Exhibit
Unaudited Interim Consolidated Financial Statements of
Algonquin Power & Utilities Corp.
For the three and nine months ended September 30, 2019 and 2018
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Balance Sheets
|
| | | | | | | |
(thousands of U.S. dollars) | | | |
| September 30, 2019 | | December 31, 2018 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 114,459 |
| | $ | 46,819 |
|
Accounts receivable, net (note 4) | 197,993 |
| | 245,728 |
|
Fuel and natural gas in storage | 36,406 |
| | 43,063 |
|
Supplies and consumables inventory | 58,814 |
| | 52,537 |
|
Regulatory assets (note 5) | 40,963 |
| | 59,037 |
|
Prepaid expenses | 29,311 |
| | 27,283 |
|
Derivative instruments (note 20) | 10,673 |
| | 9,616 |
|
Other assets and long-term investments | 7,910 |
| | 3,561 |
|
| 496,529 |
| | 487,644 |
|
Property, plant and equipment, net | 6,889,963 |
| | 6,393,558 |
|
Intangible assets, net | 47,757 |
| | 54,994 |
|
Goodwill | 955,230 |
| | 954,282 |
|
Regulatory assets (note 5) | 415,498 |
| | 391,437 |
|
Long-term investments (note 6) | | | |
Investments carried at fair value | 1,161,229 |
| | 814,530 |
|
Other long-term investments | 214,540 |
| | 134,371 |
|
Restricted cash (note 3(a)) | 274,606 |
| | 18,954 |
|
Derivative instruments (note 20) | 72,875 |
| | 53,192 |
|
Deferred income taxes | 62,305 |
| | 72,415 |
|
Other assets | 28,358 |
| | 13,591 |
|
| $ | 10,618,890 |
| | $ | 9,388,968 |
|
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Balance Sheets
|
| | | | | | | |
(thousands of U.S. dollars) | | | |
| September 30, 2019 | | December 31, 2018 |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 76,074 |
| | $ | 89,740 |
|
Accrued liabilities | 226,119 |
| | 235,586 |
|
Dividends payable | 70,027 |
| | 62,613 |
|
Regulatory liabilities (note 5) | 38,575 |
| | 39,005 |
|
Long-term debt (note 7) | 210,565 |
| | 13,048 |
|
Other long-term liabilities (note 9) | 45,293 |
| | 42,337 |
|
Derivative instruments (note 20) | 6,359 |
| | 14,339 |
|
Other liabilities | 5,353 |
| | 2,313 |
|
| 678,365 |
| | 498,981 |
|
Long-term debt (note 7) | 4,065,649 |
| | 3,323,747 |
|
Regulatory liabilities (note 5) | 552,095 |
| | 539,587 |
|
Deferred income taxes | 473,807 |
| | 444,145 |
|
Derivative instruments (note 20) | 85,243 |
| | 88,503 |
|
Pension and other post-employment benefits obligation | 191,809 |
| | 191,915 |
|
Other long-term liabilities (note 9) | 268,358 |
| | 263,582 |
|
| 5,636,961 |
| | 4,851,479 |
|
Redeemable non-controlling interests |
| |
|
Redeemable non-controlling interests, held by related party (note 13) | 313,863 |
| | 307,622 |
|
Redeemable non-controlling interests | 25,388 |
| | 33,364 |
|
Equity: | | | |
Preferred shares (note 10(b)) | 184,299 |
| | 184,299 |
|
Common shares (note 10(a)) | 3,655,257 |
| | 3,562,418 |
|
Additional paid-in-capital | 47,056 |
| | 45,553 |
|
Deficit | (462,867 | ) | | (595,259 | ) |
Accumulated other comprehensive loss (note 11) | (12,992 | ) | | (19,385 | ) |
Total equity attributable to shareholders of Algonquin Power & Utilities Corp. | 3,410,753 |
| | 3,177,626 |
|
Non-controlling interests | | | |
Non-controlling interests | 475,834 |
| | 519,896 |
|
Non-controlling interests, held by related party (note 13) | 77,726 |
| | — |
|
| 553,560 |
| | 519,896 |
|
Total equity | 3,964,313 |
| | 3,697,522 |
|
Commitments and contingencies (note 18) | | | |
Subsequent events (notes 3 and 10) | | | |
| $ | 10,618,890 |
| | $ | 9,388,968 |
|
See accompanying notes to unaudited interim consolidated financial statements
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statements of Operations
|
| | | | | | | | | | | | | | | |
(thousands of U.S. dollars, except per share amounts) | Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenue | | | | | | | |
Regulated electricity distribution | $ | 221,396 |
| | $ | 225,520 |
| | $ | 602,452 |
| | $ | 637,988 |
|
Regulated gas distribution | 47,588 |
| | 46,330 |
| | 296,184 |
| | 303,104 |
|
Regulated water reclamation and distribution | 39,004 |
| | 36,945 |
| | 98,487 |
| | 98,059 |
|
Non-regulated energy sales | 52,706 |
| | 52,189 |
| | 175,940 |
| | 173,077 |
|
Other revenue | 4,872 |
| | 5,261 |
| | 13,306 |
| | 14,374 |
|
| 365,566 |
| | 366,245 |
| | 1,186,369 |
| | 1,226,602 |
|
Expenses | | | | | | | |
Operating expenses | 116,248 |
| | 118,805 |
| | 356,548 |
| | 360,189 |
|
Regulated electricity purchased | 68,281 |
| | 67,742 |
| | 188,223 |
| | 201,768 |
|
Regulated gas purchased | 10,670 |
| | 9,922 |
| | 111,564 |
| | 123,994 |
|
Regulated water purchased | 2,719 |
| | 2,388 |
| | 5,958 |
| | 6,718 |
|
Non-regulated energy purchased | 3,531 |
| | 7,247 |
| | 13,110 |
| | 20,701 |
|
Administrative expenses | 14,929 |
| | 11,542 |
| | 41,571 |
| | 37,689 |
|
Depreciation and amortization | 65,782 |
| | 63,495 |
| | 206,642 |
| | 196,925 |
|
Loss (gain) on foreign exchange | (859 | ) | | 274 |
| | 75 |
| | (797 | ) |
| 281,301 |
| | 281,415 |
| | 923,691 |
| | 947,187 |
|
Operating income | 84,265 |
| | 84,830 |
| | 262,678 |
| | 279,415 |
|
Interest expense | 45,668 |
| | 37,905 |
| | 134,129 |
| | 111,834 |
|
Change in value of investments carried at fair value (note 6) | (64,394 | ) | | (10,022 | ) | | (179,970 | ) | | 91,949 |
|
Dividend, interest, equity and other income (note 6) | (25,661 | ) | | (11,428 | ) | | (90,219 | ) | | (32,981 | ) |
Pension and other post-employment non-service costs (note 8) | 4,994 |
| | 1,263 |
| | 10,034 |
| | 1,591 |
|
Other losses | 2,897 |
| | 2,006 |
| | 8,875 |
| | 392 |
|
Acquisition-related costs, net (note 3) | 2,786 |
| | 925 |
| | 5,175 |
| | 9,569 |
|
Loss (gain) on derivative financial instruments (note 20(b)(iv)) | (15,379 | ) | | 748 |
| | (15,592 | ) | | 920 |
|
| (49,089 | ) | | 21,397 |
| | (127,568 | ) | | 183,274 |
|
Earnings before income taxes | 133,354 |
| | 63,433 |
| | 390,246 |
| | 96,141 |
|
Income tax expense (note 15) | | | | | | | |
Current | 5,041 |
| | 3,218 |
| | 14,990 |
| | 8,602 |
|
Deferred | 16,927 |
| | 7,516 |
| | 42,614 |
| | 42,014 |
|
| 21,968 |
| | 10,734 |
| | 57,604 |
| | 50,616 |
|
Net earnings | 111,386 |
| | 52,699 |
| | 332,642 |
| | 45,525 |
|
Net effect of non-controlling interests (note 14)
| | | | | | | |
Net effect of non-controlling interests | 11,377 |
| | 5,231 |
| | 47,066 |
| | 95,465 |
|
Net effect of non-controlling interests held by related party
| (7,009 | ) | | — |
| | (20,923 | ) | | — |
|
Net earnings attributable to shareholders of Algonquin Power & Utilities Corp. | $ | 115,754 |
| | $ | 57,930 |
| | $ | 358,785 |
| | $ | 140,990 |
|
Series A and D Preferred shares dividend (note 12) | 2,137 |
| | 1,989 |
| | 6,352 |
| | 6,059 |
|
Net earnings attributable to common shareholders of Algonquin Power & Utilities Corp. | $ | 113,617 |
| | $ | 55,941 |
| | $ | 352,433 |
| | $ | 134,931 |
|
Basic net earnings per share (note 16) | $ | 0.23 |
| | $ | 0.12 |
| | $ | 0.71 |
| | $ | 0.30 |
|
Diluted net earnings per share (note 16) | $ | 0.23 |
| | $ | 0.12 |
| | $ | 0.71 |
| | $ | 0.29 |
|
See accompanying notes to unaudited interim consolidated financial statements
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statements of Comprehensive Income
|
| | | | | | | | | | | | | | | |
(thousands of U.S. dollars) | Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 | | 2018 | | 2019 | | 2018 |
Net earnings | $ | 111,386 |
| | $ | 52,699 |
| | $ | 332,642 |
| | $ | 45,525 |
|
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustment, net of tax recovery of $493 and $606 (2018 - $2,668 and $3,546), respectively (notes 20(b)(iii) and 20(b)(iv)) | (11,910 | ) | | 8,962 |
| | 45 |
| | (3,854 | ) |
Change in fair value of cash flow hedges, net of tax recovery of $2,198 and tax expense of $2,902 (2018 - tax expense of $734 and $1,040), respectively (note 20(b)(ii)) | (5,775 | ) | | 2,011 |
| | 7,855 |
| | 2,814 |
|
Change in pension and other post-employment benefits, net of tax recovery of $132 and $82 (2018 - $71 and $127), respectively (note 8) | (185 | ) | | (76 | ) | | (230 | ) | | (358 | ) |
Other comprehensive income (loss), net of tax | (17,870 | ) | | 10,897 |
| | 7,670 |
| | (1,398 | ) |
Comprehensive income | 93,516 |
| | 63,596 |
| | 340,312 |
| | 44,127 |
|
Comprehensive loss attributable to the non-controlling interests | (5,610 | ) | | (5,553 | ) | | (24,680 | ) | | (95,800 | ) |
Comprehensive income attributable to shareholders of Algonquin Power & Utilities Corp. | $ | 99,126 |
| | $ | 69,149 |
| | $ | 364,992 |
| | $ | 139,927 |
|
See accompanying notes to unaudited interim consolidated financial statements
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statements of Equity
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(thousands of U.S. dollars) For the three months ended September 30, 2019 | | | | | | | | | | |
| | | | | |
| Algonquin Power & Utilities Corp. Shareholders
| | | | |
| Common shares | | Preferred shares | | Additional paid-in capital | | Accumulated deficit | | Accumulated OCI | | Non- controlling interests | | Total |
Balance, June 30, 2019 | $ | 3,614,020 |
| | $ | 184,299 |
| | $ | 45,414 |
| | $ | (499,344 | ) | | $ | 3,636 |
| | $ | 569,145 |
| | $ | 3,917,170 |
|
Net earnings (loss) | — |
| | — |
| | — |
| | 115,754 |
| | — |
| | (4,368 | ) | | 111,386 |
|
Redeemable non-controlling interests not included in equity (note 14) | — |
| | — |
| | — |
| | — |
| | — |
| | (4,744 | ) | | (4,744 | ) |
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (16,628 | ) | | (1,242 | ) | | (17,870 | ) |
Dividends declared and distributions to non-controlling interests | — |
| | — |
| | — |
| | (54,530 | ) | | — |
| | (5,231 | ) | | (59,761 | ) |
Dividends and issuance of shares under dividend reinvestment plan | 18,000 |
| | — |
| | — |
| | (18,000 | ) | | — |
| | — |
| | — |
|
Common shares issued pursuant to public offering, net of costs (note 10(a)) | 15,609 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 15,609 |
|
Common shares issued pursuant to share-based awards (note 10(c)) | 7,628 |
| | — |
| | (1,414 | ) | | (6,747 | ) | | — |
| | — |
| | (533 | ) |
Share-based compensation (note 10(c)) | — |
| | — |
| | 3,056 |
| | — |
| | — |
| | — |
| | 3,056 |
|
Balance, September 30, 2019 | $ | 3,655,257 |
| | $ | 184,299 |
| | $ | 47,056 |
| | $ | (462,867 | ) | | $ | (12,992 | ) | | $ | 553,560 |
| | $ | 3,964,313 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(thousands of U.S. dollars) For the three months ended September 30, 2018 | | | | | | | | | | |
| | | | | |
| Algonquin Power & Utilities Corp. Shareholders
| | | | |
| Common shares | | Preferred shares | | Additional paid-in capital | | Accumulated deficit | | Accumulated OCI | | Non- controlling interests | | Total |
Balance, June 30, 2018 | $ | 3,397,106 |
| | $ | 184,299 |
| | $ | 41,148 |
| | $ | (566,758 | ) | | $ | (5,116 | ) | | $ | 526,882 |
| | $ | 3,577,561 |
|
Net earnings (loss) | — |
| | — |
| | — |
| | 57,930 |
| | — |
| | (5,231 | ) | | 52,699 |
|
Redeemable non-controlling interests not included in equity (note 14) | — |
| | — |
| | — |
| | — |
| | — |
| | 1,681 |
| | 1,681 |
|
Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | 11,219 |
| | (322 | ) | | 10,897 |
|
Dividends declared and distributions to non-controlling interests | — |
| | — |
| | — |
| | (48,152 | ) | | — |
| | (1,945 | ) | | (50,097 | ) |
Dividends and issuance of shares under dividend reinvestment plan | 14,857 |
| | — |
| | — |
| | (14,857 | ) | | — |
| | — |
| | — |
|
Common shares issued upon conversion of convertible debentures | 128 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 128 |
|
Common shares issued pursuant to share-based awards | 175 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 175 |
|
Share-based compensation | — |
| | — |
| | 2,474 |
| | — |
| | — |
| | — |
| | 2,474 |
|
Balance, September 30, 2018 | $ | 3,412,266 |
| | $ | 184,299 |
| | $ | 43,622 |
| | $ | (571,837 | ) | | $ | 6,103 |
| | $ | 521,065 |
| | $ | 3,595,518 |
|
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statements of Equity
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(thousands of U.S. dollars) For the nine months ended September 30, 2019 | | | | | | | | | | |
| | | | | |
| Algonquin Power & Utilities Corp. Shareholders
| | | | |
| Common shares | | Preferred shares | | Additional paid-in capital | | Accumulated deficit | | Accumulated OCI | | Non- controlling interests | | Total |
Balance, December 31, 2018 | $ | 3,562,418 |
| | $ | 184,299 |
| | $ | 45,553 |
