UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE QUARTERLY PERIOD ENDED September 30, 2020 OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE TRANSITION PERIOD FROM         TO

Commission file number 1-3701

AVISTA CORPORATION

(Exact name of Registrant as specified in its charter)

Washington	91-0462470
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1411 East Mission Avenue, Spokane, Washington 99202-2600

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: 509-489-0500

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	AVA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act   ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes  ☐    No  ☒

As of October 30, 2020, 68,735,948 shares of Registrant’s Common Stock, no par value (the only class of common stock), were outstanding.

AVISTA CORPORATION

AVISTA CORPORATION

INDEX

Item No.		Page No.
	Acronyms and Terms	iii
	Forward-Looking Statements	1
	Available Information	4
Part I. Financial Information
Item 1.	Condensed Consolidated Financial Statements	5
	Condensed Consolidated Statements of Income - Three and Nine Months Ended September 30, 2020 and 2019	5
	Condensed Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2020 and 2019	6
	Condensed Consolidated Balance Sheets - September 30, 2020 and December 31, 2019	7
	Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2020 and 2019	8
	Condensed Consolidated Statements of Equity - Three and Nine Months Ended September 30, 2020 and 2019	10
	Notes to Condensed Consolidated Financial Statements	11
	Note 1. Summary of Significant Accounting Policies	11
	Note 2. New Accounting Standards	12
	Note 3. Balance Sheet Components	13
	Note 4. Revenue	15
	Note 5. Derivatives and Risk Management	20
	Note 6. Pension Plans and Other Postretirement Benefit Plans	24
	Note 7. Income Taxes	26
	Note 8. Committed Lines of Credit	27
	Note 9. Credit Agreement	27
	Note 10. Long-Term Debt	28
	Note 11. Long-Term Debt to Affiliated Trusts	28
	Note 12. Fair Value	28
	Note 13. Common Stock	32
	Note 14. Accumulated Other Comprehensive Loss	33
	Note 15. Earnings per Common Share Attributable to Avista Corporation Shareholders	33
	Note 16. Commitments and Contingencies	34
	Note 17. Information by Business Segments	35
	Note 18. Termination of Proposed Acquisition by Hydro One	37
	Note 19. Sale of METALfx	37
	Report of Independent Registered Public Accounting Firm	38
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
	Business Segments	39
	Executive Level Summary	39
	Regulatory Matters	41

i

	Results of Operations - Overall	45
	Non-GAAP Financial Measures	48
	Results of Operations - Avista Utilities	49
	Results of Operations - Alaska Electric Light and Power Company	63
	Results of Operations - Other Businesses	64
	Critical Accounting Policies and Estimates	64
	Liquidity and Capital Resources	64
	Overall Liquidity	64
	Review of Cash Flow Statement	64
	Capital Resources	65
	Capital Expenditures	66
	Off-Balance Sheet Arrangements	67
	Pension Plan	67
	Contractual Obligations	67
	Environmental Issues and Other Contingencies	67
	Enterprise Risk Management	70
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	72
Item 4.	Controls and Procedures	72
Part II. Other Information
Item 1.	Legal Proceedings	73
Item 1A.	Risk Factors	73
Item 6.	Exhibits	75
	Signature	76

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AVISTA CORPORATION

ACRONYMS AND TERMS

(The following acronyms and terms are found in multiple locations within the document)

