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us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember 2019-01-01 2019-09-30 xbrli:shares iso4217:USD xbrli:shares iso4217:USD utreg:MMBTU iso4217:CAD ava:derivative_contracts ava:Volt iso4217:USD ava:MmBtu xbrli:pure ava:Caontracts ava:frequency ava:Reportable_Segments
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________________________________________
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2019 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission file number 1-3701
__________________________________________________________________________________________
AVISTA CORPORATION
(Exact name of Registrant as specified in its charter)
Washington
 
91-0462470
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1411 East Mission Avenue, Spokane, Washington 99202-2600
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: 509-489-0500
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock
AVA
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes      No  
As of November 1, 2019, 66,709,945 shares of Registrant’s Common Stock, no par value (the only class of common stock), were outstanding.


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AVISTA CORPORATION



AVISTA CORPORATION
INDEX
Item No.
 
 
Page
No.
 
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
 

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ACRONYMS AND TERMS
(The following acronyms and terms are found in multiple locations within the document)
Acronym/Term
Meaning
aMW
-
Average Megawatt - a measure of the average rate at which a particular generating source produces energy over a period of time
AEL&P
-
Alaska Electric Light and Power Company, the primary operating subsidiary of AERC, which provides electric services in Juneau, Alaska
AERC
-
Alaska Energy and Resources Company, the Company's wholly-owned subsidiary based in Juneau, Alaska
AFUDC
-
Allowance for Funds Used During Construction; represents the cost of both the debt and equity funds used to finance utility plant additions during the construction period
ASC
-
Accounting Standards Codification
ASU
-
Accounting Standards Update
Avista Capital
-
Parent company to the Company’s non-utility businesses, with the exception of AJT Mining Properties, Inc., which is a subsidiary of AERC.
Avista Corp.
-
Avista Corporation, the Company
Avista Utilities
-
Operating division of Avista Corp. (not a subsidiary) comprising the regulated utility operations in the Pacific Northwest
Capacity
-
The rate at which a particular generating source is capable of producing energy, measured in KW or MW
Cabinet Gorge
-
The Cabinet Gorge Hydroelectric Generating Project, located on the Clark Fork River in Idaho
Colstrip
-
The coal-fired Colstrip Generating Plant in southeastern Montana
Cooling degree days
-
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 historic indicate warmer than average temperatures)
Deadband or ERM deadband
-
The first $4.0 million in annual power supply costs above or below the amount included in base retail rates in Washington under the ERM in the state of Washington
EIM
-
Energy Imbalance Market
Energy
-
The amount of electricity produced or consumed over a period of time, measured in KWh or MWh. Also, refers to natural gas consumed and is measured in dekatherms
EPA
-
Environmental Protection Agency
ERM
-
The Energy Recovery Mechanism, a mechanism for accounting and rate recovery of certain power supply costs accepted by the utility commission in the state of Washington
FASB
-
Financial Accounting Standards Board
FCA
-
Fixed Cost Adjustment, the electric and natural gas decoupling mechanism in Idaho
FERC
-
Federal Energy Regulatory Commission
GAAP
-
Generally Accepted Accounting Principles
Heating degree days
-
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).
Hydro One
-
Hydro One Limited, based in Toronto, Ontario, Canada
IPUC
-
Idaho Public Utilities Commission
Juneau
-
The City and Borough of Juneau, Alaska
KW, KWh
-
Kilowatt (1000 watts): a measure of generating power or capability. Kilowatt-hour (1000 watt hours): a measure of energy produced over a period of time
MPSC
-
Public Service Commission of the State of Montana
MW, MWh
-
Megawatt: 1000 KW. Megawatt-hour: 1000 KWh
Noxon Rapids
-
The Noxon Rapids Hydroelectric Generating Project, located on the Clark Fork River in Montana
OPUC
-
The Public Utility Commission of Oregon

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PCA
-
The Power Cost Adjustment mechanism, a procedure for accounting and rate recovery of certain power supply costs accepted by the utility commission in the state of Idaho
PGA
-
Purchased Gas Adjustment
PPA
-
Power Purchase Agreement
RCA
-
The Regulatory Commission of Alaska
REC
-
Renewable energy credit
ROE
-
Return on equity
ROR
-
Rate of return on rate base
SEC
-
U.S. Securities and Exchange Commission
TCJA
-
The "Tax Cuts and Jobs Act," signed into law on December 22, 2017
Therm
-
Unit of measurement for natural gas; a therm is equal to approximately one hundred cubic feet (volume) or 100,000 BTUs (energy)
Watt
-
Unit of measurement of electric power or capability; a watt is equal to the rate of work represented by a current of one ampere under a pressure of one volt
WUTC
-
Washington Utilities and Transportation Commission