| | $ | (595,259 | ) | | $ | (19,385 | ) | | $ | 519,896 |
| | $ | 3,697,522 |
|
Adoption of ASU 2017-12 on hedging (note 2(a)) | — |
| | — |
| | — |
| | (186 | ) | | 186 |
| | — |
| | — |
|
Net earnings (loss) | — |
| | — |
| | — |
| | 358,785 |
| | — |
| | (26,143 | ) | | 332,642 |
|
Redeemable non-controlling interests not included in equity (note 14) | — |
| | — |
| | — |
| | — |
| | — |
| | (14,011 | ) | | (14,011 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 6,207 |
| | 1,463 |
| | 7,670 |
|
Contributions received from non-controlling interests, net of costs | — |
| | — |
| | — |
| | — |
| | — |
| | 100,318 |
| | 100,318 |
|
Dividends declared and distributions to non-controlling interests | — |
| | — |
| | — |
| | (158,447 | ) | | — |
| | (27,963 | ) | | (186,410 | ) |
Dividends and issuance of shares under dividend reinvestment plan | 51,447 |
| | — |
| | — |
| | (51,447 | ) | | — |
| | — |
| | — |
|
Common shares issued pursuant to public offering, net of costs (note 10(a)) | 20,702 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 20,702 |
|
Common shares issued upon conversion of convertible debentures | 90 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 90 |
|
Common shares issued pursuant to share-based awards (note 10(c)) | 20,600 |
| | — |
| | (7,861 | ) | | (16,313 | ) | | — |
| | — |
| | (3,574 | ) |
Share-based compensation (note 10(c)) | — |
| | — |
| | 9,364 |
| | — |
| | — |
| | — |
| | 9,364 |
|
Balance, September 30, 2019 | $ | 3,655,257 |
| | $ | 184,299 |
| | $ | 47,056 |
| | $ | (462,867 | ) | | $ | (12,992 | ) | | $ | 553,560 |
| | $ | 3,964,313 |
|
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statement of Equity
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(thousands of U.S. dollars) For the nine months ended September 30, 2018 | | | | | | | | | | |
| | | | | |
| Algonquin Power & Utilities Corp. Shareholders
| | | | |
| Common shares | | Preferred shares | | Additional paid-in capital | | Accumulated deficit | | Accumulated OCI | | Non- controlling interests | | Total |
Balance, December 31, 2017 | $ | 3,021,699 |
| | $ | 184,299 |
| | $ | 38,569 |
| | $ | (524,311 | ) | | $ | (2,792 | ) | | $ | 602,636 |
| | $ | 3,320,100 |
|
Adoption of Topic 606 on revenue | — |
| | — |
| | — |
| | 1,860 |
| | — |
| | — |
| | 1,860 |
|
Adoption of ASU 2018-02 on tax effects in AOCI | — |
| | — |
| | — |
| | (9,958 | ) | | 9,958 |
| | — |
| | — |
|
Net earnings (loss) | — |
| | — |
| | — |
| | 140,990 |
| | — |
| | (95,465 | ) | | 45,525 |
|
Redeemable non-controlling interests not included in equity (note 14) | — |
| | — |
| | — |
| | — |
| | — |
| | 6,696 |
| | 6,696 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (1,063 | ) | | (335 | ) | | (1,398 | ) |
Dividends declared and distributions to non-controlling interests | — |
| | — |
| | — |
| | (138,849 | ) | | — |
| | (6,323 | ) | | (145,172 | ) |
Dividends and issuance of shares under dividend reinvestment plan | 39,589 |
| | — |
| | — |
| | (39,589 | ) | | — |
| | — |
| | — |
|
Common shares issued pursuant to public offering, net of costs | 345,723 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 345,723 |
|
Common shares issued upon conversion of convertible debentures | 430 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 430 |
|
Common shares issued pursuant to share-based awards | 4,825 |
| | — |
| | (2,671 | ) | | (1,980 | ) | | — |
| | — |
| | 174 |
|
Share-based compensation | — |
| | — |
| | 7,724 |
| | — |
| | — |
| | — |
| | 7,724 |
|
Contributions received from non-controlling interests, net of costs | — |
| | — |
| | — |
| | — |
| | — |
| | 13,856 |
| | 13,856 |
|
Balance, September 30, 2018 | $ | 3,412,266 |
| | $ | 184,299 |
| | $ | 43,622 |
| | $ | (571,837 | ) | | $ | 6,103 |
| | $ | 521,065 |
| | $ | 3,595,518 |
|
See accompanying notes to unaudited interim consolidated financial statements
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statements of Cash Flows |
| | | | | | | | | | | | | | | |
(thousands of U.S. dollars) | Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 | | 2018 | | 2019 | | 2018 |
Cash provided by (used in): | | | | | | | |
Operating Activities | | | | | | | |
Net earnings | $ | 111,386 |
| | $ | 52,699 |
| | $ | 332,642 |
| | $ | 45,525 |
|
Adjustments and items not affecting cash: | | | | | | | |
Depreciation and amortization | 65,782 |
| | 63,495 |
| | 206,642 |
| | 196,925 |
|
Deferred taxes | 16,927 |
| | 7,516 |
| | 42,614 |
| | 42,014 |
|
Change in value of investments carried at fair value
| (64,394 | ) | | (10,022 | ) | | (178,410 | ) | | 91,949 |
|
Unrealized loss (gain) on derivative financial instruments | (25,643 | ) | | 1,732 |
| | (15,968 | ) | | (451 | ) |
Share-based compensation expense | 2,681 |
| | 2,209 |
| | 7,896 |
| | 5,824 |
|
Cost of equity funds used for construction purposes | (1,428 | ) | | (691 | ) | | (2,588 | ) | | (2,068 | ) |
Pension and post-employment contributions in excess of expense | 276 |
| | 527 |
| | 3,507 |
| | 3,865 |
|
Distributions received from equity-method investees in excess of income | 1,762 |
| | 2,572 |
| | 6,455 |
| | 3,838 |
|
Other | 9,974 |
| | 6,816 |
| | 10,475 |
| | 9,688 |
|
Changes in non-cash operating items (note 19) | 70,764 |
| | 4,619 |
| | 30,535 |
| | (35,372 | ) |
| 188,087 |
| | 131,472 |
| | 443,800 |
| | 361,737 |
|
Financing Activities | | | | | | | |
Increase in long-term debt | 734,260 |
| | 289,081 |
| | 2,845,045 |
| | 1,292,285 |
|
Decrease in long-term debt | (229,591 | ) | | (188,656 | ) | | (1,918,815 | ) | | (791,389 | ) |
Issuance of common shares, net of costs | 15,856 |
| | (104 | ) | | 22,223 |
| | 347,181 |
|
Cash dividends on common shares | (51,559 | ) | | (45,652 | ) | | (143,773 | ) | | (121,714 | ) |
Dividends on preferred shares | (4,246 | ) | | (2,073 | ) | | (6,352 | ) | | (4,129 | ) |
Contributions from non-controlling interests, related party (note 6(b)) | — |
| | — |
| | 96,752 |
| | — |
|
Contributions from non-controlling interests | — |
| | — |
| | 475 |
| | — |
|
Production-based cash contributions from non-controlling interest | — |
| | — |
| | 3,565 |
| | 13,856 |
|
Distributions to non-controlling interests | (24,014 | ) | | (2,462 | ) | | (40,401 | ) | | (6,814 | ) |
Settlement of derivatives | — |
| | — |
| | (8,732 | ) | | — |
|
Shares surrendered to fund withholding taxes on exercised share options | (1,341 | ) | | — |
| | (5,282 | ) | | (1,557 | ) |
Increase in other long-term liabilities | 3,436 |
| | 2,320 |
| | 7,488 |
| | 9,587 |
|
Decrease in other long-term liabilities | (1,413 | ) | | (2,701 | ) | | (15,192 | ) | | (14,785 | ) |
| 441,388 |
| | 49,753 |
| | 837,001 |
| | 722,521 |
|
Investing Activities | | | | |
| |
|
Additions to property, plant and equipment and intangible assets | (190,247 | ) | | (101,254 | ) | | (403,297 | ) | | (342,524 | ) |
Increase in long-term investments | (130,616 | ) | | (30,069 | ) | | (546,303 | ) | | (698,378 | ) |
Acquisitions of operating entities | — |
| | — |
| | (1,350 | ) | | — |
|
Decrease (increase) in other assets | (903 | ) | | 92 |
| | (13,914 | ) | | 1,101 |
|
Receipt of principal on development loans receivable | — |
| | — |
| | 10,601 |
| | — |
|
Proceeds from sale of long-lived assets | — |
| | — |
| | — |
| | 3,004 |
|
| (321,766 | ) | | (131,231 | ) | | (954,263 | ) | | (1,036,797 | ) |
Effect of exchange rate differences on cash and restricted cash | (412 | ) | | 230 |
| | 313 |
| | (262 | ) |
Increase in cash, cash equivalents and restricted cash | 307,297 |
| | 50,224 |
| | 326,851 |
| | 47,199 |
|
Cash, cash equivalents and restricted cash, beginning of period | 85,327 |
| | 56,398 |
| | 65,773 |
| | 59,423 |
|
Cash, cash equivalents and restricted cash, end of period | $ | 392,624 |
| | $ | 106,622 |
| | $ | 392,624 |
| | $ | 106,622 |
|
| | | | | | | |
Algonquin Power & Utilities Corp. Unaudited Interim Consolidated Statements of Cash Flows
Supplemental disclosure of cash flow information: (thousands of U.S. dollars)
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 | | 2018 | | 2019 | | 2018 |
Cash paid during the period for interest expense | $ | 40,677 |
| | $ | 36,657 |
| | $ | 124,001 |
| | $ | 114,300 |
|
Cash paid during the period for income taxes | 3,421 |
| | 1,868 |
| | 12,959 |
| | 6,404 |
|
Non-cash financing and investing activities: | | | | | | | |
Property, plant and equipment acquisitions in accruals | $ | 29,671 |
| | $ | 33,150 |
| | $ | 29,671 |
| | $ | 33,150 |
|
Issuance of common shares under dividend reinvestment plan and share-based compensation plans | 24,877 |
| | 14,878 |
| | 70,070 |
| | 42,745 |
|
Issuance of common shares upon conversion of convertible debentures | — |
| | 133 |
| | 94 |
| | 450 |
|
Sale of property, plant and equipment, intangible assets and accrued liabilities in exchange of note receivable | $ | 21,107 |
| | $ | (1,686 | ) | | $ | 21,107 |
| | $ | 12,971 |
|
See accompanying notes to unaudited interim consolidated financial statements
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
Algonquin Power & Utilities Corp. ("APUC" or the "Company") is an incorporated entity under the Canada Business Corporations Act. APUC's operations are organized across two primary North American business units consisting of the Liberty Utilities Group and the Liberty Power Group. The Liberty Utilities Group ("Liberty Utilities Group") owns and operates a portfolio of regulated electric, natural gas, water distribution and wastewater collection utility systems and transmission operations; the Liberty Power Group ("Liberty Power Group") owns and operates a diversified portfolio of non-regulated renewable and thermal electric generation utility assets. APUC also owns a 44.2% equity interest in Atlantica Yield plc ("Atlantica") (NASDAQ: AY), a company that acquires, owns and manages a diversified international portfolio of contracted renewable energy, power generation, electric transmission and water assets.
1.Significant accounting policies
The accompanying unaudited interim consolidated financial statements and notes have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP") and Article 10 of Regulation S-X provided by the U.S. Securities and Exchange Commission. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments that are of a recurring nature and necessary for a fair presentation of the results of interim operations.
The significant accounting policies applied to these unaudited interim consolidated financial statements of APUC are consistent with those disclosed in the consolidated financial statements of APUC for the year ended December 31, 2018, except for adopted accounting policies described in note 2(a).
(b) Seasonality
APUC's operating results are subject to seasonal fluctuations that could materially impact quarter-to-quarter operating results and, thus, one quarter's operating results are not necessarily indicative of a subsequent quarter's operating results. Where decoupling mechanisms exist, total volumetric revenue is prescribed by the Regulator and is not affected by usage. APUC's different electrical distribution utilities can experience higher or lower demand in the summer or winter depending on the specific regional weather and industry characteristics. During the winter period, natural gas distribution utilities experience higher demand than during the summer period. APUC’s water and wastewater utility assets’ revenues fluctuate depending on the demand for water, which is normally higher during drier and hotter months of the summer. APUC’s hydroelectric energy assets are primarily "run-of-river" and as such fluctuate with the natural water flows. During the winter and summer periods, flows are generally slower, while during the spring and fall periods flows are heavier. For APUC's wind energy assets, wind resources are typically stronger in spring, fall and winter and weaker in summer. APUC's solar energy assets experience greater insolation in summer, weaker in winter.
(c)Leases
The Company adopted the U.S. Financial Accounting Standards Board ("FASB") Leases Topic 842 ("ASC 842") in the first quarter of 2019 using a modified retrospective approach.
The Company leases buildings, vehicles, rail cars, and office equipment for use in its day-to-day operations. The Company has options to extend the lease term of many of its lease agreements, with renewal periods ranging from one to five years. As at the unaudited interim consolidated balance sheet date, the Company is not reasonably certain that these renewal options will be exercised.
