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ava:frequency xbrli:pure utreg:MMBTU iso4217:USD ava:MmBtu 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 March 31, 2020 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 May 1, 2020, 67,293,360 shares of Registrant’s Common Stock, no par value (the only class of common stock), were outstanding.



AVISTA CORPORATION



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

i


AVISTA CORPORATION



 

ii


AVISTA CORPORATION



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)
COVID-19
-
Coronavirus disease 2019, a respiratory illness that was declared a pandemic in March 2020
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

iii


AVISTA CORPORATION



OPUC
-
The Public Utility Commission of Oregon
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
ROU
-
Right-of-use lease asset
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


iv


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:
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, 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;
explosions, fires, accidents or other incidents arising from or allegedly arising from our operations that could cause injuries to the public or property damage;
blackouts or disruptions of interconnected transmission systems (the regional power grid);

1


AVISTA CORPORATION



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;
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 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 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;

2


AVISTA CORPORATION



the risk of municipalization or other form 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 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;

3


AVISTA CORPORATION



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 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
We file annual, quarterly and current reports and proxy statements with the SEC. The SEC maintains a website 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 documents 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.



4


PART I. Financial Information
Item 1. Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Avista Corporation
For the Three Months Ended March 31
Dollars in thousands, except per share amounts
(Unaudited)
 
2020
 
2019
Operating Revenues:
 
 
 
Utility revenues:
 
 
 
Utility revenues, exclusive of alternative revenue programs
$
393,820

 
$
393,241

Alternative revenue programs
(4,413
)
 
(4,658
)
Total utility revenues
389,407

 
388,583

Non-utility revenues
823

 
7,898

Total operating revenues
390,230

 
396,481

Operating Expenses:
 
 
 
Utility operating expenses:
 
 
 
Resource costs
129,547

 
137,347

Other operating expenses
94,496

 
83,978

Merger transaction costs

 
19,664

Depreciation and amortization
51,421

 
48,914

Taxes other than income taxes
30,978

 
31,943

Non-utility operating expenses:
 
 
 
Other operating expenses
1,360

 
7,355

Depreciation and amortization
235

 
209

Total operating expenses
308,037

 
329,410

Income from operations
82,193

 
67,071

Interest expense
26,347

 
25,651

Interest expense to affiliated trusts
270

 
357

Capitalized interest
(998
)
 
(928
)
Merger termination fee

 
(103,000
)
Other income-net
(382
)
 
(907
)
Income before income taxes
56,956

 
145,898

Income tax expense
8,532

 
30,017

Net income
48,424

 
115,881

Net income attributable to noncontrolling interests

 
(87
)
Net income attributable to Avista Corp. shareholders
$
48,424

 
$
115,794

Weighted-average common shares outstanding (thousands), basic
67,239

 
65,733

Weighted-average common shares outstanding (thousands), diluted
67,381

 
65,941

 
 
 
 
Earnings per common share attributable to Avista Corp. shareholders:
 
 
 
Basic
$
0.72

 
$
1.76

Diluted
$
0.72

 
$
1.76

The Accompanying Notes are an Integral Part of These Statements.

5


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Avista Corporation
For the Three Months Ended March 31
Dollars in thousands
(Unaudited)
 
2020
 
2019
Net income
$
48,424

 
$
115,881

Other Comprehensive Income:
 
 
 
Change in unfunded benefit obligation for pension and other postretirement benefit plans - net of taxes of $54 and $43 respectively
205

 
160

Total other comprehensive income
205

 
160

Comprehensive income
48,629

 
116,041

Comprehensive income attributable to noncontrolling interests

 
(87
)
Comprehensive income attributable to Avista Corporation shareholders
$
48,629

 
$
115,954


The Accompanying Notes are an Integral Part of These Statements.

