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Published: 2020-05-07
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Unaudited Interim Consolidated Financial Statements ofAlgonquin Power & Utilities Corp.For the three months ended March 31, 2020 and 2019
1
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statements of Operations
 
(thousands of U.S. dollars, except per share amounts)Three months ended March 31
 20202019
Revenue
Regulated electricity distribution$180,699 $205,061
Regulated gas distribution184,594177,661
Regulated water reclamation and distribution27,83926,786
Non-regulated energy sales66,31163,457
Other revenue5,4584,260
464,901477,225
Expenses
Operating expenses127,896120,113
Regulated electricity purchased57,23369,598
Regulated gas purchased63,61379,554
Regulated water purchased2,2511,454
Non-regulated energy purchased4,0046,921
Administrative expenses15,67213,118
Depreciation and amortization78,88071,047
Gain on foreign exchange(4,670)(533)
344,879361,272
Operating income120,022115,953
Interest expense on long-term debt and others(46,248)(42,621)
Income (loss) from long-term investments (note 6)(162,661)19,472
Other net losses (note 16)(4,246)(3,857)
Gain (loss) on derivative financial instruments (note 21(b)(iv))57(196)
(213,098)(27,202)
Earnings (loss) before income taxes(93,076)88,751
Income tax recovery (expense) (note 15)
Current(4,087)(4,975)
Deferred17,790(9,856)
13,703(14,831)
Net earnings (loss)(79,373)73,920
Net effect of non-controlling interests (note 14)
Net effect of non-controlling interests19,34219,328
Net effect of non-controlling interests held by related party(3,766)(6,842)
$15,576 $12,486
Net earnings (loss) attributable to shareholders of Algonquin Power & Utilities Corp.$(63,797) $86,406
Series A and D Preferred shares dividend (note 12)2,1402,106
Net earnings (loss) attributable to common shareholders of Algonquin Power & Utilities Corp.$(65,937) $84,300
Basic and diluted net earnings (loss) per share (note 17)$(0.13) $0.17
 consolidated financial statements
See accompanying notes to unaudited interim
2
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statements of Comprehensive Income
 
(thousands of U.S. dollars)Three months ended March 31
 20202019
Net earnings (loss)$(79,373) $73,920
Other comprehensive income (loss) ("OCI"):
Foreign currency translation adjustment, net of tax expense of $5,703 and $253,
respectively (notes 21(b)(iii) and 21(b)(iv))(36,630)14,814
Change in fair value of cash flow hedges, net of tax recovery and tax expense of
$5,087 and $518, respectively (note 21(b)(ii))(14,088)1,463
Change in pension and other post-employment benefits, net of tax recovery of $31
and $91, respectively (note 8)(76)(254)
Other comprehensive income (loss), net of tax(50,794)16,023
Comprehensive income (loss)(130,167)89,943
Comprehensive loss attributable to the non-controlling interests(21,636)(12,469)
Comprehensive income (loss) attributable to shareholders of Algonquin Power & Utilities
Corp.$(108,531) $102,412
See accompanying notes to unaudited interim consolidated financial statements
3
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Balance Sheets
(thousands of U.S. dollars)  
March 31,December 31,
 20202019
ASSETSCurrent assets:
Cash and cash equivalents$197,414 $62,485
Accounts receivable, net (note 4)240,987259,144
Fuel and natural gas in storage19,74030,804
Supplies and consumables inventory68,13660,295
Regulatory assets (note 5)56,12950,213
Prepaid expenses38,60729,003
Derivative instruments (note 21)15,49513,483
Other assets4,7227,764
641,230513,191
Property, plant and equipment, net7,008,1337,231,664
Intangible assets, net51,38847,616
Goodwill1,022,9061,031,696
Regulatory assets (note 5)703,186509,674
Long-term investments (note 6)
Investments carried at fair value1,105,0561,294,147
Other long-term investments190,748121,968
Derivative instruments (note 21)76,50572,221
Deferred income taxes (note 15)44,75730,585
Other assets56,71458,708
$ 10,900,623 $10,911,470
See accompanying notes to unaudited interim consolidated financial statements
4
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Balance Sheets
(thousands of U.S. dollars)  
March 31,December 31,
 20202019
LIABILITIES AND EQUITYCurrent liabilities:
Accounts payable$71,824 $150,336
Accrued liabilities249,004307,952
Dividends payable (note 12)74,10373,945
Regulatory liabilities (note 5)37,51541,683
Long-term debt (note 7)161,005225,013
Other long-term liabilities (note 9)57,47157,939
Derivative instruments (note 21)48,5615,898
Other liabilities8,0739,300
707,556872,066
Long-term debt (note 7)4,043,7623,706,855
Regulatory liabilities (note 5)559,396556,379
Deferred income taxes (note 15)489,623491,538
Derivative instruments (note 21)80,97678,766
Pension and other post-employment benefits obligation (note 8)225,458224,094
Other long-term liabilities (note 9)259,478243,401
5,658,6935,301,033
Redeemable non-controlling interests (note 14)
Redeemable non-controlling interest, held by related party (note 13(b))306,329305,863
Redeemable non-controlling interests23,97725,913
Equity:
Preferred shares184,299184,299
Common shares (note 10(a))4,050,9024,017,044
Additional paid-in capital41,33250,579
Deficit(521,314)(367,107)
Accumulated other comprehensive loss ("AOCI") (note 11)(54,495)(9,761)
Total equity attributable to shareholders of Algonquin Power & Utilities Corp.3,700,7243,875,054
Non-controlling interests
Non-controlling interests439,854457,834
Non-controlling interest, held by related party (note 13(c))63,49073,707
503,344531,541
Total equity4,204,0684,406,595
Commitments and contingencies (note 19)
Subsequent events (notes 7, 10 and 15)
$ 10,900,623 $10,911,470
See accompanying notes to unaudited interim consolidated financial statements
5
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statement of Equity
(thousands of U.S. dollars)
For the three months ended March 31, 2020     
Algonquin Power & Utilities Corp. Shareholders
AdditionalNon-
CommonPreferredpaid-inAccumulatedAccumulatedcontrolling
 sharessharescapitaldeficitOCIinterestsTotal
Balance, December 31,
2019$ 4,017,044 $184,299 $50,579 $ (367,107) $(9,761) $531,541 $ 4,406,595
Net loss———(63,797)—(15,576)(79,373)
Redeemable non-
controlling interests not
included in equity
(note 14)—————(2,047)(2,047)
Other comprehensive
loss————(44,734)(6,060)(50,794)
Dividends declared and
distributions to non-
controlling interests———(59,819)—(7,885)(67,704)
Dividends and issuance
of shares under dividend
reinvestment plan16,951——(16,951)———
Contributions received
from non-controlling
interests—————3,3713,371
Common shares issued
upon conversion of
convertible debentures12—————12
Issuance of common
shares under employee
share purchase plan792—————792
Share-based
compensation——1,452———1,452
Common shares issued
