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Derivatives And Risk Management | 3 Months Ended
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Mar. 31, 2017
Derivative Instruments and Hedges, Assets [Abstract] |
Derivatives And Risk Management | DERIVATIVES AND RISK MANAGEMENT The disclosures below in Note 3 apply only to Avista Corp. and its operating division Avista Utilities; AERC and its primary subsidiary AEL&P do not enter into derivative instruments. Energy Commodity Derivatives Avista Corp. is exposed to market risks relating to changes in electricity and natural gas commodity prices and certain other fuel prices. Market risk is, in general, the risk of fluctuation in the market price of the commodity being traded and is influenced primarily by supply and demand. Market risk includes the fluctuation in the market price of associated derivative commodity instruments. Avista Corp. utilizes derivative instruments, such as forwards, futures, swap derivatives and options in order to manage the various risks relating to these commodity price exposures. Avista Corp. has an energy resources risk policy and control procedures to manage these risks. As part of the Avista Corp.'s resource procurement and management operations in the electric business, Avista Corp. engages in an ongoing process of resource optimization, which involves the economic selection from available energy resources to serve Avista Corp.'s load obligations and the use of these resources to capture available economic value. Avista Corp. transacts in wholesale markets by selling and purchasing electric capacity and energy, fuel for electric generation, and derivative contracts related to capacity, energy and fuel. Such transactions are part of the process of matching resources with load obligations and hedging a portion of the related financial risks. These transactions range from terms of intra-hour up to multiple years. As part of its resource procurement and management of its natural gas business, Avista Corp. makes continuing projections of its natural gas loads and assesses available natural gas resources including natural gas storage availability. Natural gas resource planning typically includes peak requirements, low and average monthly requirements and delivery constraints from natural gas supply locations to Avista Corp.’s distribution system. However, daily variations in natural gas demand can be significantly different than monthly demand projections. On the basis of these projections, Avista Corp. plans and executes a series of transactions to hedge a portion of its projected natural gas requirements through forward market transactions and derivative instruments. These transactions may extend as much as four natural gas operating years (November through October) into the future. Avista Corp. also leaves a significant portion of its natural gas supply requirements unhedged for purchase in short-term and spot markets. Avista Corp. plans for sufficient natural gas delivery capacity to serve its retail customers for a theoretical peak day event. Avista Corp. generally has more pipeline and storage capacity than what is needed during periods other than a peak day. Avista Corp. optimizes its natural gas resources by using market opportunities to generate economic value that helps mitigate fixed costs. Avista Corp. also optimizes its natural gas storage capacity by purchasing and storing natural gas when prices are traditionally lower, typically in the summer, and withdrawing during higher priced months, typically during the winter. However, if market conditions and prices indicate that Avista Corp. should buy or sell natural gas at other times during the year, Avista Corp. engages in optimization transactions to capture value in the marketplace. Natural gas optimization activities include, but are not limited to, wholesale market sales of surplus natural gas supplies, purchases and sales of natural gas to optimize use of pipeline and storage capacity, and participation in the transportation capacity release market. The following table presents the underlying energy commodity derivative volumes as of March 31, 2017 that are expected to be delivered in each respective year (in thousands of MWhs and mmBTUs):
