UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SeptemberJune 30, 20182019 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, Washington99202-2600
(Address of principal executive offices)(Zip Code)
1411 East Mission Avenue, Spokane, Washington99202-2600
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: 509-489-0500
Web site: http://www.avistacorp.com509-489-0500
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 ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common StockAVANew 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  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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  x    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 filerxAccelerated filer¨
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
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  x
As of October 31, 2018August 2, 2019, 65,688,00066,111,437 shares of Registrant’s Common Stock, no par value (the only class of common stock), were outstanding.



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AVISTA CORPORATION
INDEX
Item No.  
Page
No.
    
  
  
  
  
Item 1. 
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
  
  
  
  
  
  
 
 
  
    
Item 2. 
  
  
 
 
  
  
 
 
  
  
  


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Item 3.
Item 4.
Item 1. 
    
Item 3.1A. 
Item 4.
Item 1.
Item 1A.
Item 2.
Item 4.
    
Item 6. 
    
  
 


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ACRONYMS AND TERMS
(The following acronyms and terms are found in multiple locations within the document)
Acronym/TermMeaning
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
ARAM-Average Rate Assumption Method
ASC-Accounting Standards Codification
ASU-Accounting Standards Update
Avista Capital-Parent company to the Company’s non-utility businesses
Avista Corp.-Avista Corporation, the Company
Avista Energy-Avista Energy, Inc., an inactive electricity and natural gas marketing, trading and resource management business, subsidiary of Avista Capital
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)
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
EcologyEIM-The state of Washington’s Department of EcologyEnergy 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.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
GHGHeating degree days-Greenhouse gasThe 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
IRP-Integrated Resource Plan
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
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

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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
SEC-U.S. Securities and Exchange Commission

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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 for electricity;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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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:
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 can be affected by various factors including our credit ratings, interest rates, and other capital market conditions and the global economy;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 can affect future funding obligations, pension and other postretirement benefit expense and the related liabilities;
deterioration in the creditworthiness of our customers;
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;
declining energy demand related to customer energy efficiency, conservation measures and/or increased distributed generation;
changes in the long-term global climate and the long-term climate within our utilities' service areas, which canweather may materially affect, among other things, customer demand, patterns and 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 may increase our exposure to our hydroelectric resources;credit risks due to counterparties, suppliers and customers being similarly affected by changing conditions;
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 and discretion over allowed return on investment;


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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;
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 can 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 may 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;
Operational Risk
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 may 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;
explosions, fires, accidents or other incidents arising from or allegedly arising from our operations that may cause wildfires, injuries to the public or property damage;
blackouts or disruptions of interconnected transmission systems (the regional power grid);
terrorist attacks, cyber attackscyberattacks or other malicious acts that may disrupt or cause damage to our utility assets or to the national or regional economy in general, including any effects of terrorism, cyber attackscyberattacks 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 operationselectric 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 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;

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Compliance Risk
compliance with extensivechanges in laws, regulations, decisions and policies at the federal, state or local levels, which could materially impact both our electric and local legislation and regulation, including numerous environmental, health, safety, infrastructure protection, reliability and other laws and regulations that affect ourgas operations and costs;costs of operations;
the ability to comply with the terms of the licenses and permits for our hydroelectric or thermal generating facilities at cost-effective levels;

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Cyber and Technology Risk
cyber attackscyberattacks on usthe 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 orand other potential lapses that result in unauthorized disclosure of private information,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 against us, costs to investigate, remediate and defend, and damage to our reputation;
disruption to or breakdowns of information systems, automated controls and other technologies that we rely on for our operations, communications and customer service;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 and the extent to which new uses for our services may materialize or existing uses may decline, 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 may 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;
entering into or growth of non-regulated activities may increase earnings volatility;
failure to completepotential legal proceedings arising from the termination of the proposed acquisition of the Company by Hydro One, which would negatively impact the market price of Avista Corp.'s common stock and could result in termination fees that would have a material adverse effect on our results of operations, financial condition, and cash flows;One;
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 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 coal-fired power generation and opposition to other thermal generation, wind turbines or hydroelectric facilities;
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;
failure to identify changes in legislation, taxation and regulatory issues whichthat are detrimental or beneficial to our overall business;
the Tax Cuts and Jobs Act and its intended and unintended consequences on financial results and future cash flows, including the potential impact to credit ratings, which may affect our ability to borrow funds or increase the cost of borrowing in the future;
policy and/or legislative changes in various regulated areas, including, but not limited to, environmental regulation, healthcare regulations and import/export regulations; and

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the risk of municipalization in any of our service territories.
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

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




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PART I. Financial Information
Item 1. Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Avista Corporation
For the Three and NineSix Months Ended SeptemberJune 30
Dollars in thousands, except per share amounts
(Unaudited)
Three months ended September 30, Nine months ended September 30,Three months ended June 30, Six months ended June 30,
2018 2017 2018 20172019 2018 2019 2018
Operating Revenues:              
Utility revenues:              
Utility revenues, exclusive of alternative revenue programs$288,513
 $296,375
 $1,006,003
 $1,046,352
$288,826
 $309,134
 $682,067
 $717,490
Alternative revenue programs606
 (4,735) (1,763) (15,446)9,725
 3,570
 5,067
 (2,369)
Total utility revenues289,119
 291,640
 1,004,240
 1,030,906
298,551
 312,704
 687,134
 715,121
Non-utility revenues6,894
 5,456
 20,432
 17,161
2,261
 6,594
 10,159
 13,538
Total operating revenues296,013
 297,096
 1,024,672
 1,048,067
300,812
 319,298
 697,293
 728,659
Operating Expenses:              
Utility operating expenses:              
Resource costs101,519
 108,568
 362,106
 376,905
88,439
 105,969
 225,786
 260,587
Other operating expenses78,395
 75,927
 236,771
 227,212
87,720
 81,078
 171,698
 158,376
Acquisition costs965
 6,730
 2,620
 8,004
Merger transaction costs11
 983
 19,675
 1,655
Depreciation and amortization46,035
 42,968
 136,419
 127,596
55,479
 45,651
 104,393
 90,384
Taxes other than income taxes25,101
 23,269
 81,526
 79,733
22,908
 25,596
 54,851
 56,425
Non-utility operating expenses:              
Other operating expenses7,347
 6,598
 20,714
 19,863
6,332
 6,543
 13,687
 13,367
Depreciation and amortization207
 137
 587
 482
155
 199
 364
 380
Total operating expenses259,569
 264,197
 840,743
 839,795
261,044
 266,019
 590,454
 581,174
Income from operations36,444
 32,899
 183,929
 208,272
39,768
 53,279
 106,839
 147,485
Interest expense24,280
 23,955
 74,226
 71,170
25,511
 25,170
 51,162
 49,946
Interest expense to affiliated trusts325
 216
 880
 601
351
 302
 708
 555
Capitalized interest(1,217) (899) (3,324) (2,513)(1,101) (1,139) (2,029) (2,107)
Merger termination fee
 
 (103,000) 
Other expense (income)-net1,379
 16
 3,951
 (851)(8,268) (1,907) (9,175) 2,572
Income before income taxes11,677
 9,611
 108,196
 139,865
23,275
 30,853
 169,173
 96,519
Income tax expense1,548
 5,153
 17,467
 51,548
Income tax expense (benefit)(1,741) 5,209
 28,276
 15,919
Net income10,129
 4,458
 90,729
 88,317
25,016
 25,644
 140,897
 80,600
Net loss (income) attributable to noncontrolling interests(10) (7) (143) 21
303
 (67) 216
 (133)
Net income attributable to Avista Corp. shareholders$10,119
 $4,451
 $90,586
 $88,338
$25,319
 $25,577
 $141,113
 $80,467
Weighted-average common shares outstanding (thousands), basic65,688
 64,412
 65,668
 64,392
65,894
 65,677
 65,814
 65,658
Weighted-average common shares outstanding (thousands), diluted66,026
 64,892
 65,980
 64,638
65,963
 65,983
 65,883
 65,957
              
Earnings per common share attributable to Avista Corp. shareholders:              
Basic$0.15
 $0.07
 $1.38
 $1.37
$0.38
 $0.39
 $2.14
 $1.23
Diluted$0.15
 $0.07
 $1.37
 $1.37
$0.38
 $0.39
 $2.14
 $1.22
Dividends declared per common share$0.3725
 $0.3575
 $1.1175
 $1.0725
The Accompanying Notes are an Integral Part of These Statements.


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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Avista Corporation
For the Three and NineSix Months Ended SeptemberJune 30
Dollars in thousands
(Unaudited)
Three months ended September 30, Nine months ended September 30,Three months ended June 30, Six months ended June 30,
2018 2017 2018 20172019 2018 2019 2018
Net income$10,129
 $4,458
 $90,729
 $88,317
$25,016
 $25,644
 $140,897
 $80,600
Other Comprehensive Income:              
Change in unfunded benefit obligation for pension and other postretirement benefit plans - net of taxes of $54, $98, $163 and $295 respectively204
 182
 612
 548
Change in unfunded benefit obligation for pension and other postretirement benefit plans - net of taxes of $42, $54, $85 and $109 respectively161
 204
 321
 408
Total other comprehensive income204
 182
 612
 548
161
 204
 321
 408
Comprehensive income10,333
 4,640
 91,341
 88,865
25,177
 25,848
 141,218
 81,008
Comprehensive loss (income) attributable to noncontrolling interests(10) (7) (143) 21
303
 (67) 216
 (133)
Comprehensive income attributable to Avista Corporation shareholders$10,323
 $4,633
 $91,198
 $88,886
$25,480
 $25,781
 $141,434
 $80,875


The Accompanying Notes are an Integral Part of These Statements.


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CONDENSED CONSOLIDATED BALANCE SHEETS
Avista Corporation
Dollars in thousands
(Unaudited) 
September 30, December 31,June 30, December 31,
2018 20172019 2018
Assets:      
Current Assets:      
Cash and cash equivalents$21,170
 $16,172
$17,231
 $14,656
Accounts and notes receivable-less allowances of $5,705 and $5,132, respectively104,892
 185,664
Accounts and notes receivable-less allowances of $3,415 and $5,233, respectively115,493
 165,824
Materials and supplies, fuel stock and stored natural gas62,766
 58,075
67,659
 63,881
Regulatory assets21,525
 44,750
38,785
 48,552
Other current assets35,159
 32,873
30,599
 54,010
Total current assets245,512
 337,534
269,767
 346,923
Net utility property4,555,440
 4,398,810
4,684,654
 4,648,930
Goodwill57,672
 57,672
52,426
 57,672
Non-current regulatory assets576,863
 619,399
630,451
 614,354
Other property and investments-net and other non-current assets121,911
 101,317
240,630
 114,697
Total assets$5,557,398
 $5,514,732
$5,877,928
 $5,782,576
Liabilities and Equity:      
Current Liabilities:      
Accounts payable$80,892
 $107,289
$80,619
 $108,372
Current portion of long-term debt and capital leases2,629
 277,438
104,993
 107,645
Short-term borrowings35,000
 105,398
169,000
 190,000
Regulatory liabilities94,978
 48,264
37,954
 113,209
Other current liabilities133,404
 159,113
124,169
 120,358
Total current liabilities346,903
 697,502
516,735
 639,584
Long-term debt and capital leases1,860,944
 1,491,799
1,701,434
 1,755,529
Long-term debt to affiliated trusts51,547
 51,547
51,547
 51,547
Pensions and other postretirement benefits191,021
 203,566
214,983
 222,537
Deferred income taxes488,767
 466,630
508,139
 487,602
Non-current regulatory liabilities798,440
 800,089
789,655
 780,701
Other non-current liabilities and deferred credits69,425
 73,115
211,401
 71,031
Total liabilities3,807,047
 3,784,248
3,993,894
 4,008,531
Commitments and Contingencies (See Notes to Condensed Consolidated Financial Statements)      
Equity:      
Avista Corporation Shareholders’ Equity:      
Common stock, no par value; 200,000,000 shares authorized; 65,688,000 and 65,494,333 shares issued and outstanding, respectively1,135,543
 1,133,448
Common stock, no par value; 200,000,000 shares authorized; 66,111,317 and 65,688,356 shares issued and outstanding, respectively1,157,024
 1,136,491
Accumulated other comprehensive loss(9,220) (8,090)(7,545) (7,866)
Retained earnings623,229
 604,470
734,555
 644,595
Total Avista Corporation shareholders’ equity1,749,552
 1,729,828
1,884,034
 1,773,220
Noncontrolling Interests799
 656

 825
Total equity1,750,351
 1,730,484
1,884,034
 1,774,045
Total liabilities and equity$5,557,398
 $5,514,732
$5,877,928
 $5,782,576
The Accompanying Notes are an Integral Part of These Statements.




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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Avista Corporation
For the NineSix Months Ended SeptemberJune 30
Dollars in thousands
(Unaudited)
2018 20172019 2018
Operating Activities:      
Net income$90,729
 $88,317
$140,897
 $80,600
Non-cash items included in net income:      
Depreciation and amortization139,738
 130,803
104,757
 92,584
Deferred income tax provision and investment tax credits10,575
 58,242
5,577
 (1,272)
Power and natural gas cost amortizations, net6,315
 8,416
Power and natural gas cost amortizations (deferrals), net(47,716) 6,701
Amortization of debt expense2,327
 2,440
1,338
 1,635
Amortization of investment in exchange power1,838
 1,838
1,225
 1,225
Stock-based compensation expense5,215
 5,809
7,009
 3,878
Equity-related AFUDC(4,406) (5,012)(3,253) (2,845)
Pension and other postretirement benefit expense23,980
 27,816
18,040
 16,025
Other regulatory assets and liabilities and deferred debits and credits20,953
 (12,683)1,122
 21,323
Change in decoupling regulatory deferral5,436
 20,193
(5,444) 2,226
Gain on sale of METALfx (before payment of transaction costs)(6,477) 
Other3,962
 (190)(3,904) 2,108
Contributions to defined benefit pension plan(22,000) (22,000)(14,600) (14,600)
Cash paid for settlement of interest rate swap agreements(32,174) (11,302)
 (31,484)
Cash received for settlement of interest rate swap agreements5,594
 2,479

 5,594
Changes in certain current assets and liabilities:      
Accounts and notes receivable75,878
 52,534
47,771
 65,843
Materials and supplies, fuel stock and stored natural gas(4,691) (12,653)(7,225) 1,174
Collateral posted for derivative instruments47,150
 (1,896)47,352
 44,080
Income taxes receivable(5,994) (4,254)
Other current assets2,123
 (16)(8,783) 3,832
Accounts payable(16,392) (29,992)(19,393) (21,642)
Other current liabilities9,639
 8,624
(5,622) (1,560)
Net cash provided by operating activities365,795
 307,513
252,671
 275,425
      
Investing Activities:      
Utility property capital expenditures (excluding equity-related AFUDC)(296,216) (287,853)(199,988) (183,132)
Issuance of notes receivable at subsidiaries(2,930) (2,800)(900) (2,780)
Equity and property investments made by subsidiaries(8,629) (10,899)(6,624) (7,431)
Distributions from investments1,946
 1,915
Proceeds from sale of METALfx (net of cash sold)16,407
 
Other(1,858) (2,714)1,072
 438
Net cash used in investing activities(307,687) (302,351)(190,033) (192,905)
The Accompanying Notes are an Integral Part of These Statements.


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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Avista Corporation
For the NineSix Months Ended SeptemberJune 30
Dollars in thousands
(Unaudited)
2018 20172019 2018
Financing Activities:      
Net increase (decrease) in short-term borrowings$(70,398) $75,000
Net decrease in short-term borrowings$(21,000) $(105,398)
Proceeds from issuance of long-term debt374,621
 

 374,621
Maturity of long-term debt and capital leases(276,804) (2,465)(1,330) (276,170)
Issuance of common stock, net of issuance costs1,224
 1,490
14,929
 1,227
Cash dividends paid(73,569) (69,220)(51,153) (49,101)
Other(8,184) (3,758)(1,509) (8,538)
Net cash provided by (used in) financing activities(53,110) 1,047
Net cash used in financing activities(60,063) (63,359)
      
Net increase in cash and cash equivalents4,998
 6,209
2,575
 19,161
      
Cash and cash equivalents at beginning of period16,172
 8,507
14,656
 16,172
      
Cash and cash equivalents at end of period$21,170
 $14,716
$17,231
 $35,333
The Accompanying Notes are an Integral Part of These Statements.






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CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Avista Corporation
For the NineThree and Six Months Ended SeptemberJune 30
Dollars in thousands
(Unaudited)
Three months ended June 30, Six months ended June 30,
2018 20172019 2018 2019 2018
Common Stock, Shares:          
Shares outstanding at beginning of period65,494,333
 64,187,934
65,749,932
 65,668,477
 65,688,356
 65,494,333
Shares issued193,667
 226,638
361,385
 19,015
 422,961
 193,159
Shares outstanding at end of period65,688,000
 64,414,572
66,111,317
 65,687,492
 66,111,317
 65,687,492
Common Stock, Amount:          
Balance at beginning of period$1,133,448
 $1,075,281
$1,140,242
 $1,131,549
 $1,136,491
 $1,133,448
Equity compensation expense4,800
 5,055
2,043
 1,760
 6,495
 3,558
Issuance of common stock, net of issuance costs1,224
 1,490
14,739
 995
 14,929
 1,227
Payment of minimum tax withholdings for share-based payment awards(3,929) (3,420)
 
 (891) (3,929)
Purchase of subsidiary noncontrolling interests
 (1,191)
Balance at end of period1,135,543
 1,077,215
1,157,024
 1,134,304
 1,157,024
 1,134,304
Accumulated Other Comprehensive Loss:          
Balance at beginning of period(8,090) (7,568)(7,706) (9,628) (7,866) (8,090)
Other comprehensive income612
 548
161
 204
 321
 408
Reclassification of excess income tax benefits(1,742) 

 
 
 (1,742)
Balance at end of period(9,220) (7,020)(7,545) (9,424) (7,545) (9,424)
Retained Earnings:          
Balance at beginning of period604,470
 581,014
734,774
 636,468
 644,595
 604,470
Net income attributable to Avista Corporation shareholders90,586
 88,338
25,319
 25,577
 141,113
 80,467
Cash dividends paid on common stock(73,569) (69,220)(25,538) (24,467) (51,153) (49,101)
Reclassification of excess income tax benefits1,742
 

 
 
 1,742
Balance at end of period623,229
 600,132
734,555
 637,578
 734,555
 637,578
Total Avista Corporation shareholders’ equity1,749,552
 1,670,327
1,884,034
 1,762,458
 1,884,034
 1,762,458
Noncontrolling Interests:          
Balance at beginning of period656
 (251)912
 182
 825
 656
Net income (loss) attributable to noncontrolling interests143
 (21)(303) 67
 (216) 133
Purchase of subsidiary noncontrolling interests
 891
Cash dividends paid to subsidiary noncontrolling interests
 
 
 (540)
Deconsolidation of noncontrolling interests related to sale of METALfx(609) 
 (609) 
Balance at end of period799
 619

 249
 
 249
Total equity$1,750,351
 $1,670,946
$1,884,034
 $1,762,707
 $1,884,034
 $1,762,707
Dividends declared per common share$0.3875
 $0.3725
 $0.7750
 $0.7450
The Accompanying Notes are an Integral Part of These Statements.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The accompanying condensed consolidated financial statements of Avista Corp. as of and for the interim periods ended SeptemberJune 30, 20182019 and SeptemberJune 30, 20172018 are unaudited; however, in the opinion of management, the statements reflect all adjustments necessary for a fair statement of the results for the interim periods. All such adjustments are of a normal recurring nature. The condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The Condensed Consolidated Statements of Income for the interim periods are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements do not contain the detail or footnote disclosure concerning accounting policies and other matters which would be included in full fiscal year consolidated financial statements; therefore, they should be read in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 20172018 (20172018 Form 10-K).
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Avista Corp. is primarily an electric and natural gas utility with certain other business ventures. Avista Utilities is an operating division of Avista Corp., comprising its regulated utility operations in the Pacific Northwest. Avista Utilities provides electric distribution and transmission, and natural gas distribution services in parts of eastern Washington and northern Idaho. Avista Utilities also provides natural gas distribution service in parts of northeastern and southwestern Oregon. Avista Utilities has electric generating facilities in Washington, Idaho, Oregon and Montana. Avista Utilities also supplies electricity to a small number of customers in Montana, most of whom are employees who operate Avista Utilities'the Company's Noxon Rapids generating facility.
AERC is a wholly-owned subsidiary of Avista Corp. The primary subsidiary of AERC is AEL&P, which comprises Avista Corp.'s regulated utility operations in Alaska.
Avista Capital, a wholly owned non-regulated subsidiary of Avista Corp., is the parent company of all of the subsidiary companies in the non-utility businesses, with the exception of AJT Mining Properties, Inc., which is a subsidiary of AERC. See Note 16 for business segment information.
On July 19, 2017, Avista Corp. entered into See Note 18 for discussion of the sale of METALfx, an Agreement and Plan of Merger (Merger Agreement) to become a wholly-ownedunregulated subsidiary of Hydro One. Consummation of the pending acquisition is subject to a number of approvals and the satisfaction or waiver of other specified conditions. The transaction is expected to close during the fourth quarter of 2018. See Note 17 for additional information.Company.
Basis of Reporting
The condensed consolidated financial statements include the assets, liabilities, revenues and expenses of the Company and its subsidiaries and other majority owned subsidiaries and variable interest entities for which the Company or its subsidiaries are the primary beneficiaries. Intercompany balances were eliminated in consolidation. The accompanying condensed consolidated financial statements include the Company’s proportionate share of utility plant and related operations resulting from its interests in jointly owned plants.
Certain line items are presented in a more condensed form on the Condensed Consolidated Balance Sheets as of September 30, 2018 than in prior periods. The prior year amounts were reclassified to conform to the current year presentation. The primary classification changes were related to classifying all current regulatory assets, current regulatory liabilities, non-current regulatory assets and non-current regulatory liabilities into their own line items. Previously, these items were either on many separate line items or embedded in other line items such as "Other property and investments-net and other non-current assets" or "Other non-current liabilities, regulatory liabilities and deferred credits." See Note 3 for a summary of the items contained in certain balance sheet accounts.
Derivative Assets and Liabilities
Derivatives are recorded as either assets or liabilities on the Condensed Consolidated Balance Sheets measured at estimated fair value.
The WUTC and the IPUC issued accounting orders authorizing Avista Corp. to offset energy commodity derivative assets or liabilities with a regulatory asset or liability. This accounting treatment is intended to defer the recognition of mark-to-market gains and losses on energy commodity transactions until the period of delivery. Realized benefits and costs result in adjustments to retail rates through purchased gas cost adjustments,PGAs, the ERM in Washington, the PCA mechanism in Idaho, and periodic general rate cases. The resulting regulatory assets associated with energy commodity derivative instruments have been concluded to be probable of recovery through future rates.

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Substantially all forward contracts to purchase or sell power and natural gas are recorded as derivative assets or liabilities at estimated fair value with an offsetting regulatory asset or liability. Contracts that are not considered derivatives are accounted for on the accrual basis until they are settled or realized unless there is a decline in the fair value of the contract that is determined to be other-than-temporary.
For interest rate swap derivatives, Avista Corp. records all mark-to-market gains and losses in each accounting period as assets and liabilities, as well as offsetting regulatory assets and liabilities, such that there is no income statement impact. The interest rate swap derivatives are risk management tools similar to energy commodity derivatives. Upon settlement of interest rate swap derivatives, the regulatory asset or liability is amortized as a component of interest expense over the term of the associated debt. The Company records an offset of interest rate swap derivative assets and liabilities with regulatory assets and liabilities, based on the prior practice of the commissions to provide recovery through the ratemaking process.

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The Company has multiple master netting agreements with a variety of entities that allow for cross-commodity netting of derivative agreements with the same counterparty (i.e. power derivatives can be netted with natural gas derivatives). In addition, some master netting agreements allow for the netting of commodity derivatives and interest rate swap derivatives for the same counterparty. The Company does not have any agreements which allow for cross-affiliate netting among multiple affiliated legal entities. The Company nets all derivative instruments when allowed by the agreement for presentation in the Condensed Consolidated Balance Sheets.
Fair Value Measurements
Fair value represents the price that would be received when selling an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. Energy commodity derivative assets and liabilities, deferred compensation assets, as well as derivatives related to interest rate swaps and foreign currency exchange contracts, are reported at estimated fair value on the Condensed Consolidated Balance Sheets. See Note 11 for the Company’s fair value disclosures.
Contingencies
The Company has unresolved regulatory, legal and tax issues which have inherently uncertain outcomes. The Company accrues a loss contingency if it is probable that a liability has been incurred and the amount of the loss or impairment can be reasonably estimated. The Company also discloses loss contingencies that do not meet these conditions for accrual if there is a reasonable possibility that a material loss may be incurred. As of SeptemberJune 30, 20182019, the Company has not recorded any significant amounts related to unresolved contingencies. See Note 15 for further discussion of the Company's commitments and contingencies.
NOTE 2. NEW ACCOUNTING STANDARDS
ASU No. 2014-09, “Revenue from Contracts with Customers2016-02, "Leases (Topic 606)”842)"
ASU No. 2018-01, "Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842"
ASU No. 2018-11, "Leases (Topic 842): Targeted Improvements"
On January 1, 2018,2019, the Company adopted ASU No. 2014-09,2016-02, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customersleases and supersedes most current revenue recognitionprevious lease accounting guidance, including industry-specific guidance.as well as several practical expedients in ASU Nos. 2018-01 and 2018-11.
The Company elected to useadopted ASU No. 2016-02 utilizing a modified retrospective adoption method with the "package of adoption, which required a cumulative adjustment to opening retained earnings (if any were identified), as opposed to a full retrospective application. The Company did not identify any adjustments required to opening retained earnings related tothree" and hindsight practical expedients offered by the adoption of the new revenue standard. The Company applied the retrospective application only to contracts that were not completed as"package of the implementation date. The Company did not apply the new guidance to contracts that were completed with all revenue recognized prior to the implementation date. In addition, total operating revenues on the Condensed Consolidated Statements of Income in years prior to 2018 would not have changed if the Company had elected to apply the full retrospective method of adoption.
Since the majority of Avista Corp.’s revenue is from rate-regulated sales of electricity and natural gas to retail customers and revenue is recognized as energy is delivered to these customers, the Company does not expect any significant change in operating revenues or net income going forward.
The only changes in revenue that resulted from the adoption of this ASU were related to the presentation of utility-related taxes collected from customers and the timing of when revenue from self-generated RECs is recognized.
Under ASU No. 2014-09, revenue associated with the sale of RECs is recognized at the time of generation and sale of the credits as opposed to when the RECs are certified in the Western Renewable Energy Generation Information System, which generally occurs during a period subsequent to the sale. This represents a change from the Company's prior practice, which was

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to defer revenue recognition until the time of certification. Revenue associated with the sale of RECs is not material to the financial statements and almost all of the Company's REC revenue is deferredthree" provides for future rebate to retail customers. As such, the change in the timing of revenue recognition does not have a material impact on net income.
See Note 4 for the Company's complete revenue disclosures.
ASU No. 2016-02 “Leases (Topic 842)”
In February 2016, the FASB issued ASU No. 2016-02. This ASU introduces a new lessee model that requires most leases to be capitalized and shown on the balance sheet with corresponding lease assets and liabilities. The standard also aligns certain of the underlying principles of the new lessor model with those in Topic 606, the FASB’s new revenue recognition standard. Furthermore, this ASU addresses other issues that arise under the current lease model; for example, eliminating the required use of bright-line tests in current GAAP for determining lease classification (operating leases versus capital leases). This ASU also includes enhanced disclosures surrounding leases. This ASU is effective for periods beginning on or after December 15, 2018; however, early adoption is permitted. Under ASU No. 2016-02, upon adoption, the effects of this standard must be applied using a modified retrospective approach to the earliest period presented. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. In July 2018, the FASB issued ASU No. 2018-11 which provides a practical expedient that allows companies to use an optional transition method. Under the optional transition method, a cumulative adjustment to retained earnings during the period of adoption is recorded and prior periods would not require restatement.
The Company evaluated ASU No. 2016-02 and determined that it will not early adopt this standard before its effective date in 2019. Upon adoption, the Company expects to elect a package of practical expedients that will allow itentity to not reassess at adoption whether any expired or existing contract is a leasecontracts are deemed, for accounting purposes, to be or contains a lease,contain leases, the lease classification of any expired or existing leases, and theany initial direct costs for any existing leases. As a result, the Company did not reassess existing or expired contracts under the new lease guidance and it did not reassess the classification of any existing leases. The Company used the benefit of hindsight in determining both term and impairments associated with any existing leases. Use of this practical expedient has resulted in lease terms that best represent management's expectations with respect to use of the underlying asset but did not result in recognition of any impairment.
The Company formed aelected to adopt ASU No. 2018-01, which allows an entity to exclude from application of Topic 842 all easements executed prior to January 1, 2019. In addition, the Company elected to adopt the "comparatives under 840" practical expedient offered in ASU No. 2018-11, which allows an entity to apply the new lease standard implementation team that is working throughat the implementation process. Based on workadoption date, recognizing any necessary cumulative-effect adjustment to date, the implementation team identified a complete populationopening balance of existingretained earnings in the period of adoption and potential leasespresenting comparative periods in the financial statements under the new standard and completed its reviewASC 840 (previous lease accounting guidance). Adoption of the agreements associatedstandard did not result in a cumulative effect adjustment within the Company's financial statements.
As allowed by ASU No. 2016-02, the Company elected not to apply the requirements of the standard to short-term leases, those leases with this population. The Company hasan initial term of 12 months or less. These leases are not yet fully quantifiedrecorded on the estimatedbalance sheet and are immaterial to the financial statement impact, but basedstatements.
Adoption of the standard impacted the Company's Condensed Consolidated Balance Sheet through recognition of right-of-use (ROU) assets and lease liabilities for the Company's operating leases. Accounting for finance leases (formerly capital leases) remained substantially unchanged. See Note 5 for further information on the Company's preliminary conclusions, the Company does not expect any material impacts to its future financial condition, results of operations and cash flows, other than the recognition of the right-of-use asset and lease liability on the Condensed Consolidated Balance Sheet.
The Company is monitoring utility industry implementation guidance as it relates to several unresolved issues to determine if there will be an industry consensus.
ASU No. 2017-07 “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”
On January 1, 2018, the Company adopted ASU No. 2017-07, which amended the income statement presentation of the components of net period benefit cost for an entity’s defined benefit pension and other postretirement plans. Under previous GAAP, net benefit cost consisted of several components that reflected different aspects of an employer’s financial arrangements as well as the cost of benefits earned by employees. These components were aggregated and reported net in the financial statements. ASU No. 2017-07 requires entities to (1) disaggregate the current service-cost component from the other components of net benefit cost (other components) and present it with other current compensation costs for related employees in the income statement and (2) present the other components elsewhere in the income statement and outside of income from operations.
In addition, only the service-cost component of net benefit cost is eligible for capitalization (e.g., as part of utility plant). This is a change from prior practice, under which entities capitalized the aggregate net benefit cost to utility plant when applicable, in accordance with FERC accounting guidance. Avista Corp. is a rate-regulated entity and all components of net benefit cost are currently recovered from customers as a component of utility plant and, under the new ASU, these costs will continue to be recovered from customers in the same manner over the depreciable lives of utility plant. As all such costs are expected to continue to be recoverable, the components that are no longer eligible to be recorded as a component of utility plant for GAAP will be recorded as regulatory assets.
Upon adoption, entities must use a retrospective transition method to adopt the requirement for separate presentation in the income statement and a prospective transition method to adopt the requirement to limit the capitalization of benefit costs to the service-cost component. Due to the retrospective requirements for income statement presentation, for the three and nine months ended September 30, 2017, the Company reclassified $1.9 million and $5.7 million, respectively in non-service cost

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components of pension and other postretirement benefits from utility other operating expenses to other expense (income)-net on the Condensed Consolidated Statements of Income. See Note 6 for additional discussion regarding pension and other postretirement benefit expense.leases.
ASU No. 2018-02 “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”
In February 2018, the FASB issued ASU No. 2018-02, which amended the guidance for reporting comprehensive income. This ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the enactment of the TCJA in December 2017. This ASU isbecame effective for periods beginning after December 15, 2018 and early adoption iswas permitted. Upon adoption, the requirements of this ASU must be applied either in the period of

