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Fair Value | 6 Months Ended
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Jun. 30, 2023
Fair Value Disclosures [Abstract] |
Fair Value | NOTE 12. FAIR VALUE The carrying values of cash and cash equivalents, accounts and notes receivable, accounts payable, and short-term borrowings as shown on the Condensed Consolidated Balance Sheets are reasonable estimates of their fair values. The carrying values of long-term debt (including current portion and material finance leases) and long-term debt to affiliated trusts as shown on the Condensed Consolidated Balance Sheets may be different from the estimated fair value. See below for the estimated fair value of long-term debt and long-term debt to affiliated trusts. The fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to fair values derived from unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are defined as follows: Level 1 – Quoted prices are available in active markets for identical assets or liabilities. Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, but which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Level 3 – Pricing inputs include significant inputs generally unobservable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. The determination of the fair values incorporates various factors including the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits and letters of credit), and the impact of Avista Corp.’s nonperformance risk on its liabilities. The following table sets forth the carrying value and estimated fair value of the Company’s financial instruments not reported at estimated fair value on the Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 (dollars in thousands):
|  | June 30, 2023 |  |  | December 31, 2022 |
|  | Carrying Value |  |  | Estimated Fair Value |  |  | Carrying Value |  |  | Estimated Fair Value |
Long-term debt (Level 2) |  | $ | 1,107,000 |  |  | $ | 975,122 |  |  | $ | 1,113,500 |  |  | $ | 966,881 |
Long-term debt (Level 3) |  |  | 1,450,000 |  |  |  | 1,137,437 |  |  |  | 1,200,000 |  |  |  | 881,480 |
Snettisham finance lease obligation (Level 3) |  |  | 44,113 |  |  |  | 40,500 |  |  |  | 45,730 |  |  |  | 41,700 |
Long-term debt to affiliated trusts (Level 3) |  |  | 51,547 |  |  |  | 42,284 |  |  |  | 51,547 |  |  |  | 42,836 |
These estimates of fair value of long-term debt and long-term debt to affiliated trusts were primarily based on available market information, which generally consists of estimated market prices from third party brokers for debt with similar risk and terms. The price ranges obtained from the third party brokers consisted of market prices of 60.96 percent to 106.85 percent of the principal amount, where 100.0 percent of the principal amount (adjusted for unamortized discount or premium) represents the carrying value recorded on the Condensed Consolidated Balance Sheets. Level 2 long-term debt represents publicly issued bonds with quoted market prices; however, due to their limited trading activity, they are classified as Level 2 because brokers must generate quotes and make estimates if there is no trading activity near a period end. Level 3 long-term debt consists of private placement bonds and debt to affiliated trusts, which typically have no secondary trading activity. Fair values in Level 3 are estimated based on market prices from third party brokers using secondary market quotes for debt with similar risk and terms to generate quotes for Avista Corp. bonds. Due to the unique nature of the Snettisham finance lease obligation, the estimated fair value of these items was determined based on a discounted cash flow model using available market information. The Snettisham finance lease obligation was discounted to present value using the Morgan Markets A Ex-Fin discount rate as published on June 30, 2023 and December 31, 2022. The following table discloses by level within the fair value hierarchy the Company’s assets and liabilities measured and reported on the Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 at fair value on a recurring basis (dollars in thousands):
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Counterparty and Cash Collateral Netting (1) |  |  | Total |
June 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Energy commodity derivatives |  | $ | — |  |  | $ | 33,285 |  |  | $ | — |  |  | $ | (33,015 | ) |  | $ | 270 |