The Liberty Power Group enters into land easement agreements for the operation of its generation facilities. In assessing whether these contracts contain leases, the Company considers whether it has exclusive use of the land. In the majority of situations, the landowner or grantor of the easement still has full access to the land and can use the land in any capacity, as long as it does not interfere with the Company’s operations. Therefore, these land easement agreements do not contain leases. For land easement agreements that provide exclusive access to and use of the land, these agreements meet the definition of a lease and are within the scope of ASC 842.
The Liberty Utilities Group enters into easement agreements for the operation of its utilities. For all easements that existed or were expired as of January 1, 2019, the practical expedient was taken to not change the legacy accounting for these easement contracts. For new easement contracts entered into subsequent to January 1, 2019, the Company will consider whether they contain a lease.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
1.Significant accounting policies (continued)
(c)Leases (continued)
The implementation of ASC 842 did not have an impact on the Company's existing financing leases. The weighted-average remaining lease term of the Company's finance leases is 5.80 years. New right-of-use assets and lease liabilities of $8,295 were recognized for the Company's operating leases as at January 1, 2019. The weighted-average discount rate as of September 30, 2019 for operating lease assets and liabilities was 4.38% and the weighted-average remaining lease term is 14.59 years. Lease costs incurred and cash paid for financing and operating leases during the three and nine months ended September 30, 2019 were not material.
The right-of-use assets are included in property, plant and equipment while lease liabilities are included in other liabilities on the unaudited interim consolidated balance sheets.
The Company's operating leases payments for the next five years and thereafter are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Year 1 | | Year 2 | | Year 3 | | Year 4 | | Year 5 | | Thereafter | | Total |
$ | 1,710 |
| | $ | 1,067 |
| | $ | 586 |
| | $ | 504 |
| | $ | 494 |
| | $ | 4,690 |
| | $ | 9,051 |
|
The lease payments for the Company's financing leases are expected to be approximately $537 annually for the next five years, and $430 thereafter.
2. Recently issued accounting pronouncements
| |
(a) | Recently adopted accounting pronouncements |
The FASB issued accounting standards update ("ASU") 2018-15, Intangibles — Goodwill and Other Internal-Use Software (Subtopic 350-40): Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract to provide additional guidance to address diversity in practice. This update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company has adopted this update prospectively as at the beginning of the third quarter. There were no significant impacts to the unaudited interim consolidated financial statements as a result of the adoption of this update.
The FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap ("OIS") Rate as a Benchmark Interest Rate for Hedge Accounting Purposes to identify a suitable alternative to the U.S. dollar LIBOR that is more firmly based on actual transactions in a robust market. This update permits the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes. This update was adopted concurrently with ASU 2017-12 in the first quarter of 2019. The Company will follow the pronouncements prospectively for qualifying new or redesignated hedging relationships.
The FASB issued ASU 2018-07, Compensation — Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. This update changes the measurement basis and date of non-employee share-based payment awards and also makes amendments to how to measure non-employee awards with performance conditions. The adoption of this update in the first quarter of 2019 had no impact on the Company's unaudited interim consolidated financial statements.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
2. Recently issued accounting pronouncements (continued)
| |
(a) | Recently adopted accounting pronouncements (continued) |
The FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. The update also makes certain targeted improvements to simplify the application of the hedge accounting guidance. The FASB also issued ASU 2019-04 that contains further codification improvements to ASU 2017-12. The adoption of these updates in the first quarter of 2019 resulted in a reclassification of $186 from retained earnings to accumulated other comprehensive income for previous hedge ineffectiveness recognized in earnings for outstanding hedging contracts. The Company has also made certain amendments and simplifications to hedge effectiveness testing procedures and documentation to be followed prospectively where applicable in accordance with the pronouncements in the update.
The FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception to address narrow issues with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The adoption of this update in the first quarter of 2019 had no impact on the unaudited interim consolidated financial statements.
The FASB issued ASU 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations utilizing leases. This ASU requires lessees to recognize the assets and liabilities arising from all leases on the balance sheet, but the effect of leases in the statement of operations and the statement of cash flows is largely unchanged. The FASB also issued subsequent amendments to ASC 842 that provide further practical expedients as well as codification clarifications and improvements. The adoption of this new lease standard in the first quarter of 2019 using a modified retrospective approach resulted in an adjustment of $8,295 to right-of-use assets and operating lease liabilities on the unaudited interim consolidated balance sheets, with no restatement of the comparative period.
The Company implemented new processes and procedures for the identification, analysis, and measurement of new lease contracts. A new software solution was implemented to assist with contract management, information tracking, and measurement as it relates to the new standard. The Company elected the following practical expedients as part of its adoption:
| |
1. | "Package of three" practical expedient that permits the Company not to reassess the scope, classification and initial direct costs of its expired and existing leases; |
| |
2. | Land easements practical expedient that permits the Company not to reassess the accounting for land easements previously not accounted for under Leases ASC 840; and |
| |
3. | Hindsight practical expedient that allows the Company to use hindsight in determining the lease term for existing contracts. |
In addition, the Company made an accounting policy election to not recognize a lease liability or right-of-use asset on its consolidated balance sheets for short-term leases (lease term less than 12 months).
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
2. Recently issued accounting pronouncements (continued)
| |
(b) | Recently issued accounting guidance not yet adopted |
The FASB issued ASU 2019-05, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief to provide entities that have certain instruments measured at amortized cost within the scope of Subtopic 326-20, with an option to irrevocably elect the fair value option in Subtopic 825-10 to be applied on an instrument-by-instrument basis. This election is not available for held-to-maturity debt securities. The amendments are effective the same date as update 2016-13, which is January 1, 2020. The Company is currently in the process of evaluating the impact of this update on its consolidated financial statements.
The FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815 - Derivatives and Hedging, and Topic 825, Financial Instruments to provide specific clarification and correction in certain areas of ASU No. 2016-01, 2016-13, and 2017-12. The amendments to update 2017-12 are effective the same date as update 2017-12, which was adopted in the first quarter of 2019. The adoption of this update by the Company had no impact on its unaudited interim consolidated financial statements. The amendments to updates 2016-01 and 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently in the process of evaluating the impact of the adoption of these updates on its unaudited interim consolidated financial statements. The Company does not expect a significant impact on its consolidated financial statements as a result of the adoption of these updates.
| |
3. | Business acquisitions and development projects |
| |
(a) | Acquisition of Enbridge Gas New Brunswick Limited Partnership |
Subsequent to quarter end, on October 1, 2019, the Company completed the acquisition of Enbridge Gas New Brunswick Limited Partnership ("New Brunswick Gas"). New Brunswick Gas is a regulated utility that provides natural gas to customers.
The purchase price of approximately $256,011 (C$339,036) for the acquisition of New Brunswick Gas was funded through the Company's existing credit facility. As of September 30, 2019, this amount was transferred to a paying agent for purposes of this acquisition and presented as restricted cash in the unaudited interim consolidated financial statements. The costs related to the acquisition have been expensed through the unaudited interim consolidated financial statements.
Due to the timing of the acquisition, the Company has not completed the fair value measurements necessary for the allocation of the purchase price to the assets acquired and liabilities assumed.
| |
(b) | Agreement to acquire St. Lawrence Gas Company, Inc. |
Subsequent to quarter end, on November 1, 2019, the Company completed the acquisition of St. Lawrence Gas Company, Inc. ("SLG"). SLG is a rate regulated natural gas distribution utility serving customers in northern New York State. The total purchase price for the transaction is $61,820, less total third-party debt of SLG outstanding at closing, and subject to certain closing adjustments.
| |
(c) | Agreement to acquire Mid-West Wind Development Project |
The Empire District Electric Company ("Empire Electric System"), a wholly owned subsidiary of the Company, entered into purchase agreements to acquire, once completed, three wind farms generating up to 600 MW of wind energy located in Barton, Dade, Lawrence, and Jasper Counties in Missouri and in Neosho County, Kansas ("Mid-West Wind Development Project"). The agreements contain development milestones and termination provisions that primarily apply prior to the commencement of construction. Total costs are estimated at $1,100,000 and the acquisitions are anticipated to close following completion of the respective projects. These assets, net of third party tax equity investment, are expected to be included in the rate base of the Empire Electric System.
Subsequent to quarter end, Liberty Utilities Co, a wholly owned subsidiary of the Company, acquired an interest in the entities that own the two Missouri projects and, in partnership with a third-party developer, will continue development and construction of such projects until they are acquired by Empire District Electric following completion. As part of the investment in the joint ventures, Liberty Utilities entered into a guarantee agreement for obligations under one of the wind turbine supply agreements. The fair value of the guarantee obligation is approximately $290.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
| |
3. | Business acquisitions and development projects (continued) |
| |
(d) | Agreement to acquire Bermuda Electric Light Company |
On June 3, 2019, the Company entered into an agreement to acquire the Ascendant Group Limited ("Ascendant"), parent company of Bermuda Electric Light Company. Bermuda Electric Light Company is the sole electric utility providing regulated electrical generation, transmission and distribution services to Bermuda's residents and businesses. The total purchase price for the transaction is approximately $365,000. Closing of the transaction remains subject to shareholder and regulatory approvals and is expected in early 2020.
| |
(e) | Approval to acquire the Perris Water Distribution System |
On August 10, 2017, the Company’s Board of Directors (the "Board") approved the acquisition of two water distribution systems serving customers from the City of Perris, California. The anticipated purchase price of $11,500 is expected to be established as rate base during the regulatory approval process. The City of Perris residents voted to approve the sale on November 7, 2017. The Liberty Utilities Group filed an application requesting approval for the acquisition of the assets of the water utilities with the California Public Utility Commission on May 8, 2018. Final approval is expected in 2020.
Accounts receivable as of September 30, 2019 include unbilled revenue of $56,038 (December 31, 2018 - $79,742) from the Company’s regulated utilities. Accounts receivable as of September 30, 2019 are presented net of allowance for doubtful accounts of $5,581 (December 31, 2018 - $5,281).
The Company’s regulated utility operating companies are subject to regulation by the public utility commissions of the states in which they operate. The respective public utility commissions have jurisdiction with respect to rate, service, accounting policies, issuance of securities, acquisitions and other matters. These utilities operate under cost-of-service regulation as administered by these state authorities. The Company’s regulated utility operating companies are accounted for under the principles of ASC Topic 980, Regulated Operations ("ASC 980"). Under ASC 980, regulatory assets and liabilities that would not be recorded under U.S. GAAP for non-regulated entities are recorded to the extent that they represent probable future revenue or expenses associated with certain charges or credits that will be recovered from or refunded to customers through the rate setting process.
At any given time, the Company can have several regulatory proceedings underway. The financial effects of these proceedings are reflected in the unaudited interim consolidated financial statements based on regulatory approval obtained to the extent that there is a financial impact during the applicable reporting period. The following regulatory proceedings were recently completed:
|
| | | | |
Utility | State | Regulatory proceeding type | Annual revenue increase | Effective date |
Peach State Gas System | Georgia | GRAM | $2,367 | February 1, 2019 |
Woodmark/Tall Timbers | Texas | GRC | $484 | August 1, 2019 |
Empire Electric (Kansas System) | Kansas | GRC | $2,449 | August 1, 2019 |
Empire Electric (Oklahoma System) | Oklahoma | GRC | $1,400 | October 1, 2019 |
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
| |
5. | Regulatory matters (continued) |
Regulatory assets and liabilities consist of the following:
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
Regulatory assets | | | |
Environmental remediation | $ | 85,597 |
| | $ | 82,295 |
|
Pension and post-employment benefits | 135,523 |
| | 125,959 |
|
Debt premium | 43,824 |
| | 48,847 |
|
Fuel and commodity costs adjustments | 17,389 |
| | 26,310 |
|
Rate adjustment mechanism | 35,557 |
| | 37,202 |
|
Clean energy and other customer programs | 26,878 |
| | 24,095 |
|
Deferred construction costs | 13,718 |
| | 13,986 |
|
Asset retirement | 23,185 |
| | 21,048 |
|
Income taxes | 35,036 |
| | 34,822 |
|
Rate review costs | 7,154 |
| | 6,164 |
|
Other | 32,600 |
| | 29,746 |
|
Total regulatory assets | $ | 456,461 |
| | $ | 450,474 |
|
Less: current regulatory assets | (40,963 | ) | | (59,037 | ) |
Non-current regulatory assets | $ | 415,498 |
| | $ | 391,437 |
|
| | | |
Regulatory liabilities | | | |
Income taxes | $ | 322,130 |
| | $ | 323,384 |
|
Cost of removal | 195,824 |
| | 193,564 |
|
Rate base offset | 9,217 |
| | 10,900 |
|
Fuel and commodity costs adjustments | 15,978 |
| | 21,352 |
|
Deferred compensation received in relation to lost production | 4,096 |
| | 6,003 |
|
Deferred construction costs - fuel related | 7,137 |
| | 7,258 |
|
Pension and post-employment benefits | 19,183 |
| | 2,170 |
|
Other | 17,105 |
| | 13,961 |
|
Total regulatory liabilities | $ | 590,670 |
| | $ | 578,592 |
|
Less: current regulatory liabilities | (38,575 | ) | | (39,005 | ) |
Non-current regulatory liabilities | $ | 552,095 |
| | $ | 539,587 |
|
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
Long-term investments consist of the following:
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
Long-term investments carried at fair value | | | |
Atlantica (a) | $ | 1,079,814 |
| | $ | 814,530 |
|
AYES Canada (b) | 81,415 |
| | — |
|
| $ | 1,161,229 |
| | $ | 814,530 |
|
Other long-term investments | | | |
Equity-method investees | | | |
Maverick Creek Wind Project (c) | 4,776 |
| | — |
|
Amherst Island Wind Project (d) | — |
| | 7,655 |
|
San Antonio Water System (e) | 18,230 |
| | — |
|
Red Lily I Wind Facility | 15,925 |
| | 15,705 |
|
AAGES (f) | 1,534 |
| | 2,622 |
|
Other (g) | 15,032 |
| | 4,510 |
|
| $ | 55,497 |
| | $ | 30,492 |
|
Development loans receivable from equity-method investees (h) | 158,210 |
| | 101,416 |
|
Other | 2,180 |
| | 3,870 |
|
Total other long-term investments | $ | 215,887 |
| | $ | 135,778 |
|
Less: current portion | (1,347 | ) | | (1,407 | ) |
| $ | 214,540 |
| | $ | 134,371 |
|
For the three and nine months ended September 30, 2019, dividend income of $20,706 and $71,895 (2018 - $8,677 and $25,887), interest income of $543 and $10,619 (2018 - $2,969 and $4,700) and equity loss of $515 and $5,250 (2018 - equity loss of $1,284 and $812), respectively, are included in dividend, interest, equity and other income on the unaudited interim consolidated statements of operations.
