795 |
|
Total finance lease cost |
| $ | 6,303 |
|
| $ | 6,436 |
|
103
AVISTA CORPORATION
Supplemental cash flow information related to leases was as follows for the year ended December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash outflows: |
|
|
|
|
|
|
|
|
Operating lease payments |
| $ | 4,612 |
|
| $ | 4,375 |
|
Interest on finance lease |
|
| 2,662 |
|
|
| 2,795 |
|
Total operating cash outflows |
| $ | 7,274 |
|
| $ | 7,170 |
|
|
|
|
|
|
|
|
|
|
Finance cash outflows: |
|
|
|
|
|
|
|
|
Principal payments on finance lease |
| $ | 2,800 |
|
| $ | 2,660 |
|
Supplemental balance sheet information related to leases was as follows for December 31 (dollars in thousands):
|
| December 31, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Operating Leases |
|
|
|
|
|
|
|
|
Operating lease ROU assets (Other property and investments-net and other non-current assets) |
| $ | 71,891 |
|
| $ | 69,746 |
|
|
|
|
|
|
|
|
|
|
Other current liabilities |
| $ | 4,249 |
|
| $ | 4,128 |
|
Other non-current liabilities and deferred credits |
|
| 67,716 |
|
|
| 65,565 |
|
Total operating lease liabilities |
| $ | 71,965 |
|
| $ | 69,693 |
|
|
|
|
|
|
|
|
|
|
Finance Leases |
|
|
|
|
|
|
|
|
Finance lease ROU assets (Other property and investments-net and other non-current assets) |
| $ | 47,338 |
|
| $ | 50,980 |
|
|
|
|
|
|
|
|
|
|
Other current liabilities |
| $ | 2,935 |
|
| $ | 2,800 |
|
Other non-current liabilities and deferred credits |
|
| 48,815 |
|
|
| 51,750 |
|
Total finance lease liabilities |
| $ | 51,750 |
|
| $ | 54,550 |
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term |
|
|
|
|
|
|
|
|
Operating leases |
| 25.20 years |
|
| 26.60 years |
| ||
Finance leases |
| 7.22 years |
|
| 8.27 years |
| ||
|
|
|
|
|
|
|
|
|
Weighted Average Discount Rate |
|
|
|
|
|
|
|
|
Operating leases |
|
| 4.28 | % |
|
| 3.82 | % |
Finance leases |
|
| 4.62 | % |
|
| 4.88 | % |
Maturities of lease liabilities (including principal and other postretirement plans. Under current GAAP, net benefit cost consists of several components that reflect different aspects of an employer’s financial arrangementsinterest) were as well as the cost of benefits earned by employees. These components are aggregated and reported net in the financial statements. ASU No. 2017-07 requires entities to (1) disaggregate the current service-cost component from the other components of net benefit cost (other components) and present it with other current compensation costs for related employees in the income statement and (2) present the other components elsewhere in the income statement and outside of income from operations.
|
| Operating Leases |
|
| Finance Leases |
| ||
2021 |
| $ | 4,779 |
|
| $ | 5,457 |
|
2022 |
|
| 4,799 |
|
|
| 5,460 |
|
2023 |
|
| 4,827 |
|
|
| 5,456 |
|
2024 |
|
| 4,852 |
|
|
| 5,459 |
|
2025 |
|
| 4,865 |
|
|
| 5,454 |
|
Thereafter |
|
| 96,734 |
|
|
| 43,661 |
|
Total lease payments |
| $ | 120,856 |
|
| $ | 70,947 |
|
Less: imputed interest |
|
| (48,891 | ) |
|
| (19,197 | ) |
Total |
| $ | 71,965 |
|
| $ | 51,750 |
|
104
AVISTA CORPORATION
Maturities of lease liabilities (including principal and does not expect a material impact on its future financial condition, resultsinterest) were as follows as of operations or cash flows upon adoption of this standard.December 31, 2019 (dollars in thousands):
|
| Operating Leases |
|
| Finance Leases |
| ||
2020 |
| $ | 4,372 |
|
| $ | 5,462 |
|
2021 |
|
| 4,375 |
|
|
| 5,457 |
|
2022 |
|
| 4,383 |
|
|
| 5,460 |
|
2023 |
|
| 4,399 |
|
|
| 5,456 |
|
2024 |
|
| 4,411 |
|
|
| 5,459 |
|
Thereafter |
|
| 91,654 |
|
|
| 49,115 |
|
Total lease payments |
| $ | 113,594 |
|
| $ | 76,409 |
|
Less: imputed interest |
|
| (43,901 | ) |
|
| (21,859 | ) |
Total |
| $ | 69,693 |
|
| $ | 54,550 |
|
NOTE 3.6. VARIABLE INTEREST ENTITIES
Lancaster Power Purchase Agreement
The Company has a PPA for the purchase of all the output of the Lancaster Plant, a
270 MW natural gas-fired combined cycle combustion turbine plant located in Kootenai County, Idaho, owned by an unrelated third-party (Rathdrum Power LLC), through 2026.Avista Corp. has a variable interest in the PPA. Accordingly, Avista Corp. made an evaluation of which interest holders have the power to direct the activities that most significantly impact the economic performance of the entity and which interest holders have the obligation to absorb losses or receive benefits that could be significant to the entity. Avista Corp. pays a fixed capacity and operations and maintenance payment and certain monthly variable costs under the PPA. Under the terms of the PPA, Avista Corp. makes the dispatch decisions, provides all natural gas fuel and receives all of the electric energy output from the Lancaster Plant. However, Rathdrum Power LLC (the owner) controls the daily operation of the Lancaster Plant and makes operating and maintenance decisions. Rathdrum Power LLC controls all of the rights and obligations of the Lancaster Plant after the expiration of the PPA in 2026 and Avista Corp. does not have any further obligations after the expiration. It is estimated that the plant will have
15 to 25 years of useful life after that time. Rathdrum Power LLC bears the maintenance risk of the plant and will receive the residual value of the Lancaster Plant. Avista Corp. has no debt or equity investments in the Lancaster Plant and does not provide financial support through liquidity arrangements or other commitments (other than the PPA). Based on its analysis, Avista Corp. does not consider itself to be the primary beneficiary of the Lancaster Plant. Accordingly, neither the Lancaster Plant nor Rathdrum Power LLC is included in Avista Corp.’s consolidated financial statements. The Company has a future contractual obligation ofLimited Partnerships and Similar Entities
Under current GAAP, a limited partnership or similar legal entity that is the functional equivalent of a limited partnership is considered a VIE regardless of whether it otherwise qualifies as a voting interest entity unless a simple majority or lower threshold of the “unrelated” limited partners (i.e., parties other than the general partner, entities under common control with the general partner, and other parties acting on behalf of the general partner) have substantive kick-out rights (including liquidation rights) or participating rights.
As of December 31, 2017,2020, the Company has seventhirteen investments in limited partnerships (or the functional equivalent) where Avista Corp. is a limited partner investor in an investment fund where the general partner makes all of the investment and operating decisions with regards to the partnership and fund. To remove the general partner from any of the funds, approval from greater than a simple majority of the limited partners is required. As such, the limited partners do not have substantive kick-out rights and these investments are considered VIEs. Consolidation of these VIEs by Avista Corp. is not required because the Company does not have majority ownership in any of the funds, it does not have the power to direct any activities of the funds, and it does not have the power to appoint executive leadership, including the board of directors.
105
AVISTA CORPORATION
Avista Corp. participates in profits and losses of the investment funds based on its ownership percentage and its losses are capped at its total initial investment in the funds. For sixnine of the seventhirteen VIEs, Avista Corp. does not have any additional commitments beyond its initial investment. For the seventh VIE, Avista Corp. has up to a $25.0 million total commitment, andother four VIEs, as of December 31, 2017,2020, Avista Corp. has invested $9.7$51.2 million, leaving $15.3with an additional commitment of $30.7 million remaining to be invested. In addition, the Company is not allowed to withdraw any capital contributions from the investment funds until after the funds' expiration dates and all liabilities of the funds are settled. The expiration dates range from 20192021 to 2037,2040, with one investmentthree investments having no termination date (as it isthey are perpetual). In addition, twoone of the funds areis closed and expired and the Company is awaiting final distribution as soon as the underlying investments are liquidated. As of December 31, 2017,2020, the Company has a total carrying amount in these investment funds of $12.2$56.2 million.
| 2015 | |||
| Revenues | $ | — | |
| Gain on sale of Ecova (1) | 777 | ||
| Transaction expenses and accelerated employee benefits | 71 | ||
| Gain on sale of Ecova, net of transaction expenses | 706 | ||
| Income before income taxes | 706 | ||
| Income tax benefit (2) | (4,441 | ) | |
| Net income from discontinued operations | 5,147 | ||
| Net income attributable to noncontrolling interests | — | ||
| Net income from discontinued operations attributable to Avista Corp. shareholders | $ | 5,147 | |
NOTE 6.7. DERIVATIVES AND RISK MANAGEMENT
Energy Commodity Derivatives
Avista Corp. is exposed to market risks relating to changes in electricity and natural gas commodity prices and certain other fuel prices. Market risk is, in general, the risk of fluctuation in the market price of the commodity being traded and is influenced primarily by supply and demand. Market risk includes the fluctuation in the market price of associated derivative commodity instruments. Avista Corp. utilizes derivative instruments, such as forwards, futures, swap derivatives and options in order to manage the various risks relating to these commodity price exposures. Avista Corp. has an energy resources risk policy and control procedures to manage these risks.
As part of Avista Corp.'s resource procurement and management operations in the electric business, the Company engages in an ongoing process of resource optimization, which involves the economic selection from available energy resources to serve Avista Corp.'s load obligations and the use of these resources to capture available economic value through wholesale market transactions. These include sales and purchases of electric capacity and energy, fuel for electric generation, and derivative contracts related to capacity, energy and fuel. Such transactions are part of the process of matching resources with load obligations and hedging a portion of the related financial risks. These transactions range from terms of intra-hour up to multiple years.
As part of its resource procurement and management of its natural gas business, Avista Corp. makes continuing projections of its natural gas loads and assesses available natural gas resources including natural gas storage availability. Natural gas resource planning typically includes peak requirements, low and average monthly requirements and delivery constraints from natural gas supply locations to Avista Corp.'s distribution system. However, daily variations in natural gas demand can be significantly different than monthly demand projections. On the basis of these projections, Avista Corp. plans and executes a series of transactions to hedge a portion of its projected natural gas requirements through forward market transactions and derivative instruments. These transactions may extend as much as fourthree natural gas operating years (November through October) into the future. Avista Corp. also leaves a significant portion of its natural gas supply requirements unhedged for purchase in short-term and spot markets.
Avista Corp. plans for sufficient natural gas delivery capacity to serve its retail customers for a theoretical peak day event. Avista Corp. generally has more pipeline and storage capacity than what is needed during periods other than a peak day. Avista Corp. optimizes its natural gas resources by using market opportunities to generate economic value that helps mitigate fixed costs. Avista Corp. also optimizes its natural gas storage capacity by purchasing and storing natural gas when prices are traditionally lower, typically in the summer, and withdrawing during higher priced months, typically during the winter. However, if market conditions and prices indicate that Avista Corp. should buy or sell natural gas during other times in the year, Avista Corp. engages in optimization transactions to capture value in the marketplace. Natural gas optimization activities
106
AVISTA CORPORATION
The following table presents the underlying energy commodity derivative volumes as of
December 31,
|
| Purchases |
|
| Sales |
| ||||||||||||||||||||||||||
|
| Electric Derivatives |
|
| Gas Derivatives |
|
| Electric Derivatives |
|
| Gas Derivatives |
| ||||||||||||||||||||
Year |
| Physical (1) MWh |
|
| Financial (1) MWh |
|
| Physical (1) mmBTUs |
|
| Financial (1) mmBTUs |
|
| Physical (1) MWh |
|
| Financial (1) MWh |
|
| Physical (1) mmBTUs |
|
| Financial (1) mmBTUs |
| ||||||||
2021 |
|
| 1 |
|
|
| 224 |
|
|
| 10,353 |
|
|
| 65,188 |
|
|
| 17 |
|
|
| 451 |
|
|
| 5,448 |
|
|
| 39,273 |
|
2022 |
|
| 0 |
|
|
| 0 |
|
|
| 450 |
|
|
| 25,525 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,360 |
|
|
| 12,030 |
|
2023 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 4,950 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,360 |
|
|
| 900 |
|
2024 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,370 |
|
|
| 0 |
|
2025 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,115 |
|
|
| 0 |
|
| Purchases | Sales | ||||||||||||||||||||||
| Electric Derivatives | Gas Derivatives | Electric Derivatives | Gas Derivatives | ||||||||||||||||||||
| Year | Physical (1) MWh | Financial (1) MWh | Physical (1) mmBTUs | Financial (1) mmBTUs | Physical (1) MWh | Financial (1) MWh | Physical (1) mmBTUs | Financial (1) mmBTUs | |||||||||||||||
| 2018 | 426 | 763 | 10,572 | 107,580 | 213 | 1,739 | 3,643 | 67,375 | |||||||||||||||
| 2019 | 235 | 737 | 610 | 61,073 | 94 | 1,420 | 1,345 | 35,438 | |||||||||||||||
| 2020 | — | — | 910 | 16,590 | — | 589 | 1,430 | 915 | |||||||||||||||
| 2021 | — | — | — | — | — | — | 1,049 | — | |||||||||||||||
| 2022 | — | — | — | — | — | — | — | — | |||||||||||||||
| Thereafter | — | — | — | — | — | — | — | — | |||||||||||||||
As of December 31, 2020, there are 0 expected deliveries of energy commodity derivatives after 2025.
The following table presents the underlying energy commodity derivative volumes as of December 31, 20162019 that were expected to be delivered in each respective year (in thousands of MWhs and mmBTUs):
|
| Purchases |
|
| Sales |
| ||||||||||||||||||||||||||
|
| Electric Derivatives |
|
| Gas Derivatives |
|
| Electric Derivatives |
|
| Gas Derivatives |
| ||||||||||||||||||||
Year |
| Physical (1) MWh |
|
| Financial (1) MWh |
|
| Physical (1) mmBTUs |
|
| Financial (1) mmBTUs |
|
| Physical (1) MWh |
|
| Financial (1) MWh |
|
| Physical (1) mmBTUs |
|
| Financial (1) mmBTUs |
| ||||||||
2020 |
|
| 2 |
|
|
| 442 |
|
|
| 9,813 |
|
|
| 78,803 |
|
|
| 133 |
|
|
| 1,724 |
|
|
| 2,984 |
|
|
| 37,848 |
|
2021 |
|
| 0 |
|
|
| 0 |
|
|
| 153 |
|
|
| 25,523 |
|
|
| 0 |
|
|
| 246 |
|
|
| 1,040 |
|
|
| 13,108 |
|
2022 |
|
| 0 |
|
|
| 0 |
|
|
| 225 |
|
|
| 4,725 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 675 |
|
As of December 31, 2019, there were 0 expected deliveries of energy commodity derivatives after 2022.
| Purchases | Sales | ||||||||||||||||||||||
| Electric Derivatives | Gas Derivatives | Electric Derivatives | Gas Derivatives | ||||||||||||||||||||
| Year | Physical (1) MWh | Financial (1) MWh | Physical (1) mmBTUs | Financial (1) mmBTUs | Physical (1) MWh | Financial (1) MWh | Physical (1) mmBTUs | Financial (1) mmBTUs | |||||||||||||||
| 2017 | 510 | 907 | 15,475 | 110,380 | 316 | 1,552 | 4,165 | 73,110 | |||||||||||||||
| 2018 | 397 | — | — | 52,755 | 286 | 1,244 | 1,360 | 15,113 | |||||||||||||||
| 2019 | 235 | — | 610 | 29,475 | 158 | 982 | 1,345 | 4,020 | |||||||||||||||
| 2020 | — | — | 910 | 2,725 | — | — | 1,430 | — | |||||||||||||||
| 2021 | — | — | — | — | — | — | 1,060 | — | |||||||||||||||
| Thereafter | — | — | — | — | — | — | — | — | |||||||||||||||
(1) | |
Physical transactions represent commodity transactions in which Avista Corp. will take or make delivery of either electricity or natural gas; financial transactions represent derivative instruments with delivery of cash in the amount of the benefit or cost but with no physical delivery of the commodity, such as futures, swap derivatives, options, or forward contracts. |
The electric and natural gas derivative contracts above will be included in either power supply costs or natural gas supply costs during the period they are delivered and will be included in the various deferral and recovery mechanisms (ERM, PCA, and PGAs), or in the general rate case process, and are expected to be collected through retail rates from customers.
Foreign Currency Exchange Derivatives
A significant portion of Avista Corp.'s natural gas supply (including fuel for power generation) is obtained from Canadian sources. Most of those transactions are executed in U.S. dollars, which avoids foreign currency risk. A portion of Avista Corp.’s short-term natural gas transactions and long-term Canadian transportation contracts are committed based on Canadian currency prices and settled within
60 days with U.S. dollars. Avista Corp. hedges a portion of the foreign currency risk by purchasing Canadian currency exchange derivatives when such commodity transactions are initiated. The foreign currency exchange derivatives and the unhedged foreign currency risk have not had a material effect on Avista Corp.’s financial condition, results of operations or cash flows and these differences in cost related to currency fluctuations are included with natural gas supply costs for ratemaking.The following table summarizes the foreign currency exchange derivatives that Avista Corp. has outstanding as of December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
| ||
Number of contracts |
|
| 22 |
|
|
| 20 |
|
Notional amount (in United States dollars) |
| $ | 3,860 |
|
| $ | 5,932 |
|
Notional amount (in Canadian dollars) |
|
| 4,949 |
|
|
| 7,828 |
|
| 2017 | 2016 | ||||||
| Number of contracts | 18 | 21 | |||||
| Notional amount (in United States dollars) | $ | 2,552 | $ | 2,819 | |||
| Notional amount (in Canadian dollars) | 3,241 | 3,754 | |||||
107
AVISTA CORPORATION
Interest Rate Swap Derivatives
Avista Corp. is affected by fluctuating interest rates related to a portion of its existing debt, and future borrowing requirements. Avista Corp. hedges a portion of its interest rate risk with financial derivative instruments, which may include interest rate swap derivatives and U.S. Treasury lock agreements.instruments. These interest rate swap derivatives and U.S. Treasury lock agreementsfinancial derivative instruments are considered economic hedges against fluctuations in future cash flows associated with anticipated debt issuances.
The following table summarizes the unsettled interest rate swap derivatives that Avista Corp. has outstanding as of the balance sheet date indicated below (dollars in thousands):
Balance Sheet Date |
| Number of Contracts |
|
| Notional Amount |
|
| Mandatory Cash Settlement Date | ||
December 31, 2020 |
|
| 4 |
|
|
| 45,000 |
|
| 2021 |
|
|
| 11 |
|
|
| 120,000 |
|
| 2022 |
|
|
| 1 |
|
|
| 10,000 |
|
| 2023 |
December 31, 2019 |
|
| 7 |
|
|
| 70,000 |
|
| 2020 |
|
|
| 3 |
|
|
| 35,000 |
|
| 2021 |
|
|
| 10 |
|
|
| 110,000 |
|
| 2022 |
| Balance Sheet Date | Number of Contracts | Notional Amount | Mandatory Cash Settlement Date | ||||
| December 31, 2017 | 14 | 275,000 | 2018 | ||||
| 6 | 70,000 | 2019 | |||||
| 3 | 30,000 | 2020 | |||||
| 1 | 15,000 | 2021 | |||||
| 5 | 60,000 | 2022 | |||||
| December 31, 2016 | 6 | 75,000 | 2017 | ||||
| 14 | 275,000 | 2018 | |||||
| 6 | 70,000 | 2019 | |||||
| 2 | 20,000 | 2020 | |||||
| 5 | 60,000 | 2022 | |||||
See Note 16 for discussion of the third quarter 2017,bond purchase agreement and the related settlement of interest rate swaps in connection with the execution of a purchase agreement for $90.0 million of Avista Corp. first mortgage bonds issued in December 2017, Avista Corp. cash-settled five interest rate swap derivatives (notional aggregate amount of $60.0 million) and paid a total of $8.8 million. Upon settlement of interest rate swap derivatives, the cash payments made or received are recorded as a regulatory asset or liability and are subsequently amortized as a component of interest expense over the lifepricing of the associated debt. The settled interest rate swap derivatives are also included as a part of Avista Corp.'s cost of debt calculation for ratemaking purposes.
The fair value of outstanding interest rate swap derivatives can vary significantly from period to period depending on the total notional amount of swap derivatives outstanding and fluctuations in market interest rates compared to the interest rates fixed by the swaps. Avista Corp. is required to make cash payments to settle the interest rate swap derivatives when the fixed rates are higher than prevailing market rates at the date of settlement. Conversely, Avista Corp. receives cash to settle its interest rate swap derivatives when prevailing market rates at the time of settlement exceed the fixed swap rates.
Summary of Outstanding Derivative Instruments
The amounts recorded on the Consolidated Balance SheetSheets as of December 31, 20172020 and December 31, 20162019 reflect the offsetting of derivative assets and liabilities where a legal right of offset exists.
The following table presents the fair values and locations of derivative instruments recorded on the Consolidated Balance SheetSheets as of December 31, 20172020 (in thousands):
|
| Fair Value |
| |||||||||||||
Derivative and Balance Sheet Location |
| Gross Asset |
|
| Gross Liability |
|
| Collateral Netting |
|
| Net Asset (Liability) on Balance Sheet |
| ||||
Foreign currency exchange derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets |
| $ | 30 |
|
| $ | — |
|
| $ | — |
|
| $ | 30 |
|
Interest rate swap derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
| — |
|
|
| (19,575 | ) |
|
| 8,050 |
|
|
| (11,525 | ) |
Other non-current liabilities and deferred credits |
|
| 952 |
|
|
| (32,190 | ) |
|
| — |
|
|
| (31,238 | ) |
Energy commodity derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets |
|
| 9,203 |
|
|
| (8,306 | ) |
|
| — |
|
|
| 897 |
|
Other property and investments-net and other non-current assets |
|
| 1,755 |
|
|
| (1,159 | ) |
|
| — |
|
|
| 596 |
|
Other current liabilities |
|
| 11,037 |
|
|
| (14,007 | ) |
|
| 487 |
|
|
| (2,483 | ) |
Other non-current liabilities and deferred credits |
|
| 1,725 |
|
|
| (8,043 | ) |
|
| 129 |
|
|
| (6,189 | ) |
Total derivative instruments recorded on the balance sheet |
| $ | 24,702 |
|
| $ | (83,280 | ) |
| $ | 8,666 |
|
| $ | (49,912 | ) |
| Fair Value | |||||||||||||||
| Derivative and Balance Sheet Location | Gross Asset | Gross Liability | Collateral Netting | Net Asset (Liability) in Balance Sheet | |||||||||||
| Foreign currency exchange derivatives | |||||||||||||||
| Other current assets | $ | 32 | $ | (1 | ) | $ | — | $ | 31 | ||||||
| Interest rate swap derivatives | |||||||||||||||
| Other current assets | 2,597 | (270 | ) | — | 2,327 | ||||||||||
| Other property and investments-net and other non-current assets | 4,880 | (2,304 | ) | — | 2,576 | ||||||||||
| Current unsettled interest rate swap derivative liabilities | (63,399 | ) | 28,952 | (34,447 | ) | ||||||||||
| Non-current interest rate swap derivative liabilities | (7,540 | ) | 6,018 | (1,522 | ) | ||||||||||
| Energy commodity derivatives | |||||||||||||||
| Other current assets | 1,386 | (122 | ) | — | 1,264 | ||||||||||
| Current energy commodity derivative liabilities | 26,641 | (52,895 | ) | 17,406 | (8,848 | ) | |||||||||
| Other non-current liabilities, regulatory liabilities and deferred credits | 15,970 | (34,936 | ) | 10,032 | (8,934 | ) | |||||||||
| Total derivative instruments recorded on the balance sheet | $ | 51,506 | $ | (161,467 | ) | $ | 62,408 | $ | (47,553 | ) | |||||
108
AVISTA CORPORATION
The following table presents the fair values and locations of derivative instruments recorded on the Consolidated Balance SheetSheets as of December 31, 20162019 (in thousands):
|
| Fair Value |
| |||||||||||||
Derivative and Balance Sheet Location |
| Gross Asset |
|
| Gross Liability |
|
| Collateral Netting |
|
| Net Asset (Liability) on Balance Sheet |
| ||||
Foreign currency exchange derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets |
| $ | 97 |
|
| $ | — |
|
| $ | — |
|
| $ | 97 |
|
Interest rate swap derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets |
|
| 589 |
|
|
| — |
|
|
| — |
|
|
| 589 |
|
Other current liabilities |
|
| 238 |
|
|
| (9,379 | ) |
|
| 1,316 |
|
|
| (7,825 | ) |
Other non-current liabilities and deferred credits |
|
| 725 |
|
|
| (24,677 | ) |
|
| 5,454 |
|
|
| (18,498 | ) |
Energy commodity derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets |
|
| 416 |
|
|
| (245 | ) |
|
| — |
|
|
| 171 |
|
Other property and investments-net and other non-current assets |
|
| 6,369 |
|
|
| (5,446 | ) |
|
| — |
|
|
| 923 |
|
Other current liabilities |
|
| 34,760 |
|
|
| (41,241 | ) |
|
| 3,378 |
|
|
| (3,103 | ) |
Other non-current liabilities and deferred credits |
|
| 28 |
|
|
| (1,215 | ) |
|
| — |
|
|
| (1,187 | ) |
Total derivative instruments recorded on the balance sheet |
| $ | 43,222 |
|
| $ | (82,203 | ) |
| $ | 10,148 |
|
| $ | (28,833 | ) |
| Fair Value | |||||||||||||||
| Derivative and Balance Sheet Location | Gross Asset | Gross Liability | Collateral Netting | Net Asset (Liability) in Balance Sheet | |||||||||||
| Foreign currency exchange derivatives | |||||||||||||||
| Other current liabilities | $ | 5 | $ | (28 | ) | $ | — | $ | (23 | ) | |||||
| Interest rate swap derivatives | |||||||||||||||
| Other current assets | 3,393 | — | — | 3,393 | |||||||||||
| Other property and investments-net and other non-current assets | 5,754 | (397 | ) | — | 5,357 | ||||||||||
| Current unsettled interest rate swap derivative liabilities | — | (15,756 | ) | 9,731 | (6,025 | ) | |||||||||
| Non-current interest rate swap derivative liabilities | 3,951 | (57,825 | ) | 25,169 | (28,705 | ) | |||||||||
| Energy commodity derivatives | |||||||||||||||
| Other current assets | 18,682 | (16,787 | ) | — | 1,895 | ||||||||||
| Current energy commodity derivative liabilities | 16,335 | (29,598 | ) | 6,228 | (7,035 | ) | |||||||||
| Other non-current liabilities, regulatory liabilities and deferred credits | 13,071 | (29,990 | ) | 3,630 | (13,289 | ) | |||||||||
| Total derivative instruments recorded on the balance sheet | $ | 61,191 | $ | (150,381 | ) | $ | 44,758 | $ | (44,432 | ) | |||||
Exposure to Demands for Collateral
Avista Corp.'s derivative contracts often require collateral (in the form of cash or letters of credit) or other credit enhancements, or reductions or terminations of a portion of the contract through cash settlement. In the event of a downgrade in Avista Corp.'s credit ratings or changes in market prices, additional collateral may be required. In periods of price volatility, the level of exposure can change significantly. As a result, sudden and significant demands may be made against Avista Corp.'s credit facilities and cash. Avista Corp. actively monitors the exposure to possible collateral calls and takes steps to mitigate capital requirements.
