Unaudited Interim Consolidated Financial Statements of
Algonquin Power & Utilities Corp.
For the three months and six months ended June 30, 2020 and 2019



Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statements of Operations
(thousands of U.S. dollars, except per share amounts)
Three months ended June 30
 
Six months ended June 30
 
2020
 
2019
 
2020
 
2019
Revenue
 
 
 
 
 
 
 
Regulated electricity distribution
$
163,599

 
$
175,995

 
$
344,298

 
$
381,056

Regulated gas distribution
78,643

 
70,935

 
263,237

 
248,596

Regulated water reclamation and distribution
34,883

 
32,697

 
62,722

 
59,483

Non-regulated energy sales
59,924

 
59,777

 
126,235

 
123,234

Other revenue
6,589

 
4,174

 
12,047

 
8,434

 
343,638

 
343,578

 
808,539

 
820,803

Expenses
 
 
 
 
 
 
 
Operating expenses
121,462

 
120,187

 
249,358

 
240,300

Regulated electricity purchased
42,815

 
50,344

 
100,048

 
119,942

Regulated gas purchased
19,307

 
21,340

 
82,920

 
100,894

Regulated water purchased
3,236

 
1,785

 
5,487

 
3,239

Non-regulated energy purchased
2,741

 
2,658

 
6,745

 
9,579

Administrative expenses
19,361

 
13,524

 
35,033

 
26,642

Depreciation and amortization
75,667

 
69,813

 
154,547

 
140,860

Loss (gain) on foreign exchange
(24
)
 
1,467

 
(4,694
)
 
934

 
284,565

 
281,118

 
629,444

 
642,390

Operating income
59,073

 
62,460

 
179,095

 
178,413

Interest expense
(44,818
)
 
(45,840
)
 
(91,066
)
 
(88,461
)
Income from long-term investments (note 6)
334,809

 
160,662

 
172,148

 
180,134

Other net losses (note 16)
(26,940
)
 
(5,803
)
 
(27,830
)
 
(8,367
)
Pension and other post-employment non-service costs (note 8)
(3,617
)
 
(3,747
)
 
(6,973
)
 
(5,040
)
Gain on derivative financial instruments (note 21(b)(iv))
1,389

 
409

 
1,446

 
213

 
260,823

 
105,681

 
47,725

 
78,479

Earnings before income taxes
319,896

 
168,141

 
226,820

 
256,892

Income tax expense (note 15)
 
 
 
 
 
 
 
Current
(2,022
)
 
(4,974
)
 
(6,109
)
 
(9,949
)
Deferred
(44,896
)
 
(15,831
)
 
(27,106
)
 
(25,687
)
 
(46,918
)
 
(20,805
)
 
(33,215
)
 
(35,636
)
Net earnings
272,978

 
147,336

 
193,605

 
221,256

Net effect of non-controlling interests (note 14)
 
 
 
 
 
 
 
Non-controlling interests
16,634

 
16,361

 
35,976

 
35,689

Non-controlling interests held by related party
(3,393
)
 
(7,072
)
 
(7,159
)
 
(13,914
)
 
$
13,241

 
$
9,289

 
$
28,817

 
$
21,775

Net earnings attributable to shareholders of Algonquin Power & Utilities Corp.
$
286,219

 
$
156,625

 
$
222,422

 
$
243,031

Series A and D Preferred shares dividend (note 12)
2,017

 
2,109

 
4,157

 
4,215

Net earnings attributable to common shareholders of Algonquin Power & Utilities Corp.
$
284,202

 
$
154,516

 
$
218,265

 
$
238,816

Basic net earnings per share (note 17)
$
0.54

 
$
0.31

 
$
0.41

 
$
0.49

Diluted net earnings per share (note 17)
$
0.53

 
$
0.31

 
$
0.41

 
$
0.48

See accompanying notes to unaudited interim consolidated financial statements



Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statements of Comprehensive Income
 
(thousands of U.S. dollars)
Three months ended June 30
 
Six months ended June 30
 
2020
 
2019
 
2020
 
2019
Net earnings
$
272,978

 
$
147,336

 
$
193,605

 
$
221,256

Other comprehensive income (loss) ("OCI"):
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of tax recovery of $2,921 and tax expense of $2,782 (2019 - tax recovery of $365 and $112), respectively (notes 21(b)(iii) and 21(b)(iv))
8,573

 
(2,859
)
 
(28,057
)
 
11,955

Change in fair value of cash flow hedges, net of tax recovery of $2,302 and $7,389 (2019 - tax expense of $4,682 and $5,200), respectively (note 21(b)(ii))
(6,213
)
 
12,167

 
(20,301
)
 
13,630

Change in pension and other post-employment benefits, net of tax expense of $22 and tax recovery of $9 (2019 - tax expense of $141 and $50), respectively (note 8)
55

 
209

 
(21
)
 
(45
)
Other comprehensive income (loss), net of tax
2,415

 
9,517

 
(48,379
)
 
25,540

Comprehensive income
275,393

 
156,853

 
145,226

 
246,796

Comprehensive loss attributable to the non-controlling interests
(11,295
)
 
(6,601
)
 
(32,931
)
 
(19,070
)
Comprehensive income attributable to shareholders of Algonquin Power & Utilities Corp.
$
286,688

 
$
163,454

 
$
178,157

 
$
265,866

See accompanying notes to unaudited interim consolidated financial statements



Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Balance Sheets

(thousands of U.S. dollars)
 
 
 
 
June 30, 2020
 
December 31, 2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
60,314

 
$
62,485

Accounts receivable, net (note 4)
198,571

 
259,144

Fuel and natural gas in storage
27,745

 
30,804

Supplies and consumables inventory
81,275

 
60,295

Regulatory assets (note 5)
43,558

 
50,213

Prepaid expenses
35,624

 
29,003

Derivative instruments (note 21)
13,902

 
13,483

Other assets
5,448

 
7,764

 
466,437

 
513,191

Property, plant and equipment, net
7,142,863

 
7,231,664

Intangible assets, net
51,723

 
47,616

Goodwill
1,024,793

 
1,031,696

Regulatory assets (note 5)
710,083

 
509,674

Long-term investments (note 6)
 
 
 
Investments carried at fair value
1,417,524

 
1,294,147

Other long-term investments
227,871

 
121,968

Derivative instruments (note 21)
58,729

 
72,221

Deferred income taxes
29,220

 
30,585

Other assets
58,785

 
58,708

 
$
11,188,028

 
$
10,911,470

See accompanying notes to unaudited interim consolidated financial statements




Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Balance Sheets
(thousands of U.S. dollars)
 
 
 
 
June 30, 2020
 
December 31, 2019
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
92,984

 
$
150,336

Accrued liabilities
207,395

 
307,952

Dividends payable (note 12)
83,291

 
73,945

Regulatory liabilities (note 5)
31,720

 
41,683

Long-term debt (note 7)
221,827

 
225,013

Other long-term liabilities (note 9)
56,944

 
57,939

Derivative instruments (note 21)
46,650

 
5,898

Other liabilities
8,159

 
9,300

 
748,970

 
872,066

Long-term debt (note 7)
3,932,949

 
3,706,855

Regulatory liabilities (note 5)
577,106

 
556,379

Deferred income taxes
515,915

 
491,538

Derivative instruments (note 21)
72,951

 
78,766

Pension and other post-employment benefits obligation
221,961

 
224,094

Other long-term liabilities (note 9)
262,989

 
243,401

 
6,332,841

 
6,173,099

Redeemable non-controlling interests (note 14)

 

Redeemable non-controlling interest, held by related party (note 13(b))
306,150

 
305,863

Redeemable non-controlling interests
25,708

 
25,913

 
331,858

 
331,776

Equity:
 
 
 
Preferred shares
184,299

 
184,299

Common shares (note 10(a))
4,181,365

 
4,017,044

Additional paid-in capital
51,834

 
50,579

Deficit
(323,404
)
 
(367,107
)
Accumulated other comprehensive loss ("AOCI") (note 11)
(54,026
)
 
(9,761
)
Total equity attributable to shareholders of Algonquin Power & Utilities Corp.
4,040,068

 
3,875,054

Non-controlling interests
 
 
 
Non-controlling interests
422,070

 
457,834

Non-controlling interest, held by related party (note 13(c))
61,191

 
73,707

 
483,261

 
531,541

Total equity
4,523,329

 
4,406,595

Commitments and contingencies (note 19)

 

Subsequent events (notes 5, 6, 10, 16 and 21)

 

 
$
11,188,028

 
$
10,911,470

See accompanying notes to unaudited interim consolidated financial statements



    
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statement of Equity


(thousands of U.S. dollars)
For the three months ended June 30, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Algonquin Power & Utilities Corp. Shareholders
 
 
 
 
 
Common
shares
 
Preferred
shares
 
Additional
paid-in
capital
 
Accumulated
deficit
 
Accumulated
OCI
 
Non-
controlling
interests
 
Total
Balance, March 31, 2020
$
4,050,902

 
$
184,299

 
$
41,332

 
$
(521,314
)
 
$
(54,495
)
 
$
503,344

 
$
4,204,068

Net earnings (loss)
—

 
—

 
—

 
286,219

 
—

 
(13,241
)
 
272,978

Redeemable non-controlling interests not included in equity (note 14)
—

 
—

 
—

 
—

 
—

 
(1,637
)
 
(1,637
)
Other comprehensive loss
—

 
—

 
—

 


 
469

 
1,946

 
2,415

Dividends declared and distributions to non-controlling interests
—

 
—

 
—

 
(76,992
)
 
—

 
(7,151
)
 
(84,143
)
Dividends and issuance of shares under dividend reinvestment plan
8,871

 
—

 
—

 
(8,871
)
 
—

 
—

 
—

Common shares issued upon public offering, net of cost
118,300

 
—

 
—

 
—

 
—

 
—

 
118,300

Issuance of common shares under employee share purchase plan
1,165

 
—

 
—

 
—

 
—

 
—

 
1,165

Share-based compensation
—

 
—

 
11,056

 
—

 
—

 
—

 
11,056

Common shares issued pursuant to share-based awards
2,127

 
—

 
(554
)
 
(2,446
)
 
—

 
—

 
(873
)
Balance, June 30, 2020
$
4,181,365


$
184,299


$
51,834


$
(323,404
)

$
(54,026
)

$
483,261

 
$
4,523,329

See accompanying notes to unaudited interim consolidated financial statements




Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statement of Equity

 
(thousands of U.S. dollars)
For the three months ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Algonquin Power & Utilities Corp. Shareholders
 
 
 
 
 
Common
shares
 
Preferred
shares
 
Additional
paid-in
capital
 
Accumulated
deficit
 
Accumulated
OCI
 
Non-
controlling
interests
 
Total
Balance, March 31, 2019
$
3,590,351

 
$
184,299

 
$
41,005

 
$
(583,992
)
 
$
(3,193
)
 
$
504,301

 
$
3,732,771

Net earnings (loss)
—

 
—

 
—

 
156,625

 
—

 
(9,289
)
 
147,336

Redeemable non-controlling interests not included in equity (note 14)
—

 
—

 
—

 
—

 
—

 
(4,731
)
 
(4,731
)
Other comprehensive income
—

 
—

 
—

 
—

 
6,829

 
2,688

 
9,517

Dividends declared and distributions to non-controlling interests
—

 
—

 
—

 
(54,038
)
 
—

 
(20,577
)
 
(74,615
)
Dividends and issuance of shares under dividend reinvestment plan
17,939

 
—

 
—

 
(17,939
)
 