pursuant to share-based
awards16,103—(10,699)(13,640)——(8,236)
Balance, March 31,
2020$ 4,050,902 $184,299 $41,332 $ (521,314) $(54,495) $503,344 $ 4,204,068
See accompanying notes to unaudited interim consolidated financial statements
6
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statement of Equity
 
(thousands of U.S. dollars)
For the three months ended March 31, 2019     
Algonquin Power & Utilities Corp. Shareholders
AdditionalNon-
CommonPreferredpaid-inAccumulatedAccumulatedcontrolling
 sharessharescapitaldeficitOCIinterestsTotal
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———(186)186——
Net earnings (loss)———86,406—(12,486)73,920
Redeemable non-
controlling interests not
included in equity
(note 14)—————(4,536)(4,536)
Other comprehensive
income————16,0061716,023
Dividends declared and
distributions to non-
controlling interests———(49,879)—(2,155)(52,034)
Dividends and issuance
of shares under dividend
reinvestment plan15,508——(15,508)———
Contributions received
from non-controlling
interests—————3,5653,565
Common shares issued
upon conversion of
convertible debentures30—————30
Share-based
compensation——1,899———1,899
Common shares issued
pursuant to share-based
awards12,395—(6,447)(9,566)——(3,618)
Balance, March 31,
2019$ 3,590,351 $ 184,299 $41,005 $ (583,992) $(3,193) $ 504,301 $ 3,732,771
See accompanying notes to unaudited interim consolidated financial statements
7
Algonquin Power & Utilities Corp.Unaudited Interim Consolidated Statements of Cash Flows
(thousands of U.S. dollars)Three months ended March 31
20202019
Cash provided by (used in):Operating Activities
Net earnings (loss)$(79,373) $73,920
Adjustments and items not affecting cash:
Depreciation and amortization78,88071,047
Deferred taxes(17,790)9,856
Unrealized gain (loss) on derivative financial instruments(239)531
Share-based compensation expense1,4721,543
Cost of equity funds used for construction purposes(1,001)(462)
Change in value of investments carried at fair value190,7585,818
Pension and post-employment expense in excess of contributions4,3832,797
Distributions received from equity investments, net of income8142,064
Others(2,010)905
Changes in non-cash operating items (note 20)(109,027)(45,898)
66,867122,121
Financing Activities
Increase in long-term debt732,730622,541
Decrease in long-term debt(384,949)(316,368)
Issuance of common shares, net of costs765393
Cash dividends on common shares(57,332)(44,710)
Dividends on preferred shares(2,140)(2,106)
Production-based cash contributions from non-controlling interest3,3713,565
Distributions to non-controlling interests, related party (note 13(b) and (c))(7,507)(7,094)
Distributions to non-controlling interests(4,077)(2,236)
Payments upon settlement of derivatives—(8,732)
Increase in other long-term liabilities2,4003,278
Decrease in other long-term liabilities(1,972)(2,445)
281,289246,086
Investing Activities
Additions to property, plant and equipment and intangible assets(155,902)(107,386)
Increase in long-term investments(61,089)(230,800)
Acquisitions of operating entities (note 3)4,234(1,350)
Increase in other assets(5,366)(1,036)
Receipt of principal on development loans receivable9,71510,601
Proceeds from sale of long-lived assets415—
(207,993)(329,971)
Effect of exchange rate differences on cash and restricted cash(4,480)159
Increase in cash, cash equivalents and restricted cash135,68338,395
Cash, cash equivalents and restricted cash, beginning of period87,27265,773
Cash, cash equivalents and restricted cash, end of period$222,955$104,168
Supplemental disclosure of cash flow information:20202019
Cash paid during the period for interest expense$44,807$37,144
Cash paid (refund received) during the period for income taxes$1,047$(654)
Non-cash financing and investing activities:Property, plant and equipment acquisitions in accruals
$42,563$20,403
Issuance of common shares under dividend reinvestment plan and share-based compensation plans$33,847$27,223
Issuance of common shares upon conversion of convertible debentures$12$30
See accompanying notes to unaudited interim consolidated financial statements
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Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(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 CorporationsAct. APUC's operations are organized across two primary business units consisting of the Regulated Services Group and the Renewable Energy Group. The Regulated Services Group owns and operates a portfolio of regulated electric, natural gas, water distribution  and  wastewater  collection  utility  systems  and  transmission  operations  in  the  United  States  and  Canada;  the Renewable Energy Group owns and operates a diversified portfolio of non-regulated renewable and thermal electric generation assets. 
1. Significant accounting policies(a) 
Basis of preparationThe 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 follow disclosure required under 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, 2019, except for adopted accounting policies described in note 2(a) and note 1(e).
(b) COVID-19 PandemicThe ongoing outbreak of the novel strain of coronavirus (“COVID-19”) has caused significant volatility and weakness in the global economy. The Company did not experience any material negative impacts from the pandemic  on  its  operations  in  the  three  months  ended  March  31,  2020.  Nevertheless,  the  Company’s business, financial condition, cash flows and results of operations are subject to actual and potential future impacts resulting from COVID-19, the full extent of which is not currently known. Force majeure or similar notices were received from suppliers and/or contractors for all of the Company's major renewable energy construction projects. These notices relate to, among other things, delayed deliveries of components due to overseas manufacturing shutdowns resulting from COVID-19. At this time, it is not possible to reliably estimate the full impact on each project and the Company’s financial results.
(c) SeasonalityAPUC'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. 
(d) Foreign currency translationAPUC’s  reporting  currency  is  the  U.S.  dollar.  Within  these  unaudited  interim  consolidated  financial statements, the Company denotes any amounts denominated in Canadian dollars with “C$” immediately prior to the stated amount.  Effective January 1, 2020, the functional currency of APUC, the non-consolidated parent entity, changed from the Canadian dollar to the U.S. dollar based on a balance of facts taking into consideration its operating, financing and investing activities. As a result of the entity's change of functional currency, changes were made to certain hedging relationships to mitigate the remaining Canadian dollar risk (note 21(b)(iii)).
