LONG-TERM DEBT

The following details long-term debt outstanding as of September 30, 2014 and December 31, 2013 (dollars in thousands):



Maturity		Interest	September 30,			December 31,
Year	Description	Rate	2014			2013
Avista Corp. Secured Long-Term Debt
2016	First Mortgage Bonds	0.84%	$	90,000		$	90,000
2018	First Mortgage Bonds	5.95%	250,000			250,000
2018	Secured Medium-Term Notes	7.39%-7.45%	22,500			22,500
2019	First Mortgage Bonds	5.45%	90,000			90,000
2020	First Mortgage Bonds	3.89%	52,000			52,000
2022	First Mortgage Bonds	5.13%	250,000			250,000
2023	Secured Medium-Term Notes	7.18%-7.54%	13,500			13,500
2028	Secured Medium-Term Notes	6.37%	25,000			25,000
2032	Secured Pollution Control Bonds (1)	(1)	66,700			66,700
2034	Secured Pollution Control Bonds (1)	(1)	17,000			17,000
2035	First Mortgage Bonds	6.25%	150,000			150,000
2037	First Mortgage Bonds	5.70%	150,000			150,000
2040	First Mortgage Bonds	5.55%	35,000			35,000
2041	First Mortgage Bonds	4.45%	85,000			85,000
2047	First Mortgage Bonds	4.23%	80,000			80,000
	Total Avista Corp. secured long-term debt		1,376,700			1,376,700

Alaska Electric Light and Power Company Secured Long-Term Debt
2044	First Mortgage Bonds (2)	4.54%	75,000			—
	Total consolidated secured long-term debt		1,451,700			1,376,700
	Other long-term debt and capital leases		74,754			4,630
	Settled interest rate swaps (3)		(23,118		)	(23,560		)
	Unamortized debt discount		(954		)	(1,287		)
	Total		1,502,382			1,356,483
	Secured Pollution Control Bonds held by Avista Corporation (1)		(83,700		)	(83,700		)
	Current portion of long-term debt and capital leases		(6,471		)	(358		)
	Total long-term debt and capital leases		$	1,412,211		$	1,272,425

(1)

In December 2010, $66.7 million and $17.0 million of the City of Forsyth, Montana Pollution Control Revenue Refunding Bonds (Avista Corporation Colstrip Project) due in 2032 and 2034, respectively, which had been held by Avista Corp. since 2008 and 2009, respectively, were refunded by new bond issues (Series 2010A and Series 2010B). The new bonds were not offered to the public and were purchased by Avista Corp. due to market conditions. The Company expects that at a later date, subject to market conditions, these bonds may be remarketed to unaffiliated investors. So long as Avista Corp. is the holder of these bonds, the bonds will not be reflected as an asset or a liability on Avista Corp.'s Condensed Consolidated Balance Sheets.


(2)	In September 2014, AEL&P issued $75.0 million of 4.54 percent first mortgage bonds due in 2044 to two institutional investors in the private placement market. The first mortgage bonds were issued under and in accordance with the AEL&P Mortgage and Deed of Trust, dated as of July 1, 2014.


(3)	Upon settlement of interest rate swaps, these are recorded as a regulatory asset or liability and included as part of long-term debt above. They are amortized as a component of interest expense over the life of the associated debt and included as a part of the Company's cost of debt calculation for ratemaking purposes.

In October 2014, the Company entered into a bond purchase agreement with three institutional investors in the private placement market for the issuance and sale of $60.0 million of Avista Corp. first mortgage bonds that are expected to be issued in December 2014. The first mortgage bonds will bear an interest rate of 4.11 percent and mature in December 2044. In connection with this pricing, the Company cash settled two interest rate swap contracts (notional aggregate amount of $50.0 million) and received a total of $5.4 million. Upon settlement of interest rate swaps, the regulatory asset or liability (included as part of long-term debt) is amortized as a component of interest expense over the term of the associated debt.

Snettisham Capital Lease Obligation

Included in long-term capital leases above is a power purchase agreement between AEL&P and AIDEA, an agency of the State of Alaska, under which AEL&P has a take-or-pay obligation, expiring in December 2038, to purchase all the output of the 78 MW Snettisham hydroelectric project. AIDEA issued $100.0 million in revenue bonds to finance its acquisition of the project and the payments by AEL&P are designed to be more than sufficient to enable the AIDEA to pay the principal and interest amount of its revenue bonds, bearing interest at rates ranging from 4.9 percent to 6.0 percent and maturing in January 2034. AEL&P will make its last bond payment to AIDEA in December 2033. The payments by AEL&P under the agreement are unconditional, notwithstanding any suspension, reduction or curtailment of the operation of the project. The bonds are payable solely out of AIDEA's receipts under the agreement. AEL&P is also obligated to operate, maintain and insure the project. AEL&P's payments for power under the agreement are approximately $10.6 million per year, while debt service on the bonds is approximately $5.9 million per year, which are included in the $10.6 million total costs of power. For accounting purposes, this power purchase agreement is treated as a capital lease.

Snettisham Electric Company, a non-operating subsidiary of AERC, has the option to purchase the Snettisham project at any time for the principal amount of the bonds outstanding at that time.

While the power purchase agreement is treated as a capital lease for accounting purposes, for ratemaking purposes, this agreement is treated as an operating lease with a constant level of annual rental expense (straight line expense). Because of this regulatory treatment, any difference between the operating lease expense for ratemaking purposes and the expenses recognized under capital lease treatment (interest and depreciation of the capital lease asset) will be recorded as a regulatory asset and amortized during the later years of the lease when the capital lease expense is less than the operating lease expense included in base rates.

The Company evaluated this agreement to determine if it has a variable interest which must be consolidated. Based on this evaluation, AIDEA will not be consolidated under ASC 810 "Consolidation" because AIDEA is a government agency and ASC 810 has a specific scope exception which does not allow for the consolidation of government organizations.

As of September 30, 2014, the capital lease obligation was $70.5 million and the capital lease asset was $71.0 million (included in utility plant in service on the Condensed Consolidated Balance Sheet) and accumulated amortization was $0.9 million. For the three months ended September 30, 2014 interest on the capital lease obligation was $1.0 million and amortization of the capital lease asset was $0.9 million. These amounts were included in utility resource costs in the Condensed Consolidated Statements of Income.

The following table details future capital lease obligations, including interest, under the Snettisham PPA (dollars in thousands):



	2014		2015		2016		2017		2018		Thereafter		Total
Principal	$	526	$	2,230	$	2,350	$	2,480	$	2,615	$	60,280	$	70,481
Interest	954		3,690		3,567		3,438		3,305		28,529		43,483
Total	$	1,480	$	5,920	$	5,917	$	5,918	$	5,920	$	88,809	$	113,964

Nonrecourse Long-Term Debt

Nonrecourse long-term debt (including current portion) represents the long-term debt of Spokane Energy. To provide funding to acquire a long-term fixed rate electric capacity contract from Avista Corp., Spokane Energy borrowed $145.0 million from a funding trust in December 1998. The long-term debt has scheduled monthly installments and interest at a fixed rate of 8.45 percent with the final payment due in January 2015. Spokane Energy bears full recourse risk for the debt, which is secured by the fixed rate electric capacity contract and $1.6 million of funds held in a trust account. As of September 30, 2014, the entire remaining portion of the nonrecourse debt has been included in current liabilities due to its maturity in January 2015.