(a)Investment in Atlantica
During the second quarter of 2019, APUC purchased an additional 3,384,402 ordinary shares of Atlantica, which increased the Company's ownership of Atlantica to approximately 44.2% (December 31, 2018 - 41.5%). APUC has the flexibility, subject to certain conditions, to increase its ownership of Atlantica to up to 48.5%. Of the 3,384,402 shares received, 1,384,402 shares were purchased for cash consideration of $30,000 and 2,000,000 shares were received pursuant to a prepayment of $53,750. In the fourth quarter of 2019, the Company will settle any additional amount owed under the prepayment purchase agreement in cash or ordinary shares of Atlantica. For the three and nine months ended September 30, 2019, APUC recorded dividend income of $17,977 and $50,881 (2018 - $8,518 and $24,303) and a fair value gain of $60,939 and $191,930 (2018 - gain of $10,022 and loss of $91,949) on its investment in Atlantica.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
| |
6. | Long-term investments (continued) |
(b)Investment in AYES Canada
On May 24, 2019, APUC and Atlantica formed Atlantica Yield Energy Solutions Canada Inc. ("AYES Canada"), a vehicle to channel co-investment opportunities in which Atlantica holds the majority of voting rights. The first investment was Windlectric Inc. APUC invested $91,919 (C$123,603) and Atlantica invested $4,834 (C$6,500) in AYES Canada, which in turn invested those funds in Amherst Island Partnership ("AIP"), the holding company of Windlectric.
APUC continues to control and consolidate AIP and Windlectric. The investment of $96,752 (C$130,103) by AYES Canada in AIP is presented as a non-controlling interest held by a related party (note 13). The partnership agreement has liquidation rights and priorities to each equity holder that are different from the underlying percentage ownership interests. As such, the share of earnings attributable to the non-controlling interest holder is calculated using the Hypothetical Liquidation at Book Value ("HLBV") method of accounting. The Company incurred non-controlling interest calculated using the HLBV method of accounting of $nil and $nil (2018 - $nil and $nil) and recorded distributions of $2,715 and $20,517 (2018 - $nil and $nil) during the three and nine months ended September 30, 2019, respectively.
AYES Canada is considered to be a variable interest entity ("VIE") based on the disproportionate voting and economic interests of the shareholders. Atlantica is considered to be the primary beneficiary of AYES Canada. Accordingly, APUC's investment in AYES Canada is considered an equity method investment. Under the AYES Canada shareholders agreement, starting in May 2020, APUC has the option to exchange approximately 3,500,000 shares of AYES Canada into ordinary shares of Atlantica on a one-for-one basis, subject to certain conditions. Consistent with the treatment of the Atlantica shares, the Company has elected the fair value option under ASC 825, Financial Instruments to account for its investment in AYES Canada, with changes in fair value reflected in the consolidated statements of operations. A level 3 discounted cash flow approach combined with a Black-Scholes option-pricing calculation were used to estimate the fair value of the investment. For the three and nine months ended September 30, 2019, APUC recorded dividend income of $2,753 and $20,219 (2018 - $nil and $nil) and a fair value gain of $3,455 and loss of $11,960 (2018 - $nil and $nil), respectively, on its investment in AYES Canada.
(c)Maverick Creek Wind Project
In August 2019, the Liberty Power Group and a third party developer each contributed $1,000 to the capital of Maverick Creek Wind SponsorCo ("Maverick SponsorCo") to jointly develop an approximately 490 MW Maverick Creek Wind Project located in Concho County, Texas. The purchase price of $70,567 was invested in a loan receivable from Maverick SponsorCo (note 6(h)). The project is expected to achieve commercial operation in the fourth quarter of 2020. The Company holds an option to acquire the remaining 50% interest in Maverick SponsorCo at a pre-agreed price. The interest capitalized to the equity investment during the three and nine months ended September 30, 2019 while the Maverick Creek Wind Project is under construction amounts to $934.
Maverick SponsorCo is considered a VIE namely due to the low level of equity at risk and the disproportionate voting and economic interests of the shareholders. The Company is not considered the primary beneficiary of Maverick SponsorCo as the two shareholders have joint control and all decisions must be unanimous. As such, the Company is accounting for its investment in the joint venture under the equity method.
(d)Amherst Island Wind Project
Up to April 16, 2019, APUC had a 50% interest in Windlectric Inc. ("Windlectric"), which owns a 74.1 MW wind generating facility ("Amherst Island Wind Facility") in the Province of Ontario. Construction was completed during the second quarter of 2018.
On April 16, 2019, the Company acquired the remaining 50% interest in Windlectric for $6,362 (C$8,500) and as a result, obtained control of the facility. Given substantially all of the fair value of the gross assets acquired is concentrated in the wind equipment, the facility is not considered a business. The acquisition was treated as an asset acquisition, which requires that the fair value of assets acquired and liabilities assumed in the subsidiary be recognized on the consolidated balance sheets as of the acquisition date. It further requires that pre-existing relationships such as the existing development loan between the two parties of $316,786 (note 6(h)) and prior investments achieved in stages also be remeasured at fair value. An income approach was used to value these items.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
| |
6. | Long-term investments (continued) |
(d)Amherst Island Wind Project (continued)
The following table summarizes the allocation of the assets acquired and liabilities assumed at the acquisition date:
|
| | | |
Working capital | $ | 14,280 |
|
Property, plant and equipment | 311,175 |
|
Deferred tax asset | 3,479 |
|
Asset retirement obligation | (1,600 | ) |
Net assets acquired | $ | 327,334 |
|
Cash | $ | 16,751 |
|
Net assets acquired, net of cash | $ | 310,583 |
|
(e)San Antonio Water System
On May 1, 2019, APUC invested $17,000 by way of a secured loan into AWUSA VR Holding LLC ("AWUSA"), a wholly owned subsidiary of Abengoa S.A. ("Abengoa"). An additional amount of $5,000 is payable at a later date, subject to certain conditions. The loan is secured by AWUSA's investment in the Vista Ridge water pipeline project. The Vista Ridge water pipeline project is a 140 mile water pipeline from Burleson County, Texas to San Antonio, Texas. Since APUC has the power to direct the activities of AWUSA and benefits from the economics of this entity, the Company consolidates AWUSA and its 20% interest in Vista Ridge. The investment in Vista Ridge is accounted for using the equity method. Commercial operations are expected in 2020.
(f)Investment in AAGES entities
APUC has a 50% interest in Abengoa-Algonquin Global Energy Solutions B.V. ("AAGES B.V."), AAGES Development Canada Inc., AAGES Development Spain S.A, and AAGES Sugar Creek LLC ("AAGES Sugar Creek") (collectively, the "AAGES entities"), which identify, develop, and construct clean energy and water infrastructure assets with a global focus for which it expects to earn development fees from successful projects.
The Company owned 100% of the interests in Sugar Creek Wind One LLC ("Sugar Creek"), which owns a 202 MW wind power electric development project ("Sugar Creek Wind Project") in Logan County, Illinois. On September 30, 2019, APUC and Abengoa created AAGES Sugar Creek to continue development and begin construction on the Sugar Creek Wind Project. Concurrently, the Sugar Creek Wind Project was sold to AAGES Sugar Creek in exchange for a note receivable of $21,107, subject to certain adjustments. As a result, Algonquin now owns a 50% interest in the project through AAGES Sugar Creek. The Company holds an option exercisable at any time to acquire Abengoa's interests in AAGES Sugar Creek at a pre-agreed price. The Company no longer controls the project and on the transaction date, the Company deconsolidated the assets and liabilities of Sugar Creek. No gain was recorded on deconsolidation of the Sugar Creek net assets. However, an amount of $15,765 or $11,412, net of tax was reclassified from AOCI into earnings as a result of the discontinuation of hedge accounting on energy derivatives put in place early in the development of Sugar Creek (note 20(b)(ii)).
AAGES Development Canada Inc., AAGES Development Spain, S.A., and AAGES Sugar Creek are considered VIEs due to the level of equity at risk and the disproportionate voting and economic interests of the shareholders. The Company is not considered the primary beneficiary of these entities as the two partners have joint control and all decisions must be unanimous. As such, the Company is accounting for its investment in the joint ventures under the equity method. In 2019, APUC and Abengoa each contributed additional capital of $2,262 (December 31, 2018 - $5,000) to the AAGES entities to fund ongoing operations until such time as they earn development fees from successful projects. The Company's share of the development costs resulted in an equity loss of $782 and $4,228 (2018 - $2,040 and $2,492) to the Company's unaudited interim consolidated financial results for the three and nine months ended September 30, 2019, respectively.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
| |
6. | Long-term investments (continued) |
(g)Wataynikaneyap Power Transmission Project
During the first quarter, APUC acquired a 9.8% ownership interest in the Wataynikaneyap Power Transmission Project, a transmission project that involves the development, construction and operation of a 1,800 km transmission line in Northwestern Ontario.
The Company has committed loan and credit support facilities with some of its equity investees. During construction, the Company is obligated to provide cash advances and credit support (in the form of letters of credit, escrowed cash, or guarantees) in amounts necessary for the continued development and construction of the equity investees' projects.
As of September 30, 2019, the Company has a loan and credit support facility with Maverick SponsorCo of $127,782 (December 31, 2018 - $nil). The loan to Maverick SponsorCo bears interest at an annual rate of 7% on outstanding principal amount and matures on the tenth anniversary of the commercial operation date. The letters of credit and guarantees are charged an annual fee of 2% on their stated amount. As of September 30, 2019, the following credit support was outstanding on behalf of Maverick SponsorCo: letters of credit and guarantees of obligations under the wind turbine supply agreement, engineering, procurement, and construction management agreements, and the energy purchase agreement. The value of the guarantee obligations is recognized under other long-term liabilities and as of September 30, 2019 is valued at $2,734 using a probability weighted discounted cash flow (level 3).
As of September 30, 2019, the Company has total notes receivable from the AAGES entities of $30,429 (December 31, 2018 - $4,940). As of September 30, 2019, the Company had issued letters of credit and guarantees of obligations under a security of performance for a development opportunity, wind turbine supply agreement, purchase and sale agreement, interconnection agreement, and renewable energy credit agreements. The value of the guarantee obligations is recognized under other long-term liabilities and as at September 30, 2019 is valued at $950 using a probability weighted discounted cash flow (level 3).
Following acquisition of control of Windlectric (note 6(d)), amounts advanced to Windlectric are eliminated on consolidation.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
Long-term debt consists of the following: |
| | | | | | | | | | | | | | | | | |
Borrowing type | | Weighted average coupon | | Maturity | | Par value | | September 30, 2019 | | December 31, 2018 |
Senior unsecured revolving credit facilities (a) | | — |
| | 2023-2024 | | N/A |
| | $ | 452,927 |
| | $ | 97,000 |
|
Senior unsecured bank credit facilities (b) | | — |
| | 2020 | | N/A |
| | 135,000 |
| | 321,807 |
|
Commercial paper (c) | | — |
| | 2020 | | N/A |
| | 203,500 |
| | 6,000 |
|
Senior U.S. dollar borrowings | | | | | | | | | | |
Senior unsecured notes | | 4.09 | % | | 2020-2047 | | $ | 1,225,000 |
| | 1,219,337 |
| | 1,218,680 |
|
Senior unsecured utility notes | | 6.0 | % | | 2020-2035 | | $ | 217,000 |
| | 234,058 |
| | 240,161 |
|
Senior secured utility bonds | | 4.75 | % | | 2020-2044 | | $ | 662,500 |
| | 673,427 |
| | 676,697 |
|
Senior Canadian dollar borrowings | | | | | | | | | | |
Senior unsecured notes (e) | | 4.48 | % | | 2020-2029 | | C$ | 950,669 |
| | 714,557 |
| | 474,764 |
|
Senior secured project notes | | 10.23 | % | | 2020-2027 | | C$ | 29,239 |
| | 22,079 |
| | 22,915 |
|
| | | | | | | | $ | 3,654,885 |
| | $ | 3,058,024 |
|
Subordinated U.S. dollar borrowings | | | | | | | | | | |
Subordinated unsecured notes (d) | | 6.5 | % | | 2078-2079 | | $ | 637,500 |
| | 621,329 |
| | 278,771 |
|
| | | | | | | | $ | 4,276,214 |
| | $ | 3,336,795 |
|
Less: current portion | | | | | | | | (210,565 | ) | | (13,048 | ) |
| | | | | | | | $ | 4,065,649 |
| | $ | 3,323,747 |
|
Long-term debt issued at a subsidiary level (project notes or utility bonds) relating to a specific operating facility is generally collateralized by the respective facility with no other recourse to the Company. Long-term debt issued at a subsidiary level whether or not collateralized generally has certain financial covenants, which must be maintained on a quarterly basis. Non-compliance with the covenants could restrict cash distributions/dividends to the Company from the specific facilities.
Short-term obligations of $367,005 that are expected to be refinanced using the long-term credit facilities are presented as long-term debt.
Recent financing activities:
| |
(a) | Senior unsecured revolving credit facilities |
On July 12, 2019, the Company entered into a new $500,000 senior unsecured revolving bank credit facility that matures July 12, 2024. The interest rate is equal to the bankers' acceptance or LIBOR plus a credit spread. The existing C$165,000 credit facility was canceled.