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AVISTA CORPORATION



Forward-Looking Statements
From 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 Quarterly Report on Form 10-Q), 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 Quarterly Report on Form 10-Q) 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:
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 can 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 can affect future funding obligations, pension and other postretirement benefit expense and the related liabilities;
deterioration in the creditworthiness of our customers;
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;
declining energy demand related to customer energy efficiency, conservation measures and/or increased distributed generation;
changes in the long-term climate and weather may 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 may increase our exposure to credit risks due to counterparties, suppliers and customers being similarly affected by changing conditions;
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

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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;
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 can affect operating income, cash requirements to purchase electricity and natural gas, value received for wholesale sales, collateral required of us by individual 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 may 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;
Operational Risk
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 may 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;
explosions, fires, accidents or other incidents arising from or allegedly arising from our operations that may cause wildfires, 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 may disrupt or cause damage to our utility assets or to the national or regional economy in general, including any effects of terrorism, cyberattacks or vandalism that damage or disrupt information technology systems;
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;
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 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 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;

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AVISTA CORPORATION



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;
the ability to comply with the terms of the licenses and permits for our hydroelectric or thermal generating facilities at cost-effective levels;
Cyber and 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 and the extent to which new uses for our services may materialize or existing uses may decline, 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 may 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;
entering into or growth of non-regulated activities may increase earnings volatility;
potential legal proceedings arising from the termination of the proposed acquisition of the Company by Hydro One;
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 coal-fired power generation and opposition to other thermal generation, wind turbines or hydroelectric facilities;
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;
failure to identify changes in legislation, taxation and regulatory issues that are 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; and

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AVISTA CORPORATION



the risk of municipalization or other form of service territory reduction.
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 can be no assurance that our expectations, beliefs or projections will be achieved or accomplished. Furthermore, any forward-looking statement speaks only as of the date on which such statement is made. We undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which such statement is made or to reflect the occurrence of unanticipated events. New risks, uncertainties and other factors emerge from time to time, and it is not possible for us to predict all such factors, nor can we assess the effect of each such factor on our business or the extent that any such factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statement.
Available Information
The SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. Our website address is www.myavista.com. We make annual, quarterly and current reports available on our website as soon as practicable after electronically filing these reports with the SEC. Except for SEC filings or portions thereof that are specifically referred to in this report, information contained on these websites is not part of this report.


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PART I. Financial Information
Item 1. Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Avista Corporation
For the Three and Nine Months Ended September 30
Dollars in thousands, except per share amounts
(Unaudited)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
Operating Revenues:
 
 
 
 
 
 
 
Utility revenues:
 
 
 
 
 
 
 
Utility revenues, exclusive of alternative revenue programs
$
276,683

 
$
288,513

 
$
958,750

 
$
1,006,003

Alternative revenue programs
6,038

 
606

 
11,105

 
(1,763
)
Total utility revenues
282,721

 
289,119

 
969,855

 
1,004,240

Non-utility revenues
1,049

 
6,894

 
11,208

 
20,432

Total operating revenues
283,770

 
296,013

 
981,063

 
1,024,672

Operating Expenses:
 
 
 
 
 
 
 
Utility operating expenses:
 
 
 
 
 
 
 
Resource costs
98,324

 
101,519

 
324,110

 
362,106

Other operating expenses
80,112

 
78,395

 
251,810

 
236,771

Merger transaction costs

 
965

 
19,675

 
2,620

Depreciation and amortization
50,052

 
46,035

 
154,445

 
136,419

Taxes other than income taxes
23,455

 
25,101

 
78,306

 
81,526

Non-utility operating expenses:
 
 
 
 
 
 
 
Other operating expenses
1,450

 
7,347

 
15,137

 
20,714

Depreciation and amortization
134

 
207

 
498

 
587

Total operating expenses
253,527

 
259,569

 
843,981

 
840,743

Income from operations
30,243

 
36,444

 
137,082

 
183,929

Interest expense
25,859

 
24,280

 
77,021

 
74,226

Interest expense to affiliated trusts
334

 
325

 
1,042

 
880

Capitalized interest
(1,089
)
 
(1,217
)
 
(3,118
)
 
(3,324
)
Merger termination fee

 

 
(103,000
)
 

Other expense (income)-net
180

 
1,379

 
(8,995
)
 