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adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the TCJA is recognized. The Company early adopted this standard effective January 1, 2018 and elected to apply the guidance during the period of adoption rather than apply the standard retrospectively. As a result, the Company reclassified $1.7 million in tax benefits from accumulated other comprehensive loss to retained earnings during the ninesix months ended SeptemberJune 30, 2018.
ASU 2018-13 " Fair"Fair Value Measurement (Topic 820)"
In August 2018, the FASB issued ASU No. 2018-13, which amends the fair value measurement disclosure requirements of ASC 820. The requirements of this ASU include additional disclosure regarding the range and weighted average used to develop significant unobservable inputs for Level 3 fair value estimates and the elimination of certain other previously required disclosures, such as the narrative description of the valuation process for Level 3 fair value measurements. This ASU is effective for periods beginning after December 15, 2019 and early adoption is permitted. Entities have the option to early adopt the eliminated or modified disclosure requirements and delay the adoption of all the new disclosure requirementsuntil the effective date of the ASU. The Company is in the process of evaluating this standard; however, it has determined that it will not early adopt any portion of this standard as of SeptemberJune 30, 2018.2019.
ASU No. 2018-14 "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)"
In August 2018, the FASB issued ASU No. 2018-14, which amends ASC 715 to add, remove and/or clarify certain disclosure requirements related to defined benefit pension and other postretirement plans. The additional disclosure requirements are primarily narrative discussion of significant changes in the benefit obligations and plan assets. The removed disclosures are primarily information about accumulated other comprehensive income expected to be recognized over the next year and the effects of changes associated with assumed health care costs. This ASU is effective for periods beginning after December 15, 2021 and early adoption is permitted. The Company is in the process of evaluating this standard; however, it has determined that it will not early adopt this standard as of SeptemberJune 30, 2018.2019.
NOTE 3. BALANCE SHEET COMPONENTS
Materials and Supplies, Fuel Stock and Stored Natural Gas
Inventories of materials and supplies, fuel stock and stored natural gas are recorded at average cost for our regulated operations and the lower of cost or market for our non-regulated operations and consisted of the following as of SeptemberJune 30, 20182019 and December 31, 20172018 (dollars in thousands):
 June 30, December 31,
 2019 2018
Materials and supplies$46,886
 $47,403
Fuel stock6,332
 4,869
Stored natural gas14,441
 11,609
Total$67,659
 $63,881

 September 30, December 31,
 2018 2017
Materials and supplies$45,169
 $41,493
Fuel stock5,347
 4,843
Stored natural gas12,250
 11,739
Total$62,766
 $58,075
Other Current Assets

Other current assets consisted of the following as of June 30, 2019 and December 31, 2018 (dollars in thousands):
14
 June 30, December 31,
 2019 2018
Collateral posted for derivative instruments after netting with outstanding derivative liabilities$
 $26,809
Prepayments24,515
 17,536
Other6,084
 9,665
Total$30,599
 $54,010


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Net Utility Property
Net utility property consisted of the following as of SeptemberJune 30, 20182019 and December 31, 20172018 (dollars in thousands):
 June 30, December 31,
 2019 2018
Utility plant in service$6,262,789
 $6,209,968
Construction work in progress191,845
 160,598
Total6,454,634
 6,370,566
Less: Accumulated depreciation and amortization1,769,980
 1,721,636
Total net utility property$4,684,654
 $4,648,930

 September 30, December 31,
 2018 2017
Utility plant in service$6,060,373
 $5,853,308
Construction work in progress180,237
 157,839
Total6,240,610
 6,011,147
Less: Accumulated depreciation and amortization1,685,170
 1,612,337
Total net utility property$4,555,440
 $4,398,810
Other Property and Investments-Net and Other Non-Current Assets
Other property and investments-net and other non-current assets consisted of the following as of June 30, 2019 and December 31, 2018 (dollars in thousands):
 June 30, December 31,
 2019 2018
Operating lease ROU assets$70,442
 $
Finance lease ROU assets52,800
 
Non-utility property28,438
 31,355
Equity investments36,921
 29,257
Investment in affiliated trust11,547
 11,547
Notes receivable11,376
 11,073
Deferred compensation assets8,557
 8,400
Other20,549
 23,065
Total$240,630
 $114,697

Other Current Liabilities
Other current liabilities consisted of the following as of SeptemberJune 30, 20182019 and December 31, 20172018 (dollars in thousands):
 June 30, December 31,
 2019 2018
Accrued taxes other than income taxes$35,502
 $36,858
Employee paid time off accruals22,092
 20,992
Accrued interest16,536
 16,704
Current portion of pensions and other postretirement benefits11,175
 9,151
Derivative liabilities9,274
 3,908
Other current liabilities29,590
 32,745
Total other current liabilities$124,169
 $120,358

Other Non-Current Liabilities and Deferred Credits
Other non-current liabilities and deferred credits consisted of the following as of June 30, 2019 and December 31, 2018 (dollars in thousands):
 June 30, December 31,
 2019 2018
Operating lease liabilities$68,228
 $
Finance lease liabilities53,150
 
Deferred investment tax credits31,172
 29,725
Asset retirement obligations18,595
 18,266
Derivative liabilities27,198
 10,300
Other13,058
 12,740
Total$211,401
 $71,031


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 September 30, December 31,
 2018 2017
Accrued taxes other than income taxes$37,723
 $33,802
Current unsettled interest rate swap derivative liabilities
 34,447
Employee paid time off accruals20,644
 20,330
Accrued interest30,343
 16,351
Current portion of pensions and other postretirement benefits10,036
 11,544
Utility energy commodity derivative liabilities6,853
 8,848
Other current liabilities27,805
 33,791
Total other current liabilities$133,404
 $159,113
AVISTA CORPORATION



Regulatory Assets and Liabilities
Regulatory assets and liabilities consisted of the following as of SeptemberJune 30, 20182019 and December 31, 20172018 (dollars in thousands):
 June 30, 2019 December 31, 2018
 Current Non-Current Current Non-Current
Regulatory Assets       
Energy commodity derivatives$25,125
 $10,764
 $41,428
 $16,866
Decoupling surcharge6,498
 16,167
 3,408
 17,501
Pension and other postretirement benefit plans
 221,454
 
 228,062
Interest rate swaps
 155,787
 
 133,854
Deferred income taxes
 95,217
 
 91,188
Settlement with Coeur d'Alene Tribe
 41,988
 
 42,643
Demand side management programs
 13,705
 
 19,674
Utility plant to be abandoned
 25,273
 
 24,334
Other regulatory assets7,162
 50,096
 3,716
 40,232
Total regulatory assets$38,785
 $630,451
 $48,552
 $614,354
        
Regulatory Liabilities       
Income tax related liabilities$23,079
 $418,039
 $27,997
 $425,613
Deferred natural gas costs1,852
 
 40,713
 
Deferral power costs6,612
 32,617
 25,072
 16,933
Decoupling rebate437
 2,861
 6,782
 204
Utility plant retirement costs
 302,734
 
 297,379
Interest rate swaps
 17,659
 
 28,078
Other regulatory liabilities5,974
 15,745
 12,645
 12,494
Total regulatory liabilities$37,954
 $789,655
 $113,209
 $780,701
 September 30, 2018 December 31, 2017
 Current Non-Current Current Non-Current
Regulatory Assets       
Energy commodity derivatives$19,238
 $9,555
 $24,991
 $18,967
Decoupling surcharge2,287
 18,099
 19,759
 2,600
Pension and other postretirement benefit plans
 201,620
 
 209,115
Interest rate swaps
 131,972
 
 169,704
Deferred income taxes
 90,285
 
 90,315
Settlement with Coeur d'Alene Tribe
 42,971
 
 43,954
Demand side management programs
 19,774
 
 24,620
Utility plant to be abandoned
 24,158
 
 24,330
Other regulatory assets
 38,429
 
 35,794
Total regulatory assets$21,525
 $576,863
 $44,750
 $619,399
        

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AVISTA CORPORATION



 September 30, 2018 December 31, 2017
 Current Non-Current Current Non-Current
Regulatory Liabilities       
Income tax related liabilities$36,850
 $433,714
 $
 $460,542
Deferred natural gas costs35,442
 
 37,474
 
Deferral power costs9,792
 30,219
 5,816
 24,057
Decoupling rebate8,853
 426
 
 5,816
Utility plant retirement costs
 293,965
 
 285,786
Interest rate swaps
 36,345
 
 18,638
Other regulatory liabilities4,041
 3,771
 4,974
 5,250
Total regulatory liabilities$94,978
 $798,440
 $48,264
 $800,089

NOTE 4. REVENUE
ASC 606 which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and superseded previous revenue recognition guidance, including industry-specific guidance, became effective on January 1, 2018. Thedefines the core principle of the revenue recognition 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.
Utility Revenues
Revenue from Contracts with Customers
General
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.
In addition, the sale of electricity and natural gas is governed by the various state utility commissions, which set rates, charges, terms and conditions of service, and prices. Collectively, these rates, charges, terms and conditions are included in a “tariff,” which governs all aspects of the provision of regulated services. Tariffs are only permitted to be changed through a rate-setting process involving an independent, third-party regulator empowered by statute to establish rates that bind customers. Thus, all regulated sales by the Company are conducted subject to the regulator-approved tariff.
Tariff sales involve the current provision of commodity service (electricity and/or natural gas) to customers for a price that generally has a basic charge and a usage-based component. Tariff rates also include certain pass-through costs to customers such as natural gas costs, retail revenue credits and other miscellaneous regulatory items that do not impact net income, but can cause total revenue to fluctuate significantly up or down compared to previous periods. The commodity is sold and/or delivered to and consumed by the customer simultaneously, and the provisions of the relevant tariffutility commission authorization determine the charges the Company may bill the customer, payment due date, and other pertinent rights and obligations of both parties. Generally, tariff sales do not involve a written contract.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."
Unbilled Revenue from Contracts with Customers
The determination of the volume of energy sales to individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month (once per month for each individual customer). At the end of each calendar month, the amount of energy delivered to customers since the date of the last meter reading is estimated and the corresponding unbilled revenue is estimated and recorded. The Company's estimate of unbilled revenue is based on:
the number of customers,
current rates,

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AVISTA CORPORATION



meter reading dates,
actual native load for electricity,
actual throughput for natural gas, and
electric line losses and natural gas system losses.
Any difference between actual and estimated revenue is automatically corrected in the following month when the actual meter reading and customer billing occurs.
Accounts receivable includes unbilled energy revenues of the following amounts as of September 30, 2018 and December 31, 2017 (dollars in thousands):
 September 30, December 31,
 2018 2017
Unbilled accounts receivable$38,991
 $68,641
Non-Derivative Wholesale Contracts
The Company has certain wholesale contracts which doare not meet the criteriaaccounted for classification as derivatives. Since they do not meet the definition of a derivative, theyderivatives and, accordingly, are within the scope of ASC 606 and 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 tariffrate-regulated sales above.

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AVISTA CORPORATION



Alternative Revenue Programs (Decoupling)
ASC 606 retained existing GAAP associated with alternative revenue programs, which specified that alternative revenue programs are contracts between an entity and a regulator of utilities, not a contract between an entity and a customer. GAAP requires that an entity 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 whichthat 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 that are 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 whichthat must be 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.
Two acceptable methods of presenting decoupling revenue have evolved within the utility industry and a policy election is required by the Company. The two options relate to how the collection/refund of previously recognized decoupling revenue is presented within total revenue. The first option is the gross method, which is to amortize the decoupling regulatory asset/liability to the alternative revenue program line item on the Condensed Consolidated Statement 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. The second option is the net method, which requires the amortization of the decoupling regulatory asset/liability to be presented within revenue from contracts with customers such that, when netted against the cash passing between the Company and the customers within the same line item, there is a net zero impact to revenue from contracts with customers and total revenue. The Company has elected the gross method for the presentation of alternative revenue program revenue, consistent with historical practice. 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.
Derivative Revenue
Most wholesale electric and natural gas transactions (including both physical and financial transactions), and the sale of fuel are considered derivatives, which are specifically scoped out of ASC 606. As such, these revenues are disclosed separately from revenue from contracts with customers. Revenue is recognized for these items upon the settlement/expiration of the derivative contract. Derivative revenue includes those transactions whichthat are entered into and settled within the same month.

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AVISTA CORPORATION



Other Utility Revenue
Other utility revenue includes rent, revenues from the lineman training school, 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 and the deferral and amortization of refunds to customers associated with the TCJA, enacted in December 2017.TCJA. This revenue is scoped out of ASC 606, 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.
Other Considerations for Utility Revenues
Contracts with Multiple Performance Obligations
In addition to the tariff sales described above, which are stand-alone energy sales, the Company has bundled arrangements which contain multiple performance obligations including some combination of energy, capacity, energy reserves and RECs. Under these arrangements, the total contract price is allocated to the various performance obligations and revenue is recognized as the obligations are satisfied. Depending on the source of the revenue, it could either be included in revenue from contracts with customers or derivative revenue.
Gross Versus Net Presentation
Revenues and resource costs from Avista Utilities’ settled energy contracts that are “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 taxes that 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, effective January 1, 2018, these transactions at AEL&P are presented on a net basis within revenue from contracts with customers. Prior to the adoption of ASU No. 2014-09, the Company presented utility-related taxes at AEL&P on a gross basis, consistent with the presentation for Avista Utilities. In prior years, there were approximately $2.0 million annually in utility-related taxes collected from customers included in revenue for AEL&P.
Utility-related taxes that were included in revenue from contracts with customers were as follows for the three and ninesix months ended SeptemberJune 30 (dollars in thousands):
 Three months ended June 30, Six months ended June 30,
 2019 2018 2019 2018
Utility-related taxes$12,688
 $12,986
 $31,777
 $32,153
 Three months ended September 30, Nine months ended September 30,
 2018 2017 2018 2017
Utility-related taxes$12,294
 $12,663
 $44,447
 $47,799

Non-Utility Revenues
Revenue from Contracts with Customers
Non-utility revenues from contracts with customers are primarily derived from the operations of METALfx.METALfx (through the date of its sale in April 2019, see Note 18 for further discussion). The contracts associated with METALfx have one performance obligation, the delivery of a product, and revenues are recognized when the risk of loss transfers to the customer, which occurs when products are shipped.
Other Revenue
Other non-utility revenue primarily relates to rent revenue, which is scoped out
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Table of ASC 606; therefore, this revenue is presented separately from revenue from contracts with customers.Contents

AVISTA CORPORATION



Significant Judgments and Unsatisfied Performance Obligations
The vast majority of the Company's revenues are derived from the rate-regulated sale of electricity and natural gas that have two performance obligations that are satisfied throughout the period and as energy is delivered to customers. In addition, the customers do not pay for energy in advance of receiving it. As such, the Company does not have any significant unsatisfied performance obligations or deferred revenues as of period-end associated with these revenues. Also, the only significant judgments involving revenue recognition are estimates surrounding unbilled revenue and receivables from contracts with customers (discussed in detail above) and estimates surrounding the amount of decoupling revenues whichthat will be collected from customers within 24 months.

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AVISTA CORPORATION



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 does have one capacity agreement where the customer makes payments throughout the year and depending on the timing of the customer payments, it can result in an immaterial amount of deferred revenue or a receivable from the customer. As of SeptemberJune 30, 2018,2019, the Company estimates it had unsatisfied capacity performance obligations of $11.4$7.9 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 ninesix months ended SeptemberJune 30 (dollars in thousands):
Three months ended Nine months endedThree months ended June 30, Six months ended June 30,
September 30, 2018 September 30, 20182019 2018 2019 2018
Avista Utilities          
Revenue from contracts with customers$242,098
 $835,373
$231,605
 $239,113
 $585,907
 $593,275
Derivative revenues32,718
 147,467
42,128
 56,357
 66,255
 114,749
Alternative revenue programs606
 (1,763)9,725
 3,570
 5,067
 (2,369)
Deferrals and amortizations for rate refunds to customers1,940
 (16,900)2,512
 982
 4,647
 (18,840)
Other utility revenues2,187
 6,348
3,838
 2,200
 5,634
 4,161
Total Avista Utilities279,549
 970,525
289,808
 302,222
 667,510
 690,976
AEL&P          
Revenue from contracts with customers9,599
 35,008
8,620
 10,759
 19,356
 25,409
Deferrals and amortizations for rate refunds to customers(156) (1,705)(47) (427) (95) (1,549)
Other utility revenues127
 412
170
 150
 363
 285
Total AEL&P9,570
 33,715
8,743
 10,482
 19,624
 24,145
Other          
Revenue from contracts with customers6,580
 19,633
2,024
 6,324
 9,671
 13,053
Other revenues314
 799
237
 270
 488
 485
Total other6,894
 20,432
2,261
 6,594
 10,159
 13,538
Total operating revenues$296,013
 $1,024,672
$300,812
 $319,298
 $697,293
 $728,659

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AVISTA CORPORATION



Utility Revenue from Contracts with Customers by Type and Service
The following table disaggregates revenue from contracts with customers associated with the Company's utility operations for the three and ninesix months ended SeptemberJune 30 (dollars in thousands):
 2019 2018
 Avista Utilities AEL&P Total Utility Avista Utilities AEL&P Total Utility
Three months ended June 30:           
ELECTRIC OPERATIONS           
Revenue from contracts with customers           
Residential$72,886
 $3,724
 $76,610
 $74,818
 $4,155
 $78,973
Commercial and governmental76,375
 4,837
 81,212
 76,462
 6,541
 83,003
Industrial26,245
 
 26,245
 27,985
 
 27,985
Public street and highway lighting1,897
 59
 1,956
 1,899
 63
 1,962
Total retail revenue177,403
 8,620
 186,023
 181,164
 10,759
 191,923
Transmission4,250
 
 4,250
 4,171
 
 4,171
Other revenue from contracts with customers4,379
 
 4,379
 3,919
 
 3,919
Total revenue from contracts with customers$186,032
 $8,620
 $194,652
 $189,254
 $10,759
 $200,013
            
NATURAL GAS OPERATIONS           
Revenue from contracts with customers           
Residential$27,937
 $
 $27,937
 $30,767
 $
 $30,767
Commercial13,369
 
 13,369
 14,668
 
 14,668
Industrial and interruptible1,103
 
 1,103
 1,078
 
 1,078
Total retail revenue42,409
 
 42,409
 46,513
 
 46,513
Transportation2,039
 
 2,039
 2,221
 
 2,221
Other revenue from contracts with customers1,125
 
 1,125
 1,125
 
 1,125
Total revenue from contracts with customers$45,573
 $
 $45,573
 $49,859
 $
 $49,859
Six months ended June 30:           
ELECTRIC OPERATIONS           
Residential$188,279
 $9,576
 $197,855
 $189,571
 $10,693
 $200,264
Commercial and governmental155,621
 9,658
 165,279
 155,371
 14,585
 169,956
Industrial51,493
 
 51,493
 53,104
 
 53,104
Public street and highway lighting3,800
 122
 3,922
 3,758
 131
 3,889
Total retail revenue399,193
 19,356
 418,549
 401,804
 25,409
 427,213
Transmission9,402
 
 9,402
 8,001
 
 8,001
Other revenue from contracts with customers12,573
 
 12,573
 10,210
 
 10,210
Total electric revenue from contracts with customers$421,168
 $19,356
 $440,524
 $420,015
 $25,409
 $445,424
            

 Three months ended September 30, 2018 Nine months ended September 30, 2018
 Avista Utilities AEL&P Total Utility Avista Utilities AEL&P Total Utility
ELECTRIC OPERATIONS           
Revenue from contracts with customers           
Residential$82,470
 $2,987
 $85,457
 $272,041
 $13,680
 $285,721
Commercial and governmental80,744
 6,546
 87,290
 236,115
 21,131
 257,246
Industrial30,806
 
 30,806
 83,910
 
 83,910
Public street and highway lighting1,860
 66
 1,926
 5,618
 197
 5,815
Total retail revenue195,880
 9,599
 205,479
 597,684
 35,008
 632,692
Transmission4,832
 
 4,832
 12,833
 
 12,833
Other revenue from contracts with customers8,564
 
 8,564
 18,774
 
 18,774
Total revenue from contracts with customers$209,276
 $9,599
 $218,875
 $629,291
 $35,008
 $664,299
            


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AVISTA CORPORATION






 2019 2018
 Avista Utilities AEL&P Total Utility Avista Utilities AEL&P Total Utility
NATURAL GAS OPERATIONS           
Residential$105,272
 $
 $105,272
 $111,421
 $
 $111,421
Commercial49,964
 
 49,964
 52,040
 
 52,040
Industrial and interruptible2,730
 
 2,730
 2,761
 
 2,761
Total retail revenue157,966
 
 157,966
 166,222
 
 166,222
Transportation4,523
 
 4,523
 4,788
 
 4,788
Other revenue from contracts with customers2,250
 
 2,250
 2,250
 
 2,250
Total natural gas revenue from contracts with customers$164,739
 $
 $164,739
 $173,260
 $
 $173,260

NOTE 5. LEASES
ASC 842, which outlines a model for entities to use in accounting for leases and supersedes previous lease accounting guidance, became effective on January 1, 2019. The core principle of the model is that an entity should recognize the ROU assets and liabilities that arise from leases on the balance sheet and depreciate or amortize the asset and liability over the term of the lease, as well as provide disclosure to enable users of the condensed consolidated financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
Significant Judgments and Assumptions
The Company determines if an arrangement is a lease, as well as its classification, at its inception.
ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and lease liabilities are recognized at the commencement date of the agreement based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of lease payments. The implicit rate is used when it is readily determinable. The operating and finance lease ROU assets also include any lease payments made and exclude lease incentives, if any, that accrue to the benefit of the lessee.
Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Any difference between lease expense and cash paid for leased assets is recognized as a regulatory asset or regulatory liability.
Description of Leases
The Company has operating leases for land associated with its utility operations, as well as communication sites which support network and radio communications within its service territory. The Company's leases have remaining terms of 1 to 74 years. Most of the Company's leases include options to extend the lease term for periods of 5 to 50 years. Options are exercised at the Company's discretion.
The Company has an operating lease with the state of Montana associated with submerged land around the Company's hydroelectric facilities in the Clark Fork River basin, which expires in 2046. The terms of this lease are subject to renegotiation, depending on the outcome of ongoing litigation between Montana and NorthWestern Energy. In addition, the state of Montana and Avista Corp. are engaged in litigation regarding the lease terms. As such, amounts recorded for this lease are uncertain and amounts may change in the future depending on the outcome of the ongoing litigation.
Through its wholly-owned subsidiary, AEL&P, the Company has a PPA which is treated as a finance lease for accounting purposes related to the Snettisham Hydroelectric Project, which expires in 2034. For ratemaking purposes, this lease is treated as an operating lease with a constant level of annual rental expense (straight line rent expense). Because of this regulatory treatment, any difference between the operating lease expense for ratemaking purposes and the expenses recognized under finance lease treatment (interest and amortization of the finance lease ROU asset) is recorded as a regulatory asset and amortized during the later years of the lease when the finance lease expense is less than the operating lease expense included in base rates. In 2018 and prior years, the total cost associated with the Snettisham PPA was included in resource costs. Due to the adoption of the new lease standard, the amortization of the ROU asset is now included in depreciation and amortization and the interest associated with the lease liability is now included in interest expense on the Condensed Consolidated Statement of Income.

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 Three months ended September 30, 2018 Nine months ended September 30, 2018
 Avista Utilities AEL&P Total Utility Avista Utilities AEL&P Total Utility
NATURAL GAS OPERATIONS           
Revenue from contracts with customers      

 

 

Residential$19,247
 $
 $19,247
 $130,668
 $
 $130,668
Commercial9,437
 
 9,437
 61,477
 
 61,477
Industrial and interruptible1,006
 
 1,006
 3,767
 
 3,767
Total retail revenue29,690
 
 29,690
 195,912
 
 195,912
Transportation2,007
 
 2,007
 6,795
 
 6,795
Other revenue from contracts with customers1,125
 
 1,125
 3,375
 
 3,375
Total revenue from contracts with customers$32,822
 $
 $32,822
 $206,082
 $
 $206,082
AVISTA CORPORATION



Certain of the Company's lease agreements include rental payments which are periodically adjusted over the term of the agreement based on the consumer price index. The Company's lease agreements do not include any material residual value guarantees or material restrictive covenants.
Avista Corp. does not record leases with a term of 12 months or less in the Condensed Consolidated Balance Sheet. Total short-term lease costs for the three and six months ended June 30, 2019 are immaterial. 
Leases that Have Not Yet Commenced
In June 2018, the Company finalized a lease agreement for office space in Spokane, Washington. The lease period is expected to commence in April 2020, once construction of the building is complete. The lease is an operating lease for a term of 12 years and will result in annual rent expense of approximately $1.1 million, which will be reflected in other operating expenses. In addition to base rent expense, the Company is expected to share in a portion of the annual operating expenses of the building.
In March 2019, the Company signed a PPA with Clearway Energy Group (Clearway) to purchase all of the power generated from the Rattlesnake Flat Wind project in Adams County, Washington. The facility has a nameplate capacity of 144 MW and is expected to generate approximately 50 aMW. During negotiations with Clearway, Avista Corp. was involved in the selection of the preferred generation facility type. The PPA is a 20-year agreement with deliveries expected to begin in 2020. The PPA provides Avista Corp. with additional renewable energy, capacity and environmental attributes. Avista Corp. expects to recover the cost of the power purchased through its retail rates. This PPA is considered a lease under ASC 842; however, all of the payments are variable payments based on whether power is generated from the facility. Since all the payments are variable, the Company will not record a lease liability for the agreement, but the expense will be included in resource costs when it becomes operational in 2020.
The components of lease expense were as follows for the three and six months ended June 30, 2019 (dollars in thousands):
 Three months ended June 30, 2019 Six months ended June 30, 2019
Operating lease cost:   
Fixed lease cost (Other operating expenses)$1,106
 $2,209
Variable lease cost (Other operating expenses)244
 487
Total operating lease cost$1,350
 $2,696
    
Finance lease cost:   
Amortization of ROU asset (Depreciation and amortization)$910
 $1,820
Interest on lease liabilities (Interest expense)699
 1,398
Total finance lease cost$1,609
 $3,218

Supplemental cash flow information related to leases was as follows for the six months ended June 30 (dollars in thousands):
 2019
Cash paid for amounts included in the measurement of lease liabilities: 
Operating cash outflows: 
Operating lease payments$4,197
Interest on finance lease1,398
Total operating cash outflows$5,595
  
Finance cash outflows: 
Principal payments on finance lease$1,330


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Supplemental balance sheet information related to leases was as follows for June 30, 2019 (dollars in thousands):
 June 30,
 2019
Operating Leases 
Operating lease ROU assets (Other property and investments-net and other non-current assets)$70,442
  
Other current liabilities$4,123
Other non-current liabilities and deferred credits68,228
Total operating lease liabilities$72,351
  
Finance Leases 
Finance lease ROU assets (Other property and investments-net and other non-current assets) (a)$52,800
  
Other current liabilities (b)$2,730
Other non-current liabilities and deferred credits (b)53,150
Total finance lease liabilities$55,880
  
Weighted Average Remaining Lease Term 
Operating leases27.01 years
Finance leases8.39 years
  
Weighted Average Discount Rate 
Operating leases3.82%
Finance leases4.88%
(a)At December 31, 2018, the finance lease ROU assets were included in "Net utility property" on the Condensed Consolidated Balance Sheet. Due to the adoption of ASC 842 on January 1, 2019, the Company has reclassified these amounts to "Other property and investments-net and other non-current assets" on the Condensed Consolidated Balance Sheet such that their presentation as of June 30, 2019 is consistent with operating leases.
(b)At December 31, 2018, the finance lease liabilities were included in "Current portion of long-term debt" and "Long-term debt and capital leases" on the Condensed Consolidated Balance Sheet. Due to the adoption of ASC 842 on January 1, 2019, the Company has reclassified these amounts to "Other current liabilities" and "Other non-current liabilities and deferred credits" on the Condensed Consolidated Balance Sheet such that their presentation as of June 30, 2019 is consistent with operating leases.
Maturities of lease liabilities (including principal and interest) were as follows as of June 30, 2019 (dollars in thousands):
 Operating Leases Finance Leases
Remainder 2019$4,170
 $2,726
20204,364
 5,462
20214,367
 5,457
20224,375
 5,460
20234,391
 5,456
Thereafter95,939
 54,574
Total lease payments$117,606
 $79,135
Less: imputed interest(45,255) (23,255)
Total$72,351
 $55,880


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Future minimum lease payments (including principal and interest) under Topic 840 as of December 31, 2018 (dollars in thousands):
 Operating Leases Finance Leases
2019$4,995
 $5,455
20204,876
 5,462
20214,859
 5,457
20224,782
 5,460
20234,780
 5,456
Thereafter102,389
 54,574
Total lease payments$126,681
 $81,864
Less: imputed interest
 (24,654)
Total$126,681
 $57,210

NOTE 5.6. DERIVATIVES AND RISK MANAGEMENT
Energy Commodity Derivatives
Avista Corp. is exposed to market risks relating to changes in electricity and natural gas commodity prices and certain other fuel prices. Market risk is, in general, the risk of fluctuation in the market price of the commodity being traded and is influenced primarily by supply and demand. Market risk includes the fluctuation in the market price of associated derivative commodity instruments. Avista Corp. utilizes derivative instruments, such as forwards, futures, swap derivatives and options, in order to manage the various risks relating to these commodity price exposures. Avista Corp. has an energy resources risk policy and control procedures to manage these risks.
As part of Avista Corp.'s resource procurement and management operations in the electric business, Avista Corp. engages in an ongoing process of resource optimization, which involves the economic selection from available energy resources to serve Avista Corp.'s load obligations and the use of these resources to capture available economic value through wholesale market transactions. These include sales and purchases of electric capacity and energy, fuel for electric generation, and derivative contracts related to capacity, energy and fuel. Such transactions are part of the process of matching resources with load obligations and hedging a portion of the related financial risks. These transactions range from terms of intra-hour up to multiple years.
As part of its resource procurement and management of its natural gas business, Avista Corp. makes continuing projections of its natural gas loads and assesses available natural gas resources including natural gas storage availability. Natural gas resource planning typically includes peak requirements, low and average monthly requirements and delivery constraints from natural gas supply locations to Avista Corp.’s distribution system. However, daily variations in natural gas demand can be significantly different than monthly demand projections. On the basis of these projections, Avista Corp. plans and executes a series of transactions to hedge a portion of its projected natural gas requirements through forward market transactions and derivative instruments. These transactions may extend as much as four natural gas operating years (November through October) into the future. Avista Corp. also leaves a significant portion of its natural gas supply requirements unhedged for purchase in short-term and spot markets.
Avista Corp. plans for sufficient natural gas delivery capacity to serve its retail customers for a theoretical peak day event. Avista Corp. generally has more pipeline and storage capacity than what is needed during periods other than a peak-day. Avista Corp. optimizes its natural gas resources by using market opportunities to generate economic value that helps mitigate fixed costs. Avista Corp. also optimizes its natural gas storage capacity by purchasing and storing natural gas when prices are traditionally lower, typically in the summer, and withdrawing during higher priced months, typically during the winter. However, if market conditions and prices indicate that Avista Corp. should buy or sell natural gas at other times during the year, Avista Corp. engages in optimization transactions to capture value in the marketplace. Natural gas optimization activities include, but are not limited to, wholesale market sales of surplus natural gas supplies, purchases and sales of natural gas to optimize use of pipeline and storage capacity, and participation in the transportation capacity release market.