Foreign currency exchange derivatives |  |  | — |  |  |  | 16 |  |  |  | — |  |  |  | — |  |  |  | 16 |
Interest rate swap derivatives |  |  | — |  |  |  | 2,883 |  |  |  | — |  |  |  | — |  |  |  | 2,883 |
Equity Investments |  |  | — |  |  |  | — |  |  |  | 48,453 |  |  |  | — |  |  |  | 48,453 |
Deferred compensation assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mutual Funds: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities (3) |  |  | 1,142 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,142 |
Equity securities (3) |  |  | 6,140 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 6,140 |
Total |  | $ | 7,282 |  |  | $ | 36,184 |  |  | $ | 48,453 |  |  | $ | (33,015 | ) |  | $ | 58,904 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Energy commodity derivatives (2) |  | $ | — |  |  | $ | 81,132 |  |  | $ | 11,721 |  |  | $ | (78,224 | ) |  | $ | 14,629 |
Total |  | $ | — |  |  | $ | 81,132 |  |  | $ | 11,721 |  |  | $ | (78,224 | ) |  | $ | 14,629 |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Energy commodity derivatives (2) |  | $ | — |  |  | $ | 146,232 |  |  | $ | 288 |  |  | $ | (136,605 | ) |  | $ | 9,915 |
Foreign currency exchange derivatives |  |  | — |  |  |  | 43 |  |  |  | — |  |  |  | — |  |  |  | 43 |
Interest rate swap derivatives |  |  | — |  |  |  | 11,184 |  |  |  | — |  |  |  | — |  |  |  | 11,184 |
Equity Investments |  |  | — |  |  |  | — |  |  |  | 54,284 |  |  |  | — |  |  |  | 54,284 |
Deferred compensation assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mutual Funds: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities (3) |  |  | 1,267 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,267 |
Equity securities (3) |  |  | 6,132 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 6,132 |
Total |  | $ | 7,399 |  |  | $ | 157,459 |  |  | $ | 54,572 |  |  | $ | (136,605 | ) |  | $ | 82,825 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Energy commodity derivatives (2) |  | $ | — |  |  | $ | 258,769 |  |  | $ | 18,022 |  |  | $ | (242,044 | ) |  | $ | 34,747 |
Foreign currency exchange derivatives |  |  | — |  |  |  | 3 |  |  |  | — |  |  |  | — |  |  |  | 3 |
Interest rate swap derivatives |  |  | — |  |  |  | 52 |  |  |  | — |  |  |  | — |  |  |  | 52 |
Total |  | $ | — |  |  | $ | 258,824 |  |  | $ | 18,022 |  |  | $ | (242,044 | ) |  | $ | 34,802 |
(1) The Company is permitted to net derivative assets and derivative liabilities with the same counterparty when a legally enforceable master netting agreement exists. In addition, the Company nets derivative assets and derivative liabilities against any payables and receivables for cash collateral held or placed with these same counterparties. (2) The Level 3 energy commodity derivative balances are associated with natural gas exchange agreements. (3) Included in other property and investments-net and other non-current assets on the Condensed Consolidated Balance Sheets. The difference between the amount of derivative assets and liabilities disclosed in respective levels in the table above and the amount of derivative assets and liabilities disclosed on the Condensed Consolidated Balance Sheets is due to netting arrangements with certain counterparties. See Note 6 for additional discussion of derivative netting. To establish fair value for energy commodity derivatives, the Company uses quoted market prices and forward price curves to estimate the fair value of energy commodity derivative instruments included in Level 2. In particular, electric derivative valuations are performed using market quotes, adjusted for periods in between quotable periods. Natural gas derivative valuations are estimated using New York Mercantile Exchange pricing for similar instruments, adjusted for basin differences, using market quotes. Where observable inputs are available for substantially the full term of the contract, the derivative asset or liability is included in Level 2. To establish fair values for interest rate swap derivatives, the Company uses forward market curves for interest rates for the term of the swaps and discounts the cash flows back to present value using an appropriate discount rate. The discount rate is calculated by third party brokers according to the terms of the swap derivatives and evaluated by the Company for reasonableness, with consideration given to the potential non-performance risk by the Company. Future cash