The core principle of the revenue recognition accounting model is that an entity should identify the various performance obligations in a contract, allocate the transaction price among the performance obligations and recognize revenue when (or as) the entity satisfies each performance obligation.

The majority of Avista Corp.’s revenue is from rate-regulated sales of electricity and natural gas to retail customers, which has two performance obligations, (1) having service available for a specified period (typically a month at a time) and (2) the delivery of energy to customers. The total energy price generally has a fixed component (basic charge) related to having service available and a usage-based component, related to the delivery and consumption of energy. The commodity is sold and/or delivered to and consumed by the customer simultaneously, and the provisions of the relevant utility commission authorization determine the charges the Company may bill the customer. Given that all revenue recognition criteria are met upon the delivery of energy to customers, revenue is recognized immediately at that time.

Revenues from contracts with customers are presented in the Condensed Consolidated Statements of Income in the line item "Utility revenues, exclusive of alternative revenue programs."

The Company has certain wholesale contracts which are not accounted for as derivatives and, accordingly, are considered revenue from contracts with customers. Revenue is recognized as energy is delivered to the customer or the service is available for a specified period of time, consistent with the discussion of rate-regulated sales above.

ASC 606 retained existing GAAP associated with alternative revenue programs, which specified alternative revenue programs are contracts between an entity and a regulator of utilities, not a contract between an entity and a customer. GAAP requires an entity to present revenue arising from alternative revenue programs separately from revenues arising from contracts with customers on the face of the Condensed Consolidated Statements of Income. The Company's decoupling mechanisms (also known as a FCA in Idaho) qualify as alternative revenue programs. Decoupling revenue deferrals are recognized in the Condensed Consolidated Statements of Income during the period they occur (i.e. during the period of revenue shortfall or excess due to fluctuations in customer usage), subject to certain limitations, and a regulatory asset or liability is established that will be surcharged or rebated to customers in future periods. GAAP requires that for any alternative revenue program, like decoupling, the revenue must be expected to be collected from customers within 24 months of the deferral to qualify for recognition in the current period Condensed Consolidated Statement of Income. Any amounts included in the Company's decoupling program not expected to be collected from customers within 24 months are not recorded in the financial statements until the period in which revenue recognition criteria are met. The amounts expected to be collected from customers within 24 months represents an estimate made by the Company on an ongoing basis due to it being based on the volumes of electric and natural gas sold to customers on a go-forward basis.

The Company records alternative program revenues under the gross method, which is to amortize the decoupling regulatory asset/liability to the alternative revenue program line item on the Condensed Consolidated Statements of Income as it is collected from or refunded to customers. The cash passing between the Company and the customers is presented in revenue from contracts with customers since it is a portion of the overall tariff paid by customers. This method results in a gross-up to both revenue from contracts with customers and revenue from alternative revenue programs, but has a net zero impact on total revenue. Depending on whether the previous deferral balance being amortized was a regulatory asset or regulatory liability, and depending on the size and direction of the current year deferral of surcharges and/or rebates to customers, it could result in negative alternative revenue program revenue during the year.

Most wholesale electric and natural gas transactions (including both physical and financial transactions), and the sale of fuel are considered derivatives, which are specifically excluded from revenue from contracts with customers and therefore disclosed separately. The revenue or loss is recognized for these items upon the settlement/expiration of the derivative contract. Derivative revenue includes those transactions entered into and settled within the same month.

Other utility revenue includes rent, sales of materials, late fees and other charges that do not represent contracts with customers. Other utility revenue also includes the provision for earnings sharing. This revenue is excluded from revenue from contracts with customers, as this revenue does not represent items where a customer is a party that has contracted with the Company to obtain goods or services that are an output of the Company’s ordinary activities in exchange for consideration. As such, these revenues are presented separately from revenue from contracts with customers.

Revenues and resource costs from Avista Utilities’ settled energy contracts “booked out” (not physically delivered) are reported on a net basis as part of derivative revenues.

Utility-related taxes collected from customers (primarily state excise taxes and city utility taxes) are imposed on Avista Utilities as opposed to being imposed on its customers; therefore, Avista Utilities is the taxpayer and records these transactions on a gross basis in revenue from contracts with customers and operating expense (taxes other than income taxes). The utility-related taxes collected from customers at AEL&P are imposed on the customers rather than AEL&P; therefore, the customers are the taxpayers and AEL&P is acting as their agent. As such, these transactions at AEL&P are presented on a net basis within revenue from contracts with customers.