| Purchases |  | Sales
| Electric Derivatives |  | Gas Derivatives |  | Electric Derivatives |  | Gas Derivatives
Year | Physical (1) MWH |  | Financial (1) MWH |  | Physical (1) mmBTUs |  | Financial (1) mmBTUs |  | Physical (1) MWH |  | Financial (1) MWH |  | Physical (1) mmBTUs |  | Financial (1) mmBTUs
April - December 2017 | 214 |  |  | 1,044 |  |  | 8,891 |  |  | 83,808 |  |  | 149 |  |  | 1,101 |  |  | 4,448 |  |  | 61,633 |
2018 | 397 |  |  | 246 |  |  | — |  |  | 64,415 |  |  | 286 |  |  | 1,244 |  |  | 1,360 |  |  | 33,188 |
2019 | 235 |  |  | 737 |  |  | 610 |  |  | 35,623 |  |  | 126 |  |  | 982 |  |  | 1,345 |  |  | 19,598 |
2020 | — |  |  | — |  |  | 910 |  |  | 2,725 |  |  | — |  |  | — |  |  | 1,430 |  |  | — |
2021 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,049 |  |  | — |
Thereafter | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
The following table presents the underlying energy commodity derivative volumes as of December 31, 2016 that are expected to be delivered in each respective year (in thousands of MWhs and mmBTUs):
| Purchases |  | Sales
| Electric Derivatives |  | Gas Derivatives |  | Electric Derivatives |  | Gas Derivatives
Year | Physical (1) MWH |  | Financial (1) MWH |  | Physical (1) mmBTUs |  | Financial (1) mmBTUs |  | Physical (1) MWH |  | Financial (1) MWH |  | Physical (1) mmBTUs |  | Financial (1) mmBTUs
2017 | 510 |  |  | 907 |  |  | 15,475 |  |  | 110,380 |  |  | 316 |  |  | 1,552 |  |  | 4,165 |  |  | 73,110 |
2018 | 397 |  |  | — |  |  | — |  |  | 52,755 |  |  | 286 |  |  | 1,244 |  |  | 1,360 |  |  | 15,113 |
2019 | 235 |  |  | — |  |  | 610 |  |  | 29,475 |  |  | 158 |  |  | 982 |  |  | 1,345 |  |  | 4,020 |
2020 | — |  |  | — |  |  | 910 |  |  | 2,725 |  |  | — |  |  | — |  |  | 1,430 |  |  | — |
2021 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,060 |  |  | — |
Thereafter | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
(1) | Physical transactions represent commodity transactions in which Avista Corp. will take or make delivery of either electricity or natural gas; financial transactions represent derivative instruments with delivery of cash in the amount of the benefit or cost but with no physical delivery of the commodity, such as futures, swap derivatives, options, or forward contracts.
The electric and natural gas derivative contracts above will be included in either power supply costs or natural gas supply costs during the period they are delivered and will be included in the various recovery mechanisms (ERM, PCA, and Purchased Gas Adjustments (PGA)), or in the general rate case process, and are expected to be collected through retail rates from customers. Foreign Currency Exchange Derivatives A significant portion of Avista Corp.’s natural gas supply (including fuel for power generation) is obtained from Canadian sources. Most of those transactions are executed in U.S. dollars, which avoids foreign currency risk. A portion of Avista Corp.’s short-term natural gas transactions and long-term Canadian transportation contracts are committed based on Canadian currency prices and settled within 60 days with U.S. dollars. Avista Corp. hedges a portion of the foreign currency risk by purchasing Canadian currency exchange derivatives when such commodity transactions are initiated. The foreign currency exchange derivatives and the unhedged foreign currency risk have not had a material effect on Avista Corp.’s financial condition, results of operations or cash flows and these differences in cost related to currency fluctuations are included with natural gas supply costs for ratemaking. The following table summarizes the foreign currency exchange derivatives that Avista Corp. has outstanding as of March 31, 2017 and December 31, 2016 (dollars in thousands):
| March 31, |  | December 31,
| 2017 |  | 2016
Number of contracts | 24 |  |  | 21 |
Notional amount (in United States dollars) | $ | 5,808 |  |  | $ | 2,819 |
Notional amount (in Canadian dollars) | 7,766 |  |  | 3,754 |
Interest Rate Derivatives Avista Corp. is affected by fluctuating interest rates related to a portion of its existing debt, and future borrowing requirements. Avista Corp. hedges a portion of its interest rate risk with financial derivative instruments, which may include interest rate swap derivatives and U.S. Treasury lock agreements. These interest rate swap derivatives and U.S. Treasury lock agreements are considered economic hedges against fluctuations in future cash flows associated with anticipated debt issuances. The following table summarizes the unsettled interest rate swap derivatives that Avista Corp. has outstanding as of March 31, 2017 and December 31, 2016 (dollars in thousands):
Balance Sheet Date |  | Number of Contracts |  | Notional Amount |  | Mandatory Cash Settlement Date
March 31, 2017 |  | 6 |  | $ | 75,000 |  |  | 2017
|  | 14 |  | 275,000 |  |  | 2018
|  | 6 |  | 70,000 |  |  | 2019
|  | 2 |  | 20,000 |  |  | 2020
|  | 5 |  | 60,000 |  |  | 2022
December 31, 2016 |  | 6 |  | $ | 75,000 |  |  | 2017
|  | 14 |  | 275,000 |  |  | 2018
|  | 6 |  | 70,000 |  |  | 2019
|  | 2 |  | 20,000 |  |  | 2020
|  | 5 |  | 60,000 |  |  | 2022
The fair value of outstanding interest rate swap derivatives can vary significantly from period to period depending on the total notional amount of swap derivatives outstanding and fluctuations in market interest rates compared to the interest rates fixed by the swaps. Avista Corp. is required to make cash payments to settle the interest rate swap derivatives when the fixed rates are higher than prevailing market rates at the date of settlement. Conversely, Avista Corp. receives cash to settle its interest rate swap derivatives when prevailing market rates at the time of settlement exceed the fixed swap rates. Upon settlement of interest rate swaps, the cash payments made or received are recorded as a regulatory asset or liability and are amortized as a component of interest expense over the life of the associated debt. The settled interest rate swaps are also included as a part of the Company's cost of debt calculation for ratemaking purposes. Summary of Outstanding Derivative Instruments The amounts recorded on the Condensed Consolidated Balance Sheet as of March 31, 2017 and December 31, 2016 reflect the offsetting of derivative assets and liabilities where a legal right of offset exists. The following table presents the fair values and locations of derivative instruments recorded on the Condensed Consolidated Balance Sheet as of March 31, 2017 (in thousands):
|  | Fair Value as of March 31, 2017
Derivative and Balance Sheet Location |  | Gross Asset |  | Gross Liability |  | Collateral Netted |  | Net Asset (Liability) on Balance Sheet
Foreign currency exchange derivatives |  |  |  |  |  |  |  |
Other current assets |  | $ | 37 |  |  | $ | — |  |  | $ | — |  |  | $ | 37 |
Interest rate swap derivatives |  |  |  |  |  |  |  |
Other current assets |  | 3,748 |  |  | — |  |  | — |  |  | 3,748 |
Other property and investments-net and other non-current assets |  | 6,754 |  |  | (116 | ) |  | — |  |  | 6,638 |
Other current liabilities |  | — |  |  | (15,069 | ) |  | 10,100 |  |  | (4,969 | )
Non-current interest rate swap derivative liabilities |  | 5,078 |  |  | (54,261 | ) |  | 26,040 |  |  | (23,143 | )
Energy commodity derivatives |  |  |  |  |  |  |  |
Other current assets |  | 604 |  |  | (47 | ) |  | — |  |  | 557 |
Current energy commodity derivative liabilities |  | 29,929 |  |  | (42,136 | ) |  | 4,726 |  |  | (7,481 | )
Other non-current liabilities, regulatory liabilities and deferred credits |  | 17,422 |  |  | (32,658 | ) |  | 2,817 |  |  | (12,419 | )
Total derivative instruments recorded on the balance sheet |  | $ | 63,572 |  |  | $ | (144,287 | ) |  | $ | 43,683 |  |  | $ | (37,032 | )
The following table presents the fair values and locations of derivative instruments recorded on the Condensed Consolidated Balance Sheet as of December 31, 2016 (in thousands):
|  | Fair Value as of December 31, 2016
Derivative and Balance Sheet Location |  | Gross Asset |  | Gross Liability |  | Collateral Netted |  | Net Asset (Liability) on Balance Sheet
Foreign currency exchange derivatives |  |  |  |  |  |  |  |
Other current liabilities |  | $ | 5 |  |  | $ | (28 | ) |  | $ | — |  |  | $ | (23 | )
Interest rate swap derivatives |  |  |  |  |  |  |  |
Other current assets |  | 3,393 |  |  | — |  |  | — |  |  | 3,393 |