Acronym/Term	Meaning
aMW	-	Average Megawatt - a measure of the average rate at which a particular generating source produces energy over a period of time
AEL&P	-	Alaska Electric Light and Power Company, the primary operating subsidiary of AERC, which provides electric services in Juneau, Alaska
AERC	-	Alaska Energy and Resources Company, the Company's wholly-owned subsidiary based in Juneau, Alaska
AFUDC	-	Allowance for Funds Used During Construction; represents the cost of both the debt and equity funds used to finance utility plant additions during the construction period
ASC	-	Accounting Standards Codification
ASU	-	Accounting Standards Update
Avista Capital	-	Parent company to the Company’s non-utility businesses, with the exception of AJT Mining Properties, Inc., which is a subsidiary of AERC.
Avista Corp.	-	Avista Corporation, the Company
Avista Utilities	-	Operating division of Avista Corp. (not a subsidiary) comprising the regulated utility operations in the Pacific Northwest
Capacity	-	The rate at which a particular generating source is capable of producing energy, measured in KW or MW
Cabinet Gorge	-	The Cabinet Gorge Hydroelectric Generating Project, located on the Clark Fork River in Idaho
Colstrip	-	The coal-fired Colstrip Generating Plant in southeastern Montana
Cooling degree days	-	The measure of the warmness of weather experienced, based on the extent to which the average of high and low temperatures for a day exceeds 65 degrees Fahrenheit (annual degree days above historic indicate warmer than average temperatures)
COVID-19	-	Coronavirus disease 2019, a respiratory illness that was declared a pandemic in March 2020
Deadband or ERM deadband	-	The first $4.0 million in annual power supply costs above or below the amount included in base retail rates in Washington under the ERM in the state of Washington
EIM	-	Energy Imbalance Market
Energy	-	The amount of electricity produced or consumed over a period of time, measured in KWh or MWh. Also, refers to natural gas consumed and is measured in dekatherms
EPA	-	Environmental Protection Agency
ERM	-	The Energy Recovery Mechanism, a mechanism for accounting and rate recovery of certain power supply costs accepted by the utility commission in the state of Washington
FASB	-	Financial Accounting Standards Board
FCA	-	Fixed Cost Adjustment, the electric and natural gas decoupling mechanism in Idaho
FERC	-	Federal Energy Regulatory Commission
GAAP	-	Generally Accepted Accounting Principles
Heating degree days	-	The measure of the coldness of weather experienced, based on the extent to which the average of high and low temperatures for a day falls below 65 degrees Fahrenheit (annual degree days below historic indicate warmer than average temperatures).
Hydro One	-	Hydro One Limited, based in Toronto, Ontario, Canada
IPUC	-	Idaho Public Utilities Commission
Juneau	-	The City and Borough of Juneau, Alaska
KW, KWh	-	Kilowatt (1000 watts): a measure of generating power or capability.  Kilowatt-hour (1000 watt hours): a measure of energy produced over a period of time

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MPSC	-	Public Service Commission of the State of Montana
MW, MWh	-	Megawatt: 1000 KW.  Megawatt-hour: 1000 KWh
Noxon Rapids	-	The Noxon Rapids Hydroelectric Generating Project, located on the Clark Fork River in Montana
OPUC	-	The Public Utility Commission of Oregon
PCA	-	The Power Cost Adjustment mechanism, a procedure for accounting and rate recovery of certain power supply costs accepted by the utility commission in the state of Idaho
PGA	-	Purchased Gas Adjustment
PPA	-	Power Purchase Agreement
RCA	-	The Regulatory Commission of Alaska
REC	-	Renewable energy credit
ROE	-	Return on equity
ROR	-	Rate of return on rate base
ROU	-	Right-of-use lease asset
SEC	-	U.S. Securities and Exchange Commission
TCJA	-	The "Tax Cuts and Jobs Act," signed into law on December 22, 2017
Therm	-	Unit of measurement for natural gas; a therm is equal to approximately one hundred cubic feet (volume) or 100,000 BTUs (energy)
Watt	-	Unit of measurement of electric power or capability; a watt is equal to the rate of work represented by a current of one ampere under a pressure of one volt
WUTC	-	Washington Utilities and Transportation Commission

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AVISTA CORPORATION

Forward-Looking Statements

From time to time, we make forward-looking statements such as statements regarding projected or future:

• financial performance;

• cash flows;

• capital expenditures;

• dividends;

• capital structure;

• other financial items;

• strategic goals and objectives;

• business environment; and

• plans for operations.

These statements are based upon underlying assumptions (many of which are based, in turn, upon further assumptions). Such statements are made both in our reports filed under the Securities Exchange Act of 1934, as amended (including this Quarterly Report on Form 10-Q), and elsewhere. Forward-looking statements are all statements except those of historical fact including, without limitation, those that are identified by the use of words that include “will,” “may,” “could,” “should,” “intends,” “plans,” “seeks,” “anticipates,” “estimates,” “expects,” “forecasts,” “projects,” “predicts,” and similar expressions.