6


CONDENSED CONSOLIDATED BALANCE SHEETS
Avista Corporation
Dollars in thousands
(Unaudited) 
 
March 31,
 
December 31,
 
2020
 
2019
Assets:
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
18,919

 
$
9,896

Accounts and notes receivable-less allowances of $4,576 and $2,419, respectively
155,253

 
166,657

Materials and supplies, fuel stock and stored natural gas
56,681

 
66,583

Regulatory assets
13,057

 
21,851

Other current assets
30,328

 
40,142

Total current assets
274,238

 
305,129

Net utility property
4,842,318

 
4,797,007

Goodwill
52,426

 
52,426

Non-current regulatory assets
750,866

 
670,802

Other property and investments-net and other non-current assets
254,151

 
257,092

Total assets
$
6,173,999

 
$
6,082,456

Liabilities and Equity:
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
88,184

 
$
110,219

Current portion of long-term debt
52,000

 
52,000

Short-term borrowings
185,000

 
185,800

Regulatory liabilities
66,336

 
51,715

Other current liabilities
174,286

 
130,979

Total current liabilities
565,806

 
530,713

Long-term debt
1,843,981

 
1,843,768

Long-term debt to affiliated trusts
51,547

 
51,547

Pensions and other postretirement benefits
207,313

 
212,006

Deferred income taxes
525,217

 
528,513

Non-current regulatory liabilities
783,376

 
775,436

Other non-current liabilities and deferred credits
237,664

 
201,189

Total liabilities
4,214,904

 
4,143,172

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; 67,292,233 and 67,176,996 shares issued and outstanding, respectively
1,209,312

 
1,210,741

Accumulated other comprehensive loss
(10,054
)
 
(10,259
)
Retained earnings
759,837

 
738,802

Total Avista Corporation shareholders’ equity
1,959,095

 
1,939,284

Total liabilities and equity
$
6,173,999

 
$
6,082,456

The Accompanying Notes are an Integral Part of These Statements.


7


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Avista Corporation
For the Three Months Ended March 31
Dollars in thousands
(Unaudited) 
 
2020
 
2019
Operating Activities:
 
 
 
Net income
$
48,424

 
$
115,881

Non-cash items included in net income:
 
 
 
Depreciation and amortization
51,421

 
49,123

Deferred income tax provision and investment tax credits
(6,765
)
 
8,883

Power and natural gas cost amortizations (deferrals), net
6,380

 
(48,084
)
Amortization of debt expense
653

 
669

Amortization of investment in exchange power

 
613

Stock-based compensation expense
872

 
4,845

Equity-related AFUDC
(1,599
)
 
(1,485
)
Pension and other postretirement benefit expense
7,952

 
9,084

Other regulatory assets and liabilities and deferred debits and credits
11,902

 
1,016

Change in decoupling regulatory deferral
4,155

 
4,471

Gain on sale of investments
(3,242
)
 

Other
5,112

 
(1,943
)
Contributions to defined benefit pension plan
(7,300
)
 
(7,300
)
Changes in certain current assets and liabilities:
 
 
 
Accounts and notes receivable
6,078

 
(9,787
)
Materials and supplies, fuel stock and stored natural gas
9,901

 
(394
)
Collateral posted for derivative instruments
(14,283
)
 
3,432

Income taxes receivable
10,500

 

Income taxes payable
4,901

 
19,360

Other current assets
(2,166
)
 
1,705

Accounts payable
(19,527
)
 
16,697

Other current liabilities
21,905

 
30,095

Net cash provided by operating activities
135,274

 
196,881

 
 
 
 
Investing Activities:
 
 
 
Utility property capital expenditures (excluding equity-related AFUDC)
(95,525
)
 
(93,615
)
Issuance of notes receivable by subsidiaries
(2,779
)
 
(200
)
Equity and property investments made by subsidiaries
(1,313
)
 
(3,504
)
Proceeds from sale of investments made by subsidiaries
5,148

 

Other
(662
)
 
(345
)
Net cash used in investing activities
(95,131
)
 
(97,664
)
The Accompanying Notes are an Integral Part of These Statements.

8


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Avista Corporation
For the Three Months Ended March 31
Dollars in thousands
(Unaudited)
 
2020
 
2019
Financing Activities:
 
 
 
Net decrease in short-term borrowings
$
(800
)
 
$
(71,000
)
Maturity of long-term debt and finance leases
(700
)
 
(665
)
Issuance of common stock, net of issuance costs
175

 
190

Cash dividends paid
(27,389
)
 
(25,615
)
Other
(2,406
)
 
(896
)
Net cash used in financing activities
(31,120
)
 
(97,986
)
 
 
 
 
Net increase in cash and cash equivalents
9,023

 
1,231

 
 
 
 
Cash and cash equivalents at beginning of period
9,896

 
14,656

 
 
 
 
Cash and cash equivalents at end of period
$
18,919

 
$
14,861

The Accompanying Notes are an Integral Part of These Statements.