Subsequent to quarter end, on October 24, 2019, the Company entered into a new $75,000 uncommitted bilateral letter of credit facility.
| |
(b) | Senior unsecured bank credit facilities |
On May 23, 2019, the Company fully repaid the remaining outstanding balance of $186,807 on its corporate term facility. On June 27, 2019, the Liberty Utilities Group extended the maturity of its $135,000 term loan to July 6, 2020.
On July 1, 2019, the Liberty Utilities Group established a new $500,000 commercial paper program. This program is backstopped by the Liberty Utilities Group's bank credit facility.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
| |
7. | Long-term debt (continued) |
| |
(d) | Subordinated unsecured notes |
On May 23, 2019, the Company issued $350,000 unsecured, 6.20% fixed-to-floating subordinated notes ("subordinated notes") maturing on July 1, 2079. Concurrent with the offering, the Company entered into a cross currency swap to convert the U.S. dollar denominated coupon and principal payments from the offering into Canadian dollars.
Beginning on July 1, 2024, and on every quarter thereafter that the subordinated notes are outstanding (the "interest reset date") until July 1, 2029, the subordinated notes will be reset at an interest rate of the three-month LIBOR plus 4.01%, payable in arrears. In September 2019, the Company entered into forward starting interest rate swaps to convert its variable interest rate to fixed for the period of July 1, 2024 to July 1, 2029 (note 20(b)(ii)). Beginning on July 1, 2029, and on every interest reset date until July 1, 2049, the subordinated notes will be reset at an interest rate of the three-month LIBOR plus 4.26%, payable in arrears. Beginning on July 1, 2049, and on every interest reset date until July 1, 2079, the subordinated notes will be reset at an interest rate of the three-month LIBOR plus 5.01%, payable in arrears.
The Company may elect, at its sole option, to defer the interest payable on the subordinated notes on one or more occasions for up to five consecutive years. Deferred interest will accrue, compounding on each subsequent interest payment date, until paid. Additionally, on or after July 1, 2024, the Company may, at its option, redeem the subordinated notes, at a redemption price equal to 100% of the principal amount, together with accrued and unpaid interest.
| |
(e) | Canadian dollar senior unsecured notes |
During the first quarter, the Liberty Power Group issued C$300,000 senior unsecured notes bearing interest at 4.6% with a maturity date of January 29, 2029. The notes were sold at a price of C$99.952 per C$100.00 principal amount. Concurrent with the financing, the Liberty Power Group unwound and settled the related forward-starting interest rate swap on a notional bond of C$135,000 (note 20(b)(ii)).
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
| |
8. | Pension and other post-employment benefits |
The following table lists the components of net benefit costs for the pension plans and other post-employment benefits ("OPEB") in the unaudited interim consolidated statements of operations.
|
| | | | | | | | | | | | | | | |
| Pension benefits |
| Three Months Ended September 30 | | Nine months ended September 30 |
| 2019 | | 2018 | | 2019 | | 2018 |
Service cost | $ | 3,226 |
| | $ | 3,779 |
| | $ | 9,286 |
| | $ | 11,006 |
|
Non-service costs | | | | | | | |
Interest cost | 6,854 |
| | 4,356 |
| | 15,283 |
| | 12,746 |
|
Expected return on plan assets | (5,106 | ) | | (6,995 | ) | | (15,317 | ) | | (21,006 | ) |
Amortization of net actuarial loss | 872 |
| | 89 |
| | 2,616 |
| | 311 |
|
Amortization of prior service credits | (196 | ) | | (156 | ) | | (586 | ) | | (467 | ) |
Amortization of regulatory assets/liability | 2,292 |
| | 4,535 |
| | 6,563 |
| | 9,693 |
|
| 4,716 |
| | 1,829 |
| | 8,559 |
| | 1,277 |
|
Net benefit cost | $ | 7,942 |
| | $ | 5,608 |
| | $ | 17,845 |
| | $ | 12,283 |
|
|
| | | | | | | | | | | | | | | |
| OPEB |
| Three Months Ended September 30 | | Nine months ended September 30 |
| 2019 | | 2018 | | 2019 | | 2018 |
Service cost | $ | 1,201 |
| | $ | 1,464 |
| | $ | 3,603 |
| | $ | 4,438 |
|
Non-service costs | | | | | | | |
Interest cost | 1,809 |
| | 1,626 |
| | 5,427 |
| | 4,877 |
|
Expected return on plan assets | (1,650 | ) | | (1,849 | ) | | (4,951 | ) | | (5,546 | ) |
Amortization of net actuarial gain | (238 | ) | | (36 | ) | | (714 | ) | | (113 | ) |
Amortization of prior service credits | (52 | ) | | (65 | ) | | (157 | ) | | (196 | ) |
Amortization of regulatory assets/liability | 409 |
| | (242 | ) | | 1,870 |
| | 1,292 |
|
| 278 |
| | (566 | ) | | 1,475 |
| | 314 |
|
Net benefit cost | $ | 1,479 |
| | $ | 898 |
| | $ | 5,078 |
| | $ | 4,752 |
|
The service cost components of pension plans and OPEB are shown as part of operating expenses within operating income in the unaudited interim consolidated statements of operations. The remaining components of net benefit costs are considered non-service costs and have been included outside of operating income in pension and post-employment non-service costs in the unaudited interim consolidated statements of operations.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
| |
9. | Other long-term liabilities |
Other long-term liabilities consist of the following:
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
Advances in aid of construction | $ | 60,833 |
| | $ | 63,703 |
|
Environmental remediation obligation | 59,553 |
| | 55,621 |
|
Asset retirement obligations | 45,731 |
| | 43,291 |
|
Customer deposits | 30,425 |
| | 29,974 |
|
Unamortized investment tax credits | 17,992 |
| | 17,491 |
|
Deferred credits | 35,292 |
| | 42,711 |
|
Preferred shares, Series C | 13,613 |
| | 13,418 |
|
Lease liabilities (note 1(c)) | 9,773 |
| | 3,436 |
|
Other | 40,439 |
| | 36,274 |
|
| 313,651 |
| | 305,919 |
|
Less: current portion | (45,293 | ) | | (42,337 | ) |
| $ | 268,358 |
| | $ | 263,582 |
|
Number of common shares:
|
| | | | | | |
| | Nine Months Ended September 30 |
| | 2019 | | 2018 |
Common shares, beginning of period | | 488,851,433 |
| | 431,765,935 |
|
Public offering | | 1,756,799 |
| | 37,505,274 |
|
Dividend reinvestment plan | | 4,749,570 |
| | 4,161,755 |
|
Exercise of share-based awards (c) | | 1,211,448 |
| | 412,906 |
|
Conversion of convertible debentures | | 11,883 |
| | 54,645 |
|
Common shares, end of period | | 496,581,133 |
| | 473,900,515 |
|
On February 28, 2019, APUC established an at-the-market equity program ("ATM program") that allows the Company to issue up to $250,000 of common shares from treasury to the public from time to time, at the Company's discretion, at the prevailing market price when issued on the TSX, the NYSE, or any other existing trading market for the common shares of the Company in Canada or the United States. During the nine months ended September 30, 2019, the Company issued 1,756,799 common shares under the ATM program at an average price of $12.54 per common share for gross proceeds of $22,034 ($21,704 net of commissions). Other related costs, primarily related to the establishment of the ATM program, were $1,624.
Public offering
In October 2019, subsequent to quarter end, APUC issued 26,252,542 common shares at $13.50 per share pursuant to a public offering for proceeds of $354,409 before issuance costs of $13,822.
The holders of Series D preferred shares have the right to convert their shares into cumulative floating rate preferred shares, Series E, subject to certain conditions on March 31, 2019, and every fifth year thereafter. The Series D did not convert to Series E on March 31, 2019. The dividend for the five-year period from and including March 31, 2019 to but excluding March 31, 2024 will be C$1.2728. The Series D dividend will reset on March 31, 2024 and every five years thereafter at a rate equal to the then five-year Government of Canada bond plus 3.28%. The Series D preferred shares are redeemable at C$25 per share at the option of the Company on March 31, 2024 and every fifth year thereafter.
| |
10. | Shareholders’ capital (continued) |
| |
(c) | Share-based compensation |
During the nine months ended September 30, 2019, the Board approved the grant of 1,113,775 options to executives of the Company. The options allow for the purchase of common shares at a weighted average price of C$14.96, the market price of the underlying common share at the date of grant. One-third of the options vest on each of December 31, 2019, 2020, and 2021. Options may be exercised up to eight years following the date of grant.
The following assumptions were used in determining the fair value of share options granted:
|
| | | |
| 2019 |
|
Risk-free interest rate | 1.9 | % |
Expected volatility | 20 | % |
Expected dividend yield | 4.3 | % |
Expected life | 5.50 years |
|
Weighted average grant date fair value per option | C$ | 1.66 |
|
In March 2019, executives of the Company exercised 2,596,357 stock options at a weighted average exercise price of C$10.44 in exchange for 573,975 common shares issued from treasury, and 2,022,382 options were settled at their cash value as payment for the exercise price and tax withholdings related to the exercise of the options.
In March 2019, 366,787 performance share units ("PSUs") were granted to executives of the Company. In July 2019, 385,967 PSUs were granted to employees of the Company. The PSUs vest on January 1, 2022.
During the first quarter of 2019, the Company settled 344,340 PSUs in exchange for 179,830 common shares issued from treasury, and 164,510 PSUs were settled at their cash value as payment for tax withholdings related to the settlement of the PSUs.
During the second quarter of 2019, 125,001 bonus deferral restricted share units ("RSUs") were granted to employees of the Company. The RSUs are 100% vested.
In September 2019, executives of the Company exercised 1,286,148 stock options at a weighted average exercise price of C$12.82 in exchange for 267,313 common shares issued from treasury, and 1,018,835 options settled at their cash value as payment for the exercise price and tax withholdings related to the exercise of the options.
During the nine months ended September 30, 2019, 61,282 deferred share units ("DSUs") were issued pursuant to the election of the Directors to defer a percentage of their Directors' fee in the form of DSUs.
For the three and nine months ended September 30, 2019, APUC recorded $2,814 and $7,287 (2018 - $2,351 and $5,996) in total share-based compensation expense. The compensation expense is recorded as part of administrative expenses in the unaudited interim consolidated statements of operations. The portion of share-based compensation costs capitalized as cost of construction is insignificant.
As of September 30, 2019, total unrecognized compensation costs related to non-vested options and PSUs were $1,529 and $12,126, respectively, and are expected to be recognized over a period of 1.92 and 1.86 years, respectively.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
11.Accumulated other comprehensive income (loss)
AOCI attributable to the shareholders of APUC consists of the following balances, net of tax:
|
| | | | | | | | | | | | | | | | |
| Foreign currency cumulative translation | | Change in fair value of cash flow hedges | | | Pension and post-employment actuarial changes | | Total |
Balance, January 1, 2018 | $ | (47,701 | ) | | $ | 55,366 |
| | | $ | (10,457 | ) | | $ | (2,792 | ) |
Cumulative catch-up adjustments related to adoption of ASU 2018-02 on tax effects in AOCI | — |
| | 11,657 |
| | | (1,032 | ) | | 10,625 |
|
Other comprehensive income (loss) | (27,969 | ) | | 1,567 |
| | | 2,046 |
| | (24,356 | ) |
Amounts reclassified from AOCI to the statements of operations | — |
| | (4,257 | ) | | | (86 | ) | | (4,343 | ) |
Net current period OCI | (27,969 | ) |
| (2,690 | ) | | | 1,960 |
| | (28,699 | ) |
OCI attributable to the non-controlling interests | 1,481 |
| | — |
| | | — |
| | 1,481 |
|
Net current period OCI attributable to shareholders of APUC | (26,488 | ) | | (2,690 | ) | | | 1,960 |
| | (27,218 | ) |
Balance, December 31, 2018 | $ | (74,189 | ) | | $ | 64,333 |
| | | $ | (9,529 | ) | | $ | (19,385 | ) |
Cumulative catch-up adjustment related to adoption of ASU 2017-12 on tax effects in AOCI (note 2(a)) | — |
| | 186 |
| | | — |
| | 186 |
|
Other comprehensive income | 45 |
| | 19,137 |
| | | — |
| | 19,182 |
|
Amounts reclassified from AOCI to the statements of operations | — |
| | (11,282 | ) | | | (230 | ) | | (11,512 | ) |
Net current period OCI | $ | 45 |
| | $ | 7,855 |
| | | $ | (230 | ) | | $ | 7,670 |
|
OCI attributable to the non-controlling interests | (1,463 | ) | | — |
| | | — |
| | (1,463 | ) |
Net current period OCI attributable to shareholders of APUC | (1,418 | ) | | 7,855 |
| | | (230 | ) | | 6,207 |
|
Balance, September 30, 2019 | $ | (75,607 | ) | | $ | 72,374 |
| | | $ | (9,759 | ) | | $ | (12,992 | ) |
Amounts reclassified from AOCI for pension and post-employment actuarial changes affect pension and post-employment non-service costs. Amounts reclassified for cash flow hedges affect revenue from non-regulated energy sales and interest expense with the exception of an amount of $15,765 or $11,412, net of tax which was reclassified from AOCI into earnings in the third quarter as the hedge relationship for the energy derivative was discontinued (note 20(b)(ii)).
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
All dividends of the Company are made on a discretionary basis as determined by the Board. The Company declares and pays the dividends on its common shares in U.S. dollars. Dividends declared during the period were as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 |
| 2019 | | 2018 |
| Dividend | | Dividend per share | | Dividend | | Dividend per share |
Common shares | $ | 70,392 |
| | $ | 0.1410 |
| | $ | 61,020 |
| | $ | 0.1282 |
|
Series A preferred shares | C$ | 1,548 |
| | C$ | 0.3226 |
| | C$ | 1,350 |
| | C$ | 0.2813 |
|
Series D preferred shares | C$ | 1,273 |
| | C$ | 0.3182 |
| | C$ | 1,250 |
| | C$ | 0.3125 |
|
|
| | | | | | | | | | | | | | | |
| Nine months ended September 30 |
| 2019 | | 2018 |
| Dividend | | Dividend per share | | Dividend | | Dividend per share |
Common shares | $ | 203,542 |
| | $ | 0.4102 |
| | $ | 172,379 |
| | $ | 0.3729 |
|
Series A preferred shares | C$ | 4,646 |
| | C$ | 0.9678 |
| | C$ | 4,050 |
| | C$ | 0.8439 |
|
Series D preferred shares | C$ | 3,796 |
| | C$ | 0.9489 |
| | C$ | 3,750 |
| | C$ | 0.9375 |
|
| |
13. | Related party transactions |
Equity-method investments
The Company provides administrative and development services to its equity-method investees and is reimbursed for incurred costs. To that effect, the Company charged its equity-method investees $5,350 and $18,203 (2018 - $4,952 and $6,888) during the three and nine months ended September 30, 2019, respectively.
On September 30, 2019, the Company sold the Sugar Creek Wind Project to AAGES Sugar Creek in exchange for a note receivable of $21,107, subject to certain adjustments. No gain was recorded on deconsolidation of the Sugar Creek net assets. However, an amount of $15,765 or $11,412, net of tax was reclassified from AOCI into earnings as a result of the discontinuation of hedge accounting on energy derivatives put in place early in the development of Sugar Creek (note 6(f)).
During the year, the Company entered into an enhanced cooperation agreement with Atlantica to, among other things, provide a framework for evaluating mutually advantageous transactions. For a period of one year from the date of the agreement, Atlantica has an exclusive right of first offer for interests in certain Liberty Power assets.
Redeemable non-controlling interests held by related party
Redeemable non-controlling interest held by related party represents a preference share in a consolidated subsidiary of the Company acquired by AAGES B.V. in 2018. Redemption is not considered probable as at September 30, 2019. The Company incurred non-controlling interest attributable to AAGES B.V. of $7,009 and $20,923 (2018 - $nil and $nil) and recorded distributions of $3,815 and $14,682 (2018 - $nil and $nil) during the three and nine months ended September 30, 2019, respectively.
Non-controlling interests held by related party
Non-controlling interest held by related party represents interest in a consolidated subsidiary of the Company acquired by AYES Canada in May 2019 (note 6(b)). The Company incurred non-controlling interest calculated using the HLBV method of accounting of $nil and $nil (2018 - $nil and $nil) and recorded distributions of $2,715 and $20,517 (2018 - $nil and $nil) during the three and nine months ended September 30, 2019, respectively.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
| |
13. | Related party transactions (continued) |
Long Sault Hydro Facility
Effective December 31, 2013, APUC acquired the shares of Algonquin Power Corporation Inc. ("APC") which was partially owned by Senior Executives. APC owns the partnership interest in the 18 MW Long Sault Hydro Facility. A final post-closing adjustment related to the transaction remains outstanding.
The above related party transactions have been recorded at the exchange amounts agreed to by the parties to the transactions.
| |
14. | Non-controlling interests |
Net loss attributable to non-controlling interests for the three and nine months ended September 30, 2019 and 2018 consists of the following:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine months ended September 30 |
| 2019 | | 2018 | | 2019 | | 2018 |
HLBV and other adjustments attributable to: | | | | | | | |
Non-controlling interests - partnership units | $ | (9,674 | ) | | $ | (3,849 | ) | | $ | (42,009 | ) | | $ | (90,194 | ) |
Non-controlling interests - redeemable partnership units | (2,267 | ) | | (1,681 | ) | | (6,912 | ) | | (6,696 | ) |
Other net earnings attributable to: | | | | | | | |
Non-controlling interests | 564 |
| | 299 |
| | 1,855 |
| | 1,425 |
|
| $ | (11,377 | ) | | $ | (5,231 | ) | | $ | (47,066 | ) | | $ | (95,465 | ) |
Redeemable non-controlling interests, held by related party | 7,009 |
| | — |
| | 20,923 |
| | — |
|
Net effect of non-controlling interests | $ | (4,368 | ) | | $ | (5,231 | ) | | $ | (26,143 | ) | | $ | (95,465 | ) |
The non-controlling Class A membership equity investors in the Company's U.S. wind power and solar power generating facilities are entitled to allocations of earnings, tax attributes and cash flows in accordance with contractual agreements. The share of earnings attributable to the non-controlling interest holders in these subsidiaries is calculated using the HLBV method of accounting. The reduced U.S. federal corporate tax rate of 21% and other certain measures included in the Tax Cuts and Jobs Act effective January 1, 2018 were reflected in the calculation of HLBV in 2018. The changes accelerated HLBV income from future years to the first quarter of 2018 by $55,900.
For the nine months ended September 30, 2019, the Company's tax rate varied from the statutory rate of 26.5% due primarily to the favorable tax impact on the income associated with its investment in Atlantica, and the impact of differences in effective tax rates on transactions in foreign jurisdictions.
For the nine months ended September 30, 2018, the Company's tax rate varied from the statutory rate of 26.5% due primarily to the immediate fair value loss on its investment in Atlantica, which was not tax benefited, and the tax impact of the accelerated HLBV income as a result of tax reform.
| |
16. | Basic and diluted net earnings per share |
Basic and diluted net earnings per share have been calculated on the basis of net earnings attributable to the common shareholders of the Company and the weighted average number of common shares and bonus deferral restricted share units outstanding. Diluted net earnings per share is computed using basic weighted-average number of common shares adjusted for the shares issuable upon conversion of the convertible debentures, PSUs, RSUs, and DSUs outstanding during the period, potential incremental common shares resulting from the application of the treasury stock method to outstanding share options and additional shares issued subsequent to quarter-end under the dividend reinvestment plan.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
| |
16. | Basic and diluted net earnings per share (continued) |
The reconciliation of the net earnings and the weighted average shares used in the computation of basic and diluted earnings per share are as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine months ended September 30 |
| 2019 | | 2018 | | 2019 | | 2018 |
Net earnings attributable to shareholders of APUC | $ | 115,754 |
| | $ | 57,930 |
| | $ | 358,785 |
| | $ | 140,990 |
|
Series A Preferred shares dividend | 1,173 |
| | 1,033 |
| | 3,496 |
| | 3,146 |
|
Series D Preferred shares dividend | 964 |
| | 956 |
| | 2,856 |
| | 2,913 |
|
Net earnings attributable to common shareholders of APUC from continuing operations – Basic and Diluted | $ | 113,617 |
| | $ | 55,941 |
| | $ | 352,433 |
| | $ | 134,931 |
|
Weighted average number of shares | | | | | | | |
Basic | 495,912,305 |
| | 473,774,957 |
| | 493,192,919 |
| | 456,551,230 |
|
Effect of dilutive securities | 5,144,344 |
| | 4,450,388 |
| | 4,798,345 |
| | 4,147,770 |
|
Diluted | 501,056,649 |
| | 478,225,345 |
| | 497,991,264 |
| | 460,699,000 |
|
The shares potentially issuable for the three and nine months ended September 30, 2019, as a result of nil and 1,113,775 share options (2018 - 3,380,184 and 3,057,918), respectively, are excluded from this calculation as they are anti-dilutive.
17.Segmented information
The Company is managed under two primary business units consisting of the Liberty Utilities Group and the Liberty Power Group. The two business units are the two segments of the Company.
The Liberty Utilities Group, the Company's regulated operating unit, owns and operates a portfolio of electric, natural gas, water distribution and wastewater collection utility systems and transmission operations in the United States and Canada; the Liberty Power Group, the Company's non-regulated operating unit, owns and operates a diversified portfolio of renewable and thermal electric generation assets in North America and internationally.
For purposes of evaluating divisional performance, the Company allocates the realized portion of any gains or losses on financial instruments to specific divisions. Equity income from the San Antonio Water System and Wataynikaneyap Power Transmission Project (note 6) are included in the operations of the Liberty Utilities Group. Dividend income from Atlantica and AYES Canada as well as equity income from the AAGES entities (note 6) are included in the operations of the Liberty Power Group. The change in value of investments carried at fair value and unrealized portion of any gains or losses on derivative instruments not designated in a hedging relationship are not considered in management’s evaluation of divisional performance and are therefore allocated and reported under corporate.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
17.Segmented information (continued)
The results of operations and assets for these segments are reflected in the tables below.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 |
| Liberty Utilities Group | | Liberty Power Group | | Corporate | | Total |
Revenue (1)(2) | $ | 310,106 |
| | $ | 55,460 |
| | $ | — |
| | $ | 365,566 |
|
Fuel, power and water purchased | 81,670 |
| | 3,531 |
| | — |
| | 85,201 |
|
Net revenue | 228,436 |
| | 51,929 |
| | — |
| | 280,365 |
|
Operating expenses | 96,562 |
| | 19,686 |
| | — |
| | 116,248 |
|
Administrative expenses | 7,038 |
| | 7,543 |
| | 348 |
| | 14,929 |
|
Depreciation and amortization | 47,100 |
| | 18,435 |
| | 247 |
| | 65,782 |
|
Gain on foreign exchange | — |
| | — |
| | (859 | ) | | (859 | ) |
Operating income | 77,736 |
| | 6,265 |
| | 264 |
| | 84,265 |
|
Interest expense | 23,713 |
| | 14,486 |
| | 7,469 |
| | 45,668 |
|
Change in value of investments carried at fair value | — |
| | — |
| | (64,394 | ) | | (64,394 | ) |
Dividend, interest, equity and other income | (2,041 | ) | | (23,253 | ) | | (367 | ) | | (25,661 | ) |
Other | 7,831 |
| | (15,302 | ) | | 2,769 |
| | (4,702 | ) |
Earnings before income taxes | $ | 48,233 |
| | $ | 30,334 |
| | $ | 54,787 |
| | $ | 133,354 |
|
Capital expenditures | $ | 130,619 |
| | $ | 59,628 |
| | $ | — |
| | $ | 190,247 |
|
(1) Revenues include $2,071 related to hedging gains from energy derivative contracts for the three months ended September 30, 2019 that do not represent revenues recognized from contracts with customers.
(2) Liberty Utilities Group revenues include $3,805 related to alternative revenue programs for the three months ended September 30, 2019 that do not represent revenues recognized from contracts with customers.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2018 |
| Liberty Utilities Group | | Liberty Power Group | | Corporate | | Total |
Revenue (1)(2) | $ | 311,269 |
| | $ | 54,976 |
| | $ | — |
| | $ | 366,245 |
|
Fuel, power and water purchased | 80,052 |
| | 7,247 |
| | — |
| | 87,299 |
|
Net revenue | 231,217 |
| | 47,729 |
| | — |
| | 278,946 |
|
Operating expenses | 98,467 |
| | 20,338 |
| | — |
| | 118,805 |
|
Administrative expenses | 10,239 |
| | 1,253 |
| | 50 |
| | 11,542 |
|
Depreciation and amortization | 46,703 |
| | 16,544 |
| | 248 |
| | 63,495 |
|
Loss on foreign exchange | — |
| | — |
| | 274 |
| | 274 |
|
Operating income (loss) | 75,808 |
| | 9,594 |
| | (572 | ) | | 84,830 |
|
Interest expense | 24,336 |
| | 12,975 |
| | 594 |
| | 37,905 |
|
Change in value of investment carried at fair value | — |
| | — |
| | (10,022 | ) | | (10,022 | ) |
Dividend, interest, equity and other loss (income) | (1,343 | ) | | (11,563 | ) | | 1,478 |
| | (11,428 | ) |
Other | 1,985 |
| | 2,032 |
| | 925 |
| | 4,942 |
|
Earnings before income taxes | $ | 50,830 |
| | $ | 6,150 |
| | $ | 6,453 |
| | $ | 63,433 |
|
Capital expenditures | $ | 94,001 |
| | $ | 7,253 |
| | $ | — |
| | $ | 101,254 |
|
(1) Revenues include $2,479 related to hedging gains from energy derivative contracts for the three months ended September 30, 2018 that do not represent revenues recognized from contracts with customers.(2) Liberty Utilities Group revenues include $3,956 related to alternative revenue programs for the three months ended September 30, 2018 that do not represent revenues recognized from contracts with customers.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
17.Segmented information (continued)
|
| | | | | | | | | | | | | | | |
| Nine months ended September 30, 2019 |
| Liberty Utilities Group | | Liberty Power Group | | Corporate | | Total |
Revenue (1)(2) | $ | 1,002,737 |
| | $ | 183,632 |
| | $ | — |
| | $ | 1,186,369 |
|
Fuel, power and water purchased | 305,745 |
| | 13,110 |
| | — |
| | 318,855 |
|
Net revenue | 696,992 |
| | 170,522 |
| | — |
| | 867,514 |
|
Operating expenses | 300,558 |
| | 55,990 |
| | — |
| | 356,548 |
|
Administrative expenses | 19,017 |
| | 22,432 |
| | 122 |
| | 41,571 |
|
Depreciation and amortization | 142,551 |
| | 63,356 |
| | 735 |
| | 206,642 |
|
Loss on foreign exchange | — |
| | — |
| | 75 |
| | 75 |
|
Operating income (loss) | 234,866 |
| | 28,744 |
| | (932 | ) | | 262,678 |
|
Interest expense | 74,862 |
| | 46,930 |
| | 12,337 |
| | 134,129 |
|
Change in value of investments carried at fair value | — |
| | — |
| | (179,970 | ) | | (179,970 | ) |
Dividend, interest, equity and other income | (5,152 | ) | | (83,800 | ) | | (1,267 | ) | | (90,219 | ) |
Other | 18,587 |
| | (15,229 | ) | | 5,134 |
| | 8,492 |
|
Earnings before income taxes | $ | 146,569 |
| | $ | 80,843 |
| | $ | 162,834 |
| | $ | 390,246 |
|
Capital expenditures | $ | 332,792 |
| | $ | 70,505 |
| | $ | — |
| | $ | 403,297 |
|
Property, plant and equipment | $ | 4,407,476 |
| | $ | 2,450,491 |
| | $ | 31,996 |
| | $ | 6,889,963 |
|
Investments carried at fair value | — |
| | 1,161,229 |
| | — |
| | 1,161,229 |
|
Equity-method investees | 28,848 |
| | 26,381 |
| | 268 |
| | 55,497 |
|
Total assets | $ | 6,485,886 |
| | $ | 4,020,664 |
| | $ | 112,340 |
| | $ | 10,618,890 |
|
(1) Revenues include $13,711 related to hedging gains for the nine months ended September 30, 2019 that do not represent revenues recognized from contracts with customers.