—

 
—

 
—

Contributions received from non-controlling interests
—

 
—

 
—

 
—

 
—

 
96,753

 
96,753

Common shares issued upon conversion of convertible debentures
60

 
—

 
—

 
—

 
—

 
—

 
60

Common shares issued upon public offering, net of cost

5,093

 
—

 
—

 
—

 
—

 
—

 
5,093

Share-based compensation
—

 
—

 
4,409

 
—

 
—

 
—

 
4,409

Common shares issued pursuant to share-based awards
577

 
—

 
—

 
—

 
—

 
—

 
577

Balance, June 30, 2019
$
3,614,020

—

$
184,299

—

$
45,414

—

$
(499,344
)
—

$
3,636

—

$
569,145

 
$
3,917,170

See accompanying notes to unaudited interim consolidated financial statements






Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statement of Equity


(thousands of U.S. dollars)
For the six months ended June 30, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Algonquin Power & Utilities Corp. Shareholders
 
 
 
 
 
Common
shares
 
Preferred
shares
 
Additional
paid-in
capital
 
Accumulated
deficit
 
Accumulated
OCI
 
Non-
controlling
interests
 
Total
Balance, December 31, 2019
$
4,017,044

 
$
184,299

 
$
50,579

 
$
(367,107
)
 
$
(9,761
)
 
$
531,541

 
$
4,406,595

Net earnings (loss)
—

 
—

 
—

 
222,422

 
—

 
(28,817
)
 
193,605

Redeemable non-controlling interests not included in equity (note 14)
—

 
—

 
—

 
—

 
—

 
(3,684
)
 
(3,684
)
Other comprehensive loss
—

 
—

 
—

 
—

 
(44,265
)
 
(4,114
)
 
(48,379
)
Dividends declared and distributions to non-controlling interests
—

 
—

 
—

 
(136,811
)
 
—

 
(15,036
)
 
(151,847
)
Dividends and issuance of shares under dividend reinvestment plan
25,822

 
—

 
—

 
(25,822
)
 
—

 
—

 
—

Contributions received from non-controlling interests
—

 
—

 
—

 
—

 
—

 
3,371

 
3,371

Common shares issued upon conversion of convertible debentures
12

 
—

 
—

 
—

 
—

 
—

 
12

Common shares issued upon public offering, net of cost
118,300

 
—

 
—

 
—

 
—

 
—

 
118,300

Issuance of common shares under employee share purchase plan
1,958

 
—

 
—

 
—

 
—

 
—

 
1,958

Share-based compensation
—

 
—

 
12,509

 
—

 
—

 
—

 
12,509

Common shares issued pursuant to share-based awards
18,229

 
—

 
(11,254
)
 
(16,086
)
 
—

 
—

 
(9,111
)
Balance, June 30, 2020
$
4,181,365

 
$
184,299

 
$
51,834

 
$
(323,404
)
 
$
(54,026
)
 
$
483,261

 
$
4,523,329

See accompanying notes to unaudited interim consolidated financial statements





Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statement of Equity

 
(thousands of U.S. dollars)
For the six months ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Algonquin Power & Utilities Corp. Shareholders
 
 
 
 
 
Common
shares
 
Preferred
shares
 
Additional
paid-in
capital
 
Accumulated
deficit
 
Accumulated
OCI
 
Non-
controlling
interests
 
Total
Balance, December 31, 2018
$
3,562,418

 
$
184,299

 
$
45,553

 
$
(595,259
)
 
$
(19,385
)
 
$
519,896

 
$
3,697,522

Adoption of ASU 2017-12 on hedging
—

 
—

 
—

 
(186
)
 
186

 
—

 
—

Net earnings (loss)
—

 
—

 
—

 
243,031

 
—

 
(21,775
)
 
221,256

Redeemable non-controlling interests not included in equity (note 14)
—

 
—

 
—

 
—

 
—

 
(9,267
)
 
(9,267
)
Other comprehensive income
—

 
—

 
—

 
—

 
22,835

 
2,705

 
25,540

Dividends declared and distributions to non-controlling interests
—

 
—

 
—

 
(103,917
)
 
—

 
(22,732
)
 
(126,649
)
Dividends and issuance of shares under dividend reinvestment plan
33,447

 
—

 
—

 
(33,447
)
 
—

 
—

 
—

Contributions received from non-controlling interests
—

 
—

 
—

 
—

 
—

 
100,318

 
100,318

Common shares issued upon conversion of convertible debentures
90

 
—

 
—

 
—

 
—

 
—

 
90

Common shares issued upon public offering, net of cost

5,093

 
—

 
—

 
—

 
—

 
—

 
5,093

Share-based compensation
—

 
—

 
6,308

 
—

 
—

 
—

 
6,308

Common shares issued pursuant to share-based awards
12,972

 
—

 
(6,447
)
 
(9,566
)
 
—

 
—

 
(3,041
)
Balance, June 30, 2019
$
3,614,020

 
$
184,299

 
$
45,414

 
$
(499,344
)
 
$
3,636

 
$
569,145

 
$
3,917,170

See accompanying notes to unaudited interim consolidated financial statements




Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statements of Cash Flows
(thousands of U.S. dollars)
Three months ended June 30
 
Six months ended June 30
 
2020
 
2019
 
2020
 
2019
Cash provided by (used in):
 
 
 
 
 
 
 
Operating Activities
 
 
 
 
 
 
 
Net earnings
$
272,978

 
$
147,336

 
$
193,605

 
$
221,256

Adjustments and items not affecting cash:
 
 
 
 

 

Depreciation and amortization
75,667

 
69,813

 
154,547

 
140,860

Deferred taxes
44,896

 
15,831

 
27,106

 
25,687

Unrealized gain (loss) on derivative financial instruments
(1,940
)
 
9,144

 
(2,179
)
 
9,675

Share-based compensation expense
9,997

 
2,566

 
11,640

 
4,473

Cost of equity funds used for construction purposes
(1,036
)
 
(698
)
 
(2,037
)
 
(1,160
)
Change in value of investments carried at fair value
(309,725
)
 
(119,856
)
 
(118,967
)
 
(114,038
)
Pension and post-employment expense in excess of (lower than) contributions
(1,599
)
 
434

 
2,784

 
3,231

Distributions received from equity investments, net of income
1,258

 
2,629

 
2,072

 
4,693

Others
(131
)
 
(382
)
 
(2,141
)
 
523

Changes in non-cash operating items (note 20)
52,569

 
6,775

 
(56,629
)
 
(39,487
)
 
142,934

 
133,592

 
209,801

 
255,713

Financing Activities
 
 
 
 
 
 
 
Increase in long-term debt
603,925

 
1,488,244

 
1,336,655

 
2,110,785

Decrease in long-term debt
(688,219
)
 
(1,372,856
)
 
(1,073,168
)
 
(1,689,224
)
Issuance of common shares, net of costs
119,492

 
5,974

 
120,257

 
6,367

Cash dividends on common shares
(65,236
)
 
(47,504
)
 
(122,568
)
 
(92,214
)
Dividends on preferred shares
(2,017
)
 
—

 
(4,157
)
 
(2,106
)
Contributions from non-controlling interests, related party
—

 
96,752

 
—

 
96,752

Contributions from non-controlling interests and redeemable non-controlling interests (note 14)
2,649

 
475

 
2,649

 
475

Production-based cash contributions from non-controlling interest
—

 
—

 
3,371

 
3,565

Distributions to non-controlling interests, related party (note 13(b) and (c))
(8,405
)
 
(3,773
)
 
(15,912
)
 
(10,867
)
Distributions to non-controlling interests
(3,148
)
 
(3,284
)
 
(7,225
)
 
(5,520
)
Payments upon settlement of derivatives
—

 
—

 
—

 
(8,732
)
Shares surrendered to fund withholding taxes on exercised share options
(4,644
)
 
(3,941
)
 
(4,644
)
 
(3,941
)
Increase in other long-term liabilities
4,801

 
774

 
7,201

 
4,052

Decrease in other long-term liabilities
(3,054
)
 
(11,334
)
 
(5,026
)
 
(13,779
)
 
(43,856
)
 
149,527

 
237,433

 
395,613

Investing Activities
 
 
 
 
 
 
 
Additions to property, plant and equipment and intangible assets
(186,407
)
 
(105,664
)
 
(342,309
)
 
(213,050
)
Increase in long-term investments
(44,078
)
 
(184,887
)
 
(105,167
)
 
(415,687
)
Acquisitions of operating entities
(7,285
)
 
—

 
(3,051
)
 
(1,350
)
Increase in other assets
(2,398
)
 
(11,975
)
 
(7,764
)
 
(13,011
)
Receipt of principal on development loans receivable
1,239

 
—

 
10,954

 
10,601

Proceeds from sale of long-lived assets
—

 
—

 
415

 
—

 
(238,929
)
 
(302,526
)
 
(446,922
)
 
(632,497
)
Effect of exchange rate differences on cash and restricted cash
2,730

 
566

 
(1,750
)
 
725

Increase (decrease) in cash, cash equivalents and restricted cash
(137,121
)
 
(18,841
)
 
(1,438
)
 
19,554

Cash, cash equivalents and restricted cash, beginning of period
222,955

 
104,168

 
87,272

 
65,773

Cash, cash equivalents and restricted cash, end of period
$
85,834

 
$
85,327

 
$
85,834

 
$
85,327

 
 
 
 
 
 
 
 
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statements of Cash Flows
 
 
 
 
(thousands of U.S. dollars)
Three months ended June 30
 
Six months ended June 30
 
2020
 
2019
 
2020
 
2019
Supplemental disclosure of cash flow information:
 
 
 
 
 
 
 
Cash paid during the period for interest expense
$
54,781

 
$
46,180

 
$
99,588

 
$
83,324

Cash paid during the period for income taxes
$
877

 
$
10,192

 
$
1,924

 
$
9,538

Non-cash financing and investing activities:
 
 
 
 
 
 
 
Property, plant and equipment acquisitions in accruals
$
51,634

 
$
29,207

 
$
51,634

 
$
29,207

Issuance of common shares under dividend reinvestment plan and share-based compensation plans
$
12,165

 
$
17,969

 
$
46,012

 
$
45,193

Issuance of common shares upon conversion of convertible debentures
$
—

 
$
64

 
$
12

 
$
94

See accompanying notes to unaudited interim consolidated financial statements

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

Algonquin Power & Utilities Corp. (“APUC” or the “Company”) is an incorporated entity under the Canada Business Corporations Act. APUC's operations are organized across two primary business units consisting of the Regulated Services Group and the Renewable Energy Group. The Regulated Services Group owns and operates a portfolio of regulated electric, natural gas, water distribution and wastewater collection utility systems and transmission operations in the United States and Canada; the Renewable Energy Group owns and operates a diversified portfolio of non-regulated renewable and thermal electric generation assets.
1.
Significant accounting policies
(a)
Basis of preparation
The accompanying unaudited interim consolidated financial statements and notes have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and follow disclosure required under Regulation S-X provided by the U.S. Securities and Exchange Commission. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments that are of a recurring nature and necessary for a fair presentation of the results of interim operations.
The significant accounting policies applied to these unaudited interim consolidated financial statements of APUC are consistent with those disclosed in the consolidated financial statements of APUC for the year ended December 31, 2019, except for adopted accounting policies described in note 2(a) and note 1(e).
(b)
COVID-19 Pandemic
The preparation of these unaudited interim consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
The ongoing outbreak of the novel strain of coronavirus (“COVID-19”) has resulted in business suspensions and shutdowns that has caused changes in consumption patterns of the Company's customers. Force majeure or similar notices have been received from suppliers and/or contractors for all of the Company's major renewable energy construction projects. Certain manufacturing, transportation and delivery delays have occurred, and similar future disruptions are possible due to COVID-19. However, the U.S. Internal Revenue Service recently extended by one year the "continuity safe harbor" deadline by which renewable projects must be placed in service to qualify for the maximum permissible U.S. federal tax credits. The Company’s business, financial condition, cash flows and results of operations, are subject to actual and potential future impacts resulting from COVID-19, the full extent of which is not currently known. The Company has made estimates of the impact of COVID-19 within its financial statements and there may be changes to those estimates in future periods.
(c)
Seasonality
APUC's operating results are subject to seasonal fluctuations that could materially impact quarter-to-quarter operating results and, thus, one quarter's operating results are not necessarily indicative of a subsequent quarter's operating results. Where decoupling mechanisms exist, total volumetric revenue is prescribed by the applicable regulatory authority and is not affected by usage. APUC's different electrical distribution utilities can experience higher or lower demand in the summer or winter depending on the specific regional weather and industry characteristics. During the winter period, natural gas distribution utilities experience higher demand than during the summer period. APUC’s water and wastewater utility assets’ revenues fluctuate depending on the demand for water, which is normally higher during drier and hotter months of the summer. APUC’s hydroelectric energy assets are primarily "run-of-river" and as such fluctuate with the natural water flows. During the winter and summer periods, flows are generally slower, while during the spring and fall periods flows are heavier. For APUC's wind energy assets, wind resources are typically stronger in spring, fall and winter and weaker in summer. APUC's solar energy assets experience greater insolation in summer, weaker in winter.






Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

1.
Significant accounting policies (continued)
(d)
Foreign currency translation
APUC’s reporting currency is the U.S. dollar. Within these unaudited interim consolidated financial statements, the Company denotes any amounts denominated in Canadian dollars with “C$” immediately prior to the stated amount.
Effective January 1, 2020, the functional currency of APUC, the non-consolidated parent entity, changed from the Canadian dollar to the U.S. dollar based on a balance of facts taking into consideration its operating, financing and investing activities. As a result of the entity's change of functional currency, changes were made to certain hedging relationships to mitigate the remaining Canadian dollar risk (note 21(b)(iii)).
(e)
Current expected credit losses
The Company adopted the U.S. Financial Accounting Standards Board ("FASB") Financial Instrument —Credit Losses Topic 326 ("ASC 326") in the first quarter of 2020 using a modified retrospective approach. The Company has trade accounts receivable and loans receivable from its equity method investees in both the Regulated Services and Renewable Energy Group. New allowance policies were implemented for the Company's loans receivable and the Renewable Energy Group's trade accounts receivable. The impact to the Company's bad debt expense upon adoption was not significant.
2.     Recently issued accounting pronouncements
(a)
Recently adopted accounting pronouncements
The FASB issued accounting standards update ("ASU") Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 to reduce diversity in practice on how entities account for transactions on the basis of different views of the economics of a collaborative arrangement. The adoption of this Update during the first quarter did not have an impact on the unaudited interim consolidated financial statements.
The FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities to improve general purpose financial reporting. The update clarifies that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The adoption of this Update during the first quarter did not have an impact on the unaudited interim consolidated financial statements.
The FASB issued ASU 2017-04, Business Combinations (Topic 350): Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update is intended to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measured a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the amendments in this update, the impairment loss will be measured as the amount by which the carrying amount of the reporting unit exceeds the reporting unit’s fair value. The Company will follow the pronouncements prospectively for goodwill impairment testing.
The FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The adoption of this topic in the first quarter did not have a significant impact on the unaudited interim consolidated financial statements (note 1(e)).
(b)
Recently issued accounting guidance not yet adopted
The FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting that provides optional expedients and exceptions to ease the potential burden in accounting for reference rate reform. The amendments apply to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of the reference rate reform. The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently assessing the impact of the reference rate reform and this Update.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

3.
Business acquisitions
Acquisition of Enbridge Gas New Brunswick Limited Partnership & St. Lawrence Gas Company, Inc.
The Company completed the acquisition of Enbridge Gas New Brunswick Limited Partnership ("New Brunswick Gas") on October 1, 2019, and St. Lawrence Gas Company, Inc. ("St. Lawrence Gas") on November 1, 2019. New Brunswick Gas is a regulated utility that provides natural gas. The purchase price recorded in 2019 was $256,011 (C$339,036). A closing adjustment of $3,904 (C$5,447) was made in 2020. St. Lawrence Gas is a regulated utility that provides natural gas in northern New York State. The total purchase price recorded in 2019 for the transaction was $61,820. A closing adjustment of $120 was made in 2020. In both cases, the adjustment reduced goodwill.
The determination of the fair value of assets acquired and liabilities assumed is based upon management's preliminary estimates and certain assumptions. Due to the timing of the acquisitions, the Company has not finalized the fair value measurements.
4.
Accounts receivable
Accounts receivable as of June 30, 2020 include unbilled revenue of $48,680 (December 31, 2019 - $80,295) from the Company’s regulated utilities. Accounts receivable as of June 30, 2020 are presented net of allowance for doubtful accounts of $10,555 (December 31, 2019 - $4,939).
5.
Regulatory matters
The operating companies within the Regulated Services Group are subject to regulation by the public utility commissions of the states and provinces in which they operate. The respective public utility commissions have jurisdiction with respect to rate, service, accounting policies, issuance of securities, acquisitions and other matters. These utilities operate under cost-of-service regulation as administered by these authorities. The Company’s regulated utility operating companies are accounted for under the principles of ASC 980. Under ASC 980, regulatory assets and liabilities that would not be recorded under U.S. GAAP for non-regulated entities are recorded to the extent that they represent probable future revenue or expenses associated with certain charges or credits that will be recovered from or refunded to customers through the rate setting process.
At any given time, the Company can have several regulatory proceedings underway. The financial effects of these proceedings are reflected in the consolidated financial statements based on regulatory approval obtained to the extent that there is a financial impact during the applicable reporting period. The following regulatory proceeding were recently completed:
Utility
State
Regulatory proceeding type
Annual revenue increase
Effective date
Energy North Gas System
New Hampshire
Cast Iron/Bare Steel Replacement Program Results
$1,613
July 1, 2020
Granite State Electric System
New Hampshire
General Rate Review
$5,474
July 1, 2020. The regulator also approved a one-time recoupment of
$1,836 for the difference between the
final rates and temporary rate increase of $2,093 granted on July 1, 2019.
Peach State Gas System
Georgia
General Rate Review
$1,566
August 1, 2020
Subsequent to quarter end, the Public Service Commission of the State of Missouri issued an Order in regards to the general rate review of Empire Electric (Missouri System) resulting in an estimated annual increase in revenue of $992, subject to final regulatory approval.


Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

5.
Regulatory matters (continued)
Regulatory assets and liabilities consist of the following:
 
June 30, 2020
 
December 31, 2019
Regulatory assets
 
 
 
Retired generating plant (a)
$
196,476

 
$
—

Environmental remediation
88,914

 
82,300

Pension and post-employment benefits
136,901

 
143,292

Income taxes
73,662

 
71,506

Debt premium
38,462

 
42,150

Fuel and commodity cost adjustments
7,736

 
23,433

Rate adjustment mechanism
77,173

 
69,121

Clean energy and other customer programs
26,510

 
26,369

Deferred capitalized costs
37,920

 
38,833

Asset retirement obligation
25,631

 
23,841

Long-term maintenance contract
14,913

 
13,264

Rate review costs
7,000

 
6,695

Other
22,343

 
19,083

Total regulatory assets
$
753,641

 
$
559,887

Less: current regulatory assets
(43,558
)
 
(50,213
)
Non-current regulatory assets
$
710,083

 
$
509,674

 
 
 
 
Regulatory liabilities
 
 
 
Income taxes
$
331,991

 
$
321,960

Cost of removal
195,277

 
196,423

Rate base offset
7,342

 
8,719

Fuel and commodity costs adjustments
19,090

 
16,645

Rate adjustment mechanism
4,514

 
10,446

Deferred capitalized costs - fuel related
7,017

 
7,097

Pension and post-employment benefits
24,460

 
22,256

Other (a)
19,135

 
14,516

Total regulatory liabilities
$
608,826

 
$
598,062

Less: current regulatory liabilities
(31,720
)
 
(41,683
)
Non-current regulatory liabilities
$
577,106

 
$
556,379

(a)
Retired generating plant
On March 1, 2020, the Company's 200 MW coal generation facility located in Asbury, Missouri, ceased operations. The Company transferred the remaining net book value of Asbury’s plant retired from plant in-service to a regulatory asset. The ultimate valuation of the regulatory asset will be determined in future commission orders. The Company is also assessing the decommissioning requirements associated with the retirement of the facility. Per commission orders in three of its jurisdictions, the Company is required to track the impact of Asbury's retirement on rates for consideration in the next rate case. The Company expects to defer such amounts collected from customers until new rates become effective. The accrual for this estimated amount includes revenues collected related to Asbury that will be subject to a future rate review proceeding and possible refund to customers. The ultimate resolution of this matter is uncertain.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

6.
Long-term investments
Long-term investments consist of the following:
 
June 30, 2020
 
December 31, 2019
Long-term investments carried at fair value

 
 
 
Atlantica (a)
$
1,307,814

 
$
1,178,581

Atlantica Yield Energy Solutions Canada Inc.
83,060

 
88,494

San Antonio Water System (b)
26,650

 
27,072

 
$
1,417,524

 
$
1,294,147

Other long-term investments
 
 
 
Equity-method investees (c)
$
119,798

 
$
83,497

Development loans receivable from equity-method investees
103,134

 
36,204

Other
4,939

 
2,267

Total other long-term investments
$
227,871

 
$
121,968


Income (loss) from long-term investments from the three and six months ended June 30 is as follows:
 
Three months ended June 30
 
Six months ended June 30
 
2020
 
2019
 
2020
 
2019
Fair value gain (loss) on investments carried at fair value
 
 
 
 
 
 
 
Atlantica
$
305,606

 
$
136,809

 
$
120,212

 
$
130,991

Atlantica Yield Energy Solutions Canada Inc.
2,897

 
(15,415
)
 
(1,245
)
 
(15,415
)
San Antonio Water System
1,339

 
—

 
117

 
—

 
$
309,842

 
$
121,394

 
$
119,084

 
$
115,576

Dividend and interest income from investments carried at fair value
 
 
 
 
 
 
 
Atlantica
$
18,426

 
$
17,527

 
$
36,852

 
$
32,904

Atlantica Yield Energy Solutions Canada Inc.
4,813

 
17,629

 
8,717

 
17,629

San Antonio Water System
1,065

 
—

 
2,113

 
—

 
$
24,304

 
$
35,156

 
$
47,682

 
$
50,533

Other long-term investments
 
 
 
 


 


Equity method loss
(1,326
)
 
(2,620
)
 
(2,124
)
 
(4,726
)
Interest and other income
1,989

 
6,732

 
7,506

 
18,751

 
$
334,809

 
$
160,662

 
$
172,148

 
$
180,134


(a)
Investment in Atlantica
AAGES (AY Holdings) B.V. (“AY Holdings”), an entity controlled and consolidated by APUC, has a share ownership in Atlantica Yield plc ("Atlantica") of approximately 44.2% (December 31, 2019 - 44.2%). APUC has the flexibility, subject to certain conditions, to increase its ownership of Atlantica up to 48.5%. The shares were purchased at a cost of $1,036,414. The Company accounts for its investment in Atlantica at fair value, with changes in fair value reflected in the unaudited interim consolidated statements of operations.




Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

6.
Long-term investments (continued)
(b)
San Antonio Water System
On December 30, 2019, the Company and a third-party each contributed C$1,500 to the capital of a new joint venture, created for the purpose of investing in infrastructure opportunities. The Company sold its investment in Abengoa Water USA, LLC to the joint venture and has elected the fair value option under ASC 825, Financial Instruments to account for its investment in the joint venture, with changes in fair value reflected in the unaudited interim consolidated statements of operations.
Subsequent to quarter end, on July 2, 2020, APUC acquired the third-party developer's 50% interest in the joint venture for C$1,581.
(c)
Equity-method investees
The Company has non-controlling interests in various partnerships and joint ventures with a total carrying value of $119,798 (December 31, 2019 - $83,497) including investments in variable interest entities ("VIEs") of $97,220 (December 31, 2019 - $59,091).
Summarized combined information for APUC's investments in significant partnerships and joint ventures is as follows:
 
June 30, 2020
 
December 31, 2019
Total assets
$
1,686,942

 
$
833,791

Total liabilities
1,496,166

 
697,751

Net assets
190,776

 
136,040

APUC's ownership interest in the entities
98,645

 
63,624

Difference between investment carrying amount and underlying equity in net assets(a)
21,153

 
18,487

APUC's investment carrying amount for the entities
$
119,798

 
$
82,111


(a) The difference between the investment carrying amount and the underlying equity in net assets relates primarily to interest capitalized while the projects are under construction, the fair value of guarantees provided by the Company in regards to the investments, development fees and transaction costs.
The Company has committed loan and credit support facilities with some of its equity investees. During construction, the Company is obligated to provide cash advances and credit support in amounts necessary for the continued development and construction of the equity investees' projects. As of June 30, 2020, the Company had issued letters of credit and guarantees of obligations: under a security of performance for a development opportunity; wind turbine or solar panel supply agreements; engineering, procurement, and construction agreements; purchase and sale agreements; interconnection agreements; energy purchase agreements; renewable energy credit agreements; equity capital contribution agreements; landowner agreements; and construction loan agreement. The fair value of the support provided recorded as at June 30, 2020 amounts to $10,898 (December 31, 2019 - $9,493). The Company is not considered the primary beneficiary of these entities as the partners have joint control and all decisions must be unanimous. Therefore, the Company accounts for its interest in these VIEs using the equity method.









Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

6.
Long-term investments (continued)
(c)
Equity-method investees
Summarized combined information for APUC's VIEs is as follows:
 
June 30, 2020
 
December 31, 2019
APUC's maximum exposure in regards to VIEs
 
 
 
Carrying amount
$
97,220

 
$
59,091

Development loans receivable
102,418

 
35,000

Commitments on behalf of VIEs
1,101,377

 
1,364,871

 
$
1,301,015

 
$
1,458,962


The commitments are presented on a gross basis assuming no recoverable value in the assets of the VIEs. The majority of the amounts committed on behalf of VIEs in the above relate to wind turbine or solar panel supply agreements as well as engineering, procurement, and construction agreements.
7.
Long-term debt
Long-term debt consists of the following:
Borrowing type
 
Weighted average coupon
 
Maturity
 
Par value
 
June 30, 2020
 
December 31, 2019
Senior unsecured revolving credit facilities (a)
 
—

 
2023-2024
 
N/A

 
$
89,000

 
$
141,577

Senior unsecured bank credit facilities (b)
 
—

 
2020-2021
 
N/A

 
458,510

 
75,000

Commercial paper
 
—

 
2020
 
N/A

 
215,000

 
218,000

U.S. dollar borrowings
 
 
 
 
 
 
 
 
 
 
Senior unsecured notes (c)
 
4.21
%
 
2020-2047
 
$
1,125,000

 
1,120,004

 
1,219,579

Senior unsecured utility notes
 
6.01
%
 
2020-2035
 
$
212,000

 
227,956

 
233,686

Senior secured utility bonds (d)
 
4.71
%
 
2026-2044
 
$
556,000

 
562,913

 
672,337

Canadian dollar borrowings
 
 
 
 
 
 
 
 
 
 
Senior unsecured notes (e)
 
4.28
%
 
2021-2050
 
C$
1,150,669

 
840,337

 
728,679

Senior secured project notes
 
10.21
%
 
2027
 
C$
27,098

 
19,870

 
21,961

 
 
 
 
 
 
 
 
$
3,533,590

 
$
3,310,819

Subordinated U.S. dollar borrowings
 
 
 
 
 
 
 
 
 
 
Subordinated unsecured notes
 
6.50
%
 
2078-2079
 
$
637,500

 
621,186

 
621,049

 
 
 
 
 
 
 
 
$
4,154,776

 
$
3,931,868

Less: current portion
 
 
 
 
 
 
 
(221,827
)
 
(225,013
)
 
 
 
 
 
 
 
 
$
3,932,949

 
$
3,706,855

Short-term obligations of $659,558 that are expected to be refinanced using the long-term credit facilities are presented as long-term debt.
Long-term debt issued at a subsidiary level (project notes or utility bonds) relating to a specific operating facility is generally collateralized by the respective facility with no other recourse to the Company. Long-term debt issued at a subsidiary level whether or not collateralized generally has certain financial covenants, which must be maintained on a quarterly basis. Non-compliance with the covenants could restrict cash distributions/dividends to the Company from the specific facilities.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

7.
Long-term debt (continued)
Recent financing activities:
(a)
Senior unsecured revolving credit facilities
On February 24, 2020, the Renewable Energy Group increased its uncommitted letter of credit facility to $350,000 and extended the maturity to June 30, 2021.
(b)
Senior unsecured bank credit facilities
Given the uncertainty caused by the COVID-19 pandemic, the Company secured additional liquidity as an additional margin of safety intended to ensure the Company can continue to move forward with its 2020 capital expenditure program and committed acquisitions independent of the state of the capital markets. The additional liquidity is in the form of three new senior unsecured delayed draw non-revolving credit facilities for a total of $1,600,000 maturing in April, 2021. As at June 30, 2020, there was $400,000 drawn on these facilities.
(c)
Senior unsecured notes
On April 30, 2020, the Company repaid, upon its maturity, a $100,000 unsecured note.
(d)
Senior secured utility bonds
On June 1, 2020, the Company repaid, upon its maturity, a $100,000 secured utility bond at Empire.
(e)
Canadian dollar senior unsecured notes
On February 14, 2020, the Regulated Services Group issued C$200,000 senior unsecured debentures bearing interest at 3.315% with a maturity date of February 14, 2050. The debentures are redeemable at the option of the Company at a price based on a make-whole provision.
8.
Pension and other post-employment benefits
The following table lists the components of net benefit costs for the pension plans and other post-employment benefits ("OPEB") in the unaudited interim consolidated statements of operations for the three and six-month periods ended June 30:
 
Pension benefits
 
Three months ended June 30
 
Six months ended June 30
 
2020
 
2019
 
2020
 
2019
Service cost
$
4,136

 
$
2,795

 
$
7,703

 
$
6,060

Non-service costs
 
 
 
 
 
 
 
Interest cost
4,112

 
3,670

 
8,903

 
8,429

Expected return on plan assets
(6,261
)
 
(3,088
)
 
(12,510
)
 
(10,211
)
Amortization of net actuarial loss
1,145

 
2,060

 
2,290

 
1,744

Amortization of prior service credits
(402
)
 
(412
)
 
(804
)
 
(390
)
Amortization of regulatory assets/liabilities
4,769

 
1,194

 
8,307

 
4,271

 
$
3,363

 
$
3,424

 
$
6,186

 
$
3,843

Net benefit cost
$
7,499

 
$
6,219

 
$
13,889

 
$
9,903














Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

8.
Pension and other post-employment benefits (continued)
 
OPEB
 
Three months ended June 30
 
Six months ended June 30
 
2020
 
2019
 
2020
 
2019
Service cost
$
1,466

 
$
1,203

 
$
2,933

 
$
2,402

Non-service costs
 
 
 
 
 
 
 
Interest cost
1,755

 
1,834

 
3,574

 
3,618

Expected return on plan assets
(2,193
)
 
(1,371
)
 
(4,385
)
 
(3,301
)
Amortization of net actuarial gain
(14
)
 
(424
)
 
(27
)
 
(476
)
Amortization of prior service credits
—

 
(10
)
 
—

 
(105
)
Amortization of regulatory assets/liabilities
706

 
294

 
1,625

 
1,461

 
$
254

 
$
323

 
$
787

 
$
1,197

Net benefit cost
$
1,720

 
$
1,526

 
$
3,720

 
$
3,599


The service cost components of pension plans and OPEB are shown as part of operating expenses within operating income in the unaudited interim consolidated statements of operations. The remaining components of net benefit cost are considered non-service costs and have been included outside of operating income in the unaudited interim consolidated statements of operations.
9.Other long-term liabilities
Other long-term liabilities consist of the following: 
 
June 30, 2020
 
December 31, 2019
Advances in aid of construction
$
62,664

 
$
60,828

Environmental remediation obligation
66,446

 
58,061

Asset retirement obligations
54,794

 
53,879

Customer deposits
31,708

 
31,946

Unamortized investment tax credits
18,051

 
18,234

Deferred credits
18,856

 
18,952

Contingent development support obligations
10,898

 
9,446

Preferred shares, Series C
12,975

 
13,793

Lease liabilities
14,248

 
9,695

Other
29,293

 
26,506

 
$
319,933

 
$
301,340

Less: current portion
(56,944
)
 
(57,939
)
 
$
262,989

 
$
243,401



Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

10.
Shareholders’ capital
(a)
Common shares
Number of common shares 
 
 
Six months ended June 30
 
 
2020
 
2019
Common shares, beginning of period
 
524,223,323

 
488,851,433

Public offering
 
8,664,563

 
509,431

Dividend reinvestment plan
 
1,911,697

 
3,225,749

Exercise of share-based awards (b)
 
