XML 38 R13.htm IDEA: XBRL DOCUMENT
v3.20.2

Derivatives and Risk Management | 9 Months Ended
--- | ---
Sep. 30, 2020
Derivative Instruments And Hedges [Abstract] |
DERIVATIVES AND RISK MANAGEMENT | NOTE 5. DERIVATIVES AND RISK MANAGEMENT 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 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 through wholesale market transactions. These include sales and purchases of 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 three 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 mitigates the 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 September 30, 2020 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 |
Remainder 2020 |  |  | — |  |  |  | 262 |  |  |  | 8,502 |  |  |  | 32,730 |  |  |  | 38 |  |  |  | 409 |  |  |  | 2,138 |  |  |  | 12,650 |
2021 |  |  | — |  |  |  | 123 |  |  |  | 6,380 |  |  |  | 54,455 |  |  |  | — |  |  |  | 307 |  |  |  | 2,840 |  |  |  | 34,710 |
2022 |  |  | — |  |  |  | — |  |  |  | 450 |  |  |  | 17,080 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 6,020 |
2023 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,700 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
As of September 30, 2020, there are no expected deliveries of energy commodity derivatives after 2023. The following table presents the underlying energy commodity derivative volumes as of December 31, 2019 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 |
2020 |  |  | 2 |  |  |  | 442 |  |  |  | 9,813 |  |  |  | 78,803 |  |  |  | 133 |  |  |  | 1,724 |  |  |  | 2,984 |  |  |  | 37,848 |
2021 |  |  | — |  |  |  | — |  |  |  | 153 |  |  |  | 25,523 |  |  |  | — |  |  |  | 246 |  |  |  | 1,040 |  |  |  | 13,108 |
2022 |  |  | — |  |  |  | — |  |  |  | 225 |  |  |  | 4,725 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 675 |
As of December 31, 2019, there are no expected deliveries of energy commodity derivatives after 2022.
(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 scheduled to be delivered and will be included in the various deferral and recovery mechanisms (ERM, PCA and PGAs), 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. The short- term natural gas transactions are 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 September 30, 2020 and December 31, 2019 (dollars in thousands):
|  | September 30, 2020 |  |  | December 31, 2019 |
Number of contracts |  |  | 24 |  |  |  | 20 |
Notional amount (in United States dollars) |  | $ | 5,887 |  |  | $ | 5,932 |
Notional amount (in Canadian dollars) |  |  | 7,777 |  |  |  | 7,828 |
Interest Rate Swap 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 September 30, 2020 and December 31, 2019 (dollars in thousands):
Balance Sheet Date |  | Number of Contracts |  |  | Notional Amount |  |  | Mandatory Cash Settlement Date
September 30, 2020 |  |  | 4 |  |  |  | 45,000 |  |  | 2021
|  |  | 11 |  |  |  | 120,000 |  |  | 2022
|  |  | 1 |  |  |  | 10,000 |  |  | 2023
December 31, 2019 |  |  | 7 |  |  |  | 70,000 |  |  | 2020
|  |  | 3 |  |  |  | 35,000 |  |  | 2021
|  |  | 10 |  |  |  | 110,000 |  |  | 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. In connection with the pricing of first mortgage bonds that were issued during the third quarter, effective June 30, 2020 the Company settled seven interest rate swap derivatives (notional aggregate amount of $70.0 million), for a net amount of $33.5 million. The Company paid this amount in July 2020. See Note 1 for the regulatory treatment of settled interest rate swaps. Summary of Outstanding Derivative Instruments The amounts recorded on the Condensed Consolidated Balance Sheet as of September 30, 2020 and December 31, 2019 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 September 30, 2020 (in thousands):
|  | Fair Value |
Derivative and Balance Sheet Location |  | Gross Asset |  |  | Gross Liability |  |  | Collateral Netted (1) |  |  | Net Asset (Liability) on Balance Sheet |
Foreign currency exchange derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current liabilities |  | $ | 7 |  |  | $ | (52 | ) |  | $ | — |  |  | $ | (45 | )
Interest rate swap derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other non-current liabilities and deferred credits |  |  | — |  |  |  | (66,598 | ) |  |  | 10,100 |  |  |  | (56,498 | )
Energy commodity derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current assets |  |  | 27,305 |  |  |  | (22,188 | ) |  |  | (4,551 | ) |  |  | 566 |
Other property and investments-net and other non-current assets |  |  | 8,221 |  |  |  | (3,976 | ) |  |  | (1,072 | ) |  |  | 3,173 |
Other current liabilities |  |  | 136 |  |  |  | (4,534 | ) |  |  | — |  |  |  | (4,398 | )
Total derivative instruments recorded on the balance sheet |  | $ | 35,669 |  |  | $ | (97,348 | ) |  | $ | 4,477 |  |  | $ | (57,202 | )
| (1) | Positive amounts represent cash collateral posted by the Company with other counterparties and negative amounts represent an obligation to return cash to the Company’s counterparties under master netting and collateral agreements.