(2) Liberty Utilities Group revenues include $244 related to alternative revenue programs for the nine months ended September 30, 2019 that do not represent revenues recognized from contracts with customers.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
17.Segmented information (continued)
|
| | | | | | | | | | | | | | | |
| Nine months ended September 30, 2018 |
| Liberty Utilities Group | | Liberty Power Group | | Corporate | | Total |
Revenue (1)(2) | $ | 1,044,857 |
| | $ | 181,745 |
| | $ | — |
| | $ | 1,226,602 |
|
Fuel and power purchased | 332,480 |
| | 20,701 |
| | — |
| | 353,181 |
|
Net revenue | 712,377 |
| | 161,044 |
| | — |
| | 873,421 |
|
Operating expenses | 302,455 |
| | 57,734 |
| | — |
| | 360,189 |
|
Administrative expenses | 28,296 |
| | 8,998 |
| | 395 |
| | 37,689 |
|
Depreciation and amortization | 136,187 |
| | 59,977 |
| | 761 |
| | 196,925 |
|
Gain on foreign exchange | — |
| | — |
| | (797 | ) | | (797 | ) |
Operating income (loss) | 245,439 |
| | 34,335 |
| | (359 | ) | | 279,415 |
|
Interest expense | 74,307 |
| | 35,842 |
| | 1,685 |
| | 111,834 |
|
Change in value of investment carried at fair value | — |
| | — |
| | 91,949 |
| | 91,949 |
|
Dividend, interest and other income | (4,103 | ) | | (29,239 | ) | | 361 |
| | (32,981 | ) |
Other | 911 |
| | 1,992 |
| | 9,569 |
| | 12,472 |
|
Earnings (loss) before income taxes | $ | 174,324 |
| | $ | 25,740 |
| | $ | (103,923 | ) | | $ | 96,141 |
|
Capital expenditures | $ | 262,734 |
| | $ | 79,790 |
| | — |
| | $ | 342,524 |
|
| December 31, 2018 |
Property, plant and equipment | $ | 4,210,115 |
| | $ | 2,152,420 |
| | $ | 31,023 |
| | $ | 6,393,558 |
|
Investment carried at fair value | — |
| | 814,530 |
| | — |
| | 814,530 |
|
Equity-method investees | 959 |
| | 29,273 |
| | 260 |
| | 30,492 |
|
Total assets | $ | 6,012,641 |
| | $ | 3,269,786 |
| | $ | 106,541 |
| | $ | 9,388,968 |
|
(1) Revenues include $10,787 related to hedging gains from energy derivative contracts for the nine months ended September 30, 2018 that do not represent revenues recognized from contracts with customers.
(2) Liberty Utilities Group revenues include $9,341 related to alternative revenue programs for the nine months ended September 30, 2018 that do not represent revenues recognized from contracts with customers.
APUC operates in the independent power and utility industries in both Canada and the United States. Information on operations by geographic area is as follows: |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine months ended September 30 |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenue | | | | | | | |
Canada | $ | 20,104 |
| | $ | 15,005 |
| | $ | 60,268 |
| | $ | 51,909 |
|
United States | 345,462 |
| | 351,240 |
| | 1,126,101 |
| | 1,174,693 |
|
| $ | 365,566 |
| | $ | 366,245 |
| | $ | 1,186,369 |
| | $ | 1,226,602 |
|
Revenue is attributed to the two countries based on the location of the underlying facilities.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
18.Commitments and contingencies
APUC and its subsidiaries are involved in various claims and litigation arising out of the ordinary course and conduct of its business. Although such matters cannot be predicted with certainty, management does not consider APUC’s exposure to such litigation to be material to these financial statements. Accruals for any contingencies related to these items are recorded in the consolidated financial statements at the time it is concluded that its occurrence is probable and the related liability is estimable.
Claim by Gaia Power Inc.
On October 30, 2018, Gaia Power Inc. ("Gaia") commenced an action in the Ontario Superior Court of Justice against APUC and certain of its subsidiaries, claiming damages of not less than C$345,000 and punitive damages in the sum of C$25,000. The action arises from Gaia’s 2010 sale, to a subsidiary of APUC, of Gaia’s interest in certain proposed wind farm projects in Canada. Pursuant to a 2010 royalty agreement, Gaia is entitled to royalty payments if the projects are developed and achieve certain agreed targets. It is too early to determine the likelihood of success in this lawsuit, however APUC intends to vigorously defend it.
Condemnation Expropriation Proceedings
Liberty Utilities (Apple Valley Ranchos Water) Corp. is the subject of a condemnation lawsuit filed by the town of Apple Valley. A Court will determine the necessity of the taking by Apple Valley and, if established, a jury will determine the fair market value of the assets being condemned. Resolution of the condemnation proceedings is expected to take two to three years. Any taking by government entities would legally require fair compensation to be paid; however, there is no assurance that the value received as a result of the condemnation will be sufficient to recover the Company's net book value of the utility assets taken.
In addition to the commitments related to the proposed acquisitions and development projects disclosed in notes 3 and 6, the following significant commitments exist as of September 30, 2019.
APUC has outstanding purchase commitments for power purchases, gas delivery, service and supply, service agreements, capital project commitments and land easements.
Detailed below are estimates of future commitments under these arrangements:
|
| | | | | | | | | | | | | | | | | | | | | |
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Thereafter | Total |
Power purchase (i) | $ | 23,698 |
| $ | 11,059 |
| $ | 11,281 |
| $ | 11,509 |
| $ | 11,738 |
| $ | 182,400 |
| $ | 251,685 |
|
Gas supply and service agreements (ii) | 67,414 |
| 37,188 |
| 28,933 |
| 27,414 |
| 21,518 |
| 41,849 |
| 224,316 |
|
Service agreements | 48,106 |
| 40,200 |
| 40,265 |
| 44,409 |
| 46,226 |
| 303,817 |
| 523,023 |
|
Capital projects | 294,701 |
| 116,851 |
| — |
| — |
| — |
| — |
| 411,552 |
|
Land easements (note 1(c)) | 6,513 |
| 6,625 |
| 6,695 |
| 6,780 |
| 6,867 |
| 201,708 |
| 235,188 |
|
Total | $ | 440,432 |
| $ | 211,923 |
| $ | 87,174 |
| $ | 90,112 |
| $ | 86,349 |
| $ | 729,774 |
| $ | 1,645,764 |
|
| |
(i) | Power purchase: APUC’s electric distribution facilities have commitments to purchase physical quantities of power for load serving requirements. The commitment amounts included in the table above are based on market prices as of September 30, 2019. However, the effects of purchased power unit cost adjustments are mitigated through a purchased power rate-adjustment mechanism. |
| |
(ii) | Gas supply and service agreements: APUC’s gas distribution facilities and thermal generation facilities have commitments to purchase physical quantities of natural gas under contracts for purposes of load serving requirements and of generating power. |
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
| |
19. | Non-cash operating items |
The changes in non-cash operating items consist of the following:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine months ended September 30 |
| 2019 | | 2018 | | 2019 | | 2018 |
Accounts receivable | $ | 19,317 |
| | $ | (12,296 | ) | | $ | 31,038 |
| | $ | 17,488 |
|
Fuel and natural gas in storage | (3,404 | ) | | (9,348 | ) | | 6,657 |
| | (13 | ) |
Supplies and consumable inventory | (1,144 | ) | | (1,993 | ) | | (6,065 | ) | | (7,337 | ) |
Income taxes recoverable | (11,072 | ) | | (3,064 | ) | | (4,271 | ) | | (5,138 | ) |
Prepaid expenses | (3,086 | ) | | (1,609 | ) | | (8,554 | ) | | 2,425 |
|
Accounts payable | (13,153 | ) | | 7,608 |
| | (23,261 | ) | | (42,870 | ) |
Accrued liabilities | 77,898 |
| | 32,888 |
| | 22,187 |
| | 3,538 |
|
Current income tax liability | 15,108 |
| | 3,779 |
| | 15,802 |
| | 6,568 |
|
Asset retirements and environmental obligations | (746 | ) | | (1,497 | ) | | (2,168 | ) | | (7,222 | ) |
Net regulatory assets and liabilities | (8,954 | ) | | (9,849 | ) | | (830 | ) | | (2,811 | ) |
| $ | 70,764 |
| | $ | 4,619 |
| | $ | 30,535 |
| | $ | (35,372 | ) |
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
20. Financial instruments
| |
(a) | Fair value of financial instruments |
|
| | | | | | | | | | | | | | | | | | | |
September 30, 2019 | Carrying amount | | Fair value | | Level 1 | | Level 2 | | Level 3 |
Long-term investments carried at fair value | $ | 1,161,229 |
| | $ | 1,161,229 |
| | $ | — |
| | $ | 1,079,814 |
| | $ | 81,415 |
|
Development loans and other receivables | $ | 160,390 |
| | $ | 163,424 |
| | $ | — |
| | $ | 163,424 |
| | $ | — |
|
Derivative instruments (1): | | | | | | | | | |
Energy contracts designated as a cash flow hedge | 82,314 |
| | 82,314 |
| | — |
| | — |
| | 82,314 |
|
Currency forward contract not designated as a hedge | 28 |
| | 28 |
| | — |
| | 28 |
| | — |
|
Commodity contracts for regulated operations | 32 |
| | 32 |
| | — |
| | 32 |
| | — |
|
Cross currency swap designated as a net investment hedge | 1,095 |
| | 1,095 |
| | — |
| | 1,095 |
| | — |
|
Total derivative instruments | 83,469 |
| | 83,469 |
| | — |
| | 1,155 |
| | 82,314 |
|
Total financial assets | $ | 1,405,088 |
| | $ | 1,408,122 |
| | $ | — |
| | $ | 1,244,393 |
| | $ | 163,729 |
|
Long-term debt | $ | 4,276,214 |
| | $ | 4,636,910 |
| | $ | 1,466,540 |
| | $ | 3,170,371 |
| | $ | — |
|
Convertible debentures | 393 |
| | 707 |
| | 707 |
| | — |
| | — |
|
Preferred shares, Series C | 13,613 |
| | 14,549 |
| | — |
| | 14,549 |
| | — |
|
Derivative instruments: | | | | | | | | | |
Energy contracts designated as a cash flow hedge | 276 |
| | 276 |
| | — |
| | — |
| | 276 |
|
Cross-currency swap designated as a net investment hedge | 88,661 |
| | 88,661 |
| | — |
| | 88,661 |
| | — |
|
Commodity contracts for regulated operations | 2,665 |
| | 2,665 |
| | — |
| | 2,665 |
| | — |
|
Total derivative instruments | 91,602 |
| | 91,602 |
| | — |
| | 91,326 |
| | 276 |
|
Total financial liabilities | $ | 4,381,822 |
| | $ | 4,743,768 |
| | $ | 1,467,247 |
| | $ | 3,276,246 |
| | $ | 276 |
|
(1) Balance of $79 associated with certain weather derivatives has been excluded, as they are accounted for based on intrinsic value rather than fair value.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
| |
20. | Financial instruments (continued) |
(a)Fair value of financial instruments (continued) |
| | | | | | | | | | | | | | | | | | | |
December 31, 2018 | Carrying amount | | Fair value | | Level 1 | | Level 2 | | Level 3 |
Long-term investment carried at fair value | $ | 814,530 |
| | $ | 814,530 |
| | $ | 814,530 |
| | $ | — |
| | $ | — |
|
Development loans and other receivables | $ | 103,696 |
| | $ | 110,019 |
| | $ | — |
| | $ | 110,019 |
| | $ | — |
|
Derivative instruments: | | | | | | | | | |
Energy contracts designated as a cash flow hedge | 61,838 |
| | 61,838 |
| | — |
| | — |
| | 61,838 |
|
Currency forward contract not designated as a hedge | 869 |
| | 869 |
| | — |
| | 869 |
| | — |
|
Commodity contracts for regulatory operations | 101 |
| | 101 |
| | — |
| | 101 |
| | — |
|
Total derivative instruments | 62,808 |
| | 62,808 |
| | — |
| | 970 |
| | 61,838 |
|
Total financial assets | $ | 981,034 |
| | $ | 987,357 |
|
| $ | 814,530 |
|
| $ | 110,989 |
|
| $ | 61,838 |
|
Long-term debt | $ | 3,336,795 |
| | $ | 3,356,773 |
| | $ | 768,400 |
| | $ | 2,588,373 |
| | $ | — |
|
Convertible debentures | 470 |
| | 639 |
| | 639 |
| | — |
| | — |
|
Preferred shares, Series C | 13,418 |
| | 13,703 |
| | — |
| | 13,703 |
| | — |
|
Derivative instruments: | | | | | | | | | |
Energy contracts designated as a cash flow hedge | 57 |
| | 57 |
| | — |
| | — |
| | 57 |
|
Cross-currency swap designated as a net investment hedge | 93,198 |
| | 93,198 |
| | — |
| | 93,198 |
| | — |
|
Interest rate swaps designated as a hedge | 8,473 |
| | 8,473 |
| | — |
| | 8,473 |
| | — |
|
Commodity contracts for regulated operations | 1,114 |
| | 1,114 |
| | — |
| | 1,114 |
| | — |
|
Total derivative instruments | 102,842 |
| | 102,842 |
| | — |
| | 102,785 |
| | 57 |
|
Total financial liabilities | $ | 3,453,525 |
| | $ | 3,473,957 |
| | $ | 769,039 |
| | $ | 2,704,861 |
| | $ | 57 |
|
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
| |
20. | Financial instruments (continued) |
| |
(a) | Fair value of financial instruments (continued) |
The Company has determined that the carrying value of its short-term financial assets and liabilities approximates fair value as of September 30, 2019 and 2018 due to the short-term maturity of these instruments.