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Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
1. Significant accounting policies (continued)(e) 
Current expected credit lossesThe Company adopted the U.S. Financial Accounting Standards Board ("FASB") Financial Instrument —Credit Losses Topic 326 ("ASC 326") in the first quarter of 2020 using a modified retrospective approach. The Company has trade accounts receivable and loans receivable from its equity method investees in both the Regulated Services and Renewable Energy Group. New allowance policies were implemented for the Company's loans receivable and the Renewable Energy Group's trade accounts receivable. The impact to the Company's bad debt expense upon adoption was not significant.
2.  Recently issued accounting pronouncements(a) 
Recently adopted accounting pronouncementsThe FASB issued accounting standards update ("ASU") Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 to reduce diversity in practice on how entities account for transactions on the basis of different views of the economics of a collaborative arrangement. The adoption of this Update during the quarter did not have an impact on the unaudited interim consolidated financial statements.The FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities to improve general purpose financial reporting. The update clarifies that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The adoption of this Update during the quarter did not have an impact on the unaudited interim consolidated financial statements.The FASB issued ASU 2017-04, Business Combinations (Topic 350): Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update is intended to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measured a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the amendments in this update, the impairment loss will be measured as the amount by which the carrying amount of the reporting unit exceeds the reporting unit’s fair value. The Company will follow the pronouncements prospectively for goodwill impairment testing.The FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The adoption of this topic in the first quarter did not have a significant impact on the unaudited interim consolidated financial statements (note 1(e)).
(b) Recently issued accounting guidance not yet adopted The FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting that provides optional expedients and exceptions to ease the potential burden in accounting for reference rate reform. The amendments apply to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of the reference rate reform. The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently assessing the impact of the reference rate reform and this Update.
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Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
3. Business acquisitionsAcquisition of Enbridge Gas New Brunswick Limited Partnership & St. Lawrence Gas Company, Inc.The Company completed the acquisition of Enbridge Gas New Brunswick Limited Partnership ("New Brunswick Gas") on October 1, 2019, and St. Lawrence Gas Company, Inc. ("St. Lawrence Gas") on November 1, 2019. New Brunswick Gas is a regulated utility that provides natural gas. The purchase price recorded in 2019 was $256,011 (C$339,036). A closing adjustment of $3,904 (C$5,447) was made in 2020. St. Lawrence Gas is a regulated utility that provides natural gas in northern New York State.  The total purchase price recorded in 2019 for the transaction was $61,820. A closing adjustment of $120 was made in 2020. In both cases, the adjustment reduced goodwill.The determination of the fair value of assets acquired and liabilities assumed is based upon management's preliminary estimates and certain assumptions. Due to the timing of the acquisitions, the Company has not finalized the fair value measurements. 
4. Accounts receivableAccounts receivable as of March 31, 2020 include unbilled revenue of $56,717 (December 31, 2019 - $80,295) from the Company’s regulated utilities.  Accounts receivable as of March 31, 2020 are presented net of allowance for doubtful accounts of $7,129 (December 31, 2019 - $4,939).
5. Regulatory mattersThe  operating  companies  within  the  Regulated  Services  Group  are  subject  to  regulation  by  the  public  utility commissions of the states and provinces 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 authorities.  The Company’s regulated utility operating companies are accounted for under the principles of 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 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 proceeding was recently completed:
Regulatory proceedingAnnual revenue
UtilityStatetypeincreaseEffective date
New England Natural GasMassachusetts Gas System$2,679May 1, 2020
SystemEnhancement Plan
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Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(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:
March 31,December 31,
20202019
Regulatory assets
Retired generating plant (a)$199,795 $—
Environmental remediation89,66682,300
Pension and post-employment benefits139,682143,292
Income taxes70,91971,506
Debt premium40,51242,150
Fuel and commodity cost adjustments13,11623,433
Rate adjustment mechanism75,69269,121
Clean energy and other customer programs26,29926,369
Deferred capitalized costs37,04638,833
Asset retirement obligation25,17723,841
Long-term maintenance contract14,37513,264
Rate review costs6,6956,695
Other20,34119,083
Total regulatory assets$759,315 $559,887
Less: current regulatory assets(56,129)(50,213)
Non-current regulatory assets$703,186 $509,674
Regulatory liabilities
Income taxes$321,132 $321,960
Cost of removal194,201196,423
Rate base offset7,9678,719
Fuel and commodity costs adjustments18,58616,645
Rate adjustment mechanism10,84810,446
Deferred capitalized costs - fuel related7,0577,097
Pension and post-employment benefits22,77922,256
Other14,34114,516
Total regulatory liabilities$596,911 $598,062
Less: current regulatory liabilities(37,515)(41,683)
Non-current regulatory liabilities$559,396 $556,379
(a)  Retired generating plant 
On March 1, 2020, the Company's 200 MW coal generation facility located in Asbury, Missouri, ceased operations. The Company transferred the remaining net book value of Asbury’s plant retired from plant in-service to a regulatory asset. The ultimate valuation of the regulatory asset will be determined in future commission orders. The Company is also assessing the decommissioning requirements associated with the retirement of the facility. Per commission orders in two of its jurisdictions, the Company is required to track the impact of Asbury's retirement on rates for consideration in the next rate case. The Company expects to defer such amounts collected from customers until new rates become effective. The accrual for this estimated amount will include revenues collected related to Asbury that will be subject to a future rate review proceeding and possible refund to customers. The ultimate resolution of this matter is uncertain.
