Published: 2022-08-12 00:00:00 ET

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(a)Basis of preparation

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 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 AQN are consistent with those disclosed in the consolidated financial statements of AQN as at and for the year ended December 31, 2021.

(b)Seasonality

AQN'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 applicable regulatory authority and is not affected by usage. AQN's 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 generally experience higher demand than during the summer period. AQN’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. AQN’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 AQN's wind energy assets, wind resources are typically stronger in spring, fall and winter, and weaker in summer. AQN's solar energy assets generally experience greater insolation in summer, weaker in winter.

(c)Foreign currency translation

The FASB issued ASU 2021-05, Leases (Topic 842): Lessors — Certain Leases with Variable Lease Payments to address concerns relating to day-one losses for sales-type or direct financing leases with variable payments that do not depend on a reference index or rate. The update amends the lease classification requirements for lessors to align them with past practice under Topic 840, Leases. The adoption of this update did not have an impact on the unaudited interim consolidated financial statements.

The FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity to address the complexity associated with accounting for certain financial instruments with characteristics of liabilities and equity. The number of accounting models for convertible debt instruments and convertible preferred stock is being reduced and the guidance has been amended for the derivatives scope exception for contracts in an entity's own equity to reduce form-over-substance-based accounting conclusions. The adoption of this update did not have an impact on the unaudited interim consolidated financial statements.

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2.     Recently adopted accounting pronouncements (continued)

The FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which 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 FASB issued an update to Topic 848 in ASU 2021-01 to clarify that the scope of Topic 848 includes derivatives affected by the discounting transition. The adoption of this update did not have an impact on the unaudited interim consolidated financial statements.

Acquisition of New York American Water Company, Inc.

Effective January 1, 2022, the Company completed the acquisition of New York American Water Company, Inc. (subsequently renamed Liberty Utilities (New York Water) Corp. (“Liberty NY Water”)). Liberty NY Water is a Merrick, New York based regulated water and wastewater utility company, serving customers in seven counties in southeastern New York.

A purchase price of $608,000 (before closing adjustments) was paid for this acquisition. The costs related to this acquisition have been expensed through the unaudited interim consolidated statement of operations. The following table summarizes the preliminary allocation of the acquisition prices of the assets acquired and liabilities assumed at the acquisition date:

Working capital			$	4,703
Property, plant and equipment			517,591
Goodwill			95,181
Regulatory assets			68,379
Other assets			4,507
Pension and other post-employment obligations			(13,402)
Regulatory liabilities			(59,636)
Other liabilities			(8,026)
Total net assets acquired			609,297
Cash and cash equivalents			49
Net assets acquired, net of cash and cash equivalents			$	609,248

The determination of the fair value of assets acquired and liabilities assumed is based upon management's estimates and certain assumptions. Due to the timing of the acquisition, the Company has not finalized the fair value measurements. The fair value of property, plant and equipment was reduced by $9,194 in Q2 2022 to reflect the time value of money of assets that will not be included in rate base until the next rate case. The valuation of regulatory assets and liabilities and deferred income taxes have not been completed. The Company will continue to review information and perform further analysis prior to finalizing the fair value of assets acquired and liabilities assumed.

Goodwill represents the excess of the purchase price over the aggregate fair value of net assets acquired. The contributing factors to the amount recorded as goodwill include future growth, potential synergies, and cost savings in the delivery of certain shared administrative and other services.

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The operating companies within the Regulated Services Group are subject to regulation by the respective authorities of the jurisdictions 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. Except for ESSAL, 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, Regulated Operations. 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.

Utility			State or country			Regulatory proceeding type			Details
Empire Electric System			Missouri			General rate review			On April 6, 2022, the regulator approved an annual base rate revenue increase of $35,516, as well as another $4,000 in revenues associated with the Empire Wind Facilities. Empire Electric System filed updated tariffs in May 2022 for new rates to become effective in the second quarter of 2022. Empire Electric filed a petition for securitization of the costs associated with the impact of the Midwest Extreme Weather Event and the retirement of Asbury in January 2022 and March 2022, respectively. On April 27, 2022, the MPSC issued an order consolidating, for purposes of hearing, these two cases regarding the quantum financeable through securitization, which hearing was held the week of June 13, 2022. The MPSC must issue an order on the Midwest Extreme Weather Event securitization request no later than August 22, 2022. It is expected that the Asbury securitization request will be addressed in that same order. The order could result in a lower quantum of costs being financeable through securitization than sought by the Company.
BELCO			Bermuda			General rate review			On March 18, 2022, the regulator issued a final decision authorizing $224,056 and $226,160 in revenue for 2022 and 2023 respectively at a weighted average cost of capital or return of 7.16% in each year. The new rates are effective from April 1, 2022. On April 7, 2022, BELCO filed an appeal in the Supreme Court of Bermuda challenging the decisions made through the recent Retail Tariff Review.
Empire Electric System			Kansas			General rate review			On May 27, 2021, submitted an abbreviated rate review seeking to recover costs associated with the addition of the Empire Wind Facilities, the retirement of Asbury and non-growth related plant investments since the 2019 rate review. In May 2022, the Commission approved the unanimous partial settlement resolving the rate treatment of the Asbury retirement and the non-wind investments resulting in a base rate decrease of $636, and granted Empire Electric's motion to withdraw its request to recover cost associated with the Empire Wind Facilities. New rates became effective in July 2022.
Empire District Gas Company			Missouri			General rate review			In June 2022, the Commission approved an annual increase of $1,000 in base rate revenues to become effective in August 2022.