The following table presents Avista Corp.'s collateral outstanding related to its derivative instruments as of December 31 (in thousands):
|
| 2020 |
|
| 2019 |
| ||
Energy commodity derivatives |
|
|
|
|
|
|
|
|
Cash collateral posted |
| $ | 4,953 |
|
| $ | 7,812 |
|
Letters of credit outstanding |
|
| 23,500 |
|
|
| 17,400 |
|
Balance sheet offsetting (cash collateral against net derivative positions) |
|
| 616 |
|
|
| 3,378 |
|
Interest rate swap derivatives |
|
|
|
|
|
|
|
|
Cash collateral posted (offset by net derivative positions) |
|
| 8,050 |
|
|
| 6,770 |
|
There were 0 letters of credit outstanding related to interest rate swap derivatives as of December 31, (in thousands):
| 2017 | 2016 | ||||||
| Energy commodity derivatives | |||||||
| Cash collateral posted | $ | 39,458 | $ | 17,134 | |||
| Letters of credit outstanding | 23,000 | 24,400 | |||||
| Balance sheet offsetting (cash collateral against net derivative positions) | 27,438 | 9,858 | |||||
| Interest rate swap derivatives | |||||||
| Cash collateral posted | 34,970 | 34,900 | |||||
| Letters of credit outstanding | 5,000 | 3,600 | |||||
| Balance sheet offsetting (cash collateral against net derivative positions) | 34,970 | 34,900 | |||||
Certain of Avista Corp.’s derivative instruments contain provisions that require the Company to maintain an "investment grade" credit rating from the major credit rating agencies. If Avista Corp.’s credit ratings were to fall below “investment grade,” it would be in violation of these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing collateralization on derivative instruments in net liability positions.
109
AVISTA CORPORATION
The following table presents the aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position and the amount of additional collateral Avista Corp. could be required to post as of December 31 (in thousands):
|
| 2020 |
|
| 2019 |
| ||
Interest rate swap derivatives |
|
|
|
|
|
|
|
|
Liabilities with credit-risk-related contingent features |
| $ | 50,813 |
|
| $ | 34,056 |
|
Additional collateral to post |
|
| 42,763 |
|
|
| 26,912 |
|
| 2017 | 2016 | ||||||
| Energy commodity derivatives | |||||||
| Liabilities with credit-risk-related contingent features | $ | 1,336 | $ | 1,124 | |||
| Additional collateral to post | 1,336 | 1,046 | |||||
| Interest rate swap derivatives | |||||||
| Liabilities with credit-risk-related contingent features | 73,514 | 73,978 | |||||
| Additional collateral to post | 18,770 | 21,100 | |||||
NOTE 7.8. JOINTLY OWNED ELECTRIC FACILITIES
The Company has a
15 percent ownership interest in Units 3 & 4 of the Colstrip generating station, a
|
| 2020 |
|
| 2019 |
| ||
Utility plant in service |
| $ | 391,922 |
|
| $ | 387,860 |
|
Accumulated depreciation |
|
| (284,282 | ) |
|
| (268,637 | ) |
| 2017 | 2016 | ||||||
| Utility plant in service | $ | 379,970 | $ | 380,406 | |||
| Accumulated depreciation | (255,604 | ) | (249,359 | ) | |||
See Note 910 for further discussion of AROs.
NOTE 8.9. PROPERTY, PLANT AND EQUIPMENT
Net Utility Property
Net utility property consisted of the following as of December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
| ||
Utility plant in service |
| $ | 6,809,797 |
|
| $ | 6,462,993 |
|
Construction work in progress |
|
| 175,767 |
|
|
| 164,941 |
|
Total |
|
| 6,985,564 |
|
|
| 6,627,934 |
|
Less: Accumulated depreciation and amortization |
|
| 1,993,952 |
|
|
| 1,830,927 |
|
Total net utility property |
| $ | 4,991,612 |
|
| $ | 4,797,007 |
|
110
AVISTA CORPORATION
Gross Property, Plant and Equipment
The gross balances of the major classifications of property, plant and equipment are detailed in the following table as of
December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
| ||
Avista Utilities: |
|
|
|
|
|
|
|
|
Electric production |
| $ | 1,457,497 |
|
| $ | 1,445,017 |
|
Electric transmission |
|
| 862,987 |
|
|
| 802,546 |
|
Electric distribution |
|
| 1,978,868 |
|
|
| 1,847,273 |
|
Electric construction work-in-progress (CWIP) and other |
|
| 384,372 |
|
|
| 350,331 |
|
Electric total |
|
| 4,683,724 |
|
|
| 4,445,167 |
|
Natural gas underground storage |
|
| 53,351 |
|
|
| 51,017 |
|
Natural gas distribution |
|
| 1,282,563 |
|
|
| 1,203,186 |
|
Natural gas CWIP and other |
|
| 83,644 |
|
|
| 81,245 |
|
Natural gas total |
|
| 1,419,558 |
|
|
| 1,335,448 |
|
Common plant (including CWIP) |
|
| 712,609 |
|
|
| 681,711 |
|
Total Avista Utilities |
|
| 6,815,891 |
|
|
| 6,462,326 |
|
AEL&P: |
|
|
|
|
|
|
|
|
Electric production |
|
| 105,076 |
|
|
| 100,448 |
|
Electric transmission |
|
| 22,419 |
|
|
| 22,000 |
|
Electric distribution |
|
| 25,814 |
|
|
| 24,096 |
|
Electric CWIP and other |
|
| 6,677 |
|
|
| 9,539 |
|
Electric total |
|
| 159,986 |
|
|
| 156,083 |
|
Common plant |
|
| 9,687 |
|
|
| 9,525 |
|
Total AEL&P |
|
| 169,673 |
|
|
| 165,608 |
|
Total gross utility property |
|
| 6,985,564 |
|
|
| 6,627,934 |
|
Other (1) |
|
| 16,394 |
|
|
| 28,195 |
|
Total |
| $ | 7,001,958 |
|
| $ | 6,656,129 |
|
| 2017 | 2016 | ||||||
| Avista Utilities: | |||||||
| Electric production | $ | 1,392,017 | $ | 1,346,332 | |||
| Electric transmission | 726,240 | 682,529 | |||||
| Electric distribution | 1,617,451 | 1,525,175 | |||||
| Electric construction work-in-progress (CWIP) and other | 322,144 | 296,912 | |||||
| Electric total | 4,057,852 | 3,850,948 | |||||
| Natural gas underground storage | 46,233 | 44,672 | |||||
| Natural gas distribution | 1,027,197 | 954,298 | |||||
| Natural gas CWIP and other | 63,803 | 57,601 | |||||
| Natural gas total | 1,137,233 | 1,056,571 | |||||
| Common plant (including CWIP) | 588,833 | 527,458 | |||||
| Total Avista Utilities | 5,783,918 | 5,434,977 | |||||
| AEL&P: | |||||||
| Electric production | 97,883 | 94,839 | |||||
| Electric transmission | 21,413 | 20,252 | |||||
| Electric distribution | 21,061 | 20,057 | |||||
| Electric production held under long-term capital lease | 71,007 | 71,007 | |||||
| Electric CWIP and other | 7,341 | 7,190 | |||||
| Electric total | 218,705 | 213,345 | |||||
| Common plant | 8,524 | 8,651 | |||||
| Total AEL&P | 227,229 | 221,996 | |||||
Other (1) | 36,783 | 30,764 | |||||
| Total | $ | 6,047,930 | $ | 5,687,737 | |||
(1) | |
Included in other property and investments-net and other non-current assets on the Consolidated Balance Sheets. Accumulated depreciation was |
NOTE 9.10. ASSET RETIREMENT OBLIGATIONS
The Company has recorded liabilities for future AROs to:
• | restore coal ash containment ponds and coal holding areas at Colstrip, |
• | cap a landfill at the Kettle Falls Plant, and |
• | remove plant and restore the land at the Coyote Springs 2 site at the termination of the land lease. |
Due to an inability to estimate a range of settlement dates, the Company cannot estimate a liability for the:
• | removal and disposal of certain transmission and distribution assets, and |
• | abandonment and decommissioning of certain hydroelectric generation and natural gas storage facilities. |
In 2015, the EPA issued a final rule regarding coal combustion residuals (CCR), also termed coal combustion byproducts or coal ash.CCRs. Colstrip, of which Avista Corp. is a 15 percent owner of unitsUnits 3 & 4, produces this byproduct. The CCR rule establishedhas been the subject of ongoing litigation. In August 2018, the D.C. Circuit struck down provisions of the rule. The rule includes technical requirements for CCR landfills and surface impoundments under Subtitle D of the Resource Conservation and Recovery Act, the nation's primary law for regulating solid waste.impoundments. The Company, in conjunction with the other Colstrip owners developed a multi-year compliance plan to strategically address the CCR requirements and existing state obligations while maintaining operational stability. During 2015, the operator of Colstrip provided an initial cost estimate of the expected retirement costs associated with complying with the new CCR rule. Based on the initial assessments, Avista Corp. recorded an
The actual asset retirement costs related to the CCR rule requirements may vary substantially from the estimates used to record the ARO due to the uncertainty and evolving nature of the compliance strategies that will be used and the availability of data used to estimate costs, such as the quantity of coal ash present at certain sites and the volume of fill that will be needed to cap
111
AVISTA CORPORATION
and cover certain impoundments. Avista Corp. will coordinate with the plant operator and continue to gather additional data in future periods to make decisions about compliance strategies and the timing of closure activities. As additionalThe Company updates its estimates as new information becomes available, Avista Corp. will update the ARO for these changes in estimates, which could be material.available. The Company expects to seek recovery of any increased costs related to complying with the CCR rule through customer rates.
In addition to the above, under a 2018 Administrative Order on Consent and ongoing negotiations with the Montana Department of Ecological Quality, the owners of Colstrip are required to provide financial assurance, primarily in the form of surety bonds, to secure each owner's pro-rata share of various anticipated closure and remediation of the ash ponds and coal holding areas. The amount of financial assurance required of each owner may, like the ARO, vary substantially due to the uncertainty and evolving nature of anticipated closure and remediation activities, and as those activities are completed over time.
The following table documents the changes in the Company’s asset retirement obligation during the years ended December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Asset retirement obligation at beginning of year |
| $ | 20,338 |
|
| $ | 18,266 |
|
| $ | 17,482 |
|
Liabilities incurred |
|
| (2,315 | ) |
|
| 2,699 |
|
|
| — |
|
Liabilities settled |
|
| (1,645 | ) |
|
| (1,503 | ) |
|
| (66 | ) |
Accretion expense |
|
| 816 |
|
|
| 876 |
|
|
| 850 |
|
Asset retirement obligation at end of year |
| $ | 17,194 |
|
| $ | 20,338 |
|
| $ | 18,266 |
|
| 2017 | 2016 | 2015 | |||||||||
| Asset retirement obligation at beginning of year | $ | 15,515 | $ | 15,997 | $ | 3,028 | |||||
| Liabilities incurred | 1,171 | 430 | 12,539 | ||||||||
| Liabilities settled | — | (1,529 | ) | (29 | ) | ||||||
| Accretion expense | 796 | 617 | 459 | ||||||||
| Asset retirement obligation at end of year | $ | 17,482 | $ | 15,515 | $ | 15,997 | |||||
NOTE 10.11. PENSION PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS
The pension and other postretirement benefit plans described below only relate to Avista Utilities. AEL&P (not discussed below) participates in a defined contribution multiemployer plan for its union workers and a defined contribution money purchase pension plan for its nonunion workers. METALfx (not discussed below) has a defined contribution 401(k) savings plan. None of the subsidiary retirement plans, individually or in the aggregate, are significant to Avista Corp.
Avista Utilities
The Company has a defined benefit pension plan covering the majority of all regular full-time employees at Avista Utilities that were hired prior to January 1, 2014. Individual benefits under this plan are based upon the employee’s years of service, date of hire and average compensation as specified in the plan. Non-union employees hired on or after January 1, 2014 participate in a defined contribution 401(k) plan in lieu of a defined benefit pension plan. Union employees hired on or after January 1, 2014 are still covered under the defined benefit pension plan. The Company’s funding policy is to contribute at least the minimum amounts that are required to be funded under the Employee Retirement Income Security Act, but not more than the maximum amounts that are currently deductible for income tax purposes. The Company contributed $22.0 million in cash to the pension plan in
The Company also has a SERP that provides additional pension benefits to certain executive officers and certain key employees of the Company. The SERP is intended to provide benefits to individuals whose benefits under the defined benefit pension plan are reduced due to the application of Section 415 of the Internal Revenue Code of 1986 and the deferral of salary under deferred compensation plans. The liability and expense for this plan are included as pension benefits in the tables included in this Note.
The Company expects that benefit payments under the pension plan and the SERP will total (dollars in thousands):
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| Total 2026- 2030 |
| ||||||
Expected benefit payments |
| $ | 42,390 |
|
| $ | 42,673 |
|
| $ | 42,478 |
|
| $ | 43,149 |
|
| $ | 43,752 |
|
| $ | 223,788 |
|
| 2018 | 2019 | 2020 | 2021 | 2022 | Total 2023-2027 | ||||||||||||||||||
| Expected benefit payments | $ | 36,916 | $ | 37,613 | $ | 38,610 | $ | 38,729 | $ | 38,837 | $ | 205,395 | |||||||||||
The expected long-term rate of return on plan assets is based on past performance and economic forecasts for the types of investments held by the plan. In selecting a discount rate, the Company considers yield rates for highly rated corporate bond portfolios with maturities similar to that of the expected term of pension benefits.
112
AVISTA CORPORATION
The Company provides certain health care and life insurance benefits for eligible retired employees that were hired prior to January 1, 2014. The Company accrues the estimated cost of postretirement benefit obligations during the years that employees provide services. The liability and expense of this plan are included as other postretirement benefits. Non-union employees hired on or after January 1, 2014, will have access to the retiree medical plan upon retirement; however, Avista Corp. will no longer provide a contribution toward their medical premium.
The Company has a Health Reimbursement Arrangement (HRA) to provide employees with tax-advantaged funds to pay for allowable medical expenses upon retirement. The amount earned by the employee is fixed on the retirement date based on the employee’s years of service and the ending salary. The liability and expense of the HRA are included as other postretirement benefits.
The Company provides death benefits to beneficiaries of executive officers who die during their term of office or after retirement. Under the plan, an executive officer’s designated beneficiary will receive a payment equal to twice the executive officer’s annual base salary at the time of death (or if death occurs after retirement, a payment equal to twice the executive officer’s total annual pension benefit). The liability and expense for this plan are included as other postretirement benefits.
The Company expects that benefit payments under other postretirement benefit plans will total (dollars in thousands):
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| Total 2026- 2030 |
| ||||||
Expected benefit payments |
| $ | 6,610 |
|
| $ | 6,800 |
|
| $ | 6,891 |
|
| $ | 7,021 |
|
| $ | 7,164 |
|
| $ | 37,156 |
|
| 2018 | 2019 | 2020 | 2021 | 2022 | Total 2023-2027 | ||||||||||||||||||
| Expected benefit payments | $ | 6,856 | $ | 7,064 | $ | 6,093 | $ | 6,223 | $ | 6,288 | $ | 32,265 | |||||||||||
The Company expects to contribute
113
AVISTA CORPORATION
The following table sets forth the pension and other postretirement benefit plan disclosures as of
December 31,
|
| Pension Benefits |
|
| Other Post- retirement Benefits |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Change in benefit obligation: |
| |||||||||||||||
Benefit obligation as of beginning of year |
| $ | 742,382 |
|
| $ | 671,629 |
|
| $ | 159,296 |
|
| $ | 134,053 |
|
Service cost |
|
| 22,392 |
|
|
| 19,755 |
|
|
| 3,902 |
|
|
| 3,006 |
|
Interest cost |
|
| 27,853 |
|
|
| 28,417 |
|
|
| 6,042 |
|
|
| 5,598 |
|
Actuarial (gain)/loss |
|
| 74,688 |
|
|
| 57,829 |
|
|
| (2,589 | ) |
|
| 23,344 |
|
Benefits paid |
|
| (40,400 | ) |
|
| (35,248 | ) |
|
| (5,418 | ) |
|
| (6,705 | ) |
Benefit obligation as of end of year |
| $ | 826,915 |
|
| $ | 742,382 |
|
| $ | 161,233 |
|
| $ | 159,296 |
|
Change in plan assets: |
| |||||||||||||||
Fair value of plan assets as of beginning of year |
| $ | 642,063 |
|
| $ | 544,051 |
|
| $ | 44,853 |
|
| $ | 36,852 |
|
Actual return on plan assets |
|
| 96,591 |
|
|
| 109,942 |
|
|
| 7,320 |
|
|
| 8,001 |
|
Employer contributions |
|
| 22,000 |
|
|
| 22,000 |
|
|
| — |
|
|
| — |
|
Benefits paid |
|
| (38,630 | ) |
|
| (33,930 | ) |
|
| — |
|
|
| — |
|
Fair value of plan assets as of end of year |
| $ | 722,024 |
|
| $ | 642,063 |
|
| $ | 52,173 |
|
| $ | 44,853 |
|
Funded status |
| $ | (104,891 | ) |
| $ | (100,319 | ) |
| $ | (109,060 | ) |
| $ | (114,443 | ) |
Amounts recognized in the Consolidated Balance Sheets: |
| |||||||||||||||
Other current liabilities |
| $ | (1,943 | ) |
| $ | (1,602 | ) |
| $ | (669 | ) |
| $ | (640 | ) |
Non-current liabilities |
|
| (102,948 | ) |
|
| (98,717 | ) |
|
| (108,391 | ) |
|
| (113,803 | ) |
Net amount recognized |
| $ | (104,891 | ) |
| $ | (100,319 | ) |
| $ | (109,060 | ) |
| $ | (114,443 | ) |
Accumulated pension benefit obligation |
| $ | 710,023 |
|
| $ | 644,004 |
|
|
|
|
|
|
|
|
|
Accumulated postretirement benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For retirees |
|
|
|
|
|
|
|
|
| $ | 75,876 |
|
| $ | 72,816 |
|
For fully eligible employees |
|
|
|
|
|
|
|
|
| $ | 32,097 |
|
| $ | 34,545 |
|
For other participants |
|
|
|
|
|
|
|
|
| $ | 53,260 |
|
| $ | 51,935 |
|
Included in accumulated other comprehensive loss (income) (net of tax): |
| |||||||||||||||
Unrecognized prior service cost |
| $ | 1,902 |
|
| $ | 2,105 |
|
| $ | (3,570 | ) |
| $ | (4,400 | ) |
Unrecognized net actuarial loss |
|
| 119,318 |
|
|
| 114,368 |
|
|
| 53,737 |
|
|
| 63,101 |
|
Total |
|
| 121,220 |
|
|
| 116,473 |
|
|
| 50,167 |
|
|
| 58,701 |
|
Less regulatory asset |
|
| (108,301 | ) |
|
| (107,395 | ) |
|
| (48,708 | ) |
|
| (57,520 | ) |
Accumulated other comprehensive loss for unfunded benefit obligation for pensions and other postretirement benefit plans |
| $ | 12,919 |
|
| $ | 9,078 |
|
| $ | 1,459 |
|
| $ | 1,181 |
|
|
| Pension Benefits |
|
| Other Post- retirement Benefits |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Weighted-average assumptions as of December 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate for benefit obligation |
|
| 3.25 | % |
|
| 3.85 | % |
|
| 3.27 | % |
|
| 3.89 | % |
Discount rate for annual expense |
|
| 3.85 | % |
|
| 4.31 | % |
|
| 3.89 | % |
|
| 4.32 | % |
Expected long-term return on plan assets |
|
| 5.50 | % |
|
| 5.90 | % |
|
| 5.30 | % |
|
| 5.70 | % |
Rate of compensation increase |
|
| 4.74 | % |
|
| 4.66 | % |
|
|
|
|
|
|
|
|
Medical cost trend pre-age 65 – initial |
|
|
|
|
|
|
|
|
|
| 6.25 | % |
|
| 5.75 | % |
Medical cost trend pre-age 65 – ultimate |
|
|
|
|
|
|
|
|
|
| 5.00 | % |
|
| 5.00 | % |
Ultimate medical cost trend year pre-age 65 |
|
|
|
|
|
|
|
|
| 2026 |
|
| 2023 |
| ||
Medical cost trend post-age 65 – initial |
|
|
|
|
|
|
|
|
|
| 6.25 | % |
|
| 6.50 | % |
Medical cost trend post-age 65 – ultimate |
|
|
|
|
|
|
|
|
|
| 5.00 | % |
|
| 5.00 | % |
Ultimate medical cost trend year post-age 65 |
|
|
|
|
|
|
|
|
| 2026 |
|
| 2026 |
| ||
114
AVISTA CORPORATION
| Pension Benefits | Other Post- retirement Benefits | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Change in benefit obligation: | |||||||||||||||
| Benefit obligation as of beginning of year | $ | 666,472 | $ | 613,503 | $ | 136,453 | $ | 138,795 | |||||||
| Service cost | 20,406 | 18,302 | 3,220 | 3,205 | |||||||||||
| Interest cost | 27,898 | 27,544 | 5,490 | 6,110 | |||||||||||
| Actuarial (gain)/loss | 39,743 | 39,997 | (6,020 | ) | (3,648 | ) | |||||||||
| Plan change | 3,158 | — | — | — | |||||||||||
| Cumulative adjustment to reclassify liability | — | — | — | (1,042 | ) | ||||||||||
| Benefits paid | (41,116 | ) | (32,874 | ) | (6,196 | ) | (6,967 | ) | |||||||
| Benefit obligation as of end of year | $ | 716,561 | $ | 666,472 | $ | 132,947 | $ | 136,453 | |||||||
| Change in plan assets: | |||||||||||||||
| Fair value of plan assets as of beginning of year | $ | 540,914 | $ | 517,234 | $ | 33,365 | $ | 30,868 | |||||||
| Actual return on plan assets | 82,476 | 43,212 | 4,588 | 2,497 | |||||||||||
| Employer contributions | 22,000 | 12,000 | — | — | |||||||||||
| Benefits paid | (39,738 | ) | (31,532 | ) | — | — | |||||||||
| Fair value of plan assets as of end of year | $ | 605,652 | $ | 540,914 | $ | 37,953 | $ | 33,365 | |||||||
| Funded status | $ | (110,909 | ) | $ | (125,558 | ) | $ | (94,994 | ) | $ | (103,088 | ) | |||
| Unrecognized net actuarial loss | 157,883 | 178,783 | 68,280 | 81,979 | |||||||||||
| Unrecognized prior service cost | 3,179 | 23 | (7,782 | ) | (8,981 | ) | |||||||||
| Prepaid (accrued) benefit cost | 50,153 | 53,248 | (34,496 | ) | (30,090 | ) | |||||||||
| Additional liability | (161,062 | ) | (178,806 | ) | (60,498 | ) | (72,998 | ) | |||||||
| Accrued benefit liability | $ | (110,909 | ) | $ | (125,558 | ) | $ | (94,994 | ) | $ | (103,088 | ) | |||
| Accumulated pension benefit obligation | $ | 624,345 | $ | 583,498 | — | — | |||||||||
| Accumulated postretirement benefit obligation: | |||||||||||||||
| For retirees | $ | 60,354 | $ | 60,670 | |||||||||||
| For fully eligible employees | $ | 32,891 | $ | 34,429 | |||||||||||
| For other participants | $ | 39,702 | $ | 41,354 | |||||||||||
|
| Pension Benefits |
|
| Other Post-retirement Benefits |
| ||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost (a) |
| $ | 22,392 |
|
| $ | 19,755 |
|
| $ | 21,614 |
|
| $ | 3,902 |
|
| $ | 3,006 |
|
| $ | 3,188 |
|
Interest cost |
|
| 27,853 |
|
|
| 28,417 |
|
|
| 26,096 |
|
|
| 6,042 |
|
|
| 5,598 |
|
|
| 4,831 |
|
Expected return on plan assets |
|
| (34,886 | ) |
|
| (31,763 | ) |
|
| (33,018 | ) |
|
| (2,377 | ) |
|
| (2,101 | ) |
|
| (1,973 | ) |
Amortization of prior service cost |
|
| 257 |
|
|
| 257 |
|
|
| 257 |
|
|
| (958 | ) |
|
| (981 | ) |
|
| (1,089 | ) |
Net loss recognition |
|
| 6,717 |
|
|
| 10,216 |
|
|
| 7,879 |
|
|
| 4,871 |
|
|
| 4,013 |
|
|
| 4,232 |
|
Net periodic benefit cost |
| $ | 22,333 |
|
| $ | 26,882 |
|
| $ | 22,828 |
|
| $ | 11,480 |
|
| $ | 9,535 |
|
| $ | 9,189 |
|
(a) |
Total service costs in the table above are recorded to the same accounts as labor expense. Labor and benefits expense is recorded to various projects based on whether the work is a capital project or an operating expense. Approximately 40 percent of all labor and benefits is capitalized to utility property and 60 percent is expensed to utility other operating expenses. |
| Pension Benefits | Other Post- retirement Benefits | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Included in accumulated other comprehensive loss (income) (net of tax): | |||||||||||||||
| Unrecognized prior service cost | $ | 2,066 | $ | 15 | $ | (5,058 | ) | $ | (5,854 | ) | |||||
| Unrecognized net actuarial loss | 102,624 | 116,209 | 44,382 | 53,303 | |||||||||||
| Total | 104,690 | 116,224 | 39,324 | 47,449 | |||||||||||
| Less regulatory asset | (97,025 | ) | (108,903 | ) | (38,899 | ) | (47,202 | ) | |||||||
| Accumulated other comprehensive loss for unfunded benefit obligation for pensions and other postretirement benefit plans | $ | 7,665 | $ | 7,321 | $ | 425 | $ | 247 | |||||||
| Pension Benefits | Other Post- retirement Benefits | ||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||
| Weighted-average assumptions as of December 31: | |||||||||||
| Discount rate for benefit obligation | 3.71 | % | 4.26 | % | 3.72 | % | 4.23 | % | |||
| Discount rate for annual expense | 4.26 | % | 4.57 | % | 4.23 | % | 4.57 | % | |||
| Expected long-term return on plan assets | 5.87 | % | 5.40 | % | 5.69 | % | 6.03 | % | |||
| Rate of compensation increase | 4.69 | % | 4.78 | % | |||||||
| Medical cost trend pre-age 65 – initial | 6.50 | % | 7.00 | % | |||||||
| Medical cost trend pre-age 65 – ultimate | 5.00 | % | 5.00 | % | |||||||
| Ultimate medical cost trend year pre-age 65 | 2023 | 2023 | |||||||||
| Medical cost trend post-age 65 – initial | 6.50 | % | 7.00 | % | |||||||
| Medical cost trend post-age 65 – ultimate | 5.00 | % | 5.00 | % | |||||||
| Ultimate medical cost trend year post-age 65 | 2024 | 2024 | |||||||||
| Pension Benefits | Other Post-retirement Benefits | ||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||
| Components of net periodic benefit cost: | |||||||||||||||||||||||
| Service cost | $ | 20,406 | $ | 18,302 | $ | 19,791 | $ | 3,220 | $ | 3,205 | $ | 2,925 | |||||||||||
| Interest cost | 27,898 | 27,544 | 26,117 | 5,490 | 6,110 | 5,158 | |||||||||||||||||
| Expected return on plan assets | (31,626 | ) | (27,547 | ) | (28,299 | ) | (1,899 | ) | (1,861 | ) | (1,991 | ) | |||||||||||
| Amortization of prior service cost | 2 | 2 | 2 | (1,144 | ) | (1,208 | ) | (1,199 | ) | ||||||||||||||
| Net loss recognition | 9,793 | 8,511 | 9,451 | 4,934 | 5,728 | 5,095 | |||||||||||||||||
| Net periodic benefit cost | $ | 26,473 | $ | 26,812 | $ | 27,062 | $ | 10,601 | $ | 11,974 | $ | 9,988 | |||||||||||
Plan Assets
The Finance Committee of the Company’s Board of Directors approves investment policies, objectives and strategies that seek an appropriate return for the pension plan and other postretirement benefit plans and reviews and approves changes to the investment and funding policies.