12
Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
6. Long-term investmentsLong-term investments consist of the following:
March 31,December 31,
20202019
Long-term investments carried at fair value
Atlantica (a)$ 1,002,208 $ 1,178,581
Atlantica Yield Energy Solutions Canada Inc.76,99488,494
San Antonio Water System25,85427,072
$ 1,105,056 $ 1,294,147
Other long-term investments
Equity-method investees (b)$127,569 $83,497
Development loans receivable from equity-method investees58,82336,204
Other4,3562,267
Total other long-term investments$190,748 $121,968
Income (loss) from long-term investments from the three-month periods ended March 31, 2020 and 2019 is as follows:
Three months ended March 31
20202019
Fair value loss on investments carried at fair value
Atlantica$(185,394) $(5,818)
Atlantica Yield Energy Solutions Canada Inc.(4,142)—
San Antonio Water System(1,222)—
$(190,758) $(5,818)
Dividend and interest income from investments carried at fair value
Atlantica$18,426 $15,376
Atlantica Yield Energy Solutions Canada Inc.3,904—
San Antonio Water System1,048—
$23,378 $15,376
Other long-term investments
Equity method loss(799)(2,106)
Interest and other income5,51812,020
$(162,661) $19,472
(a) Investment in AtlanticaAAGES (AY Holdings) B.V. (“AY Holdings”), an entity controlled and consolidated by APUC, has a share ownership in Atlantica Yield plc ("Atlantica") of approximately 44.2% (December 31, 2019 - 44.2%). APUC has the flexibility, subject to certain conditions, to increase its ownership of Atlantica up to 48.5%. The shares were purchased at a cost of $1,036,414. The Company accounts for its investment in Atlantica at fair value, with changes in fair value reflected in the consolidated statements of operations.
13
Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
6. Long-term investments (continued)(b) 
Equity-method investeesThe Company has non-controlling interests in various partnerships and joint ventures with a total carrying value of $127,569 (December 31, 2019 - $83,497) including investments in variable interest entities  ("VIEs") of $103,395 (December 31, 2019 - $59,091).Summarized combined information for APUC's investments in significant partnerships and joint ventures is as follows:
March 31,December 31,
20202019
Total assets$ 1,280,753 $833,791
Total liabilities1,088,303697,751
Net assets192,450136,040
APUC's ownership interest in the entities99,17563,624
Difference between investment carrying amount and underlying equity 
in net assets(a)25,77818,487
APUC's investment carrying amount for the entities$124,953 $82,111
(a) The difference between the investment carrying amount and the underlying equity in net assets relates primarily to interest capitalized while the projects are under construction, the fair value of guarantees provided by the Company in regards to the investments, development fees and transaction costs.
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 amounts necessary for the continued development and construction of the equity investees' projects. As of March 31, 2020, the Company had issued letters of credit and guarantees of obligations under a security of performance for a development opportunity; wind turbine or solar panel supply agreements; engineering, procurement, and construction  agreements;  purchase  and  sale  agreements;  interconnection  agreements;  energy  purchase agreements;  renewable  energy  credit  agreements;  equity  capital  contribution  agreements;  landowner agreements; and construction loan agreement. The fair value of the support provided recorded as at March 31, 2020 amounts to $16,672 (December 31, 2019 - $9,493). The Company is not considered the primary beneficiary of these entities as the partners have joint control and all decisions must be unanimous. Therefore, the Company accounts for its interest in these VIEs using the equity method.Summarized combined information for APUC's VIEs is as follows:
March 31,December 31,
20202019
APUC's maximum exposure in regards to VIEs
Carrying amount$103,395 $59,091
Development loans receivable57,66435,000
Commitments on behalf of VIEs1,389,9721,364,871
$ 1,551,031 $ 1,458,962
The commitments are presented on a gross basis assuming no recoverable value in the assets of the VIEs. The majority of the amounts committed on behalf of VIEs in the above relate to wind turbine or solar panel supply agreements as well as engineering, procurement, and construction agreements.
14
Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
7. Long-term debtLong-term debt consists of the following:
Weighted
averageMarch 31,December 31,
Borrowing typecouponMaturityPar value20202019
Senior unsecured revolving credit
facilities (a)—2023-2024N/A $409,674 $141,577
Senior unsecured bank credit
facilities (b)—2020N/A75,00075,000
Commercial paper—2020N/A154,250218,000
U.S. dollar borrowings
Senior unsecured notes4.09%2020-2047 $ 1,225,0001,219,8031,219,579
Senior unsecured utility notes6.00%2020-2035 $217,000233,308233,686
Senior secured utility bonds4.75%2020-2044 $662,500664,783672,337
Canadian dollar borrowings
Senior unsecured notes (c)4.28%2021-2050 C$ 1,150,669807,314728,679
Senior secured project notes10.21%2020-2027 C$27,74719,51721,961
$ 3,583,649 $ 3,310,819
Subordinated U.S. dollar borrowings
Subordinated unsecured notes6.50%2078-2079 $637,500621,118621,049
$ 4,204,767 $ 3,931,868
Less: current portion(161,005)(225,013)
$ 4,043,762 $ 3,706,855
Short-term  obligations  of  $476,202  that  are  expected  to  be  refinanced  using  the  long-term  credit  facilities  are presented as long-term debt.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.Recent financing activities:(a) 
Senior unsecured revolving credit facilitiesOn February 24, 2020, the Renewable Energy Group increased its uncommitted letter of credit facility to $350,000 and extended the maturity to June 30, 2021.
(b) Senior unsecured bank credit facilitiesSubsequent to quarter-end, given the uncertainty caused by the COVID-19 pandemic, the Company secured additional liquidity as an additional margin of safety intended to ensure the Company can continue to move forward with its 2020 capital expenditure program and committed acquisitions independent of the state of the capital markets. The additional liquidity is in the form of three new senior unsecured delayed draw non-revolving credit facilities for a total of $1,600,000 maturing in April, 2021.
(c) Canadian dollar senior unsecured notes On  February 14,  2020,  the  Regulated  Services  Group  issued  C$200,000  senior  unsecured  debentures bearing interest at 3.315% with a maturity date of February 14, 2050. The debentures are redeemable at the option of the Company at a priced based on a make-whole provision.
15
Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
8. Pension and other post-employment benefitsThe 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  for  the  three-month  period  ended                       March 31:
 Pension benefitsOPEB
Three months ended March 31Three months ended March 31
 2020201920202019
Service cost$3,567 $3,265$1,467 $1,199
Non-service costs
Interest cost4,7914,7591,8191,784
Expected return on plan assets(6,249)(7,123)(2,192)(1,930)
Amortization of net actuarial loss (gain)1,145(316)(13)(52)
Amortization of prior service credits(402)22—(95)
Amortization of regulatory assets/liabilities3,5383,0779191,167
$2,823 $419$533 $874
Net benefit cost$6,390 $3,684$2,000 $2,073
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 cost are  considered  non-service  costs  and  have  been  included  outside  of  operating  income  in  other  net  losses  in  the unaudited interim consolidated statements of operations.