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5.Regulatory matters (continued)

Regulatory assets and liabilities consist of the following:

			June 30,						December 31,
			2022						2021
Regulatory assets
Fuel and commodity cost adjustments			348,115						339,900
Retired generating plant			176,622						185,073
Pension and post-employment benefits			137,759						134,141
Rate adjustment mechanism			126,710						117,309
Income taxes			98,148						79,472
Environmental remediation			73,652						81,802
Deferred capitalized costs			83,069						62,599
Wildfire mitigation and vegetation management			48,453						35,789
Debt premium			27,843						34,204
Asset retirement obligation			38,559						26,810
Clean energy and other customer programs			26,677						26,015
Rate review costs			8,664						9,167
Long-term maintenance contract			7,445						9,134
Other			58,805						26,210
Total regulatory assets			$	1,260,521					$	1,167,625
Less: current regulatory assets			(136,428)						(158,212)
Non-current regulatory assets			$	1,124,093					$	1,009,413
Regulatory liabilities
Income taxes			$	322,131					$	295,720
Cost of removal			192,900						191,981
Pension and post-employment benefits			59,670						34,468
Clean energy and other customer programs			16,204						14,829
Fuel and commodity costs adjustments			9,542						18,229
Rate adjustment mechanism			3,000						3,316
Rate base offset			3,954						4,998
Other			23,422						12,648
Total regulatory liabilities			$	630,823					$	576,189
Less: current regulatory liabilities			(72,956)						(65,809)
Non-current regulatory liabilities			$	557,867					$	510,380

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Long-term investments consist of the following:

			June 30,						December 31,
			2022						2021
Long-term investments carried at fair value
Atlantica			$	1,579,544					$	1,750,914
Atlantica Yield Energy Solutions Canada Inc.			81,506						95,246
Other			2,042						2,296
			$	1,663,092					$	1,848,456
Other long-term investments
Equity-method investees (a)			$	396,305					$	433,850
Development loans receivable from equity-method investees (a)			99,770						31,468
Other			27,676						30,508
			$	523,751					$	495,826

Income (loss) from long-term investments from the three and six months ended June 30 is as follows:

			Three months ended June 30												Six months ended June 30
			2022						2021						2022						2021
Fair value gain (loss) on investments carried at fair value
Atlantica			$	(137,586)					$	28,888					$	(171,370)					$	(35,545)
Atlantica Yield Energy Solutions Canada Inc.			(5,815)						(1,948)						(12,395)						(9,259)
Other			(121)						402						(264)						402
			$	(143,522)					$	27,342					$	(184,029)					$	(44,402)
Dividend and interest income from investments carried at fair value
Atlantica			$	21,543					$	21,054					$	43,087					$	41,618
Atlantica Yield Energy Solutions Canada Inc.			5,397						4,376						12,691						8,721
Other			12						315						10						315
			$	26,952					$	25,745					$	55,788					$	50,654
Other long-term investments
Equity method loss			(2,918)						(2,816)						(7,449)						(8,370)
Interest and other income			6,108						10,235						11,621						12,117
			$	3,190					$	7,419					$	4,172					$	3,747
Income (loss) from long-term investments			$	(113,380)					$	60,506					$	(124,069)					$	9,999

(a)Equity-method investees and development loans receivable from equity investees

The Company has non-controlling interests in various corporations, partnerships and joint ventures with a total carrying value of $396,305 (December 31, 2021 - $433,850), including investments in variable interest entities ("VIEs") of $105,941 (December 31, 2021 - $86,202).

During 2021, the Company acquired a 51% interest in four operating wind facilities located in Texas (“Texas Coastal Wind Facilities”). All facilities have achieved commercial operations. The Company does not control the entities and therefore accounts for its 51% interest using the equity method. As at June 30, 2022, the Company had issued $119,750 in letters of credit and guarantees of performance obligations under energy purchase agreements and decommissioning obligations on behalf of the Texas Coastal Wind Facilities.

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6.Long-term investments (continued)

Summarized combined information for AQN's investments in significant partnerships and joint ventures is as follows:

			June 30,						December 31,
			2022						2021
Total assets			$	2,347,076					$	2,126,934
Total liabilities			1,282,385						945,971
Net assets			$	1,064,691					$	1,180,963
AQN's ownership interest in the entities			278,664						327,555
Difference between investment carrying amount and underlying equity in net assets(a)			117,641						106,295
AQN's investment carrying amount for the entities			$	396,305					$	433,850

(a) The difference between the investment carrying amount and the underlying equity in net assets relates primarily to development fees, interest capitalized while the projects are under construction, the fair value of guarantees provided by the Company in regards to the investments and transaction costs.

Except for Liberty Global Energy Solutions B.V. (“Liberty Global Energy Solutions”), the development projects are considered VIEs due to the level of equity at risk and the disproportionate voting and economic interests of the shareholders. The Company has committed loan and credit support facilities with some of its equity investees. During construction, the Company has agreed to provide cash advances and credit support for the continued development and construction of the equity investees' projects. As at June 30, 2022, the Company had issued letters of credit and guarantees of performance obligations under: a security of performance for a development opportunity; wind turbine and solar panel supply agreements; interconnection agreements; engineering, procurement and construction agreements; energy purchase agreements; and construction loan agreements. The fair value of the support provided recorded as at June 30, 2022 amounts to $6,535 (December 31, 2021 - $4,612).

Summarized combined information for AQN's VIEs is as follows:

			June 30,						December 31,
			2022						2021
AQN's maximum exposure in regards to VIEs
Carrying amount			$	105,941					$	86,202
Development loans receivable			99,770						31,468
Performance guarantees and other commitments on behalf of VIEs			456,217						409,232
			$	661,928					$	526,902

The commitments are presented on a gross basis assuming no recoverable value in the assets of the VIEs.

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Long-term debt consists of the following:

Borrowing type						Weighted average coupon						Maturity						Par value						June 30,						December 31,
																								2022						2021
Senior unsecured revolving credit facilities (a)						—						2022-2024						N/A						$	370,031					$	368,806
Senior unsecured bank credit facilities (b)						—						2022-2031						N/A						768,107						141,956
Commercial paper						—						2023						N/A						165,000						338,700
U.S. dollar borrowings
Senior unsecured notes (Green Equity Units)						1.18		%				2026						$	1,150,000					1,141,763						1,140,801
Senior unsecured notes						3.47		%				2022-2047						$	1,620,000					1,610,497						1,689,792
Senior unsecured utility notes						6.34		%				2023-2035						$	142,000					154,748						155,571
Senior secured utility bonds						4.71		%				2026-2044						$	556,216					556,514						558,177
Canadian dollar borrowings
Senior unsecured notes (c)						3.68		%				2027-2050						C$1,200,000						928,339						1,099,403
Senior secured project notes						10.21		%				2027						C$ 21,596						16,759						18,344
Chilean Unidad de Fomento borrowings
Senior unsecured utility bonds						4.12		%				2028-2040						CLF 1,695						72,730						77,963
																								$	5,784,488					$	5,589,513
Subordinated borrowings
Subordinated unsecured notes (d)						5.25		%				2082						C$ 400,000						$	306,290					$	—
Subordinated unsecured notes (d)						5.56		%				2078-2082						$	1,387,500					1,364,356						621,862
																								$	1,670,646					$	621,862
																								$	7,455,134					$	6,211,375
Less: current portion																								(182,497)						(356,397)
																								$	7,272,637					$	5,854,978