The Company has contracted with investment consultants who are responsible for monitoring the individual investment managers. The investment managers’ performance and related individual fund performance is periodically reviewed by an
Pension plan assets are invested in mutual funds, trusts and partnerships that hold marketable debt and equity securities, real estate, and absolute return and commodity funds.return. In seeking to obtain a return that aligns with the funded status of the pension plan, the investment consultant recommends allocation percentages by asset classes. These recommendations are reviewed by the internal benefits committee, which then recommends their adoption by the Finance Committee. The Finance Committee has established target investment allocation percentages by asset classes and also investment ranges for each asset class. The target investment allocation percentages are typically the midpoint of the established range. The target investment allocation percentages by asset classes are indicated in the table below:
|
| 2020 |
|
| 2019 |
| ||
Equity securities |
|
| 35 | % |
|
| 35 | % |
Debt securities |
|
| 49 | % |
|
| 49 | % |
Real estate |
|
| 7 | % |
|
| 7 | % |
Absolute return |
|
| 9 | % |
|
| 9 | % |
| 2017 | 2016 | ||||
| Equity securities | 37 | % | 37 | % | |
| Debt securities | 45 | % | 45 | % | |
| Real estate | 8 | % | 8 | % | |
| Absolute return | 10 | % | 10 | % | |
The target investment allocation percentages were revised in the first quarter of 2021 and the pension plan assets are being reinvested to move toward the new target investment allocation percentages of 55 percent equity securities, 40 percent debt securities, 5 percent real estate and 0 percent absolute return. The target asset allocation percentages were modified to better align the asset allocations with the funded status of the pension plan.
The fair value of pension plan assets invested in debt and equity securities was based primarily on fair value (market prices). The fair value of investment securities traded on a national securities exchange is determined based on the reported last sales price; securities traded in the over-the-counter market are valued at the last reported bid price. Investment securities for which market prices are not readily available or for which market prices do not represent the value at the time of pricing, the investment manager estimates fair value based upon other inputs (including valuations of securities that are comparable in coupon, rating, maturity and industry).
Pension plan and other postretirement plan assets whose fair values are measured using net asset value (NAV) are excluded from the fair value hierarchy and are included as reconciling items in the tables below.
115
AVISTA CORPORATION
The Company's investments in common/collective trusts have redemption limitations that permit quarterly redemptions following notice requirements of 45 to 60 days. The fair values of the closely held investments and partnership interests are based upon the allocated share of the fair value of the underlying net assets as well as the allocated share of the undistributed profits and losses, including realized and unrealized gains and losses. Most of the Company's investments in closely held investments and partnership interests have redemption limitations that range from bi-monthly to semi-annually following redemption notice requirements of 60 to 90 days. One investment in a partnership has a lock-up for redemption currently expiring in 2022 and is subject to extension.
The following table discloses by level within the fair value hierarchy (see Note 1618 for a description of the fair value hierarchy) of the pension plan’s assets measured and reported as of
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Cash equivalents |
| $ | — |
|
| $ | 3,309 |
|
| $ | — |
|
| $ | 3,309 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government issues |
|
| — |
|
|
| 10,990 |
|
|
| — |
|
|
| 10,990 |
|
Corporate issues |
|
| — |
|
|
| 279,857 |
|
|
| — |
|
|
| 279,857 |
|
International issues |
|
| — |
|
|
| 39,634 |
|
|
| — |
|
|
| 39,634 |
|
Municipal issues |
|
| — |
|
|
| 22,431 |
|
|
| — |
|
|
| 22,431 |
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. equity securities |
|
| 146,375 |
|
|
| — |
|
|
| — |
|
|
| 146,375 |
|
International equity securities |
|
| 96,311 |
|
|
| — |
|
|
| — |
|
|
| 96,311 |
|
Absolute return (1) |
|
| 11,640 |
|
|
| — |
|
|
| — |
|
|
| 11,640 |
|
Plan assets measured at NAV (not subject to hierarchy disclosure) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common/collective trusts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29,532 |
|
Partnership/closely held investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Absolute return (1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 47,188 |
|
International equity securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 26,760 |
|
Real estate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,997 |
|
Total |
| $ | 254,326 |
|
| $ | 356,221 |
|
| $ | — |
|
| $ | 722,024 |
|
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Cash equivalents | $ | — | $ | 20,619 | $ | — | $ | 20,619 | |||||||
| Fixed income securities: | |||||||||||||||
| U.S. government issues | — | 20,305 | — | 20,305 | |||||||||||
| Corporate issues | — | 185,272 | — | 185,272 | |||||||||||
| International issues | — | 32,054 | — | 32,054 | |||||||||||
| Municipal issues | — | 20,201 | — | 20,201 | |||||||||||
| Mutual funds: | |||||||||||||||
| U.S. equity securities | 127,742 | — | — | 127,742 | |||||||||||
| International equity securities | 40,755 | — | — | 40,755 | |||||||||||
| Absolute return (1) | 7,728 | — | — | 7,728 | |||||||||||
| Plan assets measured at NAV (not subject to hierarchy disclosure) | |||||||||||||||
| Common/collective trusts: | |||||||||||||||
| Real estate | — | — | — | 34,470 | |||||||||||
| International equity securities | — | — | — | 43,462 | |||||||||||
| Partnership/closely held investments: | |||||||||||||||
| Absolute return (1) | — | — | — | 67,167 | |||||||||||
| Private equity funds (2) | — | — | — | 72 | |||||||||||
| Real estate | — | — | — | 5,805 | |||||||||||
| Total | $ | 176,225 | $ | 278,451 | $ | — | $ | 605,652 | |||||||
The following table discloses by level within the fair value hierarchy (see Note 1618 for a description of the fair value hierarchy) of the pension plan’s assets measured and reported as of
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Cash equivalents |
| $ | — |
|
| $ | 2,852 |
|
| $ | — |
|
| $ | 2,852 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government issues |
|
| — |
|
|
| 37,297 |
|
|
| — |
|
|
| 37,297 |
|
Corporate issues |
|
| — |
|
|
| 207,222 |
|
|
| — |
|
|
| 207,222 |
|
International issues |
|
| — |
|
|
| 35,836 |
|
|
| — |
|
|
| 35,836 |
|
Municipal issues |
|
| — |
|
|
| 23,539 |
|
|
| — |
|
|
| 23,539 |
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. equity securities |
|
| 173,568 |
|
|
| — |
|
|
| — |
|
|
| 173,568 |
|
International equity securities |
|
| 46,416 |
|
|
| — |
|
|
| — |
|
|
| 46,416 |
|
Absolute return (1) |
|
| 16,720 |
|
|
| — |
|
|
| — |
|
|
| 16,720 |
|
Plan assets measured at NAV (not subject to hierarchy disclosure) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common/collective trusts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 31,473 |
|
Partnership/closely held investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Absolute return (1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 59,260 |
|
Real estate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,880 |
|
Total |
| $ | 236,704 |
|
| $ | 306,746 |
|
| $ | — |
|
| $ | 642,063 |
|
116
AVISTA CORPORATION
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Cash equivalents | $ | — | $ | 10,179 | $ | — | $ | 10,179 | |||||||
| Fixed income securities: | |||||||||||||||
| U.S. government issues | — | 30,919 | — | 30,919 | |||||||||||
| Corporate issues | — | 193,563 | — | 193,563 | |||||||||||
| International issues | — | 34,145 | — | 34,145 | |||||||||||
| Municipal issues | — | 18,888 | — | 18,888 | |||||||||||
| Mutual funds: | |||||||||||||||
| U.S. equity securities | 120,856 | — | — | 120,856 | |||||||||||
| International equity securities | 30,025 | — | — | 30,025 | |||||||||||
| Absolute return (1) | 6,622 | — | — | 6,622 | |||||||||||
| Plan assets measured at NAV (not subject to hierarchy disclosure) | |||||||||||||||
| Common/collective trusts: | |||||||||||||||
| Real estate | — | — | — | 19,779 | |||||||||||
| International equity securities | — | — | — | 29,140 | |||||||||||
| Partnership/closely held investments: | |||||||||||||||
| Absolute return (1) | — | — | — | 39,077 | |||||||||||
| Private equity funds (2) | — | — | — | 72 | |||||||||||
| Real estate | — | — | — | 7,649 | |||||||||||
| Total | $ | 157,503 | $ | 287,694 | $ | — | $ | 540,914 | |||||||
(1) | |
This category invests in multiple strategies to diversify risk and reduce volatility. The strategies include: (a) event driven, relative value, convertible, and fixed income arbitrage, (b) distressed investments, (c) long/short equity and fixed income, and (d) market neutral strategies. |
The fair value of other postretirement plan assets invested in debt and equity securities was based primarily on market prices. The fair value of investment securities traded on a national securities exchange is determined based on the last reported sales price; securities traded in the over-the-counter market are valued at the last reported bid price. Investment securities for which market prices are not readily available are fair-valued by the investment manager based upon other inputs (including valuations of securities that are comparable in coupon, rating, maturity and industry). The target asset allocation was
60 percent equity securities and 40 percent debt securities in bothThe fair value of other postretirement plan assets was determined as of
December 31,The following table discloses by level within the fair value hierarchy (see Note 1618 for a description of the fair value hierarchy) of other postretirement plan assets measured and reported as of
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Balanced index mutual fund (1) |
| $ | 52,173 |
|
| $ | — |
|
| $ | — |
|
| $ | 52,173 |
|
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Balanced index mutual funds (1) | $ | 37,953 | $ | — | $ | — | $ | 37,953 | |||||||
The following table discloses by level within the fair value hierarchy (see Note 1618 for a description of the fair value hierarchy) of other postretirement plan assets measured and reported as of
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Balanced index mutual fund (1) |
| $ | 44,853 |
|
| $ | — |
|
| $ | — |
|
| $ | 44,853 |
|
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Cash equivalents | $ | — | $ | 6 | $ | — | $ | 6 | |||||||
| Balanced index mutual funds (1) | 33,359 | — | — | 33,359 | |||||||||||
| Total | $ | 33,359 | $ | 6 | $ | — | $ | 33,365 | |||||||
(1) | |
The balanced index fund for |
401(k) Plans and Executive Deferral Plan
Avista Utilities and METALfx havehas a salary deferral 401(k) plansplan that areis a defined contribution plansplan and covercovers substantially all employees. Employees can make contributions to their respective accounts in the plans on a pre-tax basis up to the maximum amount permitted by law. The respective companyCompany matches a portion of the salary deferred by each participant according to the schedule in the respective plan.
Employer matching contributions were as follows for the years ended
December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Employer 401(k) matching contributions |
| $ | 11,742 |
|
| $ | 10,412 |
|
| $ | 10,243 |
|
| 2017 | 2016 | 2015 | |||||||||
| Employer 401(k) matching contributions | $ | 9,075 | $ | 8,710 | $ | 8,011 | |||||
The Company has an Executive Deferral Plan. This plan allows executive officers and other key employees the opportunity to defer until the earlier of their retirement, termination, disability or death, up to
75 percent of their base salary and/or up to 100 percent of their incentive payments. Deferred compensation funds are held by the Company in a Rabbi Trust.There were deferred compensation assets included in other property and investments-net and corresponding deferred compensation liabilities included in other non-current liabilities and deferred credits on the Consolidated Balance Sheets of the following amounts as of
December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
| ||
Deferred compensation assets and liabilities |
| $ | 9,174 |
|
| $ | 8,948 |
|
| 2017 | 2016 | ||||||
| Deferred compensation assets and liabilities | $ | 8,458 | $ | 7,679 | |||
NOTE 11.12. ACCOUNTING FOR INCOME TAXES
Income Tax Expense
Income tax expense consisted of the following for the years ended December 31 (dollars in thousands):
117
AVISTA CORPORATION
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Current income tax expense (benefit) |
| $ | (37,913 | ) |
| $ | 16,276 |
|
| $ | 17,490 |
|
Deferred income tax expense |
|
| 44,964 |
|
|
| 15,098 |
|
|
| 8,570 |
|
Total income tax expense |
| $ | 7,051 |
|
| $ | 31,374 |
|
| $ | 26,060 |
|
| 2017 | 2016 | 2015 | |||||||||
| Current income tax expense (benefit) | $ | 13,101 | $ | (46,457 | ) | $ | 12,212 | ||||
| Deferred income tax expense | 69,657 | 124,543 | 55,237 | ||||||||
| Total income tax expense | $ | 82,758 | $ | 78,086 | $ | 67,449 | |||||
State income taxes do not represent a significant portion of total income tax expense on the Consolidated Statements of Income for any periods presented.
A reconciliation of federal income taxes derived from statutory federal tax rates (35rate of 21 percent in 2017, 2016 and 2015) applied to income before income taxes as set forth in the accompanying Consolidated Statements of Income is as follows for the years ended December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||
Federal income taxes at statutory rates |
| $ | 28,673 |
|
|
| 21.0 | % |
| $ | 47,909 |
|
|
| 21.0 | % |
| $ | 34,158 |
|
|
| 21.0 | % |
Increase (decrease) in tax resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect of regulatory treatment of utility plant differences |
|
| (12,893 | ) |
|
| (9.4 | ) |
|
| (9,967 | ) |
|
| (4.3 | ) |
|
| (8,153 | ) |
|
| (5.0 | ) |
State income tax expense |
|
| 814 |
|
|
| 0.6 |
|
|
| 1,465 |
|
|
| 0.6 |
|
|
| 1,191 |
|
|
| 0.7 |
|
Acquisition costs |
|
| — |
|
|
| — |
|
|
| (1,712 | ) |
|
| (0.7 | ) |
|
| 329 |
|
|
| 0.2 |
|
Non-plant excess deferred turnaround |
|
| (8,476 | ) |
|
| (6.2 | ) |
|
| (5,690 | ) |
|
| (2.5 | ) |
|
| — |
|
|
| — |
|
Tax loss on sale of METALfx |
|
| — |
|
|
| — |
|
|
| (1,272 | ) |
|
| (0.6 | ) |
|
| — |
|
|
| — |
|
Customer refunds related to prior years at 35 percent |
|
| (1,189 | ) |
|
| (0.9 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Other |
|
| 122 |
|
|
| 0.1 |
|
|
| 641 |
|
|
| 0.3 |
|
|
| (1,465 | ) |
|
| (0.9 | ) |
Total income tax expense |
| $ | 7,051 |
|
|
| 5.2 | % |
| $ | 31,374 |
|
|
| 13.8 | % |
| $ | 26,060 |
|
|
| 16.0 | % |
| 2017 | 2016 | 2015 | |||||||||||||||
| Federal income taxes at statutory rates | $ | 69,542 | 35.0 | % | $ | 75,391 | 35.0 | % | $ | 64,967 | 35.0 | % | |||||
| Increase (decrease) in tax resulting from: | |||||||||||||||||
| Tax effect of regulatory treatment of utility plant differences | 3,482 | 1.7 | 3,297 | 1.5 | 4,358 | 2.3 | |||||||||||
| State income tax expense | 1,110 | 0.6 | 1,316 | 0.6 | 1,012 | 0.5 | |||||||||||
| Settlement of prior year tax returns and adjustment of tax reserves | (384 | ) | (0.2 | ) | 13 | — | (992 | ) | (0.5 | ) | |||||||
| Manufacturing deduction | (1,119 | ) | (0.6 | ) | — | — | (1,198 | ) | (0.6 | ) | |||||||
| Settlement of equity awards | (1,439 | ) | (0.7 | ) | (1,597 | ) | (0.7 | ) | — | — | |||||||
| Acquisition costs | 2,491 | 1.3 | — | — | — | — | |||||||||||
| Federal income tax rate change | 10,169 | 5.1 | — | — | — | — | |||||||||||
| Other | (1,094 | ) | (0.5 | ) | (334 | ) | (0.1 | ) | (698 | ) | (0.4 | ) | |||||
| Total income tax expense | $ | 82,758 | 41.7 | % | $ | 78,086 | 36.3 | % | $ | 67,449 | 36.3 | % | |||||
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and tax credit carryforwards. The total net deferred income tax liability consisted of the following as of
December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
| ||
Deferred income tax assets: |
|
|
|
|
|
|
|
|
Regulatory liabilities |
| $ | 179,871 |
|
| $ | 181,455 |
|
Tax credits and NOL carryforwards |
|
| 57,516 |
|
|
| 22,331 |
|
Provisions for pensions |
|
| 37,501 |
|
|
| 41,648 |
|
Other |
|
| 42,641 |
|
|
| 36,542 |
|
Total gross deferred income tax assets |
|
| 317,529 |
|
|
| 281,976 |
|
Valuation allowances for deferred tax assets |
|
| (10,021 | ) |
|
| (16,551 | ) |
Total deferred income tax assets after valuation allowances |
|
| 307,508 |
|
|
| 265,425 |
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
Utility property, plant, and equipment |
|
| 666,639 |
|
|
| 581,387 |
|
Regulatory assets |
|
| 232,697 |
|
|
| 210,231 |
|
Other |
|
| 2,884 |
|
|
| 2,320 |
|
Total deferred income tax liabilities |
|
| 902,220 |
|
|
| 793,938 |
|
Net long-term deferred income tax liability |
| $ | 594,712 |
|
| $ | 528,513 |
|
| 2017 | 2016 | ||||||
| Deferred income tax assets: | |||||||
| Unfunded benefit obligation | $ | 41,944 | $ | 80,230 | |||
| Utility energy commodity and interest rate swap derivatives | 23,364 | 31,872 | |||||
| Regulatory deferred tax credits | 6,359 | 15,192 | |||||
| Tax credits | 23,042 | 27,931 | |||||
| Power and natural gas deferrals | 14,379 | 19,415 | |||||
| Deferred compensation | 7,080 | 11,141 | |||||
| Deferred taxes on regulatory liabilities | 105,508 | 6,604 | |||||
| Other | 15,892 | 22,908 | |||||
| Total gross deferred income tax assets | 237,568 | 215,293 | |||||
| Valuation allowances for deferred tax assets | (10,982 | ) | (7,946 | ) | |||
| Total deferred income tax assets after valuation allowances | 226,586 | 207,347 | |||||
| Deferred income tax liabilities: | |||||||
| Differences between book and tax basis of utility plant | 494,783 | 812,916 | |||||
| Regulatory asset on utility, property plant and equipment | 81,860 | 37,301 | |||||
| Regulatory asset for pensions and other postretirement benefits | 43,914 | 84,040 | |||||
| Utility energy commodity and interest rate swap derivatives | 23,364 | 31,871 | |||||
| Long-term debt and borrowing costs | 19,992 | 31,955 | |||||
| Settlement with Coeur d’Alene Tribe | 6,802 | 11,711 | |||||
| Other regulatory assets | 16,695 | 30,183 | |||||
| Other | 5,806 | 8,298 | |||||
| Total deferred income tax liabilities | 693,216 | 1,048,275 | |||||
| Net long-term deferred income tax liability | $ | 466,630 | $ | 840,928 | |||
The presentation of the December 31, 2019 deferred income tax assets and liabilities has been changed to reflect the group balances based on balance sheet captions of the underlying deferred tax.