flows of the interest rate swap derivatives are equal to the fixed interest rate in the swap compared to the floating market interest rate multiplied by the notional amount for each period. To establish fair value for foreign currency derivatives, the Company uses forward market curves for Canadian dollars against the US dollar and multiplies the difference between the locked-in price and the market price by the notional amount of the derivative. Forward foreign currency market curves are provided by third party brokers. The Company's credit spread is factored into the locked-in price of the foreign exchange contracts. Deferred compensation assets and liabilities represent funds held by the Company in a Rabbi Trust for an executive deferral plan. These funds consist of actively traded equity and bond funds with quoted prices in active markets. Level 3 Fair Value Natural Gas Exchange Agreement For the natural gas commodity exchange agreement, the Company uses the same Level 2 market quotes described above; however, the Company also estimates the purchase and sales volumes (within contractual limits) as well as the timing of those transactions. Changing the timing of volume estimates changes the timing of purchases and sales, impacting which brokered quote is used. Because the brokered quotes can vary significantly from period to period, the unobservable estimates of the timing and volume of transactions can have a significant impact on the calculated fair value. The Company currently estimates volumes and timing of transactions based on a most likely scenario using historical data. Historically, the timing and volume of transactions are not highly correlated with market prices and market volatility. The following table presents the quantitative information which was used to estimate the fair values of the Level 3 assets and liabilities above as of June 30, 2023 (dollars in thousands):
|  | Fair Value (Net) at |  |  | Valuation |  | Unobservable |  | Range and Weighted
|  | June 30, 2023 |  |  | Technique |  | Input |  | Average Price
Natural gas exchange agreement |  | $ | (11,721 | ) |  | Internally derived weighted average cost of gas |  | Forward purchase prices |  | $2.53 - $3.39/mmBTU $2.99 Weighted Average
|  |  |  |  |  |  | Forward sales prices |  | $2.92 - $9.53/mmBTU $6.79 Weighted Average
|  |  |  |  |  |  | Purchase volumes |  | 140,000 - 310,000 mmBTUs
|  |  |  |  |  |  | Sales volumes |  | 75,000 - 310,000 mmBTUs
The valuation methods, significant inputs and resulting fair values described above were developed by the Company's management and are reviewed on at least a quarterly basis to ensure they provide a reasonable estimate of fair value each reporting period. Equity Investments The Company has two equity investments measured at fair value on a recurring basis. For one investment, fair value is determined using a market approach, starting with enterprise values from recent market transaction data for comparable companies with similar equity instruments. The market transaction data was used to estimate an enterprise value of the underlying investment and that value was allocated to the various classes of equity via an option pricing model and a waterfall approach. The selection of appropriate comparable companies and the expected time to a liquidation event requires management judgment. The significant assumptions in the analysis include the comparable market transactions and related enterprise values, time to liquidity event and the market discount for lack of liquidity. In the event there are relevant market transactions for the same or similar securities of the subject company or there is the reasonable possibility of a transaction occurring, those transactions are utilized as an input to the valuation with a probability weight applied to the valuation. For the second investment, the fair value is determined using an income approach utilizing a discounted cash flow model. The model is based on income statement forecasts from the underlying company to determine cash flows for the period of ownership. The model then utilizes market multiples from publicly traded comparable companies in similar industries and projects to estimate the terminal fair value. The market multiples are reduced to reflect the difference in the life cycle between the publicly traded comparable companies and the start-up nature of the investment company. The selection