1,344,375

 
886,931

Conversion of convertible debentures
 
1,509

 
11,883

Common shares, end of period
 
536,145,467

 
493,485,427
On May 15, 2020, APUC re-established its at-the-market equity program ("ATM program") that allows the Company to issue up to $500,000 of common shares from treasury to the public from time to time, at the Company's discretion, at the prevailing market price when issued on the TSX, the NYSE, or any other existing trading market for the common shares of the Company in Canada or the United States. During the quarter, the Company issued 8,664,563 common shares under the ATM program at an average price of $13.92 per common share for gross proceeds of $120,634 ($119,126 net of commissions). Other related costs, primarily related to the re-establishment of the ATM program, were $761.
Since the initial launch of the ATM program in February 2019, the Company has issued an aggregate of 10,421,362 common shares under the ATM program at an average price of $13.69 per share for gross proceeds of $142,668 ($140,830 net of commissions). Other related costs, primarily related to the establishment and re-establishment, as applicable, of the ATM program, were $2,883.
Subsequent to quarter end, on July 17, 2020, APUC issued 57,465,500 common shares at $12.60 (C$17.10) per share pursuant to agreements with a syndicate of underwriters and an institutional investor for gross proceeds of $723,926 (C$982,660) before issuance costs of $24,294 (C$32,977). Forward contracts were used to manage the Canadian dollar risk (note 21(b)(iv)).
(b)
Share-based compensation
For the three and six months ended June 30, 2020, APUC recorded $9,997 and $11,640 (2019 - $2,566 and $4,473) in total share-based compensation expense. The compensation expense is recorded as part of administrative expenses in the unaudited interim consolidated statements of operations, except for $6,952 related to management succession and executive retirement expenses discussed below which was recorded in other net losses (note 16(b)). The portion of share-based compensation costs capitalized as cost of construction is insignificant.
As of June 30, 2020, total unrecognized compensation costs related to non-vested options and PSUs were $1,639 and $13,482, respectively, and are expected to be recognized over a period of 1.08 and 1.37 years, respectively.
Management succession and executive retirements:
On February 5, 2020, the Company announced succession plans for the role of Chief Executive Officer (‘CEO”) and the retirements of the Chief Financial Officer (“CFO”) and Vice Chair in 2020 and 2021 respectively. In order to facilitate an orderly and planned transition, the Company entered into Retirement Agreements with Messrs. Robertson, Bronicheski, and Jarratt. Mr. Robertson retired subsequent to quarter end on July 17, 2020. The Retirement Agreements with Messrs. Bronicheski and Jarratt provide that they will retire on September 18, 2020 and a date subsequent to February 10, 2021 respectively.
Retirement restricted share units (“RSUs”) are being granted to Messrs. Robertson, Jarratt and Bronicheski. The retirement RSUs vest on each executive’s respective retirement date and settle at various times between the first and fifth anniversary of the day of grant. The compensation cost is recorded over the period from the effective date of the retirement agreement to the retirement date. For the three and six months ended June 30, 2020, the Company recorded compensation cost of $3,049 in other net losses.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

10.
Shareholders’ capital (continued)
(b)
Share-based compensation (continued)
All unvested PSUs held by an executive will remain outstanding. All options held by an executive will continue to vest and be exercisable as if the executive were still employed until such Options otherwise expire in accordance with their terms and conditions. The fair value of these PSUs and options is being recognized over their vesting period. As a result of the retirement agreement the recognition of the compensation cost is accelerated and recorded over the period from the effective date of the retirement agreement to the retirement date. For the three and six months ended June 30, 2020, the Company recorded accelerated compensation expense of $2,940 in other net losses.
For the three and six months ended June 30, 2020, the Company recorded other succession and retirement expense of $963 in other net losses.
Share option plan:
During the six months ended June 30, 2020, the Board of directors of the Company (the "Board") approved the grant of 948,347 options to executives of the Company. The options allow for the purchase of common shares at a weighted average price of C$16.70, the market price of the underlying common share at the date of grant. One-third of the options vest on each of December 31, 2020, 2021, and 2022. The options may be exercised up to eight years following the date of grant.
The following assumptions were used in determining the fair value of share options granted: 
 
2020
Risk-free interest rate
1.2
%
Expected volatility
24
%
Expected dividend yield
4.1
%
Expected life
5.50 years

Weighted average grant date fair value per option
C$
2.75


During the six months ended June 30, 2020, 2,386,275 share options were exercised at a weighted average price of C$12.52 in exchange for 748,786 common shares issued from treasury, and 1,637,489 options settled at their cash value as payment for the exercise price and tax withholdings related to the exercise of the options.
Performance and restricted share units:
During the six months ended June 30, 2020, a total of 775,340 performance share units ("PSUs"), RSUs and retirement RSUs discussed above were granted to executives of the Company. The awards vest based on the terms of each agreement ranging from July 2020 to January 2023. Subsequent to quarter end, 321,752 PSUs were granted to employees of the Company. The PSUs vest on January 1, 2023. During the six months ended June 30, 2020, the Company settled 825,859 PSUs in exchange for 441,342 common shares issued from treasury, and 384,517 PSUs were settled at their cash value as payment for tax withholdings related to the settlement of the PSUs.
During the quarter, 116,921 bonus deferral RSUs were granted to employees of the Company. The RSUs are 100% vested. In addition, the Company settled 13,778 bonus deferral RSUs in exchange for 6,401 common shares issued from treasury, and 7,377 RSUs were settled at their cash value as payment for tax withholdings related to the settlement of the RSUs.
Directors' deferred share units:
During the six months ended June 30, 2020, 21,343 deferred share units ("DSUs") were issued pursuant to the election of the Directors to defer a percentage of their Directors' fee in the form of DSUs.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

11.Accumulated other comprehensive income (loss)
AOCI consists of the following balances, net of tax:
 
Foreign currency cumulative translation
 
Unrealized gain on cash flow hedges
 
Pension and post-employment actuarial changes
 
Total
Balance, January 1, 2019
$
(74,189
)
 
$
64,333

 
$
(9,529
)
 
$
(19,385
)
Adoption of ASU 2017-12 on hedging
—

 
186

 
—

 
186

Other comprehensive income (loss)
7,795

 
19,177

 
(7,999
)
 
18,973

Amounts reclassified from AOCI to the unaudited interim consolidated statement of operations
—

 
(8,597
)
 
1,490

 
(7,107
)
Net current period OCI
$
7,795

 
$
10,580

 
$
(6,509
)
 
$
11,866

OCI attributable to the non-controlling interests
(2,428
)
 
—

 
—

 
(2,428
)
Net current period OCI attributable to shareholders of APUC
$
5,367

 
$
10,580

 
$
(6,509
)
 
$
9,438

Balance, December 31, 2019
$
(68,822
)
 
$
75,099

 
$
(16,038
)
 
$
(9,761
)
Other comprehensive loss
(28,057
)
 
(12,890
)
 
—

 
(40,947
)
Amounts reclassified from AOCI to the unaudited interim consolidated statement of operations
—

 
(7,411
)
—

(21
)
 
(7,432
)
Net current period OCI
$
(28,057
)
 
$
(20,301
)
 
$
(21
)
 
$
(48,379
)
OCI attributable to the non-controlling interests
4,114

 
—

 
—

 
4,114

Net current period OCI attributable to shareholders of APUC
$
(23,943
)
 
$
(20,301
)
 
$
(21
)
 
$
(44,265
)
Balance, June 30, 2020
$
(92,765
)
 
$
54,798

 
$
(16,059
)
 
$
(54,026
)

Amounts reclassified from AOCI for unrealized gain (loss) on cash flow hedges affected revenue from non-regulated energy sales while those for pension and post-employment actuarial changes affected pension and post-employment non-service costs.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

12.
Dividends
All dividends of the Company are made on a discretionary basis as determined by the Board. The Company declares and pays the dividends on its common shares in U.S. dollars. Dividends declared were as follows:
 
Three months ended June 30
 
2020
 
2019
 
Dividend
 
Dividend per share
 
Dividend
 
Dividend per share
Common shares
$
83,824

 
$
0.1551

 
$
69,868

 
$
0.1410

Series A preferred shares
C$
1,549

 
C$
0.3226

 
C$
1,549

 
C$
0.3226

Series D preferred shares
C$
1,273

 
C$
0.3182

 
C$
1,273

 
C$
0.3182


 
Six months ended June 30
 
2020
 
2019
 
Dividend
 
Dividend per share
 
Dividend
 
Dividend per share
Common shares
$
158,453

 
$
0.2961

 
$
133,149

 
$
0.2692

Series A preferred shares
C$
3,097

 
C$
0.6452

 
C$
3,097

 
C$
0.6452

Series D preferred shares
C$
2,546

 
C$
0.6364

 
C$
2,523

 
C$
0.6307


13.Related party transactions
(a)Equity-method investments
The Company provides administrative and development services to its equity-method investees and is reimbursed for incurred costs. To that effect, during the three and six months ended June 30, 2020, the Company charged its equity-method investees $5,426 and $9,418 (2019 - $7,159 and $12,853).
(b)Redeemable non-controlling interest held by related party
Redeemable non-controlling interest held by related party represents a preference share in a consolidated subsidiary of the Company acquired by Abengoa-Algonquin Global Energy Solutions B.V. ("AAGES B.V.") in 2018 for $305,000. Redemption is not considered probable as at June 30, 2020. The Company incurred non-controlling interest attributable to AAGES B.V. of $3,393 and $7,159 (2019 - $7,072 and $13,914) and recorded distributions of $3,573 and $6,873 (2019 - $3,773 and $10,867) during the three and six months ended June 30, 2020 (note 14).
(c)Non-controlling interest held by related party
Non-controlling interest held by related party represents interest in a consolidated subsidiary of the Company acquired by Atlantica Yield Energy Solutions Canada Inc. ("AYES Canada") in May 2019. The Company recorded distributions of $4,832 and $9,039 (2019 - $18,013 and $18,013) during the three and six months ended June 30, 2020.
(d)Long Sault Hydro Facility
Effective December 31, 2013, APUC acquired the shares of Algonquin Power Corporation Inc. (“APC”), which was partially owned by Senior Executives. APC owns the partnership interest in the 18 MW Long Sault Hydro Facility. A final post-closing adjustment related to the transaction remains outstanding.
The above related party transactions have been recorded at the exchange amounts agreed to by the parties to the transactions.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

14.
Non-controlling interests and redeemable non-controlling interests
Net effect attributable to non-controlling interests for the three and six months ended June 30 consists of the following:
 
Three months ended June 30
 
Six months ended June 30
 
2020
 
2019
 
2020
 
2019
HLBV and other adjustments attributable to:
 
 
 
 
 
 
 
Non-controlling interests - tax equity partnership units
$
15,503

 
$
14,496

 
$
33,735

 
$
32,335

Non-controlling interests - redeemable tax equity partnership units
1,756

 
2,341

 
3,475

 
4,647

Other net earnings attributable to:
 
 
 
 
 
 
 
Non-controlling interests
(625
)
 
(476
)
 
(1,234
)
 
(1,293
)
 
$
16,634

 
$
16,361

 
$
35,976

 
$
35,689

Redeemable non-controlling interest, held by related party

(3,393
)
 
(7,072
)
 
(7,159
)
 
(13,914
)
Net effect of non-controlling interests
$
13,241

 
$
9,289

 
$
28,817

 
$
21,775


The non-controlling tax equity investors (“tax equity partnership units”) in the Company's U.S. wind power and solar power generating facilities are entitled to allocations of earnings, tax attributes and cash flows in accordance with contractual agreements. The share of earnings attributable to the non-controlling interest holders in these subsidiaries is calculated using the hypothetical liquidation at book value ("HLBV") method of accounting.
The Turquoise Solar Facility, a 10 MWac solar generating facility located in Washoe County, Nevada, was placed in service on December 31, 2019. The Class A partnership units are owned by a third-party tax equity investor who funded $1,403 on the execution date, $2,000 on December 31, 2019 and an instalment of $2,649 during the second quarter.
15.
Income taxes
For the six months ended June 30, 2020, the Company's tax rate varied from the statutory rate of 26.5% due primarily to the favorable tax impact on the income associated with its investment in Atlantica, the favorable impact of differences in effective tax rates on transactions in foreign jurisdictions, and accrued tax credits. These adjustments are offset by the impact of the finalization of certain regulations related to U.S. Tax Reform as further described below.
On April 8, 2020, the IRS issued final regulations with respect to rules regarding certain Hybrid arrangements as a result of U.S. Tax Reform. As a result of the final regulations, the Company has recorded a one-time income tax expense of $9,300 to reverse the benefit of deductions taken in the prior year.
For the six months ended June 30, 2019, the Company's tax rate varied from the statutory rate of 26.5% due primarily to the favorable tax impact on the income associated with its investment in Atlantica, and the impact of the differences in effective tax rates on transactions in foreign jurisdictions.
16.
Other net losses
Other net losses consist of the following:
 