The realization of deferred income tax assets is dependent upon the ability to generate taxable income in future periods. The Company evaluated available evidence supporting the realization of its deferred income tax assets and determined it is more likely than not that deferred income tax assets will be realized.
118
AVISTA CORPORATION
As of
December 31,Status of Internal Revenue Service (IRS) and State Examinations
The Company and its eligible subsidiaries file consolidated federal income tax returns. All tax years after 2016 are open for an IRS tax examination.
The Company also files state income tax returns in certain jurisdictions, including Idaho, Oregon, Montana and Alaska. Subsidiaries are charged or credited with the tax effects of their operations on a stand-alone basis.
The IRS has completed its examination of all tax years through
The Company believes that any open tax years for federal or state income taxes will not result in adjustments that would be significant to the consolidated financial statements.
| 2017 | 2016 | ||||||
| Regulatory assets for deferred income taxes | $ | 90,315 | $ | 109,853 | |||
| Regulatory liabilities for deferred income taxes | 460,542 | 28,966 | |||||
NOTE 12.13. ENERGY PURCHASE CONTRACTS
The below discussion only relates to Avista Utilities. The sole energy purchase contract at AEL&P is a PPA for the Snettisham hydroelectric project and it is accounted for as a capital lease. AEL&P does not have any other significant operating agreements or contractual obligations. See Note 145 for further discussion of the Snettisham PPA.
Avista Utilities has contracts for the purchase of fuel for thermal generation, natural gas for resale and various agreements for the purchase or exchange of electric energy with other entities. The remaining term of the contracts range from one month to twenty-five years.
Total expenses for power purchased, natural gas purchased, fuel for generation and other fuel costs, which are included in utility resource costs in the Consolidated Statements of Income, were as follows for the years ended
December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Utility power resources |
| $ | 324,297 |
|
| $ | 376,769 |
|
| $ | 357,656 |
|
| 2017 | 2016 | 2015 | |||||||||
| Utility power resources | $ | 380,523 | $ | 402,575 | $ | 511,937 | |||||
The following table details Avista Utilities’ future contractual commitments for power resources (including transmission contracts) and natural gas resources (including transportation contracts) (dollars in thousands):
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| Thereafter |
|
| Total |
| |||||||
Power resources |
| $ | 181,872 |
|
| $ | 177,786 |
|
| $ | 173,536 |
|
| $ | 157,221 |
|
| $ | 157,887 |
|
| $ | 849,444 |
|
| $ | 1,697,746 |
|
Natural gas resources |
|
| 67,717 |
|
|
| 52,158 |
|
|
| 42,499 |
|
|
| 35,598 |
|
|
| 32,473 |
|
|
| 241,145 |
|
|
| 471,590 |
|
Total |
| $ | 249,589 |
|
| $ | 229,944 |
|
| $ | 216,035 |
|
| $ | 192,819 |
|
| $ | 190,360 |
|
| $ | 1,090,589 |
|
| $ | 2,169,336 |
|
| 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | |||||||||||||||||||||
| Power resources | $ | 189,262 | $ | 185,610 | $ | 161,596 | $ | 149,125 | $ | 147,573 | $ | 916,255 | $ | 1,749,421 | |||||||||||||
| Natural gas resources | 77,936 | 60,942 | 48,098 | 31,428 | 31,428 | 326,482 | 576,314 | ||||||||||||||||||||
| Total | $ | 267,198 | $ | 246,552 | $ | 209,694 | $ | 180,553 | $ | 179,001 | $ | 1,242,737 | $ | 2,325,735 | |||||||||||||
These energy purchase contracts were entered into as part of Avista Utilities’ obligation to serve its retail electric and natural gas customers’ energy requirements, including contracts entered into for resource optimization. As a result, these costs are recovered either through base retail rates or adjustments to retail rates as part of the power and natural gas cost deferral and recovery mechanisms.
The above future contractual commitments for power resources include fixed contractual amounts related to the Company's contracts with certain PUDs to purchase portions of the output of certain generating facilities. Although Avista Utilities has no investment in the PUD generating facilities, the fixed contracts obligate Avista Utilities to pay certain minimum amounts whether or not the facilities are operating. The cost of power obtained under the contracts, including payments made when a facility is not operating, is included in utility resource costs in the Consolidated Statements of Income. The contractual amounts included above consist of Avista Utilities’ share of existing debt service cost and its proportionate share of the variable operating expenses of these projects. The minimum amounts payable under these contracts are based in part on the
119
AVISTA CORPORATION
proportionate share of the debt service requirements of the PUD's revenue bonds for which the Company is indirectly responsible. The Company's total future debt service obligation associated with the revenue bonds outstanding at December 31, 20172020 (principal and interest) was $63.5$63.7 million.
In addition, Avista Utilities has operating agreements, settlements and other contractual obligations related to its generating facilities and transmission and distribution services. The expenses associated with these agreements are reflected as other operating expenses in the Consolidated Statements of Income. The following table details future contractual commitments under these agreements (dollars in thousands):
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| Thereafter |
|
| Total |
| |||||||
Contractual obligations |
| $ | 33,885 |
|
| $ | 31,339 |
|
| $ | 32,083 |
|
| $ | 35,682 |
|
| $ | 33,706 |
|
| $ | 208,526 |
|
| $ | 375,221 |
|
| 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | |||||||||||||||||||||
| Contractual obligations | $ | 32,205 | $ | 34,996 | $ | 33,961 | $ | 28,939 | $ | 33,925 | $ | 193,595 | $ | 357,621 | |||||||||||||
NOTE 13.14. COMMITTED LINES OF CREDIT
Avista Corp.
Avista Corp. has a committed line of credit with various financial institutions in the total amount of
The committed line of credit agreement contains customary covenants and default provisions. The credit agreement has a covenant which does not permit the ratio of “consolidated total debt” to “consolidated total capitalization” of Avista Corp. to be greater than
65 percent at any time. As of December 31,Balances outstanding and interest rates of borrowings (excluding letters of credit) under the Company’s revolving committed lines of credit were as follows as of
December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
| ||
Balance outstanding at end of period |
| $ | 102,000 |
|
| $ | 182,300 |
|
Letters of credit outstanding at end of period |
| $ | 27,618 |
|
| $ | 21,473 |
|
Average interest rate at end of period |
|
| 1.22 | % |
|
| 2.64 | % |
| 2017 | 2016 | ||||||
| Balance outstanding at end of period | $ | 105,000 | $ | 120,000 | |||
| Letters of credit outstanding at end of period | $ | 34,420 | $ | 34,353 | |||
| Average interest rate at end of period | 2.26 | % | 1.50 | % | |||
As of December 31, 20172020 and 2016,2019, the borrowings outstanding under Avista Corp.'s committed line of credit were classified as short-term borrowings on the Consolidated Balance Sheet. Sheets.
AEL&P
In addition, there were short-term borrowings outstanding asDecember of December 31, 2017 on the Consolidated Balance Sheet related to a short-term note payable by a subsidiary for the acquisition of land that is expected to be repaid in early 2018.
The committed line of credit agreement contains customary covenants and default provisions. The credit agreement has a covenant which does not permit the ratio of “consolidated total debt at AEL&P” to “consolidated total capitalization at AEL&P,” including the impact of the Snettisham bonds to be greater than 67.5 percent at any time. As of
December 31,Balances outstanding and interest rates of Contents
|
| 2020 |
|
| 2019 |
| ||
Balance outstanding at end of period |
| $ | 1,000 |
|
| $ | 3,500 |
|
Average interest rate at end of period |
|
| 1.65 | % |
|
| 3.45 | % |
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AVISTA CORPORATION
NOTE 14.15. CREDIT AGREEMENT
In April 2020, the Company entered into a Credit Agreement with various financial institutions, in the amount of $100 million with an expiration date of April 2021. Indebtedness under this agreement is unsecured.
The Credit Agreement contains customary covenants and default provisions, including a covenant not to permit the ratio of "consolidated total debt" to "consolidated total capitalization" of Avista Corp. to be greater than 65 percent at any time.
The Company borrowed the entire $100 million available under this agreement.
NOTE 16. LONG-TERM DEBT AND CAPITAL LEASES
The following details long-term debt outstanding as of
December 31 (dollars in thousands):Maturity Year |
| Description |
| Interest Rate |
|
| 2020 |
|
| 2019 |
| |||
Avista Corp. Secured Long-Term Debt |
|
|
|
|
|
|
|
|
|
|
|
| ||
2020 |
| First Mortgage Bonds |
| 3.89% |
|
|
| — |
|
|
| 52,000 |
| |
2022 |
| First Mortgage Bonds |
| 5.13% |
|
|
| 250,000 |
|
|
| 250,000 |
| |
2023 |
| Secured Medium-Term Notes |
| 7.18%-7.54% |
|
|
| 13,500 |
|
|
| 13,500 |
| |
2028 |
| Secured Medium-Term Notes |
| 6.37% |
|
|
| 25,000 |
|
|
| 25,000 |
| |
2032 |
| Secured Pollution Control Bonds (1) |
| (1) |
|
|
| 66,700 |
|
|
| 66,700 |
| |
2034 |
| Secured Pollution Control Bonds (1) |
| (1) |
|
|
| 17,000 |
|
|
| 17,000 |
| |
2035 |
| First Mortgage Bonds |
| 6.25% |
|
|
| 150,000 |
|
|
| 150,000 |
| |
2037 |
| First Mortgage Bonds |
| 5.70% |
|
|
| 150,000 |
|
|
| 150,000 |
| |
2040 |
| First Mortgage Bonds |
| 5.55% |
|
|
| 35,000 |
|
|
| 35,000 |
| |
2041 |
| First Mortgage Bonds |
| 4.45% |
|
|
| 85,000 |
|
|
| 85,000 |
| |
2044 |
| First Mortgage Bonds |
| 4.11% |
|
|
| 60,000 |
|
|
| 60,000 |
| |
2045 |
| First Mortgage Bonds |
| 4.37% |
|
|
| 100,000 |
|
|
| 100,000 |
| |
2047 |
| First Mortgage Bonds |
| 4.23% |
|
|
| 80,000 |
|
|
| 80,000 |
| |
2047 |
| First Mortgage Bonds |
| 3.91% |
|
|
| 90,000 |
|
|
| 90,000 |
| |
2048 |
| First Mortgage Bonds |
| 4.35% |
|
|
| 375,000 |
|
|
| 375,000 |
| |
2049 |
| First Mortgage Bonds |
| 3.43% |
|
|
| 180,000 |
|
|
| 180,000 |
| |
2050 |
| First Mortgage Bonds (2) |
| 3.07% |
|
|
| 165,000 |
|
|
| — |
| |
2051 |
| First Mortgage Bonds |
| 3.54% |
|
|
| 175,000 |
|
|
| 175,000 |
| |
|
| Total Avista Corp. secured long-term debt |
|
|
|
|
|
| 2,017,200 |
|
|
| 1,904,200 |
|
Alaska Electric Light and Power Company Secured Long-Term Debt |
|
|
|
|
|
|
|
|
|
|
|
| ||
2044 |
| First Mortgage Bonds |
| 4.54% |
|
|
| 75,000 |
|
|
| 75,000 |
| |
|
| Total secured long-term debt |
|
|
|
|
|
| 2,092,200 |
|
|
| 1,979,200 |
|
Alaska Energy and Resources Company Unsecured Long-Term Debt |
|
|
|
|
|
|
|
|
|
|
|
| ||
2024 |
| Unsecured Term Loan |
| 3.44% |
|
|
| 15,000 |
|
|
| 15,000 |
| |
|
| Total secured and unsecured long-term debt |
|
|
|
|
|
| 2,107,200 |
|
|
| 1,994,200 |
|
Other Long-Term Debt Components |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Unamortized debt discount |
|
|
|
|
|
| (710 | ) |
|
| (788 | ) |
|
| Unamortized long-term debt issuance costs |
|
|
|
|
|
| (14,256 | ) |
|
| (13,944 | ) |
|
| Total |
|
|
|
|
|
| 2,092,234 |
|
|
| 1,979,468 |
|
|
| Secured Pollution Control Bonds held by Avista Corporation (1) |
|
|
|
|
|
| (83,700 | ) |
|
| (83,700 | ) |
|
| Current portion of long-term debt |
|
|
|
|
|
| — |
|
|
| (52,000 | ) |
|
| Total long-term debt |
|
|
|
|
| $ | 2,008,534 |
|
| $ | 1,843,768 |
|
Maturity Year | Description | Interest Rate | 2017 | 2016 | ||||||||
| Avista Corp. Secured Long-Term Debt | ||||||||||||
| 2018 | First Mortgage Bonds | 5.95% | 250,000 | 250,000 | ||||||||
| 2018 | Secured Medium-Term Notes | 7.39%-7.45% | 22,500 | 22,500 | ||||||||
| 2019 | First Mortgage Bonds | 5.45% | 90,000 | 90,000 | ||||||||
| 2020 | First Mortgage Bonds | 3.89% | 52,000 | 52,000 | ||||||||
| 2022 | First Mortgage Bonds | 5.13% | 250,000 | 250,000 | ||||||||
| 2023 | Secured Medium-Term Notes | 7.18%-7.54% | 13,500 | 13,500 | ||||||||
| 2028 | Secured Medium-Term Notes | 6.37% | 25,000 | 25,000 | ||||||||
| 2032 | Secured Pollution Control Bonds (1) | (1) | 66,700 | 66,700 | ||||||||
| 2034 | Secured Pollution Control Bonds (1) | (1) | 17,000 | 17,000 | ||||||||
| 2035 | First Mortgage Bonds | 6.25% | 150,000 | 150,000 | ||||||||
| 2037 | First Mortgage Bonds | 5.70% | 150,000 | 150,000 | ||||||||
| 2040 | First Mortgage Bonds | 5.55% | 35,000 | 35,000 | ||||||||
| 2041 | First Mortgage Bonds | 4.45% | 85,000 | 85,000 | ||||||||
| 2044 | First Mortgage Bonds | 4.11% | 60,000 | 60,000 | ||||||||
| 2045 | First Mortgage Bonds | 4.37% | 100,000 | 100,000 | ||||||||
| 2047 | First Mortgage Bonds | 4.23% | 80,000 | 80,000 | ||||||||
| 2047 | First Mortgage Bonds (2) | 3.91% | 90,000 | — | ||||||||
| 2051 | First Mortgage Bonds | 3.54% | 175,000 | 175,000 | ||||||||
| Total Avista Corp. secured long-term debt | 1,711,700 | 1,621,700 | ||||||||||
| Alaska Electric Light and Power Company Secured Long-Term Debt | ||||||||||||
| 2044 | First Mortgage Bonds | 4.54% | 75,000 | 75,000 | ||||||||
| Total secured long-term debt | 1,786,700 | 1,696,700 | ||||||||||
| Alaska Energy and Resources Company Unsecured Long-Term Debt | ||||||||||||
| 2019 | Unsecured Term Loan | 3.85% | 15,000 | 15,000 | ||||||||
| Total secured and unsecured long-term debt | 1,801,700 | 1,711,700 | ||||||||||
| Other Long-Term Debt Components | ||||||||||||
| Capital lease obligations | 62,148 | 65,435 | ||||||||||
| Unamortized debt discount | (626 | ) | (792 | ) | ||||||||
| Unamortized long-term debt issuance costs | (10,285 | ) | (10,639 | ) | ||||||||
| Total | 1,852,937 | 1,765,704 | ||||||||||
| Secured Pollution Control Bonds held by Avista Corporation (2) | (83,700 | ) | (83,700 | ) | ||||||||
| Current portion of long-term debt and capital leases | (277,438 | ) | (3,287 | ) | ||||||||
| Total long-term debt and capital leases | $ | 1,491,799 | $ | 1,678,717 | ||||||||
(1) | |
In December 2010, $66.7 million and $17.0 million of the City of Forsyth, Montana Pollution Control Revenue Refunding Bonds (Avista Corporation Colstrip Project) due in 2032 and 2034, respectively, which had been held by Avista Corp. since 2008 and 2009, respectively, were refunded by new variable rate bond issues (Series 2010A and Series 2010B). The new bonds were not offered to the public and were purchased by Avista Corp. due to market conditions. The Company expects that at a later date, subject to market conditions, these bonds may be remarketed to |
121
AVISTA CORPORATION
unaffiliated investors. So long as Avista Corp. is the holder of these bonds, the bonds will not be reflected as an asset or a liability on Avista Corp.'s Consolidated Balance Sheets. |
(2) | |
In |
The following table details future long-term debt maturities including long-term debt to affiliated trusts (see Note 15)17) (dollars in thousands):
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| Thereafter |
|
| Total |
| |||||||
Debt maturities |
| $ | — |
|
| $ | 250,000 |
|
| $ | 13,500 |
|
| $ | 15,000 |
|
| $ | — |
|
| $ | 1,796,547 |
|
| $ | 2,075,047 |
|
| 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | |||||||||||||||||||||
| Debt maturities | $ | 272,500 | $ | 105,000 | $ | 52,000 | $ | — | $ | 250,000 | $ | 1,090,047 | $ | 1,769,547 | |||||||||||||
Substantially all of Avista Utilities' and AEL&P's owned properties are subject to the lien of their respective mortgage indentures. Under the Mortgages and Deeds of Trust (Mortgages) securing their first mortgage bonds (including secured medium-term notes), Avista Utilities and AEL&P may each issue additional first mortgage bonds under their specific mortgage in an aggregate principal amount equal to the sum of:
• | 66-2/3 percent of the cost or fair value (whichever is lower) of property additions of that entity which have not previously been made the basis of any application under that entity's Mortgage, or |
• | an equal principal amount of retired first mortgage bonds of that entity which have not previously been made the basis of any application under that entity's Mortgage, or |
• | deposit of cash. |
Avista Utilities and AEL&P may not individually issue any additional first mortgage bonds (with certain exceptions in the case of bonds issued on the basis of retired bonds) unless the particular entity issuing the bonds has “net earnings” (as defined in that entity's Mortgage) for any period of 12 consecutive calendar months out of the preceding 18 calendar months that were at least twice the annual interest requirements on all mortgage securities at the time outstanding, including the first mortgage bonds to be issued, and on all indebtedness of prior rank. As of
December 31,| 2017 | 2016 | |||||||
| Capital lease obligation (1) | $ | 59,745 | $ | 62,160 | ||||
| Capital lease asset (2) | 71,007 | 71,007 | ||||||
| Accumulated amortization of capital lease asset (2) | 12,745 | 9,104 | ||||||
| 2017 | 2016 | ||||||
| Interest on capital lease obligation | $ | 3,042 | $ | 3,157 | |||
| Amortization of capital lease asset | 3,641 | 3,642 | |||||
| 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | |||||||||||||||||||||
| Principal | $ | 2,535 | $ | 2,660 | $ | 2,800 | $ | 2,935 | $ | 3,085 | $ | 45,730 | $ | 59,745 | |||||||||||||
| Interest | 2,921 | 2,795 | 2,662 | 2,522 | 2,375 | 14,300 | 27,575 | ||||||||||||||||||||
| Total | $ | 5,456 | $ | 5,455 | $ | 5,462 | $ | 5,457 | $ | 5,460 | $ | 60,030 | $ | 87,320 | |||||||||||||
NOTE 15.17. LONG-TERM DEBT TO AFFILIATED TRUSTS
In 1997, the Company issued Floating Rate Junior Subordinated Deferrable Interest Debentures, Series B, with a principal amount of
The distribution rates paid were as follows during the years ended
December
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Low distribution rate |
|
| 1.10 | % |
|
| 2.79 | % |
|
| 2.36 | % |
High distribution rate |
|
| 2.79 | % |
|
| 3.61 | % |
|
| 3.61 | % |
Distribution rate at the end of the year |
|
| 1.10 | % |
|
| 2.79 | % |
|
| 3.61 | % |
| 2017 | 2016 | 2015 | ||||||
| Low distribution rate | 1.81 | % | 1.29 | % | 1.11 | % | ||
| High distribution rate | 2.36 | % | 1.81 | % | 1.29 | % | ||
| Distribution rate at the end of the year | 2.36 | % | 1.81 | % | 1.29 | % | ||
Concurrent with the issuance of the Preferred Trust Securities, Avista Capital II issued
122
AVISTA CORPORATION
The Company owns
100 percent of Avista Capital II and has solely and unconditionally guaranteed the payment of distributions on, and redemption price and liquidation amount for, the Preferred Trust Securities to the extent that Avista Capital II has funds available for such payments from the respective debt securities. Upon maturity or prior redemption of such debt securities, the Preferred Trust Securities will be mandatorily redeemed. The Company does not include these capital trusts in its consolidated financial statements as Avista Corp. is not the primary beneficiary. As such, the sole assets of the capital trusts areNOTE 16.18. FAIR VALUE
The carrying values of cash and cash equivalents, accounts and notes receivable, accounts payable and short-term borrowings are reasonable estimates of their fair values. Long-term debt (including current portion and material capital leases)portion), finance leases, and long-term debt to affiliated trusts are reported at carrying value on the Consolidated Balance Sheets.
The fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to fair values derived from unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy are defined as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities. Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, but which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Level 3 – Pricing inputs include significant inputs that are generally unobservable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. The determination of the fair values incorporates various factors that not only include the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits and letters of credit), but also the impact of Avista Corp.’s nonperformance risk on its liabilities.
The following table sets forth the carrying value and estimated fair value of the Company’s financial instruments not reported at estimated fair value on the Consolidated Balance Sheets as of
December 31 (dollars in thousands):
|
| 2020 |
|
| 2019 |
| ||||||||||
|
| Carrying Value |
|
| Estimated Fair Value |
|
| Carrying Value |
|
| Estimated Fair Value |
| ||||
Long-term debt (Level 2) |
| $ | 963,500 |
|
| $ | 1,189,824 |
|
| $ | 963,500 |
|
| $ | 1,124,649 |
|
Long-term debt (Level 3) |
|
| 1,060,000 |
|
|
| 1,235,248 |
|
|
| 947,000 |
|
|
| 1,048,440 |
|
Snettisham capital lease obligation (Level 3) |
|
| 51,750 |
|
|
| 58,700 |
|
|
| 54,550 |
|
|
| 58,000 |
|
Long-term debt to affiliated trusts (Level 3) |
|
| 51,547 |
|
|
| 43,815 |
|
|
| 51,547 |
|
|
| 41,238 |
|
| 2017 | 2016 | ||||||||||||||
Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | ||||||||||||
| Long-term debt (Level 2) | $ | 951,000 | $ | 1,067,783 | $ | 951,000 | $ | 1,048,661 | |||||||
| Long-term debt (Level 3) | 767,000 | 810,598 | 677,000 | 675,251 | |||||||||||
| Snettisham capital lease obligation (Level 3) | 59,745 | 61,700 | 62,160 | 62,800 | |||||||||||
| Long-term debt to affiliated trusts (Level 3) | 51,547 | 41,882 | 51,547 | 38,660 | |||||||||||
These estimates of fair value of long-term debt and long-term debt to affiliated trusts were primarily based on available market information, which generally consists of estimated market prices from third party brokers for debt with similar risk and terms.