Short-term obligations of $824,692 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 facilities

On April 29, 2022, the Regulated Services Group entered into two new senior unsecured syndicated revolving credit facilities: a $1,000,000 senior unsecured revolving credit facility with an initial maturity date of April 29, 2027 (the “Long Term Regulated Services Credit Facility”) and a $500,000 short-term senior unsecured revolving credit facility maturing on March 31, 2023. Subject to the terms and conditions therein, the Long Term Regulated Services Credit Facility may be extended for two additional one-year periods. In conjunction with the new facilities, the Regulated Services Group’s $500,000 senior unsecured syndicated revolving credit facility was cancelled.

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7.Long-term debt (continued)

(a)Senior unsecured revolving credit facilities (continued)

On June 24, 2022, the Regulated Services Group entered into a new $25,000 senior unsecured bilateral revolving credit facility in Bermuda that matures on June 24, 2024.

Subsequent to quarter-end on July 22, 2022, the Renewable Energy Group’s senior unsecured syndicated revolving credit facility was amended and restated with a new maturity date of July 22, 2027.

Subsequent to quarter-end on July 22, 2022, the Renewable Energy Group entered into a new $250,000 uncommitted bilateral letter of credit facility.

(b)Senior unsecured bank credit facilities

On December 20, 2021, the Regulated Services Group entered into a $1,100,000 senior unsecured syndicated delayed draw term facility, which matures on December 19, 2022. On January 3, 2022, the purchase price, plus certain adjustments and acquisition costs, for the acquisition of Liberty NY Water (note 3) of approximately $610,400 was funded through a draw on the senior unsecured syndicated delayed draw term facility.

(c)Canadian dollar senior unsecured notes

On February 15, 2022, the Company repaid a C$200,000 senior unsecured note on its maturity. Concurrent with the repayments, the Renewable Energy Group unwound and settled the related cross-currency fixed-for-fixed interest rate swap (note 21(b)(iii)).

On April 30, 2022, the Company repaid a $80,000 senior unsecured note on its maturity.

Subsequent to quarter-end on August 1, 2022, the Company repaid a $115,000 senior unsecured note on its maturity.

(d)Subordinated unsecured notes

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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 for the three and six months ended June 30:

			Pension benefits
			Three months ended June 30												Six months ended June 30
			2022						2021						2022						2021
Service cost			$	4,532					$	4,508					$	8,388					$	8,336
Non-service costs
Interest cost			6,778						3,511						12,841						10,217
Expected return on plan assets			(10,519)						(6,616)						(20,843)						(17,780)
Amortization of net actuarial loss			1,257						2,540						2,046						4,812
Amortization of prior service credits			(389)						(406)						(792)						(813)
Impact of regulatory accounts			4,664						4,825						11,002						11,009
			$	1,791					$	3,854					$	4,254					$	7,445
Net benefit cost			$	6,323					$	8,362					$	12,642					$	15,781

			OPEB
			Three months ended June 30												Six months ended June 30
			2022						2021						2022						2021
Service cost			$	1,554					$	1,772					$	3,109					$	3,544
Non-service costs
Interest cost			2,282						3,031						4,641						4,052
Expected return on plan assets			(2,841)						(2,510)						(5,682)						(5,021)
Amortization of net actuarial loss (gain)			(86)						436						(172)						873
Amortization of prior service credits			6						—						12						—
Impact of regulatory accounts			1,106						(950)						1,783						196
			$	467					$	7					$	582					$	100
Net benefit cost			$	2,021					$	1,779					$	3,691					$	3,644

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 the unaudited interim consolidated statements of operations.

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Other long-term liabilities consist of the following: 

			June 30,						December 31,
			2022						2021
Contract adjustment payments			$	150,837					$	187,580
Asset retirement obligations			129,399						142,147
Advances in aid of construction			86,265						82,580
Environmental remediation obligation			46,914						55,224
Customer deposits			33,154						32,633
Unamortized investment tax credits			17,209						17,439
Deferred credits and contingent consideration			35,191						35,982
Preferred shares, Series C			12,738						13,348
Hook-up fees			30,268						21,904
Lease liabilities			22,036						22,512
Contingent development support obligations			6,535						4,612
Note payable to related party			25,808						25,808
Other			38,065						42,050
			$	634,419					$	683,819
Less: current portion			(157,827)						(167,908)
			$	476,592					$	515,911

(a)Common shares

Number of common shares 

						Six months ended June 30
						2022						2021
Common shares, beginning of period						671,960,276						597,142,219
Public offering						—						16,789,922
Dividend reinvestment plan						3,014,264						2,926,494
Exercise of share-based awards (b)						673,852						679,834
Conversion of convertible debentures						754						1,886
Common shares, end of period						675,649,146						617,540,355

As at August 11, 2022, the Company has issued since the inception of its at-the-market share offering program (the “ATM program”) in 2019 a cumulative total of 33,952,827 common shares at an average price of $15.08 per share for gross proceeds of $512,163 ($505,761 net of commissions). Other related costs, primarily related to the establishment and subsequent re-establishments of the ATM program, were $4,285.

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10.Shareholders’ capital (continued)

(b)Share-based compensation

For the three and six months ended June 30, 2022, AQN recorded $3,860 and $3,495, respectively (2021 - $3,189 and $4,386, respectively) in total share-based compensation expense. The compensation expense is recorded with payroll expenses in the unaudited interim consolidated statements of operations. The portion of share-based compensation costs capitalized as cost of construction is insignificant.

As at June 30, 2022, total unrecognized compensation costs related to non-vested share-based awards was $17,049 and is expected to be recognized over a period of 1.9 years.

