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Leases Leases (Notes) | 9 Months Ended
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Sep. 30, 2019
Leases [Abstract] |
Lessee, Operating Leases [Text Block] | LEASES ASC 842, which outlines a model for entities to use in accounting for leases and supersedes previous lease accounting guidance, became effective on January 1, 2019. The core principle of the model is that an entity should recognize the ROU assets and liabilities that arise from leases on the balance sheet and depreciate or amortize the asset and liability over the term of the lease, as well as provide disclosure to enable users of the condensed consolidated financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. Significant Judgments and Assumptions The Company determines if an arrangement is a lease, as well as its classification, at its inception. ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and lease liabilities are recognized at the commencement date of the agreement based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of lease payments. The implicit rate is used when it is readily determinable. The operating and finance lease ROU assets also include any lease payments made and exclude lease incentives, if any, that accrue to the benefit of the lessee. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Any difference between lease expense and cash paid for leased assets is recognized as a regulatory asset or regulatory liability. Description of Leases Operating Leases The Company's most significant operating lease is with the state of Montana associated with submerged land around the Company's hydroelectric facilities in the Clark Fork River basin, which expires in 2046. The terms of this lease are subject to renegotiation, depending on the outcome of ongoing litigation between Montana and NorthWestern Energy. In addition, the state of Montana and Avista Corp. are engaged in litigation regarding lease terms, including how much money, if any, the state of Montana will return to Avista Corp. Avista Corp. is currently paying all lease payments to the state of Montana into an escrow account until the litigation is resolved. As such, amounts recorded for this lease are uncertain and amounts may change in the future depending on the outcome of the ongoing litigation. Any reduction in future lease payments or the return of previously paid amounts to Avista Corp. will be including in the future ratemaking process. In addition to the lease with the state of Montana, the Company also has other operating leases for land associated with its utility operations, as well as communication sites which support network and radio communications within its service territory. The Company's leases have remaining terms of 1 to 74 years. Most of the Company's leases include options to extend the lease term for periods of 5 to 50 years. Options are exercised at the Company's discretion. Certain of the Company's lease agreements include rental payments which are periodically adjusted over the term of the agreement based on the consumer price index. The Company's lease agreements do not include any material residual value guarantees or material restrictive covenants. Avista Corp. does not record leases with a term of 12 months or less in the Condensed Consolidated Balance Sheet. Total short-term lease costs for the three and nine months ended September 30, 2019 are immaterial. Finance Lease Through its wholly-owned subsidiary, AEL&P, the Company has a PPA which is treated as a finance lease for accounting purposes related to the Snettisham Hydroelectric Project, which expires in 2034. For ratemaking purposes, this lease is treated as an operating lease with a constant level of annual rental expense (straight line rent expense). Because of this regulatory treatment, any difference between the operating lease expense for ratemaking purposes and the expenses recognized under finance lease treatment (interest and amortization of the finance lease ROU asset) is recorded as a regulatory asset and amortized during the later years of the lease when the finance lease expense is less than the operating lease expense included in base rates. In 2018 and prior years, the total cost associated with the Snettisham PPA was included in resource costs. Due to the adoption of the new lease standard, the amortization of the ROU asset is now included in depreciation and amortization and the interest associated with the lease liability is now included in interest expense on the Condensed Consolidated Statement of Income. Leases that Have Not Yet Commenced In June 2018, the Company finalized a lease agreement for office space in Spokane, Washington. The lease period is expected to commence in April 2020, once the Company takes possession of its portion of its portion of the building. The lease is an operating lease for a term of 12 years and will result in annual rent expense of approximately $1.1 million, which will be reflected in other operating expenses. In addition