9


CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Avista Corporation
For the Three Months Ended March 31
Dollars in thousands
(Unaudited)
 
2020
 
2019
Common Stock, Shares:
 
 
 
Shares outstanding at beginning of period
67,176,996

 
65,688,356

Shares issued
115,237

 
61,576

Shares outstanding at end of period
67,292,233

 
65,749,932

Common Stock, Amount:
 
 
 
Balance at beginning of period
$
1,210,741

 
$
1,136,491

Equity compensation expense
804

 
4,452

Issuance of common stock, net of issuance costs
175

 
190

Payment of minimum tax withholdings for share-based payment awards
(2,408
)
 
(891
)
Balance at end of period
1,209,312

 
1,140,242

Accumulated Other Comprehensive Loss:
 
 
 
Balance at beginning of period
(10,259
)
 
(7,866
)
Other comprehensive income
205

 
160

Balance at end of period
(10,054
)
 
(7,706
)
Retained Earnings:
 
 
 
Balance at beginning of period
738,802

 
644,595

Net income attributable to Avista Corporation shareholders
48,424

 
115,794

Cash dividends paid on common stock
(27,389
)
 
(25,615
)
Balance at end of period
759,837

 
734,774

Total Avista Corporation shareholders’ equity
1,959,095

 
1,867,310

Noncontrolling Interests:
 
 
 
Balance at beginning of period

 
825

Net income attributable to noncontrolling interests

 
87

Balance at end of period

 
912

Total equity
$
1,959,095

 
$
1,868,222

Dividends declared per common share
$
0.4050

 
$
0.3875

The Accompanying Notes are an Integral Part of These Statements.

10


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 March 31, 2020 and March 31, 2019 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, 2019 (2019 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 16 for business segment information. See Note 18 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.

11


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 11 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 15 for further discussion of the Company's commitments and contingencies.
COVID-19
In March 2020, the Company filed an application for authorization to defer certain incremental COVID-19 related costs with the OPUC. In April and May 2020, the Company made similar filings with the IPUC and the WUTC, respectively. 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 recovery of any deferred costs would be determined in future rate making proceedings.
NOTE 2. NEW ACCOUNTING STANDARDS
ASU No. 2016-12 "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments"
On January 1, 2020, the Company adopted ASU 2016-13, which replaces the incurred loss impairment methodology in previous GAAP with a methodology that reflects expected credit losses, and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company analyzed its financial instruments within the scope of this guidance, primarily trade receivables, and it did not have a material impact to the Company's financial statements and does not require additional disclosure in these Notes to the Condensed Consolidated Financial Statements.
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 11 for the Company's fair value disclosures.
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 is effective for periods beginning after December 15, 2021 and early adoption is permitted. The Company is in the process of evaluating this standard; however, it has determined that it will not early adopt this standard as of March 31, 2020.

12


AVISTA CORPORATION



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 March 31, 2020 and December 31, 2019 (dollars in thousands):
 
March 31,
 
December 31,
 
2020
 
2019
Materials and supplies
$
49,007

 
$
47,402

Fuel stock
4,740

 
4,875

Stored natural gas
2,934

 
14,306

Total
$
56,681

 
$
66,583


Other Current Assets
Other current assets consisted of the following as of March 31, 2020 and December 31, 2019 (dollars in thousands):
 
March 31,
 
December 31,
 
2020
 
2019
Collateral posted for derivative instruments after netting with outstanding derivative liabilities
$
2,470

 
$
4,434

Prepayments
22,569

 
19,652

Income taxes receivable

 
11,047

Other
5,289

 
5,009

Total
$
30,328

 
$
40,142


Net Utility Property
Net utility property consisted of the following as of March 31, 2020 and December 31, 2019 (dollars in thousands):
 