Share option plan

During the six months ended June 30, 2022, the Board of Directors of the Company (the "Board") approved the grant of 646,090 options to executives of the Company. The options allow for the purchase of common shares at a weighted average price of C$19.11, the market price of the underlying common shares at the date of grant. One-third of the options vest on each of December 31, 2022, 2023 and 2024. 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: 

						2022
Risk-free interest rate						1.9		%
Expected volatility						23		%
Expected dividend yield						4.3		%
Expected life						5.50 years
Weighted average grant date fair value per option						C$	2.44

During the six months ended June 30, 2022, 40,074 share options were exercised at a weighted average price of C$15.78 in exchange for 3,999 common shares issued from treasury, and 36,075 options settled at their cash value as payment for the exercise price and tax withholdings related to the exercise of the options.

Performance and restricted share units

During the six months ended June 30, 2022, a total of 434,990 performance share units ("PSUs") and restricted share units ("RSUs") were granted to employees of the Company. The awards vest based on the terms of each agreement ranging from February 2023 to January 2025. During the six months ended June 30, 2022, the Company settled 893,786 PSUs and RSUs in exchange for 454,943 common shares issued from treasury, and 438,843 PSUs and RSUs were settled at their cash value as payment for tax withholding related to the settlement of the awards.

During the six months ended June 30, 2022, the Company settled 4,108 bonus deferral RSUs in exchange for 1,908 common shares issued from treasury, and 2,200 RSUs were settled at their cash value as payment for tax withholding related to the settlement of the awards. During the six months ended June 30, 2022, 48,552 bonus deferral RSUs were granted to employees of the Company. The RSUs are 100% vested.

Directors' deferred share units

During the six months ended June 30, 2022, 44,880 deferred share units ("DSUs") were issued pursuant to the election by Directors of the Company to defer a percentage of their directors' fee in the form of DSUs. In addition, the Company settled 5,176 DSUs in exchange for 2,403 common shares issued from treasury, and 2,773 DSUs were settled at their cash value as payment for tax withholding related to the settlement of the awards.

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    AOCI consists of the following balances, net of tax:

			Foreign currency cumulative translation						Unrealized gain on cash flow hedges												Pension and post-employment actuarial changes						Total
Balance, January 1, 2021			$	(39,725)					$	50,817											$	(33,599)					$	(22,507)
OCI			(25,982)						(97,103)												32,247						(90,838)
Amounts reclassified from AOCI to the unaudited interim consolidated statements of operations			(4,288)						42,772												9,804						48,288
Net current period OCI			$	(30,270)					$	(54,331)											$	42,051					$	(42,550)
OCI attributable to the non-controlling interests			(249)						—												—						(249)
Net current period OCI attributable to shareholders of AQN			$	(30,519)					$	(54,331)											$	42,051					$	(42,799)
Amounts reclassified from AOCI to non-controlling interest			(6,371)						—												—						(6,371)
Balance, December 31, 2021			$	(76,615)					$	(3,514)											$	8,452					$	(71,677)
OCI			(39,864)						(81,852)												—						(121,716)
Amounts reclassified from AOCI to the unaudited interim consolidated statements of operations			(731)						10,087												(86)						9,270
Net current period OCI			$	(40,595)					$	(71,765)											$	(86)					$	(112,446)
OCI attributable to the non-controlling interests			753						—												—						753
Net current period OCI attributable to shareholders of AQN			$	(39,842)					$	(71,765)											$	(86)					$	(111,693)
Balance, June 30, 2022			$	(116,457)					$	(75,279)											$	8,366					$	(183,370)

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 were as follows:

			Three months ended June 30
			2022												2021
			Dividend						Dividend per share						Dividend						Dividend per share
Common shares			$	122,636					$	0.1808					$	105,707					$	0.1706
Series A preferred shares			C$ 1,549						$	0.3226					C$ 1,549						$	0.3226
Series D preferred shares			C$ 1,273						$	0.3182					C$ 1,273						$	0.3182

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(a)Equity-method investments

The Company provides administrative and development services to its equity-method investees and is reimbursed for incurred costs. To that effect, during the three and six months ended June 30, 2022, the Company charged its equity-method investees $11,174 and $18,587, respectively (2021 - $6,006 and $12,320, respectively). Additionally, one of the equity-method investees (Liberty Development JV Inc.), provides development services to the Company on specified projects, for which it earns a development fee upon reaching certain milestones. During the three and six months ended June 30, 2022, the development fees charged to the Company were $nil and $nil, respectively (2021 - $nil and $738, respectively).

In 2021, the Company issued a promissory note of $25,808 payable to New Market Solar Investco, LLC, an equity investee of the Company.

(b)Redeemable non-controlling interest held by related party

Liberty Global Energy Solutions (note 6(a)), an equity investee of the Company, has a secured credit facility in the amount of $306,500 maturing on January 26, 2024. It is collateralized through a pledge of Atlantica Sustainable Infrastructure plc (“Atlantica”) ordinary shares. A collateral shortfall would occur if the net obligation as defined in the agreement would equal or exceed 50% of the market value of such Atlantica shares, in which case the lenders would have the right to sell Atlantica shares to eliminate the collateral shortfall. The Liberty Global Energy Solutions secured credit facility is repayable on demand if Atlantica ceases to be a public company. Liberty Global Energy Solutions has a preference share ownership in AY Holdings which AQN reflects as redeemable non-controlling interest held by related party. Redemption is not considered probable as at June 30, 2022. During the three and six months ended June 30, 2022, the Company incurred non-controlling interest attributable to Liberty Global Energy Solutions of $3,086 and $5,661, respectively (2021 - $2,617 and $5,298, respectively) and recorded distributions of $2,820 and $5,404, respectively (2021 - $2,503 and $5,046, respectively) (note 14).

(c)Non-controlling interest held by related party

Non-controlling interest held by related party represents an interest in a consolidated subsidiary of the Company, acquired by Atlantica Yield Energy Solutions Canada Inc. ("AYES Canada") in May 2019 for $96,752 (C$130,103) and an interest in Algonquin (AY Holdco) B.V., a consolidated subsidiary of the Company, acquired by Liberty Development JV in November 2021 for $39,376. During the three and six months ended June 30, 2022, the Company recorded distributions of $5,534 and $12,956, respectively (2021 - $4,473 and $8,912).

(d)     Transactions with Atlantica

During 2021, the Company sold Colombian solar assets to Atlantica for consideration of $23,863, with a gain on sale of $878, and contingent consideration of $2,600, if certain milestones are met. During the six months ended June 30, 2022 a gain of $1,200 relating to the contingent consideration has been recognized.

The above related party transactions have been recorded at the exchange amounts agreed to by the parties to the transactions.