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The following table presents the underlying energy commodity derivative volumes as of SeptemberJune 30, 2019 that are expected to be delivered in each respective year (in thousands of MWhs and mmBTUs):
 Purchases Sales
 Electric Derivatives Gas Derivatives Electric Derivatives Gas Derivatives
Year
Physical (1)
MWh
 
Financial (1)
MWh
 
Physical (1)
mmBTUs
 
Financial (1)
mmBTUs
 Physical (1)
MWh
 Financial (1)
MWh
 Physical (1)
mmBTUs
 Financial (1)
mmBTUs
Remainder 20191
 559
 5,378
 61,385
 82
 1,330
 481
 26,150
2020
 
 1,138
 60,253
 123
 1,055
 1,430
 23,683
2021
 
 
 17,640
 
 246
 1,049
 8,575
2022
 
 
 1,350
 
 
 
 
2023
 
 
 
 
 
 
 
Thereafter
 
 
 
 
 
 
 
The following table presents the underlying energy commodity derivative volumes as of December 31, 2018 that are expected to be delivered in each respective year (in thousands of MWhs and mmBTUs):
Purchases SalesPurchases Sales
Electric Derivatives Gas Derivatives Electric Derivatives Gas DerivativesElectric Derivatives Gas Derivatives Electric Derivatives Gas Derivatives
Year
Physical (1)
MWh
 
Financial (1)
MWh
 
Physical (1)
mmBTUs
 
Financial (1)
mmBTUs
 Physical (1)
MWh
 Financial (1)
MWh
 Physical (1)
mmBTUs
 Financial (1)
mmBTUs
Physical (1)
MWh
 Financial (1)
MWh
 Physical (1)
mmBTUs
 Financial (1)
mmBTUs
 Physical (1)
MWh
 Financial (1)
MWh
 Physical (1)
mmBTUs
 Financial (1)
mmBTUs
Remainder 2018120
 542
 8,109
 34,905
 41
 575
 3,101
 20,683
2019204
 901
 5,110
 87,118
 123
 2,403
 2,245
 47,488
206
 941
 10,732
 101,293
 197
 2,790
 2,909
 54,418
2020
 
 910
 31,005
 
 836
 1,430
 7,995

 
 1,138
 47,225
 123
 959
 1,430
 14,625
2021
 
 
 4,975
 
 
 1,049
 2,275

 
 
 9,670
 
 
 1,049
 4,100
2022
 
 
 
 
 
 
 

 
 
 
 
 
 
 
2023
 
 
 
 
 
 
 
Thereafter
 
 
 
 
 
 
 

 
 
 
 
 
 
 
The following table presents the underlying energy commodity derivative volumes as of December 31, 2017 that are expected to be delivered in each respective year (in thousands of MWhs and mmBTUs):
 Purchases Sales
 Electric Derivatives Gas Derivatives Electric Derivatives Gas Derivatives
YearPhysical (1)
MWh
 Financial (1)
MWh
 Physical (1)
mmBTUs
 Financial (1)
mmBTUs
 Physical (1)
MWh
 Financial (1)
MWh
 Physical (1)
mmBTUs
 Financial (1)
mmBTUs
2018426
 763
 10,572
 107,580
 213
 1,739
 3,643
 67,375
2019235
 737
 610
 61,073
 94
 1,420
 1,345
 35,438
2020
 
 910
 16,590
 
 589
 1,430
 915
2021
 
 
 
 
 
 1,049
 
2022
 
 
 
 
 
 
 
Thereafter
 
 
 
 
 
 
 
(1)Physical transactions represent commodity transactions in which Avista Corp. will take or make delivery of either electricity or natural gas; financial transactions represent derivative instruments with delivery of cash in the amount of the benefit or cost but with no physical delivery of the commodity, such as futures, swap derivatives, options, or forward contracts.
The electric and natural gas derivative contracts above will be included in either power supply costs or natural gas supply costs during the period they are delivered and will be included in the various deferral and recovery mechanisms (ERM, PCA and PGAs), or in the general rate case process, and are expected to be collected through retail rates from customers.
Foreign Currency Exchange Derivatives
A significant portion of Avista Corp.’s natural gas supply (including fuel for power generation) is obtained from Canadian sources. Most of those transactions are executed in U.S. dollars, which avoids foreign currency risk. A portion of Avista Corp.’s short-term natural gas transactions and long-term Canadian transportation contracts are committed based on Canadian currency prices and settled within 60 days with U.S. dollars. Avista Corp. hedges a portion of the foreign currency risk by purchasing Canadian currency exchange derivatives when such commodity transactions are initiated. The foreign currency exchange derivatives and the unhedged foreign currency risk have not had a material effect on Avista Corp.’s financial condition, results of operations or cash flows and these differences in cost related to currency fluctuations are included with natural gas supply costs for ratemaking.
The following table summarizes the foreign currency exchange derivatives that Avista Corp. has outstanding as of SeptemberJune 30, 20182019 and December 31, 20172018 (dollars in thousands):
 June 30, December 31,
 2019 2018
Number of contracts27
 31
Notional amount (in United States dollars)$2,780
 $4,018
Notional amount (in Canadian dollars)3,680
 5,386

 September 30, December 31,
 2018 2017
Number of contracts18
 18
Notional amount (in United States dollars)$3,255
 $2,552
Notional amount (in Canadian dollars)4,236
 3,241


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Interest Rate Swap Derivatives
Avista Corp. is affected by fluctuating interest rates related to a portion of its existing debt, and future borrowing requirements. Avista Corp. hedges a portion of its interest rate risk with financial derivative instruments, which may include interest rate swap derivatives and U.S. Treasury lock agreements. These interest rate swap derivatives and U.S. Treasury lock agreements are considered economic hedges against fluctuations in future cash flows associated with anticipated debt issuances.
The following table summarizes the unsettled interest rate swap derivatives that Avista Corp. has outstanding as of SeptemberJune 30, 20182019 and December 31, 20172018 (dollars in thousands):
Balance Sheet Date Number of Contracts Notional Amount Mandatory Cash Settlement Date
June 30, 2019 6 $70,000
 2019
  6 60,000
 2020
  3 35,000
 2021
  9 100,000
 2022
December 31, 2018 6 $70,000
 2019
  6 60,000
 2020
  2 25,000
 2021
  7 80,000
 2022

Balance Sheet Date Number of Contracts Notional Amount Mandatory Cash Settlement Date
September 30, 2018 6 $70,000
 2019
  4 40,000
 2020
  1 15,000
 2021
  6 70,000
 2022
December 31, 2017 14 $275,000
 2018
  6 70,000
 2019
  3 30,000
 2020
  1 15,000
 2021
  5 60,000
 2022
During the second quarter 2018, in connection with the issuance and sale of $375.0 million of Avista Corp. first mortgage bonds (see Note 9), the Company cash-settled fourteen interest rate swap derivatives (notional aggregate amount of $275.0 million) and paid a net amount of $26.6 million. Upon settlement of interest rate swap derivatives, the cash payments made or received are recorded as a regulatory asset or liability and are subsequently amortized as a component of interest expense over the life of the associated debt. The settled interest rate swap derivatives are also included as a part of Avista Corp.'s cost of debt calculation for ratemaking purposes.
The fair value of outstanding interest rate swap derivatives can vary significantly from period to period depending on the total notional amount of swap derivatives outstanding and fluctuations in market interest rates compared to the interest rates fixed by the swaps. Avista Corp. is required to make cash payments to settle the interest rate swap derivatives when the fixed rates are higher than prevailing market rates at the date of settlement. Conversely, Avista Corp. receives cash to settle its interest rate swap derivatives when prevailing market rates at the time of settlement exceed the fixed swap rates.
Summary of Outstanding Derivative Instruments
The amounts recorded on the Condensed Consolidated Balance Sheet as of SeptemberJune 30, 20182019 and December 31, 20172018 reflect the offsetting of derivative assets and liabilities where a legal right of offset exists.

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The following table presents the fair values and locations of derivative instruments recorded on the Condensed Consolidated Balance Sheet as of SeptemberJune 30, 20182019 (in thousands):
 Fair Value Fair Value
Derivative and Balance Sheet Location 
Gross
Asset
 
Gross
Liability
 
Collateral
Netted
 
Net Asset
(Liability)
on Balance
Sheet
 
Gross
Asset
 
Gross
Liability
 
Collateral
Netted
 
Net Asset
(Liability)
on Balance
Sheet
Foreign currency exchange derivatives                
Other current assets $26
 $
 $
 $26
 $33
 $
 $
 $33
Interest rate swap derivatives                
Other property and investments-net and other non-current assets 18,029
 
 
 18,029
Other current assets 771
 (338) 
 433
Other current liabilities 
 (4,771) 
 (4,771)
Other non-current liabilities and deferred credits 129
 (4,577) 
 (4,448) 631
 (27,309) 5,030
 (21,648)
Energy commodity derivatives                
Other current assets 904
 (27) 
 877
 582
 (247) 
 335
Other property and investments-net and other non-current assets 7
 
 
 7
Other current liabilities 29,992
 (50,107) 13,262
 (6,853) 26,541
 (52,004) 20,960
 (4,503)
Other non-current liabilities and deferred credits 6,854
 (16,416) 6,087
 (3,475) 3,996
 (14,760) 5,214
 (5,550)
Total derivative instruments recorded on the balance sheet $55,941
 $(71,127) $19,349
 $4,163
 $32,554
 $(99,429) $31,204
 $(35,671)

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The following table presents the fair values and locations of derivative instruments recorded on the Condensed Consolidated Balance Sheet as of December 31, 20172018 (in thousands):
  Fair Value
Derivative and Balance Sheet Location 
Gross
Asset
 
Gross
Liability
 Collateral
Netted
 Net Asset
(Liability)
on Balance
Sheet
Foreign currency exchange derivatives        
Other current liabilities $
 $(45) $
 $(45)
Interest rate swap derivatives        
Other current assets 5,283
 
 
 5,283
Other property and investments-net and other non-current assets 5,283
 (440) 
 4,843
Other non-current liabilities and deferred credits 
 (7,391) 530
 (6,861)
Energy commodity derivatives        
Other current assets 400
 (130) 
 270
Other current liabilities 31,457
 (73,155) 37,790
 (3,908)
Other non-current liabilities and deferred credits 4,426
 (21,292) 13,427
 (3,439)
Total derivative instruments recorded on the balance sheet $46,849
 $(102,453) $51,747
 $(3,857)
  Fair Value
Derivative and Balance Sheet Location 
Gross
Asset
 
Gross
Liability
 Collateral
Netted
 Net Asset
(Liability)
on Balance
Sheet
Foreign currency exchange derivatives        
Other current assets $32
 $(1) $
 $31
Interest rate swap derivatives        
Other current assets 2,597
 (270) 
 2,327
Other property and investments-net and other non-current assets 4,880
 (2,304) 
 2,576
Other current liabilities 
 (63,399) 28,952
 (34,447)
Other non-current liabilities and deferred credits 
 (7,540) 6,018
 (1,522)
Energy commodity derivatives        
Other current assets 1,386
 (122) 
 1,264
Other current liabilities 26,641
 (52,895) 17,406
 (8,848)
Other non-current liabilities and deferred credits 15,970
 (34,936) 10,032
 (8,934)
Total derivative instruments recorded on the balance sheet $51,506
 $(161,467) $62,408
 $(47,553)

Exposure to Demands for Collateral
Avista Corp.'s derivative contracts often require collateral (in the form of cash or letters of credit) or other credit enhancements, or reductions or terminations of a portion of the contract through cash settlement. In the event of a downgrade in Avista Corp.'s credit ratings or changes in market prices, additional collateral may be required. In periods of price volatility, the level of exposure can change significantly. As a result, sudden and significant demands may be made against Avista Corp.'s credit facilities and cash. Avista Corp. actively monitors the exposure to possible collateral calls and takes steps to mitigate capital requirements.

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The following table presents Avista Corp.'s collateral outstanding related to its derivative instruments as of SeptemberJune 30, 20182019 and December 31, 20172018 (in thousands):
September 30, December 31,June 30, December 31,
2018 20172019 2018
Energy commodity derivatives      
Cash collateral posted$27,277
 $39,458
$26,174
 $78,025
Letters of credit outstanding17,310
 23,000
14,600
 6,500
Balance sheet offsetting (cash collateral against net derivative positions)19,349
 27,438
26,174
 51,217
      
Interest rate swap derivatives      
Cash collateral posted
 34,970
5,030
 530
Letters of credit outstanding
 5,000
Balance sheet offsetting (cash collateral against net derivative positions)
 34,970
5,030
 530
Certain of Avista Corp.’s derivative instruments contain provisions that require Avista Corp. to maintain an "investment grade" credit rating from the major credit rating agencies. If Avista Corp.’s credit ratings were to fall below "investment grade," it would be in violation of these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing collateralization on derivative instruments in net liability positions.

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The following table presents the aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position and the amount of additional collateral Avista Corp. could be required to post as of SeptemberJune 30, 20182019 and December 31, 20172018 (in thousands):
 June 30, December 31,
 2019 2018
Energy commodity derivatives   
Liabilities with credit-risk-related contingent features$1,564
 $2,193
Additional collateral to post1,563
 2,193
    
Interest rate swap derivatives   
Liabilities with credit-risk-related contingent features32,418
 7,831
Additional collateral to post25,986
 6,579
 September 30, December 31,
 2018 2017
Energy commodity derivatives   
Liabilities with credit-risk-related contingent features$1,425
 $1,336
Additional collateral to post1,425
 1,336
    
Interest rate swap derivatives   
Liabilities with credit-risk-related contingent features4,577
 73,514
Additional collateral to post4,447
 18,770

NOTE 6.7. PENSION PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS
Avista Utilities
Avista Utilities’ maintained the same pension and other postretirement plans have not changed during the ninesix months ended SeptemberJune 30, 2019 as those described as of December 31, 2018. The Company’s funding policy is to contribute at least the minimum amounts that are required to be funded under the Employee Retirement Income Security Act, but not more than the maximum amounts that are currently deductible for income tax purposes. The Company contributed $22.0$14.6 million in cash to the pension plan for the ninesix months ended SeptemberJune 30, 20182019 and does not expectit expects to make any further contributionscontribute a total of $22.0 million in 2018.2019.

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The Company uses a December 31 measurement date for its defined benefit pension and other postretirement benefit plans. The following table sets forth the components of net periodic benefit costs for the three and ninesix months ended SeptemberJune 30 (dollars in thousands):
 Pension Benefits Other Postretirement Benefits
 2019 2018 2019 2018
Three months ended June 30:       
Service cost (a)$4,948
 $5,450
 $753
 $804
Interest cost7,100
 6,466
 1,164
 1,197
Expected return on plan assets(7,953) (8,250) (611) (500)
Amortization of prior service cost75
 75
 (275) 209
Net loss recognition2,426
 1,842
 1,329
 562
Net periodic benefit cost$6,596
 $5,583
 $2,360
 $2,272
Six months ended June 30:       
Service cost (a)$9,822
 $10,900
 $1,525
 $1,608
Interest cost14,238
 12,932
 2,536
 2,394
Expected return on plan assets(15,768) (16,500) (1,329) (1,000)
Amortization of prior service cost150
 150
 (550) (606)
Net loss recognition4,841
 3,930
 2,575
 2,217
Net periodic benefit cost$13,283
 $11,412
 $4,757
 $4,613
 Pension Benefits Other Postretirement Benefits
 2018 2017 2018 2017
Three months ended September 30:       
Service cost (a)$5,318
 $5,092
 $815
 $799
Interest cost6,634
 6,976
 1,261
 1,374
Expected return on plan assets(8,101) (7,900) (550) (475)
Amortization of prior service cost71
 
 (299) (274)
Net loss recognition1,761
 2,517
 1,044
 1,168
Net periodic benefit cost$5,683
 $6,685
 $2,271
 $2,592
Nine months ended September 30:       
Service cost (a)$16,218
 $15,226
 $2,423
 $2,422
Interest cost19,566
 20,903
 3,655
 4,147
Expected return on plan assets(24,601) (23,700) (1,550) (1,425)
Amortization of prior service cost221
 
 (905) (898)
Net loss recognition5,691
 7,380
 3,261
 3,761
Net periodic benefit cost$17,095
 $19,809
 $6,884
 $8,007

(a)Total service costs in the table above are recorded to the same accounts as labor expense. Labor and benefits expense is recorded to various projects based on whether the work is a capital project or an operating expense. Approximately 40 percent of all labor and benefits is capitalized to utility property and 60 percent is expensed to utility other operating expenses.
See Note 2 for discussion regarding the adoption of ASU No. 2017-07 and its impact to the presentation of pension and other postretirement benefits in the Condensed Consolidated Statements of Income and the Condensed Consolidated Balance Sheets.
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NOTE 7.8. INCOME TAXES
The following table summarizes the significant differences in income tax expense based onfactors impacting the differencesdifference between our effective tax rate and the federal statutory rates (21 percent in 2018 and 35 percent in 2017)rate for the three and ninesix months ended SeptemberJune 30 (dollars in thousands):
Three months ended September 30, Nine months ended September 30,Three months ended June 30, Six months ended June 30,
2018 2017 2018 20172019 2018 2019 2018
Federal income taxes at statutory rates$2,452
21.0 % $3,364
35.0 % $22,721
21.0 % $48,953
35.0 %$4,874
21.0 % $6,479
21.0 % $35,513
21.0 % $20,269
21.0 %
Increase (decrease) in tax resulting from:                      
Tax effect of regulatory treatment of utility plant differences(1,521)(13.0) 742
7.7
 (4,519)(4.2) 2,244
1.6
(2,139)(9.2) (1,981)(6.4) (4,219)(2.5) (2,999)(3.1)
State income tax expense(319)(2.7) (301)(3.1) 694
0.6
 1,136
0.8
(8)
 60
0.2
 1,651
1.0
 1,024
1.1
Acquisition costs122
1.0
 1,997
20.8
 241
0.2
 2,317
1.7
112
0.5
 73
0.2
 (1,712)(1.0) 119
0.1
Non-plant excess deferred turnaround (1)(5,091)(21.9) (11)
 (5,601)(3.3) (11)
Tax loss on sale of METALfx(1,259)(5.4) 

 (1,259)(0.8) 

Valuation allowance1,245
5.3
 

 1,245
0.7
 

Settlement of equity awards

 

 (990)(0.9) (1,439)(1.0)

 

 612
0.4
 (990)(1.0)
Other814
7.0
 (649)(6.8) (680)(0.6) (1,663)(1.2)525
2.2
 589
1.9
 2,046
1.2
 (1,493)(1.6)
Total income tax expense$1,548
13.3 % $5,153
53.6 % $17,467
16.1 % $51,548
36.9 %
Total income tax expense (benefit)$(1,741)(7.5)% $5,209
16.9 % $28,276
16.7 % $15,919
16.5 %
(1)In March 2019, the IPUC approved an all-party settlement agreement related to electric tax benefits that were set aside for Colstrip in the 2017 general rate case order. In the approved settlement agreement, the parties agreed to utilize approximately $6.4 million ($5.1 million when tax-effected) of the electric tax benefits to offset costs associated with accelerating the depreciation of Colstrip Units 3 & 4, to reflect a remaining useful life of those units through December 31, 2027. In the second quarter 2019, the Company recorded a one-time charge to depreciation expense with an offsetting amount included in income tax expense.
NOTE 8.9. COMMITTED LINES OF CREDIT
Avista Corp.
Avista Corp. has a committed line of credit with various financial institutions in the total amount of $400.0 million that expires in April 2021. The committed line of credit is secured by non-transferable first mortgage bonds of the Company issued to the agent bank that would only become due and payable in the event, and then only to the extent, that the Company defaults on its obligations under the committed line of credit.

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Balances outstanding and interest rates of borrowings (excluding letters of credit) under the Company’s revolving committed line of credit were as follows as of SeptemberJune 30, 20182019 and December 31, 20172018 (dollars in thousands):
 June 30, December 31,
 2019 2018
Balance outstanding at end of period (1)$169,000
 $190,000
Letters of credit outstanding at end of period$18,603
 $10,503
Average interest rate at end of period3.26% 3.18%
 September 30, December 31,
 2018 2017
Balance outstanding at end of period (1)$35,000
 $105,000
Letters of credit outstanding at end of period$21,230
 $34,420
Average interest rate at end of period2.88% 2.26%

(1)
As of SeptemberJune 30, 20182019 and December 31, 2017,2018, the balance outstanding was classified as short-term borrowings on the Condensed Consolidated Balance Sheet.
AEL&P
AEL&P has a committed line of credit in the amount of $25.0 million that expires in November 2019. As of SeptemberJune 30, 20182019 and December 31, 2017,2018, there were no borrowings or letters of credit outstanding under this committed line of credit. The committed line of credit is secured by non-transferable first mortgage bonds of AEL&P issued to the agent bank that would only become due and payable in the event, and then only to the extent, that AEL&P defaults on its obligations under the committed line of credit.


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NOTE 9. LONG-TERM DEBT AND CAPITAL LEASES
The following details long-term debt outstanding as of September 30, 2018 and December 31, 2017 (dollars in thousands):
Maturity
Year
 Description 
Interest
Rate
 September 30,
2018
 December 31,
2017
Avista Corp. Secured Long-Term Debt      
2018 First Mortgage Bonds 5.95% $
 $250,000
2018 Secured Medium-Term Notes 7.39%-7.45% 
 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
2044 First Mortgage Bonds 4.11% 60,000
 60,000
2045 First Mortgage Bonds 4.37% 100,000
 100,000
2047 First Mortgage Bonds 4.23% 80,000
 80,000
2047 First Mortgage Bonds 3.91% 90,000
 90,000
2048 First Mortgage Bonds (2) 4.35% 375,000
 
2051 First Mortgage Bonds 3.54% 175,000
 175,000
  Total Avista Corp. secured long-term debt   1,814,200
 1,711,700
Alaska Electric Light and Power Company Secured Long-Term Debt      
2044 First Mortgage Bonds 4.54% 75,000
 75,000
  Total secured long-term debt   1,889,200
 1,786,700
Alaska Energy and Resources Company Unsecured Long-Term Debt      
2019 Unsecured Term Loan 3.85% 15,000
 15,000
  Total secured and unsecured long-term debt   1,904,200
 1,801,700
Other Long-Term Debt Components      
  Capital lease obligations   57,844
 62,148
  Unamortized debt discount   (905) (626)
  Unamortized long-term debt issuance costs   (13,866) (10,285)
  Total   1,947,273
 1,852,937
  Secured Pollution Control Bonds held by Avista Corporation (1)   (83,700) (83,700)
  Current portion of long-term debt and capital leases   (2,629) (277,438)
  Total long-term debt and capital leases   $1,860,944
 $1,491,799
(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 variable rate 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.

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(2)In May 2018, the Company issued and sold $375.0 million of 4.35 percent first mortgage bonds due in 2048 through a public offering. The total net proceeds from the sale of the bonds were used to repay maturing long-term debt of $276.8 million, repay the outstanding balance under Avista Corp.'s $400.0 million committed line of credit and for other general corporate purposes. In connection with the issuance and sale of the first mortgage bonds, the Company cash-settled fourteen interest rate swap derivatives (notional aggregate amount of $275.0 million) and paid a net amount of $26.6 million. See Note 5 for a discussion of interest rate swap derivatives.
NOTE 10. LONG-TERM DEBT TO AFFILIATED TRUSTS
In 1997, the Company issued Floating Rate Junior Subordinated Deferrable Interest Debentures, Series B, with a principal amount of $51.5 million to Avista Capital II, an affiliated business trust formed by the Company. Avista Capital II issued $50.0 million of Preferred Trust Securities with a floating distribution rate of LIBOR plus 0.875 percent, calculated and reset quarterly.
The distribution rates paid were as follows during the ninesix months ended SeptemberJune 30, 20182019 and the year ended December 31, 2017:2018:
 June 30, December 31,
 2019 2018
Low distribution rate3.40% 2.36%
High distribution rate3.50% 3.61%
Distribution rate at the end of the period3.40% 3.61%
 September 30, December 31,
 2018 2017
Low distribution rate2.36% 1.81%
High distribution rate3.20% 2.36%
Distribution rate at the end of the period3.20% 2.36%

Concurrent with the issuance of the Preferred Trust Securities, Avista Capital II issued $1.5 million of Common Trust Securities to the Company. The Preferred Trust Securities may be redeemed at the option of Avista Capital II at any time and mature on June 1, 2037. In December 2000, the Company purchased $10.0 million of these Preferred Trust Securities.
The Company owns 100 percent of Avista Capital II and has solely and unconditionally guaranteed the payment of distributions on, and redemption price and liquidation amount for, the Preferred Trust Securities to the extent that Avista Capital II has funds available for such payments from the respective debt securities. Upon maturity or prior redemption of such debt securities, the Preferred Trust Securities will be mandatorily redeemed. The Company does not include these capital trusts in its consolidated financial statements as Avista Corp. is not the primary beneficiary. As such, the sole assets of the capital trusts are $51.5 million of junior subordinated deferrable interest debentures of Avista Corp., which are reflected on the Condensed Consolidated Balance Sheets. Interest expense to affiliated trusts in the Condensed Consolidated Statements of Income represents interest expense on these debentures.
NOTE 11. FAIR VALUE
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 and material capital leases) and long-term debt to affiliated trusts are reported at carrying value on the Condensed 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 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 that are 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 that are generally unobservable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

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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.

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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 SeptemberJune 30, 20182019 and December 31, 20172018 (dollars in thousands):
 June 30, 2019 December 31, 2018
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Long-term debt (Level 2)$1,053,500
 $1,198,009
 $1,053,500
 $1,142,292
Long-term debt (Level 3)767,000
 762,204
 767,000
 734,742
Snettisham finance lease obligation (Level 3)55,880
 58,200
 57,210
 55,600
Long-term debt to affiliated trusts (Level 3)51,547
 39,691
 51,547
 38,145
 September 30, 2018 December 31, 2017
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Long-term debt (Level 2)$1,053,500
 $1,116,014
 $951,000
 $1,067,783
Long-term debt (Level 3)767,000
 759,374
 767,000
 810,598
Snettisham capital lease obligation (Level 3)57,844
 56,200
 59,745
 61,700
Long-term debt to affiliated trusts (Level 3)51,547
 39,176
 51,547
 41,882

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 76.0077.00 to 118.47,130.25, where a par value of 100.0 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 capital lease obligation, the estimated fair value of these items was determined based on a discounted cash flow model using available market information. The Snettisham capital lease obligation was discounted to present value using the Morgan Markets A Ex-Fin discount rate as published on SeptemberJune 30, 2018.2019.
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 SeptemberJune 30, 20182019 and December 31, 20172018 at fair value on a recurring basis (dollars in thousands):
Level 1 Level 2 Level 3 Counterparty
and Cash
Collateral
Netting (1)
 TotalLevel 1 Level 2 Level 3 Counterparty
and Cash
Collateral
Netting (1)
 Total
September 30, 2018         
June 30, 2019         
Assets:                  
Energy commodity derivatives$
 $37,735
 $
 $(36,851) $884
$
 $31,074
 $
 $(30,739) $335
Level 3 energy commodity derivatives:                  
Natural gas exchange agreement
 
 22
 (22) 

 
 45
 (45) 
Foreign currency exchange derivatives
 26
 
 
 26

 33
 
 
 33
Interest rate swap derivatives
 18,158
 
 (129) 18,029

 1,402
 
 (969) 433
Deferred compensation assets:                  
Mutual Funds:                  
Fixed income securities (2)1,819
 
 
 
 1,819
1,787
 
 
 
 1,787
Equity securities (2)6,712
 
 
 
 6,712
6,325
 
 
 
 6,325
Total$8,531
 $55,919
 $22
 $(37,002) $27,470
$8,112
 $32,509
 $45
 $(31,753) $8,913
Liabilities:         
Energy commodity derivatives$
 $63,974
 $
 $(56,913) $7,061
Level 3 energy commodity derivatives:         
Natural gas exchange agreement
 
 3,037
 (45) 2,992
Interest rate swap derivatives
 32,418
 
 (5,999) 26,419
Total$
 $96,392
 $3,037
 $(62,957) $36,472


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Level 1 Level 2 Level 3 Counterparty
and Cash
Collateral
Netting (1)
 TotalLevel 1 Level 2 Level 3 Counterparty
and Cash
Collateral
Netting (1)
 Total
Liabilities:         
Energy commodity derivatives$
 $57,615
 $
 $(56,200) $1,415
Level 3 energy commodity derivatives:         
Natural gas exchange agreement
 
 3,026
 (22) 3,004
Power exchange agreement
 
 5,909
 
 5,909
Interest rate swap derivatives
 4,577
 
 (129) 4,448
Total$
 $62,192
 $8,935
 $(56,351) $14,776
December 31, 2017         
December 31, 2018         
Assets:                  
Energy commodity derivatives$
 $43,814
 $
 $(42,550) $1,264
$
 $36,252
 $
 $(35,982) $270
Level 3 energy commodity derivatives:                  
Natural gas exchange agreement
 
 183
 (183) 

 
 31
 (31) 
Foreign currency exchange derivatives
 32
 
 (1) 31
Interest rate swap derivatives
 7,477
 
 (2,574) 4,903

 10,566
 
 (440) 10,126
Deferred compensation assets:                  
Mutual Funds:                  
Fixed income securities (2)1,638
 
 
 
 1,638
1,745
 
 
 
 1,745
Equity securities (2)6,631
 
 
 
 6,631
6,157
 
 
 
 6,157
Total$8,269
 $51,323
 $183
 $(45,308) $14,467
$7,902
 $46,818
 $31
 $(36,453) $18,298
Liabilities:                  
Energy commodity derivatives$
 $71,342
 $
 $(69,988) $1,354
$
 $89,283
 $
 $(87,199) $2,084
Level 3 energy commodity derivatives:                  
Natural gas exchange agreement
 
 3,347
 (183) 3,164

 
 2,805
 (31) 2,774
Power exchange agreement
 
 13,245
 
 13,245

 
 2,488
 
 2,488
Power option agreement
 
 19
 
 19

 
 1
 
 1
Foreign currency exchange derivatives
 1
 
 (1) 

 45
 
 
 45
Interest rate swap derivatives
 73,513
 
 (37,544) 35,969

 7,831
 
 (970) 6,861
Total$
 $144,856
 $16,611
 $(107,716) $53,751
$
 $97,159
 $5,294
 $(88,200) $14,253
(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)These assets are 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 56 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 (NYMEX) 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

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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. The balance disclosed

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in the table above excludes cash and cash equivalents of $0.4 million as of SeptemberJune 30, 20182019 and $0.2$0.5 million as of December 31, 2017.2018.
Level 3 Fair Value
Under the power exchange agreement, which expired on June 30, 2019, the Company purchasespurchased power at a price that iswas based on the average operating and maintenance (O&M) charges from three surrogate nuclear power plants around the country. To estimate the fair value of this agreement, the Company estimatesestimated the difference between the purchase price based on the future O&M charges and forward prices for energy. The Company comparescompared the Level 2 brokered quotes and forward price curves described above to an internally developed forward price which iswas based on the average O&M charges from the three surrogate nuclear power plants for the current year. The Company estimatesestimated the volumes of the transactions that willwould take place in the future based on historical average transaction volumes per delivery year (November to April). Significant increases or decreases in any of these inputs in isolation would result in a significantly higher or lower fair value measurement.
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 currently 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 SeptemberJune 30, 20182019 (dollars in thousands):
  Fair Value (Net) at      
  June 30, 2019 Valuation Technique 
Unobservable
Input
 Range
Natural gas exchange
agreement
 $(2,992) Internally derived
weighted average
cost of gas
 
Forward purchase
prices
 $1.37 - $2.30/mmBTU
     
    Forward sales prices $1.45 - $3.62/mmBTU
    Purchase volumes 118,162 - 310,000 mmBTUs
    Sales volumes 60,000 - 310,000 mmBTUs
  Fair Value (Net) at      
  September 30, 2018 Valuation Technique 
Unobservable
Input
 Range
Power exchange agreement $(5,909) 
Surrogate facility
pricing
 O&M charges $40.05-$52.59/MWh (1)
    Transaction volumes 292,145 MWhs
Natural gas exchange
agreement
 $(3,004) Internally derived
weighted average
cost of gas
 
Forward purchase
prices
 $1.40 - $1.83/mmBTU
     
    Forward sales prices $1.46 - $3.21/mmBTU
    Purchase volumes 125,000 - 310,000 mmBTUs
    Sales volumes 60,000 - 310,000 mmBTUs
(1) The average O&M charges for the delivery year beginning in November 2018 are $45.61 per MWh.
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.