9. Other long-term liabilitiesOther long-term liabilities consist of the following:  
March 31,December 31,
20202019
Advances in aid of construction$61,435 $60,828
Environmental remediation obligation66,84958,061
Asset retirement obligations54,06153,879
Customer deposits31,90731,946
Unamortized investment tax credits18,10318,234
Deferred credits18,93018,952
Contingent development support obligations16,9639,446
Preferred shares, Series C12,54813,793
Lease liabilities8,7019,695
Other27,45226,506
$316,949 $301,340
Less: current portion(57,471)(57,939)
$259,478 $243,401
16
Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
10. Shareholders’ capital(a) 
Common sharesNumber of common shares 
Three months ended March 31
20202019
Common shares, beginning of period524,223,323488,851,433
Dividend reinvestment plan1,244,6961,606,001
Exercise of share-based awards (b)1,215,388823,414
Conversion of convertible debentures1,5093,866
Common shares, end of period526,684,916491,284,714
(b) Share-based compensationDuring the three months ended March 31, 2020, the Board of directors of the Company (the "Board") approved the grant of 948,347 options to executives of the Company. The options allow for the purchase of common shares at a weighted average price of C$16.70, the market price of the underlying common share at the date of grant. One-third of the options vest on each of December 31, 2020, 2021, and 2022. The 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: 
2020
Risk-free interest rate1.2%
Expected volatility24%
Expected dividend yield4.1%
Expected life5.50 years
Weighted average grant date fair value per optionC$2.75
In March 2020, 2,217,325 stock options were exercised at a weighted average price of C$12.48 in exchange for 708,117 common shares issued from treasury, and 1,509,208 options settled at their cash value as payment for the exercise price and tax withholdings related to the exercise of the options.In March 2020, 325,441 performance share units ("PSUs") were granted to executives of the Company. The PSUs vest on January 1, 2023. In addition, 107,915 restricted share units ("RSUs") were granted to an executive of the Company. The RSUs vest on December 15, 2020. During the quarter, the Company settled 825,859 PSUs in exchange for 439,541 common shares issued from treasury, and 386,318 PSUs were settled at their cash value as payment for tax withholdings related to the settlement of the PSUs.Subsequent to quarter end, 116,921 bonus deferral RSUs were granted to employees of the Company. The RSUs are 100% vested.During the three months ended March 31, 2020, 22,611 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 months ended March 31, 2020, APUC recorded $1,584 (2019 - $1,543) 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 March 31, 2020, total unrecognized compensation costs related to non-vested options and PSUs were $2,838 and $15,465, respectively, and are expected to be recognized over a period of 2.12 and 1.90 years, respectively.
17
Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
11. Accumulated other comprehensive income (loss)
 AOCI consists of the following balances, net of tax:
Pension and
Foreignpost-
currencyUnrealizedemployment
cumulativegain on cashactuarial
translationflow hedgeschangesTotal
Balance, January 1, 2019$(74,189) $64,333 $(9,529) $(19,385)
Adoption of ASU 2017-12 on hedging—186—186
Other comprehensive income (loss)7,79519,177(7,999)18,973
Amounts reclassified from AOCI to the unaudited
interim consolidated statement of operations—(8,597)1,490(7,107)
Net current period OCI$7,795 $10,580 $(6,509) $11,866
OCI attributable to the non-controlling interests(2,428)——(2,428)
Net current period OCI attributable to shareholders
of APUC$5,367 $10,580 $(6,509) $9,438
Balance, December 31, 2019$(68,822) $75,099 $(16,038) $(9,761)
Other comprehensive loss(36,630)(10,805)—(47,435)
Amounts reclassified from AOCI to the unaudited
interim consolidated statement of operations—(3,283)(76)(3,359)
Net current period OCI$(36,630) $(14,088) $(76) $(50,794)
OCI attributable to the non-controlling interests6,060——6,060
Net current period OCI attributable to shareholders
of APUC$(30,570) $(14,088) $(76) $(44,734)
Balance, March 31, 2020$(99,392) $61,011 $(16,114) $(54,495)
Amounts reclassified from AOCI for unrealized gain (loss) on cash flow hedges affected revenue from non-regulated energy sales while those for pension and post-employment actuarial changes affected pension and post-employment non-service costs.
12. DividendsAll 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 were as follows: 
Three months ended March 31
20202019
Dividend perDividend per
DividendshareDividendshare
Common shares$74,629 $0.1410 $63,281 $0.1282
Series A preferred sharesC$1,549 C$0.3226 C$1,549 C$ 0.3226
Series D preferred sharesC$1,273 C$0.3182 C$1,250 C$ 0.3125
18
Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
13. Related party transactions(a) 
Equity-method investmentsThe  Company  provides  administrative  and  development  services  to  its  equity-method  investees  and  is reimbursed for incurred costs. To that effect, during the three months ended March 31, 2020, the Company charged its equity-method investees $3,992 (2019 - $5,695).
(b) Redeemable non-controlling interest held by related partyRedeemable non-controlling interest held by related party represents a preference share in a consolidated subsidiary of the Company acquired by Abengoa-Algonquin Global Energy Solutions B.V. ("AAGES B.V.") in 2018 for $305,000.  Redemption is not considered probable as at March 31, 2020. The Company incurred non-controlling interest attributable to AAGES B.V. of $3,766 (2019 - $6,842) and recorded distributions of $3,299 (2019 - $7,094) during the three months ended March 31, 2020 (note 14).
(c) Non-controlling interest held by related partyNon-controlling interest held by related party represents interest in a consolidated subsidiary of the Company acquired by Atlantica Yield Energy Solutions Canada Inc. ("AYES Canada") in May 2019. The Company recorded distributions of $4,208 (2019 - $nil) during the three months ended March 31, 2020.
(d) Long Sault Hydro FacilityEffective 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 and redeemable non-controlling interestsNet effect attributable to non-controlling interests for the three months ended March 31 consists of the following:
Three months ended March 31
20202019
HLBV and other adjustments attributable to:
Non-controlling interests - tax equity partnership units$18,232 $17,839
Non-controlling interests - redeemable tax equity partnership units1,7192,306
Other net earnings attributable to:
Non-controlling interests(609)(817)
$19,342 $19,328
Redeemable non-controlling interest, held by related party(3,766)(6,842)
Net effect of non-controlling interests$15,576 $12,486
The non-controlling tax equity investors (“tax equity partnership units”) 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 hypothetical liquidation at book value ("HLBV") method of accounting.