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Net effect attributable to non-controlling interests consists of the following:

			Three months ended June 30												Six months ended June 30
			2022						2021						2022						2021
HLBV and other adjustments attributable to:
Non-controlling interests - tax equity partnership units			$	31,100					$	19,579					$	71,961					$	41,521
Non-controlling interests - redeemable tax equity partnership units			1,337						1,707						2,936						3,425
Other net earnings attributable to:
Non-controlling interests			(416)						(349)						(1,934)						(4,044)
			$	32,021					$	20,937					$	72,963					$	40,902
Redeemable non-controlling interest, held by related party			(3,086)						(2,617)						(5,661)						(5,298)
Net effect of non-controlling interests			$	28,935					$	18,320					$	67,302					$	35,604

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.

For the three and six months ended June 30, 2022, the provision for income taxes in the unaudited interim consolidated statements of operations represents an effective tax rate different than the Canadian enacted statutory rate of 26.5% (2021 - 26.5%). The differences are as follows:

			Three months ended June 30												Six months ended June 30
			2022						2021						2022						2021
Expected income tax expense (recovery) at Canadian statutory rate			$	(22,562)					$	21,387					$	(6,119)					$	14,769
Increase (decrease) resulting from:
Effect of differences in tax rates on transactions in and within foreign jurisdictions and change in tax rates			(6,562)						(6,948)						(19,039)						(21,885)
Adjustments from investments carried at fair value			17,216						(5,088)						18,229						(955)
Non-controlling interests share of income			4,587						4,012						15,640						16,327
Acquisition related state deferred tax adjustments			—						—						7,600						—
Tax credits			(11,992)						(14,934)						(22,023)						(26,519)
Amortization and settlement of excess deferred income tax			(2,296)						(2,384)						(6,329)						(7,000)
Other			(1,210)						(240)						(1,326)						(570)
Income tax recovery			$	(22,819)					$	(4,195)					$	(13,367)					$	(25,833)

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Other net losses consist of the following:

			Three months ended June 30												Six months ended June 30
			2022						2021						2022						2021
Acquisition and transition-related costs			$	5,850					$	882					$	8,015					$	2,984
Other			2,802						931						5,367						7,213
			$	8,652					$	1,813					$	13,382					$	10,197

Basic 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, 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 related to the convertible debentures or resulting from the application of the treasury stock method to outstanding share options and Green Equity Units (note 7).

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 June 30												Six months ended June 30
			2022						2021						2022						2021
Net earnings (loss) attributable to shareholders of AQN			(33,387)						103,222						57,578						117,169
Series A preferred shares dividend			1,219						1,249						2,437						2,464
Series D preferred shares dividend			1,001						1,027						2,003						2,026
Net earnings (loss) attributable to common shareholders of AQN – basic and diluted			$	(35,607)					$	100,946					$	53,138		$	—		$	112,679
Weighted average number of shares
Basic			674,742,897						614,013,963						674,720,319						606,876,299
Effect of dilutive securities			—						5,982,644						4,412,593						5,813,565
Diluted			674,742,897						619,996,607						679,132,912						612,689,864

This calculation of diluted shares excludes the potential impact of the Green Equity Units and all potential incremental shares that may become issuable pursuant to outstanding securities of the Company for the three months ended June 30, 2022 and 1,134,711 securities for the six months ended June 30, 2022 as they are anti dilutive. This calculation of diluted shares for the three and six months ended June 30, 2021 excludes the potential impact of 488,621 and 437,006 securities, respectively as they are anti-dilutive.

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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, Canada, Bermuda and Chile; 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 is 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, unrealized portion of any gains or losses on derivative instruments not designated in a hedging relationship and foreign exchange gains and losses are not considered in management’s evaluation of divisional performance and are therefore, allocated and reported under corporate.

			Three months ended June 30, 2022
			Regulated Services Group						Renewable Energy Group						Corporate						Total
Revenue (1)(2)			$	507,095					$	97,015					$	—					$	604,110
Other revenue			12,559						7,208						382						20,149
Fuel, power and water purchased			159,256						11,698						—						170,954
Net revenue			360,398						92,525						382						453,305
Operating expenses			179,258						27,053						19						206,330
Administrative expenses			10,966						8,510						631						20,107
Depreciation and amortization			76,228						36,057						262						112,547
Loss on foreign exchange			—						—						4,464						4,464
Operating income (loss)			93,946						20,905						(4,994)						109,857
Interest expense			(23,859)						(27,615)						(13,099)						(64,573)
Income (loss) from long-term investments			5,265						26,675						(145,320)						(113,380)
Other expenses			(2,898)						(7,545)						(6,602)						(17,045)
Earnings (loss) before income taxes			$	72,454					$	12,420					$	(170,015)					$	(85,141)
Capital expenditures			$	313,188					$	67,660					$	—					$	380,848

(1) Renewable Energy Group revenue includes $25,062 related to net hedging loss from energy derivative contracts and availability credits for the three months period ended June 30, 2022 that do not represent revenue recognized from contracts with customers.

(2) Regulated Services Group revenue includes $8,811 related to alternative revenue programs for the three months period ended June 30, 2022 that do not represent revenue recognized from contracts with customers.

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18.Segmented information (continued)

			Three months ended June 30, 2021
			Regulated Services Group						Renewable Energy Group						Corporate						Total
Revenue (1)(2)			$	430,764					$	77,890					$	—					$	508,654
Other revenue			14,100						4,372						397						18,869
Fuel, power and water purchased			148,403						6,061						—						154,464
Net revenue			296,461						76,201						397						373,059
Operating expenses			145,723						25,357						2						171,082
Administrative expenses (recovery)			9,912						6,425						785						17,122
Depreciation and amortization			67,520						30,369						272						98,161
Loss on foreign exchange			—						—						1,283						1,283
Operating income (loss)			73,306						14,050						(1,945)						85,411
Interest expense			(27,114)						(20,452)						(10,616)						(58,182)
Income from long-term investments			9,293						25,988						25,225						60,506
Other expenses			(4,155)						(2,778)						(95)						(7,028)
Earnings before income taxes			$	51,330					$	16,808					$	12,569					$	80,707
Capital expenditures			$	341,431					$	66,312					$	—					$	407,743

(1) Renewable Energy Group revenue includes $4,996 related to net hedging gain from energy derivative contracts for the three months period ended June 30, 2021 that do not represent revenue recognized from contracts with customers.