The only significant judgments involving revenue recognition are estimates surrounding unbilled revenue and receivables from contracts with customers and estimates surrounding the amount of decoupling revenues that will be collected from customers within 24 months (discussed above).

The Company has certain capacity arrangements, where the Company has a contractual obligation to provide either electric or natural gas capacity to its customers for a fixed fee. Most of these arrangements are paid for in arrears by the customers and do not result in deferred revenue and only result in receivables from the customers. The Company has one capacity agreement where the customer makes payments throughout the year. As of September 30, 2023, the Company estimates it had unsatisfied capacity performance obligations of $8.7 million, which will be recognized as revenue in future periods as the capacity is provided to the customers. These performance obligations are not reflected in the financial statements, as the Company has not received payment for these services.

Disaggregation of Total Operating Revenue

The following table disaggregates total operating revenue by segment and source for the three and nine months ended September 30 (dollars in thousands):


	Three months ended September 30,					Nine months ended September 30,
	2023		2022			2023			2022
Avista Utilities
Revenue from contracts with customers	$	285,821	$	276,988		$	1,058,725		$	970,247
Derivative revenues		77,562		76,248			141,080			218,024
Alternative revenue programs		3,578		(5,850	)		(9,947	)		(28,420	)
Deferrals and amortizations for rate refunds to customers		124		156			769			25
Other utility revenues		2,588		2,113			7,792			7,166
Total Avista Utilities		369,673		349,655			1,198,419			1,167,042
AEL&P
Revenue from contracts with customers		9,700		9,526			34,934			32,747
Deferrals and amortizations for rate refunds to customers		—		(49	)		—			(614	)
Other utility revenues		151		160			474			464
Total AEL&P		9,851		9,637			35,408			32,597

Other non-utility revenues		102		154			367			419
Total operating revenues	$	379,626	$	359,446		$	1,234,194		$	1,200,058

Utility Revenue from Contracts with Customers by Type and Service

The following table disaggregates revenue from contracts with customers associated with the Company's electric operations for the three and nine months ended September 30 (dollars in thousands):


	2023						2022
	Avista Utilities		AEL&P		Total Utility		Avista Utilities		AEL&P		Total Utility
Three months ended September 30:
ELECTRIC OPERATIONS
Revenue from contracts with customers
Residential	$	95,881	$	3,186	$	99,067	$	94,451	$	3,123	$	97,574
Commercial		89,772		6,447		96,219		89,411		6,339		95,750
Industrial		29,584		—		29,584		30,090		—		30,090
Public street and highway lighting		2,005		67		2,072		1,810		64		1,874
Total retail revenue		217,242		9,700		226,942		215,762		9,526		225,288
Transmission		7,721		—		7,721		9,662		—		9,662
Other revenue from contracts with customers		9,353		—		9,353		11,457		—		11,457
Total electric revenue from contracts with customers	$	234,316	$	9,700	$	244,016	$	236,881	$	9,526	$	246,407
Nine months ended September 30:
ELECTRIC OPERATIONS
Revenue from contracts with customers
Residential	$	305,203	$	14,485	$	319,688	$	299,562	$	13,740	$	313,302
Commercial		252,344		20,257		272,601		253,694		18,824		272,518
Industrial		82,707		—		82,707		82,235		—		82,235
Public street and highway lighting		5,940		192		6,132		5,586		183		5,769
Total retail revenue		646,194		34,934		681,128		641,077		32,747		673,824
Transmission		24,143		—		24,143		22,764		—		22,764
Other revenue from contracts with customers		33,580		—		33,580		27,628		—		27,628
Total electric revenue from contracts with customers	$	703,917	$	34,934	$	738,851	$	691,469	$	32,747	$	724,216

The following table disaggregates revenue from contracts with customers associated with the Company's natural gas operations for the three and nine months ended September 30 (dollars in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
	Avista Utilities		Avista Utilities		Avista Utilities		Avista Utilities
NATURAL GAS OPERATIONS
Revenue from contracts with customers
Residential	$	29,372	$	22,960	$	218,212	$	174,655
Commercial		15,381		11,978		113,183		86,335
Industrial and interruptible		3,480		1,930		13,136		7,238
Total retail revenue		48,233		36,868		344,531		268,228
Transportation		1,866		1,832		6,058		6,331
Other revenue from contracts with customers		1,406		1,407		4,219		4,219
Total natural gas revenue from contracts with customers	$	51,505	$	40,107	$	354,808	$	278,778