3,951

Income before income taxes
4,959

 
11,677

 
174,132

 
108,196

Income tax expense (benefit)
(131
)
 
1,548

 
28,145

 
17,467

Net income
5,090

 
10,129

 
145,987

 
90,729

Net loss (income) attributable to noncontrolling interests

 
(10
)
 
216

 
(143
)
Net income attributable to Avista Corp. shareholders
$
5,090

 
$
10,119

 
$
146,203

 
$
90,586

Weighted-average common shares outstanding (thousands), basic
66,265

 
65,688

 
65,964

 
65,668

Weighted-average common shares outstanding (thousands), diluted
66,351

 
66,026

 
66,050

 
65,980

 
 
 
 
 
 
 
 
Earnings per common share attributable to Avista Corp. shareholders:
 
 
 
 
 
 
 
Basic
$
0.08

 
$
0.15

 
$
2.22

 
$
1.38

Diluted
$
0.08

 
$
0.15

 
$
2.21

 
$
1.37

The Accompanying Notes are an Integral Part of These Statements.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Avista Corporation
For the Three and Nine Months Ended September 30
Dollars in thousands
(Unaudited)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
5,090

 
$
10,129

 
$
145,987

 
$
90,729

Other Comprehensive Income:
 
 
 
 
 
 
 
Change in unfunded benefit obligation for pension and other postretirement benefit plans - net of taxes of $43, $54, $128 and $163 respectively
162

 
204

 
483

 
612

Total other comprehensive income
162

 
204

 
483

 
612

Comprehensive income
5,252

 
10,333

 
146,470

 
91,341

Comprehensive loss (income) attributable to noncontrolling interests

 
(10
)
 
216

 
(143
)
Comprehensive income attributable to Avista Corporation shareholders
$
5,252

 
$
10,323

 
$
146,686

 
$
91,198


The Accompanying Notes are an Integral Part of These Statements.

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CONDENSED CONSOLIDATED BALANCE SHEETS
Avista Corporation
Dollars in thousands
(Unaudited) 
 
September 30,
 
December 31,
 
2019
 
2018
Assets:
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
14,454

 
$
14,656

Accounts and notes receivable-less allowances of $2,529 and $5,233, respectively
108,577

 
165,824

Materials and supplies, fuel stock and stored natural gas
67,732

 
63,881

Regulatory assets
19,890

 
48,552

Other current assets
36,993

 
54,010

Total current assets
247,646

 
346,923

Net utility property
4,727,014

 
4,648,930

Goodwill
52,426

 
57,672

Non-current regulatory assets
688,814

 
614,354

Other property and investments-net and other non-current assets
248,883

 
114,697

Total assets
$
5,964,783

 
$
5,782,576

Liabilities and Equity:
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
91,358

 
$
108,372

Current portion of long-term debt and capital leases
14,996

 
107,645

Short-term borrowings
119,300

 
190,000

Regulatory liabilities
43,442

 
113,209

Other current liabilities
130,089

 
120,358

Total current liabilities
399,185

 
639,584

Long-term debt and capital leases
1,879,366

 
1,755,529

Long-term debt to affiliated trusts
51,547

 
51,547

Pensions and other postretirement benefits
210,292

 
222,537

Deferred income taxes
515,355

 
487,602

Non-current regulatory liabilities
786,131

 
780,701

Other non-current liabilities and deferred credits
229,339

 
71,031

Total liabilities
4,071,215

 
4,008,531

Commitments and Contingencies (See Notes to Condensed Consolidated Financial Statements)
 
 
 
Equity:
 
 
 
Avista Corporation Shareholders’ Equity:
 
 
 
Common stock, no par value; 200,000,000 shares authorized; 66,708,989 and 65,688,356 shares issued and outstanding, respectively
1,186,925

 
1,136,491

Accumulated other comprehensive loss
(7,383
)
 
(7,866
)
Retained earnings
714,026

 
644,595

Total Avista Corporation shareholders’ equity
1,893,568

 
1,773,220

Noncontrolling Interests

 
825

Total equity
1,893,568

 
1,774,045

Total liabilities and equity
$
5,964,783

 
$
5,782,576

The Accompanying Notes are an Integral Part of These Statements.