of appropriate comparable companies, market multiples and the reduction to those market multiples requires management judgment. The significant assumptions in the model include the discount rate representing the risk associated with the investment, market multiples and the related reduction to those multiples, revenue forecasts, and the estimated terminal date for the investment. In the event there are relevant market transactions for the same or similar securities of the subject company or there is the reasonable possibility of a transaction occurring, those transactions are used to determine the fair value of Avista Corp.’s investment under a market approach instead of utilizing a discounted cash flow model. The market transactions are considered Level 3 inputs because they are not publicly available observable transactions. The following table presents the quantitative information which was used to estimate the fair values of the Level 3 equity investments as of June 30, 2023 (dollars in thousands):
|  | Fair Value at |  |  |  |  |  |  |
|  | June 30, 2023 |  |  | Valuation Technique |  | Unobservable Input |  | Range
Equity investments |  | $ | 48,453 |  |  | Market approach |  | Comparable enterprise values |  | $130,000-$388,600 $246,000 Average
|  |  |  |  |  |  | Time to liquidity event |  | 0 to 2 years
|  |  |  |  |  |  | Probability weighting |  | 75%/25%
|  |  |  |  | Discounted cash flows |  | Revenue market multiples |  | 1.39 x to 7.10 x Revenue 3.39 x Average
|  |  |  |  |  |  | Market exit reduction |  | 50%
|  |  |  |  |  |  | Discount rate |  | 25%
|  |  |  |  |  |  | Annual revenues |  | $14,000 - $265,000
|  |  |  |  |  |  | Terminal date |  | 2026
The following table presents activity for assets and liabilities measured at fair value using significant unobservable inputs (Level 3) for the three and six months ended June 30 (dollars in thousands):
|  | Natural Gas Exchange Agreement (1) |  |  | Equity Investments |  |  | Total |
Three Months Ended June 30, 2023: |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | (11,062 | ) |  | $ | 51,014 |  |  | $ | 39,952 |
Total gains or (losses) (realized/unrealized): |  |  |  |  |  |  |  |  |
Included in regulatory assets/liabilities |  |  | (1,016 | ) |  |  | — |  |  |  | (1,016 | )
Recognized in net income |  |  | — |  |  |  | (2,561 | ) |  |  | (2,561 | )
Purchases and debt conversions |  |  | — |  |  |  | — |  |  |  | — |
Settlements |  |  | 357 |  |  |  | — |  |  |  | 357 |
Other |  |  | — |  |  |  | — |  |  |  | — |
Ending balance as of June 30, 2023 |  | $ | (11,721 | ) |  | $ | 48,453 |  |  | $ | 36,732 |
Three Months Ended June 30, 2022: |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | (6,197 | ) |  | $ | — |  |  | $ | (6,197 | )
Total gains or (losses) (realized/unrealized): |  |  |  |  |  |  |  |  |
Included in regulatory assets/liabilities |  |  | 5,196 |  |  |  | — |  |  |  | 5,196 |
Settlements |  |  | (1,288 | ) |  |  | — |  |  |  | (1,288 | )
Ending balance as of June 30, 2022 |  | $ | (2,289 | ) |  | $ | — |  |  | $ | (2,289 | )
Six Months Ended June 30, 2023: |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | (17,734 | ) |  | $ | 54,284 |  |  | $ | 36,550 |
Total gains or (losses) (realized/unrealized): |  |  |  |  |  |  |  |  |
Included in regulatory assets/liabilities |  |  | 5,767 |  |  |  | — |  |  |  | 5,767 |
Recognized in net income |  |  | — |  |  |  | (5,198 | ) |  |  | (5,198 | )
Purchases and debt conversions |  |  | — |  |  |  | 2,367 |  |  |  | 2,367 |
Settlements |  |  | 246 |  |  |  | — |  |  |  | 246 |
Other |  |  | — |  |  |  | (3,000 | ) |  |  | (3,000 | )
Ending balance as of June 30, 2023 |  | $ | (11,721 | ) |  | $ | 48,453 |  |  | $ | 36,732 |
Six Months Ended June 30, 2022: |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | (7,771 | ) |  | $ | — |  |  | $ | (7,771 | )
Total gains or (losses) (realized/unrealized): |  |  |  |  |  |  |  |  |
Included in regulatory assets/liabilities |  |  | 7,695 |  |  |  | — |  |  |  | 7,695 |
Settlements |  |  | (2,213 | ) |  |  | — |  |  |  | (2,213 | )
Ending balance as of June 30, 2022 |  | $ | (2,289 | ) |  | $ | — |  |  | $ | (2,289 | )
(1) There were no purchases, issuances or transfers from other categories of any derivatives instruments during the periods presented in the table above.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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