to base rent expense, the Company is expected to share in a portion of the annual operating expenses of the building. In March 2019, the Company signed a PPA with Clearway Energy Group (Clearway) to purchase all of the power generated from the Rattlesnake Flat Wind project in Adams County, Washington. The facility has a nameplate capacity of 144 MW and is expected to generate approximately 50 aMW. During negotiations with Clearway, Avista Corp. was involved in the selection of the preferred generation facility type. The PPA is a 20-year agreement with deliveries expected to begin in 2020. The PPA provides Avista Corp. with additional renewable energy, capacity and environmental attributes. Avista Corp. expects to recover the cost of the power purchased through its retail rates. This PPA is considered a lease under ASC 842; however, all of the payments are variable payments based on whether power is generated from the facility. Since all the payments are variable, the Company will not record a lease liability for the agreement, but the expense will be included in resource costs when it becomes operational in 2020. The components of lease expense were as follows for the three and nine months ended September 30, 2019 (dollars in thousands):
| Three months ended September 30, 2019 |  | Nine months ended September 30, 2019
Operating lease cost: |  |  |
Fixed lease cost (Other operating expenses) | $ | 1,109 |  |  | $ | 3,318 |
Variable lease cost (Other operating expenses) | 248 |  |  | 735 |
Total operating lease cost | $ | 1,357 |  |  | $ | 4,053 |
Finance lease cost: |  |  |
Amortization of ROU asset (Depreciation and amortization) | $ | 911 |  |  | $ | 2,731 |
Interest on lease liabilities (Interest expense) | 698 |  |  | 2,096 |
Total finance lease cost | $ | 1,609 |  |  | $ | 4,827 |
Supplemental cash flow information related to leases was as follows for the nine months ended September 30 (dollars in thousands):
| 2019
Cash paid for amounts included in the measurement of lease liabilities: |
Operating cash outflows: |
Operating lease payments | $ | 4,311 |
Interest on finance lease | 2,096 |
Total operating cash outflows | $ | 6,407 |
Finance cash outflows: |
Principal payments on finance lease | $ | 1,995 |
Supplemental balance sheet information related to leases was as follows for September 30, 2019 (dollars in thousands):
| September 30,
| 2019
Operating Leases |
Operating lease ROU assets (Other property and investments-net and other non-current assets) | $ | 70,140 |
Other current liabilities | $ | 4,119 |
Other non-current liabilities and deferred credits | 68,925 |
Total operating lease liabilities | $ | 73,044 |
Finance Leases |
Finance lease ROU assets (Other property and investments-net and other non-current assets) (a) | $ | 51,890 |
Other current liabilities (b) | $ | 2,765 |
Other non-current liabilities and deferred credits (b) | 52,450 |
Total finance lease liabilities | $ | 55,215 |
Weighted Average Remaining Lease Term |
Operating leases | 26.81 years |
Finance leases | 8.13 years |
Weighted Average Discount Rate |
Operating leases | 3.82 | %
Finance leases | 4.71 | %
(a) | At December 31, 2018, the finance lease ROU assets were included in "Net utility property" on the Condensed Consolidated Balance Sheet. Due to the adoption of ASC 842 on January 1, 2019, the Company has reclassified these amounts to "Other property and investments-net and other non-current assets" on the Condensed Consolidated Balance Sheet such that their presentation as of September 30, 2019 is consistent with operating leases.
(b) | At December 31, 2018, the finance lease liabilities were included in "Current portion of long-term debt" and "Long-term debt and capital leases" on the Condensed Consolidated Balance Sheet. Due to the adoption of ASC 842 on January 1, 2019, the Company has reclassified these amounts to "Other current liabilities" and "Other non-current liabilities and deferred credits" on the Condensed Consolidated Balance Sheet such that their presentation as of September 30, 2019 is consistent with operating leases.
Maturities of lease liabilities (including principal and interest) were as follows as of September 30, 2019 (dollars in thousands):
| Operating Leases |  | Finance Leases
Remainder 2019 | $ | 4,063 |  |  | $ | 1,363 |
2020 | 4,371 |  |  | 5,462 |
2021 | 4,374 |  |  | 5,457 |
2022 | 4,385 |  |  | 5,460 |
2023 | 4,398 |  |  | 5,456 |
Thereafter | 96,056 |  |  | 54,574 |
Total lease payments | $ | 117,647 |  |  | $ | 77,772 |
Less: imputed interest | (44,603 | ) |  | (22,557 | )
Total | $ | 73,044 |  |  | $ | 55,215 |
Future minimum lease payments (including principal and interest) under Topic 840 as of December 31, 2018 (dollars in thousands):
| Operating Leases |  | Finance Leases
2019 | $ | 4,995 |  |  | $ | 5,455 |
2020 | 4,876 |  |  | 5,462 |
2021 | 4,859 |  |  | 5,457 |
2022 | 4,782 |  |  | 5,460 |
2023 | 4,780 |  |  | 5,456 |
Thereafter | 102,389 |  |  | 54,574 |
Total lease payments | $ | 126,681 |  |  | $ | 81,864 |
Less: imputed interest | — |  |  | (24,654 | )