The following table presents the fair values and locations of derivative instruments recorded on the Condensed Consolidated Balance Sheet as of December 31, 2019 (in thousands):
|  | Fair Value |
Derivative and Balance Sheet Location |  | Gross Asset |  |  | Gross Liability |  |  | Collateral Netted |  |  | Net Asset (Liability) on Balance Sheet |
Foreign currency exchange derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current assets |  | $ | 97 |  |  | $ | — |  |  | $ | — |  |  | $ | 97 |
Interest rate swap derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current assets |  |  | 589 |  |  |  | — |  |  |  | — |  |  |  | 589 |
Other current liabilities |  |  | 238 |  |  |  | (9,379 | ) |  |  | 1,316 |  |  |  | (7,825 | )
Other non-current liabilities and deferred credits |  |  | 725 |  |  |  | (24,677 | ) |  |  | 5,454 |  |  |  | (18,498 | )
Energy commodity derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current assets |  |  | 416 |  |  |  | (245 | ) |  |  | — |  |  |  | 171 |
Other property and investments-net and other non-current assets |  |  | 6,369 |  |  |  | (5,446 | ) |  |  | — |  |  |  | 923 |
Other current liabilities |  |  | 34,760 |  |  |  | (41,241 | ) |  |  | 3,378 |  |  |  | (3,103 | )
Other non-current liabilities and deferred credits |  |  | 28 |  |  |  | (1,215 | ) |  |  | — |  |  |  | (1,187 | )
Total derivative instruments recorded on the balance sheet |  | $ | 43,222 |  |  | $ | (82,203 | ) |  | $ | 10,148 |  |  | $ | (28,833 | )
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 September 30, 2020 and December 31, 2019 (in thousands):
|  | September 30, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Energy commodity derivatives |  |  |  |  |  |  |  |
Cash collateral posted |  | $ | — |  |  | $ | 7,812 |
Letters of credit outstanding |  |  | 21,500 |  |  |  | 17,400 |
Balance sheet offsetting |  |  | (5,623 | ) |  |  | 3,378 |
Interest rate swap derivatives |  |  |  |  |  |  |  |
Cash collateral posted |  |  | 10,100 |  |  |  | 6,770 |
Balance sheet offsetting |  |  | 10,100 |  |  |  | 6,770 |
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 September 30, 2020 and December 31, 2019 (in thousands):
|  | September 30, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Energy commodity derivatives |  |  |  |  |  |  |  |
Liabilities with credit-risk-related contingent features |  | $ | 3 |  |  | $ | 814 |
Additional collateral to post |  |  | 3 |  |  |  | 814 |
Interest rate swap derivatives |  |  |  |  |  |  |  |
Liabilities with credit-risk-related contingent features |  |  | 66,598 |  |  |  | 34,056 |
Additional collateral to post |  |  | 56,498 |  |  |  | 26,912 |

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgesAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration