LONG-TERM DEBT AND CAPITAL LEASES

The following details long-term debt outstanding as of December 31 (dollars in thousands):



Maturity Year	Description	Interest Rate	2015			2014
Avista Corp. Secured Long-Term Debt
2016	First Mortgage Bonds	0.84%	$	90,000		$	90,000
2018	First Mortgage Bonds	5.95%	250,000			250,000
2018	Secured Medium-Term Notes	7.39%-7.45%	22,500			22,500
2019	First Mortgage Bonds	5.45%	90,000			90,000
2020	First Mortgage Bonds	3.89%	52,000			52,000
2022	First Mortgage Bonds	5.13%	250,000			250,000
2023	Secured Medium-Term Notes	7.18%-7.54%	13,500			13,500
2028	Secured Medium-Term Notes	6.37%	25,000			25,000
2032	Secured Pollution Control Bonds (1)	(1)	66,700			66,700
2034	Secured Pollution Control Bonds (1)	(1)	17,000			17,000
2035	First Mortgage Bonds	6.25%	150,000			150,000
2037	First Mortgage Bonds	5.70%	150,000			150,000
2040	First Mortgage Bonds	5.55%	35,000			35,000
2041	First Mortgage Bonds	4.45%	85,000			85,000
2044	First Mortgage Bonds	4.11%	60,000			60,000
2045	First Mortgage Bonds (2)	4.37%	100,000			—
2047	First Mortgage Bonds	4.23%	80,000			80,000
	Total Avista Corp. secured long-term debt		1,536,700			1,436,700
AEL&P Secured Long-Term Debt
2044	First Mortgage Bonds	4.54%	75,000			75,000
	Total secured long-term debt		1,611,700			1,511,700
AERC Unsecured Long-Term Debt
2019	Unsecured Term Loan	3.85%	15,000			15,000
	Total secured and unsecured long-term debt		1,626,700			1,526,700
Other Long-Term Debt Components
	Capital lease obligations		68,601			74,149
	Settled interest rate swaps (3)		(26,515		)	(17,541		)
	Unamortized debt discount		(956		)	(1,122		)
	Unamortized long-term debt issuance costs		(10,852		)	(11,360		)
	Total		1,656,978			1,570,826
	Secured Pollution Control Bonds held by Avista Corporation (1)		(83,700		)	(83,700		)
	Current portion of long-term debt and capital leases		(93,167		)	(6,424		)
	Total long-term debt and capital leases		$	1,480,111		$	1,480,702

(1)

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

(2)

In December 2015, Avista Corp. issued $100.0 million of first mortgage bonds to five institutional investors in a private placement transaction. The first mortgage bonds bear an interest rate of 4.37 percent and mature in 2045. The total net proceeds from the sale of the new bonds were used to repay a portion of the borrowings outstanding under the Company’s $400.0 million committed line of credit and for general corporate purposes.


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

The following table details future long-term debt maturities including long-term debt to affiliated trusts (see Note 15) (dollars in thousands):



	2016		2017		2018		2019		2020		Thereafter		Total
Debt maturities	$	90,000	$	—	$	272,500	$	105,000	$	52,000	$	1,075,047	$	1,594,547

Substantially all Avista Utilities' and AEL&P's owned properties are subject to the lien of their respective mortgage indentures. Under the Mortgages and Deeds of Trust (Mortgages) securing their first mortgage bonds (including secured medium-term notes), Avista Utilities and AEL&P may each issue additional first mortgage bonds under their specific mortgage in an aggregate principal amount equal to the sum of: 1) 66-2/3 percent of the cost or fair value (whichever is lower) of property additions at each entity which have not previously been made the basis of any application under the Mortgages, or 2) an equal principal amount of retired first mortgage bonds at each entity which have not previously been made the basis of any application under the Mortgages, or 3) deposit of cash. However, Avista Utilities and AEL&P may not individually issue any additional first mortgage bonds (with certain exceptions in the case of bonds issued on the basis of retired bonds) unless the particular entity issuing the bonds has “net earnings” (as defined in the Mortgages) for any period of 12 consecutive calendar months out of the preceding 18 calendar months that were at least twice the annual interest requirements on all mortgage securities at the time outstanding, including the first mortgage bonds to be issued, and on all indebtedness of prior rank. As of December 31, 2015, property additions and retired bonds would have allowed, and the net earnings test would not have prohibited, the issuance of $1.1 billion in aggregate principal amount of additional first mortgage bonds at Avista Utilities and $5.0 million at AEL&P.