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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Avista Corporation
For the Nine Months Ended September 30
Dollars in thousands
(Unaudited) 
 
2019
 
2018
Operating Activities:
 
 
 
Net income
$
145,987

 
$
90,729

Non-cash items included in net income:
 
 
 
Depreciation and amortization
154,943

 
139,738

Deferred income tax provision and investment tax credits
10,219

 
10,575

Power and natural gas cost amortizations (deferrals), net
(45,835
)
 
6,315

Amortization of debt expense
2,008

 
2,327

Amortization of investment in exchange power
1,633

 
1,838

Stock-based compensation expense
8,951

 
5,215

Equity-related AFUDC
(5,021
)
 
(4,406
)
Pension and other postretirement benefit expense
27,139

 
23,980

Other regulatory assets and liabilities and deferred debits and credits
1,871

 
20,953

Change in decoupling regulatory deferral
(11,540
)
 
5,436

Gain on sale of METALfx (before payment of transaction costs)
(6,477
)
 

Other
(5,095
)
 
3,962

Contributions to defined benefit pension plan
(22,000
)
 
(22,000
)
Cash paid for settlement of interest rate swap agreements
(13,325
)
 
(32,174
)
Cash received for settlement of interest rate swap agreements

 
5,594

Changes in certain current assets and liabilities:
 
 
 
Accounts and notes receivable
54,554

 
75,878

Materials and supplies, fuel stock and stored natural gas
(7,298
)
 
(4,691
)
Collateral posted for derivative instruments
64,770

 
47,150

Other current assets
(11,423
)
 
(3,871
)
Accounts payable
(8,366
)
 
(16,392
)
Other current liabilities
4,796

 
9,639

Net cash provided by operating activities
340,491

 
365,795

 
 
 
 
Investing Activities:
 
 
 
Utility property capital expenditures (excluding equity-related AFUDC)
(320,964
)
 
(296,216
)
Issuance of notes receivable by subsidiaries
(6,036
)
 
(2,930
)
Equity and property investments made by subsidiaries
(10,031
)
 
(8,629
)
Proceeds from sale of METALfx (net of cash sold)
16,407

 

Other
309

 
88

Net cash used in investing activities
(320,315
)
 
(307,687
)
The Accompanying Notes are an Integral Part of These Statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Avista Corporation
For the Nine Months Ended September 30
Dollars in thousands
(Unaudited)
 
2019
 
2018
Financing Activities:
 
 
 
Net increase (decrease) in short-term borrowings
$
17,000

 
$
(70,398
)
Proceeds from issuance of long-term debt

 
374,621

Maturity of long-term debt and capital leases
(1,995
)
 
(276,804
)
Issuance of common stock, net of issuance costs
42,899

 
1,224

Cash dividends paid
(76,772
)
 
(73,569
)
Other
(1,510
)
 
(8,184
)
Net cash used in financing activities
(20,378
)
 
(53,110
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
(202
)
 
4,998

 
 
 
 
Cash and cash equivalents at beginning of period
14,656

 
16,172

 
 
 
 
Cash and cash equivalents at end of period
$
14,454

 
$
21,170

The Accompanying Notes are an Integral Part of These Statements.



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CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Avista Corporation
For the Three and Nine Months Ended September 30
Dollars in thousands
(Unaudited)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
Common Stock, Shares:
 
 
 
 
 
 
 
Shares outstanding at beginning of period
66,111,317

 
65,687,492

 
65,688,356

 
65,494,333

Shares issued
597,672

 
508

 
1,020,633

 
193,667

Shares outstanding at end of period
66,708,989

 
65,688,000

 
66,708,989

 
65,688,000

Common Stock, Amount:
 
 
 
 
 
 
 
Balance at beginning of period
$
1,157,024

 
$
1,134,304

 
$
1,136,491

 
$
1,133,448

Equity compensation expense
1,931

 
1,242

 
8,426

 
4,800

Issuance of common stock, net of issuance costs
27,970

 
(3
)
 
42,899

 
1,224

Payment of minimum tax withholdings for share-based payment awards

 

 
(891
)
 
(3,929
)
Balance at end of period
1,186,925

 
1,135,543

 
1,186,925

 
1,135,543

Accumulated Other Comprehensive Loss:
 
 
 
 
 
 
 
Balance at beginning of period
(7,545
)
 
(9,424
)
 
(7,866
)
 
(8,090
)
Other comprehensive income
162

 
204

 
483

 
612

Reclassification of excess income tax benefits

 

 

 
(1,742
)
Balance at end of period
(7,383
)
 
(9,220
)
 
(7,383
)
 
(9,220
)
Retained Earnings:
 
 
 
 
 
 
 
Balance at beginning of period
734,555

 
637,578

 
644,595

 
604,470

Net income attributable to Avista Corporation shareholders
5,090

 
10,119

 
146,203

 
90,586

Cash dividends paid on common stock
(25,619
)
 