19
Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
15. Income taxes For the three months ended March 31, 2020, the Company's tax rate varied from the statutory rate of 26.5% due primarily to the impact of the loss associated with its investment in Atlantica, and the impact of differences in effective tax rates on transactions in foreign jurisdictions.Subsequent to quarter end, on April 8, 2020, the Internal Revenue Service issued final regulations with respect to rules regarding certain Hybrid arrangements as a result of U.S. Tax Reform. As a result of the final regulations, the Company expects to record a one-time deferred income tax expense of approximately $9,400 in the quarter ended June 30, 2020 to reverse the benefit of deductions taken in the prior year.For the three months ended March 31, 2019, the Company's tax rate varied from the statutory rate of 26.5% due primarily to the impact of differences in effective tax rates on transactions in foreign jurisdictions and as a result of non-taxable dividend income from its investment in Atlantica.
16. Other net lossesOther net losses consist of the following: 
Three months ended March 31
20202019
Pension and other post-employment non-service costs (note 8)$(3,356) $(1,293)
Acquisition and transition-related costs (note 3)(26)(1,944)
Other(864)(620)
$(4,246) $(3,857)
17. Basic and diluted net earnings (loss) per shareBasic and diluted earnings (loss) per share have been calculated on the basis of net earnings (loss) attributable to the common shareholders of the Company and the weighted average number of common shares and bonus deferral restricted share units outstanding.  Diluted net earnings (loss) per share is computed using the weighted-average number of common shares, subscription receipts outstanding, additional shares issued subsequent to quarter-end under the dividend reinvestment plan, PSUs, RSUs and DSUs outstanding during the period and, if dilutive, potential incremental common shares resulting from the application of the treasury stock method to outstanding share options and additional shares issued subsequent to quarter-end under the dividend reinvestment plan. The reconciliation of the net earnings (loss) and the weighted average shares used in the computation of basic and diluted earnings (loss) per share are as follows:
Three months ended March 31
20202019
Net earnings (loss) attributable to shareholders of APUC$(63,797) $86,406
Series A preferred shares dividend1,1741,167
Series D preferred shares dividend966939
Net earnings (loss) attributable to common shareholders of APUC from
continuing operations – basic and diluted$(65,937) $84,300
Weighted average number of sharesBasic
525,828,253490,538,243
Effect of dilutive securities—5,008,644
Diluted525,828,253495,546,887
The  shares potentially issuable as a result of  5,463,041  securities  (2019 - 1,113,775)  are excluded  from this calculation as they are anti-dilutive. 
20
Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
18. Segmented information 
The Company is managed under two primary business units consisting of the Regulated Services Group and the Renewable Energy Group. The two business units are the two segments of the Company.The Regulated Services 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 Renewable Energy 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 the performance of the business units, the Company allocates the realized portion of any gains or losses on financial instruments to the specific business units.  Dividend income from Atlantica and AYES Canada are included in the operations of the Renewable Energy Group, while interest income from San Antonio Water System is included in the operations of the Regulated Services Group. Equity method gains and losses are included in the operations of the Regulated Services Group or Renewable Energy Group based on the nature of the activities of the investees. 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. 
 Three months ended March 31, 2020
Regulated
ServicesRenewable
 GroupEnergy GroupCorporateTotal
Revenue (1)(2)$396,060 $68,841 $— $464,901
Fuel, power and water purchased123,0974,004—127,101
Net revenue272,96364,837—337,800
Operating expenses108,36719,529—127,896
Administrative expenses9,4876,206(21)15,672
Depreciation and amortization53,01025,62824278,880
Gain on foreign exchange——(4,670)(4,670)
Operating income102,09913,4744,449120,022
Interest expense(24,840)(14,479)(6,929)(46,248)
Income (loss) from long-term investments2,64823,794(189,103)(162,661)
Other net income (loss)(4,997)834(26)(4,189)
Earnings (loss) before income taxes$74,910 $23,623 $(191,609) $(93,076)
Property, plant and equipment$ 4,600,836 $ 2,377,469 $29,828 $ 7,008,133
Investments carried at fair value25,8541,079,202—1,105,056
Equity-method investees43,54784,022—127,569
Total assets6,905,6853,825,545169,39310,900,623
Capital expenditures$139,632 $16,270 $— $155,902
(1) Renewable Energy Group revenue includes $9,292 related to net hedging gains from energy derivative contracts 
for the three-month period ended March 31, 2020 that do not represent revenue recognized from contracts with customers.(2) 
Regulated Services Group revenue includes $2,968 related to alternative revenue programs for the three-month 
period ended March 31, 2020 that do not represent revenue recognized from contracts with customers.
21
Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
18. Segmented information (continued)
 Three months ended March 31, 2019
Regulated
ServicesRenewable
 GroupEnergy GroupCorporateTotal
Revenue (1)(2)$411,024 $66,201 $— $477,225
Fuel and power purchased150,6066,921—157,527
Net revenue260,41859,280—319,698
Operating expenses101,97518,138—120,113
Administrative expenses5,4337,55413113,118
Depreciation and amortization48,41722,38524571,047
Gain on foreign exchange——(533)(533)
Operating income104,59311,203157115,953
Interest expense(25,092)(16,207)(1,322)(42,621)
Income (loss) from long-term investments1,25723,497(5,282)19,472
Other net losses(1,960)(150)(1,943)(4,053)
Earnings (loss) before income taxes$78,798 $18,343 $(8,390) $88,751
Capital expenditures$97,415 $9,971 $— $107,386
December 31, 2019
Property, plant and equipment$ 4,754,373 $ 2,444,382 $32,909 $ 7,231,664
Investments carried at fair value27,0721,267,075—1,294,147
Equity-method investees29,82753,670—83,497
Total assets$ 6,816,063 $ 4,014,067 $81,340 $10,911,470
(1) Renewable Energy Group revenue includes $6,439 related to net hedging gains from energy derivative contracts 
for the three-month period ended March 31, 2019 that do not represent revenue recognized from contracts with customers.(2) 
Regulated Services Group revenue includes $(7,021) related to alternative revenue programs for the three-month 
period ended March 31, 2019 that do not represent revenue recognized from contracts with customers.The majority of non-regulated energy sales are earned from contracts with large public utilities. The Company has sought to mitigate its credit risk by selling energy to large utilities in various North American locations. None of the utilities contribute more than 10% of total revenue.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 March 31
20202019
Revenue
Canada$24,172 $18,531
United States440,729458,694
$464,901 $477,225
Revenue is attributed to the two countries based on the location of the underlying generating and utility facilities.
