The carrying values of cash and cash equivalents, accounts and notes receivable, accounts payable and short-term borrowings are reasonable estimates of their fair values. Long-term debt (including current portion), finance leases, and long-term debt to affiliated trusts are reported at carrying value on the Consolidated Balance Sheets.

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 measurements) and the lowest priority to fair values derived from unobservable inputs (Level 3 measurements).

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 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 that not only include the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits and letters of credit), but also 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 Consolidated Balance Sheets as of December 31 (dollars in thousands):


	2023				2022
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Long-term debt (Level 2)	$	1,100,000	$	968,893	$	1,113,500	$	966,881
Long-term debt (Level 3)		1,450,000		1,166,512		1,200,000		881,480
Snettisham finance lease obligation (Level 3)		42,495		39,600		45,730		41,700
Long-term debt to affiliated trusts (Level 3)		51,547		46,098		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 par values of 62.73 to 107.245, where a par value of 100.00 represents the carrying value recorded on the 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 using comparable debt with similar risk and terms 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 December 31, 2023.

The following table discloses by level within the fair value hierarchy the Company’s assets and liabilities measured and reported on the Consolidated Balance Sheets as of December 31, 2023 at fair value on a recurring basis (dollars in thousands):


	Level 1		Level 2		Level 3		Counterparty and Cash Collateral Netting (1)			Total
December 31, 2023
Assets:
Energy commodity derivatives (2)	$	—	$	30,954	$	—	$	(22,802	)	$	8,152
Foreign currency exchange derivatives		—		2		—		—			2
Interest rate swap derivatives		—		3,667		—		—			3,667
Equity investments (3)		—		—		50,254		—			50,254
Deferred compensation assets:
Mutual Funds:
Fixed income securities (3)		1,117		—		—		—			1,117
Equity securities (3)		6,524		—		—		—			6,524
Total	$	7,641	$	34,623	$	50,254	$	(22,802	)	$	69,716
Liabilities:
Energy commodity derivatives (2)	$	—	$	91,844	$	8,250	$	(65,157	)	$	34,937
Interest rate swap derivatives		—		182		—		—			182
Total	$	—	$	92,026	$	8,250	$	(65,157	)	$	35,119

The following table discloses by level within the fair value hierarchy the Company’s assets and liabilities measured and reported on the Consolidated Balance Sheets as of 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
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 (3)		—		—		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 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)

These assets are included in other property and investments-net and other non-current assets on the 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 Consolidated Balance Sheets is due to netting arrangements with certain counterparties. See Note 8 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 U.S. 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.

For the natural gas commodity exchange agreement, the Company uses the same Level 2 brokered 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 estimates volumes and timing of transactions based on a most likely scenario using historical data. Historically, the timing and volume of transactions have not been 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 December 31, 2023 (dollars in thousands):


	Fair Value (Net) at
	December 31, 2023			Valuation Technique	Unobservable Input	Range
Natural gas exchange	$	(8,250	)	Internally derived weighted average cost of gas	Forward purchase prices	$1.64 - $3.07/mmBTU $2.40 Weighted Average
					Forward sales prices	$2.13 - $8.99/mmBTU $5.45 Weighted Average
					Purchase volumes	300,000 - 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.

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.

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.

The following table presents the quantitative information which was used to estimate the fair values of the Level 3 equity investments as of December 31, 2023(dollars in thousands):


	Fair Value at
	December 31, 2023		Valuation Technique	Unobservable Input	Range
Equity investments	$	50,254	Market approach	Comparable enterprise values	$130,000-$388,600 $246,000 Average
				Time to liquidity event	1.5 years
			Discounted cash flows	Revenue market multiples	0.45x to 5.69x Revenue 1.89x Average
				Market exit reduction	50%
				Discount rate	25%
				Annual revenues	$15,000-$245,000
				Terminal date	2027

The following table presents activity for assets and liabilities measured at fair value using significant unobservable inputs (Level 3) for the years ended December 31 (dollars in thousands):


	Natural Gas Exchange Agreement (1)			Equity Investments			Total
Year ended December 31, 2023:
Balance as of January 1, 2023	$	(17,734	)	$	54,284		$	36,550
Total gains or (losses) (realized/unrealized):
Included in regulatory assets		9,238			—			9,238
Recognized in net income		—			(4,323	)		(4,323	)
Purchases and debt conversions		—			3,293			3,293
Settlements		246			—			246
Other		—			(3,000	)		(3,000	)
Ending balance as of December 31, 2023	$	(8,250	)	$	50,254		$	42,004
Year ended December 31, 2022:
Balance as of January 1, 2022	$	(7,771	)	$	—		$	(7,771	)
Transfers in (2)		—			20,902			20,902
Total gains or (losses) (realized/unrealized):
Included in regulatory assets		(4,740	)		—			(4,740	)
Recognized in net income		—			33,382			33,382
Settlements		(5,223	)		—			(5,223	)
Ending balance as of December 31, 2022	$	(17,734	)	$	54,284		$	36,550
Year ended December 31, 2021:
Balance as of January 1, 2021	$	(8,410	)	$	—		$	(8,410	)
Total gains (realized/unrealized):
Included in regulatory assets		4,292			—			4,292
Settlements		(3,653	)		—			(3,653	)
Ending balance as of December 31, 2021	$	(7,771	)	$	—		$	(7,771	)

(1)

There were no purchases, issuances or transfers from other categories of derivatives instruments during the periods presented in the table above.

(2)

The Company elected to account for certain equity investments at recurring fair value in 2022, as such the transfer in represents the value as of the election. See further discussion within Note 7.