(2) Regulated Services Group revenue includes $5,118 related to alternative revenue programs for the three months period ended June 30, 2021 that do not represent revenue recognized from contracts with customers.

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18.Segmented information (continued)

			Six months ended June 30, 2022
			Regulated Services Group						Renewable Energy Group						Corporate						Total
Revenue (1)(2)			1,129,854						185,235						$	—					$	1,315,089
Other revenue			27,547						16,552						768						44,867
Fuel, power and water purchased			393,828						26,604						—						420,432
Net revenue			763,573						175,183						768						939,524
Operating expenses			363,667						54,643						22						418,332
Administrative expenses			19,036						16,055						2,468						37,559
Depreciation and amortization			156,511						75,474						526						232,511
Loss on foreign exchange			—						—						4,726						4,726
			224,359						29,011						(6,974)						246,396
Gain on sale of renewable assets			—						1,200						—						1,200
Operating income (loss)			224,359						30,211						(6,974)						247,596
Interest expense			(45,285)						(43,328)						(33,903)						(122,516)
Income (loss) from long-term investments			9,774						54,301						(188,144)						(124,069)
Other expenses			(7,786)						(8,293)						(8,023)						(24,102)
Earnings (loss) before income taxes			$	181,062					$	32,891					$	(237,044)					$	(23,091)
Property, plant and equipment			$	8,176,765					$	3,674,155					$	30,859					$	11,881,779
Investments carried at fair value			2,042						1,661,050						—						1,663,092
Equity-method investees			37,228						343,322						15,755						396,305
Total assets			11,543,883						5,981,313						212,680						17,737,876
Capital expenditures			$	568,773					$	139,774					$	—					$	708,547

(1) Renewable Energy Group revenue includes $29,892 related to net hedging loss from energy derivative contracts and availability credits for the six months period ended June 30, 2022 that do not represent revenue recognized from contracts with customers.

(2) Regulated Services Group revenue includes $15,089 related to alternative revenue programs for the six months period ended June 30, 2022 that do not represent revenue recognized from contracts with customers.

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18.Segmented information (continued)

			Six months ended June 30, 2021
			Regulated Services Group						Renewable Energy Group						Corporate						Total
Revenue (1)(2)			$	1,017,901					$	108,673					$	—					$	1,126,574
Other revenue			25,566						9,142						783						35,491
Fuel, power and water purchased			393,925						13,989						—						407,914
Net revenue			649,542						103,826						783						754,151
Operating expenses			297,905						53,229						5						351,139
Administrative expenses			17,455						12,608						3,702						33,765
Depreciation and amortization			135,087						59,947						566						195,600
Loss on foreign exchange			—						—						2,145						2,145
Operating income (loss)			199,095						(21,958)						(5,635)						171,502
Interest expense			(51,415)						(36,745)						(19,602)						(107,762)
Income (loss) from long-term investments			10,467						48,405						(48,873)						9,999
Other expenses			(12,646)						(3,654)						(1,707)						(18,007)
Earnings (loss) before income taxes			$	145,501					$	(13,952)					$	(75,817)					$	55,732
Capital expenditures			$	553,950					$	149,182					$	—					$	703,132
			December 31, 2021
Property, plant and equipment			$	7,394,151					$	3,615,915					$	32,380					$	11,042,446
Investments carried at fair value			2,296						1,846,160						—						1,848,456
Equity-method investees			37,492						375,460						20,898						433,850
Total assets			10,512,799						6,123,888						149,149						16,785,836

(1) Renewable Energy Group revenue includes $44,587 related to net hedging loss from energy derivative contracts for the six months period ended June 30, 2021 that do not represent revenue recognized from contracts with customers.

(2) Regulated Services Group revenue includes $7,479 related to alternative revenue programs for the six months period ended June 30, 2021 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.

AQN operates in the independent power and utility industries in the United States, Canada and other regions. Information on operations by geographic area is as follows:

			Three months ended June 30												Six months ended June 30
			2022						2021						2022						2021
Revenue
United States			$	497,247					$	415,431					$	1,098,580					$	927,258
Canada			41,397						35,952						95,232						83,803
Other regions			85,615						76,140						166,144						151,004
			$	624,259					$	527,523					$	1,359,956					$	1,162,065

Revenue is attributed to the regions based on the location of the underlying generating and utility facilities.

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(a)Contingencies

AQN 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 AQN’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 unaudited interim consolidated financial statements at the time it is concluded that their occurrence is probable and the related liability is estimable.

Mountain View Fire

On November 17, 2020, a wildfire now known as the Mountain View Fire occurred in the territory of Liberty Utilities (CalPeco Electric) LLC ("Liberty CalPeco"). The cause of the fire remains under investigation, and CAL FIRE has not yet released its final report. There are currently 10 active lawsuits that name the Company and/or certain of its subsidiaries as defendants in connection with the Mountain View fire. Five of these lawsuits are brought by groups of individual plaintiffs alleging causes of action including negligence, inverse condemnation, nuisance, trespass, and violations of Cal. Pub. Util. Code 2106 and Cal. Health and Safety Code 13007. In the sixth active lawsuit, County of Mono, Antelope Valley Fire Protection District, Toiyabe Indian Health Project, and Bridgeport Indian Colony allege similar causes of action and seek damages for fire suppression costs, law enforcement costs, property and infrastructure damage, and other costs. In three other lawsuits, insurance companies allege inverse condemnation and negligence and seek recovery of amounts paid and to be paid to their insureds. The tenth lawsuit alleges the wrongful death of an individual, along with causes of action similar to those alleged in the cases filed by groups of individual plaintiffs. The likelihood of success in these lawsuits cannot be reasonably predicted. Liberty CalPeco intends to vigorously defend them. The Company has wildfire liability insurance that is expected to apply up to applicable policy limits.

(b)Commitments

In addition to the commitments related to the development projects disclosed in note 6, the following significant commitments exist as at June 30, 2022.