123
AVISTA CORPORATION
The price ranges obtained from the third party brokers consisted of par values of 81.2585.0 to 130.03,144.9, where a par value of 100.00 represents the carrying value recorded on the Consolidated Balance Sheets. Level 2 long-term debt represents publicly issued bonds with quoted market prices; however, due to their limited trading activity, they are classified as Level 2 because brokers must generate quotes and make estimates using comparable debt with similar risk and terms if there is no trading activity near a period end. Level 3 long-term debt consists of private placement bonds and debt to affiliated trusts, which typically have no secondary trading activity. Fair values in Level 3 are estimated based on market prices from third party brokers using secondary market quotes for debt with similar risk and terms to generate quotes for Avista Corp. bonds. Due to the unique nature of the Snettisham capital lease obligation, the estimated fair value of these items was determined based on a discounted cash flow model using available market information. The Snettisham capital lease obligation was discounted to present value using the Morgan Markets A Ex-Fin discount rate as published on December 31, 2017.
| Level 1 | Level 2 | Level 3 | Counterparty and Cash Collateral Netting (1) | Total | |||||||||||||||
| December 31, 2017 | |||||||||||||||||||
| Assets: | |||||||||||||||||||
| Energy commodity derivatives | $ | — | $ | 43,814 | $ | — | $ | (42,550 | ) | $ | 1,264 | ||||||||
| Level 3 energy commodity derivatives: | |||||||||||||||||||
| Natural gas exchange agreements | — | — | 183 | (183 | ) | — | |||||||||||||
| Foreign currency exchange derivatives | — | 32 | — | (1 | ) | 31 | |||||||||||||
| Interest rate swap derivatives | — | 7,477 | — | (2,574 | ) | 4,903 | |||||||||||||
| Deferred compensation assets: | |||||||||||||||||||
| Mutual Funds: | |||||||||||||||||||
| Fixed income securities (2) | 1,638 | — | — | — | 1,638 | ||||||||||||||
| Equity securities (2) | 6,631 | — | — | — | 6,631 | ||||||||||||||
| Total | $ | 8,269 | $ | 51,323 | $ | 183 | $ | (45,308 | ) | $ | 14,467 | ||||||||
| Liabilities: | |||||||||||||||||||
| Energy commodity derivatives | $ | — | $ | 71,342 | $ | — | $ | (69,988 | ) | $ | 1,354 | ||||||||
| Level 3 energy commodity derivatives: | |||||||||||||||||||
| Natural gas exchange agreement | — | — | 3,347 | (183 | ) | 3,164 | |||||||||||||
| Power exchange agreement | — | — | 13,245 | — | 13,245 | ||||||||||||||
| Power option agreement | — | — | 19 | — | 19 | ||||||||||||||
| Foreign currency exchange derivatives | — | 1 | — | (1 | ) | — | |||||||||||||
| Interest rate swap derivatives | — | 73,513 | — | (37,544 | ) | 35,969 | |||||||||||||
| Total | $ | — | $ | 144,856 | $ | 16,611 | $ | (107,716 | ) | $ | 53,751 | ||||||||
The following table discloses by level within the fair value hierarchy the Company’s assets and liabilities measured and reported on the Consolidated Balance Sheets as of December 31, 20162020 at fair value on a recurring basis (dollars in thousands):
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Counterparty and Cash Collateral Netting (1) |
|
| Total |
| |||||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy commodity derivatives |
| $ | — |
|
| $ | 23,645 |
|
| $ | — |
|
| $ | (22,152 | ) |
| $ | 1,493 |
|
Level 3 energy commodity derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas exchange agreements |
|
| — |
|
|
| — |
|
|
| 75 |
|
|
| (75 | ) |
|
| — |
|
Foreign currency exchange derivatives |
|
| — |
|
|
| 30 |
|
|
| — |
|
|
| — |
|
|
| 30 |
|
Interest rate swap derivatives |
|
| — |
|
|
| 952 |
|
|
| — |
|
|
| (952 | ) |
|
| — |
|
Deferred compensation assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities (2) |
|
| 2,471 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,471 |
|
Equity securities (2) |
|
| 6,228 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,228 |
|
Total |
| $ | 8,699 |
|
| $ | 24,627 |
|
| $ | 75 |
|
| $ | (23,179 | ) |
| $ | 10,222 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy commodity derivatives |
| $ | — |
|
| $ | 23,030 |
|
| $ | — |
|
| $ | (22,768 | ) |
| $ | 262 |
|
Level 3 energy commodity derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas exchange agreement |
|
| — |
|
|
| — |
|
|
| 8,485 |
|
|
| (75 | ) |
|
| 8,410 |
|
Interest rate swap derivatives |
|
| — |
|
|
| 51,765 |
|
|
| — |
|
|
| (9,002 | ) |
|
| 42,763 |
|
Total |
| $ | — |
|
| $ | 74,795 |
|
| $ | 8,485 |
|
| $ | (31,845 | ) |
| $ | 51,435 |
|
| Level 1 | Level 2 | Level 3 | Counterparty and Cash Collateral Netting (1) | Total | |||||||||||||||
| December 31, 2016 | |||||||||||||||||||
| Assets: | |||||||||||||||||||
| Energy commodity derivatives | $ | — | $ | 47,994 | $ | — | $ | (46,099 | ) | $ | 1,895 | ||||||||
| Level 3 energy commodity derivatives: | |||||||||||||||||||
| Natural gas exchange agreement | — | — | 69 | (69 | ) | — | |||||||||||||
| Power exchange agreement | — | — | 25 | (25 | ) | — | |||||||||||||
| Foreign currency exchange derivatives | — | 5 | — | (5 | ) | — | |||||||||||||
| Interest rate swap derivatives | — | 13,098 | — | (4,348 | ) | 8,750 | |||||||||||||
| Deferred compensation assets: | |||||||||||||||||||
| Mutual Funds: | |||||||||||||||||||
| Fixed income securities (2) | 1,789 | — | — | — | 1,789 | ||||||||||||||
| Equity securities (2) | 5,481 | — | — | — | 5,481 | ||||||||||||||
| Total | $ | 7,270 | $ | 61,097 | $ | 94 | $ | (50,546 | ) | $ | 17,915 | ||||||||
124
AVISTA CORPORATION
The following table discloses by level within the fair value hierarchy the Company’s assets and liabilities measured and reported on the Consolidated Balance Sheets as of Contents
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Counterparty and Cash Collateral Netting (1) |
|
| Total |
| |||||
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy commodity derivatives |
| $ | — |
|
| $ | 41,546 |
|
| $ | — |
|
| $ | (40,452 | ) |
| $ | 1,094 |
|
Level 3 energy commodity derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas exchange agreement |
|
| — |
|
|
| — |
|
|
| 27 |
|
|
| (27 | ) |
|
| — |
|
Foreign currency exchange derivatives |
|
| — |
|
|
| 97 |
|
|
| — |
|
|
| — |
|
|
| 97 |
|
Interest rate swap derivatives |
|
| — |
|
|
| 1,552 |
|
|
| — |
|
|
| (963 | ) |
|
| 589 |
|
Deferred compensation assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities (2) |
|
| 2,232 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,232 |
|
Equity securities (2) |
|
| 6,271 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,271 |
|
Total |
| $ | 8,503 |
|
| $ | 43,195 |
|
| $ | 27 |
|
| $ | (41,442 | ) |
| $ | 10,283 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy commodity derivatives |
| $ | — |
|
| $ | 45,144 |
|
| $ | — |
|
| $ | (43,830 | ) |
| $ | 1,314 |
|
Level 3 energy commodity derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas exchange agreement |
|
| — |
|
|
| — |
|
|
| 3,003 |
|
|
| (27 | ) |
|
| 2,976 |
|
Interest rate swap derivatives |
|
| — |
|
|
| 34,056 |
|
|
| — |
|
|
| (7,733 | ) |
|
| 26,323 |
|
Total |
| $ | — |
|
| $ | 79,200 |
|
| $ | 3,003 |
|
| $ | (51,590 | ) |
| $ | 30,613 |
|
| Level 1 | Level 2 | Level 3 | Counterparty and Cash Collateral Netting (1) | Total | |||||||||||||||
| Liabilities: | |||||||||||||||||||
| Energy commodity derivatives | $ | — | $ | 56,871 | $ | — | $ | (55,957 | ) | $ | 914 | ||||||||
| Level 3 energy commodity derivatives: | |||||||||||||||||||
| Natural gas exchange agreement | — | — | 5,954 | (69 | ) | 5,885 | |||||||||||||
| Power exchange agreement | — | — | 13,474 | (25 | ) | 13,449 | |||||||||||||
| Power option agreement | — | — | 76 | — | 76 | ||||||||||||||
| Foreign currency exchange derivatives | — | 28 | — | (5 | ) | 23 | |||||||||||||
| Interest rate swap derivatives | — | 73,978 | — | (39,248 | ) | 34,730 | |||||||||||||
| Total | $ | — | $ | 130,877 | $ | 19,504 | $ | (95,304 | ) | $ | 55,077 | ||||||||
(1) | |
The Company is permitted to net derivative assets and derivative liabilities with the same counterparty when a legally enforceable master netting agreement exists. In addition, the Company nets derivative assets and derivative liabilities against any payables and receivables for cash collateral held or placed with these same counterparties. |
(2) | |
These assets |
The difference between the amount of derivative assets and liabilities disclosed in respective levels in the table above and the amount of derivative assets and liabilities disclosed on the Consolidated Balance Sheets is due to netting arrangements with certain counterparties. See Note 67 for additional discussion of derivative netting.
To establish fair value for energy commodity derivatives, the Company uses quoted market prices and forward price curves to estimate the fair value of energy commodity derivative instruments included in Level 2. In particular, electric derivative valuations are performed using market quotes, adjusted for periods in between quotable periods. Natural gas derivative valuations are estimated using New York Mercantile Exchange (NYMEX) pricing for similar instruments, adjusted for basin differences, using market quotes. Where observable inputs are available for substantially the full term of the contract, the derivative asset or liability is included in Level 2.
To establish fair values for interest rate swap derivatives, the Company uses forward market curves for interest rates for the term of the swaps and discounts the cash flows back to present value using an appropriate discount rate. The discount rate is calculated by third party brokers according to the terms of the swap derivatives and evaluated by the Company for reasonableness, with consideration given to the potential non-performance risk by the Company. Future cash flows of the interest rate swap derivatives are equal to the fixed interest rate in the swap compared to the floating market interest rate multiplied by the notional amount for each period.
To establish fair value for foreign currency derivatives, the Company uses forward market curves for Canadian dollars against the US dollar and multiplies the difference between the locked-in price and the market price by the notional amount of the derivative. Forward foreign currency market curves are provided by third party brokers. The Company's credit spread is factored into the locked-in price of the foreign exchange contracts.
125
AVISTA CORPORATION
Deferred compensation assets and liabilities represent funds held by the Company in a Rabbi Trust for an executive deferral plan. These funds consist of actively traded equity and bond funds with quoted prices in active markets. The balance disclosed in the table above excludes cash and cash equivalents of
Level 3 Fair Value
For the natural gas commodity exchange agreement, the Company uses the same Level 2 brokered quotes described above; however, the Company also estimates the purchase and sales volumes (within contractual limits) as well as the timing of those transactions. Changing the timing of volume estimates changes the timing of purchases and sales, impacting which brokered quote is used. Because the brokered quotes can vary significantly from period to period, the unobservable estimates of the timing and volume of transactions can have a significant impact on the calculated fair value. The Company currently estimates volumes and timing of transactions based on a most likely scenario using historical data. Historically, the timing and volume of transactions have not been highly correlated with market prices and market volatility.
The following table presents the quantitative information which was used to estimate the fair values of the Level 3 assets and liabilities above as of
December 31,Fair Value (Net) at | ||||||||||
December 31, 2020 | Valuation Technique | Unobservable Input | Range | |||||||
Natural gas exchange | (8,410 | ) | Internally derived weighted average cost of gas | Forward purchase prices | $1.71 - $2.54/mmBTU $2.01 Weighted Average | |||||
Forward sales prices | $1.76 - $4.16/mmBTU $3.22 Weighted Average | |||||||||
Purchase volumes | 130,000 - 310,000 mmBTUs | |||||||||
Sales volumes | 75,000 - 310,000 mmBTUs | |||||||||
| Fair Value (Net) at | ||||||||||
| December 31, 2017 | Valuation Technique | Unobservable Input | Range | |||||||
| Power exchange agreement | $ | (13,245 | ) | Surrogate facility | O&M charges | $38.87-$45.20/MWh (1) | ||||
| pricing | Escalation factor | 5% - 2018 to 2019 | ||||||||
| Transaction volumes | 256,663 - 396,984 MWhs | |||||||||
| Power option agreement | (19 | ) | Black-Scholes- | Strike price | $36.64/MWh - 2018 | |||||
| Merton | $42.51/MWh - 2018 | |||||||||
| Delivery volumes | 94,221 - 190,339 MWhs | |||||||||
| Natural gas exchange | (3,164 | ) | Internally derived | Forward purchase prices | $1.60 - $2.07/mmBTU | |||||
| agreement | weighted-average | Forward sales prices | $1.56 - $2.98/mmBTU | |||||||
| cost of gas | Purchase volumes | 115,000 - 310,000 mmBTUs | ||||||||
| Sales volumes | 60,000 - 310,000 mmBTUs | |||||||||
The valuation methods, significant inputs and resulting fair values described above were developed by the Company's management and are reviewed on at least a quarterly basis to ensure they provide a reasonable estimate of fair value each reporting period.
The following table presents activity for energy commodity derivative assets (liabilities) measured at fair value using significant unobservable inputs (Level 3) for the
years ended December 31 (dollars in thousands):
|
| Natural Gas Exchange Agreement |
|
| Power Exchange Agreement |
|
| Total |
| |||
Year ended December 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2020 |
| $ | (2,976 | ) |
| $ | — |
|
| $ | (2,976 | ) |
Total losses (realized/unrealized): |
|
|
|
|
|
|
|
|
|
|
|
|
Included in regulatory assets (1) |
|
| (4,311 | ) |
|
| — |
|
|
| (4,311 | ) |
Settlements |
|
| (1,123 | ) |
|
| — |
|
|
| (1,123 | ) |
Ending balance as of December 31, 2020 (2) |
| $ | (8,410 | ) |
| $ | — |
|
| $ | (8,410 | ) |
Year ended December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2019 |
| $ | (2,774 | ) |
| $ | (2,488 | ) |
| $ | (5,262 | ) |
Total losses (realized/unrealized): |
|
|
|
|
|
|
|
|
|
|
|
|
Included in regulatory assets (1) |
|
| 8,175 |
|
|
| 435 |
|
|
| 8,610 |
|
Settlements |
|
| (8,377 | ) |
|
| 2,053 |
|
|
| (6,324 | ) |
Ending balance as of December 31, 2019 (2) |
| $ | (2,976 | ) |
| $ | — |
|
| $ | (2,976 | ) |
Year ended December 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2018 |
| $ | (3,164 | ) |
| $ | (13,245 | ) |
| $ | (16,409 | ) |
Total losses (realized/unrealized): |
|
|
|
|
|
|
|
|
|
|
|
|
Included in regulatory assets (1) |
|
| 326 |
|
|
| 5,027 |
|
|
| 5,353 |
|
Settlements |
|
| 64 |
|
|
| 5,730 |
|
|
| 5,794 |
|
Ending balance as of December 31, 2018 (2) |
| $ | (2,774 | ) |
| $ | (2,488 | ) |
| $ | (5,262 | ) |
126
AVISTA CORPORATION
| Natural Gas Exchange Agreement | Power Exchange Agreement | Power Option Agreement | Total | ||||||||||||
| Year ended December 31, 2017: | |||||||||||||||
| Balance as of January 1, 2017 | $ | (5,885 | ) | $ | (13,449 | ) | $ | (76 | ) | $ | (19,410 | ) | |||
| Total gains or (losses) (realized/unrealized): | |||||||||||||||
| Included in regulatory assets/liabilities (1) | 3,292 | (7,674 | ) | 57 | (4,325 | ) | |||||||||
| Settlements | (571 | ) | 7,878 | — | 7,307 | ||||||||||
| Ending balance as of December 31, 2017 (2) | $ | (3,164 | ) | $ | (13,245 | ) | $ | (19 | ) | $ | (16,428 | ) | |||
| Year ended December 31, 2016: | |||||||||||||||
| Balance as of January 1, 2016 | $ | (5,039 | ) | $ | (21,961 | ) | $ | (124 | ) | $ | (27,124 | ) | |||
| Total gains or (losses) (realized/unrealized): | |||||||||||||||
| Included in regulatory assets/liabilities (1) | 259 | 400 | 48 | 707 | |||||||||||
| Settlements | (1,105 | ) | 8,112 | — | 7,007 | ||||||||||
| Ending balance as of December 31, 2016 (2) | $ | (5,885 | ) | $ | (13,449 | ) | $ | (76 | ) | $ | (19,410 | ) | |||
| Year ended December 31, 2015: | |||||||||||||||
| Balance as of January 1, 2015 | $ | (35 | ) | $ | (23,299 | ) | $ | (424 | ) | $ | (23,758 | ) | |||
| Total gains or (losses) (realized/unrealized): | |||||||||||||||
| Included in regulatory assets/liabilities (1) | (6,008 | ) | (6,198 | ) | 300 | (11,906 | ) | ||||||||
| Settlements | 1,004 | 7,536 | — | 8,540 | |||||||||||
| Ending balance as of December 31, 2015 (2) | $ | (5,039 | ) | $ | (21,961 | ) | $ | (124 | ) | $ | (27,124 | ) | |||
(1) | |
All gains and losses are included in other regulatory assets and liabilities. There were no gains and losses included in either net income or other comprehensive income during any of the periods presented in the table above. |
(2) | |
There were no purchases, issuances or transfers from other categories of any derivatives instruments during the periods presented in the table above. |
NOTE 17.19. COMMON STOCK
The payment of dividends on common stock could be limited by:
• | certain covenants applicable to preferred stock (when outstanding) contained in the Company’s Restated Articles of Incorporation, as amended (currently there are 0 preferred shares outstanding), |
• | certain covenants applicable to the Company's outstanding long-term debt and committed line of credit agreements, |
• | the hydroelectric licensing requirements of section 10(d) of the FPA (see Note 1), and |
• | certain requirements under the OPUC approval of the AERC acquisition in 2014. The OPUC's AERC acquisition order requires Avista Utilities to maintain a capital structure of no less than 35 percent common equity (inclusive of short-term debt). This limitation may be revised upon request by the Company with approval from the OPUC. |
The requirements of the OPUC approval of the AERC acquisition in 2014. The OPUC's AERC acquisition order requires Avista Utilities to maintain a capital structure of no less than 40 percent common equity (inclusive of short-term debt). This limitation may be revised upon request byare the Company with approval frommost restrictive. Under the OPUC and
| 2017 | 2016 | 2015 | |||||||||
| Dividends paid per common share | $ | 1.43 | $ | 1.37 | $ | 1.32 | |||||
See the numberConsolidated Statements of shares outstanding as of December 31, 2017 and an annual dividend of $1.49 per share that wasEquity for dividends declared on February 2, 2018).
The Company has
10 million authorized shares of preferred stock. The Company didEquity Issuances
The Company issued equity in 2020 for total net proceeds of Directors approved a program to repurchase shares$72.2 million. Most of these issuances came through the Company's outstanding common stock. The number of shares repurchased and the total cost of repurchases are disclosed in the Consolidated Statements of Equity. The average repurchase price was $32.66 in 2015. All repurchased shares reverted to the status of authorized but unissued shares.
NOTE 20. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, net of tax, consisted of the following as of December 31 (dollars in 2017 and $65.3 millionthousands):
|
| 2020 |
|
| 2019 |
| ||
Unfunded benefit obligation for pensions and other postretirement benefit plans - net of taxes of $3,822 and $2,727, respectively |
| $ | 14,378 |
|
| $ | 10,259 |
|
127
AVISTA CORPORATION
The following table details the reclassifications out of accumulated other comprehensive loss by component for the years ended December 31 (dollars in 2016), leaving 1.1 million shares remaining to be issued.thousands):
|
| Amounts Reclassified from Accumulated Other Comprehensive Loss |
| |||||||||
Details about Accumulated Other Comprehensive Loss Components (Affected Line Item in Statements of Income) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Amortization of defined benefit pension items |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net prior service cost (a) |
| $ | (794 | ) |
| $ | (794 | ) |
| $ | (904 | ) |
Amortization of net loss (a) |
|
| 5,586 |
|
|
| 17,074 |
|
|
| (15,554 | ) |
Adjustment due to effects of regulation (a) |
|
| (10,006 | ) |
|
| (19,309 | ) |
|
| 18,947 |
|
Total before tax (b) |
|
| (5,214 | ) |
|
| (3,029 | ) |
|
| 2,489 |
|
Tax expense (b) |
|
| 1,095 |
|
|
| 636 |
|
|
| (523 | ) |
Net of tax (b) |
| $ | (4,119 | ) |
| $ | (2,393 | ) |
| $ | 1,966 |
|
(a) | These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 11 for additional details). |
(b) |
Description is also the affected line item on the Consolidated Statements of Income |
NOTE 18.21. EARNINGS PER COMMON SHARE ATTRIBUTABLE TO AVISTA CORPORATION SHAREHOLDERS
The following table presents the computation of basic and diluted earnings per common share attributable to Avista Corp. shareholders for the
years ended December 31 (in thousands, except per share amounts):
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Avista Corp. shareholders |
| $ | 129,488 |
|
| $ | 196,979 |
|
| $ | 136,429 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding-basic |
|
| 67,962 |
|
|
| 66,205 |
|
|
| 65,673 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Performance and restricted stock awards |
|
| 140 |
|
|
| 124 |
|
|
| 273 |
|
Weighted-average number of common shares outstanding-diluted |
|
| 68,102 |
|
|
| 66,329 |
|
|
| 65,946 |
|
Earnings per common share attributable to Avista Corp. shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 1.91 |
|
| $ | 2.98 |
|
| $ | 2.08 |
|
Diluted |
| $ | 1.90 |
|
| $ | 2.97 |
|
| $ | 2.07 |
|
| 2017 | 2016 | 2015 | |||||||||
| Numerator: | |||||||||||
| Net income from continuing operations attributable to Avista Corp. shareholders | $ | 115,916 | $ | 137,228 | $ | 118,080 | |||||
| Net income from discontinued operations attributable to Avista Corp. shareholders | $ | — | $ | — | $ | 5,147 | |||||
| Denominator: | |||||||||||
| Weighted-average number of common shares outstanding-basic | 64,496 | 63,508 | 62,301 | ||||||||
| Effect of dilutive securities: | |||||||||||
| Performance and restricted stock awards | 310 | 412 | 407 | ||||||||
| Weighted-average number of common shares outstanding-diluted | 64,806 | 63,920 | 62,708 | ||||||||
| Earnings per common share attributable to Avista Corp. shareholders, basic: | |||||||||||
| Earnings per common share from continuing operations | $ | 1.80 | $ | 2.16 | $ | 1.90 | |||||
| Earnings per common share from discontinued operations | $ | — | $ | — | $ | 0.08 | |||||
| Total earnings per common share attributable to Avista Corp. shareholders, basic | $ | 1.80 | $ | 2.16 | $ | 1.98 | |||||
| Earnings per common share attributable to Avista Corp. shareholders, diluted: | |||||||||||
| Earnings per common share from continuing operations | $ | 1.79 | $ | 2.15 | $ | 1.89 | |||||
| Earnings per common share from discontinued operations | $ | — | $ | — | $ | 0.08 | |||||
| Total earnings per common share attributable to Avista Corp. shareholders, diluted | $ | 1.79 | $ | 2.15 | $ | 1.97 | |||||
There were no0 shares excluded from the calculation because they were antidilutive.
NOTE 19.22. COMMITMENTS AND CONTINGENCIES
In the course of its business, the Company becomes involved in various claims, controversies, disputes and other contingent matters, including the items described in this Note. Some of these claims, controversies, disputes and other contingent matters involve litigation or other contested proceedings. For all such matters, the Company intends to vigorously protect and defend its interests and pursue its rights. However, no assurance can be given as to the ultimate outcome of any particular matter because litigation and other contested proceedings are inherently subject to numerous uncertainties. For matters that affect Avista Utilities’ or AEL&P's operations, the Company intends to seek, to the extent appropriate, recovery of incurred costs through the ratemaking process.
Collective Bargaining Agreements
The Company’s collective bargaining agreementsagreement with the IBEW representrepresents approximately 4540 percent of all of Avista Utilities’ employees. A three-year agreement with the local union in Washington and IdahoAvista’s largest represented group, representing the majority (approximatelyapproximately 90 percent)percent of the Avista Utilities' bargaining unit employees was approved in March 2016Washington and Idaho, are currently covered under a three-year agreement which expires in March 2019.
The Company is in Oregon, which covers approximately 50 employees will expire in March 2020.
128
AVISTA CORPORATION
the magnitudenumber of employees that are covered by the collective bargaining agreements, thisagreement, a strike could result in disruptions to our operations. However, the Company believes that the possibility of this occurring is remote.