The fair value of development loans and other receivables (level 2) has been determined using a discounted cash flow method, using estimated current market rates for similar instruments adjusted for estimated credit risk as determined by management.
The fair value of the investment in Atlantica (level 2) is measured at the closing price on the NASDAQ stock exchange adjusted for the impact of the expected settlement under the purchase agreement pursuant to the prepayment of $53,750 (note 6(a)).
The Company's level 1 fair value of long-term debt is measured at the closing price on the NYSE stock exchange and the Canadian over-the-counter closing price. The Company’s level 2 fair value of long-term debt at fixed interest rates and Series C preferred shares has been determined using a discounted cash flow method and current interest rates. The Company's level 2 fair value of convertible debentures has been determined as the greater of their face value and the quoted value of APUC's common shares on converted basis.
The Company’s level 2 fair value derivative instruments primarily consist of swaps, options, rights and forward physical derivatives where market data for pricing inputs are observable. Level 2 pricing inputs are obtained from various market indices and utilize discounting based on quoted interest rate curves, which are observable in the marketplace.
The Company’s level 3 instruments consist of energy contracts for electricity sales and the fair value of the Company's investment in AYES Canada. The significant unobservable inputs used in the fair value measurement of energy contracts are the internally developed forward market prices ranging from $12.48 to $178.32 with a weighted average of $22.97 as of September 30, 2019. The weighted average forward market prices are developed based on the quantity of energy expected to be sold monthly and the expected forward price during that month. The change in the fair value of the energy contracts is detailed in notes 20(b)(ii) and 20(b)(iv). The significant unobservable inputs used in the fair value measurement of the Company's AYES Canada investment are the expected cash flows and the discount rates applied to these cash flows ranging from 9.1% to 9.6% with a weighted average of 9.51% as of September 30, 2019. Significant decreases (increases) in expected cash flows or increases (decreases) in discount rate in isolation would have resulted in a significantly lower (higher) fair value measurement.
| |
(b) | Derivative instruments |
Derivative instruments are recognized on the unaudited interim consolidated balance sheets as either assets or liabilities and measured at fair value at each reporting period.
| |
(i) | Commodity derivatives – regulated accounting |
The Company uses derivative financial instruments to reduce the cash flow variability associated with the purchase price for a portion of future natural gas purchases associated with its regulated gas and electric service territories. The Company’s strategy is to minimize fluctuations in gas sale prices to regulated customers.
The following are commodity volumes, in dekatherms ("dths") associated with the above derivative contracts:
|
| | |
| 2019 |
Financial contracts: Swaps | 3,717,902 |
|
Options | 225,000 |
|
Forward contracts | 3,500,000 |
|
| 7,442,902 |
|
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
| |
20. | Financial instruments (continued) |
| |
(b) | Derivative instruments (continued) |
| |
(i) | Commodity derivatives – regulated accounting (continued) |
The accounting for these derivative instruments is subject to guidance for rate regulated enterprises. Therefore, the fair value of these derivatives is recorded as current or long-term assets and liabilities, with offsetting positions recorded as regulatory assets and regulatory liabilities in the unaudited interim consolidated balance sheets. Most of the gains or losses on the settlement of these contracts are included in the calculation of the fuel and commodity cost adjustments (note 5). As a result, the changes in fair value of these natural gas derivative contracts and their offsetting adjustment to regulatory assets and liabilities had no earnings impact.
The following table presents the impact of the change in the fair value of the Company’s natural gas derivative contracts on the unaudited interim consolidated balance sheets:
|
| | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
Regulatory assets: | | | | |
Swap contracts | | $ | 4 |
| | $ | 66 |
|
Option contracts | | 54 |
| | — |
|
Forward contracts | | $ | 2,069 |
| | $ | — |
|
Regulatory liabilities: | | | | |
Swap contracts | | $ | 1,087 |
| | $ | 218 |
|
Option contracts | | — |
| | 134 |
|
Forward contracts | | $ | — |
| | $ | 1,259 |
|
The Company reduces the price risk on the expected future sale of power generation at Sandy Ridge, Senate and Minonk Wind Facilities by entering into the following long-term energy derivative contracts:
|
| | | | | | |
Notional quantity (MW-hrs) | | Expiry | | Receive average prices (per MW-hr)
| | Pay floating price (per MW-hr) |
789,104 | | December 2028 | | 35.65 | | PJM Western HUB |
2,592,592 | | December 2024 | | 27.44 | | NI HUB |
2,764,509 | | December 2027 | | 36.46 | | ERCORT North HUB |
In January 2019, the Company entered into a long-term energy derivative contract to reduce the price risk on the expected future sale of power generation at Sugar Creek. On September 30, 2019, the Company sold the derivative contract together with 100% of its ownership interest in Sugar Creek to AAGES Sugar Creek (note 6(f)). The novation and transfer of the derivative contract is subject to counterparty approval, which is expected in the fourth quarter of 2019. As a result, the hedge relationship for the Sugar Creek energy derivative was discontinued. Amounts in AOCI of $15,765 and related tax were reclassified from AOCI into earnings (note 20(b)(iv)).
The Company was party to a 10-year forward-starting interest rate swap beginning on July 25, 2018 in order to reduce the interest rate risk related to the probable issuance on that date of a 10-year C$135,000 bond. During 2018, the Company amended and extended the forward-starting date of the interest rate swap to begin on March 29, 2019. During the first quarter, the Company settled the forward-starting interest rate swap contract as it issued C$300,000 10-year senior unsecured notes with an interest rate of 4.60% (note 7(b)).
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
| |
20. | Financial instruments (continued) |
| |
(b) | Derivative instruments (continued) |
| |
(ii) | Cash flow hedges (continued) |
On May 23, 2019, the Company entered into a cross currency swap, coterminous with the subordinated unsecured notes (note 7(d)), to effectively convert the $350,000 U.S. dollar denominated offering into Canadian dollars. The change in the carrying amount of the notes due to changes in spot exchange rates is recognized each period in the unaudited interim consolidated statements of operations as loss (gain) on foreign exchange. The Company designated the entire notional amount of the cross currency fixed-for-fixed interest rate swap as a hedge of the foreign currency exposure related to cash flows for the interest and principal repayments on the notes. The gain or loss related to the fair value changes of the swap is first reported in OCI and a portion of the change is then reclassified from AOCI into earnings at each reporting date to offset the foreign exchange transaction gain or loss on the notes.
On June 6, 2019, the Company entered into a $55,800 foreign exchange forward contract to reduce the currency risk related to changes in the functional currency equivalent cash flows on a foreign currency denominated intercompany loan of $111,618. The remeasurement of the loan each period is recorded in OCI as it represents a long-term investment in a foreign subsidiary and the gain or loss related to fair value changes of the forward contract is also reported in OCI. During the quarter, the intercompany loan was repaid and the forward contract was settled, resulting in a realized gain in OCI of $227.
In September 2019, the Company entered into interest rate swaps in order to reduce the interest rate risk related to the quarterly interest payments between July 1, 2024 and July 1, 2029 on the subordinated unsecured notes (note 7(d)). The Company designated the entire notional amount of the three pay-variable and receive-fixed interest rate swaps as a hedge of the future quarterly variable-rate interest payments associated with the subordinated unsecured notes.
The following table summarizes OCI attributable to derivative financial instruments designated as a cash flow hedge, net of tax:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine months ended September 30 |
| 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | |
Effective portion of cash flow hedge | $ | 9,050 |
| | $ | 2,198 |
| | $ | 19,137 |
| | $ | 5,962 |
|
Amortization of cash flow hedge | (8 | ) | | (9 | ) | | (24 | ) | | (25 | ) |
Amount reclassified from AOCI | (14,817 | ) | | (178 | ) | | (11,258 | ) | | (3,123 | ) |
OCI attributable to shareholders of APUC | $ | (5,775 | ) | | $ | 2,011 |
| | $ | 7,855 |
| | $ | 2,814 |
|
The Company expects $7,594 and $2,191 of cash flow hedge currently in AOCI to be reclassified, net of taxes, into non-regulated energy sales and interest expense, respectively, within the next twelve months, as the underlying hedged transactions settle.
| |
(iii) | Foreign exchange hedge of net investment in foreign operation |
The Company is exposed to currency fluctuations from its Canadian-based operations. APUC manages this risk primarily through the use of natural hedges by using Canadian long-term debt to finance its Canadian operations and a combination of foreign exchange forward contracts and spot purchases. APUC only enters into foreign exchange forward contracts with major North American financial institutions having a credit rating of A or better, thus reducing credit risk on these forward contracts.
The Company’s Canadian operations are determined to have the Canadian dollar as their functional currency and are exposed to currency fluctuations from their U.S. dollar transactions. The Company designates the amounts drawn on its revolving and bank credit facilities denominated in U.S. dollars as a hedge of the foreign currency exposure of its net investment in its U.S. investments and subsidiaries. The related foreign currency transaction gain or loss designated as a hedge of the net investment in a foreign operation are reported in the same manner as the translation adjustment (in OCI) related to the net investment. A foreign currency loss of $6,891 and gain of $17,116 for the three and nine months ended September 30, 2019 (2018 - loss of $11,568 and $151), respectively, was recorded in OCI.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
| |
20. | Financial instruments (continued) |
| |
(b) | Derivative instruments (continued) |
| |
(iii) | Foreign exchange hedge of net investment in foreign operation (continued) |
Concurrent with its C$150,000, C$200,000 and C$300,000 debenture offerings in December 2012, January 2014, and January 2017, respectively, the Company entered into cross currency swaps, coterminous with the debentures, to effectively convert the Canadian dollar denominated offering into U.S. dollars. The Company designated the entire notional amount of the cross currency fixed-for-fixed interest rate swap and related short-term U.S. dollar payables created by the monthly accruals of the swap settlement as a hedge of the foreign currency exposure of its net investment in the Liberty Power Group’s U.S. operations. The gain or loss related to the fair value changes of the swap and the related foreign currency gains and losses on the U.S. dollar accruals that are designated as, and are effective as, a hedge of the net investment in a foreign operation are reported in the same manner as the translation adjustment (in OCI) related to the net investment. For the three and nine months ended September 30, 2019, a loss of $13,029 and gain of $7,176 (2018 - gain of $9,862 and loss of $8,079), respectively, was recorded in OCI.
The Company provides energy requirements to various customers under contracts at fixed rates. While the production from the Tinker Hydroelectric Facility is expected to provide a portion of the energy required to service these customers, APUC anticipates having to purchase a portion of its energy requirements at the ISO NE spot rates to supplement self-generated energy.
This risk is mitigated through the use of short-term financial forward energy purchase contracts that are classified as derivative instruments. The electricity derivative contracts are net settled fixed-for-floating swaps whereby APUC pays a fixed price and receives the floating or indexed price on a notional quantity of energy over the remainder of the contract term at an average rate, as per the following table. These contracts are not accounted for as hedges and changes in fair value are recorded in earnings as they occur.
The Company is exposed to interest rate fluctuations related to certain of its floating rate debt obligation, including certain project specific debt and its revolving credit facilities, its interest rate swaps as well as interest earned on its cash on hand.
The Company is exposed to foreign exchange fluctuations related to the portion of its dividend declared and payable in U.S. dollars. This risk is mitigated through the use of currency forward contracts. These currency forward contracts are not accounted for as a hedge.
For derivatives that are not designated as hedges, the changes in the fair value are immediately recognized in earnings.
|
|
Algonquin Power & Utilities Corp. |
Notes to the Unaudited Interim Consolidated Financial Statements |
September 30, 2019 and 2018 |
(in thousands of U.S. dollars, except as noted and per share amounts) |
| |
20. | Financial instruments (continued) |
| |
(b) | Derivative instruments (continued) |
| |
(iv) | Other derivatives (continued) |
The effects on the unaudited interim consolidated statements of operations of derivative financial instruments not designated as hedges consist of the following:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine months ended September 30 |
| 2019 | | 2018 | | 2019 | | 2018 |
Change in unrealized loss (gain) on derivative financial instruments: | | | | | | | |
Energy derivative contracts | $ | 398 |
| | $ | (104 | ) | | $ | — |
| | $ | 78 |
|
Currency forward contract | 459 |
| | 850 |
| | 876 |
| | (213 | ) |
Total change in unrealized loss (gain) on derivative financial instruments | $ | 857 |
| | $ | 746 |
| | $ | 876 |
| | $ | (135 | ) |
Realized loss (gain) on derivative financial instruments: | | | | | | | |
Energy derivative contracts | — |
| | (37 | ) | | 207 |
| | (24 | ) |
Currency forward contract | 373 |
| | (717 | ) | | (200 | ) | | 142 |
|
Total realized loss (gain) on derivative financial instruments | $ | 373 |
| | $ | (754 | ) | | $ | 7 |
| | $ | 118 |
|
Loss (gain) on derivative financial instruments not accounted for as hedges | 1,230 |
| | (8 | ) | | 883 |
| | (17 | ) |
Discontinued hedge accounting (note 20(b)(ii)) and other | (15,777 | ) | | 889 |
| | (15,799 | ) | | 866 |
|
| $ | (14,547 | ) | | $ | 881 |
| | $ | (14,916 | ) | | $ | 849 |
|
Amounts recognized in the consolidated statements of operations consist of: | | | | | | | |
Loss (gain) on derivative financial instruments | (15,379 | ) | | 748 |
| | (15,592 | ) | | 920 |
|
Loss (gain) on foreign exchange | 832 |
| | 133 |
| | 676 |
| | (71 | ) |
| $ | (14,547 | ) | | $ | 881 |
| | $ | (14,916 | ) | | $ | 849 |
|
In the normal course of business, the Company is exposed to financial risks that potentially impact its operating results. The Company employs risk management strategies with a view of mitigating these risks to the extent possible on a cost-effective basis. Derivative financial instruments are used to manage certain exposures to fluctuations in exchange rates, interest rates and commodity prices. The Company does not enter into derivative financial agreements for speculative purposes.
Certain of the comparative figures have been reclassified to conform to the financial statement presentation adopted in the current period.