Three months ended June 30
 
Six months ended June 30
 
2020
 
2019
 
2020
 
2019
Acquisition and transition-related costs
(3,116
)
 
(445
)
 
(3,142
)
 
(2,389
)
Tax reform (a)
(11,728
)
 
—

 
(11,728
)
 
—

Management succession and executive retirement (b)
(6,952
)
 
—

 
(6,952
)
 
—

Other (c)
(5,144
)
 
(5,358
)
 
(6,008
)
 
(5,978
)
 
$
(26,940
)
 
$
(5,803
)
 
$
(27,830
)
 
$
(8,367
)



Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

16.
Other net losses (continued)
(a)
Tax Reform
As a result of the Tax Cuts and Jobs Act enacted in 2017, regulators in the states where the Regulated Services Group operates contemplated the rate making implications of federal tax rates from the legacy 35% tax rate and the new 21% federal statutory income tax rate effective January 2018. Subsequent to quarter end, on July 1, 2020, the Company received an order from the Public Service Commission of the State of Missouri that requires Empire to refund to customers over five years the revenue requirement collected at the higher tax rate between January 1, 2018 and August 31, 2018 before new rates came into effect. Therefore, an accounting loss was recognized for approximately $11,728 during the quarter.
(b)
Management succession and executive retirement
On February 5, 2020, the Company announced succession plans for the role of CEO, and the retirements of the CFO and Vice Chair in 2020 and 2021. As part of the Retirement Agreements, the Company recorded $6,952 of expenses during the quarter in relation to these executives’ share-based compensation agreements (note 10(b)).
(c)
Other
Other losses primarily consists of costs related to the condemnation of Liberty Utilities (Apple Valley Ranchos Water) Corp. (note 19(a)).
17.
Basic and diluted net earnings per share
Basic and diluted earnings per share have been calculated on the basis of net earnings attributable to the common shareholders of the Company and the weighted average number of common shares and bonus deferral restricted share units outstanding. Diluted net earnings per share is computed using the weighted-average number of common shares, subscription receipts outstanding, additional shares issued subsequent to quarter-end under the dividend reinvestment plan, PSUs, RSUs and DSUs outstanding during the period and, if dilutive, potential incremental common shares resulting from the application of the treasury stock method to outstanding share options and additional shares issued subsequent to quarter-end under the dividend reinvestment plan.
The reconciliation of the net earnings and the weighted average shares used in the computation of basic and diluted earnings per share are as follows:
 
Three months ended June 30
 
Six months ended June 30
 
2020
 
2019
 
2020
 
2019
Net earnings attributable to shareholders of APUC
$
286,219

 
$
156,625

 
$
222,422

 
$
243,031

Series A preferred shares dividend
1,107

 
1,158

 
2,282

 
2,323

Series D preferred shares dividend
910

 
951

 
1,875

 
1,892

Net earnings attributable to common shareholders of APUC – basic and diluted
$
284,202

 
$
154,516

 
$
218,265

 
$
238,816

Weighted average number of shares
 
 
 
 
 
 
 
Basic
529,440,246

 
493,071,189

 
527,634,250

 
491,811,210

Effect of dilutive securities
4,812,876

 
4,656,910

 
4,920,714

 
3,291,211

Diluted
534,253,122

 
497,728,099

 
532,554,964

 
495,102,421


The shares potentially issuable for the three and six months ended June 30, 2020, as a result of 948,347 and 948,347 securities (2019 - 1,113,775 and 1,113,775) are excluded from this calculation as they are anti-dilutive.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

18.
Segmented information
The Company is managed under two primary business units consisting of the Regulated Services Group and the Renewable Energy Group. The two business units are the two segments of the Company.
The Regulated Services Group, the Company's regulated operating unit, owns and operates a portfolio of electric, natural gas, water distribution and wastewater collection utility systems and transmission operations in the United States and Canada; the Renewable Energy Group, the Company's non-regulated operating unit, owns and operates a diversified portfolio of renewable and thermal electric generation assets in North America and internationally.
For purposes of evaluating the performance of the business units, the Company allocates the realized portion of any gains or losses on financial instruments to the specific business units. Dividend income from Atlantica and AYES Canada are included in the operations of the Renewable Energy Group, while interest income from San Antonio Water System is included in the operations of the Regulated Services Group. Equity method gains and losses are included in the operations of the Regulated Services Group or Renewable Energy Group based on the nature of the activities of the investees. The change in value of investments carried at fair value and unrealized portion of any gains or losses on derivative instruments not designated in a hedging relationship are not considered in management’s evaluation of divisional performance and are therefore allocated and reported under corporate.
 
Three months ended June 30, 2020
 
Regulated Services Group
 
Renewable Energy Group
 
Corporate
 
Total
Revenue (1)(2)
$
279,458

 
$
64,180

 
$
—

 
$
343,638

Fuel, power and water purchased
65,358

 
2,741

 
—

 
68,099

Net revenue
214,100

 
61,439

 
—

 
275,539

Operating expenses
105,067

 
16,395

 
—

 
121,462

Administrative expenses
9,198

 
8,052

 
2,111

 
19,361

Depreciation and amortization
52,629

 
22,803

 
235

 
75,667

Gain on foreign exchange
—

 
—

 
(24
)
 
(24
)
Operating income
47,206

 
14,189

 
(2,322
)
 
59,073

Interest expense
(24,097
)
 
(13,618
)
 
(7,103
)
 
(44,818
)
Income from long-term investments
2,962

 
22,551

 
309,296

 
334,809

Other
(19,695
)
 
(883
)
 
(8,590
)
 
(29,168
)
Earnings before income taxes
$
6,376

 
$
22,239

 
$
291,281

 
$
319,896

Capital expenditures
$
157,641

 
$
28,766

 
$
—

 
$
186,407

(1) Renewable Energy Group revenue includes $7,447 related to net hedging gains from energy derivative contracts for the three-month period ended June 30, 2020 that do not represent revenue recognized from contracts with customers.
(2) Regulated Services Group revenue includes $4,761 related to alternative revenue programs for the three-month period ended June 30, 2020 that do not represent revenue recognized from contracts with customers.






Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

18.
Segmented information (continued)
 
Three months ended June 30, 2019
 
Regulated Services Group
 
Renewable Energy Group
 
Corporate
 
Total
Revenue (1)(2)
$
281,607

 
$
61,971

 
$
—

 
$
343,578

Fuel, power and water purchased
73,469

 
2,658

 
—

 
76,127

Net revenue
208,138

 
59,313

 
—

 
267,451

Operating expenses
102,021

 
18,166

 
—

 
120,187

Administrative expenses
6,546

 
7,335

 
(357
)
 
13,524

Depreciation and amortization
47,034

 
22,536

 
243

 
69,813

Loss on foreign exchange
—

 
—

 
1,467

 
1,467

Operating income
52,537

 
11,276

 
(1,353
)
 
62,460

Interest expense
(26,057
)
 
(16,237
)
 
(3,546
)
 
(45,840
)
Income from long-term investments
1,854

 
37,050

 
121,758

 
160,662

Other
(8,796
)
 
77

 
(422
)
 
(9,141
)
Earnings before income taxes
$
19,538

 
$
32,166

 
$
116,437

 
$
168,141

Capital expenditures
$
104,758

 
$
906

 
$
—

 
$
105,664

(1) Renewable Energy Group revenue includes $5,200 related to net hedging gains from energy derivative contracts for the three-month period ended June 30, 2019 that do not represent revenue recognized from contracts with customers.
(2) Regulated Services Group revenue includes $3,460 related to alternative revenue programs for the three-month period ended June 30, 2019 that do not represent revenue recognized from contracts with customers.





















Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

18.
Segmented information (continued)
 
Six months ended June 30, 2020
 
Regulated Services Group
 
Renewable Energy Group
 
Corporate
 
Total
Revenue (1)(2)
$
675,518

 
$
133,021

 
$
—

 
$
808,539

Fuel, power and water purchased
188,455

 
6,745

 
—

 
195,200

Net revenue
487,063

 
126,276

 
—

 
613,339

Operating expenses
213,434

 
35,924

 
—

 
249,358

Administrative expenses
18,685

 
14,258

 
2,090

 
35,033

Depreciation and amortization
105,639

 
48,431

 
477

 
154,547

Gain on foreign exchange
—

 
—

 
(4,694
)
 
(4,694
)
Operating income
149,305

 
27,663

 
2,127

 
179,095

Interest expense
(48,937
)
 
(28,097
)
 
(14,032
)
 
(91,066
)
Income from long-term investments
5,610

 
46,345

 
120,193

 
172,148

Other
(24,692
)
 
(49
)
 
(8,616
)
 
(33,357
)
Earnings before income taxes
$
81,286

 
$
45,862

 
$
99,672

 
$
226,820

Property, plant and equipment
$
4,695,303

 
$
2,412,441

 
$
35,119

 
$
7,142,863

Investments carried at fair value
26,650

 
1,390,874

 
—

 
1,417,524

Equity-method investees
43,152

 
76,646

 
—

 
119,798

Total assets
6,896,472

 
4,167,458

 
124,098

 
11,188,028

Capital expenditures
$
297,273

 
$
45,036

 
$
—

 
$
342,309

(1) Renewable Energy Group revenue includes $16,739 related to net hedging gains from energy derivative contracts for the six-month period ended June 30, 2020 that do not represent revenue recognized from contracts with customers.
(2) Regulated Services Group revenue includes $7,730 related to alternative revenue programs for the six-month period ended June 30, 2020 that do not represent revenue recognized from contracts with customers.


Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

18.
Segmented information (continued)
 
Six months ended June 2019
 
Regulated Services Group
 
Renewable Energy Group
 
Corporate
 
Total
Revenue (1)(2)
$
692,631

 
$
128,172

 
$
—

 
$
820,803

Fuel and power purchased
224,075

 
9,579

 
—

 
233,654

Net revenue
468,556

 
118,593

 
—

 
587,149

Operating expenses
203,996

 
36,304

 
—

 
240,300

Administrative expenses
11,979

 
14,889

 
(226
)
 
26,642

Depreciation and amortization
95,451

 
44,921

 
488

 
140,860

Loss on foreign exchange
—

 
—

 
934

 
934

Operating income
157,130

 
22,479

 
(1,196
)
 
178,413

Interest expense
(51,149
)
 
(32,444
)
 
(4,868
)
 
(88,461
)
Income from long-term investments
3,111

 
60,547

 
116,476

 
180,134

Other
(10,756
)
 
(73
)
 
(2,365
)
 
(13,194
)
Earnings before income taxes
$
98,336

 
$
50,509

 
$
108,047

 
$
256,892

Capital expenditures
$
202,173

 
$
10,877

 
$
—

 
$
213,050

 
December 31, 2019
Property, plant and equipment
$
4,754,373

 
$
2,444,382

 
$
32,909

 
$
7,231,664

Investments carried at fair value
27,072

 
1,267,075

 
—

 
1,294,147

Equity-method investees
29,827

 
53,670

 
—

 
83,497

Total assets
$
6,816,063

 
$
4,014,067

 
$
81,340

 
$
10,911,470


(1) Renewable Energy Group revenue includes $11,640 related to net hedging gains from energy derivative contracts for the six-month period ended June 30, 2019 that do not represent revenue recognized from contracts with customers.
(2) Regulated Services Group revenue includes $(3,561) related to alternative revenue programs for the six-month period ended June 30, 2019 that do not represent revenue recognized from contracts with customers.
The majority of non-regulated energy sales are earned from contracts with large public utilities. The Company has sought to mitigate its credit risk by selling energy to large utilities in various North American locations. None of the utilities contribute more than 10% of total revenue.
APUC operates in the independent power and utility industries in both Canada and the United States. Information on operations by geographic area is as follows:
 