Total | $ | 126,681 |  |  | $ | 57,210 |
Lessee, Finance Leases [Text Block] | LEASES ASC 842, which outlines a model for entities to use in accounting for leases and supersedes previous lease accounting guidance, became effective on January 1, 2019. The core principle of the model is that an entity should recognize the ROU assets and liabilities that arise from leases on the balance sheet and depreciate or amortize the asset and liability over the term of the lease, as well as provide disclosure to enable users of the condensed consolidated financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. Significant Judgments and Assumptions The Company determines if an arrangement is a lease, as well as its classification, at its inception. ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and lease liabilities are recognized at the commencement date of the agreement based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of lease payments. The implicit rate is used when it is readily determinable. The operating and finance lease ROU assets also include any lease payments made and exclude lease incentives, if any, that accrue to the benefit of the lessee. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Any difference between lease expense and cash paid for leased assets is recognized as a regulatory asset or regulatory liability. Description of Leases Operating Leases The Company's most significant operating lease is with the state of Montana associated with submerged land around the Company's hydroelectric facilities in the Clark Fork River basin, which expires in 2046. The terms of this lease are subject to renegotiation, depending on the outcome of ongoing litigation between Montana and NorthWestern Energy. In addition, the state of Montana and Avista Corp. are engaged in litigation regarding lease terms, including how much money, if any, the state of Montana will return to Avista Corp. Avista Corp. is currently paying all lease payments to the state of Montana into an escrow account until the litigation is resolved. As such, amounts recorded for this lease are uncertain and amounts may change in the future depending on the outcome of the ongoing litigation. Any reduction in future lease payments or the return of previously paid amounts to Avista Corp. will be including in the future ratemaking process. In addition to the lease with the state of Montana, the Company also has other operating leases for land associated with its utility operations, as well as communication sites which support network and radio communications within its service territory. The Company's leases have remaining terms of 1 to 74 years. Most of the Company's leases include options to extend the lease term for periods of 5 to 50 years. Options are exercised at the Company's discretion. Certain of the Company's lease agreements include rental payments which are periodically adjusted over the term of the agreement based on the consumer price index. The Company's lease agreements do not include any material residual value guarantees or material restrictive covenants. Avista Corp. does not record leases with a term of 12 months or less in the Condensed Consolidated Balance Sheet. Total short-term lease costs for the three and nine months ended September 30, 2019 are immaterial. Finance Lease Through its wholly-owned subsidiary, AEL&P, the Company has a PPA which is treated as a finance lease for accounting purposes related to the Snettisham Hydroelectric Project, which expires in 2034. For ratemaking purposes, this lease is treated as an operating lease with a constant level of annual rental expense (straight line rent expense). Because of this regulatory treatment, any difference between the operating lease expense for ratemaking purposes and the expenses recognized under finance lease treatment (interest and amortization of the finance lease ROU asset) is recorded as a regulatory asset and amortized during the later years of the lease when the finance lease expense is less than the operating lease expense included in base rates. In 2018 and prior years, the total cost associated with the Snettisham PPA was included in resource costs. Due to the adoption of the new lease standard, the amortization of the ROU asset is now included in depreciation and amortization and the interest associated with the lease liability is now included in interest expense on the Condensed Consolidated Statement of Income. Leases that Have Not Yet Commenced In June 2018, the Company finalized a lease agreement for office space in Spokane, Washington. The lease period is expected to commence in April 2020, once the Company takes possession of its portion of its portion of the building. The lease is an operating lease for a term of 12 years and will result in annual rent expense of approximately $1.1 million, which will be reflected in other operating expenses. In addition to base rent expense, the Company is expected to share in a portion of the annual operating expenses of the building. In