AQN 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 1			Year 2			Year 3			Year 4			Year 5			Thereafter			Total
Power purchase (i)			$	110,990		$	53,417		$	53,594		$	32,367		$	12,397		$	148,887		$	411,652
Gas supply and service agreements (ii)			108,351			80,109			52,985			38,258			25,596			166,289			471,588
Service agreements			66,323			58,865			57,395			55,144			46,585			323,799			608,111
Capital projects			58,522			—			—			—			—			—			58,522
Land easements and others			13,160			13,308			13,482			13,657			13,824			467,691			535,122
Total			$	357,346		$	205,699		$	177,456		$	139,426		$	98,402		$	1,106,666		$	2,084,995

(i)    Power purchase: AQN’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 at June 30, 2022. However, the effects of purchased power unit cost adjustments are mitigated through a purchased power rate-adjustment mechanism.

(ii)     Gas supply and service agreements: AQN’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.

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The changes in non-cash operating items consist of the following:

			Three months ended June 30												Six months ended June 30
			2022						2021						2022						2021
Accounts receivable			$	(8,641)					$	63,721					$	(49,253)					$	33,975
Fuel and natural gas in storage			(23,362)						(12,043)						(7,128)						5,929
Supplies and consumables inventory			(3,006)						(1,283)						(10,775)						(4,386)
Income taxes recoverable			(861)						(1,002)						2,071						(1,167)
Prepaid expenses			(5,203)						(8,014)						(12,553)						(9,043)
Accounts payable			48,424						(5,002)						26,759						(44,332)
Accrued liabilities			110,725						(22,062)						164,021						(91,420)
Current income tax liability			(1,350)						773						853						5,625
Asset retirements and environmental obligations			(10,855)						(72)						(11,354)						(531)
Net regulatory assets and liabilities			(9,201)						(66,845)						(54,119)						(334,996)
			$	96,670					$	(51,829)					$	48,522					$	(440,346)

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(a)Fair value of financial instruments

June 30, 2022			Carrying amount						Fair value						Level 1						Level 2						Level 3
Long-term investments carried at fair value			$	1,663,092					$	1,663,092					$	1,581,586					$	—					$	81,506
Development loans and other receivables			95,196						93,161						—						93,161						—
Derivative instruments:
Interest rate swap designated as a hedge			45,728						45,728						—						45,728						—
Energy contracts not designated as cash flow hedge			513						513						—						—						513
Congestion revenue rights designated as a cash flow hedge			2,690						2,690						—						—						2,690
Congestion revenue rights not designated as a cash flow hedge			2,248						2,248						—						—						2,248
Commodity contracts for regulated operations			1,719						1,719						—						1,719						—
Cross-currency swap designated as a cash flow hedge			78						78						—						78						—
Total derivative instruments			52,976						52,976						—						47,525						5,451
Total financial assets			$	1,811,264					$	1,809,229					$	1,581,586					$	140,686					$	86,957
Long-term debt			$	7,455,134					$	7,063,790					$	2,855,182					$	4,208,608					$	—
Notes payable to related party			25,808						25,808						—						25,808						—
Convertible debentures			261						473						473						—						—
Preferred shares, Series C			12,738						12,465						—						12,465						—
Derivative instruments:
Energy contracts designated as a cash flow hedge			126,114						126,114						—						—						126,114
Energy contracts not designated as a cash flow hedge			1,005						1,005						—						—						1,005
Cross-currency swap designated as a net investment hedge			35,763						35,763						—						35,763						—
Cross-currency swap designated as a cash flow hedge			16,699						16,699						—						16,699						—
Interest rate swaps designated as a hedge			255						255						—						255						—
Interest rate swaps not designated as a hedge			4,655						4,655						—						4,655						—
Commodity contracts for regulated operations			2,536						2,536						—						2,536						—
Total derivative instruments			187,027						187,027						—						59,908						127,119
Total financial liabilities			$	7,680,968					$	7,289,563					$	2,855,655					$	4,306,789					$	127,119

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21.Financial instruments (continued)

(a)Fair value of financial instruments (continued)

December 31, 2021			Carrying amount						Fair value						Level 1						Level 2						Level 3
Long-term investment carried at fair value			$	1,848,456					$	1,848,456					$	1,753,210					$	—					$	95,246
Development loans and other receivables			32,261						33,286						—						33,286						—
Derivative instruments:
Energy contracts designated as a cash flow hedge			15,362						15,362						—						—						15,362
Interest rate swap designated as a hedge			1,581						1,581						—						1,581						—
Commodity contracts for regulatory operations			1,721						1,721						—						1,721						—
Cross-currency swap designated as a net investment hedge			1,958						1,958						—						1,958						—
Total derivative instruments			20,622						20,622						—						5,260						15,362
Total financial assets			$	1,901,339					$	1,902,364					$	1,753,210					$	38,546					$	110,608
Long-term debt			$	6,211,375					$	6,543,932					$	2,418,580					$	4,125,352					—
Notes payable to related party			25,808						25,808						—						25,808						—
Convertible debentures			277						519						519						—						—
Preferred shares, Series C			13,348						14,580						—						14,580						—
Derivative instruments:
Energy contracts designated as a cash flow hedge			60,462						60,462						—						—						60,462
Energy contracts not designated as a cash flow hedge			1,169						1,169						—						—						1,169
Cross-currency swap designated as a net investment hedge			50,258						50,258						—						50,258						—
Interest rate swaps designated as a hedge			7,008						7,008						—						7,008						—
Commodity contracts for regulated operations			1,348						1,348						—						1,348						—
Total derivative instruments			120,245						120,245						—						58,614						61,631
Total financial liabilities			$	6,371,053					$	6,705,084					$	2,419,099					$	4,224,354					$	61,631

The Company has determined that the carrying value of its short-term financial assets and liabilities approximates fair value as at June 30, 2022 and December 31, 2021 due to the short-term maturity of these instruments.

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21.Financial instruments (continued)

(a)Fair value of financial instruments (continued)

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.

The Company’s level 1 fair value of long-term debt is measured at the closing price on the NYSE and the 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 AQN's common shares on a converted basis.

The Company’s level 2 fair value derivative instruments primarily consist of swaps, options, rights, subscription agreements 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, congestion revenue rights ("CRRs") 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 $19.84 to $180.57 with a weighted average of $42.72 as at June 30, 2022. 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 CRRs are recent CRR auction prices ranging from $1.87 to $11.79 with a weighted average of $4.49 as of June 30, 2022. 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 9.21% to 9.71% with a weighted average of 9.59%, and the expected volatility of Atlantica's share price ranging from 25% to 37% as at June 30, 2022. 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 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:

			June 30, 2022
Financial contracts: Swaps			2,882,075
Options			113,504
			2,995,579

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21.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. 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.