Three months ended June 30
 
Six months ended June 30
 
2020
 
2019
 
2020
 
2019
Revenue
 
 
 
 
 
 
 
Canada
$
33,923

 
$
21,633

 
$
81,668

 
$
40,164

United States
309,715

 
321,945

 
726,871

 
780,639

 
$
343,638

 
$
343,578

 
$
808,539

 
$
820,803


Revenue is attributed to the two countries based on the location of the underlying generating and utility facilities.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

19.Commitments and contingencies
(a)
Contingencies
APUC and its subsidiaries are involved in various claims and litigation arising out of the ordinary course and conduct of its business. Although such matters cannot be predicted with certainty, management does not consider APUC’s exposure to such litigation to be material to these unaudited interim consolidated financial statements. Accruals for any contingencies related to these items are recorded in the consolidated financial statements at the time it is concluded that its occurrence is probable and the related liability is estimable.
Claim by Gaia Power Inc.
On October 30, 2018, Gaia Power Inc. (“Gaia”) commenced an action in the Ontario Superior Court of Justice against APUC and certain of its subsidiaries, claiming damages of not less than $345,000 and punitive damages in the sum of $25,000. The action arises from Gaia’s 2010 sale, to a subsidiary of APUC, of Gaia’s interest in certain proposed wind farm projects in Canada.  Pursuant to a 2010 royalty agreement, Gaia is entitled to royalty payments if the projects are developed and achieve certain agreed targets. The parties have since agreed to arbitrate the dispute, and it is scheduled to be heard in the first quarter of 2021. It is too early to determine the likelihood of success in this lawsuit; however, APUC intends to vigorously defend it.
Condemnation expropriation proceedings
Liberty Utilities (Apple Valley Ranchos Water) Corp. is the subject of a condemnation lawsuit filed by the town of Apple Valley. A court will determine the necessity of the taking by Apple Valley and, if established, a jury will determine the fair market value of the assets being condemned. The evidentiary portion of the right-to-take condemnation trial finished on July 15, 2020 and a decision is expected from the Court in the first half of 2021. Any taking by government entities would legally require fair compensation to be paid; however, there is no assurance that the value received as a result of the condemnation will be sufficient to recover the Company's net book value of the utility assets taken.
(b)
Commitments
In addition to the commitments related to the proposed acquisitions and development projects disclosed in notes 3 and 8 of the consolidated financial statements of APUC for the year ended December 31, 2019, the following significant commitments exist as of June 30, 2020.
APUC has outstanding purchase commitments for power purchases, gas supply and service agreements, service agreements, capital project commitments and land easements.
Detailed below are estimates of future commitments under these arrangements: 

Year 1
Year 2
Year 3
Year 4
Year 5
Thereafter
Total
Power purchase (i)
$
29,028

$
11,585

$
11,506

$
11,735

$
11,913

$
173,436

$
249,203

Gas supply and service agreements (ii)
78,698

55,000

49,588

42,756

39,758

129,584

395,384

Service agreements
50,661

40,697

43,813

46,436

46,375

268,663

496,645

Capital projects
543,211

—

—

—

—

—

543,211

Land easements
6,607

6,641

6,718

6,810

6,887

195,434

229,097

Total
$
708,205

$
113,923

$
111,625

$
107,737

$
104,933

$
767,117

$
1,913,540


(i)
Power purchase: APUC’s electric distribution facilities have commitments to purchase physical quantities of power for load serving requirements. The commitment amounts included in the table above are based on market prices as of June 30, 2020. However, the effects of purchased power unit cost adjustments are mitigated through a purchased power rate-adjustment mechanism.
(ii)  
Gas supply and service agreements: APUC’s gas distribution facilities and thermal generation facilities have commitments to purchase physical quantities of natural gas under contracts for purposes of load serving requirements and of generating power.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

20.
Non-cash operating items
The changes in non-cash operating items consist of the following:
 
Three months ended June 30
 
Six months ended June 30
 
2020
 
2019
 
2020
 
2019
Accounts receivable
$
50,264

 
$
40,396

 
$
56,946

 
$
11,721

Fuel and natural gas in storage
(7,951
)
 
(9,420
)
 
3,059

 
10,061

Supplies and consumables inventory
(13,164
)
 
(2,944
)
 
(20,958
)
 
(4,921
)
Income taxes recoverable
(1,270
)
 
7,623

 
(1,889
)
 
6,801

Prepaid expenses
3,104

 
1,138

 
(7,344
)
 
(5,468
)
Accounts payable
7,833

 
18,429

 
(63,337
)
 
(10,108
)
Accrued liabilities
(4,472
)
 
(44,475
)
 
(40,039
)
 
(54,969
)
Current income tax liability
(2,379
)
 
(5,657
)
 
1,716

 
694

Asset retirements and environmental obligations
(127
)
 
(322
)
 
(699
)
 
(1,422
)
Net regulatory assets and liabilities
20,731

 
2,007

 
15,916

 
8,124

 
$
52,569

 
$
6,775

 
$
(56,629
)
 
$
(39,487
)


Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

21.
Financial instruments
(a)
Fair value of financial instruments
June 30, 2020
Carrying
amount
 
Fair
value
 
Level 1
 
Level 2
 
Level 3
Long-term investments carried at fair value
$
1,417,524

 
$
1,417,524

 
1,307,814

 
$
26,650

 
$
83,060

Development loans and other receivables
104,005

 
111,274

 
—

 
111,274

 
—

Derivative instruments (1):
 
 
 
 
 
 
 
 
 
Energy contracts designated as a cash flow hedge
58,383

 
58,383

 
—

 
—

 
58,383

Energy contracts not designated as cash flow hedge
460

 
460

 
—

 
—

 
460

Commodity contracts for regulated operations
57

 
57

 
—

 
57

 
—

Cross currency swap designated as a net investment hedge
13,578

 
13,578

 
—

 
13,578

 
—

Total derivative instruments
72,478

 
72,478

 
—

 
13,635

 
58,843

Total financial assets
$
1,594,007

 
$
1,601,276

 
$
1,307,814

 
$
151,559

 
$
141,903

Long-term debt
$
4,154,776

 
$
4,616,138

 
$
1,575,663

 
$
3,040,475

 
$
—

Convertible debentures
314

 
548

 
548

 
—

 
—

Preferred shares, Series C
12,975

 
14,634

 
—

 
14,634

 
—

Derivative instruments (1):
 
 
 
 
 
 
 
 
 
Energy contracts designated as a cash flow hedge
2,004

 
2,004

 
—

 
—

 
2,004

Energy contracts not designated as a cash flow hedge
86

 
86

 
—

 
—

 
86

Cross-currency swap designated as a net investment hedge
106,007

 
106,007

 
—

 
106,007

 
—

Forward interest rate swaps designated as a hedge

10,924

 
10,924

 
—

 
10,924

 
—

Commodity contracts for regulated operations
580

 
580

 
—

 
580

 
—

Total derivative instruments
119,601

 
119,601

 
—

 
117,511

 
2,090

Total financial liabilities
$
4,287,666

 
$
4,750,921

 
$
1,576,211

 
$
3,172,620

 
$
2,090

(1) Balance of $153 associated with certain weather derivatives have been excluded, as they are accounted for based on intrinsic value rather than fair value.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

21.
Financial instruments (continued)
(a)
Fair value of financial instruments (continued)
December 31, 2019
Carrying
amount
 
Fair
value
 
Level 1
 
Level 2
 
Level 3
Long-term investment carried at fair value
$
1,294,147

 
$
1,294,147

 
$
1,178,581

 
$
27,072

 
$
88,494

Development loans and other receivables
37,050

 
37,984

 
—

 
37,984

 
—

Derivative instruments:
 
 
 
 
 
 
 
 
 
Energy contracts designated as a cash flow hedge
65,304

 
65,304

 
—

 
—

 
65,304

Energy contracts not designated as a cash flow hedge
20,384

 
20,384

 
—

 
—

 
20,384

Commodity contracts for regulatory operations
16

 
16

 
—

 
16

 
—

Total derivative instruments
85,704

 
85,704

 
—

 
16

 
85,688

Total financial assets
$
1,416,901

 
$
1,417,835

 
$
1,178,581

 
$
65,072

 
$
174,182

Long-term debt
$
3,931,868

 
$
4,284,068

 
$
1,495,153

 
$
2,788,915

 
$
—

Convertible debentures
342

 
623

 
623

 
—

 
—

Preferred shares, Series C
13,793

 
15,120

 
—

 
15,120

 
—

Derivative instruments:
 
 
 
 
 
 
 
 
 
Energy contracts designated as a cash flow hedge
789

 
789

 
—

 
—

 
789

Cross-currency swap designated as a net investment hedge
81,765

 
81,765

 
—

 
81,765

 
—

Currency forward contract not designated as hedge
38

 
38

 
—

 
—

 
38

Commodity contracts for regulated operations
2,072

 
2,072

 
—

 
2,072

 
—

Total derivative instruments
84,664

 
84,664

 
—

 
83,837

 
827

Total financial liabilities
$
4,030,667

 
$
4,384,475

 
$
1,495,776

 
$
2,887,872

 
$
827


The Company has determined that the carrying value of its short-term financial assets and liabilities approximates fair value as of June 30, 2020 and December 31, 2019 due to the short-term maturity of these instruments.
The fair value of development loans and other receivables (level 2) is determined using a discounted cash flow method, using estimated current market rates for similar instruments adjusted for estimated credit risk as determined by management. 
The fair value of the investment in Atlantica (level 1) is measured at the closing price on the NASDAQ stock exchange.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

21.
Financial instruments (continued)
(a)
Fair value of financial instruments (continued)
The Company’s level 1 fair value of long-term debt is measured at the closing price on the New York Stock Exchange and the Canadian over-the-counter closing price. The Company’s level 2 fair value of long-term debt at fixed interest rates and Series C preferred shares has been determined using a discounted cash flow method and current interest rates. The Company's level 2 fair value of convertible debentures has been determined as the greater of their face value and the quoted value of APUC's common shares on a converted basis.
The Company’s level 2 fair value derivative instruments primarily consist of swaps, options, rights and forward physical derivatives where market data for pricing inputs are observable. Level 2 pricing inputs are obtained from various market indices and utilize discounting based on quoted interest rate curves, which are observable in the marketplace.
The Company’s level 3 instruments consist of energy contracts for electricity sales and the fair value of the Company's investment in AYES Canada. The significant unobservable inputs used in the fair value measurement of energy contracts are the internally developed forward market prices ranging from $10.53 to $147.62 with a weighted average of $21.95 as of June 30, 2020. The weighted average forward market prices are developed based on the quantity of energy expected to be sold monthly and the expected forward price during that month. The change in the fair value of the energy contracts is detailed in notes 21(b)(ii) and 21(b)(iv). The significant unobservable inputs used in the fair value measurement of the Company's AYES Canada investment are the expected cash flows, the discount rates applied to these cash flows ranging from 7.98% to 8.73% with a weighted average of 8.64%, and the expected volatility of Atlantica's share price ranging from 18% to 22% as of June 30, 2020. Significant increases (decreases) in expected cash flows or increases (decreases) in discount rate in isolation would have resulted in a significantly lower (higher) fair value measurement.
(b)
Derivative instruments
Derivative instruments are recognized on the consolidated balance sheets as either assets or liabilities and measured at fair value at each reporting period.
(i)
Commodity derivatives – regulated accounting
The Company uses derivative financial instruments to reduce the cash flow variability associated with the purchase price for a portion of future natural gas purchases associated with its regulated gas and electric service territories. The Company’s strategy is to minimize fluctuations in gas sale prices to regulated customers.
The following are commodity volumes, in dekatherms (“dths”) associated with the above derivative contracts:
 