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The following table presents activity for energy commodity derivative assets (liabilities) measured at fair value using significant unobservable inputs (Level 3) for the three and ninesix months ended SeptemberJune 30 (dollars in thousands):
 Natural Gas Exchange Agreement Power Exchange Agreement Total
Three months ended June 30, 2019:     
Balance as of April 1, 2019$(2,104) $(612) $(2,716)
Total gains or (losses) (realized/unrealized):     
Included in regulatory assets/liabilities (1)(829) 1,454
 625
Settlements(59) (842) (901)
Ending balance as of June 30, 2019 (2)$(2,992) $
 $(2,992)


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 Natural Gas Exchange Agreement Power Exchange Agreement Total
Three months ended September 30, 2018:     
Balance as of July 1, 2018$(3,480) $(6,345) $(9,825)
Total gains or (losses) (realized/unrealized):     
Included in regulatory assets/liabilities (1)476
 436
 912
Settlements
 
 
Ending balance as of September 30, 2018 (2)$(3,004) $(5,909) $(8,913)
Three months ended September 30, 2017:     
Balance as of July 1, 2017$(4,173) $(13,784) $(17,957)
Total gains or (losses) (realized/unrealized):     
Included in regulatory assets/liabilities (1)617
 (2,870) (2,253)
Settlements(43) 
 (43)
Ending balance as of September 30, 2017 (2)$(3,599) $(16,654) $(20,253)
Nine months ended September 30, 2018:     
Balance as of January 1, 2018$(3,164) $(13,245) $(16,409)
Total gains or (losses) (realized/unrealized):     
Included in regulatory assets/liabilities (1)(89) 1,156
 1,067
Settlements249
 6,180
 6,429
Ending balance as of September 30, 2018 (2)$(3,004) $(5,909) $(8,913)
      
Nine months ended September 30, 2017:     
Balance as of January 1, 2017$(5,885) $(13,449) $(19,334)
Total gains or (losses) (realized/unrealized):     
Included in regulatory assets/liabilities (1)2,434
 (8,035) (5,601)
Settlements(148) 4,830
 4,682
Ending balance as of September 30, 2017 (2)$(3,599) $(16,654) $(20,253)
      
AVISTA CORPORATION



 Natural Gas Exchange Agreement Power Exchange Agreement Total
Three months ended June 30, 2018:     
Balance as of April 1, 2018$(2,805) $(10,163) $(12,968)
Total gains or (losses) (realized/unrealized):     
Included in regulatory assets/liabilities (1)(768) 2,597
 1,829
Settlements93
 1,221
 1,314
Ending balance as of June 30, 2018 (2)$(3,480) $(6,345) $(9,825)
Six months ended June 30, 2019:     
Balance as of January 1, 2019$(2,774) $(2,488) $(5,262)
Total gains or (losses) (realized/unrealized):     
Included in regulatory assets/liabilities (1)8,148
 436
 8,584
Settlements(8,366) 2,052
 (6,314)
Ending balance as of June 30, 2019 (2)$(2,992) $
 $(2,992)
      
Six months ended June 30, 2018:     
Balance as of January 1, 2018$(3,164) $(13,245) $(16,409)
Total gains or (losses) (realized/unrealized):     
Included in regulatory assets/liabilities (1)(565) 720
 155
Settlements249
 6,180
 6,429
Ending balance as of June 30, 2018 (2)$(3,480) $(6,345) $(9,825)
      

(1)All gains and losses are included in other regulatory assets and liabilities. There were no gains and losses included in either net income or other comprehensive income during any of the periods presented in the table above.
(2)There were no purchases, issuances or transfers from other categories of any derivatives instruments during the periods presented in the table above.
NOTE 12. COMMON STOCK
The Company has entered into four separate sales agency agreements under which the sales agents may offer and sell new shares of the Company’s common stock from time to time. No shares were issued under these agreements duringDuring the ninethree and six months ended SeptemberJune 30, 2018.2019 the Company issued 0.4 million shares under the sales agency agreements. These agreements provide for the offering of a maximum of approximately 3.84.6 million shares, of which approximately 1.14.2 million remain unissued as of SeptemberJune 30, 2018.2019. Subject to the satisfaction of customary conditions, (including any required regulatory approvals), the Company has the right to increase the maximum number of shares that may be offered under these agreements.agreements subject to regulatory approval.

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NOTE 13. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss, net of tax, consisted of the following as of SeptemberJune 30, 20182019 and December 31, 20172018 (dollars in thousands):
 September 30, December 31,
 2018 2017
Unfunded benefit obligation for pensions and other postretirement benefit plans - net of taxes of $2,451 and $4,356, respectively (a)$9,220
 $8,090
 June 30, December 31,
 2019 2018
Unfunded benefit obligation for pensions and other postretirement benefit plans - net of taxes of $2,006 and $2,091, respectively$7,545
 $7,866

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(a)
Effective January 1, 2018, the Company adopted ASU No. 2018-02. As a result of the adoption of this new standard, $1.7 million in excess tax benefits was reclassified from accumulated other comprehensive loss to retained earnings. See Note 2 for additional discussion of the adoption of this standard.AVISTA CORPORATION



The following table details the reclassifications out of accumulated other comprehensive loss to net income by component for the three and ninesix months ended SeptemberJune 30 (dollars in thousands).
 Amounts Reclassified from Accumulated Other Comprehensive Loss  Amounts Reclassified from Accumulated Other Comprehensive Loss 
 Three months ended September 30, Nine months ended September 30,  Three months ended June 30, Six months ended June 30, 
Details about Accumulated Other Comprehensive Loss Components 2018 2017 2018 2017 Affected Line Item in Statement of Income 2019 2018 2019 2018 Affected Line Item in Statement of Income
Amortization of defined benefit pension itemsAmortization of defined benefit pension items       Amortization of defined benefit pension items       
Amortization of net prior service cost $(228) $(300) $(684) $(898) (a) $(200) $(228) $(400) $(456) (a)
Amortization of net loss 2,962
 3,637
 $8,952
 $10,913
 (a) 3,755
 2,995
 7,416
 5,990
 (a)
Adjustment due to effects of regulation (2,476) (3,057) (7,493) (9,172) (a) (3,352) (2,509) (6,610) (5,017) (a)
 258
 280
 775
 843
 Total before tax 203
 258
 406
 517
 Total before tax
 (54) (98) (163) (295) Tax expense (42) (54) (85) (109) Tax expense
 $204
 $182
 $612
 $548
 Net of tax $161
 $204
 $321
 $408
 Net of tax
(a)These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 67 for additional details).
NOTE 14. EARNINGS PER COMMON SHARE ATTRIBUTABLE TO AVISTA CORP. SHAREHOLDERS
The following table presents the computation of basic and diluted earnings per common share attributable to Avista Corp. shareholders for the three and ninesix months ended SeptemberJune 30 (in thousands, except per share amounts):
Three months ended September 30, Nine months ended September 30,Three months ended June 30, Six months ended June 30,
2018 2017 2018 20172019 2018 2019 2018
Numerator:              
Net income attributable to Avista Corp. shareholders$10,119
 $4,451
 $90,586
 $88,338
$25,319
 $25,577
 $141,113
 $80,467
Denominator:              
Weighted-average number of common shares outstanding-basic65,688
 64,412
 65,668
 64,392
65,894
 65,677
 65,814
 65,658
Effect of dilutive securities:              
Performance and restricted stock awards338
 480
 312
 246
69
 306
 69
 299
Weighted-average number of common shares outstanding-diluted66,026
 64,892
 65,980
 64,638
65,963
 65,983
 65,883
 65,957
Earnings per common share attributable to Avista Corp. shareholders:              
Basic$0.15
 $0.07
 $1.38
 $1.37
$0.38
 $0.39
 $2.14
 $1.23
Diluted$0.15
 $0.07
 $1.37
 $1.37
$0.38
 $0.39
 $2.14
 $1.22
There were no shares excluded from the calculation because they were antidilutive.
NOTE 15. COMMITMENTS AND CONTINGENCIES
In the course of its business, the Company becomes involved in various claims, controversies, disputes and other contingent matters, including the items described in this Note. Some of these claims, controversies, disputes and other contingent matters

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involve litigation or other contested proceedings. For all such matters, the Company intends to vigorously protect and defend its interests and pursue its rights. However, no assurance can be given as to the ultimate outcome of any particular matter because litigation and other contested proceedings are inherently subject to numerous uncertainties. For matters that affect Avista Utilities’ or AEL&P's operations, the Company intends to seek, to the extent appropriate, recovery of incurred costs through the ratemaking process.
California Refund Proceeding
In February 2016, APX, a market maker in the California Refund Proceedings in whose markets Avista Energy participated in the summer of 2000, asserted that Avista Energy and its other customer/participants may be responsible for a share of the disgorgement penalty APX may be found to owe to Pacific Gas & Electric (PG&E), Southern California Edison, San Diego Gas & Electric, the California Attorney General (AG), the California Department of Water Resources (CERS), and the California Public Utilities Commission (together, the “California Parties”). The penalty arises as a result of the FERC's finding that APX committed violations in the California market in the summer of 2000. APX is making these assertions despite Avista Energy having been dismissed in FERC Opinion No. 536 from the on-going administrative proceeding at the FERC regarding potential wrongdoing in the California markets in the summer of 2000. APX has identified Avista Energy’s share of APX’s exposure to be as much as $16.0 million even though no wrongdoing allegations are specifically attributable to Avista Energy. Avista Energy believes its settlement with the California Parties in 2014 insulates it from any such liability and that as a dismissed party it cannot be drawn back into the litigation. On May 3, 2018, the FERC issued an order, Order on Compliance Filings, resolving in the Company’s favor the last indirect exposure the Company had related to the California Refund Proceedings. That order, which fully absolved the Company of any further exposure, was not challenged and is now final and not subject to appeal.
Cabinet Gorge Total Dissolved Gas Abatement Plan
Dissolved atmospheric gas levels (referred to as "Total Dissolved Gas" or "TDG") in the Clark Fork River exceed state of Idaho and federal water quality numeric standards downstream of Cabinet Gorge particularly during periods when excess river flows must be diverted over the spillway. Under the terms of the Clark Fork Settlement Agreement (CFSA) as incorporated in Avista Corp.’s FERC license for the Clark Fork Project, Avista Corp. has worked in consultation with agencies, tribes and other stakeholders to address this issue. Under the terms of a gas supersaturation mitigation plan, Avista Corp. is reducing TDG by constructing spill crest modifications on spill gates at the dam. These modifications have been shown to be effective in reducing

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TDG downstream. TDG monitoring and analysis is ongoing. Under the terms of the mitigation plan, Avista Corp. will continue to work with stakeholders to determine the degree to which TDG abatement reduces future mitigation obligations. The Company has sought, and will continue to seek recovery, through the ratemaking process, of all operating and capitalized costs related to this issue.
Legal Proceedings Related to the PendingTerminated Acquisition by Hydro One
See Note 17 for information regarding the termination of the proposed acquisition of the Company by Hydro One.
In connection with the proposednow terminated acquisition, as of the date of this quarterly report, the three lawsuits that had beenwere filed in the United States District Court for the Eastern District of Washington have beenand were subsequently voluntarily dismissed by the plaintiffs. Those cases were captioned as follows:
Jenβ v. Avista Corporation., et al., No. 2:17-cv-00333 (E.D. Wash.) (filed September 25, 2017);
Samuel v. Avista Corporation, et al., No. 2:17-cv-00334 (E.D. Wash.) (filed September 26, 2017); and
Sharpenter v. Avista Corporation., et al., No. 2:17-cv-00336 (E.D. Wash.) (filed September 26, 2017)
There remains oneOne lawsuit that has beenwas filed in the Superior Court for the State of Washington in and for Spokane County, captioned as follows:
Fink v. Morris, et al., No. 17203616-6 (filed September 15, 2017, amended complaint filed October 25, 2017).
This lawsuit was filed against Hydro One Limited, Olympus Holding Corp., Olympus Corp. and Bank of America Merrill Lynch, as well as all members of the Company's Board of Directors, namely Erik Anderson, Kristianne Blake, Donald Burke, Rebecca Klein, Scott Maw, Scott Morris, Marc Racicot, Heidi Stanley, John Taylor and Janet Widmann. While Avista Corp. is not a named defendant in this lawsuit, the Company has the obligation to indemnify members of its Board of Directors.
Fink v. Morris, et al., No. 17203616-6 (filed September 15, 2017, amended complaint filed October 25, 2017).
The complaint generally allegesalleged that the members of the Board of Directors of Avista Corp. breached their fiduciary duties by, among other things, conducting an allegedly inadequate sale process and agreeing to the acquisition at a price that allegedly undervaluesundervalued Avista Corporation, and that Hydro One Limited, Olympus Holding Corp., and Olympus Corp. aided and abetted those purported breaches of duty. The aiding and abetting claims were brought only against Hydro One Limited, Olympus Holding Corp. and

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Olympus Corp. The complaint seekssought various remedies, including monetary damages, attorneys’ fees and expenses. The complaint has been stayed bySubsequent to the court until the closingtermination of the transaction at which time the plaintiff will have the option to file an amended complaint within 30 days of such closing. If the amended complaint is not filed within the 30 days the suit will be dismissed.
All defendants deny any wrongdoing in connection with the proposed acquisition and plan to vigorously defend against all pending claims; however,in January 2019, the Company cannot at this time predictcomplaint was voluntarily dismissed by the eventual outcome.plaintiffs.
2015 Washington General Rate Cases
In January 2016, the Company received an order (Order 05) that concluded its electric and natural gas general rate cases that were originally filed with the WUTC in February 2015. New electric and natural gas rates were effective on January 11, 2016.
WUTC Order Denying Industrial Customers of Northwest Utilities / Public Counsel Joint Motion for Clarification, WUTC Staff Motion to Reconsider and WUTC Staff Motion to Reopen Record
In January 2016, the Industrial Customers of Northwest Utilities, (ICNU), the Public Counsel Unit of the Washington State Office of the Attorney General (PC) and the WUTC Staff, which is a separate party in the general rate case proceedings from the WUTC Advisory Staff, filed Motions for Clarification requesting the WUTC to clarify their attrition adjustment and the end result electric revenue amounts. The Motions for Clarification suggested that the electric revenue decrease should have been significantly larger than what was included in Order 05.
In February 2016, the WUTC issued an order (Order 06) denying the Motions summarized above and affirming Order 05, including an $8.1 million decrease in electric base revenue.
PC Petition for Judicial Review
In March 2016, PC filed in Thurston County Superior Court a Petition for Judicial Review of the WUTC's Order 05 and Order 06 described above. In April 2016, this matter was certified for review directly by the Court of Appeals, an intermediate appellate court in the State of Washington.
On August 7, 2018, the Court of Appeals issued a "Published Opinion" (Opinion) which concluded that the WUTC's use of an attrition allowance to calculate Avista Corp.'s rate base violated Washington law. In the Opinion, the Court stated that because the projected additions to rate base in the future were not "used and useful" for service at the time the request for the rate increase was made, they may not lawfully be included in the Company's rate base to justify a rate increase. Accordingly, the Court concluded that the WUTC erred in including an attrition allowance in the calculation of Avista Corp.’s electric and natural gas rate base. The Court noted, however, that the law does not prohibit an attrition allowance in the calculation, for ratemaking purposes, of recoverable operating and maintenance expense. Since the WUTC order provided one lump sum attrition allowance without distinguishing what portion was for rate base and which was for operating and maintenance expenses or other considerations, the Court struck all portions of the attrition allowance attributable to Avista Corp.'s rate base and reversed and remanded the case for the WUTC to recalculate Avista Corp.’s rates without including an attrition allowance in the calculation of rate base. On October 1, 2018, the Court of Appeals terminated its review of this case, remanding it back to the Thurston County Superior Court. On April 17, 2019, the Thurston County Superior Court issued a Remand Order, granting a Joint Motion of Avista Corp., PC and the WUTC to remand the case back to the WUTC. 
The total attrition allowance approved byOn June 20, 2019, Avista Corp. filed testimony with the WUTC in Order 05the remand case. In Avista Corp.'s testimony, it asserted that the potential amount to return to customers is limited to the 2015 general rate cases because in subsequent Washington general rate cases (specifically those approved in December 2016), the WUTC did not include any attrition allowance on rate base. In

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the remand testimony the Company also asserted that no refund is due to customers for the 2015 general rate cases because actual 2016 electric rate base was greater than the 2016 electric rate base allowed in the general rate case, which included an attrition allowance. In addition, while 2016 actual natural gas rate base was slightly lower than the rate base allowed in the general rate case including the attrition allowance, any over-earnings were offset by the earnings sharing mechanism that allowed for a refund to customers.
Even though the Company believes the issue only relates to the 2015 general rate cases and reaffirmed in Order 06 was $35.2 million, with $28.3 million relatedno refund is due to electric and $6.9 million related to natural gas. Thecustomers, the Company cannot predict the outcome of this matter at this time and cannot estimate how much, if any, of the attrition allowance mayit could be removed from the general rate cases. The Company will participate in any regulatory process that is yetrequired to be established by the WUTC.refund to customers.
Other Contingencies
In the normal course of business, the Company has various other legal claims and contingent matters outstanding. The Company believes that any ultimate liability arising from these actions will not have a material impact on its financial condition, results of operations or cash flows. It is possible that a change could occur in the Company’s estimates of the probability or amount of a liability being incurred. Such a change, should it occur, could be significant. See "Note 1920 of the Notes to Consolidated Financial Statements" in the 20172018 Form 10-K for additional discussion regarding other contingencies.
NOTE 16. INFORMATION BY BUSINESS SEGMENTS
The business segment presentation reflects the basis used by the Company's management to analyze performance and determine the allocation of resources. The Company's management evaluates performance based on income (loss) from operations before income taxes as well as net income (loss) attributable to Avista Corp. shareholders. The accounting policies of the segments are

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the same as those described in the summary of significant accounting policies. Avista Utilities' business is managed based on the total regulated utility operation; therefore, it is considered one segment. AEL&P is a separate reportable business segment, as it has separate financial reports that are reviewed in detail by the Chief Operating Decision Maker and its operations and risks are sufficiently different from Avista Utilities and the other businesses at AERC that it cannot be aggregated with any other operating segments. The Other category, which is not a reportable segment, includes other investments and operations of various subsidiaries, as well as certain other operations of Avista Capital.
The following table presents information for each of the Company’s business segments (dollars in thousands):
 
Avista
Utilities
 Alaska Electric Light and Power Company Total Utility Other 
Intersegment
Eliminations
(1)
 Total
For the three months ended June 30, 2019:          
Operating revenues$289,808
 $8,743
 $298,551
 $2,261
 $
 $300,812
Resource costs88,506
 (67) 88,439
 
 
 88,439
Other operating expenses (2)84,602
 3,129
 87,731
 6,332
 
 94,063
Depreciation and amortization53,070
 2,409
 55,479
 155
 
 55,634
Income (loss) from operations40,978
 3,016
 43,994
 (4,226) 
 39,768
Interest expense (3)24,316
 1,595
 25,911
 148
 (197) 25,862
Income taxes(2,947) 380
 (2,567) 826
 
 (1,741)
Net income attributable to Avista Corp. shareholders21,219
 1,076
 22,295
 3,024
 
 25,319
Capital expenditures (4)103,297
 3,076
 106,373
 22
 
 106,395
For the three months ended June 30, 2018:          
Operating revenues$302,222
 $10,482
 $312,704
 $6,594
 $
 $319,298
Resource costs103,022
 2,947
 105,969
 
 
 105,969
Other operating expenses (2) (5)78,848
 3,213
 82,061
 6,543
 
 88,604
Depreciation and amortization44,186
 1,465
 45,651
 199
 
 45,850
Income (loss) from operations (5)50,848
 2,579
 53,427
 (148) 
 53,279
Interest expense (3)24,428
 896
 25,324
 382
 (234) 25,472
Income taxes4,735
 446
 5,181
 28
 
 5,209
Net income attributable to Avista Corp. shareholders24,252
 1,282
 25,534
 43
 
 25,577
Capital expenditures (4)97,963
 3,352
 101,315
 338
 
 101,653

 
Avista
Utilities
 Alaska Electric Light and Power Company Total Utility Other 
Intersegment
Eliminations
(1)
 Total
For the three months ended September 30, 2018:          
Operating revenues$279,549
 $9,570
 $289,119
 $6,894
 $
 $296,013
Resource costs98,461
 3,058
 101,519
 
 
 101,519
Other operating expenses (2)76,355
 3,005
 79,360
 7,347
 
 86,707
Depreciation and amortization44,569
 1,466
 46,035
 207
 
 46,242
Income (loss) from operations35,317
 1,787
 37,104
 (660) 
 36,444
Interest expense (3)23,560
 896
 24,456
 462
 (313) 24,605
Income taxes2,564
 188
 2,752
 (1,204) 
 1,548
Net income (loss) attributable to Avista Corp. shareholders11,935
 824
 12,759
 (2,640) 
 10,119
Capital expenditures (4)108,907
 4,176
 113,083
 257
 
 113,340
For the three months ended September 30, 2017:          
Operating revenues$280,776
 $10,864
 $291,640
 $5,456
 $
 $297,096
Resource costs104,516
 4,052
 108,568
 
 
 108,568
Other operating expenses (2) (5)79,188
 3,469
 82,657
 6,598
 
 89,255
Depreciation and amortization41,516
 1,452
 42,968
 137
 
 43,105
Income (loss) from operations (5)32,880
 1,298
 34,178
 (1,279) 
 32,899
Interest expense (3)23,132
 895
 24,027
 215
 (71) 24,171
Income taxes5,972
 44
 6,016
 (863) 
 5,153
Net income (loss) attributable to Avista Corp. shareholders5,419
 427
 5,846
 (1,395) 
 4,451
Capital expenditures (4)109,066
 1,073
 110,139
 1,050
 
 111,189
For the nine months ended September 30, 2018:          
Operating revenues$970,525
 $33,715
 $1,004,240
 $20,432
 $
 $1,024,672
Resource costs353,148
 8,958
 362,106
 
 
 362,106
Other operating expenses (2)230,342
 9,049
 239,391
 20,714
 
 260,105
Depreciation and amortization132,022
 4,397
 136,419
 587
 
 137,006
Income (loss) from operations174,310
 10,488
 184,798
 (869) 
 183,929
Interest expense (3)71,953
 2,686
 74,639
 1,179
 (712) 75,106
Income taxes17,716
 2,098
 19,814
 (2,347) 
 17,467
Net income (loss) attributable to Avista Corp. shareholders91,727
 5,878
 97,605
 (7,019) 
 90,586
Capital expenditures (4)288,046
 8,169
 296,215
 809
 
 297,024


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Avista
Utilities
 Alaska Electric Light and Power Company Total Utility Other 
Intersegment
Eliminations
(1)
 Total
For the six months ended June 30, 2019:          
Operating revenues$667,510
 $19,624
 $687,134
 $10,159
 $
 $697,293
Resource costs227,218
 (1,432) 225,786
 
 
 225,786
Other operating expenses (2)185,185
 6,188
 191,373
 13,687
 
 205,060
Depreciation and amortization99,577
 4,816
 104,393
 364
 
 104,757
Income (loss) from operations101,202
 9,529
 110,731
 (3,892) 
 106,839
Interest expense (3)48,580
 3,191
 51,771
 736
 (637) 51,870
Income taxes25,597
 1,743
 27,340
 936
 
 28,276
Net income attributable to Avista Corp. shareholders133,120
 4,628
 137,748
 3,365
 
 141,113
Capital expenditures (4)195,606
 4,382
 199,988
 184
 
 200,172
For the six months ended June 30, 2018:          
Operating revenues$690,976
 $24,145
 $715,121
 $13,538
 $
 $728,659
Resource costs254,687
 5,900
 260,587
 
 
 260,587
Other operating expenses (2)153,987
 6,044
 160,031
 13,367
 
 173,398
Depreciation and amortization87,453
 2,931
 90,384
 380
 
 90,764
Income (loss) from operations138,993
 8,701
 147,694
 (209) 
 147,485
Interest expense (3)48,393
 1,790
 50,183
 717
 (399) 50,501
Income taxes15,152
 1,910
 17,062
 (1,143) 
 15,919
Net income (loss) attributable to Avista Corp. shareholders79,792
 5,054
 84,846
 (4,379) 
 80,467
Capital expenditures (4)179,139
 3,993
 183,132
 552
 
 183,684
Total Assets:           
As of June 30, 2019:$5,520,529
 $277,934
 $5,798,463
 $107,753
 $(28,288) $5,877,928
As of December 31, 2018:$5,458,104
 $272,950
 $5,731,054
 $87,050
 $(35,528) $5,782,576

 
Avista
Utilities
 Alaska Electric Light and Power Company Total Utility Other 
Intersegment
Eliminations
(1)
 Total
For the nine months ended September 30, 2017:          
Operating revenues$992,904
 $38,002
 $1,030,906
 $17,161
 $
 $1,048,067
Resource costs366,590
 10,315
 376,905
 
 
 376,905
Other operating expenses (2) (5)225,980
 9,236
 235,216
 19,863
 
 255,079
Depreciation and amortization123,249
 4,347
 127,596
 482
 
 128,078
Income (loss) from operations199,376
 12,080
 211,456
 (3,184) 
 208,272
Interest expense (3)68,641
 2,684
 71,325
 558
 (112) 71,771
Income taxes49,881
 3,582
 53,463
 (1,915) 
 51,548
Net income (loss) attributable to Avista Corp. shareholders85,623
 5,961
 91,584
 (3,246) 
 88,338
Capital expenditures (4)283,081
 4,772
 287,853
 1,219
 
 289,072
Total Assets:           
As of September 30, 2018:$5,223,031
 $280,826
 $5,503,857
 $79,426
 $(25,885) $5,557,398
As of December 31, 2017:$5,177,878
 $278,688
 $5,456,566
 $73,241
 $(15,075) $5,514,732


(1)Intersegment eliminations reported as interest expense represent intercompany interest.
(2)Other operating expenses for Avista Utilities for the three and ninesix months ended SeptemberJune 30, 2019 and 2018 include acquisitionmerger transaction costs of $1.0 million and $2.6 million, respectively, which are separately disclosed on the Condensed Consolidated Statements of Income. The three and nine months ended September 30, 2017 include acquisition costs of $6.7 million and $8.0 million, respectively, which are also separately disclosed.
(3)Including interest expense to affiliated trusts.
(4)The capital expenditures for the other businesses are included in other investing activities on the Condensed Consolidated Statements of Cash Flows.
(5)Effective January 1, 2018, the Company adopted ASU No. 2017-07, which resulted in a $1.9 million and $5.7 million reclassification of the non-service cost component of pension and other postretirement benefit costs for the three and nine months ended September 30, 2017, respectively. The costs were reclassified from utility other operating expenses to other expense (income) - net on the Condensed Consolidated Statements of Income.
NOTE 17. PENDINGTERMINATION OF PROPOSED ACQUISITION BY HYDRO ONE
On July 19, 2017, Avista Corp. entered into a Merger Agreement by and among Hydro One, Olympus Holding Corp., a wholly owned subsidiary of Hydro One (US parent), and Olympus Corp., a wholly owned subsidiary of US parent (Merger Sub). Subject to the terms and conditions of the Merger Agreement, Merger Sub will be merged with and intothat provided for Avista Corp., with Avista Corp. surviving as to become an indirect, wholly-owned subsidiary of Hydro One.One, subject to the satisfaction or waiver of specified closing conditions, including approval by regulatory agencies. Hydro One, based in Toronto, is Ontario’s largest electricity transmission and distribution provider.
AtTermination of the Merger Agreement
Due to the denial of the proposed merger by certain of the Company's regulatory commissions, on January 23, 2019, Avista Corp., Hydro One and certain subsidiaries thereof, entered into a Termination Agreement indicating their mutual agreement to terminate the Merger Agreement, effective timeimmediately. Pursuant to the terms of the Termination Agreement, Hydro One paid Avista Corp. a $103 million termination fee on January 24, 2019. The termination fee was used for reimbursing the Company's transaction costs incurred from 2017 to 2019. The balance of the termination fee remaining after payment of 2019 transaction costs and applicable income taxes was used for general corporate purposes and reduced the Company's need for external financing. The 2019 costs totaled $19.7 million pre-tax and included financial advisers' fees, legal fees, consulting fees and employee time.
Other Information Related to the Terminated Acquisition
Due to the termination of the acquisition, each share of Avista Corp. common stock issued and outstanding, other than shares of Avista Corp. common stockall the financial commitments that are owned by Hydro One, US Parent (as definedwere included in the Merger Agreement) or Merger Sub or any of their respective subsidiaries, will be converted automatically into the right to receive an amount in cash equal to $53, without interest.
Hydro One Leadership Changes
The following disclosure is based upon information provided by Hydro One. On July 11, 2018, Hydro One announced that it had entered into an agreementvarious settlement agreements with the Province of Ontario (“Province”), which is Hydro One's largest shareholder (owning approximately 47 percent of the outstanding shares of common stock)commissions for the purpose of the orderly replacement of the board of directors of Hydro One and Hydro One Inc. and the retirement of the chief executive officer effective July 11, 2018. proposed acquisition will not be required to be performed or observed.
Other key highlights of the agreement with the Province included:
Each of the directors of Hydro One in place at the time of the agreement resigned and were replaced by nominees identified as set out below.
The new board of directors initially consists of 10 members. The Province nominated four directors and the remaining six nominees were identified through an ad hoc nominating committee comprised of representatives from four of the


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five largest Hydro One shareholders other than the Province. The new board of directors was announced on August 14, 2018, and is expected to serve until Hydro One's next annual meeting or until they otherwise cease to hold office.
The new board of directors is responsible for appointing a new chief executive officer who will also be appointed as the eleventh member of the board of directors.
Hydro One has agreed to consult with the Province in respect of future matters of executive compensation.
Hydro One's chief financial officer was appointed as acting chief executive officer until such time as the board of directors can appoint a new chief executive officer.
The leadership changes described above, in and of themselves, do not directly relate to or affect the obligations of any party under the Merger Agreement. Upon entering their board of director positions, the new board adopted a resolution reaffirming Hydro One's commitment to the merger and the related regulatory commitments described below. See further discussion below regarding developments with respect to the regulatory proceedings to approve the transaction.
Closing Conditions, Required Approvals
Consummation of the acquisition is subject to the satisfaction or waiver, if permissible under applicable law, of specified closing conditions, including, but not limited to, (i) the approval of the acquisition by the holders of a majority of the outstanding shares of Avista Corp. Common Stock, (ii) the receipt of regulatory approvals required to consummate the acquisition, including approval from the FERC, the Committee on Foreign Investment in the United States (CFIUS), the Federal Communications Commission (FCC), the WUTC, IPUC, MPSC, OPUC, and the RCA, and (iii) meeting the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), as amended. Under the HSR Act and the rules and regulations promulgated thereunder, the acquisition may not be completed until notification and report forms have been filed with the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) and the applicable waiting period has expired or been terminated.
The transaction is expected to close in the fourth quarter of 2018 subject to remaining referenced approvals and the satisfaction or waiver of other specified conditions.
The Merger Agreement may be terminated by each of the Company and US Parent under certain circumstances, including if the acquisition is not consummated by September 30, 2018, (subject to an extension of up to six months by either party, if all of the conditions to closing, other than the conditions related to obtaining required regulatory approvals, the absence of a law or injunction preventing the consummation of the acquisition and the absence of a Burdensome Condition, as defined in the Merger Agreement, in any required regulatory approval, have been satisfied). On September 19, 2018, Avista Corp. provided notice to Hydro One of its election to extend the Merger Agreement end date to March 29, 2019, and Hydro One acknowledged receipt of such notice.
The table below presents the approvals required for the consummation of the acquisition by Hydro One, as well as the date the Company filed an approval request and the current status of each required approval.
Required ApprovalApproval Request Filing DateStatus
Avista Corp. shareholder approvalOctober 2, 2017Approved November 21, 2017, no further action
FERCSeptember 14, 2017Approved January 16, 2018, no further action
HSR ActMarch 6, 2018Approved April 6, 2018, no further action
CFIUSFebruary 9, 2018Approved May 18, 2018, no further action
FCCApril 13, 2018Approved May 4, 2018; approval extended through April 13, 2019(a)
WUTCSeptember 14, 2017Settlement agreement filed with WUTC(b)
IPUCSeptember 14, 2017Settlement agreement filed with IPUC(c)
OPUCSeptember 14, 2017Settlement agreement filed with OPUC(d)
RCANovember 21, 2017Approved June 4, 2018(e)
MPSCSeptember 14, 2017Approved July 10, 2018(f)
(a)
FCC - The transaction was approved by the FCC on May 4, 2018; however, this approval expired on November 5, 2018. Since the acquisition was not completed by the expiration date, the Company filed an extension request with the FCC. On October 3, 2018, the FCC granted the Company's extension request through April 13, 2019.
(b)
Washington - On March 27, 2018, Avista Corp. and Hydro One filed an all-parties, all-issues settlement agreement with the WUTC recommending approval of the acquisition of the Company by Hydro One. This represents a full settlement