See Note 13 for information regarding first mortgage bonds issued to secure the Company’s obligations under its committed line of credit agreement.

Snettisham Capital Lease Obligation

Included in long-term capital leases above is a power purchase agreement between AEL&P and AIDEA, an agency of the State of Alaska, under which AEL&P has a take-or-pay obligation, expiring in December 2038, to purchase all the output of the 78 MW Snettisham hydroelectric project. For accounting purposes, this power purchase agreement is treated as a capital lease.

The balances related to the Snettisham capital lease obligation as of December 31 were as follows (dollars in thousands):



	2015		2014
Capital lease obligation (1)	$	64,455	$	69,955
Capital lease asset (2)	71,007		71,007
Accumulated amortization of capital lease asset (2)	5,462		1,821


(1)	The capital lease obligation amount is equal to the amount of AIDEA's revenue bonds outstanding.


(2)	These amounts are included in utility plant in service on the Consolidated Balance Sheet.

Interest on the capital lease obligation and amortization of the capital lease asset are included in utility resource costs in the Consolidated Statements of Income and totaled the following amounts for the years ended December 31 (dollars in thousands):



	2015		2014
Interest on capital lease obligation	$	3,587	$	1,908
Amortization of capital lease asset	3,641		1,821

AIDEA issued $100.0 million of revenue bonds in 1998 to finance its acquisition of the project and the payments by AEL&P were designed to be more than sufficient to enable the AIDEA to pay the principal of and interest on its revenue bonds, which bore interest at rates ranging from 4.9 percent to 6.0 percent and were set to mature in January 2034.

In August 2015, AIDEA issued $65.7 million of new revenue bonds for the purpose of refunding all of the remaining outstanding revenue bonds for the Snettisham Hydroelectric Project. The new revenue bonds have interest rates ranging from 4.0 percent to 5.0 percent and mature in January 2034. The capital lease obligation on Avista Corp.'s Consolidated Balance Sheet at any given time is equal to the amount of revenue bonds outstanding at that time. AEL&P is scheduled to make its last capital lease payment to AIDEA in December 2033. The payments by AEL&P under the PPA between AEL&P and AIDEA are unconditional, notwithstanding any suspension, reduction or curtailment of the operation of the project. The bonds are payable solely out of AIDEA's receipts under the power purchase agreement. AEL&P is also obligated to operate, maintain and insure the project. The PPA did not change as a result of the refunding and the lower capital lease payments that resulted from the refunding will be passed through to AEL&P. As a result of the refunding, AEL&P recognized a gain of $3.3 million, which was recorded as a regulatory liability. The benefits from the refunding will eventually be passed through to customers in future periods via lower purchased power costs, after a new general rate case is filed. AEL&P's new payments for power under the agreement are approximately $10.4 million per year, while the capital lease principal and interest is approximately $5.5 million per year, which is included in the $10.4 million total cost of power.

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

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

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

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



	2016		2017		2018		2019		2020		Thereafter		Total
Principal	$	2,295	$	2,415	$	2,535	$	2,660	$	2,800	$	51,750	$	64,455
Interest	3,157		3,042		2,921		2,795		2,662		19,195		33,772
Total	$	5,452	$	5,457	$	5,456	$	5,455	$	5,462	$	70,945	$	98,227

Nonrecourse Long-Term Debt

Nonrecourse long-term debt represented the long-term debt of Spokane Energy. To provide funding to acquire a long-term fixed rate electric capacity contract from Avista Corp., Spokane Energy borrowed $145.0 million from a funding trust in December 1998. The long-term debt had scheduled monthly installments and interest at a fixed rate of 8.45 percent and the final payment was made in January 2015. Spokane Energy bore full recourse risk for the debt, which was secured by the fixed rate electric capacity contract and $1.6 million of funds held in a trust account. As of December 31, 2015, there is no obligation remaining.