(24,468
)
 
(76,772
)
 
(73,569
)
Reclassification of excess income tax benefits

 

 

 
1,742

Balance at end of period
714,026

 
623,229

 
714,026

 
623,229

Total Avista Corporation shareholders’ equity
1,893,568

 
1,749,552

 
1,893,568

 
1,749,552

Noncontrolling Interests:
 
 
 
 
 
 
 
Balance at beginning of period

 
249

 
825

 
656

Net income (loss) attributable to noncontrolling interests

 
10

 
(216
)
 
143

Cash dividends paid to subsidiary noncontrolling interests

 
540

 

 

Deconsolidation of noncontrolling interests related to sale of METALfx

 

 
(609
)
 

Balance at end of period

 
799

 

 
799

Total equity
$
1,893,568

 
$
1,750,351

 
$
1,893,568

 
$
1,750,351

Dividends declared per common share
$
0.3875

 
$
0.3725

 
$
1.1625

 
$
1.1175

The Accompanying Notes are an Integral Part of These Statements.

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AVISTA CORPORATION



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The accompanying condensed consolidated financial statements of Avista Corp. as of and for the interim periods ended September 30, 2019 and September 30, 2018 are unaudited; however, in the opinion of management, the statements reflect all adjustments necessary for a fair statement of the results for the interim periods. All such adjustments are of a normal recurring nature. The condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The Condensed Consolidated Statements of Income for the interim periods are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements do not contain the detail or footnote disclosure concerning accounting policies and other matters which would be included in full fiscal year consolidated financial statements; therefore, they should be read in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Form 10-K).
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 its 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 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 17 for business segment information. See Note 19 for discussion of the sale of METALfx, an unregulated subsidiary of the Company.
Basis of Reporting
The condensed 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. Intercompany balances were eliminated in consolidation. The accompanying condensed consolidated financial statements include the Company’s proportionate share of utility plant and related operations resulting from its interests in jointly owned plants.
Derivative Assets and Liabilities
Derivatives are recorded as either assets or liabilities on the Condensed 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 rate 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 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 life 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.

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AVISTA CORPORATION



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 Condensed 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 swaps and foreign currency exchange contracts, are reported at estimated fair value on the Condensed Consolidated Balance Sheets. See Note 12 for the Company’s fair value disclosures.
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 estimated. The Company also discloses loss contingencies that do not meet these conditions for accrual if there is a reasonable possibility that a material loss may be incurred. See Note 16 for further discussion of the Company's commitments and contingencies.
Reclassification to Comply with Required FERC Regulatory Reporting
During the third quarter of 2019, the FERC completed an audit of Avista Corp. that covered the period January 1, 2015 through December 31, 2018. Avista Corp.’s AFUDC rate, which is prescribed by state regulatory authorities, is different than the FERC approved method for calculating AFUDC. The FERC indicated that the difference in rates should be recorded as a regulatory asset rather than utility plant. At the conclusion of the audit, the FERC required Avista Corp. to reclass the excess AFUDC from Net utility plant to Non-current regulatory assets for the period January 1, 2010 (the effective date of the Company’s current fixed transmission rates) to the present. As a result of this finding, Avista Corp. reclassed approximately $37 million from Net utility plant to Non-current regulatory assets as of September 30, 2019, which represents the cumulative adjustment for 2010 through 2017. The Company recorded the difference in AFUDC rates for 2018 and 2019 as a regulatory asset in the respective periods incurred. The Company did not adjust prior period Condensed Consolidated Balances Sheets as the FERC required the adjustment to be reflected on a cumulative basis at the end of the audit and required the AFUDC calculation to be modified on a prospective basis. The Company concluded that the differences were insignificant during each prior period and on a cumulative basis. The adjustment recorded during the third quarter 2019 had no effect on net income or earnings per share.
NOTE 2. NEW ACCOUNTING STANDARDS
ASU No. 2016-02, "Leases (Topic 842)"
ASU No. 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 model for entities to use in accounting for leases and supersedes previous 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 immaterial to the financial statements.
Adoption of the standard impacted the Company's Condensed Consolidated Balance Sheet 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 No. 2018-02 “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”
In February 2018, the FASB issued ASU No. 2018-02, which amended the guidance for reporting comprehensive income. This ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the enactment of the TCJA in December 2017. This ASU became effective for periods beginning after December 15, 2018 and early adoption was permitted. Upon adoption, the requirements of this ASU must be applied either in the period of

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