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that all parties, including the WUTC Staff, have agreed results in a net benefit to the Company's Washington customers. The settlement agreement is subject to WUTC approval.
The settlement includes financial and non-financial commitments by the Company. The settlement, if approved, would result in a rate credit of approximately $31 million over a 5-year period. In the settlement, Hydro One and Avista Corp. also agreed to a number of other financial commitments, including providing funding for low income participation in new renewable energy and replacing certain manufactured homes. If the settlement is approved, the Company's financial commitments in Washington would total approximately $42 million, including the rate credits. As a result of settlement agreements in Washington, Oregon and Idaho and final approvals in Alaska and Montana, the total financial commitment across all states, if approved, would be approximately $78.6 million. No costs associated with the transaction will be recovered from Avista Corp. or Hydro One customers.
The settlement agreement also provides for the use of a portion of Avista Corp.’s excess deferred federal income taxes for the purpose of accelerating the depreciation schedule for Colstrip Units 3 & 4 to reflect a remaining useful life of those units through December 31, 2027. In addition, included in the financial commitments described above is funding toward a Colstrip community transition fund which is intended to help the Colstrip community transition from coal-fired generation in the event of a future closure. The settlement does not reflect any agreement with respect to the ultimate closure of Colstrip Units 3 & 4 as that decision would be made in conjunction with the other owners of Colstrip.
In response to the developments regarding the change in the leadership and board of Hydro One, on July 20, 2018, the WUTC issued a Notice of Extension of Time for Process and Deliberation. Under state law, the WUTC extended the time allowed for it to enter an order in the proceeding by up to four months, until December 14, 2018.
(c)
Idaho -On April 13, 2018, Avista Corp. and Hydro One filed an all-issues settlement agreement with the IPUC recommending approval of the acquisition of the Company by Hydro One. The settlement agreement is subject to IPUC approval. Subsequent to the filing of the settlement agreement with the IPUC, a new intervenor, the Avista Customer Group, was allowed into the case and it is not part of the original settlement agreement.
The settlement agreement reflects similar financial and non-financial commitments that align in value with those agreed to in Washington. The Idaho portion of the shareholder-funded rate credits is approximately $16 million over a 5-year period. The total amount of financial commitments for Idaho, including the rate credit, is approximately $21 million.
The settlement agreement in Idaho does not address Colstrip in the same manner as Washington; rather the parties to the settlement agreement have recommended that Colstrip be addressed in a separate filing requesting revised depreciation rates. The Company will be proposing that a portion of the benefits from the TCJA be set aside for the purpose of accelerating the depreciation schedule for Colstrip Units 3 & 4 to reflect a remaining useful life of those units through December 31, 2027.
In response to the developments regarding the change in the leadership and board of Hydro One, the IPUC adopted a new procedural schedule, which calls for a technical hearing on November 26, 2018. The parties, including Hydro One and Avista Corp., requested a December 14, 2018 target date for the final order; however, there is no statutory deadline in Idaho and an order may not be received by the requested date.
(d)
Oregon - On May 25, 2018, Avista Corp. and Hydro One filed an all-parties, all-issues settlement agreement with the OPUC related to the Oregon merger proceeding. The settlement agreement is subject to review and approval by the OPUC. Subsequent to the filing of the settlement agreement with the OPUC, the Citizens' Utility Board requested to be removed from the settlement agreement due to the Hydro One leadership changes described above.
The settlement agreement in Oregon includes financial and non-financial commitments. Under the settlement agreement, customers in Oregon would receive benefits in the form of a rate credit of approximately $8 million over a 5-year period, along with additional safeguards to assure the continued financial well-being of Avista Corp. The total amount of financial commitments for Oregon, including the rate credit, is approximately $10 million.
Also, as part of the commitments included in the Oregon settlement agreement, Avista Corp. has agreed that the base rates established on November 1, 2017 as part of its latest Oregon natural gas general rate case will remain in effect until at least January 1, 2020.
In response to the developments regarding the change in the leadership and board of Hydro One, on July 25, 2018, the OPUC held a Prehearing Conference and adopted a new Procedural Schedule which calls for additional pre-filed testimony, with a placeholder for a potential hearing, should the OPUC request it. The parties, including Hydro One and Avista Corp., requested a December 14, 2018 target date for the final order and the OPUC adopted this target date.
(e)
Alaska -On June 4, 2018, Avista Corp. and Hydro One received approval from the RCA on the proposed merger with financial and non-financial commitments. The commitments included among other items, that AEL&P's capital structure

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is maintained at its previously ordered 46 percent debt and 54 percent equity levels and that the parties adhere to all commitments filed with the RCA on April 3, 2018, which included enhanced community giving and provides a $1 million rate credit over five years for AEL&P’s customers. This rate credit period would begin at the close of the transaction.
(f)
Montana - On July 10, 2018, Avista Corp. and Hydro One received approval from the MPSC on the proposed merger, with conditions. The MPSC did not accept, for ratemaking purposes in Montana, an accelerated 2027 depreciation schedule for Colstrip, as otherwise agreed to by the parties in Washington. On May 10, 2018, Avista and Hydro One signed a Memorandum of Agreement with the City of Colstrip, whereby Avista and Hydro One agreed that upon the completion of the transaction, $4.5 million of funding would be made available to assist the community of Colstrip in meeting its immediate and future needs.
Avista Corp. and Hydro One intend to continue to work with the various commissions, their staff and other parties to try and satisfy any concerns associated with the proposed transaction.
Other Information Related to the Acquisition
The Merger Agreement also contains customary representations, warranties and covenants of Avista Corp., Hydro One, US Parent and Merger Sub. These covenants include, among others, an obligation on behalf of Avista Corp. to operate its business in the ordinary course until the acquisition is consummated, subject to certain exceptions. In addition, the parties are required to use reasonable best efforts to obtain any required regulatory approvals.
Avista Corp. has made certain additional customary covenants, including, among others, and subject to certain exceptions, a customary non-solicitation covenant prohibiting Avista Corp. from soliciting, providing non-public information or entering into discussions or negotiations concerning proposals relating to alternative business combination transactions, except as and to the extent permitted under the Merger Agreement with respect to an unsolicited written Takeover Proposal (as defined in the Merger Agreement) made prior to the approval of the acquisition by Avista Corp.'s shareholders if, among other things, Avista Corp.'s board of directors determines in good faith that such Takeover Proposal is or could be reasonably expected to lead to a Superior Proposal (as defined in the Merger Agreement) and that failure to take such actions would reasonably be expected to be inconsistent with its fiduciary duties under applicable law. No such Takeover Proposals have been received.
The Merger Agreement may be terminated by Avista Corp. and Hydro One by mutual consent and by either Avista Corp. or Hydro One under certain circumstances, including if the acquisition is not consummated by September 30, 2018, which has been extended to March 29, 2019. The Merger Agreement also provides for certain additional termination rights for each of Avista Corp. and Hydro One. Upon termination of the Merger Agreement under certain specified circumstances, including (i) termination by Avista Corp. in order to enter into a definitive agreement with respect to a Superior Proposal, or (ii) termination by Hydro One following a withdrawal by Avista Corp.'s board or directors of its recommendation of the Merger Agreement, Avista Corp. will be required to pay Hydro One the Company Termination Fee of $103.0 million. Avista Corp. will also be required to pay Hydro One the Company Termination Fee in the event Avista Corp. signs or consummates any specified alternative transaction within twelve months following the termination of the Merger Agreement under certain circumstances. In addition, if the Merger Agreement is terminated under certain circumstances due to the failure to obtain required regulatory approvals, the imposition of a Burdensome Condition with respect to a required regulatory approval, or the breach by Hydro One, US Parent or Merger Sub of their obligations in respect to obtaining regulatory approvals, Hydro One will be required to pay Avista Corp. a termination fee of $103.0 million.
The Company is incurringincurred significant acquisitiontransaction costs associated with the pending Hydro One acquisition consisting primarily of consulting, banking fees, legal fees and employee time, and these costs are not being passed through to customers. In addition,When the Company was assuming the transaction was going to be completed, a significant portion of these costs arewere not deductible for income tax purposes. Now that the transaction has been terminated, the Company expects more of the previously incurred transaction costs to be deductible so it expects additional tax benefits from these costs in 2019.
See Note 15 for discussion of shareholder lawsuits filed against the Company, the Company’s directors, Hydro One, Olympus Holding Corp., and Olympus Corp. in relation to the Merger Agreement and the proposed acquisition.

NOTE 18. SALE OF METALfx
In April 2019, Bay Area Manufacturing, Inc., a non-regulated subsidiary of Avista Corp., entered into a definitive agreement to sell its interest in METALfx to an independent third party. The transaction was a stock sale for a total cash purchase price of $17.5 million plus cash on-hand, subject to customary closing adjustments. The transaction closed on April 18, 2019, and as of that date the Company has no further involvement with METALfx.
The purchase price of $17.5 million, as adjusted, was divided among the security holders of METALfx, including the minority shareholder, pro rata based on ownership (Avista Corp. owned 89.2 percent of the equity of METALfx). As required under the purchase agreement, $1.2 million (7 percent of the purchase price) will be held in escrow for 24 months from the closing of the transaction to satisfy certain indemnification obligations.
When all escrow amounts are released, the sales transaction is expected to provide cash proceeds to Avista Corp., net of payments to the minority holder, contractually obligated compensation payments and other transaction expenses, of $16.5 million and result in a net gain after-tax of $2.3 million. The Company expects to receive the full amount of its portion of the escrow accounts; therefore, the full amounts are included in the gain calculation. The gross gain is included in "Other income," the transaction expenses paid are included in "Non-utility Other operating expenses" and any taxes associated with the sale are included in "Income tax expense" on the Condensed Consolidated Statements of Income.
Prior to the completion of the sales transaction, METALfx was not a reportable business segment and was included in other in the business segment footnote at Note 16. This transaction does not meet the criteria for discontinued operations as it does not represent a strategic shift that will have a major effect on the Company's ongoing operations,

4037



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Avista Corporation
Spokane, Washington
Results of Review of Interim Financial Information
We have reviewed the accompanying condensed consolidated balance sheet of Avista Corporation and subsidiaries (the "Company") as of SeptemberJune 30, 2018,2019, and the related condensed consolidated statements of income, and comprehensive income and equity for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 2019 and 2018 and 2017, the related condensed consolidated statements of equity and cash flows for the nine-monthsix-month periods ended SeptemberJune 30, 20182019 and 2017,2018, and the related notes (collectively referred to as the "interim financial information"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2017,2018, and the related consolidated statements of income, comprehensive income, equity, and cash flows for the year then ended (not presented herein); and in our report dated February 20, 2018,19, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2017,2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.


/s/ Deloitte & Touche LLP
Seattle, Washington
NovemberAugust 6, 20182019


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations has been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q. The interim Management’s Discussion and Analysis of Financial Condition and Results of Operations does not contain the full detail or analysis which would be included in a full fiscal year Form 10-K; therefore, it should be read in conjunction with the Company's 20172018 Form 10-K.
Business Segments
Our business segments have not changed during the ninesix months ended SeptemberJune 30, 2018.2019. See the 20172018 Form 10-K as well as “Note 16 of the Notes to Condensed Consolidated Financial Statements” for further information regarding our business segments.
The following table presents net income (loss) attributable to Avista Corp. shareholders for each of our business segments (and the other businesses) for the three and ninesix months ended SeptemberJune 30 (dollars in thousands):
Three months ended September 30, Nine months ended September 30,Three months ended June 30, Six months ended June 30,
2018 2017 2018 20172019 2018 2019 2018
Avista Utilities$11,935
 $5,419
 $91,727
 $85,623
$21,219
 $24,252
 $133,120
 $79,792
AEL&P824
 427
 5,878
 5,961
1,076
 1,282
 4,628
 5,054
Other(2,640) (1,395) (7,019) (3,246)3,024
 43
 3,365
 (4,379)
Net income attributable to Avista Corp. shareholders$10,119
 $4,451
 $90,586
 $88,338
$25,319
 $25,577
 $141,113
 $80,467
Executive Level Summary
Overall Results
Net income attributable to Avista Corp. shareholders was $10.1$25.3 million for the three months ended SeptemberJune 30, 2018, an increase2019, a slight decrease from $4.5$25.6 million for the three months ended SeptemberJune 30, 2017.2018. Net income attributable to Avista Corp. shareholders was $90.6$141.1 million for the ninesix months ended SeptemberJune 30, 2018, an increase from $88.32019, compared to $80.5 million for the ninesix months ended SeptemberJune 30, 2017.2018. The results for both the three and six months ended June 30, 2019 reflect, among other things, the positive impact of non-recurring events, as discussed below.
The increase in earnings for the third quarter of 2018 was due to an increase in earnings at Avista Utilities and AEL&P, partially offset by an increase in losses at our other businesses. The increase in earningsnet income for the year-to-date was due to an increase in earningsnet income at Avista Utilities and our other businesses, partially offset by a decrease in earningsnet income at AEL&P. For the second quarter, net income at Avista Utilities and AEL&P anddecreased, while net income at our other businesses.businesses increased.
For the year-to-date, Avista Utilities' earningsnet income increased for the third quarter of 2018 and year-to-date primarily due to the receipt of a decrease in acquisition costs relating to the pending acquisition by$103 million termination fee from Hydro One and(see "Note 17 of the Notes to Condensed Consolidated Financial Statements"), as well as the positive impact of general rate increases and customer growth. These increases were partially offset by final transaction costs for both the third quarter andHydro One transaction, taxes associated with the year-to-date bytermination fee, increased transmission and distribution operating and maintenance costs (other operating expenses), a $7 million donation commitment to the local community and increased depreciation and amortization. For the second quarter, Avista Utilities' net income decreased due to increased transmission and distribution operating and maintenance costs (other operating expenses), donation commitment costs and depreciation and amortization, partially offset by the positive impact of general rate increases and interest expense.customer growth.
AEL&P earnings increased for the third quarter of 2018, butnet income decreased slightly for the year-to-date. The fluctuations were primarily due to a decreasean increase in other operating expenses as compared to the same periodsand a decrease in the prior year. For the year-to-date, there was an increase in depreciation and amortization and other miscellaneous expenses.operating revenues.
The increase in lossesnet income at our other businesses for the second quarter and year-to-date werewas primarily relateddue to impairment losses on investmentsthe sale of METALfx and net lossesincreased earnings from our other equity method investments. In addition, we had increased2018 included an impairment of one of our investments and expenses associated with a renovation project.
More detailed explanations of the fluctuations are provided in the results of operations and business segment discussions (Avista Utilities, AEL&P, and the other businesses) that follow this section.
Pending Acquisition by Hydro OneGeneral Rate Cases and Regulatory Lag
On July 19, 2017, Avista Corp. entered into a Merger Agreement that provides for Avista Corp.We expect to become an indirect, wholly-owned subsidiary of Hydro One. Subjectexperience regulatory lag during the period 2019 through 2021 due to the satisfaction or waiver of specified closing conditions, including approvaldelay in general rate case filings related to the terminated Hydro One transaction and our continued investment in utility infrastructure. In April, we filed general rates cases in Washington that are two-year rate plans. We filed an electric only general rate case in Idaho in June and we filed a natural gas general rate case in Oregon in March (with a settlement in Oregon reached in July 2019). We expect these cases to provide rate relief in early 2020 and begin reducing the regulatory lag that we have been experiencing. Going forward, we will continue to strive to reduce the regulatory timing lag and more closely align our earned returns with those authorized by regulatory agencies, the transaction is expected to close during the fourth quarter of 2018. At the effective time2022. This will require adequate and timely rate relief in our jurisdictions. See "Regulatory Matters" for additional discussion of the acquisition, each share of Avista Corp. common stock issued and outstanding other than shares of Avista Corp. common stock that are owned by Hydro One, Olympus Holding Corp., a wholly owned subsidiary of Hydro One (US parent), and Olympus Corp., a wholly owned subsidiary of US parent (Merger Sub) or any of their respective subsidiaries, will be converted automatically into the right to receive an amount in cash equal to $53, without interest. For further information, see Note 17 of the "Notes to Condensed Consolidated Financial Statements” as well as "Regulatory Matters."2019 general rate cases.


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Federal Income Tax Law Changes
On December 22, 2017, the TCJA was signed into law, with most provisions of the new law effective on January 1, 2018. As a result of the TCJA and its reduction of the corporate income tax rate from 35 percent to 21 percent (among many other changes in the law), we recorded a regulatory liability associated with the revaluing of our deferred income tax assets and liabilities to the new corporate tax rate. The total net amount of the regulatory liability associated with the TCJA is $435.4 million as of September 30, 2018, compared to $442.3 million as of December 31, 2017, which reflects the amounts to be refunded to customers through the regulatory process. We expect the Avista Utilities plant related amounts will be returned to customers over a period of approximately 36 years using the ARAM. We expect the AEL&P plant related amounts to be returned to customers over a period of approximately 40 years using the Reverse South Georgia Method. The regulatory liability attributable to non-plant excess deferred taxes of approximately $18.5 million (among all jurisdictions) will be returned to customers as prescribed by the Washington and Idaho regulatory orders discussed below, whereas the return of Oregon’s share of this balance, as well as all other Oregon tax benefits, are yet to be determined.
Because most of the provisions of the TCJA were effective as of January 1, 2018 but customers' rates included a 35 percent corporate tax rate built in from prior general rate cases, we began accruing for a refund to customers for the change in federal income tax expense beginning January 1, 2018 forward. For Washington and Idaho, this accrual was recorded until all benefits prior to a permanent rate change were properly captured through the deferral process. Refunds have begun, as discussed below, to Washington and Idaho customers through tariffs or other regulatory mechanisms or proceedings. For Oregon, we will continue to defer these benefits until reflected in a future regulatory proceeding as approved by the OPUC. As of September 30, 2018, we have recorded a customer refund liability of $17.7 million (among all jurisdictions) associated with the difference between the actual corporate tax rate and the corporate tax rate built into customer rates.
For Washington, effective May 1, 2018, the WUTC approved base rates reflecting a permanent reduction of $26.9 million for electric and $5.5 million for natural gas, as a result of the federal income tax rate change from 35 percent to 21 percent, and the amortization of the regulatory liability for plant excess deferred income taxes that was recorded as of December 31, 2017. The WUTC also ordered, effective June 1, 2018, one-year temporary reductions of $7.9 million for electric and $3.2 million for natural gas, passed back to customers through temporary tariff schedules. These reductions reflect the return of tax benefits associated with the non-plant excess deferred income taxes and the customer refund liability that was established in 2018 related to the change in federal income tax expense for the period January 1, 2018 to April 30, 2018.
In addition, the WUTC agreed to set aside $10.4 million of electric tax benefits to offset costs associated with accelerating the depreciation of Colstrip Units 3 & 4, to reflect a remaining useful life of those units through December 31, 2027 (per Avista/Hydro One merger agreement settlement in principle). The tax benefits being utilized are related to non-plant excess deferred income taxes. Although the parties have agreed to the acceleration of depreciation of Colstrip Units 3 & 4, the settlement in principle does not reflect any agreement with respect to the ultimate closure of Colstrip Units 3 & 4, since that decision would have to be made in conjunction with the other owners of Colstrip.
For Idaho, on May 31, 2018, the IPUC approved the all-party settlement agreement related to the income tax benefits associated with the TCJA filed by the parties on April 30, 2018. Effective June 1, 2018, through separate tariff schedules, until such time as these changes can be reflected in base rates within the next general rate case, current customer rates were reduced to reflect the reduction of the federal income tax rate to 21 percent, and the amortization of the regulatory liability for plant excess deferred income taxes. This permanent reduction reduces annual electric rates by $13.7 million (or 5.3 percent reduction to base rates) and natural gas rates by $2.6 million (or 6.1 percent reduction to base rates).
In addition to the above amounts, the IPUC also set aside approximately $12.0 million of electric tax benefits to offset costs associated with accelerating the depreciation of Colstrip Units 3 & 4, to reflect a remaining useful life of those units through December 31, 2027 (per Avista/Hydro One merger settlement in principle), or for other purposes. The tax benefits being utilized are related to non-plant excess deferred income taxes, and the customer refund liability that was established in 2018 related to the change in federal income tax expense for the period January 1, 2018 to May 31, 2018. There are also $0.5 million in tax benefits attributable to natural gas, which were included in the PGA filing effective November 1, 2018. These tax benefits include the natural gas amounts associated with non-plant excess deferred income taxes, and the customer refund liability deferred for the period January 1, 2018 to May 31, 2018.
For AEL&P, the RCA approved a settlement agreement between AEL&P and the Attorney General filed on June 15, 2018 (Order 3). Per Order 3, effective August 1, 2018, AEL&P reduced firm customer base rates by an overall 6.7 percent (approximately $2.4 million annually), to reflect income tax expense reductions associated with the TCJA. The RCA also approved AEL&P's proposal to refund to customers a one-time credit amount equal to the 6.7 percent rate reduction for bills rendered between January 1 and July 31, 2018. AEL&P completed all one-time credit refunds during the third quarter of 2018. The impact of the TCJA on AEL&P’s deferred income taxes will be addressed in AEL&P’s next general rate case, due to be filed by August 30, 2021.

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See the 2017 Form 10-K for a detailed discussion of the TCJA, including the impact to us and any risks that may be associated with the new law.

Regulatory Matters
General Rate Cases
We regularly review the need for electric and natural gas rate changes in each state in which we provide service. We expect to continue to file for rate adjustments to:
seek recovery of operating costs and capital investments, and
seek the opportunity to earn reasonable returns as allowed by regulators.
With regards to the timing and plans for future filings, the assessment of our need for rate relief and the development of rate case plans takes into consideration short-term and long-term needs, as well as specific factors that can affect the timing of rate filings. Such factors include, but are not limited to, in-service dates of major capital investments and the timing of changes in major revenue and expense items.
Avista Utilities
Washington General Rate Cases
2015 General Rate Cases
In January 2016 we received an order which was reaffirmed by the WUTC in February 2016 that concluded our electric and natural gas general rate cases that were originally filed with the WUTC in February 2015. New electric and natural gas rates were effective on January 11, 2016.
The WUTC-approved rates were designed to provide a 1.6 percent, or $8.1 million, decrease in electric base revenue and a 7.4 percent, or $10.8 million, increase in natural gas base revenue. The WUTC also approved an ROR of 7.29 percent, with a common equity ratio of 48.5 percent and a 9.5 percent ROE.
In March 2016, PCthe Public Counsel Unit of the Washington State Office of the Attorney General filed in Thurston County Superior Court a Petition for Judicial Review of the WUTC's Ordersorders (described above) that concluded our 2015 electric and natural gas general rate cases. In April 2016, this matter was certified for review directly by the Court of Appeals, an intermediate appellate court in the State of Washington.
On August 7, 2018, the Court of Appeals issued an Opinion which concluded that the WUTC's use of an attrition allowance to calculate Avista Corp.'s rate base violated Washington law. The Court struck all portions of the attrition allowance attributable to Avista Corp.’s rate base and reversed and remanded the case for the WUTC to recalculate Avista Corp.’s rates without including an attrition allowance in the calculation of rate base.
The total attrition allowance approved by On April 17, 2019, the Thurston County Superior Court issued a Remand Order, granting a Joint Motion of Avista Corp., PC and the WUTC was $35.2 million,to remand the case back to the WUTC. 
On June 20, 2019, Avista Corp. filed testimony with $28.3 million relatedthe WUTC in the remand case. In our testimony we asserted that the potential amount to electricreturn to customers is limited to the 2015 general rate cases and $6.9 million relatedwe also asserted that no refund is due to natural gas. The Companycustomers. Even though we believe no refund is due to customers, we cannot predict the outcome of this matter at this time and cannot estimate how much, if any, of the attrition allowance may be removed from the general rate cases. The Company will participate in any regulatory process that is yet to be established by the WUTC.time. See "Note 15 of the Notes to Condensed Consolidated Financial Statements" for further discussion of this matter.
2016 General Rate Cases
In December 2016, the WUTC issued an order related to our Washington electric and natural gas general rate cases that were originally filed with the WUTC in February 2016. The WUTC order denied the Company's proposed electric and natural gas rate increase requests of $38.6 million and $4.4 million, respectively. Accordingly, our electric and natural gas retail rates remained unchanged in Washington State following the order.
The primary reason given by the WUTC in reaching its conclusion was that, in our request, we did not follow an “appropriate methodology” to show the existence of attrition, as between historical data and current and projected data. In support of its decision, the WUTC stated that we did not demonstrate that our current revenue was insufficient for covering costs and providing the opportunity to earn a reasonable return during the 2017 rate period. The WUTC also stated that we did not demonstrate that our capital expenditures and increased operating costs are both necessary and immediate.
We did not appeal the WUTC's decision to the courts and instead focused on new general rate cases.
2017 General Rate Cases
On April 26, 2018, the WUTC issued a final order in our electric and natural gas general rate cases that were originally filed on May 26, 2017. In the order, the WUTC approved new electric rates, effective on May 1, 2018, that increased base rates by 2.2 percent (designed to increase electric revenues by $10.8 million). The net increase in electric base rates was made up of an

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increase in our base revenuesrevenue requirement of $23.2 million, an increase of $14.5 million in power supply costs and a decrease of $26.9 million for the impacts of the TCJA, which reflects the federal income tax rate change from 35 percent to 21 percent and the TCJA.amortization of the regulatory liability for plant excess deferred income taxes that was recorded as of December 31, 2017. 
While the WUTC authorized an increase in the ERM baseline to reflect increased power supply costs, it directed the parties to examine the functionality and rationale of the Company's power cost modeling and adjust the baseline only in extraordinary circumstances if necessary to more closely match the baseline to actual conditions.
For natural gas, the WUTC approved new natural gas base rates, effective on May 1, 2018, that decreased base rates by 2.4 percent (designed to decrease natural gas revenues by $2.1 million). The net decrease in natural gas base rates was made up of an increase in base revenues of $3.4 million that was offset by a decrease of $5.5 million for the impacts from the TCJA.TCJA, which reflects the federal income tax rate change and the amortization of the regulatory liability for plant-related excess deferred income taxes that was recorded as of December 31, 2017.

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In addition to the order,above, the WUTC also agreed to withhold $10.4ordered, effective June 1, 2018, a one-year temporary reduction of $7.9 million in our revenue requirements for electric and $3.2 million for natural gas, reflecting reductions for the return of tax benefits associated with the electric non-plant excess deferred income taxes and the customer refund liability that was established in 2018 related to the change in federal income taxes that resulted from the TCJAtax expense for the purpose of accelerating the depreciation schedule for Colstrip Units 3 & 4period January 1, 2018 to reflect a remaining useful life of those units through December 31, 2027. This finding by the WUTC was in recognition of the settlement agreement in the Pending Acquisition of Avista by Hydro One proceeding which provides for the use of a portion of Avista Corp.’s non-plant excess deferred federal income taxes for the purpose of accelerating the depreciation schedule for Colstrip Units 3 & 4 to reflect a remaining useful life of those units through December 31, 2027.April 30, 2018.
The new rates are based on a ROR of 7.50 percent with a common equity ratio of 48.5 percent and a 9.5 percent ROE.
In our original filings, we requested three-year rate plans for electric and natural gas; however, in the final order the WUTC only provided for new rates effective on May 1, 2018.
TCJA Proceedings
In additionFebruary 2019, we filed an all-party settlement agreement with the WUTC related to the above,electric tax benefits associated with the TCJA that were set aside for Colstrip in the 2017 general rate case order (effective May 1, 2018). In the settlement agreement, the parties agreed to utilize $10.9 million of the electric tax benefits to offset costs associated with accelerating the depreciation of Colstrip Units 3 & 4, to reflect a remaining useful life of those units through December 31, 2027. That portion of the settlement agreement was denied. The WUTC has indicated that it will review the TCJA and Colstrip in our next general rate case (which was filed testimonyon April 30, 2019).
2019 General Rate Cases
On April 30, 2019, we filed electric and natural gas general rate cases with the WUTC that are two-year rate plans. We have requested the following electric and natural gas base rate changes each year, which are designed to result in the following increases in annual revenues (dollars in millions):
  Electric Natural Gas
Effective Date Revenue
Increase
 Base
Rate Increase
 
Revenue
Increase
 
Base
Rate Increase
April 1, 2020 $45.8
 9.1% $12.9
 13.8%
April 1, 2021 $18.9
 3.5% $6.5
 6.1%
Our requests are based on a proposed ROR of 7.52 percent with a common equity ratio of 50 percent and a 9.9 percent ROE. The WUTC has up to 11 months to review our request and issue a decision.
Under these rate plans, we would not file new general rate cases for new rates to be effective prior to April 1, 2022.
The purpose of our general rate case requests is to recover costs associated with the need to replace infrastructure that has reached the end of its useful life and make technology investments required to build the integrated energy services grid.
Among the projects included in the filing are:
The upgrade of generating units and other equipment at our Little Falls Dam, which will provide more generating capacity.
Our distribution grid modernization program that rebuilds and upgrades electric feeders in the system, replacing old equipment like poles, conductor, and transformers to improve service reliability, capture energy efficiency savings and improve operational ability.
Ongoing management and replacement of electric distribution wood poles through our wood pole management program.
The ongoing project to systematically replace portions of natural gas distribution pipe in our service area that were installed prior to 1987, as well as replacement of other natural gas service equipment.
The rebuild of a high voltage transmission line, including the installation of steel poles and crossarms.
Technology upgrades that support necessary business processes and operational efficiencies.
As a part of these general rate cases, we are also seeking to extend our electric and natural gas decoupling mechanisms for an additional five years (through March 31, 2025). During the second quarter of 2019, we filed a motion to consolidate our ERM filing with our 2019 Washington general rate case and our motion was approved by the WUTC Staff recommendedand the exclusionERM refund will now be considered with the 2019 Washington general rate cases.