Forward-looking statements (including those made in this Quarterly Report on Form 10-Q) are subject to a variety of risks, uncertainties and other factors. Most of these factors are beyond our control and may have a significant effect on our operations, results of operations, financial condition or cash flows, which could cause actual results to differ materially from those anticipated in our statements. Such risks, uncertainties and other factors include, among others:

Utility Regulatory Risk

• state and federal regulatory decisions or related judicial decisions that affect our ability to recover costs and earn a reasonable return including, but not limited to, disallowance or delay in the recovery of capital investments, operating costs, commodity costs, interest rate swap derivatives, the ordering of refunds to customers and discretion over allowed return on investment;

• the loss of regulatory accounting treatment, which could require the write-off of regulatory assets and the loss of regulatory deferral and recovery mechanisms;

Operational Risk

• pandemics (including the current COVID-19 pandemic), which could disrupt our business, as well as the global, national and local economy, resulting in a decline in customer demand, deterioration in the creditworthiness of our customers, increases in operating and capital costs, workforce shortages, delays in capital projects, disruption in supply chains, and disruption, weakness and volatility in capital markets. In addition, any of these factors could negatively impact our liquidity and limit our access to capital, among other implications;

• wildfires ignited, or allegedly ignited, by Avista Corp. equipment or facilities could cause significant loss of life and property, thereby causing serious operational and financial harm to Avista Corp. and our customers;

• severe weather or natural disasters, including, but not limited to, avalanches, wind storms, wildfires, earthquakes, snow and ice storms, that can disrupt energy generation, transmission and distribution, as well as the availability and costs of fuel, materials, equipment, supplies and support services;

• explosions, fires, accidents, mechanical breakdowns or other incidents that could impair assets and may disrupt operations of any of our generation facilities, transmission, and electric and natural gas distribution systems or other operations and may require us to purchase replacement power or incur costs to repair our facilities;

• explosions, fires, accidents or other incidents arising from or allegedly arising from our operations that could cause injuries to the public or property damage;

• blackouts or disruptions of interconnected transmission systems (the regional power grid);

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AVISTA CORPORATION

• terrorist attacks, cyberattacks or other malicious acts that could disrupt or cause damage to our utility assets or to the national or regional economy in general, including any effects of terrorism, cyberattacks, ransomware, or vandalism that damage or disrupt information technology systems;

• work-force issues, including changes in collective bargaining unit agreements, strikes, work stoppages, the loss of key executives, availability of workers in a variety of skill areas, and our ability to recruit and retain employees;

• increasing costs of insurance, more restrictive coverage terms and our ability to obtain insurance;

• delays or changes in construction costs, and/or our ability to obtain required permits and materials for present or prospective facilities;

• increasing health care costs and cost of health insurance provided to our employees and retirees;

• third party construction of buildings, billboard signs, towers or other structures within our rights of way, or placement of fuel containers within close proximity to our transformers or other equipment, including overbuild atop natural gas distribution lines;

• the loss of key suppliers for materials or services or other disruptions to the supply chain;

• adverse impacts to our Alaska electric utility that could result from an extended outage of its hydroelectric generating resources or their inability to deliver energy, due to their lack of interconnectivity to any other electrical grids and the availability or cost of replacement power (diesel);

• changing river regulation or operations at hydroelectric facilities not owned by us, which could impact our hydroelectric facilities downstream;

• change in the use, availability or abundancy of water resources and/or rights needed for operation of our hydroelectric facilities;

Cyber and Technology Risk

• cyberattacks on the operating systems that are used in the operation of our electric generation, transmission and distribution facilities and our natural gas distribution facilities, and cyberattacks on such systems of other energy companies with which we are interconnected, which could damage or destroy facilities or systems or disrupt operations for extended periods of time and result in the incurrence of liabilities and costs;

• cyberattacks on the administrative systems that are used in the administration of our business, including customer billing and customer service, accounting, communications, compliance and other administrative functions, and cyberattacks on such systems of our vendors and other companies with which we do business, which could result in the disruption of business operations, the release of private information and the incurrence of liabilities and costs;

• changes in costs that impede our ability to effectively implement new information technology systems or to operate and maintain current production technology;

• changes in technologies, possibly making some of the current technology we utilize obsolete or introducing new cyber security risks;

• insufficient technology skills, which could lead to the inability to develop, modify or maintain our information systems;

Strategic Risk

• growth or decline of our customer base due to new uses for our services or decline in existing services, including, but not limited to, the effect of the trend toward distributed generation at customer sites;

• the potential effects of negative publicity regarding our business practices, whether true or not, which could hurt our reputation and result in litigation or a decline in our common stock price;

• changes in our strategic business plans, which could be affected by any or all of the foregoing, including the entry into new businesses and/or the exit from existing businesses and the extent of our business development efforts where potential future business is uncertain;

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AVISTA CORPORATION

• wholesale and retail competition including alternative energy sources, growth in customer-owned power resource technologies that displace utility-supplied energy or that may be sold back to the utility, and alternative energy suppliers and delivery arrangements;

• entering into or growth of non-regulated activities may increase earnings volatility;

• the risk of municipalization or other forms of service territory reduction;