22
Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
19. Commitments and contingencies(a) 
ContingenciesAPUC 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 unaudited interim consolidated 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 $345,000 and punitive damages in the sum of $25,000. The action arises from Gaia’s 2010 sale, to a subsidiary of APUC, of Gaia’s interest in certain proposed wind farm projects in Canada.  Pursuant to a 2010 royalty agreement, Gaia is entitled to royalty payments if the projects are developed and achieve certain agreed targets. It is too early to determine the likelihood of success in this lawsuit; however, APUC intends to vigorously defend it.Condemnation expropriation proceedingsLiberty Utilities (Apple Valley Ranchos Water) Corp. is the subject of a condemnation lawsuit filed by the town of Apple Valley. A court will determine the necessity of the taking by Apple Valley and, if established, a jury will determine the fair market value of the assets being condemned.  Because of COVID-19 the timing  for the resolution of the condemnation proceedings is currently unknown. Any taking by government entities would legally require fair compensation to be paid; however, there is no assurance that the value received as a result of the condemnation will be sufficient to recover the Company's net book value of the utility assets taken.
(b) CommitmentsIn addition to the commitments related to the proposed acquisitions and development projects disclosed in notes 3 and 6, the following significant commitments exist as of March 31, 2020.APUC has outstanding purchase commitments for power purchases, gas supply and service agreements, service agreements, capital project commitments and land easements.  Detailed below are estimates of future commitments under these arrangements: 
Year 1Year 2Year 3Year 4Year 5ThereafterTotal
Power
purchase (i)$ 21,769 $ 11,477 $ 11,395 $ 11,623 $ 11,855 $ 176,424 $ 244,543
Gas supply
and service
agreements (ii)83,07959,65651,77445,37840,677138,707419,271
Service
agreements47,08839,70041,88445,37646,171278,171498,390
Capital
projects364,597—————364,597
Land
easements6,5236,5576,6276,7236,800195,273228,503
Total$523,056 $117,390 $111,680 $109,100 $105,503 $ 788,575 $ 1,755,304
(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 March 31, 2020. 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.
23
Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
20. Non-cash operating itemsThe changes in non-cash operating items consist of the following:
Three months ended March 31
20202019
Accounts receivable$39,932 $(28,675)
Fuel and natural gas in storage11,01019,481
Supplies and consumables inventory(7,794)(1,977)
Income taxes recoverable(619)(822)
Prepaid expenses(10,448)(6,606)
Accounts payable(71,170)(28,537)
Accrued liabilities(35,396)(10,130)
Current income tax liability(29,155)6,351
Asset retirements and environmental obligations(572)(1,100)
Net regulatory assets and liabilities(4,815)6,117
$(109,027) $(45,898)
24
Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
21. Financial instruments (a) 
Fair value of financial instruments 
CarryingFair
March 31, 2020amountvalueLevel 1Level 2Level 3
Long-term investments carried
at fair value$ 1,105,056 $ 1,105,0561,002,208 $25,854 $76,994
Development loans and other
receivables59,68258,664—58,664—
Derivative instruments (1):
Energy contracts
designated as a cash flow
hedge62,17262,172——62,172
Energy contracts not
designated as cash flow
hedge801801—801
—
Commodity contracts for
regulated operations44—4—
Cross currency swap
designated as a net
investment hedge28,68928,689—28,689—
Total derivative
instruments91,66691,666—28,69362,973
Total financial assets$ 1,256,404 $ 1,255,386 $ 1,002,208 $113,211 $ 139,967
Long-term debt$ 4,204,767 $ 4,308,525 $ 1,419,970 $ 2,888,555 $—
Convertible debentures302568568——
Preferred shares, Series C12,54812,709—12,709—
Derivative instruments (1):
Energy contracts
designated as a cash flow
hedge1,5771,577——1,577
Energy contracts not
designated as a cash flow
hedge2020——20
Cross-currency swap
designated as a net
investment hedge117,734117,734—117,734—
Forward interest rate 
swaps designated as a 
hedge9,2149,214—9,214—
Commodity contracts for
regulated operations992992—992—
Total derivative
instruments129,537129,537—127,9401,597
Total financial liabilities$ 4,347,154 $ 4,451,339 $ 1,420,538 $ 3,029,204 $1,597
(1) Balance of $334 associated with certain weather derivatives have been excluded, as they are accounted 
for based on intrinsic value rather than fair value.
25
Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
21. Financial instruments (continued)(a) 
Fair value of financial instruments (continued)
CarryingFair
December 31, 2019amountvalueLevel 1Level 2Level 3
Long-term investment carried
at fair value$1,294,147 $1,294,147 $1,178,581 $27,072 $ 88,494
Development loans and other
receivables37,05037,984—37,984—
Derivative instruments:
Energy contracts
designated as a cash flow
hedge65,30465,304——65,304
Energy contracts not
designated as a cash flow
hedge20,38420,384——20,384
Commodity contracts for
regulatory operations1616—16—
Total derivative
instruments85,70485,704—1685,688
Total financial assets$1,416,901 $1,417,835 $1,178,581 $65,072 $ 174,182
Long-term debt$3,931,868 $4,284,068 $1,495,153 $2,788,915 $—
Convertible debentures342623623——
Preferred shares, Series C13,79315,120—15,120—
Derivative instruments:
Energy contracts
designated as a cash flow
hedge789789——789
Cross-currency swap
designated as a net
investment hedge81,76581,765—81,765—
Currency forward contract
not designated as hedge3838——38
Commodity contracts for
regulated operations2,0722,072—2,072—
Total derivative
instruments84,66484,664—83,837827
Total financial liabilities$4,030,667 $4,384,475 $1,495,776 $2,887,872 $827
The  Company  has  determined  that  the  carrying  value  of  its  short-term  financial  assets  and  liabilities approximates fair value as of March 31, 2020 and December 31, 2019 due to the short-term maturity of these instruments.The fair value of development loans and other receivables (level 2) is 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 1) is measured at the closing price on the NASDAQ stock exchange.