2020

Financial contracts: Swaps
2,315,733

         Options
188,834

Forward contracts
2,000,000

 
4,504,567


The accounting for these derivative instruments is subject to guidance for rate regulated enterprises. Therefore, the fair value of these derivatives is recorded as current or long-term assets and liabilities, with offsetting positions recorded as regulatory assets and regulatory liabilities in the consolidated balance sheets. Most of the gains or losses on the settlement of these contracts are included in the calculation of the fuel and commodity costs adjustments (note 5). As a result, the changes in fair value of these natural gas derivative contracts and their offsetting adjustment to regulatory assets and liabilities had no earnings impact.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

21.
Financial instruments (continued)
(b)
Derivative instruments (continued)
(i)
Commodity derivatives – regulated accounting (continued)
The following table presents the impact of the change in the fair value of the Company’s natural gas derivative contracts had on the unaudited interim consolidated balance sheets: 
 
 
June 30, 2020
 
December 31, 2019
Regulatory assets:
 
 
 
 
Swap contracts
 
$
129

 
$
28

Option contracts
 
16

 
38

Forward contracts
 
$
809

 
$
1,830

Regulatory liabilities:
 
 
 
 
Swap contracts
 
$
139

 
$
743

Option contracts
 
$
25

 
$
—


(ii)
Cash flow hedges
The Company reduces the price risk on the expected future sale of power generation at Sandy Ridge, Senate and Minonk Wind Facilities by entering into the following long-term energy derivative contracts. 
Notional quantity
(MW-hrs)
 
Expiry
 
Receive average
prices (per MW-hr)
 
Pay floating price
(per MW-hr)
692,015

 
 December 2028
 
34.65
 
PJM Western HUB
3,170,648

 
 December 2027
 
25.13
 
NI HUB
2,469,582

 
 December 2027
 
36.46
 
ERCORT North HUB

The Company provides energy requirements to various customers under contracts at fixed rates. While the production from the Tinker Hydroelectric Facility is expected to provide a portion of the energy required to service these customers, APUC anticipates having to purchase a portion of its energy requirements at the ISO NE spot rates to supplement self-generated energy. The Company designated a contract with a notional quantity of 116,744 MW-hours, a price of $38.95 per MW-hr and expiring in February 2022 as a hedge to the price of energy purchases. The Company also mitigates the risk by using short-term financial forward energy purchase contracts. These short-term derivatives are not accounted for as hedges and changes in fair value are recorded in earnings as they occur (note 21(b)(iv)).
In January 2019, the Company entered into a long-term energy derivative contract to reduce the price risk on the expected future sale of power generation at the Sugar Creek wind Project. On September 30, 2019, the Company sold the derivative contract together with 100% of its ownership interest in Sugar Creek Wind Project to AAGES Sugar Creek Wind, LLC. The novation and transfer of the derivative contract was subject to counterparty approval, which was received in the first quarter of 2020. As a result, the hedge relationship for the Sugar Creek Wind Project energy derivative was discontinued. Amounts in AOCI of $15,765 and related tax were reclassified from AOCI into earnings in 2019.
The Company was party to a 10-year forward-starting interest rate swap beginning on July 25, 2018 in order to reduce the interest rate risk related to the probable issuance on that date of a 10-year C$135,000 bond. During 2018, the Company amended and extended the forward-starting date of the interest rate swap to begin on March 29, 2019. During 2019, the Company settled the forward-starting interest rate swap contract as it issued C$300,000 10-year senior unsecured notes with an interest rate of 4.60%.
In September 2019, the Company entered into a forward-starting interest rate swap in order to reduce the interest rate risk related to the quarterly interest payments between July 1, 2024 and July 1, 2029 on the $350,000 subordinated unsecured notes (note 7). The Company designated the entire notional amount of the three pay-variable and receive-fixed interest rate swaps as a hedge of the future quarterly variable-rate interest payments associated with the subordinated unsecured notes.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

21.
Financial instruments (continued)
(b)
Derivative instruments (continued)
(ii)
Cash flow hedges (continued)
The following table summarizes OCI attributable to derivative financial instruments designated as a cash flow hedge: 
 
Three months ended June 30
 
Six months ended June 30
 
2020
 
2019
 
2020
 
2019
Effective portion of cash flow hedge
$
(2,085
)
 
$
6,442

 
$
(12,890
)
 
$
10,087

Amortization of cash flow hedge
(1,100
)
 
(8
)
 
(1,108
)
 
(16
)
Amounts reclassified from AOCI
(3,028
)
 
5,733

 
(6,303
)
 
3,559

OCI attributable to shareholders of APUC
$
(6,213
)
 
$
12,167

 
$
(20,301
)
 
$
13,630


The Company expects $8,222 and $1,395 of unrealized gains currently in AOCI to be reclassified, net of taxes into non-regulated energy sales and interest expense, respectively, within the next 12 months, as the underlying hedged transactions settle.
(iii)
Foreign exchange hedge of net investment in foreign operation
The functional currency of most of APUC's operations is the U.S. dollar. Effective January 1, 2020, the functional currency of APUC, the non-consolidated parent entity, changed from the Canadian dollar to the U.S. dollar based on a balance of facts, taking into consideration its operating, financing and investing activities. As a result of that entity's change of functional currency, changes were made to certain hedging relationships to mitigate the remaining Canadian dollar risk.
The Company designates obligations denominated in Canadian dollars as a hedge of the foreign currency exposure of its net investment in its Canadian investments and subsidiaries. The related foreign currency transaction gain or loss designated as, and effective as, a hedge of the net investment in a foreign operation are reported in the same manner as the translation adjustment (in OCI) related to the net investment. A foreign currency loss of $1,269 and gain of $195 for the three and six months ended June 30, 2020, respectively, was recorded in OCI.
On May 23, 2019, the Company entered into a cross-currency swap, coterminous with the subordinated unsecured notes to effectively convert the $350,000 U.S. dollar denominated offering into Canadian dollars. The change in the carrying amount of the notes due to changes in spot exchange rates is recognized each period in the consolidated statements of operations as loss (gain) on foreign exchange. The Company designated the entire notional amount of the cross-currency fixed-for-fixed interest rate swap as a hedge of the foreign currency exposure related to cash flows for the interest and principal repayments on the notes. Upon the change in functional currency of APUC to the U.S. dollar on January 1, 2020, this hedge was dedesignated. The OCI related to this hedge will be amortized into earnings in the period that future interest payments affect earnings over the remaining life of the original hedge. The Company redesignated this swap as a hedge of APUC's net investment in its Canadian subsidiaries. The related foreign currency transaction gain or loss designated as a hedge of the net investment in a foreign operation are reported in the same manner as the translation adjustment (in OCI) related to the net investment. A foreign currency loss of $15,252 and gain of $19,583 for the three and six months ended June 30, 2020, respectively, was recorded in OCI.








Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

21.
Financial instruments (continued)
(b)
Derivative instruments (continued)
(iii)
Foreign exchange hedge of net investment in foreign operation (continued)
Canadian operations
The Company is exposed to currency fluctuations from its Canadian-based operations. APUC manages this risk primarily through the use of natural hedges by using Canadian long-term debt to finance its Canadian operations and a combination of foreign exchange forward contracts and spot purchases.
The Company’s Canadian operations are determined to have the Canadian dollar as their functional currency and are exposed to currency fluctuations from their U.S. dollar transactions. The Company designates obligations denominated in U.S. dollars as a hedge of the foreign currency exposure of its net investment in its U.S. investments and subsidiaries. The related foreign currency transaction gain or loss designated as, and effective as, a hedge of the net investment in a foreign operation are reported in the same manner as the translation adjustment (in OCI) related to the net investment. A foreign currency gain of $1,023 and loss of $3,581 for the three and six months ended June 30, 2020 (2019 - gain of $9,599 and $24,007), respectively, was recorded in OCI.
The Company is party to C$650,000 cross currency swaps to effectively convert Canadian dollar debentures (note 7) into U.S. dollars. The Company designated the entire notional amount of the cross-currency fixed-for-fixed interest rate swap and related short-term U.S. dollar payables created by the monthly accruals of the swap settlement as a hedge of the foreign currency exposure of its net investment in the Renewable Energy Group's U.S. operations. The gain or loss related to the fair value changes of the swap and the related foreign currency gains and losses on the U.S. dollar accruals that are designated as, and are effective as, a hedge of the net investment in a foreign operation are reported in the same manner as the translation adjustment (in OCI) related to the net investment. A gain of $16,642 and loss of $27,190 for the three and six months ended June 30, 2020 (2019 - gain of $3,365 and $20,205), respectively, was recorded in OCI.
(iv)
Other derivatives
Derivative financial instruments are used to manage certain exposures to fluctuations in exchange rates, interest rates and commodity prices. The Company does not enter into derivative financial agreements for speculative purposes.
Subsequent to quarter end, the Company executed on currency forward contracts to purchase in total $682,500 for approximately C$923,243 in order to manage the currency exposure to the Canadian dollar shares issuance (note 10(a)).
















Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

21.
Financial instruments (continued)
(b)
Derivative instruments (continued)
(iv)
Other derivatives (continued)
For derivatives that are not designated as hedges, the changes in the fair value are immediately recognized in earnings. The effects on the unaudited interim consolidated statements of operations of derivative financial instruments not designated as hedges consist of the following:
 
Three months ended June 30
 
Six months ended June 30
 
2020
 
2019
 
2020
 
2019
Change in unrealized gain (loss) on derivative financial instruments:
 
 
 
 
 
 
 
Energy derivative contracts
$
449

 
$
398

 
$
627

 
$
398

Currency forward contract
—

 
145

 
—

 
(417
)
Total change in unrealized gain (loss) on derivative financial instruments
$
449

 
$
543

 
$
627

 
$
(19
)
Realized gain (loss) on derivative financial instruments:
 
 
 
 
 
 
 
Energy derivative contracts
(549
)
 
—

 
(681
)
 
(207
)
Currency forward contract
—

 
288

 
—

 
573

Total realized gain (loss) on derivative financial instruments
$
(549
)
 
$
288

 
$
(681
)
 
$
366

Gain (loss) on derivative financial instruments not accounted for as hedges
(100
)
 
831

 
(54
)
 
347

Amortization of AOCI gains frozen as a result of hedge dedesignation
1,489

 
11

 
1,500

 
22

 
$
1,389

 
$
842

 
$
1,446

 
$
369

Amounts recognized in the unaudited interim consolidated statements of operations consist of:
 
 
 
 
 
 
 
Gain on derivative financial instruments
$
1,389

 
$
409

 
$
1,446

 
$
213

Gain on foreign exchange
—

 
433

 
—

 
156

 
$
1,389

 
$
842

 
$
1,446

 
$
369

(c)
Risk management
In the normal course of business, the Company is exposed to financial risks that potentially impact its operating results. The Company employs risk management strategies with a view to mitigate these risks to the extent possible on a cost effective basis.
22.
Comparative figures
Certain of the comparative figures have been reclassified to conform to the financial statement presentation adopted in the current period.