External Mandates Risk

• changes in environmental laws, regulations, decisions and policies, including present and potential environmental remediation costs and our compliance with these matters;

• the potential effects of initiatives, legislation or administrative rulemaking at the federal, state or local levels, including possible effects on our generating resources, prohibitions or restrictions on new or existing services, or restrictions on greenhouse gas emissions to mitigate concerns over global climate changes;

• political pressures or regulatory practices that could constrain or place additional cost burdens on our distribution systems through accelerated adoption of distributed generation or electric-powered transportation or on our energy supply sources, such as campaigns to halt fossil fuel fired power generation and opposition to other thermal generation, wind turbines or hydroelectric facilities;

• failure to identify changes in legislation, taxation and regulatory issues that could be detrimental or beneficial to our overall business;

• policy and/or legislative changes in various regulated areas, including, but not limited to, environmental regulation, healthcare regulations and import/export regulations;

Financial Risk

• weather conditions, which affect both energy demand and electric generating capability, including the impact of precipitation and temperature on hydroelectric resources, the impact of wind patterns on wind-generated power, weather-sensitive customer demand, and similar impacts on supply and demand in the wholesale energy markets;

• our ability to obtain financing through the issuance of debt and/or equity securities, which could be affected by various factors including our credit ratings, interest rates, other capital market conditions and global economic conditions;

• changes in interest rates that affect borrowing costs, our ability to effectively hedge interest rates for anticipated debt issuances, variable interest rate borrowing and the extent to which we recover interest costs through retail rates collected from customers;

• changes in actuarial assumptions, interest rates and the actual return on plan assets for our pension and other postretirement benefit plans, which could affect future funding obligations, pension and other postretirement benefit expense and the related liabilities;

• the outcome of legal proceedings and other contingencies;

• economic conditions in our service areas, including the economy's effects on customer demand for utility services;

• economic conditions nationally may affect the valuation of our unregulated portfolio companies;

• declining energy demand related to customer energy efficiency, conservation measures and/or increased distributed generation;

• changes in the long-term climate and weather could materially affect, among other things, customer demand, the volume and timing of streamflows required for hydroelectric generation, costs of generation, transmission and distribution. Increased or new risks may arise from severe weather or natural disasters, including wildfires;

• industry and geographic concentrations which could increase our exposure to credit risks due to counterparties, suppliers and customers being similarly affected by changing conditions;

• deterioration in the creditworthiness of our customers;

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AVISTA CORPORATION

Energy Commodity Risk

• volatility and illiquidity in wholesale energy markets, including exchanges, the availability of willing buyers and sellers, changes in wholesale energy prices that could affect operating income, cash requirements to purchase electricity and natural gas, value received for wholesale sales, collateral required of us by individual counterparties and/or exchanges in wholesale energy transactions and credit risk to us from such transactions, and the market value of derivative assets and liabilities;

• default or nonperformance on the part of any parties from whom we purchase and/or sell capacity or energy;

• potential environmental regulations or lawsuits affecting our ability to utilize or resulting in the obsolescence of our power supply resources;

• explosions, fires, accidents, pipeline ruptures or other incidents that could limit energy supply to our facilities or our surrounding territory, which could result in a shortage of commodities in the market that could increase the cost of replacement commodities from other sources;

Compliance Risk

• changes in laws, regulations, decisions and policies at the federal, state or local levels, which could materially impact both our electric and gas operations and costs of operations; and

• the ability to comply with the terms of the licenses and permits for our hydroelectric or thermal generating facilities at cost-effective levels.

Our expectations, beliefs and projections are expressed in good faith. We believe they are reasonable based on, without limitation, an examination of historical operating trends, our records and other information available from third parties. There can be no assurance that our expectations, beliefs or projections will be achieved or accomplished. Furthermore, any forward-looking statement speaks only as of the date on which such statement is made. We undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which such statement is made or to reflect the occurrence of unanticipated events. New risks, uncertainties and other factors emerge from time to time, and it is not possible for us to predict all such factors, nor can we assess the effect of each such factor on our business or the extent that any such factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statement.

Available Information

We file annual, quarterly and current reports and proxy statements with the SEC. The SEC maintains a website that contains these documents at www.sec.gov. We make annual, quarterly and current reports and proxy statements available on our website, www.avistacorp.com, as soon as practicable after electronically filing these documents with the SEC. Except for SEC filings or portions thereof that are specifically referred to in this report, information contained on these websites is not part of this report.