2015 Washington General Rate Cases
In January 2016, the Pending Acquisition by Hydro One
PC Petition for information regarding the proposed acquisitionJudicial Review
In March 2016, PC filed in Thurston County Superior Court a Petition for Judicial Review of the WUTC's Order 05 and Order 06 described above. In April 2016, this matter was certified for review directly by the Court of Appeals, an intermediate appellate court in the State of Washington.
In August 2018, the Court of Appeals issued a "Published Opinion" (Opinion) which concluded that the WUTC's use of an attrition allowance to calculate Avista Corp.'s rate base violated Washington law. In the Opinion, the Court stated that because the projected additions to rate base in the future were not "used and useful" for service at the time the request for the rate increase was made, they may not lawfully be included in the Company's rate base to justify a rate increase. Accordingly, the Court concluded that the WUTC erred in including an attrition allowance in the calculation of Avista Corp.’s electric and natural gas rate base. The Court noted, however, that the law does not prohibit an attrition allowance in the calculation, for ratemaking purposes, of recoverable operating and maintenance expense. Since the WUTC order provided one lump sum attrition allowance without distinguishing what portion was for rate base and which was for operating and maintenance expenses or other considerations, the Court struck all portions of the attrition allowance attributable to Avista Corp.'s rate base and reversed and remanded the case for the WUTC to recalculate Avista Corp.’s rates without including an attrition allowance in the calculation of rate base.
In March 2020, the Company by Hydro One.
Boyds Fire (State of Washington Department of Natural Resources v. Avista)
In August 2019, the Company was served with a complaint, captioned “State of Washington Department of Natural Resources v. Avista Corporation,” seeking recovery up to $4.4 million for fire suppression and investigation costs and related expenses incurred in connection with a wildfire that occurred in Ferry County, Washington in August 2018. Specifically, the proposed acquisition,complaint alleges that the fire, which became known as the “Boyds Fire,” was caused by a dead ponderosa pine tree falling into an overhead distribution line, and that Avista Corp. was negligent in failing to identify and remove the tree before it came into contact with the line. Avista Corp. disputes that the tree in question was the cause of the date of this annual report, the threefire and that it was negligent in failing to identify and remove it. Additional lawsuits that hadhave subsequently been filed in the United States District Court for the Eastern Districtby private landowners seeking property damages, and holders of Washington have been voluntarily dismissed by the plaintiffs. Those casesinsurance subrogation claims seeking recovery of insurance proceeds paid.
The lawsuits were captioned as follows:
Labor Day Windstorm
In September 2020, a severe windstorm occurred in eastern Washington and northern Idaho. The extreme weather event resulted in customer outages and the cause of multiple wildfires in the region. With respect to wildfires, the Company’s investigation determined that the primary cause of the fires was extreme high winds. To date, the Company has not found any evidence that the fires were caused by any deficiencies in its equipment, maintenance activities or vegetation management practices.
The Company has become aware of instances where, during the course of the storm, otherwise healthy trees and limbs, located in areas outside its maintenance right-of-way, broke under the extraordinary wind conditions and caused damage to its energy delivery system at or near what is believed to be the potential area of origin of a wildfire. Those instances include what has been referred to as: the Babb Road fire (near Malden and Pine City, Washington); the Christensen Road fire (near Airway
129
AVISTA CORPORATION
Heights, Washington); and the Mile Marker 49 fire (near Orofino, Idaho). These wildfires covered, in total, approximately 22,000 acres. The Company currently estimates approximately 230 residential, commercial and other structures were impacted. Parallel investigations by applicable state agencies, including the Washington Department of Natural Resources, are ongoing, and the Company is cooperating with those efforts.
In addition to the instances identified above, the Company is aware of a 5-acre fire that occurred in Colfax, Washington, which damaged several residential structures. The Company’s investigation determined that the Company’s facilities were not involved in the ignition of this fire in any way.
The Company’s investigation has found no evidence of negligence with respect to any of the fires, and the Company intends to vigorously defend any claims for damages that may be asserted against it with respect to the wildfires arising out of the extreme wind event.
Other Contingencies
In the normal course of business, the Company has various other legal claims and contingent matters outstanding. The Company believes that any ultimate liability arising from these actions will not have a material impact on its financial condition, results of operations or cash flows. It is possible that a change could occur in the Company’s estimates of the probability or amount of a liability being incurred. Such a change, should it occur, could be significant.
The Company routinely assesses, based on studies, expert analysesanalysis and legal reviews, its contingencies, obligations and commitments for remediation of contaminated sites, including assessments of ranges and probabilities of recoveries from other responsible parties who either have or have not agreed to a settlement as well as recoveries from insurance carriers. The Company’s policy is to accrue and charge to current expense identified exposures related to environmental remediation sites based on estimates of investigation, cleanup and monitoring costs to be incurred. For matters that affect Avista Utilities’ or AEL&P's operations, the Company seeks, to the extent appropriate, recovery of incurred costs through the ratemaking process.
The Company has potential liabilities under the Endangered Species Act for species of fish, plants and wildlife that have either already been added to the endangered species list, listed as “threatened” or petitioned for listing. Thus far, measures adopted and implemented have had minimal impact on the Company. However, the Company will continue to seek recovery, through the ratemaking process, of all operating and capitalized costs related to these issues.
Under the federal licenses for its hydroelectric projects, the Company is obligated to protect its property rights, including water rights. In addition, the companyCompany holds additional non-hydro water rights. The stateState of Montana is examining the status of all water right claims within state boundaries through a general adjudication. Claims within the Clark Fork River basin could adversely affect the energy production of the Company’s Cabinet Gorge and Noxon Rapids hydroelectric facilities. The state of Idaho has initiated adjudication in northern Idaho, which will ultimately include the lower Clark Fork River, the Spokane River and the Coeur d’Alene basin. The Company is and will continue to be a participant in these and any other relevant adjudication processes. The complexity of such adjudications makes each unlikely to be concluded in the foreseeable future. As such, it is not possible for the Company to estimate the impact of any outcome at this time. The Company will continue to seek recovery, through the ratemaking process, of all operating and capitalized costs related to this issue.
130
AVISTA CORPORATION
NOTE 20.23. REGULATORY MATTERS
Regulatory Assets and Liabilities
The following table presents the Company’s regulatory assets and liabilities as of
December 31,
|
|
|
|
|
| Receiving Regulatory Treatment |
|
|
|
|
|
| 2020 |
|
| 2019 |
| |||||||||||||||
|
| Remaining Amortization Period |
|
| (1) Earning A Return |
|
| Not Earning A Return |
|
| (2) Expected Recovery or Refund |
|
| Current |
|
| Non- current |
|
| Current |
|
| Non- current |
| ||||||||
Regulatory Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax |
|
| (3 | ) |
| $ | 108,517 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 108,517 |
|
| $ | 0 |
|
| $ | 95,752 |
|
Pensions and other postretirement benefit plans |
|
| (4 | ) |
|
| 0 |
|
|
| 198,746 |
|
|
| 0 |
|
|
| 0 |
|
|
| 198,746 |
|
|
| 0 |
|
|
| 208,754 |
|
Energy commodity derivatives |
|
| (5 | ) |
|
| 0 |
|
|
| 7,795 |
|
|
| 0 |
|
|
| 2,073 |
|
|
| 5,722 |
|
|
| 6,310 |
|
|
| 264 |
|
Unamortized debt repurchase costs |
|
| (6 | ) |
|
| 7,512 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 7,512 |
|
|
| 0 |
|
|
| 8,884 |
|
Settlement with Coeur d’Alene Tribe |
| 2059 |
|
|
| 40,043 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 40,043 |
|
|
| 0 |
|
|
| 41,332 |
| |
Demand side management programs |
|
| (3 | ) |
|
| 0 |
|
|
| 3,814 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,814 |
|
|
| 0 |
|
|
| 12,170 |
|
Decoupling surcharge |
| 2022 |
|
|
| 24,246 |
|
|
| 0 |
|
|
| 0 |
|
|
| 7,123 |
|
|
| 17,123 |
|
|
| 12,098 |
|
|
| 14,806 |
| |
Utility plant to be abandoned |
|
| (7 | ) |
|
| 28,916 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 28,916 |
|
|
| 0 |
|
|
| 31,291 |
|
Interest rate swaps |
|
| (8 | ) |
|
| 130,538 |
|
|
| 0 |
|
|
| 84,313 |
|
|
| 0 |
|
|
| 214,851 |
|
|
| 0 |
|
|
| 168,594 |
|
Deferred power costs |
|
| (3 | ) |
|
| 3,337 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,775 |
|
|
| 1,562 |
|
|
| 0 |
|
|
| 0 |
|
AFUDC above FERC allowed rate |
|
| (11 | ) |
|
| 47,393 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 47,393 |
|
|
| 0 |
|
|
| 40,749 |
|
COVID-19 deferrals |
|
| (12 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 8,166 |
|
|
| 0 |
|
|
| 8,166 |
|
|
| 0 |
|
|
| 0 |
|
Advanced meter infrastructure |
|
| (13 | ) |
|
| 26,379 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 26,379 |
|
|
| 0 |
|
|
| 13,395 |
|
Other regulatory assets |
|
| (3 | ) |
|
| 31,831 |
|
|
| 9,635 |
|
|
| 2,935 |
|
|
| 2,702 |
|
|
| 41,699 |
|
|
| 3,443 |
|
|
| 34,811 |
|
Total regulatory assets |
|
|
|
|
| $ | 448,712 |
|
| $ | 219,990 |
|
| $ | 95,414 |
|
| $ | 13,673 |
|
| $ | 750,443 |
|
| $ | 21,851 |
|
| $ | 670,802 |
|
Regulatory Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred natural gas costs |
|
| (3 | ) |
| $ | 874 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 874 |
|
| $ | 0 |
|
| $ | 3,189 |
|
| $ | 0 |
|
Deferred power costs |
|
| (3 | ) |
|
| 37,869 |
|
|
| 0 |
|
|
| 0 |
|
|
| 20,299 |
|
|
| 17,570 |
|
|
| 14,155 |
|
|
| 23,544 |
|
Utility plant retirement costs |
|
| (9 | ) |
|
| 325,832 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 325,832 |
|
|
| 0 |
|
|
| 312,403 |
|
Income tax related liabilities |
| (3) (10) |
|
|
| 390,056 |
|
|
| 24,573 |
|
|
| 0 |
|
|
| 14,952 |
|
|
| 399,677 |
|
|
| 23,803 |
|
|
| 407,549 |
| |
Interest rate swaps |
|
| (8 | ) |
|
| 15,046 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 15,046 |
|
|
| 0 |
|
|
| 17,088 |
|
Decoupling rebate |
| 2022 |
|
|
| 2,966 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,447 |
|
|
| 1,519 |
|
|
| 255 |
|
|
| 2,398 |
| |
COVID-19 deferrals |
|
| (12 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 10,949 |
|
|
| 0 |
|
|
| 10,949 |
|
|
| 0 |
|
|
| 0 |
|
Other regulatory liabilities |
|
| (3 | ) |
|
| 12,445 |
|
|
| 10,645 |
|
|
| 0 |
|
|
| 8,863 |
|
|
| 14,227 |
|
|
| 10,313 |
|
|
| 12,454 |
|
Total regulatory liabilities |
|
|
|
|
| $ | 785,088 |
|
| $ | 35,218 |
|
| $ | 10,949 |
|
| $ | 46,435 |
|
| $ | 784,820 |
|
| $ | 51,715 |
|
| $ | 775,436 |
|
Receiving Regulatory Treatment | ||||||||||||||||||||||
Remaining Amortization Period | (1) Earning A Return | Not Earning A Return | (2) Expected Recovery or Refund | Total 2017 | Total 2016 | |||||||||||||||||
| Regulatory Assets: | ||||||||||||||||||||||
| Investment in exchange power-net | 2019 | $ | 4,083 | $ | — | $ | — | $ | 4,083 | $ | 6,533 | |||||||||||
| Regulatory assets for deferred income tax | (3 | ) | 90,315 | — | 90,315 | 109,853 | ||||||||||||||||
| Regulatory assets for pensions and other postretirement benefit plans | (4 | ) | — | 209,115 | — | 209,115 | 240,114 | |||||||||||||||
| Current regulatory asset for energy commodity derivatives | (5 | ) | — | 24,991 | — | 24,991 | 11,365 | |||||||||||||||
| Unamortized debt repurchase costs | (6 | ) | 11,880 | — | — | 11,880 | 13,700 | |||||||||||||||
| Regulatory asset for settlement with Coeur d’Alene Tribe | 2059 | 43,954 | — | — | 43,954 | 45,265 | ||||||||||||||||
| Demand side management programs | (3 | ) | — | 24,620 | — | 24,620 | 15,700 | |||||||||||||||
| Decoupling surcharge | 2019 | 22,359 | — | — | 22,359 | 43,126 | ||||||||||||||||
| Regulatory asset for utility plant to be abandoned | (7 | ) | 24,330 | — | — | 24,330 | 19,100 | |||||||||||||||
| Regulatory asset for interest rate swaps | (8 | ) | 53,797 | — | 115,907 | 169,704 | 161,508 | |||||||||||||||
| Non-current regulatory asset for energy commodity derivatives | (5 | ) | — | 18,967 | — | 18,967 | 16,919 | |||||||||||||||
| Other regulatory assets | (3 | ) | 8,212 | 7,064 | 4,555 | 19,831 | 16,645 | |||||||||||||||
| Total regulatory assets | $ | 258,930 | $ | 284,757 | $ | 120,462 | $ | 664,149 | $ | 699,828 | ||||||||||||
| Regulatory Liabilities: | ||||||||||||||||||||||
| Natural gas deferrals | (3 | ) | $ | 37,474 | $ | — | $ | — | $ | 37,474 | $ | 30,820 | ||||||||||
| Power deferrals | (3 | ) | 29,873 | — | — | 29,873 | 23,528 | |||||||||||||||
| Regulatory liability for utility plant retirement costs | (9 | ) | 285,786 | — | — | 285,786 | 273,983 | |||||||||||||||
| Income tax related liabilities | (3) (10) | — | 18,223 | 442,319 | 460,542 | 28,966 | ||||||||||||||||
| Regulatory liability for interest rate swaps | (8 | ) | 11,257 | — | 7,381 | 18,638 | 21,191 | |||||||||||||||
| Provision for earnings sharing rebate | (3 | ) | — | 2,350 | 3,420 | 5,770 | 10,297 | |||||||||||||||
| Decoupling rebate | 2019 | 5,816 | — | — | 5,816 | 2,405 | ||||||||||||||||
| Other regulatory liabilities | (3 | ) | 1,926 | 2,528 | — | 4,454 | 5,762 | |||||||||||||||
| Total regulatory liabilities | $ | 372,132 | $ | 23,101 | $ | 453,120 | $ | 848,353 | $ | 396,952 | ||||||||||||
(1) | |
Earning a return includes either interest on the regulatory asset/liability or a return on the investment as a component of rate base at the allowed rate of return. |
(2) | |
Expected recovery is pending regulatory treatment including regulatory assets and liabilities with prior regulatory precedence. |
(3) | |
Remaining amortization period varies depending on timing of underlying transactions. |
(4) | |
As the Company has historically recovered and currently recovers its pension and other postretirement benefit costs related to its regulated operations in retail rates, the Company records a regulatory asset for that portion of its pension and other postretirement benefit funding deficiency. |
(5) | |
The WUTC and the IPUC issued accounting orders authorizing Avista Corp. to offset energy commodity derivative assets or liabilities with a regulatory asset or liability. This accounting treatment is intended to defer the recognition of |
131
AVISTA CORPORATION
mark-to-market gains and losses on energy commodity transactions until the period of delivery. Realized benefits and losses result in adjustments to retail rates through PGAs, the ERM in Washington, the PCA mechanism in Idaho, and periodic general rates cases. The resulting regulatory assets associated with energy commodity derivative instruments have been concluded to be probable of recovery through future rates. |
(6) | |
Premiums paid or discounts received to repurchase debt are amortized over the remaining life of the original debt that was repurchased or, if new debt is issued in connection with the repurchase, these costs are amortized over the life of the new debt. |
(7) | |
In March 2016, the WUTC granted the Company's Petition for an Accounting Order to defer and include in a regulatory asset the undepreciated value of its existing Washington electric meters |
(8) | |
For interest rate swap derivatives, Avista Corp. records all mark-to-market gains and losses in each accounting period as assets and liabilities, |
(9) | |
This amount is dependent upon the cost of removal of underlying utility plant assets and the life of utility plant. |
(10) | |
The |
(11) | This amount is being amortized based on the underlying utility plant assets and the life of utility plant. |
(12) | The WUTC, IPUC and OPUC issued accounting orders allowing the Company to defer certain costs, net of any benefits, related to the COVID-19 pandemic. The Company |
(13) | This amount represents the |
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AVISTA CORPORATION
Power Cost Deferrals and Recovery Mechanisms
Deferred power supply costs are recorded as a deferred charge or liability on the Consolidated Balance Sheets for future prudence review and recovery or rebate through retail rates. The power supply costs deferred include certain differences between actual net power supply costs incurred by Avista Utilities and the costs included in base retail rates. This difference in net power supply costs primarily results from changes in:
• | short-term wholesale market prices and sales and purchase volumes, |
• | the level, availability and optimization of hydroelectric generation, |
• | the level and availability of thermal generation (including changes in fuel prices), |
• | retail loads, and |
• | sales of surplus transmission capacity. |
In Washington, the ERM allows Avista Utilities to periodically increase or decrease electric rates with WUTC approval to reflect changes in power supply costs. The ERM is an accounting method used to track certain differences between actual power supply costs, net of wholesale sales and sales of fuel, and the amount included in base retail rates for Washington customers and defer these differences (over the $4.0 million deadband and sharing bands) for future surcharge or rebate to
Avista Utilities has a PCA mechanism in Idaho that allows it to modify electric rates on October 1 of each year with IPUC approval. Under the PCA mechanism, Avista Utilities defers 90 percent of the difference between certain actual net power supply expenses and the amount included in base retail rates for its Idaho customers for future surcharge or rebate to customers. The October 1 rate adjustments recover or rebate power costs deferred during the preceding July-June twelve-month period. Total net power supply costs deferred under the PCA mechanism were a liabilityan asset of
Natural Gas Cost Deferrals and Recovery Mechanisms
Avista Utilities files a PGA in all three states it serves to adjust natural gas rates for: 1) estimated commodity and pipeline transportation costs to serve natural gas customers for the coming year, and 2) the difference between actual and estimated commodity and transportation costs for the prior year. Total net deferred natural gas costs to be refunded to customers were a liabilityan asset of
Decoupling and Earnings Sharing Mechanisms
Decoupling (also known as an FCA in Idaho) is a mechanism designed to sever the link between a utility's revenues and consumers' energy usage. In each of Avista Utilities' jurisdictions, Avista Utilities' electric and natural gas revenues are adjusted so as to be based on the number of customers in certain customer rate classes and assumed "normal" kilowatt hour and therm sales, rather than being based on actual kilowatt hour and therm sales. The difference between revenues based on the number of customers and "normal" sales and revenues based on actual usage is deferred and either surcharged or rebated to customers
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AVISTA CORPORATION
beginning in the following year. Only residential and certain commercial customer classes are included in decoupling mechanisms.
Washington Decoupling and Earnings Sharing
In Washington, the WUTC approved the Company's decoupling mechanisms for electric and natural gas for a five-year period beginning January 1, 2015. In 2019, the WUTC approved an extension of the mechanisms for an additional five-year term through March 31, 2025, with one modification in that new customers added after any test period would not be decoupled until included in a future test period.
Electric and natural gas decoupling surcharge rate adjustments to customers are limited to a 3 percent increase on an annual basis, with any remaining surcharge balance carried forward for recovery in a future period. There is no limit on the level of rebate rate adjustments.
The decoupling mechanisms each include an after-the-fact earnings test. At the end of each calendar year, separate electric and natural gas earnings calculations are made for the calendar year just ended. These earnings tests reflect actual decoupled revenues, normalized power supply costs and other normalizing adjustments. If the Company earns more than its authorized ROR in Washington, 50 percent of excess earnings are rebated to customers through adjustments to decoupling surcharge or rebate balances. See below for a summary of cumulative balances under the decoupling and earnings sharing mechanisms.
Idaho FCA and Earnings Sharing Mechanisms
In Idaho, the IPUC approved the implementation of FCAs for electric and natural gas (similar in operation and effect to the Washington decoupling mechanisms) for an initial term of three years, beginning January 1, 2016.
Oregon Decoupling Mechanism
In February 2016, the OPUC approved the implementation of a decoupling mechanism for natural gas, similar to the Washington and Idaho mechanisms described above. The decoupling mechanism became effective on March 1, 2016. There will be an opportunity for interestedChanges related to deferral interest rates were recommended by the parties to review the mechanismin Avista Corp.'s 2019 general rate case and recommend changes, if any, by September 2019.were implemented effective January 15, 2020. In Oregon, an earnings review is conducted on an annual basis. In the annual earnings review, if the Company earns more than 100 basis points above its allowed ROE, one-third of the earnings above the 100 basis points would be deferred and later returned to customers. The earnings review is separate from the decoupling mechanism and was in place prior to decoupling. See below for a summary of cumulative balances under the decoupling and earnings sharing mechanisms.
Cumulative Decoupling and Earnings Sharing Mechanism Balances
As of December 31, 20172020 and December 31, 2016,2019, the Company had the following cumulative balances outstanding related to decoupling and earnings sharing mechanisms in its various jurisdictions (dollars in thousands):
|
| December 31, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Washington |
|
|
|
|
|
|
|
|
Decoupling surcharge |
| $ | 21,340 |
|
| $ | 22,440 |
|
Idaho |
|
|
|
|
|
|
|
|
Decoupling surcharge |
| $ | 1,202 |
|
| $ | 2,549 |
|
Provision for earnings sharing rebate |
|
| (686 | ) |
|
| (686 | ) |
Oregon |
|
|
|
|
|
|
|
|
Decoupling rebate |
| $ | (1,262 | ) |
| $ | (739 | ) |
| December 31, | December 31, | ||||||
| 2017 | 2016 | ||||||
| Washington | |||||||
| Decoupling surcharge | $ | 14,240 | $ | 30,408 | |||
| Provision for earnings sharing rebate | (3,420 | ) | (5,113 | ) | |||
| Idaho | |||||||
| Decoupling surcharge | $ | 3,471 | $ | 8,292 | |||
| Provision for earnings sharing rebate | (2,350 | ) | (5,184 | ) | |||
| Oregon | |||||||
| Decoupling surcharge/(rebate) | $ | (1,168 | ) | $ | 2,021 | ||
| Provision for earnings sharing rebate | — | — | |||||
There were 0 earnings sharing rebates associated with Washington General Rate Cases
NOTE 21.24. INFORMATION BY BUSINESS SEGMENTS
The business segment presentation reflects the basis used by the Company's management to analyze performance and determine the allocation of resources. The Company's management evaluates performance based on income (loss) from operations before
134
AVISTA CORPORATION
income taxes as well as net income (loss) attributable to Avista Corp. shareholders. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Avista Utilities' business is managed based on the total regulated utility operation; therefore, it is considered one segment. AEL&P is a separate reportable business segment as it has separate financial reports that are reviewed in detail by the Chief Operating Decision Maker and its operations and risks are sufficiently different from Avista Utilities and the other businesses at AERC that it cannot be aggregated with any other operating segments. The Other category, which is not a reportable segment, includes other investments and operations of various subsidiaries, as well as certain other operations of Avista Capital.