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Table of our 2016 settlement costs of interest rate swaps from the cost of capital calculation. In the final order, the WUTC disagreed with WUTC Staff and did not disallow the settlement costs of our interest rate swaps. However, they did recommend that we make changes to our interest rate risk hedging policy to be more risk responsive. We are evaluating changes to our policy to meet the WUTC recommendations.Contents

AVISTA CORPORATION



Idaho General Rate Cases
2017 General Rate Cases
On December 28, 2017, the IPUC approved a settlement agreement between us and other parties to our electric and natural gas general rate cases. New rates were effective on January 1, 2018 and additional rate changes will take effect on January 1, 2019.
The settlement agreement is a two-year rate plan and has the following electric and natural gas base rate changes each year, which are designed to result in the following increases in annual revenues (dollars in millions):
  Electric Natural Gas
Effective Date Revenue
Increase
 Base
Rate Increase
 
Revenue
Increase
 
Base
Rate Increase
January 1, 2018 $12.9
 5.2% $1.2
 2.9%
January 1, 2019 $4.5
 1.8% $1.1
 2.7%
The settlement agreement is based on a ROR of 7.61 percent with a common equity ratio of 50 percent and a 9.5 percent ROE.
As a part of the two-year rate plan the Company will not file a new general rate case for a new rate plan to be effective prior to January 1, 2020.
TCJA Proceedings
On May 31, 2018, the IPUC approved an all-party settlement agreement related to the income tax benefits associated with the TCJA. Effective June 1, 2018, current customer rates were reduced to reflect the reduction of the federal income tax rate to 21 percent, and the amortization of the regulatory liability for plant-related excess deferred income taxes. This reduction reduces annual electric rates by $13.7 million (or 5.3 percent reduction to base rates) and natural gas rates by $2.6 million (or 6.1 percent reduction to base rates).
In March 2019, the IPUC approved an all-party settlement agreement related to the electric tax benefits that were set aside for Colstrip in the 2017 general rate case order. In the approved settlement agreement, the parties agreed to utilize approximately $6.4 million ($5.1 million when tax-effected) of the electric tax benefits to offset costs associated with accelerating the depreciation of Colstrip Units 3 & 4, to reflect a remaining useful life of those units through December 31, 2027. The remaining tax benefits of approximately $5.8 million will be returned to customers through a temporary rate reduction over a period of one year beginning on April 1, 2019. The tax benefits being utilized are related to non-plant excess deferred income taxes, and the customer refund liability that was established in 2018 related to the change in federal income tax expense for the period January 1, 2018 to May 31, 2018.
2019 General Rate Cases
On June 10, 2019, we filed an electric general rate request with the IPUC that is designed to increase annual base electric revenues by $5.3 million (or 2.1 percent). Our request is based on a proposed ROR of 7.55 percent with a common equity ratio of 50.0 percent and a 9.9 percent ROE.
The purpose of our general rate case request is to recover costs associated with the need to replace infrastructure that has reached the end of its useful life and to make technology investments required to build an integrated energy services grid.
Among the projects included in the filing are:
The upgrade of generating units and other equipment at our Little Falls Dam, which will provide more generating capacity.
Our distribution grid modernization program that rebuilds and upgrades electric feeders in the system, replacing old equipment such as poles, conductor, and transformers to improve service reliability, capture energy efficiency savings and improve operational ability.
Ongoing management and replacement of electric distribution wood poles through our wood pole management program.
The rebuild of substations that have reached the end of their useful life or have reached full capacity.
Technology upgrades that will support necessary business processes and operational efficiencies.
The IPUC has up to nine months to review the general rate case filings and issue a decision.

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Oregon General Rate Cases
20162019 General Rate Case
In September 2017,July 2019, Avista Corp. and all of the OPUC approved a settlement agreement between us and other parties to our natural gas general rate case that wasfiling reached agreement on certain issues, and a partial settlement agreement has been filed with the OPUC in November 2016, which resolved all issuesfor its consideration. The partial settlement includes agreement among the parties on the cost of capital and certain smaller adjustments related to employee benefits and other expenses. In addition, the parties agreed to a future independent review of interest rate hedging practices, with any recommendations based on the results and findings in the case.
final report to be applicable only on a prospective basis and to not apply to any prior interest rate hedging activity. The OPUC approved rates designed to increase annual base revenues by 5.9agreed-upon ROR is 7.24 percent, or $3.5 million. A rate adjustment of $2.6 million became effective October 1, 2017, and a second adjustment of $0.9 million became effective on November 1, 2017 to cover specific capital projects identified in the settlement agreement, which were completed in October.
In addition, in the settlement agreement we agreed to non-recovery of certain utility plant expenditures, which resulted in a write-off of $0.8 million in the second quarter of 2017.
The settlement agreement reflects a 7.35 percent ROR with a common equity ratio of 50 percent and a 9.4 percent ROE.ROE, both of which represent a continuation of existing authorized levels.

The agreement on the elements in the partial settlement results in a reduction in our originally filed revenue increase request from $6.7 million to $5.4 million.
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TableOn July 26, 2019, we filed a Motion to Suspend Portions of Contentsthe Procedural Schedule, noticing the OPUC that all parties in the general rate case have reached a settlement-in-principle resolving all remaining issues in the case. The parties committed to filing the settlement stipulation, supporting testimony, and other documents no later than August 14, 2019.

AVISTA CORPORATION



TCJA Proceedings
In the settlement agreement that was filed withFebruary 2019, the OPUC in Mayapproved the deferral amount of $3.8 million related to 2018 income tax benefits associated with the proposed Hydro One transaction,TCJA. The 2018 deferred benefits will be returned to customers through a temporary rate reduction over a period of one year beginning March 1, 2019. We will continue the deferral of the TCJA benefits during 2019 for later return to customers, until such time as these changes can be reflected in base rates.
Petition for Judicial Review of the Deferral of Capital Projects
In February 2019 and October 2018, the OPUC issued orders which concluded that, contrary to the OPUC's past practice, Oregon statutes that authorize the deferral of expense for later recovery from customers do not authorize the OPUC to allow deferrals of any costs related to capital investments (utility plant). In April 2019, Avista Corp. and other petitioners filed a Petition for Judicial Review with the Oregon Court of Appeals seeking review of the above OPUC orders. The Company cannot predict the outcome of this matter at this time, including whether or not any decision of the court would have retroactive effect.
AMI Project
In March 2016, the WUTC granted our Petition for an Accounting Order to defer and include in a regulatory asset the undepreciated value of our existing Washington electric meters for the opportunity for later recovery. This accounting treatment is related to our plans to replace our existing electric meters with new two-way digital meters and the related software and support services through our AMI project in Washington State. As of June 30, 2019, the estimated future undepreciated value for the existing electric meters was $21.0 million. In September 2017, the WUTC also approved our request to defer the undepreciated net book value of existing natural gas encoder receiver transmitters (ERT) (consistent with the accounting treatment we obtained on our existing electric meters) that will be retired as part of the commitments, Avista Corp. has agreed thatAMI project. As of June 30, 2019, the base rates established on November 1,estimated future undepreciated value for the existing natural gas ERTs was $4.2 million. Replacement of the electric meters and natural gas ERTs began during the second half of 2018 and is ongoing.
In September 2017, as partthe WUTC approved a Petition to defer the depreciation expense associated with the AMI project, along with a carrying charge, and to seek recovery of thisthe deferral and carrying charge in a future general rate casecase. Cost savings, such as reduced meter reading costs, will remain in effect until at least January 1, 2020.
Alaska Electric Lightoccur during the implementation period, and Power Company
Alaska General Rate Casewill offset a portion of the AMI costs not being deferred.
In NovemberMay 2017, we filed Petitions with the RCA approved an all-party settlement agreementIPUC and the OPUC requesting a depreciable life of 12.5 years for the meter data management system (MDM) related to AEL&P'sthe AMI project. Both the IPUC and the OPUC approved our request. In addition, in connection with the 2017 Idaho electric general rate case which was originally filed in September 2016. The(discussed above), the settling parties agreed to cost recovery of Idaho's share of the MDM system, effective January 1, 2019. In connection with the approval of the Oregon general rate case settlement agreement is designed to increase base electric revenue by 3.86 percent or $1.3 million, making permanent(discussed above), the interim rate increaseOPUC approved bycost recovery of Oregon's share of the RCA in 2016.
The agreement reflects an 8.91 percent ROR with a common equity ratio of 58.18 percent and an 11.95 percent ROE.MDM system, effective November 1, 2017.
Avista Utilities
Purchased Gas Adjustments
PGAs are designed to pass through changes in natural gas costs to Avista Utilities' customers with no change in utility margin (operating revenues less resource costs) or net income. In Oregon, we absorb (cost or benefit) 10 percent of the difference between actual and projected natural gas costs included in retail rates for supply that is not hedged. Total net deferred natural

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gas costs among all jurisdictions were a liabilityan asset of $35.4$2.5 million ($4.3 million in assets and $1.9 million in liabilities) as of SeptemberJune 30, 20182019 and a liability of $37.5$40.7 million as of December 31, 2017. These deferred2018. The liability decreased from the prior year primarily due to higher natural gas costs balances represent amounts dueprices in 2019 as compared to customers.the current year PGA rates.
Power Cost Deferrals and Recovery Mechanisms
The ERM in Washington is an accounting method used to track certain differences between Avista Utilities' actual power supply costs, net of wholesale sales and sales of fuel, and the amount included in base retail rates for our Washington customers. Under the ERM, Avista Utilities makes an annual filing on or before April 1 of each year to provide the opportunity for the WUTC staff and other interested parties to review the prudence of and audit the ERM deferred power cost transactions for the prior calendar year. See the 20172018 Form 10-K for a full discussion of the mechanics of the ERM and the various sharing bands. Total net deferred power costs under the ERM were a liability of $30.2$35.2 million as of SeptemberJune 30, 2018,2019, compared to a liability of $23.7$34.4 million as of December 31, 2017.2018. These deferred power cost balances represent amounts due to customers. Pursuant to WUTC requirements, should the cumulative deferral balance exceed $30 million in the rebate or surcharge direction, we must make a filing with the WUTC to adjust customer rates to either return the balance to customers or recover the balance from customers.
The cumulative rebate balance exceeds $30 million and as a result, our 2019 filing contained a proposed rate refund, effective July 1, 2019 over a three-year period. During the second quarter of 2019 we filed a motion to consolidate this ERM filing with our 2019 Washington general rate case (which was filed on April 30, 2019). In our motion, we requested that the WUTC withhold the refund associated with the ERM for use in the 2019 general rate case rather than passing it back to customers over the three-year period that was proposed in the ERM filing. Our motion was approved by the WUTC and the ERM refund will now be considered with the 2019 Washington general rate cases.
Avista Utilities has a PCA mechanism in Idaho that allows us to modify electric rates on October 1 of each year with IPUC approval. Under the PCA mechanism, we defer 90 percent of the difference between certain actual net power supply expenses and the amount included in base retail rates for our Idaho customers. The October 1 rate adjustments recover or rebate power supply costs deferred during the preceding July-June twelve-month period. Total net power supply costs deferred under the PCA mechanism were a liability of $9.3$4.1 million as of SeptemberJune 30, 2018,2019, compared to a liability of $6.1$7.6 million as of December 31, 2017.2018. These deferred power cost balances represent amounts due to customers.
Decoupling and Earnings Sharing Mechanisms
Decoupling (also known as a FCA in Idaho) is a mechanism designed to sever the link between a utility's revenues and consumers' energy usage. In each of our jurisdictions, Avista Utilities' electric and natural gas revenues are adjusted so as to be based on the number of customers in certain customer rate classes and assumed "normal" kilowatt hour and therm sales, rather than being based on actual kilowatt hour and therm sales. The difference between revenues based on the number of customers and "normal" sales and revenues based on actual usage is deferred and either surcharged or rebated to customers beginning in the following year. Only residential and certain commercial customer classes are included in our decoupling mechanisms. During the first quarter of 2018, the FCA in Idaho was extended for a one-year term through December 31, 2019. See the 20172018 Form 10-K for a discussion of the mechanisms in each jurisdiction.
Total net cumulative decoupling deferrals among all jurisdictions were regulatory assets of $11.1$19.4 million as of SeptemberJune 30, 20182019 and $16.5$13.9 million as of December 31, 2017.2018. These decoupling assets represent amounts due from customers. Total net earnings sharing balances among all jurisdictions were regulatory liabilities of $1.6$0.9 million as of SeptemberJune 30, 20182019 and $5.8$1.5 million as of December 31, 2017.2018. These earnings sharing liabilities represent amounts due to customers.
See "Results of Operations - Avista Utilities" for further discussion of the amounts recorded to operating revenues in 20182019 and 20172018 related to the decoupling and earnings sharing mechanisms.
State Regulatory Approval Requirements Related to the Pending Acquisition by Hydro One
See "Note 17 of the Notes to Condensed Consolidated Financial Statements" for discussion of the regulatory approvals related to the pending acquisition by Hydro One, as well as their current status.

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Results of Operations - Overall
The following provides an overview of changes in our Condensed Consolidated Statements of Income. More detailed explanations are provided, particularly for operating revenues and operating expenses, in the business segment discussions (Avista Utilities, AEL&P, and the other businesses) that follow this section.
The balances included below for utility operations reconcile to the Condensed Consolidated Statements of Income.

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Three months ended SeptemberJune 30, 20182019 compared to the three months ended SeptemberJune 30, 20172018
The following graph shows the total change in net income attributable to Avista Corp. shareholders for the thirdsecond quarter of 20172018 to the thirdsecond quarter of 2018,2019, as well as the various factors that caused such change (dollars in millions):
secrooq32018.jpgsecrooq22019a01.jpg
Utility revenues decreased at both Avista Utilities and AEL&P. Avista Utilities' revenues decreased due to lower retail electric sales volumes (due to cooler weather) and decreases to retail rates related to federal income tax law changes that lowered the corporate tax rateprimarily from 35 percent to 21 percent. Effective May 1, 2018 in Washington and June 1, 2018 in Idaho, base rates reflect the lower 21 percent corporate tax. Base rates in Oregon continue to have the 35 percent corporate tax rate built in and we are deferring the impact. There was also a decrease in wholesaleretail electric and natural gas revenues (primarily from a decrease in sales prices)decoupling rates and PGA rates, which are included in rates billed to retail customers), as well as a decrease in sales of fuel. This wasThese decreases were partially offset by an increase in revenue from decoupling, general rate increases in Washington, Idaho and Oregon, customer growth and decoupling.growth. AEL&P's revenues decreased due to a decrease in retail rates associated with the federal income tax law change, as well as a decrease in sales volumes due to weather that was warmer than normal and warmer than the adoptionprior year.
Non-utility revenues decreased due to the sale of ASU No. 2014-09 effective January 1, 2018. The adoption of ASU No. 2014-09 had no impact on net income. See "Notes 2 and 4 of the Notes to Condensed Consolidated Financial Statements" for further information on the adoption of this ASU.METALfx, which occurred in April 2019.
Utility resource costs decreased at both Avista Utilities and AEL&P. The decrease at Avista Utilities was primarily due to a decrease in fuel for generation (resulting from a decrease in thermal generation because of an outage at Colstrip, as well as a decrease innet power supply costs (resource costs less wholesale revenues) due to lower purchased power prices and natural gas fuel prices). There was also a decrease in natural gas purchased (due to a decrease in volumes and prices). Power purchases increased during the quarter due to an increase in volumes and wholesale prices. The decrease at AEL&P was due to a decrease in deferred power supply expenses.expenses, as well as the adoption of the new lease standard on January 1, 2019, which resulted in the reclassification of Snettisham power purchase costs from resource costs to depreciation and amortization and interest expense in 2019. See "Notes 2 and 5 of the Notes to Condensed Consolidated Financial Statements" for further information regarding the adoption of the new lease standard.
The increase in utility other operating expenses was due to an increase at Avista Utilities, partially offset by a decrease at AEL&P.Utilities. The increase at Avista Utilities was the result of a $7.0 million donation commitment made to fund initiatives to strengthen our local communities, which was recorded in the second quarter 2019. Also, there was an increase in generation, transmission and distribution operating and maintenance costs. The decrease at AEL&P was due to a decrease in generation maintenance and supplies expense.
The acquisitionmerger transaction costs are related to the pendingterminated Hydro One acquisition. These costs decreased for the thirdsecond quarter of 20182019 because 2018 consisted primarily of employee time incurred directlythere were very few activities related to the transaction, whereasterminated merger during the thirdsecond quarter of 2017 included financial advisers' fees, legal fees, consulting fees and employee time.2019 other than final wrap-up of the transaction. None of the acquisition costs are being passed through to customers.
Utility depreciation and amortization increased due to additions to utility plant.plant and from a March 2019 settlement in Idaho, which allowed us to utilize approximately $6.4 million ($5.1 million when tax-effected) of the electric tax benefits to offset costs associated with accelerating the depreciation of Colstrip Units 3 & 4, to reflect a remaining useful life of those units through December 31, 2027. This amount was recorded as a one-time charge to depreciation expense in the second quarter of 2019, with an offsetting amount included in income tax expense.
The increase in other income was primarily related to the gain on the sale of METALfx during the second quarter of 2019. See "Note 18 of the Notes to Condensed Consolidated Financial Statements" for further details of the sales transaction.
Income taxes decreased primarily due to federal incomethe settlement agreement in Idaho related to Colstrip depreciation and the usage of electric tax law changes, which reducedbenefits to offset the corporate tax rate from 35 percent to 21 percent.accelerated depreciation. Our effective tax rate was 13.3negative 7.5 percent for the thirdsecond quarter of 20182019 compared to 53.616.9 percent for the thirdsecond quarter of 2017. In addition to the enacted tax rate decrease, the amortization of plant excess deferred income taxes under the ARAM decreased2018. We expect our full year 2019 effective tax rate for the third quarter of 2018. During the third quarter of 2017 the effective tax rate was higherto be


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because the majority of acquisition costs incurred during that period, which reduced income before income taxes, were not deductible for tax purposes and thus did not reduce income tax expense.approximately 16 percent to 17 percent. See "Note 78 of the Notes to Condensed Consolidated Financial Statements" for further details and a reconciliation of our effective tax rate.
The increase in other was primarily related to an increase in interest expense due to additional debt being outstanding during 2018 as compared to 2017. Also, there was an impairment of an investment during the third quarter of 2018.
NineSix months ended SeptemberJune 30, 20182019 compared to the ninesix months ended SeptemberJune 30, 20172018
The following graph shows the total change in net income attributable to Avista Corp. shareholders for the ninesix months ended SeptemberJune 30, 20172018 to the ninesix months ended SeptemberJune 30, 2018,2019, as well as the various factors that caused such change (dollars in millions):
secrooq32018ytd.jpgsecrooq22019ytda01.jpg
Utility revenues decreased at both Avista Utilities and AEL&P. Avista Utilities' revenues decreased primarily due to lower retail electric and natural gas sales volumes (due to warmer weather in the heating season and cooler weather in the cooling season) and an accrual for refunds to customers and decreases to retail rates related to federal income tax law changes. As our customers' rates had the 35 percent corporate tax rate built in from prior general rate cases through May 1, 2018 in Washington and June 1, 2018 in Idaho, we deferred the impact of the change beginning January 1, 2018. Effective May 1, 2018 in Washington and June 1, 2018 in Idaho, base rates reflect the lower 21 percent corporate tax. Base rates in Oregon continue to have the 35 percent corporate tax rate built in and we are deferring the impact. There is no impact to our net income, as there was a corresponding decrease in income tax expense. There was also a decrease in wholesale natural gaselectric revenues (due to(mostly a decrease in prices). This wasvolumes), as well as a decrease in sales of fuel. These items decreased due to lower than normal hydroelectric generation, which resulted in less optimization of the system. These decreases were partially offset by an increase in wholesale electric revenues (due to increased volumes) and an increase in revenue from general rate increases in Washington, Idaho and Oregon, customer growth and decoupling.growth. AEL&P's revenues decreased due to a decrease in retail rates associated with the federal income tax law change, as well as a decrease in sales volumes due to weather that was warmer than normal and warmer than the adoption of ASU No. 2014-09 effective January 1, 2018. The adoption of ASU No. 2014-09 had no impact on net income. See "Notes 2 and 4 of the Notes to Condensed Consolidated Financial Statements" for further information on the adoption of this ASU.prior year.
Utility resource costs decreased at both Avista Utilities and AEL&P. The decrease at Avista Utilities was primarily due tofrom a decrease in natural gasnet power supply costs (resource costs less wholesale revenues) due to lower purchased (due to a decrease inpower prices, and volumes) and a decreasepartially offset by an increase in natural gas regulatory amortizations.resource costs. The decrease at AEL&P was due to a decrease in deferred power supply expenses.expenses, as well as the adoption of the new lease standard on January 1, 2019. See "Notes 2 and 5 of the Notes to Condensed Consolidated Financial Statements" for further information regarding the adoption of the new lease standard.
The increase in utility other operating expenses was due to an increase at Avista Utilities partially offset byand a decreaseslight increase at AEL&P. The increase at Avista Utilities was the result of the donation commitment described above, which was recorded in the second quarter 2019. Also, there was an increase in generation, transmission and distribution operating and maintenance costs. The decrease at AEL&P was due to a decrease in generation maintenance and supplies expense.
The acquisitionmerger transaction costs are related to the pendingterminated Hydro One acquisition. These costs decreasedincreased for 2018the year-to-date 2019 because 2019 includes financial advisers' fees, legal fees, consulting fees and employee time, whereas the second quarter of 2018 consisted primarily of employee time incurred directly related to the transaction, whereas 2017 included financial advisers' fees, legal fees, consulting fees and employee time.transaction. None of the acquisition costs are being passed through to customers.
Utility depreciation and amortization increased mainly due to the settlement in Idaho described above, as well as additions to utility plant.
The merger termination fee was received from Hydro One due to the mutual agreement to terminate the proposed acquisition. See "Note 17 of the Notes to Condensed Consolidated Financial Statements" for additional discussion.
The increase in other was primarily related to the gain on the sale of METALfx during the second quarter of 2019. Also, 2018 included an impairment of an investment and additional charges associated with a renovation, whereas 2019 included earnings from our investments. See "Note 18 of the Notes to Condensed Consolidated Financial Statements" for further details of the sales transaction.
Income taxes decreased primarily due to federal income tax law changes, which reduced the corporate tax rate from 35 percentsettlement agreement in Idaho related to 21 percent.Colstrip depreciation. Our effective tax rate was 16.116.7 percent for 2018,2019, compared to 36.916.5 percent for 2017. In addition to the enacted2018. We expect our full year 2019 effective tax rate decrease, the amortization of plant excess deferred income taxes under the ARAM and the settlement of equity awards duringto be


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the first quarter of 2018 decreased our effective tax rate.approximately 16 percent to 17 percent. See "Note 78 of the Notes to Condensed Consolidated Financial Statements" for further details and a reconciliation of our effective tax rate.
The increase in other was primarily related to an increase in interest expense due to additional debt being outstanding during 2018 as compared to 2017. Also, there were impairment losses on investments and net losses from our other equity method investments. In addition, we had increased expenses at one of our subsidiaries associated with the insolvency of the general contractor on a renovation project. The general contractor's insolvency resulted in the recording of a liability to various subcontractors. During the second quarter of 2017, we had increased compliance costs at one of our subsidiaries that did not reoccur during 2018, which partially offset the increased costs for the year-to-date 2018 as compared to the year-to-date 2017.
Non-GAAP Financial Measures
The following discussion for Avista Utilities includes two financial measures that are considered “non-GAAP financial measures,”measures”: electric utility margin and natural gas utility margin. In the AEL&P section, we include a discussion of utility margin, which is also a non-GAAP financial measure.
Generally, a non-GAAP financial measure is a numerical measure of a company's financial performance, financial position or cash flows that excludes (or includes) amounts that are included (excluded) in the most directly comparable measure calculated and presented in accordance with GAAP. Electric utility margin is electric operating revenues less electric resource costs, while natural gas utility margin is natural gas operating revenues less natural gas resource costs. The most directly comparable GAAP financial measure to electric and natural gas utility margin is utility operating revenues as presented in "Note 16 of the Notes to Condensed Consolidated Financial Statements."
The presentation of electric utility margin and natural gas utility margin is intended to enhance the understanding of operating performance. We use these measures internally and believe they provide useful information to investors in their analysis of how changes in loads (due to weather, economic or other conditions), rates, supply costs and other factors impact our results of operations. Changes in loads, as well as power and natural gas supply costs, are generally deferred and recovered from customers through regulatory accounting mechanisms. Accordingly, the analysis of utility margin generally excludes most of the change in revenue resulting from these regulatory mechanisms. We present electric and natural gas utility margin separately below for Avista Utilities since each business has different cost sources, cost recovery mechanisms and jurisdictions, so we believe that separate analysis is beneficial. These measures are not intended to replace utility operating revenues as determined in accordance with GAAP as an indicator of operating performance. Reconciliations of operating revenues to utility margin are set forth below.

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Results of Operations - Avista Utilities
Three months ended SeptemberJune 30, 20182019 compared to the three months ended SeptemberJune 30, 20172018
Utility Operating Revenues
The following graphs present Avista Utilities' electric operating revenues and megawatt-hour (MWh) sales for the three months ended SeptemberJune 30 (dollars in millions and MWhs in thousands):
chart-b359cfc2636a58c9ab6.jpgchart-340cad7ec2565a9b89d.jpg
(1)This balance includes public street and highway lighting, which is considered part of retail electric revenues, and deferrals/amortizations to customers related to federal income tax law changes.
chart-301b61203e8f513c946.jpgTotal electric operating revenues in the graph above include intracompany sales of $6.0 million and $2.0 million for the three months ended June 30, 2019 and June 30, 2018, respectively.


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chart-0081a9d3451e58e48ce.jpg
The following table presents the current year deferrals and the amortization of prior year decoupling balances that are reflected in utility electric operating revenues for the three months ended SeptemberJune 30 (dollars in thousands):
Electric Operating
Revenues
Electric Decoupling
Revenues
2018 20172019 2018
Current year decoupling deferrals (a)$3,738
 $(4,410)$5,159
 $6,274
Amortization of prior year decoupling deferrals (b)(3,782) (600)533
 (3,396)
Total electric decoupling revenue$(44) $(5,010)$5,692
 $2,878
(a)Positive amounts are increases in decoupling revenue in the current year and will be surcharged to customers in future years. Negative numbers are decreases in decoupling revenue in the current year and will be rebated to customers in future years.
(b)Positive amounts are increases in decoupling revenue in the current year and are related to the amortization of rebate balances that resulted in prior years and are being refunded to customers (causing a corresponding decrease in retail revenue from customers) in the current year. Negative numbers are decreases in decoupling revenue in the current year and are related to the amortization of surcharge balances that resulted in prior years and are being surcharged to customers (causing a corresponding increase in retail revenue from customers) in the current year.
Total electric revenues increased $1.0decreased $6.0 million for the thirdsecond quarter of 20182019 as compared to the thirdsecond quarter of 20172018 primarily due to the following:
a $1.4 million decrease in retail electric revenue due to a decrease in total MWhs sold (decreased revenues $5.2 million), partially offset by an increase in revenue per MWh (increased revenues $3.8 million).
a $3.8 million decrease in retail electric revenue due to a decrease in total MWhs sold (decreased revenues $0.5 million) and a decrease in revenue per MWh (decreased revenues $3.3 million).
The slight decrease in total retail MWhs sold was the result of weather that was cooler than the prior year (which decreased electric cooling loads),a decrease in industrial sales volumes, partially offset by an increase in residential sales volumes and customer growth. Compared to the thirdsecond quarter of 2017,2018, residential electric use per customer decreased 7increased 2 percent and commercial use per customer decreased 41 percent. Heating degree days in Spokane were 23 percent below normal and consistent with the second quarter of 2018. Cooling degree days in Spokane were 442 percent belowabove normal and 2962 percent belowabove the thirdsecond quarter of 2017.2018.
The increasedecrease in revenue per MWh was primarily due to general rate increases in Idaho (effective January 1, 2018) and Washington (effective May 1, 2018), as well as an increasea decrease in decoupling rates (as our decoupling surcharges were larger in prior years, which resulted in higher surcharge rates. This was partially offset by raterates in 2018 as compared to rebates in 2019) and decreases associated with the lower corporate tax rate. This was partially offset by general rate increases in Washington (effective May 1, 2018) and Idaho (effective January 1, 2019).
a $2.4 million decrease in wholesale electric revenues due to a decrease in sales prices (decreased revenues $2.7 million), partially offset by an increase in sales volumes (increased revenues $0.3 million). The fluctuation in volumes and prices was primarily the result of our optimization activities.

a $1.7 million decrease in sales of fuel due to a decrease in sales of natural gas fuel as part of thermal generation resource optimization activities. For the third quarter of 2018, $11.6 million of these sales were made to our natural gas operations and are included as intracompany revenues and resource costs. For the third quarter of 2017, $13.6 million of these sales were made to our natural gas operations.
a $5.0 million increase in electric revenue due to decoupling. Weather was cooler than normal in the third quarter of 2018, which resulted in decoupling deferral surcharges related to the current year.

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a $1.9 million increase in wholesale electric revenues due to an increase in sales prices (increased revenues $6.4 million), partially offset by a decrease in sales volumes (decreased revenues $4.5 million). The fluctuation in volumes and prices was primarily the result of our optimization activities.
a $9.7 million decrease in sales of fuel due to a decrease in sales of natural gas fuel as part of thermal generation resource optimization activities.
a $2.8 million increase in electric decoupling revenue. Weather was warmer than normal in the second quarter of 2019, reducing the demand for electric heating, which resulted in decoupling deferral surcharges related to the current year. There was also the amortization of decoupling rebates from prior years.
the $2.7 million increase in other electric revenues was primarily related to federal income tax law changes that lowered the corporate tax rate from 35 percent to 21 percent. As our customers' rates had the 35 percent corporate tax rate built in from prior general rate cases, we deferred the impact of the change in the first quarter of 2018. Effective May 1, 2018 in Washington and June 1, 2018 in Idaho, base rates reflect the lower 21 percent corporate tax.
The following graphs present Avista Utilities' natural gas operating revenues and therms delivered for the three months ended SeptemberJune 30 (dollars in millions and therms in thousands):
chart-0547f7fb73d65b43b4b.jpgchart-ff67231a2c965f1eba9.jpg
(1)This balance includes interruptible and industrial revenues, which are considered part of retail natural gas revenues, and deferrals/amortizations to customers related to federal income tax law changes.
chart-fb3b19cbccc75567af0.jpgTotal natural gas operating revenues in the graph above include intracompany sales of $6.5 million and $7.3 million for the three months ended June 30, 2019 and June 30, 2018, respectively.


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chart-5026d39997545d8db33.jpg
The following table presents the current year deferrals and the amortization of prior year decoupling balances that are reflected in utility natural gas operating revenues for the three months ended SeptemberJune 30 (dollars in thousands):
 Natural Gas Operating
Revenues
 2018 2017
Current year decoupling deferrals (a)$1,619
 $600
Amortization of prior year decoupling deferrals (b)(969) (325)
Total natural gas decoupling revenue$650
 $275

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 Natural Gas Decoupling
Revenues
 2019 2018
Current year decoupling deferrals (a)$3,138
 $2,458
Amortization of prior year decoupling deferrals (b)895
 (1,767)
Total natural gas decoupling revenue$4,033
 $691
(a)Positive amounts are increases in decoupling revenue in the current year and will be surcharged to customers in future years. Negative numbers are decreases in decoupling revenue in the current year and will be rebated to customers in future years.
(b)Positive amounts are increases in decoupling revenue in the current year and are related to the amortization of rebate balances that resulted in prior years and are being refunded to customers (causing a corresponding decrease in retail revenue from customers) in the current year. Negative numbers are decreases in decoupling revenue in the current year and are related to the amortization of surcharge balances that resulted in prior years and are being surcharged to customers (causing a corresponding increase in retail revenue from customers) in the current year.
Total natural gas revenues decreased $8.7$3.2 million for the thirdsecond quarter of 20182019 as compared to the thirdsecond quarter of 20172018 primarily due to the following:
a $1.6$4.1 million decrease in natural gas retail revenues due to lower retail rates (decreased revenues $2.1$4.9 million), partially offset by a slightan increase in volumes (increased revenues $0.5$0.8 million).
We sold slightly more retail natural gas in the thirdsecond quarter of 20182019 as compared to the thirdsecond quarter of 2017. Retail natural gas loads2018 primarily due to customer growth as use per customer decreased slightly due to warmer weather. Compared to second quarter of 2018, residential use per customer decreased 2 percent and changescommercial use per customer decreased 1 percent. Heating degree days in customer usage duringSpokane were 23 percent below normal, and consistent with the thirdsecond quarter are typically not significant toof 2018. Heating degree days in Medford were 24 percent below normal, and 1 percent below the full year.second quarter of 2018.
Lower retail rates were due to PGAs and rate decreases associated with the lower corporate tax rate and decoupling rate decreases (as our decoupling surcharges were larger in prior years, which resulted in higher surcharge rates in 2018 as compared to rebates in 2019), partially offset by general rate increases in OregonWashington (effective OctoberMay 1, 2018) and November 1, 2017), Idaho (effective January 1, 2018) and Washington (effective May 1, 2018)2019).