4

PART I. Financial Information

Item 1. Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Avista Corporation

For the Three and Nine Months Ended September 30

Dollars in thousands, except per share amounts

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Operating Revenues:
Utility revenues:
Utility revenues, exclusive of alternative revenue    programs	$	276,351		$	276,683		$	944,146		$	958,750
Alternative revenue programs		(3,972	)		6,038			(4,023	)		11,105
Total utility revenues		272,379			282,721			940,123			969,855
Non-utility revenues		267			1,049			1,345			11,208
Total operating revenues		272,646			283,770			941,468			981,063
Operating Expenses:
Utility operating expenses:
Resource costs		78,785			98,324			276,297			324,110
Other operating expenses		85,551			80,112			266,251			251,810
Merger transaction costs		—			—			—			19,675
Depreciation and amortization		53,953			50,052			169,282			154,445
Taxes other than income taxes		24,016			23,455			79,736			78,306
Non-utility operating expenses:
Other operating expenses		1,697			1,450			3,716			15,137
Depreciation and amortization		146			134			569			498
Total operating expenses		244,148			253,527			795,851			843,981
Income from operations		28,498			30,243			145,617			137,082
Interest expense		25,812			25,859			77,784			77,021
Interest expense to affiliated trusts		128			334			606			1,042
Capitalized interest		(1,009	)		(1,089	)		(2,979	)		(3,118	)
Merger termination fee		—			—			—			(103,000	)
Other expense (income)-net		(2,168	)		180			(2,019	)		(8,995	)
Income before income taxes		5,735			4,959			72,225			174,132
Income tax expense (benefit)		859			(131	)		1,472			28,145
Net income		4,876			5,090			70,753			145,987
Net loss attributable to noncontrolling interests		—			—			—			216
Net income attributable to Avista Corp. shareholders	$	4,876		$	5,090		$	70,753		$	146,203
Weighted-average common shares outstanding    (thousands), basic		68,194			66,265			67,638			65,964
Weighted-average common shares outstanding    (thousands), diluted		68,337			66,351			67,769			66,050
Earnings per common share attributable to Avista Corp.    shareholders:
Basic	$	0.07		$	0.08		$	1.05		$	2.22
Diluted	$	0.07		$	0.08		$	1.04		$	2.21

The Accompanying Notes are an Integral Part of These Statements.

5

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Avista Corporation

For the Three and Nine Months Ended September 30

Dollars in thousands

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income	$	4,876	$	5,090	$	70,753	$	145,987
Other Comprehensive Income:
Change in unfunded benefit obligation for pension and other postretirement benefit plans - net of taxes of $58, $43, $171 and $128 respectively		220		162		645		483
Total other comprehensive income		220		162		645		483
Comprehensive income		5,096		5,252		71,398		146,470
Comprehensive loss attributable to noncontrolling    interests		—		—		—		216
Comprehensive income attributable to Avista Corporation    shareholders	$	5,096	$	5,252	$	71,398	$	146,686

The Accompanying Notes are an Integral Part of These Statements.

6

CONDENSED CONSOLIDATED BALANCE SHEETS

Avista Corporation

Dollars in thousands

(Unaudited)

	September 30,		December 31,
	2020		2019
Assets:
Current Assets:
Cash and cash equivalents	$	84,747	$	9,896
Accounts and notes receivable-less allowances of $11,322 and $2,419, respectively		108,118		166,657
Materials and supplies, fuel stock and stored natural gas		69,026		66,583
Regulatory assets		11,194		21,851
Other current assets		26,577		40,142
Total current assets		299,662		305,129
Net utility property		4,930,359		4,797,007
Goodwill		52,426		52,426
Non-current regulatory assets		737,541		670,802
Other property and investments-net and other non-current assets		263,143		257,092
Total assets	$	6,283,131	$	6,082,456
Liabilities and Equity:
Current Liabilities:
Accounts payable	$	83,697	$	110,219
Current portion of long-term debt		52,000		52,000
Short-term borrowings		150,000		185,800
Regulatory liabilities		48,902		51,715
Other current liabilities		140,240		130,979
Total current liabilities		474,839		530,713
Long-term debt		2,009,300		1,843,768
Long-term debt to affiliated trusts		51,547		51,547
Pensions and other postretirement benefits		199,912		212,006
Deferred income taxes		550,571		528,513
Non-current regulatory liabilities		773,641		775,436
Other non-current liabilities and deferred credits		240,470		201,189
Total liabilities		4,300,280		4,143,172
Commitments and Contingencies (See Notes to Condensed Consolidated    Financial Statements)