March 2019, the Company signed a PPA with Clearway Energy Group (Clearway) to purchase all of the power generated from the Rattlesnake Flat Wind project in Adams County, Washington. The facility has a nameplate capacity of 144 MW and is expected to generate approximately 50 aMW. During negotiations with Clearway, Avista Corp. was involved in the selection of the preferred generation facility type. The PPA is a 20-year agreement with deliveries expected to begin in 2020. The PPA provides Avista Corp. with additional renewable energy, capacity and environmental attributes. Avista Corp. expects to recover the cost of the power purchased through its retail rates. This PPA is considered a lease under ASC 842; however, all of the payments are variable payments based on whether power is generated from the facility. Since all the payments are variable, the Company will not record a lease liability for the agreement, but the expense will be included in resource costs when it becomes operational in 2020. The components of lease expense were as follows for the three and nine months ended September 30, 2019 (dollars in thousands):
| Three months ended September 30, 2019 |  | Nine months ended September 30, 2019
Operating lease cost: |  |  |
Fixed lease cost (Other operating expenses) | $ | 1,109 |  |  | $ | 3,318 |
Variable lease cost (Other operating expenses) | 248 |  |  | 735 |
Total operating lease cost | $ | 1,357 |  |  | $ | 4,053 |
Finance lease cost: |  |  |
Amortization of ROU asset (Depreciation and amortization) | $ | 911 |  |  | $ | 2,731 |
Interest on lease liabilities (Interest expense) | 698 |  |  | 2,096 |
Total finance lease cost | $ | 1,609 |  |  | $ | 4,827 |
Supplemental cash flow information related to leases was as follows for the nine months ended September 30 (dollars in thousands):
| 2019
Cash paid for amounts included in the measurement of lease liabilities: |
Operating cash outflows: |
Operating lease payments | $ | 4,311 |
Interest on finance lease | 2,096 |
Total operating cash outflows | $ | 6,407 |
Finance cash outflows: |
Principal payments on finance lease | $ | 1,995 |
Supplemental balance sheet information related to leases was as follows for September 30, 2019 (dollars in thousands):
| September 30,
| 2019
Operating Leases |
Operating lease ROU assets (Other property and investments-net and other non-current assets) | $ | 70,140 |
Other current liabilities | $ | 4,119 |
Other non-current liabilities and deferred credits | 68,925 |
Total operating lease liabilities | $ | 73,044 |
Finance Leases |
Finance lease ROU assets (Other property and investments-net and other non-current assets) (a) | $ | 51,890 |
Other current liabilities (b) | $ | 2,765 |
Other non-current liabilities and deferred credits (b) | 52,450 |
Total finance lease liabilities | $ | 55,215 |
Weighted Average Remaining Lease Term |
Operating leases | 26.81 years |
Finance leases | 8.13 years |
Weighted Average Discount Rate |
Operating leases | 3.82 | %
Finance leases | 4.71 | %
(a) | At December 31, 2018, the finance lease ROU assets were included in "Net utility property" on the Condensed Consolidated Balance Sheet. Due to the adoption of ASC 842 on January 1, 2019, the Company has reclassified these amounts to "Other property and investments-net and other non-current assets" on the Condensed Consolidated Balance Sheet such that their presentation as of September 30, 2019 is consistent with operating leases.
(b) | At December 31, 2018, the finance lease liabilities were included in "Current portion of long-term debt" and "Long-term debt and capital leases" on the Condensed Consolidated Balance Sheet. Due to the adoption of ASC 842 on January 1, 2019, the Company has reclassified these amounts to "Other current liabilities" and "Other non-current liabilities and deferred credits" on the Condensed Consolidated Balance Sheet such that their presentation as of September 30, 2019 is consistent with operating leases.
Maturities of lease liabilities (including principal and interest) were as follows as of September 30, 2019 (dollars in thousands):
| Operating Leases |  | Finance Leases
Remainder 2019 | $ | 4,063 |  |  | $ | 1,363 |
2020 | 4,371 |  |  | 5,462 |
2021 | 4,374 |  |  | 5,457 |
2022 | 4,385 |  |  | 5,460 |
2023 | 4,398 |  |  | 5,456 |
Thereafter | 96,056 |  |  | 54,574 |
Total lease payments | $ | 117,647 |  |  | $ | 77,772 |
Less: imputed interest | (44,603 | ) |  | (22,557 | )
Total | $ | 73,044 |  |  | $ | 55,215 |
Future minimum lease payments (including principal and interest) under Topic 840 as of December 31, 2018 (dollars in thousands):
| Operating Leases |  | Finance Leases
2019 | $ | 4,995 |  |  | $ | 5,455 |
2020 | 4,876 |  |  | 5,462 |
2021 | 4,859 |  |  | 5,457 |
2022 | 4,782 |  |  | 5,460 |
2023 | 4,780 |  |  | 5,456 |
Thereafter | 102,389 |  |  | 54,574 |
Total lease payments | $ | 126,681 |  |  | $ | 81,864 |
Less: imputed interest | — |  |  | (24,654 | )
Total | $ | 126,681 |  |  | $ | 57,210 |

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