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a $2.2 million decrease in wholesale natural gas revenues due to a decrease in prices (decreased revenues $6.7 million), as well aspartially offset by an increase in decoupling surcharge rates.volumes (increased revenues $4.5 million). Differences between revenues and costs from sales of resources in excess of retail load requirements and from resource optimization are accounted for through the PGA mechanisms.
an $8.5 million decrease in wholesale natural gas revenues due to a decrease in prices (decreased revenues $2.9 million) and a decrease in volumes (decreased revenues $5.6 million). In the third quarter of 2018, $12.4 million of these sales were made to our electric generation operations and are included as intracompany revenues and resource costs. In the third quarter of 2017, $17.0 million of these sales were made to our electric generation operations. Differences between revenues and costs from sales of resources in excess of retail load requirements and from resource optimization are accounted for through the PGA mechanisms.
a $0.4$3.4 million increase in natural gas revenue duedecoupling revenue. Weather was warmer than normal in the second quarter of 2019, reducing the demand for natural gas heating, which resulted in decoupling deferral surcharges related to decoupling.the current year. There was also the amortization of decoupling rebates from prior years.
The following table presents Avista Utilities' average number of electric and natural gas retail customers for the three months ended SeptemberJune 30:
 
Electric
Customers
 
Natural Gas
Customers
 2018 2017 2018 2017
Residential339,765
 334,274
 313,922
 306,706
Commercial42,396
 42,241
 35,200
 35,087
Interruptible
 
 39
 37
Industrial1,317
 1,336
 245
 253
Public street and highway lighting593
 577
 
 
Total retail customers384,071
 378,428
 349,406
 342,083


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Electric
Customers
 
Natural Gas
Customers
 2019 2018 2019 2018
Residential344,342
 339,010
 321,136
 313,782
Commercial42,922
 42,539
 35,835
 35,480
Interruptible
 
 48
 39
Industrial1,307
 1,312
 241
 246
Public street and highway lighting606
 594
 
 
Total retail customers389,177
 383,455
 357,260
 349,547
Utility Resource Costs
The following graphs present Avista Utilities' resource costs for the three months ended SeptemberJune 30 (dollars in millions):
chart-fff2d2f96e955cc9930.jpgchart-52a02a6f303f5af38a6.jpg
Total electric resource costs in the graph above include intracompany resource costs of $12.4$6.5 million and $17.0$7.3 million for the three months ended SeptemberJune 30, 2019 and June 30, 2018, and September 30, 2017, respectively.
chart-caf83a610cb05a4bab7.jpg
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Total natural gas resource costs in the graph above include intracompany resource costs of $11.6$6.0 million and $13.6$2.0 million for the three months ended SeptemberJune 30, 20182019 and SeptemberJune 30, 2017,2018, respectively.
Total electric resource costs decreased $2.0$10.2 million for the thirdsecond quarter of 20182019 as compared to the thirdsecond quarter of 20172018 primarily due to the following:
a $7.6$3.7 million increase in purchased power costs due to an increase in the volume of power purchases (increased costs $1.8 million) and an increase in wholesale prices (increased costs $5.8$8.0 million), partially offset by a decrease in the volume of power purchases (decreased costs $4.3 million). The fluctuation in volumes and prices was primarily the result of our optimization activities during the quarter.

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a $0.7 million decrease in fuel for generation primarily due to a slight decrease in thermal generation volumes.



a $7.2 million decrease in fuel for generation primarily due to a decrease in thermal generation (due to an outage at Colstrip), as well as a decrease in natural gas fuel prices.
a $4.3$8.3 million decrease in other fuel costs. This represents fuel and the related derivative instruments that were purchased for generation but were later sold when conditions indicated that it was more economical to sell the fuel as part of the resource optimization process. When the fuel or related derivative instruments are sold, that revenue is included in sales of fuel.
a $0.4$6.2 million decrease from net amortizations and deferrals of power costs.
a $2.1$1.2 million net increase from other regulatory amortizations and other electric resource costs.
Total natural gas resource costs decreased $10.51.0 million for the thirdsecond quarter of 20182019 as compared to the thirdsecond quarter of 20172018 primarily due to the following:
a $8.9$0.3 million decrease in natural gas purchased due to a decrease in the price of natural gas (decreased costs $3.9$5.9 million) and a decrease, partially offset by an increase in total therms purchased (decreased(increased costs $5.0$5.6 million).
a $1.5$1.1 million decrease from net amortizations and deferrals of natural gas costs.
a $0.4 million increase from other regulatory amortizations.

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Utility Margin
The following table reconciles Avista Utilities' operating revenues, as presented in "Note 16 of the Notes to Condensed Consolidated Financial Statements" to the Non-GAAP financial measure utility margin for the three months ended SeptemberJune 30 (dollars in thousands):
Electric Natural Gas Intracompany TotalElectric Natural Gas Intracompany Total
2018 2017 2018 2017 2018 2017 2018 20172019 2018 2019 2018 2019 2018 2019 2018
Operating revenues$232,448
 $231,419
 $71,189
 $79,938
 $(24,088) $(30,581) $279,549
 $280,776
$229,591
 $235,558
 $72,766
 $75,946
 $(12,549) $(9,282) $289,808
 $302,222
Resource costs77,576
 79,598
 44,973
 55,499
 (24,088) (30,581) 98,461
 104,516
65,564
 75,766
 35,491
 36,538
 (12,549) (9,282) 88,506
 103,022
Utility margin$154,872
 $151,821
 $26,216
 $24,439
 $
 $
 $181,088
 $176,260
$164,027
 $159,792
 $37,275
 $39,408
 $
 $
 $201,302
 $199,200
Electric utility margin increased $3.1$4.2 million and natural gas utility margin increased $1.8 million in the third quarter of 2018 compared to the third quarter of 2017.decreased $2.1 million.
Electric utility margin increased primarily due to general rate increasesa decrease in Idaho (effective January 1, 2018)net power supply costs. The decrease in net power supply costs was due to lower purchased power prices and Washington (effective May 1, 2018), as well as customer growth. These increases were partially offset by the impact of the reduction in the corporate tax rate.natural gas fuel prices. For the thirdsecond quarter of 2018,2019, we had a $0.2$6.0 million pre-tax expensebenefit under the ERM in Washington, compared to a $1.0 million pre-tax expensebenefit for the thirdsecond quarter of 2017.2018. For the full year of 2018,2019, we expect to be in a benefit position under the ERM within the 9075 percent customer/1025 percent Company sharing band, primarily due to above normal hydroelectric generationband.
Electric utility margin was also positively impacted by general rate increases in Washington (effective May 1, 2018) and lower natural gas fuel prices. Because of the above normal hydroelectric generationIdaho (effective January 1, 2019), and lower natural gas fuel prices, we were able to engage in optimization activities to capture value in the energy markets.customer growth.
Natural gas utility margin increased primarily duebenefited in the second quarter of 2018 from the implementation of new base rates implemented on May 1, 2018 in Washington and June 1, 2018 in Idaho to reflect the lower 21 percent corporate tax rate. During the first quarter of 2018, we estimated the impact of the change in the base rates. This estimate was reduced in the second quarter of 2018 based on commission orders.
Offsetting the impact of changes in the corporate tax rate, natural gas utility margin was positively impacted by general rate increases in OregonWashington (effective OctoberMay 1, 2018) and November 1, 2017), Idaho (effective January 1, 2018)2019), and Washington (effective May 1, 2018), as well as customer growth. These increases were partially offset by the impact of the reduction in the corporate tax rate.
Intracompany revenues and resource costs represent purchases and sales of natural gas between our natural gas distribution operations and our electric generation operations (as fuel for our generation plants). These transactions are eliminated in the presentation of total results for Avista Utilities and in the condensed consolidated financial statements but are included in the separate results for electric and natural gas presented above.


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NineSix months ended SeptemberJune 30, 20182019 compared to the ninesix months ended SeptemberJune 30, 20172018
Utility Operating Revenues
The following graphs present Avista Utilities' electric operating revenues and megawatt-hour (MWh) sales for the ninesix months ended SeptemberJune 30 (dollars in millions and MWhs in thousands):
chart-a13876d61912507d9df.jpgchart-92db0772db0d7dccdba.jpg
(1)This balance includes public street and highway lighting, which is considered part of retail electric revenues, and deferrals/amortizations to customers related to federal income tax law changes.
chart-d0cb05477e605ef7935.jpgTotal electric operating revenues in the graph above include intracompany sales of $25.7 million and $8.9 million for the six months ended June 30, 2019 and June 30, 2018, respectively.

chart-1952289ce08bd82ea50.jpg

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The following table presents the current year deferrals and the amortization of prior year decoupling balances that are reflected in utility electric operating revenues for the ninesix months ended SeptemberJune 30 (dollars in thousands):
Electric Operating
Revenues
Electric Decoupling
Revenues
2018 20172019 2018
Current year decoupling deferrals (a)$14,024
 $(5,207)$2,478
 $10,286
Amortization of prior year decoupling deferrals (b)(12,058) (2,360)1,609
 (8,276)
Total electric decoupling revenue$1,966
 $(7,567)$4,087
 $2,010
(a)Positive amounts are increases in decoupling revenue in the current year and will be surcharged to customers in future years. Negative numbers are decreases in decoupling revenue in the current year and will be rebated to customers in future years.
(b)Positive amounts are increases in decoupling revenue in the current year and are related to the amortization of rebate balances that resulted in prior years and are being refunded to customers (causing a corresponding decrease in retail revenue from customers) in the current year. Negative numbers are decreases in decoupling revenue in the current year and are related to the amortization of surcharge balances that resulted in prior years and are being surcharged to customers (causing a corresponding increase in retail revenue from customers) in the current year.
Total electric revenues increased $4.8decreased $12.0 million for the ninesix months ended SeptemberJune 30, 20182019 as compared to the ninesix months ended SeptemberJune 30, 20172018 primarily due to the following:
a $2.7$2.6 million decrease in retail electric revenue due to a decrease in total MWhs soldrevenue per MWh (decreased revenues $21.2$10.1 million), partially offset by an increase in revenue per MWhtotal MWhs sold (increased revenues $18.5$7.5 million).
The decrease in revenue per MWh was primarily due to a decrease in decoupling rates (as our decoupling surcharges were larger in prior years, which resulted in higher surcharge rates in 2018 as compared to rebates in 2019) and decreases associated with the lower corporate tax rate. This was partially offset by general rate increases in Washington (effective May 1, 2018) and Idaho (effective January 1, 2019).
The increase in total retail MWhs sold was the result of weather that was warmer than the prior year during the heating season (which decreased electric heating loads) and cooler than the prior year during the coolingfirst quarter heating season (which decreasedincreased electric coolingheating loads), partially offset byand customer growth. Compared to the ninesix months ended SeptemberJune 30, 2017,2018, residential electric use per customer decreased 8increased 3 percent and commercial use per customer decreased 3 percent.was relatively consistent. Heating degree days in Spokane were 84 percent belowabove normal and 1213 percent belowabove the first ninesix months of 2017.2018. Year-to-date 20182019 cooling degree days were 542 percent belowabove normal and 3062 percent belowabove the prior year.
The increase in revenue per MWh was primarily due to general rate increases in Idaho (effective January 1, 2018) and Washington (effective May 1, 2018), as well as an increase in decoupling surcharge rates. This was partially offset by rate decreases associated with the lower corporate tax rate.
a $16.4$17.3 million increasedecrease in wholesale electric revenues due to an increasea decrease in sales volumes (increased(decreased revenues $25.6$21.4 million), partially offset by a decreasean increase in sales prices (decreased(increased revenues $9.2$4.1 million). The fluctuation in volumes and prices was primarily the result of our optimization activities.
a $3.8$10.9 million decrease in sales of fuel due to a decrease in sales of natural gas fuel as part of thermal generation resource optimization activities. For the nine months ended September 30, 2018, $20.5 million of these sales were made to our natural gas operations and are included as intracompany revenues and resource costs. For the nine months ended September 30, 2017, $26.9 million of these sales were made to our natural gas operations.
a $9.6$2.1 million increase in electric revenue due to decoupling. Weather
the $16.9 million increase in other electric revenues was warmer than normal during the heating season and cooler than normal during the cooling season in 2018, which resulted in decoupling surcharges for the first nine months of 2018.
an $11.1 million decrease in electric revenue due to net deferrals for refunds to customersprimarily related to the federal income tax law changes that lowered the corporate tax rate from 35 percent to 21 percent. As our customers' rates had the 35 percent corporate tax rate built in from prior general rate cases, through May 1, 2018 in Washington and June 1, 2018 in Idaho, we deferred the impact of the change beginning January 1,in the first quarter of 2018. Effective May 1, 2018 in Washington and June 1, 2018 in Idaho, base rates reflect the lower 21 percent corporate tax.
a $3.1 million decrease in transmission revenue (included in other revenue in the graph above).


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The following graphs present Avista Utilities' natural gas operating revenues and therms delivered for the ninesix months ended SeptemberJune 30 (dollars in millions and therms in thousands):
chart-3532bff7805957149d8.jpgchart-ebac4cfa3c6597d27b1.jpg
(1)This balance includes interruptible and industrial revenues, which are considered part of retail natural gas revenues, and deferrals/amortizations to customers related to federal income tax law changes.
chart-96fb01b1aab552f8959.jpgTotal natural gas operating revenues in the graph above include intracompany sales of $30.3 million and $17.6 million for the six months ended June 30, 2019 and June 30, 2018, respectively.
chart-3908a9b5142c9d78242.jpg

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The following table presents the current year deferrals and the amortization of prior year decoupling balances that are reflected in natural gas operating revenues for the ninesix months ended SeptemberJune 30 (dollars in thousands):
 Natural Gas Operating
Revenues
 2018 2017
Current year decoupling deferrals (a)$4,225
 $(4,738)
Amortization of prior year decoupling deferrals (b)(7,955) (3,141)
Total natural gas decoupling revenue$(3,730) $(7,879)

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 Natural Gas Decoupling
Revenues
 2019 2018
Current year decoupling deferrals (a)$(2,968) $2,606
Amortization of prior year decoupling deferrals (b)3,948
 (6,986)
Total natural gas decoupling revenue$980
 $(4,380)
(a)Positive amounts are increases in decoupling revenue in the current year and will be surcharged to customers in future years. Negative numbers are decreases in decoupling revenue in the current year and will be rebated to customers in future years.
(b)Positive amounts are increases in decoupling revenue in the current year and are related to the amortization of rebate balances that resulted in prior years and are being refunded to customers (causing a corresponding decrease in retail revenue from customers) in the current year. Negative numbers are decreases in decoupling revenue in the current year and are related to the amortization of surcharge balances that resulted in prior years and are being surcharged to customers (causing a corresponding increase in retail revenue from customers) in the current year.
Total natural gas revenues decreased $40.0increased $18.0 million for the ninesix months ended SeptemberJune 30, 20182019 as compared to the ninesix months ended SeptemberJune 30, 20172018 primarily due to the following:
a $25.3an $8.3 million decrease in natural gas retail revenues due to a decrease in volumes (decreased revenues $15.2 million) and lower retail rates (decreased revenues $10.1$25.5 million), partially offset by an increase in volumes (increased revenues $17.2 million).
We sold lessmore retail natural gas in the ninesix months ended SeptemberJune 30, 20182019 as compared to the ninesix months ended SeptemberJune 30, 20172018 due to warmercooler weather during the heating season, partially offset byand customer growth. Compared to the first ninesix months of 2017,2018, residential natural gas use per customer decreasedincreased 9 percent and commercial use per customer decreased 8increased 11 percent. Heating degree days in Spokane were 84 percent belowabove normal and 1213 percent belowabove the first ninesix months of 2017.2018. Heating degree days in Medford were 51 percent belowabove normal, and 46 percent belowabove the first ninesix months of 2017.2018.
Lower retail rates were due to PGAs and rate decreases associated with the lower corporate tax rate and decoupling rate decreases (as our decoupling surcharges were larger in prior years, which resulted in higher surcharge rates in 2018 as compared to rebates in 2019), partially offset by general rate increases in Washington Oregon(effective May 1, 2018) and Idaho as well as an increase in decoupling surcharge rates.(effective January 1, 2019).
a $14.8$13.9 million decreaseincrease in wholesale natural gas revenues due to a decreasean increase in prices (decreased(increased revenues $10.6$4.3 million) and a decreasean increase in volumes (decreased(increased revenues $4.2$9.6 million). In the nine months ended September 30, 2018, $30.0 million of these sales were made to our electric generation operations and are included as intracompany revenues and resource costs. In the nine months ended September 30, 2017, $36.5 million of these sales were made to our electric generation operations. Differences between revenues and costs from sales of resources in excess of retail load requirements and from resource optimization are accounted for through the PGA mechanisms.
a $4.2$5.4 million increase in natural gas revenue due to decoupling. Weather was warmercooler than normal in the first ninesix months of 2018,2019, which increased demand for natural gas heating, which resulted in decoupling surcharges.rebates related to the current year. This was partially offset by the amortization of decoupling rebates from prior years.
a $4.9the $7.1 million decreaseincrease in other natural gas revenue due to net deferrals for refunds to customersrevenues was primarily related to the federal income tax law changes that lowered the corporate tax rate from 35 percent to 21 percent. As our customers' rates had the 35 percent corporate tax rate built in from prior general rate cases, through May 1, 2018 in Washington and June 1, 2018 in Idaho, we deferred the impact of the change beginning January 1, 2018. Effective May 1, 2018 in Washington, and June 1, 2018 in Idaho and March 1, 2019 in Oregon, base rates reflect the lower 21 percent corporate tax. Base rates in Oregon continue to have the 35 percent corporate tax rate built in and we are deferring the impact.

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The following table presents Avista Utilities' average number of electric and natural gas retail customers for the ninesix months ended SeptemberJune 30:
Electric
Customers
 
Natural Gas
Customers
Electric
Customers
 
Natural Gas
Customers
2018 2017 2018 20172019 2018 2019 2018
Residential339,331
 334,015
 313,650
 306,389
344,140
 339,114
 320,309
 313,515
Commercial42,520
 42,127
 35,395
 35,174
42,898
 42,582
 35,771
 35,493
Interruptible
 
 39
 37

 
 45
 39
Industrial1,317
 1,330
 246
 252
1,310
 1,317
 240
 247
Public street and highway lighting591
 567
 
 
604
 591
 
 
Total retail customers383,759
 378,039
 349,330
 341,852
388,952
 383,604
 356,365
 349,294


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Utility Resource Costs
The following graphs present Avista Utilities' resource costs for the ninesix months ended SeptemberJune 30 (dollars in millions):
chart-de473bd782a85799bcd.jpgchart-dca336b52cc07ac4481.jpg
Total electric resource costs in the graph above include intracompany resource costs of $30.0$30.3 million and $36.5$17.6 million for the ninesix months ended SeptemberJune 30, 2019 and June 30, 2018, and September 30, 2017, respectively.
chart-8ab4fe94ed205cc491d.jpg
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chart-b8497756be83d441368.jpg
Total natural gas resource costs in the graph above include intracompany resource costs of $20.5$25.7 million and $26.9$8.9 million for the ninesix months ended SeptemberJune 30, 20182019 and SeptemberJune 30, 2017,2018, respectively.
Total electric resource costs increased $12.3decreased $15.2 million for the ninesix months ended SeptemberJune 30, 20182019 as compared to the ninesix months ended SeptemberJune 30, 20172018 primarily due to the following:
a $12.5$2.4 million increasedecrease in purchased power due to an increasea decrease in the volume of power purchases (increased(decreased costs $13.8$15.3 million), partially offset by a decreasean increase in wholesale prices (decreased(increased costs $1.3$12.9 million). The fluctuation in volumes and prices was primarily the result of our optimization activities during the period.

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a $1.8$7.2 million decreaseincrease in fuel for generation primarily due to a decreasean increase in thermal generation, as well as natural gas fuel prices and an outage at Colstrip in the third quarter, partially offset by an overall increase in thermal generation.prices.
a $9.5$7.5 million decrease in other fuel costs. This represents fuel and the related derivative instruments that were purchased for generation but were later sold when conditions indicated that it was more economical to sell the fuel as part of the resource optimization process. When the fuel or related derivative instruments are sold, that revenue is included in sales of fuel.
a $4.7$17.3 million increasedecrease from amortizations and deferrals of power costs. This change was primarily the result of lower net power supply costs.
a $6.4$4.7 million increase in other regulatory amortizations and other electric resource costs.
Total natural gas resource costs decreased $38.6increased $17.3 million for the ninesix months ended SeptemberJune 30, 20182019 as compared to the ninesix months ended SeptemberJune 30, 20172018 primarily due to the following:
a $29.9$51.9 million decreaseincrease in natural gas purchased due to a decreasean increase in the price of natural gas (decreased(increased costs $21.4$31.9 million) and a decreasean increase in total therms purchased (decreased(increased costs $8.5$20.0 million). Total therms purchased decreasedincreased due to a decreasean increase in retail sales partially offset by an increase inand wholesale sales.
a $5.8$36.8 million decrease from amortizations and deferrals of natural gas costs.costs, primarily reflecting higher natural gas prices.
a $2.9$2.2 million decreaseincrease in other regulatory amortizations.

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Utility Margin
The following table reconciles Avista Utilities' operating revenues, as presented in "Note 16 of the Notes to Condensed Consolidated Financial Statements" to utility margin for the ninesix months ended SeptemberJune 30 (dollars in thousands):
Electric Natural Gas Intracompany TotalElectric Natural Gas Intracompany Total
2018 2017 2018 2017 2018 2017 2018 20172019 2018 2019 2018 2019 2018 2019 2018
Operating revenues$730,483
 $725,695
 $290,583
 $330,580
 $(50,541) $(63,371) $970,525
 $992,904
$486,058
 $498,035
 $237,443
 $219,394
 $(55,991) $(26,453) $667,510
 $690,976
Resource costs252,232
 239,900
 151,457
 190,061
 (50,541) (63,371) 353,148
 366,590
159,445
 174,656
 123,764
 106,484
 (55,991) (26,453) 227,218
 254,687
Utility margin$478,251
 $485,795
 $139,126
 $140,519
 $
 $
 $617,377
 $626,314
$326,613
 $323,379
 $113,679
 $112,910
 $
 $
 $440,292
 $436,289
Electric utility margin decreased $7.5increased $3.2 million and natural gas utility margin decreased $1.4increased $0.8 million.
The primary reason for the decrease in both electric and natural gas utility margin was federal income tax law changes that lowered the corporate tax rate from 35 percent to 21 percent. As our customers' rates continued to have the 35 percent corporate tax rate built in from prior general rate cases, we deferred the impact of the change beginning January 1, 2018. Effective May 1, 2018 in Washington and June 1, 2018 in Idaho, base rates reflect the lower 21 percent corporate tax, as such, we are no longer deferring the tax rate change in these jurisdictions. There is no impact to our net income as there was a corresponding decrease in income tax expense.
Electric utility margin was positively impacted during 20182019 by general rate increases in Idaho (effective January 1, 2018)2019) and Washington (effective May 1, 2018), as well as customer growth. For the ninesix months ended SeptemberJune 30, 2018,2019, we recognized a pre-tax benefit of $5.6$3.5 million under the ERM in Washington compared to a benefit of $3.6$5.8 million for the ninesix months ended SeptemberJune 30, 2017.2018. For the full year of 2018,2019, we expect to be in a benefit position under the ERM within the 9075 percent customer/1025 percent Company sharing band, primarily due to above normal hydroelectric generation and lower natural gas fuel prices, which allowed us to engage in optimization activities.band.
Natural gas utility margin was positively impacted by general rate increases in OregonWashington (effective OctoberMay 1, 2018) and November 1, 2017), Idaho (effective January 1, 2018)2019), and Washington (effective May 1, 2018), as well as customer growth.
Intracompany revenues and resource costs represent purchases and sales of natural gas between our natural gas distribution operations and our electric generation operations (as fuel for our generation plants). These transactions are eliminated in the presentation of total results for Avista Utilities and in the condensed consolidated financial statements but are included in the separate results for electric and natural gas presented below.above.
Results of Operations - Alaska Electric Light and Power Company
Three months ended SeptemberJune 30, 20182019 compared to the three months ended SeptemberJune 30, 20172018 and ninesix months ended SeptemberJune 30, 20182019 compared to the ninesix months ended SeptemberJune 30, 20172018
Net income for AEL&P was $0.8$1.1 million for the three months ended SeptemberJune 30, 20182019 compared to $0.4$1.3 million for the three months ended SeptemberJune 30, 2017.2018. Net income was $5.9$4.6 million for the ninesix months ended SeptemberJune 30, 20182019 compared to $6.0$5.1 million for the ninesix months ended SeptemberJune 30, 2017.

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2018.
The following table presents AEL&P's operating revenues, resource costs and resulting utility margin for the three and ninesix months ended SeptemberJune 30 (dollars in thousands):
Three months ended September 30, Nine months ended September 30,Three months ended June 30, Six months ended June 30,
2018 2017 2018 20172019 2018 2019 2018
Operating revenues$9,570
 $10,864
 $33,715
 $38,002
$8,743
 $10,482
 $19,624
 $24,145
Resource costs3,058
 4,052
 8,958
 10,315
(67) 2,947
 (1,432) 5,900
Utility margin$6,512
 $6,812
 $24,757
 $27,687
$8,810
 $7,535
 $21,056
 $18,245
Electric revenues decreased for both the thirdsecond quarter of 2018 and the year-to-date 2019 primarily due to lower sales volumes to residential and commercial customers for 2019 as compared to 2018. This resulted from weather that was warmer than normal and warmer than the accrual for refunds to customers related toprior year.
Resource costs decreased from the federal income tax law changes that lowered the corporate tax rate from 35 percent to 21 percent. As of July 31, 2018, AEL&P had recorded a customer refund liability of $1.7 million related to this tax law change, which was returned to customers during August 2018. Effective August 1, 2018, retail rates to customers were reduced to reflect the lower corporate tax rate. For the third quarter and year-to-date there was no impact to net income as there was a corresponding decrease in income tax expense. See "Executive Level Summary" for additional discussion regarding the regulatory proceedings surrounding the tax law change.
In addition, effective January 1, 2018,prior year due to the adoption of ASU No. 2014-09 (revenue recognition standard),the new lease standard on January 1, 2019, which resulted in the reclassification of Snettisham power purchase costs from resource costs to depreciation and amortization and interest expense in 2019. See "Notes 2 and 5 of the Notes to Condensed Consolidated Financial Statements" for further information regarding the adoption of the new lease standard. In addition, AEL&P no longerhad low hydroelectric generation during the first half of 2019, which limited energy provided to their interruptible customers. A portion of the sales to interruptible customers is used to reduce the overall cost of power to AEL&P's firm customers. When interruptible sales are below a certain threshold, AEL&P recognizes a regulatory asset and records utility-related taxes collected froma reduction to deferred power supply costs (resource costs) to reflect a future billable amount to its firm customers on a gross basis in revenue and taxes other than income taxes. These taxeswhen the cost of power rates are currently recorded on a net basis within revenue. This change in accounting reduced 2018 revenue, utility margin and taxes other than income taxes by $0.3 million for the third quarter and $1.2 million for the year-to-date as compared to the same periods in 2017 with no impact to net income.reset.
For operating expenses, there was a decrease in other operating expenses for both the third quarter of 2018 and the year-to-date primarily due to a decrease in generation maintenance and supplies expense, partially offset by an increase in distribution maintenance expenses.
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Results of Operations - Other Businesses
Net lossesincome for our other businesses were $2.6was $3.0 million for the three months ended SeptemberJune 30, 20182019 compared to a net lossincome of $1.4less than $0.1 million for the three months ended SeptemberJune 30, 2017.2018. Net losses were $7.0income was $3.4 million for the ninesix months ended SeptemberJune 30, 20182019 compared to $3.2net losses of $4.4 million for the ninesix months ended SeptemberJune 30, 2017.2018.
Net lossesDuring the second quarter of 2019, we sold METALfx, which resulted in a net gain after-tax of approximately $2.3 million. See "Note 18 of the Notes to Condensed Consolidated Financial Statements" for further discussion of the nine months ended September 30, 2018 were primarily related to impairment losses on investments and net losses from our other equity method investments. sale of METALfx.
In addition, during 2019 we had increased expenses atnet investment gains associated with our equity investments. This is compared to investment losses during 2018 primarily from an impairment of one of our subsidiariesinvestments and expenses associated with the insolvency of the general contractor on a renovation project. The general contractor's insolvency resulted in the recording of a liability to various subcontractors. During 2017, we had increased compliance costs at one of our subsidiaries that did not reoccur during 2018, which partially offset the decrease in earnings for the year-to-date 2018 as compared to the year-to-date 2017.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in the consolidated financial statements. Changes in these estimates and assumptions are considered reasonably possible and may have a material effect on our consolidated financial statements and thus actual results could differ from the amounts reported and disclosed herein. Our critical accounting policies that require the use of estimates and assumptions were discussed in detail in the 20172018 Form 10-K and have not changed materially from that discussion.
Liquidity and Capital Resources
Overall Liquidity
Our sources of overall liquidity and the requirements for liquidity have not materially changed in the ninesix months ended SeptemberJune 30, 2018.2019. See the 20172018 Form 10-K for further discussion.
As of SeptemberJune 30, 2018,2019, we had $343.8$212.4 million of available liquidity under the Avista Corp. committed line of credit and $25.0 million under the AEL&P committed line of credit. With our $400.0 million credit facility that expires in April 2021 and AEL&P's $25.0 million credit facility that expires in November 2019, we believe that we have adequate liquidity to meet our needs for the next 12 months. We anticipate pursuing an extension to the AEL&P credit facility or entering into a new agreement during 2019.

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Review of Cash Flow Statement
Operating Activities
Net cash provided by operating activities was $252.7 million for the six months endedJune 30, 2019 compared to $275.4 million for the six months ended June 30, 2018. The decrease in net cash provided by operating activities was primarily due to power and natural gas deferrals which increased during 2019 due to higher natural gas prices during the year (which decreased cash flows by $47.7 million) as compared to an increase to operating cash flows of $6.7 million in 2018. As compared to 2018, changes in accounts receivable resulted in a decrease to operating cash flows of $18.1 million.
The above decreases were partially offset by the receipt of the $103.0 million merger termination fee from Hydro One that is reflected in net income for 2019. The termination fee was used for reimbursing our transaction costs incurred from 2017 to 2019 which totaled approximately $51.0 million, including income taxes. The balance of the termination fee was used for general corporate purposes and reduced our need for external financing. Our total transaction costs were $19.7 million (pre-tax) for 2019 and we also incurred approximately $15.7 million in taxes in 2019 (net of $1.8 million in tax benefits recaptured from 2017 and 2018).
Investing Activities
Net cash used in investing activities was $190.0 million for the six months endedJune 30, 2019, compared to $192.9 million for the six months ended June 30, 2018. During the six months ended June 30, 2019, we paid $200.0 million for utility capital expenditures compared to $183.1 million for the six months ended June 30, 2018. Also, during 2019, we received proceeds from the sale of METALfx (net of cash sold and amounts held in escrow) of $16.4 million. This amount is prior to the payment of transaction costs, which are reflected in operating activities.
Financing Activities
Net cash used by financing activities was $60.1 million for the six months endedJune 30, 2019, compared to $63.4 million for the six months ended June 30, 2018. Due to the receipt of the termination fee described above, we were able to reduce our short-term borrowings during 2019, as evidenced by the $21.0 million decrease in short-term borrowings. Also, during 2019 we issued $14.9 million of common stock, most of which was under our sales agency agreements in the second quarter.