Other property and investments-net and other non-current assets |  | 5,754 |  |  | (397 | ) |  | — |  |  | 5,357 |
Other current liabilities |  | — |  |  | (15,756 | ) |  | 9,731 |  |  | (6,025 | )
Non-current interest rate swap derivative liabilities |  | 3,951 |  |  | (57,825 | ) |  | 25,169 |  |  | (28,705 | )
Energy commodity derivatives |  |  |  |  |  |  |  |
Other current assets |  | 18,682 |  |  | (16,787 | ) |  | — |  |  | 1,895 |
Current energy commodity derivative liabilities |  | 16,335 |  |  | (29,598 | ) |  | 6,228 |  |  | (7,035 | )
Other non-current liabilities, regulatory liabilities and deferred credits |  | 13,071 |  |  | (29,990 | ) |  | 3,630 |  |  | (13,289 | )
Total derivative instruments recorded on the balance sheet |  | $ | 61,191 |  |  | $ | (150,381 | ) |  | $ | 44,758 |  |  | $ | (44,432 | )
Exposure to Demands for Collateral Avista Corp.'s derivative contracts often require collateral (in the form of cash or letters of credit) or other credit enhancements, or reductions or terminations of a portion of the contract through cash settlement. In the event of a downgrade in Avista Corp.'s credit ratings or changes in market prices, additional collateral may be required. In periods of price volatility, the level of exposure can change significantly. As a result, sudden and significant demands may be made against Avista Corp.'s credit facilities and cash. Avista Corp. actively monitors the exposure to possible collateral calls and takes steps to mitigate capital requirements. The following table presents Avista Corp.'s collateral outstanding related to its derivative instruments as of March 31, 2017 and December 31, 2016 (in thousands):
| March 31, |  | December 31,
| 2017 |  | 2016
Energy commodity derivatives |  |  |
Cash collateral posted | $ | 18,514 |  |  | $ | 17,134 |
Letters of credit outstanding | 30,900 |  |  | 24,400 |
Balance sheet offsetting (cash collateral against net derivative positions) | 7,543 |  |  | 9,858 |
Interest rate swap derivatives |  |  |
Cash collateral posted | 36,140 |  |  | 34,900 |
Letters of credit outstanding | 4,800 |  |  | 3,600 |
Balance sheet offsetting (cash collateral against net derivative positions) | 36,140 |  |  | 34,900 |
Certain of Avista Corp.’s derivative instruments contain provisions that require Avista Corp. to maintain an "investment grade" credit rating from the major credit rating agencies. If Avista Corp.’s credit ratings were to fall below "investment grade," it would be in violation of these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing collateralization on derivative instruments in net liability positions. The following table presents the aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position and the amount of additional collateral Avista Corp. could be required to post as of March 31, 2017 and December 31, 2016 (in thousands):
| March 31, |  | December 31,
| 2017 |  | 2016
Energy commodity derivatives |  |  |
Liabilities with credit-risk-related contingent features | $ | 771 |  |  | $ | 1,124 |
Additional collateral to post | 771 |  |  | 1,046 |
Interest rate swap derivatives |  |  |
Liabilities with credit-risk-related contingent features | 69,446 |  |  | 73,978 |
Additional collateral to post | 13,310 |  |  | 21,100 |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624171-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41620-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624163-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5579240-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624177-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80784-113994 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41641-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5579245-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624258-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5708775-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5708773-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5618551-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5580258-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624181-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41638-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 + Details
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