The following table presents information for each of the Company’s business segments (dollars in thousands):
|
| Avista Utilities |
|
| Alaska Electric Light and Power Company |
|
| Total Utility |
|
| Other |
|
| Intersegment Eliminations (1) |
|
| Total |
| ||||||
For the year ended December 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
| $ | 1,277,468 |
|
| $ | 42,809 |
|
| $ | 1,320,277 |
|
| $ | 1,614 |
|
| $ | 0 |
|
| $ | 1,321,891 |
|
Resource costs |
|
| 396,543 |
|
|
| 1,966 |
|
|
| 398,509 |
|
|
| 0 |
|
|
| 0 |
|
|
| 398,509 |
|
Other operating expenses |
|
| 341,709 |
|
|
| 12,905 |
|
|
| 354,614 |
|
|
| 5,344 |
|
|
| 0 |
|
|
| 359,958 |
|
Depreciation and amortization |
|
| 213,701 |
|
|
| 9,806 |
|
|
| 223,507 |
|
|
| 716 |
|
|
| 0 |
|
|
| 224,223 |
|
Income (loss) from operations |
|
| 220,058 |
|
|
| 17,088 |
|
|
| 237,146 |
|
|
| (4,446 | ) |
|
| 0 |
|
|
| 232,700 |
|
Interest expense (2) |
|
| 98,451 |
|
|
| 6,272 |
|
|
| 104,723 |
|
|
| 524 |
|
|
| (186 | ) |
|
| 105,061 |
|
Income taxes |
|
| 4,921 |
|
|
| 3,011 |
|
|
| 7,932 |
|
|
| (881 | ) |
|
| 0 |
|
|
| 7,051 |
|
Net income (loss) from continuing operations attributable to Avista Corp. shareholders |
|
| 124,810 |
|
|
| 8,095 |
|
|
| 132,905 |
|
|
| (3,417 | ) |
|
| 0 |
|
|
| 129,488 |
|
Capital expenditures (3) |
|
| 397,292 |
|
|
| 7,014 |
|
|
| 404,306 |
|
|
| 1,368 |
|
|
| 0 |
|
|
| 405,674 |
|
For the year ended December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
| $ | 1,295,873 |
|
| $ | 37,265 |
|
| $ | 1,333,138 |
|
| $ | 12,484 |
|
| $ | 0 |
|
| $ | 1,345,622 |
|
Resource costs |
|
| 442,471 |
|
|
| (2,654 | ) |
|
| 439,817 |
|
|
| 0 |
|
|
| 0 |
|
|
| 439,817 |
|
Other operating expenses (4) |
|
| 352,170 |
|
|
| 12,717 |
|
|
| 364,887 |
|
|
| 18,883 |
|
|
| 0 |
|
|
| 383,770 |
|
Depreciation and amortization |
|
| 195,697 |
|
|
| 9,668 |
|
|
| 205,365 |
|
|
| 629 |
|
|
| 0 |
|
|
| 205,994 |
|
Income (loss) from operations |
|
| 200,994 |
|
|
| 16,423 |
|
|
| 217,417 |
|
|
| (7,028 | ) |
|
| 0 |
|
|
| 210,389 |
|
Interest expense (2) |
|
| 97,866 |
|
|
| 6,385 |
|
|
| 104,251 |
|
|
| 1,032 |
|
|
| (929 | ) |
|
| 104,354 |
|
Income taxes |
|
| 28,363 |
|
|
| 2,816 |
|
|
| 31,179 |
|
|
| 195 |
|
|
| 0 |
|
|
| 31,374 |
|
Net income from continuing operations attributable to Avista Corp. shareholders |
|
| 183,977 |
|
|
| 7,458 |
|
|
| 191,435 |
|
|
| 5,544 |
|
|
| 0 |
|
|
| 196,979 |
|
Capital expenditures (3) |
|
| 434,077 |
|
|
| 8,433 |
|
|
| 442,510 |
|
|
| 835 |
|
|
| 0 |
|
|
| 443,345 |
|
For the year ended December 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
| $ | 1,325,966 |
|
| $ | 43,599 |
|
| $ | 1,369,565 |
|
| $ | 27,328 |
|
| $ | 0 |
|
| $ | 1,396,893 |
|
Resource costs |
|
| 485,231 |
|
|
| 9,505 |
|
|
| 494,736 |
|
|
| 0 |
|
|
| 0 |
|
|
| 494,736 |
|
Other operating expenses (4) |
|
| 309,501 |
|
|
| 12,491 |
|
|
| 321,992 |
|
|
| 28,081 |
|
|
| 0 |
|
|
| 350,073 |
|
Depreciation and amortization |
|
| 177,006 |
|
|
| 5,871 |
|
|
| 182,877 |
|
|
| 799 |
|
|
| 0 |
|
|
| 183,676 |
|
Income (loss) from operations |
|
| 248,000 |
|
|
| 14,665 |
|
|
| 262,665 |
|
|
| (1,552 | ) |
|
| 0 |
|
|
| 261,113 |
|
Interest expense (2) |
|
| 96,738 |
|
|
| 3,584 |
|
|
| 100,322 |
|
|
| 1,694 |
|
|
| (1,080 | ) |
|
| 100,936 |
|
Income taxes |
|
| 25,259 |
|
|
| 3,094 |
|
|
| 28,353 |
|
|
| (2,293 | ) |
|
| 0 |
|
|
| 26,060 |
|
Net income (loss) from continuing operations attributable to Avista Corp. shareholders |
|
| 134,874 |
|
|
| 8,292 |
|
|
| 143,166 |
|
|
| (6,737 | ) |
|
| 0 |
|
|
| 136,429 |
|
Capital expenditures (3) |
|
| 418,741 |
|
|
| 5,609 |
|
|
| 424,350 |
|
|
| 891 |
|
|
| 0 |
|
|
| 425,241 |
|
Total Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020 |
| $ | 6,035,340 |
|
| $ | 268,971 |
|
| $ | 6,304,311 |
|
| $ | 109,658 |
|
| $ | (11,872 | ) |
| $ | 6,402,097 |
|
As of December 31, 2019 |
| $ | 5,713,268 |
|
| $ | 271,393 |
|
| $ | 5,984,661 |
|
| $ | 113,390 |
|
| $ | (15,595 | ) |
| $ | 6,082,456 |
|
As of December 31, 2018 |
| $ | 5,458,104 |
|
| $ | 272,950 |
|
| $ | 5,731,054 |
|
| $ | 87,050 |
|
| $ | (35,528 | ) |
| $ | 5,782,576 |
|
135
AVISTA CORPORATION
Avista Utilities | Alaska Electric Light and Power Company | Total Utility | Other | Intersegment Eliminations (1) | Total | ||||||||||||||||||
| For the year ended December 31, 2017: | |||||||||||||||||||||||
| Operating revenues | $ | 1,370,359 | $ | 53,027 | $ | 1,423,386 | $ | 22,543 | $ | — | $ | 1,445,929 | |||||||||||
| Resource costs | 511,163 | 13,403 | 524,566 | — | — | 524,566 | |||||||||||||||||
| Other operating expenses (2) | 319,899 | 12,532 | 332,431 | 25,650 | — | 358,081 | |||||||||||||||||
| Depreciation and amortization | 165,478 | 5,803 | 171,281 | 740 | — | 172,021 | |||||||||||||||||
| Income (loss) from operations | 270,409 | 17,947 | 288,356 | (3,847 | ) | — | 284,509 | ||||||||||||||||
| Interest expense (3) | 92,019 | 3,581 | 95,600 | 781 | (189 | ) | 96,192 | ||||||||||||||||
| Income taxes | 77,583 | 5,515 | 83,098 | (340 | ) | — | 82,758 | ||||||||||||||||
| Net income (loss) from continuing operations attributable to Avista Corp. shareholders | 114,716 | 9,054 | 123,770 | (7,854 | ) | — | 115,916 | ||||||||||||||||
| Capital expenditures (4) | 405,938 | 6,401 | 412,339 | 4,280 | — | 416,619 | |||||||||||||||||
| For the year ended December 31, 2016: | |||||||||||||||||||||||
| Operating revenues | $ | 1,372,638 | $ | 46,276 | $ | 1,418,914 | $ | 23,569 | $ | — | $ | 1,442,483 | |||||||||||
| Resource costs | 539,352 | 12,014 | 551,366 | — | — | 551,366 | |||||||||||||||||
| Other operating expenses | 304,644 | 11,151 | 315,795 | 25,501 | — | 341,296 | |||||||||||||||||
| Depreciation and amortization | 155,162 | 5,352 | 160,514 | 769 | — | 161,283 | |||||||||||||||||
| Income (loss) from operations | 277,070 | 15,434 | 292,504 | (2,701 | ) | — | 289,803 | ||||||||||||||||
| Interest expense (3) | 83,070 | 3,584 | 86,654 | 608 | (132 | ) | 87,130 | ||||||||||||||||
| Income taxes | 74,121 | 5,321 | 79,442 | (1,356 | ) | — | 78,086 | ||||||||||||||||
| Net income (loss) from continuing operations attributable to Avista Corp. shareholders | 132,490 | 7,968 | 140,458 | (3,230 | ) | — | 137,228 | ||||||||||||||||
| Capital expenditures (4) | 390,690 | 15,954 | 406,644 | 353 | — | 406,997 | |||||||||||||||||
| For the year ended December 31, 2015: | |||||||||||||||||||||||
| Operating revenues | $ | 1,411,863 | $ | 44,778 | $ | 1,456,641 | $ | 28,685 | $ | (550 | ) | $ | 1,484,776 | ||||||||||
| Resource costs | 644,991 | 11,973 | 656,964 | — | — | 656,964 | |||||||||||||||||
| Other operating expenses | 292,096 | 11,125 | 303,221 | 30,076 | (550 | ) | 332,747 | ||||||||||||||||
| Depreciation and amortization | 138,236 | 5,263 | 143,499 | 695 | — | 144,194 | |||||||||||||||||
| Income (loss) from operations | 241,228 | 14,072 | 255,300 | (2,086 | ) | — | 253,214 | ||||||||||||||||
| Interest expense (3) | 76,405 | 3,558 | 79,963 | 610 | (132 | ) | 80,441 | ||||||||||||||||
| Income taxes | 64,489 | 4,202 | 68,691 | (1,242 | ) | — | 67,449 | ||||||||||||||||
| Net income (loss) from continuing operations attributable to Avista Corp. shareholders | 113,360 | 6,641 | 120,001 | (1,921 | ) | — | 118,080 | ||||||||||||||||
| Capital expenditures (4) | 381,174 | 12,251 | 393,425 | 885 | — | 394,310 | |||||||||||||||||
| Total Assets: | |||||||||||||||||||||||
| As of December 31, 2017 | $ | 5,177,878 | $ | 278,688 | $ | 5,456,566 | $ | 73,241 | $ | (15,075 | ) | $ | 5,514,732 | ||||||||||
| As of December 31, 2016 | $ | 4,975,555 | $ | 273,770 | $ | 5,249,325 | $ | 60,430 | $ | — | $ | 5,309,755 | |||||||||||
| As of December 31, 2015 | $ | 4,601,708 | $ | 265,735 | $ | 4,867,443 | $ | 39,206 | $ | — | $ | 4,906,649 | |||||||||||
(1) | |
Intersegment eliminations reported as interest expense represent intercompany interest. Intersegment eliminations reported as |
(2) | |
Including interest expense to affiliated trusts. |
(3) | |
The capital expenditures for the other businesses are included in other investing activities on the Consolidated Statements of Cash Flows. |
(4) | Other operating expenses for Avista Utilities for 2019 and 2018 include merger transaction costs which are separately disclosed on the Consolidated Statements of Income. |
NOTE 22. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
In July 2017, Avista Corp. entered into a Merger Agreement that provided for Avista Corp. to become an indirect, wholly-owned subsidiary of Hydro One, subject to the satisfaction or waiver of specified closing conditions, including approval by regulatory agencies. Hydro One, based in Toronto, is Ontario’s largest electricity transmission and distribution provider.
Termination of the Merger Agreement
Due to the denial of the proposed merger by certain of the Company's regulatory commissions, in January 2019, Avista Corp., Hydro One and certain subsidiaries thereof, entered into a Termination Agreement indicating their mutual agreement to terminate the Merger Agreement, effective immediately. Pursuant to the terms of the Termination Agreement, Hydro One paid Avista Corp. a $103 million termination fee in January 2019. The Company’s energy operations are significantly affected by weather conditions. Consequently, there can be large variancestermination fee was used for reimbursing the Company's transaction costs incurred from 2017 to 2019. The balance of the termination fee remaining after payment of 2019 transaction costs and applicable income taxes was used for general corporate purposes and reduced the Company's need for external financing. The 2019 costs were $19.7 million pre-tax and included financial advisers' fees, legal fees, consulting fees and employee time.
NOTE 26. SALE OF METALfx
In April 2019, Bay Area Manufacturing, Inc., a non-regulated subsidiary of Avista Corp., entered into a definitive agreement to sell its interest in revenues, expensesMETALfx to an independent third party. The transaction was a stock sale for a total cash purchase price of $17.5 million, plus cash on-hand, subject to customary closing adjustments. The transaction closed in April 2019, and net income between quartersas of that date the Company has no further involvement with METALfx.
The purchase price of $17.5 million, as adjusted, was divided among the security holders of METALfx, including the minority shareholder, pro-rata based on seasonal factors suchownership (Avista Corp. owned 89.2 percent of the equity of METALfx). As required under the purchase agreement, $1.2 million (7 percent of the purchase price) will be held in escrow for 24 months from the closing of the transaction to satisfy certain indemnification obligations.
When all escrow amounts are released, the sales transaction is expected to provide cash proceeds to Avista Corp., net of payments to the minority holder, contractually obligated compensation payments and other transaction expenses, of $16.5 million and result in a net gain after-tax of $3.3 million. The Company expects to receive the full amount of its portion of the escrow accounts; therefore, the full amounts are included in the gain calculation. The gross gain is included in "Other income," the transaction expenses paid are included in "Non-utility Other operating expenses" and any taxes associated with the sale are included in "Income tax expense" on the Consolidated Statements of Income.
Prior to the completion of the sales transaction, METALfx was not a reportable business segment and was included in other in the business segment footnote at Note 24. This transaction does not meet the criteria for discontinued operations as butit does not limited to, temperatures and streamflow conditions, includingrepresent a strategic shift that will have a major effect on the impact on electric and natural gas commodity prices.
| Three Months Ended | |||||||||||||||
| March 31 | June 30 | September 30 | December 31 | ||||||||||||
| 2017 | |||||||||||||||
| Operating revenues | $ | 436,470 | $ | 314,501 | $ | 297,096 | $ | 397,862 | |||||||
| Operating expenses | 321,084 | 258,404 | 266,054 | 315,878 | |||||||||||
| Income from operations | $ | 115,386 | $ | 56,097 | $ | 31,042 | $ | 81,984 | |||||||
| Net income | 62,137 | 21,722 | 4,458 | 27,615 | |||||||||||
| Net loss (income) attributable to noncontrolling interests | (21 | ) | 49 | (7 | ) | (37 | ) | ||||||||
| Net income attributable to Avista Corporation shareholders | $ | 62,116 | $ | 21,771 | $ | 4,451 | $ | 27,578 | |||||||
| Outstanding common stock: | |||||||||||||||
| weighted-average, basic | 64,362 | 64,401 | 64,412 | 64,809 | |||||||||||
| weighted-average, diluted | 64,469 | 64,553 | 64,892 | 65,308 | |||||||||||
| Earnings per common share attributable to Avista Corp. shareholders, diluted | $ | 0.96 | $ | 0.34 | $ | 0.07 | $ | 0.42 | |||||||
| Three Months Ended | |||||||||||||||
| March 31 | June 30 | September 30 | December 31 | ||||||||||||
| 2016 | |||||||||||||||
| Operating revenues from continuing operations | $ | 418,173 | $ | 318,838 | $ | 303,349 | $ | 402,123 | |||||||
| Operating expenses from continuing operations | 312,088 | 257,247 | 263,755 | 319,590 | |||||||||||
| Income from continuing operations | $ | 106,085 | $ | 61,591 | $ | 39,594 | $ | 82,533 | |||||||
| Net income | 57,665 | 27,287 | 12,261 | 40,103 | |||||||||||
| Net income attributable to noncontrolling interests | (16 | ) | (33 | ) | (27 | ) | (12 | ) | |||||||
| Net income attributable to Avista Corporation shareholders | $ | 57,649 | $ | 27,254 | $ | 12,234 | $ | 40,091 | |||||||
| Outstanding common stock: | |||||||||||||||
| weighted-average, basic | 62,605 | 63,386 | 63,857 | 64,185 | |||||||||||
| weighted-average, diluted | 62,907 | 63,783 | 64,325 | 64,620 | |||||||||||
| Earnings per common share attributable to Avista Corp. shareholders, diluted | $ | 0.92 | $ | 0.43 | $ | 0.19 | $ | 0.62 | |||||||
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AVISTA CORPORATION
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
The Company has disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Act) that are designed to ensure that information required to be disclosed in the reports it files or submits under the Act is recorded, processed, summarized and reported on a timely basis. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. With the participation of the Company’s principal executive officer and principal financial officer, the Company's management evaluated its disclosure controls and procedures as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective at a reasonable assurance level as of December 31, 2017.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management, together with its consolidated subsidiaries, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.
Under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, the Company conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management determined that the Company’s internal control over financial reporting as of
December 31,The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on the Company’s internal control over financial reporting as of
December 31,Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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AVISTA CORPORATION
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Avista Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Avista Corporation and subsidiaries (the “Company”) as of December 31, 2017,2020, based on criteria established in
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017,2020, of the Company and our report dated February 20, 2018,23, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over FinancialWe conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Portland, Oregon
February 20, 2018
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AVISTA CORPORATION
Item 9B. Other Information
None.
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AVISTA CORPORATION
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item (other than the information regarding executive officers and the Company's Code of Business Conduct and Ethics set forth below) is omitted pursuant to General Instruction G to Form 10-K. Such information is incorporated herein by reference as follows:
• | on and after the date of filing with the SEC the Registrant's definitive Proxy Statement relating to its Annual Meeting of Shareholders scheduled to be held on May 11, 2021, from such Proxy Statement; and |
• | prior to such date, from the Registrant's definitive Proxy Statement, dated March 31, 2020, relating to its Annual Meeting of Shareholders held on May 11, 2020. |
Information about our Executive Officers | |||||||
Name | Age | Business Experience | |||||
Dennis P. Vermillion | 59 | Chief Executive Officer | |||||
| 2019; President of Avista Corp since January 2018; Director since January 2018; Senior Vice President | |||||||
Mark T. Thies | 57 | Executive Vice President since October 2019; Treasurer since January 2013; Chief Financial Officer since September 2008; Senior Vice President from September 2008 to October 2019; prior to employment with the Company held the following positions with Black Hills Corporation: Executive Vice President and Chief Financial Officer March 2003 to January 2008; Senior Vice President and Chief Financial Officer March 2000 to March 2003; Controller May 1997 to March 2000. | |||||
Kevin J. Christie | 53 | Senior Vice President, External Affairs and Chief Customer Officer since October 2019; Vice President, External Affairs and Chief Customer Officer January 2018; Vice President of Customer Solutions February 2015 – January 2018; various other management and staff positions with the Company since 2005. | |||||
Heather L. Rosentrater | 43 | Senior Vice President, Energy Delivery and Shared Services since January 2020; Senior Vice President, Energy Delivery from October 2019 to December 2019; Vice President of Energy Delivery December 2015; various other management and staff positions with the Company since 1996. | |||||
Jason R. Thackston | 50 | Senior Vice President since January 2014; Environmental Compliance Officer since May 2018; Vice President of Energy Resources since December 2012; Vice President of Customer Solutions – Avista Utilities June 2012 - December 2012; Vice President of Energy Delivery April 2011 – December 2012; Vice President of Finance June 2009 – April 2011; various other management and staff positions with the Company since 1996. | |||||
Bryan A. Cox | 51 | Vice President, Safety and Human Resources since January 2020; Vice President, Safety and HR Shared Services January 2018 – January 2020; various other management and staff positions with the Company since 1997. | |||||
Gregory C. Hesler | 43 | Vice President, General Counsel, Corporate Secretary and Chief Ethics/Compliance Officer since May 2020; Vice President, General Counsel and Chief Compliance Officer January 2020 – May 2020; various other management and staff positions with the Company since 2015. | |||||
Latisha D. Hill | 41 | Vice President of Community and Economic Vitality since January 2020; various other management and staff positions with the Company since 2005. | |||||
James M. Kensok | 62 | Vice President, Chief Information Officer and Chief Security Officer since January 2013; Vice President and Chief Information Officer January 2007 – January 2013; Chief Information Officer February 2001 – December 2006; various other management and staff positions with the Company since 1996. | |||||
Ryan L. Krasselt | 51 | Vice President, Controller and Principal Accounting Officer since October 2015; various other management and staff positions with the Company since 2001. | |||||
140
Information about our Executive Officers | |||||||
Name | Age | Business Experience | |||||
David J. Meyer | 67 | Vice President and Chief Counsel for Regulatory and Governmental Affairs since February 2004; Senior Vice President and General Counsel September 1998 – February 2004. | |||||
Edward D. Schlect Jr. | 60 | Vice President and Chief Strategy Officer since September 2015; prior to employment with the Company, Executive Vice President of Corporate Development at Ecova, Inc. | |||||
All of the Company’s executive officers, with the exception of James M. Kensok, David J. Meyer, Kevin J. Christie, and Heather L. Rosentrater, and Bryan A. Cox were officers or directors of one or more of the Company’s subsidiaries in 2017.2020. The Company’s executive officers are electedappointed annually by the Board of Directors.
The Company has adopted a Code of Conduct for directors, officers (including the principal executive officer, principal financial officer and principal accounting officer), and employees. The Code of Conduct is available on the Company’s website at www.avistacorp.com and will also be provided to any shareholder without charge upon written request to:
Avista Corp.
General Counsel
P.O. Box 3727 MSC-12
Spokane, Washington 99220-3727
Any changes to or waivers for executive officers and directors of the Company’s Code of Conduct will be posted on the Company’s website.
Item 11. Executive Compensation
The information required by this Item is omitted pursuant to General Instruction G to Form 10-K. Such information is incorporated herein by reference as follows:
• | on and after the date of filing with the SEC the Registrant's definitive Proxy Statement relating to its Annual Meeting of Shareholders scheduled to be held on May 11, 2021, from such Proxy Statement; and |
• | prior to such date, from the Registrant's definitive Proxy Statement, dated March 31, 2020, relating to its Annual Meeting of Shareholders held on May 11, 2020. |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(a) | |
Security ownership of certain beneficial owners (owning 5 percent or more of Registrant’s voting securities): |
Information regarding security ownership of certain beneficial owners (owning 5 percent or more of Registrant’s voting securities) has been omitted pursuant to General Instruction G to Form 10-K. Such information is incorporated herein by reference as follows:
• | on and after the date of filing with the SEC the Registrant's definitive Proxy Statement relating to its Annual Meeting of Shareholders scheduled to be held on May 11, 2021, from such Proxy Statement; and |
• | prior to such date, from the Registrant's definitive Proxy Statement, dated March 31, 2020, relating to its Annual Meeting of Shareholders held on May 11, 2020; reference also being made to Schedules 13G, as amended, on file with the SEC with respect to the Registrant's voting securities (the information contained in such schedules 13G, as amended, not being incorporated herein by reference). |
(b) | Security ownership of management: |
The information required by this Item regarding the security ownership of management is omitted pursuant to General Instruction G to Form 10-K. Such information is incorporated herein by reference as follows:
• | on and after the date of filing with the SEC the Registrant's definitive Proxy Statement relating to its Annual Meeting of Shareholders scheduled to be held on May 11, 2021, from such Proxy Statement; and |
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AVISTA CORPORATION
• | prior to such date, from the Registrant's definitive Proxy Statement, dated March 31, 2020, relating to its Annual Meeting of Shareholders held on May 11, 2020. |
(c) | |
Changes in control: |
None.
(d) | |
Securities authorized for issuance under equity compensation plans as of December 31, |
Plan category | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | (b) Weighted average exercise price of outstanding options, warrants and rights | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||
(1) | |||||||||
Equity compensation plans approved by security holders (2) | — | $ | — | 1,460,844 | |||||
(1) | |
Excludes unvested restricted shares and performance share awards granted under Avista Corp.’s Long-Term Incentive Plan. At December 31, |
(2) | |
Includes the Long-Term Incentive Plan approved by shareholders in 1998 (amended in 2016) and the Non-Employee Director Stock Plan approved by shareholders in 1996. In February 2005, the Board of Directors elected to terminate the Non-Employee Director Stock Plan. |
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is omitted pursuant to General Instruction G to Form 10-K. Such information is incorporated herein by reference as follows:
• | on and after the date of filing with the SEC the Registrant's definitive Proxy Statement relating to its Annual Meeting of Shareholders scheduled to be held on May 11, 2021, from such Proxy Statement; and |
• | prior to such date, from the Registrant's definitive Proxy Statement, dated March 31, 2020, relating to its Annual Meeting of Shareholders held on May 11, 2020. |
Item 14. Principal Accounting Fees and Services
The information required by this Item is omitted pursuant to General Instruction G to Form 10-K. Such information is incorporated herein by reference as follows:
• | on and after the date of filing with the SEC the Registrant's definitive Proxy Statement relating to its Annual Meeting of Shareholders scheduled to be held on May 11, 2021, from such Proxy Statement; and |
• |
prior to such date, from the Registrant's definitive Proxy Statement, dated March 31, 2020, relating to its Annual Meeting of Shareholders held on May 11, 2020. |
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AVISTA CORPORATION
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) | 1. Financial Statements (Included in Part II of this report): |
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the Years Ended December 31,
Consolidated Statements of Comprehensive Income for the Years Ended December 31,
Consolidated Balance Sheets as of December 31,
Consolidated Statements of Cash Flows for the Years Ended December 31,
Consolidated Statements of Equity for the Years Ended December 31,
Notes to Consolidated Financial Statements
(a) | 2. Financial Statement Schedules: |
None
(a) | 3. Exhibits: |
Reference is made to the Exhibit Index commencing on the following page. The Exhibits include the management contracts and compensatory plans or arrangements required to be filed as exhibits to this Form 10-K pursuant to Item 15(b).