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Review of Cash Flow Statement
Operating Activities
Net cash provided by operating activities was $365.8 million for the nine months endedSeptember 30, 2018 compared to $307.5 million for the nine months ended September 30, 2017. The increase in net cash provided by operating activities was primarily related to cash collateral posted for derivative instruments. During 2018, our cash collateral posted has decreased by $47.2 million, primarily due to the settlement of derivative interest rate swaps which were in a liability position. We paid a net amount of $26.6 million during the second quarter of 2018 to settle the derivative interest rate swaps. Also, there were favorable fluctuations in the fair value of our outstanding interest rate swaps and energy commodity derivatives, which contributed to the decrease in collateral requirements. This is compared to the first nine months of 2017, which required additional cash collateral to be posted of $1.9 million.
In addition, lower federal income tax rates went into effect on January 1, 2018. As a result, we are paying federal income taxes at 21 percent in 2018 but our customers' rates continued to have a 35 percent corporate income tax rate built into base rates from prior general rate cases. As such, we deferred the difference between the 35 percent income tax rate and the current income tax rate of 21 percent and we recorded a customer refund liability of $17.7 million that will be returned to customers in future periods.
The increases above were partially offset because during the first nine months of 2018 we had decreased net income (after consideration of non-cash items included in net income) of $302.7 million, compared to $326.2 million for the first nine months of 2017.
Investing Activities
Net cash used in investing activities was $307.7 million for the nine months endedSeptember 30, 2018, compared to $302.4 million for the nine months ended September 30, 2017. During the nine months ended September 30, 2018, we paid $296.2 million for utility capital expenditures compared to $287.9 million for the nine months ended September 30, 2017. Also, during 2018, our subsidiaries invested $8.6issued $374.6 million in equity and property, compared to $10.9 million invested during 2017.
Financing Activities
Net cash used by financing activities was $53.1 million for the nine months endedSeptember 30, 2018, compared to $1.0 million provided for the nine months ended September 30, 2017. We had the following transactions:
net proceeds from the issuance of long-term debt and repaid $276.2 million, as well as paid off $105.4 million of $374.6 million, which was used to repay maturing long-term debt of $276.8 million and repay the outstanding balance underborrowings on our committed line of credit during 2018. This was compared to an increase in short-term borrowings of $75.0 million in 2017, and
cash dividends paid to Avista Corp. shareholders increased to $73.6 million (or $1.1175 per share) for the nine months ended September 30, 2018 from $69.2 million (or $1.0725 per share) for the nine months ended September 30, 2017.credit.
Capital Resources
Our consolidated capital structure, including the current portion of long-term debt and short-term borrowings, and excluding noncontrolling interests, consisted of the following as of SeptemberJune 30, 20182019 and December 31, 20172018 (dollars in thousands):
September 30, 2018 December 31, 2017June 30, 2019 December 31, 2018
Amount 
Percent
of total
 Amount 
Percent
of total
Amount 
Percent
of total
 Amount 
Percent
of total
Current portion of long-term debt and capital leases$2,629
 0.1% $277,438
 7.6%
Current portion of long-term debt and leases (1)$111,846
 2.8% $107,645
 2.8%
Short-term borrowings35,000
 0.9% 105,398
 2.9%169,000
 4.2% 190,000
 4.9%
Long-term debt to affiliated trusts51,547
 1.4% 51,547
 1.4%51,547
 1.3% 51,547
 1.3%
Long-term debt and capital leases1,860,944
 50.3% 1,491,799
 40.8%
Long-term debt and leases (1)1,822,812
 45.1% 1,755,529
 45.3%
Total debt1,950,120
 52.7% 1,926,182
 52.7%2,155,205
 53.4% 2,104,721
 54.3%
Total Avista Corporation shareholders’ equity1,749,552
 47.3% 1,729,828
 47.3%1,884,034
 46.6% 1,773,220
 45.7%
Total$3,699,672
 100.0% $3,656,010
 100.0%$4,039,239
 100.0% $3,877,941
 100.0%
(1)Effective, January 1, 2019, we adopted ASC 842 which resulted in the reclassification of the Snettisham lease from long-term debt, to lease liabilities in 2019. The Snettisham lease amount is included here for this calculation. In addition, operating leases were recorded on the Condensed Consolidated Balance Sheet as of January 1, 2019 and are included here for this calculation. See "Note 5 of the Notes to Condensed Consolidated Financial Statements" for further discussion.
Our shareholders’ equity increased $19.7110.8 million during the first ninesix months of 20182019 primarily due to net income and the issuance of common stock, partially offset by dividends.

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We need to finance capital expenditures and acquire additional funds for operations from time to time. The cash requirements needed to service our indebtedness, both short-term and long-term, reduce the amount of cash flow available to fund capital expenditures, purchased power, fuel and natural gas costs, dividends and other requirements.
Committed Lines of Credit
Avista Corp. has a committed line of credit with various financial institutions in the total amount of $400.0 million that expires in April 2021. As of SeptemberJune 30, 2018,2019, there was $343.8$212.4 million of available liquidity under this line of credit.
The Avista Corp. credit facility contains customary covenants and default provisions, including a covenant which does not permit our ratio of “consolidated total debt” to “consolidated total capitalization” to be greater than 65 percent at any time. As of SeptemberJune 30, 2018,2019, we were in compliance with this covenant with a ratio of 52.753.4 percent.
AEL&P has a $25.0 million committed line of credit that expires in November 2019. As of SeptemberJune 30, 2018,2019, there were no borrowings or letters of credit outstanding under this committed line of credit.
The AEL&P credit facility contains customary covenants and default provisions including a covenant which does not permit the ratio of “consolidated total debt at AEL&P” to “consolidated total capitalization at AEL&P,” (including the impact of the Snettisham obligation) to be greater than 67.5 percent at any time. As of SeptemberJune 30, 2018,2019, AEL&P was in compliance with this covenant with a ratio of 52.152.5 percent.
Balances outstanding and interest rates of borrowings (excluding letters of credit) under Avista Corp.'s committed line of credit were as follows as of and for the ninesix months ended SeptemberJune 30 (dollars in thousands):
2018 20172019 2018
Borrowings outstanding at end of period$35,000
 $195,000
$169,000
 $
Letters of credit outstanding at end of period$21,230
 $43,853
$18,603
 $25,620
Maximum borrowings outstanding during the period$111,000
 $195,000
$190,000
 $111,000
Average borrowings outstanding during the period$36,299
 $123,335
$114,331
 $48,442
Average interest rate on borrowings during the period2.43% 1.81%3.31% 2.37%
Average interest rate on borrowings at end of period2.88% 1.99%3.26% %
The increase in the average interest rates as of and for the six months ended June 30, 2019 was primarily the result of a downgrade in our credit rating by Moody's during December 2018. See the 2018 10-K for further discussion of the downgrade by Moody's.

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As of SeptemberJune 30, 2018,2019, Avista Corp. and its subsidiaries were in compliance with all of the covenants of their financing agreements, and none of Avista Corp.'s subsidiaries constituted a “significant subsidiary” as defined in Avista Corp.'s committed line of credit.
Liquidity Expectations
In January 2019, we received a $103 million termination fee from Hydro One in connection with the termination of the proposed acquisition. The termination fee was used for reimbursing our transaction costs incurred from 2017 to 2019. These costs, including income taxes, total approximately $51 million. The balance of the termination fee was used for general corporate purposes and reduced our need for external financing.
During 2018,2019, we have issued $375.0expect to issue approximately $180.0 million of long-term debt as discussed above. We do not expect any further long-term debt issuances in 2018. Through early 2019, we expect to raiseand up to $110.0$65.0 million of equity (including issuances year-to-date) in order to refinance maturing long-term debt, fund planned capital expenditures and maintain an appropriate capital structure and for other general corporate purposes. The $110.0 million of equity may comestructure. This represents an increase from our previous estimates primarily to fund the sale of shares through our sales agency agreements or from an equity contribution from Hydro One after consummation of the acquisition or from a combination of those sources.expected increase in 2019 capital expenditures.
After considering the issuanceexpected issuances of long-term debt and the expected issuance of equity during 2019, we expect net cash flows from operating activities, together with cash available under our committed line of credit agreements, to provide adequate resources to fund capital expenditures, dividends, and other contractual commitments.
2019 and Forward Operating Cash Flows
Due to federal income tax law changes, we expect our operating cash flows will be negatively impacted going forward primarily due to the loss of the bonus depreciation tax deduction and from the timing of the return of excess deferred taxes to customers. As a result, we may need to raise additional capital.
Capital Expenditures
We are making capital investments to enhance service and system reliability for our customers and replace aging infrastructure. Our estimatedWe estimate capital expenditures at Avista Utilities have increased from $405 million to $435will be approximately $435.0 million for 20182019, which represents an increase from our previous estimate of $405.0 million. The increase is primarily duerelated to additional spending associated withincreases in capital expenditures for new electricrenewable integration and natural gas services. Our estimates for 2019 and 2020 have not materially changed during the nine months ended September 30, 2018.customer growth. See the 20172018 Form 10-K for further information.information on our expected capital expenditures.

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Off-Balance Sheet Arrangements
As of SeptemberJune 30, 20182019, we had $21.218.6 million in letters of credit outstanding under our $400.0 million committed line of credit, compared to $34.410.5 million as of December 31, 20172018. The increase in letters of credit outstanding was due to additional letters of credit being issued as collateral for energy commodity derivative instruments.
Pension Plan
Avista Utilities
In the ninesix months endedSeptemberJune 30, 20182019 we contributed $22.014.6 million to the pension plan and we do not expect any further contributionsto contribute a total of $22.0 million in 2018.2019. We expect to contribute a total of $110.0 million to the pension plan in the period 20182019 through 2022,2023, with annual contributions of $22.0 million over that period.
The final determination of pension plan contributions for future periods is subject to multiple variables, most of which are beyond our control, including changes to the fair value of pension plan assets, changes in actuarial assumptions (in particular the discount rate used in determining the benefit obligation), or changes in federal legislation. We may change our pension plan contributions in the future depending on changes to any variables, including those listed above.
See "Note 67 of the Notes to Condensed Consolidated Financial Statements" for additional information regarding the pension plan.
Contractual Obligations
Our future contractual obligations have not materially changed during the ninesix months ended SeptemberJune 30, 2018 other than the issuance and sale of $375.0 million of 4.35 percent first mortgage bonds due in June 2048 through a public offering. See "Note 9 of the Notes to Condensed Consolidated Financial Statements" for additional discussion of the bond issuance.2019. See the 20172018 Form 10-K for our contractual obligations.
Environmental Issues and Contingencies
Our environmental issues and contingencies disclosures have not materially changed during the ninesix months ended SeptemberJune 30, 2018 other than2019 except for the following:
Clean Air Act (CAA) - Hazardous Air Pollutants (HAPs)Colstrip Coal Contract
On April 16, 2016, the Mercury Air Toxic Standards (MATS), an EPA ruleColstrip, which is operated by Talen Montana, is supplied with fuel from adjacent coal reserves under coal supply and transportation agreements. The current contract for coal supply extends through 2019; however, the coal mine operator is in bankruptcy and oil-fired sources, became effective for all Colstrip units. We own 15 percenthad indicated that it would reject the current contract in its bankruptcy. The co-owners of Colstrip Units 3 & 4.
Colstrip performs compliance assurance stack testing on a quarterly basisfiled objections to meet the MATS site-wide limitation for Particulate Matter (PM) emissions (0.03 lbs./MMBtu). The Montana Departmentproposed rejection of Environmental Quality (MDEQ) was notified of a PM emission deviation by Talen, the plant operator, on June 28, 2018 for the testing performed on June 21, 2018. As a result, Unit 3 was immediately removed from service. Similarly, Unit 4 was removed from service on June 29, 2018.
Talen proposed, and the MDEQ acknowledged, that limited operation of Units 3 & 4 for the evaluation of a corrective action and/or data gathering related to potential corrective action was a prudent approach to solving the issue. An extensive inspection was conducted including: the coal supply coal mills, boiler, combustion, ductwork, air preheater, scrubbers,contract and the stack. Talen implemented cleaning, adjustments, troubleshooting, testing, and other corrective actions. As a partin February 2019, an amended plan of the corrective action, new flow balancing plates were installed in all Unit 3 & 4 scrubber vessels to further enhance PM removal efficiency.reorganization was
PM testing on September 6, 2018 on Unit 4, and September 11, 2018 on Unit 3, demonstrated compliance with the MATS. Both of these compliance tests were witnessed by the MDEQ. With the passing of the PM testing with MATS compliance, Talen returned both Units 3 & 4 to service on September 11, 2018.
Due to the failure to meet the MATS standard, Colstrip Units 3 & 4 are now subject to potential MDEQ enforcement action. The extent of this action is currently under investigation. Due to the complicated nature of the compliance calculation and the various factors that MDEQ may consider, we are unable to anticipate the extent of the impending enforcement action at this time.
Climate Change - Federal Regulatory Actions
On August 31, 2018 the EPA issued a proposed replacement rule to the Clean Power Plan, called the Affordable Clean Energy (ACE) rule. ACE proposes heat rate improvements as the best system of emissions reduction. The proposed rule also includes implementation guidelines for Clean Air Act section 111(d) as well as revisions to the New Source Review program. The proposed rule included a public comment period through October 30, 2018. GHG emission standards could result in significant compliance costs. Such standards could also preclude us from developing, operating or contracting with certain types of generating plants, as well as increase the cost of wholesale electricity. Given these ongoing developments, we cannot at this


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filed in which the proposal to reject the coal supply contract was withdrawn. The court approved the amended plan of reorganization on March 2, 2019, which allows the coal supply contract to remain in effect through 2019. The co-owners of Colstrip are in negotiations for an extension to the coal contract beyond 2019 and at the same time are exploring alternative sources for coal supply. Any new arrangements for coal beyond 2019 may have higher costs than the existing coal supply agreement.
Clean Energy Commitment
On April 18, 2019, we announced a goal to serve our customers with 100 percent clean electricity by 2045 and to have a carbon-neutral supply of electricity by the end of 2027. To help achieve these goals and add to our clean electricity portfolio, in the last three years, we have implemented three renewable energy projects on behalf of our customers, the Community Solar project (0.4 MW) in Spokane Valley, Washington (owned by Avista Corp.), the Solar Select project (28 MW) in Lind, Washington (PPA) and the Rattlesnake Flat Wind project (144 MW) in Adams County, Washington (PPA).
Climate Change - Federal Regulatory Actions
The EPA released the final version of the Affordable Clean Energy (ACE) rule, the replacement for the Clean Power Plan (CPP), in June 2019. EPA’s final rule does not contain any final action on the proposed modifications to the new source review (NSR) program that would provide coal-fired power plants more latitude to make efficiency improvements without triggering pre-construction permit requirements. The final ACE rule combines three distinct EPA actions. First, EPA finalizes the repeal of the CPP.
Second, the EPA finalizes the ACE rule, which comprises EPA’s determination of the Best System of Emissions Reduction (BSER) for existing coal-fired power plants and establishment of the procedures that will govern States’ promulgation of standards of performance for existing EGUs within their borders. EPA sets the final BSER as heat rate efficiency improvements (HRI) based on a range of “candidate technologies” that can be applied inside the fence-line and requires that each State determine which apply to each coal-fired unit based on consideration of remaining useful plant life.
Lastly, EPA finalizes a number of changes to the implementing regulations for the timing of State plans for this and future section 111(d) rulemakings. With respect to the Colstrip Generation Station, the Montana Department of Environmental Protection (MDEQ) would initiate the BSER evaluation process. We cannot reasonably predict the timing or outcome of MDEQ’s efforts, or estimate the extent to which our facilitiesColstrip may be impacted by the proposed ACE rule. We intend to seek recovery of costs related to compliance with these requirements through the ratemaking process.at this time.
Climate Change - State Legislation and State Regulatory Activities -
The states of Washington
Initiative 1631
and Oregon have adopted non-binding targets to reduce GHG emissions. Both states enacted their targets with an expectation of reaching the targets through a combination of renewable energy standards, eventual carbon pricing mechanisms, such as cap and trade regulation or a carbon tax, and assorted “complementary policies.” However, no specific reductions are mandated as yet. The Governors and Legislatures of both states began drafting climate-related proposals ahead of the 2019 legislative sessions.In Oregon, the general election held on November 6, 2018, votersState Senate failed to pass House Bill 2020 (HB 2020), authorizing the State to implement a cap and trade system and to link its allowances market with other jurisdictions. Had HB 2020 been enacted, Oregon would have been only the second state in the State of Washington were askednation to approve or reject Initiative 1631. As ofimplement an economy-wide cap and trade regulation. Avista monitored this filing,legislation for its potential implications on the final ballot counts have not been completed for this initiative, nor have there been any preliminary indications of whether this initiative will be approved. This ballot measure would impose a carbon fee basedcompany’s gas distribution operations in the state and upon the operation of its Coyote Springs II. In Washington State, Senate Bill 5116 (SB 5116) was the centerpiece of the Governor’s package of legislation aiming to reduce greenhouse gas emissions from specific sectors of the economy through direct regulation. SB 5116 requires Washington utilities to no longer allocate coal-fired resources to Washington retail customers by the end of 2025, and to achieve carbon contentneutrality by 2030 while meeting a minimum 80 percent of transportationload through delivery of renewable or non-emitting resources to customers. The legislation sets-forth alternative compliance measures that can be acquired by an electric utility to offset emissions from fossil fuel generation. The bill also requires utilities to meet 100 percent of load with renewable and heating fuels alongnon-emitting resources by 2045, although no penalties for failing to meet that standard were established. Under SB 5116, our hydroelectric and biomass generation facilities are considered resources that can be used to comply with the carbon content inherentbill’s clean energy standards. The bill was passed by both the Senate and House in electricity consumed in the state. If approved, the fee would be imposed at a rate of $15/metric ton beginning on January 1, 2020, and would increase by $2/metric ton annually plus inflation; the $2/metric ton escalator would no longer be applied once the state met its 2035 greenhouse gas emission reduction goalApril 2019 and was deemed on target to meet its 2050 goal. The ballot initiative would allow electric and natural gas utilities, along with other entities, access to carbon fees collected from customers and to expend them pursuant to a clean energy investment plan approvedsigned into law by the WUTC.Governor on May 7, 2019. The implications of this measure on system operations and costs willlaw requires additional rulemaking by several Washington agencies for its measures to be more fully assessed in the event it is approved by the voters.
Clean Air Rule
In September 2016, Ecology adopted the Clean Air Rule (CAR) to cap and reduce GHG emissions across the State of Washington in pursuit of the State’s GHG goals, which were enacted in 2008 by the Washington State Legislature.
In September 2016, Avista Corp., Cascade Natural Gas Corp., NW Natural and Puget Sound Energy (collectively, Petitioners) jointly filed an action in the U.S. District Court for the Eastern District of Washington challenging Ecology’s promulgated CAR. The four companies also filed litigation in Thurston County Superior Court.
The case in the U.S. District Court has been tolled while the state court case proceeds. On December 15, 2017, the Thurston County Superior Court issued a ruling invalidating the CAR. On April 27, 2018, the Superior Court entered its order invalidating the CAR. Ecology has since appealed the ruling, and has requested that the Washington State Supreme Court accept direct review. Both the appeal and Ecology’s request for direct review remain pending. Consequently, we cannot predict the outcome of these matters at this time, but planenacted. We intend to seek recovery of any costs related to complianceassociated with surviving requirementsthe clean energy legislation through the ratemakingregulatory process.
See the 20172018 Form 10-K for further discussion of environmental issues and contingencies.
Enterprise Risk Management
The material risks to our businesses were discussed in our 20172018 Form 10-K and have not materially changed during the ninesix months ended SeptemberJune 30, 2018.2019. Refer to the 20172018 Form 10-K for further discussion of our risks and the mitigation of those risks.

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Financial Risk
Our financial risks have not materially changed during the ninesix months ended SeptemberJune 30, 2018.2019. Refer to the 20172018 Form 10-K. The financial risks included below are required interim disclosures, even if they have not materially changed from December 31, 2017.2018.
Interest Rate Risk
We use a variety of techniques to manage our interest rate risks. We have an interest rate risk policy and have established a policy to limit our variable rate exposures to a percentage of total capitalization. Additionally, interest rate risk is managed by monitoring market conditions when timing the issuance of long-term debt and optional debt redemptions and establishing fixed rate long-term debt with varying maturities. See "Note 56 of the Notes to Condensed Consolidated Financial Statements" for a summary of our interest rate swap derivatives outstanding as of SeptemberJune 30, 20182019 and December 31, 20172018 and the amount of additional collateral we would have to post in certain circumstances. In addition, see "Regulatory Matters – Washington – 2017 General Rate Cases"Matters" for additionala discussion of commitments we made in Oregon surrounding the independent review of our interest rate risk mitigation plan and the changes recommended by the WUTC.hedging practices.
Credit Risk
Avista Utilities' contracts for the purchase and sale of energy commodities can require collateral in the form of cash or letters of credit. As of SeptemberJune 30, 2018,2019, we had cash deposited as collateral in the amount of $27.3$26.2 million and letters of credit of $17.3$14.6 million outstanding related to our energy derivative contracts. Price movements and/or a downgrade in our credit ratings could impact further the amount of collateral required. See “Credit Ratings” in the 20172018 Form 10-K for further information. For

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example, in addition to limiting our ability to conduct transactions, if our credit ratings were lowered to below “investment grade” based on our positions outstanding at SeptemberJune 30, 2018,2019 (including contracts that are considered derivatives and those that are considered non-derivatives), we would potentially be required to post up to $3.8 million ofthe following additional collateral. This amount is different from the $1.4 million disclosed in “Note 5 of the Notes to Condensed Consolidated Financial Statements” because, while this analysis includes contracts that are not considered derivatives in addition to the contracts considered in Note 5, this analysis takes into account contractual threshold limits that are not considered in Note 5. Without contractual threshold limits, we would potentially be required to post up to $5.3 million of additional collateral.collateral (in thousands):
 June 30, 2019
Additional collateral taking into account contractual thresholds$5,500
Additional collateral without contractual thresholds6,700
Under the terms of interest rate swap derivatives that we enter into periodically, we may be required to post cash or letters of credit as collateral depending on fluctuations in the fair value of the instrument. As of SeptemberJune 30, 2018,2019, we had interest rate swap derivatives outstanding with a notional amount totaling $195.0$265.0 million and we did not have anyhad deposited cash or lettersin the amount of credit posted$5.0 million as collateral for these interest rate swap derivatives. If our credit ratings were lowered to below “investment grade” based on our interest rate swap derivatives outstanding at SeptemberJune 30, 2018,2019, we would potentially be required to post up to $2.0 million of collateral.the following additional collateral (in thousands):
 June 30, 2019
Additional collateral taking into account contractual thresholds$7,500
Additional collateral without contractual thresholds26,000
Energy Commodity Risk
Our energy commodity risks have not materially changed during the ninesix months ended SeptemberJune 30, 2018,2019, except as discussed below. Refer to the 20172018 Form 10-K. The following table presents energy commodity derivative fair values as a net asset or (liability) as of SeptemberJune 30, 20182019 that are expected to settle in each respective year (dollars in thousands):
Purchases SalesPurchases Sales
Electric Derivatives Gas Derivatives Electric Derivatives Gas DerivativesElectric Derivatives Gas Derivatives Electric Derivatives Gas Derivatives
YearPhysical (1) Financial (1) Physical (1) Financial (1) Physical (1) Financial (1) Physical (1) Financial (1)Physical (1) Financial (1) Physical (1) Financial (1) Physical (1) Financial (1) Physical (1) Financial (1)
Remainder 2018$(2,089) $1,065
 $740
 $(8,409) $9
 $(830) $100
 $3,890
2019(3,795) 1,113
 (604) (20,643) 15
 (934) (1,362) 9,828
Remainder 2019$12
 $3,894
 $(869) $(7,602) $(127) $(16,161) $(623) $(158)
2020
 
 (819) (3,857) 
 (728) (1,052) 69

 
 (837) (2,161) (274) (6,164) (1,565) (1,313)
2021
 
 
 40
 
 
 (585) 47

 
 
 212
 
 (989) (810) (399)
2022
 
 
 
 
 
 
 

 
 
 44
 
 
 
 
2023
 
 
 
 
 
 
 
Thereafter
 
 
 
 
 
 
 

 
 
 
 
 
 
 

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The following table presents energy commodity derivative fair values as a net asset or (liability) as of December 31, 20172018 that are expected to be delivered in each respective year (dollars in thousands):
Purchases SalesPurchases Sales
Electric Derivatives Gas Derivatives Electric Derivatives Gas DerivativesElectric Derivatives Gas Derivatives Electric Derivatives Gas Derivatives
YearPhysical (1) Financial (1) Physical (1) Financial (1) Physical (1) Financial (1) Physical (1) Financial (1)Physical (1) Financial (1) Physical (1) Financial (1) Physical (1) Financial (1) Physical (1) Financial (1)
2018$(8,267) $(501) $1,022
 $(36,834) $35
 $4,100
 $(374) $15,829
2019(4,950) (1,159) (570) (17,814) (13) 4,621
 (932) 6,395
$(2,238) $7,289
 $(991) $(32,285) $34
 $(19,047) $(443) $6,252
2020
 
 (766) (1,882) 
 (194) (1,050) 

 
 (1,266) (7,797) (28) (4,044) (1,517) (240)
2021
 
 
 
 
 
 (655) 

 
 
 (1,393) 
 
 (629) 47
2022
 
 
 
 
 
 
 

 
 
 
 
 
 

 
2023
 
 
 
 
 
 
 
Thereafter
 
 
 
 
 
 
 

 
 
 
 
 
 
 
(1)Physical transactions represent commodity transactions where we will take or make delivery of either electricity or natural gas; financial transactions represent derivative instruments with delivery of cash in the amount of the benefit or cost but with no physical delivery of the commodity, such as futures, swap derivatives, options, or forward contracts.
The above electric and natural gas derivative contracts will be included in either power supply costs or natural gas supply costs during the period they are delivered and will be included in the various deferral and recovery mechanisms (ERM, PCA, and PGAs), or in the general rate case process, and are expected to eventually be collected through retail rates from customers.
Future Resource NeedsRegional Energy Markets
In August 2018, we filed our 2018 Natural Gas IRPThe California Independent System Operator (CAISO) operates an Energy Imbalance Market (EIM) in the western United States. Most investor-owned utilities in the Pacific Northwest are either participants in the CAISO EIM or plan to integrate into the market in the near future. Factors to be considered in deciding whether to join the CAISO EIM include the amount of variable generating resources in the utilities’ systems, the ability to manage the variable generating resources within the utilities’ systems, the costs associated with joining the WUTC, the IPUCCAISO EIM, and the OPUC. The IRP details projected growtheconomic benefits associated with joining the CAISO EIM. As additional utilities join the CAISO EIM, there is a reduction in demandbilateral market liquidity and opportunities for energywholesale transactions close to the operating hour. Based on these considerations, we signed an agreement in April 2019 to join the CAISO EIM. We expect to begin implementing new processes to enable participation in the EIM in the second half of 2019 and we expect to be full participants by April 2022. We estimate the new resources neededtotal cost of joining the EIM to serve customersbe approximately $25 million for both capital and operating expense spending over the next 20 years.three-year implementation period and we estimate annual benefits of approximately $6 million from market participation. We regard the IRP as a tool for resource evaluation, rather than an acquisition plan for a particular project.

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Highlightsexpect to seek recovery of the 2018 natural gas IRP includenet costs through the following expectations and/or assumptions:
We will need no additional natural gas transportation resources during the 20-year planning horizon in Washington, Idaho, or Oregon.
Due to expected carbon legislation at the state levels through a cap and trade mechanism (Oregon) or a fee mechanism (Washington), we expect natural gas prices to include a carbon price adder in Oregon and Washington, but not in Idaho.
North American supplies of natural gas will continue to be abundant led by shale gas development.
Customer growth in our service territory will increase slightly compared to the 2016 IRP. There will be increasing interest from customers to utilize natural gas for heating due to its abundant supply and consequent low cost.
We anticipate that any increased demand for natural gas regionally will primarily come from power generation as natural gas is increasingly being used to back up solar and wind technology, as well as replace retired coal plants. There is also potential for increased usage in other markets, such as LNG exports or exports to Mexico.
Slightly higher customer growth will continue to be offset by lower use per customer and an increased amount of demand side management (DSM). The combination of low priced natural gas in addition to carbon fees or other programs has led to a higher potential for DSM measures as compared to the previous three IRP’s.
The availability of natural gas in North America will continue to change global LNG dynamics. Existing and new LNG facilities will look to export low cost North American natural gas to the higher priced foreign markets. This could alter the price of natural gas and/or transportation in U.S. markets, constrain existing pipeline networks, stimulate development of new pipeline resources and change flows of natural gas across North America.
We will monitor these assumptions on an on-going basis and adjust our resource requirements accordingly.
We are required to file a natural gas IRP every two years, with the next IRP expected to be filed during the third quarter of 2020. Our resource strategy in our 2020 IRP may change from the 2018 IRP based on market, legislative and regulatory developments.process.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information required by this item is set forth in the Enterprise Risk Management section of "Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
Item 4. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
The Company has disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) (Act) that are designed to ensure that information required to be disclosed in the reports it files or submits under the Act is recorded, processed, summarized and reported on a timely basis. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. With the participation of the Company’s principal executive officer and principal financial officer, the Company's management evaluated its disclosure controls and procedures as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective at a reasonable assurance level as of SeptemberJune 30, 20182019.
There have been no changes in the Company's internal control over financial reporting that occurred during the thirdsecond quarter of 20182019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


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PART II. Other Information
Item 1. Legal Proceedings
See “Note 15 of Notes to Condensed Consolidated Financial Statements” in “Part I. Financial Information Item 1. Condensed Consolidated Financial Statements.”
Item 1A. Risk Factors
Please referRefer to the 20172018 Form 10-K for disclosure of risk factors that could have a significant impact on our results of operations, financial condition or cash flows and could cause actual results or outcomes to differ materially from those discussed in our reports filed with the SEC (including this Quarterly Report on Form 10-Q), and elsewhere. These risk factors have not materially changed from the disclosures provided in the 20172018 Form 10-K, except for the following:10-K.
External Mandates Risk
Import tariffs and/or other mandates imposed by the current presidential administration could potentially lead to a trade war with other foreign governments, and could significantly increase the prices on raw materials that are critical to our business, such as steel poles or wires. In addition, tariff increases may have a similar impact to our other suppliers and certain other customers, which could increase the negative impact on our operating results or future cash flows, as well as impact customer rates.
In addition to these risk factors, see also “Forward-Looking Statements” for additional factors which could have a significant impact on our operations, results of operations, financial condition or cash flows and could cause actual results to differ materially from those anticipated in such statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)Not applicable
(b)Not applicable
(c)Not applicable
Dividend Restrictions
The restrictions on the payment of dividends on common stock have not materially changed during the nine months ended September 30, 2018 except for the following:
As a result of the Merger Agreement with Hydro One, Avista Corp. cannot (A) declare, authorize, set aside for payment or pay any dividend on, or make any other distribution in respect of, any shares of its capital stock, other than (1) dividends paid by any Subsidiary of the Company to the Company or to any wholly owned Subsidiary of the Company, (2) quarterly cash dividends with respect to the Company Common Stock not to exceed the current annual per share dividend rate by more than $0.06 per year, with record dates and payment dates consistent with the Company’s current dividend practice, or (3) a “stub period” dividend to holders of record of Company Common Stock as of immediately prior to the Effective Time equal to the product of (x) the number of days from the record date for payment of the last quarterly dividend paid by the Company prior to the Effective Time, multiplied by (y) a daily dividend rate determined by dividing the amount of the last quarterly dividend prior to the Effective Time by ninety-one or (B) adjust, split, combine, subdivide or reclassify any shares of its capital stock.
For further information regarding limitations on the conduct of Avista Corp.'s business under the Merger Agreement, see Section 5 of the Merger Agreement, which was filed as Exhibit 2.1 to Avista Corp.’s Current Report on Form 8-K filed with the SEC on July 19, 2017. See the 2017 Form 10-K for further information on other restrictions on the payment of dividends on common stock.
Item 4. Mine Safety Disclosures
Not applicable.

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Item 6. Exhibits










101101.INS

XBRL Instance Document. The following financial information frominstance document does not appear in the Quarterly Report on Form 10−Q forinteractive data file because its XBRL tags are embedded within the period ended September 30, 2018, formatted ininline XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Condensed Consolidated Statements of Income; (ii) Condensed Consolidated Statements of Comprehensive Income; (iii) the Condensed Consolidated Balance Sheets; (iv) the Condensed Consolidated Statements of Cash Flows; (v) the Condensed Consolidated Statements of Equity; and (vi) the Notes to Condensed Consolidated Financial Statements. (2)document.
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
  
(1)Previously filed as exhibit 2.1 to the registrant's Current Report on Form 8-K, filed as of July 19, 2017 and incorporated herein by reference.
(2)Filed herewith.
(32)Furnished herewith.


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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
   AVISTA CORPORATION
   (Registrant)
    
    
    
    
Date:NovemberAugust 6, 20182019 /s/    Mark T. Thies        
   Mark T. Thies
   
Senior Vice President,
Chief Financial Officer, and Treasurer
(Principal Financial Officer)


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