(ii)Cash flow hedges

The Company has sought to reduce the price risk on the expected future sale of power generation at the Sandy Ridge, Senate, Minonk, and Sugar Creek 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)
4,297,565						September 2030						$24.54						Illinois Hub
463,336						December 2028						$30.62						PJM Western HUB
2,194,497						December 2027						$22.86						NI HUB
1,803,817						December 2027						$36.46						ERCORT 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, AQN anticipates having to purchase a portion of its energy requirements at the ISO NE spot rates to supplement self-generated energy. The Company seeks to mitigate 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)). A prior contract used as a hedging instrument expired in February 2022.

The Company is party to two interest rate swap contracts as cash flow hedges to mitigate the risk that LIBOR-based interest rates will increase over the life of term loan facilities. Under the terms of the interest rate swap contracts, the Company has fixed its LIBOR interest rate expense on $87,627 and $8,875 to 3.28% and 3.02%, respectively, on its two term loan facilities. The fair value of the derivative on the designation date is amortized into earnings over the remaining life of the contract.

The Company is party to 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 $350,000 subordinated unsecured notes and between April 18, 2027 and April 18, 2032 on the $750,000 subordinated unsecured notes. The Company designated the entire notional amount of the 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.

In January 2022, the Company entered into a cross-currency interest rate swap, coterminous with the Canadian Notes, to effectively convert the C$400,000 Canadian Offering into U.S. dollars. The change in the carrying amount of the Canadian 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 Canadian Notes. An offsetting portion of the AOCI balance related to changes in fair value of the cross-currency fixed-for-fixed interest rate swap attributable to changes in the spot exchange rates is also immediately reclassified into earnings.

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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 June 30												Six months ended June 30
			2022						2021						2022						2021
Effective portion of cash flow hedge			$	(20,298)					$	(32,436)					$	(81,852)					$	(63,167)
Amortization of cash flow hedge			(3,828)						(214)						(3,992)						(1,112)
Amounts reclassified from AOCI			11,247						859						14,079						40,132
OCI attributable to shareholders of AQN			$	(12,879)					$	(31,791)					$	(71,765)					$	(24,147)

The Company expects $43,250 of unrealized losses currently in AOCI to be reclassified, net of taxes into non-regulated energy sales, investment loss, interest expense and derivative gains, within the next 12 months, as the underlying hedged transactions settle.

(iii)Foreign exchange hedge of net investment in foreign operation

The functional currency of most of AQN's operations is the U.S. dollar. 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 is reported in the same manner as the translation adjustment (in OCI) related to the net investment. A foreign currency gain of $395 and $220 for the three and six months ended June 30, 2022, respectively (2021 - loss of $178 and $446, respectively) 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 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. Upon the change in functional currency of AQN 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 AQN'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 is reported in the same manner as the translation adjustment (in OCI) related to the net investment. The fair value of the derivative on the redesignation date will be amortized over the remaining life of the original hedge. A foreign currency gain of $10,697 and $6,465 for the three and six months ended June 30, 2022, respectively (2021 - loss of $7,453 and $11,467, respectively) was recorded in OCI.

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21.Financial instruments (continued)

(b)Derivative instruments (continued)

(iii)     Foreign exchange hedge of net investment in foreign operation (continued)

Canadian operations

The Company is exposed to currency fluctuations from its Canadian-based operations. AQN seeks to manage 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 is reported in the same manner as the translation adjustment (in OCI) related to the net investment. A foreign currency loss of $2,149 and $2,544 for the three and six months ended June 30, 2022, respectively (2021 - gain of $70 and $1,991, respectively) was recorded in OCI.

The Company was party to C$500,000 cross-currency swaps to effectively convert Canadian dollar debentures 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 $8,132 and $6,080 for the three and six months ended June 30, 2022, respectively (2021 - gain of $6,534 and $13,274, respectively) was recorded in OCI. During the six months ended June 30, 2022, the Renewable Energy Group settled the related cross-currency swap related to its C$200,000 debenture that was repaid (note 7(c)).

On April 9, 2021, the Renewable Energy Group entered into a fixed-for-fixed cross-currency interest rate swap, coterminous with the senior unsecured debentures (note 7(b)), to effectively convert the C$400,000 Canadian-dollar-denominated offering into U.S. dollars. The Renewable Energy Group designated the entire notional amount of the fixed-for-fixed cross-currency interest rate swap as a hedge of the foreign currency exposure of its net investment in its U.S. operations. The gain or loss related to the fair value changes of the swap are reported in the same manner as the translation adjustment (in OCI) related to the net investment. A loss of $8,439 and $14,252 for the three and six months ended June 30, 2022, respectively (2021 - loss of $2,653 and $2,653, respectively) was recorded in OCI.

Chilean operations

The Company is exposed to currency fluctuations from its Chilean-based operations. The Company's Chilean operations are determined to have the Chilean peso as their functional currency. Chilean long-term debt used to finance the operations is denominated in Chilean Unidad de Fomento.

(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.

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21.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 June 30									Six months ended June 30
			2022						2021						2022						2021
Change in unrealized loss on derivative financial instruments:
Interest rate swaps			$	(4,680)					$	—					$	(4,680)					$	—
Energy derivative contracts			$	(2,352)					$	(2,305)					$	(3,103)					$	(2,627)
Total change in unrealized loss on derivative financial instruments			$	(7,032)					$	(2,305)					$	(7,783)					$	(2,627)
Realized gain (loss) on derivative financial instruments:
Energy derivative contracts			(157)						196						149						359
Total realized gain (loss) on derivative financial instruments			$	(157)					$	196					$	149					$	359
Loss on derivative financial instruments not accounted for as hedges			(7,189)						(2,109)						(7,634)						(2,268)
Amortization of AOCI gains frozen as a result of hedge dedesignation			1,054						755						1,750						2,003
			$	(6,135)					$	(1,354)					$	(5,884)					$	(265)
Amounts recognized in the consolidated statements of operations consist of:
Loss on derivative financial instruments			$	(6,135)					$	(1,354)					$	(5,884)					$	(265)

(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 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.

This note provides disclosures relating to the nature and extent of the Company’s exposure to risks arising from financial instruments, including credit risk and liquidity risk, and how the Company manages those risks.