March 31,
 
December 31,
 
2020
 
2019
Utility plant in service
$
6,521,033

 
$
6,462,993

Construction work in progress
189,827

 
164,941

Total
6,710,860

 
6,627,934

Less: Accumulated depreciation and amortization
1,868,542

 
1,830,927

Total net utility property
$
4,842,318

 
$
4,797,007


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 March 31, 2020 and December 31, 2019 (dollars in thousands):
 
March 31,
 
December 31,
 
2020
 
2019
Operating lease ROU assets
$
65,303

 
$
69,746

Finance lease ROU assets
50,069

 
50,980

Non-utility property
26,511

 
27,159

Equity investments
51,467

 
51,258

Investment in affiliated trust
11,547

 
11,547

Notes receivable
14,970

 
14,060

Deferred compensation assets
8,670

 
8,948

Other
25,614

 
23,394

Total
$
254,151

 
$
257,092



13


AVISTA CORPORATION



Other Current Liabilities
Other current liabilities consisted of the following as of March 31, 2020 and December 31, 2019 (dollars in thousands):
 
March 31,
 
December 31,
 
2020
 
2019
Accrued taxes other than income taxes
$
48,980

 
$
36,965

Employee paid time off accruals
24,084

 
22,343

Accrued interest
31,033

 
16,486

Current portion of pensions and other postretirement benefits
9,811

 
8,826

Income taxes payable
5,199

 
298

Derivative liabilities
27,409

 
10,928

Other current liabilities
27,770

 
35,133

Total other current liabilities
$
174,286

 
$
130,979


Other Non-Current Liabilities and Deferred Credits
Other non-current liabilities and deferred credits consisted of the following as of March 31, 2020 and December 31, 2019 (dollars in thousands):
 
March 31,
 
December 31,
 
2020
 
2019
Operating lease liabilities
$
62,145

 
$
65,565

Finance lease liabilities
51,016

 
51,750

Deferred investment tax credits
30,588

 
30,444

Asset retirement obligations
20,263

 
20,338

Derivative liabilities
60,278

 
19,685

Other
13,374

 
13,407

Total
$
237,664

 
$
201,189


Regulatory Assets and Liabilities
Regulatory assets and liabilities consisted of the following as of March 31, 2020 and December 31, 2019 (dollars in thousands):
 
March 31, 2020
 
December 31, 2019
 
Current
 
Non-Current
 
Current
 
Non-Current
Regulatory Assets
 
 
 
 
 
 
 
Energy commodity derivatives
$
78

 
$

 
$
6,310

 
$
264

Decoupling surcharge
10,927

 
15,504

 
12,098

 
14,806

Pension and other postretirement benefit plans

 
206,112

 

 
208,754

Interest rate swaps

 
246,566

 

 
168,594

Deferred income taxes

 
96,525

 

 
95,752

Settlement with Coeur d'Alene Tribe

 
41,005

 

 
41,332

AFUDC above FERC allowed rate

 
41,333

 

 
40,749

Demand side management programs

 
8,670

 

 
12,170

Utility plant to be abandoned

 
31,678

 

 
31,291

Other regulatory assets
2,052

 
63,473

 
3,443

 
57,090

Total regulatory assets
$
13,057

 
$
750,866

 
$
21,851

 
$
670,802

 
 
 
 
 
 
 
 


14


AVISTA CORPORATION



 
March 31, 2020
 
December 31, 2019
 
Current
 
Non-Current
 
Current
 
Non-Current
Regulatory Liabilities
 
 
 
 
 
 
 
Income tax related liabilities
$
23,975

 
$
404,046

 
$
23,803

 
$
407,549

Deferred natural gas costs
5,449

 

 
3,189

 

Deferral power costs
23,595

 
20,716

 
14,155

 
23,544

Decoupling rebate
363

 
5,972

 
255

 
2,398

Provision for rate refund (Washington remand case)
8,490

 

 
3,565

 

Utility plant retirement costs

 
317,203

 

 
312,403

Interest rate swaps

 
16,136

 