143
AVISTA CORPORATION
EXHIBIT INDEX
|
| Previously Filed (1) |
|
| ||
Exhibit |
| With |
| As |
|
|
| (with Form 8-K filed as of July 19, 2017) |
| 2.1 |
| ||
| (with Form 8-K filed as of January 23, 2019) |
| 2.1 |
| ||
| (with June 30, 2012 Form 10-Q) |
| 3.1 |
| Restated Articles of Incorporation of Avista Corporation, as amended and restated June 6, 2012. | |
| (with Form 8-K filed as of August 17, 2016) |
| 3.2 |
| ||
4.1 |
| 2-4077 |
| B-3 |
| Mortgage and Deed of Trust, dated as of June 1, 1939.* |
4.2 |
| 2-9812 |
| 4(c) |
| First Supplemental Indenture, dated as of October 1, 1952.* |
4.3 |
| 2-60728 |
| 2(b)-2 |
| Second Supplemental Indenture, dated as of May 1, 1953.* |
4.4 |
| 2-13421 |
| 4(b)-3 |
| Third Supplemental Indenture, dated as of December 1, 1955.* |
4.5 |
| 2-13421 |
| 4(b)-4 |
| Fourth Supplemental Indenture, dated as of March 15, 1967.* |
4.6 |
| 2-60728 |
| 2(b)-5 |
| Fifth Supplemental Indenture, dated as of July 1, 1957.* |
4.7 |
| 2-60728 |
| 2(b)-6 |
| Sixth Supplemental Indenture, dated as of January 1, 1958.* |
4.8 |
| 2-60728 |
| 2(b)-7 |
| Seventh Supplemental Indenture, dated as of August 1, 1958.* |
4.9 |
| 2-60728 |
| 2(b)-8 |
| Eighth Supplemental Indenture, dated as of January 1, 1959.* |
4.10 |
| 2-60728 |
| 2(b)-9 |
| Ninth Supplemental Indenture, dated as of January 1, 1960.* |
4.11 |
| 2-60728 |
| 2(b)-10 |
| Tenth Supplemental Indenture, dated as of April 1, 1964.* |
4.12 |
| 2-60728 |
| 2(b)-11 |
| Eleventh Supplemental Indenture, dated as of March 1, 1965.* |
4.13 |
| 2-60728 |
| 2(b)-12 |
| Twelfth Supplemental Indenture, dated as of May 1, 1966.* |
4.14 |
| 2-60728 |
| 2(b)-13 |
| Thirteenth Supplemental Indenture, dated as of August 1, 1966.* |
4.15 |
| 2-60728 |
| 2(b)-14 |
| Fourteenth Supplemental Indenture, dated as of April 1, 1970.* |
4.16 |
| 2-60728 |
| 2(b)-15 |
| Fifteenth Supplemental Indenture, dated as of May 1, 1973.* |
4.17 |
| 2-60728 |
| 2(b)-16 |
| Sixteenth Supplemental Indenture, dated as of February 1, 1975.* |
4.18 |
| 2-60728 |
| 2(b)-17 |
| Seventeenth Supplemental Indenture, dated as of November 1, 1976.* |
4.19 |
| 2-69080 |
| 2(b)-18 |
| Eighteenth Supplemental Indenture, dated as of June 1, 1980.* |
4.20 |
| (with 1980 Form 10-K) |
| 4(a)-20 |
| Nineteenth Supplemental Indenture, dated as of January 1, 1981.* |
4.21 |
| 2-79571 |
| 4(a)-21 |
| Twentieth Supplemental Indenture, dated as of August 1, 1982.* |
4.22 |
| (with Form 8-K dated September 20, 1983) |
| 4(a)-22 |
| Twenty-First Supplemental Indenture, dated as of September 1, 1983.* |
4.23 |
| 2-94816 |
| 4(a)-23 |
| Twenty-Second Supplemental Indenture, dated as of March 1, 1984.* |
4.24 |
| (with 1986 Form 10-K) |
| 4(a)-24 |
| Twenty-Third Supplemental Indenture, dated as of December 1, 1986.* |
4.25 |
| (with 1987 Form 10-K) |
| 4(a)-25 |
| Twenty-Fourth Supplemental Indenture, dated as of January 1, 1988.* |
4.26 |
| (with 1989 Form 10-K) |
| 4(a)-26 |
| Twenty-Fifth Supplemental Indenture, dated as of October 1, 1989.* |
4.27 |
| 33-51669 |
| 4(a)-27 |
| Twenty-Sixth Supplemental Indenture, dated as of April 1, 1993.* |
| (with 1993 Form 10-K) |
| 4(a)-28 |
| Twenty-Seventh Supplemental Indenture, dated as of January 1, 1994. | |
| (with 2001 Form 10-K) |
| 4(a)-29 |
| Twenty-Eighth Supplemental Indenture, dated as of September 1, 2001. | |
| 333-82502 |
| 4(b) |
| Twenty-Ninth Supplemental Indenture, dated as of December 1, 2001. | |
| (with June 30, 2002 Form 10-Q) |
| 4(f) |
| ||
| 333-39551 |
| 4(b) |
| Thirty-First Supplemental Indenture, dated as of May 1, 2003. | |
144
AVISTA CORPORATION
145
AVISTA CORPORATION
|
| Previously Filed (1) |
|
| ||
Exhibit |
| With |
| As |
|
|
| (with Form 8-K dated as of December 18, 2014) |
| 4.1 |
| Fifty-Seventh Supplemental Indenture, dated as of December 1, 2014. | |
| (with Form 8-K dated as of December 16, 2015) |
| 4.1 |
| Fifty-Eighth Supplemental Indenture, dated as of December 1, 2015. | |
| (with Form 8-K dated as of December 16, 2016) |
| 4.1 |
| Fifty-Ninth Supplemental Indenture, dated as of December 1, 2016. | |
| (with Form 8-K dated as of December 14, 2017) |
| 4.1 |
| Sixtieth Supplemental Indenture, dated as of December 1, 2017. | |
| (with Form 8-K dated as of May 15, 2018) |
| 4(a)(62) |
| ||
| (with Form 8-K dated as of November 26, 2019) |
| 4.1 |
| Sixty-Second Supplemental Indenture, dated as of November 1, 2019 | |
| (with Form 8-K dated as of June 4, 2020) |
| 4.1 |
| Sixty-Third Supplemental Indenture, dated as of June 1, 2020 | |
| (with Form 8-K dated as of September 30, 2020) |
| 4.1 |
| Sixty-Fourth Supplemental Indenture, dated as of September 1, 2020 | |
4.66 |
| (with Form 8-K dated as of December 15, 2004) |
| 4.5 |
| |
| 333-82165 |
| 4(a) |
| ||
| (with Form 8-K dated as of December 15, 2010) |
| 4.1 |
| ||
| (with Form 8-K dated as of December 15, 2010) |
| 4.3 |
| ||
4.70 |
| (with Form 8-K dated as of December 15, 2010) |
| 4.2 |
| |
| (with Form 8-K dated as of December 15, 2010) |
| 4.4 |
| ||
4.72 |
| (with June 30, 2012 Form 10-Q) |
| 3.1 |
| |
4.73 |
| (with Form 8-K filed as of August 17, 2016) |
| 3.2 |
| Bylaws of Avista Corporation, as amended August 17, 2016 (see Exhibit 3.2 herein). |
4.74 |
| (Form 10/A) |
| N/A |
| |
| (2) |
|
|
| ||
| (with Form 8-K dated as of February 11, 2011) |
| 10.1 |
| ||
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AVISTA CORPORATION
|
| Previously Filed (1) |
|
| ||
Exhibit |
| With |
| As |
|
|
| (with Form 8-K dated as of April 18, 2014) |
| 10.1 |
| ||
| (with Form 8-K dated as of April 18, 2014) |
| 10.2 |
| Bond Delivery Agreement, dated as of April 18, 2014, between Avista Corporation and Union Bank, N.A. | |
| (with Form 8-K dated as of December 14, 2011) |
| 10.1 |
| ||
| (with 2002 Form 10-K) |
| 10(b)-3 |
| ||
| (with 2002 Form 10-K) |
| 10(b)-4 |
| ||
| (with 2002 Form 10-K) |
| 10(b)-5 |
| ||
10.8 |
| 2-60728 |
| 5(g) |
| Power Sales Contract (Wells Project) with Public Utility District No. 1 of Douglas County, Washington, dated as of September 18, 1963.* |
10.9 |
| 2-60728 |
| 5(g)-1 |
| Amendment to Power Sales Contract (Wells Project) with Public Utility District No. 1 of Douglas County, Washington, dated as of February 9, 1965.* |
10.10 |
| 2-60728 |
| 5(h) |
| Reserved Share Power Sales Contract (Wells Project) with Public Utility District No. 1 of Douglas County, Washington, dated as of September 18, 1963.* |
10.11 |
| 2-60728 |
| 5(h)-1 |
| Amendment to Reserved Share Power Sales Contract (Wells Project) with Public Utility District No. 1 of Douglas County, Washington, dated as of February 9, 1965.* |
10.12 |
| (with September 30, 1985 Form 10-Q) |
| 1 |
| Settlement Agreement and Covenant Not to Sue executed by the United States Department of Energy acting by and through the Bonneville Power Administration and the Company, dated as of September 17, 1985, describing the settlement of Project 3 litigation.* |
10.13 |
| (with 1981 Form 10-K) |
| 10(s)-7 |
| Ownership and Operation Agreement for Colstrip Units No. 3 & 4, dated as of May 6, 1981.* |
| (with 2019 Form 10-K) |
| 10.14 |
| Avista Corporation Executive Deferral Plan (2020 Component). (3)(5) | |
| (with 2019 Form 10-K) |
| 10.15 |
| ||
10.16 |
| (with 1992 Form 10-K) |
| 10(t)-11 |
| The Company’s Unfunded Supplemental Executive Disability Plan. (3)* |
| (with 2007 Form 10-K) |
| 10.34 |
| ||
147
AVISTA CORPORATION
|
| Previously Filed (1) |
|
| ||
Exhibit |
| With |
| As |
|
|
| (with 2018 Form 10-K) |
| 10.21 |
| ||
| (with 2010 Form 10-K) |
| 10.23 |
| ||
| (with 2018 Form 10-K) |
| 10.25 |
| ||
| (with 2019 Form 10-K) |
| 10.22 |
| ||
| (2) |
|
|
| ||
| (with Form 8-K dated August 13, 2008) |
| 10.1 |
| ||
| (with September 30, 2019 Form 10-Q) |
| 10.1 |
| Form of Change of Control Plan between the Company and its Executive Officers. (3)(7) | |
| (2) |
|
|
| ||
| (with Form 8-K dated April 6, 2020) |
| 10.1 |
| ||
| (2) |
|
|
| ||
| (2) |
|
|
| ||
| (2) |
|
|
| ||
| (2) |
|
|
| ||
| (4) |
|
|
| ||
101.INS |
| (2) |
|
|
| Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
| (2) |
|
|
| Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
| (2) |
|
|
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
| (2) |
|
|
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
| (2) |
|
|
| Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
| (2) |
|
|
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
| (2) |
|
|
| Cover page formatted as Inline XBRL and contained in Exhibit 101. |
* |
Exhibit originally filed with the U.S. Securities and Exchange Commission in paper format and as such, a hyperlink is not available. |
| Previously Filed (1) | ||||||
| Exhibit | With Registration Number | As Exhibit | ||||
| (with June 30, 2012 Form 10-Q) | 3.1 | |||||
| (with Form 8-K filed as of August 17, 2016) | 3.2 | |||||
| 4.1 | 2-4077 | B-3 | Mortgage and Deed of Trust, dated as of June 1, 1939. | |||
| 4.2 | 2-9812 | 4(c) | First Supplemental Indenture, dated as of October 1, 1952. | |||
| 4.3 | 2-60728 | 2(b)-2 | Second Supplemental Indenture, dated as of May 1, 1953. | |||
| 4.4 | 2-13421 | 4(b)-3 | Third Supplemental Indenture, dated as of December 1, 1955. | |||
| 4.5 | 2-13421 | 4(b)-4 | Fourth Supplemental Indenture, dated as of March 15, 1967. | |||
| 4.6 | 2-60728 | 2(b)-5 | Fifth Supplemental Indenture, dated as of July 1, 1957. | |||
| 4.7 | 2-60728 | 2(b)-6 | Sixth Supplemental Indenture, dated as of January 1, 1958. | |||
| 4.8 | 2-60728 | 2(b)-7 | Seventh Supplemental Indenture, dated as of August 1, 1958. | |||
| 4.9 | 2-60728 | 2(b)-8 | Eighth Supplemental Indenture, dated as of January 1, 1959. | |||
| 4.10 | 2-60728 | 2(b)-9 | Ninth Supplemental Indenture, dated as of January 1, 1960. | |||
| 4.11 | 2-60728 | 2(b)-10 | Tenth Supplemental Indenture, dated as of April 1, 1964. | |||
| 4.12 | 2-60728 | 2(b)-11 | Eleventh Supplemental Indenture, dated as of March 1, 1965. | |||
| 4.13 | 2-60728 | 2(b)-12 | Twelfth Supplemental Indenture, dated as of May 1, 1966. | |||
| 4.14 | 2-60728 | 2(b)-13 | Thirteenth Supplemental Indenture, dated as of August 1, 1966. | |||
| 4.15 | 2-60728 | 2(b)-14 | Fourteenth Supplemental Indenture, dated as of April 1, 1970. | |||
| 4.16 | 2-60728 | 2(b)-15 | Fifteenth Supplemental Indenture, dated as of May 1, 1973. | |||
| 4.17 | 2-60728 | 2(b)-16 | Sixteenth Supplemental Indenture, dated as of February 1, 1975. | |||
| 4.18 | 2-60728 | 2(b)-17 | Seventeenth Supplemental Indenture, dated as of November 1, 1976. | |||
| 4.19 | 2-69080 | 2(b)-18 | Eighteenth Supplemental Indenture, dated as of June 1, 1980. | |||
| 4.20 | (with 1980 Form 10-K) | 4(a)-20 | Nineteenth Supplemental Indenture, dated as of January 1, 1981. | |||
| 4.21 | 2-79571 | 4(a)-21 | Twentieth Supplemental Indenture, dated as of August 1, 1982. | |||
| 4.22 | (with Form 8-K dated September 20, 1983) | 4(a)-22 | Twenty-First Supplemental Indenture, dated as of September 1, 1983. | |||
| 4.23 | 2-94816 | 4(a)-23 | Twenty-Second Supplemental Indenture, dated as of March 1, 1984. | |||
| Previously Filed (1) | ||||||
| Exhibit | With Registration Number | As Exhibit | ||||
| 4.24 | (with 1986 Form 10-K) | 4(a)-24 | Twenty-Third Supplemental Indenture, dated as of December 1, 1986. | |||
| 4.25 | (with 1987 Form 10-K) | 4(a)-25 | Twenty-Fourth Supplemental Indenture, dated as of January 1, 1988. | |||
| 4.26 | (with 1989 Form 10-K) | 4(a)-26 | Twenty-Fifth Supplemental Indenture, dated as of October 1, 1989. | |||
| 4.27 | 33-51669 | 4(a)-27 | Twenty-Sixth Supplemental Indenture, dated as of April 1, 1993. | |||
| (with 1993 Form 10-K) | 4(a)-28 | |||||
| (with 2001 Form 10-K) | 4(a)-29 | |||||
| 333-82502 | 4(b) | |||||
| (with June 30, 2002 Form 10-Q) | 4(f) | |||||
| 333-39551 | 4(b) | |||||
| (with September 30, 2003 Form 10-Q) | 4(f) | |||||
| 333-64652 | 4(a)33 | |||||
| (with Form 8-K dated as of December 15, 2004) | 4.1 | |||||
| (with Form 8-K dated as of December 15, 2004) | 4.2 | |||||
| (with Form 8-K dated as of December 15, 2004) | 4.3 | |||||
| (with Form 8-K dated as of December 15, 2004) | 4.4 | |||||
| (with Form 8-K dated as of May 12, 2005) | 4.1 | |||||
| (with Form 8-K dated as of November 17, 2005) | 4.1 | |||||
| (with Form 8-K dated as of April 6, 2006) | 4.1 | |||||
| (with Form 8-K dated as of December 15, 2006) | 4.1 | |||||
| (with Form 8-K dated as of April 3, 2008) | 4.1 | |||||
| (with Form 8-K dated as of November 26, 2008) | 4.1 | |||||
| (with Form 8-K dated as of December 16, 2008) | 4.1 | |||||
| (with Form 8-K dated as of December 30, 2008) | 4.3 | |||||
| (with Form 8-K dated as of September 15, 2009) | 4.1 | |||||
| (with Form 8-K dated as of November 25, 2009) | 4.1 | |||||
| (with Form 8-K dated as of December 15, 2010) | 4.5 | |||||
| (with Form 8-K dated as of December 20, 2010) | 4.1 | |||||
| Previously Filed (1) | ||||||
| Exhibit | With Registration Number | As Exhibit | ||||
| (with Form 8-K dated as of December 30, 2010) | 4.1 | |||||
| (with Form 8-K dated as of February 11, 2011) | 4.1 | |||||
| (with Form 8-K dated as of August 16, 2011) | 4.1 | |||||
| (with Form 8-K dated as of December 14, 2011) | 4.1 | |||||
| (with Form 8-K dated as of November 30, 2012) | 4.1 | |||||
| (with Form 8-K dated as of August 14, 2013) | 4.1 | |||||
| (with Form 8-K dated as of April 18, 2014) | 4.1 | |||||
| (with Form 8-K dated as of December 18, 2014) | 4.1 | |||||
| (with Form 8-K dated as of December 16, 2015) | 4.1 | |||||
| (with Form 8-K dated as of December 16, 2016) | 4.1 | |||||
| (with Form 8-K dated as of December 14, 2017) | 4.1 | |||||
| (with Form 8-K dated as of December 15, 2004) | 4.5 | |||||
| 333-82165 | 4(a) | |||||
| (with Form 8-K dated as of December 15, 2010) | 4.1 | |||||
| (with Form 8-K dated as of December 15, 2010) | 4.3 | |||||
| (with Form 8-K dated as of December 15, 2010) | 4.2 | |||||
| (with Form 8-K dated as of December 15, 2010) | 4.4 | |||||
| (with June 30, 2012 Form 10-Q) | 3.1 | |||||
| (with Form 8-K filed as of August 17, 2016) | 3.2 | |||||
| (Form 10/A) | N/A | |||||
| Previously Filed (1) | ||||||
| Exhibit | With Registration Number | As Exhibit | ||||
| (with Form 8-K dated as of February 11, 2011) | 10.1 | |||||
| (with Form 8-K dated as of April 18, 2014) | 10.1 | |||||
| (with Form 8-K dated as of April 18, 2014) | 10.2 | |||||
| (with Form 8-K dated as of December 14, 2011) | 10.1 | |||||
| (with 2002 Form 10-K) | 10(b)-3 | |||||
| (with 2002 Form 10-K) | 10(b)-4 | |||||
| (with 2002 Form 10-K) | 10(b)-5 | |||||
| 10.8 | 2-60728 | 5(g) | Power Sales Contract (Wells Project) with Public Utility District No. 1 of Douglas County, Washington, dated as of September 18, 1963. | |||
| 10.9 | 2-60728 | 5(g)-1 | Amendment to Power Sales Contract (Wells Project) with Public Utility District No. 1 of Douglas County, Washington, dated as of February 9, 1965. | |||
| 10.10 | 2-60728 | 5(h) | Reserved Share Power Sales Contract (Wells Project) with Public Utility District No. 1 of Douglas County, Washington, dated as of September 18, 1963. | |||
| 10.11 | 2-60728 | 5(h)-1 | Amendment to Reserved Share Power Sales Contract (Wells Project) with Public Utility District No. 1 of Douglas County, Washington, dated as of February 9, 1965. | |||
| 10.12 | (with September 30, 1985 Form 10-Q) | 1 | Settlement Agreement and Covenant Not to Sue executed by the United States Department of Energy acting by and through the Bonneville Power Administration and the Company, dated as of September 17, 1985, describing the settlement of Project 3 litigation. | |||
| 10.13 | (with 1981 Form 10-K) | 10(s)-7 | Ownership and Operation Agreement for Colstrip Units No. 3 & 4, dated as of May 6, 1981. | |||
| (2) | ||||||
| (2) | ||||||
| (2) | ||||||
| Previously Filed (1) | ||||||
| Exhibit | With Registration Number | As Exhibit | ||||
| (with 2011 Form 10-K) | 10.17 | |||||
| (with 2011 Form 10-K) | 10.18 | |||||
| 10.19 | (with 1992 Form 10-K) | 10(t)-11 | The Company’s Unfunded Supplemental Executive Disability Plan. (3) | |||
| (with 2007 Form 10-K) | 10.34 | |||||
| (with 2010 Definitive Proxy Statement filed March 31, 2010) | Appendix A | |||||
| (with 2010 Form 10-K) | 10.23 | |||||
| (with 2015 Form 10-K) | 10.31 | |||||
| (with 2016 Form 10-K) | 10.24 | |||||
| (2) | ||||||
| (with Form 8-K dated June 21, 2005) | 10.1 | |||||
| (with Form 8-K dated August 13, 2008) | 10.1 | |||||
| 333-47290 | 99.1 | |||||
| (with 2010 Form 10-K) | 10.28 | |||||
| (with 2010 Form 10-K) | 10.29 | |||||
| (with 2010 Form 10-K) | 10.30 | |||||
| (with 2010 Form 10-K) | 10.31 | |||||
| (2) | ||||||
| (2) | ||||||
| (2) | ||||||
| (2) | ||||||
| (2) | ||||||
| (2) | ||||||
| (4) | ||||||
| 101 | (2) | The following financial information from the Annual Report on Form 10 K for the period ended December 31, 2017, formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Consolidated Statements of Income; (ii) Consolidated Statements of Comprehensive Income; (iii) the Consolidated Balance Sheets; (iv) the Consolidated Statements of Cash Flows; (v) the Consolidated Statements of Equity; and (vi) the Notes to Consolidated Financial Statements. | ||||
(1) | |
Incorporated herein by reference. |
(3) | |
Management contracts or compensatory plans filed as exhibits to this Form 10-K pursuant to Item 15(b). |
(4) | |
Furnished herewith. |
(5) | |
Applies to |
(6) | |
Applies to Kevin J. Christie, Bryan A. Cox, Latisha D. Hill, James M. Kensok, Ryan L. Krasselt, |
(7) | |
Applies to Kevin J. Christie, Bryan A. Cox, Gregory C. Hesler, Latisha D. Hill, James M. Kensok, Ryan L. Krasselt, David J. Meyer, Heather L. Rosentrater, |
148
AVISTA CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AVISTA CORPORATION | |||||
February | By | /s/ | |||
Date | Dennis P. Vermillion | ||||
President and Chief Executive Officer | |||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature | Title | Date |
/s/ | Principal Executive Officer and Director | February |
Dennis P. Vermillion | ||
President and Chief Executive Officer | ||
/s/ Mark T. Thies | Principal Financial Officer | February |
Mark T. Thies | ||
Executive Vice President, | ||
Chief Financial Officer, and Treasurer | ||
/s/ Ryan L. Krasselt | Principal Accounting Officer | February |
Ryan L. Krasselt | ||
Vice President, Controller and | ||
Principal Accounting Officer | ||
/s/ | Director | February |
Scott L. Morris | ||
Chairman of the Board | ||
/s/ Kristianne Blake | Director | February |
Kristianne Blake | ||
/s/ Donald C. Burke | Director | February |
Donald C. Burke | ||
/s/ Rebecca A. Klein | Director | February |
Rebecca A. Klein | ||
/s/ Scott H. Maw | Director | February |
Scott H. Maw | ||
/s/ Jeffry L. Philipps | Director | February 23, 2021 |
Jeffry L. Philipps |
/s/ Marc F. Racicot | Director | February |
Marc F. Racicot | ||
/s/ Heidi B. Stanley | Director | February |
Heidi B. Stanley | ||
/s/ R. John Taylor | Director | February |
R. John Taylor | ||
/s/ Janet D. Widmann | Director | February |
Janet D. Widmann | ||
149