v3.26.1
Derivatives and Risk Management
 6 Months Ended
Jun. 30, 2026
Derivative Instruments and Hedges, Assets [Abstract]  
Derivatives and Risk Management

NOTE 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 commodity derivative instruments. Avista Corp. utilizes instruments that meet the definition of a derivative under U.S. GAAP, such as forwards, futures, swaps and options, 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 periods 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. Based on 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 three 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 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 mitigates the 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.

The following table presents the underlying energy commodity derivative volumes as of June 30, 2026 expected to be settled 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 2026

 

 

3

 

 

 

—

 

 

 

14,374

 

 

 

16,323

 

 

 

256

 

 

 

135

 

 

 

669

 

 

 

230

 

2027

 

 

—

 

 

 

—

 

 

 

18,050

 

 

 

22,008

 

 

 

—

 

 

 

—

 

 

 

1,393

 

 

 

—

 

2028

 

 

—

 

 

 

—

 

 

 

7,923

 

 

 

10,263

 

 

 

—

 

 

 

—

 

 

 

1,013

 

 

 

—

 

2029

 

 

—

 

 

 

—

 

 

 

1,125

 

 

 

2,250

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

As of June 30, 2026, there are no energy commodity derivative contracts outstanding with expected settlements after 2029.

The following table presents the underlying energy commodity derivative volumes as of December 31, 2025 expected to be settled 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

 

2026

 

 

6

 

 

 

—

 

 

 

30,523

 

 

 

30,535

 

 

 

373

 

 

 

328

 

 

 

2,325

 

 

 

543

 

2027

 

 

—

 

 

 

—

 

 

 

14,558

 

 

 

14,443

 

 

 

—

 

 

 

—

 

 

 

1,393

 

 

 

—

 

2028

 

 

—

 

 

 

—

 

 

 

4,413

 

 

 

5,393

 

 

 

—

 

 

 

—

 

 

 

1,013

 

 

 

—

 

As of December 31, 2025, there were no energy commodity derivative contracts outstanding with expected settlements after 2028.

(1)
Physical transactions represent commodity derivative transactions in which Avista Corp. will take or make delivery of either electricity or natural gas; financial transactions represent financial derivative instruments that are settled in cash with no physical delivery of the underlying commodity, such as futures, swaps, or options 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 scheduled to be 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 recovered 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. The short-term natural gas transactions are 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 outstanding as of June 30, 2026 and December 31, 2025 (dollars in millions):

 

 

June 30,

 

 

December 31,

 

 

 

2026

 

 

2025

 

Number of contracts

 

 

23

 

 

 

26

 

Notional amount (in United States dollars)

 

$

3

 

 

$

6

 

Notional amount (in Canadian dollars)

 

 

4

 

 

 

4

 

Summary of Outstanding Derivative Instruments

The amounts recorded on the Condensed Consolidated Balance Sheet as of June 30, 2026 and December 31, 2025 reflect the offsetting of derivative assets and liabilities where a legal right of offset exists.

The following table presents the fair values and locations of energy commodity derivative instruments recorded on the Condensed Consolidated Balance Sheet as of June 30, 2026 (dollars in millions):

 

 

Fair Value

 

Derivative and Balance Sheet Location

 

Gross
Asset

 

 

Gross
Liability

 

 

Collateral
Netted

 

 

Net Asset
(Liability)
on Balance
Sheet

 

Other current assets

 

$

5

 

 

$

—

 

 

$

—

 

 

$

5

 

Other current liabilities

 

 

3

 

 

 

(36

)

 

 

11

 

 

 

(22

)

Other non-current liabilities and deferred credits

 

 

2

 

 

 

(16

)

 

 

1

 

 

 

(13

)

Total derivative instruments recorded on the balance sheet

 

$

10

 

 

$

(52

)

 

$

12

 

 

$

(30

)

The following table presents the fair values and locations of derivative instruments recorded on the Condensed Consolidated Balance Sheet as of December 31, 2025 (dollars in millions):

 

 

Fair Value

 

Derivative and Balance Sheet Location

 

Gross
Asset

 

 

Gross
Liability

 

 

Collateral
Netted

 

 

Net Asset
(Liability)
on Balance
Sheet

 

Other current assets

 

$

8

 

 

$

—

 

 

$

—

 

 

$

8

 

Other current liabilities

 

 

7

 

 

 

(33

)

 

 

8

 

 

 

(18

)

Other non-current liabilities and deferred credits

 

 

2

 

 

 

(14

)

 

 

2

 

 

 

(10

)

Total derivative instruments recorded on the balance sheet

 

$

17

 

 

$

(47

)

 

$

10

 

 

$

(20

)

 

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. The following table presents collateral outstanding related to its energy commodity derivative instruments as of June 30, 2026 and December 31, 2025 (dollars in millions):

 

 

June 30,

 

 

December 31,

 

 

 

2026

 

 

2025

 

Cash collateral posted

 

$

13

 

 

$

12

 

Letters of credit outstanding

 

$

6

 

 

$

14

 

In the event of changes in market prices or a downgrade in Avista Corp.'s credit ratings (including maintaining "investment grade" credit rating) or other established credit criteria, or, in some cases, if the counterparty has reasonable grounds to believe that there has been a material change in Avista Corp.'s creditworthiness, additional collateral may be required. Counterparties could request immediate payment or demand immediate and ongoing collateralization on derivative instruments in net liability positions.

In periods of price volatility, the level of exposure can change significantly. In addition, these contracts contain customary events of default (including cross-defaults to indebtedness and other obligations) and termination provisions. As a result, sudden and significant demands may be made against Avista Corp.'s credit facilities and cash. See Note 9 for further discussion of these credit facilities, including the immediate reimbursement obligation associated with outstanding letters of credit.

The following table presents the aggregate fair value of energy commodity derivative instruments with credit-risk-related contingent features in a liability position, and the amount of additional collateral (in cash or letters of credit) Avista Corp. could be required to post as of June 30, 2026 (dollars in millions):

 

 

June 30,

 

 

 

2026

 

Liabilities with credit-risk-related contingent features

 

$

25

 

Additional collateral to post

 

 

25