 
17,088

Other regulatory liabilities
4,464

 
19,303

 
6,748

 
12,454

Total regulatory liabilities
$
66,336

 
$
783,376

 
$
51,715

 
$
775,436


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.
Utility Revenues
Revenue from Contracts with Customers
General
The majority of Avista Corp.’s revenue is from rate-regulated sales of electricity and natural gas to retail customers, which has two performance obligations, (1) having service available for a specified period (typically a month at a time) and (2) the delivery of energy to customers. The total energy price generally has a fixed component (basic charge) related to having service available and a usage-based component, related to the delivery and consumption of energy. The commodity is sold and/or delivered to and consumed by the customer simultaneously, and the provisions of the relevant utility commission authorization determine the charges the Company may bill the customer. 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 Condensed Consolidated Statements of Income in the line item "Utility revenues, exclusive of alternative revenue programs."
Non-Derivative Wholesale Contracts
The Company has certain wholesale contracts which are not accounted for as derivatives and, accordingly, are within the scope of ASC 606 and considered revenue from contracts with customers. Revenue is recognized as energy is delivered to the customer or the service is available for a specified period of time, consistent with the discussion of rate-regulated sales above.
Alternative Revenue Programs (Decoupling)
ASC 606 retained existing GAAP associated with alternative revenue programs, which specified that alternative revenue programs are contracts between an entity and a regulator of utilities, not a contract between an entity and a customer. GAAP requires that an entity present revenue arising from alternative revenue programs separately from revenues arising from contracts with customers on the face of the Condensed 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 Condensed 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 that 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 Condensed 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. The amounts expected to be collected from customers within 24 months represents an estimate that 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.

15


AVISTA CORPORATION



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 specifically scoped 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 that 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 materials, late fees and other charges that do not represent contracts with customers. Other utility revenue also includes the provision for earnings sharing and the deferral and amortization of refunds to customers associated with the TCJA. This revenue is scoped out of ASC 606, as this revenue does not represent 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
Gross Versus Net Presentation
Revenues and resource costs from Avista Utilities’ settled energy contracts that are “booked out” (not physically delivered) are reported on a net basis as part of derivative revenues.
Utility-related taxes collected from customers (primarily state excise taxes and city utility taxes) are taxes that are imposed on Avista Utilities as opposed to being imposed on its customers; therefore, Avista Utilities is the taxpayer and records these transactions on a gross basis in revenue from contracts with customers and operating expense (taxes other than income taxes). The 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 the three months ended March 31 (dollars in thousands):
 
2020
 
2019
Utility-related taxes
$
18,700

 
$
19,089


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 18 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. The Steam Plant Brew Pub serves food and beverages to customers, its one performance obligation, and recognizes revenues at the time of service to the customer.
Significant Judgments and Unsatisfied Performance Obligations
The only significant judgments involving revenue recognition are estimates surrounding unbilled revenue and receivables from contracts with customers and estimates surrounding the amount of decoupling revenues that will be collected from customers within 24 months (discussed above).
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 March 31, 2020, the Company estimates it had unsatisfied capacity performance obligations of $4.7 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.

16


AVISTA CORPORATION



Disaggregation of Total Operating Revenue
The following table disaggregates total operating revenue by segment and source for the three months ended March 31 (dollars in thousands):
 
2020
 
2019
Avista Utilities
 
 
 
Revenue from contracts with customers
$
351,628

 
$
354,301

Derivative revenues
31,075

 
24,127

Alternative revenue programs
(4,413
)
 
(4,658
)
Deferrals and amortizations for rate refunds to customers
(2,606
)
 
2,135

Other utility revenues
1,521

 
1,797

Total Avista Utilities
377,205

 
377,702

AEL&P
 
 
 
Revenue from contracts with customers
12,126

 
10,736

Deferrals and amortizations for rate refunds to customers
(48
)
 
(48
)
Other utility revenues
124

 
193

Total AEL&P
12,202

 
10,881

Other
 
 
 
Revenue from contracts with customers
514

 
7,647

Other revenues
309

 
251

Total other
823

 
7,898

Total operating revenues
$
390,230

 
$
396,481

Utility Revenue from Contracts with Customers by Type and Service
The following table disaggregates revenue from contracts with customers associated with the Company's electric operations for the three months ended March 31 (dollars in thousands):
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