26
Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
21. Financial instruments (continued)(a) 
Fair value of financial instruments (continued)The Company’s level 1 fair value of long-term debt is measured at the closing price on the New York 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 a 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 $10.46to $126.47 with a weighted average of $20.93 as of March 31, 2020. 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 21(b)(ii) and 21(b)(iv). The significant unobservable inputs used in the fair value measurement of the Company's AYES Canada investment are the expected cash flows, the discount rates applied to these cash flows ranging from 8.75% to 9.50% with a weighted average of 9.42%, and the expected volatility of Atlantica's share price ranging from 18% to 22% as of March 31, 2020. Significant increases (decreases) 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 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:
 2020
Financial contracts:  Swaps2,144,407
Forward contracts2,000,0004,144,407
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 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 costs 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.
27
Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
21. Financial instruments (continued)(b) 
Derivative instruments (continued)
(i) Commodity derivatives – regulated accounting (continued)The following table presents the impact of the change in the fair value of the Company’s natural gas derivative contracts had on the unaudited interim consolidated balance sheets: 
March 31,December 31,
20202019
Regulatory assets:
Swap contracts$149 $28
Option contracts1638
Forward contracts$1,051 $1,830
Regulatory liabilities:
Swap contracts$207 $743
(ii) Cash flow hedges 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 quantityReceive averagePay floating price
(MW-hrs)Expiryprices (per MW-hr)(per MW-hr)
718,925 December 202834.95PJM Western HUB
3,295,096 December 202725.33NI HUB
2,552,962 December 202736.46ERCORT North HUB
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. The Company designated a contract with a notional quantity of 151,680 MW-hours, a price of $38.95 per MW-hr and expiring in February 2022 as a hedge to the price of energy purchases. The Company also mitigates the risk by using short-term financial forward energy purchase contracts. These short-term derivatives are not accounted for as hedges and changes in fair value are recorded in earnings as they occur (note 21(b)(iv)).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 the Sugar Creek wind Project. On September 30, 2019, the Company sold the derivative contract together with 100% of its ownership interest in Sugar Creek to AAGES Sugar Creek. The novation and transfer of the derivative contract was subject to counterparty approval, which was received in Q1 2020. 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 in 2019.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 2019, the Company settled the forward-starting interest rate swap contract as it issued C$300,000 10-year senior unsecured notes with an interest rate of 4.60%.In September 2019, the Company entered into a forward-starting interest rate swap in order to reduce the interest rate risk related to the quarterly interest payments between July 1, 2024 and July 1, 2029 on the subordinated unsecured notes (note 7). The Company designated the entire notional amount of the three pay-variable and receive-fixed interest rate swaps as a hedge of the future quarterly variable-rate interest payments associated with the subordinated unsecured notes.
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Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
21. Financial instruments (continued)(b) 
Derivative instruments (continued)
(ii) Cash flow hedges (continued)The following table summarizes OCI attributable to derivative financial instruments designated as a cash flow hedge: 
Three months ended March 31
20202019
Effective portion of cash flow hedge$(10,805) $3,645
Amortization of cash flow hedge(8)(8)
Amounts reclassified from AOCI(3,275)(2,174)
OCI attributable to shareholders of APUC$(14,088) $1,463
The Company expects $8,793 and $982 of unrealized gains currently in AOCI to be reclassified, net of taxes into  non-regulated  energy  sales  and  interest  expense,  respectively,  within  the  next  12  months,  as  the underlying hedged transactions settle.
(iii) Foreign exchange hedge of net investment in foreign operationThe functional currency of most of APUC's operations is the U.S. dollar. Effective January 1, 2020, the functional currency of APUC, the non-consolidated parent entity, changed from the Canadian dollar to the U.S. dollar based on a balance of facts, taking into consideration its operating, financing and investing activities. As a result of that entity's change of functional currency, changes were made to certain hedging relationships to mitigate the remaining Canadian dollar risk.The Company designates obligations denominated in Canadian dollars as a hedge of the foreign currency exposure of its net investment in its Canadian investments and subsidiaries. The related foreign currency transaction gain or loss designated as, and 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.  A foreign currency gain of $1,463 for the three months ended March 31, 2020 was recorded in OCI. On May 23, 2019, the Company entered into a cross-currency swap, coterminous with the subordinated unsecured notes 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  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. Upon the change in functional currency of APUC to the U.S. dollar on January 1, 2020, this hedge was dedesignated. The OCI related to this hedge will be amortized into earnings in the period that future interest payments affect earnings over the remaining life of the original hedge. The Company redesignated this swap as a hedge of APUC's net investment in its Canadian 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 gain of $34,835 for the three months ended March 31, 2020 was recorded in OCI.Canadian operationsThe 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. 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 obligations 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, and 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.  A foreign currency loss of $4,604 for the three months ended March 31, 2020 (2019 - gain of $14,408) was recorded in OCI. 
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Algonquin Power & Utilities Corp.Notes to the Unaudited Interim Consolidated Financial StatementsMarch 31, 2020 and 2019(in thousands of U.S. dollars, except as noted and per share amounts)
21. Financial instruments (continued)(b) 
Derivative instruments (continued)
(iii) Foreign exchange hedge of net investment in foreign operation (continued)The Company is party to C$650,000 cross currency swaps to effectively convert Canadian dollar debentures (note 7) 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 Renewable Energy 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.  A loss of $43,832 (2019 - gain of $16,840) was recorded in OCI in 2020.
(iv) Other derivatives 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.For derivatives that are not designated as hedges, the changes in the fair value are immediately recognized in earnings. 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 March 31
20202019
Change in unrealized loss (gain) on derivative financial instruments:
Energy derivative contracts$178 $—
Currency forward contract—(562)
Total change in unrealized loss (gain) on derivative financial instruments$178 $(562)
Realized loss (gain) on derivative financial instruments:
Energy derivative contracts(132)(207)
Currency forward contract—285
Total realized loss (gain) on derivative financial instruments$(132) $78
Loss (gain) on derivative financial instruments not accounted for as
hedges46(484)
Other1111
$57 $(473)
Amounts recognized in the unaudited interim consolidated statements of
operations consist of:
Loss (gain) on derivative financial instruments$57 $(196)
Gain on foreign exchange—(277)
$57 $(473)
(c) Risk management 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 to mitigate these risks to the extent possible on a cost effective basis.  
22. Comparative figuresCertain of the comparative figures have been reclassified to conform to the financial statement presentation adopted in the current period.
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